-----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, O1cXEbPUrwifvSjPGgMtSSu8KFOsiiIa/Oks5vB2dFoFfZ4otl0nWRD5n3aCZj9B GFkADWIiTrSO8l2Dtd1yzw== 0000950123-04-005942.txt : 20040507 0000950123-04-005942.hdr.sgml : 20040507 20040507143350 ACCESSION NUMBER: 0000950123-04-005942 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040507 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: 04788547 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 y97136e10vq.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 MARCH 31, 2004 [ ] 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, 10017 NEW YORK, NEW YORK (Zip Code) (Address of principal executive offices)
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 and (2) has been subject to the filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Act) [X] Yes [ ] No As of April 30, 2004, the total number of shares outstanding of Registrant's Common Stock, par value $0.01 per share ("Common Stock"), was 1,145,280 and of Registrant's Limited Duration Class B Common Stock, par value $0.01 per share ("Class B Common Stock"), was 231,140. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES INDEX
PAGE NO. -------- Financial Statements: Condensed Consolidated Balance Sheets..................... 2 Condensed Consolidated Statements of Operations........... 3 Condensed Consolidated Statements of Cash Flows........... 4 Notes to Condensed Consolidated Financial Statements...... 5 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 10 Other Information........................................... 17 Signatures.................................................. 18 Index to Exhibits........................................... 19
1 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2004 2003(A) ---------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 435,852 $ 510,446 Marketable securities..................................... 945 979 Accounts receivable -- net of allowance for doubtful accounts of $22,762 in 2004 and $21,467 in 2003......... 1,283,152 1,250,241 Expenditures billable to clients.......................... 102,834 77,503 Other current assets...................................... 115,182 106,710 ---------- ---------- Total current assets........................................ 1,937,965 1,945,879 Investments in and advances to nonconsolidated affiliated companies................................................. 17,046 16,899 Fixed assets -- at cost, less accumulated depreciation of $254,668 in 2004 and $246,455 in 2003..................... 142,431 140,687 Marketable securities....................................... 1,851 1,580 Goodwill.................................................... 302,367 286,880 Other assets -- including loans to executive officers of $1,547 in 2004 and $5,047 in 2003......................... 137,058 133,537 ---------- ---------- Total assets................................................ $2,538,718 $2,525,462 ========== ========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $1,464,881 $1,472,944 Notes payable to banks.................................... 57,359 70,455 Accrued expenses and other................................ 339,030 325,115 Income taxes payable...................................... 14,625 21,238 Redeemable preferred stock -- at redemption value; par value $0.01 per share; authorized 500,000 shares; issued and outstanding 30,000 shares in 2004 and 2003.......... 12,042 12,042 ---------- ---------- Total current liabilities................................... 1,887,937 1,901,794 Other liabilities, including deferred compensation of $64,370 in 2004 and $61,318 in 2003....................... 104,274 92,271 Term loans.................................................. 125,000 125,000 Contingent convertible subordinated debentures.............. 150,000 150,000 Minority interest........................................... 14,305 14,438 Common stockholders' equity: Common Stock -- par value $0.01 per share; authorized 50,000,000 shares; issued 1,286,636 shares in 2004 and 1,284,493 shares in 2003................................ 13 13 Limited Duration Class B Common Stock -- par value $0.01 per share; authorized 10,000,000 shares; issued 232,513 shares in 2004 and 233,559 shares in 2003............... 2 2 Paid-in additional capital................................ 61,585 57,481 Retained earnings......................................... 216,502 211,573 Accumulated other comprehensive income: Cumulative translation adjustment....................... 20,285 7,042 ---------- ---------- Total accumulated other comprehensive income.............. 20,285 7,042 ---------- ---------- Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock........................... (4,726) (4,726) ---------- ---------- 293,661 271,385 Less -- cost of 142,446 and 161,389 shares of Common Stock and 1,373 and 26,937 shares of Limited Duration Class B Common Stock held in treasury at March 31, 2004 and December 31, 2003, respectively......................... 36,459 29,426 ---------- ---------- Total common stockholders' equity........................... 257,202 241,959 ---------- ---------- Commitments and contingencies............................... -- -- ---------- ---------- Total liabilities and common stockholders' equity........... $2,538,718 $2,525,462 ========== ==========
- --------------- (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. 2 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------- 2004 2003 ---------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) Revenue..................................................... $ 343,870 $ 297,643 Expenses: Salaries and employee related expenses.................... 222,896 195,169 Office and general expenses............................... 101,960 88,094 ---------- ---------- 324,856 283,263 ---------- ---------- Operating income............................................ 19,014 14,380 Interest expense.......................................... (5,653) (4,046) Interest income........................................... 2,129 714 Other income -- net....................................... 477 45 ---------- ---------- Income of consolidated companies before taxes on income..... 15,967 11,093 Provision for taxes on income............................... 8,143 5,214 ---------- ---------- Income of consolidated companies............................ 7,824 5,879 Minority interest applicable to consolidated companies...... (1,774) (997) Equity in earnings of nonconsolidated affiliated companies................................................. 254 189 ---------- ---------- Net income.................................................. $ 6,304 $ 5,071 ========== ========== Net income applicable to common shareholders: Net Income.................................................. $ 6,304 $ 5,071 Effect of dividend requirement and the change in redemption value of redeemable preferred stock....................... -- (774) ---------- ---------- Net income applicable to common shareholders................ $ 6,304 $ 4,297 ========== ========== Weighted average number of common shares outstanding Basic..................................................... 1,358,970 1,262,132 Diluted................................................... 1,402,124 1,389,996 Earnings per common share Basic..................................................... $ 4.64 $ 3.41 Diluted................................................... $ 4.50 $ 3.12 Dividends per common share.................................. $ 1.00 $ 1.00 ========== ==========
