<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1995
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) 751-7227
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, 1996 was $416,994,008.
There were 23,533,232 shares of Registrant's 33 1/3 cents per share par value
Common Stock outstanding as of March 22, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to shareholders for the year ended
December 31, 1995 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 15, 1996 are incorporated by
reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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, 1995 (the "1995
Annual Report") on page 1.
REVENUES
Response to this item is incorporated by reference to pages 1 and 2 of the
Registrant's 1995 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 16 of the
Registrant's 1995 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 is
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
18 of the Registrant's 1995 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 Publicis Relationship section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 14 and 5 through 6, respectively of the 1995 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 1995 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Response to this item is incorporated by reference to pages 2 and 3 of the
Registrant's 1995 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, 5 and 6 of
the Registrant's 1995 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 1995 Annual Report are incorporated
herein by reference:
Consolidated Balance Sheets--December 31, 1994 and 1995
Consolidated Income Statements--Years ended December 31, 1993, 1994 and
1995
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1993, 1994 and 1995
Consolidated Statements of Cash Flows--Years ended December 31, 1993, 1994
and 1995
Notes to Consolidated Financial Statements--December 31, 1995
Unaudited Quarterly Financial Data--Years ended December 31, 1994 and 1995
Report of Independent Public Accountants
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 15, 1996
(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.
MITCHELL T. ENGEL (43) --Executive Vice President,
Director of Corporate Operations
DALE F. PERONA (50) --Vice President,
Treasurer and Secretary
JOHN J. REZICH (40) --Controller
(Chief Accounting Officer)
2
<PAGE>
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 1995 and the first quarter of 1996:
<TABLE>
<CAPTION>
DATE OF REPORT DESCRIPTION OF REPORTABLE EVENT
-------------- -------------------------------
<C> <S>
February 29, 1996 Under Item 5, Registrant reported the termination of its
alliance agreements with Publicis Communication.
</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 1995 Annual Report on pages 6 through 22 are
incorporated herein by reference in Item 8:
Consolidated Balance Sheets--December 31, 1994 and 1995
Consolidated Statements of Income--Years ended December 31, 1993, 1994 and
1995
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1993, 1994 and 1995
Consolidated Statements of Cash Flows--Years ended December 31, 1993, 1994
and 1995
Notes to Consolidated Financial Statements--December 31, 1995
Report of Independent Public Accountants
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 February 13, 1996. 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, and 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. 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 states 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,
February 13, 1996.
6
<PAGE>
FORM 10-K -- ITEM 14(A)(1)
NOTE A--VALUATION ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
ADJUSTMENTS
BALANCE ADDITIONS AND BALANCE
AT CHARGED TO RECLASSI- AT END
BEGINNING COSTS AND FICATIONS OF
CLASSIFICATION OF PERIOD EXPENSES (DEDUCTIONS) (1) PERIOD
-------------- --------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS--
CURRENT
Year Ended December 31,
1993.................... $5,704 $1,107 $(1,119) $ 68 $5,760
====== ====== ======= ====== ======
Year Ended December 31,
1994.................... $5,760 $ 781 $(3,294) $ 53 $3,300
====== ====== ======= ====== ======
Year Ended December 31,
1995.................... $3,300 $ (290) $ (274) $1,921 $4,657
====== ====== ======= ====== ======
</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 29, 1996
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 29, 1996
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 11
SUMMARY OF CALCULATIONS OF EARNINGS PER SHARE
For the Years Ended December 31, 1993, 1994 and 1995
I. EARNINGS PER SHARE--PRIMARY CALCULATION
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
A. Net income (loss) $25,714 $30,277 $19,653
======= ======= =======
Weighted average common shares
outstanding 23,146 23,275 23,104
Average common share equivalents
outstanding:
Treasury share impact of Publicis
shares (1,155) (1,176) (978)
Stock options 416 579 416
Contingent issuances (Note 1) -- -- --
------- ------- -------
B. Weighted average common and common
equivalent shares outstanding 22,407 22,678 22,542
======= ======= =======
C. Net income (loss) per share $ 1.15 $ 1.34 $ .87
======= ======= =======
</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>
EXHIBIT 13
LOGO
1995 FINANCIAL REPORT
TRUE NORTH COMMUNICATIONS INC.
101 EAST ERIE STREET
CHICAGO, ILLINOIS
60611
312-751-7227
<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 succeeded Foote, Cone & Belding
Communications, Inc. as the name of the parent holding company. Foote, Cone &
Belding, America's largest single advertising agency brand, continues to
operate as an independent agency brand under the True North parent company
along with other independent agency brands such as Mojo, Bayer Bess
Vanderwarker, Inc., and Borders, Perrin and Norrander.
True North is a 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, which includes the R/GA Digital
Media Group, a leading edge multimedia production company, specializes in
digital marketing services. It provides a full range of interactive media
applications including website development, on-line services, retail
kiosk and television content as well as CD-ROM development for its
clients.
