filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
| September 30, 2023 | December 31, 2022 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS: | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 2,769.6 | $ | 4,281.8 | |||||||
| Short-term investments | — | 60.7 | |||||||||
| Accounts receivable, net of allowance for doubtful accounts of $29.7 and $24.7 | 7,285.8 | 8,097.1 | |||||||||
| Work in process | 1,617.5 | 1,254.6 | |||||||||
| Other current assets | 891.8 | 918.8 | |||||||||
| Total Current Assets | 12,564.7 | 14,613.0 | |||||||||
| Property and Equipment at cost, less accumulated depreciation of $1,129.1 and $1,167.5 | 861.9 | 900.1 | |||||||||
| Operating Lease Right-Of-Use Assets | 1,041.7 | 1,165.0 | |||||||||
| Equity Method Investments | 65.4 | 66.2 | |||||||||
| Goodwill | 9,889.4 | 9,734.3 | |||||||||
| Intangible Assets, net of accumulated amortization of $831.2 and $819.9 | 384.9 | 313.4 | |||||||||
| Other Assets | 202.8 | 210.5 | |||||||||
| TOTAL ASSETS | $ | 25,010.8 | $ | 27,002.5 | |||||||
| LIABILITIES AND EQUITY: | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 9,601.1 | $ | 11,000.2 | |||||||
| Customer advances | 1,192.9 | 1,492.3 | |||||||||
| Short-term debt | 14.5 | 16.9 | |||||||||
| Taxes payable | 224.7 | 300.0 | |||||||||
| Other current liabilities | 1,985.8 | 2,243.4 | |||||||||
| Total Current Liabilities | 13,019.0 | 15,052.8 | |||||||||
| Long-Term Liabilities | 906.8 | 837.5 | |||||||||
| Long-Term Liability - Operating Leases | 828.0 | 900.0 | |||||||||
| Long-Term Debt | 5,572.1 | 5,577.2 | |||||||||
| Deferred Tax Liabilities | 530.9 | 475.7 | |||||||||
| Commitments and Contingent Liabilities (Note 13) | |||||||||||
| Temporary Equity - Redeemable Noncontrolling Interests | 372.4 | 382.9 | |||||||||
| Equity: | |||||||||||
| Shareholders’ Equity: | |||||||||||
| Preferred stock | — | — | |||||||||
| Common stock | 44.6 | 44.6 | |||||||||
| Additional paid-in capital | 512.7 | 571.1 | |||||||||
| Retained earnings | 10,284.6 | 9,739.3 | |||||||||
| Accumulated other comprehensive income (loss) | (1,458.5) | (1,437.9) | |||||||||
| Treasury stock, at cost | (6,154.6) | (5,665.0) | |||||||||
| Total Shareholders’ Equity | 3,228.8 | 3,252.1 | |||||||||
| Noncontrolling interests | 552.8 | 524.3 | |||||||||
| Total Equity | 3,781.6 | 3,776.4 | |||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 25,010.8 | $ | 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| REVENUE | $ | 3,578.1 | $ | 3,443.4 | $ | 10,631.3 | $ | 10,420.9 | |||||||||||||||
| OPERATING EXPENSES: | |||||||||||||||||||||||
| Salary and service costs | 2,586.5 | 2,476.1 | 7,747.2 | 7,533.9 | |||||||||||||||||||
| Occupancy and other costs | 288.6 | 281.0 | 877.9 | 874.2 | |||||||||||||||||||
| 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) | — | |||||||||||||||||||
| Cost of services | 2,875.1 | 2,757.1 | 8,737.8 | 8,521.5 | |||||||||||||||||||
| Selling, general and administrative expenses | 89.8 | 86.4 | 278.1 | 294.0 | |||||||||||||||||||
| Depreciation and amortization | 52.4 | 53.9 | 157.4 | 164.8 | |||||||||||||||||||
| Total Operating Expenses | 3,017.3 | 2,897.4 | 9,173.3 | 8,980.3 | |||||||||||||||||||
