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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended: December 31, 1995 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 (I.R.S. Employer Identification No.)
incorporation or organization)
437 Madison Avenue, New York, NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 415-3600
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.50 Par Value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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
--- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At March 15, 1996, there were 74,539,342 shares of Common Stock
outstanding; the aggregate market value of the voting stock held by
nonaffiliates at March 15, 1996 was approximately $3,075,040,000.
Indicate the number of shares outstanding of each of the registrant's
classes of stock, as of the latest practicable date.
Class Outstanding at March 15, 1996
Common Stock, $.50 Par Value 74,539,342
Preferred Stock, $1.00 Par Value NONE
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement relating to its
annual meeting of shareholders scheduled to be held on May 20, 1996 are
incorporated by reference into Part III of this Report.
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OMNICOM GROUP INC.
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Index to Annual Report on Form 10-K
Year Ended December 31, 1995
Page
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PART I
Item 1. Business ........................................................ 1
Item 2. Properties....................................................... 4
Item 3. Legal Proceedings................................................ 5
Item 4. Submission of Matters to a Vote of Security Holders.............. 5
Executive Officers of the Company......................................... 5
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................. 6
Item 6. Selected Financial Data.......................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 7
Item 8. Financial Statements and Supplementary Data...................... 10
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 10
PART III
Item 10. Directors and Executive Officers of the Registrant............... 11
Item 11. Executive Compensation........................................... 11
Item 12. Security Ownership of Certain Beneficial Owners and Management... 11
Item 13. Certain Relationships and Related Transaction.................... 11
The information called for by Items 10, 11, 12 and 13, to the extent not
included in this document, is incorporated herein by reference to such
information to be included under the captions "Election of Directors," "Common
Stock Ownership of Management," "Directors' Compensation" and "Executive
Compensation" in the Company's definitive proxy statement which is expected to
be filed by April 8, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................................. 12
PART I
Item 1. Business
Omnicom Group Inc., through its wholly and partially-owned companies
(hereinafter collectively referred to as the "Company" or the "Omnicom Group"),
operates advertising agencies which plan, create, produce and place advertising
in various media such as television, radio, newspaper and magazines. The Omnicom
Group offers its clients such additional services as marketing consultation,
consumer market research, design and production of merchandising and sales
promotion programs and materials, direct mail advertising, corporate
identification, and public relations. The Omnicom Group offers these services to
clients worldwide on a local, national, pan-regional or global basis. Operations
cover the major regions of North America, the United Kingdom, Continental
Europe, the Middle East, Africa, Latin America, the Far East and Australia. In
1995 and 1994, 53% and 51%, respectively, of the Omnicom Group's billings came
from its non-U.S. operations.
According to the unaudited industry-wide figures published in 1995 by the
trade journal Advertising Age, Omnicom Group Inc. was ranked as the third
largest advertising agency group worldwide.
The Omnicom Group operates as three separate, independent agency networks:
The BBDO Worldwide Network, the DDB Needham Worldwide Network and the TBWA
International Network. The Omnicom Group also operates an independent agency,
Goodby, Silverstein & Partners, and certain marketing service and specialty
advertising companies through its Diversified Agency Services division ("DAS").
The BBDO Worldwide, DDB Needham Worldwide and TBWA International Networks
General
BBDO Worldwide, DDB Needham Worldwide and TBWA International, by themselves
and through their respective subsidiaries and affiliates, independently operate
advertising agency networks worldwide. Their primary business is to create
marketing communications for their clients' goods and services across the total
spectrum of advertising and promotion media. Each of the agency networks has its
own clients and competes with each other in the same markets.
The BBDO Worldwide, DDB Needham Worldwide and TBWA International agencies
typically assign to each client a group of advertising specialists which may
include account managers, copywriters, art directors and research, media and
production personnel. The account manager works with the client to establish an
overall advertising strategy for the client based on an analysis of the client's
products or services and its market. The group then creates and arranges for the
production of the advertising and/or promotion and purchases time, space or
access in the relevant media in accordance with the client's budget.
BBDO Worldwide Network
The BBDO Worldwide Network operates in the United States through BBDO
Worldwide which is headquartered in New York and has full-service offices in New
York, New York; Los Angeles, California; Miami, Florida; Atlanta, Georgia;
Chicago, Illinois; Detroit, Michigan; and Minneapolis, Minnesota.
The BBDO Worldwide Network operates internationally through subsidiaries
in Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany,
Greece, Hong Kong, Italy, Malaysia, Mexico, the Netherlands, Peru, Poland,
Portugal, Puerto Rico, Russia, Singapore, Spain, Sweden, Taiwan, Thailand and
the United Kingdom; and through affiliates located in Argentina, Australia,
Chile, Costa Rica, Croatia, the Czech Republic, Egypt, El Salvador, Guatemala,
Honduras, Hungary, India, Israel, Kuwait, Lebanon, New Zealand, Nicaragua,
Norway, Panama, the Philippines, Romania, Saudi Arabia, the Slovak Republic,
Turkey, the United Kingdom, United Arab Emirates and Venezuela; and through a
joint venture in Japan. The BBDO Worldwide Network uses the services of
associate agencies in Colombia, Dominican Republic, Ecuador, Indonesia, Korea,
Pakistan and Uruguay.
DDB Needham Worldwide Network
The DDB Needham Worldwide Network operates in the United States through The
DDB Needham Worldwide Communications Group, which is headquartered in New York
and has full-service offices in New York, New York; Los Angeles, California;
Dallas, Texas; Chicago, Illinois; and Seattle, Washington; and through Griffin
Bacal Inc. which is headquartered in New York.
1
The DDB Needham Worldwide Network operates internationally through
subsidiaries in Australia, Austria, Belgium, Bulgaria, Canada, China, Colombia,
the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong
Kong, Hungary, Italy, Japan, Mexico, the Netherlands, New Zealand, Norway, the
Philippines, Poland, Portugal, Romania, Singapore, the Slovak Republic, Spain,
Sweden, Taiwan, Thailand and the United Kingdom; and through affiliates located
in Brazil, Chile, Costa Rica, Egypt, El Salvador, Germany, Guatemala, Honduras,
India, Korea, Malaysia, Panama, Switzerland, Turkey and Venezuela. The DDB
Needham Worldwide Network uses the services of associate agencies in Miami,
Florida and in Argentina, Bahrain, Belize, Bolivia, Dominican Republic, Ecuador,
Indonesia, Ireland, Israel, Kuwait, Lebanon, Nicaragua, Paraguay, Peru, Puerto
Rico, Russia, Saudi Arabia, Slovenia, South Africa, Trinidad, United Arab
Emirates and Uruguay. Griffin Bacal Inc. operates internationally through
subsidiaries in Canada and the United Kingdom and through a branch in Mexico.
TBWA International Network
The TBWA International Network operates in North America through TBWA
Chiat/Day which is headquartered in New York and has full-service offices in New
York, New York; Los Angeles, California; and St. Louis, Missouri, through Graf
Bertel Buczek in New York, New York and through TBWA Chiat/Day Canada in
Toronto, Canada. The TBWA International Network also operates in North America
through its affiliate, TBWA Chiat/Day Mexico.
The TBWA International Network operates internationally through
subsidiaries in Australia, Belgium, Denmark, France, Germany, Greece, Italy, the
Netherlands, Portugal, South Africa, Spain and the United Kingdom; and through
affiliates located in Argentina, Chile, Russia, South Africa, Sweden,
Switzerland and Zimbabwe. The TBWA International Network uses the services of
associate agencies in Austria, the Czech Republic, Hungary, India, Japan, the
Middle East, the Netherlands, Norway, Poland, and Turkey.
Diversified Agency Services
DAS is the Omnicom Group's Marketing Services and Specialty Advertising
Division. The DAS mission is to provide the best customer driven marketing
communications coordinated for the clients' benefit. Marketing services include
promotion, public relations, public affairs, direct/database marketing, branding
consultancy, graphic arts, sports marketing and merchandising/point-of-purchase;
and specialty advertising includes financial, healthcare, hispanic and
recruitment advertising.
DAS agencies headquartered in the United States include: Harrison Star
Wiener & Beitler, Inc., Interbrand Schechter Inc., Kallir, Philips, Ross, Inc.,
Lyons/Lavey/Nickel/Swift, Inc., Merkley Newman Harty, Inc., RC Communications,
Inc., The Rodd Group and Shain Colavito Pensabene Direct, Inc. in New York;
Bernard Hodes Advertising, Inc., Doremus & Company, Gavin Anderson & Company
Worldwide, Inc., Porter/Novelli, Inc. and Rapp Collins Worldwide Inc., all in
various cities and headquartered in New York; Alcone Marketing Group in Irvine,
California and Mahwah, New Jersey; Baxter, Gurian & Mazzei, Inc., in Beverly
Hills, California; Corbett HealthConnect Inc., in Chicago, Illinois; Millsport
in Stamford, Connecticut; Optima Direct Inc., in Vienna, Virginia; Ross Roy
Communications, Inc., headquartered in Bloomfield Hills, Michigan; The GMR
Group, Inc., in Fort Washington, Pennsylvania; Thomas A. Schutz Co., Inc. in
Morton Grove, Illinois; and Rainoldi, Kerzner & Radcliffe, Inc., in San
Francisco, California.
DAS operates in the United Kingdom through subsidiaries which include
Colour Solutions Ltd., Countrywide Communications Group Ltd., CPM International
Ltd., European Political Consultancy Group Ltd., Granby Marketing Services Ltd.,
Interbrand (UK) Ltd., MacMillan Davies Advertising, Ltd., MacMillan Davies
Consultants, Ltd., Paling Walters Targis Ltd., Premier Magazines Ltd., Product
Plus International Ltd., Specialist Publications (UK) Ltd., The Anvil
Consultancy Ltd. and WWAV Rapp Collins Group, Ltd.
In addition, DAS operates internationally with subsidiaries and affiliates
in Argentina, Australia, Belgium, Brazil, Canada, Chile, Colombia, Costa Rica,
France, Germany, Hong Kong, Ireland, Italy, Japan, Korea, Mexico, Singapore,
South Africa and Spain.
Omnicom Group Inc.
As the parent company of BBDO Worldwide, DDB Needham Worldwide, TBWA
International, the DAS Group and Goodby, Silverstein & Partners, the Company,
through its wholly-owned subsidiary Omnicom Management Inc., provides a common
financial and administrative base for the operating groups. The Company oversees
2
the operations of each group through regular meetings with their respective
top-level management. The Company sets operational goals for each of the groups
and evaluates performance through the review of monthly operational and
financial reports. The Company provides its groups with centralized services
designed to coordinate financial reporting and controls, real estate planning
and to focus corporate development objectives. The Company develops consolidated
services for its agencies and their clients. For example, the Company
participated in forming The Media Partnership, which consolidates certain media
buying activities in Europe in order to obtain cost savings for clients.
