================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-10551
----------
OMNICOM GROUP INC.
(Exact name of registrant as specified in its charter)
New York 13-1514814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
437 Madison Avenue, New York, NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 415-3600
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which Registered
---------------------------- -----------------------
Common Stock, $.15 Par Value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
----------
The registrant has (1) 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
and (2) been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is
not contained herein and will not be contained 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.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2): Yes X No
----------
At March 17, 2003, 188,601,495 shares of Omnicom Common Stock, $.15 par
value, were outstanding; the aggregate market value of the voting stock held by
nonaffiliates as of the last business day of the registrant's most recently
completed second fiscal quarter was $8,321,783,000.
Certain portions of Omnicom's definitive proxy statement relating to its
annual meeting of shareholders scheduled to be held on May 20, 2003 are
incorporated by reference into Part III of this report.
================================================================================
OMNICOM GROUP INC.
------------------
ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business .................................................... 1
Item 2. Properties .................................................. 3
Item 3. Legal Proceedings ........................................... 4
Item 4. Submission of Matters to a Vote of Security Holders ......... 4
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ....................................... 5
Item 6. Selected Financial Data ..................................... 6
Items 7/7A. Management's Discussion and Analysis of Financial Condition
and Results of Operations: Critical Accounting Policies;
and Quantitative and Qualitative Disclosures about Market
Risk ...................................................... 7
Item 8. Financial Statements and Supplementary Data ................. 20
Item 9. Changes and Disagreements with Accountants on Accounting
and Financial Disclosure .................................. 20
PART III
Item 10. Directors and Executive Officers of the Registrant .......... 21
Item 11. Executive Compensation ...................................... *
Item 12. Security Ownership of Certain Beneficial Owners and
Management ................................................ *
Item 13. Certain Relationships and Related Transaction ............... *
Item 14. Controls and Disclosure ..................................... 21
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ............................................... 22
Index to Financial Statements ............................... 22
Index to Financial Statements Schedules ..................... 22
Exhibit Index ............................................... 22
Signatures ................................................................ 24
Certifications of Senior Executive Officers ............................... 25
Management Report ......................................................... F-1
Independent Auditor's Report .............................................. F-2
Consolidated Financial Statements ......................................... F-4
Notes to Consolidated Financial Statements ................................ F-8
- ----------
* 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 the
information to be included under the captions "Election of Directors",
"Management's Stock Ownership", "Director Compensation" and "Executive
Compensation" in Omnicom's definitive proxy statement, which is expected to
be filed by April 11, 2003.
PART I
Introduction
This report is both our 2002 annual report to shareholders and our 2002
annual report on Form 10-K required under federal securities laws.
We are a holding company. Our business is conducted through subsidiaries.
For simplicity, however, the terms "Omnicom", "we", "our" and "us" each refer to
Omnicom Group Inc. and our subsidiaries unless the context indicates otherwise.
Statements of our beliefs or expectations regarding future events are
"forward-looking statements" within the meaning of the federal securities laws.
These statements are subject to various risks and uncertainties, including as a
result of the specific factors identified under the captions "Risks and
Competitive Conditions" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 3 and 7 and elsewhere in this
report. There can be no assurance that these beliefs or expectations will not
change or be affected by actual future events.
1. Business
Our Business: We are one of the largest marketing and corporate
communications companies in the world. Our company was formed through a 1986
combination of three marketing and corporate communications networks, BBDO,
Doyle Dane Bernbach and Needham Harper.
Since then, we have grown our strategic holdings to over 1,500 subsidiary
agencies operating in virtually all markets worldwide. Our agencies provide an
extensive range of marketing and corporate communications services, including:
advertising investor relations
brand consultancy marketing research
crisis communications media planning and buying
custom publishing multi-cultural marketing
database management non-profit marketing
digital and interactive marketing organizational communications
direct marketing package design
directory advertising product placement
entertainment marketing promotional marketing
environmental design public affairs
experiential marketing public relations
field marketing real estate advertising and
financial/corporate business-to-business marketing
advertising recruitment communications
graphic arts reputation consulting
healthcare communications retail marketing
instore design sports and event marketing
1
Marketing and corporate communications services are provided to clients
through global, pan-regional and national independent agency brands. Our brands
include:
BBDO Worldwide Ketchum
DDB Worldwide Ketchum Directory Advertising
TBWA Worldwide KPR
OMD Worldwide Lieber Levett Koenig Farese Babcock
AWE Lyons Lavey Nickel Swift
Accel Healthcare M/A/R/C Research
Adelphi Group Marketing Advantage
Alcone Marketing Group MarketStar
Anderson DDB Martin/Williams
ARA Group Matthews Media Group
Arnell Group Merkley Newman Harty & Partners
atmosphere MicroMedia
Auditoire Millsport
BDDP & Fils Moss Dragoti
Bernard Hodes Group National In-Store
Brodeur Worldwide New Solutions
Carlson and Partners Nouveau Monde
Changing Our World Novus
Clark & Weinstock Organic
Claydon Heeley Jones Mason Paris Venise Design
Clemenger Communications Limited Pentamark
Cline, Davis & Mann PGC Advertising
Cone PhD
Corbett Healthcare Group Porter Novelli International
CPM Proximity Worldwide
Davie-Brown Radiate Sports & Entertainment Group
del Rivero Messianu Rapp Collins Worldwide
Dieste, Harmel & Partners Russ Reid Company
Direct Partners Salesforce
Doremus Screen
Eden Communications Group Sellbytel
Eigen Fabrikaat Serino Coyne
Element 79 Partners Spike DDB
European Communication Consultants Spot Plus
FKGB Staniforth
Fame Steiner Sports Marketing
Fleishman-Hillard Targetbase
Gavin Anderson & Company TARGIS Healthcare Communications
Generator Worldwide
Goodby, Silverstein & Partners Tequila
Grizzard Communications Textuel
GSD&M The Ant Farm
Gutenberg On-Line The Designory
Harrison & Star Business Group The Marketing Arm
Heye & Partner TicToc
Horrow Sports Ventures TPG
ICON Tracy Locke Partnership
Integrated Merchandising Services The Promotion Network
Integer Group Tribal DDB
Interbrand U.S. Marketing & Promotions
InterOne Washington Speakers Bureau
InterScreen Wolff Olins
Jump Zimmerman & Partners Advertising
Kaleidoscope
The various components of our business and material factors that affected
us in 2002 are discussed in our "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" of this report. None of our
acquisitions in 2002, 2001 or 2000 were material to our consolidated financial
position or results of operations. For information concerning our acquisitions,
see note 2 to our consolidated financial statements on page F-11 of this report.
2
Geographic Regions: Our total consolidated revenue is about evenly divided
between U.S. and non-U.S. operations. For financial information concerning
domestic and foreign operations and segment reporting, see note 5 to our
consolidated financial statements at page F-15 of this report.
Our Clients: We had over 5,000 clients in 2002, many of which were served
by more than one of our agency brands. Our 10 largest and 200 largest clients in
the aggregate accounted for 17.9% and 50.7%, respectively, of our 2002
consolidated revenue. Our largest client was served by 41 of our agency brands.
This client accounted for 5.0% of our 2002 consolidated revenue. No other client
accounted for more than 2.4% of our 2002 consolidated revenue.
Our Employees: We employed approximately 57,600 people at December 31,
2002. We are not party to any significant collective bargaining agreements. See
our management discussion and analysis beginning on page 7 of this report for a
discussion of the effect of salary and service costs on our 2002 results of
operations.
Risks and Competitive Conditions: The marketing and corporate
communications businesses which we are in are highly competitive. We face risks
typical of marketing and corporate communications services companies and other
services businesses generally, including risks arising out of geographical
factors, changes in general and regional economic conditions, competitive
factors, client communication requirements and the hiring and retention of key
employees. In general, the financial and technological barriers to entry are
low, with the key competitive considerations for keeping existing business and
winning new business being the quality and effectiveness of the services
offered, including our ability to efficiently provide our services to clients.
While many of our client relationships are long-standing, companies often put
their advertising, marketing services and public and corporate communications
business up for competitive review from time to time. In addition, an important
aspect of our competitiveness is our ability to retain key employees and
management personnel.
Our revenue is dependent upon the marketing and corporate communication
requirements of our clients and tends to be lowest in the first and third
quarters of the calendar year as a result of the post-holiday slowdown in client
spending at the beginning of January and lower client spending in August
primarily as a result of the vacation season. See our management discussion and
analysis beginning on page 7 of this report for a discussion of the effect of
market conditions and other factors on our 2002 results of operations.
Directly or indirectly, government agencies and consumer groups have from
time to time affected or attempted to affect the scope, content and manner of
presentation of advertising and other marketing communications through
regulations and other governmental action. We believe the total volume of
advertising and marketing communications will not be materially affected by
future legislation or regulation, although the scope, content and manner of
presentation will likely continue to change.
In addition, due to our international operations, we are subject to
translation risk associated with currency fluctuations, exchange controls and
political and other risks as discussed in our management discussion and analysis
at pages 7 to 20 of this report. For financial information on our operations by
geographic area, see note 5 to our consolidated financial statements at page
F-15 of this report.
2. Properties
We maintain office space in many major cities around the world. This space
is primarily used for office and administrative purposes by our employees in
performing professional services. Our principal corporate offices are at 437
Madison Avenue, New York and Greenwich, Connecticut. We also maintain executive
offices in London, England.
Our office space is utilized for performing professional services and is
in suitable and well-maintained condition for our current operations.
Substantially all of our office space is leased from third parties with varying
expiration dates ranging from one to 19 years. Certain of our leases are subject
to rent reviews under various escalation clauses and certain of our leases
require our payment of various operating expenses, which may also be subject to
escalation. Our consolidated rent expense was $311.3 million in 2002, $305.4
million in 2001 and $258.9 million in 2000, after reduction for rents received
from subleases of $15.5 million, $8.0 million and $7.2 million, respectively.
