The accompanying unaudited condensed consolidated financial statements of InnerWorkings, Inc. and subsidiaries (the “Company”) included herein have been prepared to conform to the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of the accompanying unaudited financial statements have been included, and all adjustments are of a normal and recurring nature. The operating results for the three and nine month periods ended September 30, 2018March 31, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018.2019. These condensed consolidated interim financial statements and notes should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto as of and for the year ended December 31, 20172018 included in the Company’s Annual Report on Form 10-K/A10-K filed with the SEC on July 27, 2018.March 19, 2019.

The Company was incorporated in the state of Delaware on January 3, 2006. The Company is a leading global marketing execution firm for some of the world's most marketing intensive companies, including those in the Fortune 1000, across a wide range of industries. As a comprehensive outsourced enterprise solution, the Company leverages proprietary technology, an extensive supplier network and deep domain expertise to streamline the creation, production and distribution of marketing and promotional materials, signage and displays, retail experiences, events and promotions and packaging across every major market worldwide. The items the Company sources are generally procured through the marketing supply chain and are referred to collectively as marketing materials. The Company’s technology and database of information is designed to capitalize on excess manufacturing capacity and other inefficiencies in the traditional marketing and print supply chain to obtain favorable pricing and to deliver high-quality products and services.

During the third quarter of 2018, the Company changed its reportable segments. The Company is now organized and managed by the chief operating decision maker for purposes of resource allocation and assessing performance as three operating segments: North America, EMEA and LATAM. The Company reflected the segment change as if it had occurred in all periods presented. See Note 15 for further information about the Company’s reportable segments.

The preparation of the consolidated financial statements is in conformity with GAAP.U.S. GAAP which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates, including those related to product returns, allowance for doubtful accounts, inventories and inventory valuation, valuation and impairments of goodwill and long-lived assets, income taxes, accrued bonus, contingencies, stock-based compensation and litigation costs. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. These estimates form the basis for making judgments about the carrying value of assets and liabilities when those values are not readily apparent from other sources. Actual results may differ from those estimates.

The Company determines the functional currency for its parent company and each of its subsidiaries by reviewing the currencies in which their respective operating activities occur. Assets and liabilities of these operations are translated into U.S. currency at the rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resulting translation adjustments are included in accumulated other comprehensive loss, a separate component of stockholders’ equity. Transaction gains and losses arising from activities in other than the applicable functional currency are calculated using average exchange rates for the applicable period and reported in net income as a non-operating item in each period. Non-monetary balance sheet items denominated in a currency other than the applicable functional currency are translated using the historical rate.

In the second quarter of 2018, the Argentinian economy was classified as highly inflationary under GAAP due to multiple years of increasing inflation, the devaluation of the Argentine peso ("ARS") and increasing borrowing rates. Effective July 1, 2018, the Company's Argentinian subsidiary is being accounted for under highly inflationary accounting rules, which principally means all transactions are recorded in U.S. dollars. The Company uses the official ARS exchange rate to translate the results of its Argentinian operations into U.S. dollars. As of September 30, 2018,March 31, 2019, the Company had a balance of net monetary assets denominated in ARS of approximately $44.043.7 million ARS, and the exchange rate was approximately $4143.3 ARS per U.S. dollar.

During the three and nine-month periodsmonth period ended September 30, 2018,March 31, 2019, the Company recorded $0.1$0.04 million of unfavorable currency impacts recorded within Other income (expense). For the three months ended September 30, 2018,March 31, 2019, the Company had revenue and gross margin of $0.6 million and $0.1 million, respectively, at its Argentinian operations. For the nine months ended September 30, 2018, the Company had revenue and gross margin of $3.3 million and $0.4 million, respectively from its Argentinian operations.

Revenue is measured based on consideration specified in a contract with a customer and the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer which may be at a point in time or over time. Unbilled revenue represents shipments or deliveries that have been made to customers for which the related account receivable has not yet been invoiced.

Shipping and handling costs after control over a product has transferred to a customer are expensed as incurred and are included in cost of goods sold in the condensed consolidated statements of operations.    

Some service revenue, including stand-alone creative and other services, may be earned over time; however, the difference from recognizing that revenue over time compared to a point in time (i.e., when the service is completed and accepted by the customer) is not material. Service revenue has not been material to our overall revenue to date.

