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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, 1993 Commission File Number: 1-10551
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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. (X)
At March 15, 1994, there were 33,196,570 shares of Common Stock
outstanding; the aggregate market value of the voting stock held by
nonaffiliates at March 15, 1994 was approximately $1,576,200,000.
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, 1994
Common Stock, $.50 Par Value 33,196,570
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 24, 1994 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, 1993
Page
----
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
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 ............................................ 9
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................................ 9
PART III
Item 10. Directors and Executive Officers of the Registrant ..................................... 10
Item 11. Executive Compensation ................................................................. 10
Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 10
Item 13. Certain Relationships and Related Transactions ......................................... 10
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,"
"Executive Compensation," "Directors' Compensation" and "Certain Transactions
with Management" in the Company's definitive proxy statement which is expected
to be filed by April 8, 1994.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ....................... 11
PART I
Item 1. Business
Omnicom Group Inc., through its wholly and partially-owned companies
(hereinafter collectively referred to as the "Agency" or "Company"), operates
advertising agencies which plan, create, produce and place advertising in
various media such as television, radio, newspaper and magazines. The Agency
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 Agency 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 both 1993 and 1992,
52% of the Agency's billings came from its non-U.S. operations. (See "Financial
Statements and Supplementary Data")
According to the unaudited industry-wide figures published in the trade
journal, Advertising Age, in 1993 Omnicom Group Inc. was ranked as the third
largest advertising agency group worldwide.
The Agency operates three separate, independent agency networks: The BBDO
Worldwide Network, the DDB Needham Worldwide Network and the TBWA International
Network. The Agency also operates independent agencies, Altschiller Reitzfeld,
and Goodby, Berlin and Silverstein, and certain marketing service and specialty
advertising companies through Diversified Agency Services ("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 Los
Angeles and San Francisco, California; Atlanta, Georgia; Chicago, Illinois;
Detroit, Michigan; and Minneapolis, Minnesota.
The BBDO Worldwide Network operates internationally through subsidiaries
in Austria, Belgium, Brazil, Canada, Finland, France, Germany, Greece, Hong
Kong, Italy, Malaysia, Mexico, the Netherlands, Peru, Poland, Portugal, Puerto
Rico, Russia, Singapore, Spain, Sweden, Switzerland, Taiwan and the United
Kingdom; and through affiliates located in Argentina, Australia, Chile, Croatia,
the Czech Republic, Denmark, Egypt, El Salvador, Guatemala, Honduras, Hungary,
India, Lebanon, Kuwait, New Zealand, Norway, Panama, the Philippines, Romania,
Saudi Arabia, the Slovak Republic, Sweden, Turkey, the United Kingdom, United
Arab Emirates, Uruguay, and Venezuela; and through joint ventures in China and
Japan. The BBDO Worldwide Network uses the services of associate agencies in
Colombia, Ecuador, Indonesia, Korea, Pakistan and Thailand.
DDB Needham Worldwide Network
The DDB Needham Worldwide Network operates in the United States through
DDB Needham Worldwide which is headquartered in New York and has full-service
offices in Los Angeles, California; Dallas, Texas; Honolulu, Hawaii; Chicago,
Illinois; and Seattle, Washington.
1
The DDB Needham Worldwide Network operates internationally through
subsidiaries in Australia, Austria, Belgium, Canada, China, the Czech Republic,
Denmark, France, Germany, Greece, Hong Kong, Hungary, Italy, Japan, Mexico, the
Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, the Slovak
Republic, Spain, Sweden, Thailand and the United Kingdom; and through affiliates
located in Brazil, Estonia, Finland, Germany, India, Korea, Malaysia, the
Philippines, Switzerland, Taiwan and Thailand. The DDB Needham Worldwide Network
uses the services of associate agencies in Argentina, Chile, Colombia, Costa
Rica, Egypt, Indonesia, Ireland, Peru, Saudi Arabia, Turkey, United Arab
Emirates, Venezuela and in Denver, Colorado.
TBWA International Network
The TBWA International Network operates in the United States through TBWA
Advertising which is headquartered in New York and through TBWA Switzer Wolfe
Advertising in St. Louis, Missouri.
The TBWA International Network operates internationally through
subsidiaries in Belgium, France, Germany, Italy, the Netherlands, Spain,
Switzerland, and the United Kingdom; and through affiliates located in Denmark,
South Africa and Sweden. The TBWA International Network uses the services of
associate agencies in Austria, Canada, Finland, Greece, Japan, Korea, Mexico,
Norway, Portugal and Turkey.
Diversified Agency Services
DAS is the Company's Marketing Services and Specialty Advertising division
whose agencies' mission is to provide customer driven marketing communications
coordinated to the client's benefit. The division offers marketing services
including sales promotion, public relations, direct and database marketing,
corporate and brand identity, graphic arts, merchandising/point-of-purchase; and
specialty advertising including financial, healthcare and recruitment
advertising.
DAS agencies headquartered in the United States include: Harrison, Star,
Wiener & Beitler, Inc., The Schechter Group, Inc., Kallir, Philips, Ross, Inc.,
RC Communications, Inc., Merkley Newman Harty Inc. and Lavey/Wolff/Swift, Inc.,
in New York; Doremus & Company, Gavin Anderson & Company Worldwide, Inc., Porter
Novelli, Inc., Bernard Hodes Advertising, Inc., and Rapp Collins Worldwide Inc.,
all in various cities and headquartered in New York; Baxter, Gurian & Mazzei,
Inc., in Beverly Hills, California; Frank J. Corbett, Inc., in Chicago,
Illinois; Thomas A. Schutz Co., Inc. in Morton Grove, Illinois; Rainoldi,
Kerzner & Radcliffe, Inc. in San Francisco, California and Alcone Sims O'Brien,
Inc., in Irvine, California and Mahwah, New Jersey.
DAS operates in the United Kingdom through subsidiaries which include
Countrywide Communications Group Ltd., CPM Field Marketing Ltd., Granby
Marketing Services Ltd., Headway, Home and Law Publishing Group Ltd., Interbrand
Ltd., Product Plus London Ltd., Specialist Publications (UK) Ltd., The Anvil
Consultancy Ltd. and Colour Solutions Ltd.
In addition, DAS operates internationally with subsidiaries and affiliates
in Australia, Belgium, Canada, France, Germany, Hong Kong, Ireland, Italy,
Japan, Mexico, Scotland, Spain, Sweden and Switzerland.
Omnicom Group Inc.
As the parent company of BBDO Worldwide, DDB Needham Worldwide, TBWA
International, the DAS Group, Goodby, Berlin and Silverstein, Inc., and
Altschiller Reitzfeld, Inc., the Company, through its wholly-owned subsidiary
Omnicom Management Inc., provides a common financial and administrative base for
the operating groups. The Company oversees 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.
2
Clients
The clients of the Agency include major industrial, financial and service
industry companies as well as smaller, local clients. Among its clients are
Anheuser-Busch, Apple Computer, Chrysler Corporation, Delta Airlines, General
Mills, Gillette, GTE, Henkel, McDonald's, PepsiCo., Volkswagen and The Wm.
Wrigley Jr. Company.
The Agency's ten largest clients accounted for approximately 18% of 1993
billings. The majority of these have been clients for more than ten years. The
Agency's largest client accounted for less than 5% of 1993 billings.
Revenues
Commissions charged on media billings are the primary source of revenues
for the Agency. 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 Agency bills its client for
this amount plus the commission. The Agency 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 Agency's advertising networks also generate revenues in arranging for
the production of advertisements and commercials. Although, as a general matter,
the Agency does not itself produce the advertisements and commercials, the
Agency'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 Agency's personnel.
In some 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 Group primarily charges fees for its 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 Agency 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 136 people on the
Agency's staff were employed in research during the year and the Agency's
domestic research expenses approximated $13,137,000. 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 and TBWA International and the independent agencies within the DAS
Group have enabled the Agency to represent competing clients.
BBDO Worldwide, DDB Needham Worldwide, TBWA International and the DAS
Group have sought, and as part of the Agency'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 Agency competes
in the United States and abroad 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.
3
Employees
The business success of the Agency 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 Agency 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 Agency. 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, 1993, the Agency, excluding
unconsolidated companies, employed approximately 14,400 persons, of which
approximately 6,100 were employed in the United States and approximately 8,300
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 assure 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 has continued a program to consolidate 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 25,000 sq. ft. of
space at 437 Madison Avenue, New York, New York under a lease expiring in the
year 2010.
BBDO Worldwide occupies approximately 265,000 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 211,000 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 International occupies approximately 51,000 sq. ft. of space at 292
Madison Avenue, New York, New York under a lease expiring in the year 2004,
which includes options for additional growth of the agency.
The Agency's other full-service offices in Atlanta, Beverly Hills,
Chicago, Dallas, Detroit, Honolulu, Irvine, Los Angeles, Mahwah, Minneapolis,
Morton Grove, New York, San Francisco, Seattle and St. Louis and service offices
at various other locations occupy approximately 1,780,000 sq. ft. of space under
leases with varying expiration dates.
