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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-7898
GREY GLOBAL GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 13-0802840
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
777 Third Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 212-546-2000 including area code:
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
As of April 30, 2001, the total number of shares outstanding of Registrant's
Common Stock, par value $0.01 per share ("Common Stock"), was 1,032,940 and of
Registrant's Limited Duration Class B Common Stock, par value $0.01 per share
("Class B Common Stock"), was 221,929.
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GREY GLOBAL GROUP INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX
PAGE NO.
Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 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 11
Other Information 13
Signatures 14
Index to Exhibits 15
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GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2001 2000
(in thousands, except share and per share data) (UNAUDITED) (A)
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 202,894 $ 309,750
Marketable securities 1,504 3,006
Accounts receivable 911,773 999,152
Expenditures billable to clients 76,360 90,075
Other current assets 102,900 105,689
------- -------
Total current assets 1,295,431 1,507,672
Investments in and advances to nonconsolidated affiliated companies 15,481 16,198
Fixed assets-at cost, less accumulated depreciation of $175,571 in
2001 and $169,939 in 2000 155,232 147,735
Marketable securities 13,036 13,797
Intangibles-net of accumulated amortization of $57,880 in 2001 and
$54,420 in 2000 193,372 192,110
Other assets - including loans to executive officers of $5,247 in 2001
and 2000 115,418 111,808
------- -------
Total assets $ 1,787,970 $ 1,989,320
=========== ===========
See accompanying notes to condensed consolidated financial statements.
(A) The condensed consolidated balance sheet has been derived from the audited
financial statements at that date.
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GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
MARCH 31, DECEMBER 31,
2001 2000
(in thousands, except share and per share data) (UNAUDITED) (A)
----------- -------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,068,281 $ 1,239,940
Notes payable to banks 61,933 47,016
Accrued expenses and other 193,723 245,751
Income taxes payable 22,233 26,386
------- -------
Total current liabilities 1,346,170 1,559,093
Other liabilities, including deferred compensation of $54,724 in 2001
and $54,290 in 2000 112,388 99,597
Long-term debt 128,025 128,025
Minority interest 21,104 20,675
Redeemable Preferred Stock - at redemption value; par value $0.01 per
share; authorized 500,000 shares; issued and outstanding 30,000
shares in 2001 and 2000 9,847 9,995
Common stockholders' equity:
Common Stock - par value $0.01 per share; authorized 50,000,000 shares;
issued 1,242,625 shares in 2001 and 1,238,524 shares in 2000 12 12
Limited Duration Class B Common Stock - par value $0.01 per share;
authorized 10,000,000 shares; issued 248,876 shares in 2001 and
251,663 shares in 2000 2 3
Paid-in additional capital 46,514 46,004
Retained earnings 204,458 205,378
Accumulated other comprehensive loss:
Cumulative translation adjustment (30,037) (27,388)
Unrealized loss on marketable securities (5,876) (7,336)
------- -------
Total accumulated other comprehensive loss (35,913) (34,724)
------- -------
Loans to officer used to purchase Common Stock and Limited
Duration Class B Common Stock (4,726) (4,726)
------- -------
210,347 211,947
Less - cost of 210,065 and 210,749 shares of Common Stock and 26,937 and
26,937 shares of Limited Duration Class B Common Stock held in treasury in
2001 and 2000, respectively 39,911 40,012
------- -------
Total common stockholders' equity 170,436 171,935
------- -------
Total liabilities and common stockholders' equity $ 1,787,970 $ 1,989,320
============== ==============
See accompanying notes to condensed consolidated financial statements.
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GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
(in thousands, except share and per share data) 2001 2000
--------------------------------------
Commissions and fees $ 304,851 $ 288,708
Expenses:
Salaries and employee related expenses 205,119 187,404
Office and general expenses 94,033 89,496
--------------------------------------
299,152 276,900
--------------------------------------
5,699 11,808
Other (loss) income - net (769) 1,151
--------------------------------------
Income of consolidated companies before taxes on income 4,930 12,959
Provision for taxes on income 2,474 6,911
--------------------------------------
Income of consolidated companies 2,456 6,048
Minority interest applicable to consolidated companies (1,914) (1,358)
Equity in (loss) earnings of nonconsolidated affiliated companies (297) 464
--------------------------------------
Net income $ 245 $ 5,154
--------------------------------------
Weighted average number
of common shares outstanding
Basic 1,235,139 1,233,588
Diluted 1,369,927 1,342,259
Earnings per common share
Basic $0.27 $ 4.11
Diluted $0.27 $ 3.81
Dividends per common share $1.00 $ 1.00
See accompanying notes to condensed consolidated financial statements.
