As filed with the Securities and Exchange Commission on June 30, 2000


================================================================================   1

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington,WASHINGTON, D.C. 20549

                                   FORM 20-F

[ ]   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)12(g)
      OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

[ X ][X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended DecemberFOR THE FISCAL YEAR ENDED DECEMBER 31, 19992000

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

           Commission File Number 001-14736

                              SAATCHI & SAATCHI PLC
             (Exact name of Registrant as specified in its charter)

                                ENGLAND AND WALES
                 (Jurisdiction of incorporation or organization)

                             83/89 WHITFIELD STREET
                             LONDON W1A 4XA, ENGLAND
                    (Address of principal executive offices)FOR THE TRANSITION PERIOD FROM             TO

                            COMMISSION FILE NUMBER:

                              PUBLICIS GROUPE S.A.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


              N/A                 133, AVENUE DES CHAMPS-ELYSEES         REPUBLIC OF FRANCE
  (TRANSLATION OF REGISTRANT'S          75008 PARIS FRANCE         (JURISDICTION OF INCORPORATION
       NAME INTO ENGLISH)        (ADDRESS OF PRINCIPAL EXECUTIVE          OR ORGANIZATION)
                                             OFFICES)
Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: Ordinary shares of 10p each
NAME OF EACH EXCHANGE TITLE OF EACH CLASS: ON WHICH REGISTERED: -------------------- --------------------- Ordinary shares, nominal value E0.40 per share, The New York Stock Exchange represented by New York Stock Exchange, Inc. American Depositary Shares (as evidenced by American Depositary Receipts), each American Depositary Share representing one share
Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 224,356,523 ________________________138,219,819 ordinary shares, nominal value E0.40 per share. 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|_|days: Yes [X] No [ ]. Indicate by check mark which financial statement item the registrant has elected to follow.follow: Item 17 |_|[ ] Item 18 |X|[X]. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTRODUCTION2 FORWARD-LOOKING STATEMENTS We make some forward-looking statements in this annual report. When we use the words "aim(s)," "expect(s)," "feel(s)," "will," "may," "believe(s)," "anticipate(s)" and similar expressions in this annual report, we are intending to identify those statements as forward looking. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this annual report. Other than in connection with applicable securities laws, we undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. We urge you to review and consider the various disclosures we make concerning the factors that may affect our business carefully, including the disclosures made under "Key Information -- Risk Factors," "Operating and Financial Review and Prospects," and "Quantitative and Qualitative Disclosures About Market Risk." Unless the context otherwise requires, theindicated, information and statistics presented in this document regarding market trends and our market share relative to our competitors are based on our own research and various publicly available sources. EXPLANATORY NOTE Unless otherwise indicated, all references to our competitive positions made in this annual report are in terms of revenue generated. The term the "Company,"billings," as used herein shall meanin this annual report, represents calculated amounts determined in accordance with common industry practices to facilitate comparison with other major companies in our industry and does not represent amounts generated from our accounting systems. The commission and fee revenues that are generated directly from our accounting systems do not permit a reliable comparison with the operations of other major companies because they exclude, notably in France following the implementation of the Loi Sapin in March 1993, purchases of media space by agents on behalf of their clients. See "Information on the Company -- Business Overview -- Governmental Regulation." In addition, in some foreign countries, total purchases and sales of media space are not reflected in statements of income. Billings are determined by taking the advertising budgets of clients and applying a coefficient (typically 6.67) corresponding to the traditional agency commission of 15%. Billings therefore reflect the volume of advertising budgets managed, independent of the contractual provisions between our company and our clients. i 3 TABLE OF CONTENTS
PAGE ---- Identity of Directors, Senior Management and Advisers....... 1 Offer Statistics and Expected Timetable..................... 1 Key Information............................................. 1 Information on the Company.................................. 7 Operating and Financial Review and Prospects................ 18 Directors, Senior Management and Employees.................. 27 Major Shareholders and Related Party Transactions........... 33 Financial Information....................................... 35 The Offer and Listing....................................... 36 Additional Information...................................... 38 Quantitative and Qualitative Disclosures About Market Risk...................................................... 50 Description of Securities Other Than Equity Securities...... 51 Defaults, Dividend Arrearages and Delinquencies............. 52 Material Modifications to the Rights of Security Holders and Use of Proceeds........................................... 52 Financial Statements........................................ 53
ii 4 PART I ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not Applicable. ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE Not Applicable. ITEM 3: KEY INFORMATION SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial data of our company and should be read in conjunction with our financial statements and the information provided under "Operating and Financial Review and Prospects" and "-- Risk Factors." As described in note 2 to our financial statements, the selected financial data presented below have been prepared on a basis consistent with that used in our financial statements. Prior years have been restated as necessary for a consistent presentation. Our financial statements have been prepared in accordance with accounting principles generally accepted in France (French GAAP), which differs in certain significant respects from accounting principles generally accepted in the United States (U.S. GAAP). See note 29 to our financial statements for (i) a discussion of the principal differences between French GAAP and U.S. GAAP as they relate to us and (ii) a reconciliation to U.S. GAAP of our net income and shareholders' equity as calculated under French GAAP. The selected consolidated financial data for each of the five years ended December 31, 2000 have been extracted or derived from our audited financial statements, which were translated into euros using the fixed exchange rate for French francs and euros on January 1, 1999. Since January 1, 2000, our financial statements have been prepared in conformity with new accounting rules applicable to consolidated financial statements in France (nouvelles regles et methodes relatives aux comptes consolides). The new rules, issued by the French accounting rules and regulation committee (the Comite de Reglementation Comptable), were approved on June 22, 1999 and became effective on January 1, 2000. The new rules differ from the rules previously applied in terms of accounting for business combinations, deferred income taxes, assets under capital leases, conversion of French financial statements of foreign subsidiaries and exchange rate differences on accounts receivable and payable stated in foreign currencies. In accordance with the new rules, we have elected not to restate retroactively our accounting for business combinations and disposals completed in prior years.
YEAR ENDED DECEMBER 31, --------------------------------------------- 2000(3) 1999 1998(2) 1997(2) 1996(2) ------- ----- ------- ------- ------- (IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Revenue............................................ 1,770 1,042 851 663 571 Amounts in accordance with French GAAP Operating income................................... 275 156 116 86 67 Group net income................................... 128 74 47 35 28 Basic earnings per share(1)........................ 1.18 0.85 0.59 0.51 0.38 Diluted earnings per share(1)...................... 1.15 0.84 0.56 0.47 0.35 Dividends per share................................ 0.20 0.17 0.12 0.08 0.07 Amounts in accordance with U.S. GAAP Group net income................................... 34 73 -- -- -- Basic earnings per share(1)........................ 0.31 0.84 -- -- -- Diluted earnings per share(1)...................... 0.31 0.83 -- -- --
5
YEAR ENDED DECEMBER 31, --------------------------------------------- 2000(3) 1999 1998(2) 1997(2) 1996(2) ------- ----- ------- ------- ------- (IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA Amounts in accordance with French GAAP Tangible and intangible assets, net................ 1,303 437 383 255 272 Total assets....................................... 4,130 2,078 1,604 1,290 1,160 Bank borrowings and overdrafts (short and long-term)....................................... 901 212 124 124 106 Shareholders' equity............................... 299 345 314 240 238 Amounts in accordance with U.S. GAAP Shareholders' equity............................... 2,622 580 -- -- --
- --------------- (1) Per share data have been adjusted to reflect the 10 for 1 stock split that occurred on August 29, 2000. (2) Amounts have been restated from French francs into euros using the exchange rate set by the Council of the European Union for use as of January 1, 1999 of E1 = FF 6.55957. (3) 2000 amounts include the operations of Saatchi & Saatchi plc,for the period between the acquisition date in September 2000 through December 31, 2000. 2 6 EXCHANGE RATE INFORMATION Under the provisions of the Treaty on European Union negotiated at Maastricht in 1991 and signed by the then 11 member states of the European Union in early 1992, a European Monetary Union, known as EMU, was implemented on January 1, 1999 and a single European currency, known as the euro, was introduced. As of December 31, 2000, the following 11 member states participated in EMU and had adopted the euro as their national currency: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. The legal rate of conversion between the French franc and the euro was fixed on December 31, 1998 at E1.00 = FF 6.55957, and we have translated French francs into euros at that rate. Share capital in our company is represented by ordinary shares with a nominal value of E0.40 per share (generally referred to as "our shares"). Our shares are denominated in euros. Because we intend to pay cash dividends denominated in euros, exchange rate fluctuations will affect the U.S. dollar amounts that our shareholders will receive on conversion of dividends from euros to dollars. The following table shows the French franc/U.S. dollar exchange rate for 1996 through 1998 based on the noon buying rate expressed in French francs per $1.00, and the euro/U.S. dollar exchange rate for 1999 through June, 2001 based on the noon buying rate expressed in dollars per euro. For information regarding the effect of currency fluctuations on our results of operations, see "Operating and Financial Review and Prospects."
PERIOD AVERAGE END RATE* HIGH LOW ------ ------- ---- ---- EURO/U.S. DOLLAR June 2001................................................... 0.85 0.85 0.87 0.84 May 2001.................................................... 0.85 0.87 0.89 0.85 April 2001.................................................. 0.89 0.89 0.91 0.87 March 2001.................................................. 0.88 0.91 0.94 0.88 February 2001............................................... 0.92 0.92 0.94 0.90 January 2001................................................ 0.93 0.94 0.96 0.91 2000........................................................ 0.93 0.92 1.03 0.83 1999........................................................ 1.00 1.06 1.17 1.00 U.S. DOLLAR/FRENCH FRANC 1998........................................................ 5.62 5.90 6.17 5.41 1997........................................................ 5.99 5.84 6.35 5.21 1996........................................................ 6.23 5.12 5.29 4.89
- --------------- * For yearly totals, the average of the noon buying rates for French francs or euros, as the case may be, on the last business day of each month during the relevant period. 3 7 RISK FACTORS You should carefully consider the risk factors described below in addition to the other information presented in this annual report. WE MAY HAVE DIFFICULTY COMPETING IN THE HIGHLY COMPETITIVE ADVERTISING AND COMMUNICATIONS INDUSTRY The advertising and communications industry is highly competitive and we expect it to remain so. Our competitors in the advertising and communications business run the gamut from large multinational marketing and communications companies to smaller agencies that operate only in local or regional markets. In addition, major consulting firms have recently begun to develop practices in marketing and communications. New competitors also include systems integrators, database marketing and modeling companies and telemarketers offering technological solutions to marketing and communications issues faced by clients. We must compete with these companies and agencies to maintain existing client relationships and to obtain new clients and assignments. Some clients require us to compete for business at mandatory periodic intervals. We believe that large multinational companies will increasingly seek to consolidate their accounts with a limited number of organizations that can satisfy their marketing and communications needs worldwide. This trend is likely to require companies seeking to compete effectively in the international advertising and communications industry to provide a comprehensive range of advertising and communications services. Some of our competitors may be able to provide a more complete range of services, or provide services in more markets, than we can at present. WE MAY BE ADVERSELY AFFECTED BY A DOWNTURN IN THE ADVERTISING AND COMMUNICATIONS INDUSTRY The advertising and communications industry is subject to downturns corresponding to those in general economic conditions and changes in client business and marketing budgets. Because some clients may respond to general economic downturns by reducing their marketing budgets in order to meet earnings goals, downturns may be more severe in the advertising and communications industry than in other industries. For this reason, our prospects, business, financial condition and results of operations may be materially adversely affected by a downturn in general economic conditions in one or more markets or changes in client business and marketing budgets. WE MAY NOT BE SUCCESSFUL IN IDENTIFYING APPROPRIATE ACQUISITION CANDIDATES OR INVESTMENT OPPORTUNITIES, COMPLETING ACQUISITIONS OR INVESTMENTS ON SATISFACTORY TERMS OR INTEGRATING NEWLY ACQUIRED COMPANIES Our business strategy includes enhancing our existing advertising and communications capabilities and deepening our geographic presence. We intend to implement this strategy in part by making acquisitions and other investments. We may not be successful in identifying appropriate acquisition candidates or investment opportunities or consummating acquisitions or investments on terms satisfactory to us. In addition, we may not succeed in integrating any newly acquired companies into our existing global networks in a way that produces the synergies or other benefits we hope to achieve. Furthermore, we may use our shares as consideration in future acquisitions and investments, which was formedcould result in dilution to existing shareholders. WE ARE DEPENDENT UPON, AND RECEIVE A SIGNIFICANT PERCENTAGE OF OUR REVENUES FROM, LARGE CLIENTS A significant reduction in advertising and communications spending by, or the loss of one or more of, our largest clients could weaken our financial condition and cause our business and results of operations to suffer. Our major clients may not continue to use our services to the same extent, or at all, in the future. Clients can typically cancel contracts with their advertising agencies on 90 to 180 days' notice. In addition, clients generally are able to reduce advertising and communications spending or cancel projects at any time for any reason. 4 8 GOVERNMENT REGULATIONS OR SELF-REGULATORY STANDARDS RELATING TO THE USE OF INFORMATION ABOUT CONSUMERS COULD HARM OUR OPERATIONS In a number of countries, particularly in Europe and North America, growing concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased governmental scrutiny and legislative and regulatory activity concerning data collection and use practices. Various governmental authorities have recently proposed limitations on the collection and use of information regarding Internet users. In October 1998, the European Union adopted a directive that limits the collection and use of information regarding Internet users in Europe. In addition to government activity, a number of industry and privacy advocacy groups are considering various new, additional or different self-regulatory standards. Because some of our operations rely on the collection and use of client data, this scrutiny, and any legislation, regulations or standards promulgated as a result, could adversely affect our business and results of operations. WE ARE EXPOSED TO A NUMBER OF RISKS FROM OPERATING IN DEVELOPING COUNTRIES We conduct business in various developing countries around the world. The risks associated with conducting business in developing countries can include slower payment of invoices, nationalization, social, political and economic instability, increased currency exchange risk and currency repatriation restrictions, among other risks. We may not be able to insure or hedge against these risks. In addition, commercial laws in many of these countries can be vague, arbitrary, contradictory, inconsistently administered and retroactively applied. It is therefore difficult for us to determine with certainty at all times the exact requirements of these laws. If we are deemed not to be in compliance with applicable laws in developing countries in which we conduct business, our prospects, business and results of operations could be harmed, and our financial condition could be weakened. WE ARE EXPOSED TO POTENTIAL LIABILITIES, INCLUDING LIABILITIES ARISING FROM ALLEGATIONS THAT OUR CLIENTS' ADVERTISING CLAIMS ARE FALSE OR MISLEADING OR THAT OUR CLIENTS' PRODUCTS ARE DEFECTIVE From time to time, we may be, or may be joined as, a defendant in litigation brought against our clients by third parties, including our clients' competitors, governmental or regulatory authorities or consumers. These actions could involve claims alleging that: - advertising claims made with respect to our clients' products or services are false, deceptive or misleading; - our clients' products are defective or injurious; or - marketing and communications materials created for our clients infringe on the proprietary rights of third parties. The damages, costs, expenses or attorneys' fees arising from any of these claims could have an adverse effect on our prospects, business, results of operations and financial condition to the extent we are not adequately insured and are not indemnified for them by clients. In addition, our contracts with clients generally require us to indemnify clients for claims brought by competitors or others asserting that our advertisements or other communications infringe upon their intellectual property rights. OUR ABILITY TO MAINTAIN OUR COMPETITIVE POSITION DEPENDS ON RETAINING THE SERVICES OF OUR MANAGEMENT AND ATTRACTING AND RETAINING OTHER KEY EMPLOYEES The loss of the services of key members of our management could harm our business and results of operations. In addition, our success has been, and is expected to continue to be, highly dependent upon the skills of our creative, research, media and account personnel and practice group specialists, and their relationships with our clients. Our employees have generally not signed non-compete agreements that restrict their ability to work for our competitors. If we are unable to continue to attract and retain additional key personnel, or if we are unable to retain and motivate our existing key personnel, our prospects, business, financial condition and results of operations would be materially adversely affected. 5 9 CURRENCY EXCHANGE RATE FLUCTUATIONS MAY NEGATIVELY AFFECT OUR FINANCIAL RESULTS, THE PRICE OF OUR SHARES AND THE VALUE OF DIVIDENDS RECEIVED BY HOLDERS OF OUR ADSs We hold assets and liabilities, earn income and pay expenses of our subsidiaries in a variety of currencies. Our financial statements are presented in euros. Therefore, when we prepare our financial statements, we must translate our assets, liabilities, income and expenses in currencies other than the euro into euros at then-applicable exchange rates. Consequently, increases and decreases in the value of the euro will affect the value of these items in our financial statements, even if their value has not changed in their original currency. In this regard, an increase in the value of the euro relative to other currencies may result in a decline in the reported value, in euros, of our interests held in those currencies. To the extent this has a negative effect on our financial condition as presented in our financial statements, it could cause the price of our shares to decline. Conversely, if the relative value of the euro to the U.S. dollar declines, the U.S. dollar equivalent of cash dividends paid in euros on our American Depositary Shares (ADSs) will decline as well. THE ABILITY OF HOLDERS OF OUR ADSs TO INFLUENCE THE GOVERNANCE OF OUR COMPANY MAY BE LIMITED Holders of our ADSs may not have the same ability to influence the governance of our company as shareholders in some U.S. companies would. For example, holders of our ADSs may not receive voting materials in time to ensure that they can instruct the depositary to vote their shares. In addition, the depositary's liability to holders of our ADSs for failing to carry out voting instructions or for the manner of carrying out voting instructions is limited by contract. SOME PROVISIONS OF FRENCH LAW AND OUR STATUTS COULD HAVE ANTI-TAKEOVER EFFECTS French law requires any person who acquires more than 5%, 10%, 20%, one-third, one-half or two-thirds of our outstanding shares or voting rights to inform us within 15 days of crossing the threshold percentage. A person acquiring more than 10% or 20% of our share capital or voting rights must include in the report a statement of the person's intentions relating to future acquisitions or participation in the management of our company for the following 12-month period. Shareholders who fail to comply with this requirement may be deprived of voting rights for a period of up to five years and may, in some cases, be subject to criminal fines. In addition, our statuts provide double voting rights for shares owned by the same shareholder in registered form for at least two years. Our statuts further provide that any person who acquires or disposes of more than 1% of our outstanding shares or voting rights must inform us within 15 days of crossing the threshold percentage. Shareholders who fail to comply with this requirement may be deprived of voting rights in excess of the relevant threshold for a period of up to two years. Finally, our shareholders have authorized our management board to increase our capital in response to a third party tender offer for our shares. These circumstances could have the effect of discouraging or preventing a change in control of our company without the consent of our current management. Giving effect to the double voting rights provision of our statuts, we estimate that at least 45% of the voting power of our company is held by descendants of Marcel Bleustein-Blanchet, our founder, and our directors and employees. WE ARE SUBJECT TO CORPORATE DISCLOSURE STANDARDS THAT ARE LESS DEMANDING THAN THOSE APPLICABLE TO SOME U.S. COMPANIES As a foreign private issuer, we are not required to comply with the notice and disclosure requirements of the Securities Exchange Act of 1934, as amended, relating to the solicitation of proxies for shareholders' meetings. Although we are subject to the periodic reporting requirements of the Exchange Act, the periodic disclosure required of non-U.S. issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Therefore, there may be less publicly available information about our company than is regularly published by or about other public companies in the United States. 6 10 ITEM 4: INFORMATION ON THE COMPANY HISTORY AND DEVELOPMENT OF THE COMPANY The legal name of our company is Publicis Groupe S.A. and its commercial name is Publicis. Our company is a societe anonyme, a form of corporation. It was incorporated in 1938, pursuant to the French commercial code, for a term of 99 years. Our registered office is located at 133, avenue des Champs-Elysees, 75008 Paris, France, and the phone number of that office is 331 44 43 70 00. HISTORICAL BACKGROUND Our company was founded in 1926 by Marcel Bleustein-Blanchet, known as the "father of modern advertising in France" and the "David Ogilvy of French advertising" because of his drive for innovation, his creativity in developing successful campaigns for clients and the new standards of excellence he set. Among his early innovations was the use of radio for advertising: In 1934, due to a ban on advertising on France's government-owned radio stations, he created Radio Cite, the country's first private station. He launched Regie Presse, a subsidiary dedicated to the sale of advertising space in the press, in 1937. When the Second World War began, Mr. Bleustein-Blanchet decided to shut down both our company and Radio Cite. We re-opened in 1946 and won our first major post-war client, Colgate Palmolive, a year later. Through Regie Presse, we also expanded into the sale of media space in mass transit systems. Realizing the importance of monitoring consumer habits and expectations, Mr. Bleustein-Blanchet established a market research unit as part of our company. Our expansion continued in the 1940's and 50's in other ways as well. Nestle became a client in 1952; Shell joined us in 1954. We moved our headquarters to its current location on the Champs-Elysees in Paris in 1957. Our reputation for innovation was strengthened in 1968 when we created the first television advertising campaign in France. Also in 1968, we provided communications advice to Saint Gobain in its successful defense of a hostile takeover attempt by BSN, the first hostile takeover bid in French business history. Clients won in the 1960's included Renault and L'Oreal. We became a public company in England1970. In 1972, our headquarters building was destroyed by fire and Wales on January 26, 1990we had to rebuild it. We began pursuing a strategy of expansion in Europe through acquisitions the same year, purchasing the Intermarco network in the Netherlands (with offices in Belgium, Germany, Scandinavia, Italy and Spain) and Farner in Switzerland (with offices in Germany and Austria). By 1974, we were present in 14 European countries. We made our first inroads in interactive communications in this period with the founding of SGIP, since renamed Publicis Technology. Our current chief executive officer, Maurice Levy, joined our company in 1971 and became chief operating officer of Publicis Conseil in 1976. In 1978, our European expansion continued through our acquisition of the McCormick agency, a well-known U.K. firm. In 1981, we opened our first New York office. In 1984, we regrouped our network, then present in 23 countries, under the Companies Act"Publicis" name. We founded our media buying subsidiary Optimedia in 1987, and it began operations in France, the United Kingdom and Switzerland. Also in 1987, Maurice Levy became our chief executive officer and president of our management board. We entered into a major strategic alliance with U.S.-based Foote, Cone & Belding Communications (FCB) in 1988. We merged our operations in Europe with those of FCB, thus becoming the leading advertising network in Europe. We managed the combined European operations, making substantial investments in developing them, particularly in Spain and Italy. Through FCB, we also raised our profile among corporations in the United States. In 1989, we began expanding into eastern Europe. The same year, we won Whirlpool's worldwide account and launched a European direct marketing network, since renamed Publicis Dialog. Our expansion accelerated in the 1990's. We created BMZ, a new network operating in Germany, France, the United Kingdom, Belgium, The Netherlands and Italy, in 1992. The next year we acquired FCA, the fourth largest communications group in France. We then merged FCA and BMZ to create FCA!BMZ, a subsidiary with operations in 12 European countries. In 1994, we merged our New York office with Bloom, a U.S. subsidiary of FCA, as part of an effort to further increase our presence in the United States. Coca-Cola 7 11 became a client in 1994. We discontinued our alliance with FCB in 1995 due to strategic divergences with its parent company, True North Communications, Inc. Mr. Bleustein-Blanchet died in 1996, and Elisabeth Badinter, Mr. Bleustein-Blanchet's daughter, succeeded him as chair of the supervisory board. We began our expansion outside of Europe in 1996, acquiring operations in Mexico, Brazil and Canada. Over the next three years, we built an impressive international network with a string of acquisitions in eastern Europe, the Middle East, Latin America and the Asia-Pacific region. We also expanded in the United States during this period, acquiring Hal Riney & Partners and EvansGroup in 1998 and a 49% interest in Burrell Communications in 1999. At the beginning of 2000, we had operations in 130 locations in 76 countries and ranked tenth worldwide among communications groups. (Unless otherwise indicated, all references to our competitive positions made in this annual report are in terms of revenue generated). The year 2000 was re-registered asmarked by a public limited company on September 4, 1997further acceleration of our expansion strategy. We acquired controlling interests in connectiona number of major U.S. agencies, including the Fallon Group, Frankel & Company, DeWitt Media and Winner & Associates, thus becoming a major competitor in the U.S. market. Even more significantly, we dramatically increased the size of our operations with the Demerger (as defined below). Unless the context otherwise requires, the "Group" and the "Saatchi & Saatchi Group" mean the Company and its subsidiaries. Unless the context otherwise requires, "Cordiant" shall mean Cordiant plc and its subsidiaries in relation to the period prior to the Demerger and "CCG" or "CCG Group" shall mean Cordiant Communications Group plc and its subsidiaries after the Demerger. The term "Ordinary shares" refers to the Ordinary shares of 10p each of the Company. The term "Financial Statements" shall mean the audited consolidated financial statements and notes theretoacquisition of Saatchi & Saatchi plc, with its network of operations across 92 countries. In addition, we became the world's leading healthcare communications company as a result of our acquisition of a controlling interest in Nelson Communications. Reflecting our increasingly international focus, our shares, represented by ADSs, began trading on the New York Stock Exchange following the Saatchi & Saatchi acquisition. As a result of our internal and external expansion, we are now the sixth leading advertising and communications company in the world, with operations in 170 cities in 102 countries around the world and over 20,000 employees. On a pro forma basis, we generated revenue of E2.2 billion in 2000. PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES As a result of our strategy of global expansion, our principal capital expenditures since the beginning of 1998 have been associated with acquisitions of other advertising and communications firms. In 1998, for example, we acquired all of, or controlling interests in: - Hal Riney, a U.S. advertising and public relations firm (that has been renamed Publicis & Hal Riney); - Casadevall Pedreno & PRG, one of Spain's most prestigious agencies; - Malaysia's Wet Desert agency and a 50% interest in Prakit, an agency with operations in Thailand, Myanmar, Vietnam, Laos and Cambodia. - Capurro in Argentina, the "67" agency in Venezuela and Unitros in Chile. - SMW and Mediabec in Canada. We invested a total of E81 million (net of disposals and not including equity consideration) to acquire other companies in 1998. We made E62 million in other investments, of which E13 million went to repurchasing our own shares. In 1999, we continued to bolster our positions in key areas around the world: - in Asia, we acquired controlling interests in the Welcomm agency (Korea), AD Link (China) and AMA (the Philippines); - in the Middle East, we acquired a controlling interest in Publi-Graphics, a firm based in Lebanon with offices in seven countries in the region; and - in the United States, we acquired 49% of Burrell Communications, a respected agency focused on the African-American community and urban youth. Net acquisitions totaled E51 million in 1999. Other investments came to E115 million, of which E57 million was invested in repurchasing our own shares. 8 12 As noted above, we made a number of major acquisitions in 2000. The largest of these, Saatchi & Saatchi, was acquired in exchange for our shares, and therefore did not require any capital expenditure as such. Several of our other 2000 acquisitions, however, did involve capital expenditures, including our acquisitions of all of, or controlling interests in: - Fallon, a prestigious U.S. advertising agency; - Frankel, a leader in marketing services in the United States; - DeWitt Media, an agency that specializes in consulting and media buying, a focus that enabled us to introduce the Optimedia brand in the United States; - Winner & Associates, a U.S.-based public relations agency; - Nelson Communications, the largest healthcare advertising network in the United States (90% of the consideration for which consisted of our treasury shares); and - Publicistas Asociados, Peru's biggest advertising agency. We invested a total of E541 million (net of disposals and not including equity consideration) in making these acquisitions. We also invested in interactive communications by forming Publicis.Net, which brings together our new Internet-related operations around the world. Other investments came to E148 million, including E106 million of investments in fixed assets and E34 million spent in repurchasing our shares. For information concerning our level of ownership in the foregoing acquired agencies and our other subsidiaries as of December 31, 19992000, see note 28 to our financial statements. We have made several acquisitions since the beginning of 2001 in pursuit of our strategy of increasing our emphasis on specialized agencies and 1998marketing services and extending our geographical presence in key markets. The major acquisitions completed so far in 2001 include controlling interests in: - Fisch.Maier.Direkt, a Swiss direct marketing firm; - Carre Noir, one of the best design agencies in France; - Sanchez & Levitan, among the largest agencies in the United States focused on the rapidly-growing Hispanic community; - The Triangle Group, a leading U.K. marketing services agency; and - Fabianne Gershon Associates and Hudson Stone Group, two corporate and financial communications firms based in New York. BUSINESS OVERVIEW We are the world's sixth largest advertising and communications firm and operate two major global networks, Publicis Worldwide and Saatchi & Saatchi Worldwide. We intend to expand Fallon into a third global network with regional hubs in several key countries. We also have the world's largest healthcare communications network, combining Nelson Communications with the healthcare activities of the Publicis and Saatchi & Saatchi networks. In addition, through Zenithmedia (which we own jointly with Cordiant Communications) and Optimedia (a wholly owned subsidiary), we are the world's fourth largest media buying group. We have strong positions in key markets around the world. We rank first in Europe overall, and are among the top five advertising and communications companies in France, Germany, the United Kingdom, The Netherlands, Spain, Italy and Switzerland. As a result of our recent expansion, we are now among the ten largest advertising and communications firms in the United States and Canada as well. We are also well 9 13 represented in Asia, where our acquisition of Saatchi & Saatchi gives us a significantly expanded presence, the Middle East and Latin America. We provide services primarily in the following areas: - Traditional advertising services. We provide traditional advertising services through the Publicis, Saatchi & Saatchi and Fallon networks. These activities accounted for approximately two-thirds of our total revenue in 2000. - Specialized agencies and marketing services. We provide specialized communications services such as public relations, corporate and financial communications, direct marketing, sales promotion, interactive communications, design, media buying and media sales (collectively referred to as "SAMS") through subsidiaries including Nelson Communications, Frankel, Publicis Dialog, Publicis Consultants and Optimedia. CLIENTS We provide advertising and communications services to national and multinational clients around the world. In 2000, approximately one-third of our revenue came from globally-managed accounts (i.e., those for which we provide services in five or more countries). We generated the remaining two-thirds from clients of our subsidiaries around the world. This client mix, we believe, is advantageous in that locally-managed clients are often more profitable and tend to be focused on the discrete markets in which they operate, therefore diversifying our exposure to fluctuations in general market conditions. Locally-managed clients also give us an opportunity to take advantage of, and add to, our intimate knowledge of national and local cultures and business environments and to raise our profile in local markets. No one client accounted for more than 5% of our total revenue in 2000. The following chart discloses, for each of our largest clients in 2000, the yearsnumber of countries in which we provide services and the three year period ended December 31, 1999 included elsewhere herein. The term "Unaudited Pro Forma Financial Information for 1997" shall mean the unaudited pro forma financial information for 1997 included in this Report. The Company's financial statements appearing in this annual report are expressed in pounds sterling ("L"). References to "US dollars" or "$" are to United States dollars and references to "pounds sterling" "L", "pence" or "p" are to UK currency. The noon buying rate in the Citylength of New York for cable transfers in foreign currencies as announced by the Federal Reserve Bank of New York for customs purposes (the "Noon Buying Rate") on December 31, 1999 was L1.00 to $1.61. Unless otherwise specified, translations into US dollars contained herein are made at the Noon Buying Rate on December 31, 1999. The Noon Buying Rate on Juneour relationship:
NUMBER OF YEARS AS COUNTRIES CLIENT --------- -------- PUBLICIS WORLDWIDE Nestle.................................................. 50 48 Renault................................................. 20 37 Sara Lee/Dim............................................ 12 37 L'Oreal................................................. 70 21 Whirlpool............................................... 47 11 Siemens................................................. 34 9 Rowenta................................................. 23 7 Coca-Cola............................................... 33 6 British Airways......................................... 57 5 Hewlett-Packard......................................... 40 4 Inmarsat................................................ 79 4 Hermes.................................................. 20 3 Tefal................................................... 29 3 Club Med................................................ 29 2 UBS..................................................... 32 2 Ericsson................................................ 32 1
10 14
NUMBER OF YEARS AS COUNTRIES CLIENT --------- -------- SAATCHI & SAATCHI WORLDWIDE Procter & Gamble........................................ 67 80 General Mills CPW....................................... 22 77 DuPont.................................................. 13 52 Visa International...................................... 22 14 Toyota.................................................. 28 26 Johnson & Johnson....................................... 30 30 Sony Consumer Electronics............................... 29 2 Diageo Guinness......................................... 23 11
STRATEGY In 2000, was L1.00 to $1.51. References in this document to the "Companies Act" are to the Companies Act 1985, as amended, of England and Wales and references to the "Articles" are to the Company's Memorandum and Articles of Association. FORWARD LOOKING AND CAUTIONARY STATEMENTS This report contains certain "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements include statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Industry Background" relating to trendswe became a world leader in the advertising and communications industry in terms of geographical presence, array of services and flexibility. In view of this growth, our overall priority now is to increase on a country-by-country basis the scope of services we provide to clients, particularly services for which demand is growing rapidly, and to make selected acquisitions to round out our geographical presence and service offerings. The main components of this strategy are to: - EXPAND OUR OPERATIONS THAT PROVIDE SAMS -- SPECIALIZED AGENCIES AND MARKETING SERVICES We currently have a number of operations that complement our traditional advertising services by providing direct marketing, sales promotion, design, corporate communications, financial communications, interactive communications, public relations, media buying and media sales services. Demand in these areas is growing faster than demand for traditional advertising services, industry, particularly with respecta trend we believe is likely to anticipatedcontinue for the foreseeable future. Moreover, providing non-advertising services helps us to build and maintain a "total relationship" between consumers and our clients' brands. Demand is also growing rapidly for specialized communications services such as those directed at particular ethnic groups (in particular, African-American and Hispanic communities in the United States), healthcare communications and human resources communications. We intend to take advantage of these trends by growing our existing SAMS operations and by making selective acquisitions. Our goal is to have SAMS generate 45% of our total revenue in 2003, up from an estimated 33% in 2000. - PENETRATE THE JAPANESE ADVERTISING MARKET While we currently have some operations in Japan through the Publicis Worldwide and Saatchi & Saatchi Worldwide networks, it is our goal to become a major competitor there, possibly through one or more acquisitions. According to Zenithmedia, advertising expenditures in Japan were $37 billion in 2000, or $294 per capita; both figures were the world's advertising markets. Actual advertising expenditures may differ materiallyhighest in the world outside the United States. Increasing our presence in Japan will enhance our ability to provide services to multinational clients on a global basis. In addition, we believe that our strong brands, expertise and international experience provide us with competitive advantages that will allow us to gain market share and generate significant revenue growth from the estimates contained therein depending on,Japanese market. - MAKE SELECTIVE ACQUISITIONS TO ACHIEVE CRITICAL MASS IN OTHER SELECTED MARKETS We rank among other things, regional, nationalthe top five to ten advertising and international politicalcommunications firms in most of the major countries in which we operate, and economic conditions, technological changes, the availability of media and regulatory regimeswe believe this gives us a visibility that is useful in the world's advertising markets. Additionally, this report containscompetition for new clients. In some countries, however, we have only limited operations, and acquisitions may be required in order for us to reach a numberposition of "forward looking statements" relatingmarket leadership. In addition, we believe that our extensive international experience gives us a competitive advantage in pursuing opportunities for growth in emerging economies. For these reasons, we intend to seek acquisition candidates in selected markets around the Group's performance, particularlyworld in "Descriptionorder to expand into promising new markets and, where necessary, to enhance our competitive positions. 11 15 FINANCIAL TARGETS We believe that pursuing the strategy outlined above, and continuing the process of Business-General", "Descriptionintegrating our operations with those of Business-Competition" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the subheading "Industry Background". The Group's actual results could differ materially from those anticipated, depending on, among other things, gains to or losses from its client base, the amount of revenue derived from clients, the general level of advertising expenditures in the Group's markets referred to above, the Group's exposure to changes in the exchange rates of major currencies against the pound sterling (because a substantial portion of its revenues are derived and costs incurred outside of the United Kingdom), the factors discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Introduction", and the overall level of economic activity in the Group's major markets as discussed above. The Group's ability to reduce its fixed cost base in the short term is limited and therefore its trading performance can be significantly affected by variations in the level of its revenues. PART I Item 1. Description of Business. GENERAL The businesses that comprise thecompanies we have acquired, especially Saatchi & Saatchi, Group were transferredwill allow us to enhance our profitability and maximize shareholder value significantly over the near term. Our primary financial goals are to achieve in the 2003 fiscal year an 18% margin in terms of EBITDA over revenue and a 15% margin in terms of EBITA (earnings before interest, taxes and amortization of goodwill) over revenue, in each case as calculated under French GAAP. We had achieved those targets prior to the acquisition of Saatchi & Saatchi; accordingly, our current goals can be achieved by bringing Saatchi & Saatchi Groupup to a level of profitability consistent with our pre-acquisition performance. We expect that the majority of the improvement in our profitability will come from Cordiantdeveloping Saatchi & Saatchi's European operations and taking advantage of cross-selling opportunities and synergies in connection with the demergerprovision of thoseadministrative and back office services. As noted above, our goal in terms of business mix is to generate 55% of our revenue from traditional advertising and 45% from SAMS businesses by 2003. MARKETS We conduct operations in 102 countries and 170 cities around the world. Our primary markets are Europe and the United States. Below we show the contribution of selected geographical markets to our revenue for the years ending December 31, 2000, 1999 and 1998 (in millions of euros):
EUROPE (INCLUDING NORTH REST OF YEAR FRANCE) FRANCE AMERICA WORLD TOTAL ---- -------------- ---------- ----------- ----------- --------- 2000 878 342 688 204 1,770 1999 702 294 214 126 1,042 1998 631 274 154 66 851
OPERATING DIVISIONS We conduct our business through one segment -- advertising and communications -- which operates primarily through two divisions: Communications and Other Activities. Below we show the contribution of each division to our consolidated revenue for the years ending December 31, 2000, 1999 and 1998 (in millions of euros):
OTHER YEAR COMMUNICATIONS ACTIVITIES TOTAL - ---- ------------------ --------------- ---------- 2000.......................... 1,635 135 1,770 1999.......................... 923 119 1,042 1998.......................... 737 114 851
COMMUNICATIONS The Communications division consists of all our agencies involved in advertising, marketing services, media buying, planning and consulting and related disciplines. We generated more than 90% of our 2000 revenue from Cordiant in December 1997 (the "Demerger"). Prior to the Demerger, Cordiant was the holding company forour Communications operations. Communications services We provide a groupfull range of advertising and creative marketing communications businesses, including the Saatchi & Saatchi advertising network ("S&S"). Since its beginning in 1970, the Saatchi & Saatchi name has been synonymous with highly creative, ground-breaking advertising. In 1975, the Saatchi & Saatchi advertising agency was merged with Compton Partners Limited. During the 1980s, an international advertising network was formed, primarily throughservices, designing a seriescustomized package of acquisitions which included Compton Communications, Inc. and Dancer-Fitzgerald-Sample, Inc. In 1995, the S&S network was expanded to Latin America through an equity investment in NAZCA S&S, which was increased to a majority holding in early 1999. Investments have also been made in other developing markets, including China and India. As a result of these developments, S&S is today a worldwide advertising network with 152 offices and affiliated agencies located in 92 countries. In 1985, The Rowland Company, a US strategic communications firm, was acquired by Cordiant. In 1987, The Facilities Group Limited ("The Facilities Group") was formed through the amalgamation of a group of companies providing specialist advertising production services in design, print and television. Following the Demerger, the Saatchi & Saatchi Group retained the Rowland Company and a 70 percent shareholding in The Facilities Group with the remainder held by CCG. These creative communications businesses have developed during the 1990s by providing services to independent clients and S&S. In 1988, Zenith Media Buying Services Ltd. was formed.meet each client's particular needs. The operation was renamed Zenith Media Worldwide ("Zenith") in 1991 and in 1992 extended itscommunications services towe provide typically include media planning. Following the Demerger, the Saatchi & Saatchi Group and CCG each retained a 50 percent shareholding in Zenith, which is accounted for as a joint venture. As a resultone or more of the Demerger, the Company and CCG are separate publicly traded companies and operate independently of each other. Neither company has any interest in the shares of the other. However, the Company and certain companies that became its subsidiaries as a result of the Demerger entered into certain agreements and arrangements with CCG and Zenith in order to enable the Demerger to be carried out, allocate responsibility for certain obligations, provide for certain transitional arrangements and otherwise define their relationship following the Demerger. The terms of these agreements and arrangements arefollowing: - Traditional advertising services. Traditional advertising services principally governed by a Demerger Agreement, dated September 30, 1997, between Cordiant, the Company and CCG (the "Demerger Agreement"). These arrangements are described herein under "Description of Property" and "Options to Purchase Securities from Registrant or Subsidiaries." RECENT DEVELOPMENTS On June 20, 2000, the Company and Publicis S.A. ("Publicis") announced that they had reached agreement on the terms of a proposed merger to be implemented by way of a scheme of arrangement under the UK Companies Act 1985. Shareholders of the Company will receive 1.64 shares of Publicis ("New Publicis Shares") for every 100 Ordinary shares of the Company. In addition, Company shareholders will receive one Publicis contingent value right ("Publicis CVR") with each New Publicis Share, which will entitle the holder to a cash payment if the price of the Publicis shares falls below a certain level. The exchange ratio is subject to an adjustment mechanism that is intended to maintain, subject to certain limitations, the value of the Publicis shares to be received by the Company's shareholders in the merger in the event of changes in the market price of Publicis shares and the exchange rate between the Euro and the pound sterling (the "Adjustment Mechanism"). Subject to the Adjustment Mechanism, and assuming full exercise of outstanding Company options, existing Publicis shareholders will own approximately 69% and former Company shareholders will own approximately 31% of the combined company. The merger will be subject to certain conditions including the approval of the Company's shareholders and Publicis' shareholders and the sanction of the High Court of Justice in England and Wales. Subject to such conditions, the Merger is expected to become effective by the middle of September 2000. Additional details regarding the merger are set forth in the Company's Report on Form 6-K, filed on June 22, 2000. The Company's principal corporate offices are located at 83/89 Whitfield Street, London W1A 4XA, England, telephone number +44-(0)20-7436-4000. ORGANIZATION AND SERVICES The Saatchi & Saatchi Group's operations consist of advertising and other creative marketing services including strategic communications, pre-production services and media planning and buying. The Group's principal activities are organized as follows: Organization Activities - ------------ ---------- Advertising S&S Advertising and creative marketing services Marketing communications services Rowland Worldwide Strategic communications The Facilities Group1 Pre-production services in design, print and television Media services Zenith Media Worldwide2 Media planning and buying 1 Owned 70 percent by the Group and 30 percent by CCG. 2 Owned 50 percent by the Group and 50 percent by CCG. Advertising S&S is headquartered in New York and currently has 152 offices and affiliated agencies located in 92 countries. It has a reputation for outstanding creative ability and benefits from long-standing relationships with many multinational clients. In 1999, advertising accounted for approximately 93 percent of the Saatchi & Saatchi Group's revenues. Advertising services S&S is principally involved ininvolve the creation of advertising and creative marketing programs for products, services brands, companies and organizations. Thesebrands. They may also include strategic planning involving analysis of a product, service or brand compared to its competitors through market research, sociological and psychological studies and creative insight. The creation of advertising includes the 12 16 writing, design and development of concepts. When a concept has been approved by a client, we supervise the production of materials necessary to implement it, including film, video, print and electronic materials. Our advertising programs involve various media, such asincluding television, magazines, newspapers, cinema, radio, outdoor, electronic and interactive media, as well as techniques such as direct marketing, sales promotion and design. The creation of advertising and marketing materials includes the writing, designing and development of concepts. When the concepts have been approved by the client, S&S supervises the production of materials necessary to implement that program. These include film, video, print and electronic materials which are provided externally. S&S performs a strategic planning function which involves analysis of the particular product, service, brand, company or organization against its competitors and the market. This analysis includes the use of market research, sociological and psychological studies as well as creative insight. S&S also evaluatesmedia. We evaluate the choice of media to reach the desired market most efficiently and monitorsmonitor the effectiveness of the program. The advertising and marketing program is devised within the limits imposed by the client's advertising budget. In the case of global and regional campaigns, S&S planswe plan and coordinatescoordinate the implementation of the program through its networkthe efforts of our worldwide account directors and our networks of national agencies. S&S- SAMS. The full range of specialized communication services we offer complement our traditional advertising activities. Services provided by our specialized agencies and marketing services operations include: - Direct marketing. Direct marketing, also known as customer relationship management or CRM, focuses on building clients' relationships with individual customers (as opposed to traditional advertising services, which target groups of consumers or the public at large). Through our direct marketing operations, we assist clients in creating direct communications programs and provide the appropriate tools and database support to maximize the efficiency of those programs. - Sales promotion. Our sales promotion operations seek to increase sales and awareness of clients' products and consumer loyalty through point-of-sale promotions, coupon programs and similar means. - Specialized advertising services. Our specialized agencies provide services that are generally similar to those offered by our traditional agencies. Unlike traditional agencies, however, our specialized operations focus on particular areas of advertising that have distinct characteristics and require special knowledge and experience. We provide specialized services primarily in the following areas: -- Healthcare. We have a network of agencies, centered around Nelson Communications, that work exclusively with clients in the healthcare industry to reach consumers and doctors and other medical professionals through advertising campaigns, medical conferences and symposia and other means. These agencies also provide marketing services such as public relations, consulting and sales personnel recruitment and training. -- Human resources communications. Through our human resources operations, we create employee recruitment-related advertising, including classified advertising and campaigns to improve a client's overall image with prospective applicants, for companies seeking job applicants and recruiting firms. We also assist clients in developing internal communications programs. -- Ethnic communications. Some of our agencies have developed expertise in creating advertising and communications services aimed at particular ethnic groups, particularly African-Americans and Hispanics in the United States. - Media buying. Media buying services are often, though not always, provided in conjunction with other advertising services. Through our media buying operations, we analyze various media outlets, including television, print, radio, Internet and outdoor venues, and demographic and ratings information. In light of this analysis, we help plan the most effective means of pursuing an advertising or communications strategy. We then book the media space necessary to implement the strategy, using our experience and buying power to obtain favorable rates for our client. - Media sales. We provide media sales services through Medias & Regies Europe, as described under "-- Other Activities -- Medias & Regies Europe." - Corporate and financial communications. We provide corporate and financial communications services designed to assist clients in delivering their message to investors and the public and, in particular, to help clients achieve their goals in connection with mergers and acquisitions, initial 13 17 public offerings, spin-offs, proxy contests and similar matters. We also provide services aimed at helping clients address the communications and public relations aspects of publicized crises and other major events. - Public relations. Our public relations services are designed to assist clients with the management of their ongoing relations with the press and the public. These services include strategic message and identity development to help clients position themselves in their markets and differentiate themselves from their competitors; product and company launch or re-launch services, which aim to create awareness of and position a product or company with customers; and media relations services, which help clients enhance their brand recognition and image. - Design. Our design services are intended to enhance the visual symbols that affect a client's image and to ensure that the design and packaging of products are consistent with the means used to market them. - Interactive communications. Our interactive communications services consist primarily of website and intranet design, Internet-related direct marketing and related services and banner advertisement design. Research programs We have developed a number of programs designed to enhance the effectiveness of our communications services by providing anthropological, psychological and cultural insights into the behavior and attitudes of consumers and other target audiences. Our research programs include the following: - Get It Right. A strategic planning process developed within the Publicis Worldwide network, Get It Right is alsodesigned to ensure that a viable strategic opportunity and/or brand concept is identified before creative work is initiated; - Context Analysis. Context Analysis is a media screening tool used by agencies in the Publicis Worldwide network involved in buyingstrategic planning that uses sociological methods to track new trends and analyze the way the media spacecovers them; - Tweens. Tweens is a qualitative research tool intended to aid analysis of teenager behavior and time for its clients. Thislifestyles. Tweens is executedused by Zenith,agencies in the Publicis Worldwide network; - The Ideas Brief. The Ideas Brief is a system developed by S&S's in-house team or sourced from external suppliers. Clients In 1999, S&S's ten largest clients accounted for approximately 53 percent of the Saatchi & Saatchi Group's revenues.to help an agency identify ideas for transforming a client's business, brand, and reputation. The two largest clients, Toyotasystem has three parts: the "Equity Onion," which is used to identify a brand's core values or essence, the "Brand Axle," used to identify the extent to which a brand associated with one product can be successfully used to market other products, and Procter & Gamble, accountedthe "Brand Temple" for 19.3 percent and 13.6 percent, respectively, of themulti-product companies that use several sub-brands; - The Ideas Toolkit. The Ideas Toolkit is a Saatchi & Saatchi Group's revenuesprogram that facilitates the monitoring of the effectiveness of a communications program using anthropological and psychological methods; and - Yurban. Yurban is a unit of Burrell Communications dedicated to researching marketing strategies aimed at urban youth. Organization Major business units in 1999. In 1999, S&S served approximately 43 clientsour Communications division include the following: - Publicis Worldwide. This unit is comprised of all the Publicis agencies in five or more countries. DetailsEurope (other than France), Israel, the Middle East, South Africa, the Asia-Pacific region, Latin America and Canada. The majority of S&S's largest clientsits operations focus on traditional advertising services, but it has specialized agencies as well. Publicis Worldwide also includes some Publicis Dialog offices that are primarily involved in 1999marketing services, some Optimedia units that provide media buying services and recent significant new business wins from existingsome interactive communications operations. 14 18 - Publicis Conseil. Publicis Conseil operates exclusively in France, and new clients are set forth below: S&S Clients Number of countries Year relationship in which serviced first established ----------------- ----------------- Largest clients in 1999 American Home Products 35 1983 DuPont 23 1949 General Mills 1 1924 Hewlett-Packard 45 1974 Johnson & Johnson 36 1971 Pharmacia Upjohn 1 1999 Procter & Gamble 65 1921 Sony 32 1999 Toyota 31 1975 VISA 34 1990
Business winsconsists of subsidiaries involved in 1999 included Sony-Europe, Celebrity Cruises, Galaxo-Relenza, Unum Provident, Preussen Elektra, Iams, DuPonta variety of communications disciplines, including Publicis Dialog, a provider of marketing services and Hewlett Packard. Business lossesMedia System, a provider of human resources communications. - Publicis Consultants. Publicis Consultants is a specialized agency focusing upon corporate communications, financial communications, public relations and design. It has offices in 1999 included Delta, France Telecom, Norwich Union and Sanitarium. Network expertise The networkelsewhere in Europe. - Publicis USA Holdings. This group includes the majority of our operations in the United States: Publicis Inc., Publicis Dialog, Publicis & Hal Riney, Fallon, Duffy Design, Frankel, Burrell Communications, Sanchez & Levitan, Nelson Communications, Optimedia US and Winner & Associates, among others. These operations provide a separately branded healthcare marketing agency called Klemtner Advertising. In addition, S&S has established a numberfull range of teams to develop a greater understanding of certain specialist sectors. These include Saatchi Rowland in Rochester (formallyadvertising and communications services. - Saatchi & Saatchi Business Communications) for business-to-business communications,Worldwide. This network consists principally of Saatchi & Saatchi Vision for interactive and three dimensional media, Kid Connection for youth marketing, GMG for co-marketing and HealthCare Connection for healthcare marketing. The network hasagencies in 92 countries around the world. It also developed a series of methodologies designed to improve the agency's ability to understand consumer motivations. The Psychological Probe is designed to improve the understanding of emotional factors which shape consumer behavior. The Anthropological Probe is designed to understand the cultural factors formed by the consumers' living environment. The Brand Resource and Information Network, BRAIN, is a worldwide intranet allowing S&S to share product and brand knowledge both internally and with clients. Management believes that these areas of expertise provide the network with enhanced opportunities to attract new business and to extend business from existing clients. Marketing Communications Services Rowland Worldwide Rowland Worldwide is the Saatchi & Saatchi Group's international strategic communications consulting firm. Headquartered in New York, the Rowland Worldwide network has three core operating centers in London, New York and Sydney, with an additional six owned offices and 32 affiliated offices. Rowland's global network brings together for its clients strategic communications capabilities, expertise and local market knowledge to influence diverse and changing audiences worldwide. Rowland works with client companies to build their reputations and their businesses through strategic cross-disciplinary applications of communication techniques. These services assist clients in marketing new or existing products, defining business strategies, managing crises, addressing community issues and presenting financial results and business strategies. Rowland Worldwide advises clients on project-specific or long-term assignments. Its principal clients include Cadbury Schweppes, Canon, DuPont, European Space Agency, Johnson & Johnson and Smirnoff.includes The Facilities Group, Based in central London, The Facilities Groupa U.K. firm that provides a comprehensive range of technical and creative services in the areas of design, artwork, print artwork,and audiovisual production, and Rowland Communications, a public relations and corporate communications specialist with offices in the United States and several countries in Europe. - WAM. WAM is a production company located in France that creates audio visual, multimedia and video commercials. - Publicis.Net. Created in 2000, Publicis.Net includes Internet-oriented companies operating in France and elsewhere. - Optimedia. Optimedia operates a media buying network in 32 countries around the world. It has a strong presence in the United Kingdom, the United States, Germany and France. - Zenithmedia. This media buying group operates in 38 countries, with a strong presence in the United Kingdom, the United States and Spain. We own Zenithmedia jointly with Cordiant. OTHER ACTIVITIES Medias & Regies Europe Medias & Regies Europe consists of all our media sales activities. We conduct these activities, which are considered SAMS, in France and other European countries. Medias & Regies Europe contributed approximately 6% of our total revenue in 2000 on a pro forma basis. Medias & Regies Europe sells advertising space to advertising and media buying firms on behalf of media companies. In some instances, it sells space to advertising and media buying operations that are part of our Communications division. It does so, however, on an arm's-length basis, dealing with those businesses on the same terms as other customers. In 2000, more than 90% of our revenue in this category came from external clients; the remainder came from clients of our Communications operations. Broken down by type of venue, our primary Medias & Regies Europe activities are as follows: - Outdoor media. We place advertisements on billboards, in subways, at bus stops and in other public venues primarily through Metrobus, which operates in several French cities, Publex in Holland (a 50/50 joint venture with JC Decaux, a French media company) and Publisistemas in Spain. - Print. We place advertisements in major French newspapers and magazines such as Le Monde, Liberation, EDJ, Pariscope, Marianne, Tele Z and Le Nouvel Economiste. - Radio. Through Regie 1 in France and Intervoz Publicidade in Portugal, we place radio advertisements on stations including Europe 1 in France. - Movie Theatres. We place advertisements in movie theaters through Mediavision, France's largest movie theater advertising firm. Mediavision has subsidiaries located in Brazil, Holland, Switzerland, Italy, Spain and Poland. 15 19 In 2000, Medias & Regies Europe generated 48% of its revenue from outdoor media, 29% from print, 13% from radio and 10% from movie theatres. Others We also operate the Champs-Elysees drugstore, a shopping mall that includes a bookstore, gift shops, a pharmacy, a restaurant and a movie theatre. The drugstore is located on the first floor of our headquarters buildings on the Champs-Elysees in Paris, near the Arc de Triomphe. Our other activities also include internal accounting and administrative operations and a small subsidiary that manages invested funds. COMPETITION Our principal competitors include major international advertising and communications groups such as Omnicom Group, Inc., the Interpublic Group of Companies, Inc., WPP Group plc and Havas Advertising, independent local advertising agencies in markets around the world and SAMS businesses that focus on specialized areas of communications services. Advertising and communications markets are generally highly competitive and we continuously compete with national and international agencies for business. Competition may increase in the near future as a result of multinational clients' increasing consolidation of their advertising accounts with a very limited number of firms. GOVERNMENTAL REGULATION Our business is subject to government regulation in France, the United States and elsewhere. As the owner of advertising agencies operating in the United States which create and place print, television, production. Its revenuesradio and Internet advertisements, we are derivedsubject to the U.S. Federal Trade Commission Act. This statute regulates advertising in all media, including the Internet, and requires advertisers and advertising agencies to have substantiation for advertising claims before disseminating advertisements. In the event that any advertising we create is found to be false, deceptive or misleading, the Federal Trade Commission Act could potentially subject us to liability. In France, media buying activities are subject to the Loi Sapin, a law intended to require transparency in media buying transactions. Pursuant to the Loi Sapin, an advertising agency may not purchase advertising space from media companies on its own behalf and then resell the space on different terms to clients. Instead, the agency must act exclusively as the agent of its clients when purchasing advertising space. The Loi Sapin applies to advertising activities in France when both S&Sthe media company and the client or the advertising agency are French or are located in France. We are not aware of any existing, or contemplated, similar legislation in the other countries in which we operate. Governmental authorities in a variety of countries have proposed limitations on the collection and use of information regarding Internet users. In October 1998, the European Union adopted a directive that limits the collection and use of information regarding Internet users in Europe. In addition to government activity, a number of industry and privacy advocacy groups are considering various new, additional or different self-regulatory standards. Because our marketing services activities rely on the collection and use of client data, new regulations or standards imposed in this area could have a material adverse impact on our operations. SEASONALITY Clients' advertising and communications expenditures typically fluctuate in response to actual or expected changes in consumer spending. Because consumer spending in many of our major markets is typically lower in the beginning of the year (following the holiday season) and in July and August (the most popular vacation months in Europe and North America) than at other times of the year, advertising and communications expenditures are typically lower as well. Accordingly, our results of operations are often stronger in the second and fourth quarters of the year than they are in the first and third quarters. 16 20 RAW MATERIALS Our business is not typically affected in any material respect by changes in the availability or prices of any raw materials. MARKETING CHANNELS We market our services primarily by analyzing the communications needs of our clients and prospective clients and by demonstrating to such clients and prospective clients how we propose to meet those needs. Our strong brands and reputation are key elements of our marketing strategy. ORGANIZATIONAL STRUCTURE We conduct our operations primarily through the following subsidiaries:
