Document/Exhibit Description Pages Size
1: 10-K Annual Report 102 614K
2: EX-10.15 Amended and Restated Employment Agmt -Brown 16 48K
3: EX-10.16 Employment Agreement - Kamerick 12 50K
4: EX-10.17 Employment Agreement - Reeves 4 18K
5: EX-10.18 Change in Control Agreement - Brown 11 44K
6: EX-10.19 Change in Control Agreement - Kamerick 11 45K
7: EX-10.20 Change in Control Agreement -Kimball 11 45K
8: EX-10.21 Change in Control Agreement -Reeves 11 45K
9: EX-21.1 Subsidiaries of Bcom3, Inc. 10 71K
10: EX-23.1 Consent of Arthur Andersen LLP 1 7K
11: EX-99.4 Letter to Commission Pursuant to Temporary Note 3T 1 8K
| Page | (sequential) | | | | (alphabetic) | Top |
|---|
| | |
- Alternative Formats (Word, et al.)
- Allowance for Doubtful Accounts
- Beneficial Ownership
- Business
- Cash and cash equivalents
- Certain Relationships and Related Transactions
- Change in Control Agreements
- Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
- Common Stock Equivalents
- Compensation Agreements
- Compensation Committee Interlocks and Insider Participation
- Competition and Other Factors
- Consolidated Balance Sheets as of December 31, 1999 and 1998
- Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997
- Conversion to the Euro
- Craig D. Brown
- Critical Accounting Policies
- Current Directors and Executive Officers
- Defined Benefit Pensions
- Description of our Business
- Description of Securities
- Determination of Per Share Book Value
- Director Compensation
- Directors and Executive Officers of the Registrant
- Disclosures About Contractual Obligations and Commercial Commitments
- Dividends and Dividend Policy
- Employer contribution
- Equity Incentive Plan
- Executive Compensation
- Exhibits
- Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- Financial Statements and Supplementary Data
- Financial Statement Schedules
- Foreign Currency Translation
- Foreign exchange contracts
- Forward-Looking Statements
- General
- General Background
- Interest Rates
- International Operations
- Investments by Dentsu
- Legal Proceedings
- Leo Group, The
- Liquidity and Capital Resources
- Long-lived Assets
- Long-term debt
- Management's Discussion and Analysis of Financial Condition and Results of Operations
- Management Transition Agreements
- Mandatorily redeemable stock
- Market for Registrant's Common Equity and Related Stockholder Matters
- Notes to Consolidated Financial Statements
- Novo Rescission
- Overview
- Properties
- Quantitative and Qualitative Disclosures About Market Risk
- Quarterly Results of Operations (Unaudited)
- Recent Accounting Principles
- Recent Developments
- Recent Issuances of Unregistered Securities
- Record Holders and Beneficial Owners
- Related Party Transactions
- Report of Independent Public Accountants
- Reports on Form 8-K
- Restrictions on Transfer of Shares
- Restrictive Covenants
- Results of Operations
- Retirement Plans
- Roger A. Haupt
- Schedule II
- Section 16(a) Beneficial Ownership Reporting Compliance
- Security Ownership of Certain Beneficial Owners and Management
- Selected Financial Data
- Shares Available for Future Sale
- Short-term borrowings
- Signatures
- Significant accounting policies of the Venture are as follows:
- Stock Purchase Agreement
- Submission of Matters to A Vote of Security Holders
- Summary Compensation Table
- The Leo Group
- Total
- Transfer Restrictions and Absence of Public Market
- Voting Rights
- Voting Trust Agreement
- 2001
|
| 1 | 1st Page - Filing Submission
|
| 4 | Item 1. Business
|
| " | General Background
|
| " | Description of our Business
|
| 5 | Competition and Other Factors
|
| 6 | Item 2. Properties
|
| " | Item 3. Legal Proceedings
|
| " | Item 4. Submission of Matters to A Vote of Security Holders
|
| " | Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
|
| " | Record Holders and Beneficial Owners
|
| " | Transfer Restrictions and Absence of Public Market
|
| 7 | Common Stock Equivalents
|
| " | Shares Available for Future Sale
|
| " | Dividends and Dividend Policy
|
| " | Recent Issuances of Unregistered Securities
|
| 8 | Item 6. Selected Financial Data
|
| 9 | Forward-Looking Statements
|
| " | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
|
| " | Overview
|
| " | General
|
| 10 | Recent Developments
|
| " | Results of Operations
|
| 13 | Liquidity and Capital Resources
|
| " | Disclosures About Contractual Obligations and Commercial Commitments
|
| 14 | Critical Accounting Policies
|
| " | Allowance for Doubtful Accounts
|
| " | Foreign Currency Translation
|
| 15 | Recent Accounting Principles
|
| " | Related Party Transactions
|
| " | Conversion to the Euro
|
| " | Item 7A. Quantitative and Qualitative Disclosures About Market Risk
|
| 16 | Interest Rates
|
| " | International Operations
|
| " | Item 8. Financial Statements and Supplementary Data
|
| " | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|
| 17 | Item 10. Directors and Executive Officers of the Registrant
|
| " | Current Directors and Executive Officers
|
| 18 | Voting Trust Agreement
|
| " | Voting Rights
|
| 20 | Section 16(a) Beneficial Ownership Reporting Compliance
|
| 21 | Item 11. Executive Compensation
|
| " | Summary Compensation Table
|
| 22 | Equity Incentive Plan
|
| " | Retirement Plans
|
| 23 | Employer contribution
|
| " | Compensation Agreements
|
| 24 | Roger A. Haupt
|
| " | Craig D. Brown
|
| 25 | Change in Control Agreements
|
| " | Management Transition Agreements
|
| 26 | Director Compensation
|
| " | Compensation Committee Interlocks and Insider Participation
|
| " | Item 12. Security Ownership of Certain Beneficial Owners and Management
|
| 27 | Beneficial Ownership
|
| " | Description of Securities
|
| 28 | Stock Purchase Agreement
|
| 29 | Restrictions on Transfer of Shares
|
| 30 | Determination of Per Share Book Value
|
| " | Restrictive Covenants
|
| 31 | Item 13. Certain Relationships and Related Transactions
|
| " | Investments by Dentsu
|
| 32 | Novo Rescission
|
| " | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
|
| " | Financial Statement Schedules
|
| " | Exhibits
|
| 33 | Reports on Form 8-K
|
| 34 | Signatures
|
| 37 | Report of Independent Public Accountants
|
| 40 | Mandatorily redeemable stock
|
| 42 | Notes to Consolidated Financial Statements
|
| " | Cash and cash equivalents
|
| 47 | Short-term borrowings
|
| " | Long-term debt
|
| " | Foreign exchange contracts
|
| 54 | Significant accounting policies of the Venture are as follows:
|
| 56 | Defined Benefit Pensions
|
| 58 | 2001
|
| 61 | Quarterly Results of Operations (Unaudited)
|
| 63 | Consolidated Balance Sheets as of December 31, 1999 and 1998
|
| 64 | Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997
|
| 65 | Total
|
| 68 | Long-lived Assets
|
| 78 | The Leo Group
|
| 84 | Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997
|
| 86 | Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
|
| 100 | Schedule II
|
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended: December 31, 2001
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
Commission File Number: 0-32649
-----------------
Bcom3 Group, Inc.
(Exact name of registrant as specified in its charter)
[Download Table]
Delaware 36-4345638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 West Wacker Drive
Chicago, IL 60601
(Address of principal executive offices) (Zip code)
(312) 220-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of February 28, 2002, the Registrant had outstanding 15,289,804 shares of
Class A Common Stock, par value $.01 per share, and 4,284,873 shares of Class B
Common Stock, par value $.01 per share. There is no trading in the common
equity of Bcom3 Group, Inc. and therefore an aggregate market value based on
sales or bid and asked prices is not applicable.
================================================================================
BCOM3 GROUP, INC.
ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 2001
INDEX
[Enlarge/Download Table]
Page
----
PART I
ITEM 1. BUSINESS.................................................................... 1
General Background...................................................... 1
Description of our Business............................................. 1
Competition and Other Factors........................................... 2
ITEM 2. PROPERTIES.................................................................. 3
ITEM 3. LEGAL PROCEEDINGS........................................................... 3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................... 3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................................... 3
Record Holders and Beneficial Owners.................................... 3
Transfer Restrictions and Absence of Public Market...................... 3
Common Stock Equivalents................................................ 4
Shares Available for Future Sale........................................ 4
Dividends and Dividend Policy........................................... 4
Recent Issuances of Unregistered Securities............................. 4
ITEM 6. SELECTED FINANCIAL DATA..................................................... 5
Selected Financial Data................................................. 5
Forward-Looking Statements.............................................. 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................. 6
Overview................................................................ 6
Recent Developments..................................................... 7
Results of Operations................................................... 7
Liquidity and Capital Resources......................................... 10
Disclosures About Contractual Obligations and Commercial Commitments.... 10
Critical Accounting Policies............................................ 11
Recent Accounting Principles............................................ 12
Related Party Transactions.............................................. 12
Conversion to the Euro.................................................. 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................. 12
Interest Rates.......................................................... 13
International Operations................................................ 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................................... 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................... 14
Current Directors and Executive Officers................................ 14
Voting Trust Agreement.................................................. 15
Section 16(a) Beneficial Ownership Reporting Compliance................. 17
i
[Download Table]
Page
----
ITEM 11. EXECUTIVE COMPENSATION............................................. 18
General Background............................................. 18
Summary Compensation Table..................................... 18
Equity Incentive Plan.......................................... 19
Retirement Plans............................................... 19
Compensation Agreements........................................ 20
Change in Control Agreements................................... 22
Management Transition Agreements............................... 22
Director Compensation.......................................... 23
Compensation Committee Interlocks and Insider Participation.... 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................... 23
Beneficial Ownership........................................... 24
Description of Securities...................................... 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... 28
Investments by Dentsu.......................................... 28
Novo Rescission................................................ 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K......................................................... 29
Financial Statement Schedules.................................. 29
Exhibits....................................................... 29
Reports on Form 8-K............................................ 30
SIGNATURES......................................................... 31
ii
PART I
ITEM 1. BUSINESS
General Background
Bcom3 is one of the world's leading advertising and marketing communications
services holding companies. We were created through the business combination of
The Leo Group and The MacManus Group on January 31, 2000. As a result of this
business combination, we have more than 500 offices in over 90 countries, and
more than 17,000 employees. Our most significant global agencies include Leo
Burnett, D'Arcy Masius Benton & Bowles, Starcom MediaVest Group, Manning
Selvage & Lee, and Medicus Group International. We have more than 3,000 clients.
As a result of the business combination, we have assembled the complementary
resources needed to serve the advertising and marketing communications
requirements of our clients around the world. Our service offerings include
creation and production of advertising; branding and brand building (including
services to help create, build, and revitalize clients' brands); strategic
media planning and buying; marketing research and consultation; public
relations; healthcare marketing and communications; multicultural and urban
marketing; direct and database marketing; interactive and digital
communications; financial and business-to-business advertising; directory
advertising; field marketing (including marketing to and through a direct sales
force); integrated merchandising and sales promotion programs (including the
planning, design, and implementation of merchandising and sales promotions and
targeted interactive campaigns); sports and event marketing; telemarketing; new
product design and development; package design; and internet and digital media
development.
We have a strategic relationship with Dentsu Inc. ("Dentsu"), which is the
largest full-service advertising and marketing communications services company
in Japan and throughout Asia, and the single largest advertising agency brand
in the world, in each case based on revenues. This strategic relationship is
focused on aligning with Dentsu to serve significant Dentsu clients in markets
outside of Japan and Asia, as well as on increasing our own presence in Japan.
As part of the strategic relationship, Dentsu purchased approximately 20% of
our Common Stock (measured after dilution for our management equity incentive
plan) in March 2000 as an equity investment. Dentsu also shares certain
intellectual property and know-how with us. During 2001, we merged our
operations in Japan with certain Dentsu operations to form Beacon
Communications. We hold a majority interest in Beacon Communications. In
Australia, we recently purchased certain advertising and media services
businesses from Dentsu, and combined them with our own operations.
We are a privately-held company, and there is no trading in our shares.
Excluding Dentsu, all of our stockholders (a total of approximately 650 of our
current and former employees) have deposited their shares into a voting trust,
with four of our directors serving as the voting trustees. In addition, all of
our stockholders, including Dentsu, have agreed to stock transfer and other
standstill restrictions on their shares. As discussed more fully under Item 7
below, on March 7, 2002, we entered into an agreement to merge with Publicis
Groupe S.A. ("Publicis").
Description of Our Business
We provide advertising and marketing communications services to our clients
around the world through such well-known global agencies as Leo Burnett, D'Arcy
Masius Benton & Bowles, Starcom MediaVest Group, Manning Selvage & Lee, Medicus
Group International and Bartle Bogle Hegarty (a 49% owned affiliate). We also
provide such services to our clients under a number of regional or specialized
agencies, including N.W. Ayer & Partners, Beacon Communications, Bromley
Communications, Buehler & Partners, Capps Digital, Cartwright Williams Direct,
Chemistri, Clarion Marketing & Communications, D'Arcy Direct, IMP, Kaplan
Thaler Group, Lapiz, The Lab, Leo Burnett Customer Group, Leo Burnett Works,
Masius, Moroch Partners, NOVO, Pangea, Vigilante, and Williams-Labadie
Advertising.
Our advertising agencies serve some of the world's leading advertisers based
on ad spending, including Allstate Insurance, Bristol-Myers Squibb, Capital
One, Diageo, Ernst & Young, Fiat, General Motors, Kellogg,
1
Mars, Maytag, McDonald's, Nintendo, Philip Morris, Philips, Pillsbury, Procter
& Gamble, and Walt Disney. We have long standing relationships with many of our
clients, extending back more than 25 years on average for our top 10 clients.
Our advertising agencies have produced well-known campaigns, such as "Look,
Ma. No Cavities!," for Crest; "A Diamond is Forever," for DeBeers; "This Bud's
for You," for Anheuser Busch; "The Pause that Refreshes," for Coca-Cola; "Reach
Out and Touch Someone," for AT&T; "The Best Part of Wakin' Up," for Folgers;
and "Please Don't Squeeze the Charmin" for Procter & Gamble. In addition, we
have created such enduring brand icons as the Marlboro man, for Philip Morris;
Tony the Tiger, for Kellogg; the Jolly Green Giant, for Pillsbury/Green Giant;
the Pillsbury Doughboy, for Pillsbury; the Keebler elves, for Keebler; and the
Maytag repairman, for Maytag.
We are also a leading global provider of strategic media planning and buying
services, based on revenues. We help our clients plan and place their
advertising and other marketing communications using television, print, radio,
and other major media. In March 2001, our Starcom MediaVest Group won the
consolidated media assignment from Kraft Foods with billings estimated at $900
million. The magnitude of this assignment secures its ranking among the largest
in history, following the $2.9 billion General Motors consolidated strategic
planning assignment which Starcom MediaVest Group won in July 2000. In January
2001, Ad Age Global named Starcom MediaVest Group the "Global Media Network of
the Year," and Adweek named it the "Media Company of the Year."
We have operations in the United States, Europe, Asia Pacific, Latin
America, Canada, the Middle East and Africa. As noted above, we have more than
500 offices in over 90 countries, and more than 17,000 employees, approximately
67% of whom work outside the United States.
Competition and Other Factors
The advertising and marketing communications services industry is highly
competitive. Our operating units must compete with other advertising agencies
and with other providers of marketing communications services that are not
advertising agencies in order to maintain existing client relationships and
obtain new clients.
Competition in the advertising business depends to a large extent on the
client's and the consumer's view of the quality of an agency's "creative
product." Another important competitive consideration is an agency's ability to
serve clients, particularly large multinational clients, on a broad geographic
basis. Increasing size can limit an agency's potential for securing new
business, however, because many clients prefer not to be represented by an
agency that also represents a competitor. Also, clients frequently wish to have
different products represented by different agencies. For this reason, major
advertising and marketing communications services groups such as Bcom3 tend to
operate multiple agencies.
Our top 20 clients accounted for 55.5% of our annual revenues in 2001 and,
as a result, we might suffer material adverse consequences if one of our
largest clients were to completely cease doing business with us. Although there
can be no assurance, we believe there are several factors that would make such
an event unlikely. First, we generally represent several different brands or
divisions within each of our largest clients, typically in a number of
different geographical markets, and often under more than one of our own
brands. Moreover, we normally deal with several different, independent decision
makers at each client. Furthermore, as noted above, we have longstanding
relationships with our largest clients.
The advertising business is subject to significant government regulation,
both domestic and foreign. These regulations include specific rules,
prohibitions, media restrictions, and labeling, disclosure, and warning
requirements with respect to advertising directed at children; with respect to
the protection of consumer privacy; and with respect to the advertising for
certain products, such as tobacco and alcohol. We provide services to several
clients affected by these regulations, including tobacco-related advertising
assignments for Philip Morris. Government regulators have proposed further such
restrictions from time to time, which, if adopted, may have an adverse effect
on our advertising revenues. Our international operations are also exposed to
certain risks that affect international operations of all kinds, such as local
legislation, monetary devaluation, exchange control restrictions, and unstable
political conditions.
2
ITEM 2. PROPERTIES
Our principal place of business, located at 35 West Wacker Drive, Chicago,
IL 60601, comprises 643,823 square feet of space, which includes our corporate
headquarters. Our main telephone number is 312.220.1000. Our office at 825
Eighth Avenue, New York, NY 10019, comprising 104,359 square feet of space,
also includes corporate offices. We also have offices in other principal cities
in the United States and in over 90 other countries. All of our offices are
leased, with the exception of our facilities in Colombia, Guatemala, Mexico,
Venezuela, India, and Sweden. For financial accounting purposes, our leased
corporate headquarters building in Chicago is reflected as an asset and the
related financing obligation is reflected as a liability. See Note 15 to our
Consolidated Financial Statements, included elsewhere in this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various claims and lawsuits arising in the ordinary
course of business. We do not expect any of these matters to have a material
adverse effect on our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Record Holders and Beneficial Owners
The only record holders of our Common Stock as of December 31, 2001 were
four Voting Trustees, who hold all of our outstanding Class A Common Stock in a
voting trust for the benefit of approximately 650 beneficial owners, and
Dentsu, which holds all of our outstanding Class B Common Stock.
Transfer Restrictions and Absence of Public Market
No beneficial owner of our Class A Common Stock can transfer his or her
shares without our prior written consent, which we will normally grant only for
a transfer by the stockholder:
. to members of the stockholder's family, to a family limited partnership
or limited liability company, to a trust for the benefit of the
stockholder and his or her family members, or to a charitable trust; or
. to the stockholder's heirs and legatees upon the stockholder's death;
provided, in each instance, that the transferee agrees to be bound by the terms
of the Stock Purchase Agreement dated as of January 31, 2000 between us and
each of our stockholders.
Dentsu has agreed not to transfer its Class B Common Stock, other than
intercompany transfers to its affiliates, transfers to the public in the event
we have had an initial public offering, and transfers to certain permitted
third party institutional investors.
As a result of these transfer restrictions, there is no current public
trading market for our Common Stock, and we do not expect any trading in our
Common Stock to develop.
3
Common Stock Equivalents
As of February 28, 2002, there were outstanding options to acquire
approximately 1,750,000 shares of Class A Common Stock held by approximately
1,200 employees of Bcom3 and its subsidiaries, primarily at an exercise price
of $130 per share. We do not have any other outstanding securities that are
convertible into or exercisable or exchangeable for shares of Common Stock.
Shares Available for Future Sale
In addition to the transfer restrictions described above, all of the
outstanding shares of our Common Stock are "restricted" securities within the
meaning of the Securities Act and, as such, may not be sold in the absence of
registration under the Securities Act, or an exemption therefrom, including the
exemptions contained in Rule 144 under the Securities Act.
We have granted Dentsu registration rights, applicable in the event we have
had an initial public offering and Dentsu wishes to sell some or all of its
shares to the public.
Dividends and Dividend Policy
We paid a special dividend of $.25 per share to holders of our Common Stock
on February 9, 2001. On February 18, 2002, we declared a cash dividend of $.25
per share of Common Stock. This dividend was paid by March 18, 2002 to holders
of our Common Stock as of February 18, 2002.
Recent Issuances of Unregistered Securities
Commencing with the formation of Bcom3, we have issued the following
securities without registration under the Securities Act:
. On January 31, 2000, in transactions exempt from registration under Rule
506 of Regulation D and under Regulation S under the Securities Act, we
issued an aggregate of 15,472,660 shares of our Class A Common Stock to
the former stockholders of The Leo Group and The MacManus Group in
exchange for their stock in connection with the business combination. Of
these former stockholders, 379 were individuals residing in the United
States, 347 of whom were accredited investors. The remaining 283 former
stockholders were individuals residing outside the United States.
Purchaser representatives were available to assist the unaccredited
investors with their decision, and a private placement memorandum
containing audited financial statements and other information required by
Regulation D was furnished to the former stockholders.
. On March 14, 2000, in a transaction exempt from registration under
Regulation S under the Securities Act, we sold 4,274,248 shares of our
Class B Common Stock to Dentsu, an accredited investor headquartered in
Japan, for cash consideration in the amount of $493,162,734.
. On February 16, 2001, in a transaction exempt from registration under
Rule 506 of Registration D under the Securities Act, we issued an
aggregate of 40,000 shares of our Class A Common Stock to the four former
limited partners of a partially-owned operating unit in exchange for
their limited partnership interests. The four former limited partners
consisted of an individual (who was the president of the operating unit
and an accredited investor) and three trusts for the benefit of his
children. The individual, together with his attorney, acted as trustee of
the trusts.
. On April 19, 2001, in a transaction exempt from registration under
Regulation S under the Securities Act, we sold 10,000 shares of our Class
B Common Stock to Dentsu, an accredited investor headquartered in Japan,
for cash consideration in the amount of $1,300,000.
4
. Prior to June 29, 2001, in transactions exempt from registration under
Rule 701 under the Securities Act, we granted stock options to
approximately 850 employees of Bcom3 and its subsidiaries, giving such
individuals the right to acquire approximately 975,000 shares of Class A
Common Stock, generally at an exercise price of $130 per share.
. On January 23, 2002, in a transaction exempt from registration under
Regulation S under the Securities Act, we sold 625 shares of our Class B
Common Stock to Dentsu for cash consideration in the amount of $81,250.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data
The following table sets forth our selected financial data and should be
read in conjunction with our consolidated financial statements which begin on
page F-1 (in thousands except per share amounts):
[Enlarge/Download Table]
Bcom3 Group, Inc. Leo Burnett Worldwide, Inc.
----------------------- ---------------------------------------
(Formerly known as The Leo Group, Inc.)
(Predecessor Company)
Years Ended December 31, Years Ended December 31,
----------------------- ---------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
Operating Data:
Revenue................................... $1,917,343 $1,833,727 $ 934,200 $ 831,100 $ 811,300
Nonrecurring charge(1).................... $ -- $ 71,889 $ -- $ -- $ --
Amortization of intangibles(2)............ $ 78,256 $ 71,468 $ 8,300 $ 5,700 $ 1,900
Restructuring and other special
charges................................. $ 20,252 $ -- $ -- $ -- $ --
Net income (loss)......................... $ 26,081 $ (65,613) $ 28,500 $ 22,700 $ 17,000
Net loss per common share, basic and
diluted(3).............................. $ (11.36) $ (36.34) $ -- $ -- $ --
Dividends declared per common
share(4)................................ $ 0.25 $ -- $ 0.60 $ -- $ --
Cash distributions to S corporation
stockholders............................ $ -- $ -- $ -- $ 11,901 $ 19,976
Balance Sheet Data:
Working capital........................... $ (141,655) $ 264,116 $ 53,900 $ 44,200 $ 137,200
Total assets.............................. $4,106,439 $4,433,879 $1,601,000 $1,338,000 $1,258,500
Long-term obligations:....................
Long-term debt less current
maturities.......................... $ 9,450 $ 389,128 $ 2,600 $ 7,800 $ 4,900
Real estate finance obligation........ $ 187,714 $ 195,321 $ 203,400 $ 214,200 $ 219,500
Deferred compensation and accrued
retirement benefits................. $ 110,309 $ 117,749 $ 45,100 $ 46,700 $ 49,400
Mandatorily redeemable stock.......... $ 301,494 $ 239,126 $ 195,100 $ 151,200 $ 157,800
______________________
(1) The nonrecurring charge (with no associated tax benefit) is related to the
Leo Burnett stock redemption offer in connection with the business
combination. See Note 8 to the Consolidated Financial Statements of Bcom3
for additional information.
(2) Of this amount, $69.5 million and $64.9 million represents the amortization
charge for the years ended December 31, 2001 and 2000, respectively, which
resulted from the business combination. The remainder primarily represents
goodwill amortization related to other acquisitions.
(3) Net loss per common share is calculated only on the outstanding Class B
Common Stock, which was issued to Dentsu in March 2000 in connection with
its investment in Bcom3. All Class A Common Stock is treated as Mandatorily
redeemable stock and is excluded from the calculation.
(4) Dividends declared per common share for the year ended December 31, 1999
exclude distributions to stockholders when we were a Subchapter S
corporation. These distributions were primarily made to cover the
stockholders' tax liabilities with respect to the flow-through of S
corporation income to their individual income tax returns.
5
Forward-Looking Statements
This Form 10-K document contains disclosures that are forward-looking
statements. Forward-looking statements include all statements that do not
relate solely to historical or current facts and can be identified by the use
of words such as "may," "will," "expect," "project," "estimate," "anticipate,"
"plan," or "continue." These forward-looking statements are based upon the
current plans or expectations of Bcom3 and are subject to a number of
uncertainties and risks that could significantly affect current plans and
anticipated actions and our future financial condition and results. The
uncertainties and risks include, but are not limited to, general economic and
business conditions; the impact of recent terrorist activity on the general
economy and our industry in particular; loss of significant customers; changes
in levels of client advertising; the impact of competition; risks relating to
acquisition activities; and the complexity of integrated computer systems. As a
consequence, current plans, anticipated actions and future financial condition
and results may differ materially from those expressed in any forward-looking
statements made by us or on behalf of us.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Bcom3 and its predecessor company, The Leo Group, and
the notes thereto included elsewhere in this Form 10-K.
Overview
General: Bcom3 is one of the world's leading advertising and marketing
communications services holding companies. We were created through the business
combination of The Leo Group and The MacManus Group on January 31, 2000. We
have more than 500 offices in over 90 countries, and more than 17,000
employees. Our service offerings include creation and production of
advertising; branding and brand building; strategic media planning and buying;
marketing research and consultation; public relations; healthcare marketing and
communications; multicultural and urban marketing; direct and database
marketing; interactive and digital communications; financial and
business-to-business advertising; directory advertising; field marketing;
integrated merchandising and sales promotion programs; sports and event
marketing; telemarketing; new product design and development; package design;
and internet and digital media development. We have operations in the United
States, Europe, Asia Pacific, Latin America, Canada, the Middle East and Africa.
Clients: Our top 20 clients accounted for 55.5% of our annual revenues in
2001 and, as a result, we might suffer material adverse consequences if one of
our largest clients were to completely cease doing business with us. Although
there can be no assurance, we believe there are several factors that would make
such an event unlikely. First, we generally represent several different brands
or divisions within each of our largest clients, typically in a number of
different geographical markets, and often under more than one of our own
agencies. Moreover, we normally deal with several different, independent
decision makers at each such client. Furthermore, we have longstanding
relationships with our largest clients.
Employees: We employed over 17,000 employees as of December 31, 2001,
approximately 67% of whom work outside of the United States.
Revenues: Revenues consist principally of fees for services and for
production of advertisements. Additionally, revenue is derived from commissions
for placement of advertisements in various media. Revenues are diversified
across geographic regions, with various sectors of the economy and types of
advertising and marketing communications services provided. In 2001 and 2000,
53.1% and 52.1%, respectively, of revenues were derived from U.S. operations,
and 29.0% and 28.3%, respectively, from operations in Europe. The remainder was
divided among the operations in Asia Pacific, Latin America, Canada, the Middle
East and Africa. In addition, we represent clients in a variety of industries,
including consumer-packaged goods, automotive, food and beverage, financial
services, technology and healthcare. Our largest client, Procter & Gamble,
individually
6
accounted for approximately 12.7% and 12.0% of our revenues from providing
advertising and marketing communications services for 2001 and 2000,
respectively. Our second largest customer, Philip Morris, accounted for
approximately 11.2% and 9.0% of our revenues from providing advertising and
marketing communications services for 2001 and 2000, respectively.
Recent Developments
Proposed Merger with Publicis
On March 7, 2002, Bcom3 entered into two merger agreements, both of which
are related to our proposed merger with Publicis.
The first merger agreement is with Dentsu. This agreement provides for the
merger of Boston Three Corporation, a wholly-owned subsidiary of Bcom3, into
Bcom3 (the "First Step Merger"). In this merger, (1) Dentsu will pay
approximately $498.7 million in cash to holders of our Class A Common Stock,
(2) Dentsu will receive additional shares of our Class B Common Stock and (3)
the number of shares held by holders of Class A Common Stock will be
correspondingly reduced. The closing of the First Step Merger is conditioned,
among other things, on approval by Bcom3's stockholders and satisfaction of the
conditions to closing of the merger of Publicis and Bcom3 (other than the
condition that the First Step Merger has closed).
The second merger agreement is with Publicis. This agreement provides for
the merger of Bcom3 into a wholly-owned subsidiary of Publicis (the
"Publicis/Bcom3 Merger"). In this merger, holders of our Class A Common Stock
and Class B Common Stock will be entitled to receive ordinary shares of
Publicis and other merger consideration, as described for each Class in the
merger agreement. The closing of the Publicis/Bcom3 Merger is conditioned,
among other things, on approval by stockholders of Bcom3 and Publicis,
regulatory approvals, receipt of opinions as to the tax treatment of the
merger, and the closing of the First Step Merger. Certain Publicis stockholders
representing about 45% of the voting power of all Publicis shares, and certain
Bcom3 stockholders representing about 31% of the voting power of all Bcom3
shares, have agreed to vote in favor of the Publicis/Bcom3 Merger. The merger
agreement provides for a $90 million termination fee to be paid by either
company if the merger agreement is terminated in certain circumstances,
including if such company's Board of Directors changes its recommendation with
respect to the transaction or if such company receives a competing proposal
and, after the merger agreement terminates for certain reasons, such company
agrees to a business combination with a third party within 12 months of the
termination.
Special Dividend
On February 18, 2002, we declared a cash dividend of $.25 per share of
Common Stock. This dividend was paid by March 18, 2002 to holders of our Common
Stock as of February 18, 2002.
Grant of Stock Options
During February 2002, we granted options to purchase 843,900 shares of Class
A Common Stock at an exercise price of $130 per share to approximately 400
employees.
Results of Operations
2001 vs 2000
Revenues: For 2001, our consolidated worldwide revenue increased 4.6% to
$1,917.3 million from $1,833.7 million in 2000, reflecting growth in both
domestic and international operations. This increase also reflects a full year
of operations in 2001 from the merger between The Leo Group and The MacManus
Group on January 31, 2000. Our domestic revenue for the year 2001 increased
6.5% to $1,017.3 million from
7
$954.8 million in 2000. The effect of acquisitions, net of divestitures,
increased domestic revenues by 4.9%, and was principally attributable to the
effects of including one additional month of operations of The MacManus Group.
Net new business wins and higher net revenue from existing clients accounted
for the remaining 1.6% increase in domestic revenues. Our 2001 international
revenue for the year 2001 increased 2.4% to $900.0 million from $878.9 million
in 2000. The effect of acquisitions, net of divestitures, increased
international revenues by 7.5%, and was principally attributable to the effects
of including one additional month of operations of The MacManus Group. Changes
in translation of foreign currencies to the U.S. Dollar decreased international
revenue by 7.8%. This decrease was primarily caused by the strengthening of the
U.S. Dollar against various European and Asia Pacific currencies. Net new
business wins and higher net revenue from existing clients accounted for the
remaining 2.7% increase in international revenues.
Expenses: Operating expenses for 2001 decreased 1.0% to $1,784.0 million
from $1,801.5 million in 2000. Excluding $20.3 million of restructuring and
other special charges taken during 2001 and the $71.9 million nonrecurring
charge incurred in connection with the merger between The Leo Group and The
MacManus Group in 2000, operating expenses increased 2.0% to $1,763.8 million
from $1,729.6 million in 2000. Compensation and employee benefits increased
0.7% to $1,142.4 million from $1,134.7 million and represented 59.6% of
revenues compared to 61.9% in 2000. The change was less than the rate of
revenue growth and was primarily attributable to a better alignment of
compensation expense with revenues. Other general expenses decreased by 3.1% to
$320.6 million from $330.8 million primarily as a result of higher post-merger
integration costs incurred in 2000. Office and related expenses increased 12.5%
to $151.9 million in 2001 from $135.0 million in 2000 primarily as a result of
the inclusion of a full year of operating results of the merger between The Leo
Group and The MacManus Group and increased rental costs incurred in 2001.
Depreciation and amortization expense increased 15.4% to $148.9 million in 2001
from $129.0 million in 2000 due to the inclusion of a full year of operating
results of the merger between The Leo Group and The MacManus Group and
increased amortization for computer software in 2001.
As part of our operating initiatives related to the merged operations of The
Leo Group and The MacManus Group, we incurred $20.3 million of restructuring
and other special charges during 2001 related to the streamlining of certain of
our businesses. These charges include costs associated with severance, fixed
asset impairments, leasehold consolidations and other related costs of $5.3
million, $3.6 million, $10.5 million and $0.9 million, respectively.
The 2000 results of operations included a $71.9 million nonrecurring charge
related to The Leo Group stock redemption offer, which immediately preceded the
business combination. The stock redemption was offered to employee stockholders
with loans outstanding under the Leo Burnett employee loan program to redeem a
number of shares sufficient to retire the amount of outstanding borrowings
under these loans. The nonrecurring charge was equal to the difference in the
book value and cash to be paid for the shares offered for redemption.
