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, 1994
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Commission file number: 1-10551
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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 (Zip Code)
executive offices)
(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, 1994 is 36,454,400.
OMNICOM GROUP INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1994, December 31, 1993 and
September 30, 1993 2
Consolidated Condensed Statements of Income -
Three Months Ended September 30, 1994 and 1993
Nine Months Ended September 30, 1994 and 1993 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 4
Notes to Consolidated Condensed Financial
Statements 5-8
Item II. Management's Discussion of Financial Condition
and Results of Operations 9-16
PART II. OTHER INFORMATION
Item 6 Exhibits 17
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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,
------
1994 1993 1993
------------- ------------ -----------
Current assets:
Cash and cash equivalents $ 118,281 $ 174,833 $ 101,186
Investments available-for-sale, at market, which
approximates cost 11,354 38,003 10,422
Accounts receivable, less allowance for doubtful accounts
of $19,851, $17,298 and $15,464 941,634 901,434 835,345
Billable production orders in process 102,591 59,415 87,366
Prepaid expenses and other current assets 139,743 100,791 121,520
------------ ------------ ------------
Total current assets 1,313,603 1,274,476 1,155,839
Furniture, equipment and leasehold improvements, less
accumulated depreciation and amortization of $220,608,
$188,868 and $187,543 171,078 160,543 157,983
Investments in affiliates 124,183 112,232 106,433
Intangibles, less accumulated amortization of $128,762, $93,105
and $82,790 697,128 603,494 535,436
Deferred tax benefits 8,343 18,522 16,578
Deferred charges and other assets 144,565 120,596 109,569
------------ ------------ ------------
Total assets $ 2,458,900 $ 2,289,863 $ 2,081,838
============ ============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 928,076 $ 1,058,095 $ 833,163
Payable to banks 93,179 48,047 74,999
Convertible Subordinated Debentures (Note 6) -- -- 83,900
Other accrued liabilities 412,914 388,102 302,080
Accrued taxes on income 26,181 29,974 24,425
------------ ------------ ------------
Total current liabilities 1,460,350 1,524,218 1,318,567
Long term debt 348,240 278,312 322,290
Deferred compensation and other liabilities 76,826 56,933 71,062
Minority interests 35,971 28,214 35,394
Shareholders' equity:
Common stock 19,321 17,536 15,907
Additional paid-in capital 356,478 252,408 160,931
Retained earnings 298,766 287,416 266,714
Unamortized restricted stock (28,506) (21,807) (23,951)
Cumulative translation adjustment (18,641) (65,257) (52,296)
Treasury stock (89,905) (68,110) (32,780)
------------ ------------ ------------
Total shareholders' equity 537,513 402,186 334,525
------------ ------------ ------------
Total liabilities and shareholders' equity $ 2,458,900 $ 2,289,863 $ 2,081,838
============ ============ ============
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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1994 1993 1994 1993
---- ---- ---- ----
Revenues:
Commissions and fees $ 422,274 $ 339,531 $ 1,224,010 $ 1,060,428
Operating expenses:
Salaries and related costs 245,219 193,665 695,681 605,337
Office and general expenses 142,018 119,745 390,490 341,029
----------- ----------- ----------- -----------
Total operating expenses 387,237 313,410 1,086,171 946,366
----------- ----------- ----------- -----------
Operating profit 35,037 26,121 137,839 114,062
Net interest expense:
Interest and dividend income (2,717) (2,614) (8,286) (8,539)
Interest paid or accrued 7,899 9,154 26,451 29,008
----------- ----------- ----------- -----------
Total net interest expense 5,182 6,540 18,165 20,469
----------- ----------- ----------- -----------
Income before income taxes and change
in accounting principle 29,855 19,581 119,674 93,593
Income taxes:
Federal 3,459 4,968 18,483 16,734
