EDGAR 10-K Filing

Company CIK: 29989
Filing Year: 2021
Filename: 29989_10-K_2021_0000029989-21-000004.json

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ITEM 1. BUSINESS
Item 1. Business
Our Business
Omnicom is a strategic holding company providing advertising, marketing and corporate communications services to clients through our branded networks and agencies around the world. We operate in a highly competitive industry and compete against other global, national and regional advertising and marketing services companies, as well as technology, social media and professional services companies. The proliferation of media channels, including the rapid development and integration of interactive technologies and media, has fragmented consumer audiences targeted by our clients. These developments make it more complex for marketers to reach their target audiences in a cost-effective way, causing them to turn to global service providers such as Omnicom for a customized mix of advertising and marketing services designed to optimize their total marketing expenditure. As discussed below, in 2020 the COVID-19 pandemic negatively impacted our business.
On a global, pan-regional and local basis, our networks and agencies provide a comprehensive range of services in the following fundamental disciplines: advertising, customer relationship management, or CRM, which includes CRM Consumer Experience and CRM Execution & Support, public relations and healthcare. Advertising includes creative services, as well as strategic media planning and buying and data analytics services. CRM Consumer Experience includes Omnicom’s Precision Marketing Group and digital/direct agencies, as well as our branding, shopper marketing and experiential marketing agencies. CRM Execution & Support includes field marketing, sales support, merchandising and point of sale, 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 advertising and media services to global healthcare clients. Our business model was built and continues to evolve around our clients. Our fundamental business principle is that our clients’ specific marketing requirements are the central focus of how we structure our service offerings and allocate our resources. This client-centric business model requires that multiple agencies within Omnicom collaborate in formal and informal virtual client networks utilizing our key client matrix organization structure. This collaboration allows us to cut across our internal organizational structures to execute our clients’ marketing requirements in a consistent and comprehensive manner. We use our client-centric approach to grow our business by expanding our service offerings to existing clients, moving into new markets and obtaining new clients. In addition to collaborating through our client service models, our agencies and networks collaborate across internally developed technology platforms. Annalect, our proprietary data and analytics platform, serves as the strategic resource for all of our agencies and networks to share when developing client service strategies across our virtual networks. Omni, our people-based precision marketing and insights platform, identifies and defines personalized consumer experiences at scale across creative, media and CRM, as well as other disciplines.
Driven by our clients’ continuous demand for more effective and efficient marketing activities, we strive to 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 service offerings include:
advertising investor relations
branding marketing research
content marketing media planning and buying
corporate social responsibility consulting merchandising and point of sale
crisis communications mobile marketing
custom publishing multi-cultural marketing
data analytics non-profit marketing
database management organizational communications
digital/direct marketing package design
digital transformation product placement
entertainment marketing promotional marketing
experiential marketing public affairs
field marketing public relations
financial/corporate business-to-business advertising retail marketing
graphic arts/digital imaging sales support
healthcare marketing and communications search engine marketing
instore design shopper marketing
interactive marketing social media marketing
sports and event marketing
Certain business trends had positively impacted our business and industry. These trends include clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets and integrating traditional and non-traditional marketing channels, as well as utilizing new communications technologies and emerging digital platforms. As clients increase their demands for marketing effectiveness and efficiency, they continue to consolidate their business within one or a small number of service providers in the pursuit of a single engagement covering all consumer touch points. We have structured our business around these trends. We believe that our key client matrix organization structure approach to collaboration and integration of our services and solutions provides a competitive advantage to our business in the past and we expect this to continue over the medium and long term. Our key client matrix organization structure facilitates superior client management and allows for greater integration of the services required by the world’s largest brands. Our overarching strategy is to continue to use our virtual client networks to grow our business relationships with our largest clients by serving them across our networks, disciplines and geographies.
In 2020, the COVID-19 pandemic negatively impacted our business and results of operations. Efforts to mitigate the impact of the pandemic, including government actions to restrict travel, limit public gatherings, shelter-in-place orders and mandatory closures of businesses, resulted in many of our clients reducing or suspending their spending for our advertising, marketing and corporate communication services. As a result, for the year ended December 31, 2020, revenue decreased 11.9%, compared to 2019, primarily due to the impact of the COVID-19 pandemic. We anticipate that the negative impact from the pandemic on our revenue will continue through the first quarter of 2021 as compared to the prior year period. However, we expect organic revenue growth for the first half of 2021. The impact of the COVID-19 pandemic on our revenue has been, and may continue to be, material, depending on several factors, including the potential for prolonged or additional governmental actions to mitigate the effects of the pandemic. It is possible that the COVID-19 pandemic will accelerate certain trends that began pre-pandemic, particularly those relating to online commerce, brand building and how we deploy our personnel. We expect that some of these trends will benefit our agencies and provide revenue growth opportunities, as well as increasing flexibility with respect to our use of physical locations and our cost structure, but some trends may negatively affect us including potential disruption by new participants and technologies (see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or MD&A, of this report).
We continually evaluate our portfolio of businesses to identify areas for investment and acquisition opportunities, as well as to identify non-strategic or underperforming businesses for disposition. For information about our acquisitions and dispositions, see MD&A - Acquisitions and Goodwill and Notes 5 and 13, respectively, to the consolidated financial statements. None of our acquisitions or dispositions, individually or in the aggregate, was material to our results of operations or financial position in the three years ended December 31, 2020.
The various components of our business, including revenue by discipline and geographic area, and material factors that affected us in 2020 are discussed in the MD&A.
Our Clients
Our clients operate in virtually every sector of the global economy. In many cases, multiple agencies or networks serve different brands, product groups or both within the same client. For example, in 2020 our largest client represented 3.4% of revenue and was served by more than 110 of our agencies. Our 100 largest clients, many of which represent the largest global marketers, represented approximately 54% of revenue and were each served, on average, by more than 50 of our agencies.
Government Regulations
We are subject to various local, state and federal laws and regulations in the countries in which we conduct business. Compliance with these laws and regulations in the normal course of business did not have a material effect on our business, results of operations or financial position. Additional information regarding the impact of government regulations on our business is included in Item 1A. Risk Factors under the heading Regulatory Risks.
Human Capital Resources
Our employees are our most important assets. We believe a critical component to our success depends on the ability to attract, develop and retain key personnel. The skill sets of our workforce across our agencies and within each discipline are similar. Common to all is the ability to understand a client’s brand or product and its selling proposition and to develop a unique message to communicate the value of the brand or product to the client’s target audience, whether through traditional channels or emerging digital platforms. Recognizing the importance of this core competency, we support and develop our employees through training and development programs that build and strengthen employees’ leadership and professional skills.
Human capital management strategies are developed collectively by senior management, including the management teams of the Company’s networks and practice areas, and are overseen by the Company’s Board of Directors. We are committed to efforts that ensure that the workplace is equitable, ethical, fosters an inclusive work environment across our global workforce and respects human rights. Our human capital management priorities include, among other things, providing competitive wages and benefits, succession planning, promoting diversity and inclusion and adopting codes of conduct and business ethics to be implemented throughout the Company.
At December 31, 2020, we employed approximately 64,100 people worldwide. The United States, our largest employee base, employed about 20,800 people. None of our regular employees in the United States is represented by a labor union. The approximate number of employees in our principal geographic regions were 27,100 in the Americas, 25,800 in Europe, Middle East and Africa, or EMEA, and 11,200 in Asia Pacific. Certain employees in a few countries outside of the United States, primarily in Europe, are represented by work councils. See the MD&A for a discussion of the effect of salary and related costs on our results of operations.
Information About Our Executive Officers
At February 11, 2021, our executive officers were:
Name Position Age
John D. Wren Chairman of the Board and Chief Executive Officer 68
Philip J. Angelastro Executive Vice President and Chief Financial Officer 56
Michael J. O’Brien Executive Vice President, General Counsel and Secretary 59
Andrew L. Castellaneta Senior Vice President, Chief Accounting Officer 62
Peter L. Swiecicki Senior Vice President, Finance and Controller 62
Rochelle M. Tarlowe Senior Vice President and Treasurer 50
Jonathan B. Nelson CEO, Omnicom Digital 53
Each executive officer has held their present position for at least five years, except Mr. Wren was named Chairman of the Board and Chief Executive Officer in May 2018 and previously served as President and Chief Executive Officer from 1997 to May 2018; and Ms. Tarlowe was named Senior Vice President and Treasurer in May 2019 and previously served as Senior Vice President and Treasurer of Avis Budget Group from 2007 until April 2019. Additional information about our directors and executive officers will appear in our definitive proxy statement, which is expected to be filed with the United States Securities and Exchange Commission, or SEC, by March 25, 2021.
Available Information
We file annual, quarterly and current reports and any amendments to those reports, proxy statements and other information with the SEC. Documents we file with the SEC are available free of charge on our website at http://investor.omnicomgroup.com, as soon as reasonably practicable after such material is filed with the SEC. The information included on or available through our website is not part of this or any other report we file with the SEC. Any document that we file with the SEC is available on the SEC’s website at www.sec.gov.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Economic Risks
The COVID-19 pandemic has adversely impacted our business, results of operations and financial position and could adversely impact our business, results of operations and financial position in the future.
In 2020, the COVID-19 pandemic negatively impacted our business, results of operations and financial position. Most of our clients' businesses were negatively affected by the COVID-19 pandemic. As long as the COVID-19 pandemic remains a threat, global economic conditions will continue to be volatile and such uncertainty cuts across all clients, industries and geographies. Demand for our services can be expected to continue to be adversely affected as marketers reduce expenditures in the short term due to the uncertain impact of the pandemic on the global economy. The extent of the impact of the COVID-19 pandemic on our business will depend on numerous factors that we are not able to accurately predict, including the duration and scope of the pandemic, government actions to mitigate the effects of the pandemic, and the intermediate and long-term impact of the pandemic on marketers' spending plans.
Adverse economic conditions, a reduction in client spending, a deterioration in the credit markets or a delay in client payments could have a material effect on our business, results of operations and financial position.
Economic conditions have a direct impact on our business, results of operations and financial position. Adverse global or regional economic conditions, including those caused by the COVID-19 pandemic, pose a risk that clients may reduce, postpone or cancel spending on advertising, marketing and corporate communications projects. Such actions would reduce the demand for our services and could result in a reduction in our revenue, which would adversely affect our business, results of operations and
financial position. A contraction in the availability of credit may make it more difficult for us to meet our working capital requirements. In addition, a disruption in the credit markets could adversely affect our clients and could cause them to delay payment for our services or take other actions that would negatively affect our working capital. In such circumstances, we may need to obtain additional financing to fund our day-to-day working capital requirements, which may not be available on favorable terms, or at all. Even if we take action to respond to adverse economic conditions, reductions in revenue and disruptions in the credit markets by aligning our cost structure and more efficiently managing our working capital, such actions may not be effective.
In an economic downturn, the risk of a material loss related to media purchases and production costs incurred on behalf of our clients could significantly increase, and methods for managing or mitigating such risk may be less available or unavailable.
In the normal course of business, our agencies enter into contractual commitments with media providers and production companies on behalf of our clients at levels that can substantially exceed the revenue from our services. These commitments are included in accounts payable when the services are delivered by the media providers or production companies. If permitted by local law and the client agreement, many of our agencies purchase media and production services for our clients as an agent for a disclosed principal. In addition, while operating practices vary by country, media type and media vendor, in the United States and certain foreign markets, many of our agencies’ contracts with media and production providers specify that our agencies are not liable to the media and production providers under the theory of sequential liability until and to the extent we have been paid by our client for the media or production services.
Where purchases of media and production services are made by our agencies as a principal or are not subject to the theory of sequential liability, the risk of a material loss as a result of payment default by our clients could increase significantly and such a loss could have a material adverse effect on our business, results of operations and financial position.
In addition, our methods of managing the risk of payment default, including obtaining credit insurance, requiring payment in advance, mitigating the potential loss in the marketplace or negotiating with media providers, may be less available or unavailable during a severe economic downturn.
Business and Operational Risks
Clients periodically review and change their advertising, marketing and corporate communications requirements and relationships. If we are unable to remain competitive or retain key clients, our business, results of operations and financial position may be adversely affected.
We operate in a highly competitive industry. Key competitive considerations for retaining existing clients and winning new clients include our ability to develop solutions that meet client needs in a rapidly changing environment, the quality and effectiveness of our services and our ability to serve clients efficiently, particularly large multinational clients, on a broad geographic basis. While many of our client relationships are long-standing, from time to time clients put their advertising, marketing and corporate communications business up for competitive review. We have won and lost accounts as a result of these reviews. To the extent that we are not able to remain competitive or retain key clients, our revenue may be adversely affected, which could have a material adverse effect on our business, results of operations and financial position.
Acquiring new clients and retaining existing clients depends on our ability to avoid and manage conflicts of interest arising from other client relationships, retaining key personnel and maintaining a highly skilled workforce.
Our ability to acquire new clients and retain existing clients may, in some cases, be limited by clients’ perceptions of, or policies concerning, conflicts of interest arising from other client relationships. If we are unable to maintain multiple agencies to manage multiple client relationships and avoid potential conflicts of interests, our business, results of operations and financial position may be adversely affected.
