# OMNICOM GROUP INC. (OMC) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from OMNICOM GROUP INC.'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/29989/000002998922000012/omc-20211231.htm Accession: 0000029989-22-000012 Filing date: 2022-02-09 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/OMC/ All MD&A years: /company/OMC/mda/ Next year: /company/OMC/mda/fy2022/ (FY 2022) 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 As the impact of the COVID-19 pandemic on the global economy moderated, we experienced improvement in our business in 2021 as compared to 2020. In 2021, revenue increased $1,118.3 million, or 8.5%, compared to 2020. The increase in revenue primarily reflects increased client spending in all our disciplines and across all our geographic areas compared to the prior year and the strengthening of most foreign currencies, primarily the British Pound and the Euro, against the U.S. Dollar. The increase in revenue year-over-year was partially offset by a reduction in acquisition revenue, net of disposition revenue, reflecting the sale of ICON International, or ICON, a specialty media business, in the second quarter of 2021. Global economic conditions may continue to be volatile as long as the COVID-19 pandemic remains a public health threat, which could negatively impact our clients' spending plans. We expect global economic performance and the performance of our businesses to vary by geography and discipline until the impact of the COVID-19 pandemic on the global economy subsides. Results of Operations for the Year Ended December 31, 2021 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, Precision Marketing, Commerce & Brand Consulting, Experiential, Execution & Support, Public Relations and Healthcare. Advertising includes creative services across digital and traditional media, and strategic media planning and buying and data analytics services. Precision Marketing includes digital and direct marketing, digital transformation and data and analytics. Commerce & Brand Consulting services include brand consulting, strategy and research and retail ecommerce. Experiential marketing services include live and digital events and experience design and execution. Execution & Support includes field marketing, sales support, digital and physical 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 and pharmaceutical clients. 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 7 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. 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. As a leading global advertising, marketing and corporate communications company, we operate in all major markets and have a large and diverse client base. For the year ended December 31, 2021, our largest client represented 3.2% 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 2021. 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. 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. Global economic conditions have a direct impact on our business and financial performance. Adverse global or regional economic conditions, including those arising from the COVID-19 pandemic, severe and sustained inflation in countries that comprise our major markets and client supply chain issues, 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. Beginning in March 2020 and continuing through the first quarter of 2021, our business experienced the effects from reductions in client spending due to the economic impact related to the COVID-19 pandemic. While mixed by business and geography, the spending reductions impacted all our businesses and markets. Globally, the most impacted businesses were our Experiential discipline, especially in our event marketing businesses, and our Execution & Support discipline, primarily in field marketing. Most of our markets began to improve versus the prior year in the first quarter of 2021, and the improvement continued through the end of 2021 as clients substantially increased their spending on our services. The economic and fiscal issues, including impacts related to the pandemic, facing the countries we operate in could cause economic uncertainty and volatility; however, the impact on our business will likely vary by country. We monitor economic conditions closely, as well as client revenue levels and other factors. In response to reductions in revenue, we can take actions to align our cost structure with changes in client demand and manage our working capital. However, there can be no assurance as to the effectiveness of our efforts to mitigate any impact of the current and future adverse economic conditions, reductions in client revenue, changes in client creditworthiness and other developments. General marketing communications trends impact our business and industry and, on balance, we believe that these effects are generally positive. These trends include integrating traditional and non-traditional marketing channels, as well as utilizing new communications technologies and emerging digital platforms, and clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets. As clients increase their demands for marketing effectiveness and efficiency, many of them have made it a practice 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. 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, and we expect this advantage to continue over the medium and long term. 8 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 2021, our revenue increased $1,118.3 million, or 8.5%, compared to 2020. Changes in foreign exchange rates increased revenue 2.2%, acquisition revenue, net of disposition revenue, reduced revenue 3.9%, and organic growth increased revenue 10.2%. The reduction in acquisition revenue, net of disposition revenue, reflects the sale of ICON in the second quarter of 2021. In 2021, our business experienced a recovery from the negative effects of the COVID-19 pandemic in all our disciplines and regional markets as compared to 2020. The negative effects from the pandemic did not significantly impact our major markets and businesses until late in the first quarter of 2020. As a result, the improvement in revenue in 2021 versus the prior year was driven by the recovery in the second through the fourth quarter of 2021 as compared to the prior year. The change in revenue across our principal regional markets were: North America increased $132.6 million, Europe increased $611.9 million, Asia-Pacific increased $292.7 million and Latin America increased $20.7 million. In North America, improved organic revenue growth in the United States and Canada was partially offset by a decrease in revenue resulting from the disposition of ICON in the second quarter of 2021. The United States experienced organic revenue growth in all disciplines, led by our Advertising discipline, on the strength of our media business, and our Precision Marketing and Public Relations disciplines. In Europe, organic revenue increased in substantially all countries and disciplines, especially our Advertising discipline, which was led by our media business, and our Experiential, Precision Marketing and Commerce and Brand Consulting disciplines. The strengthening of the British Pound and the Euro against the U.S. Dollar contributed to increased revenue in the region. In Latin America, organic revenue growth in all countries in the region, especially Brazil, Colombia, and Chile, primarily in our Advertising discipline, was partially offset by the weakening of the Brazilian Real against the U.S. Dollar. In Asia-Pacific, revenue increased due to strong organic revenue growth in substantially all countries, particularly China, Australia, India, New Zealand, and Japan and in all disciplines. The strengthening of substantially all currencies against the U.S. Dollar contributed to increased revenue in the region. The increases in revenue in 2021, compared to 2020, in our fundamental disciplines were: Advertising $447.9 million, Precision Marketing $250.2 million, Commerce and Brand Consulting $88.9 million, Experiential $119.1 million, Execution & Support $65.3 million, Public Relations $80.8 million and Healthcare $66.1 million. 