COUNTRY OF OUR OWNERSHIP OUR VOTING NAME INCORPORATION INTEREST INTEREST - ---- ------------- ------------- ---------- Saatchi & Saatchi plc............................ U.K. 100.00% 100.00% Publicis Conseil S.A. ........................... France 99.61% 99.61% Publicis Worldwide B.V. ......................... Netherlands 100.00% 100.00% Publicis USA Holdings Inc. ...................... U.S. 100.00% 100.00% Medias & Regies Europe S.A. ..................... France 99.99% 99.99%
PROPERTY, PLANTS AND EQUIPMENT We conduct operations in 170 cities around the world. In general, we lease, rather than own, the office properties we use. As of December 31, 2000, we owned real property assets with a net book value of E59 million. Our principal real property asset is the building we own and use as our headquarters at 133 avenue des Champs-Elysees in Paris. We use approximately 11,000 square meters of office space in the building for advertising and communications activities; we use an additional 1,500 square meters for the Champs-Elysees drugstore. 17 21 ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion should be read in conjunction with the financial statements and related notes included elsewhere in this annual report. Our financial statements have been prepared in accordance with French GAAP, which differs in certain significant respects from U.S. GAAP. See note 30 to our financial statements for (i) a discussion of the principal differences between French GAAP and U.S. GAAP as they relate to us and (ii) a reconciliation to U.S. GAAP of our net income and shareholders' equity as calculated under French GAAP. The following discussion contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those described under "Key Information -- Risk Factors." Since the introduction of the euro on January 1, 1999, the functional and reporting currency of our company has been the euro (see note 1 to our financial statements). Prior to that date, the functional and reporting currency of our company was the French franc. Consequently, prior periods have been restated from French francs into euros using the official fixed exchange rate of E1 = FF 6.55957. These restated financial statements in euros reflect the same trends as would have been presented if our company had continued to present financial statements in French francs. OVERVIEW Our company grew dramatically in the 1998-2000 period, becoming one of the six largest advertising and communications groups in the world. This growth resulted both from acquisitions and from substantial improvements in the performance of our existing businesses in terms of revenue and income. Revenue grew 108% over the period and net income rose 172%. Organic growth in revenue (i.e., growth excluding the effect of acquisitions, disposals and changes in exchange rates) averaged 13.5% per year for the period due to new business and increased revenue from existing clients. Information concerning our principal acquisitions in the 1998-2000 period is provided under "Information on the Company -- History and Development of the Company -- Principal Capital Expenditures and Divestitures." Acquisitions added an average of 18% per year to our revenue growth in 1998 and 1999 and 51% in 2000. Among the significant advertising contracts we won in the period were the following: - North America -- Citibank, Fuji Film USA, Citizen Watches USA, Sprint Broadband, Discovery, Principal Financial group and Office Max in the United States and Bombardier Industries, CIBC and Heineken in Canada; - Europe -- Wal-Mart in Germany, chello Broadband, Wilcon Homes and Mr. Kipling Cakes in the United Kingdom, Quiero TV, Nabisco and San Miguel beer in Spain and Faconnable, Sanofi-Synthelabo and Helena Rubinstein in France. We also won a contract with the finance ministries of France, Germany and Holland to promote the launch of the euro; - Asia/Pacific -- Renault in Japan and across the Asia-Pacific region, Telstra and Gatorade in Australia and the Sampoerna group in Indonesia; - South America -- Carrefour and Polo Ralph Lauren in Brazil; and - Global/multi-country -- Ericsson, Club Med, UBS, United Biscuits, Hewlett-Packard, Syngenta, Arc International and the European Central Bank. OUTLOOK FOR 2001 We face the challenge in 2001 of weaker general economic conditions in the United States and a slowdown in advertising markets in the United States and other parts of the world. Europe, Latin America and 18 22 the Asia/Pacific region are expected to show stronger growth than North America. Among the factors that are likely to affect our results of operations for 2001 are the following: NEW CONTRACTS We expect to generate continued growth from contracts won since the beginning of 2001, including contracts with United Airlines, Iomega, Voice Stream, ATA Airlines, Lens Express, Informix in the United States, Siemens Corporate (global), Renault Samsung and Korea Telecom in Korea, The Post Office (U.K.), Credito Italiano in Italy and Guinness Asia. In addition, General Mills has decided to substantially expand the scope of services we provide it. ACQUISITIONS We have continued to pursue our strategy of making selective acquisitions in important geographical areas and key fields in 2001 as described under "Information on the Company -- History and Development of the Company -- Principal Capital Expenditures and Divestitures." INTERPUBLIC MERGER WITH TRUE NORTH We own approximately 4.7 million shares in True North (approximately 9% of the total), a U.S. advertising firm that has agreed to merge with a subsidiary of Interpublic. If the merger is completed, each outstanding True North share will be exchanged for 1.14 shares of Interpublic. In that event, we would receive approximately 5.3 million Interpublic shares. AGREEMENT WITH CORDIANT We have reached an agreement in principle with Cordiant to create a new holding company to hold 100% interests in Zenithmedia, formerly a 50/50 joint venture between Cordiant and Saatchi & Saatchi, and Optimedia. We expect that we will own 75% of the holding company and Cordiant will own the remaining 25%. Pursuant to the agreement, Zenithmedia and Optimedia would continue to provide services independently of each other, but would combine their purchasing, administrative and related functions. Combined, Zenithmedia and Optimedia would constitute the fourth largest media buying business in the world. INTEGRATION WITH SAATCHI & SAATCHI Although the Publicis Worldwide network and the Saatchi & Saatchi Worldwide network are and will remain operationally independent, accounts.we continue to pursue the integration of administrative, financial, procurement and information systems services in countries where both networks have significant operations. We estimate that this integration process will yield cost savings of approximately E10 million (on a full year basis) over the course of 2001. OTHER FACTORS Among the factors that could cause our results of operations to differ materially from our expectations are those described under "Key Information -- Risk Factors." BASIS OF PRESENTATION ACCOUNTING POLICIES See note 1 to our financial statements for a summary of our significant accounting policies. Beginning on January 1, 2000, our financial statements have been prepared in conformity with new accounting rules applicable to consolidated financial statements in France (nouvelles regles et methodes relatives aux comptes consolides). The new rules were approved on June 22, 1999 and became effective on January 1, 2000. The new rules differ from the rules previously applied in terms of accounting for business operatescombinations, deferred income taxes, assets under capital leases, conversion of financial statements of foreign subsidiaries and exchange rate differences on accounts receivable and payable stated in foreign currencies. In accordance with 19 23 the new rules, we have elected not to restate retroactively our accounting for business combinations and disposals completed in prior years. The application of the new rules has been treated as a change in accounting methods. Due to the insignificant impact of the change in accounting methods on the financial statements for the years ended December 31, 1999 and 1998, we have elected not to present pro forma information for those years. However, our balance sheet and income statements as of and for the years ended December 31, 1999 and 1998 have been presented in accordance with the presentation requirements of the new rules. SCOPE OF CONSOLIDATION Information regarding operations acquired in the 1998-2000 period is generally included only from the date of acquisition. For example, we include only four months of results for Saatchi & Saatchi because we acquired it at the beginning of September, 2000. We have not disposed of any material operations since the beginning of 1998. CONSOLIDATED OPERATIONS -- 2000 COMPARED TO 1999 OUR COMPANY AS A WHOLE Revenue We generated E1.77 billion in revenue in 2000, up 69.8% from E1.04 billion in 1999. Growth from acquisitions (net of disposals) was 46%, including 25% resulting from the consolidation of Saatchi & Saatchi for the last four months of the year. Organic growth was 15%, primarily resulting from favorable business conditions in most geographical areas and new business wins. According to Credit Suisse First Boston, our performance in generating new business in 2000 on a full year basis was the second best in the world among major advertising groups in terms of billings (see "Explanatory Note" above for a description of the term "billings"). Organic growth was 14.3% in our communications businesses (primarily advertising) and 17% in Medias & Regies Europe. Changes in exchange rates, particularly the decline of the euro against the U.S. dollar, accounted for the remainder of the increase. Expenses Total operating expenses rose 67.7% to E1.45 billion in 2000 (up from E0.87 billion in 1999), principally due to the organic and acquisition-related growth of our operations. Staff costs rose 70.8% to E984 million (representing 55.6% of revenues), an increase slightly greater than the increase in revenue for the year; however, growth in other operating expenses of E179 million (61.5%) was significantly less than revenue growth. Financial income/expense Our net financial expense was E11 million in 2000, compared to E9 million in net financial income in 1999. This change was caused by a substantial increase in our debt in connection with our significant acquisition program in 2000, particularly in the United States. Interest expense also rose as a result of the implementation of a share repurchase program. Income tax We incurred income tax of E92 million in 2000, up from E65 million in 1999. We also incurred additional taxes of E4 million in 2000 with respect to gains on the sale of investments. Our effective rate of tax was 35%. This was slightly lower than the statutory French rate of 37.8% due to our use of deferred tax assets (which resulted from operating losses generated in prior years by some of our subsidiaries) and the effect of different tax rates imposed in different jurisdictions. 20 24 Income from companies accounted for by the equity method Our income from equity-method investments rose from E2 million in 1999 to E5 million in 2000. This increase was due primarily to the inclusion of four months of results from Zenithmedia. Exceptional income (loss) Our exceptional income was E15 million in 2000, up from E12 million in 1999. Our exceptional income in 2000 consisted largely of capital gains generated by the disposal of a U.S. subsidiary of Mediavision. Goodwill amortization Goodwill amortization (excluding minority interest) in 2000 was E33 million, up from E19 million in 1999, primarily as a result of our substantial acquisitions in 2000, particularly in the United States. Minority interests Income from minority interests rose from E21 million in 1999 to E31 million in 2000. This increase was due to acquisitions, and corresponding increases in the number of minority interests, and also to increased earnings from companies in which we had pre-existing minority interests. Net income and earnings per share As a result of all of the above, our net income including minority interests rose 67.4% to E159 million in 2000. Excluding minority interests, our net income increased 72.9% to E128 million in 2000. Basic earnings per share rose 38.8% (from E0.85 to E1.18); this increase trailed the rise in net income on a percentage basis due to the substantial issuance of shares in the acquisition of Saatchi & Saatchi. Diluted earnings per share rose from E0.84 to E1.15, a 36.9% increase. BY BUSINESS DIVISION Communications Our Communications division generated revenue of E1,635 million in 2000, up 77.2% over 1999. Acquisitions, particularly of Saatchi & Saatchi, Fallon and Frankel, accounted for the majority of the increase. Substantial organic growth was generated by Publicis network agencies in Europe, Canada and the Asia- Pacific region; Publicis & Hal Riney in the United States also recorded healthy growth. Within Saatchi & Saatchi, revenue rose 11.6% over a 12-month period in 2000 (from E645 to E720), largely as a result of strong performances in the United Kingdom, Australia and Singapore. Other Activities Revenue generated by our other activities grew 13.4% in 2000 to E135 million. Growth resulted from increased revenues in each category of Medias & Regies Europe's services: print (where revenue rose 11.2% to E39.5 million), radio (up 21.6% to E101 million), movie theatres (up 18.1% to E17 million) and billboards (up 20.8% to E65 million). Our movie theatre advertising operations benefited from expansion into The Netherlands, Italy, Switzerland and Brazil. The increase in our billboard advertising revenue was due largely to Metrobus, which generated E33 million in revenue, up 31.6% from 1999. Revenue from our financial and services operations increased 4.1% to E11.2 million, while revenue from the Champs-Elysees drugstore declined from E6.7 million to E5.8 million. BY GEOGRAPHICAL AREA France Revenue in France was E342 million in 2000, up 16.3% from 1999's total of E294 million. This increase was due largely to the organic growth of our Communications and Medias & Regies Europe businesses. In our Communications division, strong growth was recorded in Publicis Dialog, Media System and Publicis 21 25 Consultants in direct marketing, human resources communications and corporate communications, respectively. The results of these operations offset weaker performances elsewhere. Medias & Regies Europe, where revenue was up 15.4% to E135 million, achieved good revenue growth in all its French businesses. Europe outside France Excluding France, our revenue in Europe increased by 31% in 2000 to E536 million. Saatchi & Saatchi accounted for 16% of the increase and was the most significant acquisition in this area. We also generated strong organic revenue growth, predominantly in the United Kingdom, Germany, Spain, Italy and The Netherlands. Our Communications businesses in Portugal and the Czech Republic generated weaker than expected revenue. North America Growth in our North American revenue more than tripled, rising from E214 million in 1999 to E688 million in 2000. This gain was due primarily to the acquisitions of Saatchi & Saatchi, Frankel and Fallon. The acquisition of Nelson Communications had a more limited effect, as its results were consolidated for only two months. We also generated substantial organic growth in communications in the United States, particularly through Publicis & Hal Riney and some Publicis agencies. The income resulting from this growth was partially offset by the costs of expanding operations at Fallon (through Fallon Interactive, Brand Consulting and Duffy Design), Frankel (through its Siren and BrandGuard units, which are described below under "-- Research and Development") and DeWitt Media (in connection with the launch of Optimedia in the United States). Rest of world In other areas of the world, we generated revenue of E204 million in 2000, up from E126 million in 1999. Saatchi & Saatchi contributed E33 million of the increase; other acquired companies such as Publicistas Asociados, Peru's leading advertising agency in 2000, made significant contributions as well. The organic growth was the product of strong performances across most of the Asia-Pacific region, especially in Korea, Australia, Malaysia and Singapore. These performances compensated for weakness in the Philippines market caused by political instability and poor economic conditions in Argentina and South Africa. CONSOLIDATED OPERATIONS -- 1999 COMPARED TO 1998 OUR COMPANY AS A WHOLE Revenue We generated revenue of E1.04 billion in 1999, a 22.4% increase over 1998's total of E851 million. Organic growth was 12%, resulting from an increase in the amount and scale of services provided to existing clients and contracts won with new clients. New business won included world-wide accounts for Ericsson and United Biscuits and the communications campaign for the euro by the European Central Bank. The Communications division generated growth of 12% and Medias & Regies Europe grew 16% in 1999. The remainder of the increase was due to acquisitions, primarily of Burrell Communications in the United States and operations in South Korea, China, India, Germany and the Middle East. Expenses Total operating expenses were E867 million in 1999, up 19.6% from 1998's total of E725 million. As a percentage of revenue, staff costs fell from 56.2% in 1998 to 55.3% in 1999, and other operating expenses declined from 29% of revenue to 27.9%. These changes were the result of productivity gains in many agencies throughout the Publicis Worldwide network and successful cost control programs. These programs consisted primarily of the merger and rationalization of some of our regional agencies in France and in our marketing services businesses. 22 26 Financial income/expense Net financial income declined from E10 million in 1998 to E9 million in 1999, due primarily to more substantial expenditures for repurchases of our own shares (E57 million in 1999 compared to E13 million in 1998). Income tax We incurred E65 million in income tax in 1999, an increase of 38% from 1998's total of E47 million. Our effective rate of tax was 39.4%, a rate very close to the French statutory rate of 40%. In addition, we recorded a E7 million tax on extraordinary gains in 1999. Income from companies accounted for by the equity method Income from companies accounted for by the equity method rose to E2 million in 1999, up from E1 million in 1998. Exceptional income (loss) We had exceptional income of E12 million in 1999, primarily resulting from a single sitecapital gain associated with the disposal of real estate of the Paris Matignon drugstore, a business similar to the Champs-Elysees drugstore. Other capital gains included those associated with disposals of real estate assets outside of France and provides 24 hour coverage. This helpssome unconsolidated investments. Goodwill amortization Goodwill amortization in 1999 was E19 million, a 46% increase from the total for 1998. Excluding goodwill associated with minority interests, the charge rose 79%. Of the 1999 total, E4 million was an extraordinary write down charge related to reduce production timesan acquisition in the United Kingdom. The other E15 million related to the full-year effect of major acquisitions completed in 1998 (especially Publicis & Hal Riney) and to add a high level of securityacquisitions made in 1999. Minority interests Income from minority interests was stable in 1999 compared to clients' projects.1998, rising from E20 million to E21 million. Net income and earnings per share As a result of the Demerger,factors discussed above, total net income including minority interests rose from E67 million in 1998 to E95 million in 1999, a 42% increase. Net income excluding minority interests was E74 million, up 57.4% from 1998's total of E47 million. Basic earnings per share rose from E0.59 to E0.85. Diluted earnings per share increased 50% from E0.56 to E0.84. BY BUSINESS DIVISION Communications Revenue generated by our Communications division rose 25.2% in 1999 to E923 million. Organic growth was 12%, supported by above-average performances in Europe and in various other operations around the Saatchi & Saatchi Group has a 70 percent shareholding in The Facilities Group with the remaining 30 percent held by CCG. The Company, CCG, Saatchi & Saatchi (Central Services) Limited ("SSCSL") and The Facilities Group, entered into a shareholders' agreement ("The Facilities Group Agreement") to regulate the relationship between the Company and CCG as shareholders of The Facilities Group. The Company is a party to that agreement in order to guarantee the obligations of SSCSL. SSCSL holds 70 percent of the outstanding shares of The Facilities Group and CCG holds 30 percent. The Facilities Group Agreement provides that the day to day management of The Facilities Group is undertaken by three executive Directors. The Company is entitled to appoint two directors and CCG is entitled to appoint one. The agreement also contains provisions relating to the transfer of shares. The distributable profits of The Facilities Group are divided between shareholdersworld. Acquisitions included Burrell Communications in the proportions in which The Facilities Group receives revenue from clients of each shareholder. Revenue of The Facilities Group not attributable to clients of either shareholder is divided in proportion to the shareholdings. The Facilities Group Agreement prohibits the transfer of shares of The Facilities Group exceptUnited States, Publi-Graphics in the circumstances described in the agreement. Transfers to third parties will be permitted either on the insolvency or on a change of control of the other shareholder. Otherwise a shareholder will be entitled to sell all of its shares to a third party only if it has first offered to sell its shares to the other shareholder at a specified priceMiddle East and the other shareholder has declined that offer. The Facilities Group Agreement also contains options whereby one shareholder is entitled to acquire all the shares of the other shareholder in the event that: 1. the other shareholder becomes insolvent; or 2. the other shareholder suffers a change of control. The Facilities Group Agreement will remain in force until (i) either shareholder acquires all of the shares in The Facilities Group held by the other, (ii) an order is made or resolution is passed for the winding up of The Facilities Group or (iii) a third party acquires all of the shares of The Facilities Group. Media Services Zenith Media Worldwide Zenith is a specialist media services and planning agency. It is headquartered in London and has 56 offices in 33 countries across Europe, the US and Asia Pacific with representative offices in a further 60 countries. Zenith's services include researching media markets, forecasting media trends and levels of expenditure, developing media buying strategies, planning, negotiating and executing the details of buying programs, monitoring the media to verify the execution of the buying program, researching the effectiveness of the program and paying media owners. Zenith's Advertising Expenditure Forecasts, which are published twice yearly, are regarded as authoritative by the advertising industry. Zenith provides its services to clients of S&S and Bates Worldwide. In addition, in 1999 approximately 67% of its revenues were generated from Zenith's own client list. Zenith's major direct clients include Alcatel, Bell Atlantic, Bristol Myers, British Telecom, Campbell's, CIBA, Continental, Electrolux, Ferragamo, HSBC, KFC and Lloyds TSB. Zenith has made significant investment in its people, information technology systems and proprietary software. Zenith's proprietary software helps to differentiate it from its competitors and to allow it to deliver competitive advantage to its clients. Zenith's systems, branded Zenith Optimization of Media, ZOOM(TM), fall into three areas: Infrastructure. Standardized hardware and software platforms, including desk-to-desk e-mail, are used across the Zenith network. Communication. Zenith uses internet communications incorporating password protected web-sites to share and disseminate information both internally and with clients. Proprietary media systems. A number of proprietary media systems have been branded and launched since 1996 to process, manipulate and analyze data efficiently. Examples of these systems are ZOOM Wizard, which optimizes the allocation of a client's budget by TV station and time of day; ZOOM Optimiser, which generates TV spot schedules to maximize reach and frequency; ZOOM Merlin, a portfolio optimization system which generates multiple campaign schedules simultaneously; ZOOM Maps, which models campaign and brand awareness; ZOOM Adweight, which helps determine targets for effective advertising frequency levels; ZOOM Merc, which estimates combined media net reach; and ZOOM Futures, which models estimated brand sales from media and marketing campaigns. As a result of the Demerger, the Saatchi & Saatchi Group and CCG each have a 50 percent shareholding in Zenith. The Company accounts for Zenith as a joint venture. In addition, both the Saatchi & Saatchi Group and CCG entered into an agreement in which they agree to use Zenith as their exclusive media services supplier, subject to certain exceptions, until at least December 31, 2000. This has been extended to at least December 31, 2001. Each media services agreement introduced revised commercial terms for the purchase of media services from Zenith. Geographic Coverage The Saatchi & Saatchi Group serves clients in all of the world's major advertising markets.
Geographic Analysis of S&S Revenue in 1999 Percentage of the Group's Percentage of worldwide ongoing revenue(1) advertising expenditure(2) (%) (%) ---------------------------------- -------------------------------- ------------------------------------ United Kingdom................... 14.7 6.9 North America.................... 49.3 40.1 Continental Europe, Africa and 18.3 21.6 the Middle East.................. Asia Pacific..................... 13.1 10.8 Latin America.................... 4.6 20.6 Total............................ 100.0 100.0 ---------------------------------- -------------------------------- ------------------------------------
(1) Ongoing revenue excludes revenue from disposed businesses. (2) Source: Zenith Media Worldwide, Advertising Expenditure Forecasts, January 2000. In North America, the Saatchi & Saatchi Group's relative share is based on S&S's relationships with a number of major US companies. The high shareoperations in the UK reflectsAsia-Pacific region. Organic growth was particularly strong in Germany, Spain, Portugal, Italy, the strong positionNetherlands, Switzerland and Sweden and more than offset weakness in our operations in Norway, Austria and two of S&S's London office. In Continental Europe, Africaour U.K. subsidiaries. Our French operations generated moderate growth in 1999. Operations in other parts of the world generally performed well, with the exception of those in Argentina. 23 27 Other Activities Our other activities generated revenue of E119 million in 1999, 11.4% of our total for the year. Excluding the effect of the restructuring that occurred in June 1998 and the Middle East,effect of acquisitions and disposals, this represented a 16% increase over its total for 1998. The majority of this increase was the network's development is broadlyresult of significant increases in line with the market, with significant contributionsvolume of print media, billboard and movie theater advertising placed. In particular, rapid growth in classified ads and business advertising placed in newspapers and magazines, primarily in France, led to a 41.6% increase in revenue for our print media businesses. Revenue from the Champs-Elysees and Matignon drugstores declined due to poor operating performances. The Matignon drugstore was sold in July 1999. BY GEOGRAPHICAL AREA France Revenue generated by our French operations was E294 million in 1999, up from E274 million in 1998. This growth was primarily organic, resulting in part from strong performances by Publicis Consultants and PCM, a media buying unit. Europe outside France Outside France, our European operations had E408 million in revenue in 1999, up from E357 million in 1998. Germany, Italy, Spain, Portugal and Italy. In Asia Pacific,Northern Europe contributed the network receives significant contributions from Australia, China (including Hong Kong), New Zealandmajority of these gains. North America Our North American operations saw revenue rise 39% in 1999 to E214 million. Revenue growth excluding the effect of acquisitions (net of disposals) was 34%. Organic growth was primarily driven by Publicis & Hal Riney and Singapore. Nearly all national advertising markets are dominated by the major worldwide advertising networks.Publicis Dialog, which won substantial amounts of new business. The Japanese market is the exception as it is dominated by domestic agencies with limited international presence. Inacquisition of Burrell Communications contributed significantly to our U.S. revenue. Rest of world Growth was strong in the rest of the world as well in 1999, with revenue increasing more than 90% to E126 million. Revenue doubled in the networkAsia-Pacific region, both as a result of organic growth and acquisitions (primarily AD Link in Hong Kong and China, Wellcomm in Korea and AMA in the Philippines). The Africa/Middle East region saw even stronger increases in revenue, from E10 million in 1998 to E33 million in 1999, largely due to the acquisition of Publicis-Graphics (which has operations in seven countries throughout the Middle East) and AB Data and Superpush in Israel. Our operations in Latin America generated modest revenue growth. LIQUIDITY We meet our need for liquidity primarily through a combination of cash generated from operations and bank loans. Net cash flow from operating activities reflects funds generated from operations and changes in operating assets and liabilities. Net cash from operating activities was E204 million in 2000 and E178 million in 1999. This increase was mainly due to the strong increase in profit in 2000. Net cash flow from investing activities includes acquisitions and divestitures of intangible and tangible assets, acquisitions of businesses, investments in companies accounted for using the equity method and net differences in other investments and marketable securities. Net cash used in investing activities was E655 million in 2000, up from E109 million in 1999. A E541 million increase in cash used in acquisitions (net of disposals) was the primary cause of this increase. Net cash flow from financing activities includes dividends, changes in debt position and share repurchase programs. Net cash provided by financing activities was E572 million in 2000; net cash used in financing 24 28 activities was E68 million in 1999. This change resulted largely from a E630 million increase in borrowings, primarily in connection with acquisitions. There are no significant legal or economic restrictions on the ability of our subsidiaries to transfer funds to us in the form of dividends, loans or advances. Currently unused sources of liquidity include our holding of 4.7 million shares of True North (a holding that will become 5.3 million shares of Interpublic when the proposed transaction between those companies is primarily representedconsummated) that could be sold. We expect that we will be able to satisfy our cash requirements for the next 12 months from cash flow generated by businessesoperations and additional bank loans. Our general policy is to avoid dilution of existing shareholders by using cash or treasury shares to make acquisitions, but we may incur some additional indebtedness in connection with which it has trading affiliations. Accordingly, these businessesacquisitions. Overall, however, we expect to reduce our debt in 2001. CAPITAL RESOURCES AND INDEBTEDNESS As of December 31, 2000, we had total outstanding bank borrowings and overdrafts of E901 million, comprised of E630 million in bank loans, E266 million in bank overdrafts and E5 million in obligations under capital leases. Of this indebtedness, E721 million is due within one year and the remainder is due within five years. The refinancing of this debt, through structured financing schemes, is currently being considered by our senior management. The majority of our debt bears interest at variable rates; the average annual interest rate for 2000 was 6.2%. As of December 31, 2000, approximately 50% of our debt was denominated in euros and 40% was denominated in U.S. dollars. Our policy is to hold cash and cash equivalents in various currencies corresponding to the exposure of our various subsidiaries around the world. As we have only modest exposure to interest risk due to variable rate debt, we generally do not use financial instruments to hedge this risk. We believe that our currency exchange rate risk is minimal as most of our commercial transactions are not included within S&S's revenue. For a more detailed breakdownconducted in local currencies. See "Quantitative and Qualitative Disclosures About Market Risk." We use only bilateral lines of credit, rather than syndicated loans. As described under "Information on the Company -- Business Overview -- Seasonality," we often generate greater revenue in the second and fourth quarters of the Company's operations by geographic area, see Note 32year than we do in the Notesfirst and third quarters. As a result, our financing needs are sometimes greater in the first and third quarters. COMMITMENTS FOR CAPITAL EXPENDITURES Our capital expenditures in 2000 amounted to E676 million, up from E165 million in 1999. Most of the Financial Statements. North America S&S's main USincrease was due to acquisitions (E541 million, net of disposals, compared to E51 million the previous year). Current capital expenditures (i.e., excluding those associated with acquisitions) rose from E56 million in 1999 to E102 million in 2000 as a result of our organic and external growth. Expenditures associated with share repurchase programs amounted to E34 million in 2000, down from E57 million in 1999. RESEARCH AND DEVELOPMENT As described under "Information on the Company -- Business Overview -- Operating Divisions -- Communications -- Communications Services -- Research Programs," we have a variety of programs designed primarily to use psychological, anthropological and other methods to assess and enhance the efficiency of our advertising agency isand communications services. In addition, we have developed a number of systems that use advanced technology to address clients' needs, including Siren Technologies, an in-store updateable digital signage system, and BrandGuard, an integrated on-line marketing and communications system designed to enhance clients' control of their brand assets. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN FRENCH GAAP AND U.S. GAAP Under U.S. GAAP, our net income amounted to E34 million in 2000 and E73 million in 1999, compared to E128 million and E74 million, respectively, under French GAAP. Under U.S. GAAP, shareholders' equity 25 29 amounted to E2,622 million at December 31, 2000 and E580 million at December 31, 1999, compared to E299 million and E345 million, respectively, under French GAAP. The differences between French GAAP and U.S. GAAP in terms of their effect on our net income consist mainly of (i) the change in the fair value of contingent value rights issued in connection with the business combination with Saatchi & Saatchi, North America, Inc. Therewhich is recognized in earnings under U.S. GAAP and resulted in a charge of E46 million in 2000, whereas those rights are also a numberconsidered to be off-balance sheet commitments under French GAAP (ii) the amortization of other units withintangible assets, intangible assets and goodwill related to the North American network such as Conill, Klemtner,business combination with Saatchi & Saatchi, Canada, Taylor Tarpay, and GMG. Somewhich was treated as a purchase business combination under U.S. GAAP but was accounted for using the derogatory method under French GAAP (which is similar to the pooling of interests method under U.S. GAAP), (iii) the representative major clientsimpact of these businesses are American Home Products, DuPont, Eastman Kodak, General Mills, Hewlett-Packard, Johnson & Johnson, Procter & Gamble and Toyota. In North America, S&S has its major offices in New York and Californiaprovisions recorded in the USFrench financial statements in prior years which were not in accordance with U.S. GAAP requirements for recording provisions for contingencies, and Ontario(iv) compensation arrangements related to acquisitions, which were recorded using the purchase accounting method in Canada.the French financial statements and are recorded as compensation expense when incurred under U.S. GAAP. In addition, there are a numberclassification differences between French GAAP and U.S. GAAP also give rise to differences in operating income, relating in particular to the amortization of field offices throughoutgoodwill. The differences between French GAAP and U.S. GAAP in terms of their effect on shareholders' equity at December 31, 2000 and 1999 relate primarily to (i) the US. In North America,accounting for the Rowland Worldwide network is represented by Rowland Worldwide, Inc., which has offices in New York, and Saatchi Rowland Business Communications Inc. based in Rochester, New York. In North America, Zenith is headquartered in New York, and has offices in California, Colorado, Illinois, Oregon and Texas. United Kingdom S&S is represented in the United Kingdom bybusiness combination with Saatchi & Saatchi, Group Ltd. Somewhich was treated as a purchase business combination under U.S. GAAP but was accounted for using the derogatory method under French GAAP, (ii) the valuation of marketable securities, which are carried at fair value under U.S. GAAP and historical cost under French GAAP, and (iii) the impact of goodwill related to an acquisition in 1993 written-off to shareholders' equity under previous French accounting guidance. In connection with the business combination with Saatchi & Saatchi, we acquired approximately E503 million in net operating loss carryforwards related to former Saatchi & Saatchi operations. These net operating loss carryforwards expire between 2001 and 2011. In the French financial statements, deferred taxes were not recognized related to these carryforwards due to the uncertainty of their recoverability. For U.S. GAAP purposes, deferred tax assets have been recorded and a 100% valuation allowance has been provided because, at December 31, 2000, the recoverability of the agency's representative major clientsdeferred tax assets was not considered to satisfy the applicable "more likely than not" standard. 26 30 ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES DIRECTORS AND SENIOR MANAGEMENT We have a two-tier management structure pursuant to which a management board (directoire) manages our day-to-day affairs under the general supervision of a supervisory board (conseil de surveillance), the members of which are Carlsberg, Hewlett-Packard, Lloyds TSB, Procterelected by shareholders. The members of our management board are also our senior managers. We refer to members of the supervisory board and management board collectively as "directors." SUPERVISORY BOARD The supervisory board has the responsibility of exercising whatever ongoing supervisory authority over the management and operations of our company it deems appropriate. Throughout the year it carries out such inspections as it considers appropriate and is given access to any documents it considers necessary. The supervisory board also reviews the annual accounts prepared by the management board and presents a report on these accounts to the shareholders at the annual shareholders' meeting. It authorizes the management board to take actions related to strategic decisions, including those related to transactions that could substantially affect the scope of our activities and significant agreements. In addition, under French law, the supervisory board holds certain specific powers, including the power to appoint the members of the management board. Our statuts provide that each member is elected by the shareholders at an ordinary general shareholders' meeting. Members of the supervisory board can be removed from office by a majority shareholder vote at any time. They meet as often as the interests of our company require. Pursuant to our statuts, each member of the supervisory board must own at least 200 of our shares. The following table sets forth, for each member of our supervisory board, the member's current function in our company and principal business activities outside of our company, the date the member's current term of office is scheduled to expire and the date the member joined the supervisory board.
EXPIRATION DATE OF DATE PRINCIPAL PRINCIPAL BUSINESS CURRENT INITIALLY NAME FUNCTION IN PUBLICIS ACTIVITIES OUTSIDE PUBLICIS TERM APPOINTED - ---- ------------------------- --------------------------- ---------- -------------- Elisabeth Badinter Chair, Supervisory Board Lecturer, Ecole June, 2006 November, 1987 Polytechnique, and author Robert Badinter Director Professor Emeritus, June, 2002 June, 1996 University of Paris I (Pantheon-Sorbonne) Simon Badinter Director; Director of None June, 2005 June, 1999 International Development -- Medias & Regies Europe Monique Bercault Director; Technical None June, 2004 June, 1998 Consultant to the Chairman of Medias & Regies Europe Michel Cicurel Director Chairman of the Management June, 2004 June, 1999 Board of Compagnie Financiere Edmond de Rothschild and Compagnie-Financiere Saint-Honore; various directorships
27 31
EXPIRATION DATE OF DATE PRINCIPAL PRINCIPAL BUSINESS CURRENT INITIALLY NAME FUNCTION IN PUBLICIS ACTIVITIES OUTSIDE PUBLICIS TERM APPOINTED - ---- ------------------------- --------------------------- ---------- -------------- Michel David-Weill Director Chairman and Chief June, 2002 June, 1990 Executive Officer of Maison Lazard Developpement, Managing Partner of Lazard Freres et Compagnie; numerous positions within the Lazard group; Vice President and Director of the Danone Group Sophie Dulac Director, Vice President Manager -- Sophie Dulac June, 2004 June, 1997 Conseil and Moira Helene Ploix Director Chair of Pechel Industries June, 2004 June, 1998 and Director of Lafarge Felix George Rohatyn Director Director of Comcast June, 2007 June, 2001 Corporation and Fiat SpA Robert Seelert Director, Chairman of Director of Vanteq, Inc. June, 2006 August, 2000 Saatchi & Saatchi plc Amaury-Daniel de Seze Director Member of the Management June, 2004 June, 1998 Board of BNP Paribas Henri-Calixte Suaudeau Director of Publicis None June, 2006 November, 1987 Conseil; Director of Publicis Real Estate Department Gerard Worms Director Chairman of the Board of June, 2004 June, 1998 General Partners of Rothschild et Cie Banque. Director of SG Belgique, Telecom Italia, Metropole Te1evision and Degremont
ELISABETH BADINTER, born on March 5, 1944, is the daughter of Marcel Bleustein-Blanchet. Ms. Badinter is a philosopher and lecturer at the Ecole Polytechnique and is the author of numerous books. She has been a member of our supervisory board since 1987 and its chair since 1996. ROBERT BADINTER, born on March 30, 1928, is the husband of Elisabeth Badinter. Mr. Badinter has served as the president of France's Constitutional Court. He has also been a practising attorney. He is currently a professor emeritus of law at the Paris I University (Pantheon Sorbonne). SIMON BADINTER, born on June 23, 1968, is the son of Elisabeth Badinter and Robert Badinter. Mr. Badinter joined Medias & Gamble, Sony, ToyotaRegies Europe in 1991. He was appointed director of Medias & Regies Europe's international business development in 1996. MONIQUE BERCAULT, born on January 13, 1931, has held a variety of positions with our company since joining us in 1953. In 1972, she was named head of human resources at the predecessor company of Medias & Regies Europe. She currently serves as a consultant to the chairman of Medias & Regies Europe regarding human resources matters. MICHEL CICUREL, born on September 5, 1947, is currently chairman of Compagnie Financiere Edmond de Rothschild and Visa. Other servicesCompagnie Financiere Saint-Honore. He holds numerous directorships as well. He was previously a senior official in the United Kingdom are all basedFrench Treasury Department, after which he served as deputy general manager of Compagnie Bancaire, general manager of Cortal Bank, president of Dumenil- Leble Bank and administrator, general manager and vice president of Cerus. 28 32 MICHEL DAVID-WEILL, born on November 23, 1932, has held a variety of senior positions in Londonthe Lazard group, which he joined in 1961. He is currently chairman and are comprisedchief executive officer of Maison Lazard Developpement, associated partner of Lazard Freres et Cie (Paris) and chairman of Lazard Freres and Co. LLC (New York) and Lazard Strategic Coordination Cy LLC. He is also currently a vice president and director of the following: Albemarle Marketing Research Ltd., which provides market research services; Rowland Worldwide;Danone Group and The Facilities Group. Zenith is headquarteredserves on the boards of Instituto Finanziario Industriale SpA in Italy, Pearson plc in the United Kingdom and provides media services. Restthe NYSE. SOPHIE DULAC, born on December 26, 1957, is the niece of Europe, Middle East, AfricaElisabeth Badinter and Asia Pacific S&Sthe granddaughter of Marcel Bleustein-Blanchet. Ms. Dulac is the founder and manager of a recruitment counselling company. She has international agencies (including affiliated agencies) located in 92 countries. The major owned international agencies are located in Australia, China, France, Germany, Italybeen a member of our supervisory board since 1997 and New Zealand. Rowland Worldwidea vice president of our company since 1999. HELENE PLOIX, born on September 25, 1944, has operations (including affiliated agencies) in 31 countries. Its owned offices are located in Australia, China, Hungary, Italy, Poland and Switzerland. Zenith has operations (including media affiliates) in 28 countries, including Australia, China, France, Germany, Italy and Spain. Latin America S&S has agencies in 13 countries (including affiliated agencies). The major owned agencies are located in Argentina, Brazil, Mexico, and Puerto Rico. Someserved as president of the major clients servicedBanque Industrielle et Mobiliere Privee, adviser to the French Prime Minister, director of the International Monetary Fund and the World Bank, deputy general manager of the Caisse des Depots et Consignations and president of the Caisse Autonome de Refinancement and CDC Participations. She has been president of Pechel Industries since 1997. ROBERT SEELERT, born on September 1, 1942, worked from 1966 to 1989 for General Foods Corporation, serving as president and chief executive officer of its Worldwide Coffee and International Foods subsidiary from 1986 until 1989. He served as president and chief executive officer of Topco Associates, Inc. from 1989 to 1991 and held the same positions for Kayser Roth Corporation from 1991 to 1994. He became chief executive officer of Cordiant in 1995 and took the region include Hewlett Packard, Nortel, and Reynolds Metals. ACQUISITIONS & DISPOSALS Acquisitions During 1998 the Group acquired the business and assets of GMG Marketing Services, a U.S. based co-marketing company, increased its shareholding to 80% in Sistasame position with Saatchi & Saatchi Advertising PVT Limited, a company based in India, and acquired 51%1997. He was appointed chairman of the share capital of Dialog-Team Fienhold Agentur fur Dialog-Marketing GmbH, a company based in Germany. During 1999, the Company agreed to increase its equity investment in Nazca Saatchi & Saatchi Inc.in 1999. FELIX GEORGE ROHATYN, born on May 29, 1928, served as the U.S. Ambassador to France from 50%1997 until 2000. He had previously been a managing director of Lazard Freres and Company. He joined Lazard Freres in 1948 and became a partner there in 1961. From 1968 to 75%1972, he also served as a member of the Board of Governors of the NYSE. From 1975 to 1993, he was chairman of the Municipal Assistance Corporation of the City of New York. He is currently a director of Comcast Corporation and its voting rights from 37% to 75% in return for a $7.0 million funding commitment. Disposals In 1998 the Group disposed of its interest in Siegel & Gale for $33.8 million (L20.3 million) which resultedFiat SpA. AMAURY-DANIEL DE SEZE, born on May 7, 1946, has held senior operating and management positions in a profit on disposalnumber of L8.6 million. The closuremajor companies. He was appointed general manager of Volvo France in 1981 and divestitureserved as chairman from 1986 to 1993. From 1990 to 1993, he was also president of businesses in Germany, Ireland, NorwayVolvo's European operations, senior vice president of AB Volvo and Spain, together with the reduction of shareholding in South Africa, resulted in a loss of L2.5 million. In 1999 the Group disposed of its interest in Cliff Freeman & Partners for a consideration of US$4.6 million (L2.8 million) which resulted in a profit on disposal of L1.0 million. The closure and divestiture of businesses in Japan, Belgium and the Czech Republic, net of a partial release of a provision upon the sublettingmember of the Siegel & Gale UK offices, resulted in a loss of L0.8 million. PERSONNEL As of May 1, 2000, the Group directly employed approximately 5,400 people worldwide. The successexecutive committee of the Group's advertisingVolvo group (AB Volvo). Since 1993, he has been a member of the management boards of Compagnie Financiere de Paribas and marketing services businesses, like thatBanque Paribas. Since 1994, he has also been a member of all other agencies, depends largelythe French Postal Service's supervisory board and has served on the skillboards of numerous other companies (including Schneider, Sema Group, Bruxelles Lambert Group, Poliet, Clemessy, Compagnie de Fives Lille and creativityEiffage). HENRI-CALIXTE SUAUDEAU, born on February 4, 1936, joined our company in 1989 and served as president of its personnelour drugstore subsidiary until 1999. Prior to 1989, he was an estate administrator and their relationships with clients. The Company believes that its relationship with its employees is good. COMPETITION The advertising industry is highly competitive at both an international and local level. The Saatchi & Saatchi Group's principal competitorsreal estate valuation consultant for the French court system. He has led our real estate department since 1997. GERARD WORMS, born on August 1, 1936, began his career as a technical adviser in the advertising industry areFrench civil service. Beginning in 1972, he held general management positions at the large multinational agencies basedHachette Group, the Rhone Poulenc Group and then at the Societe Generale de Belgique. From 1990 to 1995, he served as chairman and chief executive officer of the Compagnie de Suez and chairman of the Indosuez Bank. From 1995 to 1999, he was chairman of the Conseil des Commanditaires of Rothschild et Cie Banque (Paris). Since 1999, he has been an associate partner at Rothschild et Cie and Rothschild et Cie Banque. He is also a member of the board of directors of numerous companies including Societe Generale de Belgique, Telecom Italia, Metropole Television and Degremont. MANAGEMENT BOARD Under French law, the management board has broad powers to act on behalf of our company to further our corporate purposes, subject to those powers expressly granted by law to the supervisory board and to our shareholders. The management board must obtain the authorization of the supervisory board to enter into certain transactions. However, these restrictions cannot be used to rescind a transaction with a third party who has entered into the transaction in good faith. 29 33 Pursuant to our statuts, the US, the UK and France as well as smaller agencies which operate in local markets. The principal competitive factors include an agency's reputation, its creative strength and quality of service, its ability to perceive clients' needs accurately, the commercial effectiveness of its ideas, its geographic coverage and diversity, its understanding of advertising media and its media buying power. In addition, an agency's ability to maintain its existing clients and develop new relationships depends to a significant degreemanagement board must have at least two but no more than five members. Our supervisory board may fill any vacancies on the interpersonal skill of the individuals managing client accounts. Normal practice in the industry is for agency contracts to have a three month termination period. Management believes that S&S is well positioned to compete in the advertising industry.management board within two months. The Saatchi & Saatchi name issupervisory board also appoints one of the strongest and best known in advertising. Furthermore, the Group's advertising agencies have an excellent creative record, having been ranked among the top four agencies by creative awards won at the Cannes International Advertising Festival over the last five years. Management also believes that the process of clients consolidating their business in the advertising market will continue to offer opportunities for S&S to win new business. REGULATION Governments, government agencies and industry self-regulatory bodies in the various countries in which the Group operates continue to adopt legislation and regulations which directly or indirectly affect the form, content and scheduling of advertising and other communications services, or otherwise affect the activities of such businesses and their clients. Certainmembers of the legislation and regulations relate to considerations suchmanagement board as truthfulness, substantiation, interpretation of claims made and comparative advertising. In addition, there is a tendency toward restrictions or prohibitions relating to advertising for such products as pharmaceuticals, tobacco and alcohol. Item 2. Description of Property. The Saatchi & Saatchi Group leases all its premises except for one office building located in France which it owns. The principal propertieschairman. Under French law, the chairman of the Saatchi & Saatchi Group (allmanagement board is appointed and may be removed as chairman (but not as a member of which are usedthe management board) at any time by the supervisory board with or without cause. A member of our management board may be removed by the shareholders only with cause and only upon the recommendation of our supervisory board. The management board meets as offices) areoften as follows:the interests of our company requires. Under French law, members of the management board must be natural persons, but need not be shareholders of our company. There is no limitation, other than applicable age limits, on the number of terms that a member of the management board may serve. The following table sets forth, for each member of our management board, the member's current function in our company and principal business activities outside of our company, the date the member's current term of office is scheduled to expire and the date the member joined the management board. Area Annual Base Next Rent Expiration Location Sq. Ft. Rental-Millions Review Date of Lease -------- -------
EXPIRATION DATE OF DATE PRINCIPAL PRINCIPAL BUSINESS CURRENT INITIALLY NAME FUNCTION IN PUBLICIS ACTIVITIES OUTSIDE PUBLICIS TERM APPOINTED - ---- -------------------------- --------------------------- --------------- ----------- ---------------------- 375 Hudson Street(1) 456,000 $12.1Maurice Levy Chairman of management None December, 2003 2013 New York, New York 23 Howland Street 133,000 L1.6November, 1987 board Bruno Desbarats-Bollet Director, Chief Executive None December, 2003 2013 together with 80/84 Charlotte St. London, England 3501 Sepulveda Boulevard 90,100 $3.3 N/A 2006 Torrance, California 1960 East Grand Avenue 58,038 $1.4 N/A 2004 El Segundo, California 30 Boulevard Vital-Bouhot 34,900 N/A N/A N/A Neuilly-sur-Seine, ParisNovember, 1987 Officer of Medias & Regies Europe Kevin Roberts Director, Chief Executive None December, 2003 September, Officer of Saatchi & 2000 Saatchi Bertrand Siguier Director, Executive Vice None December, 2003 June, 1999 President of Publicis Worldwide
________________________________ (1) In addition,MAURICE LEVY, born on February 18, 1942, joined our company in 1971 and was given responsibility for our data processing and information technology systems. He was successively appointed corporate secretary (1973), managing director (1976) and chairman and chief executive officer (1981) of Publicis Conseil. He became vice chairman of our company in 1986 and chairman of our management board in 1988. BRUNO DESBARATS-BOLLET, born on June 6, 1943, began working for Publicis Conseil in 1970. He was appointed director of client service at Regie Presse, since renamed Medias & Regies Europe, in 1977. He became administrator, general manager and president of Regie Presse in 1984. His title became president of the Company leases 293,000 square feet at an annual rentalmanagement board of $7.7 million which is sublet to third parties at rates below those paid by it. The expected shortfallMedias & Regies Europe in rental income from these third party subleases1999. He has been fully reserved and discounted. At December 31, 1999 theserved as a member of our management board since 1987. KEVIN ROBERTS, born on October 20, 1949, joined Saatchi & Saatchi Group ownedWorldwide as chief executive officer and leased propertiesCordiant as director in 1997. In 1999, he became chief executive officer of Saatchi & Saatchi. Mr. Roberts had previously been a group marketing manager for Procter & Gamble, which he left in 1982 to become regional president of Pepsi-Cola Middle East. In 1987, he was appointed regional president of Pepsi-Cola Canada. He became chief operating officer and fixtures (including furniture and equipment) which haddirector of Lion Nathan Limited in 1989. BERTRAND SIGUIER, born on June 10, 1941, was a net book value of L75.2 million ($121.8 million). The Company considers its offices and other facilities to be in good condition. However, it has surplus office space based on the needs of its current business. At December 31, 1999, L32.2 million ($51.8 million) had been reserved by the Group for potential costs of surplus space, primarily in New York City. The 456,000 square feet leasedfinancial analyst at the 375 Hudson Street location includes 55,000 square feet subletNeuflize Schlumberger Mallet Bank from 1967 to Zenith through 2005 at a current market rate at1969. He joined our account management department in 1969. Throughout his tenure with us, Mr. Siguier has been involved with managing some of our most important client accounts. He served as deputy manager and international coordinator of Publicis Intermarco Farner from 1974 until 1979, when he became deputy managing director of our agency in London. He joined the time the lease was entered into. The Companyboard of directors of Publicis Conseil in 1982, serving there until his appointment as vice president of Publicis Communication in 1988. He has guaranteed, with effect from the effective date of the Demerger, all of the obligations of Cordiant Property Holdings Limited,been a member of CCG,our management board since 1999, and currently serves as lessee under certain leasesexecutive vice president of premises at Lansdowne House, Berkeley Square, London W1,Publicis Worldwide with responsibility for the supervision of worldwide account directors. 30 34 ADDITIONAL INFORMATION Except as noted above: (i) there are no familial relationships between any of our directors, (ii) none of our directors were selected pursuant to arrangements or understandings with major shareholders, customers, suppliers or others and (iii) we have no agreements with any of our directors providing for benefits to be paid upon termination of employment, nor do any of our subsidiaries have any such agreements, except that we have a term expiring on June 16, 2013. The current annual base rent under these leases amountsfive year employment agreement with Kevin Roberts, and a three year employment agreement with Robert Seelert, pursuant to L10.6which we would continue to provide salary and other benefits to the applicable director within the contract period if we terminate his employment for reasons other than those agreed upon in his contract. COMPENSATION Our directors as a group (which, as noted above, includes our senior managers) received aggregate compensation with respect to the 2000 fiscal year of approximately E3.2 million per annum, subjectfor services to upwards-only rent reviews in 2002/2003our company and every five years thereafter.its subsidiaries. This property is not currently occupied by any company inamount includes bonuses and directors' fees. It also includes payments made to Robert Seelert and Kevin Roberts with respect to the period between September 8, 2000, the date our acquisition of Saatchi & Saatchi Groupwas completed, and December 31, 2000. Bonuses are paid to members of our management board based upon an analysis of our performance for the year conducted by our compensation committee. We granted our directors as a group a total of 100,000 options in 2000. These options have an exercise price of E43.55 per share and will expire in 2005. We did not set aside or CCG. Allaccrue any funds to provide pension, retirement or similar benefits for our directors as a group during the 2000 fiscal year. BOARD PRACTICES Our supervisory board has established an appointments and remuneration committee and an audit committee. The appointments and remuneration committee is currently comprised of this property has been sublet, butElisabeth Badinter, Henri-Calixte Suaudeau and Gerard Pedraglio. Elisabeth Badinter chairs the committee. The committee reviews, and makes recommendations to the supervisory board concerning, the appointment of managers of our company and our principal subsidiaries and the remuneration of those managers. The audit committee is comprised of Gerard Worms, Simon Badinter and Jean-Paul Morin. Gerard Worms chairs the committee. The committee oversees the organization and execution of our audits with a view to ensuring the consistency and accuracy of the financial statements and reviews our financial procedures and the implementation of recommendations of our external auditors. The audit committee is also responsible for varying termsapproving the budget for external audits. EMPLOYEES As of December 31, 2000, we employed approximately 20,340 people worldwide:
AT DECEMBER 31, 2000 APPROXIMATE NUMBER OF EMPLOYEES -------------------- Communications.............................................. 19,133 Other Activities............................................ 1,207
Our employees are distributed geographically as follows: France...................................................... 3,411 Rest of Europe.............................................. 5,493 United States............................................... 6,954 Rest of World............................................... 4,482
Our employees' membership in trade unions varies from country to country, and at lower rents.we are party to numerous collective bargaining agreements. As is generally required by law, we renegotiate our labor 31 35 agreements in Europe annually in each country in which we operate. There is no material level of trade union membership in our U.S. operations. No material work stoppages due to labor disagreements have occurred during the past three years. We believe that our relationship with our employees is good. SHARE OWNERSHIP Except as described under "Major Shareholders and Related Party Transactions -- Major Shareholders," none of our directors owns 1% or more of our shares. Our directors as a group directly own approximately 6.2% of our shares. See "Major Shareholders and Related Party Transactions -- Major Shareholders" for further information concerning ownership of our shares by certain of our directors. Our directors as a group also own options to purchase 343,170 of our shares. These options have an existing guaranteeexercise prices ranging from CCG which will continueE4.9 to E43.5 per share, and CCG has agreedexpiration dates ranging from 2005 to indemnify the Company against any liability under the Company's guarantee. There are2008. We have a number of existing guarantees by CCG in respectstock option plans for the benefit of obligationsour directors, managers and other employees. As of certain companies in theDecember 31, 2000, options remaining to be exercised pursuant to these plans were as follows:
NUMBER OF OPTIONS REMAINING TO EXERCISE EXPIRATION GRANT DATE BE EXERCISED PRICE(E) DATE - ---------- ------------ -------- ---------- February 1992........................................... 17,700 7.2 2002 December 1992........................................... 25,450 6.9 2002 March 1994.............................................. 28,760 6.4 2004 March 1995.............................................. 93,970 6.6 2005 April 1996.............................................. 87,260 4.9 2006 March 1997.............................................. 75,960 5.6 2007 March 1998.............................................. 66,000 8.7 2008 November 1998........................................... 331,500 10.2 2008 September 2000.......................................... 100,000 43.5 2005 ------- TOTAL................................................... 826,600 =======
In addition, before we acquired it, Saatchi & Saatchi Group,put in place several stock option plans. When the acquisition was completed, options under these plans were converted into options to purchase our shares. As of December 31, 2000, 1,595,773 of these options were outstanding, including guarantees in respect of leases of premises at 375 Hudson Street, New York and certain premises in London. These and certain other existing guarantees were not released in connection with the Demerger. In the Demerger Agreement, the Company agreed700,493 options granted pursuant to give additional, or in some cases substitute, guarantees and to indemnify CCG against any liability under its existing guarantees. Item 3. Legal Proceedings. In March 1992 Saatchi & Saatchi North America, Inc. ("SSNA"), a subsidiaryan "Equity Participation Plan." No exercise price will be payable upon exercise of the Company, disposedEquity Participation Plan options. As of December 31, 2000, the weighted average exercise price of the assetsother options was E10.87 per share. The options will become exercisable as follows:
EQUITY PARTICIPATION OTHER TIME EXERCISABLE PLAN PLANS TOTAL - ---------------- ------------- ------- --------- Immediately........................................... 601,932 649,335 1,251,267 In 2001............................................... 98,561 147,385 245,946 In 2002............................................... 0 78,483 78,483 In 2003............................................... 0 20,077 20,077 ------- ------- --------- TOTAL................................................. 700,493 895,280 1,595,773 ======= ======= =========
32 36 ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS MAJOR SHAREHOLDERS As of its Lifestyle Marketing Group divisionJune 30, 2001, to Kaleidescope Holdings, Inc. (the "Purchaser"). In July 1992 International Sports Marketing Inc. ("ISM") brought an action in the Circuit Court for Wayne County, Michigan (the "Court") naming a numberbest of defendants, includingour knowledge, no person holds 5% or more of our shares, except as described below. All our shareholders have the United States Olympic Committee ("USOC"), various individuals employed by or associatedsame proportional voting rights with it and various advertising agencies and sports marketing companies, including SSNA, allegingrespect to the shares they hold, except that the USOC had improperly withdrawn from a program with ISM to produce commemorative olympic coins and that the advertising and sports marketing defendants had tortiously interfered with this program. In 1995 a default judgment was enteredshares owned by the Court against a defendant described as "Lifestyle Marketing Group." The total amount of the default judgment (including interest to date) is approximately $35 million. In 1996, after ISM's claim against SSNA had been dismissedsame shareholder in registered form for failure to state a claim, ISM filed a supplemental action in the Court against, among others, SSNA and the Purchaser, seeking to enforce against them the default judgment issued against "Lifestyle Marketing Group." On February 11, 1998, the Court issued an Opinion and Order holding that SSNA is liable to indemnify a party which the Court referred to as "Lifestyle Marketing Group" or "Lifestyle Marketing Group Inc." On March 17, 2000, a judgment was entered against SSNA in the amount of the default judgment. The Company has been advised by its US counsel that, in its view, the Opinion and Order and judgment are based on palpable errors of fact and law. SSNA was previously dismissed from this lawsuit in March 1997 on summary judgment. SSNA is vigorously pursuing its defenses to this action through an appeal. Item 4. Control of Registrant. The Company is not owned or controlled by any government or corporation. The following table sets forthat least two years carry double voting rights. Below we show the number of Ordinaryour shares held by all Directorscertain shareholders, and Executive Officersthe percentage ownership in our company of the Company as a groupthose shareholders, as of December 31, 1999:2000. Title of Class Identity of Person or Group Amount Owned Percent of Class
PERCENTAGE OF TOTAL SHAREHOLDER SHARES HELD SHARES - -------------- --------------------------- ------------ --------------------------- ----------- ---------- Societe Anonyme Somarel..................................... 30,960,000 22.4% The Putnam Company.......................................... 9,336,255 6.8% Elisabeth Badinter.......................................... 7,766,800 5.6%* Treasury Stock.............................................. 6,982,929 5.1%
- --------------- * Does not include Ms. Badinter's indirect interest in our company held through Somarel. Including that indirect interest, her interest in our company is approximately 15.2%. Below we show the percentage ownership in our company of the persons listed above as of December 31, 1997, 1998 and 1999.
