-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, UZwSn+tQfLQ3ZF8m1+V+FBkVewpYMndCSkOPrQoPmIX1W3/YxaG6hZgHnvXASaFN fdjuBNLepAsxuuKjsKdZwg== 0000950123-94-001331.txt : 19940822 0000950123-94-001331.hdr.sgml : 19940822 ACCESSION NUMBER: 0000950123-94-001331 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREY ADVERTISING INC /DE/ CENTRAL INDEX KEY: 0000043952 STANDARD INDUSTRIAL CLASSIFICATION: 7311 IRS NUMBER: 130802840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07898 FILM NUMBER: 94543527 BUSINESS ADDRESS: STREET 1: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125462000 MAIL ADDRESS: STREET 2: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 GREY ADVERTISING FORM 10-Q 6/30/94 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q / X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1994 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-7898 GREY ADVERTISING INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-0802840 - - ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 777 Third Avenue, New York, New York 10017 - - --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, 212-546-2000 including area code ------------ NOT APPLICABLE -------------- Former name, former address and former fiscal year, if changed since last report. 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 --- --- As of July 31, 1994, the total number of shares outstanding of Registrant's Common Stock, par value $1 per share ("Common Stock"), was 910,358 and of Registrant's Limited Duration Class B Common Stock, par value $1 per share ("Class B Common Stock"), was 330,140. 2 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES INDEX
Financial Statements: Page No. -------- Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Other Information 12 Signatures 13 Index to Exhibits 14
2 3 Grey Advertising Inc. and Consolidated Subsidiary Companies Condensed Consolidated Balance Sheets
JUNE 30, 1994 DECEMBER 31, 1993 (UNAUDITED) (A) ------------------------------------------ ASSETS Current assets: Cash and cash equivalents $152,886,000 $181,267,000 Accounts receivable 394,303,000 363,105,000 Expenditures billable to clients 29,359,000 22,581,000 Other current assets 71,538,000 69,116,000 ----------------------------------------- Total current assets 648,086,000 636,069,000 Investments in and advances to nonconsolidated affiliated companies 15,760,000 16,104,000 Fixed assets-at cost, less accumulated depreciation of $79,273,330 and $74,671,000 59,716,000 57,724,000 Marketable securities 22,834,000 22,425,000 Intangibles and other assets-including loans to officers of $5,547,000 in 1994 and $4,947,000 in 1993 94,439,000 88,311,000 ----------------------------------------- Total assets $840,835,000 $820,633,000 =========================================
3 4 Grey Advertising Inc. and Consolidated Subsidiary Companies Condensed Consolidated Balance Sheets (continued)
JUNE 30, 1994 DECEMBER 31, 1993 (UNAUDITED) (A) ------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $444,858,000 $469,227,000 Notes payable to banks 63,545,000 45,851,000 Accrued expenses and other 106,070,000 88,099,000 Income taxes payable 9,054,000 7,891,000 ----------------------------------- Total current liabilities 623,527,000 611,068,000 Other liabilities including deferred compensation of $17,276,000 and $15,342,000 32,395,000 31,820,000 Long-term debt 33,025,000 33,025,000 Minority interest 8,759,000 9,053,000 Redeemable preferred stock-at redemption value; par value $1 per share; authorized 500,000 shares; issued and outstanding 32,000 shares in 1994 and 1993 6,960,000 6,590,000 Common stockholders' equity: Common Stock-par value $1 per share; authorized 10,000,000 shares; issued 1,074,476 in 1994 and 1,062,046 in 1993 1,075,000 1,062,000 Limited Duration Class B Common Stock-par value $1 per share; authorized 2,000,000 shares; issued 357,308 shares in 1994 and 369,738 shares in 1993 357,000 370,000 Paid-in additional capital 27,815,000 27,329,000 Retained earnings 137,635,000 131,835,000 Cumulative translation adjustment (1,341,000) (3,573,000) Unrealized loss on marketable securities (1,412,000) (147,000) Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock (4,726,000) (4,726,000) ------------------------------------ 159,403,000 152,150,000 Less-cost of 164,801 and 164,372 shares of Common Stock and 26,851 and 26,851 shares of Limited Duration Class B Common Stock held in treasury at June 30, 1994 and December 31, 1993, respectively 23,234,000 23,073,000 ----------------------------------- Total common stockholders' equity 136,169,000 129,077,000 ----------------------------------- Total liabilities and stockholders' equity $840,835,000 $820,633,000 ===================================
