<PAGE> 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, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-7898
GREY ADVERTISING INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-0802840
- - ------------------------------ ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
777 Third Avenue, New York, New York 10017
- - ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 212-546-2000
including area code -----------------
NOT APPLICABLE
--------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- ---------
As of April 30, 1994, the total number of shares outstanding of
Registrant's Common Stock, par value $1 per share ( Common Stock ), was 904,256
and of Registrant's Limited Duration Class B Common Stock, par value $1 per
share ( Class B Common Stock ), was 335,882.
<PAGE> 2
GREY ADVERTISING INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX
Financial Statements: Page No.
---------
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Other Information 12
Signatures 13
Index to Exhibits 14
2
<PAGE> 3
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, 1994 DECEMBER 31, 1993
(UNAUDITED) (A)
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $95,625,000 $181,267,000
Accounts receivable 359,394,000 363,105,000
Expenditures billable to clients 27,994,000 22,581,000
Other current assets 71,762,000 69,116,000
----------- -----------
Total current assets 554,775,000 636,069,000
Investments in and advances to
nonconsolidated affiliated
companies 15,381,000 16,104,000
Fixed assets-at cost, less
accumulated depreciation
of $74,999,000 and $74,671,000 56,351,000 57,724,000
Marketable securities 23,234,000 22,425,000
Intangibles and other assets-including
loans to officers of $5,547,000 in
1994 and $4,947,000 in 1993 86,309,000 88,311,000
------------ ------------
Total assets $736,050,000 $820,633,000
============ ============
</TABLE>
<PAGE> 4
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
MARCH 31, 1994 DECEMBER 31, 1993
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (A)
---------------- -----------------
<S> <C> <C>
Current liabilities:
Accounts payable $389,330,000 $469,227,000
Notes payable to banks 43,564,000 45,851,000
Accrued expenses and other 83,033,000 88,099,000
Income taxes payable 10,729,000 7,891,000
------------ ------------
Total current liabilities 526,656,000 611,068,000
Other liabilities including
deferred compensation of
$16,051,000 and $15,342,000 29,850,000 31,820,000
Long-term debt 33,025,000 33,025,000
Minority interest 8,780,000 9,053,000
Redeemable preferred stock-at
redemption value; par value
$1 per share; authorized
500,000 shares; issued and
outstanding 32,000 shares
in 1994 and 1993 6,683,000 6,590,000
Common stockholders' equity:
Common Stock-par value $1 per
share; authorized 10,000,000
shares; issued 1,066,589 in
1994 and 1,062,046 in 1993 1,067,000 1,062,000
Limited Duration Class B Common
Stock-par value $1 per share;
authorized 2,000,000 shares;
issued 365,195 shares in 1994
and 369,738 shares in 1993 365,000 370,000
Paid-in additional capital 27,794,000 27,329,000
Retained earnings 133,892,000 131,835,000
Cumulative translation
adjustment (3,447,000) (3,573,000)
Unrealized loss on marketable
securities (855,000) (147,000)
Loans to officer used to purchase
Common Stock and Limited
Duration Class B Common Stock (4,726,000) (4,726,000)
------------ ------------
154,090,000 152,150,000
Less-cost of 163,966 and 164,372
shares of Common Stock and 26,851
and 26,851 shares of Limited
Duration Class B Common Stock
held in treasury at March 31, 1994
and December 31, 1993, respectively 23,034,000 23,073,000
------------ ------------
Total common stockholders' equity 131,056,000 129,077,000
------------ ------------
Total liabilities and stockholders'
equity $736,050,000 $820,633,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(A) The consolidated balance sheet has been derived from the
audited financial statements at that date.
