<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
COMMISSION FILE NO. 1-5029
TRUE NORTH COMMUNICATIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-1088161
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
101 EAST ERIE STREET, CHICAGO, ILLINOIS 60611-2897
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER: (312) 751-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
Common stock, par value New York Stock Exchange
33 1/3 cents per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference or included in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of Common Stock, 33 1/3 cents par value, held by
non-affiliates of the Registrant, as of March 22, 1995 was $350,169,761.
There were 22,967,530 shares of Registrant's 33 1/3 cents per share par value
Common Stock outstanding as of March 22, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to shareholders for the year ended
December 31, 1994 are incorporated by reference into Parts I and II of this
report.
Portions of the Registrant's Proxy Statement relating to its annual meeting
of shareholders scheduled to be held on May 17, 1995 are incorporated by
reference into Part III.
--------------------------------------------------------------------------------
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<PAGE>
PART I
ITEM 1. BUSINESS:
GENERAL
Response to this item is incorporated by reference to the Registrant's Annual
Report to shareholders for fiscal year ended December 31, 1994 (the "1994
Annual Report") on page 1.
REVENUES
Response to this item is incorporated by reference to pages 1 and 2 of the
Registrant's 1994 Annual Report.
CLIENTS
The Registrant and its subsidiaries (the Company) consider their relations
with their clients to be satisfactory. Due to the nature of the business,
however, any client could at some time in the future reduce its advertising
budget, or transfer to another agency all or part of its advertising presently
placed through the Company. Representation of a client does not necessarily
mean that all advertising for such clients is handled by the Company
exclusively. In many cases, the Company handles the advertising of only a
portion of a client's products or services or only the advertising in
particular geographic areas.
COMPETITION
The advertising agency business is highly competitive, with agencies of all
sizes competing primarily on the basis of quality of service to attract and
retain clients and personnel. Advertisers are able to move from one agency to
another with relative ease, in part because accounts are terminable on short
notice, usually 90-180 days. Competition for clients by large agencies is
limited somewhat because many advertisers prefer not to be represented by an
agency which handles competing products or services for other advertisers.
REGULATION
Federal, state and local governments and governmental agencies in recent
years have adopted statutes and regulations affecting the advertising
activities of advertising agencies and their clients. For example, statutes and
regulations have prohibited television advertising for certain products and
have regulated the form and content of certain types of advertising for many
consumer products. The Federal Trade Commission ("FTC") has also required proof
of accuracy of advertising claims with respect to various products and, in its
enforcement policies, is seeking to establish more stringent standards with
respect to advertising practices. The FTC has the authority to investigate and
to institute proceedings against advertisers and their advertising agencies for
deceptive advertising. Proposals have also been made for the adoption of
additional statutes and regulations which would further restrict the
advertising activities of advertising agencies and their clients. The effect on
the advertising business of future application of existing statutes or
regulations, or the extent, nature or effect of future legislation or
regulatory activity with respect to advertising, cannot be predicted.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Response to this item is incorporated by reference to pages 2 and 14 of the
Registrant's 1994 Annual Report.
ITEM 2. PROPERTIES
Virtually all of the Company's operations are conducted in leased premises.
The Company's physical property consists primarily of leasehold improvements,
furniture, fixtures and equipment. However, the Company does own office
buildings in Puerto Rico and the Dominican Republic, neither of which are
material to the Company's consolidated financial statements.
Further information regarding the Company's leased premises, which it
considers to be adequate for its current operations, is incorporated by
reference to note 12 of Registrant's consolidated financial statements on page
15 of the Registrant's 1994 Annual Report.
1
<PAGE>
ITEM 3. PENDING LEGAL PROCEEDINGS
Response to this item is incorporated by reference to note 7 of Registrant's
consolidated financial statements and the Outlook section of "Discussion and
Analysis of Financial Condition and Results of Operations" on pages 13 and 5,
respectively of the 1994 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
Response to this item is incorporated by reference to page 2 of the
Registrant's 1994 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Response to this item is incorporated by reference to page 3 of the
Registrant's 1994 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Response to this item is incorporated by reference to pages 3, 4 and 5 of the
Registrant's 1994 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following consolidated financial statements of the Registrant and its
subsidiaries, included in the Registrant's 1994 Annual Report are incorporated
herein by reference:
Consolidated Balance Sheets--December 31, 1993 and 1994
Consolidated Income Statements--Years ended December 31, 1992, 1993 and
1994
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1992, 1993 and 1994
Consolidated Statements of Cash Flows--Years ended December 31, 1992, 1993
and 1994
Notes to Consolidated Financial Statements--December 31, 1994
Quarterly Financial Data--Years ended December 31, 1993 and 1994
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Directors of the Registrant contained under
the heading "Proposal 1--Election of Directors" in the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 17, 1995
(the "Proxy Statement") is incorporated herein by reference. Information with
respect to executive officers of the Registrant who are not also Directors or
nominees to the Board of Directors is included below.
MARY A. CARRAGHER (35) --Vice President,
General Counsel and Assistant Secretary
DALE F. PERONA (49) --Vice President,
Treasurer and Secretary
JOHN J. REZICH (39) --Controller
(Chief Accounting Officer)
2
<PAGE>
Ms. Carragher joined the Company and became an officer during 1992. Previous
to that time, Ms. Carragher was an attorney at Sidley & Austin.
No officer of the Registrant is related to any other officer. All other
officers have been officers of the Registrant or have held senior executive
positions with the Company for the past five years, except as otherwise
disclosed above or in Registrant's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Except for information referred to in Item 402(a)(8) of Regulation S-K, the
information contained under the heading "Executive Compensation" in the Proxy
Statement and the information relating to the compensation of directors
contained under the heading "Proposal 1--Election of Directors" in the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except for the first two paragraphs thereof, the information contained under
the heading "Voting Securities" in the Proxy Statement and the information with
respect to ownership of the Registrant's common stock contained under the
heading "Proposal 1--Election of Directors" in the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
3
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 14(a)--List of Financial Statements.................................. 5
Auditors' Report on Supplemental Note................................... 6
Item 14(a)(1)--Supplemental Note to Consolidated Financial Statements:
A.Valuation Accounts.................................................... 7
Item 14(a)(2)--Schedules
Are not submitted because they are not required or because the required
information is included in the financial statements or notes thereto.
Item 14(a)(3)--Index of Exhibits
The index of exhibits immediately precedes the exhibits filed with the
Securities and Exchange Commission.
Exhibits 10.1 and 10.2 included in this index are the management
contracts and compensatory plans or arrangements required to be filed
as exhibits hereto pursuant to the requirements of Item 601 of
Regulation S-X.
Item 14(b)--Reports on Form 8-K
</TABLE>
Registrant filed the following reports on Form 8-K during the fourth quarter
of 1994 and the first quarter of 1995:
<TABLE>
<CAPTION>
DATE OF REPORT DESCRIPTION OF REPORTABLE EVENT
-------------- -------------------------------
<C> <S>
December 12, 1994 Under Item 5, Registrant announced that, effective December
19, 1994, its name changed to True North Communications Inc.
In addition, Registrant disclosed that its Board of
Directors approved a 100% stock dividend to be paid on
February 17, 1995 to shareholders of record on January 6,
1995.
February 13, 1995 Under Item 5, Registrant announced developments in its
ongoing dispute with its European joint venture partner,
Publicis Communication. These matters are more fully
discussed and updated in the Outlook section of "Discussion
and Analysis of Financial Condition and Results of
Operations" on page 5 of Registrant's 1994 Annual Report to
Shareholders.
February 17, 1995 Under Item 5, Registrant reported that the previously
announced 100% stock dividend was distributed on February
17, 1995 to shareholders of record on January 6, 1995.
</TABLE>
4
<PAGE>
FORM 10-K--ITEM 14(A)
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of the Registrant and the
Independent Public Accountant's Report covering these financial statements,
appearing in the Registrant's 1994 Annual Report on pages 6 through 19 are
incorporated herein by reference in Item 8:
Consolidated Balance Sheets--December 31, 1993 and 1994
Consolidated Statements of Income--Years ended December 31, 1992, 1993 and
1994
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1992, 1993 and 1994
Consolidated Statements of Cash Flows--Years ended December 31, 1992, 1993
and 1994
Notes to Consolidated Financial Statements--December 31, 1994
The audited financial statements of Publicis Communication, a 50% or less
owned foreign affiliate of the Registrant, were not available at the time this
Form 10-K was filed. Registrant will file these financial statements by
amendment to this Form 10-K.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, or are inapplicable, or the information called for
therein is included elsewhere in the financial statements or related notes
thereto contained in or incorporated by reference into this Report.
Accordingly, such schedules have been omitted.
5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL NOTE
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in True North Communications Inc.'s
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated March 10, 1995. Our report on the
consolidated financial statements includes an explanatory paragraph with
respect to the change in method of accounting for certain investments in debt
and equity securities, effective January 1, 1994, as discussed in Note 2 to the
consolidated financial statements, the change in the method of accounting for
postretirement benefits other than pensions, effective January 1, 1993, as
discussed in Note 11 to the consolidated financial statements, and the change
in method of accounting for income taxes, effective January 1, 1992, as
discussed in Note 1 to the consolidated financial statements. Our audits were
made for the purpose of forming an opinion on those financial statements taken
as a whole. Supplemental Note A is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. The Supplemental Note has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, fairly state in all material respects the financial data required
to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois,
March 10, 1995.
