GREY GLOBAL GROUP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

[ ] 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 incorporation (I.R.S. Employer Identification Number)
or organization)

777 THIRD AVENUE, NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
212-546-2000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to the filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant was $627,999,081 at June 30, 2002.

The registrant had 1,073,578 shares of its Common Stock, par value $0.01
per share, and 207,568 shares of its Limited Duration Class B Common Stock, par
value $0.01 per share, outstanding at March 1, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual proxy statement to be furnished in connection with
the registrant's 2003 annual meeting of stockholders are incorporated by
reference into Part III.
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PART I

ITEM 1. BUSINESS

Grey Global Group Inc. ("Grey" or the "Company") commenced operations in
1917, was incorporated in New York in 1925 as Grey Advertising Inc. and
reincorporated in Delaware in 1974. The Company changed its name to Grey Global
Group Inc. in 2000.

Grey is one of the world's largest advertising, communications and
marketing service companies. It operates in 83 countries around the world
providing its clients with services and expertise over a broad range of
communications disciplines including mass market advertising, media planning and
buying, direct marketing, healthcare marketing, public relations and public
affairs, sales promotion, graphic design, corporate communications, event
marketing, interactive communications, channel marketing and retail advertising
support, and product branding.

Grey services a diverse client base in all product categories including
fast moving consumers goods, pharmaceutical products, automobiles, entertainment
and communications, technology and telecommunications, and retail. Longevity is
a hallmark of Grey's client relationships. It has been providing service to its
ten largest clients, on average, for more than 15 years. One client, The Procter
& Gamble Company, which has been a client of the Company for more than forty
years, represented approximately 10% of the Company's consolidated income from
fees and commissions ("gross income") in 2002. The loss of this client would
likely have an adverse effect on the results of the Company. No other client
represented more than 5% of gross income. The Company and its subsidiaries
(consolidated and nonconsolidated) employed 10,500 people at the end of 2002,
including six executive officers.

The Company faces risks normally associated with a global marketing
communications firm including general economic and market conditions; the
credit-worthiness of its clients; competition for client assignments and
talented staff; and the risk associated with extensive international operations.
While the Company has no reason to believe that its international operations as
a whole are jeopardized in any material respect, they bear certain risks,
including those of currency fluctuations, political instability and exchange
controls, which do not effect its domestic operations.

While the Company operates on a global basis, for purposes of presenting
certain financial information in accordance with accounting principles generally
accepted in the United States, its operations are deemed to be conducted in
three geographic areas and relevant information for these areas for the last
three years is summarized in the Notes to the Company's Consolidated Financial
Statements.

The Company's website address is www.greyglobalgroup.com. The Company makes
available free of charge on its website its annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and Exchange
Commission.

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

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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
(Certain of these factors are discussed in greater detail elsewhere herein.)

EXECUTIVE OFFICERS OF GREY
AS OF MARCH 1, 2003

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(a) All executive officers are elected annually by the Board of Directors of
Grey ("Board"). Each executive officer has been with Grey for a period
greater than five years. There exists no family relationship between any of
Grey's directors or executive officers and any other director or executive
officer or person nominated or chosen to become a director or executive
officer.

(b) Messrs. Grudzina and Hirst were elected by the Board on March 25, 2003.

ITEM 2. PROPERTIES

Substantially all offices of the Company are located in leased premises.
The Company's principal office is at 777 Third Avenue, New York, New York, where
it occupies approximately 439,000 square feet of space. The Company's lease
covering this space expires at the end of 2009. The Company also has leases
covering other offices, including in Atlanta, New York, Los Angeles, Amsterdam,
Auckland, Beijing, Brussels, Buenos Aires, Copenhagen, Dusseldorf, Hong Kong,
Istanbul, Jakarta, Johannesburg, Kuala Lumpur, London, Madrid, Melbourne, Mexico
City, Milan, Oslo, Paris, San Francisco, San Juan, Sao Paolo, Stockholm, Tokyo,
Toronto and Washington D.C.

The Company considers all space leased by it to be adequate for the
operation of its business and does not foresee any significant difficulty in
meeting its space requirements.

ITEM 3. LEGAL PROCEEDINGS

Since March 2001, the Company has been cooperating with a criminal
investigation being conducted by U.S. Department of Justice Antitrust Division.
The investigation relates to the Graphic Services Department ("Department") of
the Company's New York Division of Grey Worldwide and several former vendors of
the Department. Since March 2002, federal criminal charges have been pending
against Mr. Mitchell Mosallem, who served as director of the Department until
December 31, 2001. Those charges allege, among other things, that Mosallem and
others (including other employees in the Department) conspired (1) to restrain
trade by rigging bids and allocating contracts for certain graphic services
performed for a client of the Company; (2) to charge clients of the Company in
excess of amounts appropriately chargeable, including charges for cost
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overruns on unrelated work and the cost of certain entertainment or other goods
or services provided to Mosallem and other Company employees; and (3) to obtain
kickbacks from former vendors of the Department. In November 2002, two of
Mosallem's codefendants -- a vendor known as The Color Wheel, Inc. and its
principal owner, Haluk Ergulec -- pleaded guilty to various charges, including
conspiracy to defraud the Company and its clients. In that connection, the
government filed with the court a written plea agreement identifying the Company
as a victim of Ergulec's offenses and requiring Ergulec to pay $1.1 million to
the Company in restitution. Several other individuals associated with former
vendors to the Department have pleaded guilty to federal charges relating to the
allegations against Mosallem. The government also has indicated that it is
examining whether there is Company responsibility in this matter. In February
2002, the Company hired from outside the Company a new Director of the
Department. In addition, Deloitte & Touche was retained on behalf of the Company
to conduct a comprehensive review of the Department, to recommend improved
policies and procedures, and to assist in the determination of remedial action
as appropriate.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Common Stock is traded on The NASDAQ Stock Market's National Market and
listed on the NASDAQ Stock Market under the symbol GREY.

As of March 1, 2003, there were 382 holders of record of the Common Stock
and 179 holders of record of the Limited Duration Class B Common Stock.

The following table sets forth certain information about dividends paid,
and the bid prices on the NASDAQ Stock Market during the periods indicated with
respect to the Common Stock:

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* Such over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.

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ITEM 6. SELECTED FINANCIAL DATA

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(a) After giving effect to amounts attributable to redeemable preferred stock
and for diluted earnings per common share to the assumed (i) exercise of
dilutive stock options, (ii) issuance of shares pursuant to the Company's
Senior Management Incentive Plan and (iii) conversion of the 8 1/2%
Convertible Subordinated Debentures.