Clients
The clients of the Omnicom Group include major industrial, financial and
service industry companies as well as smaller, local clients. Among its largest
clients are Anheuser-Busch, Chrysler Corporation, Gillette, GTE, Hasbro, Henkel,
McDonald's, Nissan, PepsiCo., Seagrams, Visa and Volkswagen.
The Omnicom Group's ten largest clients accounted for approximately 21% of
1995 commissions and fees. The majority of these have been clients for more than
ten years. The Omnicom Group's largest client accounted for less than 6% of 1995
commissions and fees.
Revenues
Commissions charged on media billings represent a significant proportion of
revenues for the Omnicom Group. Commission rates are not uniform and are
negotiated with the client. In accordance with industry practice, the media
source typically bills the agency for the time or space purchased and the
Omnicom Group bills its client for this amount plus the commission. The Omnicom
Group typically requires that payment for media charges be received from the
client before the agency makes payments to the media. In some instances a member
of the Omnicom Group, like other advertising agencies, is at risk in the event
that its client is unable to pay the media.
The Omnicom Group's advertising networks also generate revenues in
arranging for the production of advertisements and commercials. Although, as a
general matter, the Omnicom Group does not itself produce the advertisements and
commercials, the Omnicom Group's creative and production staff directs and
supervises the production company. The agency bills the client for production
costs plus a commission. In some circumstances, certain production work is done
by the Omnicom Group's personnel.
In many cases, fees are generated in lieu of commissions. Several different
fee arrangements are used depending on client and individual agency needs. In
general, fee charges relate to the cost of providing services plus a markup. The
DAS companies primarily charge fees for their various specialty services, which
vary in type and scale, depending upon the service rendered and the client's
requirements.
Advertising agency revenues are dependent upon the marketing requirements
of clients and tend to be highest in the second and fourth quarters of the
fiscal year.
Other Information
For additional information concerning the contribution of international
operations to commissions and fees and net income see Note 5 of the Notes to
Consolidated Financial Statements.
The Omnicom Group is continuously developing new methods of improving its
research capabilities, to analyze specific client requirements and to assess the
impact of advertising. In the United States, approximately 193 people on the
Omnicom Group's staff were employed in research during the year and the Omnicom
Group's domestic research expenditures approximated $27,095,000. Substantially
all such expenses were incurred in connection with contemporaneous servicing of
clients.
The advertising business is highly competitive and accounts may shift
agencies with comparative ease, usually on 90 days' notice. Clients may also
reduce advertising budgets at any time for any reason. An agency's ability to
compete for new clients is affected in some instances by the policy, which many
advertisers follow, of not permitting their agencies to represent competitive
accounts in the same market. As a result, increasing size may limit an agency's
potential for securing certain new clients. In the vast majority of cases,
however, the separate, independent identities of BBDO Worldwide, DDB Needham
Worldwide, TBWA International, the independent agencies within the DAS Group and
Goodby, Silverstein & Partners have enabled the Omnicom Group to represent
competing clients.
3
BBDO Worldwide, DDB Needham Worldwide, TBWA International, the DAS Group
and Goodby, Silverstein & Partners have sought, and as part of the Omnicom
Group's operating segments will seek, new business by showing potential clients
examples of advertising campaigns produced and by explaining the variety of
related services offered. The Omnicom Group competes in the United States and
internationally with a multitude of full service and special service agencies.
In addition to the usual risks of the advertising agency business, international
operations are subject to the risk of currency exchange fluctuations, exchange
control restrictions and to actions of governmental authorities.
Employees
The business success of the Omnicom Group is, and will continue to be,
highly dependent upon the skills and creativity of its creative, research, media
and account personnel and their relationships with clients. The Company believes
its operating groups have established reputations for creativity and marketing
expertise which attract, retain and stimulate talented personnel. There is
substantial competition among advertising agencies for talented personnel and
all agencies are vulnerable to adverse consequences from the loss of key
individuals. Employees are generally not under employment contracts and are free
to move to competitors of the Omnicom Group. The Company believes that its
compensation arrangements for its key employees, which include stock options,
restricted stock and retirement plans, are highly competitive with those of
other advertising agencies. As of December 31, 1995, the Omnicom Group,
excluding unconsolidated companies, employed approximately 19,400 persons, of
which approximately 8,500 were employed in the United States and approximately
10,900 were employed in its international offices.
Government Regulation
The advertising business is subject to government regulation, both within
and outside the United States. In the United States, federal, state and local
governments and their agencies and various consumer groups have directly or
indirectly affected or attempted to affect the scope, content and manner of
presentation of advertising. The continued activity by government and by
consumer groups regarding advertising may cause further change in domestic
advertising practices in the coming years. While the Company is unable to
estimate the effect of these developments on its U.S. business, management
believes the total volume of advertising in general media in the United States
will not be materially reduced due to future legislation or regulation, even
though the form, content, and manner of presentation of advertising may be
modified. In addition, the Company will continue to ensure that its management
and operating personnel are aware of and are responsive to the possible
implications of such developments.
Item 2. Properties
Substantially all of the Company's offices are located in leased premises.
The Company actively manages its obligations and, where appropriate,
consolidates its leased premises. Management has obtained subleases for most of
the premises vacated. Where appropriate, management has established reserves for
the difference between the cost of the leased premises that were vacated and
anticipated sublease income.
Domestic
The Company's corporate office occupies approximately 27,000 sq. ft. of
space at 437 Madison Avenue, New York, New York under a lease expiring in the
year 2010.
BBDO Worldwide occupies approximately 285,000 sq. ft. of space at 1285
Avenue of the Americas, New York, New York under a lease expiring in the year
2012, which includes options for additional growth of the agency.
DDB Needham Worldwide occupies approximately 170,000 sq. ft. of space at
437 Madison Avenue, New York, New York under leases expiring in the year 2010,
which include options for additional growth of the agency.
TBWA Chiat/Day occupies approximately 58,000 sq. ft. of space at 180 Maiden
Lane, New York, New York under a lease expiring in the year 2016, which includes
options for additional growth of the agency.
Offices in Atlanta, Beverly Hills, Chicago, Dallas, Detroit, Irvine, Los
Angeles, Mahwah, Minneapolis, Morton Grove, New York, San Francisco, Seattle and
St. Louis and at various other locations occupy approximately 2,309,000 sq. ft.
of space under leases with varying expiration dates.
4
International
The Company's international subsidiaries in Australia, Austria, Belgium,
Canada, China, the Czech Republic, Denmark, Finland, France, Germany, Greece,
Hong Kong, Hungary, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands,
New Zealand, Norway, the Philippines, Portugal, Puerto Rico, Singapore, the
Slovak Republic, South Africa, Spain, Sweden, Taiwan, Thailand and the United
Kingdom occupy premises under leases with various expiration dates.
Item 3. Legal Proceedings
The Company has no material pending legal proceedings, other than ordinary
routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of the Shareholders of the Company was held on Tuesday,
November 28, 1995 to consider and vote upon a proposal to approve an amendment
to the Company's Restated Certificate of Incorporation increasing the number of
authorized shares of Common Stock, par value $.50 per share, from 75,000,000 to
150,000,000 to allow the Company to issue additional shares from time to time
for stock splits, stock dividends and other corporate purposes. The proposal was
approved with 30,983,982 affirmative votes being cast, 115,834 negative votes
being cast, and 59,237 abstentions.
No other matters were submitted to a vote of security holders during the
last quarter of 1995.
Executive Officers of the Company
The individuals named below are Executive Officers of the Company and,
except as indicated below, have held their current positions during the last
five years:
Name Position Age
---- -------- ---
Bruce Crawford....... Chairman & Chief Executive Officer of Omnicom Group 67
John D. Wren......... President of Omnicom Group and Chairman & Chief Executive Officer 43
of Diversified Agency Services
Fred J. Meyer ....... Chief Financial Officer of Omnicom Group 65
Dennis E. Hewitt..... Treasurer of Omnicom Group 51
Dale A. Adams........ Controller of Omnicom Group 37
Barry J. Wagner...... Secretary & General Counsel of Omnicom Group 55
Allen Rosenshine..... Chairman & Chief Executive Officer of BBDO Worldwide 57
James A. Cannon ..... Vice Chairman & Chief Financial Officer of BBDO Worldwide 57
Keith L. Reinhard.... Chairman & Chief Executive Officer of The DDB Needham 61
Worldwide Communications Group
William G. Tragos.... Chairman & Chief Executive Officer of TBWA International 61
John D. Wren was appointed President of Omnicom Group in September, 1995.
Mr. Wren was appointed Chief Executive Officer of Diversified Agency Services in
May 1993. Mr. Wren had served as President of Diversified Agency Services since
February 1992, having previously served as its Executive Vice President and
General Manager.
Dennis E. Hewitt was promoted to Treasurer of the Company in January 1994.
Mr. Hewitt joined the Company in May 1988 as Assistant Treasurer.
Dale A. Adams was promoted to Controller of the Company in July 1992. Mr.
Adams joined the Company in July 1991 after ten years with Coopers & Lybrand,
where he served as a general practice manager from 1987 until joining the
Company.
Barry J. Wagner was promoted to Secretary & General Counsel of the Company
in May 1995. Mr. Wagner was previously Assistant Secretary of the Company.
Similar information with respect to the remaining Executive Officers of the
Company, who are all directors of the Company, can be found in the Company's
definitive proxy statement expected to be filed April 8, 1996.
The Executive Officers of the Company are elected annually following the
Annual Meeting of the Shareholders of their respective employers.
5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock and Dividend History
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "OMC". The table below shows the range of reported last sale prices
on the New York Stock Exchange Composite Tape for the Company's common stock for
the periods indicated and the dividends paid per share on the common stock for
such periods. All sales prices and per share amounts have been adjusted to
reflect a two-for-one stock split in the form of a 100% stock dividend effective
December 15, 1995.
Dividends Paid
Per Share of
High Low Common Stock
---- ---- --------------
1994
First Quarter.................. 24 15/16 21 7/8 $.155
Second Quarter................. 24 3/4 22 7/16 .155
Third Quarter.................. 25 3/4 24 .155
Fourth Quarter................. 26 7/8 24 1/2 .155
1995
First Quarter.................. 28 7/16 25 .15
Second Quarter................. 30 13/16 27 1/16 .155
Third Quarter.................. 33 29 5/16 .175
Fourth Quarter................. 37 1/4 31 3/16 .175
The Company is not aware of any restrictions on its present or future
ability to pay dividends. However, in connection with certain borrowing
facilities entered into by the Company and its subsidiaries (see Note 7 of the
Notes to Consolidated Financial Statements), the Company is subject to certain
restrictions on its current ratio, the ratio of net cash flow to consolidated
indebtedness, the ratio of total consolidated indebtedness to total consolidated
capitalization and on its ability to make investments in and loans to affiliates
and unconsolidated subsidiaries.
On January 31, 1996 the Board of Directors declared a regular quarterly
dividend of $.175 per share of common stock, payable April 3, 1996 to holders of
record on March 15, 1996.
