<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 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,
including area code 212-546-2000
------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1 per share
------------------------------------
(Title of Class)
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 and (2) has been subject to the filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes X No
----- -----
<PAGE> 2
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $159,812,962 as at March 1, 1996.
The registrant had 884,292 shares of its Common Stock, par value $1 per share,
and 305,120 shares of its Limited Duration Class B Common Stock, par value $1
per share, outstanding as at March 1, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement to be furnished in connection with the
registrant's 1996 annual meeting of stockholders are incorporated by reference
into Part III.
<PAGE> 3
PART I.
ITEM 1. BUSINESS.
The Registrant ("Grey") and its subsidiaries (collectively with
Grey, the "Company") have been engaged in the planning, creation, supervision
and placing of advertising since the Company's formation in 1917. Grey was
incorporated in New York in 1925 and changed its state of incorporation to
Delaware in 1974.
The Company's principal business activity consists of providing a
full range of advertising services to its clients. Typically, this involves
developing an advertising and/or marketing plan after study of a client's
business, the distribution or utilization of the client's products or services
and the use of various media (e.g., television, radio, newspapers, magazines,
direct mail, outdoor billboards and the Internet) by which desired market
performance can best be achieved. The Company then creates advertising, prepares
media recommendations and places advertising in the media. The Company's
business also involves it in allied areas such as marketing consultation,
audio-visual production, cooperative advertising programs, direct marketing,
interactive consulting and production, media research and buying, research,
product publicity, public affairs, public relations and sales promotion.
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<PAGE> 4
The Company is not engaged in more than one industry segment, and
no separate class of similar services contributed 10% or more of the Company's
gross income or net income during 1995, 1994 or 1993.
The Company serves a diversified client roster in the apparel,
automobile, beverage, chemical, communications, community service, computer,
corporate, electrical appliance, entertainment, food product, home furnishing,
houseware, office product, packaged goods, publishing, restaurant, retailing,
toy, travel and other sectors.
Advertising is a highly competitive business in which agencies of
all sizes and other providers of creative or media services strive to attract
new clients or additional assignments from existing clients. Competition for new
business, however, is restricted from time to time because large agencies (such
as the Company) often are precluded from providing advertising services for
products or services that may be viewed as being competitive with those of an
existing client. Generally, since advertising agencies charge clients
substantially equivalent rates for their services, competitive efforts
principally focus on the skills of the competing agencies.
Published reports indicate that there are over 500 advertising
agencies of all sizes in the United States. According to a report published in
1995 (Adweek, a trade publication), the Company was the 8th largest United
States advertising agency in terms of domestic gross income.
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Approximately 58% of Grey's present domestic advertising clients,
representing a majority of the Company's 1995 domestic gross income, have been
with the Company since 1991. The agreements between the Company and most of its
clients are generally terminable by either the Company or the client on 90 days'
notice as is the custom in the industry. Clients may also modify advertising
budgets at any time and for any reason, and because the agency's compensation
for many clients is determined on the basis of commission rates, shifts in
advertising budgets may result in increased or reduced levels of revenue for the
Company.
During 1995, one client (The Procter & Gamble Company), which has
been a client of the Company for forty years, represented more than 10% of the
Company's consolidated income from commissions and fees. The loss of this client
would be expected to have an adverse effect on the results of the Company. No
other client represented more than 5% of the Company's total consolidated income
from commissions and fees. The loss of any single client in past years has not
had a long-term negative impact upon the Company's financial condition or its
competitive position.
On December 31, 1995, the Company and its nonconsolidated
affiliated companies employed approximately 6,000 persons, of whom eight are
executive officers of Grey.
As is generally the case in the advertising industry, the
Company's business traditionally has been seasonal, with greater revenues
generated in the second and fourth quarters of each year. This reflects, in
large degree, the media placement patterns of the Company's clients.
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Advertising programs created by the Company and its
nonconsolidated affiliated companies are placed principally in media distributed
within the United States and overseas through its offices in the United States
and 58 foreign countries. While the Company operates on a worldwide basis, for
the purpose of presenting certain financial information in accordance with
Securities and Exchange Commission rules, its operations are deemed to be
conducted in three geographic areas. Commissions and fees, and operating profit
by each such geographic area for the years ended December 31, 1995, 1994 and
1993, and related identifiable assets at December 31 of each of the years, are
summarized in Note N of the Notes to Consolidated Financial Statements, which is
incorporated herein by reference.
While the Company has no reason to believe that its foreign
operations as a whole are presently jeopardized in any material respect, there
are certain risks of operating which do not affect domestic operations but which
may affect the Company's foreign operations from time to time. Such risks
include the possibility of limitations on repatriation of capital or dividends,
political instability, currency devaluation and restrictions on the percentage
of permitted foreign ownership.
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Executive Officers of the Registrant
as of March 1, 1996
<TABLE>
<CAPTION>
Year First
became Execu-
Executive Officers (a) Position Age tive Officer
- ---------------------- -------- --- ------------
<S> <C> <C> <C>
Robert L. Berenson President - Grey, N.Y. 56 1978
Barbara S. Feigin Exec. Vice President 58 1983
Steven G. Felsher Exec. Vice President
Finance - Worldwide,
Secretary & Treasurer 46 1989
William P. Garvey Exec. Vice President,
Chief Financial Officer
- United States 58 1970
John A. Gerster Exec. Vice President 48 1983
Edward H. Meyer Chairman of the Board,
President & Chief
Executive Officer 69 1959
Stephen A. Novick Exec. Vice President 55 1984
O. John C. Shannon President - Grey Int'l. 59 1993
</TABLE>
(a) All executive officers are elected annually by the Board of Directors of
Grey. Each executive officer has been with Grey for a period greater
than five years. There exists no family relationship between any of
Grey's directors or executive officers and any other director or
executive officer or person nominated or chosen to become a director or
executive officer.
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ITEM 2. PROPERTIES.
Substantially all offices of the Company are located in
leased premises. The Company's principal office is at 777 Third Avenue, New
York, New York, where it occupies approximately 357,000 square feet of space.
The main lease covering the bulk of this space expires at the end of 1999. The
Company also has significant leases covering other offices in New York, Los
Angeles, Amsterdam, Brussels, Copenhagen, Dusseldorf, Hong Kong, London, Madrid,
Melbourne, Milan, Paris, Stockholm and Toronto.
The Company considers all space leased by it to be adequate
for the operation of its business and does not foresee any significant
difficulty in meeting its space requirements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any material pending legal
proceedings other than ordinary routine litigation incidental to the business of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 10, 1995, Grey conducted its 1995 Annual Meeting
of Stockholders ("Meeting").
At the Meeting, Grey's stockholders approved a proposal
("Class B Proposal") to amend Grey's Restated Certificate of Incorporation and a
proposal ("Director Proposal") to elect O. John C. Shannon as director for a
three-year term.
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The Class B Proposal requested that the stockholders approve
an amendment to extend the date for the automatic conversion of Grey's Limited
Duration Class B common stock, par value $1 per share ("Class B Common Stock").
The Class B Proposal was voted on by the holders of Grey's
common stock, par value $1 per share ("Common Stock"), the Class B Common Stock,
and the various classes of Grey's Preferred Stock.
The votes cast by the holders of outstanding shares of Common
Stock, Class B Common Stock and Preferred Stock with respect to the Class B
Proposal are set forth below.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
--- ------- ---------
<S> <C> <C> <C>
Common Stock 462,010 219,882 1,183
Class B Common Stock 2,809,040 16,050 3,870
Preferred Stock 330,000 -0- -0-
</TABLE>
At the Meeting, the Director Proposal was passed by the
following vote:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Common Stock 687,301 5,038
Class B Common Stock 2,847,240 3,180
Preferred Stock 330,000 -0-
</TABLE>
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock is traded on The Nasdaq Stock Market's National
Market and listed on the Nasdaq Stock Market under the symbol GREY.
As of March 1, 1996, there were 493 holders of record of the
Common Stock and 285 holders of record of the Limited Duration Class B Common
Stock.
The following table sets forth certain information about
dividends paid, and the bid prices on the Nasdaq Stock Market during the periods
indicated with respect to the Common Stock:
<TABLE>
<CAPTION>
BID PRICES*
DOLLARS PER SHARE DIVIDENDS
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C> <C>
1994 First Quarter 196 178 .8125
Second Quarter 195 182 .8125
Third Quarter 190 159 .8125
Fourth Quarter 165 144 .875
1995 First Quarter 178 145 .875
Second Quarter 188 160 .875
Third Quarter 205 183 .875
Fourth Quarter 196 182 .9375
</TABLE>
* Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
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<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commissions and fees ........ $688,219,000 $ 593,317,000 $567,243,000 $564,468,000 $528,299,000
Expenses .................... 637,979,000 552,022,000 526,455,000 522,510,000 490,570,000
Restructuring charges (a) ... 23,850,000
Goodwill write-off (b)....... 39,944,000
Income of consolidated
companies before taxes
on income ................. 54,327,000 1,610,000 42,705,000 42,588,000 13,277,000
Provision for taxes on
income .................... 26,966,000 21,621,000 22,487,000 19,975,000 5,057,000
Net income (loss) ........... 23,438,000 (21,378,000) 17,681,000 15,904,000 3,807,000
Net income (loss) per
common share (c)
Primary ................... 16.79 (17.51) 13.46 12.68 3.09
Fully diluted ............. 16.16 N/A 13.00 12.25 3.08
Weighted average number
of common shares out-
standing
Primary ................... 1,295,182 1,285,605 1,263,900 1,205,241 1,196,908
Fully diluted ............. 1,353,849 1,336,829 1,319,349 1,258,799 1,248,815
Working capital ............. 6,557,000 33,735,000 25,001,000 12,588,000 8,364,000
Total assets ................ 955,137,000 830,076,000 820,633,000 752,364,000 735,831,000
Long-term debt .............. 30,000,000 33,025,000 33,025,000 3,025,000 3,025,000
Redeemable preferred
stock at redemption
value ..................... 8,986,000 7,516,000 6,590,000 6,468,000 6,053,000
Common stockholders'
equity .................... 127,663,000 108,705,000 129,077,000 118,741,000 105,153,000
Cash dividend per share
of Common Stock and
Limited Duration Class B
Common Stock .............. 3.5625 3.3125 3.1375 3.025 2.93
</TABLE>
(a) In 1991, the Company recognized restructuring charges primarily
related to the absorption of the Company's subsidiary, Levine Huntley
Vick & Beaver, Inc.
(b) In 1994, the Company recorded a charge of $39,944,000 on both a
pre-tax and after-tax basis, for a non-cash write-off which related
almost exclusively to write-offs of goodwill.
(c) Gives effects to amounts attributable to (i) redeemable preferred
stock, (ii) the assumed exercise of dilutive stock options, (iii)
shares issuable pursuant to the Company's Senior Management Incentive
Plan and (iv) for fully diluted net income per common share, the
assumed conversion of 8 1/2% Convertible Subordinated Debentures
issued December 1983.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Income from commissions and fees ("gross income") increased 16.0% in
1995 and 4.6% in 1994 as compared to the respective prior years. Absent exchange
rate fluctuations, gross income increased 11.4% in 1995 and 6.0% in 1994 as
compared to the respective prior years. In 1995, 1994 and 1993, respectively,
44.1%, 46.8% and 47.2% of consolidated gross income was attributable to domestic
operations and 55.9%, 53.2% and 52.8%, respectively, to international
operations. In 1995, gross income from domestic operations increased 9.5% versus
1994 and was up 3.5% in 1994 versus 1993. Gross income from international
operations increased 21.7% (13.1% absent exchange rate fluctuations) in 1995
when compared to 1994 and increased 5.6% (7.7% absent exchange rate
fluctuations) in 1994 when compared to 1993. The increases 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. In addition, the
Company benefited from the continuing strong economic conditions in Europe, that
carryover from 1994.
Salaries and employee-related expenses increased 16.8% in 1995 and 6.2%
in 1994 as compared to the respective prior years. Office and general expenses
increased 13.1% in 1995 and 3.3% in 1994 versus respective prior years. The
increases in expenses are generally in line with the increases in gross income
in such years.