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 primarily include third-party supplier costs when we act as principal in providing services to our clients 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. In 2021, operating expenses increased $519.2 million, or 4.5%, year-over-year. Operating expenses for 2021 reflect a reduction of $50.5 million related to the gain from the sale of ICON, and the prior year included an increase of $277.9 million related to charges we recorded in the second quarter of 2020 in connection with the actions we took in response to the COVID-19 pandemic. Salary and service costs, which tend to fluctuate with changes in revenue, increased $829.2 million, or 8.7%, compared to 2020, reflecting increases in salary and related service costs, which include an increase in freelance labor costs, and third-party service costs of $720.1 million and $109.1 million, respectively. These increases primarily resulted from the increase in organic revenue, as well as the strengthening of most foreign currencies against the U.S. Dollar, especially the British Pound and Euro. The prior year reflects a reduction in salary and service costs of $162.6 million related to reimbursements under pandemic relief government programs in several countries, as well as an increase of $55.8 million related to asset impairment charges. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, increased $9.7 million, or 0.9%, in 2021 as compared to 2020. Operating profit increased $599.1 million to $2,197.9 million, operating margin increased to 15.4% from 12.1%, and EBITA margin increased to 15.9% from 12.8%. The increases in operating profit, operating margin and EBITA margin reflect the positive impact of organic revenue growth, the positive impact of cost reduction actions taken in the prior year in response to the COVID-19 pandemic, and the negative impact in the prior year from the net increase in operating expenses recorded in the second quarter of 2020 aggregating $171.1 million, related to the COVID-19 repositioning costs, and asset impairment charges recorded in the fourth quarter of 2020, partially offset by the benefit of $162.6 million related to reimbursements under pandemic relief government programs. Additionally, operating profit, operating margin and EBITA margin for 2021 were favorably impacted by the $50.5 million gain recorded in connection with the sale of ICON. Looking ahead to 2022, we expect organic revenue growth to be between 5% and 6%. Additionally, we expect certain operating costs, such as travel and general office expenses, to continue to increase to normal levels as more of our workforce returns to the office; we believe we can offset the impact of these increases by managing other discretionary costs, as well as certain infrastructure costs. Accordingly, for the full year 2022, we believe we will be able to maintain the operating margins we achieved in 2021. 9 SG&A expenses increased slightly year-over-year. SG&A expenses 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 2021, net interest expense increased $19.6 million year-over-year to $209.1 million. Interest expense on debt in 2021 increased $13.6 million to $213.2 million compared to 2020, primarily arising from a loss of $26.6 million on the early redemption in May 2021 of all the outstanding $1.25 billion of our 3.625% Senior Notes due 2022, or 2022 Notes, which was partially offset by the benefit from the issuance of $800 million of our 2.60% Senior Notes due 2031, or 2031 Notes, at a lower rate. Interest income in 2021 decreased $5.0 million year-over-year to $27.3 million primarily due to lower rates. Our effective tax rate for 2021 decreased year-over-year to 24.6% from 27.1%. In connection with the sale of ICON in the second quarter of 2021, we recorded a pre-tax gain of $50.5 million. The lower effective tax rate for 2021 was predominantly the result of $32.8 million favorable settlements of uncertain tax positions in certain domestic jurisdictions, as well as a nominal tax applied against the book gain on the sale of ICON resulting from excess tax over book basis. The effective tax rate for 2020 reflects an increase due to the non-deductibility in certain jurisdictions of a portion of the COVID-19 repositioning charges recorded in the second quarter of 2020. Net income - Omnicom Group Inc. in 2021 increased $462.4 million to $1,407.8 million from $945.4 million in 2020. The year-over-year increase is due to the factors described above. Diluted net income per share - Omnicom Group Inc. increased to $6.53 in 2021, compared to $4.37 in 2020, due to the factors described above, as well as the impact of the reduction in our weighted average common shares outstanding resulting from the resumption of repurchases of our common stock during the year, net of shares issued for restricted stock awards, stock option exercises and the employee stock purchase plan during the year. CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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 consolidated 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 We have made and expect to continue to make selective acquisitions. 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. In June 2021, we combined certain practice areas into a new reporting unit and assigned a segment manager primarily responsible for the Omnicom Public Relations Group. As a result, the number of operating segments increased from five to six. We identified our regional reporting units as components of our operating segments, which are our six 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 10 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, 2021 we adjusted our assumptions to reflect the economic conditions in light of the impact on our business related to the COVID-19 pandemic. The assumptions used for the long-term growth rate and WACC in our evaluations as of June 30, 2021 and 2020 were: [[GREPCENT_TABLE]] [["","2021","","2020"],["Long-Term Growth Rate","3.5%","","3.0%"],["WACC","9.8% - 10.4%","","10.6% - 10.8%"]] [[/GREPCENT_TABLE]] 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 3.2% and 3.4%, respectively. We considered this history when determining the long-term growth rates used in our annual impairment test at June 30, 2021, and included in the 10-year history is the full year 2020 that reflects the impact of the COVID-19 pandemic on the global economy. 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. Accordingly, for our annual test as of June 30, 2021, we used an estimated long-term growth rate of 3.5%. When performing the annual impairment test as of June 30, 2021 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 2021. In the first half of 2021, our revenue increased 10.0%, which excluded our net disposition activity and the impact from changes in foreign exchange rates. 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 six 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 three 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. Finally, the allocation of goodwill when components are transferred between reporting units is based on relative fair value at the time of transfer. 