Omnicom Group
Annual Report 2017

Plain-text annual report

01.77168cover.qxp 3/29/18 8:53 AM Page 1 Omnicom A N N U A L R E P O R T 2017 Omnicom A N N U A L R E P O R T 2017 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 2017 Commission File Number: 1-10551 OMNICOM GROUP INC. (Exact name of registrant as specified in its charter) New York (State or other jurisdiction of incorporation or organization) 437 Madison Avenue, New York, NY (Address of principal executive offices) 13-1514814 (I.R.S. Employer Identification No.) 10022 (Zip Code) Registrant’s telephone number, including area code: (212) 415-3600 Securities Registered Pursuant to Section 12(b) of the Act: Title of each class ______________ Common Stock, $.15 Par Value Name of each exchange on which registered __________________________________ New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:53) No (cid:133) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:53) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:53) No (cid:133) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:53) No (cid:133) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:53) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer (cid:53) Smaller reporting company (cid:133) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for Non-accelerated filer (cid:133) Emerging growth company (cid:133) Accelerated filer (cid:133) complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:133) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:53) The aggregate market value of the voting and non-voting common stock held by non-affiliates as of June 30, 2017 was $19,093,687,000. As of January 31, 2018, there were 230,267,646 shares of Omnicom Group Inc. Common Stock outstanding. Portions of the Omnicom Group Inc. Definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 22, 2018 are incorporated by reference into Part III of this report to the extent described herein. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017 OMNICOM GROUP INC. TABLE OF CONTENTS PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of PART II Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Item 10. Item 11. Item 12. Item 13. Item 14. Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 16. Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART IV Page 1 3 6 6 6 6 7 8 8 27 28 28 28 28 29 29 29 29 29 29 31 32 Management Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Quarterly Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II – Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 F-2 F-4 F-9 F-33 S-1 i FORWARD-LOOKING STATEMENTS Certain statements in this Annual Report on Form 10-K constitute forward-looking statements, including statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, from time to time, the Company or its representatives have made, or may make, forward-looking statements, orally or in writing. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of the Company’s management as well as assumptions made by, and information currently available to, the Company’s management. Forward-looking statements may be accompanied by words such as “aim,” “anticipate,” “believe,” “plan,” “could,” “should,” “would,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “will,” “possible,” “potential,” “predict,” “project” or similar words, phrases or expressions. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control. Therefore, you should not place undue reliance on such statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include: international, national or local economic conditions that could adversely affect the Company or its clients; losses on media purchases and production costs incurred on behalf of clients; reductions in client spending, a slowdown in client payments and a deterioration in the credit markets; ability to attract new clients and retain existing clients in the manner anticipated; changes in client advertising, marketing and corporate communications requirements; failure to manage potential conflicts of interest between or among clients; unanticipated changes relating to competitive factors in the advertising, marketing and corporate communications industries; ability to hire and retain key personnel; currency exchange rate fluctuations; reliance on information technology systems; changes in legislation or governmental regulations affecting the Company or its clients; risks associated with assumptions the Company makes in connection with its critical accounting estimates and legal proceedings; and the Company’s international operations, which are subject to the risks of currency repatriation restrictions, social or political conditions and regulatory environment. The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that may affect the Company’s business, including those described in Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. Except as required under applicable law, the Company does not assume any obligation to update these forward-looking statements. AVAILABLE INFORMATION We file annual, quarterly and current reports and any amendments to those reports, proxy statements and other information with the United States Securities and Exchange Commission, or SEC. Documents we file with the SEC are available free of charge on our website at http://investor.omnicomgroup.com, as soon as reasonably practicable after such material is filed with the SEC. The information included on or available through our website is not part of this or any other report we file with the SEC. Any document that we file with the SEC is available on the SEC’s website at www.sec.gov and also may be read and copied at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1 800 SEC-0330 for further information regarding the operation of the Public Reference Room. ii Introduction PART I This report is our 2017 annual report to shareholders and our 2017 Annual Report on Form 10-K, or 2017 10-K. Omnicom Group Inc. was formed in 1986 and through its branded networks and agencies provides advertising, marketing and corporate communications services to over 5,000 clients in more than 100 countries. The terms “Omnicom,” “the Company,” “we,” “our” and “us” each refer to Omnicom Group Inc. and its subsidiaries unless the context indicates otherwise. Item 1. Business Our Business Omnicom is a strategic holding company and a leading global provider of advertising, marketing and corporate communications services. We operate in a highly competitive industry and compete against other global, national and regional advertising and marketing services companies. The proliferation of media channels, including the rapid development and integration of interactive technologies and mediums, has fragmented consumer audiences targeted by our clients. These developments make it more complex for marketers to reach their target audiences in a cost-effective way, causing them to turn to global service providers such as Omnicom for a customized mix of advertising and marketing services designed to make the best use of their total marketing expenditure. Our branded networks and agencies operate in all major global markets and provide a comprehensive range of services in the following fundamental disciplines: advertising, customer relationship management, or CRM, public relations and healthcare. In an effort to monitor the changing needs of our clients and to better capture the expanded scope of our services, in the fourth quarter of 2017, we realigned our service disciplines. As a result, our CRM discipline was grouped into two separate categories: CRM Consumer Experience, which includes Omnicom Precision Marketing Group’s digital/direct marketing agencies, as well as our branding agencies, shopper marketing agencies and our experiential marketing agencies; and, CRM Execution & Support, which includes field marketing, sales support, merchandising and point of sale, as well as other specialized marketing and custom communications services. Also, we realigned and renamed our former specialty communications discipline so that it now exclusively includes agencies offering healthcare marketing and communications services. Although the medium used to reach a client’s target audience may differ across each of these disciplines, we develop and deliver the marketing message in a similar way by providing client-specific advertising, marketing and corporate communications services. Services across our disciplines include: advertising branding 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 instore 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 sports and event marketing 1 Our business model was built and continues to evolve around our clients. While our networks and agencies operate under different names and frame their ideas in different disciplines, we organize our services around our clients. Our fundamental business principle is that our clients’ specific marketing requirements are the central focus of how we structure our service offerings and allocate our resources. This client-centric business model requires that multiple agencies within Omnicom collaborate in formal and informal virtual client networks utilizing our key client matrix organization structure. This collaboration allows us to cut across our internal organizational structures to execute our clients’ marketing requirements in a consistent and comprehensive manner. We believe that this organizational philosophy, our ability to execute on it and our key client matrix organization structure differentiates us from our competition. In addition, during 2017, we continued the process of forming practice areas within our global network structure to bring together agencies operating in common disciplines to leverage existing resources and to create, in close coordination with our key client matrix organization, additional custom client solutions. As clients increase their demands for marketing effectiveness and efficiency, they have made it a practice to consolidate their business within one service provider in the pursuit of a single engagement covering all consumer touch points. We have structured our business around this trend. We believe that our key client matrix organization structure approach to collaboration and integration of our services and solutions has provided a competitive advantage to our business in the past and we expect this to continue over the medium and long term. Our key client matrix organization structure facilitates superior client management and allows for greater integration of the services required by the world’s largest brands. Our over-arching strategy is to continue to use our virtual client networks to grow our business relationships with our largest clients by serving them across our networks, disciplines and geographies. The various components of our business, including revenue by discipline and geographic area, and material factors that affected us in 2017 are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or MD&A, of this report. None of our acquisitions or dispositions, individually or in the aggregate, in the three year period ended December 31, 2017 was material to our results of operations or financial position. For information about our acquisitions, see Note 4 to the consolidated financial statements. Geographic Regions Our United States operations represent approximately 54% of our revenue. As discussed more fully in the Critical Accounting Policies section of the MD&A, our branded networks and agencies conduct business on a global basis and operate in the following geographic regions: The Americas, which includes North America and Latin America; EMEA, which includes Europe, the Middle East and Africa; and, Asia Pacific, which includes Australia, China, India, Japan, Korea, New Zealand, Singapore and other Asian countries. The networks have regional reporting units that are responsible for the agencies in their region. Agencies within the regional reporting units serve similar clients in similar industries and in many cases the same clients and have similar economic characteristics. Accordingly, financial information by geographic region is provided in the MD&A and Note 7 to the consolidated financial statements. Our Clients Our clients operate in virtually every sector of the global economy. In many cases, multiple agencies or networks serve different brand, product groups, or both within the same client. For example, in 2017 our largest client represented 3.0% of revenue and was served by more than 250 of our agencies. Our 100 largest clients, which represent many of the world’s major marketers, comprised approximately 51% of revenue and were each served, on average, by more than 50 of our agencies. Our Employees At December 31, 2017, we employed approximately 77,300 people worldwide. The skill sets of our workforce across our agencies and within each discipline are similar. Common to all is the ability to understand a client’s brand or product and their selling proposition and to develop a unique message to communicate the value of the brand or product to the client’s target audience, whether through traditional channels or emerging digital platforms. Recognizing the importance of this core competency, we have established tailored training and education programs for our client service professionals around this competency. See the MD&A for a discussion of the effect of salary and related costs on our results of operations. 2 Executive Officers of the Registrant At January 31, 2018, our executive officers were: Position ______________ Name __________ Bruce Crawford . . . . . . . . . . . . . . . . . . . . . . . Chairman of the Board John D. Wren . . . . . . . . . . . . . . . . . . . . . . . . Philip J. Angelastro . . . . . . . . . . . . . . . . . . . . Peter K. Sherman . . . . . . . . . . . . . . . . . . . . . . Michael J. O’Brien . . . . . . . . . . . . . . . . . . . . . Dennis E. Hewitt . . . . . . . . . . . . . . . . . . . . . . Treasurer Andrew L. Castellaneta . . . . . . . . . . . . . . . . . Peter L. Swiecicki . . . . . . . . . . . . . . . . . . . . . . Jonathan B. Nelson . . . . . . . . . . . . . . . . . . . . CEO, Omnicom Digital President and Chief Executive Officer Executive Vice President and Chief Financial Officer Executive Vice President Senior Vice President, General Counsel and Secretary Senior Vice President, Chief Accounting Officer Senior Vice President, Finance and Controller Age ______ 88 65 53 54 56 73 59 59 50 Each executive officer has held his present position for at least five years, except: Mr. Angelastro was named Executive Vice President and Chief Financial Officer in September 2014 and previously served as Senior Vice President Finance and Controller from 2002 until September 2014; Mr. Sherman was named Executive Vice President in April 2014 and previously served as Chief Executive Officer of JWT North America from June 2013 to April 2014 and previously held various positions with BBDO Worldwide from 1997 until 2013; Mr. Castellaneta was named Senior Vice President, Chief Accounting Officer in January 2015 and previously served as Assistant Controller from 2000 until January 2015; and, Mr. Swiecicki was named Senior Vice President, Finance and Controller in January 2015 and previously served as Director of Business Operations from 2013 until January 2015 and previously held various positions with BBDO Worldwide from 1983 until 2013. Additional information about our directors and executive officers will appear in our definitive proxy statement, which is expected to be filed with the SEC by April 12, 2018. Item 1A. Risk Factors Adverse economic conditions, a reduction in client spending, a deterioration in the credit markets or a delay in client payments could have a material effect on our business, results of operations and financial position. Economic conditions have a direct impact on our business, results of operations and financial position. Adverse global or regional economic conditions pose a risk that clients may reduce, postpone or cancel spending on advertising, marketing and corporate communications projects. Such actions would reduce the demand for our services and could result in a reduction in our revenue, which would adversely affect our business, results of operations and financial position. A contraction in the availability of credit may make it more difficult for us to meet our working capital requirements. In addition, a disruption in the credit markets could adversely affect our clients and could cause them to delay payment for our services or take other actions that would negatively affect our working capital. In such circumstances, we may need to obtain additional financing to fund our day-to-day working capital requirements, which may not be available on favorable terms, or at all. Even if we take action to respond to adverse economic conditions, reductions in revenue and disruptions in the credit markets by aligning our cost structure and more efficiently managing our working capital, such actions may not be effective. In an economic downturn, the risk of a material loss related to media purchases and production costs incurred on behalf of our clients could significantly increase and methods for managing or mitigating such risk may be less available or unavailable. In the normal course of business, our agencies enter into contractual commitments with media providers and production companies on behalf of our clients at levels that can substantially exceed the revenue from our services. These commitments are included in accounts payable when the services are delivered by the media providers or production companies. If permitted by local law and the client agreement, many of our agencies purchase media and production services for our clients as an agent for a disclosed principal. In addition, while operating practices vary by country, media type and media vendor, in the United States and certain foreign markets, many of our agencies’ contracts with media and production providers specify that our agencies are not liable to the media and production providers under the theory of sequential liability until and to the extent we have been paid by our client for the media or production services. Where purchases of media and production services are made by our agencies as a principal or are not subject to the theory of sequential liability, the risk of a material loss as a result of payment default by our clients could increase significantly and such a loss could have a material adverse effect on our business, results of operations and financial position. 3 In addition, our methods of managing the risk of payment default, including obtaining credit insurance, requiring payment in advance, mitigating the potential loss in the marketplace or negotiating with media providers, may be less available or unavailable during a severe economic downturn. Clients periodically review and change their advertising, marketing and corporate communications requirements and relationships. If we are unable to remain competitive or retain key clients, our business, results of operations and financial position may be adversely affected. We operate in a highly competitive industry. Key competitive considerations for retaining existing clients and winning new clients include our ability to develop solutions that meet client needs in a rapidly changing environment, the quality and effectiveness of our services and our ability to serve clients efficiently, particularly large multinational clients, on a broad geographic basis. While many of our client relationships are long-standing, from time to time clients put their advertising, marketing and corporate communications business up for competitive review. We have won and lost accounts as a result of these reviews. To the extent that we are not able to remain competitive or retain key clients, our revenue may be adversely affected, which could have a material adverse effect on our business, results of operations and financial position. The loss of several of our largest clients could have a material adverse effect on our business, results of operations and financial position. Our 100 largest clients represent approximately 51% of our revenue. Clients generally are able to reduce or cancel current or future spending on advertising, marketing and corporate communications projects at any time on short notice for any reason. A significant reduction in spending on our services by our largest clients, or the loss of several of our largest clients, if not replaced by new clients or an increase in business from existing clients, would adversely affect our revenue and could have a material adverse effect on our business, results of operations and financial position. Acquiring new clients and retaining existing clients depends on our ability to avoid and manage conflicts of interest arising from other client relationships, retaining key personnel and maintaining a highly skilled workforce. Our ability to acquire new clients and to retain existing clients may, in some cases, be limited by clients’ perceptions of, or policies concerning, conflicts of interest arising from other client relationships. If we are unable to maintain multiple agencies to manage multiple client relationships and avoid potential conflicts of interests, our business, results of operations and financial position may be adversely affected. Our employees are our most important assets and our ability to attract and retain key personnel is an important aspect of our competitiveness. If we are unable to attract and retain key personnel, our ability to provide our services in the manner clients have come to expect may be adversely affected, which could harm our reputation and result in a loss of clients, which could have a material adverse effect on our business, results of operations and financial position. Currency exchange rate fluctuations could impact our business, results of operations and financial position. Our international operations represent approximately 46% of our revenue. We operate in all major international markets including the Euro Zone, the United Kingdom, Australia, Brazil, Canada, China and Japan. Our agencies transact business in more than 50 different currencies. Substantially all of our foreign operations transact business in their local currency and accordingly, their financial statements are translated into U.S. Dollars. As a result, both adverse and beneficial fluctuations in foreign exchange rates would impact our business, results of operations and financial position. In addition, funds transferred to the United States can be adversely or beneficially impacted by foreign currency exchange changes. We rely extensively on information technology systems and cybersecurity incidents could adversely affect us. We rely on information technology systems and infrastructure to process, store and transmit data, summarize results, manage our business and maintain client advertising and marketing information. Increased cybersecurity threats and attacks, which are becoming more sophisticated, pose a risk to our systems and networks. Security breaches, improper use of our systems and unauthorized access to our data and information by employees and others may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. We also may have access to sensitive or personal data or information that is subject to privacy laws and regulations. We install new systems or upgrade our existing systems to prevent, detect, address and mitigate cybersecurity incidents and we provide employee awareness training of cybersecurity risks. Despite our efforts to protect our systems and networks and sensitive and personal data or information, we may be vulnerable to material security breaches, theft, 4 modification or loss of data, employee malfeasance and additional known and unknown threats. Such events could adversely affect our business and reputation. In addition, we use third-party service providers, including cloud providers, to store, transmit and process data. Cybersecurity incidents at these providers could adversely affect our business and reputation. Government regulation and consumer advocates may limit the scope and content of our services, which could affect our ability to meet our clients’ needs, which could have a material adverse effect on our business, results of operations and financial position. Government agencies and consumer groups directly or indirectly affect or attempt to affect the scope, content and manner of presentation of advertising, marketing and corporate communications services, through regulation or other governmental action, which could affect our ability to meet our clients’ needs. Such regulation may seek, among other things, to limit the tax deductibility of advertising expenditures by certain industries or for certain products and services. In addition, there has been a tendency on the part of businesses to resort to the judicial system to challenge advertising practices and claims, which could cause our clients affected by such actions to reduce their spending on our services. Any regulatory or judicial action that affects our ability to meet our clients’ needs or reduces client spending on our services could have a material adverse effect on our business, results of operations and financial position. Further, laws and regulations, related to user privacy, use of personal information and Internet tracking technologies have been proposed or enacted in the United States and a number of international markets. These laws and regulations could affect the acceptance of new communications technologies and the use of current communications technologies as advertising mediums. These actions could affect our business and reduce demand for certain of our services, which could have a material adverse effect on our business, results of operations and financial position. As a global business we face certain risks of doing business internationally and we are exposed to risks from operating in high-growth markets and developing countries, which could have a material adverse effect on our business, results of operations and financial position. The operational and financial performance of our international businesses are affected by global and regional economic conditions, competition for new business and talented staff, currency fluctuation, political conditions, regulatory environment and other risks associated with extensive international operations. In addition, we conduct business in numerous high-growth markets and developing countries which tend to have longer billing collection cycles, currency repatriation restrictions and commercial laws that can be undeveloped, vague, inconsistently enforced, retroactively applied or frequently changed. The risks associated with our international operations could have a material adverse effect on our business, results of operations and financial position. Additionally, our operations are subject to the United States Foreign Corrupt Practices Act and other anti- corruption and anti-bribery laws and regulations. These laws and regulations are complex and stringent, and any violation could have an adverse effect on our business and reputation. For financial information by geographic region, see Note 7 to the consolidated financial statements. We may be unsuccessful in evaluating material risks involved in completed and future acquisitions. We regularly evaluate potential acquisitions of businesses that are complementary to our businesses and client needs. As part of the process, we conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in any particular transaction. Despite our efforts, we may be unsuccessful in ascertaining or evaluating all such risks. As a result, the intended advantages of any given acquisition may not be realized. If we fail to identify certain material risks from one or more acquisitions, our business, results of operations and financial position could be adversely affected. Our goodwill is an intangible asset that may become impaired, which could have a material adverse effect on our business, results of operations and financial position. In accordance with generally accepted accounting principles in the United States, or U.S. GAAP or GAAP, we have recorded a significant amount of goodwill related to our acquisitions; a substantial portion of which represents the intangible specialized know-how of the acquired workforce. As discussed in Note 2 to the consolidated financial statements, we review the carrying value of goodwill for impairment annually at the end of the second quarter of the year and whenever events or circumstances indicate the carrying value may not be recoverable. The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from future actual results of operations and cash flows. While we have concluded, for each year presented in the financial statements included in this report, that our 5 goodwill is not impaired, future events could cause us to conclude that the intangible asset values associated with a given operation may become impaired. Any resulting non-cash impairment charge could have a material adverse effect on our business, results of operations and financial position. We could be affected by future laws or regulations enacted in response to climate change concerns and other actions. Generally, our businesses are not directly affected by current cap and trade laws and other regulatory requirements aimed at mitigating the impact of climate change by reducing emissions or otherwise, although our businesses could be in the future. However, we could be indirectly affected by increased prices for goods or services provided to us by companies that are directly affected by these laws and regulations and pass their increased costs through to their customers. Further, if our clients are impacted by such laws or requirements, either directly or indirectly, their spending for advertising and marketing services may decline, which could adversely impact our business, results of operations and financial position. Additionally, to comply with potential future changes in environmental laws and regulations, we may need to incur additional costs; therefore, at this time, we cannot estimate what impact such regulations may have on our business, results of operations and financial position. Item 1B. Unresolved Staff Comments None. Item 2. Properties We conduct business and maintain offices throughout the world. The facility requirements of our businesses are similar across geographic regions and disciplines. We believe that our facilities are adequate for our current operations and are well maintained. Our principal corporate offices are located at 437 Madison Avenue, New York, New York; 1055 Washington Boulevard, Stamford, Connecticut and 525 Okeechobee Boulevard, West Palm Beach, Florida. We also maintain executive offices in London, England; Shanghai, China and Singapore. We lease substantially all our office space under operating leases that expire at various dates. Lease obligations of our foreign operations are generally denominated in their local currency. Office base rent expense was $330.4 million, $334.1 million and $331.5 million in 2017, 2016 and 2015, respectively, net of rent received from non-cancelable third-party subleases. Future minimum office base rent under non-cancelable operating leases, net of rent receivable from existing non-cancelable third-party subleases, is (in millions): 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Rent _________ $ 295.6 236.8 191.5 165.6 142.4 624.0 ______________ $1,655.9 ______________ ______________ See Note 14 to the consolidated financial statements for a description of our lease commitments, which comprise a significant component of our occupancy and other costs. Item 3. Legal Proceedings In the ordinary course of business, we are involved in various legal proceedings. We do not presently expect that these proceedings will have a material adverse effect on our results of operations or financial position. On December 14, 2016, two of our subsidiaries received subpoenas from the U.S. Department of Justice Antitrust Division concerning its ongoing investigation of video production and post-production practices in the advertising industry. The Company is fully cooperating with the investigation. While the ultimate effect of the investigation is inherently uncertain, we do not at this time believe that the investigation will have a material adverse effect on our results of operations or financial position. However, the ultimate resolution of these matters could be different from our current assessment and the differences could be material. Item 4. Mine Safety Disclosures Not Applicable. 