6
<PAGE>
FORM 10-K -- ITEM 14(A)(1)
NOTE A--VALUATION ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993, AND 1994
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
ADJUSTMENTS
BALANCE AMOUNT ADDITIONS AND BALANCE
AT CHARGED TO CHARGED TO RECLASSI- AT END
BEGINNING SHAREHOLDERS' COSTS AND FICATIONS OF
CLASSIFICATION OF PERIOD EQUITY EXPENSES (DEDUCTIONS) (1) PERIOD
-------------- --------- ------------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS--
CURRENT
Year Ended December 31,
1992................... $5,928 $ -- $ 603 $ (768) $(59) $5,704
====== ======= ====== ======= ==== ======
Year Ended December 31,
1993................... $5,704 $ -- $1,107 $(1,119) $ 68 $5,760
====== ======= ====== ======= ==== ======
Year Ended December 31,
1994 (Note 2).......... $5,760 $ -- $ 781 $(3,294) $ 53 $3,300
====== ======= ====== ======= ==== ======
RESERVE FOR UNREALIZED LOSS ON SHANDWICK
INVESTMENT--NON-CURRENT
Year Ended December 31,
1992................... $4,813 $(4,813) $ -- $ -- $-- $ --
====== ======= ====== ======= ==== ======
</TABLE>
--------
NOTES:
(1) Account consists of currency translation adjustment and adjustments made as
a result of subsidiaries acquired and sold during the year.
(2) 1994 deductions consist primarily of a write-off of a trade receivable from
Orion, which was adequately reserved in 1991.
7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934 AND TO
THE POWER OF ATTORNEY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS (CONSTITUTING, AMONG
OTHERS, A MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS OF THE REGISTRANT)
ON BEHALF OF THE REGISTRANT.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<S> <C>
John B. Balousek*
Director
Gregory W. Blaine*
Director
Richard S. Braddock*
Director
Laurel Cutler*
Director
Maurice Levy*
Director
Newton N. Minow*
Director
J. Brendan Ryan*
Director
William A. Schreyer*
Director
Louis E. Scott*
Director
Stephen T. Vehslage
Director
Craig R. Wiggins*
Director
</TABLE>
/s/ Bruce Mason
*By: ________________________________
Bruce Mason
as Attorney-in-Fact
/s/ Terry M. Ashwill
*By: ________________________________
Terry M. Ashwill
as Attorney-in-Fact
Date: March 30, 1995
8
<PAGE>
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.
Date: March 30, 1995
True North Communications Inc.
/s/ Bruce Mason
By: _________________________________
Bruce Mason
Chairman of the Board of
Directors and Chief Executive
Officer (Principal Executive
Officer)
/s/ Terry M. Ashwill
By: _________________________________
Terry M. Ashwill
Executive Vice President, Chief
Financial Officer and Director
/s/ John J. Rezich
By: _________________________________
John J. Rezich
Controller (Chief Accounting
Officer)
9
<PAGE>
INDEX OF EXHIBITS
-----------------
EXHIBIT NO. DESCRIPTION
----------- -----------
*3(i) Registrant's Restated Certificate of Incorporation, as amended.
3(i) Certificate of Ownership and Merger changing Registrant's name to
True North Communications Inc. filed with the Commission as
Exhibit (3)(i) to Registrant's Current Report on Form 8-K filed
December 9, 1994.
3(ii) Registrant's By-laws, as amended, filed with the Commission as
Exhibit 4(d) to Registrant's Registration Statement on Form S-8
under the Securities Act of 1933, Registration No. 33-54279.
4.1 Rights Agreement dated as of November 16, 1988 between the
Registrant and Harris Trust and Savings Bank, as Rights Agent,
filed with the Commission as Exhibit 1 to the Registrant's
Registration Statement on Form 8-A under the Securities Exchange
Act of 1934 filed with the Commission on November 18, 1988.
10.1 Registrant's Stock Option Plan, filed with the Commission as
Appendix A to Registrant's Definitive Proxy Statement for its
Annual Meeting of Stockholders held on May 18, 1994.
10.2 Registrant's Outside Directors Stock Option Plan, filed with the
Commission as Appendix A to Registrant's Definitive Proxy
Statement for its Annual Meeting of Stockholders held on May 20,
1992.
10.3 Master Alliance Agreement between Publicis Communication and the
Registrant and FCB Stockholders Agreement between the same
parties, both dated as of January 1, 1989, filed with the
Commission as Exhibits to Registrant's Current Report on Form 8-K
filed February 6, 1989.
*11 Statement re Computation of Per Share Earnings.
*13 Portions of Registrant's Annual Report to Security Holders
incorporated by reference into this Report on Form 10-K.
*21 Subsidiaries.
*23 Consent of Arthur Andersen LLP
*24 Power of Attorney
*27 Financial Data Schedule
NOTE:
-----
Except for the documents that are marked with an asterisk, each of the documents
listed above has heretofore been filed with the Securities and Exchange
Commission (the "Commission") and each such document is incorporated herein by
reference. Documents marked with an asterisk are filed herewith.
<PAGE>
EXHIBIT 3(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
FOOTE, CONE & BELDING COMMUNICATIONS, INC.
This Restated Certificate of Incorporation was duly adopted by the board
of directors in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware. This Restated Certificate of
Incorporation only restates and integrates and does not further amend the
provisions of the corporation's Certificate of Incorporation as heretofore
amended or supplemented, and there is no discrepancy between those provisions
and the provisions of this Restated Certificate of Incorporation. The original
Certificate of Incorporation was filed with the Secretary of State of Delaware
on December 29, 1942 under the name Foote, Cone & Belding, Inc.
FIRST: The name of the corporation is
FOOTE, CONE & BELDING COMMUNICATIONS, INC.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is as follows:
(a) To carry on the business of a general advertising agency, to deal in
advertising in all its forms, and to do all things that may be convenient,
useful, auxiliary or incidental to the carrying on of a general advertising
agency business; and
(b) To conduct any lawful business, to exercise any lawful purpose or power,
and to engage in any lawful act or activity for which a corporation may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is fifteen million one hundred thousand (15,100,000), divided
into two classes as follows:
(a) One hundred thousand (100,000) shares shall be of the par value of one
dollar ($1.00) per share and shall be designated as Preferred Stock; and
(b) Fifteen million (15,000,000) shares shall be of the par value of thirty-
three and one-third cents (33-1/3 cents) per share and shall be designated as
Common Stock.
The Preferred Stock may be issued from time to time in one or more series,
which series may have such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or resolutions providing for
the issue of such stock adopted by the board of directors pursuant to the
authority which is hereby expressly vested in the board of directors.
<PAGE>
The authority of the board of directors with respect to each series shall
include, but not be limited to, determination of the following:
(a) The distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased (except
where otherwise provided by the board of directors) or decreased (but not
below the number of shares thereof then outstanding) from time to time by like
action of the board of directors;
(b) The rate of dividends, if any, payable on the shares of such series, the
conditions upon which and the dates when such dividends shall be payable,
whether such dividends shall be cumulative (and, if so, from which date or
dates), and whether payable in preference to dividends payable on any other
class or classes or any other series of stock;
(c) Whether or not the shares of such series shall have voting powers and,
if voting powers are granted, the extent of such voting powers;
(d) Whether or not the shares of such series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(e) Whether or not the shares of such series shall be entitled to the
benefit of a retirement fund or sinking fund and, if so, the terms and
conditions of such fund;
(f) Whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes of stock of the
corporation or of any series thereof and, if made convertible or exchangeable,
the conversion price or prices or the rate or rates of exchange and the
adjustments thereof, if any, at which such conversion or exchange may be made,
and any other terms and conditions of such conversion or exchange;
(g) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding up, or merger,
consolidation or distribution or sale of assets of the corporation;
(h) The conditions and restrictions, if any, on the payment of dividends or
on the making of other distributions on, or the purchase, redemption or other
acquisition by the corporation of the Common Stock or of any other class or
series of stock of the corporation ranking junior to the shares of such series
as to dividends or upon liquidation;
(i) the conditions and restrictions, if any, on the creation of indebtedness
of the corporation or any subsidiary, or on the authorization or issue of any
additional stock of the corporation ranking on a parity with or prior to the
shares of such series as to dividends or upon liquidation; and
(j) Any other preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof.
Shares of stock of any class of the corporation may be issued by the
corporation from time to time for such consideration, not less than the par
value thereof, as may be fixed from time to
2
<PAGE>
time by the board of directors, and any and all shares so issued, the full
consideration for which shall have been paid or delivered, shall be deemed fully
paid and non-assessable stock and not liable to any further call or assessment
thereon.
No holder of stock of any class of the corporation, whether now or hereafter
authorized, shall have any preemptive or preferential right to subscribe to any
shares of stock of the corporation of any class, now or hereafter authorized, or
to any obligations convertible into stock of the corporation, issued or sold, or
any right to subscribe to any thereof other than such, if any, as the board of
directors of the corporation from time to time may fix pursuant to the authority
hereby conferred by this Restated Certificate of Incorporation, and the board of
directors may issue stock of the corporation, or obligations convertible into
stock, without offering such issue of stock or such obligations, either in whole
or in part, to the stockholders of the corporation.
