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: June 30, 1996 Commission file number: 1-10551 Omnicom Group Inc. (Exact name of registrant as specified in its charter) New York 13-1514814 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 437 Madison Avenue, New York, New York 10022 (Address of principal executive offices) (Zip Code) (212) 415-3600 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ The number of shares of common stock of the Company issued and outstanding at July 31, 1996 is 75,714,000.
OMNICOM GROUP INC. AND SUBSIDIARIES INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Condensed Balance Sheets - June 30, 1996, December 31, 1995 and June 30, 1995 2 Consolidated Condensed Statements of Income - Three Months Ended June 30, 1996 and 1995 Six Months Ended June 30, 1996 and 1995 3 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 4 Notes to Consolidated Condensed Financial Statements 5-7 Item 2. Management's Discussion of Financial Condition and Results of Operations 8-13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits 15 -1-
PART I. FINANCIAL INFORMATION Item 1. Financial Statements OMNICOM GROUP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) <TABLE> <CAPTION> June 30, December 31, June 30, 1996 1995 1995 ----------- ----------- ----------- <S> <C> <C> <C> Assets Current assets: Cash and cash equivalents $ 250,132 $ 313,999 $ 265,230 Investments available-for-sale, at market, which approximates cost 21,887 21,474 25,238 Accounts receivable, less allowance for doubtful accounts of $23,159, $23,352 and $24,382 1,614,465 1,503,212 1,361,254 Billable production orders in process 171,147 106,115 132,074 Prepaid expenses and other current assets 200,243 161,235 171,477 ----------- ----------- ----------- Total current assets 2,257,874 2,106,035 1,955,273 Furniture, equipment and leasehold improvements, less accumulated depreciation and amortization of $287,450, $259,664 and $253,501 211,334 200,473 197,011 Investments in affiliates 197,239 200,216 184,447 Intangibles, less amortization of $168,234, $157,863 and $149,677 877,240 832,698 813,638 Deferred tax benefits 68,180 70,242 74,052 Deferred charges and other assets 109,259 118,013 149,642 ----------- ----------- ----------- Total assets $ 3,721,126 $ 3,527,677 $ 3,374,063 =========== =========== =========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 1,716,675 $ 1,734,500 $ 1,448,013 Payable to banks 30,318 21,031 150,772 Convertible Subordinated Debentures (Note 6) 143,750 -- -- Other accrued liabilities 598,960 705,157 582,860 Accrued taxes on income 62,529 41,756 45,027 ----------- ----------- ----------- Total current liabilities 2,552,232 2,502,444 2,226,672 Long term debt 400,141 290,379 419,683 Deferred compensation and other liabilities 111,309 122,623 144,490 Minority interests 62,368 60,724 54,586 Shareholders' equity: Common stock 40,525 39,921 39,879 Additional paid-in capital 406,801 390,984 389,824 Retained earnings 358,206 299,704 254,134 Unamortized restricted stock (46,810) (30,739) (35,708) Cumulative translation adjustment (26,031) (26,641) (17,055) Treasury stock (137,615) (121,722) (102,442) ----------- ----------- ----------- Total shareholders' equity 595,076 551,507 528,632 ----------- ----------- ----------- Total liabilities and shareholders' equity $ 3,721,126 $ 3,527,677 $ 3,374,063 =========== =========== =========== </TABLE> The accompanying notes to consolidated condensed financial statements are an integral part of these balance sheets. -2-
OMNICOM GROUP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Data) <TABLE> <CAPTION> Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------------- 1996 1995 1996 1995 --------- --------- ----------- ----------- <S> <C> <C> <C> <C> Revenues: Commissions and fees $ 666,465 $ 570,263 $ 1,258,066 $ 1,069,349 Operating expenses: Salaries and related costs 371,220 314,433 729,808 609,094 Office and general expenses 194,036 170,061 365,945 322,977 --------- --------- ----------- ----------- Total operating expenses 565,256 484,494 1,095,753 932,071 --------- --------- ----------- ----------- Operating profit 101,209 85,769 162,313 137,278 Net interest expense: Interest and dividend income (3,748) (3,311) (7,061) (7,390) Interest paid or accrued 9,856 11,792 19,258 23,396 --------- --------- ----------- ----------- Net interest expense 6,108 8,481 12,197 16,006 --------- --------- ----------- ----------- Income before income taxes 95,101 77,288 150,116 121,272 Income taxes: Federal 15,638 7,548 25,937 15,475 State and local 4,055 3,819 6,984 5,784 International 18,733 19,989 27,776 28,125 --------- --------- ----------- ----------- Total income taxes 38,426 31,356 60,697 49,384 --------- --------- ----------- ----------- Income after income taxes 56,675 45,932 89,419 71,888 Equity in affiliates 4,023 6,141 7,076 8,354 Minority interests (7,745) (8,542) (12,629) (11,526) --------- --------- ----------- ----------- Net income $ 52,953 $ 43,531 $ 83,866 $ 68,716 ========= ========= =========== =========== Earnings per share: Net income: Primary $ 0.70 $ 0.58 $ 1.11 $ 0.93 Fully diluted $ 0.68 $ 0.57 $ 1.08 $ 0.91 Dividends declared per common share $ 0.175 $ 0.155 $ 0.35 $ 0.31 </TABLE> The accompanying notes to consolidated condensed financial statements are an integral part of these statements. -3-