6 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed and traded on the New York Stock Exchange under the symbol “OMC.” As of January 31, 2018, there were 2,074 registered holders of our common stock. The quarterly high and low sales prices for our common stock and dividends paid per share for 2017 and 2016 were: 2017 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . High _________ $87.43 86.71 83.64 78.70 $84.23 85.95 87.50 89.66 Low _______ $83.67 79.86 71.63 65.32 $66.48 75.61 79.94 78.67 Dividends Paid Per Share __________________________ $0.55 0.55 0.55 0.60 $0.50 0.55 0.55 0.55 Common stock repurchases during the three months ended December 31, 2017 were: Period ___________ October 1-31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 1-30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . December 1-31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . Total Number of Shares Purchased _______________________ 49,710 103 574,365 ________________ 624,178 ________________ ________________ Average Price Paid Per Share _________________ $75.14 67.15 73.72 ___________ $73.83 ___________ ___________ Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ______________________________ — — — ______ — ______ ______ Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs _____________________________________ — — — ______ — ______ ______ During the three months ended December 31, 2017, we purchased 560,000 shares of our common stock in the open market for general corporate purposes and withheld 64,178 shares from employees to satisfy estimated statutory income tax obligations related to vesting of restricted stock awards and stock option exercises. The value of the common stock withheld was based on the closing price of our common stock on the applicable vesting or exercise date. There were no unregistered sales of equity securities during the three months ended December 31, 2017. For information on securities authorized for issuance under our equity compensation plans, see Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” which relevant information will be included in our definitive proxy statement, which is expected to be filed with the SEC by April 12, 2018. 7 Item 6. Selected Financial Data The following selected financial data should be read in conjunction with our consolidated financial statements and related notes that begin on page F-1 of this report, as well as the MD&A. For the years ended December 31: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income – Omnicom Group Inc. . . . . . . . . . . . . . . . . Net Income Per Common Share – Omnicom Group Inc.: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends Declared Per Common Share . . . . . . . . . . . . . At December 31: Cash and cash equivalents and short-term investments . . . Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . (In millions, except per share amounts) _______________________________________________________________________________________________________________________________________ 2013 2014 2015 2017 2016 _____________________ _____________________ _____________________ _____________________ _____________________ $14,584.5 $15,317.8 $15,134.4 $15,416.9 $15,273.6 1,825.3 1,944.1 1,920.1 2,008.9 2,059.7 991.1 1,104.0 1,093.9 1,148.6 1,088.4 4.68 4.65 2.25 4.80 4.78 2.15 4.43 4.41 2.00 4.27 4.24 1.90 3.73 3.71 1.60 (In millions) _______________________________________________________________________________________________________________________________________ 2013 2015 2017 _____________________ _____________________ _____________________ $ 2,728.7 $ 2,619.7 $ 3,796.4 21,980.4 22,110.7 24,931.2 3,763.3 3,564.2 4,912.9 252.7 — — 685.1 800.5 1,091.2 3,582.4 2,452.4 2,615.1 2016 _____________________ $ 3,022.8 23,165.4 4,920.5 — 892.3 2,162.0 2014 _____________________ $ 2,390.3 21,428.4 4,542.1 — 774.3 2,850.0 As discussed in Item 7 below, in 2017 the Tax Cuts and Jobs Act, or Tax Act, reduced Net income – Omnicom Group Inc. by $106.3 million and diluted Net income per share – Omnicom Group Inc. by $0.45. See Note 10 to the consolidated financial statements for additional information. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations EXECUTIVE SUMMARY We are a strategic holding company providing advertising, marketing and corporate communications services to clients through our branded networks and agencies around the world. On a global, pan-regional and local basis, our networks and agencies provide a comprehensive range of services in the following fundamental disciplines: advertising, CRM, which as described below includes CRM Consumer Experience and CRM Execution & Support, public relations and healthcare. Our business model was built and continues to evolve around our clients. While our networks and agencies operate under different names and frame their ideas in different disciplines, we organize our services around our clients. Our fundamental business principle is that our clients’ specific marketing requirements are the central focus of how we structure our service offerings and allocate our resources. This client-centric business model requires that multiple agencies within Omnicom collaborate in formal and informal virtual client networks utilizing our key client matrix organization structure. This collaboration allows us to cut across our internal organizational structures to execute our clients’ marketing requirements in a consistent and comprehensive manner. We continually seek to grow our business with our existing clients by maintaining our client-centric approach, as well as expanding our existing business relationships into new markets and with new clients. In addition, we pursue selective acquisitions of complementary companies with strong entrepreneurial management teams that typically currently serve or have the ability to serve our existing client base. As a leading global advertising, marketing and corporate communications company, we operate in all major markets and have a large and diverse client base. In 2017, our largest client represented 3.0% of revenue and our 100 largest clients, which represent many of the world’s major marketers, comprised approximately 51% of revenue. Our clients operate in virtually every sector of the global economy with no one industry comprising more than 14% of our revenue in 2017. 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. 8 As described in more detail below, in 2017 our revenue decreased $143.3 million, or 0.9%, compared to 2016. Changes in foreign exchange rates negatively impacted revenue in the first six months of 2017. Beginning in the third quarter of 2017, the Euro and a number of other foreign currencies strengthened against the U.S. Dollar. As a result, changes in foreign exchange rates for 2017 had a marginal effect on our revenue. In 2017, changes in foreign exchange rates increased revenue by $42.9 million, or 0.3%. Acquisition revenue, net of disposition revenue, reduced revenue $647.3 million, or 4.2%, primarily reflecting the sale of our specialty print media and organic growth increased revenue $461.1 million, or 3.0%. Global economic conditions have a direct impact on our business and financial performance. Adverse global or regional economic conditions 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. In 2017, our agencies in North America continued their modest growth as activity in the United States varied across our service disciplines and growth slowed in the second half of the year relative to the first half. Our businesses in the United Kingdom, or the U.K., and Europe had solid performance. However, while improving in 2017, the continuing uncertain economic and political conditions in the European Union, or the EU, have been further complicated by the official notification from the U.K. to the European Council to withdraw from the EU. In Brazil, unstable economic and political conditions contributed to the continuing volatility in the market and our agencies experienced negative growth. Most of our businesses in Asia continue their modest growth consistent with recent periods. The economic and fiscal issues facing countries in Europe and Latin America continue to cause economic uncertainty in those regions; however, the impact on our business varies by country. We will continue to monitor economic conditions closely, as well as client revenue levels and other factors and, in response to reductions in our client revenue, if necessary, we will take actions available to us to align our cost structure and manage our working capital. There can be no assurance whether, or to what extent, our efforts to mitigate any impact of future adverse economic conditions, reductions in client revenue, changes in client creditworthiness and other developments will be effective. Certain business trends have had a positive impact on our business and industry. These trends include clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets and integrating traditional and non-traditional marketing channels, as well as utilizing new communications technologies and emerging digital platforms. As clients increase their demands for marketing effectiveness and efficiency, they have made it a practice to consolidate their business within one service provider in the pursuit of a single engagement covering all consumer touch points. We have structured our business around these trends. We believe that our key client matrix organization structure approach to collaboration and integration of our services and solutions have provided a competitive advantage to our business in the past and we expect this to continue over the medium and long term. In addition, during 2017, we continued the process of forming practice areas within our global network structure to bring together agencies operating in common disciplines to leverage existing resources and to create, in close coordination with our key client matrix organization, additional custom client solutions. We expect to complete this process in 2018. In the near term, barring unforeseen events and excluding the impact of changes in foreign exchange rates, as a result of continued improvement in operating performance by many of our agencies and new business activities, we expect our 2018 revenue to increase modestly and over the long term to be in excess of the weighted average nominal GDP growth in our major markets. We expect to continue to identify acquisition opportunities intended to build upon the core capabilities of our strategic disciplines and business platforms, expand our operations in high-growth and emerging markets and enhance our capabilities to leverage new technologies that are being used by marketers today. In addition, we continually evaluate our portfolio of businesses to identify non-strategic or underperforming businesses for disposition. 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 and growth from our largest clients. Operating expenses are comprised of cost of services, selling, general and administrative, or SG&A, expenses and depreciation and amortization. The change in revenue in 2017 across our principal regional markets were: North America decreased 5.3%, Europe increased 5.7%, Latin America increased 16.8% and Asia Pacific increased 0.9%. In North America, modest growth in the United States and Canada was offset by the disposition of our specialty print media business in the second quarter. In Europe, growth in substantially all markets and the strengthening of the Euro against the U.S. Dollar was partially offset by the weakening of the British Pound against the U.S. Dollar. The increase in revenue in Latin America was a result of our acquisition activity in Colombia, growth in Mexico and the strengthening of the Brazilian Real against the U.S. Dollar, which was substantially offset by the continued economic weakness in Brazil and negative performance in that market. In Asia Pacific, growth in most countries in the region, especially Australia, India, Japan and Singapore, was partially offset by disposition activity. 9 In an effort to monitor the changing needs of our clients and to better capture the expanded scope of our services, in the fourth quarter of 2017, we realigned our service disciplines. As a result, our CRM discipline was grouped into two separate categories: CRM Consumer Experience, which includes Omnicom Precision Marketing Group’s digital/direct marketing agencies, as well as our branding agencies, shopper marketing agencies and our experiential marketing agencies; and, CRM Execution & Support, which includes field marketing, sales support, merchandising and point of sale, as well as other specialized marketing and custom communications services. Also, we realigned and renamed our former specialty communications discipline so that it now exclusively includes agencies offering healthcare marketing and communications services. The change in revenue in 2017 compared to 2016, in our service disciplines was: advertising decreased 0.6%, CRM Consumer Experience decreased 3.2%, CRM Execution & Support decreased 1.6%, public relations increased 0.1% and healthcare increased 3.3%. The decrease in advertising primarily reflects the sale of our specialty print media business in April 2017. 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 vast majority 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 direct service costs, which include third-party supplier costs and client-related travel costs. Occupancy and other costs consist of the indirect costs related to the delivery of our services, including office rent and other occupancy costs, equipment rent, technology costs, general office expenses and other expenses. SG&A expenses 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. Operating expenses for 2017 decreased 1.4% compared to 2016. Salary and service costs, which tend to fluctuate with changes in revenue, decreased $190.9 million, or 1.7%, in 2017 compared to 2016. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, increased $1.5 million, or 0.1%, in 2017 compared to 2016. Operating profit increased $50.8 million year-over-year. As a result, operating margin increased year-over-year to 13.5% from 13.0%. Earnings before interest, taxes and amortization of intangible assets, or EBITA margin, in 2017 was 14.2%, as compared to 13.8% in 2016. Net interest expense increased $7.7 million year-over-year to $174.8 million in 2017. Interest expense increased $14.8 million to $224.5 million in 2017. Interest income increased $7.1 million to $49.7 million in 2017 compared to 2016. On December 22, 2017, the Tax Act was enacted into law. The Tax Act reduced the U.S. federal statutory income tax rate to 21% from 35% for tax years beginning after December 31, 2017 and made several changes to existing tax law that affect our tax assets and liabilities related to previously reported taxable income. The significant changes require that we record tax expense on the accumulated earnings of our foreign subsidiaries and adjust our previously reported deferred tax positions to reflect the impact of the revised statutory federal rate as of the enactment date. In December 2017, the SEC issued Staff Accounting Bulletin 118, or SAB 118, which provides guidance on accounting for the impact of the Tax Act. SAB 118 provides that provisional amounts should be recognized in our financial statements where accounting for certain effects of the Tax Act are not complete and a reasonable estimate of the effects of the Tax Act can be made. Accordingly, at December 31, 2017, we have estimated the effect of the Tax Act and recorded a net increase to income tax expense of $106.3 million. Our estimate is based on our understanding of the Tax Act and currently available guidance. We expect to revise this estimate in future periods as further information becomes available. See Note 10 to the consolidated financial statements for additional information. Our effective tax rate for 2017 was 36.9% compared to 32.6% for 2016. The increase is attributable to the estimated impact of the Tax Act of $106.3 million partially offset by the recognition of an excess tax benefit from share-based compensation of $20.8 million resulting from the adoption of FASB ASU 2016-09 (see Note 1 to the consolidated financial statements). ASU 2016-09 requires that beginning in 2017 excess tax benefits and deficiencies arising from share-based compensation be recognized in results of operations in the period when the restricted stock awards vest or stock options are exercised. In prior years, excess tax benefits and deficiencies from share-based compensation were recorded in additional paid-in capital. The effect of the Tax Act on income tax expense for 2017 is presented below in Results of Operations 2017 Compared to 2016. While we are still evaluating the impact of the Tax Act on our 2018 annual effective tax rate, we expect the Tax Act to reduce our effective tax rate between 3.5% and 4.5%, which excludes the impact of tax benefits or deficiencies on share-based compensation. At this point, we can not predict the 2018 impact from share-based compensation because it is subject to changes in our share price. 10 Net income – Omnicom Group Inc. for 2017 decreased $60.2 million, or 5.2%, to $1,088.4 million from $1,148.6 million in 2016. The year-over-year decrease is due to the impact of the Tax Act of $106.3 million, which is partially offset by the after tax increase from the factors described above. Diluted net income per share – Omnicom Group Inc. decreased 2.7% to $4.65 in 2017, compared to $4.78 in 2016. The impact of the Tax Act reduced diluted net income per share – Omnicom Group Inc. $0.45. In addition, the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock, net of shares issued for restricted stock awards, stock option exercises and employee stock purchase plan improved diluted net income per share – Omnicom Group Inc in 2017 compared to 2016. The effect of the Tax Act on net income – Omnicom Group Inc. and diluted net income per share – Omnicom Group Inc. is presented below in Results of Operations 2017 Compared to 2016. CRITICAL ACCOUNTING POLICIES The following summary of our critical accounting policies provides a better understanding of our financial statements and the related discussion in this MD&A. We believe that the following policies may involve a higher degree of judgment and complexity in their application than most of our accounting policies and represent the critical accounting policies used in the preparation of our financial statements. Readers are encouraged to consider this summary together with our financial statements and the related notes, including Note 2, for a more complete understanding of the critical accounting policies discussed below. Estimates We prepare our financial statements in conformity with U.S. GAAP and are required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We use a fair value approach in testing goodwill for impairment and when evaluating our equity method and cost 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. Business combinations are accounted for using the acquisition method. The assets acquired, including identified intangible assets, liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values. In circumstances where control is obtained and less than 100% of a business is acquired, goodwill is recorded as if 100% were acquired. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs are expensed as incurred. Certain acquisitions include an initial payment at closing and provide for future additional contingent purchase price payments (earn-outs), which are recorded as a liability at the acquisition date fair value. Subsequent changes in the fair value of the liability are recorded in results of operations. The results of operations of acquired businesses are included in results of operations from the acquisition date. In 2017, we completed four acquisitions of new subsidiaries. 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 under U.S. GAAP is not required to be valued separately. 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 the 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. Although not required, we performed the annual impairment test and compared the fair value of each of our reporting units to its respective carrying value, including goodwill. We identified our regional reporting units as components of our operating segments, which 11 are our five global agency networks. The regional reporting units of each agency network are responsible for the agencies in their region. They report to the segment managers and facilitate the administrative and logistical requirements of our key client matrix organization structure for delivering services to clients in their regions. We have concluded that for each of our operating segments, their regional reporting units have similar economic characteristics and should be aggregated for purposes of testing goodwill for impairment at the operating segment level. Our conclusion was based on a detailed analysis of the aggregation criteria set forth in FASB ASC Topic 280, Segment Reporting, and in FASB ASC Topic 350. Consistent with our fundamental business strategy, the agencies within our regional reporting units serve similar clients in similar industries, and in many cases the same clients. In addition, the agencies within our regional reporting units have similar economic characteristics. The main economic components of each agency are employee compensation and related costs and direct service costs and occupancy and other costs, which include rent and occupancy costs, technology costs that are generally limited to personal computers, servers and off-the-shelf software and other overhead expenses. Finally, the expected benefits of our acquisitions are typically shared by multiple agencies in various regions as they work together to integrate the acquired agency into our virtual client network strategy. Goodwill Impairment Review – Estimates and Assumptions We use the following valuation methodologies to determine the fair value of our reporting units: (1) the income approach, which utilizes discounted expected future cash flows, (2) comparative market participant multiples for EBITDA (earnings before interest, taxes, depreciation and amortization) and (3) when available, consideration of recent and similar acquisition transactions. In applying the income approach, we use estimates to derive the discounted expected cash flows (“DCF”) for each reporting unit that serves as the basis of our valuation. These estimates and assumptions include revenue growth and operating margin, EBITDA, tax rates, capital expenditures, weighted average cost of capital and related discount rates and expected long- term cash flow growth rates. All of these estimates and assumptions are affected by conditions specific to our businesses, economic conditions related to the industry we operate in, as well as conditions in the global economy. The assumptions that have the most significant effect on our valuations derived using a DCF methodology are: (1) the expected long-term growth rate of our reporting units’ cash flows and (2) the weighted average cost of capital (“WACC”). The assumptions used for the long-term growth rate and WACC in our evaluations as of June 30, 2017 and 2016 were: Long-Term Growth Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WACC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 30, _________________________________________________________________________ 2016 2017 ________________ ________________ 4% 4% 9.7% – 10.3% 9.6% – 10.3% Long-term growth rate represents our estimate of the long-term growth rate for our industry and the markets we operate in. For the past ten years, the average historical revenue growth rate of our reporting units and the Average Nominal GDP growth of the countries comprising the major markets that account for substantially all of our revenue was approximately 3.6% and 3.5%, respectively. We considered this history when determining the long-term growth rates used in our annual impairment test at June 30, 2017. We believe marketing expenditures over the long term have a high correlation to GDP. We also believe based on our historical performance, that our long-term growth rate will exceed Average Nominal GDP growth in the markets we operate in, which are similar across our reporting units. For our annual test as of June 30, 2017, we used an estimated long-term growth rate of 4%. When performing the annual impairment test as of June 30, 2017 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 2017. In the first half of 2017, we experienced an increase in our revenue of 3.9%, which excluded our net disposition activity and the impact from changes in foreign exchange rates. Economic conditions in the Euro Zone are unsettled and the continuing fiscal issues faced by many countries in the European Union has caused economic difficulty in certain of our Euro Zone markets. During the first half of 2017, weakness in most Latin American economies we operate in has the potential to affect our near-term performance in that region. We considered the effect of these conditions in our annual impairment test. 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. 12 Our five reporting units vary in size with respect to revenue and the amount of debt allocated to them. These differences drive variations in fair value among our reporting units. In addition, these differences as well as differences in book value, including goodwill, cause variations in the amount by which fair value exceeds book value among the reporting units. The reporting unit goodwill balances and debt vary by reporting unit primarily because our three legacy agency networks were acquired at the formation of Omnicom and were accounted for as a pooling of interests that did not result in any additional debt or goodwill being recorded. The remaining two agency networks were built through a combination of internal growth and acquisitions that were accounted for using the acquisition method and as a result, they have a relatively higher amount of goodwill and debt. Goodwill Impairment Review – Conclusion Based on the results of our impairment test, we concluded that our goodwill at June 30, 2017 was not impaired, because the fair value of each of our reporting units was substantially in excess of its respective net 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 72%. Notwithstanding our belief that the assumptions we used for WACC and long-term growth rate in our impairment testing are 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, 2017 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 substantially in excess of its respective net book value and would pass the impairment test. We will continue to perform our impairment test at the end of the second quarter of each year unless events or circumstances trigger the need for an interim impairment test. The estimates used in our goodwill impairment test do not constitute forecasts or projections of future results of operations, but rather are estimates and assumptions based on historical results and assessments of macroeconomic factors affecting our reporting units as of the valuation date. We believe that our estimates and assumptions are reasonable, but they are subject to change from period to period. Actual results of operations and other factors will likely differ from the estimates used in our discounted cash flow valuation and it is possible that differences could be significant. A change in the estimates we use could result in a decline in the estimated fair value of one or more of our reporting units from the amounts derived as of our latest valuation and could cause us to fail our goodwill impairment test if the estimated fair value for the reporting unit is less than the carrying value of the net assets of the reporting unit, including its goodwill. A large decline in estimated fair value of a reporting unit could result in a non-cash impairment charge and may have an adverse effect on our results of operations and financial condition. Subsequent to the annual impairment test at June 30, 2017 and considering our operating performance in the second half of the year, there were no events or circumstances that triggered the need for an interim impairment test. Additional information about acquisitions and goodwill appears in Notes 2, 4 and 5 to the consolidated financial statements. Revenue Recognition We recognize revenue in accordance with FASB ASC Topic 605, Revenue Recognition, and applicable SEC Staff Accounting Bulletins. Our principal source of revenue is derived from fees for services on a rate per hour or per project basis. Revenue is realized when the service is performed in accordance with the client arrangement and upon the completion of the earnings process. Our primary client arrangements include: fixed fee contracts where revenue is recognized based on the level of effort completed to date, retainer agreements where revenue is recognized on a straight-line basis over the contract period, and media commissions where revenue is recognized when the media is run. Prior to recognizing revenue, persuasive evidence of an arrangement must exist, the sales price must be fixed or determinable, delivery, performance and acceptance must be in accordance with the client arrangement and collection must be reasonably assured. These principles are the foundation of our revenue recognition policy and apply to all client arrangements in each of our service disciplines: advertising, CRM, which includes CRM Consumer Experience and CRM Execution & Support, public relations and healthcare. Because the services that we provide across each of our disciplines are similar and delivered to clients in similar ways, all of the key elements in revenue recognition apply to client arrangements in each of our service disciplines. In the majority of our businesses, we act as an agent and record revenue equal to the net amount retained when the fee or commission is earned. Although, in certain markets, we may bear credit risk with respect to these activities, the arrangements with our clients are such that we act as an agent on their behalf. In these cases, costs incurred with third-party suppliers are excluded from our revenue. In certain arrangements, we act as principal and we contract directly with third-party suppliers and media providers and production companies and we are the primary obligor. In these circumstances, revenue is recorded at the gross amount billed since revenue has been earned for the sale of goods or services. 