<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-7898
GREY ADVERTISING INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-0802840
- ------------------------------ -------------------------------------
(State or other of (IRS Employer Identification Number)
incorporation or organization)
777 Third Avenue, New York, New York 10017
- ------------------------------------ -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 212-546-2000
including area code
NOT APPLICABLE
----------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of October 31, 1996, the total number of shares outstanding of Registrant's
Common Stock, par value $1 per share ("Common Stock"), was 886,800 and of
Registrant's Limited Duration Class B Common Stock, par value $1 per share
("Class B Common Stock"), was 294,274.
<PAGE> 2
GREY ADVERTISING INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Other Information 12
Signatures 13
Index to Exhibits 14
</TABLE>
2
<PAGE> 3
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
(UNAUDITED) (A)
-----------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 69,631,000 $134,313,000
Marketable securities 28,349,000 20,419,000
Accounts receivable 537,518,000 495,349,000
Expenditures billable to clients 44,939,000 46,449,000
Other current assets 58,277,000 49,614,000
--------------------------------------
Total current assets 738,714,000 746,144,000
Investments in and advances to nonconsolidated
affiliated companies 16,654,000 20,693,000
Fixed assets - at cost, less accumulated depreciation
of $99,164,000 and $93,789,000 78,394,000 74,706,000
Marketable securities 57,500,000 48,252,000
Intangible assets and other assets-including loans to
officers of $5,522,000 in 1996 and 1995 68,637,000 65,342,000
--------------------------------------
Total assets $959,899,000 $955,137,000
======================================
</TABLE>
3
<PAGE> 4
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
(UNAUDITED) (A)
----------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $535,590,000 $549,533,000
Notes payable to banks 86,008,000 71,336,000
Accrued expenses and other 94,443,000 97,126,000
Income taxes payable 14,207,000 18,567,000
-------------------------------------
Total current liabilities 730,248,000 736,562,000
Other liabilities including deferred compensation of
$28,913,000 and $22,021,000 39,272,000 39,620,000
Long-term debt 33,025,000 33,025,000
Minority interest 10,167,000 9,281,000
Redeemable preferred stock-at redemption value; par
value $1 per share; authorized 500,000 shares; issued
and outstanding 32,000 shares in 1996 and 1995 9,481,000 8,986,000
Common stockholders' equity:
Common Stock-par value $1 per share; authorized
10,000,000 shares; issued 1,108,909 in 1996 and
1,096,096 in 1995 1,109,000 1,096,000
Limited Duration Class B Common Stock-par value
$1 per share; authorized 2,000,000 shares; issued
322,875 shares in 1996 and 335,688 shares in 1995 323,000 336,000
Paid-in additional capital 37,862,000 37,898,000
Retained earnings 136,440,000 122,345,000
Cumulative translation adjustment 4,146,000 4,664,000
Unrealized (loss) gain on marketable securities (1,258,000) 550,000
Loans to officer used to purchase Common Stock
and Limited Duration Class B Common Stock (4,726,000) (4,726,000)
-------------------------------------
173,896,000 162,163,000
Less-cost of 218,926 and 212,848 shares of Common
Stock and 26,751 and 26,751 shares of Limited
Duration Class B Common Stock held in treasury at
Sept. 30, 1996 and December 31, 1995, respectively 36,190,000 34,500,000
-------------------------------------
Total common stockholders' equity 137,706,000 127,663,000
-------------------------------------
Total liabilities and stockholders' equity $959,899,000 $955,137,000
=====================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(A) The consolidated balance sheet has been derived from the audited financial
statements at that date.
4
<PAGE> 5
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------------------------
1996 1995 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commissions and fees $182,487,000 $174,277,000 $542,497,000 $495,917,000
Expenses:
Salaries and employee related
expenses 118,859,000 110,196,000 347,501,000 314,477,000
Office and general expenses 53,904,000 54,444,000 160,603,000 149,539,000
-------------------------------------------------------------------------
172,763,000 164,640,000 508,104,000 464,016,000
-------------------------------------------------------------------------
9,724,000 9,637,000 34,393,000 31,901,000
Other income 529,000 199,000 5,658,000 135,000
-------------------------------------------------------------------------
Income of consolidated companies
before taxes on income 10,253,000 9,836,000 40,051,000 32,036,000
Provision for taxes on income (5,050,000) (4,842,000) (20,661,000) (16,228,000)
-------------------------------------------------------------------------
Net income of consolidated
companies 5,203,000 4,994,000 19,390,000 15,808,000
Minority interest applicable to
consolidated companies (730,000) (1,125,000) (2,757,000) (3,026,000)
Equity in earnings of nonconsolidated
affiliated companies 574,000 536,000 1,484,000 1,322,000
-------------------------------------------------------------------------
Net income $ 5,047,000 $ 4,405,000 $ 18,117,000 $ 14,104,000
=========================================================================
Weighted average number
of common shares outstanding
Primary 1,295,764 1,279,936 1,295,757 1,306,992
Fully diluted 1,351,004 1,332,202 1,351,465 1,366,769
Net income per common share
Primary $3.71 $3.21 $13.46 $10.07
Fully diluted $3.58 $3.11 $12.98 $9.71
Dividends per common share $0.9375 $0.875 $2.8125 $2.625
