<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, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-7898
GREY ADVERTISING INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-0802840
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
777 Third Avenue, New York, New York 10017
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
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, 1995, the total number of shares outstanding of Registrant's
Common Stock, par value $1 per share ("Common Stock"), was 925,250 and of
Registrant's Limited Duration Class B Common Stock, par value $1 per share
("Class B Common Stock"), was 321,313.
<PAGE> 2
GREY ADVERTISING INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
Financial Statements: Page No.
--------
<S> <C>
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
</TABLE>
2
<PAGE> 3
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
(UNAUDITED) (A)
-----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $125,812,000 $170,077,000
Marketable securities 6,068,000 7,678,000
Accounts receivable 374,083,000 403,973,000
Expenditures billable to clients 43,351,000 30,145,000
Other current assets 67,192,000 63,796,000
-----------------------------------
Total current assets 616,506,000 675,669,000
Investments in and advances to nonconsolidated
affiliated companies 18,015,000 16,495,000
Fixed assets--at cost, less accumulated depreciation
of $81,902,000 and $80,584,000 62,742,000 61,174,000
Marketable securities 18,628,000 14,785,000
Intangibles and other assets--including loans to officers of
$5,547,000 in 1995 and $5,347,000 in 1994 63,086,000 61,953,000
-----------------------------------
Total assets $778,977,000 $830,076,000
===================================
</TABLE>
3
<PAGE> 4
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
(UNAUDITED) (A)
----------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 403,011,000 $ 475,188,000
Notes payable to banks 69,190,000 64,460,000
Accrued expenses and other 99,231,000 88,156,000
Income taxes payable 13,390,000 14,130,000
----------------------------------------
Total current liabilities 584,822,000 641,934,000
Other liabilities including deferred compensation of $17,371,000
and $16,244,000 31,194,000 30,053,000
Long-term debt 33,025,000 33,025,000
Minority interest 7,735,000 8,843,000
Redeemable preferred stock--at redemption value; par value $1 per share;
authorized 500,000 shares; issued and outstanding 32,000
shares in 1995 and 1994 7,746,000 7,516,000
Common stockholders' equity:
Common Stock--par value $1 per share; authorized 10,000,000 shares; issued
1,083,314 in 1995 and 1,077,116 in 1994
1,083,000 1,077,000
Limited Duration Class B Common Stock--par value $1 per share; authorized
2,000,000 shares; issued 348,470 shares in 1995 and
354,668 shares in 1994 349,000 355,000
Paid-in additional capital 31,973,000 31,895,000
Retained earnings 107,438,000 105,123,000
Cumulative translation adjustment 1,796,000 (728,000)
Unrealized loss on marketable securities (986,000) (1,492,000)
Loans to officer used to purchase Common Stock and
Limited Duration Class B Common Stock (4,726,000) (4,726,000)
----------------------------------------
136,927,000 131,504,000
Less-cost of 158,638 and 161,382 shares of Common Stock and 26,751 and
26,751 shares of Limited Duration Class B Common Stock held in treasury
at March 31, 1995 and Dec. 31, 1994, respectively 22,472,000 22,799,000
----------------------------------------
Total common stockholders' equity 114,455,000 108,705,000
----------------------------------------
Total liabilities and stockholders' equity $ 778,977,000 $ 830,076,000
========================================
</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.
4
<PAGE> 5
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------------------
1995 1994
------------------------------------------
<S> <C> <C>
Commissions and fees $151,937,000 $132,957,000
Expenses:
Salaries and employee related
expenses 98,189,000 84,447,000
Office and general expenses 45,478,000 40,193,000
------------------------------------------
143,667,000 124,640,000
------------------------------------------
8,270,000 8,317,000
Other income (expense)--net 306,000 (883,000)
------------------------------------------
Income of consolidated companies
before taxes on income 8,576,000 7,434,000
Provision for taxes on income (4,512,000) (4,086,000)
------------------------------------------
Net income of consolidated
companies 4,064,000 3,348,000
Minority interest applicable to
consolidated companies (895,000) (560,000)
Equity in nonconsolidated affiliated
companies 523,000 422,000
------------------------------------------
Net income $ 3,692,000 $ 3,210,000
==========================================
Weighted average number
of common shares outstanding
Primary 1,321,122 1,286,322
Fully diluted 1,375,217 1,338,303
Net income per common share
Primary $2.58 $2.38
Fully diluted $2.50 $2.32
Dividends per common share $0.875 $0.8125
==========================================
</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,
1995 1994
---------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,692,000 $ 3,210,000
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of fixed assets 3,650,000 3,566,000
Amortization of intangibles 941,000 1,863,000
Deferred compensation 2,540,000 1,845,000
Equity in earnings of nonconsolidated affiliated
companies, net of dividends received of -0- and
$74,000 (523,000) (349,000)
Minority interest applicable to consolidated
companies 895,000 560,000
Amortization of restricted stock expense 56,000 44,000
Deferred income taxes (1,292,000) (1,111,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 33,285,000 1,391,000
Increase in expenditures billable to clients (13,219,000) (5,655,000)
Increase in other current assets (2,627,000) (4,693,000)
(Increase) decrease in other assets (1,989,000) 611,000
Decrease in accounts payable (75,418,000) (73,482,000)
Increase (decrease) in accrued expenses and
other 10,268,000 (4,481,000)
(Decrease) increase in income taxes payable (1,119,000) 3,164,000
Decrease in other liabilities (993,000) (2,286,000)
---------------------------------------
