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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[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:
PUBLICIS GROUPE S.A.
(Exact name of Registrant as specified in its charter)
N/A 133, AVENUE DES CHAMPS-ELYSEES REPUBLIC OF FRANCE
(Translation of Registrant's 75008 PARIS (Jurisdiction of incorporation
name into English) FRANCE or organization)
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
-------------------- ---------------------
Ordinary shares, nominal value E0.40 per share, represented The New York Stock Exchange
by American Depositary Shares (as evidenced by American
Depositary Receipts), each American Depositary Share
representing one share
Securities registered or to be registered pursuant to Section 12(g) of the
Act: None
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report: 139,599,996 ordinary shares, nominal value E0.40 per share.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark which financial statement item the registrant has
elected to follow:
Item 17 [ ] Item 18 [X]
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FORWARD-LOOKING STATEMENTS
We make some forward-looking statements in this annual report. When we use
the words "aim(s)," "expect(s)," "feel(s)," "will," "may," "believe(s),"
"anticipate(s)" and similar expressions in this annual report, we are intending
to identify those statements as forward-looking. Forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected. You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this annual
report. Other than in connection with applicable securities laws, we undertake
no obligation to publish revised forward-looking statements to reflect events or
circumstances after the date of this annual report or to reflect the occurrence
of unanticipated events. We urge you to review and consider the various
disclosures we make concerning the factors that may affect our business
carefully, including the disclosures made under "Key Information -- Risk
Factors," "Operating and Financial Review and Prospects," and "Quantitative and
Qualitative Disclosures About Market Risk." Unless otherwise indicated,
information and statistics presented in this document regarding market trends
and our market share relative to our competitors are based on our own research
and various publicly available sources.
EXPLANATORY NOTE
Unless otherwise indicated, all references to our competitive positions
made in this annual report are in terms of revenue generated.
The term "billings," as used in this annual report, represents calculated
amounts determined in accordance with common industry practices to facilitate
comparison with other major companies in our industry and does not represent
amounts generated from our accounting systems. The commission and fee revenues
that are generated directly from our accounting systems do not permit a reliable
comparison with the operations of other major companies because they exclude,
notably in France following the implementation of the Loi Sapin in March 1993,
purchases of media space by agents on behalf of their clients. See "Information
on the Company -- Business Overview -- Governmental Regulation." In addition, in
some foreign countries, total purchases and sales of media space are not
reflected in statements of income.
Billings are determined by taking the advertising budgets of clients and
applying a coefficient (typically 6.67) corresponding to the traditional agency
commission of 15%. Billings therefore reflect the volume of advertising budgets
managed, independent of the contractual provisions between our company and our
clients.
i
TABLE OF CONTENTS
PAGE
----
Identity of Directors, Senior Management and Advisers....... 1
Offer Statistics and Expected Timetable..................... 1
Key Information............................................. 1
Information on the Company.................................. 8
Operating and Financial Review and Prospects................ 20
Directors, Senior Management and Employees.................. 32
Major Shareholders and Related Party Transactions........... 41
Financial Information....................................... 43
The Offer and Listing....................................... 44
Additional Information...................................... 45
Quantitative and Qualitative Disclosures About Market
Risk...................................................... 59
Description of Securities Other Than Equity Securities...... 61
Defaults, Dividend Arrearages and Delinquencies............. 62
Material Modifications to the Rights of Security Holders and
Use of Proceeds........................................... 62
Financial Statements........................................ F-1
ii
PART I
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3: KEY INFORMATION
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of our
company and should be read in conjunction with our financial statements and the
information provided under "Operating and Financial Review and Prospects" and
"-- Risk Factors." The selected financial data presented below have been
prepared on a basis consistent with that used in our financial statements. Prior
years have been restated as necessary for a consistent presentation. Our
financial statements have been prepared in accordance with accounting principles
generally accepted in France ("French GAAP"), which differ in certain
significant respects from accounting principles generally accepted in the United
States ("U.S. GAAP"). See note 29 to our financial statements for (i) a
discussion of the principal differences between French GAAP and U.S. GAAP as
they relate to us and (ii) a reconciliation to U.S. GAAP of our net income and
shareholders' equity as calculated under French GAAP. The selected consolidated
financial data for each of the five years ended December 31, 1997 to 2001 have
been extracted or derived from our audited financial statements, which were
translated into euros using the fixed exchange rate for French francs and euros
on January 1, 1999.
Since January 1, 2000, our financial statements have been prepared in
conformity with new accounting rules applicable to consolidated financial
statements in France (nouvelles regles et methodes relatives aux comptes
consolides). The new rules, issued by the French accounting rules and regulation
committee (the Comite de Reglementation Comptable), were approved on June 22,
1999 and became effective on January 1, 2000. The new rules differ from the
rules previously applied in terms of accounting for business combinations,
deferred income taxes, assets under capital leases, conversion of French
financial statements of foreign subsidiaries and exchange rate differences on
accounts receivable and payable stated in foreign currencies. In accordance with
the new rules, we have elected not to restate retroactively our accounting for
business combinations and disposals completed in prior years.
1
YEAR ENDED DECEMBER 31,
------------------------------------------------
2001 2000(3) 1999 1998(2) 1997(2)
------ -------- ------ -------- --------
(IN MILLIONS OF EUROS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Revenue............................................. 2,434 1,770 1,042 851 663
Amounts in accordance with French GAAP
Operating income.................................... 342 275 156 116 86
Group net income.................................... 151 128 74 47 35
Basic earnings per share(1)......................... 1.09 1.18 0.85 0.59 0.51
Diluted earnings per share(1)....................... 1.08 1.15 0.84 0.56 0.47
Dividends per share................................. 0.21 0.20 0.17 0.12 0.08
Amounts in accordance with U.S. GAAP
Group net income.................................... (647) 34 73 -- --
Basic earnings per share(1)......................... (4.76) 0.31 0.84 -- --
Diluted earnings per share(1)....................... (4.76) 0.31 0.83 -- --
BALANCE SHEET DATA
Amounts in accordance with French GAAP
Tangible and intangible assets, net................. 1,618 1,303 437 383 255
Total assets........................................ 4,896 4,130 2,077 1,604 1,290
Bank borrowings and overdrafts (short and
long-term)........................................ 1,069 901 212 124 124
Shareholders' equity................................ 283 299 345 314 240
Amounts in accordance with U.S. GAAP
Shareholders' equity................................ 1,890 2,622 580 -- --
---------------
(1) Per share data have been adjusted to reflect the 10-for-1 stock split that
occurred on August 29, 2000.
(2) Amounts have been restated from French francs into euros using the exchange
rate set by the Council of the European Union for use as of January 1, 1999,
i.e., E1 = FF 6.55957.
(3) 2000 amounts include the operations of Saatchi & Saatchi for the period
between the acquisition date in September 2000 through December 31, 2000.
EXCHANGE RATE INFORMATION
Under the provisions of the Treaty on European Union negotiated at
Maastricht in 1991 and signed by the then 11 member states of the European Union
in early 1992, a European Monetary Union, known as EMU, was implemented on
January 1, 1999 and a single European currency, known as the euro, was
introduced. As of December 31, 2001, the following 12 member states participated
in EMU and had adopted the euro as their national currency: Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain and Greece. The legal rate of conversion between the French franc and the
euro was fixed on December 31, 1998 at E1.00 = FF 6.55957, and we have
translated French francs into euros at that rate.
Share capital in our company is represented by ordinary shares with a
nominal value of E0.40 per share (hereinafter generally referred to as "our
shares"). Our shares are denominated in euros. Because we intend to pay cash
dividends denominated in euros, exchange rate fluctuations will affect the U.S.
dollar amounts that shareholders will receive on conversion of dividends from
euros to dollars.
The following table shows the French franc/U.S. dollar exchange rate for
1997 and 1998 based on the noon buying rate expressed in French francs per
$1.00, and the euro/U.S. dollar exchange rate for 1999 through July 15, 2002
based on the noon buying rate expressed in euros per dollar. For information
regarding
2
the effect of currency fluctuations on our results of operations, see "Operating
and Financial Review and Prospects."
PERIOD AVERAGE
END RATE(1) HIGH LOW
------ ------- ---- ----
EURO/U.S. DOLLAR
July (through July 15)...................................... 1.01 0.99 1.01 0.97
June 2002................................................... 0.99 0.96 0.99 0.94
May 2002.................................................... 0.93 0.92 0.94 0.90
April 2002.................................................. 0.90 0.89 0.90 0.88
March 2002.................................................. 0.87 0.88 0.88 0.87
February 2002............................................... 0.87 0.87 0.88 0.86
January 2002................................................ 0.86 0.88 0.90 0.86
2001........................................................ 0.89 0.89 0.95 0.84
2000........................................................ 0.94 0.92 1.03 0.83
1999........................................................ 1.01 1.06 1.18 1.00
FRENCH FRANC/U.S. DOLLAR
1998........................................................ 0.18 0.17 0.18 0.16
1997........................................................ 0.17 0.17 0.19 0.16
---------------
(1) For yearly totals, the average of the noon buying rates for French francs or
euros, as the case may be, on the last business day of each month during the
relevant period.
3
RISK FACTORS
You should carefully consider the risk factors described below in addition
to the other information presented in this annual report.
WE MAY HAVE DIFFICULTY COMPETING IN THE HIGHLY COMPETITIVE ADVERTISING AND
COMMUNICATIONS INDUSTRY
The advertising and communications industry is highly competitive, and we
expect it to remain so. Our competitors in the advertising and communications
business run the gamut from large multinational marketing and communications
companies to smaller agencies that operate only in local or regional markets.
New competitors also include systems integrators, database marketing and
modeling companies and telemarketers offering technological solutions to
marketing and communications issues faced by clients. We must compete with these
companies and agencies to maintain existing client relationships and to obtain
new clients and assignments. Some clients require us to compete for business at
mandatory periodic intervals.
We believe that large multinational companies will increasingly seek to
consolidate their accounts with a limited number of organizations that can
satisfy their marketing and communications needs worldwide. This trend is likely
to require companies seeking to compete effectively in the international
advertising and communications industry to provide a comprehensive range of
advertising and communications services. In some markets, some of our
competitors may be able to provide services more comprehensively than we can at
present.
WE MAY BE ADVERSELY AFFECTED BY UNFAVORABLE ECONOMIC CONDITIONS IN THE MARKETS
IN WHICH WE OPERATE
The advertising and communications industry is subject to downturns
corresponding to those in general economic conditions and changes in client
business and marketing budgets. Because some clients have responded, and may
respond in the future, to general economic downturns by reducing their marketing
budgets in order to meet earnings goals, downturns can be more severe in the
advertising and communications industry than in other industries. For this
reason, our prospects, business, financial condition and results of operations
may be materially adversely affected by continuing unfavorable general economic
conditions, or a further downturn in those conditions, in one or more markets
and related changes in clients' marketing budgets.
WE MAY NOT BE SUCCESSFUL IN IDENTIFYING APPROPRIATE ACQUISITION CANDIDATES OR
INVESTMENT OPPORTUNITIES, COMPLETING ACQUISITIONS OR INVESTMENTS ON SATISFACTORY
TERMS OR INTEGRATING NEWLY ACQUIRED COMPANIES
Our business strategy includes enhancing the range of our existing
advertising and communications capabilities. We intend to implement this
strategy in part by making acquisitions and other investments. We may not be
successful in identifying appropriate acquisition candidates or investment
opportunities or consummating acquisitions or investments on terms satisfactory
to us. In addition, we may not succeed in integrating any newly acquired
companies into our existing operations in a way that produces the synergies or
other benefits we hope to achieve. Furthermore, we may use our shares as
consideration in future acquisitions and investments, which could result in
dilution to existing shareholders.
WE MAY BE UNABLE TO COMPLETE OUR PROPOSED MERGER WITH BCOM3
As described in more detail under "Information on the Company -- History
and Development of the Company -- Recent Developments -- Bcom3 Merger," we have
entered into an agreement pursuant to which we expect to acquire the U.S.
advertising firm Bcom3 Group, Inc. The completion of the merger, however, is
subject to a number of conditions, including the receipt of regulatory approvals
and the approval of both our stockholders and those of Bcom3. If we are unable
to complete the merger, we will not realize its anticipated benefits, which we
expect to include a deepening of our presence and an expansion of our
capabilities in a variety of markets as well as significant cost savings and
business development synergies. If the Bcom3 merger does not occur, we may not
be able to find comparable opportunities to pursue our strategic objectives on
favorable terms.
4
GOVERNMENT REGULATIONS OR SELF-REGULATORY STANDARDS RELATING THE USE OF
INFORMATION ABOUT CONSUMERS MAY HARM OUR OPERATIONS
In a number of countries, particularly in Europe and North America, growing
concern regarding privacy and the collection, distribution and use of
information about internet users has led to increased governmental scrutiny and
legislative and regulatory activity concerning data collection and use
practices. Various governmental authorities have recently proposed limitations
on the collection and use of information regarding internet users. In October
1998, the European Union adopted a directive that limits the collection and use
of information regarding internet users in Europe. In addition to government
activity, a number of industry and privacy advocacy groups are considering
various new, additional or different self-regulatory standards. Because some of
our operations rely on the collection and use of client data, this scrutiny, and
any legislation, regulations or standards promulgated as a result, could
adversely affect our business and results of operations.
WE ARE EXPOSED TO A NUMBER OF RISKS FROM OPERATING IN DEVELOPING COUNTRIES
We conduct business in various developing countries around the world. The
risks associated with conducting business in developing countries can include
slower payment of invoices, nationalization, social, political and economic
instability, increased currency exchange risk and currency repatriation
restrictions, among other risks. We may not be able to insure or hedge against
these risks. In addition, commercial laws in many of these countries can be
vague, arbitrary, contradictory, inconsistently administered and retroactively
applied. It is therefore difficult for us to determine with certainty at all
times the exact requirements of these laws. If we are deemed not to be in
compliance with applicable laws in developing countries in which we conduct
business, our prospects, business and results of operations could be harmed, and
our financial condition could be weakened.
WE ARE EXPOSED TO POTENTIAL LIABILITIES, INCLUDING LIABILITIES ARISING FROM
ALLEGATIONS THAT OUR CLIENTS' ADVERTISING CLAIMS ARE FALSE OR MISLEADING OR THAT
OUR CLIENTS' PRODUCTS ARE DEFECTIVE
From time to time, we may be, or may be joined as, a defendant in
litigation brought against our clients by third parties, including our clients'
competitors, governmental or regulatory authorities or consumers. These actions
could involve claims alleging that:
-- advertising claims made with respect to our clients' products or
services are false, deceptive or misleading;
-- our clients' products are defective or injurious; or
-- marketing and communications materials created for our clients infringe
on the proprietary rights of third parties.
The damages, costs, expenses or attorneys' fees arising from any of these
claims could have an adverse effect on our prospects, business, results of
operations and financial condition to the extent that we are not adequately
insured and are not indemnified for them by clients. In addition, our contracts
with clients generally require us to indemnify clients for claims brought by
competitors or others claiming that our advertisements or other communications
infringe upon their intellectual property rights.
OUR ABILITY TO MAINTAIN OUR COMPETITIVE POSITION DEPENDS ON RETAINING THE
SERVICES OF OUR MANAGEMENT AND ATTRACTING AND RETAINING OTHER KEY EMPLOYEES
The loss of the services of key members of our management could harm our
business and results of operations. In addition, our success has been, and is
expected to continue to be, highly dependent upon the skills of our creative,
research, media and account personnel and practice group specialists, and their
relationships with our clients. If we are unable to continue to attract and
retain additional key personnel, or if we are unable to retain and motivate our
existing key personnel, our prospects, business, financial condition and results
of operations would be materially adversely affected.
5
WE RECEIVE A SIGNIFICANT PERCENTAGE OF OUR REVENUES FROM LARGE CLIENTS
A significant reduction in the advertising and communications spending by,
or the loss of one or more of, our largest clients could weaken our financial
condition and cause our business and results of operations to suffer. Our major
clients may not continue to use our services to the same extent, or at all, in
the future. Clients can typically cancel contracts with their advertising
agencies on 90 to 180 days' notice. In addition, clients generally are able to
reduce advertising and communications spending or cancel projects at any time
for any reason.
CURRENCY EXCHANGE RATE FLUCTUATIONS MAY NEGATIVELY AFFECT OUR FINANCIAL RESULTS,
THE PRICE OF OUR SHARES AND THE VALUE OF DIVIDENDS RECEIVED BY HOLDERS OF OUR
ADSS
We hold assets and liabilities, earn income and pay expenses of our
subsidiaries in a variety of currencies. Our financial statements are presented
in euros. Therefore, when we prepare our financial statements, we must translate
our assets, liabilities, income and expenses in currencies other than the euro
into euros at then-applicable exchange rates. Consequently, increases and
decreases in the value of the euro will affect the value of these items in our
financial statements, even if their value has not changed in their original
currency. In this regard, an increase in the value of the euro relative to other
currencies may result in a decline in the reported value, in euros, of our
interests held in those currencies. To the extent this has a negative effect on
our financial condition as presented in our financial statements, it could cause
the price of our shares to decline. Conversely, if the relative value of the
euro to the U.S. dollar declines, the U.S. dollar equivalent of cash dividends
paid in euros on our American Depositary Shares ("ADSs") will decline as well.
THE ABILITY OF HOLDERS OF OUR ADSS TO INFLUENCE THE GOVERNANCE OF OUR COMPANY
MAY BE LIMITED
Holders of our ADSs may not have the same ability to influence the
governance of our company as shareholders in some U.S. companies would. For
example, holders of our ADSs may not receive voting materials in time to ensure
that they can instruct the depositary to vote their shares. In addition, the
depositary's liability to holders of our ADSs for failing to carry out voting
instructions or for the manner of carrying out voting instructions is limited by
contract.
SOME PROVISIONS OF FRENCH LAW AND OUR STATUTS COULD HAVE ANTI-TAKEOVER EFFECTS
French law requires any person who acquires more than 5%, 10%, 20%,
one-third, one-half or two-thirds of our outstanding shares or voting rights to
inform us within 15 days of crossing the threshold percentage. A person
acquiring more than 10% or 20% of our share capital or voting rights must
include in the report a statement of the person's intentions relating to future
acquisitions or participation in the management of our company for the following
12-month period. Shareholders who fail to comply with this requirement may be
deprived of voting rights for a period of up to five years and may, in some
cases, be subject to criminal fines. In addition, our statuts provide double
voting rights for shares owned by the same shareholder in registered form for at
least two years. Our statuts further provide that any person who acquires or
disposes of more than 1% of our outstanding shares or voting rights must inform
us within 15 days of crossing the threshold percentage, and that we may require
a corporate entity holding shares representing more than 2.5% of our share
capital or voting rights to disclose to us the identity of all persons holding,
directly or indirectly, more than one-third of the share capital or voting
rights of that entity. Shareholders who fail to comply with these requirements
may be deprived of voting rights. Finally, our shareholders have authorized our
management board to increase our capital in response to a third-party tender
offer for our shares. These circumstances could have the effect of discouraging
or preventing a change in control of our company without the consent of our
current management. Giving effect to the provision of our statuts that gives
double voting rights to shares owned by the same shareholder in registered form
for at least two years, we estimate that at least 45% of the voting power of our
company is held by descendants of Marcel Bleustein-Blanchet, our founder, and
our directors and employees.
6
WE ARE SUBJECT TO CORPORATE DISCLOSURE STANDARDS THAT ARE LESS DEMANDING THAN
THOSE APPLICABLE TO SOME U.S. COMPANIES
As a foreign private issuer, we are not required to comply with the notice
and disclosure requirements of the Securities Exchange Act of 1934, as amended,
relating to the solicitation of proxies for shareholders' meetings. Although we
are subject to the periodic reporting requirements of the Exchange Act, the
periodic disclosure required of non-U.S. issuers under the Exchange Act is more
limited than the periodic disclosure required of U.S. issuers. Therefore, there
may be less publicly available information about our company than is regularly
published by or about other public companies in the United States.
7
ITEM 4: INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
The legal name of our company is Publicis Groupe S.A. and its commercial
name is Publicis. Our company is a societe anonyme, a form of corporation. It
was incorporated in 1938, pursuant to the French commercial code, for a term of
99 years. Our registered office is located at 133, avenue des Champs-Elysees,
75008 Paris, France, and the phone number of that office is 331 44 43 70 00.
HISTORICAL BACKGROUND
Our company was founded in 1926 by Marcel Bleustein-Blanchet, known as the
"father of modern advertising in France" and the "David Ogilvy of French
advertising" because of his drive for innovation, his creativity in developing
successful campaigns for clients and the new standards of excellence he set.
Among his early innovations was the use of radio for advertising: in 1934, due
to a ban on advertising on France's government-owned radio stations, he created
Radio Cite, the country's first private station. He launched Regie Presse, a
subsidiary dedicated to the sale of advertising space in the press, in 1937.
When the Second World War began, Mr. Bleustein-Blanchet decided to shut
down both our company and Radio Cite. We reopened in 1946 and won our first
major post-war client, Colgate Palmolive, a year later. Through Regie Presse, we
also expanded into the sale of media space in mass transit systems. Realizing
the importance of monitoring consumer habits and expectations, Mr.
Bleustein-Blanchet established a market research unit as part of our company.
Our expansion continued in the 1940's and 50's in other ways as well. Nestle
became a client in 1952; Shell joined us in 1954. We moved our headquarters to
its current location on the Champs-Elysees in Paris in 1957.
Our reputation for innovation was strengthened in 1968 when we created the
first television advertising campaign in France. Also in 1968, we provided
communications advice to Saint Gobain in its successful defense of a hostile
takeover attempt by BSN, the first hostile takeover bid in French business
history. Clients won in the 1960's included Renault and L'Oreal.
We became a public company in 1970. In 1972, our headquarters building was
destroyed by fire and we had to rebuild it. We began pursuing a strategy of
expansion in Europe through acquisitions the same year, purchasing the
Intermarco network in the Netherlands (with offices in Belgium, Germany,
Scandinavia, Italy and Spain) and Farner in Switzerland (with offices in Germany
and Austria). By 1974, we were present in 14 European countries. We made our
first inroads in interactive communications in this period with the founding of
SGIP, since renamed Publicis Technology. Our current chief executive officer,
Maurice Levy, joined our company in 1971 and became chief operating officer of
Publicis Conseil in 1976. In 1978, our European expansion continued through our
acquisition of the McCormick agency, a well-known U.K. firm.
In 1981, we opened our first New York office. In 1984, we regrouped our
network, then present in 23 countries, under the "Publicis" name. We founded our
media buying subsidiary Optimedia in 1987, and it began operations in France,
the United Kingdom and Switzerland. Also in 1987, Maurice Levy became our chief
executive officer and president of our management board. We entered into a major
strategic alliance with U.S.-based Foote, Cone & Belding Communications ("FCB")
in 1988. We merged our operations in Europe with those of FCB, thus becoming the
leading advertising network in Europe. We managed the combined European
operations, making substantial investments in developing them, particularly in
Spain and Italy. Through FCB, we also raised our profile among corporations in
the United States. In 1989, we began expanding into eastern Europe. The same
year, we won Whirlpool's worldwide account and launched a European direct
marketing network, since renamed Publicis Dialog.
Our expansion accelerated in the 1990's. We created BMZ, a new network
operating in Germany, France, the United Kingdom, Belgium, the Netherlands and
Italy, in 1992. The next year we acquired FCA, the fourth largest communications
group in France. We then merged FCA and BMZ to create FCA!BMZ, a subsidiary with
operations in 12 European countries. In 1994, we merged our New York office with
Bloom, a U.S. subsidiary of FCA, as part of an effort to further increase our
presence in the United States. Coca-Cola
8
became a client in 1994. We discontinued our alliance with FCB in 1995 due to
strategic divergences with its parent company, True North Communications, Inc.
Mr. Bleustein-Blanchet died in 1996, and Elisabeth Badinter, Mr.
Bleustein-Blanchet's daughter, succeeded him as chair of the supervisory board.
We began our expansion outside of Europe in 1996, acquiring operations in
Mexico, Brazil and Canada. Over the next three years, we built an impressive
international network with a string of acquisitions in eastern Europe, the
Middle East, Latin America and the Asia-Pacific region. We also expanded in the
United States during this period, acquiring Hal Riney & Partners and EvansGroup
in 1998 and a 49% interest in Burrell Communications in 1999. At the beginning
of 2000, we had operations in 130 locations in 76 countries and ranked tenth
worldwide among communications groups. (Unless otherwise indicated, all
references to our competitive positions made in this annual report are in terms
of revenue generated).
The last two years have been marked by a further acceleration of our
expansion strategy. We acquired controlling interests in a number of major U.S.
agencies in 2000, including the Fallon Group, Frankel & Company, DeWitt Media
and Winner & Associates, thus becoming a major competitor in the U.S. market.
Even more significantly, we dramatically increased the size of our operations
with the acquisition of Saatchi & Saatchi plc, with its network of operations
across 82 countries. In addition, we became one of the world's leading
healthcare communications companies as a result of our acquisition of Nelson
Communications. Reflecting our increasingly international focus, our shares,
represented by ADSs, began trading on the New York Stock Exchange following the
Saatchi & Saatchi acquisition.
In 2001, we created the world's third-largest media consultancy and buying
group by combining our wholly owned subsidiary Optimedia with Zenithmedia, a
firm we held jointly with Cordiant Communications Group plc. We hold a 75%
interest in the newly created entity, the Zenith Optimedia Group. In addition,
we acquired, among others, the Triangle Group in the United Kingdom and Sanchez
& Levitan in the United States. As a result of our internal and external
expansion, we are, prior to the completion of the Bcom3 merger, the sixth
leading advertising and communications company in the world, with operations in
182 cities in 102 countries around the world and over 20,000 employees. We
generated revenue of E2.43 billion in 2001.
RECENT DEVELOPMENTS -- BCOM3 MERGER
On March 7, 2002, we announced that we had entered into a merger agreement
with Bcom3 and a series of related agreements, pursuant to which, assuming that
the conditions to the completion of the merger are satisfied, we will acquire
Bcom3. Following the completion of the merger, we expect to be the
fourth-largest advertising and communications firm in the world, with annual
revenue of approximately $4 billion generated by some 38,000 employees. The
combined company will be the largest advertising and communications company in
Europe and the third-largest in the United States. The merger will also result
in the creation of the world's second-largest media consultancy and media buying
firm, combining the Zenith Optimedia Group with Bcom3's Starcom MediaVest. We
believe that adding Bcom3's renowned advertising agencies -- which include Leo
Burnett, D'Arcy Masius Benton & Bowles, Manning Selvage & Lee and Bartle Bogle
Hegarty -- and its other operations to our existing networks will yield a number
of significant benefits, including a substantial improvement in our ability to
provide premier advertising and communications services to clients on a
worldwide basis. Upon completion of the merger, holders of Bcom3 common stock
will receive consideration comprised of our shares, other securities of our
company and cash from the sale of bonds we will issue in connection with the
merger.
Dentsu Inc., a Japanese advertising firm, currently owns approximately 22%
of the voting power of Bcom3 on a non-diluted basis. Concurrently with the
execution of the Bcom3 merger agreement, we entered into a memorandum of
understanding with Dentsu pursuant to which we will, upon the completion of the
merger, form a strategic alliance with Dentsu. In connection with this alliance,
(i) we will cause Saatchi & Saatchi and Zenith & Publicis to terminate their
current arrangements and agreements with partners in Japan over a 12 to 18-month
period, (ii) we will partner exclusively with Dentsu in Japan and will not
initiate any new activity in Japan without prior consultation with Dentsu and
(iii) Dentsu will consult with us before making any investments or initiating
any ventures in Australia, Europe or North or South America.
9
Concurrently with the execution of the merger agreement, we entered into
support agreements with each of Dentsu and several members of Bcom3's management
pursuant to which those persons agreed to vote their shares of Bcom3 stock in
favor of the merger. In addition, we agreed to a memorandum of understanding
with Dentsu pursuant to which we and Dentsu will enter into a shareholders'
agreement on or before the date of the meeting of Bcom3 shareholders called to
approve the merger. The shareholders' agreement will provide, among other
things, that so long as Dentsu owns not less than 10% of our outstanding shares,
we will present to our shareholders resolutions appointing two Dentsu nominees
as members of our supervisory board. In addition, the shareholders' agreement
will subject Dentsu to a "standstill" provision that will limit its voting power
in our company to 15% until 2012. Dentsu will be prohibited from transferring
any of the shares of our company it holds until 2012, after which transfers will
be allowed on a limited basis.
The completion of the Bcom3 merger is conditioned upon the approval of our
shareholders and those of Bcom3, the receipt of regulatory approvals and other
conditions customary in transactions of this nature.
The foregoing agreements are incorporated by reference into this annual
report. Further information regarding the Bcom3 merger, the strategic alliance
with Dentsu and related matters is provided in the Proxy Statement/Registration
Statement that we filed with the Securities and Exchange Commission ("SEC") in
connection with the merger.
PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES
As a result of our strategy of global expansion, our principal capital
expenditures since the beginning of 1999 have been associated with acquisitions
of other advertising and communications firms. In 1999, for example, we acquired
the following firms:
-- in Asia, controlling interests in the Welcomm agency (Korea), AD Link
(China) and AMA (the Philippines);
-- in the Middle East, a controlling interest in Publi-Graphics, a firm
based in Lebanon with offices in seven countries in the region; and
-- in the United States, 49% of Burrell Communications, a respected agency
focused on the African-American community and urban youth.
Net acquisitions totaled E51 million in 1999. Other investments came to
E115 million, of which E57 million was invested in repurchases of our own
shares.
As noted above, we made a number of major acquisitions in 2000. The largest
of these, Saatchi & Saatchi, was acquired in exchange for our shares, and
therefore did not require any capital expenditure as such. Several of our other
2000 acquisitions, however, did involve capital expenditures, including our
acquisitions of all of, or controlling interests in:
-- Fallon, a prestigious U.S. advertising agency;
-- Frankel, a leader in marketing services in the United States;
-- DeWitt Media, an agency that specializes in consulting and media buying;
-- Winner & Associates, a U.S.-based public relations agency;
-- Nelson Communications, the largest healthcare advertising firm in the
United States (90% of the consideration for which consisted of our
treasury shares); and
-- Publicistas Asociados, Peru's biggest advertising agency.
We invested a total of E541 million (net of disposals and not including
equity consideration) in making these acquisitions. We also invested in
interactive communications by forming Publicis.Net. Other investments came to
E148 million, including E106 million of investments in fixed assets and E34
million spent in repurchasing our shares.
10
Our capital expenditures in 2001 included our acquisitions of all of, or
controlling interests in:
-- Fisch.Maier.Direkt, Switzerland's leading direct marketing firm;
-- Carre Noir, one of the best design agencies in France;
-- FusionDM in San Francisco, a large independent customer relationship
management agency since merged with Publicis Dialog;
-- Creative AIM, a grassroots marketing agency;
-- Sanchez & Levitan, among the largest agencies in the United States
focused on the rapidly-growing Hispanic community;
-- The Triangle Group, the largest independent sales promotion group in the
United Kingdom; and
-- Fabianne Gershon Associates and Hudson Stone Group, two corporate and
financial communications firms based in New York.
We invested a total of E77 million in making these expansion-related
investments. We invested an additional E102 million in other property, plant and
equipment (net of disposals), and spent E120 million repurchasing our own
shares. For information concerning our level of ownership in the foregoing
acquired agencies and our other subsidiaries as of December 31, 2001, see note
28 to our financial statements.
The main focus of our expansion efforts in 2002 has been on our proposed
acquisition of Bcom3 and the related partnership with Dentsu. We have continued
to acquire other firms as well, however, including Gravitas, a Japanese agency
specializing in marketing services and public relations, and Johnston &
Associates, a well-regarded U.S. lobbying firm. These acquisitions (both of
which were financed internally) involved capital expenditures of approximately
E10 million in total.
We have made no material divestitures since the beginning of 1999. On
December 18, 2001, we issued E200 million principal amount of notes that will,
in 2003, become exchangeable under certain circumstances for 4,885,950 shares of
stock we own in the Interpublic Group of Companies, Inc. See "Operating and
Financial Review and Prospects -- Outlook for 2002 -- Debt Refinancing."
There have been no public takeover offers by third parties in respect of
our shares since January 1, 2001, nor, except as described under "-- Recent
Developments -- Bcom3 Merger," have we made any public takeover offers in
respect of other companies' shares since that date.
BUSINESS OVERVIEW
We are the world's sixth largest advertising and communications firm and
operate two major global networks, Publicis Worldwide and Saatchi & Saatchi
Worldwide. We are in the process of expanding Fallon into a third global network
with regional hubs in several key countries. We also have one of the world's
largest healthcare communications networks, combining Nelson Communications with
the healthcare activities of the Publicis and Saatchi & Saatchi networks. In
addition, through the Zenith Optimedia Group, we are the world's third largest
media buying group.
We have strong positions in key markets around the world. We rank first in
Europe overall, and are among the top five advertising and communications
companies in France, Germany, the United Kingdom, the Netherlands, Spain, Italy
and Switzerland. As a result of our recent expansion, we are now among the ten
largest advertising and communications firms in the United States and Canada as
well. We are also well represented in Asia, where Saatchi & Saatchi gives us a
significantly expanded presence, the Middle East and Latin America. If the Bcom3
merger is completed and the related partnership with Dentsu is formed, the
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scope and reach of our services will be expanded still further. We provide
services primarily in the following areas:
-- Traditional advertising services. We provide traditional advertising
services through the Publicis, Saatchi & Saatchi and Fallon Worldwide
networks. These activities accounted for approximately two-thirds of our
total revenue in 2001.
-- Specialized agencies and marketing services. We provide specialized
communications services such as public relations, corporate and
financial communications, direct marketing, sales promotion, interactive
communications, design, media buying and media sales (collectively
referred to as "SAMS") through subsidiaries including Nelson
Communications, Frankel, Publicis Dialog, Publicis Consultants, the
Triangle Group and the Zenith Optimedia Group.
CLIENTS
We provide advertising and communications services to national and
multinational clients around the world. In 2001, approximately one-third of our
revenue came from globally-managed accounts (i.e., those for which we provide
services in five or more countries). We generated the remaining two-thirds from
clients of our subsidiaries around the world. This client mix, we believe, is
advantageous in that locally-managed clients are often more profitable and tend
to be focused on the discrete markets in which they operate, therefore
diversifying our exposure to fluctuations in general market conditions.
Locally-managed clients also give us an opportunity to take advantage of, and
add to, our intimate knowledge of national and local cultures and business
environments and to raise our profile in local markets. No one client accounted
for more than 6% of our total revenue in 2001. The following chart discloses,
for each of our largest clients in 2001, the number of countries in which we
provide services and the length of our relationship:
NUMBER OF
COUNTRIES YEARS AS CLIENT
--------- ---------------
PUBLICIS WORLDWIDE
Nestle...................................................... 57 50
Renault..................................................... 34 39
British Airways............................................. 64 7
Carrefour................................................... 10 17
Club Med.................................................... 37 4
Coca-Cola................................................... 29 8
Ericsson.................................................... 36 3
Hewlett-Packard............................................. 90 6
L'Oreal..................................................... 70 23
Sara Lee.................................................... 12 39
Siemens..................................................... 23 11
UBS......................................................... 32 4
Whirlpool................................................... 48 13
Inmarsat.................................................... 79 6
Hermes...................................................... 22 5
Tefal....................................................... 18 5
Arc International........................................... 12 2
SAATCHI & SAATCHI WORLDWIDE
Johnson & Johnson........................................... 25 31
Toyota...................................................... 30 27
Procter & Gamble............................................ 75 81
Sony Consumer Electronics................................... 36 3
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NUMBER OF
COUNTRIES YEARS AS CLIENT
--------- ---------------
Visa........................................................ 17 15
DuPont...................................................... 10 53
Diageo Guinness UDV......................................... 28 12
General Mills CPW........................................... 31 78
STRATEGY
With our acquisition of Saatchi & Saatchi, we became a world leader in the
advertising and communications industry in terms of geographical presence, array
of services and flexibility. The proposed acquisition of Bcom3 and our
prospective partnership with Dentsu will provide another major increase in our
presence in major markets around the world. Our overall priority now, once the
Bcom3 merger is completed, is to take advantage of the synergies created by our
acquisitions by increasing on a country-by-country basis the scope of services
we provide to clients, particularly services for which demand is growing
rapidly. We also intend to continue pursuing our strategy of making selected
acquisitions to round out our geographical presence and service offerings. The
main components of our strategy are to:
-- EXPAND OUR OPERATIONS THAT PROVIDE SAMS -- SPECIALIZED AGENCIES AND
MARKETING SERVICES
We currently have a number of operations that complement our traditional
advertising services by providing direct marketing, sales promotion,
design, corporate communications, financial communications, interactive
communications, public relations, media buying and media sales services.