The Company records taxes collected from customers and remitted to governmental authorities on a net basis.

Products and services may be sold separately or in bundled packages. For bundled packages, the Company accounts for individual products and services separately if they are distinct - that is, if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

We includeThe Company includes any fixed charges per ourits contracts as part of the total transaction price. The transaction price is allocated between separate products and services in a bundle based on their standalone selling prices. The standalone selling prices are generally determined based on the prices at which the Company separately sells the products and services.

Contracts may include variable consideration (for example, customer incentives like rebates), and to the extent that variable consideration is not constrained, we includethe Company includes the expected amount within the total transaction price and update ourupdates its assumptions over the duration of the contract. The constraint will generally not result in a reduction in the estimated transaction price.

The Company’s performance obligations related to the procurement of marketing materials are typically satisfied upon shipment or delivery of ourits products to customers. Payment is typically due from the customer at this time or shortly thereafter. Unbilled revenue represents shipments or deliveries that have been made to customers for which the related account receivable has not yet been invoiced. The Company does not have material future performance obligations that extend beyond one year.

Some service revenue may be recognized over time but the difference from recognizing that revenue over time versus at a point in time when the service is completed and accepted by the customer has not been material to the Company’s overall revenue to date.

Contract liabilities were $17.7$20.9 million and $17.6 million as of September 30, 2018March 31, 2019 and January 1,December 31, 2018, respectively, and are referred to as deferred revenue in the condensed consolidated financial statements. We record deferred revenue when cash payments are received or due in advance of our performance. The increase in the deferred revenue balance for the ninethree months ended September 30, 2018March 31, 2019 is primarily driven by cash payments received or due in advance of satisfying our performance obligations as well as the recognition of a contract liability for projects where we have a right to payment (approximately $5.5$11.7 million), offset by $11.3$8.4 million of revenue recognized from the deferred revenue balance from January 1,December 31, 2018. There were no contract assets during the period.as of March 31, 2019 or December 31, 2018.

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of September 30, 2018.March 31, 2019. The Company does not have material future performance obligations that extend beyond one year. Accordingly, the Company has applied the optional exemption for contracts that have an original expected duration of one year or less. The nature of the remaining performance obligations as well as the nature of the variability and how it will be resolved is described above.

The Company incurs certain incremental costs to obtain a contract that the Company expects to recover. The Company applies a practical expedient and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. No incremental costs to obtain a contract incurred by the Company prior to adoption of ASC 606 or during the quarterquarters ended September 30,March 31, 2019 and 2018 arewere required to be capitalized. These costs would primarily relate to commissions paid to our account executives and are included in selling, general and administrative expenses.

The Company capitalizedcapitalizes certain setup costs related to new customers as fulfillment costs upon adoption of ASU 2014-09 and during the quarter ended September 30, 2018.costs. The closing balance at September 30,March 31, 2019 and December 31, 2018 was $0.6 million.$1.2 million and $1.2 million, respectively. Capitalized

In connectionThe Company leases office space, warehouses, automobiles, and equipment. These leases are recorded as right-of-use assets and lease liabilities for leases with terms greater than 12 months. The Company’s leases generally have terms of 1-10 years, with certain leases including renewal options to extend the leases for additional periods at the Company’s discretion. Generally, the lease term is the minimum of the Company’s acquisitions, contingent consideration is payable in cash or common stocknoncancelable period of the lease, as the Company is not reasonably certain to exercise renewal options.

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the achievementoperating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of certain performance measures over future periods. The Company recordedoperating lease assets. To determine the acquisition date fairpresent value of the contingent consideration liability as additional purchase price. As discussed in Note 11, the process for determining the fair value of the contingent consideration liability consists of reviewing financial forecasts and assessing the likelihood of reaching the required performance measures based on factors specific to each acquisition as well as the Company’s historical experience with similar arrangements. Subsequent to the acquisition date,lease payments not yet paid, the Company estimates incremental secured borrowing rates corresponding to the fair valuematurities of the contingent consideration liability each reporting periodleases. The Company estimates this rate based on prevailing financial market conditions as rates are not implicitly stated in most leases. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Leased assets are presented net of accumulated amortization. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities; instead, these are expensed as incurred and any adjustments made torecorded as variable lease expense.