Operating Income: Operating income increased 314.0% to $133.3 million in
2001 from $32.2 million in 2000. Excluding $20.3 million of restructuring and
other special charges recorded during 2001 and the $71.9 million nonrecurring
charge recorded during 2000, operating income increased 47.6% to $153.6 million
for 2001 from $104.1 million for 2000.
Other Income (Expense): Interest income for 2001 decreased 35.1% to $22.4
million from $34.5 million in 2000 as cash balances were utilized to pay down
debt and due to reduced interest rates, particularly in the United States where
the majority of cash investments were held. Interest expense had a related
decrease of 24.9% to $44.0 million from $58.6 million in 2000 for similar
reasons. Our foreign currency loss decreased 56.7% to $1.3 million from $3.0
million for the year 2000 primarily as a result of reduced foreign exchange
exposure and greater stability between the U.S. Dollar and our primary trading
currencies.
Income Taxes: Excluding the effect of the amortization of goodwill and
intangible assets of $78.3 million and the related tax benefits of $7.5
million, the effective tax rate was 42.6% through 2001. Excluding the effect
8
of the amortization of goodwill and intangible assets of $71.4 million and
related tax benefits of $7.2 million and the 2000 nonrecurring charge recorded
in connection with the merger of The Leo Group and The MacManus Group of $71.9
million, the effective tax rate through 2000 was 49.7%. The decrease in the
effective tax rate in 2001 over 2000 was a result of one-time nondeductible
costs in 2000 and a change in the source of earnings and corresponding
weighting of tax rates on a country-by-country basis.
Minority Interest and Equity in (Loss) Income of Affiliates: Minority
interest increased $2.7 million to $11.0 million in 2001 from $8.3 million in
2000 as a result of the reflection of the minority interest of previous equity
affiliates partially offset by increased ownership in consolidated
subsidiaries. Equity in (loss) income of affiliates decreased $4.4 million to a
loss of $0.5 million in 2001 from income of $3.9 million in 2000, primarily as
a result of affiliates previously accounted for under the equity method, which
are consolidated subsidiaries in 2001, as well as increased operational losses
of certain affiliates.
2000 vs 1999
Revenues: In 2000, consolidated worldwide revenue increased 96.3% to
$1,833.7 million from $934.2 million in 1999. Of this increase $785.0 million
was attributable to the acquisition of The MacManus Group and $18.6 million of
the increase was due to other acquisitions, net of divestitures, completed
during 2000. The remaining increase of $95.9 million was due to net new
business wins and higher revenue from existing clients.
Expenses: Operating expenses for 2000 increased 109.8% to $1,801.5 million
from $858.6 million in 1999. Of this increase, $838.2 million was attributable
to the acquisition of The MacManus Group, including goodwill amortization of
$64.9 million and a nonrecurring charge of $71.9 million related to The Leo
Group stock redemption offer, which immediately preceded the business
combination.
The stock redemption was offered to employee stockholders with loans
outstanding under the Leo Burnett employee loan program to redeem a number of
shares sufficient to retire the amount of outstanding borrowings under these
loans. The nonrecurring charge was equal to the difference in the book value
and cash to be paid for the shares offered for redemption.
The remaining increase in expenses over 1999 of $104.7 million represented
$8.2 million attributable to acquisitions net of divestitures and $96.5 million
of operating expenses incurred to service new business wins and growth from
existing clients. Compensation and employee related expenses in 2000 increased
93.0% to $1,134.7 million from $587.7 million primarily due to the acquisition.
The increase was slightly lower than the rate of revenue growth. These costs
represented 61.9% of revenues compared to 62.9% in 1999. Office and related
expenses in 2000 increased 77.5% to $135.0 million from $76.1 million also
primarily due to the acquisition of The MacManus Group.
Operating Income: The combination of stronger revenue growth and cost
management favorably impacted operating income.
Other Income (Expense): Interest income increased 336.5% to $34.5 million
in 2000 from $7.9 million in 1999 due to increased liquidity resulting from the
Dentsu investment. Interest expense increased 268.2% to $58.6 million from
$15.9 million primarily due to increased levels of bank debt incurred at the
time of the merger. Significant levels of cash and debt were maintained
throughout 2000 as the term-loan debt structure restricted debt retirement
until 2001.
Income Taxes: The effective tax rate, calculated based upon the provision
for income taxes, was 1,235.9% in 2000 compared to 47.2% for the previous
period. The increase in the effective tax rate in 2000 was due to the impact of
nondeductible goodwill amortization and the nonrecurring charge.
Minority Interest and Equity in (Loss) Income of Affiliates: Minority
interest increased $2.9 million to $8.3 million in 2000 from $5.4 million in
1999, primarily due to lower aggregate profits at these subsidiaries.
9
Equity in (loss) income of affiliates increased $2.8 million to $3.9 million in
2000 from $1.1 million in 1999 primarily as a result of the acquisition of The
MacManus Group.
Liquidity and Capital Resources
We had cash and cash equivalents of $227.7 million and $598.2 million at
December 31, 2001 and 2000, respectively. Net cash provided by our operating
activities was $258.9 million in 2001, compared to $2.0 million in 2000,
primarily reflecting net income growth and improved working capital management
during 2001.
Cash flows used in our investing activities during 2001 were $154.8 million,
including $75.2 million used for acquisitions net of cash acquired. Our net
expenditures for property and equipment were $83.1 million for 2001. These
expenditures primarily related to our worldwide investment in technology,
coupled with leasehold improvements.
Cash flows used in our financing activities during 2001 were $466.7 million,
including $9.4 million used to repay short-term debt, $11.8 million used to pay
dividends, and $452.0 million used to repay long-term debt.
We believe that our operating cash flow, combined with cash on hand and
access to our revolving credit facility, are sufficient to support our
foreseeable cash requirements, including dividends, capital expenditures,
acquisitions and working capital.
During 2001, certain merger related restrictions lapsed, allowing for an
amendment to our banking agreement to facilitate repayment of long-term debt.
On August 1, 2001, we amended our $385.0 million term loan and $120.0 million
revolving credit facility to provide for a new $450.0 million revolving credit
facility, of which $150.0 million is committed through July 2002 and $300.0
million is committed through July 2004. This revolver was not drawn at December
31, 2001.
In addition to our committed revolver, we maintain relationships with a
number of banks worldwide that have extended unsecured lines of credit totaling
$275.5 million, of which $39.4 million was outstanding short-term debt at
December 31, 2001, leaving $236.1 million unused.
As of December 31, 2001, we had long-term debt of $15.5 million primarily
related to equipment financing and certain stockholder notes.
Disclosures About Contractual Obligations and Commercial Commitments
The following tables summarize our contractual obligations and commercial
commitments at December 31, 2001, and the effect such obligations and
commitments are expected to have on our liquidity and cash flow in future
periods:
[Enlarge/Download Table]
Payments Due By Period
-------------------------------------------------------------------------------------
(in thousands)
Total Due in 2002 Due in 2003 Due in 2004 Due in 2005 Due in 2006 Thereafter
-------- ------------ ------------ ------------ ------------ ------------ -----------
Contractual Obligations..........
Long-term debt................. $ 8,327 $ 2,211 $ 5,847 $ 10 $ 9 $ 26 $ 224
Capital lease obligations...... 7,139 3,805 3,204 115 15 -- --
Operating leases............... 629,753 92,423 84,464 72,819 66,629 63,027 250,391
Sale-leaseback transaction..... 125,307 10,341 10,600 10,865 10,703 10,970 71,828
Other long-term obligations(1). -- -- -- -- -- -- --
-------- ------------ ------------ ------------ ------------ ------------ -----------
Total contractual cash....... $770,526 $ 108,780 $ 104,115 $ 83,809 $ 77,356 $ 74,023 $ 322,443
======== ============ ============ ============ ============ ============ ===========
10
[Enlarge/Download Table]
Amount of Commitment Expiration Per Period
-------------------------------------------------------------------------------------
(in thousands)
Total Due in 2002 Due in 2003 Due in 2004 Due in 2005 Due in 2006 Thereafter
-------- ------------ ------------ ------------ ------------ ------------ -----------
Other commercial commitments.......
Committed revolver............... $450,000 $ 150,000 $ -- $ 300,000 $ -- $ -- $ --
Lines of credit.................. 39,393 39,393 -- -- -- -- --
Standby letters of credit........ 8,889 6,878 2,011 -- -- -- --
Guarantees....................... 19,252 19,252 -- -- -- -- --
-------- ------------ ------------ ------------ ------------ ------------ -----------
Total commercial commitments... $517,534 $ 215,523 $ 2,011 $ 300,000 $ -- $ -- $ --
======== ============ ============ ============ ============ ============ ===========
--------
(1) Our acquisition agreements are generally structured to defer a portion of
the purchase price to future periods. Future payments are contingent on the
acquired company achieving revenue and/or profitability targets. The amount
of these payments are reflected in our financial statements when they
become fixed and determinable at certain milestone dates. At this time,
these payments are neither fixed nor determinable and have not been
included in this table. Based on management's estimates of future earnings,
the estimated amount of these payments are not expected to have a material
impact on our future liquidity.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The process of
preparing financial statements in conformity with U.S. GAAP requires the use of
estimates and assumptions regarding certain types of assets, liabilities and
expenses. We believe that of our Significant Accounting Policies (see Note 2 to
our consolidated financial statements), the following may involve a higher
degree of judgment and complexity.
Allowance for Doubtful Accounts
Accounts receivable are presented net of our allowance for doubtful
accounts. The allowance for doubtful accounts is determined through a
specific identification process whereby management assesses the
collectability of receivables based in part on the financial condition of
the client.
Property and Equipment and Intangibles
We depreciate property and equipment and amortize intangibles over
their useful lives. Assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable.
Foreign Currency Translation
Our consolidated financial statements are prepared in accordance with
the requirements of SFAS No. 52, "Foreign Currency Translation." Assets
and liabilities of our foreign subsidiaries, other than those located in
highly inflationary countries, are translated at current exchange rates,
while income and expense are translated at average rates for the period.
For entities in highly inflationary countries, a combination of current
and historical rates is used to determine foreign currency gains and
losses resulting from financial statement translation. Resulting
translation gains and losses are reported as a component of stockholder's
equity, except for those associated with highly inflationary countries,
which are reported directly in the consolidated statements of operations.
Certain of our intercompany loans with international subsidiaries are of a
long-term investment nature since settlement is not planned or anticipated
in the foreseeable future. Accordingly, related gains or losses are
reported and accumulated in the same manner as currency translation
adjustments. Foreign currency transaction gains and losses are included in
the determination of net income.
Loss Lease Provisions
We will record a loss lease provision when we decide to abandon or
sublet rented office space. This provision will be equal to the lesser of
the difference between our rent expense per the lease agreement less any
expected sublease income to be received during the remaining term of the
lease or any penalties which result from lease cancellation. We will also
evaluate the realizability of any leasehold improvements associated with
the space and record a provision if we will not be able to recover its
remaining book value through sublease income.
11
Deferred Taxes
We record a valuation allowance to reduce our deferred tax assets to
the amount that is likely to be realized. We consider future taxable
income and ongoing tax planning strategies in assessing the required
valuation allowance. If our future realizable deferred tax assets are in
excess of our net recorded amount, we would increase deferred tax assets
with a corresponding increase to net income in such period. If our future
realizable deferred tax assets are less than our net recorded amount, we
would reduce deferred tax assets with a corresponding reduction to net
income in such period.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities and expenses.
Such estimates primarily relate to unsettled transactions and events as of
the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Recent Accounting Principles
Several new accounting principles have been adopted during the year. We have
included a summary with the related impact on our results of operations in Note
2 in the Notes to Consolidated Financial Statements.
Related Party Transactions
In January 2000, before the business combination in which Bcom3 was formed,
a subsidiary of The MacManus Group sold a portion of its shareholdings in a
majority-owned subsidiary called Novo MediaGroup to 25 managers of The MacManus
Group and its operating units (including Messrs. Bostock and Brown), in return
for consideration consisting of cash and non-recourse promissory notes. In
March 2001, we notified all of these managers that we were offering to rescind
the original transaction, in order to regain majority ownership and control of
Novo MediaGroup, and also in order to avoid certain potential disputes with the
managers. All 25 of the managers accepted our rescission offer, with the result
that we refunded each manager's original cash consideration and cancelled his
or her promissory note. Messrs. Bostock and Brown received cash refunds in the
respective amounts of $1,152,500 and $1,150,195, and we cancelled their
promissory notes in the respective principal amounts of $1,152,500 and
$1,154,805. For all 25 managers as a group, the total cash refunded was
$10,733,595, and the total principal amount of the cancelled notes was
$10,738,655.
Conversion to the Euro
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. We conduct business in member
countries. The transition period for the introduction of the Euro is between
January 1, 1999 and June 30, 2002. We are addressing the issues involved with
the introduction of the Euro. The major important issues facing us include:
converting information technology systems, negotiating and amending contracts
and processing tax and accounting records.
Based upon progress to date, we believe that the use of the Euro will not
have a detrimental impact on the manner in which we conduct our business
affairs and process our business and accounting records. Accordingly,
conversion to the Euro has not had, and is not expected to have, a material
effect on our financial condition or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our policy is to use financial instruments to manage risk consistent with
our business plans and prudent practices. The risk inherent in our market risk
sensitive instruments and positions is the potential loss arising from adverse
changes in interest rates and foreign currency exchange rates as discussed
below. Our senior management actively participates as a risk oversight function
to ensure compliance with corporate policies and prudent risk management
practices are adhered to.
12
We periodically purchase derivative financial instruments as part of
managing exposures to currency exchange and market interest rates. Derivative
financial instruments are subject to market and counterparty risk. Market risk
is the potential for loss resulting from changes in market conditions. Since it
is our practice that derivative instruments are only used to hedge specific
exposures of like amount and duration, the potential negative impact on future
earnings due to market risk is immaterial. Counterparty risk arises from the
inability of a counterparty to meet its obligations. To mitigate counterparty
risk, we enter into derivative contracts with major financial institutions that
have credit ratings at least equal to our own. Gains and losses on hedging
derivatives are equal to and offset the hedged positions.
Interest Rates
We are subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage our interest rate exposure through
the use of fixed rate debt, floating rate debt placed in staggered maturities
and interest rate swaps. We do not use financial instruments to speculate in
interest rates. At December 31, 2001, we had no interest rate swaps
outstanding. Assuming gross indebtedness at December 31, 2001 was carried
throughout the entire year, a hypothetical 10% change in market interest rates
would result in a $0.2 million change in the annual interest costs related to
the floating rate debt. Conversely, the same hypothetical change in interest
rate applied to floating rate cash and marketable securities at December 31,
2001 would result in a $0.9 million change in interest income over the course
of a year.
International Operations
Our results of operations are subject to the risk of currency exchange rate
fluctuations related to our international operations. This economic risk is
generally limited to the net income of the operations as the revenue and
expenses of the operations are generally denominated in the same currency. Our
major international markets are the United Kingdom, Euro currency countries,
China/Hong Kong, Mexico, Brazil, Canada and Japan. While we do not hedge the
net income of our international operations, in some cases we enter into hedging
transactions to mitigate the risk of adverse currency exchange on certain cross
border transactions such as intercompany settlements. At December 31, 2001, we
had open forward foreign currency contracts for approximately $11.0 million to
hedge certain intercompany obligations. It is not our policy to use derivatives
to hedge the net investment positions in our international subsidiaries.
Investing in non-U.S. countries involves certain risks. As currencies
fluctuate against the U.S. Dollar, there is a corresponding change in our
investment value in terms of the U.S. Dollar. Such change is reflected as an
increase or decrease in comprehensive income, a separate component of
stockholder's equity. Net foreign currency devaluations have reduced the
reported amount of total stockholder's equity by $9.1 million as of December
31, 2001.
We cannot predict foreign currency exchange rate movements, and therefore
cannot predict the impact of such movements on our financial condition, results
of operations and net cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is presented in this report beginning
on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Current Directors and Executive Officers
The following table sets forth the name, age, and position of each of our
directors and executive officers:
[Download Table]
Name Age Position
--------------------------- -- ----------------------------------------------------
Roger A. Haupt(3).......... 54 Chairman and Chief Executive Officer and a Director
Craig D. Brown(3).......... 50 President and Chief Operating Officer and a Director
Eileen A. Kamerick......... 43 Executive Vice President and Chief Financial Officer
Christian E. Kimball....... 46 Chief Administrative Officer and Chief Legal Officer
Elizabeth L. Reeves........ 48 Executive Vice President and Global HR Director
Roy J. Bostock(1)(2)(3).... 61 Director
Richard B. Fizdale(1)(2)(3) 62 Director
Fumio Oshima(2)(3)......... 64 Director
Naoki Kobuse(1)(3)......... 60 Director
--------
(1) Member of the Audit Committee
(2) Member of the Board Nominating and Compensation Committee
(3) Member of the People and Compensation Committee
Roger A. Haupt is our Chairman and Chief Executive Officer, and he has been
a Director of Bcom3 since the January 2000 business combination in which Bcom3
was formed. Mr. Haupt was President and Chief Executive Officer of The Leo
Group in 2000, Chief Operating Officer in 1999, Chief Administrative Officer
from 1997 to 1999, and an Executive Vice President from 1989 to 1997. He also
served as Vice Chairman from 1996 to 2000. Mr. Haupt joined Leo Burnett in 1984
after working in various positions throughout Latin America.
Craig D. Brown is our President and Chief Operating Officer, and he has been
a Director of Bcom3 since the January 2000 business combination in which Bcom3
was formed. Mr. Brown was Vice Chairman, Chief Operating Officer, and Chief
Financial Officer of The MacManus Group from 1996 to 2000, and Chief Financial
Officer from 1985 to 1996. Mr. Brown began his business career in 1972 at
Arthur Andersen & Co., and joined D'Arcy MacManus Masius in 1980. D'Arcy
MacManus Masius merged with Benton & Bowles in 1985 to form D'Arcy Masius
Benton & Bowles, and the combined company was later renamed The MacManus Group
in 1996.
Eileen A. Kamerick is our Executive Vice President and Chief Financial
Officer. Prior to joining Bcom3 in September 2001, Ms. Kamerick was Executive
Vice President and Chief Financial Officer of United Stationers, a Fortune 500
office products company. Ms. Kamerick was previously Vice President and Chief
Financial Officer--the Americas for BP plc from 1998 to 2000. Prior to the
merger of BP and Amoco, Ms. Kamerick served as Vice President and Treasurer for
Amoco Corporation.
Christian E. Kimball is our Chief Administrative Officer and Chief Legal
Officer. Mr. Kimball was Vice Chairman and Chief Administrative Officer of The
Leo Group in 2000, Chief Administrative Officer from 1999 to 2000, and General
Counsel from 1998 to 1999. Prior to that, he was a professor at the Boston
University School of Law from 1993 to 1998, and a partner at the Chicago office
of the law firm Kirkland & Ellis from 1989 to 1993. Mr. Kimball is also our
Corporate Secretary.
Elizabeth L. Reeves is our Executive Vice President and Global Human
Resources Director. Prior to joining Bcom3 in October 2000, Ms. Reeves was a
group vice president at CNA Financial Corp in Chicago. Ms. Reeves had
previously spent 18 years with General Electric and GE Capital.
14
Roy J. Bostock is our former Chairman, having stepped down from full-time
employment with Bcom3 effective as of March 31, 2001. He continues to serve as
a Director of Bcom3, a position he has held since the January 2000 business
combination in which Bcom3 was formed. Mr. Bostock was Chairman and Chief
Executive Officer of The MacManus Group from 1990 to 2000, and President from
1985 to 1990. Mr. Bostock began his career at Benton & Bowles in 1964, which
merged with D'Arcy MacManus Masius in 1985 to form D'Arcy Masius Benton &
Bowles. In 1996, the combined company was renamed The MacManus Group.
Richard B. Fizdale is our former Vice Chairman, having stepped down from
full-time employment with Bcom3 effective as of December 31, 2000. He continues
to serve as a Director of Bcom3, a position he has held since the January 2000
business combination in which Bcom3 was formed. Mr. Fizdale was Chief Executive
Officer of The Leo Group from 1997 through 1999, and Chief Creative Officer
from 1992 through 1997, and he also served as Chairman from 1992 to 2000. Mr.
Fizdale joined Leo Burnett in 1969.
Fumio Oshima has been a Director of Bcom3 since March 2000. Mr. Oshima has
served as Managing Director of Dentsu since 1997, and Senior Managing Director
of Dentsu International Headquarters since June 2000. Previously, Mr. Oshima
was Managing Director of an Account Planning Group and Executive Director of
the Asian region. He has sat on the Dentsu Board of Directors since 1995.
Naoki Kobuse has been a Director of Bcom3 since January 2002. Mr. Kobuse was
appointed as Director of one of Dentsu's Account Services Divisions in December
1995. His responsibilities included overseeing the accounts of several
multi-national clients. In 1999, he was selected for advancement to Executive
Officer and was placed in charge of five account services divisions and two
other related divisions. In June of 2001, Mr. Kobuse was promoted to Senior
Executive Officer, and at the same time he was assigned to the International
Business Headquarters where, as Deputy Managing Director, he worked closely
with Mr. Fumio Oshima in developing Dentsu's international business strategy
and globalization efforts. In January 2002, Mr. Kobuse was transferred to New
York where he replaced Mr. Megumi Niimura as head of all Dentsu operations in
the United States.
Voting Trust Agreement
General
The following summary describes some of the more important provisions of our
Voting Trust Agreement. The complete Voting Trust Agreement, which contains
precise legal terms and conditions and other information not summarized here,
is included as an exhibit to this Form 10-K.
As discussed more fully under Item 7 above, on March 7, 2002, we announced a
proposed merger with Publicis Groupe S.A. and other related transactions that,
if consummated, will result in various changes to the information discussed
below. These changes will be described in detail in our proxy statement with
respect to such transactions.
Because Bcom3 is a privately-held company, it is our general policy that
only employees of Bcom3 and its various subsidiaries may acquire shares of our
Class A Common Stock. Any such person who is to acquire shares of our Class A
Common Stock must also become a party to our Voting Trust Agreement.
Pursuant to the Voting Trust Agreement, all of the holders of our Class A
Common Stock have deposited their shares into a voting trust, with Messrs.
Haupt, Bostock, Fizdale, and Brown as the Voting Trustees, all as described
below.
Voting Rights
The Voting Trustees have the right to vote all of the shares of Common Stock
held by the voting trust whenever a vote of our stockholders is required;
provided, however, that our individual stockholders have the
15
right to direct the voting of their shares by the Voting Trustees with respect
to any proposal regarding a merger, consolidation, or dissolution of Bcom3 or
any proposal to sell all, or substantially all, of our assets. The affirmative
vote of a majority of the Voting Trustees is required to take action under the
Voting Trust Agreement. The Voting Trustees may also take action by unanimous
written consent.
Although our individual stockholders generally do not have any right to vote
their shares of Common Stock while such shares are deposited in the voting
trust, such stockholders retain the economic ownership of their shares
(including the right to receive any dividends in respect of their shares).
Voting Trustees
Currently, Messrs. Haupt, Bostock, Fizdale, and Brown serve as the Voting
Trustees, and each will serve until the earliest to occur of his death,
voluntary resignation, permanent disability, or removal by the unanimous vote
of the other three Voting Trustees. Messrs. Haupt and Fizdale are "paired"
under the Voting Trust Agreement, so that if either of them ceases to serve as
a Voting Trustee, the other will have the right to appoint a successor Voting
Trustee. Similarly, if either Mr. Bostock or Mr. Brown ceases to serve as a
Voting Trustee, the other will have the right to appoint a successor Voting
Trustee. If both Messrs. Haupt and Fizdale, on the one hand, or Messrs. Bostock
and Brown, on the other hand, cease to serve as Voting Trustees, and no
successors have been appointed as described above, then their successors will
be selected by a panel of former stockholders of The Leo Group, in the case of
Messrs. Haupt and Fizdale, or of The MacManus Group, in the case of Messrs.
Bostock and Brown.
Duration
The Voting Trust Agreement has an unlimited duration; provided, however,
that the Voting Trust Agreement may be terminated at any time, either by the
action of 75% of the Voting Trustees or by the action of the beneficial owners
of at least 75% of the shares of Common Stock held by the voting trust.
Amendments
The Voting Trust Agreement may be amended by the action of 75% of the Voting
Trustees, other than those sections of the Voting Trust Agreement relating to
the pass-through of dividends and the right of the beneficial owners to direct
voting on a merger, consolidation, or dissolution of Bcom3 or a sale of all, or
substantially all, of our assets. See "--General" and "--Voting Rights" above.
The beneficial owners of at least 75% of the shares of Common Stock held by the
voting trust also have the right to amend the Voting Trust Agreement.
Board of Directors
The Voting Trust Agreement requires the Voting Trustees to vote all shares
of Common Stock held by the voting trust in order to:
. set the size of our Board of Directors at six members; and
. elect as directors Messrs. Haupt, Bostock, Fizdale, and Brown.
Dentsu has the right to elect, remove, and replace the other two members of
our Board of Directors. See "Security Ownership of Certain Beneficial Owners
and Management--Description of Securities--Voting Rights" below.
In the event Mr. Haupt or Mr. Fizdale dies, voluntarily resigns from our
Board of Directors, becomes permanently disabled, or is removed by the
unanimous vote of the three other Voting Trustees, the Voting Trustees shall
elect as a new director another individual to be designated by Messrs. Haupt
and Fizdale, to the extent each remains a voting trustee.
16
In the event Mr. Bostock or Mr. Brown dies, voluntarily resigns from our
Board of Directors, becomes permanently disabled, or is removed by the
unanimous vote of the three other Voting Trustees, the Voting Trustees shall
elect as a new director another individual designated by Messrs. Bostock and
Brown, to the extent each remains a voting trustee.
The Voting Trust Agreement also provides that all actions of the Board of
Directors shall require the affirmative vote of both (x) a majority of all six
directors and (y) a majority of the four directors who have been elected by the
Voting Trustees, considered as a single group for this purpose.
Management
Our Certificate of Incorporation provides that our stockholders (rather than
our Board of Directors) have the right to elect, remove, and replace specified
corporate officers. See "Security Ownership of Certain Beneficial Owners and
Management--Description of Securities--Voting Rights" below.
The Voting Trust Agreement provides that 75% of our Voting Trustees have the
power to vote all shares of Common Stock held by the voting trust in order to
elect, remove, and replace our Chairman, Vice Chairman, Chief Executive
Officer, President, Chief Operating Officer, Chief Administrative Officer, and
Secretary.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than 10% of our Common Stock,
to file with the SEC initial reports of ownership and reports of changes in
ownership of our Common Stock. To the best of Bcom3's knowledge, for the year
ended December 31, 2001, all Section 16(a) filing requirements applicable to
our directors, officers and 10% owners were complied with, except that the
Initial Statement of Beneficial Ownership on Form 3 for each such person was
filed late.
17
ITEM 11. EXECUTIVE COMPENSATION
General Background
Our Board Nominating and Compensation Committee reviews and determines
compensation and benefits for our executive officers who are also directors,
with appropriate input from independent consultants regarding industry and
comparable company practices.
Summary Compensation Table
The following table sets forth the compensation earned by our Chief
Executive Officer and each of our other executive officers with respect to 2001
and with respect to the eleven-month period following the business combination
in which Bcom3 was formed on January 31, 2000.
[Enlarge/Download Table]
Annual Compensation(1)
---------------------------
Other Securities
Fiscal Annual Underlying LTIP All Other
Name and Principal Position Year Salary Bonus(2) Comp(3) Options(4) Payouts(5) Comp(1)(6)
--------------------------- ------ -------- ---------- ------- ---------- ----------- -----------
Roger A. Haupt............... 2001 $950,000 $ 950,000 -- -- $ 475,000 $ 18,260
Chairman and Chief Executive 2000 $687,500 $1,315,476 -- -- -- $ 212,966
Officer
Craig D. Brown............... 2001 $750,000 $ 600,000 -- -- -- $ 2,766
President and Chief Operating 2000 $554,583 $ 990,000 -- -- -- $ 2,378
Officer
Eileen A. Kamerick(7)........ 2001 $154,968 $ 325,000 -- 10,000 -- $ 988
Executive Vice President and
Chief Financial Officer
Christian E. Kimball......... 2001 $542,500 $ 217,000 -- -- -- $ 17,159
Chief Administrative Officer 2000 $320,833 $ 352,976 -- -- -- $ 37,667
and Chief Legal Officer
Elizabeth L. Reeves(8)....... 2001 $400,000 $ 160,000 -- 6,500 -- $ 2,869
Executive Vice President and 2000 $ 69,444 $ 170,000 -- -- -- $ 1,179
Global HR Director
--------
(1) As noted above, all information for 2000 has been prorated to show
compensation only with respect to the eleven-month period following the
business combination in which Bcom3 was formed on January 31, 2000.
(2) Bonuses for 2001 were pursuant to a short-term incentive plan based on such
factors as growth in revenues, growth in profits before tax, and absolute
attainment of margin targets.
(3) In accordance with SEC regulations, perquisites and personal benefits are
not included in this column for an individual if the aggregate amount did
not exceed the lesser of either $50,000 or 10% of the total annual salary
and bonus for such individual as reported in the above table. Our executive
officers pay personal income taxes with respect to all amounts of other
annual compensation as required by law.
(4) Messrs. Haupt, Brown, and Kimball have not received any stock option grants
or other awards under our Equity Incentive Plan. Mmes. Kamerick and Reeves
received non-qualified stock option grants under the Plan during 2001 as
noted above.
(5) Mr. Haupt participates in a long-term incentive arrangement, pursuant to
which our Board Nominating and Compensation Committee approved a special
payout for him in the above amount, determined based on Mr. Haupt's
individual performance since the formation of Bcom3 in January 2000,
including his role in helping our Board formulate strategic alternatives
culminating in the proposed merger with Publicis that we announced on March
7, 2002.
(6) This column includes the following for 2001 and 2000, respectively: (a) our
contributions or other allocations under tax-qualified defined contribution
retirement plans ($13,600 and $18,700 for Mr. Haupt; $1,800 and $1,800 for
Mr. Brown; and $13,600 and $18,700 for Mr. Kimball); (b) our contributions
under group term life insurance plans ($966 and $578 for Mr. Brown); and
(c) our payment of premiums on various individual life insurance policies
($4,660 and $3,501 for Mr. Haupt; $988 for Ms. Kamerick, in 2001; $3,559
and $2,574 for Mr. Kimball; and $2,869 and $1,179 for Ms. Reeves). For 2000
only, this column also includes our contributions or other allocations
under certain non-qualified retirement plans that have since been
discontinued ($190,765 for Mr. Haupt; and $16,393 for Mr. Kimball).
(7) Ms. Kamerick joined Bcom3 on September 4, 2001. All information in the
above table for Ms. Kamerick for 2001 is with respect only to the period
following such date.
(8) Ms. Reeves joined Bcom3 on October 30, 2000. All information in the above
table for Ms. Reeves for 2000 is with respect only to the period following
such date.
18
Equity Incentive Plan
Our Board of Directors has adopted, and our Voting Trustees have approved,
the Bcom3 2000 Long-Term Equity Incentive Plan and the Bcom3 2001 California
Stock Option Plan. The purpose of these Plans is to promote our long-term
growth and profitability by:
. increasing our ability to attract and retain exceptional persons to serve
as employees of Bcom3 and its subsidiaries;
. motivating such employees to achieve longer-range performance goals; and
. enabling such employees to participate in our long-term growth and
financial success.
The Plans permit us to grant incentive or non-qualified stock options, stock
appreciation rights (either alone or in tandem with stock options), restricted
stock, performance awards, or any combination of the foregoing, covering up to
1,846,660 shares of Class A Common Stock in the aggregate.
As of February 28, 2002, approximately 1,200 employees of Bcom3 and its
subsidiaries held Bcom3 stock options, giving such individuals the right to
acquire approximately 1,750,000 shares of Class A Common Stock in the
aggregate, generally at an exercise price of $130 per share. Messrs. Haupt,
Brown, and Kimball have not received any grants or awards under the Plan. Mmes.
Kamerick and Reeves received non-qualified stock option grants during 2001
under the Plan as set forth in the following table:
[Enlarge/Download Table]
Individual Option Grants During 2001
---------------------------------------------------------------------------------
Potential Realizable
Number of Value at Assumed
Securities Annual Rates of Stock
Underlying Percent of Total Price Appreciation for
Options Options Granted Option Term
Granted to Employees in Exercise Price ----------------------
Name (#) Fiscal Year ($/Share) Expiration Date 5% ($) 10% ($)
---- ---------- ---------------- -------------- --------------- -------- ----------
Roger A. Haupt........ -- -- -- -- -- --
Craig D. Brown........ -- -- -- -- -- --
Eileen A. Kamerick(1). 10,000 1.1% $130 08/31/11 $817,563 $2,071,865
Christian E. Kimball.. -- -- -- -- -- --
Elizabeth L. Reeves(2) 6,500 0.7% $130 12/29/10 $531,416 $1,346,712
--------
(1) The non-qualified stock options granted to Ms. Kamerick vest in four equal
installments, such that they will be 25% vested on August 31, 2003, 50%
vested on August 31, 2004, 75% vested on August 31, 2005, and 100% vested
on August 31, 2006.
(2) The non-qualified stock options granted to Ms. Reeves vest in four equal
installments, such that they will be 25% vested on December 31, 2002, 50%
vested on December 31, 2003, 75% vested on December 31, 2004, and 100%
vested on December 31, 2005.
Since we are a privately-held company with no trading in our shares of
Common Stock, there has been no market determination of the value of the shares
underlying the stock options held by Mmes. Kamerick and Reeves as of December
31, 2001.
Retirement Plans
We recently adopted a new tax-qualified cash balance retirement plan,
effective as of January 1, 2002. Mmes. and Messrs. Haupt, Brown, Kamerick,
Kimball, and Reeves participate in this new retirement plan, on the same basis
as our other employees.