OMNICOM GROUP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands) <TABLE> <CAPTION> Six Months Ended June 30, ---------------------- 1996 1995 --------- --------- <S> <C> <C> Cash flows from operating activities: Net income $ 83,866 $ 68,716 Adjustments to reconcile net income to net cash used for operating activities: Depreciation and amortization of tangible assets 24,031 21,853 Amortization of intangible assets 14,807 13,868 Minority interests 12,629 11,526 Earnings of affiliates in excess of dividends received (1,988) (4,074) Decrease(increase)in deferred tax benefits 1,567 (8,146) Provision for losses on accounts receivable 2,119 1,850 Amortization of restricted shares 6,372 5,188 Increase in accounts receivable (70,822) (111,216) Increase in billable production (37,620) (47,818) Increase in other current assets (37,413) (10,847) Decrease in accounts payable (60,196) (109,501) Decrease in other accrued liabilities (122,527) (12,573) Increase(decrease)in accrued income taxes 18,245 (9,555) Other (10,422) (1,492) --------- --------- Net cash used for operating activities (177,352) (192,221) --------- --------- Cash flows from investing activities: Capital expenditures (25,384) (21,892) Payments for purchases of equity interests in subsidiaries and affiliates, net of cash acquired (86,559) (70,552) Proceeds from sales of equity interests in subsidiaries and affiliates 45,341 2,884 Payments for purchases of investments available-for-sale and other investments (11,325) (10,677) Proceeds from sales of investments available-for-sale and other investments 12,007 14,504 --------- --------- Net cash used for investing activities (65,920) (85,733) --------- --------- Cash flows from financing activities: Net borrowings under lines of credit 7,135 102,600 Share transactions under employee stock plans 12,715 3,627 Proceeds from issuance of principal of debt obligations 227,886 229,325 Dividends and loans to minority stockholders (9,953) (3,376) Dividends paid (25,576) (22,078) Purchase of treasury shares (37,938) (9,881) --------- --------- Net cash provided by financing activities 174,269 300,217 --------- --------- Effect of exchange rate changes on cash and cash equivalents 5,136 1,170 --------- --------- Net(decrease)increase in cash and cash equivalents (63,867) 23,433 Cash and cash equivalents at beginning of period 313,999 241,797 --------- --------- Cash and cash equivalents at end of period $ 250,132 $ 265,230 ========= ========= Supplemental Disclosures: Income taxes paid $ 39,924 $ 57,496 ========= ========= Interest paid $ 20,361 $ 20,716 ========= ========= </TABLE> The accompanying notes to consolidated condensed financial statements are an integral part of these statements. -4-
OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1) The consolidated condensed interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. 2) These statements reflect all adjustments, consisting of normal recurring accruals which, in the opinion of management, are necessary for a fair presentation of the information contained therein. Certain reclassifications have been made to the June 30, 1995 reported amounts to conform them with the June 30, 1996 and December 31, 1995 presentation. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. 3) Results of operations for the interim periods are not necessarily indicative of annual results. -5-
OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 4) Primary earnings per share is based upon the weighted average number of common shares and common share equivalents outstanding during each period. Fully diluted earnings per share is based on the above, and if dilutive, adjusted for the assumed conversion of the Company's Convertible Subordinated Debentures and the assumed increase in net income for the after tax interest cost of these debentures. The number of shares used in the computations of primary and fully diluted earnings per share were as follows: Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 1996 1995 1996 1995 ---- ---- ---- ---- Primary 75,793,621 74,592,080 75,706,730 74,247,106 Fully diluted 81,111,150 79,903,280 81,089,374 79,610,404 Share amounts for 1995 have been adjusted to reflect a two-for-one stock split in the form of a 100% stock dividend effective December 15, 1995. 5) On May 31, 1996, the Company exchanged 1,206,853 shares of common stock for all of the outstanding shares of Ketchum Communications Holdings, Inc. ("Ketchum"). The combination has been accounted for as a pooling of interests. Accordingly, previously reported results of operations for the -6-
OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) three months ended March 31, 1996 have been restated as follows: Earnings Per Share ------------------ Commissions Fully and Fees Net Income Primary Diluted -------- ---------- ------- ------- Previously reported $566,978 $30,472 $0.41 $0.41 Pooling of interests transaction 24,623 441 - - -------- ------- ----- ----- Restated $591,601 $30,913 $0.41 $0.41 ======== ======= ===== ===== The assets, liabilities, shareholders' equity and results of operations of Ketchum are not material to the Company and, therefore, the Company's prior year financial statements have not been restated. 6) On July 12, 1996, the Company announced the redemption of its outstanding 4.5% / 6.25% Step-up Convertible Subordinated Debentures with a scheduled maturity in 2000. The redemption will be on September 5, 1996 (the "Redemption Date"), at 102.984% of each debenture's principal amount plus accrued interest to the Redemption Date. The principal amount of each debenture is convertible into common stock at a conversion price of $27.44 per share. The right to convert debentures into common stock will terminate at the close of business on the Redemption Date. -7-
Item 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Second Quarter 1996 Compared to Second Quarter 1995 Consolidated worldwide revenues from commission and fee income increased 16.9% in the second quarter of 1996 compared to the second quarter of 1995. Consolidated domestic revenues increased 25.6% in the second quarter of 1996 to $353.0 million compared to $281.1 million in the second quarter of 1995. Consolidated international revenues increased 8.4% in the second quarter of 1996 to $313.5 million compared to $289.2 million in the second quarter of 1995. Absent the effect of the net acquisitions of subsidiary companies and movements in international currency exchange rates, consolidated worldwide revenues increased 13.4% in the second quarter of 1996 as compared to the same period in 1995. Operating expenses increased 16.7% in the second quarter of 1996 as compared to the second quarter of 1995. Excluding the effect of the net acquisition activity and movements in international currency exchange rates mentioned above, operating expenses increased 12.4% over 1995 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 84.8% in the second quarter of 1996 as compared to 85.0% in the second quarter of 1995. -8-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Net interest expense decreased by $2.4 million in the second quarter of 1996 as compared to the same period in 1995. This decrease primarily reflects lower average interest rates on borrowings. Pretax profit margin was 14.3% in the second quarter of 1996 as compared to 13.6% in the same period in 1995. Operating margin, which excludes interest and dividend income and interest expense, was 15.2% in the second quarter of 1996 as compared to 15.0% in the same period in 1995. The effective income tax rate of 40.4% in the second quarter of 1996 was comparable to the effective income tax rate of 40.6% in the second quarter of 1995. The decrease in equity in affiliates is primarily due to the conversion of certain affiliates into partnerships or subsidiaries and the disposal of an affiliate during the period. The decrease in minority interest expense is primarily due to the acquisition of certain interests held by minority shareholders during the period. Net income increased 21.6% in the second quarter of 1996 as compared to the same period in 1995. Absent the effect of net acquisitions and movements in international currency exchange rates, net income increased 18.3% in the second quarter of 1996 as compared to the second quarter of 1995. -9-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Six Months 1996 Compared to Six Months 1995 Consolidated worldwide commission and fee income increased 17.6% in the first six months of 1996 compared to the first six months of 1995. Consolidated domestic commission and fee income increased 25.3% in the first six months of 1996 to $676.3 million compared to $539.8 million in the same period in 1995. Consolidated international commission and fee income increased 9.9% in the first six months of 1996 to $581.8 million compared to $529.5 million in the same period in 1995. Absent the effect of movements in international currency exchange rates and net acquisitions of subsidiary companies made subsequent to the second quarter of 1995, consolidated worldwide commission and fee income increased 13.7% in the first six months of 1996 versus the first six months of 1995. Operating expenses increased by 17.6% in the first six months of 1996 as compared to the same period in 1995. Excluding the effect of movements in international currency exchange rates and net acquisition activity, operating expenses increased 12.8% over 1995 levels. Net interest expense decreased by $3.8 million in the first six months of 1996 as compared to the same period in 1995. This decrease primarily reflects lower average interest rates on borrowings. -10-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Pretax profit margin for the first six months of 1996 was 11.9% as compared to 11.3% in