- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed Pursuant to Section 12, 13, or 15(d) of
The Securities Exchange Act of 1934
AMENDMENT NO.1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report for the Fiscal Year
Ended December 31, 1993 on Form 10-K as set forth in the pages attached hereto:
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements:
-- Note 8 to Consolidated Financial Statements, page F-12
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized
Omnicom Group Inc.
-------------------
(Registrant)
Date: February 7, 1995 /s/ Fred J. Meyer
---------------- ------------------
Fred J. Meyer
Chief Financial Officer
<PAGE>
REPORT OF MANAGEMENT
The management of Omnicom Group Inc. is responsible for the integrity of
the financial data reported by Omnicom Group and its subsidiaries. Management
uses its best judgment to ensure that the financial statements present fairly,
in all material respects, the consolidated financial position and results of
operations of Omnicom Group. These financial statements have been prepared in
accordance with generally accepted accounting principles.
The system of internal controls of Omnicom Group, augmented by a program of
internal audits, is designed to provide reasonable assurance that assets are
safeguarded and records are maintained to substantiate the preparation of
accurate financial information. Underlying this concept of reasonable assurance
is the premise that the cost of control should not exceed the benefits derived
therefrom.
The financial statements have been audited by independent public
accountants. Their report expresses an independent informed judgment as to the
fairness of management's reported operating results and financial position. This
judgment is based on the procedures described in the second paragraph of their
report.
The Audit Committee meets periodically with representatives of financial
management, internal audit and the independent public accountants to assure that
each is properly discharging their responsibilities. In order to ensure complete
independence, the Audit Committee communicates directly with the independent
public accountants, internal audit and financial management to discuss the
results of their audits, the adequacy of internal accounting controls and the
quality of financial reporting.
/s/ Bruce Crawford /s/ Fred J. Meyer
- ----------------------------------- ----------------------------------
Bruce Crawford Fred J. Meyer
President and Chief Executive Officer Chief Financial Officer
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Omnicom Group Inc.:
We have audited the accompanying consolidated balance sheets of Omnicom
Group Inc. (a New York corporation) and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Omnicom Group Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, effective
January 1, 1992, the Company changed its methods of accounting for income taxes
and postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules on pages S-1 through S-5
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
New York, New York
February 22, 1994
F-2
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands
Except Per Share Data)
---------------------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
COMMISSIONS AND FEES ....................................... $ 1,516,475 $ 1,385,161 $ 1,236,158
OPERATING EXPENSES:
Salaries and Related Costs ............................ 879,808 798,189 721,858
Office and General Expenses ........................... 467,468 433,884 379,183
Special Charge ........................................ -- 6,714 --
----------- ----------- -----------
1,347,276 1,238,787 1,101,041
----------- ----------- -----------
OPERATING PROFIT ........................................... 169,199 146,374 135,117
NET INTEREST EXPENSE:
Interest and Dividend Income .......................... (14,628) (16,810) (18,207)
Interest Paid or Accrued .............................. 41,203 40,888 41,400
----------- ----------- -----------
26,575 24,078 23,193
----------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND CHANGE IN ACCOUNTING
PRINCIPLES .............................................. 142,624 122,296 111,924
INCOME TAXES ............................................... 59,871 53,268 49,248
----------- ----------- -----------
INCOME AFTER INCOME TAXES AND BEFORE
CHANGE IN ACCOUNTING PRINCIPLES ......................... 82,753 69,028 62,676
EQUITY IN AFFILIATES ....................................... 13,180 9,598 9,274
MINORITY INTERESTS ......................................... (10,588) (13,128) (14,898)
----------- ----------- -----------
INCOME BEFORE CHANGE IN
ACCOUNTING PRINCIPLES ................................... 85,345 65,498 57,052
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES ................................... -- 3,800 --
----------- ----------- -----------
NET INCOME ................................................. $ 85,345 $ 69,298 $ 57,052
=========== =========== ===========
NET INCOME PER COMMON SHARE:
Income Before Change in
Accounting Principles:
Primary .............................................. $2.79 $2.31 $2.08
Fully Diluted ........................................ $2.62 $2.20 $2.01
Cumulative Effect of Change
in Accounting Principles:
Primary .............................................. -- $0.14 --
Fully Diluted ........................................ -- $0.11 --
Net Income:
Primary .............................................. $2.79 $2.45 $2.08
===== ===== =====
Fully Diluted ........................................ $2.62 $2.31 $2.01
===== ===== =====
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-3
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands)
---------------------------
1993 1992
---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................................... $ 174,833 $ 112,459
Marketable securities, at cost, which approximates market.................... 38,003 18,431
Accounts receivable, less allowance for doubtful accounts of
$17,298 and $12,825 (Schedule VIII)...................................... 901,434 826,733
Billable production orders in process, at cost............................... 59,415 57,529
Prepaid expenses and other current assets.................................... 100,791 121,577
---------- ----------
Total Current Assets....................................................... 1,274,476 1,136,729
Furniture, Equipment and Leasehold Improvements, at cost, less
accumulated depreciation and amortization of $188,868 and $163,107........... 160,543 153,155
Investments in Affiliates ...................................................... 112,232 106,536
