Revenue

Adoption of ASC 606

Effective with the adoption of ASC 606 on January 1, 2018 using the full retrospective transition method, the Company will revise its consolidated financial statements for the years ended December 31, 2016 and 2017, and applicable interim periods within the year ended December 31, 2017, as if ASC 606 had been effective for those periods. ASC 606, which accelerates the recognition of revenue primarily as a result of estimating variable consideration, mostly impacts the timing of revenue recognition between quarters, but also can affect, to a lesser extent, the amount of annual revenue recognized. Although ASC 606 results in an increase in the number of performance obligations within certain of our contractual arrangements, the amount or timing of revenue recognized is not materially impacted. ASC 606 also results in an increase in third-party costs being included in revenue and costs, primarily in connection with our events businesses, which has no impact on operating income, net income or cash flows. The increases to retained earnings as of December 31, 2017 and 2016 as a result of adopting ASC 606 were not material. The following tables summarize the effects of adopting ASC 606.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)



	Three months ended March 31, 2017
	As Revised ¹			ASC 606 Adjustments		As Adjusted
REVENUE:
Net revenue	$	1,670.3		$	5.0	$	1,675.3
Billable expenses	83.6			304.9		388.5
Total revenue	1,753.9			309.9		2,063.8

OPERATING EXPENSES:
Salaries and related expenses	1,251.7			—		1,251.7
Office and other direct expenses	312.7			—		312.7
Billable expenses	83.6			304.9		388.5
Cost of services	1,648.0			304.9		1,952.9
Selling, general and administrative expenses	35.2			—		35.2
Depreciation and amortization	41.0			—		41.0
Total operating expenses	1,724.2			304.9		2,029.1

OPERATING INCOME	29.7			5.0		34.7

EXPENSES AND OTHER INCOME:
Interest expense	(20.9		)	—		(20.9		)
Interest income	5.2			—		5.2
Other income, net	0.8			—		0.8
Total (expenses) and other income	(14.9		)	—		(14.9		)

Income before income taxes	14.8			5.0		19.8
Benefit of income taxes	(2.1		)	1.8		(0.3		)
Income of consolidated companies	16.9			3.2		20.1
Equity in net income of unconsolidated affiliates	1.2			—		1.2
NET INCOME	18.1			3.2		21.3
Net loss attributable to noncontrolling interests	3.4			—		3.4
NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS	$	21.5		$	3.2	$	24.7

Earnings per share available to IPG common stockholders:
Basic	$	0.05		$	0.01	$	0.06
Diluted	$	0.05		$	0.01	$	0.06

Weighted-average number of common shares outstanding:
Basic	391.7			—		391.7
Diluted	399.3			—		399.3

Dividends declared per common share	$	0.18				$	0.18


1	These amounts have been revised for the new presentation as described in Note 1.

CONSOLIDATED BALANCE SHEET

(Unaudited)



	December 31, 2017
	As Reported			ASC 606 Adjustments			As Adjusted
ASSETS:
Cash and cash equivalents	$	790.9		$	—		$	790.9
Accounts receivable, net of allowance of $42.7	4,585.0			—			4,585.0
Expenditures billable to clients	1,747.4			(1,747.4		)	—
Accounts receivable, billable to clients	—			1,747.4			1,747.4
Assets held for sale	5.7			—			5.7
Other current assets	335.1			11.4			346.5
Total current assets	7,464.1			11.4			7,475.5
Property and equipment, net of accumulated depreciation of $1,036.2	650.4			—			650.4
Deferred income taxes	236.0			(2.0		)	234.0
Goodwill	3,820.4			—			3,820.4
Other non-current assets	524.3			0.1			524.4
TOTAL ASSETS	$	12,695.2		$	9.5		$	12,704.7

LIABILITIES:
Accounts payable	$	6,907.8		$	(487.6	)	$	6,420.2
Accrued liabilities	674.7			—			674.7
Contract liabilities	—			484.7			484.7
Short-term borrowings	84.9			—			84.9
Current portion of long-term debt	2.0			—			2.0
Liabilities held for sale	8.8			—			8.8
Total current liabilities	7,678.2			(2.9		)	7,675.3
Long-term debt	1,285.6			—			1,285.6
Deferred compensation	476.6			—			476.6
Other non-current liabilities	766.9			1.9			768.8
TOTAL LIABILITIES	10,207.3			(1.0		)	10,206.3

Redeemable noncontrolling interests	252.1			—			252.1

STOCKHOLDERS’ EQUITY:
Common stock	38.6			—			38.6
Additional paid-in capital	955.2			—			955.2
Retained earnings	2,093.6			10.9			2,104.5
Accumulated other comprehensive loss, net of tax	(827.4		)	(0.4		)	(827.8		)
	2,260.0			10.5			2,270.5
Less: Treasury stock	(59.0		)	—			(59.0		)
Total IPG stockholders’ equity	2,201.0			10.5			2,211.5
Noncontrolling interests	34.8			—			34.8
TOTAL STOCKHOLDERS’ EQUITY	2,235.8			10.5			2,246.3
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	12,695.2		$	9.5		$	12,704.7

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)



