filings.toolsItem 16. Form 10-K Summary
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Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| O****MNICOM G****ROUP I****NC. | ||||||||
| February 7, 2024 | BY: | /s/ PHILIP J. ANGELASTRO | ||||||
| Philip J. Angelastro Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||
| /s/ JOHN D. WREN | Chairman and Chief Executive Officer and Director (Principal Executive Officer) | February 7, 2024 | ||||||
| John D. Wren | ||||||||
| /s/ PHILIP J. ANGELASTRO | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | February 7, 2024 | ||||||
| Philip J. Angelastro | ||||||||
| /s/ ANDREW L. CASTELLANETA | Senior Vice President, Chief Accounting Officer (Principal Accounting Officer) | February 7, 2024 | ||||||
| Andrew L. Castellaneta | ||||||||
| /s/ MARY C. CHOKSI | Director | February 7, 2024 | ||||||
| Mary C. Choksi | ||||||||
| /s/ LEONARD S. COLEMAN, JR. | Director | February 7, 2024 | ||||||
| Leonard S. Coleman, Jr. | ||||||||
| /s/ MARK D. GERSTEIN | Director | February 7, 2024 | ||||||
| Mark D. Gerstein | ||||||||
| /s/ RONNIE S. HAWKINS | Director | February 7, 2024 | ||||||
| Ronnie S. Hawkins | ||||||||
| /s/ DEBORAH J. KISSIRE | Director | February 7, 2024 | ||||||
| Deborah J. Kissire | ||||||||
| /s/ GRACIA C. MARTORE | Director | February 7, 2024 | ||||||
| Gracia C. Martore | ||||||||
| /s/ PATRICIA SALAS PINEDA | Director | February 7, 2024 | ||||||
| Patricia Salas Pineda | ||||||||
| /s/ LINDA JOHNSON RICE | Director | February 7, 2024 | ||||||
| Linda Johnson Rice | ||||||||
| /s/ CASSANDRA SANTOS | Director | February 7, 2024 | ||||||
| Cassandra Santos | ||||||||
| /s/ VALERIE M. WILLIAMS | Director | February 7, 2024 | ||||||
| Valerie M. Williams |
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for the preparation of the consolidated financial statements and related information of Omnicom Group Inc., or Omnicom. Management uses its best judgment to ensure that the consolidated financial statements present fairly, in all material respects, Omnicom’s consolidated financial position and results of operations in conformity with generally accepted accounting principles in the United States.
The financial statements have been audited by an independent registered public accounting firm in accordance with the standards of the Public Company Accounting Oversight Board. Their report expresses the independent accountant’s judgment as to the fairness of management’s reported financial position, results of operations and cash flows. This judgment is based on the procedures described in the fourth and fifth paragraphs of their report.
Omnicom management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Management, with the participation of our Chief Executive Officer, or CEO, Chief Financial Officer, or CFO, and our agencies, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our CEO and CFO concluded that our internal control over financial reporting was effective as of December 31, 2023. There have not been any changes in our internal control over financial reporting during our fourth fiscal quarter that have materially affected or are reasonably likely to affect our internal control over financial reporting.
KPMG LLP, an independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on Omnicom’s internal control over financial reporting as of December 31, 2023, dated February 7, 2024.
The Board of Directors of Omnicom has an Audit Committee comprised of five independent directors. The Audit Committee meets periodically with financial management, Internal Audit and the independent auditors to review accounting, control, audit and financial reporting matters.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Omnicom Group Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Omnicom Group Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F-2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the sufficiency of audit evidence over revenue recognition
As discussed in Note 3 to the consolidated financial statements, the Company provides an extensive range of advertising, marketing and corporate communication services through its networks, practice areas and agencies, which operate in all major markets throughout the Americas, EMEA and Asia-Pacific regions. Consolidated revenues across all disciplines and geographic markets was $14,692.2 million for the year-ended December 31, 2023.
We identified the evaluation of the sufficiency of audit evidence over revenue recognition as a critical audit matter. Revenue is recognized from contracts with customers that are based on statements of work which are typically separately negotiated with the client at a local agency level and local agencies execute tens of thousands of contracts per year. Evaluating the sufficiency of audit evidence obtained required a high degree of auditor judgment because of the volume of contracts entered into across the networks and agencies for which revenue was recorded. This included selecting the locations where testing would be performed and the supervision and review of procedures performed at those locations.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the scope of agencies at which we performed audit procedures and the nature and extent of the procedures performed at each location. At each agency where procedures over revenue were performed, we (1) evaluated the design and tested the operating effectiveness of certain internal controls over revenue recognition, including controls to check that local agencies recorded revenue in accordance with the Company’s accounting policies and billings were recorded and presented in accordance with client agreements, (2) examined a selection of contracts and assessed that the Company’s accounting policies were applied consistently and accurately, and (3) assessed the recording of revenue by selecting certain transactions and comparing the amounts recognized for consistency with the underlying documentation including contracts with customers. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed over revenue recognition.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
New York, New York
February 7, 2024
F-3
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 4,432.0 | $ | 4,281.8 | |||||||
| Short-term investments | — | 60.7 | |||||||||
| Accounts receivable, net of allowance for doubtful accounts of $17.2 and $24.7 | 8,659.8 | 8,097.1 | |||||||||
| Work in process | 1,342.5 | 1,254.6 | |||||||||
| Other current assets | 949.9 | 918.8 | |||||||||
| Total Current Assets | 15,384.2 | 14,613.0 | |||||||||
| Property and Equipment at cost, less accumulated depreciation of $1,150.4 and $1,167.5 | 874.9 | 900.1 | |||||||||
| Operating Lease Right-Of-Use Assets | 1,046.4 | 1,165.0 | |||||||||
| Equity Method Investments | 66.4 | 66.2 | |||||||||
| Goodwill | 10,082.3 | 9,734.3 | |||||||||
| Intangible Assets, net of accumulated amortization of $863.6 and $819.9 | 366.9 | 313.4 | |||||||||
| Other Assets | 223.5 | 210.5 | |||||||||
| TOTAL ASSETS | $ | 28,044.6 | $ | 27,002.5 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 11,634.0 | $ | 11,000.2 | |||||||
| Customer advances | 1,356.2 | 1,492.3 | |||||||||
| Current portion of debt | 750.5 | — | |||||||||
| Short-term debt | 10.9 | 16.9 | |||||||||
| Taxes payable | 351.6 | 300.0 | |||||||||
| Other current liabilities | 2,142.8 | 2,243.4 | |||||||||
| Total Current Liabilities | 16,246.0 | 15,052.8 | |||||||||
| Long-Term Liabilities | 887.7 | 837.5 | |||||||||
| Long-Term Liability - Operating Leases | 853.0 | 900.0 | |||||||||
| Long-Term Debt | 4,889.1 | 5,577.2 | |||||||||
| Deferred Tax Liabilities | 529.1 | 475.7 | |||||||||
| Commitments and Contingent Liabilities (Note 20) | |||||||||||
| Temporary Equity - Redeemable Noncontrolling Interests | 414.6 | 382.9 | |||||||||
| Equity: | |||||||||||
| Shareholders’ Equity: | |||||||||||
| Preferred stock, $1.00 par value, 7.5 million shares authorized, none issued | — | — | |||||||||
| Common stock, $0.15 par value, 1.0 billion shares authorized, 297.2 million shares issued, 198.0 million and 202.7 million shares outstanding | 44.6 | 44.6 | |||||||||
| Additional paid-in capital | 492.0 | 571.1 | |||||||||
| Retained earnings | 10,571.5 | 9,739.3 | |||||||||
| Accumulated other comprehensive income (loss) | (1,337.6) | (1,437.9) | |||||||||
| Treasury stock, at cost, 99.2 million and 94.5 million shares | (6,154.2) | (5,665.0) | |||||||||
| Total Shareholders’ Equity | 3,616.3 | 3,252.1 | |||||||||
| Noncontrolling interests | 608.8 | 524.3 | |||||||||
| Total Equity | 4,225.1 | 3,776.4 | |||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 28,044.6 | $ | 27,002.5 |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-4
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Revenue | $ | 14,692.2 | $ | 14,289.1 | $ | 14,289.4 | |||||||||||
| Operating Expenses: | |||||||||||||||||
| Salary and service costs | 10,701.2 | 10,325.9 | 10,402.0 | ||||||||||||||
| Occupancy and other costs | 1,168.8 | 1,168.6 | 1,148.2 | ||||||||||||||
| Real estate and other repositioning costs | 191.5 | — | — | ||||||||||||||
| Charges arising from the effects of the war in Ukraine | — | 113.4 | — | ||||||||||||||
| Gain on disposition of subsidiary | (78.8) | — | (50.5) | ||||||||||||||
| Cost of services | 11,982.7 | 11,607.9 | 11,499.7 | ||||||||||||||
| Selling, general and administrative expenses | 393.7 | 378.5 | 379.7 | ||||||||||||||
| Depreciation and amortization | 211.1 | 219.4 | 212.1 | ||||||||||||||
| Total Operating Expenses | 12,587.5 | 12,205.8 | 12,091.5 | ||||||||||||||
| Operating Income | 2,104.7 | 2,083.3 | 2,197.9 | ||||||||||||||
| Interest Expense | 218.5 | 208.6 | 236.4 | ||||||||||||||
| Interest Income | 106.7 | 70.7 | 27.3 | ||||||||||||||
| Income Before Income Taxes and Income From Equity Method Investments | 1,992.9 | 1,945.4 | 1,988.8 | ||||||||||||||
| Income Tax Expense | 524.9 | 546.8 | 488.7 | ||||||||||||||
| Income From Equity Method Investments | 5.2 | 5.2 | 7.5 | ||||||||||||||
| Net Income | 1,473.2 | 1,403.8 | 1,507.6 | ||||||||||||||
| Net Income Attributed To Noncontrolling Interests | 81.8 | 87.3 | 99.8 | ||||||||||||||
| Net Income - Omnicom Group Inc. | $ | 1,391.4 | $ | 1,316.5 | $ | 1,407.8 | |||||||||||
| Net Income Per Share - Omnicom Group Inc.: | |||||||||||||||||
| Basic | $6.98 | $6.40 | $6.57 | ||||||||||||||
| Diluted | $6.91 | $6.36 | $6.53 |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-5
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net Income | $ | 1,473.2 | $ | 1,403.8 | $ | 1,507.6 | |||||||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||
| Cash flow hedge: | |||||||||||||||||
| Amortization of loss included in interest expense | 5.6 | 5.6 | 5.6 | ||||||||||||||
| Income tax effect | (1.6) | (1.6) | (1.6) | ||||||||||||||
| Cash flow hedge, net of tax | 4.0 | 4.0 | 4.0 | ||||||||||||||
| Defined benefit pension plans and postemployment arrangements: | |||||||||||||||||
| Unrecognized actuarial gains (losses) and prior service cost for the period | (6.8) | 58.4 | 28.3 | ||||||||||||||
| Amortization of prior service cost and actuarial (gains) losses | 4.8 | 10.7 | 18.1 | ||||||||||||||
| Income tax effect | 0.6 | (20.0) | (13.6) | ||||||||||||||
| Defined benefit plans and postemployment arrangements, net of tax | (1.4) | 49.1 | 32.8 | ||||||||||||||
| Foreign currency translation adjustment | 98.9 | (255.2) | (92.2) | ||||||||||||||
| Other Comprehensive Income (Loss) | 101.5 | (202.1) | (55.4) | ||||||||||||||
| Comprehensive Income | 1,574.7 | 1,201.7 | 1,452.2 | ||||||||||||||
| Comprehensive Income Attributed To Noncontrolling Interests | 83.0 | 70.8 | 82.9 | ||||||||||||||
| Comprehensive Income - Omnicom Group Inc. | $ | 1,491.7 | $ | 1,130.9 | $ | 1,369.3 |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-6
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In millions, except per share amounts)
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Common Stock, shares | 297.2 | 297.2 | 297.2 | ||||||||||||||
| Common Stock, par value | $ | 44.6 | $ | 44.6 | $ | 44.6 | |||||||||||
| Additional Paid-in Capital: | |||||||||||||||||
| Beginning balance | 571.1 | 622.0 | 747.8 | ||||||||||||||
| Net change in noncontrolling interests | (88.1) | (17.1) | (12.1) | ||||||||||||||
| Change in temporary equity | (27.2) | (49.9) | (143.5) | ||||||||||||||
| Share-based compensation | 84.8 | 81.7 | 84.7 | ||||||||||||||
| Common stock issued, share-based compensation | (48.6) | (65.6) | (54.9) | ||||||||||||||
| Ending balance | 492.0 | 571.1 | 622.0 | ||||||||||||||
| Retained Earnings: | |||||||||||||||||
| Beginning balance | 9,739.3 | 8,998.8 | 8,190.6 | ||||||||||||||
| Net income | 1,391.4 | 1,316.5 | 1,407.8 | ||||||||||||||
| Common stock dividends declared | (559.2) | (576.0) | (599.6) | ||||||||||||||
| Ending balance | 10,571.5 | 9,739.3 | 8,998.8 | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss): | |||||||||||||||||
| Beginning balance | (1,437.9) | (1,252.3) | (1,213.8) | ||||||||||||||
| Other comprehensive income (loss) | 100.3 | (185.6) | (38.5) | ||||||||||||||
| Ending balance | (1,337.6) | (1,437.9) | (1,252.3) | ||||||||||||||
| Treasury Stock: | |||||||||||||||||
| Beginning balance | (5,665.0) | (5,142.9) | (4,684.8) | ||||||||||||||
| Common stock issued, share-based compensation | 86.0 | 89.3 | 69.2 | ||||||||||||||
| Common stock repurchased | (575.2) | (611.4) | (527.3) | ||||||||||||||
| Ending balance | (6,154.2) | (5,665.0) | (5,142.9) | ||||||||||||||
| Shareholders’ Equity | 3,616.3 | 3,252.1 | 3,270.2 | ||||||||||||||
| Noncontrolling Interests: | |||||||||||||||||
