-----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, HLWC3IrW1nSZVWC+N/+MkixMKTJO8cC1fKuft2gjbqXmp9/qSPv3eLk7Jy+Q8Qcf gTkCT3QP6oAqtgETBJ76ew== 0000950123-98-007623.txt : 19980817 0000950123-98-007623.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950123-98-007623 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD 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: 98689350 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 June 30, 1998 [ ] 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, including area code: 212-546-2000 NOT APPLICABLE Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 July 31, 1998, the total number of shares outstanding of Registrant's Common Stock, par value $1 per share ("Common Stock"), was 966,000 and of Registrant's Limited Duration Class B Common Stock, par value $1 per share ("Class B Common Stock"), was 271,833. 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
JUNE 30, 1998 December 31, 1997 (UNAUDITED) (A) -------------- ----------------- Assets Current assets: Cash and cash equivalents $ 137,444,000 $ 150,553,000 Marketable securities 43,127,000 15,401,000 Accounts receivable 688,991,000 647,524,000 Expenditures billable to clients 64,902,000 54,687,000 Other current assets 57,412,000 56,225,000 -------------- -------------- Total current assets 991,876,000 924,390,000 Investments in and advances to nonconsolidated affiliated companies 21,304,000 18,386,000 Fixed assets-at cost, less accumulated depreciation of $128,166,000 in 1998 and $116,443,000 in 1997 95,330,000 88,006,000 Marketable securities 41,590,000 57,340,000 Intangibles and other assets - including loans to executive officers of $5,572,000 in 1998 and 1997 123,241,000 111,865,000 -------------- -------------- Total assets $1,273,341,000 $1,199,987,000 ============== ==============
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)
JUNE 30, 1998 December 31, 1997 (UNAUDITED) (A) --------------- ----------------- Liabilities and stockholders' equity Current liabilities: Accounts payable $ 746,864,000 $ 709,959,000 Notes payable to banks 53,152,000 22,455,000 Accrued expenses and other 136,277,000 122,269,000 Income taxes payable 11,137,000 19,181,000 --------------- --------------- Total current liabilities 947,430,000 873,864,000 Other liabilities, including deferred compensation of $36,534,351 in 1998 and $28,738,000 in 1997 61,544,000 61,723,000 Long-term debt 78,025,000 78,025,000 Minority interest 11,067,000 13,309,000 Redeemable preferred stock - at redemption value; par value $1 per share; authorized 500,000 shares; issued and outstanding 30,000 shares in 1998 and 32,000 shares in 1997 10,183,000 10,760,000 Common stockholders' equity: Common Stock - par value $1 per share; authorized 10,000,000 shares; issued 1,189,211 in 1998 and 1,124,324 in 1997 1,189,000 1,124,000 Limited Duration Class B Common Stock - par value $1 per share; authorized 2,000,000 shares; issued 298,595 shares in 1998 and 307,460 shares in 1997 299,000 308,000 Paid-in additional capital 38,460,000 44,349,000 Retained earnings 179,948,000 169,214,000 Cumulative translation adjustment (11,906,000) (9,422,000) Unrealized gain on marketable securities 651,000 189,000 Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock (4,726,000) (4,726,000) --------------- --------------- 203,915,000 201,036,000 Less - cost of 222,971 and 222,098 shares of Common Stock and 26,762 shares of Limited Duration Class B Common Stock held in treasury at June 30, 1998 and December 31, 1997, respectively 38,823,000 38,730,000 --------------- --------------- Total common stockholders' equity 165,092,000 162,306,000 --------------- --------------- Total liabilities and stockholders' equity $ 1,273,341,000 $ 1,199,987,000 =============== ===============
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 FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Commissions and fees $ 233,271,000 $ 206,208,000 $ 448,985,000 $ 394,956,000 Expenses: Salaries and employee related expenses 145,812,000 128,208,000 282,005,000 250,294,000 Office and general expenses 67,436,000 60,314,000 136,433,000 118,333,000 ------------- ------------- ------------- ------------- 213,248,000 188,522,000 418,438,000 368,627,000 ------------- ------------- ------------- ------------- 20,023,000 17,686,000 30,547,000 26,329,000 Other income - net 559,000 807,000 2,131,000 1,746,000 ------------- ------------- ------------- ------------- Income of consolidated companies before taxes on income 20,582,000 18,493,000 32,678,000 28,075,000 Provision for taxes on income 10,331,000 9,247,000 16,835,000 14,510,000 ------------- ------------- ------------- ------------- Income of consolidated companies 10,251,000 9,246,000 15,843,000 13,565,000 Minority interest applicable to consolidated companies (2,436,000) (2,072,000) (3,511,000) (2,441,000) Equity in earnings of nonconsolidated affiliated companies 502,000 526,000 1,018,000 1,151,000 ------------- ------------- ------------- ------------- Net income $ 8,317,000 $ 7,700,000 $ 13,350,000 $ 12,275,000 ============= ============= ============= ============= Weighted average number of common shares outstanding Basic 1,233,670 1,180,125 1,207,753 1,180,453 Diluted 1,344,721 1,354,032 1,354,219 1,353,234 Earnings per common share Basic $6.47 $6.22 $11.01 $10.29 Diluted $5.96 $5.45 $ 9.87 $ 9.03 Dividends per common share $1.00 $1.00 $2.00 $ 2.00 ============= ============= ============= =============