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In 1994, the Company wrote-off $39,944,000 of goodwill. The non-cash
write-off related almost exclusively to international acquisitions made by the
Company principally in the 1980's. The carrying value of the Company's goodwill
prior to the write-off was approximately $84,000,000 and the write-off was
associated with 34 of the almost 100 investments for which the Company had
unamortized goodwill. The portion of the write-off relating to advertising
agencies was approximately $31,295,000 and $8,649,000 related to public
relations agencies. A significant portion of the write-off related to operations
in the United Kingdom.
The widely recognized international recession seriously affected the
advertising industry, particularly in Western Europe, where the Company has its
largest and most developed international operations. As the recession abated in
the latter part of 1994, the Company was able to assess more clearly the
long-term prospects of the affected operations. At that point, it became clear
that the goodwill associated with a number of the agencies had become
permanently impaired.
In substantially all of the 34 operations for which there were goodwill
write-offs, the loss of key clients and/or key personnel specific to those
operations were significant factors leading to management's determination that
goodwill was impaired.
A material portion of the goodwill write-offs related to ten agencies
acquired in the United Kingdom as part of a strategy to develop the Company's
representation outside of the London market in the general advertising category
and in certain specialized disciplines (such as retail advertising, promotional
services and public relations). While future client losses and management
changes could affect the Company's operations in the United Kingdom, the Company
has consolidated a number of operations, which lessens the
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<PAGE> 14
likelihood of a negative impact from any instance of client or management
turnover. The unimpaired goodwill balances associated with the United Kingdom
operations represented less than 10% of the Company's consolidated unamortized
goodwill as of December 31, 1994.
Several of the operations where permanent impairment of goodwill was
identified continue to operate as ongoing businesses. While the Company has no
intention of closing any office or terminating employees in these operations
other than in the normal course of business, the Company has and will continue
to take prudent and reasonable actions, which may include expense reductions,
consolidation of offices and perhaps making selected acquisitions to supplement
those operations, as may be necessary to have such operations contribute to the
Company's profitable activities.
In 1993, the Company wrote-off $1,939,000 of goodwill in excess of
normal amortization schedules. There were no goodwill write-offs in 1995 in
excess of normal amortization schedules.
The Company will continue to assess the carrying value of its goodwill
by analyzing indicators of impairment, and will recognize additional permanent
impairments, if any, as they arise in accordance with current policy.
Inflation did not have a material effect on revenue or expenses in
1995, 1994 or 1993.
The effective tax rate was 49.6% in 1995, 1,342.9% in 1994 (52.0% not
including the goodwill write-off) and 52.7% in 1993. The decrease in the
effective tax rate in 1995 as
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compared to 1994 is due, in part, to the reduction of goodwill amortization and
write-off (which are not deductible for tax purposes) and other factors.
Minority interest increased $3,233,000 in 1995 and decreased
$1,468,000 in 1994 as compared to the respective prior years. The changes in
1995 and in 1994 were primarily due to changes in the level of profits of
majority-owned companies.
Equity in earnings of nonconsolidated companies increased $677,000
in 1995 and decreased $298,000 in 1994 as compared to the respective prior
years. These changes are due primarily to changes in the level of profits
attributable to the nonconsolidated companies.
The Company reported net income of $23,438,000 for 1995 as compared
to a net loss of $21,378,000 in 1994. Absent the goodwill write-off, net income
for 1994 would have been $18,566,000. Net income for 1995 was up 26.2% over
1994's results absent the goodwill write-off. Net income for 1994, absent the
goodwill write-off, increased 5.0% over 1993. For 1995, primary earnings per
common share was up 24.4% versus 1994, absent the goodwill write-off. Primary
earnings per common share for 1994 not including the write-off increased 0.3%
over 1993.
For purposes of computing primary net income (loss) per common share,
the Company's net income (loss) was adjusted by (i) dividends paid on the
Company's Preferred Stock and (ii) by the change in redemption value of the
Company's Preferred Stock.
The Company's results may be affected by currency exchange rate
fluctuations given the Company's extensive non-United States operations.
Generally, the foreign currency
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exchange risk is limited to net income because the Company's revenues and
expenses, by country, are almost exclusively denominated in the local currency
of each respective operation with both revenue and expense items matched.
Occasionally, the Company enters into foreign currency contracts for known cash
flows related to repatriation of earnings from its international subsidiaries.
The term of each such foreign currency contract entered into in 1995 was for
less than three months. At December 31, 1995, there were no foreign currency
contract transactions open. In addition, the Company had no derivative contracts
outstanding at December 31, 1995, and did not enter into any derivative
contracts during 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a high level of liquidity, as it
continued to have high levels of cash and investments in highly liquid
marketable securities, a significant majority of which are United States
government securities. Cash and cash equivalents were $134,313,000 and
$170,077,000 at December 31, 1995 and 1994, respectively, and the Company's
investment in marketable securities was $68,671,000 and $25,433,000 at December
31, 1995 and 1994, respectively. The continued high level of liquidity reflects
the Company's ongoing focus on the cash management process. Working capital
decreased by $27,178,000 from $33,735,000 at December 31, 1994 to $6,557,000 at
December 31, 1995. The decrease in working capital is largely attributable to
the increase in the portion of marketable securities which are classified as
non-current assets due to their stated maturity dates and the repurchase of
approximately 77,000 shares of the Company's stock during 1995.
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Domestically, the Company maintains committed bank lines of credit
totaling $40,000,000. These lines of credit were partially utilized during both
1995 and 1994 to secure obligations of selected foreign subsidiaries in the
amount of $15,000,000 at each year end.
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. Amounts outstanding under such facilities at
December 31, 1995 and 1994 were $56,336,000 and $49,460,000, respectively.
Historically, funds from operations and short-term bank borrowings
have been sufficient to meet the Company's dividend, capital expenditure and
working capital needs. The Company expects that such sources will be sufficient
to meet its short-term cash requirements in the future. While the Company has
not utilized long-term borrowing to fund its operating needs, in 1993, it took
advantage of favorable terms offered, and borrowed $30,000,000, at a fixed
interest rate of 7.68%. The principal is repayable in equal installments in
January 1998, 1999 and 2000. Additionally, during 1995 the Company borrowed
against the cash value of life insurance policies it owns on the Chairman and
Chief Executive Officer at a fixed rate of 8.75%. The amount borrowed against
the cash value at December 31, 1995 was $13,024,000. The Company does not
anticipate any material increased requirement for capital or other expenditures
which will adversely affect its liquidity.
The Company's business generally has been seasonal with greater gross
income earned in the second and fourth quarters, particularly the fourth
quarter. As a result, cash,
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<PAGE> 18
accounts receivable, accounts payable and accrued expenses are typically higher
on the Company's year-end balance sheet than at the end of any of the preceding
three quarters.
FASB STATEMENT 121
The Financial Accounting Standards Board has issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of. The Company will adopt the new statement in the first quarter of
1996. The adoption of the new statement will not have a material impact on the
Company's financial statements.
FASB STATEMENT 123
The Financial Accounting Standards Board has issued Statement No.
123, Accounting for Stock-Based Compensation. The Company will adopt the new
statement in 1996. The Company will continue to account for stock-based
compensation by applying APB Opinion No. 25, Accounting for Stock Issued to
Employees, and will provide required footnote disclosures as appropriate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is presented in this report
beginning on Page F-1.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the directors of the Company is
incorporated herein by reference to the Company's proxy statement ("Proxy
Statement") to be sent to its stockholders in connection with its 1996 Annual
Meeting, under the caption "Election of Directors". Information with respect to
the Company's executive officers is set forth in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by
reference to the Proxy Statement and will be included under the caption
"Management Remuneration and Other Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by
reference to the Proxy Statement and will be included under the captions
"Election of Directors" and "Voting Securities".
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by
reference to the Proxy Statement and will be included under the captions
"Election of Directors" and "Voting Securities".
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) (2) The information required by this subsection
of this Item is presented in the index to Financial
Statements on Page F-1.
(3) The information required by this subsection of
this Item is provided in the Index of Exhibits at
Page E-1 of this report. Such index provides a
listing of exhibits filed with this report and those
incorporated herein by reference.
(b) Reports on Form 8-K: The Company filed a report on
Form 8-K, dated October 10, 1995, in which the
Company disclosed that the Company's stockholders
voted to extend to April 3, 2006 the date on which
all outstanding shares of Limited Duration Class B
Common Stock will automatically convert into shares
of Common Stock.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GREY ADVERTISING INC.
By: /s/ Edward H. Meyer
--------------------
Edward H. Meyer,
Chairman, Chief Executive
Officer & President
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities and on the date indicated.
/s/ Mark N. Kaplan Dated: March 29, 1996
- -------------------------------
Mark N. Kaplan, Director
/s/ Edward H. Meyer Dated: March 29, 1996
- -------------------------------
Edward H. Meyer, Director;
Principal Executive Officer
/s/ O. John C. Shannon Dated: March 29, 1996
- -------------------------------
O. John C. Shannon, Director;
President - Grey International
/s/ Richard R. Shinn Dated: March 29, 1996
- -------------------------------
Richard R. Shinn, Director
/s/ Steven G. Felsher Dated: March 29, 1996
- -------------------------------
Steven G. Felsher,
Principal Financial Officer
/s/ William P. Garvey Dated: March 29, 1996
- -------------------------------
William P. Garvey,
Principal Accounting Officer
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Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2) and Item 14(d)
Financial Statements and Supplementary Data
List of Financial Statements
Year ended December 31, 1995
GREY ADVERTISING INC.
New York, New York
<PAGE> 24
Form 10-K-Item 8, Item 14(a)(1) and (2)
Grey Advertising Inc. and Consolidated Subsidiary Companies
Index to Financial Statements
The following consolidated financial statements of Grey Advertising Inc. and
consolidated subsidiary companies are included in Item 8:
<TABLE>
<S> <C>
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheets--December 31, 1995 and 1994................ F-3
Consolidated Statements of Operations--Years Ended
December 31, 1995, 1994 and 1993..................................... F-5
Consolidated Statements of Common Stockholders' Equity--
Years Ended December 31, 1995, 1994 and 1993......................... F-6
Consolidated Statements of Cash Flows--
Years Ended December 31, 1995, 1994 and 1993......................... F-8
Notes to Consolidated Financial Statements--
December 31, 1995.................................................... F-10
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
Summarized financial information and financial statements for nonconsolidated
foreign investee companies accounted for by the equity method have been omitted
because such companies, considered individually or in the aggregate, do not
constitute a significant subsidiary.
F-1
<PAGE> 25
Report of Independent Auditors
Board of Directors
Grey Advertising Inc.
