INTERPUBLIC GROUP OF COMPANIES, INC. - Quarter Report: 2008 March (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended March 31, 2008

or

Commission file number: 1-6686

THE INTERPUBLIC GROUP OF COMPANIES, INC.

(Exact name of registrant as specified in its charter)

1114 Avenue of the Americas, New York, New York 10036

(Address of principal executive offices) (Zip Code)

(212) 704-1200

(Registrant’s telephone number, including area code)

(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 ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x    Accelerated filer ¨    Non-accelerated filer (Do not check if a smaller reporting company) ¨

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨    No x

The number of shares of the registrant’s common stock outstanding as of April 18, 2008 was 471,945,755.

INDEX

INFORMATION REGARDING FORWARD-LOOKING DISCLOSURE

This quarterly report on Form 10-Q contains forward-looking statements. Statements in this report that are not historical facts, including statements about management’s beliefs and expectations, constitute forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined under Item 1A, Risk Factors, in our most recent annual report on Form 10-K. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following:

Investors should carefully consider these factors and the additional risk factors outlined in more detail under Item 1A, Risk Factors, in our 2007 Annual Report on Form 10-K.

Part I — FINANCIAL INFORMATION

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

2

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Millions)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

3

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Millions)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

4

Notes to Consolidated Financial Statements

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 1:  Basis of Presentation

The unaudited consolidated financial statements have been prepared by The Interpublic Group of Companies, Inc. (together with its subsidiaries, the “Company”, “Interpublic”, “we”, “us” or “our”) in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC” or the “Commission”) for reporting interim financial information on Form 10-Q. Accordingly, they do not include certain information and disclosures required for complete financial statements.

In the opinion of management, these unaudited consolidated financial statements include all adjustments of a normal and recurring nature necessary for a fair statement of the information for each period contained therein. Certain reclassifications have been made to prior periods to conform to the current period presentation. The consolidated results for interim periods are not necessarily indicative of results for the full year, as historically our consolidated revenue is higher in the second half of the year than in the first half. These financial results should be read in conjunction with our 2007 Annual Report on Form 10-K.

Note 2:  4.50% Convertible Senior Notes

In March 2008, holders of approximately $191.0 in aggregate principal amount of our 4.50% Convertible Senior Notes due 2023 (the “4.50% Notes”) exercised their put option that required us to repurchase their 4.50% Notes for cash, pursuant to the terms of the 4.50% Notes. The purchase price was 100% of the principal amount, which we paid from existing cash on hand. We can redeem the remaining 4.50% Notes (approximately $9.0 as of March 31, 2008) for cash on or after September 15, 2009.

Note 3:  Fair Value Measurements

Effective January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands required disclosures about fair value measurements. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. The impact of adopting SFAS 157 as of January 1, 2008 was not material to our Consolidated Financial Statements.

FSP FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, removed leasing transactions accounted for under SFAS No. 13, Accounting for Leases, and related guidance from the scope of SFAS 157. FSP FAS 157-2, Effective Date of FASB Statement No. 157 deferred the effective date of SFAS 157 for the Company in relation to all nonfinancial assets and nonfinancial liabilities to January 1, 2009.

SFAS 157 establishes a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We primarily apply the market approach for recurring fair value measurements. The standard describes three levels of inputs that may be used to measure fair value:

5

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of March 31, 2008 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. We do not have any assets or liabilities measured at fair value on a recurring basis using Level 2 inputs as of March 31, 2008.

The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which we utilize Level 3 inputs to determine fair value.

We evaluate fair value of positions classified within the Level 3 category based on specific information in addition to quoted market prices, if available. Gains (losses) included in net loss for foreign currency derivatives and a minority interest put obligation are reported as a component of other expense and interest expense, respectively.

Note 4:  Supplementary Data

Accrued Liabilities

2004 Restatement Liabilities

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

As part of the restatement set forth in our 2004 Annual Report on Form 10-K filed in September 2005 (the “2004 Restatement”), we recognized liabilities related to vendor discounts and credits where we had a contractual or legal obligation to rebate such amounts to our clients or vendors. For the three months ended March 31, 2008, we satisfied $0.5 of these liabilities through cash payments of $0.2 and reductions of certain client receivables of $0.3. Further reductions of these liabilities as a result of favorable settlements with clients and the release of liabilities due to the lapse of the respective statutes of limitations were offset by foreign currency effects. Also, as part of the 2004 Restatement, we recognized liabilities related to internal investigations and international compensation arrangements.

