<PAGE> 1
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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-7898
GREY ADVERTISING INC.
(Exact name of registrant as specified in its charter)
Delaware 13-0802840
(State or other jurisdiction of (I.R.S. 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of April 30, 1999, the total number of shares outstanding of Registrant's
Common Stock, par value $1 per share ("Common Stock"), was 988,833 and of
Registrant's Limited Duration Class B Common Stock, par value $1 per share
("Class B Common Stock"), was 259,917.
<PAGE> 2
GREY ADVERTISING INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX
PAGE NO.
--------
Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 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 11
Other Information 14
Signatures 15
Index to Exhibits 16
2
<PAGE> 3
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (A)
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 96,488,000 $ 153,816,000
Marketable securities 28,159,000 55,130,000
Accounts receivable 840,489,000 797,474,000
Expenditures billable to clients 86,354,000 66,681,000
Other current assets 69,934,000 75,481,000
-------------- --------------
Total current assets 1,121,424,000 1,148,582,000
Investments in and advances to nonconsolidated affiliated companies 16,953,000 16,705,000
Fixed assets-at cost, less accumulated depreciation of $140,860,000 in
1999 and $137,534,000 in 1998 116,730,000 113,084,000
Marketable securities 28,319,000 30,827,000
Goodwill-net of accumulated amortization of $33,864,000 in 1999 and
$31,466,000 in 1998 119,518,000 116,499,000
Other assets - including loans to executive officers of $5,572,000 in
1999 and 1998 65,584,000 63,956,000
-------------- --------------
Total assets $1,468,528,000 $1,489,653,000
============== ==============
</TABLE>
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
<PAGE> 4
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (A)
--------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 926,031,000 $ 865,427,000
Notes payable to banks 69,094,000 70,911,000
Accrued expenses and other 103,059,000 184,497,000
Income taxes payable 23,214,000 24,283,000
--------------- ---------------
Total current liabilities 1,121,398,000 1,145,118,000
Other liabilities, including deferred compensation of
$38,466,000 in 1999 and $41,871,000 in 1998 74,300,000 68,676,000
Long-term debt 78,025,000 78,025,000
Minority interest 13,327,000 14,112,000
Redeemable preferred stock - at redemption value; par
value $1 per share; authorized 500,000 shares; issued
and outstanding 30,000 shares in 1999 and 1998 10,133,000 10,333,000
Common stockholders' equity:
Common Stock - par value $1 per share; authorized
10,000,000 shares; issued 1,203,061 in 1999 and
1,205,041 in 1998
1,203,000 1,205,000
Limited Duration Class B Common Stock - par value
$1 per share; authorized 2,000,000 shares; issued
286,697 shares in 1999 and 282,765 shares in 1998 287,000 283,000
Paid-in additional capital 38,008,000 38,832,000
Retained earnings 188,719,000 189,714,000
Accumulated other comprehensive loss:
Cumulative translation adjustment (12,930,000) (11,716,000)
Unrealized (loss) on marketable securities (1,255,000) (1,307,000)
--------------- ---------------
Total accumulated other comprehensive loss (14,185,000) (13,023,000)
--------------- ---------------
Loans to officer used to purchase Common Stock and
Limited Duration Class B Common Stock (4,726,000) (4,726,000)
--------------- ---------------
209,306,000 212,285,000
Less - cost of 214,238 and 222,950 shares of Common
Stock and 26,770 and 26,762 shares of Limited Duration
Class B Common Stock held in treasury in 1999 and 1998,
respectively 37,961,000 38,896,000
--------------- ---------------
Total common stockholders' equity 171,345,000 173,389,000
--------------- ---------------
Total liabilities and stockholders' equity $ 1,468,528,000 $ 1,489,653,000
=============== ===============
</TABLE>
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.