We have audited the accompanying consolidated balance sheets of Grey Advertising
Inc. and consolidated subsidiary companies as of December 31, 1995 and 1994, and
the related consolidated statements of operations, common stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Grey
Advertising Inc. and consolidated subsidiary companies at December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 7, 1996
F-2
<PAGE> 26
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $134,313,000 $170,077,000
Marketable securities (Notes A and E) 20,419,000 10,648,000
Accounts receivable 495,349,000 403,973,000
Expenditures billable to clients 46,449,000 30,145,000
Other current assets 49,614,000 60,826,000
-------------------------------
Total current assets 746,144,000 675,669,000
Investments in and advances to nonconsolidated
affiliated companies (Notes A and B) 20,693,000 16,495,000
Fixed assets-net (Note D) 74,706,000 61,174,000
Marketable securities (Notes A and E) 48,252,000 14,785,000
Intangibles and other assets-including loans to
officers of $5,522,000 in 1995 and $5,347,000 in
1994 (Notes A, F, G, I and L(1)) 65,342,000 61,953,000
-------------------------------
Total assets $955,137,000 $830,076,000
===============================
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 27
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $549,533,000 $475,188,000
Notes payable to banks (Note F) 71,336,000 64,460,000
Accrued expenses and other 97,126,000 88,156,000
Current portion of long-term debt (Note F) 3,025,000
Income taxes payable 18,567,000 14,130,000
--------------------------------
Total current liabilities 739,587,000 641,934,000
Other liabilities, including deferred compensation of
$22,021,000 and $16,244,000 (Note L(1)) 39,620,000 30,053,000
Long-term debt (Note F) 30,000,000 33,025,000
Minority interest 9,281,000 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,
respectively (Note G) 8,986,000 7,516,000
Common stockholders' equity:
Common Stock-par value $1 per share; authorized
10,000,000 shares; issued 1,096,096 shares in 1995
and 1,077,116 shares in 1994 1,096,000 1,077,000
Limited Duration Class B Common Stock-par value
$1 per share; authorized 2,000,000 shares; issued
335,688 shares in 1995 and 354,668 shares in 1994 336,000 355,000
Paid-in additional capital 37,898,000 31,895,000
Retained earnings 122,345,000 105,123,000
Cumulative translation adjustment 4,664,000 (728,000)
Unrealized gain (loss) on marketable securities
(Notes A and E) 550,000 (1,492,000)
Loans to officer used to purchase Common Stock and
Limited Duration Class B Common Stock (Note I) (4,726,000) (4,726,000)
--------------------------------
162,163,000 131,504,000
Less-cost of 212,848 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 December 31, 1995 and 1994, respectively 34,500,000 22,799,000
--------------------------------
Total common stockholders' equity 127,663,000 108,705,000
Retirement plans, leases and contingencies (Note L)
--------------------------------
Total liabilities and stockholders' equity $955,137,000 $830,076,000
================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 28
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Commissions and fees $688,219,000 $593,317,000 $567,243,000
Expenses:
Salaries and employee related
expenses (Note L(1)) 432,311,000 370,196,000 348,462,000
Office and general expenses (Note L(2)) 205,668,000 181,826,000 176,054,000
Goodwill write-off (Notes A and M) 39,944,000 1,939,000
-----------------------------------------------
637,979,000 591,966,000 526,455,000
-----------------------------------------------
50,240,000 1,351,000 40,788,000
Other income-net (Note C) 4,087,000 259,000 1,917,000
-----------------------------------------------
Income of consolidated companies
before taxes on income 54,327,000 1,610,000 42,705,000
Provision for taxes on income (Note K) 26,966,000 21,621,000 22,487,000
-----------------------------------------------
Net income (loss) of consolidated
companies 27,361,000 (20,011,000) 20,218,000
Minority interest applicable to
consolidated companies (6,273,000) (3,040,000) (4,508,000)
Equity in earnings of nonconsolidated
affiliated companies 2,350,000 1,673,000 1,971,000
-----------------------------------------------
Net income (loss) $ 23,438,000 $(21,378,000) $ 17,681,000
===============================================
Earnings per Common Share (Note J):
Primary $16.79 $(17.51) $13.46
Fully diluted $16.16 * $13.00
*Antidilutive
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 29
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
PAID-IN
COMMON ADDITIONAL RETAINED
STOCK CAPITAL EARNINGS
----------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1992 $1,432,000 $23,635,000 $118,737,000
Net income 17,681,000
Cash dividends-Common Shares-$3.1375 per share (3,884,000)
Cash dividends-Redeemable Preferred Stock-$6.275 per share (204,000)
Common Shares acquired-at cost
Dividends payable in Company Stock pursuant to Senior
Management Incentive Plan (Note L) 27,000 (27,000)
Increase in redemption value of Redeemable Preferred Stock (Note G) (468,000)
Restricted Stock Plan activity (Note I) 256,000
Tax benefit from restricted stock (Note K) 66,000
Common Shares issued upon exercise of stock options (44,000)
Tax benefit from exercise of stock options (Note K) 46,000
Senior Management Incentive Plan activity (Note L) 3,343,000
Translation adjustment
Unrealized loss on marketable securities (Notes A and E)
----------------------------------------------
Balance at December 31, 1993 1,432,000 27,329,000 131,835,000
Net loss (21,378,000)
Cash dividends-Common Shares-$3.3125 per share (4,112,000)
Cash dividends-Redeemable Preferred Stock-$6.625 per share (212,000)
Common Shares acquired-at cost
Dividends Payable in Company Stock pursuant to Senior
Management Incentive Plan (Note L) 84,000 (84,000)
Increase in redemption value of Redeemable Preferred Stock (Note G) (926,000)
Restricted stock activity (Note I) 30,000
Tax benefit from restricted stock (Note K) 450,000
Common Shares issued upon exercise of stock options (101,000)
Tax benefit from exercise of stock options (Note K) 118,000
Senior Management Incentive Plan activity (Note L) 3,985,000
Translation adjustment
Unrealized loss on marketable securities (Notes A and E)
-----------------------------------------------
Balance at December 31, 1994 1,432,000 31,895,000 105,123,000
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
HELD IN TREASURY OTHER
------------------------- EQUITY
SHARES AMOUNT ACCOUNTS TOTAL
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 194,381 $(23,116,000) $(1,947,000) $118,741,000
Net income 17,681,000
Cash dividends-Common Shares-$3.1375 per share (3,884,000)
Cash dividends-Redeemable Preferred Stock-$6.275 per share (204,000)
Common Shares acquired-at cost 5,426 (787,000) (787,000)
Dividends payable in Company Stock pursuant to Senior
Management Incentive Plan (Note L)
Increase in redemption value of Redeemable Preferred Stock (Note G) (468,000)
Restricted Stock Plan activity (Note I) 256,000
Tax benefit from restricted stock (Note K) 66,000
Common Shares issued upon exercise of stock options (8,584) 830,000 786,000
Tax benefit from exercise of stock options (Note K) 46,000
Senior Management Incentive Plan activity (Note L) 3,343,000
Translation adjustment (6,352,000) (6,352,000)
Unrealized loss on marketable securities (Notes A and E) (147,000) (147,000)
--------------------------------------------------------
Balance at December 31, 1993 191,223 (23,073,000) (8,446,000) 129,077,000
Net loss (21,378,000)
Cash dividends-Common Shares-$3.3125 per share (4,112,000)
Cash dividends-Redeemable Preferred Stock-$6.625 per share (212,000)
Common Shares acquired-at cost 1,993 (372,000) (372,000)
Dividends Payable in Company Stock pursuant to Senior
Management Incentive Plan (Note L)
Increase in redemption value of Redeemable Preferred Stock (Note G) (926,000)
Restricted stock activity (Note I) (1,750) 226,000 256,000
Tax benefit from restricted stock (Note K) 450,000
Common Shares issued upon exercise of stock options (3,333) 420,000 319,000
Tax benefit from exercise of stock options (Note K) 118,000
Senior Management Incentive Plan activity (Note L) 3,985,000
Translation adjustment 2,845,000 2,845,000
Unrealized loss on marketable securities (Notes A and E) (1,345,000) (1,345,000)
--------------------------------------------------------
Balance at December 31, 1994 188,133 (22,799,000) (6,946,000) 108,705,000
</TABLE>
F-6
<PAGE> 30
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
PAID-IN
COMMON ADDITIONAL RETAINED
STOCK CAPITAL EARNINGS
------------------------------------------------
<S> <C> <C> <C>
Net income 23,438,000
Cash dividends-Common Shares-$3.5625 per share (4,333,000)
Cash dividends-Redeemable Preferred Stock-$7.125 per share (228,000)
Common Shares acquired-at cost
Dividends Payable in Company Stock pursuant to Senior
Management Incentive Plan (Note L) 185,000 (185,000)
Increase in redemption value of Redeemable Preferred Stock (Note G) (1,470,000)
Restricted stock activity (Note I) 133,000
Tax benefit from restricted stock (Note K) 164,000
Common Shares issued upon exercise of stock options (287,000)
Tax benefit from exercise of stock options (Note K) 959,000
Senior Management Incentive Plan activity (Note L) 4,849,000
Translation adjustment
Unrealized gain on marketable securities (Notes A and E)
------------------------------------------------
Balance at December 31, 1995 $1,432,000 $37,898,000 $122,345,000
================================================
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
HELD IN TREASURY OTHER
------------------------- EQUITY
SHARES AMOUNT ACCOUNTS TOTAL
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net income 23,438,000
Cash dividends-Common Shares-$3.5625 per share (4,333,000)
Cash dividends-Redeemable Preferred Stock-$7.125 per share (228,000)
Common Shares acquired-at cost 77,001 (14,434,000) (14,434,000)
Dividends Payable in Company Stock pursuant to Senior
Management Incentive Plan (Note L)
Increase in redemption value of Redeemable Preferred Stock (Note G) (1,470,000)
Restricted stock activity (Note I) 133,000
Tax benefit from restricted stock (Note K) 164,000
Common Shares issued upon exercise of stock options (25,535) 2,733,000 2,446,000
Tax benefit from exercise of stock options (Note K) 959,000
Senior Management Incentive Plan activity (Note L) 4,849,000
Translation adjustment 5,392,000 5,392,000
Unrealized gain on marketable securities (Notes A and E) 2,042,000 2,042,000
--------------------------------------------------------
Balance at December 31, 1995 239,599 $(34,500,000) $ 488,000 $127,663,000
========================================================
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 31
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 23,438,000 $(21,378,000) $ 17,681,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of fixed assets 17,388,000 15,093,000 13,591,000
Goodwill write-off 39,944,000 1,939,000
Amortization of intangibles 4,146,000 7,475,000 5,486,000
Deferred compensation 15,162,000 9,006,000 6,379,000
Equity in earnings of nonconsolidated
affiliated companies, net of dividends
received of $483,000, $903,000 and
$1,336,000 (1,867,000) (770,000) (635,000)
Minority interest applicable to consolidated
companies 6,273,000 3,040,000 4,508,000
Amortization of restricted stock expense 133,000 116,000 256,000
Deferred income taxes (2,999,000) (5,104,000) (3,271,000)
Changes in operating assets and liabilities:
Increase in accounts receivable (79,612,000) (31,058,000) (29,082,000)
(Increase) decrease in expenditures billable
to clients (14,109,000) (6,006,000) 555,000
Decrease in other current assets 4,351,000 10,739,000 31,454,000
Decrease (increase) in other assets 3,680,000 (3,077,000) (4,141,000)
Increase (decrease) in accounts payable 61,846,000 (4,220,000) 76,731,000
Increase (decrease) in accrued expenses
and other 3,180,000 (9,424,000) (5,580,000)
Increase in income taxes payable 2,431,000 6,600,000 2,385,000
Decrease in other liabilities (2,509,000) (2,507,000) (7,298,000)
-------------------------------------------------
Net cash provided by operating activities 40,932,000 8,469,000 110,958,000
INVESTING ACTIVITIES
Purchases of fixed assets (29,136,000) (17,067,000) (13,421,000)
Trust fund deposits (2,426,000)
Increase in investments in and advances to
nonconsolidated affiliated companies (1,686,000) (3,564,000) (4,849,000)
Purchases of marketable securities (68,500,000) (2,003,000) (25,572,000)
Sales of marketable securities 26,957,000 486,000
Increase in intangibles, primarily goodwill (6,183,000) (14,800,000) (6,770,000)
-------------------------------------------------
Net cash used in investing activities (80,974,000) (36,948,000) (50,612,000)
</TABLE>
F-8
<PAGE> 32
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from short-term borrowings $ 4,834,000 $ 15,826,000 $ 9,762,000
Common Shares issued under Stock Incentive Plan 141,000
Common Shares acquired for treasury (14,434,000) (372,000) (787,000)
Cash dividends paid on Common Shares (4,333,000) (4,112,000) (3,884,000)
Cash dividends paid on Redeemable Preferred Stock (228,000) (212,000) (204,000)
Proceeds from exercise of stock options 2,446,000 319,000 786,000
Redemption of Redeemable Preferred Stock (300,000)
Proceeds from long-term debt 30,000,000
Borrowings under life insurance policies 11,779,000
---------------------------------------------------
Net cash provided by financing activities 64,000 11,590,000 35,373,000
Effect of exchange rate changes on cash 4,214,000 5,699,000 (7,207,000)
---------------------------------------------------
(Decrease) increase in cash and cash equivalents (35,764,000) (11,190,000) 88,512,000
Cash and cash equivalents at beginning of year 170,077,000 181,267,000 92,755,000
---------------------------------------------------
Cash and cash equivalents at end of year $ 134,313,000 $ 170,077,000 $ 181,267,000
===================================================
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 33
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries. Material intercompany balances and transactions
have been eliminated in consolidation. Certain amounts for years prior to 1995
have been reclassified to conform with the current year classification.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
COMMISSIONS AND FEES AND ACCOUNTS RECEIVABLE
Income derived from advertising placed with media is generally recognized based
upon the publication or broadcast dates. Income resulting from expenditures
billable to clients is generally recognized when billed. Payroll costs are
expensed as incurred. Accounts receivable include both the income recognized as
well as the actual media and production costs which are paid for by the Company
and rebilled to clients at the Company's cost.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less from the purchase date to be cash equivalents. The carrying
amount of cash equivalents approximates fair value because of the short
maturities of those instruments.
