The Interpublic Group of Companies - 10-Q quarterly report FY

Page No.

          Item 1.

Financial Statements

Consolidated Statement of Operations

3

  Three months ended June 30, 2003

  and 2002 (unaudited)

Consolidated Statement of Operations

4

  Six months ended June 30, 2003

  and 2002 (unaudited)

Consolidated Balance Sheet

5

  June 30, 2003 and

  December 31, 2002 (unaudited)

Consolidated Statement of Comprehensive Income

7

  Three months ended June 30, 2003

  and 2002 (unaudited)

Consolidated Statement of Comprehensive Income

8

  Six months ended June 30, 2003

  and 2002 (unaudited)

Consolidated Statement of Cash Flows

9

  Six months ended June 30, 2003

  and 2002 (unaudited)

Notes to Consolidated Financial Statements (unaudited)

10

         Item 2.

Management's Discussion and Analysis of

25

   Financial Condition and Results of Operations

         Item 3.

Quantitative and Qualitative Disclosures about Market Risk

         Item 4.

Controls and Procedures

38

         Item 1.

Legal Proceedings

40

         Item 2.

Changes in Securities and Use of Proceeds

42

         Item 4.

Submission of Matters to a Vote of Securities Holders

46

         Item 6.

Exhibits and Reports on Form 8-K

47

SIGNATURES

49

INDEX TO EXHIBITS

50

   Salaries and related expenses

878.4  

839.2  

   Office and general expenses

459.6  

435.9  

   Amortization of intangible assets

4.1  

2.6  

   Restructuring charges

94.4  

--  

   Long-lived asset impairment

        Total operating expenses

   Interest expense

(46.1) 

(36.9) 

   Interest income

10.2  

8.1  

   Other income

      0.3  

6.6  

   Investment impairment

        Total other income (expense)

6.5  

174.3  

   Provision for income taxes

(15.9) 

107.0  

   Income applicable to minority interests

(8.4) 

(10.9) 

   Equity in net income of unconsolidated affiliates

   (23.0) 

98.6  

INCOME FROM DISCONTINUED OPERATIONS (NET OF TAXES)

Earnings (loss) per share:

   Basic:

        Continuing operations

$  (0.06) 

$   0.26  

        Discontinued operations

            Total

   Diluted:

        Continuing operations

$  (0.06) 

$   0.26 

        Discontinued operations

            Total

Weighted average shares:

   Basic

384.3  

375.7  

   Diluted

384.3  

382.4  

Cash dividends per share

$        --  

$ 0.095  

   Salaries and related expenses

1,733.1  

1,660.9    

   Office and general expenses

885.5  

809.4    

   Amortization of intangible assets

7.3  

4.4    

   Restructuring charges

94.4  

--    

   Long-lived asset impairment

        Total operating expenses

   Interest expense

(84.9) 

(72.2)   

   Interest income

18.1  

15.0    

   Other income

       0.1  

       6.9    

   Investment impairment

        Total other income (expense)

(6.5) 

268.2    

   Provision for income taxes

(23.3) 

165.6    

   Income applicable to minority interests

(9.0) 

(14.2)   

   Equity in net income (loss) of unconsolidated affiliates

(34.2) 

  154.7    

INCOME FROM DISCONTINUED OPERATIONS (NET OF TAXES)

Earnings (loss) per share:

   Basic:

        Continuing operations

$   (0.09) 

$    0.41    

        Discontinued operations

            Total

   Diluted:

        Continuing operations

$   (0.09) 

$    0.41    

        Discontinued operations

            Total

Weighted average shares:

   Basic

383.1  

374.3    

   Diluted

383.1  

381.1    

Cash dividends per share

--   

$  0.190    

   Cash and cash equivalents

$     700.1     

$     933.0     

   Accounts receivable (net of allowance for doubtful
     accounts: 2003-$153.8; 2002-$139.8)

4,681.4     

4,517.6     

   Expenditures billable to clients

414.8     

407.6     

   Deferred taxes on income

69.4     

37.0     

   Prepaid expenses and other current assets

452.5     

427.1     

   Assets held for sale

        Total current assets

   Land and buildings

148.2     

168.2     

   Furniture and equipment

1,063.6     

1,125.1     

   Leasehold improvements

1,708.6     

1,781.1     

   Less: accumulated depreciation

        Total fixed assets

   Investment in less than majority-owned affiliates

352.2     

357.3     

   Deferred taxes on income

516.3     

509.9     

   Other assets

274.9     

319.8     

   Intangible assets (net of accumulated

     amortization: 2003-$993.3; 2002-$1,038.5)

        Total other assets

   Accounts payable

$ 5,282.7   

$5,125.5    

   Accrued expenses

1,019.3   

1,110.8    

   Accrued income taxes

17.3   

33.2    

   Loans payable

128.5   

239.3    

   Zero-coupon convertible senior notes

1.0   

581.0    

   Liabilities held for sale

                  --    

               Total current liabilities

   Long-term debt

1,214.1   

1,253.1    

   Convertible subordinated notes

573.0   

564.6    

   Convertible senior notes

800.0   

--    

   Deferred compensation

494.1   

470.5    

   Accrued postretirement benefits

53.3   

55.6    

   Other non-current liabilities

75.9   

189.7    

   Minority interests in consolidated subsidiaries

               Total non-current liabilities

Commitments and contingencies (Note 12)

   Preferred stock, no par value,

     shares authorized: 20.0, shares issued: none

   Common stock, $0.10 par value,

      shares authorized: 800.0,

      shares issued: 2003 - 391.1; 2002 - 389.3

39.1   

38.9    

   Additional paid-in capital

1,742.9   

1,797.0    

   Retained earnings

835.9   

858.0    

   Accumulated other comprehensive loss, net of tax

2,320.4   

2,320.3    

   Less:

   Treasury stock, at cost: 2003- 0.1 shares; 2002 - 3.1 shares

(11.3)  

(119.2)   

   Unamortized deferred compensation

               Total stockholders' equity

          Adjustment for minimum pension liability

(0.5)    

--     

          Unrealized holding gains

5.3     

--     

          Tax expense

(2.2)    

--     

          Unrealized holding losses

--     

(5.5)    

          Tax benefit

       Adjustment for minimum pension liability

(5.2)    

--     

       Tax benefit

       Unrealized holding gains

5.3     

0.9     

       Tax expense

(2.2)    

(0.4)    

       Unrealized holding losses

(0.8)    

(5.5)    