As a service business, our ability to attract and retain key personnel is an important aspect of our competitiveness. If we are unable to attract and retain key personnel, our ability to provide our services in the manner clients have come to expect may be adversely affected, which could harm our reputation and result in a loss of clients, which could have a material adverse effect on our business, results of operations and financial position.
The loss of several of our largest clients could have a material adverse effect on our business, results of operations and financial position.
In 2020, our 100 largest clients represented approximately 54% of our revenue. Clients generally are able to reduce or cancel current or future spending on advertising, marketing and corporate communications projects at any time on short notice for any reason. A significant reduction in spending on our services by our largest clients, or the loss of several of our largest clients, if not replaced by new clients or an increase in business from existing clients, would adversely affect our revenue and could have a material adverse effect on our business, results of operations and financial position.
We rely extensively on information technology systems, and cybersecurity incidents could adversely affect us.
We rely on information technology systems and infrastructure to process, store and transmit data, summarize results, manage our business and maintain client advertising and marketing information. Increased cybersecurity threats and attacks, which are constantly evolving, pose a risk to our systems and networks. For example, in February 2021, we experienced a cybersecurity incident that resulted in the disruption of certain of our information technology systems at one of our networks. Based on the information currently known and our investigation to date, we do not believe the incident will have a material impact on our business, operations or financial results. However, cybersecurity threats and attacks in the future could be material. Security breaches, improper use of our systems and unauthorized access to our data and information by employees and others may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. We also have access to sensitive or personal data or information that is subject to privacy laws and regulations. Our systems and processes to protect against, detect, prevent, respond to and mitigate cybersecurity incidents and our organizational training for employees to develop an understanding of cybersecurity risks and threats may be unable to prevent material security breaches, theft, modification or loss of data, employee malfeasance and additional known and unknown threats. Such events could adversely affect our business and reputation. We also use third-party service providers, including cloud providers, to store, transmit and process data. These third-party service providers could also be subject to cybersecurity incidents that could adversely affect us.
In addition, in 2020 and continuing into 2021, the overwhelming majority of our workforce temporarily transitioned to working from home during the COVID-19 pandemic. The increase in the number of our employees working from home may increase certain business and procedural control risks, including increased risk of cybersecurity incidents and exposure of sensitive business and client advertising and marketing information as well as personal data or information.
Risks Related to International Operations
Currency exchange rate fluctuations have impacted, and in the future could impact our business, results of operations and financial position.
In 2020, our international operations represented approximately 45% of our revenue. We operate in all major international markets including the Euro Zone, the United Kingdom, or the U.K., Australia, Brazil, Canada, China and Japan. Our agencies transact business in more than 50 different currencies. Substantially all of our foreign operations transact business in their local currency, and accordingly their financial statements are translated into U.S. Dollars. As a result, both adverse and beneficial fluctuations in foreign exchange rates impact our business, results of operations and financial position. In addition, funds transferred to the United States can be adversely or beneficially impacted by changes in foreign currency exchange rates.
As a global business we face certain risks of doing business internationally, and we are exposed to risks from operating in high-growth markets and developing countries, which could have a material adverse effect on our business, results of operations and financial position.
The operational and financial performance of our international businesses are affected by global and regional economic conditions, competition for new business and staff, currency exchange rate fluctuations, political conditions, differing regulatory environments and other risks associated with extensive international operations. In addition, we conduct business in numerous high-growth markets and developing countries that tend to have longer billing collection cycles, currency repatriation restrictions and commercial laws that can be undeveloped, vague, inconsistently enforced, retroactively applied or frequently changed. The risks associated with our international operations could have a material adverse effect on our business, results of operations and financial position. Additionally, our operations are subject to the United States Foreign Corrupt Practices Act and other anti-corruption and anti-bribery laws and regulations. These laws and regulations are complex and stringent, and any violation could have an adverse effect on our business and reputation. For financial information by geographic region, see Note 8 to the consolidated financial statements.
We have substantial operations in the U.K. and the Euro Zone. On December 31, 2020, the U.K. completed its separation from the European Union, or E.U., (commonly referred to as “Brexit”) and entered into an agreement, or Brexit Agreement, with the E.U. that defines the terms of their relationship, covering, among other things, trade and tariffs, services and travel. The uncertainties related to the impact of the Brexit Agreement have cross-border operational, financial and tax implications, among others, and any economic volatility that may arise in the U.K., the E.U. or elsewhere may adversely affect our business.
Risks Related to Acquisitions
We may be unsuccessful in evaluating material risks involved in completed and future acquisitions.
We regularly evaluate potential acquisitions of businesses that are complementary to our businesses and client needs. As part of the process, we conduct business, legal and financial due diligence to identify and evaluate material risks involved in any particular transaction. Despite our efforts, we may be unsuccessful in ascertaining or evaluating all such risks. As a result, the intended advantages of any given acquisition may not be realized. If we fail to identify certain material risks from one or more acquisitions, our business, results of operations and financial position could be adversely affected.
Our goodwill is an intangible asset that may become impaired, which could have a material adverse effect on our business, results of operations and financial position.
In accordance with generally accepted accounting principles in the United States, or U.S. GAAP or GAAP, we have recorded a significant amount of goodwill related to our acquisitions; a substantial portion of which represents the intangible specialized know-how of the acquired workforce. As discussed in Note 2 to the consolidated financial statements, we review the carrying value of goodwill for impairment annually at June 30 and whenever events or circumstances indicate the carrying value may not be recoverable. The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from future actual results of operations and cash flows. While we have concluded, for each year presented in the financial statements included in this report, that our goodwill is not impaired, future events could cause us to conclude that the intangible asset values associated with a given operation may become impaired. Any resulting non-cash impairment charge could have a material adverse effect on our business, results of operations and financial position.
Regulatory Risks
Government regulation and consumer advocates may limit the scope and content of our services, which could affect our ability to meet our clients’ needs, which could have a material adverse effect on our business, results of operations and financial position.
Government agencies and consumer groups directly or indirectly affect or attempt to affect the scope, content and manner of presentation of advertising, marketing and corporate communications services, through regulation or other governmental action, which could affect our ability to meet our clients’ needs. Such regulation may seek, among other things, to limit the tax deductibility of advertising expenditures by certain industries or for certain products and services. In addition, there has been a tendency on the part of businesses to resort to the judicial system to challenge advertising practices and claims, which could cause our clients affected by such actions to reduce their spending on our services. Any regulatory or judicial action that affects our ability to meet our clients' needs or reduces client spending on our services could have a material adverse effect on our business, results of operations and financial position.
Further, laws and regulations related to user privacy, use of personal information and Internet tracking technologies have been proposed or enacted in the United States and a number of international markets. These laws and regulations could affect the acceptance of new communications technologies and the use of current communications technologies as advertising media. These actions could affect our business and reduce demand for certain of our services, which could have a material adverse effect on our business, results of operations and financial position.
We could be affected by future laws or regulations enacted in response to climate change concerns and other actions.
Our businesses could be indirectly affected by increased prices for goods or services provided to us by companies that are directly affected by laws and regulations aimed at mitigating the impact of climate change. Specifically, these companies may seek to pass their increased costs through to their customers. Further, if our clients are impacted by such laws or requirements, either directly or indirectly, their spending for advertising and marketing services may decline, which could adversely impact our business, results of operations and financial position. Additionally, to comply with potential future changes in environmental laws and regulations, we may need to incur additional costs; therefore, at this time, we cannot estimate what impact such regulations may have on our business, results of operations and financial position.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
We conduct business and maintain offices throughout the world. The facility requirements of our businesses are similar across geographic regions and disciplines. Substantially all our office space is leased under operating leases with varying expiration dates. Lease obligations of our foreign operations are generally denominated in their local currency. We believe that our facilities are adequate for our current operations and are well maintained. Our principal corporate offices are located at 280 Park Avenue, New York, New York; 1055 Washington Boulevard, Stamford, Connecticut and 525 Okeechobee Boulevard, West Palm Beach, Florida. We also maintain executive offices in London, England; Shanghai, China and Singapore.
Notes 2 and 16 to the consolidated financial statements provide a description of our lease expense, which comprises a significant component of our occupancy and other costs, and our lease commitments.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
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 results of operations or financial position.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not Applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed and traded on the New York Stock Exchange under the symbol OMC. As of February 11, 2021, there were 1,930 registered holders of our common stock.
Common stock repurchases during the three months ended December 31, 2020 were:
Period Total Number of
Shares Purchased
Average Price
Paid Per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans
or Programs
October 1 - October 31, 2020 51,487 $ 50.22 - -
November 1 - November 30, 2020 - - - -
December 1 - December 31, 2020 5,316 64.34 - -
56,803 $ 51.54 - -
During the three months ended December 31, 2020, we withheld 56,803 shares from employees to satisfy estimated statutory income tax obligations related to the vesting of restricted stock awards. We did not purchase any shares of our common stock in the open market. The value of the common stock withheld was based on the closing price of our common stock on the applicable vesting or exercise date. There were no unregistered sales of equity securities during the three months ended December 31, 2020.
For information on securities authorized for issuance under our equity compensation plans, see Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” which relevant information will be included in our definitive proxy statement, which is expected to be filed with the SEC by March 25, 2021.

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ITEM 6. SELECTED FINANCIAL DATA

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE SUMMARY
Impact of the COVID-19 Pandemic on our Business
In 2020, the COVID-19 pandemic negatively impacted our business and results of operations. Efforts to mitigate the impact of the pandemic, including government actions to restrict travel, limit public gatherings, shelter-in-place orders and mandatory closures of businesses, resulted in many of our clients reducing or suspending their spending for our advertising, marketing and corporate communication services. As a result, for the year ended December 31, 2020, revenue decreased $1,782.6 million, or 11.9%, compared to 2019, primarily due to the impact of the COVID-19 pandemic. We anticipate that the negative impact from the pandemic on our revenue will continue through the first quarter of 2021 as compared to the prior year period. However, we expect organic revenue growth for the first half of 2021. The impact of the COVID-19 pandemic on our revenue has been, and may continue to be, material, depending on several factors, including the potential for prolonged or additional governmental actions to mitigate the effects of the pandemic. It is possible that the COVID-19 pandemic will accelerate certain trends that began pre-pandemic, particularly those relating to online commerce, brand building and how we deploy our personnel. We expect that some of these trends will benefit our agencies and provide revenue growth opportunities, as well as increasing flexibility with respect to our use of physical locations and our cost structure, but some trends may negatively affect us including potential disruption by new participants and technologies.
In response to the impact of the COVID-19 pandemic, in the second quarter of 2020, we took actions to align our cost structure and reduce our workforce and facility requirements and continued the review of businesses for disposal and assets for impairment. As a result, we recorded a pre-tax charge of $277.9 million, which is comprised of incremental severance of $150.0 million, real estate operating lease right-of-use, or ROU, asset and other asset impairment charges of $55.8 million, other exit costs of $47.0 million and dispositions and other charges of $25.1 million (see Note 1 to the consolidated financial statements). These actions reduced headcount by over 6,000 and reduced the related facility requirements, which should result in significant reductions in future operating expenses.
In addition, during 2020, we reduced salary and service costs by $162.6 million related to reimbursements and tax credits under government programs in several countries, including the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, in the United States, the Kurzarbeit program in Germany, and other government reimbursement programs in the U.K., France, Canada and other jurisdictions (see Note 1 to the consolidated financial statements). Further, in the fourth quarter of 2020, we recorded asset impairment charges of $55.8 million associated with underperforming assets, which is included in salary and service costs.
The COVID-19 pandemic negatively impacted most of our clients' businesses. As a result, clients have cut costs, including postponing or reducing marketing communication expenditures. While certain industries such as healthcare and pharmaceuticals, technology and telecommunications, financial services and consumer products have been less affected, as long as the COVID-19
pandemic remains a threat, global economic conditions continue to be volatile and such uncertainty cuts across all clients, industries and geographies. Overall, while we have a diversified portfolio of service offerings, clients and geographies, demand for our services can be expected to continue to be adversely affected as marketers reduce expenditures in the short term due to the uncertain impact of the pandemic on the global economy. We expect global economic performance and our performance to vary by geography until the impact of the COVID-19 pandemic on the global economy moderates.
Although we have experienced a decrease in our cash flow from operating activities, we took numerous proactive steps to strengthen our liquidity and financial position that are intended to mitigate the potential impact of the COVID-19 pandemic on our liquidity. In February 2020, we issued $600 million 2.45% Senior Notes due April 30, 2030, or the 2.45% Notes. In March 2020, the net proceeds from the issuance of the 2.45% Notes were used to redeem the remaining $600 million principal amount of our 4.45% Senior Notes due August 15, 2020, or the 2020 Notes. As a result, we have no notes maturing until May 2022. In April 2020, we issued $600 million of 4.20% Senior Notes due June 1, 2030, or the 4.20% Notes, and we entered into a new $400 million 364 day revolving credit facility, or the 364 Day Credit Facility. The 364 Day Credit Facility is in addition to our existing $2.5 billion multi-currency revolving credit facility, or Credit Facility, which we extended to mature in February 2025. In addition, in March 2020, we suspended our share repurchase activity.