| OPERATING INCOME | 560.8 | 546.0 | 1,458.0 | 1,440.6 | |||||||||||||||||||
| Interest Expense | 53.5 | 52.0 | 165.9 | 154.2 | |||||||||||||||||||
| Interest Income | 15.2 | 22.9 | 80.9 | 42.2 | |||||||||||||||||||
| INCOME BEFORE INCOME TAXES AND INCOME FROM EQUITY METHOD INVESTMENTS | 522.5 | 516.9 | 1,373.0 | 1,328.6 | |||||||||||||||||||
| Income Tax Expense | 136.1 | 134.7 | 360.7 | 383.3 | |||||||||||||||||||
| Income From Equity Method Investments | 1.9 | 1.1 | 3.1 | 2.6 | |||||||||||||||||||
| NET INCOME | 388.3 | 383.3 | 1,015.4 | 947.9 | |||||||||||||||||||
| Net Income Attributed To Noncontrolling Interests | 16.4 | 18.8 | 49.7 | 61.2 | |||||||||||||||||||
| NET INCOME - OMNICOM GROUP INC. | $ | 371.9 | $ | 364.5 | $ | 965.7 | $ | 886.7 | |||||||||||||||
| Net Income Per Share - Omnicom Group Inc.: | |||||||||||||||||||||||
| Basic | $ | 1.88 | $ | 1.78 | $ | 4.84 | $ | 4.30 | |||||||||||||||
| Diluted | $ | 1.86 | $ | 1.77 | $ | 4.78 | $ | 4.27 | |||||||||||||||
| Weighted Average Shares: | |||||||||||||||||||||||
| Basic | 198.1 | 205.0 | 199.7 | 206.2 | |||||||||||||||||||
| Diluted | 199.9 | 206.3 | 202.0 | 207.6 |
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| NET INCOME | $ | 388.3 | $ | 383.3 | $ | 1,015.4 | $ | 947.9 | |||||||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS): | |||||||||||||||||||||||
| Cash flow hedge: | |||||||||||||||||||||||
| Amortization of loss included in interest expense | 1.4 | 1.4 | 4.2 | 4.2 | |||||||||||||||||||
| Income tax effect | (0.4) | (0.4) | (1.2) | (1.2) | |||||||||||||||||||
| Cash flow hedge, net of tax | 1.0 | 1.0 | 3.0 | 3.0 | |||||||||||||||||||
| Defined benefit pension plans and postemployment arrangements: | |||||||||||||||||||||||
| Amortization of prior service cost | 1.0 | 1.0 | 3.1 | 3.1 | |||||||||||||||||||
| Amortization of actuarial losses | 0.2 | 1.8 | 0.6 | 4.8 | |||||||||||||||||||
| Income tax effect | (0.9) | (1.0) | (1.7) | (3.4) | |||||||||||||||||||
| Defined benefit pension plans and postemployment arrangements, net of tax | 0.3 | 1.8 | 2.0 | 4.5 | |||||||||||||||||||
| Foreign currency translation adjustment | (110.4) | (261.2) | (34.2) | (520.3) | |||||||||||||||||||
| Other Comprehensive Income (Loss) | (109.1) | (258.4) | (29.2) | (512.8) | |||||||||||||||||||
| TOTAL COMPREHENSIVE INCOME | 279.2 | 124.9 | 986.2 | 435.1 | |||||||||||||||||||
| Comprehensive Income Attributed To Noncontrolling Interests | 11.6 | 6.0 | 41.1 | 30.6 | |||||||||||||||||||
| COMPREHENSIVE INCOME - OMNICOM GROUP INC. | $ | 267.6 | $ | 118.9 | $ | 945.1 | $ | 404.5 |
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| COMMON STOCK: | |||||||||||||||||||||||
| Common Stock, shares issued | 297.2 | 297.2 | 297.2 | 297.2 | |||||||||||||||||||
| Common Stock, par value | $ | 44.6 | $ | 44.6 | $ | 44.6 | $ | 44.6 | |||||||||||||||
| ADDITIONAL PAID-IN CAPITAL: | |||||||||||||||||||||||
| Beginning Balance | 585.8 | 567.0 | 571.1 | 622.0 | |||||||||||||||||||
| Net change in noncontrolling interests | (10.2) | 2.6 | (90.1) | (7.7) | |||||||||||||||||||
| Change in temporary equity | (43.9) | 3.8 | 10.2 | (70.0) | |||||||||||||||||||
| Share-based compensation | 22.5 | 21.2 | 63.6 | 61.3 | |||||||||||||||||||