4
<PAGE> 5
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
------------- -------------
<S> <C> <C>
Commissions and fees $ 227,907,000 $ 215,714,000
Expenses:
Salaries and employee related expenses 151,635,000 136,193,000
Office and general expenses 73,215,000 68,997,000
------------- -------------
224,850,000 205,190,000
------------- -------------
3,057,000 10,524,000
Other income - net 960,000 1,572,000
------------- -------------
Income of consolidated companies before taxes on income 4,017,000 12,096,000
Provision for taxes on income 3,000,000 6,504,000
------------- -------------
Income of consolidated companies 1,017,000 5,592,000
Minority interest applicable to consolidated companies (1,187,000) (1,075,000)
Equity in earnings of nonconsolidated affiliated companies 277,000 516,000
------------- -------------
Net income $ 107,000 $ 5,033,000
============= =============
Weighted average number
of common shares outstanding
Basic 1,237,681 1,181,642
Diluted 1,237,681 1,367,401
Earnings per common share
Basic $0.20 $4.50
Diluted $0.20 $3.91
Dividends per common share $1.00 $1.00
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 107,000 $ 5,033,000
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization of fixed assets 7,301,000 6,909,000
Amortization of intangibles 2,398,000 1,693,000
Deferred compensation (1,882,000) 2,799,000
Equity in earnings of nonconsolidated affiliated companies, net of
dividends received of $35,000 in 1999 and $68,000 in 1998 (242,000) (448,000)
Gains from the sale of marketable securities (66,000) (131,000)
Minority interest applicable to consolidated companies 1,187,000 1,075,000
Restricted stock expense (income) 131,000 (57,000)
Deferred income taxes 293,000 520,000
Changes in operating assets and liabilities:
Increase in accounts receivable (52,461,000) (9,903,000)
(Increase) decrease in expenditures billable to clients (19,232,000) 222,000
Decrease in other current assets 4,414,000 1,990,000
Decrease in other assets 340,000 1,355,000
Increase (decrease) in accounts payable 66,651,000 (23,428,000)
Decrease in accrued expenses and other (77,034,000) (31,926,000)
Decrease in income taxes payable (555,000) (4,063,000)
Increase (decrease) in other liabilities 2,404,000 (759,000)
------------ ------------
Net cash used in operating activities (66,246,000) (49,119,000)
INVESTING ACTIVITIES
Purchases of fixed assets (11,975,000) (9,485,000)
Trust fund deposits (1,240,000) (1,328,000)
Decrease (increase) in investments in and advances to
nonconsolidated affiliated companies 630,000 (1,187,000)
Purchases of marketable securities (101,000) (48,507,000)
Proceeds from the sale of marketable securities 29,708,000 40,492,000
Increase in intangibles, primarily goodwill (5,417,000) (81,000)
------------ ------------
Net cash provided by (used in) investing activities 11,605,000 (20,096,000)
</TABLE>
6
<PAGE> 7
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1999 1998
------------- -------------
<S> <C> <C>
FINANCING ACTIVITIES
Net (repayments of) proceeds from short-term borrowings (566,000) 19,465,000
Common shares acquired for treasury (98,000) (39,000)
Redemption of preferred stock -- (651,000)
Cash dividends paid on common shares (1,242,000) (1,180,000)
Cash dividends paid on redeemable preferred stock (60,000) (64,000)
Issuance (repurchase) of restricted stock 4,000 (26,000)
Proceeds from exercise of stock options 722,000 --
------------- -------------
Net cash (used in) provided by financing activities (1,240,000) 17,505,000
Effect of exchange rate changes on cash (1,447,000) (1,704,000)
------------- -------------
Decrease in cash and cash equivalents (57,328,000) (53,414,000)
Cash and cash equivalents at beginning of period 153,816,000 150,553,000
------------- -------------
Cash and cash equivalents at end of period $ 96,488,000 $ 97,139,000
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
generally accepted accounting principles. Reference should be made to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998
filed with the Securities and Exchange Commission.
2. The financial statements as of March 31, 1999 and for the three months
ended March 31, 1999 and 1998 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, 1999 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 the
non-recognition of tax benefits of certain international net operating
losses incurred in the period, state and local income taxes, and effective
individual foreign country tax rates in excess of the Federal statutory
rate.
5. As of March 31, 1999 and December 31, 1998, the Company had outstanding
20,000 shares of Series I Preferred Stock, and 5,000 shares each of its
Series II and Series III Preferred Stock. The holder of these shares is the
Chairman and Chief Executive Officer of the Company. Each share of
preferred stock is to be redeemed by the Company at a price equal to the
book value per share attributable to one share of Common Stock and one
share of Class B Common Stock (subject to certain adjustments) upon
redemption, less a fixed discount established upon the issuance of the
preferred stock. The holder of each class of preferred stock is entitled to
receive cumulative preferential dividends at the annual rate of $.25 per
share, and to participate in dividends on one share of the Common Stock and
one share of the Class B Common Stock to the extent such dividends exceed
the per share preferential dividend.