Demand for these services from our traditional advertising clients is
growing; in addition, providing them helps us to build and maintain a
"holistic relationship" between us and our clients. Demand is also
growing rapidly for specialized communications services such as those
directed at particular ethnic groups (in particular, African-American
and Hispanic communities in the United States), healthcare
communications and human resources communications. We intend to take
advantage of these trends by growing our existing SAMS operations and by
making selective acquisitions. Our goal is to have SAMS generate 45% of
our total revenue in 2003, up from an estimated 34% in 2001.
-- MAKE SELECTIVE ACQUISITIONS TO ACHIEVE CRITICAL MASS IN OTHER SELECTED
MARKETS
We rank among the top five to ten advertising and communications firms
in most of the major countries in which we operate, and we believe this
gives us a visibility that is useful in the competition for new clients.
In some countries, however, we have only limited operations, and
acquisitions may be required in order for us to reach a position of
market leadership. In addition, we believe that our extensive
international experience gives us a competitive advantage in pursuing
opportunities for growth in emerging economies. For these reasons, we
intend to seek acquisition candidates in selected markets around the
world in order to expand into promising new markets and, where
necessary, to enhance our competitive positions.
FINANCIAL TARGETS
We believe that pursuing the strategy outlined above, and continuing the
process of integrating our operations with those of acquired companies, will
allow us to enhance our profitability and maximize shareholder value
significantly over the near term. Our primary financial goals are to achieve in
the 2003 fiscal year an 18% margin in terms of EBITDA over revenue and a 15%
margin in terms of EBITA (earnings before interest, taxes and amortization of
goodwill) over revenue, in each case as calculated under French GAAP. These
goals are consistent with those set last year -- although, if we complete the
Bcom3 acquisition, we intend to achieve them on a much larger scale. We believe
that we can achieve these goals by continuing to create synergies relating to
the integration of Saatchi & Saatchi (in particular, by taking advantage of
cross-selling opportunities, lowering the costs of back-office and
administrative services and improving the profitability of some Saatchi &
Saatchi operations), and, once the Bcom3 merger is completed, implementing the
restructuring program begun by Bcom3's current management in 2000 and creating
cost reduction and
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business development synergies from the integration of Bcom3. As noted above,
our goal in terms of business mix is to generate 55% of our revenue from
traditional advertising and 45% from SAMS businesses by 2003.
MARKETS
We conduct operations in 102 countries and 182 cities around the world. Our
primary markets are Europe and the United States. Below we show the contribution
of selected geographical markets to our revenue for the years ending December
31, 2001, 2000 and 1999 (in millions of euros):
EUROPE (INCLUDING
YEAR FRANCE) FRANCE NORTH AMERICA REST OF WORLD TOTAL
---- ----------------- ------ ------------- ------------- -----
2001........................ 1,097 383 1,035 302 2,434
2000........................ 878 342 688 204 1,770
1999........................ 702 294 214 126 1,042
OPERATING DIVISIONS
We conduct our business through one segment -- advertising and
communications -- which operates primarily through two divisions: Communications
and Media & Regies Europe.
Below we show the contribution of each division to our consolidated revenue
for the years ending December 31, 2001, 2000 and 1999 (in millions of euros):
YEAR COMMUNICATIONS OTHER ACTIVITIES TOTAL
---- -------------- ---------------- -----
2001............................................. 2,289 145 2,434
2000............................................. 1,635 135 1,770
1999............................................. 923 119 1,042
COMMUNICATIONS
The Communications division consists of all our agencies involved in
advertising, marketing services, media buying, planning and consulting and
related disciplines. We generated 94% of our 2001 revenue from our
Communications operations.
Communications services
We provide a full range of advertising and communications services,
designing a customized package of services to meet each client's particular
needs. The communications services we provide typically include one or more of
the following:
-- Traditional advertising services. Traditional advertising services
principally involve the creation of advertising for products, services
and brands. They may also include strategic planning involving analysis
of a product, service or brand compared to its competitors through
market research, sociological and psychological studies and creative
insight. The creation of advertising includes the writing, design and
development of concepts. When a concept has been approved by a client,
we supervise the production of materials necessary to implement it,
including film, video, print and electronic materials. Our advertising
programs involve various media, including television, magazines,
newspapers, cinema, radio, outdoor, electronic and interactive media. We
evaluate the choice of media to reach the desired market most
efficiently and monitor the effectiveness of the program. In the case of
global and regional campaigns, we plan and coordinate the implementation
of the program through the efforts of our worldwide account directors
and our networks of national agencies.
-- SAMS. The full range of specialized communication services we offer
complements our traditional advertising activities. Services provided by
our SAMS operations include:
-- Customer relationship management. Customer relationship management
(or "CRM") focuses on building clients' relationships with individual
customers through the use of direct marketing
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techniques and other means (as opposed to traditional advertising
services, which target groups of consumers or the public at large).
Through our CRM operations, we assist clients in creating programs to
reach individual customers and provide the appropriate tools and
database support to maximize the efficiency of those programs.
-- Sales promotion. Our sales promotion operations seek to increase sales
and awareness of clients' products and consumer loyalty through
point-of-sale promotions, coupon programs and similar means.
-- Specialized advertising services. Our specialized agencies provide
services that are generally similar to those offered by our traditional
agencies. Unlike traditional agencies, however, our specialized
operations focus on particular areas of advertising that have distinct
characteristics and require special knowledge and experience. We provide
specialized services primarily in the following areas:
-- Healthcare. We have a network of agencies, centered around Nelson
Communications, that work exclusively with clients in the healthcare
industry to reach consumers and doctors and other medical
professionals through advertising campaigns, medical conferences and
symposia and other means. These agencies also provide marketing
services such as public relations, consulting and sales personnel
recruitment and training.
-- Human resources communications. Through our human resources
operations, we create employee recruitment-related advertising,
including classified advertising and campaigns to improve a client's
overall image with prospective applicants, for companies seeking job
applicants and recruiting firms. We also assist clients in developing
internal communications programs.
-- Ethnic communications. Some of our agencies have developed expertise
in creating advertising and communications services aimed at
particular ethnic groups, particularly African-Americans and Hispanics
in the United States.
-- Media buying. Media buying services are often, though not always,
provided in conjunction with other advertising services. Through our
media buying operations, we analyze various media outlets, including
television, print, radio, internet and outdoor venues, and demographic
and ratings information. In light of this analysis, we help plan the
most effective means of pursuing an advertising or communications
strategy. We then book the media space necessary to implement the
strategy, using our experience and buying power to obtain favorable
rates for our client.
-- Media sales. We provide media sales services through Medias & Regies
Europe, as described under "-- Other Activities -- Medias & Regies
Europe."
-- Corporate and financial communications. We provide corporate and
financial communications services designed to help clients deliver their
message to investors and the public and, in particular, to help clients
achieve their goals in connection with mergers and acquisitions, initial
public offerings, spin-offs, proxy contests and similar matters. We also
provide services aimed at helping clients address the communications and
public relations aspects of publicized crises and other major events.
-- Public relations. Our public relations services are designed to assist
clients with the management of their ongoing relations with the press
and the public. These services include (i) strategic message and
identity development to help clients position themselves in their
markets and differentiate themselves from their competitors, (ii)
product and company launch or re-launch services, which aim to create
awareness of and position a product or company with customers and (iii)
media relations services, which help clients enhance their brand
recognition and image.
-- Design. Our design services are intended to enhance the visual symbols
that affect a client's image and to ensure that the design and
packaging of products are consistent with the means used to market
them.
15
-- Interactive communications. Our interactive communications services
consist primarily of website and intranet design, internet-related
direct marketing and related services and banner advertisement design.
Research programs
We have developed a number of programs designed to enhance the
effectiveness of our communications services by providing anthropological,
psychological and cultural insights into the behavior and attitudes of consumers
and other target audiences.
-- Advertising. Many of our research programs are directed towards helping
us develop and refine communications strategies for our clients. These
programs include the following:
-- Getting It Right Together. A strategic planning process developed
within the Publicis Worldwide network, Getting It Right Together is
designed to ensure that a viable strategic opportunity and/or brand
concept is identified before creative work is initiated;
-- Context Analysis. Context Analysis is a media screening tool used by
agencies in the Publicis Worldwide network involved in strategic
planning that uses sociological methods to track new trends and analyze
the way the media covers them;
-- Tweens. Tweens is a qualitative research tool intended to aid analysis
of teenager behavior and lifestyles. Tweens is used by agencies in the
Publicis Worldwide network;
-- The Ideas Brief. The Ideas Brief is a system developed by Saatchi &
Saatchi to help an agency identify ideas for transforming a client's
business, brand, and reputation. The system has three parts: the
"Equity Onion," which is used to identify a brand's core values or
essence, the "Brand Axle," used to identify the extent to which a brand
associated with one product can be successfully used to market other
products, and the "Brand Temple" for multi-product companies that use
several sub-brands;
-- The Ideas Toolkit. The Ideas Toolkit is a Saatchi & Saatchi program
that facilitates the monitoring of the effectiveness of a
communications program using anthropological and psychological methods;
and
-- Yurban. Yurban is a unit of Burrell Communications dedicated to
researching marketing strategies aimed at urban youth.
-- Media Buying. The Zenith Optimedia Group also maintains proprietary
research programs designed to maximize the effectiveness of our media
buying operations, including ZOOM (Zenith Optimisation of Media), a
series of tools used, among other things, to model the effectiveness of
proposed advertising campaigns, evaluate media outlets and media-use
strategies and track audience responses to major events. Optimedia
maintains tools with similar functions.
Organization
Major business units in our Communications division include the following:
-- Advertising Networks. Our primary networks -- Publicis Worldwide,
Saatchi & Saatchi Worldwide and Fallon Worldwide -- primarily provide
traditional advertising services, but each has some SAMS operations as
well.
-- Publicis Worldwide. This network is comprised of Publicis advertising
agencies in 83 countries around the world, including Europe, the United
States (where its agencies include Publicis & Hal Riney, Burrell and
Sanchez & Levitan), the Middle East, South Africa, the Asia-Pacific
region, Latin America and Canada. Its SAMS operations include Media
System, a provider of human resources communications operating in
France, and Publicis Dialog, a marketing services and interactive
communications unit with operations in 22 countries;
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-- Saatchi & Saatchi Worldwide. This network consists principally of
Saatchi & Saatchi agencies in 82 countries around the world. It also
includes the Facilities Group, a U.K. firm that provides a range of
technical and creative services in the areas of design, artwork, print
and audiovisual production, and Rowland Communications, a public
relations and corporate communications specialist with offices in the
United States and several countries in Europe.
-- Fallon Worldwide. The principal offices of this network are located in
Minneapolis, New York City and London. As part of our strategy of
developing Fallon Worldwide into a major global competitor, we opened
Fallon offices in Sao Paulo, Singapore and Hong Kong in 2001. Also
included in Fallon Worldwide is Duffy Design, a U.S. design firm.
-- SAMS-Centered Operations. Our other principal business units do not, in
general, provide traditional advertising services, but are instead
dedicated to particular SAMS disciplines.
-- The Zenith Optimedia Group. Zenith Optimedia conducts media buying
operations in 59 countries around the world. It has a strong presence
in the United Kingdom, the United States, Germany, France and Spain. We
own 75% of the Zenith Optimedia Group; Cordiant owns the remaining 25%.
-- Nelson Communications. This unit comprises the largest agency in the
United States devoted to healthcare communications, and forms the core
of one of the largest healthcare communications networks worldwide.
-- Frankel. Frankel is a marketing services firm, headquartered in
Chicago, that operates across the United States.
-- Publicis Consultants. Publicis Consultants is a specialized agency
focusing upon corporate communications, financial communications,
public relations and design. It has offices in the United States (where
its operations include Winner & Associates), as well as France and
elsewhere in Europe.
OTHER ACTIVITIES
MEDIAS & REGIES EUROPE
Medias & Regies Europe consists of all our media sales activities. We
conduct these activities, which are considered SAMS, in France and other
European countries. Medias & Regies Europe contributed approximately 5.4% of our
total revenue in 2001.
Medias & Regies Europe sells advertising space to advertising and media
buying firms on behalf of media companies. In some instances, it sells space to
advertising and media buying operations that are part of our Communications
division. It does so, however, on an arm's-length basis, dealing with those
businesses on the same terms as other customers. In 2001, approximately 89% of
our revenue in this category came from external clients; the remainder came from
clients of our Communications operations. Broken down by type of venue, our
primary Medias & Regies Europe activities are as follows:
-- Outdoor media. We place advertisements on billboards, in subways, at
bus stops and in other public venues primarily through Metrobus, which
operates in several French cities, Publex in Holland (a 50/50 joint
venture with JC Decaux, a French media company) and Publisistemas in
Spain.
-- Print. We place advertisements in major French newspapers and magazines
such as Le Monde, Liberation, EDJ, Pariscope, Marianne, Tele Z and Le
Nouvel Economiste.
-- Radio. Through Regie 1 in France and Intervoz Publicidade in Portugal,
we place radio advertisements on stations including Europe 1 in France.
-- Movie Theaters. We place cinema advertisements in movie theaters
through Mediavision, France's largest cinema advertising firm.
Mediavision has subsidiaries located in Brazil, Holland, Switzerland,
Italy, Spain and Poland.
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In 2001, Medias & Regies Europe generated 49% of its revenue from outdoor
media, 27% from print, 16% from radio and 8% from movie theaters.
OTHERS
We also operate the Champs-Elysees Drugstore, a shopping mall that includes
a bookstore, gift shops, a pharmacy, a restaurant and a movie theater. The
Drugstore is located on the first floor of our headquarters buildings on the
Champs-Elysees in Paris, near the Arc de Triomphe. The Drugstore is now closed
for extensive renovations designed to modernize its appearance. The renovations
are expected to cost approximately E16 million in total. The Drugstore is
expected to reopen in mid-2003.
COMPETITION
Our principal competitors include major international advertising and
communications groups such as Omnicom Group, Inc., the Interpublic Group, WPP
Group plc and Havas Advertising, independent local advertising agencies in
markets around the world and SAMS businesses that focus on specialized areas of
communications services.
Advertising and communications markets are generally highly competitive and
we continuously compete with national and international agencies for business.
Competition may increase in the near future as a result of multinational
clients' increasing consolidation of their advertising accounts with a very
limited number of firms.
GOVERNMENTAL REGULATION
Our business is subject to government regulation in France, the United
States and elsewhere. As the owner of advertising agencies operating in the
United States which create and place print, television, radio and internet
advertisements, we are subject to the U.S. Federal Trade Commission Act. This
statute regulates advertising in all media, including the internet, and requires
advertisers and advertising agencies to have substantiation for advertising
claims before disseminating advertisements. In the event that any advertising we
create is found to be false, deceptive or misleading, the Federal Trade
Commission Act could potentially subject us to liability.
In France, media buying activities are subject to the Loi Sapin, a law
intended to require transparency in media buying transactions. Pursuant to the
Loi Sapin, an advertising agency may not purchase advertising space from media
companies and then resell the space on different terms to clients. Instead, the
agency must act exclusively as the agent of its clients when purchasing
advertising space. The Loi Sapin applies to advertising activities in France
when both the media company and the client or the advertising agency are French
or located in France. We are not aware of any existing, or contemplated, similar
legislation in the other countries in which we operate.
Governmental authorities in a variety of countries have proposed
limitations on the collection and use of information regarding internet users.
In October 1998, the European Union adopted a directive that limits the
collection and use of information regarding internet users in Europe. In
addition to government activity, a number of industry and privacy advocacy
groups are considering various new, additional or different self-regulatory
standards. Because our marketing services activities rely on the collection and
use of client data, new regulations or standards imposed in this area could have
a material adverse impact on our operations.
SEASONALITY
Clients' advertising and communications expenditures typically fluctuate in
response to actual or expected changes in consumer spending. Because consumer
spending in many of our major markets is typically lower in the beginning of the
year (following the holiday season) and in July and August (the most popular
vacation months in Europe and North America) than at other times of the year,
advertising and communications expenditures are typically lower as well.
Accordingly, our results of operations are often stronger in the second and
fourth quarters of the year than they are in the first and third quarters.
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RAW MATERIALS
Our business is not typically affected in any material respect by changes
in the availability or prices of any raw materials.
MARKETING CHANNELS
We market our services primarily by analyzing the communications needs of
our clients and prospective clients and by demonstrating to such clients and
prospective clients how we propose to meet those needs. Our strong brands and
reputation are key elements of our marketing strategy.
ORGANIZATIONAL STRUCTURE
We conduct our operations primarily through the following subsidiaries:
COUNTRY OF OUR OWNERSHIP OUR VOTING
NAME INCORPORATION INTEREST INTEREST
---- ------------- ------------- ----------
Saatchi & Saatchi plc.......................... U.K. 100.00% 100.00%
Publicis Conseil S.A. ......................... France 99.61% 99.61%
Publicis Worldwide B.V. ....................... Netherlands 100.00% 100.00%
Publicis USA Holdings, Inc..................... U.S. 100.00% 100.00%
Medias & Regies Europe S.A. ................... France 99.99% 99.99%
PROPERTY, PLANTS AND EQUIPMENT
We conduct operations in 182 cities around the world. In general, we lease,
rather than own, the office properties we use. As of December 31, 2001, we owned
real property assets with a net book value of E54 million. Our principal real
property asset is the building we own and use as our headquarters at 133 avenue
des Champs-Elysees in Paris. We use approximately 12,000 square meters of office
space in the building for advertising and communications activities; an
additional 1,500 square meters is reserved for the Champs-Elysees Drugstore.
19
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this annual report. Our
financial statements have been prepared in accordance with French GAAP, which
differs in certain significant respects from U.S. GAAP. See note 29 to our
financial statements for (i) a discussion of the principal differences between
French GAAP and U.S. GAAP as they relate to us and (ii) a reconciliation to U.S.
GAAP of our net income and shareholders' equity as calculated under French GAAP.
The following discussion contains forward-looking statements that involve risks
and uncertainties, including, but not limited to, those described under "Key
Information -- Risk Factors."
Since the introduction of the euro on January 1, 1999, the functional and
reporting currency of our company has been the euro (see note 1 to our financial
statements). Prior to that date, the functional and reporting currency of our
company was the French franc. Consequently, prior periods have been restated
from French francs into euros using the official fixed exchange rate of E1 = FF
6.55957. These restated financial statements in euros reflect the same trends as
would have been presented if our company had continued to present financial
statements in French francs.
OVERVIEW
Our company grew dramatically in the 1999-2001 period, becoming one of the
six largest advertising and communications groups in the world. This growth
resulted both from acquisitions and from substantial improvements in the
performance of our existing businesses in terms of revenue and income. Revenue
grew 133.6% over the period and net income rose 104%. Organic growth in revenue
(i.e., growth excluding the effect of acquisitions/disposals and the effect of
changes in exchange rates) was approximately 10% per year on average for the
period due to new business and increased revenue from existing clients. Our
organic growth slowed considerably towards the end of the period as economic
conditions deteriorated. Our performance in generating organic growth, however,
consistently surpassed the market average.
Information concerning our principal acquisitions in the 1999-2001 period
is provided under "Information on the Company -- History and Development of the
Company -- Principal Capital Expenditures and Divestitures." Acquisitions added
51% per year to our revenue growth in 2000 and 34% in 2001. Among the
significant advertising or consultancy/media buying contracts we won in the
period were the following:
-- North America -- Citibank, Fuji Film USA, Sprint Broadband, Principal
Financial group, United Airlines, Bausch & Lomb, Siemens, VoiceStream,
CIBA Vision, Siebel and the Centers for Disease Control and Prevention
in the United States; CIBC and Molson Black Label in Canada. In
addition, General Mills significantly expanded the scope of the services
we provide it in the United States;
-- Europe -- Citibank, Vizzavi and Polo Ralph Lauren throughout Europe;
Areva, Jet Tours, the French Army and Helena Rubinstein in France;
Credito Italiano in Italy; Wilcon Homes, Mr. Kipling Cakes, The Post
Office, Six Continents Retail, Sony Digital and Toyota (dealerships) in
the United Kingdom; Nabisco and FC Barcelona in Spain; Wal-Mart, Alfred
Ritter chocolate and T-Mobile in Germany. We also won a contract with
the finance ministries of France, Germany and Holland to promote the
launch of the euro;
-- Asia/Pacific -- Renault and Guinness across the Asia-Pacific region;
Telstra, Gatorade, Novartis, Fairfax Newspapers and Lion Nathan Brewery
in Australia; Korea Telecom, Renault Samsung and Hankook Tires in Korea;
Adidas in Japan; i-STT in Singapore; Proctor & Gamble, Danone Dairy,
Danone Robust and Sony Consumer Electronics in China; the Sampoerna
group in Indonesia;
-- South America -- Carrefour, Polo Ralph Lauren, Sao Luiz and Tostines
biscuits in Brazil; and
-- Global/multi-country -- Allied Domecq, Ericsson, Club Med, UBS, United
Biscuits, Hewlett-Packard, Syngenta, Arc International, the Greek
national tourist office, the European Central Bank, Timberland, Sanofi
Synthelabo, Aspen Technology, Siemens-Infineon and Iberia.
Growth from these accounts more than offset the effect of lost
accounts -- according to Credit Suisse First Boston, in fact, our performance in
generating new business in 2001 was the third best in the world
20
among major advertising groups in terms of billings (see "Explanatory Note"
above for a description of the term "billings"). Our performance was recognized
by our colleagues in the advertising industry as well in the marketplace: At the
Cannes International Festival, for example, we won 28 "Lion" awards and placed
second overall. At the agency level, Saatchi & Saatchi shared first place.
OUTLOOK FOR 2002
We currently expect advertising and communication markets in many of the
areas in which we operate to experience little or no growth, or to decline
slightly, in 2002 as a result of the continuing effects of the factors that led
to the sharp declines of 2001. Although we believe that our growth will continue
to exceed that of advertising and communications markets generally, our results
will be influenced significantly by the overall economic climate. In view of
present economic circumstances, we anticipate a rebound in organic revenue
growth in the second half of 2002. Other factors that are likely to affect our
results of operations in 2002 include the following:
ACQUISITIONS
As described elsewhere in this annual report, we expect that our
acquisition of Bcom3 -- and the resulting formation of the world's fourth
largest communication company and second largest media consultancy and buying
group -- will, if completed, lead to greater revenue growth in the future. In
addition, we have continued to pursue our strategy of making selective
acquisitions and investments in other respects, concentrating mainly on SAMS, as
described under "Information on the Company -- History and Development of the
Company -- Principal Capital Expenditures and Divestitures." As with the Bcom3
merger, we expect these acquisitions to result in increased revenue and income
not only from the acquired operations themselves, but also from the synergies
created between them and our existing operations.
CREATION OF THE ZENITH OPTIMEDIA GROUP
On October 1, 2001, we announced that we and Cordiant had completed the
combination of Optimedia and Zenithmedia. Prior to the combination, Optimedia
was a wholly owned subsidiary of ours, while we and Cordiant each owned 50% of
Zenithmedia. The combined company, the Zenith Optimedia Group, is the world's
third largest media buying firm, handling $20 billion in media buying accounts
annually. We own 75% of the Zenith Optimedia Group, with Cordiant holding the
remaining 25%. We expect the combination to improve our results by allowing us
to pool resources and generate synergies in both new business development and
operating costs. As a result of the combination, Zenithmedia's results have been
consolidated in our financial statements from October 1, 2001. From September,
2000 (when we acquired our interest in Zenithmedia as part of the Saatchi &
Saatchi acquisition) until October 2001, we accounted for Zenithmedia using the
equity method.
NEW CONTRACTS
We expect to generate continued growth from contracts won in 2001,
particularly those listed above under "-- Overview." In addition, we have won a
number of new accounts since the beginning of 2002, including Sara Lee bakery
brands, Vivendi Universal and Real Networks in the United States; Tiscali in
Europe; Speedo in the United Kingdom; StarHub and Singapore Cable Vision in
Singapore; Sony in the Asia-Pacific region and Kia Motors in Canada. We believe
that the effect of these new contracts may offset accounts lost in late 2001 and
early 2002, which, as described below, included Saturn and Frito-Lay in the
United States.
DEBT REFINANCING
We issued two series of notes in December 2001 and January 2002:
-- 2.0% notes due 2007 -- the first issuance, effected on December 18,
2001, was of notes, due in January 2007, with an aggregate principal
amount of E200 million and bearing interest at 2.0% annually. Beginning
on June 30, 2003, each note will become exchangeable under specified
conditions
21
for a pro rata portion of 4,885,950 shares of stock we own in the
Interpublic Group. See "Quantitative and Qualitative Disclosures About
Market Risk" for further information concerning these notes.
-- 1.0% notes due 2018 -- the second issuance occurred on January 10, 2002.
These notes, which are due in January 2018 and bear interest at 1.0%
annually (2.75% yield to maturity), have an aggregate principal amount
of E690 million. These notes are, under specified circumstances,
convertible into our shares. See note 27 to our financial statements for
further information concerning these notes.
These issuances have allowed us to refinance a substantial portion of our
indebtedness, reduce our financing costs and increase our financial flexibility.
See "-- Capital Resources and Indebtedness."
RESTRUCTURING EXPENSES
We may incur restructuring expenses in 2002 in connection with staff
cutbacks at a number of agencies, particularly Fallon and Publicis & Hal Riney.
While it is impossible to project the amount of such expenses with any
certainty, our current estimates suggest they will be less than E5 million.
RETIREMENT OF CVRS
In March 2002, all the outstanding contingent value rights, or CVRs, we
issued to former shareholders of Saatchi & Saatchi in connection with the
Saatchi & Saatchi acquisition matured at an aggregate amount of approximately
E195 million. Under U.S. GAAP, the E30 million difference between the amount
paid to retire the CVRs and the fair value of the CVRs as of December 31, 2001
will be recognized as an expense in 2002. Under French GAAP, the entire E195
million is recorded as a liability on our December 31, 2001 balance sheet.
OTHER FACTORS
Among the factors that could cause our results of operations to differ
materially from our expectations are those described under "Key
Information -- Risk Factors."
BASIS OF PRESENTATION
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with
French GAAP, which requires the use of estimates and assumptions. We believe
that, of our significant accounting policies (which are summarized in note 1 to
our financial statements), the following involve the greatest degree of judgment
and complexity, and are therefore most likely to affect our net income
materially if various assumptions were changed significantly.
Allowance for doubtful accounts
Accounts receivable is presented net of our allowance for doubtful
accounts. The allowance for doubtful accounts is assessed based on past
experience, reviews of aging and analysis of specific accounts.
Property and equipment, goodwill and intangible assets
We amortize property and equipment, goodwill, and intangible assets over
their useful lives. Useful lives are based on our estimate of the period that
the assets will generate revenue. Assets are reviewed for impairment whenever
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
Deferred taxes
We record a valuation allowance to reduce our deferred tax assets to the
amount determined to be realizable. Significant management judgment is required
in assessing the amount of valuation allowance required. In the event we were to
determine that we would be able to realize our deferred tax assets in the
22
future in excess of our net recorded amount, an adjustment to the deferred tax
asset would increase income in the period such determination was made. Likewise,
should we determine that we would not be able to realize all or part of our net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period such determination was made.
CHANGE IN ACCOUNTING RULES
Beginning on January 1, 2000, our financial statements have been prepared
in conformity with new accounting rules applicable to consolidated financial
statements in France (nouvelles regles et methodes relatives aux comptes
consolides). The new rules were approved on June 22, 1999 and became effective
on January 1, 2000. The new rules differ from the rules previously applied in
terms of accounting for business combinations, deferred income taxes, assets
under capital leases, conversion of financial statements of foreign subsidiaries
and exchange rate differences on accounts receivable and payable stated in
foreign currencies. In accordance with the new rules, we have elected not to
restate retroactively our accounting for business combinations and disposals
completed in prior years.
The application of the new rules has been treated as a change in accounting
methods. Due to the insignificant impact of the change in accounting methods on
the financial statements for the year ended December 31, 1999, we have elected
not to present pro forma information for that year. However, our balance sheet
and income statements as of and for the year ended December 31, 1999 have been
presented in accordance with the presentation requirements of the new rules.
SCOPE OF CONSOLIDATION
Except where otherwise indicated, information regarding operations acquired
in the 1999-2001 period is included in our financial statements only from the
date of acquisition. For example, we include only four months of results for
Saatchi & Saatchi in our 2000 financial statements because we acquired it at the
beginning of September, 2000. We have not disposed of any material operations
since the beginning of 1999.
CONSOLIDATED OPERATIONS -- 2001 COMPARED TO 2000
OUR COMPANY AS A WHOLE
Revenue
We generated E2.43 billion in revenue in 2001, up from E1.77 billion in
2000, a 37.5% increase. Including Saatchi & Saatchi for 12 months and
Zenithmedia for three months in both 2000 and 2001, but excluding Nelson
Communications, which underwent major organizational changes, organic growth was
3.1%. This growth was significantly less than that generated in 2000, primarily
because of the general economic slowdown that occurred in several major markets
in 2001. Organic growth was particularly slow in the second half of the year,
dropping from 6.0% in the first quarter to 5.1% in the second, 1.6% in the third
and 0.5% in the fourth. Although lower than the previous year, our organic
growth in 2001 exceeded that of the advertising and communications market as a
whole, largely for the following reasons: First, a relatively large percentage
of our clients operate in industries where advertising expenditures are
relatively stable (for example, automobiles and consumer products). Second,
while we have extensive and growing operations in the United States, our
exposure to the U.S. economy is somewhat less than several of our major
competitors. Accordingly, the particularly difficult economic conditions
affecting the U.S. economy in 2001 had a less significant effect on our results.
Finally, we had a successful year in terms of winning new accounts: As noted
above, our performance in generating new business in 2001 was third best in the
world among major advertising groups in terms of billings.
Growth resulting from acquisitions (net of disposals) was 34% in 2001. The
inclusion of Saatchi & Saatchi and Nelson Communications for the full year
(rather than for four and two months, respectively), and
23
the inclusion of three months of results from Zenithmedia, accounted for the
majority of the growth in this category. Changes in exchange rates did not have
a significant impact on our 2001 revenue growth.
Expenses
Total operating expenses rose 39% to E2.0 billion in 2001, up from E1.45
billion in 2000. As a percentage of revenue, expenses rose from 82.1% to 83.2%,
due to increases in both payroll expenses (56% of revenue in 2001, up from 55.6%
in 2000) and other operating expenses (27.1% of revenue, up from 26.6%). In each
case, the increase resulted largely from the consolidation of recently-acquired
businesses with less favorable revenue/expense ratios than our existing
operations. We have undertaken cost-cutting measures at many of these businesses
and expect to improve their profitability significantly on a going-forward
basis. We also expect to reduce costs through a further integration of the
back-office operations of the Publicis and Saatchi & Saatchi Worldwide networks.
Financial income/expense
Our net financial expense was E30 million in 2001, up from E11 million in
2000. This sharp increase reflected the added debt we incurred in connection
with acquisitions made at the end of 2000 and in 2001 and a temporary increase
in our working capital requirements in the first half of 2001.
Income tax
We incurred income tax of E99 million in 2001, up from E92 million in 2000.
Our effective rate of tax was 32%, compared to 35% in the previous year and an
applicable statutory rate of 35.3%. The application of loss carryforwards at
Saatchi & Saatchi in the United States and the United Kingdom accounts for the
majority of both the decline from 2000 and the difference between the effective
and statutory rates.
Income from companies accounted for by the equity method
Our income from equity-method investments rose from E5 million in 2000 to
E9 million in 2001. This increase was due primarily to the inclusion of
Zenithmedia for eight months in 2001 but only four months in 2000. See
"-- Outlook for 2002 -- Creation of the Zenith Optimedia Group."
Exceptional income/charge
We took a net extraordinary charge of E3 million (after tax) in 2001. This
amount consists of the following after-tax amounts: (i) net restructuring
charges of E28 million (primarily severance payments related to staff cutbacks),
(ii) losses of E19 million relating to discontinued businesses (in particular,
losses associated with internet communications) and (iii) exceptional goodwill
amortization of E16 million relating largely to recently acquired
internet-related operations, partially offset by a E59.5 million extraordinary
capital gain that resulted from our effective contribution of a 25% interest in
Optimedia to the Zenith Optimedia Group.
Goodwill amortization
Amortization of goodwill amounted to E49 million in 2001, up from E33
million in 2000. This increase was the product of the numerous acquisitions we
made over the course of 2000 and 2001, particularly in the United States.
Minority interests
Income from minority interests fell from E31 million in 2000 to E19 million
in 2001, largely as a result of a decline in the income contributed by Medias &
Regies Europe.
24
Net income and earnings per share
As a result of all of the above, our net income including minority
interests rose 18% to E151 million in 2001. Excluding minority interests,
amortization of goodwill and extraordinary items, our net income was E200
million in 2001, a 32.5% increase from 2000's total of E151 million. Basic
earnings per share after taxes and before exceptional items and goodwill
amortization rose by 3% to E1.44, while diluted earnings per share after taxes
and before exceptional items and goodwill amortization came to E1.43, an
increase of 4% compared to 2000.
BY BUSINESS DIVISION
Communications
Our Communications division generated revenue of E2.3 billion in 2001, up
40.8% from 2000's total of E1.6 billion. This increase resulted primarily from
the inclusion of Saatchi & Saatchi and Nelson Communications in our financial
statements for the entire year and the inclusion of Zenithmedia for three
months. Organic growth generated by agencies in the Publicis Worldwide network
(6.4%) also contributed to the increase in revenue, offsetting contraction at
Frankel (-10%) and other agencies. Organic revenue growth in Communications was
7% in Europe, but was negative 1.2% in North America as a result of the general
economic downturn and the terrorist attacks of September 11. Communications
revenue grew 4% in the Asia/Pacific region and 11.6% in the rest of the world.
We closed FCA!BMZ, a European advertising network, merging its agencies into the
Publicis Worldwide and Saatchi & Saatchi Worldwide networks.
Other activities
Revenue generated by our other activities fell 3% in 2001, from E140.8
million to E136.6 million. This contraction resulted primarily from the
difficult business environment faced by Medias & Regies Europe in France. While
spending by French advertisers was strong in the first quarter, it declined
precipitously from that point, particularly with respect to print and movie
theater advertising. Overall, Medias & Regies Europe saw revenue fall by 2.5% to
E131.7 million, and income fall 19% to E13 million. By activity, its revenue was
down 17.1% in print (to E35.3 million) and 24% in movie theaters (to E10.5
million), but up 4.9% in outdoor advertising (to E64.6 million) and 23.5% in
radio (to E21 million). A significant decline in internet advertising led to a
loss of E400,000 at Medias & Regies Europe's interactive operations. Medias &
Regies Europe has decided to terminate those operations in 2002. Revenue from
the Champs-Elysees Drugstore declined from E5.8 million to E5.0 million. The
Drugstore closed for renovations at the end of December, 2001. The renovations
are expected to be completed in mid-2003.
