GREY GLOBAL GROUP INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTER ENDED MARCH 31, 2003

[ ] 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. Yes [X] No [ ]

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

As of April 30, 2003, the total number of shares outstanding of
Registrant's Common Stock, par value $0.01 per share ("Common Stock"), was
1,074,974 and of Registrant's Limited Duration Class B Common Stock, par value
$0.01 per share ("Class B Common Stock"), was 207,506.
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GREY GLOBAL GROUP INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES

INDEX

1

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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(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 (UNAUDITED)

See accompanying notes to condensed consolidated financial statements.
3

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements.
4

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

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

1. As permitted by the Securities and Exchange Commission, the
accompanying unaudited Consolidated Financial Statements and Notes thereto have
been condensed and, therefore, do not contain all disclosures required by
accounting principles generally accepted in the United States. Reference should
be made to the Company's Annual Report on Form 10-K for the year ended December
31, 2002 filed with the Securities and Exchange Commission.

2. The financial statements as of March 31, 2003 and for the three months
ended March 31, 2003 and 2002 are unaudited. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.

3. The results of operations for the three months ended March 31, 2003 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, 2003 and December 31, 2002, 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, issued to the Chairman and Chief Executive
Officer of the Company. Each share of Preferred Stock is to be redeemed by the
Company at a price equal to the book value per share attributable to one share
of Common Stock and one share of Class B Common Stock (subject to certain
adjustments) upon redemption, less a fixed discount established upon the
issuance of the Preferred Stock. The holder of each class of Preferred Stock is
entitled to receive cumulative preferential dividends at the annual rate of $.25
per share, and to participate in dividends on one share of the Common Stock and
one share of the Class B Common Stock to the extent such dividends exceed the
per share preferential dividend. The redemption date for the Series I, Series II
and Series III Preferred Stock is fixed at April 7, 2004.

6. The computation of basic earnings per common share is based on the
weighted average number of common shares outstanding and, for diluted earnings
per common share includes adjustments for the effect, if any, of the assumed
exercise of dilutive stock options, the shares issuable pursuant to the
Company's Senior Management Incentive Plan and the assumed conversion of the
Company's 8 1/2% Convertible Subordinated Debentures. For the purpose of
computing basic earnings per common share, the Company's net income is decreased
for dividends paid on the Company's Preferred Stock and increased or decreased
by the change in redemption value of the Company's 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.
Additionally, in computing diluted earnings per common share, the average
quarterly market price is used to determine the number of shares which would be
assumed to be repurchased. The market price for a share of Class B Common Stock,
which is not publicly traded, is deemed to be equal to the market price of a
share of Common Stock, into which a share of Class B Common Stock may be
converted at the option of the holder, as of the date such valuation is made.

5

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The following table shows the amounts affecting income used in computing
earnings per common share ("EPS") and the weighted average number of shares of
dilutive potential common stock:

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(1) Includes 24,060 and 20,211 shares expected to be issued pursuant to the
Senior Management Incentive Plan for the three months ended March 31, 2003
and 2002, respectively.

7. During the first quarter of 2003 and 2002, total comprehensive income
amounted to $15,598 and $6,247, respectively. The difference between net income
and total comprehensive income is, principally, 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 profit or loss
before income taxes. Commissions and fees are attributed to the geographic
region that generates the billings. Commissions and fees, operating profit, and
income (loss) of consolidated companies before taxes on income for the three
months ended March 31, 2003

6

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

and 2002, and related identifiable assets at March 31, 2003 and December 31,
2002 are summarized below according to geographic region:

Commissions and fees from the United States amounted to, approximately, 94%
of the North American total in both 2003 and 2002.

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 will expense stock options
issued after January 1, 2003 using the fair value method as provided for in FAS
148. The Company has also adopted the disclosure requirements of FAS 148, for
2003. There were no options granted in the first quarter 2003.

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, 2002; risk-free interest rates of 4.98%;
dividend yields of 0.63%; volatility factors of the expected market price of the
Company's Common Stock of 0.31; and a weighted-average expected life for the
options of 7.0 years for 2002.

7

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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. 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:

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 pursuant to certain acquisition arrangements not reflected as
liabilities on its consolidated balance sheet of approximately $50,113. Of such
amount, approximately 70% 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 or 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.

11. 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. In March 2002, federal criminal charges were brought 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. In April 2003, Mossallem pled guilty to the charges against him.
Several other individuals associated with former vendors to the Department have
pled guilty to federal charges relating to the allegations against Mosallem. The
government also has previously indicated that it was 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.

8

GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

12. 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. Using a two
step method as provided by FAS 142 impairment is assessed by comparing the
carrying value of the assets less liabilities 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.) If indicators of impairment are
present then the excess of the carrying value of goodwill over the fair value of
goodwill, based on the fair value of the assets and liabilities of the reporting
units, is deemed impaired. The Company has completed its annual impairment test
of goodwill and intangible assets with indefinite lives as of March 31, 2003,
and no impairment was identified.

9

PART I

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

ITEM 2. RESULTS OF OPERATIONS

Commissions and fees ("gross income") increased 4.2% during the first
quarter of 2003 when compared to the same periods in 2002. Absent exchange rate
movements, gross income decreased 0.7% in the three months ended March 31, 2003
when compared to the same period in 2002. In the first quarters of 2003 and
2002, respectively, 43.8% and 45.2% of gross income was attributable to the
North American operations and 56.2% and 54.8% to international operations. In
the first quarter of 2003, gross income from operations in North America
increased 1.1% versus the respective prior period, while gross income from
international operations increased 6.8% (down 1.9% absent exchange rate
movements) when compared to the same periods in 2002. The increase in
International gross income occurred principally at the Company's European
operations which grew 8.4%; on a constant currency basis, European gross income
for the quarter was down 3.1%.