13 Some of our client arrangements include performance incentive provisions designed to link a portion of our revenue to our performance relative to quantitative and qualitative goals. We recognize performance incentives in revenue when the specific quantitative goals are achieved, or when our performance against qualitative goals is determined by the client. We may receive rebates or credits from certain vendors based on transactions entered into on behalf of clients. These rebates or credits are remitted to the clients in accordance with contractual requirements or in certain international markets may be 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. Effective January 1, 2018, we will adopt FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. As a result, we will change our revenue recognition accounting policy as described below. ASC 606 will be applied using the modified retrospective method, where the cumulative effect of the initial application is recognized as an adjustment to opening retained earnings at January 1, 2018 and is not expected to have a material impact on our financial position. ASC 606 provides a five-step model where revenue is recognized when the customer obtains control of the promised goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. The adoption of ASC 606 will not have a material impact on how we recognize revenue for fixed fee or retainer-based arrangements. Clients typically receive the benefit of our services as we perform. We will continue to recognize revenue over time using inputs or outputs to measure our progress. Revenue for commission-based arrangements will continue to be recognized at a point-in-time. ASC 606 also includes additional disclosure requirements. For certain of our businesses, the adoption of ASC 606 will result in a change in our accounting policy for certain third- party out-of-pocket costs, which are incurred in connection with our services and are billed to clients. The inclusion of third-party out-of-pocket costs in revenue depends on whether we act as a principal or agent in the client arrangement. Under ASC 606, the principal versus agent assessment is based on whether we control the specified goods or services before they are transferred to the customer. As a result of the adoption of ASC 606, certain third-party costs are no longer included in revenue and cost of services. In 2017, these third-party out-of-pocket costs were approximately $150 million. This change will reduce reported revenue and will have no impact on operating profit. In addition, performance incentives that can increase revenue if we meet certain quantitative or qualitative objectives in delivering our services will be treated as variable consideration. Performance incentives were recognized in revenue when specific quantitative goals were achieved, or when our performance against qualitative goals was acknowledged by the client. Under ASC 606, variable consideration is estimated and included in total consideration at contract inception based on either the expected value method or the most likely method. These estimates are based on historical award experience, anticipated performance and our best judgment at the time. This change will have offsetting effects in each period and the net effect will not be material to our results of operations or financial position. Income Taxes On December 22, 2017, the Tax Act was enacted into law. In accordance with the guidance provided in SEC Staff Accounting Bulletin 118, at December 31, 2017, we made a reasonable estimate of the effect of the Tax Act on our results of operations and, as a result, we recorded a net increase to income tax expense of $106.3 million. We expect to revise this estimate in future periods as further information becomes available. See Note 10 to the consolidated financial statements for additional information. NEW ACCOUNTING STANDARDS See Note 20 for information on the adoption of new accounting standards and accounting standards not yet adopted. 14 RESULTS OF OPERATIONS – 2017 Compared to 2016 (in millions): Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Expenses: Salary and service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Margin – % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income Before Income Taxes and Income From Equity Method Investments . . . . . . . . . . . Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income From Equity Method Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income Attributed To Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income – Omnicom Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 __________ $15,273.6 __________ 11,249.7 1,232.1 __________ 12,481.8 450.0 282.1 __________ 13,213.9 __________ 2,059.7 13.5% 224.5 49.7 __________ 1,884.9 696.2 3.5 __________ 1,192.2 103.8 __________ $ 1,088.4 __________ __________ 2016 __________ $15,416.9 __________ 11,440.6 1,230.6 __________ 12,671.2 443.9 292.9 __________ 13,408.0 __________ 2,008.9 13.0% 209.7 42.6 __________ 1,841.8 600.5 5.4 __________ 1,246.7 98.1 __________ $ 1,148.6 __________ __________ As discussed below, in 2017 the Tax Act reduced Net income – Omnicom Group Inc. by $106.3 million and diluted Net income per share – Omnicom Group Inc. by $0.45. See Note 10 to the consolidated financial statements for additional information. 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): Net Income – Omnicom Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income Attributed To Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income From Equity Method Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income Before Income Taxes and Income From Equity Method Investments . . . . . . . . . . . . Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add back: Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings before interest, taxes and amortization of intangible assets (“EBITA”) . . . . . . . . . . . . Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITA Margin – % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 __________ $ 1,088.4 103.8 __________ 1,192.2 3.5 696.2 __________ 1,884.9 224.5 49.7 __________ 2,059.7 113.8 __________ $ 2,173.5 __________ __________ $15,273.6 $ 2,173.5 2016 __________ $ 1,148.6 98.1 __________ 1,246.7 5.4 600.5 __________ 1,841.8 209.7 42.6 __________ 2,008.9 115.2 __________ $ 2,124.1 __________ __________ $15,416.9 $ 2,124.1 14.2% 13.8% 15 Revenue In 2017, revenue decreased $143.3 million to $15,273.6 million from $15,416.9 million in 2016. Changes in foreign exchange rates increased revenue by $42.9 million, or 0.3%. Acquisition revenue, net of disposition revenue, reduced revenue $647.3 million, or 4.2%, reflecting the disposition of certain non-strategic businesses in the past year, and organic growth increased revenue $461.1 million, or 3.0%. The reduction in revenue in 2017 resulting from our acquisition and disposition activity arose principally from the sale in the second quarter of our specialty print media business, which operated in North America. Changes in foreign exchange rates negatively impacted revenue in the first six months of 2017. Beginning in the third quarter of 2017, the Euro and a number of foreign currencies strengthened against the U.S. Dollar. As a result, changes in foreign exchange rates for 2017 had a marginal effect on our revenue. The increase in revenue from changes in foreign exchange rates primarily resulted from the strengthening of the Euro, Brazilian Real, Australian Dollar and Russian Ruble against the U.S. Dollar, mostly offset by the weakening of the British Pound against the U.S. Dollar. The components of revenue change in the United States (“Domestic”) and the remainder of the world (“International”) were (in millions): December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . Components of revenue change: Foreign exchange rate impact . . . . . . . . . . . . . . . . . . Acquisition revenue, net of disposition revenue . . . . Organic growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . Total ________________________________________ Domestic _______________________________________ International ________________________________________ $ ___________________ $15,416.9 % ______________ $ __________________ $8,627.8 % ______________ $ __________________ $6,789.1 % ______________ 42.9 (647.3) 461.1 ________________ $15,273.6 ________________ ________________ — 0.3% (474.4) (4.2)% 43.5 3.0% ______________ (0.9)% $8,196.9 ______________ ______________ 42.9 —% (172.9) (5.5)% 417.6 0.5% ______________ (5.0)% $7,076.7 ______________ ______________ 0.6% (2.5)% 6.1% 4.2% The components and percentages are calculated as follows: • The foreign exchange impact is calculated by translating the current period’s local currency revenue using the prior period average exchange rates to derive current period constant currency revenue (in this case $15,230.7 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 ($15,273.6 million less $15,230.7 million for the Total column). • Acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date. As a result, acquisition revenue excludes the positive or negative difference between our current period revenue subsequent to the acquisition date and the comparable prior period revenue and the positive or negative growth after the acquisition is attributed to organic growth. Disposition revenue is calculated as if the disposition occurred twelve months prior to the disposition date by aggregating the comparable prior period revenue of dispositions through the disposition date. The acquisition revenue and disposition revenue amounts are netted in the table. • Organic growth is calculated by subtracting the foreign exchange rate impact, and the acquisition revenue, net of disposition revenue components from total revenue growth. • The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($15,416.9 million for the Total column). Changes in the value of foreign currencies against the U.S. Dollar affect our results of operations and financial position. For the most part, because the revenue and expense of our foreign operations are both denominated in the same local currency, the economic impact on operating margin is minimized. Assuming exchange rates at February 12, 2018 remain unchanged, we estimate the impact of changes in foreign exchange rates to increase 2018 revenue by approximately 2%. 16 Revenue for 2017 and the percentage change in revenue and organic growth from 2016 in our principal regional markets were (in millions): Americas: 2017 ____________ 2016 ____________ $ Change ____________ % Change _________ North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,686.0 494.8 $ 9,174.0 423.6 $(488.0 ) 71.2 EMEA: Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East and Africa . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,127.9 314.6 1,650.3 ____________ $15,273.6 ____________ ____________ 3,904.2 278.9 1,636.2 ____________ $15,416.9 ____________ ____________ 223.7 35.7 14.1 ____________ $(143.3 ) ____________ ____________ (5.3)% 16.8% 5.7% 12.8% 0.9% (0.9 )% % Organic Growth _________ 0.6 % 0.6 % 7.0 % 12.5 % 5.8 % 3.0 % Our primary markets in Europe comprise the U.K. and the Euro Zone. In 2017, the U.K. comprised 9.1% of revenue and the Euro Zone and the other European countries together comprised 17.9% of revenue. In 2017, revenue, including the impact of foreign exchange rates, decreased 0.9% in the U.K. and increased 9.4% in the Euro Zone and the other European countries. In North America, modest growth in the United States and Canada was offset by the disposition of our specialty print media business in the second quarter. In Europe, growth in substantially all markets and the strengthening of the Euro against the U.S. Dollar was partially offset by the weakening of the British Pound against the U.S. Dollar. The increase in revenue in Latin America was a result of our acquisition activity in Colombia, growth in Mexico and the strengthening of the Brazilian Real against the U.S. Dollar, which was substantially offset by the continued economic weakness in Brazil and negative performance in that market. In Asia Pacific, growth in most countries in the region, especially Australia, India, Japan and Singapore, was partially offset by disposition activity. In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. The net change in 2017 was an overall gain in new business. Under our client-centric approach, we seek to broaden our relationships with all of our clients. Our largest client represented 3.0% of revenue in 2017 and 2016. Our ten largest and 100 largest clients represented 19.6% and 50.5% of revenue in 2017, respectively, and 18.3% and 52.4% of revenue in 2016, respectively. 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 advertising, branding, 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, instore 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. In an effort to monitor the changing needs of our clients and to better capture the expanded scope of our services, in the fourth quarter of 2017, we realigned our service disciplines. As a result, our CRM discipline was grouped into two separate categories: CRM Consumer Experience, which includes Omnicom Precision Marketing Group’s digital/direct marketing agencies, as well as our branding agencies, shopper marketing agencies and our experiential marketing agencies; and, CRM Execution & Support, which includes field marketing, sales support, merchandising and point of sale, as well as other specialized marketing and custom communications services. Also, we realigned and renamed our former specialty communications discipline so that it now exclusively includes agencies offering healthcare marketing and communications services. 17 Revenue for 2017 and 2016 and the change in revenue and organic growth from 2016 by discipline were (in millions): Year Ended December 31, _________________________________________________________________________________ 2017 ________________________________________ 2016 ________________________________________ Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . CRM Consumer Experience . . . . . . . . . . . . CRM Execution & Support . . . . . . . . . . . . . Public Relations . . . . . . . . . . . . . . . . . . . . . . Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . $ ____________________ $ 8,142.5 2,664.3 2,155.6 1,376.6 934.6 ________________ $15,273.6 ________________ ________________ % of Revenue $ ________________ ____________________ 53.3% $ 8,194.7 2,750.9 17.5% 2,191.4 14.1% 1,374.8 9.0% 905.1 6.1% ________________ $15,416.9 ________________ ________________ 2017 vs. 2016 ____________________________________________________________________ % Organic % Growth Change ____________________ ________________ 3.9% (0.6)% 0.8% (3.1)% 4.0% (1.6)% 0.3% 0.1% 2.8% 3.3% 3.0% (0.9)% % of $ Revenue Change ________________ __________________ 53.2% $ (52.2) (86.6) 17.8% (35.8) 14.2% 1.8 8.9% 29.5 5.9% ____________ $(143.3) ____________ ____________ We provide services to clients that operate in various industry sectors. Revenue by sector for 2017 and 2016 was: Food and Beverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pharmaceuticals and Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Travel and Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 _______________ 13% 10% 12% 7% 9% 10% 6% 5% 6% 22% 2016 _______________ 13% 10% 12% 7% 9% 8% 7% 5% 6% 23% Operating Expenses Operating expenses for 2017 compared to 2016 were (in millions): Revenue . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . Operating Expenses: Salary and service costs . . . . . . . . . . . . . . . . . . . . . . . . Occupancy and other costs . . . . . . . . . . . . . . . . . . . . . Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . Depreciation and amortization . . . . . . . . . . . . . . . Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, _____________________________________________________________________ 2017 vs. 2016 2016 2017 ________________________________________ _______________________________________ _________________________________________ $ ____________________ $15,273.6 ____________________ 11,249.7 1,232.1 ____________________ 12,481.8 450.0 282.1 ____________________ 13,213.9 ____________________ $ 2,059.7 ____________________ ____________________ % of Revenue ______________ _________ $ ____________________ $ 15,416.9 _____________________ % of Revenue ______________ _________ $ Change ________________ $(143.3) ________________ % Change ______________ (0.9)% _________ 73.7% 8.1% _________ 11,440.6 1,230.6 _____________________ 12,671.2 2.9% 443.9 1.8% 292.9 _________ _____________________ 13,408.0 86.5% _____________________ _________ 13.5% $ 2,008.9 _____________________ _________ _____________________ _________ 74.2% 8.0% _________ 2.9% 1.9% _________ 87.0% _________ 13.0% _________ _________ (190.9) 1.5 ________________ (189.4) 6.1 (10.8) ________________ (194.1) ________________ $ 50.8 ________________ ________________ (1.7)% 0.1% _________ 1.4% (3.7)% _________ (1.4)% _________ 2.5% _________ _________ Operating expenses decreased $194.1 million, or 1.4%, in 2017 compared to 2016. Salary and service costs, which tend to fluctuate with changes in revenue, decreased $190.9 million, or 1.7%, in 2017 compared to 2016. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, increased $1.5 million, or 0.1%, in 2017 compared to 2016. SG&A expenses increased $6.1 million year-over-year primarily related to professional fees. Operating profit increased $50.8 million year-over-year. As a result, operating margin increased year-over-year to 13.5% from 13.0% and EBITA margin increased year-over-year to 14.2% from 13.8%. 18 Net Interest Expense Net interest expense increased $7.7 million year-over-year to $174.8 million in 2017. Interest expense increased $14.8 million to $224.5 million in 2017, primarily due to a reduced benefit from the fixed-to-floating interest rate swaps resulting from higher rates on the floating rate leg and higher interest expense on commercial paper. Our long-term debt portfolio at December 31, 2017, after taking into consideration our outstanding interest rate swaps, was approximately 75% fixed rate obligations and 25% floating rate obligations and was unchanged from December 31, 2016. A discussion of our interest rate swaps is included in Note 6 to the consolidated financial statements. In 2017, interest income increased $7.1 million compared to the prior year, resulting from higher interest earned on the cash held by our international treasury centers. Income Taxes Our effective tax rate for 2017 was 36.9% compared to 32.6% for 2016. The increase is attributable to the estimated impact of the Tax Act of $106.3 million partially offset by the recognition of an excess tax benefit from share-based compensation of $20.8 million resulting from the adoption of FASB ASU 2016-09 (see Note 1 to the consolidated financial statements). ASU 2016-09 requires that beginning in 2017 excess tax benefits and deficiencies arising from share-based compensation be recognized in results of operations in the period when the restricted stock awards vest or stock options are exercised. In prior years, excess tax benefits and deficiencies from share-based compensation were recorded in additional paid-in capital. The effect of the Tax Act on income tax expense for 2017 is presented below. While we are still evaluating the impact of the Tax Act on our 2018 annual effective tax rate, we expect the Tax Act to reduce our effective tax rate between 3.5% and 4.5%, which excludes the impact of tax benefits or deficiencies on share-based compensation. At this point, we can not predict the 2018 impact from share-based compensation because it is subject to changes in our share price. Net Income Per Share – Omnicom Group Inc. Net income – Omnicom Group Inc. for 2017 decreased $60.2 million, or 5.2%, to $1,088.4 million from $1,148.6 million in 2016. The year-over-year decrease is due to the impact of the Tax Act of $106.3 million, which is partially offset by the after tax increase from the factors described above. Diluted net income per share – Omnicom Group Inc. decreased 2.7% to $4.65 in 2017, compared to $4.78 in 2016. The impact of the Tax Act reduced diluted net income per share – Omnicom Group Inc. $0.45. In addition, the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock, net of shares issued for restricted stock awards, stock option exercises and employee stock purchase plan improved diluted net income per share – Omnicom Group Inc in 2017 compared to 2016. Effect of the Tax Act The following table presents the effect of the Tax Act on income tax expense, net income – Omnicom Group Inc. and diluted earnings per share Omnicom Group Inc. (in millions, except per share amounts): Income before income taxes and income from equity method investments . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income – Omnicom Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted net income per share – Omnicom Group Inc. . . . . . . . . . . . . . . . . 2017 As Reported __________________ $1,884.9 $ 696.2 36.9% $1,088.4 4.65 $ Effect of Tax Act ________________ $ — $ 106.3 $ (106.3) $ (0.45) 2017 Excluding Effect of Tax Act __________________ $1,884.9 $ 589.9 31.3% $1,194.7 5.10 $ Excluding the effect of the Tax Act from income tax expense, net income Omnicom Group Inc. and diluted net income per share Omnicom Group Inc. are Non-GAAP measures. We believe that these measures help investors understand the effect of the Tax Act on our reported results. 19 RESULTS OF OPERATIONS – 2016 Compared to 2015 (in millions): Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Expenses: Salary and service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Margin – % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income Before Income Taxes and Income From Equity Method Investments . . . . . . . . . . . . . Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income From Equity Method Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income Attributed To Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income – Omnicom Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP Financial Measures 2016 __________ $15,416.9 ________________ 11,440.6 1,230.6 ________________ 12,671.2 443.9 292.9 ________________ 13,408.0 ________________ 2,008.9 13.0% 209.7 42.6 ________________ 1,841.8 600.5 5.4 ________________ 1,246.7 98.1 ________________ $ 1,148.6 ________________ ________________ 2015 __________ $15,134.4 ________________ 11,248.7 1,242.7 ________________ 12,491.4 431.8 291.1 ________________ 13,214.3 ________________ 1,920.1 12.7% 181.1 39.6 ________________ 1,778.6 583.6 8.4 ________________ 1,203.4 109.5 ________________ $ 1,093.9 ________________ ________________ 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 for the periods presented (in millions): Net Income – Omnicom Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income Attributed To Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income From Equity Method Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income Before Income Taxes and Income From Equity Method Investments . . . . . . . . . . . . . Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add back: Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings before interest, taxes and amortization of intangible assets (“EBITA”) . . . . . . . . . . . Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITA Margin – % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 __________ $ 1,148.6 98.1 ________________ 1,246.7 5.4 600.5 ________________ 1,841.8 209.7 42.6 ________________ 2,008.9 115.2 ________________ $ 2,124.1 ________________ ________________ $15,416.9 $ 2,124.1 2015 __________ $ 1,093.9 109.5 ________________ 1,203.4 8.4 583.6 ________________ 1,778.6 181.1 39.6 ________________ 1,920.1 109.3 ________________ $ 2,029.4 ________________ ________________ $15,134.4 $ 2,029.4 13.8% 13.4% 20 Revenue In 2016, revenue increased $282.5 million to $15,416.9 million from $15,134.4 million in 2015. Changes in foreign exchange rates reduced revenue $283.8 million, acquisition revenue net of disposition revenue, increased revenue by $38.2 million and organic growth increased revenue $528.1 million. The components of revenue change in the United States (“Domestic”) and the remainder of the world (“International”) were (in millions): December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Components of revenue change: Foreign exchange impact . . . . . . . . . . . . . . . . . . . . . . . Acquisition revenue, net of disposition revenue . . . . . . Organic growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total ________________________________________ Domestic _______________________________________ International ________________________________________ $ ____________________ $15,134.4 % ______________ $ __________________ $8,526.7 % ______________ $ __________________ $6,607.7 % ______________ (283.8) 38.2 528.1 ________________ $15,416.9 ________________ ________________ (1.9)% 0.3% 3.5% 1.9% — (56.9) 158.0 ______________ $8,627.8 ______________ ______________ —% (0.7)% 1.9% 1.2% (283.8) 95.1 370.1 ______________ $6,789.1 ______________ ______________ (4.3)% 1.4% 5.6% 2.7% The components and percentages are calculated as follows: • The foreign exchange impact is calculated by translating the current period’s local currency revenue using the prior period average exchange rates to derive current period constant currency revenue (in this case $15,700.7 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 ($15,416.9 million less $15,700.7 million for the Total column). • Acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date. As a result, acquisition revenue excludes the positive or negative difference between our current period revenue subsequent to the acquisition date and the comparable prior period revenue and the positive or negative growth after the acquisition is attributed to organic growth. Disposition revenue is calculated as if the disposition occurred twelve months prior to the disposition date by aggregating the comparable prior period revenue of dispositions through the disposition date. The acquisition revenue and disposition revenue amounts are netted in the table. • Organic growth is calculated by subtracting the foreign exchange rate impact, and the acquisition revenue, net of disposition revenue components from total revenue growth. • The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($15,134.4 million for the Total column). In 2016, changes in foreign exchange rates continued to negatively impact revenue but at a more moderate rate as compared to 2015. The impact of foreign exchange rates in 2016 reduced revenue by 1.9%, or $283.8 million. While a number of currencies weakened against the U.S. Dollar, including the Australian Dollar, Brazilian Real, Canadian Dollar and Russian Ruble, the most significant impact resulted from the weakening of the British Pound. Revenue and organic growth for 2016 and the change in revenue from 2015 in our principal regional markets were (in millions): Americas: 2016 ___________ 2015 ___________ $ Change ___________ % Change ___________ North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,174.0 423.6 $9,029.2 329.8 $ 144.8 93.8 1.6% 28.4% EMEA: Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East and Africa . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,904.2 278.9 1,636.2 ___________ $15,416.9 ___________ ___________ 3,942.9 260.6 1,571.9 ___________ $15,134.4 ___________ ___________ (38.7) 18.3 64.3 ___________ $ 282.5 ___________ ___________ (1.0)% 7.0% 4.1% 1.9% % Organic Growth _________ 2.4% (0.8)% 4.3% 11.7% 6.9% 3.5% Our primary markets in Europe comprise the U.K. and the Euro Zone. In 2016, the U.K. comprised 9.1% of revenue and the Euro Zone and the other European countries together comprised 16.2% of revenue. In 2016, revenue decreased 6.8% in the U.K. and increased 2.6% in the Euro Zone and the other European countries. 21 In North America, moderate growth in the United States and strong growth in Canada was partially offset by the weakening of the Canadian Dollar against the U.S. Dollar. In Europe, growth in the U.K., Spain, Russia and Italy was offset by the weakening of the British Pound and Russian Ruble against the U.S. Dollar and negative performance in the Netherlands. The increase in revenue in Latin America was a result of our acquisition activity in Brazil, which was partially offset by the weakening of most currencies in the region against the U.S. Dollar, especially the Brazilian Real. The continuing uncertainty in the economic and political climate in Brazil resulted in organic revenue declines that partially offset the growth from our acquisition and also overshadowed strong growth in Mexico. In Asia Pacific, growth in the major economies in the region was also partially offset by the weakening of most currencies in the region 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. The net change in 2016 was an overall gain in new business. Under our client-centric approach, we seek to broaden our relationships with all of our clients. Our largest client represented 3.0% and 2.7% of revenue in 2016 and 2015, respectively. Our ten largest and 100 largest clients represented 18.3% and 52.4% of revenue in 2016, respectively, and 17.9% and 52.3% of revenue in 2015, respectively. Revenue for 2016 and 2015 and the change in revenue and organic growth from 2015 by discipline were (in millions): _______________________________________________________________________________ Year Ended December 31, 2016 _________________________________________ 2015 _________________________________________ Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . CRM Consumer Experience . . . . . . . . . . . . CRM Execution & Support . . . . . . . . . . . . . Public Relations . . . . . . . . . . . . . . . . . . . . . . Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . $ ____________________ $ 8,194.7 2,750.9 2,191.4 1,374.8 905.1 ________________ $15,416.9 ________________ ________________ % of $ Revenue ____________________ ________________ 53.2% $ 7,824.5 2,772.5 17.8% 2,359.7 14.2% 8.9% 1,329.1 848.6 5.9% ________________ $15,134.4 ________________ ________________ 2016 vs. 2015 ____________________________________________________________________ % Organic % Growth Change _____________________ ______________ 5.9% 4.7% 1.8% (0.8)% (3.4)% (7.1)% 2.8% 3.4% 7.6% 6.7% 3.5% 1.9% $ % of Change Revenue _______________ ________________ 51.7% $ 370.2 (21.6) 18.3% (168.3) 15.6% 8.8% 45.7 56.5 5.6% ____________ $ 282.5 ____________ ____________ We provide services to clients that operate in various industry sectors. Revenue by sector for 2016 and 2015 was: Food and Beverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pharmaceuticals and Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Travel and Entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 ________________ 13% 10% 12% 7% 9% 8% 7% 5% 6% 23% 2015 ________________ 13% 10% 11% 7% 10% 8% 6% 5% 6% 24% Operating Expenses Operating expenses for 2016 compared to 2015 were (in millions): Revenue . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . Operating Expenses: Salary and service costs . . . . . . . . . . . . . . . . . . . . . . . . Occupancy and other costs . . . . . . . . . . . . . . . . . . . . . Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, _______________________________________________________________________ 2016 ________________________________________ 2015 __________________________________________ 2016 vs. 2015 ________________________________________ % of Revenue ______________ $ ____________________ $ 15,134.4 _____________________ % of Revenue ______________ $ Change __________________ $ 282.5 _________________ % Change ______________ 1.9% 74.2% 11,248.7 8.0% 1,242.7 _____________________ 12,491.4 431.8 2.9% 291.1 1.9% _____________________ _________ 87.0% 13,214.3 _____________________ 13.0% $1,920.1 _____________________ _____________________ 74.3% 8.2% 2.9% 1.9% _________ 87.3% 12.7% 191.9 (12.1) _________________ 1.7% (1.0)% 12.1 1.8 _________________ 193.7 _________________ $ 88.8 _________________ _________________ 2.8% 0.6% _________ 1.5% 4.6% $ _______________________ $15,416.9 ____________________ 11,440.6 1,230.6 ____________________ 12,671.2 443.9 292.9 ____________________ 13,408.0 ____________________ $2,008.9 ____________________ ____________________ 22 Operating expenses increased 1.5% in 2016 compared to 2015. Salary and service costs, which tend to fluctuate with changes in revenue, increased $191.9 million, or 1.7%, in 2016 compared to 2015. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, decreased $12.1 million, or 1.0%, in 2016 compared to 2015, principally resulting from our ongoing efforts to leverage scale and enhance efficiency. SG&A expenses increased $12.1 million year-over-year primarily related to professional fees incurred in connection with our acquisition activities. As a result, operating margin in 2016 increased to 13.0% from 12.7% in 2015 and EBITA margin increased year-over-year to 13.8% from 13.4%. Net Interest Expense Net interest expense increased $25.6 million year-over-year to $167.1 million in 2016. Interest expense increased $28.6 million to $209.7 million in 2016, primarily resulting from the reduced benefit of the fixed-to-floating interest rate swap on the 2022 Notes. In January 2016, we settled the interest rate swap on the 2022 Notes and we were able to lock interest savings over the remaining term of the 2022 Notes by reducing the effective rate to 2.7% from 3.5%. Concurrent with the issuance of $1.4 billion principal amount of 3.60% Notes due 2026 in April 2016, we entered into a $500 million fixed-to-floating interest rate swap on the notes. Our long-term debt portfolio at December 31, 2016, after taking into consideration our outstanding interest rate swaps, was approximately 75% fixed rate obligations and 25% floating rate obligations as compared to 61% fixed rate and 39% floating rate at December 31, 2015 and, as a result, in 2016 there was less floating rate benefit from the interest rate swaps. A discussion of our interest rate swaps is included in Note 6 to the consolidated financial statements. Interest income increased $3.0 million in 2016 compared to the prior year, as a result of higher cash balances in our international treasury centers available for investment. Income Taxes Our effective tax rate for 2016 was 32.6% compared to 32.8% for 2015. Net Income Per Share – Omnicom Group Inc. Net income – Omnicom Group Inc. increased $54.7 million, or 5.0%, to $1,148.6 million in 2016 from $1,093.9 million in 2015. The year-over-year increase is due to the factors described above. Diluted net income per share – Omnicom Group Inc. increased 8.4% to $4.78 in 2016, compared to $4.41 in 2015 due to the factors described above, as well as the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock, net of shares issued for restricted stock awards and stock option exercises and shares issued under our employee stock purchase plan. LIQUIDITY AND CAPITAL RESOURCES Cash Sources and Requirements Our primary liquidity sources are our operating cash flow, cash and cash equivalents and short-term investments. Additional liquidity sources include our credit facilities and commercial paper program, and access to the capital markets. At December 31, 2017, we have a $2.5 billion revolving credit facility, or Credit Facility, expiring on July 31, 2021, uncommitted domestic and international credit lines aggregating $1.2 billion and the ability to issue up to $2 billion of commercial paper. Our liquidity funds our non-discretionary cash requirements and our discretionary spending. Working capital is our principal non-discretionary funding requirement. In addition, we have contractual obligations related to our senior notes, recurring business operations, primarily related to lease obligations, and contingent purchase price obligations (earn-outs) from prior acquisitions. Our principal discretionary cash spending includes dividend payments to common shareholders, capital expenditures, strategic acquisitions and repurchases of our common stock. As a result, we typically have a short-term borrowing requirement normally peaking during the second quarter of the year due to the timing of payments for incentive compensation, income taxes and contingent purchase price obligations. Based on past performance and current expectations, we believe that our operating cash flow will be sufficient to meet our non-discretionary cash requirements, and our discretionary spending for the next twelve months. 23 Cash and cash equivalents increased $793.8 million from December 31, 2016. The components of the increase were: Sources Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Increase in operating capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal cash sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,023.9 (348.5) ______________ 1,675.4 Uses Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid to noncontrolling interest shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition payments, including payment of contingent purchase price obligations and acquisition of additional noncontrolling interests, net of cash acquired . . . . . . . . . . . . . . . Repurchases of common stock, net of proceeds from stock plans . . . . . . . . . . . . . . . . . . . . . . Principal cash uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal cash sources in excess of principal cash uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing activities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in operating capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(156.0) (515.2) (101.7) (84.8) (557.7) ______________ (1,415.4) ______________ 260.0 227.9 (42.6) 348.5 ______________ $ 793.8 ______________ ______________ Principal cash sources and uses amounts are Non-GAAP liquidity measures. These amounts exclude changes in working capital and other investing and financing activities, including commercial paper issuances and redemptions used to fund working capital changes. This presentation reflects the metrics used by us to assess our sources and uses of cash and was derived from our consolidated statement of cash flows. We believe that this presentation is meaningful to understand the primary sources and uses of our cash flow and the effect on our cash and cash equivalents. Non-GAAP liquidity measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP liquidity measures as reported by us may not be comparable to similarly titled amounts reported by other companies. Additional information regarding our cash flows can be found in our consolidated financial statements. Cash Management Our regional treasury centers in North America, Europe and Asia manage our cash and liquidity. Each day, operations with excess funds invest these funds with their regional treasury center. Likewise, operations that require funds borrow from their regional treasury center. The treasury centers aggregate the net position which is either invested with or borrowed from third parties. 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, 2017, our foreign subsidiaries held approximately $937 million of our total cash and cash equivalents of $3.8 billion. The majority of the cash is available to us, net of any foreign withholding taxes payable upon repatriation to the United States. See Note 10 to the consolidated financial statements for additional information. Our net debt position, which we define as total debt, including short-term debt, less cash and cash equivalents and short-term investments, at December 31, 2017 decreased $798.2 million as compared to December 31, 2016. The decrease in net debt is due 24 to an increase in cash and cash equivalents and short-term investments of $773.6 million primarily arising from an increase in operating capital of $348.5 million, an increase in principal cash sources in excess of principal cash uses of $260.0 million and the favorable impact of foreign exchange rate changes on cash and cash equivalents of $227.9 million. The components of net debt at December 31, 2017 and 2016 were (in millions): Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt, including current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 __________ 11.8 $ 4,912.9 _________ 4,924.7 3,796.4 _________ $1,128.3 _________ _________ 2016 __________ 28.7 $ 4,920.6 __________ 4,949.3 3,022.8 __________ $ 1,926.5 __________ __________ 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 At December 31, 2017, the total principal amount of our fixed rate senior notes was $4.9 billion, and the total notional amount of the outstanding fixed-to-floating interest rate swaps was $1.25 billion. The interest rate swaps have the economic effect of converting our long-term debt portfolio to approximately 75% fixed rate obligations and 25% floating rate obligations. A discussion of our interest rate swaps is included in Note 6 to the consolidated financial statements. Omnicom and its wholly owned finance subsidiary, Omnicom Capital Inc., or OCI, are co-obligors under all the senior notes. The senior notes are a joint and several liability of us and OCI and we unconditionally guarantee OCI’s obligations with respect to the senior notes. OCI provides funding for our operations by incurring debt and lending the proceeds to our operating subsidiaries. OCI’s assets 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 us to obtain funds from our subsidiaries through dividends, loans or advances. Our senior notes are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness. The Credit Facility contains financial covenants that require us to maintain a Leverage Ratio of consolidated indebtedness to consolidated EBITDA of no more than 3 times for the most recently ended 12-month period (EBITDA is defined as earnings before interest, taxes, depreciation and amortization) and an Interest Coverage Ratio of consolidated EBITDA to interest expense of at least 5 times for the most recently ended 12-month period. At December 31, 2017, we were in compliance with these covenants as our Leverage Ratio was 2.1 times and our Interest Coverage Ratio was 10.4 times. The Credit Facility does not limit our ability to declare or pay dividends or repurchase our common stock. At December 31, 2017, 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 our credit ratings and market conditions. Our senior notes and Credit Facility do not contain provisions that require acceleration of cash payments in the event our credit ratings are downgraded. Credit Markets and Availability of Credit We typically fund our day-to-day liquidity by issuing commercial paper. Additional liquidity sources include our Credit Facility or the uncommitted credit lines. At December 31, 2017, there were no outstanding commercial paper issuances or borrowings under the Credit Facility or the uncommitted credit lines. Commercial paper activity for the three years ended December 31, 2017 was (dollars in millions): Average amount outstanding during the year . . . . . . . . . . . . . . . . . . . . . . . . Maximum amount outstanding during the year . . . . . . . . . . . . . . . . . . . . . Average days outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 __________ $ 902.3 $1,769.8 13.0 1.29% 2016 __________ $ 861.3 $1,608.9 11.2 0.70% 2015 ___________ $ 964.8 $1,720.7 13.2 0.46% 25 We expect to continue funding our day-to-day liquidity by issuing commercial paper. However, disruptions in the credit markets may lead to periods of illiquidity in the commercial paper market and higher credit spreads. To mitigate any future disruption in the credit markets and to fund our liquidity, we may borrow under the Credit Facility 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 future 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. Contractual Obligations and Other Commercial Commitments In the normal course of business, we enter into numerous contractual and commercial undertakings. The following tables should be read in conjunction with our consolidated financial statements. Contractual obligations at December 31, 2017 were (in millions): Long-term debt: Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contingent purchase price obligations . . . . . . . . . . . . . . . . Transition tax liability on accumulated foreign earnings . . Deferred tax liability – convertible debt . . . . . . . . . . . . . . . Defined benefit pension plans benefit obligation . . . . . . . . Postemployment arrangements benefit obligation . . . . . . . Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Obligation __________________ $4,900.0 966.2 1,805.1 215.6 102.9 41.4 277.0 127.7 173.7 ______________ $8,609.6 ______________ ______________ Obligation Due ___________________________________________________________________________________ 2018 ________________ 2019 – 2020 _____________________ 2021 – 2022 _____________________ After 2022 ____________________ $ — 198.8 347.3 92.6 8.2 41.4 9.7 9.3 24.3 ______________ $731.6 ______________ ______________ $1,500.0 335.4 498.1 47.2 16.5 — 23.1 14.0 44.7 ______________ $2,479.0 ______________ ______________ $1,250.0 216.0 332.6 75.8 16.5 — 32.9 12.6 65.7 ______________ $2,002.1 ______________ ______________ $2,150.0 216.0 627.1 — 61.7 — 211.3 91.8 39.0 ______________ $3,396.9 ______________ ______________ Certain acquisitions include an initial payment at closing and provide for future additional contingent purchase price payments (earn-outs) that are recorded as a liability at the acquisition date fair value. Subsequent changes in the fair value of the liability are recorded in results of operations. The Tax Act includes a transition tax on accumulated foreign earnings. After taking into consideration available foreign tax credits and other items, we recorded a net cash liability of $102.9 million. We will elect to pay the liability over an eight-year period. See Note 10 to the consolidated financial statements for additional information. The unfunded benefit obligation for our defined benefit pension plans and liability for our postemployment arrangements was $324.4 million at December 31, 2017. In 2017, we contributed $8.3 million to our defined benefit pension plans and paid $8.8 million in benefits for our postemployment arrangements. We do not expect these payments to increase significantly in 2018. The liability for uncertain tax positions is subject to uncertainty as to when or if the liability will be paid. We have assigned the liability to the periods presented based on our judgment as to when these liabilities will be resolved by the appropriate taxing authorities. Commercial commitments at December 31, 2017 were (in millions): Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Commitment _______________________ $ 5.3 130.3 ___________ $135.6 ___________ ___________ Commitment Expires __________________________________________________________________________________ 2018 ____________ $ 2.2 62.7 _________ $64.9 _________ _________ 2019 – 2020 _____________________ $ — 60.5 _________ $60.5 _________ _________ 2021 – 2022 _____________________ $2.0 2.9 _______ $4.9 _______ _______ After 2022 ____________________ $1.1 4.2 _______ $5.3 _______ _______ At December 31, 2017, there were no significant off-balance sheet arrangements. 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk We manage our exposure to foreign exchange and interest rate risk through various strategies, including the use of derivative financial instruments. We use forward foreign exchange contracts as economic hedges to manage the cash flow volatility arising from foreign exchange rate fluctuations. We use interest rate swaps to manage our interest expense and structure our long-term debt portfolio to achieve a mix of fixed rate and floating rate debt. We do not use derivatives for trading or speculative purposes. Using derivatives exposes us to the risk that counterparties to the derivative contracts will fail to meet their contractual obligations. We manage that risk through careful selection and ongoing evaluation of the counterparty financial institutions based on specific minimum credit standards and other factors. We evaluate the effects of changes in foreign currency exchange rates, interest rates and other relevant market risks on our derivatives. We periodically determine the potential loss from market risk on our derivatives by performing a value-at-risk, or VaR, analysis. VaR is a statistical model that uses historical currency exchange and interest rate data to measure the potential impact on future earnings of our derivative financial instruments assuming normal market conditions. The VaR model is not intended to represent actual losses but is used as a risk estimation and management tool. Based on the results of the model, we estimate with 95% confidence a maximum one-day change in the net fair value of our derivative financial instruments at December 31, 2017 was not significant. Foreign Exchange Risk Our international operations represent approximately 46% of our revenue. Changes in the value of foreign currencies against the U.S. Dollar affect our results of operations and financial position. For the most part, because the revenue and expense of our foreign operations are both denominated in the same local currency, the economic impact on operating margin is minimized. The effects of currency exchange transactions on our results of operations are discussed in Note 2 to the consolidated financial statements. While our major international markets include the Euro Zone, the United Kingdom, Australia, Brazil, Canada, China and Japan, our agencies transact business in more than 50 different currencies. As an integral part of our global treasury operations, we centralize our cash and use multicurrency pools to manage the foreign exchange risk that arises from imbalances between subsidiaries and their respective treasury centers from which they borrow or invest funds. However, in certain circumstances, subsidiaries borrowing or investing with a treasury center operating in a different currency creates foreign exchange exposure. To manage that risk, we had outstanding forward foreign exchange contracts with an aggregate notional amount of $92.8 million and $99.0 million at December 31, 2017 and 2016, respectively. Additionally, there are circumstances where revenue and expense transactions are not denominated in the same currency. In these instances, amounts are either promptly settled or hedged with forward foreign exchange contracts. To manage that risk, we had outstanding forward foreign exchange contracts with an aggregate notional amount of $136.3 million and $94.0 million at December 31, 2017 and 2016, respectively. The net fair value of the forward foreign contracts at December 31, 2017 and 2016 was a current asset of $0.9 million and a current liability of $1.1 million, respectively. Foreign currency derivatives are designated as economic hedges; therefore, any gain or loss in fair value incurred on those instruments is generally offset by decreases or increases in the fair value of the underlying exposures. By using these financial instruments, we reduced financial risk of adverse foreign exchange changes by foregoing any gain which might have occurred if the markets moved favorably. The terms of our forward foreign exchange contracts are generally less than 90 days. Interest Rate Risk We use interest rate swaps to manage our interest cost and structure our long-term debt portfolio to achieve a mix of fixed rate and floating rate debt. Based on market conditions, we may terminate the swaps to reduce our exposure to rising interest rates or to monetize any gain and lock in a reduction in interest expense over the term of the underlying debt. At December 31, 2017, the total notional amount of the outstanding fixed-to-floating interest rate swaps was $1.25 billion. The interest rate swaps have the economic effect of converting our long-term debt portfolio to approximately 75% fixed rate obligations and 25% floating rate obligations. A discussion of our interest rate swaps is included in Note 6 to the consolidated financial statements. Credit Risk We provide advertising, marketing and corporate communications services to several thousand clients that operate in nearly every sector of the global economy and we grant credit to qualified clients in the normal course of business. Due to the 27 diversified nature of our client base, we do not believe that we are exposed to a concentration of credit risk as our largest client represented 3.0% of revenue in 2017. However, during periods of economic downturn, the credit profiles of our clients could change. In the normal course of business, our agencies enter into contractual commitments with media providers and production companies on behalf of our clients at levels that can substantially exceed the revenue from our services. These commitments are included in accounts payable when the services are delivered by the media providers or production companies. If permitted by local law and the client agreement, many of our agencies purchase media and production services for our clients as an agent for a disclosed principal. In addition, while operating practices vary by country, media type and media vendor, in the United States and certain foreign markets, many of our agencies’ contracts with media and production providers specify that our agencies are not liable to the media and production providers under the theory of sequential liability until and to the extent we have been paid by our client for the media or production services. Where purchases of media and production services are made by our agencies as a principal or are not subject to the theory of sequential liability, the risk of a material loss as a result of payment default by our clients could increase significantly and such a loss could have a material adverse effect on our business, results of operations and financial position. In addition, our methods of managing the risk of payment default, including obtaining credit insurance, requiring payment in advance, mitigating the potential loss in the marketplace or negotiating with media providers, may be less available or unavailable during a severe economic downturn. Item 8. Financial Statements and Supplementary Data See Item 15, “Exhibits, Financial Statement Schedules.” Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file with the SEC is recorded, processed, summarized and reported within applicable time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is accumulated and communicated to management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate to allow timely decisions regarding required disclosure. Management, including our CEO and CFO, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2017. Based on that evaluation, our CEO and CFO concluded that, as of December 31, 2017, our disclosure controls and procedures are effective to ensure that decisions can be made timely with respect to required disclosures, as well as ensuring that the recording, processing, summarization and reporting of information required to be included in our Annual Report on Form 10-K for the year ended December 31, 2017 are appropriate. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f ). Management, with the participation of our CEO, CFO and our agencies, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our CEO and CFO concluded that our internal control over financial reporting was effective as of December 31, 2017. There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. KPMG LLP, an independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on Omnicom’s internal control over financial reporting as of December 31, 2017, dated February 15, 2018, which is included on page F-2 of this 2017 10-K. Item 9B. Other Information None. 28 Item 10. Directors, Executive Officers and Corporate Governance PART III The information regarding Executive Officers of the Registrant is included in Part I, Item 1, “Business.” Additional information called for by this Item, to the extent not included in this document, is incorporated herein by reference to the information to be included under the captions “Item 1 – Election of Directors,” “Stock Ownership Information – Section 16(a) Beneficial Ownership Reporting Compliance” and “Additional Information – Shareholder Proposals and Director Nominations For The 2019 Annual Meeting” in our definitive proxy statement, or Proxy Statement, which is expected to be filed with the SEC within 120 days of the fiscal year ended December 31, 2017. Item 11. Executive Compensation The information called for by this Item is incorporated herein by reference to the information to be included under the captions “Executive Compensation,” “Item 1 – Election of Directors – Directors’ Compensation For Fiscal 2017” and “Item 1 – Election of Directors – Board Processes – Compensation Committee Interlocks and Insider Participation” in our Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information called for by this Item is incorporated herein by reference to the information to be included under the captions “Stock Ownership Information – Beneficial Ownership of Certain Beneficial Owners and Management” and “Stock Ownership Information – Equity Compensation Plans” in our Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence The information called for by this Item is incorporated herein by reference to the information to be included under the captions “Additional Information – Transactions with Related Persons” and “Item 1 – Election of Directors – Omnicom Board of Directors” in our Proxy Statement. Item 14. Principal Accounting Fees and Services The information called for by this Item is incorporated herein by reference to the information to be included under the caption “Item 3 – Ratification of the Appointment of Independent Auditors – Fees Paid to Independent Auditors” in our Proxy Statement. Item 15. Exhibits, Financial Statement Schedules (a)(1) Financial Statements: PART IV Management Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets at December 31, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Income for the Three Years Ended December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Comprehensive Income for the Three Years Ended December 31, 2017 . . . . . . . . . . . . Consolidated Statements of Equity for the Three Years Ended December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2017 . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page____ F-1 F-2 F-4 F-5 F-6 F-7 F-8 F-9 F-33 (a)(2) Financial Statement Schedules: Schedule II – Valuation and Qualifying Accounts for the Three Years Ended December 31, 2017 . . . . . . . . . . . . . All other schedules are omitted because they are not applicable. S-1 29 (a)(3) Exhibits: Exhibit Number ___________ 3(i) 3(ii) 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 10.1 Description ________________ Restated Certificate of Incorporation of Omnicom Group Inc. (Exhibit 3.1 to our Quarterly Report on Form 10-Q (File No. 1-10551) for the quarter ended September 30, 2011 and incorporated herein by reference). By-laws of Omnicom Group Inc., as amended and restated on March 14, 2016 (Exhibit 3.1 to our Current Report on Form 8-K (File No. 1-10551) dated March 15, 2016 and incorporated herein by reference). Indenture, dated as of July 1, 2009, among Omnicom Group Inc., Omnicom Capital Inc., Omnicom Finance Inc. and Deutsche Bank Trust Company Americas, as trustee (“2009 Base Indenture”) (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated July 1, 2009 (“July 1, 2009 8-K”) and incorporated herein by reference). First Supplemental Indenture to the 2009 Base Indenture, dated as of July 1, 2009, among Omnicom Group Inc., Omnicom Capital Inc., Omnicom Finance Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with our issuance of $500 million 6.25% Senior Notes due 2019 (Exhibit 4.2 to the July 1, 2009 8-K and incorporated herein by reference). Second Supplemental Indenture to the 2009 Base Indenture, dated as of August 5, 2010, among Omnicom Group Inc., Omnicom Capital Inc., Omnicom Finance Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with our issuance of $1 billion 4.45% Senior Notes due 2020 (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated August 5, 2010 (“August 5, 2010 8-K”) and incorporated herein by reference). Third Supplemental Indenture to the 2009 Base Indenture, dated as of April 23, 2012, among Omnicom Group Inc., Omnicom Capital Inc., Omnicom Finance Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with our issuance of $750 million 3.625% Senior Notes due 2022 (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated April 23, 2012 and incorporated herein by reference). Fourth Supplemental Indenture to the 2009 Base Indenture, dated as of July 20, 2012, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee, (Exhibit 4.4 to our Current Report on Form 8-K (File No. 1-10551) dated July 20, 2012 and incorporated herein by reference). Fifth Supplemental Indenture to the 2009 Base Indenture, dated as of August 9, 2012, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with our issuance of $500 million 3.625% Senior Notes due 2022 (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated August 9, 2012 (“August 9, 2012 8-K”) and incorporated herein by reference). Form of 6.25% Notes due 2019 (Exhibit 4.3 to the July 1, 2009 8-K and incorporated herein by reference). Form of 4.45% Notes due 2020 (Exhibit 4.2 to the August 5, 2010 8-K and incorporated herein by reference). Form of 3.625% Notes due 2022 (Exhibit 4.2 to the August 9, 2012 8-K and incorporated herein by reference). Base Indenture, dated as of October 29, 2014, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee (“2014 Base Indenture”), (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated October 29, 2014 (“October 29, 2014 8-K”) and incorporated herein by reference). First Supplemental Indenture to the 2014 Base Indenture, dated as of October 29, 2014, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with our issuance of $750 million 3.65% Senior Notes due 2024 (Exhibit 4.2 to the October 29, 2014 8-K and incorporated herein by reference). Form of 3.65% Notes due 2024 (included in Exhibit 4.2 to the October 29, 2014 8-K and incorporated herein by reference). Second Supplemental Indenture to the 2014 Base Indenture, dated as of April 6, 2016, among Omnicom Group Inc., Omnicom Capital Inc. and Deutsche Bank Trust Company Americas, as trustee, in connection with the issuance of $1.4 billion 3.60% Senior Notes due 2026 (Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated April 6, 2016 and incorporated herein by reference). Form of 3.60% Notes due 2026 (included in Exhibit 4.1 to our Current Report on Form 8-K (File No. 1-10551) dated April 6, 2016 and incorporated herein by reference). Amended and Restated Five Year Credit Agreement, dated as of July 31, 2014, by and among Omnicom Capital Inc., Omnicom Finance plc, Omnicom Group Inc., the banks, financial institutions and other institutional lenders and initial issuing banks listed on the signature pages thereof, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, HSBC Securities (USA) Inc. and Wells Fargo Securities, LLC as lead arrangers and book managers, JPMorgan Chase Bank, N.A., HSBC Securities (USA) Inc. and Wells Fargo Bank, National Association, as syndication agents, BNP Paribas and U.S. Bank National Association, as documentation agents, and Citibank, N.A., as administrative agent for the lenders (Exhibit 10.1 to our Current Report on Form 8-K (File No. 1-10551) filed on August 1, 2014 and incorporated herein by reference). 