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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended: December 31, 1994 Commission File Number: 1-10551
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OMNICOM GROUP INC.
(Exact name of registrant as specified in its charter)
New York 13-1514814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
437 Madison Avenue, New York, NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 415-3600
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- --------------------
Common Stock, $.50 Par Value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 15, 1995, there were 36,115,328 shares of Common Stock
outstanding; the aggregate market value of the voting stock held by
nonaffiliates at March 15, 1995 was approximately $1,947,100,000.
Indicate the number of shares outstanding of each of the registrant's
classes of stock, as of the latest practicable date.
Class Outstanding at March 15, 1995
Common Stock, $.50 Par Value 36,115,328
Preferred Stock, $1.00 Par Value NONE
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement relating to its
annual meeting of shareholders scheduled to be held on May 22, 1995 are
incorporated by reference into Part III of this Report.
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OMNICOM GROUP INC.
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Index to Annual Report on Form 10-K
Year Ended December 31, 1994
Page
PART I
Item 1. Business ..................................................................................... 1
Item 2. Properties.................................................................................... 4
Item 3. Legal Proceedings............................................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders........................................... 5
Executive Officers of the Company....................................................................... 5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 6
Item 6. Selected Financial Data....................................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 7
Item 8. Financial Statements and Supplementary Data................................................... 10
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................................ 10
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 11
Item 11. Executive Compensation........................................................................ 11
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 11
Item 13. Certain Relationships and Related Transactions................................................ 11
The information called for by Items 10, 11, 12 and 13, to the extent not included in this document, is
incorporated herein by reference to such information to be included under the captions "Election of
Directors," "Executive Compensation," "Directors' Compensation" and "Certain Transactions with Management" in
the Company's definitive proxy statement which is expected to be filed by April 7, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................. 12
PART I
Item 1. Business
Omnicom Group Inc., through its wholly and partially-owned companies
(hereinafter collectively referred to as the "Agency" or "Company"), operates
advertising agencies which plan, create, produce and place advertising in
various media such as television, radio, newspaper and magazines. The Agency
offers its clients such additional services as marketing consultation, consumer
market research, design and production of merchandising and sales promotion
programs and materials, direct mail advertising, corporate identification, and
public relations. The Agency offers these services to clients worldwide on a
local, national, pan-regional or global basis. Operations cover the major
regions of North America, the United Kingdom, Continental Europe, the Middle
East, Africa, Latin America, the Far East and Australia. In 1994 and 1993, 54%
and 52%, respectively, of the Agency's billings came from its non-U.S.
operations. (See "Financial Statements and Supplementary Data")
According to the unaudited industry-wide figures published in the trade
journal, Advertising Age, in 1994 Omnicom Group Inc. was ranked as the third
largest advertising agency group worldwide.
The Agency operates three separate, independent agency networks: The BBDO
Worldwide Network, the DDB Needham Worldwide Network and the TBWA International
Network. The Agency also operates independent agencies, Altschiller & Company
and Goodby, Silverstein & Partners, and certain marketing service and specialty
advertising companies through Diversified Agency Services ("DAS").
The BBDO Worldwide, DDB Needham Worldwide and TBWA International Networks
General
BBDO Worldwide, DDB Needham Worldwide and TBWA International, by themselves
and through their respective subsidiaries and affiliates, independently operate
advertising agency networks worldwide. Their primary business is to create
marketing communications for their clients' goods and services across the total
spectrum of advertising and promotion media. Each of the agency networks has its
own clients and competes with each other in the same markets.
The BBDO Worldwide, DDB Needham Worldwide and TBWA International agencies
typically assign to each client a group of advertising specialists which may
include account managers, copywriters, art directors and research, media and
production personnel. The account manager works with the client to establish an
overall advertising strategy for the client based on an analysis of the client's
products or services and its market. The group then creates and arranges for the
production of the advertising and/or promotion and purchases time, space or
access in the relevant media in accordance with the client's budget.
BBDO Worldwide Network
The BBDO Worldwide Network operates in the United States through BBDO
Worldwide which is headquartered in New York and has full-service offices in New
York, New York; Los Angeles and San Francisco, California; Atlanta, Georgia;
Chicago, Illinois; Detroit, Michigan; and Minneapolis, Minnesota.
The BBDO Worldwide Network operates internationally through subsidiaries in
Austria, Belgium, Brazil, Canada, China, Croatia, Denmark, Finland, France,
Germany, Greece, Hong Kong, Italy, Malaysia, Mexico, the Netherlands, Peru,
Poland, Portugal, Puerto Rico, Russia, Singapore, Spain, Sweden, Taiwan,
Thailand and the United Kingdom; and through affiliates located in Argentina,
Australia, Chile, Costa Rica, the Czech Republic, Egypt, El Salvador, Guatemala,
Honduras, Hungary, India, Israel, Lebanon, Kuwait, New Zealand, Norway, Panama,
the Philippines, Romania, Saudi Arabia, the Slovak Republic, Switzerland,
Turkey, the United Kingdom, United Arab Emirates and Venezuela; and through a
joint venture in Japan. The BBDO Worldwide Network uses the services of
associate agencies in Colombia, Dominican Republic, Ecuador, Indonesia, Korea,
Nicaragua, Pakistan and Uruguay.
DDB Needham Worldwide Network
The DDB Needham Worldwide Network operates in the United States through DDB
Needham Worldwide which is headquartered in New York and has full-service
offices in New York, New York; Los Angeles, California; Dallas, Texas; Chicago,
Illinois; and Seattle, Washington; and through Griffin Bacal Inc. which is
headquartered in New York.
1
The DDB Needham Worldwide Network operates internationally through
subsidiaries in Australia, Austria, Belgium, Bulgaria, Canada, China, the Czech
Republic, Denmark, France, Germany, Greece, Hong Kong, Hungary, Italy, Japan,
Mexico, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal,
Singapore, the Slovak Republic, Spain, Sweden, Taiwan, Thailand and the United
Kingdom; and through affiliates located in Brazil, Costa Rica, Egypt, Estonia,
Finland, Germany, India, Korea, Malaysia, Switzerland and Thailand. The DDB
Needham Worldwide Network uses the services of associate agencies in Miami,
Florida and in Argentina, Bahrain, Belize, Bolivia, Chile, Colombia, Dominican
Republic, Ecuador, El Salvador, Guatemala, Honduras, Indonesia, Ireland, Israel,
Kuwait, Lebanon, Nicaragua, Panama, Paraguay, Peru, Puerto Rico, Romania,
Russia, Saudi Arabia, Slovenia, South Africa, Trinidad, Turkey, United Arab
Emirates, Uruguay and Venezuela. Griffin Bacal Inc. operates internationally
through subsidiaries in Canada and the United Kingdom and through a branch in
Mexico.
TBWA International Network
TBWA International B.V., a corporation organized under the laws of the
Netherlands, is the holding company for the TBWA International Network.
The TBWA International Network operates in the United States through TBWA
Advertising and Graf Bertel Buczek which are both headquartered in New York, New
York and through TBWA Wolfe Freeman Advertising, Inc. in St. Louis, Missouri.
The TBWA International Network operates internationally through
subsidiaries in Belgium, Denmark, France, Germany, Greece, Italy, the
Netherlands, South Africa, Spain and the United Kingdom; and through affiliates
located in Mexico, Portugal, South Africa, Sweden and Switzerland. The TBWA
International Network uses the services of associate agencies in Austria, the
Czech Republic, Hungary, India, Japan, the Middle East, the Netherlands, Norway,
Poland and Turkey.
Diversified Agency Services
DAS is the Company's Marketing Services and Specialty Advertising division
whose agencies' mission is to provide customer driven marketing communications
coordinated to the client's benefit. The division offers marketing services
including sales promotion, public relations, direct and database marketing,
corporate and brand identity, graphic arts, merchandising/point-of-purchase
promotion; and specialty advertising including financial, healthcare and
recruitment advertising.
DAS agencies headquartered in the United States include: Harrison, Star,
Wiener & Beitler, Inc., Interbrand Schechter Inc., Kallir, Philips, Ross, Inc.,
RC Communications, Inc., Merkley Newman Harty Inc., Lyons/Lavey/Nickel/Swift,
Inc. and Shain Colavito Pensabene Direct, Inc., in New York; Doremus & Company,
Gavin Anderson & Company Worldwide, Inc., Porter Novelli, Inc., Bernard Hodes
Advertising, Inc. and Rapp Collins Worldwide Inc., all in various cities and
headquartered in New York; Baxter, Gurian & Mazzei, Inc., in Beverly Hills,
California; Frank J. Corbett, Inc., in Chicago, Illinois; Thomas A. Schutz Co.,
Inc. in Morton Grove, Illinois; The GMR Group, in Fort Washington, Pennsylvania;
Optima Direct Inc., in Vienna, Virginia; Rainoldi, Kerzner & Radcliffe, Inc., in
San Francisco, California and Alcone Sims O'Brien, Inc., in Irvine, California
and Mahwah, New Jersey.
DAS operates in the United Kingdom through subsidiaries which include
Colour Solutions Ltd., Countrywide Communications Group Ltd., CPM International
Ltd., European Political Consultancy Group Ltd., Granby Marketing Services Ltd.,
Interbrand (UK) Ltd., MacMillan Davies Advertising, Ltd., MacMillan Davies
Consultants, Ltd., Paling Ellis/KPR, Ltd., Premier Magazines Ltd., Product Plus
London Ltd., Specialist Publications (UK) Ltd., The Anvil Consultancy Ltd. and
WWAV Rapp Collins Group, Ltd.
In addition, DAS operates internationally with subsidiaries and affiliates
in Australia, Belgium, Canada, France, Germany, Hong Kong, Ireland, Italy,
Japan, Korea, Mexico, South Africa and Spain.
Omnicom Group Inc.
As the parent company of BBDO Worldwide, DDB Needham Worldwide, TBWA
International, the DAS Group, Goodby, Silverstein & Partners and Altschiller &
Company, the Company, through its wholly-owned subsidiary Omnicom Management
Inc. provides a common financial and administrative base for the operating
groups. The Company oversees the operations of each group through regular
meetings with their respective top-level management. The Company sets
operational goals for each of the groups and evaluates performance through the
2
review of monthly operational and financial reports. The Company provides its
groups with centralized services designed to coordinate financial reporting and
controls, real estate planning and to focus corporate development objectives.
The Company develops consolidated services for its agencies and their clients.
For example, the Company participated in forming The Media Partnership, which
consolidates certain media buying activities in Europe in order to obtain cost
savings for clients.
Clients
The clients of the Agency include major industrial, financial and service
industry companies as well as smaller, local clients. Among its clients are
Anheuser-Busch, Apple Computer, Chrysler Corporation, Delta Airlines, Gillette,
GTE, Henkel, McDonald's, PepsiCo., Visa U.S.A., Volkswagen and The Wm. Wrigley
Jr. Company.
The Agency's ten largest clients accounted for approximately 18% of 1994
billings. The majority of these have been clients for more than ten years. The
Agency's largest client accounted for less than 5% of 1994 billings.