| Beginning balance | 524.3 | 503.5 | 492.5 | ||||||||||||||
| Net income | 81.8 | 87.3 | 99.8 | ||||||||||||||
| Other comprehensive income (loss) | 1.2 | (16.5) | (16.9) | ||||||||||||||
| Dividends to noncontrolling interests | (70.9) | (79.5) | (113.1) | ||||||||||||||
| Net change in noncontrolling interests | (58.2) | (18.5) | (43.3) | ||||||||||||||
| Increase in noncontrolling interests from business combinations | 130.6 | 48.0 | 84.5 | ||||||||||||||
| Ending balance | 608.8 | 524.3 | 503.5 | ||||||||||||||
| Total Equity | $ | 4,225.1 | $ | 3,776.4 | $ | 3,773.7 | |||||||||||
| Dividends Declared Per Common Share | $2.80 | $2.80 | $2.80 |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-7
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||||
| Net income | $ | 1,473.2 | $ | 1,403.8 | $ | 1,507.6 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization of right-of-use assets | 130.8 | 139.1 | 132.1 | ||||||||||||||
| Amortization of intangible assets | 80.3 | 80.3 | 80.0 | ||||||||||||||
| Amortization of net deferred loss (gain) on interest rate swaps | 5.3 | 5.4 | (8.8) | ||||||||||||||
| Share-based compensation | 84.8 | 81.7 | 84.7 | ||||||||||||||
| Real estate and other repositioning costs | 191.5 | — | — | ||||||||||||||
| Gain on disposition of subsidiary | (78.8) | — | (50.5) | ||||||||||||||
| Non-cash charges related to the effects of the war in Ukraine | — | 65.8 | — | ||||||||||||||
| Other, net | (2.3) | (5.6) | 39.8 | ||||||||||||||
| Increase (decrease) in operating capital | (462.9) | (844.0) | 160.5 | ||||||||||||||
| Net Cash Provided By Operating Activities | 1,421.9 | 926.5 | 1,945.4 | ||||||||||||||
| Cash Flows from Investing Activities: | |||||||||||||||||
| Capital expenditures | (78.4) | (78.2) | (665.8) | ||||||||||||||
| Acquisition of businesses and interests in affiliates, net of cash acquired | (93.3) | (276.8) | (160.0) | ||||||||||||||
| Maturity (purchase) of short-term investments | 60.8 | (61.4) | — | ||||||||||||||
| Proceeds from disposition of subsidiaries and other | 190.0 | 35.5 | 116.6 | ||||||||||||||
| Net Cash Provided By (Used In) Investing Activities | 79.1 | (380.9) | (709.2) | ||||||||||||||
| Cash Flows from Financing Activities: | |||||||||||||||||
| Proceeds from borrowings | — | — | 1,221.3 | ||||||||||||||
| Repayment of debt | — | — | (1,250.0) | ||||||||||||||
| Change in short-term debt | (8.7) | 8.9 | 6.4 | ||||||||||||||
| Dividends paid to common shareholders | (562.7) | (581.1) | (592.3) | ||||||||||||||
| Repurchases of common stock | (570.8) | (611.4) | (527.3) | ||||||||||||||
| Proceeds from stock plans | 35.6 | 17.4 | 9.1 | ||||||||||||||
| Acquisition of additional noncontrolling interests | (87.6) | (20.8) | (21.9) | ||||||||||||||
| Dividends paid to noncontrolling interest shareholders | (70.9) | (79.5) | (113.1) | ||||||||||||||
| Payment of contingent purchase price obligations | (67.7) | (32.6) | (22.6) | ||||||||||||||
| Other, net | (55.0) | (62.9) | (100.6) | ||||||||||||||
| Net Cash Used In Financing Activities | (1,387.8) | (1,362.0) | (1,391.0) | ||||||||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | 37.0 | (218.6) | (128.9) | ||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 150.2 | (1,035.0) | (283.7) | ||||||||||||||
| Cash and Cash Equivalents at the Beginning of Year | 4,281.8 | 5,316.8 | 5,600.5 | ||||||||||||||
| Cash and Cash Equivalents at the End of Year | $ | 4,432.0 | $ | 4,281.8 | $ | 5,316.8 |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
1. Presentation of Financial Statements
The terms “Omnicom,” “the Company,” “we,” “our” and “us” each refer to Omnicom Group Inc. and its subsidiaries, unless the context indicates otherwise. The accompanying consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP or GAAP. All intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.
Risks and Uncertainties
Global economic challenges, including geopolitical events, international hostilities, acts of terrorism, public health crises, high and sustained inflation in countries that comprise our major markets, high interest rates, and labor and supply chain issues could cause economic uncertainty and volatility. The impact of these issues on our business will vary by geographic market and discipline. We monitor economic conditions closely, as well as client revenue levels and other factors. In response to reductions in revenue, we can take actions to align our cost structure with changes in client demand and manage our working capital. However, there can be no assurance as to the effectiveness of our efforts to mitigate any impact of the current and future adverse economic conditions, reductions in client revenue, changes in client creditworthiness and other developments.
2. Significant Accounting Policies
Revenue Recognition**.** Revenue is recognized when a customer obtains control and receives the benefit of the promised goods or services (the performance obligation) in an amount that reflects the consideration we expect to receive in exchange for those goods or services (the transaction price). We measure revenue by estimating the transaction price based on the consideration specified in the client arrangement. Revenue is recognized as the performance obligations are satisfied. Our revenue is primarily derived from the planning and execution of advertising communications and marketing services in the following fundamental disciplines: Advertising & Media, Precision Marketing, Commerce & Branding, Experiential, Execution & Support, Public Relations and Healthcare. Our client contracts are primarily fees for service on a rate per hour or per project basis. Revenue is recorded net of sales, use and value added taxes.
Performance Obligations. In substantially all our disciplines, the performance obligation is to provide advisory and consulting services at an agreed-upon level of effort to accomplish the specified engagement. Our client contracts are comprised of diverse arrangements involving fees based on any one or a combination of the following: an agreed fee or rate per hour for the level of effort expended by our employees; commissions based on the client’s spending for media purchased from third parties; qualitative or quantitative incentive provisions specified in the contract; and reimbursement for third-party costs that we are required to include in revenue when we control the vendor services related to these costs and we act as principal. The transaction price of a contract is allocated to each distinct performance obligation based on its relative stand-alone selling price and is recognized as revenue when, or as, the customer receives the benefit of the performance obligation. Clients typically receive and consume the benefit of our services as they are performed. Substantially all our client contracts provide that we are compensated for services performed to date and allow for cancellation by either party on short notice, typically 90 days, without penalty.
Generally, our short-term contracts, which normally take 30 to 90 days to complete, are performed by a single agency and consist of a single performance obligation. As a result, we do not consider the underlying services as separate or distinct performance obligations because our services are highly interrelated, occur in close proximity, and the integration of the various components of a marketing message is essential to overall service. In certain of our long-term client contracts, which have a term of up to one year, the performance obligation is a stand-ready obligation, because we provide a constant level of similar services over the term of the contract. In other long-term contracts, when our services are not a stand-ready obligation, we consider our services distinct performance obligations and allocate the transaction price to each separate performance obligation based on its stand-alone selling price, including contracts for strategic media planning and buying services, which are considered to be multiple performance obligations, and we allocate the transaction price to each distinct service based on the staffing plan and the stand-alone selling price. In substantially all of our creative services contracts, we have distinct performance obligations for our services, including certain creative services contracts where we act as an agent and arrange, at the client’s direction, for third parties to perform studio production efforts.
Revenue Recognition Methods. A substantial portion of our revenue is recognized over time, as the services are performed, because the client receives and consumes the benefit of our performance throughout the contract period, or we create an asset with no alternative use and are contractually entitled to payment for our performance to date in the event the client terminates the contract for convenience. For these client contracts, other than when we have a stand-ready obligation to perform services, revenue is recognized over time using input measures that correspond to the level of staff effort expended to satisfy the performance obligation on a rate per hour or equivalent basis. For client contracts when we have a stand-ready obligation to perform services on an ongoing basis over the life of the contract, typically for periods up to one year, where the scope of these arrangements is broad and there are no significant gaps in performing the services, we recognize revenue using a time-based
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
measure resulting in a straight-line revenue recognition. From time to time, there may be changes in the client service requirements during the term of a contract and the changes could be significant. These changes are typically negotiated as new contracts covering the additional requirements and the associated costs, as well as additional fees for the incremental work to be performed.
To a lesser extent, for certain other contracts where our performance obligations are satisfied in phases, we recognize revenue over time using certain output measures based on the measurement of the value transferred to the customer, including milestones achieved. Where the transaction price or a portion of the transaction price is derived from commissions based on a percentage of purchased media from third parties, the performance obligation is not satisfied until the media is run and we have an enforceable contract providing a right to payment. Accordingly, revenue for commissions is recognized at a point in time, typically when the media is run, including when it is not subject to cancellation by the client or media vendor.
Principal vs. Agent. In substantially all our businesses, we incur third-party costs on behalf of clients, including direct costs and incidental, or out-of-pocket costs. Third-party direct costs incurred in connection with the creation and delivery of advertising or marketing communication services include, among others: purchased media, studio production services, specialized talent, including artists and other freelance labor, event marketing supplies, materials and services, promotional items, market research and third-party data and other related expenditures. Out-of-pocket costs include, among others: transportation, hotel, meals, shipping and telecommunication charges incurred by us in the course of providing our services. Billings related to out-of-pocket costs are included in revenue since we control the goods or services prior to delivery to the client.
However, the inclusion of billings related to third-party direct costs in revenue depends on whether we act as a principal or as an agent in the client arrangement. In most of our businesses, including advertising, which also includes studio production efforts and media planning and buying services, public relations, healthcare advertising, precision marketing, commerce and branding businesses, we act as an agent and arrange, at the client’s direction, for third parties to perform certain services. In these cases, we do not control the goods or services prior to the transfer to the client. As a result, revenue is recorded net of these costs, equal to the amount retained for our fee or commission.
In certain businesses we may act as principal when contracting for third-party services on behalf of our clients. In our experiential business and most of our execution and support businesses, including field marketing and certain specialty marketing businesses, we act as principal because we control the specified goods or services before they are transferred to the client and we are responsible for providing the specified goods or services, or we are responsible for directing and integrating third-party vendors to fulfill our performance obligation at the agreed upon contractual price. In such arrangements, we also take pricing risk under the terms of the client contract. In certain specialty media buying businesses, we act as principal when we control the buying process for the purchase of the media and contract directly with the media vendor. In these arrangements, we assume the pricing risk under the terms of the client contract. When we act as principal, we include billable amounts related to third-party costs in the transaction price and record revenue over time at the gross amount billed, including out-of-pocket costs, consistent with the manner that we recognize revenue for the underlying services contract. However, in media buying contracts where we act as principal, we recognize revenue at a point in time, typically when the media is run, including when it is not subject to cancellation by the client or media vendor.