Our obligations for future minimum base rents under terms of
3
non-cancelable real estate lease, reduced by rents to be received from existing
non-cancelable subleases, and other operating leases, which include primarily
office furniture and computer and technology equipment, are (in millions):
Net Rent
--------
2003 .............................. $381.7
2004 .............................. 312.2
2005 .............................. 249.0
2006 .............................. 208.6
2007 .............................. 170.5
Thereafter ........................ 825.3
See note 10 to our consolidated financial statements on page F-21 of this
report for a discussion of our lease commitments and our management discussion
and analysis for the impact of leases on our operating expenses.
3. Legal Proceedings
On June 13, 2002, a lawsuit was filed against us and certain of our senior
executives in the federal court in the Southern District of New York on behalf
of a purported class of purchasers of our common shares. The complaint alleges,
among other things, that our press releases and SEC reports during the alleged
class period contained materially false and misleading statements or omitted to
state material information. In addition to the proceedings described above, a
shareholder derivative action was filed on June 28, 2002 in New York state court
in New York City by a plaintiff shareholder, purportedly on our behalf, alleging
breaches of fiduciary duty, disclosure failures, abuse of control and gross
mismanagement in connection with the formation of Seneca Investments LLC.
Management presently expects to defend these cases vigorously. Currently,
we are unable to determine the outcome of these cases and the effect on our
financial position or results of operations. The outcome of any of these matters
is inherently uncertain and may be affected by future events. Accordingly, there
can be no assurance as to the ultimate effect of these matters.
We are also involved from time to time in various legal proceedings in the
ordinary course of business. We do not presently expect that these proceedings
will have a material adverse effect on our consolidated financial position or
results of operations.
For additional information concerning our legal proceedings, including the
class action and derivative action described above, see note 14 to our
consolidated financial statements on page F-25 of this report, which is
incorporated into this section by reference.
4. Submission of Matters to a Vote of Security Holders
Our annual shareholders meeting has historically been held in the second
quarter of the year. No matters were submitted to a vote of our shareholders
during the last quarter of 2002.
4
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common shares are listed on the New York Stock Exchange under the
symbol "OMC". On March 17, 2003, we had 3,777 holders of record of our common
shares. The table below shows the range of quarterly high and low sales prices
reported on the New York Stock Exchange Composite Tape for our common shares and
the dividends paid per share for these periods.
Dividends Paid
Period High Low Per Share
------ ---- --- --------------
Q1 2001......................... $95.45 $76.69 $0.175
Q2 2001......................... 98.20 78.00 0.200
Q3 2001......................... 89.20 59.10 0.200
Q4 2001......................... 90.69 61.25 0.200
Q1 2002......................... $96.30 $82.76 $0.200
Q2 2002......................... 94.10 36.27 0.200
Q3 2002......................... 65.61 38.54 0.200
Q4 2002......................... 70.29 48.10 0.200
Q1 2003*........................ $68.25 $46.50 $0.200
* through March 17, 2003
5
6. Selected Financial Data
The following selected financial data should be read in conjunction with
our consolidated financial statements and related notes which begin on page F-1,
as well as our management's discussion and analysis which begins on page 7 of
this report.
(Dollars in Thousands Except Per Share Amounts)
--------------------------0------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
For the year:
Revenue ....................... $ 7,536,299 $ 6,889,406 $ 6,154,230 $ 5,130,545 $ 4,290,946
Operating Profit .............. 1,104,115 968,184 878,090 724,130 562,207
Net Income .................... 643,459 503,142 498,795 362,882 278,845
Income After Income Taxes ..... 697,987 543,257 542,477 400,461 302,705
Earnings per common share:
Basic ...................... 3.46 2.75 2.85 2.07 1.61
Diluted .................... 3.44 2.70 2.73 2.01 1.57
Dividends declared per common
share ....................... 0.800 0.775 0.700 0.625 0.525
At year end:
Cash and short-term investments $ 695,881 $ 516,999 $ 576,539 $ 600,949 $ 717,391
Total assets .................. 11,819,802 10,617,414 9,853,707 9,017,637 7,121,968
Long-term obligations:
Long-term debt ............. 197,861 490,105 1,015,419 263,149 268,913
Convertible notes .......... 1,747,037 850,000 229,968 448,483 448,497
Deferred compensation and
other liabilities ........ 293,638 296,980 296,921 300,746 269,966
As discussed in footnote 13 of the notes to our consolidated financial
statements, as required by SFAS 142, beginning with our 2002 results, goodwill
and other intangible assets that have indefinite lives due to a change in
generally accepted accounting principles are not amortized. To make our results
for each period more directly comparable, in the table that follows, we adjusted
our historical results for periods prior to 2002 to eliminate goodwill
amortization for all periods, as well as a non-recurring gain on the sale of
Razorfish shares in 2000, and the related tax impacts.
(Dollars in Thousands Except Per Share Amounts)
--------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
As adjusted:
Net Income ....................... $643,459 $503,142 $498,795 $362,882 $278,845
Add-back goodwill amortization,
net of income taxes ........... -- 83,065 76,518 66,490 54,112
Less: gain on sale of Razorfish
shares, net of income taxes ... -- -- 63,826 -- --
-------- -------- -------- -------- --------
Net Income, excluding goodwill
amortization and Razorfish gain $643,459 $586,207 $511,487 $429,372 $332,957
Earnings per common share,
excluding goodwill amortization
and Razorfish gain
Basic ......................... 3.46 3.21 2.93 2.45 1.92
Diluted ....................... 3.44 3.13 2.80 2.36 1.87
6
7/7 A. Management's Discussion and Analysis of Financial Condition and Results
of Operations; Critical Accounting Policies; and Quantitative and
Qualitative Information about Market Risk
As discussed in footnote 13 of the notes to our consolidated financial
statements, as required by SFAS 142, beginning with our 2002 results goodwill
and other intangible assets that have indefinite lives due to a change in
generally accepted accounting principles are not amortized. To make the
discussion of periods comparable, 2001 and 2000 income statement information in
the discussion that follows has been adjusted to eliminate goodwill amortization
as presented in the following table and the table on page 11. In addition,
certain reclassifications have been made to the 2001 and 2000 reported amounts
to conform them to the 2002 presentation, including changing the income
statement line item from "Salary and related costs" to a new category entitled
"Salary and service costs", and reallocating certain items previously shown in
"Office and general expenses" to this new category. We have regrouped certain
direct service costs such as freelance labor, travel, entertainment,
reproduction, client service costs and other expenses from "Office and general
expenses" into "Salary and service costs" in order to better segregate the
expense items between those that are more closely related to directly serving
clients versus those expenses, such as facilities, overhead, depreciation and
other administrative expenses, which in nature are not directly related to
servicing clients.
Furthermore, to provide better comparability period to period, in our
Financial Results from Operations - 2001 Compared with 2000 starting on page 11,
we have excluded the $63.8 million after-tax gain recorded in the year 2000 on
sale of Razorfish shares.
Financial Results from Operations-- 2002 Compared with 2001
(Dollars in Millions, except per share amounts)
2001
------------------------------------
Twelve Months Ended As Goodwill As
December 31, 2002 Reported Amortization Adjusted(a)
---- -------- ------------ -----------
Revenue ..................... $7,536.3 $6,889.4 $ -- $6,889.4
Operating expenses:
Salary and service costs .. 4,952.9 4,420.9 -- 4,420.9
Office and general expenses 1,479.3 1,500.3 94.8 1,405.5
-------- -------- ----- --------
6,432.2 5,921.2 94.8 5,826.4
Operating profit ............ 1,104.1 968.2 -- 1,063.0
Net interest expense:
Interest expense .......... 45.5 90.9 -- 90.9
Interest income ........... (15.0) (18.1) -- (18.1)
-------- -------- ----- --------
30.5 72.8 -- 72.8
Income before taxes ......... 1,073.6 895.4 94.8 990.2
Income taxes ................ 375.6 352.1 13.0 365.1
Income after income taxes ... 698.0 543.3 81.8 625.1
Equity in affiliates ........ 13.8 12.6 2.8 15.4
Minority interests .......... (68.3) (52.8) (1.5) (54.3)
-------- -------- ----- --------
Net income ................ $ 643.5 $ 503.1 $83.1 $ 586.2
======== ======== ===== ========
Net Income Per Common Share:
Basic ..................... $ 3.46 $ 2.75 -- $ 3.21
Diluted ................... 3.44 2.70 -- 3.13
Dividends Declared Per Common
Share ..................... $ 0.800 $ 0.775 -- $ 0.775
- ----------
(a) Excludes amortization of goodwill and related tax impact.
7
Revenue: Our 2002 consolidated worldwide revenue increased 9.4% to
$7,536.3 million from $6,889.4 million in 2001. The effect of acquisitions, net
of disposals, increased 2002 worldwide revenue by $362.5 million.