PERCENTAGE OF TOTAL SHARES -------------------- SHAREHOLDER 1997 1998 1999 - ----------- ---- ---- ---- Ordinary shares Directors and Executive Officers of 237,472 Less than one the Company as a group percentSociete Anonyme Somarel..................................... 38.0% 34.5% 32.8% The Putnam Company.......................................... -- -- 5.4% Elisabeth Badinter*......................................... 7.5% 8.7% 8.2% Treasury Stock.............................................. -- 1.2% 4.4%
Item 5. Nature- --------------- * Does not include Ms. Badinter's indirect interest in our company held through Somarel. Including that indirect interest, her percentage ownership of Trading Market. Priorour company as of December 31, 1997, 1998 and 1999 was approximately 23.0%, 22.8% and 22.3%, respectively. SOMAREL Somarel is owned primarily by descendants of our founder, Marcel Bleustein-Blanchet, and our current and former directors and employees. As of December 31, 2000, approximate ownership of Somarel's ordinary shares was as follows: - Elisabeth Badinter -- 43%; - Publicis employees -- 18%; - Institutional investors -- 18%; - Sophie Dulac -- 16%; - Michele Bleustein-Blanchet, daughter of Marcel Bleustein-Blanchet -- 2%; and - Nicolas Rachline, grandson of Marcel Bleustein-Blanchet -- 1%. All Somarel shareholders are party to a shareholders' agreement pursuant to which they will agree to approve a merger of Somarel into our company by June 30, 2003 at the latest. In the merger, the Somarel shareholders will exchange their shares for an economically-equivalent number of shares of our company. 33 37 VOTING POWER OF FOUNDING FAMILY, DIRECTORS AND STAFF Giving effect to the Demerger, theredouble voting rights provision of our statuts, we estimate that at least 45% of the voting power of our company is held by descendants of Marcel Bleustein-Blanchet and our directors and employees. OWNERSHIP BY U.S. HOLDERS To the best of our knowledge, approximately 15.5 million, or 17.3%, of our bearer shares were held in the United States by approximately 125 holders as of December 31, 2000. RELATED PARTY TRANSACTIONS Except as described under "Directors, Senior Management and Employees -- Directors and Senior Management -- Additional Information," our company (inclusive of its subsidiaries) has not, since January 1, 1997, engaged in any material transactions with related parties, nor has it agreed to engage in any such transactions. 34 38 ITEM 8: FINANCIAL INFORMATION CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS See our financial statements. LITIGATION In the ordinary course of our business, we are named, from time to time, as a defendant in various legal proceedings. We maintain liability insurance and believe that our coverage is sufficient to protect us adequately from any material financial loss as a result of any legal claims made against us. DIVIDEND POLICY On July 10, 2001, we paid a dividend of E0.20 per share, plus a tax credit of E0.10 per share, with respect to the 2000 fiscal year to persons who held our shares as of March 10, 2001. This represents an 18% increase over the dividend paid per share with respect to the 1999 fiscal year (and corresponds to a 170% increase in the total amount paid as dividends), which was no public marketitself a 39% increase over the per share dividend paid with respect to the 1998 fiscal year. Our current intention is to continue our dividend growth in order to reach a dividend yield close to the average for thestocks listed on Euronext Paris. The payment and amount of any future dividends will depend on a number of factors, including our financial performance and net income, general business conditions and our business plans and investment policies. See "Additional Information -- Memorandum and Articles of Association -- Rights, Preferences and Restrictions Applicable to Our Ordinary Shares -- Dividends." SIGNIFICANT CHANGES See "Operating and Financial Review and Prospects -- Outlook for 2001." 35 39 ITEM 9: THE OFFER AND LISTING OFFER AND LISTING DETAILS MARKET PRICE INFORMATION Our ordinary shares or the ADSs. The Company's Ordinary shares are quotedtrade on Euronext Paris and, since September 12, 2000, our ADSs have traded on the London Stock Exchange Limited (the "London Stock Exchange").NYSE. The tabletables below setsset forth, for the periods indicated, the reported high and low middle market quotations for the Ordinarysales prices of our ordinary shares on Euronext Paris in euros and the London Stock Exchange basedreported high and low sales prices of our ADSs on its daily official list. Such quotations have been translatedthe NYSE in each case into US dollars at the Noon Buying Rate on each of the respective dates of such quotations.dollars. LAST SIX MONTHS
Pence Per Translated into Ordinary Share US Dollars High Low High LowEURONEXT PARIS NYSE -------------- -------------- HIGH LOW HIGH LOW ----- ----- ----- ----- 1997 Fourth Quarter (beginning December 15, 1997).......................... 113 109 1.89 1.82 1998 First Quarter...................... 159 103 2.67 1.70 Second Quarter..................... 179 149 2.93 2.51 Third Quarter...................... 165 101 2.74 1.70 Fourth Quarter..................... 138 97 2.32 1.66 1999 First Quarter...................... 209 122.5 3.37 2.01 Second Quarter..................... 234.5 203 3.84 3.27 Third Quarter...................... 242.5 209.5 3.78 3.34 Fourth Quarter..................... 377.5 205 6.08 3.39 2000 First Quarter 431.5 343.5 6.81 5.62 Second Quarter (through June, 23, 2000)................... 421 266 6.32 3.922001.................................................. 37.85 28.17 32.30 23.90 May, 2001................................................... 38.77 35.20 34.40 31.30 April, 2001................................................. 38.50 30.49 34.10 27.00 March, 2001................................................. 37.70 31.35 35.00 28.00 February, 2001.............................................. 36.99 33.02 34.50 30.50 January, 2001............................................... 39.27 32.11 36.88 31.38
The Ordinary shares trade in the United States on the New York Stock Exchange, Inc. (the "NYSE") in the form of American Depositary Shares ("ADSs") which are evidenced by American Depositary Receipts ("ADRs"). Each ADS represents five Ordinary shares. The depositary for the ADSs is The Bank of New York (the "Depositary"). The table below sets forth the high and low sales prices for the ADSs as reported in the New York Stock Exchange -- Composite Transactions.LAST TWO YEARS BY QUARTER
US Dollars per ADS -----------------------------------------------EURONEXT PARIS NYSE -------------- -------------- HIGH LOW HIGH LOW ----- ----- ----- ----- High Low 1997 2001 First Quarter............................................... 39.27 32.11 36.88 28.00 2000 Fourth Quarter (beginning 9 7/16 8 3/4 December 15, 1997)............................. 1998Quarter.............................................. 41.89 29.10 37.44 25.75 Third Quarter............................................... 45.89 33.50 -- -- Second Quarter.............................................. 57.00 37.05 -- -- First Quarter.................................... 13 7/8 7 15/16Quarter............................................... 69.70 33.00 -- -- 1999 Fourth Quarter.............................................. 38.50 21.33 -- -- Third Quarter............................................... 22.20 17.80 -- -- Second Quarter................................... 14 13/16 12 1/8 Third Quarter.................................... 13 3/4 7 7/8 Fourth Quarter................................... 12 1/4 7 7/8 1999Quarter.............................................. 20.50 14.50 -- -- First Quarter.................................... 16 7/8 10 1/8 Second Quarter................................... 19 7/16 16 1/8 Third Quarter.................................... 19 5/8 16 1/2 Fourth Quarter................................... 31 1/2 16 3/4 2000 First Quarter.................................... 34 15/16 28 1/8 Second Quarter (through June 23, 2000)......................... 33 1/16 20Quarter............................................... 16.91 11.70 -- --
LAST FIVE YEARS
EURONEXT PARIS NYSE -------------- -------------- HIGH LOW HIGH LOW ----- ----- ----- ----- 2000........................................................ 69.70 29.10 36.25 25.75 1999........................................................ 38.50 11.70 -- -- 1998........................................................ 16.48 7.29 -- -- 1997........................................................ 9.71 6.88 -- -- 1996........................................................ 7.50 4.20 -- --
We urge you to obtain current market quotations. 36 40 SHARE CAPITAL INFORMATION As of December 31, 2000, 138,219,819 of our ordinary shares were outstanding, each with a nominal value of E0.40. Our statuts provide that our shares may be held in registered or bearer form, at the option of the shareholder. ARRANGEMENTS FOR TRANSFER AND RESTRICTIONS ON TRANSFERABILITY Our statuts provide that registered shares may be transferred only by means of a share transfer order signed by the transferor and recorded in our books. If the shares to be transferred are not fully paid-up, the share transfer order must also be signed by the transferee. Regarding bearer shares, our statuts require that transfers of bearer shares be recorded in the books of the relevant authorized intermediary. Pursuant to French regulations, registered shares must be converted into bearer form before being transferred on Euronext Paris and, accordingly, must be registered in an account maintained by an accredited intermediary. A shareholder may initiate a transfer by giving instructions to the relevant accredited intermediary. For dealings on Euronext Paris, a tax assessed on the price at which the securities are traded, or impot sur les operations de bourse, is payable at the rate of 0.3% on transactions of up to FF 1,000,000 and at a rate of 0.15% for larger trades. This tax is subject to a rebate of FF 150 per transaction and a maximum assessment of FF 4,000 per transaction. Non-residents of France are not required to pay this tax. In addition, a fee or commission is payable to the broker involved in the transaction, regardless of whether the transaction occurs in France. No registration duty is normally payable in France, unless a transfer instrument has been executed in France. MARKETS Our ordinary shares trade on the Premier Marche of Euronext Paris and our ADSs trade on the NYSE. 37 41 ITEM 10: ADDITIONAL INFORMATION MEMORANDUM AND ARTICLES OF ASSOCIATION OBJECTS AND PURPOSES Under Article 2 of our statuts, our corporate purposes are to: - produce and develop publicity; - organize shows and radio or television broadcasts, set up radio, television and other programs, use movie theaters, recording or broadcasting studios and projection and viewing rooms, publish documents and publish music, sketches, scripts and theater productions; and - carry out commercial, financial, industrial and real and movable property transactions directly or indirectly related to the above in order to foster our growth. We may also acquire interests in other businesses, regardless of such businesses' purposes. DIRECTORS Our statuts provide that a member of our supervisory board must own at least 200 of our shares for as long as he or she serves as a director. Members of our management board are not required to own any of our shares. Each director is eligible for reappointment upon the expiration of his or her term of office. Members of the supervisory board serve four year terms. No member of the supervisory board may serve after the annual ordinary shareholders' meeting following his or her 74th birthday. Members of the management board serve six year terms. No member of the management board may serve after the ordinary shareholders' meeting following his or her 65th birthday. Under the French commercial code, any transaction directly or indirectly between a company and one of its directors that cannot be reasonably considered in the ordinary course of business of the company is subject to the prior consent of the supervisory board. Any such transaction concluded without the prior consent of the supervisory board can be nullified if it causes prejudice to the company. An interested director, or a person acting on the director's behalf, can be held liable on this basis. The statutory auditor must be informed of the transaction within one month following its conclusion and must prepare a report to be submitted to the shareholders for approval at their next meeting. At June 1,2000, the Company had 224,928,841 Ordinarymeeting, the interested director may not vote on the resolution approving the transaction, nor may his or her shares outstandingbe taken into account in determining the outcome of the vote or whether a quorum is present. In the event the transaction is not ratified by the shareholders at a shareholders' meeting, it will remain enforceable by third parties against the company, but the company may in turn hold the interested director and, in some circumstances, the other directors, liable for any damages it may suffer as a result. In addition, the transaction may be canceled if it is fraudulent. In the case of transactions with directors that can be considered within the company's ordinary course of business, the interested director must provide a copy of the governing agreement to the chair of the supervisory board, and the members of the supervisory board and the statutory auditor must be informed of the principal terms of each such transaction. Similar limitations apply to transactions between a company and a holder of shares carrying 5% or more of its voting power (or, if such shareholder is a legal entity, the entity's parent, if any). Certain transactions between a corporation and one of its directors are prohibited under the French commercial code. Members of our supervisory board are not authorized, in the absence of a quorum, to vote compensation to themselves or other supervisory board members. RIGHTS, PREFERENCES AND RESTRICTIONS APPLICABLE TO OUR ORDINARY SHARES DIVIDENDS Dividends on our ordinary shares are distributed to shareholders pro rata. Outstanding dividends are payable to shareholders on the date of the shareholders' meeting at which the distribution of dividends is 38 42 approved, subject to any conditions imposed by the shareholders at the meeting. The dividend payment date is decided by the shareholders at an ordinary general meeting (or by the management board in the absence of such a decision by the shareholders). Under the French commercial code, we must pay any dividends within nine months of the end of our fiscal year unless otherwise authorized by court order. Subject to certain conditions, our management board can decide the distribution of interim dividends during the course of the fiscal year, but in any case before the approval of the annual accounts by the annual ordinary general meeting of shareholders. Dividends on shares that are not claimed within five years of the date of declared payment revert to the French government. VOTING RIGHTS Each of our shares carries the right to cast one vote in shareholder elections, except that a share held by approximately 13,200the same shareholder in registered form for at least two years carries the right to cast two votes. LIQUIDATION RIGHTS If our company is liquidated, any assets remaining after payment of our debts, liquidation expenses and all of our remaining obligations will be distributed first to repay in full the nominal value of our shares. Any surplus will be distributed pro rata among shareholders in proportion to the nominal value of their shareholdings. PREFERENTIAL SUBSCRIPTION RIGHTS Under the French commercial code, if we issue additional shares, or any equity securities or other specific kinds of additional securities carrying a right, directly or indirectly, to purchase equity securities issued by our company for cash, current shareholders will have preferential subscription rights to these securities on a pro rata basis. These preferential rights will require us to give priority treatment to those shareholders over other persons wishing to subscribe for the securities. The rights entitle the individual or entity that holds them to subscribe to an issue of any securities that may increase our share capital by means of a cash payment or a set-off of cash debts. Preferential subscription rights are transferable during the subscription period relating to a particular offering. These rights may also be listed on Euronext Paris. A two-thirds majority of our shares entitled to vote at an extraordinary general meeting may vote to waive preferential subscription rights with respect to any particular offering. French law requires a company's board of directors and independent auditors to present reports that specifically address any proposal to waive preferential subscription rights. In the event of a waiver, the issue of securities must be completed within the period prescribed by law. The shareholders may also decide at an extraordinary general meeting to give the existing shareholders a non-transferable priority right to subscribe for the new securities during a limited period of time. Shareholders may also waive their own preferential subscription rights with respect to any particular offering. AMENDMENTS TO RIGHTS OF HOLDERS Shareholder rights can be amended only by action of an extraordinary general meeting of the class of shareholders affected. Two-thirds of the shares of the affected class voting either in person or by mail or proxy must approve any proposal to amend shareholder rights. The voting and quorum requirements for this type of special meeting are the same as those applicable to an extraordinary general meeting, except that the quorum requirements for a special meeting are 50% of the voting shares, or 25% upon resumption of an adjourned meeting. Except as described under "-- Anti-Takeover Provisions," our statuts do not contain any provisions that discriminate against existing or prospective holders of substantial numbers of our shares. See also "-- Anti-Takeover Effects of Applicable Law and Regulations." 39 43 ORDINARY AND EXTRAORDINARY MEETINGS General In accordance with the French commercial code, there are two types of shareholders' general meetings: ordinary and extraordinary. Ordinary general meetings of shareholders are required for matters that are not specifically reserved by law to extraordinary general meetings, such as: - electing, replacing and removing members of the supervisory board; - appointing independent auditors; - declaring dividends or authorizing dividends to be paid in shares; - approving the company's annual financial statements; and - issuing debt securities. Extraordinary general meetings of shareholders are required for approval of matters such as amendments to our statuts, including any amendment required in connection with extraordinary corporate actions. Extraordinary corporate actions include: - changing our company's name or corporate purpose; - increasing or decreasing our share capital; - creating a new class of equity securities; - authorizing the issuance of investment certificates or convertible or exchangeable securities; - establishing any other rights to equity securities; - selling or transferring substantially all of our assets; and - voluntarily liquidating our company. Shareholders' meetings The French commercial code requires our management board to convene an annual ordinary general meeting of shareholders for approval of the annual accounts. This meeting must be held within six months of the end of each fiscal year. This period may be extended by an order of the President of the Tribunal de Commerce. The management board and the supervisory board may also convene an ordinary or extraordinary meeting of shareholders upon proper notice at any time during the year. If the management board and our supervisory board fail to convene an annual shareholders' meeting, our independent auditors or a court- appointed agent may call the meeting. Any of the following may request the court to appoint an agent: - one or several shareholders holding at least 5% of our share capital; - in cases of urgency, by designated employee representatives or any interested party; - duly qualified associations of shareholders who have held their shares in registered form for at least two years and who together hold at least 1% of the voting rights of our company; or - in a bankruptcy, our liquidator or court-appointed agent may also call a shareholders' meeting in some instances. Shareholders holding more than 50% of our share capital or voting rights may also convene a shareholders' meeting after a public offer to acquire control of our company or a sale of a controlling stake in our capital. 40 44 Notice of shareholders' meetings We must announce general shareholders' meetings at least 30 days in advance by means of a preliminary notice published in the Bulletin des Annonces Legales Obligatoires (BALO). The preliminary notice must first be sent to the Commission des Operations de Bourse (the COB). The COB also recommends that the preliminary notice be published in a newspaper of national circulation in France. The preliminary notice must disclose, among other things, the time, date, and place of the meeting, whether the meeting will be ordinary or extraordinary, the agenda, a draft of the resolutions to be submitted to the shareholders, a description of the procedures which holders of bearer shares must follow to attend the meeting, the procedure for voting by mail, and a statement informing the shareholders that they may propose additional resolutions to the management board within ten days of the publication of the notice. We must send a final notice containing the agenda and other information about the meeting at least 15 days prior to the meeting or at least six days prior to the resumption of any meeting adjourned for lack of a quorum. The final notice must be sent by mail to all registered shareholders (including nominees). At June 1, 2000, approximately 7,000 persons with United States addresses, owned approximately 1,873,620who have held shares for more than one month prior to the date of the Company's ADSs (representing approximately 4.2%preliminary notice. The final notice must also be published in BALO and in a newspaper authorized to publish legal announcements in the local administrative department in which our company is registered, with prior notice having been given to the COB. In general, shareholders can take action at shareholders' meetings only on matters listed in the agenda for the meeting. One exception to this rule is that shareholders may take action with respect to the dismissal of members of the supervisory board and various other matters regardless of whether these actions are on the agenda. Additional resolutions to be submitted for approval by the shareholders at the meeting may be proposed to the management board (within ten days of the publication of the preliminary notice in the BALO) by: - designated employee representatives; - one or several shareholders holding a specified percentage of shares; or - a duly qualified association of shareholders who have held their shares in registered form for at least two years and who together hold at least 1% of our voting rights. The management board must submit properly proposed resolutions to a vote of the shareholders. During the two weeks preceding a meeting of shareholders, any shareholder may submit written questions to the management board relating to the agenda for the meeting. The management board must respond to these questions during the meeting. Attendance and voting at shareholders' meetings Each share confers on the shareholder the right to cast one vote, except that shares owned by the same shareholder in registered form for at least two years carry double voting rights. Shareholders may attend ordinary and extraordinary shareholders' meetings and exercise their voting rights subject to the conditions specified in the French commercial code and our statuts. There is no requirement that shareholders have a minimum number of shares in order to attend or to be represented at an ordinary or extraordinary general meeting. To participate in any general meeting, a holder of shares held in registered form must have shares registered in his or her name in a shareholder account maintained by us or on our behalf by an agent appointed by us at least five days prior to the date set for the meeting. A holder of bearer shares must obtain a certificate from the accredited intermediary with whom the holder has deposited his or her shares. This certificate must indicate the number of bearer shares the holder owns and must state that these shares are not transferable until the time fixed for the meeting. The holder must deposit this certificate at the place specified in the notice of the meeting at least five days before the meeting. 41 45 Proxies and votes by mail In general, all shareholders who have properly registered their shares or duly presented a certificate from their accredited financial intermediary may participate in general shareholders' meetings. Shareholders may participate in general meetings either in person or by proxy. Shareholders may vote in person, by proxy or by mail. Proxies will be sent to any shareholder on request. To be counted, such proxies must be received at our registered office, or at any other address indicated on the notice convening the meeting, prior to the date of the meeting. A shareholder may grant proxies to his or her spouse or to another shareholder. A shareholder that is a corporation may grant proxies to a legal representative. Alternatively, a shareholder may send us a blank proxy without nominating any representative. In this case, the chairman of the meeting will vote blank proxies in favor of all resolutions proposed by the management board and against all others. With respect to votes by mail, we are required to send shareholders a voting form. The completed form must be returned to us at least three days prior to the date of the shareholders' meeting. Quorum The French commercial code requires that shareholders having at least 25% of the shares entitled to voting rights must be present in person or be voting by mail or by proxy to fulfill the quorum requirement for: - an ordinary general meeting; or - an extraordinary general meeting where an increase in our share capital is proposed through incorporation of reserves, profits or share premium. The quorum requirement is one third of the shares entitled to voting rights, on the same basis, for any other extraordinary general meeting. If a quorum is not present at a meeting, the meeting is adjourned. When an adjourned meeting is resumed, there is no quorum requirement for an ordinary meeting or for an extraordinary general meeting where an increase in our share capital is proposed through incorporation of reserves, profits or share premium. However, only questions that were on the agenda of the adjourned meeting may be discussed and voted upon. In the case of any other reconvened extraordinary general meeting, shareholders having at least 25% of outstanding Ordinary shares).voting rights must be present in person or be voting by mail or proxy for a quorum. If a quorum is not present, the reconvened meeting may be adjourned for a maximum of two months. Any deliberation by the shareholders taking place without a quorum is void. Majority Holders of a simple majority of a company's voting power may pass any resolution on matters required to be considered at an ordinary general meeting, or concerning a capital increase by incorporation of reserves, profits or share premium at an extraordinary general meeting. At any other extraordinary general meeting, a two-thirds majority of the shareholder votes cast is required. A unanimous shareholder vote is required to increase liabilities of shareholders. Abstention from voting by those present or those represented by proxy or voting mail is counted as a vote against the resolution submitted to the shareholder vote. In general, a shareholder is entitled to one vote per share at any general meeting, except that shares owned by the same shareholder in registered form for at least two years carry double voting rights. Under the French commercial code, shares of a company held by entities controlled directly or indirectly by that company are not entitled to voting rights and are not considered for quorum purposes. 42 46 LIMITATIONS ON RIGHT TO OWN SECURITIES Our statuts contain no provisions that limit the right of shareholders to own our securities or hold or exercise voting rights associated with those securities. See "-- Exchange Controls" for a description of certain requirements imposed by French law. ANTI-TAKEOVER PROVISIONS Our statuts provide double voting rights for shares held by the same shareholder in registered form for at least two years. Our statuts further provide that any person or group that fails to notify us within 15 days of acquiring or disposing of 1% or any multiple of 1% of our shares will be deprived of voting rights for shares in excess of the unreported fraction. In addition, our shareholders have authorized our management board to increase our capital in response to a third party tender offer for our shares. ANTI-TAKEOVER EFFECTS OF APPLICABLE LAW AND REGULATIONS The French commercial code provides that any individual or entity, acting alone or in concert with others, that becomes the owner, directly or indirectly, of more than 5%, 10%, 20%, one-third, 50% or two-thirds of the outstanding shares or voting rights of a listed company in France, such as our company, or that increases or decreases its shareholding or voting rights above or below any of June 1, 2000, approximately 54those percentages, must notify the company within 15 calendar days of the date it crosses such thresholds of the number of shares it holds and their voting rights. The individual or entity must also notify the Conseil des Marches Financiers (CMF) within five trading days of the date it crosses these thresholds. French law and COB regulations impose additional reporting requirements on persons who acquire more than 10% or 20% of the outstanding shares or voting rights of a listed company. These persons must file a report with United States addresses reflected on the Company's share register owned approximately 612,023 Ordinary shares (representing approximately 0.3%company, the COB and the CMF within 15 days of all outstanding Ordinary shares). Thus,the date they cross the threshold. In the report, the acquiror must specify its intentions for the following 12-month period, including whether or not it intends to continue its purchases, to acquire control of the company in total,question or to nominate candidates for the board of directors. The CMF makes the notice public. The acquiror must also publish a press release stating its intentions in a financial newspaper of national circulation in France. The acquiror may amend its stated intentions, provided that it does so on the basis described above, the Company's ADS holders and direct holders of Ordinary shares with United States addresses owned at June 1, 2000, approximately 9,980,123 Ordinary shares representing approximately 4.5% of all outstanding Ordinary shares. The Company believessignificant changes in its own situation or that June 1, 2000, approximately an additional 13.4% of its outstanding Ordinary shares were beneficially owned by US persons holding their shares through UK nominees, giving an aggregate US holdingshareholders. Upon any change of approximately 17.9%. Item 6. Exchange Controls and Other Limitations Affecting Security Holders. Thereintention, it must file a new report. To permit holders to give the required notice, we are no limitations on the rights of non-resident or foreign persons by virtue of nationalityrequired to hold or vote the Ordinary shares imposed by the laws of the United Kingdom or by the Articles except for certain restrictions imposed from time to time by HM Treasury pursuant to legislation such as the United Nations Act of 1946 and the Emergency Laws Act 1964, against the governments or residents of certain countries. Article 157 of the Articles, provides, however, that a member who has no registered address within the United Kingdom and has not notified the Company in writing of an address within the United Kingdom for the service of notice, shall not be entitled to receive notice from the Company. There are currently no governmental laws, decrees or regulations restricting the import or export of capital or affecting the remittance of dividends or other payments to non-UK holders of Ordinary shares, except for restrictions of the type referred to above. Item 7. Taxation. The following is a summary of certain UK tax consequences generally applicable to a beneficial owner of ADRs or Ordinary sharespublish in the Company who is resident inBALO no later than 15 calendar days after the United States and not resident in the United Kingdom (a "US Holder") for the purposes of the current double taxation convention on income and capital gains between the United States and the United Kingdom (the "Convention"). Subjectannual ordinary general shareholders' meeting information with respect to the following paragraph, this summary is based on current tax law and practicetotal number of voting rights outstanding as of the date of this filingsuch meeting. In addition, if the number of outstanding voting rights changes by 5% or more between two annual ordinary general meetings, we are required to publish in the BALO, within 15 calendar days of such change, the number of voting rights outstanding and isprovide the CMF with written notice of such information. The CMF publishes the total number of voting rights so notified by all listed companies in a weekly notice (avis), noting the date each such number was last updated. If any person fails to comply with the legal notification requirement, the shares or voting rights in excess of the relevant threshold will be deprived of voting rights for all shareholders' meetings until the end of a two-year period following the date on which their owner complies with the notification requirements. In addition, any shareholder who fails to comply with these requirements may have all or part of the shareholder's voting rights suspended for up to five years by the Commercial Court at the request of the chairman, any shareholder or the COB, and may be subject to a fine. Under CMF regulations, and subject to limited exemptions granted by the CMF, any changes (possiblyperson or persons acting in concert that own in excess of one-third of the share capital or voting rights of a French listed company must initiate a public tender offer for the balance of the share capital of such company. 43 47 In addition, a number of provisions of the French commercial code allow corporations to adopt statuts that have anti-takeover effects, including provisions that allow: - limitations on the voting power of shareholders; and - shareholders' agreements that provide for preemptive rights in case of a sale of shares by a shareholder. EXCHANGE CONTROLS The French commercial code currently does not limit the right of nonresidents of France or non-French persons to own and vote shares. However, nonresidents of France must file an administrative notice with retroactive effect)French authorities in USconnection with the acquisition of a controlling interest in our company. Under existing administrative rulings, ownership of 20% or UKmore of our share capital or voting rights is regarded as a controlling interest, but a lower percentage might be held to be a controlling interest in some circumstances depending upon factors such as: - the acquiring party's intentions; and - the acquiring party's ability to elect directors, and financial reliance by us on the acquiring party. French exchange control regulations currently do not limit the amount of payments that we may remit to nonresidents of France. Laws and regulations concerning foreign exchange controls do require, however, that all payments or transfers of funds made by a French resident to a nonresident be handled by an accredited intermediary. In France, all registered banks and most credit establishments are accredited intermediaries. TAXATION On August 31, 1994, the United States and France signed a tax law and practice (including changes in the Convention) occurring after that date. As thetreaty (the Treaty). The following discussion is only a general summary of certain UK and USthe principal tax effects that may apply to you as a holder of our shares for purposes of U.S. federal income tax law consequences (not including consequencesand French tax, if all of the following apply to you: - you own, directly or indirectly, less than 10% of our share capital; - you are: -- a citizen or resident of the United States for United States federal income tax purposes; -- a United States domestic corporation; or -- otherwise subject to United States federal income taxation on a net income basis in respect of your shares of our company; - you are entitled to the benefits of the Treaty under any other laws, including other federal, state, localthe "Limitations on Benefits" article of the Treaty; - you hold your shares of our company as capital assets; and - your functional currency is the U.S. dollar. YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE CONSEQUENCES TO YOU OF ACQUIRING, OWNING OR DISPOSING OF OUR SHARES, RATHER THAN RELYING ON THIS SUMMARY. The summary may not apply to you or foreign tax laws), it doesmay not purport to address all potentialcompletely or accurately describe tax consequences for all types of investors and, consequently, its applicability will depend upon the particular circumstances of individual investors. Certain holders (including, but not limited to you. For example, special rules may apply to U.S. expatriates, insurance companies, tax-exempt organizations, financial institutions, real estate investment trusts, regulated investment companies, persons subject to the alternative minimum tax, dealers orsecurities broker-dealers, traders or brokers in securities or currencies, persons that have a "functional currency" other than the US dollar, persons that will hold Ordinary shares (or ADSs) as a position in a "straddle" or as part of a "hedging" or "conversion" transaction for US federal income tax purposeselect to mark-to-market and persons owning, directly or indirectly, ten percent or more of the votingholding their shares of the Company) may be subjectas parties to a conversion transaction, among others. Those special rules are not discussed below. Investors should, therefore, consult their own tax advisers about their tax position in relation to the Company including the particular tax consequences to them of owning and disposing of Ordinary shares or ADSs.this annual report. The discussion of UK taxation of dividends and refunds of tax creditssummary is based on current UK tax lawthe laws, conventions and treaties in force as amended by the Finance Act 1999. United Kingdom Taxation of Dividends and Refunds of Tax Credits The Company As a result of changes to UK tax legislation which came into force on April 6, 1999, the Company is not liable to the UK Inland Revenue for advance corporation tax in respect of dividends paid on or after April 6, 1999. US Resident Shareholders For purposes of the Convention and for the purposes of the United States Internal Revenue Code of 1986, as amended (the "Code"), the holders of the ADRs should be treated as the owners of the underlying Ordinary shares represented by the ADSs that are evidenced by such ADRs. Tax Credits Under the Convention Individual shareholders resident in the United Kingdom for tax purposes, who receive dividends paid by the Company, will be entitled to a tax credit. The amount of the tax credit associated with dividends was reduced with effect from April 6, 1999 and is currently one ninth of the cash dividend or 10 percent of the aggregate of the cash dividend and the associated tax credit. An individual Shareholder resident in the United Kingdom for tax purposes is treated for UK income tax purposes as having taxable income equal to the sum of the dividend paid to him and the tax credit in respect of his dividend. The tax credit will be credited against the shareholder's income tax liability. Shareholders whose liability to income tax is less than the amount of the tax credit are generally no longer entitled to a refund in respect of the tax credit. Under the Convention, certain US Holders which are US corporations which do not control, directly or indirectly, alone or together with associated corporations, at least 10 percent of the voting shares of the Company or who are US resident individuals were previously entitled to claim from the Inland Revenue payment of the tax credit (a "Tax Credit Refund") to which a UK resident individual would be entitled, subject to a withholding tax equal to 15 percent of the aggregate value of the dividend and the tax credit. The effect of the reduction in the amount of the tax credit associated with dividends paid by the Company on or after April 6, 1999 will be that, for such US Holders, the amount of the withholding tax will exceed the amount of the tax credit. As a result, such US Holders are not entitled to receive any payment in respect of the tax credit for dividends paid on or after April 6, 1999. A modified rule for Tax Credit Refunds, not addressed in this summary, applies to US corporations controlling, directly or indirectly, alone or together with associated corporations at least 10 percent of the voting shares of the Company. Such corporations should consult their own tax advisors with respect to the detailed application of the Convention to their own particular circumstances and on the procedure for obtaining any Tax Credit Refunds to which they may be entitled. Unitary Tax States Under Section 812 of the Income and Corporation Taxes Act 1988, the UK Treasury has power to deny the payment of Tax Credit Refunds under the United Kingdom's income tax conventions to certain corporations if such a corporation or an associated company (as described in Section 812) has a qualifying presence in a state which operates a unitary system of corporate taxation. These provisions come into force only if the UK Treasury so determines by statutory instrument. As of the date of this filing, no such determination has been made. The UKannual report, all of which are subject to changes, possibly with retroactive effect. Also, this summary does not discuss any tax rules other than U.S. federal income tax and French tax rules. Further, the U.S. and French tax authorities and courts are not bound by this summary and may disagree with its conclusions. 44 48 TAXATION OF DIVIDENDS Withholding Tax and Avoir Fiscal We will withhold tax from your dividend at the reduced rate of 15%, provided that you have indicated that any action could be implemented on a retrospective basis, thereby applyingcomplied with the following procedures: - You must complete French Treasury Form RF1 A EU-No. 5052, "Application for Refund," and send it to dividends paidthe French tax authorities before the date of implementation. United Kingdom Taxationpayment of Capital Gains Holdersthe dividend. If you are not an individual, you must also send the French tax authorities an affidavit attesting that you are the beneficial owner of ADRs or Ordinaryall the rights attached to the full ownership of the shares, whoincluding, among other things, the dividend rights, at the Centre des Impots des Non Residents, 9 rue d'Uzes, 75094 Paris Cedex 2, France. - If you cannot complete Form RF1 A EU-No. 5052 before the date of payment of the dividend, you may complete a simplified certificate and send it to the French tax authorities. This certificate must state that: -- you are US citizens or residentsa resident of the United States for USpurposes of the Treaty; -- your ownership of our shares is not effectively connected with a permanent establishment or a fixed base in France; -- you own all the rights attached to the full ownership of the shares, including, among other things, the dividend rights; -- you meet all the requirements of the Treaty for the reduced rate of withholding tax; and -- you claim the reduced rate of withholding tax. If you have not completed Form RF1 A EU-No. 5052 or the simplified certificate before the dividend payment date, we will deduct French withholding tax at the rate of 25%. In that case, you may claim a refund of the excess withholding tax by completing and providing the French tax authorities with Form RF1 A EU-No. 5052 before December 31 of the calendar year following the year during which the dividend is paid. The Application for Refund, together with instructions, can be obtained from the U.S. Internal Revenue Service or from the Centre des Impots des Non Residents upon request. After it is complete, it should be sent to the Centre des Impots des Non Residents. Under the Treaty, you may be entitled, in certain circumstances, to a French tax credit called the avoir fiscal. The avoir fiscal is generally equal to 50% of the dividend paid for individuals, or 40% of the dividend paid for shareholders other than individuals. You may be entitled to a payment equal to the avoir fiscal, less a 15% withholding tax, if any one of the following applies to you: - you are an individual or other non-corporate holder that is a resident of the United States for purposes of the U.S.-France tax treaty; - you are a U.S. corporation, other than a regulated investment company; - you are a U.S. corporation that is a regulated investment company and that owns, directly or indirectly, less than 10% of the share capital of our company, provided that less than 20% of your shares are beneficially owned by persons who are neither citizens nor residents of the United States; or - you are a partnership or trust that is a resident of the United States for purposes of the Treaty, but only to the extent that your partners, beneficiaries or grantors would qualify as eligible under the first or second points on this list and are subject to U.S. income tax with respect to such dividends and payment of the avoir fiscal. If you are eligible, you may claim the avoir fiscal by completing Form RF1 A EU-No. 5052 and sending it to the French tax authorities at the Centre des Impots des Non Residents before December 31 of the year following the year in which the dividend is paid. As noted below, you will not receive this payment until after January 15 of the calendar year following the year in which the dividend was paid. To receive the payment, 45 49 you must submit a claim to the French tax authorities and attest that you are subject to U.S. federal income taxes on the payment of the avoir fiscal and the related dividend. For partnerships or trusts, the partners, beneficiaries or grantors, as applicable, must make this attestation. Specific rules apply to the following: - tax-exempt U.S. pension funds, which include the exempt pension funds established and managed in order to pay retirement benefits subject to the provisions of Section 401(a) of the Internal Revenue Code (qualified retirement plans), Section 403 of the Internal Revenue Code (tax deferred annuity contracts) or Section 457 of the Internal Revenue Code (deferred compensation plans); and - various other tax-exempt entities, including certain state-owned institutions, not-for-profit organizations and individuals (with respect to dividends they beneficially own and that are derived from an individual retirement account). Entities in these two categories are eligible for a reduced withholding tax rate of 15% on dividends, subject to the same withholding tax filing requirements as eligible U.S. holders, except that they may have to supply additional documentation evidencing their entitlement to these benefits. These entities are not entitled to the full avoir fiscal. They may claim a partial avoir fiscal equal to 30/85 of the gross avoir fiscal, provided that they own, directly or indirectly, less than 10% of our capital and that they satisfy the filing formalities specified in the applicable U.S. Treasury regulations. The avoir fiscal or partial avoir fiscal and any French withholding tax refund are generally expected to be paid within 12 months after the holder of shares files Form RF1 A EU-No. 5052. However, they will not be paid before January 15 following the end of the calendar year in which the dividend is paid. For U.S. federal income tax purposes, the gross amount of a dividend and whoany avoir fiscal, including any French withholding tax, will be included in your gross income as dividend income when payment is received by you, to the extent they are paid or declared paid out of our current or accumulated earnings and profits as calculated for U.S. federal income tax purposes. Dividends paid by our company will not resident or ordinarily residentgive rise to any U.S. dividends received deduction. They will generally constitute foreign source "passive" income for foreign tax credit purposes. For recipients predominantly engaged in the United Kingdomactive conduct of a banking, insurance, financing or similar business, dividends paid by our company will generally constitute foreign source "financial services" income for UKforeign tax credit purposes. Also for U.S. federal income tax purposes, the amount of any dividend paid in euros or French francs, including any French withholding taxes, will not normally be liableequal to UK taxationthe U.S. dollar value of capital gains realizedthe euros or French francs on the disposaldate the dividend is included in income, regardless of whether the payment is in fact converted into U.S. dollars. You will generally be required to recognize U.S. source ordinary income or deemed disposalloss when you sell or dispose of their ADRseuros or Ordinary shares, unless the ADRsFrench francs. You may also be required to recognize foreign currency gain or Ordinary shares are held in connection withloss if you receive a trade, profession or vocation carried on in the United Kingdom through a branch or agency or, in certain circumstances, their non-UK residence is only temporary. However, US citizens and residents holding ADRs or Ordinary shares may be liable for taxation of such gainsrefund under the lawsTreaty of tax withheld in excess of the United States. Intreaty rate. This foreign currency gain or loss will generally be U.S. source ordinary income or loss. To the case of non-corporate US Holders who disposed, or are deemed to have disposed, their ADRs or Ordinary shares, the maximum marginal USextent that any dividends paid exceed our current and accumulated earnings and profits as calculated for U.S. federal income tax rate applicable topurposes, the distribution will be treated as follows: - first, as a tax-free return of capital, which will cause a reduction in the adjusted basis of your shares in our company. This adjustment will increase the amount of gain, or decrease the amount of loss, that you will recognize if you later dispose of those shares; and - second, the balance of the dividend in excess of the adjusted basis will be taxed as capital gain will be lower than the maximum marginal US federal incomerecognized on a sale or exchange. French withholding tax rate applicable to ordinary income if such US Holder's holding period for such Ordinary shares (or ADSs held by or on behalf of the Depositary in the form of ADRs) exceeds one year. The deductibility of capital losses is subject to certain limitations. US Holders who are neither resident nor ordinarily resident in the UK will not normally be liable to UK tax on capital gains accruing to themimposed on the disposal or deemed disposaldividends you receive and on any avoir fiscal at 15% under the Treaty is treated as payment of Ordinary shares (or ADSs), except where the Ordinary shares (or ADSs) are held in connection with a trade, profession or vocation carried on in the UK throughforeign income tax. You may take this amount as a branch or agency. Subject to certain limitations, a US Holder that is liable, in the exceptional case, for both UK tax (i.e., capital gains tax or UK corporation tax on chargeable gains) and US tax on a gain on the disposal of Ordinary shares (or ADSs held by or on behalf of the Depositary in the form of ADRs) generally will be entitled to credit the UK tax against its USyour U.S. federal income tax liability, in respect of such gain, subject to specific conditions and limitations. 46 50 The Precompte A French company must pay an equalization tax known as the applicable limitations. United Kingdom Inheritanceprecompte to the French tax authorities if it distributes dividends out of: - profits that have not been taxed at the ordinary corporate income tax rate, or - profits that have been earned and Gift Tax UK Inheritance Tax ("IHT")taxed more than five years before the distribution. The amount of the precompte is 50% of the net dividends before withholding tax. If you are not entitled to the full avoir fiscal (as described above), you may generally obtain a refund from the French tax charged broadly, onauthorities of any precompte paid by us with respect to dividends distributed to you. Under the valueTreaty, the amount of an individual's estate at his death, upon certain transfersthe precompte refunded to U.S. residents is reduced by the 15% withholding tax applied to dividends and by the partial avoir fiscal, if any. You are entitled to a refund of value (e.g., gifts) madeany precompte that we actually pay in cash, but not to any precompte that we pay by individuals during their lifetime and on certain transfersoffsetting French and/or foreign tax credits. To apply for a refund of value involving trusts and closely held companies. A transferthe precompte, you should file French Treasury Form RF1 B EU-No. 5053 before the end of value made during an individual's lifetime may lead to an immediate liability to IHT (e.g., a transfer into a discretionary trust), or it may be potentially exempt (e.g., an outright gift to another individual),the year following the year in which case it will only become chargeable if the donor dies within 7 years.dividend was paid. The transfer of value which is deemed to occur on death is an immediately chargeable transfer of value. Special rules apply to assets held in trusts, gifts out of whichform and its instructions are available from the donor reserves a benefit and gifts to or from closely held companies, which are not discussed herein. Many chargeable transfers of value do not in fact result in a charge to tax because IHT is charged at a "zero-rate" on transfers of value up to L234,000 (for chargeable transfers made on or after April 6, 2000). The "zero-rate" limit for chargeable transfers was L231,000 between April 6, 1999 and April 5, 2000 and L223,000 between April 6, 1998 and April 5, 1999. In simple terms, the value of all immediately chargeable transfers made within the seven year period before the transfer under consideration are aggregated with the value of that transfer in determining whether the limit of the L234,000 "zero-rate band" has been reached. For transfers of value which (in accordance with the aggregation principle) go beyond the limit of the zero rate band, the rates of tax are 20 percent on lifetime chargeable transfers and 40 percent on transfers on, or within the period of three years before, death (with modified rules applying to transfers within the period from seven to three years before death). IHT is chargeable upon the worldwide assets of individuals who are domiciled or deemed to be domiciled in the United Kingdom, and upon the UK situate assets of individuals domiciled elsewhere. Accordingly, an individual who is domiciledInternal Revenue Service in the United States and is not deemed toor from the Centre des Impots des Non Residents. For U.S. federal income tax purposes, the amount of the precompte will be domiciledincluded in your gross income as dividend income in the United Kingdom is only withinyear you receive it. It will generally constitute foreign source "passive" income for foreign tax credit purposes. For recipients predominantly engaged in the scopeactive conduct of IHTa banking, insurance, financing or similar business, the precompte will generally constitute foreign source "financial services" income for foreign tax credit purposes. The amount of any precompte paid in euros or French francs, including any French withholding taxes, will be equal to the extentU.S. dollar value of his UK situate assets. Thesethe euros or French Francs on the date the precompte is included in income, regardless of whether the payment is in fact converted into U.S. dollars. You will include Ordinary shares ingenerally be required to recognize a U.S. source ordinary income or loss when you sell or dispose of the Company whicheuros or French francs. TAXATION OF CAPITAL GAINS If you are registered ina resident of the United Kingdom. It is understood to be the Inland Revenue's normal practice to treat ADRs representing shares in UK companies as assets situated in the United KingdomStates for IHT purposes. The rules outlined above will, in many cases, be modified by the US-UK Convention on Inheritance and Gift Taxes. In general, an individual who is domiciled in the US for the purposes of that convention and who is not a UK nationalthe Treaty, you will not be subject to IHTFrench tax on any capital gain if you sell or exchange your shares, unless you have a permanent establishment or fixed base in relation to OrdinaryFrance and the shares in a UK companyyou sold or ADRs representing Ordinary shares in a UK company on death or on a lifetime gift, provided that any gift or estate tax due in the USA is paid and that the Ordinary shares or ADRs are notexchanged were part of the business property of athat permanent establishment in the UK or part of the assets of a fixed UK base used by the holder for the performance of services. In the exceptional case where the Ordinary shares or ADRs are subject both to IHT and to US federal gift or estate tax, the gift tax convention provides a credits system designed to avoid double taxation. United Kingdom Stamp Duty and Stamp Duty Reserve Tax Transfers of Ordinary shares for a consideration UK stamp duty is payable ad valorem on certain documents or instruments conveying or transferring shares or securities (including Ordinary shares in the Company) on sale and UK stamp duty reserve tax ("SDRT") is imposed on agreements for the transfer of certain shares and securities (including Ordinary shares in the Company) for a consideration in money or money's worth. In the case of stamp duty, the charge is normally at the rate of 0.5 percent of the amount or value of the consideration given for the transfer and, in the case of SDRT, 0.5 percent of such amount or value. There will generally be a minimum fixed stamp duty charge of L5 per instrument of transfer. Stamp duty and SDRT are generally payable by the purchaser but SDRT can in certain circumstances be collected from persons other than the purchaser (e.g., certain brokers and market makers). The charge to SDRT is normally incurred on the day ("the relevant day") on which the agreement is made or, if later, becomes unconditional and it normally becomes payable on the seventh day of the month following that in which it is incurred. However, if the SDRT is paid and at any time on or within six years after the relevant day the agreement is completed by a duly stamped transfer, a claim can be made within that six year period for repayment of the SDRT and, to the extent that it has not been paid, the charge will be cancelled. Consequently, transfers of, or agreements to transfer, Ordinary shares in the Company will normally be subject to ad valorem stamp duty or SDRT, respectively. The electronic transfer system known as CREST permits shares to be held in uncertificated form and to be transferred without a written instrument. The absence of a written instrument of transfer results in such paperless transfers generally being liable to SDRT rather than stamp duty.base. Special rules apply to the collectionindividuals who are residents of SDRT on paperless transfers settled within CREST. Transfers of Ordinarymore than one country. In general, for U.S. federal income tax purposes, you will recognize capital gain or loss if you sell or exchange your shares into ADS form UK stamp duty or SDRT will normally be payable on any transfer of Ordinary shares to the Depositary or its nominee, or where the Depositary issues an ADR in respect of Ordinary shares hitherto held for another purpose by it or its nominee. The stamp duty charge is at the rate of 1.5%: (i) in the case of a transfer of Ordinarysame manner as you would if you were to sell or exchange any other shares for consideration, of the amountheld as capital assets. Any gain or value of the consideration for the transfer, and (ii) in the case of a transfer of Ordinary shares other than for consideration and in the case of the issue ofloss will generally be U.S. source gain or loss. If you are an ADR in respect of Ordinary shares hitherto held for another purpose, of the value of the Ordinary shares. Transfers of Ordinary shares within the depositary arrangements No UK stamp duty will be payable on an instrument transferring an ADR or on a written agreement to transfer an ADR, provided that the instrument of transfer or the agreement to transfer is executed and remains at all times outside the UK. Where these conditions are not met, the transfer of, or agreement to transfer, an ADR could, depending on the circumstances, give rise to a charge to ad valorem stamp duty. No SDRT will be payable in respect of an agreement to transfer an ADR (whether made in or outside the UK). Transfers of Ordinary shares out of ADS form Where no sale is involved, a transfer of Ordinary shares by the Depositary or its nominee to the holder of an ADR upon cancellation of the ADR is not subject toindividual, any ad valorem stamp duty or SDRT, though itcapital gain will generally be subject to U.S. federal income tax at preferential rates if you meet the specified minimum holding periods. PFIC We believe that we will not be treated as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the current taxable year or for future taxable years. However, an actual determination of PFIC status is fundamentally factual in nature and cannot be made until the close of the applicable taxable year. We will be a PFIC for any taxable year in which either: - 75% or more of our gross income is passive income; or - our assets that produce passive income or that are held for the production of passive income amount to at least 50% of the value of our total assets on average. If we were to become a PFIC, the tax applicable to distributions on our shares and any gains you realize when you dispose of our shares may be less favorable to you. You should consult your own tax advisors regarding the PFIC rules and their effect on you if you purchase our shares. 47 51 FRENCH ESTATE AND GIFT TAXES Under "The Convention Between the United States of America and the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November 24, 1978," if you transfer your shares by gift or if they are transferred by reason of your death, that transfer will be subject to French gift or inheritance tax only if one of the following applies: - you are domiciled in France at the time of making the gift, or at the time of your death; or - you used the shares in conducting a business through a permanent establishment or fixed UK stamp dutybase in France, or you held the shares for that use. FRENCH WEALTH TAX The French wealth tax does not generally apply to shares if the holder is a resident of L5 per instrumentthe United States for purposes of transfer. By contrast,the Treaty. UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING Dividend payments on the shares and proceeds from the sale, exchange or other disposition of the shares may be subject to information reporting to the Internal Revenue Service and possible U.S. backup withholding. U.S. federal backup withholding generally is a transferwithholding tax imposed at the rate of 31% on specified payments to persons that fail to furnish required information. Backup withholding will not apply to a holder who furnishes a correct taxpayer identification number or agreementcertificate of foreign status and makes any other required certification, or who is otherwise exempt from backup withholding. Any U.S. persons required to transfer, Ordinary shares underlying an ADRestablish their exempt status generally must file Internal Revenue Service Form W-9, entitled Request for Taxpayer Identification Number and Certification. Finalized Treasury regulations have generally expanded the circumstances under which information reporting and backup withholding may apply. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability. You may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information. DOCUMENTS ON DISPLAY Certain documents referred to in this annual report can be inspected at our headquarters building at 133 Avenue des Champs-Elysees in Paris. We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the U.S. Securities and Exchange Commission (SEC). Specifically, we are required to file annually a Form 20-F no later than six months after the close of each fiscal year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the Depositary or its nomineeSEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information regarding the directionWashington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The public may also view our annual reports and other documents filed with the SEC on the Internet at www.sec.gov. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions in Section 16 of the ADR seller directly toExchange Act. 48 52 ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS Our company is a purchaser for a consideration may give rise to a liability to ad valorem stamp duty or SDRT generally calculated by reference tocorporation organized under the amount or valuelaws of France. The majority of our directors are citizens and residents of countries other than the United States, and the majority of our assets are located outside of the considerationUnited States. Accordingly, it may be difficult for investors: - to obtain jurisdiction over our company or our directors in courts in the transfer. Gifts of Ordinary shares A transfer of Ordinary shares for no consideration whatsoever is not chargeable to ad valorem stamp duty or SDRT, nor would it normally give rise toUnited States in actions predicated on the fixed stamp duty of L5. Item 8. Selected Financial Data.3 The following selected financial data as of and for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 have been derived from the consolidated financial statementscivil liability provisions of the Company andU.S. federal securities laws; - to enforce judgements obtained in such actions against us or our directors; - to obtain judgements against us or our directors in original actions in non-U.S. courts predicated solely upon the notes related thereto, which were audited by KPMG Audit Plc. The consolidated financial statements asU.S. federal securities laws; or - to enforce against us or our directors in non-U.S. courts judgements of December 31, 1999 and 1998 and for eachcourts in the United States predicated upon the civil liability provisions of the years inU.S. federal securities laws. Each of the three-year period ended December 31, 1999,foregoing statements applies to our auditors as well. 49 53 ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a result of our global operating activities and our financing activities, we are subject to various market risks relating primarily to foreign currency exchange rate risk and interest rate risk. INTEREST RATE RISK In the reportcourse of KPMG Audit Plc thereon,our operations, we are included elsewhere herein. Significantexposed risks related to interest rate changes, were made to the Company's capital structureprimarily as a result of the Demerger.credit facilities used to finance our investment activity and to maintain financial liquidity. We borrow primarily at variable rates. As of December 31, 2000, we had total outstanding bank borrowings and overdrafts of E901 million, comprised of E630 million in bank loans, E266 million in bank overdrafts and E5 million in obligations under capital leases. Of this indebtedness, E721 million is due within one year and the remainder is due within five years. The selected financial data set forth below for periods priormajority of our debt bears interest at variable rates; the average annual interest rate at December 31, 2000 was 6.2%. As of December 31, 2000, approximately 50% of our debt was denominated in euros and 40% was denominated in U.S. dollars. Our policy is to hold cash and cash equivalents in various currencies corresponding to the Demerger reflectexposure of our various subsidiaries around the capital structure in place at that time, which was appropriate historically to Cordiant. The capital position, finance charges and tax liabilities included in such dataworld. We generally do not reflectuse financial instruments to hedge interest rate risk. Based on the Company's capital position, finance chargesabove information, a hypothetical increase of 1% in average interest rates on long-term borrowings at variable rates as of December 31, 2000 would result in an increase in annual interest expense of approximately E2 million. FOREIGN CURRENCY EXCHANGE RATE RISK We conduct operations in over 102 countries around the world. The geographic diversity of our operations is reflected by the currencies that make up our results of operations. In 2000, more than half of our revenues were realized in currencies other than the euro, including more than 38% realized in U.S. dollars. The majority of our subsidiaries carry out businesses which are essentially local, with almost all of their revenues received in local currency and tax liabilitiesalmost all of their costs incurred in respectlocal currency. In addition, most of any ofour acquisitions in the periods covered hadUnited States have been funded through local borrowings, resulting in financial expenses and repayment obligations in the Company been an independently financed and managed group during such periods, or any future period. This information should be readsame currency. For these reasons, our exposure to losses resulting from differences between the currencies in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations"which we receive revenues and the Company'scurrencies in which we incur costs tends to be limited. However, we cannot assure you that we will be able to avoid such differences in the future or that any such differences will not materially affect our results of operations. For the reasons discussed above, we generally do not hedge our exposure to foreign currencies. We hold assets and liabilities, earn income and pay expenses of our subsidiaries in a variety of currencies. Our consolidated financial statements includingare presented in euros. Therefore, when we prepare our financial statements, we must translate our assets, liabilities, income and expenses in currencies other than the notes thereto, included elsewhere herein. _______________________________________ 3 The Financial Statementseuro into euros at then-applicable exchange rates. Consequently, increases and decreases in the value of the Company are prepared in accordance with UK Generally Accepted Accounting Principles ("UK GAAP") which differ in certain significnat respects from US Generally Accepted Accounting Principles ("US GAAP"). Reconciliation to US GAAP is set forth in Note 38 to the Financial Statements. The per share data has been translated into dollars per ADS where appropriate.