The redemption date for the Series I, Series II and Series III Preferred
Stock is fixed at April 7, 2004. The terms of the Series I, Series II and
Series III Preferred Stock also give the holder, his estate or his legal
representative, as the case may be, the option to require the Company to
redeem the preferred stock for a period of 12 months following his (i)
death, (ii) permanent disability or permanent mental disability, (iii)
termination of full-time employment for good reason or (iv) termination of
full-time employment by the Company without cause. In connection with his
ownership of the preferred stock, the holder issued to the Company full
recourse promissory notes (which are included in Other Assets in the
accompanying condensed consolidated balance sheets).
8
<PAGE> 9
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. The computation of basic earnings per common share is based on the weighted
average number of common shares outstanding and, for diluted earnings per
common share, is adjusted for the dilutive effect, if any, of the assumed
exercise of dilutive stock options, shares issuable pursuant to the
Company's Senior Management Incentive Plan and the assumed conversion of
the Company's 8-1/2% Convertible Subordinated Debentures. For the purpose
of computing basic earnings per common share, the Company's net income is
adjusted by dividends paid on the Company's preferred stock and by the
change in redemption value of the Company's preferred stock during the
period. For the purpose of computing diluted earnings per common share net
income is also adjusted by the interest savings, net of tax, on the assumed
conversion of the Company's 8-1/2% Convertible Subordinated Debentures.
Additionally, in computing diluted earnings per common share, the average
quarterly market price is used to determine the number of shares which
would be assumed to be repurchased. The market price for a share of Class B
Common Stock, which is not publicly traded, is deemed to be equal to the
market price of a share of Common Stock, into which a share of Class B
Common Stock may be converted at the option of the holder, as of the date
such valuation is made. The following table shows the amounts effecting
income used in computing earnings per common share ("EPS") and the weighted
average number of shares of dilutive potential common stock:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE
- -------------------------------
WEIGHTED AVERAGE SHARES 1,237,681 1,181,642
- ----------------------- ---------- ----------
Net income $ 107,000 $5,033,000
Effect of dividend requirements and the
change in redemption value of redeemable
preferred stock 140,000 286,000
---------- ----------
NET EARNINGS USED IN COMPUTATION $ 247,000 $5,319,000
---------- ----------
PER SHARE AMOUNT $0.20 $4.50
========== ==========
DILUTED EARNINGS PER COMMON SHARE
- ---------------------------------
Weighted average shares used in the Basic EPS
calculation 1,237,681 1,181,642
Net effect of dilutive stock options and stock
incentive plans (2) (1) -- 134,720
Assumed conversion of 8-1/2% Convertible
Subordinated Debentures (1) -- 51,039
---------- ----------
ADJUSTED WEIGHTED AVERAGE SHARES 1,237,681 1,367,401
---------- ----------
Net earnings used in the Basic EPS calculation $ 247,000 $5,319,000
8-1/2% Convertible Subordinated Debentures
interest, net of income tax effect (1) -- 34,000
---------- ----------
NET EARNINGS USED IN COMPUTATION $ 247,000 $5,353,000
---------- ----------
PER SHARE AMOUNT $0.20 $3.91
========== ==========
</TABLE>
(1) For the first quarter of 1999, the assumed exercise of stock options,
issuances under stock incentive plans and the assumed conversion of the
8-1/2% Convertible Subordinated Debentures each had an anti-dilutive
effect. As such, these items have been excluded from the diluted EPS
calculation for the period.
(2) Due to their anti-dilutive effect, shares issued pursuant to the Senior
Management Incentive Plan for the three months ended March 31, 1999 were
not included in the calculation. For the comparable period in 1998, 94,919
shares issued pursuant to the Senior Management Incentive Plan were
included.
