<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarter ended June 30, 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 or 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 23,192,559 shares of the Registrant's 33 1/3 cents per share par
value Common Stock outstanding as of August 14, 1995.
<PAGE>
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 June 30, 1994 and 1995 3
Consolidated Statements of Income for the
Six Months Ended June 30, 1994 and 1995 4
Consolidated Balance Sheets as of June 30, 1994,
December 31, 1994, and June 30, 1995 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1994 and 1995 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Operating Results 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
2
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended June 30
1994 1995
-------- --------
<S> <C> <C>
Revenues $102,078 $110,857
-------- --------
Costs and Expenses:
Salaries and employee benefits $ 62,682 $ 68,868
Office and general expenses 28,370 32,416
Other (income) expense 1,275 1,456
-------- --------
Total Costs and Expenses $ 92,327 $102,740
-------- --------
Income Before Provision for Taxes on Income $ 9,751 $ 8,117
Provision for Federal, Foreign & State
Income Taxes 4,485 3,841
-------- --------
$ 5,266 $ 4,276
Minority Interest Credit (Expense) 184 187
Equity in Earnings (Losses) of Affiliated
Companies 5,009 6,893
-------- --------
Net Income $ 10,459 $ 11,356
======== ========
Net Income Per Share $ .46 $ .51
======== ========
Average Number of Common and Common
Equivalent Shares Outstanding 22,737 22,482
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six months ended June 30
1994 1995
-------- --------
<S> <C> <C>
Revenues $190,440 $206,246
-------- --------
Costs and Expenses:
Salaries and employee benefits $117,837 $129,451
Office and general expenses 56,282 61,542
Unusual items -- 10,185
Other (income) expense 2,500 3,136
-------- --------
Total Costs and Expenses $176,619 $204,314
-------- --------
Income Before Provision for Taxes on Income $ 13,821 $ 1,932
Provision for Federal, Foreign & State
Income Taxes 6,357 1,707
-------- --------
$ 7,464 $ 225
Minority Interest Credit (Expense) 111 136
Equity in Earnings (Losses) of Affiliated
Companies 4,756 (33)
-------- --------
Net Income $ 12,331 $ 328
======== ========
Net Income Per Share $ .54 $ .01
======== ========
Average Number of Common and Common
Equivalent Shares Outstanding 22,724 22,417
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30 Dec. 31 June 30
1994 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
ASSETS:
-------
Cash and short-term investments $ 71,070 $ 77,063 $ 37,506
Accounts receivable, net 307,596 275,851 339,484
Other current assets 40,260 29,814 49,645
-------- -------- --------
Total current assets $418,926 $382,728 $426,635
Property and equipment, net 45,542 45,660 44,187
Goodwill 51,148 55,834 61,236
Investment in affiliated companies 175,674 177,948 183,350
Other noncurrent assets 12,376 11,574 12,039
-------- -------- --------
Total assets $703,666 $673,744 $727,447
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
-------------------------------------
Accounts payable and accruals $392,866 $386,284 $405,771
Short-term bank borrowings 34,757 7,864 48,463
Current portion of long-term debt 700 5,389 5,342
-------- -------- --------
Total current liabilities $428,323 $399,537 $459,576
-------- -------- --------
Deferred taxes $ 5,268 $ 7,427 $ 4,304
-------- -------- --------
Long-term debt $ 10,489 $ 5,496 $ 4,994
-------- -------- --------
Accrued future compensation exp. $ 28,468 $ 32,508 $ 35,098
-------- -------- --------
Other noncurrent liabilities $ 22,620 $ 21,019 $ 18,047
-------- -------- --------
Common stock $ 3,908 $ 3,915 $ 7,830
Paid-in capital 121,456 121,708 116,857
Retained earnings 89,061 100,011 93,481
Less-Treasury stock (692) (13,653) (7,241)
Cumulative translation adjustment (5,235) (4,224) (5,499)
-------- -------- --------
Total stockholders' equity $208,498 $207,757 $205,428
-------- -------- --------
Total liabilities and
stockholders' equity $703,666 $673,744 $727,447
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended June 30
1994 1995
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
-------------------------------------
Net income $ 12,331 $ 328
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,187 8,197
Deferred compensation expense (1,135) 2,494
Equity earnings of affiliates, net of dividends
received (4,404) 584
Accounts receivable (50,463) (63,633)