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GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
(in thousands, except share and per share data) 2001 2000
-------- --------
OPERATING ACTIVITIES
Net income $ 245 $ 5,154
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization of fixed assets 10,420 8,826
Amortization of intangibles 3,328 3,031
Deferred compensation 500 2,599
Equity in earnings of nonconsolidated affiliated companies, net of
dividends received of $23 in 2001 and $12 in 2000 320 (452)
Loss from the sale of marketable securities 19 22
Minority interest applicable to consolidated companies 1,914 1,358
Restricted stock expense 461 195
Deferred income taxes (1,117) (600)
Changes in operating assets and liabilities (118,778) (102,437)
-------- --------
Net cash used in operating activities (102,688) (82,304)
INVESTING ACTIVITIES
Purchases of fixed assets (16,867) (17,781)
Trust fund deposits (1,416) (1,134)
Decrease in investments in and advances to
nonconsolidated affiliated companies 397 518
Purchases of marketable securities -- (501)
Proceeds from the sale of marketable securities 3,677 920
Purchases of investment securities (746) (14,966)
Increase in intangibles, primarily goodwill (2,213) (9,800)
-------- --------
Net cash used in investing activities (17,168) (42,744)
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GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
FOR THE THREE MONTHS ENDED
MARCH 31,
(in thousands, except share and per share data) 2001 2000
----------------------------
FINANCING ACTIVITIES
Net proceeds from (repayments of) short-term borrowings 13,060 (8,835)
Common shares acquired for treasury (122) (1,606)
Cash dividends paid on common shares (1,252) (1,244)
Cash dividends paid on redeemable Preferred Stock (60) (60)
(Payments for repurchase) net proceeds from issuance of
restricted stock (79) 3
Proceeds from exercise of stock options 209 164
----------------------------
Net cash provided by financing activities 11,756 (11,578)
Effect of exchange rate changes on cash 1,244 (831)
----------------------------
Decrease in cash and cash equivalents (106,856) (137,457)
Cash and cash equivalents at beginning of period 309,750 306,556
----------------------------
Cash and cash equivalents at end of period $ 202,894 $ 169,099
============================
See accompanying notes to condensed consolidated financial statements.
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GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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
accounting principles generally accepted in the United States. Reference
should be made to the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 filed with the Securities and Exchange Commission.
2. The financial statements as of March 31, 2001 and for the three months
ended March 31, 2001 and 2000 are unaudited. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
3. The results of operations for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full year.
4. The provision for taxes on income results in an effective tax rate that is
greater than the Federal statutory rate principally due to state and local
income taxes and an overall effective foreign tax rate in excess of the
Federal statutory rate.
5. As of March 31, 2001 and December 31, 2000, the Company had outstanding
20,000 shares of Series I Preferred Stock, and 5,000 shares each of its
Series II and Series III Preferred Stock. The holder of these shares is the
Chairman and Chief Executive Officer of the Company. 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 (subject to certain adjustments) upon
redemption, less a fixed discount established upon the issuance of the
Preferred Stock. The holder of each class of Preferred Stock is entitled to
receive cumulative preferential dividends at the annual rate of $.25 per
share, and to participate in dividends on one share of the Common Stock and
one share of the Class B Common Stock to the extent such dividends exceed
the per share preferential dividend. The redemption date for the Series I,
Series II and Series III Preferred Stock is fixed at April 7, 2004.
6. The computation of basic earnings per common share is based on the weighted
average number of common shares outstanding and, for diluted earnings per
common share, is adjusted for the dilutive effect, if any, of the assumed
exercise of dilutive stock options, shares issuable pursuant to the
Company's Senior Management Incentive Plan and the assumed conversion of
the Company's 8-1/2% Convertible Subordinated Debentures. For the purpose
of computing basic earnings per common share, the Company's net income is
adjusted by dividends paid on the Company's Preferred Stock and by the
change in redemption value of the Company's Preferred Stock during the
period. For the purpose of computing diluted earnings per common share, net
income is also adjusted by the interest savings, net of tax, on the assumed
conversion of the Company's 8-1/2% Convertible Subordinated Debentures.