Revenues
Commissions charged on media billings are the primary source of revenues
for the Agency. Commission rates are not uniform and are negotiated with the
client. In accordance with industry practice, the media source typically bills
the Agency for the time or space purchased and the Agency bills its client for
this amount plus the commission. The Agency typically requires that payment for
media charges be received from the client before the Agency makes payments to
the media. In some instances a member of the Omnicom Group, like other
advertising agencies, is at risk in the event that its client is unable to pay
the media.
The Agency's advertising networks also generate revenues in arranging for
the production of advertisements and commercials. Although, as a general matter,
the Agency does not itself produce the advertisements and commercials, the
Agency's creative and production staff directs and supervises the production
company. The Agency bills the client for production costs plus a commission. In
some circumstances, certain production work is done by the Agency's personnel.
In some cases, fees are generated in lieu of commissions. Several different
fee arrangements are used depending on client and individual agency needs. In
general, fee charges relate to the cost of providing services plus a markup. The
DAS Group primarily charges fees for its various specialty services, which vary
in type and scale, depending upon the service rendered and the client's
requirements.
Advertising agency revenues are dependent upon the marketing requirements
of clients and tend to be highest in the second and fourth quarters of the
fiscal year.
Other Information
For additional information concerning the contribution of international
operations to commissions and fees and net income see Note 5 of the Notes to
Consolidated Financial Statements.
The Agency is continuously developing new methods of improving its research
capabilities, to analyze specific client requirements and to assess the impact
of advertising. In the United States, approximately 146 people on the Agency's
staff were employed in research during the year and the Agency's domestic
research expenditures approximated $20,395,000. Substantially all such expenses
were incurred in connection with contemporaneous servicing of clients.
The advertising business is highly competitive and accounts may shift
agencies with comparative ease, usually on 90 days' notice. Clients may also
reduce advertising budgets at any time for any reason. An agency's ability to
compete for new clients is affected in some instances by the policy, which many
advertisers follow, of not permitting their agencies to represent competitive
accounts in the same market. As a result, increasing size may limit an agency's
potential for securing certain new clients. In the vast majority of cases,
however, the separate, independent identities of BBDO Worldwide, DDB Needham
Worldwide, TBWA International, the independent agencies within the DAS Group,
Goodby, Silverstein & Partners and Altschiller & Company have enabled the Agency
to represent competing clients.
3
BBDO Worldwide, DDB Needham Worldwide, TBWA International, the DAS Group,
Goodby, Silverstein & Partners and Altschiller & Company have sought, and as
part of the Agency's operating segments will seek, new business by showing
potential clients examples of advertising campaigns produced and by explaining
the variety of related services offered. The Agency competes in the United
States and internationally with a multitude of full service and special service
agencies. In addition to the usual risks of the advertising agency business,
international operations are subject to the risk of currency exchange
fluctuations, exchange control restrictions and to actions of governmental
authorities.
Employees
The business success of the Agency is, and will continue to be, highly
dependent upon the skills and creativity of its creative, research, media and
account personnel and their relationships with clients. The Agency believes its
operating groups have established reputations for creativity and marketing
expertise which attract, retain and stimulate talented personnel. There is
substantial competition among advertising agencies for talented personnel and
all agencies are vulnerable to adverse consequences from the loss of key
individuals. Employees are generally not under employment contracts and are free
to move to competitors of the Agency. The Company believes that its compensation
arrangements for its key employees, which include stock options, restricted
stock and retirement plans, are highly competitive with those of other
advertising agencies. As of December 31, 1994, the Agency, excluding
unconsolidated companies, employed approximately 16,100 persons, of which
approximately 6,700 were employed in the United States and approximately 9,400
were employed in its international offices.
Government Regulation
The advertising business is subject to government regulation, both within
and outside the United States. In the United States, federal, state and local
governments and their agencies and various consumer groups have directly or
indirectly affected or attempted to affect the scope, content and manner of
presentation of advertising. The continued activity by government and by
consumer groups regarding advertising may cause further change in domestic
advertising practices in the coming years. While the Company is unable to
estimate the effect of these developments on its U.S. business, management
believes the total volume of advertising in general media in the United States
will not be materially reduced due to future legislation or regulation, even
though the form, content, and manner of presentation of advertising may be
modified. In addition, the Company will continue to ensure that its management
and operating personnel are aware of and are responsive to the possible
implications of such developments.
Item 2. Properties
Substantially all of the Company's offices are located in leased premises.
The Company has continued a program to consolidate leased premises. Management
has obtained subleases for most of the premises vacated. Where appropriate,
management has established reserves for the difference between the cost of the
leased premises that were vacated and anticipated sublease income.
Domestic
The Company's corporate office occupies approximately 25,000 sq. ft. of
space at 437 Madison Avenue, New York, New York under a lease expiring in the
year 2010.
BBDO Worldwide occupies approximately 285,000 sq. ft. of space at 1285
Avenue of the Americas, New York, New York under a lease expiring in the year
2012, which includes options for additional growth of the agency.
DDB Needham Worldwide occupies approximately 162,000 sq. ft. of space at
437 Madison Avenue, New York, New York under leases expiring in the year 2010,
which include options for additional growth of the agency.
TBWA International occupies approximately 61,000 sq. ft. of space at 292
Madison Avenue, New York, New York under a lease expiring in the year 2005,
which includes options for additional growth of the agency.
The Agency's other full-service offices in Atlanta, Beverly Hills, Chicago,
Dallas, Detroit, Irvine, Los Angeles, Mahwah, Minneapolis, Morton Grove, New
York, San Francisco, Seattle and St. Louis and service offices at various other
locations occupy approximately 1,798,000 sq. ft. of space under leases with
varying expiration dates.
4
International
The Company's international subsidiaries in Australia, Austria, Belgium,
Canada, China, the Czech Republic, Denmark, Finland, France, Germany, Greece,
Hong Kong, Hungary, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands,
New Zealand, Norway, the Philippines, Poland, Portugal, Puerto Rico, Singapore,
the Slovak Republic, South Africa, Spain, Sweden, Taiwan, Thailand and the
United Kingdom occupy premises under leases with various expiration dates.
Item 3. Legal Proceedings
The Agency has no material pending legal proceedings, other than ordinary
routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last
quarter of 1994.
Executive Officers of the Company
The individuals named below are Executive Officers of the Company:
Name Position Age
---- -------- ---
Bruce Crawford.............. President, Chief Executive Officer of Omnicom Group Inc. 66
Fred J. Meyer .............. Chief Financial Officer of Omnicom Group Inc. 64
Dennis E. Hewitt............ Treasurer of Omnicom Group Inc. 50
Dale A. Adams............... Controller of Omnicom Group Inc. 36
Raymond E. McGovern......... Secretary, General Counsel of Omnicom Group Inc. 67
Allen Rosenshine............ Chairman, Chief Executive Officer of BBDO Worldwide Inc. 56
James A. Cannon ............ Vice Chairman, Chief Financial Officer of BBDO Worldwide Inc. 56
Keith L. Reinhard........... Chairman, Chief Executive Officer of DDB Needham Worldwide Inc. 60
William G. Tragos........... Chairman, Chief Executive Officer of TBWA International B.V. 60
John D. Wren................ Chairman, Chief Executive Officer of Diversified Agency Services 42
Dennis E. Hewitt was promoted to Treasurer of the Companyicn Jof BByO
Worldwide Inc. 56 James A. Cannon ............ Vice Chairman, Chief Financial
Offid to Controller of the Company in July 1992. Mr. Adams joined the Company in
July 1991 after ten years with Coopers & Lybrand, where he served as a general
practice manager from 1987 until joining the Company.
Raymond E. McGovern has served as Secretary and General Counsel of the
Company since September 1986, having previously served as Secretary and General
Counsel of BBDO Worldwide Inc. (then named BBDO International, Inc.) for more
than 10 years.
Similar information with respect to the remaining Executive Officers of the
Company will be found in the Company's definitive proxy statement expected to be
filed April 7, 1995.
The Executive Officers of the Company are elected annually following the
Annual Meeting of the Shareholders of their respective employers.
5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock and Dividend History
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "OMC". The table below shows the range of reported last sale prices
on the New York Stock Exchange Composite Tape for the Company's common stock for
the periods indicated and the dividends paid per share on the common stock for
such periods.
Dividends Paid
Per Share of
High Low Common Stock
----- --- --------------
1993
First Quarter ..................... 47 1/2 38 3/8 $ .310
Second Quarter .................... 47 1/4 38 1/4 .310
Third Quarter ..................... 46 1/4 37 .310
Fourth Quarter .................... 46 1/2 41 1/2 .310
1994
First Quarter ..................... 49 7/8 43 3/4 .310
Second Quarter .................... 49 1/2 44 7/8 .310
Third Quarter ..................... 51 1/2 48 .310
Fourth Quarter .................... 53 3/4 49 .310
The Company is not aware of any restrictions on its present or future
ability to pay dividends. However, in connection with certain borrowing
facilities entered into by the Company and its subsidiaries (see Note 7 of the
Notes to Consolidated Financial Statements), the Company is subject to certain
restrictions on its current ratio, the ratio of net cash flow to consolidated
indebtedness, and the ratio of total consolidated indebtedness to total
consolidated capitalization.
On January 23, 1995 the Board of Directors declared a regular quarterly
dividend of $.31 per share of common stock, payable April 4, 1995 to holders of
record on March 20, 1995.
Approximate Number of Equity Security Holders
Approximate Number of
Record Holders
Title of Class on March 15, 1995
-------------- ---------------------
Common Stock, $.50 par value.......................... 2,557
Preferred Stock, $1.00 par value ..................... None
6
Item 6. Selected Financial Data
The following table sets forth selected financial data of the Company and
should be read in conjunction with the consolidated financial statements which
begin on page F-1.
(Dollars in Thousands Except Per Share Amounts)
------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
For the year:
Commissions and fees................... $1,756,205 $1,516,475 $1,385,161 $1,236,158 $1,178,233
Income before change
in accounting principles............. 108,134 85,345 65,498 57,052 52,009
Net income ............................ 80,125 85,345 69,298 57,052 52,009
Earnings per common share before
change in accounting principles:
Primary.............................. 3.15 2.79 2.31 2.08 2.01
Fully diluted........................ 3.07 2.62 2.20 2.01 1.94
Cumulative effect of change in
accounting principles:
Primary.............................. (0.81) -- 0.14 -- --
Fully diluted........................ (0.81) -- 0.11 -- --
Earnings per common share after
change in accounting principles:
Primary.............................. 2.34 2.79 2.45 2.08 2.01
Fully diluted........................ 2.34 2.62 2.31 2.01 1.94
Dividends declared per common
share................................ 1.24 1.24 1.21 1.10 1.07
At year end:
Total assets........................... 2,852,204 2,289,863 1,951,950 1,885,894 1,748,529
Long-term obligations:
Long-term debt....................... 187,338 278,312 235,129 245,189 278,960
Deferred compensation and
other liabilities................... 95,973 56,933 51,919 31,355 25,365
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
In 1994, domestic revenues from commissions and fees increased 11.4
percent. The effect of acquisitions, net of divestitures, accounted for a 1.4
percent increase. The remaining 10.0 percent increase was due to net new
business gains and higher spending from existing clients.
