Executive Summary

        We are a strategic holding company. We provide professional services to clients through multiple agencies around the world. On a global, pan-regional and local basis, our agencies provide these services in the following disciplines: traditional media advertising, customer relationship management (“CRM”), public relations and specialty communications. Our business model was built and evolves around our clients. While our companies operate under different names and frame their ideas in different disciplines, we organize our services around our clients. The fundamental premise of our business is that our clients’ specific requirements should be the central focus in how we structure our business offerings and allocate our resources. This client-centric business model results in multiple agencies collaborating in formal and informal virtual networks that cut across internal organizational structures to deliver consistent brand messages for a specific client and execute against our clients’ specific marketing requirements. We continually seek to grow our business with our existing clients by maintaining our client-centric approach, as well as expanding our existing business relationships into new markets and with new clients. In addition, we pursue selective acquisitions of complementary companies with strong, entrepreneurial management teams that typically either currently serve or have the ability to serve our existing client base.

        In prior years, our industry was affected by several factors, including geopolitical unrest and lagging economic conditions that contributed to a difficult business environment and industry-wide margin contraction. During this period, we continued to invest in our businesses and our personnel and took action to reduce costs at some of our agencies to address the changing economic circumstances. In recent periods, improving economic conditions, coupled with the business trends described below, have had a positive impact on our business and our industry.

        Several long-term trends continue to positively affect our business, including our clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets and from traditional marketing channels to non-traditional channels and new media outlets. Additionally, in an effort to gain greater efficiency and effectiveness from their marketing dollars, clients are increasingly requiring greater coordination of their traditional advertising and marketing activities and concentrating these activities with a smaller number of service providers.

        Given our size and breadth, we manage our business by monitoring several financial indicators. The key indicators that we review focus on our revenues and operating expenses.

        We analyze revenue growth by reviewing the components and mix of the growth, including growth by major geographic location, growth by major marketing discipline, growth from currency fluctuations, growth from acquisitions and growth from our largest clients.

        In recent years, our revenue has been divided almost evenly between domestic and international operations. For the three months ended June 30, 2007, our overall revenue growth was 10.7%, of which 3.1% was related to changes in foreign exchange rates and 0.2% was related to the acquisition of entities, net of entities disposed. The remaining 7.4% was organic growth. For the six months ended June 30, 2007, our overall revenue growth was 10.8%, of which 3.3% was related to changes in foreign exchange rates and 0.1% was related to the acquisition of entities, net of entities disposed. The remaining 7.4% was organic growth.

        We measure operating expenses in two distinct cost categories, salary and service costs, and office and general expenses. Salary and service costs are primarily comprised of employee compensation related costs and office and general expenses are primarily comprised of rent and occupancy costs, technology related costs and depreciation and amortization. Each of our agencies requires service professionals with a skill set that is common across our disciplines. At the core of this skill set is the ability to understand a client’s brand and its selling proposition, and the ability to develop a unique message to communicate the value of the brand to the client’s target audience. The facility requirements of our agencies are also similar across geographic regions and disciplines, and their technology requirements are generally limited to personal computers, servers and off-the-shelf software.

        Because we are a service business, we monitor these costs on a percentage of revenue basis. Salary and service costs tend to fluctuate in conjunction with changes in revenue, whereas office and general expenses, which are not directly related to servicing clients, tend to decrease as a percentage of revenue as revenue increases because a significant portion of these expenses are relatively fixed in nature. During the second quarter of 2007, salary and service costs increased slightly to 69.5% from 69.4% of revenue during the second quarter of 2006. This increase is primarily attributed to increased revenue levels and the necessary increases in direct salaries, salary-related costs and freelance labor necessary to deliver our services and pursue new business initiatives. Office and general expenses were 15.8% of revenue in the second quarter of 2007 and 2006, as a result of our continuing efforts to consistently align these costs with business levels on a location-by-location basis. Similarly, during the first six months of 2007, salary and service costs increased slightly to 70.8% from 70.6% of revenue during the first six months of 2006 and office and general expenses declined slightly to 16.2% of revenue in the first six months of 2007 from 16.3% in the first six months of 2006, as a result of our continuing efforts to better align these costs with business levels on a location-by-location basis.

