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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-K



x    ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2003



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from              to



Commission file number 000-29723



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DIGITAS INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 04-3494311                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|                                                                                   |  |           
|---------------------------------------------------------------------------------- |  | ----------
|The Prudential Tower                                                               |  | 02199     
|800 Boylston Street Boston, Massachusetts (Address of principal executive offices) |  | (Zip Code)



(617) 867-1000

(Registrants Telephone Number, Including Area Code)



Securities Registered Pursuant to Section 12(b) of The Act: None



Securities Registered Pursuant to Section 12(g) of The Act:



Common Stock, $.01 Par Value Per Share

(Title of Each Class)



---



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 if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ̈



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2).    Yes  x    No ̈



The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant, based upon the closing sale price of $5.01 on the Nasdaq National Market on June 30, 2003 was $125,979,686.



As of February 27, 2004, 63,521,394 shares of the Registrants Common Stock were issued and outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the definitive proxy statement relating to the Registrants
Annual Meeting of Stockholders to be held on May 13, 2004 are incorporated by reference into Part III of this report to the extent described therein.



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TABLE OF CONTENTS



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|         |  |                                                                                      
|         |  | PART I                                                                                |  |     
|         |  |                                                                                      
|ITEM 1.  |  | BUSINESS                                                                              |  | 3   
|         |  |                                                                                      
|ITEM 2.  |  | PROPERTIES                                                                            |  | 6   
|         |  |                                                                                      
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 7   
|         |  |                                                                                      
|         |  | PART II                                                                               |  |     
|         |  |                                                                                      
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 7   
|         |  |                                                                                      
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |  | 7   
|         |  |                                                                                      
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                               |  | 8   
|         |  |                                                                                      
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 9   
|         |  |                                                                                      
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                             |  | 26  
|         |  |                                                                                      
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 26  
|         |  |                                                                                      
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 27  
|         |  |                                                                                      
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                               |  | 27  
|         |  |                                                                                      
|         |  | PART III                                                                              |  |     
|         |  |                                                                                      
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                                        |  | 28  
|         |  |                                                                                      
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                |  | 28  
|         |  |                                                                                      
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 28  
|         |  |                                                                                      
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 28  
|         |  |                                                                                      
|ITEM 14. |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                |  | 28  
|         |  |                                                                                      
|         |  | PART IV                                                                               |  |     
|         |  |                                                                                      
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                       |  | 28  



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FORWARD-LOOKING STATEMENTS



THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. YOU CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS MAY, WILL, EXPECT, ANTICIPATE, BELIEVE,
ESTIMATE, AND CONTINUE OR SIMILAR WORDS. YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE THEY DISCUSS OUR FUTURE EXPECTATIONS, CONTAIN PROJECTIONS OF OUR FUTURE RESULTS OF OPERATIONS OR OF OUR FINANCIAL
CONDITION, OR STATE OTHER FORWARD LOOKING INFORMATION. WE BELIEVE THAT IT IS IMPORTANT TO COMMUNICATE OUR FUTURE EXPECTATIONS TO OUR INVESTORS. HOWEVER, THERE MAY BE EVENTS IN THE FUTURE THAT WE ARE NOT ABLE TO ACCURATELY PREDICT OR
CONTROL AND THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS WE DESCRIBE IN OUR FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE DISCUSSED AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE FACTORS DESCRIBED IN RISK FACTORS AND IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS BEGINNING ON PAGE 20. READERS SHOULD NOT PLACE UNDUE
RELIANCE ON OUR FORWARD-LOOKING STATEMENTS, AND DIGITAS ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS.



PART I



Item 1.Business



Overview



Digitas Inc., a Delaware corporation organized in 1999
(Digitas), is a relationship marketing services provider offering strategy and technology enablement and marketing agency services. Serving many of the worlds leading companies, Digitas helps clients attract, retain and grow the
most profitable customer relationships in their industries. Digitas clients include American Express, AOL, AT&T, Delta Air Lines, and General Motors. Headquartered in Boston, Digitas employs more than 1,100 people and has offices in New York,
San Francisco, Chicago and London.



Digitas maintains a website
on the World Wide Web at www.digitas.com. Digitas makes available, free of charge, through its website its annual report on the Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including exhibits thereto, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Digitas
reports filed with, or furnished to, the SEC are also available at the SECs website at www.sec.gov. You may also obtain copies of any of Digitas reports filed with, or furnished to, the SEC, free of charge, at the SECs
public reference room at 450 Fifth Street, NW, Washington, DC 20549.



The
Digitas Approach



Digitas provides marketing and
enablement services that help its clients to maximize the value of their customer bases. We believe in the power of personalized and contextual marketing to create long-term and valuable customer relationships. Digitas builds multi-channel programs
for clients that drive market share gains through quantitative and qualitative improvements in their customer relationships. Our skill in performance measurement and use of that information allow us to continue to evolve and improve our programs and
achieve measurable results for our clients.



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We take an aggressive approach in reviewing our clients businesses thoroughly to solve their
challenges. We consider our clients competitive positions, their existing assets and brand strengths, as well as their broad organizations and cultures before recommending solutions. We partner with our clients to create long-standing
marketing, acquisition, loyalty and retention engines.



Digitas approach is highly disciplined, results-oriented, and combines enablement and execution to support our clients efforts to manage their customer relationships more effectively. Within enablement, our approach includes
designing customer relationship strategies to optimize marketing investments, and building new technology infrastructure to improve the productivity of our marketing programs. Within agency services, we provide services for designing and executing
communications programs across all channels.



Enablement: We
analyze a clients customer base to find unrealized value and then design targeted customer experiences across multiple marketing channels to recognize that value. Through testing and measurement we synthesize recommendations for the best
possible marketing investment and channel communication mix. It is the combination of top-down analysis of the economic opportunities and bottom-up customer and data insights that makes it possible for us to propose initiatives, which improve
in-market performance while also supporting long-term strategies to increase the profitability of our clients customer relationships.



Recent technology advances have revolutionized the way companies and their customers interact. There are many new channels through which communication and
customer transaction is possible. Customers expect companies to know and understand their behavior across these multiple channels. We help our clients by determining which technology solutions will have the greatest impact on their marketing
programs. Enabling technology platforms that drive multi-channel communication and relationship data management, we build e-commerce platforms to bring retailers online; build applications to enable communication over wireless devices; and, build
call center platforms to enable one-to-one voice communication. Digitas helps clients build the marketing engines required to manage customer relationships over these multiple channels.



Agency Services: We build integrated marketing campaigns and communication programs focused on acquiring, retaining, and
growing customer relationships. Creating consistent customer experiencesregardless of the communication channeland combining customer data sets in new ways, we get a better understanding of customer needs, attitudes and behaviors. This,
along with primary research, helps us determine which marketing channels customers should use to fulfill their needs, and what decisions they should make as they buy. Using these insights, we design marketing programs that are delivered to the right
customers at the right time in the right place. We work across all channels including Internet, wireless, direct mail, print, direct TV, call centers and live events.



Clients, Marketing and Sales



Digitas relationship managers are primarily responsible for marketing and sales efforts. These members of our senior management team are directly involved
and embedded in client engagements and marketing efforts. Additionally, Digitas relies on its strong reputation, quality client base and proven results to grow existing clients and develop new client relationships.



Digitas develops long-term strategic relationships primarily with blue-chip
companies whose principal assets include leadership brands and customer bases. Digitas seeks to work with companies operating in industries in which the economics of customer loyalty are most compelling, thereby providing us with the greatest
opportunity to impact market share and return on customer base investments. These industries include financial services, media and entertainment, travel-related services, healthcare and pharmaceuticals, business products and services, consumer
services, technology and telecommunications and consumer products.



Our results of operations and our business depend on our relationships with a limited number of large clients. For 2003, our three largest clients, General Motors, American Express and AT&T, collectively accounted



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for approximately 55% of our fee revenue, and our largest client, General Motors, accounted for approximately 23% of our fee revenue. Our top ten clients
accounted for approximately 80% of our 2003 fee revenue.



Competition



We compete with companies that offer strategic
consulting, web design, advertising and direct marketing, information technology and e-commerce services, as well as the in-house development efforts of many companies. Our current competitors include the following:



| |  | strategic consulting firms such as Bain & Company, Boston Consulting Group, Braun Consulting and McKinsey & Company;
| | - | --------------------------------------------------------------------------------------------------------------------



| |  | advertising and direct marketing agencies such as Ogilvy One, Modem Media, and Wunderman;
| | - | -----------------------------------------------------------------------------------------



| |  | customer relationship management units of systems integrators such as Accenture, Cap Gemini, PricewaterhouseCoopers, Sapient, and IBM Global Services;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | internal information technology departments of current and potential clients; and
| | - | ---------------------------------------------------------------------------------



| |  | e-commerce and technology service providers.
| | - | --------------------------------------------



Because relatively low barriers to entry characterize our industry, we also expect other companies to enter our market.



We believe that the principal competitive factors in our industry are:



| |  | quality of services;
| | - | --------------------



| |  | technical and strategic expertise;
| | - | ----------------------------------



| |  | ability to provide end-to-end solutions;
| | - | ----------------------------------------



| |  | speed of development and implementation of integrated solutions;
| | - | ----------------------------------------------------------------



| |  | value of the services provided compared to the price of these services;
| | - | -----------------------------------------------------------------------



| |  | reputation and experience of professionals delivering the service;
| | - | ------------------------------------------------------------------



| |  | project management capabilities;
| | - | --------------------------------



| |  | brand recognition and size of the firm;
| | - | ---------------------------------------



| |  | effectiveness of sales and marketing efforts; and
| | - | -------------------------------------------------



| |  | financial stability.
| | - | --------------------



We believe that we compete favorably with respect to most of these factors. In particular, we believe that we offer an integrated set of skills and expertise that many existing service providers are not well suited to
provide.



People and Culture



Our culture reflects the core values of our people. Our people are our
single greatest asset and the key to reaching our company-wide goal to be the undisputed industry leader. Our employees are often characterized as being one with the client, experts inspiring experts and the best
getting better. In furtherance of this mission, our employees collaborate to apply their creativity in the conception, design, and implementation of innovative client solutions. Our formal training program emphasizes improvement of individual
skills as well as optimization of team performance. Our knowledge management infrastructure and processes are designed to ensure that best practices and thinking are shared and leveraged globally to the extent permitted. We have a competency-based
performance management process that encourages frequent, actionable feedback and ensures



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that all employees have specific, measurable goals and are supported in developing skills and knowledge. The end result is a dynamic and rewarding work
environment for our people.



To preserve this culture and
uphold the high standard of quality work that we have set, we must continue to attract and retain qualified individuals with superior strategic, creative, technological and management skills to meet the ongoing demands for our services. To this end,
we have a dedicated recruiting team that utilizes various methods, including an internal referral bonus program, to attract the most talented and promising professionals.



We provide our employees with a competitive base salary, performance driven incentive programs, stock-based incentives and
comprehensive benefits packages. Employees are rewarded for team performance, as well as individual contribution to client success, people development, intellectual capital, and corporate citizenship. For many of our employees, however, a
significant attraction is being part of a winning team that applies industry-leading expertise to help transform businesses to be the best in their industries.



Employees



As of December 31, 2003, we had approximately 1,120 employees, approximately 1,085 of whom were located in the United States. As of December 31, 2003, we
had approximately 930 billable employees and 190 corporate and administrative non-billable employees. Our employees are not represented by any union and, except for senior management and certain other employees, are retained on an at-will basis.



Intellectual Property Rights



We seek to protect our intellectual property through a combination of
license agreements and trademark, service mark, copyright, patent and trade secret laws. We enter into confidentiality agreements with our employees, vendors and clients and use our best efforts to limit access to and distribution of proprietary
information licensed from third parties. We pursue the protection of our trademarks in the United States and internationally. Our efforts to protect our intellectual property rights could be inadequate to deter misappropriation of proprietary
information. For example, we may not detect unauthorized use of our intellectual property.



U.S. and Foreign Government Regulation



Regulation of various aspects of the Internet and emerging technologies, including on-line content, advertising methods, copyright infringement, user privacy, taxation, access charges, liability for third-party
activities and jurisdiction, has increased. In addition, federal, state, local and foreign governmental organizations also are considering, and may consider in the future, other legislative and regulatory proposals that would regulate the Internet
and emerging technologies. Areas of potential regulation include libel, pricing, quality of products and services and intellectual property ownership.



The European Union and European Commission have adopted directives to address the regulation of privacy, e-commerce, security, commercial piracy, consumer
protection, taxation of transactions completed over the Internet and the spread of illegal and socially harmful materials over the Internet.



It is not known how courts will interpret both existing and new laws. Therefore, we are uncertain as to how new laws or the application of existing laws
will affect our business. In addition, our business may be indirectly affected by our clients who may be subject to such legislation.



Item 2.Properties



Our headquarters and principal administrative and finance operations are located in leased facilities in Boston, Massachusetts consisting of approximately 325,000 square feet of office space. The leases for the Boston



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office space expire in November and December 2005. We lease approximately 132,000 square feet of office space in New York City. The New York City lease
expires in March 2011. We also lease office space totaling approximately 143,000 square feet, primarily in San Francisco, Chicago, Miami, and London. Of the approximately 600,000 total square feet that we lease, we determined we had approximately
300,000 square feet as excess space. Approximately 70,000 square feet identified as excess space remains available for sublease. We are actively pursuing and evaluating our alternatives with respect to our excess office space. A discussion of our
restructuring activities with respect to excess space is included in Item 7 of this annual report on Form 10-K.



Item 3.Legal Proceedings



From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of our business. We believe we are not currently a party to any such claims or proceedings, which, if
decided adversely to us, would either individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.



The Company is a party to stockholder class action law suits filed in the United States District Court for the Southern
District of New York. Between June 26, 2001 and August 16, 2001, several stockholder class action complaints were filed in the United States District Court for the Southern District of New York against the Company, several of its officers and
directors, and five underwriters of its initial public offering (the Offering). The purported class actions are all brought on behalf of purchasers of the Companys common stock since March 13, 2000, the date of the Offering. The
plaintiffs allege, among other things, that the Companys prospectus, incorporated in the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, was materially false and misleading because it failed to disclose
that the underwriters had engaged in conduct designed to result in undisclosed and excessive underwriters compensation in the form of increased brokerage commissions and also that this alleged conduct of the underwriters artificially inflated
the Companys stock price in the period after the Offering. The plaintiffs claim violations of Sections 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder by the Securities and Exchange Commission and seek, among other things, damages, statutory compensation and costs of litigation. Effective October 9, 2002, the claims against the Companys officers and directors were dismissed
without prejudice. Effective February 19, 2003, the Section 10(b) claim against the Company was dismissed. The terms of a settlement have been tentatively reached between the plaintiffs in the suits and most of the defendants, including the Company,
with respect to the remaining claims. If completed and if then approved by the court, the settlement would dismiss those claims against the Company and is expected to result in no material liability to it. The Company believes that the claims
against it are without merit and, if they are not dismissed as part of a settlement, intends to defend them vigorously. Management currently believes that resolving these matters will not have a material adverse impact on the Companys
financial position or its results of operations, however, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of these actions.



PART II



Item 4.Submission of Matters to a Vote of Security Holders



No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year
covered by this report.



Item 5.Market for Registrants Common Equity and Related Stockholder Matters



Market information. Our common stock is traded on the Nasdaq National Market under the symbol DTAS. As of February 27, 2004, there were
144 stockholders of record. The following table sets forth high and



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low reported sales prices for the common stock for each fiscal quarter from January 1, 2002 through March 12, 2004.



|                                     |  |      |       |     |   |     
|------------------------------------ |  | ---- | ----- | --- | - | ----
|                                     |  | High |       | Low
|2002                                 |  |      |       |     |   |     
|1st Quarter                          |  | $    | 6.10  |     | $ | 3.54
|2nd Quarter                          |  | $    | 5.60  |     | $ | 2.86
|3rd Quarter                          |  | $    | 4.98  |     | $ | 2.00
|4th Quarter                          |  | $    | 4.19  |     | $ | 2.19
|2003                                 |  |      |       |     |   |     
|1st Quarter                          |  | $    | 4.30  |     | $ | 2.99
|2nd Quarter                          |  | $    | 5.75  |     | $ | 3.16
|3rd Quarter                          |  | $    | 7.99  |     | $ | 5.01
|4th Quarter                          |  | $    | 10.78 |     | $ | 7.05
|2004                                 |  |      |       |     |   |     
|1st Quarter (through March 12, 2004) |  | $    | 13.24 |     | $ | 8.97



Dividend
policy. We have never declared or paid cash dividends on our common stock. Any future determination as to the payment of dividends will depend upon capital requirements and limitations imposed by our credit agreements, if any, and such other
factors as our Board of Directors may consider.



Equity
compensation plan information. The following table sets forth information regarding securities authorized for issuance under Digitas equity compensation plans as of December 31, 2003, including the Companys 1998 Stock Option Plan
(the 1998 Plan), 1999 Stock Option Plan (the 1999 Plan) and 2000 Stock Option and Incentive Plan (the 2000 Plan), and the Companys 2000 Employee Stock Purchase Plan (the ESPP).



|                                                           |  |                                                                                          |  |                                                                          |  |                                                                                                                                       
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------
|Equity Compensation Plan Information                      
|Plan category                                              |  | Number of securities tobe issued upon exerciseof outstanding options,warrants and rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |  | Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in
column (a))
|                                                           |  | (a)                                                                                      |  | (b)                                                                      |  | (c)                                                                                                                                   
|Equity compensation plans approved by security holders     |  | 25,722,2941                                                                              |  | 3.82                                                                     |  | 16,284,0992                                                                                                                           
|Equity compensation plans not approved by security holders |  |                                                                                         |  |                                                                         |  |                                                                                                                                      
|                                                           |  |                                                                                          |  |                                                                          |  |                                                                                                                                       
|Total                                                      |  | 25,722,294                                                                               |  | 3.82                                                                     |  | 16,284,099                                                                                                                            
|                                                           |  |                                                                                          |  |                                                                          |  |                                                                                                                                       

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|1 | Includes options outstanding under the 1998 Plan, the 1999 Plan and the 2000 Plan.
|- | ----------------------------------------------------------------------------------

|2 | Includes shares available for future issuance under the 1998 Plan, the 1999 Plan, the 2000 Plan and the ESPP.
|- | -------------------------------------------------------------------------------------------------------------



Item 6.Selected Financial Data



The following table sets forth selected financial data and other operating information of Digitas. The selected statement of operations and balance sheet data for 2003, 2002, 2001, 2000 and 1999 as set forth below is
derived from the audited financial statements of Digitas. The information is only a summary and should be read in conjunction with Digitas audited financial statements and related notes and other financial information included herein and
Managements Discussion and Analysis of Financial Condition and Results of Operations.



