<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
Commission file no. 1-5029
____________________
True North Communications Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 36-1088161
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 East Erie Street, Chicago, Illinois 60611
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (312) 425-6500
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ____
-----
The number of shares of Common Stock, 33-1/3 cents par value, outstanding as of
May 8, 2000 was 49,457,224.
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2000 and 1999. 3
Condensed Consolidated Balance Sheets as of March 31, 2000
(Unaudited) and December 31, 1999. 4
Unaudited Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2000 and 1999. 5
Unaudited Notes to Condensed Consolidated Financial Statements for
the Three Months Ended March 31, 2000 and 1999. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 6. Exhibits and Reports on Form 8-K. 14
</TABLE>
2
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Commissions and Fees $359,588 $303,446
-------- --------
Operating Expenses:
Salaries and employee benefits 229,355 202,464
Office and general 113,588 89,975
-------- --------
Total operating expenses 342,943 292,439
-------- --------
Operating Income 16,645 11,007
-------- --------
Other Income (Expense):
Interest income 1,673 1,622
Interest expense (3,858) (4,388)
Gains on sales of marketable securities and other (280) 4,122
-------- --------
Total other income (expense) (2,465) 1,356
-------- --------
Income Before Taxes, Minority Interest and Equity Income 14,180 12,363
Provision for income taxes 6,097 5,373
-------- --------
Income Before Minority Interest and Equity Income 8,083 6,990
Minority interests 1,524 (27)
Equity income 553 210
-------- --------
Net Income $ 10,160 $ 7,173
======== ========
Per Share Information:
- ----------------------
Basic earnings per share $ 0.21 $ 0.16
======== ========
Diluted earnings per share $ 0.20 $ 0.15
======== ========
Average common shares outstanding 48,941 46,090
======== ========
Average common shares outstanding, assuming dilution 50,447 47,729
======== ========
Cash dividends per common share $ 0.15 $ 0.15
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 119,696 $ 118,265
Short-term investments 356 16,858
Marketable securities 1,536 2,076
Accounts receivable, net 1,008,087 1,020,701
Expenditures billable to clients 76,407 69,512
Other current assets 20,769 19,529
---------- ----------
Total current assets 1,226,851 1,246,941
---------- ----------
NONCURRENT ASSETS:
Property and equipment, net 154,919 156,799
Goodwill, net 570,417 487,787
Investment in affiliated companies 34,939 32,871
Other noncurrent assets 94,542 80,882
---------- ----------
Total noncurrent assets 854,817 758,339
---------- ----------
Total assets $2,081,668 $2,005,280
========== ==========
CURRENT LIABILITIES:
Accounts payable $1,029,308 $1,034,980
Short-term bank borrowings 155,372 117,847
Income taxes payable 20,215 22,642
Current portion of long-term debt 9,074 9,036
Accrued expenses 192,808 210,283
---------- ----------
Total current liabilities 1,406,777 1,394,788
---------- ----------
NONCURRENT LIABILITIES:
Long-term debt 35,272 36,632
Liability for deferred compensation 69,467 67,723
Other noncurrent liabilities 189,635 139,761
---------- ----------
Total noncurrent liabilities 294,374 244,116
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock 16,450 16,295
Paid-in capital 310,518 293,435
Retained earnings 83,406 80,615
Unrealized gain on marketable securities 861 1,179
Cumulative translation adjustment (24,876) (22,304)
Less - treasury stock (865) (983)
Less - deferred compensation (4,977) (1,861)
---------- ----------
Total stockholders' equity 380,517 366,376
---------- ----------
Total liabilities and stockholders' equity $2,081,668 $2,005,280
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income $ 10,160 $ 7,173
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 16,951 12,722
Equity income (553) (210)
Other 1,685 1,827
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (518) 1,950
Other assets (22,565) (18,650)
Accounts payable and accrued expenses (10,708) (96,480)
-------- --------
Net cash used by operating activities: (5,548) (91,668)
-------- --------
Cash flows used by investing activities:
Purchases of property and equipment (10,730) (8,541)
Acquisitions and investments in businesses (34,253) (35,339)
Maturities of short-term investments 16,502 --
-------- --------
Net cash used by investing activities (28,481) (43,880)
-------- --------
Cash flows provided (used) by financing activities:
Increase in short-term bank borrowings 37,525 139,126
Proceeds from issuance of common stock 10,997 1,812
Proceeds from issuance of long-term debt -- 852
Payments of long-term debt (1,322) (1,101)
Proceeds from initial public offering of subsidiary -- 42,048
Cash dividends paid (7,369) (7,022)
Payments for purchases of common stock (3,046) (3,842)
-------- --------
Net cash provided by financing activities 36,785 171,873
-------- --------
Effects of exchange rates on cash (1,325) (2,568)
-------- --------
Net increase in cash and cash equivalents 1,431 33,757
Cash and cash equivalents at beginning of year 118,265 88,685
-------- --------
Cash and cash equivalents at end of period $119,696 $122,442
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Amounts in millions, except per share amounts)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by True North without audit, and include all adjustments, consisting
only of normal recurring accruals, which True North considers necessary for a
fair presentation. The condensed consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in
True North's 1999 Annual Report on Form 10-K.
