Omnicom Group 10-Q 2023-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-10551

OMNICOM GROUP INC.

(Exact name of registrant as specified in its charter)

New York			13-1514814
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)
280 Park Avenue, New York, NY			10017
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (212) 415-3600

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbols			Name of each exchange on which registered
Common Stock, $0.15 Par Value			OMC			New York Stock Exchange
0.800% Senior Notes due 2027			OMC/27			New York Stock Exchange
1.400% Senior Notes due 2031			OMC/31			New York Stock Exchange
2.250% Senior Notes due 2033			OMC/33			New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☑			Accelerated filer			☐			Non-accelerated filer			☐
Smaller reporting company			☐									Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of April 11, 2023, there were 199,514,755 shares of Omnicom Group Inc. Common Stock outstanding.

OMNICOM GROUP INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

TABLE OF CONTENTS

PART I.			FINANCIAL INFORMATION			Page
Item 1.			Financial Statements
			Consolidated Balance Sheets - March 31, 2023 and December 31, 2022			1
			Consolidated Statements of Income - Three Months Ended March 31, 2023 and 2022			2
			Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2023 and 2022			3
			Consolidated Statements of Equity - Three Months Ended March 31, 2023 and 2022			4
			Consolidated Statements of Cash Flows - Three Months Ended March 31, 2023 and 2022			5
			Notes to Consolidated Financial Statements			6
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
			Forward-Looking Statements			14
			Executive Summary			14
			Consolidated Results of Operations			17
			Non-GAAP Financial Measures			22
			Liquidity and Capital Resources			24
			Critical Accounting Estimates			26
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			26
Item 4.			Controls and Procedures			27
PART II.			OTHER INFORMATION
Item 1.			Legal Proceedings			27
Item 1A.			Risk Factors			27
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			27
Item 6.			Exhibits			28
SIGNATURES						28

i

PART I. FINANCIAL INFORMATION

OMNICOM GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions)

			March 31, 2023						December 31, 2022
			(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents			$	3,261.5					$	4,281.8
Short-term investments			87.4						60.7
Accounts receivable, net of allowance for doubtful accounts of $23.1 and $24.7			7,062.2						8,097.1
Work in process			1,508.9						1,254.6
Other current assets			975.2						918.8
Total Current Assets			12,895.2						14,613.0
Property and Equipment at cost, less accumulated depreciation of $1,205.6 and $1,167.5			884.0						900.1
Operating Lease Right-Of-Use Assets			1,077.2						1,165.0
Equity Method Investments			66.4						66.2
Goodwill			9,792.6						9,734.3
Intangible Assets, net of accumulated amortization of $834.9 and $819.9			300.3						313.4
Other Assets			221.9						210.5
TOTAL ASSETS			$	25,237.6					$	27,002.5
LIABILITIES AND EQUITY:
Current Liabilities:
Accounts payable			$	9,585.2					$	11,000.2
Customer advances			1,279.6						1,492.3
Short-term debt			18.5						16.9
Taxes payable			334.2						300.0
Other current liabilities			2,247.6						2,243.4
Total Current Liabilities			13,465.1						15,052.8
Long-Term Liabilities			839.9						837.5
Long-Term Liability - Operating Leases			890.7						900.0
Long-Term Debt			5,609.4						5,577.2
Deferred Tax Liabilities			439.6						475.7
Commitments and Contingent Liabilities (Note 12)
Temporary Equity - Redeemable Noncontrolling Interests			361.7						382.9
Equity:
Shareholders’ Equity:
Preferred stock			—						—
Common stock			44.6						44.6
Additional paid-in capital			580.7						571.1
Retained earnings			9,825.5						9,739.3
Accumulated other comprehensive income (loss)			(1,384.5)						(1,437.9)
Treasury stock, at cost			(5,949.7)						(5,665.0)
Total Shareholders’ Equity			3,116.6						3,252.1
Noncontrolling interests			514.6						524.3
Total Equity			3,631.2						3,776.4
TOTAL LIABILITIES AND EQUITY			$	25,237.6					$	27,002.5

The accompanying notes to the consolidated financial statements are an integral part of these statements.

