CONFORMED COPY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 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
October 31, 1995 is 37,629,000.
OMNICOM GROUP INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1995, December 31, 1994 and
September 30, 1994 2
Consolidated Condensed Statements of Income -
Three Months Ended September 30, 1995 and 1994
Nine Months Ended September 30, 1995 and 1994 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 4
Notes to Consolidated Condensed Financial
Statements 5-9
Item 2. Management's Discussion of Financial Condition
and Results of Operations 10-15
PART II. OTHER INFORMATION
Item 6. Exhibits 16
-1-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
Restated (Note 2)
-------------------------------
Assets September 30, December 31, September 30,
1995 1994 1994
----------- ----------- -----------
Current assets:
Cash and cash equivalents $ 233,254 $ 241,797 $ 145,841
Investments available-for-sale, at market, which approximates cost 20,838 28,425 11,411
Accounts receivable, less allowance for doubtful accounts
of $23,082, $23,528 and $23,197 1,367,225 1,212,501 1,011,317
Billable production orders in process 157,470 82,357 122,578
Prepaid expenses and other current assets 163,790 146,516 146,591
----------- ----------- -----------
Total current assets 1,942,577 1,711,596 1,437,738
Furniture, equipment and leasehold improvements, less
accumulated depreciation and amortization of $259,208,
$238,468 and $237,205 198,694 192,450 191,710
Investments in affiliates 187,630 164,524 124,183
Intangibles, less amortization of $155,514, $133,848 and $129,050 815,303 758,973 697,875
Deferred tax benefits 81,587 70,431 57,689
Deferred charges and other assets 123,082 140,882 151,355
----------- ----------- -----------
Total assets $ 3,348,873 $ 3,038,856 $ 2,660,550
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,331,705 $ 1,508,692 $ 989,451
Payable to banks 81,900 34,177 115,089
Other accrued liabilities 639,429 580,753 521,780
Accrued taxes on income 51,902 52,989 25,816
----------- ----------- -----------
Total current liabilities 2,104,936 2,176,611 1,652,136
Long term debt 513,100 199,487 372,303
Deferred compensation and other liabilities 130,887 146,010 128,503
Minority interests 48,852 42,738 37,209
Shareholders' equity:
Common stock 19,961 19,816 19,819
Additional paid-in capital 375,996 366,511 367,252
Retained earnings 305,842 248,406 220,977
Unamortized restricted stock (32,985) (25,631) (28,506)
Cumulative translation adjustment (18,731) (28,254) (19,238)
Treasury stock (98,985) (106,838) (89,905)
----------- ----------- -----------
Total shareholders' equity 551,098 474,010 470,399
----------- ----------- -----------
Total liabilities and shareholders' equity $ 3,348,873 $ 3,038,856 $ 2,660,550
=========== =========== ===========
The accompanying notes to consolidated condensed financial statements
are an integral part of these balance sheets.