See accompanying notes to condensed consolidated financial statements. 3 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, --------------------- 2004 2003 --------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) OPERATING ACTIVITIES Net income.................................................. $ 6,304 $ 5,071 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation of fixed assets.............................. 9,169 10,012 Deferred compensation..................................... 2,799 2,080 Amortization of restricted stock and stock options........ 528 616 Equity in earnings of non-consolidated affiliated companies, net of dividends received of $31 in 2004 and $122 in 2003........................................... (223) (67) Loss on the sale and write-down of investments and marketable securities.................................. 11 161 Minority interest applicable to consolidated companies.... 1,774 997 Deferred income taxes..................................... (414) 1,001 Changes in operating assets and liabilities............... (66,520) (52,040) -------- -------- Net cash (used in) provided by operating activities......... (46,572) (32,169) INVESTING ACTIVITIES Purchases of fixed assets................................... (7,118) (5,555) Trust fund deposits......................................... (571) -- Decrease (increase) in investments in and advances to nonconsolidated affiliated companies...................... 76 (965) Proceeds from the sale of marketable securities............. -- 4,184 Purchases of investment securities.......................... -- (154) Increase in goodwill........................................ (1,378) (8,883) -------- -------- Net cash used in investing activities....................... (8,991) (11,373) FINANCING ACTIVITIES Repayments of short-term borrowings......................... (15,920) (6,966) Cash dividends paid on common shares........................ (1,375) (1,281) Cash dividends paid on Redeemable Preferred Stock........... (60) (60) Purchase of treasury stock.................................. (8,332) -- Proceeds from exercise of stock options..................... 394 695 -------- -------- Net cash used in financing activities....................... (25,293) (7,612) Effect of exchange rate changes on cash..................... 6,262 3,698 -------- -------- Decrease in cash and cash equivalents....................... (74,594) (47,456) Cash and cash equivalents at beginning of period............ 510,446 351,006 -------- -------- Cash and cash equivalents at end of period.................. $435,852 $303,550 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The Condensed Consolidated Financial Statements have been prepared by the Company without audit as permitted by the Securities and Exchange Commission in accordance with generally accepted accounting principles in the United States for interim financial statements. The interim financial statements include all adjustments, which are of a normal recurring nature, that management considers necessary to present fairly the financial position and the results of operations for such periods. Reference should be made to the Company's Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission. Certain prior period amounts have been reclassified for comparability with current information. 2. The financial statements as of March 31, 2004 and for the three months ended March 31, 2004 and 2003 are unaudited. Certain of the Company's international operations are consolidated on an up to three month lag as permitted by accounting principles generally accepted in the United States. Material intercompany balances and transactions have been eliminated in consolidation. 3. The results of operations for the three months ended March 31, 2004 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, 2004 and December 31, 2003, 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 (collectively, "Preferred Stock"). All of these shares were redeemed for cash in accordance with their terms on April 7, 2004 for the value of the shares shown on the balance sheets ($12.0 million) as at March 31, 2004 and December 31, 2003. The holder of the Preferred Stock was the Chairman and Chief Executive Officer of the Company. Each share of Preferred Stock was 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) as at the year end prior to redemption, less a fixed discount established upon the issuance of the Preferred Stock. The holder of the Preferred Stock had been 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 (see note 15). 6. The computation of basic earnings per common share for the quarter ended March 31, 2004 is based on net income and the weighted average number of common shares outstanding and, for diluted earnings per common share, includes adjustments for the effect of the assumed exercise of dilutive stock options and the effect of certain share grants pursuant to the Company's stock incentive plans. For the purpose of computing basic earnings per common share for the quarter ending March 31, 2003, the Company's net income was reduced by the increase in the redemption value of the Company's Preferred Stock, which was redeemed in accordance with its terms after December 31, 2003, the date at which the Preferred Stock was valued. For the purpose of computing diluted earnings per common share, net income was also adjusted by the interest savings, net of tax, on the assumed conversion of the Company's 8 1/2% Convertible Subordinated Debentures, which were converted on December 31, 2003. Shares issuable upon conversion of the Company's 5% Contingent Convertible Subordinated Debentures are excluded from the computation of diluted earnings per common share since the contingent conditions for conversion have not been met. 5 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table shows the amounts affecting net income used in computing earnings per common share ("EPS") and the weighted average number of dilutive potential common shares:
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------- 2004 2003 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ---------- ---------- BASIC EARNINGS PER COMMON SHARE WEIGHTED AVERAGE NUMBER OF SHARES........................... 1,358,970 1,262,132 ---------- ---------- Net income(1)............................................... $ 6,304 $ 5,071 Effect of dividend requirements and the change in redemption value of redeemable preferred stock....................... -- (774) ---------- ---------- NET EARNINGS USED IN COMPUTATION............................ $ 6,304 $ 4,297 ---------- ---------- PER SHARE AMOUNT............................................ $ 4.64 $ 3.41 ========== ========== DILUTED EARNINGS PER COMMON SHARE Weighted average number of shares used in the Basic EPS calculation............................................... 1,358,970 1,262,132 Net effect of dilutive stock options and stock incentive plans(2).................................................. 43,154 76,736 Assumed conversion of 8.5% convertible subordinated debentures................................................ -- 51,128 ---------- ---------- ADJUSTED WEIGHTED AVERAGE NUMBER OF SHARES.................. 1,402,124 1,389,996 ---------- ---------- Net earnings used in the Basic EPS calculation.............. $ 6,304 $ 4,297 8.5% convertible subordinated debentures interest, net of income tax effect......................................... -- 36 ---------- ---------- NET EARNINGS USED IN COMPUTATION............................ $ 6,304 $ 4,333 ---------- ---------- PER SHARE AMOUNT............................................ $ 4.50 $ 3.12 ========== ==========
- --------------- (1) For the three months ended March 31, 2004, dividends on the Preferred Stock were treated as interest expense. (2) Includes 14,877 and 17,938 shares expected to be issued pursuant to the Senior Management Incentive Plan for the purpose of computing EPS for the three months ended March 31, 2004 and 2003, respectively. 7. During the first quarter of 2004 and 2003, total comprehensive income amounted to $19.6 million and $15.6 million, 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, principally, due to the change in value of the United States dollar versus other currencies. 8. The Company is not engaged in more than one industry segment. The Company evaluates performance by geographic region based on income or loss before income taxes. Commissions and fees, operating income, and income (loss) of consolidated companies before taxes on income for the three months ended 6 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) March 31, 2004 and 2003, and related identifiable assets at March 31, 2004 and December 31, 2003 are summarized below according to geographic region:
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------------------------------------------------------------------------------- ASIA/LATIN NORTH AMERICA EUROPE AMERICA CONSOLIDATED --------------------- ----------------------- ------------------- ----------------------- 2004 2003 2004 2003 2004 2003 2004 2003 (IN THOUSANDS, EXCEPT SHARE AND -------- ---------- ---------- ---------- -------- -------- ---------- ---------- PER SHARE DATA) Commissions and fees........... $143,455 $ 130,479 $ 166,822 $ 137,746 $ 33,593 $ 29,418 $ 343,870 $ 297,643 -------- ---------- ---------- ---------- -------- -------- ---------- ---------- Operating income (loss)........ 9,902 8,730 9,776 6,042 (665) (392) 19,014 14,380 -------- ---------- ---------- ---------- -------- -------- ---------- ---------- Income (loss) of consolidated companies before taxes on income....................... 5,195 7,028 11,537 4,526 (765) (461) 15,967 11,093 -------- ---------- ---------- ---------- -------- -------- ---------- ---------- Identifiable Assets............ 911,353 1,036,831 1,388,362 1,246,617 221,955 225,115 2,521,669 2,508,563 ======== ========== ========== ========== ======== ======== Investments in and advances to non-consolidated affiliated companies.................... 17,046 16,899 ---------- ---------- 2,538,718 $2,525,462 ========== ==========
Commissions and fees from the United States amounted to, approximately, 93.0% and 94.2% of the North American total for the three months ended March 31, 2004 and 2003, respectively. 9. In December 2002, the Financial Accounting Standard Board, issued Statement of Financial Accounting Standards No. 148 ("FAS 148"), Accounting for Stock-Based Compensation -- Transition and Disclosure which amends Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting for Stock-Based Compensation. FAS 148 provides alternative methods of transition to FAS 123's fair value method of accounting for stock-based employee compensation and amends the disclosure provisions of FAS 123. The Company adopted FAS 123 effective January 1, 2003, using the prospective method and expenses stock options issued after January 1, 2003 using the fair value method as provided for in FAS 148. There were 1,500 options granted in the first quarter of 2004. Options were not granted in the first quarter 2003. Under FAS 123 the compensation expense for the three months ended March 31, 2004 was $16,000. Pro forma information regarding net income and earnings per common share has been determined as if the Company had accounted for its employee stock options under the fair value method for all periods presented. The approximate fair value for these options was estimated at the date of grant using a Black- Scholes option valuation model with the following weighted average assumptions for the period ending March 31, 2004: risk-free interest rates of 4.96%; dividend yields of 0.60%; volatility factors of the expected market price of the Company's Common Stock of 0.30; and a weighted-average expected life for the options of 7.0 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Management reviews, from time to time, whether there are more reliable option valuation models available for use and at some point may adopt an alternative valuation methodology. 7 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
THREE MONTHS ENDED MARCH 31, --------------- 2004 2003 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ------ ------ Net Income (as reported).................................... $6,304 $5,071 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects........... 259 326 (Less): Total stock-based employee compensation expense determined under fair value based method, net of related tax effects............................................... (409) (514) ------ ------ Pro forma net income........................................ $6,154 $4,883 Earnings per common share: Basic -- as reported...................................... $ 4.64 $ 3.41 Basic -- pro forma........................................ $ 4.53 $ 3.26 Diluted -- as reported.................................... $ 4.50 $ 3.12 Diluted -- pro forma...................................... $ 4.39 $ 2.99
