<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 June 30, 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)
212-546-2000
------------------------------
Registrant's telephone number,
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 July 31, 1995, the total number of shares outstanding of Registrant's
Common Stock, par value $1 per share ("Common Stock"), was 876,492 and of
Registrant's Limited Duration Class B Common Stock, par value $1 per share
("Class B Common Stock"), was 317,872.
<PAGE> 2
GREY ADVERTISING INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
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
</TABLE>
2
<PAGE> 3
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
(UNAUDITED) (A)
---------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $150,471,000 $170,077,000
Marketable securities 6,484,000 7,678,000
Accounts receivable 446,666,000 403,973,000
Expenditures billable to clients 42,490,000 30,145,000
Other current assets 59,099,000 63,796,000
---------------------------------------------
Total current assets 705,210,000 675,669,000
Investments in and advances to nonconsolidated
affiliated companies 18,361,000 16,495,000
Fixed assets-at cost, less accumulated depreciation
of $87,992,000 and $80,584,000 68,600,000 61,174,000
Marketable securities 19,213,000 14,785,000
Intangibles and other assets-including loans to officers of
$5,547,000 in 1995 and $5,347,000 in 1994 67,748,000 61,953,000
---------------------------------------------
Total assets $879,132,000 $830,076,000
=============================================
</TABLE>
3
<PAGE> 4
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (A)
------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $497,718,000 $475,188,000
Notes payable to banks 71,691,000 64,460,000
Accrued expenses and other 105,785,000 88,156,000
Income taxes payable 7,557,000 14,130,000
------------------------------------------
Total current liabilities 682,751,000 641,934,000
Other liabilities including deferred compensation of $19,927,000
and $16,244,000 31,855,000 30,053,000
Long-term debt 33,025,000 33,025,000
Minority interest 9,578,000 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 8,047,000 7,516,000
Common stockholders' equity:
Common Stock-par value $1 per share; authorized 10,000,000
shares; issued 1,084,887 in 1995 and 1,077,116 in 1994 1,085,000 1,077,000
Limited Duration Class B Common Stock-par value $1 per share;
authorized 2,000,000 shares; issued 346,897 shares in 1995 and
354,668 shares in 1994 347,000 355,000
Paid-in additional capital 32,063,000 31,895,000
Retained earnings 112,004,000 105,123,000
Cumulative translation adjustment 2,426,000 (728,000)
Unrealized loss on marketable securities (333,000) (1,492,000)
Loans to officer used to purchase Common Stock and
Limited Duration Class B Common Stock (4,726,000) (4,726,000)
------------------------------------------
142,866,000 131,504,000
Less-cost of 194,019 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 June 30, 1995 and Dec. 31, 1994,
respectively 28,990,000 22,799,000
------------------------------------------
Total common stockholders' equity 113,876,000 108,705,000
------------------------------------------
Total liabilities and stockholders' equity $879,132,000 $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 FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------------------------------------------------
1995 1994 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commissions and fees $169,703,000 $147,859,000 $321,640,000 $280,816,000
Expenses:
Salaries and employee related expenses 106,092,000 92,083,000 204,281,000 176,530,000
Office and general expenses 49,617,000 44,236,000 95,095,000 84,429,000
-------------------------------------------------------------------------------
155,709,000 136,319,000 299,376,000 260,959,000
-------------------------------------------------------------------------------
13,994,000 11,540,000 22,264,000 19,857,000
Other expense-net 370,000 289,000 64,000 1,172,000
-------------------------------------------------------------------------------
Income of consolidated companies before
taxes on income 13,624,000 11,251,000 22,200,000 18,685,000
Provision for taxes on income 6,874,000 6,466,000 11,386,000 10,552,000
-------------------------------------------------------------------------------
Net income of consolidated companies 6,750,000 4,785,000 10,814,000 8,133,000
Minority interest applicable to
consolidated companies (1,006,000) (747,000) (1,901,000) (1,307,000)
Equity in nonconsolidated affiliated
companies 263,000 1,042,000 786,000 1,464,000
-------------------------------------------------------------------------------
Net income $ 6,007,000 $ 5,080,000 $ 9,699,000 $ 8,290,000
===============================================================================
Weighted average number
of common shares outstanding
Primary 1,320,489 1,285,863 1,320,791 1,286,090
Fully diluted 1,377,389 1,336,862 1,380,419 1,337,537
Net income per common share
Primary $4.28 $3.69 $6.86 $6.08
Fully diluted $4.13 $3.58 $6.61 $5.90
Dividends per common share $.875 $0.8125 $1.75 $1.63
===============================================================================
</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 SIX MONTHS ENDED JUNE 30,
1995 1994
-----------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,699,000 $ 8,290,000
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of fixed assets 7,690,000 6,947,000
