<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, 1996
/ / 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, 1996, the total number of shares outstanding of Registrant's
Common Stock, par value $1 per share ("Common Stock"), was 886,342 and of
Registrant's Limited Duration Class B Common Stock, par value $1 per share
("Class B Common Stock"), was 302,895.
<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>
MARCH 31, 1996 DECEMBER 31, 1995
(UNAUDITED) (A)
----------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $98,144,000 $134,313,000
Marketable securities 20,847,000 20,419,000
Accounts receivable 477,420,000 495,349,000
Expenditures billable to clients 42,900,000 46,449,000
Other current assets 38,167,000 49,614,000
----------------------------------------
Total current assets 677,478,000 746,144,000
Investments in and advances to nonconsolidated
affiliated companies 15,230,000 20,693,000
Fixed assets-at cost, less accumulated depreciation
of $95,654,000 and $93,789,000 77,011,000 74,706,000
Marketable securities 58,737,000 48,252,000
Intangibles and other assets-including loans to officers of
$5,522,000 in 1996 and 1995 67,502,000 65,342,000
========================================
Total assets $895,958,000 $955,137,000
========================================
</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.
3
<PAGE> 4
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (A)
------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $474,496,000 $549,533,000
Notes payable to banks 85,061,000 71,336,000
Accrued expenses and other 96,373,000 97,126,000
Current portion of long-term debt 3,025,000 3,025,000
Income taxes payable 22,140,000 18,567,000
------------------------------------------
Total current liabilities 681,095,000 739,587,000
Other liabilities including deferred compensation of
$24,063,000 and $22,021,000 35,815,000 39,620,000
Long-term debt 30,000,000 30,000,000
Minority interest 9,949,000 9,281,000
Redeemable preferred stock-at redemption value; par
value $1 per share; authorized 500,000 shares; issued
and outstanding 32,000 shares in 1996 and 1995 9,109,000 8,986,000
Common stockholders' equity:
Common Stock-par value $1 per share; authorized
10,000,000 shares; issued 1,100,038 in 1996 and
1,096,096 in 1995 1,100,000 1,096,000
Limited Duration Class B Common Stock-par value
$1 per share; authorized 2,000,000 shares; issued
331,746 shares in 1996 and 335,688 shares in 1995 332,000 336,000
Paid-in additional capital 38,021,000 37,898,000
Retained earnings 127,305,000 122,345,000
Cumulative translation adjustment 4,944,000 4,664,000
Unrealized (loss) gain on marketable securities (1,598,000) 550,000
Loans to officer used to purchase Common Stock and
Limited Duration Class B Common Stock (4,726,000) (4,726,000)
------------------------------------------
165,378,000 162,163,000
Less-cost of 215,796 and 212,848 shares of Common
Stock and 26,751 and 26,751 shares of Limited
Duration Class B Common Stock held in treasury at
March 31, 1996 and Dec. 31, 1995, respectively 35,388,000 34,500,000
------------------------------------------
Total common stockholders' equity 129,990,000 127,663,000
------------------------------------------
Total liabilities and stockholders' equity $895,958,000 $955,137,000
==========================================
</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,
-------------------------------------------
1996 1995
-------------------------------------------
<S> <C> <C>
Commissions and fees $173,477,000 $151,937,000
Expenses:
Salaries and employee related
expenses 113,953,000 98,189,000
Office and general expenses 50,493,000 45,478,000
-------------------------------------------
164,446,000 143,667,000
-------------------------------------------
9,031,000 8,270,000
Other income-net 4,839,000 306,000
-------------------------------------------
Income of consolidated companies
before taxes on income 13,870,000 8,576,000
Provision for taxes on income (7,206,000) (4,512,000)
-------------------------------------------
Net income of consolidated
companies 6,664,000 4,064,000
Minority interest applicable to
consolidated companies (1,169,000) (895,000)
Equity in nonconsolidated
affiliated companies 768,000 523,000
-------------------------------------------
Net income $ 6,263,000 $ 3,692,000
===========================================
Weighted average number
of common shares outstanding
Primary 1,300,001 1,321,122
Fully diluted 1,354,692 1,375,217
Net income per common share
Primary $ 4.68 $ 2.58
Fully diluted $ 4.51 $ 2.50
Dividends per common share $ 0.9375 $ 0.875
===========================================
</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,
1996 1995
---------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,263,000 $ 3,692,000
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of fixed assets 4,491,000 3,650,000
Amortization of intangibles 1,212,000 941,000