       Tax benefit

Net income (loss) from continuing operations

$(34.2) 

$ 154.7  

   Depreciation and amortization of fixed assets

86.9  

92.1  

   Amortization of intangible assets 

7.3  

4.4  

   Amortization of restricted stock awards and bond discounts

39.9  

39.4  

   Provision for (benefit of) deferred income taxes

(24.7) 

60.0  

   Undistributed equity earnings

1.9  

(3.3) 

   Income applicable to minority interests

9.0  

14.2  

   Restructuring charges - non cash

5.8  

--  

   Long-lived asset impairment

22.1  

--  

   Investment impairment

12.5  

16.2  

   Other

4.6  

(9.9) 

   Accounts receivable

(72.2) 

(39.9) 

   Expenditures billable to clients

(32.0) 

(102.1) 

   Prepaid expenses and other current assets

(23.1) 

(28.6) 

   Accounts payable and accrued expenses

34.9  

(185.8) 

   Accrued income taxes

(38.5) 

(45.1) 

   Other non-current assets and liabilities

               Net cash used in operating activities from continuing operations

   Acquisitions, net of cash acquired

(141.3) 

(199.6) 

   Capital expenditures

(72.1) 

(77.8) 

   Proceeds from sales of businesses

2.0  

0.2  

   Proceeds from sales of long-term investments

21.3  

39.3  

   Purchases of long-term investments

(11.0) 

(38.5) 

   Maturities of short-term marketable securities

17.2  

23.5  

   Purchases of short-term marketable securities

(27.8) 

(9.3) 

   Other investments and miscellaneous assets

               Net cash used in investing activities from continuing operations

   Increase (decrease) in short-term debt

(209.1) 

90.3  

   Payments of zero-coupon convertible senior notes

(580.0) 

--  

   Proceeds from long-term debt

22.9  

1.5  

   Proceeds from 4.5% convertible senior notes

778.0  

--  

   Payments of long-term debt

(1.4) 

(132.1) 

   Treasury stock acquired

--  

(7.7) 

   Issuance of common stock

8.0  

44.2  

   Distributions to minority interests

   (7.4) 

   (72.5) 

   Contributions from minority interests

               Net cash provided by (used in) financing activities from continuing operations

Effect of exchange rates on cash and cash equivalents

Net cash (used in) provided by discontinued operations

Decrease in cash and cash equivalents

(232.9) 

(397.9) 

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of period

1.

2.

Income (loss) from continuing operations

$(23.0)    

$  98.6    

Income from discontinued operations

Weighted average number of common shares outstanding

384.3     

375.7    

Earnings (loss) per share from continuing operations

$(0.06)    

$  0.26    

Earnings per share from discontinued operations

Income (loss) from continuing operations - diluted

$(23.0)    

$  98.6    

Income from discontinued operations

Weighted average number of common shares outstanding

384.3     

375.7    

Weighted average number of incremental shares in connection with

   restricted stock and assumed exercise of stock options

Weighted average number of common shares outstanding - diluted

384.3    

382.4    

Earnings (loss) per share from continuing operations

$(0.06)    

$  0.26    

Earnings per share from discontinued operations

Income (loss) from continuing operations

$(34.2)    

$154.7     

Income from discontinued operations

Weighted average number of common shares outstanding

383.1     

374.3     

Earnings (loss) per share from continuing operations

$(0.09)    

$  0.41     

Earnings per share from discontinued operations

Income (loss) from continuing operations - diluted

$(34.2)    

$154.7     

Income from discontinued operations

Weighted average number of common shares outstanding

383.1     

374.3     

Weighted average number of incremental shares in connection with

   restricted stock and assumed exercise of stock options

Weighted average number of common shares outstanding - diluted

383.1    

381.1     

Earnings (loss) per share from continuing operations

$(0.09)    

$  0.41     

Earnings per share from discontinued operations

(a)

The computation of diluted EPS for 2003 excludes the assumed conversion of the 1.80% and 1.87% Convertible Subordinated Notes, the conversion of restricted stock and assumed exercise of stock options because they were antidilutive. The computation of diluted EPS for 2002 excludes the assumed conversion of the 1.80% and 1.87% Convertible Subordinated Notes because they were anti-dilutive.

The 1.80% and 1.87% Convertible Subordinated Notes would have added 6.7 and 6.4 shares, respectively, to the diluted shares outstanding had they been dilutive.

(b)

Does not total due to rounding.

3.

As reported, income (loss) from continuing operations

$(23.0)        

$98.6         

Add back:

       Stock-based employee compensation expense included in

         reported net income, net of tax

5.5         

7.4         

Deduct:

       Total fair value of stock based employee

         compensation expense, net of tax

Pro forma income (loss) from continuing operations

Basic earnings (loss) per share

       As reported

$(0.06)        

$0.26         

       Pro forma

$(0.09)        

$0.24         

Diluted earnings (loss) per share

       As reported

$(0.06)        

$0.26         

       Pro forma

$(0.09)        

$0.23         

For purposes of this pro forma information, the fair value of shares under the ESPP was based on the 15% discount received by employees. The weighted-average fair value (discount) on the date of purchase for stock purchased under this plan was $1.90 and $4.32 in 2003 and 2002, respectively.

The weighted-average fair value of options granted during the three months ended June 30, 2003 and 2002 was $6.13 and $10.87, respectively. The fair value of each option grant has been estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Expected option lives

6 years       

6 years      

Risk free interest rate

2.79%       

4.74%      

Expected volatility

45.75%       

36.63%      

Dividend yield

--       

1.37%      

As reported, income (loss) from continuing operations

$ (34.2)       

$154.7         

Add back:

   Stock-based employee compensation expense included in

     reported net income, net of tax

11.3        

13.2         

Deduct:

   Total fair value of stock based employee

     compensation expense, net of tax

Pro forma income (loss) from continuing operations

Basic earnings (loss) per share

As reported

$(0.09)       

$0.41         

Pro forma

$(0.14)       

$0.36         

Diluted earnings (loss) per share

As reported

$(0.09)       

$0.41         

Pro forma

$(0.14)       

$0.36         

For purposes of this pro forma information, the fair value of shares under the ESPP was based on the 15% discount received by employees. The weighted-average fair value (discount) on the date of purchase for stock purchased under this plan was $1.70 and $4.38 in 2003 and 2002, respectively.

The weighted-average fair value of options granted during the six months ended June 30, 2003 and 2002 was $4.62 and $11.01, respectively. The fair value of each option grant has been estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Expected option lives

6 years       

6 years   

Risk free interest rate

3.34%       

4.96%   

Expected volatility

43.65%       

34.41%   

Dividend yield

--       

1.29%   

4.