. TN Media Inc.--This business unit is a global network of the Company's
specialists in the planning and buying of media time and space.
. 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 local agency management
from 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
radio, television and print media, the agency brands under the True North
banner also offer their clients such additional services as:
. digital and interactive communications
. sales promotion and direct marketing
. yellow pages directory advertising
. healthcare advertising
. public relations
. Hispanic marketing
. 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.
The Publicis.FCB joint venture, jointly owned by True North and Publicis
Communication, operates fully staffed offices throughout Europe. These offices
handle 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.
The Company's client list includes many well-known national and
international advertisers of consumer and industrial goods and services.
During 1995, the ten largest clients accounted for approximately 43% 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 a variety of employee benefit and training programs designed to
attract and retain personnel who are considered to be industry leaders. As of
December 31, 1995, True North employed 4,369 people in its majority-owned
offices: 2,621 were employed in its domestic offices and 1,748 were employed
in its international offices. Of the 4,369 total employees, 1,597 were engaged
in the creation and production of advertising, 1,130 in account management,
790 in media and research activities, and 852 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, 1994, 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>
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
1995
1st Quarter..................................... $21 13/16 $15 3/4 $.15
2nd Quarter..................................... 20 1/4 17 5/8 .15
3rd Quarter..................................... 21 1/2 19 .15
4th Quarter..................................... 20 5/8 18 .15
</TABLE>
At December 31, 1995 True North had approximately 6,900 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>
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..................... $ .08 $ .46 $ .18 $ .62
1995
Revenues................................. $95,389 $110,857 $108,654 $124,153
Income (loss) before provision for income
taxes................................... (6,185) 8,117 6,136 6,683
Net income (loss)........................ (11,028) 11,356 4,194 15,131
Net income (loss) per share.............. $ (.49) $ .51 $ .19 $ .67
</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>
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C> <C> <C> <C> <C>
Revenues....................... $341,987 $353,340 $372,666 $403,690 $439,053
Net income (loss).............. (19,148) 21,728 25,714 30,277 19,653
Net income (loss) per share.... (.91) 1.00 1.15 1.34 .87
Dividends per share............ .60 .60 .60 .60 .60
<CAPTION>
AT DECEMBER 31,
- ---------------
<S> <C> <C> <C> <C> <C>
Working capital................ 866 5,310 13,745 (16,809) (46,503)
Total assets................... 591,442 589,359 637,887 673,744 766,102
Long-term debt (includes
current portion).............. 40,088 35,652 36,255 10,885 5,601
Total liabilities.............. 428,401 406,032 437,857 465,987 544,008
Stockholders' equity........... 163,041 183,327 200,030 207,757 222,094
Book value per share........... 7.26 7.95 8.62 9.10 9.51
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS--1995 COMPARED TO 1994
Results for 1995 include unusual items. As further disclosed below and in
Note 14 to the consolidated financial statements, these unusual items resulted
in charges against after-tax earnings totaling $13,376 or $.60 per share.
Revenues from True North's consolidated operations increased 8.8% from
$403,690 in 1994 to $439,053 in 1995. U.S. revenues increased 5.6% to $323,921
and foreign revenues increased 18.8% to $115,132. Excluding the impact of
acquisitions, consolidated revenues would have increased 3.2%.
During 1995, True North acquired the R/GA Digital Media Group and several
advertising agencies in North America, Latin America and the Pacific Rim.
These acquisitions contributed $22,333 and $3,628 to the Company's revenues
and pretax income, respectively.
The 1995 percentage increases in salaries and employee benefit expenses and
office and general expenses were higher than the percentage increase in
consolidated revenues due to the following:
. During 1995, True North continued to build its competency in technology
by staffing new TN Technologies units in its offices and through the
acquisition of R/GA. The salaries and employee benefit expense to revenue
ratio for these units is higher than levels typical of the Company's
established advertising agencies. In the near term, True North
anticipates that its salaries and employee benefits expenses might
increase at a rate higher than its rate of revenue growth as it continues
to emphasize the development of its TN Technologies units.
. During 1995, True North embarked upon an aggressive program to upgrade
the staffing of its offices in the Asia-Pacific region. True North
believes that this region has the greatest opportunity for growth over
the next several years compared to other areas of the world. As a result,
1995 salaries and employee benefits expense include higher than normal
severance charges as the Company changed personnel and management in
several of its offices in this region.
. The rate of increase in office and general expense reflects the Company's
commitment to developing state of the art proprietary digital technology
to design and produce all forms of advertising. True North will continue
to invest in its TN Technologies units to maintain its competitive edge.
For this reason, the Company anticipates that, in the near term, its rate
of growth of office and general expenses might be higher than its revenue
growth rate.
. Office and general expenses in 1995 were favorably impacted by the
reduction of $1,100 of accruals established in prior years which were no
longer deemed to be necessary.