Variable Consideration. Some of our client arrangements include variable consideration provisions, which include performance incentives, tiered commission structures and vendor rebates in certain markets outside of the United States. Variable consideration is estimated and included in total consideration at contract inception based on either the expected value method or the most likely outcome method. These estimates are based on historical award experience, anticipated performance and other factors known at the time. Performance incentives are typically recognized in revenue over time. Variable consideration for our media businesses in certain international markets includes rebate revenue and is recognized when it is probable that the media will be run, including when it is not subject to cancellation by the client. In addition, when we receive rebates or credits from vendors for transactions entered into on behalf of clients, they are remitted to the clients in accordance with contractual requirements or retained by us based on the terms of the client contract or local law. Amounts passed on to clients are recorded as a liability and amounts retained by us are recorded as revenue when earned, typically when the media is run.
Operating Expenses. Operating expenses include cost of services, selling, general and administrative expenses, or SG&A, and depreciation and amortization. We measure cost of services in two distinct categories: salary and service costs and occupancy and other costs. As a service business, salary and service costs make up a significant portion of our operating expenses, and substantially all these costs comprise the essential components directly linked to the delivery of our services. Salary and service costs include employee compensation and benefits, freelance labor, third-party service costs, and third-party incidental costs. Third-party service costs include vendor costs when we act as principal in providing services to our clients. Third-party incidental costs, primarily consist of client-related travel and incidental out-of-pocket costs, which we bill back to the client directly at our cost and which we are required to include in revenue. Occupancy and other costs consist of the indirect costs related to the delivery of our services, including office rent and other occupancy costs, equipment rent, technology costs, general office expenses and other expenses. SG&A expenses primarily consist of third-party marketing costs, professional fees and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
compensation and benefits and occupancy and other costs of our corporate and executive offices, which includes group-wide finance and accounting, treasury, legal and governance, human resource oversight and similar costs.
Cash and Cash Equivalents. Cash and cash equivalents include cash in banks and highly liquid interest-bearing time deposits with original maturities of three months or less. Due to the short-term nature of these investments, carrying value approximates fair value. We have a policy governing counterparty credit risk for financial institutions that hold our cash and cash equivalents and we have deposit limits for each institution.
Short-Term Investments. Short-term investments represent time deposits with original maturities ranging from 91 to 364 days. These investments are classified as held-to-maturity securities because we have the positive intent and ability to hold until maturity. Held-to-maturity securities are carried at amortized cost, which approximates fair value. Fair value is based on observable interest rates for similar securities.
Work in Process. Work in process represents accrued costs incurred on behalf of customers, including media and production costs and fees, other third-party costs and contract assets that have not yet been billed. Media and production costs are billed during the production process in accordance with the terms of the client contract. Substantially all unbilled fees and costs will be billed within the next 30 days. Contract assets primarily include incentive fees, which are not material, and will be billed to clients in accordance with the terms of the client contract.
Property and Equipment. Property and equipment are carried at cost and are depreciated over the estimated useful lives of the assets using the straight-line method ranging from: three to five years for technology and related equipment, seven to ten years for furniture, and up to 40 years for office buildings. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Assets under finance leases are amortized on a straight-line basis over the lease term.
Equity Method Investments. Investments in companies where we exercise significant influence over the operating and financial policies of the investee and own less than 50% of the equity are accounted for using the equity method. Our proportionate share of the net income or loss of equity method investments is included in results of operations and any dividends received reduce the carrying value of the investment. The excess of the cost of our investment over our proportionate share of the fair value of the net assets of the investee at the acquisition date is recognized as goodwill and included in the carrying amount of the investment. Goodwill in the equity method investments is not amortized. Gains and losses from changes in our ownership interests are recorded in results of operations until control is achieved. In circumstances where a change in our ownership interest results in obtaining control, the existing carrying value of the investment is remeasured to the acquisition date fair value and any gain or loss is recognized in results of operations. We periodically review the carrying value of the equity method investments to determine if there has been an other-than-temporary decline in carrying value. A variety of factors are considered when determining if a decline in carrying value is other-than-temporary, including the financial condition and business prospects of the investee, as well as our investment intent.
Marketable Equity Securities. Marketable equity securities are measured at fair value and changes in fair value are recognized in results of operations.
Non-Marketable Equity Securities**.** Non-marketable equity securities do not have a readily determinable fair value and are measured at cost, less any impairment, and are adjusted for observable changes in fair value from transactions for identical or similar securities of the same issuer.
Business Combinations. In a business combination, the assets acquired, including identified intangible assets, liabilities assumed and any noncontrolling interest in the acquired business are recorded at acquisition date fair value. In circumstances where control is obtained and less than 100% of a business is acquired, goodwill related to the noncontrolling shareholders is recorded as if 100% were acquired. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs are expensed as incurred. Certain acquisitions include an initial payment at closing and provide for future additional contingent purchase price payments (earn-outs), which are recorded as a liability at the acquisition date fair value using the discount rate in effect on the acquisition date. Subsequent changes in the fair value of the liability are recorded in results of operations. Amounts earned under the contingent purchase price arrangements may be subject to a maximum and payment is not contingent upon future employment. The results of operations of acquired businesses are included in results of operations from the acquisition date.
Goodwill and Intangible Assets. Goodwill represents the excess of the acquisition cost over the fair value of the net assets acquired. Goodwill is not amortized but is periodically reviewed for impairment. Intangible assets comprise customer relationships, including the related customer contracts and trade names, and purchased and internally developed software and are amortized over their estimated useful lives ranging from five to twelve years. We consider a number of factors in determining the useful lives and amortization method, including the pattern in which the economic benefits are consumed, as well as trade name recognition and customer attrition. There is no estimated residual value for the intangible assets.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
In 2023, to better align with our internal financial processes, the date of our annual impairment test was changed from June 30 to May 1. We will continue to evaluate goodwill for impairment at least annually on May 1 and whenever events or circumstances indicate the carrying value may not be recoverable. The impairment evaluation compares the fair value of each reporting unit, which we identified as our six agency networks, to its carrying value, including goodwill. If the fair value of the reporting unit is equal to or greater than its carrying value, goodwill is not impaired. Goodwill is impaired when the carrying value of the reporting unit exceeds its fair value. Goodwill is written down to its fair value through a non-cash expense recorded in results of operations in the period the impairment is identified.
We identified our regional reporting units as components of our operating segments, which are our six global agency networks. The regional reporting units and practice areas monitor the performance and are responsible for the agencies in their region. The regional reporting units report to the segment managers and facilitate the administrative and logistical requirements of our key client matrix organization structure for delivering services to clients in their regions. We have concluded that, for each of our operating segments, their regional reporting units have similar economic characteristics and should be aggregated for purposes of testing goodwill for impairment at the operating segment level. Our conclusion was based on a detailed analysis of the aggregation criteria set forth in FASB ASC Topic 280, Segment Reporting, and in FASB ASC Topic 350. Consistent with our fundamental business strategy, the agencies within our regional reporting units serve similar clients in similar industries, and in many cases the same clients. In addition, the agencies within our regional reporting units have similar economic characteristics, and the employees share similar skill sets. The main economic components of each agency are employee compensation and related costs, and direct service costs and occupancy and other costs, which include rent and occupancy costs, technology costs that are generally limited to personal computers, servers and off-the-shelf software and other overhead expenses. Finally, the expected benefits of our acquisitions are typically shared by multiple agencies in various regions as they work together to integrate the acquired agency into our virtual client network strategy. We use the following valuation methodologies to determine the fair value of our reporting units: (1) the income approach, which utilizes discounted expected future cash flows, (2) comparative market participant multiples of EBITDA (earnings before interest, taxes, depreciation and amortization) and (3) when available, consideration of recent and similar acquisition transactions. The market assumptions used in our assessment reflected the current economic environment (see Note 1 - Risks and Uncertainties).
Based on the results of the annual impairment test, we concluded that at May 1, 2023 and June 30, 2022, goodwill was not impaired because either the fair value of each reporting unit was substantially in excess of its respective net book value, or for reporting units with a negative book value, fair value of assets exceeds total assets. Subsequent to the annual goodwill impairment test, there have been no events or circumstances that triggered the need for an interim impairment test.
Debt Issuance Costs. Debt issuance costs are capitalized and amortized in interest expense over the life of the related debt and are presented as a reduction to the carrying amount of debt.
Temporary Equity - Redeemable Noncontrolling Interests. Owners of noncontrolling equity interests in some of our subsidiaries have the right in certain circumstances to require us to purchase all or a portion of their equity interests at fair value as defined in the applicable agreements. The intent of the parties is to approximate fair value at the time of redemption by using a multiple of earnings that is consistent with generally accepted valuation practices used by market participants in our industry. These contingent redemption rights are embedded in the equity security at issuance, are not free-standing instruments, do not represent a de facto financing and are not under our control.
Treasury Stock. Repurchases of our common stock are accounted for at cost and are recorded as treasury stock. The excise tax on net stock repurchases is recorded as a cost of acquiring treasury stock. Reissued treasury stock, primarily in connection with share-based compensation plans, is accounted for at average cost. Gains or losses on reissued treasury stock arising from the difference between the average cost and the fair value of the award are recorded in additional paid-in capital and do not affect results of operations.
Noncontrolling Interests. Noncontrolling interests represent equity interests in certain subsidiaries held by third parties. Noncontrolling interests are presented as a component of equity and the proportionate share of net income attributed to the noncontrolling interests is recorded in results of operations. Changes in noncontrolling interests that do not result in a loss of control are accounted for in equity. Gains and losses resulting from a loss of control are recorded in results of operations.
Foreign Currency Translation and Transactions. Substantially all of our foreign subsidiaries use their local currency as their functional currency. Assets and liabilities are translated from the local functional currency into U.S. Dollars at the exchange rate on the balance sheet date and revenue and expenses are translated at the average exchange rate for the period. Translation adjustments are recorded in accumulated other comprehensive income. Foreign currency gains and losses arising from transactions not in the subsidiaries’ local currency are recorded in results of operations. We recorded foreign currency transaction losses of $14.0 million and $3.3 million in 2023 and 2021, respectively, and recorded foreign currency transaction gains of $1.1 million in 2022. Foreign currency gains and losses for hyper-inflationary economies are recorded in results of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Share-Based Compensation. Share-based compensation for restricted stock and stock option awards is measured at the grant date fair value. The fair value of restricted stock awards is determined and fixed using the closing price of our common stock on the grant date and is recorded in additional paid-in capital. The fair value of stock option awards is determined using the Black-Scholes option valuation model. For awards with a service only vesting condition, compensation expense is recognized on a straight-line basis over the requisite service period. For awards with a performance vesting condition, compensation expense is recognized on a graded-vesting basis. Typically, all share-based awards are settled with treasury stock. See Note 10 for additional information regarding our specific award plans.
Salary Continuation Agreements. Arrangements with certain present and former employees provide for continuing payments for periods up to ten years after cessation of full-time employment in consideration for agreement by the employees not to compete with us and to render consulting services during the postemployment period. Such payments, which are subject to certain limitations, including our operating performance during the postemployment period, represent the fair value of the services rendered and are expensed in such periods.
Severance. The liability for one-time termination benefits, such as severance pay or benefit payouts, is measured and recognized at fair value in the period the liability is incurred. Subsequent changes to the liability are recognized in results of operations in the period of change.
Defined Benefit Pension Plans and Postemployment Arrangements**.** The funded status of our defined benefit plans is recorded as an asset or liability. Funded status is the difference between the fair value of plan assets and the benefit obligation at December 31, the measurement date, determined on a plan-by-plan basis. The benefit obligation for the defined benefit plans is the projected benefit obligation, or PBO, which represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. The fair value of plan assets represents the current market value. Overfunded plans, where the fair value of plan assets exceeds the benefit obligation, are aggregated and recorded as a prepaid pension asset equal to the excess. Underfunded plans, where the benefit obligation exceeds the fair value of plan assets, are aggregated and recorded as a liability equal to the excess. The benefit obligation liability for our postemployment arrangements is the PBO and these arrangements are not funded. The current portion of the benefit obligation for the defined benefit plans and postemployment arrangements, which represents the actuarial present value of benefits payable in the next twelve months that exceed the fair value of plan assets, is recorded in other current liabilities and the long-term portion is recorded in long-term liabilities.