In 1993, domestic revenues from commissions and fees increased 9.0 percent.
The effect of acquisitions, net of divestitures, accounted for a 3.9 percent
increase. The remaining 5.1 percent increase was due to net new business gains
and higher spending from existing clients.
In 1992, domestic revenues increased 2 percent, primarily as a result of
net new business gains and higher spending from existing clients.
In 1994, international revenues increased 20.3 percent. The effect of
acquisitions, net of divestitures, accounted for an 8.7 percent increase in
international revenues. The weakening of the U.S. dollar increased international
revenues by 2.3 percent. The remaining 9.3 percent increase was due to net new
business gains and higher spending from existing clients.
In 1993, international revenues increased 10.0 percent. The effect of the
acquisition of TBWA International B.V. and several marketing services companies
in the United Kingdom, net of divestitures, accounted for an 18.1 percent
increase in international revenues. The strengthening of the U.S. dollar against
several major international currencies relevant to the Company's non-U.S.
operations decreased revenues by 11.7 percent. The increase in revenues, due to
net new business gains and higher spending from existing clients, was 3.6
percent.
7
In 1992, international revenues increased 25 percent, of which the effect
of the acquisition of McKim Baker Lovick BBDO in Canada and the purchase of
additional shares in several companies which were previously affiliates of the
Company accounted for 14 percent. The remaining increase was due to net new
business gains and higher spending from existing clients. Currency exchange
rates did not significantly impact the revenues for the year.
In 1994, worldwide operating expenses increased 15.2 percent. Acquisitions,
net of divestitures during the year, accounted for a 5.4 percent increase in
worldwide operating expenses. The weakening of the U.S dollar increased
worldwide operating expenses by 1.2 percent. The remaining increase was caused
by normal salary increases and growth in out-of-pocket expenditures to service
the increased revenue base. Net currency exchange gains did not significantly
impact operating expenses for the year.
In 1993, worldwide operating expenses increased 8.8 percent. Acquisitions,
net of divestitures during the year, accounted for an 11.7 percent increase in
worldwide operating expenses. The strengthening of the U.S. dollar against
several international currencies decreased worldwide operating expenses by 5.9
percent. The remaining increase was caused by normal salary increases and growth
in out-of-pocket expenditures to service the increased revenue base. Net
currency exchange gains did not significantly impact operating expenses for the
year.
In 1992, worldwide operating expenses increased 12.5 percent. Acquisitions,
net of divestitures during the year, accounted for 5.0 percent of the increase.
The special charge accounted for 0.5 percent of the increase. The remaining
increase was caused by normal salary increases and growth in out-of-pocket
expenditures to service the increased revenue base. Net currency exchange gains
did not significantly impact total operating expenses for the year.
Interest expense in 1994 decreased by $6.4 million. This decrease reflects
lower average borrowings and interest rates on borrowings, primarily due to the
conversion of the Company's 6.5% Convertible Subordinated Debentures in July
1994 and the full year effect of the conversion of the Company's 7% Convertible
Subordinated Debentures in October 1993. Interest and dividend income decreased
by $2.7 million in 1994. This decrease was primarily due to lower average funds
invested during the year and declining interest rates in certain countries.
Interest expense in 1993 was comparable to 1992. Interest and dividend
income decreased in 1993 by $2.2 million. This decrease was primarily due to
lower average amounts of cash and marketable securities invested during the year
and lower average interest rates on amounts invested.
Interest expense in 1992 was comparable to 1991. Interest and dividend
income decreased by $1.4 million in 1992. This decrease was primarily due to
lower average funds invested during the year and declining interest rates in
certain countries.
In 1994, the effective tax rate decreased to 40.9 percent. The decrease
reflects a lower international effective tax rate primarily caused by fewer
international operating losses with no associated tax benefit and tax planning
strategies implemented in certain non-U.S. countries.
In 1993, the effective tax rate decreased to 42.0 percent. This decrease
primarily reflects a lower international effective tax rate caused by fewer
international operating losses with no associated tax benefit, partially offset
by an increased domestic federal tax rate.
In 1992, the effective tax rate of 43.6 percent was comparable to the 1991
effective tax rate of 44 percent.
In 1994, consolidated net income before the change in accounting principle
increased by 26.7 percent. This increase was the result of revenue growth,
margin improvement and an increase in equity income, partially offset by an
increase in minority interest expense. Operating margin, which excludes net
interest expense, increased to 11.7 percent in 1994 from 11.2 percent in 1993.
This increase was the result of greater growth in commission and fee revenue
than the growth in operating expenses. The increase in equity income was
primarily due to the acquisition of certain minority interests and improved net
income at companies which are less than 50 percent owned. The increase in
minority interest expense was primarily due to greater earnings by companies
where minority interests exist and the additional minority interests resulting
from acquisitions. In 1994, the incremental impact of divestitures, net of
acquisitions, accounted for a 1.7 percent decrease in consolidated net income,
while the weakening of the U.S dollar against several international currencies
increased consolidated net income by 1.1 percent.
8
In 1993, consolidated net income increased 23.2 percent. This increase is
the result of revenue growth, margin improvement, an increase in equity income
and a decrease in minority interest expense. Operating margin increased to 11.2
percent in 1993 from 10.6 percent in 1992. This increase was the result of
greater growth in commission and fee revenue than the growth in operating
expenses. The increase in equity income was the result of improved net income at
companies which are less than 50 percent owned. The decrease in minority
interest expense was primarily due to the acquisition of certain minority
interests in 1993 and lower earnings by companies in which minority interests
exist. In 1993, the incremental impact of acquisitions, net of divestitures,
accounted for 0.8 percent of the increase in consolidated net income, while the
strengthening of the U.S. dollar against several international currencies
decreased consolidated net income by 5.7 percent.
Consolidated net income increased 21 percent in 1992. This increase was the
result of revenue growth and margin improvement. Operating margin, after the
first quarter special charge discussed below, decreased to 10.6 percent in 1992
from 10.9 percent in 1991. This decrease was the result of the special charge
offset by greater growth in commissions and fees than the growth in operating
expenses. In 1992, the incremental impact of acquisitions, net of divestitures,
accounted for 6 percent of the increase in consolidated net income.
At December 31, 1994, accounts receivable increased by $238.4 million from
December 31, 1993. This increase was primarily due to acquisitions and an
increased volume of activity resulting from business growth.
At December 31, 1994, accounts payable increased by $367.7 million from
December 31, 1993. This increase was primarily due to acquisitions, an increased
volume of activity resulting from business growth, and differences in the dates
on which payments to media and other suppliers became due in 1994 compared to
1993.
At December 31, 1992, the translation, into U.S. dollars, of the assets and
liabilities of the Company's international subsidiaries decreased cumulative
translation adjustment by $70.9 million compared to December 31, 1991. This
decrease was primarily the result of a stronger U.S. dollar exchange rate for
certain international currencies at December 31, 1992 as compared to December
31, 1991.
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits." The cumulative after tax effect of the adoption of
this statement decreased net income by $28.0 million.
In 1992, the Company adopted two new accounting principles which had a net
favorable cumulative after tax effect of $3.8 million. At the same time, the
Company recorded a special charge to provide for future losses related to
certain leased property. The combination of the favorable impact of the adoption
of the new accounting principles and the after tax impact of the special charge
had no effect on 1992 consolidated net income.
The Company's international operations are subject to the risk of currency
exchange rate fluctuations. This risk is generally limited to the net income of
the operations as the revenues and expenses of the operations are generally
denominated in the same currency. When economically beneficial to do so, the
Company or its international operations enter into hedging transactions to
minimize the risk of adverse currency exchange rate fluctuations on the net
income of the operation. The Company's major international markets are the
United Kingdom, France, Germany, the Netherlands, Spain, Italy and Canada. The
Company's operations are also subject to the risk of interest rate fluctuations.
As part of managing the Company's exposure to changes in currency exchange
and market interest rates, the Company periodically enters into derivative
financial instruments with major well known banks acting as principal
counterparty.
In order to minimize counterparty risk, the Company only enters into
derivative contracts with major well known banks that have credit ratings equal
to or better than the Company's. Additionally, these contracts contain
provisions for net settlement. As such, the contracts settle based on the spread
between the currency rates and interest rates contained in the contracts and the
current market rates. This minimizes the risk of an insolvent counterparty being
unable to pay the Company and, at the same time, having the creditors of the
counterparty demanding the notional principal amount from the Company.
The Company's derivative activities are limited in volume and confined to
risk management activities related to the Company's worldwide operations. A
reporting system is in place which evaluates the impact on the Company's
earnings resulting from changes in interest rates, currency exchange rates and
other relevant market risks. This system is structured to enable senior
management to initiate prompt remedial action, if appropriate.
9
At December 31, 1994, the Company had forward exchange contracts
outstanding with an aggregate notional principal amount of $346 million, most of
which were denominated in the Company's major international market currencies.
These contracts effectively hedge certain of the Company's assets and
liabilities which are recorded in a currency different from that in which they
will settle. The terms of these contracts are generally three months or less.
The Company had no other derivative contracts outstanding at December 31,
1994.
At December 31, 1993, the Company had entered into various cross currency
interest rate swap transactions. The notional principal amount of these swap
transactions totaled $70.6 million comprising contracts denominated in German
Deutsche Marks, French Francs, Australian Dollars and Spanish Pesetas. The swaps
were principally used to reduce the Company's risk related to currency
fluctuations and to convert the effective interest rate on borrowings of certain
international subsidiaries from fixed rates to a lower floating U.S. interest
rate. In addition, the Company had one U.S. dollar interest rate swap
outstanding at December 31, 1993 with a notional principal amount of $50
million, for the purpose of converting a portion of the floating U.S. interest
rates mentioned previously to fixed interest rates. These contracts were closed
out during 1994 for a gain of $2.4 million which is being amortized into income
over the original term of the swap agreements.
The current economic conditions in the Company's major markets would
indicate varying growth rates in advertising expenditures in 1995. The Company
anticipates relatively favorable growth rates in its major international
markets.
Capital Resources and Liquidity
Cash and cash equivalents increased $53 million during 1994 to $228 million
at December 31, 1994. The Company's positive net cash flow provided by operating
activities was enhanced by an improvement in the relationship between the
collection of accounts receivable and the payment of obligations to media and
other suppliers. After annual cash outlays for dividends paid to shareholders
and minority interests and the repurchase of the Company's common stock for
employee programs, the balance of the cash flow was used to fund acquisitions,
make capital expenditures and repay debt obligations.
On June 1, 1994, the Company issued a Notice of Redemption for its 6.5%
Convertible Subordinated Debentures due 2004. Prior to 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.
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 December 31, 1994, the Company had $370 million in
committed lines of credit, comprised of a $250 million revolving credit
agreement expiring on June 30, 1997 and $120 million in unsecured credit lines,
principally outside of the United States. Of the $370 million in committed
lines, $32 million were used at December 31, 1994. Management believes the
aggregate lines of credit available to the Company are adequate to support its
short-term cash requirements for dividends, capital expenditures and maintenance
of working capital.
