<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A Amendment No.1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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, 60611-2897
Illinois (Zip code)
(Address of principal executive
offices)
Registrant's telephone number: (312) 425-6500
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, par value 33
1/3 cents per share New York Stock Exchange
</TABLE>
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. [_]
The aggregate market value of Common Stock, 33 1/3 cents par value, held by
non-affiliates of the Registrant, as of March 24, 1999 was $1,288,199,880.
The number of shares of Common Stock, 33 1/3 cents par value, outstanding as
of March 24, 1999 was 46,843,632.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to stockholders for the year
ended December 31, 1998 are incorporated by reference into Parts I and II of
this Form 10-K.
Portions of the Registrant's Proxy Statement relating to its annual meeting
of stockholders scheduled to be held on May 26, 1999 are incorporated by
reference into Part III of this Form 10-K.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Certain statements contained in Registrant's 1998 Annual Report To
Shareholders under the captions "ABOUT TRUE NORTH" and "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.
The Registrant hereby amends Item 14 of its 1998 annual Report on Form 10-K to
include the audited financial statements of Publicis Communication, a 50% or
less owned foreign affiliate of the Registrant.
2
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Item 14(a)(1)--List of Financial Statements: The following consolidated
financial statements of the Registrant and the Independent Public Accountant's
Report covering these financial statements, appearing in the 1998 Financial
Report on pages 10 through 29, are incorporated herein by reference in Item 8:
Consolidated Balance Sheets--December 31, 1997 and 1998
Consolidated Statements of Income--Years ended December 31, 1996, 1997 and
1998
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1996, 1997 and 1998
Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1997
and 1998
Notes to Consolidated Financial Statements--December 31, 1998
Reports of Independent Public Accountants
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.
Item 14(b)--Reports on Form 8-K:
In a report filed on Form 8-K, dated November 5, 1998, the Registrant
reported certain recent events concerning its Rights Agreement under Item 5 -
"Other Events."
In a report filed on Form 8-K, dated February 25, 1999, the Registrant
reported certain recent events concerning board of directors appointments and
management retirements under Item 5 - "Other Events."
In a report filed on Form 8-K, dated March 12, 1999, the Registrant reported
certain recent events concerning its stock repurchase program, fourth quarter,
1998 operating results and new Chairman and Chief Executive Officer under Item
5 - "Other Events."
In a report filed on Form 8-K, dated April 13, 1999, the Registrant reported
certain recent events concerning management changes under Item 5 - "Other
Events."
In a report filed on Form 8-K, dated April 16, 1999, the Registrant reported
certain events concerning its Rights Agreement under Item 5 - "Other Events."
In a report filed on Form 8-K, dated June 14, 1999, the Registrant reported
certain events concerning the sale of its investment in Publicis SA under Item
5 - "Other Events."
Item 14(d) - Publicis Communication Financial Statements
The audited financial statements of Publicis Communication, a 50% or less
owned foreign affiliate of the Registrant, are presented on pages F-1 through F-
38 of this Form 10-KA. These financial statements have been prepared based upon
accounting standards and practices acceptable for external financial reporting
purposes in France and can vary from U.S. accounting standards and practices.
As discussed in Note 6 of Notes to Consolidated Financial Statements of the
Registrant's 1998 Financial Report, True North's 26.5% investment in Publicis
Communication was converted to an approximate 8.8% investment in Publicis SA
effective December 14, 1998. Effective June 14, 1999, the Registrant completed
the sale of its entire investment in Publicis SA for net cash proceeds of
approximately $135.3 million.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: June 25, 1999
True North Communications Inc.
/s/ Kevin J. Smith
By: _________________________________
Kevin J. Smith
Senior Vice President
Chief Accounting Officer
<PAGE>
PUBLICIS COMMUNICATION
REPORT ON THE PROFORMA COMBINED FINANCIAL STATEMENTS
ANNUAL ACCOUNTS - PERIOD ENDING DECEMBER 31, 1998
F-1
<PAGE>
Report on the Proforma Combined Financial Statements
We have audited the attached proforma combined financial statements of the
former Publicis Communication Group for the period from January 1 to December
31, 1998. These proforma combined financial statements are the responsibility of
the group management. Our role is to express an opinion on these financial
statements based on our audit.
We would like to point out that these Proforma combined financial statements
were prepared for information purposes only. They fulfill no legal obligation
whatsoever; following its merger-absorption by Publicis S.A. on December 11,
1998, taking effect retroactively as of January 1, 1998, Publicis Communication
was wound-up and is therefore no longer obliged to prepare its financial
statements for the 1998 fiscal year.
We conducted our audit in accordance with the professional standards applied in
France. These standards require that we plan and perform the audit in order to
obtain a reasonable assurance that the proforma combined financial statements
are free of material misstatements. An audit consists of examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also consists of assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the Proforma combined financial statements give a true and fair
view of the former Publicis Communication Group's financial position and of the
results of its operations for the period from January 1 to December 31, 1998, in
accordance with generally accepted French accounting principles and in the
above-mentioned context.
Paris, March 22, 1999
The Statutory Auditors
Mazars & Guerard
Frederic Allilaire Jose Marette
F-2
<PAGE>
PUBLICIS COMMUNICATION
COMBINED BALANCE SHEET AS OF 12/31/1998
COMPARED TO THE CONSOLIDATED BALANCE SHEET AS OF 12/31/1997
in thousands of francs
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS 12/31/1997 12/31/1998 LIABILITIES 12/31/1997 12/31/1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Assets 760.916 710.158 Shareholders' equity 1.284.971 1.002.753
----------------------- -------------------------
Gross intangible fixed assets 382.553 501.538 Reserves, group share 999.129 779.279
Amortization of intangible fixed assets ( 90.063) ( 171.648) Income group share 217.378 150.089
-------------------------
Gross fixed assets 770.958 826.421 Shareholders' equity 1.216.507 929.368
Depreciation and amortization of fixed assets ( 520.883) ( 539.685) group share 38.294 34.954
-----------------------
Net intangible and tangible fixed assets 542.565 616.626 Income, group share 30.170 38.430
-------------------------
Non-consolidated equity interest 24.961 38.272 Minority interests 68.464 73.385
Equity interest accounted for under the equity
method 157.593 14.966
Amounts due on equity interest 1.386 1.386
Other gross long-term investments 40.728 44.461
Provisions on other long-term investments ( 6.317) ( 5.553)
- ------------------------------------------------------------------------------------------------------------------------------------
Net long-term investments 218.351 93.532 Contingency and loss
provisions 282.931 281.443
- ------------------------------------------------------------------------------------------------------------------------------------
Current assets 4.633.751 4.801.668 Short-term liabilities 3.780.015 4.121.161
-----------------------
Inventories & work-in-progress 269.436 242.761 Short-term financial debt
excluding overdraft 42.536 81.209
Advances & down payments to suppliers 40.260 44.806 Bank overdraft 270.647 209.642
Trade accounts and notes receivables 2.456.964 2.461.420 Advances & down payments
from customers 219.277 244.505
Other current assets 924.391 1.085.155 Accounts Payable 1.840.060 1.959.466
Intergroup receivable accounts 213.300 35.942 Intergroup payable accounts 47.542 123.809
Cash and cash equivalents 729.400 931.584 Other accounts payable 1.359.933 1.502.530
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses, assets 76.505 38.070 Prepaid expenses,
liabilities 123.255 144.539
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 5.471.172 5.549.896 Total liabilities 5.471.172 5.549.896
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE>
PUBLICIS COMMUNICATION
PROFORMA COMPARED INCOME STATEMENTS
in thousands of francs
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Actual consolidated 12/31/1997 Combined proforma 12/31/1998 % Change
1997/1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 20.479.623 22.873.074 11.7%
Purchases ( 17.340.444) ( 19.380.813)
Gross margin 3.139.179 3.492.261 11.2%
Personnel charges ( 1.748.587) ( 1.882.385) 7.7%
Operating expenses ( 864.050) ( 980.079) 13.4%
Total expenses ( 2.612.637) ( 2.862.464)
Other revenue 4.917 3.143
Interim income 531.459 632.940 19.1%
Depreciation charges ( 98.930) ( 106.732)
Provisions for doubtful accounts ( 18.294) ( 22.849)
Operating provisions ( 27.282) ( 28.524)
Financial income 33.157 15.708
Profit before tax and extraordinay items 420.110 490.543 16.8%
Extraordinary income ( 1.240) ( 38.519)
Employee profit-sharing ( 11.460) ( 14.083)
Income tax ( 168.445) ( 212.923)
Income from companies consolidated under the
equity method 37.186 5.403
- ------------------------------------------------------------------------------------------------------------------------------------
Total net income before amortization of goodwill 276.151 230.421 - 16.6%
Including: group share of net income 244.732 189.848 - 22.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for amortization of goodwill ( 28.606) ( 41.903)
Including: group share of the provision ( 27.354) ( 39.759)
Total net income 247.545 188.518 - 23.8%
Group share of net income 217.378 150.089 - 31.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE>
PUBLICIS COMMUNICATION
MOVEMENT IN WORKING CAPITAL REQUIREMENTS
AND CASH FLOW
(in FRF thousands)
<TABLE>
<CAPTION>
--------------------------------------------
1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MOVEMENT IN WORKING CAPITAL REQUIREMENT
AND CASH FLOW (3)
Decrease in contingency and los provisions 31.320 1.017 1.488
Increase in inventories and work-in-progress 1.943 54.679 0
Decrease in borrowing and miscellaneous long-term debt 56.318 24.408 0
Increase in net receivables and other receivables 77.605 325.384 0
- ----------------------------------------------------------------------------------------------------------------------
167.186 405.888 1.488
- ----------------------------------------------------------------------------------------------------------------------
RESOURCES (4)
Increase in contingency and loss provisions 0 0 0
Decrease in inventories and work-in-progress 0 0 26.675
Increase in borrowing and miscellaneous long-term debt 0 0 38.653
Decrease in net receivables and other debtor accounts 0 0 37.366
Increase in net payables and other accounts payable 79.022 469.648 393.444
- ----------------------------------------------------------------------------------------------------------------------
79.022 469.648 496.138
- ----------------------------------------------------------------------------------------------------------------------
MOVEMENT IN NET WORKING CAPITAL REQUIREMENT (3) (4) 88.164 (63.760) (494.650)
- ----------------------------------------------------------------------------------------------------------------------
MOVEMENT IN CASH FLOW
- ----------------------------------------------------------------------------------------------------------------------
Cash on hand 102.982 (191.629) 202.184
Less:
Banks (liability) 46.339 (270.488) (61.005)
- ----------------------------------------------------------------------------------------------------------------------
MOVEMENT IN CASH FLOW 56.583 78.859 263.189
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
PUBLICIS COMMUNICATION
STATEMENT OF CHANGES IN FINANCIAL POSITION
(in FRF thousands)
<TABLE>
<CAPTION>
----------------------------------------------
1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
USE OF FUNDS
Dividends distributed 74.654 56.014 89.043
Consolidated long-term investments 46.103 63.319 104.341
Long-term investments accounted for under the equity method 0 0 (146.565)
Non-consolidated long-term investments 0 13.841 13.311
Investments in other fixed assets 91.657 101.167 152.423
Loans granted to holdings 0 0 0
Working capital requirements 88.164 (63.760) (494.650)
Impact of TN agreements (1997)/ Leaving scope of consolidation
(PC/PSA merger) (1998) 0 247.051 372.287
- -----------------------------------------------------------------------------------------------------------------------
TOTAL USE OF FUNDS (1) 300.578 417.632 90.190
- -----------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
Net income 259.181 247.547 188.518
Amortization/depreciation 124.753 127.536 183.030
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 383.934 375.083 371.548
- -----------------------------------------------------------------------------------------------------------------------
Income from companies consolidated under the equity method (43.483) (37.186) (5.403)
Dividends received from companies consolidated under the equity
method 16.348 17.406 1.485
Capital increases 0 142.627 0
Repayment of loans granted to holdings 0 5.562 0
Exchange rate variations and miscellaneous 362 (7.001) (14.251)
TOTAL RESOURCES (2) 357.161 496.491 353.379
- -----------------------------------------------------------------------------------------------------------------------
NET RESOURCES (2)-(1) 56.583 78.859 263.189
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE>
NOTE TO THE COMBINED STATEMENTS AS OF DECEMBER 31, 1998
-------------------------------------------------------
1. PRINCIPLES AND METHODS OF CONSOLIDATION
The merger- TAKEOVER of Publicis Communication by Publicis S.A., which took
place on December 11, 1998, with retroactive effect from January 1, 1998
and its consequences (in particular, the combining of the assets and
liabilities of Publicis Communication and Publicis S.A.) make it difficult
to carry out a consolidation, as of December 31, 1998, of a Publicis
Communication subgroup, which no longer has a legal or economic status.