-2-
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- ----------------------------------
1994 1994
1995 Restated (Note 2) 1995 Restated (Note 2)
---------- ----------------- ---------- -----------------
Revenues:
Commissions and fees $ 537,666 $ 456,396 $1,607,015 $1,332,417
Operating expenses:
Salaries and related costs 321,863 267,656 930,957 761,798
Office and general expenses 169,959 151,966 492,936 425,950
---------- ---------- ---------- ----------
Total operating expenses 491,822 419,622 1,423,893 1,187,748
---------- ---------- ---------- ----------
Operating profit 45,844 36,774 183,122 144,669
Net interest expense:
Interest and dividend income (2,953) (3,206) (10,343) (9,476)
Interest paid or accrued 10,130 9,076 33,526 29,827
---------- ---------- ---------- ----------
Net interest expense 7,177 5,870 23,183 20,351
---------- ---------- ---------- ----------
Income before income taxes and change
in accounting principle 38,667 30,904 159,939 124,318
Income taxes:
Federal 7,539 4,145 23,014 18,673
State and local 2,870 1,631 8,654 5,796
International 5,058 6,971 33,183 26,761
---------- ---------- ---------- ----------
Total income taxes 15,467 12,747 64,851 51,230
---------- ---------- ---------- ----------
Income after income taxes and before
change in accounting principle 23,200 18,157 95,088 73,088
Equity in affiliates 3,736 3,432 12,090 9,384
Minority interests (3,258) (2,882) (14,784) (9,417)
---------- ---------- ---------- ----------
Income before change in accounting
principle 23,678 18,707 92,394 73,055
Cumulative effect of change in
accounting principle -- -- -- (28,009)
---------- ---------- ---------- ----------
Net income $ 23,678 $ 18,707 $ 92,394 $ 45,046
========== ========== ========== ==========
Earnings per share:
Income before change in accounting
principle:
Primary $ 0.64 $ 0.52 $ 2.49 $ 2.10
Fully diluted $ 0.64 $ 0.52 $ 2.46 $ 2.06
Cumulative effect of change in accounting principle:
Primary $ -- $ -- $ -- $ (0.80)
Fully diluted $ -- $ -- $ -- $ (0.80)
Net income:
Primary $ 0.64 $ 0.52 $ 2.49 $ 1.29
Fully diluted $ 0.64 $ 0.52 $ 2.46 $ 1.29
Dividends declared per common share $ 0.35 $ 0.31 $ 0.97 $ 0.93
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)
Nine Months Ended
September 30,
----------------------
1994
Restated
1995 (Note 2)
--------- ---------
Cash flows from operating activities:
Net income $ 92,394 $ 45,046
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization of tangible assets 33,802 30,757
Amortization of intangible assets 20,914 16,329
Minority interests 14,784 9,150
Earnings of affiliates in excess of dividends received (3,423) (5,588)
(Increase)decrease in deferred tax benefits (11,900) 1,523
Provision for losses on accounts receivable 4,568 4,530
Amortization of restricted shares 7,895 7,301
(Increase)decrease in accounts receivable (128,818) 25,223
Increase in billable production (73,508) (45,465)
Increase in other current assets (5,184) (16,539)
Decrease in accounts payable (213,280) (222,210)
Increase in other accrued liabilities 48,191 34,595
Decrease in accrued income taxes (3,894) (6,373)
Other 197 34,373
--------- ---------
Net cash used for operating activities (217,262) (87,348)
--------- ---------
Cash flows from investing activities:
Capital expenditures (37,102) (35,631)
Payments for purchases of equity interests in
subsidiaries and affiliates, net of cash acquired (87,217) (83,079)
Payments for purchases of investments available-for-sale
and other investments (10,695) (5,095)
Proceeds from sales of investments available-for-sale
and other investments 30,914 32,326
--------- ---------
Net cash used for investing activities (104,100) (91,479)
--------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit 66,707 60,836
Share transactions under employee stock plans 5,676 7,621
Proceeds from issuance of principal of debt obligations 291,415 154,140
Dividends and loans to minority stockholders (14,434) (8,182)
Dividends paid (33,044) (30,266)
Purchase of treasury shares (8,780) (50,762)
--------- ---------
Net cash provided by financing activities 307,540 133,387
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 5,279 11,157
--------- ---------
Net decrease in cash and cash equivalents (8,543) (34,283)
Cash and cash equivalents at beginning of period 241,797 180,124
--------- ---------
Cash and cash equivalents at end of period $ 233,254 $ 145,841
========= =========
Supplemental Disclosures:
Income taxes paid $ 66,087 $ 46,513
========= =========
Interest paid $ 30,300 $ 29,203
========= =========
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) On August 31, 1995, the Company completed the acquisitions of Ross Roy
Communications and Chiat/Day Holdings. The Company issued 859,634 shares of
its common stock for all the outstanding shares of Ross Roy Communications.
The Company issued 418,689 shares of its common stock in connection with
the combination of Chiat/Day Holdings.
Both transactions were accounted for under the pooling-of-interests
method of accounting. Accordingly, the Company's financial statements have
been restated to include the operating results of Ross Roy Communications
and Chiat/Day Holdings for all periods presented.