Deferred Compensation**.** Some of our subsidiaries have deferred compensation arrangements with certain executives that provide for payments over varying terms upon retirement, cessation of employment or death. The cost of these arrangements is accrued during the employee’s service period.
Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable for the current period and the deferred taxes recognized during the period. Deferred income taxes reflect the temporary difference between assets and liabilities that are recognized for financial reporting purposes and income tax purposes and are recorded as noncurrent. Deferred income taxes are measured using the enacted tax rates that are assumed to be in effect when the differences reverse. Valuation allowances are recorded where it is more likely than not that all or a portion of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we evaluate factors such as prior earnings history, expected future earnings, carry-back and carry-forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.
Interest and penalties related to tax positions taken in our tax returns are recorded in income tax expense. We record a liability for uncertain tax positions that reflects the treatment of certain tax positions taken in our tax returns that do not meet the more-likely-than not threshold, or that meet the more-likely-than-not threshold but have measurement related unrecognized tax benefits. Until these positions are sustained by the taxing authorities or the statute of limitations concerning such issues lapses, we do not generally recognize the tax benefits resulting from such positions.
Net Income Per Share. Basic net income per share is based on the weighted average number of common shares outstanding during the period. Diluted net income per share is based on the weighted average number of common shares outstanding, plus the dilutive effect of common share equivalents, which include outstanding stock options and restricted stock awards.
Leases. At the inception of a contract, we assess whether the contract is, or contains, a lease. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of the criteria. Substantially all our operating leases are office space leases, and substantially all our finance leases are office furniture and technology equipment leases.
For all leases a right-of-use, or ROU, asset and lease liability are recognized at the lease commencement date. The lease liability represents the present value of the lease payments under the lease. The ROU asset is initially measured at cost, which includes the initial lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All ROU assets are reviewed for impairment. The lease liability is initially measured as the present value of
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. For real estate and certain equipment operating leases, we use our secured incremental borrowing rate. For finance leases, we use the rate implicit in the lease or our secured incremental borrowing rate if the implicit lease rate cannot be determined.
Lease payments included in the measurement of the lease liability comprise: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. Lease components, including fixed payments for real estate taxes and insurance for office space leases, are included in the measurement of the initial lease liability.
Office space leases may contain variable lease payments, which include payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement. Additional payments based on the change in an index or rate, or payments based on a change in our portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability.
Operating lease expense is recognized on a straight-line basis over the lease term. Lease expense may include variable lease payments incurred in the period that were not included in the initial lease liability. Finance lease expense consists of the amortization of the ROU asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis. Finance lease payments are allocated between a reduction of the lease liability and interest expense.
Concentration of Credit Risk. We provide advertising, marketing and corporate communications services to several thousand clients that operate in nearly every industry sector of the global economy, and we grant credit to qualified clients in the normal course of business. Due to the diversified nature of our client base, we do not believe that we are exposed to a concentration of credit risk as our largest client accounted for 3.0% of revenue in 2023.
Derivative Financial Instruments. All derivative instruments, including certain derivative instruments embedded in other contracts, are recorded at fair value. Derivatives qualify for hedge accounting if: the hedging instrument is designated as a hedge, the hedged exposure is specifically identifiable and exposes us to risk, and a change in fair value of the derivative financial instrument and an opposite change in the fair value of the hedged exposure have a high degree of correlation. The method of assessing hedge effectiveness and measuring hedge ineffectiveness is formally documented. Hedge effectiveness is assessed, and hedge ineffectiveness is measured at least quarterly throughout the designated hedge period. Changes in the fair value of a fair value hedge are offset against the change in fair value of the hedged asset, liability or firm commitment through results of operations. Changes in the fair value of a cash flow hedge are recognized in other comprehensive income until the hedged item is recognized in results of operations. Foreign currency hedges of the net investment in our foreign operations are recorded in accumulated other comprehensive income (loss), or AOCI. Any gain or loss will remain in AOCI until the complete or substantially complete liquidation of our investment in the underlying operation. We do not use derivatives for trading or speculative purposes. Using derivatives exposes us to the risk that counterparties to the derivative contracts will fail to meet their contractual obligations. We manage that risk through careful selection and ongoing evaluation of the counterparty financial institutions based on specific minimum credit standards and other factors.
Fair Value. We apply the fair value measurement guidance in FASB ASC Topic 820, Fair Value Measurements and Disclosures, for our financial assets and liabilities that are required to be measured at fair value and for our nonfinancial assets and liabilities that are not required to be measured at fair value on a recurring basis, which includes goodwill and other identifiable intangible assets. The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.
The inputs create the following fair value hierarchy:
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Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.
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Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical assets or liabilities in markets that are not active; and model-derived valuations with observable inputs.
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Level 3 - Unobservable inputs for the asset or liability.
We use unadjusted quoted market prices to determine the fair value of our financial assets and liabilities and classify such items in Level 1. We use unadjusted quoted market prices for similar assets and liabilities in active markets and model-derived valuations and classify such items in Level 2.
In determining the fair value of financial assets and liabilities, we consider certain market valuation adjustments that market participants would consider in determining fair value, including: counterparty credit risk adjustments applied to financial assets and liabilities, taking into account the actual credit risk of the counterparty when valuing assets measured at fair value and credit risk adjustments applied to reflect our credit risk when valuing liabilities measured at fair value.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
3. Revenue
Nature of our services
We provide an extensive range of advertising, marketing and corporate communications services through various client-centric networks that are organized to meet specific client objectives. Our networks, practice areas and agencies provide a comprehensive range of services in the following fundamental disciplines: Advertising & Media, Precision Marketing, Commerce & Branding, Experiential, Execution & Support, Public Relations and Healthcare. Advertising & Media include creative services across digital and traditional media, strategic media planning and buying, performance media and data analytics services. Precision Marketing includes digital and direct marketing, digital transformation consulting and data and analytics. Commerce & Branding services include brand and product consulting, strategy and research, retail and e-commerce. Experiential marketing services include live and digital events and experience design and execution. Execution & Support includes field marketing, sales support, digital and physical merchandising, point-of-sale and product placement, as well as other specialized marketing and custom communications services. Public Relations services include corporate communications, crisis management, public affairs and media and media relations services. Healthcare includes corporate communications and advertising and media services to global healthcare and pharmaceutical companies. At the core of all our services is the ability to create or develop a client’s marketing or corporate communications message into content that can be delivered to a target audience across different communications mediums.
Economic factors affecting our revenue
Global economic conditions have a direct impact on our revenue. Adverse economic conditions pose a risk that our clients may reduce, postpone or cancel spending for our services, which would impact our revenue.
Revenue by discipline:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Advertising & Media | $ | 7,891.2 | $ | 7,433.9 | $ | 7,966.2 | |||||||||||
| Precision Marketing | 1,473.5 | 1,426.6 | 1,205.2 | ||||||||||||||
| Commerce & Branding | 853.7 | 848.1 | 802.2 | ||||||||||||||
| Experiential | 651.4 | 635.6 | 536.0 | ||||||||||||||
| Execution & Support | 880.8 | 1,069.9 | 1,115.9 | ||||||||||||||
| Public Relations | 1,578.9 | 1,552.7 | 1,398.2 | ||||||||||||||
| Healthcare | 1,362.7 | 1,322.3 | 1,265.7 | ||||||||||||||
| Revenue | $ | 14,692.2 | $ | 14,289.1 | $ | 14,289.4 |
Effective January 1, 2023, we realigned the classification of certain services, primarily within our Commerce & Branding, Execution & Support and Experiential disciplines and prior year amounts have been reclassified.
Revenue by geographic market:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Americas: | |||||||||||||||||
| North America | $ | 7,951.0 | $ | 7,856.0 | $ | 7,709.7 | |||||||||||
| Latin America | 386.8 | 329.0 | 296.1 | ||||||||||||||
| EMEA: | |||||||||||||||||
| Europe | 4,266.9 | 4,010.5 | 4,219.6 | ||||||||||||||
| Middle East and Africa | 309.6 | 346.7 | 267.6 | ||||||||||||||
| Asia-Pacific | 1,777.9 | 1,746.9 | 1,796.4 | ||||||||||||||
| Revenue | $ | 14,692.2 | $ | 14,289.1 | $ | 14,289.4 |
The Americas is comprised of North America, which includes the United States, Canada and Puerto Rico, and Latin America, which includes South America and Mexico. EMEA is comprised of Europe, the Middle East and Africa. Asia-Pacific includes Australia, Greater China, India, Japan, Korea, New Zealand, Singapore and other Asian countries. Revenue in the United States in 2023, 2022 and 2021 was $7,471.6 million, $7,367.3 million and $7,245.9 million, respectively.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Contract balances
Contract balances include work in process and customer advances, which primarily consist of advance billings to customers in accordance with the terms of the client contracts, primarily for the reimbursement of third-party costs.
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Work in process: | |||||||||||
| Media and production costs | $ | 664.4 | $ | 725.1 | |||||||
| Unbilled fees and costs and contract assets | 678.1 | 529.5 | |||||||||
| Work in process | $ | 1,342.5 | $ | 1,254.6 | |||||||
| Customer advances | $ | 1,356.2 | $ | 1,492.3 |
There were no impairment losses to work in process recorded in 2023 or 2022.
4. Net Income per Share
Basic and diluted net income per share:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net income - Omnicom Group Inc. | $ | 1,391.4 | $ | 1,316.5 | $ | 1,407.8 | |||||||||||
| Weighted average shares (millions): | |||||||||||||||||
| Basic | 199.4 | 205.6 | 214.3 | ||||||||||||||
| Dilutive stock options and restricted shares | 2.0 | 1.4 | 1.3 | ||||||||||||||
| Diluted | 201.4 | 207.0 | 215.6 | ||||||||||||||
| Anti-dilutive stock options and restricted shares (millions) | — | 4.3 | 4.7 | ||||||||||||||
| Net income per share - Omnicom Group Inc.: | |||||||||||||||||
| Basic | $6.98 | $6.40 | $6.57 | ||||||||||||||
| Diluted | $6.91 | $6.36 | $6.53 |
5. Business Combinations
In 2023, we completed six acquisitions that increased goodwill by $340.0 million. In addition, during 2023, we acquired additional equity interests in certain majority owned subsidiaries, which are accounted for as equity transactions, and no additional goodwill was recorded. None of the acquisitions in 2023, either individually or in the aggregate, were material to our results of operations or financial position.
On January 2, 2024, we acquired Flywheel Digital, the digital commerce business of Ascential plc, for a net cash purchase price of approximately $845 million. Since the acquisition occurred subsequent to December 31, the allocation of the purchase price to the underlying assets acquired and liabilities assumed is subject to a formal valuation process that has not yet been completed. The major assets acquired include trade receivables, goodwill and intangible assets, and the major liabilities assumed include trade and other payables. The Flywheel Digital acquisition is not material to our results of operations and financial position. We will include the results of Flywheel Digital in our 2024 results of operations from the date of acquisition. In the fourth quarter of 2023 we incurred transaction costs of $14.5 million primarily related to the acquisition of Flywheel Digital.
The evaluation of potential acquisitions is based on various factors, including specialized know-how, reputation, geographic coverage, competitive position and service offerings, as well as our experience and judgment. Our acquisition strategy is focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our strategic business platforms and agency brands, through the expansion of their geographic area or their service capabilities to better serve our clients. Certain acquisitions include an initial payment at closing and provide for future additional contingent purchase price payments (earn-outs), which are derived using the performance of the acquired company and are based on predetermined formulas. At December 31, 2023 and 2022, contingent purchase price obligations were $229.5 million and $115.0 million, respectively, of which $62.4 million and $39.2 million, respectively, are recorded in other current liabilities.
For each acquisition, we undertake a detailed review to identify other intangible assets that are required to be valued separately. We use several market participant measurements to determine fair value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies, and when available and as appropriate, we use comparative market multiples to supplement our analysis. As is typical for most service businesses, a substantial portion of the intangible asset value we acquire is the specialized know-how of the workforce, which is treated as part of goodwill and is not valued separately. A significant portion of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trade names. One of the primary drivers in executing
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
our acquisition strategy is the existence of, or the ability to, expand our existing client relationships. The expected benefits of our acquisitions are typically shared across multiple agencies and regions.