Amortization of intangibles 1,971,000 3,632,000
Deferred compensation 6,127,000 4,080,000
Equity in earnings of nonconsolidated affiliated companies,
net of dividends received of -0- and $523,000 (786,000) (951,000)
Minority interest applicable to consolidated
companies 1,901,000 1,307,000
Amortization of restricted stock expense 111,000 55,000
Deferred income taxes (3,025,000) (2,240,000)
Changes in operating assets and liabilities:
Increase in accounts receivable (28,145,000) (28,518,000)
Increase in expenditures billable to clients (9,539,000) (6,320,000)
Decrease in other current assets 8,354,000 655,000
Increase in other assets (5,736,000) (28,000)
Increase (decrease) in accounts payable 5,782,000 (29,880,000)
Increase in accrued expenses and other 11,933,000 14,573,000
(Decrease) increase in income taxes payable (8,878,000) 1,332,000
Decrease in other liabilities (804,000) (3,381,000)
-----------------------------------------
Net cash used in operating activities (3,345,000) (30,447,000)
INVESTING ACTIVITIES
Purchases of fixed assets (9,906,000) (8,456,000)
Increase in investments in and advances to nonconsolidated
affiliated companies (829,000) (1,546,000)
Net purchases of marketable securities (2,040,000) (1,517,000)
Increase in intangibles, primarily goodwill (2,875,000) (4,200,000)
-----------------------------------------
Net cash used in investing activities (15,650,000) (15,719,000)
</TABLE>
6
<PAGE> 7
Grey Advertising Inc. and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Cash Flows (Unaudited)
(continued)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
1995 1994
-----------------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Net proceeds from short-term borrowings 3,934,000 23,406,000
Common Shares acquired for treasury (6,576,000) (347,000)
Cash dividends paid on Common Shares (2,174,000) (2,016,000)
Cash dividends paid on Redeemable Preferred Stock (112,000) (104,000)
Proceeds from exercise of stock options 336,000 141,000
-----------------------------------------
Net cash (used in) provided by financing activities (4,592,000) 21,080,000
Effect of exchange rate changes on cash 3,981,000 (3,295,000)
-----------------------------------------
Decrease in cash and cash equivalents (19,606,000) (28,381,000)
Cash and cash equivalents at beginning of period 170,077,000 181,267,000
-----------------------------------------
Cash and cash equivalents at end of period $150,471,000 $152,886,000
=========================================
</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 June 30, 1995 and for the three and six
months ended June 30, 1995 and June 30, 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 and six months ended June 30, 1995
and June 30, 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 and six
months ended June 30, 1995 and June 30, 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 and six months ended June 30, 1995 and June 30, 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 June 30, 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 ("gross income") increased 14.8% during the
second quarter of 1995 and 14.5% during the six months ended June 30, 1995 when
compared to the same periods in 1994. Absent exchange rate fluctuations, gross
income increased 7.0% in the three months ended June 30, 1995 and 8.4% in the
six months ended June 30, 1995 when compared to the same periods in 1994. In
the second quarter of 1995 and 1994, respectively, 43.7% and 47.3% of
consolidated gross income was attributable to domestic operations and 56.3% and
52.7% to international operations. For the first six months of 1995 and 1994,
respectively, 44.6% and 47.6% of consolidated gross income was attributable to
domestic operations and 55.4% and 52.4% to international operations. The
increase in gross income resulted primarily from expanded activities from
existing clients and the continued growth of the Company's general agency and
specialized operations. In the second quarter of 1995 and the first six months
of 1995, respectively, gross income from domestic operations increased 5.9% and
7.3% versus the respective prior periods. Gross income from international
operations increased 22.8% and 21.1% in the second quarter of 1995 and the
first six months of 1995, respectively, when compared to the same periods in
1994.
Salaries and employee related expenses increased 15.2% in the second quarter of
1995 and 15.7% in the first six months of 1995 when compared to the respective
prior periods. Office and general expenses increased 12.2% in the three months
ended June 30, 1995 and 12.6% in the six months ended June 30, 1995 versus the
respective prior periods. These changes are generally in line with the
increases in gross income.
Inflation did not have a material effect on either revenue or expenses during
1995 or 1994.
Minority interest increased by $259,000 in the second quarter of 1995 and
$594,000 in the first six months of 1995 as compared to the respective prior
periods. These increases are primarily due to changes in the level of profits
of majority-owned companies.
Equity in earnings of nonconsolidated affiliated companies decreased by
$779,000 in the second quarter of 1995 and $678,000 in the six months
ended June 30, 1995 as compared to the respective prior periods. These
decreases are primarily due to changes in the level of profits of
nonconsolidated affiliated companies.