(b) Due to the anti-dilutive result of the diluted EPS calculation for 2001,
basic and diluted EPS are the same.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

Income from commissions and fees ("gross income") decreased marginally in
2002 and decreased 2.4% in 2001 as compared to the respective prior years.
Absent exchange rate fluctuations, gross income decreased 2.0% in 2002 and
increased 1.5% in 2001. In 2002, 2001 and 2000, respectively, 46.3%, 44.3% and
46.8% of consolidated gross income was attributable to North American operations
and 53.7%, 55.7% and 53.2%, respectively, to international operations. In 2002,
gross income from North American operations increased 3.0% versus 2001 and was
down 7.7% in 2001 versus 2000. Gross income from international operations
decreased 4.9% (6.0% absent exchange rate fluctuations) in 2002 when compared to
2001 and increased 2.2% (9.1% absent exchange rate fluctuations) in 2001 when
compared to 2000. The slight decrease in gross income

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in 2002 reflects generally weak economic conditions in selected Northern
European and Latin American countries offset by a growth performance of the
North American operations and the positive impact of a weakening dollar. The
decrease in gross income in 2001 reflects a reduction in client spending
principally attributable to overall economic weakness and its impact on the
Company's business. Furthermore, in response to the difficult times, the Company
closed, downsized or disposed of a number of units which also contributed to the
decrease in gross income.

Salaries and employee related expenses decreased 2.6% in 2002 as compared
to 2001, and office and general expenses decreased 7.4% in 2002 as compared to
2001. The decreases in 2002 reflect the continued commitment of the Company to
align its costs with its gross income and the elimination of certain costs,
principally the result of the write-off of leasehold improvements and fixed
assets related to disposal of more than 160,000 square feet of leased space in
the fourth quarter of 2001, and the absence of goodwill amortization expense in
2002 compared with amortization of $14.4 million in 2001 and $12.1 million in
2000.

Inflation did not have a material effect on gross income or expenses in
2002, 2001 or 2000.

Other expense -- net decreased by $14.6 million in 2002 and increased by
$13.7 million in 2001 as compared to the respective prior periods. The decrease
in 2002 reflects the absence of a non-cash charge, mentioned below, partially
offset by lower interest income. The increase in 2001 consists, primarily, of a
non-cash charge taken in the fourth quarter for the write-down of investments in
Internet-related early stage businesses and certain marketable securities, and
lower interest income because of reduced cash balances as well as lower interest
rates.

The tax provision returned to historical levels with an effective tax rate
of 50.1% in 2002, consistent with the tax rate in 2001, exclusive of the
non-cash charge incurred in 2001. The tax provision of $14.1 million in 2001
reflects the effect of the non-cash charge for which essentially no tax benefit
was recorded. The effective tax rate, absent the non-cash charge, in 2001 was
50.1% as compared to 54.9% in 2000, principally because of a decrease in overall
foreign corporate tax rates.

Minority interest decreased by $1.0 million in 2002 and decreased by $1.4
million in 2001, as compared to the respective prior years. Equity in earnings
of nonconsolidated affiliated companies increased $2.0 million in 2002 and
decreased $2.5 million in 2001 as compared to the respective prior years. The
changes in 2002 and in 2001 were primarily due to changes in the level of
profits of consolidated and nonconsolidated companies.

The Company reported net income of $18.3 million in 2002 as compared to a
net loss of $24.4 million in 2001 and net income of $19.4 million in 2000.
Diluted earnings per common share was $12.08 in 2002 as compared to diluted loss
per share of $18.46 in 2001 and diluted earnings per share of $14.41 in 2000.

For the purpose of computing basic earnings per common share, the Company's
net income was adjusted by (i) dividends paid on the Company's preferred stock
and (ii) the change in redemption value of the Company's preferred stock. For
the purpose of computing diluted earnings per common share for 2002 and 2000,
net income was adjusted by the interest savings, net of tax, on the assumed
conversion of the Company's 8 1/2% Convertible Subordinated Debentures. For the
purpose of computing diluted earnings per common share for 2001, the interest
savings, net of tax on the assumed conversion of the 8 1/2% Convertible
Subordinated Debentures had an anti-dilutive effect and was excluded from the
diluted EPS calculation.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $351.0 million and $276.6 million at
December 31, 2002 and 2001, respectively, and the Company's investments in
marketable securities were $7.2 million and $11.1 million at December 31, 2002
and 2001, respectively. The continued high level of cash and cash equivalents
reflects the Company's ongoing focus on cash management. Working capital
decreased by $3.3 million to a deficit of $94.8 million at December 31, 2002
versus a deficit of $91.5 million at December 31, 2001. The decrease in working
capital is due to the expected settlement of an obligation in the second quarter
of 2003 related to an acquisition made in a previous year which was reclassified
from a non-current liability to a current liability earlier in 2002.

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Domestically, the Company had available committed bank lines of credit
totaling $110.0 million at December 31, 2002 and $90.0 million at December 31,
2001. These lines of credit were partially utilized during both 2002 and 2001 to
support selected international subsidiaries in the amounts of $10.0 million and
$18.3 million at December 31, 2002 and 2001, respectively. The borrowings under
these lines of credit bore interest rates of 5.3% and 5.2% for the years ended
December 31, 2002 and 2001, respectively. The commitment and related fees paid
for the lines of credit were $0.1 million and $0.6 million in 2002 and 2001,
respectively.

Other lines of credit are available to the Company in foreign countries in
connection with short-term borrowings and bank overdrafts used in the normal
course of business. Amounts outstanding under such facilities at December 31,
2002 and 2001 were $57.0 million and $62.4 million, respectively. The changes in
the level of short-term borrowing and bank overdrafts are primarily due to
timing difference on the payments of media and other vendors.

A significant part of the Company's business involves it in the purchase of
media time and space in many markets from various media suppliers on behalf of
clients. Consistent with industry practices, in a number of countries, the
Company occasionally, 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 Consolidated Balance
Sheet. In addition, from time to time, the Company may guarantee certain
financial and other obligations of its consolidated subsidiaries. These
instruments may at times absorb some of the Company's credit capacity.

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 pursuant to certain acquisition arrangements not reflected as
liabilities on its consolidated balance sheet of approximately $60.0 million. Of
such amount, approximately 54% is estimated to be paid from 2005 and beyond and
the remainder over the period from 2003 to 2005. The foregoing information is
estimated and the actual payments made will be dependent on future events
including profit and other performance measures of a number of subject
companies, 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.