Results of Operations for the Year Ended December 31, 2020
We are a strategic holding company providing advertising, marketing and corporate communications services to clients through our branded networks and agencies around the world. On a global, pan-regional and local basis, our networks and agencies provide a comprehensive range of services in the following fundamental disciplines: advertising, CRM, which includes CRM Consumer Experience and CRM Execution & Support, public relations and healthcare. Our business model was built and continues to evolve around our clients. While our networks and agencies operate under different names and frame their ideas in different disciplines, we organize our services around our clients. Our fundamental business principle is that our clients’ specific marketing requirements are the central focus of how we structure our service offerings and allocate our resources. This client-centric business model requires that multiple agencies within Omnicom collaborate in formal and informal virtual client networks utilizing our key client matrix organization structure. This collaboration allows us to cut across our internal organizational structures to execute our clients’ marketing requirements in a consistent and comprehensive manner. We use our client-centric approach to grow our business by expanding our service offerings to existing clients, moving into new markets and obtaining new clients. In addition, we pursue selective acquisitions of complementary companies with strong entrepreneurial management teams that typically currently serve or could serve our existing clients.
As a leading global advertising, marketing and corporate communications company, we operate in all major markets and have a large and diverse client base. In 2020, our largest client represented 3.4% of revenue and our 100 largest clients, which represent many of the world's major marketers, represented approximately 54% of revenue. Our clients operate in virtually every sector of the global economy with no one industry representing more than 16% of our revenue in 2020. Although our revenue is generally balanced between the United States and international markets and we have a large and diverse client base, we are not immune to general economic downturns.
Global economic conditions have a direct impact on our business and financial performance. Adverse global or regional economic conditions, such as those currently arising from the COVID-19 pandemic, pose a risk that our clients may reduce, postpone or cancel spending on advertising, marketing and corporate communications services, which would reduce the demand for our services. Revenue is typically lower in the first and third quarters and higher in the second and fourth quarters, reflecting client spending patterns during the year and additional project work that usually occurs in the fourth quarter. As a result of the impact related to the COVID-19 pandemic, we experienced a significant decline in our year-over-year organic revenue growth in the second, third and fourth quarters of 2020, which will likely continue at least through the first half of 2021. We anticipate that the negative impact from the pandemic on our revenue will continue through the first quarter of 2021 as compared to the prior year period. However, we expect organic revenue growth for the first half of 2021.
In 2020, revenue decreased $1,782.6 million, or 11.9%, compared to 2019. Changes in foreign exchange rates reduced revenue $60.9 million, or 0.4%, acquisition revenue, net of disposition revenue, reduced revenue $56.7 million, or 0.4%, reflecting the disposition of certain non-strategic businesses, and organic growth reduced revenue $1,665.0 million, or 11.1%.
Certain global events targeted by major marketers for advertising expenditures, such as the FIFA World Cup and the Olympics, and certain national events, such as the U.S. election process, may affect our revenue period-over-period in certain businesses. Typically, these events do not have a significant impact on our revenue in any period.
Beginning in March 2020 and continuing through the fourth quarter of 2020, our business experienced the effects from reductions in client spending due to the impact related to the COVID-19 pandemic. The spending reductions impacted all our businesses and markets. The most significantly impacted businesses were our advertising discipline, CRM Consumer Experience discipline, especially in our event marketing businesses, and CRM Execution & Support discipline, primarily in our field marketing and merchandising businesses. In North America, we experienced a decline in organic revenue attributable to the COVID-19 pandemic in all our disciplines, except healthcare. In Europe and the Middle East and Africa, almost all businesses
and regions experienced a decline in organic revenue resulting from the COVID-19 pandemic, which was marginally offset by an increase primarily from the strengthening of the British Pound and Euro against the U.S. Dollar. In addition, the economic and political conditions in the U.K. and the E.U. resulting from the implementation of the Brexit Agreement remain uncertain and could negatively impact our businesses in the U.K. and the E.U. In Latin America, the impact of the COVID-19 pandemic compounded by the continuing unstable economic and political conditions in Brazil resulted in negative organic growth in Brazil and throughout the region. In addition, the weakening of foreign currency exchange rates against the U.S. Dollar in all countries further contributed to the reduction in revenue in the region. In Asia-Pacific, almost all our businesses in the region experienced negative organic growth as a result of the COVID-19 pandemic, and the weakening of most currencies against the U.S. Dollar had a marginal negative impact on revenue. The economic and fiscal issues, including the impact related to the COVID-19 pandemic, facing the countries we operate in can be expected to continue to cause economic uncertainty and volatility; however, the impact on our business varies by country. We monitor economic conditions closely, as well as client revenue levels and other factors. In response to reductions in our revenue that are expected to continue at least through the first half of 2021, beginning in the second quarter of 2020, we took actions to align our cost structure with changes in client demand and manage our working capital. However, there can be no assurance whether, or to what extent, 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 will be effective or that additional actions will not be necessary.
Prior to the COVID-19 pandemic, certain business trends generally had a positive impact on our business and industry. These trends include clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets and integrating traditional and non-traditional marketing channels, as well as utilizing new communications technologies and emerging digital platforms. As clients increase their demands for marketing effectiveness and efficiency, they have made it a practice to consolidate their business within one service provider in the pursuit of a single engagement covering all consumer touch points. We have structured our business around these trends. While the current economic environment caused many clients to reduce spending for our services, certain trends such as increased spending on digital marketing platforms, and our key client matrix organization structure approach to collaboration and integration of our services and solutions provide a competitive advantage to our business. We expect this advantage to continue over the medium and long term.
Driven by our clients’ continuous demand for more effective and efficient marketing activities, we strive to provide an extensive range of advertising, marketing and corporate communications services through various client-centric networks that are organized to meet specific client objectives. These services include, among others, advertising, brand consulting, content marketing, corporate social responsibility consulting, crisis communications, custom publishing, data analytics, database management, digital/direct marketing, digital transformation, entertainment marketing, experiential marketing, field marketing, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare marketing and communications, in-store design, interactive marketing, investor relations, marketing research, media planning and buying, merchandising and point of sale, mobile marketing, multi-cultural marketing, non-profit marketing, organizational communications, package design, product placement, promotional marketing, public affairs, public relations, retail marketing, sales support, search engine marketing, shopper marketing, social media marketing and sports and event marketing.
We continually evaluate our portfolio of businesses to identify areas for investment and acquisition opportunities, as well as to identify non-strategic or underperforming businesses for disposition. In the first and second quarters of 2019, we disposed of certain businesses, primarily in our CRM Execution & Support discipline.
Given our size and breadth, we manage our business by monitoring several financial indicators. The key indicators that we focus on are revenue and operating expenses. We analyze revenue growth by reviewing the components and mix of the growth, including growth by principal regional market and marketing discipline, the impact from foreign currency exchange rate changes, growth from acquisitions, net of dispositions, and growth from our largest clients. Operating expenses are comprised of cost of services, selling, general and administrative expenses, or SG&A, and depreciation and amortization.
In 2020, our revenue decreased 11.9% compared to 2019. Changes in foreign exchange rates reduced revenue 0.4%, acquisition revenue, net of disposition revenue, reduced revenue 0.4%, and organic growth decreased revenue 11.1% as all our markets were negatively impacted by the COVID-19 pandemic. The change in revenue across our principal regional markets were: North America decreased 10.6%, Europe decreased 12.2%, Asia-Pacific decreased 8.8% and Latin America decreased 31.7%. The change in revenue in 2020, compared to 2019, in our fundamental disciplines was: Advertising decreased 13.1%, CRM Consumer Experience decreased 15.6%, CRM Execution & Support decreased 16.7%, Public Relations decreased 5.6% and Healthcare increased 3.4%.
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 the 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 and third-party service costs, which include third-party supplier costs and client-related travel costs. 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, which decreased year-over-year, primarily consist of third-party marketing costs, professional fees and 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.
In 2020, salary and service costs, which tend to fluctuate with changes in revenue, decreased $1,399.4 million, or 12.8%, compared to 2019. Salary and related service costs in 2020 decreased $644.3 million, or 9.3%, year-over-year, primarily as a result of the severance and furlough actions we took in the second quarter of 2020. Also, during 2020, we reduced salary and service costs by $162.6 million related to reimbursements and tax credits under government programs in several countries (see Note 1 to the consolidated financial statements). Third-party service costs, which include expenses incurred with third-party vendors primarily when we act as a principal when performing services for our clients, decreased $755.1 million, or 18.5%, year-over-year reflecting the decrease in revenue and the impact of actions we took to align our cost structure. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, decreased $83.3 million, or 6.8%, in 2020 as compared to 2019. Operating profit decreased $523.5 million to $1,598.8 million. Operating margin decreased to 12.1% from 14.2%, and EBITA margin decreased to 12.8% from 14.8% year-over-year. In 2020, operating profit, operating margin and EBITA margin included a net decrease aggregating $171.1 million related to the COVID-19 repositioning costs recorded in the second quarter and asset impairment charges recorded in the fourth quarter, partially offset by an increase related to reimbursements and tax credits under government programs in several countries (see Note 1 to the consolidated financial statements).
In 2020, net interest expense increased $5.5 million year-over-year to $189.5 million. Interest expense on debt decreased $27.6 million to $199.6 million, primarily reflecting a reduction in interest expense from our refinancing activity at lower interest rates in the second half of 2019 and the first quarter of 2020, partially offset by a loss of $7.7 million on the early redemption of the remaining $600 million principal amount of the 2020 Notes in the first quarter of 2020 and the interest expense from the issuance of the 4.20% Notes in April 2020 (see Note 7 to the consolidated financial statements). Interest income in 2020 decreased $28.0 million year-over-year to $32.3 million primarily due to lower rates.
Our effective tax rate for 2020 increased year-over-year to 27.1% from 26.0%. The non-deductibility in certain jurisdictions of a portion of the COVID-19 repositioning costs recorded in the second quarter of 2020 had the effect of increasing our effective tax rate for 2020. This increase was substantially offset by a lower effective tax rate on our foreign earnings resulting from a change in legislation. In 2019, income tax expense was reduced by $10.8 million primarily from the net favorable settlements of uncertain tax positions in certain jurisdictions. After considering these items, our effective rate for 2020 would have approximated the rate for 2019.
Net income - Omnicom Group Inc. in 2020 decreased $393.7 million to $945.4 million from $1,339.1 million in 2019. The year-over-year decrease is due to the factors described above. Diluted net income per share - Omnicom Group Inc. decreased to $4.37 in 2020, compared to $6.06 in 2019, due to the factors described above, as well as the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock through March 2020, net of shares issued for restricted stock awards, stock option exercises and the employee stock purchase plan during the year. As discussed above and in Note 1 to the consolidated financial statements, our results of operations for 2020 included COVID-19 repositioning costs and asset impairment charges, which were partially offset by an increase attributable to reimbursements and tax credits under government programs in several countries. The after-tax impact of these items on net income - Omnicom Group Inc. was $146.8 million.
CRITICAL ACCOUNTING POLICIES
The following summary of our critical accounting policies provides a better understanding of our financial statements and the related discussion in this MD&A. We believe that the following policies may involve a higher degree of judgment and complexity in their application than most of our accounting policies and represent the critical accounting policies used in the preparation of our financial statements. Readers are encouraged to consider this summary together with our financial statements and the related notes, including Note 2, for a more complete understanding of the critical accounting policies discussed below.
Estimates
We prepare our financial statements in conformity with U.S. GAAP and are required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We use a fair value approach in testing goodwill for impairment and when evaluating our equity method investments to determine if an other-than-temporary impairment has occurred. Actual results could differ from those estimates and assumptions.
Acquisitions and Goodwill
The evaluation of potential acquisitions is based on various factors, including specialized know-how, reputation, geographic coverage, competitive position and service offerings of the target businesses, 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 various strategic business platforms and agency brands through the expansion of their geographic
reach or their service capabilities to better serve our clients. Additional key factors we consider include the competitive position and specialized know-how of the acquisition targets. Accordingly, as is typical in most service businesses, a substantial portion of the assets we acquire are intangible assets primarily consisting of the know-how of the personnel, which is treated as part of goodwill and is not required to be valued separately under U.S. GAAP. For each acquisition, we undertake a detailed review to identify other intangible assets that are required to be 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. In valuing these identified intangible assets, we typically use an income approach and consider comparable market participant measurements.
We evaluate goodwill for impairment at least annually at the end of the second quarter of each fiscal year and whenever events or circumstances indicate the carrying value may not be recoverable. Under FASB ASC Topic 350, Intangibles - Goodwill and Other, we have the option of either assessing qualitative factors to determine whether it is more-likely-than-not that the carrying value of our reporting units exceeds their respective fair value or proceeding directly to the goodwill impairment test. We performed the annual impairment test and compared the fair value of each of our reporting units to its respective carrying value, including goodwill. We identified our regional reporting units as components of our operating segments, which are our five global agency networks. The regional reporting units of each agency network are responsible for the agencies in their region. They 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. 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.
Goodwill Impairment Review - Estimates and Assumptions
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 for EBITDA (earnings before interest, taxes, depreciation and amortization) and (3) when available, consideration of recent and similar acquisition transactions.
In applying the income approach, we use estimates to derive the discounted expected cash flows (“DCF”) for each reporting unit that serves as the basis of our valuation. These estimates and assumptions include revenue growth and operating margin, EBITDA, tax rates, capital expenditures, weighted average cost of capital and related discount rates and expected long-term cash flow growth rates. All of these estimates and assumptions are affected by conditions specific to our businesses, economic conditions related to the industry we operate in, as well as conditions in the global economy. The assumptions that have the most significant effect on our valuations derived using a DCF methodology are: (1) the expected long-term growth rate of our reporting units' cash flows and (2) the weighted average cost of capital (“WACC”) for each reporting unit.
