-----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, REDlpE596UIdTpUoGAsQ+gnq5EVvLeYcb+eobsYpS5KgZRWQUt9h5132UulfaF6r u9hWAui+NeRjzEh+s3y0lQ== 0000950123-97-004284.txt : 19970515 0000950123-97-004284.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950123-97-004284 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97603988 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, 1997 [ ] 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, 1997, the total number of shares outstanding of Registrant's Common Stock, par value $1 per share ("Common Stock"), was 898,909 and of Registrant's Limited Duration Class B Common Stock, par value $1 per share ("Class B Common Stock"), was 285,969. 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, 1997 DECEMBER 31, 1996 (UNAUDITED) (A) ------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 69,702,000 $ 112,485,000 Marketable securities 35,480,000 28,688,000 Accounts receivable 594,212,000 590,002,000 Expenditures billable to clients 52,551,000 52,285,000 Other current assets 55,991,000 52,982,000 ------------------------------------ Total current assets 807,936,000 836,442,000 Investments in and advances to nonconsolidated affiliated companies 18,516,000 17,723,000 Fixed assets-at cost, less accumulated depreciation of $106,245,000 and $104,811,000 79,141,000 78,223,000 Marketable securities 58,605,000 67,419,000 Intangibles and other assets - including loans to executive officers of $5,822,000 in 1997 and 1996 94,943,000 89,587,000 ------------------------------------ Total assets $1,059,141,000 $1,089,349,000 ====================================
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, 1997 DECEMBER 31, 1996 (UNAUDITED) (A) ------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 585,671,000 $ 619,003,000 Notes payable to banks 106,335,000 86,004,000 Accrued expenses and other 98,229,000 107,368,000 Income taxes payable 15,256,000 20,224,000 ------------------------------------------- Total current liabilities 805,491,000 832,599,000 Other liabilities, including deferred compensation of $29,766,000 and $28,738,000 56,696,000 55,217,000 Long-term debt 33,025,000 33,025,000 Minority interest 10,515,000 10,533,000 Redeemable preferred stock - at redemption value; par value $1 per share; authorized 500,000 shares; issued and outstanding 32,000 shares in 1997 and 1996 9,798,000 10,098,000 Common stockholders' equity: Common Stock - par value $1 per share; authorized 10,000,000 shares; issued 1,118,479 in 1997 and 1,110,918 in 1996 1,119,000 1,111,000 Limited Duration Class B Common Stock - par value $1 per share; authorized 2,000,000 shares; issued 313,305 shares in 1997 and 320,866 shares in 1996 313,000 321,000 Paid-in additional capital 43,422,000 42,814,000 Retained earnings 148,416,000 144,789,000 Cumulative translation adjustment (4,929,000) 2,579,000 Unrealized loss on marketable securities (1,866,000) (870,000) Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock (4,726,000) (4,726,000) ------------------------------------------- 181,749,000 186,018,000 Less - cost of 222,297 and 222,810 shares of Common Stock and 26,759 and 26,759 shares of Limited Duration Class B Common Stock held in treasury at March 31, 1997 and December 31, 1996, respectively 38,133,000 38,096,000 ------------------------------------------- Total common stockholders' equity 143,616,000 147,922,000 ------------------------------------------- Total liabilities and stockholders' equity $1,059,141,000 $1,089,394,000 ===========================================
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, 1997 1996 ----------------------------------- Commissions and fees $ 188,748,000 $ 173,477,000 Expenses: Salaries and employee related expenses 122,086,000 113,953,000 Office and general expenses 58,019,000 50,493,000 ----------------------------------- 180,105,000 164,446,000 ----------------------------------- 8,643,000 9,031,000 Other income - net 939,000 4,839,000 ----------------------------------- Income of consolidated companies before taxes on income 9,582,000 13,870,000 Provision for taxes on income (5,263,000) (7,206,000) ----------------------------------- Net income of consolidated companies 4,319,000 6,664,000 Minority interest applicable to consolidated companies (369,000) (1,169,000) Equity in earnings of nonconsolidated affiliated companies 625,000 768,000 ----------------------------------- Net income $ 4,575,000 $ 6,263,000 =================================== Weighted average number of common shares outstanding Primary 1,303,421 1,300,001 Fully diluted 1,352,500 1,354,692 Net income per common share Primary $3.69 $4.68 Fully diluted $3.58 $4.51 Dividends per common share $1.00 $0.9375 ===================================
