-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UE1CKI6xb68PvlvzV/1KG61OexDaXejXLM61mdSQwLKCtoVSZYiwS4ceIxZWmSHV Swe5sSRIuNmZDtZ72P/GPg== 0000950123-01-508205.txt : 20020410 0000950123-01-508205.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950123-01-508205 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREY GLOBAL GROUP INC CENTRAL INDEX KEY: 0000043952 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 130802840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07898 FILM NUMBER: 1781739 BUSINESS ADDRESS: STREET 1: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125462000 MAIL ADDRESS: STREET 1: 777 THIRD AVE STREET 2: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: GREY ADVERTISING INC /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 y54724e10-q.txt GREY GLOBAL GROUP INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 SEPTEMBER 30, 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 (IRS Employer incorporation or organization) Identification Number) 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 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, 2001, the total number of shares outstanding of Registrant's Common Stock, par value $0.01 per share ("Common Stock"), was 1,037,855 and of Registrant's Limited Duration Class B Common Stock, par value $0.01 per share ("Class B Common Stock"), was 221,600. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES INDEX
PAGE NO. -------- Financial Statements: Condensed Consolidated Balance Sheets..................... 3 Condensed Consolidated Statements of Operations........... 4 Condensed Consolidated Statements of Cash Flows........... 5 Notes to Condensed Consolidated Financial Statements...... 6 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 10 Other Information........................................... 12 Signatures.................................................. 13 Index to Exhibits........................................... 14
2 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 2001 2000(A) ------------- ------------ (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 157,505 $ 309,750 Marketable securities..................................... 1,641 3,006 Accounts receivable....................................... 926,011 999,152 Expenditures billable to clients.......................... 126,183 90,075 Other current assets...................................... 99,625 105,689 ---------- ---------- Total current assets........................................ 1,310,965 1,507,672 Investments in and advances to nonconsolidated affiliated companies................................................. 13,550 16,198 Fixed assets -- at cost, less accumulated depreciation of $186,695 in 2001 and $169,939 in 2000..................... 159,301 147,735 Marketable securities....................................... 11,081 13,797 Intangibles -- net of accumulated amortization of $65,461 in 2001 and $54,420 in 2000.................................. 188,224 192,110 Other assets -- including loans to executive officers of $4,463 in 2001 and $5,247 in 2000......................... 127,217 111,808 ---------- ---------- Total assets................................................ $1,810,338 $1,989,320 ========== ========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $1,102,131 $1,239,940 Notes payable to banks.................................... 58,101 47,016 Accrued expenses and other................................ 197,747 245,751 Income taxes payable...................................... 16,295 26,386 ---------- ---------- Total current liabilities................................... 1,374,274 1,559,093 Other liabilities, including deferred compensation of $59,102 in 2001 and $54,290 in 2000....................... 109,954 99,597 Long-term debt.............................................. 128,025 128,025 Minority interest........................................... 18,886 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................ 9,602 9,995 Common stockholders' equity: Common Stock -- par value $0.01 per share; authorized 50,000,000 shares; issued 1,244,190 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 248,537 shares in 2001 and 251,663 shares in 2000............... 2 3 Paid-in additional capital................................ 47,558 46,004 Retained earnings......................................... 206,009 205,378 Accumulated other comprehensive loss: Cumulative translation adjustment....................... (33,861) (27,388) Unrealized loss on marketable securities................ (5,700) (7,336) ---------- ---------- Total accumulated other comprehensive loss................ (39,561) (34,724) ---------- ---------- Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock........................... (4,726) (4,726) ---------- ---------- 209,294 211,947 Less -- cost of 206,903 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............................................ 39,697 40,012 ---------- ---------- Total common stockholders' equity........................... 169,597 171,935 ---------- ---------- Total liabilities and common stockholders' equity........... $1,810,338 $1,989,320 ========== ==========
