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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 June 30, 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 Identification Number)
incorporation or organization)
777 Third Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 212-546-2000
including area code:
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Act)
[X] Yes [ ] No
As of July 31, 2003, the total number of shares outstanding of Registrant's
Common Stock, par value $0.01 per share ("Common Stock"), was 1,091,211 and of
Registrant's Limited Duration Class B Common Stock, par value $0.01 per share
("Class B Common Stock"), was 207,057.
GREY GLOBAL GROUP INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX
PAGE NO.
--------
Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Other Information 23
Signatures 25
Index to Exhibits 30
2
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2003 2002
(in thousands, except share and per share data) (UNAUDITED) (A)
- ----------------------------------------------- ---------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 224,481 $ 351,006
Marketable securities 1,228 1,733
Accounts receivable-net of allowance for doubtful
accounts of $20,416 in 2003 and $16,352 in 2002 1,092,992 1,030,665
Expenditures billable to clients 61,419 78,364
Other current assets 127,532 100,189
---------------------------
Total current assets 1,507,652 1,561,957
Investments in and advances to nonconsolidated
affiliated companies 16,667 14,750
Fixed assets-at cost, less accumulated depreciation of
$240,211 in 2003 and $214,260 in 2002 136,223 139,941
Marketable securities 2,183 5,522
Goodwill 270,381 243,499
Other assets-including loans to executive officers of
$5,047 in 2003 and 2002 109,312 108,170
---------------------------
Total assets $ 2,042,418 $ 2,073,839
===========================
See accompanying notes to condensed consolidated financial statements.
(A) The condensed consolidated balance sheet has been derived from the audited
financial statements at that date.
3
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
JUNE 30, DECEMBER 31,
2003 2002
(in thousands, except share and per share data) (UNAUDITED) (A)
- ----------------------------------------------- ---------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,251,330 $ 1,292,808
Notes payable to banks 67,700 67,046
Accrued expenses and other 261,345 270,860
Income taxes payable 32,465 26,066
---------------------------
Total current liabilities 1,612,840 1,656,780
Other liabilities, including deferred compensation of
$56,216 in 2003 and $57,766 in 2002 68,354 78,900
Long-term debt 128,025 128,025
Minority interest 16,308 22,977
Redeemable Preferred Stock-at redemption value; par
value $0.01 per share; authorized 500,000 shares;
issued and outstanding 30,000 shares in 2003 and 2002 10,813 9,652
Common stockholders' equity:
Common Stock- par value $0.01 per share; authorized
50,000,000 shares; issued 1,280,802 shares in 2003
and 1,265,905 shares in 2002 13 13
Limited Duration Class B Common Stock-par value
$0.01 per share; authorized 10,000,000 shares; issued
233,994 shares in 2003 and 234,705 shares in 2002 2 2
Paid-in additional capital 57,393 54,488
Retained earnings 194,916 188,956
Accumulated other comprehensive loss:
Cumulative translation adjustment (4,193) (22,743)
Unrealized loss on marketable securities (419) (1,081)
---------------------------
Total accumulated other comprehensive loss (4,612) (23,824)
---------------------------
Loans to officer used to purchase Common Stock and
Limited Duration Class B Common Stock (4,726) (4,726)
---------------------------
242,986 214,909
Less-cost of 191,992 and 195,444 shares of Common
Stock and 26,937 shares of Limited Duration Class B
Common Stock held in treasury in 2003 and 2002 36,908 37,404
---------------------------
Total common stockholders' equity 206,078 177,505
---------------------------
Total liabilities and common stockholders' equity $ 2,042,418 $ 2,073,839
===========================
See accompanying notes to condensed consolidated financial statements.
