IPG 12.31.13 10K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ý
 
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
  
Name of each exchange on which registered
Common Stock, $0.10 par value
  
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý    No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨    No ý
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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
As of June 28, 2013, the aggregate market value of the shares of registrant’s common stock held by non-affiliates was approximately $6.2 billion. The number of shares of the registrant’s common stock outstanding as of February 14, 2014 was 424,041,377.
DOCUMENTS INCORPORATED BY REFERENCE
The following sections of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2014 are incorporated by reference in Part III: “Election of Directors,” “Director Selection Process,” “Code of Conduct,” “Principal Committees of The Board of Directors,” “Audit Committee,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Executive Compensation,” “Non-Management Director Compensation,” “Compensation Discussion and Analysis,” “Compensation and Leadership Talent Committee Report,” “Outstanding Shares and Ownership of Common Stock,” “Review and Approval of Transactions with Related Persons,” “Director Independence” and “Appointment of Independent Registered Public Accounting Firm.”



TABLE OF CONTENTS
 
Page No.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Item 15.
 
 
 




STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

This annual report on Form 10-K 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 this report. 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 this report.




PART I
Item 1.
Business
The Interpublic Group of Companies, Inc. (“Interpublic,” “IPG,” “we,” “us,” or “our”) was incorporated in Delaware in September 1930 under the name of McCann-Erickson Incorporated as the successor to the advertising agency businesses founded in 1902 by A.W. Erickson and in 1911 by Harrison K. McCann. The company has operated under the Interpublic name since January 1961.

About Us
We are one of the world’s premier global advertising, and marketing services companies. Through our 45,400 employees in all major world markets, 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.
The work we produce for our clients is specific to their unique needs. Our solutions vary from project-based activity involving one agency to long-term, fully integrated campaigns created by multiple IPG agencies working together. With offices in over 100 countries, we can operate in a single region, or deliver global integrated programs.
The role of our holding company is to provide resources and support to ensure that our agencies can best meet clients’ needs. Based in New York City, our holding company sets company-wide financial objectives and corporate strategy, establishes financial management and operational controls, guides personnel policy, directs collaborative inter-agency programs, conducts investor relations, manages corporate social responsibility programs, provides enterprise risk management and oversees mergers and acquisitions. In addition, we provide certain centralized functional services that offer our companies operational efficiencies, including accounting and finance, executive compensation management and recruitment assistance, employee benefits, marketing information retrieval and analysis, internal audit, legal services, real estate expertise and travel services.

Our Brands
Interpublic is home to some of the world’s best-known and most innovative communications specialists. We have three global networks, McCann Worldgroup ("McCann"), Draftfcb and Lowe & Partners ("Lowe"), that provide integrated, large-scale advertising and marketing solutions for clients, and three global media services companies, UM, Initiative and Brand Programming Network ("BPN"), operating under the IPG Mediabrands umbrella. We also have a range of best-in-class global specialized communications assets as well as premier domestic integrated and interactive agencies that are industry leaders.
McCann Worldgroup is a leading global marketing solutions network, comprised of a collaborative group of best-in-class agencies that emphasize creativity, innovation and performance. It operates in more than 100 countries, with a client roster that includes many of the world's most famous brands. McCann Erickson is one of the world's largest advertising agency networks; MRM conducts digital marketing and relationship management; Momentum oversees event marketing and promotion; McCann Health directs professional and consumer healthcare communications; and Craft Worldwide is the network's global adaptation and production arm. UM (media management), Weber Shandwick (public relations), and FutureBrand (brand consulting) align with McCann Worldgroup to deliver fully integrated solutions to a number of our leading clients.
Draftfcb is a modern agency model for clients seeking creative and accountable marketing programs delivered in a channel-neutral manner under a unified, integrated business. The company has its roots in both creative, brand-building consumer advertising and behavioral, data-driven direct marketing. We believe the agency is the first global, behavior-based, creative and accountable marketing communications organization operating as a financially and structurally integrated business unit.
Lowe is a premier creative agency that operates in the world’s most dynamic growth markets. Lowe's core strength is developing high-value ideas that connect with popular culture and drive business results. This is evident in the agency's global creative rankings and strong local operations in major key markets. Examples include DLKW/Lowe (U.K.), Lowe Lintas (India), Lowe SSP3 (Colombia), BorghiErh/Lowe (Brazil) and Lowe Campbell Ewald (U.S.).
IPG Mediabrands delivers on the scale and breadth of our media capabilities, making investment decisions for tens of billions of dollars of client marketing budgets, yet retains a nimble, collaborative culture. Our media agencies UM, Initiative and BPN seek to deliver business results by advising clients on how to navigate an increasingly complex and digital marketing landscape. Specialist brands within IPG Mediabrands focus on areas such as media innovation, the

2


targeting and aggregation of audiences in the digital space, hyper-local marketing, media barter and a range of other capabilities.
We also have exceptional global marketing specialists across a range of disciplines.  We have industry-leading public relations agencies such as Weber Shandwick and GolinHarris that have expertise in every significant area of communication management.  Jack Morton is a global brand experience agency, and FutureBrand is a leading brand consultancy.  Octagon is a global sports, entertainment and lifestyle marketing agency.  Our digital specialist agencies, led by R/GA, Huge and MRM, are among the industry's most award-winning digital agencies. Our premier healthcare communications specialists reside within our three global brands, McCann, Draftfcb and Lowe.          
Our domestic integrated independent agencies include some of advertising's most recognizable and storied agency brands, including Carmichael Lynch, Deutsch, Hill Holliday, The Martin Agency and Mullen. The marketing programs created by these agencies incorporate all media channels, customer relationship management (CRM), public relations and other marketing activities and have helped build some of the most powerful brands in the U.S., across all sectors and industries.
We list approximately 95 of our companies on our website under the "Our Agencies" section, with descriptions, case studies, social media channels and office locations for each. To learn more about our broad range of capabilities, visit our website at http://www.interpublic.com. Information on our website is not part of this report.

Market Strategy
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.
In recent years, we have taken several major strategic steps to position our agencies as leaders in the global advertising and communications market. These include:
We re-organized our media operations under a single management structure, IPG Mediabrands, to reinvent how we plan, buy and measure media investment on behalf of our clients. We aligned a spectrum of specialist media companies under this structure and we have invested in technology and analytics, including the launch of the IPG Media Lab in New York in 2011, a highly advanced resource for our clients. In 2012, we launched a third global full-service media buying and planning agency, BPN, with a focus on new technologies and a pay-for-performance compensation. BPN currently has 36 offices in 28 countries and during 2014 plans to expand into several new markets to have operations that extend further across the world. Additionally, during 2013, IPG Mediabrands announced the formation of the MAGNA Consortium, designed to accelerate the adoption of integrated automated and programmatic media buying solutions for digital media channels. Founders include IPG Mediabrands, A+E Networks, AOL, Cablevision, Clear Channel Media and Entertainment, and Tribune, and since the announcement the group has expanded to also include ESPN. Available inventory includes display, video, mobile, digital out-of-home, radio and TV. Since its launch in 2008, IPG Mediabrands has delivered industry-leading performance and growth and in 2014 was named Mediapost's "Media Holding Company of the Year."
We moved Lowe to a hub model, focused on a smaller and more strategic global footprint, and significantly revamped its management team in an effort to turn around its operating performance. Once this approach began to yield positive results, we strengthened Lowe's capabilities in the key Brazil and U.K. markets through acquisitions. In the U.S., we recently aligned Lowe with Campbell Ewald to create a more powerful offering from which to service and source multinational clients. In early 2014, Lowe and Partners acquired Profero, a global digital network, which will operate as Lowe Profero, serving as the network's global digital offering.
We combined a global creative agency with our leading direct marketing agency to create Draftfcb, our modern global agency network that combines accountability with creativity under a single P&L. Over the course of 2013, IPG appointed new global leadership at Draftfcb. The new team has raised the quality of creative work for the global network and is evolving its integrated model to drive growth. Draftfcb brings together the best of brand advertising and accountable communications disciplines, such as digital, CRM and activation to benefit clients. The network and its new leadership team will continue to enhance its offering. In addition, Draftfcb acquired Inferno, a premier creative agency, which will enable the network to better serve global clients.
At our marketing services division, Constituency Management Group (“CMG”), we continue to strengthen our market leading public relations and events marketing specialists. In recent years, we developed significant social media practices

3


across CMG agencies and expanded our operations in Latin America, China and the Middle East. Our strong public relations offering led The Holmes Report to name Interpublic Group its “Holding Company of the Year” in 2013, the first time the award was given for this category.
McCann Worldgroup is well-positioned to deliver best-in-class integrated marketing communications solutions in all geographic regions for many of the world's largest and most sophisticated advertisers, including local, regional and multinational clients. During 2013, we acquired specialty marketing agencies within McCann, extending its capabilities in strategically important disciplines. McCann's renewed focus on its creative capabilities and reputation was rewarded with several account wins and industry recognition. Notably, McCann produced the most-awarded digital work of 2013 and was named the most-awarded agency in the world by The Gunn Report.
During the last several years we have invested in the domestic and international expansion of our digital brands R/GA, Huge, MRM and several of our agencies under the Mediabrands Audience Platform. We have opened new offices and expanded existing offices in high-growth markets as well as strategic world markets, and we expect to continue this strategic investment in future years.

Digital Growth
Demand for our digital marketing services continues to evolve rapidly. In order to meet this need and provide high-value resources to clients, we have focused on embedding digital talent and technology throughout the organization. This reflects our belief that digital marketing should not be treated as a stand-alone function, but should, instead, be integrated within all of our companies. This structure mirrors the way in which consumers incorporate digital media into their other media habits, and, ultimately, their day-to-day life. We continue to invest in recruiting and developing digital expertise at all our agencies and in all marketing disciplines.
To meet the changing needs of the marketplace, we have acquired and incubated specialty digital assets, such as Reprise Media (search engine marketing), Huge (e-commerce solutions), Cadreon (audience management platform) and The IPG Media Lab, as well as making strategic investments in mobile marketing capabilities. We have also continued to invest in existing assets such as R/GA, a digital agency and industry leader in the development of award-winning interactive campaigns for global clients, as well as MRM, a leading global digital agency. These companies have unique capabilities and service their own client rosters while also serving as key digital partners to many of the agencies within IPG.

Fast-Growth Regions
We continue to invest and expand our presence in high-growth geographic regions. In recent years, we have made significant investments in India and Brazil, further strengthening our leadership position in these high-growth, developing markets. Recent transactions in India include the acquisition of Interactive Avenues, a digital media agency, the acquisition of End to End, a database marketing agency and the acquisition of Corporate Voice, a communications agency. Our operations in India continue to be best-in-class as we support our strong growth in the region with partnerships and talent investment. Recent transactions completed in Brazil include the acquisition of E/OU, a digital agency, and the acquisition of S2 Publicom, a leading public relations company. We also hold a majority stake in the Middle East Communication Networks (“MCN”), among the region's premier marketing services companies. MCN is headquartered in Dubai, with 65 offices across 14 countries. Our partner in Russia is a leader in that country. In China, where we operate with all of our global networks and across the full spectrum of marketing services, we continue to invest organically in the talent of our agency brands. Additional areas of investment include other key strategic markets in Asia Pacific, Latin America, Eastern Europe and Africa.

Acquisition Strategy
A disciplined acquisition strategy, focused on high-growth capabilities and regions of the world, is one component of growing our services in today's rapidly-changing marketing services and media landscape. When an outstanding resource or a strong tactical fit becomes available, we have been opportunistic in making tuck-in, niche acquisitions that enhance our service offerings. We will continue to focus on digital and marketing services agencies throughout the world, and international growth markets.
In recent years, IPG has acquired agencies across the marketing spectrum, including firms specializing in digital, mobile marketing, social media, healthcare communications and public relations, as well as agencies with full-service capabilities. All of these acquired agencies have been integrated into one of our global networks or agencies.