The operating results for the first three months of the year are not
necessarily indicative of the results for the year or other interim periods.
2. Acquisitions
In the first three months of 2000, the cost of two advertising and
communication agencies acquired by True North in transactions accounted for as
purchases was $5.2 million. The excess of the purchase price over the fair value
of net tangible assets acquired was $5.0 million and is being amortized over
periods not exceeding 40 years.
In addition, in February 2000, Modem Media. Poppe Tyson (MMPT) acquired
100% of the outstanding capital stock of Vivid Holdings, Inc. and its majority-
owned subsidiary, Vivid Publishing, Inc. (Vivid) for approximately $63.6
million. The consideration was comprised of approximately $10.2 million in cash,
approximately $14.4 million in Modem Media Class A common stock (446,010
shares), of which approximately $4.5 million will remain in escrow as security
for the indemnification obligations of the sellers, and approximately $39.0
million in value related to employee stock options that were converted to MMPT
stock options. The acquisition has been accounted for under the purchase method
of accounting. The preliminary allocation of the excess of purchase price over
the fair value of net assets acquired of approximately $63.8 million is being
amortized over a five-year period and is subject to final determination.
3. Restructuring Charges
In September 1999, management of True North committed to a formal plan to
restructure its operations and recorded a $76.4 million pre-tax charge in the
third quarter of 1999. The charge covered primarily severance, lease termination
and other exit costs in connection with the combination and integration of True
North's two independent worldwide advertising agency networks. The restructuring
initiatives also included the sale or closing of certain underperforming
business units.
6
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Amounts in millions, except per share amounts)
A summary of components of the restructuring charge is as follows (in
millions):
<TABLE>
<CAPTION>
Severance Lease
and Termination
Termination and Other Impairment
Benefits Exit Costs Loss Total
-------------- --------------- ------------ ---------
<S> <C> <C> <C> <C>
Restructuring reserve, beginning of period $ 41.4 $ 24.2 $ 10.8 $ 76.4
Write-down of impaired assets -- (0.9) (10.8) (11.7)
1999 cash payments (9.7) (3.2) -- (12.9)
------ ------ ------ ------
Balance, December 31, 1999 31.7 20.1 -- 51.8
Write-down of impaired assets -- ( 1.2) -- (1.2)
2000 cash payments (8.3) (2.3) -- (10.6)
------ ------ ------ ------
Balance, March 31, 2000 $ 23.4 $ 16.6 $ -- $ 40.0
====== ====== ====== ======
</TABLE>
The involuntary severance and termination benefits portion of the 1999
charge reflected the elimination of approximately 640 positions worldwide,
primarily in international locations. As of March 31, 2000, approximately 490
positions were eliminated and True North anticipates that the severance actions
will be completed during the remainder of 2000.
The 1999 charge associated with lease terminations and other exit costs
represented primarily the closure, abandonment and downsizing of office space
globally, including approximately 30 international locations. As of March 31,
2000, approximately 19 facilities were abandoned or downsized. The remaining
actions are expected to be completed by mid-to-late 2000, with the cash portion
of the charge to be paid out over the remaining lease periods, which range from
one to five years.
4. Comprehensive Income
True North classifies its comprehensive income, which includes foreign
currency translation adjustments and unrealized gains and losses on marketable
securities available for sale, as a separate component of stockholders' equity.
