0000950123-95-002296.txt : 19950815 0000950123-95-002296.hdr.sgml : 19950815 ACCESSION NUMBER: 0000950123-95-002296 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREY ADVERTISING INC /DE/ CENTRAL INDEX KEY: 0000043952 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [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: 95562310 BUSINESS ADDRESS: STREET 1: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125462000 MAIL ADDRESS: STREET 1: 777 THIRD AVE STREET 2: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 FORM 10-Q FOR PERIOD ENDED JUNE 30, 1995 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, 1995 [ ] 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) 212-546-2000 ------------------------------ Registrant's telephone number, 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, 1995, the total number of shares outstanding of Registrant's Common Stock, par value $1 per share ("Common Stock"), was 876,492 and of Registrant's Limited Duration Class B Common Stock, par value $1 per share ("Class B Common Stock"), was 317,872. 2 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES INDEX
Page No. -------- Financial Statements: 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, 1995 DECEMBER 31, 1994 (UNAUDITED) (A) --------------------------------------------- ASSETS Current assets: Cash and cash equivalents $150,471,000 $170,077,000 Marketable securities 6,484,000 7,678,000 Accounts receivable 446,666,000 403,973,000 Expenditures billable to clients 42,490,000 30,145,000 Other current assets 59,099,000 63,796,000 --------------------------------------------- Total current assets 705,210,000 675,669,000 Investments in and advances to nonconsolidated affiliated companies 18,361,000 16,495,000 Fixed assets-at cost, less accumulated depreciation of $87,992,000 and $80,584,000 68,600,000 61,174,000 Marketable securities 19,213,000 14,785,000 Intangibles and other assets-including loans to officers of $5,547,000 in 1995 and $5,347,000 in 1994 67,748,000 61,953,000 --------------------------------------------- Total assets $879,132,000 $830,076,000 =============================================
3 4 Grey Advertising Inc. and Consolidated Subsidiary Companies Condensed Consolidated Balance Sheets (continued)
JUNE 30, 1995 DECEMBER 31, 1994 LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (A) ------------------------------------------ Current liabilities: Accounts payable $497,718,000 $475,188,000 Notes payable to banks 71,691,000 64,460,000 Accrued expenses and other 105,785,000 88,156,000 Income taxes payable 7,557,000 14,130,000 ------------------------------------------ Total current liabilities 682,751,000 641,934,000 Other liabilities including deferred compensation of $19,927,000 and $16,244,000 31,855,000 30,053,000 Long-term debt 33,025,000 33,025,000 Minority interest 9,578,000 8,843,000 Redeemable preferred stock-at redemption value; par value $1 per share; authorized 500,000 shares; issued and outstanding 32,000 shares in 1995 and 1994 8,047,000 7,516,000 Common stockholders' equity: Common Stock-par value $1 per share; authorized 10,000,000 shares; issued 1,084,887 in 1995 and 1,077,116 in 1994 1,085,000 1,077,000 Limited Duration Class B Common Stock-par value $1 per share; authorized 2,000,000 shares; issued 346,897 shares in 1995 and 354,668 shares in 1994 347,000 355,000 Paid-in additional capital 32,063,000 31,895,000 Retained earnings 112,004,000 105,123,000 Cumulative translation adjustment 2,426,000 (728,000) Unrealized loss on marketable securities (333,000) (1,492,000) Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock (4,726,000) (4,726,000) ------------------------------------------ 142,866,000 131,504,000 Less-cost of 194,019 and 161,382 shares of Common Stock and 26,751 and 26,751 shares of Limited Duration Class B Common Stock held in treasury at June 30, 1995 and Dec. 31, 1994, respectively 28,990,000 22,799,000 ------------------------------------------ Total common stockholders' equity 113,876,000 108,705,000 ------------------------------------------ Total liabilities and stockholders' equity $879,132,000 $830,076,000 ==========================================
