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, 1996
Commission file number: 1-10551
Omnicom Group Inc.
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(Exact name of registrant as specified in its charter)
New York 13-1514814
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
437 Madison Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
(212) 415-3600
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(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, 1996 is 80,693,000.
OMNICOM GROUP INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1996, December 31, 1995 and
September 30, 1995 2
Consolidated Condensed Statements of Income -
Three Months Ended September 30, 1996 and 1995
Nine Months Ended September 30, 1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 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 6. Exhibits 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
Assets September 30, December 31, September 30,
1996 1995 1995
----------- ------------ -------------
Current assets:
Cash and cash equivalents $ 191,027 $ 313,999 $ 233,254
Investments available-for-sale, at market, which approximates cost 15,742 21,474 20,838
Accounts receivable, less allowance for doubtful accounts
of $21,453, $23,352 and $23,082 1,448,804 1,503,212 1,367,225
Billable production orders in process 186,565 106,115 157,470
Prepaid expenses and other current assets 221,592 161,235 163,790
----------- ----------- -----------
Total current assets 2,063,730 2,106,035 1,942,577
Furniture, equipment and leasehold improvements, less
accumulated depreciation and amortization of $300,069,
$259,664 and $259,208 212,623 200,473 198,694
Investments in affiliates 196,142 200,216 187,630
Intangibles, less amortization of $187,632, $157,863 and $155,514 913,243 832,698 815,303
Deferred tax benefits 65,550 70,242 78,663
Deferred charges and other assets 106,759 118,013 126,617
----------- ----------- -----------
Total assets $ 3,558,047 $ 3,527,677 $ 3,349,484
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,488,205 $ 1,734,500 $ 1,334,623
Payable to banks 61,143 21,031 81,900
Other accrued liabilities 636,469 705,157 639,429
Accrued taxes on income 42,950 41,756 51,902
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Total current liabilities 2,228,767 2,502,444 2,107,854
Long term debt 428,139 290,379 513,100
Deferred compensation and other liabilities 109,152 122,623 134,423
Minority interests 57,385 60,724 48,852
Shareholders' equity:
Common stock 43,144 39,921 39,922
Additional paid-in capital 554,420 390,984 391,110
Retained earnings 374,646 299,704 264,924
Unamortized restricted stock (43,551) (30,739) (32,985)
Cumulative translation adjustment (26,519) (26,641) (18,731)
Treasury stock (167,536) (121,722) (98,985)
----------- ----------- -----------
Total shareholders' equity 734,604 551,507 545,255
----------- ----------- -----------
Total liabilities and shareholders' equity $ 3,558,047 $ 3,527,677 $ 3,349,484
=========== =========== ===========
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 Nine Months Ended
September 30, September 30,
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1996 1995 1996 1995
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Revenues:
Commissions and fees $ 631,772 $ 537,666 $ 1,889,838 $ 1,607,015
Operating expenses
Salaries and related costs 385,995 321,863 1,115,803 930,957
Office and general expenses 186,173 169,959 552,118 492,936
--------- --------- ----------- -----------
Total operating expenses 572,168 491,822 1,667,921 1,423,893
--------- --------- ----------- -----------
Operating profit 59,604 45,844 221,917 183,122
Net interest expense:
Interest and dividend income (3,043) (2,953) (10,104) (10,343)
Interest paid or accrued 7,487 10,130 26,745 33,526
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Net interest expense 4,444 7,177 16,641 23,183
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Income before income taxes 55,160 38,667 205,276 159,939
Income taxes:
Federal 9,255 7,539 35,192 23,014
State and local 3,722 2,870 10,707 8,654
International 9,259 5,058 37,034 33,183
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Total income taxes 22,236 15,467 82,933 64,851
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Income after income taxes 32,924 23,200 122,343 95,088
Equity in affiliates 3,509 3,736 10,585 12,090
Minority interests (4,200) (3,258) (16,829) (14,784)
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Net income $ 32,233 $ 23,678 $ 116,099 $ 92,394
========= ========= =========== ===========
Earnings per share:
Net income:
Primary $ 0.42 $ 0.32 $ 1.53 $ 1.24
Fully diluted $ 0.42 $ 0.32 $ 1.50 $ 1.23
Dividends declared per common share $ 0.20 $ 0.175 $ 0.55 $ 0.485
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)
Nine Months Ended
September 30,
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1996 1995
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Cash flows from operating activities:
Net income $ 116,099 $ 92,394
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization of tangible assets 36,736 33,802
Amortization of intangible assets 22,837 20,914
Minority interests 16,829 14,784
Earnings of affiliates in excess of dividends received (418) (3,423)
Decrease(increase)in deferred tax benefits 5,172 (11,900)
Provision for losses on accounts receivable 2,287 4,568
Amortization of restricted shares 10,100 7,895
Decrease(increase)in accounts receivable 94,964 (128,818)
Increase in billable production (52,736) (73,508)
Increase in other current assets (58,975) (5,184)
Decrease in accounts payable (290,891) (213,280)
(Decrease)increase in other accrued liabilities (90,360) 48,191
Decrease in accrued income taxes (1,438) (3,894)
Other (110) 197
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Net cash used for operating activities (189,904) (217,262)
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Cash flows from investing activities:
Capital expenditures (37,855) (37,102)
Payments for purchases of equity interests in
subsidiaries and affiliates, net of cash acquired (117,761) (87,217)
Proceeds from sales of equity interests in
subsidiaries and affiliates 49,934 12,259
Payments for purchases of investments available-for-sale
and other investments (13,318) (10,695)
Proceeds from sales of investments available-for-sale
and other investments 20,345 18,655
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Net cash used for investing activities (98,655) (104,100)
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Cash flows from financing activities:
Net borrowings under lines of credit 38,539 66,707
Share transactions under employee stock plans 12,482 5,676
Proceeds from issuance of principal of debt obligations 252,502 291,415
Dividends and loans to minority stockholders (18,297) (14,434)
Dividends paid (38,532) (33,044)
Purchase of treasury shares (85,812) (8,780)
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Net cash provided by financing activities 160,882 307,540
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Effect of exchange rate changes on cash and cash equivalents 4,705 5,279
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Net decrease in cash and cash equivalents (122,972) (8,543)
Cash and cash equivalents at beginning of period 313,999 241,797
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Cash and cash equivalents at end of period $ 191,027 $ 233,254
========= =========
Supplemental Disclosures:
Income taxes paid $ 89,412 $ 66,087
========= =========
Interest paid $ 28,834 $ 30,300
========= =========
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
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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 September 30, 1995 reported amounts
to conform them with the September 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.
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OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(CONTINUED)
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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 Nine Months
Ended September 30, Ended September 30,
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1996 1995 1996 1995
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Primary 76,629,100 74,580,200 76,120,500 74,359,200
Fully diluted 80,702,800 74,711,400 80,997,000 79,749,000
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, effective January 1, 1996. 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
were not restated.
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OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(CONTINUED)
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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. On or before the September 5, 1996 redemption date,
debenture holders elected to convert all of their outstanding debentures
into common stock of the Company. To complete the redemption, 5,238,678
shares of common stock were issued at a conversion price of $27.44 per
share.
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Item 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Results of Operations
Third Quarter 1996 Compared To Third Quarter 1995
Consolidated worldwide revenues from commission and fee income increased
17.5% in the third quarter of 1996 compared to the third quarter of 1995.
Consolidated domestic revenues increased 25.4% in the third quarter of 1996 to
$341.6 million compared to $272.3 million in the third quarter of 1995.
Consolidated international revenues increased 9.3% in the third quarter of 1996
to $290.2 million compared to $265.4 million in the third quarter of 1995.
Absent the effect of the net acquisitions of subsidiary companies and movements
in international currency exchange rates, consolidated worldwide revenues
increased 13.5% in the third quarter of 1996 as compared to the same period in
1995.