Additionally, in computing diluted earnings per common share, the average
quarterly market price is used to determine the
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GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
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. The following table shows
the amounts effecting income used in computing earnings per common share
("EPS") and the weighted average number of shares of dilutive potential
common stock:
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------------
2001 2000
---------------------------------
BASIC EARNINGS PER
COMMON SHARE
WEIGHTED AVERAGE SHARES 1,235,139 1,233,588
---------------------------------
Net income $ 245 $ 5,154
Effect of dividend requirements and the change in redemption value of
redeemable preferred stock 88 (82)
---------------------------------
NET EARNINGS USED IN COMPUTATION $ 333 $ 5,072
---------------------------------
PER SHARE AMOUNT $0.27 $4.11
=================================
DILUTED EARNINGS PER
COMMON SHARE
Weighted average shares used in the Basic EPS calculation 1,235,139 1,233,588
Net effect of dilutive stock options and stock incentive plans (1) 83,660 57,543
Assumed conversion of 8.5% convertible subordinated debentures 51,128 51,128
---------------------------------
ADJUSTED WEIGHTED AVERAGE SHARES 1,369,927 1,342,259
---------------------------------
Net earnings used in the Basic EPS calculation $ 333 $ 5,072
8.5% convertible subordinated debentures interest net of income tax effect 35 35
---------------------------------
NET EARNINGS USED IN COMPUTATION $ 368 $ 5,107
---------------------------------
PER SHARE AMOUNT $0.27 $3.81
=================================
(1) Includes 20,211 and 15,723 shares expected to be issued pursuant to the
Senior Management Incentive Plan for the three months ended March 31, 2001
and 2000, respectively.
7. During the first quarter of 2001 and 2000, total comprehensive loss
amounted to $944 and total comprehensive income amounted to $2,450,
respectively. The difference between net income and total comprehensive
income is the result of the change in the translated value of the net
assets of the Company's international operations due to the change in value
of the United States dollar versus other currencies and the change in fair
market value of marketable securities.
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GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
8. The Company is not engaged in more than one industry segment. The Company
evaluates performance by geographic region based on profit or loss before
income taxes. Commissions and fees are attributed to the geographic region
that generates the billings. Commissions and fees, operating profit, and
income (loss) of consolidated companies before taxes on income for the
three months ended March 31, 2001 and 2000, and related identifiable assets
at March 31, 2001 and December 31, 2000 are summarized below according to
geographic region:
FOR THE THREE MONTHS ENDED MARCH 31,
UNITED STATES EUROPE
---------------------------- ---------------------------
2001 2000 2001 2000
Commissions and fees $ 129,273 $128,311 $ 139,954 $ 125,970
---------------------------- ---------------------------
Operating profit (loss) (142) 5,678 9,392 7,841
---------------------------- ---------------------------
Income (loss) of consolidated
companies before taxes on income 261 7,882 8,239 6,884
---------------------------- ---------------------------
Identifiable assets 609,629 791,655 919,789 880,675
---------------------------- ---------------------------
OTHER CONSOLIDATED
2001 2000 2001 2000
---------------------------- ---------------------------
Commissions and fees $35,624 $ 34,427 $ 304,851 $ 288,708
---------------------------- ---------------------------
Operating profit (loss) (3,551) (1,711) 5,699 11,808
---------------------------- ---------------------------
Income (loss) of consolidated
companies before taxes on income (3,570) (1,807) 4,930 12,959
---------------------------- ---------------------------
Identifiable assets 243,071 300,792 1,772,489 1,973,122
----------------------------
Investments in and advances to
non-consolidated affiliated 15,481 16,198
companies
------------------------------
Total assets $ 1,787,970 $ 1,989,320
==============================
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
(in thousands, except share and per share data)
RESULTS OF OPERATIONS
Income from commissions and fees ("gross income") increased 5.6% during the
first quarter of 2001 when compared to the same period in 2000. Absent exchange
rate fluctuations, gross income increased 9.3% in the three months ended March
31, 2001 when compared to the same period in 2000. In the first quarters of 2001
and 2000, respectively, 42.4% and 44.4% of consolidated gross income was
attributable to domestic operations and 57.6% and 55.6% to international
operations. In the first quarter of 2001, gross income from domestic operations
increased 0.8% versus the respective prior period, while gross income from
international operations increased 9.5%, (16.1% absent exchange rate
fluctuations) when compared to the same period in 2000. The increase in gross
income primarily resulted from the impact of new client assignments and the
continued growth of the Company's media and marketing communications operations.