We express each participant's accumulated benefit under the cash balance
plan as an account balance from time to time.
All participants under the new cash balance plan who participated in a
predecessor defined benefit pension plan have an opening account balance under
the new plan equal to the present value of their accrued benefit under the old
plan. For a cash balance plan participant who leaves and elects to take his or
her vested benefit as a
19
lump sum payment, these opening account balances represent the minimum payment
amount. The actual lump sum payment for a particular participant could be
higher than his or her opening account balance if applicable interest rates
have declined from their level as of January 1, 2002, or if the participant
would have become eligible for subsidized early retirement benefits under a
predecessor defined benefit pension plan, in either case by the time he or she
leaves and elects to take his or her benefit as a lump sum payment under the
new cash balance plan.
The opening account balances for Mmes. and Messrs. Haupt, Brown, Kamerick,
Kimball, and Reeves under the new cash balance plan were $183,684, $150,798,
$0, $16,403, and $0, respectively, as of January 1, 2002.
We make annual employer contributions to each participant's account in an
amount equal to a specified percentage of his or her eligible annual pay (up to
a maximum of $200,000 for 2002). As shown in the following table, the
applicable contribution percentage increases as a function of the participant's
years of service:
[Download Table]
Employer Contribution
---------------------
Years of Percent of Maximum
Service Eligible Pay For 2002
------------------------------- ------------ --------
X (less than) 5 4.0% $ 8,000
5 (less or =) X (less than) 10 5.0% $10,000
10 (less or =) X (less than) 15 6.5% $13,000
X (greater or =) 15 8.0% $16,000
We also credit each participant's account with periodic interest earnings on
the account balance from time to time (using an interest rate derived from the
yield to maturity on long-term United States Treasury Bonds).
Participants in the cash balance plan vest in their account balances after
completing five years of service. As of March 2002, Mr. Haupt had completed
approximately 18 years of service, Mr. Brown had completed approximately 21
years of service, Ms. Kamerick had completed less than one year of service, Mr.
Kimball had completed approximately four years of service, and Ms. Reeves had
completed approximately one year of service.
Messrs. Haupt and Kimball also have letter agreements regarding Executive
Employment Consultancy Arrangements. Under these agreements, each will be
entitled to receive semi-monthly payments, at an annual rate equal to 30% of
the sum of (x) his final annual base salary plus (y) his final annual ''bonus''
(or, if greater, the average of his final and immediately previous annual
bonuses), along with the continuation of certain employee benefits, for a
period of five years commencing upon his retirement. Mr. Haupt has already
vested in this benefit, having attained age 50, and Mr. Kimball will vest in
this benefit at age 55.
Mr. Brown also has a Salary Continuation Agreement. Under this agreement, he
will be entitled to receive monthly payments for a period of 10 years following
his death, disability, or retirement. Mr. Brown is entitled to receive monthly
payments at the rate of $250,000 per annum, beginning with his retirement (at
age 55 or later) or upon his earlier death or disability (subject, in the case
of disability, to offset for certain disability insurance proceeds that Mr.
Brown may be entitled to receive under company-paid policies).
Mr. Brown shall forfeit his right to receive any of these payments should he
breach certain nonsolicitation or noncompetition restrictions for a period of
two years after the termination of his employment.
Compensation Agreements
Unless a capitalized term is defined in this Form 10-K and except as set
forth herein, such term shall have the meaning given to it in each employee's
respective compensation agreement or change in control agreement, as the case
may be, included as an exhibit to this Form 10-K.
20
Roger A. Haupt
Mr. Haupt has an Employment Agreement with us, dated as of January 1, 2001,
providing that he will serve as our Chief Executive Officer through December
31, 2004 (subject to extension by mutual agreement), and receive an annual base
salary of not less than $950,000, annual bonuses and stock option awards (as
recommended by our Board Nominating and Compensation Committee), and various
employee benefits and perquisites. Mr. Haupt will also be entitled to receive
certain payments and other benefits in connection with our termination of his
employment or his resignation as follows:
. in the event we terminate Mr. Haupt's employment because of his death,
"Permanent Disability," or "Retirement," he will receive a lump sum
payment equal to the sum of (x) his current annual base salary plus (y)
the greater of his target bonus for the current year or his highest bonus
actually received in any of the three previous years; or
. in the event we terminate Mr. Haupt's employment for any reason other
than death, Permanent Disability, Retirement, or "Cause," or in the event
Mr. Haupt resigns for "Good Reason" or in connection with a "Change of
Control," he will receive a lump sum payment equal to three times (or, if
we terminate his employment or he resigns in connection with a Change of
Control, four times) the sum of (x) his current annual base salary plus
(y) the greater of his target bonus for the current year or his highest
bonus actually received in any of the three previous years, together with
accelerated vesting of any otherwise unvested benefits.
In either event, Mr. Haupt will also be entitled to the continuation of
certain welfare benefits, and our termination of his employment or his
resignation will be an "Agreed Separation" (or, if applicable, termination by
reason of death or "Permanent Disability") for purposes of our Stock Purchase
Agreement (see "Security Ownership of Certain Beneficial Owners and
Management--Stock Purchase Agreement" below). Under certain circumstances
involving excise tax charges, Mr. Haupt will also be entitled to receive
certain incremental payments, intended to restore his after-tax benefit. Mr.
Haupt has agreed that he will not compete with us or solicit any of our clients
or employees for a period of five years after we terminate his employment for
any reason or he resigns.
Craig D. Brown
Mr. Brown has an employment agreement with The MacManus Group, dated as of
January 1, 1999. Under this agreement, Mr. Brown is entitled to receive a
minimum annual base salary of $605,000 and a target bonus. Mr. Brown is also
entitled to receive a long-term incentive award, to be paid in two installments
if certain specified objectives are achieved. The first 50% installment is to
be paid on or before April 30, 2002, and the second and final installment is to
be paid on or before April 30, 2003, provided in each instance that Mr. Brown
continues to comply with all the terms and conditions of his agreement. Mr.
Brown is also entitled to various employee benefits and perquisites. Under this
agreement, Mr. Brown has agreed to certain nonsolicitation and noncompetition
restrictions for a period of two years after the termination of his employment
for any reason.
Eileen A. Kamerick
Ms. Kamerick has an employment agreement with us, dated as of August 17,
2001. Under this agreement, Ms. Kamerick is entitled to receive a signing bonus
of $125,000, a minimum annual base salary of $500,000, and a target bonus. Ms.
Kamerick is also entitled to receive certain benefits upon the termination of
her employment. If we terminate Ms. Kamerick's employment without "Cause," or
if she terminates her employment for "Good Reason," then she is entitled to
receive 6 months of welfare benefits and an amount equal to 6 months of her
base salary in severance (or, if such termination occurs prior to August 17,
2002, then 12 months of welfare benefits and $800,000 in severance).
Elizabeth L. Reeves
Ms. Reeves has an employment arrangement with us, dated as of October 30,
2000, which entitles her to a signing bonus of $100,000, a minimum annual base
salary of $400,000, and a target bonus. Ms. Reeves is also entitled to
severance benefits for a period of up to 12 months.
21
Change in Control Agreements
In January 2002, Mmes. and Messrs. Brown, Kamerick, Kimball, and Reeves
entered into change in control agreements with the Company. Under these
agreements, each of them is entitled to receive certain payments and benefits
upon any involuntary termination of employment without "Cause," or any
"Constructive Discharge," within the period beginning 90 days prior to a
"Change in Control" and ending on the third anniversary of such Change in
Control. Depending upon the date of termination, these agreements provide for a
lump sum payment of up to two times (in the case of Messrs. Brown and Kimball),
or three times (in the case of Mmes. Kamerick and Reeves), the sum of (x) his
or her annual base salary plus (y) his or her aggregate target incentive bonus
for the current year (or, if greater, the highest aggregate cash compensation
he or she earned in salary and bonuses with respect to any of the three
previous calendar years), together with accelerated vesting of any otherwise
unvested benefits. Depending upon the date of termination, these agreements
also provide for a continuation of all retirement and welfare benefits for up
to two years (in the case of Messrs. Brown and Kimball), or three years (in the
case of Mmes. Kamerick and Reeves), together with up to 12 months of
outplacement assistance. Should any of Mmes. and Messrs. Brown, Kamerick,
Kimball, and Reeves receive any payments or benefits under these agreements
that are subject to any excise tax charges, they shall also be entitled to
receive incremental payments from us intended to restore their pre-excise tax
benefits.
Management Transition Agreements
As noted above, Messrs. Bostock and Fizdale have stepped-down from full-time
employment with Bcom3, effective as of March 31, 2001, in the case of Mr.
Bostock, and December 31, 2000, in the case of Mr. Fizdale. Although Messrs.
Bostock and Fizdale are no longer full-time employees, they continue to serve
as directors and Voting Trustees of Bcom3, and rank among our largest
individual employee stockholders.
Prior to the January 2000 business combination in which Bcom3 was formed,
Mr. Bostock had served as the Chairman and Chief Executive Officer of The
MacManus Group and Mr. Fizdale had served as the Chairman and Chief Executive
Officer of The Leo Group. After the business combination, Messrs. Bostock and
Fizdale recognized that it was in the best interests of Bcom3 and its
stockholders to provide for a smooth and seamless transition of management
authority, and each deemed it important to implement this transition as soon as
possible. We, in turn, wanted to provide appropriate transition packages for
Messrs. Bostock and Fizdale in recognition of their many years of dedicated
service, their respective contributions to the substantial growth in
stockholder value that occurred while each served as Chairman and Chief
Executive Officer of a constituent company, and their continuing personal
investment in and involvement with Bcom3.
Accordingly, when Mr. Fizdale stepped down from full-time employment with
Bcom3 effective as of December 31, 2000, we entered into a Management
Transition Agreement with him providing that: (a) he would serve as our
executive consultant and receive semi-monthly payments pursuant to his
preexisting Executive Employment Consultancy Arrangement for a period of five
years, commencing on January 1, 2001, at a rate equal to 30% of the sum of his
final annual base salary plus his final annual "bonus" (or, if greater, the
average of his final and immediately previous annual bonuses), along with the
continuation of certain employee benefits; (b) he would remain in office as a
Director and a Voting Trustee; (c) he would receive health and insurance
benefits under our retiree medical plans; (d) he would receive special bonus
payments, in the amount of $68,500 per month, until such time as he has sold
(or is able to sell) a specified portion of his shares of Class A Common Stock;
(e) his retirement would be an "Agreed Separation" for purposes of our Stock
Purchase Agreement; and (f) he would not compete with us or solicit any of our
clients or employees for a period of five years.
Similarly, when Mr. Bostock stepped down from full-time employment with
Bcom3 effective as of March 31, 2001, we entered into a Management Transition
Agreement with him providing that: (a) he would serve as our executive
consultant, receiving consulting fees for the nine-month period from April 1
through December 31, 2001 at a rate equal to his former base salary for 2000,
and would thereafter receive monthly payments pursuant to his preexisting
Salary Continuation Agreement for a period of 10 years, commencing on January
1, 2002, at
22
the rate of $350,000 per annum; (b) he would remain in office as a Director and
a Voting Trustee; (c) he would receive health and insurance benefits under our
retiree medical plans; (d) he would receive special bonus payments, in the
amount of $65,000 per month, until such time as he has sold (or is able to
sell) a specified portion of his shares of Class A Common Stock; (e) his
retirement would be an "Agreed Separation" for purposes of our Stock Purchase
Agreement; and (f) he would not compete with us or solicit any of our clients
or employees for a period of five years. After his retirement, Mr. Bostock
continued to provide substantial services, working with key clients through the
end of the year. These services were above and beyond what was expected at the
time of his retirement. Accordingly, in October 2001, we agreed that Mr.
Bostock would receive a bonus for 2001 commensurate with the bonus we paid him
for 2000.
Director Compensation
Directors are reimbursed for reasonable expenses actually incurred in
connection with attending each formal meeting of the Board of Directors or any
committee thereof. No other compensation is paid to Directors in their capacity
as such.
Compensation Committee Interlocks and Insider Participation
The current members of our Board Nominating and Compensation Committee are
Messrs. Bostock, Fizdale, and Oshima. Mr. Bostock is our former Chairman,
having stepped down from full-time employment effective as of March 31, 2001,
and Mr. Fizdale is our former Vice Chairman, having stepped down from full-time
employment effective as of December 31, 2000.
Mr. Oshima is Senior Managing Director of Dentsu International Headquarters,
and a member of Dentsu's Board of Directors. See "Directors and Executive
Officers" above, and "Certain Relationships and Related
Transactions--Investments by Dentsu" below.
During 2001, (a) none of our executive officers served as a member of the
compensation committee (or other board committee performing similar functions
or, in the absence of any such committee, the board of directors) of another
entity, one of whose executive officers served in turn on our Board Nominating
and Compensation Committee; (b) none of our executive officers served as a
director of another entity, one of whose executive officers served in turn on
our Board Nominating and Compensation Committee; and (c) none of our executive
officers served as a member of the compensation committee (or other board
committee performing similar functions or, in the absence of any such
committee, the board of directors) of another entity, one of whose executive
officers served in turn as a Director of Bcom3.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 28, 2002, we had outstanding 15,289,804 shares of Class A
Common Stock, $.01 par value per share and 4,284,873 shares of Class B Common
Stock, $.01 par value per share. See "Description of Securities" below.
As discussed more fully under Item 7 above, on March 7, 2002, we entered
into an agreement to merge with Publicis Groupe S.A.
23
Beneficial Ownership
The following table contains information regarding the beneficial ownership
of our Common Stock as of February 28, 2002 by: (a) each person or entity whom
we know to be a beneficial owner of more than 5% of our Common Stock; (b) each
member of our Board of Directors; (c) each of our executive officers; and (d)
all of our directors and executive officers as a group.
[Enlarge/Download Table]
Number of Shares Percentage
Beneficially Beneficially
Name of Beneficial Owner(1) Owned(2) Owned
--------------------------- ---------------- ------------
Dentsu Inc.(3)............................................. 4,284,873 21.89%
Roger A. Haupt(4).......................................... 15,289,804 78.11%
Roy J. Bostock(4).......................................... 15,289,804 78.11%
Richard B. Fizdale(4)...................................... 15,289,804 78.11%
Craig D. Brown(4).......................................... 15,289,804 78.11%
Eileen A. Kamerick......................................... -- --
Christian E. Kimball....................................... * *
Elizabeth L. Reeves........................................ -- --
Fumio Oshima............................................... -- --
Naoki Kobuse............................................... -- --
All directors and executive officers as a group (9 persons) 19,574,677 100.00%
--------
* Less than 1% beneficial ownership
(1) The business address of Dentsu is 1-11, Tsukiji, Chuo-ku, Tokyo 104-8426,
Japan. The business address of Messrs. Oshima and Kobuse is c/o Dentsu at
the above address. The business address of Mmes. and Messrs. Haupt,
Bostock, Fizdale, Brown, Kamerick, Kimball, and Reeves is c/o Bcom3 Group,
Inc., 35 West Wacker Drive, Chicago, IL 60601.
(2) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship, or otherwise has or shares (a) the power to vote, or direct
the voting of, that security or (b) investing power which includes the
power to dispose, or to direct the disposition of, that security. In
addition, a person is deemed to be the beneficial owner of a security if
that person has the right to acquire beneficial ownership of that security
within 60 days of February 28, 2002. Except as otherwise noted, the persons
and entity listed in this table have sole voting and investment power with
respect to all of the shares of Common Stock owned by them.
(3) Dentsu holds all of the outstanding Class B Common Stock.
(4) Messrs. Haupt, Bostock, Fizdale, and Brown, in their respective capacities
as the Voting Trustees under a Voting Trust Agreement, share voting power
over all of our outstanding Class A Common Stock. See "Directors and
Executive Officers--Voting Trust Agreement" below. Messrs. Haupt, Bostock,
Fizdale, and Brown disclaim beneficial ownership with respect to all but
1,816,622 shares of such Class A Common Stock in the aggregate.
Description of Securities
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our Certificate of
Incorporation and Bylaws, copies of which are included as exhibits to this Form
10-K, and the laws of the State of Delaware.
Authorized Capital Stock
Our Certificate of Incorporation authorizes us to issue up to 50,000,000
shares of Common Stock, consisting of 40,000,000 shares of Class A Common Stock
and 10,000,000 shares of Class B Common Stock. The outstanding shares of Common
Stock are duly authorized, validly issued, fully paid, and nonassessable.
Voting Rights
Holders of Common Stock will generally be entitled to one vote per share on
all matters that we submit to a vote of stockholders; provided, however, that
holders of Class B Common Stock, voting as a separate class, will have the
right to approve certain amendments to our Certificate of Incorporation that
would adversely affect them
24
as a class. In addition, so long as the outstanding Class B Common Stock
comprises at least 15% of our total Common Stock, holders of Class B Common
Stock, voting as a separate class, will have the right to elect, remove, and
replace two of our six Directors (or, if we ever have more than six Directors,
then one third of our Directors rounded up to the next whole number).
Alternatively, if the outstanding Class B Common Stock ever comes to comprise
less than 15%, but still comprises at least 5%, of our total Common Stock, then
holders of Class B Common Stock, voting as a separate class, will have the
right to elect, remove, and replace one of our six Directors (or, if we ever
have more than six Directors, then one-sixth of our Directors rounded up to the
next whole number). See "Certain Relationships and Related
Transactions--Investments by Dentsu" below. In any event, holders of Class A
Common Stock, voting as a separate class, will have the right to elect, remove,
or replace all of our other Directors.
All of the outstanding shares of our Class A Common Stock have been
deposited into a voting trust, and such shares will be voted by the Voting
Trustees. See "Directors and Executive Officers of the Registrant--Voting Trust
Agreement" above.
Our Certificate of Incorporation provides that our stockholders (and
therefore, given the Voting Trust Agreement, the Voting Trustees) will have the
right to elect, remove, and replace specified corporate officers. See
"Directors and Executive Officers of the Registrant--Voting Trust Agreement"
above.
Other Rights
Holders of Common Stock are entitled to share equally, without regard to
class, in any dividend declared by our Board of Directors; provided that, in
the event of a dividend payable in additional shares of Common Stock, holders
of Class A Common Stock will be entitled to receive additional shares of Class
A Common Stock and holders of Class B Common Stock will be entitled to receive
additional shares of Class B Common Stock. Holders of Common Stock are also
entitled to share equally, without regard to class, in all assets available for
distribution to stockholders upon dissolution, liquidation, or winding up.
Except for Dentsu, which has certain contractual preemptive rights, no holder
of Common Stock has any preemptive right to subscribe for any Common Stock or
other securities that we may choose to issue or sell. See "Certain
Relationships and Related Transactions--Investments by Dentsu" below. We will
not subdivide or combine the outstanding shares of either the Class A Common
Stock or the Class B Common Stock without subdividing or combining the
outstanding shares of the other class.
Holders of Class B Common Stock have the right to convert their shares of
Class B Common Stock into an equal number of shares of Class A Common Stock at
any time.
Stock Purchase Agreement
The following summary describes some of the more important provisions of our
Stock Purchase Agreement. The complete Stock Purchase Agreement, which contains
precise legal terms and conditions and other information not summarized here,
is included as an exhibit to this Form 10-K.
As discussed more fully under Item 7 above, on March 7, 2002, we announced a
proposed merger with Publicis Groupe S.A. and other related transactions that,
if consummated, will result in various changes to the information discussed
below. These changes will be described in detail in our proxy statement with
respect to such transactions.
Because we are a privately-held company, it is our general policy that only
employees of Bcom3 and its various subsidiaries may acquire shares of our Class
A Common Stock. All such persons who have acquired shares of our Class A Common
Stock have also become a party to our Stock Purchase Agreement. Our Stock
Purchase Agreement contains stock transfer restrictions and stock repurchase
provisions, as well as restrictive covenants regarding noncompetition,
nonsolicitation, and confidentiality, all as described below.
25
Restrictions on Transfer of Shares
Under the Stock Purchase Agreement, a stockholder may only transfer his or
her shares with our prior written consent, which we will normally grant only
for a transfer by the stockholder:
. to members of the stockholder's family, to a family limited partnership
or limited liability company, to a trust for the benefit of the
stockholder and his or her family members, or to a charitable trust; or
. to the stockholder's heirs and legatees upon the stockholder's death;
provided, in each instance, that the transferee agrees to be bound by the terms
of the Stock Purchase Agreement.
Any other transfer of any shares, or any interest in any shares, whether
voluntarily or involuntarily made, is strictly prohibited. Prohibited transfers
include transfers by way of sale, gift, or other disposition; by way of pledge,
hypothecation, or the creation of a security interest; by way of attachment,
levy, or lien; in connection with insolvency; in connection with a divorce,
decree of separate maintenance, or any other arrangement for the adjustment of
marital rights; into, or out of, joint tenancy, tenancy in common, or tenancy
by virtue of community property or similar rights; to any trustee, receiver,
administrator, executor, custodian, or guardian of an estate or property; or
into any trust, or in any other manner so as to create a separation of the
ownership of the shares into legal interests and beneficial interests.
Repurchase of Shares
Under the Stock Purchase Agreement, if a stockholder ceases to serve as an
employee, then as a general rule we will repurchase all of his or her shares,
effective as of the date of his or her departure, at their then "Per Share Book
Value." See "--Determination of Per Share Book Value" below.
If a stockholder is an employee of one of our operating units, and we sell
or otherwise divest ourselves of that operating unit, then the stockholder will
no longer be considered our employee, generally with the same consequences as
if he or she had been discharged without cause (as described below).
There is a special rule, however, if the stockholder ceases to serve as an
employee under the following circumstances:
. by reason of his or her death or "Permanent Disability";
. by reason of his or her discharge without "Cause"; or
. on terms that we, in our discretion, acknowledge in writing constitute an
"Agreed Separation."
If this special rule applies, then the former employee is entitled to become
a continuing stockholder, and retain his or her shares for a holding period of
up to ten years after his or her departure. At the end of this holding period,
we will repurchase all of his or her shares at their then Per Share Book Value.
If the continuing stockholder breaches any applicable noncompete,
nonsolicitation, confidentiality, or other restrictive covenant during the
relevant post-employment period, however, we may elect to repurchase his or her
shares immediately at their then Per Share Book Value. See "--Restrictive
Covenants" below.
Conversely, at any time during the ten-year holding period, the continuing
stockholder may elect to require us to repurchase his or her shares by
delivering written notice to us. In the event the continuing stockholder gives
such notice, we are required to repurchase his or her shares on the last day of
the fiscal year in which we receive such written notice, or on such earlier
date as we may select, at the then Per Share Book Value of such shares.
Other Repurchase Events
The Stock Purchase Agreement also grants us an option to repurchase a
stockholder's shares immediately, at their Per Share Book Value, if the
stockholder becomes "Insolvent," if he or she makes or attempts to make a
26
prohibited transfer of his or her shares (see "--Restrictions on Transfer of
Shares" above), or if he or she breaches any applicable noncompete,
nonsolicitation, confidentiality, or other restrictive covenant (see
"--Restrictive Covenants" below).
Determination of Per Share Book Value
Under the Stock Purchase Agreement, the Per Share Book Value for shares as
of any date will generally be equal to the sum of:
(x) the amounts determined as of January 31, 2000 under the stock
purchase agreements then in place with respect to the former stockholders of
The Leo Group and The MacManus Group (or, in the case of shares acquired
after January 31, 2000, the original purchase price the stockholder paid for
such shares); plus or minus
(y) our consolidated net income (or loss) per share of Common Stock from
January 31, 2000 (or, in the case of shares acquired after January 31, 2000,
from the acquisition date) through the applicable determination date.
For purposes of this formula, consolidated net income (or loss) will be
reduced by dividends, and adjusted to eliminate changes due to non-recurring
items (net of taxes), changes arising from the application of purchase
accounting to the January 2000 business combination transactions, and changes
arising from our issuance or repurchase of equity at prices other than book
value. Changes in book value during any period of less than one year will be
determined by proration (or by applying such other method as we may select).
The Per Share Book Values as of December 31, 2001 were (a) $26.30 for shares
of Common Stock that the former stockholders of The Leo Group acquired on
January 31, 2000 and (b) $7.38 for shares of Common Stock that the former
stockholders of The MacManus Group acquired on January 31, 2000. In each case,
the Per Share Book Value has increased by $3.75 per share over the twelve
months ended December 31, 2001. The corresponding Per Share Book Values as of
December 31, 2000 were (x) $22.55 for the shares of Common Stock that the
former stockholders of The Leo Group acquired in the business combination and
(y) $3.63 for the shares of Common Stock that the former stockholders of The
MacManus Group acquired in the business combination.
Payment of the Repurchase Price
The Stock Purchase Agreement permits us to pay the repurchase price for
shares in four equal annual installments, together with interest. If, in any
fiscal year, several former stockholders are entitled to receive such
installment payments, and the total amount of all payments due to former
stockholders would exceed 50% of our consolidated net income for that year,
then we may reduce the amount paid to each former stockholder during the year
accordingly. The right of former stockholders to receive payment for shares
that we have repurchased is also subordinate to claims by the government for
taxes due and claims of our trade creditors, bank lenders, and other creditors.
Effect of a Merger or Consolidation
The Stock Purchase Agreement provides that, in the event of a merger or
consolidation involving Bcom3, payment to a stockholder of the Per Share Book
Value of his or her shares shall be deemed to constitute payment of the fair
market value of such shares for the purpose of the stockholder's statutory
appraisal rights.
Restrictive Covenants
The Stock Purchase Agreement contains noncompete, nonsolicitation,
confidentiality, and other restrictive covenants, which are applicable to our
stockholders while they are employees of Bcom3 and its various subsidiaries,
and also for various specified or indefinite periods thereafter should they
cease to be our employees.
27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Investments by Dentsu
As noted above, we have a strategic relationship with Dentsu, the largest
full-service advertising and marketing communications services company in Japan
and throughout Asia, and the single largest advertising agency brand in the
world, in each case based on revenues. This strategic relationship is focused
on aligning with Dentsu to serve significant Dentsu clients in markets outside
of Japan and Asia, as well as on increasing our own presence in Japan. As part
of the strategic relationship, Dentsu purchased approximately 20% of our Common
Stock (measured after dilution for our management equity incentive plan) in
March 2000 as an equity investment. Dentsu also shares certain intellectual
property and know-how with us. During 2001 we merged our operations in Japan
with certain Dentsu operations to form Beacon Communications. We hold a
majority interest in Beacon Communications. In Australia, we recently purchased
certain advertising and media services businesses from Dentsu for approximately
$13.0 million and combined them with our own operations.
In connection with its investment, Dentsu obtained certain contractual
preemptive rights. These preemptive rights essentially give Dentsu the ability
to maintain its level of ownership in Bcom3 by electing to participate on a pro
rata basis alongside third parties that acquire our Common Stock in certain
future transactions.
Dentsu also agreed not to transfer its Class B Common Stock, other than
intercompany transfers to its affiliates, transfers to the public after an
initial public offering, and transfers to certain permitted third party
institutional investors. We have granted Dentsu certain registration rights,
applicable in the event we have had an initial public offering and Dentsu
thereafter wishes to sell some or all of its shares to the public.
Dentsu has also agreed to certain standstill provisions, which preclude it
from proposing, initiating, or participating in specified unsolicited change of
control transactions.
As long as Dentsu's Class B Common Stock comprises at least 15% of our total
Common Stock, Dentsu will have:
. the right to elect, remove, and replace two of our six Directors (or, if
we ever have more than six Directors, then one third of our Directors
rounded up to the next whole number);
. the right to name one member to each principal Committee of our Board of
Directors; and
. the right to veto certain extraordinary transactions (including
acquisitions of, investments in, or strategic alliances with certain
specified competitors, dispositions of certain significant business
units, dismissal or appointment of our Chief Executive Officer,
replacement of our external auditors, material transactions with our
insiders, and certain issuances of our Common Stock).
So long as Dentsu's Class B Common Stock comprises at least 15% of our
Common Stock, Dentsu will have a right of first offer with respect to any
transaction that would result in a change of control of Bcom3 on or before
March 14, 2005.
If Dentsu's Class B Common Stock ever comes to comprise less than 15%, but
still comprises at least 5%, of our total Common Stock, then Dentsu will have
the right to elect, remove, and replace one of our six Directors (or, if we
ever have more than six Directors, then one sixth of our Directors rounded up
to the next whole number) and the right to name one member to each principal
Committee of our Board of Directors.
Dentsu will also have certain information and inspection rights, so long as
its Class B Common Stock comprises at least 5% of our Common Stock.
As discussed more fully under Item 7 above, on March 7, 2002, we entered
into an agreement with Dentsu in connection with our proposed merger with
Publicis Groupe S.A.
28
Novo Rescission
In January 2000, before the business combination in which Bcom3 was formed,
a subsidiary of The MacManus Group sold a portion of its shareholdings in a
majority-owned subsidiary called Novo MediaGroup to 25 managers of The MacManus
Group and its operating units (including Messrs. Bostock and Brown), in return
for consideration consisting of cash and non-recourse promissory notes. In
March 2001, we notified all of these managers that we were offering to rescind
the original transaction, in order to regain majority ownership and control of
Novo MediaGroup, and also in order to avoid certain potential disputes with the
managers. All 25 of the managers accepted our rescission offer, with the result
that we refunded each manager's original cash consideration and cancelled his
or her promissory note. Messrs. Bostock and Brown received cash refunds in the
respective amounts of $1,152,500 and $1,150,195, and we cancelled their
promissory notes in the respective principal amounts of $1,152,500 and
$1,154,805. For all 25 managers as a group, the total cash refunded was
$10,733,595, and the total principal amount of the cancelled notes was
$10,738,655.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statement Schedules
The information required by this Item is presented in this report beginning
on Page F-1.
Exhibits
The exhibit numbers used below are the numbers assigned in Item 601 of
Regulation S-K and the EDGAR Filer Manual. Except as set forth below, all of
the exhibits were previously filed with the original filing of our Form 10 on
April 30, 2001 and were listed with the same exhibit numbers. Each exhibit is
hereby incorporated by reference into this document.
[Enlarge/Download Table]
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Agreement and Plan of Merger, dated as of December 30, 1999, by and among BDM, Inc. (now known
as Bcom3 Group, Inc.), The Leo Group, Inc., The MacManus Group, Inc., TLG Acquisition Corp., and
TMG Acquisition Corp.
2.2 Agreement and Plan of Merger dated as of March 7, 2002 among Publicis Groupe S.A., Philadelphia
Merger Corp., Philadelphia Merger LLC and Bcom3 Group, Inc. (incorporated by reference to Exhibit
2.1 of our Current Report filed on Form 8-K on March 14, 2002)
2.3 Agreement and Plan of Merger dated as of March 7, 2002 among Bcom3 Group, Inc., Boston Three
Corporation and Dentsu Inc. (incorporated by reference to Exhibit A to Exhibit 2.1 of our Current
Report filed on Form 8-K on March 14, 2002)
3.1 Amended and Restated Certificate of Incorporation of Bcom3 Group, Inc.
3.2 Bylaws of Bcom3 Group, Inc.
4.1 Form of Stock Purchase Agreement
9.1 Amended and Restated Voting Trust Agreement, dated as of April 18, 2001, among the owners of
shares of Common Stock of Bcom3 Group, Inc. and the voting trustees named therein
10.1 Investment Agreement, dated as of March 14, 2000, between Dentsu Inc. and BDM, Inc. (now known
as Bcom3 Group, Inc.)
10.2 Registration Rights Agreement, dated as of March 14, 2000, between BDM, Inc. (now known as
Bcom3 Group, Inc.) and Dentsu Inc.
10.3 Amended and Restated Lease, dated as of December 15, 1997, between 35 West Wacker Venture,
L.L.C. and Leo Burnett Company, Inc.
10.4 Lease, dated as of October 21, 1987, between Broadway 52nd Associates and D'Arcy Masius Benton &
Bowles
10.5 Employment Agreement, dated as of January 1, 2001, among Roger A. Haupt, Bcom3 Group, Inc., Leo
Burnett Worldwide, Inc., and Leo Burnett USA, Inc.
29
[Enlarge/Download Table]
Exhibit
Number Description of Exhibit
------ ----------------------
10.6 Management Transition Agreement, dated as of December 14, 2000, between Roy J. Bostock and
Bcom3 Group, Inc.
10.7 Management Transition Agreement, dated as of December 22, 2000, between Richard B. Fizdale and
Bcom3 Group, Inc.
10.8 Amended and Restated Salary Continuation Agreement, dated as of December 29, 1995, and as further
amended by letter agreement dated as of June 21, 1999, between Roy J. Bostock and The MacManus
Group, Inc. (formerly known as D'Arcy Masius Benton & Bowles, Inc.)
10.9 Amended and Restated Salary Continuation Agreement, dated as of December 29, 1995, and as further
amended by letter agreement dated as of September 24, 1999, between Craig D. Brown and The
MacManus Group, Inc. (formerly known as D'Arcy Masius Benton & Bowles, Inc.)