Intangibles, less accumulated amortization of $93,105 and $75,706................ 603,494 478,581
Deferred Tax Benefit............................................................. 18,522 --
Deferred Charges and Other Assets ............................................... 120,596 76,949
---------- ----------
$2,289,863 $1,951,950
========== ==========
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
Current Liabilities:
Accounts payable............................................................. $1,058,095 $ 926,782
Current portion of long-term debt............................................ 21,892 10,096
Bank loans (Schedule IX)..................................................... 26,155 26,505
Advance billings............................................................. 90,422 90,879
Other accrued taxes.......................................................... 32,953 27,625
Other accrued liabilities.................................................... 254,378 194,549
Accrued taxes on income...................................................... 29,974 25,381
Dividend payable............................................................. 10,349 8,826
---------- ----------
Total Current Liabilities.................................................. 1,524,218 1,310,643
---------- ----------
Long-Term Debt ................................................................. 278,312 235,129
Deferred Compensation and Other Liabilities ..................................... 56,933 51,919
Deferred Taxes Payable .......................................................... -- 8,411
Minority Interests .............................................................. 28,214 36,956
Commitments and Contingent Liabilities (Note 10)
Shareholders' Equity:
Preferred stock, $1.00 par value, 7,500,000 shares authorized, none
issued................................................................... -- --
Common stock, $.50 par value, 75,000,000 shares authorized, 35,071,932
and 30,388,593 shares issued in 1993 and 1992, respectively.............. 17,536 15,195
Additional paid-in capital................................................... 252,408 155,086
Retained earnings............................................................ 287,416 245,373
Unamortized restricted stock................................................. (21,807) (15,307)
Cumulative translation adjustment............................................ (65,257) (37,869)
Treasury stock, at cost, 1,901,977 and 1,930,035 shares in 1993 and
1992, respectively....................................................... (68,110) (53,586)
---------- ----------
Total Shareholders' Equity.............................................. 402,186 308,892
---------- ----------
$2,289,863 $1,951,950
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these balance sheets.
F-4
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional Unamortized Cumulative Total
--------------------- Paid-in Retained Restricted Translation Treasury Shareholders'
Shares Par Value Capital Earnings Stock Adjustment Stock Equity
---------- --------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1991............. 28,133,698 $14,067 $ 98,465 $192,388 $(10,634) $41,465 $(37,421) $298,330
Net income.......................... 57,052 57,052
Dividends declared.................. (30,259) (30,259)
Issue of new shares................. 1,724,900 862 43,070 43,932
Amortization of restricted shares... 6,245 6,245
Shares issued under employee
stock plans...................... 1,176 (6,588) 11,268 5,856
Shares issued for acquisitions...... 347,791 174 10,436 10,610
Conversion of 7% Debentures......... 15,417 8 401 409
Cumulative translation adjustment... (8,428) (8,428)
Repurchases of shares............... (17,529) (17,529)
---------- ------- -------- -------- -------- -------- -------- --------
Balance December 31, 1991, as
previously reported.............. 30,221,806 15,111 153,548 219,181 (10,977) 33,037 (43,682) 366,218
Pooling of interests adjustment..... 159,720 80 91 (6,062) (5,891)
---------- ------- -------- -------- -------- -------- -------- --------
Balance January 1, 1992, as restated 30,381,526 15,191 153,639 213,119 (10,977) 33,037 (43,682) 360,327
Net income.......................... 69,298 69,298
Dividends declared.................. (33,628) (33,628)
Amortization of restricted shares... 5,993 5,993
Shares issued under employee
stock plans...................... 1,227 (10,323) 16,691 7,595
Shares issued for acquisitions...... 150,168 75 220 295
Retirement of shares................ (143,101) (71) (3,416) 3,487 --
Cumulative translation adjustment... (70,906) (70,906)
Repurchases of shares............... (30,082) (30,082)
---------- ------- -------- -------- -------- -------- -------- --------
Balance December 31, 1992, as
previously reported.............. 30,388,593 15,195 155,086 245,373 (15,307) (37,869) (53,586) 308,892
Pooling of interests adjustment..... 1,349,260 674 124 (6,309) (1,834) (7,345)
---------- ------- -------- -------- -------- -------- -------- --------
Balance January 1, 1993, as restated 31,737,853 15,869 155,210 239,064 (15,307) (39,703) (53,586) 301,547
Net income.......................... 85,345 85,345
Dividends declared.................. (36,993) (36,993)
Amortization of restricted shares... 7,096 7,096
Shares issued under employee
stock plans...................... 5,709 (13,596) 15,413 7,526
Shares issued for acquisitions...... 7,303 21,948 29,251
Conversion of 7% Debentures......... 3,334,079 1,667 84,186 85,853
Cumulative translation adjustment... (25,554) (25,554)
Repurchases of shares............... (51,885) (51,885)
---------- ------- -------- -------- -------- -------- -------- --------
Balance December 31, 1993........... 35,071,932 $17,536 $252,408 $287,416 $(21,807) $(65,257) $(68,110) $402,186
========== ======= ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-5
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands)
---------------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income .............................................................. $ 85,345 $ 69,298 $ 57,052
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of tangible assets ...................... 34,574 33,706 32,846
Amortization of intangible assets ..................................... 18,950 16,102 13,332
Minority interests .................................................... 10,588 13,128 14,898
Earnings of affiliates in excess of dividends received ................ (6,823) (3,765) (2,539)
Increase (decrease) in deferred taxes ................................. 2,197 (921) 2,553
Provisions for losses on accounts receivable .......................... 4,742 2,545 3,085