Financial Objectives
Our financial goals include competitive organic revenue growth and operating margin expansion, which we expect will further strengthen our balance sheet and total liquidity and increase value to our shareholders. Accordingly, we remain focused on meeting the evolving needs of our clients while concurrently managing our cost structure. We continually seek greater efficiency in the delivery of our services, focusing on more effective resource utilization, including the productivity of our employees, real estate,

4


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.
We believe that our strategy and execution position us to meet our financial goals and to deliver long-term shareholder value.

Financial Reporting Segments
We have two reportable segments, which are Integrated Agency Networks (“IAN”) and CMG. IAN is comprised of McCann, Draftfcb, Lowe, 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. See Note 14 to the Consolidated Financial Statements for further information.

Principal Markets
Our agencies are located in over 100 countries, including every significant world market. Our geographic revenue breakdown is listed below.
 
% of Total Revenue
 
2013
 
2012
 
2011
Domestic
55.8
%
 
54.7
%
 
55.4
%
United Kingdom
8.0
%
 
8.2
%
 
7.7
%
Continental Europe
11.2
%
 
11.8
%
 
13.0
%
Asia Pacific
12.2
%
 
12.0
%
 
10.6
%
Latin America
6.5
%
 
6.5
%
 
6.3
%
Other
6.3
%
 
6.8
%
 
7.0
%
For further information regarding revenues and long-lived assets on a geographical basis for each of the last three years, see Note 14 to the Consolidated Financial Statements.

Sources of Revenue
Our revenues are primarily derived from the planning and execution of multi-channel advertising, marketing and communications programs around the world. Our revenues are directly dependent upon the advertising, marketing and corporate communications requirements of our existing clients and our ability to win new clients. Most of our client contracts are individually negotiated and, accordingly, the terms of client engagements and the bases on which we earn commissions and fees vary significantly. As is customary in the industry, our contracts generally provide for termination by either party on relatively short notice, usually 90 days.
Revenues for the creation, planning and placement of advertising are determined primarily on a negotiated fee basis and, to a lesser extent, on a commission basis. Fees are usually calculated to reflect hourly rates plus proportional overhead and a mark-up. Many clients include an incentive compensation component in their total compensation package. This provides added revenue based on achieving mutually agreed-upon qualitative or quantitative metrics within specified time periods. Commissions are earned based on services provided and are usually derived from a percentage or fee over the total cost to complete the assignment. Commissions can also be derived when clients pay us the gross rate billed by media and we pay for media at a lower net rate; the difference is the commission that we earn, which we either retain in full or share with the client depending on the nature of the applicable services agreement.
We also generate revenue in negotiated fees from our public relations, sales promotion, event marketing, sports and entertainment marketing and corporate and brand identity services.
In most of our businesses, our agencies enter into commitments to pay production and media costs on behalf of clients. To the extent possible, we pay production and media charges after we have received funds from our clients. Generally, we act as the client’s agent rather than the primary obligor. In some instances we agree with the provider that we will only be liable to pay the production and media costs after the client has paid us for the charges.
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. Fee revenue recognized on a completed contract basis also contributes to the higher seasonal revenues experienced in the fourth quarter because the majority of our contracts end at December 31.

5


 
Consolidated Revenues for the Three Months Ended
 
2013
 
2012
 
2011
(Amounts in Millions)
 
 
% of Total
 
 
 
% of Total
 
 
 
% of Total
March 31
$
1,543.0

 
21.7%
 
$
1,506.8

 
21.7%
 
$
1,474.8

 
21.0%
June 30
1,756.2

 
24.7%
 
1,715.7

 
24.7%
 
1,740.7

 
24.8%
September 30
1,700.4

 
23.9%
 
1,670.4

 
24.0%
 
1,726.5

 
24.6%
December 31
2,122.7

 
29.7%
 
2,063.3

 
29.6%
 
2,072.6

 
29.6%
 
$
7,122.3

 
 
 
$
6,956.2

 
 
 
$
7,014.6

 
 
See Note 1 to the Consolidated Financial Statements for further information on our revenue recognition accounting policies.

Clients
Our large and diverse client base includes many of the most recognizable companies and brands throughout the world. Our holding company structure allows us to maintain a diversified client base across and within a full range of industry sectors. In the aggregate, our top ten clients based on revenue accounted for approximately 21% of revenue in 2013 and 2012. Our largest client accounted for approximately 5% of revenue for 2013 and 2012. Based on revenue for the year ended December 31, 2013, our five largest clients (in alphabetical order) were General Motors, Johnson & Johnson, L'Oréal, Microsoft and Unilever. We represent several different brands or divisions of each of these clients in a number of geographic markets, as well as provide services across multiple advertising and marketing disciplines, in each case through more than one of our agency brands. Representation of a client rarely means that we handle advertising for all brands or product lines of the client in all geographical locations. Any client may transfer its business from one of our agencies to another one of our agencies or to a competing agency, and a client may reduce its marketing budget at any time.
We operate in a highly competitive advertising and marketing communications industry. Our operating companies compete against other large multinational advertising and marketing communications companies as well as numerous independent and niche agencies to win new clients and maintain existing client relationships.

Personnel
As of December 31, 2013, we employed approximately 45,400 people, of whom approximately 18,400 were employed in the United States. Because of the service character of the advertising and marketing communications business, the quality of personnel is of crucial importance to our continuing success. We conduct extensive employee training and development throughout our agencies, and benchmark our compensation programs against those of our industry for their competitiveness and effectiveness in recruitment and retention. There is keen competition for qualified employees.

Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports are available, free of charge, on our website at http://www.interpublic.com under the "Investor Relations" section, as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the Securities and Exchange Commission at www.sec.gov. The public may also read and copy materials we file with the SEC at the SEC’s Public Reference Room, which is located at 100 F Street, NE, Room 1580, Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Our Corporate Governance Guidelines, Interpublic Group Code of Conduct and the charters for each of the Audit Committee, Compensation and Leadership Talent Committee and the Corporate Governance Committee are available, free of charge, on our website at http://www.interpublic.com in the "Corporate Governance" subsection of the "About" section, or by writing to The Interpublic Group of Companies, Inc., 1114 Avenue of the Americas, New York, New York 10036, Attention: Secretary. Information on our website is not part of this report.

Item 1A.
Risk Factors
We are subject to a variety of possible risks that could adversely impact our revenues, results of operations or financial condition. Some of these risks relate to general economic and financial conditions, while others are more specific to us and the industry in which we operate. The following factors set out potential risks we have identified that could adversely affect us. The risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that we currently think are immaterial, could also have a negative impact on our business operations or financial condition. See also Statement Regarding Forward-Looking Disclosure.


6


We operate in a highly competitive industry.
The advertising and marketing communications business is highly competitive. Our agencies and media services compete with other agencies, and with other providers of creative, marketing or media services, to maintain existing client relationships and to win new business. Our competitors include not only other large multinational advertising and marketing communications companies, but also smaller entities that operate in local or regional markets as well as new forms of market participants.
The client’s perception of the quality of our agencies’ creative work and its relationships with key personnel at the Company or our agencies are important factors that affect our competitive position. An agency’s ability to serve clients, particularly large international clients, on a broad geographic basis and across a range of services may also be important competitive considerations. On the other hand, because an agency’s principal asset is its people, freedom of entry into the business is almost unlimited and a small agency is, on occasion, able to take all or some portion of a client’s account from a much larger competitor.
Many companies put their advertising and marketing communications business up for competitive review from time to time, and clients may choose to terminate their contracts on a relatively short timeframe. We have won and lost client accounts in the past as a result of such periodic competitions. In the aggregate, our top ten clients based on revenue accounted for approximately 21% of revenue in 2013. A substantial decline in a large client’s advertising and marketing spending, or the loss of a significant part of its business, could have a material adverse effect upon our business and results of operations.
Our ability to attract new clients and to retain existing clients may also, in some cases, be limited by clients’ policies or perceptions about conflicts of interest. These policies can, in some cases, prevent one agency, or even different agencies under our ownership, from performing similar services for competing products or companies.

Our results of operations are highly susceptible to decrease when economic conditions are unfavorable.
Economic conditions continue to vary across geographic regions, and areas of uncertainty about the prospects for continued improvements in the global economy or economic conditions in certain regions, and a degree of caution on the part of some marketers, continue to have an effect on the demand for advertising and marketing communication services. The industry can be affected more severely than other sectors by an economic downturn and can recover more slowly than the economy generally. In the past, some clients have responded to weak economic and financial conditions by reducing their marketing budgets, which include discretionary components that are easier to reduce in the short term than other operating expenses. This pattern may recur in the future. Furthermore, unexpected revenue shortfalls can result in misalignments of costs and revenues, resulting in a negative impact to our operating margins. If our business is significantly adversely affected by unfavorable economic conditions, the negative impact on our revenue could pose a challenge to our operating income and cash generation from operations.

We may lose or fail to attract and retain key employees and management personnel.
Our employees, including creative, digital, research, media and account specialists, and their skills and relationships with clients, are among our most valuable assets. An important aspect of our competitiveness is our ability to identify and develop the appropriate talent, and to attract and retain key employees and management personnel. Our ability to do so is influenced by a variety of factors, including the compensation we award and other factors which may be beyond our control. In addition, the advertising and marketing services industry is characterized by a high degree of employee mobility. If we were to fail to attract key personnel or lose them to competitors or clients, our business and results of operations could be adversely affected.

We may not be able to meet our performance targets and milestones.
From time to time, we communicate to the public certain targets and milestones for our financial and operating performance that are intended to provide metrics against which to evaluate our performance. They should not be understood as predictions or guidance about our expected performance. Our ability to meet any target or milestone is subject to inherent risks and uncertainties, and we caution investors against placing undue reliance on them. See Statement Regarding Forward-Looking Disclosure.

Our financial condition could be adversely affected if our available liquidity is insufficient.
We maintain a $1 billion committed credit facility to increase our financial flexibility (the “Credit Agreement”). If credit under the Credit Agreement were unavailable or insufficient, our liquidity could be adversely affected. The Credit Agreement contains financial covenants, and events like a material economic downturn could adversely affect our ability to comply with them. For example, compliance with the financial covenants would be more difficult to achieve if we were to experience substantially lower revenues, a substantial increase in client defaults or sizable asset impairment charges. If we were unable to comply with any of the financial covenants contained in the Credit Agreement, we could be required to seek an amendment or waiver from our lenders, and our costs under the Credit Agreement could increase. If we were unable to obtain a necessary amendment or waiver, the Credit Agreement could be terminated, and any outstanding amounts could be subject to acceleration. Furthermore, the Credit Agreement includes commitments from a syndicate of financial institutions, and if any of them were unable to perform and no other bank assumed that institution’s commitment, the availability of credit under that agreement would be correspondingly reduced.

7


In most of our businesses, our agencies enter into commitments to pay production and media costs on behalf of clients.  The amounts involved substantially exceed our revenues, and primarily affect the level of accounts receivable, expenditures billable to clients, accounts payable and accrued liabilities.  Although to the extent possible we pay production and media charges only after we have received funds from our clients, if clients are unable to pay for commitments we have entered into on their behalf there could be an adverse effect on our working capital, which would negatively impact our operating cash flow.
Furthermore, if our business or financial needs lead us to seek new or additional sources of liquidity, there can be no guarantee that we would be able to access any new sources of liquidity on commercially reasonable terms or at all. For further discussion of our liquidity profile and outlook, see “Liquidity and Capital Resources” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

International business risks could adversely affect our operations.
We are a global business. Operations outside the United States represent a significant portion of our revenues, approximately 44% in 2013. These operations are exposed to risks that include local legislation, currency variation, exchange control restrictions, and difficult local political or economic conditions. We also must comply with applicable U.S., local and other international anti-corruption laws, which can be complex and stringent, in all jurisdictions where we operate. In developing countries or regions, we may face further risks, such as slower receipt of payments, nationalization, social and economic instability, currency repatriation restrictions and undeveloped or inconsistently enforced commercial laws. These risks may limit our ability to grow our business and effectively manage our operations in those countries.
In addition, because a significant portion of our business is denominated in currencies other than the U.S. Dollar, such as the Australian Dollar, Brazilian Real, Euro, Indian Rupee, Japanese Yen, Pound Sterling and South African Rand, fluctuations in exchange rates between the U.S. Dollar and such currencies may materially affect our financial results. Concerns persist in Europe in particular over the debt burdens of certain countries that use the Euro as their currency and the overall stability of the Euro. Possible consequences, such as the re-introduction of individual currencies in countries currently employing the Euro or the dissolution of the Euro as a common currency, or market perceptions and uncertainties about the possibility and impact of such events, could adversely affect the value of our Euro-denominated assets and results of operations.