11 Goodwill Impairment Review - Conclusion Based on the results of our impairment test, we concluded that our goodwill at June 30, 2021 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 34%. 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, 2021 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, 2021 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 position. 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, Precision Marketing, Commerce & Brand Consulting, Experiential, Execution & Support, Public Relations and Healthcare. Our client contracts are primarily fees for service on a rate per hour or per project basis. Revenue is recorded net of sales, use and value added taxes. Performance Obligations. In substantially all our disciplines, the performance obligation is to provide advisory and consulting services at an agreed-upon level of effort to accomplish the specified engagement. Our client contracts are comprised of diverse arrangements involving fees based on any one or a combination of the following: an agreed fee or rate per hour for the level of effort expended by our employees; commissions based on the client’s spending for media purchased from third parties; qualitative or quantitative incentive provisions specified in the contract; and reimbursement for third-party costs that we are required to include in revenue when we control the vendor services related to these costs and we act as principal. The transaction price of a contract is allocated to each distinct performance obligation based on its relative stand-alone selling price and is recognized as revenue when, or as, the customer receives the benefit of the performance obligation. Clients typically receive and consume the benefit of our services as they are performed. Substantially all our client contracts provide that we are compensated for services performed to date and allow for cancellation by either party on short notice, typically 90 days, without penalty. Generally, our short-term contracts, which normally take 30 to 90 days to complete, are performed by a single agency and consist of a single performance obligation. As a result, we do not consider the underlying services as separate or distinct performance obligations because our services are highly interrelated, occur in close proximity, and the integration of the various components of a marketing message is essential to overall service. In certain of our long-term client contracts, which have a term of up to one year, the performance obligation is a stand-ready obligation, because we provide a constant level of similar services over the term of the contract. In other long-term contracts, when our services are not a stand-ready obligation, we consider our services distinct performance obligations and allocate the transaction price to each separate performance obligation based on its stand-alone selling price, including contracts for strategic media planning and buying services, which are considered to be multiple performance obligations, and we allocate the transaction price to each distinct service based on the staffing plan and the stand-alone selling price. In substantially all of our creative services contracts, we have distinct performance obligations for our services, including certain creative services contracts where we act as an agent and arrange, at the client’s direction, for third parties to perform studio production efforts. Revenue Recognition Methods. A substantial portion of our revenue is recognized over time, as the services are performed, because the client receives and consumes the benefit of our performance throughout the contract period, or we create an asset with no alternative use and are contractually entitled to payment for our performance to date in the event the client terminates the contract for convenience. For these client contracts, other than when we have a stand-ready obligation to perform services, 12 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 Experiential 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 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. 13 RESULTS OF OPERATIONS - 2021 Compared to 2020 (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["Revenue","$","14,289.4","","","$","13,171.1"],["Operating Expenses:"],["Salary and service costs","10,402.0","","","9,572.8"],["Occupancy and other costs","1,148.2","","","1,138.5"],["Gain on disposition of subsidiary","(50.5)","","","\u2014"],["COVID-19 repositioning costs","\u2014","","","277.9"],["Cost of services","11,499.7","","","10,989.2"],["Selling, general and administrative expenses","379.7","","","360.5"],["Depreciation and amortization","212.1","","","222.6"],["","12,091.5","","","11,572.3"],["Operating Profit","2,197.9","","","1,598.8"],["Operating Margin - %","15.4","%","","12.1","%"],["Interest Expense","236.4","","","221.8"],["Interest Income","27.3","","","32.3"],["Income Before Income Taxes and Income (Loss) From Equity Method Investments","1,988.8","","","1,409.3"],["Income Tax Expense","488.7","","","381.7"],["Income (Loss) From Equity Method Investments","7.5","","","(6.8)"],["Net Income","1,507.6","","","1,020.8"],["Net Income Attributed To Noncontrolling Interests","99.8","","","75.4"],["Net Income - Omnicom Group Inc.","$","1,407.8","","","$","945.4"]] [[/GREPCENT_TABLE]] Non-GAAP Financial Measures We use EBITA and EBITA Margin as additional operating performance measures that exclude the non-cash amortization expense of intangible assets, which primarily consists of amortization of intangible assets arising from acquisitions. We define EBITA as earnings before interest, taxes and amortization of intangible assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margin are non-GAAP financial measures. We believe that EBITA and EBITA Margin are useful measures for investors to evaluate the performance of our business. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies. The following table reconciles the U.S. GAAP financial measure of net income - Omnicom Group Inc. to EBITA and EBITA Margin for the periods presented (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["Net Income - Omnicom Group Inc.","$","1,407.8","","","$","945.4"],["Net Income Attributed To Noncontrolling Interests","99.8","","","75.4"],["Net Income","1,507.6","","","1,020.8"],["Income (Loss) From Equity Method Investments","7.5","","","(6.8)"],["Income Tax Expense","488.7","","","381.7"],["Income Before Income Taxes and Income (Loss) From Equity Method Investments","1,988.8","","","1,409.3"],["Interest Expense","236.4","","","221.8"],["Interest Income","27.3","","","32.3"],["Operating Profit","2,197.9","","","1,598.8"],["Add back: Amortization of intangible assets","80.0","","","83.1"],["Earnings before interest, taxes and amortization of intangible assets (\u201cEBITA\u201d)","$","2,277.9","","","$","1,681.9"],["Revenue","$","14,289.4","","","$","13,171.1"],["EBITA","$","2,277.9","","","$","1,681.9"],["EBITA Margin - %","15.9","%","","12.8","%"]] [[/GREPCENT_TABLE]] 14 Revenue In 2021, our revenue increased $1,118.3 million, or 8.5%, compared to 2020. Changes in foreign exchange rates increased revenue 2.2%, acquisition revenue, net of disposition revenue, reduced revenue 3.9%, and organic growth increased revenue 10.2%. The reduction in acquisition revenue, net of disposition revenue, reflects the sale of ICON in the second quarter of 2021. In 2021, our business experienced a recovery from the negative effects of the COVID-19 pandemic in all our disciplines