Year ended December 31, ---------------------------------------------------------------------- 1999 1999 1998 1997 1996 1995 (Restated) (Restated) (Restated)) (Restated) US$(1) L L L L L (In millions, except per share data) CONSOLIDATED INCOME STATEMENT: Amounts in Conformity with UK GAAP Commission and fee income Ongoing businesses 628.4 390.3 363.0 376.7 373.2 382.1 Sold and closed businesses 16.7 10.4 17.1 1.5 2.1 25.6 Total 645.1 400.7 380.1 378.2 375.3 407.7 Profit (loss) before tax, and minority interests(2) 58.4 36.3 34.8 794.2 16.1 (34.4) Net profit (loss) 37.8 23.5 23.6 786.0 11.8 (42.4) Net profit (loss) per Ordinary share - basic 17.2 10.7p 10.6p 353.9p 6.1p (27.7)p Approximate Amounts in Conformity with US US GAAP Net profit (loss) (39.2) (24.3) 13.2 5.9 (5.2) (48.4) Net profit (loss) per Ordinary share-basic(3) (0.18) (11.1)p 6.0p 2.8p (2.3)p (42.0)p Net profit (loss) per ADS (0.90) (55.5)p 29.5p 14.0p (11.5)p (168.0)p Dividends Per Ordinary share 0.03 1.6p 1.4p - - - Per ADS 0.13 8.0p 7.0p - - - December 31, 1999 1999 1998 1997 1996 1995 US$ L L L L L (In millions) CONSOLIDATED BALANCE SHEET DATA: Amounts in Conformity with UK GAAP Working capital deficiency (53.9) (33.5) (37.2) (24.9) (1,061.2) (1,031.3) Total assets 702.4 436.3 388.4 429.5 712.3 741.0 Long term liabilities, provisions and minority interests 225.7 140.2 155.6 200.8 185.0 233.8 Shareholders' deficiency (118.8) (73.8) (93.6) (123.0) (1,021.5) (1,024.4) Approximate Amounts in Conformity with US GAAP Shareholders' deficiency (1.2) (0.7) (12.3) (21.4) (1,028.8) (1,052.3)
_______________________________________ (1) These figures have been translated into US dollars at the Noon Buying Rate on December 31, 1999 (L1.00 = $1.61). (2) The profit (loss) before taxes and minority interests reflects: (a) Lnil exceptional items in 1999 and 1998, exceptional credit of L764.5 million in 1997, exceptional costs of L16.3 million and L5.8 million that were incurred in 1996 and 1995 respectively; (b) a profit on disposal of operations of L0.2 million, L6.1 million, L4.3 million and L17.7 million in 1999, 1998, 1997 and 1996, respectively; and (c) a loss on disposal of operations of L24.9 million in 1995. Details for 1999, 1998 and 1997 are set out in Note 5 to the Financial Statements). (3) Adjusted for the bonus element of the 1995 rights issue where appropriate. DIVIDENDS The Board recommended a final dividend of 1.0p per Ordinary share, at a cost of L2.2 million, in respect of the year ended December 31, 1999. The final dividend was paid on May 19, 2000 to shareholders on the register at April 14, 2000. There was an interim dividend of 0.6p declared and paid in 1999. In May 1999, the Company paid a dividend of 1.4 pence per Ordinary share in respect of the year ended December 31, 1998. In July 1998, the Company paid a dividend of 1.2 pence per Ordinary share in respect of the year ended December 31, 1997. No dividends were paid by the Group to parties outside of Cordiant between 1994 and 1997, except to minority shareholders of subsidiaries. The Directors make dividend determinations taking into account the Saatchi & Saatchi Group's results of operations, investment requirements, cash flow after repayment of debt and legal and contractual restrictions, if any. EXCHANGE RATES Fluctuations in the exchange rate between the pound sterling and the US dollareuro will affect the dollar equivalentvalue of these items in our financial statements, even if their value has not changed in their original currency. In this regard, an increase in the value of the pound sterling priceseuro relative to other currencies may result in a decline in the reported value, in euros, of our interests held in those currencies. To the extent this has a negative effect on our financial condition as presented in our financial statements, it could cause the price of our shares to decline. Conversely, if the relative value of the Ordinary shares oneuro to the London Stock Exchange and as a result, are likely to affectU.S. dollar declines, the market price of the ADSs in the United States. Such fluctuations will also affect theU.S. dollar amounts received by holders of ADSs on conversion by the Depositaryequivalent of cash dividends paid in pounds sterlingeuros on the Ordinary shares represented by the ADSs. The following table sets forth, for the periods indicated, the average, high, low and period end Noon Buying Rates for pounds sterling expressed in US dollars per L1. Average* High Low Period End -------- ---- --- ---------- 1995 (December 31) ......................... 1.58 1.64 1.53 1.55 1996 (December 31) ......................... 1.57 1.71 1.49 1.71 1997 (December 31).......................... 1.64 1.70 1.58 1.64 1998 (December 31).......................... 1.66 1.72 1.61 1.66 1999 (December 31).......................... 1.62 1.68 1.55 1.61
_______________________________________ * The average of the exchange rates on the last day of each month during the period. The Noon Buying Rate for pounds sterling on June 20, 2000 was L1.00 = $1.51. UNAUDITED PRO FORMA FINANCIAL INFORMATION FOR 1997 Unaudited pro forma financial information for the Group for 1997 has been included for illustrative purposes only. Owingour ADSs will decline as well. EQUITY MARKETS RISK Our exposure to the significant changes which were madeequity markets risk relates primarily to the Group's structure and financing arrangements to effect the Demerger, the trading result and actual interest and taxation charges incurred by the Group prior to the Demerger are not representative of the Group's experience following the Demerger. Pro forma information is presented to reflect the present structure and financing arrangements of the Group, prepared on the basis set out below. The pro forma financial information is unaudited and it does not necessarily reflect the results of operations or financial position of the Company that would have been achieved as of the dates indicated, nor is it necessarily indicative of the future results of operations or future financial position of the Company. The pro forma financial information has been prepared on the basis of UK GAAP. Adjustments were made to reflect changes to the structure of the Group and its financing arrangements, new trading arrangements with and revised financing of Zenith and the cost of the Demerger, together with the related interest and tax implications. In all cases, adjustments have been made as if the arrangements in relation to the Demerger were in place from January 1, 1997. Adjustments made were to: o reduce operating profit to reflect the new trading terms for the purchase of media services from Zenith, with an offsetting increase in share of profits of the joint venture; o eliminate inter-Group interest payable to CCG and Zenith and adjust external interest to reflect the revised financing of the Company and Zenith; and o adjust the tax charge to reflect the above adjustments and the current structure of the Group. Summary information reflecting the adjustments made is set out below. Statutory 1997 audited Adjustments Pro forma Lmillion Lmillion Lmillion - ------------------------------------------- ------------------- ----------------- ---------------- Revenue 378.2 (3.4) 374.8 Operating profit 29.7 (3.4) 26.3 Fundamental reorganization-demerger 764.5 (764.5) -- Net interest payable and similar items (3.0) (4.1) (7.1) Profit before tax 796.4 (768.6) 27.8 Tax (8.2) - (8.2) Profit for the period 788.2 (768.6) 19.6 - ------------------------------------------- ------------------- ----------------- ----------------
SHARE OF OPERATING PROFIT IN JOINT VENTURE 1997 Lmillion - --------------------------------------------------------------------- ----------------- Share of Zenith's operating profit, historical basis 0.9 Effect of revising trading terms with Zenith 3.4 Pro forma basis 4.3 - --------------------------------------------------------------------- -----------------
A subsidiary of the Company holds 50% of the ordinary share capital of Zenith. The remaining 50% is held by CCG. Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations. INTRODUCTION The Saatchi & Saatchi Group's revenue is generated from commissions and fees paid by clients. In each of the last three years between 40 percent and 45 percent of revenue was commission based and varied with the level of media and production expenditure. The remainder was derived from fees which were project or time based, as agreed with the client. With certain clients, an additional element of remuneration can be earned by meeting certain performance criteria set by the client. S&S generally has ongoing relationships with its clients which last a number of years. In contrast, the majority of revenue from clients of Rowland Worldwide and The Facilities Group is based on project specific assignments although they often have a relationship with the same client over many years. Revenue in any year is dependent primarily on the level of expenditure by clients on existing assignments and to a lesser degree on business gains and losses. When business is won or lost there is usually a delay of some months before revenue is affected. This is primarily because it is usual in the advertising industry for contracts to have a three month termination clause. In the case of new commission based work the delay may be longer as revenue is not normally recognized until advertisements have appeared in the media. Additionally, the revenues actually earned from new business wins may vary significantly from revenues anticipated at the outset of any new business win because the level of expenditure that a client ultimately determines is most appropriate can vary significantly from the client's initially projected amounts. The profitability of new business varies depending on the terms of remuneration negotiated and on the nature of the assignment. In particular, profitability depends on whether revenue is generated by increased spending on existing assignments, new or existing clients or product categories and on the number of offices involved in the assignment. The majority of the Saatchi & Saatchi Group's net operating costs are staff related which in each of the past three years equated to approximately 55 percent of revenue. When revenue growth is slow or declining in any particular operating unit, the Saatchi & Saatchi Group is able over time to reduce headcount, although this can result in severance costs. Conversely, staffing can be increased to handle sustained periods of increased business activity. The remainder of net operating costs relate to leased properties, depreciation and other administrative costs. S&S has offices and affiliated agencies in 92 countries, and its revenues and costs are denominated in a number of currencies. Consequently, exchange rate movements between pounds sterling and several other currencies have an impact on the operating result. The Group's costs are generally denominated in the same currency as the associated revenue, thereby mitigating the impact of exchange rate movements on operating profit. At the net profit level, the impact of exchange rate movements is also affected by the currency in which debt is denominated and the countries in which the Group's tax charges arise. The Group enters into foreign exchange forward contracts to hedge existing and identifiable future foreign currency commitments. The effect of such contracts is not material to the Company's financial condition or results of operations. During 1999 the Group acquired a majority stake in Nazca Holdings, Inc. (a Puerto Rican company). Nazca Holdings Inc. held investments in Brazil, Mexico, Puerto Rico and Venezuela. The Group's interest increased to 75% of the Nazca group of companies in return for funding. There were no material adjustments made upon acquisition. In late 1999, Nazca started a company in Argentina. During 1999 the Group disposed of its interest in Cliff Freeman & Partners for a consideration of US$4.6 million (L2.8 million) which resulted in a profit on disposal of L1.0 million. The closure and divestiture of businesses in Japan, Belgium and the Czech Republic, net of a partial release of a provision upon the subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8 million. During 1998 the Group acquired the business and assets of GMG Marketing Services, a U.S. based co-marketing company, increased its shareholding to 80% in Sista Saatchi & Saatchi Advertising PVT Limited, a company based in India, and acquired 51% of the share capital of Dialog-Team Fienhold Agentur fur Dialog-Marketing GmbH, a company based in Germany. In 1998 the Group disposed of its interest in Siegel & Gale for $33.8 million (L20.3 million) which resulted in a profit on disposal of L8.6 million. Further, the Group closed or divested businesses in Germany, Ireland, Norway and Spain and reduced its shareholding in South Africa. The Financial Statements have been prepared in conformity with UK GAAP which differs in certain significant respects from US GAAP. See Note 39 in the Notes to the Financial Statements for an explanation of these differences. INDUSTRY BACKGROUND4 _______________________________________ 4 Expenditure information in this section is based solely on estimates published by Zenith in its Advertising Expenditure Forecasts, January 2000. Zenith estimates that global advertising expenditure in the major media (press, television, radio, cinema and outdoor) totaled $299 billion in 1999. The developed economies of North America, Europe and Asia Pacific again accounted for the vast majority of this expenditure, estimated by Zenith to have been 90% in 1999. Zenith estimates that the growth in global advertising expenditure at current prices over the prior year was approximately 4.9% in 1999. Zenith forecasts that the rate of growth in 2000 will be approximately 6.5%. RESULTS OF OPERATIONS For the purposes of this section, references to "ongoing" and "underlying" performance exclude exceptional items and disposed businesses. In "ongoing" performance, the results of those businesses disposed of in the latter year have been excluded from the comparative information. In "underlying" performance, the effect of exchange rate movements is also eliminated. Year Ended December 31, 1999 vs. Year Ended December 31, 1998 Revenue from Continuing Operations Group revenue increased by 5.4% to L400.7 million in 1999 from L380.1 million in 1998. Ongoing revenue was up 12.5% to L390.3 million from L346.8 million in 1998, and on an underlying basis revenues increased by 11.0%. This increase reflected both an improved level of business from existing clients and a number of new business wins. In the UK, ongoing revenue decreased by 1.2% to L57.5 million in 1999 from L58.2 million in 1998 primarily reflecting some budget reductions and client losses. In North America, ongoing revenue increased by 13.0% to L192.4 million in 1999 from L170.3 million in 1998, while underlying growth was 10.3%. This reflects a continued improvement in the region's new business activity and additional business awarded by existing clients. Ongoing revenue in the Rest of Europe, Africa and the Middle East increased 1.0% to L71.2 million in 1999 from L70.5 million in 1998, and reflected growth of 2.3% on an underlying basis. In Asia Pacific, ongoing revenue increased by 7.1% to L51.2 million in 1999 from L47.8 million in 1998, but had underlying growth of 4.1%. Operating Profits from Continuing Operations Operating profit increased by 10.2% to L34.6 million in 1999 from L31.4 million in 1998. Ongoing operating profit increased 25.4% to L35.5 million in 1999 from L28.3 million in 1998. The increased revenue of the Group improved margins, as did the impact of companies closed, sold or divested during the year. In the UK, ongoing operating profit decreased by 7.9% to L7.0 million in 1999 from L7.6 million in 1998, reflecting the reduction in revenues. In North America, ongoing operating profit increased by 29.1% to L26.6 million in 1999 from L20.6 million in 1998. The increase was due to the revenue growth plus a continued focus on improving margins. The underlying growth was 25.5%. In the Rest of Europe, Africa and the Middle East, ongoing operating profit decreased by 21.4% to L2.2 million in 1999 from L2.8 million in 1998, as the gains in the major markets were more than offset by the decline in France in particular as well as reductions in the smaller markets. The underlying decrease was 18.5%. In Asia Pacific, there was ongoing operating profit of L0.1 million in 1999 compared with an operating loss in 1998 of L2.7 million which reflected the revenue increase. Operating Margins In 1999, the Group's ongoing operating margin was 10.5%. In 1998, the Group's ongoing operating margin was 9.2% on a restated basis. The improved revenue generation of the Group enhanced margins. The Group also benefited from the increased focus on profitability within the S&S network. On a geographical basis, ongoing operating margins were as follows: 1999 1998 ------------------- ----------------- North America 13.8% 12.1% UK 12.2% 13.1% Rest of Europe, Africa and the Middle East 3.1% 4.0% Asia Pacific 0.2% (5.6)% Latin America (2.2)% - Total Group (including Zenith) 10.5% 9.2%
Year Ended December 31, 1998 vs. Year Ended December 31, 1997 Revenue from Continuing Operations Revenue increased by 0.5% to L380.1 million in 1998 from L378.2 million in 1997. Ongoing revenue was up 4.8% to L363.0 million from L346.3 million in 1997, and on an underlying basis revenues increased by 9.3%. This increase reflected both an improved level of business from existing clients and a number of new business wins. In the UK, ongoing revenue decreased by 2.0% to L58.2 million in 1998 from L59.4 million in 1997 primarily reflecting an unusually high level of nonrecurring projects in 1997, some budget reductions and client losses, including Camelot, Commercial Union and Walt Disney. In North America, ongoing revenue increased by 12.3% to L182.3 million in 1998 from L162.3 million in 1997. Underlying growth was 14.0%. This reflected a continued improvement in the region's new business activity and additional business awarded by existing clients. Ongoing Revenue in the Rest of Europe, Africa and the Middle East increased 2.1% to L73.9 million in 1998 from L72.4 million in 1997, and reflected growth of 5.0% on an underlying basis. In the major markets, growth was strong in Germany (50%) and Spain (37%) and was good in Italy (9%). France declined 10% due to an unusually strong level of one-off revenues in 1997 and the sale of a subsidiary at the start of 1998. The smaller markets (Austria, Holland, Middle East and Eastern Europe) all grew. Belgium, Denmark and Switzerland declined due to client losses. In Asia Pacific, ongoing revenue decreased by 6.9% to L48.6 million in 1998 from L52.2 million in 1997, but had underlying growth of 6.8%. Revenues in Greater China increased by 18% and by 37% in China on its own. The rest of Asia Pacific declined 1%. In the region, Australia and New Zealand represent 42% of revenues, Greater China 40%, Singapore 12.5% and others 5.5%. Operating Profits from Continuing Operations Operating profit increased by 5.7% to L31.4 million in 1998 from L29.7 million in 1997. Ongoing operating profit increased 3.1% to L30.2 million in 1998 from L29.3 million in 1997. The improved revenue of the Group maintained margins, as did the impact of companies closed, sold or divested during the year. In the UK, ongoing operating profit increased by 33.3% to L7.6 million in 1998 from L5.7 million in 1997, reflecting a reduction in overheads, partially due to costs reallocated to other regions and a reduction in personnel. In North America, ongoing operating profit increased by 7.3% to L20.6 million in 1998 from L19.2 million in 1997, due to revenue growth plus a continued focus on improving margins. The underlying growth was 8.5%. In the Rest of Europe, Africa and the Middle East, ongoing operating profit decreased by 13.0% to L4.7 million in 1998 from L5.4 million in 1997, as the gains in the major markets were more than offset by the decline in France in particular as well as reduction in the smaller markets. The underlying decrease was 9.3%. In Asia Pacific, there was an ongoing operating loss of L2.7 million in 1998 compared with an operating loss in 1997 of L1.0 million as the year saw continuedour investment in China to service the needsequity securities of clients. Operating Margins In 1998, the Group's operating margin was 8.3%. In 1997, on a reported basis it was 8.5% but on a pro forma basis determined as set forth in "Unaudited Pro Forma Financial Information for 1997", the Group's operating margin would have been 7.6%. The ongoing margin was 8.3% compared with 7.6% on a pro forma basis in 1997. The improved revenue generation of the Group enhanced margins. The Group also benefited from the increased focus on profitability within the S&S network. On a geographical basis, ongoing operating margins were as follows: 1998 1997 Pro Forma ------------------- -------------------------- North America 11.3% 10.1% UK 13.1% 9.1% Rest of Europe, Africa and the Middle East 6.4% 7.5% Asia Pacific (5.6)% (1.9)% Total Group 8.3% 7.6%
Joint Ventures The share of operating profit in joint ventures relates to the Group's investment in Zenith, and South Africa for 1999 only. In 1998 and 1999 it reflects the revised commercial terms with Zenith which the Group entered into as part of the Demerger. The amount for 1997 does not reflect the revised commercial terms. The share of operating profit amounted to L5.5 million in 1999 compared to an operating profit of L3.6 million in 1998 and L0.9 million in 1997. Exceptional Items Disposals In 1999 the Group disposed of its interest in Cliff Freeman & Partners for a consideration of US$4.6 million (L2.8 million) which resulted in a profit on disposal of L1.0 million. The closure and divestiture of businesses in Japan, Belgium and the Czech Republic, net of a partial release of a provision upon the subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8 million. In the year ended December 31, 1998, the Group disposed of its interest in Siegel & Gale for $33.8 million (L20.3 million) which resulted in a profit on disposal of L8.6 million. The closure and divestiture of businesses in Germany, Ireland, Norway and Spain, together with the reduction of shareholding in South Africa, resulted in a loss of L2.5 million. In the year ended December 31, 1997, there was a profit of L4.3 million on disposal of businesses. To implement the Demerger, intergroup indebtedness between the Saatchi & Saatchi Group and each of CCG and Zenith had to be eliminated and cross holding investments transferred which resulted in a net exceptional gain of L764.5 million in 1997. Net Interest (Payable)/Receivable and Similar Items Net interest payable and similar items were L4.0 million in the year ended December 31, 1999. This amounted to L6.3 million in the year ended December 31, 1998 and L5.2 million in 1997. The net interest expense comprised the actual interest paid by the Saatchi & Saatchi Group on external borrowings and in 1997 on interest bearing loans that existed between the Saatchi & Saatchi Group and CCG, reflecting the capital structure prior to the Demerger. The borrowings and the corresponding interest charges in 1997 do not reflect the Group's capital position had it been an independently financed and managed group during the period. Taxation The tax charge attributable to the Saatchi & Saatchi Group is based on the aggregate of the tax charges of the companies which comprise the Saatchi & Saatchi Group. The charge amounted to L11.3 million in the year ended December 31, 1999 compared to L9.7 million in the year ended December 31, 1998 and L8.2 million in 1997. The tax charge in 1997 is not representative of the tax charge that would have been incurred had the Group been separately constituted throughout the period. Equity Minority Interests Equity minority interests were L1.5 million in the year ended December 31, 1999 compared to L1.5 million in the year ended December 31, 1998 and L0.6 million in 1997. Net Income In the year ended December 31, 1999, net income was L23.5 million, compared with income of L23.6 million in 1998 and L785.4 million in 1997. The results for 1997 do not reflect the Saatchi & Saatchi Group's capital structure had it been an independently financed and managed group during that period. See "Selected Financial Data-Unaudited Pro Forma Financial Information for 1997" included elsewhere in this Report. Dividend The Board recommended a final dividend of 1.0p per Ordinary share (1998: 1.4p; 1997: 1.2p) at a cost of L2.2 million. The final dividend was paid on May 19, 2000 to shareholders on the register at April 14, 2000. There was an interim dividend of 0.6p declared and paid in 1999 (1998: nil; 1997: nil). EURO CONVERSION On January 1, 1999, certain member countries of the European Union established fixed conversion rates between their existing currencies and the European Union's common currency (the "Euro"). The transition period for the introduction of the Euro is between January 1, 1999 and June 30, 2002. The Group has significant operations within the European Union. In early 1998, the Company established a dedicated steering committee to address the issues raised by the introduction of the Euro. The Company is making all the necessary changes to its internal systems and the timing of the phasing out of all uses of the existing currencies will comply with European Council regulations and be coordinated to meet the requirements of our clients and suppliers. Since January 1, 1999, the Company has undertaken Euro contracts covering foreign exchange forward contracts and swaps that arise from intercompany transactions. The Company does not presently expect that introduction of the Euro will result in any material increase in costs to the Company. LIQUIDITY AND CAPITAL RESOURCES General The Group's primary sources of liquidity are its cash flow from operations and bank facilities. Prior to the Demerger, the Saatchi & Saatchi Group's operations were conducted substantially separately from those of other Cordiant operations. However, the Saatchi & Saatchi Group was neither capitalized nor financed as an independent group. Cordiant managed the Group's borrowings and cash resources centrally. Cash generated or required by the Cordiant Group's businesses, was either remitted by Saatchi & Saatchi to Cordiant by way of dividend or intercompany loan, or advanced by Cordiant to the Saatchi & Saatchi Group's businesses by way of equity contributions or intercompany loans at the direction of Cordiant's central treasury function. The Saatchi & Saatchi Group's 1997 cash flows, in respect of interest, taxes paid and financing are therefore not indicative of the cash flows since the Demerger. Net Indebtedness The Company has a capital structure consisting of senior debt and equity. Senior debt consists primarily of a bank facility of up to $137.5 million, the covenants and terms of which are governed by the Bank Facility Agreement. The facility will mature in 2002 and has scheduled principal reductions of $20 million in 2000 and $25 million in 2001. In connection with the Demerger, the Saatchi & Saatchi Group established new banking arrangements under an Agreement dated September 30, 1997, among the Company, various other members of the Saatchi & Saatchi Group, BNY Markets Limited and Midland Bank Plc as Arrangers and certain banks and financial institutions (the "Bank Facility Agreement"). The Bank Facility Agreement requires the Company to comply with certain financial and other covenants relating to gross interest cover, total cash cover, maximum gross debt and maximum gross borrowings. It also contains provisions whereby, on the happening of certain specified events of default, the amount made available could be declared immediately due and payable. These events of default include breach of the above covenants and cross-default by certain companies in the Saatchi & Saatchi Group in respect of indebtedness over a specified amount or any change of control of the Company. The facility is secured by guarantees from certain members of the Saatchi & Saatchi Group (or, where guarantees are not possible, share charges over such companies) such that at all times the aggregate of the revenues of those companies that have given guarantees (or whose shares have been charged) will equal at least 60 percent of the Saatchi & Saatchi Group's consolidated revenues. Fixed and floating charges over the assets of the Company and certain of its subsidiaries and share pledges over the shares owned by members of the Saatchi & Saatchi Group in various subsidiaries have also been given. The facilities are in part required for the cyclical working capital needs of the Group and in part provide a margin to finance any unforeseen contingency. Cyclical needs arise both during each month, derived from the media payment cycles in each country, and through the year during periods of high advertising activity. The Group has significant cash balances in its international operations. These balances are required primarily to finance the working capital cycles of the individual country operations. In addition, Zenith entered into an agreement (the "Zenith Facility Agreement") providing a L21.5 million secured reducing multi-currency revolving credit facility (the "Zenith Facility"). The Company and CCG provided unlimited guarantees to the lenders in respect of the Zenith Facility and agreed between themselves that any liability under such guarantees is to be shared equally.unconsolidated entities, namely True North. At December 31, 1999,2000, the amount available under the Zenith Facility was L18.5 million. This amount is requiredmarket value of our quoted equity securities amounted to be repaid as follows: L2.0E213 million, in 2000 and L4.0 million in 2001, with the balance due in 2002. The Zenith Facility will be reduced by an amount equal to 75 percent of the net proceeds received (subjectcompared to a de minimiscarrying value for French GAAP purposes of $1.5 million per annum) on or following a sale by Zenith of any subsidiary (or a material part of a business of any subsidiary). The Zenith Facility Agreement requires Zenith to comply with various financial covenants relating to gross interest cover, maximum gross debt, maximum gross borrowings and gross capital expenditure. It also contains provisions whereby on the happening of certain specified events of default the amount made available could be declared immediately due and payable. In addition to customary events of default these events include defaults by certain companies in the Zenith group in respect of indebtedness over specified limits and any change of control of Zenith.E22 million. 50 The table below sets out certain cash flow items54 ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 51 55 PART II ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS None. 52 56 PART III ITEM 18: FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS Audited Consolidated Financial Statements for Publicis Groupe S.A. Report of Independent Auditors.............................. F-1 Consolidated Statements of Income for the three years ended December 31, 1999 and extracted from the Financial Statements appearing elsewhere herein.
Years ended December 31, 2000, 1999 1998 1997 ---- ---- ---- (L million) Cash flow items Cash flow from operating activities 32.7 38.7 52.5 Cash outflow from returns on investments and servicing1998.......................... F-3 Consolidated Balance Sheets as of finance (3.7) (4.9) (16.2) Tax paid (4.6) (4.5) (3.8) Cash outflow from capital expenditure and financial investment (13.2) (16.1) (15.7) Cash inflow/(outflow) from acquisitions and disposals 1.0 11.2 161.5 Equity dividends paid (4.4) (2.7) -- Management of liquid resources -- -- 17.1 ---- ---- ---- Cash inflow before financing 12.0 21.7 195.4 Net cash outflow from financing (5.7) (30.9) (204.3) ---- ----- ------ Increase (Decrease) in cash in the period 6.3 (9.2) (8.9) === ==== ====
Cash Flows from Operating Activities In the year ended December 31, 1999, cash generated by operations totaled L32.7 million compared with L38.7 million and L52.5 million in 1998 and 1997, respectively. In the year ended December 31, 1999, there was a working capital outflow of L9.9 million, compared with an inflow of L0.7 million in 1998 and an inflow of L19.7 million in 1997. Payments in respect of unutilized real estate, which have been provided for in prior years, were L6.1 million in the year ended December 31, 1999. Payments in respect of unutilized real estate were L7.2 million in 1998 and L11.7 million in 1997. The Group expects these payments to further reduce in future years. The majority of the Group's surplus property is sublet, but generally at lower rents than the Group pays for the space. The excess space has arisen mainly from a reduction in headcount following the loss of certain clients and the restructuring of the Group's businesses in prior years. Cash Outflows from Returns on Investments and Servicing of Finance Cash outflows from returns on investments and servicing of finance relate principally to net interest expense. In the years ended December 31, 1999, 1998 and 1997, the cash outflows were L3.7 million, L4.9 million and L16.2 million, respectively. The decrease in 1998 and 1999 primarily reflect the capital structure following the Demerger. Tax Paid Net tax payments were L4.6 million in the year ended December 31, 1999 compared to L4.5 million in 1998 and L3.8 million in 1997. In 1997 the tax paid was lower than the tax charge in the statement of operations because of several non-recurring cash recoveries related to prior years. Capital Expenditure and Financial Investment In the year ended December 31, 1999, the Group invested L11.3 million in capital expenditure net of proceeds from fixed asset disposals compared to L11.7 million in 1998 and L12.0 million in 1997. The level of capital expenditure for all periods presented was lower than depreciation charged. An employee trust purchased Ordinary shares in the Company at a cost of L6.8 million, of which L4.9 million was paid in 1998 and the balance of L1.9 million in 1999. The shares purchased by the Company were to satisfy options held by employees participating in Shareforce, an international sharesave scheme, and to satisfy phantom options issued to a senior executive. See "Options to Purchase Securities from Registrant or Subsidiaries-Employee Share Schemes." Acquisitions and Disposals During 1999 the Group acquired a majority stake in Nazca Holdings, Inc. (a Puerto Rican company). Nazca Holdings Inc. holds investments in Brazil, Mexico, Puerto Rico and Venezuela. The Group's interest increased to 75% of the Nazca group of companies in return for funding. There were no material adjustments made upon acquisition. Payments in respect of acquisitions were nil in the year ended December 31, 1999 compared to L7.0 million in the year ended December 31, 1998 and L7.9 million in 1997. In 1999 the Group disposed of its interest in Cliff Freeman & Partners for a consideration of US$4.6 million (L2.8 million) which resulted in a profit on disposal of L1.0 million. The closure and divestiture of businesses in Japan, Belgium and the Czech Republic, net of a partial release of a provision upon the subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8 million. The sum of these items were cash neutral. In the year ended December 31, 1998, the Group disposed of its interest in Siegel & Gale for $33.8 million (L20.3 million). The closure and divestiture of businesses in Germany, Ireland, Norway and Spain, together with the reduction of shareholding in South Africa, resulted in a loss of L2.5 million. There were no material disposals in the year ended December 31, 1997. The amounts associated with the Demerger were cash outflows of L0.4 million and L0.9 million in 1999 and 1998, respectively, and a cash inflow of L169.3 million in 1997. Management of Liquid Resources In the year ended December 31, 1997, the Group disposed of its shares in Interpublic Group of Companies Inc. ("IPG"), issued following the sale of KDW to IPG in 1996. There were no movements in management of liquid resources in either 1999 or 1998. Financing Activities The Group's financing arrangements as presented in 1997 reflect Cordiant's financing arrangements and not the arrangements that took effect following the Demerger. Item 9A. Quantitative and Qualitative Disclosures About Market Risk. Financial Risk Management The Company does not speculate in derivative financial instruments. Foreign Exchange The Company publishes its consolidated financial statements in pounds sterling. A substantial majority of the Company's profits are denominated in foreign currencies, primarily the US dollar (75% of 1999 operating profit). As a result, the Company is subject to foreign exchange risk due to the effects that foreign currency movements have on the Company's translation of results. In order to provide a partial hedge against these exposures, the majority of the Group's borrowings and interest expense are denominated in foreign currencies (primarily US Dollars). The Company estimates that a 10% movement in the US dollar/pound exchange rate would have led to a change in operating profit of approximately L2.3 million. Trading foreign exchange exposures, where they arise, are hedged via the spot and forward exchange markets. Interest Rates In order to reduce the Company's exposure to adverse interest movements, the Company has entered into interest rate caps which protect the majority of core borrowings. The Company's weighted average interest rate for 1999 was 6.6%. The Company estimates that if the 1999 interest rates had been 1 percentage point higher, the net interest expense would have increased by L483,000. Item 10. Directors and Executive Officers of Registrant. Charles T. Scott resigned as Chairman of the Company on December 31, 1998. The Directors and Executive Officers of the Company are set out below: NAME POSITION AGE Bill Cochrane * Finance Director 48 Susan W. Day Group Treasurer 44 Fiona M. Evans Company Secretary 34 Ian Irvine Non-Executive Director 63 Ken Olshan Non-Executive Director 67 Candice Carpenter Non-Executive Director 48 Kevin J. Roberts * Director, Chief Executive Officer 50 Bob Seelert * Chairman 57 Wendy Smyth * Director of Corporate Affairs 46 Sir Peter Walters Non-Executive Director 69 David I. C. Weatherseed Deputy Finance Director 48 _________ * Member of the Executive Committee Biographies Executive Directors Bill Cochrane. Mr. Cochrane has been a Director of the Company since September 1997 and became Finance Director with effect from January 1, 1999. He joined Saatchi & Saatchi Advertising in the United States in May 1982 as Controller of International Operations. He was promoted to Chief Financial Officer of Saatchi & Saatchi North America in 1989 and to Chief Financial Officer of S&S in 1992. Prior to joining S&S, he spent seven years at Arthur Andersen & Co., where he qualified as a Certified Public Accountant. Kevin J. Roberts. Mr. Roberts has been a Director of the Company since September 1997 and became Chief Executive Officer of the Company with effect from January 1, 1999. He joined S&S in May 1997 as Chief Executive Officer of Saatchi & Saatchi Worldwide when he was appointed to the Board of Cordiant. He has previously worked at Gillette Company and Procter & Gamble dealing with product development and marketing. In 1982, he became President and Chief Executive Officer of Pepsi-Cola, Middle East and was promoted in 1987 to President and Chief Executive Officer of Pepsi-Cola, Canada. In 1989, he was appointed Director and Chief Operating Officer of Lion Nathan Limited, a brewery group listed on the New Zealand Stock Exchange. He is a Director of the New Zealand Rugby Football Union and a Senior Fellow of the University of Waikato. Bob Seelert. Mr. Seelert has been a Director of the Company since September 1997 and became Chairman with effect from January 1, 1999. He joined Cordiant as Chief Executive Officer in July 1995 and was appointed to the Board of Directors in August 1995. He served as Chief Executive Officer from the Demerger until January 1999. From 1966 to 1989 he worked for General Foods Corporation where from 1986 until 1989 he was President and Chief Executive Officer for the Worldwide Coffee and International Foods division. He was President and Chief Executive Officer of Topco Associates Inc. from 1989 to 1991 and President and Chief Executive Officer of Kayser Roth Corporation from 1991 to 1994. He is a non-executive director of The Stride Rite Corporation. Wendy Smyth. Mrs. Smyth has been Director of Corporate Affairs with effect from January 1, 1999. She was Finance Director from September 1997 until January 1999. She joined the Company in 1982 in the United States and was appointed Regional Finance Director in 1984. She was the Finance Director of Saatchi & Saatchi Advertising International from 1986 to 1989 and then became Finance Director of Cordiant's Communications Division. In July 1991 she became Chief Financial Officer of Cordiant and was appointed to the Board of Directors of Cordiant in April 1993 as Finance Director. Non-Executive Directors Ian Irvine. Mr. Irvine has been a Director of the Company since May 1998. He is currently Chairman of Capital Radio plc, Dawson International plc, and Vides Networks Ltd. He served as a director of Reed International Plc from 1987 to 1997 and was also appointed chairman of Reed International Plc and co-chairman of Reed Elsevier Plc. Ken Olshan. Mr. Olshan was appointed a non-executive director of the Company on January 1, 1998. Mr. Olshan was Chairman and Chief Executive Officer of Wells Rich Greene BDDP, a New York based advertising agency, from 1990 to 1995. He is currently a director of Footstar, Inc., Charming Shoppes Inc. and Welgen Inc. Sir Peter Walters. Sir Peter Walters has been a Director of the Company since September 1997. He is Chairman of SmithKline Beecham plc. From 1991 to 1994 he was Chairman of Midland Bank plc and is currently Deputy Chairman of its parent, HSBC Holdings plc. He is Chancellor of the Institute of Directors, Chairman of the Trustees of the Institute of Economic Affairs, Chairman of the Trustees of the Police Foundation and a member of the Advisory Board of the LEK Partnership. He was Managing Director of BP plc from 1973 to 1980 and Executive Chairman from 1981 to 1990. He joined the Board of Cordiant in January 1994. Candice Carpenter. Ms. Carpenter was appointed a non-executive director of the Company on May 2, 2000. She is the co-founder and CEO of ivillage.com. Prior to that, she was President of Q2, the upscale QVC, Inc. shopping channel and from 1989 to 1993 was President of the Time Life Video and Television division within Time Warner. Executive Officers Susan W. Day. Ms. Day has been Group Treasurer of the Company since the Demerger. Previously, she had been Treasurer of Cordiant Holdings, Inc. in New York since 1989. Fiona M. Evans. Ms. Evans joined Cordiant in 1996 as Deputy Company Secretary. Prior to that she was Deputy Company Secretary at NBC Super Channel in 1997 and was previously employed in the Company Secretarial department of Forte Plc from 1992 to 1996. She was appointed Company Secretary of the Company in 1997. David I. C. Weatherseed. Mr. Weatherseed joined Cordiant in 1990 as Group Controller. In 1997 he was appointed Deputy Finance Director of the Company. Re-election of Directors The Articles provide that at every Annual General Meeting of the Company any Director appointed since the last Annual General Meeting and subsequently once every three years is required to retire and may, if eligible, stand for re-election. Corporate Governance From the time of the Demerger until the appointment of Mr. Irvine on May 1, 1998, the Group did not have three fully independent non-executive Directors. In most other respects the Company has complied with the requirements of the principles set out in Section 1 of the Combined Code annexed to the Listing Rules of the London Stock Exchange. An Audit Committee and a Remuneration Committee have been established by the Board, both of which comprise exclusively non-executive Directors. The main duties of the Audit Committee are to ensure that the financial performance of the Saatchi & Saatchi Group is properly monitored and reported on, to review the accounts and preliminary and interim results, to review the reports from the auditors relating to the accounts, to monitor internal control systems and to make recommendations to the Board concerning the appointment and remuneration of the auditors. The main duties of the Remuneration Committee are to determine the remuneration, benefits and terms and conditions of employment of the executive Directors and of the Group's most senior employees. It also deals with nominations to the Board, for which the Chief Executive Officer also joins the Remuneration Committee. The Remuneration Committee gives full consideration to the principles set out in Section 1 of the Combined Code annexed to the Listing Rules of the London Stock Exchange, as the policy of the Company is to establish a remuneration strategy which rewards individual performance and enhances shareholder value by creating a greater community of interest between shareholders and employees.
DIRECTORS INTERESTS DATE OF APPOINTMENT BENEFICIALLY OWNED ORDINARY EQUITY ORDINARY SHARES SHARE OPTIONS PARTICIPATION RIGHTS Bill Cochrane Sep 3, 1997 36,121 216,854 909,090 Ian Irvine May 1, 1998 0 0 0 Ken Olshan Jan 1, 1998 11,400 0 0 Kevin Roberts Sep 3, 1997 0 454,687 1,090,909 Bob Seelert* Sep 3, 1997 178,098 219,849 1,090,909 Wendy Smyth Sep 3, 1997 5,083 654,532 545,454 Sir Peter Walters Sep 3, 1997 6,770 0 0
_____________________ * In addition, Mr. Seelert has 1,527,363 phantom share options. On January 4, 2000 Bob Seelert exercised 787.131 of the phantom share options leaving 740,232 phantom share options. The Directors' interests in the Company's share capital have changed since December 31, 1999. In March 2000, Ken Olshan and Sir Peter Walters purchased shares in the Company; they now have 14,525 and 8,543 interests in shares of the Company respectively. In March 2000, Wendy Smyth exercised 219,537 share options and now has 434,995 share options outstanding. None of the Directors at any time during the period ended December 31, 1999 had any material interest in any contracts with the Company or any of its subsidiaries. None of the Directors at any time during the period ended December 31, 1999 or subsequent to December 31, 1999 was interested in any debentures of the Company or shares or debentures of the Company's subsidiaries. Item 11. Compensation of Directors and Officers. In 1999, the aggregate amount of compensation paid or accrued for all Directors and Executive Officers as a group (10 persons) who served the Company was L3,432,000. Such compensation was primarily in the form of salaries and fees and included L489,000 set aside for pension plans. Remuneration for senior executives is comprised of three elements: basic salary and related benefits, annual bonus and a long-term incentive program. The annual bonus paid is non-pensionable and depends on the attainment of certain performance targets which are approved by the Remuneration and Nominations Committee. The long-term incentive program is designed to align the interests of senior executives with those of shareholders and to encourage senior executives to remain with the Group. The table below reports remuneration by the Company for the year ended December 31, 1999.