If our clients experience financial distress, their weakened financial position could negatively affect our own financial position and results.
We have a large and diverse client base, and at any given time, one or more of our clients may experience financial difficulty, file for bankruptcy protection or go out of business. Unfavorable economic and financial conditions could result in an increase in client financial difficulties that affect us. The direct impact on us could include reduced revenues and write-offs of accounts receivable and expenditures billable to clients, and if these effects were severe, the indirect impact could include impairments of intangible assets, credit facility covenant violations and reduced liquidity. For a description of our client base, see “Clients” in Item 1, Business.

We are subject to industry regulations and other legal or reputational risks that could restrict our activities or negatively impact our performance or our financial condition.
Our industry is subject to government regulation and other governmental action, both domestic and foreign. Advertisers and consumer groups may challenge advertising through legislation, regulation, judicial actions or otherwise, for example on the grounds that the advertising is false and deceptive or injurious to public welfare. Our business is also subject to specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements applicable to advertising for certain products. Existing and proposed laws and regulations, in particular in the European Union and the United States, concerning user privacy, use of personal information and on-line tracking technologies could affect the efficacy and profitability of internet-based and digital marketing. Legislators, agencies and other governmental units may also continue to initiate proposals to ban the advertising of specific products, such as alcohol or tobacco, and to impose taxes on or deny deductions for advertising, which, if successful, may hinder our ability to accomplish our clients’ goals and have an adverse effect on advertising expenditures and, consequently, on our revenues. Furthermore, we could suffer reputational risk as a result of governmental or legal action or from undertaking work that may be challenged by consumer groups or considered controversial.

We face risks associated with our acquisitions and other investments.
We regularly undertake acquisitions and other investments that we believe will enhance our service offerings to our clients. These transactions can involve significant challenges and risks, including that the transaction does not advance our business strategy or fails to produce a satisfactory return on our investment. While our evaluation of any potential acquisition includes business, legal and financial due diligence with the goal of identifying and evaluating the material risks involved, we may be unsuccessful in ascertaining or evaluating all such risks. Though we typically structure our acquisitions to provide for future contingent purchase

8


payments that are based on the future performance of the acquired entity, our forecasts of the investment’s future performance also factor into the initial consideration. When actual financial results differ, our returns on the investment could be adversely affected.
We may also experience difficulty integrating new employees, businesses, assets or systems into our organization, including with respect to our internal policies and required controls. We may face reputational and legal risks in situations where we have a significant minority investment but limited control over the investment's operations. Furthermore, it may take longer than anticipated to realize the expected benefits from these transactions, or those benefits may ultimately be smaller than anticipated or may not be realized at all. Talent is among our most valuable assets, and we also may not realize the intended benefits of a transaction if we fail to retain targeted personnel. Acquisition and integration activity may also divert management’s attention and other corporate resources from other business needs. If we fail to realize the intended advantages of any given investment or acquisition, or if we do not identify or correctly measure the associated risks and liabilities, our results of operations and financial position could be adversely affected.

We rely extensively on information technology systems.
We rely extensively and increasingly on information technologies and infrastructure to manage our business, including digital storage of marketing strategies and client information, developing new business opportunities and processing business transactions. We operate in many respects on a decentralized basis, with a large number of agencies and legal entities, and the resulting size, diversity and disparity of our technology systems and complications in implementing standardized technologies and procedures could increase the potential vulnerability of our systems to breakdown, malicious intrusion or random attack. Likewise, data privacy breaches, as well as improper use of social media, by employees and others may pose a risk that sensitive data could be exposed to third parties or to the public generally. Any such breakdowns or breaches in our systems or data-protection policies could adversely affect our reputation or business. 

Our earnings would be adversely affected if we were required to recognize asset impairment charges or increase our deferred tax valuation allowances.
We evaluate all of our long-lived assets (including goodwill, other intangible assets and fixed assets), investments and deferred tax assets for possible impairment or realizability annually or whenever there is an indication that they are impaired or not realizable. If certain criteria are met, we are required to record an impairment charge or valuation allowance.
As of December 31, 2013, we have substantial amounts of long-lived assets, deferred tax assets and investments on our Consolidated Balance Sheet, including approximately $3.6 billion of goodwill. Future events, including our financial performance, market valuation of us or market multiples of comparable companies, loss of a significant client’s business or strategic decisions, could cause us to conclude that impairment indicators exist and that the asset values associated with long-lived assets, deferred tax assets and investments may have become impaired. For further discussion of goodwill and other intangible assets, and our sensitivity analysis of our valuation of these assets, see “Critical Accounting Estimates” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Any significant impairment loss would have an adverse impact on our reported earnings in the period in which the charge is recognized.

Downgrades of our credit ratings could adversely affect us.
We can be adversely affected if our credit ratings are downgraded or if they are significantly weaker than those of our competitors, because ratings are an important factor influencing our ability to access capital and the terms of any new indebtedness, including covenants and interest rates. Our clients and vendors may also consider our credit profile when negotiating contract terms, and if they were to change the terms on which they deal with us, it could have an adverse effect on our liquidity.

Item 1B.
Unresolved Staff Comments
None.

Item 2.
Properties
Substantially all of our office space is leased from third parties. Certain leases are subject to rent reviews or contain escalation clauses, and certain of our leases require the payment of various operating expenses, which may also be subject to escalation. Physical properties include leasehold improvements, furniture, fixtures and equipment located in our offices. We believe that facilities leased or owned by us are adequate for the purposes for which they are currently used and are well maintained. See Note 15 to the Consolidated Financial Statements for further information on our lease commitments.


9


Item 3.
Legal Proceedings
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 our business. The types of allegations that arise in connection with such legal proceedings vary in nature, but can include claims related to contract, employment, tax and intellectual property matters. While any outcome related to litigation or such governmental proceedings in which we are involved cannot be predicted with certainty, we believe 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.

Item 4.
Mine Safety Disclosures
Not applicable.

Executive Officers of IPG
Name
Age
 
Office
Michael I. Roth1
68

 
Chairman of the Board and Chief Executive Officer
Andrew Bonzani
50

 
Senior Vice President, General Counsel and Secretary
Christopher F. Carroll
47

 
Senior Vice President, Controller and Chief Accounting Officer
Julie M. Connors
42

 
Senior Vice President, Audit and Chief Risk Officer
Philippe Krakowsky
51

 
Executive Vice President, Chief Strategy and Talent Officer
Frank Mergenthaler
53

 
Executive Vice President and Chief Financial Officer
 
 
1 
Also a Director
There is no family relationship among any of the executive officers.
Mr. Roth became our Chairman of the Board and Chief Executive Officer in January 2005. Prior to that time, Mr. Roth served as our Chairman of the Board from July 2004 to January 2005. Mr. Roth served as Chairman and Chief Executive Officer of The MONY Group Inc. from February 1994 to June 2004. Mr. Roth has been a member of the Board of Directors of IPG since February 2002. He is also non-executive chairman of the board of Pitney Bowes Inc. and a director of Ryman Hospitality Properties.
Mr. Bonzani was hired as Senior Vice President, General Counsel and Secretary in April 2012. Prior to joining IPG, Mr. Bonzani worked at IBM for 18 years, holding a number of positions in the legal department, most recently as Vice President, Assistant General Counsel and Secretary from July 2008 to March 2012.
Mr. Carroll was named Senior Vice President, Controller and Chief Accounting Officer in April 2006. Mr. Carroll served as Senior Vice President and Controller of McCann Worldgroup from November 2005 to March 2006. Prior to joining us, Mr. Carroll served as Chief Accounting Officer and Controller at Eyetech Pharmaceuticals from June 2004 to October 2005. Prior to that time, Mr. Carroll served as Chief Accounting Officer and Controller at MIM Corporation from January 2003 to June 2004 and served as a Financial Vice President at Lucent Technologies, Inc. from July 2001 to January 2003.
Ms. Connors was hired in February 2010 as Senior Vice President, Audit and Chief Risk Officer. Prior to joining us, she served as a partner at Deloitte & Touche, LLP from September 2003 to January 2010.
Mr. Krakowsky was hired in January 2002 as Senior Vice President, Director of Corporate Communications. He was elected Executive Vice President, Strategy and Corporate Relations in December 2005 and in February 2011 was elected Executive Vice President, Chief Strategy and Talent Officer. Prior to joining us, he served as Senior Vice President, Communications Director for Young & Rubicam from August 1996 to December 2000. During 2001, Mr. Krakowsky was complying with the terms of a non-competition agreement entered into with Young & Rubicam.
Mr. Mergenthaler was hired in August 2005 as Executive Vice President and Chief Financial Officer. Prior to joining us, he served as Executive Vice President and Chief Financial Officer for Columbia House Company from July 2002 to July 2005. Mr. Mergenthaler served as Senior Vice President and Deputy Chief Financial Officer for Vivendi Universal from December 2001 to March 2002. Prior to that time Mr. Mergenthaler was an executive at Seagram Company Ltd. from November 1996 to December 2001. Mr. Mergenthaler is a director of Express Scripts, Inc.

10


PART II


Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Price Range of Common Stock
Our common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “IPG.” The following table provides the high and low closing sales prices per share for the periods shown below as reported on the NYSE. As of February 14, 2014, there were approximately 14,300 registered holders of our outstanding common stock.
  
NYSE Sale Price
Period
High
 
Low
2013:
 
 
 
Fourth Quarter
$
17.70

 
$
15.40

Third Quarter
$
17.51

 
$
14.69

Second Quarter
$
14.94

 
$
12.91

First Quarter
$
13.38

 
$
11.61

2012:
 
 
 
Fourth Quarter
$
11.47

 
$
9.45

Third Quarter
$
11.74

 
$
9.68

Second Quarter
$
11.96

 
$
10.02

First Quarter
$
11.97

 
$
10.16


During 2013, the following dividends were declared and paid:
Declaration Date
 
Per Share Dividend
 
Aggregate Dividend
($ in millions)
 
Record Date
 
Payment Date
November 15, 2013
 
$
0.075

 
$
31.9

 
December 2, 2013
 
December 16, 2013
August 14, 2013
 
$
0.075

 
$
31.4

 
September 3, 2013
 
September 17, 2013
May 23, 2013
 
$
0.075

 
$
31.7

 
June 7, 2013
 
June 21, 2013
February 22, 2013
 
$
0.075

 
$
31.0

 
March 11, 2013
 
March 25, 2013
During 2012, the following dividends were declared and paid:
Declaration Date
 
Per Share Dividend
 
Aggregate Dividend
($ in millions)
 
Record Date
 
Payment Date
November 15, 2012
 
$
0.060

 
$
25.3

 
December 3, 2012
 
December 17, 2012
August 21, 2012
 
$
0.060

 
$
25.8

 
September 6, 2012
 
September 20, 2012
May 24, 2012
 
$
0.060

 
$
26.1

 
June 8, 2012
 
June 22, 2012
February 24, 2012
 
$
0.060

 
$
26.2

 
March 9, 2012
 
March 23, 2012
On February 14, 2014, we announced that our Board of Directors (the “Board”) had declared a common stock cash dividend of $0.095 per share, payable on March 17, 2014 to holders of record as of the close of business on March 3, 2014. Although it is the Board's current intention to declare and pay future dividends, there can be no assurance that such additional dividends will in fact be declared and paid. Any and the amount of any such declaration is at the discretion of the Board and will depend upon factors such as our earnings, financial position and cash requirements.



