Omnicom (OMC) 10-Q 23 Apr 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010	Apr. 15, 2010
Document Type	10-Q
Document Period End Date	2010-03-31
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Registrant Name	OMNICOM GROUP INC.
Entity Central Index Key	0000029989
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		306,954,000

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
CURRENT ASSETS:
Cash and cash equivalents	900.4	$1,587
Short-term investments, at cost	8	7.8
Accounts receivable, net of allowance for doubtful accounts	5184.3	5574.1
Work in process	673.9	607.6
Other current assets	1084.4	1,012
Total Current Assets	7,851	8788.5
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation	647.5	677.3
INVESTMENTS IN AFFILIATES	275.1	299.4
GOODWILL	7541.1	7641.2
INTANGIBLE ASSETS, net of accumulated amortization	242	220.8
DEFERRED TAX ASSETS	38.2	40
OTHER ASSETS	234.6	253.5
TOTAL ASSETS	16829.5	17920.7
CURRENT LIABILITIES:
Accounts payable	6406.4	7143.9
Customer advances	1,023	1059.3
Current portion of long-term debt	17.9	17.8
Short-term borrowings	12	19.3
Taxes payable	144.3	156.7
Other current liabilities	1631.5	1685.5
Total Current Liabilities	9235.1	10082.5
LONG-TERM DEBT	1,495	1494.6
CONVERTIBLE DEBT	720.3	726
OTHER LONG-TERM LIABILITIES	462	462
LONG-TERM DEFERRED TAX LIABILITIES	536.5	488.1
COMMITMENTS AND CONTINGENCIES (see Note 10)
TEMPORARY EQUITY - REDEEMABLE NONCONTROLLING INTERESTS	215.7	214.7
Shareholders' Equity:
Preferred stock	0	0
Common stock	59.6	59.6
Additional paid-in capital	1415.1	1408.2
Retained earnings	6567.3	6465.4
Accumulated other comprehensive income (loss)	-153.5	(8)
Treasury stock, at cost	-3966.7	-3730.4
Total shareholders' equity	3921.8	4194.8
Noncontrolling Interests	243.1	258
Total Equity	4164.9	4452.8
TOTAL LIABILITIES AND EQUITY	16829.5	17920.7

1_CONDENSED CONSOLIDATED BALANC

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions	Mar. 31, 2010	Dec. 31, 2009
Allowance for doubtful accounts	61.3	59.5
Accumulated depreciation	1121.1	1146.7
Accumulated amortization of intangible assets	323.5	316.1

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
REVENUE	$2,920	2746.6
OPERATING EXPENSES	2,629	2464.2
OPERATING INCOME	291	282.4
INTEREST EXPENSE	29.8	26.8
INTEREST INCOME	5.7	5.4
INCOME BEFORE INCOME TAXES AND INCOME FROM EQUITY METHOD INVESTMENTS	266.9	261
INCOME TAX EXPENSE	90.7	88.7
INCOME FROM EQUITY METHOD INVESTMENTS	4.7	5.9
NET INCOME	180.9	178.2
LESS: NET INCOME ATTRIBUTED TO NONCONTROLLING INTERESTS	17.5	13.7
NET INCOME - OMNICOM GROUP INC.	163.4	164.5
NET INCOME PER COMMON SHARE - OMNICOM GROUP INC.:
Basic	0.53	0.53
Diluted	0.52	0.53
DIVIDENDS DECLARED PER COMMON SHARE	0.2	0.15

