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, 1996
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, 1996 is 74,841,000.
OMNICOM GROUP INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 1996, December 31, 1995 and
March 31, 1995 2
Consolidated Condensed Statements of Income -
Three Months Ended March 31, 1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements 5-6
Item 2. Management's Discussion of Financial Condition
and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 6. Exhibits 11
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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,
1996 1995 1995
Assets ----------- ----------- -----------
Current assets:
Cash and cash equivalents $ 193,842 $ 313,999 $ 195,480
Investments available-for-sale, at market, which approximates cost 26,941 21,474 19,650
Accounts receivable, less allowance for doubtful accounts
of $24,269, $23,352 and $24,211 1,572,293 1,503,212 1,265,429
Billable production orders in process 140,505 106,115 138,084
Prepaid expenses and other current assets 198,002 161,235 164,509
----------- ----------- -----------
Total current assets 2,131,583 2,106,035 1,783,152
Furniture, equipment and leasehold improvements, less
accumulated depreciation and amortization of $262,124,
$259,664 and $245,354 201,782 200,473 195,334
Investments in affiliates 212,141 200,216 174,247
Intangibles, less amortization of $163,293, $157,863 and $144,875 829,366 832,698 794,463
Deferred tax benefits 69,839 70,242 75,347
Deferred charges and other assets 119,390 118,013 153,492
----------- ----------- -----------
Total assets $ 3,564,101 $ 3,527,677 $ 3,176,035
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,455,609 $ 1,734,500 $ 1,305,541
Payable to banks 150,613 21,031 125,041
Other accrued liabilities 673,517 705,157 598,942
Accrued taxes on income 49,989 41,756 45,671
----------- ----------- -----------
Total current liabilities 2,329,728 2,502,444 2,075,195
Long term debt 523,300 290,379 415,933
Deferred compensation and other liabilities 106,412 122,623 129,276
Minority interests 60,002 60,724 50,655
Shareholders' equity:
Common stock 39,921 39,921 39,870
Additional paid-in capital 391,176 390,984 384,988
Retained earnings 317,376 299,704 221,647
Unamortized restricted stock (27,424) (30,739) (23,233)
Cumulative translation adjustment (33,058) (26,641) (11,519)
Treasury stock (143,332) (121,722) (106,777)
----------- ----------- -----------
Total shareholders' equity 544,659 551,507 504,976
----------- ----------- -----------
Total liabilities and shareholders' equity $ 3,564,101 $ 3,527,677 $ 3,176,035
=========== =========== ===========
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,
----------------------------
1996 1995
--------- ---------
Revenues:
Commissions and fees $ 566,978 $ 499,086
Operating expenses:
Salaries and related costs 340,441 294,661
Office and general expenses 166,976 152,916
--------- ---------
507,417 447,577
--------- ---------
Operating profit 59,561 51,509
Net interest expense:
Interest and dividend income (3,172) (4,078)
Interest paid or accrued 8,946 11,603
--------- ---------
5,774 7,525
--------- ---------
Income before income taxes 53,787 43,984
Income taxes:
Federal 9,946 7,927
State and local 2,734 1,965
International 9,037 8,136
--------- ---------
21,717 18,028
--------- ---------
Income after income taxes 32,070 25,956
Equity in affiliates 3,053 2,213
Minority interests (4,651) (2,984)
--------- ---------
Net income $ 30,472 $ 25,185
========= =========
Earnings per share:
Primary $ 0.41 $ 0.34
Fully diluted $ 0.41 $ 0.34
Dividends declared per common share $ 0.175 $ 0.155
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
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OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
March 31,
----------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income $ 30,472 $ 25,185
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization of tangible assets 10,845 10,650
Amortization of intangible assets 6,924 6,574
Minority interests 4,651 2,984
Earnings of affiliates in excess of dividends received (2,186) (1,396)
Increase(decrease)in deferred tax benefits 391 (8,801)
Provision for losses on accounts receivable 942 1,020
Amortization of restricted shares 2,766 2,367
Increase in accounts receivable (83,871) (17,136)
Increase in billable production (34,984) (53,241)
Increase in other current assets (40,112) (5,607)
Decrease in accounts payable (263,966) (250,111)
(Decrease)increase in other accrued liabilities (22,363) 3,610
Increase(decrease) in accrued income taxes 8,154 (8,916)
Other (16,605) (22,032)
--------- ---------
Net cash used for operating activities (398,942) (314,850)
--------- ---------
Cash flows from investing activities:
Capital expenditures (13,560) (9,216)
Payments for purchases of equity interests in
subsidiaries and affiliates, net of cash acquired (28,542) (29,314)
Proceeds from sales of equity interests in
subsidiaries and affiliates 2,136 2,744
Payments for purchases of investments available-for-sale
and other investments (6,253) (8,393)
Proceeds from sales of investments available-for-sale
and other investments 863 17,972
--------- ---------
Net cash used for investing activities (45,356) (26,207)
--------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit 129,781 77,209
Share transactions under employee stock plans 5,631 26
Proceeds from issuance of principal of debt obligations 231,340 225,517
Dividends and loans to minority stockholders (3,696) (554)
Dividends paid (12,825) (11,133)
Purchase of treasury shares (26,499) --
--------- ---------
Net cash provided by financing activities 323,732 291,065
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 409 3,675
--------- ---------
Net decrease in cash and cash equivalents (120,157) (46,317)
Cash and cash equivalents at beginning of period 313,999 241,797
--------- ---------
Cash and cash equivalents at end of period $ 193,842 $ 195,480
========= =========
Supplemental Disclosures:
Income taxes paid $ 13,081 $ 25,969
========= =========
Interest paid $ 6,171 $ 8,510
========= =========
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
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OMNICOM GROUP INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The consolidated condensed interim financial statements included
herein have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
2) These statements reflect all adjustments, consisting of normal
recurring 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, 1995 reported amounts to
conform them with the March 31, 1996 and December 31, 1995 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, 1995.