The provision for doubtful accounts was a credit of $290 in 1995 due to the
favorable settlement of a $600 trade receivable which had previously been
fully reserved.
3
<PAGE>
As more fully explained in Note 14, True North recorded a pretax charge of
$10,185 in the first quarter of 1995 related to the closure of an FCB
operation in the Pacific region and to accrue for charges related to its
disputes with Publicis. The majority of this amount was paid in 1995. The
remainder will be paid in 1996.
The increase in interest expense between years is due to higher average
borrowings in 1995 as well as higher average interest rates.
The decline in other income, which in 1995 primarily represents interest
income, is due to the fact that in 1994 other income includes gains recorded
on 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 1995 was 25.1% in 1995 compared to 44.6% in 1994.
During 1995, the Company settled outstanding obligations in several tax
jurisdictions on a favorable basis. As a result, True North recorded a
reversal of tax reserves amounting to $6,214 in 1995. The various elements of
the tax provision for both 1994 and 1995 are more fully explained in Note 13.
Equity income, which consists primarily of True North's share of European
operations, was $9,165 in 1995 compared to $10,203 in 1994. In the first
quarter of 1995, Publicis.FCB Europe recorded a charge related to the
previously disclosed restructuring of its Italian operations. The
restructuring is expected to be completed in 1996. True North's share of this
charge, which is reflected as a reduction of equity income, was $7,034. Equity
income also includes a reversal of a previously established estimation reserve
related to the Company's European investment amounting to $1,306. Excluding
these one-time items, True North's share of European operations increased by
approximately $4,700 between years: $1,500 of this improvement was due to
favorable currency exchange rates in 1995 as compared to 1994, and the
remainder of this improvement was due to improvements in the operating results
of its Swiss, British and French operating units.
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, 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 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 restructuring of the Italian operations and the continued adverse economic
climate in that country.
4
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities have historically represented the
Company's primary source of funding for investment activities. Over the past
five years True North has emphasized the timely collection of accounts
receivable and the careful management of its accounts receivable to accounts
payable ratio, resulting in an optimum accounts receivable to accounts payable
ratio at the end of 1994. During 1995, True North experienced a shift in
client spending from media to production work. Media costs are typically
billed to and collected from clients before payment is due to the media. In
general, production work requires that the agency incur and pay costs that it
can bill to its clients once the related work is completed. As a result of
this shift in client spending patterns, during 1995 True North's accounts
receivable to accounts payable ratio increased as did its investment in
expenditures billable to clients, resulting in lower cash flows from operating
activities. True North continues to review its billing and payment procedures
and believes that this change in client spending patterns will not result in
further increases in its accounts receivable to accounts payable ratio.
The pace of True North's investment spending continues to grow as the
Company has focused its efforts in two areas:
. Capital expenditures--the 1995 increase in capital expenditures was
driven by the relocation of True North's New York office and by the
Company's efforts to maintain its competitive edge in providing digital
marketing services. In the future, the Company anticipates that capital
expenditures will be at levels lower than 1995, because the New York
office relocation has been completed, but higher than 1993 and 1994
levels due to True North's commitment to maintain its competitive edge in
providing digital marketing services.
. Purchase of subsidiaries and interests in affiliated companies--True
North continues to contemplate strategic acquisitions to enhance its
worldwide network. During 1995, True North completed the acquisition of
the R/GA Digital Media Group as well as several agencies in North
America, Latin America and the Pacific rim. These acquisitions were
financed through a combination of existing cash balances and the issuance
of short-term borrowings. Future acquisitions may be financed through a
combination of cash from existing operations, and the issuance of stock
and long-term borrowings.
During 1995, True North liquidated the majority of its marketable securities
portfolio and issued short-term borrowings to finance its investment
activities. In addition, as described in Note 6, it improved its access to
long-term financing by entering into a $90 million Revolving Credit Agreement.
True North has paid cash dividends at an annual rate of $.60 per share over
the past eight 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 operations will be adequate to continue payment of
dividends at similar levels in 1996.
PUBLICIS RELATIONSHIP
As previously disclosed, in September 1994 True North initiated
international arbitration proceedings against Publicis S.A. ("PSA"), Publicis
Communication ("PC") and Publicis.FCB B.V. ("PBV"). True North contends in
these proceedings, which remain pending, that one or more of the respondents
failed to comply with provisions of the Master Alliance Agreement and related
agreements creating the alliance with Publicis (the "Alliance Agreements") in
relation to certain unauthorized business acquisitions.
In February 1995, True North received a letter from Publicis Communication
purporting to terminate all the Alliance Agreements, effective July 24, 1995.
Subsequently, Publicis Communication repeatedly confirmed its purported
termination of the agreements.
In March 1995, PSA and PC informed the Company that they intended to assert
various counterclaims against the Company in the arbitration. PSA and PC
thereby initiated an informal dispute resolution process for the counterclaims
that must precede arbitration. PSA and PC have not completed this process or
presented the counterclaims in the pending arbitration.