OMNICOM GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In millions, except per share amounts)

			Three Months Ended March 31,
			2023						2022
REVENUE			$	3,443.3					$	3,410.3
OPERATING EXPENSES:
Salary and service costs			2,542.9						2,491.8
Occupancy and other costs			291.6						300.2
Real estate repositioning costs			119.2						—
Charges arising from the effects of the war in Ukraine			—						113.4
Cost of services			2,953.7						2,905.4
Selling, general and administrative expenses			89.2						96.7
Depreciation and amortization			53.9						55.2
Total Operating Expenses			3,096.8						3,057.3
OPERATING INCOME			346.5						353.0
Interest Expense			54.9						51.0
Interest Income			35.6						8.2
INCOME BEFORE INCOME TAXES AND INCOME (LOSS) FROM EQUITY METHOD INVESTMENTS			327.2						310.2
Income Tax Expense			83.4						115.5
Income (Loss) From Equity Method Investments			0.1						(0.1)
NET INCOME			243.9						194.6
Net Income Attributed To Noncontrolling Interests			16.4						20.8
NET INCOME - OMNICOM GROUP INC.			$	227.5					$	173.8
Net Income Per Share - Omnicom Group Inc.:
Basic			$	1.13					$	0.83
Diluted			$	1.11					$	0.83
Weighted Average Shares:
Basic			202.2						208.3
Diluted			204.5						209.8

The accompanying notes to the consolidated financial statements are an integral part of these statements.

OMNICOM GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)

			Three Months Ended March 31,
			2023						2022
NET INCOME			$	243.9					$	194.6
OTHER COMPREHENSIVE INCOME:
Cash flow hedge:
Amortization of loss included in interest expense			1.4						1.4
Income tax effect			(0.4)						(0.4)
Cash flow hedge, net of tax			1.0						1.0
Defined benefit pension plans and postemployment arrangements:
Amortization of prior service cost			1.1						1.0
Amortization of actuarial losses			0.2						1.6
Income tax effect			(0.9)						(1.3)
Defined benefit pension plans and postemployment arrangements, net of tax			0.4						1.3
Foreign currency translation adjustment			51.8						28.1
Other Comprehensive Income			53.2						30.4
TOTAL COMPREHENSIVE INCOME			297.1						225.0
Comprehensive Income Attributed To Noncontrolling Interests			16.2						21.5
COMPREHENSIVE INCOME - OMNICOM GROUP INC.			$	280.9					$	203.5

The accompanying notes to the consolidated financial statements are an integral part of these statements.

OMNICOM GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In millions, except per share amounts)

			Three Months Ended March 31,
			2023						2022
COMMON STOCK:
Common Stock, shares issued			297.2						297.2
Common Stock, par value			$	44.6					$	44.6
ADDITIONAL PAID-IN CAPITAL:
Beginning Balance			571.1						622.0
Net change in noncontrolling interests			(38.5)						(5.6)
Change in temporary equity			21.3						(57.8)
Share-based compensation			20.7						20.0
Stock issued, share-based compensation			6.1						5.9
Ending Balance			580.7						584.5
RETAINED EARNINGS:
Beginning Balance			9,739.3						8,998.8
Net income			227.5						173.8
Common stock dividends declared			(141.3)						(145.3)
Ending Balance			9,825.5						9,027.3
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Beginning Balance			(1,437.9)						(1,252.3)
Other comprehensive income			53.4						29.7
Ending Balance			(1,384.5)						(1,222.6)
TREASURY STOCK:
Beginning Balance			(5,665.0)						(5,142.9)
Stock issued, share-based compensation			20.4						9.1
Common stock repurchased			(305.1)						(300.3)
Ending Balance			(5,949.7)						(5,434.1)
SHAREHOLDERS' EQUITY			3,116.6						2,999.7
NONCONTROLLING INTERESTS:
Beginning Balance			524.3						503.5
Net income			16.4						20.8
Other comprehensive income (loss)			(0.2)						0.7
Dividends to noncontrolling interests			(12.5)						(14.0)
Net change in noncontrolling interests			(13.4)						(9.9)
Increase in noncontrolling interests from business combinations			—						47.8
Ending Balance			514.6						548.9
TOTAL EQUITY			$	3,631.2					$	3,548.6
Dividends Declared Per Common Share			$	0.70					$	0.70

The accompanying notes to the consolidated financial statements are an integral part of these statements.