30 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 12 21 23 31.1 31.2 32 101 Director Equity Plan for Non-employee Directors (Appendix B to our Proxy Statement (File No. 1-10551) filed on April 23, 2004 and incorporated herein by reference). Standard form of our Executive Salary Continuation Plan Agreement (Exhibit 10.5 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2012 and incorporated herein by reference). Standard form of the Director Indemnification Agreement (Exhibit 10.25 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 1989 and incorporated herein by reference). Senior Management Incentive Plan as amended and restated on December 4, 2008 (Exhibit 10.9 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2008 (“2008 10-K”) and incorporated herein by reference). Omnicom Group Inc. SERCR Plan (Exhibit 10.10 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2011 and incorporated herein by reference). Form of Award Agreement under the Omnicom Group Inc. SERCR Plan (Exhibit 10.2 to our Current Report on Form 8-K (File No. 1-10551) dated December 13, 2006 and incorporated herein by reference). Omnicom Group Inc. Amended and Restated 2007 Incentive Award Plan (Appendix A to our Proxy Statement (File No. 1-10551) filed on April 15, 2010 and incorporated herein by reference). Form of Indemnification Agreement (Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 1-10551) for the quarter ended June 30, 2007 and incorporated herein by reference). Restricted Stock Unit Deferred Compensation Plan (Exhibit 10.16 to the 2008 10-K and incorporated herein by reference). Restricted Stock Deferred Compensation Plan (Exhibit 10.17 to the 2008 10-K and incorporated herein by reference). Amendment No. 1 to the Restricted Stock Deferred Compensation Plan (Exhibit 10.18 to the 2008 10-K and incorporated herein by reference). Amendment No. 2 to the Restricted Stock Deferred Compensation Plan (Exhibit 10.19 to the 2008 10-K and incorporated herein by reference). Form of Grant Notice and Option Agreement (Exhibit 10.20 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2010 (“2010 10-K”) and incorporated herein by reference). Form of Grant Notice and Restricted Stock Agreement (Exhibit 10.21 to 2010 10-K and incorporated herein by reference). Form of Grant Notice and Restricted Stock Unit Agreement (Exhibit 10.22 to 2010 10-K and incorporated herein by reference). Form of Grant Notice and Performance Restricted Stock Unit Agreement (Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 1-10551) for the quarter ended June 30, 2011 and incorporated herein by reference). Omnicom Group Inc. 2013 Incentive Award Plan (Appendix A to our Proxy Statement (File No. 1-10551) filed on April 11, 2013 and incorporated herein by reference). Director Compensation and Deferred Stock Program (Exhibit 10.19 to our Annual Report on Form 10-K (File No. 1-10551) for the year ended December 31, 2016 and incorporated herein by reference). Computation of Ratio of Earnings to Fixed Charges. Subsidiaries of the Registrant. Consent of KPMG LLP. Certification of Chief Executive Officer and President required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. Certification of the Chief Executive Officer and President and the Executive Vice President and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350. Interactive Data Files. Item 16. Form 10-K Summary None. 31 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES February 15, 2018 OMNICOM GROUP INC. BY: /S/ PHILIP J. ANGELASTRO Philip J. Angelastro Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature ________________ /s/ BRUCE CRAWFORD Bruce Crawford /s/ JOHN D. WREN John D. Wren /s/ PHILIP J. ANGELASTRO Philip J. Angelastro /s/ ANDREW L. CASTELLANETA Andrew L. Castellaneta /s/ ALAN R. BATKIN Alan R. Batkin /s/ MARY C. CHOKSI Mary C. Choksi /s/ ROBERT CHARLES CLARK Robert Charles Clark /s/ LEONARD S. COLEMAN, JR. Leonard S. Coleman, Jr. /s/ SUSAN S. DENISON Susan S. Denison /s/ DEBORAH J. KISSIRE Deborah J. Kissire /s/ GRACIA C. MARTORE Gracia C. Martore /s/ JOHN R. MURPHY John R. Murphy /s/ JOHN R. PURCELL John R. Purcell /s/ LINDA JOHNSON RICE Linda Johnson Rice /s/ VALERIE M. WILLIAMS Valerie M. Williams Title ________ Date ________ Chairman and Director February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 February 15, 2018 Chief Executive Officer and President and Director (Principal Executive Officer) Executive Vice President and Chief Financial Officer (Principal Financial Officer) Senior Vice President, Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director Director Director Director Director Director Director Director 32 MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for the preparation of the consolidated financial statements and related information of Omnicom Group Inc. (“Omnicom”). Management uses its best judgment to ensure that the consolidated financial statements present fairly, in all material respects, Omnicom’s consolidated financial position and results of operations in conformity with generally accepted accounting principles in the United States. The financial statements have been audited by an independent registered public accounting firm in accordance with the standards of the Public Company Accounting Oversight Board. Their report expresses the independent accountant’s judgment as to the fairness of management’s reported financial position, results of operations and cash flows. This judgment is based on the procedures described in the fourth and fifth paragraphs of their report. Omnicom management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f ). Management, with the participation of our Chief Executive Officer, or CEO, Chief Financial Officer, or CFO, and our agencies, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our CEO and CFO concluded that our internal control over financial reporting was effective as of December 31, 2017. There have not been any changes in our internal control over financial reporting during our fourth fiscal quarter that have materially affected or are reasonably likely to affect our internal control over financial reporting. KPMG LLP, an independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on Omnicom’s internal control over financial reporting as of December 31, 2017, dated February 15, 2018. The Board of Directors of Omnicom has an Audit Committee comprised of six independent directors. The Audit Committee meets periodically with financial management, Internal Audit and the independent auditors to review accounting, control, audit and financial reporting matters. F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Shareholders and Board of Directors of Omnicom Group Inc.: Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Omnicom Group Inc. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule II (collectively, the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Omnicom Group Inc. and subsidiaries as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. F-2 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP We have served as the Company’s auditor since 2002. New York, New York February 15, 2018 F-3 OMNICOM GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except per share amounts) A S S E T S CURRENT ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, net of allowance for doubtful accounts of $32.1 and $24.9 . . . . . . . . . . . Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPERTY AND EQUIPMENT at cost, less accumulated depreciation of $1,279.2 and $1,233.4 . . . . EQUITY METHOD INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTANGIBLE ASSETS, net of accumulated amortization of $879.9 and $777.6 . . . . . . . . . . . . . . . . OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L I A B I L I T I E S A N D E Q U I T Y CURRENT LIABILITIES: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DEFERRED TAX LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 16) TEMPORARY EQUITY – REDEEMABLE NONCONTROLLING INTERESTS . . . . . . . . . . . . . . . . . . . . . . . EQUITY: Shareholders’ Equity: Preferred stock, $1.00 par value, 7.5 million shares authorized, none issued . . . . . . . . . . . . . . Common stock, $0.15 par value, 1.0 billion shares authorized, 297.2 million shares issued, 230.1 million and 234.7 million shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock, at cost, 67.1 million and 62.5 million shares . . . . . . . . . . . . . . . . . . . . . . . . Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, __________________________ 2017 ____________________ 2016 ____________________ $ 3,796.0 0.4 8,083.8 1,110.6 1,125.2 _________ 14,116.0 _________ 690.9 120.3 9,337.5 368.4 298.1 _________ $24,931.2 _________ _________ $11,574.6 1,266.7 — 11.8 330.0 1,925.8 _________ 15,108.9 _________ 4,912.9 1,091.2 483.6 $ 3,002.2 20.6 7,510.8 1,125.4 1,063.0 _________ 12,722.0 _________ 674.8 120.4 8,976.1 427.4 244.7 _________ $23,165.4 _________ _________ $10,476.7 1,186.6 0.1 28.7 349.6 1,969.2 _________ 14,010.9 _________ 4,920.5 892.3 480.5 182.4 201.6 — — 44.6 828.3 6,210.6 (963.0) (3,505.4) _________ 2,615.1 537.1 _________ 3,152.2 _________ $24,931.2 _________ _________ 44.6 798.3 5,677.2 (1,356.0) (3,002.1) _________ 2,162.0 497.6 _________ 2,659.6 _________ $23,165.4 _________ _________ The accompanying notes to the consolidated financial statements are an integral part of these statements. F-4 OMNICOM GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OPERATING EXPENSES: Salary and service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years Ended December 31, ____________________________________________________________________________________________ 2015 2016 2017 ________________ ________________ ________________ $15,134.4 $15,416.9 $15,273.6 ________________ ________________ ________________ 11,249.7 1,232.1 ________________ 12,481.8 450.0 282.1 ________________ 13,213.9 ________________ 11,440.6 1,230.6 ________________ 12,671.2 443.9 292.9 ________________ 13,408.0 ________________ 2,008.9 209.7 11,248.7 1,242.7 ________________ 12,491.4 431.8 291.1 ________________ 13,214.3 ________________ 1,920.1 181.1 OPERATING PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,059.7 INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224.5 INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.7 ________________ 42.6 ________________ 39.6 ________________ INCOME BEFORE INCOME TAXES AND INCOME FROM EQUITY METHOD INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,884.9 INCOME TAX EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696.2 1,841.8 600.5 1,778.6 583.6 INCOME FROM EQUITY METHOD INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . 3.5 ________________ 5.4 ________________ 8.4 ________________ NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,192.2 1,246.7 1,203.4 NET INCOME ATTRIBUTED TO NONCONTROLLING INTERESTS . . . . . . . . . . . . NET INCOME – OMNICOM GROUP INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET INCOME PER SHARE - OMNICOM GROUP INC.: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . . . . . . 103.8 ________________ $ 1,088.4 ________________ ________________ $ $ $ 4.68 4.65 2.25 98.1 ________________ $ 1,148.6 ________________ ________________ $ $ $ 4.80 4.78 2.15 109.5 ________________ $ 1,093.9 ________________ ________________ $ $ $ 4.43 4.41 2.00 The accompanying notes to the consolidated financial statements are an integral part of these statements. F-5 OMNICOM GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER COMPREHENSIVE INCOME (LOSS): Cash flow hedge: Loss for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of loss included in interest expense . . . . . . . . . . . . . . . . . . . . . . . Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defined benefit pension plans and postemployment arrangements: Unrecognized actuarial losses and prior service cost for the period . . . . . . . . . . Amortization of prior service cost and actuarial losses included in periodic benefit expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available-for-sale securities: Unrealized gain for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER COMPREHENSIVE INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPREHENSIVE INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPREHENSIVE INCOME ATTRIBUTED TO NONCONTROLLING INTERESTS . . . . . . . . COMPREHENSIVE INCOME – OMNICOM GROUP INC. . . . . . . . . . . . . . . . . . . . . . . . . . Years Ended December 31, ____________________________________________________________________________ 2016 ____________________ $1,246.7 ______________ 2017 ____________________ $1,192.2 ______________ 2015 ___________________ $1,203.4 ______________ — 5.3 (2.1) ______________ 3.2 ______________ (48.9) 4.0 18.7 ______________ (26.2) ______________ (5.6) — 2.3 ______________ (3.3) ______________ (12.2) (18.3) (7.8) 16.1 (1.7) ______________ 2.2 ______________ 0.8 (0.3) ______________ 0.5 ______________ 412.7 ______________ 418.6 ______________ 1,610.8 129.4 ______________ $1,481.4 ______________ ______________ 14.0 1.6 ______________ (2.7) ______________ 0.2 (0.1) ______________ 0.1 ______________ (319.4) ______________ (348.2) ______________ 898.5 90.5 ______________ $ 808.0 ______________ ______________ 14.8 (2.8) ______________ 4.2 ______________ 0.4 (0.1) ______________ 0.3 ______________ (427.2) ______________ (426.0) ______________ 777.4 80.7 ______________ $ 696.7 ______________ ______________ The accompanying notes to the consolidated financial statements are an integral part of these statements. F-6 OMNICOM GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY Three Years Ended December 31, 2017 (In millions, except per share amounts) Omnicom Group Inc. _______________________________________________________________________________________________________________________________________________________________ Common Stock _____________________ Par Value Shares _________________ _____________________ $59.6 397.2 Additional Paid-in Capital ___________________ $818.6 Accumulated Other Retained Comprehensive Income (Loss) Earnings ___________________________ ________________ $9,576.9 $(618.2) 1,093.9 Treasury Stock _________________ $(6,986.9) (397.2) _________ 397.2 _________ 59.6 (38.8) 11.9 99.4 (31.2) ___________ 859.9 (87.7) (33.0) 93.4 (34.3) (492.6) ________________ 10,178.2 1,148.6 _______________ (1,015.4) (340.6) 84.5 (727.5) _______________ (7,629.9) (513.9) (100.0) _________ 297.2 (15.0) _________ 44.6 ___________ 798.3 4.5 (5,135.7) ________________ 5,677.2 (31.6) 1,088.4 _______________ (1,356.0) 393.0 (25.7) 27.1 80.2 (56.1) (523.4) _________ 297.2 _________ _________ _________ $44.6 _________ _________ ___________ $828.3 ___________ ___________ ________________ $6,210.6 ________________ ________________ _______________ $(963.0) _______________ _______________ 79.3 (602.2) 5,150.7 _______________ (3,002.1) 65.1 (568.4) _______________ $(3,505.4) _______________ _______________ Shareholders’ Noncontrolling Interests Equity __________________________ ________________________ $471.3 $2,850.0 109.5 1,093.9 (28.8) (397.2) (129.4) (24.2) (38.8) Total Equity _______________ $3,321.3 1,203.4 (426.0) (129.4) (63.0) 11.9 (492.6) 99.4 53.3 (727.5) ______________ 2,452.4 1,148.6 (340.6) (87.7) (33.0) (513.9) 93.4 45.0 (602.2) — ______________ 2,162.0 (27.1) 1,088.4 393.0 (25.7) 27.1 (523.4) 80.2 9.0 (568.4) ______________ $2,615.1 ______________ ______________ 38.6 ___________ 437.0 98.1 (7.6) (87.2) (16.0) 73.3 ___________ 497.6 — 103.8 25.6 (101.7) (8.2) 20.0 ___________ $537.1 ___________ ___________ 38.6 11.9 (492.6) 99.4 53.3 (727.5) ______________ 2,889.4 1,246.7 (348.2) (87.2) (103.7) 73.3 (33.0) (513.9) 93.4 45.0 (602.2) — ______________ 2,659.6 (27.1) 1,192.2 418.6 (101.7) (33.9) 20.0 27.1 (523.4) 80.2 9.0 (568.4) ______________ $3,152.2 ______________ ______________ Balance as of December 31, 2014 . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) . . . . . . . . . . Dividends to noncontrolling interests . . . . . . . . Acquisition of noncontrolling interests . . . . . . . Increase in noncontrolling interests from business combinations . . . . . . . . . . . . . . . . . . Change in temporary equity . . . . . . . . . . . . . . . Common stock dividends declared ($2.00 per share) . . . . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . . . . . . . . . Stock issued, share-based compensation . . . . . . . Common stock repurchased . . . . . . . . . . . . . . . Balance as of December 31, 2015 . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) . . . . . . . . . . Dividends to noncontrolling interests . . . . . . . . Acquisition of noncontrolling interests . . . . . . . Increase in noncontrolling interests from business combinations . . . . . . . . . . . . . . . . . . Change in temporary equity . . . . . . . . . . . . . . . Common stock dividends declared ($2.15 per share) . . . . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . . . . . . . . . Stock issued, share-based compensation . . . . . . . Common stock repurchased . . . . . . . . . . . . . . . Treasury stock retired . . . . . . . . . . . . . . . . . . . . . Balance as of December 31, 2016 . . . . . . . . . . . Cumulative effect of accounting changes . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) . . . . . . . . . . Dividends to noncontrolling interests . . . . . . . . Acquisition of noncontrolling interests . . . . . . . Increase in noncontrolling interests from business combinations . . . . . . . . . . . . . . . . . . Change in temporary equity . . . . . . . . . . . . . . . Common stock dividends declared ($2.25 per share) . . . . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . . . . . . . . . Stock issued, share-based compensation . . . . . . . Common stock repurchased . . . . . . . . . . . . . . . Balance as of December 31, 2017 . . . . . . . . . . . The accompanying notes to the consolidated financial statements are an integral part of these statements. F-7 OMNICOM GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred gain on interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impact of Tax Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in operating capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Cash Provided By Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flows from Investing Activities: Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of businesses and interests in affiliates, net of cash acquired . . . . . . . . Sale (purchase) of investments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Cash Used In Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flows from Financing Activities: Change in short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of additional noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid to noncontrolling interest shareholders . . . . . . . . . . . . . . . . . . . . . Payment of contingent purchase price obligations . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Cash Used In Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of foreign exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and Cash Equivalents at the Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . Cash and Cash Equivalents at the End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years Ended December 31, ____________________________________________________________________________ 2016 ____________________ $1,246.7 2017 ____________________ $1,192.2 2015 ___________________ $1,203.4 168.3 113.8 (12.9) 80.2 106.3 27.5 348.5 ______________ 2,023.9 ______________ (156.0) (26.3) 66.9 ______________ (115.4) ______________ (18.1) — — (515.2) (568.4) 10.7 (17.0) (101.7) (108.4) (24.5) ______________ (1,342.6) ______________ 227.9 ______________ 793.8 3,002.2 ______________ $3,796.0 ______________ ______________ 177.7 115.2 (15.4) 93.4 — 32.0 302.8 ______________ 1,952.4 ______________ (165.5) (308.8) (7.3) ______________ (481.6) ______________ (1.2) 1,389.6 (1,000.0) (505.4) (602.2) 26.8 (72.7) (87.2) (110.5) (35.5) ______________ (998.3) ______________ (75.5) ______________ 397.0 2,605.2 ______________ $3,002.2 ______________ ______________ 181.8 109.3 (9.2) 99.4 — 55.3 559.5 ______________ 2,199.5 ______________ (202.7) (60.3) (0.5) ______________ (263.5) ______________ (1.1) — — (496.7) (727.5) 20.1 (33.5) (129.4) (55.3) (32.9) ______________ (1,456.3) ______________ (262.6) ______________ 217.1 2,388.1 ______________ $2,605.2 ______________ ______________ The accompanying notes to the consolidated financial statements are an integral part of these statements. F-8 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Presentation of Financial Statements The terms “Omnicom,” “the Company,” “we,” “our” and “us” each refer to Omnicom Group Inc. and its subsidiaries, unless the context indicates otherwise. The accompanying consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP or GAAP. All intercompany balances and transactions have been eliminated. 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. Actual results could differ from those estimates and assumptions. Accounting Changes On January 1, 2017, we adopted FASB ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09, which requires that beginning in 2017 excess tax benefits and deficiencies related to share-based compensation be recorded in results of operations upon vesting of restricted stock awards or exercise of stock options. Excess tax benefits and deficiencies represent the difference between the actual compensation deduction for tax purposes, which is calculated as the difference between the grant date price of the award and the price of our common stock on the vesting or exercise date, and compensation expense recognized for financial reporting purposes. In prior years, excess tax benefits and deficiencies were recorded in additional paid-in capital. In 2017 we recognized an excess tax benefit of $20.8 million. ASU 2016-09 requires that cash flows related to the excess tax benefits or deficiencies be classified in operating activities. Accordingly, we retrospectively adjusted the statement of cash flows for 2016 and 2015 to conform to the current year presentation, resulting in an increase in net cash provided by operating activities and a corresponding decrease in net cash used in financing activities of $21.2 million and $27.2 million, respectively. Further, ASU 2016-09 permits a policy election to either continue to estimate the number of awards that will be forfeited or to account for forfeitures as they occur. We elected to account for forfeitures as they occur. Accordingly, we recorded a cumulative catch-up adjustment to increase additional paid-in capital and reduce opening retained earnings by $4.5 million reflecting the estimate of unvested awards at December 31, 2016 that were not expected to vest. On January 1, 2017, we adopted FASB ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other than Inventory, or ASU 2016-16, which requires that the income tax effects of intra-entity transfers of assets other than inventory are recognized when the transfer occurs. We adopted ASU 2016-16 using the modified retrospective method and recorded a cumulative catch-up adjustment to reduce opening retained earnings by $27.1 million reflecting the elimination of the deferred tax asset related to intercompany asset transfers. On December 31, 2017, we adopted FASB ASU 2017-12, Derivatives and Hedging, or ASU 2017-12, which amended the hedge accounting and recognition and presentation requirements. The adoption of ASU 2017-12 did not have any impact on our existing hedges, financial position or results of operations. 2. Significant Accounting Policies Revenue Recognition. We recognize revenue in accordance with FASB Accounting Standards Codification, or FASB ASC, Topic 605, Revenue Recognition, and applicable SEC Staff Accounting Bulletins. Our principal source of revenue is derived from fees for services on a rate per hour or per project basis. Revenue is realized when the service is performed in accordance with the client arrangement and upon the completion of the earnings process. Our primary client arrangements include: fixed fee contracts where revenue is recognized based on the level of effort completed to date, retainer agreements where revenue is recognized on a straight-line basis over the contract period, and media commissions where revenue is recognized when the media is run. Prior to recognizing revenue, persuasive evidence of an arrangement must exist, the sales price must be fixed or determinable, delivery, performance and acceptance must be in accordance with the client arrangement and collection must be reasonably assured. These principles are the foundation of our revenue recognition policy and apply to all client arrangements in each of our service disciplines: advertising, customer relationship management, public relations and healthcare. Because the services that we provide across each of our disciplines are similar and delivered to clients in similar ways, all of the key elements of our revenue recognition policy apply to client arrangements in each of our four disciplines. Revenue is recorded net of sales, use and value added taxes. F-9 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In the majority of our businesses, we act as an agent and record revenue equal to the net amount retained when the fee or commission is earned. Although, in certain markets, we may bear credit risk with respect to these activities, the arrangements with our clients are such that we act as an agent on their behalf. In these cases, costs incurred with third-party suppliers are excluded from our revenue. In certain arrangements, we act as principal and we contract directly with third-party suppliers and media providers and production companies and we are the primary obligor. In these circumstances, revenue is recorded at the gross amount billed since revenue has been earned for the sale of goods or services. Some of our client arrangements include performance incentive provisions designed to link a portion of our revenue to our performance relative to quantitative and qualitative goals. We recognize performance incentives in revenue when the specific quantitative goals are achieved, or when our performance against qualitative goals is determined by the client. We may receive rebates or credits from certain vendors based on transactions entered into on behalf of clients. These rebates or credits are remitted to the clients in accordance with contractual requirements or in certain international markets may be 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. See Note 20 for a discussion of the adoption of ASU 2014-09, Revenue from Contracts with Customers ASC Topic 606. Operating Expenses. Operating expenses are comprised of cost of services, selling, general and administrative, or SG&A, expenses and depreciation and amortization. We measure cost of services in two distinct categories: salary and service costs and occupancy and other costs. As a service business, salary and service costs make up the vast majority 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 direct service costs, which include third-party supplier costs and client-related travel costs. Occupancy and other costs consist of the indirect costs related to the delivery of our services, including office rent and other occupancy costs, equipment rent, technology costs, general office expenses and other expenses. SG&A expenses 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. Cash and Cash Equivalents. Cash equivalents consist of highly liquid interest-bearing time deposits with original maturities of three months or less. Due to the short-term nature of these investments, carrying value approximates fair value. We have a policy governing counterparty credit risk for financial institutions that hold our cash and cash equivalents and we have deposit limits for each institution. Short-Term Investments. Short-term investments consist of interest-bearing time deposits with maturities of less than twelve months. Short-term investments are carried at cost, which approximates fair value. Work in Process. Work in process includes costs incurred on behalf of clients in providing advertising and marketing services, including media and production costs, and fees that have not yet been billed. Media and production costs are billed during the production process and fees are normally billed within the next 30 days or when the services are performed. Property and Equipment. Property and equipment are carried at cost and are depreciated over the estimated useful lives of the assets using the straight-line method. The estimated useful lives range from seven to ten years for furniture and three to five years for equipment. Leasehold improvements are amortized on a straight-line basis over the shorter of the related lease term or the estimated useful life of the asset. Property under capital lease is depreciated on a straight-line basis over the lease term. Equity Method Investments. Investments in companies where we exercise significant influence over the operating and financial policies of the investee and own less than 50% of the equity are accounted for using the equity method. Our proportionate share of the net income or loss of equity method investments is included in results of operations and any dividends received reduce the carrying value of the investment. The excess of the cost of our investment over our proportionate share of the fair value of the net assets of the investee at the acquisition date is recognized as goodwill and included in the carrying amount of the investment. Goodwill in the equity method investments is not amortized. Gains and losses from changes in our ownership interests are recorded in results of operations until control is achieved. Where a change in our ownership interest results in obtaining control, the existing carrying value of the investment is remeasured to the acquisition date fair value and any gain or loss is recognized in results of operations. F-10 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cost Method Investments. Investments in companies where we do not exercise significant influence over the operating and financial policies of the investee and own less than 20% of the equity are accounted for using the cost method. Cost method investments are included in other assets and are carried at cost, which approximates or is less than fair value. The carrying value of our cost method investments was $14.4 million and $14.2 million at December 31, 2017 and 2016, respectively. We periodically review the carrying value of the equity method and cost method investments to determine if there has been an other-than-temporary decline in carrying value. A variety of factors are considered when determining if a decline in carrying value is other-than-temporary, including the financial condition and business prospects of the investee, as well as our investment intent. Available-for-Sale Securities. Investments in common stock of publicly traded companies are classified as available-for-sale securities. These investments are included in other assets and are carried at fair value using quoted market prices. Unrealized gains and losses are recorded in accumulated other comprehensive income. The carrying value of the available-for-sale securities was $1.4 million and $4.3 million at December 31, 2017 and 2016, respectively. Goodwill and Intangible Assets. Goodwill represents the excess of the acquisition cost over the fair value of the net assets acquired. Goodwill is not amortized but is periodically reviewed for impairment. Intangible assets comprise customer relationships, including the related customer contracts and trade names, and purchased and internally developed software and are amortized over their estimated useful lives ranging from five to twelve years. We consider a number of factors in determining the useful lives and amortization method, including the pattern in which the economic benefits are consumed, as well as trade name recognition and customer attrition. There is no estimated residual value for the intangible assets. We review the carrying value of goodwill for impairment annually at the end of the second quarter of the year and whenever events or circumstances indicate the carrying value may not be recoverable. The impairment evaluation compares the fair value of each reporting unit, which we identified as our five agency networks, to its carrying value, including goodwill. If the fair value of the reporting unit is equal to or greater than its carrying value, goodwill is not impaired. Goodwill is impaired when the carrying value of the reporting unit exceeds its fair value. Goodwill is written down to its fair value through a non-cash expense recorded in results of operations in the period the impairment is identified. We identified our regional reporting units as components of our operating segments, which are our five agency networks. The regional reporting units of each agency network monitor the performance and are responsible for the agencies in their region. They report to the segment managers and facilitate the administrative and logistical requirements of our client-centric strategy for delivering services to clients in their regions. We have concluded that, for each of our operating segments, their regional reporting units had 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 the guidance set forth in FASB ASC Topic 350, Intangibles - Goodwill and Other. 