<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarter ended March 31, 1995 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 of organization) Identification No.)
101 EAST ERIE STREET, CHICAGO, ILLINOIS 60611
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (312) 751-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
There were 23,041,728 shares of the Registrant's 33 1/3 cents per share par
value Common Stock outstanding as of May 11, 1995.
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TRUE NORTH COMMUNICATIONS INC.
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Exhibits
Consolidated Statements of Income for the
Three Months Ended March 31, 1994 and 1995 3
Consolidated Balance Sheets as of March 31, 1994,
December 31, 1994, and March 31, 1995 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1994 and 1995 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Operating Results 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
2
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TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended March 31
1994 1995
------- --------
Revenues $88,362 $ 95,389
------- --------
Costs and Expenses:
Salaries and employee benefits $55,155 $ 60,583
Office and general expenses 27,912 29,126
Unusual items -- 10,185
Other (income) expense 1,225 1,680
------- --------
Total Costs and Expenses $84,292 $101,574
------- --------
Income (Loss) Before Provision for Taxes
on Income $ 4,070 $ (6,185)
Provision for Federal, Foreign & State
Income Taxes 1,872 (2,134)
------- --------
$ 2,198 $ (4,051)
Minority Interest Credit (Expense) (73) (51)
Equity in Earnings (Losses) of Affiliated
Companies (253) (6,926)
------- --------
Net Income $ 1,872 $(11,028)
======= ========
Net Income Per Share $ .08 $ (.49)
======= ========
Average Number of Common and Common
Equivalent Shares Outstanding 22,678 22,324
======= ========
The accompanying notes are an integral part of these statements.
3
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TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Mar. 31 Dec. 31 Mar. 31
1994 1994 1995
-------- ------- --------
ASSETS:
- -------
Cash and short-term investments $ 18,946 $ 77,063 $ 27,069
Accounts receivable, net 294,200 275,851 292,689
Other current assets 42,908 29,814 43,687
-------- -------- --------
Total current assets $356,054 $382,728 $363,445
Property and equipment, net 44,686 45,660 46,346
Goodwill 49,319 55,834 55,322
Investment in affiliated companies 171,504 177,948 178,090
Other noncurrent assets 14,454 11,574 9,600
-------- -------- --------
Total assets $636,017 $673,744 $652,803
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -------------------------------------
Accounts payable and accruals $313,815 $386,082 $351,522
Short-term bank borrowings 24,529 7,864 35,785
Current portion of long-term debt 807 5,389 5,400
Liability for taxes on income 2,674 202 461
-------- -------- --------
Total current liabilities $341,825 $399,537 $393,168
-------- -------- --------
Deferred taxes $ 5,268 $ 7,427 $ 5,834
-------- -------- --------
Long-term debt $ 35,293 $ 5,496 $ 5,188
-------- -------- --------
Accrued future compensation exp. $ 29,547 $ 32,508 $ 34,845
-------- -------- --------
Other noncurrent liabilities $ 25,141 $ 21,019 $ 20,002
-------- -------- --------
Common stock $ 3,896 $ 3,915 $ 3,915
Paid-in capital 119,393 121,708 121,364
Retained earnings 82,110 100,011 85,591
Less-Treasury stock (1,025) (13,653) (11,911)
Cumulative translation adjustment (5,431) (4,224) (5,193)
-------- -------- --------
Total stockholders' equity $198,943 $207,757 $193,766
-------- -------- --------
Total liabilities and
stockholders' equity $636,017 $673,744 $652,803
======== ======== ========
The accompanying notes are an integral part of these balance sheets.
4
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TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Three months ended Mar. 31
1994 1995
-------- --------
Cash Flows From Operating Activities:
- -------------------------------------
Net income $ 1,872 $(11,028)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,626 4,136
Deferred compensation expense (53) 2,269
Equity earnings of affiliates, net of dividends
received 253 7,014
Accounts receivable (37,067) (16,838)
Accounts payable and accruals (18,497) (35,894)
Other current assets (10,599) (13,873)
Other (605) 621
-------- --------
$(61,070) $(63,593)
-------- --------
Cash Provided By (Used For) Financing Activities:
- -------------------------------------------------
Short-term investments and marketable securities $ 36,059 $ 46,233
Additions to long-term debt 45 --
Payments of long-term debt (342) (17)
Cash dividends paid (3,491) (3,392)
Common stock issuances 876 1,398
Short-term borrowings 19,459 27,921
-------- --------
$ 52,606 $ 72,143
-------- --------
Cash Provided By (Used For) Investment Activities:
- --------------------------------------------------
Purchase of subsidiaries $ (381) $ (1,101)
Purchase of interest in affiliated companies -- (7,165)
Capital expenditures (1,397) (4,045)
-------- --------
$ (1,778) $(12,311)
-------- --------
Increase (Decrease) In Cash $(10,242) $ (3,761)
Balance at beginning of period 26,111 24,598
-------- --------
Balance at end of period $ 15,869 $ 20,837
======== ========
The accompanying notes are an integral part of these statements.
