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, 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 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
April 30, 1994 is 33,436,400.
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OMNICOM GROUP INC. AND SUBSIDIARIES
INDEX
-----------------------------------
Page No.
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Consolidated Condensed Balance Sheets -
March 31, 1994, December 31, 1993 and
March 31, 1993 2
Consolidated Condensed Statements of Income -
Three Months Ended March 31, 1994 and 1993 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 4
Notes to Consolidated Condensed Financial
Statements 5-7
Item II. Management's Discussion of Financial Condition
and Results of Operations 8-11
PART II. OTHER INFORMATION 12
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
Assets March 31, December 31, March 31,
1994 1993 1993
----------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................................ $ 118,324 $ 174,833 $ 85,857
Investments available-for-sale ....................................... 18,620 38,003 17,457
Accounts receivable, less allowance for doubtful accounts
of $19,392, $17,298 and $14,370 ................................... 918,615 901,434 861,339
Billable production orders in process ................................ 70,776 59,415 80,310
Prepaid expenses and other current assets ............................ 133,820 100,791 123,122
----------- ----------- -----------
Total current assets .............................................. 1,260,155 1,274,476 1,168,085
Furniture, equipment and leasehold improvements, less
accumulated depreciation and amortization of $195,814,
$188,868 and $178,321 ................................................ 163,614 160,543 158,570
Investments in affiliates .............................................. 114,733 112,232 106,621
Intangibles, less amortization of $99,339, $93,105
and $76,806 .......................................................... 626,024 603,494 494,661
Deferred tax benefit ................................................... 17,334 18,522 15,061
Deferred charges and other assets ...................................... 120,000 120,596 100,158
----------- ----------- -----------
Total assets ...................................................... $ 2,301,860 $ 2,289,863 $ 2,043,156
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ..................................................... $ 926,830 $ 1,058,095 $ 821,946
Payable to banks ..................................................... 87,300 48,047 79,393
Other accrued liabilities ............................................ 350,146 388,102 306,754
Accrued taxes on income .............................................. 19,972 29,974 30,132
----------- ----------- -----------
Total current liabilities ......................................... 1,384,248 1,524,218 1,238,225
Long term debt ......................................................... 403,827 278,312 382,207
Deferred compensation and other liabilities ............................ 81,713 56,933 64,120
Minority interests ..................................................... 31,399 28,214 55,571
Shareholders' equity:
Common stock ......................................................... 17,536 17,536 15,954
Additional paid-in capital ........................................... 253,112 252,408 162,704
Retained earnings .................................................... 268,255 287,416 244,948
Unamortized restricted stock ......................................... (19,806) (21,807) (13,845)
Cumulative translation adjustment .................................... (50,731) (65,257) (39,727)
Treasury stock ....................................................... (67,693) (68,110) (67,001)
----------- ----------- -----------
Total shareholders' equity ........................................ 400,673 402,186 303,033
----------- ----------- -----------
Total liabilities and shareholders' equity ........................ $ 2,301,860 $ 2,289,863 $ 2,043,156
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
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<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
Three Months Ended
March 31,
--------------------
1994 1993
---- ----
Revenues:
Commissions and fees .................... $ 376,538 $ 339,139
Operating expenses:
Salaries and related costs .............. 218,395 202,045
Office and general expenses ............. 120,268 105,699
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338,663 307,744
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Operating profit .......................... 37,875 31,395
Net interest expense:
Interest and dividend income ............ (2,437) (2,982)
Interest paid or accrued ................ 8,720 9,639
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6,283 6,657
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Income before income taxes and change in
accounting principle .................... 31,592 24,738
Income taxes:
Federal ................................. 6,898 5,505
State and local ......................... 1,778 1,767
International ........................... 4,487 3,118
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13,163 10,390
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Income after income taxes and before change
in accounting principle ................. 18,429 14,348
Equity in affiliates ...................... 2,089 1,692
Minority interests ........................ (1,598) (1,584)
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Income before change in accounting
principle ............................... 18,920 14,456
Cumulative effect of change in accounting
principle ............................... (28,009) --
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Net (loss) income .................. $ (9,089) $ 14,456
========= =========
Earnings per share
Income before change in accounting
principle:
Primary ............................ $ 0.58 $ 0.50
Fully diluted ...................... $ 0.58 $ 0.49
Cumulative effect of change in accounting
principle:
Primary ............................ $ (0.85) -
Fully diluted ...................... $ (0.85) -
Net (loss) income
Primary ............................ $ (0.27) $ 0.50
Fully diluted ...................... $ (0.27) $ 0.49
Dividends declared per common share ....... $ 0.31 $ 0.31
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,
--------------------
1994 1993
---- ----
Cash flows from operating activities:
Net income ......................................... $ (9,089) $ 14,456
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization of tangible assets .. 8,923 8,127
Amortization of intangible assets ................. 5,554 4,109
Minority interests ................................ 1,333 1,584
Earnings of affiliates in excess of dividends
received ....................................... (439) (431)
(Decrease) increase in deferred taxes ............. (8,111) 708
Provision for losses on accounts receivable ....... 1,062 548
Amortization of restricted stock................... 1,873 1,462
Loss on sale of equity interests in subsidiaries
and affiliates ................................. - 643
(Increase) decrease in accounts receivable ........ (7,541) 7,977
Increase in billable production ................... (10,768) (17,784)
Increase in other current assets .................. (22,004) (4,019)
Decrease in accounts payable ...................... (141,549) (164,974)
Decrease in other accrued liabilities ............. (41,069) (39,738)
(Decrease) increase in accrued income taxes ....... (10,431) 662
Other ............................................. 27,977 6,167
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Net cash used in operating activities ............. (204,279) (180,503)
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................... (10,745) (8,113)
Cash (used for) acquired through purchases of equity
interests in subsidiaries and affiliates ........ (23,064) 3,120
Proceeds from sales of equity interests in
subsidiaries and affiliates ..................... 325 522
Purchases of marketable securities ................. (8,210) (6,452)
Proceeds from sales of marketable securities ....... 27,689 12,791
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Net cash (used in) provided by investing activities (14,005) 1,868
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Cash flows from financing activities:
Net borrowings under lines of credit ............... 41,364 29,657
Share transactions under employee stock plans ...... 2,149 3,828
Proceeds from issuance of debt obligations ......... 122,851 145,041
Dividends and loans to minority stockholders ....... (128) (1,143)
Dividends paid ..................................... (10,133) (8,650)
Purchase of treasury shares ........................ (4,238) (16,503)
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Net cash provided by financing activities .......... 151,865 152,230
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Effect of exchange rate changes on cash and cash
equivalents ....................................... 9,910 (197)
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Net decrease in cash and cash equivalents .............. (56,509) (26,602)
Cash and cash equivalents at beginning of period ....... 174,833 112,459
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Cash and cash equivalents at end of period ............. $ 118,324 $ 85,857
========= =========
Supplemental Disclosures:
Income taxes paid ................................ $ 14,063 $ 9,730
========= =========
Interest paid .................................... $ 5,969 $ 7,200
========= =========
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. 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 year.
Fully diluted earnings per share is based on the above, and in 1993,
adjusted for the assumed conversion of the Company's 6.5% and 7%
Convertible Subordinated Debentures and the assumed increase in net income
for the after tax interest cost of these debentures. In 1994, the Company's
6.5% and the 4.5%/6.25% Step-Up Convertible Subordinated Debentures were
antidilutive and, therefore, were excluded from the calculation of fully
diluted earnings per share. The number of shares used in the computations
of primary and fully diluted earnings per share were as follows:
Three Months Ended March 31,
----------------------------
1994 1993
---- ----
Primary EPS computation............................32,796,600 29,165,900
Fully diluted EPS computation......................32,817,700 36,176,600
5) On May 26, 1993, the Company exchanged 1,349,260 shares of Company
common stock for all of the outstanding voting shares of TBWA International
B.V. The combination was accounted for as a pooling of interests.
Accordingly, the March 31, 1993 balance sheet, results of operations and
cash flows have been restated to reflect the combination as of January 1,
1993.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
------------------------------------------
6) 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.
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OMNICOM GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------
Results of Operations
First Quarter 1994 Compared to First Quarter 1993:
Consolidated worldwide revenues from commission and fee income increased
11% to $376,538,000 in the first quarter of 1994 from $339,139,000 in the first
quarter of 1993. Consolidated domestic revenues increased 9% to $196,942,000 in
1994 from $179,936,000 in 1993. Consolidated international commission and fee
income increased 13% to $179,596,000 in 1994 from $159,203,000 in 1993. Absent
the effect of the net acquisitions of subsidiary companies and movements in
foreign currency exchange rates, consolidated worldwide commission and fee
income increased 7% in the first quarter of 1994 as compared to the same period
in 1993.