10. The Company estimates that it will be required to make future payments to acquire additional shares of subsidiary companies or to complete earn-out agreements (collectively, "Agreements") pursuant to certain acquisition arrangements not reflected as liabilities on its consolidated balance sheet of approximately $55.0 million. Of such amount, 38% is estimated to be paid over the period from 2004 through 2007 and the remainder to be paid from 2008 and beyond. The foregoing information is estimated and the actual payments made will be dependent on future events primarily related to the attainment of earnings goals, specified operating margins and revenue targets or a combination thereof in respect of a number of subject companies. Other factors which must be considered in making the estimate include the fulfillment and amendment of certain contractual obligations by third parties, the movement of exchange rates, the timing of when the Company or other parties choose to exercise certain contractual rights and other variables. Many of the Agreements do not provide for maximum or minimum amounts payable. Therefore, there is no definitive range of the amounts payable in the future. The estimated amounts payable were computed using assumptions as to earnings bases, dividend rates, earnings growth rates and other factors deemed to be reasonable for the underlying situations. If the Company were to increase the earnings assumptions used in estimating the amounts payable uniformly by 10%, the estimated amounts payable would increase to $65.6 million; if the earnings assumptions were decreased uniformly by 10%, the estimated amounts payable would decrease to $44.4 million. 11. The Company assesses the fair value and recoverability of intangible assets, primarily goodwill, in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. As part of the annual evaluation, the fair value of the business units, on the regional levels of North America and Europe, is compared to the carrying value of those business units. For the purposes of the analysis, Asian and Latin American business units are combined with the respective North American and European regions reflecting the fact that investments in the Asian and Latin American regions are principally needed to support multi-national clients in North America and Europe. If impairment is indicated, the excess of the carrying value of the goodwill over fair value of the business units is written-off. The Company completed its annual impairment test of goodwill and intangible assets with indefinite lives as of March 31, 2004, and no impairment was identified nor were there impairment indicators subsequent to March 31, 2004. 8 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. A significant part of the Company's business involves the purchase of media time and space in many markets from various media suppliers. Consistent with industry practices, in a number of countries, the Company, from time to time, directly or through a local media buying operation, is required to guarantee payment to the media suppliers in the form of performance bonds, letters of credit or other similar financial instruments which relate to liabilities shown in the Accounts Payable section of the Condensed Consolidated Balance Sheet. The utilization of these instruments may at times absorb some of the Company's credit capacity. In addition, from time to time, the Company may guarantee certain financial and other obligations of its consolidated subsidiaries. 13. On May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("FAS 150"). This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer, and have characteristics of both liabilities and equity. FAS 150 represents a significant change in practice in the accounting for a number of financial instruments, including mandatorily redeemable equity instruments. Effective July 1, 2003, the Company's redeemable Preferred Stock has been classified as a liability. Additionally, thereafter in 2003, the change in the redemption value of the Company's redeemable Preferred Stock and dividend payments to the preferred shareholder which previously had been recorded as changes in Retained Earnings were recorded as increases in interest expense. The adoption of FAS 150 did not have an effect on EPS. As noted above, the Company redeemed the Preferred Stock on April 7, 2004. 14. In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities" an Interpretation of ARB No. 51 ("FIN 46"), which requires variable interest entities (often referred to as special purpose entities or SPEs) to be consolidated if certain criteria are met. FIN 46 was effective as of January 31, 2003 for variable interest entities created after that date and other variable interest entities in the first quarter of 2004. The adoption of FIN 46 did not have any impact on the Company's consolidated financial statements. 15. On January 5, 2004, Edward H. Meyer, the Company's Chairman and Chief Executive Officer, exercised non-qualified stock options (the "Options") to purchase 40,000 shares of Common Stock at an aggregate exercise price of $5.94 million (or $148.50 per share). The Options, which had been issued in 1995 pursuant to the Company's 1994 Stock Incentive Plan (the "Plan"), were set to expire on January 5, 2004. In accordance with the terms of the Plan, Mr. Meyer elected to pay the exercise price through delivery to the Company of 8,774 shares, based on the $677 per share closing price on January 5, 2004. Mr. Meyer also delivered to the Company 12,316 shares of Common Stock in satisfaction of tax withholding obligations, based on the $676.51 per share price as determined in accordance with applicable tax regulations. 16. The Company recognized a $6.1 million loss on the sale of a subsidiary at its Scandinavian operation in the first quarter of 2004. The Company believes it has no continuing liability that will have a material impact on the financial statements. 17. On April 7, 2004, the Company redeemed, in accordance with their terms, all of the outstanding shares of the Company's Series I Preferred Stock, Series II Preferred Stock and Series III Preferred Stock. The Preferred Stock, which was originally issued over 20 years ago pursuant to the Company's Book Value Preferred Stock Plan, was owned by Mr. Edward H. Meyer, the Company's Chairman and Chief Executive Officer. The redemption price paid of $12.0 million was paid in cash. On April 7, 2004, Mr. Meyer repaid in full $0.8 million of certain promissory notes provided to the Company by Mr. Meyer at the time the Preferred Stock was originally acquired. 9 PART I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS ITEM 2. RESULTS OF OPERATIONS FIRST QUARTER ENDED 2004 COMPARED TO FIRST QUARTER ENDED 2003 Overview Grey ranks among the largest global communications companies in the world. Grey operates business units in many communications disciplines including general advertising, public relation/public affairs, direct marketing, internet communications, healthcare marketing, brand strategy and design, and on-line and off-line media services. Frequently, our clients use a number of our business units. In the first quarter of 2004, revenue grew by 15.5%, income of consolidate companies before taxes ("pre-tax profit") grew by 43.9% and net income increased by 24.3% over the first quarter of 2003. These improved results are primarily attributable to increased profitability in Europe even after a continuation of large losses at the Company's Scandinavian operations Liquidity is strong with continued high cash and cash equivalents balances. Revenue The following chart shows the breakdown of the Company's revenue in the first quarter of 2004 and 2003 by area:
2004 2003 --------------------- --------------------- PERCENTAGE PERCENTAGE AMOUNT OF TOTAL AMOUNT OF TOTAL (IN THOUSANDS, EXCEPT PERCENTAGE DATA) -------- ---------- -------- ---------- Revenue from: North American operations................ $143,455 41.7% $130,480 43.8% -------- ----- -------- ----- Non-North American operations ("international"): Europe.............................. 166,822 48.5% 137,746 46.3% Asia/Latin America.................. 33,593 9.8% 29,417 9.9% -------- ----- -------- ----- Total International operations........ 200,415 58.3% 167,163 56.2% -------- ----- -------- ----- Total Revenue.............................. $343,870 100.0% $297,643 100.0% -------- ----- -------- -----
10 International operations contributed a greater percentage of the Company's revenue in the first quarter of 2004 than the corresponding quarter in the previous year because of the continuing strengthening of Grey foreign currencies against the United States dollar; the impact of exchange rate movements is summarized in the next chart:
2004 VS. 2003 --------------------------------- NON-EXCHANGE EXCHANGE TOTAL RATE IMPACTED RATE GROWTH GROWTH IMPACT ------ ------------- -------- Revenue from: North American operations........................... 9.9% 9.0% 0.9% International operations: Europe........................................... 21.1% 5.1% 16.0% Asia/Latin America............................... 14.2% 5.9% 8.3% Total International operations...................... 19.9% 5.2% 14.7% Total Revenue......................................... 15.5% 6.8% 8.7%
Revenue increased 15.5%, or $46.2 million, during the first quarter of 2004 when compared to the same period in 2003. Revenue at the Company's international operations grew by $33.3 million, of which $25.8 million was due to the weakening of the dollar against selected foreign, principally European, currencies. In the first quarter of 2004, revenue in North America increased 9.9% versus the respective prior period primarily from increased business from existing clients. Expenses Salaries and employee related expenses increased 14.2% in the first quarter of 2004 as compared to the same period in 2003. Of the increase, 8.2% was attributable to exchange rate movements. The increase is generally in line with the increase in revenue. Office and general expenses increased 15.7% in the first quarter of 2004, as compared to the first quarter of the prior year. Absent the impact of exchange rates, office and general expenses were up 7.0%. The increase includes a loss of $6.1 million related to the sale of a majority-owned subsidiary of the Company's Scandinavian operations.
PERCENTAGE 2004 2003 CHANGE (IN THOUSANDS, EXCEPT PERCENTAGE DATA) -------- ------- ---------- Expenses: Salaries and employee related expenses.............. $222,896 195,169 14.2% Office and general expenses......................... 101,960 88,094 15.7% -------- ------- ---- Total expenses........................................ $324,856 283,263 14.7% -------- ------- ----
Inflation did not have a material effect on gross income or expenses during 2004 or 2003. Other Income/Expense Other Income/Expense for 2004 compared to 2003 is set forth below:
PERCENTAGE 2004 2003 CHANGE (IN THOUSANDS, EXCEPT PERCENTAGE DATA) ------ ------ ---------- Interest expense....................................... (5,653) (4,046) 39.7% Interest income........................................ 2,129 714 198.2% Other income/expense -- net............................ 477 45 960.0%
11 Interest expense increased because of the impact of the issuance in the fourth quarter of 2003 of the Company's 5% Contingent Convertible Subordinated Debentures ("Convertible Debentures"). Interest income increased because of higher invested cash balances. Pre-tax Profit The Company's pre-tax profit rose by $4.9 million (up 43.9%) from the first quarter of 2003. Pre-tax profit in North America decreased because of the higher interest costs associated with the Convertible Debentures which offset a 21.2% increase in operating income. The pre-tax profit from the Company's European operations for the first quarter of 2004 was up over 2.5 times. This result was achieved despite a loss of $6.1 million recognized in the quarter on the sale of a subsidiary at the Company's Scandinavian operation. This subsidiary, and another Scandinavian subsidiary which was sold and for which a loss was taken in 2003, had period losses of $1.1 million in the three months ended March 31, 2004 versus $0.5 million in the first quarter of 2003; the Company anticipates incurring no further losses from these business units. Overall, the Company's Scandinavian operations had a loss of $8.9 million (absent exchange rate movements of $7.2 million) for the first quarter in 2004, as compared to a $2.6 million pre-tax loss incurred in the corresponding period in 2003. The pre-tax loss incurred in Scandinavia reflects the extensive steps the Company has taken to remediate its operations there. Taxes The effective tax rate is 51.0% for the first quarter of 2004 versus 47% in the same period in 2003. The increase is due principally to losses incurred in Scandinavia for which no tax benefit is recorded. Minority Interest/Equity Accounting Minority interest applicable to consolidated companies increased by $0.8 million and equity in earnings of nonconsolidated affiliated companies increased by $65,000 during the first quarter of 2004 as compared to the respective prior period. The fluctuations were primarily due to changes in the level of profits of the Company's majority-owned companies and nonconsolidated affiliated companies. Net Income/EPS Net income was $6.3 million in the first quarter of 2004 as compared to net income of $5.1 million in the respective prior period, an increase of 24.3%. Currency movements account for approximately $0.2 million of the increase in net income for the quarter. Diluted earnings per share increased by 44.2% to $4.50 per share as against $3.12 per share. Diluted earnings per share increased at a greater percentage rate than the increase in net income because increases in the value of the Preferred Stock reduced the earnings used for the determination of earnings per share calculations in 2003; the Preferred Stock was redeemed in April 2004 and there was no such reduction in earnings used for the determination of earnings per share calculations for the first quarter 2004. The Company's Preferred Stock was redeemed on April 7, 2004 and its value was fixed as of December 31, 2003. In the first quarter of 2003, the portion of the net income available to the Preferred Shares was $0.8 million dollars. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased by $74.6 million from $510.4 million at December 31, 2003 to $435.8 million at March 31, 2004. The working capital remained relatively constant at $50.0 million at March 31, 2004, versus $44.1 million at December 31, 2003. The decrease in cash and cash equivalents is, primarily, attributable to the timing of collections of accounts receivable and billing of expenses to clients versus payments to trade vendors. The Company had available $110.0 million under an annual revolving credit facility from a syndicate of JP Morgan Chase Bank, HSBC Bank USA, Fleet National Bank, Barclays Bank PLC, North Fork Bank and City National Bank at March 31, 2004 and December 31, 2003. This line of credit was not utilized during the 12 quarter. A portion of the line can be borrowed in certain foreign currencies and used by the Company's international operations. 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 $57.4 million and $70.5 million outstanding at March 31, 2004 and December 31, 2003, respectively under these facilities. The changes in the level of short-term borrowing and bank overdrafts are primarily due to the timing differences on payments to media and other vendors. A significant part of the Company's business involves the purchase of media time and space in many markets from various media suppliers. Consistent with industry practices, in a number of countries, the Company from time to time, directly or through a local media buying operation, is required to guarantee payment to the media suppliers in the form of performance bonds, letters of credit or other similar financial instruments which relate to liabilities shown in the Accounts Payable section of the Condensed Consolidated Balance Sheet. The utilization of these instruments may at times absorb some of the Company's credit capacity. In addition, from time to time, the Company may guarantee certain financial and other obligations of its consolidated subsidiaries. Historically, funds from operations, bank and other borrowings have been sufficient to meet the Company's dividend, capital expenditure, acquisition and working capital needs. The Company expects that such sources will be sufficient to meet its near-term cash requirements in the future and will enable the Company to meet its longer-term obligations. The Company has two loans outstanding from the Prudential Insurance Company of America. The first loan of $75.0 million from December 1997 bore interest at the rate of 6.94% and was originally repayable in three equal annual installments, commencing in December 2003. This loan was renegotiated in March 2003, with a fixed interest rate of 7.41%, and principal repayments of $25.0 million in March, 2007, 2008 and 2009, respectively. The second loan of $50.0 million was drawn in November 2000, bears interest at the rate of 8.17% and is repayable in two equal annual installments, commencing in November 2006. In October 2003, the Company sold $150 million principal amount of its 5.0% Contingent Convertible Subordinated Debentures, due 2033 ("Debentures"). The Debentures are convertible in shares of the Common Stock at an initial conversion price of $961.20 per share provided that any one of several contingencies are met, including that the Common Stock trades above $1,153.44 for specified periods of time. The loans and the availability of the Company's committed lines of credit contain certain covenants related to the Company's capital, debt load and cash flow. As of March 31, 2004 and December 31, 2003, the Company was in compliance with these covenants. On January 5, 2004, Edward H. Meyer, the Company's Chairman and Chief Executive Officer, exercised non-qualified stock options (the "Options") to purchase 40,000 shares of Common Stock at an aggregate exercise price of $5.94 million (or $148.50 per share). The Options, which had been issued in 1995 pursuant to the Company's 1994 Stock Incentive Plan (the "Plan"), were set to expire on January 5, 2004. In accordance with the terms of the Plan, Mr. Meyer elected to pay the exercise price through delivery to the Company of 8,774 shares, based on the $677 per share closing price on January 5, 2004. Mr. Meyer also delivered to the Company 12,316 shares of Common Stock in satisfaction of tax withholding obligations, based on the $676.51 per share price as determined in accordance with applicable tax regulations. SUMMARY OF SIGNIFICANT CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD AS OF DECEMBER 31, 2003 -------------------------------------------------------------- 2009 AND NOT INCLUDED ON THE BALANCE SHEET 2004 2005 2006 2007 2008 BEYOND TOTAL - --------------------------------- -------- ----- ----- ----- ----- -------- -------- (IN THOUSANDS) Media and production commitments........... $1,090.8 $ -- $ -- $ -- $ -- $ -- $1,090.8 Acquisition agreements..................... 4.0 4.7 10.8 1.4 2.7 30.7 54.3 Operating leases........................... 76.1 68.2 58.2 53.7 49.2 57.9 363.3 -------- ----- ----- ----- ----- ----- -------- Total.................................... $1,170.9 $72.9 $69.0 $55.1 $51.9 $88.6 $1,508.4 ======== ===== ===== ===== ===== ===== ========
13
PAYMENTS DUE BY PERIOD AS OF DECEMBER 31, 2003 ------------------------------------------------- 2009 AND LONG TERM LIABILITIES 2005 2006 2007 2008 BEYOND TOTAL - --------------------- ----- ----- ----- ----- -------- ------ (IN THOUSANDS) Long term debt............................... $ -- $25.0 $50.0 $25.0 $175.0 $275.0 Deferred compensation........................ 15.7 3.1 41.7 5.5 17.5 83.5 Capital leases............................... 3.0 0.4 0.1 0.1 0.1 3.7 Other........................................ 1.8 0.2 0.1 0.1 -- 2.2 ----- ----- ----- ----- ------ ------ Total...................................... $20.5 $28.7 $91.9 $30.7 $192.6 $364.4 ===== ===== ===== ===== ====== ======