11


Equity Compensation Plans
See Item 12 for information about our equity compensation plans.

Transfer Agent and Registrar for Common Stock
The transfer agent and registrar for our common stock is:
Computershare Shareowner Services LLC
480 Washington Boulevard
29th Floor
Jersey City, New Jersey 07310
Telephone: (877) 363-6398

Sales of Unregistered Securities
Not applicable.

Repurchase of Equity Securities
The following table provides information regarding our purchases of our equity securities during the period from October 1, 2013 to December 31, 2013.
 
Total Number of
Shares (or Units)
Purchased 1
 
Average Price Paid
per Share (or Unit) 2
 
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs 3
 
Maximum Number (or Approximate Dollar Value)
of Shares (or Units) that May
Yet Be Purchased Under the
Plans or Programs 3
October 1 - 31
3,351,759

 
$
16.63

 
3,350,692

 
$
263,702,132

November 1 - 30
5,202,219

 
$
17.00

 
5,202,219

 
$
175,284,073

December 1 - 31
3,323,728

 
$
17.07

 
3,323,728

 
$
118,560,581

Total
11,877,706

 
$
16.91

 
11,876,639

 
 
 

1 
Includes shares of our common stock, par value $0.10 per share, withheld under the terms of grants under employee stock-based compensation plans to offset tax withholding obligations that occurred upon vesting and release of restricted shares (the "Withheld Shares"). We repurchased 1,067 Withheld shares in October 2013. No Withheld Shares were purchased in November or December of 2013.
2 
The average price per share for each of the months in the fiscal quarter and for the three-month period was calculated by dividing the sum of the applicable period of the aggregate value of the tax withholding obligations and the aggregate amount we paid for shares acquired under our stock repurchase program, described in Note 6 to the Consolidated Financial Statements, by the sum of the number of Withheld Shares and the number of shares acquired in our stock repurchase program.
3 
In February 2013, the Board authorized a new share repurchase program to repurchase from time to time up to $300.0 million, 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 million, excluding fees, of our common stock. On February 14, 2014, we announced that our Board had approved a new share repurchase program to repurchase from time to time up to $300.0 million , excluding fees, of our common stock. The new authorization is in addition to any amounts remaining available for repurchase under the 2013 share repurchase program. There is no expiration date associated with the share repurchase programs.



12


Item 6.
Selected Financial Data
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Selected Financial Data
(Amounts in Millions, Except Per Share Amounts and Ratios)
(Unaudited)

Years ended December 31,
2013
 
2012
 
2011
 
2010
 
2009
Statement of Operations Data
 
 
 
 
 
 
 
 
 
Revenue
$
7,122.3

 
$
6,956.2

 
$
7,014.6

 
$
6,507.3

 
$
6,007.4

Salaries and related expenses
4,545.5

 
4,391.9

 
4,402.1

 
4,117.0

 
3,961.2

Office and general expenses
1,917.9

 
1,887.2

 
1,924.3

 
1,837.7

 
1,700.3

Restructuring and other reorganization-related charges (reversals), net
60.6

 
(1.2
)
 
1.0

 
3.9

 
4.6

Operating income
598.3

 
678.3

 
687.2

 
548.7

 
341.3

Provision for income taxes
181.2

 
213.3

 
190.2

 
171.3

 
90.1

Net income 1
288.9

 
464.6

 
551.5

 
281.2

 
143.4

Net income available to IPG common stockholders 1
259.2

 
435.1

 
520.7

 
271.2

 
93.6

 
 
 
 
 
 
 
 
 
 
Earnings per share available to IPG common stockholders:
 
 
 
 
 
 
 
 
 
Basic 1
$
0.62

 
$
1.01

 
$
1.12

 
$
0.57

 
$
0.20

Diluted 1
$
0.61

 
$
0.94

 
$
0.99

 
$
0.47

 
$
0.19

 
 
 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
421.1

 
432.5

 
465.5

 
473.6

 
468.2

Diluted
429.6

 
481.4

 
540.6

 
542.1

 
508.1

 
 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.30

 
$
0.24

 
$
0.24

 
$
0.00

 
$
0.00

 
 
 
 
 
 
 
 
 
 
Other Financial Data
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
592.9

 
$
357.2

 
$
273.5

 
$
817.3

 
$
540.8

Ratios of earnings to fixed charges
2.6

 
3.2

 
3.4

 
2.4

 
1.7

 
 
 
 
 
 
 
 
 
 
As of December 31,
2013
 
2012
 
2011
 
2010
 
2009
Balance Sheet Data
 
 
 
 
 
 
 
 
 
Cash and cash equivalents and marketable securities
$
1,642.1

 
$
2,590.8

 
$
2,315.6

 
$
2,689.4

 
$
2,506.1

Total assets
12,905.0

 
13,493.9

 
12,908.7

 
13,070.8

 
12,263.1

Total debt
1,662.5

 
2,449.5

 
1,769.2

 
1,737.0

 
1,946.6

Total liabilities
10,405.1

 
10,810.1

 
10,168.0

 
10,212.7

 
9,449.0

Preferred stock – Series B
0.0

 
221.5

 
221.5

 
221.5

 
525.0

Total stockholders’ equity
2,250.8

 
2,456.6

 
2,497.3

 
2,566.9

 
2,536.3

 
1 
The year ended December 31, 2013 includes a pre-tax loss of $45.2, related to our early extinguishment of debt. Basic and diluted earnings per share for the year ended December 31, 2013 included a negative impact of $0.12 and $0.11 per share, respectively, from the effects of restructuring and related costs, net of tax. Basic and diluted earnings per share for the year ended December 31, 2013 included a negative impact of $0.06 per share from a loss on early extinguishment of debt, net of tax. The years ended December 31, 2012 and 2011 include a pre-tax gain of $93.6 and $132.2, respectively, related to the sale of our holdings in Facebook. Basic and diluted earnings per share for the year ended December 31, 2012 included $0.14 and $0.12 per share, respectively, from the gain recorded for the sale of our remaining holdings in Facebook, net of tax. Basic and diluted earnings per share for the year ended December 31, 2011 included $0.27 and $0.23 per share, respectively, from the gain recorded for the sale of approximately half of our holdings in Facebook, net of tax.



13

Table of Contents

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

Item 7.
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 Consolidated Financial Statements and the accompanying notes included in this report. 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 and liquidity.
RESULTS OF OPERATIONS provides an analysis of the consolidated and segment results of operations for 2013 compared to 2012 and 2012 compared to 2011.
LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash flows, funding requirements, contractual obligations, financing and sources of funds and debt credit ratings.
CRITICAL ACCOUNTING ESTIMATES provides a discussion of our accounting policies that require critical judgment, assumptions and estimates.
RECENT ACCOUNTING STANDARDS, by reference to Note 16 to the 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
During 2013, our organic revenue increase was primarily driven by growth in our domestic market, which was a result of net new business with clients won during the year and growth with existing clients. Our international organic increase was primarily in the Asia Pacific and Latin America regions, across our marketing disciplines. The Continental Europe region weighed on our international growth, mainly due to a challenging economic climate. Across most regional markets, we continued to have strong growth in demand for our digital, media and marketing services. Increased operating expenses reflected investments made in our agencies to support our new business portfolio and growing disciplines, as well as to service our existing clients. We incurred expenses for restructuring in order to better align our cost structure with our revenue, primarily in Continental Europe.
With challenging economic conditions in many markets around the world, particularly in Europe, marketers continue to show a degree of caution in their marketing investment. We continue to derive substantial benefit from our diversified client base, our global footprint and the broad range and strength of our professional offerings. We continued to enhance our businesses during 2013 by making investments in creative and strategic talent that emphasize our growth priorities: fast-growth digital marketing channels, high-growth geographic regions and strategic world markets. We believe our continued investment in tools, technology and process improvements will create efficiencies in the delivery of our services.
We continued to enhance value to our shareholders through common stock dividends, share repurchases and improvements in our balance sheet. During 2013, average diluted shares decreased by 11% primarily due to share repurchases. Basic earnings per share available to IPG common stockholders for the years ended December 31, 2013, 2012 and 2011 were $0.62, $1.01 and $1.12 per share, respectively. Diluted earnings per share for the years ended December 31, 2013, 2012 and 2011 were $0.61, $0.94 and $0.99 per share, respectively. Basic and diluted earnings per share for the year ended December 31, 2013 included a negative impact of $0.12 and $0.11 per share, respectively, from the effects of restructuring and related costs, net of tax. Basic and diluted earnings per share for the year ended December 31, 2013 included a negative impact of $0.06 per share from a loss on early extinguishment of debt, net of tax. Basic and diluted earnings per share for the year ended December 31, 2012 included $0.14 and $0.12 per share, respectively, from the gain recorded for the sale of our remaining holdings in Facebook, net of tax. Basic and diluted earnings per share for the year ended December 31, 2011 included $0.27 and $0.23 per share, respectively, from the gain recorded for the sale of approximately half of our holdings in Facebook, net of tax.

14

Table of Contents

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



The following tables present a summary of financial performance for the year ended December 31, 2013, as compared with the same periods in 2012 and 2011.
 
Years ended December 31,
 
2013
 
2012
% Increase / (Decrease)
Total
 
Organic
 
Total
 
Organic
Revenue
2.4
%
 
2.8
%
 
(0.8
)%
 
0.7
 %
Salaries and related expenses
3.5
%
 
3.8
%
 
(0.2
)%
 
0.9
 %
Office and general expenses
1.6
%
 
2.5
%
 
(1.9
)%
 
(0.2
)%
 
 
 
 
 
 
 
 
 
 
 
Years ended December 31,
 
 
 
2013
 
2012
 
2011
Operating margin
 
 
8.4
%
 
9.8
 %
 
9.8
 %
Expenses as % of revenue:
 
 
 
 
 
 
 
Salaries and related expenses
 
 
63.8
%
 
63.1
 %
 
62.8
 %
Office and general expenses
 
 
26.9
%
 
27.1
 %
 
27.4
 %
Restructuring and other reorganization-related charges (reversals), net
 
 
0.9
%
 
0.0
 %
 
0.0
 %
 
 
 
 
 
 
 
 
Net income available to IPG common stockholders
 
 
$
259.2

 
$
435.1

 
$
520.7

 
 
 
 
 
 
 
 
Earnings per share available to IPG common stockholders:
 
 
 
 
 
 
 
       Basic
 
 
$
0.62

 
$
1.01

 
$
1.12

       Diluted
 
 
$
0.61

 
$
0.94

 
$
0.99



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 constitutes 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 2013 include the Australian Dollar, Brazilian Real, Euro, Japanese Yen and the South African Rand. During 2013, the U.S. Dollar was stronger relative to several foreign currencies in regions where we primarily conduct our business as compared to the prior-year period, which had a net negative impact on our 2013 consolidated results of operations. For 2013, foreign currency fluctuations resulted in net decreases of approximately 1% in revenues and operating expenses, which had a minimal impact on our operating margin percentage. For 2012, foreign currency fluctuations resulted in net decreases of approximately 2% in revenues and operating expenses, which had no net impact on our operating margin percentage.
For purposes of analyzing changes in our operating performance attributable to the net effect of acquisitions and divestitures, transactions are treated as if they occurred on the first day of the quarter during which the transaction occurred. During the past few years we have acquired companies that we believe will enhance our offerings and disposed of businesses that are not consistent with our strategic plan. For 2013 and 2012, the net effect of acquisitions and divestitures increased revenue and operating expenses compared to the prior-year period. See Note 5 to the Consolidated Financial Statements for additional information on our acquisitions.

15

Table of Contents

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




RESULTS OF OPERATIONS
Consolidated Results of Operations
REVENUE
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. 
 