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. 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 costs. 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 client service strategy. We use the following valuation methodologies to determine the fair value of our reporting units: (1) the income approach, which utilizes discounted expected future cash flows, (2) comparative market participant multiples of EBITDA (earnings before interest, taxes, depreciation and amortization) and (3) when available, consideration of recent and similar acquisition transactions. Based on the results of the annual impairment test, we concluded that at June 30, 2017 and 2016 our goodwill was not impaired because the fair value of each reporting unit was substantially in excess of its respective net book value. Subsequent to the annual impairment test of goodwill at June 30, 2017, there were no events or circumstances that triggered the need for an interim impairment test. Debt Issuance Costs. Debt issuance costs are capitalized and amortized in interest expense over the life of the related debt and are presented as a reduction to the carrying amount of debt. F-11 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Temporary Equity – Redeemable Noncontrolling Interests. Owners of noncontrolling equity interests in some of our subsidiaries have the right in certain circumstances to require us to purchase all or a portion of their equity interests at fair value as defined in the applicable agreements. The intent of the parties is to approximate fair value at the time of redemption by using a multiple of earnings that is consistent with generally accepted valuation practices used by market participants in our industry. These contingent redemption rights are embedded in the equity security at issuance, are not free-standing instruments, do not represent a de facto financing and are not under our control. Treasury Stock. Repurchases of our common stock are accounted for at cost and are recorded as treasury stock. Reissued treasury stock, primarily in connection with share-based compensation plans, is accounted for at average cost. Gains or losses on reissued treasury stock arising from the difference between the average cost and the fair value of the award are recorded in additional paid-in capital and do not affect results of operations. Business Combinations. Business combinations are accounted for using the acquisition method and accordingly, the assets acquired, including identified intangible assets, liabilities assumed and any noncontrolling interest in the acquired business are recorded at acquisition date fair value. In circumstances where control is obtained and less than 100% of a business is acquired, goodwill is recorded as if 100% were acquired. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs are expensed as incurred. Certain acquisitions include an initial payment at closing and provide for future additional contingent purchase price payments (earn-outs), which are recorded as a liability at the acquisition date fair value using the discount rate in effect on the acquisition date. Subsequent changes in the fair value of the liability are recorded in results of operations. Amounts earned under the contingent purchase price arrangements may be subject to a maximum and payment is not contingent upon future employment. The results of operations of acquired businesses are included in results of operations from the acquisition date. Noncontrolling Interests. Noncontrolling interests represent equity interests in certain subsidiaries held by third-parties. Noncontrolling interests are presented as a component of equity and the proportionate share of net income attributed to the noncontrolling interests is recorded in results of operations. Changes in noncontrolling interests that do not result in a loss of control are accounted for in equity. Gains and losses resulting from a loss of control are recorded in results of operations. Foreign Currency Translation and Transactions. Substantially all of our foreign subsidiaries use their local currency as their functional currency. Assets and liabilities are translated into U.S. Dollars at the exchange rate on the balance sheet date and revenue and expenses are translated at the average exchange rate for the period. Translation adjustments are recorded in accumulated other comprehensive income. Net foreign currency transaction gains and (losses) recorded in results of operations were $(7.8) million, $12.7 million and $4.7 million in 2017, 2016 and 2015, respectively. Share-Based Compensation. Share-based compensation for restricted stock and stock option awards is measured at the grant date fair value. The fair value of restricted stock awards is determined and fixed using the closing price of our common stock on the grant date and is recorded in additional paid-in capital. The fair value of stock option awards is determined using the Black-Scholes option valuation model. For awards that have a service only vesting condition, compensation expense is recognized on a straight-line basis over the requisite service period. For awards with a performance vesting condition, compensation expense is recognized on a graded-vesting basis. Typically, all share-based awards are settled with treasury stock. See Note 9 for additional information regarding our specific award plans. Salary Continuation Agreements. Arrangements with certain present and former employees provide for continuing payments for periods up to ten years after cessation of full-time employment in consideration for agreement by the employees not to compete with us and to render consulting services during the postemployment period. Such payments, which are subject to certain limitations, including our operating performance during the postemployment period, represent the fair value of the services rendered and are expensed in such periods. Severance. The liability for one-time termination benefits, such as severance pay or benefit payouts, is measured and recognized at fair value in the period the liability is incurred. Subsequent changes to the liability are recognized in results of operations in the period of change. F-12 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Defined Benefit Pension Plans and Postemployment Arrangements. The funded status of our defined benefit plans is recorded as an asset or liability. Funded status is the difference between the fair value of plan assets and the benefit obligation at December 31, the measurement date, determined on a plan-by-plan basis. The benefit obligation for the defined benefit plans is the projected benefit obligation (“PBO”), which represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. The fair value of plan assets represents the current market value. Overfunded plans where the fair value of plan assets exceeds the benefit obligation are aggregated and recorded as a prepaid pension asset equal to the excess. Underfunded plans where the benefit obligation exceeds the fair value of plan assets are aggregated and recorded as a liability equal to the excess. We record the liability for our postemployment arrangements. The benefit obligation of our postemployment arrangements is the PBO and these arrangements are not funded. The current portion of the benefit obligation for the defined benefit plans and postemployment arrangements, which represents the actuarial present value of benefits payable in the next twelve months that exceed the fair value of plan assets, is recorded in other current liabilities and the long-term portion is recorded in long-term liabilities. Deferred Compensation. Some of our subsidiaries have individual deferred compensation arrangements with certain executives that provide for payments over varying terms upon retirement, cessation of employment or death. The cost of these arrangements is accrued during the employee’s service period. Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable for the current period and the deferred taxes recognized during the period. Deferred income taxes reflect the temporary difference between assets and liabilities that are recognized for financial reporting purposes and income tax purposes and are recorded as noncurrent. Deferred income taxes are measured using the enacted tax rates that are assumed to be in effect when the differences reverse. Valuation allowances are recorded where it is more likely than not that all or a portion of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we evaluate factors such as prior earnings history, expected future earnings, carry-back and carry-forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. Interest and penalties related to tax positions taken in our tax returns are recorded in income tax expense. We record a liability for uncertain tax positions that reflects the treatment of certain tax positions taken in our tax returns, or planned to be taken in a future tax returns, which have not been reflected in income tax expense. Until these positions are sustained by the taxing authorities or the statute of limitations concerning such issues lapses, we do not generally recognize the tax benefits resulting from such positions. In December 2017, the Tax Cuts and Jobs Act, or Tax Act, was enacted into law. As a result, tax positions related to the accumulated earnings of our foreign subsidiaries are reflected under the provisions of the Tax Act. See Note 10 for additional information. Net Income Per Share. Basic net income per share is based on the weighted average number of common shares outstanding during the period. Diluted net income per share is based on the weighted average number of common shares outstanding, plus, the dilutive effect of common share equivalents, which include outstanding stock options and restricted stock awards. Net income per share is computed using the two-class method, which is an earnings allocation method for computing net income per share when a company’s capital structure includes common stock and participating securities. Certain of the unvested restricted stock awards receive non-forfeitable dividends at the same rate as the common stock and therefore are considered participating securities. Under the two-class method, basic and diluted net income per share is reduced for a presumed hypothetical distribution of earnings to holders of the unvested restricted stock awards receiving non-forfeitable dividends. Concentration of Credit Risk. We provide advertising, marketing and corporate communications services to several thousand clients that operate in nearly every industry sector of the global economy and we grant credit to qualified clients in the normal course of business. Due to the diversified nature of our client base, we do not believe that we are exposed to a concentration of credit risk as our largest client accounted for 3.0% of revenue in 2017. Derivative Financial Instruments. All derivative instruments, including certain derivative instruments embedded in other contracts, are recorded at fair value. Derivatives qualify for hedge accounting if: the hedging instrument is designated as a hedge, the hedged exposure is specifically identifiable, and exposes us to risk and a change in fair value of the derivative financial instrument and an opposite change in the fair value of the hedged exposure have a high degree of correlation. The method of assessing hedge effectiveness and measuring hedge ineffectiveness is formally documented. Hedge effectiveness is assessed, and F-13 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) hedge ineffectiveness is measured at least quarterly throughout the designated hedge period. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability or firm commitment through results of operations or recognized in other comprehensive income until the hedged item is recognized in results of operations. The ineffective portion of the change in fair value of a derivative used as hedge is recognized in results of operations. We do not use derivatives for trading or speculative purposes. Using derivatives exposes us to the risk that counterparties to the derivative contracts will fail to meet their contractual obligations. We manage that risk through careful selection and ongoing evaluation of the counterparty financial institutions based on specific minimum credit standards and other factors. Fair Value. We apply the fair value measurement guidance in FASB ASC Topic 820, Fair Value Measurements and Disclosures, for our financial assets and liabilities that are required to be measured at fair value and for our nonfinancial assets and liabilities that are not required to be measured at fair value on a recurring basis, which includes goodwill and other identifiable intangible assets. The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy: • Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2 – Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical assets or liabilities in markets that are not active; and model-derived valuations with observable inputs. • Level 3 – Unobservable inputs for the asset or liability. We use unadjusted quoted market prices to determine the fair value of our financial assets and liabilities and classify such items in Level 1. We use unadjusted quoted market prices for similar assets and liabilities in active markets and model-derived valuations and classify such items in Level 2. In determining the fair value of financial assets and liabilities, we consider certain market valuation adjustments that market participants would consider in determining fair value, including: counterparty credit risk adjustments applied to financial assets and liabilities, taking into account the actual credit risk of the counterparty when valuing assets measured at fair value and credit risk adjustments applied to reflect our credit risk when valuing liabilities measured at fair value. Reclassifications. Certain reclassifications have been made to the prior year financial information to conform to the current year presentation. 3. Net Income per Share The computations of basic and diluted net income per share for the three years ended December 31, 2017 were (in millions, except per share amounts): 2017 __________________ 2016 __________________ 2015 __________________ Net Income Available for Common Shares: Net income – Omnicom Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income allocated to participating securities . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted Average Shares: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dilutive stock options and restricted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Anti-dilutive stock options and restricted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income per Share – Omnicom Group Inc.: $1,088.4 (1.6) _______________ $1,086.8 _______________ _______________ 232.3 1.6 _______________ 233.9 _______________ _______________ 1.0 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 4.68 4.65 $1,148.6 (6.5) _______________ $1,142.1 _______________ _______________ 237.9 1.3 _______________ 239.2 _______________ _______________ — $ $ 4.80 4.78 $1,093.9 (12.4) _______________ $1,081.5 _______________ _______________ 244.2 1.0 _______________ 245.2 _______________ _______________ 0.1 $ $ 4.43 4.41 F-14 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Business Combinations In 2017, we completed four acquisitions, which increased goodwill $65.3 million. Also, we acquired additional equity interests in certain majority owned subsidiaries in 2017, which are accounted for as equity transactions and no additional goodwill was recorded. None of these acquisitions, either individually or in the aggregate, was material to our results of operations or financial position. The evaluation of potential acquisitions is based on various factors, including specialized know-how, reputation, geographic coverage, competitive position and service offerings, as well as our experience and judgment. Our acquisition strategy is focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our strategic business platforms and agency brands, through the expansion of their geographic area or their service capabilities to better serve our clients. Certain acquisitions include an initial payment at closing and provide for future additional contingent purchase price payments (earn-outs), which are derived using the performance of the acquired entity and are based on predetermined formulas. Contingent purchase price obligations at December 31, 2017 and 2016 were $215.6 million and $386.1 million, respectively, of which $92.6 million and $190.8 million, respectively, are included in other current liabilities. For each acquisition, we undertake a detailed review to identify other intangible assets that are required to be valued separately. We use several market participant measurements to determine fair value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies and when available and as appropriate, we use comparative market multiples to supplement our analysis. As is typical for most service businesses, a substantial portion of the intangible asset value we acquire is the specialized know-how of the workforce, which is treated as part of goodwill and is not valued separately. A significant portion of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trade names. One of the primary drivers in executing our acquisition strategy is the existence of, or the ability to, expand our existing client relationships. The expected benefits of our acquisitions are typically shared across multiple agencies and regions. 5. Goodwill and Intangible Assets Goodwill and intangible assets at December 31, 2017 and 2016 were (in millions): Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets: Purchased and internally developed software . . . . . . . . . . . . . . . . . . Customer related and other . . . . . . . . . . . . . 2017 _______________________________________________________________________ 2016 _____________________________________________________________________ Gross Carrying Value ___________________ $9,871.8 ______________ ______________ Accumulated Amortization ________________________ $(534.3) ____________ ____________ Net Carrying Value __________________ $9,337.5 ______________ ______________ Gross Carrying Value ___________________ $9,481.4 ______________ ______________ Accumulated Amortization ________________________ $(505.3) ____________ ____________ Net Carrying Value __________________ $8,976.1 ______________ ______________ $ 368.2 880.1 ______________ $1,248.3 ______________ ______________ $(303.0) (576.9) ____________ $(879.9) ____________ ____________ $ 65.2 303.2 ______________ $ 368.4 ______________ ______________ $ 342.6 862.4 ______________ $1,205.0 ______________ ______________ $(270.2) (507.4) ____________ $(777.6) ____________ ____________ $ 72.4 355.0 ______________ $ 427.4 ______________ ______________ Changes in goodwill for the years ended December 31, 2017 and 2016 were (in millions): January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests in acquired businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contingent purchase price obligations of acquired businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 __________________ $8,976.1 19.3 18.9 27.1 296.1 ______________ $9,337.5 ______________ ______________ 2016 __________________ $8,676.4 311.7 74.0 152.8 (238.8) ______________ $8,976.1 ______________ ______________ There were no goodwill impairment losses recorded in 2017 or 2016 and there are no accumulated goodwill impairment losses. F-15 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Debt Credit Facilities At December 31, 2017, our short-term liquidity sources include a $2.5 billion revolving credit facility, or Credit Facility, expiring on July 31, 2021, uncommitted credit lines aggregating $1.2 billion and the ability to issue up to $2 billion of commercial paper. There were no outstanding commercial paper issuances or borrowings under the Credit Facility or the uncommitted credit lines at December 31, 2017 and 2016. Available and unused credit lines at December 31, 2017 and 2016 were (in millions): Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Uncommitted credit lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available and unused credit lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 __________________ $2,500.0 1,181.0 ______________ $3,681.0 ______________ ______________ 2016 __________________ $2,500.0 1,132.0 ______________ $3,632.0 ______________ ______________ The Credit Facility contains financial covenants that require us to maintain a Leverage Ratio of consolidated indebtedness to consolidated EBITDA of no more than 3 times for the most recently ended 12-month period (EBITDA is defined as earnings before interest, taxes, depreciation and amortization) and an Interest Coverage Ratio of consolidated EBITDA to interest expense of at least 5 times for the most recently ended 12-month period. At December 31, 2017 we were in compliance with these covenants as our Leverage Ratio was 2.1 times and our Interest Coverage Ratio was 10.4 times. The Credit Facility does not limit our ability to declare or pay dividends or repurchase our common stock. Short-Term Debt Short-term debt at December 31, 2017 and 2016 of $11.8 million and $28.7 million, respectively consists of bank overdrafts and short-term borrowings of our international subsidiaries. The weighted average interest rate was 2.6% and 9.8%, respectively. Due to the short-term nature of this debt, carrying value approximates fair value. Long-Term Debt Long-term debt at December 31, 2017 and 2016 was (in millions): 6.25% Senior Notes due 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.45% Senior Notes due 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.625% Senior Notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.65% Senior Notes due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60% Senior Notes due 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized premium (discount), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized deferred gain from settlement of interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value adjustment attributed to outstanding interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 __________________ $ 500.0 1,000.0 1,250.0 750.0 1,400.0 — _______________ 4,900.0 6.2 (20.3) 66.4 (39.4) _______________ 4,912.9 — _______________ $4,912.9 _______________ _______________ 2016 __________________ $ 500.0 1,000.0 1,250.0 750.0 1,400.0 0.1 _______________ 4,900.1 7.6 (24.2) 84.7 (47.6) _______________ 4,920.6 (0.1) _______________ $4,920.5 _______________ _______________ Omnicom and its wholly owned finance subsidiary, Omnicom Capital Inc., or OCI, are co-obligors under all the senior notes. The senior notes are a joint and several liability of us and OCI and we unconditionally guarantee OCI’s obligations with respect to the senior notes. OCI provides funding for our operations by incurring debt and lending the proceeds to our operating subsidiaries. OCI’s assets 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 us to obtain funds from our subsidiaries through dividends, loans or advances. Our senior notes are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness. F-16 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The contractual maturities of our long-term debt at December 31, 2017 are (in millions): 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — 500.0 1,000.0 — 1,250.0 2,150.0 ______________ $4,900.0 ______________ ______________ We use fixed-to-floating interest rate swaps to manage our interest cost and structure our long-term debt portfolio to achieve a mix of fixed rate and floating rate debt. Interest rate swaps hedge the risk of changes in fair value of the underlying senior notes attributable to changes in the benchmark LIBOR interest rate. The interest rate swaps qualify and are designated as fair value hedges on the underlying senior notes and have the economic effect of converting the underlying fixed rate senior notes to floating rate obligations. Gains and losses attributed to changes in the fair value of the swaps substantially offset changes in the fair value of the underlying senior notes attributed to changes in the benchmark interest rate. Accordingly, any hedge ineffectiveness is not material to our results of operations. In October 2015, we entered into a $750 million interest rate swap on our 3.65% Senior Notes due 2024, or 2024 Notes. We receive fixed interest payments of 3.65% and pay a variable interest equal to three-month LIBOR, plus a spread of 1.72%. In April 2016, concurrent with the issuance of our 3.60% Senior Notes due 2026, or 2026 Notes, we entered into a $500 million interest rate swap. We receive fixed interest payments of 3.60% and pay a variable interest equal to three-month LIBOR, plus a spread of 1.982%. At December 31, 2017, we recorded long-term liabilities of $14.7 million and $24.7 million representing the fair value of the swaps on the 2024 Notes and 2026 Notes, respectively and at December 31, 2016, we recorded long-term liabilities of $17.1 million and $30.5 million, respectively. The interest rate swaps have the economic effect of converting our long-term debt portfolio to approximately 75% fixed rate obligations and 25% floating rate obligations. Interest Expense Interest expense for the three years ended December 31, 2017 is composed of (in millions): Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred gain on interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ______________ $201.6 (7.2) (12.9) 12.5 5.6 24.9 ___________ $224.5 ___________ ___________ 2016 ______________ $205.5 (13.1) (15.4) 6.8 5.6 20.3 ___________ $209.7 ___________ ___________ 2015 ______________ $210.2 (44.1) (9.2) 4.8 5.7 13.7 ___________ $181.1 ___________ ___________ 7. Segment Reporting Our five branded agency networks operate in the advertising, marketing and corporate communications services industry, and are organized into agency networks, virtual client networks, regional reporting units and operating groups. Our networks, virtual client networks and agencies increasingly share clients and provide clients with integrated services. The main economic components of each agency are employee compensation and related costs and direct service costs and occupancy and other costs which include rent and occupancy costs, technology costs and other overhead expenses. Therefore, given these similarities, we aggregate our operating segments, which are our five agency networks, into one reporting segment. The agency networks’ regional reporting units comprise three principal regions; the Americas, EMEA and Asia Pacific. The regional reporting units monitor the performance and are responsible for the agencies in their region. Agencies within the regional reporting units serve similar clients in similar industries and in many cases the same clients and have similar economic characteristics. F-17 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenue and long-lived assets and goodwill by geographic region at and for the three years ended December 31, 2017 were (in millions): 2017 ________ Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-lived assets and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 ________ Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-lived assets and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 ________ Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-lived assets and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Americas __________________ EMEA __________________ Asia Pacific ____________________ $9,180.8 6,633.8 $4,442.5 2,840.8 $1,650.3 553.8 $9,597.6 6,662.7 $4,183.1 2,469.1 $1,636.2 519.1 $9,359.0 6,103.4 $4,203.5 2,737.8 $1,571.9 527.9 The Americas comprises North America, which includes the United States, Canada and Puerto Rico, and Latin America, which includes Mexico. EMEA comprises Europe, the Middle East and Africa. Asia Pacific comprises Australia, China, India, Japan, Korea, New Zealand, Singapore and other Asian countries. Revenue in the United States was $8,196.9 million, $8,627.8 million and $8,526.7 million in 2017, 2016 and 2015, respectively. The reduction in revenue in 2017 for North America and the United States primarily reflects the sale of our specialty print media business in the second quarter. 