=========================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 18,117,000 $ 14,104,000
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization of fixed assets 13,714,000 12,993,000
Amortization of intangibles 3,948,000 3,074,000
Deferred compensation 10,692,000 9,233,000
Equity in earnings of nonconsolidated affiliated
companies, net of dividends received of $235,000
and $187,000 (1,249,000) (1,135,000)
Gains from the sale of a nonconsolidated affiliated
company, a non-marketable investment security
and marketable securities (4,754,000)
Minority interest applicable to consolidated
companies 2,757,000 3,026,000
Deferred income taxes (4,500,000) (3,550,000)
Amortization of restricted stock 75,000 167,000
Changes in operating assets and liabilities:
Increase in accounts receivable (50,175,000) (24,523,000)
Increase in expenditures billable to clients (785,000) (8,732,000)
(Increase) decrease in other current assets (10,583,000) 4,947,000
Increase in other assets (1,743,000) (575,000)
Decrease in accounts payable (4,834,000) (21,572,000)
(Decrease) increase in accrued expenses and other (2,707,000) 11,314,000
Decrease in income taxes payable (3,597,000) (7,206,000)
Decrease in other liabilities (2,653,000) (3,925,000)
------------------------------------------
Net cash used in operating activities (38,277,000) (12,360,000)
INVESTING ACTIVITIES
Purchases of fixed assets (19,133,000) (19,170,000)
Trust fund deposits (1,868,000) (1,278,000)
Proceeds from the sale of marketable securities 91,634,000 20,293,000
Purchases of marketable securities (110,620,000) (32,717,000)
Proceeds from the sale of a nonconsolidated affiliated
company and a non-marketable investments security 8,947,000
Increase in intangibles (primarily goodwill) (7,002,000) (4,675,000)
Decrease (increase) in investments and advances to
nonconsolidated affiliated companies 539,000 (829,000)
------------------------------------------
Net cash used in investing activities (37,503,000) (38,376,000)
</TABLE>
6
<PAGE> 7
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
----------------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Net proceeds from short-term borrowings 18,234,000 18,408,000
Proceeds from loan from life insurance policies 11,779,000
Common shares acquired for treasury (1,910,000) (12,619,000)
Cash dividends paid on Common Shares (3,346,000) (3,190,000)
Cash dividends paid on Redeemable Preferred Stock (180,000) (168,000)
Issuance of restricted stock 25,000
Proceeds from exercise of stock options 300,000 732,000
----------------------------------------
Net cash provided by financing activities 13,123,000 14,942,000
Effect of exchange rate changes on cash (2,025,000) 3,748,000
----------------------------------------
Decrease in cash and cash equivalents (64,682,000) (32,046,000)
Cash and cash equivalents at beginning of period 134,313,000 170,077,000
----------------------------------------
Cash and cash equivalents at end of period $ 69,631,000 $138,031,000
========================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
GREY ADVERTISING INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. As permitted by the Securities and Exchange Commission, the accompanying
unaudited Consolidated Financial Statements and Notes thereto have been
condensed and therefore do not contain all disclosures required by
generally accepted accounting principles. Reference should be made to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995
filed with the Securities and Exchange Commission. Certain amounts for the
prior year have been reclassified to conform to the current period
classification.
2. The financial statements as of September 30, 1996 and for the three and
nine month periods ended September 30, 1996 and 1995 are unaudited. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair representation have been
included.
3. The results of operations for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
4. The computations of net income per common share for the three and nine
month periods ended September 30, 1996 and 1995 are based on the weighted
average number of common shares outstanding, adjusted for the effect, if
any, of the assumed exercise of dilutive stock options and of shares
payable in Common Stock pursuant to the Company's Senior Management
Incentive Plan and, for fully diluted net income per common share, the
assumed conversion of the 8-1/2% Convertible Subordinated Debentures issued
in December 1983. Also, for the purpose of computing net income per common
share for the three and nine month periods ended September 30, 1996 and
1995, the Company's net income was reduced by dividends on the Preferred
Stock and also adjusted by the change in the redemption value of Preferred
Stock. Primary net income per common share is computed as if the stock
options were exercised at the beginning of the period and as if the funds
obtained thereby were used to purchase Common Stock at the average market
price during the period. In computing fully diluted net income per common
share, the market price at the close of the period or the average market
price, whichever was higher, was used to determine the number of shares
which would be assumed to be repurchased. The market price for a share of
Class B Common Stock, which is not publicly traded, is deemed to be equal
to the market price of a share of Common Stock, into which a share of Class
B Common Stock may be converted at the option of the holder, as of the date
such valuation is made.
5. The provision for taxes on income is greater than the Federal statutory
rate principally due to state and local income taxes and effective foreign
tax rates that are in excess of the Federal statutory rate.
