As filed with the Securities and Exchange Commission on June 30, 2000
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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:
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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].
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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.
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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
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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,
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2000(3) 1999 1998(2) 1997(2) 1996(2)
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(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)
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(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 -- -- --
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(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.
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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
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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
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* 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.
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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.
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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.
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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.
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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
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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.
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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
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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
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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.
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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
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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
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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.
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- 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.
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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.
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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.
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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
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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
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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.
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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
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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.
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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.
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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
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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
======= ======= =========
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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.
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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.
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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."
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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.
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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.
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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
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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."
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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.
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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.
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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.
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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.
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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.
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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,
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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.
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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
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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