INVESTMENTS IN AND ADVANCES TO NONCONSOLIDATED AFFILIATED COMPANIES
The Company generally carries its investments in nonconsolidated affiliated
companies on the equity method. Certain investments which are not material in
the aggregate are carried on the cost method.
FIXED ASSETS
Depreciation of furniture, fixtures and equipment is provided for over their
estimated useful lives ranging from three to ten years and has been computed
principally by the straight-line method. Amortization of leaseholds and
leasehold improvements is provided for principally over the terms of the related
leases, which are not in excess of the lives of the assets.
F-10
<PAGE> 34
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Primarily all balance sheet accounts of the Company's foreign operations are
translated at the exchange rate in effect at each year end and statement of
operations accounts are translated at the average exchange rates prevailing
during the year. Resulting translation adjustments are made directly to a
separate component of stockholders' equity. Foreign currency transaction gains
and losses are reported in income. During 1995, 1994 and 1993, foreign currency
transaction gains and losses were not material.
INTANGIBLES
The excess of purchase price over underlying net equity of certain consolidated
subsidiaries and nonconsolidated affiliated companies at the date of acquisition
("goodwill") is amortized by the straight-line method over periods of up to 20
years. The amounts of goodwill associated with consolidated subsidiaries
(included in Other Assets) and nonconsolidated investments (included in
Investments in and Advances to Nonconsolidated Affiliated Companies) were
$41,237,000 and $8,325,000 at the end of 1995 and $36,603,000 and $7,718,000 at
the end of 1994, respectively.
Annually, the Company assesses the carrying value of its goodwill and the
respective periods of amortization. As part of the evaluation, the Company
considers a number of factors including actual operating results, the impact of
gains and losses of major local clients, the impact of any loss of key local
management staff and any changes in general economic conditions. In 1994, the
Company formalized its assessment of goodwill and since then quantifies the
recoverability of goodwill based on each agency's estimated future
non-discounted cash flows over the applicable remaining amortization periods.
This requires management to make certain specific assumptions with respect to
future revenue and expense levels. Where multiple investments had been made in a
single company, a weighted average amortization period is used.
Charges to reflect permanent impairment are recorded to the extent that the
unamortized book value of the goodwill exceeds the future cumulative
non-discounted cash flows. If such cash flows are expected to recover less than
10% of the associated goodwill, a full write-off is recorded. No write-off is
recorded if the cash flows are expected to recover 90% or more of the associated
goodwill.
F-11
<PAGE> 35
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company provides appropriate foreign
withholding taxes on unremitted earnings of consolidated and nonconsolidated
foreign companies.
MARKETABLE SECURITIES
The Company considers all its investments in marketable securities as
available-for-sale. Available-for-sale securities are carried at fair value,
based on publicly quoted market prices, with unrealized gains and losses
reported as a separate component of stockholders' equity.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards in accordance with APB Opinion No.
25, Accounting For Stock Issued to Employees. No compensation expense is
recorded for options granted at fair market value at the date of grant. The
excess of the fair market value of Restricted Stock over the cash
consideration received is amortized, as compensation, over the period of
restriction. The future obligation to issue stock pursuant to the Company's
Senior Management Incentive Plan, included in Paid-In Additional Capital, is
increased by periodic charges to compensation.
B. FOREIGN OPERATIONS
The following financial data is applicable to consolidated foreign subsidiaries:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------
<S> <C> <C> <C>
Current assets $395,016,000 $349,208,000 $357,391,000
Current liabilities 408,541,000 364,571,000 367,048,000
Other assets--net of
other liabilities 56,312,000 50,696,000 69,915,000
Net income (loss) 9,384,000 (35,043,000) 2,584,000
</TABLE>
Consolidated retained earnings at December 31, 1995 includes equity in
unremitted earnings of nonconsolidated foreign companies of approximately
$6,517,000.
F-12
<PAGE> 36
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER INCOME - NET
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------
<S> <C> <C> <C>
Interest income $12,183,000 $7,507,000 $7,307,000
Interest expense (8,928,000) (7,833,000) (7,558,000)
Dividends from affiliates 217,000 86,000 674,000
Other--net 615,000 499,000 1,494,000
----------------------------------------------
$ 4,087,000 $ 259,000 $1,917,000
==============================================
</TABLE>
D. FIXED ASSETS
Components of fixed assets-at cost are:
<TABLE>
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Furniture, fixtures and equipment $119,575,000 $ 97,988,000
Leaseholds and leasehold improvements 48,920,000 43,770,000
-----------------------------
168,495,000 141,758,000
Less accumulated depreciation and amortization 93,789,000 80,584,000
-----------------------------
$ 74,706,000 $ 61,174,000
=============================
</TABLE>
E. MARKETABLE SECURITIES
The marketable securities, by type of investment, held by the Company at
December 31, 1995 and 1994 are described as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Maturities of one year or less:
U.S. Treasury Securities $ 4,758,000 $ 7,678,000
Money market funds 12,394,000 2,970,000
Corporate bonds 3,267,000
---------------------------
20,419,000 10,648,000
---------------------------
Maturities greater than one year:
U.S. Treasury Securities 41,946,000 14,785,000
Government National Mortgage Association
Securities 1,838,000
Corporate bonds 4,468,000
---------------------------
48,252,000 14,785,000
---------------------------
$68,671,000 $25,433,000
===========================
</TABLE>
At December 31, 1995, the Company had unrealized gains of $550,000 and at
December 31, 1994 unrealized losses of $1,492,000, principally related to the
investments in U.S. Treasury Securities. At December 31, 1995 and 1994, the
Company's investments in marketable securities classified as non-current had an
average maturity of 6 years and 4 years, respectively.
F-13
<PAGE> 37
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. CREDIT ARRANGEMENTS AND LONG-TERM DEBT
The Company maintains committed lines of credit of $40,000,000 with various
banks and may draw against the lines on unsecured demand notes at rates below
the applicable bank's prime interest rate. These lines of credit, which are
renewable annually, were partially utilized during both 1995 and 1994 to secure
obligations of selected foreign subsidiaries in the amount of $15,000,000 at the
end of each year. The weighted average interest rate related to the debt
associated with the committed lines of credit was 6.95% and 6.25% at December
31, 1995 and 1994, respectively. The Company had $56,336,000 and $49,460,000
outstanding under other uncommitted lines of credit at December 31, 1995 and
1994, respectively. The weighted average interest rate for the borrowings under
the uncommitted lines of credit was 7.91% and 7.70% at December 31, 1995 and
1994, respectively. The carrying amount of the debt outstanding under both the
committed and uncommitted lines of credit approximates fair value because of the
short maturities of the underlying notes. Occasionally, the Company enters into
foreign currency contracts for known cash flows related to the repatriation of
earnings from its international subsidiaries. The term of each foreign currency
contract entered into in 1995 was for less than three months. At December 31,
1995, there were no foreign currency contract transactions open. In addition,
the Company had no derivative contracts outstanding at December 31, 1995, and
did not enter into any derivative contracts during 1995.
Long-term debt at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Term loans $30,000,000 $30,000,000
Convertible debentures 3,025,000 3,025,000
---------------------------
33,025,000 33,025,000
Current maturities 3,025,000 -0-
---------------------------
Long-term Debt $30,000,000 $33,025,000
===========================
</TABLE>
The term loans consist of $30,000,000 borrowed from the Prudential Insurance
Company at a fixed interest rate of 7.68% with principal repayable in equal
installments of $10,000,000 in January 1998, 1999 and 2000. The terms of the
loan agreement require, inter alia, that the Company maintain specified levels
of net worth, meet certain cash flow requirements and limit its incurrence of
additional indebtedness to certain specified amounts. At December 31, 1995, the
Company was in compliance with all of these covenants. The fair value of the
Prudential debt is estimated to be $30,900,000 and $29,900,000 at December 31,
1995 and 1994, respectively. This estimate was determined using a discounted
cash flow analysis using current interest rates for debt having similar terms
and remaining maturities.
F-14
<PAGE> 38
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. CREDIT ARRANGEMENTS AND LONG-TERM DEBT (CONTINUED)
During 1995, the Company borrowed against the cash value of the life insurance
policies that it owns on the life of its Chairman and Chief Executive Officer.
The amount borrowed at December 31, 1995 is $13,024,000 with a fixed interest
rate of 8.75% and is carried as a reduction of the related cash value that is
included in Other Assets. Of the amount borrowed in 1995, the Company received
$11,779,000 in cash and $1,245,000 was used in payment of the 1995 premiums
due on the life insurance policies.
The current portion of long-term debt consists of 8 1/2% Convertible
Subordinated Debentures, due December 10, 1996, which are currently convertible
into 8.41 shares of Common Stock and an equal number of Limited Duration Class B
Common Stock, subject to certain adjustments, for each $1,000 principal amount
of such debentures. The debt was issued in exchange for cash and a $3,000,000,
9% promissory note, payable December 10, 1997, from an officer of the Company
that is included in Other Assets at December 31, 1995 and 1994. During each of
the years 1995, 1994 and 1993, the Company paid to the officer interest of
$257,000 pursuant to the terms of the debentures and the officer paid to the
Company interest of $270,000 pursuant to the terms of the 9% promissory note.
The scheduled repayment of long-term debt is as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31 AMOUNT
----------- ------------
<S> <C>
1996 $ 3,025,000
1997 -0-
1998 10,000,000
1999 10,000,000
2000 10,000,000
-----------
$33,025,000
===========
</TABLE>
For the years 1995, 1994 and 1993, the Company made interest payments of
$8,934,000, $7,839,000 and $6,529,000, respectively.
G. REDEEMABLE PREFERRED STOCK
As of December 31, 1995 and 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. The holder of the
Series I, Series II and Series III Preferred Stock is a senior executive of the
Company, and the Series 1 Preferred Stock is held by a former employee. The
terms of each class of Preferred
F-15
<PAGE> 39
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. REDEEMABLE PREFERRED STOCK (CONTINUED)
Stock, including the basic economic terms relating thereto, are essentially the
same, except with respect to the redemption date of each series. The redemption
date for the Series I, Series II and Series III Preferred Stock is fixed at
April 7, 2004, unless redeemed earlier under circumstances described below. 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 with cause. The terms of the
Series 1 Preferred Stock permit the holder of shares thereof 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
the holder thereof following termination of employment.
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 Limited Duration Class B Common Stock (Class B Common Stock) (subject
to certain adjustments) upon redemption, 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. In connection with his
ownership of the Series I, Series II and Series III Preferred Stock, the senior
executive issued to the Company full recourse promissory notes totaling $763,000
(included in Other Assets at December 31, 1995 and 1994) with a maturity date of
April 2004. The interest paid by the senior executive to the Company in 1995,
1994 and 1993 pursuant to the terms of these notes was $70,000 in each year.
In accordance with the terms of the respective Certificates of Designation and
Terms of each Series of Preferred Stock ("Certificates"), the Board of Directors
determined the change in redemption value would not reflect the 1994 write-off
of goodwill described in Note M, but rather reflect amortization as if the
Company had continued to write-off goodwill in accordance with historical
amortization schedules.
Following the distribution of Class B Common Stock, the holders of the Preferred
Stock became entitled to eleven votes per share on all matters submitted to the
vote of stockholders. The holder of the Series I Preferred Stock is entitled, as
well, to vote as a single class to elect or remove one-quarter of the Board of
Directors, to approve the merger or consolidation of the Company or the sale by
it of all or substantially all of its assets, and to approve the authorization
or issuance of any other class of Preferred Stock having equivalent voting
rights.
