FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _________to_________
Commission file number 001-14093
Young & Rubicam Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1493710
- ---------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation) (I.R.S. Employer or organization
Identification No.)
285 Madison Avenue, New York, New York 10017
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 210-3000
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(Registrant's telephone number, including area code)
Indicate by checkmark 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 . No X .
--- ---
The number of shares outstanding of the Registrant's Common Stock, $0.01 par
value, as of June 24, 1998 was 66,594,730.
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
PART I: FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1997 and March 31, 1998 2
Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1998 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1998 4
Consolidated Statements of Changes in Deficit
for the Year Ended December 31, 1997 and
the Three Months Ended March 31, 1998 5
Notes to Consolidated Financial
Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
EXHIBIT INDEX
</TABLE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document, information included in future filings by Young & Rubicam Inc.
("the Company") with the United States Securities and Exchange Commission (the
"SEC"), and information contained in written materials, press releases and oral
statements issued by or on behalf of the Company contain, or may contain,
statements that constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements include statements
regarding the intent, belief or current expectations of the Company or its
officers (including statements preceded by, followed by or that include
forward-looking terminology such as "may," "will," "should," "believes,"
"expects," "anticipates," "estimates," "continues" or similar expressions or
comparable terminology, including the negative thereof) with respect to various
matters. These forward-looking statements include statements in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of this document relating to the Company's performance. It
is important to note that the Company's actual results could differ materially
from those anticipated in these forward-looking statements depending on, among
other important factors, (i) revenues received from clients, including pursuant
to incentive compensation arrangements entered into by the Company with certain
clients, (ii) gains or losses of clients and client business and projects, as
well as changes in the marketing and communications budgets of clients, (iii)
the level of economic activity in the principal markets in which the Company
conducts business and other trends affecting the Company's financial condition
or results of operations, (iv) the impact of competition in the marketing and
communications industry and (v) the Company's liquidity and financing plans. All
forward-looking statements in this document are based on information available
to the Company on the date hereof. In addition, the matters set forth under the
caption "Risk Factors" in the Company's Prospectus dated May 11, 1998 filed with
the Commission pursuant to Rule 424(b) of the Securities Act of 1933, as
amended, constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties that could cause actual results to differ materially from those in
such forward-looking statements.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, 1998
DECEMBER 31,----------------------------------
1997 ACTUAL PRO FORMA(1)
---- ------ -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $160,263 $50,965 $50,965
Accounts receivable, net of allowance for doubtful accounts of $14,125
and $16,070 at December 31, 1997 and March 31, 1998, respectively 790,342 807,930 807,930
Costs billable to clients 50,479 72,540 72,540
Other receivables 35,218 39,855 39,855
Deferred income taxes 32,832 29,034 29,034
Prepaid expenses and other assets 17,989 17,993 17,993
---------- ---------- ----------
Total Current Assets 1,087,123 1,018,317 1,018,317
---------- ---------- ----------
NONCURRENT ASSETS
Property and equipment, net 125,014 121,389 121,389
Deferred income taxes 124,192 124,213 124,213
Goodwill, less accumulated amortization of $80,166 and $81,780 at
December 31, 1997 and March 31, 1998, respectively 116,637 112,593 112,593
Equity in net assets of and advances to unconsolidated companies 26,393 26,471 26,471
Other assets 48,660 48,572 48,572
---------- ---------- ----------
Total Noncurrent Assets 440,896 433,238 433,238
---------- ---------- ----------
Total Assets $1,528,019 $1,451,555 $1,451,555
========== ========== ==========
CURRENT LIABILITIES
Loans payable $10,765 $33,122 $33,122
Accounts payable 811,162 805,744 805,744
Installment notes payable 3,231 1,131 1,131
Accrued expenses and other liabilities 273,011 265,807 265,807
