CONFORMED COPY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1994
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Commission file number: 1-10551
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Omnicom Group Inc.
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(Exact name of registrant as specified in its charter)
New York 13-1514814
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
437 Madison Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
(212) 415-3600
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(Registrant's telephone number, including area code)
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 12 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 X No
--- ----
The number of shares of common stock of the Company issued and outstanding at
July 31, 1994 is 36,558,600.
OMNICOM GROUP INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
June 30, 1994, December 31, 1993 and
June 30, 1993 .................................. 2
Consolidated Condensed Statements of Income -
Three Months Ended June 30, 1994 and 1993
Six Months Ended June 30, 1994 and 1993 ........ 3
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1994 and 1993 ........ 4
Notes to Consolidated Condensed Financial
Statements ..................................... 5-7
Item 2. Management's Discussion of Financial Condition
and Results of Operations ...................... 8-13
PART II OTHER INFORMATION
Item 2. Changes in Securities ............................. 14
Item 4. Submission of Matters to a Vote of Security
Holders ........................................ 14
Item 5. Other Information ................................. 15
Item 6. Exhibits .......................................... 15
- 1 -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
Assets June 30, December 31, June 30,
1994 1993 1993
----------- ----------- -----------
Current assets:
Cash and cash equivalents .................................. $ 155,013 $ 174,833 $ 124,266
Investments available-for-sale ............................. 10,978 38,003 11,244
Accounts receivable, less allowance for doubtful accounts
of $19,796, $17,298 and $15,217 .......................... 962,808 901,434 931,398
Billable production orders in process ...................... 84,248 59,415 87,493
Prepaid expenses and other current assets .................. 121,964 100,791 122,002
----------- ----------- -----------
Total current assets ................................. 1,335,011 1,274,476 1,276,403
Furniture, equipment and leasehold improvements, less
accumulated depreciation and amortization of $207,605
$188,868 and $178,558 ....................................... 168,132 160,543 155,695
Investments in affiliates ..................................... 121,029 112,232 100,554
Intangibles, less amortization of $106,836, $93,105 and $78,109 667,836 603,494 503,531
Deferred tax benefits ......................................... 9,262 18,522 15,981
Deferred charges and other assets ............................. 141,063 120,596 103,882
----------- ----------- -----------
Total assets ......................................... $ 2,442,333 $ 2,289,863 $ 2,156,046
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ........................................... $ 1,024,652 $ 1,058,095 $ 984,858
Payable to banks ........................................... 77,556 48,047 50,705
Convertible Subordinated Debentures (Note 6) ............... 100,000 -- 85,301
Other accrued liabilities .................................. 351,298 388,102 291,668
Accrued taxes on income .................................... 28,493 29,974 36,009
----------- ----------- -----------
Total current liabilities ............................ 1,581,999 1,524,218 1,448,541
Long term debt ................................................ 300,842 278,312 283,725
Deferred compensation and other liabilities ................... 85,934 56,933 60,887
Minority interests ............................................ 34,797 28,214 38,057
Shareholders' equity:
Common stock ............................................... 17,536 17,536 15,880
Additional paid-in capital ................................. 258,705 252,408 161,340
Retained earnings .......................................... 291,668 287,416 263,154
Unamortized restricted stock ............................... (31,888) (21,807) (25,572)
Cumulative translation adjustment .......................... (29,117) (65,257) (53,577)
Treasury stock ............................................. (68,143) (68,110) (36,389)
----------- ----------- -----------
Total shareholders' equity ........................... 438,761 402,186 324,836
----------- ----------- -----------
Total liabilities and shareholders' equity ........... $ 2,442,333 $ 2,289,863 $ 2,156,046
=========== =========== ===========
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
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OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------
1994 1993 1994 1993
--------- --------- --------- ---------
Revenues:
Commissions and fees ............................... $ 425,198 $ 381,758 $ 801,736 $ 720,897
Operating expenses:
Salaries and related costs ......................... 232,067 211,627 450,462 411,672
Office and general expenses ........................ 128,204 113,599 248,472 221,284
---------- ---------- ---------- ----------
Total operating expenses ................... 360,271 325,226 698,934 632,956
---------- ---------- ---------- ----------
Operating profit ...................................... 64,927 56,532 102,802 87,941
Net interest expense:
Interest and dividend income ....................... (3,132) (2,957) (5,569) (5,925)
Interest paid or accrued ........................... 9,832 10,215 18,552 19,854
---------- ---------- ---------- ----------
Net interest expense ....................... 6,700 7,258 12,983 13,929
---------- ---------- ---------- ----------
Income before income taxes and change
in accounting principle ............................ 58,227 49,274 89,819 74,012
Income taxes:
Federal ............................................ 8,126 6,596 15,024 11,766
State and local .................................... 1,944 1,562 3,722 3,214
International ...................................... 13,738 12,520 18,225 16,088
---------- ---------- ---------- ----------