Lease termination costs, net of estimated sublease income, relate to the offices that have been or will be vacated as part of the restructuring. Approximately 30 locations are to be vacated with substantially all actions to be completed by December 31, 2003; however, the cash portion of the charge will be paid out over a period of several years. The majority of the offices to be vacated are located in the US with approximately one third in overseas markets principally in Europe.

Severance and termination costs

$  15.9      

$66.0

$1.0

$21.6

$  59.3     

Lease terminations and other exit costs

          Total

5.

6.

7.

8.

9.

At June 30, 2003 the assets of the reportable segments have not changed materially from those levels reported at December 31, 2002. Summary financial information concerning the Company's reportable segments for the three months ended and six months ended June 30 is shown in the following table:

Revenue

$1,395.9      

$103.5      

$1,499.4     

Operating income (loss)

76.1      

(24.2)     

51.9     

Depreciation and amortization of fixed assets

40.4      

3.0      

43.4     

Capital expenditures

$     33.2      

$   9.3      

$    42.5     

Revenue

$1,383.2      

$107.2      

$1,490.4     

Operating income (loss)

216.5      

(3.8)     

212.7     

Depreciation and amortization of fixed assets

42.6      

4.0      

46.6     

Capital expenditures

$     29.2      

$  15.4      

$    44.6     

A reconciliation of information between reportable segments and the Company's consolidated pre-tax earnings is shown in the following table:

Total operating income for reportable segments

$  51.9 

$212.7 

Interest expense

(46.1)

(36.9)

Interest income

10.2 

8.1 

Other income

0.3 

6.6 

Investment impairment

Income before provision for income taxes

Revenue

$2,626.0 

$189.1 

$2,815.1     

Operating income (loss)

118.0 

(45.3)

72.7     

Depreciation and amortization of fixed assets

80.5 

6.4 

86.9     

Capital expenditures

$     54.9 

$  17.2 

$     72.1     

Revenue

$2,618.6 

$190.8 

$2,809.4     

Operating income

332.5 

2.2 

334.7     

Depreciation and amortization of fixed assets

83.9 

8.2 

92.1     

Capital expenditures

$     58.0 

$  19.8 

$     77.8     

A reconciliation of information between reportable segments and the Company's consolidated pre-tax earnings is shown in the following table:

Total operating income for reportable segments

$ 72.7 

$334.7 

Interest expense

(84.9)

(72.2)

Interest income

18.1 

15.0 

Other income

0.1 

6.9 

Investment impairment

Income (loss) before provision for income taxes

10.

Cash

$  48.8

$83.9

$50.4

$24.4    

$207.5

Stock

The amounts above are estimates based on the current projections as to the amount that will be paid and are subject to revisions as the earn-out periods progress.

Put and Call Options
In addition to the estimated liability for earn-outs, the Company has entered into agreements that require the Company to purchase additional equity interests in certain companies (put options). In many cases, the Company also has the option to purchase the additional equity interests (call options) in certain circumstances.

The total estimated amount of potential payments under put options is $153.6, of which $7.7 is payable in stock. Exercise of the put options would require cash payments to be made as follows:

2003

$35.8

2004

$31.9

2005

$33.0

2006 and thereafter

$45.2

The actual amount to be paid is contingent upon the achievement of projected operating performance targets and the satisfaction of other conditions as specified in the relevant agreement.

The Company also has call options to acquire additional equity interests in companies in which it already has an ownership interest. The total estimated amount of potential payments under call options is $105.8, of which $3.6 is payable in stock. Exercise of the call options would require cash payments to be made as follows:

2003

$15.7

2004

$  7.1

2005

$15.3

2006 and thereafter

$64.1

The actual amount to be paid is contingent upon the achievement of projected operating performance targets and the satisfaction of other conditions as specified in the relevant agreement.

Dispositions
On July 10, 2003, the Company completed the sale of NFO to TNS. The consideration for the sale was $415.6 in cash and approximately 11.7 million ordinary shares of TNS (which had an approximate market value of $35.4 as of July 10, 2003). The Company has agreed, subject to specified conditions, to hold half of the TNS shares until at least December 2003 and the remainder until at least March 2004. TNS will pay the Company an additional $10 in cash approximately one year following the closing of this divestiture contingent on the market price per TNS ordinary share continuing to exceed 146 pence (equivalent to approximately $2.50 at current exchange rates) during a specified averaging period one year from closing. The portion of the consideration consisting of ordinary shares of TNS will be admitted for trading on the London Stock Exchange. As a result of this sale, the Company will realize a pre-tax gain of approximately $110 ($100 net of tax) in the third quarter.

The results of NFO are classified as discontinued operations in accordance with SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" and, accordingly, the results of operations and cash flows of NFO have been removed from the Company's results of continuing operations and cash flows for all periods presented in this document.

Included in assets held for sale are accounts receivable of $94.9, prepaid expenses and other current assets of $57.4, net fixed assets of $52.0, intangible assets of $215.2 and other assets of $32.7. Included in liabilities held for sale are accounts payable of $22.8, accrued expenses of $81.8 and other liabilities of $44.4.

Income from discontinued operations consists of the following:

Pre-tax income from discontinued operations

$16.0     

$17.1     

Tax expense

     Income from discontinued operations

Pre-tax income from discontinued operations

$20.4     

$23.5     

Tax expense

     Income from discontinued operations

11.

16, 2002, the Company entered into a revolving credit facility with a syndicate of banks providing for a term of 364 days and for borrowings of up to $500.0 (the "Old 364-Day Revolving Credit Facility"). The Company replaced the Old 364-Day Revolving Credit Facility with a new 364-day revolving credit facility, which it entered into with a syndicate of banks on May 15, 2003 (the "New 364-Day Revolving Credit Facility" and, together with the Five-Year Revolving Credit Facility, the "Revolving Credit Facilities"). The New 364-Day Revolving Credit Facility provides for borrowings of up to $500.0, $200.0 of which are available to the Company for the issuance of letters of credit. The New 364-Day Revolving Credit Facility expires on May 13, 2004. However, the Company has the option to extend the maturity of amounts outstanding on the termination date under the New 364-Day Revolving Credit Facility for a period of one year, if EBITDA for the four fiscal quarters most recently ended was at least $83 1.0 (for purposes of this EBITDA calculation, only $125.0 of non-recurring restructuring charges may be added back to EBITDA). The Revolving Credit Facilities are used for general corporate purposes. As of June 30, 2003, $166.4 was utilized under the New 364-Day Revolving Credit Facility for the issuance of letters of credit and $57.6 was utilized under the Five-Year Revolving Credit Facility.

