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: March 31, 1997
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, 1997 is 81,724,000.
OMNICOM GROUP INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 1997, December 31, 1996 and
March 31, 1996 2
Consolidated Condensed Statements of Income -
Three Months Ended March 31, 1997 and 1996 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 4
Notes to Consolidated Condensed Financial
Statements 5-8
Item 2. Management's Discussion of Financial Condition
and Results of Operations 9-12
PART II. OTHER INFORMATION
Item 6. Exhibits 13
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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 March 31, December 31, March 31,
1997 1996 1996
----------- ----------- -----------
Current assets:
Cash and cash equivalents $ 227,960 $ 510,267 $ 195,397
Investments available-for-sale, at market,
which approximates cost 79,791 12,841 28,503
Accounts receivable, less allowance for doubtful
accounts of $24,411, $25,642 and $24,560 1,626,534 1,555,411 1,652,201
Billable production orders in process 178,349 156,667 165,870
Prepaid expenses and other current assets 248,411 189,799 202,818
----------- ----------- -----------
Total current assets 2,361,045 2,424,985 2,244,789
Furniture, equipment and leasehold improvements,
less accumulated depreciation and amortization
of $305,709, $301,102 and $284,475 222,159 221,655 212,403
Investments in affiliates 231,045 223,918 216,276
Intangibles, less amortization of $201,182,
$198,880 and $167,422 1,048,982 1,000,312 838,464
Deferred tax benefits 78,019 79,828 71,041
Deferred charges and other assets 115,307 105,245 121,453
----------- ----------- -----------
Total assets $ 4,056,557 $ 4,055,943 $ 3,704,426
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,695,768 $ 2,070,026 $ 1,615,140
Payable to banks 31,394 8,772 172,472
Other accrued liabilities 706,700 717,869 616,056
Accrued taxes on income 64,086 66,409 52,272
----------- ----------- -----------
Total current liabilities 2,497,948 2,863,076 2,455,940
Long term debt 549,471 204,744 526,176
Deferred compensation and other liabilities 156,481 124,739 109,819
Minority interests 60,231 62,706 60,219
Shareholders' equity:
Common stock 43,417 43,144 40,525
Additional paid-in capital 553,402 554,511 397,106
Retained earnings 428,500 419,072 318,253
Unamortized restricted stock (35,210) (39,445) (27,424)
Cumulative translation adjustment (22,331) 3,490 (32,856)
Treasury stock (175,352) (180,094) (143,332)
----------- ----------- -----------
Total shareholders' equity 792,426 800,678 552,272
----------- ----------- -----------
Total liabilities and shareholders' equity $ 4,056,557 $ 4,055,943 $ 3,704,426
=========== =========== ===========
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,
----------------------------
1997 1996
--------- ---------
Revenues:
Commissions and fees $ 696,577 $ 591,601
Operating expenses:
Salaries and related costs 421,485 358,588
Office and general expenses 201,102 171,909
--------- ---------
622,587 530,497
--------- ---------
Operating profit 73,990 61,104
Net interest expense:
Interest and dividend income (2,984) (3,313)
Interest paid or accrued 7,333 9,402
--------- ---------
Net interest expense 4,349 6,089
--------- ---------
Income before income taxes 69,641 55,015
Income taxes:
Federal 11,449 10,299
State and local 4,691 2,929
International 12,126 9,043
--------- ---------
Total income taxes 28,266 22,271
--------- ---------
Income after income taxes 41,375 32,744
Equity in affiliates 4,144 3,053
Minority interests (5,451) (4,884)
--------- ---------
Net income $ 40,068 $ 30,913
========= =========
Earnings per share:
Primary $ 0.50 $ 0.41
Fully diluted $ 0.50 $ 0.41
Dividends declared per common share $ 0.20 $ 0.175
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,
--------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 40,068 $ 30,913
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization of tangible assets 13,204 11,701
Amortization of intangible assets 8,882 7,213
Minority interests 5,451 4,884
Earnings of affiliates in excess of dividends received (2,331) (2,186)
Decrease in deferred tax benefits 4,747 391
Provision for losses on accounts receivable 515 948
Amortization of restricted shares 3,900 2,766
Increase in accounts receivable (89,815) (100,247)
Increase in billable production (25,074) (31,596)
Increase in other current assets (61,631) (38,250)
Decrease in accounts payable (342,000) (252,763)
Decrease in other accrued liabilities (12,216) (40,383)
