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, 1998 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, 1998 is 169,718,100.
OMNICOM GROUP INC. AND SUBSIDIARIES INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Condensed Balance Sheets - June 30, 1998, December 31, 1997 and June 30, 1997 2 Consolidated Condensed Statements of Income - Three Months and Six Months Ended June 30, 1998 and 1997 3 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997 4 Notes to Consolidated Condensed Financial Statements 5-11 Item 2. Management's Discussion of Financial Condition and Results of Operations 12-19 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 20-21 Item 6. Exhibits 21 -1-
PART I. FINANCIAL INFORMATION Item 1. Financial Statements OMNICOM GROUP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) <TABLE> <CAPTION> Assets June 30, December 31, June 30, ------ 1998 1997 1997 ---- ---- ---- <S> <C> <C> <C> Current assets: Cash and cash equivalents $ 337,918 $ 556,436 $ 294,028 Investments available-for-sale, at market, which approximates cost 36,620 87,668 95,471 Accounts receivable, less allowance for doubtful accounts of $38,703, $32,190 and $26,232 2,354,889 1,908,532 1,685,742 Billable production orders in process 298,160 183,145 200,731 Prepaid expenses and other current assets 423,551 252,617 238,882 ----------- ----------- ----------- Total current assets 3,451,138 2,988,398 2,514,854 Furniture, equipment and leasehold improvements at cost, less accumulated depreciation and amortization of $364,452, $336,926 and $317,156 306,677 239,667 228,883 Investments in affiliates 287,947 281,264 236,615 Intangibles, less amortization of $256,924, $235,257 and $214,605 1,849,704 1,234,539 1,148,131 Deferred tax benefits 81,519 68,086 73,410 Deferred charges and other assets 173,589 153,789 139,598 ----------- ----------- ----------- Total assets $ 6,150,574 $ 4,965,743 $ 4,341,491 =========== =========== =========== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 2,647,842 $ 2,595,255 $ 1,903,841 Payable to banks 96,795 17,672 28,640 Other accrued liabilities 1,122,562 885,569 729,713 Accrued taxes on income 63,061 80,489 77,333 ----------- ----------- ----------- Total current liabilities 3,930,260 3,578,985 2,739,527 Long term debt 837,924 341,665 545,014 Deferred compensation and other liabilities 232,186 114,668 143,461 Minority interests 71,469 63,686 71,964 Shareholders' equity: Common stock 88,624 86,918 86,834 Additional paid-in capital 637,302 533,412 525,693 Retained earnings 647,758 555,038 478,861 Unamortized restricted stock (71,306) (46,745) (56,104) Cumulative translation adjustment (40,830) (47,947) (34,558) Treasury stock (182,813) (213,937) (159,201) ----------- ----------- ----------- Total shareholders' equity 1,078,735 866,739 841,525 ----------- ----------- ----------- Total liabilities and shareholders' equity $ 6,150,574 $ 4,965,743 $ 4,341,491 =========== =========== =========== </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, --------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenues: Commissions and fees $ 1,051,510 $ 786,341 $ 1,912,486 $ 1,482,918 Operating expenses: Salaries and related costs 600,469 444,200 1,121,635 865,685 Office and general expenses 276,224 219,267 516,865 420,369 ----------- --------- ----------- ----------- Total operating expenses 876,693 663,467 1,638,500 1,286,054 ----------- --------- ----------- ----------- Operating profit 174,817 122,874 273,986 196,864 Net interest expense: Interest and dividend income (8,156) (6,273) (14,118) (9,257) Interest paid or accrued 18,742 11,234 32,216 18,567 ----------- --------- ----------- ----------- Net interest expense 10,586 4,961 18,098 9,310 ----------- --------- ----------- ----------- Income before income taxes 164,231 117,913 255,888 187,554 Income taxes: Federal 28,985 17,491 44,330 28,940 State and local 6,084 5,771 12,442 10,462 International 34,691 24,783 50,991 36,909 ----------- --------- ----------- ----------- Total income taxes 69,760 48,045 107,763 76,311 ----------- --------- ----------- ----------- Income after income taxes 94,471 69,868 148,125 111,243 Equity in affiliates 5,278 7,282 10,258 11,426 Minority interests (13,757) (10,751) (21,488) (16,202) ----------- --------- ----------- ----------- Net income $ 85,992 $ 66,399 $ 136,895 $ 106,467 =========== ========= =========== =========== Earnings per share: - ------------------- Net income: Basic $ 0.51 $ 0.41 $ 0.83 $ 0.67 Diluted $ 0.50 $ 0.40 $ 0.81 $ 0.66 Dividends declared per common share $ 0.125 $ 0.10 $ 0.25 $ 0.20 </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, --------------------- 1998 1997 ---------- ------- <S> <C> <C> Cash flows from operating activities: Net income $ 136,895 $ 106,467 Adjustments to reconcile net income to net cash used for operating activities: Depreciation and amortization of tangible assets 33,479 28,111 Amortization of intangible assets 24,772 18,781 Minority interests 21,488 16,202 Earnings of affiliates in excess of dividends received (4,451) (6,523) Decrease in deferred tax benefits 3,957 9,776 Provision for losses on accounts receivable 3,907 3,160 Amortization of restricted shares 9,968 8,525 Increase in accounts receivable (142,213) (130,993) Increase in billable production (98,184) (46,033) Increase in other current assets (85,912) (33,198) Decrease in accounts payable (181,011) (148,406) Decrease in other