Year Ended December 31, 2000 and 1999...................................................... F-4 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 ----------------------------------------------------------------------------- Salary Retirement or fees and bonus Benefits contributions Total L000 L000 L000 L000 ---- ---- ---- ---- Executive Directors: Bob Seelert 247 29 77 353 Bill Cochrane 316 18 3 337 Kevin Roberts 894 54 358 1,306 Wendy Smyth 212 18 21 251 Non-executive Directors: Ian Irvine 46 -- -- 46 Kenneth Olshan 42 -- -- 42 Sir Peter Walters 46 -- -- 46 Executive Officers as a group 493 528 30 1,051 ----- --- --- ----- Total 2,296 647 489 3,432 ===== === === =====1998...... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......................... F-6 Notes to Consolidated Financial Statements.................. F-7
Details of53 57 REPORT OF INDEPENDENT AUDITORS To the service agreements for the Directors of the Company are set out below. Bob Seelert From the time of the Demerger until January 1, 1999, Mr. Seelert was employed under a service agreement with the Company and Saatchi & Saatchi Compton Worldwide Inc. dated September 30, 1997 as Chief Executive Officer of Saatchi & Saatchi plc. With effect from January 1, 1999, Mr. Seelert entered into a new service agreement with the Company and Saatchi & Saatchi Compton Worldwide, Inc. to be chairman of Saatchi & Saatchi plc. His salary was reduced from $750,000 to $400,000, and he did not receive a bonus. Mr. Seelert's service agreement may be terminated on 12 months' notice given by either party to the other, provided that if there is a change of control of the Company, and his employment is terminated by the Company within two years of such change of control (other than for cause, death or disability or by his resignation without good reason), Mr. Seelert is entitled to the payment of a sum equivalent to two years' gross salary and benefits, including pension contributions. Under the new service agreement, Mr. Seelert will work not less than 122 days a year. Under the service agreement, if Mr. Seelert terminates his employment by reason of a material change in his duties or responsibilities, a reduction in his benefits, a substantial relocation of his office or his non re-election to the Board, he will be entitled to 12 months' gross basic salary and benefits, subject to mitigation. If Mr. Seelert's employment is terminated by reason of his death or disability he will be entitled to 12 months' gross basic salary and benefits. Mr. Seelert is entitled to certain other benefits in kind, including the provision of a fully expensed automobile, medical, disability and life insurance and travel allowances. Mr. Seelert has an unfunded personal retirement benefit scheme involving notional employer contributions at the rate of 5.5 percent of salary up to June 30, 1998 and thereafter 6.25 percent of salary, in each case every three months. Interest accrues on these notional contributions at 8 percent per annum. Details of the manner in which phantom share options, granted to Mr. Seelert under his prior service agreement, were dealt with in connection with the Demerger are set forth in "Options to Purchase Securities from Registrant or Subsidiaries." Wendy Smyth Mrs. Smyth was employed as Finance Director under a service agreement with the Company dated September 30, 1997. With effect from January 1, 1999, Mrs. Smyth entered into a new service agreement with the Company as Director of Corporate Affairs. Mrs. Smyth is contracted to work for four days each week and her salary is L145,000 per annum. Mrs. Smyth's service agreement may be terminated on 12 months' notice given by either party to the other. Under Mrs. Smyth's service agreement, if there is a change of control of the Company and her employment is terminated by the Company without notice within two years of such change of control (other than for cause or disability), Mrs. Smyth is entitled to the payment of a sum equivalent to two years' gross salary, target bonuses of 40 percent of gross salary per year and benefits, including pension contributions. Mrs. Smyth is currently entitled to participate in annual discretionary bonus arrangements based on revenues and earnings per share in the year in question and calculated by reference to a bonus matrix which is determined each year by the Remuneration Committee of the Board. For 1999, the annual bonus was a percentage of salary based on revenue and earnings of the Company. In addition, Mrs. Smyth is entitled to certain other benefits in kind, including the provision of an automobile allowance, medical, disability and life insurance. Mrs. Smyth is also a member of the Cordiant Group Pension Scheme. The amount of the decrease in pension during the year was L1,266 p.a., the accumulated total amount as of December 31, 1999 in respect of the accrued benefit being L45,786 p.a. and the transfer value (less contributions by Mrs. Smyth of L7,250) of the relevant decrease in accrued benefit was a reduction of L10,001. Kevin Roberts Mr. Roberts was employed as Chief Executive Officer of S&S under a service agreement made in April 1997 with Saatchi & Saatchi North America, Inc. With effect from January 1, 1999, Mr. Roberts is separately employed by Saatchi & Saatchi North America, Inc. ("SSNA") and by the Company for his time spent in the US and UK, respectively. Elsewhere his services to the Group are provided by Red Rose Limited. These agreements may be terminated on 12 months' notice by either party, provided that, if there is a change of control and his employment is terminated without notice within two years of the change, other than for cause, death or disability, he is entitled to two years gross salary, target bonuses of 70% of gross salary and benefits which include pension contributions. His salary during the year was increased from $700,000 to $800,000. Mr. Roberts is entitled to participate in annual discretionary bonus arrangements calculated by reference to revenue growth and margin targets of the Company which are determined each year by the Remuneration Committee. For 1999 his annual bonus was a percentage of salary based on the revenue and earnings of the Group. In addition, Mr. Roberts is entitled to certain other benefits in kind, including the provision of a fully expensed motor car, disability and life insurance and travel allowances. He is also entitled to a supplemental pension payment on June 1, 2000 of $538,804. He will also receive a proportion of this supplemental pension payment if his employment ceases before that date by reason of his death or disability or if his service agreement is terminated by SSNA (other than for cause). Bill Cochrane With effect from January 1, 1999, Mr. Cochrane has entered into a new contract with SSNA and is the Group Finance Director. His salary is $350,000 per annum. Mr. Cochrane's service agreement provides that he may terminate his employment on 12 months' notice to SSNA. If SSNA terminates Mr. Cochrane's employment for any reason other than for cause, or if his employment is terminated by his death or disability, or if he ceases to be a Director of the Company (other than due to his death, disability or resignation), he will be entitled to a lump sum payment equal to 140 percent of his annual salary. If there is a change of control of the Company and his employment is terminated by the Company within two years of such change of control (other than for cause, death or disability), Mr. Cochrane is entitled to the payment of a sum equivalent to two years' gross salary, target bonuses and benefits, including pension contributions. He is also entitled to the same payment if, within two years of such change of control, he terminates his employment as a result of material changes being made to his duties, responsibilities or position, a reduction in his salary, a change of his place of work or substantially increased travel requirements. For 1999, Mr. Cochrane's annual bonus was based on the revenue and earnings of the Group. In addition, Mr. Cochrane is entitled to certain other benefits in kind, including the provision of a fully expensed motor car, medical, disability and life insurance. The terms of an agreement dated May 1, 1984, under which Mr. Cochrane is entitled to deferred compensation equal to $1,200,000 payable in five equal annual installments that began on January 2, 1998, have been incorporated into his service agreement. Mr. Cochrane is also a member of the SSNA 401k plan, and $4,800 was contributed on his behalf in 1999. If Mr. Cochrane ceases to be in full-time employment with SSNA on or after his fifty-fifth birthday for any reason other than his death, he will be entitled to receive an amount equal to the present value of the right to receive $30,000 in cash on each of the first 10 anniversaries of the date on which he ceases to be a full time employee. However, this entitlement will only apply if he provides consultancy services to SSNA on an exclusive basis during such period. Non-Executive Directors Sir Peter Walters Sir Peter Walters was appointed as a non-executive Director of the Company for a term lasting three years from the effective date of the Demerger under a letter of appointment dated September 15, 1997. He is paid a fixed annual fee of L42,500 together with an annual fee of L7,500 for acting as Chairman of any Committee of the Board. He does not participate in any incentive or benefit schemes of the Group. Ken Olshan Mr. Olshan was appointed as a non-executive Director of the Company with effect from January 1, 1998, under a letter of appointment dated September 17, 1997, for the same period and on the same terms as to fees as Sir Peter Walters. Ian Irvine Mr. Irvine was appointed as a non-executive Director of the Company with effect from May 1, 1998, under a letter of appointment dated March 17, 1998, for the same period and on the same terms as to fees as Sir Peter Walters. Candice Carpenter Ms. Carpenter was appointed as a non-executive Director of the Company with effect from May 2, 2000 under a letter of appointment dated May 2, 2000, for the same period and on the same terms as to fees as Sir Peter Walters. Item 12. Options to Purchase Securities from Registrant or Subsidiaries. Employee Benefit Plans In the UK, Saatchi & Saatchi Group companies participate in the Cordiant Group Pension Scheme, a UK defined benefit plan, and the Cordiant Group Money Purchase Pension Plan, a defined contribution scheme, both of which are operated by CCG. Employees of the Company have continued their membership in both schemes during the year pursuant to Inland Revenue approval. CCG and the Saatchi & Saatchi Group have agreed that the Saatchi & Saatchi Group's active members within the plan will be given the opportunity to transfer to the Saatchi & Saatchi Group's new pension arrangements when they have been established. The Demerger Agreement provides for a transfer payment of an amount determined by the trustee of the plan on the advice of the actuary to be made to the new pension arrangements in respect of the accrued rights under the plan of those active members who request it. Employee Share Schemes The Company has two employee share schemes, which came into effect upon the consummation of the Demerger. They are the Saatchi & Saatchi Equity Participation Plan (the "Equity Participation Plan" or "EPP") and the Saatchi & Saatchi Performance Share Option Scheme (the "Performance Share Option Scheme"). Participants in the Equity Participation Plan are not eligible to be granted options under the Performance Share Option Scheme. The schemes are being operated in conjunction with the Saatchi & Saatchi Employee Benefit Trust (the "Trust"). (a) The Saatchi & Saatchi Equity Participation Plan The Equity Participation Plan is being operated in conjunction with the Trust, the Trustee of which will, in exercising its discretion, take into account the recommendations of the Remuneration and Nominations Committee. Further details of the Trust are set out below. Employees and Executive Directors of the Saatchi & Saatchi Group who are required to devote substantially all their working time to the business of any company in the Saatchi & Saatchi Group, are eligible to participate in the Equity Participation Plan. Thirty-five employees and Directors currently participate in the EPP and cash payments of L1,717,083 have been received, which, if maximum performance targets are to be met, would give rise to an issue of 11,843,862 Ordinary shares. Further awards will not be made. The maximum number of Ordinary shares which participants may become entitled to acquire will be eight times the number that could have been bought with the original investment at market value on the day preceding the date of award. The exact number of Ordinary shares which may be acquired will be determined by the performance formula described below. With the exception of Directors of the Company, the number of Ordinary shares that a participant may acquire will be determined by measuring the annual growth in earnings per share ("EPS") of the Company over a three year period ("EPS Performance"). For the initial awards the base year for measuring EPS Performance is 1997. The adjusted EPS figure used for that year is 6.74p, calculated on the basis of the pro forma "headline earnings" using the Institute of Investment Management and Research guidelines (although the Trustee has the ability to adjust this figure if the Trustee considers it appropriate to exclude certain items including exceptional items such as the costs of the Demerger and other significant non-recurring items). If EPS Performance is less than the annual percentage growth in the UK Retail Price Index plus 2 percent (the "Hurdle Rate") then the participant will be entitled to acquire ten Ordinary shares. If EPS Performance is equal to or greater than the Hurdle Rate then: o where EPS Performance is 5 percent per annum, 12.5 percent of the award vests, which is the same number of Ordinary shares which the participant could have bought with his original investment; o where EPS Performance is 15 percent per annum, 40 percent of the award vests, so the participant will be entitled to acquire 3.2 times the number of Ordinary shares which he could have bought with his original investment; o where EPS Performance is 25 percent per annum, all of the award vests, so the participant will be entitled to acquire eight times the number of Ordinary shares which he could have bought with his original investment. The percentage of the award that vests for EPS Performance between 5 percent per annum and 15 percent per annum and for EPS Performance between 15 percent per annum and 25 percent per annum increases on a straight line basis. For participants who are Directors of the Company, only one-half of their awards will vest based on EPS Performance. The other half of their awards will vest based on the total shareholder return ("TSR") of the Company over a three year period ("TSR Performance") relative to the TSR of a group of major publicly traded advertising groups (the "Comparator Group") over the same period. The percentage of the award that vests will be determined by reference to the ranking attained by the Company. Once the performance formula has been applied and the number of Ordinary shares determined, a participant may acquire one half of the vested number of Ordinary shares. The remaining half may only be acquired after the fourth anniversary of the date the award was made. Ordinary shares cannot be acquired after the seventh anniversary of the date of the award. If a participant ceases to be employed by a company in the Saatchi & Saatchi Group before the award vests because of injury, disability, ill-health, death, redundancy, retirement because the company which employs him or with which he holds office leaves the Saatchi & Saatchi Group or because the business to which his office or employment relates is transferred outside the Saatchi & Saatchi Group, or other circumstances at the Trustee's discretion, the participant will be entitled to acquire a proportion of the maximum number of Ordinary shares which would ultimately have been receivable. For the purpose of determining the proportion of the award that vests, the cessation of employment will be treated as occurring on the next day on which the Company announces its results for its financial year. The performance formula will then be applied as if the EPS Performance (and, if appropriate, the TSR Performance) had been achieved over the full three years of the performance measurement period. A participant who was granted an award prior to the announcement of the results for the financial year ending in 1998 (the "1998 results") will be able immediately following the determination to acquire: (a) one third of the number of Ordinary shares so determined, if cessation occurs on or before the announcement of the 1998 results; (b) two thirds of the number of Ordinary shares so determined, if cessation occurs after the announcement of the 1998 results but on or before the announcement of the 1999 results; and (c) all of the Ordinary shares so determined, if cessation occurs after the announcement of the 1999 results. Equivalent provisions apply for participants who received an award after the announcement of the 1998 results. However, if a participant ceases employment for other reasons, he will only be entitled to receive 10 Ordinary shares, with the result that he will effectively lose his initial investment. In the event of a takeover of the Group prior to the announcement of the Group's results for its financial year ending in 2000 (the "2000 results"), a participant who received an award prior to the announcement of the 1998 results will be entitled to acquire the number of Ordinary shares determined in accordance with the following provision: (a) if the takeover occurs after the announcement of the 1999 results but before the announcement of the 2000 results, the participant may acquire: (i) one third of the maximum possible number of Ordinary shares; plus (ii) two thirds of the number of Ordinary shares which would have vested if the EPS Performance (and, if appropriate, TSR Performance) over the Company's two financial years 1998 and 1999 had been achieved over the full three years of the performance measurement period. Equivalent provisions apply for participants who received an award after the announcement of the 1998 results. The rights of participants following any rights issue or capitalization issue or other variation of share capital will be adjusted in such manner as the Trustee may determine subject to written confirmation from the Company's auditors that such adjustment is in their opinion fair and reasonable. An aggregate of not more than 6 percent of the issued Ordinary share capital of the Company from time to time may be issued or become issuable pursuant to the Equity Participation Plan. The Board will have power to administer, interpret and, with the concurrence of the Trustee, amend the provisions of the Equity Participation Plan. However, no amendment may be made to provisions relating to: (a) the eligibility condition; (b) the limit rules; (c) the calculation of a participant's entitlement under the Equity Participant Plan; (d) the terms of the awards or the Ordinary shares received pursuant to them; or (e) the variation of share capital rule to the advantage of participants without the prior approval of the shareholders in general meeting (except for minor amendments to benefit the administration of the Equity Participation Plan, to take account of a change in legislation or to obtain or maintain favorable tax, exchange control or regulatory treatment for participants or for the Company or for members of the Saatchi & Saatchi Group). No amendment to the limits mentioned above may be made without prior approval of the shareholders. No amendment may be made which adversely affects a participant's rights under an award made prior to the date of such amendment without the participant's consent. The benefits received under the Equity Participation Plan are not pensionable. The Trustee will invite no further participation in the Equity Participation Plan after the third anniversary of the effective date of the Demerger and the Board may terminate it any time, but the rights of existing participants will not thereby be affected. (b) The Saatchi & Saatchi Performance Share Option Scheme The Performance Share Option Scheme will be operated in conjunction with the Trust. The Trustee will, in exercising its discretion, take into account the recommendations of the Remuneration Committee. However, the rules provide that the Performance Share Option Scheme may also be operated by the Company, in which case references in this summary to the Trust and the Trustee should be read as being references to the Company and the Remuneration Committee as appropriate. Employees and Executive Directors of the Saatchi & Saatchi Group who are required to devote substantially all their working time to the business of any company in the Saatchi & Saatchi Group will be eligible to participate in the Performance Share Option Scheme. However, participants in the Equity Participation Plan will not be eligible to be granted options under the Performance Share Option Scheme. Participants in the Performance Share Option Scheme will be selected at the discretion of the Trustee. The exercise price for an option will be determined by the Trustee but may not be less than the higher of the nominal value of an Ordinary share (if the option is an option to subscribe for Ordinary shares) and its market value. Market value will be taken to be the middle market quotation of an Ordinary share on the dealing day of the London Stock Exchange immediately preceding the date of grant as derived from the Daily Official List of the London Stock Exchange. Sixty-three employees currently participate in the Performance Share Option Scheme and waive remuneration over a three-year period of L891,400 and, if maximum performance targets are met, this would give rise to an issue of 7,809,220 shares. Normally options may only be granted by the Trustee during the period commencing on, and ending 42 days after the announcement of the Group's results for any period and at any time if the Trustee determines that exceptional circumstances (such as the recruitment of a senior employee or executive Director) so warrant. Options will lapse unless the option holder agrees within 150 days of the grant of the option to sacrifice an aggregate amount of salary and/or bonus (not exceeding L50,000) over a period not exceeding three years equal to one eleventh of the aggregate exercise price of the Ordinary shares under option. The amount so sacrificed is not offset against the exercise price payable. The number of Ordinary shares to be acquired on exercise will be determined by measuring EPS Performance, as for the Equity Participation Plan. The EPS Performance and the Hurdle Rate for the Performance Share Option Scheme will be the same as for the Equity Participation Plan. If EPS Performance is less than the Hurdle Rate, then the option holder will not be entitled to acquire any Ordinary shares and the option will lapse. If EPS Performance is equal to or greater than the Hurdle Rate then: (a) where EPS Performance is 5 percent per annum, the option holder may exercise his option in respect of 30 percent of the number of Ordinary shares under option; (b) where EPS Performance is 15 percent per annum, the option holder may exercise his option in respect of 65 percent of the number of Ordinary shares under option; and (c) where EPS Performance is 25 percent per annum, the option holder may exercise his option in full. The percentage of Ordinary shares over which the option holder may exercise his option for EPS Performance between 5 percent per annum and 15 percent per annum and for EPS Performance between 15 percent per annum and 25 percent per annum increases on a straight line basis. Once the performance formula has been applied an option holder may exercise his option over one half of the number of Ordinary shares determined by the performance formula. The remaining half may only be acquired after the fourth anniversary of the date of grant. Options may not be exercised in any event more than seven years after the date of grant. If an option holder ceases to be employed by a company in the Saatchi & Saatchi Group before his option may be exercised because of injury, disability, ill-health, death, redundancy, retirement, because the company which employs him or with which he holds office leaves the Saatchi & Saatchi Group or because the business to which his office or employment relates is transferred outside the Saatchi & Saatchi Group or other circumstances at the Trustee's discretion, the option holder will be entitled to exercise his option in respect of a proportion of the number of Ordinary shares under option. For the purpose of determining the number of Ordinary shares in respect of which the option holder may exercise his option, the cessation of employment will be treated as occurring on the next day on which the Company announces its results for its financial year. The performance formula will then be applied as if the EPS Performance had been achieved over the full three years of the performance measurement period. An option holder who was granted an option prior to the announcement of the 1998 results will be able immediately following such determination to exercise his option in respect of: (a) one third of the number of Ordinary shares so determined, if cessation occurs on or before the announcement of the 1998 results; (b) two thirds of the number of Ordinary shares so determined, if cessation occurs on or before the announcement of the 1999 results; and (c) all of the Ordinary shares so determined, if cessation occurs after the announcement of the 1999 results. Equivalent provisions will apply for option holders who are granted options after the announcement of the 1998 results. However, if a participant ceases employment for other reasons, his option will lapse. In the event of a takeover of the Group prior to the announcement of the 2000 results, an option holder who was granted an option prior to the announcement of the 1998 results will be entitled to exercise his option in accordance with the following provision: (a) if the takeover occurs after the announcement of the 1999 results but before the announcement of the 2000 results, the option holder may exercise his option in respect of: (i) one third of the number of Ordinary shares under option; plus (ii) two thirds of the number of Ordinary shares in respect of which he could have exercised his option if the EPS Performance over the Company's two financial years 1998 and 1999 had been achieved over the full three years of the performance measurement period. Equivalent provisions will apply for option holders who are granted options after the announcement of the 1998 results. On a variation of the Company's share capital by way of capitalization or rights issue, subdivision, consolidation or a reduction, the exercise price and the number of shares comprised in an option can be varied at the discretion of the Trustee subject to certification from the Company's auditors that in their opinion the variation is fair and reasonable. An aggregate of not more than 3.5 percent of the issued ordinary share capital of the Company from time to time may be issued or become issuable pursuant to the Performance Share Option Scheme. The Board will have power to administer, interpret and, with the approval of the Trustee, amend the Performance Share Option Scheme. No amendment may be made to provisions relating to: (a) the eligibility conditions; (b) the limit rules; (c) the variation of share capital rule; (d) the rules governing the terms of the options or share to be received by option holders; or (e) the rules governing the calculation of the option holder's entitlements under the Performance Option Scheme to the advantage of option holders without the prior approval of shareholders in general meeting (except for minor amendments to benefit the administration of the Performance Share Options Scheme or to take account of a change in legislation or to obtain or maintain favorable tax, exchange control or regulatory treatment for option holders, the Company or for members of the Saatchi & Saatchi Group). No amendment may be made which adversely affects an option holder's rights under options granted to him prior to the date of such amendment without his consent. The benefits received under the Performance Share Option Scheme are not pensionable. The Trustee will grant no further options under the Performance Share Option Scheme after the third anniversary of the effective date of the Demerger and the Board may terminate it at any time, but the rights of existing option holders will not thereby be affected. (c) The Saatchi & Saatchi Demerger Share Option Schemes (the "Demerger Schemes") Cordiant had three executive share option schemes: the Performance Share Option Scheme for executives resident throughout the world; the Executive Share Option Scheme (the "Number 1 Scheme") primarily for executives not resident in the UK; and the Executive Share Option Scheme Number 2 (the "Number 2 Scheme") for executives resident in the UK. Holders of executive options under the former Cordiant share option schemes who are employed by the Saatchi & Saatchi Group agreed to cancel their former Cordiant options in return for the grant of replacement options over Ordinary shares. Each replacement option is over the same number of Ordinary shares and has the same exercise price, exercise period and performance conditions as the option over Cordiant shares which it replaced. For Cordiant employees who ceased to be employed by Cordiant as a result of the Demerger, and employees of Zenith and The Facilities Group who held executive options under the former Cordiant share option schemes, the same principles applied except that their replacement options were split 50/50 between options over CCG shares and options over Ordinary shares. Each Demerger Scheme mirrors, as far as practicable, the terms of the former Cordiant share option scheme to which it relates. None of the Demerger Schemes is approved by the Inland Revenue. Cordiant's Save As You Earn, Sharesave 1995, was adopted for UK employees and was approved by the Inland Revenue. Eligible employees were granted options linked to a five year savings contract. The exercise price was fixed at 80% of market value at the time of grant. Under Sharesave 1995, employees of the Group who hold such options retain them but have been granted a parallel unapproved option over Ordinary shares which will be exercisable with the accumulated savings and interest/bonus under Sharesave 1995. Employees of Zenith and The Facilities Group have parallel options split 50/50 between CCG Shares and Ordinary shares. No options can be granted under a Demerger Scheme other than to replace an option which an option holder under one of the former Cordiant share option schemes has agreed to cancel (or to run in parallel with an option under Sharesave 1995). (d) The Saatchi & Saatchi Employee Benefit Trust The main purpose of the Trust is to operate the Equity Participation Plan and the Performance Share Option Scheme. The Trustee makes awards (which may or may not be in the form of options) under which participants are entitled to acquire Ordinary shares. Alternatively, the Trustee may agree to deliver Ordinary shares following the exercise of awards made by the Company. The Trustee may purchase Ordinary shares in the market for the purpose of awards made under the Equity Participation Plan and the Performance Share Option Scheme. Alternatively, the Company may grant to the Trustee one or more options to subscribe for Ordinary shares. The exercise price under such options will not be less than the middle market quotation of Ordinary shares as derived from the London Stock Exchange Daily Official List for the dealing day preceding the date of grant. The Trustee will fund the acquisition of Ordinary shares through one or more of the following: (a) by non-recourse loan or loans from Saatchi & Saatchi Group companies; (b) by contributions from Saatchi & Saatchi Group companies; or (c) by payments from the participants in the Equity Participation Plan and the Performance Share Option Scheme. (e) The Zenith Executive Incentive Plan (the "Zenith Incentive Plan") The Zenith Incentive Plan was established to enable participants to acquire CCG Shares and Ordinary shares through the exercise of options and/or in certain circumstances to be paid a cash bonus. The principal terms of the Zenith Incentive Plan are set forth below: The Zenith Incentive Plan is operated in conjunction with the Zenith Employee Benefit Trust (the "Zenith Trust"), the Trustee of which will, in exercising its discretion, take into account the recommendations of the non-executive directors of Zenith. The Trustee can invite selected eligible employees and directors to invest a certain amount of money (not exceeding L70,000) to enable them to participate in the Zenith Incentive Plan. Awards will lapse unless such investment is, at the discretion of the Trustee, either made by a payment to the Trustee within 120 days of the award being made or is made by the participant agreeing to sacrifice that amount of salary and/or bonus over a period not exceeding three years. The investment is non-refundable and is not offset against the exercise price payable. The non-refundable investment to be provided by participants who wish to participate in the Zenith Incentive Plan shall be one sixteenth of a participant's maximum entitlement under the Zenith Incentive Plan. An award comprises: (a) an option over the same proportion of the total number of CCG Shares available for the Zenith Incentive Plan as the participant's maximum entitlement bears to L3.6 million being the aggregate maximum entitlement for all participants available under the Zenith Incentive Plan (the "CCG Option"); (b) an option over the same number of Ordinary shares as the number of CCG Shares under the participant's CCG Option (the "Saatchi & Saatchi Group Option"); and (c) a contingent cash award of up to a participant's maximum entitlement. The exercise price for the CCG Option and the Saatchi & Saatchi Group Option is the middle market quotation of the underlying shares on the day preceding the date the options are granted. The exact number of shares which may be acquired and/or the cash award payable will be determined by the performance formula described below. A participant's maximum entitlement will be reduced proportionately if one month after the end of the third year of the performance period the FTSE 100 Index is lower than on the date the award was made. A participant's actual entitlement will be determined by measuring the growth in operating profit (as defined in the rules of the Zenith Incentive Plan) over a three year period, with the base year being the year ending December 31, 1997 for the initial award ("Operating Profit Performance") as follows: (a) If Operating Profit Performance is less than 5 percent per annum, the award lapses; (b) If Operating Profit Performance is 5 percent per annum a participant's entitlement will be determined as 12.5 percent of his maximum entitlement; (c) if Operating Profit Performance is 15 percent per annum a participant's entitlement will be determined as 40 percent of his maximum entitlement; and (d) if Operating Profit Performance is equal to or exceeds 25 percent per annum a participant's entitlement will be determined as 100 percent of the maximum entitlement. A participant's entitlement in respect of Operating Profit Performance between 5 percent per annum and 15 percent per annum and between 15 percent per annum and 25 percent per annum increases on a straight line basis. Awards will be satisfied so far as possible by the CCG Options and Saatchi & Saatchi Group Options becoming exercisable to the same extent. The balance, if any, of a participant's entitlement will be satisfied by the payment of cash by the Zenith Trust or any company in the Zenith group. Once the Performance Formula have been applied, the extent of vesting of the CCG Option and the Saatchi & Saatchi Group Option determined and the cash sum, if any, quantified, a participant will be entitled to receive one half of his entitlement. The remaining half can only be acquired after the fourth anniversary of the date the award was made. The award will lapse on the seventh anniversary of the date of grant. The Trustee will be required to waive its rights to any dividend on CCG Shares or Ordinary shares while they are held within the Trust. (f) Shareforce The Company has in place an international Save As You Earn scheme called Shareforce. There have been two grants. Any employee who chose to participate in Shareforce opened an account with an independent savings institution and agreed to save an amount between L5 and L250 per month, or equivalent amount in local currency, for a period of three years. The shares that will be used to satisfy the options are existing shares purchased in the market by a Jersey-based employee benefit trust established by the Company in 1998. The following chart shows as of June 20, 2000 the total number of Ordinary shares subject to outstanding options, the purchase price of the Ordinary shares pursuant to the options and the expiration date of the options: Number of Purchase Expiration Date Option Scheme Ordinary shares Price of Options - ------------- --------------- ----- ---------- Demerger Executive (No. 2 Scheme) 439,980 108 p to 135 p June 2001- April 2002 Demerger 4,067,228 73 p to 132 p May 2002- Performance Share Dec. 2004 Option Scheme Performance Share 7,002,552 110 p to Dec. 2004- Option Scheme 214p August 2006 Sharesave 1995 466,301 64 p Dec. 2000 Shareforce 4,081,085 88 p to Dec. 2001- 194p May 2002
As at June 20, 2000, there are awards over 11,363,862 shares under the Equity Participation Plan which are exercisable between December 2000 and March 2006. As of June 20, 2000, the number of Ordinary shares subject to options, excluding phantom options, granted to the Directors and Executive Officers of the Company was as follows: Name Number of Ordinary shares* - ---- -------------------------- Bill Cochrane 1,125,944 Kevin J. Roberts 1,545,596 Bob Seelert 1,310,758 Wendy Smyth 980,449 Executive Officers as a group 596,600 * Includes 909,090, 1,090,909, 1,090,909, 545,454, and 100,000 respectively, attributable to options under the Equity Participation Plan for Bill Cochrane, Kevin Roberts, Bob Seelert, Wendy Smyth, and the Executive Officers as a group respectively. These amounts represent the maximum number of Ordinary shares subject to such options. The table below describes the various share options awarded to the Directors of the Company as of June 20, 2000.
Executive Directors' Share Options Scheme Date of Exercise Subscription Total exercise Exercise Period grant Price per number of shares price Share Bob Seelert Demerger Performance Aug 1995 95p 219,849 208,857 to Dec 2004 Phantom Options** Apr 1996 130p 240,538 312,699 to Dec 2004 Phantom Options** Apr 1997 132p 499,694 659,596 Apr 2000-Dec 2004 _________ _________ Total 960,081 1,181,152 Wendy Smyth Demerger Performance* May 1995 73p 67,498 49,274 May 2000-May 2002 Demerger Performance* Aug 1995 95p 67,497 64,122 Aug 2000-Aug 2002 Demerger Performance Apr 1996 130p 75,000 97,500 to Dec 2004 Demerger Performance* Apr 1996 130p 75,000 97,500 Apr 2001-Apr 2003 Demerger Performance Apr 1997 132p 75,000 99,000 Apr 2000-Dec 2004 Demerger Performance* Apr 1997 132p 75,000 99,000 Apr 2002-Dec 2004 _______ _______ Total 434,995 503,396 Bill Cochrane Demerger Performance May 1995 73p 33,427 24,402 to May 2004 Demerger Performance Aug 1995 95p 33,427 31,756 to Dec. 2004 Demerger Performance Apr 1996 130p 37,500 48,750 to Dec. 2004 Demerger Performance* Apr 1996 130p 37,500 48,750 Apr 2001-Apr 2003 Demerger Performance Apr 1997 132p 37,500 49,500 Apr 2000-Dec. 2004 Demerger Performance* Apr 1997 132p 37,500 49,500 Apr 2002-Dec. 2004 _______ _______ Total 216,854 252,658 Kevin J. Roberts Demerger Performance June 1997 124p 227,344 281,907 June 2000 to Dec 2004 Demerger Performance* June 1997 124p 227,343 281,905 June 2002 to Dec 2004 _______ ________ Total 454,687 563,812
___________________________________________________________ All exercise prices for the share option schemes have been rounded to the nearest pence. * Denotes Super Options ** Denotes phantom options which track real options, paying cash rather than converting into shares.
Directors' Equity Participation Plan Grants Scheme Date of Maximum Number Contribution Vesting Period grant of Shares paid L R. Seelert Equity Participation Dec 1997 1,090,909 150,000 Dec 2000 - Dec 2001 Plan W. Cochrane Equity Participation Dec 1997 909,090 125,000 Dec 2000 - Dec 2001 Plan K. Roberts Equity Participation Dec 1997 1,090,909 150,000 Dec 2000 - Dec 2001 Plan W. Smyth Equity Participation Dec 1997 545,454 75,000 Dec 2000 - Dec 2001 Plan
Item 13. Interest of Management in Certain Transactions. Except for the employment arrangements referred to in Item 10, neither the Company nor any of its subsidiaries was a party to any material transaction, or proposed transaction, in which any Director, any other executive officer, any spouse or relative of any of the foregoing, or any relative of such spouse had or was to have had a direct or indirect material interest. There are no outstanding loans granted by any member of the Group to any of the Directors or guarantees provided by any member of the Group for their benefit. PART II Item 14. Description of Securities to be Registered. Not applicable. PART III Item 15. Defaults Upon Senior Securities. Not applicable. Item 16. Changes in Securities, Changes in Security for Registered Securities and Use of Proceeds. Not applicable. PART IV Item 17. Financial Statements. The Company has elected to provide financial statements pursuant to Item 18. Item 18. Financial Statements. The Company's financial statements and the report thereon by its Independent Auditor listed below and set forth on pages F-1 to F-57 herein are hereby incorporated by reference into this Item 18. (a) Independent Auditor's Report dated March 8, 2000. (b) Consolidated statements of operations of the Company and subsidiaries for years ended December 31, 1999, 1998 and 1997. (c) Consolidated balance sheets of the Company and subsidiaries as of December 31, 1999 and 1998. (d) Consolidated statements of shareholders' deficiency and other share capital, total recognized gains and losses and cash flows of the Company and subsidiaries for the years ended December 31, 1999, 1998 and 1997. Item 19. Financial Statements and Exhibits. (a) Financial Statements (1) Consolidated statements of operations of the Company and subsidiaries for years ended December 31, 1999, 1998 and 1997. (Pages F-2 and F-3) (2) Consolidated balance sheets of the Company and subsidiaries as of December 31, 1999 and 1998. (Pages F-4 and F-5) (3) Consolidated statements of shareholders' deficiency and other share capital, total recognized gains and losses, and cash flows of the Company and subsidiaries for years ended December 31, 1999, 1998 and 1997 (Pages F-6, F-7, F-8, F-9 and F-10) (b) Exhibits 2.1 Upon the request of the Securities and Exchange Commission, the Company hereby agrees to provide a list of subsidiaries of the Company. 3.1 Transaction Agreement between Publicis S.A. and Saatchi & Saatchi PLC. 4.1 Consent of Independent Auditor. SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. SAATCHI & SAATCHI PLC By:/s/ David I. C. Weatherseed --------------------------------- Name: David I. C. Weatherseed Title: Deputy Finance Director Date: June 30, 2000 INDEPENDENT AUDITOR'S REPORT To The Board of Directors and Shareholders of Saatchi & Saatchi plc:Publicis Groupe S.A. We have audited the accompanying consolidated balance sheets of Saatchi & Saatchi plc and subsidiariesPublicis Groupe S.A. as of December 31, 1999 and 1998,2000, and the related consolidated statements of operations, total recognized gainsincome, changes in shareholders' equity, and losses, cash flows and shareholders' deficiency for each of the years in the three year period ended December 31, 1999.then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.audit. We conducted our auditsaudit in accordance with auditing standards generally accepted auditing standardsin France and in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Publicis Groupe S.A. at December 31, 2000, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in France, which differ in certain respects from those generally accepted in the United States (see Note 29 to the financial statements). As discussed in Note 1 to the financial statements, in 2000 the Company changed its method of accounting for business combinations, deferred income taxes, assets under capital leases, conversion of financial statements of foreign subsidiaries and exchange rate differences on accounts receivable and payable stated in foreign currencies to be in accordance with the new accounting rules applicable to consolidated financial statements in France. ERNST & YOUNG Audit Mazars & Guerard S.A. Represented by Represented by Bruno Perrin Frederic Allilaire Paris, France April 23, 2001 F-1 58 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Publicis Groupe S.A. We have audited the accompanying consolidated balance sheets of Publicis Groupe S.A. as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the years then ended, which have been prepared on the basis of accounting principles generally accepted in France. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion( with the exception of note 39),opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Saatchi & Saatchi plc and its subsidiariesPublicis Groupe S.A. at December 31, 1999 and 1998, and the consolidated results of theirits operations and theirits cash flows for eachthe years then ended in conformity with accounting principles generally accepted in France, which differ in certain respects from those generally accepted in the United States (see Note 29 to the financial statements). Mazars & Guerard S.A. Mazars LLP Represented by Represented by Frederic ALLILAIRE Timothy J. DOHERTY March 17, 2000 F-2 59 PUBLICIS GROUPE S.A. CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) (All 1998 amounts have been translated from the previous reporting currency, the French franc, to euros using the fixed official exchange rate as of January 1, 1999.)
YEAR ENDED DECEMBER 31 ----------------------- NOTE 2000 1999 1998 ---- ------ ----- ---- REVENUES.................................................... 1,770 1,042 851 Salaries and related expenses............................... 20 (984) (576) (478) Office and general expenses................................. 21 (470) (291) (247) Total operating expenses.................................... (1,454) (867) (725) Other operating income...................................... 18 12 17 OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION....... 334 187 143 Depreciation and amortization expense....................... 22 (59) (31) (27) OPERATING INCOME............................................ 275 156 116 Interest and dividend (expense) income, net................. 23 (11) 9 10 INCOME OF CONSOLIDATED COMPANIES BEFORE TAXES, EXCEPTIONAL ITEMS AND AMORTIZATION OF GOODWILL........................ 264 165 126 Income taxes................................................ 16 (92) (65) (47) NET INCOME OF CONSOLIDATED COMPANIES BEFORE EXCEPTIONAL ITEMS AND AMORTIZATION OF GOODWILL........................ 172 100 79 Equity in net income of affiliates.......................... 5 2 1 NET INCOME BEFORE EXCEPTIONAL ITEMS AND AMORTIZATION OF GOODWILL.................................................. 177 102 80 OF WHICH GROUP INTERESTS.................................... 151 82 58 Exceptional income, net of tax.............................. 24 15 12 -- Amortization of goodwill.................................... 22 (33) (19) (13) NET INCOME BEFORE MINORITY INTERESTS........................ 159 95 67 Minority interests.......................................... (31) (21) (20) GROUP NET INCOME............................................ 128 74 47 PER SHARE DATA (in Euros)* Net earnings per share...................................... 1.18 0.85 0.59 Earnings per share after tax and before exceptional items and the amortization of goodwill.......................... 1.40 0.94 0.72 Net earnings per share - diluted............................ 1.15 0.84 0.56 Earnings per share after tax and before exceptional items and the amortization of goodwill - diluted................ 1.37 0.93 0.68
- --------------- * Earnings per share amounts for 1999 and 1998 have been adjusted to reflect the 10-for-1 stock split of August 29, 2000. See notes to consolidated financial statements F-3 60 PUBLICIS GROUPE S.A. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN MILLIONS OF EUROS) (All 1998 amounts have been translated from the previous reporting currency, the French franc, to euros using the fixed official exchange rate as of January 1, 1999.)
DECEMBER 31 ----------------------- NOTE 2000 1999 1998 ---- ----- ----- ----- ASSETS Goodwill, net............................................... 4 861 237 203 Intangible assets, net...................................... 4 22 20 12 Property and equipment, net................................. 5 331 123 96 Investments and other financial assets, net................. 6 82 50 65 Investments accounted for by the equity method.............. 6,7 7 7 7 ----- ----- ----- TANGIBLE AND INTANGIBLE ASSETS, NET......................... 1,303 437 383 Inventory and costs billable to clients..................... 8 129 49 50 Accounts receivable......................................... 9 1,770 1,002 667 Other receivables........................................... 10 399 240 244 Marketable securities....................................... 11 100 76 34 Cash and cash equivalents................................... 429 273 226 CURRENT ASSETS.............................................. 2,827 1,641 1,221 TOTAL ASSETS................................................ 4,130 2,078 1,604 LIABILITIES AND SHAREHOLDERS' EQUITY Capital stock............................................... 53 36 34 Additional paid-in capital and retained earnings............ 246 309 280 SHAREHOLDERS' EQUITY........................................ 12 299 345 314 Minority interests.......................................... 13 77 51 44 Provisions for contingencies and charges.................... 14 169 70 66 Bank borrowings and overdrafts.............................. 15 901 212 124 Accounts payable............................................ 17 1,590 872 585 Accrued expenses and other liabilities...................... 18 1,094 528 471 ----- ----- ----- BANK BORROWINGS AND CURRENT LIABILITIES..................... 3,585 1,612 1,180 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 4,130 2,078 1,604 NET FINANCIAL DEBT (CASH AND MARKETABLE SECURITIES, LESS BANK BORROWINGS AND OVERDRAFTS)........................... 372 (137) (136)
See notes to consolidated financial statements F-4 61 PUBLICIS GROUPE S.A. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (AMOUNTS IN MILLIONS OF EUROS) (All 1998 amounts have been translated from the previous reporting currency, the French franc, to euros using the fixed official exchange rate as of January 1, 1999.)
ADDITIONAL PAID-IN CAPITAL AND TOTAL NUMBER OF CAPITAL RETAINED SHAREHOLDERS' IN MILLIONS OF EUROS SHARES* STOCK EARNINGS EQUITY - -------------------- ----------- ------- ----------- ------------- DECEMBER 31, 1997............................... 81,431,130 31 209 240 Impact of the merger of Publicis Communication/ Publicis S.A. ................................ 7,920,760 3 45 48 Consolidated net income, group.................. -- 47 47 Other 1998...................................... 430,220 -- (8) (8) ----------- -- ---- ---- December 31, 1998 before impact of treasury stock......................................... 89,782,110 34 293 327 Treasury stock at December 31, 1998............. (1,068,420) -- (13) (13) DECEMBER 31, 1998 AFTER IMPACT OF TREASURY STOCK......................................... 88,713,690 34 280 314 Consolidated net income, group.................. -- 74 74 Other 1999...................................... 4,477,850 2 26 28 ----------- -- ---- ---- December 31, 1999 before impact of treasury stock......................................... 94,259,960 36 380 416 Treasury stock at December 31, 1999............. (4,181,920) (71) (71) DECEMBER 31, 1999 AFTER IMPACT OF TREASURY STOCK......................................... 90,078,040 36 309 345 Capital increase Publicis Groupe SA............. 70,710 -- -- -- Dividends paid by Publicis Groupe SA............ -- (15) (15) Impact of acquisition S&S -- pooling of interests..................................... 43,889,149 17 (215) (198) Application of rule 99-02....................... -- 8 8 Translation adjustment.......................... -- (6) (6) Consolidated net income, group.................. -- 128 128 ----------- -- ---- ---- December 31, 2000 before impact of treasury stock......................................... 138,219,819 53 280 333 Treasury stock at December 31, 2000............. (871,309) -- (34) (34) ----------- -- ---- ---- DECEMBER 31, 2000 AFTER IMPACT OF TREASURY STOCK......................................... 137,348,510 53 246 299 ----------- -- ---- ----
- --------------- * Amounts above have been adjusted to reflect the 10-for-1 stock split of August 29, 2000. See notes to consolidated financial statements. F-5 62 PUBLICIS GROUPE S.A. CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN MILLIONS OF EUROS) (All 1998 amounts have been translated from the previous reporting currency, the French franc, to euros using the fixed official exchange rate as of January 1, 1999.)
YEAR ENDED DECEMBER 31 ----------------------- 2000 1999 1998 ----- ----- ----- I - CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ 128 74 47 Gain on sales of fixed assets (before tax)................ (24) (12) 0 Depreciation and amortization............................. 93 51 40 Equity in net income of non-consolidated companies........ (5) (2) (1) Minority interest applicable to consolidated companies.... 31 21 20 Change in working capital requirements.................... (19) 46 91 NET CASH PROVIDED BY OPERATING ACTIVITIES................... 204 178 197 II - CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment and intangible assets................................................. (106) (66) (50) Sales of property and equipment........................... 4 10 0 Purchases of investments and other financial assets, net.................................................... (13) (4) (1) Dividends received from investments accounted for under the equity method...................................... 1 2 2 Acquisitions of businesses, net of cash acquired.......... (565) (55) (105) Disposal of businesses.................................... 24 4 24 NET CASH USED IN INVESTING ACTIVITIES....................... (655) (109) (130) III - CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to shareholders of Publicis SA............. (15) (11) (6) Dividends paid to minority shareholders of subsidiaries... (14) (14) (12) Increase in capital....................................... 5 14 1 Change in borrowings...................................... 630 0 0 Share repurchases......................................... (34) (57) (13) NET CASH PROVIDED BY FINANCING ACTIVITIES................... 572 (68) (30) IV - IMPACT OF EXCHANGE RATE FLUCTUATIONS................. 5 0 0 NET CHANGE IN CONSOLIDATED CASH FLOWS (I + II + III + IV).................................................... 126 1 37 Cash and cash equivalents (including marketable securities less bank overdrafts) at beginning of year............. 137 136 99 Cash and cash equivalents (including marketable securities less bank overdrafts) at end of year................... 263 137 136 NET CHANGE IN CASH AND CASH EQUIVALENTS (INCLUDING MARKETABLE SECURITIES LESS BANK OVERDRAFTS)............... 126 1 37