Accounts payable and accruals 47,056 (12,333)
Billable expenditures and other current assets (7,951) (19,831)
Other noncurrent assets 2,889 (465)
Noncurrent liabilities (3,944) (6,095)
Other 470 1,395
-------- --------
$ 2,036 $(89,359)
-------- --------
Cash Provided By (Used For) Financing Activities:
-------------------------------------------------
Short-term investments and marketable securities $ 4,706 $ 47,013
Additions to long-term debt 21 --
Payments of long-term debt (25,236) (59)
Cash dividends paid (6,999) (6,858)
Common stock issuances 3,283 5,476
Liability for cash overdrafts 10,825 31,820
Short-term borrowings 29,687 40,599
-------- --------
$ 16,287 $117,991
-------- --------
Cash Provided By (Used For) Investment Activities:
--------------------------------------------------
Purchase of subsidiaries $ (4,396) $ (8,788)
Purchase of interest in affiliated companies -- (7,645)
Capital expenditures, net of retirements (3,398) (4,743)
-------- --------
$ (7,794) $(21,176)
-------- --------
Increase (Decrease) In Cash $ 10,529 $ 7,456
Balance at beginning of period 26,111 24,598
-------- --------
Balance at end of period $ 36,640 $ 32,054
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 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
comprise only normal recurring items) which the Company considers
necessary for a fair presentation. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
consolidated condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-K.
Revenues and net income for the first six months of the year should not be
considered reliable indicators of revenues or net income for the entire
year.
(2) The number of shares outstanding reflects the potential dilution of shares
expected to be earned through profit performance contracts and outstanding
stock options. Per share income amounts are not materially different on a
fully diluted basis.
7
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1995
---------------------------
Net income for the second quarter totaled $11,356 or $.51 per share, up 8.6%
over 1993 second quarter net income of $10,459 or $.46 per share.
Revenues increased 8.6% to $110,857 in 1995 from $102,078 in 1994. North
American revenues increased 1.8% to $84,530 while international revenues
increased 38.2% to $26,327. Excluding the impact of acquisitions, revenues would
have increased 4.5% between years.
Salaries and employee benefits increased 9.9% between years from $62,682 to
$68,868 in 1995 compared to the 8.6% increase in consolidated revenues. The
primary reasons that salaries and employee benefits increased at a rate higher
than the rate of increase in revenues are that 1) the Company has hired
additional personnel to increase its competency in computer technologies which
impact the advertising business, and, 2) the Company has hired new management
for its Asia region, which is anticipated to have the greatest opportunity for
growth compared to other regions over the next several years. Office and
general expenses increased 14.3% between years from $28,370 to $32,416. 1994
office and general expenses included a one-time gain of $1,750 related to the
sale of a former subsidiary of the Company. Excluding this one-time gain, the
rate of increase between years in office and general expense spending was
approximately 7.6% due to inflation and increased spending on new computer
technologies. Other expense increased from $1,275 in 1994 to $1,456 in 1995 due
entirely to higher net interest expense.
Equity income, which consists primarily of True North's share of European
operations, was $6,893 in 1995 compared to $5,009 in 1994. European operating
results were favorably impacted by currency exchange rates and a strengthening
of the French economy.
SIX MONTHS ENDED JUNE 30, 1995
------------------------------
Results for the first six months 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 8.3% to $206,246 in 1995 from $190,440 in 1994. North
American revenues increased 3.4% to $162,060 while international revenues
increased 31.1% to $44,186. Excluding the impact of acquisitions, revenues
would have increased 5.8%.
Salaries and employee benefits increased 9.9% between years, higher than the
rate of growth in revenues, due to the reasons mentioned above. Office and
general expenses increased 9.3% between years to $61,542. Excluding the
previously mentioned one-time gain related to the sale of a former subsidiary of
the Company from 1994 results, the rate of increase between years in
8
<PAGE>
office and general expense spending was approximately 6.0%.