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|                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                             |  | Year Ended December 31,               |        
|                                             |  | 2003                                  |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|                                             |  | (in thousands, except per share data) |        
|STATEMENT OF OPERATIONS DATA:                |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Revenue:                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Fee revenue                                  |  | $                                     | 209,470 |   |      | $ | 203,931 |      |  | $ | 235,514 |   |  | $    | 288,154 |   |  | $ | 187,007 |  
|Pass-through revenue                         |  |                                       | 102,343 |   |      |   | 117,093 |      |  |   | 99,781  |   |  |      | 126,590 |   |  |   | 101,480 |  
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenue                                |  |                                       | 311,813 |   |      |   | 321,024 |      |  |   | 335,295 |   |  |      | 414,744 |   |  |   | 288,487 |  
|                                             |  |                                       |         |   |     
|Operating expenses:                          |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Professional services costs                  |  |                                       | 122,752 |   |      |   | 120,430 |      |  |   | 157,694 |   |  |      | 158,607 |   |  |   | 102,247 |  
|Pass-through expenses                        |  |                                       | 102,343 |   |      |   | 117,093 |      |  |   | 99,781  |   |  |      | 126,590 |   |  |   | 101,480 |  
|Selling, general and administrative expenses |  |                                       | 65,755  |   |      |   | 67,748  |      |  |   | 95,545  |   |  |      | 99,366  |   |  |   | 67,048  |  
|Stock-based compensation                     |  |                                       | 7,451   |   |      |   | 8,447   |      |  |   | 10,147  |   |  |      | 14,796  |   |  |   | 10,743  |  
|Amortization of intangible assets            |  |                                       | 706     |   |      |   | 706     |      |  |   | 25,238  |   |  |      | 36,687  |   |  |   | 36,688  |  
|Restructuring expenses (income), net         |  |                                       | (4,109  | ) |      |   | 47,114  |      |  |   | 41,888  |   |  |      |        |   |  |   |        |  
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total operating expenses                     |  |                                       | 294,898 |   |      |   | 361,538 |      |  |   | 430,293 |   |  |      | 436,046 |   |  |   | 318,206 |  
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                             |  |                                       |         |   |     
|Income (loss) from operations                |  |                                       | 16,915  |   |      |   | (40,514 | )    |  |   | (94,998 | ) |  |      | (21,302 | ) |  |   | (29,719 | )
|                                             |  |                                       |         |   |     
|Other income (expense), net                  |  |                                       | 161     |   |      |   | 414     |      |  |   | 1,058   |   |  |      | (308    | ) |  |   | (7,281  | )
|Provision for income taxes                   |  |                                       | (217    | ) |      |   | (200    | )    |  |   | (148    | ) |  |      | (1,616  | ) |  |   | (567    | )
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                            |  | $                                     | 16,859  |   |      | $ | (40,300 | )    |  | $ | (94,088 | ) |  | $    | (23,226 | ) |  | $ | (37,567 | )
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss) per sharebasic            |  | $                                     | 0.28    |   |      | $ | (0.65   | )    |  | $ | (1.58   | ) |  | $    | (0.41   | ) |  | $ | (0.74   | )
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss) per sharediluted          |  | $                                     | 0.24    |   |      | $ | (0.65   | )    |  | $ | (1.58   | ) |  | $    | (0.41   | ) |  | $ | (0.74   | )
|                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                             |  |                                       |         |   |     
|Weighted average common shares outstanding   |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic                                        |  |                                       | 60,754  |   |      |   | 62,354  |      |  |   | 59,514  |   |  |      | 56,230  |   |  |   | 50,703  |  
|Diluted                                      |  |                                       | 69,234  |   |      |   | 62,354  |      |  |   | 59,514  |   |  |      | 56,230  |   |  |   | 50,703  |  
|                                             | 
|                                             |  | As of December 31,                    |        
|                                             |  | 2003                                  |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|                                             |  | (in thousands)                        |        
|BALANCE SHEET DATA:                          |  |                                       |         |  
|Cash and cash equivalents                    |  | $                                     | 73,643  |   |      | $ | 68,827  |      |  | $ | 46,473  |   |  | $    | 49,857  |   |  | $ | 441     |  
|Total assets                                 |  |                                       | 240,521 |   |      |   | 259,249 |      |  |   | 251,580 |   |  |      | 331,755 |   |  |   | 252,889 |  
|Total long-term debt, less current portion   |  |                                       | 282     |   |      |   | 563     |      |  |   | 1,096   |   |  |      | 1,947   |   |  |   | 62,878  |  
|Total liabilities                            |  |                                       | 86,104  |   |      |   | 119,165 |      |  |   | 81,694  |   |  |      | 82,298  |   |  |   | 133,053 |  
|Shareholders equity                         |  |                                       | 154,417 |   |      |   | 140,084 |      |  |   | 169,886 |   |  |      | 249,457 |   |  |   | 119,836 |  



Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations



Except for statements of historical facts, this section contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995 involving risks and uncertainties. You can identify these statements by forward-looking words including believes, considers, intends, expects, may, will,
should, forecast, or anticipates, or the negative equivalents of those words or comparable terminology, and by discussions of strategies that involve risks and uncertainties. Forward-looking statements are not
guarantees of our future performance or results, and our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Risk Factors. This
section should be read in conjunction with our financial statements and related footnotes.





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Overview



Digitas is a relationship marketing services provider offering strategy and technology enablement and marketing agency services. Serving many of the
worlds leading companies, Digitas helps clients attract, retain and grow the most profitable customer relationships in their industries.



We derive substantially all of our fee revenues from the performance of professional services. We recognize revenue earned under time and materials
contracts as services are provided based upon hours worked and agreed-upon hourly rates. We recognize revenue earned under fixed-price contracts, such as consulting arrangements, using the proportional performance method based on the ratio of costs
incurred to estimates of total expected project costs in order to determine the amount of revenue earned to date.



With the commencement of the economic recovery in the second half of 2003, demand for our services improved resulting in a 3% increase in 2003 fee
revenues as compared to 2002. The improvement in fee revenues combined with continued control of our cost structure resulted in our first profitable year since our initial public offering in 2000, as we reported net income of $16.9 million, or $0.24
per share, on a diluted basis. As part of our 2003 net income, we recorded restructuring income of $4.1 million, or $0.06 per diluted share, related to the reversal of restructuring expenses for the consolidation of facilities and abandonment of
leasehold improvements previously recorded in 2001 and 2002. With an expectation of a continued economic recovery in 2004, we believe our fee revenues will grow by approximately 7% to 17% generating earnings in accordance with generally accepted
accounting principles of $0.32 to $0.42 per diluted share.



We
fund our operations primarily through cash generated from operations and proceeds from the exercise of common stock options. In 2003, operations generated cash totaling $19.2 million and net proceeds from the issuance of common stock and the
exercise of stock options generated $15.9 million. These amounts were offset primarily by $4.0 million of capital expenditures and the repurchase of 6.4 million shares of common stock at a price per share of $3.89; totaling $25.9 million, including
$0.9 million of transaction costs. Our credit facility allows us to borrow up to $20 million less any amounts committed under outstanding standby letters of credit. We were in compliance with all restrictive financial covenants as of December 31,
2003. The credit facility expires in February 2006. At December 31, 2003, we had no borrowings under the revolving credit facility and approximately $11.9 million outstanding under standby letters of credit, leaving approximately $8.1 million
available for future borrowings.



Critical Accounting Policies and Estimates



Our discussion and analysis of our financial condition
and results of our operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We review and update these estimates, including those related to revenue
recognition, the allowance for doubtful accounts, goodwill, stock-based compensation and restructuring, on an ongoing basis. We base our estimates on historical experience, and on various other assumptions that we believe are reasonable under the
circumstances. Among other things, these estimates form the basis for judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.



We believe the following critical
accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.



Revenue Recognition



We derive substantially all of our fee revenues from the performance of professional services. Individual projects generally last up to six months,
however some of our projects may last longer in duration. While we



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generally enter into written agreements with our clients, these contracts are typically terminable upon 30 to 90 days notice. Under these termination
provisions, we would earn revenue based upon time and materials incurred. We recognize revenue earned under time and materials contracts as services are provided based upon hours worked and agreed-upon hourly rates. We recognize revenue earned under
fixed-price contracts, such as consulting arrangements, using the proportional performance method based on the ratio of costs incurred to estimates of total expected project costs in order to determine the amount of revenue earned to date. Project
costs are based on the direct salary and associated fringe benefits of the consultants on the engagement plus all direct expenses incurred to complete the engagement that are not reimbursed by the client. We use the proportional performance method
since reasonably dependable estimates of the revenues and costs applicable to various stages of a contract can be made. These estimates are based on historical experience and deliverables identified in the contract and are indicative of the level of
benefit provided to our clients. Our financial management maintains contact with project managers to monitor the status of the projects and, for fixed-price engagements, financial management is updated on the budgeted costs and required resources to
complete the project. These budgets are then used to calculate revenue recognition and to estimate the income or loss on the project. Favorable changes in estimates result in additional revenue and profit recognition, and unfavorable changes in
estimates result in a reduction of recognized revenue and profit. If a contract was anticipated to result in a loss, provisions for the estimated loss on the contract would be made in the period in which the loss first becomes probable and
reasonably estimable. Some of our contracts contain provisions for performance incentives. Such contingent revenue is recognized in the period in which the contingency is resolved. We recognize revenue for services only in those situations where
collection from the client is reasonably assured. Our normal payment terms are 30 days from invoice date. Our client relationship managers and finance personnel monitor timely payments from our clients and assess collection issues, if any. Unbilled
accounts receivable on contracts is comprised of costs incurred plus estimated earnings from revenue earned in advance of billings under the contract. We record advance payments as billings in excess of cost and estimated earnings on uncompleted
contracts until the services are provided. Included in accounts receivable and unbilled accounts receivable are reimbursable costs.



We incur significant reimbursable costs on behalf of our clients. These include payments to vendors for media and production services and postage and
travel-related expenses. In accordance with our client agreements, we do not charge a markup on reimbursable costs and we require the clients approval prior to us incurring them. Although we actively mitigate our credit risk related to these
pass-through expenses and our customers participate in the management of vendor relationships, we are often the sole party that contracts with these vendors.



Effective January 1, 2002, upon adoption of the Emerging Issues Task Force (EITF) Issue 01-14, Income Statement Characterization of
Reimbursements Received for Out of Pocket Expenses Incurred, we reported reimbursements received for pass-through costs incurred as a component of revenue in the statement of operations. Reimbursements for periods prior to 2002 were
reclassified to comply with the guidance in Issue 01-14.



Allowance for
Doubtful Accounts



We maintain an allowance for
estimated losses resulting from the inability of clients to make required payments. We continually assess the collectibility of outstanding customer invoices. In estimating the allowance, we consider factors that include historical collections, a
clients current credit-worthiness, age of the receivable balance both individually and in the aggregate, and general economic conditions that may affect a clients ability to pay. Actual collections could differ from our estimates,
requiring additional adjustments to the allowance for doubtful accounts.



Goodwill



Effective January 1, 2002, we
adopted SFAS No. 142, Goodwill and Other Intangible Assets, and ceased amortizing goodwill as of that date. SFAS No. 142 requires us to test goodwill for impairment on an annual



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basis, and between annual tests in certain circumstances, and to write down goodwill when impaired. These events or circumstances generally would include the
occurrence of operating losses or a significant decline in earnings associated with the asset. We evaluate goodwill for impairment using the two-step process as prescribed in SFAS No. 142. The first step is to compare the fair value of the reporting
unit to the carrying amount of the reporting unit. If the carrying amount exceeds the fair value, a second step must be followed to calculate impairment. Otherwise, if the fair value of the reporting unit exceeds the carrying amount, the goodwill is
not considered to be impaired as of the measurement date. We performed the initial step by comparing our fair market value as determined by our publicly traded stock to our carrying amount. We also considered future discounted cash flows as compared
to the carrying amount to assess the recoverability of the goodwill asset. Based upon these tests, we determined that the fair value exceeded the carrying amount resulting in no impairment. If impairment had occurred, any excess of carrying value
over fair value would have been recorded as a loss.



Stock-based
Compensation



We apply the intrinsic value method of
Accounting Principles Board Opinion (APBO) No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for our employee stock-based compensation plans. We provide pro forma disclosures of compensation
expense under the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. See our discussion of stock-based
compensation in Note 1 to the financial statements for the pro forma effect on our net income and income per share had stock-based compensation been determined using the fair value method, as well as for the assumptions we used in calculating the
fair value of options.



Restructuring



As part of our restructuring costs, we provide for the estimated costs of
the net lease expense for office space that is no longer being utilized. The provision is equal to the future minimum lease payments under our contractual obligations offset by estimated future sublease income. In determining these estimates, we
evaluated the timing and our potential to sublease our excess space and our ability to renegotiate various leases at more favorable terms. These sublease estimates, that were made in consultation with our real estate advisers, were based on current
and projected conditions at that time in the real estate and economic markets in which we have excess office space. If actual market conditions are more or less favorable than those we project, we may be required to record or reverse restructuring
expenses associated with our excess office space.



Results of Operations



The following table sets forth selected items included in
our statements of operations as a percentage of fee revenue for the periods indicated. Pass-through revenue and pass-through expenses have been excluded from the table to better reflect our operating results.



|                                             |  |                         |   |  |       |    |  |       |   
|-------------------------------------------- |  | ----------------------- | - |  | ----- | -- |  | ----- | --
|                                             |  | Year Ended December 31, |  
|                                             |  | 2003                    |   |  | 2002  |    |  | 2001  |   
|Fee revenue                                  |  | 100.0                   | % |  | 100.0 | %  |  | 100.0 | % 
|Operating expenses:                          |  |                         |   |  |       |    |  |       |   
|Professional services costs                  |  | 58.6                    |   |  | 59.1  |    |  | 66.9  |   
|Selling, general and administrative expenses |  | 31.4                    |   |  | 33.2  |    |  | 40.6  |   
|Stock-based compensation                     |  | 3.6                     |   |  | 4.1   |    |  | 4.3   |   
|Amortization of intangible assets            |  | 0.3                     |   |  | 0.3   |    |  | 10.7  |   
|Restructuring expenses (income)              |  | (2.0                    | ) |  | 23.1  |    |  | 17.8  |   
|                                             |  |                         |   |  |       |    |  |       |   
|Total operating expenses                     |  | 91.9                    |   |  | 119.8 |    |  | 140.3 |   
|                                             |  |                         |   |  |       |    |  |       |   
|Income (loss) from operations                |  | 8.1                     | % |  | (19.8 | )% |  | (40.3 | )%
|                                             |  |                         |   |  |       |    |  |       |   



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Fee revenue. Historically, we have offered our services to clients primarily on a time and
materials basis. As our client relationships have grown, we have increasingly entered into broad contracts under which we deliver our services based on mutually agreed upon scopes of work. These contracts generally include estimates on total fees
that clients will be charged for the year. Additionally, some of our contracts include a discretionary bonus provision whereby we earn additional compensation based on our performance as evaluated by our clients. We are typically informed of bonus
revenue in the first and second quarters of the fiscal year. Most of our contracts allow us to invoice our clients on a percentage of work completed basis for our services. We attempt to limit our credit risk by securing clients with significant
assets or liquidity. While we generally enter into written agreements with our clients, these contracts are typically terminable upon 30 to 90 days notice. In 2003, our top three clients, General Motors, American Express and AT&T accounted for
approximately 55% of our total fee revenue. We believe a loss or any significant reduction in the use of our services by any one of these significant clients could have a material adverse effect on our business, financial condition and results of
operations. Our top ten clients accounted for approximately 80% of our 2003 fee revenue.



Pass-through revenue / Pass through expense. We incur significant reimbursable costs on behalf of our clients, such as payments to vendors for media and production services and postage and travel-related
expenses. In accordance with the client agreements, there is no markup on reimbursable costs and the clients approval is required prior to us incurring them. Although we actively mitigate our credit risk related to these pass-through expenses
and our customers participate in the management of vendor relationships, we are often the sole party that contracts with these vendors.



Effective January 1, 2002, upon adoption of the Emerging Issues Task Force (EITF) Issue 01-14, Income Statement Characterization of
Reimbursements Received for Out of Pocket Expenses Incurred, we reported reimbursements received for pass-through costs incurred as a component of revenue in the statement of operations. Periods prior to 2002 were reclassified to comply with
the guidance in Issue 01-14.



Professional services
costs. Professional services costs consist of professional salaries, payroll taxes and benefits for our professional staff plus other non-reimbursable costs directly attributable to servicing our clients. In addition to the compensation of
employees engaged in the delivery of professional services, professional salaries include compensation for selling and management by our senior account managers and some of our executives.



Selling, general and administrative expenses. Selling, general
and administrative expenses consist primarily of administrative and executive compensation, professional fees, non-client related travel expenses, rent and office expenses.



Stock-based compensation. Stock-based compensation consists primarily of non-cash compensation arising from stock
options granted to employees at exercise prices below the estimated fair value of the underlying common stock. We have not granted or repurchased any options nor issued common stock at a price below the estimated fair value subsequent to the initial
public offering in March 2000.



Goodwill.In connection
with the recapitalization in January 1999, we recorded $198.9 million of goodwill and other intangible assets. This amount, which represented the excess of purchase price over net assets acquired, consisted of goodwill, favorable lease and assembled
workforce. Assembled workforce was fully amortized as of December 31, 2000; accordingly, the cost and related accumulated amortization were written off. The favorable lease is being amortized over six years. Effective January 1, 2002, we adopted
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. The provisions of SFAS No. 142 were applied to all goodwill and other intangible assets recognized in the financial statements
at that date.



Restructuring expenses (income), net.Restructuring expenses represent charges taken to better align our cost structure with changing market conditions and decreased demand for our services and to better approximate remaining real estate obligations related to our prior
restructuring estimates. Restructuring expenses include



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severance related to workforce reductions and related expenses and the costs for consolidation of facilities. Costs for the consolidation of facilities are
comprised of future obligations under the terms of the leases for identified excess space and asset impairment charges for fixed assets related to these spaces, less anticipated income from subleasing activities. Estimates and assumptions are
evaluated on a quarterly basis to reflect new developments and prevailing economic conditions. If actual conditions are more or less favorable than those we project, we may be required to record or reverse restructuring expenses associated with our
excess office space.



Year ended December 31, 2003 compared to year ended
December 31, 2002



Summary. As noted above, we
began to see an increase in demand for our services in 2003 as fee revenue increased from $203.9 million in 2002 to $209.5 million in 2003. An improving economic outlook combined with the completion of the war in Iraq resulted in our clients
elevating their levels of spending with us over the last six months of the year. Professional services cost and selling, general and administrative expense remained relatively consistent with 2002 levels as we maintained tight control over hiring
and discretionary spending. Our cost control measures combined with marginal revenue growth resulted in our first year of profitability since our initial public offering in 2000, as we reported net income of $16.9 million, or $0.24 per diluted
share, compared to a net loss for 2002 of $40.3 million, or $0.65 per share. Additionally, we recorded restructuring income of $4.1 million, or $0.06 per diluted share, related to the reversal of restructuring expense for the consolidation of
facilities and abandonment of leasehold improvements previously recorded in 2001 and 2002.



Revenue. Total revenue for 2003 decreased by $9.2 million, or 2.9%, to $311.8 million from $321.0 million in 2002. Fee revenue for 2003 increased by $5.6 million, or 2.7%, to $209.5 million from $203.9 million
in 2002. The increase in fee revenue is due to an increase in demand for our services and higher bonus revenue. The decrease in total revenue is due to a decrease in pass-through revenue partially offset by the increase in fee revenue. Pass-through
revenue for 2003 decreased by $14.8 million, or 12.6%, to $102.3 million from $117.1 million in 2002 due to the timing of client marketing campaigns and some clients assuming responsibility for directly paying third party vendors for marketing
campaign expenses.



Professional services costs.
Professional services costs for 2003 increased by $2.4 million, or 2.0%, to $122.8 million from $120.4 million in 2002. Professional services costs represented 59% of fee revenue for both 2003 and 2002. The increase in cost was the result of adding
headcount to meet the increased demand for our services in the second half of 2003. We added the equivalent of approximately 80 full-time employees, representing approximately an 8% increase in total headcount, in the second half of 2003 to meet
client demand in the second half of 2003. We expect that professional service costs will increase in 2004 as we increase our hiring to meet expected levels of demand. However, professional service costs as a percent of fee revenue should remain
consistent with the prior year, at 59% of fee revenue, or improve slightly as we achieve higher levels of utilization from our existing resources.



Pass-through expenses. Pass-through expenses are reimbursable costs incurred by Digitas on behalf of our clients. Pass-through expenses include
payments to vendors for media and production services and postage and travel-related expenses. Pass-through expenses decreased by $14.8 million, or 12.6%, to $102.3 million from $117.1 million in 2002 due to the timing of marketing campaigns and
some clients assuming responsibility for directly paying third party vendors for marketing campaign expenses. Pass-through expenses are offset by pass-through revenues.



Selling, general and administrative expenses. Selling, general and administrative expenses for 2003 decreased
by $1.9 million, or 2.8%, to $65.8 million from $67.7 million for 2002. As a percentage of fee revenue, selling, general and administrative expenses decreased to 31% in 2003 from 33% in 2002. The dollar decrease in selling, general and
administrative expenses is primarily the result of a decrease in depreciation expense of $3.0 million resulting from older assets becoming fully depreciated and the write-off of abandoned leasehold improvements related to 2002 restructuring
activities. The reduction in depreciation expense was primarily offset by increased recruiting placement and relocation costs of $0.8 million, incurred in the second half of 2003, from



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the hiring of additional headcount to meet expected levels of demand in 2004. The percentage decrease is a result of a decrease in total selling, general and
administrative expense combined with the increase in fee revenue. We believe that selling, general and administrative expenses as a percentage of fee revenue will continue to decrease in 2004 as a result of controlled levels of discretionary
spending combined with expectations for increased fee revenues.



Stock-based compensation. Stock-based compensation, consisting of non-cash compensation, was $7.5 million for 2003 compared to $8.4 million for 2002. The decrease is due to the cancellation of stock options prior to their vesting
dates in connection with attrition. We have not granted or repurchased any options or issued common stock at a price below the estimated fair market value subsequent to the initial public offering in March 2000. We expect that all remaining deferred
compensation will be fully expensed during 2004.



Restructuring expenses (income), net.In the fourth quarter of 2003, we recorded restructuring income of $4.1 million as we reversed restructuring expenses related to the consolidation of facilities and abandonment of leasehold
improvements that we previously recorded in 2001 and 2002. In 2002, we recorded restructuring expenses totaling $47.1 million.



During 2002, we recorded restructuring expenses totaling $47.1 million, consisting of $3.3 million for workforce reduction and related costs and $43.8
million for the consolidation of facilities and abandonment of related leasehold improvements. We recorded these charges to further align our cost structure with changing market conditions and to update estimates originally made in 2001 to reflect
current information. We determined that we would be unable to dispose of our excess office space in Boston, New York and San Francisco within our original assumptions. As a result, we recorded restructuring expenses of $39.2 million to reflect the
revised estimate of our expected future obligations under the terms of those leases, less anticipated income from subleasing activities. The change in estimate was related to changes in estimated future sublease rates and terms. These sublease
estimates, which were made in consultation with our real estate advisers, were based on current and projected conditions at the time in the real estate and economic markets in which we determined we had excess office space. In addition, we recorded
restructuring expenses of $4.6 million for costs related to the closure of our Miami and Salt Lake City facilities.