International
The Company's international subsidiaries in Australia, Austria, Belgium,
Brazil, Canada, China, the Czech Republic, Denmark, Finland, France, Germany,
Greece, Hong Kong, Hungary, Italy, Japan, Malaysia, Mexico, the Netherlands, New
Zealand, Norway, Poland, Portugal, Puerto Rico, Russia, Singapore, the Slovak
Republic, Spain, Sweden, Switzerland, Taiwan, Thailand and the United Kingdom
occupy premises under leases with various expiration dates.
Item 3. Legal Proceedings
The Agency 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
No matters were submitted to a vote of security holders during the last
quarter of 1993.
4
Executive Officers of the Company
The individuals named below are Executive Officers of the Company:
Name Position Age
----- -------- ---
Bruce Crawford................. President, Chief Executive Officer of Omnicom Group Inc. 65
Fred J. Meyer ................. Chief Financial Officer of Omnicom Group Inc. 63
Dennis E. Hewitt............... Treasurer of Omnicom Group Inc. 49
Dale A. Adams.................. Controller of Omnicom Group Inc. 35
Raymond E. McGovern............ Secretary, General Counsel of Omnicom Group Inc. 66
Allen Rosenshine............... Chairman, Chief Executive Officer of BBDO Worldwide Inc. 55
James A. Cannon ............... Vice Chairman, Chief Financial Officer of BBDO Worldwide Inc. 55
Keith L. Reinhard.............. Chairman, Chief Executive Officer of DDB Needham Worldwide Inc. 59
William G. Tragos.............. Chairman, Chief Executive Officer of TBWA International B.V. 59
John D. Wren................... Chairman, Chief Executive Officer of Diversified Agency Services 41
John L. Bernbach, Martin Boase and Peter I. Jones ceased to be Executive
Officers of the Company in 1993 by reason of a change in their responsibilities.
Effective January 1, 1994, Keith L. Bremer resigned his position as
Treasurer of the Company to become Chief Financial Officer of DDB Needham
Worldwide Inc.
Effective January 1, 1994, Dennis E. Hewitt was promoted to Treasurer of
the Company. Mr. Hewitt joined the Company in May 1988 as Assistant Treasurer.
William G. Tragos became an Executive Officer of the Company upon the
Company's acquisition of TBWA International B.V. in May 1993. Mr. Tragos is one
of the founding partners of TBWA International B.V. and has served as the
Chairman and Chief Executive Officer since its formation.
John D. Wren became an Executive Officer of the Company upon his
appointment as 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 from January 1991 through February 1992, and as its Senior Vice
President and Chief Financial Officer from September 1986 through December 1990.
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.
Raymond E. McGovern has served as Secretary and General Counsel of the
Company since September 1986, having previously served as Secretary and General
Counsel of BBDO Worldwide Inc. (then named BBDO International, Inc.) for more
than 10 years.
Similar information with respect to the remaining Executive Officers of
the Company will be found in the Company's definitive proxy statement expected
to be filed April 8, 1994.
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.
Dividends Paid
Per Share of
High Low Common Stock
---- --- ------------
1992
First Quarter .............. $36 3/4 $31 1/4 $.275
Second Quarter ............. 36 5/8 32 .310
Third Quarter .............. 35 7/8 32 .310
Fourth Quarter ............. 41 7/8 34 3/4 .310
1993
First Quarter .............. 47 1/2 38 3/8 .310
Second Quarter ............. 47 1/4 38 1/4 .310
Third Quarter .............. 46 1/4 37 .310
Fourth Quarter ............. 46 1/2 41 1/2 .310
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, tangible net worth, and the ratio of net cash
flow to consolidated indebtedness.
On January 24, 1994 the Board of Directors declared a regular quarterly
dividend of $.31 per share of common stock, payable April 1, 1994 to holders of
record on March 18, 1994.
Approximate Number of Equity Security Holders
Approximate Number of
Record Holders
Title of Class on March 15, 1994
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Common Stock, $.50 par value ............. 2,672
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.
(Dollars in Thousands Except Per Share Amounts)
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1993 1992 1991 1990 1989
---- ---- ---- ---- ----
For the year:
Commissions and fees ....................... $1,516,475 $1,385,161 $1,236,158 $1,178,233 $1,007,173
Net income ................................. 85,345 69,298 57,052 52,009 46,794
Earnings per common share:
Primary ................................. 2.79 2.45 2.08 2.01 1.81
Fully diluted ........................... 2.62 2.31 2.01 1.94 1.71
Dividends declared per common
share ................................... 1.24 1.21 1.10 1.07 .98
At year end:
Total assets ............................... 2,289,863 1,951,950 1,885,894 1,748,529 1,547,599
Long-term obligations:
Long-term debt .......................... 278,312 235,129 245,189 278,960 267,327
Deferred taxes payable .................. -- 8,411 8,932 6,552 11,723
Deferred compensation and
other liabilities .................... 56,933 51,919 31,355 25,365 23,334
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
In 1993, domestic revenues from commissions and fees increased 9 percent.
The effect of acquisitions, net of divestitures, accounted for a 4 percent
increase. The remaining 5 percent increase was due to net new business gains and
higher spending from existing clients.
Domestic revenues increased 2 percent in both 1992 and 1991, primarily as a
result of net new business gains and higher spending from existing clients.
In 1993, international revenues increased 10 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 an 18 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 12 percent. The increase in revenues, due to net new
business gains and higher spending from existing clients, was 4 percent.
In 1992, international revenues increased 25 percent, of which the effect
of the acquisition of McKim Baker Lovick BBDO in Canada and the purchase of
additional shares in several companies which were previously affiliates of the
Company accounted for 14 percent. The remaining increase was due to net new
business gains and higher spending from existing clients. The fourth quarter
strengthening of the U.S. dollar did not significantly impact the revenues for
the year.
In 1991, international revenues increased 9 percent, of which the effect
of the acquisition of Valin Pollen in the United Kingdom, the purchase of
additional shares in several companies which were previously affiliates of the
Company, offset by the merger of BBDO's agency in the United Kingdom into Abbott
Mead Vickers. BBDO Ltd., accounted for 4 percent. The strengthening of the U.S.
dollar decreased international revenues by 3 percent in 1991. The remaining
increase was due to net new business gains and higher spending from existing
clients.
In 1993, worldwide operating expenses increased 9 percent. Acquisitions,
net of divestitures during the year, accounted for a 12 percent increase in
worldwide operating expenses. The strengthening of the U.S. dollar against
several international currencies decreased worldwide operating expenses by 6
percent. The remaining increase was caused by normal salary increases and growth
7
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 1992, worldwide operating expenses, before the special charge,
increased 12 percent. Acquisitions, net of divestitures during the year,
accounted for 5 percent of the increase. The remaining increase was caused by
normal salary increases and growth in out-of-pocket expenditures to service the
increased revenue base. Foreign exchange gains did not significantly impact
total operating expenses for the year. The ratio of worldwide operating
expenses, before the special charge, as a percent of commissions and fees
improved slightly over 1991.
In 1991, worldwide operating expenses, increased 5 percent over 1990
levels. The ratio of worldwide operating expenses, excluding non-recurring
items, as a percent of commissions and fees did not change significantly in
1991. Foreign exchange gains were comparable to those reported in 1990. Gains,
net of losses, from the sales of equity interests in certain companies, together
with other non-recurring items did not have a significant effect on the 1991
results.
Interest expense in 1993 is comparable to 1992. Interest and dividend
income decreased in 1993 by $2.2 million. This decrease was primarily due to
lower average amounts of cash and marketable securities invested during the year
and lower average interest rates on amounts invested.
Interest expense in 1992 is comparable to 1991. Interest and dividend
income decreased by $1.4 million in 1992. This decrease was primarily due to
lower average funds available for investment during the year and declining
interest rates in certain countries.
Interest expense increased in 1991 by $1.3 million. Interest and dividend
income increased by $2.8 million in 1991. This increase was primarily due to an
increase of funds available for investment overseas in markets where interest
rates were generally above those in the United States.
In 1993, the effective tax rate decreased to 42.0%. This decrease
primarily reflects a lower international effective tax rate caused by fewer
international operating losses with no associated tax benefit, partially offset
by an increased domestic federal tax rate.
In 1992, the effective tax rate of 43.6% was comparable to the 1991
effective tax rate of 44%.
In 1993, consolidated net income increased 23 percent. This increase is
the result of revenue growth, margin improvement, an increase in equity income
and a decrease in minority interest expense. Operating margin increased to 11.2
percent in 1993 from 11.1 percent in 1992. This increase was the result of
greater growth in commission and fee revenue than the growth in operating
expenses. The increase in equity income is the result of improved net income at
companies which are less than 50 percent owned. The decrease in minority
interest expense is 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 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 percent.
Consolidated net income increased 21 percent in 1992. This increase is a
result of revenue growth and margin improvement. Operating margin, before the
first quarter special charge discussed below, increased to 11.1 percent in 1992
from 10.9 percent in 1991. This increase was the result of greater growth in
commissions and fees than the growth in operating expenses. In 1992, the
incremental impact of acquisitions, net of divestitures, accounted for 6 percent
of the increase in consolidated net income.