Historically, cash flows 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 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 bears interest at the rate of 6.94% and is 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 taken in November 2000, bears interest at the
rate of 8.17% and is repayable in two equal annual installments, commencing in
November 2006.

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 December 31, 2002 and December 31, 2001, the Company was in
compliance with these covenants.

The Company's business generally has been seasonal with greater gross
income earned in the second and fourth quarters, particularly the fourth
quarter. As a result, Cash and cash equivalents, Accounts Receivable, Accounts
Payable and Accrued Expenses are typically higher on the Company's year-end
balance sheet than at the end of any of the preceding three quarters.

CRITICAL ACCOUNTING POLICIES

The Company's discussion and analysis of financial condition and results
from operations are based on the consolidated financial statements which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of financial statements in conformity with
generally

6

accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
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 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 what is collectible 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.

IMPAIRMENT OF INTANGIBLES

The Company assesses the fair value and recoverability of intangible
assets, primarily goodwill, in accordance with Statement of Financial Accounting
Standards No. 142 ("FAS 142"), Goodwill and Other Intangible Assets which was
adopted January 1, 2002. When assessing impairment, the carrying value of the
assets less non-debt liabilities is compared to the fair value of the business
units holding the goodwill at a regional level: North America, Europe, Asia and
Latin America. (For the purposes of the calculation, Asia and Latin America are
then combined with North America and Europe reflecting the need to support
multi-national clients in those markets.) The excess of carrying value over fair
value is deemed to be impaired and written-off. The Company has completed its
transitional test and has also completed its annual impairment test of goodwill
and intangible assets with indefinite lives as of March 31, 2002, and no
impairment was identified.

The 2001 and 2000 results on a historical basis do not reflect the
provisions of FAS 142. Had the Company adopted FAS 142 on January 1, 2000, the
historical net income and basic and diluted net income per common share would
have been changed to the adjusted amounts indicated below:

DEFERRED TAXES

The Company recognizes deferred tax assets based on the differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities. The net deferred tax assets are regularly reviewed 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. As of December 31,

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2002, the Company had $51.0 million of deferred tax assets net of a valuation
reserve of $26.9 million, which it believes to be appropriate.

For further detail on accounting policies, please refer to the Notes to the
Company's Consolidated Financial Statements.

FASB STATEMENTS

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. While the statement does not require
companies to account for employee stock options using the fair value method, the
Company adopted FAS 123 effective January 1, 2003, using the prospective method
as provided for in FAS 148 and adopted the disclosure requirements of FAS 148,
for 2003.

ITEM 7A. 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 revenues 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 2002 was for less than three
months. At December 31, 2002 and 2001, there were no foreign currency contracts
open. The Company had no derivative contracts outstanding at December 31, 2002
or 2001, 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 invested in
short term liquid securities and money market funds.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is presented in this report beginning
on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to the directors of Grey is incorporated herein by
reference to the Company's proxy statement ("Proxy Statement") to be sent to its
stockholders in connection with its 2003 Annual Meeting and will be included
under the caption "Election of Director". Information with respect to Grey's
executive officers is set forth in Part I of this report, and is incorporated
herein by reference to the Proxy Statement and will be included under the
caption "Section 16 (a) Beneficial Ownership Reporting Compliance".

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference
to the Proxy Statement and will be included under the caption "Management
Remuneration and Other Transactions".
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated herein by reference
to the Proxy Statement and will be included under the captions "Election of
Director" and "Voting Securities".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference
to the Proxy Statement and will be included under the captions "Election of
Director" and "Voting Securities".

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The Company's
management, including its Chief Executive Officer and Chief Financial Officer,
have evaluated, as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"), the effectiveness of the Company's
disclosure controls and procedures. Based on such evaluation, it is, as of the
Evaluation Date, the belief of such officers that the Company's disclosure
controls and procedures are effective in alerting them on a timely basis to
material information relating to the Company required to be included in the
Company's reports filed or submitted under the Securities Exchange Act of 1934.

(b) Changes in Internal Controls. Since the Evaluation Date, there have
not been any significant changes in the Company's internal controls or in other
factors that could significantly affect such controls.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) (2) The information required by this subsection of this Item is
presented in the index to Financial Statements on Page F-1. (3) The information
required by this subsection of this Item is provided in the Index of Exhibits at
Page E-1 of this report. Such index provides a listing of exhibits filed with
this report and those incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

GREY GLOBAL GROUP INC.

By: /s/ EDWARD H. MEYER
------------------------------------
Edward H. Meyer,
Chairman, Chief Executive
Officer & President

Dated: March 26, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the date indicated.

/s/ MARK N. KAPLAN Dated: March 26, 2003
- --------------------------------------------------
Mark N. Kaplan,
Director

/s/ VICTOR J. BARNETT Dated: March 26, 2003
- --------------------------------------------------
Victor J. Barnett,
Director

/s/ DANIEL S. SHAPIRO Dated: March 26, 2003
- --------------------------------------------------
Daniel S. Shapiro,
Director

/s/ EDWARD H. MEYER Dated: March 26, 2003
- --------------------------------------------------
Edward H. Meyer,
Director; Principal Executive Officer

/s/ STEVEN G. FELSHER Dated: March 26, 2003
- --------------------------------------------------
Steven G. Felsher,
Principal Financial Officer

/s/ LESTER M. FEINTUCK Dated: March 26, 2003
- --------------------------------------------------
Lester M. Feintuck,
Principal Accounting Officer

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CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Edward H. Meyer, certify that:

1. I have reviewed this annual report on Form 10-K of Grey Global Group
Inc.;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) Designed such disclosure controls and procedures 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 annual
report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: March 26, 2003

/s/ Edward H. Meyer
--------------------------------------
Name: Edward H. Meyer
Title: Chief Executive Officer

11

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Steven G. Felsher, certify that:

1. I have reviewed this annual report on Form 10-K of Grey Global Group
Inc;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) Designed such disclosure controls and procedures 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 annual
report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: March 26, 2003

/s/ Steven G. Felsher
---------------------------------
Name: Steven G. Felsher
Title: Chief Financial Officer

12

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 15(a)(1) AND (2) AND ITEM 15(d)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

LIST OF FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2002

GREY GLOBAL GROUP INC.