8
<PAGE> 9
6. As of September 30, 1996 and December 31, 1995, the Company had outstanding
20,000 shares of Series I Preferred Stock, 5,000 shares each of its Series
II and Series III Preferred Stock, and 2,000 shares of Series 1 Preferred
Stock. Each share of Preferred Stock is to be redeemed by the Company at a
price equal to the book value per share attributable to one share of Common
Stock and one share of Class B Common Stock pertaining upon redemption
(subject to certain adjustments), less a fixed discount established upon
the issuance of the Preferred Stock. The holders (including one senior
executive) of each class of Preferred Stock are entitled to receive
cumulative preferential dividends at the annual rate of $0.25 per share,
and to participate in dividends on one share of the Common Stock and one
share of the Class B Common Stock to the extent such dividends exceed the
per share preferential dividend. The redemption date for the Series I,
Series II and Series III Preferred Stock is fixed at April 7, 2004. The
terms of the Series I, Series II and Series III Preferred Stock also give
the holder, his estate or legal representative, as the case may be, the
option to require the Company to redeem his Preferred Stock for a period of
12 months following his (i) death, (ii) permanent disability or permanent
mental disability, (iii) termination of full-time employment for good
reason or (iv) termination of full-time employment by the Company without
cause. The holder of the Series 1 Preferred Stock has the option to have
his shares redeemed upon termination of his employment prior to age 65; the
Company is obligated to redeem such shares following the attainment of age
65 by such holder thereof following termination of employment. In
connection with the ownership of Series I, Series II and Series III
Preferred Stock, the senior executive issued to the Company full recourse
promissory notes (which are included in Other Assets in the accompanying
condensed consolidated balance sheet).
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Income from commissions and fees increased 4.7% during the third quarter of
1996 and 9.4% during the nine months ended September 30, 1996 when compared to
the same periods in 1995. Absent exchange rate fluctuations, gross income
increased 7.0% in the three months ended September 30, 1996 and 9.5% in the
nine months ended September 30, 1996 when compared to the same periods in 1995.
In the third quarter of 1996 and 1995, respectively, 45.9% and 43.5% of
consolidated gross income was attributable to domestic operations and 54.1% and
56.5% to international operations. In the third quarter of 1996 and for the
first nine months of 1996, respectively, gross income from domestic operations
increased 10.5% and 12.6% versus the respective prior periods. Gross income
from international operations increased 0.2% for the third quarter (4.3%
absent exchange rate fluctuations) and 6.9% for the first nine months of 1996
(7.0% absent exchange rate fluctuations) when compared to the same periods in
1995. The increase in gross income in both years primarily resulted from
expanded activities from existing clients and the continued growth of the
Company's general agency and specialized operations.
Salaries and employee related expenses increased 7.9% in the third quarter of
1996 and 10.5% for the first nine months of 1996 when compared to the
respective prior periods. Office and general expenses decreased 1.0% and
increased 7.4% for the three and nine month periods ended September 30, 1996,
respectively, versus the comparable prior periods. These changes in expenses,
when taken together, are generally in line with the increases in gross income.
Inflation did not have a material effect on revenue or expenses during 1996 or
1995.
Minority interest applicable to consolidated companies decreased by $395,000 in
the third quarter of 1996 and by $269,000 for the first nine months of 1996 as
compared to the respective prior periods. These variances are primarily due to
changes in the level of profits of majority-owned companies.
Equity in earnings of nonconsolidated affiliated companies increased by $38,000
in the third quarter of 1996 and by $162,000 for the first nine months of 1996
as compared to the respective prior periods. These variances are primarily due
to changes in the level of profits of nonconsolidated affiliated companies.
10
<PAGE> 11
RESULTS OF OPERATIONS (CONTINUED)
The effective tax rate was 49.3% in the third quarter of 1996 and 51.6% in the
first nine months of 1996 versus 49.2% and 50.7% in the same periods in 1995,
respectively.
Other income was affected positively, in the first quarter of 1996, by
non-recurring, non-operating pre-tax income of approximately $4,000,000
primarily related to gains on the sale of the Company's equity position in a
nonconsolidated subsidiary and the liquidation of a non-marketable investment
security.
Net income increased by 14.6% and 28.5% in the three and nine months ended
September 30, 1996, respectively, when compared to net income for the same
periods in 1995. Primary net income per common share increased by 15.6% and
33.7% in the three and nine month periods ended September 30, 1996,
respectively, versus the comparable periods in 1995. Fully diluted net income
per common share increased by 15.1% for the three months ended September 30,
1996 and 33.7% for the nine months ended September 30, 1996 when compared to
the same periods in 1995. Absent the non-recurring, non-operating gains which
occurred in the first quarter of 1996, primary and fully diluted net income per
common share increased by 18.3% and 18.4%, respectively, for the nine months
ended September 30, 1996 as compared to the same period in 1995. For purposes
of computing primary net income per common share, the Company's net income is
adjusted by (i) dividends paid on the Company's Preferred Stock and (ii) the
change in redemption value of the Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $1,116,000 from $9,582,000 at December 31, 1995 to
$8,466,000 at September 30, 1996. Cash and cash equivalents decreased by
$64,682,000 from $134,313,000 to $69,631,000. The decrease in cash and cash
equivalents is largely attributable to the increase in long-term marketable
securities and the timing of collections of accounts receivable versus payments
to trade vendors. Domestically, the Company has committed lines of credit
totaling $50,000,000. These lines of credit were partially utilized during the
three and nine months ended September 30, 1996 and 1995 to secure obligations
of selected foreign subsidiaries. There was $25,000,000 outstanding under
these credit lines as of September 30, 1996 and $15,000,000 as of September
30, 1995.