Consolidated net income increased 10 percent in 1991. This increase is a
result of revenue growth, margin improvement, lower net interest costs and a
reduction in the effective tax rate. Operating margin, which excludes net
interest expense, increased to 10.9 percent in 1991 from 10.8 percent in 1990,
reflecting the greater growth of commissions and fees as compared to operating
expenses. The reduction in net interest expense also contributed to an increase
in the Net Income Before Tax margin from 8.7 percent to 9.1 percent. The impact
of net non-recurring items in 1991 did not contribute towards net income growth.
In 1991, the incremental effect of acquisitions net of dispositions had an
adverse effect of 5 percent on net income.
8
At December 31, 1993, accounts payable increased by $131.3 million from
December 31, 1992. This increase was primarily due to an increased volume of
activity resulting from business growth and acquisitions during the year and
differences in the dates on which payments to media and other suppliers became
due in 1993 compared to 1992.
In 1992, the Company adopted two new accounting principles which had a net
favorable cumulative after tax effect of $3.8 million. At the same time, the
Company recorded a special charge to provide for future losses related to
certain leased property. The combination of the favorable impact of the adoption
of the new accounting principles and the after tax impact of the special charge
had no effect on 1992 consolidated net income.
Effective January 1, 1994, the Company will adopt Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits"
("SFAS No. 112"). The Company estimates that the adoption of SFAS No. 112 will
result in an unfavorable after tax effect on net income of approximately $27
million.
The current economic conditions in the Company's major markets would
indicate varying growth rates in advertising expenditures in 1994. The Company
anticipates slow growth rates in certain European economies and improved growth
rates in the United States, the United Kingdom and Australia. However, the
Company believes that it is properly positioned should the anticipated improved
growth rates not occur.
Capital Resources and Liquidity
Cash and cash equivalents increased $62 million during 1993 to $175
million at December 31, 1993. The Company's positive net cash flow provided by
operating activities was enhanced by an improvement in the 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 was used to fund
acquisitions, make capital expenditures, repay debt obligations and invest in
marketable securities. Cash was also raised from the issuance of $144 million of
4.5%/6.25% Step-Up Convertible Subordinated Debentures due 2000, the net
proceeds of which were used for general corporate purposes, including, to reduce
borrowings under the Company's commercial paper program.
On August 9, 1993, the Company issued a Notice of Redemption for the
outstanding $85 million of its 7% Convertible Subordinated Debentures due 2013.
Prior to the October 8, 1993 redemption date, debenture holders elected to
convert all of their outstanding debentures into common stock of the Company at
a conversion price of $25.75 per common share.
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, 1993, the Company had $359
million in committed lines of credit, comprised of a $200 million, two and
one-half year revolving credit agreement and $159 million in unsecured credit
lines, principally outside of the United States. Of the $359 million in
committed lines, $27 million were used at December 31, 1993. 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.
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.
9
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors of the Company is incorporated
by reference to the Company's definitive proxy statement expected to be filed by
April 8, 1994. 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, 1994.
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, 1994.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Company's definitive proxy statement
expected to be filed by April 8, 1994.
10
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, 1993 ...................................... F-3
Consolidated Balance Sheets at December 31, 1993 and 1992 ....... F-4
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1993 .......................... F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1993 ...................................... F-6
Notes to Consolidated Financial Statements ...................... F-7
Quarterly Results of Operations (Unaudited) ..................... F-16
2.Financial Statement Schedules:
For the three years ended December 31, 1993:
Schedule II--Amounts Receivable from Related Parties,
Underwriters, Promoters, and Employees
Other Than Related Parties .................................. S-1
Schedule VIII--Valuation and Qualifying Accounts ............... S-3
Schedule IX--Short-Term Borrowings ............................. S-4
Schedule X--Supplementary Income Statement Information ......... S-5
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or
notes thereto.
3. Exhibits:
(3)(i) Articles of Incorporation.
Incorporated by reference to the 1986 Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on March 31, 1987.
(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 6 1/2% Convertible Subordinated
Debentures due 2004, including the indenture, filed as
Exhibit 4.2 to Omnicom Group Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1989,
is incorporated herein by reference.
11
4.2 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.
(10) Material Contracts.
Management Contracts, Compensatory Plans, Contracts or
Arrangements.
10.1 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.
10.2 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.
10.3 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 Copy of Employment Agreement dated March 20, 1989,
between Peter I. Jones and Boase Massimi Pollitt plc,
filed as Exhibit 10.22 to Omnicom Group Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1989, is incorporated herein by reference.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 Amendment to Registrant's Profit-Sharing Retirement
Plan listed as Exhibit 10.3 above, adopted on July 1,
1993.
10.11 Copy of Severance Agreement dated July 6, 1993, between
Keith Reinhard and DDB Needham Worldwide Inc.
10.12 Copy of Severance Agreement dated July 6, 1993, between
John L. Bernbach and DDB Needham Worldwide Inc.
10.13 Copy of Employment Agreement dated May 26, 1993,
between William G. Tragos and TBWA International B.V.
10.14 Copy of Deferred Compensation Agreement dated October
12, 1984, between William G. Tragos and TBWA
Advertising Inc.
12
Other Material Contracts.
10.15 Copy of $200,000,000 Amended and Restated Credit
Agreement, dated January 1, 1993, between Omnicom
Finance Inc., Swiss Bank Corporation and the financial
institutions party thereto, filed as Exhibit 10.12 to
Omnicom Group Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, is incorporated
herein by reference.
(21) Subsidiaries of the Registrant....................... S-6
(23) Consents of Experts and Counsel.
23.1 Consent of Independent Public Accountants............ S-16
(24) Powers of Attorney from Bernard Brochand, Robert J.
Callander, Leonard S. Coleman, Jr., John R. Purcell,
Gary L. Roubos, Quentin I. Smith, Jr., Robin B. Smith,
William G. Tragos, and Egon P. S. Zehnder.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1993.
13
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 28, 1994
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 President and Chief March 28, 1994
- ------------------------------------------------- Executive Officer and Director
(Bruce Crawford)
/s/ Fred J. Meyer Chief Financial Officer March 28, 1994
- ------------------------------------------------- and Director
(Fred J. Meyer)
/s/ Dale A. Adams Controller (Principal March 28, 1994
- ------------------------------------------------- Accounting Officer)
(Dale A. Adams)
/s/ Raymond E. McGovern Secretary and General March 28, 1994
- ------------------------------------------------- Counsel and Director
(Raymond E. McGovern)
/s/ John L. Bernbach Director March 28, 1994
- -------------------------------------------------
(John L. Bernbach)
/s/ Bernard Brochand* Director March 28, 1994
- -------------------------------------------------
(Bernard Brochand)
/s/ Robert J. Callander* Director March 28, 1994
- -------------------------------------------------
(Robert J. Callander)
/s/ James A. Cannon Director March 28, 1994
- -------------------------------------------------
(James A. Cannon)
/s/ Leonard S. Coleman, Jr.* Director March 28, 1994
- -------------------------------------------------
(Leonard S. Coleman, Jr.)
/s/ Peter I. Jones Director March 28, 1994
- -------------------------------------------------
(Peter I. Jones)
/s/ John R. Purcell* Director March 28, 1994
- -------------------------------------------------
(John R. Purcell)
/s/ Keith L. Reinhard Director March 28, 1994
- -------------------------------------------------
(Keith L. Reinhard)
/s/ Allen Rosenshine Director March 28, 1994
- -------------------------------------------------
(Allen Rosenshine)
/s/ Gary L. Roubos* Director March 28, 1994
- -------------------------------------------------
(Gary L. Roubos)
/s/ Quentin I. Smith, Jr.* Director March 28, 1994
- -------------------------------------------------
(Quentin I. Smith, Jr.)
/s/ Robin B. Smith* Director March 28, 1994
- -------------------------------------------------
(Robin B. Smith)
/s/ William G. Tragos* Director March 28, 1994
- -------------------------------------------------
(William G. Tragos)
/s/ John D. Wren Director March 28, 1994
- -------------------------------------------------
(John D. Wren)
/s/ Egon P.S. Zehnder* Director March 28, 1994
- -------------------------------------------------
(Egon P.S. Zehnder)
*By /s/ Bruce Crawford
----------------------------------------------
Bruce Crawford
Attorney-in-fact
14
REPORT OF MANAGEMENT
The management of Omnicom Group Inc. is responsible for the integrity of
the financial data reported by Omnicom Group and its subsidiaries. Management
uses its best judgment to ensure that the financial statements present fairly,
in all material respects, the consolidated financial position and results of
operations of Omnicom Group. These financial statements have been prepared in
accordance with generally accepted accounting principles.
The system of internal controls of Omnicom Group, augmented by a program of
internal audits, is designed to provide reasonable assurance that assets are
safeguarded and records are maintained to substantiate the preparation of
accurate financial information. Underlying this concept of reasonable assurance
is the premise that the cost of control should not exceed the benefits derived
therefrom.
The financial statements have been audited by independent public
accountants. Their report expresses an independent informed judgment as to the
fairness of management's reported operating results and financial position. This
judgment is based on the procedures described in the second paragraph of their
report.
The Audit Committee meets periodically with representatives of financial
management, internal audit and the independent public accountants to assure that
each is properly discharging their responsibilities. In order to ensure complete
independence, the Audit Committee communicates directly with the independent
public accountants, internal audit and financial management to discuss the
results of their audits, the adequacy of internal accounting controls and the
quality of financial reporting.