Approximate Number of Equity Security Holders
Approximate Number of
Record Holders
Title of Class on March 15, 1996
-------------- ---------------------
Common Stock, $.50 par value...................... 3,479
Preferred Stock, $1.00 par value ................. None
6
Item 6. Selected Financial Data
The following table sets forth selected financial data of the Company and
should be read in conjunction with the consolidated financial statements which
begin on page F-1. As discussed in the notes to the consolidated financial
statements, during 1995 the Company completed certain acquisitions which were
accounted for under the pooling of interests method of accounting. Accordingly,
the information set forth in the following table includes the results of these
companies for all periods presented.
(Dollars in Thousands Except Per Share Amounts)
-----------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
For the year:
Commissions and fees.................. $2,257,536 $1,907,795 $1,688,960 $1,600,326 $1,435,977
Income before change
in accounting principles........... 139,955 111,495 65,568 59,650 48,457
Net income ........................... 139,955 83,486 65,568 56,250 48,457
Earnings per common share before
changes in accounting principles:
Primary............................ 1.89 1.58 1.03 1.01 0.84
Fully diluted...................... 1.85 1.54 1.01 0.86 0.84
Cumulative effect of changes in accounting principles:
Primary............................ -- (0.40) -- (0.06) --
Fully diluted...................... -- (0.40) -- (0.06) --
Earnings per common share after changes in accounting principles:
Primary............................ 1.89 1.18 1.03 0.95 0.84
Fully diluted...................... 1.85 1.18 1.01 0.81 0.84
Dividends declared per common
share.............................. 0.66 0.62 0.62 0.60 0.55
At year end:
Total assets.......................... 3,527,677 3,040,211 2,465,408 2,266,733 2,196,969
Long-term obligations:
Long-term debt..................... 290,379 199,487 301,044 324,133 335,220
Deferred compensation and
other liabilities................ 122,623 150,291 113,197 102,814 82,948
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
In 1995, domestic revenues from commissions and fees increased 12.8
percent. The effect of acquisitions, net of divestitures, accounted for a 1.5
percent increase. The remaining 11.3 percent increase was due to net new
business gains and higher spending from existing clients.
In 1994, domestic revenues from commissions and fees increased 7.0 percent.
The effect of acquisitions, net of divestitures, accounted for a 1.2 percent
increase. The remaining 5.8 percent increase was due to net new business gains
and higher spending from existing clients.
In 1993, domestic revenues from commissions and fees increased 5.3 percent.
The effect of acquisitions, net of divestitures, accounted for a 3.2 percent
increase. The remaining 2.1 percent increase was due to net new business gains
and higher spending from existing clients.
In 1995, international revenues increased 24.3 percent. The effect of
acquisitions, net of divestitures, accounted for a 5.9 percent increase in
international revenues. The weakening of the U.S. dollar increased international
revenues by 6.7 percent. The remaining 11.7 percent increase was due to net new
business gains and higher spending from existing clients.
In 1994, international revenues increased 20.2 percent. The effect of
acquisitions, net of divestitures, accounted for an 8.5 percent increase in
international revenues. The weakening of the U.S. dollar increased international
revenues by 2.3 percent. The remaining 9.4 percent increase was due to net new
business gains and higher spending from existing clients.
7
In 1993, international revenues increased 5.9 percent. The effect of the
acquisition of TBWA International B.V. and several marketing services companies
in the United Kingdom, net of divestitures, accounted for a 14.0 percent
increase in international revenues. The strengthening of the U.S. dollar against
several major international currencies relevant to the Company's non-U.S.
operations decreased revenues by 11.1 percent. The increase in revenues due to
net new business gains and higher spending from existing clients was 3.0
percent.
In 1995, worldwide operating expenses increased 17.4 percent. Acquisitions,
net of divestitures during the year, accounted for a 3.9 percent increase in
worldwide operating expenses. The weakening of the U.S dollar increased
worldwide operating expenses by 3.2 percent. The remaining 10.3 percent increase
was caused by normal salary increases and growth in out-of-pocket expenditures
to service the increased revenue base. Net foreign exchange gains did not
significantly impact operating expenses for the year.
In 1994, worldwide operating expenses increased 10.2 percent. Acquisitions,
net of divestitures during the year, accounted for a 4.8 percent increase in
worldwide operating expenses. The weakening of the U.S dollar increased
worldwide operating expenses by 1.1 percent. The remaining 4.3 percent increase
was caused by normal salary increases and growth in out-of-pocket expenditures
to service the increased revenue base, partially offset by the elimination of
the special charge recorded in 1993. Net foreign exchange gains did not
significantly impact operating expenses for the year.
In 1993, worldwide operating expenses increased 5.8 percent. During the
year, the Company recorded a special charge of $22.7 million associated with the
restructuring of certain real estate operating leases, including the write-off
of fixed assets abandoned in conjunction with lease terminations. The special
charge accounted for a 1.6 percent increase in operating expenses. Acquisitions,
net of divestitures during the year, accounted for an 8.5 percent increase in
worldwide operating expenses. The strengthening of the U.S. dollar against
several international currencies decreased worldwide operating expenses by 5.0
percent. The remaining increase was caused by normal salary increases and growth
in out-of-pocket expenditures to service the increased revenue base. Net foreign
exchange gains did not significantly impact operating expenses for the year.
Interest expense in 1995 increased $2.8 million, reflecting higher average
borrowings during the year. Interest and dividend income increased in 1995 by
$1.7 million. This increase was attributable to higher average amounts of cash
and marketable securities invested during the year.
Interest expense in 1994 decreased by $6.6 million. This decrease reflects
lower average interest rates on borrowings, primarily due to the conversion of
the Company's 7% Convertible Subordinated Debentures in October 1993 and the
conversion of the Company's 6.5% Convertible Subordinated Debentures in July
1994. Interest and dividend income decreased by $2.2 million in 1994. This
decrease was primarily due to lower average funds available for investment
during the year and declining interest rates in certain countries.
Interest expense in 1993 decreased by $4.3 million, reflecting lower
average borrowings during the year. Interest and dividend income decreased in
1993 by $3.1 million. This decrease was primarily due to lower average amounts
of cash and marketable securities invested during the year.
In 1995, the effective tax rate decreased to 40.1 percent. The decrease
reflects a reduction in the effect of nondeductible goodwill amortization and a
decrease in the effective rate of state and local taxes.
In 1994, the effective tax rate decreased to 41.2 percent. The decrease
reflects a reduction in losses of domestic and international subsidiaries
without tax benefit, a reduction in the effective rate of state and local taxes
and a reduction in the effect of nondeductible goodwill amortization, offset by
the elimination of nontaxable proceeds from life insurance policies.
In 1993, the effective tax rate increased to 48.1 percent. The increase
reflects increased losses of domestic subsidiaries without tax benefit and an
increase in the domestic federal tax rate, partially offset by nontaxable
proceeds from life insurance policies and a lower international effective tax
rate.
In 1995, consolidated net income increased 25.5 percent compared to 1994
consolidated net income before the adoption of SFAS 112. This increase was the
result of revenue growth, margin improvement, and an increase in equity income,
partially offset by an increase in minority interest expense. Operating margin,
which excludes net interest expense, increased to 12.0 percent in 1995 from 11.3
percent in 1994 as a result of greater growth in commission and fee revenue than
the growth in operating expenses. The increase in equity income was primarily
due to increased earnings of the Company's existing equity affiliates. The
increase in minority interest expense was caused by higher earnings from
8
companies in which minority interests exist. In 1995, the impact of
divestitures, net of acquisitions, resulted in a 4.4 percent decrease in
consolidated net income, while the weakening of the U.S. dollar against several
international currencies increased consolidated net income by 3.4 percent.
In 1994, consolidated net income before the adoption of SFAS 112 increased
by 70.0 percent. This increase was the result of revenue growth, margin
improvement, an increase in equity income and a reduction in the effective tax
rate. Operating margin, which excludes net interest expense, increased to 11.3
percent in 1994 from 9.1 percent in 1993 as a result of greater growth in
commission and fee revenue than the growth in operating expenses. The increase
in equity income was primarily due to earnings from new equity affiliates and
was also due to improved net income at companies which are less than 50 percent
owned. In 1994, the impact of divestitures, net of acquisitions, resulted in a
2.3 percent decrease in consolidated net income, while the weakening of the U.S.
dollar against several international currencies increased consolidated net
income by 1.4 percent.
In 1993, consolidated net income increased 9.9 percent compared to 1992 net
income before changes in accounting principles. This increase was the result of
revenue growth, margin improvement, an increase in equity income and a decrease
in minority interest expense. Operating margin decreased to 9.1 percent in 1993
from 9.3 percent in 1992 as a result of lesser growth in commission and fee
revenue than the growth in operating expenses. The increase in equity income was
the result of improved net income at companies which are less than 50 percent
owned. The decrease in minority interest expense was primarily due to the
acquisition of certain minority interests in 1993 and lower earnings by
companies in which minority interests exist. In 1993, the incremental impact of
acquisitions, net of divestitures, accounted for 1.0 percent of the increase in
consolidated net income, while the strengthening of the U.S. dollar against
several international currencies decreased consolidated net income by 6.6
percent.
At December 31, 1995, accounts receivable net of allowances for doubtful
accounts, increased by $290.7 million from December 31, 1994. At December 31,
1995, accounts payable and other accrued liabilities increased by $222.9 million
and $89.3 million, respectively, from December 31, 1994. These increases were
primarily due to an increased volume of activity resulting from business growth
and acquisitions during the year and, in the case of accounts payable,
differences in the dates on which payments to media and other suppliers became
due in 1995 compared to 1994.
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits". The cumulative after tax effect of the adoption of
this statement decreased net income by $28.0 million.
The Company's international operations are subject to the risk of currency
exchange rate fluctuations. This risk is generally limited to the net income of
the operations as the revenues and expenses of the operations are generally
denominated in the same currency. When economically beneficial to do so, the
Company or its international operations enter into hedging transactions to
minimize the risk of adverse currency exchange rate fluctuations on the net
income of the operation. The Company's major international markets are the
United Kingdom, France, Germany, the Netherlands, Spain, Italy, and Canada. The
Company's operations are also subject to the risk of interest rate fluctuations.
As part of managing the Company's exposures to currency exchange and market
interest rates, the Company periodically enters into derivative financial
instruments with major well known banks acting as principal counterparty. In
order to minimize counterparty risk, the Company only enters into derivative
contracts with major well known banks that have credit ratings equal to or
better than the Company's. Additionally, these contracts contain provisions for
net settlement. As such, the contracts settle based on the spread between the
currency rates and interest rates contained in the contracts and the current
market rates. This minimizes the risk of an insolvent counterparty being unable
to pay the Company and, at the same time, having the creditors of the
counterparty demanding the notional principal amount from the Company.
