FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1995
Commission file number: 1-10551
Omnicom Group Inc.
(Exact name of registrant as specified in its charter)
New York 13-1514814
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
437 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 415-3600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
The number of shares of common stock of the Company issued and outstanding at
April 30, 1995 is 36,369,000.
OMNICOM GROUP INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Consolidated Condensed Balance Sheets --
March 31, 1995, December 31, 1994 and
March 31, 1994 2
Consolidated Condensed Statements of Income --
Three Months Ended March 31, 1995 and 1994 3
Consolidated Condensed Statements of Cash Flows --
Three Months Ended March 31, 1995 and 1994 4
Notes to Consolidated Condensed Financial
Statements 5-8
Item II. Management's Discussion of Financial Condition
and Results of Operations 9-12
PART II. OTHER INFORMATION
Item 6 Exhibits 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31, March 31,
1995 1994 1994
------------ ------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 168,391 $ 228,251 $ 118,324
Investments available-for-sale, at market, which approximates cost 19,609 28,383 18,620
Accounts receivable, less allowance for doubtful accounts
of $20,339, $19,278 and $19,392 1,182,052 1,139,882 918,615
Billable production orders in process 119,623 65,115 70,776
Prepaid expenses and other current assets 157,638 140,304 133,820
------------ ------------ ------------
Total current assets 1,647,313 1,601,935 1,260,155
Furniture, equipment and leasehold improvements, less
accumulated depreciation and amortization of $227,800,
$221,491 and $195,814 175,400 172,153 163,614
Investments in affiliates 174,247 164,524 114,733
Intangibles, less amortization of $144,605, $133,572
and $99,339 793,999 758,460 626,024
Deferred tax benefits 29,046 21,104 17,334
Deferred charges and other assets 141,565 134,028 120,000
------------ ------------ ------------
Total assets $ 2,961,570 $ 2,852,204 $ 2,301,860
============ ============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,220,581 $ 1,425,829 $ 926,830
Payable to banks 89,796 12,515 87,300
Other accrued liabilities 503,961 496,631 350,146
Accrued taxes on income 44,283 51,667 19,972
------------ ------------ ------------
Total current liabilities 1,858,621 1,986,642 1,384,248
Long term debt 403,882 187,338 403,827
Deferred compensation and other liabilities 76,577 95,973 81,713
Minority interests 49,371 41,549 31,399
Shareholders' equity:
Common stock 19,322 19,322 17,536
Additional paid-in capital 356,133 356,199 253,112
Retained earnings 338,436 325,321 268,255
Unamortized restricted stock (23,233) (25,631) (19,806)
Cumulative translation adjustment (10,762) (27,671) (50,731)
Treasury stock (106,777) (106,838) (67,693)
------------ ------------ ------------
Total shareholders' equity 573,119 540,702 400,673
------------ ------------ ------------
Total liabilities and shareholders' equity $ 2,961,570 $ 2,852,204 $ 2,301,860
============ ============ ============
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
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OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
Three Months Ended
March 31,
----------------------
1995 1994
--------- ---------
Revenues:
Commissions and fees $ 459,882 $ 376,538
Operating expenses:
Salaries and related costs 271,406 218,395
Office and general expenses 140,724 120,268
--------- ---------
412,130 338,663
--------- ---------
Operating profit 47,752 37,875
Net interest expense:
Interest and dividend income (3,790) (2,437)
Interest paid or accrued 10,166 8,720
--------- ---------
6,376 6,283
--------- ---------
Income before income taxes and change in
accounting principle 41,376 31,592
Income taxes:
Federal 6,985 6,898
State and local 1,709 1,778
International 7,861 4,487
--------- ---------
16,555 13,163
--------- ---------
Income after income taxes and before change
in accounting principle 24,821 18,429
Equity in affiliates 2,213 2,089
Minority interests (2,892) (1,598)
--------- ---------
Income before change in accounting
principle 24,142 18,920
Cumulative effect of change in accounting
principle -- (28,009)
--------- ---------
Net income (loss) $ 24,142 $ (9,089)
========= =========
Earnings per share
Income before change in accounting
principle:
Primary $ 0.68 $ 0.58
Fully diluted $ 0.68 $ 0.58
Cumulative effect of change in accounting
principle:
Primary -- $ (0.85)
Fully diluted -- $ (0.85)
Net income (loss):
Primary $ 0.68 $ (0.27)
Fully diluted $ 0.68 $ (0.27)
Dividends declared per common share $ 0.31 $ 0.31
