01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Omnicom Group Inc. (NYSE: OMC) reported 2008 revenue of $13,359.9 milliona, up 5.2% from $12,694.0 million in 2007, with organic growth of 2.9%, foreign exchange adding 1.3%, and acquisitions adding 1.0%.
Net income rose 2.5% to $1,000.3 millionb and diluted EPS rose 7.5% to $3.17. The filing notes that growth slowed through the second half of 2008 and that fourth-quarter revenue fell 7.0% to $3,371.3 million, as clients cut spending during the global recession. In response, the company reduced its workforce and incurred severance costs, which pushed salary and service costs to 71.6% of revenue from 71.0% in 2007.
The balance sheet shows cash and short-term investments of $1,112.4 millionc, down from $1,841.0 million, and net debt of $1,960.8 million, up from $1,228.3 million. Shareholders' equity fell to $3,522.8 million from $4,091.7 million, reflected in accumulated other comprehensive loss and $846.8 million of treasury stock purchases during 2008. The company has a $2.5 billion credit facility that expires June 23, 2011.
Management states it has not repurchased stock since August 2008 and does not plan to resume until credit markets stabilize. The most significant near-term item is the put of $841.2 milliond of 2031 convertible notes on February 9, 2009. Omnicom borrowed $814.4 million under its credit facility and received $26.8 million from equity investors in a partnership it controls to fund the purchase, retiring $295.2 million and having the partnership hold the remaining $546.0 million.
Credit ratings are A- (S&P), Baa1 (Moody's) and A- (Fitch). Management expects foreign exchange to reduce 2009 revenue by between 6.5% and 7.5% at January 30, 2009 exchange rates.
02—Key points
Key Highlights
- Revenue rose 5.2% to $13,359.9 million in 2008, with organic growth of 2.9%, foreign exchange adding 1.3% and acquisitions adding 1.0%.
- Fourth-quarter 2008 revenue fell 7.0% to $3,371.3 million, with organic revenue down $83.2 million as client spending contracted.
- Diluted EPS increased 7.5% to $3.17; net income increased 2.5% to $1,000.3 million.
- Operating profit rose to $1,689.4 million, with the operating margin at 12.6% versus 13.1% in 2007, partly due to $55 million more in fourth-quarter severance than in 2007.
- Net debt increased to $1,960.8 million from $1,228.3 million, as cash and short-term investments fell to $1,112.4 million.
- On February 9, 2009, holders put $841.2 million of 2031 Notes; Omnicom borrowed $814.4 million under its $2.5 billion credit facility to fund the purchase.
- Shareholders' equity declined to $3,522.8 million from $4,091.7 million, and the company has made no share repurchases since August 2008.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $13.36B$12.69B | +5.2% |
| Operating Expenses | $11.67B$11.03B | +5.8% |
| Operating Income | $1.69B$1.66B | +1.8% |
| Interest Expense | $124.60M$106.90M | +16.6% |
| Net Income | $1.00B$975.70M | +2.5% |
| EPS (Basic) | $3.17$2.95 | +7.5% |
| EPS (Diluted) | $3.14$2.93 | +7.2% |
| Shares Outstanding (Basic) | 313.00M— | — |
| Shares Outstanding (Diluted) | 314.80M— | — |
05—Questions
Frequently Asked Questions
How did Omnicom perform financially in 2008?
Revenue grew 5.2% to $13,359.9 million and net income grew 2.5% to $1,000.3 million, with diluted EPS of $3.17 versus $2.95 in 2007. Growth slowed in the second half of 2008, and fourth-quarter revenue declined 7.0% year over year.
What is the impact of the February 2009 convertible note put on Omnicom?
Holders put $841.2 million of 2031 Notes at par. Omnicom borrowed $814.4 million under its credit facility and received $26.8 million from unaffiliated equity investors in a partnership it controls. It retired $295.2 million of the notes and the partnership holds the remaining $546.0 million, which it intends to sell over the next 12 months if market conditions permit.
How much debt and liquidity does Omnicom have?
At December 31, 2008, total debt was $3,073.2 million and cash and short-term investments were $1,112.4 million, for net debt of $1,960.8 million. The company has a $2.5 billion credit facility expiring June 23, 2011, which the filing states is sufficient to fund near-term working capital and discretionary spending. Its credit ratings are A- (S&P), Baa1 (Moody's) and A- (Fitch).
What risks does the filing highlight for 2009?
The filing cites the global economic recession and credit crisis, which could lead to further reductions in client spending and slower client payments. It also cites potential losses on media purchases made on clients' behalf in a severe downturn, client concentration (the top 100 clients accounted for 47.2% of 2008 revenue), and expected 2009 foreign exchange impacts reducing revenue by 6.5% to 7.5%.
Is Omnicom repurchasing its stock?
No. Omnicom has not repurchased common stock since August 2008 and does not plan to resume until it believes credit markets have begun to stabilize. In 2008 it bought $846.8 million of treasury stock before stopping. Common dividends declared were $0.600 per share for 2008.
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