9
<PAGE> 10
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. 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 of consolidated
companies before taxes on income for the three months ended March 31, 1999
and 1998, and related identifiable assets at March 31, 1999 and December
31, 1998 are summarized below according to geographic region (000s
omitted):
<TABLE>
<CAPTION>
UNITED STATES EUROPE OTHER CONSOLIDATED
---------------------- ---------------------- ----------------------- ----------------------
1999 1998 1999 1998 1999 1998 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees $ 99,117 $ 100,680 $ 106,427 $ 93,379 $ 22,363 $ 21,655 $ 227,907 $ 215,714
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating profit (loss) 5,521 7,916 2,058 5,016 (4,522) (2,408) 3,057 10,524
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) of consolidated
companies before taxes on income 7,098 9,431 1,720 5,173 (4,801) (2,508) 4,017 12,096
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Identifiable assets 601,634 608,880 676,030 699,637 173,911 164,431 1,451,575 1,472,948
---------- ---------- ---------- ---------- ---------- ----------
Investments in and advances to
nonconsolidated affiliated
companies 16,953 16,705
---------- ----------
Total assets $1,468,528 $1,489,653
========== ==========
</TABLE>
8. During the first quarter of 1999 and 1998, total comprehensive (loss)
income amounted to $(1,055,000) and $3,302,000, respectively. The
difference between net income and total comprehensive (loss) income is the
result of the change in the translated value of the net assets of the
Company's international operations due to the strengthening of the United
States dollar and changes in values of certain marketable securities.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Income from commissions and fees ("gross income") increased 5.7% during the
first quarter of 1999 when compared to the same period in 1998. Absent exchange
rate fluctuations, gross income increased 9.5% in the three months ended March
31, 1999 when compared to the same period in 1998. In the first quarters of 1999
and 1998, respectively, 43.5% and 46.7% of consolidated gross income was
attributable to domestic operations and 56.5% and 53.3% to international
operations. In the first quarter of 1999, gross income from domestic operations
decreased 1.6% versus the respective prior period, while gross income from
international operations increased 12.0%, (19.2% absent exchange rate
fluctuations) for the first quarter of 1999 when compared to the same period in
1998. The increase in gross income in both years primarily resulted from the
continued growth of the Company's media and specialized operations as well as
the contribution of international acquisitions made in 1998.
Salaries and employee related expenses increased 11.3% in the first quarter of
1999 when compared to the respective prior period. This increase reflects the
fact that in its core advertising operation the Company has lost, but not yet
replaced certain business; therefore, the growth in salaries and other employee
related expenses is not completely in line with the growth in gross income.
Further, this increase reflects the fact that significant resources have been
devoted to building the Company's developing new technology business and other
growth practices.
Office and general expenses increased 6.1% for the three months ended March 31,
1999 versus the comparable prior period. This increase is generally in line with
the increase in gross income.
Inflation did not have a material effect on revenue or expenses during 1999 or
1998.
Minority interest applicable to consolidated companies increased by $112,000 in
the first quarter of 1999 as compared to the respective prior period. The
increase is primarily due to changes in the level of profits of majority-owned
companies.
Equity in earnings of nonconsolidated affiliated companies decreased by $239,000
in the first quarter of 1999 as compared to the respective prior period. The
fluctuations are primarily due to changes in the level of profits of
nonconsolidated affiliated companies.
The effective tax rate was 74.7% in the first quarter of 1999 versus 53.8% in
the same period in 1998. The rate was significantly higher because the Company
decided it was not prudent to recognize the future tax benefits attributable to
net operating losses at certain international subsidiaries.
Net income was $107,000 in the first quarter of 1999 as compared to $5,033,000
in the respective prior period. Both basic and diluted earnings per common share
for the first quarter of 1999 were $0.20 as compared to $4.50 and $3.91,
respectively, in the comparable quarter in 1998. The decrease in net income is
attributable principally to reduced gross income at the Company's general
advertising agency operations, in part resulting from deferrals of expected
client expenditures, the loss of certain business in 1998 which has yet to be
replaced and continuing weakness in selected international markets.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $26,000 at March 31, 1999, versus $3,464,000 at December 31,
1998. Cash and cash equivalents decreased by $57,328,000 from $153,816,000 to
$96,488,000 at March 31, 1999. The decrease in cash and cash equivalents is
largely attributable to the payment made for the acquisition of TMBG Media Co.
and the timing of collections of accounts receivable and billing of expenses to
clients versus payments to trade vendors. Domestically, the Company has
committed lines of credit totaling $51,000,000. These lines of credit were
partially utilized during the three months ended March 31, 1999 and 1998 to
secure obligations of selected foreign subsidiaries. There was $18,000,000 and
$18,700,000 outstanding under these credit lines as of March 31, 1999 and
December 31, 1998, respectively.
Other lines of credit are available to the Company in foreign countries in
connection with short-term borrowings and bank overdrafts used in the normal
course of business. There was $51,094,000 and $52,211,000 outstanding at March
31, 1999 and December 31, 1998, respectively.
YEAR 2000 READINESS
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Accordingly,
computer equipment, software and other devices with embedded technology that are
time-sensitive may not be able to distinguish between the year 1900 and the year
2000 and may encounter other difficulties as a result. This could result in
system failures or miscalculations causing a temporary disruption of the
ordinary course of business.
