-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M0Macee5i67PQKQAW7kvUb2KuaJc+0kS6C41ccSzjFJ13x7uwOLUxrfeS7hsAyek KlQOhRnSpaIjdvIQM3zvgg== 0000950123-96-002302.txt : 19960515 0000950123-96-002302.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950123-96-002302 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 96562793 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 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 March 31, 1996 / / 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 April 30, 1996, the total number of shares outstanding of Registrant's Common Stock, par value $1 per share ("Common Stock"), was 886,342 and of Registrant's Limited Duration Class B Common Stock, par value $1 per share ("Class B Common Stock"), was 302,895. 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
MARCH 31, 1996 DECEMBER 31, 1995 (UNAUDITED) (A) ---------------------------------------- ASSETS Current assets: Cash and cash equivalents $98,144,000 $134,313,000 Marketable securities 20,847,000 20,419,000 Accounts receivable 477,420,000 495,349,000 Expenditures billable to clients 42,900,000 46,449,000 Other current assets 38,167,000 49,614,000 ---------------------------------------- Total current assets 677,478,000 746,144,000 Investments in and advances to nonconsolidated affiliated companies 15,230,000 20,693,000 Fixed assets-at cost, less accumulated depreciation of $95,654,000 and $93,789,000 77,011,000 74,706,000 Marketable securities 58,737,000 48,252,000 Intangibles and other assets-including loans to officers of $5,522,000 in 1996 and 1995 67,502,000 65,342,000 ======================================== Total assets $895,958,000 $955,137,000 ========================================
See accompanying notes to condensed consolidated financial statements. (A) The consolidated balance sheet has been derived from the audited financial statements at that date. 3 4 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
MARCH 31, 1996 DECEMBER 31, 1995 LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (A) ------------------------------------------ Current liabilities: Accounts payable $474,496,000 $549,533,000 Notes payable to banks 85,061,000 71,336,000 Accrued expenses and other 96,373,000 97,126,000 Current portion of long-term debt 3,025,000 3,025,000 Income taxes payable 22,140,000 18,567,000 ------------------------------------------ Total current liabilities 681,095,000 739,587,000 Other liabilities including deferred compensation of $24,063,000 and $22,021,000 35,815,000 39,620,000 Long-term debt 30,000,000 30,000,000 Minority interest 9,949,000 9,281,000 Redeemable preferred stock-at redemption value; par value $1 per share; authorized 500,000 shares; issued and outstanding 32,000 shares in 1996 and 1995 9,109,000 8,986,000 Common stockholders' equity: Common Stock-par value $1 per share; authorized 10,000,000 shares; issued 1,100,038 in 1996 and 1,096,096 in 1995 1,100,000 1,096,000 Limited Duration Class B Common Stock-par value $1 per share; authorized 2,000,000 shares; issued 331,746 shares in 1996 and 335,688 shares in 1995 332,000 336,000 Paid-in additional capital 38,021,000 37,898,000 Retained earnings 127,305,000 122,345,000 Cumulative translation adjustment 4,944,000 4,664,000 Unrealized (loss) gain on marketable securities (1,598,000) 550,000 Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock (4,726,000) (4,726,000) ------------------------------------------ 165,378,000 162,163,000 Less-cost of 215,796 and 212,848 shares of Common Stock and 26,751 and 26,751 shares of Limited Duration Class B Common Stock held in treasury at March 31, 1996 and Dec. 31, 1995, respectively 35,388,000 34,500,000 ------------------------------------------ Total common stockholders' equity 129,990,000 127,663,000 ------------------------------------------ Total liabilities and stockholders' equity $895,958,000 $955,137,000 ==========================================
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 MARCH 31, ------------------------------------------- 1996 1995 ------------------------------------------- Commissions and fees $173,477,000 $151,937,000 Expenses: Salaries and employee related expenses 113,953,000 98,189,000 Office and general expenses 50,493,000 45,478,000 ------------------------------------------- 164,446,000 143,667,000 ------------------------------------------- 9,031,000 8,270,000 Other income-net 4,839,000 306,000 ------------------------------------------- Income of consolidated companies before taxes on income 13,870,000 8,576,000 Provision for taxes on income (7,206,000) (4,512,000) ------------------------------------------- Net income of consolidated companies 6,664,000 4,064,000 Minority interest applicable to consolidated companies (1,169,000) (895,000) Equity in nonconsolidated affiliated companies 768,000 523,000 ------------------------------------------- Net income $ 6,263,000 $ 3,692,000 =========================================== Weighted average number of common shares outstanding Primary 1,300,001 1,321,122 Fully diluted 1,354,692 1,375,217 Net income per common share Primary $ 4.68 $ 2.58 Fully diluted $ 4.51 $ 2.50 Dividends per common share $ 0.9375 $ 0.875 ===========================================