As at March 31, 2004, there had been no material change to the contractual obligations set forth in the table except for media commitments which can fluctuate by material amounts in the ordinary course of business. The media commitments listed above decreased significantly in the quarter ended March 31, 2004 as a result of the seasonality of media purchasing patterns and related billings in the normal course of business. The Company makes commitments when it purchases media time and space from various media suppliers on behalf of its clients. The liability for the media is generally recorded on the Company's balance sheet when the client is billed, usually in the month that the underlying advertising appears. As part of the general practice in the industry, the Company frequently is required to reserve, or commit to purchase, media time and space with the media suppliers well before a commercial is aired or a publication reaches the market. The duration of these commitments vary depending on the type of media purchased and the terms of the particular purchase. The duration of any commitment may be as short as a few days or as long as a year. These commitments are only entered following the specific authorization of clients who, in turn, commit to reimburse the Company. In practice, clients fulfill their commitments to the Company enabling it, in turn, to fulfill its commitments. There are, however, instances where a client may seek to alter its commitments to purchase media. It is general industry practice that media suppliers seek to accommodate the client's wishes, in part, because the media suppliers wish to maintain good, on-going relations with important clients, such as the Company represents, and large buyers of media like the Company. At December 31, 2003, the amount of Company's media commitments not recorded on its balance sheet was $1,048.7 million, of which $357.0 million was, as of that date, cancelable by the terms of those commitments. The Company guards against loss in respect of its media commitments in various ways. The Company considers the credit-worthiness of its clients and sets relevant terms of business appropriately, and may purchase credit insurance in certain instances. In certain markets, the Company is also protected in respect of its commitments if a client does not fulfill its underlying obligations by the rule of sequential liability, which generally provides that a buyer of media is not required to pay a media supplier unless such buyer has been paid by its client. CRITICAL ACCOUNTING POLICIES The Company's discussion and analysis of financial condition and results from operations are based on the condensed consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company's critical accounting policies include: REVENUE RECOGNITION Income derived from advertising placed with media is generally recognized based upon the publication or broadcast dates. Income resulting from expenditures billable to clients is generally recognized when the service is performed and billed. Media income and income resulting from expenditures billable to clients is 14 clearly defined and determinable. Labor based income is recognized in the month of service as service is provided throughout the life of each contract. At the end of the reporting period, labor based contracts are examined to determine what was earned and collectable on such earned amounts for the purposes of recognizing revenue amounts appropriate for the period. Income from performance-based incentive fees is generally recorded at the end of a contract period when the amount to be received can be reasonably estimated. ACQUISITIONS AND IMPAIRMENT OF INTANGIBLES The Company, from time to time, makes acquisitions that complement its core capabilities and strategies, enhance its existing client service infrastructure and/or provide additional support for current clients. The price of the acquisitions may be in excess of the fair value of the net tangible assets acquired. The Company accounts for these acquisitions in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. Normally, acquired client and employment relationships are short term in nature or cancelable at will, and an acquired entity will have a minimum of tangible assets over which to allocate purchase price. Therefore, a substantial portion of the purchase price is allocated to goodwill. The Company assesses the fair value and recoverability of intangible assets, almost exclusively goodwill, in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. When assessing potential impairment of goodwill, the fair value of all business units at the regional levels of North America and Europe is compared to the carrying value of those business units. For the purposes of the analysis, Asian and Latin American business units are combined with the respective North American and European regions reflecting the fact that investments in the Asian and Latin American regions are principally needed to support multi-national clients serviced in North America and Europe. If impairment is indicated, the excess of the carrying value of the goodwill over fair value of the business units is written-off. The Company completed its annual impairment test of goodwill and intangible assets with indefinite lives as of March 31, 2004, and no impairment was identified, nor were there any impairment indicators subsequent to March 31, 2004. FIXED ASSETS Fixed assets fall into three main categories; furniture and fixtures, computer equipment and leasehold improvements. Depreciation of furniture and fixtures, and computer equipment is computed principally by the straight-line method over the useful life of the asset, normally five to ten years for furniture and fixtures, and three to five years for computer equipment. Amortization of leasehold improvements is provided for on a straight-line basis principally over the terms of the related leases but not in excess of the useful lives of the underlying assets. SALARIES AND EMPLOYEE RELATED EXPENSES The Company records salaries and employee related expenses as a period cost when incurred. Salary expense is generally recorded in the period that the salary is paid. Discretionary bonuses are estimated and accrued as short-term liabilities each period. Bonuses are paid shortly after year end. Stock and other incentive plans and contractual bonuses are clearly identifiable and determinable, and are generally accrued when earned by the employee. DEFERRED TAXES The Company recognizes deferred taxes based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The net deferred tax assets are reviewed regularly for recoverability and a valuation allowance is established, based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. At March 31, 2004 and December 31, 2003, the Company had $54.1 million and $53.7 million, respectively, of deferred tax assets net of a valuation reserve of $28.1 million, in 2004 and $25.4 million in 2003, which it believes to be appropriate. 