Debt

Lines of Credit

In October 2011, we amended our credit agreement ("Credit Agreement") to increase the borrowing capacity to $2.5 billion from $2.0 billion and to extend the term to October 12, 2016. We have the ability to classify borrowings under the Credit Agreement as long-term. The Credit Agreement provides support for up to $1.5 billion of commercial paper issuances, as well as back-up liquidity in the event that any of our convertible notes are put back to us. At December 31, 2011 and 2010, there were no outstanding commercial paper issuances or borrowings under the Credit Agreement.

At December 31, 2011 and 2010, we had various uncommitted lines of credit aggregating $758.3 million and $610.4 million, respectively.

Our available and unused lines of credit at December 31, 2011 and 2010 were (in millions):



	2011		2010


Credit Agreement	$	2,500.0	$	2,000.0
Uncommitted lines of credit	758.3		610.4


Available and unused lines of credit	$	3,258.3	$	2,610.4

The Credit Agreement contains financial covenants that limit the ratio of total consolidated indebtedness to total consolidated EBITDA (under the Credit Agreement, EBITDA is defined as earnings before interest, taxes, depreciation and amortization) to no more than 3.0 times. We are also required to maintain a minimum ratio of consolidated EBITDA to interest expense of at least 5.0 times. At December 31, 2011 we were in compliance with these covenants, as our ratio of debt to EBITDA was 1.7 times and our ratio of EBITDA to interest expense was 12.3 times. In addition, the Credit Agreement does not limit our ability to declare or pay dividends.

Short-Term Borrowings

Short-term borrowings of $9.5 million and $50.2 million at December 31, 2011 and 2010, respectively, are primarily comprised of bank overdrafts and credit lines of our international subsidiaries. The bank overdrafts and credit lines are treated as unsecured loans pursuant to the agreements supporting the facilities. At December 31, 2011 and 2010, the weighted average interest rate on these borrowings was 5.6% and 5.4%, respectively.

Debt - General

Our wholly-owned finance subsidiaries Omnicom Capital Inc. (“OCI”) and Omnicom Finance Inc. (“OFI”) are co-issuers and co-obligors of our 5.90% Senior Notes due April 15, 2016, 6.25% Senior Notes due July 15, 2019 and 4.45% Senior Notes due August 15, 2020 (collectively “Senior Notes”) and our Convertible Debt. OCI and OFI provide funding for our operations by incurring debt and lending the proceeds to our operating subsidiaries. OCI and OFI’s assets consist of intercompany loans made to our operating subsidiaries and the related interest receivable. There are no restrictions on the ability of OCI, OFI or us to obtain funds from our subsidiaries through dividends, loans or advances. The Senior Notes and Convertible Debt are a joint and several liability of us, OCI and OFI, and we unconditionally guarantee the obligations of OCI and OFI with respect to the Senior Notes and Convertible Debt. Our Senior Notes and Convertible Debt are senior unsecured obligations that rank in equal right of payment with all existing and future unsecured senior indebtedness.

Long-Term Notes Payable

Long-term notes payable at December 31, 2011 and 2010 were (in millions):



	2011			2010


5.90% Senior Notes due April 15, 2016	$	1,000.0		$	1,000.0
6.25% Senior Notes due July 15, 2019	500.0			500.0
4.45% Senior Notes due August 15, 2020	1,000.0			1,000.0
Other notes and loans at rates from 2.8% to 9.0%, due through 2013	1.3			1.5


	2,501.3			2,501.5
Unamortized discount on Senior Notes	(7.6		)	(8.7		)
Deferred gain from termination of interest rate swaps on Senior Notes due 2016	30.5			—
Fair value hedge adjustment on Senior Notes due 2016	—			(26.3		)


	2,524.2			2,466.5
Less current portion	0.7			1.4


Long-term notes payable	$	2,523.5		$	2,465.1

In August 2010, we entered into a series of interest rate swap agreements to hedge the risk of changes in fair value of the $1.0 billion principal amount of our 5.90% Senior Notes due April 15, 2016 (“2016 Notes”) attributable to changes in the benchmark interest rate. Under the terms of the swaps, we received fixed interest rate payments and paid a variable interest rate on the total principal amount of the 2016 Notes. The swaps effectively converted the 2016 Notes from fixed rate debt to floating rate debt. The swaps qualified as a hedge for accounting purposes and were designated as a fair value hedge on the 2016 Notes. The swaps were recorded in our balance sheet at fair value and the change in the fair value of the swaps and the change in the fair value of the 2016 Notes (the hedged item) were recorded in earnings as an adjustment to interest expense.