/s/ Bruce Crawford /s/ Fred J. Meyer
- ----------------------------------- ----------------------------------
Bruce Crawford Fred J. Meyer
President and Chief Executive Officer Chief Financial Officer
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Omnicom Group Inc.:
We have audited the accompanying consolidated balance sheets of Omnicom
Group Inc. (a New York corporation) and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Omnicom Group Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, effective
January 1, 1992, the Company changed its methods of accounting for income taxes
and postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules on pages S-1 through S-5
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
New York, New York
February 22, 1994
F-2
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(Dollars in Thousands
Except Per Share Data)
---------------------------------------------------------
1993 1992 1991
----------- ----------- -----------
COMMISSIONS AND FEES ....................................... $ 1,516,475 $ 1,385,161 $ 1,236,158
OPERATING EXPENSES:
Salaries and Related Costs ............................ 879,808 798,189 721,858
Office and General Expenses ........................... 467,468 433,884 379,183
Special Charge ........................................ -- 6,714 --
----------- ----------- -----------
1,347,276 1,238,787 1,101,041
----------- ----------- -----------
OPERATING PROFIT ........................................... 169,199 146,374 135,117
NET INTEREST EXPENSE:
Interest and Dividend Income .......................... (14,628) (16,810) (18,207)
Interest Paid or Accrued .............................. 41,203 40,888 41,400
----------- ----------- -----------
26,575 24,078 23,193
----------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND CHANGE IN ACCOUNTING
PRINCIPLES .............................................. 142,624 122,296 111,924
INCOME TAXES ............................................... 59,871 53,268 49,248
----------- ----------- -----------
INCOME AFTER INCOME TAXES AND BEFORE
CHANGE IN ACCOUNTING PRINCIPLES ......................... 82,753 69,028 62,676
EQUITY IN AFFILIATES ....................................... 13,180 9,598 9,274
MINORITY INTERESTS ......................................... (10,588) (13,128) (14,898)
----------- ----------- -----------
INCOME BEFORE CHANGE IN
ACCOUNTING PRINCIPLES ................................... 85,345 65,498 57,052
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES ................................... -- 3,800 --
----------- ----------- -----------
NET INCOME ................................................. $ 85,345 $ 69,298 $ 57,052
=========== =========== ===========
NET INCOME PER COMMON SHARE:
Income Before Change in
Accounting Principles:
Primary .............................................. $2.79 $2.31 $2.08
Fully Diluted ........................................ $2.62 $2.20 $2.01
Cumulative Effect of Change
in Accounting Principles:
Primary .............................................. -- $0.14 --
Fully Diluted ........................................ -- $0.11 --
Net Income:
Primary .............................................. $2.79 $2.45 $2.08
===== ===== =====
Fully Diluted ........................................ $2.62 $2.31 $2.01
===== ===== =====
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)
---------------------------
1993 1992
---------- ----------
Current Assets:
Cash and cash equivalents.................................................... $ 174,833 $ 112,459
Marketable securities, at cost, which approximates market.................... 38,003 18,431
Accounts receivable, less allowance for doubtful accounts of
$17,298 and $12,825 (Schedule VIII)...................................... 901,434 826,733
Billable production orders in process, at cost............................... 59,415 57,529
Prepaid expenses and other current assets.................................... 100,791 121,577
---------- ----------
Total Current Assets....................................................... 1,274,476 1,136,729
Furniture, Equipment and Leasehold Improvements, at cost, less
accumulated depreciation and amortization of $188,868 and $163,107........... 160,543 153,155
Investments in Affiliates ...................................................... 112,232 106,536
Intangibles, less accumulated amortization of $93,105 and $75,706................ 603,494 478,581
Deferred Tax Benefit............................................................. 18,522 --
Deferred Charges and Other Assets ............................................... 120,596 76,949
---------- ----------
$2,289,863 $1,951,950
========== ==========
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
Current Liabilities:
Accounts payable............................................................. $1,058,095 $ 926,782
Current portion of long-term debt............................................ 21,892 10,096
Bank loans (Schedule IX)..................................................... 26,155 26,505
Advance billings............................................................. 90,422 90,879
Other accrued taxes.......................................................... 32,953 27,625
Other accrued liabilities.................................................... 254,378 194,549
Accrued taxes on income...................................................... 29,974 25,381
Dividend payable............................................................. 10,349 8,826
---------- ----------
Total Current Liabilities.................................................. 1,524,218 1,310,643
---------- ----------
Long-Term Debt ................................................................. 278,312 235,129
Deferred Compensation and Other Liabilities ..................................... 56,933 51,919
Deferred Taxes Payable .......................................................... -- 8,411
Minority Interests .............................................................. 28,214 36,956
Commitments and Contingent Liabilities (Note 10)
Shareholders' Equity:
Preferred stock, $1.00 par value, 7,500,000 shares authorized, none
issued................................................................... -- --
Common stock, $.50 par value, 75,000,000 shares authorized, 35,071,932
and 30,388,593 shares issued in 1993 and 1992, respectively.............. 17,536 15,195
Additional paid-in capital................................................... 252,408 155,086
Retained earnings............................................................ 287,416 245,373
Unamortized restricted stock................................................. (21,807) (15,307)
Cumulative translation adjustment............................................ (65,257) (37,869)
Treasury stock, at cost, 1,901,977 and 1,930,035 shares in 1993 and
1992, respectively....................................................... (68,110) (53,586)
---------- ----------
Total Shareholders' Equity.............................................. 402,186 308,892
---------- ----------
$2,289,863 $1,951,950
========== ==========
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, 1993
(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 January 1, 1991............. 28,133,698 $14,067 $ 98,465 $192,388 $(10,634) $41,465 $(37,421) $298,330
Net income.......................... 57,052 57,052
Dividends declared.................. (30,259) (30,259)
Issue of new shares................. 1,724,900 862 43,070 43,932
Amortization of restricted shares... 6,245 6,245
Shares issued under employee
stock plans...................... 1,176 (6,588) 11,268 5,856
Shares issued for acquisitions...... 347,791 174 10,436 10,610
Conversion of 7% Debentures......... 15,417 8 401 409
Cumulative translation adjustment... (8,428) (8,428)
Repurchases of shares............... (17,529) (17,529)
---------- ------- -------- -------- -------- -------- -------- --------
Balance December 31, 1991, as
previously reported.............. 30,221,806 15,111 153,548 219,181 (10,977) 33,037 (43,682) 366,218
Pooling of interests adjustment..... 159,720 80 91 (6,062) (5,891)
---------- ------- -------- -------- -------- -------- -------- --------
Balance January 1, 1992, as restated 30,381,526 15,191 153,639 213,119 (10,977) 33,037 (43,682) 360,327
Net income.......................... 69,298 69,298
Dividends declared.................. (33,628) (33,628)
Amortization of restricted shares... 5,993 5,993
Shares issued under employee
stock plans...................... 1,227 (10,323) 16,691 7,595
Shares issued for acquisitions...... 150,168 75 220 295
Retirement of shares................ (143,101) (71) (3,416) 3,487 --
Cumulative translation adjustment... (70,906) (70,906)
Repurchases of shares............... (30,082) (30,082)
---------- ------- -------- -------- -------- -------- -------- --------
Balance December 31, 1992, as
previously reported.............. 30,388,593 15,195 155,086 245,373 (15,307) (37,869) (53,586) 308,892
Pooling of interests adjustment..... 1,349,260 674 124 (6,309) (1,834) (7,345)
---------- ------- -------- -------- -------- -------- -------- --------
Balance January 1, 1993, as restated 31,737,853 15,869 155,210 239,064 (15,307) (39,703) (53,586) 301,547
Net income.......................... 85,345 85,345
Dividends declared.................. (36,993) (36,993)
Amortization of restricted shares... 7,096 7,096
Shares issued under employee
stock plans...................... 5,709 (13,596) 15,413 7,526
Shares issued for acquisitions...... 7,303 21,948 29,251
Conversion of 7% Debentures......... 3,334,079 1,667 84,186 85,853
Cumulative translation adjustment... (25,554) (25,554)
Repurchases of shares............... (51,885) (51,885)
---------- ------- -------- -------- -------- -------- -------- --------
Balance December 31, 1993........... 35,071,932 $17,536 $252,408 $287,416 $(21,807) $(65,257) $(68,110) $402,186
========== ======= ======== ======== ======== ======== ======== ========
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)
---------------------------------------------
1993 1992 1991
--------- --------- ---------
Cash Flows From Operating Activities:
Net income .............................................................. $ 85,345 $ 69,298 $ 57,052
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of tangible assets ...................... 34,574 33,706 32,846
Amortization of intangible assets ..................................... 18,950 16,102 13,332
Minority interests .................................................... 10,588 13,128 14,898
Earnings of affiliates in excess of dividends received ................ (6,823) (3,765) (2,539)
Increase (decrease) in deferred taxes ................................. 2,197 (921) 2,553
Provisions for losses on accounts receivable .......................... 4,742 2,545 3,085
Amortization of restricted shares ..................................... 7,096 5,993 6,245
Loss (gain) on sales of equity interests in
subsidiaries and affiliates ......................................... -- 414 (1,794)
Increase in accounts receivable ....................................... (35,416) (29,360) (32,978)