| Stock issued, share-based compensation | (41.5) | (42.5) | (42.1) | (53.5) | |||||||||||||||||||
| Ending Balance | 512.7 | 552.1 | 512.7 | 552.1 | |||||||||||||||||||
| RETAINED EARNINGS: | |||||||||||||||||||||||
| Beginning Balance | 10,051.4 | 9,230.7 | 9,739.3 | 8,998.8 | |||||||||||||||||||
| Net income | 371.9 | 364.5 | 965.7 | 886.7 | |||||||||||||||||||
| Common stock dividends declared | (138.7) | (143.2) | (420.4) | (433.5) | |||||||||||||||||||
| Ending Balance | 10,284.6 | 9,452.0 | 10,284.6 | 9,452.0 | |||||||||||||||||||
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): | |||||||||||||||||||||||
| Beginning Balance | (1,354.2) | (1,488.7) | (1,437.9) | (1,252.3) | |||||||||||||||||||
| Other comprehensive income (loss) | (104.3) | (245.8) | (20.6) | (482.2) | |||||||||||||||||||
| Ending Balance | (1,458.5) | (1,734.5) | (1,458.5) | (1,734.5) | |||||||||||||||||||
| TREASURY STOCK: | |||||||||||||||||||||||
| Beginning Balance | (6,174.1) | (5,520.4) | (5,665.0) | (5,142.9) | |||||||||||||||||||
| Stock issued, share-based compensation | 44.8 | 47.6 | 79.3 | 77.6 | |||||||||||||||||||
| Common stock repurchased | (25.3) | (94.7) | (568.9) | (502.2) | |||||||||||||||||||
| Ending Balance | (6,154.6) | (5,567.5) | (6,154.6) | (5,567.5) | |||||||||||||||||||
| SHAREHOLDERS' EQUITY | 3,228.8 | 2,746.7 | 3,228.8 | 2,746.7 | |||||||||||||||||||
| NONCONTROLLING INTERESTS: | |||||||||||||||||||||||
| Beginning Balance | 505.9 | 522.6 | 524.3 | 503.5 | |||||||||||||||||||
| Net income | 16.4 | 18.8 | 49.7 | 61.2 | |||||||||||||||||||
| Other comprehensive income (loss) | (4.8) | (12.8) | (8.6) | (30.8) | |||||||||||||||||||
| Dividends to noncontrolling interests | (15.0) | (25.2) | (47.0) | (62.9) | |||||||||||||||||||
| Net change in noncontrolling interests | (43.0) | (2.9) | (58.9) | (18.3) | |||||||||||||||||||
| Increase in noncontrolling interests from business combinations | 93.3 | 0.8 | 93.3 | 48.6 | |||||||||||||||||||
| Ending Balance | 552.8 | 501.3 | 552.8 | 501.3 | |||||||||||||||||||
| TOTAL EQUITY | $ | 3,781.6 | $ | 3,248.0 | $ | 3,781.6 | $ | 3,248.0 | |||||||||||||||
| Dividends Declared Per Common Share | $ | 0.70 | $ | 0.70 | $ | 2.10 | $ | 2.10 |
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)
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 1,015.4 | $ | 947.9 | |||||||
| Adjustments to reconcile net income to net cash used in operating activities: | |||||||||||
| Depreciation and amortization of right-of-use assets | 98.5 | 104.5 | |||||||||
| Amortization of intangible assets | 58.9 | 60.3 | |||||||||
| Amortization of net deferred loss on interest rate swaps | 4.2 | 4.1 | |||||||||
| Share-based compensation | 63.6 | 61.3 | |||||||||
| Real estate and other repositioning costs | 191.5 | — | |||||||||
| Gain on disposition of subsidiary | (78.8) | — | |||||||||
| Non-cash charges related to the effects of the war in Ukraine | — | 65.8 | |||||||||
| Other, net | (5.2) | (11.4) | |||||||||
| Use of operating capital | (1,727.2) | (1,483.1) | |||||||||
| Net Cash Used In Operating Activities | (379.1) | (250.6) | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Capital expenditures | (64.2) | (65.6) | |||||||||