F-16
<PAGE> 40
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. REDEEMABLE PREFERRED STOCK (CONTINUED)
In the event of the liquidation of the Company, holders of Preferred Stock are
entitled to a preferential liquidation distribution of $1.00 per share in
addition to all accrued and unpaid preferential dividends.
The total carrying value of the Preferred Stock (applicable to those shares
outstanding at each respective year end) increased by $1,470,000, $926,000 and
$468,000 in 1995, 1994 and 1993, respectively. The change in carrying value
represents the change in redemption value during those periods. This change is
referred to as "Additional Capital Applicable to Redeemable Preferred Stock" in
the respective Certificates.
H. COMMON STOCK
The Company has authorized and outstanding two classes of common stock, Common
Stock and Class B Common Stock, both $1 par value per share.
The Class B Common Stock has the same dividend and liquidation rights as the
Common Stock and a holder of each share of Class B Common Stock is entitled to
ten votes on all matters submitted to stockholders. The shares of Class B Common
Stock are restricted as to transferability and upon transfer, except to
specified limited classes of transferees, will convert into shares of Common
Stock which have one vote per share. In October 1995, the shareholders of the
Company approved an amendment to the Company's Articles of Incorporation to
extend to April 3, 2006 the automatic conversion date of the Class B Common
Stock.
I. RESTRICTED STOCK AND STOCK OPTION PLANS
The Company's 1994 Stock Incentive Plan ("Stock Incentive Plan") was adopted in
June 1994. The Stock Incentive Plan replaced the Restricted Stock Plan, the
Executive Growth Plan, the Incentive Stock Option Plan and the Nonqualified
Stock Option Plan (collectively, the "Prior Plans"), and any shares available
for granting of awards under the Prior Plans are no longer available for such
awards. Options granted pursuant to the Prior Plans remain outstanding and in
full force and shares reserved remain so for such purposes.
F-17
<PAGE> 41
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. RESTRICTED STOCK AND STOCK OPTION PLANS (CONTINUED)
STOCK INCENTIVE PLAN
Under the Stock Incentive Plan, awards in the form of incentive or nonqualified
stock options or restricted stock are available to be granted through June 2003
to officers and other key employees. A maximum of 250,000 shares of Common Stock
are available for grant under the Stock Incentive Plan and no employee can be
granted stock options in excess of 75,000 shares or more than 75,000 shares of
restricted stock. Stock options cannot be granted at a price less than 100% of
the fair market value of the shares on the date of grant. A committee of the
Board of Directors ("Committee") determines the terms and conditions under which
the awards may be granted or exercised. Options, however, shall expire not later
than ten years from the date of grant. Shares of restricted stock may be sold to
participants, at a purchase price determined by the Committee (which may be less
than fair market value per share). In 1994, 1,750 shares of Restricted Stock
were issued at prices between $77.50 and $81.50 per share with restrictions as
to transferability expiring after five years. No shares of restricted stock were
issued in 1995. No restrictions lapsed during either 1995 or 1994 and no
restricted stock was forfeited during either year.
Transactions involving outstanding stock options under this Plan were:
<TABLE>
<CAPTION>
NUMBER TOTAL
OF SHARES OPTION PRICE
---------------------------
<S> <C> <C>
Outstanding, December 31, 1993 -0- $ -0-
Granted 3,250 531,000
---------------------------
Outstanding, December 31, 1994 3,250 531,000
Cancelled (250) (43,000)
Granted 84,174 12,670,000
---------------------------
Outstanding, December 31, 1995 87,174 $13,158,000
===========================
</TABLE>
At December 31, 1995, options to acquire 13,333 shares were exercisable and
161,076 shares of Common Stock were available for issuance under the Stock
Incentive Plan.
Compensation to employees under the Plan of $106,000 in 1995 and $134,000 in
1994, representing the unamortized excess of the market value of restricted
stock over any cash consideration received, is carried as a reduction of Paid-In
Additional Capital and is charged to income ($28,000 in 1995 and $7,000 in 1994)
over the related required period of service of the respective employees.
F-18
<PAGE> 42
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. RESTRICTED STOCK AND STOCK OPTION PLANS (CONTINUED)
RESTRICTED STOCK PLAN
There are no shares outstanding under this plan at December 31, 1995. During
1995, the restriction lapsed on 5,000 shares of Common Stock. Compensation to
employees representing the unamortized excess of the market value of restricted
stock over any cash consideration received, is carried as a reduction of Paid-In
Additional Capital and is charged to income ($104,000 in 1995, $109,000 in 1994
and $256,000 in 1993) over the related required period of service of the
respective employees.
This plan was replaced by the Stock Incentive Plan discussed above.
EXECUTIVE GROWTH PLAN
Under the terms of the Company's qualified stock option plan (Executive Growth
Plan), options were granted to officers and other key employees at prices not
less than 100% of the fair market value of the shares on the date of grant. At
December 31, 1995, there were no options outstanding. In connection with a 1992
exercise of the plan options, the Company received a cash payment of $67,000 and
a note from an officer of the Company in the amount of $3,170,000, due in
December 2001, at a fixed interest rate of 6.06%.
In addition, and in accordance with the terms of the option agreement, the
holder of the options issued to the Company a promissory note in the principal
amount of $2,340,000 bearing interest at the rate of 6.06%, payable in December
2001, to settle his obligation to provide the Company with funds necessary to
pay the required withholding taxes due upon the exercise of the options. A
portion of this note ($1,556,000) equal to the tax benefit received by the
Company upon exercise and the full amount of the note for $3,170,000 are
reflected in a separate component of stockholders' equity at December 31, 1995
and 1994.
F-19
<PAGE> 43
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. RESTRICTED STOCK AND STOCK OPTIONS PLANS (CONTINUED)
The interest paid to the Company by the holder pursuant to the terms of the two
notes issued in connection with the option exercise was $334,000 in 1995, 1994
and 1993.
This plan was replaced by the Stock Incentive Plan discussed above.
INCENTIVE STOCK OPTION PLAN
Under this plan, options were granted to key employees, including officers, at a
price not less than 100% of the fair market value of the shares on the date of
grant.
Transactions involving outstanding stock options under this plan were:
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------
CLASS B
COMMON COMMON TOTAL
STOCK STOCK OPTION PRICE
---------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1992 4,100 9,100 $ 1,247,000
Cancelled (300) (300) (58,000)
Exercised (3,700) (3,700) (676,000)
---------------------------------------
Outstanding, December 31, 1993 100 5,100 513,000
Exercised (100) (100) (18,000)
---------------------------------------
Outstanding, December 31, 1994 -0- 5,000 495,000
Exercised (3,570) (353,000)
---------------------------------------
Outstanding, December 31, 1995 -0- 1,430 $ 142,000
=======================================
</TABLE>
As of December 31, 1995, options to acquire 714 shares of Common Stock were
exercisable. There are 1,430 shares of Common Stock reserved to be issued with
respect to this plan.
This plan was replaced by the Stock Incentive Plan discussed above.
NONQUALIFIED STOCK OPTION PLAN
Under this plan, nonqualified stock options were granted to employees eligible
to receive options at prices not less than 100% of the fair market value of the
shares on the date of grant, and options must be exercised within 10 years of
grant and for only specified limited periods beyond termination of employment.
F-20
<PAGE> 44
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. RESTRICTED STOCK AND STOCK OPTIONS PLANS (CONTINUED)
Transactions involving outstanding stock options under this plan were:
<TABLE>
<CAPTION>
NUMBER TOTAL
OF SHARES OPTION PRICE
--------------------------
<S> <C> <C>
Outstanding, December 31, 1992 39,117 $ 4,131,000
Cancelled (567) (58,000)
Exercised (1,184) (110,000)
--------------------------
Outstanding, December 31, 1993 37,366 3,963,000
Cancelled (1,084) (116,000)
Exercised (3,133) (301,000)
--------------------------
Outstanding, December 31, 1994 33,149 3,546,000
Cancelled (34) (4,000)
Exercised (21,965) (2,092,000)
--------------------------
Outstanding, December 31, 1995 11,150 $ 1,450,000
==========================
</TABLE>
As of December 31, 1995, options to acquire 9,950 shares of Common Stock were
exercisable, and 11,150 shares were reserved for issuance under this plan.
This plan was replaced by the Stock Incentive Plan discussed above.
J. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
The computation of net income (loss) per common share is based on the weighted
average number of common shares outstanding, including adjustments for the
effect of the assumed exercise of dilutive stock options and shares issuable
pursuant to the Company's Senior Management Incentive Plan (see Note L(1))
(1,295,182 in 1995, 1,285,605 in 1994 and 1,263,900 in 1993) and, for fully
diluted net income (loss) 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 (loss) per common share, the Company's net
income (loss) is adjusted by dividends on the Preferred Stock and by the
increase or decrease, in redemption value of the Preferred Stock. Primary net
income (loss) per common share is computed as if stock options were exercised at
the beginning of the period and the funds obtained thereby used to purchase
common shares at the average market price during the period. In computing fully
diluted net income (loss) per common share, the market price at the close of the
period or the average market price, whichever is higher, is used to determine
the number of shares which are assumed to be repurchased.
F-21
<PAGE> 45
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (CONTINUED)
The effects of the Preferred Stock dividend requirements and the change in
redemption values amounted to $1.31, $0.88 and $0.53 per share in 1995, 1994 and
1993, respectively.
K. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. At December 31, 1995, 1994
and 1993, the Company had deferred tax assets of $19,550,000, $19,651,000 and
$16,282,000 and deferred tax liabilities of $7,359,000, $10,459,000 and
$12,194,000, respectively, detailed as follows:
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS (LIABILITIES)
1995 1994 1993
----------------------------------------------
<S> <C> <C> <C>
Restructuring costs and related future tax
benefits $ 1,642,000 $ 2,056,000 $ 3,531,000
Deferred compensation 15,250,000 8,955,000 5,730,000
Accrued expenses 2,658,000 8,640,000 7,021,000
Safe harbor lease and depreciation (5,134,000) (7,493,000) (9,228,000)
Tax on unremitted foreign earnings and other (2,225,000) (2,966,000) (2,966,000)
----------------------------------------------
12,191,000 9,192,000 4,088,000
Valuation allowance for deferred tax assets -0- -0- -0-
----------------------------------------------
Net deferred tax assets $12,191,000 $ 9,192,000 $ 4,088,000
==============================================
</TABLE>
The components of income of consolidated companies before taxes on income are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Domestic $26,704,000 $ 25,918,000 $28,646,000
Foreign 27,623,000 (24,308,000) 14,059,000
---------------------------------------------
$54,327,000 $ 1,610,000 $42,705,000
=============================================
</TABLE>
Provisions (benefits) for Federal, foreign, state and local income taxes
consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------ ------------------------------ -----------------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal $13,607,000 $(4,248,000) $11,510,000 $(2,470,000) $12,106,000 $(2,448,000)
Foreign 10,167,000 2,888,000 9,034,000 (1,197,000) 8,580,000 (1,578,000)
State and
local 6,191,000 (1,639,000) 6,181,000 (1,437,000) 5,072,000 755,000
-----------------------------------------------------------------------------------------------------
$29,965,000 $(2,999,000) $26,725,000 $(5,104,000) $25,758,000 $(3,271,000)
=====================================================================================================
</TABLE>
F-22
<PAGE> 46
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. INCOME TAXES (CONTINUED)
The effective tax rate varied from the statutory Federal income tax rate as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Statutory Federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of Federal income
tax benefits 5.4 191.5 8.9
Difference in foreign tax rates 6.5 215.0 6.8
Withholding tax on unremitted foreign earnings 0.5 33.4 1.2
Goodwill write-off 868.3 1.6
Adjustment of prior years' provisions (24.8) (2.2)
Other--net 2.2 24.5 1.4
--------------------------------
49.6% 1,342.9% 52.7%
================================
</TABLE>
During the years 1995, 1994 and 1993, the Company made net income tax payments
of $21,368,000, $19,005,000 and $18,748,000, respectively.
The tax benefit resulting from the difference between compensation expense
deducted for tax purposes and compensation expense charged to income for
restricted stock and nonqualified stock options is recorded as an increase to
Paid-In Additional Capital.