NEW YORK, NEW YORK

FORM 10-K -- ITEM 8, ITEM 15(a)(1) AND (2)

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

INDEX TO FINANCIAL STATEMENTS

The following consolidated financial statements of Grey Global Group Inc.
and consolidated subsidiary companies are included in Item 8:

Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets -- December 31, 2002 and 2001... F-3
Consolidated Statements of Operations -- Years Ended
December 31, 2002, 2001 and 2000.......................... F-4
Consolidated Statements of Common Stockholders'
Equity -- Years Ended December 31, 2002, 2001 and 2000.... F-5
Consolidated Statements of Cash Flows -- Years Ended
December 31, 2002, 2001 and 2000.......................... F-6
Notes to Consolidated Financial Statements -- December 31,
2002...................................................... F-7

All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.

Summarized financial information and financial statements for
nonconsolidated foreign investee companies accounted for by the equity method
have been omitted because such companies, considered individually or in the
aggregate, do not constitute a significant subsidiary.

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Grey Global Group Inc.

We have audited the accompanying consolidated balance sheets of Grey Global
Group Inc. and consolidated subsidiary companies as of December 31, 2002 and
2001, and the related consolidated statements of operations, common
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Grey Global Group Inc. and consolidated subsidiary companies at December 31,
2002 and 2001, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States.

As discussed in Note A to the consolidated financial statements, on January
1, 2002, the Company adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets".

ERNST & YOUNG LLP

New York, New York
February 26, 2003

F-2

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.
F-3

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements.
F-4

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

See notes to consolidated financial statements.

F-5

See notes to consolidated financial statements.

F-6

See notes to consolidated financial statements.

F-7

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.
F-8

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. Material intercompany balances and
transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of 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.

COMMISSIONS AND FEES AND ACCOUNTS RECEIVABLE

Income derived from advertising placed with media is generally recognized
based upon the publication or broadcast dates. Income resulting from
expenditures billable to clients is generally recognized when the services are
performed and billed. Labor based income is recognized in the month of service.
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.
Payroll costs are expensed as incurred. Accounts receivable include both the
income recognized as well as the actual media and production costs which are
paid for by the Company and rebilled to clients at the Company's cost.

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of
three months or less from the purchase date to be cash equivalents. The carrying
amount of cash equivalents approximates fair value because of the short
maturities of those instruments.

INVESTMENTS IN AND ADVANCES TO NONCONSOLIDATED AFFILIATED COMPANIES

The Company generally carries its investments in nonconsolidated affiliated
companies on the equity method. Certain investments which are not material in
the aggregate are carried at cost.

FIXED ASSETS

Depreciation of furniture, fixtures and equipment is provided for over
their estimated useful lives ranging from three to ten years and has been
computed principally by the straight-line method. Amortization of leaseholds and
leasehold improvements is provided for principally over the terms of the related
leases, which are not in excess of the lives of the assets.

FOREIGN CURRENCY TRANSLATION

All balance sheet accounts of the Company's international operations are
translated at the exchange rate in effect at each year end and statement of
operation accounts are translated at the weighted average exchange rates
prevailing during the year. Resulting translation adjustments are recorded as a
component of other comprehensive income (loss). Foreign currency transaction
gains and losses are reported in income. During 2002, 2001 and 2000, foreign
currency transaction gains and losses were not material.

F-9

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTANGIBLES

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("FAS 142"), Goodwill and Other Intangible Assets.
FAS 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. Under the new rules, the excess of purchase price over
the underlying fair value of the net assets of consolidated subsidiaries and
nonconsolidated investments are recorded as goodwill by the Company. Other
intangible assets are recognized separately from goodwill if at acquisition;
they can be separated from the entity and be available for sale or exchange, or
control over future economic benefits through legal or contractual rights can
demonstrated. Goodwill and other intangible assets deemed to have indefinite
lives are reviewed annually or upon indications of impairment. Intangible assets
with determinable lives are amortized over their useful life.

The amount of goodwill associated with consolidated subsidiaries and
nonconsolidated investments was:

As part of the annual evaluation, the carrying value of goodwill is
compared to the fair value of the business units holding the goodwill at a
regional level: North America, Europe, Asia and Latin America. For the purposes
of the calculation, Asia and Latin America are then combined with North America
and Europe reflecting the need to support multi-national clients in those
markets. The excess of carrying value over fair value is deemed to be impaired
and written-off. The Company completed the transitional and annual impairment
tests of goodwill and intangible assets with indefinite lives as of March 31,
2002, and no impairment was identified.

The 2001 and 2000 results on a historical basis do not reflect the
provisions of FAS 142. Had the Company adopted FAS 142 on January 1, 2000, the
historical net income and basic and diluted net income per common share would
have been the adjusted amounts indicated below:

F-10

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rates and laws that will be in effect when
the differences are expected to reverse. The Company provides for appropriate
foreign withholding taxes on unremitted earnings of consolidated and
nonconsolidated foreign companies.

MARKETABLE SECURITIES

The Company has designated all its marketable securities as
available-for-sale. Available-for-sale securities are carried at fair value,
based on publicly quoted market prices, with unrealized gains and losses
reported as other comprehensive income (loss). Securities are written-off or
written-down to their realizable value when other than temporary impairments are
indicated.

INVESTMENT SECURITIES

Investment securities are primarily investments in private companies and
are included in Other Assets. Because quoted market prices are not available,
such investments are recorded at cost net of impairment write-downs, if
necessary.

STOCK-BASED COMPENSATION

As permitted by Financial Accounting Standards Statement No. 123,
Accounting for Stock-Based Compensation, the Company accounts for stock-based
awards in accordance with APB Opinion No. 25, Accounting For Stock Issued to
Employees. No compensation expense is recorded for options granted at fair
market value at the date of grant. The excess of the fair market value of
restricted stock over the cash consideration received is amortized as
compensation over the period of restriction.

The future obligation to issue stock, pursuant to the Company's Senior
Management Incentive Plan, is included in Paid-in Additional Capital and results
in periodic charges to compensation.

EARNINGS PER COMMON SHARE

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 includes adjustments for the effect of the assumed exercise of dilutive
stock options, the shares issuable pursuant to the Company's Senior Management
Incentive Plan (see Notes to Consolidated Financial Statements) and the assumed
conversion of the 8 1/2% Convertible Subordinated Debentures. For the purpose of
computing basic earnings per common share, the Company's net income is decreased
for dividends on the Preferred Stock and increased or decreased by the change in
redemption value of the Preferred Stock during the relevant 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.