Net cash used in operating activities (41,853,000) (75,803,000)
INVESTING ACTIVITIES
Purchases of fixed assets (5,023,000) (2,672,000)
Increase in investments in and advances to
nonconsolidated affiliated companies (829,000)
Purchases of marketable securities (1,732,000) (1,517,000)
Increase in intangibles, primarily goodwill (349,000) (680,000)
---------------------------------------
Net cash used in investing activities (7,933,000) (4,869,000)
</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,
1995 1994
------------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Net proceeds from (repayments of) short-term
borrowings 5,103,000 (1,501,000)
Common Shares acquired for treasury (22,000) (47,000)
Cash dividends paid on Common Shares (1,090,000) (1,008,000)
Cash dividends paid on Redeemable Preferred Stock (56,000) (52,000)
Proceeds from exercise of stock options 308,000 70,000
------------------------------------
Net cash provided by (used in) financing activities 4,243,000 (2,538,000)
Effect of exchange rate changes on cash 1,278,000 (2,432,000)
------------------------------------
Decrease in cash and cash equivalents (44,265,000) (85,642,000)
Cash and cash equivalents at beginning of period 170,077,000 181,267,000
------------------------------------
Cash and cash equivalents at end of period $125,812,000 $ 95,625,000
====================================
</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, 1994
filed with the Securities and Exchange Commission.
2. The financial statements as of March 31, 1995 and for the three months
ended 1995 and 1994 are unaudited. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair representation have been included.
3. The results of operations for the three months ended March 31, 1995 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, 1995 and 1994 are based on the weighted average number of
common shares outstanding, adjusted for the effect, if any, of the assumed
exercise of dilutive stock options and of shares payable in Common Stock
pursuant to the Company's Senior Management Incentive Plan and, for fully
diluted net income per common share, the assumed conversion of the 8-1/2%
Convertible Subordinated Debentures issued in December 1983. Also, for the
purpose of computing net income per common share for the three months ended
March 31, 1995 and March 31, 1994, the Company's net income was reduced by
dividends on the Preferred Stock and also adjusted by the change in the
redemption value of Preferred Stock. Primary net income per common share is
computed as if the stock options were exercised at the beginning of the
period and as if the funds obtained thereby were used to purchase Common
Stock at the market price during the period. In computing fully diluted net
income per common share, the market price at the close of the period or the
average market price, whichever was higher, was used to determine the
number of shares which would be assumed to be repurchased. The market price
for a share of Class B Common Stock, which is not publicly traded, is
deemed to be equal to the market price of a share of Common Stock, into
which a share of Class B Common Stock may be converted at the option of the
holder, as of the date such valuation is made.
5. The provision for taxes on income is greater than the Federal statutory
rate principally due to state and local income taxes and effective foreign
tax rates that are in excess of the Federal statutory rate.
8
<PAGE> 9
6. As of March 31, 1995 and December 31, 1994, the Company had outstanding
20,000 shares of Series I Preferred Stock, 5,000 shares each of its Series
II and Series III Preferred Stock, and 2,000 shares of Series 1 Preferred
Stock which were sold to certain current and former employees, including
one senior executive, for a combination of cash and full recourse
promissory notes (which are included in Other Assets in the accompanying
condensed consolidated balance sheet). Each share of Preferred Stock is to
be redeemed by the Company at a price equal to the book value per share
attributable to one share of Common Stock and one share of Class B Common
Stock pertaining upon redemption (subject to certain adjustments), less a
fixed discount established upon the issuance of the Preferred Stock. The
holders of each class of Preferred Stock are entitled to receive cumulative
preferential dividends at the annual rate of $.25 per share, and to
participate in dividends on one share of the Common Stock and one share of
the Class B Common Stock to the extent such dividends exceed the per share
preferential dividend. The redemption date for the Series I, Series II and
Series III Preferred Stock is fixed at April 7, 2004. The terms of the
Series I, Series II and Series III Preferred Stock also give the holder,
his estate or legal representative, as the case may be, the option to
require the Company to redeem his Preferred Stock for a period of 12 months
following his (i) death, (ii) permanent disability or permanent mental
disability, (iii) termination of full-time employment for good reason or
(iv) termination of full-time employment by the Company without cause. The
holder of the Series 1 Preferred Stock has the option to have his shares
redeemed upon termination of his employment prior to age 65; the Company is
obligated to redeem such shares following the attainment of age 65 by such
holder thereof following termination of employment.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Income from commissions and fees increased 14.3% during the first quarter of
1995 when compared to the same period in 1994. Absent exchange rate
fluctuations, gross income increased 10.0% in 1995 when compared to the same
period in 1994. In the first quarter of 1995 and 1994, respectively, 45.6% and
47.8% of consolidated gross income was attributable to domestic operations and
54.4% and 52.2% to international operations. 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. In
the first quarter of 1995, gross income from domestic operations increased 8.9%
versus the respective prior period. Gross income from international operations
increased 19.2% in the first quarter of 1995 when compared to the same period in
1994.