Subject to the provisions of any applicable law or of the by-laws of the
corporation, as from time to time amended, with respect to the fixing of a
record date for the determination of stockholders entitled to vote, and except
as otherwise provided by law or by this Restated Certificate of Incorporation or
by the resolution or resolutions providing for the issue of any series of
Preferred Stock, each holder of shares of Common Stock shall be entitled at any
and all meetings of the stockholders of the corporation to one vote for each
share of such stock standing in his name on the books of the corporation.
Subject to any limitations contained in the resolution or resolutions
providing for the issue of any series of Preferred Stock, the holders of the
Common Stock shall be entitled to receive, when and as declared by the board of
directors, out of the assets of the corporation which are by law available
therefor, dividends payable in cash, in property or in shares of Common Stock.
No dividends other than dividends payable only in shares of Common Stock shall
be paid on the Common Stock if cash dividends in full to which all outstanding
shares of Preferred Stock of all series shall then be entitled for the then
current dividend period and (where such dividends are cumulative) for all past
dividend periods shall not have been paid or declared and set apart in full.
Except as otherwise provided by the resolution or resolutions providing for
the issue of any series of Preferred Stock, the number of authorized shares of
any class or classes of stock may be increased or decreased by the affirmative
vote of the holders of a majority of the stock of the corporation entitled to
vote.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the holders of the Common Stock shall be
entitled, after payment or provisions for payment of the debts and other
liabilities of the corporation and the amounts to which the holders of the
Preferred Stock shall be entitled, to share ratably in the remaining net assets
of the corporation. Neither a consolidation or merger of the corporation with or
into any other corporation, nor a merger of any other corporation into the
corporation, nor a reorganization of the corporation, nor the purchase or
redemption of all of part of the outstanding shares of stock of any class or
classes of the corporation, nor a sale or transfer of the property and business
of the corporation as or substantially as an entirety, shall be considered a
liquidation, dissolution or winding up of the corporation for purposes of the
preceding sentence.
FIFTH: The number of directors of the corporation shall be fixed from time to
time by or in the manner provided in the by-laws, and may be increased or
decreased as therein provided, but the number thereof may not be less than
three.
3
<PAGE>
In furtherance and not in limitation of the powers conferred by statute, the
board of directors is expressly authorized:
(a) To make, alter or repeal the by-laws of the corporation;
(b) To authorize and cause to be executed mortgages and liens upon the real
and personal property of the corporation;
(c) To issue bonds, debentures and other obligations, either non-convertible
or convertible into the corporation's stock, upon such terms, in such manner
and under such conditions in conformity with law as may be fixed by the board
of directors prior to the issuance of such bonds, debentures and other
obligations;
(d) To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve;
(e) To remove at any time any officer elected or appointed by the board of
directors whenever in its judgment the best interests of the corporation would
be served thereby;
(f) By resolution passed by a majority of the whole board, to designate one
or more committees, each committee to consist of two or more of the directors
of the corporation. The board may designate one or more directors as alternate
members of any committee who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent provided in
the resolution or in the by-laws of the corporation, shall have and may
exercise the powers of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; provided,
however, the by-laws may provide that in the absence of disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board
of directors to acts at the meeting in the place of any such absent or
disqualified member; and
(g) To exercise all such powers and do all such acts and things as may be
exercised or done by the corporation, subject to the provisions of the laws of
the State of Delaware, of this Restated Certificate of Incorporation and of
the by-laws of the corporation.
SIXTH: The corporation shall indemnify each present or former director,
officer, employee or agent of the corporation and each person who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, and the heirs, executors and administrators of the foregoing
persons, in the manner and to the extent provided in the by-laws of the
corporation as the same may be amended from time to time.
SEVENTH: No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the board or
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
4
<PAGE>
(a) The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the board of directors or the
committee, and the board or committee in good faith authorizes the contract or
transaction by a vote sufficient for such purpose without counting the vote of
the interested director or directors; or
(b) The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or
(c) The contract or transaction is fair to the corporation as of the time it
is authorized, approved or ratified by the board of directors, a committee
thereof, or the stockholders.
Interested directors may be counted in determining the presence of a quorum at
a meeting of the board or of a committee which authorizes the contract or
transaction.
EIGHTH: No person who was at any time a director of the corporation shall be
personally liable to the corporation or its stockholders for monetary damages
for any breach of fiduciary duty by such person as a director, except for
liability (i) for breach of the directors' duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after approval by the stockholders of this Article
Eighth to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the corporation shall not adversely affect any right or protection of a director
of the corporation existing at the time of such repeal or modification.
NINTH: (1) Any action required or permitted to be taken by the stockholders of
the corporation may be effected solely at a duly called annual or special
meeting of stockholders of the corporation and may not be effected by any
consent in writing by such stockholders.
(2) Meetings of stockholders of the corporation may be called only by the
board of directors pursuant to a resolution adopted by the affirmative vote of a
majority of the entire board of directors, by the Chairman of the Board, or by
the President. As used in this Restated Certificate of Incorporation, the term
"entire board of directors" means the total authorized number of directorships
of the corporation, whether or not the directorships are filled at the time.
TENTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
The capital of the corporation will not be reduced under or by reason of this
Restated Certificate of Incorporation.
5
<PAGE>
IN WITNESS WHEREOF, FOOTE, CONE & BELDING COMMUNICATIONS, INC. has caused its
corporate seal to be hereunto affixed and this Restated Certificate of
Incorporation to be signed by its Chairman of the Board and attested by its
Secretary this 21st day of August, 1991.
FOOTE, CONE & BELDING COMMUNICATIONS, INC.
/s/ Bruce Mason
By ---------------------------------------
Bruce Mason
Chairman of the Board
(Corporate Seal)
ATTEST:
/s/ Charles H. Gunderson
-----------------------------
Charles H. Gunderson
Secretary
6
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
********************
Foote, Cone & Belding Communications, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Foote, Cone & Belding
Communications, Inc. (the "Corporation") held on February 16, 1994 resolutions
were duly adopted setting forth a proposed amendment to the Restated Certificate
of Incorporation of the Corporation, filed with the Delaware Secretary of State
on August 27, 1991, declaring said amendment to be advisable and directing that
said amendment be considered at the annual meeting of the stockholders of the
Corporation to be held on May 18, 1994. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the first paragraph of Article Fourth of the Restated
Certificate of Incorporation of the Corporation be amended to read as set
forth below and that such amendment be submitted to the stockholders of the
corporation for approval, all in accordance with the requirements of the
Delaware General Corporation Law:
"Fourth: The total number of shares of stock which the corporation shall
have authority to issue is fifty million one hundred thousand (50,100,000),
divided into two classes as follows:
(a) One hundred thousand (100,000) shares shall be of the par value of one
dollar ($1.00) per share and shall be designated as Preferred Stock; and
(b) Fifty million (50,000,000) shares shall be of the par value of thirty-
three and one-third cents (33-1/3c) per share and shall be designated as
Common Stock."
SECOND: That thereafter the annual meeting of the stockholders of the
Corporation was duly called, and held on May 18, 1994, at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
<PAGE>
THIRD: That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Foote, Cone & Belding Communications, Inc. has caused
its corporate seal to be hereto affixed and this certificate to be executed by
Michael S. Duffey, its Vice President and Treasurer and attested by Dale F.
Perona, its Secretary, this 18th day of May, 1994.
/s/ Michael S. Duffey
-------------------------------------
Vice President and Treasurer
ATTEST:
/s/ Dale F. Perona
-------------------------------
Secretary
(CORPORATE SEAL)
2
<PAGE>
EXHIBIT 11
SUMMARY OF CALCULATIONS OF EARNINGS PER SHARE
For the Years Ended December 31, 1992, 1993 and 1994
I. EARNINGS PER SHARE--PRIMARY CALCULATION
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- --------
<S> <C> <C> <C>
A. Net income (loss)
Net income (loss) before accounting
change $18,047 $25,714 $30,277
Cumulative impact of change in
accounting principle 3,681 -- --
------- ------- -------
Net income (loss) $21,728 $25,714 $30,277
======= ======= =======
Weighted average common shares
outstanding 22,764 23,146 23,275
Average common share equivalents
outstanding:
Treasury share impact of Publicis
shares (1,155) (1,155) (1,176)
Stock options 139 416 579
Contingent issuances (Note 1) -- -- --
------- ------- -------
B. Weighted average common and common
equivalent shares outstanding 21,748 22,407 22,678
======= ======= =======
C. Net income (loss) per share
Net income (loss) before accounting
change $ .83 $ 1.15 $ 1.34
Cumulative impact of change in
accounting principle .17 -- --
------- ------- -------
Net income (loss) $ 1.00 $ 1.15 $ 1.34
======= ======= =======
</TABLE>
General Note: All share and per share amounts have been restated to reflect
the two-for-one stock split which occurred on February 17, 1995.
Note 1 - There are no such common shares issuable for the years presented. As a
result, presentation of an earnings per share calculation on a fully diluted
basis is inapplicable.