        Our net income in the second quarter of 2007 increased $32.6 million, or 13.4%, to $276.7 million from $244.1 million in the second quarter of 2006. Our net income in the first six months of 2007 increased $50.0 million, or 12.2%, to $459.7 million from $409.7 million in the second quarter of 2006. Diluted earnings per share increased 18.3% to $0.84 in the second quarter of 2007, as compared to $0.71 in the prior year period. Diluted earnings per share increased 17.9% to $1.38 in the first six months of 2007, as compared to $1.17 in the prior year period. These period-over-period increases resulted from the 12.2% increase in net income and the reduction in our weighted average common shares outstanding. The reduction in our weighted average common shares outstanding was the result of our purchases throughout 2006 and the first six months of 2007 of treasury shares, net of shares issued upon stock option exercises and shares issued under our employee stock purchase plan.

Results of Operations: Second Quarter 2007 Compared to Second Quarter 2006

         Revenue: When comparing performance between quarters and years, we discuss non-GAAP financial measures such as the impact that foreign currency rate changes, acquisitions / dispositions and organic growth have on reported revenue. We derive significant revenue from international operations and changes in foreign currency rates between the years impact our reported results. Our reported results are also impacted by our acquisitions and disposition activity and organic growth. Accordingly, we provide this information to supplement the discussion of changes in revenue period-to-period.

        Our second quarter of 2007 consolidated worldwide revenue increased 10.7% to $3,126.1 million from $2,823.4 million in the comparable period last year. The effect of foreign exchange impacts increased worldwide revenue by $88.7 million. Acquisitions, net of disposals, increased worldwide revenue by $6.2 million in the second quarter of 2007 and organic growth increased worldwide revenue by $207.8 million. The components of the second quarter 2007 revenue growth in the U.S. (“domestic”) and the remainder of the world (“international”) are summarized below (dollars in millions):

The components and percentages are calculated as follows:

        The components of revenue for the second quarter of 2007 and revenue growth compared to the second quarter of 2006 in our primary geographic markets are summarized below (dollars in millions):

        As indicated, foreign exchange impacts increased our international revenue by 6.9%, or $88.7 million during the quarter ended June 30, 2007. The most significant impacts resulted from the strengthening of the Euro, British Pound, Australian Dollar, and Brazilian Real against the U.S. Dollar, which was offset slightly by the decline of the Japanese Yen against the U.S. Dollar.

        Driven by our clients’ continuous demand for more effective and efficient branding activities, we strive to provide an extensive range of advertising, marketing and corporate communications services through various client-centric networks that are organized to meet specific client objectives. These services include advertising, brand consultancy, crisis communications, custom publishing, database management, digital and interactive marketing, direct marketing, directory advertising, entertainment marketing, environmental design, experiential marketing, field marketing, financial/corporate business-to-business advertising, graphic arts, healthcare communications, instore design, investor relations, marketing research, media planning and buying, mobile marketing services, multi-cultural marketing, non-profit marketing, organizational communications, package design, product placement, promotional marketing, public affairs, public relations, recruitment communications, reputation consulting, retail marketing, search engine marketing and sports and event marketing. In an effort to monitor the changing needs of our clients and to further expand the scope of our services to key clients, we monitor revenue across a broad range of disciplines and group them into the following four categories as summarized below: traditional media advertising, CRM, public relations and specialty communications (dollars in millions).

        Because we provide professional services, salary and service costs represent the largest part of our operating expenses. During the second quarter of 2007, we continued to invest in our businesses and their professional personnel. As a percentage of total operating expenses, salary and service costs were 81.5% in the second quarter of 2007 and 2006. These costs are comprised of salary and related costs and direct service costs. Most, or $211.9 million and 82.0%, of the $258.5 million increase in total operating expenses in the second quarter of 2007 resulted from increases in salary and service costs. This increase was attributable to the increase in our revenue in the second quarter of 2007 and the necessary increases in the direct costs required to deliver our services and pursue new business initiatives, including direct salaries, salary related costs and direct service costs, including freelance labor costs and direct administrative costs, such as travel. As a result, salary and service costs as a percentage of revenue increased marginally from 69.4% in the second quarter of 2006 compared to 69.5% in the second quarter of 2007.