10.10 Letter agreement, dated as of March 19, 1993, between Roger A. Haupt and Leo Burnett Company,
Inc., regarding his Executive Employment Consultancy Arrangement
10.11 Letter agreement, dated as of March 19, 1993, between Richard B. Fizdale and Leo Burnett Company,
Inc., regarding his Executive Employment Consultancy Arrangement
10.12 Letter agreement, dated as of January 22, 1999, between Christian E. Kimball and Leo Burnett
Company, Inc., regarding his Executive Employment Consultancy Arrangement
10.13 Letter agreement, dated as of March 2, 2001, between Roy J. Bostock and N.W. Ayer Communications,
Inc., regarding rescission of a transaction involving Novo Media Group, Inc. stock
10.14 Letter agreement, dated as of March 2, 2001, between Craig D. Brown and N.W. Ayer
Communications, Inc., regarding rescission of a transaction involving Novo Media Group, Inc. stock
10.15 Amended and Restated Employment Agreement, dated as of January 1, 1999, between Craig D. Brown
and The MacManus Group, Inc. (formerly known as D'Arcy Masius Benton & Bowles, Inc.) (filed
herewith)
10.16 Employment Agreement, dated as of August 17, 2001, between Eileen A. Kamerick and Bcom3 Group,
Inc. and Leo Burnett USA, Inc. (filed herewith)
10.17 Employment Agreement, dated as of October 30, 2000, between Elizabeth L. Reeves and Bcom3
Group, Inc. (filed herewith)
10.18 Change in Control Agreement, dated as of February 27, 2002, between Craig D. Brown and Bcom3
Group, Inc. (filed herewith)
10.19 Change in Control Agreement, dated as of January 17, 2002, between Eileen A. Kamerick and Bcom3
Group, Inc. (filed herewith)
10.20 Change in Control Agreement, dated as of February 18, 2002, between Christian E. Kimball and
Bcom3 Group, Inc. (filed herewith)
10.21 Change in Control Agreement, dated as of January 11, 2002, between Elizabeth L. Reeves and Bcom3
Group, Inc. (filed herewith)
21.1 Subsidiaries of Bcom3 Group, Inc. (filed herewith)
23.1 Consent of Arthur Andersen LLP (filed herewith)
99.1 2000 Long-Term Equity Incentive Plan of Bcom3 Group, Inc.
99.2 2000 Long-Term Equity Incentive Plan as Amended and Restated as of January 1, 2001 (incorporated
by reference to Exhibit 99.2 to Amendment No. 2 to our Registration Statement on Form 10 filed on
August 8, 2001)
99.3 Bcom3 2001 California Stock Option Plan (incorporated by reference to Exhibit 4.4 of our Registration
Statement on Form S-8 filed on August 28, 2001)
99.4 Letter to Commission Pursuant to Temporary Note 3T, dated March 27, 2002 (filed herewith)
Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 2001.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BCOM 3 GROUP, INC.
March 27, 2002
By: /S/ EILEEN A. KAMERICK
----------------------------------
Eileen A. Kamerick
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
[Download Table]
Signature Title Date
--------- ----- ----
/S/ ROGER A. HAUPT Chairman and Chief Executive Dated: March 27, 2002
----------------------------- Officer and Director
Roger A. Haupt
/S/ CRAIG D. BROWN President and Chief Operating Dated: March 27, 2002
----------------------------- Officer and Director
Craig D. Brown
/S/ EILEEN A. KAMERICK Executive Vice President and Dated: March 27, 2002
----------------------------- Chief Financial Officer
Eileen A. Kamerick
/S/ ROY J. BOSTOCK Director Dated: March 27, 2002
-----------------------------
Roy J. Bostock
/S/ RICHARD B. FIZDALE Director Dated: March 27, 2002
-----------------------------
Richard B. Fizdale
/S/ NAOKI KOBUSE Director Dated: March 27, 2002
-----------------------------
Naoki Kobuse
/S/ FUMIO OSHIMA Director Dated: March 27, 2002
-----------------------------
Fumio Oshima
31
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
[Enlarge/Download Table]
Page
----
Bcom3 Group, Inc. and Subsidiaries
Report of Management............................................................................ F-2
Report of Independent Public Accountants........................................................ F-3
Consolidated Balance Sheets as of December 31, 2001 and 2000.................................... F-4
Consolidated Statements of Operations for the Years Ended December 31, 2001 and 2000............ F-5
Consolidated Statements of Stockholder's Equity for the Years Ended December 31, 2001 and 2000.. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001 and 2000............ F-7
Notes to Consolidated Financial Statements...................................................... F-8
Quarterly Results of Operations (Unaudited)..................................................... F-27
Leo Burnett Worldwide, Inc. (formerly known as The Leo Group, Inc.)
Report of Independent Public Accountants........................................................ F-28
Consolidated Balance Sheets as of December 31, 1999 and 1998.................................... F-29
Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997.......... F-30
Consolidated Statements of Shareholders' Investment for the Years Ended December 31, 1999, 1998
and 1997...................................................................................... F-31
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997...... F-32
Notes to Consolidated Financial Statements...................................................... F-33
The MacManus Group, Inc. and Subsidiaries
Report of Independent Public Accountants........................................................ F-48
Consolidated Balance Sheets as of December 31, 1999 and 1998.................................... F-49
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997...... F-50
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999,
1998 and 1997................................................................................ F-51
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997...... F-52
Notes to Consolidated Financial Statements...................................................... F-53
Schedule II--Valuation and Qualifying Accounts..................................................... S-1
F-1
REPORT OF MANAGEMENT
The consolidated financial statements and other information included in this
Form 10-K have been prepared by management, which is responsible for its
fairness, integrity and objectivity. The consolidated financial statements have
been prepared in accordance with generally accepted accounting principles in
the United States applied on a basis consistent with prior years and, where
necessary, include amounts that are based on management's informed judgments
and estimates. The financial information contained elsewhere in this Form 10-K
has been prepared in a manner consistent with the preparation of the
consolidated financial statements.
The Company's system of internal controls is a major element in management's
responsibility to provide a fair presentation of the financial statements. The
system is designed to provide reasonable assurance that the Company's assets
are safeguarded, that transactions are properly recorded and executed in
accordance with management's authorization, that material errors are prevented
or detected within a timely period, and that records are sufficient to produce
reliable financial reports.
Elements of these control systems are the establishment and communication of
accounting and administrative policies and procedures and the selection and
training of qualified personnel.
The Audit Committee meets periodically with representatives of financial
management and the independent public accountants to assure that each is
properly discharging their responsibilities. In order to assure complete
independence, the Audit Committee communicates directly and separately with the
independent public accountants and financial management to discuss the results
of their audits, the adequacy of internal accounting controls and the quality
of financial reporting.
ROGER A. HAUPT EILEEN A. KAMERICK
----------------------------- ------------------------------
Roger A. Haupt Eileen A. Kamerick
Chairman and Executive Vice President and
Chief Executive Officer Chief Financial Officer
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Bcom3 Group, Inc.:
We have audited the accompanying consolidated balance sheets of Bcom3 Group,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, stockholder's
equity, and cash flows for the years then ended. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated
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, the financial statements referred to above present fairly,
in all material respects, the financial position of Bcom3 Group, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule on page S-1 is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 4, 2002 (except with respect to
the matters discussed in Note 20,
as to which the date is March 7, 2002)
F-3
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
[Enlarge/Download Table]
December 31,
----------------------
2001 2000
---------- ----------
A S S E T S
-----------
Current assets:
Cash and cash equivalents......................................................... $ 227,735 $ 598,159
Accounts receivable (less allowance for doubtful accounts of $39,055 and $41,541,
respectively)................................................................... 1,649,273 1,618,925
Production expenditures billable to clients....................................... 213,527 186,292
Prepaid expenses and other assets................................................. 105,309 133,642
---------- ----------
Total Current Assets........................................................... 2,195,844 2,537,018
Property and equipment............................................................... 702,456 612,904
Less: Accumulated depreciation and amortization...................................... 326,014 260,210
---------- ----------
Property and equipment, net.................................................... 376,442 352,694
Goodwill (less accumulated amortization of $120,607 and $65,074, respectively)....... 1,304,723 1,266,955
Other................................................................................ 229,430 277,212
---------- ----------
Total Assets................................................................... $4,106,439 $4,433,879
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Trade accounts payable............................................................ $1,760,177 $1,631,048
Short-term borrowings............................................................. 39,393 39,826
Current portion of long-term debt................................................. 6,016 57,376
Accrued expenses and other payables............................................... 531,913 544,652
---------- ----------
Total Current Liabilities...................................................... 2,337,499 2,272,902
Long-term debt....................................................................... 9,450 389,128
Real estate finance obligation....................................................... 187,714 195,321
Deferred compensation and accrued retirement benefits................................ 110,309 117,749
Other long-term liabilities.......................................................... 105,286 118,677
Deferred rent........................................................................ 31,358 29,003
---------- ----------
444,117 849,878
Minority interest.................................................................... 18,047 14,141
Commitments and contingencies........................................................
Mandatorily redeemable stock......................................................... 301,494 239,126
Stockholder's equity:
Common Stock, Class B, $.01 par value, 10,000,000 shares authorized,
4,284,248 and 4,274,248 shares issued and outstanding at December 31,
2001 and 2000, respectively..................................................... 43 43
Additional paid-in capital........................................................ 1,187,279 1,185,979
Retained deficit.................................................................. (174,048) (124,332)
Accumulated other comprehensive loss.............................................. (7,605) (3,858)
---------- ----------
1,005,669 1,057,832
Unearned compensation............................................................. (387) --
---------- ----------
Total Stockholder's Equity..................................................... 1,005,282 1,057,832
---------- ----------
Total Liabilities and Stockholder's Equity..................................... $4,106,439 $4,433,879
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
[Enlarge/Download Table]
Years Ended December 31,
-----------------------
2001 2000
---------- ----------
Revenues................................................................ $1,917,343 $1,833,727
Operating expenses:
Compensation and employee benefits................................... 1,142,398 1,134,699
Other general expenses............................................... 320,567 330,836
Office and related expenses.......................................... 151,933 135,040
Depreciation and amortization........................................ 148,866 129,016
Nonrecurring charge.................................................. -- 71,889
Restructuring and other special charges.............................. 20,252 --
---------- ----------
Total operating expenses......................................... 1,784,016 1,801,480
Operating income........................................................ 133,327 32,247
Other income (expense):
Interest income...................................................... 22,443 34,487
Interest expense..................................................... (44,007) (58,555)
Foreign currency loss................................................ (1,254) (2,980)
Other income......................................................... -- 193
---------- ----------
Total other expense.............................................. (22,818) (26,855)
---------- ----------
Income before income taxes.............................................. 110,509 5,392
Income taxes............................................................ 72,913 66,643
---------- ----------
Income (loss) after income taxes........................................ 37,596 (61,251)
Minority interest....................................................... (10,973) (8,288)
Equity in (loss) income of affiliates................................... (542) 3,926
---------- ----------
Net income (loss)....................................................... $ 26,081 $ (65,613)
========== ==========
Net loss per common share:
Net income (loss)....................................................... $ $26,081 $ (65,613)
Exclude:
Net income allocable to Mandatorily redeemable Class A common shares. (74,729) (58,719)
---------- ----------
Loss allocable to Class B common shares................................. $ (48,648) $ (124,332)
========== ==========
Weighted average Class B common shares outstanding...................... 4,281,289 3,421,734
========== ==========
Loss per Class B common share........................................... $ (11.36) $ (36.34)
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Years Ended December 31, 2001 and 2000
(In thousands, except share data)
[Enlarge/Download Table]
Loans to Accumulated
Additional Stockholders Retained Other
Comprehensive Number Par Value-- Paid-In for Stock Earnings Comprehensive
Income (Loss) of Shares $.01 Capital Sales (Deficit) Income (Loss)
------------- ----------- ----------- ---------- ------------ --------- -------------
Balance, December 31,
1999......................... 10,108,405 $ 100 $ 126,800 $(5,600) $ 64,200 $ 9,598
Allocation of balances to
Mandatorily redeemable
stock........................ -- (100) (126,800) 5,600 (64,200) (9,598)
----------- ----- ---------- ------- --------- --------
Balance, January 1,
2000......................... 10,108,405 -- -- -- -- --
Net loss...................... $(65,613) (65,613)
Other comprehensive loss:
Unrealized loss on
investments (net of tax
benefit of $225)............ (417) (417)
Foreign currency translation
(net of tax benefit of
$2,010)..................... (22,063) (22,063)
Minimum pension liability.... 310 310
--------
Comprehensive loss............ $(87,783)
========
Repayment of loans to
stockholders................. 5,600
Issuance of Class B shares.... 4,274,248 43 485,994
Shares issued for acquisitions 6,013,300 60 701,733
Stock repurchases............. (718,758) (7) (3,780)
Allocation to Mandatorily
redeemable stock............. (15,402,947) (53) 2,032 (5,600) (58,719) 18,312
----------- ----- ---------- ------- --------- --------
Balance, December 31,
2000......................... 4,274,248 $ 43... $1,185,979 $ -- $(124,332) $ (3,858)
----------- ----- ---------- ------- --------- --------
Net income.................... $ 26,081 26,081
Other comprehensive income:
Unrealized loss on
investments (net of tax
benefit of $1,133).......... (1,700) (1,700)
Foreign currency translation
(net of tax benefit of
$3,553)..................... (12,560) (12,560)
Minimum pension liability
(net of tax benefit of
$1,336)..................... (2,985) (2,985)
--------
Comprehensive income.......... $ 8,836
========
Dividends paid................ (4,919)
Employee loans to purchase
stock........................ (86)
Issuance of Class B shares.... 10,000 -- 1,300
Shares issued for acquisitions
and other.................... 44,500 -- 7,146
Stock repurchases............. (152,613) (2) (2,070)
Allocation to Mandatorily
redeemable stock............. 108,113 2 (5,076) 86 (70,878) 13,498
----------- ----- ---------- ------- --------- --------
Balance, December 31,
2001......................... 4,284,248 $ 43 $1,187,279 $ -- $(174,048) $ (7,605)
=========== ===== ========== ======= ========= ========
[Download Table]
Mandatorily
Redeemable
Stock
-----------
Balance, December 31,
1999......................... $ --
Allocation of balances to
Mandatorily redeemable
stock........................ 195,098
--------
Balance, January 1,
2000......................... 195,098
Net loss......................
Other comprehensive loss:
Unrealized loss on
investments (net of tax
benefit of $225)............
Foreign currency translation
(net of tax benefit of
$2,010).....................
Minimum pension liability....
Comprehensive loss............
Repayment of loans to
stockholders.................
Issuance of Class B shares....
Shares issued for acquisitions
Stock repurchases.............
Allocation to Mandatorily
redeemable stock............. 44,028
--------
Balance, December 31,
2000......................... $239,126.
--------
Net income....................
Other comprehensive income:
Unrealized loss on
investments (net of tax
benefit of $1,133)..........
Foreign currency translation
(net of tax benefit of
$3,553).....................
Minimum pension liability
(net of tax benefit of
$1,336).....................
Comprehensive income..........
Dividends paid................
Employee loans to purchase
stock........................
Issuance of Class B shares....
Shares issued for acquisitions
and other....................
Stock repurchases.............
Allocation to Mandatorily
redeemable stock............. 62,368
--------
Balance, December 31,
2001......................... $301,494
========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
BCOM3 GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
[Enlarge/Download Table]
Years Ended December 31,
-----------------------
2001 2000
--------- ---------
Cash Flows from Operating Activities
Net income (loss)................................................................. $ 26,081 $ (65,613)
Reconciliation of net income (loss) to net cash provided by operating activities:
Depreciation and amortization................................................. 148,866 129,016
Provision for doubtful accounts............................................... 13,598 16,219
Non-cash portion of restructuring and other special charges................... 17,712 --
Net loss on divestments....................................................... 817 --
Decrease in deferred compensation and accrued retirement benefits............. (10,406) (3,506)
Dividends in excess of earnings in affiliates................................. 6,423 859
Minority interest............................................................. 10,973 8,288
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease/(increase) in accounts receivable.................................... 57,056 (151,752)
(Increase)/decrease in production expenditures billable to clients............ (31,303) 1,499
Increase in trade accounts payable............................................ 39,783 139,685
Decrease in accrued expenses and other payables............................... (86,792) (55,955)
Increase/(decrease) in accrued income taxes................................... 19,292 (9,358)
Decrease/(increase) in prepaid expenses and other current assets.............. 42,944 (15,215)
Decrease in other assets...................................................... 3,863 7,864
--------- ---------
Net Cash Provided by Operating Activities.................................. 258,907 2,031
--------- ---------
Cash Flows from Investing Activities
Business acquisitions, net of cash acquired....................................... (75,246) (32,769)
Expenditures for property and equipment........................................... (83,061) (91,670)
Proceeds from sale of assets...................................................... 3,553 7,982
Cash acquired in MacManus acquisition............................................. -- 50,583
--------- ---------
Net Cash Used in Investing Activities...................................... (154,754) (65,874)
--------- ---------
Cash Flows from Financing Activities
Dividends paid to minority stockholders........................................... (6,862) (7,149)
Dividends paid on Common Stock.................................................... (4,919) --
Repayment of short-term borrowings................................................ (9,388) (70,719)
Proceeds from long-term debt...................................................... 6,119 153,352
Repayment of long-term debt....................................................... (451,960) (68,269)
Repayment of stockholder loans.................................................... -- 5,600
Proceeds from sales of stock...................................................... 2,746 486,037
Redemptions of stock.............................................................. (2,072) (32,284)
Other............................................................................. (387) --
--------- ---------
Net Cash (Used in)/Provided by Financing Activities........................ (466,723) 466,568
--------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents......................... (7,854) (7,084)
--------- ---------
Net (Decrease)/Increase in Cash and Cash Equivalents................................. (370,424) 395,641
Cash and Cash Equivalents, Beginning of Year......................................... 598,159 202,518
--------- ---------
Cash and Cash Equivalents, End of Year............................................... $ 227,735 $ 598,159
========= =========
Supplemental Cash Flow Information
Income taxes paid.................................................................... $ 26,757 $ 77,367
========= =========
Interest paid........................................................................ $ 26,827 $ 58,321
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-7
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business and Basis of Presentation
Bcom3 Group, Inc. and subsidiaries ("Bcom3" or the "Company") is one of the
world's leading advertising and marketing communications services holding
companies. The Company was created through the business combination of Leo
Burnett Worldwide, Inc. ("Leo Burnett," formerly known as The Leo Group, Inc.)
and The MacManus Group, Inc. ("MacManus") on January 31, 2000. The Company's
service offerings include creation and production of advertising; branding and
brand building; strategic media planning and buying; marketing research and
consultation; public relations; healthcare marketing and communications;
multicultural and urban marketing; direct and database marketing; interactive
and digital communications; financial and business-to-business advertising;
directory advertising; field marketing; integrated merchandising and sales
promotion programs; sports and event marketing; telemarketing; new product
design and development; package design; and internet and digital media
development.
The Company has operations in the United States, Europe, Asia Pacific, Latin
America, Canada, the Middle East and Africa.
The consolidated financial statements include the financial statements of
Bcom3 and its domestic and international subsidiaries. All significant
intercompany balances and transactions have been eliminated. These statements
reflect all adjustments, consisting of normal recurring accruals, which in the
opinion of management are necessary for a fair presentation, in all material
respects of the information contained therein.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities, when purchased, of three months or less. These investments are
stated at cost, which approximates fair value.
Allowance for Doubtful Accounts
Accounts receivable are presented net of an allowance for doubtful accounts.
The allowance for doubtful accounts is determined through a specific
identification process whereby management assesses the collectability of
receivables based in part on the financial condition of the client.
Production Expenditures Billable to Clients
Production expenditures billable to clients consist principally of costs
incurred in providing communications services to clients. Such amounts are
generally billed to clients when services are rendered, when costs are incurred
for radio and television production and when print production is completed.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation.
Expenditures for repairs and maintenance are charged to expense as incurred and
expenditures for additions and improvements that significantly extend the lives
of assets are capitalized. Upon sale or other retirement of depreciable assets,
the cost and accumulated depreciation are removed from the related accounts and
any gain or loss is reflected in operations. Most property and equipment is
depreciated utilizing the straight-line method over the estimated useful lives
of the depreciable assets, which range from 10 to 40 years for buildings and
improvements, and three to 10 years for furniture and equipment. Costs
associated with the acquisition or development of software for internal use are
capitalized in accordance with the provisions of AICPA Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Most capitalized software costs are amortized on a straight-line
basis over three to five years. Capitalized software costs include expenditures
for purchased software and for the design, development and testing of new
systems. Expenditures for consulting, training and reengineering efforts are
expensed as incurred. Leasehold improvements are amortized over their estimated
useful lives or over the terms of the lease, whichever is shorter, on a
straight-line basis.
F-8
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangibles
The Company makes acquisitions consistent with its strategy of enhancing the
value of its services capabilities and expanding its current ongoing client
relationships. The goodwill that results from these acquisitions primarily
represents acquisition costs in excess of fair value of tangible net assets and
identifiable intangible assets that are acquired in each transaction. Goodwill
consists primarily of the know-how, reputation, experience and geographic
location of the purchased businesses. Goodwill is amortized on a straight-line
basis over periods up to 25 years.
Included in "Other" assets is approximately $33.9 million and $44.9 million
of unamortized value ascribed to the customer base as of December 31, 2001 and
2000, respectively, and $2.6 million and $5.1 million, of unamortized value
ascribed to the assembled workforce as of December 31, 2001 and 2000,
respectively, which were acquired in the business combination between Leo
Burnett and MacManus. These amounts are being amortized on a straight-line
basis over five years and three years for customer base and assembled
workforce, respectively. The amount attributable to customer base represents
the value of the established relationships that the Company has with its
current clients. The value attributable to the assembled workforce was
determined based upon the estimated replacement cost of the key members of the
management team.
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," the Company has assessed
each of its acquisitions since July 1, 2001 for any identifiable intangible
assets. The Company has identified $0.3 million of value which has been
ascribed to non-compete and non-solicit agreements related to these
acquisitions. The asset is being amortized on a straight-line basis over five
years.
The Company periodically assesses the value of its intangible assets and to
the extent an impairment of these assets is identified, a write-down is
recorded.
Amortization expense related to intangible assets in the accompanying
consolidated income statements totaled $78.3 million and $71.5 million for the
years ended December 31, 2001 and 2000, respectively.
Measurement of Impairment
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company
records impairment losses on property and equipment used in operations,
goodwill and intangible assets when events and circumstances indicate the
assets may be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than their carrying amounts. If an
impairment has occurred, the amount of the impairment recognized is determined
by estimating the fair value of the assets and recording a provision for loss
if the carrying value is greater than the fair value.
Financial Instruments
The Company manages its exposure to fluctuations in foreign currency
exchange rates and interest rates, primarily through the use of foreign
exchange contracts and interest rate swaps. The estimated fair values of
derivative positions represent the net amount required to terminate the
position, taking into consideration market rates and counterparty credit risk.
While investing in these financial instruments, the Company does not make any
speculative investment decisions.
Deferred Compensation
The Company has certain compensation plans, which enable eligible employees
to defer a portion of their compensation into future periods. Amounts related
to these compensation arrangements are charged to expense as the related
services are performed.
F-9
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loss Lease Provisions
The Company will record a loss lease provision when it decides to abandon or
sublet rented office space. This provision will be equal to the lesser of the
difference between the Company's rent expense per the lease agreement less any
expected sublease income to be received during the remaining term of the lease
or any penalties which result from lease cancellation. The Company will also
evaluate the realizability of any leasehold improvements associated with the
space and record a provision if the Company will not be able to recover its
remaining book value through sublease income.
Income Taxes
Deferred income taxes are provided for the temporary difference between the
financial reporting basis and tax basis of the Company's assets and liabilities.
Investments in Affiliates
Investments in affiliated companies are accounted for by the equity method.
The equity method is used when the Company has a 20% to 50% ownership interest
and where significant influence over the operating and financial policies of
these investments exist. All other investments are generally accounted for
under the cost method.
Foreign Currency Translation
The Company's consolidated financial statements are prepared in accordance
with the requirements of SFAS No. 52, "Foreign Currency Translation." Assets
and liabilities of the Company's foreign subsidiaries, other than those located
in highly inflationary countries, are translated at current exchange rates,
while income and expense are translated at average rates for the period. For
entities in highly inflationary countries, a combination of current and
historical rates is used to determine foreign currency gains and losses
resulting from financial statement translation. Resulting translation gains and
losses are reported as a component of stockholder's equity except for those
associated with highly inflationary countries, which are reported directly in
the accompanying consolidated statement of operations. Certain of the Company's
intercompany loans with international subsidiaries are of a long-term
investment nature since settlement is not planned or anticipated in the
foreseeable future. Accordingly, related gains or losses are reported and
accumulated in the same manner as currency translation adjustments. Foreign
currency transaction gains and losses are included in the determination of net
income.
Earnings Per Share
Basic and diluted loss per common share is calculated by dividing net
income, reduced by $74.7 million and $58.7 million of income allocable to
Mandatorily redeemable stock for the years ended December 31, 2001 and 2000,
respectively, by the weighted average number of Class B common shares
outstanding during each respective period. For the years ended December 31,
2001 and 2000, the weighted average number of Class B common shares used in the
earnings per share calculation is 4,281,289 and 3,421,734, respectively. No
Class B common shares existed prior to March 2000.
Revenue Recognition
Substantially all revenue is derived from fees for services and for
production of advertisements. Additionally, revenue is derived from commissions
for placement of advertisements in various media. Revenue is recognized when
the service is performed in accordance with the terms of the contractual
arrangement and collection is reasonably assured.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB No. 101"). SAB No. 101 provides guidance on the recognition, presentation
and disclosure of revenues in financial statements and required adoption no
later than the fourth quarter of fiscal 2000. During 2000, the Company adopted
SAB No. 101, which did not have a material impact on the Company's consolidated
financial position or results of operations.
F-10
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States requires the use of
estimates and assumptions regarding certain types of assets, liabilities and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual results may differ from estimated amounts.
Reclassifications
Certain reclassifications have been made in the 2000 financial statements to
conform to the 2001 presentation.
Recent Accounting Principles
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 requires the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not designated as part of
a hedging relationship must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, the effective
portion of the hedge's change in fair value is either (1) offset against the
change in fair value of the hedged asset, liability or firm commitment through
income or (2) held in equity until the hedged item is recognized in income. The
ineffective portion of a hedge's change in fair value is immediately recognized
in income. In June 1999, the FASB issued SFAS 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" ("SFAS No.
137"). SFAS No. 137 deferred the effective date of SFAS No. 133 for one year to
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities--an amendment of FASB Statement No. 133" ("SFAS No. 138"). This
statement amended certain paragraphs within SFAS No. 133. The Company adopted
SFAS No. 133 and SFAS No. 138 effective January 1, 2001. The adoption of SFAS
No. 133 and SFAS No. 138 did not have a material effect on the Company's
consolidated financial position or results of operations.
In April 2001, the Emerging Issues Task Force ("EITF") issued Topic D-96,
"Accounting for Management Fees Based on a Formula." This pronouncement
provides guidance on revenue recognition under arrangements that contain
performance-based incentive fees that are not finalized until the end of a
period of time specified in the arrangement and gives the Company the option to
recognize the related revenue at the end of the contract year or alternatively
recognize revenue due at any point in time as if the contract were terminated
at the given reporting period date. The Company will adopt this pronouncement
beginning January 1, 2002. The Company does not anticipate that this will have
a material impact on its consolidated financial position or results of
operations.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS
No. 141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 141 requires that all business combinations be accounted for by
the purchase method and that intangible assets acquired in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires
that goodwill and intangible assets that have indefinite useful lives not be
amortized but be tested at least annually for impairment. Intangible assets
that have finite useful lives will continue to be amortized over their useful
lives. SFAS No. 141 became effective for all business combinations initiated
after June 30, 2001 and for all business combinations accounted for by the
purchase method for which the date of acquisition is July 1, 2001 or later. The
provisions of SFAS No. 142 are effective for fiscal years beginning after
December 15, 2001.
F-11
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SFAS No. 141 has been adopted by the Company effective July 1, 2001 and has
not had a material impact on the Company's consolidated financial position or
results of operations. The Company will adopt the provisions of SFAS No. 142
beginning in the first quarter of 2002. The full impact of adoption of the
provisions of SFAS No. 142 is yet to be determined; however, annual
amortization expense recorded in 2001 related to goodwill and intangible assets
was $60.1 million and $18.4 million, respectively. SFAS No. 142 also contains
certain transition provisions that apply to acquisitions completed after June
30, 2001. The adoption of the transition provisions has not had a material
effect on the Company's consolidated financial position or results of
operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"), which is effective for fiscal years beginning
after June 15, 2002. SFAS No. 143 requires that the fair value of an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value of the obligation can be made. The adoption
of the provisions of SFAS No. 143 is not expected to have a material effect on
the Company's consolidated financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"), which is effective for
fiscal years beginning after December 15, 2001. SFAS No. 144 addresses
financial accounting and reporting for the impairment of long-lived assets
(excluding goodwill) or assets to be disposed of. The adoption of SFAS No. 144
is not expected to have a material effect on the Company's consolidated
financial position or results of operations.
In November 2001, the EITF issued Topic D-103, "Income Statement
Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred." This pronouncement provides guidance on the accounting treatment in
the income statement for reimbursements received for out-of-pocket expenses
incurred, and is effective for all financial reporting periods beginning after
December 15, 2001. The Company is currently in the process of quantifying the
financial impact of the application of this pronouncement on its revenues and
will adopt the provisions of this pronouncement beginning in the first quarter
of 2002. The adoption of its provisions will have no impact on the Company's
consolidated financial position. Beginning in 2002, the Company's statement of
operations will include a gross revenue and cost of sales account, however this
will have no impact on the Company's net income.
3. Acquisitions
All acquisitions have been accounted for under the purchase method. The
results of operations of the acquired businesses are included in the
consolidated financial statements from the dates of the acquisition.
On January 27, 2000, the shareholders of Leo Burnett approved a business
combination with MacManus to create Bcom3 and on January 31, 2000, the business
combination occurred. Pursuant to the business combination, all of Leo
Burnett's approximately 9.5 million outstanding shares were exchanged for the
same number of shares in Bcom3; MacManus' shareholders exchanged approximately
700,000 outstanding shares for approximately 6.0 million shares of Bcom3 based
on an exchange ratio of 8.6:1. For accounting purposes, Leo Burnett was deemed
to be the acquirer principally because of the greater number of Bcom3 shares
expected to be received by the stockholders of Leo Burnett. The purchase price
plus the liabilities assumed exceeded the fair value of the tangible assets and
identified intangible assets acquired by approximately $1,240 million
(goodwill). The goodwill is being amortized over a period of 25 years on a
straight-line basis.
During 2001 and 2000, the Company acquired other advertising and marketing
communications services businesses or interests in other advertising and
marketing communications services businesses for total cash
F-12
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consideration of $75.2 million and $32.8 million, respectively. These
acquisitions were accounted for under the purchase method and have been
included in the Company's consolidated results of operations since the date of
acquisition. The historical and pro forma impact of these individual
acquisitions on 2001 and 2000 results, respectively, were not significant.
Certain acquisitions completed in 2001 and 2000 require payments in future
years to the former owners of the acquired companies based on the acquired
companies' future revenue and/or profits, as defined in the acquisition
agreements. In 2001 and 2000, the Company recorded $8.0 million and $29.2
million, respectively, as additional purchase price or compensation expense
related to acquisitions.
4. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments as of December 31, 2001 and 2000 (in
thousands):
[Download Table]
2001 2000
----------------- ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Cash and cash equivalents................ $227,735 $227,735 $598,159 $598,159
Investments
Equity in marketable securities....... 1,138 1,138 3,134 3,134
Equity investments including goodwill. 51,985 51,985 94,947 94,947
Short-term borrowings.................... 39,393 39,393 39,826 39,826
Long-term debt........................... 15,466 15,466 446,504 446,504
Foreign exchange contracts............... 23 23 (256) (256)
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 and cash equivalents
Cash and cash equivalents consist primarily of short-term interest bearing
highly liquid investments. The fair value of cash and cash equivalents
approximated carrying value due to the short-term maturity of these instruments.
Investments
The fair market value of equity in marketable securities is based on the
market prices for the last day of the period if the investment trades on quoted
exchanges. Unrealized gains and losses on these investments are included as a
separate component of stockholder's equity, net of any related tax effect. For
non-traded investments, fair value is estimated based on the underlying value
of the investment.
Short-term borrowings
The fair value of short-term borrowings approximated carrying value due to
the short-term maturity of these instruments.
Long-term debt
The Company's long-term debt was a combination of floating and fixed rate
debt and equipment lease obligations, the carrying value of which approximated
fair value.
Foreign exchange contracts
The estimated fair values of derivative positions represent the net amount
required to terminate the positions, taking into consideration market rates and
counterparty credit risk.
F-13
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Concentration of Credit Risk
The Company's largest customer, Procter & Gamble, accounted for
approximately 12.7% and 12.0% of revenues for the years ended December 31, 2001
and 2000, respectively, and 7.5% and 9.0% of accounts receivable balances at
December 31, 2001 and 2000, respectively. The Company's second largest
customer, Philip Morris, accounted for approximately 11.2% and 9.0% of revenues
for the years ended December 31, 2001 and 2000, respectively, and 6.9% and 7.0%
of accounts receivable balances at December 31, 2001 and 2000,
respectively.
Credit risk represents the accounting loss that would be recognized at the
reporting date if counter-parties failed to perform as contracted. The Company
performs regular credit reviews of customers. Allowances are maintained for
potential credit losses. To date, such losses have been within the Company's
expectations and allowances for doubtful accounts are adequate to cover
foreseeable credit risk losses.
6. Segment Information
The Company's wholly and partially-owned businesses operate within the
advertising and marketing communications services operating segment. All of
these services fall within one reportable segment as defined in SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
A summary of the Company's revenues and property and equipment by geographic
area as of December 31, 2001 and 2000 is as follows (in thousands):
[Download Table]
United Asia Latin
States Europe Pacific America Other Total
---------- -------- -------- -------- ------- ----------
Revenue
2001...................... $1,017,347 $554,125 $183,266 $121,826 $40,779 $1,917,343
2000...................... 954,847 519,661 189,189 135,413 34,617 1,833,727
Property and equipment, net
2001...................... $ 288,987 $ 59,398 $ 15,256 $ 9,967 $ 2,834 $ 376,442
2000...................... 270,148 55,493 13,795 9,972 3,286 352,694
7. Investments in Affiliates
Investments in affiliated companies are accounted for using the equity
method of accounting when the Company has a 20% to 50% ownership interest and
exercises significant influence over the operating and financial policies of
the affiliate. All other investments are generally accounted for under the cost
method.