Total comprehensive income for the three months ended March 31, 2000 and 1999
was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net income $10.2 $ 7.2
Foreign currency translation (2.5) (12.3)
Unrealized gains (losses) on marketable securities, net of
deferred income taxes of $(0.2) and $(4.6), respectively (0.3) (5.4)
----- ------
Total comprehensive income $ 7.4 $(10.5)
====== ======
</TABLE>
7
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Amounts in millions, except per share amounts)
5. Contingencies
On December 2, 1997, Mazda Motor of America, Inc. ("Mazda"), a former
client of True North's subsidiary, Foote Cone & Belding Advertising, Inc.
("FCB"), initiated an arbitration against FCB before the American Arbitration
Association in Los Angeles, California. Mazda seeks indemnity and reimbursement
for liabilities it incurred or expects to incur in connection with automobile
lease advertising that aired in 1996 and 1997. Mazda is currently seeking from
FCB approximately $9.0 million in damages, exclusive of interest, costs and
attorneys' fees, arising from (a) Mazda's settlement of false advertising claims
asserted by the Federal Trade Commission ("FTC"), various state attorneys
general, and a class of consumers and (b) Mazda's settlement on or about
September 30, 1999, of claims asserted by the FTC and various state attorneys
general, which alleged that Mazda violated the consent orders entered in
previous FTC and state attorneys general actions. FCB intends to defend Mazda's
claim vigorously. In addition, FCB has filed a counterclaim in the arbitration
seeking approximately $5.5 million in unpaid commissions for planning and
placing advertising during the final months of FCB's relationship with Mazda.
The arbitration hearing is scheduled for the first quarter of year 2001.
True North is a party to several other lawsuits incidental to its business.
It is not possible at the present time to estimate the ultimate liability, if
any, of True North with respect to such litigation, however, management believes
that any ultimate liability will not be material in relation to True North's
consolidated results of operations or financial position.
6. Investment in Modem Media. Poppe Tyson
In March 2000, MMPT announced that it had filed a registration statement
with the Securities and Exchange Commission relating to a proposed public
offering of 4.5 million shares of its common stock. As part of the proposed
offering, True North was offering to sell 2.5 million shares. Subsequently,
MMPT postponed the offering due to adverse market conditions.
On April 26, 2000, True North converted all of its shares of MMPT's Class B
common stock into Class A shares. As a result, True North's voting power was
reduced to approximately 46%. Effective for the second quarter of 2000, True
North will account for its investment in MMPT under the equity method of
accounting.
8
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
General
- -------
True North's net income for the three months ended March 31, 2000, was
$10.2 million, or $0.20 per diluted share. This compares to $7.2 million, or
$0.15 per diluted share, for the three months ended March 31, 1999.
The first quarter of 1999 included gains on the sale of securities of $4.1
million ($2.3 million after-tax or $0.05 per diluted share). Excluding these
gains, net income for the first three months of 1999 was $4.9 million or $0.10
per diluted share. Historically, the first quarter is a seasonal low point from
a revenue and earnings standpoint.
Revenues
- --------
Consolidated revenues increased $56.2 million, or 18.5%, to $359.6 million
for the three months ended March 31, 2000, from $303.4 million in 1999. Revenues
from the U.S. operations increased $54.8 million, or 24.1%, to $281.8 million in
2000, while international revenues increased 1.8%, or $1.4 million, to $77.8
million. Excluding the impact of changes in foreign exchange rates,
international revenues increased 7.1%.
Approximately 35% of the worldwide growth in revenues was due to
acquisitions. Excluding the effects of acquisitions, divestitures and changes in
foreign exchange rates, consolidated revenue growth from net new business wins
and higher existing client net spending was 13.5%.
Operating Expenses
- ------------------
Total consolidated operating expenses increased $50.5 million to $342.9
million from $292.4 million in 1999. Acquisitions accounted for approximately
34% of the increase. Excluding the effects of acquisitions, divestitures and
changes in foreign exchange rates, total operating expenses increased 13.3% in
the first quarter of 2000.
Salaries and benefits increased $26.9 million, or 13.3%, to $229.4 million
in 2000 from $202.5 million in the comparable quarter of 1999. Acquisitions
represented approximately $11.1 million of the increase, while the impact of
changes in foreign exchange rates decreased salaries and related benefit
expenses by approximately $2.5 million. Excluding the effects of the items noted
above, salaries and related benefits increased by 9.2%, representing normal
salary growth progression and higher incentive expense due to the increased
level of profitability partially offset by savings from the restructuring
efforts.
