<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
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 Identification No.)
incorporation or organization)
101 East Erie Street, Chicago, Illinois 60611
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (312) 425-6500
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 ____
----
The number of shares of Common Stock, 33-1/3 cents par value, outstanding as of
May 13, 1999 was 47,365,047.
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Unaudited Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 1999 and 1998 3
Consolidated Condensed Balance Sheets as of March 31, 1999
(Unaudited) and December 31, 1998 4
Unaudited Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1999 and 1998 5
Unaudited Notes to Condensed Consolidated Financial Statements for
the Three Months Ended March 31, 1999 and 1998 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Revenues $303,446 $287,761
------------------- -------------------
Operating Expenses:
Salaries and employee benefits 202,464 190,852
Office and general 89,975 85,335
------------------- -------------------
Total operating expenses 292,439 276,187
------------------- -------------------
Operating Income 11,007 11,574
Other Income (Expense) 1,356 (3,356)
------------------- -------------------
Income Before Taxes, Minority Interest and
Equity Income 12,363 8,218
Provision For Taxes 5,373 4,058
------------------- -------------------
Income Before Minority Interest and Equity Income 6,990 4,160
Minority Interest Expense (27) (1,053)
Equity Income 210 533
------------------- -------------------
Net Income $ 7,173 $ 3,640
=================== ===================
Per Share Information:
- ---------------------
Basic earnings per share $0.16 $0.08
=================== ===================
Average common shares outstanding 46,090 45,353
=================== ===================
Diluted earnings per share $0.15 $0.08
=================== ===================
Average common shares outstanding, assuming dilution 47,729 47,208
=================== ===================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------------- ------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 122,442 $ 88,685
Marketable securities 133,572 143,863
Accounts receivable, net 870,153 873,675
Other current assets 93,791 76,173
----------------------- ------------------------
Total current assets 1,219,958 1,182,396
----------------------- ------------------------
NONCURRENT ASSETS:
Property and equipment, net 127,268 129,815
Goodwill, net 442,448 413,395
Investment in affiliated companies 27,067 22,335
Other noncurrent assets 37,863 41,137
----------------------- ------------------------
Total noncurrent assets 634,646 606,682
----------------------- ------------------------
Total assets $1,854,604 $1,789,078
======================= ========================
CURRENT LIABILITIES:
Accounts payable $ 940,445 $1,016,919
Short-term bank borrowings 254,577 115,452
Liability for federal and foreign taxes 19,058 23,467
Current portion of long-term debt 44,716 43,353
Accrued expenses 120,550 149,297
----------------------- ------------------------
Total current liabilities 1,379,346 1,348,488
----------------------- ------------------------
NONCURRENT LIABILITIES:
Long-term debt 13,688 15,300
Liability for deferred compensation 65,844 69,193
Other noncurrent liabilities 90,319 52,491
----------------------- ------------------------
Total noncurrent liabilities 169,851 136,984
----------------------- ------------------------
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock 15,698 15,479
Paid-in capital 249,987 231,899
Retained earnings 70,647 70,496
Less-Treasury stock (525) (5,150)
Deferred compensation (3,589) --
Unrealized gain (loss) on marketable securities (296) 5,102
Cumulative translation adjustment (26,515) (14,220)
----------------------- ------------------------
Total stockholders' equity 305,407 303,606
----------------------- ------------------------
Total liabilities and stockholders' equity $1,854,604 $1,789,078
======================= ========================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income $ 7,173 $ 3,640
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 12,722 12,206
Equity income (210) (533)
Other 1,827 2,416
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable 1,950 34,111
Other current assets (18,650) (17,168)
Accounts payable and accrued expenses (96,480) (142,667)
------------- ---------------
Net cash used by operating activities. (91,668) (107,995)
------------- ---------------
Cash flows used by investing activities:
Purchase of property and equipment (8,541) (8,370)
Acquisitions and investments in businesses (35,339) (15,080)
------------- ---------------
Net cash used in investing activities (43,880) (23,450)
------------- ---------------
Cash flows provided (used by) financing activities:
Increase (decrease) in short-term bank borrowings 139,126 113,184
Proceeds from issuance of common stock 1,812 4,712
Proceeds from issuance of long-term debt 852 123
Payments of long-term debt (1,101) (4,302)
Proceeds from initial public offering of subsidiary 42,048 --
Cash dividends paid (7,022) (6,635)
Payments for purchases of common stock (3,842) --
---------------- ----------------
Net cash provided by financing activities 171,873 107,082
------------- ---------------
Effects of exchange rates on cash (2,568) (421)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 33,757 (24,784)
Cash and cash equivalents, at beginning of year 88,685 109,285
------------- ---------------
Cash and cash equivalents, at end of period $122,442 $ 84,501
============= ===============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Amounts in thousands, except per share amounts)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by True North without audit, and include all adjustments, consisting
only of normal recurring accruals, which True North considers necessary for a
fair presentation. The condensed consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in
True North's 1998 Annual Report on Form 10-K.