The Company's derivative activities are limited in volume and confined to
risk management activities related to the Company's worldwide operations. A
reporting system is in place which evaluates the impact on the Company's
earnings resulting from changes in interest rates, currency exchange rates and
other relevant market risks. This system is structured to enable senior
management to initiate prompt remedial action, if appropriate.
9
At December 31, 1995 and 1994, the Company had forward exchange contracts
outstanding with an aggregate notional principal amount of $325 million and $346
million, respectively, most of which were denominated in the Company's major
international market currencies. These contracts predominantly hedge certain of
the Company's intercompany receivables and payables which are recorded in a
currency different from that in which they will settle. The terms of these
contracts are generally three months or less.
At December 31, 1995, the Company had executed interest rate swap contracts
with banks which will become effective during 1996. These contracts consist of;
a $75 million notional principal amount U.S. dollar fixed to floating rate swap
relating to a portion of the Company's intercompany interest cash flows; and a
Deutsche Mark 76.6 million notional principal amount (approximately $53.3
million at the December 31, 1995 exchange rate) floating to fixed rate swap and
a $10 million notional principal amount U.S. dollar floating to fixed rate swap,
both of which will convert a portion of the Company's floating rate debt to a
fixed rate.
At December 31, 1995 and 1994, the Company had no other derivative
contracts outstanding.
The Company anticipates relatively favorable growth rates in its domestic
and international markets.
Capital Resources and Liquidity
Cash and cash equivalents increased $72.2 million during 1995 to $314.0
million at December 31, 1995. The Company's positive net cash flow provided by
operating activities was maintained, in part, by a continued favorable
relationship between the collection of accounts receivable and the payment of
obligations to media and other suppliers. After annual cash outlays for
dividends paid to shareholders and minority interests and the repurchase of the
Company's common stock for employee programs, the balance of the cash flow,
together with the proceeds from issuance of debt obligations, was used to fund
acquisitions, make capital expenditures, repay debt obligations and invest in
marketable securities.
On January 4, 1995, an indirect wholly-owned subsidiary of the Company
issued Deutsche Mark 200 million Floating Rate Bonds due January 5, 2000. The
bonds bear interest at a per annum rate equal to Deutsche Mark three month LIBOR
plus 0.65%.
On June 1, 1994, the Company issued a Notice of Redemption for the
outstanding $100 million of its 6.5% Convertible Subordinated Debentures due
2004. Prior to the July 27,1994 redemption date, debenture holders elected to
convert all of their outstanding debentures into common stock of the Company at
a conversion price of $14.00 per common share.
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 December 31, 1995, the Company had $374 million in
committed lines of credit, comprised of a $250 million, three year revolving
credit agreement and $124 million in unsecured credit lines, principally outside
of the United States. Of the $374 million in committed lines, $18 million were
used at December 31, 1995. Management believes the aggregate lines of credit
available to the Company are adequate to support its short-term cash
requirements for dividends, capital expenditures and maintenance of working
capital.
The Company anticipates that the year end cash position, together with the
future cash flows from operations and funds available under existing credit
facilities will be adequate to meet its long-term cash requirements as presently
contemplated.
On March 1, 1996, the Company issued Deutsche Mark 100 million Floating
Rate Bonds (approximately $68 million). 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. The proceeds of this issuance will be used for
general corporate purposes, including the reduction of outstanding commercial
paper debt.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item
appear beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
10
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors of the Company and compliance
with Section 16 rules is incorporated by reference to the Company's definitive
proxy statement expected to be filed by April 8, 1996. Information regarding the
Company's executive officers is set forth in Part I of this Form 10-K.
Item 11. Executive Compensation
Incorporated by reference to the Company's definitive proxy statement
expected to be filed by April 8, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's definitive proxy statement
expected to be filed by April 8, 1996.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Company's definitive proxy statement
expected to be filed by April 8, 1996.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page
----
(a) 1.Financial Statements:
Report of Management................................................ F-1
Report of Independent Public Accountants............................ F-2
Consolidated Statements of Income for the three years
ended December 31, 1995............................................ F-3
Consolidated Balance Sheets at December 31, 1995 and 1994........... F-4
Consolidated Statements of Shareholders' Equity for the three years
ended December 31, 1995............................................ F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1995............................................ F-6
Notes to Consolidated Financial Statements.......................... F-7
Quarterly Results of Operations (Unaudited)......................... F-19
2.Financial Statement Schedules:
Report of Independent Public Accountants with regard to the
Consolidated Financial Statements of Chiat/Day Holdings, Inc....... S-1
Report of Independent Public Accountants with regard to the
Consolidated Financial Statements of Ross Roy Communications, Inc.. S-2
Schedule II--Valuation and Qualifying Accounts (for the three years
ended December 31, 1995).......................................... S-3
All other schedules are omitted because they are not applicable.
3.Exhibits:
(3)(i) Articles of Incorporation (as amended on November 28, 1995
and as restated for filing purposes).
(ii) By-laws. Incorporated by reference to the 1987 Annual Report
on Form 10-K filed with the Securities and Exchange
Commission on March 31, 1988.
(4) Instruments Defining the Rights of Security Holders,
Including Indentures.
4.1 Copy of Registrant's 4.5%/6.25% Step-Up Convertible
Subordinated Debentures due 2000, filed as Exhibit 4.3 to
Omnicom Group Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, is incorporated herein by
reference.
4.2 Copy of Subscription Agreement dated December 14, 1994 by
and among the Registrant, BBDO Canada Inc. and Morgan
Stanley GmbH and the other Managers listed therein, in
connection with the issuance of DM 200,000,000 Floating Rate
Bonds of 1995 due January 5, 2000 of BBDO Canada Inc.,
including form of Guaranty by Registrant, filed as Exhibit
4.2 to Omnicom Group Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1994, is incorporated herein by
reference.
4.3 Paying Agency Agreement dated January 4, 1995 by and among
the Registrant, BBDO Canada Inc. and Morgan Stanley GmbH in
connection with the issuance of DM 200,000,000 Floating Rate
Bonds of 1995 due January 5, 2000 of BBDO Canada Inc. filed
as Exhibit 4.3 to Omnicom Group Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1994, is
incorporated herein by reference.
12
4.4 Copy of Subscription Agreement dated February 27, 1996 by
and among the Registrant, Morgan Stanley Bank AG and Morgan
Stanley & Co. International in connection with the issuance
of DM 100,000,000 Floating Rate Bonds of 1996 due March
1,1999.
4.5 Paying Agency Agreement dated March 1, 1996 by and among the
Registrant, Morgan Stanley Bank AG and Morgan Stanley & Co.
International in connection with the issuance of DM
100,000,000 Floating Rate Bonds of 1996 due March 1, 1999.
(10) Material Contracts.
Management Contracts, Compensatory Plans, Contracts or
Arrangements.
10.1 Copy of Registrant's 1987 Stock Plan, filed as Exhibit 10.26
to Omnicom Group Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, is incorporated herein
by reference.
10.2 Amendments to Registrant's 1987 Stock Plan, listed as
Exhibit 10.1 above, approved by the Registrant's
shareholders on May 24, 1994.
10.3 Copy of Registrant's Profit-Sharing Retirement Plan dated
May 16, 1988, filed as Exhibit 10.24 to Omnicom Group Inc.'s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, is incorporated herein by reference.
10.4 Amendment to Registrant's Profit-Sharing Retirement Plan,
listed as Exhibit 10.3 above, adopted February 4, 1991,
filed as Exhibit 10.28 to Omnicom Group Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1990, is
incorporated herein by reference.
10.5 Amendment to Registrant's Profit-Sharing Retirement Plan
listed as Exhibit 10.3 above, adopted on December 7, 1992,
filed as Exhibit 10.13 to Omnicom Group Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, is
incorporated herein by reference.
10.6 Amendment to Registrant's Profit-Sharing Retirement Plan
listed as Exhibit 10.3 above, adopted on July 1, 1993, filed
as Exhibit 10.10 to Omnicom Group Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1993,
incorporated herein by reference.
10.7 Standard Form of the Registrant's 1988 Executive Salary
Continuation Plan Agreement, filed as Exhibit 10.24 to
Omnicom Group Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, is incorporated herein
by reference.
10.8 Standard Form of the Registrant's Indemnification Agreement
with members of Registrant's Board of Directors, filed as
Exhibit 10.25 to Omnicom Group Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1989, is
incorporated herein by reference.
10.9 Copy of DDB Needham Worldwide Joint Savings Plan, effective
as of May 1, 1989, filed as Exhibit 10.26 to Omnicom Group
Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, is incorporated herein by reference.
10.10 Copy of Severance Agreement dated July 6, 1993, between
Keith Reinhard and The DDB Needham Worldwide Communications
Group, Inc. (then known as DDB Needham Worldwide Inc.),
filed as Exhibit 10.11 to Omnicom Group Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
incorporated herein by reference.
10.11 Copy of Employment Agreement dated May 26, 1993, between
William G. Tragos and TBWA International B.V., filed as
Exhibit 10.13 to Omnicom Group Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1993,
incorporated herein by reference.
13
10.12 Copy of Deferred Compensation Agreement dated October 12,
1984, between William G. Tragos and TBWA Advertising Inc.,
filed as Exhibit 10.14 to Omnicom Group Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
incorporated herein by reference.
10.13 Standard Form of Severance Compensation Agreement
incorporated by reference to BBDO International Inc.'s Form
S-1 Registration Statement filed with the Securities and
Exchange Commission on September 28, 1973, is incorporated
herein by reference.
Other Material Contracts.
10.14 Copy of $250,000,000 Second Amended and Restated Credit
Agreement, dated as of July 15, 1994, between Omnicom
Finance Inc., Swiss Bank Corporation and the financial
institutions party thereto, filed as Exhibit 10.16 to
Omnicom Group Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, is incorporated herein by
reference.
(21) Subsidiaries of the Registrant........................ S-4
(23) Consents of Experts and Counsel.
23.1 Consent of Arthur Andersen LLP........................ S-15
23.2 Consent of Coopers & Lybrand LLP...................... S-16
23.3 Consent of Deloitte & Touche LLP...................... S-17
(24) Powers of Attorney from Bernard Brochand, Robert J.
Callander, James A. Cannon, Leonard S. Coleman, Jr., Peter
I. Jones, John R. Purcell, Keith L. Reinhard, Allen
Rosenshine, Gary L. Roubos, Quentin I. Smith, Jr., Robin B.
Smith, William G. Tragos and Egon P.S. Zehnder.