See accompanying notes to condensed consolidated financial statements. (A) The consolidated balance sheet has been derived from the audited financial statements at that date. 4 5 Grey Advertising Inc. and Consolidated Subsidiary Companies Condensed Consolidated Statements of Income (Unaudited)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------------------------------------------------------- 1994 1993 1994 1993 -------------------------------------------------------------------------- Commissions and fees $147,859,000 $143,244,000 $280,816,000 $274,771,000 Expenses: Salaries and employee related expenses 92,083,000 87,853,000 176,530,000 173,357,000 Office and general expenses 44,236,000 41,653,000 84,429,000 80,807,000 -------------------------------------------------------------------------- 136,319,000 129,506,000 260,959,000 254,164,000 -------------------------------------------------------------------------- 11,540,000 13,738,000 19,857,000 20,607,000 Other (expense) income-net (289,000) (96,000) (1,172,000) 263,000 -------------------------------------------------------------------------- Income before taxes on income of consolidated companies 11,251,000 13,642,000 18,685,000 20,870,000 Provision for taxes on income 6,466,000 7,543,000 10,552,000 11,488,000 -------------------------------------------------------------------------- Net income of consolidated companies 4,785,000 6,099,000 8,133,000 9,382,000 Minority interest applicable to consolidated companies (747,000) (513,000) (1,307,000) (1,128,000) Equity in nonconsolidated affiliated companies 1,042,000 214,000 1,464,000 773,000 -------------------------------------------------------------------------- Net income $5,080,000 $5,800,000 $8,290,000 $9,027,000 ========================================================================== Weighted average number of common shares outstanding Primary 1,285,863 1,261,451 1,286,090 1,260,457 Fully diluted 1,336,862 1,314,113 1,337,537 1,315,713 Net income per common share Primary $3.69 $4.39 $6.08 $6.93 Fully diluted $3.58 $4.24 $5.90 $6.70 Dividends per common share $0.8125 $0.775 $1.63 $1.55 =========================================================================
See accompanying notes to condensed consolidated financial statements. 5 6 Grey Advertising Inc. and Consolidated Subsidiary Companies Condensed Consolidated Statements of Cash Flows (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 1993 --------------------------------------- OPERATING ACTIVITIES Net income $ 8,290,000 $ 9,027,000 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization of fixed assets 6,947,000 7,098,000 Amortization of intangibles 3,632,000 2,503,000 Deferred compensation 4,080,000 4,370,000 Equity in earnings of nonconsolidated affiliated companies, net of dividends received of $513,000 and $140,000 (951,000) (676,000) Minority interest applicable to consolidated companies 1,307,000 1,128,000 Amortization of restricted stock expense 55,000 230,000 Deferred income taxes (2,240,000) (1,925,000) Changes in operating assets and liabilities: Increase in accounts receivable (28,518,000) (32,060,000) (Increase) decrease in expenditures billable to clients (6,320,000) 3,066,000 Decrease (increase) in other current assets 655,000 (9,256,000) Increase in other assets (28,000) (3,285,000) (Decrease) increase in accounts payable (29,880,000) 48,308,000 Increase in accrued expenses and other 14,573,000 1,271,000 Increase in income taxes payable 1,332,000 4,906,000 Decrease in other liabilities (3,381,000) (2,538,000) --------------------------------------- Net cash (used in) provided by operating activities (30,447,000) 32,167,000 INVESTING ACTIVITIES Purchases of fixed assets (8,456,000) (6,379,000) Increase in investments in and advances to nonconsolidated affiliated companies (1,546,000) (2,061,000) Purchases of marketable securities (1,517,000) Increase in intangibles, primarily goodwill (4,200,000) (4,900,000) --------------------------------------- Net cash used in investing activities (15,719,000) (13,340,000)
6 7 Grey Advertising Inc. and Consolidated Subsidiary Companies Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)
FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------- 1994 1993 ----------------------------------- FINANCING ACTIVITIES Net proceeds from short-term borrowings $ 23,406,000 $ 9,172,000 Common Shares acquired for treasury (347,000) (669,000) Cash dividends paid on Common Shares (2,016,000) (1,920,000) Redemption of Preferred Stock (300,000) Cash dividends paid on Redeemable Preferred Stock (104,000) (102,000) Proceeds from exercise of stock options 141,000 288,000 Proceeds from long-term debt 30,000,000 ----------------------------------- Net cash provided by financing activities 21,080,000 36,469,000 Effect of exchange rate changes on cash (3,295,000) (5,055,000) ----------------------------------- (Decrease) increase in cash and cash equivalents (28,381,000) 50,241,000 Cash and cash equivalents at beginning of period 181,267,000 92,755,000 ----------------------------------- Cash and cash equivalents at end of period $152,886,000 $142,996,000 ===================================