(Decrease)increase in accrued income taxes (2,589) 8,584
Other (16,780) (22,142)
--------- ---------
Net cash used for operating activities (475,669) (420,167)
--------- ---------
Cash flows from investing activities:
Capital expenditures (17,542) (13,662)
Payments for purchases of equity interests in
subsidiaries and affiliates, net of cash acquired (69,255) (28,542)
Proceeds from sales of equity interests in
subsidiaries and affiliates 54 2,136
Payments for purchases of investments
available-for-sale and other investments (65,542) (6,262)
Proceeds from sales of investments available-for-sale
and other investments 999 863
--------- ---------
Net cash used for investing activities (151,286) (45,467)
--------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit 16,146 136,163
Share transactions under employee stock plans 8,420 5,631
Proceeds from issuance of principal of debt obligations 350,552 247,646
Dividends and loans to minority stockholders (5,218) (3,696)
Dividends paid (15,846) (12,825)
Purchase of treasury shares (4,232) (26,499)
--------- ---------
Net cash provided by financing activities 349,822 346,420
--------- ---------
Effect of exchange rate changes on
cash and cash equivalents (5,174) 612
--------- ---------
Net decrease in cash and cash equivalents (282,307) (118,602)
Cash and cash equivalents at beginning of period 510,267 313,999
--------- ---------
Cash and cash equivalents at end of period $ 227,960 $ 195,397
========= =========
Supplemental Disclosures:
Income taxes paid $ 29,328 $ 13,350
========= =========
Interest paid $ 4,428 $ 8,364
========= =========
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, 1996 reported amounts to
conform them with the March 31, 1997 and December 31, 1996 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, 1996.
3) Results of operations for 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, and if
dilutive, adjusted for the assumed conversion of convertible debentures and
the assumed increase in net income for the after tax interest cost of such
debentures. At March 31, 1997, the 4.25% Convertible Subordinated
Debentures had been outstanding since January 3, 1997. At March 31, 1996,
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,
---------------------------
1997 1996
---------- ----------
Primary EPS Computation 80,598,700 75,192,200
Fully Diluted EPS Computation 80,663,800 80,697,400
For purposes of computing fully diluted earnings per share on net
income for the three months ended March 31, 1997, the Company's 4.25%
Convertible Subordinated Debentures were not reflected in the computation
as their inclusion would have been anti-dilutive.
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OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share".
Under SFAS No. 128, the presentation of Primary and Fully Diluted Earnings
Per Share will be replaced by Basic and Diluted Earnings Per Share.
Adoption of SFAS No. 128 is required for periods ending after December 15,
1997, at which time restatement for prior periods will be necessary. Had
the provisions of SFAS No. 128 been in effect as of March 31, 1997, the
Company would have reported the following earnings per share information:
Three Months
Ended March 31,
-----------------------
1997 1996
----- -----
Earnings per share:
Basic $0.50 $0.42
Diluted $0.50 $0.41
5) On February 28, 1997, the Company exchanged 544,487 shares of common
stock for all of the outstanding shares of Cline Davis & Mann, Inc. and
Gavin Anderson & Company (Japan), Inc. These combinations have been
accounted for as poolings of interests. The assets, liabilities,
shareholders' equity and results of operations of the companies acquired
are not, either individually or in the aggregate, material to the Company
and, therefore, the Company's prior year financial statements have not been
restated.
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OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
6) On May 31, 1996, the Company exchanged 1,206,853 shares of common
stock for all of the outstanding voting shares of Ketchum Communications
Holdings, Inc. The combination was accounted for as a pooling of interests.
Accordingly, the March 31, 1996 balance sheet, results of operations and
cash flows have been restated to reflect the combination as of January 1,
1996.
7) On January 3, 1997, the Company issued $218,500,000 of 4.25%
Convertible Subordinated Debentures with a scheduled maturity in 2007. The
debentures are convertible into common stock of the Company at a conversion
price of $63.00 per share subject to adjustment in certain events.