During 2003, we made significant progress towards eliminating our excess real estate resulting in the recognition of $4.1 million of restructuring income
related to the reversal of restructuring expense initially recorded in 2001 and 2002. The restructuring expense was reversed because of savings of $7.2 million as compared to our original estimates. These savings were the result of subleasing our
excess space at terms more favorable than estimates and assumptions made in 2002, for savings of $2.3 million, negotiating a termination of the Salt Lake City lease for less than our estimates, for savings of $0.3 million and returning one floor
initially restructured in San Francisco to operations, which represented savings of $4.6 million. The $7.2 million in savings was offset by revisions in estimates of future sublease rates and terms for remaining leases resulting in an increase in
expected future obligations of $3.1 million. We continue to evaluate alternatives and monitor our restructuring accrual on a quarterly basis to reflect new developments and prevailing economic conditions in the real estate markets in which we lease
office space. These sublease estimates, which were made in consultation with our real estate advisers, were based on current and projected conditions at the time in the real estate and economic markets in which we determined we had excess office
space. At December 31, 2003, approximately 70,000 square feet of the approximately 300,000 square feet initially identified as excess remained available for sublease.



The floor returned to operations in San Francisco was restructured in the third quarter of 2002 because we had committed to
a plan to redeploy, reorganize and streamline the workforce in San Francisco and relocate in 2003 to a more efficient and cost effective office location. At the time of the restructuring charge, the floor was being used in operations. All costs
associated with this floor including rent expense, operating expenses and depreciation expense on leasehold improvements continued to be included as part of selling, general and administrative expenses in our statements of operations, with an
expectation that all costs would continue to be



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included as part of selling, general and administrative expenses until the plan to vacate the space was implemented. The initial plan communicated to the
workforce was scheduled to be implemented in January 2003, but was subsequently postponed due to some incremental projects won in December 2002 and January 2003. Many of the changes in workforce were implemented over the first two quarters of 2003
as the skill sets of those identified were not required to serve the new projects. Although the initial plan to vacate the facility was postponed, we continued to expect that in 2003 the floor would be vacated and the employees in the region would
be relocated to more efficient and cost effective space. Although we allowed in our restructuring plan for a significant vacancy period due to the poor real estate market in San Francisco, we actively marketed the floor throughout 2003 with the
intent of securing a subtenant to minimize the cash flow drain to us for paying rent on the new location while the old location remained vacant. However, in the fourth quarter of 2003 it became apparent that the original plan to vacate the floor was
not likely to be carried out, as originally developed by us and approved by the Board of Directors, and that the floor should continue to be used in operations. This decision was made because certain client relationships expanded at a pace exceeding
our initial budget estimates and expectations, improved business expectations with additional clients previously thought to be declining relationships, the hiring in December of a new President for the San Francisco office and continued poor market
conditions for real estate in San Francisco, which would likely result in the floor remaining vacant for a lengthy period of time.



At December 31, 2003, our restructuring accrual totaled $29.3 million. Approximately $0.4 million of that amount is workforce related for final payments
of severance and will be fully utilized in 2004. The remaining $28.9 million is related to remaining real estate obligations net of sublease income. We believe the restructuring accrual of $28.9 million is appropriate and adequate to cover these
remaining obligations.



The following is a summary of
restructuring activity for the years ended December 31, 2003, 2002 and 2001: (dollars in thousands)



|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|------------------------------------------ |  | ----------------------------------- | ------- | - | -------------------------- | - | ------- | ----- |  | - | ------- | -
|                                           |  | WorkforceReduction andRelated Costs |         |   | Consolidationof Facilities |   |         | Total | 
|Accrued restructuring at December 31, 2000 |  | $                                   |        |   |                            | $ |        |       |  | $ |        |  
|Restructuring expenses 2001                |  |                                     | 16,689  |   |                            |   | 25,199  |       |  |   | 41,888  |  
|Utilization 2001                           |  |                                     | (12,982 | ) |                            |   | (9,346  | )     |  |   | (22,328 | )
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|Accrued restructuring at December 31, 2001 |  |                                     | 3,707   |   |                            |   | 15,853  |       |  |   | 19,560  |  
|Restructuring expenses 2002                |  |                                     | 3,311   |   |                            |   | 43,803  |       |  |   | 47,114  |  
|Utilization 2002                           |  |                                     | (5,530  | ) |                            |   | (10,756 | )     |  |   | (16,286 | )
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|Accrued restructuring at December 31, 2002 |  |                                     | 1,488   |   |                            |   | 48,900  |       |  |   | 50,388  |  
|Restructuring expenses 2003                |  |                                     |        |   |                            |   | 3,077   |       |  |   | 3,077   |  
|Restructuring income 2003                  |  |                                     |        |   |                            |   | (7,186  | )     |  |   | (7,186  | )
|Utilization 2003                           |  |                                     | (1,076  | ) |                            |   | (15,895 | )     |  |   | (16,971 | )
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|Accrued restructuring at December 31, 2003 |  | $                                   | 412     |   |                            | $ | 28,896  |       |  | $ | 29,308  |  
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  



As a result of all
restructuring activity, which commenced in the second quarter of 2001, we have reduced our workforce by approximately 700 employees across all business functions and regions.



For the years ended December 31, 2003 and 2002, cash expenditures related to restructuring activities were $12.3 million and
$15.3 million, respectively, and we disposed of $8.0 million and $1.0 million, respectively, of leasehold improvements related to excess office space. As of December 31, 2003, total remaining cash expenditures related to restructuring activities
were $29.3 million. We expect approximately $8.9 million in cash expenditures in fiscal 2004. We expect to make the remaining cash expenditures of approximately $20.4 million related to real estate rental obligations primarily over the following
eleven years.



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Other income, net. Other income in 2003, net of expenses, decreased by $0.2 million, or 50%, to
$0.2 million from $0.4 million in 2002. Other income consists primarily of interest income earned on cash and cash equivalents offset by interest expense related to notes payable for tenant allowances, interest expense on capitalized leases, and
bank charges related to our revolving credit facility and standby letters of credit. The decrease in other income was due primarily to the decrease in the rate of interest earned on our cash and cash equivalents.



Year ended December 31, 2002 compared to year ended December 31, 2001



Summary. Despite continued uncertainty in the
global economy and the continued threat of terrorist attacks, Digitas results improved in 2002 as demand for our marketing and technology services stabilized at rates consistent with the third and fourth quarters of 2001. However, we
determined in 2002 that an additional restructuring charge would be required primarily to reflect our revised expectations of remaining real estate obligations related to excess space initially restructured in 2001. Total restructuring charges for
2002 and 2001 were $47.1 million and $41.9 million, respectively. We reported a net loss for 2002 of $40.3 million, or $0.65 per share, as compared to a net loss of $94.1 million, or $1.58 per share, for 2001, which includes amortization of goodwill
of $24.5 million that is not included in the 2002 figures.



Revenue. Total revenue for 2002 decreased by $14.3 million, or 4.3%, to $321.0 million from $335.3 million in 2001. Fee revenue for 2002 decreased by $31.6 million, or 13.4%, to $203.9 million from $235.5 million in 2001. The
decrease in revenue is attributable to the decline in demand, as compared to the first six months of 2001, for marketing and technology services. Pass-through revenue for 2002 increased by $17.3 million, or 17.3%, to $117.1 million from $99.8
million in 2001. The increase in pass-through revenue is attributable to increased media programs and production costs for our clients.



Professional services costs. Professional services costs for 2002 decreased by $37.3 million, or 23.6%, to $120.4 million from $157.7 million in
2001. Professional services costs represented 59% of fee revenue for 2002 as compared to 67% of fee revenue for 2001. The decrease in professional services costs, both in dollars and as a percentage of fee revenue, reflects cost savings resulting
from restructuring activity and other cost cutting initiatives implemented in 2001. Pass-through expenses for 2002 increased by $17.3 million, or 17.3%, to $117.1 million from $99.8 million in 2001. The increase in pass-through revenue is
attributable to increased media programs and production costs for our clients.



Selling, general and administrative expenses. Selling, general and administrative expenses for 2002 decreased by $27.8 million, or 29.1%, to $67.7 million from $95.5 million for 2001. As a percentage of
fee revenue, selling, general and administrative expenses decreased to 33% in 2002 from 41% in 2001. The decrease in selling, general and administrative expenses, both in dollars and as a percentage of fee revenue, reflects cost savings resulting
from restructuring activity and other cost cutting initiatives implemented in 2001.



Stock-based compensation. Stock-based compensation, consisting of non-cash compensation, was $8.4 million for 2002 compared to $10.1 million for 2001. The decrease is due to the cancellation of stock options
prior to their vesting dates in connection with restructuring activity and normal attrition. We have not granted or repurchased any options nor issued common stock at a price below the estimated fair market value subsequent to the initial public
offering in March 2000.



Amortization of intangible
assets. Amortization of intangible assets for 2002 decreased by $24.5 million, or 97.2%, to $0.7 million from $25.2 million for 2001. Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. The
provisions of SFAS No. 142 were applied to all goodwill and other intangible assets recognized in the financial statements at that date. This resulted in an expense reduction of approximately $24.5 million in 2002 over 2001, as goodwill is no longer
amortized, but instead is subject to



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testing for impairment. We did not incur any impairment to existing intangible assets or goodwill during the year ended December 31, 2002, upon application
of SFAS No. 142. See Note 1 of Notes to Consolidated Financial Statements Summary of Significant Accounting Policies goodwill policy for a quantification of the effect of SFAS No. 142 on our 2001 net income.



Restructuring expenses (income), net.Restructuring expenses for 2002
increased by $5.2 million, or 12.4%, to $47.1 million from $41.9 million in 2001.



During 2002, we recorded restructuring expenses totaling $47.1 million, consisting of $3.3 million for workforce reduction and related costs and $43.8 million for the consolidation of facilities and abandonment of
related leasehold improvements. These charges were taken to further align our cost structure with changing market conditions and to update estimates originally made in 2001 for current information. We determined that we would be unable to dispose of
our excess office space in Boston, New York and San Francisco within our original assumptions. As a result, we recorded an expense of $39.2 million to reflect the revised estimate of our expected future obligations under the terms of these leases
less anticipated income from subleasing activities. The change in estimate is related to changes in estimated future sublease rates and terms. These sublease estimates, which were made in consultation with our real estate advisers, were based on
current and projected conditions at the time in the real estate and economic markets in which we had excess office space. In addition, we recorded restructuring expenses of $4.6 million for costs related to the closure of our Miami and Salt Lake
City facilities.



During 2001, we recorded restructuring
expenses totaling $41.9 million, consisting of $16.7 million for workforce reduction and related costs and $25.2 million for the consolidation of facilities and abandonment of related leasehold improvements. These restructuring charges were taken to
align our cost structure with changing market conditions and decreased demand for our services. The $25.2 million in real estate related charges represented our estimate of future obligations under the terms of the leases for identified excess space
less anticipated income from subleasing activities. In determining this estimate, we evaluated our potential to sublease our excess space and our ability to renegotiate various leases at more favorable terms and in some instances obtain relief
through relocation of office space.



The following is a summary
of restructuring activity for the years ended December 31, 2002 and 2001: (dollars in thousands)



|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|------------------------------------------ |  | ----------------------------------- | ------- | - | -------------------------- | - | ------- | ----- |  | - | ------- | -
|                                           |  | WorkforceReduction andRelated Costs |         |   | Consolidationof Facilities |   |         | Total | 
|Accrued restructuring at December 31, 2000 |  | $                                   |        |   |                            | $ |        |       |  | $ |        |  
|Restructuring expenses 2001                |  |                                     | 16,689  |   |                            |   | 25,199  |       |  |   | 41,888  |  
|Utilization 2001                           |  |                                     | (12,982 | ) |                            |   | (9,346  | )     |  |   | (22,328 | )
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|Accrued restructuring at December 31, 2001 |  |                                     | 3,707   |   |                            |   | 15,853  |       |  |   | 19,560  |  
|Restructuring expenses 2002                |  |                                     | 3,311   |   |                            |   | 43,803  |       |  |   | 47,114  |  
|Utilization 2002                           |  |                                     | (5,530  | ) |                            |   | (10,756 | )     |  |   | (16,286 | )
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|Accrued restructuring at December 31, 2002 |  | $                                   | 1,488   |   |                            | $ | 48,900  |       |  | $ | 50,388  |  
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  



As a result of
restructuring activity, which commenced in the second quarter of 2001, the Company reduced its workforce by approximately 700 employees across all business functions and regions.



For the years ended December 31, 2002 and 2001, cash expenditures related to restructuring activities were $15.3 million and
$18.9 million, respectively.





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Other income, net. In 2002, other income, net of expenses, decreased by $0.6 million, or 60%, to
$0.4 million from $1.0 million in 2001. Other income consists primarily of interest income earned on cash and cash equivalents offset by interest expense related to notes payable for tenant allowances, interest expense on capitalized leases, and
bank charges related to the companys revolving credit facility and standby letters of credit. The decrease in other income was due primarily to the decrease in the rate of interest earned on our cash and cash equivalents.



Liquidity and Capital Resources



We fund our operations primarily through cash generated from operations and
proceeds from the exercise of common stock options.



Cash and cash
equivalents and working capital



Cash and cash equivalents
increased from $68.8 million at December 31, 2002 to $73.6 million at December 31, 2003. Cash provided by operations for 2003 was $19.2 million. Cash provided by operations was primarily the result of cash collections from customers offset by
payments for restructuring activities, vendor invoices and executive bonuses. Cash used in investing activities for 2003 was $4.0 million, consisting of capital expenditures relating primarily to computer equipment purchases. Cash used in financing
activities for 2003 was $10.5 million. Pursuant to a self-tender offer, in March 2003 we purchased 6,426,735 shares of our common stock at a purchase price of $3.89 per share, for an aggregate purchase price of $25.0 million. Transaction costs
related to the purchase were $0.9 million. During 2003, we issued 6.7 million shares of our stock through either issuance of common stock or the exercise of stock options resulting in $15.9 million of net proceeds.



In August 2003, a group of stockholders completed a sale of 21,357,142 shares
of our common stock at a price of $5.25 per share in an underwritten public offering. The public offering did not impact the number of common shares outstanding and did not result in any cash proceeds to us.



Credit facility



Our existing credit facility originally dated July 25, 2000, and subsequently amended, allows us to borrow up to $20 million
less any amounts committed under outstanding standby letters of credit. Effective February 2003, we executed a fourth amendment to our credit facility. This amendment extended the expiration date of the credit facility from July 2003 to February
2006. It also changed some of the restrictive financial covenants contained in the credit facility. Effective September 2003, we executed a fifth amendment. This amendment also changed some of the restrictive financial covenants contained in the
credit facility. A sixth amendment was executed in December 2003. This amendment added a subsidiary of the Company as a guarantor for the credit facility.



As of December 31, 2003, amounts that we may borrow under the revolving credit facility would bear interest at either the Prime Rate or at a Eurocurrency
Rate plus a margin of 3.00%. Additionally, we are required to pay a commitment fee of 0.25% of the average daily unused amount of the revolving credit and a letter of credit fee of 3.0% of the face amount of letters of credit. Our restrictive
financial covenants include a minimum EBITDA (earnings before interest, taxes, depreciation and amortization) level, a minimum net income level, a maximum ratio of total funded indebtedness to EBITDA, a minimum liquidity level, a minimum fixed
charge coverage ratio, and a maximum annual capital expenditure level.



As of December 31, 2003, we were in compliance with all of our covenants. Borrowings under the credit facility are secured by substantially all the assets of the Company. At December 31, 2003, we had no borrowings under the revolving credit
facility and approximately $11.9 million outstanding under standby letters of credit, leaving approximately $8.1 million available for future borrowings.





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Other debt and commitments



The following table summarizes other cash obligations. (Note: Interest expense is included in payments due by period where
applicable and minimum sublease income of $20.2 million due in the future under noncancelable subleases is excluded.)



|                                 |  |                                      |       |      |   |            |  |            |      |                     |   |      |  |   |     
|-------------------------------- |  | ------------------------------------ | ----- | ---- | - | ---------- |  | ---------- | ---- | ------------------- | - | ---- |  | - | ----
|                                 |  | Payments Due by Period (in millions)
|                                 |  | Total                                |       | 2004 |   | 2005- 2006 |  | 2007- 2008 |      | 2009 and thereafter
|Notes payable, tenant allowances |  | $                                    | 0.6   |      | $ | 0.3        |  | $          | 0.3  |                     | $ |     |  | $ |    
|Operating leases                 |  |                                      | 102.8 |      |   | 22.4       |  |            | 32.9 |                     |   | 20.2 |  |   | 27.3
|                                 |  |                                      |       |      |   |            |  |            |      |                     |   |      |  |   |     
|Total obligations                |  | $                                    | 103.4 |      | $ | 22.7       |  | $          | 33.2 |                     | $ | 20.2 |  | $ | 27.3
|                                 |  |                                      |       |      |   |            |  |            |      |                     |   |      |  |   |     



Notes payable,
tenant allowances. Since 1995, we have received tenant allowances, which are required to be reimbursed to the landlord through 2005.



Operating leases.We lease office facilities and some of our office equipment under cancelable and noncancelable operating lease agreements
expiring at various dates through July 2015. Rent expense, including amounts for facilities and equipment, net of any contractual sublease income, amounted to approximately $10,941,000, $10,362,000, and $14,936,000 for the years ended December 31,
2003, 2002 and 2001, respectively. These amounts are included in selling, general and administrative expenses in our statements of operations. Rent payments due in the future for both operating and restructured office space are reflected in the cash
obligations table above.



We expect that at current revenue
projections, we will continue to generate cash from operations. We believe that cash from operations combined with current cash and cash equivalents and funds available under the credit facility will be sufficient to meet our working capital and
capital expenditure requirements for at least the next twelve months.



Risks
Factors and Important Factors that may Affect Future Results



Set forth below are certain risk factors that could harm our business prospects, results of operations and financial condition. You should carefully read the following risk factors, together with the financial statements, related notes and
other information contained in this Form 10-K. This Form 10-K contains forward-looking statements that contain risks and uncertainties. Please refer to the discussion of Forward-Looking Statements on page three in connection with your
consideration of the risk factors and other important factors that may affect future results described below.



Risks Related to our Business



The loss of even one significant client or any significant reduction in the use of our services could have a material adverse effect on our business, financial condition and results of operations



We derive a significant portion of our revenues from large-scale engagements
with a limited number of clients. Most of these relationships, including those with our three largest clients, are terminable by the client without penalty on 30 to 90 days prior written notice. For 2003, our three largest clients, General Motors,
American Express and AT&T, collectively accounted for approximately 55% of our fee revenue, and our largest client, General Motors, accounted for approximately 23% of fee revenue. The loss of any major client or any significant reduction in the
use of our services by a major client could materially reduce our revenue and have a negative impact on our operating results, financial condition and reputation in our market. Our top ten clients accounted for approximately 80% of our 2003 fee
revenue.





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Our failure to meet our clients expectations could result in losses or negative publicity and
could subject us to liability for the services we provide



As clients have dedicated more money and resources to our engagements with them, their expectations have also increased. As our client engagements become larger and more complex and are required to be completed in a shorter time frame, we
face increased management challenges and greater risk of mistakes. Any failure on our part to deliver our services in accordance with our clients expectations could result in:



| |  | additional expenditures to correct the problem;
| | - | -----------------------------------------------



| |  | delayed or lost client revenues;
| | - | --------------------------------



| |  | adverse client reactions and negative publicity; and
| | - | ----------------------------------------------------



| |  | claims against us.
| | - | ------------------



Although our client agreements often limit our liability to damages arising from our rendering of services, we cannot assure that these provisions will be
enforceable in all instances or would otherwise protect us from liability. While we carry general liability insurance coverage, our insurance may not cover all potential claims to which we are exposed or may not be adequate to indemnify us for all
liability that may be imposed.



Failure to manage our growth
may impact our operating results



If we succeed in
expanding our business, that expansion may place increased demands on our management, operating systems, internal controls and financial and physical resources. If not managed effectively, these increased demands may adversely affect the services we
provide to our existing clients. In addition, our personnel, systems, procedures and controls may be inadequate to support our future operations. Consequently, in order to manage growth effectively, we may be required to increase expenditures to
expand, train and manage our employee base, improve our management, financial and information systems and controls, or make other capital expenditures. Our results of operations and financial condition could be harmed if we encounter difficulties in
effectively managing the budgeting, forecasting and other process control issues presented by our growth.



Acts of war or terrorism, or related effects could adversely affect our business, operating results and financial condition



An act of war or terrorism could adversely affect our business, operating
results and financial condition. The related effects of an act of war or terrorism, such as disruptions in air transportation, enhanced security measures and political instability in certain foreign countries may interrupt our business and that of
our clients. An act of war or terrorism may result in a significant reduction in client spending or contribute to an economic downturn and adversely affect our business, operating results and financial condition.



An economic recession or downturn in the United States or abroad may
result in a reduction in our revenues and operating results



Our ability to succeed depends on the continued investment of our current and future clients in the services we offer. Our business has been adversely impacted during the last three years by a decline in demand for our services, primarily
related to the economic down turn experienced during the first two and a half years of that period. An economic recession or downturn in the United States and abroad may cause some of our current and future clients to reduce or eliminate their
budgets for our services. Furthermore, the reduction in client budgets may intensify competition and further increase pressure for us to reduce the fees we charge our clients. A lasting economic recession or downturn in the United States or abroad
may have a material adverse effect on our business, financial condition and results of operations.



