01—Abstract
Summary
Summary of the 10-K filed February 22, 2008. Cited figures are marked; the original filing is the authoritative source.
Omnicom Group Inc. (NYSE: OMC) describes itself as a strategic holding company that provides advertising, marketing and corporate communications services through multiple agencies in all major markets worldwide.
Its revenue is about evenly divided between U.S. and non-U.S. operations. For 2007, revenue increased 11.6% to $12,694.0 milliona from $11,376.9 million, with organic growth of 7.1%, foreign exchange adding 3.8%, and acquisitions net of dispositions adding 0.7%. Operating profit rose 11.8% to $1,659.1 million, with operating margin of 13.1% versus 13.0% in 2006.
Net income increased 12.9% to $975.7 millionb, and diluted EPS rose 18.0% to $2.95. Cash flow and balance sheet highlights: net cash provided by operating activities was $1,599.3 million in 2007, capital expenditures were $223.0 million, and $899.7 million was spent on treasury share purchases. Cash and cash equivalents were $1,793.2 million at year-end, against total debt of $3,069.3 million.
The company reported $2.5 billionc in unused committed credit facilities, and its debt ratings were A- (S&P), Baa1 (Moody's) and A- (Fitch). Holders of convertible notes can require repurchase of up to $2.0 billion at specified dates, and the company states it expects to have sufficient cash and credit to fund any such put. Legal matters remain open.
A securities class action was dismissed on January 28, 2008, and plaintiffs filed notice of intent to appeal. A shareholder derivative action was dismissed on appeal, and the plaintiffs' motion for reargument or leave to appeal was denied on January 31, 2008. Management states that the allegations are baseless and that it cannot determine the outcome of these cases.
02—Key points
Key Highlights
- Revenue rose 11.6% to $12,694.0 million in 2007, with organic growth of 7.1% contributing $802.6 million
- Operating profit increased 11.8% to $1,659.1 million; operating margin was 13.1% versus 13.0% in 2006
- Net income grew 12.9% to $975.7 million; diluted EPS increased 18.0% to $2.95
- Operating cash flow was $1,599.3 million, while the company repurchased $899.7 million of treasury shares
- Year-end cash and cash equivalents were $1,793.2 million against total debt of $3,069.3 million; $2.5 billion of unused committed credit facilities were available
- Holders of convertible notes can require repurchase of up to $2.0 billion at specified dates; the company expects to have sufficient liquidity to fund any put
- A securities class action was dismissed on January 28, 2008, and plaintiffs have filed notice of intent to appeal
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 22, 2008Financial Statements
| Revenue | $12.69B |
| Operating Expenses | $11.03B |
| Operating Income | $1.66B |
| Interest Expense | $106.90M |
| Net Income | $975.70M |
| EPS (Basic) | $2.95 |
| EPS (Diluted) | $2.93 |
05—Questions
Frequently Asked Questions
How did Omnicom perform financially in 2007?
Revenue increased 11.6% to $12,694.0 million, operating profit rose 11.8% to $1,659.1 million, and net income grew 12.9% to $975.7 million. Diluted EPS was $2.95, up 18.0% from $2.50 in 2006. The filing attributes the margin improvement to new business initiatives and wins, as well as cost management actions.
How much debt does Omnicom carry and can it meet its obligations?
Total debt was $3,069.3 million at December 31, 2007, including $2,041.5 million of convertible notes and $996.0 million of Senior Notes due 2016. The company had $1,841.0 million of cash and short-term investments and $2.5 billion of unused committed credit facilities. It was in compliance with its covenants, with a debt-to-EBITDA ratio of 1.6 times and EBITDA-to-interest coverage of 17.5 times, and it states it expects to fund any convertible note puts while retaining ample capacity.
What legal risks does Omnicom disclose?
Two shareholder lawsuits are disclosed. A securities class action was dismissed on January 28, 2008, and plaintiffs filed notice of intent to appeal to the Second Circuit. A consolidated derivative action was dismissed after the New York Appellate Division reversed the trial court, and the plaintiffs' request for reargument or leave to appeal was denied on January 31, 2008. Management states it cannot determine the outcome or financial effect of these cases.
What are the main risks to Omnicom's business?
The filing cites client concentration, with the 100 largest clients representing 46.2% of 2007 revenue. It also cites the ability to remain competitive and retain key personnel, economic recession reducing client budgets, international risks including currency and exchange controls, developing-country exposure, goodwill impairment, and credit rating downgrades that could raise bank facility costs.
06—Continue