The Company's equity in the net (loss) income of these affiliates amounted
to a loss of $0.5 million and income of $3.9 million for the years ended
December 31, 2001 and 2000, respectively. The Company's equity in the net
tangible assets of these affiliated companies was approximately $18.3 million
and $32.6 million as of December 31, 2001 and 2000, respectively. In addition,
the excess of acquisition costs over the fair value of tangible net assets
acquired was approximately $33.7 million and $62.4 million as of December 31,
2001 and 2000, respectively. These excess acquisition costs are being amortized
on a straight-line basis over periods of up to 25 years. In 2001 and 2000, the
Company disposed of shares held in certain affiliates. The resulting impact of
these disposals was not material to the 2001 and 2000 consolidated results of
operations or financial position.
F-14
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Restructuring & Other Special Charges and Nonrecurring Charge
As part of the Company's operational initiatives related to the merged
operations of Leo Burnett and MacManus, the Company incurred $20.3 million of
restructuring and other special charges during 2001 related to the streamlining
of certain of the Company's businesses. These charges include costs associated
with severance, fixed asset impairments, leasehold consolidations and other
related costs of $5.3 million, $3.6 million, $10.5 million and $0.9 million,
respectively. Of these amounts, approximately $3.3 million, $2.9 million, $10.5
million and $0.6 million related to severance, fixed asset impairments,
leasehold consolidations and other related costs, respectively, remain as of
December 31, 2001.
The costs, liabilities and activity during 2001 for these charges are as
follows (in thousands):
[Enlarge/Download Table]
Deductions
-----------------------
Balance Applied Balance
December 31, Additions Against December 31,
2000 Expensed Related Assets Payments 2000
------------ --------- -------------- -------- ------------
Severance........................................ $-- $ 5,283 $ -- $1,996 $ 3,287
Fixed asset impairments.......................... -- 3,603 726 -- 2,877
Leasehold consolidations......................... -- 10,519 -- -- 10,519
Other related costs.............................. -- 847 -- 271 576
--- ------- ---- ------ -------
Totals........................................ $-- $20,252 $726 $2,267 $17,259
=== ======= ==== ====== =======
In connection with the business combination, Leo Burnett terminated its
employee loan program. This program guaranteed bank loans to employees to allow
the employees to purchase Leo Burnett's common stock. Leo Burnett extended an
offer to its shareholders with loans outstanding under the employee loan
program to redeem a number of shares of common stock sufficient to retire the
amount of outstanding borrowings under these loans. Related to this redemption
offer, the Company recognized a nonrecurring compensation charge of $71.9
million in 2000. This charge was equal to the difference in the book value and
cash to be paid for the shares offered for redemption. There is no tax benefit
associated with this charge.
9. Property and Equipment
Property and equipment and the related accumulated depreciation and
amortization as of December 31, 2001 and 2000 are summarized as follows (in
thousands):
[Download Table]
2001 2000
--------- ---------
Furniture and equipment.................. $ 249,720 $ 222,172
Building................................. 196,671 194,887
Land..................................... 17,698 16,987
Leasehold improvements................... 141,743 118,169
Software................................. 79,762 43,400
Other.................................... 16,862 17,289
--------- ---------
Total cost............................ 702,456 612,904
Accumulated depreciation and amortization (326,014) (260,210)
--------- ---------
Property and equipment, net........... $ 376,442 $ 352,694
========= =========
Depreciation and amortization expense for property and equipment totaled
$70.6 million and $57.5 million in 2001 and 2000, respectively.
F-15
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 applies an asset
and liability approach that requires the recognition of deferred tax assets and
liabilities with respect to the expected future tax consequences of events that
have been recognized in the consolidated financial statements and tax returns.
Income (loss) before income taxes and the income taxes for the years ended
December 31, 2001 and 2000 consisted of the amounts as shown below (in
thousands):
[Download Table]
2001 2000
-------- --------
Income (loss) before income taxes:
Domestic....................... $ 31,665 $(48,768)
International.................. 78,844 54,160
-------- --------
Total...................... $110,509 $ 5,392
======== ========
Income taxes:
Current:
Federal........................ $ 27,782 $ 37,429
State and local................ 3,658 8,293
International.................. 31,268 31,057
-------- --------
62,708 76,779
-------- --------
Deferred:
Federal........................ (2,843) (8,403)
State and local................ (408) (686)
International.................. 13,456 (1,047)
-------- --------
10,205 (10,136)
-------- --------
Total...................... $ 72,913 $ 66,643
======== ========
The Company's effective income tax rate for the years ended December 31,
2001 and 2000, varied from the statutory federal income tax rate as a result of
the following factors:
[Download Table]
2001 2000
---- -------
Statutory federal income tax rate................................. 35.0% 35.0%
State and local taxes on income, net of federal income tax benefit 1.9 91.7
Impact of international tax rate differential..................... 6.6 276.2
Nondeductible goodwill amortization............................... 18.1 363.0
Nonrecurring charge............................................... -- 466.6
Other............................................................. 4.4 3.4
---- -------
Effective rate.................................................... 66.0% 1,235.9%
==== =======
Deferred income taxes are provided for the temporary differences between the
financial reporting bases and tax bases of the Company's assets and
liabilities. Deferred tax benefits result primarily from recording certain
expenses in the financial statements, which are not currently deductible for
tax purposes. Deferred tax liabilities result primarily from the recording of
intangible assets, the deferred gain on the sale-leaseback transaction and the
recognition of income upon the change from cash to accrual basis reporting for
tax purposes.
F-16
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net deferred tax benefits (liabilities) as of December 31, 2001 and 2000
consisted of the amounts shown below (in thousands):
[Download Table]
2001 2000
-------- --------
Tax loss/foreign tax credits carryovers $ 28,386 $ 21,997
Allowance for doubtful accounts........ 9,689 10,233
Employee compensation and benefit plans 59,988 68,263
Other accrued expenses................. 22,429 16,067
Goodwill and intangible assets......... (8,565) (16,364)
Rent................................... 13,882 11,250
Real estate joint venture.............. 4,566 4,425
Foreign exchange....................... 3,189 (774)
Accounting method change............... (1,953) (4,597)
Deferred gain on sale-leaseback........ (9,996) (10,686)
Other.................................. 5,199 (652)
-------- --------
Sub-total.............................. 126,814 99,162
Less: valuation allowance.............. (25,781) (24,308)
-------- --------
Total............................... $101,033 $ 74,854
======== ========
The Company has recorded deferred tax benefits as of December 31, 2001 and
2000 of $109.9 million and $93.1 million, respectively, which are net of
valuation allowances of $25.8 million and $24.3 million for the comparative
periods, respectively. The Company has recorded deferred tax liabilities as of
December 31, 2001 and 2000 of $8.9 million and $18.3 million, respectively.
Deferred tax benefits were recorded for foreign net operating loss
carryforwards, which were predominantly offset by valuation allowances due to
the uncertainty of realizing the future tax benefits. As of December 31, 2001,
there were net operating loss carryforwards of $75.8 million with various
expiration periods and foreign tax credit carryforwards of $4.4 million, which
expire in 2006 if unused.
Net current deferred tax benefits as of December 31, 2001 and 2000 were
$28.1 million and $19.2 million, respectively, of which $32.2 million and $22.5
million are included in prepaid expenses and other assets and $4.1 million and
$3.3 million is included in accrued expenses and other payables for the
comparative periods, respectively. Net non-current deferred tax benefits as of
December 31, 2001 and 2000 were $72.9 million and $55.6 million of which $77.7
million and $70.4 million are included in other assets, $0.0 million and $0.2
million are included in accumulated other comprehensive loss and $4.8 million
and $15.0 million are included in other long-term liabilities for the
comparative periods, respectively. The Company has concluded that it is
probable that the Company will be able to realize these net deferred tax
benefits in future periods.
The cumulative undistributed earnings of the Company's international
operations totaled approximately $92.7 million as of December 31, 2001. The
Company has made a provision for the additional taxes on the earnings of the
international subsidiaries that will be distributed. Income taxes have not been
provided on the remaining undistributed earnings of international subsidiaries
because these earnings are considered to be permanently invested or will not be
repatriated unless any additional federal income taxes would be offset by
foreign tax credits.
11. Short-Term Borrowings and Lines of Credit
Short-term borrowings of $39.4 million and $39.8 million existed as of
December 31, 2001 and 2000, respectively. Short-term borrowings consisted
principally of amounts borrowed under domestic and international bank overdraft
facilities and lines of credit used for local working capital purposes. The
weighted average interest rates on outstanding short-term borrowings as of
December 31, 2001 and 2000 were 6.0% and 7.3%, respectively. The fair value of
short-term borrowings approximated carrying value due to the short-term
maturity of these instruments.
F-17
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In August 2001, MacManus and DMB&B USA, Inc., a subsidiary of MacManus,
entered into the Second Amended and Restated Credit Agreement ("Second Amended
Credit Agreement"). The Second Amended Credit Agreement includes a $200.0
million revolving credit facility (facility A), which includes a $100.0 million
swing line to provide overnight borrowing capabilities and is committed through
July 2004. This Second Amended Credit Agreement also includes a $150.0 million
revolving credit facility (facility B) which is committed through July 2002.
The Second Amended Credit Agreement is cross-guaranteed by Leo Burnett and Leo
Burnett USA, Inc.
In August 2001, Leo Burnett entered into the First Amended and Restated
Credit Agreement ("First Amended Credit Agreement"). The First Amended Credit
Agreement is comprised of a $100.0 million revolving credit facility, which
included a $50.0 million swing line to provide overnight borrowing capabilities
and is committed through July 2004. The First Amended Credit Agreement is
cross-guaranteed by MacManus and DMB&B USA, Inc.
The interest rate on both the Second Amended Credit Agreement and the First
Amended Credit Agreement is set as a margin over LIBOR. This margin is
structured to reduce when certain consolidated indebtedness ratios are
achieved. As of December 31, 2001, there were no short-term borrowings
outstanding under these agreements.
Both the Second Amended Credit Agreement and the First Amended Credit
Agreement contain financial covenants regarding the ratio of total consolidated
indebtedness and gross interest expense to cash flow. In addition, these credit
agreements contain certain restrictive covenants including restrictions on
liens. All covenant compliance calculations are made on a combined MacManus and
Leo Burnett basis and had been met as of year end.
As of December 31, 2001 and 2000, subsidiaries of the Company also had
unsecured lines of credit of $275.5 million and $251.3 million, respectively,
of which $ 236.1 million and $211.5 million were unused as of the respective
dates.
12. Long-term Debt
Long-term debt consists of the following as of December 31, 2001 and 2000
(in thousands):
[Enlarge/Download Table]
2001 2000
------- --------
Term debt payable to banks in installments with maturities through
2003. The average interest rate on outstanding principal as of
December 31, 2000 was 7.9%............................................ $ -- $435,000
Notes payable to financing company, weighted average interest rate of
7.0% and 9.0%, as of December 31, 2001 and 2000, respectively,
payable in monthly installments through 2004.......................... 7,139 3,377
Notes payable to banks by foreign subsidiaries at applicable banks' base
lending rates 2.5% to 18.0% and 4.1% to 19.4% as of December 31,
2001 and 2000, respectively, payable in varying installments
through 2003........................................................... 1,141 2,636
Notes payable to former stockholders, variable interest 3.7% and 7.7%
as of December 31, 2001 and 2000, respectively, payable in varying
installments.......................................................... 7,186 5,491
------- --------
15,466 446,504
Less, current portion................................................... 6,016 57,376
------- --------
Long-term debt.......................................................... $ 9,450 $389,128
======= ========
F-18
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Aggregate maturities on long-term debt are as follows (in thousands):
[Download Table]
2002............................................. $6,016
2003............................................. 9,051
2004............................................. 125
2005............................................. 24
2006............................................. 26
Thereafter....................................... 224
13. Financial Instruments and Market Risk
The Company selectively utilizes derivative financial instruments solely to
reduce certain market risks, including the impact of currency rate changes.
These hedging activities are limited in volume and confined to the management
of specific interest rate and foreign exchange risks. Senior management
actively participates in the quantification, monitoring, and control of all
significant risks.
As of December 31, 2001 and 2000, the Company had open forward foreign
currency contracts for approximately $11.0 million and $18.0 million,
respectively to hedge certain known foreign currency assets and liabilities.
The Company enters into forward foreign exchange contracts primarily to
hedge certain intercompany payables and receivables typically deemed to be
short-term in nature. The forward contract terms are typically six months or
less in duration and structured to facilitate the payment of the intercompany
obligation with the resulting gain or loss included in the basis of the
transaction upon settlement. When the underlying intercompany obligation is
long-term in nature a hedge may be used to equalize the interest rate
differential. In these instances a one-year forward contract is entered into.
Counterparty risk is managed by entering into arrangements of this nature with
relationship banks, which are known to have strong credit ratings.
14. Commitments and Contingencies
The Company is obligated under a number of operating lease agreements for
office space, office equipment, computers, and automobiles. Generally, office
space leases require the payment of base rents plus escalations for increases
in building operating costs and real estate taxes. Rent expense under these
leases amounted to $102.0 million and $76.3 million in 2001 and 2000,
respectively. Expense under operating leases, principally for office equipment,
amounted to $25.0 million and $26.7 million in 2001 and 2000, respectively.
Minimum lease payments to outside parties under all non-cancelable operating
leases having initial or remaining terms in excess of one year as of December
31, 2001 (excluding future minimum lease payments relating to the
sale-leaseback transaction) are as follows (in thousands):
[Download Table]
2002............................................. $ 92,423
2003............................................. 84,464
2004............................................. 72,819
2005............................................. 66,629
2006............................................. 63,027
Thereafter....................................... 250,391
The Company is party to certain legal proceedings incidental to its
business. While it is not feasible to predict or determine the final outcome of
these proceedings, management does not believe that the outcome will have a
material effect on the Company's consolidated financial position, results of
operations, or cash flows.
F-19
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Sale-Leaseback Transaction
In 1987, Leo Burnett constructed an office building that served as its
corporate headquarters. During 1997, Leo Burnett contributed its corporate
headquarters to a joint venture (the "Venture") substantially owned by Starwood
Capital Group, L.L.C. and the John Buck Company. In exchange for its
contribution, Leo Burnett acquired a 3.6% interest in the Venture, and the
Venture assumed Leo Burnett's building mortgage debt of $219.5 million. In
conjunction with this transaction, Leo Burnett entered into a 15-year lease for
the portion of the building that it occupies. This transaction was accounted
for as a financing lease, with the building and the building mortgage debt
obligation continuing to be reflected in the Company's financial statements.
The Company's only continuing obligation is its annual lease payments shown
below since the Venture has fully assumed the building mortgage debt. In
addition, the operating results of the Venture are included in the Company's
accompanying consolidated statements of operations, with the 96.4% interest not
owned by the Company reflected as minority interest expense.
Significant accounting policies of the Venture are as follows:
. Rental income is recognized on a straight-line basis over the terms of
the respective leases.
. Depreciation expense is provided on a straight-line basis over the
estimated useful lives of the depreciable assets, which range from 10 to
40 years for buildings and improvements and three to 15 years for
furniture and equipment.
As mentioned above, the Company has a continuing obligation for annual lease
payments. In 2001 and 2000, the lease payment was $10.1 million and $9.8
million, respectively. The Company's remaining future minimum lease payments as
of December 31, 2001 are as follows (in thousands):
[Download Table]
2002............................................. $10,341
2003............................................. 10,600
2004............................................. 10,865
2005............................................. 10,703
2006............................................. 10,970
Thereafter....................................... 71,828
16. Mandatorily Redeemable Stock
Each owner of the Company's Class A common stock has entered into a stock
purchase agreement with the Company. The Company's Class A common stock is
referred to as "Mandatorily redeemable stock" in these Consolidated Financial
Statements, due to the repurchase features described below. All of Leo
Burnett's 9,491,560 outstanding shares were exchanged for an equal number of
the Company's shares in the business combination. MacManus stockholders
exchanged 695,492 MacManus shares for 5,981,100 of the Company's shares in the
business combination. At the time of the business combination, the Mandatorily
redeemable stock was deemed to have a value of $115.38 per share. During the
eleven-month period ended December 31, 2000, Bcom3 repurchased 69,713 shares of
Mandatorily redeemable stock at prices ranging from $1.17 per share to $3.63
per share, and from $20.09 per share to $22.55 per share for the former
stockholders of MacManus and Leo Burnett, respectively. During the year ended
December 31, 2001, Bcom3 repurchased 152,613 shares of Mandatorily redeemable
stock at prices ranging from $3.63 per share to $6.25 per share, and from
$22.55 per share to $25.17 per share for the former stockholders of MacManus
and Leo Burnett, respectively. Under the stock purchase agreements, in the
event an individual owner of Mandatorily redeemable stock ceases to be an
employee, the Company will generally repurchase his or her shares at a
specified formula price based on the
F-20
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Per Share Book Value of the Company's common stock at the time of the
repurchase. In certain circumstances, however, including death, permanent
disability, or termination without cause, former employees (or their heirs or
devisees) are allowed to become continuing owners for up to ten additional
years before such repurchase occurs. The Company generally pays cash for
repurchased shares at the time of the repurchase. Redemption amounts relating
to the stock purchase agreements are included in "Mandatorily redeemable stock"
in the accompanying consolidated balance sheets.
The Per Share Book Value as of any date equals the Starting Per Share Book
Value plus or minus Per Share Book Value Changes through such date. The
Starting Per Share Book Value is either (a) $20.09 for shares of Mandatorily
redeemable stock that the former stockholders of Leo Burnett acquired on
January 31, 2000; or (b) $1.17 for shares of Mandatorily redeemable stock that
the former stockholders of MacManus acquired on January 31, 2000; or (c) the
actual purchase price for any shares of Mandatorily redeemable stock that a
stockholder acquired after January 31, 2000. Per Share Book Value Changes are
calculated based on the consolidated net income (or loss) per Share of Bcom3
(treating shares of Mandatorily redeemable stock and shares of Class B common
stock as a single class of shares for this purpose), from January 31, 2000 (or,
in the case of shares acquired after January 31, 2000, the date of such
acquisition) through the date of determination, but reduced by dividends and
adjusted to eliminate (1) nonrecurring items (net of taxes), including but not
limited to gains or losses on sales of securities, real estate, business units
or other assets outside the ordinary course of business, (2) any changes as a
result of the application of purchase accounting to the business combination of
Leo Burnett and MacManus into subsidiaries of the Company and (3) any charges
arising from issuances or repurchases of equity at prices other than book
value. Per Share Book Value Changes during any period of less than a full year
are determined by pro ration (or another method selected by the Company).
All components of comprehensive income have been allocated between the Class
A common stockholders (Mandatorily redeemable stock) and the Class B common
stockholders based on proportional ownership, except for items (1), (2) and (3)
discussed above as provided for in the stock purchase agreement.
Transaction activity in the equity accounts pertaining to Class A common
stockholders, other than items described in the preceding paragraph, are
allocable to Mandatorily redeemable stock except for items (1), (2) and (3)
discussed above. Transaction activity in the equity accounts pertaining to
Class B common stockholders, other than items described in the preceding
paragraph, remains in the respective equity accounts.
17. Retirement and Postretirement Plans
The Company maintains retirement plans covering substantially all U.S.
employees and certain foreign employees. Some of these are defined benefit
pension plans ("Defined Benefit Pensions") which require disclosure of assets
and obligations and others are defined contribution plans which by definition
have assets equal to liabilities and therefore the Company shows only the
annual expense associated with such plans. During the fourth quarter of 2001
the Company's domestic retirement plans were amended to provide a cash balance
benefit formula for service after January 1, 2002. This amendment reduced the
benefit obligation for the domestic retirement plans by approximately $24.7
million, primarily because plan benefits for service rendered through December
31, 2001 are no longer affected by future salary increases.
The Company also provides certain healthcare and life insurance benefits
("Postretirement Plans") to certain retired U.S. employees. Employees hired by
MacManus before January 1, 1993 may be eligible for certain postretirement life
insurance and medical benefits depending on years of service and other
requirements. Employees hired by Leo Burnett before January 1, 2002 may be
eligible for certain postretirement medical benefits depending on years of
service and other requirements.
F-21
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The changes in the assets and benefit obligations and the reconciliation of
the Company's Defined Benefit Pensions and Postretirement Plans in the
accompanying consolidated balance sheets as of December 31, 2001 and 2000 were
as follows (in thousands):
[Enlarge/Download Table]
Defined Benefit Pensions
-------------------------------------- Postretirement
U.S. Non-U.S. Plans
------------------ ------------------ ------------------
2001 2000 2001 2000 2001 2000
-------- -------- -------- -------- -------- --------
Change in benefit obligation--
Benefit obligation at beginning of year........................... $156,725 $ 52,118 $ 92,873 $ 46,129 $ 24,892 $ 16,225
Acquisitions...................................................... -- 93,191 10 50,138 -- 5,484
Divestitures...................................................... -- -- (86) -- -- --
Service cost...................................................... 11,378 10,741 2,714 3,078 459 453
Interest cost..................................................... 11,371 10,559 5,167 5,044 1,837 1,804
Benefits and lump sums paid....................................... (13,539) (7,900) (3,861) (3,377) (2,708) (2,242)
Participant contributions......................................... -- -- 502 525 827 683
Effect of exchange rates.......................................... -- -- (2,928) (4,126) -- --
Actuarial loss (gain)............................................. 11,077 (1,984) (4,242) (4,571) 2,589 2,485
Special termination benefits...................................... -- -- -- -- 288 --
Curtailments...................................................... (1,230) -- -- (5) 238 --
Plan amendments................................................... (24,666) -- 1,652 38 -- --
-------- -------- -------- -------- -------- --------
Benefit obligation at end of year................................. $151,116 $156,725 $ 91,801 $ 92,873 $ 28,422 $ 24,892
======== ======== ======== ======== ======== ========
Change in plan assets--
Fair value at beginning of year................................... $158,067 $ 87,649 $ 70,913 $ 45,862 $ -- $ --
Acquisitions...................................................... -- 82,353 -- 27,732 -- --
Actual return on assets........................................... (19,842) (10,871) (6,503) 488 -- --
Company contributions............................................. 9,333 6,836 5,849 3,585 1,881 1,559
Benefits and lump sums paid....................................... (13,539) (7,900) (3,861) (3,377) (2,708) (2,242)
Participant contributions......................................... -- -- 502 525 827 683
Effect of exchange rates.......................................... -- -- (2,055) (3,902) -- --
-------- -------- -------- -------- -------- --------
Fair value of plan assets at end of year.......................... $134,019 $158,067 $ 64,845 $ 70,913 $ -- $ --
======== ======== ======== ======== ======== ========
Fair value of plan assets (less) greater than benefit obligation.. $(17,097) $ 1,342 $(26,956) $(21,960) $(28,422) $(24,892)
Unrecognized net actuarial loss (gain)............................ 30,547 (13,345) 6,136 (1,201) (6,434) (9,652)
Unrecognized prior service costs.................................. (24,637) (528) 547 512 -- --
Unrecognized transition obligation (asset)........................ (2,963) (3,704) 28 31 9,694 11,433
-------- -------- -------- -------- -------- --------
Net amount recognized............................................. $(14,150) $(16,235) $(20,245) $(22,618) $(25,162) $(23,111)
======== ======== ======== ======== ======== ========
Amounts recognized in the consolidated balance sheets
consist of:
Prepaid benefit cost.............................................. $ 12,024 $ 8,594 $ 2,000 $ 1,422 $ -- $ --
Accrued benefit liability......................................... (27,958) (26,203) (27,228) (24,901) (25,162) (23,111)
Intangible asset.................................................. 1,175 1,340 15 15 -- --
Accumulated other comprehensive income............................ 609 34 4,968 846 -- --
-------- -------- -------- -------- -------- --------
Net amount recognized............................................. $(14,150) $(16,235) $(20,245) $(22,618) $(25,162) $(23,111)
======== ======== ======== ======== ======== ========
Defined Benefit Pensions with accumulated benefit obligations in excess of
plan assets consist of the following as of December 31, 2001 and 2000 (in
thousands):
[Download Table]
Defined Benefit Pensions
-------------------------------
U.S. Non-U.S.
--------------- ---------------
2001 2000 2001 2000
------- ------- ------- -------
Accumulated benefit obligation $27,630 $25,573 $53,379 $53,314
Projected benefit obligation.. $27,630 $25,573 $53,887 $53,696
Plan assets at fair value..... $ -- $ -- $26,545 $28,678
F-22
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of net periodic benefit costs for the Defined Benefit
Pensions and Postretirement Plans for the years ended December 31, 2001 and
2000 are as follows (in thousands):
[Enlarge/Download Table]
Defined Benefit Pensions
------------------------------------ Postretirement
U.S. Non-U.S. Plans
------------------ ---------------- --------------
2001 2000 2001 2000 2001 2000
-------- -------- ------- ------- ------ ------
Service cost for benefits earned during
the year............................. $ 11,378 $ 10,741 $ 2,714 $ 3,078 $ 459 $ 453
Interest cost on projected benefit
obligation........................... 11,371 10,559 5,167 5,044 1,837 1,804
Expected return on plan assets......... (13,057) (14,504) (5,130) (5,041) -- --
Amortization of transition (asset)
obligation........................... (741) (741) 1 2 897 968
Recognized actuarial (gain) loss....... 83 (1,510) 1 (2) (391) (382)
Amortization of prior service cost..... (469) (101) 94 85 -- --
-------- -------- ------- ------- ------ ------
Net periodic benefit cost.............. 8,565 4,444 2,847 3,166 2,802 2,843
Curtailment (gain) loss................ (1,317) -- -- -- 842 --
Special termination benefit charge..... -- -- -- -- 288 --
Defined contribution cost.............. 11,772 18,058 3,040 2,989 -- --
-------- -------- ------- ------- ------ ------
Total retirement cost............... $ 19,020 $ 22,502 $ 5,887 $ 6,155 $3,932 $2,843
======== ======== ======= ======= ====== ======
The weighted average assumptions used in determining the benefit obligation
as of December 31, 2001 and 2000 are:
[Download Table]
Defined Benefit Pensions
----------------------- Postretirement
U.S. Non-U.S. Plans
----------- ---------- -------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Discount rate....................... 7.25% 7.75% 5.69% 5.75% 7.25% 7.75%
Expected rate of future compensation
increases......................... N/A 5.78% 4.08% 4.14% N/A N/A
The weighted average assumptions used in determining the net periodic
benefit costs for the years ended December 31, 2001 and 2000 are:
[Download Table]
Defined Benefit
Pensions
---------------------- Postretirement
U.S. Non-U.S. Plans
---------- ---------- -------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Discount rate................ 7.75% 7.68% 5.75% 5.76% 7.75% 7.87%
Expected rate of future
compensation increases..... 5.50% 5.78% 4.14% 4.12% N/A N/A
Expected long-term rate on
plan assets................ 9.00% 8.74% 7.30% 7.31% N/A N/A
The Company also sponsors a non-qualified pension plan for which payments
are discretionary. No payments were made and no liability exists as of the year
ended December 31, 2001. The amount paid and the liability as of the year ended
December 31, 2000 was $0.7 million and $1.4 million, respectively.
As of December 31, 2001, the medical inflation rates were assumed to be 10%,
gradually declining to 5% in 2007, and remaining at that rate thereafter. A
one-percentage-point increase in the medical inflation rate would
F-23
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
increase the accumulated postretirement benefit obligation as of December 31,
2001 by approximately $3.3 million and increase the net periodic benefit cost
by $0.3 million. A one-percentage-point decrease in the medical inflation rate
would decrease the accumulated postretirement benefit obligation as of December
31, 2001 by approximately $2.6 million and decrease the net periodic benefit
cost by approximately $0.3 million.
18. Stock Options
The Company has adopted the Bcom3 2000 Long-Term Equity Incentive Plan and
the Bcom3 2001 California Stock Option Plan (collectively, the "Plans"),
amended and restated as of January 1, 2001 and adopted as of January 1, 2001,
respectively. These Plans permit the Company to grant incentive or
non-qualified stock options, stock appreciation rights (either alone or in
tandem with stock options), restricted stock, performance awards, or any
combination of the foregoing, covering up to 1,606,617 shares of Class A Common
Stock in the aggregate.
During 2001, the Company granted stock options to approximately 920
employees of the Company and its subsidiaries, giving such individuals the
right to acquire 1,052,521 shares of Class A common stock, primarily at an
exercise price of $130. Such options generally vest and become exercisable
cumulatively, 25% on the two year anniversary of the effective date, 50% on the
three year anniversary of the effective date, 75% on the four year anniversary
of the effective date, and 100% on the five year anniversary of the effective
date, subject to earlier forfeiture or vesting in certain prescribed
circumstances. The options will expire on the ten year anniversary of the
effective date if not previously exercised or forfeited.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), and in accordance with its provisions, the
Company applies APB Opinion No. 25, and related interpretations, in accounting
for the Plan. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under the Plans
consistent with the methodology prescribed by SFAS No. 123, the Company's net
income would have been decreased by $4.0 million for the year ended December
31, 2001, and the basic and diluted net loss per Class B common share would be
increased by $0.93 for the year ended December 31, 2001.
These SFAS No. 123 pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may by granted in
future years. The weighted average fair value of options granted during 2001
was $42.99. The fair value for these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
the year ended December 31, 2001:
[Download Table]
2001
-------------
Expected option term........................ 5 years
Risk-Free interest rate..................... 3.66% - 4.94%
Dividend yield.............................. 0.0%
Expected volatility......................... 27.0% - 28.4%
As the Company does not have a publicly traded market for its securities, it
does not yet have sufficient information to make a reasonable assumption as to
the expected volatility of its common stock price in the future. As a result,
the assumption in the table above reflects the expected volatility of stock
prices of entities similar to the Company.
F-24
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Black-Scholes option-pricing model was developed for use in estimating
the weighted average fair value of traded options that have no vesting
restrictions and are fully transferable. Because the Company's employee stock
options have characteristics significantly different than those of traded
options, and because changes in subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing model
does not necessarily provide a reliable single measure of the fair value of the
employee stock options.
[Download Table]
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Number Number
Range Outstanding Weighted Weighted Exercisable Weighted
of As of Average Average As of Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 2001 Life Price 2001 Price
-------- ------------ ----------- -------- ------------ --------
$115.38 - $130 911,716 9.07 years $129.44 45,456 $118.74
19. Related Party Transactions
In January 2000, before the business combination in which Bcom3 was formed,
a subsidiary of MacManus sold a portion of its shareholdings in a
majority-owned subsidiary called Novo MediaGroup to 25 managers of MacManus and
its operating units in return for consideration consisting of cash and
non-recourse promissory notes. In March 2001, the Company notified all of these
managers that it was offering to rescind the original transaction, in order to
regain majority ownership and control of Novo MediaGroup, and also in order to
avoid certain potential disputes with the managers. All 25 of the managers
accepted the rescission offer, with the result that each manager's original
cash consideration was refunded and each promissory note was cancelled. For all
25 managers as a group, the total cash refunded and the total principal amount
of the cancelled notes were each $10.7 million.
20. Subsequent Events
During 2002, the Company has adopted change in control agreements for 14 key
executives. Under the agreements, if the executive's employment is terminated
without "Cause" or upon a "Constructive Discharge" (as such terms are defined
in the agreements) within the period beginning 90 days prior to a change in
control and ending on the third anniversary of such change in control (an
"Eligible Termination"), the executive will be entitled to certain cash
payments depending on the date of termination together with accelerated vesting
of any otherwise unvested benefits. In addition, in the event of an Eligible
Termination, the executive may continue to participate in all company-sponsored
employee benefit plans for up to 3 years depending on the date employment is
terminated. The Company does not expect that the amount ultimately required to
be paid under these agreements in connection with the proposed merger with
Publicis Groupe S.A. ("Publicis") described below would have a material impact
on the Company's results of operations or cash flow.
During February 2002, the Company granted options to purchase 843,900 shares
of Class A Common Stock at an exercise price of $130 per share to approximately
400 employees.
On February 18, 2002, the Board of Directors declared a cash dividend of
$.25 per share of Common Stock. This dividend is payable by March 18, 2002 to
holders of our Common Stock as of February 18, 2002.
On March 7, 2002, Bcom3 entered into two merger agreements, both of which
are related to the Company's proposed merger with Publicis.
The first merger agreement is with Dentsu Inc. ("Dentsu"). This agreement
provides for the merger of Boston Three Corporation, a wholly-owned subsidiary
of Bcom3, into Bcom3 (the "First Step Merger"). In this
F-25
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
merger, (1) Dentsu will pay approximately $498.7 million in cash to holders of
the Company's Class A Common Stock, (2) Dentsu will receive additional shares
of the Company's Class B Common Stock and (3) the number of shares held by
holders of Class A Common Stock will be correspondingly reduced. The closing of
the First Step Merger is conditioned, among other things, on approval by
Bcom3's stockholders and satisfaction of the conditions to closing of the
merger of Publicis and Bcom3 (other than the condition that the First Step
Merger has closed).
The second merger agreement is with Publicis. This agreement provides for
the merger of Bcom3 into a wholly-owned subsidiary of Publicis (the
"Publicis/Bcom3 Merger"). In this merger, holders of the Company's Class A
Common Stock and Class B Common Stock will be entitled to receive ordinary
shares of Publicis and other merger consideration, as described for each Class
in the merger agreement. The closing of the Publicis/Bcom3 Merger is
conditioned, among other things, on approval by stockholders of Bcom3 and
Publicis, regulatory approvals, receipt of opinions as to the tax treatment of
the merger, and the closing of the First Step Merger. Certain Publicis
stockholders representing about 45% of the voting power of all Publicis shares,
and certain Bcom3 stockholders representing about 31% of the voting power of
all Bcom3 shares, have agreed to vote in favor of the Publicis/Bcom3 Merger.