Other lines of credit are available to the Company in foreign countries in
connection with short-term borrowings and bank overdrafts used in the normal
course of business. There were $61,008,000 and $70,461,000 outstanding under
these credit lines as of September 30, 1996 and 1995, respectively.
11
<PAGE> 12
PART II
OTHER INFORMATION
Item 5. Other Information
In order to comply with recent changes to the rules promulgated
under Section 16 of the Securities and Exchange Act of 1934, as
amended, the Company has amended its 1993 Senior Management
Incentive Plan and 1994 Stock Incentive Plan. Copies of the amended
and restated plans are attached hereto as Exhibits 10.01 and 10.02
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Reference is made to the Index annexed hereto and
made a part hereof.
(b) Reports on Form 8-K: The Company did not file any reports on
Form 8-K during the quarter ended September 30, 1996.
12
<PAGE> 13
GREY ADVERTISING INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREY ADVERTISING INC.
(REGISTRANT)
DATE: November 13, 1996 By: /s/ Steven G. Felsher
--------------------------------
Steven G. Felsher
Executive Vice President -
Finance - Worldwide
Secretary and Treasurer
(Duly Authorized Officer)
DATE: November 13, 1996 By: /s/ William P. Garvey
---------------------------------
William P. Garvey
Executive Vice President
Chief Financial Officer -
United States
(Chief Accounting Officer)
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned to Exhibit Page Number in Sequential
(i.e., Exhibit Table of Item 601 Table of Item 601 Exhibits Numbering System Where
of Regulation S-K) Description of Exhibit Exhibit May Be Found
-------------------------------------------------------------------------------------------------
<S> <C> <C>
(10.01) Grey Advertising Inc. amended and
restated 1993 Senior Management
Incentive Plan
(10.02) Grey Advertising Inc. amended and
restated 1994 Stock Incentive
Plan
(11) Statement Re: Computation of Net
Income per Common Share
(unaudited)
(27) Financial Data Schedule
</TABLE>
14
<PAGE> 1
Exhibit 10.01
GREY ADVERTISING INC.
1993 SENIOR MANAGEMENT INCENTIVE PLAN
1. PURPOSES OF THE PLAN
The 1993 Senior Management Incentive Plan ("Plan") is intended to
provide additional compensation to certain key executives of Grey Advertising
Inc., A Delaware corporation ("Grey"), and its subsidiaries (collectively, the
"Corporation"), based on the earnings of the Corporation and, thereby, to
advance the continued success of the Corporation by providing additional
incentive for them to promote the success of the business and to enable the
Corporation to attract and retain the services of such key executives. In
furtherance of these goals, a percentage of the Earnings (as hereinafter
defined) of the Corporation for each of the calendar years (each of which is
hereinafter called a "Plan Year") 1993 through 1997 shall be allocated to the
Plan and credited and distributed to Participants (as hereinafter defined) in
accordance with and subject to the terms of the Plan. Executives who are
designated as participants under the Plan are herein called "Participants". In
addition, in order to encourage the greatest community of interest with the
stockholders of the Corporation, certain awards under the Plan shall be in the
form of the common stock, par value $1 per share ("Stock"), of the Corporation.
2. SHARES SUBJECT TO THE PLAN
Except as hereinafter provided in this Section 2, the aggregate number
of shares of Stock which may be allocated under the Plan shall not exceed
200,000 shares ("Shares"). Shares shall be made available, at the discretion
of the Committee (as hereinafter defined), either from the authorized but
unissued shares of Stock or from shares of Stock held in the hands of the
treasury of the Corporation.
In the event that the number of outstanding shares of Stock of the
Corporation shall be changed (or converted into other consideration) as a
result of stock splits, combinations or exchanges of shares, or through
reorganization, merger, consolidation or similar events, the number of Shares
which may be allocated under the Plan and the number of Shares represented by
outstanding allocations (as well as the consideration to be issued or paid
under the Plan) shall be appropriately adjusted as determined by the Committee
so as to reflect any such change.
3. ELIGIBILITY
Key executive of the Corporation (including executive officers and
directors who are employees) shall be eligible to become Participants in the
Plan. The Board of Directors of Grey (the "Board") or the Compensation
Committee of the Board (the Board or such Compensation Committee, as the case
may be, being hereinafter referred to as the "Compensation Committee"), in its
sole discretion, shall determine which key executives shall become Participants
<PAGE> 2
in the Plan. In selecting participants, the Compensation Committee shall
consider such factors as it shall, in its sole discretion, deem relevant in
connection with accomplishing the purposes of the Plan. An employee shall
become a Participant upon the allocation to him/her of cash credits or Stock
Allocations (as hereinafter provided) under the Plan.
4. PARTICIPANTS
There shall be three types of Participants in the Plan as follows:
(a) Participants who have achieved the age of 65 when they become
Participants prior to December 31, 1993 ("Vested Participants");
(b) Participants who may be considered "executive officers" of the
Corporation for purposes of Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), but only with respect to awards granted in
respect of periods prior to 1994, and any other Participants specifically
designed by the Compensation Committee. (Participants described in this
paragraph (b) are referred to herein as "Affiliated Participants." and
Affiliated Participants and Vested Participants are collectively referred to
herein as "Cash Participants"); and
(c) Participants who are not Cash Participants ("Stock Participants").