See accompanying notes to condensed consolidated financial statements. 7 8 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. As permitted by the Securities and Exchange Commission, the accompanying unaudited Consolidated Financial Statements and Notes thereto have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. Reference should be made to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 filed with the Securities and Exchange Commission. 2. The financial statements as of June 30, 1994 and for the three and six months ended June 30, 1994 and June 30, 1993 are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair representation have been included. 3. The results of operations for the three and six months ended June 30, 1994 and June 30, 1993 are not necessarily indicative of the results to be expected for the full year. 4. The computations of net income per common share for the three and six months ended June 30, 1994 and June 30, 1993 are based on the weighted average number of common shares outstanding, adjusted for the effect, if any, of the assumed exercise of dilutive stock options and of shares payable in Common Stock pursuant to the Company's Senior Management Incentive Plan, and, for fully diluted net income per common share, the assumed conversion of the 8-1/2% Convertible Subordinated Debentures issued in December 1983. Also, for the purpose of computing net income per common share for the three and six months ended June 30, 1994 and June 30, 1993, the Company's net income was reduced by dividends on the Preferred Stock and also adjusted by the change in the redemption value of Preferred Stock. Primary net income per common share is computed as if the stock options were exercised at the beginning of the period and as if the funds obtained thereby were used to purchase Common Stock at the market price during the period. In computing fully diluted net income per common share, the market price at the close of the period or the average market price, whichever was higher, was used to determine the number of shares which would be assumed to be repurchased. The market price for a share of Class B Common Stock, which is not publicly traded, is deemed to be equal to the market price of a share of Common Stock, into which a share of Class B Common Stock may be converted at the option of the holder, as of the date such valuation is made. 5. The provision for taxes on income is greater than the Federal statutory rate principally due to state and local income taxes, and effective foreign tax rates that are in excess of the Federal statutory rate. 8 9 6. As of June 30, 1994, the Company had outstanding 20,000 shares of Series I Preferred Stock, 5,000 shares each of its Series II and Series III Preferred Stock, and 2,000 shares of Series 1 Preferred Stock. As of December 31, 1993, the Company had outstanding 22,000 shares of Series 1 Preferred Stock and 5,000 shares each of its Series 2 and 3 Preferred Stock which were sold to certain current and former employees, including one senior executive, for a combination of cash and full recourse promissory notes (which are included in Other Assets in the accompanying condensed consolidated balance sheet). In April 1994, the senior executive entered into an Exchange Agreement pursuant to which he exchanged 20,000 shares of Series 1 Preferred Stock and 5,000 shares each of Series 2 Preferred Stock and Series 3 Preferred Stock (collectively, the "Original Preferred Stock") for a like number of shares of New Preferred Stock, designated Series I Preferred Stock, Series II Preferred Stock and Series III Preferred Stock (collectively, the "New Preferred Stock"). The terms of the New Preferred Stock, including the basic economic terms relating thereto, are essentially the same as the Original Preferred Stock, except that the redemption date of the new Preferred Stock is fixed at April 7, 2004 rather than on a date determined by reference to his termination of full-time employment with the Company as was the case with the Original Preferred Stock. The terms of the New Preferred Stock also give the holder, his estate or legal representative, as the case may be, the option to require the Company to redeem his Preferred Stock for a period of 12 months following his (i) death, (ii) permanent disability or permanent mental disability, (iii) termination of full-time employment for good reason or (iv) termination of full-time