The merger agreement provides for a $90.0 million termination fee to be paid by
either company if the merger agreement is terminated in certain circumstances,
including if such company's Board of Directors changes its recommendation with
respect to the transaction or if such company receives a competing proposal
and, after the merger agreement terminates for certain reasons, such company
agrees to a business combination with a third party within 12 months of the
termination.
F-26
BCOM3 GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth a summary of the Company's unaudited
quarterly results of operations for the years ended December 31, 2001 and 2000,
in thousands of dollars except for per share amounts:
[Download Table]
First Second Third Fourth
-------- -------- -------- --------
Revenue
2001................................ $447,220 $479,891 $456,609 $533,623
2000................................ $380,788 $469,945 $434,262 $548,732
Income (loss) before income taxes
2001................................ $ 17,385 $ 30,781 $ 23,522 $ 38,821
2000................................ $(48,419) $ 25,483 $ 6,576 $ 21,752
Income taxes
2001................................ $ 13,298 $ 21,724 $ 15,369 $ 22,522
2000................................ $ 15,183 $ 17,737 $ 12,127 $ 21,596
Income (loss) after income taxes
2001................................ $ 4,087 $ 9,057 $ 8,153 $ 16,299
2000................................ $(63,602) $ 7,746 $ (5,551) $ 156
Minority interests
2001................................ $ (2,179) $ (4,086) $ (1,570) $ (3,138)
2000................................ $ (1,855) $ (2,771) $ (2,328) $ (1,334)
Equity in (loss) income of affiliates
2001................................ $ 666 $ (526) $ (1,916) $ 1,234
2000................................ $ 664 $ 2,181 $ 2,591 $ (1,510)
Net income (loss)
2001................................ $ 2,574 $ 4,445 $ 4,667 $ 14,395
2000................................ $(64,793) $ 7,156 $ (5,288) $ (2,688)
Net loss per common share--
Basic and Diluted
2001................................ $ (3.11) $ (2.89) $ (2.93) $ (2.42)
2000................................ $ (97.71) $ (2.88) $ (3.51) $ (3.38)
F-27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
The Leo Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Leo
Group, Inc. (a Delaware corporation) as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' investment and cash
flows for each of the three years in the period ended December 31, 1999. 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.
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, the financial statements referred to above present fairly,
in all material respects, the financial position of The Leo Group, Inc. as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 31, 2000
F-28
THE LEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 1998
(Dollars in millions, except share data)
[Enlarge/Download Table]
1999
--------
ASSETS
------
Current assets:
Cash and cash equivalents................................................................................... $ 202.5
Accounts receivable (net of allowances of $8.8 in 1999 and $6.2 in 1998).................................... 753.1
Billables pending, at cost.................................................................................. 111.5
Other current assets........................................................................................ 74.0
Prepaid taxes, net.......................................................................................... 1.4
--------
Total current assets....................................................................................... 1,142.5
Property and equipment, at cost:
Land........................................................................................................ 14.6
Building.................................................................................................... 205.0
Furniture and equipment..................................................................................... 212.4
Leasehold improvements...................................................................................... 75.0
Less: accumulated depreciation and amortization............................................................. (239.1)
--------
Net property and equipment................................................................................. 267.9
Other assets:
Investments................................................................................................. 4.3
Goodwill (net of accumulated amortization).................................................................. 49.9
Other long-term assets...................................................................................... 98.1
Deferred taxes, net......................................................................................... 38.3
--------
Total other assets......................................................................................... 190.6
--------
Total assets.................................................................................................. $1,601.0
========
LIABILITIES AND MANDATORILY REDEEMABLE STOCK
--------------------------------------------
Current liabilities:
Trade accounts payable...................................................................................... $ 700.0
Accrued expenses............................................................................................ 144.0
Cash overdraft.............................................................................................. 96.7
Accrued payroll and benefits................................................................................ 69.5
Current portion of long-term debt........................................................................... 6.0
Notes payable and lines of credit........................................................................... 13.1
Accrued income taxes........................................................................................ 14.5
Other current liabilities................................................................................... 44.8
--------
Total current liabilities.................................................................................. 1,088.6
Other liabilities:
Reserve for deferred compensation and employee benefits..................................................... 45.1
Real estate finance obligation.............................................................................. 203.4
Long-term debt.............................................................................................. 2.6
Other long-term liabilities................................................................................. 61.4
--------
Total other liabilities.................................................................................... 312.5
Minority interest............................................................................................. 4.8
Mandatorily redeemable stock, at book value, $.01 par value; 11,000,000 shares authorized at December 31, 1999
and 1998; 10,108,405 shares and 9,203,240 shares issued and outstanding at December 31, 1999 and 1998,
respectively................................................................................................. 195.1
--------
Total liabilities and mandatorily redeemable stock............................................................ $1,601.0
========
[Enlarge/Download Table]
1998
--------
ASSETS
------
Current assets:
Cash and cash equivalents................................................................................... $ 172.0
Accounts receivable (net of allowances of $8.8 in 1999 and $6.2 in 1998).................................... 592.1
Billables pending, at cost.................................................................................. 85.1
Other current assets........................................................................................ 56.8
Prepaid taxes, net.......................................................................................... 1.8
--------
Total current assets....................................................................................... 907.8
Property and equipment, at cost:
Land........................................................................................................ 14.6
Building.................................................................................................... 203.6
Furniture and equipment..................................................................................... 186.6
Leasehold improvements...................................................................................... 64.8
Less: accumulated depreciation and amortization............................................................. (205.3)
--------
Net property and equipment................................................................................. 264.3
Other assets:
Investments................................................................................................. 5.1
Goodwill (net of accumulated amortization).................................................................. 44.9
Other long-term assets...................................................................................... 97.8
Deferred taxes, net......................................................................................... 18.1
--------
Total other assets......................................................................................... 165.9
--------
Total assets.................................................................................................. $1,338.0
========
LIABILITIES AND MANDATORILY REDEEMABLE STOCK
--------------------------------------------
Current liabilities:
Trade accounts payable...................................................................................... $ 493.0
Accrued expenses............................................................................................ 144.2
Cash overdraft.............................................................................................. 88.7
Accrued payroll and benefits................................................................................ 37.1
Current portion of long-term debt........................................................................... 8.4
Notes payable and lines of credit........................................................................... 43.9
Accrued income taxes........................................................................................ 10.8
Other current liabilities................................................................................... 37.5
--------
Total current liabilities.................................................................................. 863.6
Other liabilities:
Reserve for deferred compensation and employee benefits..................................................... 46.7
Real estate finance obligation.............................................................................. 214.2
Long-term debt.............................................................................................. 7.8
Other long-term liabilities................................................................................. 50.0
--------
Total other liabilities.................................................................................... 318.7
Minority interest............................................................................................. 4.5
Mandatorily redeemable stock, at book value, $.01 par value; 11,000,000 shares authorized at December 31, 1999
and 1998; 10,108,405 shares and 9,203,240 shares issued and outstanding at December 31, 1999 and 1998,
respectively................................................................................................. 151.2
--------
Total liabilities and mandatorily redeemable stock............................................................ $1,338.0
========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-29
THE LEO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in millions)
[Enlarge/Download Table]
1999 1998 1997
------ ------ ------
Revenues:
Commissions and fees earned................................ $912.8 $810.7 $793.9
Rental and other income.................................... 21.4 20.4 17.4
------ ------ ------
Total revenues......................................... 934.2 831.1 811.3
Operating expenses:
Compensation and employee benefits......................... 587.7 533.4 534.2
Office and related expenses................................ 76.1 70.1 62.5
Depreciation and amortization expense...................... 46.4 37.2 33.3
Other general expenses..................................... 148.4 144.8 127.6
------ ------ ------
Total operating expenses............................... 858.6 785.5 757.6
------ ------ ------
Operating income.............................................. 75.6 45.6 53.7
Other income (expense):
Interest income............................................ 7.9 12.0 11.2
Interest expense........................................... (15.9) (17.4) (18.0)
Foreign currency loss...................................... (5.6) (0.7) (17.2)
------ ------ ------
Total other expense.................................... (13.6) (6.1) (24.0)
Income before taxes/minority interest and equity in affiliates 62.0 39.5 29.7
Provision for income taxes.................................... 29.2 9.1 9.3
------ ------ ------
Income before minority interest and equity in affiliates...... 32.8 30.4 20.4
Minority interest expense, net of tax......................... (5.4) (10.1) (3.4)
Equity in affiliates.......................................... 1.1 2.4 --
------ ------ ------
Net income.................................................... $ 28.5 $ 22.7 $ 17.0
====== ====== ======
Unaudited pro forma tax provision (as if a C Corporation)..... N/A $ 14.6 $ 17.0
====== ====== ======
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-30
THE LEO GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Years Ended December 31, 1999, 1998, and 1997
(Dollars in millions, except share data)
[Enlarge/Download Table]
Loans to Accumulated Allocation to
Par Additional Shareholders Other Mandatorily
Number Value Paid-in For Stock Comprehensive Comprehensive Retained Redeemable
of Shares ($.01) Capital Sales Income (Loss) Income Earnings Common Stock
---------- ------ ---------- ------------ ------------- ------------- -------- -------------
Balance, December 31, 1996....... 8,501,540 $0.1 $118.3 $(1.0) $ 1.4 $ 37.6 $(156.4)
Net income....................... $17.0 17.0
Gain on investments.............. 0.1 0.1
Foreign currency translation..... 2.1 2.1
-----
Comprehensive income............. $19.2
=====
Stock repurchases................ (1,973,200) -- (30.9) (5.0)
Sales of stock................... 2,376,300 -- 37.7
Cash dividends ($14.31
per share)...................... (20.0)
Repayment of loans to
shareholders for stock sales.... 0.4
Retained earnings allocable to
mandatorily redeemable
common stock.................... (1.4)
---------- ---- ------ ----- ----- ------ -------
Balance, December 31, 1997....... 8,904,640 0.1 125.1 (0.6) 3.6 29.6 (157.8)
Net income....................... $22.7 22.7
Gain on investments.............. 0.6 0.6
Foreign currency translation..... (2.4) (2.4)
-----
Comprehensive income............. $20.9
=====
Stock repurchases................ (1,466,000) -- (24.0) (2.3)
Sales of stock................... 1,764,600 -- 29.8
Capital transfer................. (22.2) 22.2
Distribution payable ($19.26
per share)...................... (19.1)
Cash dividends ($10.90
per share)...................... (11.9)
Retained earnings allocable to
mandatorily redeemable
common stock.................... 6.6
---------- ---- ------ ----- ----- ------ -------
Balance, December 31, 1998....... 9,203,240 0.1 108.7 (0.6) 1.8 41.2 (151.2)
Net income....................... $28.5 28.5
Gain on investments.............. 0.2 0.2
Foreign currency translation..... 7.6 7.6
-----
Comprehensive income............. $36.3
=====
Stock repurchases................ (566,110) -- (9.9)
Sales of stock................... 1,471,275 -- 28.0
Cash dividends ($0.60 per share). (5.5)
Increase in loans to shareholders
for stock sales................. (5.0)
Retained earnings allocable to
mandatorily redeemable
common stock.................... (43.9)
---------- ---- ------ ----- ----- ----- ------ -------
Balance, December 31, 1999....... 10,108,405 $0.1 $126.8 $(5.6) $ 9.6 $ 64.2 $(195.1)
========== ==== ====== ===== ===== ===== ====== =======
[Download Table]
Total
Shareholders'
Investment
-------------
Balance, December 31, 1996....... $ --
Net income....................... 17.0
Gain on investments.............. 0.1
Foreign currency translation..... 2.1
Comprehensive income.............
Stock repurchases................ (35.9)
Sales of stock................... 37.7
Cash dividends ($14.31
per share)...................... (20.0)
Repayment of loans to
shareholders for stock sales.... 0.4
Retained earnings allocable to
mandatorily redeemable
common stock.................... (1.4)
------
Balance, December 31, 1997....... --
Net income....................... 22.7
Gain on investments.............. 0.6
Foreign currency translation..... (2.4)
Comprehensive income.............
Stock repurchases................ (26.3)
Sales of stock................... 29.8
Capital transfer................. --
Distribution payable ($19.26
per share)...................... (19.1)
Cash dividends ($10.90
per share)...................... (11.9)
Retained earnings allocable to
mandatorily redeemable
common stock.................... 6.6
------
Balance, December 31, 1998....... --
Net income....................... 28.5
Gain on investments.............. 0.2
Foreign currency translation..... 7.6
Comprehensive income.............
Stock repurchases................ (9.9)
Sales of stock................... 28.0
Cash dividends ($0.60 per share). (5.5)
Increase in loans to shareholders
for stock sales................. (5.0)
Retained earnings allocable to
mandatorily redeemable
common stock.................... (43.9)
------
Balance, December 31, 1999....... $ --
======
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-31
THE LEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, and 1997
(Dollars in millions)
[Enlarge/Download Table]
1999 1998 1997
------- ------ ------
Cash Flows from Operating Activities:
Net income........................................................... $ 28.5 $ 22.7 $ 17.0
Adjustments to reconcile net income to net cash provided by operating
activities:........................................................
Depreciation and amortization expense.............................. 46.4 37.2 33.3
Deferred income taxes.............................................. (17.5) (11.7) (4.7)
Foreign currency loss.............................................. 5.6 0.7 17.2
Decrease (increase) in assets:.....................................
Accounts receivable.............................................. (161.0) (22.1) (36.0)
Billables pending................................................ (26.4) (18.8) 1.2
Other assets..................................................... (2.8) 10.3 (6.6)
Increase (decrease) in liabilities:................................
Accounts payable and accrued expenses............................ 262.0 49.5 46.7
Other liabilities................................................ (1.7) (8.3) 0.7
Deferred compensation and employee benefits...................... (1.6) (2.7) 8.4
------- ------ ------
Total adjustments.............................................. 103.0 34.1 60.2
------- ------ ------
Net cash provided by operating activities...................... 131.5 56.8 77.2
------- ------ ------
Cash Flows from Investing Activities:
Capital expenditures................................................. (41.7) (36.4) (27.3)
Sales of investments................................................. -- -- 0.6
Acquisition of businesses............................................ (45.1) (42.3) (20.7)
------- ------ ------
Net cash used in investing activities.......................... (86.8) (78.7) (47.4)
------- ------ ------
Cash Flows from Financing Activities:
Collections (issuances) of shareholder loans......................... (5.0) -- 0.4
Proceeds from short-term borrowings, net............................. 2.9 -- --
Proceeds from issuance of long-term debt............................. -- 15.3 8.1
Repayments of long-term debt......................................... (7.6) (11.6) (15.3)
Repayment of shareholder notes....................................... (19.1) 0.0 0.0
Dividends paid....................................................... (5.5) (11.9) (20.0)
Sales of stock....................................................... 28.0 29.8 37.7
Redemptions of stock................................................. (9.9) (26.3) (35.9)
------- ------ ------
Net cash used in financing activities.......................... (16.2) (4.7) (25.0)
------- ------ ------
Effect of exchange rates on cash and cash equivalents................. 2.0 1.1 (3.2)
------- ------ ------
Increase (decrease) in Cash and Cash Equivalents...................... 30.5 (25.5) 1.6
Cash and Cash Equivalents, Beginning of year.......................... 172.0 197.5 195.9
------- ------ ------
Cash and Cash Equivalents, End of Year................................ $ 202.5 $172.0 $197.5
======= ====== ======
Supplemental Cash Flow Information:
Interest paid........................................................ $ 13.0 $ 14.3 $ 15.6
======= ====== ======
Income taxes paid.................................................... $ 38.6 $ 14.4 $ 12.6
======= ====== ======
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-32
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
1. Description of Business and Corporate Organization
The Leo Group, Inc. ("The Leo Group" or the "Company") is a holding company
for a global network of marketing and communications operating units that plan,
create, produce and place numerous forms of communication on behalf of clients
in a broad spectrum of media including television, radio, newspaper, magazine,
outdoor and interactive. The Company also provides specialized services to its
clients including direct marketing, database marketing, interactive and digital
communications, development and production of merchandising and sales promotion
programs and materials, health care marketing, public relations, market
research, new product development and introduction, corporate
branding/identification and package design.
The Leo Group was formed on January 1, 1999, when Leo Burnett Company
("LBCo.") was merged into Leo Burnett Worldwide ("LBW") and renamed The Leo
Group. The Board of LBCo. approved the merger into LBW through an irrevocable
Board resolution on December 28, 1998. LBCo. provided marketing and
communication services within the United States. LBW provided marketing and
communications services to clients outside the United States.
The merger was effected through an exchange of shares in which each
outstanding share of LBCo. was exchanged for 1.79 shares of LBW Series B common
stock. In return, LBW received all 555,000 outstanding shares of LBCo.
In anticipation of the merger, LBCo., by Board resolution effective December
28, 1998, transferred all but $0.001 of capital from common stock to retained
earnings. In addition, LBCo. declared a premerger dividend payable in the form
of a Promissory Note to each shareholder of record on December 28, 1998. The
Promissory Notes, totaling $19.1 plus accrued interest, were paid in full
during 1999. The Promissory Notes provide that proceeds from the notes shall
first be applied to outstanding loans secured by shares of LBCo. and LBW, with
the balance paid in cash to other holders.
The merger of LBCo. into LBW was accounted for as a reorganization of
companies under common control. Accordingly, the financial statements for LBCo.
and LBW have been consolidated for all periods presented at historical cost. As
a result, all share and per share data has been restated to reflect the
exchange into LBW Series B common stock at 1.79 shares per outstanding share of
LBCo.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of The Leo Group
and all its controlled subsidiaries. All significant intercompany balances and
transactions have been eliminated. Acquired businesses are included in the
results of operations since their acquisition dates. Investments in companies
in which less than a controlling interest is held are accounted for by the
equity method.
Cash and Cash Equivalents
Cash and cash equivalents are composed of cash and any short-term
investments with original maturities less than three months. Checks issued but
not presented to the banks for payment may create negative book cash balances.
Such negative cash balances are recorded in "Cash overdraft" in the
accompanying consolidated balance sheets.
F-33
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-Lived Assets
Long-lived assets are comprised of property and equipment and goodwill.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An estimate of undiscounted future cash flows produced by the
asset, or the appropriate grouping of assets, is compared to the carrying
amount to determine whether an impairment exists. If an asset is determined to
be impaired, the loss is measured based on quoted market prices in active
markets, if available. If quoted market prices are not available, the estimate
of fair value is based on the best information available, including considering
prices for similar assets and the results of valuation techniques to the extent
available.
Property and Equipment and Capitalized Software Costs
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred and expenditures for additions
and improvements that significantly extend the lives of assets are capitalized.
Upon sale or other retirement of depreciable property, the cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
reflected in operations. Depreciation is provided on the straight-line method
over the estimated useful lives of the depreciable assets, which range from 10
to 40 years for buildings and improvements, and 3 to 15 years for furniture and
equipment. Capitalized software costs are amortized on a straight-line basis
over 7 years. Capitalized software costs include expenditures for purchased
software and for the design, development and testing of new systems.
Expenditures for consulting, training, and reengineering efforts are expensed
as incurred. Capitalized hardware costs are depreciated under the
sum-of-the-years-digits method over 3 to 5 years. Leasehold improvements are
amortized over their estimated useful lives or over the terms of the lease,
whichever is shorter, on a straight-line basis. Depreciation and amortization
expense totaled $38.1, $31.5 and $31.4 in 1999, 1998 and 1997, respectively.
Goodwill
The Company generally amortizes goodwill on a straight-line basis over 20
years. Amortization expense totaled $8.3, $5.7 and $1.9 in 1999, 1998 and 1997,
respectively.
Income Taxes
The Company uses an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income taxes are provided when tax laws
and financial accounting standards differ with respect to the amount of income
for a year and the bases of assets and liabilities. Current deferred tax assets
and liabilities are netted in the consolidated balance sheets as are long-term
deferred tax assets and liabilities. Taxes are not provided on earnings
expected to be indefinitely reinvested. To the extent tax accruals differ from
actual payments or assessments, the accruals will be adjusted through the
provision for income taxes.
Revenue Recognition
Commissions and fees are recognized by the Company when billed to clients.
Billings to clients occur for media advertising at the time of publication or
presentation to the media audience, except for magazine billings, which occur
on the closing date of the publication. Billings to clients for print, radio
and television production occur in the month in which costs are incurred or
paid, or at the completion of the job, in accordance with individual client
arrangements. Interactive, direct and promotional marketing and all other
services are billed as services are rendered.
F-34
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, other than
those located in highly inflationary countries, are translated at current
exchange rates in effect at the end of the period, while income and expense are
translated at average rates for the period. For entities in highly inflationary
countries, a combination of current and historical rates is used to determine
foreign currency gains and losses resulting from financial statement
translation. Translation gains and losses are reported as a component of
shareholders' investment, except for those associated with highly inflationary
countries, which are reported directly in the accompanying consolidated
statements of income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the period reported. Actual results could differ from those
estimates.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting
and reporting standards for derivative instruments. SFAS No. 133 requires
derivatives to be measured at fair value and changes in the derivative's fair
value to be recognized currently in earnings unless specific hedge accounting
criteria are met. In June 1999, the FASB issued SFAS 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." SFAS No.
137 defers the effective date of SFAS No. 133 for one year to fiscal years
beginning after June 15, 2000. Given the Company's limited usage of derivative
instruments, this standard is not expected to have a material impact on the
Company's results of operations or financial position.
Reclassified Prior-Year Amounts
Certain prior-year amounts have been reclassified to conform to the current
year's presentation.
3. Acquisitions
On March 6, 1998, the Company acquired a 49% interest in BBH Communications
Limited ("BBH"), a London-based global marketing and communications business
for a total purchase price of $50.6. Approximately half of the purchase price
($25.8) was paid at closing, with the balance covered by a promissory note and
a letter of credit guaranty. The second installment ($24.8) was paid on January
15, 1999, and is included in the accompanying financial statements within
"Notes payable and lines of credit" at December 31, 1998. The Company's
investment in BBH is accounted for using the equity method of accounting. The
excess of the cost of the Company's investment over the underlying equity in
the net assets of BBH was $38.6 and $43.3 in 1999 and 1998, respectively, and
is included in "Other long-term assets." This excess amount is being amortized
over 20 years.
F-35
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes specific balance sheet and income statement
data of BBH as of June 30, 1999 and for the fiscal year then ended.
[Download Table]
Revenues................................................... $61.3
Income before taxes........................................ 11.0
Net income................................................. 7.3
Current assets............................................. 70.3
Total assets............................................... 78.7
Current liabilities........................................ 57.2
Total liabilities.......................................... 57.5
During 1999, 1998 and 1997, the Company acquired other marketing and
communications businesses or interests in other marketing and communications
businesses for total cash consideration of $20.3, $16.5 and $20.7,
respectively. These acquisitions were accounted for as purchases and have been
included in results of operations since the date of acquisition. The proforma
impact of these acquisitions on 1999, 1998 and 1997 results were not
significant.
In addition, the Company made several acquisitions during 1999 for which
certain payments were contingent upon the continued employment of the former
shareholders for a preestablished period of time. These payments are being
amortized over the related employment period as compensation expense. The total
compensation expense recognized in 1999 for these acquisitions was $8.9.
4. Investments
The Company holds a number of investments in equity securities which have
been classified as available for sale. These investments have been valued at
fair market value in the accompanying balance sheets. Unrealized holding gains
have been recorded in accumulated other comprehensive income. A summary of the
fair market values and cost bases of the Company's investments is as follows:
[Download Table]
1999 1998
---- ----
Fair market value of investment in equity securities....... $4.3 $5.1
Cost basis of investment in equity securities.............. 1.3 2.3
---- ----
Unrealized holding gain.................................... $3.0 $2.8
==== ====
5. Pension and Postretirement Plans
The Company has various benefit plans covering substantially all U.S.
employees and certain foreign employees. The Company's defined benefit plans
provide benefits based on years of service and compensation levels. The
Company's U.S. funding policy has been to contribute the maximum amount
deductible for federal income tax purposes. Due to the overfunded status of the
U.S. defined benefit plan, no Company contribution has been required since
1982. Plan assets consist primarily of various securities, real estate and
other investments.
The Company also provides certain health care and life insurance benefits to
retired U.S. employees. The Company charges to expense the expected costs of
postretirement benefits during the years that the employees render service.
F-36
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total Company Benefit Costs
The components of net periodic benefit costs for the pension and
postretirement plans were as follows:
[Enlarge/Download Table]
1999 1998 1997
------ ------ ------
Pension plan benefits--
Service cost for benefits earned during the year..................... $ 5.8 $ 5.9 $ 5.6
Interest cost on projected benefit obligation........................ 6.5 7.7 7.3
Expected return on plan assets....................................... (14.6) (12.1) (10.8)
Amortization of transition asset..................................... (0.7) (0.7) (0.7)
Recognized actuarial (gain).......................................... (0.9) (0.3) (0.5)
Other................................................................ 3.9 2.2 1.3
------ ------ ------
Net pension benefits expense...................................... $ -- $ 2.7 $ 2.2
====== ====== ======
Postretirement plan benefits--
Service cost for benefits earned during the year..................... $ 0.4 $ 0.4 $ 0.5
Interest cost on accumulated postretirement benefit obligation....... 1.2 1.3 1.3
Amortization of transition obligation................................ 1.0 1.0 1.0
Recognized actuarial (gain).......................................... (0.5) (0.4) (0.5)
------ ------ ------
Net postretirement benefits expense............................... $ 2.1 $ 2.3 $ 2.3
====== ====== ======
Domestic Obligations and Funded Status
The changes in the benefit obligations and the reconciliation of the funded
status of the Company's domestic plans to the accompanying consolidated balance
sheets were as follows:
[Enlarge/Download Table]
Postretirement
Pension Benefits Benefits
--------------- --------------
1999 1998 1999 1998
------ ------ ------ ------
Change in benefit obligation--
Benefit obligation at beginning of year................................ $ 54.6 $ 46.1 $ 17.9 $ 16.9
Service cost........................................................... 3.2 3.4 0.4 0.4
Interest cost.......................................................... 4.3 4.6 1.2 1.3
Benefits paid.......................................................... (6.7) (8.0) (1.4) (0.7)
Plan participant contributions......................................... -- -- 0.7 0.5
Actuarial (gain) loss.................................................. (3.3) 8.5 (2.6) (0.5)
------ ------ ------ ------
Benefit obligation at end of year...................................... $ 52.1 $ 54.6 $ 16.2 $ 17.9
====== ====== ====== ======
Change in plan assets--
Fair value at beginning of year........................................ $ 82.0 $ 75.6 $ -- $ --
Actual return on assets................................................ 12.3 14.4 -- --
Company contributions.................................................. -- -- 0.7 0.2
Benefits paid.......................................................... (6.7) (8.0) (1.4) (0.7)
Participant contributions.............................................. -- -- 0.7 0.5
------ ------ ------ ------
Fair value at end of year.............................................. $ 87.6 $ 82.0 $ -- $ --
====== ====== ====== ======
Fair value of plan assets greater (less) than benefit obligation....... $ 35.5 $ 27.4 $(16.2) $(17.9)
Unrecognized net actuarial (gain)...................................... (29.4) (21.6) (12.0) (9.9)
Unrecognized prior service cost........................................ (1.3) (1.5) -- --
Unrecognized transition obligation (asset)............................. (4.4) (5.2) 12.4 13.4
------ ------ ------ ------
Net amounts recognized................................................. $ 0.4 $ (0.9) $(15.8) $(14.4)
====== ====== ====== ======
F-37
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Weighted average assumptions as of December 31 are as follows:
[Download Table]
Pension Postretirement
Benefits Benefits
-------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Discount rate...................................... 8.0% 8.0% 8.0% 8.0%
Expected long-term rate of return on plan assets... 8.5% 8.5% N/A N/A
Expected rate of future compensation increases..... 5.5% 5.5% N/A N/A
=== === === ===
At December 31, 1999, the health care cost trend rates were assumed to be
8.0%, gradually declining to 5.0% in 2004. A 1.0% increase in the medical
inflation rate would increase the accumulated postretirement benefit obligation
as of December 31, 1999, by approximately $2.8 and increase the net periodic
cost by $0.3. A 1.0% decrease in the medical inflation rate would decrease the
accumulated postretirement benefit obligation as of December 31, 1999, by
approximately $2.6 and decrease the net periodic cost by approximately $0.3.
Foreign Obligations and Funded Status
The changes in benefit obligations and the reconciliations of the funded
status of the Company's foreign pension plans to the accompanying consolidated
balance sheets were as follows:
[Download Table]
Pension
Benefits
------------
1999 1998
----- -----
Change in benefit obligation--
Benefit obligation at beginning of year......................... $37.3 $35.8
Service cost.................................................... 2.6 2.5
Interest cost................................................... 2.2 3.1
Benefits paid................................................... (1.8) (1.7)
Actuarial loss (gain)........................................... 7.0 (3.5)
Other........................................................... (1.2) 1.1
----- -----
Benefit obligation at end of year............................... $46.1 $37.3
===== =====
Change in plan assets--
Fair value at beginning of year................................. $38.4 $32.2
Actual return on assets......................................... 3.1 3.0
Company contributions........................................... 1.5 1.2
Participant contributions....................................... 0.6 0.7
Benefits paid................................................... (1.4) (1.3)
Other........................................................... 3.7 2.6
----- -----
Fair value at end of year....................................... $45.9 $38.4
===== =====
Fair value of plan assets greater than benefit obligation....... $(0.2) $ 1.1
Unrecognized net actuarial gain................................. (1.6) (4.0)
Unrecognized prior service cost................................. 0.5 0.6
----- -----
Net amounts recognized.......................................... $(1.3) $(2.3)
===== =====
F-38
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Weighted average assumptions as of December 31 are as follows:
[Download Table]
Pension
Benefits
--------
1999 1998
---- ----
Discount rate...................................... 6.2% 6.5%
Expected long-term rate of return on plan assets... 7.7% 8.2%
Expected rate of future compensation increases..... 4.3% 4.4%
=== ===
In addition to the plans described above, the Company has certain other
defined benefit and retirement plans. The total expense for these plans was
$4.8, $4.0, and $3.9 in 1999, 1998 and 1997, respectively. The Company also has
deferred compensation plans for certain employees to defer a portion of their
compensation to future years. The total expense related to these plans was
approximately $0.7, $1.3, and $1.1 in 1999, 1998 and 1997, respectively.
6. Compensation Plans
The Company has a special bonus plan and grants awards for certain key
executives and employees. The costs of the special bonus plan and other awards
are charged to income on a current basis. These costs are included in
"Compensation and employee benefits" in the accompanying consolidated
statements of income.
The Company also has a profit-sharing plan covering most of its U.S.
employees. The total profit-sharing expense in 1999, 1998 and 1997 was $16.8,
$15.9 and $16.5, respectively.
Through the first quarter of 1999, certain key employees were designated
participants in the Star Reachers Compensation Plan and were allocated annual
awards as determined by the Board of Directors. The annual awards may be
distributed to the participants or deferred at the discretion of the Board. The
plan was terminated at the end of the first quarter of 1999 in connection with
the merger of LBCo. into LBW.
During 1999, 1998 and 1997 the Board elected to distribute a substantial
portion of the awards ($2.1, $29.6, and $39.0, respectively) allocated to the
participants noted above. The portion of the award which was deferred ($0.0,
$1.0, and $1.2 as of December 31, 1999, 1998 and 1997, respectively) is
reflected in "Other current liabilities" and "Other long-term liabilities" in
the accompanying consolidated balance sheets.
F-39
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Income Taxes
Income before taxes/minority interest and equity in affiliates and the
provision for U.S. federal, state, and foreign taxes on these earnings were the
following:
[Enlarge/Download Table]
1999 1998 1997
------ ------ -----
Income before taxes/minority interest and equity in affiliates--
United States.................................................. $ 37.2 $ 26.0 $12.1
Foreign........................................................ 24.8 13.5 17.6
------ ------ -----
$ 62.0 $ 39.5 $29.7
====== ====== =====
Income taxes--
Currently payable--
Federal..................................................... $ 26.1 $ 1.0 $ 0.6
State....................................................... 6.3 0.2 0.1
Foreign..................................................... 14.3 19.6 13.3
------ ------ -----
$ 46.7 $ 20.8 $14.0
====== ====== =====
Deferred--
Federal..................................................... $(16.2) $ (7.6) $ --
State....................................................... (1.7) -- --
Foreign..................................................... 0.4 (4.1) (4.7)
------ ------ -----
$(17.5) $(11.7) $(4.7)
------ ------ -----
Total income tax provision......................................... $ 29.2 $ 9.1 $ 9.3
====== ====== =====
The difference between income taxes at the federal statutory income tax rate
and the provision for income taxes included in the accompanying consolidated
statements of income is reconciled as follows:
[Enlarge/Download Table]
1999 1998 1997
------------- ------------- -------------
Total Percent Total Percent Total Percent
----- ------- ----- ------- ----- -------
At statutory rate.............................................. $21.7 35.0% $13.9 35.0% $10.4 35.0%
Increase (decrease) resulting from--
Nondeductible expenses...................................... 0.7 1.1 1.0 2.5 0.7 2.5
Foreign losses not deductible............................... 2.2 3.6 3.4 8.7 3.9 13.3
Foreign losses utilized..................................... (1.4) (2.3) (0.4) (1.0) (0.7) (2.4)
Goodwill amortization....................................... 1.9 3.1 1.0 2.5 0.7 2.2
Higher aggregate effective tax rate on foreign operations... 0.2 0.3 1.6 4.0 0.9 2.9
S Corporation federal tax paid at shareholder level......... -- -- (5.0) (12.7) (7.4) (24.9)
State and local taxes on income, net of federal tax
benefit..................................................... 3.0 4.9 -- -- -- --
Tax benefit of restructuring................................ -- -- (7.6) (19.2) -- --
Foreign currency losses..................................... -- -- 0.6 1.5 0.4 1.3
Other, net.................................................. 0.9 1.5 0.6 1.6 0.4 1.4
----- ---- ----- ----- ----- -----
Provision for income taxes..................................... $29.2 47.2% $ 9.1 22.9% $ 9.3 31.3%
===== ==== ===== ===== ===== =====
F-40
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1998 Merger of LBW-LBCo.