Accrued payroll and bonuses 65,458 47,619 47,619
Income taxes payable 29,665 24,396 24,396
---------- ---------- ----------
Total Current Liabilities 1,193,292 1,177,819 1,177,819
---------- ---------- ----------
NONCURRENT LIABILITIES
Loans payable 330,552 263,462 263,462
Installment notes payable 6,503 6,503 6,503
Deferred compensation 31,077 32,455 32,455
Other liabilities 112,851 107,348 107,348
---------- ---------- ----------
Total Noncurrent Liabilities 480,983 409,768 409,768
---------- ---------- ----------
Commitments and Contingencies
Minority Interest 6,987 5,460 5,460
---------- ---------- ----------
MANDATORILY REDEEMABLE EQUITY SECURITIES
Common stock, par value $.01 per share; authorized - 250,000,000 shares;
issued and outstanding - 50,658,180 shares, 50,968,935 shares, and 0 shares
at December 31, 1997, March 31, 1998 (actual) and March 31, 1998
(pro forma), respectively 508,471 795,774 -
---------- ---------- ----------
STOCKHOLDERS' DEFICIT
Money Market Preferred Stock - Cumulative variable dividend; liquidating
value of $115.00 per share; one-tenth of one vote per share; 50,000
shares authorized; 87 shares issued and outstanding - - -
Common stock, par value $.01 per share; authorized - 250,000,000
shares; issued and outstanding - 11,086,950 shares, 11,086,950 shares and
62,055,885 shares at December 31, 1997, March 31, 1998 (actual)
and March 31, 1998 (pro forma), respectively 111 111 620
Capital surplus 23,613 - 795,265
Accumulated deficit (522,866) (660,034) (660,034)
Cumulative translation adjustment (16,577) (18,631) (18,631)
Pension liability adjustment (706) (706) (706)
Common stock in treasury, at cost; 1,115,160 shares (8,550) (8,550) (8,550)
Unearned compensation - Restricted Stock (136,739) (249,456) (249,456)
---------- ---------- ----------
Total Stockholders' Deficit (661,714) (937,266) (141,492)
---------- ---------- ----------
Total Liabilities, Mandatorily Redeemable Equity Securities and
Stockholders' Deficit $1,528,019 $1,451,555 $1,451,555
========== ========== ==========
- ----------
1. See note 2.
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1997 1998
---- ----
<S> <C> <C>
Revenues $298,206 $348,173
Compensation expense, including employee benefits 188,600 213,598
General and administrative expenses 95,513 109,242
------ -------
Operating expenses 284,113 322,840
------- -------
Income from operations 14,093 25,333
Interest income 1,943 2,630
Interest expense (10,246) (8,205)
Other income (expense) - 827
-- ---
Income before income taxes 5,790 20,585
Income tax provision 2,843 8,852
----- -----
2,947 11,733
Equity in net income of unconsolidated companies 1,040 115
Minority interest in net loss of consolidated subsidiaries 102 342
--- ---
Net income $4,089 $12,190
====== =======
Earnings per share:
Basic $0.09 $0.24
===== =====
Diluted $0.07 $0.19
===== =====
Weighted average shares used to compute:
Basic 47,382,330 50,762,144
========== ==========
Diluted 60,225,321 64,453,134
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,089 $12,190
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 13,541 14,180
Deferred income tax (benefit) expense (312) 3,777
Equity in net income of unconsolidated companies (1,040) (115)
Dividends from unconsolidated companies 1,420 252
Minority interest in net loss of consolidated subsidiaries (102) (342)
Change in assets and liabilities, excluding effects from acquisitions,
dispositions, recapitalization and foreign exchange:
Accounts receivable, net 73,958 (22,261)
Costs billable to clients (10,601) (22,013)
Other receivables (9,370) (5,031)
Prepaid expenses and other assets (8,381) (1,163)
Accounts payable (85,353) (2,178)
Accrued expenses and other liabilities (47,987) (75,366)
Accrued payroll and bonuses (28,851) (16,556)
Income taxes payable (4,216) (5,007)
Deferred compensation 292 1,478
Other liabilities (737) (5,236)
Other 4,687 1,215
------ -----
Net cash used by operating activities (98,963) (122,176)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (13,163) (7,889)
Acquisitions, net of cash acquired (2,212) -
Investment in net assets of and advances to unconsolidated companies (6,334) (1,030)
Proceeds from notes receivable 341 339
---- ---
Net cash used in investing activities (21,368) (8,580)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable, long-term 250,104 65,000
Repayment of loans payable, long-term - (131,874)
Proceeds from loans payable, short-term, net 38,794 91,846
Recapitalization payments (242,223) -
Payments of non-recapitalization deferred compensation (336) (1,190)
Common stock issued - 1,287
Payment of installment notes - (2,100)
Dividends paid to minority shareholders (218) (277)
----- -----
Net cash provided by financing activities 46,121 22,692
------- ------
Effect of exchange rate changes on cash and cash equivalents (2,442) (1,234)
------- -------
Net decrease in cash and cash equivalents (76,652) (109,298)
Cash and cash equivalents, beginning of period 110,180 160,263