6. Goodwill and Intangible Assets
Change in goodwill:
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| January 1 | $ | 9,734.3 | $ | 9,738.6 | ||||||||||
| Acquisitions | 51.7 | 211.7 | ||||||||||||
| Noncontrolling interests in acquired businesses | 128.6 | 48.0 | ||||||||||||
| Contingent purchase price obligations of acquired businesses | 159.7 | 8.7 | ||||||||||||
| Dispositions | (120.6) | (19.6) | ||||||||||||
| Foreign currency translation | 128.6 | (253.1) | ||||||||||||
| December 31 | $ | 10,082.3 | $ | 9,734.3 |
There were no goodwill impairment losses recorded in 2023 or 2022, and there are no accumulated goodwill impairment losses.
Intangible assets:
| December 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||||||||||||||
| Purchased and internally developed software | $ | 369.1 | $ | (306.6) | $ | 62.5 | $ | 374.8 | $ | (309.1) | $ | 65.7 | |||||||||||||||||||||||
| Customer related and other | 861.4 | (557.0) | 304.4 | 758.5 | (510.8) | 247.7 | |||||||||||||||||||||||||||||
| Intangible Assets | $ | 1,230.5 | $ | (863.6) | $ | 366.9 | $ | 1,133.3 | $ | (819.9) | $ | 313.4 |
7. Debt
Credit Facilities
In June 2023, we amended our existing $2.5 billion unsecured multi-currency revolving credit facility, or Credit Facility, to, among other things, extend its termination date to June 2, 2028, and transition the benchmark rate for U.S. Dollar denominated loans from LIBOR to the Secured Overnight Financing Rate, or SOFR. We have the ability to issue up to $2 billion of U.S. Dollar denominated commercial paper and issue up to the equivalent of $500 million in British Pounds or Euro under a Euro commercial paper program. During 2021 and 2022, we did not issue commercial paper. For the year ended December 31, 2023, the maximum amount of commercial paper issued was $200 million, the average amount outstanding was $5.1 million, the average days outstanding were 1.7 days, and the weighted average interest rate was 5.24%. At December 31, 2023, there were no outstanding borrowings under the Credit Facility and no outstanding commercial paper issuances. In addition, certain of our international subsidiaries have uncommitted credit lines that are guaranteed by Omnicom aggregating $516.2 million. All of these facilities provide additional liquidity sources for operating capital and general corporate purposes.
The Credit Facility contains a financial covenant that requires us to maintain a Leverage Ratio of consolidated indebtedness to consolidated EBITDA (earnings before interest, taxes, depreciation, amortization and non-cash charges) of no more than 3.5 times for the most recently ended 12-month period. At December 31, 2023, we were in compliance with this covenant as our Leverage Ratio was 2.3 times. The Credit Facility does not limit our ability to declare or pay dividends or repurchase our common stock.
On January 3, 2024, we entered into a Delayed Draw Term Loan Agreement, or Term Loan Facility, that provides for a delayed-draw term loan up to an aggregate principal amount of $600 million. The Term Loan Facility terminates on December 31, 2026, and contains a financial covenant that requires us to maintain a Leverage Ratio of consolidated indebtedness to consolidated EBITDA of no more than 3.5 times for the most recently ended 12-month period. The Term Loan Facility does not limit our ability to declare or pay dividends or repurchase our common stock.
Short-Term Debt
Short-term debt of $10.9 million and $16.9 million at December 31, 2023 and 2022, respectively, represented bank overdrafts and short-term borrowings primarily of our international subsidiaries. The weighted average interest rate was 12.0% and 10.3%, respectively. Due to the short-term nature of this debt, carrying value approximates fair value.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Long-Term Debt
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| 3.65% Senior Notes due 2024 | $ | 750.0 | $ | 750.0 | |||||||
| 3.60% Senior Notes due 2026 | 1,400.0 | 1,400.0 | |||||||||
| €500 Million 0.80% Senior Notes due 2027 | 553.0 | 534.9 | |||||||||
| 2.45% Senior Notes due 2030 | 600.0 | 600.0 | |||||||||
| 4.20% Senior Notes due 2030 | 600.0 | 600.0 | |||||||||
| €500 Million 1.40% Senior Notes due 2031 | 553.0 | 534.9 | |||||||||
| 2.60% Senior Notes due 2031 | 800.0 | 800.0 | |||||||||
| £325 Million 2.25% Senior Notes due 2033 | 413.9 | 392.0 | |||||||||
| Long-Term Debt, Gross | 5,669.9 | 5,611.8 | |||||||||
| Unamortized discount | (7.8) | (9.0) | |||||||||
| Unamortized debt issuance costs | (22.3) | (26.2) | |||||||||
| Unamortized deferred gain (loss) from settlement of interest rate swaps | (0.2) | 0.6 | |||||||||
| Current portion | (750.5) | — | |||||||||
| Long-Term Debt | $ | 4,889.1 | $ | 5,577.2 |
Our 2.45% Senior Notes due 2030, 4.20% Senior Notes due 2030 and 2.60% Senior Notes due 2031 are senior unsecured obligations of Omnicom that rank equal in right of payment with all existing and future unsecured senior indebtedness.
Omnicom and its wholly owned finance subsidiary, Omnicom Capital Inc., or OCI, are co-obligors under the 3.65% Senior Notes due 2024 and the 3.60% Senior Notes due 2026. These notes are a joint and several liability of Omnicom and OCI, and Omnicom unconditionally guarantees OCI’s obligations with respect to the notes. OCI provides funding for our operations by incurring debt and lending the proceeds to our operating subsidiaries. OCI’s assets primarily consist of cash and cash equivalents and intercompany loans made to our operating subsidiaries, and the related interest receivable. There are no restrictions on the ability of OCI or Omnicom to obtain funds from our subsidiaries through dividends, loans or advances. Such notes are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness.
Omnicom and OCI have, jointly and severally, fully and unconditionally guaranteed the obligations of Omnicom Finance Holdings plc, or OFH, a U.K.-based wholly owned subsidiary of Omnicom, with respect to the €500 million 0.80% Senior Notes due 2027 and the €500 million 1.40% Senior Notes due 2031, collectively the Euro Notes. OFH’s assets consist of its investments in several wholly owned finance companies that function as treasury centers, providing funding for various operating companies in Europe, Australia and other countries in the Asia-Pacific region. The finance companies’ assets consist of cash and cash equivalents and intercompany loans that they make or have made to the operating companies in their respective regions and the related interest receivable. There are no restrictions on the ability of Omnicom, OCI or OFH to obtain funds from their subsidiaries through dividends, loans or advances. The Euro Notes and the related guarantees are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness of OFH and each of Omnicom and OCI, respectively.
Omnicom has fully and unconditionally guaranteed the obligations of Omnicom Capital Holdings plc, or OCH, a U.K.-based wholly owned subsidiary of Omnicom, with respect to the £325 million 2.25% Senior Notes due 2033, or Sterling Notes. OCH’s assets consist of its investments in several wholly owned finance companies that function as treasury centers, providing funding for various operating companies in EMEA, Australia and other countries in the Asia-Pacific region. The finance companies’ assets consist of cash and cash equivalents and intercompany loans that they make or have made to the operating companies in their respective regions and the related interest receivable. There are no restrictions on the ability of Omnicom or OCH to obtain funds from their subsidiaries through dividends, loans or advances. The Sterling Notes and the related guarantee are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness of OCH and Omnicom, respectively.
Long-term debt maturities at December 31, 2023:
| 2024 | $ | 750.0 | ||||||
| 2025 | — | |||||||
| 2026 | 1,400.0 | |||||||
| 2027 | 553.0 | |||||||
| 2028 | — | |||||||
| Thereafter | 2,966.9 | |||||||
| Long-Term Debt, Gross | $ | 5,669.9 |
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Interest Expense
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Long-term debt | $ | 165.1 | $ | 164.7 | $ | 167.3 | ||||||||||||||
| Fees and early redemption payments | 4.8 | 4.6 | 43.4 | |||||||||||||||||
| Pension and other interest | 50.5 | 35.8 | 35.3 | |||||||||||||||||
| Interest rate and cross currency swaps | (1.9) | 3.5 | (9.6) | |||||||||||||||||
| Interest Expense | $ | 218.5 | $ | 208.6 | $ | 236.4 |
8. Segment Reporting
Our branded agency networks operate in the advertising, marketing and corporate communications services industry, and are organized into agency networks, virtual client networks, regional reporting units and operating groups or practice areas. Our networks, virtual client networks and agencies increasingly share clients and provide clients with integrated services. The main economic components of each agency are employee compensation and related costs, direct service costs and occupancy and other costs which include rent and occupancy costs, technology costs and other overhead expenses. Therefore, given these similarities, we aggregate our six operating segments, which are our agency networks, into one reporting segment.
The agency networks' regional reporting units comprise three principal regions: the Americas, EMEA and Asia-Pacific. The regional reporting units monitor the performance and are responsible for the agencies in their region. Agencies within the regional reporting units serve similar clients in similar industries and in many cases the same clients and have similar economic characteristics.
Revenue and long-lived assets and goodwill by geographic region:
| Americas | EMEA | Asia-Pacific | |||||||||||||||
| December 31, 2023 | |||||||||||||||||
| Revenue | $ | 8,337.8 | $ | 4,576.5 | $ | 1,777.9 | |||||||||||
| Long-lived assets and goodwill | 7,749.5 | 3,523.3 | 730.8 | ||||||||||||||
| December 31, 2022 | |||||||||||||||||
| Revenue | $ | 8,185.0 | $ | 4,357.2 | $ | 1,746.9 | |||||||||||
| Long-lived assets and goodwill | 7,727.0 | 3,315.2 | 757.2 | ||||||||||||||
| December 31, 2021 | |||||||||||||||||
| Revenue | $ | 8,005.8 | $ | 4,487.2 | $ | 1,796.4 | |||||||||||
| Long-lived assets and goodwill | 7,629.2 | 3,615.5 | 689.0 |
9. Equity Method Investments
Income from our equity method investments was $5.2 million in each of 2023 and 2022 and $7.5 million in 2021. At December 31, 2023 and 2022, our proportionate share in the net assets of the equity method investments was $17.0 million and $18.3 million, respectively. Equity method investments are not material to our results of operations or financial position; therefore, summarized financial information is not required to be presented.
10. Share-Based Compensation Plans
Share-based incentive awards are granted to employees under the 2021 Incentive Award Plan, or the 2021 Plan, which was approved by the shareholders. The 2021 Plan is administered by the Compensation Committee of the Board of Directors, or the Compensation Committee. Awards include stock options, restricted stock and other performance-based stock awards. The maximum number of shares of common stock that can be granted under the 2021 Plan is 14.7 million shares plus any shares awarded under the 2021 Plan and any prior plan that have been forfeited or have expired. All awards reduce the number of shares available for grant on a one-for-one basis. The terms of each award and the exercise date are determined by the Compensation Committee. The 2021 Plan does not permit the holder of an award to elect cash settlement under any circumstances. At December 31, 2023, there were 8,604,042 shares available for grant under the 2021 Plan.
Share-based compensation expense in 2023, 2022 and 2021 was $84.8 million, $81.7 million and $84.7 million, respectively. At December 31, 2023, unamortized share-based compensation that will be expensed over the next five years is $195.8 million.
We recognize a tax benefit in income tax expense and record a deferred tax asset for the share-based compensation expense recognized for financial reporting purposes that has not been deducted on our income tax return. Excess tax benefits and deficiencies represent the difference between the actual compensation deduction for tax purposes, which is calculated as the difference between the grant date price of the award, and the price of our common stock on the vesting or exercise date. Any excess tax benefit or deficiency related to share-based compensation is recorded in results of operations, as a component of income tax expense, upon vesting of restricted stock awards or exercise of stock options. In 2023 and 2022, we recognized a tax benefit of $6.7 million and $1.9 million, respectively.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Stock Options
The exercise price of stock option awards cannot be less than 100% of the market price of our common stock on the grant date and have a maximum contractual life of 10 years.