5
<PAGE>
As previously disclosed, on April 12, 1995, the parties to the arbitration
agreed to suspend all proceedings in connection with the arbitration and to
work together to seek a resolution of their disputes (the "litigation
standstill agreement"). As part of this agreement, Publicis agreed to postpone
the effective date of its purported termination of the Alliance Agreements
until February 29, 1996. The litigation standstill agreement terminated by its
own terms on December 31, 1995. Thereafter, representatives of True North
informed the arbitrators that settlement discussions were continuing and
requested that the arbitrators continue the suspension of the arbitration
proceedings for a short time longer.
On February 29, 1996 True North informed Publicis that, while in no way
consenting to Publicis' termination action which True North considers wrongful
and in violation of the Alliance Agreements, it must view this act of Publicis
as entitling True North to treat all of the Alliance Agreements as finally
terminated thereby discharging True North's remaining obligations under these
agreements.
The Alliance Agreements, among other things, contractually bound True North
and Publicis to work with each other on a worldwide basis. The termination of
the agreements frees both True North and Publicis to pursue their own separate
courses and to do what they view as right for their respective clients and
shareholders, including forming links with other strategic partners.
The termination of the Alliance Agreements does not alter the status that
True North and Publicis have as shareholders in each other or their respective
49% and 51% ownership in the Publicis.FCB European joint venture. The
management of both companies remain committed to serving each other's clients
around the world.
While income derived from its shareholdings in PC and PBV have represented a
significant percentage of True North's net income in recent years and although
it is impossible to predict the future with any degree of certainty, True
North management does not believe that this termination will have a material
adverse impact on its results of operation or financial position. True North
and Publicis are continuing negotiations aimed at resolving their disputes and
at forging a new arrangement between the companies. It is not possible at this
time to predict whether these negotiations will lead to an agreement.
6
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues......................................... $372,666 $403,690 $439,053
Costs and Expenses:
Salaries and employee benefits................. $221,036 $248,955 $280,619
Office and general expenses.................... 109,322 116,903 128,459
Provision for doubtful accounts................ 1,107 781 (290)
Direct marketing cost of goods sold............ 8,199 -- --
Unusual transactions........................... 6,345 -- 10,185
Interest expense............................... 6,388 7,027 8,087
Other (income) expense, net.................... (2,896) (5,972) (2,758)
-------- -------- --------
$349,501 $367,694 $424,302
-------- -------- --------
Income before Provision for Income Taxes......... $ 23,165 $ 35,996 $ 14,751
Provision for Federal, Foreign and State Income
Taxes........................................... 6,618 16,068 3,705
-------- -------- --------
$ 16,547 $ 19,928 $ 11,046
Minority Interest Expense........................ (428) 146 (558)
Equity in Net Earnings of Affiliated Companies... 9,595 10,203 9,165
-------- -------- --------
Net Income....................................... $ 25,714 $ 30,277 $ 19,653
======== ======== ========
Net Income Per Share............................. $ 1.15 $ 1.34 $ .87
======== ======== ========
Weighted Average Number of Common and Common
Equivalent Shares Outstanding................... 22,407 22,678 22,542
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ASSETS 1994 1995
------ -------- --------
<S> <C> <C>
Current Assets:
Cash..................................................... $ 24,598 $ 48,408
Short-term investments and marketable securities......... 52,465 8,573
Accounts receivable, net of reserve for doubtful accounts
of $3,300 in 1994 and $4,657 in 1995.................... 275,851 333,038
Other current assets..................................... 29,814 39,970
-------- --------
$382,728 $429,989
-------- --------
Property and Equipment:
Land and buildings....................................... $ 445 $ 443
Leasehold improvements................................... 48,555 37,872
Furniture and equipment.................................. 83,526 99,809
-------- --------
$132,526 $138,124
Less-Accumulated depreciation and amortization........... (86,866) (83,498)
-------- --------
$ 45,660 $ 54,626
-------- --------
Other Assets:
Goodwill, net of accumulated amortization of $24,133 in
1994 and $28,702 in 1995................................ $ 55,834 $ 84,934
Investment in affiliated companies....................... 177,948 187,456
Other assets............................................. 11,574 9,097
-------- --------
$245,356 $281,487
-------- --------
$673,744 $766,102
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable......................................... $326,789 $371,767
Short-term bank borrowings............................... 7,864 49,982
Liability for federal and foreign taxes on income........ 202 1,810
Current portion of long-term debt........................ 5,389 199
Accrued expenses......................................... 59,293 52,734
-------- --------
$399,537 $476,492
-------- --------
Noncurrent Liabilities:
Long-term debt........................................... $ 5,496 $ 5,402
Liability for deferred compensation...................... 32,508 36,538