Deferred compensation 3,299,000 2,540,000
Equity in earnings of nonconsolidated affiliated
companies, net of dividends received of $105,000 and
$-0- (663,000) (523,000)
Gains from the sale of a nonconsolidated affiliated
company, a non-marketable investment security and
marketable securities (4,000,000)
Minority interest applicable to consolidated companies 1,169,000 895,000
Amortization of restricted stock expense 25,000 56,000
Deferred income taxes (1,500,000) (1,292,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 15,690,000 33,285,000
Decrease (increase) in expenditures billable to clients 2,936,000 (13,219,000)
Decrease (increase) in other current assets 10,955,000 (2,627,000)
Increase in other assets (132,000) (1,989,000)
Decrease in accounts payable (72,600,000) (75,418,000)
(Decrease) increase in accrued expenses and other (1,422,000) 10,268,000
Increase (decrease) in income taxes payable 3,741,000 (1,119,000)
Decrease in other liabilities (3,457,000) (993,000)
---------------------------------------
Net cash used in operating activities (33,993,000) (41,853,000)
INVESTING ACTIVITIES
Purchases of fixed assets (7,303,000) (5,023,000)
Trust fund deposits (737,000)
Proceeds from the sale of marketable securities 76,506,000 5,950,000
Purchases of marketable securities (89,567,000) (7,682,000)
Proceeds from the sale of a nonconsolidated affiliated
company and a non-marketable investment security 8,872,000
Increase in intangibles, primarily goodwill (4,255,000) (349,000)
Decrease (increase) in investments and advances to
nonconsolidated affiliated companies 1,080,000 (829,000)
---------------------------------------
Net cash used in investing activities (15,404,000) (7,933,000)
</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,
1996 1995
--------------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Net proceeds from short-term borrowings 15,451,000 5,103,000
Common shares acquired for treasury (982,000) (22,000)
Cash dividends paid on Common Shares (1,115,000) (1,090,000)
Cash dividends paid on Redeemable Preferred Stock (60,000) (56,000)
Issuance of Restricted Stock 25,000
Proceeds from exercise of stock options 139,000 308,000
--------------------------------------
Net cash provided by financing activities 13,458,000 4,243,000
Effect of exchange rate changes on cash (230,000) 1,278,000
--------------------------------------
Decrease in cash and cash equivalents (36,169,000) (44,265,000)
Cash and cash equivalents at beginning of period 134,313,000 170,077,000
--------------------------------------
Cash and cash equivalents at end of period $ 98,144,000 $125,812,000
======================================
</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, 1995
filed with the Securities and Exchange Commission.
2. The financial statements as of March 31, 1996 and for the three months
ended March 31, 1996 and 1995 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, 1996
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, 1996 and 1995 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, 1996 and March 31, 1995, 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, 1996 and December 31, 1995, 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. 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. In connection with the ownership of Series I,
Series II and Series III Preferred Stock, the senior executive issued to
the company full recourse promissory notes (which are included in Other
Assets in the accompanying condensed consolidated balance sheet).
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Income from commissions and fees increased 14.2% during the first quarter of
1996 when compared to the same period in 1995. Absent exchange rate
fluctuations, gross income increased 11.3% in 1996 when compared to the same
period in 1995. In the first quarter of 1996 and 1995, respectively, 44.0% and
45.6% of consolidated gross income was attributable to domestic operations and
56.0% and 54.4% to international operations. In the first quarter of 1996, gross
income from domestic operations increased 10.3% versus the respective prior
period. Gross income from international operations increased 17.4%, (12.1%
absent exchange rate fluctuations) in the first quarter of 1996 when compared to
the same period in 1995. The increase in gross income in both years primarily
resulted from expanded activities from existing clients and the continued growth
of the Company's general agency and specialized operations. The increase in
gross income from international operations is indicative of the continued
development of the Company's worldwide business.
Salaries and employee related expenses increased 16.1% in 1996 when compared to
the respective prior period. Office and general expenses increased 11.0% in 1996
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 revenue or expenses during 1996 or
1995.