L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES
1. The Company's Profit Sharing Plan is available to all employees of the
Company and qualifying subsidiaries meeting certain eligibility
requirements. This plan provides for contributions by the Company at the
discretion of the Board of Directors, subject to maximum limitations. The
Company also operates a noncontributory Employee Stock Ownership Plan
covering eligible employees of the Company and qualifying subsidiaries,
under which the Company may make contributions (in stock or cash) to an
Employee Stock Ownership Trust ("ESOT") in amounts each year as determined
at the discretion of the Board of Directors. The Company made only cash
contributions to the ESOT in 1995, 1994 and 1993. The Company and the ESOT
have certain rights to purchase shares from participants whose employment
has terminated. In addition to the two plans noted above, various
subsidiaries maintain separate profit sharing and retirement arrangements.
Furthermore, the Company also provides additional retirement and deferred
compensation benefits to certain officers and employees.
F-23
<PAGE> 47
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES (CONTINUED)
The Company maintains a Senior Management Incentive Plan in which deferred
compensation is granted to senior executive or management employees deemed
essential to the continued success of the Company. The amount recorded as
an expense related to this plan amounted to $6,873,000, $5,434,000 and
$4,581,000 in 1995, 1994 and 1993, respectively. Approximately $5,223,000,
$4,215,300 and $3,343,000 of plan expense incurred in 1995, 1994 and 1993,
respectively, will be payable in Company Stock in accordance with the terms
of the plan. These awards converted into 27,705, 28,647 and 18,610
equivalent shares of Common Stock at December 31, 1995, 1994 and 1993,
respectively, including an amount for the dividends that would have been
payable on the Company Stock as if such stock was outstanding from the time
the awards were granted. The future obligation related to the stock award
has been reflected as an increase to Paid-In Additional Capital.
Expenses related to the foregoing plans and benefits aggregated $29,307,000
in 1995, $24,211,000 in 1994 and $21,057,000 in 1993.
In December 1990, the Company amended its employment agreement with its
Chairman and Chief Executive Officer and concurrently, also discharged this
individual's pension obligation which had been established pursuant to the
terms of his long-standing employment agreement with a payment of
approximately $29,300,000. Included in Other Assets at December 31, 1995
and 1994 is approximately $4,700,000 and $7,100,000, respectively, related
to this arrangement which is being amortized to expense over the remaining
term of the related employment agreement.
In the first quarter of 1995, the Company and its Chairman and Chief
Executive Officer entered into an agreement extending the term of the
Chairman and Chief Executive Officer employment agreement through December
31, 2002. This agreement further provides for the deferral of certain
compensation otherwise payable to the Chairman and Chief Executive pursuant
to his employment agreement and the payment of such deferred compensation
into a trust, commonly referred to as a rabbi trust, established with
United States Trust Company of New York. The purpose of the trust
arrangement is to ensure the Company's ability to deduct compensation paid
to the Chairman and Chief Executive Officer without the application of
Section 162(m) of the Internal Revenue Code ("Section"). The Section, under
certain circumstances, denies a tax deduction to an employer for certain
compensation expenses in excess of $1,000,000 per year paid by a
publicly-held corporation to certain of its executives. Amounts deferred
and paid into the trust, as adjusted for the earnings, gains or losses on
the trust assets, shall be paid to the Chairman and Chief Executive Officer
or to his estate, as the case may be, upon the expiration of his employment
agreement, or the termination of his employment by reason of death or
disability.
F-24
<PAGE> 48
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES (CONTINUED)
At December 31, 1995, the value of the trust was $2,496,000 and is included
in Other Assets and the Company's related deferred compensation obligation
for the same amount is included in Other Liabilities.
Pursuant to an employment agreement, dated December 21, 1990, an executive
officer of the Company borrowed $1,000,000 from the Company repayable at
December 31, 1995, except that one-fifth of the principal amount of the
loan is forgiven by the Company each December 31, beginning with December
31, 1991, provided that the officer continues to be employed by the Company
on those dates. In 1994, the executive officer entered into a new
employment agreement. Pursuant to that agreement, the executive officer
borrowed an additional $600,000 from the Company repayable at December 31,
1998, except that one-third of the principal amount of the loan is forgiven
by the Company each December 31, beginning with December 31, 1996, provided
that the officer continues to be employed by the Company on those dates. In
1995, 1994 and 1993, the Company has included in each year $200,000 of
compensation expense, representing the amount of loan forgiven each year.
As of December 31, 1995 and 1994, the remaining loan balance was $600,000
and $800,000, respectively, included in Other Assets.
In addition, a second executive officer has three loans outstanding with
the Company. The first loan, granted in 1994, was for $50,000 and is
forgivable contingent upon employment by the Company through 1998. During
1995, the Company made two additional loans to this executive officer for
$125,000 and $200,000 which are repayable with accrued interest in May 1998
and 1999, respectively. As of December 31, 1995, the loan balance was
$375,000 and is reflected in Other Assets.
2. Rental expense amounted to approximately $36,445,000 in 1995, $35,568,000
in 1994 and $32,725,000 in 1993 which is net of sub-lease rental income of
$129,000 in 1995, $1,263,000 in 1994, and $2,016,000 in 1993. Approximate
minimum rental commitments, excluding escalations, under noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
SUB-LEASE
OFFICE SPACE COMMITMENTS NET
------------------------------------------------
<S> <C> <C> <C>
1996 $29,935,000 $(111,000) $29,824,000
1997 27,724,000 27,724,000
1998 25,216,000 25,216,000
1999 24,387,000 24,387,000
2000 18,314,000 18,314,000
Beyond 2000 51,142,000 51,142,000
-------------------------------------------------
$176,718,000 $(111,000) $176,607,000
=================================================
</TABLE>
F-25
<PAGE> 49
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES (CONTINUED)
3. The Company is not involved in any pending legal proceedings not covered by
insurance or by adequate indemnification or which, if decided adversely,
would have a material effect on the results of operations, liquidity or
financial position of the Company.
M. GOODWILL WRITE-OFF
In 1994, the Company wrote-off $39,944,000 of goodwill. The non-cash write-off
related almost exclusively to international acquisitions made by the Company
principally in the 1980's. The carrying value of the Company's goodwill prior to
the write-off was approximately $84,000,000 and the write-off was associated
with 34 of the almost 100 investments for which the Company had unamortized
goodwill. The portion of the write-off relating to advertising agencies was
approximately $31,295,000 and $8,649,000 relates to public relations agencies.
Significant amounts of these write-offs related to operations in the United
Kingdom.
The widely recognized international recession seriously affected the advertising
industry, particularly in Western Europe, where the Company has its largest and
most developed international operations. As the recession abated in the latter
part of 1994, the Company was able to assess more clearly the long-term
prospects of the affected operations. At that point, and in connection with
annual business plan meetings which took place in the fourth quarter, it became
clear that the goodwill associated with a number of the agencies had become
permanently impaired. Management's projections indicated that anticipated future
cash flows for these specific operations would not, as would be expected in a
normal post- recession environment, recover sufficiently to cover amortization
of the associated goodwill.
The material portion of the goodwill write-off related to ten agencies acquired
in the United Kingdom as part of a strategy to develop the Company's
representation outside of the London market in the general advertising category
and in specialized disciplines (such as retail advertising, promotional services
and public relations). With the revival of the industry, a review of the
Company's local market strategies and in conjunction with several key management
changes, client losses or the inability of these operations to maintain revenues
with replacement or new clients, after the analysis referred to above,
management concluded that the goodwill associated with these operations had been
permanently impaired. While future client losses and management changes could
affect the Company's operation in the United Kingdom, the Company has
consolidated a number of operations, thereby lessening the likelihood of a
negative impact from any instance of client or management turnover. In addition,
the unimpaired goodwill balances
F-26
<PAGE> 50
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. GOODWILL WRITE-OFF (CONTINUED)
associated with the United Kingdom operations represented less than 10% of the
Company's consolidated unamortized goodwill as of December 31, 1994.
In 1993, the Company wrote-off $1,939,000 of goodwill in excess of normal
amortization schedules. There were no write-offs in excess of normal
amortization schedules in 1995.
F-27
<PAGE> 51
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
N. INDUSTRY SEGMENT AND RELATED INFORMATION
Commissions and fees and operating profit by geographic area for the years ended
December 31, 1995, 1994 and 1993, and related identifiable assets at December
31, 1995, 1994 and 1993 are summarized below (000s omitted):
<TABLE>
<CAPTION>
UNITED STATES WESTERN EUROPE
------------------------------------ --------------------------------------
1995 1994 1993 1995 1994 1993
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees $303,826 $277,411 $267,964 $337,726 $273,754 $260,005
=================================================================================
Operating profit (loss) $ 21,368 $ 22,767 $ 28,809 $ 27,212 $(20,457) $ 11,415
=================================================================================
Other income-net
Income of consolidated companies
before taxes on income
Identifiable assets $455,771 $390,547 $353,532 $406,757 $353,904 $389,723
=================================================================================
Investments in and advances to
nonconsolidated affiliated companies
Total assets
</TABLE>
<TABLE>
<CAPTION>
OTHER CONSOLIDATED
---------------------------------- ---------------------------------------
1995 1994 1993 1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees $46,667 $42,152 $39,274 $688,219 $593,317 $567,243
===============================================================================
Operating profit (loss) $ 1,660 $ (959) $ 564 $ 50,240 $ 1,351 $ 40,788
==================================
Other income-net $ 4,087 $ 259 $ 1,917
---------------------------------------
Income of consolidated companies
before taxes on income $ 54,327 $ 1,610 $ 42,705
=======================================
Identifiable assets $71,916 $69,130 $61,274 $934,444 $813,581 $804,529
==================================
Investments in and advances to
nonconsolidated affiliated companies $ 20,693 $ 16,495 $ 16,104
---------------------------------------
Total assets $955,137 $830,076 $820,633
=======================================
</TABLE>
Commissions and fees from one client amounted to 13.8%, 13.8% and 13.0% of the
consolidated total in 1995, 1994 and 1993, respectively.
F-28
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
- ------------------ -----------------------
<S> <C>
3.01 Restated Certificate of Incorporation
of Grey Advertising Inc. ("Grey").
(Incorporated herein by reference to
Exhibit 3.01 to Grey's Current Report
on Form 8-K, dated October 10, 1995,
filed with the SEC pursuant to
Section 13 of the 1934 Act.)
3.02 By-Laws of Grey as amended.
(Incorporated herein by reference to Exhibit
3.02 to Grey's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.)
4.01 Stockholder Exchange Agreement, dated
as of April 7, 1994, by and between
Grey and Edward H. Meyer. (Incorporated
herein by reference to Exhibit 10(a) of
Grey's Current Report on Form 8-K, dated
April 7, 1994, filed with the SEC pursuant to
Section 13 of the 1934 Act.
4.02 Purchase Agreement, dated as of
December 10, 1983, between Grey and Edward H.
Meyer relating to the sale to Mr. Meyer of
Grey's 8-1/2% Convertible Debentures, of even
date therewith ("Convertible Debenture").
(Incorporated herein by reference to Exhibit
3.08 to Grey's Annual Report on Form 10-K for
the fiscal year ended December 31, 1983.)
4.03 Extension Agreement, dated as of
November 19, 1991 between Grey and
Edward H. Meyer relating to the extension of
the maturity dates of the Convertible
Debenture and related Promissory Note.
(Incorporated herein by reference to Exhibit
3.07 to Grey's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991.)
</TABLE>
E-1
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
- ------------------ -----------------------
<S> <C>
4.04 Form of Convertible Debenture.
(Incorporated herein by reference to Exhibit
3.09 to Grey's Annual Report on Form 10-K for
the fiscal year ended December 31, 1983.)
9.01 Voting Trust Agreement, dated as of
December 1, 1989, among the several
Beneficiaries, Grey and Edward H. Meyer as
Voting Trustee. (Incorporated herein by
reference to Exhibit 9.03 to Grey's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989.)
9.02 Amended and Restated Voting Trust
Agreement, dated as of February
24, 1986, as amended and restated as
of August 31, 1987 and again amended
and restated as of March 21, 1994,
among the several Beneficiaries there-
under, Grey and Edward H. Meyer as
Voting Trustee. (Incorporated herein
by reference to Exhibit 9.04 to Grey's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.)