On August 18, 2011, we terminated and settled the swaps and received a payment from the counterparties of $38.8 million that included accrued interest. On termination of the swaps, we discontinued hedge accounting and recorded a deferred gain of $33.2 million as an increase in the carrying value of 2016 Notes. The deferred gain is being amortized through the maturity of the 2016 Notes as a reduction of interest expense.

At December 31, 2010, we recorded a liability of $24.2 million, representing the fair value of the swaps, and recorded a decrease in the carrying value of the 2016 Notes of $26.3 million, reflecting the change in fair value of the 2016 Notes from the inception of the fair value hedge.

Convertible Debt

Convertible debt at December 31, 2011 and 2010 was (in millions):



	2011		2010


Convertible Notes - due February 7, 2031	$	—	$	0.1
Convertible Notes - due July 31, 2032	252.7		252.7
Convertible Notes - due June 15, 2033	0.1		0.1
Convertible Notes - due July 1, 2038	406.6		406.6


	659.4		659.5
Less current portion	—		—


Convertible debt	$	659.4	$	659.5

2031 Notes: In February 2001, we issued $850 million Liquid Yield Option Notes due February 7, 2031 (“2031 Notes”). Prior to 2009, $3.0 million of the 2031 Notes were repurchased and retired. In 2009 and 2010, $841.2 million and $5.7 million, respectively, of the 2031 Notes were repurchased and retired. On February 1, 2011, the remaining 2031 Notes were redeemed.

2032 Notes: In March 2002, we issued $900 million Zero Coupon Zero Yield Convertible Notes due July 31, 2032 (“2032 Notes”). At December 31, 2011, the 2032 Notes were potentially convertible into 4.6 million shares of our common stock, implying a conversion price of $55.01 per common share, subject to normal anti-dilution adjustments. These notes are convertible at the specified ratio only upon the occurrence of certain events, including: if our common stock trades above certain levels, if we effect extraordinary transactions or if our long-term debt credit ratings are downgraded from their December 31, 2011 level to BBB or lower by Standard & Poor's Rating Service ("S&P"), or to Baa3 or lower by Moody’s Investors Service ("Moody's"). These events would not result in an adjustment of the number of shares issuable upon conversion. Holders of these notes have the right to put the notes back to us for cash on July 31 of each year. There are no events that accelerate the noteholders’ put rights. Beginning August 1, 2010 and every six months thereafter, if the market price of our common shares exceeds certain thresholds, we may be required to pay contingent cash interest. At December 31, 2011, no contingent cash interest was due. Prior to 2009, $173.0 million of the 2032 Notes were repurchased and retired and in 2009, $474.3 million of the 2032 Notes were repurchased and retired.

2038 Notes: In June 2003, we issued $600 million Zero Coupon Zero Yield Convertible Notes due June 15, 2033 (“2033 Notes”). At December 31, 2011, these notes were potentially convertible into 7.9 million shares of our common stock, implying a conversion price of $51.50 per common share, subject to normal anti-dilution adjustments. These notes are convertible at the specified ratio only upon the occurrence of certain events, including: if our common stock trades above certain levels, if we effect extraordinary transactions or if our long-term debt credit ratings are downgraded from their December 31, 2011 level to BBB- or lower by S&P or Ba1 or lower by Moody’s. The occurrence of these events will not result in an adjustment of the number of shares issuable upon conversion. Holders of these notes have the right to put the notes back to us for cash on June 15, 2013, 2018 and 2023 and on each June 15 annually thereafter through June 15, 2037 and we have a right to redeem the notes for cash on June 17, 2013 and June 15, 2018. After June 15, 2018, we can redeem the 2038 Notes at any time. There are no events that accelerate the noteholders’ put rights. Beginning in June 2010, if the market price of our common shares exceeds certain thresholds, we may be required to pay contingent cash interest.

In June 2006, $132.5 million of our 2033 Notes were repurchased and retired and substantially all of the remaining 2033 Notes were amended to extend the maturity of the notes from June 15, 2033 to July 1, 2038. The amendments conformed other terms of the notes for the extension of the maturity date, as well as amending the comparable yield. The amended notes are referred to as our Zero Coupon Zero Yield Convertible Notes due 2038 (“2038 Notes”).