Salaries and employee related expenses increased 1.5% in the first quarter
of 2003 when compared to the respective prior period. Absent exchange rate
movements, salary and employee related expenses were down approximately 6.0% in
the quarter. The reduction in salary and employee related expenses is a result
of the Company's reduction of staff over the last two years. Office and general
expenses increased 9.7% for the first three months ended March 31, 2003 versus
the comparable prior period. The increase in office and general expenses also
reflects the impact of strengthening European currencies.

Inflation did not have a material effect on gross income or expenses during
2003 or 2002.

Other expense-net increased by $732, primarily as the result of reduced
interest income due to lower interest earned on invested funds.

Minority interest applicable to consolidated companies decreased by $850 in
the first quarter of 2003 as compared to the respective prior period. Equity in
earnings of nonconsolidated affiliated companies decreased by $260 during the
first quarter of 2003 when compared to the same period in 2002. The fluctuations
are primarily due to changes in the level of profits of majority-owned companies
and of nonconsolidated affiliated companies.

The effective tax rate is 47.0% for the first quarter of 2003 versus 45.0%
in the same period in 2002. The increase in the first quarter is due principally
to a heavier concentration of pre-tax income in jurisdictions with higher
effective tax rates.

Net income was $5,071 in the first quarter of 2003 as compared to net
income of $4,314 in the respective prior periods. For the first quarter 2003,
basic and diluted earnings per common share were $3.41 and $3.12, respectively.
The amount of net income attributable to common shareholders grew at a rate less
than the increase in net income because of the effect of the change in
redemption value of the Company's Preferred Stock. The change in redemption
value of the Preferred Stock, which derives from the book value per share
attributable to one share of Common Stock and one share of Class B Common Stock
(subject to certain adjustments), increased at a greater rate than net income,
principally reflecting the strengthening European currencies as shown in the
Company's total comprehensive income for the period and recorded in the
Cumulative Translation Adjustment on the Balance Sheet as of March 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents decreased by $47,456 from $351,006 at December
31, 2002 to $303,550 at March 31, 2003. The working capital deficit increased to
$106,178 at March 31, 2003, versus a deficit of $94,823 at December 31, 2002.
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.

10

The decrease in working capital is primarily due to recording a liability, that
was settled in April 2003, for a purchase obligation of additional shares in the
Company's media operation in the United Kingdom.

Domestically, the Company has a short-term committed revolving credit
facility in the amount of $110,000 at both December 31, 2002 and March 31, 2003.
This line of credit was partially utilized during the three months ended March
31, 2003 and 2002. There was $10,302 and $10,039 outstanding under this credit
facility at March 31, 2003 and December 31, 2002, respectively. Additionally,
this line of credit may be used to secure borrowings in international
subsidiaries. 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 $52,651 and $57,007 outstanding at
March 31, 2003 and December 31, 2002, respectively. 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. In
addition, from time to time, the Company may guarantee certain financial and
other obligations of its consolidated subsidiaries, the utilization of 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 Condensed Consolidated Balance Sheet of approximately
$50,113. Of such amount, approximately 70% 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, 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. A 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
other loan of $75.0 million, originally taken in December 1997 and renegotiated
in March 2003 bears interest at the rate of 7.41% and is repayable in three
equal annual installments, commencing in December 2007.

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, 2003 and December 31, 2002, the Company was in compliance
with these covenants. The total interest expense related to the Company's
borrowings for the three months ended March 31, 2003 and 2002 was $4,046 and
$3,879, respectively.

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 generally 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

11

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. Using a two
step method as provided by FAS 142, impairment is assessed by comparing the
carrying value of the assets less liabilities 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.) If indicators of impairment are
present then the excess of the carrying value of goodwill over the fair value of
goodwill, based on the fair value of the assets and liabilities of the reporting
units, is deemed impaired. The Company has completed its annual impairment test
of goodwill and intangible assets with indefinite lives as of March 31, 2003,
and no impairment was identified.

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, 2003 and December 31, 2002, the
Company had $50,000 and $51,000, respectively, of deferred tax assets net of a
valuation reserve of $26,900, in both 2003 and 2002, which it believes to be
appropriate.

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.

12

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's results may be affected by currency exchange rate movements
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. At March 31, 2003
and December 31, 2002, there were no foreign currency contracts open. The
Company had no derivative contracts outstanding at March 31, 2003 and December
31, 2002, 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 movements in interest rates. Excess funds are
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, have 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.

PART II

OTHER INFORMATION

ITEM 1. 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. In March 2002, federal criminal charges were brought 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. In April 2003 Mossallem entered into a plea agreement pleading
guilty to the charges against him. 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 previously
indicated that it was 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.

13

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.

(b) Reports on Form 8-K: The Company filed a report dated March 4, 2003,
reporting Item 7. "Exhibits."

14

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 15, 2003

By: /s/ LESTER M. FEINTUCK
------------------------------------
Lester M. Feintuck,
Senior Vice President
Chief Financial Officer U.S.
Controller
(Chief Accounting Officer)
Dated: May 15, 2003

15

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 quarterly report does not contain any untrue
statement of 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 quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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-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 quarterly 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
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly 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 officer 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:

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 officer and I have indicated in this
quarterly 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.

/s/ EDWARD H. MEYER
--------------------------------------
Name: Edward H. Meyer
Title: Chief Executive Officer
Date: May 15, 2003

16

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 quarterly report does not contain any untrue
statement of 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 quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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-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 quarterly 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
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly 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 officer 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:

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 officer and I have indicated in this
quarterly 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.

/s/ STEVEN G. FELSHER
--------------------------------------
Name: Steven G. Felsher
Title: Chief Financial Officer
Date: May 15, 2003

17

INDEX TO EXHIBITS