Minority interest increased by $274,000 in the first quarter of 1996 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 $245,000
in the first quarter of 1996 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 remained relatively constant at 52.0% in the first
quarter of 1996 versus 52.6% in the same period in 1995.
10
<PAGE> 11
RESULTS OF OPERATIONS (CONTINUED)
Other income was affected positively by non-recurring, non operating pre-tax
income of almost $4,000,000 primarily related to gains on the sales of an
interest in a nonconsolidated subsidiary and a non-marketable investment
security.
Net income increased by 69.6% when compared to net income in the same period in
1995. Primary net income per common share increased by 81.4% from the first
quarter of 1995. Fully diluted net income per common share increased by 80.4%
from the first quarter of 1995. Absent the non-recurring, non operating gains,
primary and fully diluted net income per common share increased by 21.3% and
21.2%, respectively, from the first quarter of 1995. For purposes of computing
primary net income per common share, the Company's net income is adjusted by (i)
dividends paid on the Company's Preferred Stock and (ii) the change in
redemption value of the Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $10,174,000 from $6,557,000 at December 31, 1995 to
($3,617,000) at March 31, 1996. Cash and cash equivalents decreased by
$36,169,000 from $134,313,000 to $98,144,000. The decrease in working capital is
largely attributable to the increase in long-term marketable securities. 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 1995. 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, 1996 and
1995 to secure obligations of selected foreign subsidiaries. There was
$15,000,000 outstanding under these credit lines as of March 31, 1996 and 1995.
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 $70,061,000 and $54,190,000 outstanding in
respect of such arrangments at March 31, 1996 and 1995, 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, 1996.
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 14, 1996 By:/s/ Steven G. Felsher
-----------------------------
Steven G. Felsher
Executive Vice President -
Finance - Worldwide
Secretary and Treasurer
(Duly Authorized Officer)
DATE: May 14, 1996 By:/s/ William P. Garvey
----------------------------
William P. Garvey
Executive Vice President
Chief Financial Officer -
United States
(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 - STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED)
EXHIBIT 11
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
PRIMARY 1996 1995
-------------------------------------
<S> <C> <C>
Weighted average shares outstanding(1) 1,269,539 1,300,109
Net effect of dilutive stock options -
based on the treasury stock method using
average market price 30,462 21,013
-------------------------------------
TOTAL 1,300,001 1,321,122
=====================================
Net Income $6,263,000 $3,692,000
Less: Effect of dividend requirements and
the change in redemption value of
redeemable preferred stock (184,000) (286,000)
-------------------------------------
NET EARNINGS USED IN COMPUTATION $6,079,000 $3,406,000
=====================================
Per share amount $ 4.68 $ 2.58
=====================================
FULLY DILUTED
Weighted average shares outstanding (1) 1,269,539 1,300,109
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 34,261 24,108
Assumed conversion of 8.5% convertible
subordinated debentures issued December 1983 50,892 51,000
-------------------------------------
TOTAL 1,354,692 1,375,217
=====================================
Net Income $6,263,000 $3,692,000
Less: Effect of dividend requirements and the
change in redemption value of redeemable
preferred stock (184,000) (286,000)
Add: 8.5% convertible subordinated debentures
interest, net of income tax effect 35,000 35,000
-------------------------------------
NET EARNINGS USED IN COMPUTATION $6,114,000 $3,441,000
=====================================
Per share amount $ 4.51 $ 2.50
=====================================
</TABLE>
(1) Includes 80,003 shares and 54,287 shares for 1996 and 1995, 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 FINANACIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 98,144
<SECURITIES> 20,847
<RECEIVABLES> 477,420
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 677,478
<PP&E> 172,665
<DEPRECIATION> 95,654
<TOTAL-ASSETS> 895,958
<CURRENT-LIABILITIES> 681,095
<BONDS> 30,000
9,109
0
<COMMON> 1,432
<OTHER-SE> 128,558
<TOTAL-LIABILITY-AND-EQUITY> 895,958
<SALES> 173,477
<TOTAL-REVENUES> 173,477
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 164,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,654
<INCOME-PRETAX> 13,870
<INCOME-TAX> 7,206
<INCOME-CONTINUING> 6,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,263
<EPS-PRIMARY> 4.68
<EPS-DILUTED> 4.51
</TABLE>