(27) Financial Data Schedule (filed in electronic format only).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1995.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 25, 1996
By: /s/ FRED J. MEYER
-------------------------------
Fred J. Meyer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ BRUCE CRAWFORD Chairman and Chief March 25, 1996
-------------------------------------------- Executive Officer and Director
(Bruce Crawford)
/s/ JOHN D. WREN President and Director March 25, 1996
--------------------------------------------
(John D. Wren)
/s/ FRED J. MEYER Chief Financial Officer March 25, 1996
-------------------------------------------- and Director
(Fred J. Meyer)
/S/ DALE A. ADAMS Controller (Principal March 25, 1996
-------------------------------------------- Accounting Officer)
(Dale A. Adams)
/s/ BARRY J. WAGNER Secretary and General March 25, 1996
-------------------------------------------- Counsel
(Barry J. Wagner)
/s/ BERNARD BROCHAND* Director March 25, 1996
--------------------------------------------
(Bernard Brochand)
/s/ ROBERT J. CALLANDER* Director March 25, 1996
--------------------------------------------
(Robert J. Callander)
/s/ JAMES A. CANNON* Director March 25, 1996
--------------------------------------------
(James A. Cannon)
/s/ LEONARD S. COLEMAN, JR.* Director March 25, 1996
--------------------------------------------
(Leonard S. Coleman, Jr.)
/s/ PETER I. JONES * Director March 25, 1996
--------------------------------------------
(Peter I. Jones)
/s/ JOHN R. PURCELL* Director March 25, 1996
--------------------------------------------
(John R. Purcell)
/s/ KEITH L. REINHARD* Director March 25, 1996
--------------------------------------------
(Keith L. Reinhard)
/s/ ALLEN ROSENSHINE * Director March 25, 1996
--------------------------------------------
(Allen Rosenshine)
/s/ GARY L. ROUBOS* Director March 25, 1996
--------------------------------------------
(Gary L. Roubos)
/s/ QUENTIN I. SMITH, JR.* Director March 25, 1996
--------------------------------------------
(Quentin I. Smith, Jr.)
/s/ ROBIN B. SMITH* Director March 25, 1996
--------------------------------------------
(Robin B. Smith)
/s/ WILLIAM G. TRAGOS* Director March 25, 1996
--------------------------------------------
(William G. Tragos)
/s/ EGON P.S. ZEHNDER* Director March 25, 1996
--------------------------------------------
(Egon P.S. Zehnder)
*By /s/ BARRY J. WAGNER
--------------------------------------------
Barry J. Wagner
Attorney-in-fact
15
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.
BRUCE CRAWFORD FRED J. MEYER
- ---------------------------------------- ------------------------------------
Bruce Crawford Fred J. Meyer
Chairman and Chief Executive Officer Chief Financial Officer
F-1
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, 1995 and
1994, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. Prior to
1995, we did not audit the financial statements of Chiat/Day Holdings, Inc. and
Ross Roy Communications, Inc., companies acquired during 1995 in two
transactions accounted for as poolings of interests, as discussed in Note 2.
Such statements are included in the consolidated financial statements of Omnicom
Group Inc. and account for total assets of 6% at December 31, 1994 and total
revenues of 7% and 11% for the years ended December 31, 1994 and 1993,
respectively, of the consolidated totals, after restatement to reflect certain
adjustments. The financial statements of Chiat/Day Holdings, Inc. and Ross Roy
Communications, Inc. prior to those adjustments were audited by other auditors
whose reports have been furnished to us and our opinion, insofar as it relates
to the amounts included for those entities, is based solely upon the reports of
the other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, 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,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 13 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for postemployment
benefits.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule on page S-3 is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, based on our audits and the reports of other auditors,
fairly states 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 LLP
New York, New York
February 20, 1996 (except for Note 14
as to which the date is March 1, 1996)
F-2
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(Dollars in Thousands
Except Per Share Data)
------------------------------------
1995 1994 1993
---- ---- ----
COMMISSIONS AND FEES............................. $2,257,536 $1,907,795 $1,688,960
OPERATING EXPENSES:
Salaries and Related Costs.................. 1,305,087 1,102,944 988,566
Office and General Expenses................. 681,544 588,747 524,435
Special Charge.............................. -- -- 22,714
--------- --------- ---------
1,986,631 1,691,691 1,535,715
--------- --------- ---------
OPERATING PROFIT................................. 270,905 216,104 153,245
NET INTEREST EXPENSE:
Interest and Dividend Income................ (15,019) (13,295) (15,538)
Interest Paid or Accrued.................... 43,271 40,485 47,105
--------- --------- ---------
28,252 27,190 31,567
--------- --------- ---------
INCOME BEFORE INCOME TAXES
AND CHANGE IN ACCOUNTING
PRINCIPLE................................... 242,653 188,914 121,678
INCOME TAXES..................................... 97,386 77,927 58,485
--------- --------- ---------
INCOME AFTER INCOME TAXES AND BEFORE
CHANGE IN ACCOUNTING PRINCIPLE................. 145,267 110,987 63,193
EQUITY IN AFFILIATES............................. 20,828 18,322 13,180
MINORITY INTERESTS............................... (26,140) (17,814) (10,805)
--------- --------- ---------
INCOME BEFORE CHANGE IN
ACCOUNTING PRINCIPLE........................... 139,955 111,495 65,568
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE........................... -- (28,009) --
--------- --------- ---------
NET INCOME....................................... $ 139,955 $ 83,486 $ 65,568
========= ========= =========
NET INCOME PER COMMON SHARE:
Income Before Change in
Accounting Principle:
Primary.................................. $ 1.89 $ 1.58 $ 1.03
Fully Diluted............................ $ 1.85 $ 1.54 $ 1.01
Cumulative Effect of Change
in Accounting Principle:
Primary.................................. $ -- $ (0.40) $ --
Fully Diluted............................ $ -- $ (0.40) $ --
Net Income:
Primary.................................. $ 1.89 $ 1.18 $ 1.03
Fully Diluted............................ $ 1.85 $ 1.18 $ 1.01
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
December 31,
(Dollars in Thousands)
---------------------------
1995 1994
---- ----
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 313,999 $ 241,797
Investments available-for-sale, at market, which approximates cost........... 21,474 28,425
Accounts receivable, less allowance for doubtful accounts of
$23,352 and $23,528 (Schedule II)........................................ 1,503,212 1,212,501
Billable production orders in process, at cost............................... 106,115 82,357
Prepaid expenses and other current assets.................................... 161,235 148,958
---------- ----------
Total Current Assets......................................................... 2,106,035 1,714,038
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost, less
accumulated depreciation and amortization of $259,664 and $238,468........... 200,473 192,450
INVESTMENTS IN AFFILIATES ...................................................... 200,216 164,524
INTANGIBLES, less accumulated amortization of $157,863 and $133,848.............. 832,698 758,973
DEFERRED TAX BENEFITS............................................................ 70,242 65,064
DEFERRED CHARGES AND OTHER ASSETS ............................................... 118,013 145,162
---------- ----------
$3,527,677 $3,040,211
========== ==========
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............................................................. $1,734,500 $1,511,610
Current portion of long-term debt............................................ 2,934 23,537
Bank loans .................................................................. 18,097 10,640
Advance billings............................................................. 245,516 215,181
Accrued taxes on income...................................................... 41,756 52,989
Other accrued taxes.......................................................... 66,167 63,238
Other accrued liabilities.................................................... 380,407 291,072
Dividends payable............................................................ 13,067 11,262
---------- ----------
Total Current Liabilities.................................................... 2,502,444 2,179,529
---------- ----------
LONG-TERM DEBT ................................................................. 290,379 199,487
DEFERRED COMPENSATION AND OTHER LIABILITIES ..................................... 122,623 150,291
MINORITY INTERESTS .............................................................. 60,724 42,738
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, 150,000,000 shares authorized,
79,842,976 and 79,262,232 shares issued in 1995 and 1994, respectively... 39,921 39,631
Additional paid-in capital................................................... 390,984 381,770
Retained earnings............................................................ 299,704 207,488
Unamortized restricted stock................................................. (30,739) (25,631)
Cumulative translation adjustment............................................ (26,641) (28,254)
Treasury stock, at cost, 5,184,814 and 5,022,374 shares in 1995 and
1994, respectively....................................................... (121,722) (106,838)
---------- ----------
Total Shareholders' Equity............................................... 551,507 468,166
---------- ----------
$3,527,677 $3,040,211
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-4
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 1995
(Dollars in Thousands)
Common Stock Additional Unamortized Cumulative Total
---------------------
Paid-in Retained Restricted Translation Treasury Shareholders'
Shares Par Value Capital Earnings Stock Adjustment Stock Equity
--------- --------- -------- -------- ----------- ----------- -------- ------------
Balance December 31, 1992......... 63,546,510 $31,773 $172,474 $143,955 $(15,307) $(38,200) $(53,586) $241,109
Pooling of interests adjustment
related to acquisition of
TBWA International............ 2,698,520 1,349 (551) (6,309) (1,834) (7,345)
---------- ------ ------- ------- ------- ------- -------- -------
Balance January 1, 1993,
as restated 66,245,030 33,122 171,923 137,646 (15,307) (40,034) (53,586) 233,764
Net income....................... 65,568 65,568
Dividends declared............... (36,992) (36,992)
Amortization of
restricted shares 7,096 7,096
Share transactions under
employee stock plans.......... (627,754) (314) 19,542 (13,596) 15,413 21,045
Shares issued for acquisitions 7,303 21,948 29,251
Conversion of 7% Debentures...... 6,668,158 3,334 82,519 85,853
Cumulative translation
adjustment ................... (25,780) (25,780)
Repurchases of shares............ (51,885) (51,885)
---------- ------ ------- ------- ------- ------- -------- -------
Balance December 31, 1993........ 72,285,434 36,142 281,287 166,222 (21,807) (65,814) (68,110) 327,920
Net income....................... 83,486 83,486
Dividends declared............... (42,220) (42,220)
Amortization of restricted
shares ....................... 9,535 9,535
Share transactions under employee
stock plans................... (165,668) (83) 2,952 (13,359) 16,796 6,306
Shares issued for acquisitions 1,103 11,932 13,035
Conversion of 6.5% Debentures.... 7,142,466 3,572 96,428 100,000
Cumulative translation
adjustment ................... 37,560 37,560
Repurchases of shares............ (67,456) (67,456)
---------- ------ ------- ------- ------- ------- -------- -------
Balance December 31, 1994........ 79,262,232 39,631 381,770 207,488 (25,631) (28,254) (106,838) 468,166
Net income....................... 139,955 139,955
Dividends declared............... (47,739) (47,739)
Amortization of restricted shares 10,713 10,713
Share transactions under employee
stock plans................... 580,744 290 8,205 (15,821) 17,111 9,785
Shares issued for acquisitions .. 1,009 2,659 3,668
Cumulative translation
adjustment ................... 1,613 1,613
Repurchases of shares............ (34,654) (34,654)
---------- ------- -------- -------- -------- -------- --------- --------
Balance December 31, 1995........ 79,842,976 $39,921 $390,984 $299,704 $(30,739) $(26,641) $(121,722) $551,507
========== ======= ======== ======== ======== ======== ========= ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Dollars in Thousands)
-----------------------------------
1995 1994 1993
--------- --------- ---------
Cash Flows From Operating Activities:
Net income.......................................................... $139,955 $ 83,486 $ 65,568
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of tangible assets.................. 45,879 41,308 40,092
Amortization of intangible assets................................. 28,250 25,046 19,034
Minority interests................................................ 26,140 17,549 10,805
Earnings of affiliates in excess of dividends received............ (5,682) (10,484) (6,823)
Decrease (increase) in deferred taxes............................. 2,400 (3,272) (669)
Provisions for losses on accounts receivable...................... 6,024 9,788 7,690
Amortization of restricted shares................................. 10,713 9,535 7,096
Increase in accounts receivable................................... (259,560) (139,194) (16,481)
(Increase) decrease in billable production........................ (22,442) (4,735) 6,129
(Increase) decrease in other current assets....................... (7,040) (27,166) 20,000
Increase in accounts payable...................................... 180,850 258,371 61,105
Increase (decrease) in other accrued liabilities.................. 107,087 77,476 (18,769)
(Decrease) increase in accrued taxes on income.................... (12,808) 17,752 1,187
Other............................................................. (13,177) 4,703 18,066
-------- --------- ---------
Net Cash Provided By Operating Activities ............................ 226,589 360,163 214,030
-------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures................................................. (49,568) (43,983) (33,646)
Purchases of equity interests in subsidiaries
and affiliates, net of cash acquired............................. (118,784) (150,660) (80,577)
Sales of equity interests in subsidiaries and
affiliates....................................................... 15,278 499 558
Purchases of investments available-for-sale and
other investments................................................. (14,200) (8,154) (49,733)
Sales of investments available-for-sale and
other investments................................................ 21,496 24,165 17,396
-------- --------- ---------
Net Cash Used In Investing Activities ................................. (145,778) (178,133) (146,002)
-------- --------- ---------
Cash Flows From Financing Activities:
Net borrowings (repayments) under lines of credit................... 6,883 (25,033) (14,167)
Proceeds from issuances of debt obligations......................... 135,162 36,161 149,593
Repayment of principal of debt obligations.......................... (67,718) (35,815) (49,664)
Share transactions under employee stock plans....................... 5,681 7,911 7,526
Dividends and loans to minority stockholders........................ (15,498) (8,062) (8,033)
Dividends paid...................................................... (45,935) (41,307) (35,470)
Purchases of treasury shares....................................... (34,654) (67,456) (51,885)
-------- --------- ---------
Net Cash Used in Financing Activities ................................ (16,079) (133,601) (2,100)
-------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents....................................................... 7,470 13,244 (14,199)
-------- --------- ---------
Net Increase in Cash and Cash Equivalents ............................. 72,202 61,673 51,729
Cash and Cash Equivalents At Beginning of Period ...................... 241,797 180,124 128,395
-------- --------- ---------
Cash and Cash Equivalents At End of Period ............................ $313,999 $ 241,797 $ 180,124
======== ========= =========
Supplemental Disclosures:
Income taxes paid.................................................... $109,241 $ 46,034 $ 50,995
======== ========= =========
Interest paid........................................................ $ 36,482 $ 37,895 $ 41,432
======== ========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. Omnicom Group Inc., through its wholly and partially-owned
companies, operates advertising agencies which plan, create, produce and place
advertising in various media such as television, radio, newspaper and magazines.