The operating results for the first three months of the year are not
necessarily indicative of the results for the year or other interim periods.
2. Acquisitions
In February 1999, True North issued 1,201 shares of its Common Stock for
all the outstanding capital stock of The Financial Relations Board, Inc.
("FRB"), a Chicago-based investor relations firm. This acquisition has been
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements have been restated for all periods prior to the
acquisition.
The following summarizes the separate results of True North and FRB prior
to the restatement:
<TABLE>
<CAPTION>
True North FRB Combined
---------- --- --------
Year Ended December 31, 1998
<S> <C> <C> <C>
Revenues $1,242,309 $31,974 $1,274,283
Net Income (Loss) 36,115 (8,854) 27,261
Year Ended December 31, 1997
Revenues $1,204,887 $35,134 $1,240,021
Net Income (Loss) (50,046) 104 (49,942)
</TABLE>
Included in the 1998 results of FRB are approximately $7,500 of merger
related costs and other expense adjustments.
Prior to the merger, FRB operated as an S-Corporation, therefore, their
results do not reflect corporate income taxes. Pro-forma net income for FRB,
assuming income taxes were charged (or credited) to operations, would be
$(4,781) and $56 for the years ended December 31, 1998 and 1997, respectively.
In the first three months of 1999, the cost of businesses acquired by True
North in transactions accounted for as purchases was $13,537, including 402
shares of Common Stock and Treasury Stock. The excess of the purchase price over
the fair value of net tangible assets acquired was $13,087 and is being
amortized over periods not exceeding 40 years.
6
<PAGE>
3. Comprehensive Income
True North classifies its comprehensive income, which includes foreign
currency translation adjustments and unrealized gains and losses on marketable
securities available for sale, as a separate component of stockholders' equity.
Total comprehensive income for the three months ended March 31, 1999 and 1998
was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
Net income $ 7,173 $ 3,640
Foreign currency translation (12,295) (2,520)
Unrealized gains (losses) on marketable securities,
net of deferred income taxes of $(4,573) and
$10,291, respectively (5,398) 12,082
----------------- ----------------
Total comprehensive income $ (10,520) $ 13,202
================= ================
</TABLE>
4. Marketable Securities
At March 31, 1999 and December 31, 1998, True North's marketable securities
consisted of:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- ------------------
<S> <C> <C>
Publicis SA $ 130,367 $ 140,854
DoubleClick, Inc. 3,205 3,009
----------------- ----------------
$ 133,572 $ 143,863
================= ================
</TABLE>
True North has designated its investments in the above securities as
available-for-sale and are carried at fair value, with any unrealized gains or
losses, net of tax, reported as a separate component of comprehensive income.
During the first quarter of 1999, True North sold 100 shares (adjusted for
a 2 for 1 stock split) of DoubleClick, Inc. and realized a pre-tax gain of
$4,070 ($2,300 after-tax or $0.05 per share).