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Actual and perceived conflicts of interest may restrict us in obtaining new clients



Actual and perceived conflicts of interest are inherent in our industry. We
sometimes decline to accept potential clients because of actual or perceived conflicts of interest with our existing clients or because a client insists, for whatever reason, that we not work with its competitors. In addition, potential clients may
choose not to retain us for reasons of actual or perceived conflicts of interest. Many of our clients compete in industries where only a limited number of companies gain meaningful market share. As a result, if we decide not to perform services for
a particular clients competitors, or if potential clients choose not to retain us because of actual or perceived conflicts and our client fails to capture a significant portion of its market, we may receive reduced or no future revenue in that
particular industry.



Fluctuations in our quarterly revenues
and operating results may lead to reduced prices for our stock



Our quarterly revenues and operating results can be volatile. We believe that period-to-period comparisons of our operating results are not necessarily meaningful. These comparisons cannot be relied upon as indicators of future performance.
However, if our operating results in any future period fall below the expectations of securities analysts and investors, the market price of our securities would likely decline.



Factors that may cause our quarterly results to fluctuate in the future include the following:



| |  | variability in market demand for our services;
| | - | ----------------------------------------------



| |  | length of the sales cycle associated with our service offerings;
| | - | ----------------------------------------------------------------



| |  | unanticipated variations in the size, budget, number or progress toward completion of our engagements;
| | - | ------------------------------------------------------------------------------------------------------



| |  | unanticipated termination of a major engagement, a clients decision not to proceed with an engagement we anticipated or the completion or delay during a quarter of several
major client engagements;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to manage our operating costs, a large portion of which are fixed in advance of any particular quarter;
| | - | -------------------------------------------------------------------------------------------------------------------



| |  | changes in pricing policies by us or our competitors;
| | - | -----------------------------------------------------



| |  | our ability to manage future growth;
| | - | ------------------------------------



| |  | timing and amount of client bonus payments; and
| | - | -----------------------------------------------



| |  | costs of attracting and training skilled personnel.
| | - | ---------------------------------------------------



Some of these factors are within our control while others are outside of our control.



If we are not successful in expanding our ability to service our clients on a worldwide basis, we may jeopardize our
relationships with existing clients and limit our ability to attract new clients



Failure to meet client demands that their relationship marketing service providers be able to handle assignments on a worldwide basis may jeopardize our existing client relationships and limit our ability to attract
new clients. Currently, we serve European markets from our office in London and can serve markets in other regions from offices in the United States. To succeed we may also need to deepen and broaden our expertise in dealing with worldwide
assignments by expanding our presence outside of the United States or by hiring more senior executives with multi-national technology, marketing and customer relationship management expertise; and there is no assurance that we can attract those
people or establish on a profitable basis offices outside of the United States.



We have limited experience in marketing, selling and supporting our services outside of North America and the United Kingdom, and development of such skills may be more difficult or take longer than we anticipate.
Operations outside the United States may be unprofitable or less profitable than operations in the United States,



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especially due to language barriers, cultural differences, economic and political conditions in countries outside the United States, currency exchange risks,
differences in terms of payment and collectibility of receivables, reduced protection for intellectual property rights in some countries, the burden and expense of complying with foreign laws and regulations and the fact that the Internet
infrastructure in foreign countries may be less advanced than in the United States.



We must maintain our reputation and expand our name recognition to remain competitive



We believe that establishing and maintaining name recognition and a good reputation is critical to attracting and expanding our targeted client base as
well as attracting and retaining qualified employees. If our reputation is damaged or if we are unable to establish name recognition, we may become less competitive or lose our market share. In addition, our name could be associated with any
business difficulties of our clients. As a result, the difficulties or failure of one of our clients could damage our reputation and name and make it difficult for us to compete for new business.



Our business will be negatively affected if we do not keep up with rapid
technological changes, evolving industry standards and changing client requirements



Our industry is characterized by rapidly changing technology, evolving industry standards and changing client needs. Accordingly, our future success will depend, in part, on our ability to meet these challenges in a
timely and cost-effective manner. Among the most important challenges facing us is the need to:



| |  | effectively use leading technologies;
| | - | -------------------------------------



| |  | continue to develop our strategic and technical expertise;
| | - | ----------------------------------------------------------



| |  | influence and respond to emerging industry standards and other technological changes;
| | - | -------------------------------------------------------------------------------------



| |  | enhance our current service offerings; and
| | - | ------------------------------------------



| |  | develop new services that meet changing customer needs.
| | - | -------------------------------------------------------



Our industry is highly competitive and has low barriers to entry; if we cannot effectively compete, our revenue may decline



Our industry is relatively new and intensely competitive. We expect
competition to intensify even further as our industry evolves. Some of our current competitors have more clients, greater brand or name recognition and greater financial, technical, marketing and public relations resources than we do. Furthermore,
there are relatively low barriers to entry into our industry. As a result, new and unknown market entrants pose a threat to our business.



Current or future competitors may also develop or offer services that are comparable or superior to ours at a lower price, which could affect our ability
to retain existing clients and attract new clients. In addition, current and potential competitors have established or may establish corporate relationships among themselves or other third parties to increase their ability to address customer needs.
Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. We cannot assure you that we will be able to continue to compete successfully with our existing competitors or
any new competitors.



Potential future acquisitions could be
difficult to integrate, disrupt our business, adversely affect our operating results and dilute shareholder value



We may acquire other businesses in the future, which may complicate our management tasks. We may need to integrate widely dispersed operations with
distinct corporate cultures. Our failure to do so could result in our inability to retain the management, key personnel, employees and clients of the acquired business. Such integration efforts also may distract our management from servicing
existing clients. Our failure to manage future



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acquisitions successfully could seriously harm our operating results. Also, acquisition costs could cause our quarterly operating results to vary
significantly. Furthermore, our shareholders could be diluted if we finance the acquisitions by issuing equity securities.



We may need to raise additional capital, which may not be available to us, and which may dilute the ownership interests of current investors



We may need to raise additional funds to meet our working
capital and capital expenditure needs and to otherwise support our business and implement our strategy. We cannot be certain that we will be able to obtain additional financing on favorable terms or at all. If we need additional capital and cannot
raise it on acceptable terms, we may not be able to:



| |  | create additional market-specific business units;
| | - | -------------------------------------------------



| |  | enhance our infrastructure;
| | - | ---------------------------



| |  | hire, train and retain employees;
| | - | ---------------------------------



| |  | keep up with technological advances; or
| | - | ---------------------------------------



| |  | respond to competitive pressures or unanticipated requirements.
| | - | ---------------------------------------------------------------



Our failure to do any of these things could restrict our growth, hinder our ability to compete and seriously harm our financial condition. Additionally,
if we are able to raise additional funds through equity financings, the ownership interest of our stockholders will be diluted.



Increased government regulation of various direct marketing channels could adversely affect our business



State and federal government regulation of various direct marketing
channels, such as the Internet and telephone, is increasing. New laws and regulations, or new interpretations of existing laws and regulations, could impact us directly or indirectly by preventing our clients from using certain direct marketing
methods. New laws and regulations could create limitations on our clients ability to market to targeted customers which in turn could decrease the demand for our services and have a material adverse effect on our future operating performance.



Risks Related to the Securities Markets



Our stock price has been and is likely to continue to be volatile and may
result in substantial losses for investors



The market
price of our common stock has been and is likely to continue to be highly volatile. Since we completed our initial public offering in March 2000, the market price for our common stock has been as high as $40.00 per share and as low as $0.88 per
share. Additionally, the stock market in general, and the market for technology-related stocks in particular, has been highly volatile and was characterized by significant decreases in market prices during 2000, 2001 and 2002. This volatility often
has been unrelated to the operating performance of particular companies.



In addition, the trading price of our common stock could be subject to wide fluctuations in response to:



| |  | our perceived prospects;
| | - | ------------------------



| |  | variations in our operating results and our achievement of key business targets;
| | - | --------------------------------------------------------------------------------



| |  | changes in securities analysts recommendations or earnings estimates;
| | - | ----------------------------------------------------------------------



| |  | differences between our reported results and those expected by investors and securities analysts;
| | - | -------------------------------------------------------------------------------------------------



| |  | announcements of new contracts or service offerings by us or our competitors;
| | - | -----------------------------------------------------------------------------



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| |  | market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors; and
| | - | --------------------------------------------------------------------------------------------------------------------



| |  | general economic or stock market conditions unrelated to our operating performance.
| | - | -----------------------------------------------------------------------------------



In the past, securities class action litigation has often been instituted against companies following periods of volatility
in the market price of their securities. This type of litigation could result in substantial costs and a diversion of management attention and resources.



Risks Related to Legal Uncertainty



We may not be able to protect our intellectual property and proprietary rights



We cannot guarantee that the steps we have taken to protect our proprietary rights will be adequate to deter
misappropriation of our intellectual property. In addition, we may not be able to detect unauthorized use of our intellectual property and take appropriate steps to enforce our rights. If third parties infringe or misappropriate our trade secrets,
copyrights, trademarks or other proprietary information, our business could be seriously harmed. In addition, although we believe that our proprietary rights do not infringe on the intellectual property rights of others, other parties may assert
infringement claims against us or claim that we have violated their intellectual property rights. Such claims, even if not true, could result in significant legal and other costs and may be a distraction to management. If any party asserts a claim
against us relating to proprietary technology or information, we may need to obtain licenses to the disputed intellectual property. We cannot assure you, however, that we will be able to obtain any licenses at all. In addition, protection of
intellectual property in many foreign countries is weaker and less reliable than in the United States so, as our business expands into foreign countries, risks associated with protecting our intellectual property will increase.



Changes in government regulation of the Internet and other emerging
technologies could adversely affect our business



To date,
government regulations have not materially restricted the use of the Internet and other emerging technologies by our clients in their markets. However, the legal and regulatory environment that pertains to such technologies may change. New state,
federal and foreign laws and regulations, or new interpretations of existing laws and regulations, especially those relating to privacy, could impact us directly or indirectly by preventing our clients from delivering products or services over
technology-based distribution channels. Failure to comply with applicable government regulations could result in a liability. Any new legislation could inhibit the increased use of the Internet and emerging technologies as commercial mediums which
in turn would decrease the demand for our services and have a material adverse effect on our future operating performance.



We may become subject to claims regarding foreign laws and regulations that could subject us to increased expenses



Because we plan to expand our international operations and because many of
our current clients have international operations, we may be subject to the laws of foreign jurisdictions. These laws may change, or new, more restrictive laws may be enacted in the future. Failure to comply with applicable foreign laws and
regulations could result in a liability. International litigation is often expensive and time-consuming and could distract our managements attention away from the operation of our business.



Provisions of Delaware law and of our charter and by-laws may make a
takeover more difficult



Provisions in our certificate of
incorporation and by-laws and in the Delaware corporate law may make it difficult and expensive for a third party to pursue a tender offer, change-in-control or takeover attempt that is opposed by our management and Board of Directors. Public
shareholders who might desire to participate in such a transaction may not have an opportunity to do so. In our certificate of incorporation we also have a staggered Board of Directors, which makes it difficult for shareholders to change the
composition of the Board of Directors



25



---

##### Table of Contents

in any one year. These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change-in-control or to
change our management and Board of Directors.



Item 7a.Quantitative and Qualitative Disclosure About Market Risk



We do not believe that there is any material risk exposure with respect to derivative or other financial instruments that would require disclosure under
this item.



Item 8.Financial Statements and Supplementary Data



The financial statements and related notes are contained on the pages indicated on the Index to Financial Statements on page F-1 of this report.



The following table sets forth a summary of unaudited
quarterly operating results for each of the eight quarters ended December 31, 2003. This information has been derived from our unaudited interim financial statements which, in our opinion, have been prepared on substantially the same basis as the
audited financial statements contained elsewhere in this filing and include all normal recurring adjustments necessary for a fair presentation of the financial information for the periods presented. The results for any quarter are not necessarily
indicative of future quarterly results of operations, and we believe that period-to-period comparisons should not be relied upon as an indication of performance that may be expected for any future period.



|                                                |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|----------------------------------------------- |  | --------------------------------------------------------- | ------ | - | -------------- | - | ------ | ------------- |  | - | -------------- | - |  | ------------- | ------ | - | -------------- | - | ------ | ------------- |  | - | -------------- | - |  | - | ------ | - |  | - | ------ | -
|                                                |  | Three Months Ended: (in thousands, except per share data) |       
|                                                |  | Dec. 31, 2003                                             |        |   | Sept. 30, 2003 |   |        | June 30, 2003 |  |   | March 31, 2003 |   |  | Dec. 31, 2002 |        |   | Sept. 30, 2002 |   |        | June 30, 2002 |  |   | March 31, 2002 |  
|Revenue:                                        |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Fee revenue                                     |  | $                                                         | 53,428 |   |                | $ | 52,218 |               |  | $ | 51,564         |   |  | $             | 52,260 |   |                | $ | 51,407 |               |  | $ | 52,721         |   |  | $ | 50,245 |   |  | $ | 49,558 |  
|Pass-through revenue                            |  |                                                           | 28,742 |   |                |   | 25,709 |               |  |   | 20,994         |   |  |               | 26,898 |   |                |   | 40,854 |               |  |   | 32,798         |   |  |   | 24,010 |   |  |   | 19,431 |  
|                                                |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Total revenue                                   |  |                                                           | 82,170 |   |                |   | 77,927 |               |  |   | 72,558         |   |  |               | 79,158 |   |                |   | 92,261 |               |  |   | 85,519         |   |  |   | 74,255 |   |  |   | 68,989 |  
|                                                |  |                                                           |        |   |                |   |        |              
|Operating expenses:                             |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Professional services costs                     |  |                                                           | 31,229 |   |                |   | 30,548 |               |  |   | 30,387         |   |  |               | 30,588 |   |                |   | 30,780 |               |  |   | 30,959         |   |  |   | 29,281 |   |  |   | 29,410 |  
|Pass-through expenses                           |  |                                                           | 28,742 |   |                |   | 25,709 |               |  |   | 20,994         |   |  |               | 26,898 |   |                |   | 40,854 |               |  |   | 32,798         |   |  |   | 24,010 |   |  |   | 19,431 |  
|Selling, general and administrative expenses    |  |                                                           | 16,296 |   |                |   | 16,335 |               |  |   | 16,176         |   |  |               | 16,948 |   |                |   | 16,649 |               |  |   | 16,878         |   |  |   | 16,958 |   |  |   | 17,263 |  
|Stock-based compensation                        |  |                                                           | 1,716  |   |                |   | 1,980  |               |  |   | 1,930          |   |  |               | 1,825  |   |                |   | 2,220  |               |  |   | 2,066          |   |  |   | 2,084  |   |  |   | 2,077  |  
|Amortization of intangible assets               |  |                                                           | 177    |   |                |   | 176    |               |  |   | 177            |   |  |               | 176    |   |                |   | 177    |               |  |   | 176            |   |  |   | 177    |   |  |   | 176    |  
|Restructuring expenses (income)                 |  |                                                           | (4,109 | ) |                |   |       |               |  |   |               |   |  |               |       |   |                |   |       |               |  |   | 47,114         |   |  |   |       |   |  |   |       |  
|                                                |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Total operating expenses                        |  |                                                           | 74,051 |   |                |   | 74,748 |               |  |   | 69,664         |   |  |               | 76,435 |   |                |   | 90,680 |               |  |   | 129,991        |   |  |   | 72,510 |   |  |   | 68,357 |  
|                                                |  |                                                           |        |   |                |   |        |              
|Income (loss) from operations                   |  |                                                           | 8,119  |   |                |   | 3,179  |               |  |   | 2,894          |   |  |               | 2,723  |   |                |   | 1,581  |               |  |   | (44,472        | ) |  |   | 1,745  |   |  |   | 632    |  
|Other income (expense):                         |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Interest income                                 |  |                                                           | 155    |   |                |   | 152    |               |  |   | 155            |   |  |               | 230    |   |                |   | 257    |               |  |   | 266            |   |  |   | 215    |   |  |   | 220    |  
|Interest expense                                |  |                                                           | (131   | ) |                |   | (140   | )             |  |   | (144           | ) |  |               | (134   | ) |                |   | (142   | )             |  |   | (137           | ) |  |   | (144   | ) |  |   | (139   | )
|Other miscellaneous income (expense)            |  |                                                           | 2      |   |                |   | 6      |               |  |   | 8              |   |  |               | 2      |   |                |   |       |               |  |   |               |   |  |   | 20     |   |  |   | (2     | )
|                                                |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|                                                |  |                                                           | 26     |   |                |   | 18     |               |  |   | 19             |   |  |               | 98     |   |                |   | 115    |               |  |   | 129            |   |  |   | 91     |   |  |   | 79     |  
|                                                |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|                                                |  |                                                           |        |   |                |   |        |              
|Income (loss) before provision for income taxes |  |                                                           | 8,145  |   |                |   | 3,197  |               |  |   | 2,913          |   |  |               | 2,821  |   |                |   | 1,696  |               |  |   | (44,343        | ) |  |   | 1,836  |   |  |   | 711    |  
|Provision for income taxes                      |  |                                                           | (28    | ) |                |   |       |               |  |   |               |   |  |               | (189   | ) |                |   |       |               |  |   | (200           | ) |  |   |       |   |  |   |       |  
|                                                |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Net income (loss)                               |  | $                                                         | 8,117  |   |                | $ | 3,197  |               |  | $ | 2,913          |   |  | $             | 2,632  |   |                | $ | 1,696  |               |  | $ | (44,543        | ) |  | $ | 1,836  |   |  | $ | 711    |  
|                                                |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Net income (loss) per sharebasic               |  | $                                                         | 0.13   |   |                | $ | 0.05   |               |  | $ | 0.05           |   |  | $             | 0.04   |   |                | $ | 0.03   |               |  | $ | (0.71          | ) |  | $ | 0.03   |   |  | $ | 0.01   |  
|Net income (loss) per sharediluted             |  | $                                                         | 0.11   |   |                | $ | 0.05   |               |  | $ | 0.05           |   |  | $             | 0.04   |   |                | $ | 0.03   |               |  | $ | (0.71          | ) |  | $ | 0.03   |   |  | $ | 0.01   |  
|                                                |  |                                                           |        |   |                |   |        |              
|Weighted average common shares outstanding      |  |                                                           |        |   |                |   |        |               |  |   |                |   |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |   |  |   |        |  
|Basic                                           |  |                                                           | 62,102 |   |                |   | 59,712 |               |  |   | 58,061         |   |  |               | 63,166 |   |                |   | 62,650 |               |  |   | 62,833         |   |  |   | 62,505 |   |  |   | 61,411 |  
|Diluted                                         |  |                                                           | 71,940 |   |                |   | 69,012 |               |  |   | 64,665         |   |  |               | 69,157 |   |                |   | 67,202 |               |  |   | 62,833         |   |  |   | 70,360 |   |  |   | 70,456 |  





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##### Table of Contents

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



On March 27, 2002, the Audit Committee of our Board of Directors informed Arthur Andersen LLP (Arthur Andersen), our independent public
accountants for the fiscal year ended December 31, 2001, of its decision to no longer engage Arthur Andersen as our independent public accountants. On April 1, 2002, we engaged Ernst & Young LLP to serve as our independent public accountants for
the full year ending December 31, 2002. On April 3, 2002, we filed a Form 8-K announcing this change in independent public accountants.



Arthur Andersens reports on our consolidated financial statements for each of the fiscal years ended December 31, 2001 and 2000 did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.



During the fiscal years ended December 31, 2001 and 2000, there were no disagreements with Arthur Andersen on any matter of accounting principle or
practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersens satisfaction, would have caused them to make reference to the subject matter in connection with their report on our
consolidated financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.



We provided Arthur Andersen with a copy of the foregoing disclosures. Attached, as Exhibit 16.1 is a copy of Arthur Andersens letter, dated March
28, 2002, stating its agreement with such statements.



During
the fiscal years ended December 31, 2001 and 2000 and through March 27, 2002, we did not consult Ernst & Young LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of
audit opinion that might be rendered on our consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.



Item 9a.Controls and Procedures



(a) Evaluation of disclosure controls and procedures.



As required by new Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we and our
management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in
evaluating and implementing possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that they believe that as of the end of the period covered by this report, our
disclosure controls and procedures were reasonably effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commissions rules and forms. In connection with the new rules, we will continue to review and document our disclosure controls and procedures, including our internal controls and procedures for
financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.



(b) Changes in internal controls.



None.



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##### Table of Contents

PART III



Item 10.Directors and Executive Officers of Registrant



(a) Directors



Incorporated herein by reference is the information appearing under the captions Information Concerning Directors and Compliance with
Section 16(a) of the Securities Exchange Act of 1934 in the Digitas definitive Proxy Statement for its 2004 Annual Meeting of Stockholders.



(b) Executive Officers



Incorporated herein by reference is the information appearing under the caption Executive Officers in the Digitas definitive Proxy Statement
for its 2004 Annual Meeting of Stockholders.