Stock option activity:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||||||||||||||||||||||
| January 1 | 5,127,625 | $72.90 | 4,689,250 | $74.30 | 768,750 | $83.65 | ||||||||||||||||||||||||||||||||
| Granted | — | — | 853,875 | 68.88 | 4,025,000 | 72.47 | ||||||||||||||||||||||||||||||||
| Exercised | (413,750) | 84.94 | (157,500) | 84.94 | (60,000) | 60.17 | ||||||||||||||||||||||||||||||||
| Forfeited | (149,300) | 72.99 | (258,000) | 77.69 | (44,500) | 77.93 | ||||||||||||||||||||||||||||||||
| December 31 | 4,564,575 | $71.81 | 5,127,625 | $72.90 | 4,689,250 | $74.30 | ||||||||||||||||||||||||||||||||
| Exercisable December 31 | — | $ | — | 423,750 | $84.94 | 689,250 | $84.94 |
Options outstanding and exercisable:
| December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Options Outstanding | Options Exercisable | ||||||||||||||||||||||||||||||||||||||||
| Exercise Price Range | Shares | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||||||||||||||||||||||||||||||||
| $63.00 | to | $64.00 | 50,000 | 8.5 years | $63.21 | — | $0.00 | ||||||||||||||||||||||||||||||||||
| $69.00 | to | $70.00 | 789,575 | 8.6 years | $69.23 | — | $0.00 | ||||||||||||||||||||||||||||||||||
| $72.00 | to | $73.00 | 3,725,000 | 7.9 years | $72.47 | — | $0.00 | ||||||||||||||||||||||||||||||||||
| 4,564,575 | — | $ | — |
The grant date fair value for the 2022 and 2021 option awards of $12.60 and $8.47, respectively, was determined using the Black-Scholes option valuation model. The assumptions, without adjusting for forfeitures and lack of liquidity, were: in 2022, an expected life ranging from 6.5 years to 7.5 years, risk free interest rate ranging from 3.0% to 3.1%, expected volatility ranging from 24.5% to 24.7%, and dividend yield ranging from 4.2% to 4.5%, and in 2021, an expected life of 8.0 years, risk free interest rate of 1.4%, expected volatility of 23%, and dividend yield of 4.6% .
Restricted Stock
Restricted stock activity:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| January 1 | 3,010,343 | 2,932,836 | 3,012,988 | ||||||||||||||
| Granted | 1,010,575 | 1,147,496 | 1,017,895 | ||||||||||||||
| Vested | (915,245) | (889,736) | (899,372) | ||||||||||||||
| Forfeited | (303,376) | (180,253) | (198,675) | ||||||||||||||
| December 31 | 2,802,297 | 3,010,343 | 2,932,836 | ||||||||||||||
| Weighted average grant date fair value of shares granted in the period | $84.33 | $59.02 | $68.99 | ||||||||||||||
| Weighted average grant date fair value at December 31 | $64.84 | $61.11 | $63.09 |
Generally, restricted shares vest ratably over five years from the grant date provided the employee remains employed by us. Restricted shares do not pay a dividend, and may not be sold, transferred, pledged or otherwise encumbered until the forfeiture restrictions lapse. Under most circumstances, the employee forfeits the shares if employment ceases prior to the end of the restriction period.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Performance Restricted Stock Units
The Compensation Committee grants certain employees performance restricted stock units, or PRSU. Each PRSU represents the right to receive one share of common stock on vesting. The ultimate number of PRSUs received by the employee depends on the Company's average return on equity over a three-year period compared to the average return on equity of a peer group of principal competitors over the same period. The PRSUs vest three years from the grant date. The PRSUs have a service and performance vesting condition and compensation expense is recognized on a graded-vesting basis. Over the performance period, compensation expense is adjusted upward or downward based on our estimate of the probability of achieving the performance target for the portion of the awards subject to the performance vesting condition. We have assumed that all PRSUs will vest.
PRSU activity:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | |||||||||||||||||||||||||||||||||
| January 1 | 570,235 | $71.19 | 533,890 | $70.42 | 550,561 | $70.17 | ||||||||||||||||||||||||||||||||
| Granted | 178,998 | 92.18 | 218,127 | 76.79 | 165,911 | 74.89 | ||||||||||||||||||||||||||||||||
| Distributed | (186,197) | 61.36 | (181,782) | 75.64 | (182,582) | 73.72 | ||||||||||||||||||||||||||||||||
| December 31 | 563,036 | $81.11 | 570,235 | $71.19 | 533,890 | $70.42 |
Employee Stock Purchase Plan
The employee stock purchase plan, or ESPP, enables employees to purchase our common stock through payroll deductions over each plan quarter at 95% of the market price on the last trading day of the plan quarter. Purchases are limited to 10% of eligible compensation as defined by the Employee Retirement Income Security Act of 1974, or ERISA. In 2023, 2022 and 2021, employees purchased 65,644 shares, 72,672 shares and 73,250 shares, respectively. All shares purchased were issued from treasury stock, for which we received $5.3 million, $5.2 million and $5.0 million, respectively. At December 31, 2023, there were 8,296,140 shares available under the ESPP.
11. Income Taxes
Income before income taxes:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Domestic | $ | 696.0 | $ | 789.3 | $ | 845.9 | |||||||||||
| International | 1,296.9 | 1,156.1 | 1,142.9 | ||||||||||||||
| Income Before Income Taxes | $ | 1,992.9 | $ | 1,945.4 | $ | 1,988.8 |
Income tax expense (benefit):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Current: | |||||||||||||||||
| U.S. federal | $ | 154.2 | $ | 180.1 | $ | 144.0 | |||||||||||
| U.S. state and local | 34.8 | 57.0 | 16.5 | ||||||||||||||
| International | 330.8 | 287.4 | 303.9 | ||||||||||||||
| 519.8 | 524.5 | 464.4 | |||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. federal | 10.9 | 11.1 | 40.0 | ||||||||||||||
| U.S. state and local | 1.3 | (0.3) | (11.6) | ||||||||||||||
| International | (7.1) | 11.5 | (4.1) | ||||||||||||||
| 5.1 | 22.3 | 24.3 | |||||||||||||||
| Income Tax Expense | $ | 524.9 | $ | 546.8 | $ | 488.7 |
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Reconciliation from the statutory U.S. federal income tax rate to effective tax rate:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| U.S. state and local income taxes, net of U.S. federal income tax benefit | 1.4 | 2.3 | 0.2 | ||||||||||||||
| Impact of foreign operations | 3.9 | 3.5 | 3.6 | ||||||||||||||
| Other, including impact of war in Ukraine | — | 1.3 | (0.2) | ||||||||||||||
| Effective tax rate | 26.3 | % | 28.1 | % | 24.6 | % |
Our effective tax rate for 2023 decreased year-over-year to 26.3% from 28.1%. The higher effective tax rate for 2022 was predominantly due to the non-deductibility of the $113.4 million of charges recorded in the first quarter of 2022, arising from the effects of the war in Ukraine, as well as an additional increase in income tax expense of $4.8 million related to the disposition of our businesses in Russia.
The Inflation Reduction Act of 2022, or IRA, levies a 1% excise tax on net stock repurchases after December 31, 2022. The excise tax is recorded as a cost of acquiring treasury stock and is not material. Additionally, the IRA imposes a 15% corporate alternative minimum tax, or CAMT, for tax years beginning after December 31, 2022. The CAMT is not expected to have a material impact on our results of operations or financial position.
Numerous foreign jurisdictions have enacted or are in the process of enacting legislation to adopt a minimum effective tax rate described in the Global Anti-Base Erosion, or Pillar Two, model rules issued by the Organization for Economic Co-operation and Development, or OECD. A minimum effective tax rate of 15% would apply to multinational companies with consolidated revenue above €750 million.
Under the Pillar Two rules, a company would be required to determine a combined effective tax rate for all entities located in a jurisdiction. If the jurisdictional effective tax rate determined under the Pillar Two is less than 15%, a top-up tax will be due to bring the jurisdictional effective tax rate up to 15%. We are continuing to monitor the pending implementation of Pillar Two by individual countries and the potential effects of Pillar Two on our business. We do not expect the provisions effective in 2024 will have a materially adverse impact on our results of operations, financial position or cash flows.
The Tax Cuts and Jobs Act of 2017, or the Tax Act, imposed a one-time tax, the transition tax, on the accumulated earnings of foreign subsidiaries. At December 31, 2023 and 2022, the remaining transition tax liability was $68.9 million and $88.8 million, respectively. The transition tax is expected to be fully paid by 2026. The Tax Act also implemented a territorial tax system that allows us to repatriate earnings of our foreign subsidiaries without incurring additional U.S. tax by providing a 100% dividend exemption. While a territorial tax system limits U.S. federal income tax to domestic source income, foreign source income is subject to tax in the appropriate foreign jurisdiction at the local rate, which in certain jurisdictions may be higher than the U.S. federal statutory income tax rate of 21%. Therefore, the foreign tax rate differential will cause our effective tax rate to be higher than the U.S. federal statutory income tax rate. The international tax rate differentials in 2023 and 2022 are primarily attributed to our earnings in Germany, Australia, Italy, Japan and Canada being taxed at higher rates than the U.S. statutory tax rate.
We have elected to account for any tax on the global intangible low-taxed income, or GILTI, in the period in which it is incurred. We provided $17.0 million and $10.9 million in 2023 and 2022, respectively, for tax impact of GILTI.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Deferred tax assets and liabilities and balance sheet classification:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Deferred tax assets: | |||||||||||
| Compensation | $ | 153.8 | $ | 197.6 | |||||||
| Tax loss and credit carryforwards | 78.6 | 77.1 | |||||||||
| Basis differences from acquisitions | 41.2 | 31.0 | |||||||||
| Basis differences from short-term assets and liabilities | 33.3 | 20.5 | |||||||||
| Other, net | 19.5 | (18.6) | |||||||||
| Deferred tax assets | 326.4 | 307.6 | |||||||||
| Valuation allowance | (18.9) | (21.1) | |||||||||
| Deferred tax assets, net | $ | 307.5 | $ | 286.5 | |||||||
| Deferred tax liabilities: | |||||||||||
| Goodwill and intangible assets | $ | 687.3 | $ | 653.3 | |||||||
| Unremitted foreign earnings | 71.1 | 34.9 | |||||||||
| Basis differences from investments | 3.8 | 6.9 | |||||||||
| Financial instruments | 0.9 | 0.3 | |||||||||
| Deferred tax liabilities | $ | 763.1 | $ | 695.4 | |||||||
| Long-term deferred tax assets | $ | 73.5 | $ | 66.8 | |||||||
| Long-term deferred tax liabilities | $ | 529.1 | $ | 475.7 |
We have concluded that it is more likely than not that we will be able to realize our net deferred tax assets in future periods because results of future operations are expected to generate sufficient taxable income. At December 31, 2023 and 2022, the valuation allowance of $18.9 million and $21.1 million, respectively, relates to tax losses and tax credit carryforwards in the U.S. and in international jurisdictions. Tax loss and credit carryforwards for which there is no valuation allowance are available for periods ranging from 2024 to 2043, which is longer than the forecasted utilization of such carryforwards.
Reconciliation of unrecognized tax benefits:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| January 1 | $ | 167.6 | $ | 162.8 | |||||||
| Additions: | |||||||||||
| Current year tax positions | 3.3 | 2.7 | |||||||||
| Prior year tax positions | 4.3 | 4.7 | |||||||||
| Reduction of prior year tax positions | (7.9) | (1.5) | |||||||||
| Settlements | — | (0.9) | |||||||||
| Foreign currency translation | 0.5 | (0.2) | |||||||||
| December 31 | $ | 167.8 | $ | 167.6 |
Substantially all the liability for uncertain tax positions is recorded in long-term liabilities. At December 31, 2023 and 2022, approximately $161.7 million and $161.8 million, respectively, of the liability for uncertain tax positions would affect our effective tax rate upon resolution of the uncertain tax positions.
Income tax expense in 2023, 2022 and 2021 includes $3.2 million, $4.3 million and $2.1 million, respectively, of interest, net of tax benefit, and penalties related to tax positions taken on our tax returns. At December 31, 2023 and 2022, accrued interest and penalties were $19.9 million and $15.9 million, respectively.
We file a consolidated U.S. federal income tax return and income tax returns in various state and local jurisdictions. Our subsidiaries file tax returns in various foreign jurisdictions. Our principal foreign jurisdictions include the U.K., France and Germany. The Internal Revenue Service has completed its examination of our U.S. federal tax returns through 2017. Tax returns in the U.K., France and Germany have been examined through 2021, 2019 and 2015, respectively.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
12. Pension and Other Postemployment Benefits
Defined Contribution Plans
Our domestic and international subsidiaries provide retirement benefits for their employees primarily through defined contribution profit sharing and savings plans. Contributions to the plans vary by subsidiary and have generally been in amounts up to the maximum percentage of total eligible compensation of participating employees that is deductible for income tax purposes. Contribution expense was $127.9 million, $123.2 million and $115.5 million in 2023, 2022 and 2021, respectively.