On January 4, 1995, an indirect wholly-owned subsidiary of the Company
issued Deutsche Mark 200 million Floating Rate Bonds (approximately $130
million), due January 5, 2000. The bonds bear interest at a per annum rate equal
to Deutsche Mark three month LIBOR plus 0.65%.
The Company anticipates that the year end cash position, together with the
future cash flows from operations and funds available under existing credit
facilities and borrowings will be adequate to meet its long-term cash
requirements as presently contemplated.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item
appear beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
10
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors of the Company is incorporated by
reference to the Company's definitive proxy statement expected to be filed by
April 7, 1995. Information regarding the Company's executive officers is set
forth in Part I of this Form 10-K.
Item 11. Executive Compensation
Incorporated by reference to the Company's definitive proxy statement
expected to be filed by April 7, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's definitive proxy statement
expected to be filed by April 7, 1995.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Company's definitive proxy statement
expected to be filed by April 7, 1995.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page
----
(a) 1. Financial Statements:
Report of Management............................................................................. F-1
Report of Independent Public Accountants......................................................... F-2
Consolidated Statements of Income for the three years ended December 31, 1994.................... F-3
Consolidated Balance Sheets at December 31, 1994 and 1993........................................ F-4
Consolidated Statements of Shareholders' Equity for the three years
ended December 31, 1994........................................................................ F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1994........................................................................ F-6
Notes to Consolidated Financial Statements....................................................... F-7
Quarterly Results of Operations (Unaudited)...................................................... F-18
2. Financial Statement Schedules:
For the three years ended December 31, 1994:
Schedule VIII--Valuation and Qualifying Accounts............................................... S-1
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
3. Exhibits:
(3)(i) Articles of Incorporation.
Incorporated by reference to the 1986 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31,
1987.
(ii) By-laws.
Incorporated by reference to the 1987 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31,
1988.
(4) Instruments Defining the Rights of Security Holders, Including
Indentures.
4.1 Copy of Registrant's 4.5%/6.25% Step-Up Convertible Subordinated
Debentures due 2000, filed as Exhibit 4.3 to Omnicom Group
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, is incorporated herein by reference.
4.2 Copy of Subscription Agreement, dated December 14, 1994 by and
among the Registrant, BBDO Canada Inc. and Morgan Stanley GMBH
and the other Managers listed therein, in connection with the
issuance of DM 200,000,000 Floating Rate Bonds of 1995 due
January 5, 2000 of BBDO Canada Inc., including form of Guaranty
by Registrant.
4.3 Paying Agency Agreement dated January 4, 1995 by and among the
Registrant, BBDO Canada Inc. and Morgan Stanley GMBH in
connection with the issuance of DM 200,000,000 Floating Rate
Bonds of 1995 due January 5, 2000 of BBDO Canada Inc.
12
(10) Material Contracts.
Management Contracts, Compensatory Plans, Contracts or
Arrangements.
10.1 Standard Form of Severance Compensation Agreement incorporated
by reference to BBDO International Inc.'s Form S-1 Registration
Statement filed with the Securities and Exchange Commission on
September 28, 1973, is incorporated herein by reference.
10.2 Copy of Registrant's 1987 Stock Plan, filed as Exhibit 10.26 to
Omnicom Group Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, is incorporated herein by
reference.
10.3 Copy of Registrant's Profit-Sharing Retirement Plan dated May
16, 1988, filed as Exhibit 10.24 to Omnicom Group Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1988,
is incorporated herein by reference.
10.4 Copy of Employment Agreement dated March 20, 1989, between Peter
I. Jones and Boase Massimi Pollitt plc, filed as Exhibit 10.22
to Omnicom Group Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, is incorporated herein by
reference.
10.5 Standard Form of the Registrant's 1988 Executive Salary
Continuation Plan Agreement, filed as Exhibit 10.24 to Omnicom
Group Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, is incorporated herein by reference.
10.6 Standard Form of the Registrant's Indemnification Agreement with
members of Registrant's Board of Directors, filed as Exhibit
10.25 to Omnicom Group Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, is incorporated herein by
reference.
10.7 Copy of DDB Needham Worldwide Joint Savings Plan, effective as
of May 1, 1989, filed as Exhibit 10.26 to Omnicom Group Inc.'s
Annual Report on Form 10-K for the fiscal year ended December
31, 1989, is incorporated herein by reference.
10.8 Amendment to Registrant's Profit-Sharing Retirement Plan, listed
as Exhibit 10.3 above, adopted February 4, 1991, filed as
Exhibit 10.28 to Omnicom Group Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, is incorporated
herein by reference.
10.9 Amendment to Registrant's Profit-Sharing Retirement Plan listed
as Exhibit 10.3 above, adopted on December 7, 1992, filed as
Exhibit 10.13 to Omnicom Group Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, is incorporated
herein by reference.
10.10 Amendment to Registrant's Profit-Sharing Retirement Plan listed
as Exhibit 10.3 above, adopted on July 1, 1993, filed as Exhibit
10.10 to Omnicom Group Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, incorporated herein by
reference.
10.11 Copy of Severance Agreement dated July 6, 1993, between Keith
Reinhard and DDB Needham Worldwide Inc., filed as Exhibit 10.11
to Omnicom Group Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, incorporated herein by
reference.
10.12 Copy of Employment Agreement dated May 26, 1993, between William
G. Tragos and TBWA International B.V., filed as Exhibit 10.13 to
Omnicom Group Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, incorporated herein by reference.
10.13 Copy of Deferred Compensation Agreement dated October 12, 1984,
between William G. Tragos and TBWA Advertising Inc., filed as
Exhibit 10.14 to Omnicom Group Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, incorporated herein
by reference.
13
10.14 Amendments to Registrant's 1987 Stock Plan, listed as Exhibit
10.2 above, approved by the Registrant's shareholders on May 24,
1994.
Other Material Contracts.
10.15 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, filed as Exhibit 10.16 to Omnicom Group Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994, is incorporated herein by reference.
(21) Subsidiaries of the Registrant......................... S-2
(23) Consents of Experts and Counsel.
23.1 Consent of Independent Public Accountants.............. S-12
(24) Powers of Attorney from Bernard Brochand, Robert J. Callander,
Leonard S. Coleman, Jr., John R. Purcell, Gary L. Roubos,
Quentin I. Smith, Jr., Robin B. Smith, and Egon P. S. Zehnder.
(27) Financial Data Schedule (filed in electronic format only).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1994.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 28, 1995
By: /s/ FRED J. MEYER
-------------------------------
Fred J. Meyer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ BRUCE CRAWFORD President and Chief March 28, 1995
-------------------------------------------- Executive Officer and Director
(Bruce Crawford)
/s/ FRED J. MEYER Chief Financial Officer March 28, 1995
-------------------------------------------- and Director
(Fred J. Meyer)
/S/ DALE A. ADAMS Controller (Principal March 28, 1995
-------------------------------------------- Accounting Officer)
(Dale A. Adams)
/s/ RAYMOND E. MCGOVERN Secretary and General March 28, 1995
-------------------------------------------- Counsel
(Raymond E. McGovern)
/s/ BERNARD BROCHAND* Director March 28, 1995
--------------------------------------------
(Bernard Brochand)
/s/ ROBERT J. CALLANDER* Director March 28, 1995
--------------------------------------------
(Robert J. Callander)
/s/ JAMES A. CANNON Director March 28, 1995
--------------------------------------------
(James A. Cannon)
/s/ LEONARD S. COLEMAN, JR.* Director March 28, 1995
--------------------------------------------
(Leonard S. Coleman, Jr.)
/s/ PETER I. JONES Director March 28, 1995
--------------------------------------------
(Peter I. Jones)
/s/ JOHN R. PURCELL* Director March 28, 1995
--------------------------------------------
(John R. Purcell)
/s/ KEITH L. REINHARD Director March 28, 1995
--------------------------------------------
(Keith L. Reinhard)
/s/ ALLEN ROSENSHINE Director March 28, 1995
--------------------------------------------
(Allen Rosenshine)
/s/ GARY L. ROUBOS* Director March 28, 1995
--------------------------------------------
(Gary L. Roubos)
/s/ QUENTIN I. SMITH, JR.* Director March 28, 1995
--------------------------------------------
(Quentin I. Smith, Jr.)
/s/ ROBIN B. SMITH* Director March 28, 1995
--------------------------------------------
(Robin B. Smith)
/s/ WILLIAM G. TRAGOS Director March 28, 1995
--------------------------------------------
(William G. Tragos)
/s/ JOHN D. WREN Director March 28, 1995
--------------------------------------------
(John D. Wren)
/s/ EGON P.S. ZEHNDER* Director March 28, 1995
--------------------------------------------
(Egon P.S. Zehnder)
*By /s/ BRUCE CRAWFORD
--------------------------------------------
Bruce Crawford
Attorney-in-fact
15
REPORT OF MANAGEMENT
The management of Omnicom Group Inc. is responsible for the integrity of
the financial data reported by Omnicom Group and its subsidiaries. Management
uses its best judgment to ensure that the financial statements present fairly,
in all material respects, the consolidated financial position and results of
operations of Omnicom Group. These financial statements have been prepared in
accordance with generally accepted accounting principles.
The system of internal controls of Omnicom Group, augmented by a program of
internal audits, is designed to provide reasonable assurance that assets are
safeguarded and records are maintained to substantiate the preparation of
accurate financial information. Underlying this concept of reasonable assurance
is the premise that the cost of control should not exceed the benefits derived
therefrom.
The financial statements have been audited by independent public
accountants. Their report expresses an independent informed judgment as to the
fairness of management's reported operating results and financial position. This
judgment is based on the procedures described in the second paragraph of their
report.
The Audit Committee meets periodically with representatives of financial
management, internal audit and the independent public accountants to assure that
each is properly discharging their responsibilities. In order to ensure complete
independence, the Audit Committee communicates directly with the independent
public accountants, internal audit and financial management to discuss the
results of their audits, the adequacy of internal accounting controls and the
quality of financial reporting.
/s/ BRUCE CRAWFORD /s/ FRED J. MEYER
-------------------------------------- -----------------------------------
Bruce Crawford Fred J. Meyer
President and Chief Executive Officer Chief Financial Officer
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Omnicom Group Inc.:
We have audited the accompanying consolidated balance sheets of Omnicom
Group Inc. (a New York corporation) and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Omnicom Group Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 13 to the consolidated financial statements, effective
January 1, 1994, the Company changed its methods of accounting for
postemployment benefits and certain investments in debt and equity securities.