accrued liabilities (61,955) (44,103) (Decrease) increase in accrued income taxes (24,095) 8,867 Other (14,934) (26,634) --------- --------- Net cash used for operating activities (378,289) (236,001) --------- --------- Cash flows from investing activities: Capital expenditures (52,905) (31,502) Payments for purchases of equity interests in subsidiaries and affiliates, net of cash acquired (336,775) (181,271) Proceeds from sales of equity interests in subsidiaries and affiliates 1,206 320 Payments for purchases of investments available-for-sale and other investments (42,819) (84,931) Proceeds from sales of investments available-for-sale and other investments 93,611 6,849 --------- --------- Net cash used for investing activities (337,682) (290,535) --------- --------- Cash flows from financing activities: Net (repayments) borrowings under lines of credit (6,348) 10,283 Share transactions under employee stock plans 29,060 20,971 Proceeds from issuance of shares 171,035 -- Proceeds from issuance of principal of debt obligations 551,841 359,269 Repayment of principal of debt obligations (126,735) (12,939) Dividends and loans to minority stockholders (18,665) (6,389) Dividends paid (40,738) (31,743) Purchase of treasury shares (71,921) (11,043) --------- --------- Net cash provided by financing activities 487,529 328,409 --------- --------- Effect of exchange rate changes on cash and cash equivalents 9,924 (18,112) --------- --------- Net decrease in cash and cash equivalents (218,518) (216,239) Cash and cash equivalents at beginning of period 556,436 510,267 --------- --------- Cash and cash equivalents at end of period $ 337,918 $ 294,028 ========= ========= Supplemental Disclosures: Income taxes paid $ 127,330 $ 59,109 ========= ========= Interest paid $ 28,435 $ 8,662 ========= ========= </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. 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, 1997 reported amounts to conform them with the June 30, 1998 and December 31, 1997 presentation. Also, all amounts presented give effect to a two-for-one stock split in the form of a 100% stock dividend completed in December 1997. These consolidated condensed financial statements should 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, 1997. 3) Results of operations for interim periods are not necessarily indicative of annual results. -5-
OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(CONTINUED) - -------------------------------------------------------------------------------- 4) Basic earnings per share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on such average number of common shares outstanding, common share equivalents outstanding, and if dilutive, is 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 such debentures. At June 30, 1998, the 2.25% Convertible Subordinated Debentures had been outstanding since January 6, 1998 and the 4.25% Convertible Subordinated Debentures had been outstanding for the entire six months. At June 30, 1997, the 4.25% Convertible Subordinated Debentures had been outstanding since January 3, 1997. The number of shares used in the computations of basic and diluted earnings per share were as follows: Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- Basic EPS 167,156,400 160,268,100 165,177,600 159,635,700 Diluted EPS 182,294,000 170,205,600 175,643,000 162,527,900 For purposes of computing diluted earnings per share for the six months ended June 30, 1998, the 2.25% Convertible Subordinated Debentures were not reflected in the computation, as their inclusion would have been anti-dilutive. -6-
OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(CONTINUED) - -------------------------------------------------------------------------------- For purposes of computing diluted earnings per share for the six months ended June 30, 1997, the 4.25% Convertible Subordinated Debentures were not reflected in the computation, as their inclusion would have been anti-dilutive. 5) The Company has adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which requires presentation of information on comprehensive income and its components in financial statements. In the Company's case, comprehensive income includes net income and foreign currency translation adjustments. Total comprehensive income and its components were as follows: Three Months Six Months Ended June 30, Ended June 30, ----------------- ------------------ (Dollars in (Dollars in Thousands) Thousands) 1998 1997 1998 1997 ---- ---- ---- ---- Net Income $85,992 $66,399 $136,895 $106,467 Foreign Currency Translation Adjustments 8,722 (12,227) 7,395 (38,048) ------- ------- -------- -------- Total Comprehensive Income $94,714 $54,172 $144,290 $ 68,419 ======= ======= ======== ======== 6) In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards requiring -7-
OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(CONTINUED) - -------------------------------------------------------------------------------- that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement SFAS No. 133 as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be applied retroactively. Once implemented, SFAS No. 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at a company's election, before January 1, 1998). -8-
OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(CONTINUED) - -------------------------------------------------------------------------------- The Company intends to adopt SFAS No. 133 for its fiscal year ending December 31, 2000. The adoption of the provisions of SFAS No. 133 would not have had a material effect on the Company's results of operations for the quarter or six months ending June 30, 1998 or on its financial position as of that date. 7) In January 1998, the Company completed the acquisitions of Fleishman-Hillard, Inc., GPC International Holdings Inc. and Palmer Jarvis Inc. These acquisitions have been accounted for under the pooling of interests method of accounting. The number of shares issued or to be issued by the Company in connection with these acquisitions is 3,550,366. The assets, liabilities, shareholders' equity and results of operations of the companies acquired are not, either individually or in the aggregate, material to the Company and, therefore, the Company's prior year financial statements have not been restated. 8) On January 6, 1998, the Company issued $230,000,000 of 2.25% Convertible Subordinated Debentures with a scheduled maturity in 2013. The debentures are convertible into common stock of the Company at a conversion price of $49.83 per share subject to adjustment in certain events. Debenture holders have the right to require the Company to redeem the debentures on January 6, 2004 at a price of 118.968%, or upon the occurrence of a -9-
OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(CONTINUED) - -------------------------------------------------------------------------------- Fundamental Change, as defined in the indenture agreement, at the prevailing redemption price. The Company may redeem the debentures, as a whole or in part, on or after December 31, 2001 initially at 112.841% and at increasing prices thereafter to 118.968% until January 6, 2004, and 100% thereafter. Unless the debentures are redeemed, repaid or converted prior thereto, the debentures will mature on January 6, 2013 at their principal amount. The proceeds of this issuance are being used for general corporate purposes, including working capital. 9) On January 29, 1998, the Company announced that it had reached agreement on the terms of a recommended cash offer for The GGT Group plc ("GGT"), an advertising and marketing services group headquartered in the United Kingdom and operating primarily in France, the United Kingdom and the United States. The offer price of 200p for each share of GGT valued GGT's fully diluted ordinary share capital at (pound)143 million (approximately $235 million at the January 29, 1998 exchange rate). The acquisition of the entire issued ordinary share capital of GGT was completed during the second quarter of 1998. 10) On March 4, 1998, the Company issued 4,000,000 shares of common stock for aggregate proceeds before expenses of $171,400,000. The proceeds of this issuance are being used for general corporate purposes, including the funding of the acquisition of GGT. -10-
OMNICOM GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(CONTINUED) - -------------------------------------------------------------------------------- 11) On June 24, 1998, the Company issued French Francs 1,000,000,000 (approximately $164 million at the June 24, 1998 exchange rate) of 5.2% Notes with a scheduled maturity in 2005. The proceeds of this issuance are being used for general corporate purposes. -11-
Item 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Results of Operations - --------------------- Second Quarter 1998 Compared to Second Quarter 1997 - --------------------------------------------------- Consolidated worldwide revenues from commission and fee income increased 33.7% in the second quarter of 1998 compared to the second quarter of 1997. Consolidated domestic revenues increased 35.2% in the second quarter of 1998 to $550.0 million compared to $406.9 million in the second quarter of 1997. Consolidated international revenues increased 32.1% in the second quarter of 1998 to $501.5 million compared to $379.4 million in the second quarter of 1997. Absent the effect of the net acquisitions of subsidiary companies and movements in international currency exchange rates, consolidated worldwide revenues increased 17.7% in the second quarter of 1998 compared to the same period in 1997. Operating expenses increased 32.1% in the second quarter of 1998 compared to the second quarter of 1997. Excluding the effect of the net acquisition activity and movements in international currency exchange rates mentioned above, operating expenses increased 15.6% over 1997 levels. This increase reflects normal salary increases and growth in client service expenditures to support the increased revenue base. -12-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - -------------------------------------------------------------------------------- Net interest expense increased by $5.6 million in the second quarter of 1998 as compared to the same period in 1997. This increase primarily reflects higher average borrowings during the period, resulting in part from the issuance of the 2.25% Convertible Subordinated Debentures, partially offset by the effect of higher average amounts of cash and marketable securities invested during the quarter. Pretax profit margin was 15.6% in the second quarter of 1998 as compared to 15.0% in the same period in 1997. Operating margin, which excludes interest and dividend income and interest expense, was 16.6% in the second quarter of 1998 as compared to 15.6% in the same period in 