Restructuring and Other Reorganization-related Charges (Reversals)

Restructuring and other reorganization-related charges of $3.2 primarily relate to the restructuring program announced at Lowe Worldwide (“Lowe”) during the third quarter of 2007. These charges relate to accelerated leasehold amortization and severance adjustments for changes to management estimates due to an earlier-than-expected exit of certain employees. Payments during the quarter related to the 2007 program were approximately $9.0. The total liability balance as of March 31, 2008 for our restructuring programs is $21.5, of which $5.2, $8.4 and $7.9 relate to the 2007, 2003 and 2001 programs, respectively.

Other Expense

Other expense of $1.4 primarily relates to an estimate of our monetary liability arising from the previously disclosed SEC investigation of our past restatements of our financial statements of $12.0, partially offset by vendor discounts and credit adjustments of $7.1. These adjustments reflect the reversal of certain liabilities where the statute of limitations has lapsed. See Note 10 for further discussion relating to the SEC investigation.

Note 5:  Employee Benefits

We have a defined benefit plan which covers substantially all regular U.S. employees employed through March 31, 1998. In addition, some of our agencies have additional domestic plans. These plans are closed to new participants. We also have numerous plans outside of the U.S., some of which are funded, while others provide payments at the time of retirement or termination under applicable labor laws or agreements. Some of our domestic and foreign subsidiaries also provide postretirement health benefits to eligible employees and their dependents. Additionally, some of our domestic subsidiaries provide postretirement life insurance to eligible employees. The components of net periodic cost for our pension plans and postretirement benefit plans are as follows:

During the three months ended March 31, 2008, we made contributions of $7.6 to our foreign pension plans. For the remainder of 2008, we expect to contribute approximately $19.0 to our foreign pension plans. In anticipation of changes required by the Pension Protection Act of 2006, we expect to contribute $2.3 for our domestic pension plans during 2008. During the three months ended March 31, 2008, we did not make any contributions to our domestic pension plans.

7

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 6:  Comprehensive Loss

Note 7:  Loss Per Share

Loss per basic common share equals net loss applicable to common stockholders divided by the weighted average number of common shares outstanding for the applicable period. The following sets forth basic and diluted loss per common share applicable to common stock.

Basic and diluted shares outstanding and loss per share are equal for the three months ended March 31, 2008 and 2007 because our potentially dilutive securities are antidilutive as a result of the net loss applicable to common stockholders in each period presented.

8

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

The following table presents the potential shares excluded from diluted loss per share because the effect of including these potential shares would be antidilutive.

Note 8:  Taxes

For the three months ended March 31, 2008, the difference between the effective tax rate and the statutory rate of 35% is primarily due to state and local taxes and losses in certain foreign locations where we receive no tax benefit due to 100% valuation allowances.

With respect to all tax years open to examination by U.S. Federal and various state, local, and non-U.S. tax authorities, we currently anticipate that the total unrecognized tax benefits will decrease by an amount between $40.0 and $50.0 in the next twelve months, a portion of which will affect the effective tax rate, primarily as a result of the settlement of tax examinations and the lapsing of statutes of limitation. This net decrease is related to various items of income and expense, including transfer pricing adjustments and adjustments related to the 2004 Restatement. For this purpose, we expect to complete our discussions with the IRS appeals division regarding the years 1997 through 2004 within the next twelve months.

In December 2007, the IRS commenced its examination for the years 2005 and 2006 tax years. In addition, we have various tax years under examination by tax authorities in various countries, such as the U.K., and in various states, such as New York, in which we have significant business operations. It is not yet known whether these examinations will, in the aggregate, result in our paying additional taxes. We believe our tax reserves are adequate in relation to the potential for additional assessments in each of the jurisdictions in which we are subject to taxation. We regularly assess the likelihood of additional tax assessments in those jurisdictions and, if necessary, adjust our reserves as additional information or events require.

With limited exceptions, we are no longer subject to U.S. income tax audits for the years prior to 1997, state and local income tax audits for the years prior to 1999, or non-U.S. income tax audits for the years prior to 2000.

9

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 9:  Segment Information

We have two reportable segments: Integrated Agency Networks (“IAN”), which is comprised of Draftfcb, Lowe, McCann Worldgroup, our media services and our fully integrated independent agencies, and Constituency Management Group (“CMG”), which is comprised of the bulk of our specialist marketing service offerings. We also report results for the Corporate and other group. Segment information is presented consistently with the basis described in our 2007 Annual Report on Form 10-K. Summarized financial information concerning our reportable segments is shown in the following table.