Effective January 1, 1992, the Company changed its methods of accounting for
income taxes and postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule on page S-1 is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
February 20, 1995
F-2
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(Dollars in Thousands
Except Per Share Data)
--------------------------------------------
1994 1993 1992
---- ---- ----
COMMISSIONS AND FEES.......................................... $ 1,756,205 $1,516,475 $1,385,161
OPERATING EXPENSES:
Salaries and Related Costs............................... 1,009,069 879,808 798,189
Office and General Expenses.............................. 542,538 467,468 433,884
Special Charge........................................... -- -- 6,714
--------- --------- ---------
1,551,607 1,347,276 1,238,787
--------- --------- ---------
OPERATING PROFIT.............................................. 204,598 169,199 146,374
NET INTEREST EXPENSE:
Interest and Dividend Income............................. (11,928) (14,628) (16,810)
Interest Paid or Accrued................................. 34,770 41,203 40,888
--------- --------- ---------
22,842 26,575 24,078
--------- --------- ---------
INCOME BEFORE INCOME TAXES
AND CHANGE IN ACCOUNTING
PRINCIPLES................................................. 181,756 142,624 122,296
INCOME TAXES.................................................. 74,337 59,871 53,268
--------- --------- ---------
INCOME AFTER INCOME TAXES AND BEFORE
CHANGE IN ACCOUNTING PRINCIPLES............................. 107,419 82,753 69,028
EQUITY IN AFFILIATES.......................................... 18,322 13,180 9,598
MINORITY INTERESTS............................................ (17,607) (10,588) (13,128)
--------- --------- ---------
INCOME BEFORE CHANGE IN
ACCOUNTING PRINCIPLES....................................... 108,134 85,345 65,498
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES....................................... (28,009) -- 3,800
--------- --------- ---------
NET INCOME.................................................... $ 80,125 $ 85,345 $ 69,298
========= ========= =========
NET INCOME PER COMMON SHARE:
Income Before Change in
Accounting Principles:
Primary................................................. $ 3.15 $ 2.79 $ 2.31
Fully Diluted........................................... $ 3.07 $ 2.62 $ 2.20
Cumulative Effect of Change
in Accounting Principles:
Primary................................................. $ (0.81) -- $ 0.14
Fully Diluted........................................... $ (0.81) -- $ 0.11
Net Income:
Primary................................................. $ 2.34 $ 2.79 $ 2.45
Fully Diluted........................................... $ 2.34 $ 2.62 $ 2.31
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
December 31,
(Dollars in Thousands)
--------------------------
1994 1993
---- ----
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 228,251 $ 174,833
Investments available-for-sale, at market, which approximates cost........... 28,383 38,003
Accounts receivable, less allowance for doubtful accounts of
$19,278 and $17,298 (Schedule VIII)...................................... 1,139,882 901,434
Billable production orders in process, at cost............................... 65,115 59,415
Prepaid expenses and other current assets.................................... 140,304 100,791
---------- ----------
Total Current Assets....................................................... 1,601,935 1,274,476
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost, less
accumulated depreciation and amortization of $221,491 and $188,868........... 172,153 160,543
INVESTMENTS IN AFFILIATES ...................................................... 164,524 112,232
INTANGIBLES, less accumulated amortization of $133,572 and $93,105............... 758,460 603,494
DEFERRED TAX BENEFITS............................................................ 21,104 18,522
DEFERRED CHARGES AND OTHER ASSETS ............................................... 134,028 120,596
---------- ----------
$2,852,204 $2,289,863
========== ==========
L I A B I L I T I E S A N D S H A R E H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES:
Accounts payable............................................................. $1,425,829 $1,058,095
Current portion of long-term debt............................................ 3,576 21,892
Bank loans .................................................................. 8,939 26,155
Advance billings............................................................. 148,036 90,422
Other accrued taxes.......................................................... 63,025 32,953
Other accrued liabilities.................................................... 274,308 254,378
Accrued taxes on income...................................................... 51,667 29,974
Dividends payable............................................................ 11,262 10,349
---------- ----------
Total Current Liabilities.................................................. 1,986,642 1,524,218
---------- ----------
LONG-TERM DEBT ................................................................. 187,338 278,312
DEFERRED COMPENSATION AND OTHER LIABILITIES ..................................... 95,973 56,933
MINORITY INTERESTS .............................................................. 41,549 28,214
COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 7,500,000 shares authorized, none
issued................................................................... -- --
Common stock, $.50 par value, 75,000,000 shares authorized,
38,643,165 and 35,071,932 shares issued in 1994 and 1993, respectively... 19,322 17,536
Additional paid-in capital................................................... 356,199 252,408
Retained earnings............................................................ 325,321 287,416
Unamortized restricted stock................................................. (25,631) (21,807)
Cumulative translation adjustment............................................ (27,671) (65,257)
Treasury stock, at cost, 2,511,187 and 1,901,977 shares in 1994 and
1993, respectively....................................................... (106,838) (68,110)
---------- ----------
Total Shareholders' Equity.............................................. 540,702 402,186
---------- ----------
$2,852,204 $2,289,863
========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-4
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 1994
(Dollars in Thousands)
Common Stock Additional Unamortized Cumulative Total
---------------------- Paid-in Retained Restricted Translation Treasury Shareholders'
Shares Par Value Capital Earnings Stock Adjustment Stock Equity
---------- --------- -------- --------- ----------- ----------- -------- -------------
Balance December 31, 1991, as
previously reported........... 30,221,806 $15,111 $153,548 $219,181 $(10,977) $ 33,037 $(43,682) $366,218
Pooling of interests adjustment.. 159,720 80 91 (6,062) (5,891)
---------- ------- -------- -------- -------- --------- -------- --------
Balance January 1, 1992, as
restated...................... 30,381,526 15,191 153,639 213,119 (10,977) 33,037 (43,682) 360,327
Net income....................... 69,298 69,298
Dividends declared............... (33,628) (33,628)
Amortization of restricted shares 5,993 5,993
Shares issued under employee
stock plans................... 1,227 (10,323) 16,691 7,595
Shares issued for acquisitions... 150,168 75 220 295
Retirement of shares............. (143,101) (71) (3,416) 3,487 --
Cumulative translation adjustment (70,906) (70,906)
Repurchases of shares............ (30,082) (30,082)
---------- ------- -------- -------- -------- --------- -------- -------
Balance December 31, 1992, as
previously reported........... 30,388,593 15,195 155,086 245,373 (15,307) (37,869) (53,586) 308,892
Pooling of interests adjustment.. 1,349,260 674 124 (6,309) (1,834) (7,345)
---------- ------- -------- -------- -------- --------- -------- -------
Balance January 1, 1993, as
restated...................... 31,737,853 15,869 155,210 239,064 (15,307) (39,703) (53,586) 301,547
Net income....................... 85,345 85,345
Dividends declared............... (36,993) (36,993)
Amortization of restricted shares 7,096 7,096
Shares issued under employee
stock plans................... 5,709 (13,596) 15,413 7,526
Shares issued for acquisitions... 7,303 21,948 29,251
Conversion of 7% Debentures...... 3,334,079 1,667 84,186 85,853
Cumulative translation adjustment (25,554) (25,554)
Repurchases of shares............ (51,885) (51,885)
---------- ------- -------- -------- -------- --------- -------- -------
Balance December 31, 1993........ 35,071,932 17,536 252,408 287,416 (21,807) (65,257) (68,110) 402,186
Net income....................... 80,125 80,125
Dividends declared............... (42,220) (42,220)
Amortization of restricted shares 9,535 9,535
Shares issued under employee
stock plans................... 4,474 (13,359) 16,796 7,911
Shares issued for acquisitions... 1,103 11,932 13,035
Conversion of 6.5% Debentures.... 3,571,233 1,786 98,214 100,000
Cumulative translation adjustment 37,586 37,586
Repurchases of shares............ (67,456) (67,456)
---------- ------- -------- -------- -------- --------- -------- --------
Balance December 31, 1994........ 38,643,165 $19,322 $356,199 $325,321 $(25,631) $(27,671) $(106,838) $540,702
========== ======= ======== ======== ======== ======== ========= ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Dollars in Thousands)
---------------------------------------------
1994 1993 1992
--------- --------- ---------
Cash Flows From Operating Activities:
Net income ................................................................ $ 80,125 $ 85,345 $ 69,298
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of tangible assets ........................ 37,767 34,574 33,706
Amortization of intangible assets ....................................... 25,012 18,950 16,102
Minority interests ...................................................... 17,342 10,588 13,128
Earnings of affiliates in excess of dividends received .................. (10,484) (6,823) (3,765)
(Increase) decrease in deferred taxes ................................... (6,443) 2,197 (921)
Provisions for losses on accounts receivable ............................ 7,864 4,742 2,545
Amortization of restricted shares ....................................... 9,535 7,096 5,993
Increase in accounts receivable ......................................... (138,031) (35,416) (29,360)
Decrease (increase) in billable production .............................. 2,439 6,665 (8,318)
(Increase) decrease in other current assets ............................. (27,564) 19,949 (12,011)
Increase in accounts payable ............................................ 262,403 73,389 81,697
Increase (decrease) in other accrued liabilities ........................ 54,989 (3,498) 26,185
Increase (decrease) in accrued taxes on income .......................... 16,457 1,918 (3,830)
Other ................................................................... 7,814 (10,479) (8,753)
-------- --------- ---------
Net Cash Provided By Operating Activities .................................... 339,225 209,197 181,696
-------- --------- ---------
Cash Flows From Investing Activities:
Capital Expenditures ...................................................... (38,529) (33,646) (34,881)
Payments for purchases of equity interests in subsidiaries
and affiliates, net of cash acquired .................................... (150,660) (80,577) (59,651)
Proceeds from sales of equity interests in subsidiaries and
affiliates .............................................................. 499 558 1,840
Payments for purchases of investments available-for-sale
and other investments ................................................... (8,153) (49,733) (5,353)
Proceeds from sales of investments available-for-sale
and other investments ................................................... 24,149 17,396 30,504
-------- --------- ---------
Net Cash Used In Investing Activities ........................................ (172,694) (146,002) (67,541)
-------- --------- ---------
Cash Flows From Financing Activities:
Net repayments under lines of credit ...................................... (21,931) (14,167) (9,302)
Proceeds from issuances of debt obligations ............................... 33,293 147,283 7,836
Repayment of principal of debt obligations ................................ (28,832) (31,980) (41,371)
Share transactions under employee stock plans ............................. 7,911 7,526 7,594
Dividends and loans to minority stockholders .............................. (8,061) (8,033) (9,128)
Dividends paid ............................................................ (41,307) (35,470) (32,623)
Purchase of treasury shares ............................................... (67,456) (51,885) (30,082)
-------- --------- ---------
Net Cash (Used in) Provided by Financing Activities .......................... (126,383) 13,274 (107,076)
-------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents ............................................................. 13,270 (14,095) (8,331)
-------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ......................... 53,418 62,374 (1,252)
Cash and Cash Equivalents At Beginning of Period ............................. 174,833 112,459 113,711
-------- --------- ---------
Cash and Cash Equivalents At End of Period ................................... $ 228,251 $ 174,833 $ 112,459
========= ========= =========
Supplemental Disclosures:
Income taxes paid .......................................................... $ 66,480 $ 58,893 $ 58,292
========= ========= =========
Interest paid .............................................................. $ 26,972 $ 38,290 $ 32,729
========= ========= =========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Recognition of Commission and Fee Revenue. Substantially all revenues are
derived from commissions for placement of advertisements in various media and
from fees for manpower and for production of advertisements. Revenue is
generally recognized when billed. Billings are generally rendered upon
presentation date for media, when manpower is used, when costs are incurred for
radio and television production and when print production is completed.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Omnicom Group Inc. and its domestic and
international subsidiaries (the "Company"). All significant intercompany
balances and transactions have been eliminated.