Consequently, the financial statements appearing in this document consist
of a combination of the accounts of subsidiaries, made taking into account
the following options:
Scope of consolidation
----------------------
The scope of consolidation is that which existed on the day the merger was
carried out (December 11, 1998).
All of the companies controlled by Publicis Communication were consolidated
using the full consolidation method.
The concept of control is defined, firstly, on the basis of the percentage
interest held and the attached voting rights and concerns all companies in
which a controlling interest (i.e. more than 50%), is held.
Companies over which Publicis Communication exercises significant and
ongoing influence are consolidated using the equity method. Significant
influence is generally assumed when the group holding is at least 20%.
As our holding in True North, formerly consolidated using the equity
method, has been 10.6% since December 31, 1997, this company was not
consolidated in 1998.
Holdings in companies and subsidiaries of insignificant size were not
consolidated.
Foreign companies
-----------------
Foreign company accounts were converted using the so-called year-end
exchange rate method and were therefore converted at the December 31
exchange rate. The variance in the shareholders' equity of foreign
subsidiaries was booked, for the share attributable to the Group, under the
heading "Reserves, group share" and, for third parties' share, under the
heading "Minority interests."
The choice of this historical method was justified by the presence of
Publicis in Europe in countries with limited and controlled inflation and
by the insignificant amount of its fixed assets.
F-7
<PAGE>
Closing date
------------
The closing date for the combined financial statements was December 31.
2. ACCOUNTING PRINCIPLES, POLICIES, AND METHODS
The methods of evaluation and presentation used to prepare the Proforma
statements and those of the companies within the scope of consolidation for
the 1998 fiscal year remain the same as those used for the previous fiscal
year.
3. MOVEMENT IN SHAREHOLDERS' EQUITY AND RESERVES
The table illustrating the change in net consolidated shareholders' equity
between December 31, 1997 and December 31, 1998, based on the combined
proforma financial statements is detailed in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Total Group share Non-Group
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Changes in the net position
Consolidated net position as of 12/31/1997 1,037,423 999,129 38,294
1997 Income 247,548 217,378 30,170
Total 1,284,971 1,216,507 68,464
Dividends distributed ( 89,043) ( 63,565) ( 25,478)
Adjustment in goodwill FCA 4,824 4,824 0
Differences in currency rate ( 6,077) ( 6,200) 123
Differences in scope of consolidation ( 8,155) 0 ( 8,155)
Effect of combined accounts ( 372,287) ( 372,287) 0
(non-integration of Publicis Communication
in the scope)
- ---------------------------------------------------------------------------------------------------------------------
Net combined position as of 12/31/1998 814,233 779,279 34,954
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
Publicis Communication SA Auditor's Report on the Consolidated Accounts
Fiscal Year Ending
December 31, 1997
Dear Sirs:
In execution of the mission entrusted to us by your General Meeting of June
20, 1998, we have proceeded to examine the consolidated accounts of
PUBLICIS COMMUNICATION for the fiscal year ended December 31, 1997, as
attached to this report.
The consolidated accounts were drawn up by the Board of Directors. It is
our task, on the basis of our audit, to express an opinion on these
accounts.
We have carried out the audit in accordance with the norms of the
procession; these norms require the application of diligence in obtaining
the reasonable assurance that the consolidated accounts do not contain
significant anomalies. An audit consists in examining by sampling the
probative elements justifying the data contained in the accounts. In
consists, likewise, in evaluating the accounting principles followed and
the significant evaluations entertained for the drawing up of the accounts
and in assessing their overall presentation. We believe that our controls
afford a reasonable basis for the opinion expressed below.
We certify that the consolidated accounts are in order and honest and give
a faithful picture of the net worth, the financial situation, as well as of
the overall results achieved by the companies included in the
consolidation.
Without calling into question the opinion expressed above, we remind you
that your company undertook a change in accounting method, described in the
attachment to the consolidated accounts, relative to the amortization of
the acquisition discrepancies and the goodwill.
We likewise undertook the verification of the information relative to the
group given in the management report. With the exception of the matter of
the change of method referred to above, we have no remarks to make on their
truthfulness and their agreement with the consolidated accounts.
Paris, March 12, 1998
Mazars & Guerard: Frederic Allilaire
Auditor
Jose Marette
F-9
<PAGE>
PUBLICIS COMMUNICATION GROUP
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(In thousands of FRF)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
ASSETS 31.12.1995 31.12.1996 31.12.1997
- -------------------------------------------------------------------------------------------
FIXED ASSETS 1,064,147 1,063,867 760,916
============ --------------------------------------
Intangible Assets (gross) 737,923 773,231 382,553
Depreciation and Amortization on Intangible Assets (63,005) (140,677) (90,063)
Tangible Assets (gross) 681,858 737,598 770,958
Depreciation and Amortization on Tangible Assets (441,093) (487,647) (520,883)
--------------------------------------
NET TANGIBLE AND INTANGIBLE ASSETS 915,683 882,505 542,565
Investments (non consolidated companies) 23,781 21,975 24,961
Investments (equity subsidiaries) 105,016 135,179 157,593
Interco loans 4,896 6,948 1,386
Other financial assets 37,106 34,312 40,728
Provisions on financial assets (22,335) (17,052) (6,317)
--------------------------------------
NET FINANCIAL ASSETS 148,464 181,362 218,351
--------------------------------------
CURRENT ASSETS 4,217,222 4,448,365 4,633,751
============== --------------------------------------
Work in progress 212,814 214,757 269,436
Advance payments made 47,770 61,792 40,260
Accounts receivable (net) 1,947,957 2,246,095 2,456,964
Interco receivable 40,351 111,398 213,300
Other debtors 1,150,283 893,294 924,391
Cash 818,047 921,029 729,400
--------------------------------------
--------------------------------------
OTHER CURRENT ASSETS 63,710 52,375 76,505
==================== --------------------------------------
- -------------------------------------------------------------------------------------------
TOTAL ASSETS 5,345,079 5,564,608 5,471,172
- -------------------------------------------------------------------------------------------
LIABILITIES & EQUITY 31.12.1995 31.12.1996 31.12.1997
- -------------------------------------------------------------------------------------------
TOTAL EQUITY 1,419,155 1,576,328 1,284,971
============ --------------------------------------
Equity (before net income), Group Share 857,632 951,078 999,129
Net Income, Group Share 155,250 184,335 217,378
--------------------------------------
TOTAL EQUITY GROUP SHARE 1,012,282 1,135,413 1,216,507
Equity (before net income), Non-Group Share 320,661 366,070 38,294
Net Income, Non-Group Share 85,612 74,846 30,170
--------------------------------------
TOTAL EQUITY NON-GROUP SHARE 406,273 440,916 68,464
--------------------------------------
PROVISIONS FOR CONTINGENCIES 329,476 283,948 282,931
============================ --------------------------------------
SHORT TERM LIABILITIES 3,535,315 3,636,991 3,780,015
====================== --------------------------------------
Borrowings (not banks) 123,682 67,364 42,556
Banks 494,736 541,135 270,647
Advance payments from clients 148,400 173,156 219,277
Accounts payable 1,470,605 1,591,849 1,840,060
Interco payable 24,602 52,974 47,542
Other creditors 1,273,290 1,210,512 1,359,933
--------------------------------------
OTHER ACCRUALS 61,134 67,341 123,255
============== --------------------------------------
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,345,079 5,564,608 5,471,172
- -------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
Groupe Publicis Communication
Consolidated Income Statements
In thousands of French Francs
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1995 1996 1997 % 97/96
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Billings 18,132,852 19,536,496 20,479,623 5%
Purchases (15,196,560) (16,494,575) (17,340,444)
- -----------------------------------------------------------------------------------------------------------
Revenues 2,936,292 3,041,921 3,139,179 3%
- -----------------------------------------------------------------------------------------------------------
Salaries and benefits (1,638,275) (1,682,832) (1,748,587)
Office and general expenses (832,111) (863,659) (864,050)
- -----------------------------------------------------------------------------------------------------------
Total expenses (2,470,386) (2,546,491) (2,612,637) 3%
- -----------------------------------------------------------------------------------------------------------
Other income 17,732 7,635 4,917
- -----------------------------------------------------------------------------------------------------------
Operating profit 483,638 503,065 531,459
- -----------------------------------------------------------------------------------------------------------
Depreciation (109,890) (102,761) (98,930)
Provision for doubtful accounts (16,257) (23,290) (18,294)
Other provisions (16,033) (20,884) (27,282)
Interest income (expense) 14,821 23,772 33,157
- -----------------------------------------------------------------------------------------------------------
Profit before tax 356,279 379,902 420,110 11%
- -----------------------------------------------------------------------------------------------------------
Exceptional costs 3,043 (5,336) (1,240)