At June 30, 2020 we adjusted our assumptions to reflect the economic conditions in light of the impact on our business related to the COVID-19 pandemic, including downward adjustment to our revenue and earnings assumptions, reducing our long-term growth rate and increasing the weighted average cost of capital, or WACC, for each reporting unit and limiting our estimate of our equity value to reflect the decline in our share price that occurred during the first half of 2020. In addition, the assumptions reflected the expected cost reductions from our severance and real estate facility repositioning actions (see Notes 1 and 11 to the consolidated financial statements).
The assumptions used for the long-term growth rate and WACC in our evaluations as of June 30, 2020 and 2019 were:
2020 2019
Long-Term Growth Rate 3% 4%
WACC 10.6% - 10.8% 10.1% - 10.6%
Long-term growth rate represents our estimate of the long-term growth rate for our industry and the markets of the global economy we operate in. For the past ten years, the average historical revenue growth rate of our reporting units and the Average Nominal GDP, or NGDP, growth of the countries comprising the major markets that account for substantially all of our revenue was approximately 4.2% and 4.3%, respectively. We considered this history when determining the long-term growth rates used in our annual impairment test at June 30, 2020 and lowered it to reflect the potential future effects of the unprecedented COVID-19 pandemic on the global economy, which are not reflected in the 10-year historical analysis. We believe marketing expenditures over the long term have a high correlation to NGDP. Based on our historical performance, we also believe that our long-term growth rate will exceed NGDP growth in the markets we operate in, which are similar across our reporting units. For our annual test as of June 30, 2020, we used an estimated long-term growth rate of 3.0%.
When performing the annual impairment test as of June 30, 2020 and estimating the future cash flows of our reporting units, we considered the current macroeconomic environment, as well as industry and market specific conditions at mid-year 2020. In the first half of 2020, our revenue declined 11.7%, which excluded our net disposition activity and the impact from changes in foreign exchange rates. The COVID-19 pandemic significantly impacted the global economy. Government actions taken to mitigate the impact of the pandemic negatively impacted many of our clients' businesses, and in turn, clients have reduced their demand for our services. In addition, the assumptions reflected the expected cost reductions from our severance and real estate facility repositioning actions (see Notes 1 and 13 to the consolidated financial statements).
The WACC is comprised of: (1) a risk-free rate of return, (2) a business risk index ascribed to us and to companies in our industry comparable to our reporting units based on a market derived variable that measures the volatility of the share price of equity securities relative to the volatility of the overall equity market, (3) an equity risk premium that is based on the rate of return on equity of publicly traded companies with business characteristics comparable to our reporting units, and (4) a current after-tax market rate of return on debt of companies with business characteristics similar to our reporting units, each weighted by the relative market value percentages of our equity and debt.
Our five reporting units vary in size with respect to revenue and the amount of debt allocated to them. These differences drive variations in fair value among our reporting units. In addition, these differences as well as differences in book value, including goodwill, cause variations in the amount by which fair value exceeds book value among the reporting units. The reporting unit goodwill balances and debt vary by reporting unit primarily because our three legacy agency networks were acquired at the formation of Omnicom and were accounted for as a pooling of interests that did not result in any additional debt or goodwill being recorded. The remaining two agency networks were built through a combination of internal growth and acquisitions that were accounted for using the acquisition method and as a result, they have a relatively higher amount of goodwill and debt.
Goodwill Impairment Review - Conclusion
Based on the results of our impairment test, we concluded that our goodwill at June 30, 2020 was not impaired, because the fair value of each of our reporting units was in excess of its respective net book value. For our reporting units with negative book value, we concluded that the fair value of their total assets was in excess of book value. The minimum decline in fair value that one of our reporting units would need to experience in order to fail the goodwill impairment test was approximately 20%. Notwithstanding our belief that the assumptions we used for WACC and long-term growth rate in our impairment testing were reasonable, we performed a sensitivity analysis for each of our reporting units. The results of this sensitivity analysis on our impairment test as of June 30, 2020 revealed that if the WACC increased by 1% and/or the long-term growth rate decreased by 1%, the fair value of each of our reporting units would continue to be in excess of its respective net book value and would pass the impairment test.
We will continue to perform our impairment test each year at June 30th unless events or circumstances trigger the need for an interim impairment test. There were no events through December 31, 2020 that would change our impairment assessment. The estimates used in our goodwill impairment test do not constitute forecasts or projections of future results of operations, but rather are estimates and assumptions based on historical results and assessments of macroeconomic factors affecting our reporting units as of the valuation date. We believe that our estimates and assumptions are reasonable, but they are subject to change from period to period. Actual results of operations and other factors will likely differ from the estimates used in our discounted cash flow valuation, and it is possible that differences could be significant. A change in the estimates we use could result in a decline in the estimated fair value of one or more of our reporting units from the amounts derived as of our latest valuation and could cause us to fail our goodwill impairment test if the estimated fair value for the reporting unit is less than the carrying value of the net assets of the reporting unit, including its goodwill. A large decline in estimated fair value of a reporting unit could result in a non-cash impairment charge and may have an adverse effect on our results of operations and financial condition. Additional information about acquisitions and goodwill appears in Notes 2, 5 and 6 to the consolidated financial statements.
Revenue Recognition
Revenue is recognized when a customer obtains control of 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, which includes creative advertising services and strategic media planning and buying services, customer relationship management or CRM, which includes CRM Consumer Experience and CRM Execution & Support, public relations and healthcare advertising. 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 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 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 and most of our CRM Consumer Experience 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 events business and most of our CRM Execution & 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.
NEW ACCOUNTING STANDARDS
See Note 22 to the consolidated financial statements for information on the adoption of new accounting standards and accounting standards not yet adopted.
RESULTS OF OPERATIONS - 2020 Compared to 2019 (in millions):
Year Ended December 31,
2020 2019
Revenue $ 13,171.1 $ 14,953.7
Operating Expenses:
Salary and service costs 9,572.8 10,972.2
Occupancy and other costs 1,138.5 1,221.8
COVID-19 repositioning costs 277.9 -
Cost of services 10,989.2 12,194.0
Selling, general and administrative expenses 360.5 405.9
Depreciation and amortization 222.6 231.5
11,572.3 12,831.4
Operating Profit 1,598.8 2,122.3
Operating Margin - % 12.1 % 14.2 %
Interest Expense 221.8 244.3
Interest Income 32.3 60.3
Income Before Income Taxes and Income (Loss) From Equity Method Investments 1,409.3 1,938.3
Income Tax Expense 381.7 504.4
Income (Loss) From Equity Method Investments (6.8) 2.0
Net Income 1,020.8 1,435.9
Net Income Attributed To Noncontrolling Interests 75.4 96.8
Net Income - Omnicom Group Inc. $ 945.4 $ 1,339.1
Non-GAAP Financial Measures
We use EBITA and EBITA Margin as additional operating performance measures that exclude the non-cash amortization expense of intangible assets, which primarily consists of amortization of intangible assets arising from acquisitions. We define EBITA as earnings before interest, taxes and amortization of intangible assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margin are non-GAAP financial measures. We believe that EBITA and EBITA Margin are useful measures for investors to evaluate the performance of our business. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.
The following table reconciles the U.S. GAAP financial measure of net income - Omnicom Group Inc. to EBITA and EBITA Margin for the periods presented (in millions):
Year Ended December 31,
2020 2019
Net Income - Omnicom Group Inc. $ 945.4 $ 1,339.1
Net Income Attributed To Noncontrolling Interests 75.4 96.8
Net Income 1,020.8 1,435.9
Income (Loss) From Equity Method Investments (6.8) 2.0
Income Tax Expense 381.7 504.4
Income Before Income Taxes and Income (Loss) From Equity Method Investments 1,409.3 1,938.3
Interest Expense 221.8 244.3
Interest Income 32.3 60.3
Operating Profit 1,598.8 2,122.3
Add back: Amortization of intangible assets 83.1 83.8
Earnings before interest, taxes and amortization of intangible assets (“EBITA”) $ 1,681.9 $ 2,206.1
Revenue $ 13,171.1 $ 14,953.7
EBITA $ 1,681.9 $ 2,206.1
EBITA Margin - % 12.8 % 14.8 %
Revenue
Revenue for 2020 decreased $1,782.6 million, or 11.9%, compared to 2019. Changes in foreign exchange rates reduced revenue 0.4%, acquisition revenue, net of disposition revenue, reduced revenue 0.4% and negative organic growth decreased revenue 11.1% as all our geographic markets were negatively impacted by the COVID-19 pandemic (see Note 1 to the consolidated financial statements). The change in revenue across our principal regional markets were: North America decreased $901.7 million, Europe decreased $499.7 million, Asia-Pacific decreased $145.8 million and Latin America decreased $128.0 million. In North America, we experienced a decline in organic revenue attributable to the COVID-19 pandemic in all our disciplines, except healthcare. In Europe and the Middle East and Africa, almost all businesses and regions experienced a decline in organic revenue resulting from the COVID-19 pandemic, which was marginally offset by an increase primarily from the strengthening of the British Pound and Euro against the U.S. Dollar. In Latin America, the impact of the COVID-19 pandemic compounded by the continuing unstable economic and political conditions in Brazil resulted in negative organic growth in Brazil and throughout the region. In addition, the weakening of foreign currency exchange rates against the U.S. Dollar in all countries further contributed to the reduction in revenue in the region. In Asia-Pacific, almost all our businesses in the region experienced negative organic growth as a result of the COVID-19 pandemic, and the weakening of most currencies against the U.S. Dollar had a marginal negative impact on revenue.
The components of revenue change in the United States (“Domestic”) and the remainder of the world (“International”) were (in millions):
Total Domestic International
$ % $ % $ %
December 31, 2019 $ 14,953.7 $ 8,033.0 $ 6,920.7
Components of revenue change:
Foreign exchange rate impact (60.9) (0.4) % - - % (60.9) (0.9) %
Acquisition revenue, net of disposition revenue (56.7) (0.4) % (36.8) (0.5) % (19.9) (0.3) %
Organic growth (1,665.0) (11.1) % (810.1) (10.1) % (854.9) (12.4) %
December 31, 2020 $ 13,171.1 (11.9) % $ 7,186.1 (10.5) % $ 5,985.0 (13.5) %
The components and percentages are calculated as follows:
•The foreign exchange impact is calculated by translating the current period’s local currency revenue using the prior period average exchange rates to derive current period constant currency revenue (in this case $13,232.0 million for the Total column). The foreign exchange impact is the difference between the current period revenue in U.S. Dollars and the current period constant currency revenue ($13,171.1 million less $13,232.0 million for the Total column).
•Acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date. As a result, acquisition revenue excludes the positive or negative difference between our current period revenue subsequent to the acquisition date and the comparable prior period revenue and the positive or negative growth after the acquisition is attributed to organic growth. Disposition revenue is calculated as if the disposition occurred twelve months prior to the disposition date by aggregating the comparable prior period revenue of dispositions through the disposition date. The acquisition revenue and disposition revenue amounts are netted in the table.
•Organic growth is calculated by subtracting the foreign exchange rate impact, and the acquisition revenue, net of disposition revenue components from total revenue growth.
•The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($14,953.7 million for the Total column).
Changes in the value of foreign currencies against the U.S. Dollar affect our results of operations and financial position. For the most part, because the revenue and expense of our foreign operations are both denominated in the same local currency, the economic impact on operating margin is minimized. Assuming exchange rates at February 12, 2021 remain unchanged, we expect the impact of changes in foreign exchange rates to increase revenue between 2.5% and 3.0% in the first half of 2021, and by approximately 2.5% for the full year.
Revenue and organic growth in our principal regional markets were (in millions):
Year Ended December 31,
2020 2019 $ Change % Organic Growth
Americas:
North America $ 7,577.1 $ 8,478.8 $ (901.7) (10.1) %
Latin America 275.4 403.4 (128.0) (15.1) %
EMEA:
Europe 3,607.7 4,107.4 (499.7) (12.4) %
Middle East and Africa 207.2 314.6 (107.4) (32.3) %
Asia-Pacific 1,503.7 1,649.5 (145.8) (8.5) %
$ 13,171.1 $ 14,953.7 $ (1,782.6) (11.1) %
Revenue in Europe, which includes our primary markets of the U.K. and the Euro Zone, decreased $499.7 million in 2020 compared to 2019. Revenue in the U.K., representing 9.7% of revenue, decreased $151.5 million. Revenue in Continental Europe, which comprises the Euro Zone and the other European countries, representing 17.7% of revenue, decreased $348.2 million. The decrease in revenue is due to negative organic growth resulting from the impact of the COVID-19 pandemic.
In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. In 2020, the reduction in spending by existing clients resulting from the COVID-19 pandemic offset the benefit from gains of new business. Under our client-centric approach, we seek to broaden our relationships with all of our clients. In 2020 and 2019, our largest client represented 3.4% and 3.0% of revenue, respectively. Our ten largest and 100 largest clients represented 20.8% and 54.0% of revenue for 2020, respectively, and 19.6% and 51.3% of revenue for 2019, respectively.