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, ------------------------------------------------------------------------------- 1995 1994 1995 1994 ------------------------------------------------------------------------------- Commissions and fees $169,703,000 $147,859,000 $321,640,000 $280,816,000 Expenses: Salaries and employee related expenses 106,092,000 92,083,000 204,281,000 176,530,000 Office and general expenses 49,617,000 44,236,000 95,095,000 84,429,000 ------------------------------------------------------------------------------- 155,709,000 136,319,000 299,376,000 260,959,000 ------------------------------------------------------------------------------- 13,994,000 11,540,000 22,264,000 19,857,000 Other expense-net 370,000 289,000 64,000 1,172,000 ------------------------------------------------------------------------------- Income of consolidated companies before taxes on income 13,624,000 11,251,000 22,200,000 18,685,000 Provision for taxes on income 6,874,000 6,466,000 11,386,000 10,552,000 ------------------------------------------------------------------------------- Net income of consolidated companies 6,750,000 4,785,000 10,814,000 8,133,000 Minority interest applicable to consolidated companies (1,006,000) (747,000) (1,901,000) (1,307,000) Equity in nonconsolidated affiliated companies 263,000 1,042,000 786,000 1,464,000 ------------------------------------------------------------------------------- Net income $ 6,007,000 $ 5,080,000 $ 9,699,000 $ 8,290,000 =============================================================================== Weighted average number of common shares outstanding Primary 1,320,489 1,285,863 1,320,791 1,286,090 Fully diluted 1,377,389 1,336,862 1,380,419 1,337,537 Net income per common share Primary $4.28 $3.69 $6.86 $6.08 Fully diluted $4.13 $3.58 $6.61 $5.90 Dividends per common share $.875 $0.8125 $1.75 $1.63 ===============================================================================
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, 1995 1994 ----------------------------------------- OPERATING ACTIVITIES Net income $ 9,699,000 $ 8,290,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization of fixed assets 7,690,000 6,947,000 Amortization of intangibles 1,971,000 3,632,000 Deferred compensation 6,127,000 4,080,000 Equity in earnings of nonconsolidated affiliated companies, net of dividends received of -0- and $523,000 (786,000) (951,000) Minority interest applicable to consolidated companies 1,901,000 1,307,000 Amortization of restricted stock expense 111,000 55,000 Deferred income taxes (3,025,000) (2,240,000) Changes in operating assets and liabilities: Increase in accounts receivable (28,145,000) (28,518,000) Increase in expenditures billable to clients (9,539,000) (6,320,000) Decrease in other current assets 8,354,000 655,000 Increase in other assets (5,736,000) (28,000) Increase (decrease) in accounts payable 5,782,000 (29,880,000) Increase in accrued expenses and other 11,933,000 14,573,000 (Decrease) increase in income taxes payable (8,878,000) 1,332,000 Decrease in other liabilities (804,000) (3,381,000) ----------------------------------------- Net cash used in operating activities (3,345,000) (30,447,000) INVESTING ACTIVITIES Purchases of fixed assets (9,906,000) (8,456,000) Increase in investments in and advances to nonconsolidated affiliated companies (829,000) (1,546,000) Net purchases of marketable securities (2,040,000) (1,517,000) Increase in intangibles, primarily goodwill (2,875,000) (4,200,000) ----------------------------------------- Net cash used in investing activities (15,650,000) (15,719,000)
6 7 Grey Advertising Inc. and Consolidated Subsidiary Companies Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 1994 ----------------------------------------- FINANCING ACTIVITIES Net proceeds from short-term borrowings 3,934,000 23,406,000 Common Shares acquired for treasury (6,576,000) (347,000) Cash dividends paid on Common Shares (2,174,000) (2,016,000) Cash dividends paid on Redeemable Preferred Stock (112,000) (104,000) Proceeds from exercise of stock options 336,000 141,000 ----------------------------------------- Net cash (used in) provided by financing activities (4,592,000) 21,080,000 Effect of exchange rate changes on cash 3,981,000 (3,295,000) ----------------------------------------- Decrease in cash and cash equivalents (19,606,000) (28,381,000) Cash and cash equivalents at beginning of period 170,077,000 181,267,000 ----------------------------------------- Cash and cash equivalents at end of period $150,471,000 $152,886,000 =========================================