The Revolving Credit Facilities bear interest at variable rates based on either LIBOR or a bank's base rate, at the Company's option. The interest rates on base rate loans and LIBOR loans under the Revolving Credit Facilities are affected by the facilities' utilization levels and the Company's credit ratings. In connection with the New 364-Day Revolving Credit Facility, the Company agreed to new pricing under the Revolving Credit Facilities that increased the interest spread payable on loans by 25 basis points. Based on the Company's current credit ratings, interest rates on loans under the New 364-Day Revolving Credit Facility are currently calculated by adding 1.75% to either the applicable bank base rate (in the case of base rate loans) or LIBOR (in the case of LIBOR loans), and interest rates on loans under the Five-Year Revolving Credit Facility are currently calculated by adding 1.7% to these rates.

The Company's Revolving Credit Facilities include financial covenants that set (i) maximum levels of debt as a function of EBITDA, (ii) minimum levels of EBITDA as a function of interest expense and (iii) minimum levels of EBITDA (in each case, as defined in those agreements). In connection with entering into the New 364-Day Revolving Credit Facility, the definition of EBITDA in the Revolving Credit Facilities was amended to include (i) up to $161.4 of non-cash, non-recurring charges taken in the fiscal year ended December 31, 2002; (ii) up to $200.0 of non-recurring restructuring charges (up to $175.0 of which may be cash charges) taken in the fiscal quarters ended March 31, 2003, June 30, 2003 and September 30, 2003; (iii) up to $70.0 of non-cash, non-recurring charges taken with respect to the impairment of the remaining book value of the Company's Motorsports business; and (iv) all impairment charges taken with respect to capital expenditures made on or after January 1, 2003 with respect to the Company's Motorsports business, and to exclude the gain realized by the Company upon the sale of NFO. The corresponding financial covenant ratio levels in the Revolving Credit Facilities were also amended. As of June 30, 2003, the Company has recorded (i) $94.4 of restructuring charges ($88.6 of which were cash charges) and (ii) $22.1 of non-cash charges with respect to the impairment of the remaining book value of its Motorsports business. These charges counted toward the $200.0 restructuring charges and $70.0 of non-cash charges relating to Motorsports that, under the loan agreements, are allowed to be added back to the definition of EBITDA and do not adversely affect the ability of the Company to comply with its financial covenants. As explained in Note 4, it is the Company's current expectation that any charges incurred as a result of its restructuring program during periods after September 30, 2003 will be taken into account, rather than added back in the definition of EBITDA in these loan agreements, when deter mining whether the Company is in compliance with these financial covenants during these periods after September 30, 2003. Nonetheless, despite the incurrence of these restructuring charges after September 30, 2003 the Company expects to be in compliance with both its applicable financial and other covenants without having to obtain any waivers or amendments. As of June 30, 2003, the Company was in compliance with all of the covenants (including the financial covenants, as amended) contained in the Five-Year Revolving Credit Facility and the New 364-Day Revolving Credit Facility.

The terms of the Revolving Credit Facilities restrict the Company's ability to declare or pay dividends, repurchase shares of common stock, make cash acquisitions or investments and make capital expenditures, as well as the ability of the Company's domestic subsidiaries to incur additional debt. Certain of these limitations were modified upon the Company's issuance on March 13, 2003 of 4.5% Convertible Senior Notes due 2023 (the "4.5% Notes") in an aggregate principal amount of $800.0, from which the Company received net cash proceeds equal to approximately $778.0. In addition, pursuant to a tender offer that expired on April 4, 2003, the Company purchased $700.5 in aggregate principal amount at maturity of its Zero-Coupon Convertible Senior Notes due

2021 (the "Zero-Coupon Notes"). As a result of these transactions, the Company's permitted level of annual cash acquisition spending has increased to $100.0 and the permitted level of annual share buybacks and dividend payments has increased to $25.0. All limitations on dividend payments and share buybacks expire when earnings before interest, taxes, depreciation and amortization are at least $1,300.0 for four consecutive quarters. The Company's permitted level of annual capital expenditures is $175.0.

As a result of the issuance of the 4.5% Notes in the first quarter of 2003 and the settlement of the tender offer for the Zero-Coupon Notes in the second quarter of 2003, both the 4.5% Notes and the Zero-Coupon Notes were outstanding at March 31, 2003. Therefore, the Company amended the Five-Year Revolving Credit Facility and the Old 364-Day Revolving Credit Facility, as of March 13, 2003, to exclude the Zero-Coupon Notes in calculating the ratio of debt for borrowed money to consolidated EBITDA for the period ended March 31, 2003 (this exclusion is also contained in the New 364-Day Revolving Credit Facility).

Other Committed and Uncommitted Facilities
In addition to the Revolving Credit Facilities, at June 30, 2003, the Company had $50.8 of committed lines of credit, a majority of which was provided by overseas banks. At June 30, 2003, $0.04 was outstanding under these lines of credit.

At June 30, 2003 the Company also had $795.4 of uncommitted lines of credit, 70.5% of which were provided by banks that participate in the Revolving Credit Agreements. At June 30, 2003, approximately $81.5 was outstanding under these uncommitted lines of credit. The Company's uncommitted borrowings are repayable upon demand.

Prudential Agreements
On May 26, 1994, April 28, 1995, October 31, 1996, August 19, 1997 and January 21, 1999, the Company entered into five note purchase agreements, respectively, with The Prudential Insurance Company of America (the "Prudential Agreements"). The notes issued pursuant to the Prudential Agreements are repayable on May 2004, April 2005, October 2006, August 2007 and January 2009, respectively. The interest rates on these notes are 10.01%, 9.95%, 9.41%, 9.09% and 8.05%, respectively. As of June 30, 2003, $142.5 was outstanding under the notes.

The Prudential Agreements contained financial covenants that set (i) minimum levels for net worth and for cash flow as a function of borrowed funds, (ii) maximum levels of borrowed funds as a function of net worth and (iii) minimum levels of EBITDA. The most restrictive of these covenants was that of cash flow to borrowed funds. This ratio was required to exceed an amount that varied from 0.16 to 0.25 for each quarter in the applicable consecutive four-quarter period. The definitions of cash flow and consolidated net worth in the Prudential Agreements were amended as of December 31, 2002 to include up to $500.0 of non-cash, non-recurring charges taken in the fiscal year ended December 31, 2002 and the quarter ended March 31, 2003.