5. AMOUNTS CREDITED TO THE PLAN; ALLOCATIONS TO PARTICIPANTS
(a) For each Plan Year, there shall be credited by the Committee (as
defined in Section 9 of the Plan) to the Plan for the benefit of the
Participants an amount equal to 12% of the Earnings (as hereinafter defined)
for such Plan Year; provided, however, that for Plan Years commencing with
calendar year 1994, such crediting shall be made only if the Earnings for such
Plan Year exceed $15,000,000. (The amount credited to the Plan for any Plan
Year is hereinafter referred to as the "Plan Year Pool.")
(b) For each Plan Year commencing with calendar year 1994, the
Committee shall allocate to each Participant a percentage (the "Allocation
Percentage") of the plan Year Pool for such Plan Year. For Plan Years
commencing with calendar year 1994, the Allocation Percentage of a Participant
may not exceed 30% with respect to any Plan Year. Allocations with respect to
a Plan Year shall be made by the Committee not later than June 30th of each
year following the Plan Year to which such allocations apply. Any portion of
the Plan Year Pool which is not allocated to Participants may not be allowed
for any other Plan Year.
-2-
<PAGE> 3
(c) Allocations to each Cash Participant shall be made in the form of
cash credits. Allocations ("Stock Allocations") to each Stock Participant
shall be made (in lieu of such cash credits) corresponding to such numbers of
shares of Stock as shall equal (i) the dollar value of the cash credits which
would otherwise be allocated to such Stock Participant, divided by (ii) the
average of the means of the daily high bid and low asked prices of the Stock as
reported in the Wall Street Journal during the last 15 days on which the Stock
traded during December of the Plan Year to which the allocations are
attributable. (If the Stock is traded on fewer than 15 days during such
December, the average of the means of the high bid and low asked prices on days
on which trading occurred shall be used.)
(d) As at the end of each Plan Year, there shall be determined for each
Stock Participant an amount ("Dividend Amount") equal to the number of shares
in each Stock Participant's Stock Accumulated Account (as hereinafter defined)
as at the end of the previous Plan Year multiplied by the amount of the
dividends per share of Stock paid by Grey during the Plan Year. (A Stock
Participant's "Stock Accumulated Account" shall be such number of shares of
Stock in the Plan as shall have theretofore been allocated to such Stock
Participant.) The Dividend Amount shall then be divided by the prices of the
Stock determined in the preceding paragraph (c) and there shall be credited to
the Stock Participant's Stock Accumulated Account, Stock Allocations
representing such number of shares of Stock as shall be equal to the resulting
quotient.
(e) "Earnings" as used herein shall mean the Corporation's net income
as determined for financial reporting purposes, determined in accordance with
generally accepted accounting principles consistently applied, after deduction
of all expenses incurred by the Corporation, but before deduction of any
amounts to be credited under this Plan and any deduction for the provision for
taxes on income. In determining Earnings for a particular Plan Year, the
Compensation Committee shall have the authority to make adjustments in
recognition of unusual or non-recurring events affecting the Corporation or its
financial statements, or in response to changes in applicable laws, regulations
or accounting principles.
(f) This is an unfunded plan and the crediting of Stock to the accounts
of Stock Participants or of amounts to the accounts of Cash Participants shall
not require the Corporation to set aside or pay funds, or to set aside or
transfer Stock, unless and until required by Paragraph 8 hereof.
6. VESTING
A Participant's account (whether Stock or cash) may either be vested or
contingent. An account shall be contingent ("Contingent Account") until a
Participant's Vesting Date (as hereinafter defined) occurs. A Participant's
account shall be vested ("Vested Account") from and after the Participant's
Vesting Date as to all amounts or Stock in such account on the Vesting Date and
as to all amounts or Stock credited thereafter. The Vesting Date of a
Participant shall be the date on which the first of the following events
occurs:
-3-
<PAGE> 4
(a) The Participant becomes a Vested Participant as defined in
paragraph 4(a) hereof; or
(b) The Participant has completed five full calendar years of
continuous employment with the Corporation after becoming a Participant in the
Plan, provided that any person who became a Participant in the Plan prior to or
during 1993 shall be deemed to have completed such five full calendar years if
he/she shall have remained continuously employed with the Corporation through
December 31, 1997; or
(c) The Participant has died or become permanently disabled while an
employee of the Corporation.
7. FORFEITURES
A Participant with a Contingent Account whose employment terminates for
any reason whatsoever (except for death or permanent disability) shall forfeit
his/her account. Any forfeited Contingent Account, in the discretion of the
Committee, may be reallocated and applied to Participants other than
Participants who are "Covered Employees" (within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended ("Code")) or may be returned
to the Corporation.
8. PAYMENTS TO PARTICIPANTS
(a) No payment of funds or distributions of Stock from Contingent
Accounts shall be made to Participants. Payments and distributions shall be
made to Participants of sums credited or Stock allocated, as the case may be,
to their respective Vested Accounts in the discretion of the Committee, as
follows:
(i) in the case of cash payments to a Cash Participant, in a lump
sum, on or before June 30th following the Vesting Date;
(ii) in the case of Stock distributions to a Stock Participant, by
the issuance of such a number of shares of Stock as shall then be in such Stock
Participant's Stock Accumulated Account (except for fractional shares which
shall be paid in cash) on or before June 30th following the Vesting Date; and
(iii) notwithstanding the foregoing, cash payments and/or Stock
distributions may be made in no less than two nor more than five equal annual
installments, the first installments to be paid on or before June 30th
following the Vesting Date, and succeeding installments to be paid on or before
succeeding June 30th, until the amount of cash or Stock in the Participant's
Vested Account shall have been paid or distributed, as the case may be, in
full.