        Office and general expenses represented 18.5% of our operating expenses in the second quarter of 2007 and 2006. These costs are comprised of office and equipment rents, technology costs and depreciation, amortization of identifiable intangible assets, professional fees and other overhead expenses. As a percentage of revenue, office and general expenses were 15.8% in the second quarter of 2007 and the second quarter of 2006 as a result of our continuing efforts to consistently align these costs with business levels on a location-by-location basis. These costs are less directly linked to changes in our revenues than our salary and service costs. Although they tend to increase as our revenues increase, the rate of increase could be more, or less than the rate of increase in our revenues.

         Net Interest Expense: Our net interest expense decreased in the second quarter of 2007 to $22.2 million, as compared to $25.5 million in the second quarter of 2006. This decrease was related to interest savings associated with the amortization, in accordance with Emerging Issues Task Force (“EITF”) No. 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments (“EITF 96-19”), of supplemental interest payments made on our 2031 Notes which did not receive a supplemental interest payment during the first quarter of 2007 and year-over-year interest savings associated with the amortization, in accordance with EITF 96-19, of supplemental interest payments made on our 2032 Notes. These savings were partially offset by additional interest expense under our commercial paper program and a decrease in interest income to a more normalized level, as the prior period benefited from additional cash on hand after the $1.0 billion note offering at the end of the first quarter of 2006.

         Income Taxes: Our consolidated effective income tax rate was 33.9% in the second quarter of 2007, which is slightly higher than our tax rate of 33.6% for the second quarter of 2006 and consistent with our tax rate of 33.8% in the first quarter of 2007.

         Earnings Per Share (EPS): For the foregoing reasons, our net income in the second quarter of 2007 increased $32.6 million, or 13.4%, to $276.7 million from $244.1 million in the second quarter of 2006. Diluted earnings per share increased 18.3% to $0.84 in the second quarter of 2007, as compared to $0.71 in the prior year period. This period-over-period increase resulted from the 13.4% increase in net income and the reduction in our weighted average common shares outstanding. The reduction in our weighted average common shares outstanding was the result of our purchases throughout 2006 and the first six months of 2007 of treasury shares, net of shares issued upon stock option exercises and shares issued under our employee stock purchase plan.

Results of Operations: First Six Months of 2007 Compared to First Six Months of 2006

         Revenue: Our first six months of 2007 consolidated worldwide revenue increased 10.8% to $5,966.7 million from $5,386.3 million in the comparable period last year. The effect of foreign exchange impacts increased worldwide revenue by $176.0 million. Acquisitions, net of disposals, increased worldwide revenue by $8.3 million in the first six months of 2007 and organic growth increased worldwide revenue by $396.1 million. The components of the first six months of 2007 revenue growth in the U.S. (“domestic”) and the remainder of the world (“international”) are summarized below (dollars in millions):

        As indicated, foreign exchange impacts increased our international revenue by 7.3%, or $176.0 million during the six months ended June 30, 2007. The most significant impacts resulted from the strengthening of the Euro, British Pound, Australian Dollar and Brazilian Real against the U.S. Dollar, which was offset slightly by the decline of the Japanese Yen against the U.S. Dollar.

        In an effort to monitor the changing needs of our clients and to further expand the scope of our services to key clients, we monitor revenue across a broad range of disciplines and group them into the following four categories as summarized below: traditional media advertising, CRM, public relations and specialty communications (dollars in millions).

         Operating Expenses: Our first six months of 2007 worldwide operating expenses increased $505.2 million, or 10.8%, to $5,189.6 million from $4,684.4 million in the first six months of 2006, as shown below (dollars in millions):

        Because we provide professional services, salary and service costs represent the largest part of our operating expenses. During the first six months of 2007, we continued to invest in our businesses and their professional personnel. As a percentage of total operating expenses, salary and service costs were 81.4% in the first six months of 2007 and 81.2% in the first six months of 2006. These costs are comprised of salary and related costs and direct service costs. Most, or $417.6 million and 82.7%, of the $505.2 million increase in total operating expenses in the first six months of 2007 resulted from increases in salary and service costs. This increase was attributable to the increase in our revenue in the first six months of 2007 and the necessary increases in the direct costs required to deliver our services and pursue new business initiatives, including direct salaries, salary related costs and direct service costs, including freelance labor costs and direct administrative costs, such as travel. As a result, salary and service costs as a percentage of revenue increased from 70.6% in the first six months of 2006 compared to 70.8% in the first six months of 2007.