Statutory profit sharing (7,263) (8,614) (11,460)
Income taxes (133,111) (128,263) (168,445)
Equity income 32,747 43,484 37,186
- -----------------------------------------------------------------------------------------------------------
Net income before goodwill amortization 251,695 281,173 276,151 -2%
Group share of net income before goodwill amortization 160,893 197,131 244,732 24%
- -----------------------------------------------------------------------------------------------------------
Goodwill amortization (10,834) (21,992) (28,606)
Group share of goodwill amortization (5,643) (12,796) (27,354)
- -----------------------------------------------------------------------------------------------------------
Net income 240,861 259,181 247,545 -4%
Group share 155,250 184,335 217,378 18%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
Groupe Publicis Communication
Consolidated Statements of Cash Flow
In thousands of French Francs
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Uses of Funds
Dividends distributed 52,230 74,654 56,014
Investments in consolidated subsidiaries and affiliates 120,896 46,103 63,319
Investments in affiliates accounted for by the equity method - - 13,841
Other long-term investments 112,169 91,657 101,167
Other working capital changes 103,616 88,164 (63,760)
- -----------------------------------------------------------------------------------------------------------------
Total uses of funds 338,911 300,578 170,581
- -----------------------------------------------------------------------------------------------------------------
Sources of Funds
Net income 240,861 259,181 247,547
Depreciation and amortization 120,724 124,753 127,536
- -----------------------------------------------------------------------------------------------------------------
Sources of funds from operations 361,585 383,934 375,083
(Profit) loss of companies accounted for by the equity method (32,746) (43,483) (37,186)
Dividends received from companies accounted for by the equity method 50,717 16,348 17,406
Capital increases 181,137 - 142,627
Repayment of loans to subsidiaries and affiliates - - 5,562
Translation adjustments and other (gains) losses 1,670 362 (7,001)
Effect of True North settlement - - (247,051)
- -----------------------------------------------------------------------------------------------------------------
Total sources of funds 562,363 357,161 249,440
- -----------------------------------------------------------------------------------------------------------------
Net Sources of Funds 173,452 56,583 78,859
=================================================================================================================
</TABLE>
F-12
<PAGE>
Groupe Publicis Communication
Consolidated Statement of Changes in Operating Working Capital and Cash Flow
In thousands of French Francs
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1995 1996 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Uses of Funds
Decrease in loss and contingency provisions - 31,320 1,017
Increase in inventories and work in progress 18,711 1,943 54,679
Decrease in miscellaneous debts and liabilities 86,116 56,318 24,808
Increase in trade and other receivables 94,682 77,605 325,384
- --------------------------------------------------------------------------------------------
199,509 167,186 405,888
- --------------------------------------------------------------------------------------------
Sources of Funds
Increase in loss and contingency provisions 8,905 - -
Decrease in trade and other receivables 12,999 - -
Increase in trade and other payables 73,989 79,022 469,648
- --------------------------------------------------------------------------------------------
95,893 79,022 469,648
- --------------------------------------------------------------------------------------------
Change in net working capital requirement (103,616) (88,164) 63,760
============================================================================================
Change in cash position
- --------------------------------------------------------------------------------------------
Cash and cash equivalents 268,720 102,982 (191,629)
Less:
Banks (liabilities) 95,268 46,399 (270,488)
- --------------------------------------------------------------------------------------------
Net change in cash position 173,452 56,583 78,859
============================================================================================
</TABLE>
F-13
<PAGE>
NOTES TO THE PUBLICIS COMMUNICATION GROUP
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------
I. SIGNIFICANT EVENTS DURING 1997
------------------------------
Break with True North
- ---------------------
An agreement dated February 19, 1997 put an end to a dispute between Publicis
and True North. The main provisions of this agreement were ratified by the
signature of the reciprocal transfer agreement dated June 10 and 11, 1997. Thus:
- - the Paris, London, Lisbon and Athens FCB agencies were transferred to True
North,
- - True North transferred the 49% stake that it held in Publicis Europe,
- - Publicis Communication increased its capital by 6.5% to the benefit of True
North which now holds 26.5%, with Publicis SA controlling 73.5% of the
capital of Publicis Communication.
Other Events
- ------------
Main acquisitions:
- ------------------
1997 was marked by the acquisitions, in Great Britain, of 100% of the capital of
the London agency KWS, and of SMI, now called Publicis Technology, specialized
in high technology.
Transfers:
- ---------
There were some minor transfers in 1997 in addition to the transfers of the FCB
agencies to True North.
Where necessary or justified, elements having a significant impact on the
consolidated financial statements are described in the following notes.
II. PRINCIPLES AND METHODS OF CONSOLIDATION
---------------------------------------
General Principles
- ------------------
Publicis Group consolidated financial statements at December 31, 1997 were drawn
up in accordance with French generally accepted accounting principles ("GAAPs")
including the regulations enacted by the Conseil National de la Comptabilite
(French National Accounting Institute).
Scope of consolidation
- ----------------------
All companies over which Publicis has legal or effective control were fully
consolidated.
Control is defined on the basis of the percentage interest held at the level of
50% or more.
Companies over which Publicis exercises significant and ongoing influence are
accounted for by the equity method. Significant influence is generally assumed
when the group interest is between 20% and 50%.
However, investments in companies and subsidiaries of insignificant size with
regard to the consolidated financial statements were not consolidated.
F-14
<PAGE>
Foreign companies
Foreign company accounts were converted at year-end exchange rates. The
resulting exchange variance on the net equity of the foreign subsidiaries was
booked, for the share attributable to the Group, under the heading "Consolidated
Reserves, Group Share" and, for third parties' shares, under the heading
"Minority Interests". The historical choice of this method was justified by the
establishments of Publicis in Europe, in countries with limited and controlled
inflation and by the insignificant amount of its fixed assets.
The main exchange rates used were the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
12/31/95 12/31/96 12/31/97 % var 96/97
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
German mark 3.42 3.37 3.35 -0.6%
Belgian franc 0.166 0.164 0.162 -1.2%
Spanish peseta 0.0404 0.0400 0.0395 -1.3%
US dollar 4.90 5.24 5.99 14.3%
Sterling pound 7.60 8.90 9.92 11.5%
Italian lira (000) 3.09 3.43 3.40 -0.9%
Netherlands guilder 3.05 3.00 2.97 -1.0%
Portuguese escudo 0.0328 0.0335 0.0327 -2.4%
Swiss franc 4.26 3.88 4.12 6.2%
</TABLE>
Closing date
- ------------
The closing date of the consolidated financial statements is the 31st of
December, for the parent company and nearly all of the subsidiaries.
Intra-group eliminations
- ------------------------
All intra-group balances and transactions have been eliminated.
III. ACCOUNTING POLICIES AND METHODS
-------------------------------
Evaluation and Presentation Methods
- -----------------------------------
The methods of evaluation and presentation used to establish the consolidated
financial statements and those of the companies within the scope of
consolidation remain consistent with those of last year, with the exception of
those relating to the amortization of the acquisition goodwill and the local
businesses (see below, Intangible Assets).
Studies and Research
- --------------------
The practice of the advertising profession has reached a highly technical level.
All campaigns, all ideas are subjects of studies, research and testing (pre- and
post-testings). Consumer behavior in various areas is also being studied through
research programs.
The activity of media buying is also the subject of much research and modelling
for optimizing the use of space, the choice of media and the selection of
targets. To do so, Publicis and Optimedia use highly efficient computerized
mathematical tools such as Optimix.
F-15
<PAGE>
Publicis has at its disposal a media research center, the Credome, as well as an
advertising research center, the Institute of Context Analysis, which are both
equipped with very sophisticated products.
Furthermore, a new research product, Tweens, which appeared in 1996, was
enriched and reinforced in 1997.
Numerous associates, most with scientific training, participated in this
progress and anticipated the future to design the evolution of consumers and the
needs of our advertisers in the future.
A large portion of the costs generated by the design and realization of these
models and studies concerns products with long lives and could therefore be
subject to capitalization with amortization over a period to be determined.
However, in an effort to be conservative, Publicis has considered these costs as
expenses of the accounting period in which they were incurred. These major
programs therefore do not appear in the assets of the balance sheet.
Intangible Assets
- -----------------
These include the goodwill upon first consolidation, businesses, leaseholds and
software.