Salaries and employee related expenses increased 16.3% in 1995 when compared to
the respective prior period. Office and general expenses increased 13.1% in 1995
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 either revenue or expenses during
1995 or 1994.
Minority interest increased by $335,000 in the first quarter of 1995 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 $101,000
in the first quarter of 1995 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 decreased to 52.6% in the first quarter of 1995 from
55.0% in the same period in 1994. The decrease in the effective tax rate is
primarily due to the lower amount of nondeductible expenses (principally
goodwill amortization) for tax purposes in the first quarter of 1995 as compared
to the respective prior period.
10
<PAGE> 11
RESULTS OF OPERATIONS (continued)
Net income increased by 15.0% when compared to net income in the same period in
1994. Net income for the first three months of 1995 was favorably affected by a
reduction of amortization expense resulting from a non-cash goodwill write-off
in the fourth quarter of 1994. Primary net income per common share increased by
8.4% from the first quarter of 1994. Fully diluted net income per common share
increased by 7.8% from the first quarter of 1994. For purposes of computing
primary net income per common share, the Company's net income was reduced by (i)
dividends paid on the Company's Preferred Stock and (ii) the change in
redemption value of the Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $2,051,000 from $33,735,000 at December 31, 1994 to
$31,684,000 at March 31, 1995. Cash and cash equivalents decreased by
$44,265,000 from $170,077,000 to $125,812,000. 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 1994. 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, 1995 and 1994 to
secure obligations of selected foreign subsidiaries. There was $15,000,000 and
$14,740,000 outstanding under these credit lines as of March 31, 1995 and 1994,
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 $54,190,000 and $28,824,000 outstanding at March
31, 1995 and 1994, 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 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, 1995.
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.
GREY ADVERTISING INC.
--------------------
(Registrant)
DATE: May 12, 1995 By:/s/ Steven G. Felsher
------------------------
Steven G. Felsher
Executive Vice President,
Secretary and Treasurer
(Duly Authorized Officer)
DATE: May 12, 1995 By:/s/ William P. Garvey
------------------------
William P. Garvey
Executive Vice President
Chief Financial Officer
(Chief Accounting Officer)
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
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
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(11) Statement Re: Computation
of Net Income per Common Share
(unaudited) (15)
(27) Financial Data Schedule (16)
</TABLE>
14
<PAGE> 1
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
EXHIBIT - STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED)
EXHIBIT 11
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1995 1994
------------ -------------
<S> <C> <C>
PRIMARY
Weighted average shares outstanding(1) 1,300,109 1,268,090
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 21,013 18,232
------------ -------------
TOTAL 1,321,122 1,286,322
============ =============
Net Income $ 3,692,000 $ 3,210,000
Less: Effect of dividend requirements
and the increase (decrease) in
redemption value of redeemable
preferred stock (286,000) (145,000)
------------ -------------
NET EARNINGS USED IN COMPUTATION $ 3,406,000 $ 3,065,000
============ =============
Per share amount $ 2.58 $ 2.38
============ =============
FULLY DILUTED
Weighted average shares outstanding(1) 1,300,109 1,268,090
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 24,108 19,214
Assumed conversion of 8.5% convertible
subordinated debentures issued December 1983 51,000 50,999
------------ -------------
TOTAL 1,375,217 1,338,303
============ =============
Net Income $ 3,692,000 $ 3,210,000
Less: Effect of dividend requirements
and the increase (decrease) in
redemption value of redeemable
preferred stock (286,000) (145,000)
Add: 8.5% convertible subordinated
debentures interest, net of income
tax effect 35,000 35,000
------------ -------------
NET EARNINGS USED IN COMPUTATION $ 3,441,000 $ 3,100,000
============ =============
Per share amount $ 2.50 $ 2.32
============ =============
</TABLE>
(1) Includes 54,287 shares and 27,273 shares for 1995 and 1994, respectively,
expected to be issued pursuant to the terms of the Senior Management
Incentive Plan
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1995 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1995 OF GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 125,812
<SECURITIES> 6,068
<RECEIVABLES> 374,083
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 616,506
<PP&E> 144,644
<DEPRECIATION> 81,902
<TOTAL-ASSETS> 778,977
<CURRENT-LIABILITIES> 584,822
<BONDS> 33,025
<COMMON> 1,432
7,746
0
<OTHER-SE> 113,023
<TOTAL-LIABILITY-AND-EQUITY> 778,977
<SALES> 151,937
<TOTAL-REVENUES> 151,937
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 143,667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,242
<INCOME-PRETAX> 8,576
<INCOME-TAX> 4,512
<INCOME-CONTINUING> 3,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,692
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.50
</TABLE>