Reclassifications. Certain prior year amounts have been reclassified to
conform with the 1994 presentation.
Billable Production. Billable production orders in process consist
principally of costs incurred in producing advertisements and marketing
communications for clients. Such amounts are generally billed to clients when
costs are incurred for radio and television production and when print production
is completed.
Treasury Stock. The Company accounts for treasury share purchases at cost.
The reissuance of treasury shares is accounted for at the average cost. Gains or
losses on the reissuance of treasury shares are generally accounted for as
additional paid-in capital.
Foreign Currency Translation. The Company's financial statements were
prepared in accordance with the requirements of Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." Under this method,
net transaction gains of $4.0 million, $5.0 million and $8.1 million are
included in 1994, 1993 and 1992 net income, respectively.
Earnings Per Common Share. Primary earnings per share is based upon the
weighted average number of common shares and common share equivalents
outstanding during each year. 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. For the year ended December 31,
1994 the 4.5%/6.25% Step-Up Convertible Subordinated Debentures were assumed to
be converted for the full year; and the 6.5% Convertible Subordinated Debentures
were assumed to be converted through July 27, 1994, when they were converted
into common stock. For the year ended December 31, 1993, the 6.5% Convertible
Subordinated Debentures were assumed to be converted for the full year; the 7%
Convertible Subordinated Debentures were assumed to be converted through October
8, 1993 when they were converted into common stock; and the 4.5%/6.25% Step-Up
Convertible Subordinated Debentures were assumed to be converted from their
September 1, 1993 issuance date. For the year ended December 31, 1992, the 6.5%
and 7% Convertible Subordinated Debentures were assumed to be converted for the
full year. The number of shares used in the computations were as follows:
1994 1993 1992
---- ---- ----
Primary EPS computation .......... 34,369,200 30,607,900 28,320,400
Fully diluted EPS computation .... 38,949,600 37,563,500 35,332,400
For purposes of computing fully diluted earnings per share on net income
and the cumulative effect of the change in accounting principle, for the year
ended December 31, 1994, the Company's Convertible Subordinated Debentures were
not reflected in the computations as their inclusion would have been
anti-dilutive.
Severance Agreements. Arrangements with certain present and former
employees provide for continuing payments for periods up to 10 years after
cessation of their full-time employment in consideration for agreements by the
employees not to compete and to render consulting services in the post
employment period. Such payments, which are determined, subject to certain
conditions and limitations, by earnings in subsequent periods, are expensed in
such periods.
F-7
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Depreciation of Furniture and Equipment and Amortization of Leasehold
Improvements. Depreciation charges are computed on a straight-line basis or
declining balance method over the estimated useful lives of furniture and
equipment, up to 10 years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the terms of the related lease or the
useful life of these assets.
Intangibles. Intangibles represent acquisition costs in excess of the fair
value of tangible net assets of purchased subsidiaries. Intangibles are
amortized on a straight-line basis over periods not exceeding forty years. Each
year, the intangibles are written off if, and to the extent, they are determined
to be impaired. Intangibles are considered to be impaired if the future
anticipated undiscounted income of the subsidiary is less than the net
unamortized cost of the intangibles.
Deferred Taxes. Deferred tax liabilities and tax benefits relate to the
recognition of certain revenues and expenses in different years for financial
statement and tax purposes.
Cash Flows. The Company's cash equivalents are primarily comprised of
investments in short-term interest-bearing deposits and money market instruments
with maturity dates of three months or less.
The following supplemental schedule summarizes the fair value of assets
acquired, cash paid, common shares issued and the liabilities assumed in
conjunction with the acquisition of equity interests in subsidiaries and
affiliates, for each of the three years ended December 31:
(Dollars in thousands)
1994 1993 1992
---- ---- ----
Fair value of non-cash assets acquired .... $265,865 $287,177 $173,974
Cash paid, net of cash acquired ........... (150,660) (80,577) (59,651)
Common shares issued ...................... (13,035) (21,906) 5,596
-------- -------- --------
Liabilities assumed ....................... $102,170 $184,694 $119,919
======== ======== ========
During 1994, the Company issued 3,571,233 shares of common stock upon
conversion of $100 million of its 6.5% Convertible Subordinated Debentures.
During 1993, the Company issued 3,334,079 shares of common stock upon conversion
of $85.9 million of its 7% Convertible Subordinated Debentures.
Concentration of Credit Risk. The Company provides advertising and
marketing services to a wide range of clients who operate in many industry
sectors around the world. The Company grants credit to all qualified clients,
but does not believe it is exposed to any undue concentration of credit risk to
any significant degree.
Derivative Financial Instruments. Gains and losses on derivative financial
instruments which are hedges of existing assets or liabilities are included in
the carrying amount of those assets or liabilities and are ultimately recognized
in income as part of those carrying amounts. Interest received and/or paid
arising from swap agreements which qualify as hedges are recognized in income
when the interest is receivable or payable. Derivative financial instruments
which do not qualify as hedges are revalued to the current market rate and any
gains or losses are recorded in income in the current period.
2. Acquisitions
During 1994 the Company made several acquisitions within the advertising
industry whose aggregate cost, in cash or by issuance of the Company's common
stock, totaled $190.4 million for net assets, which included intangible assets
of $221.5 million. Due to the nature of the advertising industry, companies
acquired generally have minimal tangible net assets. The majority of the
purchase price is paid for ongoing client relationships and other intangibles.
Included in both figures are contingent payments related to prior year
acquisitions totaling $32.2 million.
Pro forma combined results of operations of the Company as if the
acquisitions had occurred on January 1, 1993 do not materially differ from the
reported amounts in the consolidated statements of income for each of the two
years in the period ended December 31, 1994.
Certain acquisitions entered into in 1994 and prior years require payments
in future years if certain results are achieved. Formulas for these contingent
future payments differ from acquisition to acquisition. Contingent future
payments are not expected to be material to the Company's results of operations
or financial position.
F-8
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In May 1993, the Company completed its acquisition of a third agency
network, TBWA International B.V. The acquisition was accounted for as a pooling
of interests and, accordingly, the results of operations for TBWA International
B.V. have been included in these consolidated financial statements since January
1, 1993. Prior year consolidated financial statements were not restated as the
impact on such years was not material.
3. Bank Loans and Lines of Credit
Bank loans generally resulted from bank overdrafts of international
subsidiaries which are treated as loans pursuant to bank agreements. The
weighted average interest rate on the borrowings outstanding as of December 31,
1994 and 1993 was 9.1% and 6.5%. At December 31, 1994 and 1993, the Company had
unsecured committed lines of credit aggregating $370 million and $359 million,
respectively. The unused portion of credit lines was $338 million and $332
million at December 31, 1994 and 1993, respectively. The lines of credit are
generally extended at the banks' lending rates to their most credit worthy
borrowers. Material compensating balances are not required within the terms of
these credit agreements.
At December 31, 1993, the committed lines of credit included $200 million
under a two and one-half year revolving credit agreement. Due to the long term
nature of this credit agreement, borrowings under the agreement would be
classified as long-term debt. As of July 15, 1994, the $200 million revolving
credit agreement was replaced by a $250 million revolving credit agreement
expiring June 30, 1997. Borrowings under this credit agreement would also be
classified as long-term debt. There were no borrowings under these revolving
credit agreements at December 31, 1994 and 1993.
These revolving credit agreements include a facility for issuing commercial
paper backed by a bank letter of credit. During the years ended December 31,
1994, 1993 and 1992, the Company issued commercial paper with an average
original maturity of 33, 32 and 31 days, respectively. The Company had no
commercial paper borrowings outstanding as of December 31, 1994, 1993, and 1992.
The maximum outstanding during the year was $230 million, $194 million and $120
million, in 1994, 1993, and 1992, respectively. The gross amount of issuance and
redemption during the year was $1,587 million, $1,337 million and $1,012 million
in 1994, 1993 and 1992, respectively.
4. Employee Stock Plans
Under the terms of the Company's 1987 Stock Plan, as amended (the "1987
Plan"), 4,750,000 shares of common stock of the Company are reserved for
restricted stock awards and non-qualified stock options to key employees of the
Company.
Under the terms of the 1987 Plan, the option price may not be less than
100% of the market value of the stock at the date of the grant. Options become
exercisable 30% on each of the first two anniversary dates of the grant date
with the final 40% becoming exercisable three years from the grant date.
Under the 1987 Plan, 305,000, 285,000 and 242,500 non-qualified options
were granted in 1994, 1993 and 1992, respectively.
A summary of changes in outstanding options for the three years ended
December 31, 1994 is as follows:
Years Ended December 31,
----------------------------------------------
1994 1993 1992
--------- --------- ---------
Shares under option (at prices ranging
from $16.875 to $40.0625) --
Beginning of year................................ 1,072,400 998,000 1,043,900
Options granted (at prices ranging from
$35.0625 to $48.4375)............................. 305,000 285,000 242,500
Options exercised (at prices ranging
from $16.875 to $40.0625)......................... (183,400) (197,800) (274,200)
Options forfeited.................................... -- (12,800) (14,200)
--------- --------- ---------
Shares under option (at prices ranging
from $16.875 to $48.4375) -- End of year.......... 1,194,000 1,072,400 998,000
========= ========= =========
Shares exercisable................................... 633,750 562,650 443,400
Shares reserved...................................... 928,221 1,502,882 589,422
F-9
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the 1987 Plan, 314,580 shares, 337,200 shares and 314,775 shares of
restricted stock of the Company were awarded in 1994, 1993 and 1992,
respectively.
All restricted shares granted under the 1987 Plan were sold at a price per
share equal to their par value. The difference between par value and market
value on the date of the sale is charged to shareholders' equity and then
amortized to expense over the period of restriction. Under the 1987 Plan, the
restricted shares become transferable to the employee in 20% annual increments
provided the employee remains in the employ of the Company.
Restricted shares may not be sold, transferred, pledged or otherwise
encumbered until the restrictions lapse. Under most circumstances, the employee
must resell the shares to the Company at par value if the employee ceases
employment prior to the end of the period of restriction. A summary of changes
in outstanding shares of restricted stock for the three years ended December 31,
1994 is as follows:
Years Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
Beginning balance........................ 740,436 629,752 619,024
Amount granted......................... 314,580 337,200 314,775
Amount vested.......................... (230,603) (201,712) (278,942)
Amount forfeited....................... (42,331) (24,804) (25,105)
------- ------- --------
Ending balance........................... 782,082 740,436 629,752
======= ======= =======
The charge to operations in connection with these restricted stock awards
for the years ended December 31, 1994, 1993 and 1992 amounted to $9.5 million,
$7.1 million and $6.0 million, respectively.