        Office and general expenses represented 18.6% and 18.8% of our operating expenses in the first six months of 2007 and 2006, respectively. These costs are comprised of office and equipment rents, technology costs and depreciation, amortization of identifiable intangible assets, professional fees and other overhead expenses. As a percentage of revenue, office and general expenses decreased from 16.3% in the first six months of 2006 to 16.2% in the first six months of 2007 as a result of our continuing efforts to consistently align these costs with business levels on a location-by-location basis. These costs are less directly linked to changes in our revenues than our salary and service costs. Although they tend to increase as our revenues increase, the rate of increase could be more, or less than the rate of increase in our revenues.

         Net Interest Expense: Our net interest expense decreased slightly in the first six months of 2007 to $40.5 million, as compared to $40.7 million in the first six months of 2006. This net decrease was primarily impacted by interest expense savings associated with the amortization, in accordance with EITF 96-19, of supplemental interest payments related to our 2031 Notes which did not receive a supplemental interest payment during the first six months of 2007 and year-over-year interest savings associated with the amortization, in accordance with EITF 96-19, of supplemental interest payments on our 2032 Notes offset by $14.7 million of additional interest costs in the first quarter of 2007 compared to the first quarter of 2006, related to the issuance of our Senior Notes in March 2006.

         Income Taxes: Our consolidated effective income tax rate was 33.8% in the first six months of 2007, which is consistent with our tax rate of 33.7% for the first six months of 2006. In connection with our adoption of FIN 48, there was no significant change to our effective tax rate in the first six months of 2007. Refer to Note 6 to our consolidated financial statements.

         Earnings Per Share (EPS): For the foregoing reasons, our net income in the first six months of 2007 increased $50.0 million, or 12.2%, to $459.7 million from $409.7 million in the first six months of 2006. Diluted earnings per share increased 17.9% to $1.38 in the first six months of 2007, as compared to $1.17 in the prior year period. This period-over-period increase resulted from the 12.2% increase in net income and the reduction in our weighted average common shares outstanding. The reduction in our weighted average common shares outstanding

was the result of our purchases throughout 2006 and the first six months of 2007 of treasury shares, net of shares issued upon stock option exercises and shares issued under our employee stock purchase plan.

Critical Accounting Policies

        For a more complete understanding of all of our accounting policies, our financial statements and the related management’s discussion and analysis of those results, investors are encouraged to consider this information together with our discussion of our critical accounting policies under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2006 Form 10-K, as well as our consolidated financial statements and the related notes included in our 2006 Form 10-K.

New Accounting Pronouncements

        In June 2006, the FASB issued FIN 48 which we adopted in the first quarter of 2007. In September 2006, the FASB released SFAS 157, that we will adopt in the first quarter of 2008. In February 2007, the FASB issued SFAS No. 159. Adoption of SFAS 159 is optional. We currently do not expect to apply SFAS 159 to any existing financial statements. See Notes 6 and 9 to our condensed consolidated financial statements for additional information.

Contingent Acquisition Obligations

        Certain of our acquisitions are structured with contingent purchase price obligations, often referred to as earn-outs. We utilize contingent purchase price structures in an effort to minimize the risk to us associated with potential future negative changes in the performance of the acquired entity during the post-acquisition transition period. These payments are not contingent upon future employment. The amount of future contingent purchase price payments that we would be required to pay for prior acquisitions, assuming that the businesses perform over the relevant future periods at their current profit levels, is approximately $391 million as of June 30, 2007. The ultimate amounts payable cannot be predicted with reasonable certainty because they are dependent upon future results of operations of the subject businesses and are subject to changes in foreign currency exchange rates. In accordance with U.S. GAAP, we have not recorded a liability for these items on our balance sheet since the definitive amount is not determinable or distributable. Actual results can differ from these estimates and the actual amounts that we pay are likely to be different from these estimates. Our obligations change from period to period primarily as a result of payments made during the current period, changes in the acquired entities’ performance and changes in foreign currency exchange rates. These differences could be significant. The contingent purchase price obligations as of June 30, 2007, calculated assuming that the acquired businesses perform over the relevant future periods at their current profit levels, are as follows (dollars in millions):