5. Contingencies
On December 2, 1997, Mazda Motor of America, Inc. ("Mazda"), a former
client of True North's subsidiary, Foote, Cone & Belding Advertising, Inc.
("FCB"), initiated an arbitration before the American Arbitration Association in
Los Angeles, California. Mazda seeks indemnity and reimbursement for
liabilities it incurred or expects to incur in connection with automobile lease
advertising that aired in 1996 and 1997. To date, Mazda seeks approximately
$3.0 million in damages arising from Mazda's settlement of claims asserted by
the Federal Trade Commission ("FTC"), various state attorneys general, and a
class of consumers. Mazda has informally indicated that it will seek
indemnification for costs it may incur to settle or defend additional claims
which may be asserted by the FTC and various state attorneys general. The
amount Mazda seeks for these additional claims may exceed $5.0 million. FCB
intends to defend Mazda's' claims vigorously. In addition, FCB has filed a
counterclaim in the arbitration seeking approximately $5.5 million in unpaid
commissions for planning and placing advertising during the final months of
FCB's relationship with Mazda. The arbitration hearing is scheduled to commence
on January 24, 2000.
7
<PAGE>
On November 6, 1998, Publicis SA announced its intention to convert True
North's 26.5% investment in Publicis Communication to approximately 792 of its
publicly traded shares. Despite True North's objections, this transaction was
approved by the shareholders of Publicis SA and Publicis Communication in
special shareholders' meetings held in December 1998 and closed shortly
thereafter. As a result, True North now owns approximately 8.8% of Publicis SA,
which is recorded as an "available-for-sale security" in marketable securities.
The book value of True North's 26.5% investment in Publicis Communication
at the date of this transaction was $164,513. The fair value of the Publicis SA
shares (based upon a December 14, 1998 Publicis closing price of $169.15 per
share) was $133,981. Accordingly, True North recorded a pretax loss of $30,532
in the fourth quarter of 1998 as a result of the involuntary conversion of its
investment in Publicis Communication to shares of Publicis SA. In addition,
True North recorded a deferred tax obligation of approximately $3,139 upon the
exchange. As a result, the after tax impact of this transaction was a loss of
approximately $33,671.
On May 5, 1999 Publicis SA, a greater than 5% shareholder, filed
counterclaims in international arbitration proceedings which had been instituted
by True North with the London Court of International Arbitration. Publicis SA
seeks damages in the amount of 382,000 French Francs (approximately $62,000) for
among other things, the alleged breaches of the May 1997 Separation Agreement
between the parties and other actions which Publicis SA alleges creates
liabilities associated with the arbitration proceedings. The counterclaims
follow True North's direct claims against Publicis SA in excess of $160,000 for
alleged breaches by Publicis SA of its obligations under the May 1997 Separation
Agreement and for additional compensation for its investment in Publicis
Communication. True North believes it has meritorious defenses to Publicis'
counterclaims and intends to vigorously defend them.
True North is a party to several other lawsuits incidental to its business.
It is not possible at the present time to estimate the ultimate liability, if
any, of True North with respect to such litigation; however, management believes
that any ultimate liability will not be material in relation to True North's
consolidated results of operations or financial position.
6. Subsidiary Initial Public Offering
Effective February 10, 1999, a majority-owned subsidiary of True North,
Modem Media . Poppe Tyson, Inc. ("MMPT") completed an initial public offering
("IPO") of its Common Stock. The number of shares issued was 2,990 at a price of
$16 per share, with net proceeds totaling $42,048. As a result of the IPO, True
North now owns approximately 51% of MMPT, down from its previous 70% ownership,
and controls approximately 80% of the related stockholder votes. MMPT will use
the proceeds from the IPO for working capital and capital expenditures.
As a result of this transaction, True North recorded a $2,638 gain, net
of $2,031 of deferred income taxes, as a credit to stockholders' equity.