Decrease (increase) in billable production ............................ 6,665 (8,318) (1,508)
Decrease (increase) in other current assets ........................... 19,949 (12,011) (27,165)
Increase in accounts payable .......................................... 73,389 81,697 42,761
(Decrease) increase in other accrued liabilities ...................... (3,498) 26,185 19,692
Increase (decrease) in accrued taxes on income ........................ 1,918 (3,830) 9,102
Other ................................................................. (10,479) (9,167) 8,061
--------- --------- ---------
Net Cash Provided By Operating Activities ................................. 209,197 181,696 143,643
--------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures .................................................... (33,646) (34,881) (32,097
Payments for purchases of equity interests in subsidiaries
and affiliates, net of cash acquired .................................. (80,577) (59,651) (77,129)
Proceeds from sales of equity interests in subsidiaries and
affiliates ............................................................ 558 1,840 8,334
Payments for purchases of marketable securities and
other investments ..................................................... (49,733) (5,353) (35,937)
Proceeds from sales of marketable securities and
other investments ..................................................... 17,396 30,504 3,284
--------- --------- ---------
Net Cash Used In Investing Activities ..................................... (146,002) (67,541) (133,545)
--------- --------- ---------
Cash Flows From Financing Activities:
Issuance of common stock ................................................ -- -- 44,341
Net (repayments) borrowings under lines of credit ....................... (14,167) (9,302) 18,461
Proceeds from issuances of debt obligations ............................. 147,283 7,836 470
Repayment of principal of debt obligations .............................. (31,980) (41,371) (20,454)
Share transactions under employee stock plans ........................... 7,526 7,594 5,856
Dividends and loans to minority stockholders ............................ (8,033) (9,128) (9,538)
Dividends paid .......................................................... (35,470) (32,623) (29,708)
Purchase of treasury shares ............................................. (51,885) (30,082) (17,529)
--------- --------- ---------
Net Cash Provided by (Used in) Financing Activities ....................... 13,274 (107,076) (8,101)
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents ........................................................... (14,095) (8,331) (549)
--------- --------- ---------
Net Increase (Decrease) In Cash and Cash Equivalents ...................... 62,374 (1,252) 1,448
Cash and Cash Equivalents At Beginning of Period .......................... 112,459 113,711 112,263
--------- --------- ---------
Cash and Cash Equivalents At End of Period ................................ $ 174,833 $ 112,459 $ 113,711
========= ========= =========
Supplemental Disclosures:
Income taxes paid ....................................................... $ 58,893 $ 58,292 $ 41,217
========= ========= =========
Interest paid ........................................................... $ 38,290 $ 32,729 $ 35,417
========= ========= =========
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. Summary of Significant Accounting Policies
Recognition of Commission and Fee Revenue. Substantially all revenues are
derived from commissions for placement of advertisements in various media and
from fees for manpower and for production of advertisements. Revenue is
generally recognized when billed. Billings are generally rendered upon
presentation date for media, when manpower is used, when costs are incurred for
radio and television production and when print production is completed.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Omnicom Group Inc. and its domestic and
international subsidiaries (the "Company"). All significant intercompany
balances and transactions have been eliminated.
Reclassifications. Certain prior year amounts have been reclassified to
conform with the 1993 presentation.
Billable Production. Billable production orders in process consist
principally of costs incurred in producing advertisements and marketing
communications for clients. Such amounts are generally billed to clients when
costs are incurred for radio and television production and when print production
is completed.
Treasury Stock. The Company accounts for treasury share purchases at cost.
The reissuance of treasury shares is accounted for at the average cost. Gains or
losses on the reissuance of treasury shares are generally accounted for as
additional paid-in capital.
Foreign Currency Translation. The Company's financial statements were
prepared in accordance with the requirements of Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." Under this method,
net transaction gains of $5.0 million, $8.1 million and $5.3 million are
included in 1993, 1992 and 1991 net income, respectively.
Net Income Per Common Share. Primary earnings per share is based upon the
weighted average number of common shares and common share equivalents
outstanding during each year. Fully diluted earnings per share is based on the
above adjusted for the assumed conversion of the Company's Convertible
Subordinated Debentures and the assumed increase in net income for the after tax
interest cost of these debentures. For the year ended December 31, 1993, the
6.5% Convertible Subordinated Debentures were assumed to be converted for the
full year; the 7% Convertible Subordinated Debentures were assumed to be
converted through October 8, 1993 when they were converted into common stock;
and the 4.5%/6.25% Step-Up Convertible Subordinated Debentures were assumed to
be converted from their September 1, 1993 issuance date. For the years ended
December 31, 1992 and 1991, the 6.5% and 7% Convertible Subordinated Debentures
were assumed to be converted for the full year. The number of shares used in the
computations were as follows:
1993 1992 1991
---- ---- ----
Primary EPS computation ....... 30,607,900 28,320,400 27,415,000
Fully diluted EPS computation . 37,563,500 35,332,400 34,384,400
Severance Agreements. Arrangements with certain present and former
employees provide for continuing payments for periods up to 10 years after
cessation of their full-time employment in consideration for agreements by the
employees not to compete and to render consulting services in the post
employment period. Such payments, which are determined, subject to certain
conditions and limitations, by earnings in subsequent periods, are expensed in
such periods.
Depreciation of Furniture and Equipment and Amortization of Leasehold
Improvements. Depreciation charges are computed on a straight-line basis or
declining balance method over the estimated useful lives of furniture and
equipment, up to 10 years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the terms of the related lease or the
useful life of these assets.
Intangibles. Intangibles represent acquisition costs in excess of the fair
value of tangible net assets of purchased subsidiaries which are being amortized
on a straight-line basis over periods not exceeding forty years.
Deferred Taxes. Deferred tax liabilities and tax benefits relate to the
recognition of certain revenues and expenses in different years for financial
statement and tax purposes.
F-7
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Flows. The Company's cash equivalents are primarily comprised of
investments in overnight interest-bearing deposits and money market instruments
with maturity dates of three months or less.
The following supplemental schedule summarizes the fair value of assets
acquired, cash paid, common shares issued and the liabilities assumed in
conjunction with the acquisition of equity interests in subsidiaries and
affiliates, for each of the three years ended December 31:
(Dollars in thousands)
1993 1992 1991
Fair value of non-cash assets acquired .. $ 287,177 $ 173,974 $ 89,384
Cash paid, net of cash acquired ......... (80,577) (59,651) (77,129)
Common shares issued .................... (21,906) 5,596 (10,610)
--------- --------- ---------
Liabilities assumed ..................... $ 184,694 $ 119,919 $ 1,645
========= ========= =========
During 1993, the Company issued 3,334,079 shares of common stock upon
conversion of $85.9 million of its 7% Convertible Subordinated Debentures.
Concentration of Credit Risk. The Company provides advertising and
marketing services to a wide range of clients who operate in many industry
sectors around the world. The Company grants credit to all qualified clients,
but does not believe it is exposed to any undue concentration of credit risk to
any significant degree.
2. Acquisitions
During 1993 the Company made several acquisitions whose aggregate cost, in
cash or by issuance of the Company's common stock, totaled $132.8 million for
net assets, which included intangible assets of $149.7 million. Included in both
figures are contingent payments related to prior year acquisitions totaling
$16.2 million.
Pro forma combined results of operations of the Company as if the
acquisitions had occurred on January 1, 1992 do not materially differ from the
reported amounts in the consolidated statements of income for each of the two
years in the period ended December 31, 1993.
Certain acquisitions entered into in 1993 require payments in future years
if certain results are achieved. Formulas for these contingent future payments
differ from acquisition to acquisition.
In May 1993, the Company completed its acquisition of a third agency
network, TBWA International B.V. The acquisition was accounted for as a pooling
of interests and, accordingly, the results of operations for TBWA International
B.V. have been included in these consolidated financial statements since January
1, 1993. Prior year consolidated financial statements were not restated as the
impact on such years was not material.
3. Bank Loans and Lines of Credit
Bank loans generally resulted from bank overdrafts of international
subsidiaries which are treated as loans pursuant to bank agreements. At December
31, 1993 and 1992, the Company had unsecured committed lines of credit
aggregating $359 million and $266 million, respectively. The unused portion of
credit lines was $332 million and $237 million at December 31, 1993 and 1992,
respectively. The lines of credit are generally extended at the banks' lending
rates to their most credit worthy borrowers. Material compensating balances are
not required within the terms of these credit agreements.
At December 31, 1992, the committed lines of credit included $125 million
under a two year revolving credit agreement. Due to the long term nature of this
credit agreement, borrowings under the agreement were classified as long-term
debt. As of January 1, 1993, the $125 million credit agreement was replaced by a
$200 million, two and one-half year revolving credit agreement. Borrowings under
this credit agreement are also classified as long-term debt. There were no
borrowings under these credit agreements at December 31, 1993 and 1992.