Goodwill upon first consolidation
- ---------------------------------
The goodwill upon first consolidation represents the difference between the
acquisition price of the stock of the consolidated companies and the Group's
share in their net equity recomputed according to the Publicis principles and
methods on the entry date into the consolidation.
This goodwill was analyzed to be allocated either to the valuation goodwill,
which is composed of identifiable intangible assets, or to the acquisition
goodwill, which is composed of non-identifiable intangible assets.
The valuation goodwill was determined on a basis of objective verifiable
criteria: market share, stock, trade names, client lists, trademarks, revenue
level and profitability and are therefore identifiable.
All of the goodwill upon first consolidation existing to date was allocated to
identifiable intangible assets. Until the end of the previous accounting period,
they had not been amortized in a systematic fashion. When needed, provisions or
allowances were booked to take possible depreciation into account.
The acceleration of the concentration process among advertisers and
communication professionals, as well as the necessary globalization of the
networks, make up the framework in which the Group has, since last year, engaged
its heavy financial investment policy and led us to revise our goodwill
amortization policy.
Thus, as of January 1, 1997, it was decided to systematically amortize all of
the goodwill and businesses according to the following major principles:
- - immediate amortization of all small value goodwill (generally less than 1
million French francs)
- - media buying: amortization over a period of five years
- - communication division: amortization over a period of between ten and forty
years depending on the country, the size and specific characteristics of
each agency, with the understanding that subsidiaries that are part of a
joint-venture with a common management are in principle subject to
amortization over a reduced period of five years.
Regarding a change in accounting methods, the impact of this on the financial
statements at the beginning of the accounting period was directly charged to net
equity, with a breakdown of the share attributable to the Group (charged to the
consolidated reserves, Group share) and that attributable to minorities (charged
to the consolidated reserves, non-Group share). This impact is clearly indicated
in the variation of net equity (see Chapter IV - Variation of net equity).
As in the past, for the goodwill that is subject to long-term amortization, each
year, its market value is examined on the basis of the parameters used at the
time of their acquisition. In the case where this falls below the acquisition
value decreased by the amortizations performed, over a lasting period, a
provision for depreciation is booked.
F-16
<PAGE>
Leaseholds and Businesses
- -------------------------
The leaseholds appear in the balance sheet at historical cost made up of their
cost at the time they entered the assets. These elements are not amortized; they
are depreciated once their useful value is lower than their acquisition cost.
Local businesses, which are close in nature to the valuation goodwill described
above, were subject to treatment similar to that applied to goodwill upon first
consolidation.
Software
- --------
Software is amortized over a period not exceeding three years.
Tangible Fixed Assets
- ---------------------
Tangible fixed assets are valued at their cost price, which results either from
their original value (purchase price increased by secondary costs:
transportation costs, installation costs, set-up costs, etc.) or from their
contribution value (most often their net book value). Some rare assets are
subject to a legal revaluation in application of applicable laws; their amount
is not significant.
Their depreciation is calculated according to the method that allows best to
take into account their economic depreciation and the depreciation periods of
tangible fixed assets most often used are the following (straight-line
depreciation):
- Buildings 20 years
- Building improvements, general installations 10 years
- Billboards 4 - 7 years
- Office equipment, office furniture 5 - 10 years
- Transportation equipment 4 years
- Computer equipment 2 - 4 years
Self-constructed assets
- -----------------------
The Group creates, for its advertisers, products that are usable over several
accounting periods. In an effort to be conservative, these elements are not
capitalized.
In the same manner, trademarks, businesses and other intangible assets created
by the Group are not valued in the assets of the consolidated balance sheet.
Financial leases
- ----------------
Assets acquired through financial leases or long-term rental are not
capitalized. The corresponding rents appear in the operating expenses of the
accounting period to which they relate. The amount of rents remaining to be paid
and other commitments connected to these contracts appear in the unrecorded
obligations ("Off balance sheet commitments").
Capitalization of these assets would not have a significant impact on the
consolidated balance sheet.
Non-consolidated Equity Investment
- ----------------------------------
These concern companies not included in the scope of consolidation (see Section
II Scope of consolidation). If necessary, they are subject to provisions for
depreciation when their going value is lower than their book value. The going
value is determined according to criteria such as the revalued net assets, the
capitalization of earnings, stock market price, sector prospects and their
effect on the economic changes in the company and the strategic interest of the
holding for the Group.
The possible provisions are classified under the heading "Provisions for Long-
Term Financial Investments".
F-17
<PAGE>
Receivables from controlled companies
- -------------------------------------
This heading includes receivables of a financial nature held by the Group in
companies consolidated by the equity method or non-consolidated.
A provision for depreciation is set aside when necessary, when there exists a
risk of non-collection due to the financial position of the subsidiaries
concerned. This provision therefore appears under the heading "Provisions for
Long-Term Financial Investments".
Inventory and work in progress
- ------------------------------
Work in progress connected to advertising activity appears under this heading.
This corresponds to the technical work of creation and production (graphics, TV,
radio, publishing, etc...) billable to the client but not yet billed. It is
depreciated once its realization value becomes lower than its cost.
Non-billable work or costs incurred to win new clients are not capitalized.
Financial Instruments
- ---------------------
The Group does not use derivative financial products: it has slight exposure to
exchange and rate risks (see below). Treasury management focuses on investing
financial surplus in liquid products, immediately available and not speculative.
Compensation for Retirement, End-of-Career, or similar benefits
- ----------------------------------------------------------------
French companies:
The Convention Collective de la Publicite [Collective Bargaining agreement for
the Advertising sector] to which Publicis is subject provides for all associates
end-of-career compensation equal to 1/4 of the months of the last compensation
per year of service with the company. For management executives, this
compensation rises to 1/3 of the monthly salary beyond the tenth year with the
company. Associates with over 20 years seniority, benefit in addition from
"loyalty bonuses" of 5% to 20%.
The end-of-career compensation acquired by associates over 50 is booked, social
security expenses included, in provisions for liabilities and charges. Their
annual variation is accounted for in the income statement.
End-of-career compensation for associates under 50 is not provisioned due to the
heavy rotation of personnel and the nature of our business. Regular re-
examination of the age pyramid justifies this position.
Foreign companies:
End-of-career compensation is provisioned depending on the regulations and
legislation of each country. The principal ones concern Germany and Italy whose
applied accounting principles are the following:
- Actualization using mortality tables of the rights acquired by all
associates in application of German law and agreements with unions
- in Italy, regulation funds made up of the capitalized and re-actualized
rights acquired.
Sales
- ------
Sales mainly correspond to the sale of production and advertising space.
Media buying in France:
- -----------------------
The Sapin law, applied since March 31, 1993, modified the rules of operation in
our profession by imposing an agency contract for activities in the media buying
sector. Because of this, media buying operations carried out by authorized
agents (agencies and media buyers) for their clients are no longer booked in the
Sales and Purchases accounts. The claims and receivables connected to these
operations are booked under the headings "Other Debtors" and "Other Creditors"
of the balance sheet.
F-18
<PAGE>
In order to compare our sales with those from prior accounting periods and with
those of the international players in our sector, media sales processed by the
French media buyers within the framework of the agency contract are included in
the consolidated sales; this represents approximately 7% of our consolidated
sales.
Revenue
- -------
The revenue (or gross margin), difference between sales and the cost of external
production and media purchases, is the concept currently used in our sector to
measure the actual activity level. The only relevant figure showing the volume
of activity of an advertising group, it is the expression of the true added
value of the agencies.
Exposure to Exchange Rate Risks
- -------------------------------
The Group exposure to exchange rate risks is slight as it generates 33% of its
sales in France and 57% in the rest of Europe where the European Monetary System
regulates currency fluctuations. However, in Europe, the Group may be subject to
exchange rate variations on the pound sterling, which is still not integrated,
in the European Monetary System.
Variations in the dollar exchange rate do not significantly affect the Group's
financial statements (10% of the consolidated sales are generated in the United
States).
As to the result of the companies accounted for by the equity method and due to
the consolidation of True North, a 10% variation in the rate of the dollar
affected the total consolidated result by about 3.3 million French francs.
The impact of rate variations on the consolidated financial statements (using
the year-end rate method) is analyzed and commented on where it is significant.
Business transactions are mainly carried out in the local currencies of the
countries in which they are conducted. There is no centralized financial and
administrative management for worldwide budgets. These budgets are managed by
management agreements relayed to all of the countries where our clients are
established.
Furthermore, intra-group transactions between countries are of little
importance. The exchange risk here is negligible and is not the subject of
hedging operations.
Exposure to Interest Rate Risks
- -------------------------------
Our Group exposure to interest rate risk is slight due to its healthy cash
position. Thanks to this, the Group does not use financial instruments to hedge
interest rate risks.
Taxes on Profits
- ----------------
All profits are taxed according to the regulations of the country in which they
are realized.
All taxes due immediately or in the future are booked upon realization of the
corresponding revenues.
Tax loss carry forwards and deferred depreciation are not subject to any entry
in the assets of the consolidated balance sheet or to any accounting adjustment
in the income statement. This conservative position has always been adopted by
the Publicis Group and is applied to both the recognition and utilization of
said losses.
In certain European countries (Great Britain, Netherlands, Germany, etc.) we
have elected to constitute a single fiscal entity uniting all of our companies
in these countries and allowing us to set off the losses and profits of these
different entities.
The average rates of taxation of profits in 1997 in the main countries where we
- -------------------------------------------------------------------------------
are established are the following:
- ---------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
France 41.66% Italy 50%
Germany (1) 44% and 56% Netherlands 35%
Belgium 41% Portugal 38%
Spain 35% Switzerland 30%
Great Britain 31% United States 34%
</TABLE>
(1) 44% for distributed profits and 56% for profits allocated in reserves.
F-19
<PAGE>
IV - NOTES AND COMMENTS ON THE CONSOLIDATED BALANCE SHEET
- ---------------------------------------------------------
Scope of consolidation
----------------------
The list of companies consolidated as at December 31, 1997 showing the methods
of consolidation used, and the percentages of interests held, is attached
herewith.