5. Segment Reporting
The Company operates advertising agencies and offers its clients additional
marketing services and specialty advertising through its wholly-owned and
partially-owned businesses. A summary of the Company's operations by geographic
area as of December 31, 1994, 1993 and 1992, and for the years then ended is
presented below:
(Dollars in Thousands)
United
States International Consolidated
--------- ------------- ------------
1994
Commissions and Fees.............. $ 858,575 $ 897,630 $1,756,205
Operating Profit ................. 108,482 96,116 204,598
Net Income ....................... 32,593 47,532 80,125
Identifiable Assets............... 1,004,698 1,847,506 2,852,204
1993
Commissions and Fees.............. $ 770,611 $ 745,864 $1,516,475
Operating Profit ................. 92,095 77,104 169,199
Net Income ....................... 40,814 44,531 85,345
Identifiable Assets............... 827,032 1,462,831 2,289,863
1992
Commissions and Fees.............. $ 706,902 $ 678,259 $1,385,161
Operating Profit.................. 70,558 75,816 146,374
Net Income........................ 33,223 36,075 69,298
Identifiable Assets............... 675,508 1,276,442 1,951,950
F-10
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Investments in Affiliates
The Company has approximately 45 unconsolidated affiliates accounted for
under the equity method. The equity method is used when the Company has an
ownership of less than 50% and exercises significant influence over the
operating and financial policies of the affiliate. The following table
summarizes the balance sheets and income statements of the Company's
unconsolidated affiliates, primarily in Europe, Australia and Asia, as of
December 31, 1994, 1993, 1992, and for the years then ended:
(Dollars in Thousands)
1994 1993 1992
---- ---- ----
Current assets....................... $1,208,976 $308,741 $312,423
Non-current assets................... 146,899 73,772 64,901
Current liabilities.................. 1,196,807 235,389 259,508
Non-current liabilities.............. 162,328 29,596 8,302
Minority interests................... 9,699 1,149 1,110
Gross revenues....................... 568,171 290,814 288,416
Costs and expenses................... 451,688 238,039 243,661
Net income........................... 86,001 33,574 27,752
The increase in the summarized balance sheets and income statements of the
Company's unconsolidated affiliates in 1994 is due to the growth of the
Company's existing equity affiliates and the inclusion of Aegis Group plc, in
which the Company had acquired a minority interest. The Company's equity in the
net income of these affiliates amounted to $18.3 million, $13.2 million and $9.6
million for 1994, 1993 and 1992, respectively. The Company's equity in the net
tangible assets of these affiliated companies was approximately $65.8 million,
$58.1 million and $56.2 million at December 31, 1994, 1993 and 1992,
respectively. Included in the Company's investments in affiliates is the excess
of acquisition costs over the fair value of tangible net assets acquired. These
acquisition costs are being amortized on a straight-line basis over periods not
exceeding forty years.
7. Long-Term Debt
Long-term debt outstanding as of December 31, 1994 and 1993 consisted of
the following:
(Dollars in Thousands)
1994 1993
---- ----
4.5%/6.25% Step-Up Convertible Subordinated Debentures with a
scheduled maturity in 2000.............................................. $143,750 $ 143,750
6.5% Convertible Subordinated Debentures with a scheduled maturity
in 2004................................................................. -- 100,000
Cross currency fixed to floating rate swaps, at floating LIBOR rates,
maturing at various dates through 1997 (Note 12)........................ -- 11,435
Sundry notes and loans payable to banks and others at rates from
6% to 25%, maturing at various dates through 2004...................... 47,164 35,518
Loan Notes, at various rates with a scheduled maturity in 1994............. -- 9,501
-------- --------
190,914 300,204
Less current portion....................................................... 3,576 21,892
-------- --------
Total long-term debt..................................................... $187,338 $278,312
======== ========
F-11
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the third quarter of 1993, the Company issued $143,750,000 of
4.5%/6.25% Step-Up Convertible Subordinated Debentures with a scheduled maturity
in 2000. The average annual interest rate through the year 2000 is 5.42%. The
debentures are convertible into common stock of the Company at a conversion
price of $54.88 per share subject to adjustment in certain events. The
debentures are not redeemable prior to September 1, 1996. Thereafter, the
Company may redeem the debentures initially at 102.984% and at decreasing prices
thereafter to 100% at maturity, in each case together with accrued interest. The
debentures also may be repaid at the option of the holder at anytime prior to
September 1, 2000 if there is a Fundamental Change, as defined in the debenture
agreement, at the repayment prices set forth in the debenture agreement, subject
to adjustment, together with accrued interest.
On June 1, 1994, the Company issued a Notice of Redemption for its 6.5%
Convertible Subordinated Debentures with a scheduled maturity in 2004. Prior to
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.
In the third quarter of 1989, a wholly-owned subsidiary of the Company
issued interest bearing Loan Notes in connection with the acquisition of Boase
Massimi Pollitt plc. The Loan Notes were repaid on June 30, 1994 at their
nominal amount together with accrued interest.
On July 15, 1994, the Company amended and restated the revolving credit
agreement originally entered into in 1988. This $250 million revolving credit
agreement is with a consortium of banks and expires on June 30, 1997. This
credit agreement includes a facility for issuing commercial paper backed by a
bank letter of credit. The agreement contains certain financial covenants
regarding current ratio, ratio of total consolidated indebtedness to total
consolidated capitalization, ratio of net cash flow to consolidated
indebtedness, and limitation on investments in and loans to affiliates and
unconsolidated subsidiaries. At December 31, 1994 the Company was in compliance
with all of these covenants.
Aggregate maturities of long-term debt in the next five years are as
follows:
(Dollars in Thousands)
1995................................................ $ 3,576
1996................................................ 14,812
1997................................................ 2,043
1998................................................ 650
1999................................................ 460
On January 4, 1995, an indirect wholly-owned subsidiary of the Company
issued Deutsche Mark 200 million Floating Rate Bonds (approximately $130
million). The bonds are unsecured, unsubordinated obligations of the issuer and
are unconditionally and irrevocably guaranteed by the Company. The bonds bear
interest at a per annum rate equal to Deutsche Mark three month LIBOR plus 0.65%
and may be redeemed at the option of the issuer on January 5, 1997 or any
interest payment date thereafter at their principal amount plus any accrued but
unpaid interest. Unless redeemed earlier, the bonds will mature on January 5,
2000 and will be repaid at par. The proceeds of this issuance were used for
general corporate purposes, including the reduction of outstanding sundry notes
and loans payable to banks and other outstanding credit obligations.
F-12
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes
Income before income taxes and the provision for taxes on income consisted
of the amounts shown below:
Years Ended December 31,
(Dollars in Thousands)
1994 1993 1992
---- ---- ----
Income before income taxes:
Domestic ......................... $ 85,992 $ 65,571 $ 47,535
International .................... 95,764 77,053 74,761
--------- --------- ---------
Totals ........................ $ 181,756 $ 142,624 $ 122,296
========= ========= =========
Provision for taxes on income:
Current:
Federal ....................... $ 30,645 $ 16,428 $ 17,143
State and local ............... 8,445 6,531 6,215
International ................. 36,138 35,071 29,067
--------- --------- ---------
75,228 58,030 52,425
--------- --------- ---------
Deferred:
Federal ....................... (4,922) 2,979 (3,702)
State and local ............... (1,285) 139 (1,375)
International ................. 5,316 (1,277) 5,920
--------- --------- ---------
(891) 1,841 843
--------- --------- ---------
Totals ................. $ 74,337 $ 59,871 $ 53,268
========= ========= =========
The Company's effective income tax rate varied from the statutory federal
income tax rate as a result of the following factors:
1994 1993 1992
---- ---- ----
Statutory federal income tax rate .............. 35.0% 35.0% 34.0%
State and local taxes on income, net of
federal income tax benefit ................. 2.6 3.0 2.6
International subsidiaries' tax rate (less than)
in excess of federal statutory rate ....... (0.8) 0.1 1.3
Losses of international subsidiaries
without tax benefit ........................ -- 0.2 1.0
Non-deductible amortization of goodwill ........ 4.3 3.9 3.7
Other .......................................... (0.2) (0.2) 1.0
---- ---- ----
Effective rate ................................. 40.9% 42.0% 43.6%
==== ==== ====
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Deferred income taxes are provided for the temporary difference between
the financial reporting basis and tax basis of the Company's assets and
liabilities. Deferred tax benefits result principally from recording certain
expenses in the financial statements which are not currently deductible for tax
purposes. Deferred tax liabilities result principally from expenses which are
currently deductible for tax purposes, but have not yet been expensed in the
financial statements.
The Company has recorded deferred tax benefits as of December 31, 1994 and
1993 of $56.6 million and $56.7 million, respectively.
The Company has recorded deferred tax liabilities as of December 31, 1994
and 1993 of $20.5 million and $29.3 million, respectively.
F-13
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred tax benefits (liabilities) as of December 31, 1994 and 1993
consisted of the amounts shown below (dollars in millions):
1994 1993
---- ----
Acquisition liabilities .......................... $12.1 $13.0
Lease reserves ................................... 2.0 5.0
Severance and compensation reserves .............. 22.7 8.7
Tax loss carryforwards ........................... 3.7 9.6
Foreign currency transactions .................... (1.6) 0.5
Tax benefit leases ............................... (0.8) (4.5)
Amortization and depreciation .................... (2.4) (7.2)
Deductible intangibles ........................... (3.6) (2.1)
Other, net ....................................... 4.0 4.4
----- -----
$36.1 $27.4
===== =====
Net current deferred tax benefits as of December 31, 1994 and 1993 were
$15.0 million and $8.9 million, respectively and were included in prepaid
expenses and other current assets. Net non-current deferred tax benefits as of
December 31, 1994 and 1993 were $21.1 million and $18.5 million, respectively.
In 1993, legislation was enacted which increased the U.S. statutory tax
rate from 34% to 35%. The effect of statutory rate changes during 1994 and 1993
in federal, state, local and international jurisdictions was not material to net
income. There were no material valuation allowances recognized as of December
31, 1994 and 1993.
A provision has been made for additional income and withholding taxes on
the earnings of international subsidiaries and affiliates that will be
distributed.
9. Employee Retirement Plans
The Company's international and domestic subsidiaries provide retirement
benefits for their employees primarily through profit sharing plans. Company
contributions to the plans, which are determined by the boards of directors of
the subsidiaries, have been in amounts up to 15% (the maximum amount deductible
for federal income tax purposes) of total eligible compensation of participating
employees. Profit sharing expense amounted to $34.7 million, $25.8 million and
$20.8 million in 1994, 1993 and 1992, respectively.
Some of the Company's international subsidiaries have pension plans. These
plans are not required to report to governmental agencies pursuant to the
Employee Retirement Income Security Act of 1974 (ERISA). Substantially all of
these plans are funded by fixed premium payments to insurance companies who
undertake legal obligations to provide specific benefits to the individuals
covered. Pension expense amounted to $2.6 million, $2.4 million and $2.7 million
in 1994, 1993 and 1992, respectively.
Certain subsidiaries of the Company have an executive retirement program
under which benefits will be paid to participants or their beneficiaries over 15
years from age 65 or death. In addition, other subsidiaries have individual
deferred compensation arrangements with certain executives which provide for
payments over varying terms upon retirement, cessation of employment or death.
Some of the Company's domestic subsidiaries provide life insurance and
medical benefits for retired employees. Eligibility requirements vary by
subsidiary, but generally include attainment of a specified combined age plus
years of service factor. Effective January 1, 1992, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 106 "Employers'
Accounting For Post Retirement Benefits Other Than Pensions" ("SFAS No. 106").