The Prudential Agreements contained the same restrictions on the Company's ability to declare or pay dividends, repurchase shares of common stock, make cash acquisitions or investments and make capital expenditures, as well as the ability of the Company's domestic subsidiaries to incur additional debt, as the new terms of the Revolving Credit Agreements described above.

The Company amended the Prudential Agreements, as of March 28, 2003, to exclude the Zero-Coupon Notes in calculating the ratio of total borrowed funds to cash flow for the period ended March 31, 2003. Separately, in May 2003, the ratio level for the financial covenant relating to cash flow as a function of borrowed funds was amended from 0.20 to 0.18 effective for the period ended March 31, 2003.

Due to the high interest rates on the notes issued under the Prudential Agreements and the restrictive financial covenants contained in these agreements, the Company repaid the total principal amount and interest outstanding under the Prudential Agreements on August 8, 2003, including a prepayment penalty that will result in a net charge of approximately $24.5.

12.

actions and filed an Amended Consolidated Complaint on January 10, 2003, again alleging breach of fiduciary duties to Interpublic's shareholders. The Amended Consolidated Complaint does not state a specific amount of damages. On January 27, 2003, defendants filed motions to dismiss the Consolidated Amended Complaint, and those motions are currently pending. On June 30, 2003, after the plaintiffs informed the court that they had decided to dismiss the Delaware litigation, the court entered an order dismissing the Delaware action with prejudice to plaintiffs only.

On September 4, 2002, a shareholder derivative suit was filed in New York Supreme Court, New York County, by a single shareholder acting on behalf of the Company against the Board of Directors and against the Company's auditors. This suit alleged a breach of fiduciary duties to Interpublic's shareholders. On November 26, 2002, another shareholder derivative suit, alleging the same breaches of fiduciary duties, was filed in New York Supreme Court, New York County. The plaintiffs from these two shareholder derivative suits filed an Amended Derivative Complaint on January 31, 2003. On March 18, 2003, plaintiffs filed a motion to dismiss the Amended Derivative Complaint without prejudice. On April 16, 2003, the Amended Derivative Complaint was dismissed without prejudice. On February 24, 2003, plaintiffs also filed a Shareholders' Derivative Complaint in the United States District Court for the Southern District of New York. On May 2, 2003, plaintiffs filed an Amended Derivative Complaint. This action alleges th e same breach of fiduciary duties claim as the state court actions, and adds a claim for contribution and forfeiture against two of the individual defendants pursuant to Section 21D of the Exchange Act and Section 304 of the Sarbanes-Oxley Act. The complaint does not state a specific amount of damages. On August 12, 2003, defendants moved to dismiss this action.

The Company intends to vigorously defend the actions discussed above. However, as with all litigation, these proceedings contain elements of uncertainty, and the final resolution of these actions could have a material impact on the Company's financial position, cash flows or results of operations.

Tax Matters
On April 21, 2003, the Company received a notice from the Internal Revenue Service ("IRS") proposing adjustments to the Company's taxable income that would result in additional taxes, including conforming adjustments to state and local returns, of $41.5 (plus interest) for the taxable years 1994 to 1996. The Company believes that the tax positions that the IRS has challenged comply with applicable law, and it intends to defend those positions vigorously. Although the ultimate resolution of these matters will likely require the Company to pay additional taxes, any such payments will not have a material effect on the Company's financial position, cash flows or results of operations.

SEC Investigation
The Company was informed in January 2003 by the Securities and Exchange Commission staff that the SEC has issued a formal order of investigation related to the Company's restatements of earnings for periods dating back to 1997. The matters had previously been the subject of an informal inquiry. The Company is cooperating fully with the investigation.

Other
The Company is involved in other legal and administrative proceedings of various types. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such other proceedings or claims will have a material effect on the financial condition of the Company.

13.

The following summarizes certain financial information for purposes of management's discussion and analysis:

Revenue

$1,395.9   

$103.5   

$1,499.4 

$1,383.2 

$107.2   

$1,490.4

Salaries and related expenses

829.7   

48.7   

878.4 

790.4 

48.8   

839.2

Office and general expenses

392.6   

67.0   

459.6 

375.1 

60.8   

435.9

Amortization of intangible assets

3.6   

0.5   

4.1 

1.2 

1.4   

2.6

Long-lived asset impairment

            --   

    11.0   

      11.0 

            -- 

        --   

            --

Restructuring charges

          Operating income (loss)

Some of the key factors driving the financial results in the second quarter of 2003 were:

-

Higher exchange rates for the second quarter of 2003, primarily the Euro and Sterling, reflected higher U.S. dollar revenue and expenses in comparison to the second quarter of 2002;

-

Continued softness in demand for the Company's advertising and marketing services by current clients, particularly in public relations and other project-based businesses in international markets;

-

Restructuring charges of $94.4 were recorded in the second quarter. The Company expects that the total cost of its restructuring initiatives underway will be up to approximately $200 over several periods;

-

Higher professional fees resulting from litigation matters and the SEC investigation, and the higher costs related to the Company's Motorsports business within SEG including a long-lived asset impairment charge of $11.0;

-

Higher debt financing costs resulting from the issuance of the Company's 4.5% Notes and retiring of the Company's Zero Coupon Notes; and,

-

An investment impairment charge of $9.8 was recorded in the second quarter related to unconsolidated affiliates.

As discussed in Note 10, on July 10, 2003, the Company completed the sale of NFO to TNS.

As discussed in Note 11, on August 8, 2003, the Company repaid all of its outstanding borrowings under the Prudential Agreements. This transaction required repaying $142.5 principal amount of its outstanding debt. In connection with this transaction a prepayment penalty was incurred that will result in a net charge of approximately $24.5.

REVENUE
The Company is a worldwide global marketing services company, providing clients with communications expertise in three broad areas: a) advertising and media management, b) marketing communications, which includes client relationship management (direct marketing), public relations, sales promotion, event marketing, on-line marketing, corporate and brand identity and healthcare marketing and c) specialized marketing services, which includes sports and entertainment marketing, corporate meetings and events, retail marketing and other marketing and business services.

Worldwide revenue for the three months ended June 30, 2003 was $1,499.4, an increase of $9.0 or 0.6% from the three months ended June 30, 2002. Domestic revenue, which represented 56% of revenue in the three months ended June 30, 2003, increased $13.7 or 1.7% from the same period in 2002. International revenue, which represented 44% of revenue in the three months ended June 30, 2003, decreased $4.7 or 0.7% from the same period in 2002.