4
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
(in thousands, except share and per share data) 2003 2002 2003 2002
- ----------------------------------------------- -----------------------------------------------------
Commissions and fees $ 319,946 $ 290,082 $ 617,589 $ 575,663
Expenses:
Salaries and employee related expenses 217,692 190,790 412,861 383,154
Office and general expenses 92,468 92,373 180,562 172,642
-----------------------------------------------------
310,160 283,163 593,423 555,796
-----------------------------------------------------
Operating income 9,786 6,919 24,166 19,867
Interest expense (3,324) (3,821) (7,370) (7,700)
Interest income 2,657 1,409 3,371 2,302
Other income - net 3,028 104 3,073 535
-----------------------------------------------------
Income of consolidated companies
before taxes on income 12,147 4,611 23,240 15,004
Provision for taxes on income 6,174 2,446 11,388 7,127
-----------------------------------------------------
Income of consolidated companies 5,973 2,165 11,852 7,877
Minority interest applicable to
consolidated companies (1,455) (804) (2,452) (2,651)
Equity in earnings of nonconsolidated
affiliated companies 226 309 415 758
-----------------------------------------------------
Net income $ 4,744 $ 1,670 $ 9,815 $ 5,984
=====================================================
Net income applicable to common
shareholders:
Net Income $ 4,744 $ 1,670 $ 9,815 $ 5,984
Effect of dividend requirement and
the change in redemption value of
redeemable preferred stock (505) (99) (1,278) (414)
-----------------------------------------------------
Net income applicable to common
shareholders
$ 4,239 $ 1,571 $ 8,537 $ 5,570
=====================================================
Weighted average number
of common shares outstanding
Basic 1,274,154 1,247,671 1,268,177 1,247,744
Diluted 1,394,287 1,385,226 1,391,623 1,383,073
Earnings per common share
Basic $ 3.33 $ 1.26 $ 6.73 $ 4.46
Diluted $ 3.07 $ 1.16 $ 6.19 $ 4.08
Dividends per common share $ 1.00 $ 1.00 $ 2.00 $ 2.00
=====================================================
See accompanying notes to condensed consolidated financial statements.
5
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
(in thousands, except share and per share data) 2003 2002
- ----------------------------------------------- -------------------------
OPERATING ACTIVITIES
Net income $ 9,815 $ 5,984
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization of fixed assets 20,154 19,693
Deferred compensation expense 8,256 3,972
Equity in loss of non-consolidated affiliated
companies, net of dividends received of $122 in 2003
and $111 in 2002 (293) (647)
Loss (gain) from the sale of marketable securities 83 (258)
Loss on the write-down of marketable securities 119 -
Minority interest applicable to consolidated companies 2,452 2,651
Restricted stock expense 1,202 1,200
Deferred income taxes 2,002 (1,142)
Changes in operating assets and liabilities (148,019) (26,364)
-------------------------
Net cash (used in) provided by operating activities (104,229) 5,089
INVESTING ACTIVITIES
Purchases of fixed assets (11,024) (11,239)
Trust fund deposits (2,004) (1,661)
(Increase) decrease in investments in and advances to
nonconsolidated affiliated companies (874) 1,536
Proceeds from the sale of marketable securities 4,534 2,499
Purchases of investment securities (154) (112)
Increase in goodwill (13,215) (6,093)
-------------------------
Net cash used in investing activities (22,737) (15,070)
6
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
FOR THE SIX MONTHS ENDED
JUNE 30,
(in thousands, except share and per share data) 2003 2002
- ----------------------------------------------- ---------------------------
FINANCING ACTIVITIES
Repayments of short-term borrowings (2,101) (9,446)
Proceeds from revolving credit facility 5,689 -
Repayment of revolving credit facility (7,902) -
Cash dividends paid on common shares (2,575) (2,536)
Cash dividends paid on Redeemable Preferred Stock (120) (120)
Net proceeds from issuance of restricted stock - 217
Proceeds from exercise of stock options 2,118 1,164
---------------------------
Net cash used in financing activities (4,891) (10,721)
Effect of exchange rate changes on cash 5,332 (8,054)
---------------------------
Decrease in cash and cash equivalents (126,525) (28,756)
Cash and cash equivalents at beginning of period 351,006 276,602
---------------------------
Cash and cash equivalents at end of period $ 224,481 $ 247,846
===========================
See accompanying notes to condensed consolidated financial statements.
