<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarter ended September 30, 1994 Commission file no. 1-5029
FOOTE, CONE & BELDING COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-1088161
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
101 EAST ERIE STREET, CHICAGO, ILLINOIS 60611
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (312) 751-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---- ---
There were 11,713,825 shares of the Registrant's 33 1/3 cents per share par
value Common Stock outstanding as of November 10, 1994.
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FOOTE, CONE & BELDING COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Exhibits
Consolidated Statements of Income for the
Three Months Ended September 30, 1993 and 1994 3
Consolidated Statements of Income for the
Nine Months Ended September 30, 1993 and 1994 4
Consolidated Balance Sheets as of September 30, 1993,
December 31, 1993, and September 30, 1994 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1993 and 1994 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Operating Results 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
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FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended September 30
1993 1994
------- --------
<S> <C> <C>
Revenues $96,340 $100,478
------- --------
Costs and Expenses:
Salaries and employee benefits $56,769 $ 62,511
Office and general expenses 29,271 29,587
Direct marketing cost of goods sold 2,447 --
Other (income) expense 6,734 366
------- --------
Total Costs and Expenses $95,221 $ 92,464
------- --------
Income Before Provision for Taxes on Income $ 1,119 $ 8,014
Provision for Federal, Foreign & State Income Taxes (2,658) 3,203
------- --------
$ 3,777 $ 4,811
Minority Interest Credit (Expense) 104 98
Equity in Earnings (Losses) of Affiliated Companies (572) (802)
------- --------
Net Income $ 3,309 $ 4,107
======= ========
Net Income Per Share $ .30 $ .36
======= ========
Average Number of Common and Common Equivalent
Shares Outstanding 11,211 11,407
======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Nine months ended September 30
1993 1994
------- --------
Revenues $269,256 $290,918
-------- --------
Costs and Expenses:
Salaries and employee benefits $160,025 $180,348
Office and general expenses 81,225 85,869
Direct marketing cost of goods sold 8,199 --
Other (income) expense 8,684 2,866
------- --------
Total Costs and Expenses $258,133 $269,083
------- --------
Income Before Provision for Taxes on Income $ 11,123 $ 21,835
Provision for Federal, Foreign & State
Income Taxes 1,931 9,560
-------- --------
$ 9,192 $ 12,275
Minority Interest Credit (Expense) (63) 209
Equity in Earnings (Losses) of Affiliated
Companies 4,583 3,954
-------- --------
Net Income $ 13,712 $ 16,438
======== ========
Net Income Per Share $ 1.23 $ 1.45
======== ========
Average Number of Common and Common
Equivalent Shares Outstanding 11,181 11,375
======== ========
The accompanying notes are an integral part of these statements.
4
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FOOTE CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Sept. 30 Dec. 31 Sept. 30
1993 1993 1994
--------- --------- ---------
ASSETS:
- - -------
Cash and short-term investments $ 59,993 $ 65,247 $ 76,251
Accounts receivable, net 308,636 257,133 333,211
Expenditures billable to clients 33,894 18,970 20,030
Other current assets 10,909 13,339 17,632
-------- -------- --------
Total current assets $413,432 $354,689 $447,124
Property and equipment, net 50,663 46,189 45,998
Goodwill 46,574 50,004 52,761
Investment in affiliated companies 167,000 171,740 173,000
Other noncurrent assets 14,807 15,265 9,662
-------- -------- --------
Total assets $692,476 $637,887 $728,545
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
- - -------------------------------------
Accounts payable and accruals $397,459 $333,301 $408,894
Short-term bank borrowings 7,186 5,070 39,566
Current portion of long-term debt 987 888 614
Liability for taxes on income -- 1,685 593
-------- -------- --------
Total current liabilities $405,632 $340,944 $449,667
-------- -------- --------
Deferred taxes $ 1,474 $ 5,268 $ 5,268
-------- -------- --------
Long-term debt $ 35,797 $ 35,367 $ 10,701
-------- -------- --------
Accrued future compensation exp. $ 27,780 $ 29,714 $ 30,599
-------- -------- --------
Other noncurrent liabilities $ 30,926 $ 26,564 $ 22,494
-------- -------- --------
Common stock $ 3,881 $ 3,884 $ 3,914
Paid-in capital 118,171 118,525 121,873
Retained earnings 75,206 83,729 89,652
Less-Treasury stock (691) (1,021) (723)
Cumulative translation adjustment (5,700) (5,087) (4,900)
-------- -------- --------
Total stockholders' equity $190,867 $200,030 $209,816
-------- -------- --------
Total liabilities and
stockholders' equity $692,476 $637,887 $728,545
======== ======== ========
The accompanying notes are an integral part of these balance sheets.