Amortization of restricted shares ..................................... 7,096 5,993 6,245
Loss (gain) on sales of equity interests in
subsidiaries and affiliates ......................................... -- 414 (1,794)
Increase in accounts receivable ....................................... (35,416) (29,360) (32,978)
Decrease (increase) in billable production ............................ 6,665 (8,318) (1,508)
Decrease (increase) in other current assets ........................... 19,949 (12,011) (27,165)
Increase in accounts payable .......................................... 73,389 81,697 42,761
(Decrease) increase in other accrued liabilities ...................... (3,498) 26,185 19,692
Increase (decrease) in accrued taxes on income ........................ 1,918 (3,830) 9,102
Other ................................................................. (10,479) (9,167) 8,061
--------- --------- ---------
Net Cash Provided By Operating Activities ................................. 209,197 181,696 143,643
--------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures .................................................... (33,646) (34,881) (32,097
Payments for purchases of equity interests in subsidiaries
and affiliates, net of cash acquired .................................. (80,577) (59,651) (77,129)
Proceeds from sales of equity interests in subsidiaries and
affiliates ............................................................ 558 1,840 8,334
Payments for purchases of marketable securities and
other investments ..................................................... (49,733) (5,353) (35,937)
Proceeds from sales of marketable securities and
other investments ..................................................... 17,396 30,504 3,284
--------- --------- ---------
Net Cash Used In Investing Activities ..................................... (146,002) (67,541) (133,545)
--------- --------- ---------
Cash Flows From Financing Activities:
Issuance of common stock ................................................ -- -- 44,341
Net (repayments) borrowings under lines of credit ....................... (14,167) (9,302) 18,461
Proceeds from issuances of debt obligations ............................. 147,283 7,836 470
Repayment of principal of debt obligations .............................. (31,980) (41,371) (20,454)
Share transactions under employee stock plans ........................... 7,526 7,594 5,856
Dividends and loans to minority stockholders ............................ (8,033) (9,128) (9,538)
Dividends paid .......................................................... (35,470) (32,623) (29,708)
Purchase of treasury shares ............................................. (51,885) (30,082) (17,529)
--------- --------- ---------
Net Cash Provided by (Used in) Financing Activities ....................... 13,274 (107,076) (8,101)
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents ........................................................... (14,095) (8,331) (549)
--------- --------- ---------
Net Increase (Decrease) In Cash and Cash Equivalents ...................... 62,374 (1,252) 1,448
Cash and Cash Equivalents At Beginning of Period .......................... 112,459 113,711 112,263
--------- --------- ---------
Cash and Cash Equivalents At End of Period ................................ $ 174,833 $ 112,459 $ 113,711
========= ========= =========
Supplemental Disclosures:
Income taxes paid ....................................................... $ 58,893 $ 58,292 $ 41,217
========= ========= =========
Interest paid ........................................................... $ 38,290 $ 32,729 $ 35,417
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Recognition of Commission and Fee Revenue. Substantially all revenues are
derived from commissions for placement of advertisements in various media and
from fees for manpower and for production of advertisements. Revenue is
generally recognized when billed. Billings are generally rendered upon
presentation date for media, when manpower is used, when costs are incurred for
radio and television production and when print production is completed.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Omnicom Group Inc. and its domestic and
international subsidiaries (the "Company"). All significant intercompany
balances and transactions have been eliminated.
Reclassifications. Certain prior year amounts have been reclassified to
conform with the 1993 presentation.
Billable Production. Billable production orders in process consist
principally of costs incurred in producing advertisements and marketing
communications for clients. Such amounts are generally billed to clients when
costs are incurred for radio and television production and when print production
is completed.
Treasury Stock. The Company accounts for treasury share purchases at cost.
The reissuance of treasury shares is accounted for at the average cost. Gains or
losses on the reissuance of treasury shares are generally accounted for as
additional paid-in capital.
Foreign Currency Translation. The Company's financial statements were
prepared in accordance with the requirements of Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." Under this method,
net transaction gains of $5.0 million, $8.1 million and $5.3 million are
included in 1993, 1992 and 1991 net income, respectively.
Net Income Per Common Share. 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 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. For the year ended December 31, 1993, the
6.5% Convertible Subordinated Debentures were assumed to be converted for the
full year; the 7% Convertible Subordinated Debentures were assumed to be
converted through October 8, 1993 when they were converted into common stock;
and the 4.5%/6.25% Step-Up Convertible Subordinated Debentures were assumed to
be converted from their September 1, 1993 issuance date. For the years ended
December 31, 1992 and 1991, the 6.5% and 7% Convertible Subordinated Debentures
were assumed to be converted for the full year. The number of shares used in the
computations were as follows:
1993 1992 1991
---- ---- ----
Primary EPS computation ....... 30,607,900 28,320,400 27,415,000
Fully diluted EPS computation . 37,563,500 35,332,400 34,384,400
Severance Agreements. Arrangements with certain present and former
employees provide for continuing payments for periods up to 10 years after
cessation of their full-time employment in consideration for agreements by the
employees not to compete and to render consulting services in the post
employment period. Such payments, which are determined, subject to certain
conditions and limitations, by earnings in subsequent periods, are expensed in
such periods.