| Acquisition of businesses and interests in affiliates, net of cash acquired | (80.6) | (276.9) | |||||||||
| Maturity (purchase) of short-term investments | 60.8 | (100.0) | |||||||||
| Proceeds from disposition of subsidiary and other | 192.6 | 35.6 | |||||||||
| Net Cash Provided By (Used In) Investing Activities | 108.6 | (406.9) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Change in short-term debt | (4.6) | 1.2 | |||||||||
| Dividends paid to common shareholders | (424.0) | (437.7) | |||||||||
| Repurchases of common stock | (564.3) | (502.2) | |||||||||
| Proceeds from stock plans | 34.5 | 16.3 | |||||||||
| Acquisition of additional noncontrolling interests | (87.0) | (20.8) | |||||||||
| Dividends paid to noncontrolling interest shareholders | (47.0) | (62.9) | |||||||||
| Payment of contingent purchase price obligations | (34.8) | (32.5) | |||||||||
| Other, net | (46.5) | (51.0) | |||||||||
| Net Cash Used In Financing Activities | (1,173.7) | (1,089.6) | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | (68.0) | (371.2) | |||||||||
| Net Decrease in Cash and Cash Equivalents | (1,512.2) | (2,118.3) | |||||||||
| Cash and Cash Equivalents at the Beginning of Period | 4,281.8 | 5,316.8 | |||||||||
| Cash and Cash Equivalents at the End of Period | $ | 2,769.6 | $ | 3,198.5 |
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 disclosures 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 ongoing 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 & Branding, 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 & Branding 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.
Revenue by discipline:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Advertising & Media | $ | 1,909.2 | $ | 1,764.9 | $ | 5,597.2 | $ | 5,369.5 | |||||||||||||||
| Precision Marketing | 383.7 | 363.3 | 1,112.7 | 1,066.4 | |||||||||||||||||||
| Commerce & Branding | 211.6 | 211.9 | 631.7 | 630.3 | |||||||||||||||||||
| Experiential | 133.3 | 120.6 | 445.5 | 412.3 | |||||||||||||||||||
| Execution & Support | 206.1 | 262.0 | 673.2 | 811.2 | |||||||||||||||||||
| Public Relations | 392.4 | 393.0 | 1,161.5 | 1,149.4 | |||||||||||||||||||
| Healthcare | 341.8 | 327.7 | 1,009.5 | 981.8 | |||||||||||||||||||
| Revenue | $ | 3,578.1 | $ | 3,443.4 | $ | 10,631.3 | $ | 10,420.9 |
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:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Americas: | |||||||||||||||||||||||
| North America | $ | 1,983.2 | $ | 1,969.0 | $ | 5,888.8 | $ | 5,777.5 | |||||||||||||||
| Latin America | 99.4 | 77.3 | 258.0 | 224.9 | |||||||||||||||||||
| EMEA: | |||||||||||||||||||||||
| Europe | 1,016.8 | 908.2 | 3,014.3 | 2,925.1 | |||||||||||||||||||
| Middle East and Africa | 51.6 | 62.0 | 199.1 | 208.8 | |||||||||||||||||||
| Asia-Pacific | 427.1 | 426.9 | 1,271.1 | 1,284.6 | |||||||||||||||||||
| Revenue | $ | 3,578.1 | $ | 3,443.4 | $ | 10,631.3 | $ | 10,420.9 |
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 September 30, 2023, and 2022 was $1,868.8 million and $1,847.8 million, respectively, and revenue in the United States for nine months ended September 30, 2023, and 2022 was $5,531.6 million and $5,415.2 million, respectively.
