ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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: advertising, customer relationship management (“CRM”), public relations and specialty communications. Our business model was built and continues to evolve around our clients. While our agencies 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 deliver our services 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 each of 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 currently serve or have the ability to serve our existing client base.

As one of the world’s leading advertising, marketing and corporate communications companies, we operate in all major markets of the global economy. We have a large and diverse client base. Our largest client represented 3.0% of our revenue for the six months ended June 30, 2011 and no other client accounted for more than 2.2% of our revenue. Our top 100 clients accounted for approximately 50.5% of our revenue for the six months ended June 30, 2011. Our business is spread across a significant number of industry sectors with no one industry comprising more than 15% of our revenue for the six months ended June 30, 2011. Although our revenue is generally balanced between the United States and international markets and we have a large and diverse client base, we are not immune to general economic downturns.

In the first six months of 2011, our revenue increased 11.4% compared to the first six months of 2010. The increase reflects an improvement in business conditions in our industry over 2010, strong operating performance by our agencies, as well as positive impact from foreign currency translation. Revenue increased across all our disciplines and geographic areas driven by continuing economic recovery in most of the developed markets we operate in and continued growth in the emerging markets in Asia and Latin America. In the first six months of 2011, we experienced a small loss of revenue related to the events in Japan and the turmoil in the Middle East. For the last twelve months, revenue from Japan and the Middle East represents approximately 1.5% and 1.1% of our revenue, respectively.

We will continue to closely monitor economic conditions, client spending and other factors and in response, take actions available to us to improve our cost structure and manage working capital. In the current environment, there can be no assurance as to the effects on us of future economic conditions, client spending patterns, client creditworthiness and other developments and whether and to what extent our efforts to respond to them will be effective.

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Certain business trends have had a positive impact on our business and industry. These trends include our clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets and integrating traditional and non-traditional marketing channels, as well as utilizing new communications technologies and emerging digital platforms. Additionally, in an effort to gain greater efficiency and effectiveness from their total marketing budgets, clients are increasingly requiring greater coordination of marketing activities and concentrating these activities with a smaller number of service providers. We believe these trends have benefitted our business in the past and over the medium and long term will continue to provide a competitive advantage to us.

For the remainder of 2011, barring unforeseen events and excluding foreign exchange impacts, we expect our revenue to increase modestly in excess of average nominal GDP growth for 2011 in the major markets where we do business as a result of increases in client spending and new business activities. We expect to continue to identify acquisition opportunities that will build on the core capabilities of our strategic business platforms, expand our operations in the emerging markets and enhance our capabilities to leverage new technologies.

Effective February 1, 2011, we acquired a controlling interest in the Clemenger Group, our affiliate in Australia and New Zealand increasing our equity ownership from 46.7% to 73.7%. In connection with this transaction, we recorded a non-cash gain of $123.4 million in the first quarter of 2011 resulting from the remeasurement of the carrying value of our equity interest to the acquisition date fair value. We believe that this acquisition will help us to further develop our combined businesses throughout the Asia Pacific region and further enhance our global capabilities.

We have an objective of improving margins to 2007 levels by the end of 2012. In connection with achieving this goal, we continue to review of our businesses focused on enhancing our strategic position, improving our operations and rebalancing our workforce. As part of this process, we are evaluating our agencies to identify non-core and underperforming businesses that need to be repositioned or considered for disposal. Annual revenue for 2010 from dispositions that were completed in 2011 was approximately $130 million. However, on an annual basis, we expect that revenue from the acquisitions completed through June 30, 2011 will more than offset the loss of revenue from dispositions. We are also pursuing numerous operational consolidations to further drive efficiencies in our back office functions. As a result of the actions taken, we incurred charges of $131.3 million in the first quarter of 2011 for severance, real estate lease terminations and asset and goodwill write-offs related to disposals and other costs.

Given our size and breadth, we manage our business by monitoring several financial indicators. The key indicators that we review focus on revenue 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 quarter ended June 30, 2011, our revenue increased 14.7% compared to the quarter ended June 30, 2010, of which 7.2% was organic growth, 5.5% was related to changes in

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foreign exchange rates and 2.0% was related to acquisitions, net of dispositions. Across our geographic markets revenue increased 7.8 % in the United States, 16.8% in the United Kingdom, 12.4% in our Euro markets and 36.4% in our other markets, primarily Asia and Latin America. The increase in revenue in the second quarter of 2011 compared to the second quarter of 2010 in our four fundamental disciplines was as follows: advertising 18.5%; CRM 15.1%; public relations 7.1%; and specialty communications 2.8%.