(c) Code of
Ethics



The Company has adopted a code of ethics that
applies to all employees, including our principal executive officer, principal financial officer and principal accounting officer and persons performing similar functions. Our code of ethics is filed as Exhibit 14.1 to this Annual Report on Form
10-K. Digitas intends to satisfy the disclosure requirement under Item 10 of Form 8-K, regarding an amendment to or waiver from our code of ethics, by posting the required information on our Internet website at www.digitas.com.



Item 11.Executive Compensation



Incorporated herein by reference is the information appearing under the caption Executive Compensation in the Digitas definitive Proxy Statement for its 2004 Annual Meeting of Stockholders.



Item 12.Security Ownership of Certain Beneficial Owners and Management



Incorporated herein by reference is the information appearing under the caption Security Ownership of Executive Officers and Directors in the
Digitas definitive Proxy Statement for its 2004 Annual Meeting of Stockholders. See Part I Item 5 for information regarding stockholder approved and non-stockholder approved equity compensation plans.



Item 13.Certain Relationships and Related Transactions



None.



Item 14.Principal Accountant Fees and Services



Incorporated herein by reference is the information appearing under the caption Principal Accountant Fees and Services in the Digitas
definitive Proxy Statement for its 2004 Annual Meeting of Stockholders.



PART IV



Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K



15(a)(1) Financial Statements



The financial statements and notes are listed in the Index to Financial Statements on page F-1 of this report.



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15(a)(2) Financial Statement Schedules



The following are contained in this annual report on Form 10-K immediately
following the Notes to Consolidated Financial Statements:



| |  | Report of Independent Auditors
| | - | ------------------------------



| |  | Schedule II: Valuation and Qualifying Accounts
| | - | ----------------------------------------------



Schedules not listed above are omitted because they are not required or because the required information is given in the consolidated financial statements
or notes thereto.



15(a)(3) Exhibits



Exhibits are as set forth in the Index to Exhibits which follows
the Notes to Consolidated Financial Statements.



15(b)
Reports on Form 8-K



Current Report on Form 8-K, filed
October 29, 2003, furnishing the Digitas Inc. press release dated October 29, 2003.



Current Report on Form 8-K, filed November 21, 2003, announcing that the Board of Directors authorized the Company to purchase up to $20 million worth of its common stock in the open market or in private transactions
between December 13, 2003 and June 30, 2005.



29



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##### Table of Contents

DIGITAS



INDEX TO FINANCIAL
STATEMENTS



|                                                                                            |  |     
|------------------------------------------------------------------------------------------- |  | ----
|                                                                                            |  | Page
|Report of Independent Auditors                                                              |  | F-2 
|Report of Independent Public Accountants                                                    |  | F-3 
|Consolidated Balance Sheets at December 31, 2003 and 2002                                   |  | F-4 
|Consolidated Statements of Operations for the Three Years Ended December 31, 2003           |  | F-5 
|Consolidated Statements of Shareholders Equity for the Three Years Ended December 31, 2003 |  | F-6 
|Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2003           |  | F-7 
|Notes to Consolidated Financial Statements                                                  |  | F-8 



F-1



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##### Table of Contents

REPORT OF INDEPENDENT AUDITORS



To the Board of
Directors and Shareholders of Digitas Inc.:



We have audited
the accompanying consolidated balance sheets of Digitas Inc. as of December 31, 2003 and 2002 and the related consolidated statements of operations, shareholders equity and cash flows for the two years then ended. Our audits also included the
financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits. The consolidated financial statements and schedule of Digitas Inc. for the year ended December 31, 2001 were audited by other auditors who have ceased operations and whose report dated January 23, 2002 expressed an
unqualified opinion on those statements and schedule before the adjustments described in Note 1.



We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the 2003 and 2002 financial statements
referred to above present fairly, in all material respects, the consolidated financial position of Digitas Inc. as of December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for the two years then ended in
conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.



As
discussed in Note 1 to the financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (Statement) No. 142, Goodwill and Other Intangible Assets and Emerging Issues Task Force Issue
Number 01-14: Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred (EITF 01-14). As discussed above, the consolidated financial statements of Digitas Inc. as of December 31, 2001 and for the
year then ended, were audited by other auditors who have ceased operations. As described in Note 1, these consolidated financial statements have been revised to include the transitional disclosures required by Statement No. 142 and the addition of
pass-through revenue and expenses for EITF 01-14, which were both adopted as of January 1, 2002. With respect to the adoption of Statement No. 142, we have audited the disclosures in Note 1. With respect to the adoption of EITF 01-14, we have
audited the adjustments to the statement of operations. With respect to these adjustments and disclosures, our procedures were limited to (a) agreeing the previously reported revenues, operating expenses and net loss to the previously issued
financial statements, (b) agreeing the adjustments to the underlying records obtained from management, and (c) testing the mathematical accuracy of the reconciliation of adjusted revenue and operating expenses and the revised financial statements.
In our opinion such disclosures and adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the consolidated financial statements of Digitas Inc. for the year ended
December 31, 2001, other than with respect to such disclosures and adjustments and, accordingly, we do not express an opinion or any other form of assurance on the consolidated financial statements as of December 31, 2001, and for the year then
ended, taken as a whole.



/s/ Ernst &
Young LLP



Boston, Massachusetts

January 23, 2004



F-2



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##### Table of Contents

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the
Board of Directors of Digitas Inc.:



We have audited the
accompanying balance sheets of Digitas Inc. (a Delaware corporation) as of December 31, 2001 and 2000 and the related statements of operations, shareholders equity and cash flows for each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.



In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of Digitas Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the three years ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.



/s/ Arthur Andersen LLP



Boston, Massachusetts

January 23, 2002



NOTE:

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Digitas Inc.s filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by
Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.



F-3



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##### Table of Contents

DIGITAS



CONSOLIDATED BALANCE
SHEETS

(dollars in thousands)



|                                                                                                                                                                            |  |              |          |   |      |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                                                            |  | December 31, |         
|                                                                                                                                                                            |  | 2003         |          |   | 2002 |  
|ASSETS                                                                                                                                                                      |  |              |          |   |      |   |          |  
|Current assets:                                                                                                                                                             |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                                                                   |  | $            | 73,643   |   |      | $ | 68,827   |  
|Accounts receivable, net of allowance for doubtful accounts of $962 and $944 at December 31, 2003 and 2002, respectively                                                    |  |              | 32,860   |   |      |   | 34,920   |  
|Accounts receivable, unbilled                                                                                                                                               |  |              | 6,851    |   |      |   | 17,986   |  
|Prepaid expenses and other current assets                                                                                                                                   |  |              | 6,763    |   |      |   | 5,029    |  
|                                                                                                                                                                            |  |              |          |   |      |   |          |  
|Total current assets                                                                                                                                                        |  |              | 120,117  |   |      |   | 126,762  |  
|Fixed assets, net                                                                                                                                                           |  |              | 17,990   |   |      |   | 30,892   |  
|Goodwill, net                                                                                                                                                               |  |              | 98,130   |   |      |   | 98,130   |  
|Other intangible assets, net                                                                                                                                                |  |              | 705      |   |      |   | 1,411    |  
|Other assets                                                                                                                                                                |  |              | 3,579    |   |      |   | 2,054    |  
|                                                                                                                                                                            |  |              |          |   |      |   |          |  
|Total assets                                                                                                                                                                |  | $            | 240,521  |   |      | $ | 259,249  |  
|                                                                                                                                                                            |  |              |          |   |      |   |          |  
|                                                                                                                                                                            |  |             
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                        |  |              |          |   |      |   |          |  
|Current liabilities:                                                                                                                                                        |  |              |          |   |      |   |          |  
|Accounts payable                                                                                                                                                            |  | $            | 8,698    |   |      | $ | 17,092   |  
|Billings in excess of cost and estimated earnings on uncompleted contracts                                                                                                  |  |              | 20,564   |   |      |   | 24,685   |  
|Accrued expenses                                                                                                                                                            |  |              | 7,386    |   |      |   | 7,842    |  
|Accrued compensation                                                                                                                                                        |  |              | 19,410   |   |      |   | 17,749   |  
|Accrued restructuring                                                                                                                                                       |  |              | 9,056    |   |      |   | 11,117   |  
|Current portion of long-term debt                                                                                                                                           |  |              | 281      |   |      |   | 255      |  
|Capital lease obligations                                                                                                                                                   |  |              |         |   |      |   | 276      |  
|                                                                                                                                                                            |  |              |          |   |      |   |          |  
|Total current liabilities                                                                                                                                                   |  |              | 65,395   |   |      |   | 79,016   |  
|Long-term debt, less current portion                                                                                                                                        |  |              | 282      |   |      |   | 563      |  
|Accrued restructuring, long-term                                                                                                                                            |  |              | 20,252   |   |      |   | 39,271   |  
|Other long-term liabilities                                                                                                                                                 |  |              | 175      |   |      |   | 315      |  
|                                                                                                                                                                            |  |              |          |   |      |   |          |  
|Total liabilities                                                                                                                                                           |  |              | 86,104   |   |      |   | 119,165  |  
|Shareholders equity:                                                                                                                                                       |  |              |          |   |      |   |          |  
|Preferred shares, $.01 par value per share; 25,000,000 shares authorized and none issued and outstanding at December 31, 2003 and
2002                                      |  |              |         |   |      |   |         |  
|Common shares, $.01 par value per share, 175,000,000 shares authorized; 62,809,518 and 62,510,919 shares issued and outstanding at December
31, 2003 and 2002, respectively |  |              | 628      |   |      |   | 625      |  
|Additional paid-in capital                                                                                                                                                  |  |              | 336,294  |   |      |   | 346,898  |  
|Accumulated deficit                                                                                                                                                         |  |              | (180,783 | ) |      |   | (197,642 | )
|Cumulative foreign currency translation adjustment                                                                                                                          |  |              | (28      | ) |      |   | (62      | )
|Deferred compensation                                                                                                                                                       |  |              | (1,694   | ) |      |   | (9,735   | )
|                                                                                                                                                                            |  |              |          |   |      |   |          |  
|Total shareholders equity                                                                                                                                                  |  |              | 154,417  |   |      |   | 140,084  |  
|                                                                                                                                                                            |  |              |          |   |      |   |          |  
|Total liabilities and shareholders equity                                                                                                                                  |  | $            | 240,521  |   |      | $ | 259,249  |  
|                                                                                                                                                                            |  |              |          |   |      |   |          |  



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



F-4



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##### Table of Contents

DIGITAS



CONSOLIDATED
STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                |  | Year Ended December 31, |        
|                                                |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Revenue:                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Fee revenue                                     |  | $                       | 209,470 |   |      | $ | 203,931 |      |  | $ | 235,514 |  
|Pass-through revenue                            |  |                         | 102,343 |   |      |   | 117,093 |      |  |   | 99,781  |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Total revenue                                   |  |                         | 311,813 |   |      |   | 321,024 |      |  |   | 335,295 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                |  |                         |        
|Operating expenses:                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Professional services costs                     |  |                         | 122,752 |   |      |   | 120,430 |      |  |   | 157,694 |  
|Pass-through expenses                           |  |                         | 102,343 |   |      |   | 117,093 |      |  |   | 99,781  |  
|Selling, general and administrative expenses    |  |                         | 65,755  |   |      |   | 67,748  |      |  |   | 95,545  |  
|Stock-based compensation                        |  |                         | 7,451   |   |      |   | 8,447   |      |  |   | 10,147  |  
|Amortization of intangible assets               |  |                         | 706     |   |      |   | 706     |      |  |   | 25,238  |  
|Restructuring expenses (income), net            |  |                         | (4,109  | ) |      |   | 47,114  |      |  |   | 41,888  |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                        |  |                         | 294,898 |   |      |   | 361,538 |      |  |   | 430,293 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                |  |                         |        
|Income (loss) from operations                   |  |                         | 16,915  |   |      |   | (40,514 | )    |  |   | (94,998 | )
|                                                |  |                         |        
|Other income (expense):                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest income                                 |  |                         | 692     |   |      |   | 958     |      |  |   | 1,443   |  
|Interest expense                                |  |                         | (549    | ) |      |   | (562    | )    |  |   | (487    | )
|Other miscellaneous income, net                 |  |                         | 18      |   |      |   | 18      |      |  |   | 102     |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) before provision for income taxes |  |                         | 17,076  |   |      |   | (40,100 | )    |  |   | (93,940 | )
|Provision for income taxes                      |  |                         | (217    | ) |      |   | (200    | )    |  |   | (148    | )
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                               |  | $                       | 16,859  |   |      | $ | (40,300 | )    |  | $ | (94,088 | )
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                |  |                         |        
|Net income (loss) per share                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic                                           |  | $                       | 0.28    |   |      | $ | (0.65   | )    |  | $ | (1.58   | )
|Diluted                                         |  | $                       | 0.24    |   |      | $ | (0.65   | )    |  | $ | (1.58   | )
|                                                |  |                         |        
|Weighted average common shares outstanding      |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic                                           |  |                         | 60,754  |   |      |   | 62,354  |      |  |   | 59,514  |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Diluted                                         |  |                         | 69,234  |   |      |   | 62,354  |      |  |   | 59,514  |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  





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



F-5



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##### Table of Contents

DIGITAS



CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY

(in thousands, except share data)



|                                                   |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   |         |  
|-------------------------------------------------- |  | ------------ | - |  | ------------------------ | --- | - | ------------------ | - | ------- | ------------------------------------------------ |  | - | -------------------- | - |  | ------------------------ | ---- | - |  | - | ------- | - |  | - | ------- | -
|                                                   |  | Common Stock |   |  | AdditionalPaid-inCapital |     |   | AccumulatedDeficit |   |         | CumulativeForeignCurrency Translation Adjustment |  |   | DeferredCompensation |   |  | TotalShareholdersEquity |     
|                                                   |  | Shares       |   |  | Amount                   |     |   |                    |   |         |                                                 
|Balance at December 31, 2000                       |  | 58,077,801   |   |  | $                        | 581 |   |                    | $ | 360,175 |                                                  |  | $ | (63,254              | ) |  | $                        |     |   |  | $ | (48,045 | ) |  | $ | 249,457 |  
|                                                   |  |              |   |  |                          |     |  
|Net loss                                           |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   | (94,088              | ) |  |                          |      |   |  |   |         |   |  |   | (94,088 | )
|Cumulative foreign currency translation adjustment |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          | (396 | ) |  |   |         |   |  |   | (396    | )
|                                                   |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                           |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | (94,484 | )
|Exercise of stock options                          |  | 2,268,397    |   |  |                          | 22  |   |                    |   | 2,973   |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | 2,995   |  
|Stock-based compensation                           |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   | 10,147  |   |  |   | 10,147  |  
|Cancellation of stock options                      |  |              |   |  |                          |     |   |                    |   | (19,005 | )                                                |  |   |                      |   |  |                          |      |   |  |   | 19,005  |   |  |   |        |  
|Issuance of common stock                           |  | 510,885      |   |  |                          | 5   |   |                    |   | 1,766   |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | 1,771   |  
|                                                   |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2001                       |  | 60,857,083   |   |  |                          | 608 |   |                    |   | 345,909 |                                                  |  |   | (157,342             | ) |  |                          | (396 | ) |  |   | (18,893 | ) |  |   | 169,886 |  
|                                                   |  |              |   |  |                          |     |  
|Net loss                                           |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   | (40,300              | ) |  |                          |      |   |  |   |         |   |  |   | (40,300 | )
|Cumulative foreign currency translation adjustment |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          | 334  |   |  |   |         |   |  |   | 334     |  
|                                                   |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                           |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | (39,966 | )
|Exercise of stock options                          |  | 2,060,985    |   |  |                          | 21  |   |                    |   | 3,000   |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | 3,021   |  
|Stock-based compensation                           |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   | 8,447   |   |  |   | 8,447   |  
|Cancellation of stock options                      |  |              |   |  |                          |     |   |                    |   | (711    | )                                                |  |   |                      |   |  |                          |      |   |  |   | 711     |   |  |   |        |  
|Issuance of common stock                           |  | 258,851      |   |  |                          | 3   |   |                    |   | 721     |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | 724     |  
|Repurchase of common stock                         |  | (666,000     | ) |  |                          | (7  | ) |                    |   | (2,021  | )                                                |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | (2,028  | )
|                                                   |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2002                       |  | 62,510,919   |   |  |                          | 625 |   |                    |   | 346,898 |                                                  |  |   | (197,642             | ) |  |                          | (62  | ) |  |   | (9,735  | ) |  |   | 140,084 |  
|                                                   |  |              |   |  |                          |     |  
|Net income                                         |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   | 16,859               |   |  |                          |      |   |  |   |         |   |  |   | 16,859  |  
|Cumulative foreign currency translation adjustment |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          | 34   |   |  |   |         |   |  |   | 34      |  
|                                                   |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   |         |  
|Total comprehensive income                         |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | 16,893  |  
|Exercise of stock options                          |  | 6,535,632    |   |  |                          | 65  |   |                    |   | 15,295  |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | 15,360  |  
|Stock-based compensation                           |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   | 7,451   |   |  |   | 7,451   |  
|Cancellation of stock options                      |  |              |   |  |                          |     |   |                    |   | (590    | )                                                |  |   |                      |   |  |                          |      |   |  |   | 590     |   |  |   |        |  
|Issuance of common stock                           |  | 189,702      |   |  |                          | 2   |   |                    |   | 560     |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | 562     |  
|Repurchase of common stock                         |  | (6,426,735   | ) |  |                          | (64 | ) |                    |   | (25,869 | )                                                |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   | (25,933 | )
|                                                   |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                       |  | 62,809,518   |   |  | $                        | 628 |   |                    | $ | 336,294 |                                                  |  | $ | (180,783             | ) |  | $                        | (28  | ) |  | $ | (1,694  | ) |  | $ | 154,417 |  
|                                                   |  |              |   |  |                          |     |   |                    |   |         |                                                  |  |   |                      |   |  |                          |      |   |  |   |         |   |  |   |         |  





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



F-6



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##### Table of Contents

DIGITAS



CONSOLIDATED
STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                        |  | Year Ended December 31, |        
|                                                                                        |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Cash flows from operating activities:                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                       |  | $                       | 16,859  |   |      | $ | (40,300 | )    |  | $ | (94,088 | )
|Adjustments to reconcile net income (loss) to net cash providedby operating activities: |  |                         |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                           |  |                         | 9,673   |   |      |   | 12,743  |      |  |   | 39,541  |  
|Gain on disposal of fixed assets                                                        |  |                         |        |   |      |   |        |      |  |   | (49     | )
|Stock-based compensation                                                                |  |                         | 7,451   |   |      |   | 8,447   |      |  |   | 10,147  |  
|Provision for doubtful accounts                                                         |  |                         | 47      |   |      |   |        |      |  |   | 2,556   |  
|Noncash restructuring expenses                                                          |  |                         | (4,109  | ) |      |   | 43,809  |      |  |   | 23,014  |  
|Changes in operating assets and liabilities:                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                     |  |                         | 2,111   |   |      |   | 880     |      |  |   | 28,224  |  
|Accounts receivable, unbilled                                                           |  |                         | 11,186  |   |      |   | 508     |      |  |   | 17,532  |  
|Prepaid expenses and other current assets                                               |  |                         | (1,684  | ) |      |   | 2,923   |      |  |   | (672    | )
|Other assets                                                                            |  |                         | (1,627  | ) |      |   | 150     |      |  |   | 662     |  
|Accounts payable                                                                        |  |                         | (8,422  | ) |      |   | 2,680   |      |  |   | 1,977   |  
|Billings in excess of costs and estimated earnings on uncompleted contracts             |  |                         | (4,142  | ) |      |   | (604    | )    |  |   | (7,090  | )
|Accrued expenses                                                                        |  |                         | (785    | ) |      |   | (1,820  | )    |  |   | (8,717  | )
|Accrued compensation                                                                    |  |                         | 1,660   |   |      |   | 6,448   |      |  |   | (5,550  | )
|Accrued restructuring                                                                   |  |                         | (8,831  | ) |      |   | (11,523 | )    |  |   |        |  
|Other long-term liabilities                                                             |  |                         | (140    | ) |      |   | 58      |      |  |   | (31     | )
|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                               |  |                         | 19,247  |   |      |   | 24,399  |      |  |   | 7,456   |  
|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Purchase of fixed assets                                                                |  |                         | (3,956  | ) |      |   | (3,057  | )    |  |   | (14,635 | )
|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                   |  |                         | (3,956  | ) |      |   | (3,057  | )    |  |   | (14,635 | )
|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Principal payments under capital lease obligations                                      |  |                         | (276    | ) |      |   | (665    | )    |  |   | (633    | )
|Payment of notes payable, tenant allowances                                             |  |                         | (255    | ) |      |   | (231    | )    |  |   | (208    | )
|Repurchase of common stock, net of transaction costs                                    |  |                         | (25,933 | ) |      |   | (2,028  | )    |  |   |        |  
|Proceeds from issuance of common stock, net of issuance costs                           |  |                         | 15,923  |   |      |   | 3,745   |      |  |   | 4,766   |  
|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) financing activities                                     |  |                         | (10,541 | ) |      |   | 821     |      |  |   | 3,925   |  
|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                            |  |                         | 66      |   |      |   | 191     |      |  |   | (130    | )
|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                    |  |                         | 4,816   |   |      |   | 22,354  |      |  |   | (3,384  | )
|Cash and cash equivalents, beginning of period                                          |  |                         | 68,827  |   |      |   | 46,473  |      |  |   | 49,857  |  
|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents, end of period                                                |  | $                       | 73,643  |   |      | $ | 68,827  |      |  | $ | 46,473  |  
|                                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Supplemental disclosure of cash flow information:                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash paid for taxes                                                                     |  | $                       | 97      |   |      | $ | 637     |      |  | $ | 8,097   |  
|Cash paid for interest                                                                  |  |                         | 447     |   |      |   | 552     |      |  |   | 398     |  
|Supplemental disclosure of noncash investing and financing activities:                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Assets acquired under capital lease obligations                                         |  | $                       |        |   |      | $ |        |      |  | $ | 58      |  
|Income tax refund receivable                                                            |  |                         |        |   |      |   |        |      |  |   | 5,600   |  



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



F-7



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS



1. BASIS OF
PRESENTATION, DESCRIPTION OF BUSINESS, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis of Presentation



Bronner Slosberg Humphrey Inc. was incorporated in Massachusetts in 1980 as a Subchapter S corporation. Strategic Interactive Group, Inc. was incorporated in Massachusetts in 1995 as a Subchapter S corporation. Through December 31, 1998,
certain shareholders of Bronner Slosberg Humphrey Inc. (BSH) owned a majority of the outstanding shares of Strategic Interactive Group, Inc. (SIG).