F-6 63 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Beginning January 1, 2000, the consolidated financial statements of Publicis Groupe S.A. and subsidiaries ("Publicis", "the Group") are prepared in conformity with the new accounting rules ("new rules") applicable to consolidated financial statements in France ("nouvelles regles et methodes relatives aux comptes consolides"). The new rules, 99-02 of the yearsaccounting rules and regulation committee ("Comite de Reglementation Comptable), were approved on June 22, 1999 and were effective January 1, 2000. The new rules differ from the rules previously applied in the three year periodaccounting for business combinations, deferred income taxes, assets under capital leases, conversion of financial statements of foreign subsidiaries and exchange rate differences on accounts receivable and payable stated in foreign currencies. As permitted by the provisions of the new rules, the Group has elected not to retroactively restate the accounting for business combinations and disposals performed in prior years. The application of the new rules has been treated as a change in accounting method. Due to the insignificant impact of the change in accounting method on the financial statements for the years ended December 31, 1999 and 1998, the Group has elected not to present pro-forma information for those years. However, the consolidated balance sheets and income statements as of and for the years ended December 31, 1999 and 1998 have been presented in accordance with the presentation requirements of the new rules. The reclassifications resulting from this change in presentation are explained in note 2.2. 1.1 PRINCIPLES OF CONSOLIDATION REPORTING CURRENCY Since January 1, 1999, Publicis prepares and reports its consolidated financial statements in euros. All previous historical financial information has been converted to euros using the official conversion rate established on January 1, 1999 of FF 6.55957 = 1 euro. Although the 1998 consolidated financial statements depict the same trends as would have been shown had they been presented in French francs, they may not be directly comparable to the euro financial statements of other companies that previously prepared their financial statements in a currency other than French francs. SCOPE OF CONSOLIDATION Publicis consolidates all subsidiaries for which it exercises exclusive direct or indirect control. Zenith is held 50% by Saatchi & Saatchi and is accounted for by the equity method in the consolidated financial statements. Zenith, which is controlled jointly by Publicis (through Saatchi & Saatchi) and Cordiant, has not been consolidated proportionately because financial statements for Zenith in accordance with Publicis accounting and reporting policies were not available. Companies over which Publicis exercises significant influence, generally where the percentage of ownership and share of the voting rights is at least 20%, are accounted for by the equity method. A list of principal affiliated companies and their method of consolidation is presented in note 28. F-7 64 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) TRANSLATION OF ACCOUNTS OF FOREIGN SUBSIDIARIES The financial statements of subsidiaries located outside of the euro zone and expressed in local currencies are translated into euros as follows: - assets and liabilities are translated at year-end exchange rates; - statement of income items are translated at average exchange rates for the year; - translation gains and losses resulting from the application of these rates are recorded in retained earnings for the portion related to the Group interest, with the remainder recorded in minority interests. Through 1999, the Group applied the method of conversion at the year-end exchange rates for the balance sheet and the income statement. Therefore, the translation method described above constitutes a change in accounting method and the impact of this change is presented in note 2. INTER-COMPANY TRANSACTIONS Inter-company transactions, including related revenues and expenses, accounts receivable and accounts payable, are eliminated in consolidation. 1.2 SIGNIFICANT ACCOUNTING POLICIES RESEARCH COSTS Publicis records expenses related to studies and research in the period in which they are incurred. These expenses relate primarily to the following: studies and tests related to advertising campaigns, costs resulting from the development of internet sites and related tools, research programs on consumer behavior and advertisers' needs in various areas, and studies and modeling conducted in order to optimize the use and choice of media for the clients of the Group. GOODWILL Goodwill arising on consolidation represents the difference between the acquisition cost of interests in consolidated companies (including subsequent additional purchase price) and the Group's equity in the underlying net assets at the date of acquisition, as adjusted in accordance with the Group's accounting policies. Goodwill is amortized on a straight-line basis in accordance with the following principles: - goodwill related to media purchasing and sales subsidiaries is amortized over five years; - goodwill related to communications subsidiaries is amortized over a period of 10 to 40 years based on the country, size and the specific characteristics of each agency. The fair value of goodwill amortized over long periods is reviewed each year based on the valuation criteria used at the time of the acquisition. If the fair value of the goodwill is lower than the carrying value and this impairment is considered to be permanent (lasting more than three years), a provision is made to reduce the carrying value of the goodwill to the fair value. OTHER INTANGIBLE ASSETS Other intangible assets are comprised primarily of leasehold rights, client relationships and software. Client relationships are accounted for in the same manner as goodwill. F-8 65 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) Software consists of the following: - software purchased for internal use, which is stated at purchase cost; - internally developed software for sales and marketing purposes, which is used primarily by the Group's information systems services subsidiary, and is stated at production cost. Software is primarily amortized over a period of one or two years and not in excess of three years. PROPERTY AND EQUIPMENT Property and equipment is stated at historical acquisition cost. A limited number of assets have been revalued in accordance with French legislation; the value of such assets is not significant. Property and equipment is depreciated on a straight-line basis over their estimated useful lives as described below: - Buildings: between 20 and 50 years. - Fixtures, fittings and general installations: 10 years. - Billboards: 4 to 7 years. - Office furniture and equipment: 5 to 10 years. - Vehicles: 4 years. - Computer hardware: 2 to 4 years. In application of the new rules for consolidated financial statements (99-02 of the Comite de Reglementation Comptable or CRC), beginning January 1, 2000, Publicis records assets under capital leases in property, plant and equipment with corresponding amounts recorded in financial debt. These assets are amortized over the periods described above. In the statement of income, the lease rental expenses are replaced by interest expense on the debt and the depreciation expense on the assets. INVESTMENTS Investments are recorded at historical acquisition cost. They are depreciated when their fair market value is lower than their carrying value. Fair market value is determined on the basis of criteria such as revalued net assets, capitalized earnings, quoted stock prices, the outlook for the sector or industry and the strategic value of the investment to the Group. LOANS AND ADVANCES TO AFFILIATES Loans and advances to affiliates represent receivables from affiliates accounted for by the equity method or other non-consolidated affiliates. A provision is recorded against these receivables when there is a recoverability risk resulting from the financial condition of the affiliates concerned. INVENTORY AND COSTS BILLABLE TO CLIENTS Inventory and costs billable to clients represent primarily work-in-progress related to advertising which consists of technical, creative and production work (graphic design, TV and radio production, editing, etc.) which is billable, but has not yet been billed to clients. A provision for depreciation is recorded when the revenue to be received on completion of the work is expected to be inferior to the production costs incurred. F-9 66 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) Non-billed work or costs incurred relating to new client development activities are not capitalized except when the eventual billing of expenses incurred during the proposal process is specified in the contract. ACCOUNTS RECEIVABLE Accounts receivable are recorded at their carrying value. An allowance for doubtful accounts is recorded for receivables for which there is a collection risk. Accounts receivable denominated in foreign currencies are recorded at the year-end exchange rate. Transaction gains and losses resulting from currency translation are recorded in the income statement. This method is the one recommended by rule 99-02 of the CRC and results in a change in accounting method from prior periods. MARKETABLE SECURITIES Marketable securities are recorded at acquisition cost. In the event the quoted fair market value of these securities, as determined by the most recent monthly average of the quoted price on the stock exchange, falls below cost, a provision is recorded to reduce the securities to the fair value. TREASURY STOCK Treasury stock is shown in consolidation as a reduction of shareholders' equity. PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS The policies applied by Publicis are in accordance with the laws and regulations of the respective countries in which the subsidiaries of the Group are located and are described below: - the German and Italian regulatory requirements are applied in the form of retirement indemnities, - in France, the provisions of the collective bargaining agreement of the advertising industry are applied and result in the recording of a provision for costs, - in Great Britain and the United States, the obligations related to pensions and other retirement benefits are held in investment trusts with insurance companies. These plans include: - defined contribution plans: the amount of contributions by the Group to the investment funds is defined and recorded as expense during the period. - multi-employer defined benefit plans: the benefit amounts to be received upon retirement are defined and accounted for by establishing a provision intended to cover the present value of the obligation to be paid to employees at retirement, as calculated by actuaries based upon years of service. RESTRUCTURING RESERVES Restructuring costs are fully provided for in the period in which the decision to implement the restructuring plan has been made. These costs consist primarily of indemnities for severance and early retirement and other employment expenses. VACANT PROPERTY A provision is established for the amount of rent and related expenses to be paid - net of any sublease revenues to be received - for all buildings that are sublet or vacant and not intended to be used for the principal activities of the Group. F-10 67 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) REVENUES Revenues represent the commissions and fees for services of companies in the advertising industry. The Group's revenue recognition policies are summarized below: - Fees: when the service is provided to the client, - Sales of media space: date of publication or broadcast, - Sales of technical advertising: when services are performed. INCOME TAXES Net income is taxed based on the tax laws and regulations in effect in the respective countries where the income is recognized. In accordance with the provisions of rule 99-02 of the CRC, Publicis records deferred income taxes resulting from temporary differences between the tax basis and the book basis of assets and liabilities. Taxable and deductible temporary differences are determined by their dates of maturity and may reverse from year-to-year. Temporary differences are calculated by taxable entity. Deferred taxes are calculated based on the tax laws and regulations in effect at the respective year-ends and using the tax rates expected to be in effect when the temporary differences reverse. The impact of changes in enacted tax rates are recorded in the income statement in the period in which the change in the tax rate is decided. Deferred tax assets are recognized when it is more likely than not that the respective taxable entities will recover the benefits in future periods. The recording of deferred taxes has been treated as a change in accounting method and therefore the effect has been recorded in opening shareholders' equity. EXCEPTIONAL INCOME Exceptional income represents exceptional items, net of tax, which do not result from normal operations. INTEREST RATE RISK The Group has limited exposure to interest rate risk as the majority of its debt bears interest at variable rates. The Group does not use derivative financial instruments to hedge interest rate risk. EXCHANGE RATE RISK The majority of sales transactions are denominated in the local currencies of the countries in which they are realized. Exchange rate risk is not significant and is at times hedged via short-term foreign currency forward contracts. BASIC AND DILUTED EARNINGS PER SHARE Basic earnings per share is calculated by dividing net income by the weighted average number of ordinary shares outstanding during the period, excluding treasury shares held at year-end. Diluted earnings per share is calculated based on the weighted average number of ordinary shares outstanding during the period excluding treasury shares held at year-end and including potential ordinary shares resulting from stock options outstanding at year-end. F-11 68 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) 2. COMPARABILITY OF ACCOUNTS 2.1 PRESENTATION OF FINANCIAL STATEMENTS Publicis modified the presentation of the consolidated balance sheets and income statements to be in conformity with new rules for consolidated financial statements. The changes consist essentially of disclosing certain items: - in the balance sheet: goodwill, marketable securities; and - in the income statement: operating income and net income of consolidated companies. In order to present financial statements comparable to those for 2000, the financial statements for 1998 and 1999 have also been presented under the new format. 2.2 OTHER CHANGES RESULTING FROM THE APPLICATION OF RULE 99-02 OF THE CRC The principles of rule 99-02 of the Comite de Reglementation Comptable (CRC) differ from the rules previously applied in the accounting for business combinations, deferred income taxes, assets under capital leases, conversion of financial statements of foreign subsidiaries and exchange rate differences on accounts receivable and payable stated in foreign currencies. The impacts of the first time application of rule 99-02 are treated in accordance with opinion no. 97.06 of the Conseil National de la Comptabilite relating to accounting changes. Due to the insignificant impact of the change in accounting method on the financial statements for the years ended December 31, 1999 and 1998, the Group has elected not to present pro-forma information for those years. For informational purposes, the impact on opening shareholders' equity and consolidated net income for these two periods would have been the following:
IN MILLIONS OF EUROS 1999 1998 - -------------------- ---- ---- Shareholders' equity (opening).............................. 8 10 Consolidated net income..................................... -- (2)
The impact of the change in accounting method related to the application of rule 99-02, which is primarily due to the recording of deferred income taxes and the treatment of capital leases, has been recorded in its entirety in the opening balance sheet for the year 2000 and is set out as follows:
IMPACT ON OPENING BALANCE SHEET IN MILLIONS OF EUROS JANUARY 1, 2000 - -------------------- ----------------- Property and equipment...................................... 8 Accumulated depreciation.................................... (2) Other receivables........................................... 7 -- TOTAL ASSETS................................................ 13 == Retained earnings........................................... 8 Bank borrowings and overdrafts.............................. 5 -- TOTAL LIABILITIES........................................... 13 ==
F-12 69 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) 2.3 ACQUISITION OF SAATCHI & SAATCHI In September 2000, Publicis made a public exchange offer for Saatchi & Saatchi with the goal of establishing one of the largest advertising groups in the world. This significant transaction has been treated in accordance with the derogatory method under article 215 of rule 99-02 of the CRC, which permits Publicis to substitute the value of net assets acquired, adjusted to conform with Group accounting policies, for the purchase price of the shares of Saatchi & Saatchi. Therefore, no goodwill resulted from this transaction and the difference resulting from the application of the derogatory method has been recorded in consolidated shareholders' equity. This transaction resulted in an increase in capital stock and additional paid-in capital of euros 1,883 million through the issuance of 43,889,149 shares. Publicis simultaneously issued 43,889,149 contingent value rights with a maturity date of March 2002. For the purpose of the presentation of the consolidated financial statements of the Group in accordance with generally accepted accounting principles in the United Kingdom. Generally acceptedStates (U.S. GAAP), the acquisition of Saatchi & Saatchi will be treated as a "purchase". As of December 31, 2000, the purchase accounting principlesas determined in accordance with U.S. GAAP was not yet finalized. 3. ACQUISITIONS In addition to the acquisition of Saatchi & Saatchi, Publicis made several acquisitions during the year ended December 31, 2000. In the beginning of 2000, Publicis acquired 100% of Frankel and Company, an independent American agency specialized in the marketing services segment. Also in early 2000, Publicis acquired 100% of the American agency Fallon, an independent agency in the United Kingdom varyStates, and expected to develop a new concept of worldwide agency. In November 2000, the Group acquired 100% of Nelson Communications, a company specializing in certainadvertising communications for the health industry in the United States. This acquisition has been 90% financed through an exchange of stock. During the year 2000, Publicis also acquired interests in the companies DeWitt Media and Winner & Associates in the United States, Boebel Adam in Germany, Publicis Asociados in Peru and Publicis Networks in France. F-13 70 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) 4. GOODWILL AND INTANGIBLE ASSETS, NET An analysis of the principal components of goodwill related to consolidated subsidiaries is as follows:
OTHER NORTH REST OF IN MILLIONS OF EUROS FRANCE EUROPE AMERICA WORLD TOTAL - -------------------- ------ ------ ------- ------- ----- NET VALUE 1998.................................... 25 47 101 30 203 NET VALUE 1999.................................... 27 51 92 67 237 Year 2000: Acquisitions.................................... 9 20 586* 32 647 Other........................................... 35 71 107 85 298 --- --- --- --- --- Total gross value................................. 44 91 693 117 945 Amortization...................................... (13) (28) (18) (25) (84) --- --- --- --- --- TOTAL NET VALUE 2000.............................. 31 63 675 92 861 === === === === ===
- --------------- * primarily amortized over 40 years. The allocation of goodwill resulting from 2000 acquisitions is in process and will be finalized in the year following the acquisition in accordance with guidelines. CHANGES IN GOODWILL AND OTHER INTANGIBLE ASSETS, GROSS
GROSS VALUE --------------------------------- SOFTWARE AND IN MILLIONS OF EUROS GOODWILL OTHER TOTAL - -------------------- -------- ------------ ----- DECEMBER 31, 1997........................................... 104 12 116 --- -- --- Additions................................................... 144 5 149 Disposals................................................... (1) (1) (2) Translation and other....................................... (1) -- (1) --- -- --- DECEMBER 31, 1998........................................... 246 16 262 --- -- --- Additions................................................... 83 4 87 Disposals................................................... (33) (1) (34) Translation and other....................................... 6 -- 6 --- -- --- DECEMBER 31, 1999........................................... 302 19 321 --- -- --- Additions................................................... 647 12 659 Disposals................................................... (2) -- (2) Translation and other....................................... 5 7 12 --- -- --- DECEMBER 31, 2000........................................... 952 38 990 --- -- ---
F-14 71 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) CHANGES IN ACCUMULATED AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
ACCUMULATED AMORTIZATION --------------------------------- SOFTWARE AND IN MILLIONS OF EUROS GOODWILL OTHER TOTAL - -------------------- -------- ------------ ----- DECEMBER 31, 1997........................................... 12 8 20 -- -- --- Additions................................................... 26 1 27 Disposals................................................... -- -- -- Translation and other....................................... -- -- -- -- -- --- DECEMBER 31, 1998........................................... 38 9 47 -- -- --- Additions................................................... 19 2 21 Disposals................................................... (4) -- (4) Translation and other....................................... -- -- -- -- -- --- DECEMBER 31, 1999........................................... 53 11 64 -- -- --- Additions................................................... 34 5 39 Disposals................................................... -- (2) (2) Translation and other....................................... -- 5 5 -- -- --- DECEMBER 31, 2000........................................... 87 19 106 == == ===
5. PROPERTY AND EQUIPMENT, NET CHANGES IN GROSS PROPERTY AND EQUIPMENT
GROSS VALUE --------------------------- LAND AND IN MILLIONS OF EUROS BUILDINGS OTHER TOTAL - -------------------- --------- ----- ----- DECEMBER 31, 1997........................................... 30 204 234 -- --- --- Additions................................................... -- 31 31 Disposals................................................... -- (21) (21) Translation and other....................................... -- 20 20 -- --- --- DECEMBER 31, 1998........................................... 30 234 264 -- --- --- Additions................................................... 13 40 53 Disposals................................................... (5) (16) (21) Translation and other....................................... 3 9 12 -- --- --- DECEMBER 31, 1999........................................... 41 267 308 -- --- --- Impact of the application of rule 99-02..................... 8 8 -- --- --- DECEMBER 31, 1999 ADJUSTED.................................. 49 267 316 -- --- --- Impact of acquisitions...................................... 15 391 406 Additions................................................... 8 83 91 Disposals................................................... (2) (30) (32) Translation and other....................................... 4 (1) 3 -- --- --- DECEMBER 31, 2000........................................... 74 710 784 == === ===
F-15 72 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) LAND AND BUILDINGS Publicis has land and buildings with a net book value of euros 59 million at December 31, 2000. The principal asset is the corporate headquarters located at 133 avenue des Champs-Elysees, in Paris. This seven-story building is primarily occupied by Group companies and commercial property occupied by the Champs-Elysees Drugstore and two public cinemas. The parent company, Publicis Groupe S.A., owns four floors of a building occupied by Metrobus at 15 rue du Dome in Boulogne, a suburb of Paris. Publicis also has a capital lease contract expiring in 2007 for two other floors in this building. Following the acquisition of Saatchi & Saatchi, the Group also owns a six-story building located at 30 rue Vital Bouhot in Neuilly-sur-Seine, a suburb of Paris, comprising office space which is for the most part occupied by Group companies. Outside France, Publicis agencies own buildings in Brussels, Amsterdam, Lisbon, Lima and Seoul, all in center city locations. OTHER PROPERTY AND EQUIPMENT The Group has significant respectsinformation systems equipment dedicated to the creation and production of advertising, the management of media buying and administrative functions. Publicis Technology, the Group's computer services and electronic communications subsidiary, owns significant amounts of conventional computer and information systems equipment as well as equipment for new media and technologies. In addition, gross property, plant and equipment includes euros 51 million (euros 8 million, net) of billboards and furniture and fixtures belonging to the Group's outdoor display companies, principally Publex in the Netherlands and Metrobus, a sales unit specializing in public transportation advertising space. ASSETS UNDER CAPITAL LEASES The application of rule 99-02 of the CRC required Publicis to restate the accounting for assets under capital leases, including these assets as property, plant and equipment with a corresponding amount recorded as financial debt. This change in method required the Group to capitalize euros 8 million of assets at December 31, 2000, which are included in "land and buildings". Amortization expense on assets under capital leases is included in depreciation of property and equipment. F-16 73 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) CHANGES IN ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
ACCUMULATED DEPRECIATION ---------------------------- LAND AND IN MILLIONS OF EUROS BUILDINGS OTHERS TOTAL - -------------------- --------- ------ ----- DECEMBER 31, 1997.......................................... 8 148 156 -- --- --- Additions.................................................. -- 26 26 Disposals.................................................. -- (19) (19) Translation and other...................................... -- 5 5 -- --- --- DECEMBER 31, 1998.......................................... 8 160 168 -- --- --- Additions.................................................. 1 28 29 Disposals.................................................. (1) (16) (17) Translation and other...................................... -- 5 5 -- --- --- DECEMBER 31, 1999.......................................... 8 177 185 -- --- --- Impact of the application of rule 99-02.................... 2 -- 2 -- --- --- DECEMBER 31, 1999 ADJUSTED................................. 10 177 187 -- --- --- Impact of acquisitions..................................... 5 239 244 Additions.................................................. 1 52 53 Disposals.................................................. (2) (27) (29) Translation and other...................................... 1 (2) (1) -- --- --- DECEMBER 31, 2000.......................................... 15 439 454 == === ===
6. INVESTMENTS AND OTHER FINANCIAL ASSETS, NET
DECEMBER 31, DECEMBER 31, DECEMBER 31, IN MILLIONS OF EUROS 2000 1999 1998 - -------------------- ------------ ------------ ------------ Investments................................... 37 29 46 Investments accounted for by the equity method...................................... 7 7 7 Advances to affiliates........................ 19 6 5 Loans......................................... 6 -- -- Other financial assets, gross................. 26 17 16 -- -- -- GROSS VALUE................................... 95 59 74 Provisions for investments and financial assets...................................... (6) (2) (2) NET VALUE..................................... 89 57 72 == == ==
LIST OF INVESTMENTS IN NON-CONSOLIDATED ENTITIES AT DECEMBER 31, 2000
% OF GROSS NET MARKET IN MILLIONS OF EUROS OWNERSHIP VALUE VALUE VALUE - -------------------- --------- ----- ----- ------ True North................................................ 9% 22 22 213 Other..................................................... -- 15 13 -- -- -- -- --- TOTAL..................................................... 37 35 213 == == == ===
F-17 74 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) 7. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD Investments accounted for by the equity method amount to euros 7 million at December 31, 2000 (December 31, 1999: euros 7 million; December 31, 1998: euros 7 million). These investments do not include our investment in Zenith, which due to a shareholders' deficit, is provided for in "provisions for contingencies and charges" in the balance sheet for an amount of euros 19 million. SUMMARY INFORMATION FOR ZENITH (CONSOLIDATED AMOUNTS)
IN MILLIONS OF EUROS 2000 - -------------------- ---- Revenues.................................................... 110 Net income.................................................. 14 Total assets................................................ 441 Cash and cash equivalents, net.............................. 121 Shareholders' deficit....................................... (39)
8. INVENTORY AND COSTS BILLABLE TO CLIENTS
DECEMBER 31, DECEMBER 31, DECEMBER 31, IN MILLIONS OF EUROS 2000 1999 1998 - -------------------- ------------ ------------ ------------ Advertising costs billable to clients......... 123 44 44 Other inventory............................... 6 5 6 --- -- -- GROSS VALUE................................... 129 49 50 Provision for depreciation.................... -- -- -- --- -- -- NET VALUE..................................... 129 49 50 === == ==
9. ACCOUNTS RECEIVABLE
DECEMBER 31, DECEMBER 31, DECEMBER 31, IN MILLIONS OF EUROS 2000 1999 1998 - -------------------- ------------ ------------ ------------ Trade accounts receivable..................... 1,721 996 660 Notes receivable.............................. 81 26 27 ----- ----- --- GROSS VALUE................................... 1,802 1,022 687 Allowance for doubtful accounts............... (32) (20) (20) ----- ----- --- NET VALUE..................................... 1,770 1,002 667 ===== ===== ===
All accounts receivable are due within one year. Note: for situations in which Publicis is buying media space as an agent on behalf of its clients in France (transactions for which there is no income statement impact), the related accounts receivable are recorded in "other receivables" in the balance sheet. F-18 75 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) 10. OTHER RECEIVABLES
DECEMBER 31, IN MILLIONS OF EUROS 2000 - -------------------- ------------ Taxes receivable............................................ 76 Receivables on agency transactions.......................... 88 Deferred tax assets......................................... 15 Advances to suppliers....................................... 25 Other receivables........................................... 137 Prepaid expenses and other.................................. 69 --- GROSS VALUE................................................. 410 Provision................................................... (11) --- NET VALUE................................................... 399 ===
Other receivables are due within one year. 11. MARKETABLE SECURITIES Marketable securities consist primarily of money market funds, mutual funds and certificates of deposit. The market value of quoted securities amounts to euros 70.7 million at December 31, 2000 compared to a carrying value of euros 70.1 million. 12. SHAREHOLDERS' EQUITY IMPACT OF THE ACQUISITION OF SAATCHI & SAATCHI Publicis treated the Saatchi & Saatchi acquisition in accordance with the derogatory method under article 215 of rule 99-02 of the CRC, which permits Publicis to substitute the value of net assets acquired, adjusted to conform with Group accounting policies, for the purchase price of the shares of Saatchi & Saatchi. This resulted in an amount of euros 2,069 million being recorded in shareholders' equity, increased for costs incurred by Publicis related to the acquisition or euros 11 million after tax (recorded in shareholders' equity in accordance with rule 99-02 of the Comite de la Reglementation Comptable). In total, the net effect amounts to euros (198 million) after considering the capital increase and additional paid-in capital related to the issuance of shares (euros 1,883 million). The amount of the capital increase related to this transaction amounts to euros 17 million, representing 43,889,149 shares at a par value of euros 0.3811 (francs 2.50). F-19 76 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) TREASURY STOCK AT DECEMBER 31, 2000 In connection with the approvals given in previous extraordinary shareholders' meetings, Publicis Groupe S.A. has continued to proceed with purchases of treasury stock during the year 2000. The related activity is as follows:
NUMBER OF SHARES COST ---------- ---------- (millions of euros) Treasury stock at December 31, 1999................... 4,181,920 71 Purchases in 2000..................................... 3,480,077 141 Shares approved for use in acquiring Nelson Communications...................................... (6,790,688) (178) ---------- ---- TREASURY STOCK AT DECEMBER 31, 2000................... 871,309 34 ========== ====
In accordance with the guidelines established by the accounting authorities in France (Conseil National de la Comptabilite), the shares have been eliminated in consolidation through a reduction of shareholders' equity. IMPUTATION OF GOODWILL TO SHAREHOLDERS' EQUITY Over the last 10 years, the only significant imputation of goodwill to shareholders' equity related to the acquisition of Groupe FCA for which a goodwill of euros 54 million was recognized. This goodwill, which related to all of the subsidiaries of the FCA network, would have been amortized over periods of 10 to 40 years. 13. MINORITY INTERESTS
RETAINED IN MILLIONS OF EUROS EARNINGS - -------------------- -------- DECEMBER 31, 1997........................................... 81 --- Impact of the merger of Publicis Communication/Publicis S.A....................................................... (48) Dividends paid by subsidiaries to minority interests........ (11) Consolidated net income for the period, minority interest... 21 Other....................................................... 1 --- DECEMBER 31, 1998........................................... 44 --- Dividends paid by subsidiaries to minority interests........ (13) Consolidated net income for the period, minority interest... 20 --- DECEMBER 31, 1999........................................... 51 --- Dividends paid by subsidiaries to minority interests........ (14) Consolidated net income for the period, minority interest... 31 Other....................................................... 9 --- DECEMBER 31, 2000........................................... 77 ===
F-20 77 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) 14. PROVISIONS FOR CONTINGENCIES AND CHARGES
PENSIONS AND OTHER ZENITH POST-EMPLOYMENT CLIENT EQUITY VACANT BENEFITS LITIGATION RISKS RESTRUCTURING METHOD PROPERTY OTHER TOTAL In millions of euros --------------- ---------- ------ ------------- ------ -------- ----- ----- DECEMBER 31, 1997............... 22 10 5 -- -- 5 18 60 -- -- -- -- -- --- --- --- Additions....................... 1 -- -- -- -- -- 7 8 Reversals and utilization....... -- (1) (1) -- -- -- (2) -- -- -- -- -- --- --- --- DECEMBER 31, 1998............... 23 9 4 -- -- 5 25 66 -- -- -- -- -- --- --- --- Additions....................... 3 -- -- 3 -- 1 14 21 Reversals and utilization....... -- (4) (2) -- -- -- (11) (17) -- -- -- -- -- --- --- --- DECEMBER 31, 1999............... 26 5 2 3 -- 6 28 70 -- -- -- -- -- --- --- --- Impact of acquisitions.......... 8 6 -- 12 16 75 117 Additions....................... 5 3 6 -- 3 2 16 35 Reversals and utilization....... (4) (1) (2) (5) -- (9) (20) (41) Translation and other........... 2 -- -- -- -- (10) (4) (12) -- -- -- -- -- --- --- --- DECEMBER 31, 2000............... 37 13 6 10 19 64 20 169 == == == == == === === ===
VACANT PROPERTY PROVISIONS Vacant property provisions consist primarily of a reserve recorded at Saatchi & Saatchi to cover future losses related principally to the lease contract for the building at 375 Hudson Street in New York (euros 62 million at December 31, 2000). PROVISIONS FOR RESTRUCTURING Restructuring provisions represent primarily an estimate of the restructuring costs related to the acquisition of Saatchi & Saatchi (including the balance of expenses for the closing of the headquarters in New York and London). 15. BANK BORROWINGS AND OVERDRAFTS
DECEMBER 31 -------------------- 2000 1999 1998 In millions of euros ---- ---- ---- Loans....................................................... 630 -- -- Obligations under capital leases............................ 5 -- -- Bank overdrafts............................................. 266 212 124 --- --- --- TOTAL....................................................... 901 212 124 === === ===
F-21 78 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) ANALYSIS BY DATE OF MATURITY
DECEMBER 31 -------------------- 2000 1999 1998 In millions of euros ---- ---- ---- Due in less than one year................................... 721 212 124 Due in one to five years.................................... 180 -- -- --- --- --- TOTAL....................................................... 901 212 124 === === ===
ANALYSIS BY CURRENCY
DECEMBER 31 -------------------- 2000 1999 1998 In millions of euros ---- ---- ---- Euros or currencies in the euro zone........................ 446 158 73 U.S. dollars................................................ 360 1 18 Other currencies............................................ 95 53 33 --- --- --- TOTAL....................................................... 901 212 124 === === ===
ANALYSIS BY TYPE OF INTEREST RATE The principal portion of debt is made up of loans with variable rates of interest. The average interest rate on this debt as of December 31, 2000 amounts to 6.2%. 16. INCOME TAXES ANALYSIS OF INCOME TAX EXPENSE
2000 1999 1998 In millions of euros ---- ---- ---- Current income tax expense.................................. (93) (65) (47) Deferred income tax expense................................. 1 -- -- --- --- --- INCOME TAX ON INCOME OF CONSOLIDATED COMPANIES.............. (92) (65) (47) === === ===
Taxes on exceptional income are not presented above. They amount to euros 4 million in 2000 and consist of income taxes on the gain on sale of investments (taxes on 1999 exceptional income: euros 7 million). F-22 79 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) EFFECTIVE TAX RATE The effective tax rate is as follows:
2000 In millions of euros ----- Income of consolidated companies before taxes, exceptional items and amortization of goodwill........................ 264 Statutory tax rate.......................................... 37.8% Expected tax expense........................................ (100) Impact of: - income of subsidiaries taxed at different rates...... 5 - income taxes at reduced rates........................ (1) - utilization of deferred tax assets on operating losses............................................... 8 - permanent differences................................ (4) ----- Income taxes recorded in the income statement............... (92) ===== Effective tax rate.......................................... 35%
DEFERRED TAXES Deferred tax assets and liabilities are included in the following balance sheet line items:
DECEMBER 31, 2000 In millions of euros ------------ Other receivables: - short-term portion............................... 11 - long-term portion................................ 4 -- TOTAL DEFERRED TAX ASSETS............................... 15 ACCRUED EXPENSES AND OTHER LIABILITIES: - short-term portion............................... (1) - long-term portion................................ -- -- TOTAL DEFERRED TAX LIABILITIES.......................... (1) -- DEFERRED TAX ASSETS, NET................................ 14 ==
SOURCES OF DEFERRED TAXES
DECEMBER 31, 2000 In millions of euros ------------ Deferred tax assets resulting from temporary differences........................................... 12 Deferred tax assets resulting from operating loss carryforwards......................................... 3 -- TOTAL DEFERRED TAX ASSETS............................... 15 Deferred tax liabilities resulting from temporary differences........................................... (1) -- TOTAL DEFERRED TAX LIABILITIES.......................... (1) -- DEFERRED TAX ASSETS (LIABILITIES), NET.................. 14 ==
F-23 80 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) 17. ACCOUNTS PAYABLE The line "accounts payable" includes all trade accounts payable (including notes payable and accrued purchases) related to the purchase of goods and services, except for purchases of media space in France under the Sapin Law (Loi Sapin) which are included in "accrued expenses and other liabilities". 18. ACCRUED EXPENSES AND OTHER LIABILITIES
DECEMBER 31, IN MILLIONS OF EUROS 2000 - -------------------- ------------ Payables to the state................................. 108 Payables related to agency transactions............... 119 Deferred tax liabilities.............................. 1 Other liabilities..................................... 79 Advances received..................................... 156 Other payables........................................ 581 Deferred revenues and other liabilities............... 50 ----- TOTAL................................................. 1,094 =====
19. OFF BALANCE SHEET COMMITMENTS
GIVEN RECEIVED IN MILLIONS OF EUROS 2000 1999 1998 2000 1999 1998 - -------------------- ---- ----- ---- ---- -------- ---- Discounted notes (drafts)...................... -- 1 -- -- -- -- Guarantees..................................... 4 3 4 19 12 11 Contingent value rights (CVR) on Publicis shares(1).................................... 199 -- -- -- -- -- Other.......................................... 5 12 11 2 3 2 --- -- -- -- -- -- TOTAL.......................................... 208 16 15 21 15 13 === == == == == ==
- --------------- (1) Publicis Groupe SA issued contingent value rights to recipients of the Publicis shares exchanged for Saatchi & Saatchi shares which guarantee the value of each Publicis share exchanged for Saatchi & Saatchi shares. The recipients of the contingent value rights will receive in the 60 days following the expiration of a waiting period of 18 months after the issuance of the rights, a cash sum equal to the difference, if negative, between the average Publicis share price during the 10 days preceding the expiration of the 18 month waiting period and the share price at the closing, limited to a maximum amount of euros 4.32 for each contingent value right. The number of contingent value rights issued at December 31, 2000 is 43,889,149 or an amount of euros 189,601 thousand. Considering the number of options remaining, this amount cannot exceed 46,096,133 or a maximum amount of euros 199,135 thousand. 20. EMPLOYEE COMPENSATION AND HEADCOUNT Employee compensation includes salaries, appointments, commissions, bonuses, profit sharing and paid vacation. Payroll taxes on salaries are included in general and administrative expenses. F-24 81 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) COMPENSATION OF OFFICERS AND DIRECTORS Compensation paid to members of the Supervisory Board and the Management Board in 2000 totaled euros 0.2 million and euros 1.5 million, respectively. HEADCOUNT
AT DECEMBER 31, ------------------------- 2000 1999 1998 ------ ------ ----- BY GEOGRAPHIC REGION: - France............................................. 3,411 2,922 2,862 - Other Europe....................................... 5,493 3,480 3,119 - North America...................................... 6,954 1,628 1,363 - Rest of world...................................... 4,482 2,332 1,365 ------ ------ ----- TOTAL..................................................... 20,340 10,362 8,709 ====== ====== ===== BY DIVISION: - Communication...................................... 19,133 9,167 7,342 - Other Activities................................... 1,207 1,195 1,367 ------ ------ ----- TOTAL..................................................... 20,340 10,362 8,709 ====== ====== =====
BREAK DOWN BY FUNCTION (%) - -------------------------- Sales....................................................... 45% Creative development........................................ 20% Administration/Management................................... 20% Production.................................................. 10% Media and Research.......................................... 5% --- TOTAL....................................................... 100% ===
21. OTHER OPERATING EXPENSES Other operating expenses represent all of the external charges other than purchases of production and media. They principally include taxes (other than income taxes) and additions to and reversals of provisions. 22. DEPRECIATION AND AMORTIZATION EXPENSE
DECEMBER 31, DECEMBER 31, DECEMBER 31, IN MILLIONS OF EUROS 2000 1999 1998 - -------------------- ------------ ------------ ------------ Amortization expense on other intangible assets (excluding goodwill)................. 6 2 1 Depreciation expense on property and equipment................................... 53 29 26 -- -- -- DEPRECIATION AND AMORTIZATION OF OTHER INTANGIBLE ASSETS AND PROPERTY AND EQUIPMENT................................... 59 31 27 Amortization of goodwill...................... 33 19 13 -- -- -- TOTAL DEPRECIATION AND AMORTIZATION EXPENSE... 92 50 40 == == ==
Amortization expense on other intangible assets for the year ended December 31, 2000 includes exceptional amortization of euros 3 million (1999: euros 4 million). F-25 82 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) 23. INTEREST AND DIVIDEND (EXPENSE) INCOME
IN MILLIONS OF EUROS 2000 1999 1998 - -------------------- ---- ---- ---- Dividends received from non-consolidated affiliates......... 4 3 3 Other interest and dividend (expense) income, net........... (15) 6 7 --- -- -- TOTAL....................................................... (11) 9 10 === == ==
24. EXCEPTIONAL INCOME, NET OF TAX In 2000, exceptional income consists of the gain on sale, net of tax, of a non-consolidated investment. In 1999, exceptional income was comprised of the gain on sale of the Drugstore Matignon in Paris, a gain on the sale of foreign real estate and a gain on the sale of a non-consolidated investment. 25. BASIC AND DILUTED EARNINGS PER SHARE Basic earnings per share amounted to euros 1.18 in 2000, compared to euros 0.85 per share in 1999 and euros 0.59 per share in 1998. The weighted average shares outstanding for the calculation of diluted earnings per share amounted to 110,454,999 shares for 2000. The corresponding diluted earnings per share was euros 1.15 in 2000, compared to euros 0.84 in 1999 and euros 0.56 in 1998. 26. SEGMENT INFORMATION The Company operates in one industry segment, advertising and communications. Revenues and operating results are derived from advertising and communications services provided to clients. These services include related activities such as agency services for media advertising such as press, radio and billboards and film. The Company evaluates performance by geographic region based on revenues, operating income and net income before amortization of goodwill and exceptional items. F-26 83 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) INFORMATION BY GEOGRAPHIC REGION
OTHER NORTH REST OF IN MILLIONS OF EUROS FRANCE EUROPE AMERICA WORLD TOTAL - -------------------- ------ ------ ------- ------- ----- 2000 Revenues......................................... 342 536 688 204 1,770 Operating income................................. 72 97 83 23 275 Net income after tax, Group interest*............ 38 58 46 9 151 Goodwill, property and equipment and intangible assets, net.................................... 85 172 818 139 1,214 1999 Revenues......................................... 294 408 214 126 1,042 Operating income................................. 45 76 21 14 156 Net income after tax, Group interest*............ 24 36 18 4 82 Goodwill, property, plant and equipment and intangible assets, net......................... 72 106 116 86 380 1998 Revenues......................................... 274 357 154 66 851 Operating income................................. 33 66 15 1 115 Net income after tax, Group interest*............ 18 27 13 -- 58 Goodwill, property, plant and equipment and intangible assets, net......................... 70 89 113 39 311
- --------------- * before amortization of goodwill and exceptional income 27. STOCK OPTION PLANS PUBLICIS OPTIONS As a result of the merger of Publicis Communication and Publicis Groupe S.A. on December 11, 1998, 62,397 stock options previously authorized and granted by Publicis Communication were assumed by Publicis Groupe S.A. and converted into 935,960 new stock options to subscribe to Publicis Groupe S.A. shares at euros 0.40. A last tranche of options was granted on September 7, 2000 in connection with the authorization given by the Board of Directors in the August 29, 2000 meeting. The recipients have the right to exercise the options for a period of 10 years. During the year ended December 31, 2000, 70,710 options were exercised resulting in an increase in share capital, including additional paid-in capital, of euros 0.4 million. F-27 84 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) At December 31, 2000, options remaining to be exercised were as follows:
NUMBER OF OPTIONS REMAINING TO BE EXERCISE PRICE EXPIRATION SHARES FRANCS 2.50 PAR VALUE GRANT DATE EXERCISED (EUROS) DATE - ---------------------------- ----------------- ----------------- -------------- ---------- Second tranche..................... February 20, 1992 17,700 7.2 2002 Third tranche...................... December 15, 1992 25,450 6.9 2002 Fourth tranche..................... March 22, 1994 28,760 6.4 2004 Fifth tranche...................... March 30, 1995 93,970 6.6 2005 Sixth tranche...................... April 26, 1996 87,260 4.9 2006 Seventh tranche.................... March 20, 1997 75,960 5.6 2007 Eighth tranche..................... March 11, 1998 66,000 8.7 2008 Ninth tranche...................... November 4, 1998 331,500 10.2 2008 Tenth tranche...................... September 7, 2000 100,000 43.5 2010 ------- TOTAL TRANCHES....................... 826,600 =======
SAATCHI & SAATCHI OPTIONS Several stock option plans were put in place by Saatchi & Saatchi prior to the acquisition. These plans involve several plan execution criteria for the grant of options. At the time of the merger with Publicis Groupe SA, these plans were simplified and the maximum number of options that could be granted were granted. Two types of options remain: - those to be issued in connection with the Equity Participation Plan ("EPP") and for which the exercise price was paid at the grant date. No additional payment will be made at the date of exercise of the options and - those to be issued related to other plans and for which the exercise price must be paid at the date of exercise of the options. In these two cases, the beneficiaries will receive Saatchi & Saatchi shares upon exercise of their options. These shares will be exchanged for new shares of Publicis Groupe SA based on a rate of 18.252 Publicis Groupe SA shares for 100 Saatchi & Saatchi shares (or the ratio applied at the time of the public exchange offer). The number of options that can be exercised under the two plans, converted for simplification purposes into Publicis shares at a rate of 0.18252, is as follows:
EQUITY OTHER PARTICIPATION PLAN PLANS TOTAL ------------------ --------- --------- - -Remaining to be exercised at the merger date.... 2,044,928 2,208,579 4,253,507 - -Exercised between September 8 and December 31, 2000.............................. 1,344,435 1,307,824 2,652,259 - -Forfeited between September 8 and December 31, 2000.............................. 0 5,475 5,475 --------- --------- --------- - -Remaining to be exercised at December 31, 2000........................................... 700,493 895,280 1,595,773 ========= ========= =========
F-28 85 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) The timetable for the exercise of the remaining options is as follows:
EQUITY OTHER PARTICIPATION PLAN PLANS TOTAL ------------------ ------- --------- Can be exercised: - Immediately............................. 601,932 649,335 1,251,267 - In 2001................................. 98,561 147,385 245,946 - In 2002................................. 0 78,483 78,483 - In 2003................................. 0 20,077 20,077 ------- ------- --------- TOTAL.......................................... 700,493 895,280 1,595,773 ======= ======= =========
The weighted average exercise price of options (per Publicis share) for plans other than the EPP is established at L1.24/0.18252 X 1.60 = 10.87 euros. 28. LIST OF CONSOLIDATED ENTITIES AT DECEMBER 31, 2000 A - CONSOLIDATED ENTITIES 1 - Communications
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- PUBLICIS GROUPE S.A. ......... Parent France Paris PUBLICIS WORLDWIDE............ 100,00 Finance Netherlands Amsterdam Publicis USA Holdings......... 100,00 Finance United States New York Publicis...................... 100,00 Advertising United States San Francisco, Seattle, Salt Lake City, Boise, Dallas, Indianapolis, Los Angeles, Chicago, New York Publicis Hal Riney............ 100,00 Advertising United States San Francisco, Atlanta, New York Burrell Communications........ 49,00 Advertising United States Chicago Publicis Dialog............... 100,00 Advertising United States San Francisco, Seattle, Salt Lake City, Dallas, Indianapolis, Chicago, New York Nelson Communications......... 100,00 Advertising United States New York Frankel....................... 100,00 Advertising United States Chicago Fallon........................ 100,00 Advertising United States Minneapolis Optimedia USA................. 100,00 Media United States New York Winner & Associates........... 60,00 Advertising United States Los Angeles Publicis BCP.................. 70,00 Advertising Canada Montreal Publicis SMW.................. 87,09 Advertising Canada Toronto Optimedia..................... 95,53 Advertising Canada Montreal, Toronto Ove........................... 70,00 Advertising Canada Montreal Publicis Dialog............... 94,87 Advertising Canada Montreal, Toronto Touch......................... 100,00 Advertising Canada Montreal Goodhue....................... 70,00 Advertising Canada Montreal Publicis Capurro.............. 85,00 Advertising Argentina Buenos Aires Publicis Dialog............... 80,00 Advertising Argentina Buenos Aires Optimedia..................... 100,00 Media Argentina Buenos Aires Publicis Norton............... 60,00 Advertising Brazil Sao Paulo, Brasilia, Porto Alegre, Rio de Janeiro Publicis Unitros.............. 60,00 Advertising Chile Santiago
F-29 86 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA)
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- Publicis CB................... 60,00 Advertising Colombia Bogota Publicis Romero............... 51,00 Advertising Mexico Mexico City Optimedia..................... 60,00 Media Mexico Mexico City Publicis Dialog............... 56,00 Advertising Mexico Mexico City Publicis Asociados............ 60,00 Advertising Peru Lima Publicis 67................... 60,00 Advertising Venezuela Caracas Publicis Communication........ 100,00 Advertising Australia Brisbane, Melbourne, Sydney Echo Direct................... 100,00 Advertising Australia Sydney Optimedia..................... 100,00 Advertising Australia Sydney Publicis Mojo................. 100,00 Advertising New Zealand Auckland Optimedia..................... 100,00 Advertising New Zealand Auckland RaingerDirect................. 75,00 Advertising New Zealand Auckland Publicis Ad Link.............. 60,00 Advertising China, Hong Kong Peking, Hong Kong, Shanghai, Canton, Chengdu Publicis Welcomm.............. 60,00 Advertising Korea Seoul Publicis Zen.................. 60,00 Advertising India Mumbai Publicis Inovasi.............. 89,70 Advertising Indonesia Dakarta Publicis...................... 100,00 Advertising Japan Tokyo Publicis Wet Desert........... 70,00 Advertising Malaysia Kuala Lumpur Publicis Pakistan............. 60,00 Advertising Pakistan Lashore Basic......................... 65,63 Advertising Philippines Manila Publicis Philippines.......... 65,63 Advertising Philippines Manila Publicis Ama.................. 60,00 Advertising Philippines Manila Publicis Asia Pacific......... 100,00 Finance Singapore Singapore FCA........................... 100,00 Advertising Singapore Singapore Publicis Eureka............... 60,00 Advertising Singapore Singapore Publicis Taiwan............... 100,00 Advertising Taiwan Taipei Publicis Prakit............... 50,00 Advertising Thailand Bangkok Publicis Cape Town............ 84,30 Advertising South Africa Le Cap Publicis Johannesburg......... 100,00 Advertising South Africa Johannesburg Publicis Maroc................ 100,00 Advertising Morocco Casablanca Publicis Ariely............... 82,00 Advertising Israel Tel Aviv Ab Data....................... 70,00 Advertising Israel Tel Aviv Super Push.................... 56,00 Advertising Israel Tel Aviv Publicis Graphics............. 60,00 Advertising Lebanon, Jordan, Beirut, Amman, Bahrain, Cairo, Bahrain, Egypt, EAU, Dubai, Jeddah, Riyad, Kuwait, Saudi Arabia, Kuwait, Istanbul Turkey Publicis Communication........ 100,00 Finance Germany Dusseldorf FCA! BMZ...................... 100,00 Advertising Germany Dusseldorf Prorepro...................... 100,00 Advertising Germany Dusseldorf More Sales.................... 84,80 Advertising Germany Dusseldorf More Media.................... 90,50 Media Germany Dusseldorf Publicis...................... 100,00 Advertising Germany Frankfurt Mundocom...................... 100,00 Advertising Germany Frankfurt Publicis Service Germany...... 100,00 Advertising Germany Frankfurt Optimedia..................... 100,00 Media Germany Dusseldorf Publicis Dialog............... 90,05 Advertising Germany Hamburg
F-30 87 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA)
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- Publicis Vital................ 100,00 Advertising Germany Frankfurt Publicis Lenze................ 90,20 Advertising Germany Cologne Hiel.......................... 100,00 Advertising Germany Munich ADF DTP und Datenmanagement... 51,00 Advertising Germany Frankfurt Publicis MCD.................. 100,00 Advertising Germany Erlangen, Munich More Media Munich............. 100,00 Advertising Germany Munich Contur........................ 100,00 Advertising Germany Friedrichsdorf Publicis Berlin............... 51,00 Advertising Germany Berlin Publicis Networks............. 90,50 Advertising Germany Dusseldorf Boebel Adam................... 90,50 Advertising Germany Frankfurt Publicis...................... 100,00 Advertising Austria Vienna Publicis Media................ 100,00 Advertising Austria Vienna Publicis...................... 100,00 Advertising Belgium Brussels Publicis...................... 100,00 Advertising Croatia Zagreb Publicis...................... 80,00 Advertising Denmark Copenhagen Publicis...................... 100,00 Advertising Spain Madrid, Barcelona, Seville, Valencia, Alicante Publicis Casadevall y Pedreno..................... 85,00 Advertising Spain Barcelona, Madrid Optimedia..................... 98,00 Media Spain Madrid FCA/BMZ....................... 100,00 Advertising Spain Madrid, Barcelona, Seville Publicis Dialog............... 100,00 Advertising Spain Madrid Publicis International Oy..... 64,72 Advertising Finland Helsinki Publicis Dialog............... 51,00 Advertising Finland Helsinki Publicis Marche............... 100,00 Advertising Finland Helsinki Publicis Torma................ 100,00 Advertising Finland Helsinki Multi Market Services......... 100,00 Finance United Kingdom London Publicis...................... 100,00 Advertising United Kingdom London Mundocom...................... 100,00 Advertising United Kingdom London Optimedia..................... 100,00 Advertising United Kingdom London FCA!.......................... 100,00 Advertising United Kingdom London Publicis Networks............. 100,00 Advertising United Kingdom London Publicis Dialog............... 100,00 Advertising United Kingdom London Publicis Blue Print........... 100,00 Advertising United Kingdom London 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..................... 100,00 Advertising Italy Milan Carmi & Ubertis Design........ 80,00 Advertising Italy Milan GGA........................... 100,00 Advertising Italy Milan Publicis...................... 100,00 Finance Norway Oslo FCA! Amsterdam................ 100,00 Advertising Netherlands Amsterdam FCA! Retail................... 57,00 Advertising Netherlands Amsterdam Compasso...................... 77,00 Advertising Netherlands Amsterdam Change The Script............. 51,00 Advertising Netherlands Amsterdam Overad........................ 100,00 Finance Netherlands Amsterdam Overad Property............... 100,00 Finance Netherlands Amsterdam
F-31 88 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA)
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- 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............ 87,10 Advertising Netherlands Amsterdam Bruggenwirth, Mass & Boswinkel................... 100,00 Advertising Netherlands Amsterdam Optimedia Netherlands......... 100,00 Advertising Netherlands Amsterdam Focus Netherlands............. 60,20 Advertising Netherlands Amsterdam Publicis...................... 85,00 Advertising Poland Warsaw Publicis...................... 90,00 Advertising Portugal Lisbon BMZ/Park...................... 56,44 Advertising Portugal Lisbon Optimedia..................... 93,00 Media Portugal Lisbon Publicis...................... 60,00 Advertising Czech Republic Prague Publicis Knut................. 60,00 Advertising Slovakia Bratislava Publicis Etoiles.............. 100,00 Finance Sweden Stockholm Publicis Welinder............. 73,00 Advertising Sweden Stockholm Publicis Zurich............... 90,00 Advertising Switzerland Zurich Publicis Lausanne............. 100,00 Advertising Switzerland Lausanne Publicis Consultants.......... 51,00 Advertising Switzerland Zurich PUBLICIS CONSEIL.............. 99,61 Consulting France Paris FCA! B.M.Z.................... 100,00 Advertising France Paris Loeb et Associes.............. 55,00 Advertising France Paris Publicis EtNous............... 52,72 Advertising France Paris Mundocom...................... 100,00 Advertising France Paris Publicis Dialog............... 100,00 Advertising France Paris Directis...................... 60,00 Advertising France Paris Parti Print................... 90,00 Advertising France Paris Valeur Source................. 100,00 Advertising France Paris Media System.................. 94,96 Advertising France Paris Guillaume Tell................ 75,01 Advertising France Paris Verbe......................... 99,86 Advertising France Paris Verbe Consumer................ 64,89 Advertising France Paris GES........................... 100,00 Advertising France Paris GEM........................... 100,00 Advertising Switzerland Cologny Nephtalie Travel.............. 100,00 Advertising France Paris Motivom....................... 74,50 Advertising France Paris Publicis Hourra............... 99,93 Advertising France Lille Publicis Cachemire............ 70,18 Advertising France Lyon, Clermont-Ferrand Implication................... 75,00 Advertising France Lyon Publicis Mediterranee......... 100,00 Advertising France Marseille Publicis Soleil............... 100,00 Advertising France Toulouse, Montpellier Publicis Grand Angle.......... 99,75 Advertising France Brest, Nantes, Rennes Publicis Koufra............... 87,76 Advertising France Nancy, Dijon, Strasbourg Publicis Atlantique........... 100,00 Advertising France Bordeaux Publicis Racines.............. 100,00 Advertising France Tours Paname........................ 89,76 Advertising France Paris Champs Medias................. 99,80 Advertising France Paris
F-32 89 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA)
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- Publicis Wellcare............. 70,00 Advertising France Paris Signe......................... 100,00 Advertising France Nancy Haubtmann..................... 100,00 Advertising France Nancy Sirius Participations......... 100,00 Advertising France Paris Sirius SA..................... 100,00 Advertising France Paris Synthese...................... 100,00 Advertising France Paris 2eme Communication............ 51,00 Advertising France Lyon O' de Formes.................. 88,00 Advertising France Lyon WAM........................... 99,68 Advertising France Paris PUBLICIS CENTRE MEDIA......... 100,00 Media France Paris Credome....................... 100,00 Studies and research France Paris PUBLICIS CONSULTANTS.......... 100,00 Advertising France Paris Publicis Consultants.......... 90,00 Advertising Netherlands Amsterdam Publicis Consultants.......... 100,00 Advertising Belgium Brussels Agence de Com................. 100,00 Advertising France Paris Publicis Design............... 77,00 Advertising France Paris Solange Stricker.............. 100,00 Advertising France Paris Finincom...................... 100,00 Advertising France Paris Publicis Technology........... 100,00 Interactive France Paris PUBLICIS NET.................. 100,00 Finance USA Dallas Publicis e-brand.............. 87,00 Interactive France Paris Net.Intelligenz............... 51,00 Interactive France Paris Publicis Networks............. 75,00 Interactive France Paris Institutional Design.......... 75,00 Interactive France Paris SAATCHI & SAATCHI plc......... 100,00 Finance United Kingdom London S&S North America Inc. ....... 100,00 Advertising United States New York Klemtner Advertising Inc. .... 100,00 Advertising United States New York Rowland Worldwide Inc. ....... 100,00 Advertising United States New York Rowland -- Rochester (SSBC)... 100,00 Advertising United States New York Conill Advertising Inc. ...... 100,00 Advertising United States New York Nazca Miami -- Puerto Rico.... 75,00 Advertising United States Miami SSA Canada.................... 100,00 Advertising Canada Toronto Taylor Tarpay................. 100,00 Advertising Canada Toronto Badillo Nazca S&S Inc. ....... 75,00 Advertising Puerto Rico San Juan S&S Argentina................. 51,00 Advertising Argentina Buenos Aires Finance Nazca Publicidade Brazil...................... 70,00 Advertising Brazil Sao Paulo S&S Advertising Mexico Ltd.... 75,00 Advertising Mexico Mexico City S&S Advertising Pty Ltd....... 100,00 Advertising Australia Sydney S&S New Zealand............... 100,00 Advertising New Zealand Wellington S&S Great Wall Advertising Co Ltd......................... 51,00 Advertising China Beijing S&S Hong Kong................. 100,00 Advertising China Hong Kong Zenith Taiwan................. 100,00 Media China Hong Kong S&S India..................... 80,00 Advertising India Mumbai S&S Japan KK.................. 66,67 Advertising Japan Tokyo S&S Malaysia.................. 80,00 Advertising Malaysia Petaling Jaya S&S Singapore................. 100,00 Advertising Singapore Singapore
F-33 90 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA)
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- S&S Taiwan.................... 100,00 Advertising Taiwan Taipei S&S Thailand.................. 51,00 Advertising Thailand Bangkok Zenith Thailand............... 51,00 Media Thailand Bangkok S&S Vietnam................... 70,00 Advertising Vietnam Ho Chi Minh City S&S Saudi Arabia.............. 100,00 Advertising Saudi Arabia Riyad S&S Dubai..................... 100,00 Advertising Dubai Dubai S&S Egypt..................... 100,00 Advertising Egypt Cairo S&S Germany................... 100,00 Advertising Germany Frankfurt Dialog-Team Marketing......... 51,00 Advertising Germany Frankfurt S&S Austria................... 100,00 Advertising Austria Vienna S&S Belgium NV. .............. 99,99 Advertising Belgium Brussels S&S Denmark A/S............... 100,00 Advertising Denmark Copenhagen S&S Madrid.................... 100,00 Advertising Spain Madrid S&S France SA................. 100,00 Advertising France Paris Albemarle Marketing Research Ltd. ....................... 100,00 Studies and research United Kingdom London The Facilities Group Ltd...... 70,00 Advertising United Kingdom London S&S Group Ltd. ............... 100,00 Advertising United Kingdom London S&S Hungary................... 100,00 Advertising Hungary Budapest S&S Italy..................... 100,00 Advertising Italy Rome, Milan Rowland Italy................. 100,00 Advertising Italy Milan S&S Healthcare Italy.......... 100,00 Advertising Italy Rome, Milan S&S Holland................... 100,00 Advertising Netherlands Amstelveen S&S Poland.................... 100,00 Advertising Poland Warsaw S&S Portugal.................. 100,00 Advertising Portugal Lisbon Rowland -- Switzerland (SSBC)...................... 100,00 Advertising Switzerland Geneva
2 - Medias & Regies Europe
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- MEDIAS et REGIES EUROPE....... 100,00 Press Media Sales France Paris Le Monde Publicite............ 49,00 Press Media Sales France Paris I-Regie.com................... 96,00 Press Media Sales France Paris Regiscope..................... 49,00 Press Media Sales France Paris Espaces Liberation............ 49,00 Press Media Sales France Paris Profil 18/30.................. 50,00 Press Media Sales France Paris Consumer Media................ 50,00 Press Media Sales France Paris Media & Regies Interactive.... 100,00 Internet Media Sales France Paris Metrobus...................... 100,00 Billboard Media Sales France Paris A Nous Paris.................. 55,00 Press France Paris Sodex......................... 100,00 Billboard Media Sales France Paris France Index.................. 100,00 Billboard Media Sales France Paris Publisistemas................. 100,00 Billboard Media Sales Spain Madrid Mediavision................... 66,63 Cinema Sales France Paris Intervoz...................... 95,00 Radio Media Sales Portugal Lisbon Publex........................ 50,00 Billboards Netherlands Amsterdam
F-34 91 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA)