<PAGE>
LOGO
1994 FINANCIAL REPORT
TRUE NORTH
COMMUNICATIONS INC.
101 EAST ERIE STREET
CHICAGO, ILLINOIS
60611
312-751-7000
<PAGE>
ABOUT TRUE NORTH
In December 1994, Bruce Mason, Chairman and Chief Executive Officer,
announced the creation of a new corporate form and name, True North
Communications Inc. (True North). True North replaced Foote, Cone & Belding
Communications, Inc. as the name of the parent holding company. Foote, Cone &
Belding, America's largest single advertising agency brand, will continue to
operate as an independent agency brand under the True North parent company
along with other independent agency brands such as Mojo, and Borders, Perrin
and Norrander.
True North is a new form of global communications company encompassing
resources much broader in scope than any existing advertising holding company.
True North's architecture is unique and includes the formation of three new
business units:
. TN Technologies Inc.--This business unit encompasses a new strategic
joint venture between True North and R/GA Media, a leading edge
multimedia production company. TN Technologies Inc. will use state of the
art proprietary digital technology to design and produce all forms of
communications: television, radio, print, outdoor, promotion and point of
sale advertising. The development of this proprietary digital technology
will link the entire True North network allowing the simultaneous
creation of fully-integrated communications campaigns, including on-line
real-time video production from multiple locations around the globe.
. TN Media Inc.--This business unit is a global network of the Company's
media buying services.
. TN Services Inc.--True North has established this business unit to house
all of its agency support services around the globe, handling all
financial transactions including bill paying, payroll, and accounts
receivable collections; all human resource tasks from insurance to
employee stock purchase plans; and a broad range of other support
services in the areas of legal services, travel and management of leased
facilities.
The architecture of True North is designed to free up local agency management
from the administration of the media buying and back office support functions
and to give them leading edge technology so that they can devote their full
energy and creativity to True North's most important endeavor--growing our
clients' business.
In addition to designing and creating effective advertising campaigns for the
radio, television and print media, the agency brands under the True North
banner also offer their clients such additional services as:
. design and production of merchandising and sales promotion programs
. yellow pages advertising
. healthcare advertising
. public relations
. market and product research
. package design
. trademark and trade name development
True North agency brands operate fully staffed offices in the United States,
Canada, Latin America, Asia and the Pacific under a number of agency brands.
Together with its partner, Publicis Communication, the Publicis.FCB joint
venture operates fully staffed offices in Europe. These offices handle U.S.-
based and foreign-based multinational advertising and national advertising
assignments.
REVENUES: True North's principal source of revenues is from its agency brands
that receive:
. commissions and fees earned on advertising placed with the various media,
and,
. commissions and fees earned for the production and preparation of
advertising.
1
<PAGE>
In addition, True North's agency brands receive fees for various other
services performed in connection with advertising, research and marketing
studies and public relations activities.
The Company's client list includes many well-known national and international
advertisers of consumer and industrial goods and services. During 1994, the ten
largest clients accounted for approximately 45% of consolidated revenues: no
single client accounted for as much as 10% of consolidated revenues.
PERSONNEL: The principal asset of any service company is its people. True
North has designed a variety of employee benefit and training programs to
attract and retain personnel who are considered to be industry leaders. As of
December 31, 1994, True North employed 3,929 people in its majority-owned
offices: 2,361 were employed in its domestic offices and 1,568 were employed in
its international offices. Of the 3,929 total employees, 1,384 were engaged in
the creation and production of advertising, 1,097 in account management, 698 in
media and research activities, and 750 in administrative and clerical
functions.
MARKET PRICE OF STOCK AND DIVIDEND RECORD: True North's Common Stock is
listed on the New York Stock Exchange. Its trading symbol is TNO. The following
table shows the high and low stock price of its Common Stock and dividends paid
each quarter since January 1, 1993, adjusted for the two-for-one stock split
which occurred on February 17, 1995:
<TABLE>
<CAPTION>
PRICE RANGE
------------------ DIVIDENDS
HIGH LOW DECLARED
-------- --------- ---------
<S> <C> <C> <C>
1993
1st Quarter...................................... $18 $14 15/16 $.15
2nd Quarter...................................... 18 14 3/4 .15
3rd Quarter...................................... 19 3/16 16 15/16 .15
4th Quarter...................................... 24 18 5/16 .15
1994
1st Quarter...................................... $24 $20 3/4 $.15
2nd Quarter...................................... 22 1/2 20 5/8 .15
3rd Quarter...................................... 23 1/8 20 15/16 .15
4th Quarter...................................... 23 5/16 19 15/16 .15
</TABLE>
At December 31, 1994 True North had approximately 6,800 shareholders. True
North employees owned approximately 20% of the Company's outstanding Common
Stock as of that date, either directly or through various employee benefit
plans.
UNAUDITED QUARTERLY FINANCIAL DATA: Quarterly results (in thousands) and per
share data, adjusted for the two-for-one stock split which occurred on February
17, 1995, are as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- --------
<S> <C> <C> <C> <C>
1993
Revenues................................... $79,177 $ 93,739 $ 96,340 $103,410
Income before provision for income taxes... 3,680 6,324 1,119 12,042
Net income................................. 1,504 8,899 3,309 12,002
Net income per share....................... $ .07 $ .40 $ .15 $ .53
1994
Revenues................................... $88,362 $102,078 $100,478 $112,772
Income before provision for income taxes... 4,070 9,751 8,014 14,161
Net income................................. 1,872 10,459 4,107 13,839
Net income per share....................... $ .09 $ .46 $ .18 $ .62
</TABLE>
2
<PAGE>
FIVE-YEAR SELECTED FINANCIAL DATA: Select historical financial data (in
thousands, except per share amounts which have been adjusted for the two-for-
one stock split which occurred on February 17, 1995) are as follows:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C> <C> <C> <C> <C>
Revenues....................... $338,138 $341,987 $353,340 $372,666 $403,690
Net income (loss).............. 21,624 (19,148) 21,728 25,714 30,277
Net income (loss) per share.... 1.05 (.91) 1.00 1.15 1.34
Dividends per share............ .60 .60 .60 .60 .60
<CAPTION>
AT DECEMBER 31,
---------------
<S> <C> <C> <C> <C> <C>
Working capital................ (11,427) 866 5,310 13,745 (16,809)
Total assets................... 647,865 591,442 589,359 637,887 673,744
Long-term debt (includes
current portion).............. 45,472 40,088 35,652 36,255 10,885
Total liabilities.............. 456,642 428,401 406,032 437,857 465,987
Stockholders' equity........... 191,223 163,041 183,327 200,030 207,757
Book value per share........... 8.76 7.26 7.95 8.62 9.10
</TABLE>
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS--1994 COMPARED TO 1993
Net income for the year ended December 31, 1994 was $30,277 compared to
$25,714 in 1993. On a per share basis, after restatement for the two-for-one
stock split which occurred on February 17, 1995, earnings per share were $1.34
in 1994 compared to $1.15 in 1993.
Revenues from True North's consolidated operations increased 8.3% from
$372,666 in 1993 to $403,690 in 1994. U.S. revenues increased 5.6% to $306,737
and foreign revenues increased 17.8% to $96,953. Excluding the impact of
acquisitions and the 1993 sale of Krupp/Taylor, consolidated revenues would
have increased 5.0%.
Pretax income increased from $23,165 in 1993 to $35,996 in 1994. As more
fully explained in Note 14 of Notes to Consolidated Financial Statements, 1993
pretax income was adversely impacted by the loss recorded on the sale of
Krupp/Taylor as well as the operating losses incurred by this unit during the
period in 1993 that it was owned by True North. Pretax income for 1993 also
benefited by approximately $2,990 as a result of gains recorded on certain life
insurance policies and adjustments to deferred compensation reserves related to
the death of a former officer of the Company. 1994 pretax income was enhanced
by gains recorded on its investments in an interest rate swap and the common
stock of a publicly held British public relations agency: these gains are more
fully explained in Note 2.
The effective tax rate for 1994 was 44.6%, compared to 28.6% in 1993. The
1993 effective tax rate was impacted by 1993 unusual transactions. The various
elements which effect the overall tax rate for each year are more fully
described in Note 13.
Equity income, which consists primarily of True North's share of European
operations, was $10,203 in 1994 compared to $9,595 in 1993. The primary reason
for the increase was a strengthening of virtually all European currencies
against the U.S. dollar. The results of European operations in both 1993 and
1994 were adversely impacted by severance charges and lease reserves related to
continued restructuring of the Italian operations and the continued adverse
economic climate in that country.
3
<PAGE>
RESULTS OF OPERATIONS--1993 COMPARED TO 1992
Net income for the year ended December 31, 1993 was $25,714 or $1.15 per
share compared to $21,728 or $1.00 per share in 1992.
Revenues from True North's consolidated operations increased 5.5% from
$353,340 in 1992 to $372,666 in 1993.
Pretax income increased from $16,650 in 1992 to $23,165 in 1993. As more
fully explained in Note 14, True North sold Krupp/Taylor in 1993. The operating
losses of Krupp/Taylor through the date of sale and the loss recorded on the
disposition of this unit reduced 1993 pretax profit. This reduction was more
than offset by improved operating results for remaining operations, the impact
of 1993 acquisitions and reduced interest expense. Pretax income for 1993 also
benefited by approximately $2,990 as a result of gains recorded on certain life
insurance policies and adjustments to deferred compensation reserves related to
the death of a former officer of the Company.