9
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Office and general expenses were $113.6 million for the three months ended
March 31, 2000, compared to $90.0 million in 1999, a $23.6 million, or 26.2%
increase. Acquisitions accounted for $6.0 million of the increase, while lower
foreign exchange rates decreased those expenses by $2.1 million. Excluding the
impact of acquisitions and changes in foreign exchange rates, office and general
expenses increased by 22.5% in 2000 versus 1999. This reflects higher goodwill
amortization due to acquisitions, expansion-related spending at MMPT, higher
depreciation charges from upgrading the facilities and computer systems and
strengthening bad debt reserves.
Restructuring and Other Charges
- -------------------------------
In September 1999, management of True North committed to a formal plan to
restructure its operations and recorded a $76.4 million pre-tax charge in the
third quarter of 1999. The charge covered primarily severance, lease termination
and other exit costs in connection with the combination and integration of True
North's two independent worldwide advertising agency networks. The restructuring
initiatives also included the sale or closing of certain underperforming
business units.
The involuntary severance and termination benefits portion of the 1999
charge reflected the elimination of approximately 640 positions worldwide,
primarily in international locations. As of March 31, 2000, approximately 490
positions were eliminated and True North anticipates that the remaining
severance actions will be completed during the remainder of 2000.
The 1999 charge associated with the lease terminations and other exit costs
represented primarily the closure, abandonment and downsizing of office space
globally, including approximately 30 international locations. As of March 31,
2000, approximately 19 facilities were abandoned or downsized. The remaining
actions are expected to be completed by mid-to-late 2000, with the cash portion
of the charge to be paid out over the remaining lease periods, which range from
one to five years.
The impairment loss on the sale or closing of certain businesses resulted
from the decision to sell two business units, one in the U.S., and one in the
United Kingdom, and to close four other business units and joint ventures,
including the R/GA Digital Studios, which specialized in digital production for
advertising and film companies. These sales or closures are expected to be
completed by mid 2000.
True North anticipates net pre-tax expense savings of approximately $25.0
million on an annualized basis, with approximately half of such savings
occurring in 2000 and the full amount realized in 2001 and thereafter.
10
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Other Income (Expenses)
- -----------------------
Interest income increased by $0.1 million in the three months ended March
31, 2000, compared to 1999. Interest expenses decreased by $0.5 million in the
first quarter of 2000 versus 1999 due primarily to lower average debt levels.
True North recognized pre-tax gains of $4.1 million in the first three
months of 1999 on the sales of its holdings in DoubleClick, Inc.
Income Taxes
- ------------
True North's effective tax rate was 43.0% in the first quarter of 2000
versus 43.5% in 1999. The effective rate is higher than the U.S. statutory rate
of 35% primarily due to U.S. state and local income taxes and to the
nondeductibity of certain expenses, including entertainment and amortization of
goodwill.
Minority Interests
- ------------------
Minority interest income in the first quarter of 2000 was $1.5 million
versus $0.0 million in 1999. This reflects the impact of net losses in the
operations of MMPT.
Equity Income
- -------------
Equity income was $0.5 million for the first three months of 2000, compared
to $0.2 million in the corresponding period of 1999. This increase is due
primarily to acquisitions and an increased ownership in South Africa operations.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 2000, True North's cash and cash equivalents totaled $119.7
million, which is an increase of $1.4 million over the 1999 year-end balance of
$118.3 million.
11
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Operating Activities
- --------------------
True North's funds from operating activities consist primarily of net
income adjusted for noncash items, including depreciation and amortization, and
changes in operating assets and liabilities. Cash provided by operating
activities was $(5.5) million in the first three months of 2000 and reflects the
normal payment of incentives in the first quarter of the year for prior year
performance. Operating cash flows are impacted by the seasonal spending patterns
of clients. True North's policy is to bill and collect monies from its clients
prior to payments due to the media.
Investing Activities
- --------------------
True North's net capital expenditures for property and equipment were $10.7
million for the quarter ended March 31, 2000. These expenditures primarily
related to True North's worldwide investment in technology, coupled with
leasehold improvements related to office moves. True North anticipates that
capital expenditures in 2000 will approximate 1999's level and has no material
commitments for future expenditures.
In the first quarter of 2000, True North acquired several companies to
enhance its network, primarily in Europe. True North anticipates that it will
continue to pursue acquisitions opportunities that will expand its capabilities
and geographical presence.
Financing Activities
- --------------------
At March 31, 2000, True North was in compliance with all covenants and
conditions related to its Revolving Credit Agreement and certain other debt
agreements.