International revenue would have decreased 9.6% excluding the effects of changes in foreign currency of $65.7. The increase in worldwide revenue was primarily a result of the effects of higher exchange rates offset by continued softness in the demand for advertising and marketing services by current clients due to the weak economy primarily in international markets. The components of the total revenue change of 0.6% were: impact of foreign currency changes 4.2%, net acquisitions/divestitures (0.6)%, and organic revenue decline (3.0)%. Organic changes in revenue reflect increases or decreases in net new business activity and increases or decreases in activity from existing client accounts.

OPERATING EXPENSES
Salaries and Related Expenses
The Company's expenses related to employee compensation and various employee incentive and benefit programs amount to approximately 59% of revenue for the three months ended June 30, 2003. Salaries and related expenses for the three months ended June 30, 2003 increased $39.2 or 4.7% to $878.4 compared to the three months ended June 30, 2002. The increase was primarily due to the effect of higher exchange rates for the second quarter of 2003, primarily the Euro and Sterling, in comparison to the second quarter of 2002 and higher severance expense resulting from headcount reductions. The components of the total change of 4.7% were: impact of foreign currency changes 3.9%, net acquisitions/divestitures (0.1)% and increases in salaries and related expenses from existing operations 0.9%.

Office and General Expenses
Office and general expenses were $459.6 in the three months ended in June 30, 2003 and $435.9 in the three months ended June 30, 2002, an increase of $23.7 or 5.4 %.The increase in office and general expenses was primarily due to the effects of higher exchange rates, higher professional fees (including those resulting from the litigation and SEC investigation), debt financing costs and higher costs related to the Company's Motorsports business within SEG. The components of the total change of 5.4% were: impact of foreign currency changes 4.8%, net acquisitions/divestitures (1.6)% and increases in office and general expenses from existing operations 2.2%.

Amortization of Intangible Assets
Amortization of intangible assets was $4.1 in the three months ended June 30, 2003 compared with $2.6 in the three months ended June 30, 2002. The increase was primarily due to higher identifiable intangible assets as a result of acquisitions in the past year.

Restructuring Charges
2003 Program
During the second quarter of 2003, the Company announced that it would undertake restructuring initiatives in response to softness in demand for advertising and marketing services. The restructuring initiatives include severance and lease terminations. The total amount of pre-tax charges the Company expects to incur, over several periods, is up to approximately $200.0.

In the second quarter of 2003, the Company recorded a pre-tax restructuring charge of $94.4 ($61.6 after tax). The pre-tax restructuring charge was composed of severance costs of $66.0 and lease terminations costs of $28.4. Included in the $28.4 of lease termination costs was $4.8 related to the write-off of leasehold improvements and $12.4 related to additional losses on properties vacated as part of the 2001 restructuring program. The charges related to leases terminated as part of the 2003 program are recorded at net present value and are net of estimated sublease income amounts.

The Company expects that the second quarter restructuring charge will result in cash payments of $88.6 to be paid in 2003 ($64.0), 2004 ($14.6) and 2005 and thereafter ($10.0). The Company expects that it will generate operating cost savings of approximately $50 in 2003 and approximately $100 in 2004 (and each year thereafter) in connection with the second quarter charges. Further actions in this restructuring program will be undertaken in the third and fourth quarters of 2003.

The severance and termination costs relate to a reduction in workforce of approximately 1,450 employees worldwide. The employee groups affected include all levels and functions across the Company: executive, regional and account management and administrative, creative and media production personnel. Approximately 35% of the charge relates to severance in the US, 15% to severance in the UK, 10% to severance in France with the remainder largely relating to the rest of Europe, Asia and Latin America.

Lease termination costs, net of estimated sublease income, relate to the offices that have been or will be vacated as part of the restructuring. Approximately 30 locations are to be vacated with substantially all actions to be completed by December 31, 2003; however, the cash portion of the charge will be paid out over a period of several years. The majority of the offices to be vacated are located in the US with approximately one third in overseas markets principally in Europe.

2001 Program
Following the completion of the True North acquisition in June 2001, the Company executed a wide-ranging restructuring plan that included severance, lease terminations and other actions. The total amount of the charges incurred in 2001 in connection with the plan was $634.5.

A summary of the remaining liability for restructuring charges related to the 2003 restructuring program, together with the remaining liability related to the 2001 program, is as follows:

Severance and termination costs

$  15.9      

$66.0

$1.0

$21.6

$  59.3     

Lease terminations and other exit costs

          Total

Revenue

$2,626.0   

$189.1   

$2,815.1 

$2,618.6 

$190.8   

$2,809.4

Salaries and related expenses

1,633.7   

99.4   

1,733.1 

1,566.0 

94.9   

1,660.9

Office and general expenses

774.2   

111.3   

885.5 

717.5 

91.9   

809.4

Amortization of intangible assets

6.2   

1.1   

7.3 

2.6 

1.8   

4.4

Long-lived asset impairment

            --   

    22.1   

      22.1 

            -- 

        --   

            --

Restructuring charges

          Operating income (loss)

acquisitions/divestitures (0.2)%, and organic revenue decline (3.8)%. Organic changes in revenue reflect increases or decreases in net new business activity and increases or decreases in activity from existing client accounts.

OPERATING EXPENSES
Salaries And Related Expenses
The Company's expenses related to employee compensation and various employee incentive and benefit programs amount to approximately 62% of revenue for the first six months ended June 30, 2003. Salaries and related expenses for the six months ended June 2003 increased $72.2 or 4.3% to $1,733.1 compared to the six months ended June 30, 2002. The increase was primarily due to the effect of higher exchange rates and higher severance costs resulting from a reduction in headcount, which was reduced to 44,500 at June 30, 2003 compared with 46,900 at December 31, 2002 and 48,400 at June 30, 2002. The components of the total change of 4.3% were: impact of foreign currency changes 4.3%, net acquisitions/divestitures (0.1) % and increases in salaries and related expenses from existing operations 0.1%.

Office and General Expenses
Office and general expenses were $885.5 in the six months ended in June 30, 2003 and $809.4 in the six months ended June 30, 2002, an increase of $76.1 or 9.4 %.The increase in office and general expenses was primarily due to the effects of higher exchange rates, higher professional fees resulting from the litigation and SEC investigation, debt financing costs and higher costs related to the Company's Motorsports business within SEG. The components of the total change of 9.4% were: impact of foreign currency changes 5.0%, net acquisitions/divestitures (1.0)% and increases in office and general expenses from existing operations 5.4%.