7
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 June 30, 2003 and for the three months
ended June 30, 2003 and 2002 are unaudited. Certain of the Company's
international operations are consolidated on an up to three month lag
as permitted by accounting principles generally accepted in the United
States. 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 six months ended June 30, 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 June 30, 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.
8
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 net income used in
computing earnings per common share ("EPS") and the weighted average
number of shares of dilutive potential common stock:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------------
BASIC EARNINGS PER
COMMON SHARE
WEIGHTED AVERAGE SHARES 1,274,154 1,247,671 1,268,177 1,247,744
---------------------------------------------------------
Net income $ 4,744 $ 1,670 $ 9,815 $ 5,984
Effect of dividend requirements and the change in
redemption value of redeemable preferred stock (505) (99) (1,278) (414)
---------------------------------------------------------
NET EARNINGS USED IN COMPUTATION $ 4,239 $ 1,571 $ 8,537 $ 5,570
---------------------------------------------------------
PER SHARE AMOUNT $ 3.33 $ 1.26 $ 6.73 $ 4.46
=========================================================
DILUTED EARNINGS PER
COMMON SHARE
Weighted average shares used in the Basic EPS
calculation 1,274,154 1,247,671 1,268,177 1,247,744
Net effect of dilutive stock options and stock
incentive plans (1) 69,005 86,427 72,318 84,201
Assumed conversion of 8.5% convertible
subordinated debentures 51,128 51,128 51,128 51,128
---------------------------------------------------------
ADJUSTED WEIGHTED AVERAGE SHARES 1,394,287 1,385,226 1,391,623 1,383,073
---------------------------------------------------------
Net earnings used in the Basic EPS calculation $ 4,239 $ 1,571 $ 8,537 $ 5,570
8.5% convertible subordinated debentures
interest net of income tax effect 36 35 72 72
---------------------------------------------------------
NET EARNINGS USED IN COMPUTATION $ 4,275 $ 1,606 $ 8,609 $ 5,642
---------------------------------------------------------
PER SHARE AMOUNT $ 3.07 $ 1.16 $ 6.19 $ 4.08
=========================================================
(1) Includes 14,877 and 19,468 shares expected to be issued pursuant to the
Senior Management Incentive Plan for the three and six months ended
June 30, 2003, respectively, and 20,211 shares expected to be issued
pursuant to the Senior Management Incentive Plan for the three months
and six months ended June 30, 2002, respectively.
7. During the second quarter of 2003 and 2002, total comprehensive income
amounted to $13,430 and $3,573, respectively, and for the six months
ended June 30, 2003 and 2002 total comprehensive income was $29,027 and
$9,819, respectively. The difference between net income and total
comprehensive income is the result of the change in the translated
value of the net assets of the Company's international operations,
principally, due to the change in value of the United States dollar
versus other currencies.
9
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
8. The Company is not engaged in more than one industry segment. The
Company evaluates performance by geographic region based on income or
loss before income taxes. Commissions and fees are attributed to the
geographic region that generates the billings. Commissions and fees,
operating income, and income (loss) of consolidated companies before
taxes on income for the six months ended June 30, 2003 and 2002, and
related identifiable assets at June 30, 2003 and December 31, 2002 are
summarized below according to geographic region:
FOR THE THREE MONTHS ENDED JUNE 30,
- ------------------------------------------------------------------------------------------------------------------------------------
NORTH AMERICA EUROPE OTHER CONSOLIDATED
2003 2002 2003 2002 2003 2002 2003 2002
-----------------------------------------------------------------------------------------------
Commissions and fees $ 142,001 $ 135,307 $ 145,234 $ 120,880 $ 32,711 $ 33,895 $ 319,946 $ 290,082
-----------------------------------------------------------------------------------------------
Operating income (loss) 8,660 6,516 820 (249) 306 652 9,786 6,919
-----------------------------------------------------------------------------------------------
Income (loss) of consolidated
companies before taxes on income 7,349 4,915 4,575 (785) 223 481 12,147 4,611
-----------------------------------------------------------------------------------------------
FOR THE SIX MONTS ENDED JUNE 30,
- ------------------------------------------------------------------------------------------------------------------------------------
NORTH AMERICA EUROPE OTHER CONSOLIDATED
2003 2002 2003 2002 2003 2002 2003 2002
-----------------------------------------------------------------------------------------------
Commissions and fees $ 272,480 $ 264,413 $ 282,980 $ 247,958 $ 62,129 $ 63,292 $ 617,589 $ 575,663
-----------------------------------------------------------------------------------------------
Operating income (loss) 17,389 13,061 6,863 7,233 (86) (427) 24,166 19,867
-----------------------------------------------------------------------------------------------
Income (loss) of consolidated
companies before taxes on income 14,377 10,500 9,101 5,480 (238) (976) 23,240 15,004
-----------------------------------------------------------------------------------------------
Identifiable assets $ 747,568 $ 866,713 $1,085,996 $ 991,769 $ 192,187 $ 200,607 2,025,751 2,059,089
-----------------------------------------------------------------------
Investments in and advances to non-
consolidated affiliated companies 16,667 14,750
----------------------
Total assets $2,042,418 $2,073,839
======================
Commissions and fees from the United States amounted to, approximately,
94% of the North American total in both 2003 and 2002.