Total income taxes ......................... 23,808 20,678 36,971 31,068
---------- ---------- ---------- ----------
Income after income taxes and before
change in accounting principle ..................... 34,419 28,596 52,848 42,944
Equity in affiliates .................................. 3,863 2,674 5,952 4,366
Minority interests .................................... (4,784) (4,008) (6,382) (5,592)
---------- ---------- ---------- ----------
Income before change in accounting
principle .......................................... 33,498 27,262 52,418 41,718
Cumulative effect of change in
accounting principle ............................... -- -- (28,009) --
---------- ---------- ---------- ----------
Net income ................................. $ 33,498 $ 27,262 $ 24,409 $ 41,718
========== ========== ========== ==========
Earnings per share:
Income before change in accounting
principle:
Primary .................................... $ 1.02 $ 0.90 $ 1.59 $ 1.40
Fully diluted .............................. $ 0.95 $ 0.82 $ 1.52 $ 1.31
Cumulative effect of change in accounting principle:
Primary .................................... $ -- $ -- $ (0.85) $ --
Fully diluted .............................. $ -- $ -- $ (0.85) $ --
Net income:
Primary .................................... $ 1.02 $ 0.90 $ 0.74 $ 1.40
Fully diluted .............................. $ 0.95 $ 0.82 $ 0.74 $ 1.31
Dividends declared per common share ................... $ 0.31 $ 0.31 $ 0.62 $ 0.62
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
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OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Six Months Ended
June 30,
---------------------
1994 1993
--------- ---------
Cash flows from operating activities:
Net income .......................................................................... $ 24,409 $ 41,718
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization of tangible assets .................................... 18,091 16,419
Amortization of intangible assets ................................................... 10,782 8,428
Minority interests .................................................................. 6,117 5,592
Earnings of affiliates in excess of dividends received .............................. (2,413) (1,815)
Increase (decrease) in deferred taxes ............................................... 80 (498)
Provision for losses on accounts receivable ......................................... 2,258 1,964
Amortization of restricted shares ................................................... 4,594 3,295
Increase in accounts receivable ..................................................... (32,735) (87,260)
Increase in billable production ..................................................... (21,547) (26,915)
Increase in other current assets .................................................... (7,218) (4,224)
(Decrease) increase in accounts payable ............................................. (63,070) 22,767
Decrease in other accrued liabilities ............................................... (56,487) (48,495)
(Decrease) increase in accrued income taxes ......................................... (2,431) 7,302
Other ............................................................................... 26,982 (13,383)
--------- ---------
Net cash used for operating activities ....................................... (92,588) (75,105)
--------- ---------
Cash flows from investing activities:
Capital expenditures ................................................................ (21,199) (16,474)
Payments for purchases of equity interests in
subsidiaries and affiliates, net of cash acquired ................................. (54,518) (4,860)
Payments for purchases of marketable securities and
other investments ................................................................. (5,386) (2,491)
Proceeds from sales of marketable securities and
other investments ................................................................. 32,781 14,801
--------- ---------
Net cash used for investing activities ....................................... (48,322) (9,024)
--------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit ................................................ 44,315 9,382
Share transactions under employee stock plans ....................................... 4,749 5,508
Issuance of principal of debt obligations ........................................... 107,418 127,249
Dividends and loans to minority stockholders ........................................ (4,864) (4,375)
Dividends paid ...................................................................... (20,166) (17,163)
Purchase of treasury shares ......................................................... (19,282) (16,503)
--------- ---------
Net cash provided by financing activities .................................... 112,170 104,098
--------- ---------
Effect of exchange rate changes on cash and cash equivalents .......................... 8,920 (8,162)
--------- ---------
Net (decrease) increase in cash and cash equivalents ................................ (19,820) 11,807
Cash and cash equivalents at beginning of period ...................................... 174,833 112,459
--------- ---------
Cash and cash equivalents at end of period ............................................ $ 155,013 $ 124,266
========= =========
Supplemental Disclosures:
Income taxes paid ............................................................... $ 29,350 $ 24,514
========= =========
Interest paid ................................................................... $ 10,431 $ 15,399
========= =========
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
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OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The consolidated condensed interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
2) These statements reflect all adjustments consisting of normal recurring
adjustments which, in the opinion of management, are necessary for a
fair presentation of the information contained therein. Certain
reclassifications have been made to the June 30, 1993 reported amounts
to conform them with the June 30, 1994 and December 31, 1993
presentation. It is suggested that these consolidated condensed
financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest
annual report on Form 10-K.