RECENT ACCOUNTING PRONOUNCEMENTS

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. While the statement does not require
companies to account for employee stock options using the fair value method,

F-11

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company adopted FAS 123, effective January 1, 2003, using the prospective
method as provided for in FAS 123 and to adopt the disclosure requirements of
FAS 148 in 2003.

B. INTERNATIONAL OPERATIONS

The following financial data is applicable to the Company's consolidated
international subsidiaries:

Consolidated retained earnings at December 31, 2002 include equity in
unremitted earnings of nonconsolidated international companies of approximately
$13,354.

C. OTHER EXPENSE -- NET

Details of other (expense) income -- net are:

D. FIXED ASSETS

Components of fixed assets -- at cost are:

During the year ended December 31, 2001, the Company recorded a non-cash
charge of $5,400 for the write-off of leasehold improvements and fixed assets
related to the disposal of more than 160,000 square feet of leased space.

E. ACQUISITIONS AND RELATED COSTS

For the years ended December 31, 2002, 2001 and 2000, the Company completed
a number of acquisitions which enhanced its core advertising agency capabilities
in selected markets and expanded its presence in specialized communications
areas. Furthermore, the Company increased its stakes in majority-owned
subsidiaries in certain markets. All acquisitions and increased investments were
accounted for under
F-12

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the purchase method and goodwill arising from these transactions is reviewed for
impairment in accordance with the Company's policy. The purchase price and
corresponding goodwill in connection with a number of the acquisitions may be
increased by contingent payouts to certain of the sellers depending on the
future earnings of the acquired entities.

The aggregate purchase price for acquisitions and increased investments
made in 2002 was $21,106. There were no individually material acquisitions in
2002.

The aggregate purchase price for acquisitions and increased investments
made in 2001 was $29,785. In addition, in 2001 the Company recorded a liability
of $15,000 for a deferred purchase commitment, which was paid in 2002, in
connection with an acquisition made in a prior year. None of the acquisitions
were significant on an individual basis and the results of the operations from
these acquired entities for the period were not material.

In 2000, the aggregate purchase price for acquisitions and increased
investments was $85,082. In July 2000, the Company completed the acquisition of
Callegari Berville ("CB"), a French company for $43,000, in cash, in exchange
for a 100% ownership. The Company also recorded a liability for acquisition
related guaranteed deferred payments of $22,000 due and included in current
liabilities in 2002. CB's net assets included $13,000 of cash which was included
in the consolidated balance sheet at December 31, 2000.

Pro-forma results of operations for 2002, 2001 and 2000 would not be
materially different from the reported results.

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 pursuant to certain acquisition arrangements not reflected as
liabilities on its consolidated balance sheet of approximately $60,007. Of such
amount, approximately 54% is estimated to be paid from 2005 and beyond and the
remainder over the period from 2003 to 2005. The foregoing information is
estimated and the actual payments made will be dependent on future events
including profit and other performance measures of a number of subject
companies, 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.
Accordingly, these future payments are recorded as purchase price when paid.

F. MARKETABLE SECURITIES AND OTHER INVESTMENT SECURITIES

The marketable securities and other investment securities, by type of
investment, held by the Company at December 31, 2002 and 2001 are as follows:

The Company had unrealized losses of $1,081 and $1,112 at December 31, 2002
and 2001, respectively, related primarily to investments in corporate bonds. The
reduction in 2002 and 2001 in unrealized losses is attributable to the
write-down of certain marketable securities. At December 31, 2002 and 2001, the

F-13

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's investments in marketable securities, classified as long-term, had an
average maturity of approximately 7.30 and 4.53 years, respectively.

During the year ended December 31, 2001, the Company took a non-cash charge
for the write-down of investments in Internet-related early stage businesses and
certain marketable securities in the amount of $21,554.

G. CREDIT ARRANGEMENTS AND LONG-TERM DEBT

At December 31, 2002 and 2001, the Company had a revolving line of credit
totaling $110,000 and $90,000, respectively. The amount drawn down on the
revolver at December 31, 2002 and 2001 was $10,039 and $18,300, respectively.
The Company had other lines of credit available to it in foreign countries in
connection with short-term borrowing and bank overdrafts utilized in the
ordinary course of business. The Company had $57,007 and $62,489 outstanding
under other uncommitted lines of credit at December 31, 2002 and 2001,
respectively. The weighted average interest rate for the borrowings under the
uncommitted lines of credit was 5.19% and 5.97% at December 31, 2002 and 2001,
respectively. The carrying amount of the debt outstanding under both the
committed and uncommitted lines of credit approximates fair value because of the
short maturities of the underlying notes. 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 Consolidated Balance Sheet.

Occasionally, the Company enters into foreign currency contracts for known
cash flows related to the repatriation of earnings from its international
subsidiaries. The terms of each foreign currency contract entered into in 2002
and 2001 were for less than three months. At December 31, 2002 and December 31,
2001, there were no foreign currency contracts open.

The Company has two outstanding loans from the Prudential Insurance Company
of America ("Prudential"). The first loan of $75,000 from December 1997 has a
fixed interest rate of 6.94% with the principal repayable in equal installments
of $25,000 in December 2003, 2004 and 2005. This loan was renegotiated in March
of 2003, with a fixed interest rate of 7.41%, with principle repayments of
$25,000 in December 2007, 2008 and 2009, respectively. The second loan of
$50,000 from November 2000 has a fixed interest rate of 8.17% and is repayable
in two equal installments of $25,000 in November 2006 and 2007. The fair value
of the renegotiated first loan and second loan is estimated to be $128,225 and
$133,700 at December 31, 2002 and 2001, respectively. This estimate was
determined using a discounted cash flow analysis using current interest rates
for debt having similar terms and remaining maturities.

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 December 31, 2002 and December 31, 2001, the Company was in
compliance with these covenants.

The remaining portion of long-term debt consists of 8 1/2% Convertible
Subordinated Debentures, due December 31, 2003, which are currently convertible
into 8.45 shares of Common Stock and an equal number of shares of Limited
Duration Class B Common Stock ("Class B Common Stock"), subject to certain
adjustments, for each $1 principal amount of such debentures. It is expected
that working capital will not be utilized upon conversion at December 31, 2003
and, accordingly, the debentures remain classified as long-term debt. The
debentures were issued in exchange for cash and a $3,000, 9% promissory note
from the Chairman and Chief Executive Officer of the Company, payable on
December 31, 2004 (included in Other Assets at December 31, 2002 and 2001).
During each of the years 2002, 2001 and 2000, the Company paid to the officer
interest of $257 pursuant to the terms of the debentures and the officer paid to
the Company interest of $270 pursuant to the terms of the 9% promissory note.