As mentioned in Section I - Significant events in 1997 -- the agencies of FCB -
Paris, London, Lisbon and Athens have been transferred to True North within the
framework of our agreements for separation.
The other changes of the scope of consolidation, which were made during 1997,
have not had any significant effect on the financial statements of the Publicis
Group as at December 31, 1997.
Intangible assets
-----------------
The movements of the accounting year are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Gross value Movements - 1997 Gross values
In thousands as of as of
of French 12/31/1996 12/31/1997
francs
------------------------------------------------------------
Allocation Foreign
Acquisitions Disposals to net equity exchange and
misc.
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Valuation
goodwill 706 177 106 883 (104 928) (383 446) 2 222 326 908
- ---------------------------------------------------------------------------------------------------------
Businesses 33 967 7 434 (11 790) (18 466) --- 11 145
- ---------------------------------------------------------------------------------------------------------
Software,
leaseholds 33 087 11 412 --- --- --- 44 499
and
miscellaneous.
- ---------------------------------------------------------------------------------------------------------
TOTAL: 773 231 125 729 (116 718) (401 912) 2 222 382 552
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Valuation goodwill:
- -------------------
Acquisitions -- 106 883 000 French francs -- involve changes in scope. The
deconsolidated assets are primarily composed of the following:
* 41 607 000 French francs, which resulted from the transfer of the FCB
agencies to True North (cf. Section I);
* 61 030 000 French francs of disposals of goodwill upon first consolidation
which has been fully amortized.
At December 31, 1997, the amount of valuation goodwill appearing in the
consolidated balance sheet is broken down as follows:
* Advertising agencies in France: 100 239 000 French francs;
* Advertising agencies in Europe: 210 967 000 French francs;
* Media buying in France, Publicis Centre Media: None;
* Publicis in the United States: 15 702 000 French francs.
F-20
<PAGE>
Businesses:
- -----------
At December 31, 1997, the businesses included under this heading involve
businesses acquired from advertising agencies, primarily in Europe. They amount
to 10 615 000 French francs. As previously stated, businesses created by the
company have not been valued in the assets of the balance sheet.
Net value of intangible assets amounts to the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Gross value Accumulated Net value
In thousands of French francs as of 12/31/1997 depreciation as of 12/31/1997
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Valuation goodwill 326 908 (53 577) 273 331
- ----------------------------------------------------------------------------------------------------
Businesses 11 145 (3 011) 8 134
- ----------------------------------------------------------------------------------------------------
Software - Leasehold and miscellaneous 44 499 (33 475) 11 024
- ----------------------------------------------------------------------------------------------------
TOTAL 382 552 (90 063) 292 489
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accumulated depreciation on differences of valuation goodwill and
businesses, an amount of 56 588 000 French francs, has been reduced by 59
million French francs, the main features of which are as follows:
* 28 601 000 French francs in allowances for the accounting year;
* 32 412 000 French francs in recovery of amortization on the previous
accounting years;
* (69 255 000) French francs allocated to the gross assets (goodwill upon
first consolidation and businesses fully depreciated and removed from the
assets);
* (49 610 000) French francs in recovery of depreciation relating to the
goodwill upon first consolidation and businesses allocated to net equity
(processing of the change of method impact on the opening balance sheet).
As a result, the net amount allocated to net equity amounts to 384 713 000
French francs, 380 655 000 French francs for the Group share and 4 058 000
French francs for the minority shareholders, and is broken down as follows:
Goodwill upon first consolidation and businesses allocated to net
equity (gross): 401 912 000
Depreciation previously carried out on these assets: (49 610 000)
Recovery of depreciation on previous accounting years: 32 412 000
As at date December 31, 1997, the amount of net intangible assets, apart from
software and leaseholds, in the amount of 281 466 000 French francs can be split
between the Publicis Group share, for 278 618 000 French francs and those of the
minority interests, for 2 848 000 French francs.
Net amounts stated above do not constitute an economic representation of the
value of the Group's intangible elements, which is quite considerably greater,
if reference is made to their market values.
Tangible fixed assets
---------------------
The movements of tangible fixed assets for the accounting year were the
following:
F-21
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Gross value Movements - 1997 Gross values
In thousands as of as of
of French 12/31/1996 12/31/1997
francs
------------------------------------------------------------
Variations in Foreign
Acquisitions Disposals the scope of exchange and
consolidation misc.
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land and
buildings 40 984 3 329 --- --- (166) 44 147
- ---------------------------------------------------------------------------------------------------------
Others 696 613 90 024 (60 545) (20 341) 21 060 726 871
- ---------------------------------------------------------------------------------------------------------
TOTAL 737 597 93 353 (60 545) (20 341) 20 894 770 958
- ---------------------------------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE>
Net value of the tangible fixed assets amounts to the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Gross value Net value
In thousands of French as of 12/31/1997 Accumulated depreciation as of 12/31/1997
francs
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and buildings 44 147 (15 349) 28 798
- --------------------------------------------------------------------------------------------------
Others 726 811 (505 534) 221 277
- --------------------------------------------------------------------------------------------------
TOTAL 770 958 (520 883) 250 075
- --------------------------------------------------------------------------------------------------
</TABLE>
Land and buildings:
- -------------------
The Publicis Group owns real property, which appears in the balance sheet at a
gross value of 44 million French francs and a net value of 29 million French
francs.
This involves our agencies which own premises in Brussels, Amsterdam and Lisbon,
with a total surface area of approximately 6,000 m/2/, in areas located within
the city centers.
Other tangible fixed assets:
- ----------------------------
Among other tangible fixed assets, there is some significant data processing
equipment, which is dedicated to creative advertising work and production, to
media buying management, as well as to administrative work. The majority of the
agencies have, at the present time, a significant number of PCs operating in
networks.
Non-consolidated investments
----------------------------
These are composed of the stocks of companies over which Publicis does not have
a particularly significant influence, or which are of low value.
Non-consolidated investments appear on the balance sheet for a gross amount of
24 961 000 French francs and are provisioned under the heading "Provisions for
long-term financial investments", at the level of 1 961 000 French francs, or a
net amount of 23 000 000 French francs, as opposed to a net amount of 9 176 000
French francs as at December 31, 1996.
The increase in this heading primarily results from our acquiring a stake in the
Nephtalie agency, right at the end of 1997.
Investments accounted for by the equity method
----------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Value on the balance sheet
In thousand of French francs
------------------------------------------------
1995 1996 1997
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRUE NORTH COMMUNICATIONS (18.5%) 92 895 122 057 146 565
Various within Publicis Europe 12 121 13 122 11 028
- --------------------------------------------------------------------------------------------------
TOTAL 105 016 135 179 157 593
- --------------------------------------------------------------------------------------------------
</TABLE>
True North, held at the level of 18.5% by Publicis Communication till December
31, 1997, is listed on the New York Stock Exchange and is ranked as the 10th
advertising communications groups, with sales of 4.2 billion dollars.
F-23
<PAGE>
During the course of the summer, True North announced its merger project with
Bozell, the 8th American group in global communication.
Upon the conclusion of this merger, which was approved by the general meeting of
the shareholders of True North on December 30, 1997, our percentage interest was
lowered to 10.6%, but we continue to be the leading shareholder in this new
group.
Before the merger and the restructuring costs, the net consolidated income which
is True North group share, was 31 245 000 dollars, as opposed to 27 834 000
dollars.
Our portion of the earnings, taking into account a holding of 18.5% throughout
1997, amounted to 33 277 000 French francs, as opposed to 37 246 000 French
francs.
The 4 658 000 stocks of True North held by Publicis Communication appear on the
consolidated balance sheet of the Publicis Group with a value of 146 565 000
French francs.
True North stock market value, on the basis of the shares existing at December
31, 1997, after an increase of capital, is approximlately 1.3 billion dollars,
and the stake of Publicis Communication in True North contains an unrealized
capital gain of approximately 700 000 000 French francs.
Variation of investments accounted for by the equity method:
- ------------------------------------------------------------
Between December 31, 1996 and December 31, 1997, this heading on the balance
sheet has been increased by the consolidated companies' 1997 incomes, 37 million
French francs or, after the deduction of the dividends paid, 17 million French
francs.
Other long-term financial investments
-------------------------------------
Under this heading, in the amount of 40 728 000 French francs, as opposed to 34
312 000 French francs as at December 31, 1996, primarily appear sums paid to
third parties as guaranties or security (essentially, security deposits for real
estate rentals) and the loans granted by companies of the group (loans for
construction purposes and others).
Inventory and work in progress
------------------------------
This heading, which amounted to 269 436 000 French francs in 1997, as opposed to
214 757 000 French francs in 1996, exclusively comprises work in progress
connected with advertising activity.
Advances and down payments to suppliers
---------------------------------------
This account, in the amount of 40 260 000 French francs, as opposed to
61 792 000 French francs as at the date December 31, 1996, records the advances
and down payments made by the Group to suppliers:
* Before the orders are carried out (advances);
* Upon proof of the partial fulfillment of the orders (down payments).
Trade receivables
-----------------
These are accounted under consolidated assets for 2 456 964 000 French francs,
as opposed to 2 246 095 000 French francs as at December 31, 1996.
All of the receivables connected with the business cycle, as well as notes
receivable and accrued receivables arising from transactions of the accounting
year, appear under this heading. These receivables are all considered as short-
term.
Receivables connected with the media buying transactions in France have, because
of the specific features of this sector, been recorded under "Other debtors".
The average payment time for client credit amounted, as at December 31, 1997, to
44 days.
F-24
<PAGE>
Sundry debtors
- --------------
This heading, in the amount of 924 391 000 French francs, as opposed to
893 294 000 French francs as at December 31, 1996, includes sums owed by the
advertisers to the French media buyers and advertising agencies for the
purchases carried out within the agency contract framework led down by the Sapin
law, as well as amounts receivable from tax, social security and related
authorities.