------- -------
Cash and cash equivalents, end of period $33,528 $50,965
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $9,696 $9,157
====== ======
Income taxes paid $2,697 $9,237
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED AND
UNDISTRIBUTED
VOTING EARNINGS COMMON
PREFERRED COMMON CAPITAL (ACCUMULATED STOCK IN RESTRICTED
STOCK STOCK SURPLUS DEFICIT) TREASURY STOCK
----- ----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ - $111 $106,825 ($498,928) $ - ($85,000)
Net loss - - (23,938) - -
Common stock issued - - 1,501 - - -
Common stock repurchased - - - (8,550) -
Unearned compensation -
Restricted Stock - - 51,739 - - (51,739)
Common stock options
exercised/repurchased - 44 8,711 - - -
Accretion of mandatorily redeemable
equity securities - (44) (145,163) - - -
-- ---- -------- -- -- --
BALANCE AT DECEMBER 31, 1997 $ - $111 $23,613 ($522,866) ($8,550) ($136,739)
Net income - - - 12,190 - -
Unearned compensation -
Restricted Stock - - 112,717 - - (112,717)
Common stock options
exercised/repurchased - 3 1,612 - - -
Accretion of mandatorily redeemable
equity securities - (3) (137,942) (149,358) - -
-- -- -------- --------- -- --
BALANCE AT MARCH 31, 1998 $ - $111 $ - ($660,034) ($8,550) ($249,456)
==== ===== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Young & Rubicam
Inc. (the "Company") have been prepared pursuant to the rules of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Registration Statement filed on Form S-1 (File No.
333-46929) (the "Form S-1"). In the opinion of management, the accompanying
financial statements reflect all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the results for the periods
presented.
The results for the first three months of the year are not necessarily
indicative of the results expected for the full year.
2. Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet as of March 31, 1998 has been presented
after giving effect to the termination of the redeemable feature and subsequent
reclassification of the mandatorily redeemable equity securities to
stockholders' deficit concurrent with the consummation of the Company's initial
public offering of common stock (the "Offering"). (See Note 6.)
3. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for the reporting period. Actual
results could differ from those estimates.
4. Earnings per Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic
earnings per share is calculated by dividing net income by the weighted average
shares of common stock outstanding during each period. Diluted earnings per
share reflect the dilutive effect of stock options and other stock awards
granted to employees under stock-based compensation plans. In computing basic
and diluted earnings per share, 11,086,950 shares of common stock held in a
restricted stock trust (the"Restricted Stock Trust") pursuant to the Company's
Restricted Stock Plan were excluded from the weighted average number of common
shares outstanding as such shares vest upon the consummation of an initial
public offering, a condition which was not satisfied as of March 31, 1998.
Shares used in computing basic and diluted earnings per share were as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1998
---- ----
<S> <C> <C>
Basic - weighted average shares 47,382,330 50,762,144
Effect of dilutive securities 12,842,991 13,690,990
---------- ----------
Diluted - weighted average shares 60,225,321 64,453,134
========== ==========
</TABLE>
6
<PAGE>
5. Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," which
requires presentation of information on comprehensive income and its components
in the financial statements. For the Company, comprehensive income includes net
income, foreign currency translation adjustments and minimum pension liability
adjustments. Total comprehensive income and its components for the three months
ended March 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Net income $ 4,089 $ 12,190
Foreign currency translation adjustment, net of tax (7,998) (2,054)
Pension liability adjustment, net of tax - -
-------- --------
Total comprehensive (loss)/ income $ (3,909) $ 10,136
======== ========
</TABLE>
6. Subsequent Events
COMMON STOCK DIVIDEND: On April 6, 1998, the Board of Directors declared a stock
dividend of 14 shares of common stock payable for each share of common stock
outstanding which dividend became effective and was paid on May 11, 1998, the
effective date of the Offering. The Company's historical financial statements
have been presented to give retroactive effect to such common stock dividend. In
addition, the number of shares of common stock the Company is authorized to
issue was increased from 10 million to 250 million and the number of authorized
preferred shares was increased from 50,000 to 10 million. Of the authorized
preferred shares, 50,000 shares have been designated as Money Market Preferred
Stock and 2,500,000 shares have been designated as Cumulative Participating
Junior Preferred Stock.