In an effort to monitor the changing needs of our clients and to further expand the scope of our services to key clients, we monitor revenue across a broad range of disciplines and group them into the following categories: advertising, CRM, which includes CRM Consumer Experience and CRM Execution & Support, public relations and healthcare.
All our business experienced the effects from client spending reductions related to the COVID-19 pandemic. The spending reductions impacted all our disciplines and markets. The most significantly impacted were our advertising discipline, our CRM Consumer Experience discipline, especially in our event marketing businesses, and our CRM Execution & Support discipline, primarily in our field marketing and merchandising businesses. Our Public Relations discipline was less significantly impacted, and our Healthcare discipline performed well. Revenue and organic growth by discipline were (in millions):
Year Ended December 31,
2020 2019 2020 vs. 2019 2020
$ % of
Revenue
$ % of
Revenue
$ Change % Organic Growth
Advertising $ 7,369.0 56.0 % $ 8,483.8 56.7 % $ (1,114.8) (12.2) %
CRM Consumer Experience 2,175.7 16.5 % 2,577.9 17.2 % (402.2) (15.8) %
CRM Execution & Support 1,133.5 8.6 % 1,361.2 9.1 % (227.7) (15.1) %
Public Relations 1,301.8 9.9 % 1,378.9 9.3 % (77.1) (4.2) %
Healthcare 1,191.1 9.0 % 1,151.9 7.7 % 39.2 3.3 %
$ 13,171.1 $ 14,953.7 $ (1,782.6) (11.1) %
We provide services to clients that operate in various industry sectors. Revenue by sector was:
Year Ended December 31,
2020 2019
Food and Beverage 14 % 14 %
Consumer Products 8 % 9 %
Pharmaceuticals and Healthcare 16 % 14 %
Financial Services 8 % 8 %
Technology 9 % 7 %
Auto 10 % 10 %
Travel and Entertainment 7 % 9 %
Telecommunications 6 % 6 %
Retail 7 % 7 %
Services 2 % 2 %
Oil, Gas and Utilities 1 % 2 %
Not-for-Profit 1 % 1 %
Government 3 % 2 %
Education 1 % 1 %
Other 7 % 8 %
100 % 100 %
Certain industry sectors have been negatively affected by the impact of the COVID-19 pandemic more significantly than others.
Operating Expenses
Operating expenses were (in millions):
Year Ended December 31,
2020 2019 2020 vs. 2019
$ % of
Revenue $ % of
Revenue $ Change % Change
Revenue $ 13,171.1 $ 14,953.7 $ (1,782.6) (11.9) %
Operating Expenses:
Salary and service costs:
Salary and related service costs 6,250.9 47.5 % 6,895.2 46.1 % (644.3) (9.3) %
Third-party service costs 3,321.9 25.2 % 4,077.0 27.3 % (755.1) (18.5) %
9,572.8 72.7 % 10,972.2 73.4 % (1,399.4) (12.8) %
Occupancy and other costs 1,138.5 8.6 % 1,221.8 8.2 % (83.3) (6.8) %
COVID-19 repositioning costs 277.9 2.1 % - - % 277.9 - %
Cost of services 10,989.2 12,194.0 (1,204.8)
Selling, general and administrative expenses 360.5 2.7 % 405.9 2.7 % (45.4) (11.2) %
Depreciation and amortization 222.6 1.7 % 231.5 1.5 % (8.9) (3.8) %
11,572.3 87.9 % 12,831.4 85.8 % (1,259.1) (9.8) %
Operating Profit $ 1,598.8 12.1 % $ 2,122.3 14.2 % $ (523.5) (24.7) %
In 2020, salary and service costs, which tend to fluctuate with changes in revenue, decreased $1,399.4 million, or 12.8%, compared to 2019. Salary and related service costs in 2020 decreased $644.3 million, or 9.3%, year-over-year, primarily as a result of the severance and furlough actions we took in the second quarter of 2020. Also, during 2020, we reduced salary and service costs by $162.6 million related to reimbursements and tax credits under government programs in several countries (see Note 1 to the consolidated financial statements). Third-party service costs, which include expenses incurred with third-party vendors primarily when we act as a principal when performing services for our clients, decreased $755.1 million, or 18.5%, year-over-year reflecting the decrease in revenue and the impact of actions we took to align our cost structure. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, decreased $83.3 million, or 6.8%, in 2020 as compared to 2019. Operating profit decreased $523.5 million to $1,598.8 million. Operating margin decreased to 12.1% from 14.2%, and EBITA margin decreased to 12.8% from 14.8% year-over-year. In 2020, operating profit, operating margin and EBITA margin included a net decrease aggregating $171.1 million related to the COVID-19 repositioning costs recorded in the
second quarter and asset impairment charges, which are included in salary and service costs, recorded in the fourth quarter, partially offset by an increase related to reimbursements and tax credits under government programs in several countries during the year (see Note 1 to the consolidated financial statements).
Net Interest Expense
In 2020, net interest expense increased $5.5 million year-over-year to $189.5 million. Interest expense on debt decreased $27.6 million to $199.6 million, primarily reflecting a reduction in interest expense from our refinancing activity at lower interest rates in the second half of 2019 and the first quarter of 2020, partially offset by a loss of $7.7 million on the early redemption of the remaining $600 million principal amount of the 2020 Notes in the first quarter of 2020 and the interest expense from the issuance of the 4.20% Notes in April 2020 (see Note 7 to the consolidated financial statements). Interest income in 2020 decreased $28.0 million year-over-year to $32.3 million primarily due to lower rates.
Income Taxes
Our effective tax rate for 2020 increased year-over-year to 27.1% from 26.0%. The non-deductibility in certain jurisdictions of a portion of the COVID-19 repositioning costs recorded in the second quarter of 2020 had the effect of increasing our effective tax rate for 2020. This increase was substantially offset by a lower effective tax rate on our foreign earnings resulting from a change in legislation. In 2019, income tax expense was reduced by $10.8 million primarily from the net favorable settlements of uncertain tax positions in certain jurisdictions. After considering these items, our effective rate for 2020 would have approximated the rate for 2019.
Net Income and Net Income Per Share - Omnicom Group Inc.
Net income - Omnicom Group Inc. in 2020 decreased $393.7 million to $945.4 million from $1,339.1 million in 2019. The year-over-year decrease is due to the factors described above. Diluted net income per share - Omnicom Group Inc. decreased to $4.37 in 2020, compared to $6.06 in 2019, due to the factors described above, as well as the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock through March 2020, net of shares issued for restricted stock awards, stock option exercises and the employee stock purchase plan during the year. As discussed above and in Note 1 to the consolidated financial statements, our results of operations for 2020 included COVID-19 repositioning costs and asset impairment charges, which were partially offset by an increase attributable to reimbursements and tax credits under government programs in several countries. The after-tax affect of these items on net income - Omnicom Group Inc. was $146.8 million.
The impact on net income Omnicom Group Inc. of these actions was (in millions):
COVID-19 Repositioning Costs Impairment Charges -
Underperforming Assets Reimbursements and Tax Credits Under Government Programs Total
Increase (decrease) to income before income taxes $ (277.9) $ (55.8) $ 162.6 $ (171.1)
Increase (decrease) in income tax expense (54.8) (8.7) 39.2 (24.3)
Increase (decrease) in net income Omnicom Group Inc. $ (223.1) $ (47.1) $ 123.4 $ (146.8)
RESULTS OF OPERATIONS - 2019 Compared to 2018 (in millions):
Year Ended December 31,
2019 2018
Revenue $ 14,953.7 $ 15,290.2
Operating Expenses:
Salary and service costs 10,972.2 11,306.1
Occupancy and other costs 1,221.8 1,309.6
Net gain on disposition of subsidiaries - (178.4)
Cost of services 12,194.0 12,437.3
Selling, general and administrative expenses 405.9 455.4
Depreciation and amortization 231.5 264.0
12,831.4 13,156.7
Operating Profit 2,122.3 2,133.5
Operating Margin - % 14.2 % 14.0 %
Interest Expense 244.3 266.4
Interest Income 60.3 57.2
Income Before Income Taxes and Income From Equity Method Investments 1,938.3 1,924.3
Income Tax Expense 504.4 492.7
Income From Equity Method Investments 2.0 8.9
Net Income 1,435.9 1,440.5
Net Income Attributed To Noncontrolling Interests 96.8 114.1
Net Income - Omnicom Group Inc. $ 1,339.1 $ 1,326.4
Our results for 2018 include the effect of the net gain on disposition of subsidiaries of $178.4 million and repositioning charges of $149.4 million, after the allocation of $6.9 million to noncontrolling interests, and the additional income tax expense of $3.9 million from the finalization of the provisional estimate of the effect of the Tax Cut and Jobs Act of 2017, or Tax Act, substantially offset by the impact of a lower tax rate on the net gain on disposition of subsidiaries. The following discussion of our results of operations compares 2019 to 2018 as reported and adjusted for the effects of these transactions. See page 24 for a reconciliation of the adjusted 2018 amounts.
Non-GAAP Financial Measures
We use EBITA and EBITA Margin as additional operating performance measures that exclude the non-cash amortization expense of intangible assets, which primarily consists of amortization of intangible assets arising from acquisitions. We define EBITA as earnings before interest, taxes and amortization of intangible assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margin are non-GAAP financial measures. We believe that EBITA and EBITA Margin are useful measures for investors to evaluate the performance of our business. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.
The following table reconciles the U.S. GAAP financial measure of net income - Omnicom Group Inc. to EBITA and EBITA Margin for the periods presented (in millions):
Year Ended December 31,
2019 2018
Net Income - Omnicom Group Inc. $ 1,339.1 $ 1,326.4
Net Income Attributed To Noncontrolling Interests 96.8 114.1
Net Income 1,435.9 1,440.5
Income From Equity Method Investments 2.0 8.9
Income Tax Expense 504.4 492.7
Income Before Income Taxes and Income From Equity Method Investments 1,938.3 1,924.3
Interest Expense 244.3 266.4
Interest Income 60.3 57.2
Operating Profit 2,122.3 2,133.5
Add back: Amortization of intangible assets 83.8 102.5
Earnings before interest, taxes and amortization of intangible assets (“EBITA”) $ 2,206.1 $ 2,236.0
Revenue $ 14,953.7 $ 15,290.2
EBITA $ 2,206.1 $ 2,236.0
EBITA Margin - % 14.8 % 14.6 %
Revenue
In 2019, revenue decreased $336.5 million, or 2.2%, to $14,953.7 million from $15,290.2 million in 2018. Changes in foreign exchange rates reduced revenue $315.9 million, acquisition revenue, net of disposition revenue, reduced revenue $445.1 million, and organic growth increased revenue $424.5 million. The impact of changes in foreign exchange rates reduced revenue 2.1%, or $315.9 million, primarily resulting from the weakening of substantially all foreign currencies, especially the Euro, British Pound, Australian Dollar, Brazilian Real and Canadian Dollar against the U.S. Dollar.
The components of revenue change in the United States (“Domestic”) and the remainder of the world (“International”) were (in millions):
Total Domestic International
$ % $ % $ %
December 31, 2018 $ 15,290.2 $ 7,999.8 $ 7,290.4
Components of revenue change:
Foreign exchange rate impact (315.9) (2.1) % - - % (315.9) (4.3) %
Acquisition revenue, net of disposition revenue (445.1) (2.9) % (180.6) (2.3) % (264.5) (3.6) %
Organic growth 424.5 2.8 % 213.8 2.7 % 210.7 2.9 %
December 31, 2019 $ 14,953.7 (2.2) % $ 8,033.0 0.4 % $ 6,920.7 (5.1) %
The components and percentages are calculated as follows:
•The foreign exchange impact is calculated by translating the current period’s local currency revenue using the prior period average exchange rates to derive current period constant currency revenue (in this case $15,269.6 million for the Total column). The foreign exchange impact is the difference between the current period revenue in U.S. Dollars and the current period constant currency revenue ($14,953.7 million less $15,269.6 million for the Total column).
•Acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date. As a result, acquisition revenue excludes the positive or negative difference between our current period revenue subsequent to the acquisition date and the comparable prior period revenue and the positive or negative growth after the acquisition is attributed to organic growth. Disposition revenue is calculated as if the disposition occurred twelve months prior to the disposition date by aggregating the comparable prior period revenue of dispositions through the disposition date. The acquisition revenue and disposition revenue amounts are netted in the table.
•Organic growth is calculated by subtracting the foreign exchange rate impact, and the acquisition revenue, net of disposition revenue components from total revenue growth.
•The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($15,290.2 million for the Total column).
Changes in the value of foreign currencies against the U.S. Dollar affect our results of operations and financial position. For the most part, because the revenue and expense of our foreign operations are both denominated in the same local currency, the economic impact on operating margin is minimized.
Revenue and organic growth in our principal regional markets were (in millions):
Year Ended December 31,
2019 2018 $ Change
% Organic Growth
Americas:
North America $ 8,478.8 $ 8,442.5 $ 36.3 2.8 %
Latin America 403.4 457.5 (54.1) (0.2) %
EMEA:
Europe 4,107.4 4,375.4 (268.0) 3.1 %
Middle East and Africa 314.6 304.4 10.2 6.5 %
Asia-Pacific 1,649.5 1,710.4 (60.9) 2.2 %
$ 14,953.7 $ 15,290.2 $ (336.5) 2.8 %
Revenue in Europe, which includes our primary markets of the U.K. and the Euro Zone, decreased $268.0 million in 2019 as compared to the prior year. Revenue in the U.K., representing 9.6% of total revenue, decreased $23.7 million, primarily due to the weakening of the British Pound against the U.S. Dollar. Revenue in Continental Europe, which comprises the Euro Zone and the other European countries, representing 17.9% of total revenue, decreased $244.3 million, primarily due to disposition activity and the unfavorable impact from changes in foreign exchange rates.