-4-
<PAGE> 5
(b) Anything to the contrary contained above notwithstanding, in no
event shall any payment be required to be made to a Participant sooner than 90
days after a Participant's Vesting Date. In the event the Committee shall have
determined to make payment in accordance with sub-paragraph 8(a)(iii), the
Committee shall have the right, subsequently, to amend its determination in
order to accelerate the payment to any Participant.
(c) Notwithstanding the preceding provisions of this Section 8, the
Committee may, in its discretion, defer the payment of funds or distribution of
Stock to Participants until such time and to the extent necessary to ensure
that such payment or distribution shall not be rendered nondeductible to the
Corporation by reason of Section 162(m) of the Code. The Committee shall have
the authority to prescribe such other terms and conditions relating to such
deferral as it may deem appropriate.
9. ADMINISTRATION
The Plan shall be administered by the Compensation Committee, which
shall have full and final authority, subject to the express provisions of the
Plan, to make all determinations deemed necessary or advisable for the
administration of the Plan. The Compensation Committee shall have full and
final authority to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to it and to make all determinations necessary or
advisable for its administration. However, to the extent permitted by Rule
16b-3 ("Rule 16b-3") promulgated under the Exchange Act and by Section 162(m)
of the Code, the Compensation Committee may delegate some or all of its
functions under the Plan to the Chief Executive Officer of Grey (the
Compensation Committee or the Chief Executive Officer, as the case may be,
being referred to herein as the "Committee"). In addition to such other rights
of indemnification as they may have as directors, members of the Committee
shall be indemnified by the Corporation to the full extent permissible under
applicable law while serving as a member of the Committee.
10. NON-TRANSFERABILITY OF INTERESTS IN THE PLAN
Interests of Participants in the Plan (including amounts or Stock
allocated to their accounts) shall not be transferable otherwise than by will
or by the laws of descent and distribution. More particularly, but without
limiting the generality of the foregoing, no such interests may be assigned,
transferred (except as provided in the preceding sentence), pledged or
hypothecated in any manner, nor shall any such interests be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition contrary to this provision, and any
levy or any attachment or similar process upon such an interest shall be null
and void and without effect, and the Committee may, in its discretion, upon the
happening of any such event, terminate and declare such an interest forfeited
forthwith.
-5-
<PAGE> 6
11. TERMINATION AND AMENDMENT OF PLAN
The Board may terminate this Plan at any time or make such amendments
hereto as it shall deem advisable; provided, however, that any such termination
or amendment shall not adversely affect any amounts previously credited to
Participants under this Plan, whether in Vested or Contingent Accounts, without
the consent of the affected Participants; and provided, further, that no such
amendment may be made without the requisite approval of stockholders of Grey if
such approval is required in order to maintain compliance with Rule 16b-3. No
such termination shall accelerate any vesting under the Plan. Notwithstanding
that the amounts may be credited or paid thereafter, no credits or payments
shall be made under this Plan with respect to any year after the final Plan
Year.
12. MISCELLANEOUS
(a) Allocations may be made under this Plan from earlier plans of like
nature, and such allocations shall be valued and shall vest as determined by
the Committee.
(b) Computations under this Plan shall be carried to the nearest
one-one thousandth of a share or dollar, as the case may be.
(c) This Plan shall be governed by the laws of the State of New York.
(d) Captions are used herein for convenience only and shall not have
any legal effect.
-6-
<PAGE> 1
Exhibit 10.02
GREY ADVERTISING INC.
1994 STOCK INCENTIVE PLAN
1. PURPOSES
The purposes of the Grey Advertising Inc. ("Company") 1994 Stock
Incentive Plan ("Plan") are to encourage ownership of the common stock, par
value $1 per share ("Common Stock"), of the Company be eligible key employees of
the Company and its subsidiaries, and thereby to provide increased incentive for
such employees to put forth maximum effort for the success of the business of
the Company, and to enable the Company better to attract, retain and reward such
employees. Awards under the Plan ("Awards") may be granted in the form of Stock
Options ("Options") or restricted stock ("Restricted Stock"), subject to the
applicable terms and conditions set forth herein.
2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company
(the "Board") or the Compensation Committee of the Board (the Board or such
Compensation Committee, as the case may be, being hereinafter referred to as the
"Committee"). The Committee is authorized to establish such rules and
regulations as it deems necessary for the proper administration of the Plan, and
to make such determinations and interpretations and to take such action in
connection with the Plan and any options granted under the Plan as it deems
necessary or advisable. All determinations of the Committee shall be by a
majority of its members and such determinations shall be final.
3. ELIGIBILITY
Key employees of the Company and its subsidiaries shall be eligible to
receive Awards. Directors of the Company who are not full-time employees of the
Company or of any of its subsidiaries shall not be eligible to receive Awards.