Depreciation of Furniture and Equipment and Amortization of Leasehold
Improvements. Depreciation charges are computed on a straight-line basis or
declining balance method over the estimated useful lives of furniture and
equipment, up to 10 years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the terms of the related lease or the
useful life of these assets.
Intangibles. Intangibles represent acquisition costs in excess of the fair
value of tangible net assets of purchased subsidiaries which are being amortized
on a straight-line basis over periods not exceeding forty years.
Deferred Taxes. Deferred tax liabilities and tax benefits relate to the
recognition of certain revenues and expenses in different years for financial
statement and tax purposes.
F-7
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Flows. The Company's cash equivalents are primarily comprised of
investments in overnight interest-bearing deposits and money market instruments
with maturity dates of three months or less.
The following supplemental schedule summarizes the fair value of assets
acquired, cash paid, common shares issued and the liabilities assumed in
conjunction with the acquisition of equity interests in subsidiaries and
affiliates, for each of the three years ended December 31:
(Dollars in thousands)
1993 1992 1991
Fair value of non-cash assets acquired .. $ 287,177 $ 173,974 $ 89,384
Cash paid, net of cash acquired ......... (80,577) (59,651) (77,129)
Common shares issued .................... (21,906) 5,596 (10,610)
--------- --------- ---------
Liabilities assumed ..................... $ 184,694 $ 119,919 $ 1,645
========= ========= =========
During 1993, the Company issued 3,334,079 shares of common stock upon
conversion of $85.9 million of its 7% Convertible Subordinated Debentures.
Concentration of Credit Risk. The Company provides advertising and
marketing services to a wide range of clients who operate in many industry
sectors around the world. The Company grants credit to all qualified clients,
but does not believe it is exposed to any undue concentration of credit risk to
any significant degree.
2. Acquisitions
During 1993 the Company made several acquisitions whose aggregate cost, in
cash or by issuance of the Company's common stock, totaled $132.8 million for
net assets, which included intangible assets of $149.7 million. Included in both
figures are contingent payments related to prior year acquisitions totaling
$16.2 million.
Pro forma combined results of operations of the Company as if the
acquisitions had occurred on January 1, 1992 do not materially differ from the
reported amounts in the consolidated statements of income for each of the two
years in the period ended December 31, 1993.
Certain acquisitions entered into in 1993 require payments in future years
if certain results are achieved. Formulas for these contingent future payments
differ from acquisition to acquisition.
In May 1993, the Company completed its acquisition of a third agency
network, TBWA International B.V. The acquisition was accounted for as a pooling
of interests and, accordingly, the results of operations for TBWA International
B.V. have been included in these consolidated financial statements since January
1, 1993. Prior year consolidated financial statements were not restated as the
impact on such years was not material.
3. Bank Loans and Lines of Credit
Bank loans generally resulted from bank overdrafts of international
subsidiaries which are treated as loans pursuant to bank agreements. At December
31, 1993 and 1992, the Company had unsecured committed lines of credit
aggregating $359 million and $266 million, respectively. The unused portion of
credit lines was $332 million and $237 million at December 31, 1993 and 1992,
respectively. The lines of credit are generally extended at the banks' lending
rates to their most credit worthy borrowers. Material compensating balances are
not required within the terms of these credit agreements.
At December 31, 1992, the committed lines of credit included $125 million
under a two year revolving credit agreement. Due to the long term nature of this
credit agreement, borrowings under the agreement were classified as long-term
debt. As of January 1, 1993, the $125 million credit agreement was replaced by a
$200 million, two and one-half year revolving credit agreement. Borrowings under
this credit agreement are also classified as long-term debt. There were no
borrowings under these credit agreements at December 31, 1993 and 1992.
4. Employee Stock Plans
Under the terms of the Company's 1987 Stock Plan, as amended (the "1987
Plan"), 4,750,000 shares of common stock of the Company are reserved for
restricted stock awards and non-qualified stock options to key employees of the
Company.
F-8
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the terms of the 1987 Plan, the option price may not be less than
100% of the market value of the stock at the date of the grant. Options become
exercisable 30% on each of the first two anniversary dates of the grant date
with the final 40% becoming exercisable three years from the grant date.
Under the 1987 Plan, 285,000, 242,500 and 175,000 non-qualified options
were granted in 1993, 1992 and 1991, respectively.