the same period in 1995. Operating margin, which excludes interest and dividend income and interest expense, was 12.9% in the first six months of 1996 as compared to 12.8% in the same period in 1995. The effective income tax rate of 40.4% in the first six months of 1996 was comparable to the effective income tax rate of 40.7% in the first six months of 1995. The decrease in equity in affiliates is primarily due to the conversion of certain affiliates into partnerships or subsidiaries and the disposal of an affiliate during the period. The increase in minority interest expense is primarily due to greater earnings by companies where minority interests exist and additional minority interests resulting from acquisitions, partially offset by the acquisition of certain interests held by minority shareholders during the period. Net income increased 22.0% in the first six months of 1996 as compared to the same period in 1995. Absent the effect of net acquisitions and movements in international currency exchange rates, net income increased 19.8% in the first six months of 1996 as compared to the same period in 1995. -11-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Capital Resources and Liquidity Cash and cash equivalents at June 30, 1996 decreased to $250.1 million from $314.0 million at December 31, 1995. The relationship between payables to the media and suppliers and receivables from clients, at June 30, 1996, is consistent with industry norms. The Company maintains relationships with a number of banks worldwide, which have extended unsecured committed lines of credit in amounts sufficient to meet the Company's cash needs. At June 30, 1996, the Company had $478.6 million in committed lines of credit, comprised of a $360.0 million revolving credit agreement expiring June 30, 2001, and $118.6 million in unsecured committed lines of credit, principally outside of the United States. Of the $478.6 million in committed lines, $277.7 million remained available at June 30, 1996. Management believes the aggregate lines of credit available to the Company are adequate to support its short term cash requirements for dividends, capital expenditures, repayment of debt 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. -12-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) On March 1, 1996, the Company issued Deutsche Mark 100 million Floating Rate Bonds(approximately $68 million at the March 1, 1996 exchange rate). The bonds are unsecured, unsubordinated obligations of the Company and bear interest at a per annum rate equal to Deutsche Mark three month LIBOR plus 0.375%. The bonds will mature on March 1, 1999 and will be repaid at par. On July 12, 1996, the Company announced the redemption of its outstanding 4.5% / 6.25% Step-up Convertible Subordinated Debentures with a scheduled maturity in 2000. The redemption will be on September 5, 1996 (the "Redemption Date"), at 102.984% of each debenture's principal amount plus accrued interest to the Redemption Date. The principal amount of each debenture is convertible into common stock at a conversion price of $27.44 per share. The right to convert debentures into common stock will terminate at the close of business on the Redemption Date. -13-
PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of the Shareholders of the Company was held on May 20, 1996 in New York, New York, at which three matters were submitted to a vote of the share owners: (a) Votes cast for or where authority to vote for was withheld regarding the re-election of four Directors were as follows: AUTHORITY FOR WITHHELD --- -------- (Term Expiring in 1999:) Bernard Brochand 60,907,282 1,290,042 James A. Cannon 60,885,816 1,311,508 Leonard S. Coleman, Jr. 61,149,152 1,048,172 Robin B. Smith 61,121,831 1,075,493 (b) Votes cast for or against and the number of abstentions regarding the ratification of the appointment of Arthur Andersen LLP as independent auditors of the Company to serve for 1996 were as follows: FOR 61,984,210 AGAINST 67,552 ABSTAIN 145,562 (c) Votes cast for or against and the number of abstentions regarding the approval of the Executive Officer Incentive Plan were as follows: FOR 59,220,616 AGAINST 1,190,325 ABSTAIN 1,786,383 -14-
Item 6. Exhibits Exhibit Number Description of Exhibit -------------- ---------------------- 10.15 Copy of $360,000,000 Credit Agreement, dated May 10, 1996, between Omnicom Finance Inc., Omnicom Finance Limited, ABN AMRO Bank N.V., Chase Securities Inc. and the financial institutions party thereto. 27 Appendix A to Item 601(c) of Regulation S-K Commercial and Industrial Companies - Article 5 of Regulation S-X (filed in electronic format only) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Omnicom Group Inc. (Registrant) ---------------------------- Date August 12, 1996 /s/ Fred J. Meyer ---------------------------- Fred J. Meyer Chief Financial Officer (Principal Financial Officer) Date August 12, 1996 /s/ Jonathan E. Ramsden ---------------------------- Jonathan E. Ramsden Controller (Principal Accounting Officer) -15-