CONFORMED COPY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 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
July 31, 1996 is 75,714,000.
OMNICOM GROUP INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
June 30, 1996, December 31, 1995 and
June 30, 1995 2
Consolidated Condensed Statements of Income -
Three Months Ended June 30, 1996 and 1995
Six Months Ended June 30, 1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements 5-7
Item 2. Management's Discussion of Financial Condition
and Results of Operations 8-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 14
Item 6. Exhibits 15
-1-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31, June 30,
1996 1995 1995
----------- ----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 250,132 $ 313,999 $ 265,230
Investments available-for-sale, at market, which approximates cost 21,887 21,474 25,238
Accounts receivable, less allowance for doubtful accounts
of $23,159, $23,352 and $24,382 1,614,465 1,503,212 1,361,254
Billable production orders in process 171,147 106,115 132,074
Prepaid expenses and other current assets 200,243 161,235 171,477
----------- ----------- -----------
Total current assets 2,257,874 2,106,035 1,955,273
Furniture, equipment and leasehold improvements, less
accumulated depreciation and amortization of $287,450,
$259,664 and $253,501 211,334 200,473 197,011
Investments in affiliates 197,239 200,216 184,447
Intangibles, less amortization of $168,234, $157,863 and $149,677 877,240 832,698 813,638
Deferred tax benefits 68,180 70,242 74,052
Deferred charges and other assets 109,259 118,013 149,642
----------- ----------- -----------
Total assets $ 3,721,126 $ 3,527,677 $ 3,374,063
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,716,675 $ 1,734,500 $ 1,448,013
Payable to banks 30,318 21,031 150,772
Convertible Subordinated Debentures (Note 6) 143,750 -- --
Other accrued liabilities 598,960 705,157 582,860
Accrued taxes on income 62,529 41,756 45,027
----------- ----------- -----------
Total current liabilities 2,552,232 2,502,444 2,226,672
Long term debt 400,141 290,379 419,683
Deferred compensation and other liabilities 111,309 122,623 144,490
Minority interests 62,368 60,724 54,586
Shareholders' equity:
Common stock 40,525 39,921 39,879
Additional paid-in capital 406,801 390,984 389,824
Retained earnings 358,206 299,704 254,134
Unamortized restricted stock (46,810) (30,739) (35,708)
Cumulative translation adjustment (26,031) (26,641) (17,055)
Treasury stock (137,615) (121,722) (102,442)
----------- ----------- -----------
Total shareholders' equity 595,076 551,507 528,632
----------- ----------- -----------
Total liabilities and shareholders' equity $ 3,721,126 $ 3,527,677 $ 3,374,063
=========== =========== ===========
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 June 30, Six Months Ended June 30,
--------------------------- -------------------------------
1996 1995 1996 1995
--------- --------- ----------- -----------
Revenues:
Commissions and fees $ 666,465 $ 570,263 $ 1,258,066 $ 1,069,349
Operating expenses:
Salaries and related costs 371,220 314,433 729,808 609,094
Office and general expenses 194,036 170,061 365,945 322,977
--------- --------- ----------- -----------
Total operating expenses 565,256 484,494 1,095,753 932,071
--------- --------- ----------- -----------
Operating profit 101,209 85,769 162,313 137,278
Net interest expense:
Interest and dividend income (3,748) (3,311) (7,061) (7,390)
Interest paid or accrued 9,856 11,792 19,258 23,396
--------- --------- ----------- -----------
Net interest expense 6,108 8,481 12,197 16,006
--------- --------- ----------- -----------
Income before income taxes 95,101 77,288 150,116 121,272
Income taxes:
Federal 15,638 7,548 25,937 15,475
State and local 4,055 3,819 6,984 5,784
International 18,733 19,989 27,776 28,125
--------- --------- ----------- -----------
Total income taxes 38,426 31,356 60,697 49,384
--------- --------- ----------- -----------
Income after income taxes 56,675 45,932 89,419 71,888
Equity in affiliates 4,023 6,141 7,076 8,354
Minority interests (7,745) (8,542) (12,629) (11,526)
--------- --------- ----------- -----------
Net income $ 52,953 $ 43,531 $ 83,866 $ 68,716
========= ========= =========== ===========
Earnings per share:
Net income:
Primary $ 0.70 $ 0.58 $ 1.11 $ 0.93
Fully diluted $ 0.68 $ 0.57 $ 1.08 $ 0.91
Dividends declared per common share $ 0.175 $ 0.155 $ 0.35 $ 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)
Six Months Ended
June 30,
----------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income $ 83,866 $ 68,716
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization of tangible assets 24,031 21,853
Amortization of intangible assets 14,807 13,868
Minority interests 12,629 11,526
Earnings of affiliates in excess of dividends received (1,988) (4,074)
Decrease(increase)in deferred tax benefits 1,567 (8,146)
Provision for losses on accounts receivable 2,119 1,850
Amortization of restricted shares 6,372 5,188
Increase in accounts receivable (70,822) (111,216)
Increase in billable production (37,620) (47,818)
Increase in other current assets (37,413) (10,847)
Decrease in accounts payable (60,196) (109,501)
Decrease in other accrued liabilities (122,527) (12,573)
Increase(decrease)in accrued income taxes 18,245 (9,555)