10

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 10:  Commitments and Contingencies

SEC Investigation

Since January 2003 the SEC has been conducting a formal investigation in response to the restatement we first announced in August 2002, and in 2005 the investigation expanded to encompass the 2004 Restatement. We have also responded to inquiries from the SEC staff concerning the restatement of the first three quarters of 2005 that we made in our 2005 Annual Report on Form 10-K.

We continue to cooperate with the investigation and we are currently in advanced settlement discussions with the SEC staff. We expect that the investigation will result in monetary liability, and in the first quarter of 2008 we established a provision of $12.0 that is recorded in other expense in our Consolidated Financial Statements. We cannot at this time predict with certainty the outcome of the settlement negotiations.

Other Legal Matters

We are or have been involved in other legal and administrative proceedings of various types. While any litigation contains an element of uncertainty, we do not believe that the outcome of such proceedings or claims will have a material adverse effect on our financial condition.

Guarantees

As discussed in our 2007 Annual Report on Form 10-K, we have contingent obligations under guarantees of certain obligations of our subsidiaries relating principally to credit facilities, guarantees of certain media payables and operating leases of certain subsidiaries. As of March 31, 2008 there have been no material changes to these guarantees.

Note 11:  Recent Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (revised), Business Combinations (“SFAS 141R”), which replaces SFAS No. 141, Business Combinations. Under the standard, an acquiring entity is required to record assets acquired and liabilities assumed in a business combination at fair value on the date of acquisition. Earn-out payments and other forms of contingent consideration are also required to be recorded at fair value on the acquisition date. The standard also requires fair value measurements to be used when recording non-controlling interests and contingent liabilities. In addition, the standard requires all costs associated with the business combination, including restructuring costs, to be expensed as incurred. For the Company, SFAS 141R is effective prospectively for business combinations having an acquisition date on or after January 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired contingencies. SFAS 141R amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to January 1, 2009 would also apply the provisions of SFAS 141R. We are currently evaluating the potential impact of SFAS 141R on our Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”), which amends ARB No. 51, Consolidated Financial Statements. This standard requires a noncontrolling interest in a subsidiary to be reported as equity on the consolidated financial statements separate from the parent’s equity. The standard also requires transactions that do not impact a parent’s controlling ownership and do not result in the deconsolidation of the subsidiary to be recorded as equity transactions, while those transactions that do result in a change in ownership and a deconsolidation of the subsidiary to be recorded in net income (loss) with the gain or loss measured at fair value. For the Company, SFAS 160 is effective January 1, 2009 and should be applied prospectively with the exception of the presentation and disclosure requirements which shall be applied retrospectively for all periods presented. We are currently evaluating the potential impact of SFAS 160 on our Consolidated Financial Statements.

11

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), which permits an entity to measure certain financial assets and financial liabilities at fair value. Under SFAS 159, entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. For the Company, SFAS 159 is effective as of January 1, 2008, but we did not elect to measure any additional financial instruments at fair value as a result of this statement. Therefore, the adoption of SFAS 159 has not had an impact on our Consolidated Financial Statements.

12

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand The Interpublic Group of Companies, Inc. and subsidiaries (the “Company”, “Interpublic”, “we”, “us” or “our”). MD&A should be read in conjunction with our financial statements and the accompanying notes. Our MD&A includes the following sections:

EXECUTIVE SUMMARY provides an overview of our results of operations.

RESULTS OF OPERATIONS provides an analysis of the consolidated and segment results of operations for the periods presented.

LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash flows and financing activities.

CRITICAL ACCOUNTING ESTIMATES provides an update to the discussion of our accounting policies that require critical judgment, assumptions and estimates in our 2007 Annual Report on Form 10-K.

RECENT ACCOUNTING STANDARDS, by reference to Note 11 to the unaudited Consolidated Financial Statements, provides a discussion of accounting standards that we have not yet been required to implement, but which may affect us in the future, as well as those accounting standards that have been adopted during 2008.