OMNICOM GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

			Three Months Ended March 31,
			2023						2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	243.9					$	194.6
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of right-of-use assets			34.6						35.8
Amortization of intangible assets			19.3						$	19.4
Amortization of net deferred loss on interest rate swaps			1.4						1.4
Share-based compensation			20.7						20.0
Real estate repositioning costs			119.2						—
Non-cash charges related to the effects of the war in Ukraine			—						65.8
Other, net			(10.2)						2.7
Use of operating capital			(951.0)						(884.2)
Net Cash Used In Operating Activities			(522.1)						(544.5)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(23.1)						(23.2)
Acquisition of businesses and interests in affiliates, net of cash acquired			—						(246.6)
Other, net			(14.5)						(92.0)
Net Cash Used In Investing Activities			(37.6)						(361.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt			1.0						2.4
Dividends paid to common shareholders			(142.3)						(147.4)
Repurchases of common stock			(305.1)						(300.3)
Proceeds from stock plans			26.3						13.5
Acquisition of additional noncontrolling interests			(29.2)						(6.3)
Dividends paid to noncontrolling interest shareholders			(12.5)						(14.0)
Payment of contingent purchase price obligations			(9.2)						(6.0)
Other, net			(8.0)						(18.2)
Net Cash Used In Financing Activities			(479.0)						(476.3)
Effect of foreign exchange rate changes on cash and cash equivalents			18.4						(8.7)
Net Decrease in Cash and Cash Equivalents			(1,020.3)						(1,391.3)
Cash and Cash Equivalents at the Beginning of Period			4,281.8						5,316.8
Cash and Cash Equivalents at the End of Period			$	3,261.5					$	3,925.5

The accompanying notes to the consolidated financial statements are an integral part of these statements.

OMNICOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in tables in millions, except per share data or unless otherwise noted)

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 unaudited consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP or GAAP, for interim financial information and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosure have been condensed or omitted.

In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation, in all material respects, of the information contained herein. These unaudited consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022, or 2022 10-K. Results for the interim periods are not necessarily indicative of results that may be expected for the year.

Risks and Uncertainties

Current global economic challenges, including the impact of the war in Ukraine, high and persistent inflation, rising interest rates, supply chain disruptions, credit market deterioration, and other macroeconomic factors, 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. 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 & Brand Consulting, Experiential, Execution & Support, Public Relations and Healthcare. Advertising & Media includes 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 & Brand Consulting services include brand and product consulting, strategy and research, retail and ecommerce. Experiential marketing services include live and digital events and experience design and execution. Execution & Support includes field marketing, 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.

OMNICOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in tables in millions, except per share data or unless otherwise noted)

Revenue by discipline was:

			Three Months Ended March 31,
			2023						2022
Advertising & Media			$	1,776.5					$	1,770.2
Precision Marketing			360.0						339.2
Commerce & Brand Consulting			209.6						211.4
Experiential			147.8						139.7
Execution & Support			255.5						277.0
Public Relations			375.5						362.4
Healthcare			318.4						310.4
Revenue			$	3,443.3					$	3,410.3

Effective January 1, 2023, we realigned the classification of certain services primarily within our Commerce & Brand Consulting, Execution & Support, and Experiential disciplines.

Revenue in our geographic markets was:

			Three Months Ended March 31,
			2023						2022
Americas:
North America			$	1,926.8					$	1,839.0
Latin America			74.0						67.7
EMEA:
Europe			951.9						992.0
Middle East and Africa			84.9						81.9
Asia-Pacific			405.7						429.7
Revenue			$	3,443.3					$	3,410.3

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 for the three months ended March 31, 2023 and 2022 was $1,812.2 million and $1,724.6 million, respectively.