Other (10,422) (1,492)
--------- ---------
Net cash used for operating activities (177,352) (192,221)
--------- ---------
Cash flows from investing activities:
Capital expenditures (25,384) (21,892)
Payments for purchases of equity interests in
subsidiaries and affiliates, net of cash acquired (86,559) (70,552)
Proceeds from sales of equity interests in
subsidiaries and affiliates 45,341 2,884
Payments for purchases of investments available-for-sale
and other investments (11,325) (10,677)
Proceeds from sales of investments available-for-sale
and other investments 12,007 14,504
--------- ---------
Net cash used for investing activities (65,920) (85,733)
--------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit 7,135 102,600
Share transactions under employee stock plans 12,715 3,627
Proceeds from issuance of principal of debt obligations 227,886 229,325
Dividends and loans to minority stockholders (9,953) (3,376)
Dividends paid (25,576) (22,078)
Purchase of treasury shares (37,938) (9,881)
--------- ---------
Net cash provided by financing activities 174,269 300,217
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 5,136 1,170
--------- ---------
Net(decrease)increase in cash and cash equivalents (63,867) 23,433
Cash and cash equivalents at beginning of period 313,999 241,797
--------- ---------
Cash and cash equivalents at end of period $ 250,132 $ 265,230
========= =========
Supplemental Disclosures:
Income taxes paid $ 39,924 $ 57,496
========= =========
Interest paid $ 20,361 $ 20,716
========= =========
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 June 30, 1995 reported amounts to
conform them with the June 30, 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.
-5-
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, 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 Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
Primary 75,793,621 74,592,080 75,706,730 74,247,106
Fully diluted 81,111,150 79,903,280 81,089,374 79,610,404
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 May 31, 1996, the Company exchanged 1,206,853 shares of common stock for
all of the outstanding shares of Ketchum Communications Holdings, Inc.
("Ketchum"). The combination has been accounted for as a pooling of
interests. Accordingly, previously reported results of operations for the
-6-
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
three months ended March 31, 1996 have been restated as follows:
Earnings Per Share
------------------
Commissions Fully
and Fees Net Income Primary Diluted
-------- ---------- ------- -------
Previously reported $566,978 $30,472 $0.41 $0.41
Pooling of interests
transaction 24,623 441 - -
-------- ------- ----- -----
Restated $591,601 $30,913 $0.41 $0.41
======== ======= ===== =====
The assets, liabilities, shareholders' equity and results of operations of
Ketchum are not material to the Company and, therefore, the Company's prior
year financial statements have not been restated.
6) On July 12, 1996, the Company announced the redemption of its outstanding
4.5% / 6.25% Step-up Convertible Subordinated Debentures with a scheduled
maturity in 2000. The redemption will be on September 5, 1996 (the
"Redemption Date"), at 102.984% of each debenture's principal amount plus
accrued interest to the Redemption Date. The principal amount of each
debenture is convertible into common stock at a conversion price of $27.44
per share. The right to convert debentures into common stock will terminate
at the close of business on the Redemption Date.
-7-
Item 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Second Quarter 1996 Compared to Second Quarter 1995
Consolidated worldwide revenues from commission and fee income increased
16.9% in the second quarter of 1996 compared to the second quarter of 1995.
Consolidated domestic revenues increased 25.6% in the second quarter of 1996 to
$353.0 million compared to $281.1 million in the second quarter of 1995.
Consolidated international revenues increased 8.4% in the second quarter of 1996
to $313.5 million compared to $289.2 million in the second quarter of 1995.
Absent the effect of the net acquisitions of subsidiary companies and movements
in international currency exchange rates, consolidated worldwide revenues
increased 13.4% in the second quarter of 1996 as compared to the same period in
1995.
Operating expenses increased 16.7% in the second quarter of 1996 as
compared to the second quarter of 1995. Excluding the effect of the net
acquisition activity and movements in international currency exchange rates
mentioned above, operating expenses increased 12.4% 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 84.8% in the second quarter of 1996 as
compared to 85.0% in the second quarter of 1995.
-8-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net interest expense decreased by $2.4 million in the second 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 14.3% in the second quarter of 1996 as compared to
13.6% in the same period in 1995. Operating margin, which excludes interest and
dividend income and interest expense, was 15.2% in the second quarter of 1996 as
compared to 15.0% in the same period in 1995.
The effective income tax rate of 40.4% in the second quarter of 1996 was
comparable to the effective income tax rate of 40.6% in the second quarter of
1995.