4. Employee Stock Plans
Under the terms of the Company's 1987 Stock Plan, as amended (the "1987
Plan"), 4,750,000 shares of common stock of the Company are reserved for
restricted stock awards and non-qualified stock options to key employees of the
Company.
F-8
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the terms of the 1987 Plan, the option price may not be less than
100% of the market value of the stock at the date of the grant. Options become
exercisable 30% on each of the first two anniversary dates of the grant date
with the final 40% becoming exercisable three years from the grant date.
Under the 1987 Plan, 285,000, 242,500 and 175,000 non-qualified options
were granted in 1993, 1992 and 1991, respectively.
A summary of changes in outstanding options for the three years ended
December 31, 1993 is as follows:
Years Ended December 31,
---------------------------------
1993 1992 1991
---- ---- ----
Shares under option (at prices ranging
from $16.50 to $35.0625) --
Beginning of year ..................... 998,000 1,043,900 1,076,416
Options granted (at prices ranging from
$23.50 to $40.0625) ................... 285,000 242,500 175,000
Options exercised (at prices ranging
from $16.50 to $35.0625) .............. (197,800) (274,200) (203,600)
Options forfeited ....................... (12,800) (14,200) (3,916)
--------- ------- ---------
Shares under option (at prices ranging
from $16.875 to $40.0625)-- End of year 1,072,400 998,000 1,043,900
========= ======= =========
Shares exercisable ...................... 562,650 443,400 371,749
Shares reserved ......................... 1,502,882 589,422 1,099,902
Under the 1987 Plan, 337,200 shares, 314,775 shares and 278,250 shares of
restricted stock of the Company were awarded in 1993, 1992 and 1991,
respectively.
All restricted shares granted under the 1987 Plan were sold at a price per
share equal to their par value. The difference between par value and market
value on the date of the sale is charged to shareholders' equity and then
amortized to expense over the period of restriction. Under the 1987 Plan, the
restricted shares become transferable to the employee in 20% annual increments
provided the employee remains in the employ of the Company.
Restricted shares may not be sold, transferred, pledged or otherwise
encumbered until the restrictions lapse. Under most circumstances, the employee
must resell the shares to the Company at par value if the employee ceases
employment prior to the end of the period of restriction. A summary of changes
in outstanding shares of restricted stock for the three years ended December 31,
1993 is as follows:
Years Ended December 31,
-----------------------------------
1993 1992 1991
---- ---- ----
Beginning balance ........... 629,752 619,024 765,763
Amount granted ............ 337,200 314,775 278,250
Amount vested ............. (201,712) (278,942) (394,085)
Amount forfeited .......... (24,804) (25,105) (30,904)
------- ------- -------
Ending balance .............. 740,436 629,752 619,024
======= ======= =======
The charge to operations in connection with these restricted stock awards
for the years ended December 31, 1993, 1992 and 1991 amounted to $7.1 million,
$6.0 million and $6.2 million, respectively.
F-9
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Segment Reporting
The Company operates advertising agencies and offers its clients additional
marketing services and specialty advertising through its wholly-owned and
partially-owned businesses. A summary of the Company's operations by geographic
area as of December 31, 1993, 1992 and 1991, and for the years then ended is
presented below:
(Dollars in Thousands)
United
States International Consolidated
---------- ------------- ------------
1993
Commissions and Fees ........ $ 770,611 $ 745,864 $1,516,475
Operating Profit ............ 92,095 77,104 169,199
Net Income .................. 40,814 44,531 85,345
Identifiable Assets ......... 827,032 1,462,831 2,289,863
1992
Commissions and Fees ........ 706,902 678,259 1,385,161
Operating Profit ............ 70,558 75,816 146,374
Net Income .................. 33,223 36,075 69,298
Identifiable Assets ......... 675,508 1,276,442 1,951,950
1991
Commissions and Fees ........ 692,642 543,516 1,236,158
Operating Profit ............ 65,981 69,136 135,117
Net Income .................. 25,078 31,974 57,052
Identifiable Assets ......... 659,583 1,226,311 1,885,894
6. Investments in Affiliates
The Company has approximately 45 unconsolidated affiliates with equity
ownership ranging from 20% to 50%. The following table summarizes the balance
sheets and income statements of the Company's unconsolidated affiliates,
primarily in Europe, Australia, Asia and Canada, as of December 31, 1993, 1992,
1991, and for the years then ended:
(Dollars in Thousands)
1993 1992 1991
---- ---- ----
Current assets ................. $308,741 $312,423 $408,376
Non-current assets ............. 73,772 64,901 54,474
Current liabilities ............ 235,389 259,508 321,777
Non-current liabilities ........ 29,596 8,302 11,456
Minority interests ............. 1,149 1,110 275
Gross revenues ................. 290,814 288,416 374,760
Costs and expenses ............. 238,039 243,661 326,076
Net income ..................... 33,574 27,752 28,933
The Company's equity in the net income of these affiliates amounted to
$13.2 million, $9.6 million and $9.3 million for 1993, 1992 and 1991,
respectively. The Company's equity in the net tangible assets of these
affiliated companies was approximately $58.1 million, $56.2 million and $54.5
million at December 31, 1993, 1992 and 1991, respectively. Included in the
Company's investments in affiliates is the excess of acquisition costs over the
fair value of tangible net assets acquired. These acquisitions costs are being
amortized on a straight-line basis over periods not exceeding forty years.
F-10
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Long-Term Debt and Financial Instruments
Long-term debt outstanding as of December 31, 1993 and 1992 consisted of
the following:
(Dollars in Thousands)
1993 1992
-------- --------
4.5%/6.25% Step-Up Convertible Subordinated Debentures with a scheduled
maturity in 2000 ........................................................................... $143,750 $ --
6.5% Convertible Subordinated Debentures with a scheduled maturity
in 2004 .................................................................................... 100,000 100,000
7% Convertible Subordinated Debentures with a scheduled maturity
in 2013 .................................................................................... -- 85,853
Foreign currency and interest rate swaps, at floating LIBOR rates,
maturing at various dates through 1997 ..................................................... 11,435 5,291
Sundry notes payable to banks and others at rates from 5.75% to 16%,
maturing at various dates through 1999 ..................................................... 35,518 42,663
Loan Notes, at various rates with a scheduled maturity in 1994 ............................... 9,501 11,418
-------- --------
300,204 245,225
Less current portion ......................................................................... 21,892 10,096
-------- --------
Total long-term debt ....................................................................... $278,312 $235,129
======== ========
During the third quarter of 1993, the Company issued $143,750,000 of
4.5%/6.25% Step-Up Convertible Subordinated Debentures with a scheduled maturity
in 2000. The average annual interest rate through the year 2000 is 5.42%. The
debentures are convertible into common stock of the Company at a conversion
price of $54.88 per share subject to adjustment in certain events. The
debentures are not redeemable prior to September 1, 1996. Thereafter, the
Company may redeem the debentures initially at 102.984% and at decreasing prices
thereafter to 100% at maturity, in each case together with accrued interest. The
debentures also may be repaid at the option of the holder at anytime prior to
September 1, 2000 if there is a Fundamental Change, as defined in the debenture
agreement, at the repayment prices set forth in the debenture agreement, subject
to adjustment, together with accrued interest.
On August 9, 1993, the Company issued a Notice of Redemption for its 7%
Convertible Subordinated Debentures with a scheduled maturity in 2013. Prior to
the October 1993 redemption date, debenture holders elected to convert all of
their outstanding debentures into common stock of the Company at a conversion
price of $25.75 per common share.
During the third quarter of 1989, the Company issued $100,000,000 of 6.5%
Convertible Subordinated Debentures with a scheduled maturity in 2004. The
debentures are convertible into common stock of the Company at a conversion
price of $28.00 per share subject to adjustment in certain events. Debenture
holders have the right to require the Company to redeem the debentures on July
26, 1996 at a price of 123.001%, or upon the occurrence of a Fundamental Change,
as defined in the debenture agreement, at the prevailing redemption price. The
Company may redeem the debentures on or after July 27, 1994, initially at
118.808%, from July 27, 1995 to and including July 26, 1996 at 123.001%, and
thereafter at 100%, together in each case with accrued interest. The debentures
may also be redeemed in whole at any time, at par together with accrued
interest, if any, in the event of certain developments regarding United States
tax laws or the imposition of certain certification or identification
requirements.
Also in the third quarter of 1989, a wholly-owned subsidiary of the Company
issued interest bearing Loan Notes in connection with the acquisition of Boase
Massimi Pollitt plc. The Loan Notes are unsecured obligations guaranteed by the
Company and bear interest at a yearly rate of 1/8 percent below the average of
the six month London Inter-Bank Offered Rate for the three business days
preceding the commencement of the relevant interest period. The Loan Notes are
redeemable, at the option of the holder in whole or in part at their nominal
amount, together with interest accrued to the date of redemption, on any
interest payment date. Under certain conditions the Company may redeem the Loan
F-11
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Notes, at their nominal amount plus accrued interest, on any interest payment
date on or after December 31, 1992. Unless earlier redeemed or purchased and
cancelled, the Loan Notes will be repaid on December 31, 1994 at their nominal
amount together with accrued interest.