Operating expenses increased 16.3% in the third quarter of 1996 as compared
to the third quarter of 1995. Excluding the effect of the net acquisition
activity and movements in international currency exchange rates mentioned above,
operating expenses increased 12.1% over 1995 levels. This increase reflects
normal salary increases and growth in client service expenditures to support the
increased revenue base.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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Net interest expense decreased by $2.7 million in the third quarter of 1996
as compared to the same period in 1995. This decrease primarily reflects lower
average interest rates on borrowings and the conversion of the Step-Up
Convertible Subordinated Debentures.
Pretax profit margin was 8.7% in the third quarter of 1996 as compared to
7.2% in the same period in 1995. Operating margin, which excludes interest and
dividend income and interest expense, was 9.4% in the third quarter of 1996 as
compared to 8.5% in the same period in 1995.
The effective income tax rate of 40.3% in the third quarter of 1996 was
comparable to the effective income tax rate of 40.0% in the third 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 prior quarter, partially offset by the effect of increased
earnings at the Company's equity affiliates. 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.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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Net income increased 36.1% in the third 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 31.6% in the third
quarter of 1996 as compared to the third quarter of 1995.
Nine Months 1996 Compared to Nine Months 1995
Consolidated worldwide commission and fee income increased 17.6% in the
first nine months of 1996 compared to the first nine months of 1995.
Consolidated domestic commission and fee income increased 25.3% in the first
nine months of 1996 to $1,017.8 million compared to $812.1 million in the same
period in 1995. Consolidated international commission and fee income increased
9.7% in the first nine months of 1996 to $872.0 million compared 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 1995, consolidated worldwide
commission and fee income increased 13.4% in the first nine months of 1996
versus the first nine months of 1995.
Operating expenses increased by 17.1% in the first nine 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 12.4% over 1995 levels.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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Net interest expense decreased by $6.5 million in the first nine months of
1996 as compared to the same period in 1995. This decrease primarily reflects
lower average interest rates on borrowings and the conversion of the Step-Up
Convertible Subordinated Debentures.
Pretax profit margin for the first nine months of 1996 was 10.9% as
compared to 10.0% in the same period in 1995. Operating margin, which excludes
interest and dividend income and interest expense, was 11.7% in the first nine
months of 1996 as compared to 11.4% in the same period in 1995.
The effective income tax rate of 40.4% in the first nine months of 1996 was
comparable to the effective income tax rate of 40.5% in the first nine 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, partially offset by the effect of increased
earnings at the Company's affiliates. 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.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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Net income increased 25.7% in the first nine 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 22.5% in the first
nine months of 1996 as compared to the same period in 1995.
Capital Resources and Liquidity
Cash and cash equivalents at September 30, 1996 decreased to $191.0 million
from $314.0 million at December 31, 1995. The relationship between payables to
the media and suppliers and receivables from clients, at September 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 September 30, 1996, the Company had $516.8 million
in such unsecured committed lines of credit, comprised of a $360.0 million
revolving credit agreement expiring June 30, 2001, and $156.8 million in lines
of credit, principally outside of the United States. Of the $516.8 million in
unsecured committed lines, $254.1 million remained available at September 30,
1996.
Management believes the aggregate lines of credit available to the Company
plus cash flows from operations will be adequate to support its anticipated
requirements.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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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. On or before the September 5, 1996 redemption date, debenture
holders elected to convert all of their outstanding debentures into common stock
of the Company. To complete the redemption, 5,238,678 shares of common stock
were issued at a conversion price of $27.44 per share.
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PART II. OTHER INFORMATION
Item 6. Exhibits
Exhibit Number Description of Exhibit
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27 Financial Data Schedule (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 12, 1996 /s/ Fred J. Meyer
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Fred J. Meyer
Chief Financial Officer
(Principal Financial
Officer)
Date November 12, 1996 /s/ Jonathan E. Ramsden
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Jonathan E. Ramsden
Controller
(Principal Accounting
Officer)
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