Cash
----
Cash primarily comprises the liquid banking assets and the transferable
investment securities. Cash surpluses have been invested, in short term liquid
assets (SICAV-FCP or instruments of the same type) and are immediately
available. The Group does not use any derivative financial instrument.
Our Group is composed of separate legal entities emerging from different local
rights and shareholding structures, as a result, it is not possible to carry out
accounting netting -- either within one country, or within the legal structures
- -- between the debtor balances (cash and cash equivalents) and the bank creditor
balances. We do, of course, in a certain number of cases, practice a policy of
treasury management centralized by financing the requirements of certain of our
subsidiaries with the surpluses of the others, while still observing market
conditions in order to ensure remuneration of the said transactions.
Net available cash of the Publicis Group as at December 31, 1997 is the
following (in French francs):
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents: 729 400 000
Bank creditor balances: (270 647 000)
------------
Net cash position: 458 753 000
</TABLE>
This cash position may be considered as being representative of the net average
available funds, with the seasonal variations being quite minor. Net cash
position has increased by 78 859 000 French francs compared to the December 31,
1996 position of 379 894 000 French francs.
Asset adjustment accounts
-------------------------
This heading, in the amount of 76 505 000 French francs (compared to 52 376 000
French francs in 1996), primarily comprises expenses to be allocated over
several accounting periods and prepaid expenses.
Unrealized foreign exchange losses arising from subsidiaries accounts and
corresponding to potential foreign exchange losses on payables and receivables
existing at the date of these financial statements also appear here.
Provisions have been booked for potential losses in the reserves for liabilities
and charges.
Net equity and reserves
-----------------------
a) Variation
---------
The variation in the Group net equity, and the interests outside the Group,
between December 31, 1996 and December 31, 1997, before the 1997 income as
follows:
F-25
<PAGE>
<TABLE>
<CAPTION>
In thousands of French francs Group Interest
Total share Outside
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net equity as at December 31, 1996........................... 1 317 148 951 078 366 070
1996 Income.................................................. 259 181 184 335 74 846
--------- --------- --------
Theoretical net equity as at December 31, 1997............... 1 576 329 1 135 413 440 916
1997 transactions affecting net equity:
* Capital increase (and premium) of Publicis Communication.. 142 627 142 627 ---
* Distributions of dividends by the parent company.......... (25 900) (25 900) ---
* Distributions of dividends by subsidiaries to minority
shareholders................................................ (26 710) --- (26 710)
* Allocation of differences of acquisition goodwill and
businesses.................................................. (384 712) (380 654) (4 058)
* Impact of separation with True North...................... (247 051) 122 793 (369 844)
* Differences in currency rates conversion.................. 2 671 3 088 (417)
* Differences in scope of consolidation and miscellaneous... 171 1 763 (1 592)
- ---------------------------------------------------------------------------------------------------
Net equity as at December 31, 1997
before the income of accounting year 1997.................... 1 037 425 999 130 38 295
- ---------------------------------------------------------------------------------------------------
</TABLE>
F-26
<PAGE>
Dividends distributed:
- ----------------------
* By the parent corporation: a dividend of 14 French francs per share of
Publicis Communication upon the 1 850 000 shares comprising the capital.
* By the subsidiaries to the minority interests: essentially the dividends
paid by Publicis Europe subsidiaries outside of the Group (22 million
French francs), as well as the share of the minority interests in the
dividends distributed by the subsidiaries.
Allocation of the acquisition goodwill and businesses:
- ------------------------------------------------------
As described under the paragraph "Intangible assets" (Section III), we have made
a change in the method relating to the depreciation of the goodwill upon first
consolidation and businesses.
The impact on the opening balance sheet of the change in method has been booked
as a reduction of the shareholder net equity and divided up among the share
attributable to the Group and that attributable to minority interests. Details
of these sums are given in the paragraph "Intangible Assets"
Effects of the agreement for separation with True North:
- --------------------------------------------------------
The agreement for separation, the main lines of which have been stated at the
beginning of this document (Section 1 - Significant events during 1997), led to
the group generating a negative acquisition goodwill, which has been allocated
into an increase in the Group share of net equity.
The effect on the minority interests is a sharp dilution, essentially due to the
disappearance of the minority shareholders (49%) from Publicis Europe, with
Publicis Communication now having the full control of this group.
Foreign exchange unrealized gains and losses:
- ---------------------------------------------
As was noted in Section II - Foreign companies, the foreign exchange differences
noted, from one accounting year to the other, at the time of the conversion of
the foreign subsidiaries accounts, are recorded under the net equity and split,
according to the percentages of holding, in "Group share" and "Minority
Interests share".
The principal foreign exchange unrealized gains and losses recorded in 1997 are
connected with the increase in the exchange rate of the dollar (5.24 French
francs at December 31, 1996, 5.99 French francs at December 31, 1997, i.e. an
increase of 14%), and of the Pound sterling (rise from 8.90 as of the date
December 31, 1996 to 9.92 French francs at December 31, 1997, i.e. an increase
of 11%), which were offset by the drop in the guilder (3 French francs as of the
date December 31, 1996, to 2.97 French francs at December 31, 1997).
b) Analysis:
---------
Net equity of the Group is broken down as follows (in thousands of French
francs):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
<S> <C>
Share Capital................................................. 199 263
Reserves of the parent corporation............................ 557 970
Consolidated reserves......................................... 241 896
- ---------------------------------------------------------------------------
Net equity of the Group as at December 31, 1997............... 999 129
- ---------------------------------------------------------------------------
</TABLE>
Reserves for liabilities and charges
------------------------------------
These amount to 282 931 000 French francs as at December 31, 1997, as opposed to
283 948 000 French francs during the previous accounting period, or a decline of
1 017 000 French francs.
The reserves for liabilities and charges are, by their intrinsic nature,
earmarked to cover liabilities and charges brought about by operating our
business. These reserves can not, by their very nature, generally be the
subject of very precise calculations.
Publicis Group policy in setting up these reserves gives shows a great
conservatism and prudence in risk assessment. The annual allowances to the
reserves for liabilities and charges are, in a general manner, the subject of
tax deductions in the countries in which they have been set up. However, some
of them are not deductible by their very nature and, in the case of others,
Publicis, in a conservative approach, and in
F-27
<PAGE>
order to avoid any dispute with the local tax authorities considers that they
must not be deducted from the taxable profit.
At December 31, 1997, about half of the reserves for liabilities and charges had
not been deducted for tax purposes and are therefore tax-free. These reserves
for liabilities and charges can, therefore, be considered as permanent
resources.
Reserves for Retirement, End-of-Career, or similar benefits
- -------------------------------------------------------------
This heading, the primary component of the reserves for liabilities and charges,
amounted to 119 892 000 French francs as at December 31, 1997, as opposed to
120 135 000 French francs during the last year.
The accounting principles dealing with these reserves have been described in
Section III - Compensation upon departure for retirement, end of career, and
similar benefits.
The reserves booked in France amount to 43 095 000 French francs, and those in
Europe (primarily Germany and Italy) amount to 76 797 000 French francs.
Reserves for lawsuits, general risks, and doubtful accounts:
- ------------------------------------------------------------
These appear in the reserves for liabilities and charges for a total amount of
109 666 000 French francs, compared to 82 181 000 French francs at December 31,
1996.
Other reserves:
- ---------------
These include the reserves for major repairs, for data processing expenses, and
for moving, as well as payments for personnel, taxes, financial risks, and
miscellaneous risks, and amounted to 53 373 000 French francs in 1997, as
opposed to 81 632 000 French francs during the previous year.
Long Term Debts (excluding banks)
---------------------------------
These amounted to 42 566 000 French francs at December 31, 1997, as opposed to
67 364 000 French francs during the previous year.
This heading primarily comprises obligations to former shareholders of
consolidated subsidiaries and price supplements to be paid; security deposits
received likewise figure in these.
Advances and down-payments from clients
---------------------------------------
This account, in the amount of 219 277 000 French francs, as opposed to
173 156 000 French francs during the previous year, records cash received from
the clients once the sale has been concluded, as a partial payment of the price
stipulated in the contract. A distinction is made between:
* Advances paid before the execution of the contract; and:
* Down payments paid upon proof of partial completion.
Trade Payables
--------------
This heading amounted to 1 840 060 000 French francs as at December 31, 1997, as
opposed to 1 591 849 000 French francs during 1996.
This comprises all the business liabilities (including notes payable and
invoices to be received) which are connected with the acquisition of goods and
services, with the exception of those relating to the transactions for media
buying in France carried out within the Sapin law framework (classified under
"Other creditors").
The average supplier payment time ranked 36 days during 1997.
Sundry creditors
----------------
These amounted to 1 359 933 000 French francs as at December 31, 1997, as
opposed to 1 210 512 000 French francs during 1996.
The sums due to media in France by media buyers within the agency contract
framework imposed by the Sapin law appear under the section "Other creditors"
(cf. Section III - Sales).
This heading likewise records debts involving amounts due to tax and social
security authorities, as well as other third parties.
F-28
<PAGE>
Prepaid income
--------------
This heading, includes prepaid income and unrealized foreign exchange gains,
amounts to 123 255 000 French francs as at December 31, 1997, as opposed to 67
341 000 French francs in 1996.
Financial indicators and ratios
-------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1995 1996 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Working Capital (in French francs).......................... 355 007 000 512 462 000 524 056 000
Coverage Rate of assets by Equity........................... 1.33 1.48 1.69
Assets / Total balance sheet................................ 20% 19% 14%
Net equity / Total balance sheet............................ 27% 28% 23%
Net Equity, Group share, (in French francs):
* Before the allocation of the valuation goodwill and
businesses.............................................. 1 012 882 000 1 135 415 000 1 216 507 000
* After the allocation of the valuation goodwill and
businesses............................................. 580 655 00 718 049 000 9*7 869 000
None (1) None (1) None (1)
Indebtedness /Net Equity....................................