2_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Cash flows from operating activities:
NET INCOME	180.9	178.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	45.7	42.8
Amortization of intangible assets	16.3	13
Income from equity method of investments, net of dividends received	1.6	-2.9
Provision for doubtful accounts	-2.7	0.1
Share-based compensation	19.1	14.5
Change in operating capital	-538.8	-474.1
Net cash used in operating activities	-277.9	-228.4
Cash flows from investing activities:
Payments to acquire property, plant and equipment	-25.2	-23.3
Payments to acquire businesses and interests in affiliates, net of cash acquired	-19.6	-1.7
Payments to acquire short-term investments	-0.2	-1.1
Proceeds from sale of short-term investments	1.3	4.9
Net cash used in investing activities	-43.7	-21.2
Cash flows from financing activities:
Proceeds from (repayments of) short-term debt	-2.8	28.3
Proceeds from borrowings	0.2	505.5
Repayments of convertible debt	-5.9	-841.8
Payments of dividends	-46.9	-46.7
Payments for repurchase of common stock	-249.6	-1.8
Proceeds from stock plans	10.6	0.2
Payments to noncontrolling interests	(3)	-1.4
Other, net	-31.8	-14.2
Net cash used in financing activities	-329.2	-371.9
Effect of exchange rate changes on cash and cash equivalents	-35.8	-63.4
Net decrease in cash and cash equivalents	-686.6	-684.9
Cash and cash equivalents at beginning of period	1,587	1097.3
Cash and cash equivalents at end of period	900.4	412.4

Presentation of Financial State

Presentation of Financial Statements
	3 Months Ended Mar. 31, 2010
Presentation of Financial Statements	1. Presentation of Financial Statements The terms Omnicom, we, our and us each refer to Omnicom Group Inc. and our subsidiaries, unless the context indicates otherwise. The accompanying unaudited condensed consolidated financial statements were prepared in accordance with Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosure required in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP or GAAP) have been condensed or omitted pursuant to this regulation. In our opinion, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normally recurring accruals, considered necessary for a fair presentation, in all material respects, of the information contained herein. Results of operations for the interim period are not necessarily indicative of results that may be expected for the year. These unaudited condensed financial statements should be read in conjunction with our Annual Report on Form10-K for the year ended December 31, 2009 (2009 10-K).

New Accounting Pronouncements

New Accounting Pronouncements
	3 Months Ended Mar. 31, 2010
New Accounting Pronouncements	2. New Accounting Pronouncements On January 1, 2010, we adopted Accounting Standards Update (ASU) 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU 2009-17). ASU 2009-17 revised factors that should be considered by a reporting entity when determining whether an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. ASU 2009-17 also includes revised financial statement disclosures regarding the reporting entitys involvement and risk exposure. The adoption of ASU 2009-17 did not have a significant impact on our results of operations or financial position.

Net Income per Common Share - O

Net Income per Common Share - Omnicom Group Inc.
	3 Months Ended Mar. 31, 2010
Net Income per Common Share - Omnicom Group Inc.	3. Net Income per Common Share - Omnicom Group Inc. Basic net income per common share - Omnicom Group Inc. is based upon the weighted average number of common shares outstanding during the period. Diluted net income per common share - Omnicom Group Inc. is computed on the same basis, including, if dilutive, common share equivalents which include outstanding options and restricted shares. In addition, our restricted stock awards are considered participating securities because they contain rights to non-forfeitable dividends at the same rate as our common stock and therefore are assumed to participate in the undistributed earnings with our common shareholders. The computation of basic and diluted net income per common share is reduced for a presumed hypothetical distribution of earnings to the holders of our unvested restricted stock. The computations of basic and diluted net income per common share - Omnicom Group Inc. were for the three months ended March 31, 2010 and 2009 (in millions, except per share amounts): 2010 2009 Net Income Available for Common Shares (in millions): Net Income - Omnicom Group Inc. $ 163.4 $ 164.5 Earnings allocated to participating securities (1.7 ) (2.2 ) Net Income available for common shares $ 161.7 $ 162.3 Weighted Average Shares (in millions): Basic 306.4 307.5 Diluted 311.0 307.6 Net Income per Common Share - Omnicom Group Inc.: Basic $ 0.53 $ 0.53 Diluted 0.52 0.53 For purposes of computing diluted net income per common share - Omnicom Group Inc., 4.7 million and 0.1 million common share equivalents were assumed to be outstanding for the three months ended March 31, 2010 and 2009, respectively. For the three months ended March 31, 2010, 9.4 million shares attributed to outstanding stock options and 3.1 million unvested restricted shares were excluded from the calculation of diluted net income per common share - Omnicom Group Inc. because their inclusion would have been anti- dilutive. For the three months ended March 31, 2009, 22.2 million shares attributed to outstanding stock options and 3.9 million unvested restricted shares were excluded from the calculation of diluted net income per common share - Omnicom Group Inc. because their inclusion would have been anti-dilutive.