<PAGE> 5
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1994 1993
------------------------------------
<S> <C> <C>
Commissions and fees $132,957,000 $131,527,000
Expenses:
Salaries and employee related
expenses 84,447,000 85,504,000
Office and general expenses 40,193,000 39,154,000
------------ ------------
124,640,000 124,658,000
------------ ------------
8,317,000 6,869,000
Other (expense) income-net (883,000) 359,000
------------ ------------
Income before taxes on income
of consolidated companies 7,434,000 7,228,000
Provision for taxes on income (4,086,000) (3,945,000)
------------ ------------
Net income of consolidated companies 3,348,000 3,283,000
Minority interest applicable to
consolidated companies (560,000) (615,000)
Equity in nonconsolidated
affiliated companies 422,000 559,000
---------- ----------
Net income $3,210,000 $3,227,000
========== ==========
Weighted average number of common
shares outstanding
Primary 1,286,322 1,259,473
Fully Diluted 1,338,303 1,315,389
Net income per common share
Primary $2.38 $2.54
Fully Diluted $2.32 $2.46
Dividends per common share $0.8125 $0.775
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1994 1993
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $3,210,000 $3,227,000
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization of fixed
assets 3,566,000 3,139,000
Amortization of intangibles 1,863,000 1,358,000
Deferred compensation 1,845,000 1,935,000
Equity in earnings of nonconsolidated
affiliated companies, net of dividends
received of $74,000 and $140,000 (349,000) (418,000)
Minority interest applicable to consolidated
companies 560,000 615,000
Amortization of restricted stock expense 44,000 115,000
Deferred income taxes (1,111,000) (400,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,391,000 24,181,000
(Increase) decrease in expenditures billable
to clients (5,655,000) 3,666,000
(Increase) decrease in other current assets (4,693,000) 3,017,000
Decrease (increase) in other assets 611,000 (1,226,000)
Decrease in accounts payable (73,482,000) (42,305,000)
Decrease in accrued expenses and other (4,481,000) (11,004,000)
Increase (decrease) in income taxes payable 3,164,000 (397,000)
Decrease in other liabilities (2,286,000) (4,707,000)
----------- -----------
Net cash used in operating activities (75,803,000) (19,204,000)
INVESTING ACTIVITIES
Purchases of fixed assets (2,672,000) (2,783,000)
Increase in investments in and advances to
nonconsolidated affiliated companies (1,636,000)
Purchases of marketable securities (1,517,000)
Increase in intangibles, primarily goodwill (680,000) (4,900,000)
---------- -----------
Net cash used in investing activities (4,869,000) (9,319,000)
</TABLE>
6
<PAGE> 7
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Cash Flows (Unaudited)
(continued)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1994 1993
------------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Net (repayments of) proceeds from short-term borrowings $(1,501,000) $8,674,000
Common Shares acquired for treasury (47,000) (498,000)
Cash dividends paid on Common Shares (1,008,000) (961,000)
Cash dividends paid on Redeemable Preferred
Stock (52,000) (53,000)
Proceeds from exercise of stock options 70,000 247,000
Proceeds from long-term debt 30,000,000
----------- ------------
Net cash (used in) provided by financing
activities (2,538,000) 37,409,000
Effect of exchange rate changes on cash (2,432,000) 743,000
----------- ------------
(Decrease) increase in cash and cash
equivalents (85,642,000) 9,629,000
Cash and cash equivalents at beginning of
period 181,267,000 92,755,000
----------- ------------
Cash and cash equivalents at end of period $95,625,000 $102,384,000
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
7
<PAGE> 8
GREY ADVERTISING INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. As permitted by the Securities and Exchange Commission, the accompanying
unaudited Consolidated Financial Statements and Notes thereto have been
condensed and therefore do not contain all disclosures required by
generally accepted accounting principles. Reference should be made to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993
filed with the Securities and Exchange Commission.
2. The financial statements as of March 31, 1994 and for the three months
ended March 31, 1994 and 1993 are unaudited. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair representation have been included.
3. The results of operations for the three months ended March 31, 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 months ended
March 31, 1994 and March 31, 1993 are based on the weighted average number
of common shares outstanding, adjusted for the effect, if any, of the
assumed exercise of dilutive stock options and 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, 1994 and March 31, 1993 the Company's net income was
reduced by dividends on the Preferred Stock and also adjusted by the change
in the redemption value of Preferred Stock. Primary net income per common
share is computed as if the stock options were exercised at the beginning
of the period and as if the funds obtained thereby were used to purchase
Common Stock at the market price during the period. In computing fully
diluted net income per common share, the market price at the close of the
period or the average market price, whichever was higher, was used to
determine the number of shares which would be assumed to be repurchased.
The market price for a share of Class B Common Stock, which is not publicly
traded, is deemed to be equal to the market price of a share of Common
Stock, into which a share of Class B Common Stock may be converted at the
option of the holder, as of the date such valuation is made.
5. The provision for taxes on income is greater than the Federal statutory
rate principally due to state and local income taxes, and effective foreign
tax rates that are in excess of the Federal statutory rate.
8
<PAGE> 9
6. As at March 31, 1994, the Company had outstanding 22,000 shares of Series 1
Preferred Stock and 5,000 shares each of its Series 2 and Series 3
Preferred Stock which were sold to certain current and former employees,
including one senior executive, for a combination of cash and full recourse
promissory notes (which are included in Other Assets in the accompanying
condensed consolidated balance sheet).
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. Holders of Preferred Stock have the
option to have their shares redeemed upon termination of their employment
prior to age 65. The Company is obligated to redeem such shares following
the attainment of age 65 by the holder thereof following termination of
employment. The holders of the Preferred Stock are entitled to receive
cumulative preferential dividends at the annual rate of $.25 per share, and
to participate in dividends on one share of the Common Stock and one share
of the Class B Common Stock to the extent such dividends exceed the per
share preferential dividend.
7. During the first quarter of 1994, the Company adopted FAS 112, Employers'
Accounting for Postemployment Benefits. The costs incurred resulting from
the adoption of this pronouncment were not material.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Income from commissions and fees increased 1.1% during the first quarter of
1994 when compared to the same period in 1993. Absent exchange rate
flucuations, gross income increased 6.3% in 1994 when compared to the same
period in 1993. The increase results primarily from expanded activity from
existing clients and the continued growth of the Company's general agency and
specialized operations.