Defined Benefit Pension Plans
Two of our U.S. businesses and several of our non-U.S. businesses sponsor noncontributory defined benefit pension plans. These plans provide benefits to employees based on formulas recognizing length of service and earnings. The U.S. plans are subject to ERISA and cover approximately 700 participants. These plans are closed to new participants and do not accrue future benefit credits. The non-U.S. plans, which include statutory plans, are not subject to ERISA and cover approximately 9,000 participants.
We have a Senior Executive Restrictive Covenant and Retention Plan, or Retention Plan, for certain executive officers selected by the Compensation Committee. The Retention Plan is a non-qualified deferred compensation severance plan that is not subject to ERISA. The Retention Plan was adopted to secure non-competition, non-solicitation, non-disparagement and ongoing consulting services from such executive officers and to strengthen the retention aspect of executive officer compensation. The Retention Plan provides annual payments upon termination following at least seven years of service with Omnicom or its subsidiaries to the participants or to their beneficiaries. A participant’s annual benefit is payable for 15 consecutive calendar years following termination, but in no event prior to age 55. The annual benefit is equal to the lesser of (i) the participant’s final average pay times an applicable percentage, which is based upon the executive’s years of service as an executive officer, not to exceed 35% or (ii) $1.5 million adjusted for cost-of-living, beginning with the second annual payment, not to exceed 2.5% per year. The Retention Plan is not funded, and benefits are paid when due.
Net periodic benefit expense:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Service cost | $ | 2.4 | $ | 2.8 | $ | 5.2 | |||||||||||
| Interest cost | 11.1 | 5.6 | 4.2 | ||||||||||||||
| Expected return on plan assets | (0.3) | (1.4) | (1.5) | ||||||||||||||
| Amortization of prior service cost | 0.3 | 0.4 | 0.8 | ||||||||||||||
| Amortization of actuarial loss | 0.7 | 4.0 | 9.3 | ||||||||||||||
| $ | 14.2 | $ | 11.4 | $ | 18.0 |
Included in AOCI at December 31, 2023 and 2022 were unrecognized costs for actuarial losses and prior service cost of $15.9 million ($11.0 million net of income taxes) and $23.4 million ($15.9 million net of income taxes), respectively, that have not yet been recognized in net periodic benefit cost. The unrecognized costs for actuarial gains and losses and prior service cost included in AOCI and expected to be recognized in net periodic benefit cost in 2024 is $1.0 million.
Weighted average assumptions:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Discount rate | 4.7 | % | 2.1 | % | 1.4 | % | |||||||||||
| Compensation increases | 2.6 | % | 2.6 | % | 2.7 | % | |||||||||||
| Expected return on plan assets | 1.5 | % | 1.6 | % | 5.0 | % |
The expected long-term rate of return for plan assets for the U.S. plans is based on several factors, including current and expected asset allocations, historical and expected returns on various asset classes and current and future market conditions. A total return investment approach using a mix of equities and fixed income investments maximizes the long-term return. This strategy is intended to minimize plan expense by achieving long-term returns in excess of the growth in plan liabilities over time. The discount rate used to compute net periodic benefit cost is based on yields of available high-quality bonds and reflects the expected cash flow as of the measurement date. The expected returns on plan assets and discount rates for the non-U.S. plans are based on local factors, including each plan’s investment approach, local interest rates and plan participant profiles.
Experience gains and losses and the effects of changes in actuarial assumptions are generally amortized over a period no longer than the expected average future service of active employees.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Our funding policy is to contribute amounts sufficient to meet minimum funding requirements in accordance with the applicable employee benefit and tax laws that the plans are subject to, plus such additional amounts as we may determine to be appropriate. In 2023 and 2022, we contributed $8.8 million and $8.2 million, respectively, to the defined benefit pension plans. We do not expect the contributions for 2024 to differ materially from the 2023 contributions.
Change in benefit obligation and fair value of plan assets:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Benefit Obligation: | |||||||||||
| January 1 | $ | 228.6 | $ | 289.4 | |||||||
| Service cost | 2.4 | 2.8 | |||||||||
| Interest cost | 11.1 | 5.6 | |||||||||
| Amendments, curtailments and settlements | (0.4) | (0.1) | |||||||||
| Actuarial (gain) loss | (2.1) | (52.2) | |||||||||
| Benefits paid | (12.4) | (10.9) | |||||||||
| Foreign currency translation | (2.9) | (6.0) | |||||||||
| December 31 | $ | 224.3 | $ | 228.6 | |||||||
| Fair Value of Plan Assets: | |||||||||||
| January 1 | $ | 44.0 | $ | 63.0 | |||||||
| Actual return on plan assets | 3.9 | (14.3) | |||||||||
| Employer contributions | 8.8 | 8.2 | |||||||||
| Benefits paid | (12.4) | (10.9) | |||||||||
| Foreign currency translation and other | 1.2 | (2.0) | |||||||||
| December 31 | $ | 45.5 | $ | 44.0 |
Funded status and balance sheet classification:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Funded Status | $ | (178.8) | $ | (184.6) | |||||||
| Other assets | $ | 2.1 | $ | 2.4 | |||||||
| Other current liabilities | (8.6) | (7.5) | |||||||||
| Long-term liabilities | (172.3) | (179.5) | |||||||||
| $ | (178.8) | $ | (184.6) |
At December 31, 2023 and 2022, the accumulated benefit obligation for our defined benefit pension plans was $179.5 million and $181.4 million, respectively.
Plans with benefit obligations in excess of plan assets:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Benefit obligation | $ | (215.5) | $ | (221.2) | |||||||
| Plan assets | 34.7 | 34.2 | |||||||||
| $ | (180.8) | $ | (187.0) |
Weighted average assumptions:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Discount rate | 4.6 | % | 4.4 | % | |||||||
| Compensation increases | 3.5 | % | 3.5 | % |
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
At December 31, 2023, the estimated benefits expected to be paid over the next 10 years:
| 2024 | $ | 12.2 | |||
| 2025 | 17.0 | ||||
| 2026 | 17.1 | ||||
| 2027 | 17.8 | ||||
| 2028 | 22.2 | ||||
| 2029 - 2033 | 89.6 |
Postemployment Arrangements
We have executive retirement agreements under which benefits will be paid to participants or to their beneficiaries over periods up to ten years beginning after cessation of full-time employment. Our postemployment arrangements are unfunded, and benefits are paid when due.
Net periodic benefit expense:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Service cost | $ | 3.4 | $ | 4.5 | $ | 4.8 | |||||||||||
| Interest cost | 5.7 | 2.6 | 2.1 | ||||||||||||||
| Amortization of prior service cost | 3.8 | 3.8 | 4.1 | ||||||||||||||
| Amortization of actuarial loss | — | 2.5 | 3.9 | ||||||||||||||
| Total Net Periodic Benefit Expense | $ | 12.9 | $ | 13.4 | $ | 14.9 |
Included in AOCI at December 31, 2023 and 2022 were unrecognized costs for actuarial losses and prior service cost of $41.1 million ($28.8 million net of income taxes) and $31.6 million ($21.9 million net of income taxes), respectively, that have not yet been recognized in the net periodic benefit cost. The unrecognized costs for actuarial gains and losses and prior service cost included in AOCI and expected to be recognized in net periodic benefit cost in 2024 is $3.8 million.
Weighted average assumptions:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Discount rate | 4.7 | % | 1.8 | % | 1.4 | % | |||||||||||
| Compensation increases | 3.5 | % | 3.5 | % | 3.5 | % |
Experience gains and losses and effects of changes in actuarial assumptions are amortized over a period no longer than the expected average future service of active employees.
Benefit obligation and balance sheet classification:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| January 1 | $ | 130.8 | $ | 153.0 | |||||||
| Service cost | 3.4 | 4.5 | |||||||||
| Interest cost | 5.7 | 2.6 | |||||||||
| Amendments | 6.9 | 5.8 | |||||||||
| Actuarial (gain) loss | 6.3 | (24.7) | |||||||||
| Benefits paid | (10.9) | (10.4) | |||||||||
| December 31 | $ | 142.2 | $ | 130.8 |
| Other current liabilities | $ | 11.9 | $ | 10.5 | |||||||
| Long-term liabilities | 130.3 | 120.3 | |||||||||
| Total Benefit Obligation | $ | 142.2 | $ | 130.8 |
Weighted average assumptions:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Discount rate | 4.6 | % | 4.8 | % | |||||||
| Compensation increases | 3.5 | % | 3.5 | % |
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
At December 31, 2023, the estimated benefits expected to be paid over the next 10 years:
| 2024 | $ | 11.9 | |||
| 2025 | 13.2 | ||||
| 2026 | 13.4 | ||||
| 2027 | 13.5 | ||||
| 2028 | 13.1 | ||||
| 2029 - 2033 | 52.9 |
13. Real Estate and Other Repositioning Costs
In connection with the transition to a flexible working environment, a hybrid model that allows for partial remote work, we took certain actions in the first quarter of 2023 to reduce and reposition our office lease portfolio. In the second quarter of 2023, as a result of our continuing efforts to increase efficiencies and relevant skill sets to meet client demands, we incurred severance charges and other exit costs associated with rebalancing our workforce and consolidating operations in certain markets.
As a result, for the year ended December 31, 2023, operating expenses included $191.5 million ($145.5 million after tax), primarily related to non-cash impairment charges for the operating lease right-of-use, or ROU, assets, severance charges, and other exit costs. All severance and other costs were paid during the year ended December 31, 2023. Substantially all of the operating lease payments related to the ROU assets will be paid out over three years.
14. Dispositions of Subsidiaries
In April 2023, we disposed of certain research businesses included in our Execution & Support discipline. As a result, we recorded a pretax gain of $78.8 million. The disposition will not have a material impact on our ongoing results of operations or financial position.
15. Charges Arising from the Effects of the War in Ukraine
In 2022, we disposed of our businesses in Russia. In the first quarter of 2022, we recorded pretax charges of $113.4 million, which included cash charges of $47.6 million and primarily consisted of the loss on the disposition of our net investment in our Russian businesses and included charges related to the suspension of operations in Ukraine. All the charges related to the disposition of our businesses in Russia have been paid as of December 31, 2022, and substantially all of our commitments related to the suspension of operations in Ukraine have been paid.
16. Supplemental Cash Flow Data
Change in operating capital:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (Increase) decrease in accounts receivable | $ | (513.9) | $ | (129.1) | $ | (989.1) | |||||||||||
| (Increase) decrease in work in process and other current assets | (121.8) | (197.9) | (281.7) | ||||||||||||||
| Increase (decrease) in accounts payable | 602.3 | (350.1) | 921.3 | ||||||||||||||
| Increase (decrease) in customer advances, taxes payable and other current liabilities | (399.6) | (97.8) | 338.8 | ||||||||||||||
| Change in other assets and liabilities, net | (29.9) | (69.1) | 171.2 | ||||||||||||||
| Increase (decrease) in operating capital | $ | (462.9) | $ | (844.0) | $ | 160.5 |
Supplemental financial information:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Income taxes paid | $ | 474.3 | $ | 450.3 | $ | 454.4 | |||||||||||
| Interest paid | $ | 162.8 | $ | 173.9 | $ | 219.3 |
Interest paid for 2021 includes a $37.7 million cash payment on the early redemption of all the outstanding $1.25 billion principal amount of 3.625% Senior Notes due 2022.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Non-cash increase in lease liabilities:
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating leases | $ | 206.9 | $ | 241.7 | |||||||
| Finance leases | $ | 48.2 | $ | 74.5 |
17. Noncontrolling Interests
Changes in the ownership interests in our less than 100% owned subsidiaries:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net income attributed to Omnicom Group Inc. | $ | 1,391.4 | $ | 1,316.5 | $ | 1,407.8 | |||||||||||
| Net transfers (to) from noncontrolling interests | (88.1) | (17.1) | (12.2) | ||||||||||||||
| Change from net income attributed to Omnicom Group Inc. and transfers (to) from noncontrolling interests | $ | 1,303.3 | $ | 1,299.4 | $ | 1,395.6 |
18. Leases and Property and Equipment
Leases
| Year Ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Lease cost: | ||||||||||||||
| Operating lease cost | $ | 216.2 | $ | 243.8 | ||||||||||
| Variable lease cost | 29.9 | 23.5 | ||||||||||||
| Short-term lease cost | 2.5 | 2.5 | ||||||||||||
| Sublease income | (3.7) | (3.8) | ||||||||||||
| Total Operating Leases | 244.9 | 266.0 | ||||||||||||
| Finance lease cost: | ||||||||||||||
| Depreciation of ROU assets | 58.9 | 55.1 | ||||||||||||
| Interest | 7.4 | 5.7 | ||||||||||||
| Total Finance Leases | 66.3 | 60.8 | ||||||||||||
| Total Lease Cost | $ | 311.2 | $ | 326.8 |
Future lease payments:
| December 31 | |||||||||||||||||
| Operating Leases | Finance Leases | ||||||||||||||||
| 2024 | $ | 251.6 | $ | 57.7 | |||||||||||||
| 2025 | 206.8 | 44.5 | |||||||||||||||
| 2026 | 176.5 | 27.5 | |||||||||||||||
| 2027 | 134.7 | 12.7 | |||||||||||||||
| 2028 | 105.4 | 3.0 | |||||||||||||||
| Thereafter | 470.0 | 2.1 | |||||||||||||||
| Total lease payments | 1,345.0 | 147.5 | |||||||||||||||
| Less: Interest | 274.7 | 9.3 | |||||||||||||||
| Present Value of Lease Liabilities | $ | 1,070.3 | $ | 138.2 |
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
Balance sheet classification of operating leases:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating Lease ROU Assets | $ | 1,046.4 | $ | 1,165.0 | |||||||
| Lease liability: | |||||||||||
| Other current liabilities | $ | 217.3 | $ | 207.9 | |||||||
| Long-term liability - operating leases | 853.0 | 900.0 | |||||||||
| Total Operating Lease Liability | $ | 1,070.3 | $ | 1,107.9 |
At December 31, 2023 and 2022, office space and equipment operating leases had a weighted average remaining lease term of 6.4 and 6.9 years, respectively, and a weighted average discount rate of 3.7% and 3.4%, respectively.