EXECUTIVE SUMMARY

We are one of the world’s premier advertising and marketing services companies. Our agency brands deliver custom marketing solutions to many of the world’s largest marketers. Our companies cover the spectrum of marketing disciplines and specialties, from consumer advertising and direct marketing to mobile and search engine marketing. Major global brands include Draftfcb, FutureBrand, GolinHarris International, Initiative, Jack Morton Worldwide, Lowe Worldwide (“Lowe”), MAGNA Global, McCann Erickson, Momentum, MRM, Octagon, Universal McCann and Weber Shandwick. Leading domestic brands include Campbell-Ewald, Carmichael Lynch, Deutsch, Hill Holliday, Mullen and The Martin Agency.

Our strategy is focused on improving our organic revenue growth and operating margins, with our ultimate objective to be fully competitive with our industry peer group on both measures.

To further improve our operating margin we continue to focus on the following areas:

We analyze period-to-period changes in our operating performance by determining the portion of the change that is attributable to foreign currency rates and the change attributable to the net effect of acquisitions and divestitures, with the remainder considered the organic change. For purposes of analyzing this change, acquisitions and divestitures are treated as if they occurred on the first day of the quarter during which the transaction occurred.

Although the U.S. Dollar is our reporting currency, a substantial portion of our revenues is generated in foreign currencies. Therefore, our reported results are affected by fluctuations in the currencies in which we conduct our international businesses. We do not use derivative financial instruments to manage this risk. As a result, both positive and negative

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Management’s Discussion and Analysis of Financial Condition and Results of Operations – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

currency fluctuations against the U.S. Dollar will continue to affect our results of operations. The weakening of the U.S. Dollar against the currencies of many countries in which we operate contributed to higher revenues and operating expenses. During the first quarter of 2008, the U.S. Dollar was generally weaker against the Euro, Brazilian Real, Australian Dollar and Japanese Yen compared to the first quarter of 2007. The average value of the Euro, in which a considerable amount of our international operations are conducted, strengthened approximately 13% against the U.S. Dollar during the first quarter of 2008 compared to the first quarter of 2007. Foreign currency variations resulted in increases of approximately 4% in revenues, salaries and related expenses and office and general expenses in the first quarter of 2008 compared to the first quarter of 2007.

As discussed in more detail in this MD&A, for the first quarter of 2008 compared to the first quarter of 2007:

RESULTS OF OPERATIONS

Consolidated Results of Operations — Three Months Ended March 31, 2008 compared to Three Months Ended March 31, 2007

REVENUE

Our revenue increased by $126.1, primarily consisting of organic revenue growth of $69.7 and a favorable foreign currency rate impact of $51.9. The domestic organic revenue growth was primarily driven by expanding business with existing clients and winning new clients in advertising and public relations. The international organic revenue increase was primarily driven by net client wins and increased client spending throughout Europe, and increases in spending by existing clients in the Asia Pacific region.

14

Management’s Discussion and Analysis of Financial Condition and Results of Operations – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Our revenue is subject to fluctuations related to seasonal spending from our clients. Most of our expenses are recognized ratably throughout the year and are less seasonal than revenue. Our revenue is typically lowest in the first quarter and highest in the fourth quarter. This reflects the seasonal holiday spending of our clients, incentives earned at year-end on various contracts and project work completed that is typically recognized during the fourth quarter.

Refer to the segment discussion later in this MD&A for more detailed information on changes in revenue by segment.

OPERATING EXPENSES

Salaries and Related Expenses

The following table details our salary and related expenses as a percentage of consolidated revenue.

Salaries and related expenses increased by $76.0 compared to the first quarter of 2007, primarily consisting of an organic salary increase of $34.0 and an adverse foreign currency rate impact of $38.0. The organic increase was primarily due to higher base salaries and benefits of $27.7, primarily to support business growth, predominantly at our largest network, McCann. However, base salaries, benefits and tax as a percentage of revenue improved during the first quarter of 2008 when compared to 2007.

There was not a significant change in our trend of incentive expense during the first quarter of 2008 when compared to 2007. Changes in our incentive awards mix can impact future period expense as cash bonus awards are expensed during the year they are earned and long-term incentive stock awards are expensed over the performance period, generally three years. Additionally, changes can occur based on projected results and could impact trends between various periods in the future. Quarterly results in 2008 when compared to 2007 may fluctuate due to the changes in the mix of awards and expense patterns in 2007.

15

Management’s Discussion and Analysis of Financial Condition and Results of Operations – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Office and General Expenses

The following table details our office and general expenses as a percentage of consolidated revenue. All other office and general expenses includes production expenses, depreciation and amortization, bad debt expense, foreign currency gains (losses) and other expenses.