The effective tax rate for 1993 was impacted by 1993 unusual transactions and
is more fully explained in Note 13.
Equity income, which consists primarily of True North's share of European
operations, decreased from $12,642 in 1992 to $9,595 in 1993. European revenues
were adversely impacted by the prolonged European business recession, currency,
and changes in French laws governing advertising agencies and media companies.
In addition, 1993 European operating results were depressed by severance
charges recorded in the French and Italian operations in response to
recessionary conditions.
LIQUIDITY AND CAPITAL RESOURCES
Working capital declined from $13,745 at December 31, 1993 to a deficit of
$16,809 at December 31, 1994. The primary reasons for this decline are the fact
that True North decided during 1994 to pay off rather than refinance the
$25,000 of 10.53% senior notes and because the $5,273 of 12.36% senior notes
are due to be paid in December 1995 and thus are reflected as currently due in
the December 31, 1994 consolidated balance sheet. A key financial priority has
been the reduction of debt and improved access to long-term debt funding. Over
the past four years True North has reduced total debt from $51,788 at December
31, 1991 to $18,749 at December 31, 1994. True North's debt-to-equity ratio has
improved from 31.8% at December 31, 1991 to 9.0% at December 31, 1994. As
further explained in Note 6 to the consolidated financial statements, the
Company, through its $50,000 Revolving Credit Agreement has adequate financing
capacity to meet its internal growth needs during 1995.
Over the past four years, the Company has emphasized the timely collection of
accounts receivable and the careful management of its accounts receivable to
accounts payable ratio. Receivables over ninety day past due have declined from
9.7% of total accounts receivable at December 31, 1991 to 3.3% at December 31,
1994. The accounts receivable to accounts payable ratio has improved from
101.9% at December 31, 1991 to 94.0% at December 31, 1994. This improvement is
particularly evident in the current year as accounts receivable increased 7.3%
over 1993 levels while accounts payable increased 18.3%. As a result, during
the same period short-term investments and marketable securities have increased
from $36,012 at December 31, 1991 to $52,465 at December 31, 1994.
During 1994, True North purchased approximately 768 shares of its Common
Stock on the open market at a total cost of $16,281. These treasury shares were
purchased to fund future issuances to the Company's Stock Purchase Plan and for
exercises of options under its stock option plans.
True North has paid cash dividends at an annual rate of $.60 per common share
(adjusted for the two-for-one stock split which occurred on February 17, 1995)
over the past seven years. Determination of the payment of dividends is made by
the Company's Board of Directors on a quarterly basis. True North anticipates
that its cash flow from operation will be adequate to continue payment of
dividends at similar levels in 1995.
4
<PAGE>
During the past three years acquisitions have become an increasingly
important component of True North's investing activities. The Company continues
to contemplate strategic acquisitions to enhance its worldwide network. Such
acquisitions may be financed through a combination of cash from existing
operations, the issuance of stock and long-term borrowings.
As discussed in Note 15, in January 1995, the Company contributed $6,616 in
response to a rights offering by one European equity investee.
OUTLOOK
As previously disclosed, in September 1994 True North initiated international
arbitration proceedings against Publicis S.A., Publicis Communication and
Publicis-FCB B.V. ("PBV"). True North contends that one or more of the
respondents failed to comply with provisions of the agreements creating the
alliance with Publicis in relation to certain unauthorized business
acquisitions.
In early February 1995, True North received a letter from Publicis
Communication purporting to terminate the Master Alliance Agreement, effective
July 24, 1995. On February 10, 1995, Publicis Communication confirmed their
intent by notifying the French Stock Exchange Commission and issuing a press
release. True North has also received correspondence from Publicis
Communication indicating that they intend to pursue counterclaims in the
arbitration.
On February 13, 1995, True North issued a press release and related Form 8-K
in response to the actions by Publicis Communication. True North believes that
the attempt to rescind is not valid or legally effective as to any of the
alliance agreements. In the Form 8-K and related press release, True North
disclosed that it intends to contest the validity and effectiveness of the
attempted termination. True North would certainly not presume to predict how
the arbitrators will rule on the dispute before them, or on the broad range of
possible outcomes that might ensue from their decisions or from any other
settlement discussions relating to the dispute.
True North continues to view European service capacity as an important
element of its global strategy. And, during the pendancy of arbitration, both
True North and Publicis Communication have committed that the joint venture's
daily operations will not be affected by its existence and that service to the
joint venture's clients will continue to be of the highest quality. True North
is willing to participate in discussions with Publicis during the course of
arbitration to resolve differences. At the same time, True North is committed
to taking all necessary measures to protect its fundamental legal rights under
the existing alliance agreements and the best interest of its shareholders and
clients.
As previously mentioned, the Italian operations of the joint venture have
been depressed for the past two years resulting in severance charges and lease
reserves which have decreased the earnings of the joint venture during this
period. In early 1995, the management of the joint venture initiated a further
restructuring of the Italian operations. True North anticipates that these
actions will result in a substantial charge during the first quarter of 1995.
As a result, while operating income appears strong for the quarter, True North
anticipates an accounting loss because of this restructuring charge.
5
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues.......................................... $353,340 $372,666 $403,690
Costs and Expenses:
Salaries and employee benefits.................. $203,696 $221,036 $248,955
Office and general expenses..................... 103,397 109,322 116,903
Provision for doubtful accounts................. 603 1,107 781
Direct marketing cost of goods sold............. 19,468 8,199 --
Unusual transactions............................ 3,647 6,345 --
Other (income) expense, net..................... 5,879 3,492 1,055
-------- -------- --------
$336,690 $349,501 $367,694
-------- -------- --------
Income before Provision for Income Taxes.......... $ 16,650 $ 23,165 $ 35,996
Provision for Federal, Foreign and State Income
Taxes............................................ 10,891 6,618 16,068
-------- -------- --------
$ 5,759 $ 16,547 $ 19,928
Minority Interest Expense......................... (354) (428) 146
Equity in Net Earnings of Affiliated Companies.... 12,642 9,595 10,203
-------- -------- --------
Net Income before Accounting Change............... $ 18,047 $ 25,714 $ 30,277
Cumulative Effect of Change in Accounting
Principle........................................ 3,681 -- --
-------- -------- --------
Net Income........................................ $ 21,728 $ 25,714 $ 30,277
======== ======== ========
Per Share:
Net Income before Accounting Change............. $ 0.83 $ 1.15 $ 1.34
Cumulative Effect of Change in Accounting
Principle...................................... 0.17 -- --
-------- -------- --------
Net Income........................................ $ 1.00 $ 1.15 $ 1.34
======== ======== ========
Weighted Average Number of Common and Common
Equivalent Shares Outstanding.................... 21,748 22,407 22,678
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ASSETS 1993 1994
------ -------- --------
<S> <C> <C>
Current Assets:
Cash..................................................... $ 26,111 $ 24,598
Short-term investments and marketable securities......... 39,136 52,465
Accounts receivable, net of reserve for doubtful accounts
of $5,760 in 1993 and $3,300 in 1994.................... 257,134 275,851
Other current assets..................................... 32,308 29,814
-------- --------
$354,689 $382,728
-------- --------
Property and Equipment:
Land and buildings....................................... $ 452 $ 445
Leasehold improvements................................... 46,756 48,555
Furniture and equipment.................................. 75,104 83,526
-------- --------
$122,312 $132,526
Less-Accumulated depreciation and amortization........... (76,123) (86,866)
-------- --------
$ 46,189 $ 45,660
-------- --------
Other Assets:
Goodwill, net of accumulated amortization of $21,163 in
1993 and $24,133 in 1994................................ $ 50,004 $ 55,834
Investment in affiliated companies....................... 171,740 177,948
Other assets............................................. 15,265 11,574
-------- --------
$237,009 $245,356
-------- --------
$637,887 $673,744
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable......................................... $276,321 $326,789
Short-term bank borrowings............................... 5,070 7,864
Liability for federal and foreign taxes on income........ 1,685 202
Current portion of long-term debt........................ 888 5,389
Accrued expenses......................................... 56,980 59,293
-------- --------
$340,944 $399,537
-------- --------
Noncurrent Liabilities:
Long-term debt........................................... $ 35,367 $ 5,496
Liability for deferred compensation...................... 29,714 32,508
Other noncurrent liabilities............................. 26,564 21,019
Deferred income taxes.................................... 5,268 7,427
-------- --------
$ 96,913 $ 66,450
-------- --------
Stockholders' Equity:
Preferred stock, $1.00 par value, authorized 100 shares,
none issued............................................. $ -- $ --
Common stock, 33 1/3c par value, authorized 50,000 shares
issued 23,306 in 1993 and 23,490 in 1994................ 3,884 3,915
Paid-in capital.......................................... 118,525 121,708
Retained earnings........................................ 83,729 100,011
Less--Treasury stock, at cost: 100 shares in 1993; 648 in
1994.................................................... (1,021) (13,653)
Cumulative translation adjustment........................ (5,087) (4,224)
-------- --------