4. SHARES AVAILABLE
An aggregate of 250,000 shares of Common Stock shall be available for
grant of Options and Restricted Stock under the Plan (subject in each case to
adjustment as provided in paragraph 9). Such shares may be authorized and
unissued shares or may be treasury shares. Upon the expiration, termination or
cancellation in whole or in part of any unexercised Options or upon the
forfeiture or repurchase by the Company of any shares of Restricted Stock,
shares of Common Stock covered by such unexercised Options or forfeited or
repurchased shares of Restricted Stock shall be available again for new Awards
of Options and Restricted Stock, respectively, under the Plan. No employee may
be granted Options for more than 75,000 shares or more than 75,000 shares of
Restricted Stock (subject in each case to adjustment as provided in paragraph 9)
over the term of the Plan.
<PAGE> 2
5. GRANT OF AWARDS
Subject to the provisions of paragraphs 4 and 6, Awards may be granted
to such eligible employees in such numbers and at such times during the term of
the Plan as the Committee shall determine. Each Award shall be evidenced by a
duly executed written agreement by and between the Company and the grantee,
containing such other agreements as shall be required by the Committee and as
shall not be inconsistent with the Plan. Agreements may contain dissimilar
provisions provided that all such provisions are consistent with the Plan.
Agreements relating to shares of Restricted Stock shall prescribe the form of
legend to be inscribed to the stock certificate evidencing such shares.
6. TERMS AND CONDITIONS OF OPTIONS
All Options under the Plan shall be granted subject to the following
terms and conditions:
(a) Designation. Each Option shall be designated as either an
"incentive stock option" (within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) or as a "nonqualified stock
option".
(b) Option Price. The option price shall be not less than 100% of
the fair market value of a share of Common stock, as determined by the
Committee, on the date the option is granted; provided, however, that the option
price of an "incentive stock option" granted to any individual (a "ten percent
shareholder") who owns (within the meaning of Section 422(b)(6) of the Code)
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or any subsidiary corporation shall not be less
than 110% of such fair market value.
(c) Duration of Options. Unless sooner terminated by terms of the
Plan or by the terms of any specific grant, each Option shall expire not later
than ten years from the date of grant; provided, however, that the maximum term
of an "incentive stock option" granted to a ten percent shareholder shall be
five years from the date of grant or such longer period as my be permitted by
the Code.
(d) Exercise of an Option. Options shall be exercisable over their
term at such times and in such installments as the Committee may prescribe.
Options may be exercised from time to time by written notice to the Company
stating the number of shares with respect to which the Option is being
exercised.
(e) Payment. No shares shall be issued or delivered upon exercise
of an Option until full payment for the Option shares has been made in cash, in
shares having a fair market value equal to the option price, or in a combination
of the foregoing.
-2-
<PAGE> 3
(f) Nontransferability of Options. An Option shall not be
transferable by an optionee except by will or the laws of descent and
distribution and shall be exercisable, during the optionee's lifetime, only by
the optionee.
(g) Termination of Employment. Upon termination of an optionee's
employment, each Option previously granted to the optionee shall expire if not
exercised before the earlier of (i) the expiration date provided in the option
agreement applicable to each such Option and (ii) such earlier date as may be
set forth in such option agreement.
(h) Non-Competitive Provision. Anything herein to the contrary
notwithstanding, if an optionee, without the written consent of the Company,
engages either directly or indirectly, in any manner or capacity, as principal,
agent, partner, officer, director, employee, or otherwise, in any business or
activity competitive with the business conducted by the Company or any
subsidiary of the Company, each Option previously granted to the optionee shall
expire forthwith.
7. TERMS AND CONDITIONS APPLICABLE TO RESTRICTED STOCK
All Awards of Restricted Stock shall be granted subject to the following
terms and conditions:
(a) Purchase Price. Shares of Restricted Stock may be sold to
eligible employees at such purchase price per share as shall be determined by
the Committee, or such shares may be awarded and issued without the payment of a
purchase price.
(b) Conditions to Certain Issuances and Sales. Shares of Restricted
Stock may be issued or sold hereunder without the payment of a purchase price
(or for a per share purchase price which is less than the then fair market value
per share, as determined by the Committee) only if the Corporation's "Earnings"
(as hereinafter defined) for its fiscal year prior to the year of such issuance
or sale exceed $15,000,000. For purposes hereof, "Earnings" for a particular
year shall mean the Company's net income as determined for financial reporting
purposes, determined in accordance with generally accepted accounting principles
consistently applied, after deduction of all expenses incurred by the Company,
but before deduction of any amounts credited for such year under the Company's
1993 Senior Management Incentive Plan (or any successor plan thereto) and any
deduction for the provision for taxes on income. In determining Earnings for a
particular year, the Committee shall have the authority to make adjustments in
recognition of unusual or nonrecurring events affecting the Company or its
financial statements, or in response to changes in applicable laws, regulations
or accounting principles.
(c) Exercise of Rights to Purchase. An employee who is granted the
right to purchase shares of Restricted Stock may exercise such right during such
period after the time of grant as may be determined by the Committee, provided
that he or she is still an employee of the Company or any of its subsidiaries on
the date of such exercise.