In North America, improved organic growth in the United States and Canada was substantially offset by a decrease in revenue resulting from disposition activity in the United States and the weakening of the Canadian Dollar against the U.S. Dollar. Organic revenue growth in the United States was led by our advertising and media, CRM Consumer Experience and healthcare businesses, and was partially offset by a decrease in organic revenue growth primarily in our CRM Execution & Support businesses. In Europe, modest organic growth in the region, especially in the U.K. and Spain, was offset by the weakening of substantially all currencies in the region against the U.S. Dollar, disposition activity and negative performance in France. In Latin America, the weakening of currencies in the region against the U.S. Dollar and negative performance and disposition activity in Brazil offset modest organic growth in Chile and Mexico. In Asia-Pacific, organic growth in most countries in the region, especially Japan, New Zealand and India, was offset by the weakening of most currencies in the region against the U.S. Dollar, disposition activity and negative performance in China, which faced a difficult comparison due to strong organic growth in 2018.
In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. The net change in 2019 was an overall gain in new business. Under our client-centric approach, we seek to broaden our relationships with all of our clients. In 2019 and 2018, our largest client represented 3.0% of revenue. Our ten largest and 100 largest clients represented 19.6% and 51.3% of revenue in 2019, respectively, and 19.1% and 50.7% of revenue in 2018, respectively.
Revenue and organic growth by discipline were (in millions):
Year Ended December 31,
2019 2018 2019 vs. 2018 2019
$ % of
Revenue $ % of
Revenue $ Change % Organic Growth
Advertising $ 8,451.7 56.5 % $ 8,281.0 54.2 % $ 170.7 4.5 %
CRM Consumer Experience 2,610.0 17.5 % 2,629.6 17.1 % (19.6) 1.6 %
CRM Execution & Support 1,361.2 9.1 % 1,891.6 12.4 % (530.4) (3.2) %
Public Relations 1,378.9 9.2 % 1,435.1 9.4 % (56.2) (2.0) %
Healthcare 1,151.9 7.7 % 1,052.9 6.9 % 99.0 9.5 %
$ 14,953.7 $ 15,290.2 $ (336.5) 2.8 %
We provide services to clients that operate in various industry sectors. Revenue by sector was:
Year Ended December 31,
2019 2018
Food and Beverage 14 % 14 %
Consumer Products 9 % 9 %
Pharmaceuticals and Health Care 14 % 14 %
Financial Services 8 % 8 %
Technology 7 % 8 %
Auto 10 % 10 %
Travel and Entertainment 9 % 8 %
Telecommunications 6 % 5 %
Retail 7 % 8 %
Services 2 % 2 %
Oil, Gas and Utilities 2 % 2 %
Not-for-Profit 1 % 2 %
Government 2 % 2 %
Education 1 % - %
Other 8 % 8 %
100 % 100 %
Operating Expenses
Operating expenses for 2019 compared to 2018 were (in millions):
Year Ended December 31,
2019 2018 2019 vs. 2018
$ % of
Revenue $ % of
Revenue $ Change % Change
Revenue $ 14,953.7 $ 15,290.2 $ (336.5) (2.2) %
Operating Expenses:
Salary and service costs:
Salary and service costs 6,895.2 46.1 % 7,127.1 46.6 % (231.9) (3.3) %
Third-party service costs 4,077.0 27.3 % 4,179.0 27.3 % (102.0) (2.4) %
10,972.2 73.4 % 11,306.1 73.9 % (333.9) (3.0) %
Occupancy and other costs 1,221.8 8.2 % 1,309.6 8.6 % (87.8) (6.7) %
Net gain on disposition of subsidiaries - - % (178.4) (1.2) % 178.4
Cost of services 12,194.0 12,437.3 (243.3)
Selling, general and administrative expenses 405.9 2.7 % 455.4 3.0 % (49.5) (10.9) %
Depreciation and amortization 231.5 1.5 % 264.0 1.7 % (32.5) (12.3) %
12,831.4 85.8 % 13,156.7 86.0 % (325.3) (2.5) %
Operating Profit $ 2,122.3 14.2 % $ 2,133.5 14.0 % $ (11.2) (0.5) %
Operating expenses in 2019 decreased $325.3 million, or 2.5%, year-over-year, primarily as a result of our disposition activity in 2019 and 2018, and the weakening of substantially all foreign currencies against the U.S. Dollar. Operating expenses for 2018 also included a net reduction of $29.0 million, comprised of a $178.4 million reduction for the impact of the net gain on disposition of subsidiaries, partially offset by an increase in operating expenses of $149.4 million for repositioning charges, which included $73.7 million in salary and service costs for incremental severance and $73.5 million in occupancy and other costs for office lease termination and consolidation. Salary and service costs, which tend to fluctuate with changes in revenue, decreased $333.9 million, or 3.0%, in 2019 compared to 2018 due to our disposition activity in 2019 and 2018, as well as the incremental severance charge of $73.7 million recorded in 2018 that did not affect 2019. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, decreased $87.8 million, or 6.7%, in 2019 compared to 2018 due to our disposition activity in 2019 and 2018, and the office lease termination and consolidation charge of $73.5 million recorded in 2018 that did not affect 2019. Operating margin increased 0.2% to 14.2% year-over-year and EBITA margin increased 0.2% year-over-year to 14.8%. The net decrease in operating expenses of $29.0 million in 2018 related to the net gain on disposition of subsidiaries partially offset by the charges for the repositioning actions, increased both operating margin and EBITA margin for 2018 by 0.2%. Adjusting for the net decrease of $29.0 million in 2018 in operating expenses, Non-GAAP operating margin for 2019 increased to 14.2% from 13.8% in 2018 and adjusted EBITA margin for 2019 increased to 14.8% from 14.4% in 2018. The year-over-year increase primarily reflects a change in the mix of our business during the current period, including the positive effects following the disposition of underperforming businesses in the current and prior year and our repositioning activity in the third quarter of 2018, as well as our ongoing efforts to manage our cost structure and increase the efficiency of the operations of our agencies.
Net Interest Expense
In 2019, net interest expense decreased $25.2 million year-over-year to $184.0 million. In 2019, interest expense on debt decreased $14.7 million to $227.2 million, primarily reflecting a reduction in interest expense from refinancing activity in the third quarter of 2019 at lower interest rates, including the maturity and retirement of the 2019 Notes and the settlement of the outstanding fixed-to-floating interest rate swaps, partially offset by a loss on the partial redemption of the 2020 Notes and the issuance of the Euro Notes (see Note 7 to the consolidated financial statements). Interest income in 2019 increased $3.1 million year-over-year to $60.3 million due to higher cash balances at our treasury centers.
Income Taxes
Our effective tax rate for 2019 increased slightly year-over-year to 26.0% from 25.6% in 2018. The effective tax rate for 2019 includes a reduction of $10.8 million primarily from the net favorable settlement of uncertain tax positions in the second quarter of 2019. The effective tax rate for 2018 reflects a net increase of $3.9 million related to an increase in income tax expense for an adjustment to the provisional amounts related to the Tax Act, substantially offset by the impact of a lower tax rate on the net gain on disposition of subsidiaries.
Net Income and Net Income Per Share - Omnicom Group Inc.
Net income - Omnicom Group Inc. in 2019 increased, due to the factors described above, $12.7 million, or 1.0%, to $1,339.1 million from $1,326.4 million in 2018. The net gain on disposition of subsidiaries and repositioning charges, after the allocated share of $6.9 million to noncontrolling interests, and the additional income tax expense from the finalization of the provisional
estimate of the effect of the Tax Act, increased net income - Omnicom Group Inc. in 2018 by $18.2 million. Diluted net income per share - Omnicom Group Inc. increased 3.9% to $6.06 in 2019, compared to $5.83 in 2018, due to the factors described above, as well as the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock, net of shares issued for restricted stock awards, stock option exercises and the employee stock purchase plan. The net gain on disposition of subsidiaries and repositioning charges net of the additional income tax expense from the finalization of the provisional estimate of the effect of the Tax Act, increased diluted net income per share - Omnicom Group Inc. in 2018 by $0.08, and Non-GAAP diluted net income per share - Omnicom Group Inc. increased 5.4% in 2019 compared to 2018 adjusted for these items.
Reconciliation of Non-GAAP Financial Measures
Non-GAAP operating profit, adjusted EBITA, Non-GAAP net income - Omnicom Group Inc., and Non-GAAP diluted net income per share - Omnicom Group Inc. are Non-GAAP financial measures which adjusts the 2018 financial measures for the impact of the net gain on disposition of subsidiaries of $178.4 million and repositioning charges of $149.4 million, a net increase of $3.9 million in income tax expense, and an allocation of $6.9 million to noncontrolling interests for these items. Accordingly, when comparing operating profit, EBITA, net income - Omnicom Group Inc. and diluted net income per share - Omnicom Group Inc. for 2019 to 2018, we also present the 2018 reported amounts and EBITA on page 14 adjusted for the effects of these transactions. We believe these Non-GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends affecting our business. For comparability of reporting, management considers Non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. These Non-GAAP financial measures presented should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
The following table reconciles our financial results presented above to the Non-GAAP Financial Measures (in millions, except per share amounts):
Year Ended December 31,
2019 2018
Non-GAAP operating profit and adjusted EBITA:
Net Income - Omnicom Group Inc. $ 1,339.1 $ 1,326.4
Net Income Attributed To Noncontrolling Interests 96.8 114.1
Net Income 1,435.9 1,440.5
Income From Equity Method Investments 2.0 8.9
Income Tax Expense 504.4 492.7
Income Before Income Taxes and Income From Equity Method Investments 1,938.3 1,924.3
Interest Expense 244.3 266.4
Interest Income 60.3 57.2
Operating profit 2,122.3 2,133.5
Net gain on disposition of subsidiaries - (178.4)
Repositioning charges - 149.4
Non-GAAP operating profit 2,122.3 2,104.5
Add back: Amortization of intangible assets 83.8 102.5
Adjusted EBITA $ 2,206.1 $ 2,207.0
Non-GAAP net income - Omnicom Group Inc. and Non-GAAP diluted net income per share
Omnicom Group Inc.:
Net income - Omnicom Group Inc. $ 1,339.1 $ 1,326.4
Net pre-tax gain on disposition of subsidiaries and repositioning actions - (29.0)
Net income tax benefit of gain on disposition of subsidiaries and repositioning actions - (25.0)
Allocation to noncontrolling interests - 6.9
Net increase in tax expense related to the Tax Act - 28.9
Non-GAAP net income - Omnicom Group Inc. $ 1,339.1 $ 1,308.2
Diluted Net Income Per Share - Omnicom Group Inc. $ 6.06 $ 5.83
Net gain on disposition of subsidiaries, repositioning actions and impact of Tax Act - (0.08)
Non-GAAP diluted net income per share - Omnicom Group Inc. $ 6.06 $ 5.75
Weighted average shares 220.9 227.6
LIQUIDITY AND CAPITAL RESOURCES
Although we experienced a decrease in our cash flow from operations, we took numerous proactive steps to strengthen our liquidity and financial position that are intended to mitigate the impact of the COVID-19 pandemic on our liquidity. In February 2020, we issued $600 million of the 2.45% Notes. In March 2020, the net proceeds from the issuance of the 2.45% Notes were used to redeem the remaining $600 million principal amount of the 2020 Notes. As a result, we have no notes maturing until May 2022. In April 2020, we issued $600 million of the 4.20% Notes, and we entered into the $400 million 364 Day Credit facility maturing on April 2, 2021. The 364 Day Credit Facility is in addition to our existing $2.5 billion Credit Facility. Additionally, in March 2020, we suspended our share repurchase activity.
Cash Sources and Requirements
Our primary liquidity sources are our operating cash flow and cash and cash equivalents. Additional liquidity sources include our $2.5 billion Credit Facility maturing on February 14, 2025, the $400 million 364 Day Credit Facility maturing on April 2, 2021, the uncommitted credit lines aggregating $1.1 billion, the ability to issue up to $2 billion of commercial paper and access the capital markets. Our liquidity funds our non-discretionary cash requirements and our discretionary spending.
Borrowings under our credit facilities may use LIBOR as the benchmark interest rate. The LIBOR benchmark rate is expected to be phased out by the end of June 2023. We do not expect that the discontinuation of the LIBOR rate will have a material impact on our liquidity or results of operations.
Working capital is our principal non-discretionary funding requirement. In addition, we have contractual obligations related
to our long-term debt (principal and interest payments), recurring business operations, primarily related to lease obligations, and
contingent purchase price obligations (earn-outs) from acquisitions. Our principal discretionary cash spending includes dividend
payments to common shareholders, capital expenditures, strategic acquisitions and repurchases of our common stock. Our typical working capital cycle results in a short-term borrowing requirement that normally peaks during the second quarter of the year due to the timing of payments for incentive compensation, income taxes and contingent purchase price obligations.