7. Stock-Based Compensation Plans
Effective in 1998, True North initiated a Restricted Stock Program for
certain key employees whereby participants of the program can elect to exchange
one-third of their executive cash incentive compensation for 115% of such cash
compensation payable in restricted stock of the Company. One-third of the
shares vest upon grant and the remaining shares vest equally over the following
two years.
During the first quarter of 1999, 217 shares of restricted stock were
issued. The shares issued under this plan were recorded at their market value on
date of grant with a corresponding charge to stockholders' equity for the
unearned portion. The unearned portion is being amortized as compensation
expense on a straight-line basis over the vesting period.
8
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Certain statements contained in this Form 10-Q under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" constitute "forward-looking statements" within the meaning of
Section 21E(i)(1) of the Securities Exchange Act of 1934. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results of the company to be materially different
from any future results expressed or implied by these statements. Such factors
include, among other things, the following: general economic and business
conditions, changes in demand for the company's services, changes in
competition, the ability of the company to integrate acquisitions or complete
future acquisitions, interest rate fluctuations, dependence upon and
availability of qualified personnel, and changes in government regulation. In
light of these and other uncertainties, the forward-looking statements included
in this document should not be regarded as a representation by the Company that
the Company's plans and objectives will be achieved.
THREE MONTHS ENDED MARCH 31, 1999 VERSUS 1998
- ---------------------------------------------
Results of Operations
- ---------------------
Net income for the first three months of 1999 was $7,173 or $0.15 per share
on a diluted basis. This compares to net income of $3,640 or $0.08 per share in
the first three months of 1998. The results for 1998 have been restated to
reflect True North's February, 1999 pooling of interests with FRB.
Consolidated revenues increased $15,685 or 5.5% to $303,446 in the first
quarter of 1999 from $287,761 in the comparable period in 1998. Revenues from
the U.S. operations increased $12,229 or 5.7% to $225,980 while international
revenues increased 4.7% to $77,466. Most of the worldwide growth in revenues
was due to acquisitions while changes in foreign currency rates had a slight
negative impact on international operations. Excluding acquisitions,
divestitures and the effects of foreign currency translation, consolidated
revenues increased by 1.4% quarter over quarter.
Salaries and related benefits increased $11,612 or 6.1% in the first three
months of 1999 compared to the same year ago period. Included in the 1999
amount is approximately $1,600 of severance costs associated with staff
reductions primarily in the U.S. Excluding the impact of acquisitions,
divestitures and severance costs, total salaries and related benefits
increased 1.6%.
Office and general expenses increased by 5.4% or $4,640 in the first
quarter of 1999 over 1998. Excluding the impact of acquisitions and
divestitures, this expense category increased 1.4%.
9
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Other Income (Expense) for both comparable periods was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Interest income $ 1,622 $ 1,275
Interest expense (4,388) (4,631)
Gain on sale of marketable securities and other 4,122 --
-------------- ---------------
$ 1,356 $ (3,356)
============== ===============
</TABLE>
Interest income increased by $347 in 1999 compared to 1998 due primarily to
investments purchased by MMPT with the proceeds from their initial public
offering in February, 1999. Interest expense decreased by $243 in the first
three months of 1999 versus 1998 due primarily to lower average interest rates
as well as lower average debt levels early in the quarter. During the first
quarter of 1999, True North recognized a pre-tax gain of $4,070 ($2,300 after-
tax or $0.05 per share) on the sale of a portion of its holdings in DoubleClick,
Inc.
The effective tax rate in the first three months of 1999 was 43.5% versus
49.4% in 1998. The effective rate in 1998 was negatively impacted by losses of
foreign subsidiaries with no corresponding tax benefit.
Minority interest expense was $27 in 1999 compared to $1,053 in 1998. This
decrease is due primarily to lower operating results in certain Latin American
and European operations.
Equity income decreased by $323 as a result of the Company no longer
reflecting an equity pick-up in its investment in Publicis.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1999, the Company's cash and cash equivalents totaled
$122,442, which is an increase of $33,757 over the 1998 year-end balances of
$88,685. The increase is due primarily to the proceeds received by MMPT from the
February 1999 initial public offering of its common stock.