Internal/organic growth increased worldwide revenue by $193.1 million, and
foreign exchange impacts increased worldwide revenue by $91.3 million. The
components of total 2002 revenue growth in the U.S. ("domestic") and the
remainder of the world ("international") are summarized below ($ in millions):
Total Domestic International
-------------------- -------------------- ------------------
$ % $ % $ %
-------- -------- -------- -------- -------- --------
December 31, 2001..................... $6,889.4 -- $3,717.0 -- $3,172.4 --
Components of Revenue Changes:
Foreign exchange impact............... 91.3 1.3% 91.3 2.9%
Acquisitions.......................... 362.5 5.3% 269.1 7.3% 93.4 2.9%
Organic............................... 193.1 2.8% 298.5 8.0% (105.4) (3.4)%
-------- --- ------- ---- -------- ---
December 31, 2002..................... $7,536.3 9.4% $4,284.6 15.3% $3,251.7 2.4%
======== === ======= ==== ======== ===
The components and percentages are calculated as follows:
o The foreign exchange impact component shown in the table is
calculated by first converting the current period's local currency
revenue using the average exchange rates from the equivalent prior
period to arrive at a constant currency revenue (in this case
$7,445.0 million for the Total column in the table). The foreign
exchange impact equals the difference between the current period
revenue in U.S. dollars and the current period revenue in constant
currency (in this case $7,536.3 million less $7,445.0 million for
the Total column in the table).
o The acquisition component shown in the table is calculated by
aggregating the applicable prior period revenue of the acquired
businesses. Netted against this number is the revenue of any
business included in the prior period reported revenue that was
disposed of subsequent to the prior period.
o The organic component shown in the table is calculated by
subtracting both the foreign exchange and acquisition revenue
components from total revenue growth.
o The percentage change shown in the table of each component is
calculated by dividing the individual component amount by the prior
period revenue base of that component (in this case $6,889.4 million
for the Total column in the table).
The components of revenue and revenue growth for 2002 compared to 2001, in
our primary geographic markets are summarized below ($ in millions):
$ Revenue % Growth
--------- ---------
United States ........................... $4,284.6 15.3%
Euro Markets ............................ 1,458.6 3.2%
United Kingdom .......................... 814.1 1.1%
Other ................................... 979.0 2.7%
-------- ---
Total ................................... $7,536.3 9.4%
======== ===
As indicated, foreign exchange impacts increased our international revenue
by $91.3 million for 2002. The most significant impacts resulted from the
strengthening of the Euro and the British Pound against the U.S. dollar, as our
operations in these markets represented approximately 70.0% of our international
revenue. This was partially offset by the strengthening of the U.S. dollar
against the Brazilian Real. Additional geographic information relating to our
business is contained in note 5 to our consolidated financial statements at page
F-15 of this report.
The current geopolitical uncertainty combined with the prolonged weak
economic conditions have created a challenging business climate. Management
believes that the recent improvements reported by U.S. media companies are a
positive sign. However, management also believes that the overall demand for
advertising and other marketing and corporate communications services in the
near term will continue to be more unpredictable as clients maintain caution
until the current political tensions moderate.
8
Several long-term trends continue to positively affect our business,
including our clients increasingly expanding the focus of their brand strategies
from national markets to the global market. Additionally, in an effort to gain
greater efficiency and effectiveness from their marketing dollars, clients are
increasingly requiring greater coordination of their traditional advertising and
marketing activities and concentrating these activities with a smaller number of
service providers.
All of these factors affect the geographic and service mix of our business
period to period. Further, any comparison of current period results to the prior
year needs to be made in the context of the events of September 11, 2001, which
had a significant adverse impact on our business in the third quarter of 2001.
The adverse impact of September 11, 2001, was less significant in the fourth
quarter of 2001 and management believes that the fourth quarter of 2001 also
benefited from other short-term economic stimuli and delayed spending from the
third quarter of 2001. The impact of these factors on our business and our 2002
and 2001 results of operations is more fully discussed below.
Due to a variety of factors, in the normal course, our agencies both gain
and lose business from clients each year. The net result in 2002 and
historically each year for Omnicom as a whole, was an overall gain in new
business. Due to our multiple independent agency structure and the breadth of
our service offerings and geographic reach, our agencies have more than 5,000
active client relationships in the aggregate. Revenue from our single largest
client in 2002 increased by 2.4%. This client represented 5.0% of worldwide
revenue in 2002 and 5.4% in 2001 and no other client represented more than 2.5%
in 2002 and 2001. Our ten largest and 200 largest clients represented 17.9% and
50.7% of our 2002 worldwide revenue, respectively and 17.0% and 48.0% of our
2001 worldwide revenue.
Driven by clients' continuous demand for more effective and efficient
branding activities, we strive to provide an extensive range of marketing and
corporate communications services through various client centric networks that
are organized to meet specific client objectives. These services include
advertising, brand consultancy, crisis communications, custom publishing,
database management, digital and interactive marketing, direct marketing,
directory advertising, entertainment marketing, environmental design,
experiential marketing, field marketing, financial/corporate
business-to-business advertising, graphic arts, healthcare communications,
instore design, investor relations, marketing research, media planning and
buying, multi-cultural marketing, non-profit marketing, organizational
communications, package design, product placement, promotional marketing, public
affairs, public relations, real estate advertising and marketing, recruitment
communications, reputation consulting, retail marketing and sports and event
marketing. In an effort to monitor the changing needs of our clients and to
further expand the scope of our services to key clients, we monitor revenue
across a broad range of disciplines and group them into the following four
categories: traditional media advertising, customer relationship management
referred to as CRM, public relations and specialty communications.
Traditional media advertising revenue represented 43.5%, or $3,276.4
million, of our worldwide revenue during 2002 as compared to 43.6%, or $3,006.3
million in 2001. The remainder of our 2002 revenue, 56.5%, or $4,259.9 million,
was related to our other marketing and corporate communications services. The
breakdown of this other revenue was CRM: 32.1%, or $2,421.8 million; specialty
communications: 12.2%, or $917.1 million; and public relations: 12.2%, or $921.0
million. When compared to 2001, revenue in 2002 increased by $270.1 million, or
9.0% for traditional media advertising; by $300.8 million, or 14.2% for CRM; and
by $137.1 million, or by 17.6%, for specialty communications; and decreased by
$61.1 million, or 6.2%, for public relations.
Operating Expenses: Our 2002 worldwide operating expense increased $605.8
million, or 10.4%, to $6,432.2 million from $5,826.4 million in 2001, as
described below.
Salary and service costs, which are comprised of direct service costs and
salary related costs, increased by $532.0 million, or 12.0%, and represented
77.0% of total operating expenses in 2002 versus 75.9% in 2001. These expenses
increased as a percentage of revenue to 65.7% in 2002 from 64.2% in 2001.
Salaries and incentive compensation costs, which include bonuses, decreased as a
percentage of revenue in 2002 primarily as a result of continuing efforts to
align permanent staffing with current work levels on a location by location
basis, as well as our attempts to increase the variability of our cost structure
by relying more upon freelance labor for project work as necessary. This was
offset by increased direct service costs resulting in, as mentioned above,
greater utilization of freelance labor, changes in the mix of our revenues and
increased severance related costs.
9
Office and general expenses increased by $73.8 million, or 5.3%, in 2002.
Office and general expenses represented 23.0% of our total operating costs in
2002 versus 24.1% in 2001. Additionally, as a percentage of revenue office and
general expenses decreased in 2002 to 19.6% from 20.4%. This decrease was
primarily the result of our efforts to better align costs with business levels
on a location by location basis.
For the foregoing reasons, our operating margin decreased to 14.7% in
2002, from 15.4% in 2001.
Net Interest Expense: Our net interest expense decreased in 2002 to $30.5
million, as compared to $72.8 million in 2001. Our gross interest expense
decreased by $45.4 million to $45.5 million. Of this decrease in gross interest
expense, $12.4 million was attributable to the conversion of our $230.0 million
aggregate principal amount 2 1/4% convertible notes in December of 2001. The
balance of the reduction was attributable to generally lower short-term interest
rates as compared to the prior year, the issuance in February 2001 of $850.0
million Liquid Yield Option notes as to which substantially all of the related
debt issuance costs were amortized in prior periods and the issuance in March
2002 of the $900.0 million aggregate principal amount of Zero Coupon Zero Yield
Convertible notes of which $530.0 million was used to reduce existing interest
bearing bank debt thereby reducing interest expense. The reduction in gross
interest expense was partially offset by increased daily average outstanding
debt levels resulting from our repurchase of common stock in the first quarter
of 2002.
On February 3, 2003, we offered to pay holders of the Liquid Yield Option
notes due in 2031, $30 per $1,000 principal amount of notes as an incentive to
the holders not to exercise their put right. We paid $25.4 million to qualified
noteholders on February 21, 2003. As a result, we expect interest expense to
increase by $23.3 million in 2003 compared to 2002. In addition, depending on
future market conditions, we may make a similar offer to holders of the Zero
Coupon Zero Yield Convertible notes in July 2003. We cannot determine at this
time if such an offer will be made or, if one is made, the amount that may be
offered. If an offer is made and a payment results, our interest expense would
further increase in the second-half of 2003 compared to 2002.
See "Liquidity and Capital Resources" for a discussion of our indebtedness
and related matters.
Income Taxes: Our consolidated effective income tax rate was 35.0% in 2002
as compared to 36.9% (on an as adjusted basis) in 2001. This reduction reflects
the realization of our ongoing focus on tax planning initiatives.
Minority Interests: In 2002, minority interests increased to $68.3 million
from $54.3 million in 2001. The increase was primarily due to increased earnings
compared to 2001 in companies in which we do not own a 100% interest and an
increase in the number of entities in which a minority interest is held.
Earnings Per Share (EPS): For the foregoing reasons, our net income for
2002 increased by 9.8% to $643.5 million from $586.2 million in 2001 and our
diluted EPS increased by 9.9% to $3.44 from $3.13. While our net income in 2002
was positively impacted by the conversion of the 2 1/4% Convertible Subordinated
Debentures at the end of 2001, the conversion of these debentures were included
in computing basic and diluted EPS in 2002 and diluted EPS in 2001.