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, 1994 filed with the Securities and Exchange Commission. 2. The financial statements as of June 30, 1995 and for the three and six months ended June 30, 1995 and June 30, 1994 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, 1995 and June 30, 1994 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, 1995 and June 30, 1994 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, 1995 and June 30, 1994, 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, 1995 and December 31, 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 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). 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. The redemption date for the Series I, Series II and Series III Preferred Stock is fixed at April 7, 2004. The terms of the Series I, Series II and Series III 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 such holder thereof following termination of employment. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income from commissions and fees ("gross income") increased 14.8% during the second quarter of 1995 and 14.5% during the six months ended June 30, 1995 when compared to the same periods in 1994. Absent exchange rate fluctuations, gross income increased 7.0% in the three months ended June 30, 1995 and 8.4% in the six months ended June 30, 1995 when compared to the same periods in 1994. In the second quarter of 1995 and 1994, respectively, 43.7% and 47.3% of consolidated gross income was attributable to domestic operations and 56.3% and 52.7% to international operations. For the first six months of 1995 and 1994, respectively, 44.6% and 47.6% of consolidated gross income was attributable to domestic operations and 55.4% and 52.4% to international operations. The increase in gross income resulted primarily from expanded activities from existing clients and the continued growth of the Company's general agency and specialized operations. In the second quarter of 1995 and the first six months of 1995, respectively, gross income from domestic operations increased 5.9% and 7.3% versus the respective prior periods. Gross income from international operations increased 22.8% and 21.1% in the second quarter of 1995 and the first six months of 1995, respectively, when compared to the same periods in 1994. Salaries and employee related expenses increased 15.2% in the second quarter of 1995 and 15.7% in the first six months of 1995 when compared to the respective prior periods. Office and general expenses increased 12.2% in the three months ended June 30, 1995 and 12.6% in the six months ended June 30, 1995 versus the respective prior periods. These changes are generally in line with the increases in gross income. Inflation did not have a material effect on either revenue or expenses during 1995 or 1994. Minority interest increased by $259,000 in the second quarter of 1995 and $594,000 in the first six months of 1995 as compared to the respective prior periods. These increases are primarily due to changes in the level of profits of majority-owned companies. Equity in earnings of nonconsolidated affiliated companies decreased by $779,000 in the second quarter of 1995 and $678,000 in the six months ended June 30, 1995 as compared to the respective prior periods. These decreases are primarily due to changes in the level of profits of nonconsolidated affiliated companies. The effective tax rate decreased to 50.5% in the second quarter of 1995 and 51.3% in the first six months ended June 30, 1995 from 57.5% and 56.5% in the same periods in 1994 respectively. The decrease in the effective tax rate is, in part, due to the lower amount of nondeductible expenses (principally goodwill amortization) for tax purposes in 1995 as compared to 1994. 10 11 RESULTS OF OPERATIONS (continued) Net income increased by 18.2% and 17.0% in the three and six months ended June 30, 1995, respectively, when compared to net income for the same periods in 1994. Net income for the three and six months ended June 30, 1995 was affected favorably by a reduction of amortization expense resulting from a non-cash goodwill write-off taken in the fourth quarter of 1994. Primary net income per common share increased by 16.0% and 12.8% in the three and six months ended June 30, 1995 as compared to the same periods in 1994. Fully diluted net income per common share increased by 15.4% in the second quarter of 1995 and 12.0% in the six months ended June 30, 1995. 