Operating Activities
- --------------------
True North's funds from operating activities consist primarily of net
income adjusted for non-cash items, including depreciation and amortization, and
changes in operating assets and liabilities. The net cash used by operating
activities in the first quarter of 1999 was $91,668. This reflects payments
typically made in the first quarter for bonuses and contributions to profit
sharing plans for the prior year performance. The first quarter generally
represents the lowest period of the year for client spending on media
placements. It also includes production costs of client commercials which
will be shown later in the year with such costs billed to clients when the
commercials are completed.
10
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Investing Activities
- --------------------
True North's net capital expenditures for property and equipment were
$8,541 for the first three months of 1999. These expenditures were primarily
related to the Company's worldwide investment in technology coupled with
leasehold improvements related to office moves.
In the first three months of 1999, True North acquired several companies to
enhance its network, primarily in the U.S. These acquisitions were financed by
the issuance of 402 shares of Common Stock, Treasury Stock and additional short-
term borrowings.
Financing Activities
- --------------------
The increase in short-term borrowings reflects the higher level of
commercial production activity as well as a general slowing of accounts
receivable collection during the first quarter of the year.
True North has reached a tentative agreement to refinance two three-year
term loans that mature on May 24, 1999 at terms more favorable than the existing
term loans. The refinancing will be for $25,000. On May 6, 1999 True North
received confirmations from its credit banks that the $75,000 364 day credit
facility expiring on May 29, 1999 will be refinanced at terms similar to the
maturing facility.
At March 31, 1999 True North was in compliance with all covenants and
conditions related to these agreements.
Year 2000 Compliance
- --------------------
True North relies on both information technology ("IT") and non-IT computer
systems in its operations. Critical IT systems include True North's operating
and accounting systems, such as IT software applications that allow True North
to maintain client advertising information and to communicate with its vendors
and clients. The non-IT systems are primarily telecommunications systems and
the embedded microprocessors that control building systems, such as security
systems, lighting, fire and safety systems, and heating, ventilating and air
condition systems.
In 1997, True North began to address the year 2000 compliance issue (that
is, the fact that some systems may fail or produce inaccurate results using
dates in or around the year 2000). True North has formed a year 2000 task force
under its Chief Information Officer and this task force has developed a
comprehensive program to test the Company's hardware and software applications
for potential year 2000 problems. True North is assessing the effect of the
year 2000 compliance issue on its non-IT systems and intends to replace non-IT
systems as necessary to become year 2000 ready by December 1999.
True North licenses substantially all of its systems from third party
software vendors. True North has received confirmation of year 2000 compliance
from suppliers of its primary business and financial systems. Internal testing,
to the extent practical, will be done to ensure that such systems will function
properly. Testing of all systems is expected to be done by June 30, 1999, and
remediation should be completed by August 31, 1999.
True North is developing written contingency plans to address the risks created
by the year 2000 compliance issue. These plans include procuring alternative
vendors, if available, should True North conclude that an existing supplier will
not be year 2000 ready. True North is scheduled to complete these contingency
plans by July 1999.
11
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
During 1998 and 1997, True North incurred less than $0.5 million of
expenses related to this issue in each year, and expects to incur an additional
$0.5 million to $1.0 million of such expenses in 1999. Capital spending to
replace non-compliant hardware and software is expected to be approximately $5
million in 1999. Funding for year 2000 remediation will be generated from on-
going operations and available borrowings under the Company's various credit
agreements.
True North is currently unaware of any events, trends, or condition
regarding this issue that may have a material effect on True North's results of
operations, liquidity, and financial position. However, there can be no
assurance that year 2000 remediation by True North or third parties will be
properly and timely completed and failure to do so could have a material adverse
effect on True North's financial condition.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
During 1993, True North entered into an interest rate swap contract with a
bank which became effective in June 1994. Under this arrangement, True North
receives LIBOR and pays a fixed interest rate of 6.1% on a notional amount of
$25,000 in borrowing during the period from June 1994 to June 1999. At March 31,
1999, the carrying and fair market values of this interest rate swap were $54
and $(69), respectively. Other than this interest rate swap contract, True
North has not entered into any market risk sensitive contracts during the past
three years.