Year ended December 31, 2012
 
Components of Change
 
Year ended December 31, 2013
 
Change
 
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Organic
 
Total
Consolidated
$
6,956.2

 
$
(80.4
)
 
$
50.3

 
$
196.2

 
$
7,122.3

 
2.8
 %
 
2.4
 %
Domestic
3,803.6

 
0.0

 
26.4

 
142.6

 
3,972.6

 
3.7
 %
 
4.4
 %
International
3,152.6

 
(80.4
)
 
23.9

 
53.6

 
3,149.7

 
1.7
 %
 
(0.1
)%
United Kingdom
572.0

 
(7.0
)
 
(1.2
)
 
4.5

 
568.3

 
0.8
 %
 
(0.6
)%
Continental Europe
823.1

 
23.0

 
2.7

 
(48.2
)
 
800.6

 
(5.9
)%
 
(2.7
)%
Asia Pacific
838.1

 
(43.6
)
 
21.0

 
53.4

 
868.9

 
6.4
 %
 
3.7
 %
Latin America
450.1

 
(32.7
)
 
1.4

 
45.7

 
464.5

 
10.2
 %
 
3.2
 %
Other
469.3

 
(20.1
)
 
0.0

 
(1.8
)
 
447.4

 
(0.4
)%
 
(4.7
)%
During 2013, our revenue increased by $166.1, or 2.4%, compared to 2012, due to an organic revenue increase of $196.2, or 2.8%, and the effect of net acquisitions of $50.3, partially offset by an adverse foreign currency rate impact of $80.4. We had growth in the domestic market, with our organic revenue increase primarily attributable to net client wins, most notably in the auto and transportation sector, and net higher spending from existing clients, primarily in the healthcare sector, partially offset by decreases in the technology and telecom sector. In addition, our organic revenue increase in the domestic market was mainly driven by our events marketing and public relations businesses. In our international market, the organic revenue increase was primarily in the Asia Pacific region, led by Australia and China, and in the Latin America region, primarily in Brazil. Also contributing to our international organic revenue increase was net higher spending from existing clients throughout nearly all client sectors, most notably in the technology and telecom and healthcare sectors. The international organic revenue increase was partially offset by a decline in the Continental Europe region, across most countries in the market, due to a continued challenging economic climate.

 
Year ended December 31, 2011
 
Components of Change
 
Year ended December 31, 2012
 
Change
 
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Organic
 
Total
Consolidated
$
7,014.6

 
$
(147.6
)
 
$
41.8

 
$
47.4

 
$
6,956.2

 
0.7
 %
 
(0.8
)%
Domestic
3,887.7

 
0.0

 
(12.2
)
 
(71.9
)
 
3,803.6

 
(1.8
)%
 
(2.2
)%
International
3,126.9

 
(147.6
)
 
54.0

 
119.3

 
3,152.6

 
3.8
 %
 
0.8
 %
United Kingdom
539.4

 
(7.0
)
 
13.6

 
26.0

 
572.0

 
4.8
 %
 
6.0
 %
Continental Europe
908.9

 
(66.6
)
 
4.4

 
(23.6
)
 
823.1

 
(2.6
)%
 
(9.4
)%
Asia Pacific
741.7

 
(12.2
)
 
23.9

 
84.7

 
838.1

 
11.4
 %
 
13.0
 %
Latin America
444.4

 
(40.2
)
 
7.6

 
38.3

 
450.1

 
8.6
 %
 
1.3
 %
Other
492.5

 
(21.6
)
 
4.5

 
(6.1
)
 
469.3

 
(1.2
)%
 
(4.7
)%
During 2012, our revenue decreased by $58.4, or 0.8%, compared to 2011, due to an adverse foreign currency rate impact of $147.6, partially offset by an organic revenue increase of $47.4, or 0.7%, and the effect of net acquisitions of $41.8. Our organic revenue increase was primarily attributable to new client wins and net higher spending from existing clients in our international markets. We had strong growth in the Asia Pacific region, primarily in Australia, Singapore, India and China, and in the Latin America region, predominantly in Brazil. Also contributing to our international organic revenue increase was an

16

Table of Contents

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



increase in the United Kingdom, predominately due to our events marketing business, which benefited from work performed in connection with the London Olympics in the third quarter of 2012. The organic revenue increase in our international markets was throughout nearly all client sectors, most notably in the retail and technology and telecom sectors, partially offset by a decrease in the consumer goods sector due to net client losses in the prior year. Our revenue decreased in the Continental Europe region, primarily in Spain and Italy, due to a continued challenging economic climate. This was partially offset by growth in Germany. In our domestic market, our organic revenue decrease was due to net client losses in the prior year, most notably in the consumer goods and technology and telecom sectors, and a decline in spending from existing clients, primarily in the retail and health care sectors. Partially offsetting this decline in the domestic market was an organic revenue increase in the auto and transportation and financial services sectors.
Refer to the segment discussion later in this MD&A for information on changes in revenue by segment.

OPERATING EXPENSES
 
Years ended December 31,
 
2013
 
2012
 
2011
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
% of
Revenue
Salaries and related expenses
$
4,545.5

 
63.8
%
 
$
4,391.9

 
63.1
 %
 
$
4,402.1

 
62.8
%
Office and general expenses
1,917.9

 
26.9
%
 
1,887.2

 
27.1
 %
 
1,924.3

 
27.4
%
Restructuring and other reorganization-related charges (reversals), net
60.6

 
0.9
%
 
(1.2
)
 
0.0
 %
 
1.0

 
0.0
%
Total operating expenses
$
6,524.0

 
 
 
$
6,277.9

 
 
 
$
6,327.4

 
 
Operating income
$
598.3

 
8.4
%
 
$
678.3

 
9.8
 %
 
$
687.2

 
9.8
%

Salaries and Related Expenses
Salaries and related expenses consist of payroll costs, employee performance incentives, including annual bonus and long-term incentive awards, costs for temporary workers, severance and other benefits associated with client service professional staff and administrative staff. Salaries and related expenses do not vary significantly with short-term changes in revenue levels. However, salaries may fluctuate due to the timing of the hiring of personnel to support revenue growth and changes in the performance levels and types of employee incentive awards. Additionally, we may take severance actions in areas where we have or anticipate decreases in operating performance or to enhance our teams or leadership. Changes in our incentive awards mix can impact future-period expense, as annual bonus awards are expensed during the year they are earned and long-term incentive awards are expensed over the performance period, generally three years. Factors impacting long-term incentive awards are the actual number of awards vesting, the change in our stock price, actual results, and changes to our projected results, which could impact the achievement of certain performance targets.
 
Prior Year Amount
 
Components of Change
 
Total Amount
 
Change
 
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Organic
 
Total
2012 - 2013
$
4,391.9

 
$
(40.3
)
 
$
28.2

 
$
165.7

 
$
4,545.5

 
3.8
%
 
3.5
 %
2011 - 2012
4,402.1

 
(85.6
)
 
34.5

 
40.9

 
4,391.9

 
0.9
%
 
(0.2
)%
Our staff cost ratio, defined as salaries and related expenses as a percentage of total consolidated revenue, increased in 2013 to 63.8% from 63.1% in 2012. Salaries and related expenses in 2013 increased by $153.6 compared to 2012, due to an organic increase of $165.7 and the effect of net acquisitions of $28.2, partially offset by a favorable foreign currency rate impact of $40.3. The organic increase was primarily attributable to an increase in base salaries, benefits and temporary help of $150.1, primarily due to increases in our workforce in international markets, predominantly in the Asia Pacific and Latin America regions, as well as in our domestic market at businesses where we had revenue growth or new business wins, and to a lesser extent, modest wage increases.
Our staff cost ratio increased in 2012 to 63.1% from 62.8% in 2011. Salaries and related expenses in 2012 decreased by $10.2 compared to 2011, due to a favorable foreign currency rate impact of $85.6, partially offset by an organic increase of $40.9 and the effect of net acquisitions of $34.5. The organic increase was primarily due to an increase in base salaries, benefits and temporary help of $96.4, primarily attributable to increases in our workforce in 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. Our workforce decreased in regions and businesses where we had revenue declines as we were disciplined in managing our workforce.

17

Table of Contents

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



Partially offsetting this organic increase was a reduction in incentive award expense of $51.1, resulting from lower financial performance compared to targets.

The following table details our staff cost ratio.
 
Years ended December 31,
 
2013
 
2012
 
2011
Salaries and related expenses
63.8
%
 
63.1
%
 
62.8
%
Base salaries, benefits and tax
52.9
%
 
52.2
%
 
50.9
%
Incentive expense
3.0
%
 
3.0
%
 
3.7
%
Severance expense
1.1
%
 
1.3
%
 
1.5
%
Temporary help
3.6
%
 
3.6
%
 
3.6
%
All other salaries and related expenses
3.2
%
 
3.0
%
 
3.1
%

Office and General Expenses
Office and general expenses primarily include rent expense, professional fees, certain expenses incurred by our staff in servicing our clients and depreciation and amortization costs. Office and general expenses also include costs directly attributable to client engagements, including production costs, out-of-pocket costs such as travel for client service staff, and other direct costs that are rebilled to our clients. Production expenses can vary significantly between periods depending upon the timing of completion of certain projects where we act as principal, which could impact trends between various periods in the future.
 
Prior Year Amount
 
Components of Change
 
Total Amount
 
Change
 
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Organic
 
Total
2012 - 2013
$
1,887.2

 
$
(27.3
)
 
$
10.2

 
$
47.8

 
$
1,917.9

 
2.5
 %
 
1.6
 %
2011 - 2012
1,924.3

 
(40.7
)
 
8.4

 
(4.8
)
 
1,887.2

 
(0.2
)%
 
(1.9
)%
Our office and general expense ratio, defined as office and general expenses as a percentage of total consolidated revenue, decreased in 2013 to 26.9% from 27.1% in 2012. Office and general expenses in 2013 increased by $30.7 compared to 2012, due to an organic increase of $47.8 and the effect of net acquisitions of $10.2, partially offset by a favorable foreign currency rate impact of $27.3. The organic increase was primarily attributable to an increase in occupancy costs and higher production expenses in our domestic market 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 2013, partially offset by certain adjustments to contingent acquisition obligations.
Our office and general expense ratio decreased in 2012 to 27.1% from 27.4% in 2011. Office and general expenses in 2012 decreased by $37.1 compared to 2011, due to a favorable foreign currency rate impact of $40.7 and an organic decrease of $4.8, partially offset by the effect of net acquisitions of $8.4. The organic decrease was primarily attributable to lower occupancy costs, as we continue to find efficiencies in our real estate portfolio, and professional fees. The organic decrease was partially offset by higher production expenses in our international markets, most notably in the Asia Pacific region and in the United Kingdom, 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 2012.
The following table details our office and general expense ratio. All other office and general expenses primarily include production expenses, and, to a lesser extent, depreciation and amortization, bad debt expense, adjustments for contingent acquisition obligations, foreign currency gains (losses), long-lived asset impairments and other expenses.
 
Years ended December 31,
 
2013
 
2012
 
2011
Office and general expenses
26.9
%
 
27.1
%
 
27.4
%
Professional fees
1.7
%
 
1.7
%
 
1.8
%
Occupancy expense (excluding depreciation and amortization)
7.1
%
 
7.0
%
 
7.2
%
Travel & entertainment, office supplies and telecommunications
3.6
%
 
3.6
%
 
3.6
%
All other office and general expenses
14.5
%
 
14.8
%
 
14.8
%


18

Table of Contents

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



Restructuring and Other Reorganization-Related Charges (Reversals), net
The components of the restructuring and other reorganization-related charges, net for 2013 and prior restructuring plans are listed below.
 