Operating expenses increased 10% in the first quarter of 1994 as compared
to the first quarter of 1993. Excluding the effect of the net acquisition
activity and movements in foreign currency exchange rates mentioned above,
operating expenses increased 7% 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 was 89.9% in the first quarter of 1994 and 90.7% in 1993.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
------------------------------------------
Net interest expense decreased by $374,000 in the first quarter of 1994 as
compared to the same period in 1993. The decrease primarily relates to lower
average interest rates during the quarter as compared to 1993.
Pretax profit margin was 8.4% in the first quarter of 1994 as compared to
7.3% in the same period in 1993. Operating margin, which excludes interest and
dividend income and interest expense, was 10.1% in the first quarter of 1994 as
compared to 9.3%, in the same period in 1993.
The effective income tax rate was 41.7% in the first quarter of 1994 and
42.0% in the first quarter of 1993.
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.
Minority interests of $1,598,000 is comparable with the first quarter of 1993.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
------------------------------------------
Net income before the cumulative effect of the adoption of SFAS 112,
increased 31% to $18,920,000 in the first quarter of 1994 as compared to
$14,456,000 in the same period in 1993. Absent the effect of net acquisitions of
subsidiary companies and movements in foreign currency exchange rates, net
income increased 20% in the first quarter of 1994 as compared to the first
quarter of 1993.
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits." The cumulative after-tax effect of this onetime
non-cash charge was $28,009,000.
Capital Resources and Liquidity
Cash and cash equivalents at March 31, 1994 decreased to $118,324,000 from
$174,833,000 at December 31, 1993. This decline is due to the paydown of
year-end accrued liabilities and payments to media and other suppliers exceeding
collections from clients. Both events are normal recurring seasonal industry
patterns. The relationship between payables to the media and suppliers and
receivables from clients, at March 31, 1994, compares favorably to customary
industry practices.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
------------------------------------------
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, 1994, the Company had $346,106,000 in
committed lines of credit, comprised of $200,000,000 under a revolving credit
agreement expiring June 30, 1995, and $146,106,000 in unsecured committed lines
of credit, principally outside of the United States. Of the $346,106,000 in
committed lines, $147,548,000 remained available at March 31, 1994. 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 has no present plans to introduce
incremental additional issues of long term debt. The Company anticipates that
future cash flows from operations plus funds available under line of credit
facilities will be adequate to support its long term cash requirements as
presently contemplated.
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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,
1994 1993
Revenues:
Commissions and fees .................... $ 376,538 $ 339,139
Operating expenses:
Salaries and related costs .............. 218,395 202,045
Office and general expenses ............. 120,268 105,699
------- -------
338,663 307,744
------- -------
Operating profit .......................... 37,875 31,395
Net interest expense:
Interest and dividend income ............ (2,437) (2,982)
Interest paid or accrued ................ 8,720 9,639
------- -------
6,283 6,657
------- -------
Income before income taxes and change in
accounting principle .................... 31,592 24,738
Income taxes:
Federal ................................. 6,898 5,505
State and local ......................... 1,778 1,767
International ........................... 4,487 3,118
------- -------
13,163 10,390
------- -------
Income after income taxes and before change
in accounting principle ................. 18,429 14,348
Equity in affiliates ...................... 2,089 1,692
Minority interests ........................ (1,598) (1,584)
------- -------
Income before change in accounting
principle ............................... 18,920 14,456
Cumulative effect of change in accounting
principle ............................... (28,009) --
------- -------
Net (loss) income .................. $ (9,089) $ 14,456
========= =========
Earnings per share
Income before change in accounting
principle:
Primary ............................ $ 0.58 $ 0.50
Fully diluted ...................... $ 0.58 $ 0.49
Cumulative effect of change in accounting
principle:
Primary ............................ $ (0.85) -
Fully diluted ...................... $ (0.85) -
Net (loss) income
Primary ............................ $ (0.27) $ 0.50
Fully diluted ...................... $ (0.27) $ 0.49
Dividends declared per common share ....... $ 0.31 $ 0.31
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
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PART II. OTHER INFORMATION
There have been no applicable transactions or occurrences during the
quarter.
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, 1994 /s/ Fred J. Meyer
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Fred J. Meyer
Chief Financial Officer
and Director
(Principal Financial
Officer)
Date May 12, 1994 /s/ Dale A. Adams
---------------- -----------------
Dale A. Adams
Controller
(Principal Accounting
Officer)
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