employment by the Company without cause. The holder of the Series 1 Preferred Stock has the option to have his shares redeemed upon termination of his employment prior to age 65. The Company is obligated to redeem such shares following the attainment of age 65 by the holder thereof following termination of employment. Each share of Preferred Stock is to be redeemed by the Company at a price equal to the book value per share attributable to one share of Common Stock and one share of Class B Common Stock pertaining upon redemption (subject to certain adjustments), less a fixed discount established upon the issuance of the Preferred Stock. The holders of each class of Preferred Stock are entitled to receive cumulative preferential dividends at the annual rate of $.25 per share, and to participate in dividends on one share of the Common Stock and one share of the Class B Common Stock to the extent such dividends exceed the per share preferential dividend. 7. During the first quarter of 1994, the Company adopted FAS 112, Employers' Accounting for Postemployment Benefits. The costs incurred resulting from the adoption of this pronouncement were not material. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income from commissions and fees increased 3.2% during the second quarter and 2.2% during the six months ended June 30, 1994 as compared to the same periods in 1993. The increases result primarily from expanded activity from existing clients, and the continued growth of the Company's general agency and specialized operations. Salaries and employee related expenses increased 4.8% during the second quarter and 1.8% during the six months ended June 30, 1994 when compared to respective prior periods. Office and general expenses increased 6.2% during the second quarter and 4.5% during the six months ended June 30, 1994, as compared to the same periods in 1993. The increased expenses incurred in the second quarter and the six months ended June 30, 1994 are attributable to costs incurred in the general growth of the business and, in part, due to costs associated with securing and integrating substantial new business assignments, and increased charges for goodwill write-offs principally as a result of the shortening of amortization periods for selected past acquisitions. The increase in goodwill write-offs during the three months ended June 30, 1994 was $630,000 when compared to the comparable quarter in the prior year. Inflation did not have a material effect on either revenue or expenses during 1994 or 1993. The effective tax rate increased to 57.5% from 55.3% in the second quarter and to 56.5% from 55% in the six months ended June 30, 1994 versus the respective prior periods. These increases primarily relate to a greater portion of the pre-tax profit being derived from companies operating in countries with higher effective tax rates. Minority interest increased by $234,000 in the second quarter and $179,000 during the six months ended June 30, 1994 as compared to the respective prior periods. The increases are primarily due to changes in the level of profits of majority-owned companies. Equity in earnings of nonconsolidated affiliated companies increased by $828,000 in the second quarter and $691,000 during the six months ended June 30, 1994 as compared to the respective prior periods. These increases are primarily due to changes in the level of profits of nonconsolidated companies. 10 11 RESULTS OF OPERATIONS (continued) Net income decreased by 12.4% in the second quarter and 8.2% during the six months ended June 30, 1994 when compared to the comparable periods in 1993. Net income decreased during the second quarter principally because of the additional costs discussed above, continued softness in the European advertising market (which represents in excess of 40% of the Company's annual commissions and fees) and the relative strength of the dollar in 1994 as compared to the respective prior periods. Primary net income per common share decreased by 15.9% in the second quarter and 12.3% in the six months of 1994 as compared to the same periods in 1993. Fully diluted net income per common share decreased 15.6% in the second quarter and 11.9% in the first six months of 1994 as compared to the same periods in 1993. For purposes of computing primary net income per common share, the Company's net income was reduced by (i) dividends paid on the Company's Preferred Stock and (ii) the change in redemption value of the Preferred Stock. LIQUIDITY AND CAPITAL RESOURCES Working capital decreased marginally by $442,000 from $25,001,000 at December 31, 1993 to $24,559,000 at June 30, 1994. Cash and cash equivalents decreased by $28,381,000 from $181,267,000 to $152,886,000. The decrease in cash and cash equivalents is largely attributable