F-14

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term debt at December 31, 2002 and 2001 is as follows:

The scheduled maturity of long-term debt is as follows:

During 2002 and 2001, the Company borrowed against the cash surrender value
of the life insurance policies that it owns on the life of its Chairman and
Chief Executive Officer. The amounts borrowed at December 31, 2002 and 2001 are,
respectively, $25,970 with an interest rate of 7.40% and $23,882 with an
interest rate of 7.85%. The amounts borrowed are carried as a reduction of the
related cash surrender value included in Other Assets. Of the amounts borrowed
in 2002 and 2001, the Company received $843 and $811 in cash, respectively, and
$1,245 was used in each year to pay premiums on the underlying life insurance
policies.

For the years 2002, 2001 and 2000, the Company made interest payments on
all third party debt of $15,735, $15,519 and $15,115, respectively.

H. REDEEMABLE PREFERRED STOCK

As of December 31, 2002 and 2001, the Company had outstanding 20,000 shares
of Series I Preferred Stock, and 5,000 shares each of Series II and Series III
Preferred Stock. The holder of the Series I, Series II and Series III Preferred
Stock is the Chairman and Chief Executive Officer of the Company. The terms of
each class of Preferred Stock, including the basic economic terms relating
thereto, are essentially the same. The redemption date for the Series I, Series
II and Series III Preferred Stock is fixed at April 7, 2004, unless redeemed
earlier under circumstances described below. The terms of the Series I, Series
II and Series III Preferred Stock also give the holder, his estate or legal
representative, as the case may be, the option to require the Company to redeem
his Preferred Stock for a period of 12 months following his (i) death, (ii)
permanent disability or permanent mental disability, (iii) termination of
full-time employment for good reason or (iv) termination of full-time employment
by the Company without cause.

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 Class
B Common Stock to the extent such dividends exceed the per share preferential
dividend. In connection with his ownership of the Series I, Series II and Series
III Preferred Stock, the holder issued to the Company full recourse promissory
notes totaling $763 (included in Other Assets at December 31, 2002 and 2001)
with a

F-15

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

maturity date of April 2004. The interest paid by the holder to the Company in
2002, 2001 and 2000 pursuant to the terms of these notes was approximately $69
in each year.

In accordance with the terms of the respective Certificates of Designation
and Terms of each Series of Preferred Stock ("Certificates"), the Board of
Directors determined the change in redemption value would not reflect a 1994
write-off of goodwill but rather reflect amortization as if the Company had
continued to write-off goodwill in accordance with historical amortization
schedules.

Following the distribution of Class B Common Stock, the holder of the
Preferred Stock became entitled to eleven votes per share on all matters
submitted to the vote of stockholders. The holder of the Series I Preferred
Stock is entitled, as well, to vote as a single class to elect or remove
one-quarter of the Board of Directors, to approve the merger or consolidation of
the Company or the sale by it of all or substantially all of its assets, and to
approve the authorization or issuance of any other class of Preferred Stock
having equivalent voting rights.

In the event of the liquidation of the Company, the holder of the Preferred
Stock is entitled to a preferential liquidation distribution of $1.00 per share
in addition to all accrued and unpaid preferential dividends.

The total carrying value of the Preferred Stock (applicable to those shares
outstanding at each respective year-end) increased by $1,472 in 2002 and
decreased by $1,815 in 2001, respectively. The change in carrying value
represents the change in aggregate redemption value during those periods. This
change is referred to as "Additional Capital Applicable to Redeemable Preferred
Stock" in the respective Certificates.

I. COMMON STOCK

The Company has authorized and outstanding two classes of common stock,
Common Stock and Class B Common Stock. In 2000, the Company decreased the par
value of each class of Common Stock to $0.01 par value per share. In 1999, each
class of Common Stock had a $1.00 par value per share. The Class B Common Stock
has the same dividend and liquidation rights as the Common Stock, and a holder
of each share of Class B Common Stock is entitled to ten votes on all matters
submitted to stockholders. The shares of Class B Common Stock are restricted as
to transferability and upon transfer, except to specified limited classes of
transferees, will convert into shares of Common Stock which have one vote per
share. The Class B Common Stock will automatically convert to Common Stock on
April 3, 2006.

J. STOCK INCENTIVE PLAN

The Company's 1994 Stock Incentive Plan ("Stock Incentive Plan") is the
Company's active restricted stock and stock option plan. Under the Stock
Incentive Plan, awards in the form of incentive or nonqualified stock options or
restricted stock are available to be granted through June 2004 to officers and
other key employees. A maximum of 500,000 shares of Common Stock is available
for grant under the Stock Incentive Plan. Stock options cannot be granted at a
price less than 100% of the fair market value of the shares on the date of
grant. A committee of the Board of Directors ("Committee") determines the terms
and conditions under which the awards may be granted, vest or are exercisable.
Options must be exercised within ten years of the date of grant. Shares of
restricted stock may be sold to participants at a purchase price determined by
the Committee (which may be less than fair market value per share).

The Stock Incentive Plan replaced the Restricted Stock Plan, the Executive
Growth Plan, and the Nonqualified Stock Option Plan (collectively, the "Prior
Plans"), and any shares available for granting of awards under the Prior Plans
are no longer available for such awards. Options granted pursuant to the Prior
Plans remain outstanding and in full force, and shares reserved thereunder
remain so for such purposes. Under the Prior Plans, nonqualified and incentive
stock options were granted to employees eligible to receive options

F-16

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

at prices not less than 100% of the fair market value of the shares on the date
of grant. Options must be exercised within ten years of grant and for only
specified limited periods beyond termination of employment.

Transactions involving nonqualified options under the Stock Incentive and
Prior Plans were:

There were 121,736, 115,121, and 108,164 options exercisable and 260,119,
265,775, and 265,123 options available for grant at December 31, 2002, 2001 and
2000, respectively. The weighted average fair value of the options granted
during 2002, 2001 and 2000 was $258, $296 and $235, respectively.