In March 2000, MMPT announced that it had filed a registration statement
with the Securities and Exchange Commission relating to a proposed public
offering of 4.5 million shares of its common stock. As part of the proposed
offering, True North was offering to sell 2.5 million shares. Subsequently,
MMPT postponed the offering due to adverse market conditions.
True North has paid cash dividends at an annual rate of $0.60 per share
over the past ten years. Determination of the payment of dividends is made by
True North's Board of Directors on a quarterly basis. True North anticipates
that its cash flow from operations will be adequate to continue payment of
dividends at similar levels in 2000.
12
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
True North continues to acquire shares of its own stock under a 1998 Board
of Directors resolution authorizing the purchase of up to $30.0 million. As of
March 31, 2000, the remaining amount of such authorization is approximately $6.9
million. True North repurchases its stock primarily to meet its obligations
under various stock-based compensation plans.
True North believes that cash flow from operations, along with current cash
balances, will be sufficient to satisfy working capital and other operating
requirements in 2000. In the event additional funds are required, True North
believes it will have sufficient resources, including borrowing capacity, to
meet such requirements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
True North's consolidated financial statements are denominated in U.S.
dollars. In 1999, True North derived approximately 26% of its revenues from
operations outside the United States. Currency fluctuations may give rise to
translation gains and losses when financial statements of foreign operating
units are translated into U.S. dollars. Significant strengthening of the U.S.
dollar against major foreign currencies could have an adverse impact on True
North's results of operations.
In general, True North incurs most of its costs to support the related
revenues in the same currency in which these revenues are billed, thereby
reducing exposure to currency fluctuations. In the past, True North has not
hedged foreign currency profits into U.S. dollars, because management has
believed that, over time, the costs of a hedging program outweigh any benefit of
greater predictability in the Company's U.S. dollar denominated profits.
However, as True North continues to extend the depth and breadth of its foreign
operations, management will from time to time reconsider the issue of whether a
foreign currency hedging program would be beneficial to its operations.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Part 1, Note 5 to the Registrant's unaudited notes
to financial statements in this Quarterly Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Employment Agreement between Donald L. Seeley and
Registrant dated as of March 16, 2000.
(b) Reports of Form 8-K:
(1) Form 8-K filed on February 18, 2000, reported certain
recent events concerning the Registrant's conclusion of
arbitration with Publicis S.A.
(2) Form 8-K filed on March 3, 2000, reported certain
management changes.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRUE NORTH COMMUNICATIONS INC.
(Registrant)
Kevin J. Smith
------------------------------
(Signature)
Kevin J. Smith
Executive Vice President
Chief Financial Officer
Date: May 15, 2000
15
<PAGE>
[LOGO OF TRUE NORTH COMMUNICATIONS, INC.]
101 EAST ERIE STREET, CHICAGO, ILLINOIS 60611-2897, USA PHONE 312 425 6500
FAX 312 425 6350
DAVID A. BELL
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
April 5, 2000
Via Overnight Mail
Mr. Donald L. Seeley
1862 N. Dayton
Chicago, IL 60614
Re: Continued Employment
--------------------
Dear Don:
The purpose of this letter is to set forth the terms and conditions of
your continued employment with True North Communications Inc. (the "Company")
and to confirm certain other aspects relating to your new position with the
Company.
1. Employment Period. You have resigned as Executive Vice President and Chief
Financial Officer effective March 15, 2000. Beginning March 16, 2000, you
will serve as an employee of the Company for so long as that arrangement is
mutually acceptable to both you and the Company (the "Employment Period").
As of the date hereof, both parties contemplate that the Employment Period
will last for at least one year.
2. Employment Duties and Responsibilities. During the Employment Period, you
will serve as Advisor to the Chief Executive Officer of the Company and
will perform employment services no less than five days each calendar
quarter. You will report directly to the Chief Executive Officer and will
perform such services, consistent with your status as a former Executive
Vice President and Chief Financial Officer, as are reasonably requested by
the Chief Executive Officer or the Board of Directors of the Company from
time to time. During the Employment Period, you will also agree to
continue to serve as one of the Company's employee representatives on the
Company's Board of Directors and the Board of Directors of Modem Media .
Poppe Tyson, Inc. (assuming your continued nomination to serve as such and
your continued election by stockholders).