In June 2010, the indenture governing the 2038 Notes was amended. Holders of $403.2 million of the 2038 Notes agreed to waive their right to contingent cash interest, if payable, from December 15, 2010 through and including December 15, 2013. Holders of $3.4 million of the 2038 Notes did not put their notes to us for repurchase and did not consent to the amendment and $60.8 million of the 2038 Notes were repurchased and retired.

In the event the holders of our convertible debt exercise their conversion right, the conversion obligation is equal to a conversion value determined on the day of conversion, calculated by multiplying the share price at the close of business on that day by the underlying number of shares into which the notes convert. We satisfy the conversion value by paying the initial principal amount of the note in cash and the balance of the conversion value in cash or shares, at our option. We can only satisfy a put obligation in cash.

Our 2032 Notes and 2038 Notes (collectively “Convertible Notes”) provide the noteholders with certain rights that we consider to be embedded derivatives. Embedded derivatives could be required to be bifurcated and accounted for separately from the underlying host instrument. The noteholders’ rights considered for bifurcation were: (1) an embedded conversion option to convert the bonds into shares of our common stock, (2) the right to put the Convertible Notes back to us for repurchase (noteholders' put right) and our agreement to not call the Convertible Notes except on certain specific dates (no call right) and (3) the right to collect contingent cash interest from us if certain criteria are met. As discussed below, the embedded derivatives were not required to be bifurcated or had no impact on the carrying value of the Convertible Notes and accordingly, the Convertible Notes are carried at their value due at maturity.

The embedded conversion option qualified for the exception covering convertible debt in FASB ASC Topic 815, Derivatives and Hedging and we are not required to separately account for the embedded conversion option. The embedded conversion option met the criteria and would, if converted, be accounted for in equity as if it was a freestanding derivative. We are not required to separately value and account for the noteholders’ put right and the no call right. These rights were considered to be clearly and closely related to the underlying Convertible Notes and are not contingently exercisable. Additionally, the debt was not issued with a substantial discount or premium. Lastly, the noteholders’ right to collect contingent cash interest is a derivative and is required to be marked to market value each reporting period with changes recorded in interest expense. The value of this right is primarily linked to the price of our common stock and not the debt host contract. Therefore, the right to collect contingent cash interest is not clearly and closely related to our debt and is required to be accounted for separately.

In 2004, our convertible debt was amended to include a provision to satisfy the conversion value by paying the principal amount of the notes in cash and the balance of the conversion option in cash or shares at our option. In prior years, as required by U.S. GAAP, we separately accounted for the liability and equity components of the notes by allocating the proceeds at the date of amendment of the notes between the liability and equity components and recording $47.5 million, $28.5 million after tax, of interest expense related to the equity conversion option over the expected life of the conversion option.

The convertible debt was issued at par (no discount or premium) and does not bear any interest. As a result, we concluded that absent any non-contractual supplemental interest payment the noteholders have no economic incentive to hold the notes past the contractual put dates. Therefore, the expected life of the conversion option was determined to be the period from amendment of the notes in 2004 to the first respective put date, or 1 year in the case of the 2032 Notes and 1.6 years in the case of the 2038 Notes. The amortization of the value of the conversion option was recorded as interest expense.

From time to time, we have made non-contractual supplemental interest payments to holders of our convertible debt who did not put their notes back to us for repurchase on the respective put dates or who agreed to certain amendments to the convertible note indentures. The supplemental interest payments are amortized to interest expense ratably over the period to the next put date. No supplemental interest payments were paid in 2011. Supplemental interest payments in 2010 and 2009 were (in millions):



	2010		2009

2031 Notes	$	—	$	27.6
2032 Notes	5.7		7.6
2038 Notes	20.2		—


	$	25.9	$	35.2

Interest Expense

The components of interest expense for the three years ended December 31, 2011 were (in millions):



	2011		2010		2009

Long-term notes payable	$	125.8	$	106.7	$	78.0
Amortization of supplemental interest payments	10.0		10.5		22.7
Commercial paper and Credit Agreement	2.5		1.8		5.7
Fees	7.1		5.7		5.1
Other	12.7		10.0		10.7


	$	158.1	$	134.7	$	122.2

Maturities

The stated maturities of our long-term notes and convertible debt at December 31, 2011 are (in millions):



2012	$	0.7
2013	0.3
2014	0.3
2015	—
2016	1,000.0
Thereafter	2,159.4


	$	3,160.7