Comprehensive Income

Comprehensive Income
	3 Months Ended Mar. 31, 2010
Comprehensive Income	4. Comprehensive Income Total comprehensive income (loss) and its components for the three months ended March 31, 2010 and 2009 were (dollars in millions): 2010 2009 Net income $ 180.9 $ 178.2 Foreign currency transaction and translation adjustments, net of income taxes of $80.2 and $69.5 for the three months ended March 31, 2010 and 2009, respectively (148.9 ) (129.2 ) Unrealized holding gain on securities, net of income taxes of $0.1 and $1.7 for the three months ended March 31, 2010 and 2009, respectively 0.1 2.6 Defined benefit plans adjustment, net of income taxes of $0.6 and $0.4 for the three months ended March 31, 2010 and March 31, 2009, respectively 0.9 0.7 Comprehensive income 33.0 52.3 Less: Comprehensive income attributed to noncontrolling interests 15.1 3.6 Comprehensive income - Omnicom Group Inc $ 17.9 $ 48.7

Debt

Debt
	3 Months Ended Mar. 31, 2010
Debt	5 . Debt Lines of Credit: We have a $2.5 billion credit facility expiring on June 23, 2011. We have the ability to classify borrowings, if any, under this facility as long-term debt. Our credit facility provides back-up liquidity in the event that any of our convertible notes are put back to us, as well as support for our commercial paper issuances. At March 31, 2010, we had no commercial paper issuances or borrowings outstanding under this facility. The gross amount of commercial paper issued and redeemed under our commercial paper program during the first three months of 2010 was approximately $3.7 billion, with an average term of approximately 11.7 days. There were no borrowings under our credit facility during the quarter ended March 31, 2010. Depending on market conditions at the time, we either issue commercial paper or borrow under our credit facility or on our uncommitted lines of credit to manage short-term cash requirements primarily related to changes in our day-to-day working capital requirements. Short-Term Borrowings: At March 31, 2010, we had short-term borrowings of $12.0 million that are primarily composed of bank overdrafts of our international subsidiaries. These bank overdrafts are treated as unsecured loans pursuant to our bank agreements. Long-Term Debt and Convertible Debt: Long-term debt outstanding at March 31, 2010 and December 31, 2009 consisted of the following (dollars in millions): 2010 2009 5.90% Senior Notes due April 15, 2016 $ 997.1 $ 996.9 6.25% Senior Notes due July 15, 2019 497.0 496.9 Other notes and loans 18.8 18.6 1,512.9 1,512.4 Less current portion 17.9 17.8 Total long-term debt $ 1,495.0 $ 1,494.6 On February 9, 2010, holders of $5.7 million aggregate principal amount of our Liquid Yield Option Notes due February 7, 2031 (2031 Notes) out of a total of $5.8 million outstanding, put their notes to us for purchase at par. Convertible debt outstanding at March 31, 2010 and December 31, 2009 consisted of the following (dollars in millions): 2010 2009 Convertible Notes - due February 7, 2031 $ 0.1 $ 5.8 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 467.4 467.4 720.3 726.0 Less current portion Total convertible debt $ 720.3 $ 726.0