Year ended
 
December 31, 2013
Severance and termination costs
$
55.9

Lease termination costs
4.2

Other exit costs
0.5

Total restructuring and other reorganization-related charges, net
$
60.6

In the fourth quarter of 2013, we implemented a cost savings initiative (the “2013 Plan”) to better align our cost structure with our revenue, primarily in Continental Europe. In connection with this initiative, we recorded pre-tax restructuring charges of $61.2 comprised of severance and termination costs of $55.9, lease terminations costs of $4.8, and other exit costs of $0.5. All restructuring actions were identified and initiated by the end of 2013, with all actions expected to be substantially completed by the end of the first quarter of 2014.
The following table presents the 2013 Plan restructuring and other reorganization-related charges, net, and employee headcount reduction for the year ended December 31, 2013.
 
Restructuring Charges
Headcount Reduction (Actual Number)
Consolidated
$
61.2

541

Domestic
9.0

30

International
52.2

511

The 2013 Plan includes a planned reduction in workforce of 541 employees across all levels and functions and costs associated with offices that were vacated. We expect these initiatives to generate an estimated annual pre-tax savings of approximately $40 in 2014.
Net restructuring and other reorganization-related (reversals) charges related to the 2007, 2003 and 2001 restructuring plans for the years ended December 31, 2013, 2012 and 2011 were $(0.6), $(1.2) and $1.0, respectively.

EXPENSES AND OTHER INCOME
 
Years ended December 31,
 
2013
 
2012
 
2011
Cash interest on debt obligations
$
(110.7
)
 
$
(130.6
)
 
$
(138.9
)
Non-cash interest
(12.0
)
 
(2.9
)
 
2.1

Interest expense
(122.7
)
 
(133.5
)
 
(136.8
)
Interest income
24.7

 
29.5

 
37.8

Net interest expense
(98.0
)
 
(104.0
)
 
(99.0
)
Other (expense) income, net
(32.3
)
 
100.5

 
150.2

Total (expenses) and other income
$
(130.3
)
 
$
(3.5
)
 
$
51.2

Net Interest Expense
For 2013, net interest expense decreased by $6.0 as compared to 2012, primarily due to a decrease in cash interest on debt obligations. Cash interest expense decreased primarily due to the retirement of our 4.75% Convertible Senior Notes due 2023 (the "4.75% Notes") in the first quarter of 2013 and redemption of our 10.00% Senior Unsecured Notes due 2017 (the "10.00% Notes") in July 2013, which were refinanced with debt issued at lower rates in 2012. Non-cash interest expense increased primarily as a result of the retirement of our 4.75% Notes and our 4.25% Convertible Senior Notes due 2023 (the "4.25% Notes") in the first quarter of 2013 and first quarter of 2012, respectively. At retirement, the premiums associated with these Notes, which had reduced interest expense in prior periods, were fully amortized.

19

Table of Contents

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



For 2012, net interest expense increased by $5.0 as compared to 2011, primarily due to an increase in non-cash interest expense. Non-cash interest expense increased since the premium associated with our 4.25% Notes, which we retired in March 2012, which had reduced interest expense in prior periods, was fully amortized. Cash interest expense decreased primarily due to the retirement of our 4.25% Notes, which was offset by lower interest income, primarily in the United States due to lower cash balances.

Other (Expense) Income, net
Results of operations include certain items that are not directly associated with our revenue-producing operations.
 
Years ended December 31,
 
2013
 
2012
 
2011
Net loss on early extinguishment of debt
$
(45.2
)
 
$
0.0

 
$
0.0

Gains on sales of businesses and investments
1.5

 
88.2

 
125.9

Vendor discounts and credit adjustments
8.6

 
15.3

 
19.4

Other income (expense), net
2.8

 
(3.0
)
 
4.9

Total other (expense) income, net
$
(32.3
)
 
$
100.5

 
$
150.2

Loss on Early Extinguishment of Debt – During 2013, we recorded a charge of $45.2 related to the redemption of our 10.00% Notes. See Note 2 to the Consolidated Financial Statements for further information.
Sales of Businesses and Investments – During 2013, we recognized gains from the sale of marketable securities in the Asia Pacific region within our IAN segment and the sale of investments in our Rabbi Trusts, which was partially offset by a loss from the sale of a business in the United Kingdom within our IAN segment. During 2012, we recognized gains from the sale of our remaining holdings in Facebook and a business in an international market within our CMG segment, which were partially offset by losses from the sale of businesses within our IAN segment, as well as an adjustment relating to a reserve for a change in estimate in connection with a business disposed of in a prior year. During 2011, we recognized a gain from the sale of approximately half of our holdings in Facebook, which was partially offset by a loss relating to the sale of a business in the domestic market within our IAN segment.
Vendor Discounts and Credit Adjustments – In connection with the liabilities related to vendor discounts and credits established as part of the restatement we presented in our 2004 Annual Report on Form 10-K, these adjustments reflect the reversal of certain of these liabilities primarily where the statute of limitations has lapsed, or as a result of differences resulting from settlements with clients or vendors.
Other Income (Expense), net – During 2013, other income (expense), net primarily included a non-cash gain on re-measurement to fair value of an equity interest in an affiliate, located in the Asia Pacific region within our CMG segment, upon acquiring a controlling interest.

INCOME TAXES
 
Years ended December 31,
 
2013
 
2012
 
2011
Income before income taxes
$
468.0

 
$
674.8

 
$
738.4

Provision for income taxes
$
181.2

 
$
213.3

 
$
190.2

Effective income tax rate
38.7
%
 
31.6
%
 
25.8
%
Our tax rates are affected by many factors, including our worldwide earnings from various countries, changes in legislation and tax characteristics of our income. In 2013, our effective income tax rate of 38.7% was positively impacted by the recognition of losses attributable to worthless securities in a consolidated subsidiary and the recognition of previously unrecognized tax benefits as a result of the settlement of the 2002-2006 New York State audit cycle. Our effective income tax rate was negatively impacted primarily by losses in certain foreign jurisdictions where we receive no tax benefit due to 100% valuation allowances.
In 2012, our effective income tax rate of 31.6% was positively impacted by the reversals of valuation allowances associated with the Asia Pacific and Continental Europe regions, of $26.2 and $21.8, respectively, as well as by a benefit derived from the deduction of foreign tax credits that previously had a full valuation allowance. Our effective income tax rate was negatively impacted by an adjustment of $19.5 associated with the establishment of a previously unrecorded reserve for a tax contingency for the years 2007 through 2010, losses in certain foreign locations where we receive no tax benefit due to 100% valuation allowances and state and local income taxes, net of federal income tax benefit.

20

Table of Contents

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



In 2011, our effective income tax rate of 25.8% was positively impacted primarily from the utilization of capital losses to offset nearly all of the $132.2 capital gain realized from the Facebook transaction. The capital gain enabled us to use capital loss carryforwards, on which a 100% valuation allowance had been previously established, and capital losses attributable to worthless securities in a consolidated subsidiary. Additionally, the effective income tax rate was positively impacted by the recognition of previously unrecognized tax benefits as a result of the effective settlement of the 2007-2008 IRS audit cycle, a lower effective income tax rate on non-U.S. operations and the net reversal of valuation allowances, primarily in Europe. The effective income tax rate was negatively impacted by state and local taxes and losses in certain foreign locations where we receive no tax benefit due to 100% valuation allowances. The settlement of the 2007-2008 audit cycle resulted in no cash payment.
See Note 8 to the Consolidated Financial Statements for further information.

EARNINGS PER SHARE
Basic earnings per share available to IPG common stockholders for the years ended December 31, 2013, 2012 and 2011 were $0.62, $1.01 and $1.12 per share, respectively. Diluted earnings per share for the years ended December 31, 2013, 2012 and 2011 were $0.61, $0.94 and $0.99 per share, respectively.
Basic and diluted earnings per share for the year ended December 31, 2013 included a negative impact of $0.12 and $0.11 per share, respectively, from the effects of restructuring and related costs, net of tax. Basic and diluted earnings per share for the year ended December 31, 2013 included a negative impact of $0.06 per share from a loss on early extinguishment of debt, net of tax. Basic and diluted earnings per share for the year ended December 31, 2012 included $0.14 and $0.12 per share, respectively, from the gain recorded for the sale of our remaining holdings in Facebook, net of tax. Basic and diluted earnings per share for the year ended December 31, 2011 included $0.27 and $0.23 per share, respectively, from the gain recorded for the sale of approximately half of our holdings in Facebook, net of tax.

Segment Results of Operations
As discussed in Note 14 to the Consolidated Financial Statements, we have two reportable segments as of December 31, 2013: IAN and CMG. We also report results for the "Corporate and other" group.

IAN
REVENUE
 
Year ended December 31, 2012
 
Components of Change
 
Year ended December 31, 2013
 
Change
 
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Organic
 
Total
Consolidated
$
5,728.5

 
$
(73.2
)
 
$
40.4

 
$
99.9

 
$
5,795.6

 
1.7
%
 
1.2
 %
Domestic
3,020.8

 
0.0

 
26.4

 
46.8

 
3,094.0

 
1.5
%
 
2.4
 %
International
2,707.7

 
(73.2
)
 
14.0

 
53.1

 
2,701.6

 
2.0
%
 
(0.2
)%
During 2013, IAN revenue increased by $67.1 compared to 2012, due to an organic revenue increase of $99.9 and the effect of net acquisitions of $40.4, partially offset by an adverse foreign currency rate impact of $73.2. The organic revenue increase in our domestic market was primarily attributable to net client wins, most notably in the auto and transportation sector, and net higher spending from existing clients, primarily in the healthcare sector, partially offset by decreases in the technology and telecom and retail sectors. In our international markets, the organic revenue increase was primarily due to net higher spending from existing clients across most client sectors, primarily in the Asia Pacific region, led by Australia, and in the Latin America region, primarily in Brazil. The international organic revenue increase was partially offset by a decline in the Continental Europe region across most countries in the market.
 
Year ended December 31, 2011
 
Components of Change
 
Year ended December 31, 2012
 
Change
 
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Organic
 
Total
Consolidated
$
5,891.8

 
$
(138.7
)
 
$
19.8

 
$
(44.4
)
 
$
5,728.5

 
(0.8
)%
 
(2.8
)%
Domestic
3,131.0

 
0.0

 
(12.2
)
 
(98.0
)
 
3,020.8

 
(3.1
)%
 
(3.5
)%
International
2,760.8

 
(138.7
)
 
32.0

 
53.6

 
2,707.7

 
1.9
 %
 
(1.9
)%
During 2012, IAN revenue decreased by $163.3 compared to 2011, due to an adverse foreign currency rate impact of $138.7 and an organic revenue decrease of $44.4, partially offset by the effect of net acquisitions of $19.8. The organic revenue decrease

21

Table of Contents

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



was attributable to a decline in our domestic market due to net client losses in the prior year, most notably in the consumer goods and technology and telecom sectors, and a decline in spending from existing clients, primarily in the health care and retail sectors. Partially offsetting this decline in the domestic market were increases in the auto and transportation and financial services sectors. In our international markets, our organic revenue increase was primarily attributable to net client wins and net higher spending from existing clients throughout nearly all client sectors, most notably in the Asia Pacific region, primarily in Australia and India, and in the Latin America region, predominantly in Brazil. The sectors primarily contributing to the international organic revenue increase were the retail and technology and telecom sectors, which was partially offset by a decrease in the consumer goods sector. The international organic revenue increase was partially offset by an organic revenue decrease in the Continental Europe region, primarily due to a continued challenging economic climate.