The remaining weighted average contractual life and weighted average
exercise price of options outstanding as of December 31, 2002 and the weighted
average exercise price for options exercisable at December 31, 2002 are as
follows:

In 2002, 5,593 shares of Restricted Stock were issued at a price of $1.00
per share. In 2001, 2,063 shares of Restricted Stock were issued at a price of
$1.00 per share. In 2000, 4,821 shares of Restricted Stock were issued at a
price of $1.00 per share. All stock is issued with restrictions as to
transferability with various expiration dates between two and five years and is
subject to forfeiture. In 2002, 3,857 restricted shares lapsed and no shares
were forfeited and held in Treasury. In 2001, 100 restricted shares lapsed and
500 shares were forfeited and held in Treasury.

F-17

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Compensation to employees under the Stock Incentive and Prior Plans of
$4,947 in 2002, $3,728 in 2001 and $4,342 in 2000, representing the excess of
the market value of restricted stock, at the date of issuance, over any cash
consideration received, is carried as a reduction of Paid-In Additional Capital
and is charged to income ($2,631 in 2002, $1,944 in 2001 and $1,275 in 2000)
over the related required period of service of the respective employees.

PRO FORMA INFORMATION

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. 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 years
2002, 2001 and 2000, respectively; risk-free interest rates of 4.96%, 4.73% and
6.60%; dividend yields of 0.61%, 0.65% and 0.93%; volatility factors of the
expected market price of the Company's Common Stock of .30, .32 and .39; and a
weighted-average expected life for the options of 7.0 years for 2002, and 10
years for 2001 and 2000.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restriction
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. For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period. The Company's pro forma information
follows:

F-18

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

K. COMPUTATION OF EARNINGS PER COMMON SHARE

The following table shows the amounts used in computing earnings per common
share and the effect on income and the weighted average number of shares of
dilutive potential common stock.

- ---------------

(1) For the year ended December 31, 2002, 20,211 shares were expected to be
issued pursuant to the terms of the Senior Management Incentive Plan. Due to
the anti-dilutive result of the diluted EPS calculation for 2001, shares
issued pursuant to the terms of the Senior Management Incentive Plan were
excluded from the calculation. For the year ended December 31, 2000, 15,501
shares were expected to be issued pursuant to the terms of the Senior
Management Incentive Plan.

(2) For the year ended December 31, 2001, the assumed exercise of stock options,
issuances under stock incentive plans and the assumed conversion of the
8 1/2% Convertible Subordinated Debentures each had an anti-dilutive effect.
As such, these items have been excluded from the diluted EPS calculation.

F-19

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

L. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. At December 31, 2002 and
2001, the Company had deferred tax assets and deferred tax liabilities as
follows:

The components of income (loss) of consolidated companies before taxes on
income are as follows:

Provisions (benefits) for Federal, foreign, state and local income taxes
consisted of the following:

The Company has not recognized a tax benefit on capital losses relating to
the write-down of investments as the realization thereof is not certain.

F-20

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The effective tax rate varied from the statutory Federal income tax rate as
follows:

During the years 2002, 2001 and 2000, the Company made income tax payments
of $17,409, $28,212 and $29,141, respectively.

The tax benefit resulting from the difference between compensation expense
deducted for tax purposes and compensation expense charged to income for
restricted stock and nonqualified stock options is recorded as an increase to
Paid-in Additional Capital.

At December 31, 2002, the Company had cumulative net operating losses
attributable to foreign subsidiaries of approximately $115,000. The duration
over which the tax benefits attributable to these losses may be realized varies
on a country by country basis, but in no instance will any of the benefits
expire before 2004. Since a portion of the benefits may fail to be realized, a
valuation allowance has been reflected.

M. RETIREMENT PLANS, DEFERRED COMPENSATION, EXECUTIVE OFFICER LOANS, LEASES AND
CONTINGENCIES

1. The Company's Profit Sharing Plan is available to eligible employees of
Grey and qualifying subsidiaries meeting certain eligibility requirements. This
plan provides for contributions by the Company at the discretion of the Board of
Directors, subject to maximum limitations, as well as employee pre-tax
contributions. The Company also maintains a noncontributory Employee Stock
Ownership Plan covering eligible employees of the Company and qualifying
subsidiaries, under which the Company may make contributions in stock or cash to
an Employee Stock Ownership Trust (ESOT) in amounts each year as determined at
the discretion of the Board of Directors. The Company did not contribute to the
ESOT in 2002. The Company made stock contributions to the ESOT in 2001 and 2000.

The Company and the ESOT have certain rights to purchase shares from
participants whose employment has terminated. In addition to the two plans noted
above, a number of subsidiaries maintain separate profit sharing and retirement
arrangements. Furthermore, the Company also provides additional retirement and
deferred compensation benefits to certain executive officers and employees. The
Company maintains a Senior Management Incentive Plan ("Plan") in which deferred
compensation is granted to senior executive or management employees deemed
important to the continued success of the Company. The Plan has operated as an
ongoing series of individual plans each with terms of five years. The latest
plan in the series commenced in 1998 and provides for awards to be made through
2002. Awards vest to participants after the conclusion of the fifth year of
continued employment following admission to the plan, including the year the
participant was admitted. The amount recorded as an expense related to the Plan
amounted to $5,423, $0 and $8,209 in 2002, 2001 and 2000, respectively.
Approximately $2,712, $0 and $2,975 of plan expense incurred in 2002, 2001 and
2000, respectively, will be payable in Common Stock in accordance with the terms
of the Plan. The awards payable in Common Stock were converted into an
equivalent number of shares of Common Stock, based on the average of the market
values on the last 15 business days of the calendar year. The net increase to
Paid-in Additional Capital for the 2002 Plan is $2,711 and relates to the future
obligation to issue Common Stock. At

F-21

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2002, approximately 19,853 shares are payable in Common Stock
pursuant to the Plan of which 14,358 were vested.

2. In 1995, the Company and its Chairman and Chief Executive Officer
entered into an agreement extending the term of his employment agreement with
the Company through December 31, 2002. In 2001, the agreement was amended,
extending the term of his employment agreement through December 31, 2004. This
agreement further provides for the deferral of certain compensation otherwise
payable to the Chairman and Chief Executive pursuant to his employment agreement
and the payment of such deferred compensation into a grantor trust established
with United States Trust Company of New York. The purpose of the trust
arrangement is to ensure the Company's ability to deduct compensation paid to
the Chairman and Chief Executive Officer without the application of Section
162(m) of the Internal Revenue Code ("Section"). The Section, under certain
circumstances, denies a tax deduction to an employer for certain compensation
expenses in excess of $1,000 per year paid by a publicly held corporation to
certain of its executives. Amounts deferred and paid into the trust, as adjusted
for the earnings and gains or losses on the trust assets, will be paid to the
Chairman and Chief Executive Officer or to his estate, as the case may be,
following the expiration of his employment agreement, or the termination of his
employment by reason of death or disability. In 1998, the Company began making
payments to the grantor trust which are to be used to fund a pension obligation
to be payable to the Chairman and Chief Executive Officer over the eleven year
period following the normal expiration of his current employment agreement
("pension period"). The initial pension deposit was for $1,040 with annual
pension deposits of $360 ratably payable through 2004.