10.01* Employment Agreement, dated as of
February 9, 1984, between Grey and Edward H.
Meyer ("Meyer Employment Agreement").
(Incorporated herein by reference to Exhibit
10.01 to Grey's Annual Report on Form 10-K
for the fiscal year ended December 31, 1983.)
</TABLE>
E-2
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
- ------------------ -----------------------
<S> <C>
10.02* Amendments Two through Seven to Meyer
Employment Agreement. (Incorporated herein by
reference to Exhibit 10.02 to Grey's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1985, Exhibit 10.03 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, Exhibit 1 to
Grey's Current Report on Form 8-K, dated May
9, 1988, filed with the SEC pursuant to
Section 13 of the 1934 Act, Exhibit 2 to
Grey's Current Report on Form 8-K, dated May
9, 1988, filed with the SEC pursuant to
Section 13 of the 1934 Act. Exhibit I to
Grey's Current Report on Form 8-K, dated June
9, 1989, filed with the SEC pursuant to
Section 13 of the 1934 Act and Exhibit 10.07
to Grey's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990
respectively.)
10.03* Amendment and Extension Agreement, to
Meyer Employment Agreement, dated
March 22, 1995, by and between Grey
and Edward H. Meyer. (Incorporated herein
by reference to Exhibit 10.03 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.)
10.04* Deferred Compensation Trust Agreement
dated March 22, 1995 ("Trust Agreement"),
by and between Grey and United States Trust
Company of New York. (Incorporated herein by
reference to Exhibit 10.04 to Grey's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.)
10.05* First Amendment to Trust Agreement, dated
as of February 26, 1996, by and between
Grey and United States Trust Company of
New York.
</TABLE>
E-3
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
- ------------------ -----------------------
<S> <C>
10.06* Pension Agreement, dated as of
May 9, 1988, between Grey and Edward H.
Meyer. (Incorporated herein by reference to
Exhibit 3 to Grey's Current Report on Form
8-K, dated May 9, 1988 filed with the SEC
pursuant to Section 13 of the 1934 Act.)
10.07* Employment Agreement, dated as of
December 21, 1990, by and between
Grey and Stephen A. Novick.
(Incorporated herein by reference
to Exhibit 10.11 to Grey's Annual
Report on Form 10-K for the fiscal
year ended December 31, 1990.)
10.08* Amendment to Employment Agreement,
dated as of April 26, 1994, by and
between Grey and Stephen A. Novick.
(Incorporated herein by reference to
Exhibit 10.07 to Grey's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1994.)
10.09* Employment Agreement, dated as of
December 1, 1992, by and between
Grey and Robert L. Berenson. (Incor-
porated herein by reference to
Exhibit 10.05 to Grey's Annual Report
on Form 10-K for the fiscal year
ended December 31, 1992.)
10.10* Employment Agreement, dated as of
January 1, 1993 by and between Grey and
Barbara S. Feigin. (Incorporated herein
by reference to Exhibit 10.06 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.)
</TABLE>
E-4
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
- ------------------ -----------------------
<S> <C>
10.11* Grey Advertising Inc. Book Value Pre-
ferred Stock Plan, as amended. (Incorporated
herein by reference to Exhibit 4.1 to Grey's
Current Report on Form 8-K, dated June 14,
1983, filed with the SEC pursuant to Section
13 of the 1934 Act.)
10.12* Grey Advertising Inc. Amended and Re-
stated Senior Executive Officer Pension
Plan. (Incorporated herein by reference
to Exhibit 10.08 to Grey's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1984.)
10.13* Grey Advertising Inc. 1993 Senior Man-
agement Incentive Plan. (Incorporated
herein by reference to Exhibit A to the Proxy
Statement for Grey's Annual Meeting of
Stockholders dated June 27, 1994.)
10.14* Grey Advertising Inc. Restricted Stock
Plan, as amended and restated as of April 3,
1986. (Incorporated herein by reference to
Exhibit 4.03 to Grey's Registration Statement
on Form S-8, filed with the SEC pursuant to
Section 6(a) of the '33 Act.)
10.15* Stock Option Agreement, dated as
of October 13, 1984, by and between
Grey and Edward H. Meyer ("Meyer 1984 Option
Agreement"). (Incorporated herein by
reference to Exhibit 10.15 to Grey's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1985.)
10.16* Extension Agreement, dated as of
March 27, 1992, by and between Grey and
Edward H. Meyer, relating to the Meyer 1984
Option Agreement. (Incorporated herein by
reference to Exhibit 10.13 to Grey's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992.)
</TABLE>
E-5
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
- ------------------ -----------------------
<S> <C>
10.17* Amendment One to Meyer 1984 Option
Agreement, dated as of December 29, 1992.
(Incorporated herein by reference to Exhibit
10.14 to Grey's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992.)
10.18 Notice of Exercise, dated
December 29, 1992, from Edward H. Meyer
to Grey pursuant to the Meyer 1984 Option
Agreement. (Incorporated herein by reference
to Exhibit 10.15 to Grey's Annual Report on
Form 10-K for the fiscal year ended December
31, 1992.)
10.19 Promissory Notes I and II, dated as of
December 29, 1992, from Edward H. Meyer
to Grey, delivered pursuant to the Meyer
1984 Option Agreement. (Incorporated
herein by reference to Exhibit 10.16 to
Grey's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.)
10.20* Stock Option Agreement, effective as
of January 5, 1995, by and between
Grey and Edward H. Meyer. (Incorpor-
ated herein by reference to Exhibit 13
to Amendment No. 8 to the Statement on
Schedule 13D, dated as of March 10, 1995,
filed by Edward H. Meyer.)
10.21 Registration Rights Agreement, dated
as of June 5, 1986, between Grey and
Edward H. Meyer. (Incorporated herein
by reference to Exhibit 12 to Amendment
No. 8 to the Statement on Schedule 13D,
dated as of March 10, 1995, filed by
Edward H. Meyer.)
</TABLE>
E-6
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
- ------------------ -----------------------
<S> <C>
10.22* Grey Advertising Inc. Incentive Stock
Option Plan, as amended and restated as of
April 3, 1986. (Incorporated herein by
reference to Exhibit 4.04 to Grey's
Registration Statement on Form S-8 filed with
the SEC pursuant to Section 6(a) of the '33
Act.)
10.23* Grey Advertising Inc. 1987 Stock
Option Plan. (Incorporated herein by
reference to Exhibit 10.24 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1988.)
10.24* Grey Advertising Inc. 1994 Stock Incen-
tive Plan. (Incorporated herein by refer-
ence to Exhibit B to the Proxy Statement for
Grey's 1994 Annual Meeting of Stockholders,
dated June 27, 1994.)
10.25* Note Agreement, dated as of
January 19, 1993, by and between Grey
and The Prudential Insurance Company
of America. (Incorporated herein by
reference to Exhibit 10.21 to Grey's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992.)
10.26* Bonuses - Grey has paid bonuses to
certain of its executive officers
(including those who are directors)
and employees in prior years including 1993,
and may do so in future years. Bonuses have
been and may be in the form of cash, shares
of stock or both although Grey presently does
not have any plans to pay stock bonuses.
Bonuses are not granted pursuant to any
formal plan.
</TABLE>
E-7
<PAGE> 59
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
- ------------------ -----------------------
<S> <C>
10.27* Directors' Fees - It is the policy of
Grey to pay each of its non-employee
directors a fee of $4,500 per fiscal
quarter and a fee of $3,000 for each
meeting of the Board of Directors
attended. This policy is not embodied
in any written document.
10.28* Deferred Compensation Agreement,
dated December 23, 1981, between
Grey and Mark N. Kaplan, regarding
deferral of payment of director's
fees to which Mr. Kaplan may become
entitled. (Incorporated herein by
reference to Exhibit 10.18 to Grey's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1982.)
10.29* On March 23, 1978, Grey's Board of
Directors, at a meeting thereof held
on such date, approved an arrangement
whereby Grey is required to accrue for
Edward H. Meyer, the difference between
the amount contributed by Grey on behalf
of Mr. Meyer under the Profit Sharing
Plan and Grey's Employee Stock Owner-
ship Plan, and the amount which would
have been contributed to such plans on his
behalf had such plans not contained maximum
annual limitations on contributions and
credits, as required by the Employee Retire-
ment Income Security Act of 1974. Such
accrual is to be paid to Mr. Meyer as if it
had been contributed to his account under
the Profit Sharing Plan. Such arrangement
is not embodied in any written document.
</TABLE>
E-8
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
- ------------------ -----------------------
<S> <C>
10.30 Lease, dated as of July 1, 1978 by and
between Grey and William Kaufman and J. D.
Weiler, regarding space at 777 Third Avenue,
New York, New York ("Main Lease").
(Incorporated herein by reference to Exhibit
10.21 to Grey's Annual Report on Form 10-K
for the fiscal year ended December 31, 1982.)
10.31 First through Fourteenth Amendments to
Main Lease (Incorporated herein by re-
ference to Exhibits 10.22, 10.23, 10.24,
10.25, 10.26, 10.27, 10.28 and 10.29
to Grey's Annual Report on Form 10-K
for the fiscal year ended Decem-
ber 31, 1982, Exhibit 10.30 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1983, Exhibits 10.33
and 10.34 to Grey's Annual Report on Form
10-K for the fiscal year ended Decem-
ber 31, 1984, Exhibits 10.35 and 10.36
to Grey's Annual Report on Form 10-K
for the fiscal year ended December 31, 1985,
and Exhibit 10.36 to Grey's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1986 respectively.)
11.01 Statement re: Computation of Net
Income (Loss) Per Share.
21.01 Subsidiaries of Grey.
24.01 Consent of Independent Auditors
27.01 Financial Data Schedule
*Management contract or compensatory plan or
arrangement identified in compliance with
Item 14(c) of the rules governing the
preparation of this report.
</TABLE>
10K-Exhibits
E-9
<PAGE> 1
EXHIBIT 10.05
FIRST AMENDMENT
TO
GREY ADVERTISING INC.
DEFERRED COMPENSATION TRUST
This First Amendment (the "First Amendment"), made as of the 26th day of
February, 1996, by and between Grey Advertising Inc. (the "Company") and United
States Trust Company of New York (the "Trustee");
WHEREAS, the Company and the Trustee entered into the Grey Advertising Inc.
Deferred Compensation Trust (the "Trust Agreement"), dated as of March 21, 1995;
WHEREAS, the Company desires to amend the Trust Agreement and, in
accordance with Section 12 of the Trust Agreement, is permitted to do so with
the consent of the Executive;
NOW, THEREFORE, the parties are entering into this First Amendment and
hereby agree as follows:
1. Section 5 of the Trust Agreement is hereby amended in its entirety to
read as follows:
Section 5. Accounts and Investment
Authority
(a) Contributions to the Trust on behalf of the Executive and any interest
and earnings thereon shall be credited, and any distribution from the Trust or
<PAGE> 2
losses thereon shall be debited, to an account (the "Trust Account") established
and held by the Trustee for the Executive. Assets held in the Trust shall be
invested by the Trustee or any sub-agent designated by the Company with the
consent of the Executive (a "Sub-agent") in Permitted Assets as directed by the
Company or, in the absence of such direction, in Permitted Assets of the type
referred to in clause (ii) of the next sentence (except that the Trustee may
invest in Permitted Assets of the type referred to in clause (iii) of the next
sentence until such time as assets of the type referred to in clause (ii) may be
purchased). For purposes of the preceding sentence, "Permitted Assets" shall
mean one or more of the following alone or in combination:
(i) cash; or
(ii) direct obligations of the United States of America or agencies
of the United States of America or obligations unconditionally and fully
guaranteed as to principal and interest by the United States of America,
in each case maturing within five years or less from the date of
acquisition; or
(iii) negotiable certificates of deposit (in each case maturing
within five years or
2
<PAGE> 3
less from the date of acquisition) issued by a commercial bank organized
and existing under the laws of the United States of America or any state
thereof having a combined capital and surplus of at least $1,000,000,000;
(iv) corporate debt obligations such as bonds, debentures and
commercial paper of investment grade as rated within the four highest
ratings of Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's"), and maturing within five years or less from the
date of acquisition;
(v) a commingled fund maintained by the Trustee which invests in
(i)-(iv) above; or
(vi) other assets or classes of assets selected by the Company with
the consent of the Executive.