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
-3-
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
March 31,
1995 1994
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 24,142 $ (9,089)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization of tangible assets 9,878 8,923
Amortization of intangible assets 6,570 5,554
Minority interests 2,892 1,333
Earnings of affiliates in excess of dividends
received (1,396) (439)
Increase in deferred tax benefits (9,610) (8,111)
Provision for losses on accounts receivable 992 1,062
Amortization of restricted stock 2,367 1,873
Increase in accounts receivable (6,349) (7,541)
Increase in billable production (52,022) (10,768)
Increase in other current assets (4,239) (22,004)
Decrease in accounts payable (249,290) (141,549)
Decrease in other accrued liabilities (7,250) (41,069)
Decrease in accrued income taxes (8,983) (10,431)
Other (16,878) 28,302
--------- ---------
Net cash used in operating activities (309,176) (203,954)
--------- ---------
Cash flows from investing activities:
Capital expenditures (8,843) (10,745)
Payments for purchases of equity interests in
subsidiaries and affiliates, net of cash acquired (32,881) (23,064)
Payments for purchases of investments available-
for-sale and other investments (8,393) (8,210)
Proceeds from sales of investments available-for-
sale and other investments 17,972 27,689
--------- ---------
Net cash used in investing activities (32,145) (14,330)
--------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit 75,609 41,364
Share transactions under employee stock plans 26 2,149
Proceeds from issuance of debt obligations 213,631 122,851
Dividends and loans to minority stockholders (557) (128)
Dividends paid (11,133) (10,133)
Purchase of treasury shares -- (4,238)
--------- ---------
Net cash provided by financing activities 277,576 151,865
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents 3,885 9,910
--------- ---------
Net decrease in cash and cash equivalents (59,860) (56,509)
Cash and cash equivalents at beginning of period 228,251 174,833
--------- ---------
Cash and cash equivalents at end of period $ 168,391 $ 118,324
========= =========
Supplemental Disclosures:
Income taxes paid $ 23,957 $ 14,063
========= =========
Interest paid $ 7,203 $ 5,969
========= =========
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
-4-
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The consolidated condensed interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
2) These statements reflect all adjustments consisting of normal recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the information contained therein. Certain
reclassifications have been made to the March 31, 1994 reported amounts to
conform them with the March 31, 1995 and December 31, 1994 presentation. It
is suggested that these consolidated condensed financial statements be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
3) Results of operations for the interim periods are not necessarily indica-
tive of annual results.
-5-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
4) Primary earnings per share is based upon the weighted average number of
common shares and common share equivalents outstanding during each period.
Fully diluted earnings per share is based on the above, and if dilutive,
adjusted for the assumed conversion of the Company's Convertible
Subordinated Debentures and the assumed increase in net income for the
after tax interest cost of these debentures. At March 31, 1995, the
4.5%/6.25% Step-Up Convertible Subordinated Debentures were outstanding. At
March 31, 1994, the 6.5% Convertible Subordinated Debentures and the
4.5%/6.25% Step-Up Convertible Subordinated Debentures were outstanding.
The number of shares used in the computations of primary and fully diluted
earnings per share were as follows:
Three Months Ended March 31,
----------------------------
1995 1994
---------- ----------
Primary EPS computation 35,726,600 32,796,600
Fully diluted EPS computation 35,783,800 32,817,700
For purposes of computing fully diluted earnings per share on net income
and the cumulative effect of the change in accounting principle for the
three months ended March 31, 1995 and 1994, the Company's Convertible
Subordinated Debentures were not reflected in the computations as their
inclusion would have been anti-dilutive.
-6-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
5) On January 4, 1995, an indirect wholly-owned subsidiary of the Company
issued Deutsche Mark 200 million Floating Rate Bonds (approximately $130
million at the January 4, 1995 exchange rate). 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.