BY GEOGRAPHICAL AREA
France
Revenue in France was E383 million in 2001, up 12% from 2000's total of
E342 million. This increase was due largely to a strong performance from
Publicis Conseil, which reported revenue of E211 million, an increase of 8.6%.
This more than offset the 2.5% decline in revenue at Medias & Regies Europe
described above.
Europe outside France
Excluding France, our revenue in Europe increased by 33.2% in 2001 to E714
million. This strong increase reflects primarily the inclusion of a full year of
results from Saatchi & Saatchi and three months of results from Zenithmedia.
Despite generally unfavorable economic conditions, organic growth was fairly
strong at 5.9%. Publicis Worldwide benefited from strong performances in the
United Kingdom, the Netherlands, Germany, Switzerland, Finland and Greece.
Revenue fell sharply, however, in Italy, Portugal and central Europe. Saatchi &
Saatchi experienced declines throughout Europe except Germany, where it won
several new accounts. Staff cutbacks were implemented in a number of countries,
particularly the United Kingdom, Germany and the Netherlands.
25
North America
Communications revenue in North America increased from E688 million in 2000
to E1,035 million in 2001, again largely due to the inclusion of results from
Zenithmedia and additional results from Saatchi & Saatchi. The economic slowdown
in the United States and elsewhere, together with disruptions in business
following the September 11 attacks, led to a decline in revenue on an organic
basis (-1.2%). U.S. organic revenue growth generated by agencies in the Publicis
Worldwide network was negative 3.2%, with Publicis & Hal Riney experiencing the
most severe change. This decline was partially offset by substantial growth from
Publicis agencies in Canada. Saatchi & Saatchi's revenue from the United States
fell slightly on an organic basis (-1.4%): Below-expectations growth from its
New York office offset successful performances by its Los Angeles office,
healthcare unit Klemtner and ethnic agency Conill Advertising. Revenue from
Fallon Worldwide's U.S. operations also fell markedly in 2001, in particular due
to drastic cuts in spending by travel-related clients. Among SAMS-centered
operations, Frankel and Nelson Communications both saw their U.S. revenue
decline due to poor business conditions, and, in the case of Nelson
Communications, the termination of some non-core operations. Zenithmedia and
Optimedia generated double-digit organic revenue growth, reflecting the gain of
a number of new accounts. Restructuring measures, including staff cutbacks, were
taken at a number of U.S. operations, and one office, Saatchi & Saatchi's office
in San Francisco, was closed. Two major account losses (Frito-Lay at Frankel in
late 2001 and Saturn at Publicis & Hal Riney in early 2002) may affect the
results of the relevant agencies in 2002. Staff cutbacks have continued into
2002 at some agencies, including Fallon's New York office.
Rest of world
In other areas of the world, we generated revenue of E302 million in 2001,
up 48% from E204 million in 2000, due again to the additional contribution of
Saatchi & Saatchi. On an organic basis, overall growth was 7.0%. In the
Asia/Pacific region, a strong performance by Saatchi & Saatchi partially offset
a contraction at Publicis Worldwide. Saatchi & Saatchi generated gains in China,
Japan, Malaysia and Thailand, which more than compensated for declines in
Australia, New Zealand, Singapore and India. Publicis operations in the
Philippines, New Zealand and Japan had successful years, but others in the
region saw their revenue contract. Revenue in the Middle East region grew 4.6%
to E43 million in 2001, with both Publicis and Saatchi & Saatchi agencies
recording gains despite declines in Israel. In Latin America, we generated E80
million in revenue, up 16% from 2000. Again, both the Publicis Worldwide and
Saatchi & Saatchi Worldwide networks contributed significantly to this growth.
Growth was strongest in Mexico, Brazil, Chile, Colombia, Venezuela and Puerto
Rico, offsetting contraction in Peru and Argentina. However, income generated
from the region fell, and Saatchi & Saatchi closed its Rio de Janeiro offices
following the loss of a major account.
CONSOLIDATED OPERATIONS -- 2000 COMPARED TO 1999
OUR COMPANY AS A WHOLE
Revenue
We generated E1.77 billion in revenue in 2000, up 69.8% from E1.04 billion
in 1999. Growth from acquisitions (net of disposals) was 46%, including 25%
resulting from the consolidation of Saatchi & Saatchi for the last four months
of the year. Organic growth was 15%, resulting from favorable business
conditions in most geographical areas, particularly substantially increased
expenditures by telecoms and technology firms. We were also successful in
winning new accounts: According to Credit Suisse First Boston, our performance
in generating new business in 2000 on a full year basis was the second best in
the world among major advertising groups in terms of billings. Organic growth
was 14.3% in our Communications businesses (primarily advertising) and 17% in
Medias & Regies Europe. Changes in exchange rates, particularly the decline of
the euro against the U.S. dollar, accounted for the remainder of the increase.
Expenses
Total operating expenses rose 67.7% to E1.45 billion in 2000 (up from E0.87
billion in 1999), principally due to the organic and acquisition-related growth
of our operations. Staff costs rose 70.8% to E984 million (representing 55.6% of
revenue), an increase slightly greater than the increase in revenue for the
year;
26
however, growth in other operating expenses of E179 million (61.5%) was
significantly less than revenue growth.
Financial income/expense
Our net financial expense was E11 million in 2000, compared to E9 million
in net financial income in 1999. This change was caused by a substantial
increase in our debt in connection with our significant acquisition program in
2000, particularly in the United States. Interest expense also rose as a result
of the implementation of a share repurchase program.
Income tax
We incurred income tax of E92 million in 2000, up from E65 million in 1999.
We also incurred additional taxes of E4 million in 2000 with respect to gains on
the sale of investments. Our effective rate of tax was 35%. This was slightly
lower than the statutory French rate of 37.8% due to our use of deferred tax
assets (which resulted from operating losses generated in prior years by some of
our subsidiaries) and the effect of different tax rates imposed in different
jurisdictions.
Income from companies accounted for by the equity method
Our income from equity-method investments rose from E2 million in 1999 to
E5 million in 2000. This increase was due primarily to the inclusion of four
months of results from Zenithmedia.
Exceptional income/charge
Our exceptional income was E15 million in 2000, up from E12 million in
1999. Our exceptional income in 2000 consisted largely of capital gains
generated by the disposal of a U.S. subsidiary of Mediavision.
Goodwill amortization
Goodwill amortization (excluding minority interest) in 2000 was E33
million, up from E19 million in 1999, primarily as a result of our substantial
acquisitions in 2000, particularly in the United States.
Minority interests
Income from minority interests rose from E21 million in 1999 to E31 million
in 2000. This increase was due to acquisitions, and corresponding increases in
the number of minority interests, and also to increased earnings from companies
in which we had pre-existing minority interests.
Net income and earnings per share
As a result of all of the above, our net income including minority
interests rose 67.4% to E159 million in 2000. Excluding minority interests, our
net income increased 72.9% to E128 million in 2000. Basic earnings per share
rose 38.8% (from E0.85 to E1.18); this increase trailed the rise in net income
on a percentage basis due to the substantial issuance of shares in the
acquisition of Saatchi & Saatchi. Diluted earnings per share rose from E0.84 to
E1.15, a 36.9% increase.
BY BUSINESS DIVISION
Communications
Our Communications division generated revenue of E1,635 million in 2000, up
77.2% over 1999. Acquisitions, particularly of Saatchi & Saatchi, Fallon and
Frankel, accounted for the majority of the increase. Substantial organic growth
was generated by Publicis agencies in Europe, Canada and the Asia-Pacific
region; Publicis & Hal Riney in the United States also recorded healthy growth.
Within Saatchi & Saatchi, revenue rose 11.6% over a 12-month period in 2000
(from E645 million to E720 million), largely as a result of strong performances
in the United Kingdom, Australia and Singapore.
27
Other activities
Revenue generated by our other activities grew 13.4% in 2000 to E135
million. Growth resulted from increased revenue in each category of Medias &
Regies Europe's services: print (where revenue rose 11.2% to E39.5 million),
radio (up 21.6% to E101 million), movie theaters (up 18.1% to E17 million) and
billboards (up 20.8% to E65 million). Our movie theater advertising operations
benefited from expansion into the Netherlands, Italy, Switzerland and Brazil.
The increase in our billboard advertising revenue was due largely to Metrobus,
which generated E33 million in revenue, up 31.6% from 1999. Revenue from the
Champs-Elysees Drugstore declined from E6.7 million to E5.8 million.
BY GEOGRAPHICAL AREA
France
Revenue in France was E342 million in 2000, up 16.3% from 1999's total of
E294 million. This increase was due largely to the organic growth of our
Communications and Medias & Regies Europe businesses. In our Communications
division, strong growth was recorded in Publicis Dialog Europe, Media System and
Publicis Consultants in direct marketing, human resources communications and
corporate communications, respectively. The results of these operations offset
weaker performances elsewhere. Medias & Regies Europe, where revenue was up
15.4% to E135 million, achieved good revenue growth in all its French
businesses.
Europe outside France
Excluding France, our revenue in Europe increased by 31% in 2000 to E536
million. Saatchi & Saatchi accounted for 16% of the increase and was the most
significant acquisition in this area. We also generated strong organic revenue
growth, predominantly in the United Kingdom, Germany, Spain, Italy and the
Netherlands. Our Communications businesses in Portugal and the Czech Republic
generated weaker than expected revenue.
North America
Growth in our North American revenue more than tripled, rising from E214
million in 1999 to E688 million in 2000. This gain was due primarily to the
acquisitions of Saatchi & Saatchi, Frankel and Fallon. The acquisition of Nelson
Communications had a more limited effect, as its results were consolidated for
only two months. We also generated substantial organic growth in communications
in the United States, particularly through Publicis & Hal Riney and some
Publicis Worldwide agencies. The income resulting from this growth was partially
offset by the costs of expanding operations at Fallon (through Fallon
Interactive, Brand Consulting and Duffy Design), Frankel (through its Siren and
BrandGuard units, which are described under "-- Research and Development") and
DeWitt Media (in connection with the launch of Optimedia in the United States).
Rest of world
In other areas of the world, we generated revenue of E204 million in 2000,
up from E126 million in 1999. Saatchi & Saatchi contributed E33 million of the
increase; other acquired companies such as Publicistas Asociados, Peru's leading
advertising agency in 2000, made significant contributions as well. The organic
growth was the product of strong performances across most of the Asia-Pacific
region, especially in Korea, Australia, Malaysia and Singapore. These
performances compensated for weakness in the Philippines market caused by
political instability and poor economic conditions in Argentina and South
Africa.
LIQUIDITY
We meet our need for liquidity primarily through a combination of cash
generated from operations and bank loans.
Net cash flow from operating activities reflects funds generated from
operations and changes in operating assets and liabilities. Net cash from
operating activities was E259 million in 2001, up from E228 million in 2000,
reflecting an increase in the size of our operations and a corresponding
increase in our income.
28
Net cash flow from investing activities includes acquisitions and
divestitures of intangible and tangible assets, acquisitions of businesses,
investments in companies accounted for using the equity method and net
differences in other investments and marketable securities. Net cash provided by
investing activities was E72 million in 2001, compared to net cash used in
investing activities of E656 million in 2000. Cash flow relating to acquisitions
was positive, as the E241 million cash surplus Zenithmedia had when we began to
consolidate it more than offset the E77 million in cash we used to acquire other
firms. Moreover, E77 million represented a significant reduction in the amount
of cash used in making acquisitions from 2000's total of E541 million.
Net cash flow from financing activities includes dividends, changes in debt
position and share repurchase programs. Net cash provided by financing
activities fell to E100 million in 2001 from E572 million in 2000, a change
resulting largely from a substantial reduction in the amount of new borrowings.
In January, 2002, we issued E690 million in principal amount of notes due 2018.
These notes bear interest at 1% annually, with a yield to maturity of 2.75%. The
notes are convertible into our shares; we can, at our option, satisfy this
conversion right with either new or existing shares.
There are no significant legal or economic restrictions on the ability of
our subsidiaries to transfer funds to us in the form of dividends, loans or
advances.
Currently unused sources of liquidity include 5,310,120 shares of stock we
own in the Interpublic Group. From 2003 until the end of 2007, our 2.0% notes
due 2007 will be exchangeable for an aggregate of 4,885,950 of those shares.
We expect that we will be able to satisfy our cash requirements for the
next 12 months from cash flow generated by operations and additional bank loans,
either new or under existing lines of credit. With respect to acquisitions made
in the ordinary course of our business, our general policy is to avoid dilution
of existing shareholders by using cash or treasury shares to make acquisitions,
although we may incur some additional indebtedness in connection with
acquisitions.
CAPITAL RESOURCES AND INDEBTEDNESS
As of December 31, 2001, we had total outstanding financial indebtedness of
E1,069 million, comprised of E549 million in bank loans, E200 million in
obligations under our 2.0% notes due 2007, E316 million of bank overdrafts and
E4 million in capitalized lease obligations. Our total financial indebtedness as
of December 31, 2000 was E901 million. The increase during 2001 resulted
primarily from acquisitions and a temporary increase in our need for working
capital. These factors were partially offset by the consolidation of
Zenithmedia, including its cash surplus of E241 million, in October, 2001.
Of the total indebtedness outstanding at the end of 2001, E758 million was
due within one year and the remainder was to become due within five years. Other
than our obligations under the 2.0% notes due 2007, the majority of our debt
bore interest at variable rates; the average annual interest rate for 2001 was
5.0%. Approximately 55% of the debt was denominated in euros and 31% was
denominated in U.S. dollars. We used the majority of the proceeds from the
issuance of our 1.0% notes due 2018 to refinance our short-term debt. As of
March 1, 2002, E255 million of such debt remained outstanding.
Our policy is to hold cash and cash equivalents in various currencies
corresponding to the exposure of our various subsidiaries around the world. As
we have only modest exposure to interest risk due to variable rate debt, we
generally do not use financial instruments to hedge this risk. We believe that
our currency exchange rate risk is minimal as most of our commercial
transactions are conducted in local currencies. See "Quantitative and
Qualitative Disclosures About Market Risk."
As described under "Information on the Company -- Business
Overview -- Seasonality," we often generate greater revenue in the second and
fourth quarters of the year than we do in the first and third quarters. As a
result, our financing needs are sometimes greater in the first and third
quarters.
COMMITMENTS FOR CAPITAL EXPENDITURES
Our capital expenditures (i.e., expenditures relating to (i) acquisitions
net of disposals and (ii) property, plant and equipment) in 2001 were negative
E72 million, compared to E656 million in 2000. Capital
29
expenditures relating to property, plant and equipment rose to E108 million from
E102 million in 2000, but expenditures relating to acquisitions went from E565
million to a surplus of E164 million (the E241 million cash surplus Zenithmedia
had when we began to consolidate it net of the E77 million we used in making
acquisitions). Expenditures associated with share repurchase programs amounted
to E120 million in 2001, up from E34 million in 2000. Because our management
board slated the shares repurchased in 2001 for use in our employee stock option
plans, those shares are included in our December 31, 2001 balance sheet under
the "cash and cash equivalents" heading.
RESEARCH AND DEVELOPMENT
As described under "Information on the Company -- Business
Overview -- Operating Divisions -- Communications -- Research Programs," we have
a variety of programs designed primarily to use psychological, anthropological
and other methods to assess and enhance the efficiency of our advertising and
communications services. In addition, we have developed a number of systems that
use advanced technology to address clients' needs, including Siren Technologies,
an in-store updateable digital signage system, and BrandGuard, an integrated
on-line marketing and communications system designed to enhance clients' control
of their brand assets.
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN FRENCH GAAP AND U.S. GAAP
Under U.S. GAAP, our net income (loss) amounted to E(647) million in 2001,
E34 million in 2000 and E73 million in 1999, compared to E151 million, E128
million and E74 million, respectively, under French GAAP. Under U.S. GAAP,
shareholders' equity amounted to E1,890 million at December 31, 2001, E2,622
million at December 31, 2000 and E580 million at December 31, 1999, compared to
E283 million, E299 million and E345 million, respectively, under French GAAP.
The differences between French GAAP and U.S. GAAP are more fully described
in note 29 to our financial statements. In terms of their effect on our net
income, the differences consist mainly of (i) the amortization of tangible
assets, intangible assets and goodwill related to the business combination with
Saatchi & Saatchi, which was treated as a purchase under U.S. GAAP but was
accounted for using the derogatory method under French GAAP (which is similar to
the pooling of interests method formerly available under U.S. GAAP), (ii) the
change in contingent value rights issued in connection with the business
combination with Saatchi & Saatchi, which is recognized in earnings under U.S.
GAAP and resulted in a charge of E69 million in 2001; under French GAAP, those
rights were not recorded as a liability until December 31, 2001, (iii) the
impairment charge of E584 million recognized in earnings to write down the
carrying value of the goodwill related to the acquisition of Saatchi & Saatchi
to fair value, (iv) restructuring charges capitalized as part of net assets
acquired for certain business combinations that are disallowed and charged to
expense in 2001 under U.S. GAAP, (v) changes in the fair values of certain
embedded derivatives inherent in our 2.0% notes due 2007, which are recognized
in earnings under U.S. GAAP, but are considered to be off-balance sheet
commitments under French GAAP, (vi) the impact of provisions recorded in our
French financial statements in prior years that were not in accordance with U.S.
GAAP requirements for recording provisions and contingencies and (vii)
compensation arrangements related to acquisitions, which were recorded using the
purchase accounting method in our French financial statements and are recorded
as compensation expense when incurred under U.S. GAAP.
In addition, classification differences between French GAAP and U.S. GAAP
also give rise to differences in operating income, relating in particular to the
amortization of goodwill.
The differences between French GAAP and U.S. GAAP in terms of their effect
on shareholders' equity at December 31, 2001, 2000 and 1999 relate primarily to
(i) the accounting for the business combination with Saatchi & Saatchi, which
was treated as a purchase under U.S. GAAP but was accounted for using the
derogatory method under French GAAP, (ii) the valuation of marketable
securities, which are recorded at fair value under U.S. GAAP and historical cost
under French GAAP, (iii) the impact of goodwill related to an acquisition in
1993 written-off to shareholders' equity under previous French accounting
guidance, and (iv) the fact that under U.S. GAAP, treasury shares are deducted
from shareholders' equity at the amount at
30
which they were repurchased, while under French GAAP, they are recorded as an
investment if they are reserved for issuance upon the exercise of stock options.
In connection with our acquisition of Saatchi & Saatchi, we acquired
approximately E503 million in net operating loss carryforwards related to former
Saatchi & Saatchi operations. These net operating loss carryforwards expire
between 2001 and 2011. In our French financial statements, deferred taxes were
not recognized with respect to these carryforwards due to uncertainty regarding
their recoverability. For U.S. GAAP purposes, deferred tax assets have been
recorded and a 100% valuation allowance has been provided because the
recoverability of the deferred tax assets was not considered to satisfy the
applicable "more likely than not" standard.
31
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
We have a two-tier management structure pursuant to which a management
board (directoire) manages our day-to-day affairs under the general supervision
of a supervisory board (conseil de surveillance), the members of which are
elected by shareholders. The members of our management board are also our senior
managers. We refer to members of the supervisory board and management board
collectively as "directors."
SUPERVISORY BOARD
The supervisory board has the responsibility of exercising whatever ongoing
supervisory authority over the management and operations of our company it deems
appropriate. Throughout the year it carries out such inspections as it considers
appropriate and is given access to any documents it considers necessary. The
supervisory board also reviews the annual accounts prepared by the management
board and presents a report on those accounts to the shareholders at the annual
shareholders' meeting. It authorizes the management board to take actions
related to strategic decisions, including those related to transactions that
could substantially affect the scope of our activities and significant
agreements. In addition, under French law, the supervisory board holds certain
specific powers, including the power to appoint the members of the management
board. Our statuts provide that each member is elected by the shareholders at an
ordinary general shareholders' meeting. Members of the supervisory board can be
removed from office by a majority shareholder vote at any time. They meet as
often as the interests of our company require. Pursuant to our statuts, each
member of the supervisory board must own at least 200 of our shares.
The following table sets forth, for each member of our supervisory board,
the member's current function in our company and principal business activities
outside of our company, the date the member's current term of office is
scheduled to expire and the date the member joined the supervisory board.
ELISABETH BADINTER
Initially appointed November 1987 (appointed as Chair of the
Supervisory Board in April 1996)
Expiration Date of Current
Term June 2006
Principal Function in Publicis Chair, Supervisory Board
Chair, Supervisory Board of Medias & Regies
Europe
Principal Business Activities Lecturer, Ecole Polytechnique, and author
Outside Publicis Chair of Somarel
ROBERT BADINTER
Initially appointed June 1996
Expiration Date of Current
Term June 2002
Principal Function in Publicis Director
Principal Business Activities Professor Emeritus, University of Paris I
Outside Publicis (Pantheon-Sorbonne)
SIMON BADINTER
Initially appointed June 1999
Expiration Date of Current
Term June 2005
Principal Function in Publicis Director
32
Director and Director of Development of Medias
& Regies Europe (U.S.A.)
Chair and Chief Executive Officer of Medias &
Regies America Inc. (U.S.A.)
Director of International Development -- Medias
& Regies Europe
Member of Management Board of Metrobus,
Intervoz Publicidade SA, Gestion Omni Media
Inc. (Canada) and Omni Cleveland Inc. (U.S.A.)
Principal Business Activities Member of the Management Board of Somarel
Outside Publicis
MONIQUE BERCAULT
Initially appointed June 1998
Expiration Date of Current
Term June 2004
Principal Function in Publicis Director
Technical Consultant to the Chair of Medias &
Regies Europe
Principal Business Activities None
Outside Publicis
MICHEL CICUREL
Initially appointed June 1999
Expiration Date of Current
Term June 2004
Principal Function in Publicis Director
Principal Business Activities
Outside Publicis Chair of the Management Board of Compagnie
Financiere Edmond de Rothschild Banque and
Compagnie-Financiere Saint-Honore
Chair of the Board of e-Rothschild Services
Director of Francarep
Member of the Board of Banque de Gestion Edmond
de Rothschild (Monaco), Banque Privee Edmond de
Rothschild (Geneva), LCF Rothschild Limited
(London), Compagnie Financiere Holding Edmond
et Benjamin de Rothschild (Geneva), Compagnie
de Tresorerie Benjamin de Rothschild (Geneva),
Bouygues Telecom, Cdb Web Tech (Italy), Cir
International (Luxembourg) and Rexecode
Permanent representative of Compagnie
Financiere Edmond de Rothschild Banque on the
board of Assurances Saint-Honore, Bollore
Investissement, E. de Rothschild Corporate
Finance, LCF Rothschild Asset Management, LCF
Rothschild Financial Services and Equity Vision
Permanent representative of
Compagnie-Financiere Saint-Honore on the board
of Cogifrance, Compagnie de Conseils des
Assurances Saint-Honore and FCC (BFM)
Member of the Silent Board of Rothschild & Cie
Banque
MICHEL DAVID-WEILL
Initially appointed June 1990
Expiration Date of Current
Term June 2002
33
Principal Function in Publicis Director
Principal Business Activities
Outside Publicis Chair of Lazard LLC
Chair and Chief Executive Officer of Lazard
Freres Banque
Chair and Managing Partner of Maison Lazard SAS
Managing Partner of Lazard Freres SAS
Managing Director of Lazard Freres & Co. LLC
(U.S.A.) and Lazard Brothers & Co. Ltd (U.K.)
Managing Partner of Partena and Partemiel
Manager of Parteman and Parteger
Member of the Board of Eurazeo and
Fonds-Partener-Gestion
Chair of the Board of Rue Imperiale
Vice President and Director of the Danone Group
Member of Investment Advisory Board of
Corporate Advisors LP (U.S.A.)
SOPHIE DULAC
Initially appointed June 1998 (appointed as Vice President in June
1999)
Expiration Date of Current
Term June 2004
Principal Function in Publicis Director, Vice President
Principal Business Activities Manager of Sophie Dulac Productions
Outside Publicis Chair of the Board of Les Ecrans de Paris
HELENE PLOIX
Initially appointed June 1998
Expiration Date of Current
Term June 2004
Principal Function in Publicis Director
Principal Business Activities Chair of Pechel Industries
Outside Publicis Member of the Board of Lafarge, Aquarelle.com
Group, The Boots Company (U.K.), Ferring BV
(Switzerland)
Permanent representative of Pechel Industries
on the board of Financiere d'Or, Quinette
Gallay, IDM, CVBG, Panoranet, CoSpirit, Xiring
and Homerider
FELIX GEORGE ROHATYN
Initially appointed June 2001
Expiration Date of Current
Term June 2007
Principal Function in Publicis Director
Principal Business Activities Chair of Aton Pharma Inc.
Outside Publicis Director of Comcast Corporation and Fiat SpA
Member of the Board of Suez and LVMH Moet
Hennessy Louis Vuitton
ROBERT SEELERT
Initially appointed June 1998
Expiration Date of Current
Term June 2006
34
Principal Function in Publicis Director, Chair of Saatchi & Saatchi
Principal Business Activities None
Outside Publicis
AMAURY-DANIEL DE SEZE
Initially appointed June 1998
Expiration Date of Current
Term June 2004
Principal Function in Publicis Director
Principal Business Activities Chair of COBEPA
Outside Publicis Member of the Board of Eiffage, International
Metal Service, Groupe Bruxelles Lambert, Groupe
Industriel Marcel Dassault, GIB Group, Power
Corporation du Canada and Pargesa Holding SA
Director of Gras Savoye
HENRI-CALIXTE SUAUDEAU
Initially appointed November 1987
Expiration Date of Current
Term June 2006
Principal Function in Publicis Director of Publicis Conseil
Director of Publicis Real Estate Department
Principal Business Activities None
Outside Publicis
GERARD WORMS
Initially appointed June 1998
Expiration Date of Current
Term June 2004
Principal Function in Publicis Director
Principal Business Activities
Outside Publicis Managing Partner of Rothschild et Cie Banque
and Rothschild et Cie
Chair of Chaine Thematique Histoire, S.G.I.M.
Member of the Board of Metropole Te1evision,
ODEO Degremont, Mercapital S.A., Paris-Orleans,
SIACI and Editions Atlas Director of Francarep
BUSINESS EXPERIENCE OF SUPERVISORY BOARD MEMBERS
ELISABETH BADINTER, born on March 5, 1944, is the daughter of Marcel
Bleustein-Blanchet. Ms. Badinter is a philosopher and lecturer at the Ecole
Polytechnique, and is the author of numerous books. She has been a member of our
supervisory board since 1987 and its chair since 1996.
ROBERT BADINTER, born on March 30, 1928, is the husband of Elisabeth
Badinter. Mr. Badinter has served as the president of France's Constitutional
Court. He has also been a practising attorney. He is now a professor of law at
the Paris I University (Pantheon Sorbonne).
SIMON BADINTER, born on June 23, 1968, is the son of Elisabeth Badinter and
Robert Badinter. Mr. Badinter joined Medias & Regies Europe 1991. He was
appointed director of Medias & Regies Europe's international business
development department in 1996.
35
MONIQUE BERCAULT, born on January 13, 1931, has held a variety of positions
with our company since joining us in 1953. In 1972, she was named head of human
resources at the predecessor company of Medias & Regies Europe.
MICHEL CICUREL, born on September 5, 1947, is currently chair of Compagnie
Financiere Edmond de Rothschild Banque and Compagnie-Financiere Saint-Honore. He
was previously a senior official in the French Treasury Department, after which
he served as deputy general manager of Compagnie Bancaire, general manager of
Cortal Bank, president of Dumenil-Leble Bank and administrator, general manager
and vice president of Cerus.
MICHEL DAVID-WEILL, born on November 23, 1932, has held a variety of senior
positions in the Lazard group, which he joined in 1961. Among other things, he
is currently chair of Lazard LLC, chair and chief executive officer of Lazard
Freres Banque and chair and managing partner of Maison Lazard SAS. He is also
currently a vice president and director of the Danone Group.
SOPHIE DULAC, born on December 26, 1957, is the niece of Elisabeth Badinter
and granddaughter of Marcel Bleustein-Blanchet. Ms. Dulac is the founder and
manager of a recruitment counselling company. She has been a member of our
supervisory board since 1997 and a vice president of our company since 1999.
HELENE PLOIX, born on September 25, 1944, has served as president of the
Banque Industrielle et Mobiliere Privee, adviser to the French Prime Minister,
director of the International Monetary Fund and the World Bank, deputy general
manager of the Caisse des Depots et Consignations and president of the Caisse
Autonome de Refinancement and CDC Participations. She has been president of
Pechel Industries since 1997.
FELIX GEORGE ROHATYN, born on May 29, 1928, served as the U.S. Ambassador
to France from 1997 until 2000. He had previously been a managing director of
Lazard Freres and Company. He joined Lazard Freres in 1948 and became a partner
there in 1961. From 1968 to 1972, he also served as a member of the Board of
Governors of the New York Stock Exchange. From 1975 to 1993, he was chair of the
Municipal Assistance Corporation of the City of New York.
ROBERT SEELERT, born on September 1, 1942, worked from 1966 to 1989 for
General Foods Corporation, serving as president and chief executive officer of
its Worldwide Coffee and International Foods subsidiary from 1986 until 1989. He
served as president and chief executive officer of Topco Associates, Inc. from
1989 to 1991 and held the same positions for Kayser Roth Corporation from 1991
to 1994. He became chief executive officer of Cordiant in 1995 and took the same
position with Saatchi & Saatchi in 1997. He was appointed chair of Saatchi &
Saatchi in 1999.
AMAURY-DANIEL DE SEZE, born on May 7, 1946, has held senior operating and
management positions in a number of major companies. He was appointed general
manager of Volvo France in 1981 and served as chair from 1986 to 1993. From 1990
to 1993, he was also president of Volvo's European operations, senior vice
president of AB Volvo and a member of the executive committee of the Volvo group
(AB Volvo). He has served on the boards of the French Postal Service, Schneider,
Sema Group, Bruxelles Lambert Group, Poliet, Clemessy, Compagnie de Fives Lille
and Eiffage, among others.
HENRI-CALIXTE SUAUDEAU, born on February 4, 1936, joined our company in
1989 and served as president of our Drugstore subsidiary until 1999. Prior to
1989, he was an estate administrator and real estate valuation consultant for
the French court system. He has led our real estate department since 1997.
GERARD WORMS, born on August 1, 1936, began his career as a technical
adviser in the French civil service. Beginning in 1972, he held general
management positions at the Hachette Group, the Rhone Poulenc Group and then at
Societe Generale de Belgique. From 1990 to 1995, he served as chair and chief
executive officer of the Compagnie de Suez and chair of the Indosuez Bank. From
1995 to 1999, he was chair of the Conseil des Commanditaires of Rothschild et
Cie Banque (Paris).
36
MANAGEMENT BOARD
Under French law, the management board has broad powers to act on behalf of
our company to further our corporate purposes, subject to those powers expressly
granted by law to the supervisory board and to our shareholders. The management
board must obtain the authorization of the supervisory board to enter into
certain transactions. However, these restrictions cannot be used to rescind a
transaction with a third party who has entered into the transaction in good
faith.
Pursuant to our statuts, the management board must have at least two but no
more than five members. Our supervisory board may fill any vacancies on the
management board within two months. The supervisory board also appoints one of
the members of the management board as chair. Under French law, the chair of the
management board is appointed and may be removed as chair (but not as a member
of the management board) at any time by the supervisory board with or without
cause. A member of our management board may be removed by the shareholders or by
the supervisory board. The management board meets as often as the interests of
our company requires. Under French law, members of the management board must be
natural persons, but need not be shareholders of our company. There is no
limitation, other than applicable age limits, on the number of terms that a
member of the management board may serve.
The following table sets forth, for each member of our management board,
the member's current function in our company and principal business activities
outside of our company, the date the member's current term of office is
scheduled to expire and the date the member joined the management board.
MAURICE LEVY
Initially appointed November 1987
Expiration Date of Current
Term December 2003
Principal Function in Publicis Chair of the Management Board
Chair and Chief Executive Officer of Publicis
Conseil, MLMS, Publicis.Net, Inc. (U.S.A.),
Publicis USA Holdings, Inc. (U.S.A.)
Vice President of the Supervisory Board of
Medias & Regies Europe
Member of the Board of Publicis.Eureka
(Singapore), Publicis.Romero (Mexico), Publicis
Communication (South Africa), Publicis
Johannesburg (South Africa), Publicis Cape Town
(South Africa), Publicis.Capurro (Argentina),
Publicis Communications (Australia), Publicis
Communications (New Zealand), Publicis
(Canada), Publicis.Unitros (Chile),
Publicis.Welcomm (Korea), Publicis.Ariely
(Israel), Publicis USA Holdings, Inc. (U.S.A.),
Fallon Worldwide (U.S.A.), Frankel (U.S.A.),
Publicis & Hal Riney (U.S.A.), Publicis.Wet
Desert (Malaysia), Publicis.Pakistan
(Pakistan), Publicis.Ad-Link (China), Publicis
Casadevall Pedreno (Spain) and Publicis MMS
(U.K.)
Director of Publicis Centre Media and Cereol
Manager of MLMS Gestion
Permanent Representative of Publicis Groupe SA
on the board of Publicis Technology
Permanent Representative of Publicis Conseil on
the board of Verbe
Permanent Representative of Publicis.Net, Inc.
on the board of Publicis e.brand
Permanent Representative of MLMS Gestion on the
board of MLMS 2
37
Principal Business Activities None
Outside Publicis
BRUNO DESBARATS-BOLLET
Initially appointed November 1987
Expiration Date of Current
Term December 2003
Principal Function in Publicis Director
Chief Executive Officer of Medias & Regies
Europe
Director of MLMS 2
Member of the Board of MLMS and S.O.P.A.C.T.
Member of the Management Committee of SAS Le
Monde 2 Publicite and SAS 1-Regie.com
Manager of Regie 1, Espaces Liberation,
Regiscope and Consumer Medias
Permanent Representative of Medias & Regies
Europe on the board of Le Monde Publicite,
SO.MU.PI, SAS Groupe Publicis Services,
Intervoz Publicidade (Portugal), Metrobus,
Mediavision SA, Promo Metro, S.M.A., SODEX and
S.P.P.
Principal Business Activities None
Outside Publicis
KEVIN ROBERTS
Initially appointed September 2000
Expiration Date of Current
Term December 2003
Principal Function in Publicis Director
Chief Executive Officer of Saatchi & Saatchi
Principal Business Activities Trustee -- Team New Zealand
Outside Publicis
BERTRAND SIGUIER
Initially appointed June 1999
Expiration Date of Current
Term December 2003
Principal Function in Publicis Director
Director of Publicis BCP (Canada), Publicis &
Hal Riney (U.S.A.), Publicis (Italy), Optimedia
Italia / More Media Italia, Carmi & Ubertis
Design (Italy), Publicis Hellas Advertising
(Greece) and Publicis Worldwide B.V.
(Netherlands)
Member of the Board of Publicis Cachemire,
Publicis Technology, Gantois SA and HM Editions
Permanent Representative of Publicis.Net, Inc.
on the board of Institutionnel Design
Principal Business Activities None
Outside Publicis
38
BUSINESS EXPERIENCE OF MANAGEMENT BOARD MEMBERS
MAURICE LEVY, born on February 18, 1942, joined our company in 1971 and was
given responsibility for our data processing and information technology systems.