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, 1997 1996 --------------------------------- OPERATING ACTIVITIES Net income $ 4,575,000 $ 6,263,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization of fixed assets 5,726,000 4,491,000 Amortization of intangibles 1,326,000 1,212,000 Deferred compensation 3,016,000 3,299,000 Equity in earnings of nonconsolidated affiliated companies, net of dividends received of $-0- and $105,000 (625,000) (663,000) 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 369,000 1,169,000 Amortization of restricted stock expense 49,000 25,000 Deferred income taxes (1,775,000) (1,500,000) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (7,124,000) 15,690,000 Decrease in expenditures billable to clients 427,000 2,936,000 (Increase) decrease in other current assets (3,150,000) 10,955,000 Increase in other assets (2,022,000) (132,000) Decrease in accounts payable (32,473,000) (72,600,000) Decrease in accrued expenses and other (9,193,000) (1,422,000) (Decrease) increase in income taxes payable (4,675,000) 3,741,000 Increase (decrease) in other liabilities 474,000 (3,457,000) --------------------------------- Net cash used in operating activities (45,075,000) (33,993,000) INVESTING ACTIVITIES Purchases of fixed assets (6,254,000) (7,303,000) Trust fund deposits (1,051,000) (737,000) Proceeds from the sale of marketable securities 7,320,000 76,506,000 Purchases of marketable securities (6,277,000) (89,567,000) Proceeds from the sale of a nonconsolidated affiliated company and a non-marketable investment security 8,872,000 Increase in intangibles, primarily goodwill (2,948,000) (4,255,000) (Increase) decrease in investments and advances to nonconsolidated affiliated companies (168,000) 1,080,000 --------------------------------- Net cash used in investing activities (9,378,000) (15,404,000)
6 7 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 1996 ----------------------------------- FINANCING ACTIVITIES Net proceeds from short-term borrowings 15,777,000 15,451,000 Common shares acquired for treasury (56,000) (982,000) Cash dividends paid on Common Shares (1,183,000) (1,115,000) Cash dividends paid on Redeemable Preferred Stock (64,000) (60,000) Issuance of Restricted Stock 25,000 Proceeds from exercise of stock options 71,000 139,000 ----------------------------------- Net cash provided by financing activities 14,545,000 13,458,000 Effect of exchange rate changes on cash (2,875,000) (230,000) ----------------------------------- Decrease in cash and cash equivalents (42,783,000) (36,169,000) Cash and cash equivalents at beginning of period 112,485,000 134,313,000 ----------------------------------- Cash and cash equivalents at end of period $ 69,702,000 $ 98,144,000 ===================================
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, 1996 filed with the Securities and Exchange Commission. 2. The financial statements as of March 31, 1997 and for the three months ended March 31, 1997 and 1996 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, 1997 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, 1997 and 1996 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 issuable 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. Also, for the purpose of computing net income per common share for the three months ended March 31, 1997 and March 31, 1996, the Company's net income was adjusted by dividends on the Preferred Stock and also adjusted by the increase or decrease 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 the funds obtained thereby used to purchase Common Stock at the average 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 in excess of the Federal statutory rate. 6. As of March 31, 1997 and December 31, 1996, 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. The holder of the Series I, Series II and the Series III Preferred Stock is the Chairman and Chief Executive Officer of the Company, and the Series 1 Preferred Stock is held by a former employee. 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 (subject to certain adjustments) upon redemption, less a fixed discount established upon the issuance of the Preferred Stock. The holders of each class of Preferred Stock are entitled to receive 8 9 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 Company is obligated to redeem the Series 1 Preferred Stock following the attainment of age 65 by the holder thereof. In connection with the ownership of Series I, Series II and Series III Preferred Stock, the holder issued to the Company full recourse promissory notes (which are included in Other Assets in the accompanying condensed consolidated balance sheets). 7. In February 1997, the FASB issued Statement No. 128 ("SFAS 128") "Earnings Per Share." SFAS 128 is designed to improve the EPS information in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements, and increasing the comparability of EPS on an international basis. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997. The Company has not yet assessed the impact that the new standard will have on either the computation of earnings per share amounts or related disclosures. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income from commissions and fees increased 8.8% during the first quarter of 1997 when compared to the same period in 1996. Absent exchange rate fluctuations, gross income increased 10.4% in 1997 when compared to the same period in 1996. In the first quarters of 1997 and 1996, respectively, 46.4% and 44.0% of consolidated gross income was attributable to domestic operations and 53.6% and 56.0% to international operations. In the first quarter of 1997, gross income from domestic operations increased 14.6% versus the respective prior period, while gross income from international operations increased 4.3%, (7.2% absent exchange rate fluctuations) for the quarter. The increase in gross income primarily resulted from expanded activities from existing clients and the continued growth of the Company's general agency and specialized operations. Salaries and employee related expenses increased 7.1% in 1997 when compared to the respective prior period. Office and general expenses increased 14.9% in 1997 versus the respective prior period. These changes, taken together, are generally in line with the increase in gross income. Inflation did not