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- V.K.M. ....................... 50,00 Billboard Media Sales Netherlands Amsterdam REGIE 1....................... 50,00 Radio Media Sales France Paris
3 - Other activities
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- Drugstore Champs Elysees...... 100,00 Distribution France Paris Groupe Publicis Services...... 100,00 Services France Paris Farner Publicis Holding....... 100,00 Finance Switzerland Zurich
B - COMPANIES ACCOUNTED FOR BY THE EQUITY METHOD
COMPANY NAME % CONTROL ACTIVITY COUNTRY CITY - ------------ --------- ---------------------- ---------------------- ---------------------------------- Zenith Media.................. 50,00 Media United Kingdom London Somupi........................ 34,00 Billboard France Paris Sopact........................ 49,00 Billboard France Paris TCS Portugal.................. 35,00 Billboard Portugal Lisbon Metromatic.................... 50,00 Promotion Spain Madrid Promometro.................... 34,00 Promotion France Paris
29. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN FRANCE AND THE UNITED STATES The Group's consolidated financial statements are prepared in accordance with accounting principles generally accepted in France ("French GAAP") which differ from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected results of operations for each of the years in the three year period ended December 31, 1999 and shareholders' deficiency at December 31, 1999 and 1998("U.S. GAAP"). The significant differences applicable to the extentGroup are summarized in note 39 to the consolidated financial statements. /s/ KPMG AUDIT PLC ------------------------- KPMG AUDIT PLC CHARTERED ACCOUNTANTS REGISTERED AUDITOR London, England March 8, 2000 below: ACCOUNTING FOR THE BUSINESS COMBINATION WITH SAATCHI & SAATCHI PLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, ---------------------------------- Notes 1999 1998 1997 ----- ---- ---- ---- (Restated) (Restated) ---------- ---------- L million L million L million Turnover Group and share of joint ventures 2,638.7 2,606.9 2,469.6 Less: share of joint venture (680.3) (716.0) (490.9) ------- ------- ------- Group turnover 1,958.4 1,890.9 1,978.7 ======= ======= ======= Commission and fee income Ongoing businesses and share of joint ventures 432.4 384.0 397.7 Disposed businesses 10.4 33.3 1.5 Less: share of joint venture (42.1) (37.2) (21.0) ----- ----- ----- Group revenue 400.7 380.1 378.2 Operating and administrative expenses 4/5 (351.8) (334.7) (333.6) Depreciation and amortization (14.3) (14.0) (14.9) ----- ----- ----- Group operating profit 34.6 31.4 29.7 Share of operating profit in joint ventures 5.5 3.6 0.9 Profit on disposal of businesses 3/5 0.2 6.1 4.3 ---- ---- ---- Profit before interest and tax 40.3 41.1 34.9 Exceptional demerger reorganization item 5 - - 764.5 ---- ---- ----- 40.3 41.1 799.4 Net interest (payable) receivable and similar items Net dividends from CCG companies prior to the demerger - - 10.4 Joint ventures 0.9 0.3 1.1 Imputed interest (1.8) (2.0) (2.2) Other 7 (3.1) (4.6) (14.5) ----- ----- ----- Profit before taxation 36.3 34.8 794.2 Tax charge on profit 8 (11.3) (9.7) (8.2) ----- ----- ----- Profit after taxation 25.0 25.1 786.0 Minority interests (1.5) (1.5) (0.6) ----- ----- ----- Net income 23.5 23.6 785.4 Paid and proposed dividend (3.5) (3.1) (2.7) ----- ----- ----- Retained profit 20.0 20.5 782.7 ---- ---- ----- Year ended December 31, ---------------------------------- Notes 1999 1998 1997 ----- ---- ---- ---- (Restated) (Restated) --------- ---------- L million L million L million Earnings per Ordinary share 9 Basic 10.7p 10.6p 353.9p Diluted 10.2p 10.5p 352.7p
AllUnder French GAAP, the business combination with Saatchi & Saatchi was accounted for in accordance with the derogatory method under article 215 of rule 99-02 of the above figures relateComite de la Reglementation Comptable (CRC) as follows: - Assets and liabilities are recorded at historical cost less accumulated depreciation at the combination date; - The results and cash flows are combined from the acquisition date to continuing operations.year-end; The consolidated statementsderogatory method is similar to the pooling of operations haveinterests method under U.S. GAAP, except that results and cash flows are combined only from the acquisition date to the end of the period. Under U.S. GAAP, this acquisition does not qualify to be accounted for as a pooling of interests. Consequently, the transaction must be accounted for using purchase accounting principles, with Publicis Groupe S.A. being the acquiror on September 8, 2000. This gives rise to a number of differences as follows: Intangible fixed assets Goodwill has been restated followingcalculated under U.S. GAAP by comparing the adoptionfair value of FRS 12. The net interest, taxation and earnings per sharethe identifiable assets with the fair value of the consideration, including associated transaction costs. Such goodwill is being amortized over 40 years for the year ended December 31, 1997 was significantly affected by the financing and taxation profilepurposes of the Cordiant Group. In addition, operating profit inreconciliation below. Other intangible fixed assets, which comprise principally trade names and major client relationships are amortized over 7 to 40 years for purposes of the year ended December 31, 1997 does not reflect the current trading arrangements with Zenith. Accordingly, the amounts of those items included for 1997 are not representative of those which arise following the Demerger. There is no difference between the total reported results in the periods and those on an historical cost basis. See accompanying notes to consolidated financial statements.reconciliation below. F-35 SAATCHI & SAATCHI PLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ----------------------------------- 1999 1998 ---- ---- Notes (Restated) ---------- L million L million --------- --------- ASSETS Current assets: Cash and short-term deposits 51.0 30.8 Short-term investments Shares - listed overseas 11 0.6 0.2 Accounts and other receivables, prepayments and accrued income 12/13 262.6 238.9 Billable production 13 19.1 18.3 ----- ----- Total current assets 333.3 288.2 ----- ----- Investments: Treasury stock 6.8 5.6 Other 5.9 7.0 ---- ---- 14 12.7 12.6 ---- ---- Long-term receivables: Accounts and other receivables, prepayments and accrued income 12 7.6 4.5 Intangible assets net of amortization - goodwill 15 6.8 5.8 Properties, furniture, equipment and motor vehicles 16 75.9 77.3 ----- ----- Total assets 436.3 388.4 ===== ===== LIABILITIES AND SHAREHOLDERS' DEFICIENCY Current liabilities: Bank loans and overdrafts 17 17.9 4.1 Accounts payable, other liabilities and accrued expenses 18 338.9 313.1 Taxation and social security 17.6 12.7 ----- ----- Total current liabilities 374.4 329.9 ----- -----
SAATCHI & SAATCHI PLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)
December 31, ----------------------------------- 1999 1998 ---- ---- Notes (Restated) ---------- L million L million --------- --------- Long-term liabilities: Accounts payable, other liabilities and accrued expenses 18 22.7 25.0 Investment in joint venture: 19 Share of gross assets (82.2) (77.4) Share of gross liabilities 95.3 91.1 ---- ---- 13.1 13.7 ---- ---- Property, pension and other provisions 20 37.7 41.7 Long-term debt 21 40.5 47.5 Taxation and social security 21.7 24.2 Minority interests 4.5 3.5 ----- ----- Total long-term liabilities 140.2 155.6 ----- ----- Total liabilities 514.6 485.5 ----- ----- Shareholders' deficiency Share capital Allotted, called up and fully paid: 224,356,523 Ordinary shares of 10p each (1998: 222,946,716 - Ordinary shares of 10p each) 22.4 22.3 Share premium 105.2 103.9 Shares to be issued 1.8 1.6 Accumulated deficit (207.7) (224.9) ------ ------ Shareholders' deficiency (78.3) (97.1) ------ ------ Total liabilities and shareholders' deficiency 436.3 388.4 ===== =====
The consolidated balance sheet at December 31, 1998 has been restated following the adoption of FRS12. See "Consolidated Statements of Shareholder' Deficiency and Other Share Capital". See accompanying notes to consolidated financial statements. SAATCHI & SAATCHI PLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY AND OTHER SHARE CAPITAL Years ended December 31, 1997, 1998 and 1999
Accumu- lated Total Share Share Shares to Merger Goodwill earnings shareholders' Capital premium be issued reserves reserves (deficit) deficiency ------- ------- --------- -------- -------- --------- ------------- L million L million L million L million L million L million L million At January 1, 1997 22.2 102.7 - (124.9) (121.3) (915.4) (1,036.7) Profit for the year - - - - - 787.6 787.6 Proposed dividend - - - - - (2.7) (2.7) Issues of ordinary shares - - - 124.9 - - 124.9 net of expenses Elimination of goodwill - - - - 0.2 - 0.2 reserves on disposals Translation adjustment - - - - - (10.6) (10.6) At December 31, 1997 22.2 102.7 - - (121.1) (141.1) (137.3) Prior year adjustment* - - - 121.1 (121.1) - ----------- ------------ ------------ ----------- ----------- ----------- ---------------- As restated 22.2 102.7 - - (262.2) (137.3) Issues of Ordinary shares net of expenses 0.1 1.2 - - - 1.3 Shares to be issued - - 1.6 - - 1.6 Reversal of imputed employment charge - - - - 3.9 3.9 Elimination of goodwill reserves on disposals - - - - 0.6 0.6 Profit for the year - - - - 25.0 25.0 Proposed dividend - - - - (3.1) (3.1) Translation adjustment - - - - 0.2 0.2 ----------- ------------ ------------ ----------- ----------- ----------- ---------------- At December 31, 1998 22.3 103.9 1.6 - (235.6) (107.8) Prior year adjustment** - - - - 10.7 10.7 ----------- ------------ ------------ ----------- ----------- ----------- ---------------- As restated 22.3 103.9 1.6 - (224.9) (97.1) Issues of Ordinary shares net of expenses 0.1 1.3 - - - 1.4 Shares to be issued - - 0.2 - - 0.2 Reversal of imputed employment charge - - - - 3.8 3.8 Profit for the year - - - - 23.5 23.5 Dividends paid and proposed - - - - (3.5) (3.5) Translation adjustment - - - - (6.6) (6.6) ----------- ------------ ------------ ----------- ----------- ----------- ---------------- At December 31, 1999 22.4 105.2 1.8 - (207.7) (78.3)
*Following the adoption of FRS10, a prior year adjustment has been made to transfer the goodwill written-off to the profit and loss account. ** Following the adoption of FRS 12, a prior period adjustment has been made to recognise the effect of net present valuing future long term liabilities. The accumulated earnings deficit includes L120.5 million (1998: L120.5 million) of goodwill written-off against reserves. See accompanying notes to consolidated financial statements. SAATCHI & SAATCHI PLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
Year ended December 31, -------------------------------------------------------------- 1999 1998 1997 ---- ---- ---- (Restated) (Restated) ---------- ---------- L million L million L million Profit for the year 23.5 23.6 785.4 Translation adjustment (6.6) 0.2 (10.6) ---- ---- ------ Total gains recognized for the year 16.9 23.8 774.8 ==== ===== Prior year adjustment arising from the adoption of FRS 12 10.7 ---- Total recognised gains and losses since last annual report 27.6 ====
See accompanying notes to consolidated financial statements. SAATCHI & SAATCHI PLC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31, ------------------------------------- Notes 1999 1998 1997 ----- ---- ---- ---- L million L million L million Net cash inflow from operating activities 28 32.7 38.7 52.5 Dividends received from joint ventures and associates 4.2 - - Returns on investments and servicing of finance Interest received 2.0 2.3 2.1 Interest paid and similar charges (4.7) (7.1) (18.1) Dividends paid to minorities (1.0) (0.1) (0.2) ----- ----- ------ Net cash outflow from returns on investments and servicing of finance (3.7) (4.9) (16.2) ----- ----- ------ Taxation UK tax paid (1.0) (0.7) - Overseas tax paid (3.6) (3.8) (3.8) ----- ----- ------ Net tax paid (4.6) (4.5) (3.8) ----- ----- ------ Capital expenditure and financial investment Purchase of tangible fixed assets (11.3) (11.9) (12.0) Proceeds from sale of tangible fixed assets - 0.2 - Purchase of treasury stock by ESOP Trust (1.9) (4.9) - Purchase of other fixed asset investments - (0.1) (3.7) Proceeds from sale of other fixed asset investments 0.6 - ----- ----- ------ Net cash outflow from capital expenditure and (13.2) (16.1) (15.7) ----- ----- ------ financial investment Acquisitions and disposals Purchase of subsidiary undertakings 31 - (7.0) (7.9) Cash acquired with subsidiaries 31 1.4 - - Proceeds from sale of subsidiary undertakings 31 - 20.3 0.1 Cash in disposed subsidiary undertaking - (1.2) - Demerging CCG/Zenith companies (0.4) (0.9) 169.3 ----- ----- ------ Net cash inflow (outflow) from acquisitions and disposals 1.0 11.2 161.5 ----- ----- ------ Dividends Equity dividends paid (4.4) (2.7) - ----- ----- ------ Net cash inflow before use of liquid resources and financing 12.0 21.7 178.3 Management of liquid resources Disposal of current asset investments - - 17.1 ----- ----- ------ Cash inflow before financing 12.0 21.7 195.4 ----- ----- ------ Financing Issued and to be issued share capital 1.6 2.9 - (Reduction)/increase in facilities utilized (7.1) (33.7) 0.2 Loans repaid to CCG/Zenith - - (1,068.6) Loans drawn from CCG/Zenith - - 864.2 Capital element of finance lease rental payments (0.2) (0.1) (0.1) ----- ----- ------ Net cash outflow from financing (5.7) (30.9) (204.3) ----- ----- ------ Increase (decrease) in cash 29 6.3 (9.2) (8.9) === ===== ======
See accompanying notes to consolidated financial statements. SAATCHI & SAATCHI PLC AND SUBSIDIARIES92 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Preparation The accounts are prepared in accordance-- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) Contingent Value Rights In connection with applicable accounting standards and on the historical cost basis. During the year the Group has adopted the new accounting standards: FRS12 - "Provisions, Contingent Liabilities and Current Assets", and FRS13 - "Derivatives and other Financial Instruments: Disclosures". The consolidated financial statements for 1999 incorporate the financial statementsacquisition of Saatchi & Saatchi, plcthe Company issued contingent value rights (CVRs) to the former shareholders of Saatchi & Saatchi. Each CVR represents a right to receive a cash payment if the market price of Publicis shares 18 months after the acquisition date is below its level at the acquisition date, limited to a maximum payment per CVR of 10% of the market price at the acquisition date. The CVRs are actively traded on Euronext Paris. The market price of the CVRs may fluctuate significantly over the 18 month period. However, the amount ultimately paid by the Company will be determined by the market price at the end of the 18 month period in March 2002. Under French GAAP, the CVRs are considered to be an off-balance sheet commitment which is disclosed in the financial statements. Under U.S. GAAP, the fair value of the CVRs at the acquisition date is included in the cost of acquisition and allreflected as a liability in purchase accounting. Subsequent changes in the fair value of the CVRs are adjusted through earnings. Stock options In connection with the acquisition of Saatchi & Saatchi, the Company agreed to exchange Publicis shares for Saatchi & Saatchi shares obtained through the exercise of the outstanding stock options of Saatchi & Saatchi at the acquisition date. Under French GAAP, stock options are not recorded in shareholder's equity until they are exercised. For U.S. GAAP purposes the Company accounts for stock options in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," FASB Statement No. 123, "Accounting for Stock-Based Compensation," and related interpretations. To the extent options are granted by the acquiring company for outstanding vested options or options that vest upon change in control of the target company, the fair value of the new options is included as part of the purchase price and allocated to the assets acquired. The fair value of options exchanged for outstanding unvested options is also included as part of the purchase price and a portion of the unvested options intrinsic value is allocated to unearned compensation cost and amortized over the remaining vesting period. The amount of unearned compensation cost is deducted from the fair value of the options in determining the allocation of the purchase price. BUSINESS COMBINATIONS Accounting for goodwill Under French GAAP, goodwill is generally capitalized and amortized over its subsidiary undertakingsestimated useful life. However, goodwill arising from an acquisition completed in 1993 paid for by issuing new shares was written off through shareholders' equity under previous French accounting guidance. Under U.S. GAAP, goodwill is capitalized and joint ventures made up to December 31, 1999. The consolidatedamortized over its estimated useful life, not exceeding 40 years. Accounting for compensation arrangements In the French financial statements, certain compensation arrangements with employees of acquired companies have been recorded as additional purchase price in purchase accounting. Under U.S. GAAP, to the extent that the compensation is related to continuing employment with the Group, it is recorded as compensation expense in the periods in which it is earned. F-36 93 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) STOCK COMPENSATION Under French GAAP stock options are recorded in common stock and additional paid-in capital when the options are exercised. Under U.S. GAAP, the Company accounts for 1997 were preparedstock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," FASB Statement No. 123, "Accounting for Stock-Based Compensation," and related interpretations. When stock options are granted to employees, directors, consultants or non-employees with an exercise price inferior to the fair value of the underlying shares at the date of grant, the resulting premium is immediately reflected in shareholders' equity. This premium is offset in shareholders' equity by an equivalent deferred compensation amount. Therefore, there is no impact on total shareholders' equity. The deferred compensation amount is amortized as compensation expense in the following basis:income statement over the vesting period of the options. VALUATION OF MARKETABLE SECURITIES AND INVESTMENT SECURITIES In accordance with French regulations, the Group's policy is to value marketable securities, on a portfolio basis, at the lower of aggregate cost and market value. Investment securities are stated at cost and an agreement dated December 14, 1997 providingallowance is recorded when recoverable value, based upon management's analysis of the specific nature of each investment, appears to be permanently less than carrying value. Allowances can be subsequently reversed if the estimated recoverable value of the investment increases. Unrealized gains on marketable securities and investment securities are not recognized, and, in general, the market value of publicly traded marketable securities and investment securities is determined based on the average quotations for the demergermonth preceding the end of the year. Under U.S. GAAP (SFAS 115), marketable securities and investment securities are divided into three categories: trading (used as part of a company's cash management activities), held-to-maturity (company has positive intent and ability to hold the securities to maturity) and available-for-sale (all other securities). All Publicis' investment and marketable securities are considered to be available-for-sale and reflected at market value on the closing date on the face of the balance sheet. All unrealized gains and unrealized losses that are temporary are recorded as a separate component of shareholders' equity. Unrealized losses which are other than temporary are charged to income and any write-down is considered permanent. ACCOUNTING FOR PROVISIONS Under U.S. GAAP, provisions for loss contingencies are recorded if available information indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and the amount of loss can be reasonably estimated. Certain provisions recorded in the French financial statements do not qualify as provisions for loss contingencies under U.S. GAAP. FOREIGN CURRENCY TRANSLATION For purposes of the French financial statements through December 31, 1999, the Group converted the income statement into euros at year-end exchange rates. Under U.S. GAAP, income statement amounts in foreign currencies are converted at average exchange rates for the year. F-37 94 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) Following the Saatchi & Saatchi group, Cordiant plc transferredacquisition and other U.S. GAAP adjustments described above, the consolidated balance sheets as presented under U.S. GAAP at December 31, 2000 and December 31, 1999 are as follows:
DECEMBER 31, -------------- 2000 1999 (IN MILLIONS) E E - ------------- ----- ----- ASSETS Goodwill, net............................................... 2,297 283 Intangible assets, net...................................... 1,353 20 Property and equipment, net................................. 342 129 Deferred income taxes....................................... 4 -- Investments and other financial assets, net................. 60 28 Investments accounted for by the equity method.............. 7 7 ----- ----- TOTAL NON-CURRENT ASSETS, NET............................... 4,063 467 Inventory and costs billable to clients..................... 129 49 Accounts receivable......................................... 1,770 1,002 Other receivables........................................... 384 241 Deferred income taxes....................................... 11 7 Marketable securities....................................... 314 284 Cash and cash equivalents................................... 429 273 ----- ----- CURRENT ASSETS.............................................. 3,037 1,856 ----- ----- TOTAL ASSETS................................................ 7,100 2,323 ===== =====
DECEMBER 31, -------------- 2000 1999 (IN MILLIONS) E E - ------------- ----- ----- LIABILITIES AND SHAREHOLDERS' EQUITY Capital stock............................................... 53 36 Additional paid-in capital.................................. 2,322 117 Retained earnings........................................... 167 346 Treasury stock.............................................. (34) (71) Accumulated other comprehensive income...................... 114 152 ----- ----- SHAREHOLDERS' EQUITY........................................ 2,622 580 Minority interests.......................................... 77 51 Long-term debt and capital lease obligations, less current portion................................................... 184 -- Deferred income taxes....................................... 576 35 Provisions for contingencies and charges.................... 240 40 Current portion of long-term debt and capital lease obligations............................................... 451 -- Short-term borrowings and overdrafts........................ 266 217 Accounts payable............................................ 1,590 872 Accrued expenses and other liabilities...................... 1,094 528 ----- ----- CURRENT LIABILITIES......................................... 3,401 1,617 ----- ----- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 7,100 2,323 ===== =====
F-38 95 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) The components of shareholders' equity for U.S. GAAP purposes as of December 31, 2000 and 1999 are as follows:
DECEMBER 31, --------------- 2000 1999 (IN MILLIONS) E E - ------------- ----- ---- Share capital............................................... 53 36 Additional paid-in capital.................................. 2,322 117 Retained earnings........................................... 167 346 Treasury stock.............................................. (34) (71) ACCUMULATED OTHER COMPREHENSIVE INCOME: Unrealized gains on securities.............................. 156 151 Foreign currency translation adjustment..................... (42) 1 ACCUMULATED OTHER COMPREHENSIVE INCOME:..................... 114 152 ----- --- Total shareholders' equity as adjusted for U.S. GAAP........ 2,622 580 ===== ===
RECONCILIATION OF NET INCOME AND COMPREHENSIVE INCOME TO U.S. GAAP Under U.S. GAAP, Publicis has adopted SFAS 130, Reporting Comprehensive Income. Statement 130 establishes standards for reporting and displaying comprehensive income and its sharecomponents; however, the adoption of this Statement has no impact on net income or shareholders' equity. Statement 130 requires unrealized gains or losses on available-for-sale securities and the foreign currency translation adjustments, which prior to adoption were reported separately in its wholly owned subsidiary Saatchi & Saatchi Holdings Limitedshareholders' equity to Saatchi & Saatchi plc.be included in other comprehensive income. Comprehensive income is reported in the reconciliation table of net income to U.S. GAAP and in the components of shareholders' equity for U.S. GAAP purposes. F-39 96 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) The considerationfollowing is a reconciliation of net income as reported in the consolidated statements of income to net income and comprehensive income as adjusted for this transfer was satisfiedthe approximate effects of the application of U.S. GAAP for the periods ended December 31, 2000 and 1999:
DECEMBER 31, -------------- 2000 1999 (in millions, except per share data) E E - ------------------------------------ ----- ----- Net income as reported in the consolidated statement of income.................................................... 128 74 Adjustments to conform to U.S. GAAP Amortization expense on goodwill written-off to equity...... (1) (1) Compensation arrangements................................... (4) -- Accounting for provisions................................... (17) 2 Foreign currency translation................................ -- (2) ----- ----- 106 73 Adjustments related to the business combination with Saatchi & Saatchi: Amortization expense on tangible assets, intangible assets and goodwill -- Saatchi & Saatchi......................... (32) -- Contingent value rights..................................... (46) -- Stock compensation -- Saatchi & Saatchi..................... (3) -- ----- ----- Total adjustments -- Saatchi & Saatchi...................... (81) -- Tax effect of above adjustments............................. 9 -- ----- ----- Net income as adjusted for U.S. GAAP........................ 34 73 ===== ===== Earnings per share as adjusted for U.S. GAAP - Basic................................................ E0.31 E0.84 - Fully diluted........................................ E0.31 E0.83 Net income as adjusted for U.S. GAAP........................ 34 73 Other comprehensive income Unrealized gains on available for sale securities........... 6 81 Foreign currency translation adjustment..................... (43) (2) ----- ----- Comprehensive (loss) income................................. (3) 152 Income tax effect on comprehensive income................... 1 (15) ----- ----- Comprehensive (loss) income, net of tax..................... (2) 137 ===== =====
F-40 97 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) Certain elements of the consolidated statement of income have been classified as non-operating expenses although they would have been considered as operating expenses under U.S. GAAP. The consolidated statement of income prepared under U.S. GAAP reflecting all of the above reconciling items is presented as follows:
DECEMBER 31, -------------- In millions of euros 2000 1999 - -------------------- ---- ----- REVENUES.................................................... 1,770 1,042 Salaries and related expenses............................... (991) (576) Office and general expenses................................. (470) (291) Depreciation and amortization............................... (124) (51) Other operating income...................................... -- 14 OPERATING INCOME............................................ 185 138 Interest (expense) income, net.............................. (11) 9 Other income (expense), net................................. (31) 10 ----- ----- Income before income taxes.................................. 143 157 Income taxes................................................ (83) (65) ----- ----- Income after income taxes................................... 60 92 Equity in net income of non-consolidated companies.......... 5 2 Minority interests.......................................... (31) (21) ----- ----- NET INCOME.................................................. 34 73 ===== =====
F-41 98 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) RECONCILIATION OF SHAREHOLDERS' EQUITY TO U.S. GAAP The following is a reconciliation of shareholders' equity as reported in the consolidated balance sheet to shareholders' equity as adjusted for the approximate effects of the application of U.S. GAAP as of December 31, 2000 and 1999:
AS OF DECEMBER 31, ------------ 2000 1999 (IN MILLIONS) E E - ------------- ----- ---- Shareholders' equity as reported in the consolidated balance sheet..................................................... 299 345 Adjustments to conform to U.S. GAAP Goodwill written-off to equity, gross....................... 54 54 Accumulated amortization on goodwill written-off to equity.................................................... (9) (8) Compensation arrangements................................... (4) -- Valuation of marketable securities.......................... 192 186 Accounting for provisions................................... 13 30 Other....................................................... -- 8 ----- --- 545 615 Adjustments related to the business combination with Saatchi & Saatchi: Saatchi & Saatchi business combinations recorded as a purchase under U.S. GAAP.................................. 2,016 -- Contingent value rights..................................... (46) -- Stock options -- Saatchi & Saatchi.......................... 152 -- ----- --- Total adjustments -- Saatchi & Saatchi...................... 2,122 -- Tax effect of above adjustments............................. (45) (35) ----- --- Shareholders' equity as adjusted for U.S. GAAP.............. 2,622 580 ===== ===
RECENT ACCOUNTING PRONOUNCEMENTS Derivatives In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The standard, as amended by Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133, and Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133 (referred to hereafter as "FAS 133"), is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending on the type of hedging relationship. The Company will adopt FAS 133 on January 1, 2001. As the use of derivative financial instruments by the issue to Cordiant plc shareholdersCompany is limited, the impact of one Ordinary sharethe adoption of 10p each in Saatchi & Saatchi plc, credited as fully paid, for each Ordinary share in Cordiant plc. TheFAS 133 on the consolidated financial statements comprise the financial statements of the Company and its subsidiary undertakings (collectively the Group).is not expected to be material. F-42 99 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) OTHER U.S. GAAP DISCLOSURES Consolidated statement of cash flows The consolidated financial statements werestatement of cash flows prepared using merger accounting principlesunder French GAAP presents substantially the same information as ifthat required under U.S. GAAP but they differ with regard to the companies, businessesclassification of items within them and assets comprisingas regards the Group had been partdefinition of net cash under French GAAP and cash and cash equivalents under U.S. GAAP. A reconciliation of cash under French GAAP to cash and cash equivalents under U.S. GAAP is presented as follows:
DECEMBER 31, ------------ 2000 1999 (IN MILLIONS) E E - ------------- ---- ---- Net cash under French GAAP.................................. 263 137 Less: Marketable securities................................. (100) (76) Add: Bank overdrafts........................................ 266 212 ---- ---- Cash and cash equivalents under U.S. GAAP................... 429 273 ==== ====
The cash flows under U.S. GAAP can be summarized as follows:
DECEMBER 31, ------------ 2000 1999 (IN MILLIONS) E E - ------------- ---- ---- Cash provided by operating activities....................... 204 178 Cash used in investing activities........................... (679) (151) Cash provided by financing activities....................... 626 20 Effect of exchange rate changes on cash and cash equivalents............................................... 5 -- ---- ---- Increase in cash and cash equivalents....................... 156 47 Cash and cash equivalents at beginning of year.............. 273 226 ---- ---- Cash and cash equivalents at end of year.................... 429 273 ==== ====
A breakdown of the Groupchange in net working capital requirements is as follows:
DECEMBER 31, ------------ 2000 1999 (IN MILLIONS) E E - ------------- ---- ---- Changes in operating assets and liabilities: Accounts receivable and other receivables................... (217) (324) Inventory and costs billable to clients..................... 4 1 Accounts payable and other current liabilities.............. 194 369 ---- ---- Change in working capital requirements...................... (19) 46 ==== ====
F-43 100 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) Supplemental cash flow information for the whole of 1997, or, in the case of those companies, business and assets disposed of or acquired by Cordiant plc during this period up to or from the date control passed, as appropriate. This basis of accounting was adopted in order to show a true and fair view. As part of the demerger restructuring, some subsidiary undertakings were themselves subject to reorganization prior to the transfer. Schedule 4A to the Companies Act 1985 and FRS6 - "Acquisitions and Mergers" required such transfers to be accounted for using acquisition accounting principles. The effect of applying acquisition accounting principles to these subsidiary undertakings and businesses would have been to restate at fair value certain assets and liabilities transferred and to recognize any resulting goodwill. The Directors considered that applying acquisition accounting to any part of the reorganization of the Group's businesses, with consequent adjustments to the fair values of the related assets and liabilities, would have failed to give a true and fair view of the Group's state of affairs and results for the shareholders since they have had a continuing interest in the Group's business both before and after demerger. Had this departure not been necessary the effect on these accounts would have been to consolidate the accounts of the subsidiary undertakings based on the fair values of the related assets at December 14, 1997 and to present the results of the Group for the period from December 14, 1997 toyears ended December 31, 1997. Owing to the number2000 and complexity1999 is as follows:
DECEMBER 31, ------------ 2000 1999 (in millions) E E - ------------- ---- ---- Interest paid............................................... 1 9 Income taxes paid........................................... 53 30
Use of transactions involved, it was not practicable to quantify the effect of this departure. Note 2 - Principal Accounting Policiesestimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires the Company's management (as is the case with the management of all companies) to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following paragraphs describeConcentration of credit risk Credit limits, ongoing credit evaluation and account monitoring procedures are utilized to minimize the significant accounting policies usedrisk of loss. Collateral is generally not required. Expected losses are provided for currently and actual losses have been within management's expectations. Acquisitions In September 2000, Publicis acquired 100% of the outstanding shares of Saatchi & Saatchi plc, a UK company specialized in preparing the consolidated financial statements. (a) Income Recognition Turnover represents gross billings to clients which are reduced by direct costs ofmultinational advertising and other related costs to arrive at commission and fee income. Commission and fee income is recognized generally when work is billed to clients and excludes sales taxes and intra group transactions. Billings are usually rendered upon presentation date for media advertising and upon the completion of radio, television and print production. (b) Revenue Revenue represents the fees and commissions, excluding sales taxes, from services provided to clients, and is recognized generally when work is billed. The two largest clients of the Group accounted for 32.9% of Group revenue in 1999 (1998: 31.1%; 1997: 27.5%). (c) Property Provisions Provision is made at net present value for the future rent expense and related costs of leasehold property (net of estimated sublease income) where the property is sublet or vacant and currently not planned to be used for continuing operations. (d) Pension Costs Retirement benefits for employees of most companies in the Group are provided by either defined contribution or defined benefit schemes which are funded by contributions from Group companies and employees. The Group's share of contributions to defined contribution schemes is charged against profits of the year for which they are payable and the cost of providing defined benefits is charged against the profit, in accordance with the recommendations of independent actuaries, in such a way as to provide for the liabilities evenly over the remaining working lives of the employees. (e) Leases Where the Group enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease ismarketing services. For U.S. GAAP purposes, this acquisition has been treated as a finance lease.purchase. Saatchi & Saatchi has been fully consolidated since September 8, 2000. Total consideration paid in stock for Saatchi & Saatchi amounted to E1,883 million (43,889,149 shares), resulting in additional goodwill of E1,442 million which will be amortized under the straight-line method over 40 years. The asset is recorded in the balance sheet as a tangible fixed asset and is depreciated over the shorter of its estimated useful life and the lease term. Future installments under such leases, net of finance charges, are included in creditors. Rentals payable are apportioned between the finance element, which is charged to the profit and loss account as interest, and the capital element which reduces the outstanding obligation for future installments. All other leases are operating leases and the rental charges are taken to the profit and loss account on a straight-line basis over the lifecomponents of the lease. (f) Goodwill Purchased goodwill arising on acquisitions after January 1, 1998 including any additional goodwill estimated to arise from future consideration, is capitalizedpurchase price and amortized in the statement of operations over the estimated useful life of not more than twenty years. Prior to January 1, 1998 goodwill in respect of acquisitions was written off directly to reserves. A charge is recognized in the Group's statement of operations in respect of any impairment in the value of acquisition goodwill. Goodwill written off directly to reserves and not previously charged to the Group's statement of operations is included in determining the profit or loss on disposal. (g) Tangible fixed assets Tangible fixed assets are stated at historical costs less accumulated depreciation. Additions, improvements and major renewals are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. The cost of tangible fixed assets less estimated residual value is written off by equal annual installments over the expected useful lives of the assets as follows: Freehold buildings and long leasehold properties 50 years Short leasehold properties Period of lease Furniture and equipment Between 4 and 10 years Motor vehicles 4 years (h) Investments Except as stated below, fixed asset investments are shown at cost, less amounts provided for any permanent diminution in value. The Group's share of the profits less losses of associated undertakings, including joint ventures, is included in the statement of operations and the Group's share of the investment is shown in the consolidated balance sheet. The Group's share of the profits less losses and net assets or liabilities is based on current information produced by the undertakings, adjusted to conform with the accounting policies of the Group. (i) Billable Production Billable production is valued at the lower of cost and net realizable value, and comprises mainly outlays incurred on behalf of clients. (j) Short-Term Investments Short-term investments, including money market investments, are valued individually at the lower of market value on date of receipt or net realizable value at the balance sheet date. No credit is taken in the financial statements for any increase in market value at the balance sheet date. (k) Deferred Taxation Deferred taxation is provided at anticipated tax rates on timing differences arising from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the consolidated financial statements, to the extent that it is probable that a liability or asset will crystallize. No provision is made for deferred tax on unremitted overseas earnings unless the Company expects them to be remitted. (l) Discounting Where provisions have been made relating to future cash outflows, the time value of money has been recognised by discounting the future payments to net present values. The unwinding of the discount is shown as imputed interest in the financial items of the Profit & Loss Account. (m) Foreign Currencies Statements of operations and cash flow statements in foreign currencies are translated into sterling at the average rates during the year, with the year end adjustment to closing rates being taken to reserves. Assets and liabilities in foreign currencies are translated using the rates of exchange ruling at the balance sheet date. Gains and losses on retranslation of the opening net assets of overseas subsidiaries are taken to shareholders' deficiency. Exchange differences arising from the retranslation of long-term foreign currency borrowings used to finance foreign currency investments are also taken to shareholders' deficiency. All other exchange differences are taken to the statement of operations. The Groups principal trading currencies and the exchange rates used against pounds sterlingpreliminary allocations are as follows:
Average Rate Closing Rates Year Ended December 31, December 31, ----------------------- ------------- 1999 1998 1997 1999 1998(E millions) - ------------ Consideration and acquisition costs: Stock exchanged for Saatchi & Saatchi stock................. 1,883 Fair value of options exchanged............................. 152 Fair value of contingent value rights....................... 50 Acquisition costs........................................... 11 ----- 2,096 =====
(E millions) - ------------ Australian Dollar 2.51 2.64 2.21 2.46 2.71 French Franc 9.89 9.76 9.55 10.55 9.29 German Mark 2.95 2.91 2.84 3.15 2.77 Italian Lira 2,911 2,877 2,790 3,125 2,743 New Zealand Dollar 3.05 3.09 2.48 3.09 3.15 US Dollar 1.62 1.66 1.64 1.61 1.66Preliminary allocation of purchase price: Property and equipment...................................... 12 Acquired intangibles........................................ 1,401 Goodwill.................................................... 1,442 Net liabilities assumed and other........................... (759) ----- 2,096 =====
Note 3 - Acquisitions, DisposalsF-44 101 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) Purchase accounting for the acquisition of Saatchi & Saatchi is still being finalized as of December 31, 2000, as the Company is awaiting information concerning former Saatchi & Saatchi loss carryforwards. In January 2000, Publicis acquired 100% of Frankel and Deferred Capital Payments Where applicableCompany, an independent American agency specialized in marketing services. This acquisition was accounted for as a purchase. Frankel has been fully consolidated since January, 2000 and goodwill resulting from this Note translations from foreign currencies are made atacquisition is amortized using the rates at whichstraight-line method over 40 years. In February 2000, the transactions were concluded. Acquisitions Effective 1 January 1999Company acquired 100% of Fallon, an independent agency in the Group acquired a majority stake in Nazca Holdings, Inc. (a Puerto Rican company). Nazca Holdings Inc. held investments in Brazil, Mexico, Puerto Rico and Venezuela. The Group's interest increased to 75% of the Nazca group of companies in return for funding up to a maximum of US $7.0 million.United States. This transaction was accounted for as ana purchase and Fallon has been fully consolidated since February 2000 and Goodwill resulting from this acquisition and no material adjustments were made upon consummation. During 1998is amortized using the straight-line method over 40 years. The Group acquired 100% of Nelson Communications, an American company specialized in advertising communications for the health industry. This transaction was financed in part by an exchange of stock (6.7 million shares). Nelson has been fully consolidated since November 2000 and goodwill resulting from this acquisition is amortized using the straight-line method over 40 years. In addition to the above acquisitions, Publicis completed more than 10 small and medium-size purchase business combinations in the United States, Europe and assets of GMG Marketing Services,Latin America, in general advertising and marketing services. Total consideration for these acquisitions in 2000 amounted to approximately E677 million. During 1999, Publicis completed more than 15 small and medium-size purchase business combinations in the United States, Europe, the Asia/Pacific region and Latin America, in general advertising and marketing services, for a US based co-marketing company for an initialtotal consideration of L3.1 million and further deferred consideration due of L1.5E 85 million in 2001, dependent on performance. In addition,cash. Pro-forma information regarding the Group increased its shareholding to 80% in Sista Saatchi & Saatchi Advertising PVT Limited, a company based in Indiaacquisition The following pro forma information for a cash payment of L1.1 million. Further the Group acquired 51%years ended December 31, 2000 and 1999 presents the effect of the share capitalacquisition of Dialog-Team Fienhold Agentur fur Dialog-Marketing GmbH, a company based in Germany for a cash payment of L0.2 million. Goodwill arising on the 1998 acquisitions amounted to L6.0 million of which L0.7 million and L0.2 million was charged to the statement of operations in 1999 and 1998, respectively. Disposals In 1999 the Group disposed of its interest in Cliff Freeman & Partners for a consideration of US$4.6 million (L2.8 million) which resulted in a profit on disposal of L1.0 million. The closure and divestiture of businesses in Japan, Belgium and the Czech Republic, net of a partial release of a provision upon the subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8 million. In 1998 the Group disposed of its interest in Siegel & Gale for US$33.8 million (L20.3 million) which resulted in a profit on disposal of L8.6 million. The closure and divestiture of businesses in Germany, Ireland, Norway and Spain, together with the reduction of shareholding in South Africa, resulted in a loss of L2.5 million. The 1997 profit on disposal of businesses arose from the profit on sale of the IPG stock, issued to Saatchi & Saatchi, followingthe most significant acquisition of Publicis, as if it had occurred as of the beginning of the respective period. The pro forma financial information is based on the historical financial statements of Publicis and Saatchi & Saatchi.
FRENCH GAAP U.S. GAAP YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ------------- ------------- 2000 1999 2000 1999 (in millions, except per share data) E E E E - ------------------------------------ ----- ----- ----- ----- (UNAUDITED) (UNAUDITED) Pro forma Revenues................................ 2,231 1,687 2,231 1,687 Pro forma Group Net income........................ 157 121 12 43 Pro forma Basic earnings per share................ E1.16 E0.94 E0.09 E0.33 Pro forma diluted earnings per share.............. E1.13 E0.91 E0.09 E0.32
Restructuring charges The Company has accrued liabilities for restructuring charges to be incurred related to the Saatchi & Saatchi acquisition. The liabilities relate primarily to the acquisition of Draft Direct (formerly KobsSaatchi & Draft Worldwide) by IPGSaatchi consummated in 1996. Deferred Capital PaymentsSeptember 2000. The Company began to formulate a restructuring plan at the acquisition date which included the closing of the Saatchi & Saatchi headquarters in London and New York, the closing of Saatchi & Saatchi offices in certain locations and the consolidation of Saatchi & Saatchi and Saatchi Group is committed to make certain capital paymentsPublicis facilities in other locations. Costs included in the formrestructuring liabilities consist primarily of deferred considerationinvoluntary termination benefits for former Saatchi & Saatchi employees and to acquire certain minority interests in subsidiary undertakings. Effective June 30, 1998 the Group acquired certain assetsrelocation costs. F-45 102 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) Long-term debt Future minimum payments as of December 31, 2000, on long-term debt, excluding capital leases, are as follows:
AMOUNT (IN MILLIONS YEAR OF E) - ---- ------------ 2001........................................................ 450 2002........................................................ 75 2003........................................................ 48 2004........................................................ 36 2005........................................................ 21 Thereafter.................................................. -- ---- Less: Current maturities.................................... (450) ---- 180 ====
Shareholders' equity Publicis' capital stock consists of 138,219,819 and liabilities comprising GMG Co-Marketing. In accordance with FRS 10, a provision was made94,259,960 ordinary shares issued and outstanding at December 31, 19982000 and 1999, respectively with a par value of E0.40. This amount includes shares held in respecttreasury of future anticipated payments dependant upon GMG's performance through June 2002. During4,181,920 at and 871,309 at December 31, 2000 and 1999. At the 1999 reviewExtraordinary General Meeting of Shareholders on August 29, 2000, the acquisition, management determined thatshareholders approved a L1.5 million revision to the provisional estimate10-for-1 stock split. The number of deferred compensation be made. Commitments totaling Lnil and L1.5 millionshares outstanding at December 31, 1999 and 1998 respectively, in respecthas been adjusted to reflect this stock split. Employee stock option plans The Company grants stock options through employee stock option plans. Under the 1987 and 1991 stock option plans, options are granted for a fixed number of deferred consideration relatingshares to employees with an exercise price equal to 80% of the fair value of the shares at the date of grant. Under the plans, the options vest immediately and expire 10 years after the date of grant. Under the 2000 stock option plan, options are granted for a fixed number of shares to employees with an exercise price equal to the acquisitionfair value of GMG Marketing Services were accrued in the Group balance sheet. Note 4 - Operatingshares at the date of grant. Under this plan, the options vest ratably over a three-year period and Administrative Expenses Operating and administrative expenses from continuing operations includedexpire five years after the following:
Year ended December 31, ------------------------------------------ 1999 1998 1997 ---------- --------- --------- L million L million L million Staff and other associated costs (including exceptional items) see Notes 5 and 6 218.9 212.0 201.4 Hire of plant and machinery - operating leases see Note 27) 1.0 0.9 1.1 Hire of other assets - leasehold property net of sublease income (see Note 27) 21.4 21.3 22.1 Profit on sale of tangible fixed assets (0.2) (0.2) - Auditor's remuneration, including expenses 1.1 1.2 1.0 Auditor's remuneration, other than audit fees 0.2 0.2 0.1 Other administrative expenses, (including exceptional items) - see Note 5 109.4 99.3 107.9 ----- ----- ----- 351.8 334.7 333.6 ===== ===== =====
Note 5 - Exceptional Non-Operating Items
Year ended December 31, ------------------------------------------ 1999 1998 1997 ---- ---- ---- L million L million L million Fundamental reorganization - demerger - - 764.5 Profit on disposal of businesses including goodwill 0.2 6.1 4.3 --- --- ----- Total profit outside operating profit 0.2 6.1 768.8 === === =====
In 1999date of grant. Under the Group disposed of its interest in Cliff Freeman & Partnersformer Publicis Communication stock option plan, options are granted for a considerationfixed number of US$4.6 million (L2.8 million) which resulted in a profit on disposal of L1.0 million. The closure and divestiture of businesses in Japan, Belgium andshares to employees with an exercise price equal to the Czech Republic, netfair value of the partial releaseshares at the date of a provision upongrant. Under this plan, the sublettingoptions vest immediately and expire 10 years after the date of the Siegel & Gale UK offices, resulted in a loss of L0.8 million. In 1998 the Group disposed of its interest in Siegel & Gale for US$33.8 million (L20.3 million) which resulted in a profit on disposal of L8.6 million. The closure and divestiture of businesses in Germany, Ireland, Norway and Spain, together with the reduction of shareholding in South Africa, resulted in a loss of L2.5 million. In order to implement the Demerger in 1997, intergroup indebtedness between Saatchi & Saatchi and CCG/Zenith had to be eliminated and cross holding investments transferred. This was carried out predominantly by sale, settlement, assignment and waiver and resulted in an exceptional gain of L770.6 million in 1997. This was partly offset by an additional property provision of L6.1 million, which arose asgrant. As a result of the Demergermerger of Publicis Communication into Publicis S.A. on December 11, 1998, Publicis S.A. took over 623,970 stock options authorized and represented the difference between the rental payablegranted by Saatchi & SaatchiPublicis Communication and the amounts receivable from Zenith for space subletconverted them into 935,960 stock options to them. The 1997 profit on disposalpurchase shares of businesses arose from the profit on salePublicis S.A. F-46 103 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) A summary of the IPGstatus of the Company's stock issuedoption plans as of December 31, 2000, 1999 and 1998 and changes for the three years then ended, is presented below (reflects 10 to Saatchi & Saatchi, following the acquisition of Draft Direct by IPG in 1996. Note 6 - Employees1 stock split occurring on August 29, 2000): Year ended December 31, ----------------------------------------
2000 1999 1998 1997 ---- ---- ---- Average number of employees of the Company by geographic area: North America 1,842 1,847 1,870 United Kingdom 782 812 855 Continental Europe, Africa & Middle East 1,119 1,368 1,428 Latin America 235 - - Asia Pacific 1,311 1,179 1,103 ----- ----- ----- Average number of employees 5,289 5,206 5,256 ===== ===== ===== L million L million L million Salaries and related costs Wages and salaries 190.6 185.1 178.5 Social security costs 18.0 15.7 15.8 Pension costs 6.5 7.3 7.1 Equity Participation Plan Charge 3.8 3.9 - ----- ----- ----- 218.9 212.0 201.4 ===== ===== =====
Note 7 - Net Interest (Payable) Receivable and Similar Items
Year ended December 31, ---------------------------------------- 1999 1998 1997 ---- ---- ---- L million L million L million External Interest Interest payable and similar charges: On bank loans, overdraft facilities and other loans required to be repaid within five years (4.3) (6.2) (8.6) Bank fees (0.8) (0.7) (2.2) ----- ----- ----- (5.1) (6.9) (10.8) Interest receivable and similar items Cash and deposits 2.0 2.3 2.3 Foreign Exchange - - 1.4 Net interest payable to CCG and Zenith - - (7.4) ----- ----- ------ (3.1) (4.6) (14.5) ===== ===== ======
The above finance charge for the year ended December 31, 1997 were not representative of the charges that are incurred by the Group following the Demerger. There is a gain of L1.4 million included in the net interest expense for the year ended December 31, 1997, which is the recognition of exchange differences arising on loans from subsidiaries to parent companies. Note 8 - Taxes on Income Taxes on income were made up as follows:
Year ended December 31, -------------------------------------------------------- 1999 1998 1997 ---- ---- ---- L million L million L million (Restated) UK corporation tax at 30.25% (1998: 31.0%; 1997: 31.5%): Currently payable 0.1 1.9 0.8 Deferred - - 0.2 Relief for overseas tax (0.2) (0.3) (0.4) ----- ----- ----- (0.1) 1.6 0.6 Overseas taxation: Currently payable 9.1 7.3 6.9 Deferred 0.2 (0.5) 0.1 Share of tax charge of associated undertakings 2.1 1.3 0.6 ----- ----- ----- 11.3 9.7 8.2 ===== ===== =====
There was no tax effect of the operating and non-operating exceptional items in 1999 (1998: Lnil; 1997: Lnil). The taxation charge represents the sum of the tax charges of the legal entities forming part of the Group. These charges may have been affected by the surrender of losses between the members of the Group and CCG. Consequently, and for other similar reasons, the taxation charge in the year ended December 31, 1997 is not representative of the taxation charge that will be incurred by the Saatchi & Saatchi Group following the Demerger. Profit/(loss) before taxation is analyzed as follows: Year ended December 31, ---------------------------------------------- 1999 1998 1997 -------- -------- ------- (Restated) (Restated) -------- ---------- ---------- L million L million L million United Kingdom* 12.4 10.5 842.1 Overseas 23.9 24.3 (43.7) ---- ---- ------ 36.3 34.8 794.4 ==== ==== ===== * After payment of interest of L0.4 million (1998: L0.7 million payment; 1997: L1.1 million receipt). The analysis of profit before taxation for 1997 is not considered to be meaningful by the Directors, because of the exceptional Demerger reorganization credit of L764.5 million which arose in the period. At December 31, 1999 Saatchi & Saatchi had L301 million of operating loss carryforwards expiring between 2000 and 2011. Additionally, Saatchi & Saatchi had L7 million of operating loss carryforwards which had no expiration date. It is possible that all or part of the operating loss carryforwards expiring between 2000 and 2011 may be restricted or eliminated under any of several statutory/regulatory provisions or judicially-created doctrines. Moreover, the operating loss carryforwards are generally only available to offset future income of the Saatchi & Saatchi Group within the tax jurisdiction where the operating loss arose, and are not transferable between jurisdictions. Note 9 - Earnings Per Ordinary Share Basic earnings per share have been calculated using earnings of L23.5 million (1998 restated: L23.6 million; 1997: L785.4 million) and weighted average shares in issue of 219.7 million shares (1998: 221.9 million shares; 1997: 221.9 million shares). The number of shares in issue has been reduced, for both basic and diluted earnings calculations, by the weighted average number of the shares acquired by the Sharesave Trust which has substantially waived its rights to dividends on these shares. Diluted earnings per share have been calculated using the same earnings on a weighted average of 230.3 million shares (1998: 224.1 million shares; 1997: 222.7 million shares). This takes into account the exercise of share options issued to Group employees and employees of Zenith, and contingently issuable shares to the extent that conditions have been met, which may be issued to Group employees and employees of Zenith, where these are expected to dilute earnings. The earnings per share for 1997 are based on the Directors' estimated weighted average number of shares which would have been in issue for that year after taking into account the share consolidation and assuming that the Company had at all relevant times prior to the Demerger the same number of issued Ordinary shares as Cordiant.
Year ended December 31, ------------------------------------------------------------------------------- 1999 1998 1997 (Restated) (Restated) ------------------------ ------------------------ ----------------------- pence per share pence per share pence per share L million L million L million Earnings 23.5 10.7 23.6 10.6 785.4 353.9 Profit on disposal of (0.2) (0.1) (6.1) (2.7) ----- ----- ----- ----- businesses Adjusted earnings 23.3 10.6 17.5 7.9 ==== ==== ==== ===
In the opinion of the Directors the additional earnings per share information given above assists in understanding the performance of the Group. Owing to the impact of interest and taxation on profit for the year ended December 31, 1997, which is not representative of the charges incurred by the Saatchi & Saatchi Group following the Demerger, earnings per share in the year ended December 31, 1997 is not indicative of earnings per share following the Demerger. Note 10 - Dividend The Board has recommended a final dividend of 1.0p per Ordinary share (1998: 1.4p; 1997: 1.2p) at a cost of L2.2 million. The final dividend was paid on May 19, 2000 to shareholders on the register at April 14, 2000. There was an interim dividend of 0.6p declared and paid in 1999 (1998: nil; 1997: nil) at a cost of L1.3 million (1998: nil; 1997: nil). Note 11 - Short-term Investments Short-term investments comprised overseas listed investments of L0.6 million (1998: L0.2 million) with an aggregate market value of L1.0 million (1998: L0.2 million). Note 12 - Accounts and Other Receivables, Prepayments and Accrued Income December 31, 1999 1998 ---- ---- L million L million DUE WITHIN ONE YEAR Trade receivables 232.5 206.8 Other receivables 11.0 9.8 Prepayments and accrued income 17.7 19.4 Amounts due from joint venture 1.4 2.9 --- ------ 262.6 238.9 ===== ===== DUE AFTER ONE YEAR Other receivables 6.0 2.6 Prepayments and accrued income 1.6 1.9 --- --- 7.6 4.5 === === Total prepayments and accrued income at December 31, 1999 amounted to L19.3 million (1998: L21.3 million). Note 13 - Valuation and Qualifying Accounts
Additions Balance at charged to Balance at beginning of costs and end of Description period expenses Deductions* period ----------- ------ --------------------------- ---------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- --------- ---------- ------ L million L million L million L million Year ended December 31, 1999: Allowance for doubtful accounts (deducted from accounts receivable) 8.0 1.1 - 9.1 Allowance for non-recoverable billable production (deducted from billable production) 2.0 0.3 - 2.3 Year ended December 31, 1998: Allowance for doubtful accounts (deducted from accounts receivable) 7.3 0.7 - 8.0 Allowance for non-recoverable billable production (deducted from billable production) 2.0 - - 2.0 *Substantially represents amounts utilized against non-recoverable billable production and bad debts arising during the periods.
