<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 June 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 11,718,148 shares of the Registrant's 33 1/3 cents per share
par value Common Stock outstanding as of August 11, 1994.
<PAGE>
FOOTE, CONE & BELDING COMMUNICATIONS, INC.
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Exhibits
Consolidated Statements of Income for the
Three Months Ended June 30, 1993 and 1994 3
Consolidated Statements of Income for the
Six Months Ended June 30, 1993 and 1994 4
Consolidated Balance Sheets as of June 30, 1993,
December 31, 1993, and June 30, 1994 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 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 11
2
<PAGE>
FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended June 30
1993 1994
------- --------
Revenues $93,739 $102,078
------- --------
Costs and Expenses:
Salaries and employee benefits $54,813 $ 62,682
Office and general expenses 28,118 28,370
Direct marketing cost of goods sold 3,483 --
Other (income) expense 1,001 1,275
------- --------
Total Costs and Expenses $87,415 $ 92,327
------- --------
Income Before Provision for Taxes on Income $ 6,324 $ 9,751
Provision for Federal, Foreign & State
Income Taxes 2,748 4,485
------- --------
$ 3,576 $ 5,266
Minority Interest Credit (Expense) (120) 184
Equity in Earnings (Losses) of Affiliated
Companies 5,443 5,009
------- --------
Net Income $ 8,899 $ 10,459
======= ========
Net Income Per Share $ .80 $ .92
======= ========
Average Number of Common and Common
Equivalent Shares Outstanding 11,192 11,368
======= ========
The accompanying notes are an integral part of these statements.
3
<PAGE>
FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six months ended June 30
1993 1994
--------- --------
Revenues $172,916 $190,440
-------- --------
Costs and Expenses:
Salaries and employee benefits $103,256 $117,837
Office and general expenses 51,954 56,282
Direct marketing cost of goods sold 5,752 --
Other (income) expense 1,950 2,500
-------- --------
Total Costs and Expenses $162,912 $176,619
-------- --------
Income Before Provision for Taxes on Income $ 10,004 $ 13,821
Provision for Federal, Foreign & State
Income Taxes 4,589 6,357
-------- --------
$ 5,415 $ 7,464
Minority Interest Credit (Expense) (167) 111
Equity in Earnings (Losses) of Affiliated
Companies 5,155 4,756
-------- --------
Net Income $ 10,403 $ 12,331
======== ========
Net Income Per Share $ .93 $ 1.09
======== ========
Average Number of Common and Common
Equivalent Shares Outstanding 11,160 11,362
======== ========
The accompanying notes are an integral part of these statements.
4
<PAGE>
FOOTE CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30 Dec. 31 June 30
1993 1993 1994
--------- --------- ---------
ASSETS:
- - -------
<S> <C> <C> <C>
Cash and short-term investments $ 44,766 $ 65,247 $ 71,070
Accounts receivable, net 279,615 257,133 307,596
Expenditures billable to clients 30,918 18,970 21,401
Other current assets 11,650 13,339 18,859
-------- -------- --------
Total current assets $366,949 $354,689 $418,926
Property and equipment, net 52,809 46,189 45,542
Goodwill 47,603 50,004 51,148
Investment in affiliated companies 167,479 171,740 175,674
Other noncurrent assets 14,794 15,265 12,376
-------- -------- --------
Total assets $649,634 $637,887 $703,666
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
- - -------------------------------------
Accounts payable and accruals $353,201 $333,301 $388,465
Short-term bank borrowings 7,405 5,070 34,757
Current portion of long-term debt 1,780 888 700
Liability for taxes on income 220 1,685 4,401
-------- -------- --------
Total current liabilities $362,606 $340,944 $428,323
-------- -------- --------
Deferred taxes $ 2,751 $ 5,268 $ 5,268
-------- -------- --------
Long-term debt $ 36,238 $ 35,367 $ 10,489
-------- -------- --------
Accrued future compensation exp. $ 26,582 $ 29,714 $ 28,468
-------- -------- --------
Other noncurrent liabilities $ 31,348 $ 26,564 $ 22,620
-------- -------- --------
Common stock $ 3,878 $ 3,884 $ 3,908
Paid-in capital 117,770 118,525 121,456
Retained earnings 75,371 83,729 89,061
Less-Treasury stock (922) (1,021) (692)
Less-Deferred compensation (904) -- --
Cumulative translation adjustment (5,084) (5,087) (5,235)
-------- -------- --------
Total stockholders' equity $190,109 $200,030 $208,498
-------- -------- --------
Total liabilities and
stockholders' equity $649,634 $637,887 $703,666
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE>
FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended June 30
1993 1994
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
- - -------------------------------------
Net income $ 10,403 $ 12,331
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,169 7,187
Deferred compensation expense (2,843) (1,135)
Equity earnings of affiliates, net of dividends
received (4,031) (4,404)
Accounts receivable (42,062) (50,463)
Accounts payable and accruals 48,204 57,880
Billable expenditures and other current assets (4,850) (7,951)
Other 406 (284)
-------- --------
$ 12,396 $ 13,161
-------- --------
Cash Provided By (Used For) Financing Activities:
- - -------------------------------------------------
Short-term investments and marketable securities $ 11,475 $ 4,706
Additions to long-term debt 182 21
Payments of long-term debt (133) (25,236)
Cash dividends paid (6,942) (6,999)
Common stock issuances 1,261 3,284
Short-term borrowings 1,851 29,687
-------- --------
$ 7,694 $ 5,463
-------- --------
Cash Provided By (Used For) Investment Activities:
- - --------------------------------------------------
Purchase of subsidiaries $ (3,185) $ (4,396)
Purchase of interest in affiliated companies (806) --
Capital expenditures (4,842) (3,699)
-------- --------
$ (8,833) $ (8,095)
-------- --------
Increase (Decrease) In Cash $ 11,257 $ 10,529
Balance at beginning of period 24,897 26,111
-------- --------
Balance at end of period $ 36,154 $ 36,640
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 six 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
<PAGE>
FOOTE, CONE & BELDING COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1994
- - ---------------------------
Net income for the second quarter totaled $10,459,000 or $.92 per share, up
17.5% over 1993 second quarter net income of $8,899,000 or $.80 per share.