Salaries and employee related expenses increased 9.5% in the first quarter of
2001 when compared to the respective prior period. Office and general expenses
increased 5.1% for the three months ended March 31, 2001 versus the comparable
prior period. The increase in salary and employee related expense includes
increased severance costs incurred in connection with staff cuts effected in the
quarter. Office and general expenses are generally in line with the increase in
gross income.
Inflation did not have a material effect on revenue or expenses during 2001 or
2000.
Minority interest applicable to consolidated companies increased by $556 in the
first quarter of 2001 as compared to the respective prior period. Equity in
earnings of nonconsolidated affiliated companies decreased by $761 in the first
quarter of 2001 as compared to the respective prior period. The fluctuations are
primarily due to changes in the level of profits of majority-owned companies and
nonconsolidated affiliated companies.
The effective tax rate is 50.2% for the first quarter of 2001 versus 53.3% in
the same period in 2000. The decrease is due, in large part, to the change in
the mix of pre-tax income from operations in countries with lower effective tax
rates.
Net income was $245 in the first quarter of 2001 as compared to net income of
$5,154 in the respective prior period. For the first quarter of 2001 both basic
and diluted earnings per common share were $0.27. The Company's results were
adversely affected in the quarter by general weak business conditions in the
U.S. which are reflected in essentially flat gross income in that market. During
the first quarter the Company noted weakness, in particular, in a number of
operations which had a concentration in serving certain technology-related and
telecom sector clients.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (CONTINUED)
(in thousands, except share and per share data)
LIQUIDITY AND CAPITAL RESOURCES
Working capital remained relatively constant with a deficit of $50,739 at March
31, 2001, versus a deficit of $51,421 at December 31, 2000. Cash and cash
equivalents decreased by $106,856 from $309,750 at December 31, 2000 to $202,894
at March 31, 2001. The decrease in cash and cash equivalents is attributable to
the timing of collections of accounts receivable and billing of expenses to
clients versus payments to trade vendors. Domestically, the Company has
committed lines of credit totaling $59,000 that together, with its other sources
of funding, it believes adequate. These lines of credit were partially utilized
during the three months ended March 31, 2001 and 2000 to secure obligations of
selected foreign subsidiaries. There was $17,900 and $19,000 outstanding under
these credit lines as of March 31, 2001 and December 31, 2000, respectively.
Other lines of credit are available to the Company in foreign countries in
connection with short-term borrowings and bank overdrafts used in the normal
course of business. There was $44,033 and $28,016 outstanding at March 31, 2001
and December 31, 2000, respectively.
FORWARD LOOKING STATEMENTS
In connection with the provisions of the Private Securities Litigation Reform
Act of 1995 (the "Reform Act"), the Company may include Forward Looking
Statements (as defined in the Reform Act) in oral or written public statements
issued by or on behalf of the Company. These Forward Looking Statements may
include, among other things, plans, objectives, projections, anticipated future
economic performance or assumptions and the like that are subject to risks and
uncertainties. As such, actual results or outcomes may differ materially from
those discussed in the Forward Looking Statements. Important factors which may
cause actual results to differ, include but are not limited to the following:
the unanticipated loss of a material client or key personnel, delays or
reductions in client budgets, shifts in industry rates of compensation,
government compliance costs or litigation, unanticipated natural disasters,
changes in the general economic conditions that affect interest rates and/or
consumer spending both in the U.S. and the international markets in which the
Company operates, unanticipated expenses, client preferences which can be
affected by competition and the ability to project risk factors which may vary.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Reference is made to the Index annexed hereto and made a
part hereof.
(b) Reports on Form 8-K: The Company did not file any reports on Form 8K
during the quarter ended March 31, 2001.
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GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 GLOBAL GROUP INC.
(REGISTRANT)
Dated: May 15, 2001 By:/s/ Steven G. Felsher
-----------------------------
Steven G. Felsher,
Vice Chairman
General Manager
(Duly Authorized Officer)
Dated: May 15, 2001 By:/s/ Lester M. Feintuck
-----------------------------
Lester M. Feintuck,
Senior Vice President
Chief Financial Officer U.S.
Controller
(Chief Accounting Officer)
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