SEGMENT OPERATING INCOME
 
Years ended December 31,
 
Change
 
2013
 
2012
 
2011
 
2013 vs 2012
 
2012 vs 2011
Segment operating income1
$
662.1

 
$
700.2

 
$
728.8

 
(5.4
)%
 
(3.9
)%
Operating margin1
11.4
%
 
12.2
%
 
12.4
%
 
 
 
 
 
1Segment operating income and operating margin exclude approximately $56 of restructuring and other reorganization-related charges. See "Restructuring and Other Reorganization-Related Charges (Reversals), net" in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 9 to the Consolidated Financial Statements for further information.
Operating income decreased during 2013 when compared to 2012 due to an increase in salaries and related expenses of $109.5, partially offset by an increase in revenue of $67.1 and a decrease in office and general expenses of $4.3. The increase in salaries and related expenses was primarily due to an increase in base salaries, benefits and temporary help, primarily attributable to an increase in our workforce in certain businesses where we had revenue growth or new business wins during 2013. The decrease in office and general expenses was primarily attributable to lower production expenses related to pass-through costs for certain projects where we acted as principal that decreased in size or did not occur during 2013, certain adjustments to contingent acquisition obligations and lower discretionary spending, partially offset by an increase in occupancy costs.
Operating income decreased during 2012 when compared to 2011 due to a decrease in revenue of $163.3, partially offset by decreases in salaries and related expenses of $69.9 and office and general expenses of $64.8. The decrease in salaries and related expenses was primarily due to a reduction in incentive award expense resulting from lower financial performance compared to targets and, to a lesser extent, lower severance expense. The decrease in office and general expenses was primarily attributable to lower production expenses related to pass-through costs for certain projects where we acted as principal that decreased in size or did not occur during 2012, lower occupancy costs and, to a lesser extent, lower professional fees.

CMG
REVENUE
 
Year ended December 31, 2012
 
Components of Change
 
Year ended December 31, 2013
 
Change
 
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Organic
 
Total
Consolidated
$
1,227.7

 
$
(7.2
)
 
$
9.9

 
$
96.3

 
$
1,326.7

 
7.8
%
 
8.1
%
Domestic
782.8

 
0.0

 
0.0

 
95.8

 
878.6

 
12.2
%
 
12.2
%
International
444.9

 
(7.2
)
 
9.9

 
0.5

 
448.1

 
0.1
%
 
0.7
%
During 2013, CMG revenue increased by $99.0 compared to 2012, primarily due to an organic revenue increase of $96.3. We had growth in the domestic market, with our organic revenue increase primarily due to net client wins and net higher spending from existing clients across all disciplines, most notably in our events marketing and public relations businesses. The international organic revenue increase occurred primarily in our public relations business and was predominantly in the Latin America region, mostly notably in Brazil, and in the Asia Pacific region, primarily in China. Mostly offsetting the international organic revenue increase was an organic revenue decrease in the United Kingdom, due to a decrease in our events marketing business which in the prior-year included work performed for the London Olympics, and in the Continental Europe region due to a continued challenging economic climate.

22

Table of Contents

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



 
Year ended December 31, 2011
 
Components of Change
 
Year ended December 31, 2012
 
Change
 
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Organic
 
Total
Consolidated
$
1,122.8

 
$
(8.9
)
 
$
22.0

 
$
91.8

 
$
1,227.7

 
8.2
%
 
9.3
%
Domestic
756.7

 
0.0

 
0.0

 
26.1

 
782.8

 
3.4
%
 
3.4
%
International
366.1

 
(8.9
)
 
22.0

 
65.7

 
444.9

 
17.9
%
 
21.5
%
During 2012, CMG revenue increased by $104.9 compared to 2011, due principally to an organic revenue increase of $91.8. The organic revenue increase was primarily due to net client wins and net higher spending from existing clients across all disciplines, primarily in our events marketing and public relations businesses. The international organic revenue increase occurred throughout nearly all regions, primarily in the Asia Pacific region, most notably in Australia, Singapore and China, and in the United Kingdom, where our events marketing business benefited from work performed for the London Olympics in the third quarter of 2012. Revenues in the events marketing business can fluctuate due to timing of completed projects where we act as principal, as revenue is typically recognized when the project is complete. The domestic organic revenue increase was primarily due to growth in our public relations and sports marketing businesses.

SEGMENT OPERATING INCOME
 
Years ended December 31,
 
Change    
 
2013
 
2012
 
2011
 
2013 vs 2012
 
2012 vs 2011
Segment operating income1
$
137.6

 
$
114.2

 
$
101.4

 
20.5
%
 
12.6
%
Operating margin1
10.4
%
 
9.3
%
 
9.0
%
 
 
 
 
1 Segment operating income and operating margin exclude approximately $5 of restructuring and other reorganization-related charges. See "Restructuring and Other Reorganization-Related Charges (Reversals), net" in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 9 to the Consolidated Financial Statements for further information.
Operating income increased during 2013 when compared to 2012 due to an increase in revenue of $99.0, partially offset by increases in salaries and related expenses of $38.8 and office and general expenses of $36.8. The increase in salaries and related expenses was primarily attributable to increases in our workforce across most disciplines, primarily at our public relations business to support business growth. Office and general expenses increased primarily due to higher production expenses related to pass-through costs for certain projects where we acted as principal that increased in size or were new during 2013.
Operating income increased during 2012 when compared to 2011 due to an increase in revenue of $104.9, partially offset by increases in salaries and related expenses of $51.2 and office and general expenses of $40.9. The increase in salaries and related expenses was primarily attributable to increases in our workforce across all disciplines to support business growth, which resulted in an increase in base salaries and benefits. Office and general expenses increased primarily due to higher production expenses related to pass-through costs for certain projects where we acted as principal that increased in size or were new during 2012.

CORPORATE AND OTHER
Certain corporate and other charges are reported as a separate line item within total segment operating income and include corporate office expenses, as well as shared service center and certain other centrally managed expenses that are not fully allocated to operating divisions. Salaries and related expenses include salaries, long-term incentives, annual bonuses and other miscellaneous benefits for corporate office employees. Office and general expenses primarily include professional fees related to internal control compliance, financial statement audits and legal, information technology and other consulting services that are engaged and managed through the corporate office. In addition, office and general expenses also include rental expense and depreciation of leasehold improvements for properties occupied by corporate office employees. A portion of centrally managed expenses are allocated to operating divisions based on a formula that uses the planned revenues of each of the operating units. Amounts allocated also include specific charges for information technology-related projects, which are allocated based on utilization.
Corporate and other expenses increased during 2013 by $3.5 to $140.8 compared to 2012, primarily due to an increase in salaries and related expenses, mainly attributable to higher base salaries, benefits and temporary help, partially offset by lower severance expenses and a decrease in office and general expenses.
Corporate and other expenses decreased slightly during 2012 by $4.7 to $137.3 compared to 2011, primarily due to lower office and general expenses, partially offset by an increase in temporary help to support our information-technology system-upgrade initiatives.


23

Table of Contents

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



LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW OVERVIEW
The following tables summarize key financial data relating to our liquidity, capital resources and uses of capital.
 
Years ended December 31,
Cash Flow Data
2013
 
2012
 
2011
Net income, adjusted to reconcile net income to net cash
    provided by operating activities 1
$
598.4

 
$
697.2

 
$
735.7

Net cash used in working capital ²
(9.6
)
 
(293.2
)
 
(359.4
)
Changes in other non-current assets and liabilities using cash
4.1

 
(46.8
)
 
(102.8
)
Net cash provided by operating activities
$
592.9

 
$
357.2

 
$
273.5

Net cash used in investing activities
(224.5
)
 
(210.2
)
 
(58.8
)
Net cash (used in) provided by financing activities
(1,212.3
)
 
131.3

 
(541.0
)
 
1 
Reflects net income adjusted primarily for depreciation and amortization of fixed assets and intangible assets, amortization of restricted stock and other non-cash compensation, non-cash loss related to early extinguishment of debt, and deferred income taxes.
2 
Reflects changes in accounts receivable, expenditures billable to clients, other current assets, accounts payable and accrued liabilities.
 
Operating Activities
Net cash provided by operating activities during 2013 was $592.9, which was an increase of $235.7 as compared to 2012, primarily as a result of an improvement in working capital usage of $283.6, offset by a decrease in net income. Due to the seasonality of our business, we typically generate cash from working capital in the second half of a year and use cash from working capital in the first half of a year, with the largest impacts in the first and fourth quarters. The improvement in working capital in 2013 was impacted by our media businesses and an ongoing focus on working capital management at our agencies.
Net cash provided by operating activities during 2012 was $357.2, which was an increase of $83.7 as compared to 2011, primarily as a result of a decrease in working capital usage of $66.2. The net working capital usage in 2012 was primarily impacted by our media businesses.
The timing of media buying on behalf of our clients affects our working capital and operating cash flow. In most of our businesses, our agencies enter into commitments to pay production and media costs on behalf of clients. To the extent possible we pay production and media charges after we have received funds from our clients. The amounts involved substantially exceed our revenues, and primarily affect the level of accounts receivable, expenditures billable to clients, accounts payable and accrued liabilities. Our assets include both cash received and accounts receivable from clients for these pass-through arrangements, while our liabilities include amounts owed on behalf of clients to media and production suppliers.
Our accrued liabilities are also affected by the timing of certain other payments. For example, while annual cash incentive awards are accrued throughout the year, they are generally paid during the first quarter of the subsequent year.

Investing Activities
Net cash used in investing activities during 2013 primarily relates to payments for capital expenditures and acquisitions. Capital expenditures of $173.0 relate primarily to computer hardware and software and leasehold improvements. We made payments of $61.5 related to acquisitions completed during 2013.
Net cash used in investing activities during 2012 primarily related to payments for capital expenditures and acquisitions, partially offset by the net proceeds of $94.8 received from the sale of our remaining holdings in Facebook. Capital expenditures of $169.2 primarily related to computer hardware and software, and leasehold improvements. Capital expenditures increased in 2012 compared to the prior year, primarily due to an increase in leasehold improvements made during the year. Payments for acquisitions of $145.5 primarily related to payments for new acquisitions.

Financing Activities
Net cash used in financing activities during 2013 primarily related to the purchase of long-term debt, the repurchase of our common stock, and payment of dividends. We redeemed all $600.0 in aggregate principal amount of our 10.00% Notes. In addition, we repurchased 31.8 shares of our common stock for an aggregate cost of $481.8, including fees, and made dividend payments of $126.0 on our common stock.

24

Table of Contents

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



Net cash provided by financing activities during 2012 primarily reflected net proceeds from our debt transactions. We issued $300.0 in aggregate principal amount of 2.25% Senior Notes due 2017 (the "2.25% Notes"), $500.0 in aggregate principal amount of 3.75% Senior Notes due 2023 (the "3.75% Notes") and $250.0 in aggregate principal amount of 4.00% Senior Notes due 2022 (the "4.00% Notes"). The proceeds from the issuance of the 4.00% Notes were applied towards the repurchase and redemption of $399.6 in aggregate principal amount of our 4.25% Notes. Offsetting the net proceeds from our debt transactions was the repurchase of 32.7 shares of our common stock for an aggregate cost of $350.5, including fees, and dividend payments of $103.4 on our common stock.

Foreign Exchange Rate Changes
The effect of foreign exchange rate changes on cash and cash equivalents included in the Consolidated Statements of Cash Flows resulted in a decrease of $94.1 in 2013. The decrease was primarily a result of the U.S. Dollar being stronger than several foreign currencies, including the Australian Dollar, Brazilian Real, Japanese Yen, Canadian Dollar and South African Rand as of December 31, 2013 compared to December 31, 2012.
The effect of foreign exchange rate changes on cash and cash equivalents included in the Consolidated Statements of Cash Flows resulted in a decrease of $6.2 in 2012. The decrease was a result of the U.S. Dollar being stronger than several foreign currencies, including the Brazilian Real and South African Rand, offset by the U.S. Dollar being weaker than other foreign currencies, including the Australian Dollar, British Pound and the Euro, as of as of December 31, 2012 compared to December 31, 2011.
 