State and local 2,101 2,087 5,823 5,301
International 6,754 1,173 24,979 17,261
----------- ----------- ----------- -----------
Total income taxes 12,314 8,228 49,285 39,296
----------- ----------- ----------- -----------
Income after income taxes and before
change in accounting principle 17,541 11,353 70,389 54,297
Equity in affiliates 3,432 1,769 9,384 6,135
Minority interests (2,823) (276) (9,205) (5,868)
----------- ----------- ----------- -----------
Income before change in accounting
principle 18,150 12,846 70,568 54,564
Cumulative effect of change in
accounting principle (Note 5) -- -- (28,009) --
----------- ----------- ----------- -----------
Net income $ 18,150 $ 12,846 $ 42,559 $ 54,564
=========== =========== =========== ===========
Earnings per share:
Income before change in accounting
principles:
Primary $ 0.52 $ 0.43 $ 2.09 $ 1.83
Fully diluted $ 0.52 $ 0.43 $ 2.05 $ 1.73
Cumulative effect of change in accounting principle:
Primary -- -- $ (0.83) --
Fully diluted -- -- $ (0.83) --
Net income:
Primary $ 0.52 $ 0.43 $ 1.26 $ 1.83
Fully diluted $ 0.52 $ 0.43 $ 1.26 $ 1.73
Dividends declared per common share $ 0.31 $ 0.31 $ 0.93 $ 0.93
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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1994 1993
---- ----
Cash flows from operating activities:
Net income $ 42,559 $ 54,564
Adjustments to reconcile net income to net cash
provided (used) for operating activities:
Depreciation and amortization of tangible assets 28,195 25,114
Amortization of intangible assets 16,302 13,093
Minority interests 8,940 5,868
Earnings of affiliates in excess of dividends received (5,588) (2,312)
Increase (decrease) in deferred taxes 932 (185)
Provision for losses on accounts receivable 3,733 2,501
Amortization of restricted shares 7,301 4,800
Decrease in accounts receivable 21,827 18,703
Increase in billable production (35,547) (26,059)
Increase in other current assets (19,650) (4,602)
Decrease in accounts payable (197,967) (139,899)
Decrease in other accrued liabilities (12,120) (46,995)
Decrease in accrued income taxes (5,073) (6,372)
Other 36,848 (8,101)
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Net cash used in operating activities (109,308) (109,882)
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Cash flows from investing activities:
Capital expenditures (30,590) (25,547)
Payments for purchases of equity interests in
subsidiaries and affiliates, net of cash acquired (83,079) (21,316)
Payments for purchases of marketable securities and
other investments (5,095) (3,666)
Proceeds from sales of marketable securities and
other investments 32,326 16,798
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Net cash used by investing activities (86,438) (33,731)
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Cash flows from financing activities:
Net borrowings under lines of credit 57,464 34,852
Share transactions under employee stock plans 6,653 7,207
Issuance of principal of debt obligations 151,876 151,752
Dividends and loans to minority stockholders (8,182) (7,167)
Dividends paid (30,266) (26,220)
Purchase of treasury shares (49,624) (23,329)
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Net cash provided by financing activities 127,921 137,095
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 11,273 (4,755)
--------- ---------
Net decrease in cash and cash equivalents (56,552) (11,273)
Cash and cash equivalents at beginning of period 174,833 112,459
--------- ---------
Cash and cash equivalents at end of period $ 118,281 $ 101,186
========= =========
Supplemental Disclosures:
Income taxes paid $ 44,172 $ 45,927
========= =========
Interest paid $ 26,192 $ 24,536
========= =========
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
adjustments 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, 1993 reported
amounts to conform them with the September 30, 1994 and December 31,
1993 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 latest
annual report on Form 10-K.
3) Results of operations for the interim periods are not necessarily
indicative of annual results.