A summary of changes in outstanding options for the three years ended
December 31, 1993 is as follows:
Years Ended December 31,
---------------------------------
1993 1992 1991
---- ---- ----
Shares under option (at prices ranging
from $16.50 to $35.0625) --
Beginning of year ..................... 998,000 1,043,900 1,076,416
Options granted (at prices ranging from
$23.50 to $40.0625) ................... 285,000 242,500 175,000
Options exercised (at prices ranging
from $16.50 to $35.0625) .............. (197,800) (274,200) (203,600)
Options forfeited ....................... (12,800) (14,200) (3,916)
--------- ------- ---------
Shares under option (at prices ranging
from $16.875 to $40.0625)-- End of year 1,072,400 998,000 1,043,900
========= ======= =========
Shares exercisable ...................... 562,650 443,400 371,749
Shares reserved ......................... 1,502,882 589,422 1,099,902
Under the 1987 Plan, 337,200 shares, 314,775 shares and 278,250 shares of
restricted stock of the Company were awarded in 1993, 1992 and 1991,
respectively.
All restricted shares granted under the 1987 Plan were sold at a price per
share equal to their par value. The difference between par value and market
value on the date of the sale is charged to shareholders' equity and then
amortized to expense over the period of restriction. Under the 1987 Plan, the
restricted shares become transferable to the employee in 20% annual increments
provided the employee remains in the employ of the Company.
Restricted shares may not be sold, transferred, pledged or otherwise
encumbered until the restrictions lapse. Under most circumstances, the employee
must resell the shares to the Company at par value if the employee ceases
employment prior to the end of the period of restriction. A summary of changes
in outstanding shares of restricted stock for the three years ended December 31,
1993 is as follows:
Years Ended December 31,
-----------------------------------
1993 1992 1991
---- ---- ----
Beginning balance ........... 629,752 619,024 765,763
Amount granted ............ 337,200 314,775 278,250
Amount vested ............. (201,712) (278,942) (394,085)
Amount forfeited .......... (24,804) (25,105) (30,904)
------- ------- -------
Ending balance .............. 740,436 629,752 619,024
======= ======= =======
The charge to operations in connection with these restricted stock awards
for the years ended December 31, 1993, 1992 and 1991 amounted to $7.1 million,
$6.0 million and $6.2 million, respectively.
F-9
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Segment Reporting
The Company operates advertising agencies and offers its clients additional
marketing services and specialty advertising through its wholly-owned and
partially-owned businesses. A summary of the Company's operations by geographic
area as of December 31, 1993, 1992 and 1991, and for the years then ended is
presented below:
(Dollars in Thousands)
United
States International Consolidated
---------- ------------- ------------
1993
Commissions and Fees ........ $ 770,611 $ 745,864 $1,516,475
Operating Profit ............ 92,095 77,104 169,199
Net Income .................. 40,814 44,531 85,345
Identifiable Assets ......... 827,032 1,462,831 2,289,863
1992
Commissions and Fees ........ 706,902 678,259 1,385,161
Operating Profit ............ 70,558 75,816 146,374
Net Income .................. 33,223 36,075 69,298
Identifiable Assets ......... 675,508 1,276,442 1,951,950
1991
Commissions and Fees ........ 692,642 543,516 1,236,158
Operating Profit ............ 65,981 69,136 135,117
Net Income .................. 25,078 31,974 57,052
Identifiable Assets ......... 659,583 1,226,311 1,885,894
6. Investments in Affiliates
The Company has approximately 45 unconsolidated affiliates with equity
ownership ranging from 20% to 50%. The following table summarizes the balance
sheets and income statements of the Company's unconsolidated affiliates,
primarily in Europe, Australia, Asia and Canada, as of December 31, 1993, 1992,
1991, and for the years then ended:
(Dollars in Thousands)
1993 1992 1991
---- ---- ----
Current assets ................. $308,741 $312,423 $408,376
Non-current assets ............. 73,772 64,901 54,474
Current liabilities ............ 235,389 259,508 321,777
Non-current liabilities ........ 29,596 8,302 11,456
Minority interests ............. 1,149 1,110 275
Gross revenues ................. 290,814 288,416 374,760
Costs and expenses ............. 238,039 243,661 326,076
Net income ..................... 33,574 27,752 28,933
The Company's equity in the net income of these affiliates amounted to
$13.2 million, $9.6 million and $9.3 million for 1993, 1992 and 1991,
respectively. The Company's equity in the net tangible assets of these
affiliated companies was approximately $58.1 million, $56.2 million and $54.5
million at December 31, 1993, 1992 and 1991, respectively. Included in the
Company's investments in affiliates is the excess of acquisition costs over the
fair value of tangible net assets acquired. These acquisitions costs are being
amortized on a straight-line basis over periods not exceeding forty years.