Additional services such as marketing consultation, consumer market research,
design and production of merchandising and sales promotion programs and
materials, direct mail advertising, corporate identification, and public
relations are offered to clients. These services are offered to clients
worldwide on a local, national, pan-regional or global basis.
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.
Restatements and Reclassifications. During 1995, the Company completed
certain acquisitions which were accounted for under the pooling of interests
method of accounting, as discussed in Note 2. Accordingly, the Company's
consolidated financial statements and notes to consolidated financial statements
have been restated to include the results of these companies for all periods
presented. On December 15, 1995, the Company completed a two-for-one stock split
in the form of a 100% stock dividend; as such all prior year balances have been
restated to give retroactive effect to the split. In addition, certain prior
year amounts have been reclassified to conform with the 1995 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 $.4 million, $4.0 million and $4.4 million are included
in 1995, 1994 and 1993 net income, respectively.
Earnings 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 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. For the year ended December 31,
1995 the 4.5%/6.25% Step-Up Convertible Subordinated Debentures were assumed to
be converted for the full year. For the year ended December 31, 1994 the
4.5%/6.25% Step-Up Convertible Subordinated Debentures were assumed to be
converted for the full year; and the 6.5% Convertible Subordinated Debentures
were assumed to be converted through July 27, 1994, when they were converted
into common stock. 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. The number of shares used in the computations
were as follows:
1995 1994 1993
---- ---- ----
Primary EPS computation .......... 74,375,300 70,764,800 63,827,900
Fully diluted EPS computation .... 79,913,100 79,925,700 77,739,200
F-7
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For purposes of computing fully diluted earnings per share on net income
and the cumulative effect of the change in accounting principle, for the year
ended December 31, 1994, the Company's Convertible Subordinated Debentures were
not reflected in the computations as their inclusion would have been
anti-dilutive.
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. The intangible values
associated with the Company's business consist predominantly of two types; the
value of the worldwide agency networks, and the value of ongoing client
relationships. The Company's worldwide agency networks have been operating for
an average of over sixty years and intangibles associated with enhancing network
value are intended to enhance the long term value of the networks. Client
relationships in the advertising industry are typically long term in nature and
the Company's largest clients have on average been clients for approximately
thirty years. As such, intangibles are amortized on a straight-line basis
principally over a period of forty years. Each year, the intangibles are written
off if and to the extent they are determined to be impaired. Intangibles are
considered to be impaired if the future anticipated undiscounted cash flows
arising from the use of the intangibles is less than the net unamortized cost of
the intangibles.
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.
Cash Flows. The Company's cash equivalents are primarily comprised of
investments in overnight interest-bearing deposits and money market instruments
with original 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)
1995 1994 1993
---- ---- ----
Fair value of non-cash assets acquired ... $129,425 $265,865 $287,177
Cash paid, net of cash acquired .......... (118,784) (150,660) (80,577)
Common shares issued ..................... (3,668) (13,035) (21,906)
------- -------- --------
Liabilities assumed ...................... $ 6,973 $102,170 $184,694
======= ======== ========
During 1994, the Company issued 7,142,466 shares of common stock upon
conversion of $100 million of its 6.5% Convertible Subordinated Debentures.
During 1993, the Company issued 6,668,158 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.
Derivative Financial Instruments. Derivative financial instruments consist
principally of forward exchange contracts and interest rate swaps. In order for
derivative financial instruments to qualify for hedge accounting the following
criteria must be met: (a) the hedging instrument must be designated as a hedge;
(b) the hedged exposure must be specifically identifiable and expose the Company
F-8
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to risk; and (c) it must be highly probable that a change in fair value of the
derivative financial instrument and an opposite change in the fair value of the
hedged exposure will have a high degree of correlation. The majority of the
Company's derivative activity relates to forward exchange contracts. The Company
executes these contracts in the same currency as the hedged exposure, whereby
100% correlation is achieved. Gains and losses on derivative financial
instruments which are hedges of existing assets or liabilities are included in
the carrying amount of those assets or liabilities and are ultimately recognized
in income as part of those carrying amounts. Interest received and/or paid
arising from swap agreements which qualify as hedges are recognized in income
when the interest is receivable or payable. Derivative financial instruments
which do not qualify as hedges are revalued to the current market rate and any
gains or losses are recorded in income in the current period.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS
In August 1995, the Company completed the acquisitions of Ross Roy
Communications and Chiat/Day Holdings. Both transactions were accounted for
under the pooling of interests method of accounting. Accordingly, the Company's
financial statements have been restated to include the results of Ross Roy
Communications and Chiat/Day Holdings for all periods presented. A total of
2,556,646 shares were issued in connection with these acquisitions.
In May 1993, the Company completed its acquisition of a third agency
network, TBWA International. The acquisition was accounted for as a pooling of
interests and, accordingly, the results of operations for TBWA International
have been included in these consolidated financial statements since January 1,
1993.
During 1995 the Company made several other acquisitions within the
advertising industry whose aggregate cost, in cash or by issuance of the
Company's common stock, totaled $125.2 million for net assets, which included
intangible assets of $108.7 million. Due to the nature of the advertising
industry, companies acquired generally have minimal tangible net assets. The
majority of the purchase price is paid for ongoing client relationships and to
enhance the Company's worldwide agency networks and marketing service companies.
Included in both figures are contingent payments related to prior year
acquisitions totaling $45.0 million. Pro forma combined results of operations of
the Company as if these acquisitions had occurred on January 1, 1994 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, 1995.
Certain acquisitions entered into in 1995 and prior years require payments
in future years if certain results are achieved. Formulas for these contingent
future payments differ from acquisition to acquisition. Contingent future
payments are not expected to be material to the Company's results of operations
or financial position.
3. BANK LOANS AND LINES OF CREDIT
Bank loans primarily comprised bank overdrafts of international
subsidiaries which are treated as loans pursuant to bank agreements. The
weighted average interest rate on the borrowings outstanding as of December 31,
1995 and 1994 was 6.5% and 9.0%, respectively. At December 31, 1995 and 1994,
the Company had unsecured committed lines of credit aggregating $374 million and
$390 million, respectively. The unused portion of credit lines was $356 million
at both December 31, 1995 and 1994. 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, 1995 and 1994, the committed lines of credit included $250
million under a three year revolving credit agreement expiring June 30, 1997.
Due to the long term nature of this credit agreement, borrowings under the
agreement would be classified as long-term debt. There were no borrowings under
the revolving credit agreement at December 31, 1995 and 1994.
F-9
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The revolving credit agreement includes a facility for issuing commercial
paper backed by a bank letter of credit. During the years ended December 31,
1995, 1994 and 1993, the Company issued commercial paper with an average
original maturity of 31, 33 and 32 days, respectively. The Company had no
commercial paper borrowings outstanding as of December 31, 1995, 1994, and 1993.
The maximum outstanding during the year was $210 million, $230 million and $194
million, in 1995, 1994, and 1993, respectively. The gross amount of issuance and
redemption during the year was $1,211 million, $1,587 million and $1,337 million
in 1995, 1994 and 1993, respectively.
4. EMPLOYEE STOCK PLANS
Under the terms of the Company's 1987 Stock Plan, as amended (the "1987
Plan"), 13,100,000 shares of common stock of the Company have been reserved for
restricted stock awards and non-qualified stock options to key employees of the
Company. The remaining number of such reserved shares was 4,083,000 at December
31, 1995.
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, 830,000, 610,000 and 570,000 non-qualified options
were granted in 1995, 1994 and 1993, respectively.