Office and general expenses decreased by $20.1 compared to the first quarter of 2007, primarily consisting of an organic decrease of $33.2, partially offset by a foreign currency rate impact of $19.1. The organic decrease was primarily due to improvements in our financial systems, back-office processes and internal controls we made throughout 2007 and reduced legal consultations, all of which resulted in lower professional fees of $18.1.

Production expenses can be a significant component of our office and general expenses and can vary significantly between periods depending upon the timing of completion of certain projects. There was no significant change in our trend of production expenses during the first quarter of 2008 when compared to 2007. The timing of production expenses could impact trends between various periods in the future.

Restructuring and Other Reorganization-Related Charges (Reversals)

Restructuring and other reorganization-related charges of $3.2 primarily relate to the restructuring program announced at Lowe during the third quarter of 2007. These charges relate to accelerated leasehold amortization and severance adjustments for changes to management estimates due to an earlier than expected exit of certain employees. The total liability balance as of March 31, 2008 for our restructuring programs is $21.5, of which $5.2, $8.4 and $7.9 relate to the 2007, 2003 and 2001 programs, respectively.

EXPENSES AND OTHER INCOME

16

Management’s Discussion and Analysis of Financial Condition and Results of Operations – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Net Interest Expense

The increase in net interest expense during the first quarter of 2008 is primarily due to increased cash interest expense. Cash interest expense increased primarily due to higher average short-term debt balances at certain agencies outside the U.S.

Other Expense

Other expense of $1.4 primarily relates to an estimate of our monetary liability arising from the previously disclosed SEC investigation of our past restatements of our financial statements of $12.0, partially offset by vendor discounts and credit adjustments of $7.1. These adjustments reflect the reversal of certain liabilities where the statute of limitations has lapsed.

We continue to cooperate with the SEC investigation, and we are currently in advanced settlement discussions with the SEC staff, but we cannot at this time predict with certainty the outcome of the settlement negotiations. See Note 10 to the Consolidated Financial Statements for further discussion relating to the SEC investigation.

INCOME TAXES

Our tax rates are affected by many factors, including our worldwide earnings from various countries, disposition activity, changes in legislation and tax characteristics of our income. Specifically, for the three months ended March 31, 2008, the difference between the effective tax rate and the statutory rate of 35% is primarily due to state and local taxes and losses incurred in certain non-U.S. jurisdictions that receive no corresponding tax benefit. The improvement in the effective tax rate was primarily attributable to a reduction in the losses incurred in non-U.S. jurisdictions that receive no benefit.

For the three months ended March 31, 2007 the difference between the effective tax rate and the statutory rate of 35% was due primarily to state and local taxes, losses incurred in certain non-U.S. jurisdictions that receive no benefit and the write-off of deferred tax assets for restricted stock.

LOSS PER SHARE

For the first quarter of 2008, net loss was $62.8 and net loss applicable to common shareholders was $69.7, or $(0.15) per basic and diluted share, compared to a $125.9 net loss and net loss applicable to common shareholders was $132.8, or $(0.29) per basic and diluted share a year earlier.

Segment Results of Operations — Three Months Ended March 31, 2008 compared to Three Months Ended March 31, 2007

As discussed in Note 9 to the unaudited Consolidated Financial Statements, we have two reportable segments as of March 31, 2008: IAN and CMG. We also report results for the Corporate and other group.

17

Management’s Discussion and Analysis of Financial Condition and Results of Operations – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

IAN

REVENUE

The revenue increase in the first quarter of 2008 was primarily the result of organic revenue increases and net changes in foreign currency exchange rates. The domestic organic increase was a result of higher revenue from existing clients and net client wins, primarily at McCann, Hill Holliday and Deutsch. Partially offsetting this domestic organic increase was decreased revenue from one of our independent agencies that received a performance incentive award in the first quarter of 2007 that did not repeat in 2008. The international organic increase was due to increases in client spending at our media businesses, which consist of Initiative Media and Universal McCann, throughout Europe. Additionally, there was an increase in client spending at Lowe, primarily in the Asia Pacific region.

SEGMENT OPERATING LOSS

Operating loss improved during the first quarter of 2008 due to an increase in revenue of $109.9 and a decrease in office and general expenses of $5.7, partially offset by an increase in salaries and related expenses of $70.6. Higher salaries and related expenses were primarily due to an increase in base salaries, benefits, and temporary help of $64.1 to support growth, primarily at McCann.

CMG

REVENUE