<PAGE>
Mr. Donald L. Seeley
April 5, 2000
Page 2
3. Compensation and Benefits. Your compensation during the Employment Period
shall consist of the following (subject to applicable tax withholding
obligations):
. Base salary at the rate of $120,000 per year, payable in accordance with
the payroll procedures for salaried employees.
. Quarterly bonuses in amounts to be determined by the Chief Executive
Officer in his sole discretion for special contributions to the Company,
including time spent preparing for and attending special Company and
Modem Media . Poppe Tyson, Inc. Board of Directors' and committee
meetings as an employee representative of the Company.
. During the Employment Period, you will remain eligible to make pre-tax
contributions and receive corresponding Company matching contributions
under the True North Retirement Plan. You will not be eligible for any
incentive compensation, fringe benefits or other employee benefits
during the Employment Period.
. During the Employment Period, the Company shall reimburse you for all
reasonable travel and other business expenses incurred by you in the
performance of your duties hereunder in accordance with the Company's
standard business expense reimbursement policies and procedures.
4. Treatment of Other Employee Benefits. Based on the transition of your
responsibilities with the Company, the following shall apply:
. True North Retirement Plan. You will not be eligible to receive a
distribution from this Plan until the end of the Employment Period
(subject to certain early withdrawal rights that would apply once you
reach age 59-1/2).
. True North Executive Deferred Compensation Plan. Your participation in
this Plan will cease as of March 15, 2000, because your adjusted
compensation will not meet the applicable thresholds for participation
in the Plan. Distribution of your benefits from this Plan (and the
corresponding "Integration" Plans) will be made in accordance with your
earlier election(s).
. True North Stock Options. In accordance with and subject to the terms
of the applicable stock option agreements, you will continue to vest in
your outstanding unvested stock options during the Employment Period. To
recognize your past service to the Company, the Compensation Committee
granted you a stock option for 50,000 shares in March 2000. In
accordance with the terms and conditions of the underlying stock option
agreement (which is attached hereto as Exhibit A), this stock
<PAGE>
Mr. Donald L. Seeley
April 5, 2000
Page 3
option is fully vested and exercisable immediately, and shall remain
exercisable until March 1, 2005.
. Restricted Stock. In accordance with and subject to the terms of the
applicable restricted stock agreement, you will continue to vest in your
outstanding unvested restricted stock during the Employment Period.
. Earnings Performance Units. All of your earnings performance units
shall be canceled as of March 15, 2000.
. Executive Life Insurance. You will receive information directly from
Paragon regarding your option to convert this coverage to an individual
policy.
5. Employment Relationship; Termination. During the Employment Period, you
will continue to be an employee at will, and either you or the Company may
terminate the relationship at any time with or without cause, upon 30 days'
advance written notice. Neither party has an obligation to base a decision
to terminate the employment relationship on any reason other than the
intent not to continue the relationship. If you remain a member of the
Board of Directors of the Company or the Board of Directors of Modem Media.
Poppe Tyson, Inc. after the end of the Employment Period, then you will be
compensated for such Board membership in accordance with the Company's
standard outside director compensation programs.
6. Resignation. By signing the form attached as Exhibit B, you have resigned
from the various officer and board of director positions listed, effective
March 15, 2000.
7. Entire Agreement. This letter agreement constitutes the entire agreement
between you and the Company and supersedes all prior agreements, including
the Employment Agreement dated May 1, 1998; provided that you remain
subject to the provisions of Sections 7, 8 and 9 of that Employment
Agreement, and the restrictions set forth in Section 7(a)(i)-(iii) of that
Employment Agreement shall apply during the Employment Period and during
your membership on the Board of Directors of the Company.
8. Confidentiality. The economic terms and conditions set forth in this
letter are to be kept strictly confidential; provided that you may disclose
these terms to your legal counsel, your personal tax and financial advisors
and to members of your immediate family.
<PAGE>
Mr. Donald L. Seeley
April 5, 2000
Page 4
Please sign below to indicate that you have reviewed this letter and are in
agreement with its terms.
Sincerely,
/s/ David A. Bell
David A. Bell
Agreed and Accepted:
/s/ Donald L. Seeley
________________________
Donald L. Seeley
Dated: 4/5/00
cc: Kevin Smith
Terry Peigh
Sue Bettman
Dan Barker
Paul Sollitto
Mike Oettinger
Tom Roberts
<PAGE>
EXHIBIT A
---------
[LOGO OF TRUE NORTH COMMUNICATIONS, INC.]