In conjunction with the Board's irrevocable actions and the merger
previously described in Note 1, LBCo., by law, returned to a C Corporation for
U.S. Federal income tax purposes. As a result, certain prepaid and deferred tax
items were recorded in the Company's balance sheet at December 31, 1998.
Deferred income taxes are provided for the temporary differences between
financial and tax reporting. Deferred tax benefits totaling $29.9 resulted
principally from recording expenses in the financial statements that are not
currently deductible for tax purposes. In addition, deferred tax liabilities of
$22.3 resulted primarily from deferred gain on the sales-leaseback transaction
(discussed in Note 13) and the recognition of income upon the change from cash
to accrual basis reporting for tax purposes. Internal Revenue Code Section
481(a) allows the tax liability arising from the cash to accrual accounting
method change to be paid in equal installments over four years. The deferred
tax liability associated with the Section 481(a) adjustment will be paid in
four installments in the tax years 1999-2002.
The deferred tax assets and liabilities included in the accompanying
consolidated balance sheets were the following:
[Download Table]
Deferred Deferred Tax
Tax Assets Liabilities
----------- ------------
1999 1998 1999 1998
----- ----- ----- -----
Current--
Postretirement benefits......................... $ 1.7 $ 1.9 $ -- $ --
Other benefit plans............................. 0.4 0.5 -- --
Other accrued expenses.......................... 1.6 1.8 -- --
Section 481(a) income........................... -- -- 2.3 2.4
----- ----- ----- -----
Total current................................ 3.7 4.2 2.3 2.4
----- ----- ----- -----
Noncurrent--
Depreciation and amortization................... 1.5 0.7 -- --
Postretirement benefits......................... 12.8 11.7 -- --
Other benefit plans............................. 5.0 6.1 -- --
Other accrued expenses.......................... 16.8 7.2 -- --
Section 481(a) income........................... -- -- 4.5 7.2
Deferred gain on sale-leaseback................. -- -- 11.3 11.9
Nondeductible expenses.......................... 19.0 13.1 1.0 1.6
----- ----- ----- -----
Total noncurrent............................. 55.1 38.8 16.8 20.7
----- ----- ----- -----
Total deferred taxes (net of valuation allowance)... $58.8 $43.0 $19.1 $23.1
===== ===== ===== =====
At December 31, 1999, a valuation allowance of $15.4 existed, as it is more
likely than not that certain foreign net operating losses will not be
recognized in the future. At December 31, 1998, the valuation allowance was
$14.5.
At December 31, 1999, 1998 and 1997, the cumulative undistributed earnings
of the Company's foreign operations totaled approximately $56.0, $54.0 and
$50.0, respectively, for which no provisions for foreign withholding or U.S.
income taxes have been made. These amounts have been permanently reinvested in
working capital and property and equipment.
F-41
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, certain of the Company's foreign subsidiaries had net
operating loss carryforwards aggregating approximately $34.3, which are
available to offset future taxable income. These loss carryforwards are
scheduled to expire as follows:
[Download Table]
2000............................................. $ 0.6
2001............................................. 2.0
2002............................................. 1.9
2003............................................. 1.2
2004 and subsequent.............................. 5.3
Indefinite....................................... 23.3
-----
$34.3
=====
8. Short-Term Borrowings and Long-Term Debt
Short-term bank borrowings consist principally of amounts borrowed under
domestic and international bank overdraft facilities and lines of credit. The
Company had $93.8 available under various lines of credit at December 31, 1999.
A total of $2.9 was outstanding under various lines of credit at December 31,
1999, and is included in "Notes payable and lines of credit" in the
accompanying consolidated balance sheet.
In connection with the BBH acquisition, the Company also had a $25.0 letter
of credit guaranty in place as of December 31, 1998. Upon payment of the second
installment to BBH on January 15, 1999, the letter of credit guaranty was
automatically terminated.
At December 31, 1999 and 1998, long-term debt consisted of the following:
[Enlarge/Download Table]
1999 1998
---- -----
Notes payable of various domestic subsidiaries.................................................... $2.8 $ 6.0
Other domestic obligations........................................................................ 3.6 4.6
Notes payable at foreign locations, at varying interest rates and due dates (payable in various
foreign currencies)............................................................................... 2.2 5.6
---- -----
Total debt.................................................................................... 8.6 16.2
Less-Current portion.............................................................................. 6.0 8.4
---- -----
Total long-term debt.......................................................................... $2.6 $ 7.8
==== =====
Scheduled maturities of long-term debt are as follows:
[Download Table]
2000.......................................... $6.0
2001.......................................... 2.4
2002.......................................... 0.2
2003.......................................... --
2004 and thereafter........................... --
----
$8.6
====
Domestic debt consists of bank borrowings held by subsidiaries, shareholder
redemption notes, and other debt.
The carrying value of the long-term debt approximates fair value.
F-42
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Mandatorily Redeemable Stock
The Leo Group Voting Trust (the "Trust") is the owner of record of all
issued and outstanding shares of mandatorily redeemable stock of the Company.
The Trust has issued Voting Trust Certificates, which represent a beneficial
interest in the common stock of the Company. Purchases and sales of the
Company's common stock are governed by the provisions of the Stock Purchase
Agreement. In the event of death or termination of employment with the Company,
the certificates owned by such individuals are purchased by the Company at the
then-current book value per share of the Company's common stock after
reflecting shareholder distributions. Payment for shares is generally made upon
redemption. Redemption amounts relating to the stock purchase agreements are
included in "Mandatorily redeemable stock" in the accompanying consolidated
balance sheets.
10. Transactions with Related Parties
During 1991, the Company executed a promissory note, whereby it borrowed
$14.1 from Starplan Limited Partnership ("Starplan"), a Delaware limited
partnership. This note is a demand note, and interest is computed at the prime
rate in effect at the beginning of each quarter. Interest is due and payable to
Starplan at the end of each quarter. As of December 31, 1999 and 1998, $1.8 and
$2.4, respectively, remains outstanding. Interest expense of $0.2, $0.4 and
$0.5 was incurred during 1999, 1998 and 1997, respectively.
11. Segment Information
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The adoption of this standard
requires that reportable segments be reported on a basis consistent with how
management assesses segment performance. The Company operates and manages its
business within two business segments: Global Marketing and Communications and
Real Estate. The Global Marketing and Communications segment conducts its
business as a global network using an integrated and multidisciplinary
approach. The Real Estate segment has been disclosed as a separate reportable
segment as its activities are unrelated to the Company's core business segment.
The Real Estate operations reflect the Company's residual ownership interest in
its corporate headquarters building (see Note 13). Prior to the merger of LBCo.
into LBW in 1999, LBCo. was an S Corporation for federal income tax purposes
which allowed its income to be taxed directly to its shareholders. Unaudited
pro forma tax provision and pro forma segment net
F-43
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
income are shown below for 1998 and 1997 as if LBCo. had been taxed as a C
Corporation. Comparable segment data and the related enterprise-wide
disclosures are summarized below:
Operating Segment Information
[Enlarge/Download Table]
Global Marketing and
Communications Real Estate Reclasses/Eliminations
---------------------------- ---------------------- ----------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- ------ ------ ------ ------ ------ ------
Revenues............... $ 912.8 $ 810.7 $ 793.9 $ 42.7 $ 41.0 $ 45.6 $(21.3) $(20.6) $(28.2)
Operating expense...... (856.4) (783.6) (759.8) (23.5) (22.5) (26.0) 21.3 20.6 28.2
-------- -------- -------- ------ ------ ------ ------ ------ ------
Operating income....... 56.4 27.1 34.1 19.2 18.5 19.6 -- -- --
Interest income........ 7.9 12.0 11.2 -- -- -- -- -- --
Interest expense....... (4.7) (6.2) (4.6) (11.2) (11.2) (13.4) -- -- --
Foreign currency
loss.................. (5.6) (0.7) (17.2) -- -- -- -- -- --
Other, net............. (0.4) (0.1) -- 0.4 0.1 -- -- -- --
-------- -------- -------- ------ ------ ------ ------ ------ ------
Income before taxes/
minority interest and
equity in affiliates.. 53.6 32.1 23.5 8.4 7.4 6.2 -- -- --
Provision for income
taxes................. 29.2 9.1 9.3 -- -- -- -- -- --
-------- -------- -------- ------ ------ ------ ------ ------ ------
Income before minority
interest.............. 24.4 23.0 14.2 8.4 7.4 6.2 -- -- --
Minority interest
expense, net of tax... 1.6 (3.5) (3.4) (7.0) (6.6) -- -- -- --
Equity in affiliates... 1.1 2.4 --
-------- -------- -------- ------ ------ ------ ------ ------ ------
Net income............. $ 27.1 $ 21.9 $ 10.8 $ 1.4 $ 0.8 $ 6.2 $ -- $ -- $ --
======== ======== ======== ====== ====== ====== ====== ====== ======
Unaudited pro forma
tax provision (as if a
C Corporation)........ N/A $ 14.6 $ 17.0 N/A $ -- $ -- N/A $ -- $ --
Unaudited pro forma
net income (as if a C
Corporation).......... N/A 16.4 3.1 N/A 0.8 6.2 N/A -- --
Total assets........... 1,434.6 1,162.9 1,075.2 166.4 175.1 183.3 -- -- --
Star Reachers expense
(included in
operating expense
above)................ 2.1 30.6 40.2 -- -- -- -- -- --
Depreciation and
amortization.......... 38.3 29.1 26.9 8.1 8.1 6.4 -- -- --
Capital expenditures... 41.7 36.4 27.3 -- -- -- -- -- --
======== ======== ======== ====== ====== ====== ====== ====== ======
[Download Table]
The Leo Group
----------------------------
1999 1998 1997
-------- -------- --------
Revenues............... $ 934.2 $ 831.1 $ 811.3
Operating expense...... (858.6) (785.5) (757.6)
-------- -------- --------
Operating income....... 75.6 45.6 53.7
Interest income........ 7.9 12.0 11.2
Interest expense....... (15.9) (17.4) (18.0)
Foreign currency
loss.................. (5.6) (0.7) (17.2)
Other, net............. -- -- --
-------- -------- --------
Income before taxes/
minority interest and
equity in affiliates.. 62.0 39.5 29.7
Provision for income
taxes................. 29.2 9.1 9.3
-------- -------- --------
Income before minority
interest.............. 32.8 30.4 20.4
Minority interest
expense, net of tax... (5.4) (10.1) (3.4)
Equity in affiliates... 1.1 2.4 --
-------- -------- --------
Net income............. $ 28.5 $ 22.7 $ 17.0
======== ======== ========
Unaudited pro forma
tax provision (as if a
C Corporation)........ N/A $ 14.6 $ 17.0
Unaudited pro forma
net income (as if a C
Corporation).......... N/A 17.2 9.3
Total assets........... 1,601.0 1,338.0 1,258.5
Star Reachers expense
(included in
operating expense
above)................ 2.1 30.6 40.2
Depreciation and
amortization.......... 46.4 37.2 33.3
Capital expenditures... 41.7 36.4 27.3
======== ======== ========
F-44
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Geographic Information
[Download Table]
Long-Lived
Revenues Assets
-------------------- -------------
1999 1998 1997 1999 1998
------ ------ ------ ------ ------
United States.......................... $445.9 $382.5 $381.9 $250.4 $260.2
Foreign................................ 488.3 448.6 429.4 102.4 90.5
------ ------ ------ ------ ------
Total.................................. $934.2 $831.1 $811.3 $352.8 $350.7
====== ====== ====== ====== ======
12. Commitments and Contingencies
The Company leases office space, a portion of office equipment, computers
and automobiles. Total rental expense under lease obligations in 1999, 1998 and
1997 was $29.9, $23.9, and $25.1, respectively, excluding amounts related to
the Company's corporate headquarters (see Note 13). The Company's remaining
future minimum rental payments to outside parties as of December 31, 1999, for
all leases having initial or remaining noncancelable lease terms in excess of
one year are as follows:
[Download Table]
2000.......................................... $ 29.2
2001.......................................... 25.3
2002.......................................... 21.6
2003.......................................... 19.8
2004.......................................... 12.9
Thereafter.................................... 11.1
------
Total..................................... $119.9
======
The Company is involved in various legal matters which are being defended
and handled in the ordinary course of business. Although it is not possible to
predict the outcome of these matters, management believes that the results will
not have a material impact on its financial statements.
Several of the Company's clients individually represent a significant source
of revenue for the Company. Two clients accounted for 16% and 11% of total 1999
revenues, and 18% and 11% of revenues in both 1998 and 1997.
As is common industry practice, contracts can generally be terminated by
clients with 30 to 90 days notice. The loss of a major client of the Company
could have a significant negative impact on the Company's business.
As of December 31, 1999, the Company had certain media guarantees in effect
totaling approximately $20.0. These guarantees are in effect, where required by
local media or advertising industry practice, to ensure that liabilities owed
to media vendors are paid. During 1999, the Company has not been required to
perform on any of these guarantees.
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed to perform as contracted. The clients
of the Company consist mainly of major consumer products companies. The Company
performs regular credit reviews of customers. Allowances are maintained for
potential credit losses. To date, such losses have been within management's
expectations and allowances for doubtful accounts are adequate to cover
foreseeable credit risk losses. Notwithstanding the fact that the nature of the
industry presents inherent risks, management believes that the likelihood of
any significant loss resulting from a concentration of credit is minimal.
F-45
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company provides loans to certain key shareholders for the purchase of
the Company's stock. These loans are in the form of demand notes and generally
bear interest at the U.S. prime rate less 0.5%. As of December 31, 1999, $5.6
is outstanding and has been reflected as a reduction to "Shareholders'
Investment". In addition, the Company guarantees loans made to shareholders by
various banks to finance the purchases of the Company's stock. As of December
31, 1999, the Company had guarantees in effect totaling $55.4 (see Note 14).
During 1999, the Company was not required to perform on any of these guarantees.
13. Sale-Leaseback Transaction
Beginning in 1987, the Company constructed the 1.1 million rentable square
foot office building that serves as its corporate headquarters. Prior to
December 1997, the Company operated as the owner and landlord of the building.
During 1997, the Company decided to transfer substantially all of the ownership
of the building. As a result, in December 1997, the Company contributed its
corporate headquarters to a joint venture (the "Venture") substantially owned
by Starwood Capital Group, L.L.C. and the John Buck Company. In exchange for
the Company's contribution, the Venture assumed the Company's building-related
debt of $219.5. In conjunction with this transaction, the Company entered into
a 15-year lease for the portion of the building that it occupies. The Company
also retained a 3.6% interest in the Venture. For accounting purposes, due to
the Company's continuing ownership interest in the building, this transaction
was accounted for as a financing, with the building and the finance obligation
continuing to be reflected in the Company's financial statements. Even though
the building obligation is reflected on the Company's balance sheet, the
Company's only continuing obligation is its annual lease payments shown below
since the Venture has fully assumed the building mortgage. In addition, for
accounting purposes, the operating results of the Venture are included in the
Company's consolidated income statements, with the 96.4% interest not owned by
the Company reflected as minority interest expense.
Significant accounting policies of the Venture are as follows:
. Rental income is recognized on a straight-line basis over the terms of
the respective leases.
. Depreciation expense is provided on a straight-line basis over the
estimated useful lives of the depreciable assets which range from 10 to
40 years for buildings and improvements and 3 to 15 years for furniture
and equipment.
Total rental expense under lease obligations in 1999, 1998 and 1997 was
$11.2, $11.2, and $13.4, respectively. The Company's remaining future minimum
lease payments as of December 31, 1999 are as follows:
[Download Table]
2000.......................................... $ 9.8
2001.......................................... 10.1
2002.......................................... 10.3
2003.......................................... 10.6
2004.......................................... 10.8
Thereafter.................................... 93.4
------
Total..................................... $145.0
======
14. Subsequent Events
On January 31, 2000, the Company's shareholders approved a business
combination with The MacManus Group, Inc. ("MacManus"). This combination was
effected by the formation of a new holding company named BDM. All of the
Company's 9,491,560 outstanding shares were exchanged for the same number of BDM
F-46
THE LEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shares. MacManus shareholders exchanged 695,492 MacManus shares for 5,981,100
BDM shares based on an exchange ratio of 8.6:1. The BDM Board of Directors will
be comprised of four seats with the Company having two seats and MacManus
having two seats. This combination will be accounted for as a purchase with the
Company deemed to be the acquiror for accounting purposes.
In connection with the combination, the Company offered to redeem 752,525
shares from selected shareholders at fair value on January 1, 2000. This offer
resulted in a compensation charge of approximately $71.9. On January 31, 2000,
selected shareholders elected to redeem 649,045 shares for cash. To finance
this redemption, the Company borrowed $100.0 under a 3-year term loan at an
interest rate of LIBOR plus 112.5 basis points (initially at 7.455%). A portion
of the proceeds were used by shareholders to pay loans previously guaranteed by
the Company.
Subsequent to the issuance of BDM shares, Bcom3 was selected as the new name
of the holding company. Effectively, the Company became a wholly owned
subsidiary of Bcom3. Bcom3 announced it intends to pursue an initial public
offering within the next 12 to 24 months.
On March 14, 2000, Dentsu Inc. ("Dentsu") purchased approximately 20% of
Bcom3's common shares for $493.2 in cash. As a result, Dentsu received two
seats on the Bcom3 Board of Directors, increasing the total number of seats on
the Board from four to six.
F-47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The MacManus Group, Inc.:
We have audited the accompanying consolidated balance sheets of The MacManus
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. 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.
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, the financial statements referred to above present fairly,
in all material respects, the financial position of The MacManus Group, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen LLP
New York, New York
May 10, 2000
F-48
THE MACMANUS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(dollars in thousands)
[Enlarge/Download Table]
1999
----------
ASSETS:
-------
Current assets:
Cash and cash equivalents..................................................................................... $ 187,084
Accounts receivable (less allowance for doubtful accounts of $10,187 and $9,365, respectively)................ 775,316
Production expenditures billable to clients................................................................... 88,257
Prepaid expenses and other assets............................................................................. 17,818
Deferred income taxes......................................................................................... 11,819
----------
Total current assets......................................................................................... 1,080,294
Property and equipment, at cost................................................................................. 183,640
Less: Accumulated depreciation and amortization............................................................... 103,023
----------
80,617
Other assets:
Goodwill, at cost (net of accumulated amortization of $43,941 and $37,998, respectively)...................... 186,578
Deferred income taxes......................................................................................... 30,339
Other......................................................................................................... 34,611
----------
251,528
----------
Total Assets.................................................................................................... $1,412,439
==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
-------------------------------------
Current liabilities:
Short-term borrowings......................................................................................... $ 42,372
Current portion of long-term debt............................................................................. 91,021
Trade accounts payable........................................................................................ 827,657
Accrued expenses and other payables........................................................................... 226,757
Accrued income taxes.......................................................................................... 9,611
----------
Total current liabilities.................................................................................... 1,197,418
Other liabilities:
Deferred compensation and accrued retirement benefits......................................................... 55,450
Long-term debt................................................................................................ 5,113
Deferred rent................................................................................................. 23,278
Other long-term liabilities................................................................................... 62,792
Deferred income taxes......................................................................................... 359
----------
146,992
Minority interest............................................................................................... 8,992
Commitments and contingencies................................................................................... --
Mandatorily redeemable stock.................................................................................... 30,245
Stockholders' equity:...........................................................................................
Preferred stock, 6%, 500,000 shares authorized, none issued................................................... --
Preferred stock, $8 stated value, 1,000,000 shares authorized; 850,138 issued; 16,000 and 18,700 shares
outstanding at December 31, 1999 and 1998, respectively, after deducting 834,138 and 831,438 shares held
in treasury, respectively.................................................................................... 128
Convertible preferred stock, Series A and B, 96,050 shares authorized and issued, no shares outstanding after
deducting 96,050 shares held in treasury..................................................................... --
Common stock, Series A and B, $1 par value, 1,000,000 shares authorized; 598,283 shares issued; 25,845 and
31,845 shares outstanding at December 31, 1999 and 1998, respectively, after deducting 572,438, and
566,438 shares held in treasury, respectively................................................................ 26
Common stock, Class C, $.05 par value, 1,700,000 shares authorized; 1,165,580 and 1,091,750 shares issued at
December 31, 1999 and 1998, respectively; 1,102,930 and 1,056,980 shares outstanding at December 31,
1999 and 1998, respectively, after deducting 62,650 and 34,770 shares held in treasury, respectively......... 55
Paid-in capital................................................................................................. 1,653
Redemption premium on certain shares of common stock............................................................ 323
Retained earnings............................................................................................... 46,671
Accumulated other comprehensive loss............................................................................ (20,064)
Total stockholders' equity................................................................................... 28,792
----------
Total Liabilities and Stockholders' Equity...................................................................... $1,412,439
==========
[Enlarge/Download Table]
1998
----------
ASSETS:
-------
Current assets:
Cash and cash equivalents..................................................................................... $ 222,750
Accounts receivable (less allowance for doubtful accounts of $10,187 and $9,365, respectively)................ 678,124
Production expenditures billable to clients................................................................... 78,669
Prepaid expenses and other assets............................................................................. 19,731
Deferred income taxes......................................................................................... 2,072
----------
Total current assets......................................................................................... 1,001,346
Property and equipment, at cost................................................................................. 162,763
Less: Accumulated depreciation and amortization............................................................... 90,826
----------
71,937
Other assets:
Goodwill, at cost (net of accumulated amortization of $43,941 and $37,998, respectively)...................... 153,743
Deferred income taxes......................................................................................... 34,267
Other......................................................................................................... 25,471
----------
213,481
----------
Total Assets.................................................................................................... $1,286,764
==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
-------------------------------------
Current liabilities:
Short-term borrowings......................................................................................... $ 33,870
Current portion of long-term debt............................................................................. 23,542
Trade accounts payable........................................................................................ 767,159
Accrued expenses and other payables........................................................................... 155,889
Accrued income taxes.......................................................................................... 11,177
----------
Total current liabilities.................................................................................... 991,637
Other liabilities:
Deferred compensation and accrued retirement benefits......................................................... 59,557
Long-term debt................................................................................................ 118,519
Deferred rent................................................................................................. 23,595
Other long-term liabilities................................................................................... 56,244
Deferred income taxes......................................................................................... 808
----------
258,723
Minority interest............................................................................................... 9,681
Commitments and contingencies................................................................................... --
Mandatorily redeemable stock.................................................................................... 26,555
Stockholders' equity:...........................................................................................
Preferred stock, 6%, 500,000 shares authorized, none issued................................................... --
Preferred stock, $8 stated value, 1,000,000 shares authorized; 850,138 issued; 16,000 and 18,700 shares
outstanding at December 31, 1999 and 1998, respectively, after deducting 834,138 and 831,438 shares held
in treasury, respectively.................................................................................... 150
Convertible preferred stock, Series A and B, 96,050 shares authorized and issued, no shares outstanding after
deducting 96,050 shares held in treasury..................................................................... --
Common stock, Series A and B, $1 par value, 1,000,000 shares authorized; 598,283 shares issued; 25,845 and
31,845 shares outstanding at December 31, 1999 and 1998, respectively, after deducting 572,438, and
566,438 shares held in treasury, respectively................................................................ 32
Common stock, Class C, $.05 par value, 1,700,000 shares authorized; 1,165,580 and 1,091,750 shares issued at
December 31, 1999 and 1998, respectively; 1,102,930 and 1,056,980 shares outstanding at December 31,
1999 and 1998, respectively, after deducting 62,650 and 34,770 shares held in treasury, respectively......... 53
Paid-in capital................................................................................................. 1,653
Redemption premium on certain shares of common stock............................................................ 323
Retained earnings............................................................................................... 13,071
Accumulated other comprehensive loss............................................................................ (15,114)
Total stockholders' equity................................................................................... 168
----------
Total Liabilities and Stockholders' Equity...................................................................... $1,286,764
==========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-49
THE MACMANUS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
(dollars in thousands)
[Enlarge/Download Table]
1999 1998 1997
-------- -------- --------
Commission and fee revenues.................................. $787,461 $730,275 $731,455
Operating expenses:
Compensation and employee benefits........................ 485,403 458,991 459,222
General agency............................................ 149,087 135,983 137,050
Occupancy................................................. 62,220 62,480 63,764
Depreciation and amortization............................. 23,404 21,018 20,331
Nonrecurring charge....................................... -- 97,350 --
-------- -------- --------
Total operating expenses.............................. 720,114 775,822 680,367
-------- -------- --------
Operating income/(loss)...................................... 67,347 (45,547) 51,088
Other income/(expense):
Interest income........................................... 6,851 8,038 4,702
Interest expense.......................................... (12,397) (13,412) (12,556)
Foreign currency gain (loss).............................. 869 376 (1,179)
-------- -------- --------
Total other expense................................... (4,677) (4,998) (9,033)
Income/(loss) before provision for income taxes....... 62,670 (50,545) 42,055
Provision for income taxes................................... 25,772 10,260 18,135
-------- -------- --------
Income/(loss) after provision for income taxes........ 36,898 (60,805) 23,920
Minority interest............................................ (4,757) (6,642) (3,282)
Equity in affiliates......................................... 920 889 1,527
-------- -------- --------
Net income/(loss)............................................ $ 33,061 $(66,558) $ 22,165
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-50
THE MACMANUS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1999, 1998, and 1997
(dollars in thousands, except share amounts)
[Enlarge/Download Table]
Common Stock
----------------
Preferred Series Accumulated
Stock ($8 A and B Class C Other
Comprehensive stated ($1 par ($.05 par Paid-in Redemption Retained Comprehensive
(Loss)/Income value) value) value) Capital Premium Earnings Loss
------------- --------- ------- --------- ------- ---------- -------- -------------
Balances, December 31, 1997.......... $ 397 $ 45 $ 49 $2,393 $323 $ 85,327 $ (7,026)
Comprehensive loss:
Net loss............................. $(66,558) (66,558)
Other comprehensive loss, net of tax:
Foreign currency translation
adjustment........................ (1,599) (1,599)
Minimum pension liability
adjustment, net of $2,741 tax
benefit........................... (6,489) (6,489)
--------
Comprehensive loss:.................. $(74,646)
========
Cost of 30,897 shares of $8
preferred stock, 12,500 shares of
Series A and B common stock,
and 140,550 shares of Class C
common stock, in each case
repurchased for treasury............ (247) (13) (6) (740) (15,895)
Issuance of 195,500 shares of
Class C common stock from
treasury............................ 10
Retained earnings allocable to
mandatorily redeemable stock........ 10,197
----- ---- ---- ------ ---- -------- --------
Balances, December 31, 1998.......... 150 32 53 1,653 323 13,071 (15,114)
Comprehensive income:
Net income........................... $ 33,061 33,061
Other comprehensive loss, net of
tax:
Foreign currency translation
adjustment........................ (4,837) (4,837)
Minimum pension liability
adjustment, net of $81 tax
benefit........................... (113) (113)
--------
Comprehensive income:................ $ 28,111
========
Cost of 2,700 shares of $8 preferred
stock, 6,000 shares of Series A
and B common stock, and
205,250 shares of Class C
common stock, in each case
repurchased for treasury............ (22) (6) (10)
Issuance of 251,200 shares of
Class C common stock from
treasury............................ 12
Retained earnings allocable to
mandatorily redeemable stock........ 539
----- ---- ---- ------ ---- -------- --------
Balances, December 31, 1999.......... $ 128 $ 26 $ 55 $1,653 $323 $ 46,671 $(20,064)
===== ==== ==== ====== ==== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-51
THE MACMANUS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
(dollars in thousands)
[Enlarge/Download Table]
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:........................................
Net income (loss)........................................................... $ 33,061 $(66,558) $ 22,165
Reconciliation of net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................. 23,404 21,018 20,331
Nonrecurring charge....................................................... -- 97,350 --
(Decrease)/increase in deferred compensation and accrued retirement
benefits................................................................ (4,166) 10,013 (3,797)
Decrease in deferred income taxes......................................... (2,864) (9,284) (2,073)
(Decrease)/increase in deferred rent liability............................ (317) (685) 431
Changes in operating assets and liabilities, net of effects from acquisition
(Increase)/decrease in accounts receivable, net........................... (95,327) 94,709 (39,164)
Increase in production expenditures billable to clients................... (5,854) (6,503) (729)
Increase/(decrease) in trade accounts payable............................. 65,534 (41,884) 45,197
Increase in accrued expenses and other payables........................... 43,225 1,990 2,121
(Decrease)/increase in accrued income taxes............................... (1,520) 3,400 (783)
Other, net................................................................ 8,739 9,498 6,947
-------- -------- --------
Net cash provided by operating activities............................... 63,915 113,064 50,646
-------- -------- --------
Cash flows from investing activities:
Business acquisitions, net of cash acquired................................. (39,529) (20,319) (14,970)
Expenditures for property and equipment, net................................ (27,524) (22,522) (15,683)
Other....................................................................... 132 475 366
-------- -------- --------
Net cash used in investing activities................................... (66,921) (42,366) (30,287)
-------- -------- --------
Cash flows from financing activities:
Purchase of shares for Treasury, net........................................ (1,713) (3,240) (5,973)
Proceeds from short-term debt, net.......................................... 10,691 13,485 3,984
Proceeds from long-term debt................................................ 152 -- 52,318
Repayment of long-term debt................................................. (37,389) (22,214) (24,154)
-------- -------- --------
Net cash (used in) provided by financing activities..................... (28,259) (11,969) 26,175
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents................. (4,401) (6,236) (2,808)
-------- -------- --------
Net (decrease)/increase in cash and cash equivalents......................... (35,666) 52,493 43,726
Cash and cash equivalents, beginning of year................................. 222,750 170,257 126,531
-------- -------- --------
Cash and cash equivalents, end of year....................................... $187,084 $222,750 $170,257
======== ======== ========
Supplemental cash flow information
Income taxes paid........................................................... $ 20,146 $ 16,319 $ 14,833
Interest paid............................................................... $ 12,350 $ 12,973 $ 11,799
The accompanying notes are an integral part of these consolidated financial
statements.
F-52
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Summary of Significant Accounting Policies
Nature of Operations
The MacManus Group, Inc. (the "Company") is a worldwide holding company
comprised of operating entities which provide advertising, marketing and
communications services in every major world market. The business is conducted
through D'Arcy Masius Benton & Bowles Communications and N.W. Ayer & Partners
(two advertising agency networks), Medicus Group International, Inc. (medical
advertising network), Manning Selvage & Lee (public relations firm), MediaVest,
formerly known as TeleVest, (broadcast placement and programming firm) and
other wholly owned companies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.
Investments in Affiliates
Investments in unconsolidated companies are accounted for by the equity
method. The equity method is used when the Company has an ownership interest of
greater than 20% and less than 50% and exercises significant influence over the
operating and financial policies of these investments.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," issued by the Financial Accounting
Standards Board ("FASB") which establishes standards for reporting and
displaying comprehensive income and its components in a financial statement
that is displayed with the same prominence as other financial statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities, when purchased, of three months or less.
Production Expenditures Billable to Clients
Production expenditures billable to clients consist of third party vendor
costs incurred in providing corporate communications services to clients.
Revenue Recognition
Revenues are principally derived from commissions for placement of
advertisements in various media and from fees for manpower and production of
advertisements. Revenue is realized when the service is performed, in
accordance with the terms of the contractual agreement, and collection is
reasonably assured.
Financial Instruments
The Company uses financial derivatives to manage its exposure to
fluctuations in foreign currency exchange rates and interest rates. The
instruments used are primarily foreign exchange contracts and cross currency
interest rate swaps.
F-53
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign currency gains and losses on forward contracts designated as hedges
of existing foreign currency assets and liabilities are recognized in income
while foreign currency gains and losses on forward contracts designated as
hedges of net investments in foreign subsidiaries are recognized as a component
of stockholders' equity. Foreign currency gains and losses on contracts
designated as hedges of identifiable foreign currency firm commitments are not
recognized until included in the measurement of the related foreign currency
transactions.
Cross currency interest rate swaps are bifurcated at inception. Gains and
losses on the interest component of the swap are recognized as a yield
adjustment in the income statement. Gains and losses on the currency component
are recognized in other comprehensive income as these instruments are
designated and effective as a hedge of foreign currency denominated net assets
of subsidiaries.
To qualify as a hedge, the item to be hedged must expose the Company to
price, interest rate or foreign currency exchange rate risk and the hedging
instrument must reduce that exposure in a highly correlated manner. Any
contracts held or issued that do not meet the requirements of a hedge are
recorded at fair value in the balance sheet and any changes in that fair value
recognized in income. If a contract designated as a hedge of price risk or
foreign currency exchange risk is terminated, the associated gain or loss is
deferred and recognized in income in the same manner as the hedged item. Also,
a contract designated as a hedge of an anticipated transaction that is no
longer likely to occur is recorded at fair value and the associated changes in
fair value recognized in income. The gain or loss associated with a terminated
interest rate swap that has been designated as a hedge of interest rate risk
will continue to be recognized in interest expense over the life of the
agreement.
Property and Equipment
Property and equipment is recorded at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to ten years. Leasehold improvements are amortized over the
shorter of the estimated useful lives or the related lease terms. Company
policy provides for capitalization of all major expenditures for renewal and
improvements, and for current charges to income for repairs and maintenance.
Capitalized Software Costs
Costs associated with the acquisition or development of software for
internal use are capitalized in accordance with the provisions of AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," and amortized using the straight-line
method over the expected useful life of the software, which ranges from 5 to 7
years.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net
assets of acquired companies. The Company amortizes goodwill on a straight-line
basis, over periods up to 40 years.
Deferred Compensation
The Company has certain compensation plans which enable eligible employees
to defer a portion of their compensation into future periods. Amounts related
to these compensation arrangements are charged to expense as the related
services are performed.