10
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
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 and 326 options were granted in the second quarter
2003. Under FAS 123 the compensation expense for the 6 months ended
June 30, 2003 was $4.
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 June
30, 2002; risk-free interest rates of 5.12%; dividend yields of 0.61%;
volatility factors of the expected market price of the Company's Common
Stock of 0.30; and a weighted-average expected life for the options of
7.0 years for 2002.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. Management
reviews, from time to time, whether there are more reliable option
valuation models available for use and at some point may adopt an
alternative valuation methodology. For purposes of pro forma
disclosure, the estimated fair value of the options is amortized to
expense over the options' vesting period. The Company's pro forma
information follows:
THREE MONTHS ENDED JUNE 30,
---------------------------
2003 2002
---------------------------
Net Income (as reported) $ 4,744 $ 1,670
Add: Stock-based employee compensation expense
included in reported net income, net of related tax
effect 311 297
(Less): Total stock-based employee compensation
expense determined under fair value based method,
net of related tax effects (498) (537)
---------------------------
Pro forma net income (loss) $ 4,557 $ 1,430
Earnings per common share:
Basic - as reported $ 3.33 $ 1.26
Basic - pro forma $ 3.19 $ 1.07
Diluted - as reported $ 3.07 $ 1.16
Diluted - pro forma $ 2.94 $ 0.99
11
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
SIX MONTHS ENDED JUNE 30,
---------------------------
2003 2002
---------------------------
Net Income (as reported) $ 9,815 $ 5,984
Add: Stock-based employee compensation expense
included in reported net income, net of related tax
effect 638 636
(Less): Total stock-based employee compensation
expense determined under fair value based method,
net of related tax effects (1,013) (1,116)
------------ ------------
Pro forma net income (loss) $ 9,440 $ 5,504
Earnings per common share:
Basic - as reported $ 6.73 $ 4.46
Basic - pro forma $ 6.45 $ 4.09
Diluted - as reported $ 6.19 $ 4.08
Diluted - pro forma $ 5.93 $ 3.75
10. The Company estimates that it will be required to make future payments
to acquire additional shares of subsidiary companies or to complete
earn-out agreements (collectively, "Agreements") pursuant to certain
acquisition arrangements not reflected as liabilities on its
consolidated balance sheet of approximately $46.5 million. Of such
amount, 24% is estimated to be paid over the period from 2003 through
2005 and the remainder to be paid from 2006 and beyond. The foregoing
information is estimated and the actual payments made will be dependent
on future events primarily related to the attainment of earnings goals,
specified operating margins and revenue targets or a combination
thereof in respect of a number of subject companies. Other factors
which must be considered in making the estimate include the fulfillment
and amendment of certain contractual obligations by third parties, the
movement of exchange rates, the timing of when the Company or other
parties choose to exercise certain contractual rights and other
variables.