The amount of the pension to be paid to the Chairman and Chief Executive
Officer will depend on, and be limited to, the funds in the grantor trust during
the pension period. In addition, upon termination of his employment prior to the
commencement of the pension period or upon his death, any undistributed funds in
the grantor trust would be paid to him or his estate, as the case may be, in
satisfaction of any future obligations with respect to this pension.

At December 31, 2002 and 2001, the value of the trust was $32,189 and
$28,622, respectively, and is included in Other Assets and the Company's related
deferred compensation obligation for the same amount is included in Other
Liabilities.

Amounts charged to expense related to the foregoing plans and benefits
aggregated $35,955 in 2002, $28,876 in 2001 and $40,917 in 2000.

3. An executive officer has outstanding loans with the Company totaling
$500 as of December 31, 2002 and $700 as of December 31, 2001 which are
reflected in Other Assets. In 2002, $200 of the loan was forgiven, and included
in salaries and employee related expenses by the Company. The second installment
of $500 will be forgiven on December 31, 2004, assuming his continued employment
through that date.

In connection with a 1992 exercise of stock options, the Company received a
cash payment of $67 and a note from the Chairman and Chief Executive Officer of
the Company in the amount of $3,170, due in December 2001, bearing interest at
the rate of 6.06%, the then current, comparable U.S. Treasury Note rate. In
addition, and in accordance with the terms of the option agreement, the holder
of the options issued to the Company a promissory note in the principal amount
of $2,340 bearing interest at the same U.S. Treasury Note rate of 6.06%, payable
in December 2001, to settle his obligation to provide the Company with funds
necessary to pay the required withholding taxes due upon the exercise of the
options. A portion of the second note ($1,556) equal to the tax benefit received
by the Company upon exercise and the full amount of the note for $3,170 are
reflected in a separate component of common stockholders' equity. Both notes
were modified in 2001 to extend their due dates to November 2006 and modify the
interest rate to the comparable U.S. Treasury Note rate at the time of extension
of 3.93%. The interest paid to the Company by the holder pursuant to the terms
of the two notes issued in connection with the option exercise was $217 in 2002
and $334 in 2001 and 2000.

F-22

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. Rental expense amounted to approximately $63,155 in 2002, $62,251 in
2001 and $55,321 in 2000. Approximate minimum rental commitments, excluding
escalations, under non-cancelable operating leases are as follows:

2003........................................................ $ 61,608
2004........................................................ 56,758
2005........................................................ 51,474
2006........................................................ 47,161
2007........................................................ 44,140
Beyond 2007................................................. 76,635
--------
$337,776
========

5. Since March 2001, the Company has been cooperating with a criminal
investigation being conducted by U.S. Department of Justice Antitrust Division.
The investigation relates to the Graphic Services Department ("Department") of
the Company's New York Division of Grey Worldwide and several former vendors of
the Department. Since March 2002, federal criminal charges have been pending
against Mr. Mitchell Mosallem, who served as Director of the Department until
December 31, 2001. Those charges allege, among other things, that Mosallem and
others (including other employees in the Department)conspired (1) to restrain
trade by rigging bids and allocating contracts for certain graphic services
performed for a client of the Company; (2) to charge clients of the Company in
excess of amounts appropriately chargeable, including charges for cost overruns
on unrelated work and the cost of certain entertainment or other goods or
services provided to Mosallem and other Company employees; and (3) to obtain
kickbacks from former vendors of the Department. In November 2002, two of
Mosallem's codefendants -- a vendor known as The Color Wheel, Inc. and its
principal owner, Haluk Ergulec -- pleaded guilty to various charges, including
conspiracy to defraud the Company and its clients. In that connection, the
government filed with the court a written plea agreement identifying the Company
as a victim of Ergulec's offenses and requiring Ergulec to pay $1.1 million to
the Company in restitution. Several other individuals associated with former
vendors to the Department have pleaded guilty to federal charges relating to the
allegations against Mosallem. The government also has indicated that it is
examining whether there is Company responsibility in this matter. In February
2002, the Company hired from outside the Company a new Director of the
Department. In addition, Deloitte & Touche was retained on behalf of the Company
to conduct a comprehensive review of the Department, to recommend improved
policies and procedures, and to assist in the determination of remedial action
as appropriate.

N. QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of the quarterly unaudited results of operations for the years
ended December 31, 2002 and 2001 follows:

F-23

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------

Rounding differences may arise upon accumulation of quarterly per share data.

(1) Income of consolidated companies before taxes on income and other
expense -- net.

In the fourth quarter of 2001, the Company took a non-cash charge of
$32,200 consisting of write-offs or write-downs of investments in
Internet-related early stage businesses, certain marketable securities and
impaired goodwill, and the write-off of leasehold improvements and fixed assets
related to disposal of more than 160,000 square feet of leased space.

F-24

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

O. INDUSTRY SEGMENT AND RELATED INFORMATION

The Company is not engaged in more than one industry segment. The Company
is domiciled in the United States and evaluates performance by geographic region
based on profit or loss before income taxes. Commissions and fees are attributed
to the geographic region that generates billings. The percentages shown in the
caption for commissions and fees indicate the approximate proportion of each
amount that relates to the United States only. The percentages are based on a 3
year average for 2002, 2001 and 2000. Commissions and fees, operating profit,
interest income/expense, and related identifiable assets at December 31, 2002,
2001 and 2000, are summarized below according to geographic region:

Commissions and fees from one client amounted to 10.1%, 9.2% and 10.2% of
the consolidated total in 2002, 2001 and 2000, respectively.

Commissions and fees from the United States amounted to 94.0%, 93.7% and
94.1% of the North American total in 2002, 2001 and 2000, respectively.

F-25

INDEX TO EXHIBITS

E-1

E-2

E-3

- ---------------

* Management contract or compensatory plan or arrangement identified in
compliance with Item 14(c) of the rules governing the preparation of this
report.

10K-Exhibits

E-4