-3-
<PAGE> 4
In order to exercise his or her right to purchase shares of Restricted
Stock, the employee shall give written notice to the Company of his or her
election to purchase and the number of shares he or she is purchasing. The full
purchase price of the shares being purchased shall be tendered at the time of
such notice in cash or in previously owned shares of Stock. The purchaser shall
possess no rights as a stockholder with respect to any purchased shares until he
or she has made such full payment and has had issued to him or her a certificate
or certificates evidencing the shares so purchased.
(d) Restrictions. Shares of Restricted Stock issued to or purchased by
an employee under the Plan shall be subject to such restrictions as may be
imposed by the Committee ast the time of issuance or at the time of the grant of
the right to purchase shares. Such restrictions may vary from employee to
employee and may also vary among several grants to the same employee.
8. REGULATORY APPROVALS
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock upon the exercise of an Option or upon
the lapsing of restrictions with respect to Restricted Stock prior to (a) the
obtaining of any approval from any governmental agency which the Company shall,
in its sole discretion, determine to be necessary or advisable and (b) the
completion of any registration or other qualification of such shares under any
state or Federal law or rulings or regulations of any governmental body which
the Company shall, in its sole discretion, determine to be necessary or
advisable.
9. ADJUSTMENT OF SHARES AVAILABLE
If there is any change in the Common Stock through the declaration of
stock dividends, or through recapitalization resulting in stock splits, or
combinations or exchanges of shares, or otherwise, the number of shares
available for Awards, the maximum number of Options and shares of Restricted
Stock which may be granted to any individual, the shares subject to any Award
and the option prices applicable to outstanding Options shall be appropriate
adjusted by the Committee.
10. AMENDMENT
The Board may at any time, and from time to time, terminate, modify,
amend or interpret the Plan in any respect, except that any such amendment shall
be effective only upon stockholder approval if the Board determines that such
approval is necessary or appropriate under the circumstances.
11. EFFECTIVE DATE OF THE PLAN
This Plan shall be effective as from June 27, 1994, provided that the
Plan shall have been approved within twelve months of such date by the
Stockholders of the Company. In the absence of such Stockholder approval, the
Plan (and any Awards theretofore granted) shall be null and void. No Awards may
be granted after the tenth anniversary of such effective date.
-4-
<PAGE> 1
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
EXHIBIT - STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED)
EXHIBIT - 11
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------------------------
PRIMARY 1996 1995 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding(1) 1,262,740 1,248,442 1,263,117 1,280,855
Net effect of dilutive stock options -
based on the treasury stock method using
average market price 33,024 31,494 32,640 26,137
-------------------------------------------------------------------------
TOTAL 1,295,764 1,279,936 1,295,757 1,306,992
=========================================================================
Net Income $5,047,000 $4,405,000 $18,117,000 $14,104,000
Less: Effect of dividend requirements and
the change in redemption value of
redeemable preferred stock (238,000) (300,000) (675,000) (943,000)
-------------------------------------------------------------------------
NET EARNINGS USED IN COMPUTATION $4,809,000 $4,105,000 $17,442,000 $13,161,000
=========================================================================
Per share amount $3.71 $3.21 $13.46 $10.07
=========================================================================
FULLY DILUTED
Weighted average shares outstanding (1) 1,262,740 1,248,442 1,263,117 1,280,885
Net effect of dilutive stock options - based on
the treasury stock method using the period-end
market price, if higher than the average
market price 37,372 32,761 37,456 34,915
Assumed conversion of 8-1/2% convertible
subordinated debentures issued December 1983 50,892 50,999 50,892 50,999
-------------------------------------------------------------------------
TOTAL 1,351,004 1,332,202 1,351,465 1,366,769
=========================================================================
Net Income $5,047,000 $4,405,000 $18,117,000 $14,104,000
Less: Effect of dividend requirements and the
change in redemption value of redeemable
preferred stock (238,000) (300,000) (675,000) (943,000)
Add: 8-1/2% convertible subordinated debentures
interest, net of income tax effect 35,000 35,000 104,000 104,000
-------------------------------------------------------------------------
NET EARNINGS USED IN COMPUTATION $4,844,000 $4,140,000 $17,546,000 $13,265,000
=========================================================================
Per share amount $3.58 $3.11 $12.98 $9.71
=========================================================================
</TABLE>
(1) Includes 73,696 shares and 54,287 shares for 1996 and 1995, respectively,
expected to be issued pursuant to the terms of the Senior Management
Incentive Plan.
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND NINE
MONTH PERIOD ENDED SEPTEMBER 30, 1996 OF GREY ADVERTISING INC. AND CONSOLIDATED
SUBSIDIARY COMPANIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 69,631
<SECURITIES> 28,349
<RECEIVABLES> 537,518
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 738,714
<PP&E> 177,558
<DEPRECIATION> 99,164
<TOTAL-ASSETS> 959,899
<CURRENT-LIABILITIES> 730,248
<BONDS> 33,025
9,481
0
<COMMON> 1,432
<OTHER-SE> 136,274
<TOTAL-LIABILITY-AND-EQUITY> 959,899
<SALES> 542,497
<TOTAL-REVENUES> 542,497
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 508,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,100
<INCOME-PRETAX> 40,051
<INCOME-TAX> 20,661
<INCOME-CONTINUING> 18,117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,117
<EPS-PRIMARY> 13.46
<EPS-DILUTED> 12.98
</TABLE>