$200,030 $207,757
-------- --------
$637,887 $673,744
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON PAID-IN RETAINED TREASURY DEFERRED TRANSLATION
STOCK CAPITAL EARNINGS STOCK COMPENSATION ADJUSTMENT
------ -------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991................... $3,761 $108,064 $ 63,870 $ (642) $(4,406) $(2,792)
Net income............ -- -- 21,728 -- -- --
Dividends............. -- -- (13,688) -- -- --
Common stock issued
for stock options.... 12 825 -- -- -- --
Common stock purchased
by Stock Purchase
Plan................. 85 7,180 -- -- -- --
Other common stock
issuances............ -- 98 -- 83 -- --
Translation
adjustment........... -- -- -- -- -- (1,732)
Other................. -- -- -- -- 881 --
------ -------- -------- -------- ------- -------
Balance at December 31,
1992................... $3,858 $116,167 $ 71,910 $ (559) $(3,525) $(4,524)
Net income............ -- -- 25,714 -- -- --
Dividends............. -- -- (13,895) -- -- --
Common stock issued
for stock options.... 19 1,375 -- 256 -- --
Common stock purchased
by Stock Purchase
Plan................. 7 723 -- -- -- --
Treasury stock
purchased............ -- -- -- (819) -- --
Other common stock
issuances............ -- 260 -- 101 -- --
Translation
adjustment........... -- -- -- -- -- (563)
Other................. -- -- -- -- 3,525 --
------ -------- -------- -------- ------- -------
Balance at December 31,
1993................... $3,884 $118,525 $ 83,729 $ (1,021) $ -- $(5,087)
Net income............ -- -- 30,277 -- -- --
Dividends............. -- -- (13,995) -- -- --
Common stock issued
for stock options.... 31 2,049 -- 336 -- --
Common stock purchased
by Stock Purchase
Plan................. -- 1,033 -- 3,306 -- --
Treasury stock
purchased............ -- -- -- (16,281) -- --
Other common stock
issuances............ -- 101 -- 7 -- --
Translation
adjustment........... -- -- -- -- -- 863
Other................. -- -- -- -- -- --
------ -------- -------- -------- ------- -------
Balance at December 31,
1994................... $3,915 $121,708 $100,011 $(13,653) $ -- $(4,224)
====== ======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before accounting change $ 18,047 $ 25,714 $ 30,277
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Provision for doubtful accounts.............. 603 1,107 781
Depreciation and amortization................ 13,692 14,928 14,883
Unrealized (gain) loss on Shandwick
investment.................................. 7,022 -- (1,877)
Deferred compensation expense................ 417 359 2,794
Deferred income taxes........................ (1,481) (1,377) 26
Equity earnings of affiliates................ (12,642) (9,595) (10,203)
Decrease (increase) in accounts receivable... (8,075) (20,687) (19,498)
Increase (decrease) in accounts payable...... (10,223) 16,692 50,468
Decrease (increase) in other current assets.. (4,659) 5,410 2,494
Increase (decrease) in accrued expenses...... 5,747 17,163 2,313
Dividends received from affiliated companies. 371 1,182 1,890
Increase (decrease) in other noncurrent
liabilities................................. (1,037) (157) (5,545)
Other........................................ 1,535 1,040 6,286
-------- -------- --------
$ 9,317 $ 51,779 $ 75,089
-------- -------- --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Decrease (increase) in short-term investments
and marketable securities..................... $ 15,926 $(19,050) $(11,452)
Increase (decrease) in short-term bank
borrowings.................................... (6,146) (484) 2,794
Additions to long-term debt.................... 104 5,217 34
Repayments of long-term debt................... (2,097) (1,123) (25,904)
Common stock purchased by Stock Purchase Plan.. 7,265 730 4,339
Stock option exercises......................... 837 1,650 2,416
Cash dividends paid............................ (13,689) (13,895) (13,995)
Common stock purchased for treasury............ -- (818) (16,281)
-------- -------- --------
$ 2,200 $(27,773) $(58,049)
-------- -------- --------
CASH PROVIDED BY (USED FOR) INVESTMENT
ACTIVITIES:
Purchase of interest in affiliated companies... $ (2,064) $ (902) $ (304)
Capital expenditures........................... (8,158) (9,034) (9,716)
Purchase of subsidiaries....................... (3,620) (12,856) (8,533)
-------- -------- --------
$(13,842) $(22,792) $(18,553)
-------- -------- --------
Increase (decrease) in cash...................... (2,325) 1,214 (1,513)
Balance at beginning of year..................... 27,222 24,897 26,111
-------- -------- --------
Balance at end of year........................... $ 24,897 $ 26,111 $ 24,598
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN 000'S, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company (True North) and all wholly owned and majority-
owned subsidiaries. The Company uses the equity method of accounting to record
its investments in 20% to 49% owned affiliated companies.
Income Recognition--True North records revenue on media, production and fee
billing at the time it renders the related service to its clients. Salaries and
other agency costs are charged to expense at the time they are incurred.
Direct Marketing Cost of Goods Sold--Direct marketing cost of goods sold
represents the materials, labor and factory overhead costs involved in the
manufacturing process of Krupp/Taylor. True North sold Krupp/Taylor in 1993.
Property and Depreciation--True North computes depreciation principally using
the straight line method over the estimated useful life of the related asset.
The Company amortizes leasehold improvements over the lesser of the estimated
useful life of the asset or the life of the lease.
Income Taxes--Effective January 1, 1992, True North adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". The cumulative impact of the adoption of SFAS No. 109 at the
beginning of 1992 is shown separately on the 1992 consolidated income statement
as a credit of $3,681.
At December 31, 1994, unremitted earnings of foreign subsidiaries and
affiliated companies were approximately $73,909. The Company does not provide
deferred taxes on these earnings because it reinvests the majority of such
earnings in these operations.
Goodwill--True North amortizes goodwill over periods from ten to forty years.
Periodically, the Company reviews and, if necessary, adjusts the amortization
periods for goodwill based upon current facts and circumstances and its best
estimate of undiscounted future operating earnings of the related business.
Amortization of goodwill, including goodwill of affiliated companies, amounted
to $4,571 in 1992, $4,869 in 1993 and $5,422 in 1994.
Earnings Per Share--Earnings per share are computed using the weighted
average number of common shares outstanding during the year. The computation
also reflects the potential issuance of shares under True North's stock option
plans.
2. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
The Company's current investment portfolio consists of short-term investments
(principally time deposits and money-market funds) and marketable securities
which are carried at the lower of cost or market. At December 31, 1993 and
1994, short-term investments and marketable securities were:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Short-term investments................................... $38,760 $46,969
Investment in Shandwick, plc............................. -- 3,896
Interest rate swap....................................... -- 1,600
Limited partnerships..................................... 376 --
------- -------
$39,136 $52,465
======= =======
</TABLE>
10
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1992 and 1993, other assets included a non-marketable
preferred stock investment in Shandwick, plc, a publicly-held global public
relations company. During 1992, management determined that this investment had
suffered a permanent decline in market value. Accordingly, a provision of
$7,022 was charged against 1992 earnings to reflect this market value decline.
In 1994, the Company converted its non-marketable preferred stock investment
in Shandwick, plc to common shares of this company. Management designated its
investment in the common shares of Shandwick, plc as "trading securities". In
accordance with the provisions of SFAS No. 115, "Accounting for Certain Debt
Investments in Debt and Equity Securities", this investment was reclassified to
short-term investments and marketable securities and a gain of $1,877 was
recorded to reflect this investment at current market value.
During 1993, True North entered into an interest rate swap contract with a
bank which became effective in June 1994. Under this arrangement, the Company
receives LIBOR and pays a fixed rate of 6.1% on a notional amount of $25,000
from June 1994 to June 1999. Because this interest rate swap contract did not
operate as an interest rate hedge against the Company's debt at December 31,
1994, the Company recorded a gain of $1,600 on this instrument to record its
fair market value at that date.
3. OTHER CURRENT ASSETS
At December 31, 1993 and 1994, other current assets consisted of:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Expenditures billable to clients......................... $18,969 $15,583
Prepaid expenses......................................... 13,339 14,231
------- -------
$32,308 $29,814
======= =======
</TABLE>
4. INVESTMENT IN AFFILIATED COMPANIES
The Company's investment in affiliated companies consists of:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
26% interest in Publicis Communication................. $ 67,221 $ 68,908
49% interest in Publicis FCB B.V....................... 90,871 97,529
Other.................................................. 13,648 11,511
-------- --------
$171,740 $177,948
======== ========
</TABLE>
Summarized financial information for affiliated companies is as follows:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Current assets......................................... $670,075 $768,935
Noncurrent assets...................................... 234,745 262,722
Current liabilities.................................... 664,761 794,684
Long-term debt......................................... 245 --
Other noncurrent liabilities........................... 62,885 76,894
Shareholders' equity................................... 176,949 160,079
Revenues............................................... 465,695 534,279
Pretax income.......................................... 54,953 49,736
Net income............................................. 26,466 16,778
</TABLE>
11
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's equity in the net tangible assets of these affiliated companies
was $108,089 at December 31, 1993 and $113,896 at December 31, 1994.
5. ACCOUNTS PAYABLE
Accounts payable includes the liability for cash overdrafts which represents
checks outstanding in excess of balances maintained at the respective banks.