to the settlement of year-end payable balances which were higher at the end of 1993. Domestically, the Company has committed lines of credit totaling $40,000,000. These lines of credit were partially utilized during the three and six months ended June 30, 1994 and 1993 to secure obligations of selected foreign subsidiaries. There was $15,000,000 and $11,186,000 outstanding under these credit lines as of June 30, 1994 and 1993, respectively. Domestically, the Company also maintains uncommitted lines of credit. These facilities, which are available at the discretion of the offering banks, were not utilized during the period. There were no amounts outstanding under these arrangements at June 30, 1994 or June 30, 1993. Other lines of credit are available to the Company in foreign countries in connection with short-term borrowings and bank overdrafts used in the normal course of business. There were $48,545,000 and $34,039,000 outstanding at June 30, 1994 and 1993, respectively. 11 12 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Reference is made to the Index annexed hereto and made a part hereof. (b) Reports on Form 8-K: On April 15, 1994 the Company filed a report on Form 8-K dated April 7, 1994, relating to Item 5 thereof, and including as an exhibit thereto, the Restated Certificate of Incorporation of the Company. 12 13 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GREY ADVERTISING INC. (Registrant) DATE: Aug 12, 1994 By:/s/ Steven G. Felsher ------------------------ Steven G. Felsher Executive Vice President, Secretary and Treasurer (Duly Authorized Officer) DATE: Aug 12, 1994 By:/s/ William P. Garvey ------------------------ William P. Garvey Executive Vice President Chief Financial Officer (Chief Accounting Officer) 13 14 INDEX TO EXHIBITS
Number Assigned to Exhibit Page Number in Sequential (i.e., Exhibit Table of Item 601 Numbering System Where of Regulation S-K) Description of Exhibit Exhibit May Be Found - - ------------------------------------------------------------------------------------------------ Table of Item 601 of Exhibit (11) Description of Exhibit Statement re Computation of Net Income per Common Share (unaudited) (15)
14 EX-11 2 COMPUTATION OF NET INCOME PER COMMON SHARE 1 Grey Advertising Inc. and Consolidated Subsidiary Companies Exhibit - Statement Re: Computation of Net Income Per Common Share (unaudited)
For the Three For the Six Months Ended June 30, Months Ended June 30, 1994 1993 1994 1993 --------------- --------------- --------------- --------------- PRIMARY Average shares outstanding (1) 1,267,359 1,245,362 1,267,722 1,246,326 Net effect of dilutive stock options - based on the treasury stock method using average market price 18,504 16,089 18,368 14,131 --------------- --------------- --------------- --------------- TOTAL 1,285,863 1,261,451 1,286,090 1,260,457 =============== =============== =============== =============== Net Income $5,080,000 $5,800,000 $8,290,000 $9,027,000 Less: Effect of dividend requirements and the change in the redemption value of redeemable preferred stock (329,000) (259,000) (474,000) (288,000) --------------- --------------- --------------- --------------- NET EARNINGS USED IN COMPUTATION $4,751,000 $5,541,000 $7,816,000 $8,739,000 =============== =============== =============== =============== Per share amount $3.69 $4.39 $6.08 $6.93 =============== =============== =============== =============== FULLY DILUTED Average shares outstanding(1) 1,267,359 1,245,362 1,267,722 1,246,326 Net effect of dilutive stock options - based on the treasury stock method using the period-end market price, if higher than the average market price 18,504 17,751 18,816 18,387 Assumed conversion of 8.5% convertible subordinated debentures issued December 1983 50,999 51,000 50,999 51,000 --------------- --------------- --------------- --------------- TOTAL 1,336,862 1,314,113 1,337,537 1,315,713 =============== =============== =============== =============== Net Income $5,080,000 $5,800,000 $8,290,000 $9,027,000 Less: Effect of dividend requirements and the change in the redemption value of redeemable preferred stock (329,000) (259,000) (474,000) (288,000) Add: 8.5% convertible subordinated debentures interest, net of income tax effect 35,000 35,000 69,000 70,000 --------------- --------------- --------------- --------------- NET EARNINGS USED IN COMPUTATION $4,786,000 $5,576,000 $7,885,000 $8,809,000 =============== =============== =============== =============== Per share amount $3.58 $4.24 $5.90 $6.70 =============== =============== =============== ===============
(1) Includes 27,273 shares and 8,628 shares for 1994 and 1993, respectively, expected to be issued pursuant to the terms of the Senior Management Incentive Plan 15 -----END PRIVACY-ENHANCED MESSAGE-----