1997. The effective income tax rate was 42.5% in the second quarter of 1998 as compared to 40.7% in the second quarter of 1997. This increase primarily reflects an increase in non-deductible goodwill amortization. The reduction in equity in affiliates is the result of lower profits reported by certain companies in which the Company owns less than a 50% equity interest. The increase in minority interest expense is primarily due to new minorities resulting from acquisitions and greater earnings by companies where minority interests exist. Net income increased 29.5% in the second quarter of 1998 as compared to the same period in 1997. Absent the effect of -13-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - -------------------------------------------------------------------------------- net acquisitions and movements in international currency exchange rates, net income increased 15.5% in the second quarter of 1998 as compared to the second quarter of 1997. Six Months 1998 Compared to Six Months 1997 - ------------------------------------------- Consolidated worldwide revenues from commission and fee income increased 29.0% in the first six months of 1998 compared to the same period in 1997. Consolidated domestic revenues increased 30.0% in the first six months of 1998 to $1,025.4 million compared to $788.5 million in the same period in 1997. Consolidated international revenues increased 27.8% in the first six months of 1998 to $887.1 million compared to $694.4 million in the same period in 1997. Absent the effect of the net acquisitions of subsidiary companies and movements in international currency exchange rates, consolidated worldwide revenues increased 16.9% in the first six months of 1998 compared to the first six months of 1997. Operating expenses increased 27.4% in the first six months of 1998 as compared to the same period in 1997. Excluding the effect of the net acquisition activity and movements in international currency exchange rates mentioned above, operating expenses increased 16.2% over 1997 levels. This increase reflects normal salary increases and growth in client service expenditures to support the increased revenue base. -14-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - -------------------------------------------------------------------------------- Net interest expense increased by $8.8 million in the first six months of 1998 as compared to the same period in 1997. This increase primarily reflects higher average borrowings during the period, resulting in part from the issuance of the 2.25% Convertible Subordinated Debentures, partially offset by the effect of higher average amounts of cash and marketable securities invested during the quarter. Pretax profit margin for the first six months of 1998 was 13.4% as compared to 12.6% in the same period in 1997. Operating margin, which excludes interest and dividend income and interest expense, was 14.3% in the first six months of 1998 as compared to 13.3% in the same period in 1997. The effective income tax rate was 42.1% in the first six months of 1998 as compared to 40.7% in the same period in 1997. This increase primarily reflects an increase in non-deductible goodwill amortization. The reduction in equity in affiliates is the result of lower profits reported by certain companies in which the Company owns less than a 50% equity interest. The increase in minority interest expense is primarily due to new minorities resulting from acquisitions and greater earnings by companies where minority interests exist. -15-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - -------------------------------------------------------------------------------- Net income increased 28.6% in the first six months of 1998 as compared to the same period in 1997. Absent the effect of net acquisitions and movements in international currency exchange rates, net income increased 15.4% in the first six months of 1998 as compared to the same period in 1997. Capital Resources and Liquidity - ------------------------------- Cash and cash equivalents at June 30, 1998 decreased to $337.9 million from $556.4 million at December 31, 1997. The relationship between payables to the media and suppliers and receivables from clients, at June 30, 1998, 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, 1998, the Company had $647.0 million in such unsecured committed lines of credit, comprised of a $500.0 million revolving credit agreement expiring June 30, 2003, and $147.0 million in lines of credit, principally outside of the United States. Of the $647.0 million in unsecured committed lines, $463.8 million remained available at June 30, 1998. On January 6, 1998, the Company issued $230,000,000 of 2.25% Convertible Subordinated Debentures with a scheduled maturity in 2013. The debentures are convertible into common stock of the Company at a conversion price of $49.83 per share -16-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - -------------------------------------------------------------------------------- subject to adjustment in certain events. Debenture holders have the right to require the Company to redeem the debentures on January 6, 2004 at a price of 118.968%, or upon the occurrence of a Fundamental Change, as defined in the indenture agreement, at the prevailing redemption price. The Company may redeem the debentures, as a whole or in part, on or after December 31, 2001 initially at 112.841% and at