Other noncurrent liabilities............................. 21,019 23,968
Deferred income taxes.................................... 7,427 1,608
-------- --------
$ 66,450 $ 67,516
-------- --------
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 23,490 in 1994 and 23,490 in 1995........ 3,915 7,830
Paid-in capital.......................................... 121,708 116,483
Retained earnings........................................ 100,011 105,800
Less--Treasury stock, at cost: 648 shares in 1994; 128 in
1995.................................................... (13,653) (2,661)
Cumulative translation adjustment........................ (4,224) (5,358)
-------- --------
$207,757 $222,094
-------- --------
$673,744 $766,102
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<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,
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)
Net income............ -- -- 19,653 -- -- --
Dividends............. -- -- (13,864) -- -- --
Two-for-one stock
split................ 3,915 (3,915) -- -- -- --
Common stock issued
for stock options.... -- (369) -- 1,301 -- --
Common stock purchased
by Stock Purchase
Plan................. -- (941) -- 9,948 -- --
Treasury stock
purchased............ -- -- -- (257) -- --
Other common stock
issuances............ -- -- -- -- -- --
Translation
adjustment........... -- -- -- -- -- (1,134)
Other................. -- -- -- -- -- --
------ -------- -------- -------- ------- -------
Balance at December 31,
1995................... $7,830 $116,483 $105,800 $ (2,661) $ -- $(5,358)
====== ======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 25,714 $ 30,277 $ 19,653
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Provision for doubtful accounts.............. 1,107 781 (290)
Depreciation and amortization................ 14,928 14,883 17,783
Unrealized (gain) loss on Shandwick
investment.................................. -- (1,877) 424
Deferred compensation expense................ 359 2,794 4,030
Deferred income taxes........................ (1,377) 26 (4,583)
Equity earnings of affiliates................ (9,595) (10,203) (9,165)
Decrease (increase) in accounts receivable... (20,687) (19,498) (56,897)
Increase (decrease) in accounts payable...... 1,584 51,232 43,185
Decrease (increase) in other current assets.. 5,410 2,494 (10,156)
Increase (decrease) in accrued expenses...... 17,163 2,313 (6,559)
Dividends received from affiliated companies. 1,182 1,890 6,321
Other........................................ 883 741 5,721
-------- -------- --------
$ 36,671 $ 75,853 $ 9,467
-------- -------- --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Decrease (increase) in short-term investments
and marketable securities..................... $(19,050) $(11,452) $ 43,468
Increase (decrease) in liability for cash
overdrafts.................................... 15,108 (764) 1,793
Increase (decrease) in short-term bank
borrowings.................................... (484) 2,794 42,118
Additions to long-term debt.................... 5,217 34 --
Repayments of long-term debt................... (1,123) (25,904) (5,393)
Common stock purchased by Stock Purchase Plan.. 730 4,339 9,007
Stock option exercises......................... 1,650 2,416 932
Cash dividends paid............................ (13,895) (13,995) (13,864)
Common stock purchased for treasury............ (818) (16,281) (257)
-------- -------- --------
$(12,665) $(58,813) $ 77,804
-------- -------- --------
CASH PROVIDED BY (USED FOR) INVESTMENT
ACTIVITIES:
Purchase of interest in affiliated companies... $ (902) $ (304) $ (8,114)
Capital expenditures........................... (9,034) (9,716) (27,169)
Purchase of subsidiaries....................... (12,856) (8,533) (28,178)
-------- -------- --------
$(22,792) $(18,553) $(63,461)
-------- -------- --------
Increase (decrease) in cash...................... 1,214 (1,513) 23,810
Balance at beginning of year..................... 24,897 26,111 24,598
-------- -------- --------
Balance at end of year........................... $ 26,111 $ 24,598 $ 48,408
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
10
<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
Nature of Operations--The Company (True North) is a global advertising
business. Pages 1 and 2 of this Annual Report contain a more comprehensive
discussion of the nature of True North's operations.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company 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.
During 1993, 1994 and 1995, True North acquired several agencies. True North
accounted for these acquisitions using the purchase method of accounting.
Acquisitions completed during 1995 contributed $22,333 and $3,628 to the
Company's revenues and pretax income, respectively. These acquisitions, both
individually and in the aggregate, were immaterial to the Company's financial
position.
Use of Estimates--The preparation of these financial statements required the
use of certain estimates by management in determining the Company's assets,
liabilities, revenues and expenses. Actual results could differ from those
estimates.
Income Recognition--True North records revenue when media placements appear
and production costs are billable. 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".
At December 31, 1995, unremitted earnings of foreign subsidiaries and
affiliated companies were approximately $82,424. The Company does not provide
deferred taxes on these earnings because it permanently reinvests 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
carrying value 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 $4,869 in 1993, $5,422 in 1994 and $6,336 in 1995.
Stock Split--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.
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.