A summary of changes in outstanding options for the three years ended
December 31, 1995 is as follows:
Years Ended December 31,
-------------------------------------------
1995 1994 1993
---- ---- ----
Shares under option (at prices ranging
from $8.4375 to $24.2188) --
Beginning of year................................. 2,388,000 2,144,800 1,996,000
Options granted (at prices ranging from
$25.875 to $32.4063).............................. 830,000 610,000 570,000
Options exercised (at prices ranging
from $8.4375 to $24.2188)......................... (255,600) (366,800) (395,600)
Options forfeited.................................... -- -- (25,600)
--------- --------- ---------
Shares under option (at prices ranging
from $8.4375 to $32.4063)-- End of year........... 2,962,400 2,388,000 2,144,800
========= ========= =========
Shares exercisable................................... 1,507,400 1,267,500 1,125,300
Under the 1987 Plan, 612,168 shares, 629,160 shares and 674,400 shares of
restricted stock of the Company were awarded in 1995, 1994 and 1993,
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.
F-10
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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,
1995 is as follows:
Years Ended December 31,
1995 1994 1993
---- ---- ----
Beginning balance............... 1,564,164 1,480,872 1,259,504
Amount granted................ 612,168 629,160 674,400
Amount vested................. (490,422) (461,206) (403,424)
Amount forfeited.............. (38,910) (84,662) (49,608)
--------- --------- ---------
Ending balance.................. 1,647,000 1,564,164 1,480,872
========= ========= =========
The charge to operations in connection with these restricted stock awards
for the years ended December 31, 1995, 1994 and 1993 amounted to $10.7 million,
$9.5 million and $7.1 million, respectively.
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, 1995, 1994 and 1993, and for the years then
ended is presented below:
Dollars in Thousands)
-------------------------------------------
United
States International Consolidated
------ ------------- ------------
1995
Commissions and Fees.......... $1,117,226 $1,140,310 $ 2,257,536
Operating Profit ............. 139,927 130,978 270,905
Net Income ................... 69,906 70,049 139,955
Identifiable Assets........... 1,316,521 2,211,156 3,527,677
1994
Commissions and Fees.......... $ 990,774 $ 917,021 $ 1,907,795
Operating Profit ............. 125,762 90,342 216,104
Net Income ................... 41,381 42,105 83,486
Identifiable Assets........... 1,169,966 1,870,245 3,040,211
1993
Commissions and Fees.......... $ 925,988 $ 762,972 $ 1,688,960
Operating Profit.............. 82,873 70,372 153,245
Net Income.................... 25,259 40,309 65,568
Identifiable Assets........... 930,089 1,484,652 2,414,741
F-11
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INVESTMENTS IN AFFILIATES
The Company has in excess of 60 unconsolidated affiliates accounted for
under the equity method. The equity method is used when the Company has an
ownership of less than 50% and exercises significant influence over the
operating and financial policies of the affiliate. The following table
summarizes the balance sheets and income statements of the Company's
unconsolidated affiliates, primarily in Europe, Australia and Asia, as of
December 31, 1995, 1994, 1993, and for the years then ended:
Dollars in Thousands)
1995 1994 1993
---- ---- ----
Current assets.............. $1,399,700 $1,208,976 $308,741
Non-current assets.......... 147,093 146,899 73,772
Current liabilities......... 1,400,349 1,196,807 235,389
Non-current liabilities..... 149,781 162,328 29,596
Minority interests.......... 8,015 9,699 1,149
Gross revenues.............. 702,639 568,171 290,814
Costs and expenses.......... 582,850 451,688 238,039
Net income.................. 79,262 86,001 33,574
The increase in the summarized balance sheets and income statements of the
Company's unconsolidated affiliates in 1995 and 1994 is due to the inclusion of
new equity affiliates and the growth of the Company's existing equity
affiliates. The Company's equity in the net income of these affiliates amounted
to $20.8 million, $18.3 million and $13.2 million for 1995, 1994 and 1993,
respectively. The Company's equity in the net tangible assets of these
affiliated companies was approximately $76.7 million, $65.8 million and $58.1
million at December 31, 1995, 1994 and 1993, 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 excess acquisition costs are
being amortized on a straight-line basis principally over a period of forty
years.
7. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1995 and 1994 consisted of
the following:
(Dollars in Thousands)
1995 1994
---- ----
4.5%/6.25% Step-Up Convertible Subordinated Debentures with
a scheduled maturity in 2000..................................... $143,750 $143,750
Deutsche Mark 200 million Floating Rate Bonds, with a scheduled
maturity in 2000, interest at DM three month LIBOR plus 0.65%.... 139,220 --
Sundry notes and loans payable to banks and others at rates from
6% to 25%, maturing at various dates through 2004............... 10,343 79,274
-------- --------
293,313 223,024
Less current portion................................................ 2,934 23,537
-------- --------
Total long-term debt.............................................. $290,379 $199,487
======== ========
F-12
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $27.44 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 January 4, 1995, an indirect wholly-owned subsidiary of the Company
issued Deutsche Mark 200 million Floating Rate Bonds. The bonds are unsecured,
unsubordinated obligations of the issuer and are unconditionally and irrevocably
guaranteed by the Company. The bonds bear interest at a rate equal to Deutsche
Mark three month LIBOR plus 0.65% and may be redeemed at the option of the
issuer on January 5, 1997 or any interest payment date thereafter at their
principal amount plus any accrued but unpaid interest. Unless redeemed earlier,
the bonds will mature on January 5, 2000 and will be repaid at par.
On June 1, 1994, the Company issued a Notice of Redemption for its 6.5%
Convertible Subordinated Debentures with a scheduled maturity in 2004. Prior to
the July 27, 1994 redemption date, debenture holders elected to convert all of
their outstanding debentures into common stock of the Company at a conversion
price of $14.00 per common share.
On August 9, 1993, the Company issued a Notice of Redemption for its 7%
Convertible Subordinated Debentures with a scheduled maturity in 2013. 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 $12.875 per common share.
On July 15, 1994, the Company amended and restated the revolving credit
agreement originally entered into in 1988. This $250 million revolving credit
agreement is with a consortium of banks expiring June 30, 1997. This credit
agreement includes a facility for issuing commercial paper backed by a bank
letter of credit. The agreement contains certain financial covenants regarding
current ratio, ratio of total consolidated indebtedness to total consolidated
capitalization, ratio of net cash flow to consolidated indebtedness, and
limitations on investments in and loans to affiliates and unconsolidated
subsidiaries. At December 31, 1995 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)
1996............................................. $2,934
1997............................................. 2,939
1998............................................. 1,418
1999............................................. 478
2000............................................. 283,269
F-13
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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)
----------------------------------
1995 1994 1993
---- ---- ----
Income before income taxes:
Domestic..................... $107,536 $90,064 $ 43,577
International................ 135,117 98,850 78,101
-------- -------- --------
Totals.................... $242,653 $188,914 $121,678
======== ======== ========
Provision for taxes on income:
Current:
Federal................... $ 29,143 $ 31,500 $ 15,495
State and local........... 9,837 8,708 8,054
International............. 57,463 38,855 35,407
-------- -------- --------
96,443 79,063 58,956
-------- -------- --------
Deferred:
Federal..................... 2,089 (5,167) 667
State and local............. (1,481) (1,285) 139
International............... 335 5,316 (1,277)
-------- -------- --------
943 (1,136) (471)
-------- -------- --------
Totals............... $ 97,386 $ 77,927 $ 58,485
======== ======== ========
The Company's effective income tax rate varied from the statutory federal
income tax rate as a result of the following factors:
1995 1994 1993
---- ---- ----
Statutory federal income tax rate....................... 35.0% 35.0% 35.0%
State and local taxes on income, net of
federal income tax benefit........................... 2.2 2.6 4.6
International subsidiaries' tax rates
in excess of federal statutory rate................. 0.1 0.2 0.1
Non-deductible amortization of goodwill................. 3.4 4.1 4.6
Losses of domestic subsidiaries without tax benefit..... -- -- 6.6
Nontaxable proceeds from life insurance policies........ -- -- (2.6)
Other................................................... (0.6) (0.7) (0.2)
---- ---- ----
Effective rate.......................................... 40.1% 41.2% 48.1%
==== ==== ====
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, 1995 and
1994 of $125.1 million and $111.1 million, respectively, related principally to
tax deductible intangibles, leasehold amortization, restricted stock
amortization, severance and compensation, leases and accrued expenses.
The Company has recorded deferred tax liabilities as of December 31, 1995
and 1994 of $33.2 million and $27.9 million, respectively, related principally
to furniture and equipment depreciation and tax lease recognition.
F-14
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred tax benefits (liabilities) as of December 31, 1995 and 1994
consisted of the amounts shown below (dollars in millions):
1995 1994
---- ----
Deductible intangibles..................... $37.9 $31.5
Acquisition liabilities.................... 16.1 12.1
Lease reserves............................. 8.3 3.0
Severance and compensation reserves........ 28.8 24.7
Tax loss carryforwards..................... 6.0 7.8
Amortization and depreciation.............. (2.3) (3.3)
Other, net................................. (2.9) 7.4
----- -----
$91.9 $83.2
===== =====
Net current deferred tax benefits as of December 31, 1995 and 1994 were
$21.7 million and $18.1 million, respectively, and were included in prepaid
expenses and other current assets. Net non-current deferred tax benefits as of
December 31, 1995 and 1994 were $70.2 million and $65.1 million, respectively.
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.
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 defined contribution 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. Expense associated with these plans
amounted to $41.7 million, $36.6 million and $26.8 million in 1995, 1994 and
1993, respectively.
The Company's pension plans are primarily international. 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 $4.4 million, $0.8 million and $1.1 million in 1995, 1994
and 1993, respectively.
Certain subsidiaries of the Company have executive retirement programs
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.
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. The expense related to these benefits was not material
to the 1995, 1994 and 1993 consolidated results of operations.
10. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1995, 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 $169.1
million in 1995, $152.6 million in 1994 and $149.7 million in 1993 after
reduction by rents received from subleases of $11.1 million, $10.2 million and
$10.0 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:
F-15
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
Gross Rent Sublease Income Net Rent
---------- --------------- --------
1996......................... 146,491 10,969 135,522
1997......................... 130,992 8,462 122,530
1998......................... 108,904 5,862 103,042
1999......................... 94,412 4,800 89,612
2000......................... 88,575 3,627 84,948
Thereafter................... 503,788 9,458 494,330
Where appropriate, management has established reserves for the difference
between the cost of leased premises that were vacated and anticipated sublease
income.
The Company is involved in various routine legal proceedings incident to
the ordinary course of its business. The Company believes that the outcome of
all pending legal proceedings and unasserted claims in the aggregate will not
have a material adverse effect on its results of operations, consolidated
financial position or liquidity.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1995 and 1994.
1995 1994
----------------------- ------------------------
(Dollars in Thousands) (Dollars in Thousands)
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Cash, cash equivalents and
investments available-for-sale.... $335,473 $335,473 $270,222 $270,222
Long-term investments............... 7,520 7,520 5,597 5,597
Long-term debt...................... 293,313 346,860 223,024 224,461
Financial Commitments:
Interest rate swaps............... -- 378 -- --
Forward exchange contracts........ -- 251 -- 123
Guarantees........................ -- 7,688 -- 0,065
Letters of credit................... -- 1,996 -- 19,879
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 equivalents and investments available-for-sale:
Cash equivalents and investments available-for-sale consist principally of
investments in short-term, interest bearing instruments and are carried at fair
market value, which approximates cost.