SFAS No. 106 requires that the expected cost of post retirement benefits be
charged to expense during the years that the eligible employees render service.
The expense related to these benefits was not material to the 1994, 1993 and
1992 consolidated results of operations.
10. Commitments
At December 31, 1994, the Company was committed under operating leases,
principally for office space. Certain leases are subject to rent reviews and
require payment of expenses under escalation clauses. Rent expense was $138.0
million in 1994, $128.8 million in 1993 and $117.3 million in 1992 after
reduction by rents received from subleases of $10.2 million, $10.0 million and
F-14
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$14.1 million, respectively. Future minimum base rents under terms of
noncancellable operating leases, reduced by rents to be received from existing
noncancellable subleases, are as follows:
(Dollars in Thousands)
Gross Rent Sublease Income Net Rent
---------- --------------- --------
1995 ............................. $116,474 $ 10,080 $106,394
1996 ............................. 107,973 8,577 99,396
1997 ............................. 95,624 5,907 89,717
1998 ............................. 82,107 4,628 77,479
1999 ............................. 75,772 3,998 71,774
Thereafter ....................... 417,994 13,716 404,278
Where appropriate, management has established reserves for the difference
between the cost of leased premises that were vacated and anticipated sublease
income.
11. Fair Value of Financial Instruments
During 1994 the Company adopted Statement of Financial Accounting Standards
No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments."
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1994.
(Dollars in Thousands)
Carrying Fair
Amount Value
-------- --------
Cash, cash equivalents and investments available-for-sale $256,634 $256,634
Long-term investments .................................... 5,532 5,532
Long-term debt ........................................... 190,914 192,352
Financial Commitments:
Forward exchange contracts ............................ -- 123
Guarantees ............................................ -- 10,065
Letters of credit ..................................... -- 19,879
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:
Cash equivalents and investments available-for-sale:
Cash equivalents and investments available-for-sale consist principally of
investments in short-term, interest bearing instruments and are carried at fair
market value, which approximates cost.
Long-term investments:
Included in deferred charges and other assets are long-term investments
carried at cost, which approximates estimated fair value.
Long-term debt:
The fair value of the Company's convertible subordinated debenture issue
was determined by reference to quotations available in markets where that issue
is traded. These quotations primarily reflect the conversion value of the
debentures into the Company's common stock. These debentures are redeemable by
the Company, at prices explained in Note 7, which are less than the quoted
market prices used in determining the fair value. The fair value of the
Company's remaining long-term debt was estimated based on the current rates
offered to the Company for debt with the same remaining maturities.
Financial commitments:
The estimated fair value of derivative positions are based upon quotations
received from independent, third party banks and represent the net amount
payable to terminate the position, taking into consideration market rates and
F-15
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
counterparty credit risk. The fair values of guarantees, principally related to
affiliated companies, and letters of credit were based upon the face value of
the underlying instruments.
12. Financial Instruments and Market Risk
The Company periodically utilizes derivative financial instruments to
reduce certain market risks to which the Company is exposed. These market risks
primarily consist of the impact of changes in currency exchange rates on assets
and liabilities of non-U.S. operations and the impact of changes in interest
rates on debt. The Company's derivative activities are limited in volume and
confined to risk management activities. Senior management at the Company
actively participate in the quantification, monitoring and control of all
significant risks. A reporting system is in place which evaluates the impact on
the Company's earnings resulting from changes in interest rates, currency
exchange rates and other relevant market risks. This system is structured to
enable senior management to initiate prompt remedial action, if appropriate.
Adequate segregation of duties exists with regard to the execution, recording
and monitoring of derivative activities. Additionally, senior management reports
periodically to the Audit Committee of the Board of Directors concerning
derivative activities. Since 1993, the Audit Committee has established
limitations on derivative activities. These limitations have been reviewed
annually, most recently on March 23, 1995. The Audit Committee has reconfirmed,
for the year 1995, the limitations originally established in 1993.
At December 31, 1994, the Company had no swap agreements outstanding.
At December 31, 1993, the Company had cross currency swap agreements and a
U.S. dollar interest rate swap agreement outstanding with commercial banks as
follows:
(Dollars in thousands)
Aggregate Company Company
Notional Amount Receives Pays
--------------- -------- --------
Cross currency fixed to floating rate swaps ............................ $70,600 8.97% 3.51%
U.S. dollar floating to fixed rate swap ................................ $50,000 3.22% 4.99%
The cross currency swap agreements were comprised of contracts denominated in
German Deutsche Marks, French Francs, Australian Dollars and Spanish Pesetas.
These contracts effectively changed a portion of the Company's non-U.S. dollar
denominated debt to floating rate U.S. dollar denominated debt, which reduced
the Company's risk related to currency fluctuations and interest rates. The U.S.
dollar interest rate swap agreement converted a portion of the Company's
floating rate debt to a fixed rate. These agreements were closed out during 1994
for a gain of $2.4 million which is being amortized into income over the
original term of the swap agreements.
The Company enters into forward exchange contracts to hedge certain assets
and liabilities which are recorded in a currency different from that in which
they will settle. Gains and losses on these positions are deferred and included
in the basis of the transaction upon settlement. The terms of these contracts
are generally three months or less. The table below summarizes by major currency
the notional principal amounts of the Company's forward exchange contracts
outstanding at December 31, 1994. The "buy" amounts represent the U.S. dollar
equivalent of commitments to purchase the respective currency, and the "sell"
amounts represent the U.S. dollar equivalent of commitments to sell the
respective currency.
(Dollars in thousands)
Notional Principal Amount
-----------------------------
Currency Company Buys Company Sells
-------- ------------ -------------
German Deutsche Mark ..................... $ 18,380 $ 82,509
French Franc ............................. 61,345 22,364
U.S. Dollar .............................. 32,146 12,220
Dutch Guilder ............................ 20,644 14,574
Spanish Peseta ........................... 12,653 17,831
Belgian Franc ............................ 10,429 6,469
Canadian Dollar .......................... 765 7,970
Hong Kong Dollar ......................... 4,021 4,017
Other .................................... 7,433 9,947
-------- --------
Total ................................ $167,816 $177,901
======== ========
F-16
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The derivative financial instruments existing at December 31, 1994 and 1993
were entered into for the purpose of hedging certain specific currency and
interest rate risks. As a result of these financial instruments, the Company
reduced financial risk in exchange for foregoing any gain (reward) which might
have occurred if the markets moved favorably. In using derivative financial
instruments, management exchanged the risks of the financial markets for
counterparty risks. In order to minimize counterparty risk the Company only
enters into contracts with major well known banks that have credit ratings equal
to or better than the Company's. Additionally, these contracts contain
provisions for net settlement. As such, the contracts settle based on the spread
between the currency rates and interest rates contained in the contracts and the
current market rates. This minimizes the risk of an insolvent counterparty being
unable to pay the Company the notional principal amount owed to the Company and,
at the same time, having the creditors of the counterparty demanding the
notional principal amount from the Company.
13. Adoption of New Accounting Principles and Special Charge
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS No. 112"). This Statement establishes accounting standards for
employers who provide benefits to former or inactive employees after employment
but before retirement (referred to in this Statement as "postemployment
benefits"). Those benefits include, but are not limited to, salary continuation,
supplemental unemployment benefits, severance benefits, disability-related
benefits, job training and counseling, and continuation of benefits such as
health care benefits and life insurance coverage. The cumulative after tax
effect of the adoption of SFAS No. 112 resulted in a reduction to net income of
$28.0 million.
Effective January 1, 1994, the Company also adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). This Statement addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. In compliance with SFAS
No. 115, the Company classifies these investments as investments
available-for-sale. At December 31, 1994, the Company's investments consisted
principally of time deposits with financial institutions. These investments,
with scheduled maturities of less than one year, are valued at estimated fair
value, which approximates cost. These investments are generally redeemed at face
value upon maturity and, as such, gains or losses on disposition are immaterial.
There are no material unrealized holding gains or losses as of December 31,
1994.
Effective January 1, 1992, the Company adopted SFAS No. 106 and SFAS No.
109. The cumulative after tax effect of the adoption of these Statements
increased net income by $3.8 million, substantially all of which related to SFAS
No. 109. Due to the continued weakening of the commercial real estate market in
certain domestic and international locations and the reorganization of certain
operations, the Company provided a special charge of $6.7 million pretax for
losses related to future lease costs.
F-17
OMNICOM GROUP INC. AND SUBSIDIARIES
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following table sets forth a summary of the unaudited quarterly
results of operations for the two years ended December 31, 1994 and 1993, in
thousands of dollars except for per share amounts.
First Second Third Fourth
-------- -------- -------- --------
Commissions & Fees
1994..................................... $376,538 $425,198 $422,274 $532,195
1993..................................... 339,139 381,758 339,531 456,047
Income Before Income Taxes
1994..................................... 31,592 58,227 29,855 62,082
1993..................................... 24,738 49,274 19,581 49,031
Income Taxes
1994..................................... 13,163 23,808 12,314 25,052
1993..................................... 10,390 20,678 8,228 20,575
Income After Income Taxes
1994..................................... 18,429 34,419 17,541 37,030
1993..................................... 14,348 28,596 11,353 28,456
Equity in Affiliates
1994..................................... 2,089 3,863 3,432 8,938
1993..................................... 1,692 2,674 1,769 7,045
Minority Interests
1994..................................... (1,598) (4,784) (2,823) (8,402)
1993..................................... (1,584) (4,008) (276) (4,720)
Income Before Change
in Accounting Principle
1994.................................... 18,920 33,498 18,150 37,566
1993.................................... 14,456 27,262 12,846 30,781
Cumulative Effect of Change
in Accounting Principle
1994..................................... (28,009) -- -- --
1993..................................... -- -- -- --
Net Income
1994..................................... (9,089) 33,498 18,150 37,566
1993..................................... 14,456 27,262 12,846 30,781
Primary Earnings Per Share Before
Change in Accounting Principle
1994..................................... 0.58 1.02 0.52 1.04
1993..................................... 0.50 0.90 0.43 0.95
Fully Diluted Earnings Per Share Before
Change in Accounting Principle
1994..................................... 0.58 0.95 0.52 1.02
1993..................................... 0.49 0.82 0.43 0.87
F-18
Schedule VIII
OMNICOM GROUP INC. AND SUBSIDIARIES
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 1994
====================================================================================================================================
Column A Column B Column C Column D Column E
------------------------------------------------------------------------------------------------------------------------------------
Additions Deductions
--------- ----------------------------------
Balance at Charged Removal of Balance
Beginning to Costs Uncollectible Translation at End of
Description of Period and Expenses Receivables (1) Adjustments Period
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Valuation accounts deducted from
assets to which they apply--
allowance for doubtful accounts:
December 31, 1994 ...................... $17,298 $ 7,864 $ 6,489 $ (605) $19,278
December 31, 1993 ...................... 12,825 4,742 (686) 955 17,298
December 31, 1992 ...................... 15,634 2,545 4,092 1,262 12,825
----------
(1) Net of acquisition date balances in allowance for doubtful accounts of
companies acquired of $1,330, $4,581, and $589 in 1994, 1993, and 1992,
respectively.
S-1