-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MuqAzzxsN6QnSkNp0X/8VVlcDf3fYCbv0DOyFAOcqzJ9e6x8lvQukrhTDh5qM8QB NblspJFLGMNygsho7sUMCQ== 0000891092-95-000003.txt : 19950208 0000891092-95-000003.hdr.sgml : 19950208 ACCESSION NUMBER: 0000891092-95-000003 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19950207 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNICOM GROUP INC CENTRAL INDEX KEY: 0000029989 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 131514814 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10551 FILM NUMBER: 95505964 BUSINESS ADDRESS: STREET 1: 437 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124153600 MAIL ADDRESS: STREET 1: 437 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: DOYLE DANE BERNBACH GROUP INC DATE OF NAME CHANGE: 19861117 FORMER COMPANY: FORMER CONFORMED NAME: DOYLE DANE BERNBACH INTERNATIONAL INC DATE OF NAME CHANGE: 19850604 FORMER COMPANY: FORMER CONFORMED NAME: DOYLE DANE BERNBACH INC DATE OF NAME CHANGE: 19781226 10-K/A 1 ANNUAL REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K/A AMENDMENT TO APPLICATION OR REPORT Filed Pursuant to Section 12, 13, or 15(d) of The Securities Exchange Act of 1934 AMENDMENT NO.1 The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Annual Report for the Fiscal Year Ended December 31, 1993 on Form 10-K as set forth in the pages attached hereto: Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements: -- Note 8 to Consolidated Financial Statements, page F-12 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized Omnicom Group Inc. ------------------- (Registrant) Date: February 7, 1995 /s/ Fred J. Meyer ---------------- ------------------ Fred J. Meyer Chief Financial Officer 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. The Company has recorded deferred tax liabilities as of December 31, 1993 and 1992 of $29.3 million and $21.9 million, respectively. Deferred tax benefits (liabilities) as of December 31, 1993 and 1992 consisted of the amounts shown below (dollars in millions): 1993 1992 ------ ------ Acquisition liabilities $13.0 $ 0.2 Lease reserves 5.0 2.6 Severance and compensation reserves 8.7 8.3 Tax loss carryforwards 9.6 1.5 Foreign currency transactions 0.5 1.8 Tax benefit leases (4.5) (3.7) Amortization and depreciation (7.2) (7.9) Other, net 2.3 (2.8) ------ ------ $27.4 $ -- ====== ====== In 1993, legislation was enacted which increased the U.S. statutory tax rate from 34% to 35%. The effect of this rate change and other statutory rate changes in various state, local and international jurisdictions was not material to net income. There were no valuation allowances recognized as of December 31, 1993. A provision has been made for additional income and withholding taxes on the earnings of international subsidiaries and affiliates that will be distributed. 9. Employee Retirement Plans The Company's international and domestic subsidiaries provide retirement benefits for their employees primarily through profit sharing plans. Company contributions to the plans, which are determined by the boards of directors of the subsidiaries, have been in amounts up to 15% (the maximum amount deductible for federal income tax purposes) of total eligible compensation of participating employees. Profit sharing expense amounted to $25.8 million in 1993, $20.8 million in 1992 and $24.4 million in 1991. Some of the Company's international subsidiaries have pension plans. These plans are not required to report to governmental agencies pursuant to the Employee Retirement Income Security Act of 1974 (ERISA). Substantially all of these plans are funded by fixed premium payments to insurance companies who undertake legal obligations to provide specific benefits to the individuals covered. Pension expense amounted to $2.4 million in 1993, $2.7 million in 1992 and $2.5 million in 1991. Certain subsidiaries of the Company have an executive retirement program under which benefits will be paid to participants or their beneficiaries over 15 years from age 65 or death. In addition, other subsidiaries have individual deferred compensation arrangements with certain executives which provide for payments over varying terms upon retirement, cessation of employment or death. F-13 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 -----END PRIVACY-ENHANCED MESSAGE-----