3) Results of operations for the interim periods are not necessarily
indicative of annual results.
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OMNICOM GROUP INC. AND SUBSIDIARIES 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, 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
Ended March 31,
---------------
1996 1995
---- ----
Primary EPS computation 73,985,400 73,548,300
Fully diluted EPS computation 79,490,500 78,901,300
Share amounts for 1995 have been adjusted to reflect a two-for-one
stock split in the form of a 100% stock dividend effective December 15,
1995.
5) On March 1, 1996, the Company issued Deutsche Mark 100 million
Floating Rate Bonds (approximately $68 million at the March 1, 1996
exchange rate). The bonds are unsecured, unsubordinated obligations of the
Company and bear interest at a per annum rate equal to Deutsche Mark three
month LIBOR plus 0.375%. The bonds will mature on March 1, 1999 and will be
repaid at par.
-6-
Item 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
First Quarter 1996 Compared to First Quarter 1995
Consolidated worldwide revenues from commission and fee income increased
13.6% from $499.1 million in the first quarter of 1995 to $567.0 million in the
first quarter of 1996. Consolidated domestic revenues increased 15.8% from
$258.7 million in 1995 to $299.6 million in 1996. Consolidated international
revenues increased 11.2% from $240.4 million in 1995 to $267.4 million in 1996.
Absent the effect of the net acquisitions of subsidiary companies and movements
in international currency exchange rates, consolidated worldwide revenues
increased 13.1% in the first quarter of 1996 as compared to the same period in
1995.
Operating expenses increased 13.4% in the first quarter of 1996 as compared
to the first quarter of 1995. Excluding the effect of the net acquisition
activity and movements in international currency exchange rates mentioned above,
operating expenses increased 12.3% over 1995 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 89.5% in the first quarter of 1996 as compared to 89.7% in the first
quarter of 1995.
-7-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net interest expense decreased by $1.8 million in the first quarter of 1996
as compared to the same period in 1995. This decrease primarily reflects lower
average interest rates on borrowings.
Pretax profit margin was 9.5% in the first quarter of 1996 as compared to
8.8% in the same period in 1995. Operating margin, which excludes interest and
dividend income and interest expense, was 10.5% in the first quarter of 1996 as
compared to 10.3% in the same period in 1995.
The effective income tax rate was 40.4% in the first quarter of 1996 as
compared to 41.0% in the first quarter of 1995. The decrease primarily reflects
a reduction in the effect of nondeductible goodwill and a lower effective
international tax rate.
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.
-8-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net income increased 21.0% to $30.5 million in the first quarter of 1996 as
compared to $25.2 million in the same period in 1995. Absent the effect of net
acquisitions and movements in international currency exchange rates, net income
increased 22.3% in the first quarter of 1996 as compared to the first quarter of
1995.
Capital Resources and Liquidity
Cash and cash equivalents at March 31, 1996 decreased to $193.8 million
from $314.0 million at December 31, 1995. The relationship between payables to
the media and suppliers and receivables from clients, at March 31, 1996, is
consistent with industry norms.
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, 1996, the Company had $503.3 million in
committed lines of credit, comprised of a $250.0 million revolving credit
agreement expiring June 30, 1997, and $253.3 million in unsecured committed
lines of credit, principally outside of the United States. Of the $503.3 million
in committed lines, $206.2 million remained available at March 31, 1996.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
On May 10, 1996, the Company completed a new $360 million revolving credit
agreement, expiring June 30, 2001, to replace the existing $250 million
revolving credit agreement.
Management believes the aggregate lines of credit available to the Company
(including the new $360 million revolving credit agreement) 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 March 1, 1996, the Company issued Deutsche Mark 100 million Floating
Rate Bonds (approximately $68 million at the March 1, 1996 exchange rate). The
bonds are unsecured, unsubordinated obligations of the Company and bear interest
at a per annum rate equal to Deutsche Mark three month LIBOR plus 0.375%. The
bonds will mature on March 1, 1999 and will be repaid at par.
-10-
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 May 13, 1996 /s/ Fred J. Meyer
---------------------------------------- ------------------
Fred J. Meyer
Chief Financial Officer
and Director
(Principal Financial
Officer)
Date May 13, 1996 /s/ Dale A. Adams
---------------------------------------- ------------------
Dale A. Adams
Controller
(Principal Accounting
Officer)
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