3) Results of operations for the interim periods are not necessarily
indicative of annual results.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
4) Primary earnings per share is based upon the weighted average number of
common shares and common share equivalents outstanding during each
period. Fully diluted earnings per share is based on the above, and if
dilutive, adjusted for the assumed conversion of the Company's
Convertible Subordinated Debentures and the assumed increase in net
income for the after tax interest cost of these debentures. At June 30,
1994, the 6.5% and the 4.5%/6.25% Step-Up Convertible Subordinated
Debentures were outstanding. At June 30, 1993, the 6.5% and 7%
Convertible Subordinated Debentures were outstanding. The number of
shares used in the computations of primary and fully diluted earnings
per share for the Income before the change in accounting principle is
as follows:
Three Months Six Months
Ended June 30, Ended June 30,
------------------- ------------------
1994 1993 1994 1993
---- ---- ---- ----
Primary ........ 33,027,000 30,239,600 33,012,800 29,900,200
Fully diluted .. 39,225,700 37,124,500 39,209,400 36,791,100
For purposes of computing fully diluted earnings per share on net
income and the cumulative effect of the change in accounting principle,
the Company's 6.5% and 4.5%/6.25% Step-Up Convertible Subordinated
Debentures were not reflected in the computations as their inclusion
would have been anti-dilutive.
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5) Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). The cumulative
after tax effect of the adoption of this statement decreased net income
by $28,009,000.
6) On June 1, 1994, the Company issued a Notice of Redemption for its 6.5%
Convertible Subordinated Debentures with a scheduled maturity in 2004.
On or before the July 27, 1994 redemption date, debenture holders
elected to convert all of their outstanding debentures into common
stock of the Company at a conversion price of $28.00 per common share.
On August 9, 1993, the Company issued a Notice of Redemption for its 7%
Convertible Subordinated Debentures with a scheduled maturity in 2013.
Prior to the October 1993 redemption date, debenture holders elected to
convert all of their outstanding debentures into common stock of the
Company at a conversion price of $25.75 per common share.
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Item 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Second Quarter 1994 Compared to Second Quarter 1993
Consolidated worldwide revenues from commission and fee income increased
11.4% from $381,758,000 in the second quarter of 1993 to $425,198,000 in the
second quarter of 1994. Consolidated domestic commission and fee income for the
quarter increased 11.4% from $187,738,000 in 1993 to $209,096,000 in 1994, while
consolidated international commission and fee income increased 11.4% from
$194,020,000 in 1993 to $216,102,000 in 1994. Absent the effect of the net
acquisitions of subsidiary companies and movements in foreign currency exchange
rates, worldwide revenues would have increased 8.5% in the second quarter of
1994 as compared to the same period in 1993.
Operating expenses increased 10.8% in the second quarter of 1994 as
compared to the second quarter of 1993. Excluding the effect of the net
acquisition activity and movements in foreign currency exchange rates mentioned
above, salaries and related costs and office and general expenses during the
period increased 8.1% over 1993 levels. This increase reflects normal salary
increases and growth in client service expenditures to support the increased
revenue base. Operating expense as a percentage of commissions and fees was
84.7% in the second quarter of 1994 as compared to 85.2% in the second quarter
of 1993.