TRUE NORTH COMMUNICATIONS INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of March 2000 (the
"Date of Grant"), by and between TRUE NORTH COMMUNICATIONS INC. (the
"Corporation"), a Delaware corporation, and Donald L. Seeley (the "Optionee").
WITNESSETH:
----------
WHEREAS, the Optionee is currently providing key services to the
Corporation or one of its subsidiary corporations;
WHEREAS, in recognition of the past services of the Optionee to the
Corporation and in contemplation of the key services to be performed by the
Optionee in the future, the Corporation considers it desirable and in its best
interest that the Optionee be given an inducement to acquire a proprietary
interest in the Corporation and an added incentive to advance the interests of
the Corporation in the form of an option to purchase common stock of the
Corporation ("Common Stock"); and
WHEREAS, the Compensation Committee of the Corporation, at a duly
constituted meeting held on the Date of Grant pursuant to the provisions of the
True North Communications Inc. Stock Option Plan (the "Plan"), granted the
Optionee the option described herein.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. This Agreement recites all the terms and conditions of the option
granted to the Optionee by the Corporation on the Date of Grant; provided,
however, that this Agreement is subject to the provisions of the Plan and shall
be interpreted in accordance therewith. The option evidenced by this Agreement
(the "Option") is intended to be a "non-qualified stock option" and shall not be
treated as an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
2. The Corporation grants to the Optionee the Option to purchase from
the Corporation 50,000 shares of Common Stock at the price of $37.00 per share,
being at least 100% of the fair market value of the stock on the Date of Grant,
in the manner and subject to the provisions hereinafter provided.
3. The Option herein granted shall terminate in all respects on, and
no exercise as to any shares covered by said Option shall be honored on or after
March 1, 2005 (the "Expiration Date"). Notwithstanding the foregoing, if at any
time during the term of the Option, the Optionee materially breaches any of his
obligations under Section 7 or 8 of the Employment Agreement between the
Optionee and the Corporation dated May 1, 1998, the Option shall expire
<PAGE>
and become null and void on the date of such breach.
4. The Option granted hereby is 100% vested and exercisable by the
Optionee at any time from the Date of Grant through the Expiration Date. During
the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee. If at any time during the term of the Option, the Optionee shall die,
the Option shall be exercisable by the Optionee's designated beneficiary or by
his estate, as applicable, from the date of death through the Expiration Date.
5. (a) The Option granted hereby shall be exercisable by the
delivery by the Optionee (or the Optionee's personal representative, as the case
may be) of a properly completed stock option exercise form to the Corporation or
its designee, attention: Assistant Treasurer, at its office at 101 East Erie
Street, Chicago, IL 60611-2897, stating the number of shares with respect to
which the Option is being exercised and specifying a date (unless payment is to
be made in the manner provided for in subparagraph (b) of this Paragraph) on
which the shares will be taken and payment made therefor. On or about the date
specified in the notice of election, the Corporation shall deliver, or cause to
be delivered, to the Optionee or the Optionee's designee stock certificates or
electronic shares for the number of shares with respect to which the Option is
being exercised, and for which full payment, including payment with respect to
any tax withholding obligations, has been received.
(b) At the request of the Optionee, and if approved by the Corporation
as provided in the Plan, payment for shares as to which the Option is being
exercised and/or payment of any federal, state, local or other tax withholding
obligation may be made by transfer to the Corporation of shares of the
Corporation already owned by the Optionee, or any combination of such shares and
cash, having a fair market value determined at the close of business on the date
of Option exercise equal to, but not exceeding, the Option price and/or the tax
withholding obligation, as the case may be. In the alternative and also at the
request of the Optionee and subject to the approval of the Corporation, the
Corporation may satisfy any such tax withholding obligation by withholding from
the number of shares to be delivered to the Optionee that number of shares
(based on the then fair market value of the shares) equal to the amount of such
tax to be withheld. Any such request shall be made in writing, and the
Corporation shall notify the Optionee within 14 days after receipt of the
disposition of such request. The denial of such request will not prevent the
Optionee from exercising the Option for cash or from paying the tax withholding
obligation in cash, as applicable. If such request is approved, the Corporation
shall within five days thereafter deliver, or cause to be delivered, to the
Optionee stock certificates for the number of shares as to which the Option is
being exercised, against payment therefore in whole or in part in shares of the
Corporation.