Many of the Agreements have no maximum or minimum amount payable. As
such, there is no definitive range of the amounts payable in the
future. The estimated amounts payable were computed using assumptions
as to earnings bases,dividend rates, earnings growth rates and other
factors deemed to be reasonable for the underlying situations. If the
Company were to increase the earnings assumptions used in estimating
the amounts payable uniformly by 10%, the estimated amounts payable
would increase to $49.8 million; if the earnings assumptions were
decreased uniformly by 10%, the estimated amounts payable would
decrease to $43.1 million.
12
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
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 April 2003, Mr. Mitchell
Mosallem, who served as director of the Department until December 31,
2001, pleaded guilty to a series of criminal charges alleging, 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. Mosallem is awaiting sentencing. 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. The
government also had previously indicated that it was examining whether
there was Company responsibility in this matter. However, in connection
with Mr. Ergulec's guilty plea, 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 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.
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 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 the
regional levels North America and Europe. (For the purposes of the
calculation, Asian and Latin American goodwill of approximately $24.0
million are combined with North America and Europe reflecting the fact
that investments in the Asian and Latin American regions are
principally needed to support multi-national clients in North America
and Europe.) If goodwill is deemed to be impaired, the excess of
carrying value of goodwill over fair value of net tangible and
intangible assets is written-off. The Company has completed its annual
impairment test of goodwill as of March 31, 2003, and no impairment was
identified.
13. 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.
13
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
14. On May 15, 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This Statement
establishes standards for classifying and measuring as liabilities
certain financial instruments that embody obligations of the issuer and
have characteristics of both liabilities and equity. FAS 150 represents
a significant change in practice in the accounting for a number of
financial instruments, including mandatorily redeemable equity
instruments. Effective July 1, 2003, the Company's redeemable preferred
stock will be classified as a current liability and the change in the
redemption value of the Company's redeemable preferred stock that was
previously recorded as a change in Retained Earnings will be
prospectively recorded as interest income or interest expense. The
adoption of FAS 150 will impact working capital and net income. The
adoption of FAS 150 will not have an effect on EPS. The EPS calculation
currently includes an adjustment to net income for the change in the
redemption value of preferred stock, which will now be designated as
interest expense eliminating the need for the adjustment. The income
used in the calculation will be the same and not have an effect on EPS.
15. Other income-net increased by $2.9 million during the second quarter
primarily as the result of the gain on the sale of an operating unit in
Germany of approximately $2.5 million.
14
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
ITEM 2. RESULTS OF OPERATIONS
Second Quarter 2003 Compared to Second Quarter 2002
Commissions and fees ("gross income") increased 10.3%, or $29.9 million during
the second quarter of 2003 when compared to the same period in 2002. Absent
exchange rate fluctuations, gross income increased 2.1% in the three months
ended June 30, 2003 when compared to the same period in 2002. In the second
quarters of 2003 and 2002, respectively, 44.4% and 46.6% of consolidated gross
income was attributable to the North American operations and 55.6% and 53.4% to
Non-North American ("international") operations. Of the increase in gross income
for the quarter, $23.6 million was attributable to the weakening of the dollar
against foreign, principally European, currencies. In the second quarter of 2003
gross income from operations in North America increased 4.9% versus the
respective prior period primarily from increased business from existing clients.
Gross income from international operations increased 15.0% (down 0.2% absent
exchange rate fluctuations) during the second quarter. Gross income from
international operations, on a constant currency basis, were affected by weak
performances, principally in Northern Europe where macro-economic conditions
continue to impact results.
Salaries and employee related expenses increased 14.1% in the second quarter of
2003 as compared to the same period in 2002. Most of the increase, 8.5%, is
attributable to currency movements while the remainder is due to accruals for
the reinstatement of certain discretionary variable compensation programs in
connection with improved profitability in North America.
Office and general expenses increased 0.1% in the second quarter of 2003 as
compared to the second quarter of the prior year. Absent exchange rates, office
and general expense were down 8.7% reflecting the continued emphasis on cost
containment as well as the absence of a $4.0 million expense recorded in the
second quarter of 2002 for professional fees and other expenses recognized in
connection with the investigation mentioned below in the section of this report
entitled "Legal Proceedings".