PUBLIC OFFERING: On May 15, 1998, the Company closed the Offering. An aggregate
of 19,090,000 shares (including 2,490,000 shares subject to the underwriters'
overallotment option) of the Company's common stock was offered to the public,
of which 6,912,730 shares were sold by the Company and 12,177,270 shares were
sold by certain selling stockholders. Net proceeds to the Company were
approximately $160.0 million, after deducting underwriting discounts and
commissions and the Company's expenses of the Offering. The Company did not
receive any of the net proceeds from the sale of common stock by the selling
stockholders. The Company used the net proceeds from the Offering together with
$155 million of borrowings under the new credit facility (see below) to repay
all of the outstanding borrowings under its then existing $700 million senior
secured credit facility.
NEW DEBT FACILITY: On May 15, 1998, the Company entered into a $400 million,
five-year unsecured multicurrency revolving credit facility (the "New Facility")
which replaced a $700 million senior secured credit facility. The New Facility
contains certain financial and operating restrictions and covenant requirements,
including a maximum leverage ratio and a minimum interest coverage requirement.
The Company is required to pay a facility fee tied to the leverage ratio ranging
from 0.125% to 0.2% per annum. Under the terms of the New Facility, interest
charged on loans ranges from base rate to Eurodollar and Eurocurrency rate plus
applicable margins tied to the leverage ratio ranging from 0.275% to 0.3%. On
May 15, 1998, the Company used the net proceeds from the Offering together with
$155 million of borrowings under the New Facility to repay all outstanding
borrowings under the senior secured credit facility. Approximately $7.3 million
of unamortized deferred financing costs related to the replaced credit facility
will be charged to expense in the Company's consolidated statement of operations
for the three months ended June 30, 1998.
7
<PAGE>
RESTRICTED STOCK: In March 1998, the Company amended the agreement govering the
Restricted Stock Trust to provide, upon the consummation of the Offering, for
the redemption of 1,855,845 of the 11,086,950 shares of common stock
("Restricted Stock") held in the Restricted Stock Trust. The vesting of the
remaining 9,231,105 shares of Restricted Stock upon the consummation of the
Offering resulted in a non-recurring, non-cash, pre-tax compensation charge of
approximately $235.0 million which will be reflected in the Company's results of
operations for the three months ended June 30, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The discussion which follows should be read in conjunction with the Company's
consolidated financial statements and notes thereto, and the information under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations," contained in the Company's Prospectus dated May 11, 1998
filed in connection with the Offering.
First Quarter 1998 Compared to First Quarter 1997
Revenues for the first quarter of 1998 increased by %50.0 million, or 16.8%, to
$348.2 million compared to the first quarter of 1997. The increase was primarily
due to new business (including business from new clients and higher revenue from
existing clients). U.S. revenues increased by 25.4% to $184.5 million for the
first quarter of 1998 compared to the first quarter of 1997. International
revenues increased by 8.3% to $163.7 million for the first quarter of 1998
compared to 1997. Excluding the effect of the strengthening of the U.S. dollar
against foreign currencies, total revenues for the first quarter of 1998
increased by 21.2% and international revenues increased by 17.1% compared to the
first quarter of 1997.
Compensation expense increased by $25.0 million, or 13.3%, to $213.6 million for
the first quarter of 1998 compared to the first quarter of 1997. This increase
was primarily attributable to additional staffing to support business growth and
salary increases. Excluding the effect of the strengthening of the U.S. dollar
against foreign currencies, compensation expense increased by 17.9% compared to
the first quarter of 1997.
General and administrative expenses increased by $13.7 million, or 14.3%, to
$109.2 million for the first quarter of 1998 compared to the first quarter of
1997. This increase was primarily due to additional operating expenses to
support new business growth. Excluding the effect of the strengthening of the
U.S. dollar against foreign currencies, general and administrative expenses
increased by 19.7% compared to the first quarter of 1997.
Income from operations increased by $11.2 million, or 79.4%, to $25.3 million
for the first quarter of 1998 compared to the first quarter of 1997 due to the
factors outlined above.
Interest expense, net of interest income, decreased $2.7 million to $5.6 million
in the first quarter of 1998 compared to the first quarter of 1997. The decline
was due to lower average borrowing levels and more favorable average rates
during the first quarter of 1998 compared to the first quarter of 1997.
The effective income tax rate was 43.0% and 49.1%, respectively, for the first
quarter of 1998 and 1997. The decrease in the effective tax rate resulted from
lower foreign taxes on the Company's foreign operations as well as a reduction
in the rate at which state and local taxes were assessed on domestic income.
Net income for the first quarter of 1998 increased by $8.1 million to $12.2
million compared to the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's operations have been financed by internally
generated funds and third party borrowings. Cash and cash equivalents were $51.0
million at March 31, 1998 compared with $160.3 million at December 31, 1997.