For the six months ended June 30, 2011, our revenue increased 11.4% compared to the six months ended June 30, 2010, of which 6.2% was organic growth, 3.5% was related to changes in foreign exchange rates and 1.7% was related to acquisitions, net of dispositions. Across our geographic markets revenue increased 5.8 % in the United States, 14.6% in the United Kingdom, 6.5% in our Euro markets and 32.1% in our other markets, primarily Asia and Latin America. The increase in revenue in the first six months of 2011 compared to the first six months of 2010 in our four fundamental disciplines was as follows: advertising 13.3%; CRM 12.0%; public relations 5.5%; and specialty communications 5.7%.

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 and related costs and direct service costs. Office and general expenses are primarily comprised of rent and occupancy costs, technology costs, depreciation and amortization and other overhead expenses. Each of our agencies requires service professionals with a skill set that is common across our disciplines. At the core of this skill set in 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 salary and service costs and office and general costs in relation to revenue.

Salary and service costs tend to fluctuate in conjunction with changes in revenue. Salary and service costs increased 14.8% in the second quarter of 2011 compared to the second quarter of 2010. Salary and service costs increased 13.3% in the first six months of 2011 compared to the first six months of 2010. This increase includes $92.8 million of severance charges taken in the first quarter of 2011, associated with our repositioning actions. Excluding the impact of the severance costs associated with our repositioning actions, salary and service costs increased by 11.2% in the first six months of 2011.

Office and general expenses are less directly linked to changes in our revenue than salary and service costs. Office and general expenses increased 11.5% in the second quarter of 2011 compared to the second quarter of 2010. Office and general expenses decreased 0.2% in the first six months of 2011 compared to the first six months of 2010, reflecting a decrease of $123.4 million related to the non-cash remeasurement gain recorded in the first quarter or 2011 in connection with the acquisition of the controlling interest in the Clemenger Group partially offset by $38.5 million of charges taken in the first quarter of 2011 related to our repositioning actions. Excluding the impact of the remeasurement gain and the impact of the repositioning actions, office and general expenses increased by 8.9% in the first six months of 2011.

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Net income - Omnicom Group Inc. in the second quarter of 2011 increased $31.8 million, or 13.1%, to $275.1 million from $243.3 million in the second quarter of 2010. Net income - Omnicom Group Inc. in the first six months of 2011 increased $70.3 million, or 17.3% to $477.0 million from $406.7 million in the first six months of 2010. The period-over-period increase in net income - Omnicom Group Inc. is due to factors described above. Diluted net income per common share - Omnicom Group Inc. increased 21.5% to $0.96 in the second quarter of 2011, compared to $0.79 in the second quarter of 2010 due to the factors described above, as well as the reduction in our weighted average common shares outstanding. Diluted net income per common share - Omnicom Group Inc. increased 26.9% to $1.65 in the first six months of 2011, compared to $1.30 in the first six months of 2010 due to the factors described above, as well as the reduction in our weighted average common shares outstanding. This reduction was the result of repurchases of our common stock during the fourth quarter of 2010 through the second quarter of 2011, net of stock option exercises and shares issued under our employee stock purchase plan.

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Results of Operations: Second Quarter 2011 Compared to Second Quarter 2010

EBITA, which we define as earnings before interest, income taxes and amortization of intangible assets, and EBITA Margin, which we define as EBITA divided by Revenue, are Non-GAAP measures. We use EBITA and EBITA Margin as additional performance measures which exclude amortization expense of acquired intangible assets. We believe that EBITA and EBITA Margin are useful measures to evaluate the performance of our businesses. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies. The table above reconciles EBITA and EBITA Margin to the GAAP financial measure for the periods presented.

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Revenue: Revenue for the second quarter of 2011 increased $446.2 million, or 14.7%, to $3,487.4 million from $3,041.2 million in the second quarter of 2010. Organic growth increased revenue by $218.0 million and foreign exchange impacts increased revenue by $167.8 million. Acquisitions, net of dispositions, increased revenue by $60.4 million.

The components of the second quarter of 2011 revenue changes in the United States (“domestic”) and the remainder of the world (“international”) were (dollars in millions):

The components and percentages are calculated as follows:

• The foreign exchange impact is calculated by first converting the current period’s local currency revenue using the average exchange rates from the equivalent prior period to arrive at a constant currency revenue (in this case $3,319.6 million for the Total column in the table). The foreign exchange impact equals the difference between the current period revenue in U.S. dollars and the current period revenue in constant currency (in this case $3,487.4 million less $3,319.6 million for the Total column in the table).
• The acquisition component is calculated by aggregating the applicable prior period revenue of the acquired businesses, less revenue of any business included in the prior period reported revenue that was disposed of subsequent to the period.
• Organic growth is calculated by subtracting both the foreign exchange and acquisition revenue components from total revenue growth.
• The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component (in the case $3,041.2) million for the Total column in the table).