Contract assets and contract liabilities
| September 30, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||||
| Contract assets: | |||||||||||||||||
| Media and production costs | $ | 761.5 | $ | 725.1 | $ | 678.4 | |||||||||||
| Contract assets and unbilled fees and costs | 856.0 | 529.5 | 684.2 | ||||||||||||||
| Work in process | $ | 1,617.5 | $ | 1,254.6 | $ | 1,362.6 | |||||||||||
| Contract liabilities: | |||||||||||||||||
| Customer advances | $ | 1,192.9 | $ | 1,492.3 | $ | 1,358.8 |
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 nine months ended September 30, 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.
3. Net Income per Share
The computations of basic and diluted net income per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net Income - Omnicom Group Inc. | $ | 371.9 | $ | 364.5 | $ | 965.7 | $ | 886.7 | |||||||||||||||
| Weighted Average Shares: | |||||||||||||||||||||||
| Basic | 198.1 | 205.0 | 199.7 | 206.2 | |||||||||||||||||||
| Dilutive stock options and restricted shares | 1.8 | 1.3 | 2.3 | 1.4 | |||||||||||||||||||
| Diluted | 199.9 | 206.3 | 202.0 | 207.6 | |||||||||||||||||||
| Anti-dilutive stock options and restricted shares | — | 5.1 | — | 4.3 | |||||||||||||||||||
| Net Income per Share - Omnicom Group Inc.: | |||||||||||||||||||||||
| Basic | $1.88 | $1.78 | $4.84 | $4.30 | |||||||||||||||||||
| Diluted | $1.86 | $1.77 | $4.78 | $4.27 |
4. Goodwill and Intangible Assets
Change in goodwill:
| Nine Months Ended September 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| January 1 | $ | 9,734.3 | $ | 9,738.6 | ||||||||||
| Acquisitions | 30.6 | 212.8 | ||||||||||||
| Noncontrolling interests in acquired businesses | 90.7 | 48.5 | ||||||||||||
| Contingent purchase price obligations of acquired businesses | 170.1 | 8.7 | ||||||||||||
| Dispositions | (119.0) | (19.6) | ||||||||||||
| Foreign currency translation | (17.3) | (489.3) | ||||||||||||
| September 30 | $ | 9,889.4 | $ | 9,499.7 |
There were no goodwill impairment losses recorded in the nine months ended September 30, 2023 and 2022, and there are no accumulated goodwill impairment losses.
Intangible assets:
| September 30, 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 | $ | 363.2 | $ | (299.6) | $ | 63.6 | $ | 374.8 | $ | (309.1) | $ | 65.7 | |||||||||||||||||||||||
| Customer related and other | 852.9 | (531.6) | 321.3 | 758.5 | (510.8) | 247.7 | |||||||||||||||||||||||||||||
| Total Intangible Assets | $ | 1,216.1 | $ | (831.2) | $ | 384.9 | $ | 1,133.3 | $ | (819.9) | $ | 313.4 |
We completed our annual goodwill impairment test as of May 1, 2023. The market assumptions used in our assessment reflected the current economic environment (see Note 1- Risks and Uncertainties). Based on the results of our impairment test, we concluded that as of May 1, 2023 our goodwill was not impaired. 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.
5. 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 the termination date of the Credit Facility 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. In the third quarter of 2023, we issued commercial paper with a maximum amount outstanding of $60 million. At September 30, 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 aggregating $576.0 million, that are guaranteed by Omnicom. All these credit 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 September 30, 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.