F-10
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Long-Term Debt and Financial Instruments
Long-term debt outstanding as of December 31, 1993 and 1992 consisted of
the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
1993 1992
-------- --------
<S> <C> <C>
4.5%/6.25% Step-Up Convertible Subordinated Debentures with a scheduled
maturity in 2000 ........................................................................... $143,750 $ --
6.5% Convertible Subordinated Debentures with a scheduled maturity
in 2004 .................................................................................... 100,000 100,000
7% Convertible Subordinated Debentures with a scheduled maturity
in 2013 .................................................................................... -- 85,853
Foreign currency and interest rate swaps, at floating LIBOR rates,
maturing at various dates through 1997 ..................................................... 11,435 5,291
Sundry notes payable to banks and others at rates from 5.75% to 16%,
maturing at various dates through 1999 ..................................................... 35,518 42,663
Loan Notes, at various rates with a scheduled maturity in 1994 ............................... 9,501 11,418
-------- --------
300,204 245,225
Less current portion ......................................................................... 21,892 10,096
-------- --------
Total long-term debt ....................................................................... $278,312 $235,129
======== ========
</TABLE>
During the third quarter of 1993, the Company issued $143,750,000 of
4.5%/6.25% Step-Up Convertible Subordinated Debentures with a scheduled maturity
in 2000. The average annual interest rate through the year 2000 is 5.42%. The
debentures are convertible into common stock of the Company at a conversion
price of $54.88 per share subject to adjustment in certain events. The
debentures are not redeemable prior to September 1, 1996. Thereafter, the
Company may redeem the debentures initially at 102.984% and at decreasing prices
thereafter to 100% at maturity, in each case together with accrued interest. The
debentures also may be repaid at the option of the holder at anytime prior to
September 1, 2000 if there is a Fundamental Change, as defined in the debenture
agreement, at the repayment prices set forth in the debenture agreement, subject
to adjustment, together with accrued interest.
On August 9, 1993, the Company issued a Notice of Redemption for its 7%
Convertible Subordinated Debentures with a scheduled maturity in 2013. Prior to
the October 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.
During the third quarter of 1989, the Company issued $100,000,000 of 6.5%
Convertible Subordinated Debentures with a scheduled maturity in 2004. The
debentures are convertible into common stock of the Company at a conversion
price of $28.00 per share subject to adjustment in certain events. Debenture
holders have the right to require the Company to redeem the debentures on July
26, 1996 at a price of 123.001%, or upon the occurrence of a Fundamental Change,
as defined in the debenture agreement, at the prevailing redemption price. The
Company may redeem the debentures on or after July 27, 1994, initially at
118.808%, from July 27, 1995 to and including July 26, 1996 at 123.001%, and
thereafter at 100%, together in each case with accrued interest. The debentures
may also be redeemed in whole at any time, at par together with accrued
interest, if any, in the event of certain developments regarding United States
tax laws or the imposition of certain certification or identification
requirements.
Also in the third quarter of 1989, a wholly-owned subsidiary of the Company
issued interest bearing Loan Notes in connection with the acquisition of Boase
Massimi Pollitt plc. The Loan Notes are unsecured obligations guaranteed by the
Company and bear interest at a yearly rate of 1/8 percent below the average of
the six month London Inter-Bank Offered Rate for the three business days
preceding the commencement of the relevant interest period. The Loan Notes are
redeemable, at the option of the holder in whole or in part at their nominal
amount, together with interest accrued to the date of redemption, on any
interest payment date. Under certain conditions the Company may redeem the Loan
F-11
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Notes, at their nominal amount plus accrued interest, on any interest payment
date on or after December 31, 1992. Unless earlier redeemed or purchased and
cancelled, the Loan Notes will be repaid on December 31, 1994 at their nominal
amount together with accrued interest.
In January 1993, the Company amended and restated the revolving credit
agreement originally entered into in 1988. This $200,000,000 revolving credit
agreement is with a consortium of banks having an initial term of two and
one-half years. This credit agreement includes a facility for issuing commercial
paper backed by bank letters of credit. The agreement contains certain financial
covenants regarding minimum tangible net worth, current ratio, ratio of net cash
flow to consolidated indebtedness, limitation on foreign indebtedness,
limitation on employee loans, and limitation on investments in and loans to
affiliates and unconsolidated subsidiaries. At December 31, 1993 the Company was
in compliance with all of these covenants.
Aggregate maturities of long-term debt in the next five years are as
follows:
(Dollars in Thousands)
----------------------
1994 ........................ $21,892
1995 ........................ 18,906
1996 ........................ 9,622
1997 ........................ 4,373
1998 ........................ 1,526
Periodically, the Company enters into swap agreements and other derivative
financial instruments primarily to reduce the impact of changes in foreign
exchange rates on net assets and liabilities denominated in foreign currencies
and to reduce the impact of changes in interest rates on floating rate debt. At
December 31, 1993, the Company had foreign currency and interest rate swap
agreements outstanding with commercial banks having a notional principal amount
of $70.6 million. These agreements effectively change a portion of the Company's
foreign currency denominated debt to U.S. dollar denominated debt. The change
from foreign currency denominated debt reduces the exposure to foreign currency
fluctuations.
The Company also has entered into U.S. dollar interest rate swap agreements
which convert its floating rate debt to a fixed rate. These agreements have
varying notional principal amounts, starting dates and maturity dates. The
aggregate maximum notional principal amount outstanding through October 2003 is
$50 million.
