SecProbe.io

CORRESP
1
filename1.htm

		Document

CONFIDENTIAL TREATMENT REQUESTED BY OMNICOM GROUP INC.

Omnicom Group Inc.

437 Madison Avenue

New York, NY 10022

Attn: Mr. Philip J. Angelastro, Executive Vice President and Chief Financial Officer

(212) 415-3098

April 28, 2017

Mr. Carlos Pacho

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, NE

Washington, D.C. 20549

Re:    Omnicom Group Inc.

Form 10‑K for Fiscal Year Ended December 31, 2016

Filed February 9, 2017

File No. 001-10551

Dear Mr. Pacho:

This letter responds to the comment letter, dated April 12, 2017, of the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) relating to Omnicom Group Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. For your convenience, the comments in the letter are repeated below. All references to “Omnicom,” “we,” “us” and “our” refer to Omnicom Group Inc.

Pursuant to 17 C.F.R. §200.83, we request that confidential treatment under the Freedom of Information Act (“FOIA”) be afforded to the redacted portions of our response to Staff Comment 4, which includes Attachment 3 through Attachment 6. The confidential information is marked with bracketed asterisks (“[***]”). Omnicom believes that the confidential information contains proprietary business information that should not be disclosed to any person. If any person requests access to the confidential information referred to herein, whether pursuant to the FOIA or otherwise, we request in accordance with Rule 83 that we be promptly notified of any such request and furnished with a copy of all written materials pertaining to such request, so that we may further substantiate the foregoing request for confidential treatment. Please address any notifications of a request for access to such documents to the undersigned.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 9

Results of Operations - 2016 Compared to 2015, page 15

1.

 Please revise the reconciliation of the non-GAAP measure EBITA to begin with net income, the most directly comparable GAAP financial measure. Your current presentation places greater prominence on the non-GAAP measure and is inconsistent with Question 102.10 of the updated Compliance and Disclosure Interpretation Guidance on non-GAAP financial measures issued on May 17, 2016. In addition, please revise your presentation in your next earnings release.

RESPONSE

In response to the Staff's comment, we have revised the presentation in our earnings release for the three months ended March 31, 2017 (“Q1 2017 Earnings Release”) to reflect a reconciliation of non-GAAP financial measures as presented in Attachment 1, and we advise the Staff that future filings, including our Quarterly Report on Form 10-Q for the three months ended March 31, 2017, will include this revised presentation. The Q1 2017 Earnings Release was furnished as Exhibit 99.1 to our Current Report on Form 8-K on April 18, 2017. We believe that the modified presentation is consistent with the guidelines in Question 102.10 of the updated Compliance and Disclosure Interpretation Guidance on non-GAAP financial measures regarding the disclosure and prominence of non-GAAP measures.

2.

 We note your disclosures of the components of revenue change on page 15. Please disclose in more detail how you calculate the amounts identified as Acquisitions, net of dispositions, why it is calculated in this manner and why you believe this measure provides useful information to investors. In addition, provide a table showing the components that make up your calculation of Acquisitions, net of dispositions.

3.

 Regarding your measure of organic growth, please disclose why management is apparently attributing any positive developments in an acquired business that may have taken place during the period preceding the acquisition to organic growth. Explain how investors should consider this circumstance when assessing performance using your measure of organic growth.

RESPONSE

We have combined our response to Staff Comments 2 and 3.

Omnicom was formed in 1986 through the merger of several advertising, marketing and corporate communication Networks. Throughout our history and continuing to this day, our acquisition strategy is focused on pursuing selective acquisitions of complementary companies with strong entrepreneurial management teams that typically currently serve, or have the ability to serve, our existing client base. Over the last several years the acquisitions have been of small to moderately sized businesses that have not been determined to be significant, either individually or in the aggregate, that would require preparation of acquired business financial statements under Rule 3-05 of Regulation S-X. In addition, we continually evaluate our portfolio of businesses to identify underperforming and non-strategic businesses for disposition. The dispositions have also been of relatively small businesses that have not been determined to be significant, either individually or in the aggregate, that would require preparation of pro forma financial statements under Article 11 of Regulation S-X. To help our shareholders and investors, although we are not required to do so, we have historically isolated the net effect on our revenue from acquisitions and dispositions, as well as the effects of changes in foreign exchange rates, in our presentation of the components of our change in revenue and have included this presentation in our annual and quarterly reports and earnings release materials.