and regional markets as compared to 2020. The negative effects from the pandemic did not significantly impact our major markets and businesses until late in the first quarter of 2020. As a result, the improvement in revenue in 2021 versus the prior year was driven by the recovery in the second, third and fourth quarters of 2021 as compared to the prior year. The change in revenue across our principal regional markets were: North America increased $132.6 million, Europe increased $611.9 million, Asia-Pacific increased $292.7 million and Latin America increased $20.7 million. In North America, improved organic revenue growth in the United States and Canada was partially offset by a decrease in revenue resulting from the disposition of ICON in the second quarter of 2021. The United States experienced organic revenue growth in all disciplines, led by our Advertising discipline, on the strength of our media business, and our Precision Marketing and Public Relations disciplines. In Europe, organic revenue increased in substantially all countries and disciplines, especially our Advertising discipline, which was led by our media business, and our Experiential, Precision Marketing and Commerce and Brand Consulting disciplines. The strengthening of the British Pound and the Euro against the U.S. Dollar contributed to increased revenue in the region. In Latin America, organic revenue growth in all countries in the region, especially Brazil, Colombia, and Chile, primarily in our Advertising discipline, was partially offset by the weakening of the Brazilian Real against the U.S. Dollar. In Asia-Pacific, revenue increased due to strong organic revenue growth in substantially all countries, particularly China, Australia, India, New Zealand, and Japan and in all disciplines. The strengthening of substantially all currencies against the U.S. Dollar contributed to increased revenue in the region. The increases in revenue in 2021, compared to 2020, in our fundamental disciplines were: Advertising $447.9 million, Precision Marketing $250.2 million, Commerce and Brand Consulting $88.9 million, Experiential $119.1 million, Execution & Support $65.3 million, Public Relations $80.8 million and Healthcare $66.1 million. The components of revenue change in the United States (“Domestic”) and the remainder of the world (“International”) were (in millions): [[GREPCENT_TABLE]] [["","Total","","Domestic","","International"],["","$","","%","","$","","%","","$","","%"],["December 31, 2020","$","13,171.1","","","","","$","7,186.1","","","","","$","5,985.0"],["Components of revenue change:"],["Foreign exchange rate impact","288.2","","","2.2","%","","\u2014","","","\u2014","%","","288.2","","","4.8","%"],["Acquisition revenue, net of disposition revenue","(516.5)","","","(3.9)","%","","(524.8)","","","(7.3)","%","","8.3","","","0.1","%"],["Organic growth","1,346.6","","","10.2","%","","584.6","","","8.1","%","","762.0","","","12.7","%"],["December 31, 2021","$","14,289.4","","","8.5","%","","$","7,245.9","","","0.8","%","","$","7,043.5","","","17.7","%"]] [[/GREPCENT_TABLE]] 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 $14,001.2 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 ($14,289.4 million less $14,001.2 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 ($13,171.1 million for the Total column). 15 Changes in the value of foreign currencies against the U.S. Dollar affect our results of operations and financial position. For the most part, because the revenue and expense of our foreign operations are both denominated in the same local currency, the economic impact on operating margin is minimized. Assuming exchange rates at February 4, 2022 remain unchanged, we expect the impact of changes in foreign exchange rates to reduce revenue in 2022 by approximately 2.0% for the first quarter and 1.5% for the year. In addition, for the full year 2022, based on acquisition and disposition activity to date, we expect the effect of net acquisition and disposition activity to reduce revenue by approximately 3.0% to 3.5% and organic revenue growth to be between 5% and 6%. Revenue and organic growth in our geographic markets were (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","$ Change","","","","% Organic Growth"],["Americas:"],["North America","$","7,709.7","","","$","7,577.1","","","$","132.6","","","","","8.3","%"],["Latin America","296.1","","","275.4","","","20.7","","","","","9.4","%"],["EMEA:"],["Europe","4,219.6","","","3,607.7","","","611.9","","","","","11.9","%"],["Middle East and Africa","267.6","","","207.2","","","60.4","","","","","26.4","%"],["Asia-Pacific","1,796.4","","","1,503.7","","","292.7","","","","","13.7","%"],["","$","14,289.4","","","$","13,171.1","","","$","1,118.3","","","","","10.2","%"]] [[/GREPCENT_TABLE]] Revenue in Europe, which includes our primary markets of the U.K. and the Euro Zone, increased $611.9 million in 2021 compared to 2020. Revenue in the U.K., representing 10.6% of revenue, increased $237.7 million. Revenue in Continental Europe, which comprises the Euro Zone and the other European countries, representing 18.9% of revenue, increased $374.2 million. The increase in revenue is due to strong organic growth in all countries and disciplines, as well as the strengthening of the British Pound and Euro against the U.S. Dollar. In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. In 2021, we had an overall gain in new business. Under our client-centric approach, we seek to broaden our relationships with all of our clients. In 2021 and 2020, our largest client represented 3.2% and 3.4% of revenue, respectively. Our ten largest and 100 largest clients represented 21.7% and 53.6% of revenue for 2021, respectively, and 20.8% and 54.0% of revenue for 2020, respectively. To monitor the changing needs of our clients and to further expand the scope of our services to key clients, we monitor revenue across a broad range of disciplines and group them into the following categories: Advertising, Precision Marketing, Commerce & Brand Consulting, Experiential, Execution & Support, Public Relations and Healthcare. Certain of our business and markets experienced a slower improvement in 2021 from the effects of client spending reductions in 2020 related to the COVID-19 pandemic. Among the most negatively impacted businesses in 2020 were our Experiential discipline, primarily in our event marketing businesses, and our Execution & Support discipline, primarily in our field marketing businesses. Revenue and organic growth by discipline were (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","2021 vs. 2020","","","","2021"],["","$","","% ofRevenue","","$","","% ofRevenue","","$ Change","","","","% Organic Growth"],["Advertising","$","7,959.3","","","55.7","%","","$","7,511.4","","","57.0","%","","$","447.9","","","","","10.7","%"],["Precision Marketing","1,194.8","","","8.4","%","","944.6","","","7.2","%","","250.2","","","","","19.0","%"],["Commerce & Brand Consulting","910.7","","","6.4","%","","821.8","","","6.2","%","","88.9","","","","","9.9","%"],["Experiential","545.9","","","3.8","%","","426.8","","","3.2","%","","119.1","","","","","27.0","%"],["Execution & Support","1,026.6","","","7.2","%","","961.3","","","7.3","%","","65.3","","","","","4.2","%"],["Public Relations","1,391.7","","","9.7","%","","1,310.9","","","10.0","%","","80.8","","","","","6.3","%"],["Healthcare","1,260.4","","","8.8","%","","1,194.3","","","9.1","%","","66.1","","","","","4.0","%"],["","$","14,289.4","","","","","$","13,171.1","","","","","$","1,118.3","","","","","10.2","%"]] [[/GREPCENT_TABLE]] 16 We provide