F-54
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Deferred tax liabilities and assets are recognized as the difference between
the financial statement and tax bases of assets and liabilities multiplied by
tax rates applicable to the year in which the differences are expected to
reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual
results could differ from those estimates.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, other than
those located in highly inflationary countries, are translated at current
exchange rates, while income and expense are translated at average rates for
the period. For entities in highly inflationary countries, a combination of
current and historical rates is used to determine foreign currency gains and
losses resulting from financial statement translation. Translation gains and
losses are reported as a component of stockholders' equity except for those
associated with highly inflationary countries, which are reported directly in
the accompanying statements of operations. Foreign currency transaction gains
and losses are included in the determination of net income in the period
incurred.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. Nonrecurring Charge
In the fourth quarter of 1998, the Company recorded a nonrecurring charge of
$97.4 million. Of the nonrecurring charge, $78.4 million was noncash, and
represented a write-down due to the impairment of goodwill and other long-lived
assets based on management's beliefs that the carrying value of goodwill
relating to certain investments was no longer recoverable. $7.7 million of the
nonrecurring charge represented a write-off of accounts receivable and unbilled
inventory recognized in connection with the change in management at one of the
Company's project-based operating subsidiaries. The remaining $11.2 million of
the nonrecurring charge was comprised of other charges related to planned
office closures and contractual obligations from which the Company does not
anticipate the receipt of any future benefits.
The write-down of goodwill was done in accordance with Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of, ("SFAS No. 121"). In
accordance with SFAS No. 121, the carrying value of the impaired asset,
specifically the goodwill associated with each identified operating unit, was
determined to be in excess of its fair value. The fair value of the goodwill
was determined based on the undiscounted projected future cash flows of the
associated operating unit. The fair values estimated by the Company's
management were based on the trend in profitability of each of the operating
units, changes in client relationships, and trends in clients' spending
patterns. The goodwill impairment amount was determined as the difference
between the discounted projected future cash flows of the operating units and
the carrying value of the associated goodwill.
3. Acquisitions
During each of the three years ended December 31, 1999, the Company
completed several unrelated acquisitions and increased its ownership in
selected foreign investments. The aggregate purchase price for all acquisitions
approximated $47.3 million, $10.9 million and $17.2 million for 1999, 1998 and
1997, respectively.
F-55
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has accounted for these acquisitions by the purchase method and,
accordingly, the results of operations of the acquired companies have been
included in the consolidated statements of operations from the closing dates of
the acquisitions. The effect of these acquisitions is immaterial to the
consolidated financial position and results of operations of the Company.
The Company is required to make contingent payments to former owners of
certain acquired companies based on the acquired companies' future profits, as
defined in the agreements. Such payments are recorded in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations". In 1999,
1998 and 1997, the Company recorded $10.7 million, $5.1 million and $4.0
million, respectively, as additional purchase price related to acquisitions.
4. Foreign Operations
The Company's foreign subsidiaries are primarily engaged in providing
advertising, marketing and communication services. Combined condensed financial
information for such subsidiaries is as follows (dollars in thousands):
[Download Table]
1999 1998 1997
-------- -------- --------
Total assets.................. $494,190 $438,125 $410,522
Total liabilities............. $397,607 $360,687 $328,654
Commission and fee revenues... $362,551 $348,599 $343,509
Total net foreign currency transaction gains (losses) included in the
consolidated statements of operations were $.9 million, $.4 million and $(1.1)
million in 1999, 1998 and 1997, respectively.
5. Concentration of Credit Risk
For the years ended December 31, 1999, 1998 and 1997, the Company's five
largest customers accounted for approximately 39%, 36% and 34.6%, respectively,
of total commission and fee revenues. The five largest accounts receivable
balances accounted for approximately 32%, 27% and 26.7%, respectively, of net
receivables as of December 31, 1999, 1998 and 1997. The Company's largest and
second largest customers accounted for approximately 17% and 11% of commission
and fee revenues, respectively, for the year ended December 31, 1999. The
largest customer accounted for approximately 15% of outstanding accounts
receivable as of December 31, 1999. The Company's largest and second largest
customers accounted for approximately 16% and 10% of commission and fee
revenues, respectively, for the year ended December 31, 1998. The largest
customer accounted for approximately 14% of outstanding accounts receivable as
of December 31, 1998. The Company's largest and second largest customers
accounted for approximately 14% and 10% of commission and fee revenues,
respectively, for the year ended December 31, 1997. The largest customer
accounted for approximately 13% of outstanding accounts receivable as of
December 31, 1997.
F-56
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company's wholly-owned and
partially-owned businesses operate within the corporate communications services
operating segment. These businesses provide a variety of communications
services to clients through several worldwide, national and regional
independent agency brands. A summary of the Company's commission and fee
revenues, and long-lived assets by geographic area as of December 31, 1999 and
1998, and for the years then ended is as follows (dollars in thousands):
[Download Table]
All
United United Other Asia Latin
States Kingdom Europe Pacific America Other Total
-------- -------- -------- ------- ------- ------- --------
1999
Commission and Fees $424,910 $101,110 $149,307 $48,745 $50,477 $12,912 $787,461
Long-lived Assets.. $ 59,627 $ 4,767 $ 8,465 $ 3,539 $ 2,177 $ 2,042 $ 80,617
1998
Commission and Fees $381,676 $ 95,185 $150,049 $44,269 $48,382 $10,714 $730,275
Long-lived Assets.. $ 49,270 $ 6,395 $ 9,472 $ 2,624 $ 2,305 $ 1,871 $ 71,937
1997
Commission and Fees $387,946 $ 98,475 $147,525 $43,770 $43,079 $10,660 $731,455
Long-Lived Assets.. $ 40,241 $ 7,620 $ 8,663 $ 2,726 $ 1,646 $ 2,016 $ 62,912
7. Property and Equipment
Property and equipment and the related accumulated depreciation and
amortization as of December 31, 1999 and 1998 are summarized as follows
(dollars in thousands):
[Download Table]
1999 1998
--------- --------
Furniture and fixtures..................................... $ 39,101 $ 36,984
Equipment.................................................. 35,513 33,323
Vehicles................................................... 3,076 3,000
Leases..................................................... 2,736 1,115
Leasehold improvements..................................... 69,416 65,850
Software................................................... 33,798 22,491
--------- --------
Total cost.............................................. 183,640 162,763
Accumulated depreciation and amortization.................. (103,023) (90,826)
--------- --------
Property and equipment, net............................. $ 80,617 $ 71,937
========= ========
F-57
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Income Taxes
Income/(loss) before provision for income taxes and the provision for income
taxes for the years ended December 31, 1999, 1998 and 1997 consisted of the
amounts shown below (dollars in thousands):
[Download Table]
1999 1998 1997
------- -------- -------
Income/(loss) before provision for income
taxes:.........................................
Domestic..................................... $23,349 $(39,718) $17,172
Foreign...................................... 39,321 (10,827) 24,883
------- -------- -------
Total..................................... $62,670 $(50,545) $42,055
======= ======== =======
1999 1998 1997
------- -------- -------
Provision for income taxes:
Current:.........................................
Federal...................................... $10,693 $ 4,920 $ 6,329
State and local.............................. 1,043 1,986 1,326
Foreign...................................... 16,564 12,638 12,553
------- -------- -------
28,300 19,544 20,208
------- -------- -------
Deferred:........................................
Federal, state and local..................... (3,169) (6,082) (2,847)
Foreign...................................... 641 (3,202) 774
------- -------- -------
(2,528) (9,284) (2,073)
------- -------- -------
$25,772 $ 10,260 $18,135
======= ======== =======
The Company's effective income tax rate for the years ended December 31,
1999, 1998 and 1997 varied from the statutory federal income tax rate as a
result of the following factors:
[Enlarge/Download Table]
1999 1998 1997
---- ----- ----
Statutory federal income tax rate.................................... 35.0% 35.0% 35.0%
State and local taxes on income, net of federal income tax benefit... 1.1 2.5 2.0
Foreign subsidiaries' tax rate differentials......................... 5.1 1.6 5.4
Foreign losses not benefited......................................... 1.3 4.5 1.8
Nonrecurring charge.................................................. -- (61.5) --
Other................................................................ (1.4) (2.4) (1.1)
---- ----- ----
Effective rate....................................................... 41.1% (20.3)% 43.1%
==== ===== ====
Deferred income taxes are provided for the temporary difference between the
financial reporting bases and tax bases of the Company's assets and
liabilities. Deferred tax benefits result primarily from recording certain
expenses in the financial statements which are not currently deductible for tax
purposes. Deferred tax liabilities result from expenses which are currently
deductible for tax purposes but have not yet been expensed in the financial
statements.
The Company has recorded deferred tax benefits as of December 31, 1999 and
1998 of $42.1 million and $36.3 million, respectively, which are net of
valuation allowances of $12.7 million and $14.6 million, respectively. The
deferred tax assets relate principally to deferred compensation and deferred
rent expense. Also, deferred tax assets were recorded for foreign net operating
loss carryforwards, which were predominantly offset by valuation allowances due
to the uncertainty of realizing the future tax benefits. In 1999, the valuation
allowance decreased by $1.9 million due principally to the decrease of certain
net operating losses.
F-58
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has recorded deferred tax liabilities as of December 31, 1999
and 1998 of $.4 million and
$.8 million, respectively.
Deferred tax benefits as of December 31, 1999 and 1998 consisted of the
amounts shown below (dollars in millions):
[Download Table]
1999 1998
------ ------
Compensation............................................... $ 21.5 $ 19.3
Rent....................................................... 10.5 10.7
Tax Loss Carryovers........................................ 10.6 13.0
Other...................................................... 12.2 7.9
------ ------
Sub-Total............................................... 54.8 50.9
Less: Valuation Allowance.................................. (12.7) (14.6)
------ ------
Total................................................... $ 42.1 $ 36.3
====== ======
Net current deferred tax benefits as of December 31, 1999 and 1998 were
$11.8 million and $2.1 million, respectively. Net non-current deferred tax
benefits as of December 31, 1999 and 1998 were $30.3 million and $34.2 million,
respectively. The Company has concluded that it is probable that it will be
able to realize these net deferred tax benefits in future periods.
At December 31, 1999, there were net operating loss carryforwards of $27.2
million with various expiration periods.
The Company has not accrued U.S. Federal income taxes on cumulative
undistributed earnings of foreign subsidiaries of approximately $48.7 million
as of December 31, 1999. It is the Company's intention to reinvest
undistributed earnings of its foreign subsidiaries and thereby indefinitely
postpone their remittance. The Company anticipates that there would be no
material foreign withholding taxes or United States income taxes which would
become payable if undistributed earnings of foreign subsidiaries were paid as
dividends.
9. Short-Term Borrowings and Lines of Credit
Bank loans of $42.4 million and $33.9 million at December 31, 1999 and 1998,
respectively, are primarily attributed to unsecured overdrafts of the
international subsidiaries used for local working capital purposes. The
weighted average interest rate on outstanding debt at December 31, 1999 and
1998 was 5.61% and 4.84%, respectively.
At December 31, 1999 and 1998 the Company had unsecured lines of credit of
$142.3 million and
$138.0 million, respectively, of which $99.9 million and $104.1 million were
unused. In 1996, the Company put in place a $120.0 million revolving
Multi-currency Credit Agreement (the "Credit Facility"). At December 31, 1999
this Credit Facility was still in place and was due to expire December 3, 2000.
In addition, the Company maintains uncommitted lines of credit for its
international subsidiaries local working capital needs. Drawings under such
local credit lines held with syndicate banks reduce availability under the
Credit Facility.
The Credit Facility contains restrictive covenants that require, among other
things, the maintenance of minimum working capital and consolidated net worth
as well as certain defined ratios. At December 31, 1999, the Company was in
compliance with all of the covenants.
F-59
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In January 2000, the Credit Facility was restructured as the revolving
tranche of a $630.0 million Amended and Restated Credit Agreement (the
"Restated Credit Agreement"). The Restated Credit Agreement includes a $120.0
million revolving credit facility principally comprised of a $100.2 million
swing line to provide overnight borrowing capabilities and is committed through
January 2003. In addition, the Restated Credit Agreement contained a $175.0
million Short-term Working Capital Facility which expired on April 30, 2000,
and a
$335.0 million Term Loan with required repayments of $50.0 million in January
2001 and January 2002 and a $235.0 million repayment in January 2003.
10. Long-term Debt
Long-term debt consists of the following at December 31, 1999 and 1998
(dollars in thousands):
[Enlarge/Download Table]
1999 1998
-------- --------
Notes payable to insurance companies (7.02%), payable in annual installments
commencing in 2001 through 2007..................................................... $ 50,000 $ 50,000
Notes payable to insurance companies (6.95%), payable in annual installments through
2003................................................................................ 13,600 15,300
Notes payable to insurance companies (6.57%), payable in annual installments through
2002................................................................................ 12,000 16,000
Notes payable to insurance companies (7.98%), payable in annual installments through
2001................................................................................ 11,000 16,000
Notes payable to insurance company (10.43%), payable in semiannual installments
through 2000........................................................................ -- 2,307
Notes payable to financing company (3.9%), payable in monthly installments
through 1999........................................................................ -- 1,043
Notes payable to banks by foreign subsidiary (3.88% to 3.89%), payable in 2000........ -- 19,643
Notes payable to banks by foreign subsidiaries at applicable banks' base lending rates
(4.73% to 24.00% and 4.20% to 27.60% at December 31, 1999 and 1998, respectively),
payable in varying installments through 2003........................................ 1,430 2,554
Notes payable relating to stock redemptions, variable interest (5.74% and 8.00% at
December 31, 1999 and 5.17% and 8.00% at December 31, 1998, respectively),
generally payable over four years................................................... 8,104 19,214
-------- --------
96,134 142,061
Less, current portion................................................................. (91,021) (23,542)
-------- --------
Long-term debt..................................................................... $ 5,113 $118,519
======== ========
At December 31, 1999, maturities of long-term debt are $91.0 million, $2.4
million, $1.7 million, and
$1.0 million from 2000 to 2003, respectively.
The long-term notes contain restrictive covenants which require, among other
things, the maintenance of minimum working capital and consolidated net worth,
as well as certain defined ratios. At December 31, 1999, the Company was in
compliance with all of the covenants.
When the Restated Credit Agreement was put in place in January 2000, the
entire outstanding balance of long-term notes was repaid out of existing
operating cash. The total payment to the noteholders was $89.0 million which
included a make-whole of $.1 million and accrued interest payable of $2.3
million. The repayment of this debt enabled the Company to negotiate an updated
covenant package in the Restated Credit Agreement.
F-60
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments as of December 31, 1999 and 1998
(dollars in thousands):
[Download Table]
1999 1998
------------------ -------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Cash and cash equivalents............... $187,084 $187,084 $222,750 $222,750
Short-term borrowings................... $ 42,372 $ 42,372 $ 33,870 $ 33,870
Long-term debt.......................... $ 96,134 $ 96,585 $142,061 $149,326
Financial commitments
Cross currency interest rate swaps... -- $ 520 -- --
Foreign exchange contracts........... -- $ (493) -- $ 129
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 and cash equivalents:
The fair value of cash and cash equivalents approximated carrying value
due to the short-term maturity of these instruments.
Short-term borrowings:
The fair value of short-term borrowings approximated carrying value due
to the short-term maturity of these instruments.
Long-term debt:
Fair values for long-term debt were determined based on currently
available treasury rates with similar terms and remaining maturities.
Financial commitments:
The estimated fair values of derivative positions represent the net
amount required to terminate the position, taking into consideration market
rates and counterparty credit risk.
12. Financial Instruments and Market Risk
The Company utilizes derivative financial instruments predominantly to
reduce certain market risks, including the impact of currency rate and interest
rate changes. Derivative activities are limited in volume and confined to risk
management activities. Senior management of the Company actively participates
in the quantification, monitoring, and control of all significant risks.
At December 31, 1999, the Company had Euro 20.0 million notional principal
amount of cross currency swaps. The swaps convert a portion of the Company's
fixed rate US$ denominated debt into floating rate Euro denominated debt. These
swaps were terminated in January 2000 in conjunction with the repayment of the
long-term notes. There was a gain of $.9 million recognized at termination.
As of December 31, 1998, the Company had an open forward foreign currency
contract for approximately $11.8 million of a speculative nature.
F-61
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company enters into forward foreign exchange contracts primarily to
hedge intercompany payables and receivables. The forward contract terms are
typically 3 months or less and structured to facilitate the payment of the
intercompany obligation with the resulting gain or loss included in the basis
of the transaction upon settlement. When the underlying intercompany obligation
is long-term in nature a 1-year forward contract is entered into and revalued
on a quarterly mark-to-market basis.
Counterparty risk is managed by entering into arrangements of this nature
with well-known banks which are known to have credit ratings equal to or better
than that of the Company.
13. Capital Stock
Holders of the $8 preferred stock are entitled to receive noncumulative cash
dividends up to a maximum of 9.5% of stated value. The holders of $8 preferred
stock are not entitled to voting rights. In the event of the Company's
liquidation, the holders of the $8 preferred stock, Class A (Series A and B)
common stock and Class C common stock are entitled to receive all of the
remaining assets of the Company, based on the proportion that the sum of the
book value of their shares bears to the sum of the aggregate book value of all
outstanding shares of these three classes of stock. In conjunction with the
merger transaction (see note 17), all of the preferred stock was redeemed in
January 2000.
When a shareholder/employee ceases full-time employment with the Company,
the common shares are redeemed at the original purchase price plus the
employee's share of accumulated retained earnings during the holding period,
payable over a period of up to five years at the option of the Company.
Redemption amounts relating to the common shares are included in "Mandatorily
redeemable stock" in the accompanying balance sheets.
14. Commitments and Contingencies
The Company and its subsidiaries are obligated under a number of lease
agreements for office space. Generally, the leases require the payment of base
rents plus escalations for increases in building operating costs and real
estate taxes. Rent expense under these leases amounted to $49.5 million and
$48.5 million in 1999 and 1998, respectively. In addition, the Company is
obligated under operating lease agreements, principally for equipment. Expense
under these leases amounted to $23.3 million and $22.8 million in 1999 and
1998, respectively. Minimum lease payments under all noncancelable operating
leases as of December 31, 1999 are as follows (dollars in thousands):
[Download Table]
Year Amount
---- --------
2000............................................. $ 53,183
2001............................................. 47,098
2002............................................. 41,473
2003............................................. 35,523
2004............................................. 32,310
Thereafter....................................... 134,193
--------
$343,780
========
The Company is party to certain legal proceedings incidental to its
business. While it is not feasible to predict or determine the final outcome of
these proceedings, management does not believe that the outcome will have a
material effect on the Company's consolidated financial position, results of
operations, or cash flows.
F-62
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Employee Benefit Plans
US Pension Plans
The Company sponsors a funded defined benefit pension plan (the "Plan") in
the United States, which covers substantially all of its full-time employees.
The Company makes annual contributions to the Plan in accordance with amounts
actuarially determined by an independent consulting actuary. Plan assets
consist primarily of investments in equity securities, bonds and equity mutual
funds.
The Company also has unfunded, nonqualified domestic pension plans to
provide benefits in excess of Internal Revenue Code limitations and to provide
US equivalent benefits for domestic employees on temporary overseas assignments.
US Postretirement Benefits
The Company provides postretirement medical and life insurance benefits for
substantially all domestic employees who are at least 55 years of age and have
at least 15 years of service who were hired before various specified dates. The
Company contributes a fixed amount based on the age of the retiree and the
service at retirement. Since employer contributions are fixed, the aging and
health care cost trend rates are not applicable.
The significant components of the above mentioned plans as of and for the
years ended December 31, 1999 and 1998 are summarized as follows (dollars in
thousands):
[Enlarge/Download Table]
Postretirement Supplemental
Pension Plan Plans Pension Plans
----------------- ---------------- ------------------
1999 1998 1999 1998 1999 1998
-------- ------- ------- ------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of year......................... $ 55,225 $49,271 $ 5,656 $ 6,417 $ 23,029 $ 22,677
Service cost................................................... 6,273 6,110 70 88 456 514
Interest cost.................................................. 4,244 3,627 398 418 1,791 1,666
Actuarial loss/(gain).......................................... 3,583 (1,423) (149) (33) 1,265 (541)
Other.......................................................... -- -- -- (742) 37 11
Net benefits paid.............................................. (2,667) (2,360) (487) (492) (1,377) (1,298)
-------- ------- ------- ------- -------- --------
Benefit obligation at end of year............................... $ 66,658 $55,225 $ 5,488 $ 5,656 $ 25,201 $ 23,029
-------- ------- ------- ------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year.................. $ 68,721 $57,581 -- -- -- --
Actual return on plan assets................................... 17,668 8,951 -- -- -- --
Employer contribution.......................................... 1,756 4,549 487 492 -- --
Net benefits paid.............................................. (2,667) (2,360) (487) (492) -- --
-------- ------- ------- ------- -------- --------
Fair value of plan assets at end of year........................ $ 85,478 $68,721 -- -- -- --
-------- ------- ------- ------- -------- --------
Fair value of plan assets greater (less) than benefit obligation $ 18,820 $13,496 $(5,488) $(5,656) $(25,201) $(23,029)
Unrecognized actuarial (gain)/loss.............................. (12,871) (4,914) (861) (754) 390 (875)
Unrecognized prior service costs................................ (852) (1,075) (608) (675) 1,186 1,341
Unrecognized transition obligation.............................. -- -- 4,129 4,447 (12) (14)
-------- ------- ------- ------- -------- --------
Net amount recognized........................................... $ 5,097 $ 7,507 $(2,828) $(2,638) $(23,637) $(22,577)
-------- ------- ------- ------- -------- --------
Additional minimum liability.................................... (1,788) (1,756)
Accumulated other comprehensive income.......................... (449) --
-------- --------
$(25,874) $(24,333)
======== ========
In accordance with FASB Statement No. 87, the Company has recorded the
additional minimum liability for underfunded plans of $2.2 million and $1.8
million, respectively, at December 31, 1999 and 1998, representing
F-63
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the excess of unfunded accumulated benefit obligation over previously recorded
pension cost liabilities. A corresponding amount has been recognized as an
intangible asset except to the extent that these additional liabilities exceed
related unrecognized prior service cost and net transition obligation, in which
case the increase in liabilities is recognized in other comprehensive income.
The components of net periodic pension benefit cost and the weighted-average
assumptions are as follows (dollars in thousands):
[Enlarge/Download Table]
Postretirement Supplemental
Pension Plan Plans Pension Plans
------------------------- ------------------- ----------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------- ------- ------- ----- ----- ----- ------ ------ ------
Components of net periodic pension benefit cost
Service Cost................................... $ 6,273 $ 6,110 $ 5,442 $ 70 $ 88 $ 126 $ 455 $ 514 $ 600
Interest cost.................................. 4,244 3,627 3,185 398 418 476 1,791 1,666 1,638
Expected return on assets...................... (6,128) (5,202) (4,275) -- -- -- -- -- --
Amortization of:
Transition obligation/(asset)................. -- -- -- 318 318 318 (2) (2) (2)
Prior service cost............................ (222) (222) (200) (67) (67) -- 191 188 186
Net amortization of unrecognized gain......... -- -- -- (42) (17) (23) -- (16) (40)
------- ------- ------- ----- ----- ----- ------ ------ ------
Net periodic benefit cost...................... $ 4,167 $ 4,313 $ 4,152 $ 677 $ 740 $ 897 $2,435 $2,350 $2,382
======= ======= ======= ===== ===== ===== ====== ====== ======
Weighted-average assumptions
Discount rate.................................. 7.50% 7.75% 7.75% 7.50% 7.75% 8.00% 7.50% 7.75% 7.50%
Expected return on assets...................... 9.00% 9.00% 9.00% N/A N/A N/A N/A N/A N/A
Rate of compensation increase.................. 6.00% 6.00% 6.00% N/A N/A N/A N/A N/A N/A
US 401K Plan
The Company sponsors a 401K plan which allows participants to make voluntary
pre-tax contributions, via payroll deductions, of between 1% and 15% of total
compensation subject to IRS limitations. The Company matches 50% of each
participant's contributions, up to 6% of compensation and up to a maximum
annual contribution of $1,800 per employee. All domestic employees who are at
least 21 years of age and have completed at least one year of service are
eligible to participate in this plan. Participants who have completed five
years of service are 100% vested in Company contributions. The expense for this
plan was $1.9 million, $1.6 million and $1.1 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
Foreign Retirement Plans
Certain of the Company's foreign subsidiaries have adopted retirement plans,
the provisions of which vary to reflect practices under local laws and customs.
It is the practice of these subsidiaries to generally fund pension costs
accrued. Total pension expense for the Company's foreign subsidiaries was $9.1
million, $7.1 million and $7.0 million for the years ended December 31, 1999,
1998 and 1997, respectively.
Deferred Compensation Plans
In the US the Company has several deferred compensation arrangements, which
enable eligible employees to defer a portion of their compensation into future
periods. The Company accrues for the deferred compensation and interest thereon
as the related services are performed. The amounts accrued under these plans
were $22.2 million and $25.5 million as of December 31, 1999 and 1998,
respectively. The expense for the years ended December 31, 1999, 1998 and 1997
was $2.1 million, $7.2 million and $1.8 million, respectively.
Defined Contribution Plan for Former Shareholders
The Company has a nonqualified defined contribution benefit plan for
employees who were shareholders of D'Arcy Masius MacManus and Benton & Bowles
who did not become shareholders of the combined Company
F-64
THE MACMANUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
in 1985. The Board declares an amount each year that is accrued by the Company
and credited to each employee's account along with interest earned on unpaid
balances. The liability at December 31, 1999 and 1998 was $4.3 million and $3.5
million, respectively. Expense for the years ended December 31, 1999, 1998 and
1997 was $1.9 million, $.8 million and $.6 million, respectively.
16. Adoption of New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities.
In July 1999, the FASB approved SFAS 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," effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
does not expect the adoption of this standard to have a material effect on the
Company's consolidated financial position, results of operations or cash flows.
17. Subsequent Event
On January 31, 2000, the Company's shareholders approved a merger between
the Company and The Leo Group, Inc. to form a new entity called Bcom3 Group,
Inc. ("Bcom3"). Immediately prior to the merger, the Company redeemed all of
its preferred shares and a portion of its common shares. Also immediately prior
to the merger, the Company's Multi-currency Credit Agreement was restructured
as the revolving tranche of a $630.0 million Amended and Restated Credit
Agreement. The Amended and Restated Credit Agreement replaced the
Multi-currency Credit Agreement, financed the MacManus Shareholder Redemption
plan and will provide temporary liquidity reserves during the transition phase
of the merger. On March 14, 2000, Dentsu Inc. made an investment in Bcom3 for
$493.2 million, the proceeds of which will be used to fund the general working
capital needs of Bcom3.
F-65
Schedule II
Bcom3 Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts
(dollars in thousands)
[Enlarge/Download Table]
Additions Deductions
------------------------- ----------
Accounts Currency
Balance Charged to Written Translation Balance
January 1, Acquisitions Expenses Off/ Other Adjustment December 31,
---------- ------------ ---------- ---------- ----------- ------------
Year Ended December 31, 2001:
Trade receivables--allowance for
doubtful accounts............. $41,541 $ 4,206 $11,697 $(17,724) $(665) $39,055
Long-term receivables--allowance
for doubtful accounts......... $ 264 $ -- $ 1,901 $ -- $ 3 $ 2,168
Year Ended December 31, 2000:
Trade receivables--allowance for
doubtful accounts............. $ 8,778 $20,507/(1)/ $16,219 $ (3,936) $ (27) $41,541
Long-term receivables--allowance
for doubtful accounts......... $ -- $ 264 $ -- $ -- $ -- $ 264
Year Ended December 31, 1999:
Trade receivables--allowance for
doubtful accounts............. $ 6,200 $ -- $ 3,353 $ (735) $ (40) $ 8,778
--------
(1) Acquisition of The MacManus Group
S-1
EXHIBIT LIST
The exhibit numbers used below are the numbers assigned in Item 601 of
Regulation S-K and the EDGAR Filer Manual. Except as set forth below, all of
the exhibits were previously filed with the original filing of our Form 10 on
April 30, 2001 and were listed with the same exhibit numbers. Each exhibit is
hereby incorporated by reference into this document.
[Enlarge/Download Table]
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Agreement and Plan of Merger, dated as of December 30, 1999, by and among BDM, Inc. (now known
as Bcom3 Group, Inc.), The Leo Group, Inc., The MacManus Group, Inc., TLG Acquisition Corp., and
TMG Acquisition Corp.
2.2 Agreement and Plan of Merger dated as of March 7, 2002 among Publicis Groupe S.A., Philadelphia
Merger Corp., Philadelphia Merger LLC and Bcom3 Group, Inc. (incorporated by reference to Exhibit
2.1 of our Current Report filed on Form 8-K on March 14, 2002)
2.3 Agreement and Plan of Merger dated as of March 7, 2002 among Bcom3 Group, Inc., Boston Three
Corporation and Dentsu Inc. (incorporated by reference to Exhibit A to Exhibit 2.1 of our Current
Report filed on Form 8-K on March 14, 2002)
3.1 Amended and Restated Certificate of Incorporation of Bcom3 Group, Inc.
3.2 Bylaws of Bcom3 Group, Inc.
4.1 Form of Stock Purchase Agreement
9.1 Amended and Restated Voting Trust Agreement, dated as of April 18, 2001, among the owners of
shares of Common Stock of Bcom3 Group, Inc. and the voting trustees named therein
10.1 Investment Agreement, dated as of March 14, 2000, between Dentsu Inc. and BDM, Inc. (now known
as Bcom3 Group, Inc.)
10.2 Registration Rights Agreement, dated as of March 14, 2000, between BDM, Inc. (now known as
Bcom3 Group, Inc.) and Dentsu Inc.
10.3 Amended and Restated Lease, dated as of December 15, 1997, between 35 West Wacker Venture,
L.L.C. and Leo Burnett Company, Inc.
10.4 Lease, dated as of October 21, 1987, between Broadway 52nd Associates and D'Arcy Masius Benton &
Bowles
10.5 Employment Agreement, dated as of January 1, 2001, among Roger A. Haupt, Bcom3 Group, Inc., Leo
Burnett Worldwide, Inc., and Leo Burnett USA, Inc.
10.6 Management Transition Agreement, dated as of December 14, 2000, between Roy J. Bostock and
Bcom3 Group, Inc.
10.7 Management Transition Agreement, dated as of December 22, 2000, between Richard B. Fizdale and
Bcom3 Group, Inc.
10.8 Amended and Restated Salary Continuation Agreement, dated as of December 29, 1995, and as further
amended by letter agreement dated as of June 21, 1999, between Roy J. Bostock and The MacManus
Group, Inc. (formerly known as D'Arcy Masius Benton & Bowles, Inc.)
10.9 Amended and Restated Salary Continuation Agreement, dated as of December 29, 1995, and as further
amended by letter agreement dated as of September 24, 1999, between Craig D. Brown and The
MacManus Group, Inc. (formerly known as D'Arcy Masius Benton & Bowles, Inc.)
10.10 Letter agreement, dated as of March 19, 1993, between Roger A. Haupt and Leo Burnett Company,
Inc., regarding his Executive Employment Consultancy Arrangement
10.11 Letter agreement, dated as of March 19, 1993, between Richard B. Fizdale and Leo Burnett Company,
Inc., regarding his Executive Employment Consultancy Arrangement
10.12 Letter agreement, dated as of January 22, 1999, between Christian E. Kimball and Leo Burnett
Company, Inc., regarding his Executive Employment Consultancy Arrangement
[Enlarge/Download Table]
Exhibit
Number Description of Exhibit
------ ----------------------
10.13 Letter agreement, dated as of March 2, 2001, between Roy J. Bostock and N.W. Ayer Communications,
Inc., regarding rescission of a transaction involving Novo Media Group, Inc. stock
10.14 Letter agreement, dated as of March 2, 2001, between Craig D. Brown and N.W. Ayer
Communications, Inc., regarding rescission of a transaction involving Novo Media Group, Inc. stock
10.15 Amended and Restated Employment Agreement, dated as of January 1, 1999, between Craig D. Brown
and The MacManus Group, Inc. (formerly known as D'Arcy Masius Benton & Bowles, Inc.) (filed
herewith)
10.16 Employment Agreement, dated as of August 17, 2001, between Eileen A. Kamerick and Bcom3 Group,
Inc. and Leo Burnett USA, Inc. (filed herewith)
10.17 Employment Agreement, dated as of October 30, 2000, between Elizabeth L. Reeves and Bcom3
Group, Inc. (filed herewith)
10.18 Change in Control Agreement, dated as of February 27, 2002, between Craig D. Brown and Bcom3
Group, Inc. (filed herewith)
10.19 Change in Control Agreement, dated as of January 17, 2002, between Eileen A. Kamerick and Bcom3
Group, Inc. (filed herewith)
10.20 Change in Control Agreement, dated as of February 18, 2002, between Christian E. Kimball and
Bcom3 Group, Inc. (filed herewith)
10.21 Change in Control Agreement, dated as of January 11, 2002, between Elizabeth L. Reeves and Bcom3
Group, Inc. (filed herewith)
21.1 Subsidiaries of Bcom3 Group, Inc. (filed herewith)
23.1 Consent of Arthur Andersen LLP (filed herewith)
99.1 2000 Long-Term Equity Incentive Plan of Bcom3 Group, Inc.
99.2 2000 Long-Term Equity Incentive Plan as Amended and Restated as of January 1, 2001 (incorporated
by reference to Exhibit 99.2 to Amendment No. 2 to our Registration Statement on Form 10 filed on
August 8, 2001)
99.3 Bcom3 2001 California Stock Option Plan (incorporated by reference to Exhibit 4.4 of our Registration
Statement on Form S-8 filed on August 28, 2001)
99.4 Letter to Commission Pursuant to Temporary Note 3T, dated March 27, 2002 (filed herewith)
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000950130-02-002084 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Wed., May 8, 10:08:11.1am ET 