- --------------------------------------------------------------------------------------------------------------
(*) The net cash position of the Group is positive.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-29
<PAGE>
V - NOTES AND COMMENTS ON THE CONSOLIDATED INCOME STATEMENT
- -----------------------------------------------------------
Distribution of sales and of income
-----------------------------------
1997 consolidated sales increased by 5%, to 20.5 billion French francs. The
impact of the FCB agencies transfer in Paris, London and Lisbon (1.2 billion
French francs of sales in 1996) has been compensated for by the increase in
sales of the other subsidiaries of Publicis Europe and of Publicis Bloom.
On a comparable scope of consolidation and exchange rate basis, the increase in
sales amounts to 7.5%.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
By geographical Current result -- Group share (1) 1997 Net result -- Group share,
areas 1997 Sales In millions of French francs In millions of French francs
----------------------------------------------------------------------------------------------------------------
Excluding results Including results After depreciation
of companies of companies of the goodwill
In billions of accounted for by accounted for by upon first
French francs the equity method the equity method consolidation
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FRANCE 7.2 33% 85 41% 85 35% 74 34%
- ----------------------------------------------------------------------------------------------------------------------------------
EUROPE 12.3 57% 104 50% 108 44% 91 42%
- ----------------------------------------------------------------------------------------------------------------------------------
UNITED STATES 2.1 10% 19 9% 52 21% 52 24%
- ----------------------------------------------------------------------------------------------------------------------------------
Inter-Group (1.1) --- 0 --- 0 --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL 20.5 100% 208 100% 245 100% 217 100%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Before the depreciation of the goodwill upon first consolidation.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Details of sales per country (apart from France)
- ------------------------------------------------
<TABLE>
<CAPTION>
Sales, % of the
in billions of total consolidated
Francs sales
- ------------------------------------------------------------------------------
<S> <C> <C>
Germany 4.3 20%
Great Britain 2.5 12%
United States 2.1 10%
Netherlands 1.2 6%
Italy 0.8 4%
Spain 0.7 3%
Switzerland 0.6 3%
Others 2.3 11%
- ------------------------------------------------------------------------------
TOTAL OUTSIDE FRANCE 14.3 67%
- ------------------------------------------------------------------------------
</TABLE>
Staff changes and breakdown
---------------------------
F-30
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
By geographical areas
- ---------------------
FRANCE 1 816 1 900 1 828
EUROPE 2 487 2 553 2 612
UNITED STATES 290 278 287
- -------------------------------------------------------------------------------------------
4 593 4 731 4 727
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Distribution by function
- ------------------------
<S> <C>
Sales and marketing 45%
Creative work 20%
Administration / Management 20%
Production 10%
Media / Research 5%
-------
100%
</TABLE>
F-31
<PAGE>
Personnel expenses
------------------
These amounted to 1 748 587 000 French francs in 1997, compared to 1 682 832 000
French francs in 1996, and include all compensation expenses, namely:
* Personnel compensation (wages, salaries, commission fees, premiums,
bonuses, profit-sharing plans, and paid vacations);
* Social security contribution and benefit fund payments.
Tax liabilities based on payroll are included in operating expenses.
Operating expenses
------------------
This heading, in the amount of 864 050 000 French francs, as opposed to
863 659 000 French francs during the previous year, includes all external
charges other than purchases.
A division is made, primarily, into the following:
* Rents, additional property expenses;
* Supplies, printed office materials, and non-stored purchases of materials
and supplies;
* Data processing expenses (Sub-contracting or processing services);
* Professional fees, commission fees, and brokerage fees;
* Studies and research (cf. Section III - Studies and research);
* Insurance premiums;
* Advertising and public relations expenses which are aimed to commercial
promotion of the companies (publicity actions -- catalogues and printed
materials -- conventions -- seminars -- premiums and publicity objects --
gifts to clients);
* Transport expenses, mission and entertainment expenses;
* Mail and banking services expenses;
* Various operating expenses (dues, directors' fees, loss on bad debts, gifts
and donations,...);
* Taxes (other than income tax payments), assessments and similar payments,
mainly including charges based upon salaries and fiscal contributions;
* Other operating expenses.
Depreciation allowances
-----------------------
This heading, which amounts to 98 930 000 French francs, as opposed to
102 761 000 French francs in 1996, includes depreciation allowances due to
business operations.
Those of an exceptional character corresponding to irrevocable depreciation, as
well as the excess of tax depreciation over normal depreciation, are recorded
under the heading of extraordinary result. The depreciation allowance of the
businesses and goodwill upon first consolidation appears on a special line of
the income statement (cf. below "Depreciation allowances for goodwill upon
first consolidation").
Depreciation allowances comes from depreciation schedules applied for each
category of depreciable assets described in Section III - Intangible and
tangible assets.
The depreciation allowances for year 1997 can be split as follows:
* Depreciation of tangible fixed assets: 87 million French francs;
* Depreciation of other intangible assets (apart from goodwill upon first
consolidation) and expenses to be allocated over several periods: 12
million French francs.
Operating reserves
------------------
This heading, in the amount of 27 282 000 French francs, as opposed to
20 884 000 French francs during 1996, records the allowances to the reserves
for assets depreciation (apart from those relating to clients appearing under
"Reserves for bad debts"), as well as allowances to reserves for liabilities
and charges dealing with business matters.
Financial result
----------------
This heading corresponds to the balance of financial income and financial
expenses, after elimination of dividends paid by the consolidated subsidiaries
to their parent corporation; 33 157 000 French francs for 1997 (compared to
23 772 000 French francs in 1996).
F-32
<PAGE>
Extraordinary Income
--------------------
Extraordinary income amounted, during 1997, to a loss of 1 240 000 French
francs, as opposed to a loss of 5 336 000 French francs during the previous
year.
All of the amounts stated under this heading correspond to extraordinary
expenses or profits as defined by the French Chart of Accounts.
The following are, in particular, included under this heading:
* Extraordinary expenses and profits on management operations (penalties,
fines, gifts, bad debts, subsidies...);
* Appropriations and recoveries of depreciation and exceptional reserves (on
assets, regulated reserves and extraordinary depreciation, reserves for
extraordinary liabilities and charges...).
It is necessary to emphasize, however, that this heading only records the
amounts which were exceptional by reason of their nature or their amount, but
does not include operating expenses of an exceptional nature. Thus, all
personnel expenses and all operating charges with an exceptional character
generated during mergers of agencies or their geographical transfer continue to
be booked under operating expenses.
Compulsory employee profit sharing scheme
-----------------------------------------
This amounts to 11 460 000 French francs, as opposed to 8 614 000 French francs
during the previous year.
This heading, specific to France, only includes sums, accounted within the plan
required by French law.
All other variable payments appear under the heading of "Personnel expenses".
Income taxes
-------------
These taxes are booked in accordance with the methods described under Section
III - corporate taxes and taxes on profits, and amounted to 168 445 000 French
francs during 1997, as opposed to 128 263 000 French francs during 1996.
Our subsidiary Publicis conseil benefited during 1997 from a tax saving of
nearly 3 million French francs, by using the FCAB loss carry-forwards (7.5
million French francs). Long-term capital losses (up to 2003 and beyond) amount
to 96 751 000 French francs.
Publicis Communication has, for its own part, as at December 31, 1997, 6 945 000
French francs of deferred depreciation.
Because of our conservatism principle, no loss carry-forward has been booked in
the consolidated financial statements, although having subsequent future
recovery probability.
The average tax rate on companies (applied to the current result) amounts to
39%, as opposed to 36% during 1996.
The amount of taxes paid in France was 67 122 000 French francs (including the
surtaxes of 10 and 15%), and those paid abroad were 101 323 000 French francs.
Income from the companies accounted for by the equity method
------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Share of the income
------------------------------------------------------
In thousands of French francs 1995 1996 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRUE NORTH COMMUNICATIONS (18.5%)............ 26 741 37 246 33 277
Other within Publicis Europe Group........... 6 005 6 238 3 909
- ---------------------------------------------------------------------------------------------------
TOTAL 32 746 43 484 37 186
- ---------------------------------------------------------------------------------------------------
</TABLE>
The decline in the results of the companies accounted for by the equity method
is due to the decrease in our share of True North results.
F-33
<PAGE>
Total income and Group share before depreciation of goodwill upon first
- -----------------------------------------------------------------------
consolidation
- --------------
Publicis Communication Group's net result amounted to 276 153 000 French francs
during 1997, and 244 732 000 French francs for the Group share, as opposed to
281 173 000 French francs and 197 131 000 French francs, respectively, as at
December 31, 1996.
Depreciation allowance of the goodwill upon first consolidation
---------------------------------------------------------------
Depreciation allowance of the goodwill upon first consolidation and businesses
of 21 992 000 French francs during 1996 has been increased to 28 606 000 French
francs during 1997 due to the application of our new depreciation policy which
is described in Section III, "Intangible assets". Group share in the allowance
amounts to 27 354 000 French francs, as opposed to 12 796 000 during 1996.
The appropriation to the depreciation of the goodwill upon first consolidation
is broken down as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
* France 10 397 000 French francs (Group share: 10 299 000)
* Europe 18 117 000 French francs (Group share: 16 967 000)
* United States 92 000 French francs (Group share: 88 000)
Total income and Group share after depreciation of goodwill upon first consolidation
- ------------------------------------------------------------------------------------
</TABLE>
After taking the depreciation of goodwill upon first consolidation into account,
net total income amounted to 247 547 000 French francs, and the Group share
amounted to 217 378 000 French francs, as opposed to 259 181 000 French francs
and 184 335 000 French francs, respectively, for 1996.