increasing prices thereafter to 118.968% until January 6, 2004, and 100% thereafter. Unless the debentures are redeemed, repaid or converted prior thereto, the debentures will mature on January 6, 2013 at their principal amount. The proceeds of this issuance are being used for general corporate purposes, including working capital. On March 4, 1998, the Company issued 4,000,000 shares of common stock for aggregate proceeds before expenses of $171,400,000. The proceeds of this issuance are being used for general corporate purposes, including the funding of the acquisition of GGT. On June 24, 1998, the Company issued French Francs 1,000,000,000 (approximately $164 million at the June 24, 1998 exchange rate) of 5.2% Notes with a scheduled maturity in 2005. The proceeds of this issuance are being used for general corporate purposes. Management believes the aggregate lines of credit available to the Company plus cash flows from operations will be adequate to support its anticipated requirements. -17-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - -------------------------------------------------------------------------------- Year 2000 Issue - --------------- The Year 2000 issue is the result of computer programs being written using two digits, rather than four, to define the applicable year. Accordingly, any of the computer programs utilized by the Company that have date sensitive software may cause system failures or miscalculations if data entry of "00" is recognized as a date other than 2000. The Company has determined that it is required to modify portions of its software so that its computer systems will properly utilize dates beyond December 31, 1999. The Company is dependent on third-party computer systems and applications, particularly with respect to such critical tasks as accounting, billing and buying, planning and paying for media, as well as on its own computer systems and internally developed applications. The Company intends to modify or replace all affected systems for compliance, and is also monitoring the adequacy of the processes and progress of third-party vendors of systems that may be affected by the Year 2000 issue. The Company believes that with upgrades or modifications to existing software and conversion to new software, the impact of the Year 2000 issue can be overcome. However, if such upgrades, modifications and conversions are not made, or are not made in a timely manner, the Year 2000 issue could have a material impact on the Company's operations. -18-
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - -------------------------------------------------------------------------------- The Company will utilize both internal and external resources to reprogram, or replace, and test software for Year 2000 compliance. The Company has a team of managers dedicated to addressing Year 2000 compliance for the Company, clients, and vendors. The costs of the project have not yet been determined but are not expected to have a material adverse effect on the Company. Amounts incurred are expected to be expensed as incurred, unless new software is purchased which will be capitalized. The Company has not incurred significant costs to date. -19-
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 18, 1998 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 six Directors, five of which for a term expiring in 2001 and one of which for a term expiring in 1999, were as follows: AUTHORITY FOR WITHHELD --- -------- (Term Expiring in 2001) Bruce Crawford 145,642,406 1,212,429 Susan S. Denison 145,620,158 1,234,677 Keith L. Reinhard 142,487,765 4,367,070 Allen Rosenshine 145,646,932 1,207,903 John D. Wren 145,649,302 1,205,533 (Term Expiring in 1999) Gary L. Roubos 145,638,268 1,216,567 (b) Votes cast for or against and the number of abstentions regarding the confirmation of the appointment of Arthur Andersen LLP as independent auditors of the Company to serve for 1998 were as follows: FOR 146,455,108 AGAINST 85,554 ABSTAIN 314,173 -20-
PART II. OTHER INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- Item 4. Submission of Matters to a Vote of Security Holders (continued) (c) Votes cast for or against and the number of abstentions regarding the approval of the 1998 Incentive Compensation Plan were as follows: FOR 124,398,374 AGAINST 6,724,422 ABSTAIN 1,177,542 Item 6. Exhibits Exhibit Number Description of Exhibit ------ ---------------------- 4.1 Copy of Fiscal Agency Agreement dated June 24, 1998, in connection with the issuance of FRF 1,000,000,000 5.20% Notes due 2005. 4.2 Copy of Subscription Agreement dated June 22, 1998 by and among Omnicom Group Inc., Morgan Stanley S.A. and Others, in connection with the issuance of FRF 1,000,000,000 5.20% Notes due 2005. 4.3 Copy of Deed of Covenant dated June 24, 1998, in connection with the issuance of FRF 1,000,000,000 5.20% Notes due 2005. 10.1 Copy of Omnicom Group Inc. 1998 Incentive Compensation Plan, filed as Exhibit A to Omnicom Group Inc.'s Proxy Statement dated April 6, 1998, is incorporated herein by reference. 27 Financial Data Schedule (filed in electronic format only) -21-
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 14, 1998 /s/ Fred J. Meyer ---------------------- Fred J. Meyer Chief Financial Officer (Principal Financial Officer) Date August 14, 1998 /s/ Jonathan E. Ramsden ---------------------------- Jonathan E. Ramsden Controller (Principal Accounting Officer) -22-