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 by $11,276,000 from $33,735,000 at December 31, 1994 to $22,459,000 at June 30, 1995. Cash and cash equivalents decreased by $19,606,000 from $170,077,000 to $150,471,000. The decrease in working capital is largely attributable to the increase in investment in marketable securities, principally in U.S. Treasury Securities with maturity dates between one and nine years and the repurchase of 35,191 shares of Company stock which were made pursuant to the Company's stock repurchase program announced in April, 1995 in which the Company said that it would repurchase up to 3% of its outstanding stock for use with its employee benefit programs and for other general corporate purposes. Domestically, the Company has committed lines of credit totaling $40,000,000. These lines of credit were partially utilized during the six months ended June 30, 1995 and 1994 to secure obligations of selected foreign subsidiaries. There was $15,000,000 outstanding under these credit lines as at both June 30, 1995 and 1994. 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 $56,691,000 and $48,545,000 outstanding at June 30, 1995 and 1994, 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: The Company did not file any reports on Form 8-K during the quarter ended June 30, 1995. 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: August 14, 1995 By:/s/ Steven G. Felsher ------------------------ Steven G. Felsher Executive Vice President, Secretary and Treasurer (Duly Authorized Officer) DATE: August 14, 1995 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 Table of Item 601 Exhibits Numbering System Where of Regulation S-K) Description of Exhibit Exhibit May Be Found ----------------------------------------------------------------------------------------------------- (11) Statement Re: Computation of Net Income per Common Share (unaudited) (15) (27) Financial Data Schedule (16)
14 EX-11 2 STATEMENT RE: COMPUTATION OF NET INCOME 1 Grey Advertising Inc. and Consolidated Subsidiary Companies Exhibit - 11 Statement Re: Computation of Net Income Per Common Share (Unaudited)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------------------------------------------------- 1995 1994 1995 1994 ---------------------------------------------------------------------- PRIMARY Average shares outstanding(1) 1,294,583 1,267,359 1,297,331 1,267,722 Net effect of dilutive stock options- based on the treasury stock method using average market price 25,906 18,504 23,460 18,368 ---------------------------------------------------------------------- TOTAL 1,320,489 1,285,863 1,320,791 1,286,090 ====================================================================== Net Income $6,007,000 $5,080,000 $9,699,000 $8,290,000 Less: Effect on dividend requirements and the change in redemption value of redeemable preferred stock (357,000) (329,000) (644,000) (474,000) ---------------------------------------------------------------------- NET EARNINGS USED IN COMPUTATION $5,650,000 $4,751,000 $9,055,000 $7,816,000 ====================================================================== Per share amount $4.28 $3.69 $6.86 $6.08 ====================================================================== FULLY DILUTED Average shares outstanding(1) 1,294,583 1,267,359 1,297,331 1,267,722 Net effect of dilutive stock options- based on treasury stock method using the period-end market price, if higher than average market price 31,807 18,504 32,089 18,816 Assumed conversion of 8.5% convertible subordinated debentures issued December 1983 50,999 50,999 50,999 50,999 ---------------------------------------------------------------------- TOTAL 1,377,389 1,336,862 1,380,419 1,337,537 ====================================================================== Net Income $6,007,000 $5,080,000 $9,699,000 $8,290,000 Less: Effect of dividend requirements and the change in redemption value of redeemable preferred stock (357,000) (329,000) (644,000) (474,000) Add: 8.5% convertible subordinated debentures interest net of income tax effect 35,000 35,000 69,000 69,000 ---------------------------------------------------------------------- NET EARNINGS USED IN COMPUTATION $5,685,000 $4,786,000 $9,124,000 $7,885,000 ====================================================================== Per share amount $4.13 $3.58 $6.61 $5.90 ======================================================================
(1) Includes 54,287 shares and 27,273 shares for 1995 and 1994, respectively, expected to be issued pursuant to the terms of the Senior Management Incentive Plan. -15- EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1995 JUN-30-1995 150,471 6,484 446,666 0 0 705,210 156,592 87,992 879,132 682,751 33,025 1,432 8,047 0 112,444 879,132 321,640 321,640 0 0 299,376 0 4,600 22,200 11,386 9,699 0 0 0 9,699 6.86 6.61