The Trustee shall not be liable for failure to maximize the income earned on
that portion of the Trust as is from time to time invested or reinvested as set
forth above, nor for any loss of income due to liquidation of any investment
which the Trustee, in its sole discretion, believes necessary to make payments
or to reimburse expenses under the terms of this Trust.
3
<PAGE> 4
(b) In no event may the Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Company or any affiliate,
other than a de minimis amount held in common investment vehicles in which the
Trustee invests.
2. Section 8 of the Trust Agreement is hereby amended in its entirety to
read as follows:
Section 8. Responsibility of Trustee.
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken by the
Trustee or a Sub-agent pursuant to a direction, request or approval given by the
Company or the Executive that is contemplated by, and in conformity with, the
terms of the Deferred Compensation Agreement or this Trust. In the event of a
dispute between or among the Company, the Executive and the Trustee, the Trustee
may apply to a court of competent jurisdiction to resolve the dispute.
4
<PAGE> 5
(b) The duties and responsibilities of the Trustee shall be limited to
those expressly set forth in this Trust, and no implied covenants or obligations
shall be read into this Trust against the Trustee.
(c) If, pursuant to Section 3 hereof or other- wise, all or any part of the
Trust is at any time attached, garnished, or levied upon by any court order,
or in case the payment, assignment, transfer, conveyance or delivery of any such
property shall be stayed or enjoined by any court order, or in case any order,
judgment or decree shall be made or entered by a court affecting such property
or any part thereof, then and in any of such events the Trustee is authorized,
in its sole discretion, to rely upon and comply with any such order, writ,
judgment or decree, and it shall not be liable to the Company (or any of its
subsidiaries), or the Executive by reason of such compliance even though such
order, writ, judgment or decree subsequently may be reversed, modified,
annulled, set aside or vacated.
(d) The Trustee shall not be liable for any act taken or omitted to be
taken hereunder if taken or omitted to be taken by it in good faith. The Trustee
shall also be fully protected in relying upon any notice given hereunder which
it in good faith believes to be
5
<PAGE> 6
genuine and executed and delivered in accordance with this Trust.
(e) The Trustee may consult with legal counsel and certified public
accountants to be selected by it, and the Trustee shall not be liable for any
action taken or suffered by it in accordance with the advice of such counsel or
accountants.
(f) The Company shall indemnify and hold harmless the Trustee from and
against any and all damages, losses, claims or expenses as incurred (including
expenses of investigation and fees and disbursements of counsel and of certified
public accountants to the Trustee) arising out of or in connection with the
performance by the Trustee of its duties hereunder, including in connection with
any action taken by a Sub-agent. Any amount payable to the Trustee under Section
9 or this paragraph (f) and not previously paid by the Company shall be paid by
the Company promptly upon demand therefor by the Trustee or, if the Trustee so
chooses in its sole discretion, from the Trust. If the payment is made hereunder
to the Trustee from the Trust, the Trustee shall promptly notify the Company in
writing of the amount of such payment. Upon receipt of such notice, the Company
shall deliver to the Trustee, to be held in the
6
<PAGE> 7
Trust, cash in an amount equal in value to the amount of any payments made from
the Trust to the Trustee pursuant to this paragraph (f). The failure of the
Company to transfer any such amount shall not in any way impair the Trustee's
right to indemnification, reimbursement and payment pursuant to Section 9 or
this paragraph (f).
(g) The Trustee shall have, without exclusion, all powers conferred on the
Trustee by applicable law, unless expressly provided otherwise herein.
(h) Notwithstanding any power granted to the Trustee pursuant to this Trust
Agreement or to applicable law, the Trustee shall not have any power that could
give this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code of
1986, as amended.
3. Capitalized terms not otherwise defined herein shall have the meaning
set forth in the Trust Agreement.
4. Except as expressly amended hereby, all of the terms and provisions of
the Trust Agreement shall remain unchanged and continue in full force and effect
and the parties hereto shall be entitled to all of the
7
<PAGE> 8
applicable benefits thereof and shall be responsible for all of their respective
obligations thereunder.
5. On and after the date hereof each reference in the Trust Agreement to
"this Agreement", "hereunder", "hereof" or words of like import referring to the
Trust Agreement shall mean and be a reference to the Trust Agreement as amended
hereby.
6. This Amendment may be executed in counterparts, both of which shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
7. This First Amendment shall be construed in accordance with and governed
by the laws of New York, without regard to its conflicts of law principles.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
GREY ADVERTISING INC.
By: /s/ Steven G. Felsher
--------------------------------
Name: Steven G. Felsher
Title: Executive Vice President
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ Harriet Friday Leahy
--------------------------------
Name: Harriet Friday Leahy
Title: Vice President
Consented and Agreed to
as of the date first above
written
By /s/ Edward H. Meyer
--------------------------------
Edward H. Meyer
9
<PAGE> 1
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
EXHIBIT -11.01
STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1995 1994
------------------------------
<S> <C> <C>
PRIMARY
Average shares outstanding(1) 1,269,888 1,269,246
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 25,294 16,359
------------------------------
TOTAL 1,295,182 1,285,605
==============================
Net Income (Loss) $ 23,438,000 $(21,378,000)
Less: Effect of dividend requirements
and the change in redemption value
of redeemable preferred stock (1,698,000) (1,137,000)
------------------------------
NET EARNINGS USED IN
COMPUTATION $ 21,740,000 $(22,515,000)
==============================
Per share amount $16.79 $(17.51)
==============================
FULLY DILUTED
Average shares outstanding(1) 1,269,888 1,269,246
Net effect of dilutive stock options-
based on treasury stock method
using the period-end market price,
if higher than average market price 32,961 16,583
Assumed conversion of 8.5%
convertible subordinated
debentures issued December 1983 51,000 51,000
------------------------------
TOTAL 1,353,849 1,336,829
==============================
Net Income (Loss) $ 23,438,000 $(21,378,000)
Less: Effect of dividend requirements
and the change in redemption value
of redeemable preferred stock (1,698,000) (1,137,000)
Add: 8.5% convertible subordinated
debentures interest net of income
tax effect 139,000 139,000
------------------------------
NET EARNINGS USED IN
COMPUTATION $ 21,879,000 $(22,376,000)
==============================
Per share amount $16.16 *
==============================
</TABLE>
* Antidilutive
(1) Includes 54,024 shares and 28,167 shares for 1995 and 1994,
respectively, expected to be issued pursuant to the terms of the
Senior Management Incentive Plan.
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF GREY
(as of March 1, 1996)
<TABLE>
<CAPTION>
Name Jurisdiction of Organization
- ---- ----------------------------
<S> <C>
Alonso y Asociados S.A. Mexico
AS Grey Oy Finland
Beaumont-Bennett Inc. New York
CR & Grey Advertising Pte. Ltd. Singapore
CSS & Grey Cyprus
Cenajans Grey Reklamcilik A.S. Turkey
Creative Collaboration Grey S.A. Switzerland
Crescendo Productions Inc. New York
Dialogic S.A. Belgium
Dorland & Grey S.A. Belgium
Dorland & Grey S.A. France
Esfera Grey, S.A. Columbia
Fischer-Grey, C.A. Venezuela
FOVA Inc. Delaware
G2 Advertising Inc. California
GCG Norge A/S Norway
GCG Scandinavia A/S Denmark
GCI Group Inc. New York
GEM F&C Inc. California
Great Productions Inc. Delaware
Great Spot Films Ltd. Delaware
Grey Advertising (Hong Kong) Ltd. Hong Kong
Grey Advertising (NSW) Pty. Limited Australia
</TABLE>
-1-
<PAGE> 2
EXHIBIT 21.01
SUBSIDIARIES OF GREY
(as of March 1, 1996)
<TABLE>
<CAPTION>
Name Jurisdiction of Organization
- ---- ----------------------------
<S> <C>
Grey Advertising (New Zealand) Ltd. New Zealand
Grey Advertising de Venezuela, C.A. Venezuela
Grey Advertising (Victoria) Pty. Ltd. Australia
Grey Advertising Inc. Maryland
Grey Advertising Ltd. Canada
Grey Argentina S.A.C. y de P. Argentina
Grey Athens Advertising S.A. Greece
Grey Australia Pty. Limited Australia
Grey Austria GmbH Austria
Grey Chile S.A. Chile
Grey Communications Group A/S Denmark
Grey Communications Group B.V. The Netherlands
Grey Communications Group Ltd. United Kingdom
Grey-Daiko Advertising, Inc. Japan
Grey Denmark A/S Denmark
Grey Diciembre S.A. Uruguay
Grey Direct Inc. Delaware
Grey Direct International GmbH Germany
Grey Directory Marketing Inc. Delaware
Grey Dusseldorf GmbH Co. Kommanditgesellschaft Germany
Grey Entertainment Inc. New York
Grey Espana S.A. Spain
Grey GMBH Germany
</TABLE>
-2-
<PAGE> 3
EXHIBIT 21.01
SUBSIDIARIES OF GREY
(as of March 1, 1996)
<TABLE>
<CAPTION>
Name Jurisdiction of Organization
- ---- ----------------------------
<S> <C>
Grey Holding S.A. Belgium
Grey Holdings A.B. Sweden
Grey Holding GMBH Germany
Grey Holdings Pty. Ltd. South Africa
Grey IFC Inc. Delaware
Grey India Inc. Delaware
Grey Advertising (Malaysia) Sdn. Bhd. Malaysia
Grey Media Connections Inc. New York
Grey Mexico, S.A. de C.V. Mexico
Grey Peru S.A. Peru
Grey Strategic Marketing Inc. Delaware
Grey Thailand Co. Ltd. Thailand
Greycom SARL France
Gross Townsend Frank Hoffman Inc. New York
Hwa Wei & Grey Advertising Co. Ltd. Taiwan
Indigo Entertainment Inc. Delaware
Local Marketing Corporation Ohio
Milano e Grey S.p.A. Italy
National Research Foundation for
Business Statistics, Inc. New York
Principal Communications Inc. Delaware
Preferred Professionals Inc. New York
Rigel Limited Cayman Islands
</TABLE>
-3-
<PAGE> 4
EXHIBIT 21.01
SUBSIDIARIES OF GREY
(as of March 1, 1996)
<TABLE>
<CAPTION>
Name Jurisdiction of Organization
- ---- ----------------------------
<S> <C>
SEK & Grey Ltd. Finland
The Tape Center Inc. Delaware
300 East 42nd Street Promotions, Inc. New York
Trace, S.A. Spain
Triple Seven Concepts Inc. Delaware
Visual Communications Group Inc. New York
W&L/Dialog Grey AG Switzerland
West Indies & Grey Advertising Inc. Puerto Rico
Z&G Grey Comunicacao Ltda. Brazil
</TABLE>
-4-
<PAGE> 1
Exhibit 24.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-98101, 2-97465 and 33-11253) pertaining to the Incentive Stock
Option and Restricted Stock Plans of Grey Advertising Inc. of our report dated
February 7, 1996 on the consolidated financial statements of Grey Advertising
Inc. and consolidated subsidiary companies included in the Annual Report (Form
10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
New York, New York
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND THE AUDITED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 134,313
<SECURITIES> 20,419
<RECEIVABLES> 495,349
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 746,144
<PP&E> 168,495
<DEPRECIATION> 93,789
<TOTAL-ASSETS> 955,137
<CURRENT-LIABILITIES> 739,587
<BONDS> 30,000
8,986
0
<COMMON> 1,432
<OTHER-SE> 126,231
<TOTAL-LIABILITY-AND-EQUITY> 955,137
<SALES> 688,219
<TOTAL-REVENUES> 688,219
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 637,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,928
<INCOME-PRETAX> 54,327
<INCOME-TAX> 26,966
<INCOME-CONTINUING> 23,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,438
<EPS-PRIMARY> 16.79
<EPS-DILUTED> 16.16
</TABLE>