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Revenue for the second quarter of 2011 and the percentage changes from 2010 in our primary geographic markets were (dollars in millions):

For the second quarter of 2011, foreign exchange impacts increased our revenue by 5.5%, or $167.8 million, compared to the second quarter of 2010. The most significant impacts resulted from the weakening of the U.S. Dollar against the Australian Dollar, British Pound and the Euro.

Assuming exchange rates at July 15, 2011 remain unchanged, we expect foreign exchange impacts to increase revenue by approximately 3.0% for the full year.

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, corporate social responsibility consulting, crisis communications, custom publishing, database management, digital and interactive marketing, direct marketing, entertainment marketing, environmental design, experiential marketing, field marketing, financial/corporate business-to-business advertising, media planning and buying, mobile marketing services, multi-cultural marketing, non-profit marketing, public affairs, public relations, recruitment communications, reputation consulting, retail marketing, search engine marketing, social media 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 reported below: advertising, CRM, public relations and specialty communications (dollars in millions).

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Looking ahead to the remainder of the year, barring unforeseen events and excluding foreign exchange impacts, we expect our revenue to increase modestly in excess of average nominal GDP growth as a result of increases in client spending and new business activities.

Operating Expenses: Operating expenses for the second quarter of 2011 compared to operating expenses for the second quarter of 2010 were (dollars in millions):

Salary and service costs are primarily comprised of employee compensation and related costs and direct service costs. Salary and service costs tend to fluctuate in conjunction with changes in revenue. Salary and service costs increased 14.8% in the second quarter of 2011 compared to the second quarter of 2010. This increase, consistent with the increase in revenue, reflects increased compensation costs, including freelance labor and incentive compensation, as well as a change in our business mix.

Office and general expenses are primarily comprised of rent and occupancy costs, technology costs, depreciation and amortization and other overhead expenses. Office and general expenses are less directly linked to changes in our revenue than salary and service costs. Office and general expenses increased 11.5% in the second quarter of 2011 compared to the second quarter of 2010. However, office and general expenses, in particular rent expense and depreciation and amortization expense, decreased as a percentage of revenue by 0.4% to 15.1% in the second quarter of 2011 compared to the second quarter of 2010.

As a result of the above changes, operating margins increased to 14.0% in 2011 from 13.7% in 2010 and EBITA margins increased to 14.7% in the second quarter of 2011 from 14.2% in the second quarter of 2010.

Net Interest Expense: Our net interest expense increased to $27.6 million in the second quarter of 2011, compared to $23.7 million in the second quarter of 2010. Our gross interest expense increased $7.0 million to $36.9 million. This increase in gross interest was primarily due to increased interest resulting from the issuance of our 4.45% Senior Notes due 2020 issued in August 2010, partially offset by a net reduction in interest expense, resulting from the interest rate swaps on our 2016 Notes entered into in August 2010. Gross interest income increased $3.1 million to $9.3 million in the second quarter of 2011. This increase was attributable to higher foreign cash balances available for investment and higher investment rates.

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Income Taxes: Our effective tax rate for the second quarter of 2011 increased slightly to 34.3%, compared to 34.0% for the second quarter of 2010.

Net Income Per Common Share - Omnicom Group Inc.: For the foregoing reasons, net income - Omnicom Group Inc. in the second quarter of 2011 increased $31.8 million, or 13.1%, to $275.1 million, compared to $243.3 million in the second quarter of 2010. Diluted net income per common share - Omnicom Group Inc. increased 21.5% to $0.96 in the second quarter of 2011, compared to $0.79 in the second quarter of 2010 due to the factors described above, as well as the impact of the reduction in our weighted average common shares outstanding. This reduction was the result of repurchases of our common stock during the fourth quarter of 2010 through the second quarter of 2011, net of stock option exercises and shares issued under our employee stock purchase plan.

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Results of Operations: First Six Months of 2011 Compared to First Six Months of 2010

EBITA, which we define as earnings before interest, income taxes and amortization of intangible assets, and EBITA Margin, which we define as EBITA divided by Revenue, are Non-GAAP measures. We use EBITA and EBITA Margin as additional performance measures which exclude amortization expense of acquired intangible assets. We believe that EBITA and EBITA Margin are useful measures to evaluate the performance of our businesses. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies. The table above reconciles EBITA and EBITA Margin to the GAAP financial measure for the periods presented.

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Revenue: Revenue for the first six months of 2011 increased $677.6 million, or 11.4%, to $6,638.8 million from $5,961.2 million in the first six months of 2010. Organic growth increased revenue by $370.4 million and foreign exchange impacts increased revenue by $204.9 million. Acquisitions, net of dispositions, increased revenue by $102.3 million.

The components of the first six months of 2011 revenue changes in the United States (“domestic”) and the remainder of the world (“international”) were (dollars in millions):