-5-
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma data summarizes the combined results
of operations of both acquisitions and Omnicom Group Inc. as though the
transactions occurred on January 1, 1993 (Dollars in Thousands).
Six months ended Omnicom Ross Roy and
June 30, 1995 Group Chiat/Day Combined
- --------------------------------------------------------------------------------
Commissions and fees $ 985,921 $ 83,428 $1,069,349
Income before change
in accounting principle $ 66,289 $ 2,427 $ 68,716
Net income $ 66,289 $ 2,427 $ 68,716
- --------------------------------------------------------------------------------
Year Ended
December 31, 1994
- --------------------------------------------------------------------------------
Commissions and fees $1,756,205 $ 151,590 $1,907,795
Income before change
in accounting principle $ 108,134 $ 3,361 $ 111,495
Net income $ 80,125 $ 3,361 $ 83,486
- --------------------------------------------------------------------------------
Year Ended
December 31, 1993
- --------------------------------------------------------------------------------
Commissions and fees $1,516,475 $ 172,485 $1,688,960
Income before change
in accounting principle $ 85,345 $ (19,777)* $ 65,568
Net income $ 85,345 $ (19,777)* $ 65,568
* Includes net unusual charges of $18,522 primarily related to lease
loss provisions.
3) 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 September 30, 1994 reported amounts
-6-
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
to conform them with the September 30, 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 annual report on
Form 10-K for the year ended December 31, 1994.
4) Results of operations for the interim periods are not necessarily
indicative of annual results.
5) 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.
The number of shares used in the computations of primary and fully
diluted earnings per share were as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
Primary 37,290,100 36,244,400 37,179,600 34,914,500
Fully diluted 37,355,700 36,286,400 39,874,500 40,053,900
-7-
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For purposes of computing fully diluted earnings per share on net
income for the three months ended September 30, 1995 and 1994 and on net
income and the cumulative effect of the change in accounting principle for
the nine months ended September 30, 1994, the Company's Convertible
Subordinated Debentures were not reflected in the computations as their
inclusion would have been anti-dilutive.
6) 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.
7) 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
-8-
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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.
8) 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.
9) Effective January 1, 1996 the Company is required to adopt SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121"). The Company estimates that the
adoption of SFAS No. 121 will not have a material effect on the results of
operations or the financial position of the Company.
-9-
Item 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Third Quarter 1995 Compared to Third Quarter 1994
Consolidated worldwide revenues from commission and fee income increased
17.8% from $456.4 million in the third quarter of 1994 to $537.7 million in the
third quarter of 1995. Consolidated domestic revenues increased 13.7% from
$239.5 million in 1994 to $272.3 million in 1995. Consolidated international
revenues increased 22.4% from $216.9 million in 1994 to $265.4 million in 1995.
Absent the effect of the net acquisitions of subsidiary companies and movements
in international currency exchange rates, consolidated worldwide revenues
increased 13.7% in the third quarter of 1995 as compared to the same period in
1994.
Operating expenses increased 17.2% in the third quarter of 1995 as compared
to the third quarter of 1994. Excluding the effect of the net acquisition
activity and movements in international currency exchange rates mentioned above,
operating expenses increased 12.7% 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 91.5% in the third quarter of 1995 as compared to 91.9% in the third
quarter of 1994.
-10-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net interest expense increased by $1.3 million in the third quarter of 1995
as compared to the same period in 1994. This increase reflects higher average
interest rates on borrowings.
Pretax profit margin was 7.2% in the third quarter of 1995 as compared to
6.8% in the same period in 1994. Operating margin, which excludes interest and
dividend income and interest expense, was 8.5% in the third quarter of 1995 as
compared to 8.1% in the same period in 1994.
The effective income tax rate was 40.0% in the third quarter of 1995 as
compared to 41.2% in the third quarter of 1994. The decrease primarily reflects
a lower international effective tax rate caused by fewer international operating
losses with no associated tax benefit and tax planning strategies implemented in
certain non-U.S.countries.
The increase in equity in affiliates is indicative of greater profits
earned by companies in which the Company owns less than a 50% equity interest.