As previously mentioned, results for the first six months of 1995 include
unusual items. The Company recorded a pretax charge of $10,185 in the first
quarter of 1995: $3,560 of this amount related to the closure of an FCB
operation in the Pacific region and $6,625 represented the accrual of the
expected costs to settle the Company's 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 tax rate for the first six months of 1995 was impacted by unusual items.
Excluding unusual items, the 1995 tax rate was 45.8% compared to 46.0% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As more fully explained below, the increases in "Accounts receivable, net",
"Other current assets", and "Accounts payable and accruals" from the beginning
of the year reflect the cyclical nature of the advertising business and are
inter-related.
The increase in "Other current assets" is primarily due to the production of
client commercials which will be shown during the summer and fall months. The
costs related to these commercials are billed to clients during the third
quarter when the commercials are completed. Commercial production activity
during the last month of the year is typically low.
The increase in "Accounts receivable, net" and "Accounts payable and accruals"
is due to the fact that media billings for the month of June 1995 were higher
than those of December 1994. During 1995, the increase in "Accounts receivable"
was higher than the increase in "Accounts payable and accruals". The primary
reason for this is that the Company's accounts receivable to accounts payable
ratio was at optimal levels during the last quarter of 1994 and have shifted to
levels that are typical of this period of the year. This change in receivable
and payable balances was funded by the liquidation of short-term investments and
additional short-term debt.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 17, 1995, Registrant held its Annual Meeting. Holders of 19,674,786 of
Registrant's Common Shares were represented in person or by proxy at this
meeting. On May 17, Registrant had 22,968,202 Common Shares outstanding.
The following matters were submitted to a vote of security holders at this
meeting.
1. Annual Election of Directors - All Directors of Registrant stand for election
at each of Registrant's Annual Meetings. Following is the tabulation of
votes for each director:
<TABLE>
<CAPTION>
WITHHOLD
FOR AUTHORITY
---------- ---------
<S> <C> <C>
J. B. Ryan 19,540,526 134,260
Bruce Mason 19,501,660 173,126
Jack Balousek 19,483,518 191,268
Louis E. Scott 19,493,267 181,519
Stephen T. Vehslage 19,448,485 226,301
Newton N. Minow 19,493,243 181,543
Craig R. Wiggins 19,338,030 336,756
Maurice Levy 19,444,908 229,878
Gregory W. Blaine 19,453,969 220,817
Laurel Cutler 19,457,229 217,557
Terry M. Ashwill 19,494,310 180,476
William A. Schreyer 19,545,243 129,543
Richard S. Braddock 19,517,701 158,085
</TABLE>
No other person received any votes for election as director.
2. Approval of Arthur Andersen LLP as Registrant's auditors for 1995:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- ------- -------
<S> <C> <C>
19,456,197 116,187 102,402
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
27. Financial Data Schedule
(b) Reports on Form 8-K - None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRUE NORTH COMMUNICATIONS INC.
(Registrant)
/S/ John J. Rezich
------------------------------------------
(Signature)
John J. Rezich
Controller and Chief Accounting Officer
Date: August 14, 1995
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Jun-30-1995
<CASH> 32,054
<SECURITIES> 5,452
<RECEIVABLES> 342,632
<ALLOWANCES> 3,148
<INVENTORY> 0
<CURRENT-ASSETS> 426,635
<PP&E> 124,609
<DEPRECIATION> 80,422
<TOTAL-ASSETS> 727,447
<CURRENT-LIABILITIES> 459,576
<BONDS> 4,994
<COMMON> 7,830
0
0
<OTHER-SE> 197,598
<TOTAL-LIABILITY-AND-EQUITY> 727,447
<SALES> 206,246
<TOTAL-REVENUES> 206,246
<CGS> 0
<TOTAL-COSTS> 200,943
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 3,325
<INCOME-PRETAX> 1,923
<INCOME-TAX> 1,707
<INCOME-CONTINUING> 328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 328
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