Grey and its operating subsidiaries have completed an assessment of their
computer programs, those of its third party software vendors and those of
mission critical business partners and has undertaken what it believes to be the
appropriate steps to modify or replace hardware and software as necessary.
The remediation strategy includes a combination of conversions of all in-house
systems and upgrades to Year 2000 compliant third party systems. The majority of
operations, including all entities in the larger markets, are in various stages
of implementation which should be completed by mid-year. The Company envisages
final testing to be completed well in advance of year end and does not expect
the Year 2000 issue to pose significant operational problems for its computer
network.
The Company is also dependent in various ways, both domestically and
internationally, on the Year 2000 readiness of broadcasters, governments,
financial institutions, utilities, communications suppliers and building
services, other infrastructure suppliers and other parties with whom it does
business. The effects of failures in the systems utilized by these third party
suppliers can not be estimated or anticipated and no assurance can be given that
the Company's information systems or operations will not be affected by
mistakes, if any, of third parties or third party failures to complete the Year
2000 projects on a timely basis. There can be no assurance that the systems of
other companies on which the Company relies will be converted
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
(CONTINUED)
on a timely basis or that any such failure to convert by another company would
not have an adverse effect on the Company's systems. However, with respect to
operations under the Company's control, the Company does not expect, in light of
its Year 2000 readiness efforts and the diversity of its suppliers and
customers, that occurrences of Year 2000 failures will have a material adverse
effect on the financial position or results of operations of the Company.
Grey and its subsidiaries are utilizing both internal and external resources to
reprogram, replace, implement and test the software modifications necessary for
Year 2000 compliance. The cost of the project has been estimated to be
approximately $4,000,000 and will not have a material effect on the Company. The
project is being funded through operating cash; costs specifically identified
with the Year 2000 remediation are being expensed as incurred. Other hardware
and purchased software costs have been capitalized.
The Company believes it has an effective program in place to resolve the Year
2000 issue. However, due to the magnitude and complexity of the problem it is
difficult to identify all possible contingencies. Current contingency plans call
for manual workarounds and staffing strategies that provide a prompt response
time in the event of problems. The development of the Company's contingency
plans is ongoing and will be amended as 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. As such, actual results or outcomes may differ materially from
those discussed in the Forward Looking Statements. Important factors which may
cause actual results to differ, include but are not limited to, the following:
the unanticipated loss of a material client or key personnel, delays or
reductions in client budgets, shifts in industry rates of compensation,
government compliance costs or litigation, unanticipated natural disasters,
changes in the general economic conditions that affect interest rates and/or
consumer spending both in the U.S. and the international markets in which the
Company operates, unanticipated expenses, client preferences which can be
affected by competition, the inability to implement upgrades for certain
computer programs which are not Year 2000 compliant and the ability to project
risk factors which may vary.
13
<PAGE> 14
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Reference is made to the Index annexed hereto and
made a part hereof.
(b) Reports on Form 8-K: The Company did not file any reports on
Form 8-K during the quarter ended March 31, 1999.
14
<PAGE> 15
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of 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 ADVERTISING INC.
(REGISTRANT)
DATE: May 17, 1999 By: /s/ Steven G. Felsher
---------------------------------------
Steven G. Felsher
Executive Vice President -
Finance - Worldwide
Secretary and Treasurer
(Duly Authorized Officer)
DATE: May 17, 1999 By: /s/ Lester M. Feintuck
---------------------------------------
Lester M. Feintuck
Senior Vice President -
Chief Financial Officer - US Operations
Controller
(Chief Accounting Officer)
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page Number in
Number Assigned to Sequential Numbering
Exhibit (i.e. 601 of Table of Item 601 Exhibits System Where Exhibit
Regulation S-K) Description of Exhibits May be Found
--------------- ----------------------- ------------
<S> <C> <C>
27 Financial Data Schedule 17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1999 OF GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 96,488
<SECURITIES> 28,159
<RECEIVABLES> 840,489
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,121,424
<PP&E> 257,590
<DEPRECIATION> 140,860
<TOTAL-ASSETS> 1,468,528
<CURRENT-LIABILITIES> 1,121,398
<BONDS> 78,025
10,133
0
<COMMON> 1,490
<OTHER-SE> 169,855
<TOTAL-LIABILITY-AND-EQUITY> 1,468,528
<SALES> 227,907
<TOTAL-REVENUES> 227,907
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 224,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,264
<INCOME-PRETAX> 4,017
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