-8-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net interest expense decreased by $558,000 in the second quarter of 1994 as
compared to the same period in 1993. This decrease reflects lower average
interest rates on borrowings, primarily due to the conversion of the Company's
7% Convertible Subordinated Debentures in October 1993.
Pretax profit margin was 13.7% in the second quarter of 1994 as compared to
12.9% in the same period in 1993. Operating margin, which excludes interest and
dividend income and interest expense, was 15.3% in the second quarter of 1994 as
compared to 14.8% in the same period in 1993.
The effective income tax rate was 40.9% in the second quarter of 1994 as
compared to 42.0% for the second quarter of 1993. The decrease primarily
reflects a lower international effective tax rate caused by fewer foreign
operating losses with no associated tax benefit.
The increase in equity in affiliates is indicative of greater profits
earned by companies in which the Company owns less than a 50% equity interest.
The increase in minority interests for the quarter is primarily the result of
greater earnings by the Company's majority-owned international subsidiaries as
compared to the second quarter of 1993.
-9-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net income increased 22.8% to $33,498,000 in the second quarter of 1994 as
compared to $27,262,000 in the same period in 1993. Absent the effect of net
acquisitions of subsidiary companies and movements in foreign currency exchange
rates, net income increased 19.0% in the second quarter of 1994 as compared to
the second quarter of 1993.
Six Months 1994 Compared to Six Months 1993
Consolidated worldwide commission and fee income increased 11.2% from
$720,897,000 in the first six months of 1993 to $801,736,000 in the first six
months of 1994. Consolidated domestic commission and fee income increased 10.4%
from $367,678,000 in the first six months of 1993 to $406,038,000 in the same
period in 1994. Consolidated international commission and fee income increased
12.0% from $353,219,000 in the first six months of 1993 to $395,698,000 in the
same period in 1994. Absent the effect of movements in foreign currency exchange
rates and net acquisitions made subsequent to the second quarter of 1993,
consolidated worldwide commission and fee income would have increased 7.8% in
the first six months of 1994 versus the first six months of 1993.
Operating expenses increased by 10.4% in the first six months of 1994 as
compared to the same period in 1993. Excluding the effect of movements in
foreign currency exchange rates and net acquisition activity operating expenses
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would have increased 7.1% over 1993 levels. This increase occurred for reasons
discussed in the second quarter narrative above.
Net interest expense decreased by $946,000 in the first six months of 1994
as compared to the same period in 1993. This decrease primarily relates to lower
average interest rates on borrowings during the period.
Pretax profit margin for the first six months of 1994 was 11.2% as compared
to 10.3% in the same period in 1993. Operating profit margin, which excludes
interest and dividend income and interest expense, was 12.8% in the first six
months of 1994 as compared to 12.2% in the same period in 1993.
The effective income tax rate was 41.2% in the first six months of 1994 as
compared to 42.0% in the first six months of 1993. The decrease primarily
reflects a lower international effective tax rate caused by fewer foreign
operating losses with no associated tax benefit.
Both equity in affiliates and minority interests increased during the
period. The increase in equity in affiliates is indicative of greater profits
earned by companies in which the Company owns less than a 50% equity interest.
The increase in minority interests primarily reflects greater earnings by the
Company's majority-owned international subsidiaries.
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Net income before the cumulative effect of the adoption of SFAS 112,
increased 25.6% to $52,418,000 in the first six months of 1994 as compared to
$41,718,000 in the same period in 1993. Absent the effect of net acquisitions of
subsidiary companies and movements in foreign currency exchange rates, net
income would have increased 21.1% in the first six months of 1994 as compared to
the same period in 1993.
Capital Resources and Liquidity
Cash and cash equivalents at June 30, 1994 decreased to $155,013,000 from
$174,833,000 at December 31, 1993. This decrease is due to the paydown of
year-end accrued liabilities and payments to media and other suppliers exceeding
collections from clients. Both events are normal seasonal industry patterns.
The relationship between payables to the media and suppliers and
receivables from clients, at June 30, 1994, compares favorably to customary
industry practices.