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 SIX MONTHS ENDED JUNE 30, 1998 1997 ------------ ------------ Operating activities Net income $ 13,350,000 $ 12,275,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of fixed assets 13,824,000 11,750,000 Amortization of intangibles 3,603,000 2,633,000 Deferred compensation 5,008,000 7,324,000 Equity in earnings of nonconsolidated affiliated companies, net of dividends received of $209,000 in 1998 and $442,000 in 1997 (809,000) (709,000) Gains from the sale of marketable securities (163,000) Minority interest applicable to consolidated companies 3,511,000 2,441,000 Restricted stock (income) expense (32,000) 98,000 Deferred income taxes (1,980,000) (3,550,000) Changes in operating assets and liabilities: Increase in accounts receivable (49,699,000) (56,150,000) Increase in expenditures billable to clients (11,636,000) (6,993,000) Increase in other current assets (2,161,000) (5,146,000) Decrease (increase) in other assets 3,498,000 (4,009,000) Increase in accounts payable 44,532,000 40,004,000 Decrease in accrued expenses and other (864,000) (10,225,000) Decrease in income taxes payable (2,187,000) (4,318,000) Decrease in other liabilities (4,400,000) (3,376,000) ------------ ------------ Net cash provided by (used in) operating activities 13,395,000 (17,951,000) INVESTING ACTIVITIES Purchases of fixed assets (22,273,000) (14,868,000) Trust fund deposits (3,253,000) (1,692,000) Increase in investments and advances to nonconsolidated affiliated companies (2,109,000) (1,323,000) Purchases of marketable securities (53,095,000) (10,243,000) Proceeds from the sale of marketable securities 41,721,000 14,484,000 Increase in intangibles, primarily goodwill (13,369,000) (6,466,000) ------------ ------------ Net cash used in investing activities (52,378,000) (20,108,000)
6 7 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997 ------------- ------------- FINANCING ACTIVITIES Net proceeds from short-term borrowings 31,930,000 16,866,000 Common shares acquired for treasury (218,000) Redemption of preferred stock (651,000) Cash dividends paid on common shares (2,419,000) (2,368,000) Cash dividends paid on redeemable preferred stock (124,000) (128,000) (Repurchase) Issuance of restricted stock (88,000) 3,000 Proceeds from exercise of stock options 71,000 ------------- ------------- Net cash provided by financing activities 28,648,000 14,226,000 Effect of exchange rate changes on cash (2,774,000) (7,367,000) ------------- ------------- Decrease in cash and cash equivalents (13,109,000) (31,200,000) Cash and cash equivalents at beginning of period 150,553,000 112,485,000 ------------- ------------- Cash and cash equivalents at end of period $ 137,444,000 $ 81,285,000 ============= =============
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, 1997 filed with the Securities and Exchange Commission. 2. The financial statements as of June 30, 1998 and for the three and six months ended June 30, 1998 and 1997 are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair representation have been included. 3. The results of operations for the three and six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the full year. 4. The provision for taxes on income is greater than the Federal statutory rate principally due to state and local income taxes, and effective foreign tax rates in excess of the Federal statutory rate. 5. As of June 30, 1998 and December 31, 1997, 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. In addition, on December 31, 1997 there were outstanding 2000 shares of Series 1 Preferred Stock which were held by a former employee; these shares were redeemed during the quarter ended March 31, 1998. 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. 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 acquisition 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 computations of basic earnings per common share for the three and six months ended June 30, 1998 and 1997 are based on the weighted average number of common shares outstanding and, for diluted earnings per common share, are adjusted for the effect, if any, of the assumed exercise of dilutive stock options, for shares issuable pursuant to the Company's Senior Management Incentive Plan and for the assumed conversion of the 8-1/2% Convertible Subordinated Debentures. Also, for the purpose of computing earnings per common share for the three and six months ended June 30, 1998 and June 30, 1997, the Company's net income was adjusted by dividends paid on the Company's preferred stock and also by the change in redemption value of the Company's preferred stock. In computing