The liability for cash overdrafts was $34,013 and $33,249 at December 31, 1993
and 1994, respectively.
6. SHORT-TERM BANK BORROWINGS AND LONG-TERM DEBT
Short-term bank borrowings consist principally of amounts borrowed under
domestic and international bank overdraft facilities, lines of credit and
multicurrency credit arrangements. Average aggregate short-term borrowings were
$9,836 in 1993 and $20,302 in 1994, and the maximum amount outstanding was
$21,428 in 1993 and $39,524 in 1994. The weighted average rate for short-term
borrowings was 5.2%, 4.2% and 5.6% in 1992, 1993 and 1994, respectively.
On March 31, 1993 the Company entered into a Revolving Credit Agreement
totaling $50,000 with several banks. This agreement, which expires on February
29, 1996, provides that True North may obtain loans bearing interest at a bid
rate (LIBOR or Fixed), a Reference Rate, or the Eurodollar rate plus a spread,
and requires a commitment fee of .125% and a facility fee of .125%. During
1994, there were no borrowings under this agreement.
In addition to the Revolving Credit Agreement, the Company had available at
various banks other uncommitted lines of credit aggregating approximately
$67,082 at December 31, 1994, of which $59,478 was unused. These other lines of
credit are subject to annual renewal and may be withdrawn at the option of the
various banks.
Long-term debt consists of:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
10.53% senior notes..................................... $25,000 $ --
12.36% senior notes..................................... 5,775 5,273
Other notes and obligations............................. 5,480 5,612
------- -------
$36,255 $10,885
Less portions due within one year....................... (888) (5,389)
------- -------
$35,367 $ 5,496
======= =======
</TABLE>
Scheduled maturities of long-term debt are $5,389 and $5,496 in 1995 and
1996, respectively.
The long-term debt agreements and Revolving Credit Agreement contain various
restrictive covenants and conditions which include, but are not limited to:
. The Company must maintain a minimum net worth of $165,000, a current
ratio of at least .9, a debt to capitalization ratio of no greater than
.4, and a fixed charge coverage ratio of at least 1.5.
. The Company is precluded from issuing additional long-term debt if
consolidated funded debt (as defined) exceeds 350% of consolidated
operating cash flow for the most recent four quarters.
At December 31, 1994, the Company was in compliance with all covenants and
conditions related to these agreements.
12
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1994, the Company estimates that the fair market value of its
debt is not materially different from its financial statement carrying value.
The fair value of this debt was estimated using quoted market prices or
discounted future cash flows.
Total interest expense was $6,718, $6,388, and $7,027, in 1992, 1993 and
1994, respectively.
7. CONTINGENCIES
True North is a party to several lawsuits incidental to its business. It is
not possible at the present time to estimate the ultimate liability, if any, of
the Company with respect to such litigation; however, management believes that
any ultimate liability will not be material in relation to the Company's
consolidated financial position.
As described in "Management's Discussion and Analysis--Outlook" included in
this Annual Report to Stockholders, the Company is involved in international
arbitration proceedings with Publicis S.A. and certain of its affiliates.
8. STOCK OPTIONS
The Company has established various stock option plans for officers and key
employees. These plans provide for the issuance of options to purchase common
shares at fair market value on the date of grant. The option and vesting period
for each stock option granted is specified on the date of grant, but in no case
exceeds ten years.
Transactions under these plans are summarized as follows:
<TABLE>
<CAPTION>
SHARES UNDER AVAILABLE
OPTION OPTION PRICE FOR GRANT
------------ ------------- ---------
<S> <C> <C> <C>
Outstanding at December 31, 1991....... 878 $ 6.94-$15.63 1,946
Granted.............................. 696 $12.44-$13.94 (696)
Exercised............................ (70) $ 6.94-$12.50
Forfeitures.......................... (55) $ 9.44-$12.31 55
Shares released from restricted stock
incentive plan...................... 10
----- -----
Outstanding at December 31, 1992....... 1,449 $ 9.44-$15.63 1,315
Granted.............................. 396 $15.50-$19.44 (396)
Exercised............................ (137) $ 9.44-$13.81
Forfeitures.......................... (49) $ 9.44-$17.75 49
----- -----
Outstanding at December 31, 1993....... 1,659 $ 9.44-$19.44 968
Granted.............................. 651 $21.25-$22.94 (651)
Exercised............................ (202) $ 9.44-$13.94
Forfeitures.......................... (75) $ 9.44-$22.63 75
Additional shares reserved for stock
option grants....................... 2,400
----- -----
Outstanding at December 31, 1994....... 2,033 $ 9.44-$22.94 2,792
===== =====
</TABLE>
9. SHAREHOLDERS' RIGHTS PLAN
True North has a Shareholders' Rights Plan that is designed to protect
shareholders from unfair or coercive takeover practices. Under this plan, one
preferred stock purchase right exists for each outstanding share of common
stock. The rights, which expire in November 1998, are exercisable only if a
person or group (excluding True North) acquires 20% (25% in the case of
Publicis Communication and its affiliates) or more of True North's common stock
or announces a tender offer which would result in ownership of 30% or more of
True North's common stock. Each right entitles the holder to purchase 1/2,000
of a share of Series A Junior Participating Preferred Stock ("preferred stock")
of the Company at a purchase price of $42.50, subject to adjustment under
certain conditions. At December 31, 1994, 30,000 shares of the True North's
unissued preferred stock were reserved for issuance upon exercise of these
rights.
13
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subject to certain conditions and limitations, in the event that True North
is acquired by a person or group, these rights (which have not otherwise been
exercised to acquire True North's preferred stock) entitle the holder to
acquire the common stock of the surviving entity at approximately 50% of their
fair market value.
The Board of Directors has the flexibility to (i) redeem outstanding rights,
(ii) adjust the thresholds at which these rights become exercisable, and, (iii)
exclude other persons or groups from triggering the exercisability of these
rights.
10. DISTRIBUTION OF EARNINGS AND ASSETS
Information about the Company's operations in different geographic areas for
1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
U.S...................................... $287,188 $290,386 $306,737
Foreign.................................. 66,152 82,280 96,953
Corporate................................ -- -- --
-------- -------- --------
$353,340 $372,666 $403,690
======== ======== ========
Income (Loss) before Provision for Taxes:
U.S...................................... $ 23,293 $ 32,171 $ 57,863
Foreign.................................. 8,755 8,386 620
Corporate................................ (15,398) (17,392) (22,487)
-------- -------- --------
$16,650 $ 23,165 $ 35,996
======== ======== ========
Net Income before Accounting Change:
U.S...................................... $ 10,272 $ 22,895 $ 34,834
Foreign.................................. 17,938 14,124 10,059
Corporate................................ (10,163) (11,305) (14,616)
-------- -------- --------
$ 18,047 $ 25,714 $ 30,277
======== ======== ========
Identifiable Assets:
U.S...................................... $312,428 $333,310 $338,251
Foreign.................................. 272,995 300,453 328,806
Corporate................................ 3,936 4,124 6,687
-------- -------- --------
$589,359 $637,887 $673,744
======== ======== ========
</TABLE>
11. RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS
True North and participating U.S. subsidiaries have a profit sharing plan, a
supplemental pension plan, and a stock purchase plan.
The profit sharing and supplemental pension plans are integrated to provide,
for employees who retire at age 65 with 30 or more years of service, annual
retirement benefits of 45% of the highest five-year average compensation during
their last ten years of full-time employment. Under the integration formula,
the profit
14
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
sharing plan provides the principal funding for employee retirement benefits.
If a retiring employee's profit sharing balance is not sufficient to fund the
minimum benefit described above, the pension plan provides the necessary
supplemental funding to bring the total benefit up to the level guaranteed by
the plans.
True North's annual contribution to the profit sharing plan is based upon
income, as defined in the plan, but may not exceed the amount permitted as
deductible expense under the Internal Revenue Code. Under the stock purchase
plan, True North matches 50% of employee contributions up to the individual
employee limits deductible under the Internal Revenue Code. The combined profit
sharing, pension, and stock purchase plan provisions were $9,509 in 1992,
$10,059 in 1993 and $10,348 in 1994.
The Company has entered into agreements whereby certain employee directors
and other employees are or will be eligible for part-time employment and/or
deferred compensation upon retirement from full-time employment. The provisions
for these agreements, which are charged to income over the employment period of
these individuals, were $3,580 in 1992, $4,651 in 1993, and $5,949 in 1994.
True North provides limited postretirement medical and life insurance
benefits to employees who retire with at least ten years of service prior to
age 65. Prior to January 1, 1993, the Company accounted for such benefits on
the cash basis. In 1993, the company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", on a
prospective basis. Under this method, the Company is amortizing the actuarial
present value of the accumulated postretirement benefit obligation (APBO) at
January 1, 1993 over a twenty year period. In addition, the Company provides
for current year service costs, interest costs and actuarially determined plan
gains and losses. The adoption of SFAS No. 106 has not materially impacted the
Company's reported earnings in 1993 or 1994. The APBO for these benefits
(calculated using a discount rate of 7%) was approximately $5,619 and $4,146 at
December 31, 1993 and 1994, respectively.