Financial indicators and ratios
-------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1995 1996 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Personnel expenses / Income.................. 55.8% 55.c% 55.7%
Operating Expenses / Income.................. 28.3% 28.4% 27.5%
- ---------------------------------------------------------------------------------------------------------
Net consolidated income (excluding
extraordinary reserves)..................... 240 861 000 259 181 000 247 547 000
Depreciation allowance....................... 120 724 000 124 733 000 127 536 000
CASH FLOW.................................... 361 585 000 383 934 000 375 083 000
Cash Flow / Income........................... 12.5% 12.6% 11.9%
- ---------------------------------------------------------------------------------------------------------
Result before depreciation, reserves,
financial result, taxes and extraordinary
result: INTERIM RESULT (EBDIT)............. 483 639 000 503 065 000 531 460 000
Result before taxes, extraordinary result
and depreciation of goodwill upon first
consolidation: CURRENT RESULT (EBIT)....... 356 279 000 379 902 000 420 112 000
INTERIM RESULT / Income...................... 16.5% 16.5% 16.9%
CURRENT RESULT / Income...................... 12.1% 12.5% 13.4%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE>
VI - MISCELLANEOUS INFORMATION
- ------------------------------
<TABLE>
<CAPTION>
Guarantees and commitments
--------------------------
- --------------------------------------------------------------------------------------------------------
commitments made commitments received
In thousands of French francs
--------------------------------------------------------
1995 1996 1997 1995 1996 1997
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Discounted notes not yet matured.............. 3 300 3 222 3 156 -- -- --
Endorsements and guarantees................... 4 443 1 704 721 325 1 188 1 796
Financial leases commitments (1).............. 5 798 5 752 5 293 -- -- --
Miscellaneous................................. 7 431 487 3 327 -- -- --
- --------------------------------------------------------------------------------------------------------
TOTAL: 20 972 11 266 12 497 325 1 188 1 796
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Changes in consolidated activity over the past 5 years
--------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
In millions of French francs 1993 1994 1995 1996 1997
===================================================================================================
<S> <C> <C> <C> <C> <C>
SALES 15 838 17 562 18 133 19 536 20 480
- ---------------------------------------------------------------------------------------------------
INCOME 2 454 2 738 2 936 3 042 3 139
- ---------------------------------------------------------------------------------------------------
TOTAL RESULT 206 118 241 259 248
- ---------------------------------------------------------------------------------------------------
RESULT - GROUP SHARE
(before depreciation ... /illegible/) 132 71 161 197 245
- ---------------------------------------------------------------------------------------------------
RESULT - GROUP SHARE 127 66 155 184 217
- ---------------------------------------------------------------------------------------------------
CASH FLOW 305 233 362 384 375
- ---------------------------------------------------------------------------------------------------
</TABLE>
F-35
<PAGE>
Publicis
List of Consolidated Companies
At December 31, 1997
- --------------------
<TABLE>
<CAPTION>
%
Company Name Ownership Activity Country City
- ------------ ---------- -------- ------- ----
<S> <C> <C> <C> <C>
PUBLICIS CONSEIL 99.61 Advertising France Paris
FCA/B.M.Z 100.00 Advertising France Paris
Exclamation 89.97 Advertising France Paris
Loeb et Associes 55.00 Advertising France Paris
Publicis Et Nous 61.88 Advertising France Paris
Mundocom 100.00 Advertising France Paris
Interplans Edition 100.00 Advertising France Paris
Union Commerciale d'Imprimerie 100.00 Advertising France Paris
Publicis Direct 77.04 Advertising France Paris
Direct Academy 100.00 Advertising France Paris
Parti Print 100.00 Advertising France Paris
Procis 90.18 Advertising France Paris
Directis 60.00 Advertising France Paris
ID3d 89.84 Advertising France Paris
Extension 100.00 Advertising France Paris
Publicis Design 100.00 Advertising France Paris
Motivom 74.50 Advertising France Paris
Media System 99.67 Advertising France Paris
Verbe Consumer 99.74 Advertising France Paris
Guillaume Tell 80.00 Advertising France Paris
Verbe 70.00 Advertising France Paris
Publicis Hourra 80.71 Advertising France Lille
Epure 99.67 Advertising France Lille
Publicis Cachemire 66.93 Advertising France Lyon, Clermont-Ferrand
Phreas 99.00 Advertising France Lyon
2/eme/ Communication 51.00 Advertising France Lyon
Publicis Mediterranee 100.00 Advertising France Marseille
Publicis Soleil 50.25 Advertising France Toulouse, Montpellier
Publicis Grand Angle 74.11 Advertising France Brest, Nantes, Rennes
Positif 99.80 Advertising France Brest
Publicis Koufra 63.32 Advertising France Nancy, Dijon, Strasbourg
Publicis Qualigraphie 99.00 Advertising France Rouen, Caen
Publicis Atlantique 100.00 Advertising France Bourdeaux
Expression 100.00 Advertising France Bourdeaux
Publicis Racines 66.00 Advertising France Tours
SKTS 68.78 Advertising France Paris
Exaudi 99.80 Advertising France Paris
Hautefeuille Besancon 100.00 Advertising France Besancon
Hautefeuille Regions 100.00 Advertising France Lyon
O' de Formes 76.00 Advertising France Lyon
O' REP FLB 65.00 Advertising France Lyon
Publicis Alpes 99.85 Advertising France Annecy
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
%
Company Name Ownership Activity Country City
- ------------ --------- -------- ------- ----
<S> <C> <C> <C> <C>
PUBLICIS EUROPE 100.00 Finance Netherlands Amsterdam
FCA/BMZ International 100.00 Advertising France Paris
Publicis 100.00 Advertising Austria Vienna
Publicis 100.00 Advertising Belgium Brussels
Cre-Action Full Option 53.95 Advertising Belgium Brussels
FCA!BMZ. 100.00 Advertising Belgium Brussels
Publicis 100.00 Advertising Croatia Zagreb
Publicis 60.00 Advertising Czech Republic Prague
Publicis 100.00 Advertising Denmark Copenhague
Publicis Torma 45.03 Advertising Finland Helsinki
Publicis Communication 100.00 Finance Germany Dusseldorf
FCA! BMZ 82.00 Advertising Germany Dusseldorf
Prorepro 100.00 Advertising Germany Dusseldorf
More Sales 84.80 Advertising Germany Dusseldorf
More Media 90.00 Advertising Germany Dusseldorf
Publicis 100.00 Advertising Germany Frankfurt
Mundocom 100.00 Advertising Germany Frankfurt
Mundo Sales 100.00 Advertising Germany Frankfurt
Publicis Hamburg 98.00 Advertising Germany Hamburg
Optimedia 100.00 Media Buying Germany Dusseldorf
Publicis Dialog 90.00 Advertising Germany Hamburg
Publicis Vital 90.00 Advertising Germany Frankfurt
Publicis MCD 74.90 Advertising Germany Erlangen, Munich
Contur 100.00 Advertising Germany Friedrichsdorf
Contur Identify Design 100.00 Advertising Germany Friedrichsdorf
Contec 100.00 Advertising Germany Friedrichsdorf
Sisphos 51.00 Advertising Germany Berlin
Publicis 100.00 Advertising Greece Athens
Publicis 100.00 Advertising Hungary Budapest
Publicis 100.00 Advertising Italy Milan, Rome
FCA! BMZ 100.00 Advertising Italy Milan
Optimedia Italia 100.00 Advertising Italy Milan
Overad 100.00 Finance Netherlands Amsterdam
Overad Property 100.00 Finance Netherlands Amsterdam
Publicis 100.00 Advertising Netherlands Amsterdam
AMI 51.00 Advertising Netherlands Amsterdam
Mundocom A.A.C. 75.00 Advertising Netherlands Amsterdam, Eindhoven
Kern Habbema & Yap 53.00 Advertising Netherlands Amsterdam
Bruggenwirth, Mass & Boswinkel 52.00 Advertising Netherlands Amsterdam
FCA! Amsterdam 97.00 Finance Netherlands Amsterdam
FCA! Walker 88.00 Finance Netherlands Amsterdam
FCA! Werner & Messelink 60.00 Finance Netherlands Amsterdam
Publicis 100.00 Advertising Norway Oslo
Publicis Direct 98.50 Advertising Norway Oslo
Strategic Marketing 100.00 Advertising Norway Oslo
Publicis Pulse Norway 100.00 Advertising Norway Oslo
Publicis Reklamebyra 95.38 Advertising Norway Oslo
Park FCA!BMZ 100.00 Advertising Norway Oslo
Sponsor Marketing 65.00 Advertising Norway Oslo
Publicis 70.00 Advertising Poland Warsaw
Publicis 90.00 Advertising Portugal Lisbon
BMZ/Park 56.44 Advertising Portugal Lisbon
Optimedia 93.00 Media Buying Portugal Lisbon
Publicis 100.00 Advertising Russia Moscow
Publicis Virgo 60.00 Advertising Slovenia Ljubljana
</TABLE>
F-37
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Publicis 100.00 Advertising Spain Madrid, Barcelona,
Sevilla, Valencia, Alicante
Optimedia 98.00 Media Buying Spain Madrid
FCA/BMZ CID 100.00 Advertising Spain Madrid, Barcelona,
Sevilla
Publicis Etoiles 100.00 Finance Sweden Stockholm
Publicis GRO & S 76.00 Advertising Sweden Stockholm
Publicis Farner 90.00 Advertising Switzerland Zurich
Publicis BEP 100.00 Advertising Switzerland Lausanne
Multi Market Services 100.00 Finance United Kingdom London
Publicis 100.00 Advertising United Kingdom London
Mundocom 100.00 Advertising United Kingdom London
Optimedia International 100.00 Advertising United Kingdom London
Impact 100.00 Advertising United Kingdom London
FCA! London 100.00 Advertising United Kingdom London
Publicis Financial 100.00 Advertising United Kingdom London
KWS 100.00 Advertising United Kingdom London
Publicis Technology 100.00 Advertising United Kingdom London
PUBLICIS BLOOM 96.15 Advertising United States New York, Dallas
WAM 99.68 Advertising France Paris
PUBLICIS CENTRE MEDIA 100.00 Media Buying France Paris
Credome 100.00 Media Buying France Paris
PUBLICIS CONSULTANTS 100.00 Advertising France Paris
Publicis Consultants Nederland 90.00 Advertising Netherlands Amsterdam
FCA Bruxelles 100.00 Advertising Belgium Brussels
</TABLE>
F-38