Cash and cash equivalents increased $1,294.8 million from December 31, 2019. The components of the increase, including the net increase from our refinancing activities, were (in millions):
Sources
Cash flow from operations $ 1,724.6
Less: Increase in operating capital (30.9)
Principal cash sources 1,693.7
Uses
Capital expenditures $ (75.4)
Dividends paid to common shareholders (562.7)
Dividends paid to noncontrolling interest shareholders (95.5)
Acquisition payments, including payment of contingent purchase price obligations and acquisition of additional noncontrolling interests, net of proceeds from sale of investments (117.4)
Repurchases of common stock, net of proceeds from stock plans
(217.9)
Principal cash uses (1,068.9)
Principal cash sources in excess of principal cash uses 624.8
Effect of foreign exchange rate changes on cash and cash equivalents 114.7
Other net financing and investing activities 524.4
Increase in operating capital 30.9
Increase in cash and cash equivalents $ 1,294.8
Principal cash sources and principal cash uses are Non-GAAP liquidity measures. These amounts exclude changes in working capital and other investing and financing activities, including commercial paper issuances and redemptions used to fund working capital changes. This presentation reflects the metrics used by us to assess our sources and uses of cash and was derived from our consolidated statement of cash flows. We believe that this presentation is meaningful to understand the primary sources and uses of our cash flow and the effect on our cash and cash equivalents. Non-GAAP liquidity measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP liquidity measures as reported by us may not be comparable to similarly titled amounts reported by other companies. Additional information regarding our cash flows can be found in our consolidated financial statements.
At December 31, 2020, we have the following contractual obligations:
•Principal payments on long-term debt of $5.8 billion, of which $1.25 billion is due in 2022 and $750 million in due in 2024 (see Note 7 to the consolidated financial statements). Depending on the conditions in the credit markets we may refinance this debt, or we may use cash from operations, including temporally accessing our Credit Facility, to repay this debt.
•Interest payments on long-term debt due within the next five years aggregate $684.1 million, of which $176.4 million is payable in 2021.
•The liability for minimum lease payments for operating leases and finance leases due within the next five years aggregate $1.2 billion, of which $363.5 million is due in 2021 (see Note 16 to the consolidated financial statements).
•At December 31, 2020, the obligation for our defined benefit pension plans was $309.3 million and the liability for our postemployment arrangements was $164.6 million. In 2020, we contributed $9.1 million to our defined benefit plans and paid $8.7 million for our postemployment arrangements. We do not expect these payments to increase significantly in 2021 (see Note 12 to the consolidated financial statements).
•The liability of contingent purchase price payments (earn-outs) at December 31, 2020, was $71.9 million, of which $32.1 million is payable in 2021 (see Note 5 to the consolidated financial statements).
•The liability for the transition tax on accumulated foreign earnings due in the next five years is $105.6 million, of which $11.6 million is payable in 2021 (see Note 11 to the consolidated financial statements).
Based on past performance and current expectations, we believe that our operating cash flow will be sufficient to meet our non-discretionary cash requirements for the next twelve months.
Cash Management
Our regional treasury centers in North America, Europe and Asia manage our cash and liquidity. Each day, operations with excess funds invest those funds with their regional treasury center. Likewise, operations that require funds borrow from their regional treasury center. Treasury centers with excess cash invest on a short-term basis with third parties, generally with maturities ranging from overnight to less than 90 days. Certain treasury centers have notional pooling arrangements that are used to manage their cash and set-off foreign exchange imbalances. The arrangements require each treasury center to have its own notional pool account and to maintain a notional positive account balance. Additionally, under the terms of the arrangement, set-off of foreign exchange positions are limited to the long and short positions within their own account. To the extent that our treasury centers require liquidity, they have the ability to issue up to a total of $2 billion of U.S. Dollar-denominated commercial paper or borrow under the Credit Facility, 364 Day Credit Facility, or the uncommitted credit lines. This process enables us to manage our debt more efficiently and utilize our cash more effectively, as well as manage our risk to foreign exchange rate imbalances. In countries where we either do not conduct treasury operations or it is not feasible for one of our treasury centers to fund net borrowing requirements on an intercompany basis, we arrange for local currency uncommitted credit lines. We have a policy governing counterparty credit risk with financial institutions that hold our cash and cash equivalents and we have deposit limits for each institution. In countries where we conduct treasury operations, generally the counterparties are either branches or subsidiaries of institutions that are party to the Credit Facility. These institutions generally have credit ratings equal to or better than our credit ratings. In countries where we do not conduct treasury operations, all cash and cash equivalents are held by counterparties that meet specific minimum credit standards.
At December 31, 2020, our foreign subsidiaries held approximately $2.3 billion of our total cash and cash equivalents of $5.6 billion. Most of the cash is available to us, net of any foreign withholding taxes payable upon repatriation to the United States.
At December 31, 2020, our net debt position, which we define as total debt, including short-term debt, less cash and cash equivalents and short-term investments decreased $624.4 million as compared to December 31, 2019. The decrease in net debt primarily resulted from the excess of principal cash sources over principal cash uses of $624.8 million.
The components of net debt were (in millions):
December 31,
2020 2019
Short-term debt $ 3.9 $ 10.1
Long-term debt, including current portion 5,807.3 5,134.3
Total debt 5,811.2 5,144.4
Cash and cash equivalents and short-term investments 5,600.5 4,309.3
Net debt $ 210.7 $ 835.1
Net debt is a Non-GAAP liquidity measure. This presentation, together with the comparable U.S. GAAP liquidity measures, reflects one of the key metrics used by us to assess our cash management. Non-GAAP liquidity measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP liquidity measures as reported by us may not be comparable to similarly titled amounts reported by other companies.
Debt Instruments and Related Covenants
On February 19, 2020, we issued $600 million of the 2.45% Notes. The net proceeds from the issuance, after deducting the underwriting discount and offering expenses, were $592.6 million and were used to redeem the remaining $600 million principal amount of the 2020 Notes on March 23, 2020. In connection with the redemption, we recorded a loss on extinguishment of $7.7 million in interest expense. Following the redemption, there were no 2020 Notes outstanding.
On April 1, 2020, in response to the potential effects on market liquidity arising from the COVID-19 pandemic, we issued $600 million of the 4.20% Notes. The net proceeds from the issuance, after deducting the underwriting discount and offering expenses, were $592.5 million and were used for general corporate purposes, which included working capital expenditures, fixed asset expenditures and repayment of commercial paper and short-term debt.
The 2.45% Notes and the 4.20% Notes 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 senior notes due 2022, 2024 and 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 OFHP’s obligations with respect to the Euro denominated notes due 2027 and 2031. OFHP’s assets consist of its investments in several wholly owned finance companies that function as treasury centers that provide funding for various operating companies in Europe, Brazil, 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 OFHP to obtain funds from their subsidiaries through dividends, loans or advances. The Euro denominated 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 OFHP and each of Omnicom and OCI, respectively.
The Credit Facility and the 364 Day Credit Facility each contain 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. On October 26, 2020, we amended the Credit Facility and the 364 Day Credit Facility to provide additional flexibility with respect to the Leverage Ratio covenant. The amendments increase the maximum Leverage Ratio to 4.0 times through December 31, 2021 for the Credit Agreement and to 4.0 times through the maturity for the 364 Day Credit Facility. At December 31, 2020, we were in compliance with these covenants as our Leverage Ratio was 3.0 times. The Credit Facility and the 364 Day Credit Facility do not limit our ability to declare or pay dividends or repurchase our common stock.
At December 31, 2020, our long-term and short-term debt was rated BBB+ and A2 by S&P and Baa1 and P2 by Moody's. Our access to the commercial paper market and the cost of these borrowings are affected by market conditions and our credit ratings. Our long-term debt, Credit Facility and the 364 Day Credit Facility do not contain provisions that require acceleration of cash payments in the event of a downgrade in our credit ratings.
Credit Markets and Availability of Credit
In light of the uncertainty of future economic conditions, we will continue to take actions available to us to respond to changing economic conditions, and we will continue to actively manage our discretionary expenditures. We have not repurchased any of our common stock since March 13, 2020, and we do not plan to resume our repurchases until we believe economic conditions have begun to stabilize. We will continue to monitor and manage the level of credit made available to our clients. We believe that these actions, in addition to the availability of our Credit Facility and 364 Day Credit Facility, are sufficient to fund our near-term working capital needs and our discretionary spending. For additional information about our credit facilities, see Note 7 to the consolidated financial statements.
We have typically funded our day-to-day liquidity by issuing commercial paper. In the third and fourth quarters of 2020, we reduced our commercial paper issuances as compared to the prior year period primarily as a result of the issuance of the 4.20% Notes in April 2020. In 2019, we issued short-term debt in a private placement to reduce our commercial paper issuances. This short-term debt was redeemed in the third quarter of 2019. Additional liquidity sources include our Credit Facility, 364 Day Credit Facility or the uncommitted credit lines. At December 31, 2020, there were no outstanding commercial paper issuances or borrowings under the Credit Facility, the 364 Day Credit Facility or the uncommitted credit lines.
Commercial paper activity was (dollars in millions):
Year Ended December 31,
2020 2019 2018
Average amount outstanding during the year $ 50.1 $ 272.3 $ 411.7
Maximum amount outstanding during the year $ 401.2 $ 825.0 $ 1,218.7
Average days outstanding 4.6 4.0 5.7
Weighted average interest rate 1.52 % 2.40 % 2.19 %
We expect to continue issuing commercial paper to fund our day-to-day liquidity. However, disruptions in the credit markets may lead to periods of illiquidity in the commercial paper market and higher credit spreads. To mitigate any disruption in the credit markets and to fund our liquidity, we may borrow under the Credit Facility, 364 Day Credit Facility or the uncommitted credit lines or access the capital markets if favorable conditions exist. We will continue to monitor closely our liquidity and conditions in the credit markets. We cannot predict with any certainty the impact on us of any disruptions in the credit markets. In such circumstances, we may need to obtain additional financing to fund our day-to-day working capital requirements. Such additional financing may not be available on favorable terms, or at all.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We manage our exposure to foreign exchange and interest rate risk through various strategies, including the use of derivative financial instruments. We use forward foreign exchange contracts as economic hedges to manage the cash flow volatility arising from foreign exchange rate fluctuations. We may use interest rate swaps to manage our interest expense and structure our long-term debt portfolio to achieve a mix of fixed rate and floating rate debt. 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, 2020 was not significant.
Foreign Currency Exchange Risk
In 2020, our international operations represented approximately 45% of our revenue. Changes in the value of foreign currencies against the U.S. Dollar affect our results of operations and financial position. For the most part, because the revenue and expenses of our foreign operations are denominated in the same local currency, the economic impact on operating margin is minimized. The effects of foreign currency exchange transactions on our results of operations are discussed in Note 2 to the consolidated financial statements.
We operate in all major international markets including the Euro Zone, the U.K., Australia, Brazil, Canada, China and Japan. Our agencies transact business in more than 50 different currencies. 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, 2020 and 2019, we had outstanding forward foreign exchange contracts with an aggregate notional amount of $169.6 million and $284.2 million, respectively. At December 31, 2020 and 2019, the net fair value of the forward foreign contracts was not material (see Note 20 to the consolidated financial statements).
Foreign currency derivatives are designated as economic hedges; therefore, any gain or loss in fair value incurred on those instruments 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.
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. At December 31, 2020, our long-term debt consists entirely of fixed-rate debt.
Credit Risk
We provide advertising, marketing and corporate communications services to several thousand clients that operate in nearly every 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 represented 3.4% of revenue in 2020. However, during periods of economic downturn, the credit profiles of our clients could change.
In the normal course of business, our agencies enter into contractual commitments with media providers and production companies on behalf of our clients at levels that can substantially exceed the revenue from our services. These commitments are included in accounts payable when the services are delivered by the media providers or production companies. If permitted by local law and the client agreement, many of our agencies purchase media and production services for our clients as an agent for a disclosed principal. In addition, while operating practices vary by country, media type and media vendor, in the United States and certain foreign markets, many of our agencies’ contracts with media and production providers specify that our agencies are not liable to the media and production providers under the theory of sequential liability until and to the extent we have been paid by our client for the media or production services.
Where purchases of media and production services are made by our agencies as a principal or are not subject to the theory of sequential liability, the risk of a material loss as a result of payment default by our clients could increase significantly and such a loss could have a material adverse effect on our business, results of operations and financial position.
In addition, our methods of managing the risk of payment default, including obtaining credit insurance, requiring payment in advance, mitigating the potential loss in the marketplace or negotiating with media providers, may be less available or unavailable during a severe economic downturn.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
See Item 15, “Exhibits, Financial Statement Schedules.”