	Three months ended March 31, 2017
	As Reported			ASC 606 Adjustments		As Adjusted
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	18.1		3.2		$	21.3
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	41.0			—		41.0
Provision for uncollectible receivables	5.9			—		5.9
Amortization of restricted stock and other non-cash compensation	29.7			—		29.7
Net amortization of bond discounts and deferred financing costs	1.4			—		1.4
Deferred income tax benefit	(13.8		)	1.8		(12.0		)
Net gains on sales of businesses	(0.9		)	—		(0.9		)
Other	6.7			—		6.7
Changes in assets and liabilities, net of acquisitions and divestitures, providing (using) cash:
Accounts receivable	806.6			—		806.6
Expenditures billable to clients	(206.3		)	206.3		—
Accounts receivable, billable to clients	—			(206.5	)	(206.5		)
Other current assets	(71.6		)	3.0		(68.6		)
Accounts payable	(702.5		)	(24.0	)	(726.5		)
Accrued liabilities	(264.9		)	—		(264.9		)
Contract liabilities	—			16.2		16.2
Other non-current assets and liabilities	(21.2		)	—		(21.2		)
Net cash used in operating activities	(371.8		)	—		(371.8		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities	(33.2		)	—		(33.2		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by financing activities	64.4			—		64.4
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	20.0			—		20.0
Net decrease in cash, cash equivalents and restricted cash	(320.6		)	—		(320.6		)
Cash, cash equivalents and restricted cash at beginning of period	1,100.2			—		1,100.2
Cash, cash equivalents and restricted cash at end of period	$	779.6		—		$	779.6

Retained earnings as of December 31, 2016 and March 31, 2017 increased by $35.6 and $38.8, respectively, as a result of the adoption of ASC 606. Accumulated other comprehensive loss, net of tax, as of December 31, 2016 and March 31, 2017 decreased by $1.9 and $1.2, respectively, as a result of the adoption of the ASC 606.

Disaggregation of Revenue

The following is a description of the principal activities, by reportable segment, from which we generate revenue. For more detailed information about reportable segments, see Note 11.

Integrated Agency Networks

The IAN segment of IPG principally generates revenue from providing advertising and media services as well as a comprehensive array of global communications and marketing services. Within IAN’s advertising business, we typically identify two performance obligations for creative and production services. Depending on the arrangement, we typically act as the principal for our creative services and as the agent for our production services. Within our media business, we also identify two performance obligations for media planning and media buying services. We typically act as the principal for our media planning services and as the agent for media buying services. Generally, our branding arrangements consist of two performance obligations, and we act as the principal for both performance obligations.

Constituency Management Group

The CMG segment generates revenue from providing events and public relations services as well as sports and entertainment marketing, corporate and brand identity, and strategic marketing consulting. In CMG’s events and public relations arrangements, we typically identify one performance obligation, for which we act as the principal in most arrangements. Generally, our branding arrangements consist of two performance obligations, and we act as the principal for both performance obligations.

Principal Geographic Markets

Our agencies are located in over 100 countries, including every significant world market. Our geographic revenue breakdown is listed below.



	Three months ended March 31,
Total revenue:	2018		2017
United States	$	1,350.7	$	1,315.2
International:
United Kingdom	204.4		175.0
Continental Europe	181.7		158.2
Asia Pacific	231.5		220.3
Latin America	80.0		75.8
Other	120.8		119.3
Total International	818.4		748.6
Total Consolidated	$	2,169.1	$	2,063.8



	Three months ended March 31,
Net revenue:	2018		2017
United States	$	1,092.3	$	1,057.1
International:
United Kingdom	163.5		135.2
Continental Europe	158.7		140.9
Asia Pacific	178.8		173.7
Latin America	73.9		69.0
Other	106.8		99.4
Total International	681.7		618.2
Total Consolidated	$	1,774.0	$	1,675.3



IAN	Three months ended March 31,
Total revenue:	2018		2017
United States	$	1,023.2	$	969.9
International	662.3		597.9
Total IAN	$	1,685.5	$	1,567.8

Net revenue:
United States	$	898.0	$	862.0
International	583.3		529.1
Total IAN	$	1,481.3	$	1,391.1



CMG	Three months ended March 31,
Total revenue:	2018		2017
United States	$	327.5	$	345.3
International	156.1		150.7
Total CMG	$	483.6	$	496.0

Net revenue:
United States	$	194.3	$	195.1
International	98.4		89.1
Total CMG	$	292.7	$	284.2

Contract Balances

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



	March 31, 2018		December 31, 2017
Accounts receivable, net of allowance of $43.1 and $42.7, respectively	$	3,942.5	$	4,585.0
Accounts receivable, billable to clients	1,981.1		1,747.4
Contract assets	26.6		11.5
Contract liabilities (deferred revenue)	507.5		484.7

Contract assets are primarily comprised of contract incentives that are generally satisfied annually under the terms of our contracts and are transferred to accounts receivable when the rights to payment becomes unconditional. Contract liabilities relate to advance consideration received from customers under the terms of our contracts primarily related to reimbursements of third party expenses, whether we act as principal or agent, and to a lesser extent, periodic retainer fees, both of which are generally recognized shortly after billing.