In January 1993, the Company amended and restated the revolving credit
agreement originally entered into in 1988. This $200,000,000 revolving credit
agreement is with a consortium of banks having an initial term of two and
one-half years. This credit agreement includes a facility for issuing commercial
paper backed by bank letters of credit. The agreement contains certain financial
covenants regarding minimum tangible net worth, current ratio, ratio of net cash
flow to consolidated indebtedness, limitation on foreign indebtedness,
limitation on employee loans, and limitation on investments in and loans to
affiliates and unconsolidated subsidiaries. At December 31, 1993 the Company was
in compliance with all of these covenants.
Aggregate maturities of long-term debt in the next five years are as
follows:
(Dollars in Thousands)
----------------------
1994 ........................ $21,892
1995 ........................ 18,906
1996 ........................ 9,622
1997 ........................ 4,373
1998 ........................ 1,526
Periodically, the Company enters into swap agreements and other derivative
financial instruments primarily to reduce the impact of changes in foreign
exchange rates on net assets and liabilities denominated in foreign currencies
and to reduce the impact of changes in interest rates on floating rate debt. At
December 31, 1993, the Company had foreign currency and interest rate swap
agreements outstanding with commercial banks having a notional principal amount
of $70.6 million. These agreements effectively change a portion of the Company's
foreign currency denominated debt to U.S. dollar denominated debt. The change
from foreign currency denominated debt reduces the exposure to foreign currency
fluctuations.
The Company also has entered into U.S. dollar interest rate swap agreements
which convert its floating rate debt to a fixed rate. These agreements have
varying notional principal amounts, starting dates and maturity dates. The
aggregate maximum notional principal amount outstanding through October 2003 is
$50 million.
8. Income Taxes
Income before income taxes and the provision for taxes on income consisted
of the amounts shown below:
Years Ended December 31,
(Dollars in Thousands)
-----------------------------------
1993 1992 1991
--------- --------- ---------
Income before income taxes:
Domestic ......................... $ 65,571 $ 47,535 $ 44,937
International .................... 77,053 74,761 66,987
--------- --------- ---------
Totals ......................... $ 142,624 $ 122,296 $ 111,924
Provision for taxes on income:
Current:
Federal ........................ $ 16,428 $ 17,143 $ 15,140
State and local ................ 6,531 6,215 2,765
International .................. 35,071 29,067 29,980
--------- --------- ---------
58,030 52,425 47,885
--------- --------- ---------
Deferred:
Federal ........................ 2,979 (3,702) 1,170
State and local ................ 139 (1,375) 239
International .................. (1,277) 5,920 (46)
--------- --------- ---------
1,841 843 1,363
--------- --------- ---------
Totals ......................... $ 59,871 $ 53,268 $ 49,248
========= ========= =========
F-12
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's effective income tax rate varied from the statutory federal
income tax rate as a result of the following factors:
1993 1992 1991
---- ---- ----
Statutory federal income tax rate ..... 35.0% 34.0% 34.0%
State and local taxes on income, net of
federal income tax benefit .......... 3.0 2.6 1.8
International subsidiaries' tax rate in
excess of federal statutory rate .... 0.1 1.3 2.7
Losses of international subsidiaries
without tax benefit ................. 0.2 1.0 0.3
Non-deductible amortization of goodwill 3.9 3.7 3.3
Other ................................. (0.2) 1.0 1.9
---- ---- ----
Effective rate ........................ 42.0% 43.6% 44.0%
==== ==== ====
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," which was adopted effective January 1, 1992. Deferred income taxes are
provided for the temporary difference between the financial reporting basis and
tax basis of the Company's assets and liabilities. Deferred tax benefits result
principally from recording certain expenses in the financial statements which
are not currently deductible for tax purposes. Deferred tax liabilities result
principally from expenses which are currently deductible for tax purposes, but
have not yet been expensed in the financial statements.
The Company has recorded deferred tax benefits as of December 31, 1993 and
1992 of $56.7 million and $21.9 million, respectively, related principally to
leasehold amortization, restricted stock amortization, foreign exchange
transactions, and accrued expenses.
The Company has recorded deferred tax liabilities as of December 31, 1993
and 1992 of $29.3 million and $21.9 million, respectively, related principally
to furniture and equipment depreciation and tax lease recognition.
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 profit sharing plans. Company
contributions to the plans, which are determined by the boards of directors of
the subsidiaries, have been in amounts up to 15% (the maximum amount deductible
for federal income tax purposes) of total eligible compensation of participating
employees. Profit sharing expense amounted to $25.8 million in 1993, $20.8
million in 1992 and $24.4 million in 1991.
Some of the Company's international subsidiaries have pension plans. These
plans are not required to report to governmental agencies pursuant to the
Employee Retirement Income Security Act of 1974 (ERISA). Substantially all of
these plans are funded by fixed premium payments to insurance companies who
undertake legal obligations to provide specific benefits to the individuals
covered. Pension expense amounted to $2.4 million in 1993, $2.7 million in 1992
and $2.5 million in 1991.
Certain subsidiaries of the Company have an executive retirement program
under which benefits will be paid to participants or their beneficiaries over 15
years from age 65 or death. In addition, other subsidiaries have individual
deferred compensation arrangements with certain executives which provide for
payments over varying terms upon retirement, cessation of employment or death.
F-13
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Some of the Company's domestic subsidiaries provide life insurance and
medical benefits for retired employees. Eligibility requirements vary by
subsidiary, but generally include attainment of a specified combined age plus
years of service factor. In 1991 the cost of these benefits was expensed as paid
and was not material to the consolidated results of operations. Effective
January 1, 1992, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 106 "Employers' Accounting For Post- retirement
Benefits Other Than Pensions" ("SFAS No. 106"). SFAS No. 106 requires that the
expected cost of post retirement benefits be charged to expense during the years
that the eligible employees render service. The after tax cumulative effect of
the adoption of SFAS No. 106 was not material to the net worth of the Company
and the expense for the year was not material to the 1993 and 1992 consolidated
results of operations.
10. Commitments
At December 31, 1993, the Company was committed under operating leases,
principally for office space. Certain leases are subject to rent reviews and
require payment of expenses under escalation clauses. Rent expense was $128.8
million in 1993, $117.3 million in 1992 and $101.7 million in 1991 after
reduction by rents received from subleases of $10.0 million, $14.1 million and
$17.9 million, respectively. Future minimum base rents under terms of
noncancellable operating leases, reduced by rents to be received from existing
noncancellable subleases, are as follows:
(Dollars in Thousands)
Gross Rent Sublease Rent Net Rent
---------- ------------- --------
1994 .................... $103,531 $ 9,297 $ 94,234
1995 .................... 94,594 7,698 86,896
1996 .................... 85,395 6,459 78,936
1997 .................... 77,229 4,305 72,924
1998 .................... 66,330 2,927 63,403
Thereafter .............. 414,201 10,944 403,257
Where appropriate, management has established reserves for the difference
between the cost of leased premises that were vacated and anticipated sublease
income.
11. Fair Value of Financial Instruments
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments," which
was adopted by the Company in 1992, requires all entities to disclose the fair
value of financial instruments for which it is practicable to estimate fair
value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and marketable securities:
Marketable securities consist principally of investments in short-term,
interest bearing instruments. The carrying amount approximates fair value.
Long-term investments:
Included in deferred charges and other assets are long-term investments
which consist principally of an investment in Aegis Group plc., a publicly
traded company, carried at fair market value and related stock warrants carried
at cost. The fair value of the warrants was determined using an option pricing
model. The remaining amounts, carried at cost, approximate estimated fair value.
Long-term debt:
The fair value of the Company's convertible subordinated debenture issues
was determined by reference to quotations available in markets where those
issues are traded. These quotations primarily reflect the conversion value of
the debentures into the Company's common stock. These debentures are redeemable
F-14
OMNICOM GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
by the Company, at prices explained in Note 7, which are significantly less than
the quoted market prices used in determining the fair value. The fair value of
the Company's remaining long-term debt was estimated based on the current rates
offered to the Company for debt with the same remaining maturities.
Swap agreements and forward contracts:
The fair value of interest rate swaps and forward contracts is the
estimated amount that the Company would receive or pay to terminate the
agreements at December 31, 1993.
The estimated fair value of the Company's financial instruments at December
31, 1993 is as follows:
(Dollars in Thousands)
Carrying Fair
Amount Value
--------- ---------
Cash and marketable securities ......... $ 212,836 $ 212,836
Long-term investments .................. 26,015 27,672
Long-term debt ......................... 300,204 370,941
Other financial instruments:
Interest rate swaps ................. -- (2,457)
Forward contracts ................... (288) (288)
12. Special Charge and Adoption of New Accounting Principles
Effective January 1, 1992, the Company adopted SFAS No. 106 and SFAS No.
109. The cumulative after tax effect of the adoption of these Statements
increased net income by $3.8 million, substantially all of which related to SFAS
No. 109. Due to the continued weakening of the commercial real estate market in
certain domestic and international locations and the reorganization of certain
operations, the Company provided a special charge of $6.7 million pretax for
losses related to future lease costs.
Effective January 1, 1994, the Company will adopt SFAS No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS No. 112"). The
Company estimates that the adoption of SFAS No. 112 will result in an
unfavorable after tax effect on net income of approximately $27 million.