The decrease in equity in affiliates is primarily due to the conversion of
certain affiliates into partnerships or subsidiaries and the disposal of an
affiliate during the period. The decrease in minority interest expense is
primarily due to the acquisition of certain interests held by minority
shareholders during the period.
Net income increased 21.6% in the second quarter of 1996 as compared to the
same period in 1995. Absent the effect of net acquisitions and movements in
international currency exchange rates, net income increased 18.3% in the second
quarter of 1996 as compared to the second quarter of 1995.
-9-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Six Months 1996 Compared to Six Months 1995
Consolidated worldwide commission and fee income increased 17.6% in the
first six months of 1996 compared to the first six months of 1995. Consolidated
domestic commission and fee income increased 25.3% in the first six months of
1996 to $676.3 million compared to $539.8 million in the same period in 1995.
Consolidated international commission and fee income increased 9.9% in the first
six months of 1996 to $581.8 million compared to $529.5 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 second quarter of 1995, consolidated worldwide commission and fee income
increased 13.7% in the first six months of 1996 versus the first six months of
1995.
Operating expenses increased by 17.6% in the first six months of 1996 as
compared to the same period in 1995. Excluding the effect of movements in
international currency exchange rates and net acquisition activity, operating
expenses increased 12.8% over 1995 levels.
Net interest expense decreased by $3.8 million in the first six months of
1996 as compared to the same period in 1995. This decrease primarily reflects
lower average interest rates on borrowings.
-10-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Pretax profit margin for the first six months of 1996 was 11.9% as compared
to 11.3% in the same period in 1995. Operating margin, which excludes interest
and dividend income and interest expense, was 12.9% in the first six months of
1996 as compared to 12.8% in the same period in 1995.
The effective income tax rate of 40.4% in the first six months of 1996 was
comparable to the effective income tax rate of 40.7% in the first six months of
1995.
The decrease in equity in affiliates is primarily due to the conversion of
certain affiliates into partnerships or subsidiaries and the disposal of an
affiliate during the period. 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, partially offset
by the acquisition of certain interests held by minority shareholders during the
period.
Net income increased 22.0% in the first six months of 1996 as compared to
the same period in 1995. Absent the effect of net acquisitions and movements in
international currency exchange rates, net income increased 19.8% in the first
six months of 1996 as compared to the same period in 1995.
-11-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Capital Resources and Liquidity
Cash and cash equivalents at June 30, 1996 decreased to $250.1 million from
$314.0 million at December 31, 1995. The relationship between payables to the
media and suppliers and receivables from clients, at June 30, 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 June 30, 1996, the Company had $478.6 million in
committed lines of credit, comprised of a $360.0 million revolving credit
agreement expiring June 30, 2001, and $118.6 million in unsecured committed
lines of credit, principally outside of the United States. Of the $478.6 million
in committed lines, $277.7 million remained available at June 30, 1996.
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.
-12-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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.
On July 12, 1996, the Company announced the redemption of its outstanding
4.5% / 6.25% Step-up Convertible Subordinated Debentures with a scheduled
maturity in 2000. The redemption will be on September 5, 1996 (the "Redemption
Date"), at 102.984% of each debenture's principal amount plus accrued interest
to the Redemption Date. The principal amount of each debenture is convertible
into common stock at a conversion price of $27.44 per share. The right to
convert debentures into common stock will terminate at the close of business on
the Redemption Date.
-13-
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of the Company was held on May 20,
1996 in New York, New York, at which three matters were submitted to a vote of
the share owners:
(a) Votes cast for or where authority to vote for was withheld regarding
the re-election of four Directors were as follows:
AUTHORITY
FOR WITHHELD
--- --------
(Term Expiring in 1999:)
Bernard Brochand 60,907,282 1,290,042
James A. Cannon 60,885,816 1,311,508
Leonard S. Coleman, Jr. 61,149,152 1,048,172
Robin B. Smith 61,121,831 1,075,493
(b) Votes cast for or against and the number of abstentions regarding the
ratification of the appointment of Arthur Andersen LLP as independent auditors
of the Company to serve for 1996 were as follows:
FOR 61,984,210
AGAINST 67,552
ABSTAIN 145,562
(c) Votes cast for or against and the number of abstentions regarding the
approval of the Executive Officer Incentive Plan were as follows:
FOR 59,220,616
AGAINST 1,190,325
ABSTAIN 1,786,383
-14-
Item 6. Exhibits
Exhibit Number Description of Exhibit
-------------- ----------------------
10.15 Copy of $360,000,000 Credit Agreement,
dated May 10, 1996, between Omnicom
Finance Inc., Omnicom Finance Limited,
ABN AMRO Bank N.V., Chase Securities
Inc. and the financial institutions
party thereto.
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 August 12, 1996 /s/ Fred J. Meyer
----------------------------
Fred J. Meyer
Chief Financial Officer
(Principal Financial Officer)
Date August 12, 1996 /s/ Jonathan E. Ramsden
----------------------------
Jonathan E. Ramsden
Controller
(Principal Accounting Officer)
-15-