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file with the SEC is recorded, processed, summarized and reported within applicable time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is accumulated and communicated to management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate to allow timely decisions regarding required disclosure. Management, including our CEO and CFO, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2020. Based on that evaluation, our CEO and CFO concluded that, as of December 31, 2020, our disclosure controls and procedures are effective to ensure that decisions can be made timely with respect to required disclosures, as well as ensuring that the recording, processing, summarization and reporting of information required to be included in our Annual Report on Form 10-K for the year ended December 31, 2020 are appropriate.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management, with the participation of our CEO, 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, 2020. There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected or are reasonably likely to materially 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, 2020, dated February 18, 2021, which is included on page of this 2020 10-K.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information regarding Executive Officers of the Registrant is included in Part I, Item 1, “Business.” Additional information called for by this Item, to the extent not included in this document, is incorporated herein by reference to the information to be included under the captions “Item 1 - Election of Directors,” “Stock Ownership Information” and “Additional Information - Shareholder Proposals and Director Nominations for the 2022 Annual Meeting” in our definitive proxy statement, or Proxy Statement, which is expected to be filed with the SEC within 120 days of the fiscal year ended December 31, 2020.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information called for by this Item is incorporated herein by reference to the information to be included under the captions “Executive Compensation,” “Item 1 - Election of Directors - Directors' Compensation for Fiscal Year 2020” and “Item 1 - Election of Directors - Board Policies and Processes - Compensation Committee Interlocks and Insider Participation” in our Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this Item is incorporated herein by reference to the information to be included under the captions “Stock Ownership Information - Security Ownership of Certain Beneficial Owners and Management” and “Stock Ownership Information - Equity Compensation Plans” in our Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this Item is incorporated herein by reference to the information to be included under the captions “Item 1 - Election of Directors - Board Policies and Processes - Transactions with Related Persons” and “Item 1 - Election of Directors - Omnicom Board of Directors - Director Independence” in our Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The information called for by this Item is incorporated herein by reference to the information to be included under the caption “Item 3 - Ratification of the Appointment of Independent Auditors - Fees Paid to Independent Auditors” in our Proxy Statement.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibit and Financial Statement Schedules
(a)(1) Financial Statements: Page
Management Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Income for the Three Years Ended December 31, 2020
Consolidated Statements of Comprehensive Income for the Three Years Ended December 31, 2020
Consolidated Statements of Equity for the Three Years Ended December 31, 2020
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2020
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts for the Three Years Ended December 31, 2020
S-1
All other schedules are omitted because they are not applicable.
(a)(3) Exhibits:
Exhibit
Number
Description
3(i) Restated Certificate of Incorporation of Omnicom Group Inc. (Exhibit 3.1 to our Quarterly Report on Form 10-Q (File No. 1-10551) for the quarter ended September 30, 2011 and incorporated herein by reference).
3(ii) By-laws of Omnicom Group Inc., as amended and restated on December 11, 2018 (Exhibit 3.1 to our Current Report on Form 8-K (File No. 1-10551) dated December 14, 2018 and incorporated herein by reference).
4.1 Indenture, dated as of July 1, 2009, among Omnicom Group Inc., Omnicom Capital Inc., Omnicom Finance Inc. and Deutsche Bank Trust Company Americas, as trustee (“2009 Base Indenture”) (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated July 1, 2009 and incorporated herein by reference).
4.2 Third Supplemental Indenture to the 2009 Base Indenture, dated as of April 23, 2012, among Omnicom Group Inc., Omnicom Capital Inc., Omnicom Finance Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with our issuance of $750 million 3.625% Senior Notes due 2022 (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated April 23, 2012 and incorporated herein by reference).
4.3 Fourth Supplemental Indenture to the 2009 Base Indenture, dated as of July 20, 2012, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee, (Exhibit 4.4 to our Current Report on Form 8-K (File No. 1-10551) dated July 20, 2012 and incorporated herein by reference).
4.4 Fifth Supplemental Indenture to the 2009 Base Indenture, dated as of August 9, 2012, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with our issuance of $500 million 3.625% Senior Notes due 2022 (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated August 9, 2012 (“August 9, 2012 8-K”) and incorporated herein by reference).
4.5 Form of 3.625% Notes due 2022 (Exhibit 4.2 to the August 9, 2012 8-K and incorporated herein by reference).
4.6 Base Indenture, dated as of October 29, 2014, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee (“2014 Base Indenture”), (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated October 29, 2014 (“October 29, 2014 8-K”) and incorporated herein by reference).
4.7 First Supplemental Indenture to the 2014 Base Indenture, dated as of October 29, 2014, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with our issuance of $750 million 3.65% Senior Notes due 2024 (Exhibit 4.2 to the October 29, 2014 8-K and incorporated herein by reference).
4.8 Form of 3.65% Notes due 2024 (included in Exhibit 4.2 to the October 29, 2014 8-K and incorporated herein by reference).
4.9 Second Supplemental Indenture to the 2014 Base Indenture, dated as of April 6, 2016, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with the issuance of $1.4 billion 3.60% Senior Notes due 2026 (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated April 6, 2016 (“April 6, 2016 8-K”) and incorporated herein by reference).
4.10 Form of 3.60% Notes due 2026 (included in Exhibit 4.1 to the April 6, 2016 8-K and incorporated herein by reference).
4.11 Base Indenture, dated as of July 8, 2019, among Omnicom Finance Holdings plc, as issuer, Omnicom Group Inc. and Omnicom Capital Inc., as guarantors, and Deutsche Bank Trust Company Americas, as trustee (“2019 Base Indenture”), (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated July 8, 2019 (“July 8, 2019 8-K”) and incorporated herein by reference).
4.12 First Supplemental Indenture to the 2019 Base Indenture, dated as of July 8, 2019, among Omnicom Finance Holdings plc, as issuer, Omnicom Group Inc. and Omnicom Capital Inc., as guarantors, and Deutsche Bank Trust Company Americas, as trustee, in connection with the issuance of €500 million aggregate principal amount of Senior Notes due 2027 and €500 million aggregate principal amount of Senior Notes due 2031 (Exhibit 4.2 to the July 8, 2019 8-K and incorporated herein by reference).
4.13 Form of 0.80% Notes due 2027 (included in Exhibit 4.2 to the July 8, 2019 8-K and incorporated herein by reference).
4.14 Form of 1.40% Notes due 2031 (included in Exhibit 4.2 to the July 8, 2019 8-K and incorporated herein by reference).
4.15 Base Indenture, dated as of February 21, 2020, among Omnicom Group Inc., as issuer, and Deutsche Bank Trust Company Americas, as trustee (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) filed on February 21, 2020 ("February 21, 2020 8-K") and incorporated herein by reference).
4.16 First Supplemental Indenture, dated as of February 21, 2020, among Omnicom Group Inc., as issuer, and Deutsche Bank Trust Company Americas, as trustee (Exhibit 4.2 to the February 21, 2020 8-K and incorporated herein by reference).
4.17 Form of 2.450% Notes due 2030 (Included in Exhibit 4.2 to the February 21, 2020 8-K and incorporated herein by reference).
4.18 Second Supplemental Indenture, dated as of April 1, 2020, among Omnicom Group Inc., as issuer, and Deutsche Bank Trust Company Americas, as trustee (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) filed on April 1, 2020 (“April 1, 2020 8-K”) and incorporated herein by reference).
4.19 Form of 4.200% Notes due 2030 (Included in Exhibit 4.1 to the April 1, 2020 8-K and incorporated herein by reference).
4.20 Description of Securities (Exhibit 4.17 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2019 and incorporated herein by reference).
10.1 Second Amended and Restated Five Year Credit Agreement, dated as of February 14, 2020, by and among Omnicom Capital Inc., a Connecticut corporation, Omnicom Finance Limited, a private limited company organized under the laws of England and Wales, Omnicom Group Inc., a New York corporation, any other subsidiary of Omnicom Group Inc. designated for borrowing privileges, the banks, financial institutions and other institutional lenders and initial issuing banks listed on the signature pages thereof, Citibank, N.A., JPMorgan Chase Bank, N.A., and Wells Fargo Securities, LLC, as lead arrangers and book managers, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association, as syndication agents, Bank of America, N.A., BNP Paribas, Barclays Bank PLC, Deutsche Bank Securities Inc. and HSBC Bank USA, National Association, as documentation agents, and Citibank, N.A., as administrative agent for the lenders (Exhibit 10.1 to our Current Report on Form 8-K (File No. 1-10551) filed on February 19, 2020 and incorporated herein by reference).
10.2 364-Day Credit Agreement, dated as of April 3, 2020, by and among Omnicom Capital Inc., Omnicom Group Inc., the banks, financial institutions and other institutional lenders and initial issuing banks listed on the signature pages thereof, Citibank, N.A., BofA Securities, Inc., Mizuho Bank, Ltd. and U.S. Bank National Association, as joint lead arrangers and joint book managers, Bank of America, N.A., Mizuho Bank, Ltd. and U.S. Bank National Association, as syndication agents, and Citibank, N.A., as administrative agent for the lenders (Exhibit 10.1 to our Current Report on Form 8-K (File No. 1-10551) filed on April 6, 2020 and incorporated herein by reference).
10.3 Amendment No. 1 to the Credit Agreement, dated October 26, 2020, to the Second Amended and Restated Five Year Credit Agreement, dated as of February 14, 2020, by and among Omnicom Capital Inc., Omnicom Finance Limited, Omnicom Group Inc., any other subsidiary of Omnicom Group Inc. designated for borrowing privileges, the banks, financial institutions and other institutional lenders party thereto, Citibank, N.A., JPMorgan Chase Bank, N.A., and Wells Fargo Securities, LLC, as lead arrangers and book managers, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association, as syndication agents, Bank of America, N.A., BNP Paribas, Barclays Bank PLC, Deutsche Bank Securities Inc. and HSBC Bank USA, National Association, as documentation agents, and Citibank, N.A., as administrative agent for the lenders (Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 1-10551) for the quarter ended September 30, 2020 ("September 30, 2020 10-Q") and incorporated herein by reference).
10.4 Amendment No. 1 to the Credit Agreement, dated October 26, 2020, to the 364-Day Credit Agreement, dated as of April 3, 2020, by and among Omnicom Capital Inc., Omnicom Group Inc., the banks, financial institutions and other institutional lenders party thereto, Citibank, N.A., BofA Securities, Inc., Mizuho Bank, Ltd. and U.S. Bank National Association, as joint lead arrangers and joint book managers, Bank of America, N.A., Mizuho Bank, Ltd. and U.S. Bank National Association, as syndication agents, and Citibank, N.A., as administrative agent for the lenders (Exhibit 10.2 to the September 30, 2020 10-Q and incorporated herein by reference).
10.5 Director Compensation and Director Compensation and Deferred Stock Program Stock Program (Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 1-10551) for the quarter ended March 31, 2020 ("March 31, 2020 10-Q") and incorporated herein by reference).
10.6 Standard form of our Executive Salary Continuation Plan Agreement (Exhibit 10.5 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2012 and incorporated herein by reference).
10.7 Standard form of the Director Indemnification Agreement (Exhibit 10.25 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 1989 and incorporated herein by reference).
10.8 Senior Management Incentive Plan as amended and restated on December 4, 2008 (Exhibit 10.9 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2008 (“2008 10-K”) and incorporated herein by reference).
10.9 Omnicom Group Inc. SERCR Plan (Exhibit 10.10 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2011 and incorporated herein by reference).
10.10 Form of Award Agreement under the Omnicom Group Inc. SERCR Plan (Exhibit 10.2 to our Current Report on Form 8-K (File No. 1-10551) dated December 13, 2006 and incorporated herein by reference).
10.11 Omnicom Group Inc. Amended and Restated 2007 Incentive Award Plan (Appendix A to our Proxy Statement (File No. 1-10551) filed on April 15, 2010 and incorporated herein by reference).
10.12 Form of Indemnification Agreement (Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 1-10551) for the quarter ended June 30, 2007 and incorporated herein by reference).
10.13 Restricted Stock Unit Deferred Compensation Plan (Exhibit 10.16 to the 2008 10-K and incorporated herein by reference).
10.14 Restricted Stock Deferred Compensation Plan (Exhibit 10.17 to the 2008 10-K and incorporated herein by reference).
10.15 Amendment No. 1 to the Restricted Stock Deferred Compensation Plan (Exhibit 10.18 to the 2008 10-K and incorporated herein by reference).
10.16 Amendment No. 2 to the Restricted Stock Deferred Compensation Plan (Exhibit 10.19 to the 2008 10-K and incorporated herein by reference).
10.17 Form of Grant Notice and Option Agreement (Exhibit 10.20 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2010 (“2010 10-K”) and incorporated herein by reference).
10.18 Form of Grant Notice and Restricted Stock Agreement (Exhibit 10.21 to 2010 10-K and incorporated herein by reference).
10.19 Form of Grant Notice and Restricted Stock Unit Agreement (Exhibit 10.22 to 2010 10-K and incorporated herein by reference).
10.20 Form of Grant Notice and Performance Restricted Stock Unit Agreement (Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 1-10551) for the quarter ended June 30, 2011 and incorporated herein by reference).
10.21 Omnicom Group Inc. 2013 Incentive Award Plan (Appendix A to our Proxy Statement (File No. 1-10551) filed on April 11, 2013 and incorporated herein by reference).
10.22 Director Compensation and Deferred Stock Program (Exhibit 10.19 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2016 and incorporated herein by reference).
10.23 Separation Agreement, dated October 12, 2018, by and between Omnicom Capital Inc. and Dennis Hewitt (Exhibit 10.1 to our Current Report on Form 8-K (File No. 1-10551) filed on October 18, 2018 and incorporated herein by reference).
10.24 Rochelle Tarlowe employment letter (Exhibit 10.3 to the March 31, 2020 10-Q and incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of KPMG LLP.
31.1 Certification of Chairman and Chief Executive Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
31.2 Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
32 Certification of the Chairman and Chief Executive Officer and the Executive Vice President and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)