8. Equity Method Investments Income from our equity method investments was $3.5 million, $5.4 million and $8.4 million in 2017, 2016 and 2015, respectively. Our proportionate share in their net assets at December 31, 2017 and 2016 was $40.7 million and $38.6 million, respectively. Our equity method investments are not material to our results of operations or financial position; therefore, summarized financial information is not required to be presented. 9. Share-Based Compensation Plans Share-based incentive awards are granted to employees under the 2013 Incentive Award Plan, or 2013 Plan, which is administered by the Compensation Committee of the Board of Directors, or Compensation Committee. Awards include stock options, restricted stock and other stock awards. The maximum number of shares of common stock that can be granted under the 2013 Plan is 33 million shares plus any shares awarded under the 2013 Plan and any prior plan that have been forfeited or have expired. Stock option awards reduce the number of shares available for grant on a one-for-one basis and all other awards reduce the number of shares available for grant by 3.5 shares for each share awarded. The terms of each award and the exercise date are determined by the Compensation Committee. The 2013 Plan does not permit the holder of an award to elect cash settlement under any circumstances. At December 31, 2017, there were 28,684,234 shares available for grant under the 2013 Plan. If all shares available for grant were for awards other than stock options, shares available for grant would be 8,195,495. Share-based compensation expense was $80.2 million, $93.4 million and $99.4 million in 2017, 2016 and 2015, respectively. At December 31, 2017, unamortized share-based compensation that will be expensed over the next five years is $177.6 million. We record a deferred tax asset for the share-based compensation expense recognized for financial reporting purposes that has not been deducted on our income tax return. On January 1, 2017, we adopted ASU 2016-09, (see Note 1), which requires that beginning in 2017 excess tax benefits and deficiencies related to share-based compensation be recorded in results of operations upon vesting of restricted stock awards or exercise of stock options. Excess tax benefits and deficiencies represent the difference between the actual compensation deduction for tax purposes, which is calculated as the difference between the grant date price of the award and the price of our common stock on the vesting or exercise date, and compensation expense recognized for financial reporting purposes. In 2017 we recognized an excess tax benefit of $20.8 million. Stock Options The exercise price of stock option awards cannot be less than 100% of the market price of our common stock on the grant date. The 2017 option awards vest 100% three years from grant date and have a maximum contractual life of six years. All prior option awards have a maximum contractual life of 10 years. F-18 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Stock option activity for the three years ended December 31, 2017 was: 2017 __________________________________________ Weighted Average Exercise Price ________ Shares ___________ 2016 ___________________________________________ Weighted Average Exercise Price ___________ ________ Shares 2015 __________________________________________ Weighted Average Exercise Price ________ Shares ___________ January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercisable December 31 . . . . . . . . . . . . . . . . . . . . . . . $27.88 719,757 $84.94 1,000,000 (102,335) $23.40 (24,000) $84.94 __________________ 1,593,422 __________________ __________________ 617,422 __________________ __________________ $63.11 $28.61 1,140,547 — $28.86 1,652,140 — $27.97 (420,790) $30.56 (511,593) $25.98 — __________________ 719,757 __________________ __________________ 695,757 __________________ __________________ $27.88 $26.54 — __________________ 1,140,547 __________________ __________________ 1,074,547 __________________ __________________ $28.86 $26.47 Options outstanding and exercisable at December 31, 2017 were: Exercise Price Range _________________ $23.00 to $24.00 . . . . . . . . . . . . . . . . . . . $66.00 to $71.00 . . . . . . . . . . . . . . . . . . . $84.00 to $85.00 . . . . . . . . . . . . . . . . . . . Options Outstanding ________________________________________________ Options Exercisable _____________________________ Weighted Average Remaining Contractual Life ________________ 1.2 years 6.4 years 5.2 years Weighted Average Exercise Price ________________ $23.40 $68.04 $84.94 Shares ___________ 545,422 72,000 976,000 ________ 1,593,422 ________ ________ Weighted Average Exercise Price ________________ $23.40 $68.04 Shares __________ 545,422 72,000 — ________ 617,422 ________ ________ The 2017 option award grant date fair value of $9.87 was determined using the Black-Scholes option valuation model. The assumptions for the model, without adjusting for the risk of forfeiture and lack of liquidity, were: expected life - 4.5 years, risk free interest rate - 2.0%, expected volatility - 16.3% and dividend yield - 2.6%. Restricted Stock Restricted stock activity for the three years ended December 31, 2017 was: January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average grant date fair value of shares granted in the period . . . . . Weighted average grant date fair value at December 31 . . . . . . . . . . . . . . . . . 2017 _____________________ 3,802,105 966,919 (1,757,269) (152,382) _________________ 2,859,373 _________________ _________________ $74.10 $68.85 2016 _____________________ 4,349,105 1,100,396 (1,438,386) (209,010) _________________ 3,802,105 _________________ _________________ $73.16 $61.72 2015 _____________________ 5,040,641 1,208,964 (1,631,343) (269,157) _________________ 4,349,105 _________________ _________________ $64.49 $55.08 Generally, restricted shares vest ratably over five years from the grant date provided the employee remains employed by us. Restricted shares may not be sold, transferred, pledged or otherwise encumbered until the forfeiture restrictions lapse. Under most circumstances, the employee forfeits the shares if employment ceases prior to the end of the restriction period. Performance Restricted Stock Units The Compensation Committee grants certain employees performance restricted stock units, or PRSU. Each PRSU represents the right to receive one share of common stock on vesting. The ultimate number of PRSUs received by the employee depends on the Company’s average return on equity over a three year period compared to the average return on equity of a peer group of principal competitors over the same period. The PRSUs vest three years from the grant date. The PRSUs have a service and performance vesting condition and compensation expense is recognized on a graded-vesting basis. Over the performance period, compensation expense is adjusted upward or downward based on our estimate of the probability of achieving the performance target for the portion of the awards subject to the performance vesting condition. We have assumed that substantially all the PRSUs will vest. F-19 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) PRSU activity for the three years ended December 31, 2017 was: January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee Stock Purchase Plan 2017 __________________________________________ Weighted Average Grant Date Fair Value ________ Shares ___________ 2016 ___________________________________________ Weighted Average Grant Date Fair Value ___________ ________ Shares 2015 __________________________________________ Weighted Average Grant Date Fair Value ________ Shares ___________ 462,381 173,770 (147,264) — ______________ 488,887 ______________ ______________ $77.05 84.94 69.89 — ___________ $82.01 ___________ ___________ 534,456 153,492 (225,567) — ______________ 462,381 ______________ ______________ $66.05 83.23 55.20 — ___________ $77.05 ___________ ___________ 622,859 161,625 (239,387) (10,641) ______________ 534,456 ______________ ______________ $56.16 77.68 48.94 48.87 ___________ $66.05 ___________ ___________ The employee stock purchase plan, or ESPP, enables employees to purchase our common stock through payroll deductions over each plan quarter at 95% of the market price on the last trading day of the plan quarter. Purchases are limited to 10% of eligible compensation as defined by the Employee Retirement Income Security Act of 1974, or ERISA. Our employees purchased 101,862 shares, 97,935 shares and 111,849 shares in 2017, 2016 and 2015, respectively. All shares purchased were treasury stock, for which we received $7.6 million, $7.8 million and $7.8 million, respectively. At December 31, 2017, there were 8,766,437 shares available under the ESPP. 10. Income Taxes We file a consolidated U.S. federal income tax return and income tax returns in various state and local jurisdictions. Our subsidiaries file tax returns in various foreign jurisdictions. Our principal foreign jurisdictions include the United Kingdom, France and Germany. The Internal Revenue Service has completed its examination of our federal tax returns through 2012. Tax returns in the United Kingdom, France and Germany have been examined through 2013, 2013 and 2009, respectively. On December 22, 2017, the Tax Act was enacted into law. The Tax Act reduced the U.S. federal statutory income tax rate to 21% from 35% for tax years beginning after December 31, 2017 and made several changes to existing tax law that affect our tax assets and liabilities related to previously reported taxable income. The significant changes require that we record tax expense on the accumulated earnings of our foreign subsidiaries and adjust our previously reported deferred tax positions to reflect the impact of the revised statutory federal rate as of the enactment date. In December 2017, the SEC issued Staff Accounting Bulletin 118, or SAB 118, which provides guidance on accounting for the impact of the Tax Act. SAB 118 provides that provisional amounts should be recognized in our financial statements where accounting for certain effects of the Tax Act are not complete and a reasonable estimate of the effects of the Tax Act can be made. Accordingly, at December 31, 2017, we have estimated the effect of the Tax Act and recorded a net increase to income tax expense of $106.3 million. Our estimate is based on our understanding of the Tax Act and currently available guidance. However, we are still analyzing the impact of the Tax Act and we expect the estimate to change. Any adjustment to the provisional amounts through December 22, 2018 will be recorded in results of operations in the period when the analysis is complete. We are required to account for effect of U.S. federal tax rate changes on our deferred tax balances by measuring deferred tax assets and liabilities at the rate at which they are expected to reverse in the future, which as a result of the Tax Act is 21%. The provisional amount for the remeasurement of our deferred tax assets and liabilities reduced income tax expense by $173.3 million. The territorial tax system will allow us to repatriate future earnings of our foreign subsidiaries without incurring additional U.S. tax by providing a 100% dividend exemption. However, while the change to a territorial system limits U.S. federal income tax to domestic earnings, foreign source income is subject to tax by the appropriate foreign jurisdiction at the local rate, which, in certain jurisdictions, may be higher than the U.S. federal statutory income tax rate of 21%. As a result, the foreign tax rate differential will cause our effective tax rate to be higher than the U.S. federal statutory income tax rate. F-20 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Tax Act imposes a one-time transition tax on our accumulated foreign earnings at December 31, 2017. We recorded a provisional amount of $192.1 million in income tax expense for the transition tax. The portion of the foreign earnings comprising cash and other specified assets is taxed at a 15.5% rate and any remaining amount is taxed at an 8% rate. The provisional amount can change as we obtain additional information related to our foreign subsidiaries. After taking into consideration available foreign tax credits and other items, we recorded a net cash liability of $102.9 million, which we will elect to pay over an eight year period. Although the adoption of a territorial tax system allows for the repatriation of foreign earnings after December 31, 2017 without incurring U.S. income tax, withholding taxes by the foreign jurisdictions will be applied to any dividends remitted to the U.S. As a result, we recorded a charge of $87.5 million related to these withholding taxes. In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income, or GILTI, provisions of the Tax Act. We have elected to account for any GILTI tax in the period in which it is incurred, and therefore have not provided any deferred tax impacts of GILTI in our consolidated financial statements for the year ended December 31, 2017. Income before income taxes for the three years ended December 31, 2017 was (in millions): Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 _________________ $ 832.4 1,052.5 ______________ $1,884.9 ______________ ______________ 2016 _________________ $ 805.2 1,036.6 ______________ $1,841.8 ______________ ______________ 2015 _________________ $ 803.3 975.3 ______________ $1,778.6 ______________ ______________ Income tax expense (benefit) for the three years ended December 31, 2017 was (in millions): 2017 _________________ 2016 _________________ 2015 _________________ Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 458.8 36.5 280.2 ______________ 775.5 ______________ (205.5) 11.1 115.1 ______________ (79.3) ______________ $ 696.2 ______________ ______________ The reconciliation from the statutory U.S. federal income tax rate to our effective tax rate is: Statutory U.S. federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and local income taxes, net of federal income tax benefit . . . . . . . . . . . . . . . . . . . . Effect of Tax Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International tax rate differentials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 _________________ 35.0% 1.3 5.6 (3.8) (1.2) _______ 36.9% _______ _______ $ 381.8 12.6 332.1 ______________ 726.5 ______________ (88.2) 12.0 (49.8) ______________ (126.0) ______________ $ 600.5 ______________ ______________ 2016 _________________ 35.0% 0.9 — (4.0) 0.7 _______ 32.6% _______ _______ $ 342.3 29.9 324.5 ______________ 696.7 ______________ (86.7) 12.1 (38.5) ______________ (113.1) ______________ $ 583.6 ______________ ______________ 2015 _________________ 35.0% 1.5 — (3.7) — _______ 32.8% _______ _______ The international tax rate differentials are primarily attributed to our earnings in the U.K., Canada, the United Arab Emirates, Brazil and Singapore being taxed at different rates than the U.S. statutory tax rate. Income tax expense in 2017, 2016 and 2015 includes $2.5 million, $2.3 million and $1.1 million, respectively, of interest, net of tax benefit, and penalties related to tax positions taken on our tax returns. At December 31, 2017 and 2016, accrued interest and penalties were $16.1 million and $11.9 million, respectively. F-21 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of deferred tax assets and liabilities at December 31, 2017 and 2016 were (in millions): Deferred tax assets: Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax loss and credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basis differences from acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basis differences from short-term assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities: Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unremitted foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basis differences from investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 _________________ 2016 _________________ $173.7 40.3 18.0 39.5 17.8 ___________ 289.3 (3.3) ___________ $286.0 ___________ ___________ $562.2 94.9 41.4 9.8 ___________ $708.3 ___________ ___________ $ 61.3 ___________ ___________ $483.6 ___________ ___________ $307.5 88.5 24.3 36.2 18.7 ___________ 475.2 (3.0) ___________ $472.2 ___________ ___________ $802.7 15.9 132.3 1.8 ___________ $952.7 ___________ ___________ $ — ___________ ___________ $480.5 ___________ ___________ The American Recovery and Reinvestment Act of 2009 provided an election where qualifying cancellation of indebtedness income for debt reacquired in 2009 and 2010 was deferred and included in taxable income from 2014 to 2018. In 2009 and 2010, we redeemed $1.4 billion of our debt resulting in a tax liability of approximately $329 million. Through December 31, 2017, we paid $263 million of the liability. As a result of the Tax Act, the remaining liability was revalued to $41.4 million and will be paid in 2018. We have concluded that it is more likely than not that we will be able to realize our net deferred tax assets in future periods because results of future operations are expected to generate sufficient taxable income. The valuation allowance of $3.3 million and $3.0 million at December 31, 2017 and 2016, respectively, relates to tax losses in international jurisdictions. Tax loss and credit carryforwards for which there is no valuation allowance are available for periods ranging from 2018 to 2037, which is longer than the forecasted utilization of such carryforwards. A reconciliation of our unrecognized tax benefits at December 31, 2017 and 2016 is (in millions): January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions: Current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reduction of prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 _________________ $116.9 2016 _________________ $113.0 67.1 5.5 (16.5) — 0.7 ___________ $173.7 ___________ ___________ 20.0 6.5 (21.9) (0.7) — ___________ $116.9 ___________ ___________ The majority of the liability for uncertain tax positions is recorded in long-term liabilities. At December 31, 2017 and 2016, approximately $142.8 million and $71.0 million, respectively, of the liability for uncertain tax positions would affect our effective tax rate upon resolution of the uncertain tax positions. F-22 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Pension and Other Postemployment Benefits Defined Contribution Plans Our domestic and international subsidiaries provide retirement benefits for their employees primarily through defined contribution profit sharing and savings plans. Contributions to the plans vary by subsidiary and have generally been in amounts up to the maximum percentage of total eligible compensation of participating employees that is deductible for income tax purposes. Contribution expense was $112.9 million, $108.5 million and $105.7 million in 2017, 2016 and 2015, respectively. Defined Benefit Pension Plans Two of our U.S. businesses and several of our non-U.S. businesses sponsor noncontributory defined benefit pension plans. These plans provide benefits to employees based on formulas recognizing length of service and earnings. The U.S. plans cover approximately 900 participants, are closed to new participants and do not accrue future benefit credits. The non-U.S. plans, which include plans required by local law, cover approximately 6,200 participants and are not subject to ERISA. We have a Senior Executive Restrictive Covenant and Retention Plan, or Retention Plan, for certain executive officers selected by the Compensation Committee. The Retention Plan is a non-qualified deferred compensation severance plan that was adopted to secure non-competition, non-solicitation, non-disparagement and ongoing consulting services from such executive officers and to strengthen the retention aspect of executive officer compensation. The Retention Plan provides annual payments upon termination following at least seven years of service with Omnicom or its subsidiaries to the participants or to their beneficiaries. A participant’s annual benefit is payable for 15 consecutive calendar years following termination, but in no event prior to age 55. The annual benefit is equal to the lesser of (i) the participant’s final average pay times an applicable percentage, which is based upon the executive’s years of service as an executive officer, not to exceed 35% or (ii) $1.5 million adjusted for cost-of-living, beginning with the second annual payment, not to exceed 2.5% per year. The Retention Plan is not funded and benefits are paid when due. The components of net periodic benefit expense for the three years ended December 31, 2017 were (in millions): Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ___________ $10.1 7.9 (3.6) 4.6 7.0 _________ $26.0 _________ _________ 2016 ___________ $ 7.8 7.8 (3.7) 4.5 5.3 __________ $21.7 __________ __________ 2015 ___________ $ 5.3 7.6 (4.0) 4.3 5.7 ___________ $18.9 ___________ ___________ Included in accumulated other comprehensive income at December 31, 2017 and 2016 were unrecognized actuarial losses and unrecognized prior service cost of $90.0 million ($56.0 million net of income taxes) and $98.0 million ($60.0 million net of income taxes), respectively, that have not yet been recognized in net periodic benefit cost. The unrecognized actuarial gains and losses and unrecognized prior service cost included in accumulated other comprehensive income and expected to be recognized in net periodic benefit cost in 2018 is $11.4 million. The weighted average assumptions used to determine net periodic benefit expense for the three years ended December 31, 2017 were: Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ___________ 3.5% 2.0% 5.3% 2016 ___________ 3.7% 2.0% 4.8% 2015 ___________ 3.5% 1.9% 5.7% The expected long-term rate of return for plan assets for the U.S. plans is based on several factors, including current and expected asset allocations, historical and expected returns on various asset classes and current and future market conditions. A total return investment approach using a mix of equities and fixed income investments maximizes the long-term return. This strategy is intended to minimize plan expense by achieving long-term returns in excess of the growth in plan liabilities over time. F-23 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The discount rate used to compute net periodic benefit cost is based on yields of available high-quality bonds and reflects the expected cash flow as of the measurement date. The expected returns on plan assets and discount rates for the non-U.S. plans are based on local factors, including each plan’s investment approach, local interest rates and plan participant profiles. Experience gains and losses and the effects of changes in actuarial assumptions are generally amortized over a period no longer than the expected average future service of active employees. Our funding policy is to contribute amounts sufficient to meet minimum funding requirements in accordance with the applicable employee benefit and tax laws that the plans are subject to, plus such additional amounts as we may determine to be appropriate. We contributed $8.3 million, $6.6 million and $4.2 million in 2017, 2016 and 2015, respectively, to our defined benefit pension plans. We do not expect our contributions for 2018 to differ materially from our 2017 contributions. At December 31, 2017 and 2016, the benefit obligation, fair value of plan assets and funded status of our defined benefit pension plans were (in millions): Benefit Obligation: January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amendments, curtailments and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair Value of Plan Assets: January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 _________________ 2016 _________________ $ 251.1 10.1 7.9 0.3 6.8 (9.1) 9.9 ____________ $ 277.0 ____________ ____________ $ 68.6 6.3 8.3 (9.1) 6.2 ____________ ____________ $ 80.3 ____________ ____________ $ 234.8 7.8 7.8 — 13.3 (9.4) (3.2) ____________ $ 251.1 ____________ ____________ $ 68.9 4.9 6.6 (9.4) (2.4) ____________ ____________ $ 68.6 ____________ ____________ Funded Status December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(196.7) ____________ ____________ $(182.5) ____________ ____________ At December 31, 2017 and 2016, the funded status was classified as follows (in millions): Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 _________________ 2016 _________________ $ 6.0 (5.1) (197.6) ____________ $(196.7) ____________ ____________ $ 4.2 (5.1) (181.6) ____________ $(182.5) ____________ ____________ The accumulated benefit obligation for our defined benefit pension plans at December 31, 2017 and 2016, was $264.5 million and $240.8 million, respectively. At December 31, 2017 and 2016, plans with benefit obligations in excess of plan assets were (in millions): Benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 _________________ $253.8 51.1 ___________ $202.7 ___________ ___________ 2016 _________________ $241.3 54.6 ___________ $186.7 ___________ ___________ F-24 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The weighted average assumptions used to determine the benefit obligation at December 31, 2017 and 2016, were: Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 __________ 3.1% 2.0% 2016 ___________ 3.5% 2.0% At December 31, 2017, the estimated benefits expected to be paid over the next 10 years are (in millions): 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.7 10.8 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.1 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.8 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.6 2023 – 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The fair value of plan assets at December 31, 2017 and 2016 was (in millions): 2017 ________ Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 ________ Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Level 1 _______ Level 2 _______ Level 3 _______ Total ______ $ 1.0 41.5 28.2 _________ $70.7 _________ _________ $ 1.6 39.0 23.5 _________ $64.1 _________ _________ $ 1.0 41.5 28.2 8.6 1.0 _________ $80.3 _________ _________ $ 1.6 39.0 23.5 4.3 0.2 _________ $68.6 _________ _________ $ 1.0 _________ $ 1.0 _________ _________ $ 0.2 _________ $ 0.2 _________ _________ $ 8.6 _________ $ 8.6 _________ _________ $ 4.3 _________ $ 4.3 _________ _________ Mutual funds and unit trusts are publicly traded and are valued using quoted market prices. The mutual funds and unit trusts include investments in equity and fixed income securities. Insurance contracts primarily consist of guaranteed investment contracts. Other investments primarily consist of commingled short-term investment funds. Changes in the fair value of plan assets measured using Level 3 inputs at December 31, 2017 and 2016 were (in millions): January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases, sales and settlements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The weighted average asset allocations at December 31, 2017 and 2016 were: 2017 _______ $4.3 0.2 4.1 _______ $8.6 _______ _______ 2016 _______ $4.2 0.2 (0.1) _______ $4.3 _______ _______ Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 __________________________________________________ Target Allocation ___________________ 4% 48% 34% 11% 3% ______ 100% ______ ______ Actual Allocation ____________________ 1% 52% 35% 11% 1% ______ 100% ______ ______ 2016 ___________________ Actual Allocation ___________________ 3% 57% 34% 6% —% ______ 100% ______ ______ F-25 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Risk tolerance for these plans is established through consideration of plan liabilities, funded status and evaluation of the overall investment environment. The investment portfolios comprise a mix of equity and fixed-income investments. Equity investments are diversified across geography and market capitalization through investment in large and medium capitalization U.S. and international equities. Fixed income investments include a mix of U.S. and international debt securities. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, and periodic asset/liability studies and investment portfolio reviews. Postemployment Arrangements We have executive retirement agreements under which benefits will be paid to participants or to their beneficiaries over periods up to ten years beginning after cessation of full-time employment. Our postemployment arrangements are unfunded and benefits are paid when due. The components of net periodic benefit expense for the three years ended December 31, 2017 were (in millions): Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ____________ $ 4.4 3.7 3.5 1.0 _________ $12.6 _________ _________ 2016 ____________ $ 3.9 3.5 3.1 1.1 _________ $11.6 _________ _________ 2015 ____________ $ 4.8 4.3 3.2 1.6 _________ $13.9 _________ _________ Included in accumulated other comprehensive income at December 31, 2017 and 2016 were unrecognized actuarial losses and unrecognized prior service cost of $54.0 million ($33.0 million net of income taxes) and $51.0 million ($30.0 million net of income taxes), respectively, that have not yet been recognized in the net periodic benefit cost. The unrecognized actuarial gains and losses and unrecognized prior service cost included in accumulated other comprehensive income and expected to be recognized in net periodic benefit cost in 2018 is $5.2 million. The weighted average assumptions used to determine net periodic benefit expense for the three years ended December 31, 2017 were: Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ___________ 3.9% 3.5% 2016 ___________ 4.1% 3.5% 2015 ___________ 3.8% 3.5% Experience gains and losses and effects of changes in actuarial assumptions are amortized over a period no longer than the expected average future service of active employees. At December 31, 2017 and 2016, the benefit obligation was (in millions): January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2017 and 2016, the liability was classified as follows (in millions): Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ______________ $120.3 4.4 3.7 — 8.1 (8.8) ___________ $127.7 ___________ ___________ 2017 ______________ $ 9.3 118.4 ___________ $127.7 ___________ ___________ 2016 ______________ $115.9 3.9 3.5 5.6 0.6 (9.2) ___________ $120.3 ___________ ___________ 2016 ______________ $ 8.1 112.2 ___________ $120.3 ___________ ___________ F-26 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The weighted average assumptions used to determine the benefit obligation at December 31, 2017 and 2016 were: Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4% 3.5% 3.9% 3.5% At December 31, 2017, the estimated benefits expected to be paid over the next 10 years are (in millions): 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 – 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.3 7.4 6.6 6.1 6.5 33.2 2017 ___________ 2016 ___________ 12. Supplemental Cash Flow Data The increase in operating capital for the three years ended December 31, 2017 was (in millions): (Increase) decrease in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in work in process and other current assets . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in customer advances, taxes payable and other current liabilities . . . . . . Change in other assets and liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ______________ $(341.6) 5.4 763.2 4.8 (83.3) ____________ $ 348.5 ____________ ____________ 2016 ______________ $(376.5) (89.7) 741.9 31.6 (4.5) ____________ $ 302.8 ____________ ____________ 2015 ________________ $(1,063.6) (79.6) 1,443.7 243.9 15.1 ________________ $ 559.5 ________________ ________________ Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 566.0 $ 226.2 $ 570.4 $ 216.7 $ $ 540.1 173.9 13. Noncontrolling Interests Changes in the ownership interests in our less than 100% owned subsidiaries for the three years ended December 31, 2017 were (in millions): 2017 ______________ Net income attributed to Omnicom Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,088.4 ______________ Transfers (to) from noncontrolling interests: 2016 ______________ $1,148.6 ______________ 2015 ______________ $1,093.9 ______________ Increase in additional paid-in capital from sale of shares in noncontrolling interests . . . . Decrease in additional paid-in capital from purchase of shares in noncontrolling interests . . Net transfers (to) from noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 (27.5) ______________ (25.7) ______________ 2.0 (89.7) ______________ (87.7) ______________ 1.7 (40.5) ______________ (38.8) ______________ Change from net income attributed to Omnicom Group Inc. and transfers (to) from noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,062.7 ______________ ______________ $1,060.9 ______________ ______________ $1,055.1 ______________ ______________ 14. Leases We lease our office space under operating leases and our equipment under operating and capital leases. Office leases may include renewal options. In circumstances where the exercise of a renewal option is reasonably assured at the inception of the lease, the renewal period is included in the determination of the lease term. Office leases may also include scheduled rent increases and concessions, such as rent abatements and landlord incentives and tenant improvement allowances. Scheduled rent increases are recognized on a straight-line basis over the lease term and concessions are recorded as deferred rent and are amortized in rent expense on a straight-line basis over the lease term. Certain office leases require payment of real estate taxes and other occupancy costs and these costs are not included in rent expense. Leasehold improvements made at inception or during the lease term are amortized over the shorter of the asset life or the lease term, which may include renewal periods where the renewal is reasonably assured. F-27 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Rent expense for the three years ended December 31, 2017 was (in millions): Office base rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third party sublease rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net office rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ______________ $336.7 (6.3) ___________ 330.4 20.1 ___________ $350.5 ___________ ___________ 2016 ______________ $339.7 (5.6) ___________ 334.1 21.0 ___________ $355.1 ___________ ___________ 2015 ______________ $342.5 (11.0) ___________ 331.5 22.6 ___________ $354.1 ___________ ___________ The aggregate minimum lease payments under non-cancelable operating leases, reduced by third party sublease rent receivable from existing non-cancelable subleases, and capital leases are (in millions): Operating Leases _________________ 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 317.8 249.7 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198.3 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169.4 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.2 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627.2 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ______________ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,706.6 (19.0) Sublease rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ______________ $1,687.6 Net operating lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ______________ ______________ Interest component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Present value of minimum capital lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital Leases _______________ $ 34.5 30.0 26.4 17.1 6.4 3.1 ___________ 117.5 (7.0) ___________ $110.5 ___________ ___________ Property under capital lease and capital lease obligations at December 31, 2017 and 2016 were (in millions): Property under capital lease: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease obligations: Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ______________ 2016 ______________ $229.3 (121.0) ___________ $108.3 ___________ ___________ $ 31.6 78.9 ___________ $110.5 ___________ ___________ $184.8 (110.2) ___________ $ 74.6 ___________ ___________ $ 24.2 49.8 ___________ $ 74.0 ___________ ___________ Depreciation expense for property under capital lease was $31.1 million, $27.2 million and $26.5 million in 2017, 2016 and 2015, respectively. 15. Temporary Equity – Redeemable Noncontrolling Interests Owners of noncontrolling equity interests in some of our subsidiaries have the right in certain circumstances to require us to purchase all or a portion of their equity interest at fair value as defined in the applicable agreements. Assuming that the subsidiaries perform over the relevant periods at their current profit levels, at December 31, 2017 the aggregate estimated maximum amount we could be required to pay in future periods is $182.4 million, of which $130.5 million is currently exercisable by the holders. If these rights are exercised, there would be an increase in the net income attributable to Omnicom as a result of our increased ownership interest and the reduction of net income attributable to noncontrolling interests. The ultimate amount paid could be significantly different because the redemption amount depends on the future results of operations of the subject businesses, the timing of the exercise of these rights and changes in foreign currency exchange rates. F-28 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 16. Commitments and Contingent Liabilities In the ordinary course of business, we are involved in various legal proceedings. We do not presently expect that these proceedings will have a material adverse effect on our results of operations or financial position. On December 14, 2016, two of our subsidiaries received subpoenas from the U.S. Department of Justice Antitrust Division concerning its ongoing investigation of video production and post-production practices in the advertising industry. The Company is fully cooperating with the investigation. While the ultimate effect of the investigation is inherently uncertain, we do not at this time believe that the investigation will have a material adverse effect on our results of operations or financial position. However, the ultimate resolution of these matters could be different from our current assessment and the differences could be material. 17. Equity Changes in accumulated other comprehensive income (loss), net of income taxes, for the years ended December 31, 2017 and 2016 were (in millions): January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) before reclassifications . . . . Reclassification from accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) before reclassifications . . . . Reclassification from accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flow Hedge ________ $ (3.3) ____________ (28.5) Available- for-Sale Securities _________ $ (0.9) _________ 0.1 2.3 ____________ (29.5) — — _________ (0.8) 0.5 3.2 ____________ $ (26.3) ____________ ____________ — _________ $ (0.3) _________ _________ Defined Benefit Pension Plans Foreign and Postemployment Currency Translation Arrangements Total __________ ______________ __________ $(923.3) $(1,015.4) $(87.9) _______________ _____________ __________ (351.2) (311.8) (11.0) 8.3 __________ (90.6) (7.2) 9.4 __________ $(88.4) __________ __________ — _____________ (1,235.1) 387.1 10.6 _______________ (1,356.0) 380.4 — _____________ $(848.0) _____________ _____________ 12.6 _______________ $ (963.0) _______________ _______________ In December 2016, we retired 100 million shares of our treasury stock, which reduced the number of common shares issued and treasury shares held. Upon retirement, the excess of the average cost of the treasury stock over the par value of the common stock was charged to retained earnings. Accordingly, the balance sheet at December 31, 2016 reflects a reduction in common stock, retained earnings and treasury stock. The retirement of the treasury stock had no impact on shareholders’ equity or common stock outstanding. The retired treasury shares are included in the authorized but unissued common shares. 18. Fair Value Financial assets and liabilities measured at fair value on a recurring basis at December 31, 2017 and 2016 were (in millions): 2017 ________ Assets: Level 1 __________________ Level 2 __________________ Level 3 __________________ Total __________________ Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,796.0 0.4 1.4 Liabilities: Interest rate and foreign currency derivatives . . . . . . . . . . . . . . . . . . . . . . . . Contingent purchase price obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,796.0 0.4 1.4 1.0 $ 39.5 215.6 $ 1.0 $39.5 $215.6 F-29 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Level 1 __________________ Level 2 __________________ Level 3 __________________ Total __________________ 2016 _________ Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,002.2 20.6 4.3 Liabilities: Interest rate and foreign currency derivatives . . . . . . . . . . . . . . . . . . . . . . . . Contingent purchase price obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,002.2 20.6 4.3 0.2 $ 48.9 386.1 $ 0.2 $48.9 $386.1 Changes in contingent purchase price obligations for the years ended December 31, 2017 and 2016 were (in millions): January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revaluation and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 ______________ $386.1 31.9 (27.4) (187.0) 12.0 ___________ $215.6 ___________ ___________ 2016 ______________ $322.0 165.3 18.0 (103.7) (15.5) ___________ $386.1 ___________ ___________ The carrying amount and fair value of our financial assets and liabilities at December 31, 2017 and 2016 were (in millions): Assets: 2017 ________________________________________________ Carrying Amount _________ Fair Value _________ 2016 ________________________________________________ Carrying Amount _________ Fair Value _________ Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities: Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate and foreign currency derivatives . . . . . . . . . . . . . . . . Contingent purchase price obligations . . . . . . . . . . . . . . . . . . . . . Long-term debt, including current portion . . . . . . . . . . . . . . . . . $3,796.0 0.4 1.4 1.0 14.4 $ 11.8 39.5 215.6 4,912.9 $3,796.0 0.4 1.4 1.0 14.4 $ 11.8 39.5 215.6 5,056.9 $3,002.2 20.6 4.3 0.2 14.2 $ 28.7 48.9 386.1 4,920.6 $3,002.2 20.6 4.3 0.2 14.2 $ 28.7 48.9 386.1 5,035.1 The estimated fair value of the foreign currency and interest rate derivative instruments is determined using model-derived valuations, taking into consideration foreign currency rates for the foreign currency derivatives and readily observable inputs for LIBOR interest rates and yield curves to derive the present value of the future cash flows for the interest rate derivatives and counterparty credit risk for each. The estimated fair value of the contingent purchase price obligations is calculated in accordance with the terms of each acquisition agreement and is discounted. The fair value of long-term debt is based on quoted market prices. 19. Derivative Instruments and Hedging Activities We manage our exposure to foreign exchange and interest rate risk through various strategies, including the use of derivative financial instruments. We use forward foreign exchange contracts as economic hedges to manage the cash flow volatility arising from foreign exchange rate fluctuations. We use interest rate swaps to manage our interest expense and structure our long-term debt portfolio to achieve a mix of fixed rate and floating rate debt. We do not use derivatives for trading or speculative purposes. Using derivatives exposes us to the risk that counterparties to the derivative contracts will fail to meet their contractual obligations. We manage that risk through careful selection and ongoing evaluation of the counterparty financial institutions based on specific minimum credit standards and other factors. F-30 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) We evaluate the effects of changes in foreign currency exchange rates, interest rates and other relevant market risks on our derivatives. We periodically determine the potential loss from market risk on our derivatives by performing a value-at-risk, or VaR, analysis. VaR is a statistical model that uses historical currency exchange and interest rate data to measure the potential impact on future earnings of our derivative financial instruments assuming normal market conditions. The VaR model is not intended to represent actual losses but is used as a risk estimation and management tool. Based on the results of the model, we estimate with 95% confidence a maximum one-day change in the net fair value of our derivative financial instruments at December 31, 2017 was not significant. Foreign Exchange Risk As an integral part of our global treasury operations, we centralize our cash and use multicurrency pools to manage the foreign exchange risk that arises from imbalances between subsidiaries and their respective treasury centers from which they borrow or invest funds. However, in certain circumstances, subsidiaries borrowing or investing with a treasury center operating in a different currency creates foreign exchange exposure. To manage that risk, we had outstanding forward foreign exchange contracts with an aggregate notional amount of $92.8 million and $99.0 million at December 31, 2017 and 2016, respectively. Additionally, there are circumstances where revenue and expense transactions are not denominated in the same currency. In these instances, amounts are either promptly settled or hedged with forward foreign exchange contracts. To manage that risk, we had outstanding forward foreign exchange contracts with an aggregate notional amount of $136.3 million and $94.0 million at December 31, 2017 and 2016, respectively. The net fair value of the forward foreign contracts at December 31, 2017 and 2016 was a current asset of $0.9 million and a current liability of $1.1 million, respectively. Foreign currency derivatives are designated as fair value hedges; therefore, any gain or loss in fair value incurred on those instruments is recorded in results of operations and is generally offset by decreases or increases in the fair value of the underlying exposures. By using these financial instruments, we reduced financial risk of adverse foreign exchange changes by foregoing any gain which might have occurred if the markets moved favorably. The terms of our forward foreign exchange contracts are generally less than 90 days. Interest Rate Risk We use interest rate swaps to manage our interest cost and structure our long-term debt portfolio to achieve a mix of fixed rate and floating rate debt. Based on market conditions, we may terminate the swaps to reduce our exposure to rising interest rates or to monetize any gain and lock in a reduction in interest expense over the term of the underlying debt. The total notional amount of the outstanding fixed-to-floating interest rate swaps at December 31, 2017 and 2016, was $1.25 billion. See Note 6 for a discussion of our interest rate swaps. 20. New Accounting Standards Effective January 1, 2018, we will adopt FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. As a result, we will change our revenue recognition accounting policy as described below. ASC 606 will be applied using the modified retrospective method, where the cumulative effect of the initial application is recognized as an adjustment to opening retained earnings at January 1, 2018 and is not expected to have a material impact on our financial position. ASC 606 provides a five-step model where revenue is recognized when the customer obtains control of the promised goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. The adoption of ASC 606 will not have a material impact on how we recognize revenue for fixed fee or retainer-based arrangements. Clients typically receive the benefit of our services as we perform. We will continue to recognize revenue over time using inputs or outputs to measure our progress. Revenue for commission-based arrangements will continue to be recognized at a point-in-time. ASC 606 also includes additional disclosure requirements. For certain of our businesses, the adoption of ASC 606 will result in a change in our accounting policy for certain third- party out-of-pocket costs, which are incurred in connection with our services and are billed to clients. The inclusion of third- party out-of-pocket costs in revenue depends on whether we act as a principal or agent in the client arrangement. Under ASC 606, the principal versus agent assessment is based on whether we control the specified goods or services before they are transferred to the customer. As a result of the adoption of ASC 606, certain third-party costs are no longer included in revenue and cost of services. This change will reduce reported revenue and will have no impact on operating profit. F-31 OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In addition, performance incentives that can increase revenue if we meet certain quantitative or qualitative objectives in delivering our services will be treated as variable consideration. Performance incentives were recognized in revenue when specific quantitative goals were achieved, or when our performance against qualitative goals was acknowledged by the client. Under ASC 606, variable consideration is estimated and included in total consideration at contract inception based on either the expected value method or the most likely method. These estimates are based on historical award experience, anticipated performance and our best judgment at the time. This change will have offsetting effects in each period and the net effect will not be material to our results of operations or financial position. In February 2016, the FASB issued ASU 2016-02, Leases, or ASU 2016-02, which will supersede the current guidance for lease accounting and will require lessees to recognize the right-to-use assets and related lease liabilities on the balance sheet. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 and early adoption is permitted. ASU 2016-02 provides for a modified retrospective application for leases existing at, or entered into after, the earliest comparative period presented in the financial statements. We will adopt ASU 2016-02 on January 1, 2019. While we are not yet in a position to assess the full impact of the application of the new standard, we expect that the impact of recording the lease liabilities and the corresponding right-to-use assets will have a significant impact on our total assets and liabilities with a minimal impact on our equity and no effect on results of operations. In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01, which revises the classification and measurement of investments in equity securities. ASU 2016-01 requires equity investments, except those accounted for under the equity method of accounting, be measured at fair value and changes in fair value will be recognized in net income. ASU 2016-01 is effective on January 1, 2018 using a cumulative-effect adjustment to opening retained earnings. We do not expect that the adoption of ASU 2016-01 will not have a significant impact on our financial position or results of operations. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. We will adopt ASU 2016-13 on January 1, 2020. However, we are not yet in a position to assess the impact of the new standard on our results of operations or financial position. In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits, or ASU 2017-07, which requires that only the service cost component of periodic benefit cost is recorded in salary and service cost. All other components of net periodic benefit cost are presented separately and are excluded from operating profit. ASU 2017-07 is effective on January 1, 2018 using the full retrospective method. The adoption of ASU 2017-07 will have the effect of increasing operating profit but will have no effect on income before income taxes and equity method investments, net income or earnings per share. 21. Subsequent Events We have evaluated events subsequent to the balance sheet date and determined there have not been any events that have occurred that would require adjustment to or disclosure in the consolidated financial statements. F-32 OMNICOM GROUP INC. AND SUBSIDIARIES Selected Quarterly Financial Data (Unaudited) (In millions, except per share amounts) The unaudited selected quarterly financial data for the years ended December 31, 2017 and 2016 were: Quarter ____________________________________________________________________________________________________ First __________________ Second __________________ Third __________________ Fourth __________________ Revenue 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,587.4 3,499.1 $3,790.1 3,884.9 $3,719.5 3,791.1 $4,176.6 4,241.8 Operating Expenses 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,177.5 3,107.0 3,224.6 3,323.1 3,255.3 3,338.0 3,556.5 3,639.9 Operating Profit 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income – Omnicom Group Inc. 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income Per Share Omnicom Group Inc. – Basic 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income Per Share Omnicom Group Inc. – Diluted 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409.9 392.1 241.8 218.4 1.03 0.90 1.02 0.90 565.5 561.8 328.6 326.1 1.41 1.36 1.40 1.36 464.2 453.1 263.6 253.8 1.14 1.06 1.13 1.06 620.1 601.9 254.4 350.3 1.10 1.47 1.09 1.47 F-33 OMNICOM GROUP INC. AND SUBSIDIARIES SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS For the Three Years Ended December 31, 2017 (In millions) Description _____________________ Valuation accounts deducted from assets: Allowance for Doubtful Accounts: Balance Beginning of Period __________________ Charged to Costs and Expenses _______________________ Removal of Uncollectible Receivables _____________________ Translation Adjustment Increase (Decrease) ____________________ Balance End of Period __________________ December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . $24.9 December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . 22.5 24.9 $15.1 10.2 4.4 $(8.2) (7.4) (5.4) $0.3 (0.4) (1.4) $32.1 24.9 22.5 S-1 Omnicom Financial Performance Return On Equity — 10 Year Average 32.3% 60% 40% 20% 0% 0808 0909 1010 11 12 13 14 15 16 17 Return on Equity – Net Income for each year divided by average Shareholders’ Equity for that year. Cumulative Percentage of Net Income Returned to Shareholders ($ in billions) $10.0 $7.5 $5.0 $2.5 $0.0 95% $1.0 08 63% $1.8 09 97% $2.6 1.9 0.6 10 99% $3.6 2.7 0.9 11 108% $7.8 5.8 2.6 15 108% $6.7 5.1 2.1 14 106% $4.6 3.6 1.3 12 102% $5.6 4.1 1.6 13 105% $10.0 7.0 3.6 17 106% $8.9 6.4 3.1 16 Percentage of Cumulative Net Income Returned to Shareholders – Cumulative Dividends Paid plus Cumulative Cost of Net Shares Repurchased divided by Cumulative Net Income. Cumulative Net Income – Omnicom Group Inc. Cumulative Cost of Net Shares Repurchased – Repurchases of common stock less proceeds from stock plans. Cumulative Dividends Paid. Past performance does not guarantee future results. This Annual Report to Shareholders contains forward-looking statements, and actual results could differ materially. Risk factors that could cause actual results to differ are set forth in the “Risk Factors” section and throughout our 2017 Form 10-K, which is included in this Annual Report. Omnicom Financial Highlights (In millions, except per share amounts) Operating Data: Revenue Operating Profit Net Income – Omnicom Group Inc. Net Income Per Share – Omnicom Group Inc.: Basic Diluted Dividends Per Share 2017 2016 2015 2014 2013 $15,273.6 2,059.7 1,088.4 $15,416.9 2,008.9 1,148.6 $15,134.4 1,920.1 1,093.9 $15,317.8 1,944.1 1,104.0 $14,584.5 1,825.3 991.1 $4.68 4.65 $2.25 $4.80 4.78 $2.15 $4.43 4.41 $2.00 $4.27 4.24 $1.90 $3.73 3.71 $1.60 In 2017, the Tax Cuts and Jobs Act reduced Net Income – Omnicom Group Inc. by $106.3 million and Diluted Net Income Per Share – Omnicom Group Inc. by $0.45. PERFORMANCE GRAPH The graph below compares the cumulative total return on our common stock during the last five fiscal years with the Standard & Poor’s 500 Composite Index and a peer group of publicly held corporate communications and marketing holding companies. The peer group consists of The Interpublic Group of Companies, Inc., WPP plc and Publicis Groupe SA. Havas SA was removed from the peer group following its acquisition by Vivendi SA in 2017. The graph shows the value at the end of each year of each $100 invested in our common stock, the S&P 500 Index and the peer group. The graph assumes the reinvestment of dividends. Returns depicted in the graph are not indicative of future performance. Comparison of Cumulative Five Year Return $250 $200 $150 $100 $50 Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Omnicom Group, Inc. S&P 500 Index Peer Group Board Of Directors Officers Omnicom BRUCE CRAWFORD* Chairman, Omnicom Group Inc. JOHN D. WREN President and Chief Executive Officer, Omnicom Group Inc. LEONARD S. COLEMAN, JR.‡ Former Senior Advisor, Major League Baseball, Former Chairman, Arena Co. ALAN R. BATKIN Chairman and Chief Executive Officer, Converse Associates, Inc. MARY C. CHOKSI Former Founding Partner and Senior Manager, Strategic Investment Group ROBERT CHARLES CLARK Harvard University Distinguished Service Professor, Harvard Law School SUSAN S. DENISON Former Partner, Cook Associates RONNIE S. HAWKINS Managing Director, Head of International Investments and Member of the Investment Committee, EIG Global Energy Partners DEBORAH J. KISSIRE Former Vice Chair and Regional Managing Partner, EY GRACIA C. MARTORE Former President and Chief Executive Officer, TEGNA Inc. JOHN R. MURPHY* Former Trustee, National Geographic Society JOHN R. PURCELL* Chairman and Chief Executive Officer, Grenadier Associates Ltd. LINDA JOHNSON RICE Chairman and Chief Executive Officer, Johnson Publishing Company LLC and Fashion Fair Cosmetics VALERIE M. WILLIAMS Former Southwest Assurance Managing Partner, EY ‡ Lead Independent Director * Scheduled to retire on May 22, 2018 Committees Of The Board AUDIT Mary C. Choksi, Chair Robert Charles Clark Deborah J. Kissire Gracia C. Martone John R. Murphy Valerie M. Williams COMPENSATION Susan S. Denison, Chair Alan R. Batkin Mary C. Choksi Leonard S. Coleman, Jr. Linda Johnson Rice JOHN D. WREN President and Chief Executive Officer PHILIP J. ANGELASTRO Executive Vice President and Chief Financial Officer ANDREW L. CASTELLANETA Senior Vice President, Chief Accounting Officer CRAIG CUYAR Senior Vice President and Global Chief Information Officer SERGE DUMONT Vice Chairman Chairman, Omnicom Asia Pacific DENNIS E. HEWITT Treasurer ASIT MEHRA Executive Vice President JONATHAN B. NELSON Chief Executive Officer, Omnicom Digital MICHAEL J. O’BRIEN Senior Vice President, General Counsel and Secretary JANET RICCIO Executive Vice President RITA E. RODRIGUEZ Executive Vice President PETER K. SHERMAN Executive Vice President PETER L. SWIECICKI Senior Vice President, Finance and Controller TIFFANY R. WARREN Senior Vice President and Chief Diversity Officer JOHN C. WYNNE Senior Vice President – Tax FINANCE Leonard S. Coleman, Jr., Chair Alan R. Batkin Bruce Crawford Ronnie S. Hawkins Deborah J. Kissire John R. Murphy John R. Purcell Valerie M. Williams GOVERNANCE Robert Charles Clark, Chair Leonard S. Coleman, Jr. Susan S. Denison Gracia C. Martore John R. Purcell Linda Johnson Rice Omnicom Corporate Information PRINCIPAL EXECUTIVE OFFICES OMNICOM GROUP INC. 437 Madison Avenue New York, New York 10022 Tel: (212) 415-3600 OMNICOM GROUP INC. 1055 Washington Boulevard Stamford, Connecticut 06901 Tel: (203) 618-1500 OMNICOM GROUP INC. 525 Okeechobee Boulevard Suite 870 West Palm Beach, Florida 33411 Tel: (561) 207-2200 OMNICOM EUROPE LIMITED 85 Strand London WC2R 0DW United Kingdom Tel: +44 (0) 20 7298 7007 OMNICOM ASIA PACIFIC – SINGAPORE Creative Centre at Pico Lobby B Level 8 20 Kallang Avenue Singapore 339411 Tel: +65 6671 4420 OMNICOM ASIA PACIFIC – SHANGHAI 3701, 1 Grand Gateway, No. 1 Hong Qiao Road Xu Hui District, Shanghai 200030 P.R. China Tel: +86 21 6407 0066, ext 846 www.omnicomgroup.com Printed on Recycled Paper ANNUAL MEETING The Annual Meeting of Shareholders will be held on Tuesday, May 22, 2018, at 10 A.M. Eastern Daylight Time at 15th Floor Conference Center 220 East 42nd Street New York, New York 10017 SEC CERTIFICATIONS The certifications by the Chief Executive Officer and President and the Executive Vice President and Chief Financial Officer of Omnicom Group Inc., required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, have been filed as exhibits to the company’s 2017 Annual Report on Form 10-K. NYSE CERTIFICATION After the 2018 Annual Meeting of Shareholders, Omnicom intends to file with the New York Stock Exchange (NYSE) the CEO certification regarding Omnicom’s compliance with the NYSE’s corporate governance listing standards as required by NYSE rule 303A.12. Last year, the Chief Executive Officer and President of Omnicom submitted this certification to the NYSE on June 23, 2017. STOCK LISTING Omnicom common stock is traded on the New York Stock Exchange. The ticker symbol is OMC. TRANSFER AGENT & REGISTRAR Equiniti Trust Company EQ Shareowner Services PO Box 64854, St. Paul, Minnesota 55164-0854 www.shareowneronline.com INVESTOR SERVICES PROGRAM An Investor Services Program, which includes direct stock purchase and dividend reinvestment features, is available to shareholders of record and other interested investors. For further information, please contact EQ Shareowner Services at 800.468.9716 or go to www.shareowneronline.com. STOCK TRANSFER MATTERS/CHANGE OF ADDRESS To assist you in handling matters relating to stock transfer or change of address, please write to or call our transfer agent: EQ Shareowner Services PO Box 64854, St. Paul, Minnesota 55164-0854 800.468.9716 Or, by courier to: EQ Shareowner Services 1110 Centre Pointe Curve, Suite 101 Mendota Heights, Minnesota 55120-4100 INDEPENDENT AUDITORS KPMG LLP 345 Park Avenue New York, New York 10154 

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