- --------------- (A) The condensed consolidated balance sheet has been derived from the audited financial statements at that date. See accompanying notes to condensed consolidated financial statements. 3 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ------------------------- 2001 2000 2001 2000 ------------ ------------ ----------- ----------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Commissions and fees......................... $ 295,964 $ 301,825 $ 915,075 $ 896,908 Expenses: Salaries and employee related expenses..... 196,781 196,352 612,954 581,029 Office and general expenses................ 92,538 92,002 280,050 276,577 ---------- ---------- ---------- ---------- 289,319 288,354 893,004 857,606 ---------- ---------- ---------- ---------- 6,645 13,471 22,071 39,302 Other (loss) income -- net................... (2,285) (1,232) (4,471) 1,181 ---------- ---------- ---------- ---------- Income of consolidated companies before taxes on income.................................. 4,360 12,239 17,600 40,483 Provision for taxes on income................ 2,076 6,403 8,802 21,235 ---------- ---------- ---------- ---------- Income of consolidated companies............. 2,284 5,836 8,798 19,248 Minority interest applicable to consolidated companies.................................. (537) (1,031) (4,023) (4,595) Equity in (loss) earnings of nonconsolidated affiliated companies....................... (237) 337 (593) 1,368 ---------- ---------- ---------- ---------- Net income................................... $ 1,510 $ 5,142 $ 4,182 $ 16,021 ========== ========== ========== ========== Weighted average number of common shares outstanding Basic...................................... 1,238,575 1,227,346 1,236,575 1,229,489 Diluted.................................... 1,369,988 1,352,909 1,373,799 1,345,967 Earnings per common share Basic...................................... $ 1.33 $ 4.19 $ 3.50 $ 12.97 Diluted.................................... $ 1.23 $ 3.82 $ 3.22 $ 11.92 Dividends per common share................... $ 1.00 $ 1.00 $ 3.00 $ 3.00 ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements. 4 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 2001 2000 ------------ ------------ (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) OPERATING ACTIVITIES Net income.................................................. $ 4,182 $ 16,021 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization of fixed assets............. 32,728 28,388 Amortization of intangibles............................... 10,708 8,675 Deferred compensation..................................... 5,100 9,138 Equity in loss (earnings) of non-consolidated affiliated companies, net of dividends received of $1,343 in 2001 and $93 in 2000........................................ 1,936 (1,275) Loss from the sale and write-down of marketable securities............................................. 1,498 137 Minority interest applicable to consolidated companies.... 4,023 4,595 Restricted Stock expense.................................. 1,252 915 Deferred income taxes..................................... (3,600) (1,800) Changes in operating assets and liabilities............... (161,537) (156,767) --------- --------- Net cash used in operating activities....................... (103,710) (91,973) INVESTING ACTIVITIES Purchases of fixed assets................................... (47,630) (54,636) Trust fund deposits......................................... (3,217) (2,738) Decrease in investments in and advances to nonconsolidated affiliated companies...................................... 712 1,751 Purchases of marketable securities.......................... -- (2,741) Proceeds from the sale of marketable securities............. 4,189 3,938 Purchases of investment securities.......................... (1,032) (15,573) Increase in intangibles, primarily goodwill................. (10,152) (25,971) --------- --------- Net cash used in investing activities....................... (57,130) (95,970) FINANCING ACTIVITIES Net proceeds from short-term borrowings..................... 13,125 16,116 Common shares acquired for treasury......................... (122) (2,642) Cash dividends paid on Common Shares........................ (3,765) (3,733) Cash dividends paid on redeemable Preferred Stock........... (180) (180) Net proceeds from issuance of Restricted Stock.............. 91 13 Proceeds from exercise of stock options..................... 505 1,468 --------- --------- Net cash provided by financing activities................... 9,654 11,042 Effect of exchange rate changes on cash..................... (1,059) (373) --------- --------- Decrease in cash and cash equivalents....................... (152,245) (177,274) Cash and cash equivalents at beginning of period............ 309,750 306,556 --------- --------- Cash and cash equivalents at end of period.................. $ 157,505 $ 129,282 ========= =========
See accompanying notes to condensed consolidated financial statements. 5 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 September 30, 2001 and for the three and nine months ended September 30, 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 and nine months ended September 30, 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 September 30, 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 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 6 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) computing earnings per common share ("EPS") and the weighted average number of shares of dilutive potential common stock:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ------------------------- 2001 2000 2001 2000 ------------ ------------ ----------- ----------- BASIC EARNINGS PER COMMON SHARE WEIGHTED AVERAGE SHARES...................... 1,238,575 1,227,346 1,236,575 1,229,489 ---------- ---------- ---------- ---------- Net income................................... $ 1,510 $ 5,142 $ 4,182 $ 16,021 Effect of dividend requirements and the change in redemption value of redeemable Preferred Stock............................ 143 (4) 140 (80) ---------- ---------- ---------- ---------- NET EARNINGS USED IN COMPUTATION............. $ 1,653 $ 5,138 $ 4,322 $ 15,941 ---------- ---------- ---------- ---------- PER SHARE AMOUNT............................. $ 1.33 $ 4.19 $ 3.50 $ 12.97 ========== ========== ========== ========== DILUTED EARNINGS PER COMMON SHARE Weighted average shares used in the Basic EPS calculation................................ 