11
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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,
1994 and 1995, short-term investments and marketable securities were:
<TABLE>
<CAPTION>
1994 1995
------- ------
<S> <C> <C>
Short-term investments.................................... $46,969 $5,101
5% investment in Shandwick, plc........................... 3,896 3,472
Interest rate swap........................................ 1,600 --
------- ------
$52,465 $8,573
======= ======
</TABLE>
During 1994, the Company converted its non-marketable preferred stock
investment in Shandwick, plc, a publicly-held global public relations company,
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 in 1994 and a loss
of $424 in 1995 were recorded to reflect this investment at quoted market
value at each year-end.
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. During 1995, the Company designated this
financial instrument as a hedge against $25,000 of its borrowings. As a
result, the recorded value of this financial instrument was reclassified to
other assets and is being amortized as an element of interest expense over the
remaining life of the contract. At December 31, 1995, the carrying and fair
market values of this investment were $753 and $(665), respectively.
3. OTHER CURRENT ASSETS
At December 31, 1994 and 1995, other current assets consisted of:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Expenditures billable to clients......................... $15,583 $28,362
Prepaid expenses......................................... 14,231 11,608
------- -------
$29,814 $39,970
======= =======
</TABLE>
4. INVESTMENT IN AFFILIATED COMPANIES
The Company's investment in affiliated companies consists of:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
21% interest in Publicis Communication (26% in 1994)... $ 68,908 $ 73,179
49% interest in Publicis.FCB B.V....................... 97,529 103,247
Other.................................................. 11,511 11,030
-------- --------
$177,948 $187,456
======== ========
</TABLE>
12
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information for affiliated companies is as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Current assets......................................... $768,935 $888,358
Noncurrent assets...................................... 262,722 226,779
Current liabilities.................................... 794,684 808,996
Long-term debt......................................... -- 24
Other noncurrent liabilities........................... 76,894 82,774
Shareholders' equity................................... 160,079 223,343
Revenues............................................... 534,279 617,111
Pretax income.......................................... 49,736 62,670
Net income............................................. 16,778 28,945
</TABLE>
The Company's equity in the net tangible assets of these affiliated
companies was $113,896 at December 31, 1994 and $123,692 at December 31, 1995.
Publicis Conseil, a French advertising agency, is jointly owned by Publicis
Communication (80%) and Publicis.FCB B.V. (20%). Publicis Conseil had total
assets of $356,820 and $411,984 at December 31, 1994 and 1995, and total net
income of $11,966, $10,913, and $14,307 for the years ended December 31, 1993,
1994, and 1995. True North's total investment in Publicis Conseil was
approximately 4% and 3% of its assets at December 31, 1994 and 1995. True
North's share of the net earnings of Publicis Conseil was $3,281, $2,959 and
$3,310 in 1993, 1994, and 1995.
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 $33,249 and $35,042 at December 31, 1994
and 1995, 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 $20,302 in 1994 and $50,381 in 1995, and the maximum amount outstanding
was $39,524 in 1994 and $89,138 in 1995. The weighted average rate for short-
term borrowings was 4.2%, 5.6% and 7.0% in 1993, 1994 and 1995, respectively.
On December 21, 1995 the Company entered into a Revolving Credit Agreement
totaling $90,000 with several banks. This agreement, which expires on December
21, 1998, 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 facility fee of .175% to .300%, depending upon the Company's
financial performance. During 1995, there were no borrowings under this
agreement.
In addition to the Revolving Credit Agreement, the Company had available at
various banks uncommitted lines of credit aggregating approximately $116,472
at December 31, 1995, of which $66,490 was unused. These other lines of credit
are subject to annual renewal and may be withdrawn at the option of the
various banks. There are no commitment fees or compensating balance
requirements under these arrangements. Interest rates are negotiated at the
time of each borrowing.
13
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt consists of:
<TABLE>
<CAPTION>
1994 1995
------- ------
<S> <C> <C>
12.36% senior notes...................................... $ 5,273 $ --
Other notes and obligations.............................. 5,612 5,601
------- ------
$10,885 $5,601
Less portions due within one year........................ (5,389) (199)
------- ------
$ 5,496 $5,402
======= ======
</TABLE>
Scheduled maturities of long-term debt are $199 and $5,402 in 1996 and 1997,
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, plus 50% of
Adjusted Net Income (as defined) from June 30, 1995, a current ratio of
at least .75, an indebtedness (as defined) to capitalization ratio of no
greater than .4, and a fixed charge coverage ratio of at least 1.5.
At December 31, 1995, the Company was in compliance with all covenants and
conditions related to these agreements.
At December 31, 1995, 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.
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--Publicis
Relationship" 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.
14
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 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
Granted.............................. 759 $15.89-$21.25 (759)
Exercised............................ (62) $ 9.44-$14.94
Forfeitures.......................... (138) $ 9.44-$22.63 138
----- -----
Outstanding at December 31, 1995....... 2,592 $ 9.44-$22.94 2,171
===== =====
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". SFAS No. 123 recommends
changes in accounting for employee stock option plans and requires certain
additional footnote disclosures for fiscal 1996, even if the recommended
accounting is not adopted. True North has not yet determined whether it will
adopt this new accounting for stock-based compensation plans.