Cash was used during the first quarter of 1998 to repay long-term debt, to
8
<PAGE>
pay employee incentive compensation earned in 1997 and for capital expenditures.
In addition, cash was used to pay media and production obligations on behalf of
clients (which reflect the timing of payment as well as seasonal media buying
patterns of advertisers).
The Company estimates that its capital expenditures in 1998 will be
approximately $75.0 million for information technology and certain leasehold
improvements required as a result of lease renewals.
The Company's net deferred tax assets at March 31, 1998 were $153.2 million
consisting primarily of net operating loss ("NOL") carryforwards and expenses
accrued for financial reporting purposes which are not deductible for tax
purposes until actually paid. The Company has approximately $140.4 million of
NOL carryforwards for U.S. tax purposes which expire in 2012 and approximately
$69.2 million of NOL carryforwards for foreign tax purposes with carryforward
periods ranging from one year to an indefinite time.
RECENT DEVELOPMENTS
On May 15, 1998, the Company closed the Offering. An aggregate of 19,090,000
shares (including 2,490,000 shares subject to the underwriters' overallotment
option) of the Company's common stock was offered to the public, of which
6,912,730 shares were sold by the Company and 12,177,270 shares were sold by
certain selling stockholders. Net proceeds to the Company were approximately
$160.0 million, after deducting underwriting discounts and commissions and the
Company's expenses of the Offering. The Company did not receive any of the net
proceeds from the sale of common stock by the selling stockholders.
Also on May 15, 1998, the Company replaced its existing $700 million senior
secured credit facility with the New Facility. The Company used the net proceeds
from the Offering together with $155 million of borrowings under the New
Facility to repay all of the outstanding borrowings under its then existing
senior secured credit facility. Under the New Facility, the Company expects its
borrwing rate to be approximately 1% lower, on average, compared to the replaced
credit facility.
The Company believes that cash provided by operations and funds available under
the New Facility will be sufficient to meet its anticipated cash requirements.
Effective upon the consumation of the Offering, the Company recognized a
non-recurring, non-cash, pre-tax compensation charge of approximately $235.0
million in connection with the vesting of shares of Restricted Stock allocated
to employees. In addition, approximately $7.3 million of unamortized deferred
financing costs related to the replaced senior secured credit facility were
charged to expense. The aggregate after-tax effect of these non-cash charges of
approximately $175.0 million will be reflected in the results of operations for
the three months ended June 30, 1998. As a result of these charges, the Company
expects to incur a net loss for the year ending 1998.
The Company expects to exercise its right to prepay certain non-negotiable
subordinated payment obligations of up to $15.4 million on June 30, 1998 using
available cash or borrowings under the New Facility. The non-negotiable
subordinated payment obligations were incurred by the Company in connection with
the termination of employment of certain former employee stockholders. Such
payment obligations are repayable in up to four annual installments and bear
interest at a rate equal to the applicable U.S. federal rate in effect under
Section 1274(d) of the Internal Revenue Code of 1986, as amended.
The Company expects to commence the declaration and payment of a regular
quarterly cash dividend in the last quarter of 1998. However, any determination
to pay dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other factors, the Company's results of operations,
financial condition and capital requirements.
9
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1998, the Company issued and sold 135,885 shares of common stock to its
employees for an aggregate amount of $864,196 pursuant to the exercise of
options to purchase shares of common stock.
Pursuant to the Form S-1 which was declared effective by the SEC on May 11,
1998, and a registration statement on Form S-1 (File No. 333-52395) filed by the
Company pursuant to Rule 462(b) of the Securities Act of 1933, as amended
(together with the Form S-1, the "Form S-1 Registration Statement"), the Company
registered for sale pursuant to the Securities Act of 1933, as amended, an
aggregate of 16,600,000 shares of common stock (the "Firm Shares"), of which
6,912,730 shares were offered by the Company and 9,687,270 shares were offered
by certain selling stockholders (the "Selling Stockholders").
Of the 16,600,000 shares of common stock registered pursuant to the Form S-1
Registration Statement, 13,280,000 shares were offered initially in the United
States by the U.S. Underwriters (as defined in the Underwriting Agreement dated
May 11, 1998 among the Company, the Selling Stockholders, the U.S. Underwriters
named therein and the International Managers named therein (the "Underwriting
Agreement")), for whom Donaldson, Lufkin & Jenrette Securities Corporation,
Bear, Stearns & Co. Inc., Furman Selz LLC, Goldman, Sachs & Co. and Smith Barney
Inc. acted as U.S. Representatives, and 3,320,000 shares of common stock were
offered initially outside the United States by the International Managers (as
defined in the Underwriting Agreement) for whom Donaldson, Lufkin & Jenrette
International, Bear, Stearns International Limited, Furman Selz LLC, Goldman
Sachs International and Smith Barney Inc. acted as International
Representatives.