8. Income Taxes
Income before income taxes and the provision for taxes on income consisted
of the amounts shown below:
Years Ended December 31,
(Dollars in Thousands)
-----------------------------------
1993 1992 1991
--------- --------- ---------
Income before income taxes:
Domestic ......................... $ 65,571 $ 47,535 $ 44,937
International .................... 77,053 74,761 66,987
--------- --------- ---------
Totals ......................... $ 142,624 $ 122,296 $ 111,924
Provision for taxes on income:
Current:
Federal ........................ $ 16,428 $ 17,143 $ 15,140
State and local ................ 6,531 6,215 2,765
International .................. 35,071 29,067 29,980
--------- --------- ---------
58,030 52,425 47,885
--------- --------- ---------
Deferred:
Federal ........................ 2,979 (3,702) 1,170
State and local ................ 139 (1,375) 239
International .................. (1,277) 5,920 (46)
--------- --------- ---------
1,841 843 1,363
--------- --------- ---------
Totals ......................... $ 59,871 $ 53,268 $ 49,248
========= ========= =========
F-12
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's effective income tax rate varied from the statutory federal
income tax rate as a result of the following factors:
1993 1992 1991
---- ---- ----
Statutory federal income tax rate ..... 35.0% 34.0% 34.0%
State and local taxes on income, net of
federal income tax benefit .......... 3.0 2.6 1.8
International subsidiaries' tax rate in
excess of federal statutory rate .... 0.1 1.3 2.7
Losses of international subsidiaries
without tax benefit ................. 0.2 1.0 0.3
Non-deductible amortization of goodwill 3.9 3.7 3.3
Other ................................. (0.2) 1.0 1.9
---- ---- ----
Effective rate ........................ 42.0% 43.6% 44.0%
==== ==== ====
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," which was adopted effective January 1, 1992. Deferred income taxes are
provided for the temporary difference between the financial reporting basis and
tax basis of the Company's assets and liabilities. Deferred tax benefits result
principally from recording certain expenses in the financial statements which
are not currently deductible for tax purposes. Deferred tax liabilities result
principally from expenses which are currently deductible for tax purposes, but
have not yet been expensed in the financial statements.
The Company has recorded deferred tax benefits as of December 31, 1993 and
1992 of $56.7 million and $21.9 million, respectively.
The Company has recorded deferred tax liabilities as of December 31, 1993
and 1992 of $29.3 million and $21.9 million, respectively.
Deferred tax benefits (liabilities) as of December 31, 1993 and 1992
consisted of the amounts shown below (dollars in millions):
1993 1992
------ ------
Acquisition liabilities $13.0 $ 0.2
Lease reserves 5.0 2.6
Severance and compensation
reserves 8.7 8.3
Tax loss carryforwards 9.6 1.5
Foreign currency transactions 0.5 1.8
Tax benefit leases (4.5) (3.7)
Amortization and depreciation (7.2) (7.9)
Other, net 2.3 (2.8)
------ ------
$27.4 $ --
====== ======
In 1993, legislation was enacted which increased the U.S. statutory tax
rate from 34% to 35%. The effect of this rate change and other statutory rate
changes in various state, local and international jurisdictions was not material
to net income. There were no valuation allowances recognized as of December 31,
1993.
A provision has been made for additional income and withholding taxes on
the earnings of international subsidiaries and affiliates that will be
distributed.
9. Employee Retirement Plans
The Company's international and domestic subsidiaries provide retirement
benefits for their employees primarily through profit sharing plans. Company
contributions to the plans, which are determined by the boards of directors of
the subsidiaries, have been in amounts up to 15% (the maximum amount deductible
for federal income tax purposes) of total eligible compensation of participating
employees. Profit sharing expense amounted to $25.8 million in 1993, $20.8
million in 1992 and $24.4 million in 1991.
Some of the Company's international subsidiaries have pension plans. These
plans are not required to report to governmental agencies pursuant to the
Employee Retirement Income Security Act of 1974 (ERISA). Substantially all of
these plans are funded by fixed premium payments to insurance companies who
undertake legal obligations to provide specific benefits to the individuals
covered. Pension expense amounted to $2.4 million in 1993, $2.7 million in 1992
and $2.5 million in 1991.
Certain subsidiaries of the Company have an executive retirement program
under which benefits will be paid to participants or their beneficiaries over 15
years from age 65 or death. In addition, other subsidiaries have individual
deferred compensation arrangements with certain executives which provide for
payments over varying terms upon retirement, cessation of employment or death.
F-13
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Some of the Company's domestic subsidiaries provide life insurance and
medical benefits for retired employees. Eligibility requirements vary by
subsidiary, but generally include attainment of a specified combined age plus
years of service factor. In 1991 the cost of these benefits was expensed as paid
and was not material to the consolidated results of operations. Effective
January 1, 1992, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 106 "Employers' Accounting For Post- retirement
Benefits Other Than Pensions" ("SFAS No. 106"). SFAS No. 106 requires that the
expected cost of post retirement benefits be charged to expense during the years
that the eligible employees render service. The after tax cumulative effect of
the adoption of SFAS No. 106 was not material to the net worth of the Company
and the expense for the year was not material to the 1993 and 1992 consolidated
results of operations.