Amortization of Intangible Assets
Amortization of intangible assets was $7.3 in the six months ended June 30, 2003 compared with $4.4 in the first six months of 2002. The increase was primarily due to higher identifiable intangible assets as a result of acquisitions in the past year.

Restructuring Charges
See "Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002" for discussion of restructuring charges.

Long-Lived Asset Impairment
During the six months ended June 30, 2003, the Company recorded charges of $22.1 related to the impairment of long-lived assets at its Motorsports business. This amount includes $12.7 of current capital expenditure outlays that the Company is contractually required to spend to upgrade and maintain certain of its existing racing facilities, as well as an impairment of assets at other Motorsports entities.

OTHER INCOME (EXPENSE)
Interest Expense
Interest expense was $84.9 in the first six months of 2003 compared with $72.2 in the first six months of 2002. The increase was a result of the issuance of $800 4.5% Notes on March 13, 2003. These proceeds were invested until early April, at which time the proceeds were used for the settlement of the tender offer for the Zero-Coupon Notes.

Interest Income
Interest income was $18.1 for the six months of 2003 compared with $15.0 in the same period of 2002. The increase in 2003 is primarily due to the higher cash balances resulting from the issuance of the 4.5% Notes.

Other Income (Expense)
Other income (expense) primarily consists of investment income, gains (losses) from the sale of businesses and gains (losses) from the sale of investments, primarily marketable securities classified as available-for-sale. Other income was $0.1 for the first six months of 2003 compared with income of $6.9 for the first six months of 2002. Included in the first six months of 2002 was a gain on the sale of an advertising business in the US.

respect to the impairment of the remaining book value of its Motorsports business. These charges counted toward the $200.0 restructuring charges and $70.0 of non-cash charges relating to Motorsports that, under the loan agreements, are allowed to be added back to the definition of EBITDA and do not adversely affect the ability of the Company to comply with its financial covenants. As explained in Note 4, it is the Company's current expectation that any charges incurred as a result of its restructuring program during periods after September 30, 2003 will be taken into account, rather than added back in the definition of EBITDA in these loan agreements, when determining whether the Company is in compliance with these financial covenants during these periods after September 30, 2003. Nonetheless, despite the incurrence of these restructuring charges after September 30, 2003 the Company expects to be in compliance with both its applicable financial and other covenants without having to obtain any waivers or amendments. As of June 30, 2003, the Company was in compliance with all of the covenants (including the financial covenants, as amended) contained in the Five-Year Revolving Credit Facility and the New 364-Day Revolving Credit Facility.

The terms of the Revolving Credit Facilities restrict the Company's ability to declare or pay dividends, repurchase shares of common stock, make cash acquisitions or investments and make capital expenditures, as well as the ability of the Company's domestic subsidiaries to incur additional debt. Certain of these limitations were modified upon the Company's issuance on March 13, 2003 of 4.5% Convertible Senior Notes due 2023 (the "4.5% Notes") in an aggregate principal amount of $800.0, from which the Company received net cash proceeds equal to approximately $778.0. In addition, pursuant to a tender offer that expired on April 4, 2003, the Company purchased $700.5 in aggregate principal amount at maturity of its Zero-Coupon Convertible Senior Notes due 2021 (the "Zero-Coupon Notes"). As a result of these transactions, the Company's permitted level of annual cash acquisition spending has increased to $100.0 and the permitted level of annual share buybacks and dividend payments has increased to $25.0. All limit ations on dividend payments and share buybacks expire when earnings before interest, taxes, depreciation and amortization are at least $1,300.0 for four consecutive quarters. The Company's permitted level of annual capital expenditures is $175.0.

As a result of the issuance of the 4.5% Notes in the first quarter of 2003 and the settlement of the tender offer for the Zero-Coupon Notes in the second quarter of 2003, both the 4.5% Notes and the Zero-Coupon Notes were outstanding at March 31, 2003. Therefore, the Company amended the Five-Year Revolving Credit Facility and the Old 364-Day Revolving Credit Facility, as of March 13, 2003, to exclude the Zero-Coupon Notes in calculating the ratio of debt for borrowed money to consolidated EBITDA for the period ended March 31, 2003 (this exclusion is also contained in the New 364-Day Revolving Credit Facility).

Other Committed and Uncommitted Facilities
In addition to the Revolving Credit Facilities, at June 30, 2003, the Company had $50.8 of committed lines of credit, a majority of which was provided by overseas banks. At June 30, 2003, $0.04 was outstanding under these lines of credit.

At June 30, 2003 the Company also had $795.4 of uncommitted lines of credit, 70.5% of which were provided by banks that participate in the Revolving Credit Agreements. At June 30, 2003, approximately $81.5 was outstanding under these uncommitted lines of credit. The Company's uncommitted borrowings are repayable upon demand.

Prudential Agreements
On May 26, 1994, April 28, 1995, October 31, 1996, August 19, 1997 and January 21, 1999, the Company entered into five note purchase agreements, respectively, with The Prudential Insurance Company of America (the "Prudential Agreements"). The notes issued pursuant to the Prudential Agreements are repayable on May 2004, April 2005, October 2006, August 2007 and January 2009, respectively. The interest rates on these notes are 10.01%, 9.95%, 9.41%, 9.09% and 8.05%, respectively. As of June 30, 2003, $142.5 was outstanding under the notes.

The Prudential Agreements contained financial covenants that set (i) minimum levels for net worth and for cash flow as a function of borrowed funds, (ii) maximum levels of borrowed funds as a function of net worth and (iii) minimum levels of EBITDA. The most restrictive of these covenants was that of cash flow to borrowed funds. This ratio was required to exceed an amount that varies from 0.16 to 0.25 for each quarter in the applicable consecutive four-quarter period. The definitions of cash flow and consolidated net worth in the Prudential Agreements were amended as of December 31, 2002 to include up to $500.0 of non-cash, non-recurring charges taken in the fiscal year ended December 31, 2002 and the quarter ended March 31, 2003.

The Prudential Agreements contained the same restrictions on the Company's ability to declare or pay dividends, repurchase shares of common stock, make cash acquisitions or investments and make capital expenditures, as well as the ability of the Company's domestic subsidiaries to incur additional debt, as the new terms of the Revolving Credit Agreements described above.