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 THREE MONTHS ENDED MARCH 31, 1996 1995 --------------------------------------- OPERATING ACTIVITIES Net income $ 6,263,000 $ 3,692,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization of fixed assets 4,491,000 3,650,000 Amortization of intangibles 1,212,000 941,000 Deferred compensation 3,299,000 2,540,000 Equity in earnings of nonconsolidated affiliated companies, net of dividends received of $105,000 and $-0- (663,000) (523,000) Gains from the sale of a nonconsolidated affiliated company, a non-marketable investment security and marketable securities (4,000,000) Minority interest applicable to consolidated companies 1,169,000 895,000 Amortization of restricted stock expense 25,000 56,000 Deferred income taxes (1,500,000) (1,292,000) Changes in operating assets and liabilities: Decrease in accounts receivable 15,690,000 33,285,000 Decrease (increase) in expenditures billable to clients 2,936,000 (13,219,000) Decrease (increase) in other current assets 10,955,000 (2,627,000) Increase in other assets (132,000) (1,989,000) Decrease in accounts payable (72,600,000) (75,418,000) (Decrease) increase in accrued expenses and other (1,422,000) 10,268,000 Increase (decrease) in income taxes payable 3,741,000 (1,119,000) Decrease in other liabilities (3,457,000) (993,000) --------------------------------------- Net cash used in operating activities (33,993,000) (41,853,000) INVESTING ACTIVITIES Purchases of fixed assets (7,303,000) (5,023,000) Trust fund deposits (737,000) Proceeds from the sale of marketable securities 76,506,000 5,950,000 Purchases of marketable securities (89,567,000) (7,682,000) Proceeds from the sale of a nonconsolidated affiliated company and a non-marketable investment security 8,872,000 Increase in intangibles, primarily goodwill (4,255,000) (349,000) Decrease (increase) in investments and advances to nonconsolidated affiliated companies 1,080,000 (829,000) --------------------------------------- Net cash used in investing activities (15,404,000) (7,933,000)
6 7 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 1995 -------------------------------------- FINANCING ACTIVITIES Net proceeds from short-term borrowings 15,451,000 5,103,000 Common shares acquired for treasury (982,000) (22,000) Cash dividends paid on Common Shares (1,115,000) (1,090,000) Cash dividends paid on Redeemable Preferred Stock (60,000) (56,000) Issuance of Restricted Stock 25,000 Proceeds from exercise of stock options 139,000 308,000 -------------------------------------- Net cash provided by financing activities 13,458,000 4,243,000 Effect of exchange rate changes on cash (230,000) 1,278,000 -------------------------------------- Decrease in cash and cash equivalents (36,169,000) (44,265,000) Cash and cash equivalents at beginning of period 134,313,000 170,077,000 -------------------------------------- Cash and cash equivalents at end of period $ 98,144,000 $125,812,000 ======================================
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, 1995 filed with the Securities and Exchange Commission. 2. The financial statements as of March 31, 1996 and for the three months ended March 31, 1996 and 1995 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 months ended March 31, 1996 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 months ended March 31, 1996 and 1995 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 months ended March 31, 1996 and March 31, 1995, 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 March 31, 1996 and December 31, 1995, 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. 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. In connection with the ownership of Series I, Series II and Series III Preferred Stock, the senior executive issued to the company full recourse promissory notes (which are included in Other Assets in the accompanying condensed consolidated balance sheet). 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income from commissions and fees increased 14.2% during the first quarter of 1996 when compared to the same period in 1995. Absent exchange rate fluctuations, gross income increased 11.3% in 1996 when compared to the same period in 1995. In the first quarter of 1996 and 1995, respectively, 44.0% and 45.6% of consolidated gross income was attributable to domestic operations and 56.0% and 54.4% to international operations. In the first quarter of 1996, gross income from domestic operations increased 10.3% versus the respective prior period. Gross income from international operations increased 17.4%, (12.1% absent exchange rate fluctuations) in the first quarter of 1996 when compared to the same period in 1995. The increase in gross income in both years primarily resulted from expanded activities from existing clients and the continued growth of the Company's general agency and specialized operations. The increase in gross income from international operations is indicative of the continued development of the Company's worldwide business. Salaries and employee related expenses increased 16.1% in 1996 when compared to the respective prior period. Office and general expenses increased 11.0% in 1996 versus the respective prior period. These changes are generally in line with the increase in gross income. Inflation did not have a material effect on revenue or expenses during 1996 or 1995. Minority interest increased by $274,000 in the first quarter of 1996 as compared to the respective prior period. The increase is primarily due to changes in the level of profits of majority-owned companies. Equity in earnings of nonconsolidated affiliated companies increased by $245,000 in the first quarter of 1996 as compared to the respective prior period. The increase is primarily due to changes in the level of profits of nonconsolidated affiliated companies. The effective tax rate remained relatively constant at 52.0% in the first quarter of 1996 versus 52.6% in the same period in 1995. 