He was successively appointed corporate secretary (1973), managing director
(1976) and chair and chief executive officer (1981) of Publicis Conseil. He
became vice chair of our company in 1986 and chair of our management board in
1988.
BRUNO DESBARATS-BOLLET, born on June 6, 1943, began working for Publicis
Conseil in 1970. He was appointed director of client service at Regie Presse,
since renamed Medias & Regies Europe, in 1977. He became administrator, general
manager and president of Regie Presse in 1984. His title became president of the
management board of Medias & Regies Europe in 1999. He has served as a member of
our management board since 1987.
KEVIN ROBERTS, born on October 20, 1949, joined Saatchi & Saatchi Worldwide
as chief executive officer and Cordiant as a director in 1997. In 1999, he
became chief executive officer of Saatchi & Saatchi. Mr. Roberts had previously
been a group marketing manager for Procter & Gamble, which he left in 1982 to
become regional president of Pepsi-Cola Middle East. In 1987, he was appointed
regional president of Pepsi-Cola Canada. He became chief operating officer and
director of Lion Nathan Limited in 1989.
BERTRAND SIGUIER, born on June 10, 1941, was a financial analyst at the
Neuflize Schlumberger Mallet Bank from 1967 to 1969. He joined our account
management department in 1969. Throughout his tenure with us, Mr. Siguier has
been involved with managing some of our most important client accounts. He
served as deputy manager and international coordinator of Publicis Intermarco
Farner from 1974 until 1979, when he became deputy managing director of our
agency in London. He joined the board of directors of Publicis Conseil in 1982,
serving there until his appointment as vice president of Publicis Communication
in 1988. He has been a member of our management board since 1999.
ADDITIONAL INFORMATION
Except as noted above: (i) there are no familial relationships between any
of our directors, (ii) none of our directors were selected pursuant to
arrangements or understandings with major shareholders, customers, suppliers or
others and (iii) we have no agreements with any of our directors providing for
benefits to be paid upon termination of employment, nor do any of our
subsidiaries have any such agreements, except that we have a five year
employment agreement with Kevin Roberts, and a three year employment agreement
with Robert Seelert, pursuant to which we would continue to provide salary and
other benefits to the applicable director within the contract period if we
terminate his employment for reasons other than those agreed upon in his
contract.
COMPENSATION
Our directors as a group (which, as noted above, includes our senior
managers) received aggregate compensation during the 2001 fiscal year of
approximately E5.5 million for services to our company and its subsidiaries.
This amount includes bonuses and directors' fees. Bonuses are paid to members of
our management board based upon an analysis of our performance for the year
conducted by our compensation committee. We granted our directors as a group
220,000 options in 2001. These options have an exercise price of E33.18 and will
expire in 2011. In addition, we conditionally granted our directors as a group
278,057 options, each with an exercise price of E29.79. The conditional grant
will be finalized upon the satisfaction of specified performance goals. The
conditionally granted options will expire 10 years after a determination that
the applicable goals have been reached. We did not set aside or accrue any funds
to provide pension, retirement or similar benefits for our directors in their
capacities as such during the 2001 fiscal year.
BOARD PRACTICES
Our supervisory board has established an appointments and remuneration
committee and an audit committee. The appointments and remuneration committee is
currently comprised of Elisabeth Badinter,
39
Henri-Calixte Suaudeau and Gerard Pedraglio. Elisabeth Badinter chairs the
committee. The committee reviews, and makes recommendations to the supervisory
and management boards concerning, the appointment of managers of our company and
our principal subsidiaries and the remuneration of those managers.
The audit committee is comprised of Gerard Worms, Simon Badinter and
Jean-Paul Morin. Gerard Worms chairs the committee. The committee oversees the
organization and execution of our audits with a view to ensuring the consistency
and accuracy of the financial statements and reviews our financial procedures
and the implementation of recommendations of our external auditors. The audit
committee is also responsible for approving the budget for external audits.
EMPLOYEES
As of December 31, 2001, we employed approximately 20,592 people worldwide:
AT DECEMBER 31, 2001
APPROXIMATE NUMBER
OF EMPLOYEES
--------------------
Communications.............................................. 19,373
Other Activities............................................ 1,219
Our employees are distributed geographically as follows:
France...................................................... 3,521
Rest of Europe.............................................. 6,183
Northern America............................................ 6,372
Rest of World............................................... 4,516
Our employees' membership in trade unions varies from country to country,
and we are party to numerous collective bargaining agreements. As is generally
required by law, we renegotiate our labor agreements in Europe annually in each
country in which we operate. There is no material level of trade union
membership in our U.S. operations. We believe that our relationship with our
employees is good.
SHARE OWNERSHIP
Except as described under "Major Shareholders and Related Party
Transactions -- Major Shareholders," none of our directors owns 1% or more of
our shares. Our directors as a group directly own approximately 6.3% of our
shares. See "Major Shareholders and Related Party Transactions -- Major
Shareholders" for further information concerning ownership of our shares by
certain of our directors. Our directors as a group also own options to purchase
841,227 of our shares. These options have exercise prices ranging from E4.9 to
E33.18 per share and will expire between 2005 and 2015.
We have a number of stock option plans for the benefit of our directors,
managers and other employees. In addition, before we acquired them, Saatchi &
Saatchi and Nelson Communications had in place stock option plans for their
directors and employees. When the acquisitions of each of those firms was
completed, options under the relevant plans were converted into options to
purchase our shares. See notes 26 and 29 to our financial statements for a
summary of each of the plans we currently maintain.
40
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
As of June 1, 2002, to the best of our knowledge, no person holds 5% or
more of our shares, except as described below. All our shareholders have the
same proportional voting rights with respect to the shares they hold, except
that shares owned by the same shareholder in registered form for at least two
years carry double voting rights.
Below we show the number of our shares held by certain shareholders, and
the percentage ownership in our company of those shareholders, as of December
31, 2001.
PERCENTAGE OF
SHAREHOLDER SHARES HELD TOTAL SHARES
----------- ----------- -------------
Societe Anonyme Somarel..................................... 30,960,000 22.18%(1)
Elisabeth Badinter.......................................... 7,766,800 5.56%(1)(2)
Treasury Stock.............................................. 4,630,000 3.32%
---------------
(1) Does not reflect the effect on voting power of the double voting rights
provision of our statuts referred to above. Including the effect of that
provision, Somarel held 35.61% of our total voting power and Ms. Badinter
held 8.93% (or 44.54% if the voting power of all shares held by Somarel is
included).
(2) Does not include Ms. Badinter's indirect interest in our company held
through Somarel. Including her pro rata portion of the shares held by
Somarel, her interest in our company was 16.93%.
Below we show the percentage ownership in our company of the persons listed
above, and one additional shareholder, as of December 31, 1998, 1999 and 2000.
PERCENTAGE OF
TOTAL SHARES
------------------
SHAREHOLDER 1998 1999 2000
----------- ---- ---- ----
Societe Anonyme Somarel..................................... 34.5% 32.8% 22.4%
The Putnam Company.......................................... -- 5.4% 6.8%
Elisabeth Badinter(1)....................................... 8.7% 8.2% 5.6%
Treasury Stock.............................................. 1.2% 4.4% 5.1%
---------------
(1) Does not include Ms. Badinter's indirect interest in our company held
through Somarel. Including her pro rata portion of the shares held by
Somarel, her percentage ownership of our company as of December 31, 1998,
1999 and 2000 was 22.8%, 22.3% and 15.2%, respectively.
SOMAREL
Somarel is owned primarily by descendants of our founder, Marcel
Bleustein-Blanchet, and our current and former directors and employees. To the
best of our knowledge, approximate ownership of Somarel's ordinary shares is
currently as follows:
-- Elisabeth Badinter and her children (see below) -- 51.29%;
-- Publicis employees -- 18.55%;
-- Institutional investors -- 18.55%;
-- Sophie Dulac -- 7.98%;
-- Michele Bleustein-Blanchet, daughter of Marcel
Bleustein-Blanchet -- 2.42%; and
-- Nicolas Rachline, grandson of Marcel Bleustein-Blanchet -- 1.21%.
41
Elisabeth Badinter holds the "usufruct" interests in the indicated shares
of Somarel, and each of her three children -- one of whom is Simon
Badinter -- hold the "bare legal title" to one-third of those shares. Generally,
the bare legal title in a share carries the right to vote at extraordinary
general meetings of shareholders and makes its holder the record holder of the
share. The usufruct interest carries other voting rights and the right to
receive dividends associated with the share.
All Somarel shareholders are party to a shareholders' agreement pursuant to
which they will agree to approve a merger of Somarel into our company by June
30, 2003 at the latest. In the merger, the Somarel shareholders will exchange
their shares for an economically equivalent number of shares of our company.
VOTING POWER OF FOUNDING FAMILY, DIRECTORS AND STAFF
Giving effect to the provision of our statuts that gives double voting
rights to shares owned by the same shareholder in registered form for at least
two years, we estimate that at least 45% of the voting power of our company is
held by descendants of Marcel Bleustein-Blanchet and our directors and
employees. To the best of our knowledge, our company is not directly or
indirectly owned or controlled by another corporation or any governmental
entity.
OWNERSHIP BY U.S. HOLDERS
To the best of our knowledge, as of December 31, 2001, approximately 17.9
million, or 12.8%, of our shares (including shares represented by ADSs) were
held in the United States by approximately 500 holders.
RELATED PARTY TRANSACTIONS
Except as described under "Directors, Senior Management and
Employees -- Directors and Senior Management -- Additional Information," our
company (inclusive of its subsidiaries) has not, since January 1, 2000, engaged
in any material transactions with related parties, nor has it agreed to engage
in any such transactions.
42
ITEM 8: FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
See our financial statements.
LITIGATION
In the ordinary course of our business, we are named, from time to time, as
a defendant in various legal proceedings. We maintain liability insurance and
believe that our coverage is sufficient to protect us adequately from any
material financial loss as a result of any legal claims made against us.
DIVIDEND POLICY
On July 10, 2002, we paid a dividend of E0.22 per share, plus a tax credit
of E0.11 per share, with respect to the 2001 fiscal year. This represents a 13%
increase over the dividend paid with respect to the 2000 fiscal year. Our
current intention is to continue our dividend growth in order to reach a
dividend yield close to the average for stocks listed on Euronext Paris. The
payment and amount of any future dividends will depend on a number of factors,
including our financial performance and net income, general business conditions
and our business plans and investment policies. See "Additional
Information -- Memorandum and Articles of Association -- Rights, Preferences and
Restrictions Applicable to Our Shares -- Dividends."
SIGNIFICANT CHANGES
See "Operating and Financial Review and Prospects -- Outlook for 2002."
43
ITEM 9: THE OFFER AND LISTING
OFFER AND LISTING DETAILS
MARKET PRICE INFORMATION
Our shares trade on Euronext Paris and, since September 12, 2000, our ADSs
have traded on the New York Stock Exchange. The tables below set forth, for the
periods indicated, the reported high and low sales prices of our shares on the
Euronext Paris in euros and the reported high and low sales prices of our ADSs
on the New York Stock Exchange in dollars.
EURONEXT PARIS NYSE
--------------- -------------
HIGH LOW HIGH LOW
------ ------ ----- -----
LAST SIX MONTHS
June, 2002.................................................. 32.69 24.51 30.55 25.50
May, 2002................................................... 34.75 31.11 31.50 28.80
April, 2002................................................. 39.90 32.80 34.47 29.95
March, 2002................................................. 39.45 30.30 34.95 26.87
February, 2002.............................................. 30.52 26.85 26.35 23.00
January, 2002............................................... 32.85 26.80 29.22 23.75
LAST TWO YEARS BY QUARTER
2002
Second Quarter............................................ 39.90 24.51 34.47 25.00
First Quarter............................................. 39.45 26.80 34.95 23.00
2001
Fourth Quarter............................................ 33.20 15.83 29.25 14.75
Third Quarter............................................. 30.70 16.12 26.45 16.40
Second Quarter............................................ 38.77 27.50 34.40 23.90
First Quarter............................................. 39.27 31.35 36.88 28.00
2000
Fourth Quarter............................................ 41.89 29.10 36.25 25.75
Third Quarter............................................. 45.89 33.50 -- --
Second Quarter............................................ 57.00 37.05 -- --
First Quarter............................................. 69.70 33.00 -- --
LAST FIVE YEARS
2001........................................................ 39.27 15.83 36.88 14.75
2000........................................................ 69.70 29.10 37.44 25.75
1999........................................................ 38.50 11.70 -- --
1998........................................................ 16.48 7.29 -- --
1997........................................................ 9.71 6.88 -- --
We urge you to obtain current market quotations.
44
ITEM 10: ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
OBJECTS AND PURPOSES
Under Article 2 of our statuts, our corporate purposes are to:
-- produce and develop publicity;
-- organize shows and radio or television broadcasts, set up radio,
television and other programs, use movie theaters, recording or
broadcasting studios and projection and viewing rooms, publish documents
and publish music, sketches, scripts and theater productions; and
-- carry out commercial, financial, industrial and real and movable
property transactions directly or indirectly related to the above in
order to foster our growth.
We may also acquire interests in other businesses, regardless of such
businesses' purposes.
DIRECTORS
Our statuts provide that a member of our supervisory board must own at
least 200 of our shares for as long as he or she serves as a director. Members
of our management board are not required to own any of our shares.
Each director is eligible for reappointment upon the expiration of his or
her term of office. Members of the supervisory board serve six year terms.
Members over 75 years of age may not constitute more than one-third of the
supervisory board. Should this limit be exceeded, the oldest member of the
supervisory board will automatically be retired. Members of the management board
serve four year terms. No member of the management board may serve after the
ordinary shareholders' meeting following his or her 70th birthday. The members
of the management board may be dismissed either by the supervisory board or by
the shareholders at a general meeting. The members of the supervisory board may
be dismissed only by the general meeting of shareholders.
Under the French commercial code, any transaction directly or indirectly
between a company and one of its directors that cannot be reasonably considered
in the ordinary course of business of the company is subject to the prior
consent of the supervisory board. Any such transaction concluded without the
prior consent of the supervisory board can be nullified if it causes prejudice
to the company. An interested director, or a person acting on the director's
behalf, can be held liable on this basis. The statutory auditor must be informed
of the transaction within one month following its conclusion and must prepare a
report to be submitted to the shareholders for approval at their next meeting.
At the meeting, the interested director may not vote on the resolution approving
the transaction, nor may his or her shares be taken into account in determining
the outcome of the vote or whether a quorum is present. In the event the
transaction is not ratified by the shareholders at a shareholders' meeting, it
will remain enforceable by third parties against the company, but the company
may in turn hold the interested director and, in some circumstances, the other
directors, liable for any damages it may suffer as a result. In addition, the
transaction may be canceled if it is fraudulent. In the case of transactions
with directors that can be considered within the company's ordinary course of
business, the interested director must provide a copy of the governing agreement
to the chair of the supervisory board, and the members of the supervisory board
and the statutory auditor must be informed of the principal terms of each such
transaction. Similar limitations apply to transactions between a company and a
holder of shares carrying 5% or more of its voting power (or, if such
shareholder is a legal entity, the entity's parent, if any). Certain
transactions between a corporation and one of its directors are prohibited under
the French commercial code. Members of our supervisory board are not authorized,
in the absence of a quorum, to vote compensation to themselves or other
supervisory board members.
45
RIGHTS, PREFERENCES AND RESTRICTIONS APPLICABLE TO OUR SHARES
DIVIDENDS
Dividends on our shares are distributed to shareholders pro rata.
Outstanding dividends are payable to shareholders on the date of the
shareholders' meeting at which the distribution of dividends is approved,
subject to any conditions imposed by the shareholders at the meeting. The
dividend payment date is decided by the shareholders at an ordinary general
meeting (or by the management board in the absence of such a decision by the
shareholders). Under the French commercial code, we must pay any dividends
within nine months of the end of our fiscal year unless otherwise authorized by
court order. Subject to certain conditions, our management board can effect the
distribution of interim dividends at any time until our financial statements for
the relevant year are approved by shareholders. Dividends on shares that are not
claimed within five years of the date of declared payment revert to the French
government.
VOTING RIGHTS
Each of our shares carries the right to cast one vote in shareholder
elections, except that a share held by the same shareholder in registered form
for at least two years carries the right to cast two votes. There is no
requirement in the French commercial code or our statuts that requires directors
to serve concurrent terms. Accordingly, fewer than all of the members of our
supervisory board will ordinarily stand for reelection at any particular
shareholders' meeting.
LIQUIDATION RIGHTS
If our company is liquidated, any assets remaining after payment of our
debts, liquidation expenses and all of our remaining obligations will be
distributed first to repay in full the nominal value of our shares. Any surplus
will be distributed pro rata among shareholders in proportion to the nominal
value of their shareholdings.
PREFERENTIAL SUBSCRIPTION RIGHTS
Under the French commercial code, if we issue additional shares, or any
equity securities or other specific kinds of additional securities carrying a
right, directly or indirectly, to purchase equity securities issued by our
company for cash, current shareholders will have preferential subscription
rights to those securities on a pro rata basis. These preferential rights will
require us to give priority treatment to those shareholders over other persons
wishing to subscribe for the securities. The rights entitle the holder to
subscribe to an issue of any securities that may increase our share capital by
means of a cash payment or a set-off of cash debts. Preferential subscription
rights are transferable during the subscription period relating to a particular
offering, and may be listed on the Euronext Paris. A two-thirds majority of our
shares entitled to vote at an extraordinary general meeting may vote to waive
preferential subscription rights with respect to any particular offering. French
law requires a company's board of directors and independent auditors to present
reports that specifically address any proposal to waive preferential
subscription rights. In the event of a waiver, the relevant securities issuance
must be completed within the period prescribed by law. The shareholders may also
decide at an extraordinary general meeting to give existing shareholders a
non-transferable priority right to subscribe for the new securities during a
limited period of time. Shareholders may also waive their own preferential
subscription rights with respect to any particular offering.
AMENDMENTS TO RIGHTS OF HOLDERS
Shareholder rights can be amended only by action of an extraordinary
general meeting of the class of shareholders affected. Two-thirds of the shares
of the affected class voting either in person or by mail or proxy must approve
any proposal to amend shareholder rights. The voting and quorum requirements for
this type of special meeting are the same as those applicable to an
extraordinary general meeting, except that the quorum requirements for a special
meeting are 50% of the voting shares, or 25% upon resumption of an adjourned
meeting.
46
Except as described under "-- Anti-Takeover Provisions," our statuts do not
contain any provisions that discriminate against existing or prospective holders
of substantial numbers of our shares. See also "-- Anti-Takeover Effects of
Applicable Law and Regulations."
ORDINARY AND EXTRAORDINARY MEETINGS
In accordance with the French commercial code, there are two types of
shareholders' general meetings: ordinary and extraordinary.
Ordinary general meetings of shareholders are required for matters that are
not specifically reserved by law to extraordinary general meetings, such as:
-- electing, replacing and removing members of the supervisory board;
-- appointing independent auditors;
-- declaring dividends or authorizing dividends to be paid in shares;
-- approving the company's annual financial statements; and
-- issuing debt securities.
Extraordinary general meetings of shareholders are required for approval of
matters such as amendments to our statuts, including any amendment required in
connection with extraordinary corporate actions. Extraordinary corporate actions
include:
-- changing our company's name or corporate purpose;
-- increasing or decreasing our share capital;
-- creating a new class of equity securities;
-- authorizing the issuance of investment certificates or convertible or
exchangeable securities;
-- establishing any other rights to equity securities;
-- selling or transferring substantially all of our assets; and
-- voluntarily liquidating our company.
Calling shareholders' meetings
The French commercial code requires our management board to convene an
annual ordinary general meeting of shareholders for approval of the annual
accounts. This meeting must be held within six months of the end of each fiscal
year. This period may be extended by an order of the President of the Tribunal
de Commerce. The management board and the supervisory board may also convene an
ordinary or extraordinary meeting of shareholders upon proper notice at any time
during the year. If the management board and our supervisory board fail to
convene an annual shareholders' meeting, our independent auditors or a court-
appointed agent may call the meeting. Any of the following may request the court
to appoint an agent:
-- one or several shareholders holding at least 5% of our share capital;
-- in cases of urgency, designated employee representatives or any
interested party;
-- duly qualified associations of shareholders who have held their shares
in registered form for at least two years and who together hold at least
1% of the voting rights of our company; or
-- in a bankruptcy, our liquidator or court-appointed agent may also call a
shareholders' meeting in some instances.
Shareholders holding more than 50% of our share capital or voting rights
may also convene a shareholders' meeting after a public offer to acquire control
of our company or a sale of a controlling stake in our capital.
47
Notice of shareholders' meetings
We must announce general meetings at least 30 days in advance by means of a
preliminary notice published in the Bulletin des Annonces Legales Obligatoires
(the "BALO"). The preliminary notice must first be sent to the Commission des
Operations de Bourse (the "COB"). The COB also recommends that a summary of such
preliminary notice be published in a newspaper of national circulation in
France. The preliminary notice must disclose, among other things, the time,
date, and place of the meeting, whether the meeting will be ordinary or
extraordinary, the agenda, a draft of the resolutions to be submitted to the
shareholders, a description of the procedures which holders of bearer shares
must follow to attend the meeting, the procedure for voting by mail, and a
statement informing the shareholders that they may propose additional
resolutions to the management board within ten days of the publication of the
notice.
We must send a final notice containing the agenda and other information
about the meeting at least 15 days prior to the meeting or at least six days
prior to the resumption of any meeting adjourned for lack of a quorum. The final
notice must be sent by mail to all registered shareholders who have held shares
for more than one month prior to the date of the preliminary notice. The final
notice must also be published in the BALO and in a newspaper authorized to
publish legal announcements in the local administrative department in which our
company is registered, with prior notice having been given to the COB.
In general, shareholders can take action at shareholders' meetings only on
matters listed in the agenda for the meeting. One exception to this rule is that
shareholders may take action with respect to the dismissal of members of the
supervisory board regardless of whether this action is on the agenda. Additional
resolutions to be submitted for approval by the shareholders at the meeting may
be proposed to the management board (within ten days of the publication of the
preliminary notice in the BALO) by:
-- designated employee representatives;
-- one or several shareholders holding a specified percentage of shares; or
-- a duly qualified association of shareholders who have held their shares
in registered form for at least two years and who together hold at least
1% of the voting rights in our company.
The management board must submit properly proposed resolutions to a vote of
the shareholders.
During the two weeks preceding a meeting of shareholders, any shareholder
may submit written questions to the management board relating to the agenda for
the meeting. The management board must respond to these questions during the
meeting.
Attendance and voting at shareholders' meetings
Each share confers on the shareholder the right to cast one vote, except
that shares owned by the same shareholder in registered form for at least two
years carry double voting rights. Shareholders may attend ordinary meetings and
extraordinary shareholders' meetings and exercise their voting rights subject to
the conditions specified in the French commercial code and our statuts. There is
no requirement that shareholders have a minimum number of shares in order to
attend or to be represented at an ordinary or extraordinary general meeting.
To participate in any general meeting, a holder of shares held in
registered form must have shares registered in his or her name in a shareholder
account maintained by us or on our behalf by an agent appointed by us at least
five days prior to the date set for the meeting. A holder of bearer shares must
obtain a certificate from the accredited intermediary with whom the holder has
deposited his or her shares. This certificate must indicate the number of bearer
shares the holder owns and must state that these shares are not transferable
until the time fixed for the meeting. The holder must deposit this certificate
at the place specified in the notice of the meeting at least five days before
the meeting.
48
Proxies and votes by mail
In general, all shareholders who have properly registered their shares or
duly presented a certificate from their accredited financial intermediary may
participate in general shareholders' meetings. Shareholders may participate in
general meetings either in person or by proxy. Shareholders may vote in person,
by proxy or by mail.
Proxies will be sent to any shareholder on request. To be counted, such
proxies must be received at our registered office, or at any other address
indicated on the notice convening the meeting, prior to the date of the meeting.
A shareholder may grant proxies to his or her spouse or to another shareholder.
A shareholder that is a corporation may grant proxies to a legal representative.
Alternatively, the shareholder may send us a blank proxy without nominating any
representative. In this case, the chair of the meeting will vote blank proxies
in favor of all resolutions proposed by the management board and against all
others.
With respect to votes by mail, we are required to send shareholders a
voting form. The completed form must be returned to us at least three days prior
to the date of the shareholders' meeting.
Quorum
The French commercial code requires that shareholders having at least 25%
of the shares entitled to voting rights must be present in person or be voting
by mail or by proxy to fulfill the quorum requirement for:
-- an ordinary general meeting; or
-- an extraordinary general meeting where an increase in our share capital
is proposed through incorporation of reserves, profits or share premium.
The quorum requirement is one-third of the shares entitled to voting
rights, determined on the same basis, for any other extraordinary general
meeting.
If a quorum is not present at a meeting, the meeting is adjourned. When an
adjourned meeting is resumed, there is no quorum requirement for an ordinary
meeting or for an extraordinary general meeting where an increase in our share
capital is proposed through incorporation of reserves, profits or share premium.
However, only questions that were on the agenda of the adjourned meeting may be
discussed and voted upon. In the case of any other reconvened extraordinary
general meeting, shareholders having at least 25% of outstanding voting rights
must be present in person or be voting by mail or proxy for a quorum. If a
quorum is not present, the reconvened meeting may be adjourned for a maximum of
two months. Any deliberation by the shareholders taking place without a quorum
is void.
Majority
Holders of a simple majority of a company's voting power present, voting by
mail or represented by proxy may pass any resolution on matters required to be
considered at an ordinary general meeting, or concerning a capital increase by
incorporation of reserves, profits or share premium at an extraordinary general
meeting. At any other extraordinary general meeting, a two-thirds majority of
the voting power present, voting by mail or represented by proxy is required.
A unanimous shareholder vote is required to increase liabilities of
shareholders.
Abstention from voting by those present or those represented by proxy or
voting mail is counted as a vote against the resolution submitted to the
shareholder vote.
In general, a shareholder is entitled to one vote per share at any general
meeting, except that shares owned by the same shareholder in registered form for
at least two years carry double voting rights. Under the French commercial code,
shares of a company held by entities controlled directly or indirectly by that
company are not entitled to voting rights and are not considered for quorum
purposes.
49
LIMITATIONS ON RIGHT TO OWN SECURITIES
Our statuts contain no provisions that limit the right of shareholders to
own our securities or hold or exercise voting rights associated with those
securities. See "-- Exchange Controls" for a description of certain requirements
imposed by the French commercial code.
ANTI-TAKEOVER PROVISIONS
Our statuts provide double voting rights for shares held by the same
shareholder for at least two years. Our statuts further provide that any person
or group that fails to notify us within 15 days of acquiring or disposing of 1%
or any multiple of 1% of our shares will be deprived of voting rights for shares
in excess of the unreported fraction. In addition, our statuts provide that we
may require a corporate entity holding shares representing more than 2.5% of our
share capital or voting rights to disclose to us the identity of all persons
holding, directly or indirectly, more than one-third of the share capital or
voting rights of that entity. Shareholders who fail to comply with this
requirement may be deprived of voting rights until the required disclosure is
made. Finally, our shareholders have authorized our management board to increase
our capital in response to a third party tender offer for our shares. The
exercise of this authority would be subject to the control of the COB.
ANTI-TAKEOVER EFFECTS OF APPLICABLE LAW AND REGULATIONS
The French commercial code provides that any individual or entity, acting
alone or in concert with others, that becomes the owner, directly or indirectly,
of more than 5%, 10%, 20%, one-third, 50% or two-thirds of the outstanding
shares or voting rights of a listed company in France, such as our company, or
that increases or decreases its shareholding or voting rights above or below any
of those percentages, must notify the company within 15 calendar days of the
date it crosses such thresholds of the number of shares it holds and their
voting rights. The individual or entity must also notify the Conseil des Marches
Financiers (the "CMF") within five trading days of the date it crosses these
thresholds.
French law and COB regulations impose additional reporting requirements on
persons who acquire more than 10% or 20% of the outstanding shares or voting
rights of a listed company. These persons must file a report with the company,
the COB and the CMF within 15 days of the date they cross the threshold. In the
report, the acquiror must specify its intentions for the following 12-month
period, including whether or not it intends to continue its purchases, to
acquire control of the company in question or to nominate candidates for the
board of directors. The CMF makes the notice public. The acquiror must also
publish a press release stating its intentions in a financial newspaper of
national circulation in France. The acquiror may amend its stated intentions,
provided that it does so on the basis of significant changes in its own
situation or that of its shareholders. Upon any change of intention, it must
file a new report.
To permit holders to give the required notice, we are required to publish
in the BALO no later than 15 calendar days after the annual ordinary general
shareholders' meeting information with respect to the total number of voting
rights outstanding as of the date of such meeting. In addition, if the number of
outstanding voting rights changes by 5% or more between two annual ordinary
general meetings, we are required to publish in the BALO, within 15 calendar
days of such change, the number of voting rights outstanding and provide the CMF
with written notice of such information. The CMF publishes the total number of
voting rights so notified by all listed companies in a weekly notice (avis),
noting the date each such number was last updated.
If any person fails to comply with the legal notification requirement, the
shares or voting rights in excess of the relevant threshold will be deprived of
voting rights for all shareholders' meetings until the end of a two-year period
following the date on which their owner complies with the notification
requirements. In addition, any shareholder who fails to comply with these
requirements may have all or part of his or her voting rights suspended for up
to five years by the Commercial Court at the request of the chair, any
shareholder or the COB, and may be subject to a fine.
50
The French commercial code authorizes French companies to require persons
holding their shares in bearer form to disclose the beneficial owner(s) of those
shares. The voting and dividend rights associated with the shares can be
suspended until the required disclosure is made.
Under CMF regulations, and subject to limited exemptions granted by the
CMF, any person or persons acting in concert that own in excess of one-third of
the share capital or voting rights of a French listed company must initiate a
public tender offer for the balance of the share capital of such company.
In addition, a number of provisions of the French commercial code allow
corporations to adopt statuts that have anti-takeover effects, including
provisions that allow:
-- limitations on the voting power of shareholders; and
-- shareholders' agreements that provide for preemptive rights in case of a
sale of shares by a shareholder.
MATERIAL CONTRACTS
The principal terms of our material contracts are described under
"Information on the Company -- History and Development of the Company -- Recent
Developments -- Bcom3 Merger."
EXCHANGE CONTROLS
The French commercial code currently does not limit the right of
nonresidents of France or non-French persons to own and vote shares. However,
nonresidents of France must file an administrative notice with French
authorities in connection with the acquisition of a controlling interest in our
company. Under existing administrative rulings, ownership of 20% or more of our
share capital or voting rights is regarded as a controlling interest, but a
lower percentage might be held to be a controlling interest in some
circumstances depending upon factors such as:
-- the acquiring party's intentions; and
-- the acquiring party's ability to elect directors, and financial reliance
by us on the acquiring party.
French exchange control regulations currently do not limit the amount of
payments that we may remit to nonresidents of France. Laws and regulations
concerning foreign exchange controls do require, however, that all payments or
transfers of funds made by a French resident to a nonresident be handled by an
accredited intermediary. In France, all registered banks and most credit
establishments are accredited intermediaries.
TAXATION
The following discussion is a summary description of the material U.S. and
French tax consequences that may apply to you as a holder of our shares.
This discussion applies only to holders who are U.S. Tax Residents. A "U.S.
Tax Resident" is a holder who:
-- is not a French tax resident,
-- is a tax resident of the United States pursuant to Article 4 of the
Convention Between the Government of the United States of America and
the Government of the French Republic for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on
Income and Capital (which was signed on August 31, 1994 and generally
became effective on January 1, 1996) (the "Treaty");
-- is a citizen or resident of the United States for U.S. federal income
tax purposes, is a United States domestic corporation or is otherwise
subject to United States federal income taxation on a net income basis
in respect of our shares; and
51
-- does not hold our shares in connection with a permanent establishment or
a fixed base in France through which the holder carries on a business or
performs personal services.
Further, this discussion applies only to holders for whom all the following
requirements are met:
-- the holder owns, directly or indirectly, less than 10% of our share
capital;
-- the holder is a U.S. Tax Resident;
-- the holder is entitled to the benefits of the Treaty under the
"limitations on benefits" article of the Treaty (Article 30);
-- the ownership of our shares is not effectively connected with a
permanent establishment or a fixed base in France;
-- the holder holds our shares as capital assets, and
-- the holder's functional currency is the U.S. dollar.
YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE
CONSEQUENCES TO YOU OF ACQUIRING, OWNING OR DISPOSING OF OUR SHARES, RATHER THAN
RELYING ON THIS SUMMARY. The summary may not apply to you or may not completely
or accurately describe tax consequences to you. For example, special rules may
apply to U.S. expatriates, insurance companies, tax-exempt organizations,
financial institutions, persons subject to the alternative minimum tax,
securities broker-dealers, traders in securities that elect to mark-to-market
and persons holding their shares as part of a conversion transaction or
constructive sale, among others. Those special rules are not discussed in this
annual report. This description does not address all aspects of U.S. and French
tax laws and tax treaties that may be relevant in light of the particular
circumstances of a U.S. Tax Resident holder of our shares. This description is
based on U.S. and French tax laws, conventions and treaties in force as of the
date of this annual report, all of which are subject to change, possibly with
retroactive effect, or different interpretations. Also, this summary does not
discuss any tax rules other than U.S. federal income tax and French tax rules.
Further, the U.S. and French tax authorities and courts are not bound by this
summary and may disagree with its conclusions. The individual circumstances of
each U.S. Tax Resident holder may affect the tax consequences of holding and
disposing of our shares. The particular facts or circumstances of a U.S. Tax
Resident holder that may so affect the consequences are not discussed here. All
holders of our shares are advised to consult their own tax advisers as to the
particular tax consequences to them of acquiring, owning and disposing of our
shares, including their eligibility for the benefits of the Treaty, the
applicability and effect of state, local, foreign and other tax laws and
possible changes in tax laws.
TAXATION OF DIVIDENDS
Withholding Tax. Dividends paid to a shareholder having his or her tax
residence outside France by a French company are generally subject to a 25%
French withholding tax under French tax laws.
Under the Treaty, this withholding tax is reduced to 15% if all the
following conditions are met:
(i) our shares are beneficially owned by a U.S. Tax Resident,
(ii) such ownership is not effectively connected with a permanent
establishment or a fixed base that the holder has in France, and
(iii) the holder has previously established that he or she is a U.S. Tax
Resident in accordance with the following procedures:
-- the U.S. Tax Resident must complete French Treasury Form RF1 A EU-No.
5052 (or 5053 if the dividends do not give right to the avoir fiscal)
and send it to the paying establishment before the date of payment of
the dividend.
-- if the U.S. Tax Resident cannot complete French Treasury Form RF1 A
EU-No. 5052 before the date of payment of the dividend (and provided
that the dividend gives right to the avoir fiscal), he or she may
complete a simplified certificate and send it before receiving such
payment to the
52
institution which holds the shares on its behalf. This certificate must state
that the beneficial owner fulfills the following conditions:
-- the holder is a U.S. Tax Resident;
-- the holder's ownership of the shares is not effectively connected
with a permanent establishment or a fixed base in France;
-- the holder owns all the rights attached to the full ownership of the
shares including, among other things, the dividend rights;
-- the holder fulfills all the requirements under the Treaty to be
entitled to the reduced rate of withholding tax, and
-- the holder claims the reduced rate of withholding tax.
If a U.S. Tax Resident has not completed French Treasury Form RF1 A EU-No.
5052 (or 5053) or the simplified certificate before the dividend payment date,
the paying establishment will deduct French withholding tax at the rate of 25%.