The effective tax rate decreased to 50.5% in the second quarter of 1995 and
51.3% in the first six months ended June 30, 1995 from 57.5% and 56.5% in the
same periods in 1994 respectively. The decrease in the effective tax rate is,
in part, due to the lower amount of nondeductible expenses (principally
goodwill amortization) for tax purposes in 1995 as compared to 1994.
10
<PAGE> 11
RESULTS OF OPERATIONS (continued)
Net income increased by 18.2% and 17.0% in the three and six months ended June
30, 1995, respectively, when compared to net income for the same periods in
1994. Net income for the three and six months ended June 30, 1995 was
affected favorably by a reduction of amortization expense resulting from a
non-cash goodwill write-off taken in the fourth quarter of 1994. Primary net
income per common share increased by 16.0% and 12.8% in the three and six
months ended June 30, 1995 as compared to the same periods in 1994. Fully
diluted net income per common share increased by 15.4% in the second quarter of
1995 and 12.0% in the six months ended June 30, 1995. 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 $11,276,000 from $33,735,000 at December 31, 1994
to $22,459,000 at June 30, 1995. Cash and cash equivalents decreased by
$19,606,000 from $170,077,000 to $150,471,000. The decrease in working capital
is largely attributable to the increase in investment in marketable securities,
principally in U.S. Treasury Securities with maturity dates between one and
nine years and the repurchase of 35,191 shares of Company stock which were made
pursuant to the Company's stock repurchase program announced in April, 1995 in
which the Company said that it would repurchase up to 3% of its outstanding
stock for use with its employee benefit programs and for other general
corporate purposes. Domestically, the Company has committed lines of credit
totaling $40,000,000. These lines of credit were partially utilized during the
six months ended June 30, 1995 and 1994 to secure obligations of selected
foreign subsidiaries. There was $15,000,000 outstanding under these credit
lines as at both June 30, 1995 and 1994.
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 $56,691,000 and $48,545,000 outstanding at June
30, 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 June 30, 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: August 14, 1995 By:/s/ Steven G. Felsher
------------------------
Steven G. Felsher
Executive Vice President,
Secretary and Treasurer
(Duly Authorized Officer)
DATE: August 14, 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>
(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 - 11
Statement Re: Computation of Net Income Per Common Share (Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------------------------------------
1995 1994 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding(1) 1,294,583 1,267,359 1,297,331 1,267,722
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 25,906 18,504 23,460 18,368
----------------------------------------------------------------------
TOTAL 1,320,489 1,285,863 1,320,791 1,286,090
======================================================================
Net Income $6,007,000 $5,080,000 $9,699,000 $8,290,000
Less: Effect on dividend requirements
and the change in redemption value
of redeemable preferred stock (357,000) (329,000) (644,000) (474,000)
----------------------------------------------------------------------
NET EARNINGS USED IN
COMPUTATION $5,650,000 $4,751,000 $9,055,000 $7,816,000
======================================================================
Per share amount $4.28 $3.69 $6.86 $6.08
======================================================================
FULLY DILUTED
Average shares outstanding(1) 1,294,583 1,267,359 1,297,331 1,267,722
Net effect of dilutive stock options-
based on treasury stock method
using the period-end market price,
if higher than average market price 31,807 18,504 32,089 18,816
Assumed conversion of 8.5%
convertible subordinated debentures
issued December 1983 50,999 50,999 50,999 50,999
----------------------------------------------------------------------
TOTAL 1,377,389 1,336,862 1,380,419 1,337,537
======================================================================
Net Income $6,007,000 $5,080,000 $9,699,000 $8,290,000
Less: Effect of dividend requirements
and the change in redemption value
of redeemable preferred stock (357,000) (329,000) (644,000) (474,000)
Add: 8.5% convertible subordinated
debentures interest net of income
tax effect 35,000 35,000 69,000 69,000
----------------------------------------------------------------------
NET EARNINGS USED IN
COMPUTATION $5,685,000 $4,786,000 $9,124,000 $7,885,000
======================================================================
Per share amount $4.13 $3.58 $6.61 $5.90
======================================================================
</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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 150,471
<SECURITIES> 6,484
<RECEIVABLES> 446,666
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 705,210
<PP&E> 156,592
<DEPRECIATION> 87,992
<TOTAL-ASSETS> 879,132
<CURRENT-LIABILITIES> 682,751
<BONDS> 33,025
<COMMON> 1,432
8,047
0
<OTHER-SE> 112,444
<TOTAL-LIABILITY-AND-EQUITY> 879,132
<SALES> 321,640
<TOTAL-REVENUES> 321,640
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 299,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,600
<INCOME-PRETAX> 22,200
<INCOME-TAX> 11,386
<INCOME-CONTINUING> 9,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,699
<EPS-PRIMARY> 6.86
<EPS-DILUTED> 6.61
</TABLE>