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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. At
September 30, 1994, the 4.5%/6.25% Step-up Convertible Subordinated
Debentures were outstanding. At September 30, 1993, the 6.5% and 7%
Convertible Subordinated Debentures and 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 is as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
Primary 35,197,600 30,095,800 33,895,100 29,866,100
Fully diluted 35,239,700 37,679,200 39,034,600 37,031,900
For purposes of computing fully diluted earnings per share on net
income for the three months ended September 30, 1994, and 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.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
5) 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.
6) On June 1, 1994, the Company issued a Notice of Redemption for its 6.5%
Convertible Subordinated Debentures with a scheduled maturity in 2004.
On or before the July 27, 1994 redemption date, debenture 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.
On August 9, 1993, the Company issued a Notice of Redemption for its 7%
Convertible Subordinated Debentures with a scheduled maturity in 2013.
On or before the October 8, 1993 redemption date, debenture holders
elected to convert all of their outstanding debentures into common
stock of the Company at a conversion price of $25.75 per common share.
7) Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 115 "Accounting for
Certain Investments in Debt and Equity Securities."
-7-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
At September 30, 1994 the Company's investments consisted principally
of time deposits with financial institutions. These investments, with
scheduled maturities of less than one year, are valued at estimate fair
value, which approximates cost. These investments are generally
redeemed at face value upon maturity and, as such, gains or losses on
disposition are immaterial. There are no material unrealized holding
gains or losses as of September 30, 1994.
-8-
OMNICOM GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Third Quarter 1994 Compared to Third Quarter 1993:
Consolidated worldwide revenues from commission and fee income increased
24.4% from $339,531,000 in the third quarter of 1993 to $422,274,000 in the
third quarter of 1994. Consolidated domestic commission and fee income increased
11.3% from $188,415,000 in 1993 to $209,720,000 in 1994. Consolidated
international commission and fee income increased 40.7% from $151,116,000 in
1993 to $212,554,000 in 1994. Absent the effect of the net acquisitions of
subsidiary companies and movements in international currency exchange rates,
worldwide revenues would have increased 13.7% in the third quarter of 1994 as
compared to the same period in 1993.
Operating expenses increased 23.6% in the third quarter of 1994 as compared
to the third quarter of 1993. Excluding the effect of the net acquisition
activity and movements in international currency exchange rates, operating
expenses would have increased 11.1% over 1993 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 91.7% in the third quarter of 1994 as compared to 92.3% in 1993.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net interest expense decreased by $1,358,000 in the third quarter of 1994
as compared to the same period in 1993. This decrease reflects lower average
interest rates on borrowings, primarily due to the conversion of the Company's
7% Convertible Subordinated Debentures in October 1993 and the conversion of the
Company's 6.5% Convertible Subordinated Debentures in July 1994.
Pretax profit margin was 7.1% in the third quarter of 1994 as compared to
5.8% in 1993. Operating margin, which excludes interest and dividend income and
interest expense, was 8.3% in the third quarter of 1994 as compared to 7.7% in
1993.
The effective income tax rate was 41.2% in the third quarter of 1994 as
compared to 42.0% for the third quarter of 1993. The decrease reflects a lower
international effective tax rate primarily caused by fewer international
operating losses with no associated tax benefit.
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 interests primarily reflects greater earnings by
companies in which minority interests exist.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net income increased 41.3% to $18,150,000 in the third quarter of 1994 as
compared to $12,846,000 in the same period in 1993. Absent the effect of net
acquisitions of subsidiary companies and movements in international currency
exchange rates, net income would have increased 53.4% in the third quarter of
1994 as compared to the third quarter of 1993.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Nine Months 1994 Compared to Nine Months 1993:
Consolidated worldwide commission and fee income increased 15.4% from
$1,060,428,000 in the first nine months of 1993 to $1,224,010,000 in the first
nine months of 1994. Consolidated domestic commission and fee income increased
10.7% from $556,293,000 in the first nine months of 1993 to $615,758,000 in the
same period of 1994. Consolidated international commission and fee income
increased 20.7% from $504,135,000 in the first nine months of 1993 to
$608,252,000 in the same period in 1994. Absent the effects of movements in
international currency exchange rates and net acquisitions of subsidiary
companies made subsequent to the third quarter of 1993, consolidated worldwide
commission and fee income would have increased 9.5% in the first nine months of
1994 versus the same period in 1993.