In that case, the holder may claim a refund of the excess withholding tax by
completing French Treasury Form RF1 A-No. 5052 (or 5053) and sending it, by
intermediary of the paying establishment, to the French tax authorities before
December 31 of the second calendar year following the calendar year during which
the withholding tax is levied.
Under (i) and (ii) above, the 15% withholding tax rate may also apply to
dividends paid to a U.S. partnership or similar pass-through entity as described
in article 4.2.(b)(iv) of the Treaty and whose income is subject to U.S. tax
either in its hands or in the hands of its partners who are U.S. Tax Residents
("U.S. Tax Resident Partnership").
Specific procedures will apply if our shares are held through a U.S. Tax
Resident Partnership. U.S. Tax Residents who will own their shares through a
U.S. Tax Resident Partnership are advised to consult their own tax advisors as
to the conditions and formalities under which they may benefit from the
above-mentioned reduction of the French withholding tax.
Avoir fiscal. Under the Treaty, the following U.S. Tax Residents may be
entitled to a payment from the French Treasury, called the avoir fiscal:
-- individuals;
-- U.S. domestic corporations, other than regulated investment companies,
that own, directly or indirectly, less than 10% of our share capital;
-- U.S. corporations that are regulated investment companies and that own,
directly or indirectly, less than 10% of our share capital, provided
that less than 20% of the shares of these regulated investment companies
are beneficially owned by persons who are neither citizens nor residents
of the U.S.; or
-- U.S. Tax Resident Partnerships, but only to the extent that their
partners qualify as eligible under the first or second points on this
list and are subject to U.S. income tax with respect to such dividends
and the related avoir fiscal.
The avoir fiscal, if any, is equal to:
-- 50% of the dividends paid for U.S. Tax Resident individuals or for U.S.
Tax Resident corporations owning at least 5% of the financial and voting
rights in our company, provided that, among other conditions, such
corporations subscribed for our shares upon issuance or commit
themselves to hold the shares for at least two years. This commitment
requires specific French formalities to be observed before the payment
of the first dividend; or
-- 15% of the dividends paid for any other U.S. Tax Resident shareholder.
53
If the U.S. Tax Resident is eligible, he or she may claim a payment equal
to the avoir fiscal, less a 15% withholding tax on this avoir fiscal, provided
that all the following conditions are met:
(i) the dividend, if received by a resident of France, would entitle such
resident to a tax credit ("avoir fiscal")
(ii) our shares are beneficially owned by a U.S. Tax Resident;
(iii) the holder's ownership of our shares is not effectively connected
with a permanent establishment or a fixed base in France;
(iv) the holder owns all the rights attached to the full ownership of our
shares including, among other things, the dividend rights;
(v) the holder, or its partners (in the case of U.S. Tax Resident
Partnerships), is subject to U.S. income tax on the payment of the
dividend and the related avoir fiscal; and
(vi) the holder, or its partners (in the case of U.S. Tax Resident
Partnerships), fulfills all the requirements under the Treaty to be
entitled to the transfer of the avoir fiscal.
If a holder is entitled, the avoir fiscal may be claimed by completing
French Treasury Form RF1 A EU-No. 5052 and (if not previously sent to claim the
benefit of the 15% withholding tax rate) sending it, by intermediary of the
paying establishment, to the French tax authorities before December 31 of the
second year following the year during which the dividend is paid.
The avoir fiscal and any French withholding tax refund are generally
expected to be paid within 12 months after the holder of our shares files Form
RF1 A EU-No. 5052. However, they will not be paid before January 15 of the
calendar year following the end of the calendar year in which the dividend is
paid.
Specific procedures will apply if our shares are held through a U.S. Tax
Resident Partnership. U.S. Tax Residents who will own our shares through a U.S.
Tax Resident Partnership are advised to consult their own tax advisors as to the
conditions and formalities under which they may benefit from the above-mentioned
transfer of the avoir fiscal.
Other entities. Additional specific rules apply to tax-exempt U.S. pension
funds and various other U.S. entities, including certain state-owned
institutions (with respect to dividends derived from the investment of
retirement assets) and not-for-profit organizations mentioned in article
4.2.(b)(i) and (ii) of the Treaty and U.S. Tax Resident individuals (with
respect to dividends they beneficially own and that are derived from individual
retirement accounts).
These entities or persons may be eligible for a reduced withholding tax
rate of 15% subject to the same withholding tax filing requirements as eligible
U.S. Tax Resident holders, except that they may have to supply additional
documentation evidencing their entitlements to these benefits. These entities or
persons are not entitled to the full avoir fiscal. They may claim a partial
avoir fiscal equal to 30/85 of the gross avoir fiscal less a 15% withholding tax
on this partial avoir fiscal, provided that they own, directly or indirectly,
less than 10% of our capital and that they satisfy the filing formalities
specified in U.S. Internal Revenue Service regulations.
These entities or persons are advised to consult their own tax advisers as
to the conditions under which they may benefit from the above-mentioned
reduction of the French withholding tax and transfer of a partial avoir fiscal.
The precompte. A French company must pay an equalization tax known as the
"precompte" to the French Treasury if it distributes dividends which give right
to the avoir fiscal out of:
-- Profits that have not been taxed at the ordinary corporate income tax
rate; or
-- Profits that have been earned more than five years before the
distribution.
54
The amount of the precompte is equal to 50% of the net dividends before
withholding tax. If we pay the precompte:
-- the U.S. Tax Resident shareholders entitled to the full or partial
transfer of the 15% avoir fiscal would also generally be entitled to the
full or partial transfer of a specific tax credit equal to 70% of the
precompte effectively paid by us (as opposed to the precompte paid by
offsetting French and/or foreign tax credits) less a 15% withholding tax
on both the 15% avoir fiscal and the 70% specific tax credit;
-- the U.S. Tax Resident shareholders that are not entitled to the full
transfer of the avoir fiscal may generally be entitled to a refund from
the French Treasury of the precompte effectively paid by us (as opposed
to the precompte paid by offsetting French and/or foreign tax credits)
with respect to the dividends distributed to them. Under the Treaty, the
amount of the precompte refunded to U.S. Tax Residents is reduced by the
15% withholding tax and by any partial avoir fiscal (including any
potential 70% specific tax credit). The refund of the precompte is
subject to specific filing requirements; U.S. Tax Resident shareholders
should consult their own tax advisors as to the conditions and filing
requirements under which they may benefit from this refund.
Specific procedures will apply if our shares are held through a U.S. Tax
Resident Partnership. U.S. Tax Residents who will own their shares through a
U.S. Tax Resident Partnership are advised to consult their own tax advisors as
to the conditions and formalities under which they may benefit from the
above-mentioned provisions.
U.S. Federal Income Taxes. For U.S. federal income tax purposes, the gross
amount of a dividend and any avoir fiscal, including any French withholding tax,
will be included in your gross income as dividend income when payment is
received by you, to the extent they are paid or declared paid out of our current
or accumulated earnings and profits as calculated for U.S. federal income tax
purposes. Dividends paid by our company will not give rise to any U.S. dividends
received deduction. They will generally constitute foreign source "passive"
income for foreign tax credit purposes. For recipients predominantly engaged in
the active conduct of a banking, insurance, financing or similar business,
dividends paid by our company will generally constitute foreign source
"financial services" income for foreign tax credit purposes.
Also for U.S. federal income tax purposes, the amount of any dividend paid
in euros, including any French withholding taxes, will be equal to the U.S.
dollar value of the euros on the date the dividend is included in income,
regardless of whether the payment is in fact converted into U.S. dollars. You
will generally be required to recognize U.S. source ordinary income or loss when
you sell or dispose of euros. You may also be required to recognize foreign
currency gain or loss if you receive a refund under the Treaty of tax withheld
in excess of the treaty rate. This foreign currency gain or loss will generally
be U.S. source ordinary income or loss.
To the extent that any dividends paid exceed our current and accumulated
earnings and profits as calculated for U.S. federal income tax purposes, the
distribution will be treated as follows:
-- first, as a tax-free return of capital, which will cause a reduction in
the adjusted basis of your shares. This adjustment will increase the
amount of gain, or decrease the amount of loss, that you will recognize
if you later dispose of those shares; and
-- second, the balance of the dividend in excess of the adjusted basis will
be taxed as capital gain recognized on a sale or exchange.
French withholding tax imposed on the dividends you receive and on any
avoir fiscal at 15% under the Treaty is treated as payment of a foreign income
tax. You may take this amount as a credit against your U.S. federal income tax
liability, subject to specific conditions and limitations.
For U.S. federal income tax purposes, the amount of the precompte will be
included in your gross income as dividend income in the year you receive it. It
will generally constitute foreign source "passive" income for foreign tax credit
purposes. For recipients predominantly engaged in the active conduct of a
banking, insurance, financing or similar business, the precompte will generally
constitute foreign source "financial
55
services" income for foreign tax credit purposes. The amount of any precompte
paid in euros, including any French withholding taxes, will be equal to the U.S.
dollar value of the euros on the date the precompte is included in income,
regardless of whether the payment is in fact converted into U.S. dollars. You
will generally be required to recognize a U.S. source ordinary income or loss
when you sell or dispose of the euros.
TAXATION OF CAPITAL GAINS
Under French tax law, capital gains realized upon the sale of our shares by
holders who are not French residents for French tax purposes (and who do not
hold their shares in connection with a permanent establishment or a fixed base
in France) are not taxable in France provided that the vendor and any related
persons have not directly or indirectly held more than 25% of rights to our
earnings ("droits aux benefices sociaux") at any time during the five years
preceding the sale.
If the holder is a U.S. Tax Resident, the holder will not be subject to
French tax on any capital gain if the holder sells or exchanges its shares,
unless the holder has a permanent establishment or fixed base in France and the
shares sold or exchanged were part of the business property of that permanent
establishment or fixed base.
In general, for U.S. federal income tax purposes, you will recognize
capital gain or loss if you sell or exchange your shares in the same manner as
you would if you were to sell or exchange any other shares held as capital
assets. Any gain or loss will generally be U.S. source gain or loss. If you are
an individual, any capital gain will generally be subject to U.S. federal income
tax at preferential rates if you meet the specified minimum holding periods.
PFIC
We believe that we will not be treated as a passive foreign investment
company, or PFIC, for U.S. federal income tax purposes for the current taxable
year or for future taxable years. However, an actual determination of PFIC
status is fundamentally factual in nature and cannot be made until the close of
the applicable taxable year. We will be a PFIC for any taxable year in which
either:
-- 75% or more of our gross income is passive income; or
-- our assets that produce passive income or that are held for the
production of passive income amount to at least 50% of the value of our
total assets on average.
If we were to become a PFIC, the tax applicable to distributions on our
shares and any gains you realize when you dispose of our shares may be less
favorable to you. You should consult your own tax advisors regarding the PFIC
rules and their effect on you if you purchase our shares.
FRENCH ESTATE AND GIFT TAXES
Under "The Convention Between the United States of America and the French
Republic for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November 24,
1978", if an individual holder transfers its shares in our company by gift, or
if they are transferred by reason of the holder's death, that transfer will only
be subject to French gift or inheritance tax if one of the following applies:
-- the individual holder is domiciled in France at the time of making the
gift, or at the time of the individual holder's death; or
-- the individual holder used our shares in conducting a business through a
permanent establishment or fixed base in France, or the individual
holder held our shares for that use.
56
FRENCH WEALTH TAX
The French wealth tax does not generally apply to our shares if the holder
is an individual who is a tax resident of the United States for purposes of the
Treaty, provided that:
-- the individual holder does not own, alone or with related persons,
directly or indirectly, shares, rights or interests the total of which
gives right to at least 25% of our earnings; and
-- the shares are not held in connection with a permanent establishment or
a fixed base in France.
Under French tax law, an individual having his or her tax residence outside
France is taxable only on such individual's French assets. However, financial
investments made by such individuals, provided they represent less than 5% of
the share capital of the French company and are made in companies other than
real property companies, are exempt from wealth tax.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividend payments on our shares and proceeds from the sale, exchange or
other disposition of the shares may be subject to information reporting to the
U.S. Internal Revenue Service and possible U.S. backup withholding. U.S. federal
backup withholding generally is a withholding tax imposed at the rate of 30% on
specified payments to persons that fail to furnish required information. Backup
withholding will not apply to a holder who furnishes a correct taxpayer
identification number or certificate of foreign status and makes any other
required certification, or who is otherwise exempt from backup withholding. Any
U.S. persons required to establish their exempt status generally must file
Internal Revenue Service Form W-9, entitled Request for Taxpayer Identification
Number and Certification. Finalized Treasury regulations have generally expanded
the circumstances under which information reporting and backup withholding may
apply.
Amounts withheld as backup withholding may be credited against your U.S.
federal income tax liability. You may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the U.S. Internal Revenue Service and furnishing any required
information.
DOCUMENTS ON DISPLAY
We are subject to the periodic reporting and other informational
requirements of the Exchange Act. Under the Exchange Act, we are required to
file reports and other information with the SEC. Copies of reports and other
information, when so filed, may be inspected without charge and may be obtained
at prescribed rates at the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information regarding the Washington, D.C. Public Reference Room by
calling the SEC at 1-800-SEC-0330. The public may also view our annual reports
and other documents filed with the SEC on the internet at www.sec.gov. As a
foreign private issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of quarterly reports and proxy
statements, and our officers, directors and principal shareholders are exempt
from the reporting and short-swing profit recovery provisions in Section 16 of
the Exchange Act.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
Our company is a corporation organized under the laws of France. The
majority of our directors are citizens and residents of countries other than the
United States, and the majority of our assets are located outside of the United
States. Accordingly, it may be difficult for investors:
-- to obtain jurisdiction over our company or our directors in courts in
the United States in actions predicated on the civil liability
provisions of the U.S. federal securities laws;
-- to enforce judgements obtained in such actions against us or our
directors;
-- to obtain judgements against us or our directors in original actions in
non-U.S. courts predicated solely upon the U.S. federal securities laws;
or
57
-- to enforce against us or our directors in non-U.S. courts judgements of
courts in the United States predicated upon the civil liability
provisions of the U.S. federal securities laws.
Each of the foregoing statements applies to our auditors as well.
58
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our global operating activities and our financing
activities, we are subject to various market risks relating primarily to foreign
currency exchange rate risk and interest rate risk.
INTEREST RATE RISK
In the course of our operations, we are exposed to risks related to
interest rate changes, primarily as a result of the credit facilities used to
finance our investment activity and to maintain financial liquidity.
As of December 31, 2001, we had total outstanding financial indebtedness of
E1,069 million, comprised of E549 million in bank loans, E200 million in
obligations under our 2.0% notes due 2007, E316 million of bank overdrafts and
E4 million in capitalized lease obligations. Of the total, E758 million was due
within one year and the remainder was to become due within five years. Other
than our obligations under the 2.0% notes due 2007, the majority of our debt
bore interest at variable rates; the average annual interest rate for 2001 was
5.0%.
Based on the above information, a hypothetical increase of 1% in average
interest rates on long-term borrowings at variable rates as of December 31, 2001
would result in an increase in annual interest expense of approximately E1
million.
Our 2.0% notes due 2007 are convertible into shares of the Interpublic
Group that we currently hold as an investment (see "-- Equity Markets Risk").
The notes can be converted by holders beginning on June 30, 2003, subject to our
right to repay them in cash. At our option, we can redeem the notes beginning on
January 10, 2005 if the price of the Interpublic Group stock exceeds specified
limits. The notes bear interest at a fixed rate of 2%. Under French GAAP, the
notes are stated at their face value and interest expense is recognized at 2% of
the stated value. Under U.S. GAAP, the holders' right to convert the notes into
shares of the Interpublic Group, and our right to repay or redeem the notes, are
considered embedded derivatives and are required to be recorded at fair value on
our balance sheet, with fluctuations in the fair value recognized as an expense
in our income statement. For the year ended December 31, 2001, an expense of
approximately E5 million was recognized in connection with these embedded
derivatives. If the market price of the Interpublic Group stock increases, it is
expected that the corresponding fair value and related expense of these embedded
derivative instruments will increase.
As of December 31, 2001, a hypothetical increase of 10% in the price of
Interpublic Group stock would result in an increase in the fair value of the
embedded derivatives and related expense of E10.9 million.
As of December 31, 2001, approximately 55% of our debt was denominated in
euros and 30% was denominated in U.S. dollars. Our policy is to hold cash and
cash equivalents in various currencies corresponding to the exposure of our
various subsidiaries around the world.
We generally do not use financial instruments to hedge interest rate risk.
FOREIGN CURRENCY EXCHANGE RATE RISK
We conduct operations in 102 countries around the world. The geographic
diversity of our operations is reflected by the currencies that make up our
results of operations. In 2001, more than half of our revenues were realized in
currencies other than the euro, including approximately 40% in U.S. dollars. The
majority of our subsidiaries carry out businesses that are essentially local,
with almost all of their revenues received in local currency and almost all of
their costs incurred in local currency. In addition, most of our acquisitions in
the United States have been funded through local borrowings, resulting in
financial expenses and repayment obligations in the same currency. For these
reasons, our exposure to losses resulting from differences between the
currencies in which we receive revenues and the currencies in which we incur
costs tends to be limited. However, we cannot assure you that we will be able to
avoid such differences in the future or that any such differences will not
materially affect our results of operations.
For the reasons discussed above, we generally do not hedge our exposure to
foreign currencies.
59
We hold assets and liabilities, earn income and pay expenses of our
subsidiaries in a variety of currencies. Our consolidated financial statements
are presented in euros. Therefore, when we prepare our financial statements, we
must translate our assets, liabilities, income and expenses in currencies other
than the euro into euros at then-applicable exchange rates. Consequently,
increases and decreases in the value of the euro will affect the value of these
items in our financial statements, even if their value has not changed in their
original currency. In this regard, an increase in the value of the euro relative
to other currencies may result in a decline in the reported value, in euros, of
our interests held in those currencies. To the extent this has a negative effect
on our financial condition as presented in our financial statements, it could
cause the price of our shares to decline. Conversely, if the relative value of
the euro to the U.S. dollar declines, the U.S. dollar equivalent of cash
dividends paid in euros on our ADSs will decline as well.
EQUITY MARKETS RISK
Our exposure to equity markets risk relates primarily to our investment in
equity securities of unconsolidated entities, particularly the Interpublic
Group. At December 31, 2001, the market value of our quoted equity securities
amounted to E156 million, compared to a carrying value for French GAAP purposes
of E22 million.
60
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
61
PART II
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None.
62
PART III
ITEM 18: FINANCIAL STATEMENTS
PUBLICIS GROUPE S.A.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Reports of Independent Auditors............................. F-2
Consolidated Statements of Income for the Years Ended
December 31, 2001, 2000 and 1999.......................... F-4
Consolidated Balance Sheets as at December 31, 2001, 2000
and 1999.................................................. F-5
Consolidated Statement of Changes in Shareholders' Equity
for the Years Ended December 31, 2001, 2000, 1999 and
1998...................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999.......................... F-7
Notes to the Consolidated Financial Statements.............. F-8
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
and Shareholders of Publicis Groupe, S.A.
We have audited the accompanying consolidated balance sheets of Publicis
Groupe, S.A., as of December 31, 2001 and 2000, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion of these
financial statements based on our audits.
We conducted our audit in accordance with the auditing standards generally
accepted in France and in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Publicis Group, S.A. at December 31, 2001 and 2000, and the consolidated results
of its cash flows for the years then ended in conformity with the accounting
principles generally accepted in France, which differ in certain respects from
those generally accepted in the United States (see Note 29 to the financial
statements).
As discussed in Note 1 to the financial statements, in 2000 the Company
changed its method of accounting for business combinations, deferred income
taxes, assets under capital leases, conversion of financial statements of
foreign subsidiaries and exchange rate differences on accounts receivable and
payable stated in foreign currencies to be in accordance with the new accounting
rules applicable to consolidated financial statements in France.
Mazars & Guerard, S.A. Ernst & Young Audit
Represented by Represented by
Frederic Allilaire Bruno Perrin
Isabelle Massa
Paris, France
March 5, 2002
F-2
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
and Shareholders of Publicis Groupe S.A.
We have audited the accompanying consolidated balance sheet of Publicis
Groupe S.A. as of December 31, 1999, and the related consolidated statement of
income, changes in shareholders' equity, and cash flow for the year then ended,
which have been prepared on the basis of accounting principles generally
accepted in France. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Publicis Groupe SA at December 31, 1999 and the consolidated results of its
operations and its cash flow for the year then ended, in conformity with
accounting principles generally accepted in France, which differ in certain
respects from those generally accepted in the United States (see Note to the
financial statements).
Mazars & Guerard, S.A. Mazars & Guerard LLP
Represented by Represented by
Frederic ALLILAIRE Timothy J. DOHERTY
Paris, France
March 17, 2000
F-3
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
-----------------------
NOTE 2001 2000 1999
---- ------ ------ -----
(IN MILLIONS OF EUROS)
REVENUES.................................................... 2,434 1,770 1,042
Salaries and related expenses............................... 19 (1,363) (984) (576)
Other operating expenses.................................... 20 (661) (470) (291)
Total operating expenses.................................... (2,024) (1,454) (867)
Other operating income...................................... 16 18 12
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION....... 426 334 187
Depreciation and amortization expense....................... 21 (84) (59) (31)
OPERATING INCOME............................................ 342 275 156
Financial (expense) income, net............................. 22 (30) (11) 9
INCOME OF CONSOLIDATED COMPANIES BEFORE TAXES, EXCEPTIONAL
ITEMS AND GOODWILL AMORTIZATION........................... 312 264 165
Income taxes................................................ 15 (99) (92) (65)
NET INCOME OF CONSOLIDATED COMPANIES BEFORE EXCEPTIONAL
ITEMS AND GOODWILL AMORTIZATION........................... 213 172 100
Equity in net income of non-consolidated companies.......... 6 9 5 2
NET INCOME BEFORE EXCEPTIONAL ITEMS AND GOODWILL
AMORTIZATION.............................................. 222 177 102
OF WHICH GROUP INTERESTS.................................... 200 151 82
Exceptional (expense) income, net of tax.................... 23 (3) 15 12
Goodwill amortization....................................... 21 (49) (33) (19)
NET INCOME BEFORE MINORITY INTERESTS........................ 170 159 95
Minority interests.......................................... (19) (31) (21)
GROUP NET INCOME............................................ 151 128 74
PER SHARE DATA (IN EUROS)*
Net earnings per share...................................... 1.09 1.18 0.85
Earnings per share after tax and before exceptional items
and goodwill amortization................................. 1.44 1.40 0.94
Net earnings per share -- diluted........................... 1.08 1.15 0.84
Earnings per share after tax and before exceptional items
and goodwill amortization -- diluted...................... 1.43 1.37 0.93
---------------
* Earnings per share amounts for 1999 have been adjusted to reflect the
ten-for-one stock split of August 29, 2000.
See notes to the consolidated financial statements
F-4
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
------------------------
NOTE 2001 2000 1999
---- ------ ------ ------
(IN MILLIONS OF EUROS)
ASSETS
Goodwill, net............................................... 3 993 861 237
Intangible assets, net...................................... 3 199 22 20
Property and equipment, net................................. 4 351 331 123
Investments and other financial assets, net................. 5 67 82 50
Investments accounted for by the equity method.............. 6 8 7 7
TANGIBLE AND INTANGIBLE ASSETS, NET......................... 1,618 1,303 437
Inventory and costs billable to clients..................... 7 195 129 49
Accounts receivable......................................... 8 1,845 1,770 1,002
Other receivables........................................... 9 439 399 240
Marketable securities....................................... 10 178 100 76
Cash and cash equivalents................................... 621 429 273
CURRENT ASSETS.............................................. 3,278 2,827 1,640
TOTAL ASSETS................................................ 4,896 4,130 2,077
LIABILITIES AND SHAREHOLDERS' EQUITY
Capital stock............................................... 56 53 36
Additional paid-in capital and retained earnings............ 227 246 309
SHAREHOLDERS' EQUITY........................................ 11 283 299 345
MINORITY INTERESTS.......................................... 12 89 77 51
PROVISIONS FOR CONTINGENCIES AND CHARGES.................... 13 266 169 70
Bank borrowings and overdrafts.............................. 14 1,069 901 212
Accounts payable............................................ 16 1,875 1,590 871
Accrued expenses and other liabilities...................... 17 1,314 1,094 528
BANK BORROWINGS AND CURRENT LIABILITIES..................... 4,258 3,585 1,611
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 4,896 4,130 2,077
NET FINANCIAL DEBT (CASH AND MARKETABLE SECURITIES, LESS
BANK BORROWINGS AND OVERDRAFTS)........................... 270 372 (137)
See notes to the consolidated financial statements
F-5
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
ADDITIONAL
PAID-IN
NUMBER CAPITAL AND TOTAL
OF CAPITAL RETAINED SHAREHOLDERS'
SHARES* STOCK EARNINGS EQUITY
----------- ------- ----------- -------------
(IN MILLIONS OF EUROS)
DECEMBER 31, 1998 BEFORE IMPACT OF TREASURY
STOCK......................................... 89,782,110 34 293 327
----------- -- ---- ----
Treasury stock at December 31, 1998............. (1,068,420) -- (13) (13)
----------- -- ---- ----
DECEMBER 31, 1998 AFTER IMPACT OF TREASURY
STOCK......................................... 88,713,690 34 280 314
Consolidated net income, group.................. -- 74 74
Other........................................... 4,477,850 2 26 28
----------- -- ---- ----
DECEMBER 31, 1999 BEFORE IMPACT OF TREASURY
STOCK......................................... 94,259,960 36 380 416
----------- -- ---- ----
Treasury stock at December 31, 1999............. (4,181,920) -- (71) (71)
----------- -- ---- ----
DECEMBER 31, 1999 AFTER IMPACT OF TREASURY
STOCK......................................... 90,078,040 36 309 345
----------- -- ---- ----
Publicis Groupe S.A. capital increase........... 70,710 -- -- --
Dividends paid by Publicis Groupe S.A. ......... -- (15) (15)
Impact of S&S acquisition -- Article 215
derogatory method............................. 43,889,149 17 (215) (198)
Application of rule 99-02....................... -- 8 8
Translation adjustment.......................... -- (6) (6)
Consolidated net income, Group interest......... -- 128 128
----------- -- ---- ----
DECEMBER 31, 2000 BEFORE IMPACT OF TREASURY
STOCK......................................... 138,219,819 53 280 333
----------- -- ---- ----
Treasury stock at December 31, 2000............. (871,309) -- (34) (34)
----------- -- ---- ----
DECEMBER 31, 2000 AFTER IMPACT OF TREASURY
STOCK......................................... 137,348,510 53 246 299
----------- -- ---- ----
Publicis Groupe S.A. capital increase........... 1,380,177 1 -- 1
Dividends paid by Publicis Groupe S.A. ......... -- (28) (28)
Translation adjustment.......................... -- -- --
Impact of S&S acquisition -- Article 215
derogatory method............................. -- (37) (37)
Saatchi & Saatchi additional acquisition cost
resulting from the probable payment of CVR.... -- (195) (195)
Revaluation of the share in Zenith (50%),
previously equity accounted................... -- 60 60
Change in treatment of treasury shares.......... 871,309 -- 34 34
Impact on nominal share price of conversion to
euros......................................... 2 (2) --
Other........................................... -- (2) (2)
Consolidated net income, Group interest......... -- 151 151
----------- -- ---- ----
DECEMBER 31, 2001............................... 139,599,996 56 227 283
---------------
* Amounts have been adjusted to reflect the ten-for-one stock split of August
29, 2000.
See notes to the consolidated financial statements
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
------------------------
2001 2000 1999
------ ------ ------
(IN MILLIONS OF EUROS)
I -- CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. 170 159 95
Gain on sales of fixed assets (before tax).................. (60) (24) (12)
Depreciation and amortization............................... 149 93 51
Self-financing ability...................................... 259 228 134
Equity in net income of non-consolidated companies.......... (9) (5) (2)
Dividends received from investments accounted for under the
equity method............................................. 8 1 2
Change in working capital requirements...................... (214) (19) 46
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 44 205 180
II -- CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment and intangible assets... (108) (106) (66)
Sales of property and equipment............................. 6 4 10
Purchases of investments and other financial assets, net.... 10 (13) (4)
Acquisitions of businesses(1)............................... 164 (565) (55)
Disposal of businesses...................................... -- 24 4
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES......... 72 (656) (111)
III -- CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders of Publicis Groupe S.A. ..... (28) (15) (11)
Dividends paid to minority shareholders of subsidiaries..... (25) (14) (14)
Increase in capital......................................... 1 5 14
Change in borrowings........................................ 118 630 0
Share repurchases(2)........................................ -- (34) (57)
Change in treatment of treasury shares(2)................... 34 -- --
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 100 572 (68)
IV -- IMPACT OF EXCHANGE RATE FLUCTUATIONS.................. 4 5 0
NET CHANGE IN CONSOLIDATED CASH FLOWS (I + II + III + IV)... 220 126 1
Cash and cash equivalents (including marketable securities
less bank overdrafts) at beginning of year................ 263 137 136
Cash and cash equivalents (including marketable securities
less bank overdrafts) at end of year(2)................... 483 263 137
NET CHANGE IN CASH AND CASH EQUIVALENTS (INCLUDING
MARKETABLE SECURITIES LESS BANK OVERDRAFTS)............... 220 126 1
---------------
(1) After deducting the net cash of the companies acquired (E235 million in net
cash of Zenithmedia).
(2) As from 2001, given their new function, treasury shares are treated as
marketable securities.
See notes to the consolidated financial statements
F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS OF EUROS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Since January 1, 2000, the consolidated financial statements of Publicis
Group and its subsidiaries (Publicis or the Group) have been prepared in
accordance with French generally accepted accounting principles, including the
new rules and accounting policies applicable to consolidated financial
statements in France ("nouvelles regles et methodes relatives aux comptes
consolides"), approved by the ministerial order of June 22, 1999, which enacted
Rule 99-02 of the accounting rules and regulation committee (Comite de
Reglementation Comptable or CRC).
The application of the new rules has been treated as a change in accounting
policy in 2000. Due to the insignificant impact of the change in accounting
method on the financial statements for the year ended December 31, 1999, the
Group has elected not to present pro forma information. The overall net effect
on shareholders' equity as at January 1, 2000 of this change is E8 million.
1.1. PRINCIPLES OF CONSOLIDATION
REPORTING CURRENCY
Since January 1, 1999, Publicis has prepared and reported its consolidated
financial statements in euros. All previous historical financial information has
been converted to euros using the official conversion rate established on
January 1, 1999 of FF 6.55957 = 1 euro.
SCOPE OF CONSOLIDATION
Publicis consolidates all subsidiaries over which it exercises exclusive
direct or indirect control.
The companies over which Publicis exercises significant influence,
generally where the percentage of ownership and share of the voting rights is at
least 20%, are accounted for by the equity method.
The list of the principal consolidated companies together with their method
of consolidation is presented in note 28.
TRANSLATION OF ACCOUNTS OF FOREIGN SUBSIDIARIES
The financial statements of subsidiaries located outside of the euro zone,
where the functional currency is the local currency, are translated into euros
as follows:
-- assets and liabilities are translated at year-end exchange rates;
-- statement of income items are translated at average exchange rates for
the year;
-- translation gains and losses resulting from the application of these
rates are recorded in retained earnings for the portion related to the
Group interest, with the remainder recorded in minority interests.
YEAR-END
The Group, the parent company and nearly all consolidated subsidiaries have
a year-end of December 31.
INTERCOMPANY TRANSACTIONS
Intercompany transactions, including related revenues and expenses,
accounts receivable and accounts payable, are eliminated in consolidation.
F-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1.2. SIGNIFICANT ACCOUNTING POLICIES
RESEARCH COSTS
Publicis records expenses related to studies and research in the period in
which they are incurred.
These expenses relate primarily to the following: studies and tests related
to advertising campaigns, costs resulting from the development of internet sites
and related tools, research programs on consumer behavior and advertisers' needs
in various areas, and studies and modeling conducted in order to optimize the
use and choice of media for the clients of the Group.
GOODWILL
Goodwill arising on consolidation represents the difference between the
acquisition cost of interests in consolidated companies and the Group's equity
in the underlying net assets at the date of acquisition.
Goodwill is amortized on a straight-line basis according to the following
principles:
-- goodwill related to media purchasing and sales subsidiaries is amortized
over five years;
-- goodwill related to the international media purchasing network is
amortized over a twenty-year period;
-- goodwill related to communications subsidiaries is amortized over a
period of 10 to 40 years based on the country, size and the specific
characteristics of each agency.
The carrying value of goodwill is reviewed for impairment when events and
circumstances indicate that the carrying value may not be recoverable, based on
the valuation criteria used at the time of the acquisition. If the fair value of
the goodwill is lower than the carrying value, a provision is made to reduce the
carrying value of the goodwill to the fair value.
PURCHASE ACCOUNTING AND GOODWILL
Upon acquisition of sole ownership of a business, the purchase price is
allocated to the fair value of identifiable assets and liabilities of the
business acquired. The excess of the purchase price of such assets and
liabilities, as recorded in the consolidated balance sheet, over their carrying
value in the acquired entity's accounts is recorded as goodwill.
OTHER INTANGIBLE ASSETS
Other intangible assets are comprised primarily of client relationships,
trademarks and software.
Trademarks and identifiable components of client relationships are
amortized over their estimated useful life. Non-identifiable components are
valued and accounted for in the same manner as goodwill.
Software consists of the following:
-- software purchased for internal use, which is stated at purchase cost;
-- internally developed software for sales and marketing purposes, which is
used primarily by the Group's information systems services subsidiary,
is stated at production cost.
Software is generally amortized over a period of one or two years and not
in excess of three years.
PROPERTY AND EQUIPMENT
Property and equipment is stated at historical acquisition cost. A limited
number of assets have been revalued in accordance with French legislation; the
value of such assets is not significant.
F-9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment is depreciated on a straight-line basis over the
assets' estimated useful lives as described below:
-- Buildings: between 20 and 50 years.
-- Fixtures, fittings and general installations: 10 years.
-- Billboards: 4 to 7 years.
-- Office furniture and equipment: 5 to 10 years.
-- Vehicles: 4 years.
-- Computer hardware: 2 to 4 years.
Pursuant to the new rules for consolidated financial statements (99-02 of
the Comite de reglementation comptable or CRC), beginning January 1, 2000,
Publicis records assets under capital leases in property and equipment with
corresponding amounts recorded in financial debt. These assets are amortized
over the periods described above. In the statement of income, the lease rental
expenses are replaced by interest expense on the debt and the depreciation
expense on the assets.
INVESTMENTS IN NON-CONSOLIDATED AFFILIATES
Investments in non-consolidated affiliates are recorded at the lower of
historical acquisition cost and fair value. Fair value is determined on the
basis of criteria such as revalued net assets, capitalized earnings, quoted
stock prices, the outlook for the sector or industry and the strategic value of
the investment to the Group.
LOANS AND ADVANCES TO AFFILIATES
Loans and advances to affiliates represent receivables from affiliates
accounted for by the equity method or other non-consolidated affiliates.
A provision is recorded against these receivables when there is a
recoverability risk resulting from the financial condition of the subsidiaries
or affiliates concerned. Such provisions are included in "Provisions for
long-term investments."
INVENTORY AND COSTS BILLABLE TO CLIENTS
Inventory and costs billable to clients represent primarily
work-in-progress related to advertising which consists of technical, creative
and production work (graphic design, TV and radio production, editing, etc.)
which is billable, but has not yet been billed to clients. A provision for
depreciation is recorded when the revenue to be received on completion of the
work is expected to be inferior to the production costs incurred. Non-billed
work or costs incurred relating to new client development activities are not
capitalized except when the eventual billing of expenses incurred during the
proposal process is specified in the contract. Costs billable to clients do not
include the direct costs of personnel.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded at their carrying value. An allowance for
doubtful accounts is recorded for receivables for which there is a collection
risk.