5
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FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended September 30
1993 1994
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
- - -------------------------------------
Net income $ 13,712 $ 16,438
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,314 11,421
Deferred compensation expense (1,540) 937
Equity earnings of affiliates, net of
dividends received (3,459) (3,436)
Accounts receivable (71,083) (74,761)
Accounts payable and accruals 92,242 74,501
Billable expenditures and other current assets (7,085) (5,353)
Other (415) (2)
-------- --------
$ 33,686 $ 19,745
-------- --------
Cash Provided By (Used For) Financing Activities:
- - -------------------------------------------------
Short-term investments and marketable securities $ (8,768) $ (8,253)
Additions to long-term debt 39 193
Payments of long-term debt (125) (25,352)
Cash dividends paid (10,416) (10,515)
Common stock issuances 1,897 3,676
Short-term borrowings 1,632 34,496
-------- --------
$(15,741) $ (5,755)
-------- --------
Cash Provided By (Used For) Investment Activities:
- - --------------------------------------------------
Purchase of subsidiaries $ (4,091) $ (4,876)
Purchase of interest in affiliated companies (976) --
Capital expenditures (6,637) (6,363)
-------- --------
$(11,704) $(11,239)
-------- --------
Increase (Decrease) In Cash $ 6,241 $ 2,751
Balance at beginning of period 24,897 26,111
-------- --------
Balance at end of period $ 31,138 $ 28,862
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
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FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1994
(UNAUDITED)
(1) The condensed financial statements included herein have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and include all adjustments (which
comprise only normal recurring items) which the Company considers
necessary for a fair presentation. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
consolidated condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-K.
Revenues and net income for the first nine months of the year should not
be considered reliable indicators of revenues or net income for the entire
year.
(2) The number of shares outstanding reflects the potential dilution of shares
expected to be earned through profit performance contracts and outstanding
stock options. Per share income amounts are not materially different on a
fully diluted basis.
7
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FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1994
- - --------------------------------
Net income for the third quarter totaled $4,107,000 or $.36 per share, up 24.1%
over 1993 third quarter net income of $3,309,000 or $.30 per share.
Revenues increased 4.3% to $100,478,000 in 1994 from $96,340,000 in 1993. North
American revenues decreased 2.6% to $76,951,000 while international revenues
increased 36.0% to $23,527,000. Excluding the impact of acquisitions and the
1993 divestiture of Krupp/Taylor USA, FCB revenues would have increased 1.1%
between years.
Salaries, employee benefits, office and general expenses, and direct marketing
cost of goods sold increased 4.1% to $92,098,000 in 1994. The Company's ongoing
cost containment program and the 1993 divestiture of Krupp/Taylor USA are the
primary reasons that the rate of increase in these categories of expenses is
less than the growth rate of revenues.
Other expense decreased from $6,734,000 in 1993 to $366,000 in 1994. During the
third quarter of 1993, FCB provided for the sale of Krupp/Taylor USA. The
pretax loss on this sales transaction, which consisted of a write-down of assets
to net realizable value, settlement of lease obligations on Krupp/Taylor's
former headquarters, reserves for equipment and facility leases not fully
assumed by the buyer and other related costs, was included in other expense in
1993. The sale resulted in the realization of additional tax benefits deriving
from the 1991 write-down of financial statement carrying value of Krupp/Taylor.