(c) Delivery of the shares may be made at the office of the
Corporation or at the office of a transfer agent appointed for the transfer of
shares of the Corporation, as the Corporation shall determine. Shares shall be
registered in the name of the Optionee or the Optionee's personal
representative, as the case may be. Neither the Optionee nor the Optionee's
personal representative shall have any of the rights of a shareholder until the
shares are issued as herein provided. In the event of any failure to take and
pay for the number of shares specified in the notice of election on the date
stated therein, the Option shall become inoperative as to such number of shares,
but shall continue with respect to any remaining shares subject to the Option as
to which exercise has not yet been made. Anything herein to the contrary
notwithstanding, if a law or any regulation of the Securities and Exchange
Commission or of any other body having
2
<PAGE>
jurisdiction shall require the Corporation or the Optionee to take any action in
connection with the shares specified in a notice of election before such shares
can be delivered to such Optionee, then the date stated therein for the delivery
of the shares shall be postponed until the fifth business day next following the
completion of such action.
6. The Option granted hereby shall not be assigned, pledged or
hypothecated in any way, shall not be subject to execution and shall not be
transferable by the Optionee other than by will, the laws of descent and
distribution or to a designated beneficiary in the event of the Optionee's
death. Any attempt at assignment, transfer, pledge, hypothecation or other
disposition of the Option granted hereby contrary to the provisions thereof, and
the levy of any attachment or similar proceeding upon the Option shall be null
and void.
7. If any change is made in the stock subject to the Option granted
hereby by reason of stock dividends or split-ups, appropriate actions shall be
taken by the Board of Directors of the Corporation as to the number of shares
and price per share subject to the Option in order to prevent dilution.
8. Upon the complete liquidation of the Corporation, any unexercised
portion of the Option shall be deemed canceled.
9. The Option, this Agreement and all determinations made and actions
taken pursuant thereto, to the extent otherwise not governed by the Internal
Revenue Code of 1986, as amended, the laws of the United States or the laws of
the State of Delaware, shall be governed by and construed in accordance with the
laws of the State of Illinois.
10. This Agreement shall be binding upon and inure to the benefit of
any successor or successors of the Corporation and any person or persons who
shall, upon the death of the Optionee, acquire any rights hereunder.
11. The Compensation Committee of the Corporation may, from time to
time, amend the terms and conditions of this Option, but only with the written
consent of the Optionee or the Optionee's legal representative.
12. The Option shall be null and void unless the Optionee shall
accept this Agreement by executing it in the space provided below and returning
this original executed Agreement to the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above mentioned.
OPTIONEE TRUE NORTH COMMUNICATIONS INC.
_______________________________ By: ___________________________________
Donald L. Seeley Name: _________________________________
Title: ________________________________
3
<PAGE>
Exhibit B
March 15, 2000
I, Donald L. Seeley, do hereby resign from each of the positions I hold
with respect to each of the entities listed below, all such resignations to be
effective as of the date hereof.
/s/ Donald L. Seeley
-----------------------------
Donald L. Seeley
FCB Worldwide L.L.C. Manager
FCB Worldwide, Inc. Director
Market Growth Resources, Inc. Director and Executive Vice President
True North Communications Inc. Vice Chairman, Executive Vice
President and Chief Financial Officer
True North Foundation Director
True North Holdings (Asia Pacific), Inc. Executive Vice President
True North Holdings (United Kingdom) Director
Limited
True North Management Executive Member
Committee
True North Outside Director Stock Option Member
Plan Administrative Committee
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 119,696
<SECURITIES> 1,892
<RECEIVABLES> 1,022,644
<ALLOWANCES> 14,557
<INVENTORY> 0
<CURRENT-ASSETS> 1,226,851
<PP&E> 333,006
<DEPRECIATION> 178,087
<TOTAL-ASSETS> 2,081,668
<CURRENT-LIABILITIES> 1,406,777
<BONDS> 0
0
0
<COMMON> 326,103
<OTHER-SE> 54,414
<TOTAL-LIABILITY-AND-EQUITY> 2,081,668
<SALES> 0
<TOTAL-REVENUES> 359,588
<CGS> 0
<TOTAL-COSTS> 339,954
<OTHER-EXPENSES> 792
<LOSS-PROVISION> 2,989
<INTEREST-EXPENSE> 3,858
<INCOME-PRETAX> 14,180
<INCOME-TAX> 6,097
<INCOME-CONTINUING> 10,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,160
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.20
</TABLE>