Adoption of Topic 842 resulted in the fair valuerecording net lease assets and lease liabilities of approximately $39.4 million and $41.5 million, respectively. The current portion of the lease liabilities are recorded within other current liabilities on the condensed consolidated balance sheet. The $2.1 million difference in the Company’s resultslease liabilities and net lease assets represents the net ASC 840 lease liabilities at the effective date that were netted against the initial right-of-use-asset, which included: straight-line rent, prepaid rent, and lease incentives. The $0.2 million transition adjustment to retained earnings was comprised of operations. If an acquisition reaches$1.0 million of build-to-suit financing lease assets that were derecognized and recorded as operating leases in transition and $0.5 million of initial impairment to right-of-use-assets, which were partially offset by the required performance measures within the reporting period, the fair valuerelated deferred tax effect of the contingent consideration liability is increased to 100%, the maximum potential payment, and reclassified to due to seller.$0.3 million.

The following is a summary of the goodwill balance for each reportable segment as of September 30, 2018March 31, 2019 (in thousands): 

During the quarter ended September 30, 2018, the Company changed its segments (see Note 15) and re-evaluated its reporting units. This change required an interim impairment assessment of goodwill.

Prior to this 2018 activity, the Company previously recorded gross and accumulated impairment losses of $75.4 million resulting from prior period goodwill impairment tests.

The following is a summary of the Company’s intangible assets as of September 30, 2018March 31, 2019 and December 31, 20172018 (in thousands):

Amortization expense related to these intangible assets was $0.9$0.5 million and $1.2 million for the three months ended September 30,March 31, 2019 and 2018, respectively. The Company's customer lists had accumulated amortization and 2017, respectively, and $3.2impairment of $64.9 million and $3.7$64.5 million for the nine months ended September 30,as of March 31, 2019 and December 31, 2018, respectively. The Company's trade names had accumulated amortization and 2017,impairment of $2.0 million and $2.0 million as of March 31, 2019 and December 31, 2018, respectively. The Company's patents and non-competition agreements were fully amortized as of March 31, 2019 and December 31, 2018, respectively.

The estimated amortization expense for the remainder of 20182019 and each of the next five years and thereafter is as follows (in thousands):

On August 10, 2018, the Company approved a plan to reduce the Company's cost structure while driving returnsvalue for its clients and shareholders.stockholders. The plan was adopted as a result of the Company's determination that its selling, general and administrative costs were disproportionately high in relation to its revenue and gross profit. In connection with these actions, the Company expects to incur pre-tax cash restructuring charges of $8.0$20.0 million to $10.0$25.0 million and pre-tax non-cash restructuring charges of $0.4 million. Cash charges are expected to include $6.0$12.0 million to $8.0$15.0 million for employee severance and related benefits and $2.0$8.0 million and $10.0 million for lease and contract terminations and other associated costs. Where required by law, the Company will consult with each of the affected countries’ local Works Councils prior to implementing the plan. The plan iswas expected to be completed by the end of 2019. On February 21, 2019, the Board of Directors approved a two-year extension to the restructuring plan through the end of 2021.

For the three and nine months ended September 30, 2018,March 31, 2019, the Company recognized $3.1$3.9 million in restructuring charges.

The following table summarizes the accrued restructuring activities for this plan for the ninethree months ended September 30, 2018March 31, 2019 (in thousands):

During the three and nine months ended September 30, 2018,March 31, 2019, the Company recorded the following restructuring costs within (income) loss from operations and (income) loss before income taxes (in thousands):

On December 14, 2015, the Company approved a global realignment plan that allowed the Company to more efficiently meet client needs across its international platform. Through improved integration of global resources, the plan created back office and other efficiencies and allowed for the elimination of approximately 100 positions. In connection with these actions, the Company incurred pre-tax cash restructuring charges of $6.7 million, the majority of which were recognized during 2016.2017. These cash charges included approximately $5.6 million for employee severance and related benefits and $1.1 million for lease and

The following table summarizes the accrued restructuring activities for this plan for the ninethree months ended September 30, 2018March 31, 2019 (in thousands), all of which relate to EMEA:

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Reform Act”) was enacted into law. The Tax Reform Act significantly revises the U.S. corporate income tax laws by, amongst other things, reducing the corporate income tax rate from 35.0% to 21.0%. In addition to the tax rate reduction, the legislation establishes new provisions that affect our 20182019 results, including but not limited to, the creation of a new minimum tax called the base erosion anti-abuse tax ("BEAT"); a new provision that taxes U.S. allocated expenses (e.g., interest and general administrative expenses) and currently taxes certain income greater than 10% return on assets from foreign operations (Globalcalled Global Intangible Low-Tax Income or “GILTI”(“GILTI”); a new limitation on deductible interest expense; and limitations on the deductibility of certain employee compensation.

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The Company’s reported effective income tax rate was 0.7%45.9% and 34.4%(51.6)% for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively. The Company’s reported effective income tax rate was (1.8)% and 35.5% for the nine months ended September 30, 2018 and 2017, respectively. The Company’s effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, valuation allowances, impacts of the Tax Reform Act, and foreign taxestax rates that are different than the U.S. federal statutory tax rate. In addition, the effective tax rate can be impacted each period by discrete factors and events.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will expire unutilized. At the end of each reporting period, the Company reviews the realizability of its deferred tax assets. During the third quarter of 2017, we released a Peruvian valuation allowance, therefore, we adjusted the valuation allowance by $0.8 million resulting in a $0.2 million benefit to income tax expense for the three and nine months ended September 30, 2017. There were no material valuation adjustments for the three and nine months ended September 30,March 31, 2019 and 2018. Additionally, the Company

Basic (loss) earningsloss per common share is calculated by dividing net (loss) incomeloss by the weighted average number of common shares outstanding for the period. Diluted (loss) earnings per share is calculated by dividing net (loss) incomeloss by the weighted average shares outstanding assuming dilution. Dilutive common shares outstanding is computed using the Treasury Stock Method and reflects the additional shares that would be outstanding if dilutive stock options were exercised and restricted stock and restricted stock units were settled for common shares during the period. In addition, dilutive shares include any shares issuable related to PSUs for which the performance conditions have been met as of the end of the period.

There were no dilutive effects during the three and nine months ended September 30,March 31, 2019 and 2018 as a result of thea net loss. During the three and nine months ended September 30, 2017, an aggregate of 1.2 million options and restricted common shares,loss incurred in each period. The number of the periods presented, wereantidilutive securities excluded from the calculation as these options and restricted common shares were anti-dilutive. Thecomputation of diluted earnings per share amounts was not material.The computations of basic and diluted (loss) earningsloss per share for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 are as follows (in thousands, except per share amounts):

The table below presents changes in the components of accumulated other comprehensive loss for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 (in thousands):

The Company provides print procurement services to Arthur J. Gallagher & Co. J. Patrick Gallagher, Jr., a member of the Company’s Board of Directors, is the Chairman, President, and Chief Executive Officer of Arthur J. Gallagher & Co. and has a direct ownership interest in Arthur J. Gallagher & Co. The total amount billed for such print procurement services during the three months ended September 30,March 31, 2019 and 2018 and 2017 was $0.4$0.5 million and $0.5$0.3 million, respectively, and $1.1 million and $1.3 million during the nine months ended September 30, 2018 and 2017, respectively. The amounts receivable from Arthur J. Gallagher & Co. were $0.3$0.4 million and $0.2$0.3 million as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.

In the fourth quarter of 2017, the Company began providing marketing execution services to Enova International, Inc. ("Enova"). David Fisher, a member of the Company's Board of Directors, is the Chairman and Chief Executive Officer of Enova and has a direct ownership interest in Enova. The total amount billed for such services during the three and nine months ended September 30,March 31, 2019 and 2018 was $2.9$2.7 million and $6.9$1.8 million, respectively. The amounts receivable from Enova were $1.0$2.2 million and $0.1$2.0 million as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.

The fair value hierarchy consists of the following three levels:

The book value of the debt under the Credit Agreement, dated as of August 2, 2010, subsequently amended most recently as of September 28, 2018March 15, 2019 and further discussed in Note 13, is considered to approximate its fair value as of September 30, 2018March 31, 2019 as the interest rates are considered in line with current market rates. This valuation method utilizes Level 1 inputs.