Inflation did not have a material effect on gross income or expenses during 2003
or 2002.
Interest Expense of $3.3 million was relatively constant compared to $3.8
million in the same period of 2002 reflecting a stable amount of short-term
borrowing under overdraft and revolving credit facilities.
Interest Income was $2.7 million in the second quarter of 2003 as compared to
$1.4 million for the same period in 2002. The increase is the result of higher
invested cash balances.
Other income-net increased by $2.9 million during the second quarter primarily
as the result of the gain of approximately $2.5 million on the sale of a
majority owned operating unit in Germany.
15
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (CONTINUED)
Minority interest applicable to consolidated companies increased by $700,000 and
equity in earnings of nonconsolidated affiliated companies decreased by $100,000
during the second quarter of 2003 as compared to the respective prior period.
The fluctuations were primarily due to changes in the level of profits of the
Company's majority-owned companies and nonconsolidated affiliated companies.
Minority interest was also impacted by the acquisition of additional shares in
the Company's media operation in the United Kingdom and the sale of a majority
owned operating unit in Germany in the second quarter 2003.
The effective tax rate was 50.8% for the second quarter of 2003 versus 53.1% in
the same period in 2002. The decrease in the second quarter is due principally
to the mix in the concentration of pre-tax income in jurisdictions with lower
effective tax rates.
Net income was $4.7 million in the second quarter of 2003 as compared to net
income of $1.7 million in the respective prior period. Currency movements did
not have a significant impact on net income for the second quarter of 2003.
Basic and diluted earnings per common share for the second quarter of 2003 were
$3.33 and $3.07, respectively. Basic and diluted earnings per common share for
the second quarter of 2002 were $1.26 and $1.16, 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 is determined by reference 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), 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 June 30, 2003.
Six Months 2003 Compared to Six Months 2002
Gross income increased 7.3%, or $41.9 million, during the six months ended June
30, 2003 when compared to the same period in 2002. Absent exchange rate
fluctuations, gross income increased 0.7% in six months ended June 30, 2003 when
compared to the same period in 2002. Of the increase in gross income for the six
months ended June 30, 2003, $37.7 million was attributable to the weakening of
the dollar against foreign, principally European, currencies. In the first six
months of 2003 gross income from operations in North America increased 3.1%
versus the respective prior period primarily from increased business from
existing clients. Gross income from international operations increased 10.9%
(but decreased 1.1% absent exchange rate fluctuations) during the first six
months when compared to the same periods in 2002. Gross income occurred
principally at the Company's European operations which grew 14.1% during the
first six months when compared to the same period in 2002; on a constant
currency basis, however, European gross income was down 1.4%. These results were
attributable to weak performances principally in Northern Europe where
macro-economic conditions continue to impact results.
16
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (CONTINUED)
Salaries and employee related expenses increased 7.8% for the first six months
of 2003. Absent exchange rate movements, salary and employee related expenses
increased approximately 1.1% for the first six months of 2003.
The increase in office and general expenses of 4.6% for the six months ended
June 30, 2003 was less than the increase in gross income reflecting the
continued emphasis on cost containment as well as the absence of a $4.0 million
expense recognized in the second quarter of 2002 for professional fees and other
expenses incurred in connection with the investigation mentioned below in the
section of this report entitled "Legal Proceedings". Absent exchange rate
changes office and general expenses decreased 2.7%.
Inflation did not have a material effect on gross income or expenses during 2003
or 2002.
Interest Expense of $7.4 million was relatively constant compared to $7.7
million from the same period in 2002 reflecting a stable amount of short-term
borrowing under overdraft and revolving credit facilities.
Interest Income was $3.4 million for the six months ended June 30, 2003 versus
$2.3 million for the six months ended June 30, 2002. The increase is the result
of higher invested cash balances.
Other income-net increased by $2.5 million for the first six months of 2003
primarily as the result of the gain of approximately $2.5 million on the sale of
a majority owned operating unit in Germany.