Contract assets and liabilities

Contract assets and contract liabilities were:

			March 31, 2023						December 31, 2022						March 31, 2022
Media and production costs			$	710.9					$	725.1					$	654.3
Contract assets and unbilled fees and costs			798.0						529.5						662.5
Work in process			$	1,508.9					$	1,254.6					$	1,316.8
Contract liabilities:
Customer advances			$	1,279.6					$	1,492.3					$	1,463.8

Work in process represents accrued costs incurred on behalf of customers, including media and production costs, and fees and other third-party costs 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. 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. Substantially all unbilled fees and costs will be billed within the next 30 days. There were no impairment losses to the contract assets recorded in the three months ended March 31, 2023 and 2022. Contract liabilities primarily represent advance billings to customers in accordance with the terms of the client contracts, principally for the reimbursement of third-party costs that are generally incurred in the near term.

OMNICOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in tables in millions, except per share data or unless otherwise noted)

3. Net Income per Share

The computations of basic and diluted net income per share were:

			Three Months Ended March 31,
			2023						2022
Net Income - Omnicom Group Inc.			$	227.5					$	173.8
Weighted Average Shares:
Basic			202.2						208.3
Dilutive stock options and restricted shares			2.3						1.5
Diluted			204.5						209.8
Anti-dilutive stock options and restricted shares			—						0.5
Net Income per Share - Omnicom Group Inc.:
Basic			$1.13						$0.83
Diluted			$1.11						$0.83

4. Goodwill and Intangible Assets

Goodwill:

						Three Months Ended March 31,
						2023						2022
January 1						$	9,734.3					$	9,738.6
Acquisitions						—						215.2
Noncontrolling interests in acquired businesses						—						47.8
Dispositions						(1.4)						(19.4)
Foreign currency translation						59.7						(30.3)
March 31						$	9,792.6					$	9,951.9

There were no goodwill impairment losses recorded in the three months ended March 31, 2023 and 2022, and there are no accumulated goodwill impairment losses.

Intangible assets:

			March 31, 2023																		December 31, 2022
			Gross Carrying Value						Accumulated Amortization						Net Carrying Value						Gross Carrying Value						Accumulated Amortization						Net Carrying Value
Purchased and internally developed software			$	374.2					$	(309.8)					$	64.4					$	374.8					$	(309.1)					$	65.7
Customer related and other			761.0						(525.1)						235.9						758.5						(510.8)						247.7
Total Intangible Assets			$	1,135.2					$	(834.9)					$	300.3					$	1,133.3					$	(819.9)					$	313.4

5. Debt

Credit Facilities

We have a $2.5 billion multi-currency revolving credit facility, or Credit Facility, with a termination date of February 14, 2025. In addition, 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. Certain of our international subsidiaries have uncommitted credit lines that are guaranteed by Omnicom aggregating $588.5 million. These facilities provide additional liquidity sources for operating capital and general corporate purposes. During the three months ended March 31, 2023, there were no borrowings under the Credit Facility, and there were no commercial paper issuances.

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 March 31, 2023, we were in compliance with this covenant as our Leverage Ratio was 2.4 times. The Credit Facility does not limit our ability to declare or pay dividends or repurchase our common stock.

OMNICOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in tables in millions, except per share data or unless otherwise noted)

Short-Term Debt

Short-term debt of $18.5 million and $16.9 million at March 31, 2023 and December 31, 2022, respectively, represented bank overdrafts and short-term borrowings primarily of our international subsidiaries. Due to the short-term nature of this debt, carrying value approximates fair value.

Long-Term Debt

Long-term debt was:

			March 31, 2023						December 31, 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			545.3						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			545.3						534.9
2.60% Senior Notes due 2031			800.0						800.0
£325 million 2.25% Senior Notes due 2033			402.5						392.0
Long-Term Debt, Gross			5,643.1						5,611.8
Unamortized discount			(8.8)						(9.0)
Unamortized debt issuance costs			(25.3)						(26.2)
Unamortized deferred gain from settlement of interest rate swaps			0.4						0.6
Long-Term Debt			$	5,609.4					$	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.

OMNICOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in tables in millions, except per share data or unless otherwise noted)

6. 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 and 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 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 were:

			Americas						EMEA						Asia-Pacific
March 31, 2023
Revenue - Three months ended			$	2,000.8					$	1,036.8					$	405.7
Long-lived assets and goodwill			7,642.2						3,377.2						734.4
March 31, 2022
Revenue - Three months ended			$	1,906.7					$	1,073.9					$	429.7
Long-lived assets and goodwill			7,896.2						3,532.6						698.0

7. Income Taxes

Our effective tax rate for the three months ended March 31, 2023 decreased period-over-period to 25.5% from 37.2%. The decrease for the three months ended March 31, 2023 primarily reflects the favorable impact of approximately $10.0 million of previously unrecognized tax benefits, partially offset by approximately $6.0 million related to a lower tax benefit in certain jurisdictions for the real estate repositioning costs in the quarter and the increase in the U.K. statutory tax rate. The effective tax rate for the three months ended March 31, 2022 was negatively impacted by the non-deductibility of the $113.4 million 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.

On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. The IRA levies a 1% excise tax on net stock repurchases after December 31, 2022. The excise tax is included in treasury stock on our balance sheet and was immaterial. 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.

Various foreign jurisdictions are in the process of enacting legislation to adopt a minimum effective tax rate described in the Global Anti-Base Erosion, GloBE or Pillar Two, tax model rules issued by the Organization for Economic Co-operation and Development. A minimum effective tax rate of 15% would apply to multinational companies with consolidated revenue above €750 million. Currently, South Korea and Japan are the only countries to have enacted legislation consistent with the GloBE rules. Other countries are expected to adopt GloBE rules in 2023 with effective dates beginning in 2024.

Under the GloBE 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 is less than 15%, a top-up tax generally will be due to bring the jurisdictional effective tax rate up to 15%.

At March 31, 2023, our unrecognized tax benefits were $159.8 million. Of this amount, approximately $154.1 million would affect our effective tax rate upon resolution of the uncertain tax positions.

OMNICOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in tables in millions, except per share data or unless otherwise noted)

8. Pension and Other Postemployment Benefits

The components of net periodic benefit expense for our defined benefit pension plans and our postemployment arrangements were:

			Defined Benefit Pension Plans												Postemployment Arrangements
			Three Months Ended March 31,												Three Months Ended March 31,
			2023						2022						2023						2022
Service cost			$	0.9					$	0.8					$	0.9					$	1.1
Interest cost			2.3						1.0						1.4						0.7
Expected return on plan assets			(0.2)						(0.3)						—						—
Amortization of prior service cost			0.1						0.1						1.0						0.9
Amortization of actuarial losses			0.2						1.0						—						0.6
Total net periodic benefit expense			$	3.3					$	2.6					$	3.3					$	3.3

We contributed $0.1 million and $0.2 million to our defined benefit pension plans in the three months ended March 31, 2023 and 2022, respectively.

9. Real Estate Repositioning Costs

In connection with the transition to a flexible working environment, a hybrid model which allows for partial remote work, we took certain actions to reduce and reposition our office lease portfolio. In the three months ended March 31, 2023, we recorded a pretax charge of $119.2 million ($91.0 million after-tax), which included an $80.4 million non-cash impairment charge for the operating lease right-of-use, or ROU, assets, $20.0 million for the write-off of the net book value of leasehold improvements at the affected locations, and $18.8 million of other lease obligations that will be paid in less than one year. Substantially all of the operating lease payments related to the ROU assets will be paid out over three years.

10. 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 of the charges related to the disposition of our businesses in Russia had been paid as of December 31, 2022, and substantially all of our commitments related to the suspension of operations in Ukraine have been paid as of March 31, 2023.