services to clients that operate in various industry sectors. Revenue by sector was: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["Pharmaceuticals and Healthcare","15","%","","16","%"],["Food and Beverage","14","%","","14","%"],["Technology","11","%","","9","%"],["Auto","10","%","","10","%"],["Consumer Products","8","%","","8","%"],["Financial Services","7","%","","8","%"],["Travel and Entertainment","7","%","","7","%"],["Retail","7","%","","7","%"],["Telecommunications","5","%","","6","%"],["Government","3","%","","3","%"],["Services","2","%","","2","%"],["Oil, Gas and Utilities","2","%","","1","%"],["Not-for-Profit","1","%","","1","%"],["Education","1","%","","1","%"],["Other","7","%","","7","%"],["","100","%","","100","%"]] [[/GREPCENT_TABLE]] In 2020, certain industry sectors were more negatively affected by the impact of the COVID-19 pandemic than others. Operating Expenses Operating expenses were (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","2021 vs. 2020"],["","$","","% of Revenue","","$","","% of Revenue","","$ Change","","% Change"],["Revenue","$","14,289.4","","","","","$","13,171.1","","","","","$","1,118.3","","","8.5","%"],["Operating Expenses:"],["Salary and service costs:"],["Salary and related service costs","6,971.0","","","48.8","%","","6,250.9","","","47.5","%","","720.1","","","11.5","%"],["Third-party service costs","3,431.0","","","24.0","%","","3,321.9","","","25.2","%","","109.1","","","3.3","%"],["","10,402.0","","","72.8","%","","9,572.8","","","72.7","%","","829.2","","","8.7","%"],["Occupancy and other costs","1,148.2","","","8.0","%","","1,138.5","","","8.6","%","","9.7","","","0.9","%"],["Gain on sale of subsidiary","(50.5)","","","(0.4)","%","","\u2014","","","\u2014","%","","(50.5)"],["COVID-19 repositioning costs","\u2014","","","\u2014","%","","277.9","","","2.1","%","","(277.9)"],["Cost of services","11,499.7","","","","","10,989.2","","","","","510.5"],["Selling, general and administrative expenses","379.7","","","2.7","%","","360.5","","","2.7","%","","19.2","","","5.3","%"],["Depreciation and amortization","212.1","","","1.5","%","","222.6","","","1.7","%","","(10.5)","","","(4.7)","%"],["","12,091.5","","","84.6","%","","11,572.3","","","87.9","%","","519.2","","","4.5","%"],["Operating Profit","$","2,197.9","","","15.4","%","","$","1,598.8","","","12.1","%","","$","599.1","","","37.5","%"]] [[/GREPCENT_TABLE]] In 2021, operating expenses increased $519.2 million, or 4.5%, year-over-year. Operating expenses for 2021 reflect a reduction of $50.5 million related to the gain from the sale of ICON, and the prior year included an increase of $277.9 million related to charges we recorded in the second quarter of 2020 in connection with the actions we took in response to the COVID-19 pandemic. Salary and service costs, which tend to fluctuate with changes in revenue, increased $829.2 million, or 8.7%, compared to 2020, reflecting increases in salary and related service costs, which include an increase in freelance labor costs, and third-party service costs of $720.1 million and $109.1 million, respectively. These increases primarily resulted from the increase in organic revenue, as well as the strengthening of most foreign currencies against the U.S. Dollar, especially the British Pound and Euro. The prior year reflects a reduction in salary and service costs of $162.6 million related to reimbursements under pandemic relief government programs in several countries, as well as an increase of $55.8 million related to asset impairment charges. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, increased $9.7 million, or 0.9%, in 2021 as compared to 2020. Operating profit increased $599.1 million to $2,197.9 million, operating margin increased to 15.4% 17 from 12.1%, and EBITA margin increased to 15.9% from 12.8%. The increases in operating profit, operating margin and EBITA margin reflect the positive impact of organic revenue growth, the positive impact of cost reduction actions taken in the prior year in response to the COVID-19 pandemic, and the negative impact in the prior year from the net increase in operating expenses recorded in the second quarter of 2020 aggregating $171.1 million, related to the COVID-19 repositioning costs, and asset impairment charges recorded in the fourth quarter of 2020, partially offset by the benefit of $162.6 million related to reimbursements under pandemic relief government programs. Additionally, operating profit, operating margin and EBITA margin for 2021 were favorably impacted by the $50.5 million gain recorded in connection with the sale of ICON. Looking ahead to 2022, we expect certain operating costs, such as travel and general office expenses, to continue to increase to normal levels as more of our workforce returns to the office; we believe we can offset the impact of these increases by managing other discretionary costs, as well as certain infrastructure costs. Accordingly, for the full year 2022, we believe we will be able to maintain the operating margins we achieved in 2021. Net Interest Expense In 2021, net interest expense increased $19.6 million year-over-year to $209.1 million. Interest expense on debt in 2021 increased $13.6 million to $213.2 million compared to 2020, primarily arising from a loss of $26.6 million on the early redemption in May 2021 of all the outstanding $1.25 billion of the 3.625% Senior Notes due 2022, or 2022 Notes, which was partially offset by the benefit from the issuance of $800 million of the 2.60% Senior Notes due 2031, or 2031 Notes, at a lower rate. Interest income in 2021 decreased $5.0 million year-over-year to $27.3 million primarily due to lower rates. Income Taxes Our effective tax rate for 2021 decreased year-over-year to 24.6% from 27.1%. In connection with the sale of ICON in the second quarter of 2021, we recorded a pre-tax gain of $50.5 million. The lower effective tax rate for 2021 was predominantly the result of $32.8 million favorable settlements of uncertain tax positions in certain domestic jurisdictions, as well as a nominal tax applied against the book gain on the sale of ICON resulting from excess tax over book basis. The effective tax rate for 2020 reflects an increase due to the non-deductibility in certain jurisdictions of a portion of the COVID-19 repositioning charges recorded in the second quarter of 2020. For 2022, we expect our effective tax rate to be between 26.5% and 27% before the effect, if any, from the tax impact of our equity compensation. Net Income and Net Income Per Share - Omnicom Group Inc. Net income - Omnicom Group Inc. in 2021 increased $462.4 million to $1,407.8 million from $945.4 million in 2020. The year-over-year increase is due to the factors described above. Diluted net income per share - Omnicom Group Inc. increased to $6.53 in 2021, compared to $4.37 in 2020, due to the factors described above, as well as the impact of the reduction in our weighted average common shares outstanding resulting from the resumption of repurchases of our common stock during the year, net of shares issued for restricted stock awards, stock option exercises and the employee stock purchase plan during the year. The combined effect of the after-tax gain from the sale of ICON and the loss on the early redemption of the 2022 Notes increased net income - Omnicom Group Inc. for 2021 by $31.0 million. In 2020, the net after-tax effect on net income - Omnicom Group Inc. from the COVID-19 repositioning costs and asset impairment charges was a decrease of $270.2 million, which was partially offset by a net after-tax increase in net income - Omnicom Group Inc. from reimbursements under government programs of $123.4 million. 