10 11 RESULTS OF OPERATIONS (CONTINUED) Other income was affected positively by non-recurring, non operating pre-tax income of almost $4,000,000 primarily related to gains on the sales of an interest in a nonconsolidated subsidiary and a non-marketable investment security. Net income increased by 69.6% when compared to net income in the same period in 1995. Primary net income per common share increased by 81.4% from the first quarter of 1995. Fully diluted net income per common share increased by 80.4% from the first quarter of 1995. Absent the non-recurring, non operating gains, primary and fully diluted net income per common share increased by 21.3% and 21.2%, respectively, from the first quarter of 1995. For purposes of computing primary net income per common share, the Company's net income is adjusted 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 $10,174,000 from $6,557,000 at December 31, 1995 to ($3,617,000) at March 31, 1996. Cash and cash equivalents decreased by $36,169,000 from $134,313,000 to $98,144,000. The decrease in working capital is largely attributable to the increase in long-term marketable securities. 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 1995. Domestically, the Company has committed lines of credit totaling $40,000,000. These lines of credit were partially utilized during the three months ended March 31, 1996 and 1995 to secure obligations of selected foreign subsidiaries. There was $15,000,000 outstanding under these credit lines as of March 31, 1996 and 1995. 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 $70,061,000 and $54,190,000 outstanding in respect of such arrangments at March 31, 1996 and 1995, 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 March 31, 1996. 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: May 14, 1996 By:/s/ Steven G. Felsher ----------------------------- Steven G. Felsher Executive Vice President - Finance - Worldwide Secretary and Treasurer (Duly Authorized Officer) DATE: May 14, 1996 By:/s/ William P. Garvey ---------------------------- William P. Garvey Executive Vice President Chief Financial Officer - United States (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 PER CS 1 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES EXHIBIT - STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED) EXHIBIT 11
FOR THE THREE MONTHS ENDED MARCH 31, PRIMARY 1996 1995 ------------------------------------- Weighted average shares outstanding(1) 1,269,539 1,300,109 Net effect of dilutive stock options - based on the treasury stock method using average market price 30,462 21,013 ------------------------------------- TOTAL 1,300,001 1,321,122 ===================================== Net Income $6,263,000 $3,692,000 Less: Effect of dividend requirements and the change in redemption value of redeemable preferred stock (184,000) (286,000) ------------------------------------- NET EARNINGS USED IN COMPUTATION $6,079,000 $3,406,000 ===================================== Per share amount $ 4.68 $ 2.58 ===================================== FULLY DILUTED Weighted average shares outstanding (1) 1,269,539 1,300,109 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 34,261 24,108 Assumed conversion of 8.5% convertible subordinated debentures issued December 1983 50,892 51,000 ------------------------------------- TOTAL 1,354,692 1,375,217 ===================================== Net Income $6,263,000 $3,692,000 Less: Effect of dividend requirements and the change in redemption value of redeemable preferred stock (184,000) (286,000) Add: 8.5% convertible subordinated debentures interest, net of income tax effect 35,000 35,000 ------------------------------------- NET EARNINGS USED IN COMPUTATION $6,114,000 $3,441,000 ===================================== Per share amount $ 4.51 $ 2.50 =====================================
(1) Includes 80,003 shares and 54,287 shares for 1996 and 1995, respectively, expected to be issued pursuant to the terms of the Senior Management Incentive Plan. 15 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANACIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996 AND THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 OF GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 MAR-31-1996 98,144 20,847 477,420 0 0 677,478 172,665 95,654 895,958 681,095 30,000 9,109 0 1,432 128,558 895,958 173,477 173,477 0 0 164,446 0 2,654 13,870 7,206 6,263 0 0 0 6,263 4.68 4.51
-----END PRIVACY-ENHANCED MESSAGE-----