Debenture holders have the right to require the Company to redeem the
debentures on January 3, 2003 at a price of 112.418%, or upon the
occurrence of a Fundamental Change, as defined in the indenture agreement,
at the prevailing redemption price. The Company may redeem the debentures,
as a whole or in part, on or after December 29, 2000 initially at 108.324%
and at increasing prices thereafter to 112.418% until January 2, 2003 and
100% thereafter. Unless the debentures are redeemed, repaid or converted
prior thereto, the debentures will mature on January 3, 2007 at their
principal amount. The proceeds of this issuance are being used for general
corporate purposes including working capital.
-8-
Item 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Results of Operations
First Quarter 1997 Compared to First Quarter 1996
Consolidated worldwide revenues from commission and fee income increased
17.7% in the first quarter of 1997 compared to the first quarter of 1996.
Consolidated domestic revenues increased 18.2% in the first quarter of 1997 to
$381.7 million compared to $322.9 million in the first quarter of 1996.
Consolidated international revenues increased 17.2% in the first quarter of 1997
to $314.9 million compared to $268.7 million in the first quarter of 1996.
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 first quarter of 1997 as compared to the same period in
1996.
Operating expenses increased 17.4% in the first quarter of 1997 as compared
to the first quarter of 1996. Excluding the effect of the net acquisition
activity and movements in international currency exchange rates mentioned above,
operating expenses increased 12.9% over 1996 levels. This increase reflects
normal salary increases and growth in client service expenditures to support the
increased revenue base.
-9-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
Net interest expense decreased by $1.7 million in the first quarter of 1997
as compared to the same period in 1996. This decrease primarily reflects lower
average interest rates on borrowings.
Pretax profit margin was 10.0% in the first quarter of 1997 as compared to
9.3% in the same period in 1996. Operating margin, which excludes interest and
dividend income and interest expense, was 10.6% in the first quarter of 1997 as
compared to 10.3% in the same period in 1996.
The effective income tax rate of 40.6% in the first quarter of 1997 was
comparable to the effective income tax rate of 40.5% in the first quarter of
1996.
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.
Net income increased 29.6% in the first quarter of 1997 as compared to the
same period in 1996. Absent the effect of net acquisitions and movements in
international currency exchange rates, net income increased 24.2% in the first
quarter of 1997 as compared to the first quarter of 1996.
-10-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
Capital Resources and Liquidity
Cash and cash equivalents at March 31, 1997 decreased to $228.0 million
from $510.3 million at December 31, 1996. The relationship between payables to
the media and suppliers and receivables from clients, at March 31, 1997, 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, 1997, the Company had $505.1 million in
such unsecured committed lines of credit, comprised of a $360.0 million
revolving credit agreement expiring June 30, 2001, and $145.1 million in lines
of credit, principally outside of the United States. Of the $505.1 million in
unsecured committed lines, $363.2 million remained available at March 31, 1997.
On January 3, 1997, the Company issued $218,500,000 of 4.25% Convertible
Subordinated Debentures with a scheduled maturity in 2007. The debentures are
convertible into common stock of the Company at a conversion price of $63.00 per
share subject to adjustment in certain events. Debenture holders have the right
to require the Company to redeem the debentures on January 3, 2003 at a price of
112.418%, or upon the occurrence of a Fundamental Change, as defined in the
indenture agreement, at the prevailing redemption price. The Company may redeem
the debentures, as a whole or in part, on or after December 29, 2000
-11-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
initially at 108.324% and at increasing prices thereafter to 112.418% until
January 2, 2003 and 100% thereafter. Unless the debentures are redeemed, repaid
or converted prior thereto, the debentures will mature on January 3, 2007 at
their principal amount. The proceeds of this issuance are being used for general
corporate purposes including working capital.
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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PART II. OTHER INFORMATION
Item 6. Exhibits
Exhibit Number Description of Exhibit
-------------- ----------------------
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 May 12, 1997 /s/ Fred J. Meyer
--------------------------
Fred J. Meyer
Chief Financial Officer
(Principal Financial
Officer)
Date May 12, 1997 /s/ Jonathan E. Ramsden
--------------------------
Jonathan E. Ramsden
Controller
(Principal Accounting
Officer)
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