This additional tax benefit was included in the 1993 third quarter tax provision
and largely offsets the pretax loss on the sale transaction.
NINE MONTHS ENDED SEPTEMBER 30, 1994
- - ------------------------------------
Net income for the nine months ended September 30, 1994 was $16,438,000 or $1.45
per share, up 19.9% over 1993 net income of $13,712,000 or $1.23 per share.
Revenues increased 8.0% to $290,918,000 in 1994 from $269,256,000 in 1993.
North American revenues increased 4.2% to $234,449,000 while international
revenues increased 27.7% to $56,469,000. Excluding the impact of acquisitions
and the 1993 divestiture of Krupp/Taylor USA, FCB revenues would have increased
4.6% between years.
Salaries, employee benefits, office and general expenses, and direct marketing
cost of goods sold increased 6.7% to $266,217,000 in 1994. As previously
mentioned, the Company's ongoing cost containment program and the 1993
divestiture of Krupp/Taylor USA are the primary reasons that the rate of
increase in these categories of expenses is less than the rate of revenue
growth.
8
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The decrease in other expense and increase in effective tax rates are primarily
due to the provision for the sale of Krupp/Taylor (described above) which was
recorded in the third quarter of 1993.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
As more fully explained below, the increases in "Accounts receivable, net",
"Expenditures billable to clients", and "Accounts payable and accruals" from the
beginning of the year reflect the cyclical nature of the advertising business
and are inter-related.
The increase in "Expenditures billable to clients" is due to the production of
client commercials which will be shown during the fall and winter months. The
costs related to these commercials are billed to clients during the fourth
quarter when the commercials are completed. Commercial production activity
during the last month of the year is typically low.
The increase in "Accounts receivable, net" and "Accounts payable and accruals"
is due to the fact that media billings for the month of September 1994 were
higher than those of December 1993.
On June 30, 1994 the Company repaid $25,000,000 in 10.53% senior notes. The
repayment was financed by borrowings on its short-term lines of credit.
9
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K -
The following report on Form 8-K was filed by Registrant during the
third quarter of 1994:
DATE OF REPORT DESCRIPTION OF REPORTABLE EVENT
-------------- -------------------------------
September 23, 1994 Under Item 5 (Other Events), Registrant
reported that it had filed a Notice of
Arbitration with the London Court of
International Arbitration naming Publicis
S.A., Publicis Communication, and
Publicis.FCB BV as respondents.
Registrant contends that one or more
of the respondents failed to comply with
provisions of the alliance agreements
among Registrant and the respondents in
relation to certain business acquisition
transactions.
There have been no significant changes in the status of these
proceedings since September 23, 1994. Registrant does not believe
that its financial position or results of operations will be
materially adversely affected by the outcome of these proceedings.
Registrant believes the pendency of these proceedings should not
materially adversely affect the operations of the Publicis.FCB BV
joint venture.
10
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SIGNATURES
Pursuant to the requirements 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.
FOOTE, CONE & BELDING COMMUNICATIONS, INC.
(Registrant)
John J. Rezich
-----------------------------------------
(Signature)
John J. Rezich
Controller and Chief Accounting Officer
Date: November 11, 1994
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 76,251
<SECURITIES> 0
<RECEIVABLES> 339,201
<ALLOWANCES> 5,990
<INVENTORY> 0
<CURRENT-ASSETS> 447,124
<PP&E> 130,157
<DEPRECIATION> 84,159
<TOTAL-ASSETS> 728,545
<CURRENT-LIABILITIES> 449,667
<BONDS> 10,701
<COMMON> 3,914
0
0
<OTHER-SE> 205,902
<TOTAL-LIABILITY-AND-EQUITY> 209,816
<SALES> 0
<TOTAL-REVENUES> 290,918
<CGS> 0
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<INTEREST-EXPENSE> 5,071
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<INCOME-TAX> 9,560
<INCOME-CONTINUING> 16,438
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<NET-INCOME> 16,438
<EPS-PRIMARY> 1.45
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</TABLE>