18 RESULTS OF OPERATIONS - 2020 Compared to 2019 (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2020","","2019"],["Revenue","$","13,171.1","","","$","14,953.7"],["Operating Expenses:"],["Salary and service costs","9,572.8","","","10,972.2"],["Occupancy and other costs","1,138.5","","","1,221.8"],["COVID-19 Repositioning Costs","277.9","","","\u2014"],["Cost of services","10,989.2","","","12,194.0"],["Selling, general and administrative expenses","360.5","","","405.9"],["Depreciation and amortization","222.6","","","231.5"],["","11,572.3","","","12,831.4"],["Operating Profit","1,598.8","","","2,122.3"],["Operating Margin - %","12.1","%","","14.2","%"],["Interest Expense","221.8","","","244.3"],["Interest Income","32.3","","","60.3"],["Income Before Income Taxes and Income (Loss) From Equity Method Investments","1,409.3","","","1,938.3"],["Income Tax Expense","381.7","","","504.4"],["Income (Loss) From Equity Method Investments","(6.8)","","","2.0"],["Net Income","1,020.8","","","1,435.9"],["Net Income Attributed To Noncontrolling Interests","75.4","","","96.8"],["Net Income - Omnicom Group Inc.","$","945.4","","","$","1,339.1"]] [[/GREPCENT_TABLE]] Non-GAAP Financial Measures We use EBITA and EBITA Margin as additional operating performance measures that exclude the non-cash amortization expense of intangible assets, which primarily consists of amortization of intangible assets arising from acquisitions. We define EBITA as earnings before interest, taxes and amortization of intangible assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margin are non-GAAP financial measures. We believe that EBITA and EBITA Margin are useful measures for investors to evaluate the performance of our business. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies. The following table reconciles the U.S. GAAP financial measure of net income - Omnicom Group Inc. to EBITA and EBITA Margin for the periods presented (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2020","","2019"],["Net Income - Omnicom Group Inc.","$","945.4","","","$","1,339.1"],["Net Income Attributed To Noncontrolling Interests","75.4","","","96.8"],["Net Income","1,020.8","","","1,435.9"],["Income (Loss) From Equity Method Investments","(6.8)","","","2.0"],["Income Tax Expense","381.7","","","504.4"],["Income Before Income Taxes and Income (Loss) From Equity Method Investments","1,409.3","","","1,938.3"],["Interest Expense","221.8","","","244.3"],["Interest Income","32.3","","","60.3"],["Operating Profit","1,598.8","","","2,122.3"],["Add back: Amortization of intangible assets","83.1","","","83.8"],["Earnings before interest, taxes and amortization of intangible assets (\u201cEBITA\u201d)","$","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","%"]] [[/GREPCENT_TABLE]] 19 Revenue Revenue in 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 reduced revenue 11.1% as all our geographic markets were negatively impacted by the COVID-19 pandemic. 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 $128.0 million. In North America, we experienced a decline in organic revenue attributable to the COVID-19 pandemic in all our disciplines, except Healthcare. In Europe and the Middle East and Africa, almost all businesses and regions experienced a decline in organic revenue resulting from the COVID-19 pandemic, which was marginally offset by an increase primarily from the strengthening of the British Pound and Euro against the U.S. Dollar. In Latin America, the impact of the COVID-19 pandemic compounded by the continuing unstable economic and political conditions in Brazil resulted in negative organic growth in Brazil and throughout the region. In addition, the weakening of foreign currency exchange rates against the U.S. Dollar in all countries further contributed to the reduction in revenue in the region. In Asia-Pacific, almost all our businesses in the region experienced negative organic growth as a result of the COVID-19 pandemic, and the weakening of most currencies against the U.S. Dollar had a marginal negative impact on revenue. The components of revenue change in the United States (“Domestic”) and the remainder of the world (“International”) were (in millions): [[GREPCENT_TABLE]] [["","Total","","Domestic","","International"],["","$","","%","","$","","%","","$","","%"],["December 31, 2019","$","14,953.7","","","","","$","8,033.0","","","","","$","6,920.7"],["Components of revenue change:"],["Foreign exchange rate impact","(60.9)","","","(0.4)","%","","\u2014","","","\u2014","%","","(60.9)","","","(0.9)","%"],["Acquisition revenue, net of disposition revenue","(56.7)","","","(0.4)","%","","(36.8)","","","(0.5)","%","","(19.9)","","","(0.3)","%"],["Organic growth","(1,665.0)","","","(11.1)","%","","(810.1)","","","(10.1)","%","","(854.9)","","","(12.4)","%"],["December 31, 2020","$","13,171.1","","","(11.9)","%","","$","7,186.1","","","(10.5)","%","","$","5,985.0","","","(13.5)","%"]] [[/GREPCENT_TABLE]] 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 ($14,953.7 million for the Total column). Changes in the value of foreign currencies against the U.S. Dollar affect our results of operations and financial position. For the most part, because the revenue and expense of our foreign operations are both denominated in the same local currency, the economic impact on operating margin is minimized. 20 Revenue and organic growth in our geographic markets were (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2020","","2019","","$ 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)","%"]] [[/GREPCENT_TABLE]] Revenue in Europe, which includes our primary markets of the U.K. and the Euro Zone, decreased $499.7 million in 2020 as compared to the prior year. Revenue in the U.K., representing 9.7% of total revenue, decreased $151.5 million. Revenue in Continental Europe, which comprises the Euro Zone and the other European countries, representing 17.7% of total revenue, decreased $348.2 million. The decrease in revenue is due to negative organic growth resulting from the impact of the COVID-19 pandemic. In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. Under our client-centric approach, we seek to broaden our relationships with all of our clients. In 2020 and 2019, our largest client represented 3.4% and 3.0% of revenue, respectively. Our ten largest and 100 largest clients represented 20.8% and 54.0% of revenue in 2020, respectively, and 19.6% and 51.3% of revenue in 2019, respectively. All our business experienced the effects from client spending reductions related to the COVID-19 pandemic. The spending reductions impacted all our disciplines and markets. The most significantly impacted were our advertising discipline, our Experiential discipline, especially in our event marketing businesses, and our Execution & Support discipline, primarily in our field marketing and merchandising businesses. Our Public Relations discipline was less significantly impacted, and our Healthcare and Precision Marketing disciplines performed well. Revenue and organic growth by discipline were (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2020","","2019","","2020 vs. 2019","","","","2020"],["","$","","% of Revenue","","$","","% of Revenue","","$ Change","","","","% Organic Growth"],["Advertising","$","7,511.4","","","57.0","%","","$","8,664.2","","","57.9","%","","$","(1,152.8)","","","","","(12.3)","%"],["Precision Marketing","944.6","","","7.2","%","","927.2","","","6.2","%","","17.4","","","","","(0.4)","%"],["Commerce & Brand