Segment Reporting

Segment Reporting
	3 Months Ended Mar. 31, 2010
Segment Reporting	6. Segment Reporting Our wholly and partially owned agencies operate within the advertising, marketing and corporate communications services industry. These agencies are organized into agency networks, virtual client networks, regional reporting units and operating groups. Consistent with the fundamentals of our business strategy, our agencies serve similar clients, in similar industries and, in many cases, the same clients across a variety of geographic regions. In addition, our agency networks have similar economic characteristics and similar long-term operating margins, as the main economic components of each agency are the salary and service costs associated with providing professional services, the office and general costs associated with office space and occupancy, and the provision of technology requirements which are generally limited to personal computers, servers and off-the-shelf software. Therefore, given these similarities, we aggregate our operating segments, which are our five agency networks, into one operating segment. A summary of our revenue and long-lived assets and goodwill by geographic area as of March 31, 2010 and 2009, is presented below (dollars in millions): Americas EMEA Asia / Australia 2010 Revenue - three months ended $ 1,771.3 $ 947.0 $ 201.7 Long-lived Assets and Goodwill 5,649.1 2,420.6 118.9 2009 Revenue - three months ended $ 1,680.0 $ 902.4 $ 164.2 Long-lived Assets and Goodwill 5,438.7 2,268.8 110.5 The Americas is composed of the U.S., Canada and Latin American countries. EMEA is composed of various Euro currency countries, the United Kingdom, the Middle-East and Africa and other European countries that have not adopted the European Union Monetary standard. Asia/Australia is composed of China, India, Japan, Korea, Singapore, Australia and other Asian countries.

Income Taxes

Income Taxes
	3 Months Ended Mar. 31, 2010
Income Taxes	7. Income Taxes At March 31, 2010, our unrecognized tax benefits were $201.9 million. Of this amount, approximately $84.6 million would affect our effective tax rate upon resolution of the uncertain tax positions.

Pension and Other Postretiremen

Pension and Other Postretirement Plans
	3 Months Ended Mar. 31, 2010
Pension and Other Postretirement Plans	8. Pension and Other Postemployment Plans Defined Benefit Plans The components of net periodic benefit cost for the three months ended March 31, 2010 and 2009 were (dollars in millions): 2010 2009 Service cost $ 1.0 $ 1.3 Interest cost 1.3 1.4 Expected return on plan assets (0.6 ) (0.8 ) Amortization of prior service cost 0.6 0.6 Amortization of actuarial (gains) losses 0.1 0.3 Curtailments and settlements 1.3 $ 2.4 $ 4.1 We contributed approximately $0.3 million and $1.5 million to our defined benefit plans for the three months ended March 31, 2010 and 2009, respectively. Postemployment Arrangements The components of net periodic benefit cost for the three months ended March 31, 2010 and 2009 were (dollars in millions): 2010 2009 Service cost $ 0.4 $ 0.5 Interest cost 1.0 1.0 Expected return on plan assets N/A N/A Amortization of prior service cost 0.2 0.1 Amortization of actuarial (gains) losses 0.2 0.2 $ 1.8 $ 1.8

Supplemental Data

Supplemental Data
	3 Months Ended Mar. 31, 2010
Supplemental Data	9. Supplemental Data The components of operating expenses for the three months ended March 31, 2010 and 2009 were (dollars in millions): 2010 2009 Salary and service costs $ 2,162.4 $ 2,013.8 Office and general expenses 466.6 450.4 Total operating expenses $ 2,629.0 $ 2,464.2 Supplemental cash flow data for the three months ended March 31, 2010 and 2009 were (dollars in millions): 2010 2009 Decrease in accounts receivable $ 277.6 $ 731.9 (Increase) decrease in work in progress and other current assets (154.9 ) 15.1 Decrease in accounts payable (613.8 ) (1,087.8 ) Decrease in customer advances and other current liabilities (65.7 ) (93.8 ) Change in other assets and liabilities, net 18.0 (39.5 ) Change in operating capital $ (538.8 ) $ (474.1 ) Income taxes paid $ 74.5 $ 86.2 Interest paid $ 7.7 $ 18.4 Supplemental balance sheet data: At March 31, 2010, goodwill, compared to the balance at December 31, 2009, decreased by $100 million. Foreign exchange effects reduced goodwill by $134 million and this was offset by an increase in goodwill related to acquisition transactions of $34 million.