10
Financial Results from Operations-- 2001 Compared with 2000
(Dollars in Millions, except per share amounts)
2000
---------------------------------------------------
As adjusted As Goodwill Razorfish As
Twelve Months Ended December 31, 2001(a) Reported Amortization Gain Adjusted(b)
----------- -------- ------------ --------- ---------
Revenue ................................... $6,889.4 $6,154.2 $ -- $ -- $6,154.2
Operating Expenses:
Salary and service costs ................ 4,420.9 3,847.7 -- -- 3,847.7
Office and general expenses ............. 1,405.5 1,428.4 81.7 -- 1,346.7
-------- -------- ----- ----- --------
5,826.4 5,276.1 81.7 -- 5,194.4
Operating profit .......................... 1,063.0 878.1 81.7 -- 959.8
Realized gain ............................. -- 110.0 -- 110.0 --
Net interest expense:
Interest expense ........................ 90.9 116.7 -- -- 116.7
Interest income ......................... (18.1) (40.2) -- -- (40.2)
-------- -------- ----- ----- --------
72.8 76.5 -- -- 76.5
Income before taxes ....................... 990.2 911.6 81.7 110.0 883.3
Income taxes .............................. 365.1 369.1 5.7 46.2 328.6
Income after taxes ........................ 625.1 542.5 76.0 63.8 554.7
Equity in affiliates ...................... 15.4 10.9 1.9 -- 12.8
Minority interests ........................ (54.3) (54.6) (1.4) -- (56.0)
-------- -------- ----- ----- --------
Net income .............................. $586.2 $498.8 $76.5 $63.8 $511.5
======== ======== ===== ===== ========
Net Income Per Common Share:
Basic ................................... $3.21 $2.85 -- -- $2.93
Diluted ................................. 3.13 2.73 -- -- 2.80
Dividends Declared Per Common Share ....... $ 0.775 $ 0.700 -- -- $ 0.700
- ----------
(a) As presented in our 2002 vs 2001 discussion on page 7 of this report.
(b) Excludes amortization of goodwill and gain on sale of Razorfish shares and
their related tax impacts.
Revenue: Our 2001 consolidated worldwide revenue increased 11.9% to
$6,889.4 million from $6,154.2 million in 2000. The effect of acquisitions, net
of disposals, increased 2001 worldwide revenue by $385.0 million.
Internal/organic growth increased 2001 worldwide revenue by $524.2 million, and
foreign exchange impacts decreased worldwide revenue by $174.0 million. The
components of 2001 total revenue growth in the U.S. ("domestic") and the
remainder of the world ("international") are summarized below ($ in millions):
Total Domestic International
--------------------- --------------------- ------------------
$ % $ % $ %
---------- -------- --------- -------- --------- --------
December 31, 2000..................... $6,154.2 -- $3,258.2 -- $2,896.0 --
Components of Revenue Changes:
Foreign exchange impact............... (174.0) (2.8)% (174.0) (6.0)%
Acquisitions.......................... 385.0 6.3% 220.4 6.8% 164.6 5.7%
Organic............................... 524.2 8.5% 238.4 7.3% 285.8 9.8%
-------- ----- -------- ----- -------- ----
December 31, 2001..................... $6,889.4 11.9% $3,717.0 14.1% $3,172.4 9.5%
======== ===== ======== ===== ======== ====
The components and percentages are calculated as follows:
o The foreign exchange impact component shown in the table is
calculated by first converting the current period's local currency
revenue using the average exchange rates from the equivalent prior
period to arrive at a constant currency revenue (in this case
$7,063.4 million for the Total column in the table). The foreign
exchange impact equals the difference between the current period
revenue in U.S. dollars and the current period revenue in constant
currency (in this case $6,889.4 million less $7,063.4 million for
the Total column in the table).
11
o The acquisition component shown in the table is calculated by
aggregating the applicable prior period revenue of the acquired
businesses. Netted against this number is the revenue of any
business included in the prior period reported revenue that was
disposed of subsequent to the prior period.
o The organic component shown in the table is calculated by
subtracting both the foreign exchange and acquisition revenue
components from total revenue growth.
o The percentage change shown in the table of each component is
calculated by dividing the individual component amount by the prior
period revenue base of that component (in this case $6,154.2 million
for the Total column in the table).
The components of revenue and revenue growth (declines), for 2001 compared
to 2000, in our primary geographic markets are summarized below ($ in millions):
$ Revenue % Growth
--------- --------
United States......................... $3,717.0 14.1%
Euro Markets.......................... 1,413.8 10.0%
United Kingdom........................ 805.2 (0.1)%
Other................................. 953.4 19.2%
------- ----
Total................................. $6,889.4 11.9%
======== ====
As indicated, foreign exchange impacts reduced our international revenue
by $174.0 million during the year, reducing our international growth by 6.0% and
our overall growth by 2.8%. The most significant impacts came from the Euro and
the British Pound as these markets represented 70.0% of our international
operations. The effect of acquisitions, net of divestitures, increased our
worldwide revenue by 6.3%, domestic revenue by 6.8% and international revenue by
5.7%. The balance of the increase in revenue represents net new business wins
and additional revenue from expanding the scope of services provided to existing
clients. Additional geographic information relating to our business is contained
in note 5 to our consolidated financial statements at page F-15 of this report.
In addition to expanding our client base, expanding the scope of services
and the extension of additional services to clients, several market trends
affected our business. These trends included clients increasingly expanding the
focus of their brand strategies from a national market to the global market.
And, in an effort to gain greater efficiency and effectiveness from their
marketing dollars, clients required greater coordination of their traditional
advertising and marketing activities and tended to concentrate these activities
with a smaller number of service providers.
Due to a variety of factors, including the trends mentioned above, in the
normal course of business, our agencies both gain and lose clients each year.
The net result in 2001 and historically each year for Omnicom as a whole, was an
overall gain in new business. Due to our multiple independent agency structure
and the breadth of our service offerings and geographic reach, our agencies have
more than 5,000 active client relationships in the aggregate. Our single largest
client in 2001 represented 5.4% of worldwide revenue and no other client
represented more than 2.5%. Our ten largest and 200 largest clients represented
17.0% and 48.0% of our worldwide revenue, respectively.
As previously stated, we monitor revenue across a broad range of
disciplines and group them into the following four categories: traditional media
advertising, customer relationship management ("CRM"), public relations and
specialty communications. Traditional media advertising revenue represented
43.6%, or $3,006.3 million, of our worldwide revenue during 2001, as compared to
44.2%, or $2,718.9 million, in 2000. The remainder of our revenue, 56.4%, or
$3,883.1 million, was related to our other marketing and corporate
communications services. The breakdown of this other revenue was CRM: 30.8%, or
$2,121.0 million; public relations: 14.3%, or $982.1 million; and specialty
communications: 11.3%, or $779.9 million. When compared to 2000, revenue in 2001
increased by $287.4 million, or 10.6% for traditional media advertising; by
$300.5 million, or 16.5% for CRM; by $40.5 million, or 4.3%, for public
relations; and by $106.7 million, or by 15.9%, for specialty communications.
September 11th and Market Conditions: The tragic events of September 11th
adversely impacted our business. We experienced disruptions in client spending
patterns related to the cancellation and postponement of activities. As a
result, operating margins deteriorated during the third quarter of 2001. This
decline occurred primarily because we had only a limited ability to adjust our
cost structure in response to the sudden reduction in revenues.
12
We do not believe September 11th permanently impacted any of our agencies.
While the specific effects of September 11th began to dissipate over the
remainder of 2001, overall economic conditions remained weak. We believe that
the diversity of our clients across industries, the broad range of services our
agencies provide, the diversity of our geographic locations and the flexibility
of certain elements of our cost structure mitigated much of the economic impact
on our business as a whole.
Operating Expenses: Our 2001 worldwide operating expense increased 12.2%
to $5,826.4 million from $5,194.4 million in 2000.
Salary and service costs, which are comprised of direct service costs and
salary related costs, increased by $573.2 million, or 14.9%, and represents
75.9% of total operating expenses in 2001 versus 74.1% in 2000. These expenses
increased as a percentage of revenue to 64.2% in 2001 from 62.5% in 2000.
Salaries and incentive compensation costs decreased as a percentage of revenue
in 2001 primarily as a result of continuing efforts to align staffing with
current work levels on a location by location basis. This was off-set by
increased direct service costs resulting primarily from increased severance
related costs and greater utilization of freelance labor. In addition, as a
result of the increase in our revenues, as well as changes in the mix of our
revenues on a period-over-period basis, other direct costs increased as a
percentage of revenue in 2001 compared to 2000.
Office and general expenses increased by $58.8 million, or 4.4%, in 2001.
Office and general expenses represented about 24.1% of our total operating costs
in 2001 versus 25.9% in 2000. This decrease is primarily the result of our
efforts to better align costs with business levels on a location by location
basis.
For the foregoing reasons, our operating margin decreased to 15.4% in 2001
from 15.6% in 2000.
Net Interest Expense: Our net interest expense for 2001 decreased to $72.8
million from $76.5 million in 2000. Our gross interest expense decreased by
$25.8 million to $90.9 million. This decrease resulted from the conversion of
our 4 1/4% convertible subordinated debentures at the end of 2000 and the
general lowering of short-term interest rates as the year progressed. These
benefits were partially offset by increased borrowings used to fund acquisitions
and stock repurchases completed during the year.
Income Taxes: On an as adjusted basis, our consolidated effective income
tax rate was 36.9% in 2001 as compared to 37.2% in 2000. This reduction reflects
the initial realization of our recently implemented tax planning initiatives.
Equity in Affiliates: In 2001, our equity in affiliates increased to $15.4
million from $12.8 million in 2000. The increase resulted from new acquisitions
of affiliated companies and increased ownership of existing affiliated
companies, partially offset by increased ownership in certain affiliates that
resulted in their consolidation during the year and lower earnings of certain
affiliates.
Earnings Per Share (EPS): Our net income for 2001 increased by 14.6% to
$586.2 million from $511.5 million in 2000 and our diluted EPS increased by
11.8% to $3.13 from $2.80. While our net income in 2001 was positively impacted
by the conversion of the 4 1/4% Convertible Subordinated Debentures at the end
of 2000, the shares associated with the conversion of these debentures were
included in computing diluted EPS for both 2001 and 2000.