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, 1995, 30,000 shares of
the True North's unissued preferred stock were reserved for issuance upon
exercise of these rights.
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 fair
market value.
The Board of Directors has the flexibility to (i) redeem outstanding rights
at a rate of $.005 per right, (ii) adjust the thresholds at which these rights
become exercisable, and, (iii) exclude other persons or groups from triggering
the exercisability of these rights.
15
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. DISTRIBUTION OF EARNINGS AND ASSETS
Information about the Company's operations in different geographic areas for
1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
U.S...................................... $290,386 $306,737 $323,921
Foreign.................................. 82,280 96,953 115,132
Corporate................................ -- -- --
-------- -------- --------
$372,666 $403,690 $439,053
======== ======== ========
Income (Loss) before Provision for Taxes:
U.S...................................... $ 32,171 $ 57,863 $ 41,847
Foreign.................................. 8,386 620 (2,525)
Corporate................................ (17,392) (22,487) (24,571)
-------- -------- --------
$ 23,165 $ 35,996 $ 14,751
======== ======== ========
Net Income:
U.S...................................... $ 22,895 $ 34,834 $ 28,409
Foreign.................................. 14,124 10,059 4,987
Corporate................................ (11,305) (14,616) (13,743)
-------- -------- --------
$ 25,714 $ 30,277 $ 19,653
======== ======== ========
Identifiable Assets:
U.S...................................... $333,310 $338,251 $389,419
Foreign.................................. 300,453 328,806 369,773
Corporate................................ 4,124 6,687 6,910
-------- -------- --------
$637,887 $673,744 $766,102
======== ======== ========
</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 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 and stock purchase plan provisions were $9,925 in 1993, $10,660
in 1994, and $9,264 in 1995.
16
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net pension costs for the supplemental pension plan for 1993, 1994, and 1995
included the following components:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the year........... $111 $104 $110
Interest cost on projected benefit obligation........... 148 216 212
Actual return on plan assets............................ (157) (143) (121)
Net amortization and deferral........................... 9 38 40
---- ---- ----
Total pension cost...................................... $111 $215 $241
==== ==== ====
</TABLE>
The funded status of the supplemental pension plan at December 31, 1994 and
1995 is as follows:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation
(including vested benefits of $2,168 in 1994 and $2,180 in
1995)..................................................... $2,551 $2,536
Actuarial present value of projected benefit obligation.... 2,699 2,716
Plan assets at fair value.................................. 1,794 1,582
</TABLE>
A discount rate of 8%, a salary increase rate of 6% and an investment return
rate of 8% were used in 1993, 1994, and 1995.
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 $4,651 in 1993, $5,949 in 1994,
and $6,913 in 1995.
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 components of expense for these postretirement benefits for 1994, and
1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Service cost (benefits earned during the year)................. $353 $294
Interest costs on accumulated postretirement benefit
obligation.................................................... 321 372
Net amortization and deferral.................................. 247 147
---- ----
Plan assets at fair value...................................... $921 $813
==== ====
</TABLE>
17
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status and amounts recognized for
True North's postretirement benefit plans in its consolidated balance sheet at
December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees............................................... $1,543 $1,494
Fully eligible active participants..................... 529 498
Other active plan participants......................... 2,074 1,860
------ ------
Total accumulated postretirement benefit obligation.... $4,146 $3,852
Plan assets at fair market value......................... -- --
------ ------
Accumulated postretirement benefit obligation in excess
of plan assets.......................................... $4,146 $3,852
Unrecognized net transition obligation................... (4,452) (4,205)
Unrecognized net gain.................................... 1,709 2,743
------ ------
Accrued postretirement benefit cost...................... $1,403 $2,390
====== ======
</TABLE>
A discount rate of 7% and 8.5% was used in 1994 and 1995, respectively. The
rate of increase in covered medical benefits used to determine accumulated
postretirement benefits was 12% in 1994 and 11% in 1995. This rate is assumed
to decrease by 1% per annum to 6% in 2000 and remain constant thereafter. The
medical benefits cost trend rate assumption does not have a significant effect
on the amounts reported. For example, a 1% increase in the medical benefits
cost trend rate would increase the accumulated postretirement benefit
obligation at December 31, 1995 by $330 and 1995 expense by $83.
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 True North's earnings or financial position in either 1994
or 1995.
12. LEASE OBLIGATIONS
True North leases substantially all of its office facilities under operating
leases. Net rental expense on these leases was $33,958 in 1993, $40,219 in
1994 and $40,279 in 1995, after deducting sublease income of $5,972, $6,476,
and $12,571, respectively.