Accounts receivable denominated in foreign currencies are recorded at the
year-end exchange rate. Unrealized gains and losses resulting from currency
translation are recorded in the income statement.
MARKETABLE SECURITIES
The gross value of marketable securities is recorded at the lower of cost
or market, which may be depreciated with reference to the average stock market
price during the most recent month. In 2001, the
F-10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management Board decided to irrevocably allocate treasury shares to the new
option plans relating to the purchase of existing shares. As such, treasury
shares are now presented within marketable securities and are therefore treated
as cash equivalents. Prior to December 31, 2000, given their previous function,
they were deducted from shareholders' equity.
PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS
The policies applied by Publicis are in accordance with the laws and
regulations of the respective countries in which the subsidiaries of the Group
are located and are described below:
-- in the U.K., the United States and Germany, the obligations related to
pensions and other retirement benefits are held in investment trusts
with insurance companies. These plans may be either:
-- defined contribution plans: the amount of contributions by the Group to
the investment funds is defined and recorded as expense during the
period.
-- defined benefit plans: the benefit amounts to be received upon
retirement are defined and accounted for by establishing a provision
intended to cover the present value of the obligation to be paid to
employees at retirement, as calculated by actuaries based upon years of
service.
-- In France, employees are entitled to a lump sum payment, upon retirement
based on years of service.
-- In Italy, employees are entitled to a lump sum payment, upon termination
based on years of service.
RESTRUCTURING RESERVES
Restructuring costs are fully provided for in the period in which the
decision to implement the restructuring plan is made. These costs consist
primarily of severance and early retirement payments, other employment expenses,
and potential write-downs of property and equipment and other assets.
VACANT PROPERTY PROVISIONS
A provision is established for the amount of rent and related expenses to
be paid -- net of any sublease revenues to be received -- for all buildings that
are sublet or vacant and not intended to be used for the principal activities of
the Group.
REVENUES
Revenues (or gross margin) represent the commissions and fees for services
of companies in the advertising industry. The Group's revenue recognition
policies are summarized below:
-- Fees: when the service is provided to the client.
-- Sales of media space: date of publication or broadcast.
-- Sales of technical advertising: when services are performed.
The Group has not entered into any significant barter transactions.
INCOME TAXES
Net income is taxed based on the tax laws and regulations in effect in the
respective countries where the income is recognized. In accordance with the
provisions of rule 99-02 of the CRC, Publicis records deferred income taxes
resulting from temporary differences between the tax basis and the book basis of
assets and liabilities.
Taxable and deductible temporary differences are determined by their dates
of maturity and may reverse from year to year. Temporary differences are
calculated by taxable entity.
F-11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes are calculated based on the tax laws and regulations in
effect at the respective year-ends and using the tax rates expected to be in
effect when the temporary differences reverse. The impact of changes in enacted
tax rates are recorded in the income statement in the period in which the change
in the tax rate is decided.
Deferred tax assets are recognized when the respective taxable entities are
reasonably assured to recover the benefits in future periods.
The recording of deferred taxes has been treated as a change in accounting
method and therefore, the effect has been recorded in opening shareholders'
equity.
EXCEPTIONAL INCOME
Exceptional income represents exceptional items, net of tax, which do not
result from normal operations.
INTEREST RATE RISK
Group management determines the mix between fixed and variable-rate debt
and periodically reviews its decision based on interest rate trend forecasts.
At December 31, 2001, the majority of the Group's debt accrued interest at
variable rates. Only the issue of E200 million in notes exchangeable for
Interpublic Group shares accrued interest at a fixed rate (2% per annum). In
fiscal 2001, the Group did not make use of derivative instruments to hedge
possible interest rate risk, because that risk was deemed not significant.
In order to reduce both overall interest expense and its exposure to
interest rate risk, the Group has continued with the financial debt
restructuring program it initiated at the end of 2001, proceeding in January
2002 with an Oceanes issue for E690 million, the annual yield to maturity of
which is 2.75% (see note 27, "Subsequent events").
Following this issuance, three quarters of the Group's financial
liabilities were composed of fixed-rate instruments with an average interest
rate of 2.13%.
EXCHANGE RATE RISK
The majority of sales transactions are denominated in the local currencies
of the countries in which they are realized. As a result, exchange rate risk is
not significant.
In addition, changes in exchange rates between other currencies and the
euro, the currency in which the Group's accounts are presented, may have an
impact on the Group's financial position. The breakdown of Group revenues among
the various currencies is as follows:
-- Euro 33%
-- U.S. dollar 40%
-- Pound sterling 9%
-- Other 18%
---
-- Total revenues 2001 100%
COUNTRY RISK
Publicis' operations in geographic regions considered to be at risk (Asia
Pacific, Latin America) continue to represent a minor portion (7%) of
consolidated revenues.
F-12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net earnings by the
weighted average number of ordinary shares outstanding during the period. Until
December 31, 2000, treasury shares held at the balance sheet date were not
included in this figure. From January 1, 2001, given the change in treatment,
the denominator includes all of the shares issued, including treasury stock.
Diluted earnings per share is calculated based on the weighted average
number of shares outstanding during the period and including potential ordinary
shares resulting from all outstanding stock options being exercised at year-end.
2. CHANGES IN CONSOLIDATION SCOPE
2001
The principal change in consolidation scope in 2001 results from the
agreements signed at the end of September 2001 with Cordiant Communications
Group.
According to the terms of this agreement, a new U.K.-based company called
Zenith Optimedia Group was formed, which is governed by British law, and is
75%-owned by Publicis and 25%-owned by Cordiant.
This new group, in the consulting and media purchasing sector, was
constituted through the contributions and disposals of the following entities:
-- Zenithmedia Holding and its subsidiaries, located in the United States,
England and nine other European countries;
-- Optimedia in the United States, England, France, Spain, Portugal, Italy,
the Netherlands, Canada and Germany; and
-- More Media in Germany.
Additionally, according to the terms of the shareholders' agreement,
Cordiant may sell its 25% stake in Zenith Optimedia Group to Publicis and
Publicis may exercise a purchase option enabling it to repurchase Cordiant's
stake.
Prior to this operation, Publicis owned practically 100% of Optimedia and
More Media, and, through Saatchi & Saatchi, held a 50%-stake in Zenithmedia,
which was accounted for using the equity method beginning in September, 2000 (as
a result of the acquisition of Saatchi & Saatchi).
This operation is comprised of two components in the consolidated financial
statements:
-- the purchase of an additional 25%-stake in Zenithmedia with the
recognition of goodwill on acquisition,
-- additionally, the disposal of a 25%-stake in Optimedia with the
recognition of a capital gain on disposal in the consolidated statement
of income.
The capital gain on sale and goodwill on acquisition were determined on the
basis of the fair market value of Zenithmedia and Optimedia, both of which were
deemed to be E240 million (E60 million for the 25% that was acquired and sold).
Residual goodwill (after allocating the purchase price discrepancy to
identifiable intangible assets) arising from the additional 25% acquisition of
Zenithmedia amounted to E41 million, to be amortized over 20 years.
F-13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The summary balance sheet of Zenith Media Group as of the acquisition date
is as follows (expressed in millions of euros):
Property, equipment and intangible assets................... 8
Operating receivables....................................... 307
Net cash and cash equivalents............................... 235
---
TOTAL ASSETS................................................ 550
---
Shareholders' equity (including earnings Jan. 1 to Sept. 30, (28)
2001).....................................................
Operating payables.......................................... 578
---
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 550
---
In addition to its purchase of an additional stake in Zenithmedia, during
the course of fiscal year 2001, Publicis carried out a number of purchase
transactions designed primarily to increase its positions in specialized
agencies and marketing services (SAMS): the Triangle Group, a U.K.-based leader
in the field of sales promotions; Carre Noir, a major French design agency;
Fish.Meier.Direkt in Switzerland; Ecocom, a French financial communications
agency; Fabianne Gershon Associates and The Hudson Stone Group, two U.S.
financial communications agencies; Fusion DM and Creative AIM, two agencies
specialized in relational marketing in the U.S. and finally Sanchez & Levitan
and the Dallas and Los Angeles-based offices of Siboney USA, the leading
Hispanic communications agencies in the U.S. market.
Publicis also acquired two traditional communications agencies with the
objective of bolstering the Group's geographical coverage: Metro in Indonesia
and Impetu in Uruguay.
2000
In September 2000, Publicis made a public exchange offer for Saatchi &
Saatchi. This significant transaction has been treated in accordance with the
derogatory method under article 215 of rule 99-02 of the CRC, which permits
Publicis to substitute the value of net assets acquired, adjusted to conform
with Group accounting policies, for the purchase price of the shares of Saatchi
& Saatchi. Therefore, no goodwill resulted from this transaction and the
difference resulting from the application of the derogatory method has been
recorded in consolidated shareholders' equity. This transaction resulted in an
increase in capital stock and additional paid-in capital of E1,883 million
through the issuance of 43,889,149 shares. Publicis simultaneously issued
43,889,149 contingent value rights with a maturity date of March 2002.
In addition to the acquisition of Saatchi & Saatchi, Publicis made several
acquisitions during the year ended December 31, 2000.
In the beginning of 2000, Publicis acquired 100% of Frankel and Company, an
independent American agency specialized in the marketing services segment.
Also in early 2000, Publicis acquired 100% of the American agency Fallon,
an independent agency in the United States. Publicis intends to develop Fallon
into a worldwide network.
In November 2000, the Group acquired 100% of Nelson Communications, a
company specialized in advertising communications for the healthcare industry in
the United States. Ninety percent of this acquisition was financed through an
exchange of stock.
In 2000, Publicis also acquired interests in the DeWitt Media and Winner &
Associates in the United States, Bolbel Adam in Germany, Publicis Asociados in
Peru and Publicis Networks in France.
F-14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. GOODWILL AND INTANGIBLE ASSETS, NET
Analysis of the principal components of goodwill related to consolidated
subsidiaries:
OTHER NORTH REST OF
FRANCE EUROPE AMERICA WORLD TOTAL
------ ------ ------- ------- -----
(IN MILLIONS OF EUROS)
NET BOOK VALUE 1999.................................. 27 51 92 67 237
--- --- --- --- -----
NET BOOK VALUE 2000.................................. 31 63 670 97 861
--- --- --- --- -----
Year 2001:
Existing goodwill at January 1, 2001............... 43 93 718 123 977
2001 additions..................................... 26 65 74 3 168
--- --- --- --- -----
Total gross book value............................. 69 158 792 126 1,145
Amortization....................................... (21) (49) (47) (35) (152)
--- --- --- --- -----
TOTAL NET BOOK VALUE 2001............................ 48 109 745 91 993
--- --- --- --- -----
CHANGES IN GOODWILL AND OTHER INTANGIBLE ASSETS, GROSS
GROSS BOOK VALUE
-----------------------------------------------
CLIENT SOFTWARE AND
GOODWILL RELATIONSHIPS OTHER TOTAL
-------- ------------- ------------ -----
(IN MILLIONS OF EUROS)
DECEMBER 31, 1998................................... 241 5 16 262
----- --- -- -----
Additions........................................... 75 8 4 87
Disposals........................................... (33) -- (1) (34)
Translation and other............................... 5 1 -- 6
----- --- -- -----
DECEMBER 31, 1999................................... 288 14 19 321
----- --- -- -----
Additions........................................... 646 1 12 659
Disposals........................................... (1) (1) -- (2)
Translation and other............................... 12 (7) 7 12
----- --- -- -----
DECEMBER 31, 2000................................... 945 7 38 990
----- --- -- -----
Additions(1)........................................ 168 176 9 353
Disposals........................................... (6) 0 (2) (8)
Translation and other............................... 38 1 1 40
----- --- -- -----
DECEMBER 31, 2001................................... 1,145 184 46 1,375
----- --- -- -----
---------------
(1) including amounts arising from the additional 25% acquisition of Zenithmedia:
41 174
F-15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CHANGES IN ACCUMULATED GOODWILL AMORTIZATION AND OTHER INTANGIBLE ASSETS
ACCUMULATED AMORTIZATION
-----------------------------------------------
CLIENT SOFTWARE AND
GOODWILL RELATIONSHIPS OTHER TOTAL
-------- ------------- ------------ -----
(IN MILLIONS OF EUROS)
DECEMBER 31, 1998.................................... 37 1 9 47
--- -- -- ---
Additions............................................ 18 1 2 21
Disposals............................................ (4) -- -- (4)
Translation and other................................ -- -- -- --
--- -- -- ---
DECEMBER 31, 1999.................................... 51 2 11 64
--- -- -- ---
Additions............................................ 33 1 5 39
Disposals............................................ -- -- (2) (2)
Translation and other................................ -- -- 6 6
--- -- -- ---
DECEMBER 31, 2000.................................... 84 3 20 107
--- -- -- ---
Additions(1)......................................... 63 3 5 71
Disposals............................................ -- -- (1) (1)
Translation and other................................ 5 (1) 2 6
--- -- -- ---
DECEMBER 31, 2001.................................... 152 5 26 183
--- -- -- ---
---------------
(1) of which exceptional items: 16 16
F-16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT, NET
CHANGES IN PROPERTY AND EQUIPMENT
GROSS BOOK VALUE
----------------------------------
LAND AND BUILDINGS OTHER TOTAL
------------------ ----- -----
(IN MILLIONS OF EUROS)
DECEMBER 31, 1998........................................... 30 234 264
-- --- ---
Additions................................................... 13 40 53
Disposals................................................... (5) (16) (21)
Translation and other....................................... 3 9 12
-- --- ---
DECEMBER 31, 1999........................................... 41 267 308
-- --- ---
Impact of the application of rule 99-02..................... 8 -- 8
-- --- ---
DECEMBER 31, 1999 ADJUSTED.................................. 49 267 316
-- --- ---
Impact of acquisitions...................................... 15 391 406
Additions................................................... 8 83 91
Disposals................................................... (2) (30) (32)
Translation and other....................................... 4 (1) 3
-- --- ---
DECEMBER 31, 2000........................................... 74 710 784
-- --- ---
Impact of acquisitions...................................... -- 29 29
Additions................................................... 2 97 99
Disposals................................................... -- (73) (73)
Translation and other....................................... (2) 17 15
-- --- ---
DECEMBER 31, 2001........................................... 74 780 854
-- --- ---
LAND AND BUILDINGS
Publicis has land and buildings with a net book value of E54 million at
December 31, 2001.
The Group's principal real property asset is its corporate headquarters
located at 133 avenue des Champs-Elysees in Paris. This seven-story building
contains office space primarily occupied by Group companies and commercial
property occupied by the Champs-Elysees Drugstore and two public cinemas. A
major renovation program of the Drugstore and movie theater complex was started
on December 30, 2001.
The parent company, Publicis Groupe S.A., owns four floors of a building
occupied by Metrobus at 15 rue du Dome in Boulogne, a suburb of Paris. Publicis
also has a capital lease contract expiring in 2007 for the two other floors in
this building. Following the acquisition of Saatchi & Saatchi, the Group also
owns a six-story building located at 30 rue Vital Bouhot in Neuilly-sur-Seine, a
suburb of Paris, comprising office space which is for the most part occupied by
Group companies.
Outside France, Publicis agencies own buildings in Brussels, Amsterdam,
Lisbon, Lima and Seoul, all in city center locations.
OTHER PROPERTY AND EQUIPMENT
The Group has significant information systems equipment dedicated to the
creation and production of advertising, the management of media buying and
administrative functions. Publicis Technology, the Group's computer services and
electronic communications subsidiary, owns significant amounts of conventional
computer and information systems equipment as well as equipment for new media
and technologies.
F-17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, property and equipment includes E55 million (E10 million net
book value) of billboards and furniture and fixtures belonging to the Group's
outdoor display companies, principally Publex in the Netherlands and Metrobus, a
sales unit specializing in public transportation advertising space.
ASSETS UNDER CAPITAL LEASES
The net book value of these assets recorded in the consolidated balance
sheet is E15 million at December 31, 2001.
The principal assets capitalized are an office building located in the rue
du Dome in Boulogne Billancourt and a building on the Ile de la Jatte in
Neuilly, both in France.
This item did not vary appreciably with respect to the preceding year.
CHANGES IN ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
ACCUMULATED DEPRECIATION
-------------------------
LAND AND
BUILDINGS OTHER TOTAL
--------- ----- -----
(IN MILLIONS OF EUROS)
DECEMBER 31, 1998........................................... 8 160 168
-- --- ---
Additions................................................... 1 28 29
Disposals................................................... (1) (16) (17)
Translation and other....................................... -- 5 5
-- --- ---
DECEMBER 31, 1999........................................... 8 177 185
-- --- ---
Impact of the application of rule 99-02..................... 2 -- 2
-- --- ---
DECEMBER 31, 1999 ADJUSTED.................................. 10 177 187
-- --- ---
Impact of acquisitions...................................... 5 239 244
Additions................................................... 1 52 53
Disposals................................................... (2) (27) (29)
Translation and other....................................... 1 (2) (1)
-- --- ---
DECEMBER 31, 2000........................................... 15 439 454
-- --- ---
Impact of acquisitions...................................... -- 20 20
Additions................................................... 2 76 78
Disposals................................................... -- (61) (61)
Translation and other....................................... 2 10 12
-- --- ---
DECEMBER 31, 2001........................................... 19 484 503
-- --- ---
F-18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENTS AND OTHER FINANCIAL ASSETS, NET
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
(IN MILLIONS OF EUROS)
Investments in non-consolidated affiliates.............. 37 37 29
Investments accounted for by the equity method.......... 8 7 7
Advances to affiliates.................................. 15 19 6
Other financial assets, gross........................... 33 32 17
--- -- --
GROSS BOOK VALUE........................................ 93 95 59
Provisions for investments and financial assets......... (18) (6) (2)
NET BOOK VALUE.......................................... 75 89 57
--- -- --
LIST OF INVESTMENTS IN NON-CONSOLIDATED ENTITIES AT DECEMBER 31, 2001
% OF GROSS NET MARKET
OWNERSHIP VALUE VALUE VALUE
--------- ----- ----- ------
(IN MILLIONS OF EUROS)
Interpublic Group (IPG)..................................... 1.4% 23 23 178
Other....................................................... -- 14 12 n/a
--- -- -- ---
TOTAL....................................................... 37 35
--- -- -- ---
Summary data on IPG (consolidated figures):
2001
------------------------
(IN MILLIONS OF DOLLARS)
Revenue..................................................... 5,626
Net income.................................................. 358
Shareholders' equity at Dec. 31............................. 2,369
6. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
Investments accounted for by the equity method at December 31, 2001 totaled
E8 million (at December 31, 2000: E7 million; at December 31,1999: E7 million).
The variation in the account during fiscal year 2001 can be broken down as
follows:
(IN MILLIONS OF EUROS)
----------------------
TOTAL AT JANUARY 1, 2001.................................... 7
Group share of earnings from 2001 acquisitions.............. 2
Dividends paid in 2001...................................... (1)
--
TOTAL AT DECEMBER 31, 2001.................................. 8
--
We note that at December 31, 2000, the Group's stake in Zenithmedia, which
due to a shareholders' deficit, is provided for in "Provisions for contingencies
and charges" of E19 million.
As a consequence of the purchase of the additional 25% equity-accounted
stake in Zenithmedia, this investment has been fully consolidated from October
1, 2001. However, the share in earnings attributable to Publicis for the first
nine-month period, amounting to E7 million, which was also distributed to the
Group as a dividend, is included in the statement of income under "equity in net
income of non-consolidated companies," and is added to the share in earnings
from other investments (E2 million). In total, the Group's share in earnings
from equity-accounted companies recorded in the statement of income amounts to
E9 million.
F-19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVENTORY AND COSTS BILLABLE TO CLIENTS
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
(IN MILLIONS OF EUROS)
Advertising costs billable to clients................... 193 123 44
Other inventory (Drugstore, inventory for display
companies)............................................ 6 6 5
--- --- --
GROSS BOOK VALUE........................................ 199 129 49
Provision for depreciation.............................. (4) -- --
--- --- --
NET BOOK VALUE.......................................... 195 129 49
--- --- --
The balance at December 31, 2001 includes, among other things, the sum of
E42 million relating to an advertising campaign for which billing is currently
underway, covered by a client advance of an equivalent amount (recorded in the
balance sheet in "Other payables").
8. ACCOUNTS RECEIVABLE
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
(IN MILLIONS OF EUROS)
Trade accounts receivable............................... 1,874 1,793 996
Notes receivable........................................ 19 9 26
----- ----- -----
GROSS BOOK VALUE........................................ 1,893 1,802 1,022
Allowance for doubtful accounts......................... (48) (32) (20)
----- ----- -----
NET BOOK VALUE.......................................... 1,845 1,770 1,002
----- ----- -----
All accounts receivable are due within one year.
Note: for situations in which Publicis buys media space as an agent on
behalf of its clients in France (transactions for which there is no income
statement impact), the related accounts receivable are recorded in "Other
receivables" in the balance sheet.
9. OTHER RECEIVABLES
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(IN MILLIONS OF EUROS)
Taxes receivable............................................ 68 76
Receivables on agency transactions.......................... 75 88
Advances to suppliers....................................... 30 25
Other receivables........................................... 171 137
Prepaid expenses and other.................................. 68 69
--- ---
GROSS BOOK VALUE............................................ 412 395
Provision................................................... (1) (12)
--- ---
NET BOOK VALUE (EXCLUDING DEFERRED TAX ASSETS).............. 411 383
Deferred tax assets -- Net.................................. 28 16
--- ---
NET BOOK VALUE (INCLUDING DEFERRED TAX ASSETS).............. 439 399
--- ---
Other receivables are due within one year, except in the case of deferred
tax assets, for which the maturities are for the most part unspecified.
F-20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. MARKETABLE SECURITIES
The portfolio of marketable securities at December 31, 2001, the net value
of which is E178 million, consists primarily of:
- E42 million of money market funds, mutual funds, certificates of deposit
and bonds, with the stock market value of listed securities being very
slightly higher than the historic value.
- E136 million of treasury stock (after provisions of E2 million). The
variation in the Group's portfolio of treasury stock between December 31,
2000 and December 31, 2001 is as follows:
NUMBER OF BALANCE SHEET
SHARES VALUE
--------- -------------
(IN MILLIONS
OF EUROS)
TREASURY STOCK AT DECEMBER 31, 2000......................... 871,309 34
2001 purchases.............................................. 3,857,758 120
Exercised options and other................................. (98,640) (16)
Treasury shares held at December 31, 2001 before
provision................................................. 4,630,427 138
Accrued losses on treasury shares........................... -- (2)
--------- ---
TREASURY STOCK AT DECEMBER 31, 2001 AFTER PROVISION......... 4,630,427 136
--------- ---
11. SHAREHOLDERS' EQUITY
IMPACT OF THE SAATCHI & SAATCHI ACQUISITION -- 2001 ADDITION
The acquisition of Saatchi & Saatchi, which was completed in 2000, was
treated in accordance with the derogatory method under article 215 of Rule 99-02
of the CRC which permits Publicis to substitute the value of the net assets
acquired, adjusted to conform with Group accounting policies, for the purchase
price of the shares of Saatchi & Saatchi. This resulted in an amount of E2,069
million being recorded in shareholders' equity, increased for costs incurred by
Publicis related to the acquisition of E11 million after tax (recorded in
shareholders' equity in accordance with Rule 99-02 of the CRC). In total, the
net effect amounts to E198 million after considering the capital increase and
additional paid-in capital related to the issuance of shares (E1,883 million).
The amount of the capital increase related to this transaction amounts to
E17 million, representing 43,889,149 shares at a par value of E0.3811.
In 2001, the finalization of the allocation of the Saatchi & Saatchi
acquisition cost via its different components resulted in the recording of an
additional impact of E37 million in this period. This amount is comprised
essentially of restructuring costs (E15 million), the cost of setting up
Publicis stock option plans in substitution for existing Saatchi & Saatchi
programs (E10 million), accounting policy harmonization adjustments on the
opening balance sheet (E8 million) and additional expenses relating to the
acquisition (E1 million).
An additional charge of E195 million was made in connection with this
acquisition, since it appeared that the payment of CVRs (Contingent Value
Rights) maturing in March 2002 was highly probable as of the balance sheet date.
The corresponding debt was recorded in the balance sheet under "Accrued expenses
and other liabilities."
The amount of E195 million was determined on the basis of the number of CVR
in circulation at December 31, 2001 (45,194,876) and taking into account the
maximum unit value per CVR of E4.32.
F-21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVALUATION OF 50% OF ZENITHMEDIA PREVIOUSLY EQUITY-ACCOUNTED
As previously discussed, the agreements signed in September 2001 with
Cordiant Communications Group have resulted in the recognition in the Group's
consolidated financial statements of an additional 25%-stake in Zenithmedia. The
full consolidation of Zenithmedia as of September 2001 results in an increase in
consolidated shareholders' equity of E60 million, which corresponds to the net
tax impact relating to the 50% previously held in Zenithmedia.
CHANGE IN THE TREATMENT OF EXISTING TREASURY SHARES DURING FISCAL YEAR 2001
Following the decisions of the Management Board during fiscal year 2001 to
allocate exclusively to employee attribution the treasury shares held in the
portfolio, the shares that were previously deducted from shareholders' equity
are now recorded as marketable securities.
On this basis, the amount of the treasury shares held at December 31, 2000
(E34 million), which was debited at the time to shareholders' equity, had an
equal and opposite effect in 2001.
The variation in treasury stock from December 31, 1999 to 2000, considered
a reduction in shareholders' equity at that time, is as follows:
NUMBER OF BALANCE SHEET
SHARES VALUE
---------- -------------
(IN MILLIONS
OF EUROS)
TREASURY STOCK AT DECEMBER 31, 1999......................... 4,181,920 71
2000 purchases.............................................. 3,480,077 141
Shares approved for use in acquiring Nelson
Communications............................................ (6,790,688) (178)
---------- ----
TREASURY STOCK AT DECEMBER 31, 2000......................... 871,309 34
---------- ----
IMPUTATION OF GOODWILL TO SHAREHOLDERS' EQUITY
Over the last 10 years, the only significant imputation of goodwill to
shareholders' equity related to the acquisition of Groupe FCA, for which
goodwill of E54 million was recognized. This goodwill, which related to all of
the subsidiaries of the FCA network, would have been amortized over periods of
10 to 40 years.
F-22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. MINORITY INTERESTS
RETAINED
EARNINGS
------------
(IN MILLIONS
OF EUROS)
DECEMBER 31, 1998........................................... 44
---
Dividends paid by subsidiaries to minority interests........ (13)
Consolidated net income for the period, minority interest... 20
---
DECEMBER 31, 1999........................................... 51
---
Dividends paid by subsidiaries to minority interests........ (14)
Consolidated net income for the period, minority
interests................................................. 31
Other....................................................... 9
---
DECEMBER 31, 2000........................................... 77
---
Dividends paid by subsidiaries to minority interests........ (25)
Consolidated net income for the period, minority
interests................................................. 19
Minority interests (25%) in Zenith's negative equity
position at the date of the additional 25% purchase....... (9)
Minority interests (25%) in the revaluation of Zenith
assets.................................................... 30
Other....................................................... (3)
---
DECEMBER 31, 2001........................................... 89
---
F-23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. PROVISIONS FOR CONTINGENCIES AND CHARGES
PENSIONS
AND OTHER
POST- DEFERRED ZENITH
EMPLOYMENT LEGAL TAX CLIENT EQUITY VACANT
BENEFITS PROVISIONS LIABILITIES RISKS RESTRUCTURING METHOD PROPERTY OTHER TOTAL
---------- ---------- ----------- ------ ------------- ------ -------- ----- -----
(IN MILLIONS OF EUROS)
DECEMBER 31, 1998......... 23 9 -- 4 -- -- 5 25 66
-- -- -- -- -- --- --- --- ---
Additions................. 3 -- -- -- 3 -- 1 14 21
Reversals and
utilization............. -- (4) -- (2) -- -- -- (11) (17)
-- -- -- -- -- --- --- --- ---
DECEMBER 31, 1999......... 26 5 -- 2 3 -- 6 28 70
-- -- -- -- -- --- --- --- ---
Impact of acquisitions.... 8 6 -- -- 12 16 75 117
Additions................. 5 3 -- 6 -- 3 2 16 35
Reversals and
utilization............. (4) (1) -- (2) (5) -- (9) (20) (41)
Translation and other..... 2 -- -- -- -- -- (10) (4) (12)
-- -- -- -- -- --- --- --- ---
DECEMBER 31, 2000......... 37 13 -- 6 10 19 64 20 169
-- -- -- -- -- --- --- --- ---
Impact of
acquisitions(1)......... 3 -- -- -- -- (19) -- 6 (10)
Additions................. 8 3 10 -- 9 -- 4 14 48
Reversals and
utilization............. (5) (3) (2) -- (4) -- (9) (16) (39)
Translation and
other(2)................ 12 1 6 (3) (1) -- -- 3 18
Other(3).................. 14 -- 52 -- 4 -- 10 -- 80
-- -- -- -- -- --- --- --- ---
DECEMBER 31, 2001......... 69 14 66 3 18 -- 69 27 266
-- -- -- -- -- --- --- --- ---
---------------
(1) The provision resulting from equity-accounting for Zenithmedia (50%-owned at
the time) was canceled due to the purchase of the additional 25% stake in
Zenithmedia, which led to the full consolidation of this sub-group.
(2) Pension benefits increased by E10 million relating to the reclassification
of amounts that were included at the end of 2000 under "Accrued expenses and
other liabilities."
(3) All provisions included in this category were established in the past year
and correspond to adjustments and revaluations made in the opening balance
sheets of entities acquired in the course of the fiscal year.
DEFERRED TAX LIABILITIES
This account is comprised of E52 million relating to the tax payable on the
revaluation of Zenithmedia's assets.
PROVISIONS FOR RESTRUCTURING
Restructuring provisions represent primarily an estimation of the costs
relating to the closure or restructuring of certain activities resulting from
plans that had been announced but not yet executed at December 31, 2001
(principally severance pay).
VACANT PROPERTY PROVISIONS
Vacant property provisions consist primarily of a reserve recorded at
Saatchi & Saatchi to cover future losses related principally to the lease
contract for the building at 375 Hudson Street in New York (E56 million at
December 31, 2001).
F-24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. BANK BORROWINGS AND OVERDRAFTS
DECEMBER 31
----------------------
2001 2000 1999
------ ----- -----
(IN MILLIONS OF EUROS)
Debenture loans............................................. 200 -- --
Other loans and short-term credit lines..................... 549 630 --
Bank overdrafts............................................. 316 266 212
Obligations under capital leases............................ 4 5 --
----- --- ---
TOTAL....................................................... 1,069 901 212
----- --- ---
ANALYSIS BY DATE OF MATURITY
DECEMBER 31
----------------------
2001 2000 1999
------ ----- -----
(IN MILLIONS OF EUROS)
Due in less than one year................................... 758 721 212
Due in one to five years.................................... 103 180 --
Due in more than five years................................. 208 -- --
----- --- ---
TOTAL....................................................... 1,069 901 212
----- --- ---
ANALYSIS BY CURRENCY
DECEMBER 31
----------------------
2001 2000 1999
------ ----- -----
(IN MILLIONS OF EUROS)
Euros....................................................... 592 446 158
U.S. dollars................................................ 328 360 1
Other currencies............................................ 149 95 53
----- --- ---
TOTAL....................................................... 1,069 901 212
----- --- ---
ANALYSIS BY TYPE OF INTEREST RATE
The principal portion of debt is made up of loans with variable rates of
interest. The weighted average interest rate for the year ended December 31,
2001 amounts to 5%.
At December 31, 2001, the Group had available lines of credit totaling
approximately E200 million which was subsequently replaced with an issuance of
bonds in early 2002. See note 27 "Subsequent events" for further details.
15. INCOME TAXES
ANALYSIS OF INCOME TAX EXPENSE
DECEMBER 31
------------------------
2001 2000 1999
------ ------ ------
(IN MILLIONS OF EUROS)
Current income tax expense.................................. (98) (93) (65)
Deferred income tax expense................................. (1) 1 --
--- --- ---
INCOME TAX ON INCOME OF CONSOLIDATED COMPANIES.............. (99) (92) (65)
--- --- ---
F-25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The above data do not include tax on exceptional items, which are presented
net of tax in the statement of income.
In 2001, a tax credit of E21 million was recorded with regard to
exceptional items.
In 2000 and 1999, tax on exceptional items amounted to E4 million and E7
million, respectively.
EFFECTIVE TAX RATE
The effective tax rate is as follows:
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(IN MILLIONS OF EUROS)
Income of consolidated companies before taxes and goodwill
amortization.............................................. 304 283
French statutory tax rate................................... 35.33% 37.8%
EXPECTED TAX EXPENSE........................................ (107) (107)
Impact of:
-- income of subsidiaries taxed at different rates........ (3) 5
-- income taxes at reduced rates.......................... 1 2
-- utilization of deferred tax assets on operating
losses(1).............................................. 37 8
-- provisions on deferred tax assets...................... (31) --
-- permanent differences
Zenith capital gain.................................... 21 --
Other.................................................. 4 (4)
----- ----
TAX EXPENSE RECORDED IN THE STATEMENT OF INCOME............. (78) (96)
----- ----
-- TAX ON RESULTS FROM OPERATIONS OF FULLY CONSOLIDATED
COMPANIES.............................................. (99) (92)
-- TAX ON EXCEPTIONAL ITEMS............................... 21 (4)
----- ----
EFFECTIVE TAX RATE.......................................... 26% 34%
INCLUDING TAX ON RESULTS FROM OPERATIONS.................... 32% 35%
----- ----
---------------
(1) In 2001, a tax credit of E37 million was recorded relating to the
recognition of tax credits attributable to carried forward expenses of
Saatchi & Saatchi group companies that arose in previous periods and that
may be utilized since the inclusion of Saatchi & Saatchi in the consolidated
tax filings in the U.S. in 2001. However, there is a substantial amount of
tax loss carry-forward at Saatchi & Saatchi, in respect of which, given the
uncertainties surrounding the limited potential to utilize these losses and
given that most of them are set to expire within a relatively short period
(three quarters expire in less than three years), a deferred tax credit has
not been recognized in the consolidated financial statements.
(2) The provision for deferred tax assets represents a valuation allowance
established on deferred tax assets due to uncertainties surrounding their
potential utilization.
F-26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED TAXES
Deferred tax assets and liabilities are included in the following balance
sheet line items:
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(IN MILLIONS OF EUROS)
Other receivables:
-- short-term portion..................................... 25 11
-- long-term portion...................................... 3 4
--- --
TOTAL DEFERRED TAX ASSETS................................... 28 15
--- --
Accrued expenses and other liabilities:
-- short-term portion..................................... (1) (1)
-- long-term portion...................................... (65) --
--- --
TOTAL DEFERRED TAX LIABILITIES.............................. (66) (1)
--- --
DEFERRED TAX ASSETS (LIABILITIES), NET...................... (38) 14
--- --
Deferred taxes consist of the following components:
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(IN MILLIONS OF EUROS)
Accrued expenses............................................ 25 12
Operating loss carry-forwards............................... 3 3
--- --
TOTAL DEFERRED TAX ASSETS................................... 28 15
--- --
Long-lived assets........................................... (14) (1)
Zenith asset revaluation.................................... (52) --
--- --
TOTAL DEFERRED TAX LIABILITIES.............................. (66) (1)
--- --
DEFERRED TAX ASSETS (LIABILITIES), NET...................... (38) 14
--- --
16. ACCOUNTS PAYABLE
The line "Accounts payable" includes all trade accounts payable (including
notes payable and accrued purchases) related to the purchase of goods and
services, except for purchases of media space in France under the Sapin Law (Loi
Sapin), which are included in "Accrued expenses and other liabilities." These
liabilities fall due in less than one year.