5
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TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(UNAUDITED)
(1) The condensed financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and include all adjustments which the
Company considers necessary for a fair presentation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The consolidated
condensed financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's latest
Annual Report on Form 10-K.
Revenues and net income for the first three months of the year should not be
considered reliable indicators of revenues or net income for the entire year
because the Registrant's business is cyclical.
(2) The number of shares outstanding reflects the potential dilution of shares
expected to be earned through profit performance contracts and outstanding
stock options. Per share income amounts are not materially different on a
fully diluted basis.
6
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TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share amounts)
Results for the first quarter of 1995 include unusual items. As further
discussed below, these unusual items resulted in charges against after-tax
earnings totaling $13,376 or $.60 per share.
Revenues increased 8.0% to $95,389 in 1995 from $88,362 in 1994. North American
revenues increased 5.2% to $77,530 in 1995 while international revenues
increased 22.0% to $17,859. Excluding the impact of acquisitions, consolidated
revenues increased 3.3%.
Salaries, employee benefits, and office and general expenses increased 8.0%
from $83,067 in 1994 to $89,709 in 1995. This rate of increase is in line with
the increase in revenues.
As previously mentioned, first quarter 1995 results include unusual items. The
Company recorded a pretax charge of $10,185 related to the closure of an FCB
operation in the Pacific region and to accrue the expected costs to settle its
dispute with Publicis. Additionally, included in the line item "Equity in
earnings (losses) of affiliated companies" is a one-time charge of $7,034
related to the previously disclosed restructuring of the Italian operations of
the Publicis*FCB European joint venture. The after-tax impact of these unusual
items is a loss of $13,376.
The first quarter 1995 tax rate was impacted by unusual items. Excluding unusual
items, the 1995 tax rate was 42.7% compared to 46.0% in 1994. The primary reason
for this decline is that the effective tax rate for the Company's foreign
operations is expected to be lower in 1995.
Liquidity and Capital Resources
- -------------------------------
As more fully explained below, the decline in "Cash and short-term investments"
and increases in "Accounts receivable, net", "Other current assets", and
"Short-term bank borrowings" from the beginning of the year reflect the cyclical
nature of the advertising business and are inter-related.
The increase in "Other current assets" is due to the production of client
commercials which will be shown during the summer months. The costs related to
these commercials are billed to clients during the second quarter when the
commercials are completed. Commercial production activity in the last month of
the year is typically low.
The increase in "Accounts receivable, net" is due, in part, to a slowing of
collections which also is typical of the middle portion of the calendar year.
7
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The decrease in "Cash and short-term investments" and the increase in
"Short-term bank borrowings" reflect the higher level of commercial
production activity, as well as the slowing of accounts receivable
collections during the middle parts of the year.
The decrease in "Accounts payable and accruals" is also reflective of
the cyclical nature of Registrant's business and, in part, due to payment
of annual incentive awards and the 1994 contribution to the Company's
Profit Sharing Plan.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
27. Financial Data Schedule
(b) Reports on Form 8-K - On April 14, 1995 Registrant filed a Form 8-K
in which it disclosed that on April 12, 1995, both Publicis and
Registrant had formally agreed to a suspension of arbitration and
other proceedings so that the parties could resolve their disputes
in an amicable fashion.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRUE NORTH COMMUNICATIONS INC.
(Registrant)
/s/ John J. Rezich
---------------------------------------
(Signature)
John J. Rezich
Controller and Chief Accounting Officer
Date: May 15, 1995
9
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 27,069
<SECURITIES> 0
<RECEIVABLES> 292,689
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 363,445
<PP&E> 46,346
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<CURRENT-LIABILITIES> 393,168
<BONDS> 5,834
<COMMON> 113,368
0
0
<OTHER-SE> 80,398
<TOTAL-LIABILITY-AND-EQUITY> 652,803
<SALES> 0
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<CGS> 0
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,185)
<INCOME-TAX> (2,134)
<INCOME-CONTINUING> (11,028)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,028)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
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