On June 1, 1994, the Company issued a Notice of Redemption for its 6.5%
Convertible Subordinated Debentures with a scheduled maturity in 2004. On or
before the July 27, 1994 redemption date, debenture holders elected to convert
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all of their outstanding debentures into common stock of the Company at a
conversion price of $28.00 per common share.
The Company maintains relationships with a number of banks worldwide, which
have extended unsecured committed lines of credit in amounts sufficient to meet
the Company's cash needs. At June 30, 1994, the Company had $359,113,000 in
committed lines of credit, comprised of $200,000,000 under a credit agreement
expiring June 30, 1995, and $159,113,000 in unsecured committed lines of credit,
principally outside of the United States. Of the $359,113,000 in committed
lines, $156,689,000 remained available at June 30, 1994. Effective August 4,
1994, the Company entered into an amended and restated revolving credit
agreement which provides the Company with $250,000,000 in committed credit,
expiring June 30, 1997. This agreement replaces the Company's $200,000,000
revolving credit agreement with terms more favorable to the Company.
Management believes the aggregate lines of credit available to the Company
are adequate to support its short term cash requirements for dividends, capital
expenditures, repayment of debt and maintenance of working capital. The Company
anticipates that future cash flows from operations plus funds available under
existing line of credit facilities will be adequate to support the long term
cash requirements as presently contemplated.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities
See discussion under Item 5 below.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of the Company was held on Tuesday,
May 24, 1994 in New York, New York, at which three matters were submitted to a
vote of the share owners:
(a) Votes cast for or where authority to vote for was withheld regarding
the re-election of five Directors were as follows:
AUTHORITY
FOR WITHHELD
--- ---------
(Term Expiring in 1997:)
Robert J. Callander ........... 28,948,710 162,577
John R. Purcell ............... 28,955,267 156,020
Quentin I. Smith, Jr. ......... 28,949,957 161,330
William G. Tragos ............. 28,841,713 269,574
Egon P.S. Zehnder ............. 28,840,190 271,097
(b) Votes cast for or against and the number of abstentions regarding the
ratification of the appointment of Arthur Andersen & Co. as independent auditors
of the Company to serve for 1994 were as follows:
FOR ............ 28,999,841
AGAINST ........ 61,599
ABSTAIN ........ 51,406
(c) Votes cast for or against and the number of abstentions regarding the
approval of amendment to 1987 Stock Plan providing post-employment stock option
exercise period of 36 months were as follows:
FOR ............ 27,833,210
AGAINST ........ 917,893
ABSTAIN ........ 361,743
(d) Votes cast for or against and the number of abstentions regarding the
approval of amendment to 1987 Stock Plan providing 100,000 shares as maximum
annual stock option grant for an employee were as follows:
FOR ............ 27,914,997
AGAINST ........ 856,938
ABSTAIN ........ 335,911
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PART II. OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security
Holders (continued)
(e) Votes cast for or against and the number of abstentions regarding the
approval of 1994 Performance Compensation Plan and related arrangements were as
follows:
FOR ............ 28,029,597
AGAINST ........ 676,724
ABSTAIN ........ 400,241
Item 5. Other Information
On June 1, 1994, the Company announced its intention to redeem, on July 27,
1994, its 6.5% Convertible Subordinated Debentures outstanding at such date. On
June 30, 1994, there was an aggregate of $100,000,000 of such debentures
outstanding. Before the scheduled redemption date, the Debentures were converted
into shares of the Company's common stock at a conversion price of $28.00 per
common share, resulting in the issuance of 3,571,233 shares of Company common
stock.
Item 6. Exhibits
Exhibit Number Description of Exhibit
- -------------- ----------------------
10.16 Copy of $250,000,000 Second Amended
and Restated Credit Agreement, dated
as of July 15, 1994, between Omnicom
Finance Inc., Swiss Bank Corporation
and the financial institutions party
thereto.
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SIGNATURES
Pursuant to the requirements 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.
Omnicom Group Inc.
(Registrant)
Date August 11, 1994 /s/ Fred J. Meyer
-----------------------
Fred J. Meyer
Chief Financial Officer
and Director
(Principal Financial Officer)
Date August 11, 1994 /s/ Dale A. Adams
-----------------------
Dale A. Adams
Controller
(Principal Accounting Officer)
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