Commitments and Contingencies

Commitments and Contingencies
	3 Months Ended Mar. 31, 2010
Commitments and Contingent Liabilities	10. Commitments and Contingencies As previously disclosed, in June 2002, Omnicom and certain of our senior executives were named in a securities case filed in the United States District Court for the Southern District of New York, captioned In re Omnicom Group Inc. Securities Litigation, No. 02-CV-4483 (WHP). The case purported to challenge certain disclosures regarding our internet investments, organic growth and contingent liabilities. On March 28, 2005, the court dismissed the portions of plaintiffs complaint relating to organic growth and contingent liabilities. On January 28, 2008, the court granted defendants motion for summary judgment in its entirety, dismissing all remaining claims and directing the court to close the case. On February 4, 2008, the plaintiffs filed a notice of intent to appeal that decision to the United States Court of Appeals for the Second Circuit. On March 9, 2010, the Second Circuit issued a decision affirming the district courts decision granting summary judgment and dismissing plaintiffs claims. Plaintiffs have indicated that they will not pursue the matter further. The matter therefore is concluded. We are also involved from time to time in various legal proceedings in the ordinary course of business. We do not presently expect that these proceedings will have a material adverse effect on our consolidated financial position or results of operations.

Fair Value

Fair Value
	3 Months Ended Mar. 31, 2010
Fair Value	11. Fair Value The following tables present certain information for our financial assets that are measured at fair value on a recurring basis at March 31, 2010 (dollars in millions): Level 1 Level 2 Level 3 Total Assets: Available-for-sale securities $ 4.2 $ 4.2 Liabilities: Forward foreign exchange contracts $ 10.3 10.3 At March 31, 2010, available-for-sale securities are included in other assets and forward foreign exchange contracts are included in other current liabilities in our unaudited condensed consolidated balance sheet. The following table presents the carrying amounts and fair values of our financial instruments at March 31, 2010 (dollars in millions): Carrying Amount Fair Value Assets: Cash and cash equivalents $ 900.4 $ 900.4 Short-term investments 8.0 8.0 Available-for-sale securities 4.2 4.2 Cost method investments 24.7 24.7 Liabilities: Short-term borrowings 12.0 12.0 Forward foreign exchange contracts 10.3 10.3 Long-term debt and convertible debt 2,233.2 2,358.2 Financial commitments: Guarantees 0.3 The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Short-term investments Short-term investments consist primarily of time deposits with financial institutions that we expect to convert into cash in our current operating cycle, generally within one year. Short- term investments are carried at cost, which approximates fair value. Available-for-sale securities Available-for-sale securities are carried at quoted market prices. Cost method investments Cost method investments are carried at cost, which approximates or is less than fair value. Short-term borrowings Short-term borrowings consist of bank overdrafts of our international subsidiaries. Due to the short-term nature of these instruments, carrying value approximates fair value. Forward foreign exchange contracts The estimated fair values of derivative positions in forward foreign exchange contracts are based upon quotations received from third party banks and represent the net amount required to terminate the positions, taking into consideration market rates and counterparty credit risk. Long-term debt and convertible debt Our long-term debt includes fixed rate debt and convertible debt. The fair value of these instruments is based on quoted market prices. Financial commitments The fair values of guarantees are based on the contractual amount of the underlying instruments. The guarantees, which relate to equipment leases, were issued by us for affiliated companies.

Subsequent Events

Subsequent Events
	3 Months Ended Mar. 31, 2010
Subsequent Events	12. 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 our unaudited condensed consolidated financial statements.