Minority interest applicable to consolidated companies decreased by $200,000 and
equity in earnings of nonconsolidated affiliated companies decreased by
$300,000, during the six months ended June 30, 2003 when compared to the same
period in 2002. The fluctuations were primarily due to changes in the level of
profits of the Company's majority-owned companies and nonconsolidated affiliated
companies. Minority interest was also impacted by the acquisition of additional
shares in the Company's media operation in the United Kingdom and the sale of a
majority owned operating unit in Germany.
The effective tax rate was 49.0% for the first six months of 2003 versus 47.5%
in the same period in 2002. The increase for the six months ended June 30, 2003
is due principally to the mix in the concentration of pre-tax income in
jurisdictions with higher effective tax rates.
Net income was $9.8 million for the first six months of 2003 as compared to net
income of $6.0 million in the respective prior period. Currency movements did
not have a significant impact on net income for the six months ended June 30,
2003.
Basic and diluted earnings per common share for the first six months of 2003
were $6.73 and $6.19, respectively. Basic and diluted earnings per common share
for the first six months of 2002 were $4.46 and $4.08, 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 is determined by reference to the book
17
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (CONTINUED)
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 June 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $126.5 million from $351.0 million at
December 31, 2002 to $224.5 million at June 30, 2003. The working capital
deficit increased to $105.2 million at June 30, 2003, versus a deficit of $94.8
million 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. The decrease in
working capital since December 31, 2002 is primarily due to a liability
recorded, at the end of the first quarter of 2003, for the purchase obligation
of additional shares in the Company's media operation in the United Kingdom
which was settled in the second quarter for approximately $10.0 million.
Domestically, the Company had a short-term committed revolving credit facility
in the amount of $110.0 million at both December 31, 2002 and June 30, 2003.
This line of credit was partially utilized during the six months ended June 30,
2003 and 2002. There was $12.6 million and $10.0 million outstanding under this
credit facility at June 30, 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 $55.1 million and
$57.0 million outstanding at June 30, 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.
18
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (CONTINUED)
The Company estimates that it will be required to make future payments to
acquire additional shares of subsidiary companies or to complete earn-out
agreements (collectively, "Agreements") pursuant to certain acquisition
arrangements not reflected as liabilities on its consolidated balance sheet of
approximately $46.5 million. Of such amount, 24% is estimated to be paid over
the period from 2003 through 2005 and the remainder to be paid from 2006 and
beyond. The foregoing information is estimated and the actual payments made will
be dependent on future events primarily related to the attainment of earnings
goals, specified operating margins and revenue targets or a combination thereof
in respect of a number of subject companies. Other factors which must be
considered in making the estimate include the fulfillment and amendment of
certain contractual obligations by third parties, the movement of exchange
rates, the timing of when the Company or other parties choose to exercise
certain contractual rights and other variables.
Many of the Agreements have no maximum or minimum amount payable. As such, there
is no definitive range of the amounts payable in the future. The estimated
amounts payable were computed using assumptions as to earnings bases,dividend
rates, earnings growth rates and other factors deemed to be reasonable for the
underlying situations. If the Company were to increase the earnings assumptions
used in estimating the amounts payable uniformly by 10%, the estimated amounts
payable would increase to $49.8 million; if the earnings assumptions were
decreased uniformly by 10%, the estimated amounts payable would decrease to
$43.1 million.
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 June 30, 2003 and December 31, 2002, the Company was in compliance
with these covenants.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of financial condition and results from
operations are based on the condensed consolidated financial statements which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements in
conformity with accounting principles generally accepted in the United States
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Estimates also affect the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The Company's critical accounting
policies include:
19
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (CONTINUED)
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 collectable on such earned amounts for the purposes of
recognizing revenue amounts appropriate for the period. Income from
performance-based incentive fees is generally recorded at the end of a contract
period when the amount to be received can be reasonably estimated.
Acquisitions and Impairment of Intangibles
The Company, from time to time, makes acquisitions that complement its core
capabilities and strategies, enhance its existing client service infrastructure
and/or provide additional support for current clients. The price of the
acquisitions may be in excess of the fair value of the net tangible assets
acquired. The Company accounts for these acquisitions in accordance with
Statement of Financial Accounting Standards No. 141 ("FAS 141"), Business
Combinations. Normally, acquired client and employment relationships are short
term in nature or cancelable at will, and an acquired entity will have a minimum
of tangible assets over which to allocate purchase price. Therefore, a
substantial portion of the purchase price is allocated to goodwill.