On January 1, 1994, the Company adopted the provisions of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits". Because the Company
provides only limited benefits to former or inactive employees after employment
but before retirement, the adoption of SFAS No. 112 did not materially impact
1994 earnings.
12. LEASE OBLIGATIONS
True North leases substantially all of its office facilities under operating
leases. Net rental expense on these leases was $30,011 in 1992, $33,958 in 1993
and $40,219 in 1994, after deducting sublease income of $7,004, $5,972, and
$6,476, respectively.
At December 31, 1994, the future rental obligations for these leases (net of
sublease income of approximately $30,943) is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1995..................................... $ 30,895
1996..................................... 30,570
1997..................................... 32,278
1998..................................... 29,024
1999..................................... 26,453
Thereafter............................... 108,434
</TABLE>
15
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. FEDERAL, FOREIGN AND STATE INCOME TAXES
The domestic and foreign components of pretax income are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Domestic.......................................... $ 8,062 $14,778 $35,344
Foreign........................................... 8,588 8,387 652
------- ------- -------
$16,650 $23,165 $35,996
======= ======= =======
</TABLE>
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ -------
<S> <C> <C> <C>
U.S.--currently payable.......................... $ 6,871 $2,781 $10,674
--deferred..................................... (1,481) (1,377) 26
Foreign.......................................... 2,534 3,865 913
State............................................ 2,967 1,349 4,455
------- ------ -------
$10,891 $6,618 $16,068
======= ====== =======
</TABLE>
Deferred and prepaid tax expense results from temporary differences in the
recognition of revenue and expense for tax and financial reporting purposes.
The sources of these differences and the related tax effects are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------- -------
<S> <C> <C> <C>
Safe harbor leases............................ $ (445) $ (479) $ 594
Deferred compensation......................... (223) (157) 1,085
Depreciation.................................. (1,638) (1,233) 818
Lease reserves................................ 471 581 (1,257)
Reserve for doubtful accounts................. 59 (63) (933)
Other temporary differences, net.............. 295 (26) (281)
-------- ------- -------
$(1,481) $(1,377) $ 26
======== ======= =======
</TABLE>
The reconciliation of the U.S. statutory rate to the effective income tax
rate is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ----- ----
<S> <C> <C> <C>
At statutory rate..................................... 34.0% 35.0% 35.0%
State taxes, net of federal tax benefit............... 11.8 3.8 8.0
Higher (lower) aggregate effective tax rate on foreign
operations........................................... 5.2 1.3 (0.1)
Tax effect of nondeductible amortization.............. 5.2 4.2 3.3
Impact of unusual transactions........................ 7.4 (13.8) --
Other................................................. 1.8 (1.9) (1.6)
---- ----- ----
65.4% 28.6% 44.6%
==== ===== ====
</TABLE>
14. UNUSUAL TRANSACTIONS
During 1992, True North established a reserve for the difference between the
market value and cost of its Shandwick investment (see Note 2), resulting in a
pretax loss of $7,022. The Company also renegotiated the lease of a foreign
subsidiary resulting in a pretax gain of $3,374. The after-tax impact of
unusual transactions in 1992 was a loss of $3,648.
16
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
During 1993, True North sold Krupp/Taylor, its Los Angeles-based direct mail
production facility. The sale resulted in a pretax loss of $6,345 and the
realization of additional tax benefits deriving from the 1991 write-down of the
financial statement carrying value of Krupp/Taylor. The after-tax impact of
unusual transactions in 1993 was a loss of $600.
15. SUBSEQUENT EVENTS:
In January 1995, Publicis Communication issued a stock subscription to its
shareholders, Publicis S.A. and True North. True North contributed
approximately $6,616 as a result of this capital call; its resulting ownership
in Publicis Communication declined to approximately 21%.
On February 17, 1995, the Company paid a 100% stock dividend to stockholders
of record as of January 6, 1995. All per share and share data in the
accompanying financial statements and footnotes have been adjusted to give
effect to this stock dividend.
17
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The financial statements and related financial information included in this
annual report are the responsibility of management. They have been reported in
conformity with generally accepted accounting principles. In preparing these
financial statements, management has necessarily included some amounts which
are based on its best estimates and judgments. True North maintains systems of
internal accounting and financial control designed to provide reasonable
assurance that its assets are safeguarded against loss from unauthorized use or
disposition, and that transactions are executed and recorded in accordance with
established procedures. These systems of internal controls are reviewed,
modified and improved as changes occur in business conditions and operations.
Arthur Andersen LLP, our independent public accountants, are engaged to audit
and to report on our consolidated financial statements. In performing their
audit in accordance with generally accepted auditing standards, they evaluate
our systems of internal accounting control, review selected transactions, and
carry out other auditing procedures to the extent they consider necessary in
expressing their informed professional opinion on our financial statements.
The Audit Committee, composed of nonemployee members of the Board of
Directors, meets periodically with management, the independent certified public
accountants, and the internal auditors. This Committee reviews audit plans and
assesses the adequacy of internal controls and financial reporting. Both the
independent certified public accountants and internal auditors have direct
access to the Audit Committee.
Bruce Mason Terry M. Ashwill
Chairman/CEO Chief Financial Officer
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of True North Communications Inc.:
We have audited the accompanying consolidated balance sheets of True North
Communications Inc. (a Delaware corporation) and Subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31,1994. The financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Publicis Conseil for each of the three years in the period ended
December 31, 1994, and we did not audit the financial statements of Publicis
Communication for each of the two years in the period ended December 31, 1993;
the investments in which are reflected in the accompanying financial statements
using the equity method of accounting. The investment in Publicis Conseil
represents approximately 4% of total assets as of December 31, 1994. The equity
in its net earnings was $2,959,000 for the year ended December 31, 1994. The
investments in Publicis Communication and Publicis Conseil represent
approximately 15% of total assets as of December 31, 1993. The equity in their
net earnings were $2,267,000 and $5,343,000 for each of the two years in the
period ended December 31, 1993. The financial statements of Publicis
Communication and Publicis Conseil were audited by other auditors whose reports
have been furnished to us and our opinion, insofar as it relates to those
amounts included for Publicis Communication and Publicis Conseil, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of True North Communications Inc. and
Subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 115--Accounting for
Certain Investments in Debt and Equity Securities, effective January 1, 1994.
As discussed in Note 11 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 106--Employers'
Accounting for Postretirement Benefits Other Than Pensions, effective January
1, 1993. As discussed in Note 1 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standard No. 109--Accounting
for Income Taxes, effective January 1, 1992.
Arthur Andersen LLP
Chicago, Illinois,
March 10, 1995.
19
<PAGE>
EXHIBIT 21
PARENT AND SIGNIFICANT SUBSIDIARIES OF REGISTRANT
JURISDICTION OF INCORPORATION
-----------------------------
True North Communications Inc. Delaware
Subsidiaries 100% owned by the Registrant and included in the consolidated
financial statements--
VICOM/FCB, Inc. Delaware
Foote, Cone & Belding of Pennsylvania, Inc. Delaware
Foote, Cone & Belding Advertising, Inc. Delaware
Foote, Cone & Belding, Inc. Delaware
FCB International, Inc. Delaware
Subsidiaries 100% owned by FCB International, Inc. and included in the
consolidated financial statements--
FCB/Ronalds-Reynolds, Ltd. Canada (Ontario)
FCB Australia Pty., Ltd. Australia
Less than 50% owned affiliates accounted for by the equity method--
Publicis Communication France
Publicis . FCB BV The Netherlands
NOTE: Other subsidiaries included in the consolidated financial statements are
excluded from this listing because in the aggregate they do not constitute a
significant subsidiary as defined by the Securities and Exchange Commission.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
True North Communications Inc.
As independent public accountants, we hereby consent to the incorporation of our
reports included in or incorporated by reference to this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (File No.'s
33-15126, 33-41128, and 33-48523).
Arthur Andersen LLP
Chicago, Illinois,
March 29, 1995.
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint Bruce Mason and
Terry M. Ashwill, and each of them, his attorney-in-fact for the purpose of
signing in his name and on his behalf as a director of True North Communications
Inc. (the "Company"), the Company's Annual Report on Form 10-K pursuant to the
Securities Exchange Act of 1934 and any other registration statement filed
during 1995 for the registration under the Securities Act of 1933 of Common
Stock of the Company, including the associated Preferred Stock Purchase Rights,
to be issued or sold in connection with the Company's Stock Option or Stock
Purchase Plans, and of signing any and all amendments to said registration
statement and all amendments thereto as each thereof is so signed for filing
with the Securities and Exchange Commission.
Dated: March 21, 1995
/s/ John B. Balousek /s/ J. Brendan Ryan
------------------------ ------------------------
John B. Balousek J. Brendan Ryan
/s/ Gregory W. Blaine /s/ William A. Schreyer
------------------------ ------------------------
Gregory W. Blaine William A. Schreyer
/s/ Richard S. Braddock /s/ Louis E. Scott
------------------------ ------------------------
Richard S. Braddock Louis E. Scott
/s/ Laurel Cutler
------------------------ ------------------------
Laurel Cutler Stephen T. Vehslage
/s/ Maurice Levy /s/ Craig R. Wiggins
------------------------ ------------------------
Maurice Levy Craig R. Wiggins
/s/ Newton N. Minow
------------------------
Newton N. Minow
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