Critical Accounting Policies and New Accounting Pronouncements
We are a holding company. Our business is conducted through more than
1,500 subsidiary agencies operating in more than 100 countries. Our agencies
provide a broad range of marketing and corporate communications services to more
the 5,000 clients representing nearly every industry sector.
Critical Accounting Policies: We have prepared the following supplemental
summary of accounting policies to assist in better understanding our financial
statements and the related management discussion and analysis. Readers are
encouraged to consider this supplement together with our consolidated financial
statements and the related notes to our consolidated financial statements for a
more complete understanding of accounting policies discussed below.
Estimates: Readers are reminded that the preparation of our financial
statements in conformity with generally accepted accounting principles, or
"GAAP", requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities including
valuation allowances for receivables and deferred tax assets, accruals for bonus
compensation and the disclosure of contingent liabilities
13
at the date of the financial statements, as well as the reported amounts of
revenue and expenses during a reporting period. We evaluate these estimates on
an ongoing basis and we base our estimates on historical experience, current
conditions and various other assumptions we believe are reasonable under the
circumstances. Actual results can differ from those estimates, and it is
possible that the differences could be material.
A fair value approach is used when evaluating cost based investments,
which consist of ownership interests in non-public companies, to determine if an
other than temporary impairment has occurred and in testing goodwill for
impairment under SFAS 142. The primary approach utilized to determine fair
values is a discounted cash flow methodology. When available and as appropriate,
we also use comparative market multiples to supplement the discounted cash flow
analysis. Numerous estimates and assumptions necessarily have to be made when
completing a discounted cash flow valuation, including estimates and assumptions
regarding interest rates, appropriate discount rates and capital structure.
Additionally, estimates must be made regarding revenue growth, operating
margins, tax rates, working capital requirements and capital expenditures.
Estimates and assumptions also need to be made when determining the appropriate
comparative market multiples to be used. Actual results of operations, cash
flows and other factors used in a discounted cash flow valuation will likely
differ from the estimates used and it is possible that differences and changes
could be material. Additional information about valuation of cost based
investments and impairment testing under SFAS 142, appears in notes 1 and 6, and
2 and 13, respectively to our consolidated financial statements.
Revenue: Substantially all revenue is derived from fees for services.
Additionally, we earn commissions based upon the placement of advertisements in
various media. Revenue is realized when the service is performed, in accordance
with terms of the arrangement with our clients, and upon completion of the
earnings process, including when services are rendered, upon presentation date
for media, when costs are incurred for radio and television production and when
print production is completed and collection is reasonably assured.
In the majority of our businesses we record revenue at the net amount
retained when the fee or commission is earned. In the delivery of certain
services to our clients, we incur costs on their behalf for which we are
reimbursed. Substantially all of our reimbursed costs relate to purchases on
behalf of our clients of media and production services. We normally have no
latitude in establishing the reimbursement price for these expenses and invoice
our clients for these expenses in an amount equal to the amount of costs
incurred. These reimbursed costs, which are a multiple of our revenue, are
significant. However, the majority of these costs are incurred on behalf of our
largest clients and we have not historically experienced significant losses in
connection with the reimbursement of these costs by clients.
A small portion of our contractual arrangements with clients includes
performance incentive provisions designed to link a portion of our revenue to
our performance relative to both quantitative and qualitative goals. We
recognize this portion of revenue when the specific quantitative goals are
achieved, or when our performance against qualitative goals is determined by our
clients. Additional information about revenue appears in note 1 to our
consolidated financial statements on pages F-8 to F-11 of this report.
Acquisitions and Goodwill: We have historically made and expect to
continue to make selective acquisitions. In making acquisitions, the price we
pay is determined by various factors, including service offerings, competitive
position, reputation and geographic coverage, as well as our prior experience
and judgment. The amount we paid for acquisitions, including cash, stock and
assumption of net liabilities totaled $680.1 million in 2002 and $844.7 million
in 2001.
Our acquisition strategy is to continue to build upon the core
capabilities of our various strategic business platforms and agency brands
through the expansion of their service capabilities and/or their geographic
reach. In executing our acquisition strategy, one of the primary drivers in
identifying and executing a specific transaction is the existence of, or the
ability to, expand our existing client relationships. As a result, a significant
portion of an acquired company's revenues are often from clients that are
already our clients. In addition, due to the nature of marketing services
communications companies, the companies we acquire have minimal tangible and
identifiable intangible net assets. Accordingly, a substantial portion of the
purchase price is allocated to goodwill. Historically, goodwill and other
identifiable intangibles have been amortized on a straight-line basis over a
period not to exceed 40 years and have been written down if, and to the extent,
they have been determined to be impaired. Beginning in 2002, and as required by
SFAS 142, we are no longer amortizing goodwill and other intangible assets that
have indefinite lives. However, we perform an annual impairment test in order to
assess the reported value of the acquired intangibles.
14
A summary of our contingent purchase price obligations, sometimes referred
to as earn-outs, and obligations to purchase additional interests in certain
subsidiary and affiliate companies is set forth on page 20 of this report. The
contingent purchase price obligations and obligations to purchase additional
interests in certain subsidiary and affiliate companies are based on future
performance. Contingent purchase price obligations are accrued, in accordance
with GAAP, when the contingency is resolved and payment is certain.
Additional information about acquisitions and goodwill appears in notes 1
and 2 to our consolidated financial statements on pages F-10 and F-11 of this
report and information about changes in GAAP relative to accounting for
acquisitions and goodwill is described below in New Accounting Pronouncements
and in note 13 to our consolidated financial statements at page F-23 of this
report.
Other Investments: Management continually monitors the value of its
investments to determine whether an other than temporary impairment has
occurred. A variety of factors are considered when making this determination
including the fair value of the investment and the financial condition and
prospects of the investee.
At December 31, 2002, we held a non-voting, non-participating preferred
stock interest in Seneca Investments LLC, a holding company with investments
primarily in the e-services industry. Management believes that the fair value of
our Seneca investment exceeded our carrying value at December 31, 2002 and that
an other than temporary impairment has not occurred. The primary approach
utilized to determine fair value is a discounted cash flow methodology. We also
used comparative market multiples to supplement the discounted cash flow
analysis. As part of the valuation process, management also hired an
independent, third party valuation firm to perform a fair value analysis as of
December 31, 2002. In addition, we considered the ability for Seneca to continue
to conduct its operations as well as its financial prospects. Certain companies
owned by Seneca have profitable operations and are leaders in their industry. We
also consider our Seneca investment to be long-term and we have no current plans
or intentions of disposing of our investment. Additional information about
Seneca is contained in note 6 to our consolidated financial statements at pages
F-15 to F-16 of this report.
Employee Stock-based Compensation: We account for employee stock option
grants in accordance with Accounting Principles Board Opinion 25 - Accounting
for Stock Issued to Employees ("APB 25"). We issue stock option awards with an
exercise price equal to the quoted market price on the grant date and therefore
we do not record any expense in our statement of income. In accordance with SFAS
No. 123, "Accounting for Stock Based Compensation" we have elected to make
annual pro forma disclosures (see note 7 to our consolidated financial
statements) of the effect of our reported net income and earnings per share as
if we adopted the fair value method of accounting for stock options. The FASB is
currently re-evaluating the accounting for stock-based compensation under APB 25
and SFAS 123 and whether to require that the theoretical fair value of employee
stock options be treated as an expense. We are evaluating our current method of
accounting for stock options and we are monitoring the FASB's consideration of
the matter, which will include a review of the valuation and measurement
concepts in SFAS 123. However, beginning in the first quarter of 2003, we will
include the pro forma disclosure requirements of SFAS 123, as recently amended
by SFAS 148, in all of our future interim financial statements. We will continue
to monitor the developments at the FASB for future guidance in the area of
accounting for stock-based compensation. The FASB has indicated that it expects
to issue an exposure draft during 2003 that could become effective in 2004.
New Accounting Pronouncements: Several new accounting pronouncements were
issued recently and impact our financial statements as discussed below.
SFAS 141 -- Business Combinations requires all business combinations
initiated after June 30, 2001 to be accounted for under the purchase method.
SFAS 141 superseded Accounting Pronouncement Bulletin ("APB") Opinion No. 16,
Business Combinations, and Statement of Financial Accounting Standards No. 38,
Accounting for Preacquisition Contingencies of Purchased Enterprises, and is
effective for all business combinations initiated after June 30, 2001.
SFAS 142 - Goodwill and Other Intangible Assets addresses the financial
accounting and reporting for acquired goodwill and other intangible assets. SFAS
142 supersedes APB Opinion No. 17, Intangible Assets. Effective January 1, 2002,
we adopted SFAS 142, "Goodwill and Other Intangible Assets", and no longer
amortize goodwill and other intangibles with indefinite lives. These assets are
subject to periodic testing for impairments at least annually. Substantially all
of our assets subject to the impairment test consisted of goodwill.
15
We completed the annual impairment test required by SFAS 142 in the second
quarter of 2002 by comparing the fair value of our reporting units to their
carrying values. We also reassessed the useful lives of other intangibles that
are amortized. As of January 1, 2002, we concluded that the fair values of the
reporting units exceeded the carrying values of the reporting units. Therefore,
no impairment charge was recognized in 2002 and no changes were made to the
useful lives of our intangibles. Additional information about SFAS 142 is
contained in note 13 to our consolidated financial statements on page F-23 of
this report.
SFAS 144 -- Accounting for the Impairment or Disposal of Long-Lived Assets
establishes a single accounting model for the impairment or disposal of
long-lived assets, including discontinued operations. Effective January 1, 2002,
the Company adopted SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". Adoption of SFAS 144 has not resulted in an impairment
charge.