The Company assesses the fair value and recoverability of intangible assets,
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 the regional levels North America and Europe. (For
the purposes of the calculation, Asian and Latin American goodwill of
approximately $24.0 million are combined with North America and Europe
reflecting the fact that investments in the Asian and Latin American regions are
principally needed to support multi-national clients in North America and
Europe.) If goodwill is deemed to be impaired, the excess of carrying value of
goodwill over fair value of net tangible and intangible assets is written-off.
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 June 30, 2003 and December 31, 2002, the
Company had $49.0 million and $51.0 million, respectively, of deferred tax
assets net of a valuation reserve of $26.9 million, in both 2003 and 2002, which
it believes to be appropriate.
20
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (CONTINUED)
Fixed Assets
Fixed assets fall into three main categories; furniture and fixtures, computer
equipment and leasehold improvements. Depreciation of furniture and fixtures,
and computer equipment is computed principally by the straight-line method over
the useful life of the asset, normally five to ten years for furniture and
fixtures, and three to five years for computer equipment. Amortization of
leasehold improvements is provided for on a straight-line basis principally over
the terms of the related leases but not in excess of the useful lives of the
underlying assets.
FORWARD LOOKING STATEMENTS
In connection with the provisions of the Private Securities Litigation Reform
Act of 1995 (the "Reform Act"), the Company may include Forward Looking
Statements (as defined in the Reform Act) in oral or written public statements
issued by or on behalf of the Company. These Forward Looking Statements may
include, among other things, plans, objectives, projections, anticipated future
economic performance or assumptions and the like that are subject to risks and
uncertainties. Actual results or outcomes may differ materially from those
discussed in the Forward Looking Statements. Important factors which may cause
actual results to differ include, but are not limited to, the following: the
unanticipated loss of a material client or key personnel, delays or reductions
in client budgets, shifts in industry rates of compensation, government
compliance costs or litigation, unanticipated natural disasters, terrorist
attacks, war, technological developments, creditworthiness of clients and
suppliers, changes in the general economic conditions that affect exchange
rates, changes in interest rates and/or consumer spending either in the United
States or non-United States markets in which the Company operates, unanticipated
expenses, client preferences which can be affected by competition, and/or
changes in the competitive frame, and the ability to project risk factors which
may vary. The forward looking statements speak only as of the date when made.
The Company does not undertake to update such statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's results may be affected by currency exchange rate 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 June 30, 2003 and December 31,
2002, there were no foreign currency contracts open. The Company had no
derivative contracts outstanding at June 30, 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.
21
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (CONTINUED)
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, has conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.
22
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 April 2003, Mr. Mitchell Mosallem, who served as director of the
Department until December 31, 2001, pleaded guilty to a series of criminal
charges alleging, 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. Mosallem is awaiting sentencing. 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. The government also had previously
indicated that it was examining whether there was Company responsibility in this
matter. However, in connection with Mr. Ergulec's guilty plea, 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 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.
23
PART II
OTHER INFORMATION
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 May 13,
2003, reporting Item 9. "Regulation FD Disclosure."
24
GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GREY GLOBAL GROUP INC.
(REGISTRANT)
Dated: August 14, 2003 By: /s/ Steven G. Felsher
-----------------------------
Steven G. Felsher,
Vice Chairman
Chief Financial Officer
Secretary and Treasurer
(Duly Authorized Officer)
Dated: August 14, 2003 By: /s/ Lester M. Feintuck
-----------------------------
Lester M. Feintuck,
Senior Vice President
Chief Financial Officer U.S. Controller
(Chief Accounting Officer)
25
INDEX TO EXHIBITS
Number Assigned to
Exhibit (i.e. 601 of Table of Item 601 Exhibits
Regulation S-K) Description of Exhibits
- -------------------- --------------------------
31.1 Certification of CEO Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of CFO Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of CEO and CFO Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
30