Debt

Lines of Credit

We have committed and uncommitted lines of credit. We have a $2.5 billion committed line of credit ("Credit Agreement") with a consortium of banks expiring on 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, 2012 and 2011, there were no outstanding commercial paper issuances or borrowings under the Credit Agreement. At December 31, 2012 and 2011, we had various uncommitted lines of credit aggregating $878.2 million and $758.3 million, respectively.

Our available and unused lines of credit at December 31, 2012 and 2011 were (in millions):



	2012		2011


Credit Agreement	$	2,500.0	$	2,500.0
Uncommitted lines of credit	878.2		758.3


Available and unused lines of credit	$	3,378.2	$	3,258.3

The Credit Agreement contains financial covenants that restrict our ability to incur indebtedness as defined in the agreement. These financial covenants limit the Leverage Ratio of total consolidated indebtedness to total consolidated EBITDA to no more than 3 times for the most recently ended 12-month period (under the Credit Agreement, EBITDA is defined as earnings before interest, taxes, depreciation and amortization). We are also required to maintain a minimum 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, 2012 we were in compliance with these covenants, as our Leverage Ratio was 2.1 times and our Interest Coverage Ratio was 11.6 times. The Credit Agreement does not limit our ability to declare or pay dividends.

Short-Term Borrowings

Short-term borrowings of $6.4 million and $9.5 million at December 31, 2012 and 2011, respectively, represent 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. Due to the short-term nature of these instruments, carrying value approximates fair value. At December 31, 2012 and 2011, the weighted average interest rate on these borrowings was 9.5% and 5.6%, respectively.

Debt - General

Omnicom Capital Inc., or OCI, our wholly-owned finance subsidiary, together with us, is a co-obligor under our 5.90% Senior Notes due April 15, 2016, 6.25% Senior Notes due July 15, 2019, 4.45% Senior Notes due August 15, 2020 and 3.625% Senior Notes due May 1, 2022 (collectively "Senior Notes”) and our Convertible Debt. The Senior Notes and Convertible Debt are a joint and several liability of us and OCI, and we unconditionally guarantee OCI's obligations with respect to the Senior Notes and Convertible Debt. 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 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, 2012 and 2011 were (in millions):



	2012		2011


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
3.625% Senior Notes due May 1, 2022	1,250.0		—
Other notes and loans	0.4		1.3


	3,750.4		2,501.3
Unamortized premium (discount) on Senior Notes, net	16.0		(7.6		)
Deferred gain from termination of interest rate swaps on Senior Notes due 2016	23.1		30.5


	3,789.5		2,524.2
Less current portion	0.4		0.7


Long-term notes payable	$	3,789.1	$	2,523.5

In April 2012, we issued $750 million aggregate principal amount of 3.625% Senior Notes due May 1, 2022 ("2022 Notes") at an issue price of 99.567%. In August 2012, we issued an additional $500 million of the 2022 Notes at an issue price of 105.287%. The August issuance is fully fungible with and forms a single series with the 2022 Notes issued in April. The total outstanding principal amount of the 2022 Notes is $1.25 billion. The proceeds from these issuances, including the net offering premium, before deducting offering expenses were $1,273.2 million.

In August 2011, we terminated and settled a series of interest rate swap agreements on our 5.90% Senior Notes due April 15, 2016 (“2016 Notes”) and received a payment from the counterparties of $38.8 million, including accrued interest. The interest rate swaps reduced interest expense by $12.2 million in 2011. Upon termination of the swaps, we discontinued hedge accounting and recorded a deferred gain of $33.2 million, which is being amortized as a reduction of interest expense through the maturity of the 2016 Notes.

Convertible Debt

Convertible debt at December 31, 2012 and 2011 was (in millions):



	2012		2011


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		659.4
Less current portion	—		—


Convertible debt	$	659.4	$	659.4

2032 Notes: In 2002, we issued $900 million Zero Coupon Zero Yield Convertible Notes due July 31, 2032 (“2032 Notes”), of which $647.3 million of the notes have been repurchased and retired. At December 31, 2012, the 2032 Notes were potentially convertible into 4.6 million shares of our common stock, implying a conversion price of $55.01 per share, subject to normal anti-dilution adjustments. The 2032 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, 2012 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 the 2032 Notes have the right to put the notes back to us for cash on July 31 of each year and we have the right to redeem the notes for cash on July 31, 2013 and 2014. After July 31, 2014, we can redeem the 2032 Notes at any time. There are no events that accelerate the noteholders’ put rights. If the market price of our common stock exceeds certain thresholds during any six month period February 1 to July 31 and August 1 to January 31, we may be required to pay contingent cash interest. At December 31, 2012, no contingent cash interest was due.

2038 Notes: In 2003, we issued $600 million Zero Coupon Zero Yield Convertible Notes due June 15, 2033 (“2033 Notes”), of which $193.3 million of the notes have been repurchased and retired. In June 2006 substantially all of the 2033 Notes then outstanding were amended to extend the maturity of the notes from June 15, 2033 to July 1, 2038. The amended notes are referred to as our Zero Coupon Zero Yield Convertible Notes due 2038 (“2038 Notes”). At December 31, 2012, the 2038 Notes were potentially convertible into 7.9 million shares of our common stock, implying a conversion price of $51.50 per share, subject to normal anti-dilution adjustments. The 2038 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, 2012 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 the 2038 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 stock exceeds certain thresholds during any six month period June 16 to December 15 and December 16 to June 15, we may be required to pay contingent cash interest. In June 2010, the 2038 Notes were amended whereby substantially all of the holders of the 2038 Notes then outstanding agreed to waive their right to contingent cash interest, if payable, from December 15, 2010 through and including December 15, 2013.

In the event the holders of our 2032 Notes or 2038 Notes (collectively “Convertible Notes”) 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. A put obligation can only be satisfied in cash.

Our 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 the Convertible Notes 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 amendments to the convertible notes. 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 2012 and 2011. In 2010, we paid $25.9 million of supplemental interest payments.

Interest Expense

The components of interest expense for the three years ended December 31, 2012 were (in millions):



	2012		2011		2010

Long-term notes payable	$	156.2	$	125.8	$	106.7
Amortization of supplemental interest payments	6.7		10.0		10.5
Commercial paper	1.3		2.5		1.8
Fees	6.2		7.1		5.7
Other	9.3		12.7		10.0


	$	179.7	$	158.1	$	134.7

Maturities

The stated maturities of our long-term notes and convertible debt at December 31, 2012 are (in millions):



2013	$	0.4
2014	—
2015	—
2016	1,000.0
2017	—
Thereafter	3,409.4


	$	4,409.8