 
December 31,
Balance Sheet Data
2013
 
2012
Cash, cash equivalents and marketable securities
$1,642.1
 
$2,590.8
 
 
 
 
Short-term borrowings
$179.1
 
$172.1
Current portion of long-term debt
353.6

 
216.6

Long-term debt
1,129.8

 
2,060.8

Total debt
$
1,662.5

 
$
2,449.5


LIQUIDITY OUTLOOK
We expect our cash flow from operations, cash and cash equivalents to be sufficient to meet our anticipated operating requirements at a minimum for the next twelve months. We also have a committed corporate credit facility as well as uncommitted facilities available to support our operating needs. We continue to maintain a disciplined approach to managing liquidity, with flexibility over significant uses of cash, including our capital expenditures, cash used for new acquisitions, our common stock repurchase program and our common stock dividends.
From time to time, we evaluate market conditions and financing alternatives for opportunities to raise additional funds or otherwise improve our liquidity profile, enhance our financial flexibility and manage market risk. Our ability to access the capital markets depends on a number of factors, which include those specific to us, such as our credit rating, and those related to the financial markets, such as the amount or terms of available credit. There can be no guarantee that we would be able to access new sources of liquidity on commercially reasonable terms, or at all.

Funding Requirements
Our most significant funding requirements include: our operations, non-cancelable operating lease obligations, capital expenditures, acquisitions, common stock dividends, taxes, debt service, restructuring, and contributions to pension and postretirement plans. Additionally, we may be required to make payments to minority shareholders in certain subsidiaries if they exercise their options to sell us their equity interests.
Notable funding requirements include:
Debt service – Our $350.0 in aggregate principal amount of the 6.25% Senior Unsecured Notes due 2014 mature on November 15, 2014. The remainder of our debt is primarily long-term, with maturities scheduled through 2023. See the table below for the maturity schedule of our long-term debt.

Acquisitions – We paid cash of $60.6, which was net of cash acquired of $7.1, for acquisitions completed in 2013. We also paid cash of $30.5 related to acquisitions made in prior years. In addition to potential cash expenditures for new

25

Table of Contents

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



acquisitions, we expect to pay approximately $10.0 in 2014 related to prior-year acquisitions. We may also be required to pay approximately $21.0 in 2014 related to put options held by minority shareholders if exercised. We will continue to evaluate strategic opportunities to grow and continue to strengthen our position, particularly in our digital and marketing services offerings, and to expand our presence in high-growth and key strategic world markets.

Dividends – During 2013, we paid cash dividends of $0.30 per share on our common stock, which corresponded to an aggregate dividend payment of $126.0. On February 14, 2014, we announced that our Board of Directors (the "Board") had declared a common stock cash dividend of $0.095 per share, payable on March 17, 2014 to holders of record as of the close of business on March 3, 2014. Assuming a quarterly dividend of $0.095 per share and no significant change in the number of outstanding shares as of December 31, 2013, we expect to pay approximately $161.0 in 2014. On October 17, 2013, we converted all of our Series B Cumulative Convertible Perpetual Preferred Stock and we will no longer be required to pay annual preferred stock dividends of $11.6. Assuming we continue to pay common stock dividends at our current rate, our common stock dividends over the next twelve months would include $6.6 related to the common shares issued as a result of the conversion.

Restructuring – We paid cash of approximately $11 in connection with restructuring actions we have taken through December 31, 2013. We expect to make cash payments of approximately $45, in 2014, with remaining cash payments to be made through 2017.

Contributions to pension plans – Our funding policy regarding our pension plans is to make contributions necessary to satisfy minimum pension funding requirements, plus such additional contributions as we consider appropriate to improve the plans’ funded status. During 2013, we contributed $0.5 and $18.3 of cash to our domestic and foreign pension plans, respectively. For 2014, we expect to contribute approximately $3.0 and $25.0 of cash to our domestic and foreign pension plans, respectively.

The following summarizes our estimated contractual cash obligations and commitments as of December 31, 2013 and their effect on our liquidity and cash flow in future periods.
 
Years ended December 31,
 
Thereafter
 
Total
 
2014
 
2015
 
2016
 
2017
 
2018
 
Long-term debt 1
$
353.6

 
$
2.2

 
$
2.3

 
$
301.7

 
$
24.8

 
$
798.8

 
$
1,483.4

Interest payments on long-term debt 1
56.8

 
37.8

 
37.8

 
36.6

 
28.8

 
128.8

 
326.6

Non-cancelable operating lease obligations 2
310.6

 
288.4

 
245.3

 
201.3

 
180.2

 
702.7

 
1,928.5

Contingent acquisition payments 3
38.1

 
83.3

 
61.3

 
25.1

 
15.5

 
15.8

 
239.1

Uncertain tax positions 4
10.5

 
57.6

 
66.4

 
60.7

 
5.2

 
18.8

 
219.2

Total
$
769.6

 
$
469.3

 
$
413.1

 
$
625.4

 
$
254.5

 
$
1,664.9

 
$
4,196.8

 
1 
Amounts represent maturity at par and interest payments based on contractual obligations. We may redeem all or some of the 2.25% Notes, the 3.75% Notes and the 4.00% Notes at the greater of the principal amount of the notes to be redeemed and a "make-whole" amount, plus, in either case, accrued and unpaid interest to the date of redemption. The interest payments on long-term debt noted above are expected to decrease as a result of the maturity of certain notes in 2014.
2 
Non-cancelable operating lease obligations are presented net of future receipts on contractual sublease arrangements.
3 
We have structured certain acquisitions with additional contingent purchase price obligations based on the future performance of the acquired entity. See Note 5 and Note 15 to the Consolidated Financial Statements for further information.
4
The amounts presented are an estimate due to inherent uncertainty of tax settlements, including the ability to offset liabilities with tax loss carryforwards.

Share Repurchase Program
In February 2012, our Board authorized a program to repurchase from time to time up to $300.0, excluding fees, of our common stock (the "2012 share repurchase program"). In November 2012, the Board authorized an increase in the amount available under our 2012 share repurchase program up to $400.0, excluding fees, of our common stock, as a result of the sale of our remaining holdings in Facebook. In February 2013, 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 fully utilized the 2012 share repurchase program as of the second quarter of 2013. As of December 31, 2013, $118.6 remained available for repurchase under the 2013 share repurchase program.

26

Table of Contents

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



On February 14, 2014, we announced that our Board had approved a new share repurchase program to repurchase from time to time up to $300.0, excluding fees, of our common stock. The new authorization is in addition to any amounts remaining available for repurchase under the 2013 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. There is no expiration date associated with the share repurchase programs.

FINANCING AND SOURCES OF FUNDS
Substantially all of our operating cash flow is generated by our agencies. Our cash balances are held in numerous jurisdictions throughout the world, primarily at the holding company level and at our largest subsidiaries. Below is a summary of our sources of liquidity.
 
December 31, 2013
 
Total
Facility
 
Amount
Outstanding
 
Letters
of Credit  1
 
Total
Available
Cash, cash equivalents and marketable securities
 
 
 
 
 
 
$
1,642.1

Committed credit agreement
$
1,000.0

 
$
0.0

 
$
14.3

 
$
985.7

Uncommitted credit arrangements
$
700.2

 
$
179.1

 
$
4.2

 
$
516.9

 
 
1 
We are required from time to time to post letters of credit, primarily to support obligations of our subsidiaries. These letters of credit historically have not been drawn upon.

At December 31, 2013, we held $871.4 of cash, cash equivalents and marketable securities in foreign subsidiaries. We have not provided U.S. federal income taxes on undistributed foreign earnings of our foreign subsidiaries because we consider such earnings to be permanently reinvested outside the United States. If in the future we distribute these amounts to the United States, an additional provision for the U.S. income and foreign withholding taxes, net of foreign tax credits, could be necessary.

Credit Agreements
We maintain a committed corporate credit facility to increase our financial flexibility. On December 12, 2013, we amended and restated our credit agreement, originally dated as of July 18, 2008 (as amended and restated as of December 12, 2013, the "Credit Agreement"). The amendment extended the Credit Agreement's expiration to December 12, 2018, reduced costs and provides additional flexibility with respect to certain covenants such as restrictions on acquisitions, liens, and subsidiary debt.  The Credit Agreement is a revolving facility, under which amounts borrowed by us or any of our subsidiaries designated under the Credit Agreement may be repaid and reborrowed, subject to an aggregate lending limit of $1,000.0 or the equivalent in other currencies. The Company continues to have 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. We use our Credit Agreement to provide letters of credit primarily to support obligations of our subsidiaries. Our obligations under the Credit Agreement are unsecured.
Under the Credit Agreement, we can elect to receive advances bearing interest based on either the base rate or the Eurocurrency rate (each as defined in the Credit Agreement) plus an applicable margin that is determined based on our credit ratings. As of December 31, 2013, the applicable margin is 0.275% for base rate advances and 1.275% for Eurocurrency rate advances. Letter of credit fees accrue on the average daily aggregate amount of letters of credit outstanding, at a rate equal to the applicable margin for Eurocurrency rate advances, and fronting fees accrue on the aggregate amount of letters of credit outstanding at an annual rate of 0.250%. We also pay a facility fee at an annual rate of 0.225% on the aggregate lending commitment under the Credit Agreement.

27

Table of Contents

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



The table below sets forth the financial covenants in effect as of December 31, 2013.
 
Four Quarters Ended
 
 
Four Quarters Ended
Financial Covenants
December 31, 2013
 
EBITDA Reconciliation
December 31, 2013
Interest coverage ratio (not less than)
5.00x
 
Operating income
$
598.3

Actual interest coverage ratio
8.51x
 
Add:
 
 
 
 
Depreciation and amortization
200.5

Leverage ratio (not greater than)
3.25x
 
Other non-cash amounts
1.7

Actual leverage ratio
2.08x
 
EBITDA 1
$
800.5

 
 
1 
EBITDA is calculated as defined in the Credit Agreement.
As of December 31, 2013, we were in compliance with all of our covenants in the Credit Agreement. If we were unable to comply with our covenants in the future, we would seek an amendment or waiver from our lenders, but there is no assurance that our lenders would grant an amendment or waiver. If we were unable to obtain the necessary amendment or waiver, the credit facility could be terminated and our lenders could accelerate payments of any outstanding principal. In addition, under those circumstances we could be required to deposit funds with one of our lenders in an amount equal to any outstanding letters of credit under the credit facility.
We also have uncommitted credit facilities with various banks that permit borrowings at variable interest rates. As of December 31, 2013, there were borrowings under some of the uncommitted facilities. We have guaranteed the repayment of some of these borrowings made by certain subsidiaries. If we lose access to these credit lines, we would have to provide funding directly to some of our international operations. The weighted-average interest rate on outstanding balances under the uncommitted credit facilities as of December 31, 2013 and 2012 was approximately 4.0%.
Cash Pooling
We aggregate our domestic cash position on a daily basis. Outside the United States we use cash pooling arrangements with banks to help manage our liquidity requirements. In these pooling arrangements, several IPG agencies agree with a single bank that the cash balances of any of the agencies with the bank will be subject to a full right of set-off against amounts the other agencies owe the bank, and the bank provides for overdrafts as long as the net balance for all the agencies does not exceed an agreed-upon level. Typically, each agency pays interest on outstanding overdrafts and receives interest on cash balances. Our Consolidated Balance Sheets reflect cash, net of bank overdrafts, under all of our pooling arrangements, and as of December 31, 2013 and 2012 the amounts netted were $1,415.3 and $1,166.3, respectively.

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. We received a total of 1.5 settlement shares from the option counterparties as a result of exercising these options. Our capped call transaction met the definition of an off-balance sheet arrangement per Regulation S-K Item 303(a)(4).

DEBT CREDIT RATINGS
Our long-term debt credit ratings as of February 14, 2014 are listed below.
 
Moody’s Investor
Service
 
Standard and
Poor’s
  
Fitch Ratings
Rating
Baa3
 
BB+
  
BBB
Outlook
Stable
 
Stable
  
Stable
We are rated investment-grade by both Moody's Investor Services ("Moody's") and Fitch Ratings. The most recent update to our credit ratings occurred in February 2013, when Standard & Poor's changed our outlook from positive to stable. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning credit rating agency. The rating of each credit rating agency should be evaluated independently of any other rating. Credit ratings could have an impact on liquidity, either adverse or favorable, including, among other things, because they could affect funding costs in the capital markets or otherwise. For example, our Credit Agreement fees and borrowing