F-15
OMNICOM GROUP INC. AND SUBSIDIARIES
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following table sets forth a summary of the unaudited quarterly results
of operations for the two years ended December 31, 1993 and 1992, in thousands
of dollars except for per share amounts.
First Second Third Fourth
--------- --------- --------- ---------
Commissions & Fees
1993 ....................... $ 339,139 $ 381,758 $ 339,531 $ 456,047
1992 ....................... 308,888 347,561 327,750 400,962
Income Before Special Charge
and Income Taxes
1993 ....................... 24,738 49,274 19,581 49,031
1992 ....................... 24,093 39,441 23,042 42,434
Special Charge
1993 ....................... -- -- -- --
1992 ....................... 6,714 -- -- --
Income Before Income Taxes
1993 ....................... 24,738 49,274 19,581 49,031
1992 ....................... 17,379 39,441 23,042 42,434
Income Taxes
1993 ....................... 10,390 20,678 8,228 20,575
1992 ....................... 7,678 16,993 10,633 17,964
Income After Income Taxes
1993 ....................... 14,348 28,596 11,353 28,456
1992 ....................... 9,701 22,448 12,409 24,470
Equity in Affiliates
1993 ....................... 1,692 2,674 1,769 7,045
1992 ....................... 2,103 4,081 125 3,289
Minority Interests
1993 ....................... (1,584) (4,008) (276) (4,720)
1992 ....................... (2,876) (4,172) (2,157) (3,923)
Cumulative Effect of Change
in Accounting Principles
1993 ....................... -- -- -- --
1992 ....................... 3,800 -- -- --
Net Income
1993 ....................... 14,456 27,262 12,846 30,781
1992 ....................... 12,728 22,357 10,377 23,836
Primary Earnings Per Share
1993 ....................... 0.50 0.90 0.43 0.95
1992 ....................... 0.45 0.78 0.37 0.84
Fully Diluted Earnings Per Share
1993 ....................... 0.49 0.82 0.43 0.87
1992 ....................... 0.45 0.72 0.37 0.76
F-16
Schedule II
OMNICOM GROUP INC. AND SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
For the Three Years Ended December 31, 1993
===================================================================================================================================
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------------------------
Deductions Balance at End of Period
------------------------- --------------------------
Balance at
Beginning Amounts Translation Not
Name of Debtor of Period Additions Collected Adjustments Current(1) Current(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
A. Steiner .............................. $ 134,925 $ 5,673 $ 8,855 $ $ 43,914 $ 87,829
M. Garcia ............................... 183,809 15,598 62,000 137,407
A. Duynstee ............................. 116,481 109,086 7,395
L. van Schoonhoven ...................... 103,899 97,302 6,597
G. van Woerkom .......................... 106,526 99,763 6,763
H. Stephan .............................. 157,646 15,375 87,467 10,667 74,887
B. Singelmann ........................... 136,902 13,352 9,264 140,990
A. Sturgess ............................. 161,262 129,946 (400) 31,716
P. Merkley .............................. 125,000 25,000 33,333 66,667
Dr. A. Danyliuk ......................... 240,992 23,505 61,717 16,308 186,472
J. Kofner ............................... 186,283 17,251 8,775 12,606 182,153
G. Woelky ............................... 136,666 13,329 9,248 140,747
W. Amerika .............................. 250,917 234,986 15,931
E. Manen ................................ 291,492 272,985 18,507
C. Maggio ............................... 210,287 4,637 18,458 196,466
E. Wenzel ............................... 209,928 209,928
M. Switzer .............................. 410,746 407,446 3,300
----------- ----------- ----------- ----------- ----------- -----------
$ 2,543,087 $ 729,394 $ 1,623,786 $ 112,886 $ 249,670 $ 1,286,139
=========== =========== =========== =========== =========== ===========
Year Ended December 31, 1992:
P. Farago ............................... $ 208,346 $ $ 208,346 $ $ $
A. Steiner .............................. 137,975 5,805 8,855 134,925
J. Bernbach ............................. 143,351 209,294 352,645
M. Garcia ............................... 200,000 10,809 27,000 183,809
R. Ferris ............................... 100,000 25,000 25,000 50,000
A. Duynstee ............................. 114,160 12,820 3,463 7,036 116,481
L. van Schoonhoven ...................... 165,784 20,165 71,833 10,217 103,899
G. van Woerkom .......................... 119,120 15,372 20,625 7,341 106,526
H. Stephan .............................. 231,672 25,352 84,498 14,880 157,646
B. Singelmann ........................... 177,197 19,391 48,304 11,382 136,902
J. Bove ................................. 138,641 4,260 59,019 22,041 61,841
A. Sturgess ............................. 161,262 161,262
P. Schierholz ........................... 145,988 133,766 9,090 3,132
P. Merkley .............................. 125,000 31,250 93,750
Dr. A. Danyliuk ......................... 262,584 21,592 240,992
J. Kofner ............................... 186,283 186,283
G. Woelky ............................... 136,666 136,666
W. Amerika .............................. 250,917 250,917
E. Manen ................................ 291,492 291,492
C. Maggio ............................... 210,287 210,287
S. Burton ............................... 126,332 75,627 50,705
J. Bradstock ............................ 231,184 231,184
----------- ----------- ----------- ----------- ----------- -----------
$ 1,882,234 $ 2,305,275 $ 1,371,757 $ 81,987 $ 1,596,601 $ 1,137,164
=========== =========== =========== =========== =========== ===========
- -----------
(1) See footnote on Page S-2
S-1
Schedule II
OMNICOM GROUP INC. AND SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES (Continued)
For the Three Years Ended December 31, 1993
===================================================================================================================================
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------------------------
Deductions Balance at End of Period
------------------------- --------------------------
Balance at
Beginning Amounts Translation Not
Name of Debtor of Period Additions Collected Adjustments Current(1) Current(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1991:
P. Farago ............................... $ 217,031 $ 19,741 $ 28,426 $ $ 208,346 $
A. Steiner .............................. 140,898 5,932 8,855 3,000 134,975
S. Gillette ............................. 140,000 46,667 46,667 46,666
J. Bernbach ............................. 143,351 143,351
M. Garcia ............................... 200,000 14,900 185,100
R. Ferris ............................... 125,000 25,000 25,000 75,000
T. Hollander ............................ 338,727 329,994 4,169 4,564
J. Klok ................................. 297,565 285,360 3,662 8,543
A. Duynstee ............................. 114,160 114,160
L. van Schoonhoven ...................... 165,784 165,784
G. van Woerkom .......................... 119,120 119,120
H. Stephan .............................. 317,770 32,443 114,266 4,275 231,672
B. Singelmann ........................... 219,728 22,433 62,008 2,956 177,197
J. Bove ................................. 203,466 64,825 138,641
A. Sturgess ............................. 104,546 104,831 (285)
P. Schierholz ........................... 145,988 145,988
----------- ----------- ----------- ----------- ----------- -----------
$ 1,776,265 $ 1,297,418 $ 1,070,232 $ 14,777 $ 1,546,933 $ 441,741
=========== =========== =========== =========== =========== ===========
- -----------
(1) Interest is charged at varying rates which approximate the local fair
market lending rate. Repayment terms vary in accordance with agreements
between the employee and the respective company.
S-2
Schedule VIII
OMNICOM GROUP INC. AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 1993
====================================================================================================================================
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:
December 31, 1993 ....................... $12,825 $ 4,742 $ (686) $ 955 $17,298
December 31, 1992 ....................... 15,634 2,545 4,092 1,262 12,825
December 31, 1991 ....................... 16,532 3,085 3,974 9 15,634
- --------------
(1) Net of acquisition date balances in allowance for doubtful accounts of
companies acquired of $4,581 and $589 in 1993 and 1992, respectively.
S-3
Schedule IX
OMNICOM GROUP INC. AND SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
For the Three Years Ended December 31, 1993
================================================================================================================
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------------------------------------------------------------------------
Maximum Weighted
Outstanding Average Average
Category of Weighted Short-term Amount Interest
Aggregate Balance at Average Borrowings Outstanding Rate
Short-term End of Interest During the During the During the
Borrowings Year (1) Rate Year (1) Year (2) Year (3)
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31,
1993............................ Banks $26,155,000 6.5% $65,463,000 $43,913,000 7.7%
Year ended December 31,
1992............................ Banks 26,505,000 11.2% 75,743,000 50,643,000 8.9%
Year ended December 31,
1991............................ Banks 36,229,000 10.5% 54,875,000 36,340,000 9.9%
- --------------
(1) Represents balances of U.S. dollar and foreign currency bank loans
generally from bank overdrafts.
(2) Based upon a simple average of balances measured at regular intervals
throughout the year.
(3) Annualized interest expense divided by average amount outstanding.
S-4
Schedule X
OMNICOM GROUP INC. AND SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Three Years Ended December 31, 1993
================================================================================================================
Column A Column B Column C Column D
- ----------------------------------------------------------------------------------------------------------------
Amount Charged to Expenses
--------------------------------------------------
Category 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Maintenance and Repairs..................................... $16,334 $14,142 $12,759
Amortization of Intangible Assets........................... 18,950 16,102 13,332
S-5