15 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. 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, terrorist attacks, war, technological developments, creditworthiness of clients and suppliers, changes in the general economic conditions that affect exchange rates, changes in interest rates and/or consumer spending either in the United States or non-United States markets in which the Company operates, unanticipated expenses, client preferences which can be affected by competition, and/or changes in the competitive frame, and the ability to project risk factors which may vary. The forward looking statements speak only as of the date when made. The Company does not undertake to update such statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's results may be affected by currency exchange rate fluctuations given the Company's extensive international operations. Generally, the foreign currency exchange risk is limited to net income of each operation because the Company's revenue and expenses by country are almost exclusively denominated in the local currency of each respective country with both revenue and expense items matched. Occasionally, the Company enters into foreign currency contracts for known cash flows related to repatriation of earnings from its international subsidiaries or identified liabilities in foreign currencies. The term of each such foreign currency contract entered into in 2004 and 2003 was for less than three months and the amount open at March 31, 2004 and December 31, 2003 was not material. At March 31, 2004 and December 31, 2003, there were no foreign currency contracts open. The Company had no derivative contracts outstanding at March 31, 2004 or December 31, 2003, respectively. The Company has investments in private equity securities, corporate bonds and equity securities that may be subject to changes in general economic conditions and fluctuations in interest rates. Excess funds are generally invested in short term liquid securities and money market funds. ITEM 4. CONTROLS AND PROCEDURES The Company's management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation. 16 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES ISSUER PURCHASES OF EQUITY SECURITIES
(C)TOTAL NUMBER OF (D)MAXIMUM NUMBER SHARES (OR UNITS) (OR APPROXIMATE DOLLAR (B)AVERAGE PURCHASED AS PART VALUE) OF SHARES (OR (A)TOTAL NUMBER OF PRICE PAID OF PUBLICLY UNITS) THAT MAY YET BE SHARES (OR UNITS) PER SHARE ANNOUNCED PLANS OR PURCHASED UNDER THE SECURITY PERIOD PURCHASED (OR UNIT) PROGRAMS PLANS OR PROGRAMS - -------- -------------- ------------------ ---------- ------------------ ---------------------- Common Stock......... Quarter ended 21,090 $676.71 - 0 - -- March 31, 2004 Total................ 21,090(1) $676.71 - 0 - --
- --------------- (1) On January 5, 2004, Edward H. Meyer, the Company's Chairman and Chief Executive Officer, exercised non-qualified stock options (the "Options") to purchase 40,000 shares of Common Stock at an aggregate exercise price of $5,940,000 (or $148.50 per share). The Options, which had been issued in 1995 pursuant to the Company's 1994 Stock Incentive Plan (the "Plan"), were set to expire on January 5, 2004. In accordance with the terms of the Plan, Mr. Meyer elected to pay the exercise price through delivery to the Company of 8,774 shares, based on the $677 per share closing price on January 5, 2004. Mr. Meyer also delivered to the Company 12,316 shares of Common Stock in satisfaction of tax withholding obligations, based on the $676.51 per share price as determined in accordance with applicable tax regulations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Reference is made to the Index annexed hereto and made a part hereof. Reports on Form 8-K: The Company filed a report on Form 8-K, dated January 8, 2004, reporting Item 5, "Other Events". The Company filed a report on Form 8-K, dated February 27, 2004, reporting Items 5, 9 and 12, "Other Events", "Regulation FD Disclosure" and "Disclosure of Results of Operations and Financial Condition", respectively. The Company filed a report on Form 8-K, dated March 2, 2004, reporting Items 9 and 12, "Regulation FD Disclosure" and "Disclosure of Results of Operations and Financial Condition", respectively. The Company filed a report on Form 8-K, dated April 9, 2004, reporting Item 5, "Other Events". The Company filed a report on Form 8-K, dated April 19, 2004, reporting Item 5, "Other Events". 17 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) By: /s/ STEVEN G. FELSHER ------------------------------------ Steven G. Felsher, Vice Chairman, Chief Financial Officer, Secretary and Treasurer (Duly Authorized Officer) Dated: May 10, 2004 By: /s/ LESTER M. FEINTUCK ------------------------------------ Lester M. Feintuck, Senior Vice President, Chief Financial Officer -- U.S., Controller (Chief Accounting Officer) Dated: May 10, 2004 18 INDEX TO EXHIBITS
NUMBER ASSIGNED TO EXHIBIT (I.E. 601 OF TABLE OF ITEM 601 EXHIBITS REGULATION S-K) DESCRIPTION OF EXHIBITS - -------------------- -------------------------- 31.1 Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.0 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
19 EX-31.1 2 y97136exv31w1.txt CERTIFICATION EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Edward H. Meyer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Grey Global Group Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ EDWARD H. MEYER ------------------------------------ Edward H. Meyer Chief Executive Officer Date: May 7, 2004 20 EX-31.2 3 y97136exv31w2.txt CERTIFICATION EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven G. Felsher, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Grey Global Group Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ STEVEN G. FELSHER ------------------------------------ Steven G. Felsher Chief Financial Officer Date: May 7, 2004 21 EX-32.0 4 y97136exv32w0.txt CERTIFICATION EXHIBIT 32.0 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Grey Global Group Inc. (the "Company") for the quarterly period ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Edward H. Meyer, as Chief Executive Officer of the Company, and Steven G. Felsher, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ EDWARD H. MEYER -------------------------------------- Name: Edward H. Meyer Title: Chief Executive Officer Date: May 10, 2004 By: /s/ STEVEN G. FELSHER -------------------------------------- Name: Steven G. Felsher Title: Chief Financial Officer Date: May 10, 2004 This certification accompanies the Report pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of sec. 18 of the Securities Exchange Act of 1934, as amended. 22 -----END PRIVACY-ENHANCED MESSAGE-----