Short-Term Debt
Short-term debt of $14.5 million and $16.9 million at September 30, 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:
| September 30, 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 | 528.3 | 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 | 528.3 | 534.9 | |||||||||
| 2.60% Senior Notes due 2031 | 800.0 | 800.0 | |||||||||
| £325 million 2.25% Senior Notes due 2033 | 396.6 | 392.0 | |||||||||
| Long-Term Debt, Gross | 5,603.2 | 5,611.8 | |||||||||
| Unamortized discount | (8.0) | (9.0) | |||||||||
| Unamortized debt issuance costs | (23.1) | (26.2) | |||||||||
| Unamortized deferred gain (loss) from settlement of interest rate swaps, net | — | 0.6 | |||||||||
| Long-Term Debt | $ | 5,572.1 | $ | 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.
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, 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 of 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 | |||||||||||||||
| September 30, 2023 | |||||||||||||||||
| Revenue - Three months ended | $ | 2,082.6 | $ | 1,068.4 | $ | 427.1 | |||||||||||
| Revenue - Nine months ended | $ | 6,146.8 | $ | 3,213.4 | $ | 1,271.1 | |||||||||||
| Long-lived assets and goodwill | $ | 7,742.2 | $ | 3,355.4 | $ | 695.4 | |||||||||||
| September 30, 2022 | |||||||||||||||||
| Revenue - Three months ended | $ | 2,046.3 | $ | 970.2 | $ | 426.9 | |||||||||||
| Revenue - Nine months ended | $ | 6,002.4 | $ | 3,133.9 | $ | 1,284.6 | |||||||||||
| Long-lived assets and goodwill | $ | 7,753.2 | $ | 3,039.2 | $ | 724.2 |
7. Income Taxes
Our effective tax rate for the nine months ended September 30, 2023 decreased period-over-period to 26.3% from 28.8%. The nine months ended September 30, 2023 includes an increase of $10.7 million in income tax expense related to a lower tax benefit in certain jurisdictions for the real estate and other repositioning costs and an increase in the U.K. statutory tax rate, partially offset by $10.0 million of previously unrecognized tax benefits. The higher effective tax rate for the nine months ended September 30, 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 part of the 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.
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, 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, Japan, South Korea and the United Kingdom have enacted legislation effective beginning in 2024 that is consistent with the GloBE rules. Other countries are expected to adopt GloBE rules within the next year.
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 September 30, 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.
8. Pension and Other Postemployment Benefits
Net periodic benefit expense:
| Defined Benefit Pension Plans | Postemployment Arrangements | ||||||||||||||||||||||
| Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Service cost | $ | 2.5 | $ | 2.3 | $ | 2.6 | $ | 3.3 | |||||||||||||||
| Interest cost | 7.8 | 2.8 | 4.3 | 2.0 | |||||||||||||||||||
| Expected return on plan assets | (0.7) | (0.7) | — | — | |||||||||||||||||||
| Amortization of prior service cost | 0.2 | 0.3 | 2.9 | 2.8 | |||||||||||||||||||
| Amortization of actuarial losses | 0.6 | 2.9 | — | 1.9 | |||||||||||||||||||
| Total net periodic benefit expense | $ | 10.4 | $ | 7.6 | $ | 9.8 | $ | 10.0 |
We contributed $0.3 million and $0.4 million to our defined benefit pension plans in both the nine months ended September 30, 2023 and 2022, respectively.
9. Real Estate and Other 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 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 nine months ended September 30, 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. There were no real estate and other repositioning charges during the three months ended September 30, 2023. All severance and other costs 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. Disposition 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.
11. 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.