At December 31, 1995, the future minimum rental obligations for these leases
(net of sublease income of approximately $74,424) is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1996...................................... $31,205
1997...................................... 31,926
1998...................................... 31,231
1999...................................... 24,610
2000...................................... 22,773
Thereafter................................ 82,177
</TABLE>
18
<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>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Domestic......................................... $14,778 $35,344 $17,394
Foreign.......................................... 8,387 652 (2,643)
------- ------- -------
$23,165 $35,996 $14,751
======= ======= =======
</TABLE>
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
U.S.--currently payable.......................... $ 2,781 $10,674 $4,088
--deferred..................................... (1,377) 26 (4,583)
Foreign.......................................... 3,865 913 875
State............................................ 1,349 4,455 3,325
------- ------- ------
$ 6,618 $16,068 $3,705
======= ======= ======
</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>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Safe harbor leases............................ $ (479) $ 594 $ (312)
Reversal of tax reserves...................... -- -- (6,214)
Deferred compensation......................... (157) 1,085 (853)
Depreciation.................................. (1,233) 818 922
Lease reserves................................ 581 (1,257) 1,499
Reserve for doubtful accounts................. (63) (933) 259
Other temporary differences, net.............. (26) (281) 116
------- ------- -------
$(1,377) $ 26 $(4,583)
======= ======= =======
</TABLE>
During 1995, True North settled outstanding obligations in several tax
jurisdictions on a favorable basis. As a result, True North recorded a
reversal of tax reserves amounting to $6,214 in 1995. The reconciliation of
the U.S. statutory rate to the effective income tax rate is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ---- -----
<S> <C> <C> <C>
At statutory rate.................................... 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit.............. 3.8 8.0 14.6
Higher (lower) aggregate effective tax rate on
foreign operations.................................. 1.3 (0.1) 6.5
Tax effect of nondeductible amortization............. 4.2 3.3 10.3
Impact of unusual transactions....................... (13.8) -- --
Reversal of excess tax reserves...................... -- -- (42.1)
Other................................................ (1.9) (1.6) .8
----- ---- -----
28.6% 44.6% 25.1%
===== ==== =====
</TABLE>
14. UNUSUAL TRANSACTIONS
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.
19
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
In the first quarter of 1995, the Company recorded a pretax charge of
$10,185. Of this amount, $3,560 related to the closure of an FCB operation in
the Pacific region and $6,625 represented the accrual of charges related to
its disputes with Publicis. Additionally, included in the line, "Equity in Net
Earnings of Affiliated Companies", is a 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 all unusual items
is a loss of $13,376 or $.60 per share.
15. SUPPLEMENTAL CASHFLOW DATA
Interest and taxes paid in 1993, 1994, and 1995 were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------- -------
<S> <C> <C> <C>
Interest........................................... $5,072 $ 8,343 $ 8,086
Taxes.............................................. 7,735 13,919 10,868
</TABLE>
True North maintains only minimal cash balances in its foreign subsidiaries.
As a result, the impact of changes in currency rates on True North's cash
balances is insignificant.
20
<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.
Chairman/CEO Ashwill
Chief Financial Officer
21
<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, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These 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, 1995, and we did not audit the financial statements of Publicis
Communication for the year 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 3%
and 4% of total assets as of December 31, 1995 and 1994, respectively. The
equity in its net earnings was $3,310,000 and $2,959,000 for the years ended
December 31, 1995 and 1994, respectively. 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 was $2,267,000 for
the year 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 the 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, 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.
Arthur Andersen LLP
Chicago, Illinois,
February 13, 1996.
22
<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 by
reference 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, 1996.
<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 1996 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, 1996
/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 /s/ Stephen T. Vehslage
- ------------------------ ------------------------
Laurel Cutler Stephen T. Vehslage
/s/ Maurice Levy /s/ Craig R. Wiggins
- ------------------------ ------------------------
Maurice Levy Craig R. Wiggins
/s/ Newton N. Minow
- ------------------------
Newton N. Minow
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 48,408
<SECURITIES> 8,573
<RECEIVABLES> 337,695
<ALLOWANCES> 4,657
<INVENTORY> 0
<CURRENT-ASSETS> 429,989
<PP&E> 138,124
<DEPRECIATION> 83,498
<TOTAL-ASSETS> 766,102
<CURRENT-LIABILITIES> 476,492
<BONDS> 0
<COMMON> 121,607
0
0
<OTHER-SE> 100,442
<TOTAL-LIABILITY-AND-EQUITY> 766,102
<SALES> 439,053
<TOTAL-REVENUES> 439,053
<CGS> 0
<TOTAL-COSTS> 419,263
<OTHER-EXPENSES> (2,758)
<LOSS-PROVISION> (290)
<INTEREST-EXPENSE> 8,087
<INCOME-PRETAX> 14,751
<INCOME-TAX> 3,705
<INCOME-CONTINUING> 19,653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,653
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