The increase in minority interest expense is primarily due to greater
earnings by companies where minority interests exist and additional minority
interests resulting from acquisitions.
-11-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net income increased 26.6% to $23.7 million in the third quarter of 1995 as
compared to $18.7 million in the same period in 1994. Absent the effect of net
acquisitions and movements in international currency exchange rates, net income
increased 32.5% in the third quarter of 1995 as compared to the third quarter of
1994.
Nine Months 1995 Compared to Nine Months 1994
Consolidated worldwide commission and fee income increased 20.6% from
$1,332.4 million in the first nine months of 1994 to $1,607.0 million in the
first nine months of 1995. Consolidated domestic commission and fee income
increased 14.4% from $709.6 million in the first nine months of 1994 to $812.1
million in the same period in 1995. Consolidated international commission and
fee income increased 27.6% from $622.8 million in the first nine months of 1994
to $794.9 million in the same period in 1995. Absent the effect of movements in
international currency exchange rates and net acquisitions of subsidiary
companies made subsequent to the third quarter of 1994, consolidated worldwide
commission and fee income increased 13.0% in the first nine months of 1995
versus the first nine months of 1994.
Operating expenses increased by 19.9% in the first nine months of 1995 as
compared to the same period in 1994. Excluding the effect of movements in
international currency exchange rates and net acquisition activity, operating
-12-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
expenses increased 12.6% over 1994 levels. This increase occurred for reasons
discussed in the third quarter narrative above.
Net interest expense in the first nine months of 1995 increased by $2.8
million as compared to the same period in 1994. This increase occurred for
reasons discussed in the third quarter narrative above.
Pretax profit margin for the first nine months of 1995 was 10.0% as
compared to 9.3% in the same period in 1994. Operating profit margin, which
excludes interest and dividend income and interest expense, was 11.4% in the
first nine months of 1995 as compared to 10.9% in the same period in 1994.
The effective income tax rate was 40.5% in the first nine months of 1995 as
compared to 41.2% in the first nine months of 1994. The decrease primarily
reflects a lower international effective tax rate caused by fewer international
operating losses with no associated tax benefit and tax planning strategies
implemented in certain non-U.S.countries.
Both equity in affiliates and minority interests increased during the
period. The increase in equity in affiliates is indicative of greater profits
earned by companies in which the Company owns less than a 50% equity interest.
The increase in minority interest expense is primarily due to greater earnings
by companies where minority interests exist; additional minority interests
-13-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
resulting from acquisitions; and the acquisition of a majority interest in
several companies which were previously less than 50% owned.
Net income increased 26.5% to $92.4 million in the first nine months of
1995 as compared to $73.1 million before a change in accounting principle, in
the same period in 1994. Absent the effect of net acquisitions and movements in
international currency exchange rates, net income increased 19.3% in the first
nine months of 1995 as compared to the same period in 1994.
Capital Resources and Liquidity
Cash and cash equivalents at September 30, 1995 decreased to $233.3 million
from $241.8 million at December 31, 1994. The relationship between payables to
the media and suppliers and receivables from clients, at September 30, 1995, is
consistent with other companies in the industry.
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 September 30, 1995, the Company had $441.9 million
in committed lines of credit, comprised of a $250.0 million revolving credit
agreement expiring June 30, 1997, and $191.9 million in unsecured committed
lines of credit, principally outside of the United States. Of the $441.9 million
-14-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
in committed lines, $168.2 million remained available at September 30, 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, repayment of debt and maintenance of working capital. The Company
anticipates that future cash flows from operations plus funds available under
existing line of credit facilities will be adequate to support the long term
cash requirements as presently contemplated.
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.
-15-
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-X (filed in
electronic format only)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Omnicom Group Inc.
(Registrant)
Date November 14, 1995 /s/ Fred J. Meyer
------------------------
Fred J. Meyer
Chief Financial Officer
and Director
(Principal Financial
Officer)
Date November 14, 1995 /s/ Dale A. Adams
------------------------
Dale A. Adams
Controller
(Principal Accounting
Officer)
-16-