10. Commitments
At December 31, 1993, the Company was committed under operating leases,
principally for office space. Certain leases are subject to rent reviews and
require payment of expenses under escalation clauses. Rent expense was $128.8
million in 1993, $117.3 million in 1992 and $101.7 million in 1991 after
reduction by rents received from subleases of $10.0 million, $14.1 million and
$17.9 million, respectively. Future minimum base rents under terms of
noncancellable operating leases, reduced by rents to be received from existing
noncancellable subleases, are as follows:
(Dollars in Thousands)
Gross Rent Sublease Rent Net Rent
---------- ------------- --------
1994 .................... $103,531 $ 9,297 $ 94,234
1995 .................... 94,594 7,698 86,896
1996 .................... 85,395 6,459 78,936
1997 .................... 77,229 4,305 72,924
1998 .................... 66,330 2,927 63,403
Thereafter .............. 414,201 10,944 403,257
Where appropriate, management has established reserves for the difference
between the cost of leased premises that were vacated and anticipated sublease
income.
11. Fair Value of Financial Instruments
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments," which
was adopted by the Company in 1992, requires all entities to disclose the fair
value of financial instruments for which it is practicable to estimate fair
value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and marketable securities:
Marketable securities consist principally of investments in short-term,
interest bearing instruments. The carrying amount approximates fair value.
Long-term investments:
Included in deferred charges and other assets are long-term investments
which consist principally of an investment in Aegis Group plc., a publicly
traded company, carried at fair market value and related stock warrants carried
at cost. The fair value of the warrants was determined using an option pricing
model. The remaining amounts, carried at cost, approximate estimated fair value.
Long-term debt:
The fair value of the Company's convertible subordinated debenture issues
was determined by reference to quotations available in markets where those
issues are traded. These quotations primarily reflect the conversion value of
the debentures into the Company's common stock. These debentures are redeemable
F-14
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
by the Company, at prices explained in Note 7, which are significantly less than
the quoted market prices used in determining the fair value. The fair value of
the Company's remaining long-term debt was estimated based on the current rates
offered to the Company for debt with the same remaining maturities.
Swap agreements and forward contracts:
The fair value of interest rate swaps and forward contracts is the
estimated amount that the Company would receive or pay to terminate the
agreements at December 31, 1993.
The estimated fair value of the Company's financial instruments at December
31, 1993 is as follows:
(Dollars in Thousands)
Carrying Fair
Amount Value
--------- ---------
Cash and marketable securities ......... $ 212,836 $ 212,836
Long-term investments .................. 26,015 27,672
Long-term debt ......................... 300,204 370,941
Other financial instruments:
Interest rate swaps ................. -- (2,457)
Forward contracts ................... (288) (288)
12. Special Charge and Adoption of New Accounting Principles
Effective January 1, 1992, the Company adopted SFAS No. 106 and SFAS No.
109. The cumulative after tax effect of the adoption of these Statements
increased net income by $3.8 million, substantially all of which related to SFAS
No. 109. Due to the continued weakening of the commercial real estate market in
certain domestic and international locations and the reorganization of certain
operations, the Company provided a special charge of $6.7 million pretax for
losses related to future lease costs.
Effective January 1, 1994, the Company will adopt SFAS No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS No. 112"). The
Company estimates that the adoption of SFAS No. 112 will result in an
unfavorable after tax effect on net income of approximately $27 million.
F-15
<PAGE>
OMNICOM GROUP INC. AND SUBSIDIARIES
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following table sets forth a summary of the unaudited quarterly results
of operations for the two years ended December 31, 1993 and 1992, in thousands
of dollars except for per share amounts.
First Second Third Fourth
--------- --------- --------- ---------
Commissions & Fees
1993 ....................... $ 339,139 $ 381,758 $ 339,531 $ 456,047
1992 ....................... 308,888 347,561 327,750 400,962
Income Before Special Charge
and Income Taxes
1993 ....................... 24,738 49,274 19,581 49,031
1992 ....................... 24,093 39,441 23,042 42,434
Special Charge
1993 ....................... -- -- -- --
1992 ....................... 6,714 -- -- --
Income Before Income Taxes
1993 ....................... 24,738 49,274 19,581 49,031
1992 ....................... 17,379 39,441 23,042 42,434
Income Taxes
1993 ....................... 10,390 20,678 8,228 20,575
1992 ....................... 7,678 16,993 10,633 17,964
Income After Income Taxes
1993 ....................... 14,348 28,596 11,353 28,456
1992 ....................... 9,701 22,448 12,409 24,470
Equity in Affiliates
1993 ....................... 1,692 2,674 1,769 7,045
1992 ....................... 2,103 4,081 125 3,289
Minority Interests
1993 ....................... (1,584) (4,008) (276) (4,720)
1992 ....................... (2,876) (4,172) (2,157) (3,923)
Cumulative Effect of Change
in Accounting Principles
1993 ....................... -- -- -- --
1992 ....................... 3,800 -- -- --
Net Income
1993 ....................... 14,456 27,262 12,846 30,781
1992 ....................... 12,728 22,357 10,377 23,836
Primary Earnings Per Share
1993 ....................... 0.50 0.90 0.43 0.95
1992 ....................... 0.45 0.78 0.37 0.84
Fully Diluted Earnings Per Share
1993 ....................... 0.49 0.82 0.43 0.87
1992 ....................... 0.45 0.72 0.37 0.76
F-16