The Company amended the Prudential Agreements, as of March 28, 2003, to exclude the Zero-Coupon Notes in calculating the ratio of total borrowed funds to cash flow for the period ended March 31, 2003. Separately, in May 2003, the ratio level for the financial covenant relating to cash flow as a function of borrowed funds was amended from 0.20 to 0.18 effective for the period ended March 31, 2003.

Due to the high interest rates on the notes issued under the Prudential Agreements and the restrictive financial covenants contained in these agreements, the Company repaid the total principal amount and interest outstanding under the Prudential Agreements on August 8, 2003, including a prepayment penalty that will result in a net charge of approximately $24.5.

Other Debt Instruments-- Convertible Senior Notes - 4.5%
In March 2003, the Company completed the issuance and sale of $800 aggregate principal amount of the 4.5% Notes. In April 2003, the Company used $581.3 of the net proceeds of this offering to repurchase the Zero-Coupon Notes tendered in its concurrent tender offer and will use the remaining proceeds for the repayment of other indebtedness, general corporate purposes and working capital. The 4.5% Notes are unsecured, senior securities that may be converted into common shares if the price of the Company's common stock reaches a specified threshold, at an initial conversion rate of 80.5153 shares per one thousand dollars principal amount, equal to a conversion price of $12.42 per share, subject to adjustment. This threshold will initially be 120% of the conversion price and will decline 1/2% each year until it reaches 110% at maturity in 2023.

The 4.5% Notes may also be converted, regardless of the price of the Company's common stock, if: (i) the credit ratings assigned to the 4.5% Notes by any two of Moody's Investors Service, Inc., Standard & Poor's Ratings Services and Fitch Ratings are lower than Ba2, BB and BB, respectively, or the 4.5% Notes are no longer rated by at least two of these ratings services, (ii) the Company calls the 4.5% Notes for redemption, (iii) the Company makes specified distributions to shareholders or (iv) the Company becomes a party to a consolidation, merger or binding share exchange pursuant to which its common stock would be converted into cash or property (other than securities).

The Company, at the investor's option, may be required to redeem the 4.5% Notes for cash on March 15, 2008. The Company may also be required to redeem the 4.5% Notes at the investor's option on March 15, 2013 and March 15, 2018, for cash or common stock or a combination of both, at the Company's election. Additionally, investors may require the Company to redeem the 4.5% Notes in the event of certain change of control events that occur prior to May 15, 2008, for cash or common stock or a combination of both, at the Company's election. The Company at its option may redeem the 4.5% Notes on or after May 15, 2008 for cash. The redemption price in each of these instances will be 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any.

If at any time on or after March 13, 2003 the Company pays cash dividends on its common stock, the Company will pay contingent interest per 4.5% Note in an amount equal to 100% of the per share cash dividend paid on the common stock multiplied by the number of shares of common stock issuable upon conversion of a 4.5% Note.

Other
On March 7, 2003, Standard & Poor's Ratings Services downgraded the Company's senior secured credit rating to BB+ with negative outlook from BBB-. On May 14, 2003, Fitch Ratings downgraded the Company's senior unsecured credit rating to BB+ with negative outlook from BBB-. The remaining senior unsecured credit rating is Baa3 with stable outlook; however, as reported by Moody's Investors Services, Inc., on May 8, 2003, this rating was placed on review for possible downgrade.

Since July 2001, the Company has not repurchased its common stock in the open market.

Through December 2002, the Company had paid cash dividends quarterly with the most recent quarterly dividend paid in December 2002 at a rate of $0.095 per share. The determination of dividend payments is made by the Company's Board of Directors on a quarterly basis. However, as previously discussed, the Company's ability to declare or pay dividends is currently restricted by new terms of its Revolving Credit Facilities, and the Company has not declared or paid a dividend in the second quarter of 2003.

The Company believes that cash flow from operations, proceeds from the sale of NFO, together with its availability under existing lines of credit and expected refinancings thereof and cash on hand, will be sufficient to fund the Company's working capital needs (including disbursements related to its ongoing restructuring program) and other obligations for the next twelve months. In the event additional funds are required, the Company believes it will have sufficient resources, including borrowing capacity and access to capital markets, to meet such requirements. Unanticipated decreases in cash flow from operations as a result of decreased demand for our services and other developments may require the Company to seek other sources of liquidity (including the disposition of certain assets) and modify its operating strategies.

Subsequent Events
Sale of NFO
As discussed in Note 10, on July 10, 2003, the Company completed the sale of NFO to TNS.

Repayment of Debt
As discussed in Note 11, on August 8, 2003, the Company repaid all of its outstanding borrowings under the Prudential Agreements. This transaction required repaying $142.5 principal amount of its outstanding debt. In connection with this transaction a prepayment penalty that will result in a net charge of approximately $24.5.

Acquisitions, Dispositions and Deferred Payments
Acquisitions
During the first six months of 2003, the Company completed two acquisitions for $4.0 in cash. Additionally, the Company paid $24.3 in cash and $3.2 in stock for additional ownership interests in companies in which a previous investment had been made.

During the first six months of 2002, the Company completed seven acquisitions for $39.8 in cash and $1.1 in stock. Additionally, the Company paid $2.0 in cash and $0.8 in stock for additional ownership interests in companies in which a previous investment had been made.

Deferred Payments
During the first six months of 2003, the Company paid $113.9 in cash and $37.7 in stock as deferred payments on acquisitions that had closed in prior years. During the first six months of 2002, the Company paid $162.2 in cash and $42.5 in stock as deferred payments on acquisitions that had closed in prior years.

Deferred payments (or "earn-outs") generally tie the aggregate price ultimately paid for an acquisition to its performance and are recorded as an increase to goodwill and other intangibles.

As of June 30, 2003, the Company's estimated liability for earn-outs is as follows:

Cash

$  48.8

$83.9

$50.4

$24.4    

$207.5

Stock

The amounts above are estimates based on the current projections as to the amount that will be paid and are subject to revisions as the earn-out periods progress.

2003

$35.8

2004

$31.9

2005

$33.0

2006 and thereafter

$45.2

The actual amount to be paid is contingent upon the achievement of projected operating performance targets and to the satisfaction of other conditions as specified in the relevant agreement.

The Company also has call options to acquire additional equity interests in companies in which it already has an ownership interest. The total estimated amount of potential payments under call options is $105.8, of which $3.6 is payable in stock. Exercise of the call options would require cash payments to be made as follows:

2003

$15.7

2004

$  7.1

2005

$15.3