Salaries and employee related expenses decreased 1.2% when compared to the
respective prior period. The decrease in salaries and employee related
expenses results from careful management of payroll and payroll related
expenses and the strength of the U.S. dollar as compared to 1993.
Office and general expenses have increased 2.7% in 1994 versus the respective
prior period. This change is generally in line with the change in gross income.
Inflation did not have a material effect on either revenue or expenses during
1994 or 1993.
The effective tax rate remained relatively constant at 55.0% in the first
quarter of 1994 versus the respective prior period.
Minority interest decreased by $55,000 in the first quarter of 1994 as compared
to the respective prior period. The decrease in 1994 is primarily due to
changes in the level of profits of majority-owned companies.
Equity in earnings of nonconsolidated companies decreased by $137,000 in the
first quarter of 1994 as compared to the respective prior period. The decrease
is primarily due to changes in the level of profits of nonconsolidated
companies.
Net income decreased by 0.5% in the first quarter when compared to net income
in the same period in 1993. Primary net income per common share decreased by
6.3% from the first quarter of 1993. Fully diluted net income per common share
decreased 5.7% from the comparable first quarter of 1993. For purposes of
computing primary net income per common share, the Company's net income was
reduced by (i) dividends paid on the Company's Preferred Stock and (ii) the
change in redemption value of the Preferred Stock. The decrease in the net
income per share is primarily attributable to the increased weighted average
number of shares outstanding and assorted effects of the Company's stock
compensation programs.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $3,118,000 from $25,001,000 at December 31, 1993
to $28,119,000 at March 31, 1994. Cash and cash equivalents decreased by
$85,642,000 from $181,267,000 to $95,625,000. The decrease is largely
attributable to the settlement of year-end payable balances which are typically
higher at the end of the year. Domestically, the Company has committed lines of
credit totalling $40,000,000. These lines of credit were partially utilized
during the three months ended March 31, 1994 and 1993 to secure obligations of
selected foreign subsidiaries. There was $14,740,000 and $11,250,000
outstanding under these credit lines as of March 31, 1994 and 1993,
respectively.
Domestically, the Company also maintains uncommitted lines of credit. These
facilities, which are available at the discretion of the offering banks, were
not utilized during the period. There were no amounts outstanding under these
arrangements at March 31, 1994 or March 31, 1993.
Other lines of credit are available to the Company in foreign countries in
connection with short-term borrowings and bank overdrafts used in the normal
course of business. There were $28,824,000 and $33,576,000 outstanding at
March 31, 1994 and 1993, respectively.
11
<PAGE> 12
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Reference is made to the Index of Exhibits 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, 1994.
12
<PAGE> 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.
<TABLE>
<S> <C> <C>
GREY ADVERTISING INC.
---------------------
(Registrant)
DATE: May 12, 1994 By:/s/ Steven G. Felsher
-----------------------------
Steven G. Felsher
Executive Vice President,
Secretary and Treasurer
(Duly Authorized Officer)
DATE: May 12, 1994 By:/s/ William P. Garvey
-----------------------------
William P. Garvey
Executive Vice President
Chief Financial Officer
(Chief Accounting Officer)
</TABLE>
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned to Exhibit Page Number in Sequential
(i.e., Exhibit Table of Item 601 Numbering System Where
of Regulation S-K) Description of Exhibit Exhibit May Be Found
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Table of Item 601 of Exhibit
(11) Description of Exhibit
Statement re Computation
of Net Income per Common
Share (unaudited) (15)
</TABLE>
14
<PAGE> 1
Grey Advertising Inc. and Consolidated Subsidiary Companies
Exhibit - Statement Re: Computation of Net Income Per Common Share (unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
1994 1993
--------------- ------------
<S> <C> <C>
PRIMARY
Average shares
outstanding(1) 1,268,090 1,247,300
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 18,232 12,173
-------------- ------------
TOTAL 1,286,322 1,259,473
============== ============
Net Income $3,210,000 $3,227,000
Less: Effect of dividend
requirements and the
change in the redemption
value of redeemable
preferred stock (145,000) (29,000)
-------------- ------------
NET EARNINGS USED IN COMPUTATION 3,065,000 3,198,000
============== ============
Per share amount $2.38 $2.54
============== ============
FULLY DILUTED
Average shares outstanding(1) 1,268,090 1,247,300
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 19,214 17,089
Assumed conversion of 8.5%
convertible subordinated
debentures issued
December 1983 50,999 51,000
-------------- ------------
TOTAL 1,338,303 1,315,389
============== ============
Net Income $3,210,000 $3,227,000
Less: Effect of dividend
requirements and the change
in the redemption
value of redeemable
preferred stock (145,000) (29,000)
Add: 8.5% convertible subordinated
debentures interest, net of
income tax effect 35,000 35,000
-------------- ------------
NET EARNINGS USED IN COMPUTATION 3,100,000 3,233,000
============== ============
Per share amount $2.32 $2.46
============== ============
</TABLE>
(1) Includes 27,273 shares and 8,628 shares for 1994 and 1993, respectively,
expected to be issued pursuant to the terms of the Senior Management
Incentive Plan
15