Operating expenses increased by 14.8% in the first nine months of 1994 as
compared to the same period in 1993. Excluding the effect of net acquisition
activity and movements in international currency exchange rates, operating
expenses would have increased 8.0% over 1993 levels. This increase occurred for
reasons discussed in the third quarter narrative.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net interest expense decreased 11.3% to $18,165,000 in the first nine
months of 1994 as compared to net interest expense of $20,469,000 in the first
nine months of 1993. This decrease reflects lower average interest rates on
borrowings, primarily due to the conversion of the Company's 7% Convertible
Subordinated Debentures in October 1993 and the conversion of the Company's 6.5%
Convertible Subordinated Debentures in July 1994.
Pretax profit margin was 9.8% for the first nine months of 1994 as compared
to 8.8% in 1993. Operating profit margin, which excludes interest and dividend
income and interest expense, was 11.3% in the first nine months of 1994 as
compared to 10.8% in the same period of 1993.
The effective income tax rate was 41.2% in the first nine months of 1994 as
compared to 42.0% in the first nine months of 1993. The decrease reflects a
lower international effective tax rate primarily caused by fewer foreign
operating losses with no associated tax benefit.
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 interests primarily reflects greater earnings by
companies in which minority interests exist.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards 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.
Net income before the cumulative effect of the adoption of SFAS 112,
increased 29.3% to $70,568,000 in the first nine months of 1994 from $54,564,000
in the same period in 1993. Absent the effect of net acquisition activity and
movements in international currency exchange rates, net income would have
increased 36.5% in the first nine months of 1994 as compared to the same period
of 1993.
Capital Resources and Liquidity
Cash and cash equivalents at September 30, 1994 decreased to $118,281,000
from $174,833,000 at December 31, 1993. This decrease reflects the paydown of
year-end accrued liabilities, the seasonal build-up of production inventory
which will be billed later in the year, and a payout of funds to the media and
other suppliers exceeding collections from clients.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
These events are normal industry patterns and occurred in the first nine
months of 1993 as well. The relationship, at September 30, 1994, between
payables to the media and suppliers and receivables from clients compares
favorably to customary industry practices.
On June 1, 1994, the Company issued a Notice of Redemption for its 6.5%
Convertible Subordinated Debentures with a scheduled maturity in 2004. On or
before the July 27, 1994 redemption date, debenture 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. This resulted in the issuance of
3,571,233 shares of common stock.
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, 1994, the Company had $397,648,000 in
committed lines of credit, comprised of $250,000,000 under a credit agreement
expiring June 30, 1997 and $147,648,000 in unsecured committed lines of credit,
principally outside of the United States. Of the $397,648,000 in committed
lines, $128,868,000 remained available at September 30, 1994.
-15-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Management believes the aggregate lines of credit available to the Company
are adequate to support its short term cash requirements for dividends, capital
expenditures 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. At the present time, the Company is evaluating the
economics of refinancing certain existing debt under more favorable conditions.
-16-
PART II. OTHER INFORMATION
Item 6. Exhibits
Exhibit Number Description of Exhibit
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27 Appendix A to Item 601(c) of
Regulation S-K Commercial and
Industrial Companies - Article
5 of Regulation S-X
SIGNATURES
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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 11, 1994 /s/ Fred J. Meyer
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Fred J. Meyer
Chief Financial Officer
and Director
(Principal Financial
Officer)
Date November 11, 1994 /s/ Dale A. Adams
--------------------- -----------------
Dale A. Adams
Controller
(Principal Accounting
Officer)
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