Note 14 - Investments
Associated Long term Works Treasury Investments undertakings investments of art stock in joint Total L million L million L million L million venture L million L million Cost At January 1, 1998 2.2 0.8 3.6 - 0.2 6.8 Translation adjustment - 0.1 - - - 0.1 Additions 0.1 - - 5.6 - 5.7 Transfers - 3.4 - - - 3.4 Disposals - - (0.6) - - (0.6) ---------------- ----------------- ---------------- ----------------- ---------------- ----------------- At December 31, 1998 2.3 4.3 3.0 5.6 0.2 15.4 Translation adjustment 0.1 (0.4) - - - (0.3) Additions - 0.5 - 1.2 - 1.7 Transfers (2.3) (0.6) - - - (2.9) Disposals - (0.6) (0.3) - - (0.9) ---------------- ----------------- ---------------- ----------------- ---------------- ----------------- At December 31, 1999 0.1 3.2 2.7 6.8 0.2 13.0 ================ ================= ================ ================= ================ ================= Provisions At January 1, 1998 2.3 0.5 - - - 2.8 ---------------- ----------------- ---------------- ----------------- ---------------- ----------------- At December 31, 1998 2.3 0.5 - - - 2.8 Translation adjustment - 0.1 - - - 0.1 Amounts written back (2.3) (0.3) - - - (2.6) ---------------- ----------------- ---------------- ----------------- ---------------- ----------------- At December 31, 1999 - 0.3 - - - 0.3 ================ ================= ================ ================= ================ ================= Net book value - 3.8 3.0 5.6 0.2 12.6 At December 31, 1998 ================ ================= ================ ================= ================ ================= At December 31, 1999 0.1 2.9 2.7 6.8 0.2 12.7 ================ ================= ================ ================= ================ =================
Long term investments at December 31, 1999 include L0.1 million (1998: L0.3 million) of overseas listed investments with a market value of L0.2 million (1998: L0.4 million). At December 31, 1999, the Sharesave Trust had 4,500,000 Ordinary shares of Saatchi & Saatchi plc (1998: 4,000,000) with a market value of L16.8 million (1998: L5.5 million). Note 15 - Intangible assets - Goodwill L million Cost At January 1, 1998 - Additions 6.0 ----------------- At December 31, 1998 6.0 Translation adjustment 0.1 Additions 3.2 Re-evaluation (1.6) ----------------- At December 31, 1999 7.7 ================= Amortization At January 1, 1998 - Charge for the year 0.2 ----------------- At December 31, 1998 0.2 Charge for the year 0.7 ----------------- At December 31, 1999 0.9 ================= Net book value At December 31, 1998 5.8 ================= At December 31, 1999 6.8 ================= Note 16 - Properties, Furniture, Equipment and Motor Vehicles
Leasehold Leasehold Furniture Freehold property property and Motor property - long -short equipment vehicles Total L million L million L million L million L million L million --------- --------- --------- ---------- --------- --------- Cost At January 1,1987 PLAN Outstanding at beginning of year... -- -- 907,200 E3.48 1,104,820 E3.48 Granted............................ -- -- -- -- -- -- Exercised.......................... -- -- (907,200) E3.48 (197,620) E3.44 Forfeited.......................... -- -- -- -- -- -- Expired............................ -- -- -- -- -- -- ------- ------ ---------- ----- --------- ----- Outstanding at end of year......... -- -- -- -- 907,200 E3.48 ======= ====== ========== ===== ========= ===== Options exercisable at year-end.... -- -- -- -- 907,200 E3.48 Weighted-average fair value of options granted during the year............................. -- -- -- 1991 PLAN Outstanding at beginning of year... -- -- 3,432,000 E2.83 3,669,600 E2.82 Granted............................ -- -- -- -- -- -- Exercised.......................... -- -- (3,432,000) E2.83 (237,600) E2.65 Forfeited.......................... -- -- -- -- -- -- Expired............................ -- -- -- -- -- -- ------- ------ ---------- ----- --------- ----- Outstanding at end of year......... -- -- -- -- 3,432,000 E2.83 ======= ====== ========== ===== ========= ===== Options exercisable at year-end.... -- -- -- -- 3,432,000 E2.83 Weighted-average fair value of options granted during the year............................. -- -- -- 2000 PLAN Outstanding at beginning of year... -- -- -- -- -- -- Granted............................ 100,000 E43.55 -- -- -- -- Exercised.......................... -- -- -- -- -- -- Forfeited.......................... -- -- -- -- -- -- Expired............................ -- -- -- -- -- -- ------- ------ ---------- ----- --------- ----- Outstanding at end of year......... 100,000 E43.55 -- -- -- -- ======= ====== ========== ===== ========= ===== Options exercisable at year-end.... -- -- -- -- -- -- Weighted-average fair value of options granted during the year............................. E43.55 -- --
F-47 104 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) As described earlier, stock options related to the Publicis Communication stock option plan were converted into Publicis S.A. stock options upon the merger of Publicis Communication into Publicis S.A. on December 11, 1998. A summary of the activity for this plan is presented below:
2000 1999 1998 9.8 1.4 73.8 95.8 3.5 184.3 Translation adjustment 0.7 - (0.2) (0.2) - 0.3 Additions 0.1 - 2.1 9.4 0.3 11.9 Disposals - - (2.4) (8.4) (1.1) (11.9) ---- --- ---- --- --- ----- At December 31, 1998 10.6 1.4 73.3 96.6 2.7 184.6 Translation adjustment (1.3) - 1.4 0.5 - 0.6 Additions 0.1 0.1 4.2 9.1 0.6 14.1 Disposals - - (2.4) (6.1) (1.7) (10.2) ---- --- ---- --- --- ----- At December 31, 1999 9.4 1.5 76.5 100.1 1.6 189.1 ==== === ==== ===== === ===== Leasehold Leasehold Furniture Freehold property property and Motor property - long -short equipment vehicles Total L million L million L million L million L million L million------------------- -------------------- ------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- --------- -------- --------- --------- ---------- ---------------- --------- Depreciation At January 1, 1998 2.7 0.3 24.0 70.5 2.4 99.9 Translation adjustment 0.2 - - - - 0.2 Charge for the year 0.2 0.1 3.9 9.1 0.5 13.8 Disposals - - (0.5) (5.2) (0.9) (6.6) ---- --- ---- ---- ----FORMER PUBLICIS COMMUNICATION PLAN Outstanding at beginning of year...... 797,310 E8.02 935,960 E7.76 -- -- Granted............................... -- -- -- -- -- -- Exercised............................. (70,710) E6.34 (138,650) E6.38 -- -- Forfeited............................. -- -- -- -- -- -- Expired............................... -- -- -- -- -- -- Converted from Publicis Communication Plan................................ -- -- -- -- 935,960 E7.76 ------- ----- At December 31, 1998 3.1 0.4 27.4 74.4 2.0 107.3 Translation adjustment (0.4) - 0.4 0.3 - 0.3 Charge for the year 0.2 0.1 4.3 8.7 0.3 13.6 Disposals - - (1.3) (5.3) (1.4) (8.0) ---- --- ---- ---- ------------ ----- At December 31, 1999 2.9 0.5 30.8 78.1 0.9 113.2 ==== === ==== ==== ===------- ----- Outstanding at end of year............ 726,600 E8.14 797,310 E8.02 935,960 E7.76 ======= ===== Net book value At December 31, 1998 7.5 1.0 45.9 22.2 0.7 77.3 ==== === ==== ==== =========== ===== At December 31, 1999 6.5 1.0 45.7 22.0 0.7 75.9 ==== === ==== ==== ========== ===== Net bookOptions exercisable at year-end....... 726,600 E8.14 797,310 E8.02 935,960 E7.76 Weighted-average fair value of assets held under finance leases included above At December 31,options granted during the year............. -- -- --
1998 - - - 0.2 - 0.2 ==== === ==== ==== === ===== At December 31, 1999 - - - 0.1 - 0.1 ==== === ==== ==== === =====-------------------- WEIGHTED- AVERAGE EXERCISE SHARES PRICE -------- --------- PUBLICIS COMMUNICATION PLAN Outstanding at beginning of year............................ 556,240 E13.39 Granted..................................................... 265,000 E13.84 Exercised................................................... (146,820) E10.39 Forfeited................................................... -- -- Expired..................................................... (50,450) E13.39 Converted to Publicis S.A................................... (623,970) E11.64 -------- ------ Outstanding at end of year.................................. -- -- ======== ====== Options exercisable at year-end............................. -- -- Weighted-average fair value of options granted during the year...................................................... E14.97
Net book valueFormer Saatchi & Saatchi Plans Several stock option plans were put in place by Saatchi & Saatchi prior to the acquisition. These plans involve several plan execution criteria for the grant of landoptions. At the time of the merger with Publicis Groupe S.A., these plans were simplified and buildingsthe maximum number of options that could be granted were granted. Two types of options remain: - those to be issued in connection with the Equity Participation Plan ("EPP") and for which the exercise price was paid at the grant date. No additional payment will be made at the date of exercise of the options, F-48 105 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) - those to be issued related to other plans and for which the exercise price must be paid at the date of exercise of the options. In these two cases, the beneficiaries will receive Saatchi & Saatchi shares upon exercise of their options. These shares will be exchanged for new shares of Publicis Groupe S.A. based on a rate of 18.252 Publicis Groupe S.A. shares for 100 Saatchi & Saatchi shares (or the ratio applied at the time of the public exchange offer). The number of options that can be exercised under the two plans, converted for simplification purposes into Publicis shares at a rate of 0.18252 is as follows:
2000 ---------------------------- WEIGHTED- AVERAGE EXERCISE SHARES PRICE ---------- -------------- EQUITY PARTICIPATION PLAN Outstanding at acquisition date.................... 2,044,928 -- Granted............................................ -- -- Exercised.......................................... (1,344,435) -- Forfeited.......................................... -- -- Expired............................................ -- -- ---------- ------ Outstanding at end of year......................... 700,493 -- ========== ====== Options exercisable at year-end.................... 601,932 -- OTHER PLANS Outstanding at acquisition date.................... 2,208,579 E11.08 Granted............................................ -- -- Exercised.......................................... (1,307,824) E11.17 Forfeited.......................................... (5,475) E11.17 Expired............................................ -- -- ---------- ------ Outstanding at end of year......................... 895,280 E10.87 ========== ====== Options exercisable at year-end.................... 649,335 E10.87
The following information applies to options outstanding and exercisable at December 31, 1999 was L53.2 million (1998: L54.4 million). Depreciation attributable to owned fixed assets was L13.3 million (1998: L13.5 million; 1997: L14.7 million) depreciation attributable to assets held under finance leases was L0.3 million (1998: L0.3 million; 1997: L0.2 million). The Group had the following commitments in respect of capital expenditure on properties, furniture and equipment: December 31 1999 1998 ---- ---- L million L million Committed but not provided for - 0.5 Note 17 - Bank Loans and Overdrafts Balance at end Weighted average interest rate of period on interest bearing debt --------- ------------------------ Year ended December 31, 1999 ----------------------------------------- L million % Bank loans and overdrafts 17.9 6.6 ==== === Balance at end Weighted average interest rate of period on interest bearing debt --------- ------------------------ Year ended December 31, 1998 ----------------------------------------- L million % Bank loans and overdrafts 4.1 7.1 === === An amount of L5.5 million (1998: L6.8 million) included in bank loans and overdrafts is secured by liens over assets. NOTE 18 - Accounts Payable, Other Liabilities and Accrued Expenses2000:
December 31, 1999 December 31, 1998 ----------------- ----------------- Due within Due after Due within Due after one year one year one year one year L million L million L million L millionOUTSTANDING AND EXERCISABLE ------------------------------------------------------------------ WEIGHTED-AVERAGE REMAINING LIFE WEIGHTED-AVERAGE OUTSTANDING EXERCISABLE IN YEARS EXERCISE PRICE ----------- ----------- ---------------- ---------------- Accounts payable 240.8 - 202.3 - Finance leases 0.3 - 0.1 - Amounts owed to joint venture 2.4 - 3.6 - Proposed dividend 2.2 - 3.1 - Other payables 93.2 22.7 104.0 25.0 ---- ---- ----- ---- 338.9 22.7 313.1 25.0 ===== ==== ===== ====
An amount of L0.6 million (1998: L0.1 million) included in accounts payable is secured by related trade receivables and cash balances. Liabilities under finance leases are secured on the assets leased. The Group is committed to make certain capital payments in the form of deferred consideration for subsidiary undertakings. All such commitments totalled L1.5 million at 31 December 1999 and 1998 of which L nil and L1.5 million have been accrued in the respective balance sheets. The estimated total payments are set out in Note 3. Note 19 - Investment in Joint Venture The following table provides a further analysis of the Company's share of the joint venture's net liabilities. December 31, -------------------------------------- 1999 1998 L million L million ------------------ ---------------- Share of assets Share of fixed assets 1.6 1.6 Share of current assets 80.6 75.3 ------------------ ---------------- 82.2 76.9 ------------------ ---------------- Share of Liabilities Liabilities due within one year (95.2) (90.5) Liabilities due after one year (0.1) (0.1) (95.3) (90.6) ------------------ ---------------- Total share of net liabilities (13.1) (13.7) ------------------ ---------------- A subsidiary of Saatchi & Saatchi plc holds 50% of the ordinary share capital of Zenith Media Holdings Ltd., a media planning and buying group. The remaining 50% is held by CCG. Up to 75% of the distributable profits of Zenith are distributed to shareholders and divided between them in part by reference to the proportions in which Zenith receives revenue from clients of each shareholder. The remainder is retained in Zenith. Note 20 - Property, Pension and Other Provisions
Pensions and Property similar employment Total (Restated) obligations Other (Restated) L million L million L million L millionFormer Publicis Communication Plan... 726,600 726,600 6.75 E 8.14 2000 Plan............................ 100,000 -- 5.00 E43.55 Former Saatchi & Saatchi Plans....... 1,595,773 1,251,267 4.00 E10.87 --------- --------- --------- --------- At January 1, 1998 58.7 15.3 0.9 74.9 Translation adjustment (0.4) - 0.1 (0.3) Transfers (6.8) (12.0) - (18.8) Charge to expense 1.0 2.0 0.6 3.7 Utilized (7.2) (0.2) (0.4) (7.8) FRS 12 restatement (9.9) - - (9.9) ---- ---- --- ---- At December 31, 1998 35.4 5.1 1.2 41.7 Translation adjustment 1.2 (0.5) (0.1) 0.6 Transfers to creditors - (0.5) - (0.5) Charge to expense (0.1) 1.1 0.5 1.5 Unwinding of imputed interest 1.8 - - 1.8 Utilized (6.1) (0.7) (0.6) (7.4) ---- ---- --- ---- At December 31, 1999 32.2 4.5 1.0 37.7------ Total................................ 2,422,373 1,977,867 4.75 E11.33 ========= ========= ==== ==== === ==========
Analysis of leasehold property provision by years December 31, ---------------------------------------- 1999 1998 (Restated) ---------- L million L million Gross Payable Under one year 3.9 4.8 One to two years 3.3 3.6 Two to five years 11.4 11.5 Over five years 21.7 25.4 ---- ---- 40.3 45.3 Less: Imputed interest (8.1) (9.9) ---- ---- 32.2 35.4 ==== ==== Note 21 - Long-Term Debt Long term debt consisted of bank loans of L40.5 million at December 31, 1999 (1998: L47.5 million). Of the L40.5 million, L5.5 million includes bank loans secured by charges over assets and L35.6 million (1998: L30.7 million) of the long term debt is secured by guarantees from and charges over the assets of theThe Company and a number of its subsidiaries. The core banking facility contains certain covenants which relate principally to interest cover. As of December 31, 1999 there had been no breaches of covenants or other defaults under the agreement which have caused or are likely to cause an early repayment of the debt to be enforced. The unamortized costs of the banking facility at December 31, 1999 was L0.8 million (1998: L1.2 million). At December 31, 1999 the Group had committed core banking facilities totaling US$137.5 million (L85.4 million), of which L35.6 million were being utilized. The core banking facility will be reducedaccounts for stock option grants in accordance with following schedule: - -------------------------------------------------------------------------------- 2000 2001 2002 $20.0 m $25.0 mAPB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, and provides the balance - -------------------------------------------------------------------------------- Interest is payable on each advancedisclosures required under SFAS No. 123, "Accounting for Stock-Based Compensation". F-49 106 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company elected to continue to account for stock-based compensation using the "intrinsic value" method under the facilities at a rate per annum based on the aggregateguidelines of LIBOR and a margin of between 1.5% and 0.75% per annum depending upon the financial ratios of the Company. Note 22 - Guarantees and Contingent Liabilities Guarantees given by Saatchi & SaatchiAPB Opinion No. 25, "Accounting for Stock Issued to third parties other than CCG or Zenith amounted to L0.1 million (1998: L0.1 million). In addition to those guarantees identified in Note 21 and the paragraph above, the Company has guaranteed L0.4 million of outstanding borrowings of subsidiary undertakings. At 31 December, 1999, a total L36.1 million of borrowings guaranteed by the Company were outstanding. The Company has jointly and severally with CCG provided unlimited guaranteesEmployees" as opposed to the lenders,"fair value" method contained in respect of Zenith's L18.5 million bank facility. The Demerger Agreement provides for any liabilitySFAS 123. For the Publicis plans, under these guarantees to be shared equally between CCG and the Company. The Saatchi & Saatchi Group has guaranteed the following obligations of CCG. CCG has agreed in the Demerger Agreement to indemnify the Group against any liability under the Group's guarantees of CCG obligations. The Company has guaranteed all of the obligations of Cordiant Property Holdings Limited, a member of CCG, as tenant under certain leases of premises at Lansdowne House, Berkeley Square, London for a term expiring on June 16, 2013. The current base rent under these leases amounts to L10.6 million per annum, subject to upwards only rent reviews in 2002/2003 and five years thereafter. This property is not currently occupied by any CCG company. All of this propertyAPB No. 25, no compensation expense has been sublet, butrecognized for varying terms and at lower rents. There is also an existing guarantee from CCG which will continue. The Company's subsidiary, Saatchi & Saatchi Compton Worldwide, Inc. has guaranteed all of the obligations of Bates Advertising USA, Inc., a member of CCG, as tenant under certain leases of premises at 2010 Main Street, Irvine, California for a term expiring on March 3, 2003. The base rent over the remaining life of the lease totals $10.8 million. Of 73,000 rentable square feet, 24,000 is currently occupied by a CCG company. The remaining space has been sublet for varying terms and at lower rents. There are a number of existing guarantees by CCG in respect of obligations of certain companies in the Saatchi & Saatchi Group, including guarantees in respect of leases of premises at 375 Hudson Street, New York and certain premises in London. These and certain other existing guarantees were not released in connection with the Demerger. In the Demerger Agreement, the Company agreed to give additional, or in some cases substitute, guarantees and to indemnify CCG against any liability under its existing guarantees. In March 1992 Saatchi & Saatchi North America, Inc. ("SSNA"), a subsidiary of Saatchi & Saatchi, disposed of the assets of its Lifestyle Marketing Group division. In 1995 a default judgment was entered by the Wayne County, Michigan Circuit Court against a party described as Lifestyle Marketing Group. The total amount of the default judgment (including interest to date) is approximately $35.0 million. On February 11, 1998, this court issued an Opinion and Order holding that SSNA is liable to indemnify a party which the Court referred to as Lifestyle Marketing Group or Lifestyle Marketing Group Inc. Saatchi & Saatchi has been advised by its U.S. counsel that, in its view, the Opinion and Order is based on palpable errors of fact and law. SSNA was previously dismissed from this lawsuit in March 1997 on summary judgment. SSNA is vigorously pursuing its defenses to this action through a rehearing and/or appeal. Note 23- Deferred Taxationyears ended December 31, -----------------------------------------2000, 1999 or 1998 L million L million Overseas deferred taxation liability (2.2) (1.8) ===== ===== Therebecause the stock options were no material deferred tax liabilities at December 31, 1999 (1998: nil) in respect of accelerated capital allowances. No provision is made for tax that would arise on the remittance of overseas earnings as the Company intends to keep these earnings invested locally. Unremitted earnings of subsidiaries which have been or are intended to be permanently reinvested to meet media accreditation and working capital requirements aggregated L31.1 million at December 31, 1999 (1998: L35.2 million). Under US GAAP temporary differences at the appropriate tax rate are as follows: Assets (Liabilities) ------------------------------------------ Year Ended December 31, ------------------------------------------ 1999 1998 ---- ---- DEFERRED TAX ASSETS L million L million Accrued property rental expense 23.7 22.4 Accrued compensation 6.6 10.6 Capital loss carryforwards 4.5 4.5 Operating loss carryforwards 132.5 136.4 Interest disallowed under Section 163(j) of the IRC 15.5 19.1 Difference in basis of intangible assets - 1.5 Other 4.9 4.7 --- ------- Total deferred tax assets 187.7 199.2 Valuation allowance (178.5) (190.6) ------- ----- Net deferred tax assets 9.2 8.6 --- --- DEFERRED TAX LIABILITIES Accelerated depreciation on tangible assets (7.7) (8.1) Differences in basis of intangible assets (1.3) - Other (2.8) (2.3) ----- --- Total deferred tax liability (11.8) (10.4) ------ -------- Net deferred tax liability (2.6) (1.8) ======= ======= See Note 8 for a discussion of potential restrictions on operating loss carryforwards. There are no material differences between UK GAAP and US GAAP. A valuation allowance is provided to reduce the deferred tax assets to a level which, based on the weight of available evidence, will more likely than not be realized. The net deferred assets reflects management's estimate of the amount which will be realized based on this criteria. The net change in the valuation allowance for deferred tax assets in the period to December 31, 1999 amounted to L12.1 million (1998: L11.6 million). Note 24 - Taxation This largely represents corporation tax liabilities due to be paid in more than one year from the date of the consolidated financial statements. Tax liabilities due to be settled in less than one year are included under current liabilities. Note 25 - Share Schemes Employee share schemes Cordiant had three executive schemes in existenceeither fully vested prior to these periods, or the Demerger. Participants who were employed by the Saatchi & Saatchi Group were invited to cancel their options in return for replacement options over Saatchi & Saatchi shares. Replacement options are over the same number of Saatchi & Saatchi shares and have the same exercise price exercise period and performance conditions as the old Cordiantof options except that the more recent options all expire on December 15, 2004. Options granted to participants in the Cordiant executive schemes were issued at market value at time of grant. For Charles Scott, Cordiant employees who ceased to be employed by Cordiant as a result of the Demerger and employees of Zenith and The Facilities Group who held executive options under the Cordiant schemes, the same principles apply except that their replacement options have been split 50:50 between options over Saatchi & Saatchi shares and options over CCG shares. Priorthese periods is equal to the Demerger, Cordiant had adopted a Save As You Earn Scheme, Sharesave 1995, for UK employees, which was approved by the Inland Revenue. Eligible employees were granted options linked to a five year savings contract. The exercise price was fixed at 80% of market value at the timedate of grant. Concerning the former Saatchi & Saatchi Group employees holding these options were granted a parallel unapproved option over Saatchi & Saatchi shares which will be exercisable with the accumulated savings and interest/bonus under the Cordiant scheme. Employeesplans, E 3 million of Zenith and The Facilities Group have parallel options split 50:50 between Saatchi & Saatchi shares and CCG shares. With effect from 1 December, 1999, the original options under Sharesave 1995 became exercisablestock compensation expense was recognized for a period of six months. Parallel options are exercisable in the period July-December 2000. Two new incentive schemes were introduced on Demerger, the Equity Participation Plan and Performance Share Option Scheme. These schemes are described below. Equity Participation Plan ("EPP") 35 employees currently participate in the EPP and cash payments of L1,717,083 have been received by the Company, which, if maximum performance targets are met, would give rise to an issue of 11,843,862 shares. Participants will be eligible to receive shares if EPS growth is higher than the UK Retail Price Index plus 2% p.a. over a three year period. If growth is below this hurdle rate participants will lose their investment. Participants other than Directors will receive shares based on a scale of EPS growth up to a maximum of eight times the number of shares that they could have acquired with their original investment. To achieve the maximum allocation would require EPS growth of 25% per annum. One half of shares vesting will normally be receivable by participants after three years with the remainder receivable after four years. Awards to participants who are Directors of the Company will vest as to one half on the basis of EPS growth as described above. The other half will be determined on total shareholder return compared with a group of major publicly quoted advertising groups. In that case, the maximum number of shares will vest only if the Company is first or second of the comparator group. Performance Share Option Scheme ("PSOS") 63 employees currently participate in the PSOS and are sacrificing remuneration of L891,400 over a three year period which, if maximum performance targets are met, would give rise to an issue of 7,809,220 shares. This sacrifice will not be offset against the option price payable. Participants will be eligible to exercise their options dependent on the performance of the Group over a three year period. The PSOS has similar EPS-based growth performance criteria to the EPP. One half of the eligible options may normally be exercisable after three years and the remainder after four years. Shareforce The Company has in place an international Save As You Earn scheme called Shareforce. There have been two grants. Any employee who chose to participate in Shareforce opened an account with an independent savings institution and agreed to save an amount between L5 and L250 per month, or equivalent amount in local currency, for a period of three years. The shares that will be used to satisfy these options are existing shares purchased in the market by a Jersey-based employee benefit trust established by the Company in 1998. The number of Saatchi & Saatchi shares issuable under equity participation rights or options outstanding are as follows:
SAYE and Executive Shareforce Equity Schemes Schemes Participation Ordinary Ordinary Rights Shares Shares --------------- ------------------ ------------ At January 1, 1998 11,876,362 15,305,285 938,530 Options issued during the year 467,500 274,220 3,135,938 Options exercised during the year (10) (988,571) (31,142) Options lapsed during the year (639,990) (558,002) (136,522) --------------- ------------------ ------------ At December 31, 1998 11,703,862 14,032,932 3,906,804 --------------- ------------------ ------------ Options issued during the year 700,000 1,155,000 1,259,390 Options exercised during the year (10) (1,373,299) (48,561) Options lapsed during the year (559,990) (1,001,087) (632,470) --------------- ------------------ ------------ At December 31, 1999 11,843,862 12,813,546 4,485,163 --------------- ------------------ ------------
Options outstanding at December 31, 1999 under the Company's share option schemes are shown below:
Original date Number of Exercise Exercisable Exercisable Scheme of grant shares price from to ---------------- -------------- -------------- ---------------- ----------- Demerger Executive Jun 1991 469,573 135p Dec 1997 Jun 2001 Scheme (No. 2) Apr 1992 147,502 107p Dec 1997 Apr 2002 Apr 1992* 77,523 107p Dec 1997 Apr 2002 - ---------------------------- ---------------- -------------- -------------- ---------------- ----------- Demerger May 1995 142,388 73p May 1998 Dec 2004 Performance May 1995* 177,423 73p May 2000 May 2002 Share Option Aug 1995 402,733 95p Aug 1998 Dec 2004 Scheme Aug 1995* 67,497 95p Aug 2000 Aug 2002 Apr 1996 413,750 130p Apr 1999 Dec 2004 Apr 1996* 728,750 130p Apr 2001 Apr 2003 Apr 1997 1,002,500 132p Apr 2000 Dec 2004 Apr 1997* 920,000 132p Apr 2002 Dec 2004 Jun 1997 227,344 124p Jun 2000 Dec 2004 Jun 1997* 227,343 124p Jun 2002 Dec 2004 - ---------------------------- ---------------- -------------- -------------- ---------------- ----------- Demerger Sharesave Scheme Jun 1995 631,863 64p Jul 2000 Dec 2000 - ---------------------------- ---------------- --------------- ----------- ----------------- ----------- Performance Share Option Scheme Dec 1997 6,490,000 110p Dec 2000 Dec 2004 May 1998 274,220 177p May 2001 May 2005 Mar 1999 220,000 190p Mar 2002 Mar 2006 Aug 1999 825,000 214p Aug 2002 Aug 2006 - ---------------------------- ---------------- --------------- ----------- ----------------- ----------- Shareforce Oct 1998 2,594,924 90p Dec 2001 May 2002 Oct 1998 22,007 88p Dec 2001 May 2002 Oct 1999 1,225,420 179p Dec 2002 May 2003 Oct 1999 10,949 194p Dec 2002 May 2003 - ---------------------------- ---------------- --------------- ----------- ----------------- -----------
The options marked * are super options. The performance targets for options under the Executive Demerger Schemes are as follows: For ordinary options under the No. 2 Scheme there must have been an increase in the Company's earnings per share over any three year period following the date of the grant of at least 2% more than the increase in the Retail Price Index over the same period. For ordinary options under the Performance Scheme the condition is the same as for the No. 2 Scheme except that 2% is replaced by 6%. Super options under all three schemes cannot be exercised before the fifth anniversary of the date of grant and only then if the growth in earnings per share from the date of grant has been such as would place it in the top quartile of the FTSE 100 companies ranked by reference to growth and earnings per share. As at December 31, 1999, there are awards over 11,843,862 shares under the Equity Participation Plan which are exercisable between December 2000 and March 2006. Shareforce In countries where it was not possible to grant a share option, 419,111 share appreciation rights were granted whereby upon exercise each participant will receive a cash amount instead of shares. There were 419,111 share appreciation rights outstanding as at December 31, 1999. Zenith Share scheme The Company and CCG agreed an incentive scheme on Demerger for senior executives of their jointly held company, Zenith. To participate, executives have to invest in the scheme by cash payment or salary or bonus sacrifice. An award will comprise an option over shares in CCG and the Company and/or a cash reward. A participant's actual entitlement will be determined by measuring the growth in Zenith's profit before tax over a three year period. On Demerger, options over 1,078,807 Saatchi & Saatchi shares were granted with the same exercise price and period as for the Performance Share Option Scheme above. In 1999, 30,823 options lapsed and in April 1999 a further 61,646 options over Saatchi & Saatchi shares were granted at a price of 215.5p. Note 26 - Post Retirement Benefits Group employees are members of a number of pension schemes throughout the world, principally in the UK and the US. Group employees have continued to participate in the Cordiant UK schemes following the Demerger, subject to Inland Revenue approval, until alternative arrangements are established. The majority of the schemes are externally funded and the assets are held in separately administered trusts or are insured. None of the externally funded schemes holds investments in, or has made loans to, the Company or any of its subsidiaries. The major schemes, which cover the majority of scheme members, are defined contribution schemes. The pension expense for each period was as follows:
Year ended December 31, - --------------------------------------------- ----------------------------------------------------- 1999 1998 1997 L million L million L million - -------------------------------------------- ---------------- --------------- -------------- Defined benefit schemes 0.7 0.6 0.5 Defined contribution schemes 5.8 6.7 6.6 - --------------------------------------------- ---------------- --------------- -- -------------- 6.5 7.3 7.1 - --------------------------------------------- ---------------- --------------- -- --------------
Saatchi & Saatchi has only one UK defined benefit scheme with active membership, the Cordiant Group Pension Scheme, details of which are given below. In the U.S. Cordiant had only one funded defined benefit scheme, the Saatchi & Saatchi Cash Balance Retirement Plan, details of which are given below. At the last valuation date there was a current funding surplus of $0.3 million (L0.2 million). This scheme was frozen at June 30, 1996 and terminated on December 31, 1996. In addition to this there is a supplementary unfunded scheme to provide certain guaranteed benefits to members of a former scheme who were transferred to the main defined benefit scheme. The pension expense on the defined benefit plans have been allocated to the Company based on employee compensation levels as if the company participated in a multi employer plan. The costs associated with the defined contribution plans have been presented based on the actual amounts contributed by each Group entity. Set out below are the details of the most recent valuation of Cordiant's pension schemes for the UK and US. UK US (since closed) Date of last actuarial valuation April 1, 1999 January 1, 1996 Market value of investments L37 million L24.4 million Level of funding 91.2% 101% Valuation method Attained age Projected unit credit Main assumptions: Investment return 8.0% 6.0% Salary increases per annum 6.0% 5.5% In the case of the Saatchi & Saatchi Cash Balance Retirement Plan for the period January 1, 1996 through to June 30, 1996 the expected long-term rate of return on assets was 9.0%. Following the decision to terminate the scheme, the assets were realized and the resulting proceeds reinvested with an expected rate of return of 6.0% The Group has no material liabilities for post-retirement benefits other than pensions. Note 27 - Leases The Company leases certain properties and equipment under operating leases. Minimum payments for operating leases, before provisions for vacant property (see Note 20), having initial or remaining noncancellable terms in excess of one year are as follows: Sublease Years Ending Minimum Rental Net December 31, Payments Income Payments --------- ------ --------- L million L million L million 2000 27.1 5.9 21.2 2001 25.4 5.8 19.6 2002 23.6 5.5 18.1 2003 25.2 4.3 20.9 Thereafter 180.0 8.6 171.4 ----- --- ----- Total minimum lease payments 281.3 30.1 251.2 ===== ==== ===== Total expense for all operating leases was:
Year ended December 31, ---------------------------------------------------- 1999 1998 1997 L million L million L million Total operating lease expense 30.6 28.3 29.9 Sublease rental income (8.2) (5.8) (6.7) ---- ---- ---- Net property operating lease expense 22.4 22.5 23.2 ==== ==== ====
Note 28 - Reconciliation of Operating Profit to Operating Cash Flow
Year ended December 31, ------------------------------------------------------------------------------- 1999 1998 1997 L million L million L million Operating profit 34.6 31.4 29.7 Depreciation and amortization 14.3 14.0 14.9 Profit on sale of tangible fixed assets (0.2) (0.2) - Net movement in working capital (9.9) 0.7 19.7 Utilization of property provisions (6.1) (7.2) (11.8) Net cash inflow to operating activities 32.7 38.7 52.5 ==== ==== ====
Note 29 - Reconciliation of Net Cash Flow to Movements in Net Debt
Year ended December 31, ----------------------------------------------- 1999 1998 1997 L million L million L million Decrease in cash in the period (6.3) (9.2) (8.9) Cash (outflow)/inflow from decrease/ (increase) in debt and lease financing 6.9 33.8 (0.1) ---- ---- ----- Change in net debt resulting from cash flow 13.2 24.6 (9.0) Net amounts repaid to CCG & Zenith - - 204.4 Net debt repaid or forgiven as part of the Demerger process - - 855.1 Translation and non-cash movements - - (0.3) ---- ---- -------- Movement in net debt in the period 13.2 24.6 1,050.2 Net debt at beginning of period (20.9) (45.5) (1,095.7) ---- ----- --------- Net debt at end of period (7.7) (20.9) (45.5) ===== ====== ======= Note 30 - Analysis of Net Debt
Exchange and At January 1, non-cash At December 1999 Cash flow Demerger movements 31, 1999 L million L million L million L million L million Year to December 31, 1998 Cash at Bank and in hand 30.8 20.2 - - 51.0 Bank overdrafts (3.3) (13.9) - - (17.2) External debt less than one year (0.8) 0.1 - - (0.7) External debt greater than one (47.5) 7.0 - - (40.5) year Finance leases (0.1) (0.2) - - (0.3) Net amounts due from CCG and - - - - - Zenith ------ ---- -- -- ------- Total (20.9) 13.2 - - (7.7) ====== ==== == == ======= Exchange and At January 1, non-cash At December 1998 Cash flow Demerger movements 31, 1998 L million L million L million L million L million Year to December 31, 1998 Cash at Bank and in hand 57.5 (26.7) - - 30.8 Bank overdrafts (20.8) 17.5 - - (3.3) External debt less than one year (0.6) (0.2) - - (0.8) External debt greater than one (81.4) 33.9 - - (47.5) year Finance leases (0.2) 0.1 - - (0.1) - - Net amounts due from CCG and - - - - - Zenith ----- ---- -- -- ----- Total (45.5) 24.6 - - (20.9) ====== ==== == == ======= Exchange and At January 1, non-cash At December 1997 Cash flow Demerger movements 31, 1997 L million L million L million L million L million Year to December 31, 1997 Cash at Bank and in hand 69.3 (9.4) - (2.4) 57.5 Bank overdrafts (20.8) 0.5 - (0.5) (20.8) External debt less than one year - (0.6) - - (0.6) External debt greater than one year (79.1) 0.4 - (2.7) (81.4) Finance leases (0.3) 0.1 - - (0.2) ----- --- -- --- ---- (30.9) (9.0) - (5.6) (45.5) Net amounts due from CCG and Zenith (1,064.8) 204.4 855.1 5.3 - --------- ----- ----- ---- ------- Total (1,095.7) 195.4 855.1 (0.3) (45.5) ========= ===== ===== ===== =======
Note 31 - Purchase and Sale of Subsidiary Undertakings
Year ended December 31, ------------------------------------------------------------------- 1999 1998 1997 L million L million L million Net assets acquired Tangible fixed assets 2.3 0.3 - Debtors 27.0 - 0.1 Cash at bank and in hand 1.4 - - Investment 0.5 - - Creditors relieved - 2.2 8.0 ---- --- --- 31.2 2.5 8.1 Goodwill 3.2 6.0 (0.2) ---- --- ---- 34.4 8.5 7.9 ==== === ==== Satisfied by Cash 7.0 7.9 Deferred consideration 1.5 - Liabilities assumed 34.4 - - 34.4 8.5 7.9 Net assets disposed of Tangible fixed assets 1.3 5.3 - Investments - (0.1) 12.5 Work in progress - 0.4 - Debtors - 12.8 0.2 Cash at bank and in hand - 1.2 - Creditors (1.7) (6.0) 0.2 Provisions for liabilities and charges 0.2 1.0 - ---- --- ---- (0.2) 14.6 12.9 Goodwill - 0.7 - Profit on disposal 0.2 6.1 4.3 Minority interest - (0.3) - ---- --- ---- - 21.1 17.2 ==== === ==== Satisfied by Cash 20.3 17.2 Deferred consideration - 0.8 - ---- --- ---- - 21.1 17.2 ==== === ====
The above assets and liabilities were acquired without any need to make fair value adjustment. The acquisitions and disposals are described in Note 3. Note 32 - Operations by Geographic Area Continental
Europe, Africa & United North & Middle Asia Latin Disposed Kingdom America East Pacific America Subtotal Businesses Total L million L million L million L million L million L million L million L million Year ended December 31, 1999 Commission and fee income 57.5 192.4 71.2 51.2 18.0 390.3 10.4 400.7 Trading and operating profit 7.0 26.6 2.2 0.1 (0.4) 35.5 (0.9) 34.6 Total assets employed - Net assets (liabilities) 23.6 (48.9) 3.0 (29.2) (2.2) (53.7) - (53.7) Depreciation expense 3.1 6.3 1.7 2.0 0.5 13.6 - 13.6 Additions to properties, 2.7 4.8 1.7 2.5 2.4 14.1 - 14.1 furniture, etc. Year ended December 31, 1998 Commission and fee income 58.2 170.3 70.5 47.8 - 346.8 33.3 380.1 Trading and operating profit 7.6 20.6 2.8 (2.7) - 28.3 3.1 31.4 Total assets employed 69.0 176.8 85.3 57.3 - 388.4 - 388.4 Net assets (liabilities) 27.6 (60.1) (5.3) (31.9) - (69.7) - (69.7) Depreciation expense 3.4 6.7 2.0 1.7 - 13.8 - 13.8 Additions to properties, 3.0 4.6 2.1 2.2 - 11.9 - 11.9 furniture, etc. Year ended December 31, 1997 Commission and fee income 59.4 162.3 72.4 52.2 - 346.3 31.9 378.2 Trading and operating profit 5.7 19.2 5.4 (1.0) - 29.3 (0.4) 29.7 Total assets employed 73.7 192.5 84.5 78.8 - 429.5 - 429.5 Net assets (liabilities) 44.1 (59.8) (19.0) (40.6) - (75.3) - (75.3) Depreciation expense 3.7 7.3 2.2 1.7 - 14.9 - 14.9 Additions to properties, 2.2 5.9 1.9 2.5 - 12.5 - 12.5 furniture, etc.
The geographic analysis of revenue, trading profit and net liabilities has been prepared on a basis that reflects the management of the operations of the Group. Management considers that there is only one business activity, namely advertising and marketing services, and that is more appropriate to show a geographic analysis of revenue than turnover. Revenue by geographic destination is not materially different from revenue by geographic origin. The Saatchi & Saatchi Group's customers are located throughout the world. During 1999, 1998 and 1997 two clients each accounted for more than 5% of the Group's revenue. At December 31, 1999, the account receivable from one customer represented 10.2% of the Group's total accounts receivable. With this exception, no customer accounted for more than 10% of total accounts receivable in 1999 or 1998. Operating profit in 1997 is stated after deducting net Cordiant Group corporate costs attributable to the Saatchi & Saatchi Group in 1997 of L6.6 million. Net corporate costs have been allocated to the Saatchi & Saatchi Group, CCG and Zenith pro rata with the revenues of these groups. Note 33 - Transactions with Related Parties Net charges in the ordinary course of business with the joint venture, Zenith, for media and production services together with other charges, amounted to L16.0 millionGAAP purposes for the year ended December 31, 1999 (1998: L14.9 million; 1997: L13.6 million). Balances with the joint venture are disclosed in notes 12 and 18 above, all of which are of a current nature. During 1999, the Group recharged Zenith L0.6 million (1998: L0.6 million) for costs incurred2000 representing stock compensation expense on its behalf. Prior to the Demerger in 1997, Saatchi & Saatchi had not operated as a separate group, and consequently there were a number of related party transactions between it and CCG, and between Saatchi & Saatchi Group, its joint venture, Zenith and its associates. These include transactions relating to treasury, insurance, taxation, information, systems support and other central services supplied by CCG to Saatchi & Saatchi. Cordiant's net corporate costs for 1997 as allocated to Saatchi & Saatchi are included in the analysis of profits as set out in note 32 above. Inter-company interest charged to the Saatchi & Saatchi Group by CCG and Zenith is set out in note 7 above. Note 34 - Financial Instruments The Group finances its operations through earnings, bank borrowings and management of working capital. The setting of policy for managing these monetary assets and liabilities is the responsibility of the Board of Directors and the Group's Treasury Department executes these policy decisions. It is, and has always been, the Group's policy that no trading in financial instruments shall be undertaken. Any financial instruments used have been acquired solely for mitigating or eliminating currency or interest rate risks. The following numerical disclosures relate to the Group's financial assets and financial liabilities and exclude short-term debtors and creditors, which arise directly from the Group's operations (apart from the currency disclosure) as permitted by FRS 13. The Group is primarily exposed to exchange rate movements to the extent of profits earned outside the UK. In order to provide a partial hedge against these exposure investments, the Group's borrowings are predominately denominated in foreign currencies. The most significant of these is the USA where, at December 31, 1999, L28.6 million of core borrowings were denominated in US dollars partly offsetting US dollar profits. Currency Risk The Group has monetary assets and liabilities that arise in the currencies of the countries whereunvested options. If the Company is represented. Generally, these amounts are used for local working capital purposes. However, there are times when temporary excess cash available locally is lent on a short-term basishad elected to another Group company. Where this does occur, the Group always buys the currencies forward to extinguish any exchange exposure. Where cash is lent upstream on a longer-term basis, the currencies are always hedged, eliminating any exchange exposure at the parent level. Where long-term funding of certain operations is done by way of downstream loans, these are not hedged as they are considered to be permanent financing. Any gains or losses are recognised through the Consolidated Statement of Total Recognised Gains and Losses. At the balance sheet date forward contracts outstanding in various currencies totalled a notional value of L41.2 million, the fair values of which were not materially different from the contracted amounts. Further, there were no foreign currency monetary assets and liabilities that produced exchange differences in the profit and loss account. After taking into account the hedging activities described above, the group has no material currency transaction exposure. Interest Rate Risk The interest charges on the core bank borrowings drawn in both US dollars and sterling arerecognize compensation expense based on LIBOR plus a percentage (see Note [21). When the related borrowing line was originally secured in December 1997, the Group entered into two interest rate caps at a total cost of less than L0.1 million. The caps are amortised on a straight-line basis over their respective periods. At 31 December 1999, a single cap covering US $20 million at a rate of 7.5% was still in force. This expires in December 2000 and is of negligible value. It is not the intention of the Group to renew the cap when it matures. The Group also has a mortgage in France, denominated in French francs, with a sterling equivalent value at 31 December 1999 of L5.5 million that is secured on the freehold property there. Throughout 1999 the mortgage was at a fixed rate of interest of 5.14% pa. This matured in February 2000. Currently, the interest on the mortgage is based on floating rate as the Group intends to repay the mortgage during the first half of 2000. Other bank loans of note are in Canada and Puerto Rico both of which are used for working capital purposes and are repayable on demand. The Puerto Rican loan interest is based on LIBOR plus a percentage, while the Canadian loan interest is based at the Canadian Prime lending rate plus a percentage. At 31 December 1999, the currency profile of the Group's financial liabilities was as follows:
- ------------------------- ----------------------- ----------------------- ----------------------- Fixed rate financial Floating rate Total liabilities financial liabilities - ------------------------- ----------------------- ----------------------- ----------------------- L million L million L million - ------------------------- ----------------------- ----------------------- ----------------------- Currency - ------------------------- ----------------------- ----------------------- ----------------------- Sterling 10.5 - 10.5 - ------------------------- ----------------------- ----------------------- ----------------------- US Dollar 40.9 0.3 40.6 - ------------------------- ----------------------- ----------------------- ----------------------- French Franc 5.5 5.5 - - ------------------------- ----------------------- ----------------------- ----------------------- Others 1.8 - 1.8 - ------------------------- ----------------------- ----------------------- ----------------------- Total 58.7 5.8 52.9 - ------------------------- ----------------------- ----------------------- -----------------------
With the exception of the core bank borrowings, the maturity of which is set out in Note 21, all financial liabilities fall due within one year. All the financial assets at 31 December 1999 were available to the Group on demand or overnight. The Group considers that the book values attributed to the financial assets and liabilities in the balance sheet at 31 December 1999 are not materially different from the fair values, except where stated in Notes 11 and 14 in respect of Fixed Asset Investments and Current Asset Investments, respectively. Note 35 - Principal Subsidiaries and Joint Venture Except where otherwise indicated the Company indirectly owned 100% of each class of the issued shares of the subsidiary undertakings listed below. All these subsidiary undertakings are advertising and marketing services companies. The country of operation and registration of the principal subsidiaries and joint venture are: - -------------------------- ----------------------------------------------------- England Saatchi & Saatchi Group Ltd The Facilities Group Ltd (70%) Zenith Media Holdings Ltd (50% joint venture) - -------------------------- ----------------------------------------------------- Australia Saatchi & Saatchi Advertising Pty Ltd - -------------------------- ----------------------------------------------------- France Saatchi & Saatchi France SA - -------------------------- ----------------------------------------------------- Germany Saatchi & Saatchi Werbeagentur GmbH - -------------------------- ----------------------------------------------------- Italy Saatchi & Saatchi SpA - -------------------------- ----------------------------------------------------- New Zealand Saatchi & Saatchi Ltd - -------------------------- ----------------------------------------------------- US Klemtner Advertising, Inc. Rowland Worldwide, Inc. Saatchi & Saatchi North America, Inc. - -------------------------- ----------------------------------------------------- In the opinion of the Directors, these subsidiary and joint venture undertakings principally affected the results or the assets of the Group. In addition to the companies shown in the above list the Group also holds investments in many other subsidiary undertakings. A full list of subsidiary undertakings will be filed with the Registrar of Companies. Note 36 - Nature of Business The Company is a multi-national advertising and marketing services business. An analysis of revenue and assets by geographic region is set out in Note 32 to the statements. Note 37 - Companies Act 1985 The consolidated financial statements do not constitute "statutory accounts" within the meaning of the Companies Act 1985 of England and Wales for any of the three years ended December 31, 1999. The statutory accounts for 1999 have been filed following the Company's Annual General Meeting. The auditors have reported on these accounts. Their reports were unqualified and did not contain statements under Section 237(2) or (3) of that Act. Note 38 - United States Generally Accepted Accounting Principles The consolidated financial statements have been prepared in accordance with UK generally accepted accounting principles (UK GAAP) which differ in certain significant respects from US generally accepted accounting principles (US GAAP). A summary of material adjustments to the profit and shareholders' deficiency which would be required if US GAAP had been applied instead of UK GAAP as set out below. (a) Goodwill and US purchase accounting Under US GAAP, goodwill and identifiable intangible assets acquired are capitalized and amortized against income; intangible assets being amortized over their economic lives which range from three to 20 years and the remaining goodwill amortized over 40 years. For US GAAP purposes, management review on an annual basis the carrying value of goodwill and identifiable intangibles for impairment by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. Under UK GAAP, purchased goodwill arising after ascribing fair values to all tangible assets and liabilities acquired after January 1, 1998 is capitalized and amortized over appropriate periods not exceeding 20 years. Goodwill arising on acquisitions prior to January 1, 1998, was written off against reserves. On disposal of a subsidiary, under UK GAAP the gain or loss on disposal is calculated after taking account of goodwill not previously written off through the statement of operations. Under US GAAP the gain or loss on disposal is calculated after taking account of any related unamortized goodwill. A GAAP difference arises on the disposal of entities acquired prior to January 1, 1998, being equal to the difference between the full amount of goodwill written off to reserves under UK GAAP and the amortization charged under US GAAP. Under US and UK GAAP if such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceedupon the fair value of the assets. (b) Property leases Under US GAAP, total rental payments, inclusive of increases in rental charges specified in the lease, are recognized on a straight line basis over the term of the lease. These increases are recognized when payable under UK GAAP. (c) Long-term property provisions Under US and UK GAAP, provisions for properties which are vacant or let at a loss are provided on a discounted basis after allowing for estimated subrental income, and amortization of the discount is charged to interest expense. A difference arises in the rates of discounts applied due to the different dates of adoption of the relevant standards. (d) Demerger related items Under UK GAAP these items have been reflected in the profit and loss account. Under US GAAP they are reflected as a direct adjustment to equity. (e) Dividends Under UK GAAP Ordinary dividends proposed are provided in the year in respect of which they are recommended by the Board of Directors for approval by the shareholders. Under US GAAP, such dividends are not provided for until declared by the Board of Directors. (f) Deferred taxation UK GAAP requires provision for deferred taxation to be recorded only to the extent that it is probable that an actual liability will crystallise. US GAAP requires full provision of deferred taxation liabilities and permits deferred tax assets to be recognised if their realisation is considered to be more likely than not. There are no deferred taxation differences presented in the reconciliation below because the Company is in a tax loss carryforward position. (g) Compensation Costs Under UK GAAP the Company does not recognise any compensation for certain performance based share options. Under US GAAP compensation expense is recorded for all performance based share options over the vesting period for the excess of the market price of the underlying shares over the exercise price. (h) Employee share schemes The Company has adopted SFAS 123, Accounting for Stock-Based Compensation, which permits entities to recognise as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro-forma net income and pro forma earnings per share disclosures for share option grants made in 1995 and subsequent years as if the fair-value-based method defined in SFAS 123 had been applied. The directors have elected to continue to apply the provisions of APB Opinion No. 25 and provide pro forma disclosure provisions of SFAS 123. Accordingly, compensation expense is recorded from the date of grant only if the current market price of the underlying stock exceeded the exercise price (see note (g) above). Under SFAS No. 123 the calculation of the option value is made using an acceptable pricing model to include certain expected parameters. If the compensation cost of the options has been determined based on the fair value of the grant datesdate for 1999 and 1998options granted under these plans to key employees, consistent with the methodmethodology prescribed by SFAS No. 123, the Company's US GAAP net profit and earnings per share would have been adjusted to the revised amounts indicated below:
Year ended December 31 1999 1998 1997 (Restated) - -------------------------- -------------- --------------- ----------------- -------------- Net profit (loss) in - as reported (L24.3) L13.2 L8.5 L million - revised (L24.9) L11.9 L8.2 Earnings (loss) per - as reported (11.1p) 6.0p 3.8p share in pence - revised (11.3p) 5.4p 3.8p - -------------------------- -------------- --------------- ----------------- --------------
The revised amounts were determined based on employee share scheme awards in 1999, 1998, 1997, 1996 and 1995 only. Compensation cost is recognized over the expected life of the option (i.e. between 3-1/2 and 6-1/2 years). The revised amounts for compensation cost may not be indicative of the effects onpro forma net earnings and earnings per common share for future years. Under SFAS No. 123, the weighted averagewould be as follows:
In millions of euros (except per share data) 2000 1999 - -------------------------------------------- ----- ----- Net earnings -- U.S. GAAP As reported............................................... 34 73 Pro forma................................................. 34 73 Basic earnings per common share As reported............................................... E0.31 E0.84 Pro forma................................................. E0.31 E0.84 Diluted earnings per common share As reported............................................... E0.31 E0.83 Pro forma................................................. E0.31 E0.83
The fair value of each optionoptions was estimated at the date of grant is estimated to be 72.3p, 57.9p and 35.7p for options granted during the year ended December 31, 1999, 1998 and 1997, respectively. The fair values have been estimated using the Black-Scholes option-pricing model with the following weighted averageweighted-average assumptions used for grants in 1999, 19982000 and 1997 respectively;1999: dividend yields of nil throughout,zero for all years; expected volatility of 32%42.7% for options issued in 19992000 and 30%42.4% for those issued earlier,1999; risk-free interest ratesrate of 5.6%, 7.0% and 7.0%4.5% for all years; and expected livesterm of 5 years for 2000 and 7 years for 1999. The effects of applying SFAS 123 for pro forma disclosures are not likely to be representative of the effects on reported net income in future years. Income taxes The income tax disclosures required for French GAAP are included in Note 16 to the financial statements. Additional information required for U.S. GAAP purposes is as follows:
DECEMBER 31, -------------------- In millions of euros 2000 1999 1998 - -------------------- ---- ---- ---- Net income before taxes and minority interests: France........................................ 97 57 35 Foreign....................................... 154 103 79 --- --- --- Total......................................... 251 160 114 === === === Income tax expense: France........................................ 26 22 14 Foreign....................................... 66 43 33 --- --- --- Total......................................... 92 65 47 === === ===
F-50 107 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) The effective tax rate for 1999 is as follows:
IN MILLIONS OF EUROS 1999 - -------------------- ----- Income of consolidated companies before taxes, exceptional items and amortization of goodwill........................ 165 Statutory tax rate.......................................... 36.67% EXPECTED TAX EXPENSE........................................ (60) Impact of: - utilization of deferred tax assets on operating losses............................................... 2 - permanent differences................................ (4) - other................................................ (3) ----- Income taxes recorded in the income statement............... (65) ===== Effective tax rate.......................................... 39%
SOURCES OF DEFERRED TAXES
DECEMBER 31, IN MILLIONS OF EUROS 1999 - -------------------- ------------ Deferred tax assets resulting from temporary differences........................................... 6 Deferred tax assets resulting from operating loss carryforwards......................................... 10 Valuation allowance on deferred tax assets.............. (9) -- TOTAL DEFERRED TAX ASSETS............................... 7 -- Deferred tax liabilities resulting from temporary differences........................................... (1) TOTAL DEFERRED TAX LIABILITIES.......................... (1) -- DEFERRED TAX ASSETS (LIABILITIES), NET.................. 6 ==
The valuation allowance on deferred tax assets at December 31, 2000 amounted to euros 9 million. Expiration dates of net operating loss carryforwards At December 31, 2000, the Group had approximately E24 million of operating loss carryforwards that will expire between 3 1/22001 and 6 1/2 years. (i) Treasury stock owned by Employee Share Option Plan (ESOP) Under UK GAAP, treasury stock purchased by2006. In connection with the ESOP is recorded as a fixed asset investment at cost less any amounts written off. Under US GAAP, treasury stock is recorded at cost and deducted from shareholders' equity. (j) Cash flows The Group Statement of Cash Flows is prepared in accordancebusiness combination with Financial Reporting Standard No. 1 'Cash Flow Statements' ('FRS 1'). Its objectives and principles are similar to those set out in SFAS 95. The principle difference between the standards relates to classification. Under FRS 1, Saatchi & Saatchi, presents its cash flows for: (a)Publicis acquired approximately E503 million in net operating activities; (b) returns on investmentsloss carryforwards related to former Saatchi & Saatchi operations. These net operating loss carryforwards expire between 2001 and servicing2011. In the French financial statements, deferred taxes were not recognized related to these carryforwards due to the uncertainty of finance; (c) taxation; (d) capital expendituretheir recoverability. For U.S. GAAP purposes, deferred tax assets have been recorded and financial investment; (e) acquisitionsa 100% valuation allowance has been provided because at December 31, 2000, the recoverability of the deferred tax assets was not considered to satisfy the applicable "more likely than not" standard. Pensions and disposals; (f) managementother benefit plans Employee benefit plans consist principally of liquid resources;defined contribution plans and (g) financing. SFAS 95 requires only three categories of cash flow activity: (a) operating; (b) investing; and (c) financing. Cash flows from taxation and returns on investments and servicing of finance shown under FRS 1 would, with the exception of dividends paid, be included as operating activities under SFAS 95. The payment of dividends would be included as a financing activity under SFAS 95. Movements in short term investments would be classified as an investing activity under the SFAS 95 rather than the management of liquid resources as shown under FRS 1. Amounts resulting from the demerging of CCG/Zenith companies included in acquisitions and disposals would be presented as financing. Changes in bank overdrafts are included within cash equivalents under FRS 1 and would be considered a financing activity under SFAS 95. Had bank overdrafts been shown as a financing activitymulti-employer pension plans primarily in the Group statementUnited States and the UK. The Group's contributions under defined contribution plans, which are principally based on a percentage of cash flows the repayments would have been L41.5 million, L48.4employee annual base compensation and are charged to expense as incurred, amounted to approximately E 4 million and L204.8E 3 million infor the years ended December 31, 2000 and 1999, 1998respectively. F-51 108 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) Publicis participates in a multi-employer pension plan in the United Kingdom. Contributions to this plan for the year ended December 31, 2000 amounted to E 1.1 million. In addition, through its acquisition of Saatchi & Saatchi, the Company participates in a multiemployer pension plan with Cordiant called the Cordiant Group Pension Scheme. Contributions to this plan for the 12-month period ended December 31, 2000 were E 463,000. Following the acquisition of Saatchi & Saatchi, the Company has requested an actuarial valuation which sectionalizes the assets and 1997 respectively. The differenceliabilities of the plan between the movement aboveSaatchi & Saatchi and the movement impliedCordiant Group. This actuarial valuation is currently in note 29progress. Earnings per share Basic earnings per share is due entirely to foreign exchange. (k) Investment in joint ventures Under UK GAAP, the Company separately identifies the joint ventures' turnover, operating profit and interestcomputed on the facebasis of the profit and loss account and its shareweighted-average number of shares issued after deduction of the joint ventures' taxweighted average number of shares of treasury stock. Diluted earnings per share take into account share equivalents having a dilutive effect. Potentially dilutive common shares consist of stock options to employees. The dilutive effect of stock options is separately disclosed incalculated using the notes to the financial statements. US GAAP requires the Company to calculate its share of the income of its joint venture after excluding inter-company transactions and present such amount net of income taxes in the Statement of Operations. Accordingly, thetreasury stock method. The following table sets outforth the selected operating data on a UK GAAP basis adjusted for these presentation differences.computation of basic and diluted earnings from continuing operations per common share in accordance with accounting principles generally accepted in France (in millions, except share and per share amounts):
Year ended December 31, 1998 1997IN MILLIONS (EXCEPT PER SHARE DATA) 2000 1999 (Restated) (Restated) L million L million L million ------------------------------- ------------------ ------------------- -------------------- ----------------------------------- ----- ----- Share of income, net of tax, in joint ventures 4.3 2.6 1.4 Profit on ordinary activities before tax 34.2 33.5 793.6 Tax on profit on ordinary activities 9.2 8.4 7.6 ------------------------------- ------------------ ------------------- -------------------Numerator: Earnings from continuing operations....................... E 128 E 74 Denominator:* Denominator for basic earnings per share -- weighted average shares......................................... 108 87 Potential dilutive common shares -- employee stock options................................................ 3 1 ----- ----- Denominator for diluted earnings per share -- adjusted weighted average shares and assumed conversions........... 111 88 ----- ----- Basic earnings from continuing operations per common share..................................................... E1.18 E0.85 ----- ----- Earnings (loss) from continuing operations per common share -- assuming dilution................................ E1.15 E0.84 ----- -----
Summary financial information- --------------- * Reflects 10 for 1 stock split occurring on August 29, 2000. Leases The Company leases certain premises and equipment under both capital and operating leases. Property leases typically provide for renewal options. The following is a schedule of future minimum lease payments for capital and operating leases in respect of Zenith, presented in accordance with UK GAAP, is set out below:effect at December 31, 2000. F-52 109 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA)
Year ended DecemberCAPITAL OPERATING YEARS ENDING DECEMBER 31, ----------------------------------------------------------------------------------------- Consolidated summary profit & loss 1999 1998 1997 account L million L million L million -----------------------------------------------------------------------------------------LEASES LEASES - ------------------------- ------- --------- Revenue 57.0 49.1 41.9 Operating profit 8.4 4.9 1.5 Profit on ordinary activities before tax 9.7 5.3 3.7 Profit for the period 6.5 3.5 2.5 ------------------------------- ------------------ ------------------- -------------------2001...................................................... 1 86 2002...................................................... 1 83 2003...................................................... 1 83 2004...................................................... 1 78 2005...................................................... 1 74 Thereafter................................................ 2 392 -- --- Total minimum lease payments.............................. 7 796 === Less: Amount representing interest........................ (2) -- Total obligation under capital leases..................... 5 Less: Current portion..................................... (1) -- Long-term portion......................................... 4 ==
Property, plant and equipment at year-end include the following amounts for capitalized leases:
December 31, --------------------------------------------------------------------------------------- CONSOLIDATED SUMMARY STATEMENT OF NET LIABILITIES(E millions) 2000 1999 1998 L million L million ------------------------------------------------------- ------------ ---------------- ---- Fixed assets 3.2 3.2 Current assets 161.2 150.7 Current liabilities (190.5) (180.9) Other long term creditors and provisions - (0.2) ------------------------------------------------------ ------------- ------------- Net liabilities (26.1) (27.2) ------------------------------------------------------ ------------- -------------Buildings................................................... 8 8 Less allowances for depreciation............................ (2) (2)
Net rental expense for operating leases was E 85.2 million and E 27.3 million for the years ended December 31, 2000 and 1999, respectively. Marketable securities Marketable securities consist primarily of money market funds, mutual funds and certificates of deposit and are classified by the Group as available for sale. Unrealized gains on marketable securities for the years ended December 31, 2000 and 1999 amounted to E 0.6 million and E 0.4 million, respectively. Gross purchases of marketable securities amounted to approximately E 940 million and E 1,314 million and sales of marketable securities amounted to approximately E 937 million and E 1,273 million for the years ended December 31, 2000 and 1999, respectively. Net realized gains on sales of marketable securities amounted to E 2.0 million and E 1.6 million for the years ended December 31, 2000 and 1999, respectively. Fair value of financial instruments The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2000 and 1999. Amounts in parentheses represent liabilities:
Year ended December 31, - -------------------------------------------------- ------ ---------------------------------------------------------------- Effect on net earnings of differences between US2000 1999 1999 1998 1997 and UK GAAP $million* L million L million L million Ref.: (Restated) (Restated) - -------------------------------------------------- ------ ------------- ------------- ------------- ------------------------------ ----------------- E in millions E in millions ----------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ----- -------- ----- Profit for the year in conformity with UK GAAP 37.8 23.5 23.6 785.4 US GAAP adjustments Amortization of goodwillCash, cash equivalents and other intangibles (a) (6.1) (3.8) (6.1) (6.2) in accordance with US purchase accounting Straight lining of property leases (b) (0.2) (0.1) (0.1) (1.0) Share option compensation (g) (68.9) (42.8) Increase in long-term property provisions (c) - - - 7.5 Effect of discount rates on property provisions (c) (1.8) (1.1) (4.2) (4.5) Fundamental reorganization - Demerger (e) - - - (764.5) Net dividends received from CCG companies prior (d) - - - (10.4) to the Demerger - -------------------------------------------------- ------ ------------- ------------- ------------- ------------- Net profit (loss) applicable to Ordinary (39.2) (24.3) 13.2 6.3 shareholders in conformity with US GAAP - -------------------------------------------------- ------ ------------- ------------- ------------- ------------- Net profit/(loss) applicable per Ordinary share ($0.18) (11.1p) 6.0p 2.8p - - basic Average number of Ordinary shares (in millions) 219.7 219.7 221.9 221.9 Net profit/(loss) per Ordinary share - diluted - - 5.9p 2.8p Average number of Ordinary shares - diluted (in - - 224.1 222.6 millions) - -------------------------------------------------- ------ ------------- ------------- ------------- ------------- December 31, - ------------------------------------------------------------------------ ---- ------------------------------------------------ Cumulative effect on shareholders' deficiency of differences between 1999 1999 1998 USmarketable securities........... 743 743 557 557 Investments................................................ 60 60 28 28 Long-term debt............................................. 180 180 -- -- Financial commitments: Contingent value rights.................................. 96 96 -- --
F-53 110 PUBLICIS GROUPE S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA) The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash, cash equivalents and marketable securities The carrying values of cash, cash equivalents and marketable securities approximate fair value due to the relatively short maturity of these instruments (between three months and one year). Investments available for sale Investments consist of available-for-sale securities, primarily those that are publicly traded. The investments are carried at market value and the unrealized gains and losses on these securities are included in shareholders' equity. For the years ended December 31, 2000 and 1999, unrealized gains of E 156 million and E 151 million, net of tax, have been recorded in shareholders' equity. Other investments Other long-term investments are carried at cost, which approximates estimated fair value. Long-term debt The Company's long-term debt consists primarily of floating rate debt, the carrying value of which approximates fair value. Financial commitments Contingent value rights are publicly traded. The liability related to these rights is carried at market value and UK GAAP $million* L million L million (Restated) - ------------------------------------------------------------------------ ---- -------------- ------------- ------------- Equity shareholders' funds in conformity with UK GAAP (126.1) (78.3) (97.1) US GAAP adjustments Goodwill and US purchase accounting in respect of acquisitions and (a) joint venture Cost 278.7 173.1 173.1 Accumulated amortization (118.1) (73.4) (69.5) Straight lining of property leases (b) (38.8) (24.1) (23.5) Discount on property provisions (c) 10.6 6.6 7.1 Dividends (e) 3.5 2.2 3.1 Treasury stock owned by Employee Share Option Plan (h) (11.0) (6.8) (5.5) - ------------------------------------------------------------------------ ---- -------------- ------------- ------------- Ordinary shareholders' deficiency in conformity with US GAAP (1.2) (0.7) (12.3) - ------------------------------------------------------------------------ ---- -------------- ------------- ------------- Comprehensive Income Comprehensive income under US GAAP is defined as all changes in equity ofthe market value are recorded in earnings. Goodwill Under U.S. GAAP, the Group provides for intangible assets if undiscounted estimated future cash flows are not sufficient to recover the recorded amount. If a business enterprise during a period, except investments by, and distributions to equity owners. Accordingly, comprehensive income consists of net income and other items that are reflected in stockholders' equity onprovision is necessary, the balance sheet and have been excluded from the income statement. Such items of other comprehensive income include foreign currency translation adjustments, and unrealised gains on securities available for sale.
December 31, - ------------------------------------------------ --------------------------------------- 1999 1999 1998 COMPREHENSIVE INCOME $ million* L million L million (Restated) - ------------------------------------------------ ---------- ----------- ----------- Net profit (loss) in accordance with US GAAP (39.2) (24.3) 13.2 Translation differences (11.4) (7.1) 0.2 Holding gain on securities available for sale 0.6 0.4 0.1 - ------------------------------------------------ ---------- ----------- ----------- (50.0) (31.0) 13.5 - ------------------------------------------------ ---------- ----------- ----------- *These figures have been translated at the noon buying rate on December 31, 1999 (L1: $1.61) for convenience.
(l) Prospective Accounting Pronouncement Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998. SFAS 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring recognition of those instruments as assets and liabilities and to measure them at fair value. While originally scheduled to be effective for us in the year 2000, a proposal to delay the implementation of the statement for one year was approved. The Company has not completed its analysis of the impact of this statement on the consolidated financial statements. Note 39 - Subsequent Event (excluded from the scope of the Independent Auditor's Report) On June 20th, 2000, the Company and Publicis S.A. announced that they have reached agreement on the terms of a proposed merger. The proposed merger terms are as follows: o 1.64 Publicis shares for every 100 Saatchi & Saatchi shares, valuing each Saatchi & Saatchi share at 500p, subject to an adjustment mechanism that is intended to maintain, subject to certain limitations,Group would write down the value of the Publicis sharesintangible assets to be received by Saatachi & Saatchi shareholdersthe value of the discounted future cash flows and also evaluate the remaining estimated useful life of the assets as appropriate. In 2000 and 1999, the Company recorded impairment charges on goodwill relating to certain subsidiaries. The impairment charges amounted to Euros 3 million and 4 million for the years ended December 31, 2000 and 1999, respectively and were calculated based on the value of the discounted future cash flows of the subsidiaries. The impairment charges are included in depreciation and amortization in the event of changes in the market price of the Publicis shares and/or the exchange rate between the Euro and the pound sterling; and o Saatchi & Saatchi shareholders will receive one Publicis CVR (contingent value right) with each Publicis share.consolidated income statements. F-54 111 ITEM 19: EXHIBITS The merger is to be effected by way of a scheme of arrangement of Saatchi & Saatchi under section 425 of the Companies Act. Under the scheme of arrangement,following exhibits are included herein:
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1 Statuts (bylaws) of Publicis Groupe S.A. (unofficial English translation). 8 List of Subsidiaries. See note 28 to our financial statements.
112 SIGNATURES The registrant hereby certifies that it meets all of the issued Saatchi & Saatchi shares will be cancelled in considerationrequirements for filing on Form 20-F and that it has duly caused and authorized the issueundersigned to Saatchi & Saatchi shareholders of new Publicis shares and Publicis CVR's, and Saatchi & Saatchi will become a wholly-owned subsidiary of Publicis. The scheme of arrangement (and matters incidental to it) will require approval by a special resolution of Saatchi & Saatchi shareholders to be proposed at a Saatchi & Saatchi extraordinary general meeting. The scheme of arrangement will also require separate approval by Saatchi & Saatchi shareholders at a meeting to be convened by directionsign this annual report on its behalf. PUBLICIS GROUPE S.A. By: /s/ MAURICE LEVY ------------------------------------ Name: Maurice Levy Title: Chairman of the High Court of Justice in England and Wales (the "Court"). The approval required at the Court Meeting will be a majority in number of the Saatchi & Saatchi shareholders who vote at the meeting, either in person or by proxy, representing not less than 75% of the Saatchi & Saatchi shares voted. The scheme of arrangement will also require the sanction of the Court. The scheme of arrangement will become effective upon delivery to the Registrar of Companies in England and Wales of a copy of the order of the Court sanctioning the scheme of arrangement and registration of such order. The merger is expected to be completed by the middle of September, 2000. EXHIBIT INDEX 2.1 Upon the request of the Securities and Exchange Commission, the Company hereby agrees to provide a list of subsidiaries of the Company. 3.1 Transaction Agreement between Publicis S.A. and Saatchi & Saatchi PLC. 4.1 Consent of Independent Auditor. Management Board Dated: July 13, 2001