12. Supplemental Cash Flow Data
Change in operating capital:
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (Increase) decrease in accounts receivable | $ | 713.1 | $ | 1,235.4 | |||||||
| (Increase) decrease in work in process and other current assets | (369.6) | (319.2) | |||||||||
| Increase (decrease) in accounts payable | (1,276.4) | (2,048.4) | |||||||||
| Increase (decrease) in customer advances, taxes payable and other current liabilities | (889.1) | (335.4) | |||||||||
| Change in other assets and liabilities, net | 94.8 | (15.5) | |||||||||
| Increase (decrease) in operating capital | $ | (1,727.2) | $ | (1,483.1) | |||||||
| Income taxes paid | $ | 345.7 | $ | 341.4 | |||||||
| Interest paid | $ | 103.1 | $ | 103.5 |
Non-cash increase in lease liabilities:
| Operating leases | $ | 125.5 | $ | 217.4 | |||||||
| Finance leases | $ | 35.9 | $ | 55.9 |
13. 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.
14. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss), net of income taxes:
| Cash Flow Hedge | Defined Benefit Pension Plans and Postemployment Arrangements | Foreign Currency Translation | Total | ||||||||||||||||||||
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||
| January 1 | $ | (12.1) | $ | (41.3) | $ | (1,384.5) | $ | (1,437.9) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | — | — | (25.6) | (25.6) | |||||||||||||||||||
| Reclassification from accumulated other comprehensive income (loss) | 3.0 | 2.0 | — | 5.0 | |||||||||||||||||||
| September 30 | $ | (9.1) | $ | (39.3) | $ | (1,410.1) | $ | (1,458.5) |
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
| January 1 | $ | (16.1) | $ | (90.4) | $ | (1,145.8) | $ | (1,252.3) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | — | — | (489.7) | (489.7) | |||||||||||||||||||
| Reclassification from accumulated other comprehensive income (loss) | 3.0 | 4.5 | — | 7.5 | |||||||||||||||||||
| September 30 | $ | (13.1) | $ | (85.9) | $ | (1,635.5) | $ | (1,734.5) |
15. 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:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 2,769.6 | $ | 2,769.6 | $ | 4,281.8 | $ | 4,281.8 | ||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | $ | — | — | $ | 60.7 | 60.7 | ||||||||||||||||||||||||||||||||||||||||||||
| Marketable equity securities | 0.8 | 0.8 | 0.9 | 0.9 | ||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency derivatives | $ | — | $ | — | $ | 0.1 | $ | 0.1 | ||||||||||||||||||||||||||||||||||||||||||
| Cross currency swaps - net investment hedge | 0.6 | 0.6 | 16.5 | 16.5 | ||||||||||||||||||||||||||||||||||||||||||||||
| Contingent purchase price obligations | $ | 292.2 | 292.2 | $ | 115.0 | 115.0 | ||||||||||||||||||||||||||||||||||||||||||||
Change in the Level 3 fair value measurement of contingent purchase price obligations:
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| January 1 | $ | 115.0 | $ | 167.1 | |||||||
| Acquisitions | 230.0 | 10.7 | |||||||||
| Revaluation and interest | (18.2) | — | |||||||||
| Payments | (34.8) | (32.7) | |||||||||
| Foreign currency translation | 0.2 | (8.0) | |||||||||
| September 30 | $ | 292.2 | $ | 137.1 |
Carrying amount and fair value of our financial assets and liabilities:
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 2,769.6 | $ | 2,769.6 | $ | 4,281.8 | $ | 4,281.8 | |||||||||||||||
| Short-term investments | — | — | 60.7 | 60.7 | |||||||||||||||||||
| Marketable equity securities | 0.8 | 0.8 | 0.9 | 0.9 | |||||||||||||||||||
| Non-marketable equity securities | 6.7 | 6.7 | 5.6 | 5.6 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Short-term debt | $ | 14.5 | $ | 14.5 | $ | 16.9 | $ | 16.9 | |||||||||||||||
| Foreign currency derivatives | — | — | 0.1 | 0.1 | |||||||||||||||||||
| Cross currency swaps - net investment hedge | 0.6 | 0.6 | 16.5 | 16.5 | |||||||||||||||||||
| Contingent purchase price obligations | 292.2 | 292.2 | 115.0 | 115.0 | |||||||||||||||||||
| Long-term debt | 5,572.1 | 4,897.2 | 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.
16. 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.
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