Revenues increased 8.9% to $102,078,000 in 1994 from $93,739,000 in 1993. North
American revenues increased 9.6% to $83,779,000 while international revenues
increased 5.7% to $18,299,000. Excluding the impact of acquisitions and the
1993 divestiture of Krupp/Taylor USA, FCB revenues would have increased 6.1%
between years.
Salaries, employee benefits, office and general expenses, and direct marketing
cost of goods sold increased 5.4% to $91,052,000 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. The increase in other expense is
primarily due to higher currency losses recognized in 1994 on the positive
operating results of FCB's operations in Brazil.
Equity income, which consists primarily of FCB's share of European operations
was $5,009,000 in 1994 compared to $5,443,000 in 1993. European operating
results were adversely impacted by foreign currency exchange rates, the impact
of the "Loi Sapin" law on advertising agencies operating in France and the
unfavorable economic climate in Italy.
SIX MONTHS ENDED JUNE 30, 1994
- - ------------------------------
Net income for the six months ended June 30, 1994 was $12,331,000 or $1.09 per
share, up 18.5% over 1993 net income of $10,403,000 or $.93 per share.
Revenues increased 10.1% to $190,440,000 in 1994 from $172,916,000 in 1993.
North American revenues increased 7.9% to $157,498,000 while international
revenues increased 22.4% to $32,942,000. Excluding the impact of acquisitions
and the 1993 divestiture of Krupp/Taylor USA, FCB revenues would have increased
6.6% between years.
Salaries, employee benefits, office and general expenses, and direct marketing
cost of goods sold increased 8.2% to $174,119,000 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.
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.
8
<PAGE>
The increase in "Expenditures billable to clients" is due to the production of
client commercials which will be shown during the summer and fall months. The
costs related to these commercials are billed to clients during the third
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 June 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
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 18, 1994, Registrant held its Annual Meeting. Holders of 10,407,659 of
Registrant's Common Shares were represented in person or by proxy at this
meeting. On May 18, Registrant had 11,637,157 Common Shares outstanding.
The following matters were submitted to a vote of security holders at this
meeting.
1. Annual Election of Directors - All Directors of Registrant stand for election
at each of Registrant's Annual Meetings. Following is the tabulation of
votes for each director:
WITHHOLD
FOR AUTHORITY
---------- ---------
Bruce Mason 10,115,204 292,455
Jack Balousek 10,114,228 293,431
Louis E. Scott 10,113,036 294,623
Stephen T. Vehslage 10,067,225 340,434
Newton N. Minow 10,114,921 292,738
Craig R. Wiggins 10,099,241 308,418
Maurice Levy 10,132,973 274,686
Gregory W. Blaine 10,091,626 316,033
Laurel Cutler 10,112,754 294,905
Terry M. Ashwill 10,115,128 292,531
William A. Schreyer 10,132,151 275,508
No other person received any votes for election as director.
2. Increase in number of authorized Common Shares of Registrant:
FOR AGAINST ABSTAIN
--------- --------- -------
8,331,326 1,997,705 78,628
3. Amendment to the Company's Stock Option Plan:
FOR AGAINST ABSTAIN
--------- --------- -------
6,577,701 3,116,556 713,402
4. Approval of the FCB Performance Program:
FOR AGAINST ABSTAIN
--------- --------- -------
9,342,550 536,312 528,797
5. Approval of Arthur Andersen & Co. as Registrant's auditors for 1994:
FOR AGAINST ABSTAIN
--------- --------- -------
10,309,401 51,186 47,072
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
11
<PAGE>
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
Director, Financial Accounting and
Reporting and Chief Accounting Officer
Date: August 11, 1994
12