Description of and Calculation of Acquisitions, Net of Dispositions

Omnicom has consistently disclosed the components of the change in our revenue for over 15 years, and has described the calculation methodology below the tabular presentation in our Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). The calculation of organic growth has been applied consistently over the period, and we believe it provides useful information to aid investors in understanding the period-to-period changes in our revenue resulting from foreign exchange impacts and our acquisition and disposition activity.

Our organic growth calculation starts with prior year reported revenue and ends with current year reported revenue. We start and end with reported revenue so that all changes in revenue from period-to-period are reconciled to our reported revenue amounts. We believe this approach adds to the clarity of our disclosure. We categorize the changes into one of three components: the impact of foreign exchange rates, the impact from acquisitions, net of dispositions, and organic growth.

Our organic growth calculation can be broadly described as a rate / volume variance calculation applied to our ongoing operations. First, we calculate the rate component by isolating and quantifying the effects of foreign currency (“FX”) rate changes on our current year reported revenue by applying prior year FX rates to current year reported revenue. The resulting volume variance has two components: the effect of acquisition revenue, net of dispositions (which are also measured at prior year FX rates), and a residual amount that we attribute to Omnicom’s organic growth.

We described the organic growth calculation in detail in our Q1 2017 Earnings Release as follows:

We use certain terms in describing the components of the change in revenue.

Foreign exchange rate impact: calculated by translating the current period’s local currency revenue using the prior period average exchange rates to derive current period constant currency revenue. The foreign exchange rate impact is the difference between the current period revenue in U.S. Dollars and the current period constant currency revenue.

Acquisition revenue, net of disposition revenue: 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 date 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 disposals through the disposition date. The acquisition revenue and disposition revenue amounts are netted in the presentation above.

Organic growth: calculated by subtracting the foreign exchange rate impact component and the acquisition revenue, net of disposition revenue component from total revenue growth.

The above description was included in our Q1 2017 Earnings Release, and reflects modifications made to address Staff Comments 2 and 3 regarding the calculation. It is, however, substantively similar to our description in prior years. We will include the above description in our future filings.

Attributing the Positive and Negative Developments of the Acquired Business Post-Acquisition

As noted in the description above, and as presented in the Example below, because we use the comparable prior year period revenue of our acquired businesses, as if the acquisition occurred 12 months prior to the acquisition date, our calculation of the acquisition revenue, net of dispositions component excludes the positive or negative difference in revenue subsequent to the acquisition date and therefore the positive or negative growth after the acquisition date is attributed to Omnicom’s organic growth. We believe this is appropriate. For 2016, this resulted in a reduction of $10.2 million in Omnicom's reported organic growth of $528.1 million (see Attachment 2 - Item (a), “Impact of Acquisitions on 2016 Organic Growth”).

If we were to include the entire current year revenue of our acquired businesses as our acquisition revenue in the calculation, this would exclude from Omnicom’s organic growth the positive or negative organic growth from our acquisitions. This “alternative” presentation essentially would postpone the evaluation of the positive or negative impact of the performance of the acquisition for which capital was deployed until the second year of its operations as part of Omnicom. For 2016, the “alternative” presentation would have resulted in a minor change to Omnicom's reported organic growth rate of 3.5% (see Attachment 2 - Item (b), “Impact of Alternative Calculation on 2016 Organic Growth”).