Property and Equipment
Property and equipment:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Property and equipment - owned | $ | 1,620.9 | $ | 1,684.6 | |||||||
| Equipment under finance leases | 404.4 | 383.0 | |||||||||
| Property and Equipment, Gross | 2,025.3 | 2,067.6 | |||||||||
| Accumulated depreciation | (1,150.4) | (1,167.5) | |||||||||
| Property and Equipment, Net | $ | 874.9 | $ | 900.1 |
At December 31, 2023 and 2022, finance leases had a weighted average remaining lease term of 2.9 years and 3.1 years, respectively, and a weighted average discount rate of 6.6% and 5.1%, respectively.
19. Temporary Equity - Redeemable Noncontrolling Interests
Owners of noncontrolling equity interests in certain of our subsidiaries have the right in certain circumstances to require us to purchase all or a portion of their equity interest at fair value as defined in the applicable agreements. Assuming that the subsidiaries perform at their current and projected profit levels, at December 31, 2023, the aggregate estimated amount we could be required to pay in future periods is $414.6 million, of which $120.9 million is currently exercisable by the holders. If these rights are exercised, there would be an increase in net income attributable to Omnicom as a result of our increased ownership interest and the reduction of net income attributable to noncontrolling interests. The ultimate amount paid could be significantly different because the redemption amount depends on the future results of operations of the subject businesses, the timing of the exercise of these rights and changes in foreign currency exchange rates. Upon redemption, the difference between the estimated redemption value and the actual amount paid is recorded in additional paid-in capital.
20. Commitments and Contingent Liabilities
In the ordinary course of business, we are involved in various legal proceedings. We do not expect that these proceedings will have a material adverse effect on our business, results of operations or financial position.
21. Accumulated Other Comprehensive Income (Loss)
Changes in AOCI, net of income taxes:
| Cash Flow Hedge | Defined Benefit Pension Plans and Postemployment Arrangements | Foreign Currency Translation | Total | ||||||||||||||||||||
| January 1, 2022 | $ | (16.1) | $ | (90.4) | $ | (1,145.8) | $ | (1,252.3) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | — | 41.5 | (238.7) | (197.2) | |||||||||||||||||||
| Reclassification from accumulated other comprehensive income (loss) | 4.0 | 7.6 | — | 11.6 | |||||||||||||||||||
| December 31, 2022 | (12.1) | (41.3) | (1,384.5) | (1,437.9) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | — | (4.8) | 97.7 | 92.9 | |||||||||||||||||||
| Reclassification from accumulated other comprehensive income (loss) | 4.0 | 3.4 | — | 7.4 | |||||||||||||||||||
| December 31, 2023 | $ | (8.1) | $ | (42.7) | $ | (1,286.8) | $ | (1,337.6) |
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
22. Fair Value
Financial assets and liabilities measured at fair value on a recurring basis:
| December 31, 2023 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 4,432.0 | $ | 4,432.0 | |||||||||||||||||||
| Marketable equity securities | 0.9 | 0.9 | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Cross currency swaps - net investment hedge | $ | 6.6 | $ | 6.6 | |||||||||||||||||||
| Contingent purchase price obligations | $ | 229.5 | 229.5 | ||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 4,281.8 | $ | 4,281.8 | |||||||||||||||||||
| Short-term investments | $ | 60.7 | 60.7 | ||||||||||||||||||||
| Marketable equity securities | 0.9 | 0.9 | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign currency derivatives | $ | 0.1 | $ | 0.1 | |||||||||||||||||||
| Cross currency swaps - net investment hedge | 16.5 | 16.5 | |||||||||||||||||||||
| Contingent purchase price obligations | $ | 115.0 | 115.0 |
Changes in contingent purchase price obligations:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| January 1 | $ | 115.0 | $ | 167.1 | |||||||
| Acquisitions | 217.4 | 13.3 | |||||||||
| Revaluation and interest | (36.1) | (26.0) | |||||||||
| Payments | (67.7) | (32.7) | |||||||||
| Foreign currency translation | 0.9 | (6.7) | |||||||||
| December 31 | $ | 229.5 | $ | 115.0 |
Carrying amount and fair value of our financial assets and liabilities:
| December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 4,432.0 | $ | 4,432.0 | $ | 4,281.8 | $ | 4,281.8 | |||||||||||||||
| Short-term investments | — | — | 60.7 | 60.7 | |||||||||||||||||||
| Marketable equity securities | 0.9 | 0.9 | 0.9 | 0.9 | |||||||||||||||||||
| Non-marketable equity securities | 6.7 | 6.7 | 5.6 | 5.6 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Short-term debt | $ | 10.9 | $ | 10.9 | $ | 16.9 | $ | 16.9 | |||||||||||||||
| Foreign currency derivatives | — | — | 0.1 | 0.1 | |||||||||||||||||||
| Cross currency swaps - net investment hedge | 6.6 | 6.6 | 16.5 | 16.5 | |||||||||||||||||||
| Contingent purchase price obligations | 229.5 | 229.5 | 115.0 | 115.0 | |||||||||||||||||||
| Long-term debt | 5,639.6 | 5,237.8 | 5,577.2 | 4,993.4 |
The estimated fair values of the cross-currency swaps and foreign currency derivative instruments are determined using model-derived valuations, taking into consideration foreign currency rates, interest rates, and counterparty credit risk. The estimated fair value of the contingent purchase price obligations is calculated in accordance with the terms of each acquisition agreement and is discounted. The fair value of long-term debt is based on quoted market prices.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
23. Derivative Instruments and Hedging Activities
We manage our exposure to foreign exchange rate risk and interest rate risk through various strategies, including the use of derivative financial instruments. We use net investment hedges to manage the volatility of foreign exchange rates on the investment in our foreign subsidiaries. We may use forward foreign exchange contracts as economic hedges to manage the cash flow volatility arising from foreign exchange rate fluctuations related to foreign currency transactions. We do not use derivatives for trading or speculative purposes. Using derivatives exposes us to the risk that counterparties to the derivative contracts will fail to meet their contractual obligations. We manage that risk through careful selection and ongoing evaluation of the counterparty financial institutions based on specific minimum credit standards and other factors.
We evaluate the effects of changes in foreign currency exchange rates, interest rates and other relevant market risks on our derivatives. We periodically determine the potential loss from market risk on our derivatives by performing a value-at-risk, or VaR, analysis. VaR is a statistical model that uses historical currency exchange rate data to measure the potential impact on future earnings of our derivative financial instruments assuming normal market conditions. The VaR model is not intended to represent actual losses but is used as a risk estimation and management tool. Based on the results of the model, we estimate with 95% confidence a maximum one-day change in the net fair value of our derivative financial instruments at December 31, 2023 was not significant.
Foreign Currency Exchange Risk
As an integral part of our global treasury operations, we centralize our cash and use notional multicurrency pools to manage the foreign currency exchange risk that arises from imbalances between subsidiaries and their respective treasury centers. In addition, there are circumstances where revenue and expense transactions are not denominated in the same currency. In these instances, amounts are either promptly settled or hedged with forward foreign exchange contracts. To manage this risk, at December 31, 2022, we had outstanding forward foreign exchange contracts with an aggregate notional amount of $40.3 million. There were no outstanding forward foreign exchange contracts at December 31, 2023.
Foreign currency derivatives are designated as fair value hedges; therefore, any gain or loss in fair value incurred on those instruments is recorded in results of operations and is generally offset by decreases or increases in the fair value of the underlying exposure. By using these financial instruments, we reduce financial risk of adverse foreign exchange changes by foregoing any gain which might occur if the markets move favorably. The terms of our forward foreign exchange contracts are generally less than 90 days.
We have fixed-to-fixed cross currency swaps with a notional value of $150 million that hedge a portion of the net investment in our Japanese subsidiaries against volatility in the Yen/U.S. Dollar exchange rate. The swaps are designated and qualify as a hedge of a net investment in a foreign subsidiary and are scheduled to mature in 2025 and 2029. Changes in the fair value of the swaps are recognized in foreign currency translation and are reported in AOCI. Any gain or loss will remain in AOCI until the complete or substantially complete liquidation of our investment in the underlying operations. We have elected to assess the effectiveness of our net investment hedges based on changes in spot exchange rates. We receive net fixed U.S. Dollar interest payments from the swaps, and we recorded a reduction of interest expense of $6.6 million and $1.2 million in 2023 and 2022, respectively. At December 31, 2023 and 2022, the liability for the swap fair value was $6.6 million and $16.5 million, respectively, and was recorded in long-term liabilities.
Interest Rate Risk
We may use interest rate swaps to manage our interest cost and structure our long-term debt portfolio to achieve a mix of fixed rate and floating rate debt. There were no interest rate swaps in 2023 and 2022. Long-term debt at December 31, 2023 and 2022 consisted entirely of fixed-rate debt.
24. New Accounting Standards
On November 27, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), that requires disclosure of significant expenses that are regularly provided to the chief operating decision maker. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. ASU 2023-07 requires retrospective application in the period of initial application. We will apply ASU 2023-07 for annual periods beginning on January 1, 2024, and for interim periods beginning on January 1, 2025. ASU 2023-07 affects financial statement disclosure only, and its adoption will not affect our results of operations or financial position.
On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), that requires, among other things, greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. We will apply ASU 2023-09 on January 1, 2025. ASU 2023-09 affects financial statement disclosure only and its adoption will not affect our results of operations or financial position.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in millions, except per share amounts.)
25. Subsequent Events
As described in Note 5, on January 2, 2024, we acquired Flywheel Digital, the digital commerce business of Ascential plc, for a net cash purchase price of approximately $845 million. As described in Note 7, on January 3, 2024, we entered into a Term Loan Facility that provides for a delayed-draw term loan up to an aggregate principal amount of $600 million. We have evaluated events subsequent to the balance sheet date and determined there have not been any other events that have occurred that would require adjustment to or disclosure in the consolidated financial statements.
F-32
OMNICOM GROUP INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 2023
(In millions)
| Description | Balance Beginning of Period | Charged to Costs and Expenses | Removal of Uncollectible Receivables | Translation Adjustment Increase (Decrease) | Balance End of Period | ||||||||||||||||||||||||
| Valuation accounts deducted from assets: | |||||||||||||||||||||||||||||
| Allowance for Doubtful Accounts: | |||||||||||||||||||||||||||||
| December 31, 2023 | $ | 24.7 | $ | (2.8) | $ | (5.1) | $ | 0.4 | $ | 17.2 | |||||||||||||||||||
| December 31, 2022 | 21.7 | 6.1 | (2.4) | (0.7) | 24.7 | ||||||||||||||||||||||||
| December 31, 2021 | 30.4 | 4.7 | (12.7) | (0.7) | 21.7 |
S-1
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