Consulting","821.8","","","6.2","%","","971.8","","","6.5","%","","(150.0)","","","","","(14.8)","%"],["Experiential","426.8","","","3.2","%","","670.0","","","4.5","%","","(243.2)","","","","","(35.4)","%"],["Execution & Support","961.3","","","7.3","%","","1,177.2","","","7.9","%","","(215.9)","","","","","(16.4)","%"],["Public Relations","1,310.9","","","10.0","%","","1,386.7","","","9.3","%","","(75.8)","","","","","(4.1)","%"],["Healthcare","1,194.3","","","9.1","%","","1,156.6","","","7.7","%","","37.7","","","","","3.2","%"],["","$","13,171.1","","","","","$","14,953.7","","","","","$","(1,782.6)","","","","","(11.1)","%"]] [[/GREPCENT_TABLE]] 21 We provide services to clients that operate in various industry sectors. Revenue by sector was: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2020","","2019"],["Pharmaceuticals and Healthcare","16","%","","14","%"],["Food and Beverage","14","%","","14","%"],["Auto","10","%","","10","%"],["Technology","9","%","","7","%"],["Consumer Products","8","%","","9","%"],["Financial Services","8","%","","8","%"],["Travel and Entertainment","7","%","","9","%"],["Retail","7","%","","7","%"],["Telecommunications","6","%","","6","%"],["Government","3","%","","2","%"],["Services","2","%","","2","%"],["Oil, Gas and Utilities","1","%","","2","%"],["Not-for-Profit","1","%","","1","%"],["Education","1","%","","1","%"],["Other","7","%","","8","%"],["","100","%","","100","%"]] [[/GREPCENT_TABLE]] In 2020, certain industry sectors were more negatively affected by the impact of the COVID-19 pandemic than others. Operating Expenses Operating expenses for 2020 compared to 2019 were (in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2020","","2019","","2020 vs. 2019"],["","$","","% of Revenue","","$","","% of Revenue","","$ Change","","% Change"],["Revenue","$","13,171.1","","","","","$","14,953.7","","","","","$","(1,782.6)","","","(11.9)","%"],["Operating Expenses:"],["Salary and service costs:"],["Salary and related service costs","6,250.9","","","47.5","%","","6,895.2","","","46.1","%","","(644.3)","","","(9.3)","%"],["Third-party service costs","3,321.9","","","25.2","%","","4,077.0","","","27.3","%","","(755.1)","","","(18.5)","%"],["","9,572.8","","","72.7","%","","10,972.2","","","73.4","%","","(1,399.4)","","","(12.8)","%"],["Occupancy and other costs","1,138.5","","","8.6","%","","1,221.8","","","8.2","%","","(83.3)","","","(6.8)","%"],["COVID-19 repositioning costs","277.9","","","2.1","%","","\u2014","","","\u2014","%","","(277.9)","","","\u2014","%"],["Cost of services","10,989.2","","","83.4","%","","12,194.0","","","81.5","%","","(1,204.8)","","","(9.9)","%"],["Selling, general and administrative expenses","360.5","","","2.7","%","","405.9","","","2.7","%","","(45.4)","","","(11.2)","%"],["Depreciation and amortization","222.6","","","1.7","%","","231.5","","","1.5","%","","(8.9)","","","(3.8)","%"],["","11,572.3","","","87.9","%","","12,831.4","","","85.8","%","","(1,259.1)","","","(9.8)","%"],["Operating Profit","$","1,598.8","","","12.1","%","","$","2,122.3","","","14.2","%","","$","(523.5)","","","(24.7)","%"]] [[/GREPCENT_TABLE]] 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, partially offset by asset impairment charges of $55.8 million recorded in the fourth quarter of 2020. Also, during 2020, we reduced salary and service costs by $162.6 million related to reimbursements under government programs in several countries. 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 the actions we took to align our cost structure. Occupancy and other 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 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 of $55.8 million in the fourth quarter, which are included in salary and service costs, partially offset by an increase related to pandemic relief reimbursements under government programs in several countries during the year. 22 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 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 4.45% Senior Notes due 2020 in March 2020 and the interest expense from the issuance of the 4.20% Senior Notes due 2030 in April 2020. Interest income in 2020 decreased $28.0 million year-over-year to $32.3 million primarily due to lower interest rates. Income Taxes Our effective tax rate for 2020 increased year-over-year to 27.1% from 26.0% in 2019. 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. As discussed above, our results of operations for 2020 included COVID-19 repositioning costs and asset impairment charges, which were partially offset by an increase attributable to pandemic relief reimbursements under government programs in several countries. The after-tax affect of these items on net income - Omnicom Group Inc. was $146.8 million. The impact on net income Omnicom Group Inc. of these actions was (in millions): [[GREPCENT_TABLE]] [["","COVID-19 Repositioning Costs","","Impairment Charges - Underperforming Assets","","Pandemic Relief Reimbursements Under Government Programs","","Total"],["Increase (decrease) to income before income taxes","$","(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)"]] [[/GREPCENT_TABLE]] 23 LIQUIDITY AND CAPITAL RESOURCES Cash Sources and Requirements Our primary short-term liquidity sources are our operating cash flow and cash and cash equivalents. Additional liquidity sources include our $2.5 billion multi-currency revolving credit facility, or Credit Facility, maturing on February 14, 2025, uncommitted credit lines aggregating $863.9 million, the ability to issue up to $2 billion of commercial paper and access to the capital markets. Our liquidity sources fund our non-discretionary cash requirements and our discretionary spending. Working capital is our principal non-discretionary funding requirement. Our typical working capital cycle results in a short-term funding 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. 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. Cash and cash equivalents at December 31, 2021 decreased $283.7 million from December 31, 2020. The components of the decrease were (in millions): [[GREPCENT_TABLE]] [["Sources"],["Cash flow from operations","","","$","1,945.4"],["Less: Increase in operating capital","","","(160.5)"],["Principal cash sources","","","1,784.9"],["Uses"],["Capital expenditures","$","(665.8)"],["Dividends paid to common shareholders","(592.3)"],["Dividends paid to noncontrolling interest shareholders","(113.1)"],["Acquisition payments, including payment of contingent purchase price obligations and acquisition of additional noncontrolling interests, net of proceeds from sale of investments","(202.0)"],["Repurchases of common stock, net of proceeds from stock plans","(518.2)"],["Principal cash uses","","","(2,091.4)"],["Principal cash uses in excess of principal cash sources","","","(306.5)"],["Effect of foreign exchange rate changes on cash and cash equivalents","","","(128.9)"],["Other net financing and investing activities","","","(8.8)"],["Increase in operating capital","","","160.5"],["Decrease in cash and cash equivalents","","","$","(283.7)"]] [[/GREPCENT_TABLE]] 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. 