SFAS 146 -- Accounting for Costs Associated with Exit or Disposal
Activities requires costs associated with exit or disposal activities be
recognized and measured initially at fair value only when the liability is
incurred. SFAS 146 is effective for exit or disposal costs that are initiated
after December 31, 2002. We plan to adopt SFAS 146 effective January 1, 2003.
The impact of SFAS 146 on our financial statements will depend on a variety of
factors, including interpretative guidance from the FASB. However, we do not
expect that the adoption will have a material impact on our consolidated results
of operations or financial position.
SFAS 148 -- Accounting for Stock-Based Compensation -- Transition and
Disclosure --- An Amendment of FASB No. 123 was issued as an amendment to FASB
No. 123, Accounting for Stock-Based Compensation and provides alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation (in accordance
with SFAS 123). We have applied the accounting provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and we have made the annual pro
forma disclosures of the effect of adopting the fair value method of accounting
for employee stock options and similar instruments as required by SFAS 123 and
permitted under SFAS 148. SFAS 148 also requires pro forma disclosure to be
provided on a quarterly basis. We will begin the quarterly disclosures for the
first quarter of 2003 and will continue to closely monitor developments in the
area of accounting for stock-based compensation.
FASB Interpretation No. 45 -- Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to
Others (FIN 45). FIN 45 sets forth the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
guarantees issued. FIN 45 also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of FIN
45 are applicable to guarantees issued or modified after December 31, 2002. If
the initial recognition and measurement issues were in effect at December 31,
2002, we would have recorded both an asset and a liability of an equal amount of
$11.3 million related to certain real estate lease guarantees and letters of
credit. Additional information appears in note 11 to our consolidated financial
statements on pages F-21 and F-22 of this report.
FASB Interpretation No. 46 -- Consolidation of Variable Interest Entities
(FIN 46). FIN 46 addresses the consolidation by business enterprises of variable
interest entities, as defined in the FIN 46 and is based on the concept that
companies that control another entity through interests, other than voting
interests, should consolidate the controlled entity. The consolidation
requirements apply immediately to FIN 46 interests held in variable interest
entities created after January 31, 2003, and to interests held in variable
interest entities that existed prior to February 1, 2003 and remain in existence
as of July 1, 2003. Additionally, FIN 46 would require certain disclosure in our
2002 financial statements if it was reasonably possible that we will consolidate
or disclose information about variable interest entities in existence as of July
1, 2003. The application of FIN 46 did not result in additional disclosure in
our 2002 financial statements and is not expected to have a material impact on
our 2003 consolidated results of operations or financial position.
The Emerging Issues Task Force ("EITF") of the FASB also released
interpretive guidance covering several topics that impact our financial
statements. These topics include revenue arrangements with multiple deliverables
(EITF 00-21), customer relationship intangible assets acquired (EITF 02-17) and
vendor rebates (EITF 02-16). The application of this guidance did not have a
material impact on our consolidated results of operations or financial position.
16
Liquidity and Capital Resources
Liquidity: We had cash and cash equivalents totaling $667.0 million and
$472.2 million and short-term investments totaling $28.9 million and $44.8
million at December 31, 2002 and 2001, respectively. Net cash provided by our
operating activities was $1,000.6 million in 2002 compared to $775.6 million in
2001. Our operating cash flows in 2002 reflect net income and cash provided from
decreases in prepaid expenses and other current assets and accounts receivable,
partially offset by cash utilized due to a net decrease in accounts payable and
other liabilities which include accruals for incentive compensation. At December
31, 2002 and 2001, our current liabilities exceeded our current assets by
$1,202.5 million and $1,410.0 million respectively. This occurred primarily
because accounts payable, which includes payables to vendors for media and other
pass-through costs, were in excess of accounts receivable because we generally
require payment from our clients before paying vendors for media, production
costs and other pass-through expenditures.
Net cash flows used in our investing activities in 2002 were $683.1
million, including $586.3 million used for acquisitions, net of cash acquired,
and $117.2 million used for capital expenditures. Of the $586.3 million used for
acquisitions and investments, $324.8 million related to acquisitions completed
in prior years.
Net cash flows used in our financing activities in 2002 were $119.8
million, including repayments of short-term borrowings of $127.7 million,
repayments of long-term debt of $340.0 million, dividends paid to shareholders
of $148.4 million and payments to repurchase stock of $371.7 million, offset by
borrowings of $900.0 million.
Capital Resources: We maintain two revolving credit facilities with two
consortia of banks. On November 14, 2002, we entered into a new 3-year $800.0
million revolving credit facility which matures November 14, 2005. In addition,
we entered into a new $1,025.0 million 364-day revolving credit facility which
matures on November 13, 2003. These facilities replaced the existing facilities
which were due to mature in the second quarter of 2003. The company is an active
participant in the commercial paper market with a $1,500.0 million program. Each
of our bank credit facilities mentioned above are available to provide credit
support for issuances under this program. As of December 31, 2002, we had no
borrowings outstanding under these credit facilities. The new facilities are
substantially the same as the facilities they replaced. The 364-day facility
continues to include a provision which allows the Company to convert all amounts
outstanding at expiration of the facility into a one-year term loan. The
consortium of banks under the 364-day credit facility consists of 19 banks for
which Citibank N.A. acts as agent. Other significant lending institutions
include JPMorgan Chase Bank, HSBC Bank USA, San Paolo IMI S.p.A., Barclays,
Wachovia and Societe Generale. A similar consortium of 15 banks provides support
under the 3-year revolving credit facility for which Citibank N.A. acts as
administrative agent and ABN AMRO Bank acts as syndication agent. Other
significant lending institutions include HSBC Bank USA, JPMorgan Chase Bank,
Wachovia and Societe Generale. These facilities provide us with the ability to
classify up to $1,825.0 million of our borrowings due within one year as
long-term debt, as it is our intention to keep the borrowings outstanding on a
long-term basis.
During 2002, we issued $32.8 billion of commercial paper and we redeemed
$33.1 billion. The average term of the commercial paper issued was 5.6 days. At
December 31, 2002, the Company had no commercial paper outstanding.
We had short-term bank loans of $50.4 million at December 31, 2002,
primarily comprised of bank overdrafts by our international subsidiaries which
are treated as unsecured loans pursuant to the subsidiaries' bank agreements.
At December 31, 2002, we had a total of $1,750.0 million aggregate
principal amount of convertible notes outstanding, including $850.0 million
Liquid Yield Option 30-year notes, which were issued in February 2001, and
$900.0 million Zero Coupon Zero Yield 30-year notes, which were issued in March
2002. The holders of our Liquid Yield Option notes have the right to cause us to
repurchase up to the entire aggregate face amount of the notes then outstanding
for par value in February of each year and the holders of our Zero Coupon Zero
Yield notes have the right to cause us to repurchase up to the entire aggregate
face amount of the notes then outstanding for par value in August of each year.
These notes are convertible, at a specified ratio, only upon the occurrence of
certain events, including if our common shares trade above certain levels, if we
effect extraordinary transactions or if our long-term debt ratings are
downgraded by at least three notches from their December 31, 2002 level of A to
BBB or lower by Standard & Poor's Ratings Services, or from their December 31,
2002 level of A3 to Baa3 or lower by Moody's Investors Services, Inc. The notes
are convertible at the specified ratio if our long-term debt ratings are
downgraded by at least two notches from their March 14, 2003 level of A- to BBB
or lower by Standard & Poor's Investors Services, Inc., and Baa1 to Baa3 or
17
lower by Moody's Investors Services, Inc. These events would not, however,
result in an adjustment of the number of shares issuable upon conversion. On
February 3, 2003, we offered to pay holders of the Liquid Yield Option notes due
in 2031, $30 in cash per $1,000 principal amount of notes. On February 7, 2003,
we repurchased for cash, $2.9 million of these notes from holders who tendered
their notes in lieu of the cash payment, reducing the outstanding aggregate face
amount of the Liquid Yield Option notes to $847.0 million. We paid $25.4 million
to qualified noteholders on February 21, 2003. Additional information about the
notes appears in notes 4 and 15 to our consolidated financial statements on
pages F-13 to F-25 of this report.
At December 31, 2002, we had approximately $160.0 million of
Euro-denominated bonds outstanding. The bonds pay a fixed rate of 5.2% to
maturity in June 2005. The bonds serve as a hedge of our investment in
Euro-denominated net assets. While an increase in the value of the euro against
the dollar will result in a greater liability for interest and principal, there
will be a corresponding increase in the dollar value of our euro-denominated net
assets.
Below is a summary of our debt position as of December 31, 2002 ($ in
millions):
Debt:
Bank loans (due in less than 1 year)................ $ 50.4
$800.0 Million Revolver-- due November 14, 2005..... --
Commercial paper issued under 364-day Facility ..... --
5.20% Euro notes-- due June 24, 2005................ 160.0
Convertible notes-- due February 7, 2031............ 850.0
Convertible notes-- due July 31, 2032............... 900.0
Loan notes and sundry-- various through 2012........ 70.1
--------
Total Debt.......................................... $2,030.5
========
On December 31, 2001, we redeemed our 2 1/4% Convertible Subordinate
Debentures, which had a scheduled maturity in 2013. The debentures were
convertible into 4.6 million common shares. Prior to redemption, substantially
all of the bondholders exercised their conversion rights.
We believe that our operating cash flow combined with our available lines
of credit and our access to the capital markets are sufficient to support our
foreseeable cash requirements, including working capital, capital expenditures,
dividends and acquisitions.
Additional information about our indebtedness is included in notes 3 and 4
of our consolidated financial statements at pages F-12 to F-14 of this report.
