-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UPueaGO7LS/SU1jjKtIJKkDb8J6axzSdZlmXw1jwxoVAxeilHufkOnDUWZvs4huk OLVymhbDsZO/Fx+SgNsDaw== 0000950123-99-004802.txt : 19990518 0000950123-99-004802.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950123-99-004802 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREY ADVERTISING INC /DE/ CENTRAL INDEX KEY: 0000043952 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 130802840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07898 FILM NUMBER: 99625370 BUSINESS ADDRESS: STREET 1: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125462000 MAIL ADDRESS: STREET 1: 777 THIRD AVE STREET 2: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 GREY ADVERTISING INC. 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. 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 3 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1999 1998 (UNAUDITED) (A) -------------- -------------- 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 ============== ==============
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 4 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
MARCH 31, DECEMBER 31, 1999 1998 (UNAUDITED) (A) --------------- --------------- 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 =============== ===============
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 5 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 1998 ------------- ------------- 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 ============= =============
See accompanying notes to condensed consolidated financial statements. 5 6 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 1998 ------------ ------------ 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)
6 7 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 1998 ------------- ------------- 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 ============= =============
See accompanying notes to condensed consolidated financial statements. 7 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 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:
FOR THE THREE MONTHS ENDED MARCH 31, --------------------------- 1999 1998 ---------- ---------- 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 ========== ==========
(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 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):
UNITED STATES EUROPE OTHER CONSOLIDATED ---------------------- ---------------------- ----------------------- ---------------------- 1999 1998 1999 1998 1999 1998 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 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 ========== ==========
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 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 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 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 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 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 16 INDEX TO EXHIBITS
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 --------------- ----------------------- ------------ 27 Financial Data Schedule 17
EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 1,000 3-MOS DEC-31-1999 MAR-31-1999 96,488 28,159 840,489 0 0 1,121,424 257,590 140,860 1,468,528 1,121,398 78,025 10,133 0 1,490 169,855 1,468,528 227,907 227,907 0 0 224,850 0 4,264 4,017 3,000 107 0 0 0 107 0.20 0.20
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