6) On June 1, 1994, the Company issued a Notice of Redemption for its
$100 million 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.
-7-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
7) Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112 "Employers' Accounting
for Postemployment Benefits" ("SFAS 112"). The cumulative after tax effect
of the adoption of this Statement decreased net income by $28,009,000.
-8-
OMNICOM GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
First Quarter 1995 Compared to First Quarter 1994:
Consolidated worldwide revenues from commission and fee income increased
22% to $459,882,000 in the first quarter of 1995 from $376,538,000 in the first
quarter of 1994. Consolidated domestic revenues increased 14% to $224,340,000 in
1995 from $196,942,000 in 1994. Consolidated international revenues increased
31% to $235,542,000 in 1995 from $179,596,000 in 1994. Absent the effect of the
net acquisitions of subsidiary companies and movements in foreign currency
exchange rates, consolidated worldwide revenues increased 11% in the first
quarter of 1995 as compared to the same period in 1994.
Operating expenses increased 22% in the first quarter of 1995 as compared
to the first quarter of 1994. Excluding the effect of the net acquisition
activity and movements in foreign currency exchange rates mentioned above,
operating expenses increased 12% over 1994 levels. This increase reflects normal
salary increases and growth in client service expenditures to support the
increased revenue base. Operating expenses as a percentage of commissions and
fees were 89.6% in the first quarter of 1995 and 89.9% in 1994.
-9-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net interest expense is comparable with the first quarter of 1994.
Pretax profit margin was 9.0% in the first quarter of 1995 as compared to
8.4% in the same period in 1994. Operating margin, which excludes interest and
dividend income and interest expense, was 10.4% in the first quarter of 1995 as
compared to 10.1%, in the same period in 1994.
The effective income tax rate was 40.0% in the first quarter of 1995 and
41.7% in the first quarter of 1994. 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.
Equity in affiliate income is comparable with the first quarter of 1994.
The increase in minority interest expense is primarily due to greater earnings
by companies where minority interests exist; additional minority interests
resulting from acquisitions; and the acquisition of a majority interest in
several companies which were previously less than 50% owned.
-10-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net income increased 28% to $24,142,000 in the first quarter of 1995 as
compared to $18,920,000, before the cumulative effect of the adoption of SFAS
112, in the first quarter of 1994. Absent the effect of net acquisitions of
subsidiary companies and movements in foreign currency exchange rates, net
income increased 7% in the first quarter of 1995 as compared to the first
quarter of 1994.
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 this onetime
non-cash charge was $28,009,000.
Capital Resources and Liquidity
Cash and cash equivalents at March 31, 1995 decreased to $168,391,000 from
$228,251,000 at December 31, 1994. This decline is due to the paydown of
year-end accrued liabilities and payments to media and other suppliers exceeding
collections from clients. Both events are normal recurring seasonal industry
patterns. The relationship between payables to the media and suppliers and
receivables from clients, at March 31, 1995, compares favorably to customary
industry practices.
-11-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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 March 31, 1995, the Company had $427,688,000 in
committed lines of credit, comprised of a $250,000,000 revolving credit
agreement expiring on June 30, 1997, and $177,688,000 in unsecured credit lines,
principally outside of the United States. Of the $427,688,000 in committed
lines, $236,564,000 remained available at March 31, 1995. 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
at the January 4, 1995 exchange rate), 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 has no present plans to introduce incremental additional
issues of long term debt. The Company anticipates that future cash flows from
operations plus funds available under existing credit facilities will be
adequate to support its long term cash requirements as presently contemplated.
-12-
PART II. OTHER INFORMATION
Item 6. Exhibits
Exhibit Number Description of Exhibit
27 Appendix A to Item 601(C) of
Regulation S-K Commercial and
Industrial Companies - Article 5 of
Regulation S-K (filed in electronic
format only)
-13-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Omnicom Group Inc.
(Registrant)
Dated: May 12, 1995 /s/ Fred J. Meyer
--------------------
Fred J. Meyer
Chief Financial Officer
and Director
(Principal Financial
Officer)
Dated: May 12, 1995 /s/ Dale A. Adams
--------------------
Dale A. Adams
Controller
(Principal Accounting
Officer)
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