F-27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. ACCRUED EXPENSES AND OTHER LIABILITIES
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(IN MILLIONS OF EUROS)
Corporation taxes payable................................... 62 44
Payables related to agency transactions..................... 119 119
Other liabilities........................................... 35 79
Advances received........................................... 208 156
Other payables.............................................. 633 646
Deferred revenues and other liabilities..................... 62 50
Contingent Value Rights payable by Publicis(1).............. 195 --
----- -----
TOTAL....................................................... 1,314 1,094
----- -----
---------------
(1) Please see detailed explanation in note 11 -- Shareholders' equity.
18. OFF-BALANCE SHEET COMMITMENTS
RECEIVED AT
GIVEN AT DECEMBER 31, DECEMBER 31,
--------------------- ------------------
2001 2000 1999 2001 2000 1999
----- ----- ----- ---- ---- ----
(IN MILLIONS OF EUROS)
Discounted notes (drafts).............................. -- -- 1 -- -- --
Guarantees............................................. 3 4 3 13 19 12
Commitment to purchase 25% of Zenith Optimedia
Group(1)............................................. 123 -- -- 123 -- --
Contingent value rights (CVR) on Publicis shares(2).... -- 199 -- -- -- --
Other.................................................. 4 5 12 2 2 3
--- --- -- --- -- --
TOTAL.................................................. 130 208 16 138 21 15
--- --- -- --- -- --
---------------
(1) According to the terms of the agreement signed with Cordiant in September
2001, Publicis holds a put option over Cordiant's 25%-stake in Zenith
Optimedia Group, as well as a call option. The exercise price is determined
by applying to the results of Zenith Optimedia Group a multiple calculated
on the basis of the average price earnings ratio of Publicis and Cordiant.
The floor price of the 25% stake held by Cordiant has been fixed at L75
million (E123 million on the basis of the share price at December 31, 2001)
payable in cash.
(2) In light of the very strong likelihood that payment will be required on the
CVR maturing March 2002, the total amount falling due, E195 million, was
treated in the consolidated balance sheet at December 31, 2001 as a
supplementary acquisition price of Saatchi & Saatchi shares and the
corresponding payable was recorded in "Accrued expenses and other
liabilities."
The E200 million debenture issued by Publicis Groupe S.A. in December 2001,
redeemable in 2007, with a fixed interest rate of 2%, provides the possibility
for bondholders to request that their bonds be exchanged into an equivalent
number of Interpublic Group shares, representing a 30%-premium with respect to
the reference price (an exchange price of $36.74).
Thus, in the event of an exchange request, as from June 30, 2003, Publicis
may be called upon to deliver a maximum of 4,885,950 Interpublic Group shares in
order to repay the loan.
At December 31, 2001, the Group held in its portfolio 5,310,120 Interpublic
Group shares.
F-28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. EMPLOYEE COMPENSATION AND HEADCOUNT
Employee compensation includes salaries, benefits, commissions, bonuses,
profit sharing and paid vacation. Payroll taxes on salaries are included in
general and administrative expenses.
COMPENSATION OF DIRECTORS AND OFFICERS
Compensation paid to members of the Supervisory Board and the Management
Board in 2001 totaled E1.5 million and E4 million, respectively. These figures
are not directly comparable to the figures for fiscal year 2000, since the
members' list has changed.
HEADCOUNT: EVOLUTION AND BREAKDOWN
AT DECEMBER 31,
------------------------
2001 2000 1999
------ ------ ------
BY GEOGRAPHIC REGION:
France...................................................... 3,521 3,411 2,922
Other Europe................................................ 6,183 5,493 3,480
North America............................................... 6,372 6,954 1,628
Rest of world............................................... 4,516 4,482 2,332
------ ------ ------
TOTAL....................................................... 20,592 20,340 10,362
------ ------ ------
BY SEGMENT:
Communication............................................... 19,373 19,133 9,167
Media....................................................... 823 828 813
Other activities............................................ 396 379 382
------ ------ ------
TOTAL....................................................... 20,592 20,340 10,362
------ ------ ------
DECEMBER 31,
2001
------------
BREAKDOWN
BY
FUNCTION(%)
Sales....................................................... 26%
Creative development........................................ 18%
Production and specialized staff............................ 16%
Media and research.......................................... 19%
Administration/Management................................... 15%
Other....................................................... 6%
---
TOTAL....................................................... 100%
---
20. OTHER OPERATING EXPENSES
Other operating expenses represent all of the external charges other than
purchases of production and media. They principally include taxes (other than
income taxes) and additions to and reversals of provisions.
F-29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. DEPRECIATION AND AMORTIZATION EXPENSE
2001 2000 1999
------ ------ ------
(IN MILLIONS OF EUROS)
Amortization expense on other intangible assets (excluding
goodwill)................................................. 6 6 2
Depreciation expense on property and equipment.............. 78 53 29
--- -- --
DEPRECIATION AND AMORTIZATION OF OTHER INTANGIBLE ASSETS AND
PROPERTY AND EQUIPMENT.................................... 84 59 31
Goodwill amortization....................................... 49 33 19
--- -- --
TOTAL DEPRECIATION AND AMORTIZATION EXPENSE................. 133 92 50
--- -- --
Goodwill amortization for the year ended December 31, 2001 (principally
with regard to interactive and German companies) of E16 million are included as
exceptional items.
22. FINANCIAL (EXPENSE) INCOME
2001 2000 1999
------ ------ ------
(IN MILLIONS OF EUROS)
Interest and other financial (expense) income, net.......... (27) (13) 6
Foreign currency losses, net................................ (4) (2) --
Dividends received from non-consolidated affiliates......... 3 4 3
Accrued losses on treasury shares........................... (2) -- --
--- --- --
TOTAL....................................................... (30) (11) 9
--- --- --
23. EXCEPTIONAL (EXPENSE) INCOME NET OF TAX
Exceptional items for 2001 can be broken down as follows:
DECEMBER 31,
2001
------------
(IN MILLIONS
OF EUROS)
Restructuring costs......................................... (40)
Cessation of activity and other exceptional losses.......... (28)
Exceptional goodwill amortization........................... (16)
---
TOTAL EXCEPTIONAL EXPENSES.................................. (84)
Capital gain on the disposal of 25% Optimedia............... 60
---
EXCEPTIONAL EXPENSE BEFORE TAX.............................. (24)
---
Tax on exceptional items.................................... 21
---
EXCEPTIONAL EXPENSE AFTER TAX............................... (3)
---
In 2000, exceptional income consists of the gain on sale, net of tax, of a
non-consolidated investment.
In 1999, exceptional income was comprised of the gain on sale of the
Drugstore Matignon in Paris, a gain on the sale of foreign real estate and a
gain on the sale of a non-consolidated investment.
F-30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
24. BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share amounted to E1.09 in 2001, versus E1.18 in 2000
and E0.85 in 1999.
The weighted average number of shares outstanding for the calculation of
diluted earnings per share amounted to 139,645,986 shares for 2001. The
corresponding diluted earnings per share was E1.08 per share in 2001, versus
E1.15 per share in 2000 and E0.84 per share in 1999.
25. SEGMENT INFORMATION
The Group operates in one industry segment, advertising and communications.
Revenues and operating results are derived from advertising and communications
services provided to clients. These services include related entities such as
agency services for media advertising such as press, radio, billboards and film.
INFORMATION BY GEOGRAPHIC REGION
OTHER NORTH REST OF
FRANCE EUROPE AMERICA WORLD TOTAL
------ ------ ------- ------- -----
(IN MILLIONS OF EUROS)
2001
Revenues............................................. 383 714 1,035 302 2,434
Operating income..................................... 66 110 137 29 342
Net income after tax, Group interest*................ 22 65 101 12 200
Goodwill, property and equipment and intangible
assets, net........................................ 114 297 1,001 131 1,543
--- --- ----- --- -----
2000
Revenues............................................. 342 536 688 204 1,770
Operating income..................................... 72 97 83 23 275
Net income after tax, Group interest*................ 38 58 46 9 151
Goodwill, property and equipment and intangible
assets, net........................................ 85 172 818 139 1,214
--- --- ----- --- -----
1999
Revenues............................................. 294 408 214 126 1,042
Operating income..................................... 45 76 21 14 156
Net income after tax, Group interest*................ 24 36 18 4 82
Goodwill, property and equipment and intangible
assets, net........................................ 72 106 116 86 380
--- --- ----- --- -----
---------------
* Before goodwill amortization and exceptional income.
F-31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
26. PUBLICIS GROUPE S.A. STOCK OPTION PLANS
1-PUBLICIS OPTIONS
At December 31, 2001, the status of outstanding options -- both
subscription options and options to purchase existing shares -- was as follows:
NUMBER OF
OPTIONS
REMAINING
TO BE OUTSTANDING
EXERCISED AT OPTIONS OPTIONS OPTIONS AT EXERCISE
E0.40 PAR DECEMBER 31, GRANTED IN EXERCISED DECEMBER 31, PRICE EXPIRY
VALUE SHARES OPTION TYPE GRANT DATE 2000 2001 IN 2001 2001 (EUROS) DATE
------------ ----------- ---------- ------------ ---------- --------- ------------ -------- ------
Second tranche Subscription February 20, 1992 17,700 17,700 7.17 2002
Third tranche Subscription December 15, 1992 25,450 25,450 6.88 2002
Fourth tranche Subscription March 22, 1994 28,760 28,760 6.37 2004
Fifth tranche Subscription March 30, 1995 93,970 (14,850) 79,120 6.63 2005
Sixth tranche Subscription April 26, 1996 87,260 (19,410) 67,850 4.91 2006
Seventh tranche Subscription March 20, 1997 75,960 (20,190) 55,770 5.63 2007
Eighth tranche Subscription March 11, 1998 66,000 66,000 8.66 2008
Ninth tranche Subscription November 4, 1998 331,500 (20,000) 311,500 10.24 2008
Tenth tranche Purchase September 7, 2000 100,000 100,000 43.55 2010
Eleventh tranche Purchase April 23, 2001 380,000 380,000 33.18 2011
Twelfth tranche Purchase November 26, 2001 2,943,135 2,943,135 29.79 (1)
------- --------- ------- ---------
Total tranches 826,600 3,323,135 (74,450) 4,075,285
------- --------- ------- ---------
---------------
(1) Allotment of options is subject to satisfying certain conditions. The
options may be exercised within 10 years only after confirmation of the
allotment.
2-SAATCHI & SAATCHI OPTIONS
The existing Saatchi & Saatchi option plans confer a right when exercised
to conversion into Publicis shares based on the ratio applied for the exchange
of shares when Saatchi & Saatchi was acquired by Publicis (18.252 Publicis
Groupe S.A. shares for 100 Saatchi & Saatchi shares).
The number of shares remaining to be exercised is broken down as follows:
EXERCISED DURING
OUTSTANDING FISCAL YEAR OUTSTANDING AT
AT DECEMBER 31, 2000 2001 LAPSED IN 2001 DECEMBER 31, 2001
-------------------- ---------------- -------------- -----------------
1,595,773 (1,305,727) (24,000) 266,046(1)
---------------
(1) The latest exercise date for these options ranges between 2003 and 2006.
3-NELSON OPTIONS
On the acquisition of Nelson, these plans were transformed into Publicis
share purchase plans.
The number of outstanding options at year end can be broken down as
follows:
EXERCISED DURING OUTSTANDING AT
OUTSTANDING FISCAL YEAR DECEMBER 31,
AT DECEMBER 31, 2000 2001 LAPSED IN 2001 2001
-------------------- ---------------- -------------- --------------
699,367 (98,733) (81,904) 518,730(1)
---------------
(1) The latest exercise date for these options ranges between 2002 and 2009.
F-32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
27. SUBSEQUENT EVENTS
In January 2002, as part of the Group debt restructuring program, Publicis
issued Oceanes (bonds that may be converted into or exchanged for new or
existing shares), thereby raising E690 million with a maturity period of 16
years. This loan is composed of 17,624,521 bonds of E39.15 (representing a
35%-premium over the reference price for Publicis shares at the time of issue),
issued at par value, and bearing interest at the rate of 1% per year. These
bonds will be fully redeemed on maturity, i.e. January 18, 2018, for an amount
equivalent to 134.59% of par. However, they may be redeemed early, either via a
market repurchase operation, or via a public purchase or exchange offer, at any
time as from January 18, 2007. Bondholders will have the right to request early
redemption on January 18, 2006, 2010 and 2014. Bondholders will have the right
to request the conversion or exchange of their bonds at any time as from January
18, 2002 and up until the seventh working day prior to the maturity date, with
one bond equal to one share. The Group is entitled to determine whether the
shares granted under this option will be new or existing shares.
28. LIST OF CONSOLIDATED ENTITIES AT DECEMBER 31, 2001
FULLY-CONSOLIDATED COMPANIES
1 -- ADVERTISING AGENCIES
COMPANY % CONTROL BUSINESS COUNTRY CITY
------- --------- --------------- ------------- --------------------------
Publicis.................. 100.00 Advertising United States San Francisco, Seattle,
Salt Lake City, Boise,
Dallas, Indianapolis, Los
Angeles, Chicago, New York
Publicis Hal Riney........ 100.00 Advertising United States San Francisco, Atlanta,
New York
Burrell Communications....
Advertising United States Chicago
Publicis Dialog........... 100.00 Advertising United States San Francisco, Seattle,
Salt Lake City, Dallas,
Indianapolis, Chicago, New
York
Nelson Communications..... 100.00 Advertising United States New York
Frankel................... 100.00 Advertising United States Chicago
Fallon.................... 100.00 Advertising United States Minneapolis
Winner & Associates....... 60.00 Advertising United States Los Angeles
Publicis Canada........... 70.00 Advertising Canada Montreal, Toronto
Publicis Norton........... 60.00 Advertising Brazil Sao Paulo, Brasilia, Porto
Alegre, Rio de Janeiro
Publicis Conseil.......... 99.61 Advertising France Paris
Mundocom.................. 99.93 Advertising France Paris
Publicis Dialog........... 100.00 Advertising France Paris
Media System.............. 94.96 Advertising France Paris
Publicis Consultants...... 100.00 Advertising France Paris
Carre Noir................ 95.53 Advertising France Paris
Publicis Consultants
Ecocom.................. 83.05 Advertising France Paris
Publicis Allemagne........ 100.00 Advertising Germany Frankfurt, Berlin
F-33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMPANY % CONTROL BUSINESS COUNTRY CITY
------- --------- --------------- ------------- --------------------------
Publicis Dialog...........
Advertising Germany Frankfurt, Hamburg
BMZ.......................
Advertising Germany Dusseldorf
Publicis
KommunikationsAgentur... 100.00 Advertising Germany Erlangen, Munich
Publicis Austria.......... 100.00 Advertising Austria Vienna
Publicis Belgium.......... 100.00 Advertising Belgium Brussels
Publicis Denmark.......... 80.00 Advertising Denmark Copenhagen
Publicis Spain............ 100.00 Advertising Spain Madrid, Barcelona,
Seville, Valencia,
Alicante
Publicis Casadevall y
Pedreno................. 85.00 Advertising Spain Barcelona, Madrid
Publicis International
Oy...................... 64.72 Advertising Finland Helsinki
Publicis Hellas........... 100.00 Advertising Greece Athens
Publicis Hungary.......... 100.00 Advertising Hungary Budapest
Publicis Italy............ 100.00 Advertising Italy Milan, Rome
Publicis Amsterdam........ 100.00 Advertising Netherlands Amsterdam
Publicis Poland........... 85.00 Advertising Poland Warsaw
Publicis Portugal......... 90.00 Advertising Portugal Lisbon
BMZ/Park.................. 56.44 Advertising Portugal Lisbon
Publicis UK............... 100.00 Advertising UK London
The Triangle Group........ 100.00 Advertising UK London
Publicis Zurich........... 90.00 Advertising Switzerland Zurich
Publicis Communication.... 100.00 Advertising Australia Brisbane, Melbourne,
Sydney
Publicis Mojo............. 100.00 Advertising New Zealand Auckland
Publicis Ad Link.......... 60.00 Advertising China, Hong Beijing, Hong Kong,
Kong Shanghai, Canton, Chengdu
Publicis Welcomm.......... 60.00 Advertising Korea Seoul
Publicis Japan............ 100.00 Advertising Japan Tokyo
Publicis Wet Desert....... 70.00 Advertising Malaysia Kuala Lumpur
Publicis Philippines...... 65.63 Advertising Philippines Manila
Publicis Eureka........... 60.00 Advertising Singapore Singapore
Publicis Taiwan........... 100.00 Advertising Taiwan Taipei
Publicis Prakit........... 50.00 Advertising Thailand Bangkok
Publicis Cape Town........ 84.30 Advertising South Africa Cape Town
Publicis Johannesburg..... 100.00 Advertising South Africa Johannesburg
Publicis Ariely........... 82.00 Advertising Israel Tel Aviv
Publicis Graphics......... 60.00 Advertising Lebanon, Beirut, Amman, Bahrain,
Jordan, Cairo, Dubai, Jeddah,
Bahrain, Riyadh, Kuwait, Istanbul.
Egypt, EAU,
Saudi Arabia,
Kuwait,
Turkey
F-34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMPANY % CONTROL BUSINESS COUNTRY CITY
------- --------- --------------- ------------- --------------------------
Saatchi & Saatchi North
America................. 100.00 Advertising United States New York
Klemtner Advertising...... 100.00 Advertising United States New York
Rowland -- Rochester
(SSBC).................. 100.00 Advertising United States New York
Saatchi & Saatchi
Canada.................. 100.00 Advertising Canada Toronto
Finance Nazca Publicidade
Brazil.................. 51.00 Advertising Brazil Sao Paulo
Saatchi & Saatchi
Advertising Pty......... 100.00 Advertising Australia Sydney
Saatchi & Saatchi New
Zealand................. 100.00 Advertising New Zealand Wellington
Saatchi & Saatchi Great
Wall Advertising Co..... 51.00 Advertising China Beijing
Saatchi & Saatchi Japan... 66.67 Advertising Japan Tokyo
Saatchi & Saatchi
Malaysia................ 80.00 Advertising Malaysia Petaling Jaya
Saatchi & Saatchi
Singapore............... 100.00 Advertising Singapore Singapore
Saatchi & Saatchi
Taiwan.................. 100.00 Advertising Taiwan Taipei
Saatchi & Saatchi
Thailand................ 51.00 Advertising Thailand Bangkok
Saatchi & Saatchi
Vietnam................. 70.00 Advertising Vietnam Ho Chi Minh City
Saatchi & Saatchi
Germany................. 100.00 Advertising Germany Frankfurt
Saatchi & Saatchi
Austria................. 100.00 Advertising Austria Vienna
Saatchi & Saatchi
Belgium................. 100.00 Advertising Belgium Brussels
Saatchi & Saatchi
Denmark................. 100.00 Advertising Denmark Copenhagen
Saatchi & Saatchi
Madrid.................. 100.00 Advertising Spain Madrid
Saatchi & Saatchi
France.................. 100.00 Advertising France Paris
Saatchi & Saatchi
Hungary................. 100.00 Advertising Hungary Budapest
Saatchi & Saatchi Italy... 100.00 Advertising Italy Rome, Milan
Saatchi & Saatchi
Holland................. 100.00 Advertising Netherlands Amstelveen
Saatchi & Saatchi
Portugal................ 100.00 Advertising Portugal Lisbon
The Facilities Group...... 70.00 Advertising UK London
Saatchi & Saatchi UK...... 100.00 Advertising UK London
Optimedia USA............. 100.00 Media purchases United States New York
Zenith USA................ 100.00 Media purchases United States New York
More Media................ 90.5 Media purchases Germany Dusseldorf, Munich
Optimedia Germany......... 100.00 Media purchases Germany Dusseldorf
Zenith Germany............ 100.00 Media purchases Germany Dusseldorf
Optimedia Spain........... 100.00 Media purchases Spain Madrid
Zenith Spain.............. 97.50 Media purchases Spain Madrid
Publicis Centre Media..... 100.00 Media purchases France Paris
Zenith France............. 100.00 Media purchases France Paris
Optimedia Italy........... 100.00 Media purchases Italy Milan
Zenith Italy.............. 100.00 Media purchases Italy Milan
Optimedia Netherlands..... 100.00 Media purchases Netherlands Amsterdam
F-35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMPANY % CONTROL BUSINESS COUNTRY CITY
------- --------- --------------- ------------- --------------------------
Zenith Holland............ 100.00 Media purchases Netherlands Amsterdam
Optimedia UK.............. 100.00 Media purchases UK London
Zenith Media.............. 100.00 Media purchases UK London
2 -- MEDIA SALES
COMPANY % CONTROL BUSINESS COUNTRY CITY
------- --------- ------------------- ----------- ---------
Medias & Regies Europe.............. 100.00 Press Media Sales France Paris
Le Monde Publicite.................. 49.00 Press Media Sales France Paris
Espaces Liberation.................. 49.00 Press Media Sales France Paris
Metrobus............................ 100.00 Outdoor Media Sales France Paris
Mediavision......................... Cinema Sales France Paris
Publex.............................. 50.00 Outdoor Media Sales Netherlands Amsterdam
Regie 1............................. 50.00 Radio Media Sales France Paris
3 -- OTHER BUSINESSES
COMPANY % CONTROL BUSINESS COUNTRY CITY
------- --------- -------- ------- -----
Drugstore Champs Elysees.................................. 100.00 Retail France Paris
29. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
FRANCE AND THE UNITED STATES
The Group's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in France ("French GAAP"), which
differ from generally accepted accounting principles in the United States ("U.S.
GAAP"). The significant differences applicable to the Group are summarized
below:
RESTRUCTURING COSTS
The Group is implementing restructuring plans related to its acquisitions
made in 2000. In accordance with U.S. GAAP, these plans, and related accruals,
must be finalized and quantified within one year of acquisition, and under
French GAAP, the plans must be finalized within the fiscal year end following an
acquisition. As such, under French GAAP, approximately E31 million was
capitalized as part of the purchase price that is disallowed under U.S. GAAP.
ACCOUNTING FOR CONVERTIBLE DEBT
The Group issued a debenture loan in December 2001 with a face value of
E200 million payable at par in January 2007 and paying a fixed annual yield of
2%. The bondholder may exchange the bonds as of June 30, 2003 into Interpublic
Group shares representing a premium of 29% in relation to the reference price of
U.S.$28.26 (which represents an exchange price of U.S.$36.74) ("Exchange
Option") or repaid in cash at the choice of Publicis ("Cash Settlement Right").
The bonds may be redeemed at the choice of Publicis as from January 10, 2005, if
the Interpublic Group share price exceeds the initial exchange price of
U.S.$36.74 by 30% during a period of 20 trading days ("Call Option").
Bondholders may request from Publicis the redemption of their bonds at par on
March 1, 2004. In accordance with U.S. GAAP, the Call Option, Exchange Option,
and Cash Settlement Right are considered to be embedded derivative instruments
and are required to be separately accounted for under SFAS 133 at fair value
with changes in fair value reflected through the income statement. The change in
the fair value of the Call Option, Cash Settlement Right and Exchange Option
from
F-36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the date of issuance through December 31, 2001 resulted in an expense of E5
million. Under French GAAP, these instruments are considered to be an off
balance sheet commitment and are not recorded.
TREASURY SHARES
In accordance with French GAAP, treasury shares reserved for issuance upon
exercise of stock options are shown as an investment, and any decrease in the
value of the shares held in treasury is recorded through the income statement.
In 2001, under French GAAP, approximately E2 million was recorded as a
depreciation expense related to treasury shares. Under U.S. GAAP, treasury
shares are deducted from stockholder's equity at the amount they were
repurchased. Subsequent fluctuations in the market price of treasury shares are
not recorded under U.S. GAAP.
ACCOUNTING FOR THE BUSINESS COMBINATION WITH SAATCHI & SAATCHI
Under French GAAP, the business combination with Saatchi & Saatchi was
accounted for in accordance with the derogatory method under article 215 of rule
99-02 of the Comite de la Reglementation Comptable (CRC) as follows:
-- Assets and liabilities are recorded at historical cost less accumulated
depreciation at the combination date;
-- The results and cash flows are combined from the acquisition date to
year-end;
The derogatory method is similar to the pooling of interests method
under U.S. GAAP, except that the results and cash flows are combined
only from the acquisition date to the end of the period.
Under U.S. GAAP, this acquisition does not qualify to be accounted for as a
pooling of interests. Consequently, the transaction must be accounted for using
purchase accounting principles, with Publicis Groupe, S.A. being the acquiror on
September 8, 2000. This gives rise to a number of differences as follows:
Intangible fixed assets
Goodwill has been calculated under U.S. GAAP by comparing the fair value of
the identifiable assets with the fair value of the consideration, including
associated transaction costs. Such goodwill is being amortized over 40 years for
the purposes of the reconciliation below. Other intangible fixed assets, which
comprise principally trade names and major client relationships are amortized
over 7 to 40 years for purposes of the reconciliation below.
Impairment of goodwill
Goodwill in the amount of approximately E584 million was written off
through a charge to operations in 2001. That write-off, which relates to
goodwill associated with the acquisition of Saatchi & Saatchi in 2000,
represents the amount necessary to write-down the carrying values of goodwill
for those businesses to the Group's best estimate, as of December 31, 2001,
based on the Company's accounting policy described in note 1.2. Goodwill was not
recorded for the Saatchi & Saatchi acquisition under French GAAP, as described
above.
Contingent Value Rights
In connection with the acquisition of Saatchi & Saatchi, the Group issued
contingent value rights (CVRs) to the former shareholders of Saatchi & Saatchi.
Each CVR represents a right to receive a cash payment if the market price of
Publicis shares 18 months after the acquisition date is below its level at the
acquisition date, limited to a maximum payment per CVR of 10% of the market
price at the acquisition date. The CVRs are actively traded on the Euronext
Paris.
F-37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under French GAAP, the CVRs were originally considered to be an off-balance
sheet commitment, and were not recorded until payment was considered to be
highly probable. Additionally, fluctuations in the amount to be paid are
recorded against equity. The CVRs were not recorded under French GAAP until
December 31, 2001.
Under U.S. GAAP, the fair value of the CVRs at the acquisition date is
included in the cost of acquisition and reflected as a liability in purchase
accounting. Subsequent changes in the fair value of the CVRs are adjusted
through earnings.
Stock options
In connection with the acquisition of Saatchi & Saatchi, the Group agreed
to exchange options to purchase Publicis shares for Saatchi & Saatchi shares
obtained through the exercise of outstanding stock options of Saatchi & Saatchi
at the acquisition date.
Under French GAAP, stock options are not recorded in shareholders' equity
until they are exercised.
For U.S. GAAP purposes, the Group accounts for stock options in accordance
with APB Opinion No. 25 "Accounting for Stock Issued to Employees," FASB
Statement 123, "Accounting for Stock Based Compensation," and related
interpretations. To the extent options are granted by the acquiring company for
outstanding vested options or options that vest upon change in control of the
target company, the fair value of the new options is included as part of the
purchase price and allocated to the assets acquired. The fair value of options
exchanged for outstanding unvested options is also included as part of the
purchase price and a portion of the unvested intrinsic value is allocated to
unearned compensation cost and amortized over the remaining vesting period. The
amount of unearned compensation cost is deducted from the fair value of the
options in determining the allocation of purchase price.
Purchase price adjustments
Under French GAAP, in 2001, approximately E37 million has been recorded
related to finalizing the purchase price allocation of Saatchi & Saatchi, which
is recorded directly to equity. Under U.S. GAAP, these adjustments are recorded
as goodwill.
ACCOUNTING FOR ZENITH OPTIMEDIA GROUP
Under French GAAP, the formation of the Zenith Optimedia Group results in
revaluing the Zenithmedia net assets acquired in conjunction with the
acquisition of Saatchi & Saatchi. Under French GAAP, the acquisition of Saatchi
& Saatchi was treated similar to a pooling of interests under U.S. GAAP. Under
U.S. GAAP, this acquisition was treated as a purchase. As such, under U.S. GAAP,
the net assets acquired were written up to their fair value in 2000. Because
under French GAAP, the Zenithmedia assets are written up to their fair value in
2001, this entry is reversed for U.S. GAAP purposes.
BUSINESS COMBINATIONS
Accounting for goodwill
Under French GAAP, goodwill is generally capitalized and amortised over its
estimated useful life. However, goodwill arising from an acquisition completed
in 1993 paid for by issuing new shares was written off through shareholders'
equity under previous French accounting guidance.
Under U.S. GAAP, goodwill is capitalized and amortized over its estimated
useful life, not exceeding 40 years.
F-38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for compensation arrangements
In the French financial statements, certain compensation arrangements with
employees of acquired companies have been recorded as additional purchase price
in purchase accounting.
Under U.S. GAAP, to the extent that the compensation is related to
continuing employment with the group, it is recorded as compensation expense in
the periods in which it is earned.
STOCK COMPENSATION
Under French GAAP, stock options are recorded in common stock and
additional paid-in capital when the options are exercised.
Under U.S. GAAP, the Group accounts for stock options in accordance with
APB Opinion No. 25 "Accounting for Stock Issued to Employees," FASB Statement
123, "Accounting for Stock Based Compensation," and related interpretations.
When stock options are granted to employees or directors, with an exercise price
inferior to the fair value of the underlying shares at the date of grant, the
resulting premium is immediately reflected in shareholders' equity. This premium
is offset in shareholders' equity by an equivalent deferred compensation amount.
Therefore, there is no impact on total shareholders' equity. The deferred
compensation amount is amortized as compensation expense in the income statement
over the vesting period of the options.
VALUATION OF MARKETABLE SECURITIES AND INVESTMENTS IN NON-CONSOLIDATED ENTITIES
In accordance with French regulations, the Group's policy is to value
marketable securities, on a portfolio basis, at the lower of aggregate cost and
market value. Investments in non-consolidated entities in which Publicis owns
less than 20% are stated at cost and an allowance is recorded when a recoverable
value, based upon management's analysis of the specific nature of each
investment, appears to be permanently less than carrying value. Allowances can
be subsequently reversed if the estimated recoverable value of the investments
increases. Unrealized gains on marketable securities and investments are not
recognized.
Under U.S. GAAP (SFAS 115), marketable securities and investments in
non-consolidated affiliates with readily determinable fair values, other than
investments accounted for under the equity method, are divided into three
categories: trading (used as part of a company's cash management activities),
held-to-maturity (company has positive intent and ability to hold the securities
to maturity) and available-for-sale (all other securities). All Publicis'
marketable securities and investments with readily determinable fair values are
considered to be available-for-sale and are reflected at market value on the
closing date on the face of the balance sheet. All unrealized gains and
unrealized losses that are temporary are recorded as a separate component of
shareholders' equity. Unrealized losses which are other than temporary are
charged to income and any write-down is considered permanent.
ACCOUNTING FOR PROVISIONS
Under U.S. GAAP, provisions for loss contingencies are recorded if
available information indicates that it is probable that an asset has been
impaired or a liability has been incurred at the date of the financial
statements and the amount of loss can be reasonably estimated.
As of December 31, 2000 and 1999, certain provisions recorded in the French
financial statements do not qualify as provisions for loss contingencies under
U.S. GAAP.
FOREIGN CURRENCY TRANSLATION
For purposes of the French financial statements through December 31, 1999,
the Group converted the income statement to euros at year-end exchange rates.
F-39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under U.S. GAAP, income statement amounts in foreign currencies are
converted at average exchange rates for the year.
INCOME STATEMENT CLASSIFICATION DIFFERENCES
Amounts presented as "Exceptional Items" in the French financial statements
do not meet the definition of extraordinary items under U.S. GAAP, as these
items are not both unusual and infrequent. Additionally, under French GAAP,
goodwill amortization is not included in operating income, whereas under U.S.
GAAP it is.
DERIVATIVES AND HEDGING
Effective January 1, 2001, the Group adopted the provisions of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" issued by
the Financial Accounting Standards Board. SFAS No. 133, as amended by SFAS Nos.
137 and 138, establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities on the balance sheet. The statement
also requires changes in the fair value of the derivative instruments to be
recorded in either net earnings or other comprehensive income depending on their
intended use. The adoption of SFAS Nos. 133, 137, and 138 did not have a
material impact on the Group's consolidated financial statements.
RECONCILIATION OF NET INCOME AND COMPREHENSIVE INCOME TO U.S. GAAP
The following is a reconciliation of net income as reported in the
consolidated statements of income to net income and comprehensive income as
adjusted for the approximate effects of the application of U.S. GAAP for the
periods ended December 31, 2001, 2000 and 1999:
DECEMBER 31,
----------------------
2001 2000 1999
E E E
------ ----- -----
(IN MILLIONS,
EXCEPT PER SHARE DATA)
Net income as reported in the consolidated statement of
income.................................................... 151 128 74
ADJUSTMENTS TO CONFORM TO U.S. GAAP:
Restructuring charges....................................... (31) -- --
Accounting for convertible debt............................. (5) -- --
Amortization expense on goodwill written-off to equity...... (1) (1) (1)
Compensation arrangements................................... (5) (4) --
Depreciation of treasury shares............................. 2 -- --
Accounting for provisions................................... (13) (17) 2
Foreign currency translation................................ -- -- (2)
------ ----- -----
98 106 73
F-40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
----------------------
2001 2000 1999
E E E
------ ----- -----
(IN MILLIONS,
EXCEPT PER SHARE DATA)
Adjustments related to the business combination with Saatchi
& Saatchi:
Amortization expense on tangible assets, intangible assets
and goodwill.............................................. (91) (32) --
Goodwill impairment......................................... (584) -- --
Contingent value rights..................................... (69) (46) --
Stock compensation.......................................... (11) (3) --
------ ----- -----
Total adjustments related to Saatchi & Saatchi.............. (755) (81) --
------ ----- -----
Net income (loss) as adjusted for U.S. GAAP before tax
effect.................................................... (657) 25 73
------ ----- -----
Tax effect of all adjustments(1)............................ 10 9 --
------ ----- -----
NET INCOME (LOSS) AS ADJUSTED FOR U.S. GAAP................. (647) 34 73
====== ===== =====
EARNINGS PER SHARE AS ADJUSTED FOR U.S. GAAP
Basic....................................................... E(4.76) E0.31 E0.84
Fully diluted............................................... E(4.76) E0.31 E0.83
Dividends declared per share................................ E0.20 E0.17 E0.12
Weighted average common shares outstanding:
Basic..................................................... 136 108 87
Diluted................................................... 136 111 88
Net income (loss) as adjusted for U.S. GAAP................. (647) 34 73
OTHER COMPREHENSIVE INCOME
Unrealized gain/(loss) on available for sale securities..... (21) 6 81
Foreign currency translation adjustment..................... 52 (43) (2)
------ ----- -----
Comprehensive income (loss)................................. (616) (3) 152
Income tax effect on comprehensive income (loss)(2)......... -- 1 (15)
------ ----- -----
COMPREHENSIVE INCOME (LOSS), NET OF TAX..................... (616) (2) 137
====== ===== =====
---------------
(1) The tax effect of all adjustments is impacted by the fact that goodwill is
not tax deductible. See also income taxes section, following.
(2) Includes valuation allowance on unrealized loss on available-for-sale
securities as it is more likely than not that the deferred tax assets will
not be realized.