On November 5, 1998, BSH and SIG completed transactions in which each company was reorganized into a Massachusetts business
trust (each a Trust and together the Trusts) with a wholly owned limited liability company (LLC) subsidiary. After formation of the Trusts and LLCs, the two companies were merged with and into Bronner Slosberg
Humphrey, LLC and Strategic Interactive Group, LLC, respectively, with each shareholder of the original S corporations receiving as consideration an equivalent number of beneficial common shares in the Trusts as the shareholders held in the S
corporations prior to the mergers. The reorganization of the companies into Trusts and subsidiary LLCs has been accounted for at historical cost as a combination of entities under common control.



Effective January 1, 1999, BSH and SIG completed a transaction with a private
equity investor and the existing shareholders (the Recapitalization). Under the terms of the Recapitalization, the private equity investor acquired a certain number of shares directly from the existing shareholders for $102.0 million. In
addition the Company borrowed $70.6 million from a bank. On the date following the close of the Recapitalization, SIG effectively merged into Bronner Slosberg Humphrey Co. Bronner Slosberg Humphrey Co. served as the ultimate parent of Digitas LLC,
the Delaware limited liability company through which the business was operated through December 31, 2001. Substantially all of the stock options and stock appreciation rights of BSH and SIG were replaced with stock options in Bronner Slosberg
Humphrey Co. with equivalent in-the-money value, which existed at the date of Recapitalization. The Recapitalization was accounted for as a purchase. On December 22, 1999, Digitas Inc., a Delaware corporation, was formed to ultimately hold the
ownership interests of Bronner Slosberg Humphrey Co. and Digitas LLC after completing a reorganization to become the sole shareholder of the Trust. Effective December 31, 2001, Bronner Slosberg Humphrey Co. was merged into a newly formed
Massachusetts corporation Bronner Slosberg Humphrey Inc. The terms Company and Digitas refer to Digitas LLC prior to the reorganization and Digitas Inc. thereafter.



Operations



Digitas is a relationship marketing services provider offering strategy and technology enablement and marketing agency
services. Serving many of the worlds leading companies, Digitas helps clients attract, retain and grow the most profitable customer relationships in their industries.



Summary of Significant Accounting Policies



Cash and Cash Equivalents



Cash and cash equivalents include all highly liquid instruments purchased with an original maturity of three months or less. Cash equivalents are stated
at cost plus accrued interest, which approximates fair value.



Allowance for
Doubtful Accounts



The Company maintains an allowance for
estimated losses resulting from the inability of customers to make required payments. The collectibility of outstanding customer invoices is continuously assessed. In estimating the



F-8



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



allowance, the Company considers factors such as historical collections, a customers current credit-worthiness, age of the receivable balance both
individually and in the aggregate, and general economic conditions that may affect a customers ability to pay. Actual customer collections could differ from estimates, requiring additional adjustments to the allowance for doubtful accounts.



Fixed Assets



Fixed assets are recorded at cost. Expenditures for renewals and
improvements are capitalized. Repairs and maintenance are charged to operations as incurred. Equipment held under capital leases is stated at the present value of minimum lease payments at the inception of the lease and amortized using the
straight-line method. Leasehold improvements are recorded net of construction allowances provided by the landlord. Depreciation is recorded on the straight-line basis over the estimated useful lives of the related assets, which are as follows:



|                                |  |                                    
|------------------------------- |  | -----------------------------------
|Furniture and fixtures          |  | 5-7 years                          
|Computer equipment and software |  | 3-5 years                          
|Capital leases                  |  | Lesser of lease term or useful life
|Leasehold improvements          |  | Lesser of lease term or useful life



Goodwill



Goodwill is stated at cost less accumulated amortization. Through December
31, 2001, goodwill was amortized on a straight-line basis over its estimated life of seven years. Effective January 1, 2002, with the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, the Company ceased amortizing goodwill. SFAS No. 142 requires goodwill to be tested for impairment on an annual basis, and between annual tests in certain circumstances, and written down when impaired. Impairment exists if the carrying
value of the reporting unit exceeds the fair value of the reporting unit. The Company evaluates goodwill for impairment using the two-step process as prescribed in SFAS No. 142. The first step is an initial evaluation for potential impairment, while
the second step is a measurement of the amount of the impairment. The Company performed the initial step by considering our fair market value as determined by our publicly traded stock to our carrying amount. We also considered future discounted
cash flows as compared to the carrying amount to assess the recoverability of the goodwill asset. The use of discounted cash flow requires us to make certain assumptions and estimates regarding industry economic factors and future profitability.
Based upon these tests, the Company determined that the fair value exceeded the carrying amount resulting in no impairment to existing intangible assets or goodwill in 2003 or 2002. The effect of discontinuing the amortization of goodwill on net
income and earnings per share for the years ended December 31, 2001 is presented below. (dollars in thousands)



|                                                  |  |                            |         |  
|------------------------------------------------- |  | -------------------------- | ------- | -
|                                                  |  | Year EndedDecember 31,2001 |        
|Net loss as reported                              |  | $                          | (94,088 | )
|Plus: amortization of goodwill                    |  |                            | 24,532  |  
|                                                  |  |                            |         |  
|Pro forma net loss                                |  | $                          | (69,556 | )
|                                                  |  |                            |         |  
|                                                  | 
|Basic and diluted net loss per share, as reported |  | $                          | (1.58   | )
|Plus: amortization of goodwill                    |  |                            | 0.41    |  
|                                                  |  |                            |         |  
|Pro forma basic and diluted net loss per share    |  | $                          | (1.17   | )
|                                                  |  |                            |         |  



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Other Intangible Assets



Other intangible assets are stated at cost less accumulated amortization. As of December 31, 2003 and 2002, other intangible
assets consist of favorable leases, which represent the difference between the fair market value of the new leases signed on the purchase date in conjunction with the recapitalization and the actual leases in existence. Other intangible assets are
amortized on a straight-line basis over their estimated lives. The estimated life of the favorable leases is six years.



Internal Use Software



The Company capitalizes external costs related to software and implementation services in connection with its internal use software systems.



Impairment of Long-Lived Assets



In accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the Company evaluates the recoverability of the carrying value of its long-lived assets based on estimated undiscounted cash flows to be generated from each of such assets compared to the original estimates used
in measuring the assets. To the extent impairment is identified, the Company reduces the carrying value of such impaired assets to fair value based on estimated discounted future cash flows.



Fair Value of Financial Instruments



The fair value of cash and cash equivalents, accounts receivable, short-term
debt and accounts payable approximate their carrying value due to the immediate or short-term maturity of these financial instruments. The fair value of long-term debt is based on the current rates offered to the Company for debt instruments of
similar risks and maturities and approximates its carrying value.



Fee
Revenue Recognition



Revenue pursuant to time and
materials contracts is recognized as services are provided. Individual projects generally last up to six months, however some of the Companys projects may last longer in duration. While the Company generally enters into written agreements with
its clients, these contracts are typically terminable upon 30 to 90 days notice. Under these termination provisions, revenue is earned based upon time and materials incurred. The Company recognizes revenue earned under time and materials contracts
as services are provided based upon hours worked and contractually agreed-upon hourly rates. The Company recognizes revenue from fixed-price contracts, such as consulting arrangements, using the proportional performance method based on the ratio of
costs incurred to estimates of total expected project costs in order to determine the amount of revenue earned to date. Project costs are based on the direct salary and associated fringe benefits of the consultants on the engagement plus all direct
expenses incurred to complete the engagement that are not reimbursed by the client. The proportional performance method is used since reasonably dependable estimates of the revenues and costs applicable to various stages of a contract can be made.
These estimates are based on historical experience and deliverables identified in the contract and are indicative of the level of benefit provided to the Companys clients. The Companys financial management maintains contact with project
managers to monitor the status of the projects and, for fixed-price engagements, financial management is updated on the budgeted costs and required resources to complete the project. These budgets are then used to calculate revenue recognition and
to estimate the income or loss on the project. Favorable changes in estimates result in additional revenue and profit recognition, and unfavorable changes in estimates result in a reduction of recognized revenue and profit. If a contract was
anticipated to result in a loss, provisions for the estimated loss on the contract would be made in the



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



period in which the loss first becomes probable and reasonably estimable. Some contracts contain provisions for performance incentives. Such contingent
revenue is recognized in the period in which the contingency is resolved. The Company recognizes revenue for services only in those situations where collection from the client is reasonably assured. The Companys normal payment terms are 30
days from invoice date. Client relationship managers and finance personnel monitor timely payments from clients and assess collection issues, if any. Unbilled accounts receivable on contracts is comprised of costs incurred plus estimated earnings
from revenue earned in advance of billings under the contract. Advance payments are recorded as billings in excess of cost and estimated earnings on uncompleted contracts until the services are provided. Included in accounts receivable and unbilled
accounts receivable are reimbursable costs.



Pass-through Revenue and
Expenses



The Company incurs significant reimbursable
costs, such as payments to vendors for media and production services and postage and travel-related expenses, on behalf of clients. In accordance with the client agreements, there is no markup on reimbursable costs and the clients approval is
required prior to the Company incurring them. Although the Company actively mitigates its credit risk related to these pass-through costs and its customers participate in the management of such vendor relationships, Digitas is often the sole party
that contracts with these vendors. Effective January 1, 2002, upon adoption of the Emerging Issues Task Force (EITF) Issue No. 01-14, Income Statement Characterization of Reimbursements Received for Out of Pocket Expenses
Incurred, the Company reported pass-through costs incurred as a component of revenue and as a component of operating expenses in the statements of operations. Prior periods presented were reclassified to comply with the guidance in Issue No.
01-14. The effect of the accounting change was to increase revenue for the year ended December 31, 2001 by $100 million, with an equivalent increase in expenses for the period. This accounting change had no effect on net income, earnings per share
or cash from operations. Included in accounts receivable and unbilled accounts receivable are reimbursable costs.



Professional Services Costs



Professional services costs consist primarily of compensation and benefits of the Companys employees engaged in the delivery of professional
services plus other non-reimbursable service costs.



Research and
Development Costs



Research and development costs are
charged to operations as incurred. To date, substantially all research and development activities have been pursuant to customer contracts and have been expensed as professional services costs.



Net Income Per Share



Basic and diluted earnings per share are computed in accordance with SFAS No. 128, Earnings per Share. SFAS No.
128 requires both basic earnings per share, which is based on the weighted average number of common shares outstanding, and diluted earnings per share, which is based on the weighted average number of common shares outstanding and all dilutive
potential common equivalent shares outstanding. The dilutive effect of options is determined under the treasury stock method using the average market price for the period. Common equivalent shares are included in the per share calculations where the
effect of their inclusion would be dilutive.



|                                                   |  |              |  |            |  |           
|-------------------------------------------------- |  | ------------ |  | ---------- |  | ----------
|                                                   |  | December 31,
|                                                   |  | 2003         |  | 2002       |  | 2001      
|Weighted average common shares outstanding         |  | 60,754,371   |  | 62,354,183 |  | 59,513,657
|Dilutive effect of options and warrants            |  | 8,480,624    |  |           |  |          
|                                                   |  |              |  |            |  |           
|Diluted weighted average common shares outstanding |  | 69,234,995   |  | 62,354,183 |  | 59,513,657
|                                                   |  |              |  |            |  |           



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



For the two years ended December 31, 2002 and 2001, the Company incurred net losses; as a result,
options and warrants totaling 31,901,420, and 33,382,534, respectively, were not included in the computations of diluted net loss per share, as their effects would have been antidilutive.



Income Taxes



The Company accounts for income taxes using the asset and liability method in accordance with SFAS No. 109, Accounting for Income Taxes. Under
SFAS No. 109, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases for
operating profit and tax liability carryforward. Deferred tax assets and liabilities are measured using enacted tax rates for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
or liabilities of a change in tax rates is recognized in the period in which the tax change occurs.



Stock-based Compensation



The Company applies the intrinsic method of Accounting Principles Board Opinion (APBO) No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for its employee stock option plans.
The Company provides pro forma disclosures of compensation expense under the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based CompensationTransition and
Disclosure.



Had compensation cost for the 1998, 1999 and
2000 stock option plans (excluding exchanged shares) been determined using the fair value method at the grant dates, the effect on the Companys net income (loss) and earnings per share for the years ended December 31, 2003, 2002 and 2001 would
have been as follows: (dollars in thousands)



|                                                                                  |  |      |         |   |      |   |         |      |  |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                  |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Net income (loss), as reported                                                    |  | $    | 16,859  |   |      | $ | (40,300 | )    |  | $ | (94,088  | )
|Plus: Stock-based compensation included in reported net income (loss), net of tax |  |      | 7,451   |   |      |   | 8,447   |      |  |   | 10,147   |  
|Less: Stock-based compensation expense under fair value method, net of tax        |  |      | (19,727 | ) |      |   | (22,400 | )    |  |   | (18,531  | )
|                                                                                  |  |      |         |   |      |   |         |      |  |   |          |  
|Pro forma net income (loss)                                                       |  | $    | 4,583   |   |      | $ | (54,253 | )    |  | $ | (102,472 | )
|                                                                                  |  |      |         |   |      |   |         |      |  |   |          |  
|Basic net income (loss) per share, as reported                                    |  | $    | 0.28    |   |      | $ | (0.65   | )    |  | $ | (1.58    | )
|Diluted net income (loss) per share, as reported                                  |  | $    | 0.24    |   |      | $ | (0.65   | )    |  | $ | (1.58    | )
|Pro forma basic net income (loss) per share                                       |  | $    | 0.08    |   |      | $ | (0.87   | )    |  | $ | (1.72    | )
|Pro forma diluted net income (loss) per share                                     |  | $    | 0.07    |   |      | $ | (0.87   | )    |  | $ | (1.72    | )



The Company calculated
the fair value of each option grant on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants during 2003, 2002 and 2001: volatility of 65%, no expected dividend yield;
risk-free interest rates of 2.79%, 3.41%, and 4.91% in 2003, 2002 and 2001, respectively; and expected lives of five years.



Foreign Currency Translation



Monetary assets and liabilities of the Companys foreign branch are translated into U.S. dollars at the exchange rate in effect at period-end and
nonmonetary assets and liabilities are remeasured at historic exchange



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



rates. Income and expenses are remeasured at the average exchange rate for the period. Transaction gains and losses are reflected in selling, general and
administrative expenses in the statements of operations. Transaction gains were approximately $205,000 for the year ended December 31, 2002. Transaction losses were approximately $73,000 and $19,000 for the years ended December 31, 2003 and 2001,
respectively.



Managements Use of Estimates



The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. These include estimates related to revenue recognition, the allowance for doubtful accounts, goodwill, stock-based compensation and restructuring. Actual results could differ from those
estimates.



Comprehensive Income



The Company accounts for comprehensive income under SFAS No. 130,
Reporting Comprehensive Income. All components of comprehensive income are reported in the financial statements in the period in which they are recognized. The Companys comprehensive income is comprised of net income and foreign
currency translation adjustment.



Reclassifications



Certain previously reported amounts have been reclassified to conform to the
current year presentation.



Recently Issued Accounting Pronouncements



In December 2003, the Financial Accounting Standards
Board (FASB) issued Interpretation No. 46(R), Consolidation of Variable Interest Entities (Interpretation 46) to clarify the conditions under which assets, liabilities and activities of another entity should be
consolidated into the financial statements of a company. Interpretation 46 requires the consolidation of a variable interest entity (including a special purpose entity such as that utilized in an accounts receivable securitization transaction) by a
company that bears the majority of the risk of loss from the variable interest entitys activities, is entitled to receive a majority of the variable interest entitys residual returns or both. We adopted this Interpretation in fiscal
2003. The adoption of this Interpretation had no impact on the Companys overall financial position and results of operations.



In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement
amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities. The provisions of this Statement are effective for the Company for all derivatives and hedging activity entered into after June 30, 2003. The adoption of this Statement had no impact on the Companys overall
financial position and results of operations.



In May 2003, the
FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. The provisions of



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



this Statement are effective for financial instruments entered into or modified after May 31, 2003. The adoption of this Statement had no impact on the
Companys overall financial position and results of operations.



2.
RESTRUCTURING EXPENSES



During 2001, the Company recorded
restructuring expenses totaling $41.9 million, consisting of $16.7 million for workforce reduction and related costs and $25.2 million for the consolidation of facilities and abandonment of related leasehold improvements. The facility charge
represented an estimate of future obligations under the terms of the leases for identified excess space less anticipated income from subleasing activities. In determining this estimate, management evaluated its potential to sublease its excess space
and its ability to renegotiate various leases at more favorable terms and in some instances obtain relief through relocation of office space.



During 2002, the Company recorded restructuring expenses totaling $47.1 million, consisting of $3.3 million for workforce reduction and related costs and
$43.8 million for the consolidation of facilities and abandonment of related leasehold improvements. These charges were recorded to further align the cost structure with changing market conditions and to update estimates originally made in 2001 for
current information. Management determined that it would be unable to dispose of its excess office space in Boston, New York and San Francisco within its original assumptions. As a result, the Company recorded restructuring expenses of $39.2 million
to reflect the revised estimate of its expected future obligations under the terms of these leases less anticipated income from subleasing activities. The change in estimate was related to changes in estimated future sublease rates and terms. These
sublease estimates, which were made in connection with the Companys real estate advisers, were based on current and projected conditions at the time in the real estate and economic markets in which the Company determined it had excess office
space. In addition, the Company recorded restructuring expenses of $4.6 million for costs related to the closure of its Miami and Salt Lake City facilities.



During 2003, the Company made significant progress towards eliminating its excess real estate resulting in the recognition of $4.1 million of
restructuring income related to the reversal of restructuring expense initially recorded in 2001 and 2002. The restructuring expense was reversed because of savings of $7.2 million as compared to the Companys original estimates. These savings
were the result of the Company subleasing its excess space at terms more favorable than estimates and assumptions made in 2002 for savings of $2.3 million, negotiating a termination of the Salt Lake City lease for less than the Companys
estimates for savings of $0.3 million and returning one floor initially restructured in San Francisco to operations, which represented savings of $4.6 million. The $7.2 million in savings was offset by revisions in estimates of future sublease rates
and terms for remaining leases resulting in an increase in expected future obligations of $3.1 million. The Company continues to evaluate alternatives and monitor its restructuring accrual on a quarterly basis to reflect new developments and
prevailing economic conditions in the real estate markets in which the Company leases office space. These sublease estimates, which were made in consultation with the Companys real estate advisers, were based on current and projected
conditions at the time in the real estate and economic markets in which the Company determined it had excess office space. At December 31, 2003, approximately 70,000 square feet of the approximately 300,000 square feet initially identified as excess
remained available for sublease.



The floor returned to
operations in San Francisco was restructured in the third quarter of 2002 because management had committed to a plan to redeploy, reorganize and streamline the workforce in San Francisco and relocate in 2003 to a more efficient and cost effective
office location. At the time of the restructuring charge, the floor was being used in operations. All costs associated with this floor including rent expense, operating expenses and depreciation expense on leasehold improvements continued to be
included as part of selling, general and administrative expenses in the Companys statements of operations, with an expectation that all costs would



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



continue to be included as part of selling, general and administrative expenses until the plan to vacate was implemented. The initial plan communicated to
the workforce was scheduled to be implemented in January 2003, but was subsequently postponed due to some incremental projects won in December 2002 and January 2003. Many of the changes in workforce were implemented over the first two quarters of
2003 as the skill sets of those identified were not required to serve the new projects. Although the initial plan to vacate the facility was postponed, management continued to expect that in 2003 the floor would be vacated and the employees in the
region would be relocated to more efficient and cost effective space. Although the Company allowed in our restructuring plan for a significant vacancy period due to the poor real estate market in San Francisco, the Company actively marketed the
floor throughout 2003 with the intent of securing a subtenant to minimize the cash flow drain to the Company for paying rent on the new location while the old location remained vacant. However, in the fourth quarter of 2003 it became apparent that
the original plan to vacate the floor was not likely to be carried out, as originally developed by management and approved by the Board of Directors, and that the floor should continue to be used in operations. This decision was made because certain
client relationships expanded at a pace exceeding our initial budget estimates and expectations, improved business expectations with additional clients previously thought to be declining relationships, the hiring in December of a new President for
the San Francisco office and continued poor market conditions for real estate in San Francisco, which would likely result in the floor remaining vacant for a lengthy period of time.