have a material effect on revenue or expenses during 1997 or 1996. Minority interest decreased by $800,000 in the first quarter of 1997 as compared to the respective prior period. The decrease is primarily due to changes in the level of profits of majority-owned companies. Equity in earnings of nonconsolidated affiliated companies decreased by $143,000 in the first quarter of 1997 as compared to the respective prior period. The decrease is primarily due to changes in the level of profits of nonconsolidated affiliated companies. The effective tax rate was 54.9% in the first quarter of 1997 versus 52.0% in the same period in 1996. Absent the non-recurring, non-operating gains recognized in the first quarter of 1996, the effective tax rate remained relatively constant in the periods. The actual effective tax rate was lower in 1996 because the non-recurring, non-operating gains were taxed at lower effective state income tax rates. Other income decreased by $3,900,000 principally because the first quarter of 1996 included non-recurring, non-operating pre-tax income of almost $4,000,000, primarily related to gains on the sale of the Company's equity position in a nonconsolidated subsidiary and the liquidation of a non-marketable investment security. 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Net income was $4,575,000 in the first quarter of 1997 as compared to $6,263,000 in the respective prior period. Absent the non-recurring gains (after tax $2,120,000) recognized in the first quarter of 1996, net income was up 10.4%. Primary and fully diluted net income per common share for the first quarter of 1997 were $3.69 and $3.58, respectively, as compared to $4.68 and $4.51 in the comparable quarter in 1996. Absent the non-recurring gains recognized in the first quarter of 1996, primary and fully diluted earnings per common share were up 17.9% and 18.2%, respectively, over the first quarter of 1996. 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 $1,398,000 from $3,843,000 at December 31, 1996 to $2,445,000 at March 31, 1997. Cash and cash equivalents decreased by $42,783,000 from $112,485,000 to $69,702,000. 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 1996. Domestically, the Company has committed lines of credit totaling $51,000,000. These lines of credit were partially utilized during the three months ended March 31, 1997 and 1996 to secure obligations of selected foreign subsidiaries. There was $26,000,000 and $15,000,000 outstanding under these credit lines as of March 31, 1997 and 1996, respectively. 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 $80,335,000 and $70,061,000 outstanding at March 31, 1997 and 1996, respectively. 11 12 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES 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, 1997. 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, 1997 By:/s/ Steven G. Felsher ----------------------------- Steven G. Felsher Executive Vice President - Finance - Worldwide Secretary and Treasurer (Duly Authorized Officer) DATE: May 14, 1997 By:/s/ William P. Garvey ---------------------------- William P. Garvey Executive Vice President Chief Financial Officer - United States (Chief Accounting Officer) 13 14 INDEX TO EXHIBITS
Page Number in Number Assigned to Sequential Numbering Exhibit (i.e. 601 of Table of Item 601 Exhibits System Where Exhibit Regulation S-K) Description of Exhibits May Be Found --------------- ----------------------- ------------ (11) Statement Re: Computation of Net Income per Common Share (unaudited) (15) (27) Financial Data Schedule (16)
14 EX-11.1 2 STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE 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, 1997 1996 ----------------------------- PRIMARY Weighted average shares outstanding (1) 1,277,297 1,269,539 Net effect of dilutive stock options based on treasury stock method using average market price 26,124 30,462 ----------------------------- TOTAL 1,303,421 1,300,001 ============================= Net Income $4,575,000 $ 6,263,000 Effect of dividend requirements and the change in redemption value of redeemable preferred stock 236,000 (184,000) ----------------------------- NET EARNINGS USED IN COMPUTATION $4,811,000 $ 6,079,000 ============================= Per share amount $ 3.69 $ 4.68 ============================= FULLY DILUTED Weighted average shares outstanding (1) 1,277,297 1,269,539 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 24,311 34,261 Assumed conversion of 8-1/2% convertible subordinated debentures issued December 1983 50,892 50,892 ----------------------------- TOTAL 1,352,500 1,354,692 ============================= Net Income $4,575,000 $ 6,263,000 Effect of dividend requirements and the change in redemption value of redeemable preferred stock 236,000 (184,000) 8-1/2% convertible subordinated debentures interest, net of income tax effect 35,000 35,000 ----------------------------- NET EARNINGS USED IN COMPUTATION $4,846,000 $ 6,114,000 ============================= Per share amount $ 3.58 $ 4.51 =============================
(1) Includes 94,686 shares and 80,003 shares for 1997 and 1996, 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 FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 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-31-1997 MAR-31-1997 69,702 35,480 594,212 0 0 807,936 185,386 106,245 1,059,141 805,491 33,025 9,798 0 1,432 142,184 1,059,141 188,748 188,748 0 0 180,105 0 2,800 9,582 5,263 4,575 0 0 0 4,575 3.69 3.58
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