Certain elements of the consolidated statement of income have been
classified as non-operating expenses although they would have been considered
operating expenses under U.S. GAAP. The consolidated
F-41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements of operations prepared under U.S. GAAP reflecting all of the above
reconciling items is presented as follows:
DECEMBER 31,
----------------------
2001 2000 1999
------ ----- -----
(IN MILLIONS OF EUROS)
REVENUES.................................................... 2,434 1,770 1,042
Salaries and related expenses............................... (1,375) (991) (576)
Office and general expenses................................. (661) (470) (291)
Depreciation and amortization............................... (812) (124) (51)
Other operating income (expense)............................ (52) -- 14
OPERATING INCOME (LOSS)..................................... (466) 185 138
Interest expense............................................ (62) (28) (11)
Interest income............................................. 38 32 17
Other income(1)............................................. -- 9 13
Other expense(2)............................................ (79) (55) --
------ ----- -----
Income (loss) before income taxes........................... (569) 143 157
Income taxes................................................ (68) (83) (65)
------ ----- -----
Income (loss) after income taxes............................ (637) 60 92
Equity in net income of non-consolidated companies.......... 9 5 2
Minority interests.......................................... (19) (31) (21)
------ ----- -----
NET INCOME (LOSS)........................................... (647) 34 73
====== ===== =====
All of the U.S. GAAP reconciling items impact operating income (loss),
except for fluctuations in the fair value of CVRs and the embedded derivatives
related to the convertible debt.
(1) Primarily relates to items classified as "exceptional" under French
GAAP. See footnote 23 for further details.
(2) Relates to fluctuations in the fair value of the CVRs and other
miscellaneous financial expenses.
F-42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION OF SHAREHOLDERS' EQUITY TO U.S. GAAP
The following is a reconciliation of shareholders' equity as reported in
the consolidated balance sheet to shareholders' equity as adjusted for the
approximate effects of the application of U.S. GAAP as of December 31, 2001,
2000 and 1999:
DECEMBER 31,
-----------------------
2001 2000 1999
------ ------ -----
(IN MILLIONS OF EUROS)
Shareholders' equity as reported in the consolidated balance
sheet..................................................... 283 299 345
ADJUSTMENTS TO CONFORM TO U.S. GAAP
Restructuring charges....................................... (31) -- --
Treasury shares............................................. (136) -- --
Accounting for Zenith Optimedia Group....................... (87) -- --
Accounting for convertible debt............................. (5) -- --
Goodwill written-off to equity, gross....................... 54 54 54
Accumulated amortization on goodwill written-off to
equity.................................................... (10) (9) (8)
Compensation arrangements................................... (9) (4) --
Valuation of marketable securities.......................... 135 192 186
Accounting for provisions................................... -- 13 30
Other....................................................... -- -- 8
----- ----- ---
194 545 615
Adjustments related to the business combinations with
Saatchi & Saatchi:
Saatchi & Saatchi business combinations recorded as a
purchase under U.S. GAAP.................................. 2,521 2,547 --
Goodwill impairment......................................... (547) -- --
Contingent value rights..................................... 80 (46) --
Stock options -- Saatchi & Saatchi.......................... 158 152 --
----- ----- ---
Total adjustments -- Saatchi & Saatchi...................... 2,212 2,653 --
Tax effect of above adjustments............................. (516) (576) (35)
----- ----- ---
Shareholders' equity as adjusted for U.S. GAAP.............. 1,890 2,622 580
===== ===== ===
F-43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following the Saatchi & Saatchi acquisition and other U.S. GAAP adjustments
described above, the consolidated balance sheets as presented under U.S. GAAP at
December 31, 2001, 2000 and 1999 are summarized as follows:
DECEMBER 31,
---------------------
2001 2000 1999
E E E
----- ----- -----
(IN MILLIONS)
ASSETS
Goodwill, net............................................... 1,842 2,297 283
Intangible assets, net...................................... 1,401 1,353 20
Property and equipment, net................................. 360 342 129
Deferred income taxes....................................... -- 4 --
Investments and other financial assets, net................. 202 274 235
Investments accounted for by the equity method.............. 8 7 7
----- ----- -----
TOTAL NON CURRENT ASSETS, NET............................... 3,813 4,277 674
----- ----- -----
Inventory and costs billable to clients..................... 195 129 49
Accounts receivable......................................... 1,845 1,770 1,002
Other receivables........................................... 439 384 241
Deferred income taxes....................................... -- 11 7
Marketable securities....................................... 42 100 77
Cash and cash equivalents................................... 621 429 273
----- ----- -----
CURRENT ASSETS.............................................. 3,142 2,823 1,649
----- ----- -----
TOTAL ASSETS................................................ 6,955 7,100 2,323
===== ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Capital stock............................................... 56 53 36
Additional paid-in capital.................................. 2,350 2,322 117
Retained earnings (deficit)................................. (520) 167 346
Treasury stock.............................................. (138) (34) (71)
Accumulated other comprehensive income...................... 142 114 152
----- ----- -----
SHAREHOLDERS' EQUITY........................................ 1,890 2,622 580
Minority interests.......................................... 89 77 51
Long-term debt and capital lease obligations, less current
portion................................................... 294 184 --
Deferred income taxes....................................... 493 576 35
Provisions for contingencies and charges.................... 242 240 40
Current portion of long-term debt and capital lease
obligations............................................... 442 451 --
Short-term borrowings and overdrafts........................ 316 266 217
Accounts payable............................................ 1,875 1,590 872
Accrued expenses and other liabilities...................... 1,314 1,094 528
----- ----- -----
CURRENT LIABILITIES......................................... 3,947 3,401 1,617
----- ----- -----
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 6,955 7,100 2,323
===== ===== =====
F-44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of shareholders' equity for U.S. GAAP purposes as of
December 31, 2001, 2000 and 1999 are as follows:
DECEMBER 31,
--------------------
2001 2000 1999
E E E
----- ----- ----
(IN MILLIONS)
Share capital............................................... 56 53 36
Additional paid-in capital.................................. 2,350 2,322 117
Retained earnings (deficit)................................. (520) 167 346
Treasury stock.............................................. (138) (34) (71)
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Unrealized gains on securities.............................. 135 156 151
Foreign currency translation adjustment..................... 7 (42) 1
----- ----- ---
ACCUMULATED OTHER COMPREHENSIVE INCOME:..................... 142 114 152
----- ----- ---
Total shareholders' equity as adjusted for U.S. GAAP........ 1,890 2,622 580
===== ===== ===
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, Business Combinations, and
No. 142 Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives.
The Group will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of E74 million (E0.54 per share) per year. During 2002, the Group
will perform the first of the required impairment tests of goodwill and
indefinite lived assets as of January 1, 2002 and has not yet determined what
the effect of these tests will be on the earnings and financial position of the
Group.
In August of 2001, the FASB issued FAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supercedes FAS
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations for a disposal of a segment
of business. FAS 144 is effective for fiscal years beginning after December 15,
2001. The Group adopted FAS 144 as of January 1, 2002 and does not expect that
the adoption of the Statement will have a significant impact on the Group's
financial position and results of operations.
OTHER U.S. GAAP DISCLOSURES
Consolidated statement of cash flows
The consolidated statement of cash flows prepared under French GAAP
presents substantially the same information as that required under U.S. GAAP but
they differ with regard to the classification of items within them and as
regards the definition of cash (treasury) under French GAAP and cash and cash
equivalents under U.S. GAAP.
F-45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of cash or treasury under French GAAP to cash and cash
equivalents under U.S. GAAP is presented as follows:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
2001 2000 1999
E E E
----- ----- ----
(IN MILLIONS)
Cash and cash equivalents under French GAAP................. 483 263 137
Less: Marketable securities................................. (178) (100) (76)
Add: Bank overdrafts........................................ 316 266 212
---- ---- ---
Cash and cash equivalents under U.S. GAAP................... 621 429 273
==== ==== ===
The cash flows under U.S. GAAP can be summarized as follows:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
2001 2000 1999
E E E
---- ----- -----
(IN MILLIONS)
Cash provided by operating activities....................... 44 204 178
Cash provided by/(used in) investing activities............. 114 (679) (151)
Cash provided by financing activities....................... 30 626 20
Effect of exchange rate changes on cash and cash
equivalents............................................... 4 5 --
--- ---- ----
Increase in cash and cash equivalents....................... 192 156 47
Cash and cash equivalents at beginning of year.............. 429 273 226
--- ---- ----
Cash and cash equivalents at end of year.................... 621 429 273
=== ==== ====
Cash provided by financing activities includes E118 million, E630 million
and E0 change in borrowings per the French GAAP accounts. A breakdown of the
change in borrowings is as follows:
FOR THE YEAR ENDED
DECEMBER 31,
------------------
2001 2000 1999
E E E
---- ---- ----
(IN MILLIONS)
Proceeds from borrowings of long-term debt.................. 200 630 --
Repayments of borrowings of long-term debt.................. (82) -- --
--- --- ---
118 630 --
=== === ===
A breakdown of the change in net working capital requirements is as
follows:
FOR THE YEAR ENDED
DECEMBER 31,
------------------
2001 2000 1999
E E E
---- ---- ----
(IN MILLIONS)
Changes in operating assets and liabilities:
Accounts receivable and other receivables................... 222 (217) (324)
Inventory and costs billable to clients..................... (59) 4 1
Accounts payable and other current liabilities.............. (377) 194 369
---- ---- ----
Change in working capital requirements...................... (214) (19) 46
==== ==== ====
F-46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental cash flow information for the years ended December 31, 2001,
2000 and 1999 is as follows:
FOR THE YEAR
ENDED
DECEMBER 31,
------------------
2001 2000 1999
E E E
---- ---- ----
(IN MILLIONS)
Interest paid............................................... 61 27 9
Income taxes paid........................................... 64 53 30
--- --- ---
Use of estimates
The preparation of the consolidated 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,
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of credit risk
Credit limits, ongoing credit evaluation and account monitoring procedures
are utilized to minimize the risk of loss. Collateral is generally not required.
Expected losses are provided for currently and actual losses have been within
management's expectations.
Acquisitions
The most significant acquisition made in 2001 is the formation of Zenith
Optimedia Group. The pro forma effects of this and other transactions in 2001 on
revenues, net income and earnings per share are not significant.
In September 2000, Publicis acquired 100% of the outstanding shares of
Saatchi & Saatchi plc, a U.K. company specializing in multinational advertising
and marketing services. For U.S. GAAP purposes, this acquisition has been
treated as a purchase. Saatchi & Saatchi has been fully consolidated since
September 8, 2000.
Total consideration paid in stock for Saatchi & Saatchi amounted to E1,883
million (43,889,149 shares), resulting in additional goodwill of E1,442 million,
which will be amortized under the straight-line method over 40 years. The
components of the purchase price and allocations are as follows:
(E MILLIONS)
Consideration and acquisition costs:
Stock exchanged for Saatchi & Saatchi stock................. 1,883
Fair value of options exchanged............................. 152
Fair value of contingent value rights....................... 50
Acquisition costs........................................... 11
-----
2,096
=====
F-47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(E MILLIONS)
Allocation of purchase price:
Property and equipment...................................... 12
Acquired intangibles........................................ 1,401
Goodwill.................................................... 1,442
Net liabilities assumed and other........................... (759)
-----
2,096
=====
In January 2000, Publicis acquired 100% of Frankel and Company, an
independent American agency specializing in marketing services. This acquisition
was accounted for as a purchase. Frankel has been fully consolidated since
January 2000 and goodwill resulting from this acquisition is amortized using the
straight-line method over 40 years.
In February 2000, the Group acquired 100% of Fallon, an independent agency
in the United States. This transaction was accounted for as a purchase and
Fallon has been fully consolidated since February 2000 and goodwill resulting
from this acquisition is amortized using the straight-line method over 40 years.
The Group acquired 100% of Nelson Communications, an American company
specializing in advertising communications for the healthcare industry. This
transaction was financed in part by an exchange of stock (6.7 million shares).
Nelson has been fully consolidated since November 2000 and goodwill resulting
from this acquisition is amortized using the straight-line method over 40 years.
In addition to the above acquisitions, Publicis completed more than 10
small and medium-size purchase business combinations in the United States,
Europe and Latin America, in general advertising and marketing services. Total
consideration for these acquisitions in 2000 was approximately E677 million.
During 1999, Publicis completed more than 15 small and medium-size purchase
business combinations in the United States, Europe, the Asia/Pacific region, and
Latin America, in general advertising and marketing services, for a total
consideration of E85 million.
Pro-forma information regarding the Saatchi & Saatchi acquisition
The following pro forma information for the year ended December 31, 2000
and 1999 presents the effect of the acquisition of Saatchi & Saatchi, the most
significant acquisition of Publicis, as if it had occurred as of the beginning
of 2000. The pro forma financial information is based on the historical
financial statements of Publicis and Saatchi & Saatchi.
FRENCH GAAP U.S. GAAP YEAR
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
--------------- -----------------
2000 1999 2000 1999
E E E E
------ ------ ------- -------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
Pro forma revenues.......................................... 2,231 1,676 2,231 1,687
Pro forma group net income.................................. 157 121 12 43
Pro forma basic earnings per share.......................... E1.16 E0.94 E0.09 E0.33
Pro forma diluted earnings per share........................ E1.13 E0.91 E0.09 E0.32
F-48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt
Future minimum payments as of December 31, 2001, on long-term debt,
including capital leases, are as follows:
YEAR (IN MILLIONS OF E)
---- ------------------
2002........................................................ 442
2003........................................................ 48
2004........................................................ 34
2005........................................................ 21
2006........................................................ 0
Thereafter.................................................. 191
----
Subtotal.................................................... 736
Less: Current maturities.................................... (442)
----
294
====
Restructuring charges
The Group has accrued liabilities for restructuring charges to be incurred
related to the Saatchi & Saatchi acquisition. The liabilities relate primarily
to the acquisition of Saatchi & Saatchi consummated in September 2000. The Group
began to formulate a restructuring plan at the acquisition date, which included
the closing of the Saatchi & Saatchi headquarters in London and New York, the
closing of Saatchi & Saatchi offices in certain locations and the consolidation
of Saatchi & Saatchi and Publicis facilities in other locations. Costs included
in the restructuring liabilities consist primarily of involuntary termination
benefits for former Saatchi & Saatchi employees and relocation costs. This plan
was finalized in 2001 and goodwill was increased by approximately E37 million
for restructuring charges, of which approximately E13 million remained as of
December 31, 2001.
Shareholders' equity
Publicis' capital stock consists of 139,599,996; 138,219,819; and
94,259,960 ordinary shares issued and outstanding at December 2001, 2000 and
1999, respectively, with a par value of E0.40 each. These amounts include shares
held in treasury of 4,630,427; 871,309; and 4,181,920, respectively.
At the Extraordinary General Meeting of the Shareholders held on August 29,
2000, the shareholders approved a 10-for-1 stock split. The number of shares
outstanding at January 1, 1999 has been adjusted to reflect this stock split.
Employee stock option plans
The Group grants stock options through employee stock option plans. Under
the 1987, 1991 and 2000 stock option plans, options for a fixed number of shares
(with an exercise price equal to the market value of Publicis stock for the last
20 days before the grant date) are granted to employees. Under the plans, the
options vest after 5 years and expire 10 years after the date of grant. Under
the 2001 stock option plan, options for a fixed number of shares (with an
exercise price equal to the higher of the market value of Publicis stock for the
last 20 days before the grant date or the cost of treasury shares) are granted
to employees. Under this plan, the options vest ratably over a four-year period
and expire 10 years after the date of grant. Options were also granted to former
Saatchi & Saatchi management. These options vest upon the attainment of certain
financial objectives by 2003 and expire 10 years after the date of grant.
F-49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the former Publicis Communication stock option plan, options for a
fixed number of shares (with an exercise price equal to the fair value of the
shares at the date of grant) are granted to employees. Under this plan, the
options vest immediately and expire 10 years after the date of grant.
A summary of the status of the Group's stock option plans as of December
31, 2001, 2000 and 1999 and changes for the three years then ended, is presented
below (reflects 10 to 1 stock split occurring on August 29, 2000):
2001 2000 1999
-------------------- ------------------ ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- ------- -------- ---------- --------
1987 PLAN
Outstanding at beginning
of year............... -- -- -- -- 907,200 E3.48
Granted................. -- -- -- -- -- --
Exercised............... -- -- -- -- (907,200) E3.48
Forfeited............... -- -- -- -- -- --
Expired................. -- -- -- -- -- --
--------- ------ ------- ------ ---------- -----
Outstanding at end of
year.................. -- -- -- -- -- --
========= ====== ======= ====== ========== =====
Options exercisable at
year-end.............. -- -- -- -- -- --
1991 PLAN
Outstanding at beginning
of year............... -- -- -- -- 3,432,000 E2.83
Granted................. -- -- -- -- -- --
Exercised............... -- -- -- -- (3,432,000) E2.83
Forfeited............... -- -- -- -- -- --
Expired................. -- -- -- -- -- --
--------- ------ ------- ------ ---------- -----
Outstanding at end of
year.................. -- -- -- -- -- --
========= ====== ======= ====== ========== =====
Options exercisable at
year-end.............. -- -- -- -- -- --
2000 PLAN
Outstanding at beginning
of year............... 100,000 E43.55 -- -- -- --
Granted................. -- -- 100,000 E43.55 -- --
Exercised............... -- -- -- -- -- --
Forfeited............... -- -- -- -- -- --
Expired................. -- -- -- -- -- --
--------- ------ ------- ------ ---------- -----
Outstanding at end of
year.................. 100,000 E43.55 100,000 E43.55 -- --
========= ====== ======= ====== ========== =====
Options exercisable at
year-end.............. -- -- -- -- -- --
F-50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2001 2000 1999
-------------------- ------------------ ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- ------- -------- ---------- --------
2001 PLAN
Outstanding at beginning
of year............... -- -- -- -- -- --
Granted................. 380,000 E33.18 -- -- -- --
Exercised............... -- -- -- -- -- --
Forfeited............... -- -- -- -- -- --
Expired................. -- -- -- -- -- --
--------- ------ ------- ------ ---------- -----
Outstanding at end of
year.................. 380,000 E33.18 -- -- -- --
========= ====== ======= ====== ========== =====
Options exercisable at
year-end.............. -- -- -- -- -- --
SAATCHI & SAATCHI
MANAGEMENT PLAN
Outstanding at beginning
of year............... -- -- -- -- -- --
Granted................. 2,943,135 E29.79 -- -- -- --
Exercised............... -- -- -- -- -- --
Forfeited............... -- -- -- -- -- --
Expired................. -- -- -- -- -- --
--------- ------ ------- ------ ---------- -----
Outstanding at end of
year.................. 2,943,135 E29.79 -- -- -- --
========= ====== ======= ====== ========== =====
Options exercisable at
year-end.............. -- -- -- -- -- --
Stock options related to the Publicis Communication stock option plan were
converted into Publicis, S.A. stock options upon the merger of Publicis
Communication into Publicis, S.A. on December 11, 1998. A summary of the
activity for this plan is presented below:
2001 2000 1999
------------------ ------------------ -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- -------- --------
FORMER PUBLICIS
COMMUNICATION PLAN
Outstanding at beginning of
year..................... 726,600 E8.14 797,310 E8.02 935,960 E7.76
Granted.................... -- -- -- -- -- --
Exercised.................. (74,450) E6.85 (70,710) E6.34 (138,650) E6.38
Forfeited.................. -- -- -- -- -- --
Expired.................... -- -- -- -- -- --
------- ----- ------- ----- -------- -----
Outstanding at end of
year..................... 652,150 E8.29 726,600 E8.14 797,310 E8.02
======= ===== ======= ===== ======== =====
Options exercisable at
year-end................. 652,150 E8.29 726,600 E8.14 797,310 E8.02
F-51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Former Saatchi & Saatchi Plans
Several stock option plans were put into place by Saatchi & Saatchi prior
to the acquisition. These plans involve several plan execution criteria for the
grant of options. At the time of the merger with Publicis, these plans were
simplified, and the maximum number of options that could be granted were
granted.
Two types of options remain:
-- those to be issued in connection with the Equity Participation Plan
("EPP") and for which the exercise price was paid at the grant date. No
additional payment will be made at the date of exercise of the options,
-- those to be issued related to other plans and for which the exercise
price must be paid at the date of exercise of the options.
In these two cases, the beneficiaries will receive Saatchi & Saatchi shares
upon exercise of their options. These shares will be exchanged for new shares of
Publicis based on a rate of 18.252 Publicis shares for 100 Saatchi & Saatchi
shares.
The number of options that can be exercised under the two plans, converted
for simplification purposes into Publicis shares at a rate of 0.18252 is as
follows:
2001 2000
------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- ---------- --------
EQUITY PARTICIPATION PLAN
Outstanding at acquisition date/beginning
of year.................................. 700,493 -- 2,044,928 --
Granted.................................. -- -- -- --
Exercised................................ (491,379) -- (1,344,435) --
Forfeited................................ (24,000) -- -- --
Expired.................................. -- -- -- --
-------- ------ ---------- ------
Outstanding at end of year................. 185,114 -- 700,493 --
======== ====== ========== ======
Options exercisable at year-end............ 185,114 601,932
OTHER PLANS
Outstanding at acquisition date............ 895,280 E10.87 2,208,579 E11.08
Granted.................................. -- -- -- --
Exercised................................ (814,348) E10.14 (1,307,824) E11.17
Forfeited................................ -- -- (5,475) E11.17
Expired.................................. -- -- -- --
-------- ------ ---------- ------
Outstanding at end of year................. 80,932 E11.71 895,280 E10.87
======== ====== ========== ======
Options exercisable at year-end............ 80,932 E11.71 649,335 E10.87
F-52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Group additionally granted options in connection with an acquisition
made at the end of 2000. In conjunction with this acquisition, Publicis
exchanged Publicis options for those of the company acquired. A summary of the
activity for this plan is presented below:
2001
------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------- --------
FORMER NELSON PLAN
Outstanding at acquisition date/beginning of year........... 699,367 E28.18
Granted..................................................... -- --
Exercised................................................... (98,733) E28.37
Forfeited................................................... (81,904) E28.37
Expired..................................................... -- --
------- ------
Outstanding at end of year.................................. 518,730 E28.11
======= ======
Options exercisable at year-end............................. 248,090
The following information applies to options outstanding and exercisable at
December 31, 2001:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING EXERCISE
OUTSTANDING EXERCISABLE LIFE IN YEARS PRICE
----------- ----------- ------------- --------
Former Publicis Communication Plan....... 652,150 652,150 6 E 8.29
2000 Plan................................ 100,000 -- 9 E43.55
2001 Plan................................ 380,000 -- 10 E33.18
Saatchi & Saatchi Management Plan........ 2,943,135 -- 10 E29.79
Former Nelson Plan....................... 518,730 248,090 7 E28.11
Former Saatchi & Saatchi Plans........... 266,046 266,046 3 E11.71
--------- --------- -- ------
Total.................................... 4,860,061 1,166,286 9 E26.28
========= ========= == ======
The Group accounts for stock option grants in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations,
and provides the disclosures required under SFAS No. 123, "Accounting for
Stock-Based Compensation."
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Group elected to continue to account for stock-based compensation using the
"intrinsic value" method under the guidelines of APB Opinion No. 25, "Accounting
for Stock Issued to Employees" as opposed to the "fair value" method contained
in SFAS 123. For the Publicis plans, under APB No. 25, no compensation expense
has been recognized for the years ended December 31, 2001, 2000 or 1999 because
the stock options were either fully vested prior to these periods, or the
exercise price of options granted in these periods is equal to the market value
at the date of grant. Concerning the former Saatchi & Saatchi plans, E4 million
and E3 million of stock compensation expense was recognized for U.S. GAAP
purposes for the years ended December 31, 2001 and 2000, respectively,
representing stock compensation expense on unvested options.
F-53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Group had elected to recognize compensation expense based upon the
fair value at the grant date for options granted under these plans to key
employees, consistent with the methodology prescribed by SFAS 123, the Group's
pro forma net earnings and earnings per common share would be as follows:
2001 2000 1999
------ ----- -----
NET EARNINGS -- U.S. GAAP
As reported............................................... E (647) E 34 E 73
Pro forma................................................. E (648) E 34 E 73
BASIC EARNINGS PER COMMON SHARE
As reported............................................... E(4.76) E0.31 E0.84
Pro forma................................................. E(4.76) E0.31 E0.84
DILUTED EARNINGS PER COMMON SHARE
As reported............................................... E(4.76) E0.31 E0.83
Pro forma................................................. E(4.76) E0.31 E0.83
------ ----- -----
The fair value of options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 2001, 2000 and 1999: dividend yields of zero for all years;
expected volatility of 28.8%, 42.7% and 42.4% for 2001, 2000 and 1999,
respectively; risk-free interest rate of 4.5% for all years and expected term of
5 years for 2001 and 2000 and 7 years for 1999.
The effects of applying SFAS 123 for pro forma disclosures are not likely
to be representative of the effects on reported net income in future years.
Income taxes
The income tax disclosures required for French GAAP are included in note 15
to the financial statements. Additional information required for U.S. GAAP
purposes is as follows:
DECEMBER 31,
------------------------
2001 2000 1999
------ ------ ------
(IN MILLIONS OF EUROS)
Net income before taxes and minority interests:
France.................................................... 19 97 57
Foreign................................................... 250 154 103
--- --- ---
Total..................................................... 269 251 160
=== === ===
Income tax expense:
France.................................................... 18 26 22
Foreign................................................... 81 66 43
--- --- ---
Total..................................................... 99 92 65
=== === ===
F-54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rate for 1999 is as follows:
1999
------------
(IN MILLIONS
OF EUROS)
Income of consolidated companies before taxes, exceptional
items and amortization of goodwill........................ 165
Statutory tax rate.......................................... 36.67%
EXPECTED TAX EXPENSE........................................ (60)
Impact of:
- utilization of deferred tax assets on operating
losses................................................. 2
- permanent differences................................... (4)
- other................................................... (3)
-----
Income taxes recorded on the income statement............... (65)
=====
Effective tax rate.......................................... 39%
Sources of deferred taxes
DECEMBER 31,
1999
------------
(IN MILLIONS
OF EUROS)
Deferred tax assets resulting from temporary differences.... 6
Deferred tax assets resulting from operating loss
carryforwards............................................. 10
Valuation allowance on deferred tax assets.................. (9)
TOTAL DEFERRED TAX ASSETS................................... 7
Deferred tax liabilities resulting from temporary
differences............................................... (1)
TOTAL DEFERRED TAX LIABILITIES.............................. (1)
--
DEFERRED TAX ASSETS (LIABILITIES), NET...................... 6
==
Expiration dates of net operating loss carry forwards
At December 31, 2001, the Group had approximately E68 million of operating
loss carryforwards, of which E38 million will expire between 2002 and 2006 and
E18 million will expire after 2006. The remaining E12 million have no
expiration.
Additionally, in connection with the business combination with Saatchi &
Saatchi, Publicis acquired approximately E503 million in net operating loss
carryforwards related to former Saatchi & Saatchi operations. These net
operating loss carryforwards expire between 2002 and 2011. At December 31, 2001,
net operating loss carryforwards related to these operations amounted to E553
million.
For all net operating loss carryforwards, in the French financial
statements, deferred taxes have not been recognized due to the uncertainty of
their recoverability. For U.S. GAAP purposes, deferred tax assets have been
recorded and a 100% valuation allowance has been provided because the
recoverability of the deferred tax assets was not considered to satisfy the
applicable "more likely than not" standard.
Other differences
In 2001, the Group has recognized E37 million in deferred tax assets which
arose in connection with the Saatchi & Saatchi acquisition. Under U.S. GAAP,
these amounts are considered to be part of the purchase accounting allocation
and have been recorded against goodwill.
F-55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, in accordance with French GAAP, the Group has not recorded
deferred tax assets related to fixed assets of approximately E113 million due to
the uncertainty of their recoverability. For U.S. GAAP purposes, deferred taxes
have been recorded and a 100% valuation allowance provided.
Earnings per share
Basic earnings per share is computed on the basis of the weighted-average
number of shares outstanding after deduction of the weighted average number of
shares of treasury stock.
Diluted earnings per share take into account share equivalents having a
dilutive effect. Potentially dilutive common shares consist of stock options to
employees. The dilutive effect of stock options is calculated using the treasury
stock method.
The following table sets forth the computation of basic and diluted
earnings from continuing operations per common share in accordance with
accounting principles generally accepted in France (in millions, except share
and per share amounts):
2001 2000 1999
------ ------ ------
(IN MILLIONS EXCEPT PER
SHARE DATA)
Numerator:
Earnings from continuing operations......................... E151 E128 E74
Denominator*:
Denominator for basic earnings per share -- weighted-average
shares.................................................... 139 108 87
Potential dilutive common shares -- employee stock
options................................................... 1 3 1
----- ----- -----
Denominator for diluted earnings per share.................. 140 111 88
----- ----- -----
-- adjusted weighted-average shares and assumed conversions
Basic earnings from continuing operations per common
share..................................................... E1.09 E1.18 E0.85
----- ----- -----
Earnings from continuing operations per common
share -- assuming dilution................................ E1.08 E1.15 E0.84
----- ----- -----
---------------
* Reflects the 10 to 1 stock split that occurred on August 29, 2000.
F-56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Leases
The Group leases certain premises and equipment under both capital and
operating leases. Property leases typically provide for renewal options. The
following is a schedule of future minimum lease payments for capital and
operating leases in effect at December 31, 2001.
OPERATING
CAPITAL OPERATING SUBLEASE OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES INCOME LEASES, NET
------------------------- ------- --------- --------- -----------
2002........................................... 1 132 (7) 125
2003........................................... 1 137 (6) 131
2004........................................... 1 129 (6) 123
2005........................................... 1 124 (5) 119
2006........................................... 1 118 (4) 114
Thereafter..................................... 1 481 (16) 465
-- ----- --- -----
Total minimum lease payments................... 6 1,121 (44) 1,077
Less: amount representing interest............. (2)
--
Total obligation under capital leases.......... 4
Less: current portion.......................... (1)
--
Long-term portion.............................. 3
==
Property, plant and equipment at year-end include the following amounts for
capitalized leases:
2001 2000 1999
---- ---- ----
(E MILLIONS)
Buildings................................................... 8 8 8
Less allowances for depreciation............................ (3) (2) (2)
Net rental expense for operating leases was E135 million, E85 million and
E27 million for the years ended December 31, 2001, 2000 and 1999, respectively.
Fair value of financial instruments
The following table presents the carrying amounts in accordance with U.S.
GAAP and estimated fair values of the Group's financial instruments at December
31, 2001, 2000 and 1999:
2001 2000 1999
---------------- ---------------- ----------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- ----- -------- -----
(IN MILLIONS OF EUROS)
Cash, cash equivalents and marketable
securities......................... 663 663 529 529 350 350
Investments.......................... 171 171 228 228 213 213
Long-term debt....................... 294 294 180 180 -- --
Embedded Derivative Instruments...... 22 22 -- -- -- --
Financial commitments
Contingent value rights............ 165 165 96 96 -- --
F-57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash, cash equivalents and marketable securities
The carrying values of cash, cash equivalents and marketable securities
approximate fair value due to the relatively short maturity of these instruments
(between three months and one year).
Investments
Investments consist of available-for-sale securities, primarily those that
are publicly traded, and other investments. The available-for-sale securities
are carried at market value and the unrealized gains and losses on these
securities are included in shareholders' equity. As of December 31, 2001, 2000
and 1999, unrealized gains of E135 million, E156 million and E151 million,
respectively, have been recorded in shareholders' equity in accordance with U.S.
GAAP. Other long-term investments are carried at cost, which approximates
estimated fair value.
Long-term debt
The Group's long-term debt consists of floating rate debt and fixed
interest debt, the carrying value of which approximates fair value.
Derivative financial instruments
The carrying value of the Exchange Option, Cash Settlement Right and Call
Option embedded in the Group's debenture loan (see "Accounting for convertible
debt" section at the beginning of this footnote for further details) equals the
fair value. The fair value is estimated based on the amount the Group would have
to pay to terminate the contracts.
Financial commitments
Contingent value rights are publicly traded. The liability related to these
rights is carried at market value and changes in market value are recorded in
earnings.
Segment information
The Group operates in one industry segment, advertising and communications.
All of the Group's operations fall within one reportable segment as defined in
SFAS 131.
Subsequent events (unaudited)
In March 2002, all outstanding CVRs matured at an amount of approximately
E195 million. In accordance with U.S. GAAP, the difference between the fair
value of the CVRs at December 31, 2001, E165 million, and the amount paid out of
E195 million, or E30 million, is recognized as an expense in 2002. Under French
GAAP, as of December 31, 2001 the entire E195 million was recognized as a
liability.
Bcom3 merger
On March 7, 2002, Publicis entered into a merger agreement with Bcom3. In
connection with this merger agreement, Bcom3 entered into another agreement with
Dentsu Inc. (Dentsu). The agreement between Dentsu and Bcom3 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 Bcom3 Class A common stock,
(2) Dentsu will receive additional shares of the Bcom3's Class B Common Stock
and (3) the number of shares held by holders of Bcom3's Class A
F-58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock will be correspondingly reduced. The closing of this merger is
conditioned, among other things, on approval by Bcom3's stockholders and closing
of the merger of Publicis and Bcom3.
The merger agreement with Bcom3 provides for the merger of Bcom3 into a
wholly-owned subsidiary of Publicis (the "Publicis/Bcom3 Merger"). In this
merger, holders of Bcom3'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 or consummates a business
combination with a third party within 12 months of the termination.
F-59
ITEM 19: EXHIBITS
The following exhibits are included herein:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1 Statuts (bylaws) of Publicis Groupe S.A. (unofficial English
translation).*
2.1 Prospectus defining the terms and conditions of our 1.0%
notes due 2018 (unofficial English translation).*
2.2 We agree to furnish a copy of an English translation of the
prospectus defining the terms of our 2% notes due 2007 to
the SEC upon its request.
4.1 Agreement and Plan of Merger, dated March 7, 2002, among
Publicis Groupe S.A., Philadelphia Merger Corp.,
Philadelphia Merger LLC and Bcom3 Group, Inc. (incorporated
by reference from Exhibit 2.1 to the report on Form 6-K of
Publicis Groupe S.A. dated March 7, 2002).
4.2 Support Agreement, dated as of March 7, 2002, among Publicis
Groupe S.A., Philadelphia Merger Corp. and Dentsu Inc.
(incorporated by reference from Exhibit 99.1 to the report
on Form 6-K of Publicis Groupe S.A. dated March 7, 2002).
4.3 Support Agreement, dated as of March 7, 2002, between
Publicis Groupe S.A. and Philadelphia Merger Corp., on the
one hand, and Roy J. Bostock, Craig D. Brown, Richard B.
Fizdale and Roger A. Haupt, on the other hand (incorporated
by reference from Exhibit 99.2 to the report on Form 6-K of
Publicis Groupe S.A. dated March 7, 2002).
4.4 Memorandum of Understanding, dated March 7, 2002, between
Dentsu Inc. and Publicis Groupe S.A. (Shareholder's
Agreement) (incorporated by reference from Exhibit 99.4 to
the report on Form 6-K of Publicis Groupe S.A. dated March
7, 2002).
4.5 Memorandum of Understanding, dated March 7, 2002, between
Dentsu Inc. and Publicis Groupe S.A. (Strategic Alliance)
(incorporated by reference from Exhibit 99.5 to the report
on Form 6-K of Publicis Groupe S.A. dated March 7, 2002).
8 List of Subsidiaries. See note 28 to our financial
statements.
---------------
* Previously filed.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
PUBLICIS GROUPE S.A.
By: /s/ MAURICE LEVY
------------------------------------
Name: Maurice Levy
Title: Chief Executive Officer and
Chairman of the Management Board
Dated: July 22, 2002