11. Supplemental Cash Flow Data

The change in operating capital was:

			Three Months Ended March 31,
			2023						2022
(Increase) decrease in accounts receivable			$	1,065.0					$	1,142.2
(Increase) decrease in work in process and other current assets			(295.6)						(248.1)
Increase (decrease) in accounts payable			(1,458.8)						(1,755.4)
Increase (decrease) in customer advances, taxes payable and other current liabilities			(212.9)						12.2
Change in other assets and liabilities, net			(48.7)						(35.1)
Increase (decrease) in operating capital			$	(951.0)					$	(884.2)
Income taxes paid			$	73.6					$	49.9
Interest paid			$	13.7					$	14.1

Non-cash increase in lease liabilities:

Operating leases			$	41.2					$	76.3
Finance leases			$	11.7					$	17.0

OMNICOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in tables in millions, except per share data or unless otherwise noted)

12. Commitments and Contingent Liabilities

In the ordinary course of business, we are involved in various legal proceedings. We do not presently expect that these proceedings will have a material adverse effect on our results of operations or financial position.

13. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss), net of income taxes were:

			Cash Flow Hedge						Defined Benefit Pension Plans and Postemployment Arrangements						Foreign Currency Translation						Total
			Three Months Ended March 31, 2023
January 1			$	(12.1)					$	(41.3)					$	(1,384.5)					$	(1,437.9)
Other comprehensive income (loss) before reclassifications			—						—						52.0						52.0
Reclassification from accumulated other comprehensive income (loss)			1.0						0.4						—						1.4
March 31			$	(11.1)					$	(40.9)					$	(1,332.5)					$	(1,384.5)

			Three Months Ended March 31, 2022
January 1			$	(16.1)					$	(90.4)					$	(1,145.8)					$	(1,252.3)
Other comprehensive income (loss) before reclassifications			—						—						27.4						27.4
Reclassification from accumulated other comprehensive income (loss)			1.0						1.3						—						2.3
March 31			$	(15.1)					$	(89.1)					$	(1,118.4)					$	(1,222.6)

14. Fair Value

Financial assets and liabilities are recorded at fair value based on the following:

• Level 1**: Unadjusted quoted prices in active markets for identical assets or liabilities.

• 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.

• Level 3:** Unobservable inputs for the asset or liability.

Financial assets and liabilities measured at fair value on a recurring basis:

			March 31, 2023																											December 31, 2022
			Level 1						Level 2						Level 3						Total									Level 1						Level 2						Level 3						Total
Assets:
Cash and cash equivalents			$	3,261.5																	$	3,261.5								$	4,281.8																	$	4,281.8
Short-term investments									$	87.4											87.4															$	60.7											60.7
Marketable equity securities			0.9																		0.9									0.9																		0.9
Liabilities:
Foreign currency derivatives									$	—											$	—														$	0.1											$	0.1
Cross currency swaps - net investment hedge									14.3												14.3															16.5												16.5
Contingent purchase price obligations															$	128.0					128.0																					$	115.0					115.0

OMNICOM GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in tables in millions, except per share data or unless otherwise noted)

Change in Level 3 fair value measurements:

			Three Months Ended March 31,
			2023						2022
January 1			$	115.0					$	167.1
Acquisitions			21.6						0.5
Revaluation and interest			0.4						0.2
Payments			(9.2)						(6.0)
Foreign currency translation			0.2						(1.2)
March 31			$	128.0					$	160.6

The carrying amount and fair value of our financial assets and liabilities were:

			March 31, 2023												December 31, 2022
			Carrying Amount						Fair Value						Carrying Amount						Fair Value
Assets:
Cash and cash equivalents			$	3,261.5					$	3,261.5					$	4,281.8					$	4,281.8
Short-term investments			87.4						87.4						60.7						60.7
Marketable equity securities			0.9						0.9						0.9						0.9
Non-marketable equity securities			6.1						6.1						5.6						5.6
Liabilities:
Short-term debt			$	18.5					$	18.5					$	16.9					$	16.9
Foreign currency derivatives			—						—						0.1						0.1
Cross currency swaps - net investment hedge			14.3						14.3						16.5						16.5
Contingent purchase price obligations			128.0						128.0						115.0						115.0
Long-term debt			5,609.4						5,121.9						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.

15. Subsequent Events

We have evaluated events subsequent to the balance sheet date and determined that there have not been any events that have occurred that would require additional adjustments to or disclosures in these consolidated financial statements.