Quantitative and Qualitative Disclosures Regarding Market Risk
Our results of operations are subject to the risk of currency exchange
rate fluctuations related to our international operations. Our net income is
subject to risk from the translation of the revenue and expenses of our foreign
operations, which are generally denominated in the local currency. The effects
of currency exchange rate fluctuation on our results of operations are discussed
on pages F-22 and F-23 of this report. We do not hedge these exposures against
the U.S. dollar in the normal course of our business. We do, however, conduct
global treasury operations to improve liquidity and manage third party interest
expense centrally. As an integral part of these operations, we enter into
short-term forward foreign exchange contracts to hedge intercompany cash
movements between subsidiaries operating in different currency markets. To the
extent that our treasury centers require liquidity, they can access local
currency lines of credit, our committed bank facilities or dollar-denominated
commercial paper. A foreign treasury center borrowing dollar-denominated
commercial paper will enter into a short-term foreign exchange contract to hedge
its position. Outside of major markets, our subsidiaries generally borrow funds
directly in their local currency. In addition, we periodically enter into
cross-currency interest rate swaps to hedge our net yen investments. While our
agencies conduct business in more than 70 different currencies, our major
non-U.S. currency markets are the European Monetary Union (EMU), the United
Kingdom, Japan, Brazil and Canada.
18
At December 31, 2002, we had foreign exchange contracts outstanding with
an aggregate notional principal of $791.7 million, most of which were
denominated in our major international market currencies. Additionally, at
December 31, 2002, we had several cross-currency interest rate swaps in place
with an aggregate notional principal amount of 19,100 million Yen maturing in
2005. See note 12 to our consolidated financial statements at pages F-22 to F-23
of this report for information about the fair value of each type of derivative
instrument.
The forward foreign exchange and swap contracts discussed above are
subject to counterparty risk. Counterparty risk is the capacity of a
counterparty to meet its obligations upon settlement. To mitigate counterparty
risk, we only enter into contracts with major well-known banks and financial
institutions that have credit ratings at least equal to our own.
These hedging activities are limited in volume and confined to risk
management activities related to our international operations. We have
established a centralized reporting system to evaluate the effects of changes in
interest rates, currency exchange rates and other relevant market risks. We
periodically determine the potential loss from market risk by performing a
value-at-risk computation. Value-at-risk analysis is a statistical model that
utilizes historic currency exchange and interest rate data to measure the
potential impact on future earnings of our existing portfolio of derivative
financial instruments. The value-at-risk analysis we performed on our December
31, 2002 portfolio of derivative financial instruments indicated that the risk
of loss was immaterial. This overall system is designed to enable us to initiate
remedial action, if appropriate.
We maintain two revolving credit facilities aggregating $1,825.0 million
with two consortia of banks. We are an active participant in the commercial
paper market with a $1,500.0 million program. Our bank credit facilities
mentioned above are available to provide credit support for issuances under this
program.
The majority of our long-term debt consists of convertible notes. The
holders of these convertible notes have the annual right to cause us to
repurchase up to the entire aggregate face amount. We may offer the holders of
our notes a cash payment to induce them to not put the notes to us in advance of
an annual put date. As a result, our interest expense could increase based on
market factors at the time. On February 3, 2003, we offered to pay holders of
the Liquid Yield Option notes due in 2031, $30 per $1,000 principal amount as an
incentive to the holders not to exercise their put right. In addition, on
February 7, 2003, we repurchased for cash, notes from holders who tendered their
notes for $2.9 million, reducing the outstanding amount of the Liquid Yield
Option notes due 2031 to $847.0 million.
We enter into numerous contractual and commercial undertakings in the
normal course of our business. The following table summarizes information about
certain of our obligations as of December 31, 2002. The table should be read
together with note 3 (bank loans and lines of credit), note 4 (long-term debt
and convertible notes), note 10 (commitments and contingent liabilities), note
11 (fair value of financial instruments) and note 12 (financial instruments and
market risk) to our consolidated financial statements at pages F-8 to F-25 of
this report.
Due in Due in Due
Less than 1 1 to 5 after 5 Total
Year Years Years Due
--------- --------- --------- ---------
Contractual Obligations at
December 31, 2002 (in millions)
Long-term debt........................... $ 32.4 $ 197.9 $ -- $ 230.3
Convertible notes........................ 2.9 -- 1,747.0 1,749.9
Lease obligations........................ 381.7 940.2 825.3 2,147.2
------ -------- -------- --------
Total.................................... $417.0 $1,138.1 $2,572.3 $4,125.4
====== ======== ======== ========
Due in Due in Due
Less than 1 1 to 5 after 5 Total
Year Years Years Due
--------- --------- --------- ---------
Other Commercial Commitments at
December 31, 2002 (in millions)
Lines of Credit.......................... $ -- $ -- $ -- $ --
Guarantees and letters of credit......... 3.3 7.1 0.9 11.3
---- ---- ---- -----
Total.................................... $3.3 $7.1 $0.9 $11.3
==== ==== ==== =====
19
In the normal course of business, our agencies enter into various media
commitments on behalf of our clients. These commitments are included in our
accounts payable balance when the media services are delivered by the providers.
Historically, we have not experienced significant losses for media commitments
entered into on behalf of our clients and we believe that we do not have any
substantial exposure to potential losses of this nature in the future.
Contingent Acquisition Obligations
Certain of our acquisitions are structured with additional contingent
purchase price obligations. We utilize contingent purchase price structures in
an effort to minimize the risk to the Company associated with potential future
negative changes in the performance of the acquired entity. We estimate that the
amount of future contingent purchase price payments, assuming that the acquired
businesses perform over the relevant future periods at their current profit
levels, that we will be required to make for prior acquisitions is $471.3
million as of December 31, 2002. The ultimate amounts payable are dependent upon
future results, are subject to changes in foreign currency exchange rates and,
in accordance with GAAP, we have not recorded a liability for these items on our
balance sheet. Actual results can differ from these estimates and the actual
amounts that we pay are likely to be different from these estimates. These
obligations change from period to period as a result of payments made during the
current period, changes in the previous estimate of the acquired entities'
performance and changes in foreign currency exchange rates. These differences
could be material. We estimate these contingent purchase price obligations as of
December 31, 2002, on an annual basis, are as follows:
($ in millions)
------------------------------------------------------------------------
There-
2003 2004 2005 2006 after Total
------- ------- ------- ------- ------- -------
$220.3 $121.1 $82.1 $29.2 $18.6 $471.3
In addition, owners of interests in certain of our subsidiaries or
affiliates have the right in certain circumstances to require us to purchase
additional ownership stakes in these subsidiaries or affiliates which we
estimate, assuming that the subsidiaries and affiliates perform over the
relevant periods at their current profit levels, could require us in future
periods to pay an additional aggregate of $234.5 million, $134.4 million of
which are currently exercisable. The ultimate amount payable in the future
relating to these transactions will vary because it is dependent on the future
results of operations of the subject businesses and the timing of when these
rights are exercised. The actual amounts that we pay are likely to be different
from these estimates. These differences could be material. We estimate the
obligations that exist for these agreements as of December 31, 2002 are as
follows:
($ in millions)
---------------------------------------
Currently Not Currently
Exercisable Exercisable Total
---------- ---------- --------
($ in millions)
Subsidiary agencies ............... $ 115.4 $ 94.0 $ 209.4
Affiliated agencies ............... 19.0 6.1 25.1
-------- -------- --------
Total ............................. $ 134.4 $ 100.1 $ 234.5
======== ======== ========
If these rights are exercised, there would likely be an increase in our
net income as a result of our increased ownership and the reduction of minority
interest expense.
8. Financial Statements and Supplementary Data
Our financial statements and supplementary data are included at the end of
this report beginning on page F-1 of this report. See the index appearing on
page 22 of this report.
9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
20
PART III
10. Executive Officers
The executive officers of Omnicom Group Inc. as of March 15, 2003 are:
Name Position Age
---- -------- ---
Bruce Crawford............. Chairman 74
John D. Wren............... President and Chief Executive Officer 50
Philip J. Angelastro....... Senior Vice President of Finance and
Controller 38
Jean-Marie Dru............. President and Chief Executive Officer
of TBWA Worldwide 56
Thomas L. Harrison......... Chairman and Chief Executive Officer of
Diversified Agency Services 55
Peter Mead................. Vice Chairman 63
Keith L. Reinhard.......... Chairman of DDB Worldwide 68
Allen Rosenshine........... Chairman and Chief Executive Officer of
BBDO Worldwide 64
Barry J. Wagner............ Secretary and General Counsel 62
Randall J. Weisenburger.... Executive Vice President and Chief
Financial Officer 44
All of the executive officers have held their present positions at Omnicom
for at least five years except as specified below.
Philip Angelastro was promoted to Senior Vice President of Finance in
January 2002 and was made Controller on February 1, 1999. Mr. Angelastro joined
the Company in June 1997 as Vice President of Finance of Diversified Agency
Services after being a Partner at Coopers & Lybrand LLP.
Jean-Marie Dru was appointed President and Chief Executive Officer of TBWA
Worldwide in March 2001. He had previously been President International of TBWA
Worldwide. Mr. Dru was co-founder and Chairman of BDDP Group, which merged with
TBWA in 1998.
Thomas Harrison has served as Chairman and Chief Executive Officer of
Diversified Agency Services since May 1998, having previously served as its
President since February 1997. He also has served as Chairman of the Diversified
Healthcare Communications Group since its formation in 1994.
Peter Mead was appointed Vice Chairman on May 16, 2000. He had previously
been Group Chief Executive of Abbot Mead Vickers plc and Joint Chairman of AMV
BBDO.
Randall Weisenburger joined the Company in September 1998 and became
Executive Vice President and Chief Financial Officer on January 1, 1999. Mr.
Weisenburger was previously President and Chief Executive Officer of Wasserstein
Perella Management Partners.
Additional information about our directors and executive officers appears
under the captions "Election of Directors", "Management's Stock Ownership",
"Director Compensation" and "Executive Compensation" in our 2003 proxy
statement.