At December 31, 2003, the Companys restructuring accrual totaled $29.3 million. Approximately $0.4 million of this
balance is workforce related for final payments of severance and will be fully utilized in 2004. The remaining $28.9 million is related to remaining real estate obligations net of sublease income. The Company believes, the restructuring accrual of
$28.9 million is appropriate and adequate to cover these remaining obligations.



The following is a summary of restructuring activity for the years ended December 31, 2003, 2002 and 2001: (dollars in thousands)



|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|------------------------------------------ |  | ----------------------------------- | ------- | - | -------------------------- | - | ------- | ----- |  | - | ------- | -
|                                           |  | WorkforceReduction andRelated Costs |         |   | Consolidationof Facilities |   |         | Total | 
|Accrued restructuring at December 31, 2000 |  | $                                   |        |   |                            | $ |        |       |  | $ |        |  
|Restructuring expenses 2001                |  |                                     | 16,689  |   |                            |   | 25,199  |       |  |   | 41,888  |  
|Utilization 2001                           |  |                                     | (12,982 | ) |                            |   | (9,346  | )     |  |   | (22,328 | )
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|Accrued restructuring at December 31, 2001 |  |                                     | 3,707   |   |                            |   | 15,853  |       |  |   | 19,560  |  
|Restructuring expenses 2002                |  |                                     | 3,311   |   |                            |   | 43,803  |       |  |   | 47,114  |  
|Utilization 2002                           |  |                                     | (5,530  | ) |                            |   | (10,756 | )     |  |   | (16,286 | )
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|Accrued restructuring at December 31, 2002 |  |                                     | 1,488   |   |                            |   | 48,900  |       |  |   | 50,388  |  
|Restructuring expenses 2003                |  |                                     |        |   |                            |   | 3,077   |       |  |   | 3,077   |  
|Restructuring income 2003                  |  |                                     |        |   |                            |   | (7,186  | )     |  |   | (7,186  | )
|Utilization 2003                           |  |                                     | (1,076  | ) |                            |   | (15,895 | )     |  |   | (16,971 | )
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  
|Accrued restructuring at December 31, 2003 |  | $                                   | 412     |   |                            | $ | 28,896  |       |  | $ | 29,308  |  
|                                           |  |                                     |         |   |                            |   |         |       |  |   |         |  



As a result of all
restructuring activity, which commenced in the second quarter of 2001, the Company has reduced its workforce by approximately 700 employees across all business functions and regions.



For the years ended December 31, 2003 and 2002, cash expenditures related to restructuring activities were $12.3 million and
$15.3 million, respectively, and we disposed of $8.0 million and $1.0 million, respectively, of leasehold improvements related to excess office space. As of December 31, 2003, total remaining cash expenditures related to restructuring activities
were $29.3 million. Approximately $8.9 million in cash



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



expenditures are expected in fiscal 2004, and the remaining cash expenditures of approximately $20.4 million, related to real estate rental obligations
primarily over the following eleven years.



3. FIXED ASSETS



Fixed assets consist of the following: (dollars in thousands)



|                                |  |              |         |   |      |   |         |  
|------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                |  | December 31, |        
|                                |  | 2003         |         |   | 2002 |  
|Furniture and fixtures          |  | $            | 14,210  |   |      | $ | 16,429  |  
|Computer equipment and software |  |              | 41,286  |   |      |   | 37,458  |  
|Leasehold improvements          |  |              | 17,172  |   |      |   | 22,860  |  
|Capital leases                  |  |              |        |   |      |   | 2,668   |  
|                                |  |              |         |   |      |   |         |  
|                                |  |              | 72,668  |   |      |   | 79,415  |  
|Less accumulated depreciation   |  |              | (54,678 | ) |      |   | (48,523 | )
|                                |  |              |         |   |      |   |         |  
|                                |  | $            | 17,990  |   |      | $ | 30,892  |  
|                                |  |              |         |   |      |   |         |  



Depreciation expense
for the years ended December 31, 2003, 2002, and 2001 was approximately $8,887,000, $11,974,000 and $14,242,000, respectively.



4. GOODWILL



Goodwill consists of the following: (dollars in thousands)



|                              |  |              |         |   |      |   |         |  
|----------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                              |  | December 31, |        
|                              |  | 2003         |         |   | 2002 |  
|Goodwill                      |  | $            | 171,726 |   |      | $ | 171,726 |  
|Less accumulated amortization |  |              | (73,596 | ) |      |   | (73,596 | )
|                              |  |              |         |   |      |   |         |  
|                              |  | $            | 98,130  |   |      | $ | 98,130  |  
|                              |  |              |         |   |      |   |         |  



Amortization of
goodwill for the year ended December 31, 2001 was approximately $24,532,000. Effective January 1, 2002, with the adoption of SFAS No. 142, the Company no longer amortized goodwill.



5. OTHER INTANGIBLE ASSETS



Other intangible assets consist of the following: (dollars in thousands)



|                              |  |              |        |   |      |   |        |  
|----------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                              |  | December 31, |       
|                              |  | 2003         |        |   | 2002 |  
|Favorable leases              |  | $            | 4,234  |   |      | $ | 4,234  |  
|Less accumulated amortization |  |              | (3,529 | ) |      |   | (2,823 | )
|                              |  |              |        |   |      |   |        |  
|                              |  | $            | 705    |   |      | $ | 1,411  |  
|                              |  |              |        |   |      |   |        |  



Amortization of other
intangible assets was approximately $706,000 for each of the years ended December 31, 2003, 2002 and 2001, respectively. Amortization expense for the year ended December 31, 2004 is expected to be $705,000.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



6. ACCRUED COMPENSATION



Accrued compensation consists of the following: (dollars in thousands)



|                           |  |              |        |      |   |       
|-------------------------- |  | ------------ | ------ | ---- | - | ------
|                           |  | December 31,
|                           |  | 2003         |        | 2002
|Accrued bonus              |  | $            | 10,647 |      | $ | 11,500
|Other accrued compensation |  |              | 8,763  |      |   | 6,249 
|                           |  |              |        |      |   |       
|                           |  | $            | 19,410 |      | $ | 17,749
|                           |  |              |        |      |   |       



7. DEBT



Credit Agreements



The existing credit facility originally dated July 25, 2000, as amended, allows the Company to borrow up to $20 million less
any amounts committed under outstanding standby letters of credit. Effective February 2003, the Company executed a fourth amendment to its credit facility. This amendment extended the expiration date of the credit facility from July 2003 to February
2006. This amendment also changed certain restrictive financial covenants. Effective September 2003, the Company executed a fifth amendment. This amendment changed further certain restrictive financial covenants. A sixth amendment was executed in
December 2003. This amendment added a subsidiary of the Company as a guarantor for the credit facility.



As of December 31, 2003, amounts borrowed under the revolving credit facility bear interest at either the Prime Rate or at a Eurocurrency Rate plus
applicable margin of 3.0%. Additionally, the Company is required to pay a commitment fee of 0.25% of the average daily unused amount of the revolving credit and a letter of credit fee of 3.0% of the face amount of letters of credit. The restrictive
financial covenants include a minimum EBITDA (earnings before interest, taxes, depreciation and amortization) level, a minimum net income level, a maximum ratio of total funded indebtedness to EBITDA, a minimum liquidity level, a minimum fixed
charge coverage ratio, and a maximum annual capital expenditure level.



As of December 31, 2003, the Company was in compliance with all of its covenants. Borrowings under the credit facility are secured by substantially all the assets of the Company. At December 31, 2003, the Company had no borrowings under the
revolving credit facility and approximately $11.9 million outstanding under standby letters of credit, leaving approximately $8.1 million available for future borrowings.



Notes Payable, Tenant Allowances



Since 1995, the Company has received tenant allowances, which are required to be reimbursed to the landlord through November 2005. Interest expense
recognized in relation to these notes amounted to $70,000, $94,000 and $116,000, for the years ended December 31, 2003, 2002 and 2001, respectively.



8. SHAREHOLDERS EQUITY



Stock Repurchase Programs



In June 2002, the Board of Directors authorized the repurchase of up to $20 million of common stock under a common stock repurchase program. During the
year ended December 31, 2003, the Company did not repurchase any shares under this program. During the year ended December 31, 2002, the Company repurchased 666,000 shares of common stock at an average price of approximately $3.04 for an aggregate
purchase price of approximately $2,028,000. The program expired December 12, 2003.



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



In November 2003, the Board of Directors authorized the Company to repurchase up to $20 million of
common stock between December 13, 2003 and June 30, 2005 under a common stock repurchase program. During the year ended December 31, 2003, the Company did not repurchase any shares under this program.



Self-Tender Offer



In March 2003, the Company completed a self-tender offer to purchase 6,426,735 shares of its common stock at a purchase
price of $3.89 per share for an aggregate purchase price of $25.0 million. All shares repurchased were immediately retired. Transaction costs related to the repurchase were $0.9 million.



Secondary Public Offering



In August 2003, a group of stockholders completed a sale of 21,357,142 shares of the Companys common stock at a price of $5.25 per share in an
underwritten public offering. The public offering did not impact the number of common shares outstanding and did not result in any cash proceeds to the Company.



9. STOCK-BASED COMPENSATION



Common Stock Options



Effective January 1, 1999, the date of the recapitalization, the Board of Directors adopted the 1998 option plan (the 1998 Plan). The 1998
Plan authorized the grant of (i) 17,126,644.8 rollover options, which were granted in exchange for the cancellation of stock appreciation rights and stock options held by officers, directors and employees under stock plans in place prior to the
recapitalization, and (ii) an additional 11,744,700 options that were not rollover options. In September 1999, the Board of Directors amended the plan to decrease the number of non-rollover options that could be granted under the plan to 10,152,000
shares. All shares of common stock underlying non-rollover options granted under the 1998 Plan that are forfeited or cancelled are added to the shares of common stock available for issuance under the Digitas Inc. 2000 Stock Option and Incentive
Plan.



All options granted under the 1998 Plan were
non-qualified stock options. Grants under the 1998 Plan were made to employees and non-employee directors, consultants and independent contractors. A committee of the Board of Directors administers the 1998 plan, which includes determining the
participants in the plan and the number of shares of common stock to be covered by each option, amending the terms of any option, subject to certain limitations, and interpreting the terms of the plan.



Each rollover option was immediately exercisable as of the date of grant and
has an exercise price equal to the base value of the stock appreciation rights or the exercise price of the stock options, as applicable, from which the options were converted. All other options granted under the 1998 Plan are generally subject to a
five-year vesting schedule pursuant to which the options vest in equal annual installments on the third, fourth and fifth anniversaries of the grant date. In addition, all options other than rollover options must have a per share exercise price
equal to or greater than the fair market value of a share of the Companys common stock as of the grant date, as determined by the Board of Directors or a committee of such Board. All options granted under the 1998 Plan terminate on the tenth
anniversary of the grant date. Vested options may be exercised for specified periods after the termination of the optionees employment or other service relationship with the Company or its affiliates.



In September 1999, the Board of Directors adopted the 1999 Option Plan (the
1999 Plan), which initially allowed for the grant of up to 13,592,700 shares of common stock. All common stock shares underlying options granted under the 1999 Plan that are forfeited or cancelled are added to the shares of common stock
available for issuance under the Digitas Inc. 2000 Stock Option and Incentive Plan.



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Grants under the 1999 Plan may be made to employees and non-employee directors, consultants and
independent contractors who contribute to the management, growth and profitability of the Companys business or its affiliates. A committee of the Board of Directors administers the 1999 Plan, which includes determining the participants in the
plan and the number of shares of common stock to be covered by each option, amending the terms of any option, subject to certain limitations, and interpreting the terms of the plan.



Non-qualified stock options granted under the 1999 Plan may be granted at prices which are less than the fair market value
of the underlying shares on the date granted. Under the 1999 Plan, incentive stock options and non-qualified stock options are generally subject to a four-year vesting schedule pursuant to which the options vest 25% on the first anniversary of the
grant date and an additional 6.25% on each consecutive three-month period thereafter. The options generally terminate on the tenth anniversary of the grant date. In addition, vested options may be exercised for specified periods after the
termination of the optionees employment or other service relationship with the Company or its affiliates.



Effective December 1999, the Board of Directors adopted the Digitas Inc. 2000 Stock Option and Incentive Plan (the 2000 Plan). The 2000 Plan
initially allowed for the grant of up to 7,718,200 shares of common stock. In May 2001, the Companys shareholders and Board of Directors approved an additional 15,000,000 shares of common stock for grant under the 2000 Plan. In addition, all
common stock shares underlying non-rollover options granted under the 1998 Plan and options granted under the 1999 Plan that are cancelled or forfeited are added to the shares of common stock available for issuance under the 2000 Plan.



Grants under the 2000 Plan may be made to employees and non-employee
directors, consultants and independent contractors who contribute to the management, growth and profitability of the Companys business or its affiliates. A committee of the Board of Directors administers the 2000 Plan, which includes
determining the participants in the plan and the number of shares of common stock to be covered by each option, amending the terms of any option, subject to certain limitations, and interpreting the terms of the plan.



Non-qualified stock options granted under the plan may be granted at prices
which are less than the fair market value of the underlying shares on the date granted. Under the 2000 Plan, incentive stock options and non-qualified stock options are generally subject to a four-year vesting schedule pursuant to which the options
vest 25% on the first anniversary of the grant date and an additional 6.25% on each consecutive three-month period thereafter. The options generally terminate on the tenth anniversary of the grant date. In addition, vested options may be exercised
for specified periods after the termination of the optionees employment or other service relationship with the Company or its affiliates.



As of December 31, 2003, 16,284,099 shares of common stock were available for future grant and 41,226,393 shares of common stock were reserved for future
issuance under the Companys option plans.



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table summarizes stock option activity under the 1998, 1999 and 2000 Plans:



|                                                                                    |  |                         |   |      |                               |      |        |            |   |                               |   |        |  |            |                               |  |   |     
|----------------------------------------------------------------------------------- |  | ----------------------- | - | ---- | ----------------------------- | ---- | ------ | ---------- | - | ----------------------------- | - | ------ |  | ---------- | ----------------------------- |  | - | ----
|                                                                                    |  | Year Ended December 31,
|                                                                                    |  | 2003                    |   | 2002 |                               | 2001
|                                                                                    |  | Shares                  |   |      | Weighted-averageexerciseprice |      | Shares |            |   | Weighted-averageexerciseprice |   | Shares |  |            | Weighted-averageexerciseprice
|Options outstanding at beginning of period                                          |  | 31,121,420              |   |      | $                             | 3.55 |        | 32,602,534 |   |                               | $ | 3.56   |  | 30,291,626 |                               |  | $ | 3.79
|Options granted                                                                     |  | 1,730,846               |   |      |                               | 4.84 |        | 2,439,310  |   |                               |   | 4.16   |  | 9,325,490  |                               |  |   | 4.24
|Options exercised                                                                   |  | (6,535,632              | ) |      |                               | 2.35 |        | (2,060,985 | ) |                               |   | 1.47   |  | (2,268,397 | )                             |  |   | 1.32
|Options canceled                                                                    |  | (1,374,340              | ) |      |                               | 5.10 |        | (1,859,439 | ) |                               |   | 6.71   |  | (4,746,185 | )                             |  |   | 6.13
|                                                                                    |  |                         |   |      |                               |      |        |            |   |                               |   |        |  |            |                               |  |   |     
|Options outstanding at end of period                                                |  | 24,942,294              |   |      | $                             | 3.86 |        | 31,121,420 |   |                               | $ | 3.55   |  | 32,602,534 |                               |  | $ | 3.56
|                                                                                    |  |                         |   |      |                               |      |        |            |   |                               |   |        |  |            |                               |  |   |     
|Weighted-average fair value of options granted during the year at fair market value |  |                         |   |      | $                             | 2.76 |        |            |   |                               | $ | 2.38   |  |            |                               |  | $ | 2.62



|                        |  |                                       |  |                                                     |  |                                |       |                                       |            |                                |   |      
|----------------------- |  | ------------------------------------- |  | --------------------------------------------------- |  | ------------------------------ | ----- | ------------------------------------- | ---------- | ------------------------------ | - | -----
|                        |  | Options Outstanding                   |  | Options Exercisable                                
|Range of exercise price |  | Numberoutstanding atDecember 31, 2003 |  | Weighted-averageremainingcontractual life(in years) |  | Weighted-averageexercise price |       | Numberexercisable atDecember 31, 2003 |            | Weighted-averageexercise price
|$  0.94$  2.19         |  | 6,130,251                             |  | 5.1                                                 |  | $                              | 1.09  |                                       | 6,075,276  |                                | $ | 1.08 
|$  2.20$  3.10         |  | 9,245,230                             |  | 6.1                                                 |  |                                | 2.71  |                                       | 6,193,352  |                                |   | 2.71 
|$  3.11$  4.95         |  | 4,365,316                             |  | 8.1                                                 |  |                                | 4.21  |                                       | 2,744,169  |                                |   | 4.34 
|$  4.96$  8.74         |  | 1,253,410                             |  | 7.7                                                 |  |                                | 5.66  |                                       | 988,966    |                                |   | 5.58 
|$  8.75$12.49          |  | 3,366,106                             |  | 5.8                                                 |  |                                | 8.78  |                                       | 3,026,493  |                                |   | 8.76 
|$12.50$16.88           |  | 361,331                               |  | 6.5                                                 |  |                                | 15.26 |                                       | 284,919    |                                |   | 15.22
|$16.89$24.00           |  | 220,650                               |  | 6.5                                                 |  |                                | 18.46 |                                       | 179,280    |                                |   | 18.47
|                        |  |                                       |  |                                                     |  |                                |       |                                       |            |                                |   |      
|$  0.94$24.00          |  | 24,942,294                            |  | 6.2                                                 |  | $                              | 3.86  |                                       | 19,492,455 |                                | $ | 3.84 
|                        |  |                                       |  |                                                     |  |                                |       |                                       |            |                                |   |      



In addition to the
recapitalization, during 2000 and 1999, the Company issued stock options to employees at exercise prices ranging from $2.52 to $8.75, which at the time of the grant were below the fair market value of the Companys common stock. As a result of
these option grants, the Company recorded deferred compensation expense, which represents the aggregate difference between the option exercise price and the deemed fair market value of the common stock determined for financial reporting purposes for
grants to employees. These amounts are recognized as compensation expense over the vesting period of the underlying stock options. The Company recorded compensation expense of $7.5 million, $8.4 million and $10.1 million, respectively, during the
years ended December 31, 2003, 2002 and 2001, related to these options.



Common Stock Warrants



During the year ended
December 31, 1999, the Company issued warrants to purchase 900,000 shares of common stock at an exercise price of $2.52 per share. Subsequently, during the same year, the Board of Directors authorized the Company to repurchase warrants to purchase
120,000 of these shares. The remaining warrants are fully exercisable and expire in January 2009.