diluted earnings per common share, the average quarterly market price was 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 used in computing earnings per common share ("EPS") and the effect on income 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, --------------------------------------------------------------- 1998 1997(2) 1998 1997(2) --------------------------------------------------------------- BASIC EARNINGS PER COMMON SHARE WEIGHTED AVERAGE SHARES 1,233,670 1,180,125 1,207,753 1,180,453 ------------ ------------ ------------ ------------ Net income $ 8,317,000 $ 7,700,000 $ 13,350,000 $ 12,275,000 Effect of dividend requirements and the change in redemption value of redeemable preferred stock (336,000) (361,000) (51,000) (128,000) ------------ ------------ ------------ ------------ NET EARNINGS USED IN COMPUTATION $ 7,981,000 $ 7,339,000 $ 13,299,000 $ 12,147,000 ------------ ------------ ------------ ------------ PER SHARE AMOUNT $ 6.47 $ 6.22 $11.01 $10.29 ====== ====== ====== ====== DILUTED EARNINGS PER COMMON SHARE Weighted average shares used in the Basic EPS calculation 1,233,670 1,180,125 1,207,753 1,180,453 Net effect of dilutive stock options and stock incentive plans (1) 60,011 122,890 95,426 121,764 Assumed conversion of 8.5% convertible subordinated debentures 51,040 51,017 51,040 51,017 ------------ ------------ ------------ ------------ ADJUSTED WEIGHTED AVERAGE SHARES 1,344,721 1,354,032 1,354,219 1,353,234 ------------ ------------ ------------ ------------ Net earnings used in the Basic EPS calculation $ 7,981,000 $ 7,339,000 $ 13,299,000 $ 12,147,000 8.5% convertible subordinated debentures interest net of income tax effect 34,000 35,000 68,000 69,000 ------------ ------------ ------------ ------------ NET EARNINGS USED IN COMPUTATION $ 8,015,000 $ 7,374,000 $ 13,367,000 $ 12,216,000 ------------ ------------ ------------ ------------ PER SHARE AMOUNT $ 5.96 $ 5.45 $ 9.87 $ 9.03 ====== ====== ====== ======
(1) Includes 11,152 and 51,021 for the three and six months ended June 30, 1998, respectively, and 94,097 shares for both comparable periods in 1997 related to the Senior Management Incentive Plan. (2) After restatement for adoption of FAS 128, Earnings Per Share. 9 10 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. As of January 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, Reporting Comprehensive Income ("FAS 130"). FAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or stockholders' equity. FAS 130 requires the unrealized gains and losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. The prior year Consolidated Statement of Common Stockholders' Equity will be reclassified to conform to the requirements of FAS 130. During the second quarter of 1998 and 1997, total comprehensive income amounted to $8,026,000 and $7,034,000, respectively, and for the six months ended June 30,1998 and 1997 total comprehensive income was $11,328,000 and $3,105,000, respectively. The difference between net income and total comprehensive income in both 1998 and 1997 is primarily attributable to the reduction of the net assets of the Company's European operations due to the strength of the US dollar against the European currencies. 8. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, Disclosure About Segments of an Enterprise and Related Information ("FAS 131"). FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. FAS 131 is effective for fiscal years beginning after December 15, 1997. The adoption of this statement is not expected to have any impact on the Company's consolidated financial statements. 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income from commissions and fees increased 13.1% during the second quarter of 1998 and 13.7% during the six months ended June 30, 1998 when compared to the same periods in 1997. Absent exchange rate fluctuations, gross income increased 17.3% in the three months ended June 30, 1998 and 18.2% in the six months ended June 30, 1998 when compared to the same periods in 1997. In the second quarters of 1998 and 1997, respectively, 45.3% and 46.8% of consolidated gross income was attributable to domestic operations and 54.7% and 53.2% to international operations. In the second quarter of 1998 and the first six months of 1998, respectively, gross income from domestic operations increased 9.6% and 12.2% versus the respective prior periods, while gross income from international operations increased 16.2%, (24.0% absent exchange rate fluctuations) for the second quarter and 15.0% (23.5% absent exchange rate fluctuations) when compared to the same periods in 1997. The increase in gross income in both years primarily resulted from expanded activities from existing clients, and the continued growth of the Company's general agency and specialized operations. Salaries and employee related expenses increased 13.7% in the second quarter of 1998 and 12.7% for the first six months of 1998 when compared to the respective prior periods. Office and general expenses increased 11.8% and 15.3% for the three and six months ended June 30, 1998, respectively, versus the comparable prior periods. These changes, taken together, are generally in line with the increase in gross income. Inflation did not have a material effect on revenue or expenses during 1998 or 1997. Minority interest applicable to consolidated companies increased by $364,000 in the second quarter of 1998 and by $1,070,000 for the first six months of 1998 as compared to the respective prior periods. 