Long-term investments:
Included in deferred charges and other assets are long-term investments
carried at cost, which approximates estimated fair value.
Long-term debt:
The fair value of the Company's convertible subordinated debenture issue
was determined by reference to quotations available in markets where that issue
is traded. These quotations primarily reflect the conversion value of the
debentures into the Company's common stock. These debentures are redeemable by
the Company, at prices explained in Note 7, which are less than the quoted
market prices used in determining the fair value.
The majority of the Company's remaining long-term debt is primarily
floating rate debt and consequently the carrying amount approximates fair value.
Financial Commitments:
The estimated fair value of derivative positions are based upon quotations
received from independent, third party banks and represent the net amount
F-16
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
payable to terminate the position, taking into consideration market rates and
counterparty credit risk. The fair value of guarantees, principally related to
affiliated companies, and letters of credit were based upon the face value of
the underlying instruments.
12. FINANCIAL INSTRUMENTS AND MARKET RISK
The Company utilizes derivative financial instruments predominantly to
reduce certain market risks to which the Company is exposed. These market risks
primarily consist of the impact of changes in currency exchange rates on assets
and liabilities of non-U.S. operations and the impact of changes in interest
rates on debt. The Company's derivative activities are limited in volume and
confined to risk management activities. Senior management at the Company
actively participate in the quantification, monitoring and control of all
significant risks. A reporting system is in place which evaluates the impact on
the Company's earnings resulting from changes in interest rates, currency
exchange rates and other relevant market risks. This system is structured to
enable senior management to initiate prompt remedial action, if appropriate.
Adequate segregation of duties exists with regard to the execution, recording
and monitoring of derivative activities. Additionally, senior management reports
periodically to the Audit Committee of the Board of Directors concerning
derivative activities. Since 1993, the Audit Committee has established
limitations on derivative activities. These limitations have been reviewed
annually, most recently on March 21, 1996. The Audit Committee has reconfirmed,
for the year 1996, the limitations originally established in 1993.
At December 31, 1995 the following swap agreements were outstanding:
Maturity Aggregate Company Company
Date Notional Amount Receives Pays
------------ ------------------ --------------- ---------
(Amounts in thousands)
U.S. dollar fixed to floating rate swap..... January 1997 $75,000 8.27% U.S. Prime
Deutsche Mark ("DM") floating to
fixed rate swap.......................... January 1997 DM 76,640 3 mo. DM LIBOR 3.79%
U.S. dollar floating to fixed rate swap..... October 2006 $10,000 6 mo. US LIBOR 6.51%
The $75 million swap relates to a portion of the Company's intercompany
interest cash flows. The DM 76.6 million (approximately $53.3 million at the
December 31, 1995 exchange rate) and the $10 million swap agreements convert a
portion of the Company's floating rate debt to a fixed rate.
There were no swap agreements outstanding at December 31, 1994.
The Company enters into forward exchange contracts predominantly to hedge
intercompany receivables and payables which are recorded in a currency different
from that in which they will settle. Gains and losses on these positions are
deferred and included in the basis of the transaction upon settlement. The terms
of these contracts are generally three months or less. At December 31, 1995, the
aggregate amount of intercompany receivables and payables subject to this hedge
program was $306 million. The table below summarizes by major currency the
notional principal amounts of the Company's forward exchange contracts
outstanding at December 31, 1995. The "buy" amounts represent the U.S. dollar
equivalent of commitments to purchase the respective currency, and the "sell"
amounts represent the U.S. dollar equivalent of commitments to sell the
respective currency.
(Dollars in thousands)
Notional Principal Amount
----------------------------
Currency Company Buys Company Sells
-------- ------------ -------------
French Franc............................. $75,472 $43,283
U.S. Dollar.............................. 6,228 43,770
German Mark.............................. 3,394 39,063
Hong Kong Dollar......................... 2,246 30,583
Australian Dollar........................ 11,247 --
Spanish Peseta........................... 4,632 9,902
Belgium Franc............................ 9,583 81
Dutch Guilder............................ 8,463 3,292
Greek Drachma............................ -- 5,120
Other.................................... 12,549 16,367
-------- --------
Total............................. $133,814 $191,461
======== ========
F-17
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The derivative financial instruments existing at December 31, 1995 and
1994 were entered into for the purpose of hedging certain specific currency and
interest rate risks. As a result of these financial instruments, the Company
reduced financial risk in exchange for foregoing any gain (reward) which might
have occurred if the markets moved favorably. In using derivative financial
instruments, management exchanged the risks of the financial markets for
counterparty risk. In order to minimize counterparty risk the Company only
enters into contracts with major well known banks that have credit ratings equal
to or better than the Company's. Additionally, these contracts contain
provisions for net settlement. As such, the contracts settle based on the spread
between the currency rates and interest rates contained in the contracts and the
current market rates. This minimizes the risk of an insolvent counterparty being
unable to pay the Company the notional principal amount owed to the Company and,
at the same time, having the creditors of the counterparty demanding the
notional principal amount from the Company.
13. ADOPTION OF NEW ACCOUNTING PRINCIPLES
The Company intends to adopt SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of" in 1996. The
Company does not anticipate that the effect of such adoption will be material to
the carrying value of such assets.
The Company intends to adopt SFAS No. 123, "Accounting for Stock-Based
Compensation" in 1996. As permitted by SFAS No. 123, the Company intends to
continue to apply the accounting provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and to make annual pro forma disclosures of the
effect of adopting the fair value based method of accounting for employee stock
options and similar instruments.
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". This statement establishes accounting
standards for employers who provide benefits to former or inactive employees
after employment but before retirement (referred to in this statement as
"postemployment benefits"). Those benefits include, but are not limited to,
salary continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits, job training and counseling, and continuation of
benefits such as health care benefits and life insurance coverage. The
cumulative after tax effect of the adoption of SFAS No. 112 resulted in a
reduction to net income of $28 million.
Effective January 1, 1994, the Company also adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". This
Statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. In compliance with SFAS No. 115, the Company classifies these
investments as investments available-for-sale. At December 31, 1995, the
Company's investments consisted principally of time deposits with financial
institutions. These investments, with scheduled maturities of less than one
year, are valued at estimated fair value, which approximates cost. These
investments are generally redeemed at face value upon maturity and, as such,
gains or losses on disposition are immaterial. There are no material unrealized
holding gains or losses as of December 31, 1995.
14. SUBSEQUENT EVENT
On March 1, 1996, the Company issued Deutsche Mark 100 million Floating
Rate Bonds (approximately $68 million). 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. The proceeds of this issuance will be used for
general corporate purposes, including the reduction of outstanding commercial
paper debt.
F-18
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, 1995 and 1994, in
thousands of dollars except for per share amounts. As discussed in the notes to
the consolidated financial statements, during 1995 the Company completed certain
acquisitions which were accounted for under the pooling of interests method of
accounting. Accordingly, the information set forth in the following table
includes the results of these companies for all periods presented. In addition,
information set forth in the following table has been restated to give
retroactive effect to a two-for-one stock split completed in December 1995.
First Second Third Fourth
----- ------ ----- ------
Commissions & Fees
1995.................................. $499,086 $570,263 $537,666 $650,521
1994.................................. 413,127 462,894 456,396 575,378
Income Before Income Taxes
1995.................................. 43,984 77,288 38,667 82,714
1994................................. 33,226 60,188 30,904 64,596
Income Taxes
1995.................................. 18,028 31,356 15,467 32,535
1994................................. 13,735 24,748 12,747 26,697
Income After Income Taxes
1995.................................. 25,956 45,932 23,200 50,179
1994.................................. 19,491 35,440 18,157 37,899
Equity in Affiliates
1995.................................. 2,213 6,141 3,736 8,738
1994.................................. 2,089 3,863 3,432 8,938
Minority Interests
1995.................................. (2,984) (8,542) (3,258) (11,356)
1994.................................. (1,741) (4,794) (2,882) (8,397)
Income Before Change
in Accounting Principle
1995.................................. 25,185 43,531 23,678 47,561
1994.................................. 19,839 34,509 18,707 38,440
Cumulative Effect of Change
in Accounting Principle
1995.................................. -- -- -- --
1994.................................. (28,009) -- -- --
Net Income
1995.................................. 25,185 43,531 23,678 47,561
1994................................. (8,170) 34,509 18,707 38,440
Primary Earnings Per Share Before
Change in Accounting Principle
1995.................................. 0.34 0.58 0.32 0.64
1994................................. 0.29 0.51 0.26 0.52
Fully Diluted Earnings Per Share Before
Change in Accounting Principle
1995.................................. 0.34 0.57 0.32 0.62
1994.................................. 0.29 0.47 0.26 0.51
F-19
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors
Chiat/Day Holdings, Inc.
We have audited the consolidated balance sheets of Chiat/Day Holdings,
Inc. and Subsidiaries as of October 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended (not included herein). 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 consolidated financial position of Chiat/Day
Holdings, Inc. and Subsidiaries as of October 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1, the Company's
debt under its Senior Note and Senior Subordinated Note totaling $18,750,000 is
due in 1995, which combined with its working capital and stockholders' deficits
at October 31, 1994, raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans as to this matter are discussed
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
COOPERS & LYBRAND LLP
Sherman Oaks, California
April 7, 1995
S-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Ross Roy Communications, Inc.
Bloomfield Hills, Michigan
We have audited the consolidated balance sheets of Ross Roy Communications,
Inc.(formerly known as Ross Roy Group, Inc.) as of December 31, 1994, and the
related consolidated statements of operations, common stock subject to
repurchase obligations and accumulated deficit and cash flows for each of the
two years in the period ended December 31, 1994 (not presented separately
herein). These consolidated financial statements are the responsibility of the
Corporation'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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Corporation as of December
31, 1994 and 1993, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
March 9, 1995
S-2
Schedule II
OMNICOM GROUP INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 1995
===================================================================================================================
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------------------
Additions Deductions
---------- -----------------------------
Balance at Charged Removal of Balance
Beginning to Costs Uncollectible Translation at End of
Description of Period and Expenses Receivables(1) Adjustments Period
- -------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Valuation accounts deducted from
assets to which they apply--
allowance for doubtful accounts(2):
December 31, 1995....................... $23,528 $6,024 $6,964 $(764) $23,352
December 31, 1994....................... 19,986 9,788 6,852 (606) 23,528
December 31, 1993....................... 12,842 7,690 (409) 955 19,986
- --------------
(1) Net of acquisition date balances in allowance for doubtful accounts of
companies acquired of $463, $1,330, and $4,581 in 1995, 1994, and 1993,
respectively.
(2) During 1995, the Company completed certain acquisitions which were
accounted for under the pooling of interests method of accounting.
Information in the schedule includes balances for these companies for all
periods presented.
S-3