Because our acquisitions have historically consisted of smaller businesses, the effect of their positive or negative growth relative to the growth from Omnicom’s core business has not been significant and, therefore, there is little difference in whichever method is selected. Nonetheless, we believe our approach and our presentation is preferable. We believe including the prior year revenue of our acquisitions in the acquisition revenue component of the organic growth calculation is similar to a pro-forma presentation that is typically done assuming the acquisition occurs one year earlier than the acquisition date. We use this calculation to evaluate the performance of the management team of the newly acquired business as well as the management team of the Network or group within Omnicom responsible for integrating the newly acquired business into our existing operations. Moreover, we believe an equally important factor is that the calculation of acquisition revenue, net of dispositions has been done consistently year to year and this eliminates any bias in the calculation.

To avoid any doubt, we are providing the Staff with an example of an actual organic growth calculation for a recent acquisition completed in 2016 (in millions).

Example of Acquired Company Organic Growth Calculation

Agency "A" - Acquisition date April 1, 2016

 April 2015 Through December 2015

 January 2016 Through March 2016

 Total

Pre-acquisition:

Comparable Prior Period Revenue

 $

 9.8

 $

 3.7

 $

 13.5

 April 2016 Through December 2016

 January 2017 Through March 2017

Post-acquisition:

Current Period Revenue

 $

 10.9

 $

 3.0

 $

 13.9

Calculation:

 Q2 2016 Through Q4 2016

 Q1 2017

 Total

Prior Period Reported Revenue - Omnicom

 $

 —

 $

 —

 $

 —

Foreign Exchange Rate Impact

 —

 —

 —

Acquisition Revenue, Net of Disposition Revenue

 9.8

 3.7

 13.5

Organic Growth

 1.1

 (0.7

 )

 0.4

Current Period Reported Revenue

 $

 10.9

 $

 3.0

 $

 13.9

Note: The agency included in the above Example is a U.S. based agency; therefore, there was no foreign exchange rate impact.

Supplemental Revenue Change Tables

We have included tables in Attachment 2 for Omnicom on a consolidated basis that present: (a) the impact of acquisitions on our 2016 organic revenue growth, (b) the impact of the alternative calculation, which eliminates the effect of organic growth attributed to acquisitions, on our 2016 organic growth, and (c) the components that make up our 2016 calculation of acquisitions, net of dispositions.

Conclusion - How Investors Should Assess Our Performance Using Omnicom's Organic Growth Calculation

We use the Omnicom organic growth measure as one of our performance indicators. Our organic growth calculation, which is akin to a rate / volume variance calculation, has three components: impact from FX rate changes, impact from acquisition revenue, net of dispositions, and organic growth. We use the prior year revenue of our acquired businesses and disposed businesses to calculate the effect of our acquisitions, net of dispositions component to the organic growth calculation. This approach effectively mirrors a pro-forma calculation, which similarly assumes the acquisition or disposition occurred one year earlier. The resulting effect has the positive or negative revenue growth after the acquisition date attributed to Omnicom organic growth. This assigns accountability for the acquisition in the first year of combined operating results, both good and bad, to our management team that authorized the acquisition and committed Omnicom's capital. We believe that this presentation is more useful for investors than the alternative presentation described above, which essentially eliminates the impact of the acquisition, positive or negative, from this evaluation.

Furthermore, the positive or negative effect from acquisitions on Omnicom organic growth has been immaterial as the businesses we acquire have historically been relatively small and the effect of their positive or negative growth as compared to the positive or negative growth of Omnicom’s core business historically has not been significant. This is illustrated in the table that we have provided, as requested by the Staff, which shows the details of our acquisitions, net of dispositions component for the year ended December 31, 2016 (see Attachment 2). Finally, by consistently applying our calculation over the years, and including both the positive or negative effects of acquisitions in the Omnicom organic growth calculation we have eliminated any bias from the calculation.

Financial Statements

7. Segment Reporting, page F-17

4.

 We note you determined that your five branded agency Networks comprise your operating segments which meet the criteria for aggregation since the segments have similar operating and economic characteristics. To help us understand how you applied the guidance in FASB ASC 280, please provide us with the following information:

•2) a comparison and contrast of your operating segments relative to the areas listed in ASC 280-10-50-11(a) to (e);

•4) your consideration of differences among your operating segments and why you determined that disaggregation was not warranted;