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 $24,000 in the second quarter of 1998 and by $133,000 for the first six months of 1998 as compared to the respective prior periods. The decrease is primarily due to changes in the level of profits of nonconsolidated affiliated companies. The effective tax rate remained relatively constant at 50.2% in the second quarter of 1998 and 51.5% in the first six months of 1998 versus 50.0% and 51.7% in the same periods in 1997, respectively. Net income was $8,317,000 in the second quarter of 1998 and $13,350,000 for the six months ended June 30, 1998 as compared to $7,700,000 and $12,275,000 in the respective prior periods. Basic and diluted earnings per common share for the second quarter of 1998 were $6.47 and $5.96, respectively, as compared to $6.22 and $5.45 in the comparable quarter in 1997. For the six months ended June 30, 1998, basic and diluted earnings per common share were $11.01 and $9.87 versus $10.29 and $9.03 for the same periods in 1997. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES Working capital decreased by $6,080,000 from $50,526,000 at December 31, 1997 to $44,446,000 at June 30, 1998. The decrease in working capital is largely attributable to an increase in short-term borrowings and bank overdrafts. Cash and cash equivalents decreased by $13,109,000 from $150,553,000 to $137,444,000. The decrease in cash and cash equivalents is largely attributable to 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 June 30, 1998 and 1997 to secure obligations of selected foreign subsidiaries. There was $5,000,000 and $26,000,000 outstanding under these credit lines as of June 30, 1998 and 1997, 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 $48,152,000 and $76,996,000 outstanding at June 30, 1998 and 1997, respectively. YEAR 2000 READINESS Some of the Company's older computer programs were written using a two digit year. As a result, those computer programs may be unable to process date-sensitive information beyond the year 2000. This situation, which is not uncommon, is frequently referred to as the Year 2000 Issue and can cause a temporary disruption of the ordinary course of business. The Company is completing an assessment of its computer programs and those of its third party software vendors and is taking what it believes to be the appropriate steps to modify or replace software as necessary, evaluate the readiness of its vendors, assess potential problems and quantify contingency plans. The Company has completed some of the necessary modifications and anticipates having a significant portion of the modifications to existing software and conversions to new software completed by December 31, 1998. The Year 2000 Issue is not expected to pose significant operational problems for its computer systems. The estimated cost of the project has been determined and is not expected to have a material adverse effect on the Company. The project is being funded through operating cash and is being expensed as incurred. The cost and time of completion are based on management's best estimates which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. There can, however, be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, the timely receipt and installation of upgrades from third party software vendors, compliance of third party vendors and customers with whom the Company interacts and similar circumstances. 12 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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. Certain of these factors are discussed in greater detail elsewhere herein. 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 June 30, 1998. 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: August 14, 1998 By:/s/Steven G. Felsher ----------------------------- Steven G. Felsher Executive Vice President - Finance - Worldwide Secretary and Treasurer (Duly Authorized Officer) DATE: August 14, 1998 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 Table of Item 601 Exhibits System Where Exhibit of Regulation S-K) Description of Exhibits May be Found - ------------------ -------------------------- -------------------- 27 Financial Data Schedule 17
16 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 OF GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JUN-30-1998 137,444 43,127 688,991 0 0 991,876 223,496 128,166 1,273,341 947,430 78,025 10,183 0 1,488 163,604 1,273,341 448,985 448,985 0 0 418,438 0 8,100 32,678 16,835 13,350 0 0 0 13,350 11.01 9.87 THE AMOUNT IS REPORTED AS EPS BASIC AND NOT FOR EPS PRIMARY.
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