1,238,575 1,227,346 1,236,575 1,229,489 Net effect of dilutive stock options and stock incentive plans(1)................... 80,285 74,435 86,096 65,350 Assumed conversion of 8.5% convertible subordinated debentures.................... 51,128 51,128 51,128 51,128 ---------- ---------- ---------- ---------- ADJUSTED WEIGHTED AVERAGE SHARES............. 1,369,988 1,352,909 1,373,799 1,345,967 ---------- ---------- ---------- ---------- Net earnings used in the Basic EPS calculation................................ $ 1,653 $ 5,138 $ 4,322 $ 15,941 8.5% convertible subordinated debentures interest net of income tax effect.......... 35 35 106 105 ---------- ---------- ---------- ---------- NET EARNINGS USED IN COMPUTATION............. $ 1,688 $ 5,173 $ 4,428 $ 16,046 ---------- ---------- ---------- ---------- PER SHARE AMOUNT............................. $ 1.23 $ 3.82 $ 3.22 $ 11.92 ========== ========== ========== ==========
- --------------- (1) Includes 20,034 and 20,093 shares expected to be issued pursuant to the Senior Management Incentive Plan for the three and nine months ended September 30, 2001, respectively, and 14,894 and 15,239 shares expected to be issued pursuant to the Senior Management Incentive Plan for the three months and nine months ended September 30, 2000, respectively. 7. During the third quarter of 2001 and 2000, total comprehensive loss amounted to $2,280 and $1,146, respectively, and for the nine months ended September 30, 2001 and 2000 total comprehensive income was $655 and $1,943, 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. 7 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 (loss), and income (loss) of consolidated companies before taxes on income for the three and nine months ended September 30, 2001 and 2000, and related identifiable assets at September 30, 2001 and December 31, 2000 are summarized below according to geographic region:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------------------------------------- UNITED STATES EUROPE OTHER CONSOLIDATED ------------------- ------------------- ----------------- ------------------- 2001 2000 2001 2000 2001 2000 2001 2000 -------- -------- -------- -------- ------- ------- -------- -------- Commissions and fees......... $120,242 $135,066 $130,178 $125,306 $45,544 $41,453 $295,964 $301,825 -------- -------- -------- -------- ------- ------- -------- -------- Operating profit (loss)...... 6,587 7,080 (2,310) 5,920 2,368 471 6,645 13,471 -------- -------- -------- -------- ------- ------- -------- -------- Income (loss) of consolidated companies before taxes on income...................... 4,377 7,408 (2,460) 4,186 2,443 645 4,360 12,239 -------- -------- -------- -------- ------- ------- -------- -------- Identifiable assets.......... Investments in and advances to non-consolidated affiliated companies........ Total assets................. FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------------------------------------------- UNITED STATES EUROPE OTHER CONSOLIDATED ------------------- ------------------- ------------------- ----------------------- 2001 2000 2001 2000 2001 2000 2001 2000 -------- -------- -------- -------- -------- -------- ---------- ---------- Commissions and fees......... $376,050 $400,521 $412,308 $378,042 $126,717 $118,345 $ 915,075 $ 896,908 -------- -------- -------- -------- -------- -------- ---------- ---------- Operating profit (loss)...... 6,036 16,961 13,154 19,486 2,881 2,855 22,071 39,302 -------- -------- -------- -------- -------- -------- ---------- ---------- Income (loss) of consolidated companies before taxes on income...................... 1,390 20,591 13,302 16,848 2,908 3,044 17,600 40,483 -------- -------- -------- -------- -------- -------- ---------- ---------- Identifiable assets.......... 653,221 791,655 877,369 880,675 266,198 300,792 1,796,788 1,973,122 -------- -------- -------- -------- -------- -------- Investments in and advances to non-consolidated affiliated companies........ 13,550 16,198 ---------- ---------- Total assets................. $1,810,338 $1,989,320 ========== ==========
8 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. During the fourth quarter, the Company terminated leases or assigned certain leased properties which will result in the recognition of certain up-front costs and asset write-offs essentially offset by rental savings and/or transaction profit; these will be accounted for in and beyond the fourth quarter. 10. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 ("FAS 141"), Business Combinations, and Statement of Financial Accounting Standards No. 142 ("FAS 142"), Goodwill and Other Intangible Assets. FAS 141 and FAS 142 are effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized, but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will adopt the new statements in the first quarter of 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. 11. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143 ("FAS 143"), Accounting for Asset Retirement Obligations, effective for the fiscal years beginning after June 15, 2002. This statement provides the accounting for the cost of legal obligations associated with the retirement of long-lived assets. FAS 143 requires that companies recognize the fair value of a liability for asset retirement obligations in the period in which the obligations are incurred and capitalize that amount as a part of the book value of the long-lived asset. That cost is then depreciated over the remaining life of the underlying long-lived asset. The Company does not expect that the adoption of FAS 143 will have a material impact on its operations or financial position. 12. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS 144"), effective for fiscal years beginning after December 15, 2001. This statement supersedes Financial Accounting Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and provides a single accounting model for long-lived assets to be disposed of. This statement significantly changes the criteria for classifying an asset as held-for-sale. Assets to be disposed of are to be stated at the lower of their fair values or carrying amounts and depreciation will no longer recognized. The Company does not expect that the adoption of FAS 144 will have a material impact on its operations or financial position. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income from commissions and fees ("gross income") decreased 1.9% during the third quarter of 2001 and increased 2.0% during the nine months ended September 30, 2001 when compared to the same period in 2000. Absent exchange rate fluctuations, gross income increased 8.1% in the three and nine months ended September 30, 2001 when compared to the same period in 2000. In the third quarters of 2001 and 2000, respectively, 41.1% and 44.8% of consolidated gross income was attributable to domestic operations and 58.9% and 55.2% to international operations. In the third quarter of 2001 and the first nine months of 2001, respectively, gross income from domestic operations decreased 11.0% and 6.1% versus the respective prior periods; gross income from international operations increased 5.4% (19.5% absent exchange rate fluctuations) for the third quarter and 8.6% (19.6% absent exchange rate fluctuations) for the first nine months when compared to the same respective periods in 2000. The decline in gross income domestically is primarily due to the continuation of weakened business conditions affecting the marketing communications industry which was further exacerbated by the fall-out from the tragic events of September 11th. Salaries and employee related expenses increased 0.2% in the third quarter of 2001 and 5.5% for the first nine months of 2001. Office and general expenses decreased 0.6% in the third quarter and increased 1.3% for the nine months ended September 30, 2001. To respond to the weakened business conditions the Company has continued to take steps to align its expense base, and increased severance and related costs were incurred during the quarter and the nine months. Inflation did not have a material effect on revenue or expenses during 2001 or 2000. Minority interest applicable to consolidated companies decreased by $494 in the third quarter of 2001 and decreased by $572 for the first nine months of 2001. Equity in earnings of nonconsolidated affiliated companies decreased by $574 in the third quarter of 2001 and decreased by $1,961 for the first nine months of 2001. 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 47.6% for the third quarter of 2001 and 50.0% for the first nine months of 2001. Any fluctuation in the rate is primarily attributable to the change in the mix of pre-tax income from operations in countries with different effective tax rates and adjustments to local tax rates. Net income was $1,510 in the third quarter of 2001 and $4,182 for the first nine months of 2001 as compared to net income of $5,142 and $16,021 in the respective prior periods. Basic and diluted earnings per common share for the third quarter of 2001 was $1.33 and $1.23, respectively, and for the first nine months of 2001 were $3.50 and $3.22, respectively. Basic and diluted earnings per common share for the third quarter of 2000 was $4.19 and $3.82, respectively, and for the first nine months of 2000 was $12.97 and $11.92, respectively. LIQUIDITY AND CAPITAL RESOURCES Working capital decreased to a deficit of $63,309 at September 30, 2001 versus a deficit of $51,421 at December 31, 2000 but was less than the deficit of $109,054 at September 30, 2000. Cash and cash equivalents decreased by $152,245 from $309,750 at December 31, 2000 to $157,505 at September 30, 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. The Company has committed lines of credit totaling $74,000 which, together with other sources of funding, it believes adequate. These lines of credit were partially utilized during the three months and nine months ended September 30, 2001 and 2000 to secure obligations of selected foreign subsidiaries. There was $25,978 and $19,000 outstanding under these credit lines as of September 30, 2001 and December 31, 2000, respectively. 10 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 $32,123 and $28,016 outstanding at September 30, 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, interruptions caused by terrorist attacks, wars or other political activity, 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. 11 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 September 30, 2001. 12 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: November 12, 2001 By: /s/ STEVEN G. FELSHER ---------------------------------------------------- Steven G. Felsher, Vice Chairman General Manager (Duly Authorized Officer) Dated: November 12, 2001 By: /s/ LESTER M. FEINTUCK ---------------------------------------------------- Lester M. Feintuck, Senior Vice President Chief Financial Officer U.S. Controller (Chief Accounting Officer)
13 INDEX TO EXHIBITS
PAGE NUMBER IN NUMBER ASSIGNED TO SEQUENTIAL NUMBERING EXHIBIT (I.E. 601 OF TABLE OF ITEM 601 EXHIBITS SYSTEM WHERE EXHIBIT REGULATION S-K) DESCRIPTION OF EXHIBITS MAY BE FOUND - -------------------- -------------------------- -------------------- N/A N/A N/A
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