True North's consolidated financial statements are denominated in U.S.
dollars. In 1998 and in the first quarter of 1999, True North derived
approximately 28% of its revenues from operations outside of the United States.
Currency fluctuations may give rise to translation gains and losses when
financial statements of foreign operating units are translated into U.S.
dollars. Significant strengthening of the U.S. dollar against major foreign
currencies could have an adverse impact on True North's results of operations.
In general, True North incurs most of its costs to support the related revenues
in the same currency in which these revenues are billed, thereby reducing
exposure to currency fluctuations. In the past, True North has not hedged
foreign currency profits into U.S. dollars, because its management has believed
that, over time, the costs of a hedging program outweigh any benefit of greater
predictability in the Company's U.S. dollar denominated profits. However, as
True North continues to extend the depth and breadth of its foreign operations,
management will from time-to-time reconsider the issue of whether a foreign
currency hedging program would be beneficial to its operations.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response to this item is incorporated by reference to Note 5 to the
Registrant's unaudited notes to financial statements in this Quarterly
Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
27.1 Financial Data Schedule.
(b) Reports on Form 8-K -
(1) On April 16, 1999, the Registrant reported certain recent
events concerning its Rights Agreement.
(2) On April 13, 1999, the Registrant reported certain recent
events concerning management changes.
13
<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)
Kevin J. Smith
---------------------------------------
(Signature)
Kevin J. Smith
Senior Vice President
Chief Accounting Officer
Date: May 14, 1999
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND CONDENSED
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999
INCLUDED IN THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 122,442
<SECURITIES> 133,572
<RECEIVABLES> 882,386
<ALLOWANCES> 12,233
<INVENTORY> 0
<CURRENT-ASSETS> 1,219,958
<PP&E> 309,421
<DEPRECIATION> 182,153
<TOTAL-ASSETS> 1,854,604
<CURRENT-LIABILITIES> 1,379,346
<BONDS> 0
0
0
<COMMON> 265,160
<OTHER-SE> 40,247
<TOTAL-LIABILITY-AND-EQUITY> 1,854,604
<SALES> 0
<TOTAL-REVENUES> 303,446
<CGS> 0
<TOTAL-COSTS> 291,808
<OTHER-EXPENSES> (5,744)
<LOSS-PROVISION> 631
<INTEREST-EXPENSE> 4,388
<INCOME-PRETAX> 12,363
<INCOME-TAX> 5,373
<INCOME-CONTINUING> 7,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,173
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.15
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
THIS DATA HAS BEEN RESTATED AS A RESULT OF A POOLING OF INTERESTS TRANSACTION
CONSUMATED IN THE FIRST QUARTER OF 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 84,501
<SECURITIES> 0
<RECEIVABLES> 781,735
<ALLOWANCES> 9,566
<INVENTORY> 0
<CURRENT-ASSETS> 965,267
<PP&E> 308,661
<DEPRECIATION> 184,793
<TOTAL-ASSETS> 1,667,030
<CURRENT-LIABILITIES> 1,206,988
<BONDS> 34,145
0
0
<COMMON> 221,129
<OTHER-SE> 62,995
<TOTAL-LIABILITY-AND-EQUITY> 1,667,030
<SALES> 0
<TOTAL-REVENUES> 287,761
<CGS> 0
<TOTAL-COSTS> 275,259
<OTHER-EXPENSES> (1,275)
<LOSS-PROVISION> 928
<INTEREST-EXPENSE> 4,631
<INCOME-PRETAX> 8,218
<INCOME-TAX> 4,058
<INCOME-CONTINUING> 3,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,640
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