In addition, pursuant to the Form S-1 Registration Statement, the Company
registered for sale an aggregate of 2,490,000 shares of common stock (the
"Option Shares") subject to an overallotment option (the "Overallotment Option")
granted by certain non-management Selling Stockholders to the U.S. Underwriters
to purchase up to an
10
<PAGE>
additional 2,490,000 shares of common stock solely to cover overallotments which
Overallotment Option was exercised by the U.S. Underwriters for an aggregate of
2,490,000 shares of common stock.
The offering of the Firm Shares and Option Shares has terminated. The public
offering price of the Firm Shares and the Option Shares was $25.00 per share.
The closing of the sale of the Firm Shares and the Option Shares occurred on May
15, 1998. The aggregate gross proceeds to the Company and the Selling
Stockholders from the sale of the Firm Shares and the Option Shares was
$477,250,000.
The Form S-1 Registration Statement registered for sale by the Company an
aggregate of 6,912,730 Firm Shares at a proposed maximum offering price of
$24.00 per share, for aggregate gross proceeds (before deducting underwriting
discounts and commissions and Company expenses) of $165,905,520. The Company
sold an aggregate of 6,912,730 Firm Shares at the public offering price of
$25.00 per share, for aggregate gross proceeds (before deducting underwriting
discounts and commissions and Company expenses) of $172,818,250. The Form S-1
Registration Statement registered for sale by the Selling Stockholders an
aggregate of 12,177,270 shares of common stock (consisting of 9,687,270 Firm
Shares and up to 2,490,000 Option Shares) at a proposed maximum offering price
of $24.00 per share, for aggregate gross proceeds (before deducting underwriting
discounts and commissions) of $292,254,480. The Selling Stockholders sold an
aggregate of 12,177,270 shares of common stock (consisting of 9,687,270 Firm
Shares and 2,490,000 Option Shares) at the public offering price of $25.00 per
share, for aggregate gross proceeds (before deducting underwriting discounts and
commissions) of $304,434,250.
To date, hereof, the Company has incurred or expects to incur the following fees
and expenses in connection with the Offering pursuant to the Form S-1
Registration Statement: (i) $9,505,004 of underwriters discounts and
commissions, (ii) $135,158 of SEC registration fees, (iii) $30,500 of National
Association of Securities Dealers, Inc. filing fees, (iv) $336,640 of New York
Stock Exchange listing fees, (v) $950,000 of estimated legal fees and expenses,
(vi) $1,075,000 of estimated accounting fees and expenses, (vii) $475,000 of
estimated printing and engraving expenses, (viii) $20,000 of estimated registrar
and transfer agent's fees and (ix) $291,000 of estimated miscellaneous expenses.
The aggregate net proceeds to the Company from the Offering of the 6,912,730
Firm Shares, after deducting underwriting discounts and commissions and the
Company's expenses of the Offering, are estimated to be approximately $160.0
million. The Company used the net proceeds from the Offering, together with $155
million of borrowings under the New Facility to repay outstanding borrowings
under its existing credit facility.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index
(b) Reports on Form 8-K:
None.
11
<PAGE>
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.
Young & Rubicam Inc.
------------------------------
(Registrant)
Date June 25, 1998 /s/ Michael J. Dolan
---------------- -----------------------------
Name: Michael J. Dolan
Title: Vice Chairman and
Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
27.1 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 50,965,000
<SECURITIES> 0
<RECEIVABLES> 824,000,000
<ALLOWANCES> (16,070,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,018,317,000
<PP&E> 351,393,000
<DEPRECIATION> (230,004,000)
<TOTAL-ASSETS> 1,451,555,000
<CURRENT-LIABILITIES> 1,177,819,000
<BONDS> 0
0
0
<COMMON> 111,000
<OTHER-SE> (937,377,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,451,555,000
<SALES> 0
<TOTAL-REVENUES> 348,173,000
<CGS> 0
<TOTAL-COSTS> 322,840,000
<OTHER-EXPENSES> (827,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,205,000
<INCOME-PRETAX> 20,585,000
<INCOME-TAX> 8,852,000
<INCOME-CONTINUING> 11,733,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,190,000
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.19
</TABLE>