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, 2021, we have the following contractual obligations: •Principal payments on long-term debt of $5.7 billion, of which $750 million is due in 2024 and $1.4 billion is due in 2026 (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 $712.6 million, of which $161.5 million is payable in 2022. •The liability for minimum lease payments for operating and finance leases due within the next five years aggregate $1,013.2 million, of which $310.0 million is due in 2022 (see Note 16 to the consolidated financial statements). •The obligation for our defined benefit pension plans was $289.4 million and the liability for our postemployment arrangements was $153.0 million. In 2021, we contributed $6.4 million to our defined benefit plans and paid $9.5 million for our postemployment arrangements. We do not expect these payments to increase significantly in 2022 (see Note 12 to the consolidated financial statements). •The liability for contingent purchase price payments (earn-outs) was $167.1 million, of which $43.1 million is payable in 2022 (see Note 5 to the consolidated financial statements). 24 •The liability for the transition tax on accumulated foreign earnings due in the next five years is $100.4 million, of which $11.6 million is payable in 2022 (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 and that the availability of our Credit Facility will be sufficient to meet our long-term liquidity requirements. 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, 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, 2021, our foreign subsidiaries held approximately $2.4 billion of our total cash and cash equivalents of $5.3 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, 2021, our net debt position, which we define as total debt, including short-term debt, less cash and cash equivalents increased $167.8 million as compared to December 31, 2020. The increase in net debt primarily resulted from the excess of principal cash uses over principal cash sources of $306.5 million, partially offset by the reduction in debt that had increased in 2020 as a result of the liquidity actions we took in response to the COVID-19 pandemic. The components of net debt were (in millions): [[GREPCENT_TABLE]] [["","December 31,"],["","2021","","2020"],["Short-term debt","$","9.6","","","$","3.9"],["Long-term debt","5,685.7","","","5,807.3"],["Total debt","5,695.3","","","5,811.2"],["Less: Cash and cash equivalents","5,316.8","","","5,600.5"],["Net debt","$","378.5","","","$","210.7"]] [[/GREPCENT_TABLE]] 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 May 3, 2021, we issued $800 million 2.60% Senior Notes due 2031. The net proceeds from the issuance, after deducting the underwriting discount and offering expenses, were $791.7 million. The net proceeds plus cash on hand were used to redeem all the outstanding 3.625% Senior Notes due 2022 in May 2021. In connection with the early redemption, we recorded a loss on extinguishment of $26.6 million in interest expense. On November 22, 2021, Omnicom Capital Holdings plc, or OCH, a U.K.-based wholly owned subsidiary of Omnicom, issued £325 million 2.25% Senior Notes due 2033, or the Sterling Notes. The U.S. Dollar equivalent of the net proceeds from the issuance, after deducting the underwriting discount and offering expenses, was $429.6 million. The 2.45% Senior Notes due 2030, the 4.20% Senior Notes due 2030 and the 2.60% Senior Notes due 2031 are senior unsecured obligations of Omnicom that rank equal in right of payment with all existing and future unsecured senior indebtedness. 25 Omnicom and its wholly owned finance subsidiary, Omnicom Capital Inc., or OCI, are co-obligors under the 3.65% Senior Notes due 2024 and the 3.60% Senior Notes due 2026. These notes are a joint and several liability of Omnicom and OCI, and Omnicom unconditionally guarantees OCI’s obligations with respect to the notes. OCI provides funding for our operations by incurring debt and lending the proceeds to our operating subsidiaries. OCI’s assets primarily consist of cash and cash equivalents and intercompany loans made to our operating subsidiaries, and the related interest receivable. There are no restrictions on the ability of OCI or Omnicom to obtain funds from our subsidiaries through dividends, loans or advances. Such notes are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness. Omnicom and OCI have, jointly and severally, fully and unconditionally guaranteed the obligations of Omnicom Finance Holdings plc, or OFH, a U.K.-based wholly owned subsidiary of Omnicom, with respect to the €500 million 0.80% Senior Notes due 2027 and the €500 million 1.40% Senior Notes due 2031, collectively the Euro Notes. OFH’s assets consist of its investments in several wholly owned finance companies that function as treasury centers, which 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 OFH to obtain funds from their subsidiaries through dividends, loans or advances. The Euro Notes and the related guarantees are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness of OFH and each of Omnicom and OCI, respectively. Omnicom has fully and unconditionally guaranteed the obligations of OCH, with respect to the Sterling Notes. OCH’s assets consist of its investments in several wholly owned finance companies that function as treasury centers, which provide funding for various operating companies in EMEA, Australia and other countries in the Asia-Pacific region. The finance companies’ assets consist of cash and cash equivalents and intercompany loans that they make or have made to the operating companies in their respective regions and the related interest receivable. There are no restrictions on the ability of Omnicom or OCH to obtain funds from their subsidiaries through dividends, loans or advances. The Sterling Notes and the related guarantee are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness of OCH and Omnicom, respectively. The Credit Facility contains a financial covenant that requires us to maintain a Leverage Ratio of consolidated indebtedness to consolidated EBITDA (earnings before interest, taxes, depreciation, amortization and non-cash charges) of no more than 3.5 times for the most recently ended 12-month period. In October 2020, we amended the Credit Facility to increase the maximum Leverage Ratio to 4.0 times through December 31, 2021. At December 31, 2021, we were in compliance with this covenant as our Leverage Ratio was 2.3 times. The Credit Facility does not limit our ability to declare or pay dividends or repurchase our common stock. Borrowings under the Credit Facility 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. At December 31, 2021, 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. The long-term debt indentures and the 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 manage our discretionary expenditures. 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, are sufficient to fund our near-term working capital needs and our discretionary spending. Note 7 to the consolidated financial statements provides information regarding our Credit Facility. We have typically funded our day-to-day liquidity by issuing commercial paper. Beginning in the third quarter of 2020 and continuing through 2021, we substantially reduced our commercial paper issuances as compared to prior years. Additional liquidity sources include our Credit Facility and the uncommitted credit lines. Commercial paper activity was (dollars in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","2019"],["Average amount outstanding during the year","$","2.2","","","$","50.1","","","$","272.3"],["Maximum amount outstanding during the year","$","250.0","","","$","401.2","","","$","825.0"],["Average days outstanding","1.1","","","4.6","","","4.0"],["Weighted average interest rate","0.15","%","","1.52","%","","2.40","%"]] [[/GREPCENT_TABLE]] 26 We expect to continue issuing commercial paper to fund our day-to-day liquidity when needed. 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 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.