14. Controls and Disclosure
We maintain disclosure controls and procedures designed to ensure that
information required to be included in our SEC reports is recorded, analyzed and
reported within applicable time periods. During the 90-day period prior to the
filing of this report, we conducted an evaluation, under the supervision and
with the participation of our management, including our CEO and CFO, of the
effectiveness of our disclosure controls and procedures. Based on that
evaluation, our CEO and CFO concluded that they believe that our disclosure
controls and procedures are effective to ensure recording, analysis and
reporting of information required to be included in our SEC reports on a timely
basis. There have been no significant changes in our internal controls or others
factors that could be reasonably expected to significantly affect the
effectiveness of these controls since that evaluation was completed.
21
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements: Page
----
Management Report ................................................ F-1
Report of Independent Public Accountants ......................... F-2
Consolidated Statements of Income for the Three Years Ended
December 31, 2002 ............................................. F-3
Consolidated Balance Sheets at December 31, 2002 and 2001 ........ F-4
Consolidated Statements of Shareholders' Equity for the Three
Years Ended December 31, 2002 ................................. F-5
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 2002 ............................................. F-6
Notes to Consolidated Financial Statements ....................... F-7
Quarterly Results of Operations (Unaudited) ...................... F-26
(a)(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts (for the three
years ended December 31, 2002) ................................ S-1
All other schedules are omitted because they are not applicable.
(a)(3) Exhibits:
Exhibit
Numbers Description
------- -----------
(3)(i) Certificate of Incorporation (Exhibit 4.1 to our
Registration Statement No. 333-46303 and incorporated by
reference).
(ii) Amendment to Certificate of Incorporation (Exhibit A to our
Proxy Statement filed on April 11, 2000 ("2000 Proxy
Statement") and incorporated by reference).
(iii) By-laws (incorporated by reference to our Annual Report on
Form 10-K for the year ended December 31, 1987).
4.1 Fiscal Agency Agreement, dated June 24, 1998, in connection
with our issuance of 1,000,000,000 5.20% Notes due 2005
(the "5.20% Notes") (Exhibit 4.1 to our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (the "6-30-98
10-Q") and incorporated herein by reference).
4.2 Subscription Agreement, dated June 22, 1998, in connection
with our issuance of the 5.20% notes (Exhibit 4.2 to our
6-30-98 10-Q and incorporated by reference).
4.3 Deed of Covenant, dated June 24, 1998, in connection with
our issuance of the 5.20% notes (Exhibit 4.3 to the 6-30-98
10-Q and incorporated by reference).
4.4 Indenture, dated February 7, 2001, between JPMorgan Chase
Manhattan Bank, as trustee, and us in connection with our
issuance of $850,000,000 Liquid Yield Option notes due 2031
(Exhibit 4.1 to our Registration Statement on Form S-3
(Registration Statement No. 333-55386 and incorporated by
reference).
4.5 Form of Liquid Yield Option notes due 2031 (included in
Exhibit 4.4 above).
4.6 Indenture, dated March 6, 2002, between JPMorgan Chase Bank
as trustee and us in connection with our issuance of
$900,000,000 Zero Coupon Zero Yield Convertible notes due
2032 (Exhibit 4.6 to our Annual Report on Form 10-K for the
year ended December 31, 2001 and incorporated by
reference).
4.7 Form of Zero Coupon Zero Yield Convertible notes due 2032
(included in Exhibit 4.6).
10.1 $800,000,000 Credit Agreement, dated November 14, 2002,
among Omnicom Finance Inc., Omnicom Capital Inc., Omnicom
Finance PLC, Omnicom Group Inc., Salomon Smith Barney Inc.
and ABN AMRO Incorporated, as lead arrangers for the
institutions party thereto.
10.2 364-Credit Agreement, dated November 14, 2002, among
Omnicom Finance Inc., Omnicom Capital Inc., Omnicom Finance
PLC, the financial institutions party thereto, Citibank,
N.A.,
22
as Administrative Agent and Salomon Smith Barney Inc., as
Lead Arranger, ABN AMRO Bank N.V., as syndication agent,
HSBC Bank USA, Wachovia Bank, National Association and
Societe Generale, as documentation agents.
10.3 List of Contents of Exhibits to the $800,000,000 Credit
Agreement dated November 14, 2002.
10.4 List of Contents of Exhibits to the 364-Day Credit
Agreement, dated November 14, 2002.
10.5 Guaranty, dated November 14, 2002, made by Omnicom Group
Inc. for the $800,000,000 Credit Agreement.
10.6 Guaranty, dated November 14, 2002, made by Omnicom Group
Inc. for the 364-Day Credit Agreement.
10.7 Amended and Restated 1998 Incentive Compensation Plan
(Exhibit B to our 2000 Proxy Statement and incorporated by
reference).
10.8 Restricted Stock Plan for Non-employee Directors (Exhibit
10.10 to our Annual Report on Form 10-K for the year ended
December 31, 1999 and incorporated by reference).
10.9 Standard form of our Executive Salary Continuation Plan
Agreement (Exhibit 10.24 to our Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated by
reference).
10.10 Standard form of the Director Indemnification Agreement
(Exhibit 10.25 to our Annual Report on Form 10-K for the
year ended December 31, 1989 and incorporated by
reference).
10.11 Severance Agreement, dated July 6, 1993, between Keith
Reinhard and DDB Worldwide Communications Group, Inc.
(Exhibit 10.11 to our Annual Report on Form 10-K for the
year ended December 31, 1993 and incorporated by
reference).
10.12 Long-Term Shareholder Value Plan, dated March 19, 2002
(Exhibit 4.4 to our Registration Statement on Form S-8 No.
333-84498 and incorporated by reference).
10.13 Executive Salary Continuation Plan Agreement - Thomas
Harrison (Exhibit 10.7A to our Quarterly Report on Form
10-Q for the quarter ended June 30, 2002 (the "6-30-02
10-Q") and incorporated by reference).
10.14 Executive Salary Continuation Plan Agreement - Peter Mead
(Exhibit 10.7B to our 6-30-02 10-Q and incorporated by
reference).
10.15 Executive Salary Continuation Plan Agreement - Keith L.
Reinhard (Exhibit 10.7C to our 6-30-02 10-Q and
incorporated by reference).
10.16 Executive Salary Continuation Plan Severance Compensation
Agreement - Allen Rosenshine (Exhibit 10.7D to our 6-30-02
10-Q and incorporated by reference).
10.17 Executive Salary Continuation Plan Agreement - John Wren
(Exhibit 10.7E to our 6-30-02 10-Q and incorporated by
reference).
10.18 Employment Agreement, Executive Salary Continuation Plan
Agreement and Note - Michael Greenlees (Exhibit 10.7F to
our 6-30-02 10-Q and incorporated by reference).
10.19 Equity Incentive Plan, dated May 22, 2002.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
24.1 Powers of Attorney from Leonard S. Coleman, Jr., Errol M.
Cook, Bruce Crawford, Susan S. Denison, Michael A. Henning,
John R. Murphy, John R. Purcell, Linda Johnson Rice and
Gary L. Roubos.
99.1 Certification of Annual Report on Form 10-K.
(b) Reports on Form 8-K
On October 29, 2002, we filed a Current Report on Form 8-K to file under
Item 5 our third quarter earnings release and to furnish under Item 9
(Regulation FD Disclosure) the text of materials used in our investor
presentation.
On December 31, 2002, we filed a Current Report on Form 8-K describing
under Item 9 changes to the Board of Directors effective December 31, 2002.
23
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.
March 26, 2003
By: /s/ RANDALL J. WEISENBURGER
--------------------------------------
Randall J. Weisenburger
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ BRUCE CRAWFORD* Chairman and Director March 26, 2003
- ----------------------------
(Bruce Crawford)
/s/ JOHN D. WREN Chief Executive Officer March 26, 2003
- ---------------------------- and President and Director
(John D. Wren)
/s/ RANDALL J. WEISENBURGER Executive Vice President and March 26, 2003
- ---------------------------- Chief Financial Officer
(Randall J. Weisenburger)
/s/ PHILIP J. ANGELASTRO Senior Vice President and Controller March 26, 2003
- ---------------------------- (Principal Accounting Officer)
(Philip J. Angelastro)
Director
- ----------------------------
(Robert Charles Clark)
/s/ LEONARD S. COLEMAN, JR.* Director March 26, 2003
- ----------------------------
(Leonard S. Coleman, Jr.)
/s/ ERROL M. COOK* Director March 26, 2003
- ----------------------------
(Errol M. Cook)
/s/ SUSAN S. DENISON* Director March 26, 2003
- ----------------------------
(Susan S. Denison)
/s/ MICHAEL A. HENNING* Director March 26, 2003
- ----------------------------
(Michael A. Henning)
/s/ JOHN R. MURPHY* Director March 26, 2003
- ----------------------------
(John R. Murphy)
/s/ JOHN R. PURCELL* Director March 26, 2003
- ----------------------------
(John R. Purcell)
/s/ LINDA JOHNSON RICE* Director March 26, 2003
- ----------------------------
(Linda Johnson Rice)
/s/ GARY L. ROUBOS* Director March 26, 2003
- ----------------------------
(Gary L. Roubos)
The undersigned, by signing his name below, does hereby sign this report
pursuant to powers of attorney signed by the persons identified by asterisks
above.
By: /s/ BARRY J. WAGNER
----------------------------------
(Barry J. Wagner,
Attorney-in-fact)
24
CERTIFICATION
I, John D. Wren, certify that:
1. I have reviewed this annual report on Form 10-K of Omnicom Group
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 26, 2003 /s/ JOHN D. WREN
----------------------------------------
John D. Wren
Chief Executive Officer and President
25
CERTIFICATION
I, Randall J. Weisenburger, certify that:
1. I have reviewed this annual report on Form 10-K of Omnicom Group
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5.