        In addition, owners of interests in certain of our subsidiaries or affiliates have the right in certain circumstances to require us to purchase additional ownership stakes in those companies. Assuming that the subsidiaries and affiliates perform over the relevant periods at their current profit levels, the aggregate amount we could be required to pay in future periods is approximately $291 million, $208 million of which relates to obligations that are currently exercisable. If these rights are exercised, there would be an increase in our net income as a result of our increased ownership and the reduction of minority interest expense. The ultimate amount payable relating to these transactions will vary because it is primarily dependent on the future results of operations of the subject businesses, the timing of the exercise of these rights and changes in foreign currency exchange rates. The actual amount that we pay is likely to be different from this estimate and the difference could be significant. The obligations that exist for these agreements as of June 30, 2007, calculated using the assumptions above, are as follows (dollars in millions):

Liquidity and Capital Resources

        Historically, substantially all of our non-discretionary cash requirements have been funded from operating cash flow and cash on hand. Our principal non-discretionary funding requirement is our working capital. In addition, we have contractual obligations related to our debt, senior notes and convertible notes, our recurring business operations primarily related to lease obligations, as well as certain contingent acquisition obligations related to acquisitions made in prior years.

        Our principal discretionary cash requirements include dividend payments to our shareholders, payments for strategic acquisitions, capital expenditures and repurchases of our common stock. Our discretionary spending is funded from operating cash flow and cash on hand. However, in any given year, depending on the capital market conditions and the level of our discretionary activity, we may use other sources of available funding to finance these activities, such as the liquidation of short-term investments, the issuance of commercial paper or accessing the capital markets, as we did in the first quarter of 2006 when we issued our Senior Notes. The repurchases of our stock during the second quarter of 2007 are summarized in Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds” of this report.

        We have a seasonal working capital cycle. Working capital requirements are typically lowest at year-end. The fluctuation in working capital requirements between the lowest and

highest points during the course of the year can be more than $1.5 billion. This cycle occurs because our businesses incur costs on behalf of our clients, including when we place media and incur production costs. We generally require collection from our clients prior to our payment for the media and production cost obligations.

         Liquidity: Our cash and cash equivalents were $772.4 million at June 30, 2007, a decrease of $967.1 million from the balance at December 31, 2006. We also had short-term investments of $48.4 million at June 30, 2007, a decrease of $140.9 million from the balance at December 31, 2006.

        Consistent with our historical trends, during the first six months of 2007, our cash flow from operations used $47.5 million of cash primarily due to changes from our year-end working capital components. Our additional spending during the period was comprised primarily of: repurchases of our stock amounting to $690.5 million, net of proceeds received from employee stock compensation plans; purchases of equity interests in subsidiaries, encompassing net payments for new acquisitions as well as obligations related to existing subsidiaries, of $143.9 million; dividend payments of $84.2 million; and capital expenditures of $101.2 million.

         Capital Resources: We have a $2.5 billion credit facility which is due to expire on June 23, 2011. We have the ability to classify outstanding borrowings, if any, under our credit facility as long-term debt.

        In funding our day-to-day liquidity, we are an active participant in the commercial paper market with a $1.5 billion program. As of June 30, 2007, we had no commercial paper outstanding. Our credit facility provides credit support for commercial paper, as well as providing back-up liquidity in the event any of our convertible notes are put to us.

        Our bank syndicate includes large global banks such as Citibank, JP Morgan Chase, HSBC, ABN Amro, Deutsche, Bank of America, Societe Generale and BBVA. We also include large regional banks in the U.S. such as Wachovia, US Bancorp, Northern Trust, PNC and Wells Fargo. We also include banks that have a major presence in countries where we conduct business such as Sumitomo in Japan, Fortis in Belgium, Intesa San Paolo in Italy, Scotia in Canada and Westpac in Australia.

         Debt: We had short-term bank loans of $11.1 million and $10.5 million, as of June 30, 2007 and December 31, 2006, respectively. The short-term bank loans consisted of bank overdrafts of our international subsidiaries and are treated as unsecured loans pursuant to our bank agreements.

        In February 2007, we did not pay a supplemental interest payment to holders of our 2031 Notes as we had in past years, and none of the 2031 Notes were put back to us for repayment.

        We believe that our operating cash flow combined with our available lines of credit and our access to the capital markets are sufficient to support our foreseeable cash requirements arising from working capital, outstanding debt, capital expenditures, dividends and acquisitions.