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10. INCOME TAXES



The components of loss before income taxes and the provision for income taxes are as follows: (dollars in thousands)



|                                          |  |              |        |   |      |   |         |      |  |   |         |  
|----------------------------------------- |  | ------------ | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                          |  | December 31, |       
|                                          |  | 2003         |        |   | 2002 |   |         | 2001 | 
|Income (loss) before income taxes         |  | $            | 17,076 |   |      | $ | (40,100 | )    |  | $ | (93,940 | )
|Benefit from (provision for) income taxes |  |              |        |   |      |   |         |      |  |   |         |  
|Federal                                   |  |              |        |   |      |   |         |      |  |   |         |  
|Current                                   |  |              | 0      |   |      |   | 0       |      |  |   | 0       |  
|Deferred                                  |  |              | 0      |   |      |   | 0       |      |  |   | 0       |  
|                                          |  |              |        |   |      |   |         |      |  |   |         |  
|Total federal                             |  |              | 0      |   |      |   | 0       |      |  |   | 0       |  
|State                                     |  |              |        |   |      |   |         |      |  |   |         |  
|Current                                   |  |              | (217   | ) |      |   | (200    | )    |  |   | (148    | )
|Deferred                                  |  |              | 0      |   |      |   | 0       |      |  |   | 0       |  
|                                          |  |              |        |   |      |   |         |      |  |   |         |  
|Total state                               |  |              | (217   | ) |      |   | (200    | )    |  |   | (148    | )
|                                          |  |              |        |   |      |   |         |      |  |   |         |  
|Provision for income taxes                |  | $            | (217   | ) |      | $ | (200    | )    |  | $ | (148    | )
|                                          |  |              |        |   |      |   |         |      |  |   |         |  



The reconciliation of
income tax computed at statutory rates to the effective rate is as follows:



|                                         |  |              |   |  |       |    |  |       |   
|---------------------------------------- |  | ------------ | - |  | ----- | -- |  | ----- | --
|                                         |  | December 31, |  
|                                         |  | 2003         |   |  | 2002  |    |  | 2001  |   
|United States statutory rate             |  | 35.0         | % |  | 35.0  | %  |  | 35.0  | % 
|State taxes, net of federal benefit      |  | 6.3          |   |  | 4.5   |    |  | 4.8   |   
|Goodwill and other permanent differences |  | (0.1         | ) |  | (0.3  | )  |  | 7.0   |   
|Change in valuation allowance            |  | (39.9        | ) |  | (39.7 | )  |  | (47.0 | ) 
|                                         |  |              |   |  |       |    |  |       |   
|Effective tax rate                       |  | 1.3          | % |  | (0.5  | )% |  | (0.2  | )%
|                                         |  |              |   |  |       |    |  |       |   



The tax effects of
temporary differences that give rise to a significant portion of the deferred income tax assets (liabilities), net, are as follows: (dollars in thousands)

|                                |  |              |         |   |      |   |         |  
|------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                |  | December 31, |        
|                                |  | 2003         |         |   | 2002 |  
|Deferred tax assets:            |  |              |         |   |      |   |         |  
|Amortization of intangibles     |  | $            | 16,489  |   |      | $ | 20,962  |  
|Accrued expenses                |  |              | 8,893   |   |      |   | 7,636   |  
|Stock-based compensation        |  |              | 18,767  |   |      |   | 15,772  |  
|Allowance for doubtful accounts |  |              | 352     |   |      |   | 380     |  
|Depreciation                    |  |              | 1,066   |   |      |   | 999     |  
|Restructuring charge            |  |              | 9,772   |   |      |   | 19,251  |  
|Net operating loss carryforward |  |              | 21,280  |   |      |   | 18,419  |  
|                                |  |              |         |   |      |   |         |  
|Total deferred tax assets       |  |              | 76,619  |   |      |   | 83,419  |  
|                                |  |              |         |   |      |   |         |  
|Net deferred tax asset          |  |              | 76,619  |   |      |   | 83,419  |  
|Valuation allowance             |  |              | (76,619 | ) |      |   | (83,419 | )
|                                |  |              |         |   |      |   |         |  
|Total                           |  | $            | 0       |   |      | $ | 0       |  
|                                |  |              |         |   |      |   |         |  



In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.



At December 31, 2003, the Company has available federal and various state net operating loss carryforwards of approximately $52.9 million beginning to
expire in 2020. At December 31, 2003, a full valuation allowance has been recorded.



The December 31, 2002 deferred tax assets have been grossed up to recognize the tax consequences associated with the increase to the net operating loss carryforward of approximately $8.4 million ($3.4 million tax
effect). These amounts are fully reserved and accordingly have no impact on the financial statements.



11. EMPLOYEE BENEFIT PLANS



Effective December 1999, the Board of Directors and shareholders adopted the 2000 Employee Savings Plan (the 2000 Savings Plan). This plan provides for a discretionary Company match of employee contributions, up to 4%, subject
to certain IRS restrictions. For the years ended December 31, 2003, 2002 and 2001, the Company incurred approximately $1.1 million, $0.8 million and $2.4 million, respectively, representing matching contributions and administrative expenses related
to the 2000 Savings Plan. In addition, the Company has an employee stock purchase plan, under which a total of up to 2,200,000 shares of common stock are authorized to be sold to participating employees. Participating employees may purchase shares
of common stock at 85% of the stocks fair market value at the beginning or end of an offering period, whichever is lower, through payroll deductions in an amount not to exceed 10% of an employees base compensation.



12. RELATED PARTY TRANSACTIONS



During the year ended December 31, 2001, the Company provided approximately
$52,000 in services to a client whose chairman and founder is a current director of Digitas and who at the time was a shareholder of greater than ten percent of the Companys outstanding common stock. All services were provided to this company
at arms-length business terms.



13. SEGMENTS AND RELATED INFORMATION



The Company manages its business as one segment.
Accordingly, the financial information disclosed in these financial statements represents the material financial information related to the Companys single operating segment.



The Company attempts to limit its concentration of credit risk by securing clients with significant assets or liquidity.
While the Company enters into written agreements with its clients, such contracts are typically terminable between 30 and 90 days notice. Management believes a loss of any one of its significant clients or any significant reduction in the use of its
services by a major client could have a material adverse effect on the Companys business, financial condition and results of operations. During the years ended December 31, 2003, 2002 and 2001, the Companys top ten clients represent 80%,
78% and 74%, respectively, of the Companys total fee revenue. The table below summarizes customers that individually comprise greater than 10% of the Companys fee revenue.



|     |  |          |   |  |    |   |  |    |  
|---- |  | -------- | - |  | -- | - |  | -- | -
|     |  | Customer |  
|     |  | A        |   |  | B  |   |  | C  |  
|2003 |  | 13       | % |  | 19 | % |  | 23 | %
|2002 |  | 12       | % |  | 18 | % |  | 23 | %
|2001 |  | *        |   |  | 19 | % |  | 20 | %



| | * | Less than 10% in year presented
| | - | -------------------------------



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



14. COMPREHENSIVE INCOME



The changes in the components of other comprehensive income (loss), net of taxes, were as follows for the years ended
December 31, 2003, 2002 and 2001: (dollars in thousands)



|                                                             |  |                         |        |      |   |         |      |  |   |         |  
|------------------------------------------------------------ |  | ----------------------- | ------ | ---- | - | ------- | ---- |  | - | ------- | -
|                                                             |  | Year Ended December 31, |       
|                                                             |  | 2003                    |        | 2002 |   |         | 2001 | 
|Net income (loss)                                            |  | $                       | 16,859 |      | $ | (40,300 | )    |  | $ | (94,088 | )
|Change in cumulative foreign currency translation adjustment |  |                         | 34     |      |   | 334     |      |  |   | (396    | )
|                                                             |  |                         |        |      |   |         |      |  |   |         |  
|Comprehensive income (loss)                                  |  | $                       | 16,893 |      | $ | (39,966 | )    |  | $ | (94,484 | )
|                                                             |  |                         |        |      |   |         |      |  |   |         |  



15. COMMITMENTS AND CONTINGENCIES



Capitalized Leases



The Company had certain noncancelable leases to finance telephone equipment,
copier equipment and software. The total capitalized cost of these assets subject to capital leases was approximately $2,668,000 with accumulated amortization of approximately $2,273,000 at December 31, 2002. During the year ended December 31, 2003,
the leases expired. Accordingly, the assets, which were fully amortized upon lease termination, and related accumulated amortization were written off.



Other Lease Obligations



The Company leases office facilities and certain office equipment under cancelable and noncancelable operating lease agreements expiring at various dates
through July 2015. Certain of the facility leases contain renewal options and escalation clauses.



The Company leases office space under noncancelable operating leases. Rent expense, including amounts described above, consisting of minimum lease
payments under noncancelable operating leases, net of any contractual sublease income, amounted to approximately $10,941,000, $10,362,000, and $14,936,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Portions of the
Companys space are sublet to other tenants under leases expiring during the next one to nine years. For the years ended December 31, 2003, 2002 and 2001, the Companys rent expense was partially offset by tenant income of approximately
$700,000, $1,900,000, and $800,000, respectively. The future minimum rental payments required under operating leases as of December 31, 2003 are as follows: (dollars in thousands)



|                                       |  |                  |        
|-------------------------------------- |  | ---------------- | -------
|                                       |  | Operating Leases
|2004                                   |  | $                | 22,357 
|2005                                   |  |                  | 22,131 
|2006                                   |  |                  | 10,777 
|2007                                   |  |                  | 10,121 
|2008                                   |  |                  | 10,052 
|Thereafter                             |  |                  | 27,336 
|                                       |  |                  |        
|Total minimum rental payments required |  | $                | 102,774
|                                       |  |                  |        



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Minimum payments have not been reduced by minimum sublease income of $20,199,000 due in the future
under noncancelable subleases as follows: (dollars in thousands)



|                          |  |                |       
|------------------------- |  | -------------- | ------
|                          |  | SubleaseIncome
|2004                      |  | $              | 3,906 
|2005                      |  |                | 3,968 
|2006                      |  |                | 2,232 
|2007                      |  |                | 2,284 
|2008                      |  |                | 2,103 
|Thereafter                |  |                | 5,706 
|                          |  |                |       
|Total sublease income due |  | $              | 20,199
|                          |  |                |       



As of December 31,
2003, all minimum sublease income due in the future under noncancelable subleases is related to restructured facilities.



16. LEGAL PROCEEDINGS



From time to time, the Company may be involved in various claims and legal proceedings arising in the ordinary course of business. The Company believes it
is not currently a party to any such claims or proceedings, which, if decided adversely to it, would either individually or in the aggregate have a material adverse effect on the Companys business, financial condition or results of operations.



The Company is a party to stockholder class action law suits
filed in the United States District Court for the Southern District of New York. Between June 26, 2001 and August 16, 2001, several stockholder class action complaints were filed in the United States District Court for the Southern District of New
York against the Company, several of its officers and directors, and five underwriters of its initial public offering (the Offering). The purported class actions are all brought on behalf of purchasers of the Companys common stock
since March 13, 2000, the date of the Offering. The plaintiffs allege, among other things, that the Companys prospectus, incorporated in the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, was materially
false and misleading because it failed to disclose that the underwriters had engaged in conduct designed to result in undisclosed and excessive underwriters compensation in the form of increased brokerage commissions and also that this alleged
conduct of the underwriters artificially inflated the Companys stock price in the period after the Offering. The plaintiffs claim violations of Sections 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission and seek, among other things, damages, statutory compensation and costs of litigation. Effective October 9, 2002, the claims against the
Companys officers and directors were dismissed without prejudice. Effective February 19, 2003, the Section 10(b) claims against the Company were dismissed. The terms of a settlement have been tentatively reached between the plaintiffs in the
suits and most of the defendants, including the Company, with respect to the remaining claims. If completed and if then approved by the court, the settlement would dismiss those claims against the Company and is expected to result in no material
liability to it. The Company believes that the claims against it are without merit and, if they are not dismissed as part of a settlement, intends to defend them vigorously. Management currently believes that resolving these matters will not have a
material adverse impact on the Companys financial position or its results of operations; however, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of these actions.



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on March 15, 2004.



DIGITAS INC.



|                                                       |  |                                                                                              |  |               
|------------------------------------------------------ |  | -------------------------------------------------------------------------------------------- |  | --------------
|Name                                                   |  | Capacity                                                                                     |  | Date          
|*David W. Kenny                                        |  | Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) |  | March 15, 2004
|                                                       |  |                                                                                             
|*Jeffrey J. Cote                                       |  | Chief Financial Officer and Chief Operating Officer (principal financial officer)            |  | March 15, 2004
|                                                       |  |                                                                                             
|*Brian K. Roberts                                      |  | Chief Accounting Officer and Controller (principal accounting officer)                       |  | March 15, 2004
|                                                       |  |                                                                                             
|*Gregory S. Bailar                                     |  | Director                                                                                     |  | March 15, 2004
|                                                       |  |                                                                                             
|*Michael E. Bronner                                    |  | Director                                                                                     |  | March 15, 2004
|                                                       |  |                                                                                             
|*Robert Glatz                                          |  | Director                                                                                     |  | March 15, 2004
|                                                       |  |                                                                                             
|*Philip U. Hammarskjold                                |  | Director                                                                                     |  | March 15, 2004
|                                                       |  |                                                                                             
|*Arthur Kern                                           |  | Director                                                                                     |  | March 15, 2004
|                                                       |  |                                                                                             
|*Gail J. McGovern                                      |  | Director                                                                                     |  | March 15, 2004
|                                                       |  |                                                                                             
|/s/    JEFFREY J.
COTEJeffrey J. Cote Attorney-in-Fact |  |                                                                                              |  | March 15, 2004





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##### Table of Contents

POWER OF ATTORNEY



KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints each of Jeffrey
J. Cote and Thomas M. Lemberg such persons true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person and in such persons name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Report, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following
persons in the capacities and on the dates indicated.



|                                                    |  |                                                                                              |  |               
|--------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------
|Name                                                |  | Capacity                                                                                     |  | Date          
|/s/    DAVID W.
KENNYDavid W.
Kenny                 |  | Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) |  | March 12, 2004
|                                                    |  |                                                                                             
|/s/    JEFFREY J.
COTEJeffrey J.
Cote               |  | Chief Financial Officer and Chief Operating Officer (principal financial officer)            |  | March 12, 2004
|                                                    |  |                                                                                             
|/s/    BRIAN K.
ROBERTSBrian K.
Roberts             |  | Chief Accounting Officer and Controller (principal accounting officer)                       |  | March 9, 2004 
|                                                    |  |                                                                                             
|/s/    GREGOR S.
BAILARGregor S.
Bailar             |  | Director                                                                                     |  | March 9, 2004 
|                                                    |  |                                                                                             
|/s/    MICHAEL E.
BRONNERMichael E.
Bronner         |  | Director                                                                                     |  | March 9, 2004 
|                                                    |  |                                                                                             
|/s/    ROBERT
GLATZRobert Glatz                     |  | Director                                                                                     |  | March 9, 2004 
|                                                    |  |                                                                                             
|/s/    PHILIP U.
HAMMARSKJOLDPhilip U.
Hammarskjold |  | Director                                                                                     |  | March 9, 2004 
|                                                    |  |                                                                                             
|/s/    ARTHUR
KERNArthur Kern                       |  | Director                                                                                     |  | March 9, 2004 
|                                                    |  |                                                                                             
|/s/    GAIL J.
MCGOVERNGail J.
McGovern             |  | Director                                                                                     |  | March 9, 2004 





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##### Table of Contents

REPORT OF INDEPENDENT AUDITORS

ON FINANCIAL STATEMENT SCHEDULE



To Digitas Inc.:



We have
audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of Digitas Inc. for the years ended December 31, 2001 and 2000 included in this Form 10-K and have issued our report thereon
dated January 23, 2002.



Our audit was made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II is the responsibility of the Companys management and is presented for purposes of complying with the Securities and Exchange Commissions
rules and is not part of the basic consolidated financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.



/s/ Arthur Andersen LLP



Boston, Massachusetts

January 23, 2002



NOTE:

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Digitas Inc.s filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by
Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.



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##### Table of Contents

DIGITAS



FINANCIAL STATEMENT SCHEDULE



Schedule II: Valuation and Qualifying Accounts

(in thousands)



|                                |  |                               |       |                   |   |            |  |                         |       |  |   |      
|------------------------------- |  | ----------------------------- | ----- | ----------------- | - | ---------- |  | ----------------------- | ----- |  | - | -----
|Allowance for Doubtful Accounts |  | Balance atBeginning of Period |       | Charged toExpense |   | Write-offs |  | Balance atEnd of Period
|Year ended December 31, 2001    |  | $                             | 1,419 |                   | $ | 2,557      |  | $                       | 1,767 |  | $ | 2,209
|Year ended December 31, 2002    |  | $                             | 2,209 |                   | $ |           |  | $                       | 1,265 |  | $ | 944  
|Year ended December 31, 2003    |  | $                             | 944   |                   | $ | 47         |  | $                       | 29    |  | $ | 962  



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##### Table of Contents

INDEX TO EXHIBITS



|           |  |                                                                                                                                                                                                           |  |                                                                                                                                                                               
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Index Title                                                                                                                                                                                       |  | Method of Filing                                                                                                                                                              
|           |  |                                                                                                                                                                                                          
|2.1        |  | Agreement and Plan of Merger between Bronner Slosberg Humphrey Co. and BSH Inc. dated December 19, 2001                                                                                                   |  | Incorporated by reference to Exhibit 3.1 to the Annual Report of Form 10-K for the year ended December 31, 2001                                                               
|           |  |                                                                                                                                                                                                          
|3.1        |  | Amended and Restated Certificate of Incorporation of Digitas Inc.                                                                                                                                         |  | Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission 
|           |  |                                                                                                                                                                                                          
|3.2        |  | By-laws of Digitas Inc.                                                                                                                                                                                   |  | Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission 
|           |  |                                                                                                                                                                                                          
|4.1        |  | Specimen certificate for shares of common stock, $.01 par value, of Digitas Inc.                                                                                                                          |  | Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission 
|           |  |                                                                                                                                                                                                          
|10.1       |  | The Bronner Slosberg Humphrey Co. 1998 Option Plan                                                                                                                                                        |  | Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                          
|10.2       |  | The Bronner Slosberg Humphrey Co. 1999 Option Plan                                                                                                                                                        |  | Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                          
|10.3       |  | Form of 2000 Stock Option and Incentive Plan                                                                                                                                                              |  | Incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                          
|10.4       |  | Form of 2000 Employee Stock Purchase Plan                                                                                                                                                                 |  | Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                          
|10.5       |  | Lease Agreement, dated as of May 31, 1995, by and between The Prudential Insurance Company of America and Bronner Slosberg Humphrey Inc. (including amendment numbers 1-6, each dated as of May
31, 1995) |  | Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                          
|10.6       |  | Seventh Amendment to Lease, dated as of March 29, 1999, by and between BP Prucenter Acquisition, LLC and Bronner Slosberg Humphrey, LLC                                                                   |  | Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                          
|10.7       |  | Eight Amendment to Lease, dated as of July 30, 1999, by and between BP Prucenter Acquisition, LLC and Bronner Slosberg Humphrey, LLC                                                                      |  | Incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission



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##### Table of Contents

|           |  |                                                                                                                                                                                                                         |  |                                                                                                                                                                                          
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Index Title                                                                                                                                                                                                     |  | Method of Filing                                                                                                                                                                         
|           |  |                                                                                                                                                                                                                        
|10.8       |  | Sublease, dated as of December 22, 1997, by and between EMI Entertainment World, Inc., and Bronner Slosberg Humphrey Inc.                                                                                               |  | Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission           
|           |  |                                                                                                                                                                                                                        
|10.9       |  | Sublease, dated as of March 22, 1999, by and between EMI Music, Inc. and Bronner Slosberg Humphrey, LLC                                                                                                                 |  | Incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission           
|           |  |                                                                                                                                                                                                                        
|10.10      |  | Agreement of Sublease, dated as of April 29, 1999, by and between Warner Music Group Inc. and Bronner Slosberg Humphrey, LLC                                                                                            |  | Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission          
|           |  |                                                                                                                                                                                                                        
|10.11      |  | Agreement of Sublease, dated as of November 15, 1999, by and between Bill Communications, Inc. and Bronnercom, LLC                                                                                                      |  | Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission          
|           |  |                                                                                                                                                                                                                        
|10.12      |  | Sub-Sublease Agreement, dated as of June 5, 1998, by and between Strategic Interactive Group, Inc. and Allegiance Telecom, Inc. (including the termination of the Sub-Sublease Agreement, dated as
of December 7, 1999) |  | Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission          
|           |  |                                                                                                                                                                                                                        
|10.13      |  | Sublease Agreement, dated as of August 21, 1997, by and among Tesseract Corporation; Strategic Interactive Group, Inc.; and Bronner Slosberg Humphrey Inc. (including the First Amendment, dated
as of June 15, 1999)   |  | Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission          
|           |  |                                                                                                                                                                                                                        
|10.14      |  | Lease Agreement, dated as of July 24, 2000, by and between M&S Balanced Property Fund, L.P. and Digitas Inc.                                                                                                            |  | Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K for the year ended December 31, 2000                                                                        
|           |  |                                                                                                                                                                                                                        
|10.15      |  | Master Security Agreement, dated September 27, 2000, by and among Digitas LLC and Fleet Capital Corporation                                                                                                             |  | Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K for the year ended December 31, 2000                                                                        
|           |  |                                                                                                                                                                                                                        
|10.16      |  | Amended and Restated Warrant Agreement, dated as of September 8, 2003, by and between Digitas Inc. and Highbridge International LLC                                                                                     |  | Filed herewith                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                        
|10.17      |  | First Amendment to 2000 Stock Option and Incentive Plan                                                                                                                                                                 |  | Incorporated by reference to Exhibit C to the Definitive Proxy Statement on Schedule 14A (SEC File No. 000-29723), as filed with the Securities and Exchange Commission on April 3,
2001.
|           |  |                                                                                                                                                                                                                        
|10.18      |  | Employment Agreement, dated as of January 6, 1999, by and between David W. Kenny and Bronner Slosberg Humphrey, LLC                                                                                                     |  | Incorporated by reference to Exhibit 10.24 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission          



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##### Table of Contents

|           |  |                                                                                                                                                                                                                                               |  |                                                                                                                                                                                
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Index Title                                                                                                                                                                                                                           |  | Method of Filing                                                                                                                                                               
|           |  |                                                                                                                                                                                                                                              
|10.19      |  | Amended and Restated Employment Agreement, dated as of January 28, 2004, by and between Thomas M. Lemberg, Digitas Inc. and Digitas LLC                                                                                                       |  | Filed herewith                                                                                                                                                                 
|           |  |                                                                                                                                                                                                                                              
|10.20      |  | Advertising Agreement, dated as of January 19, 1999, by and between AT&T Corp. and Bronner Slosberg Humphrey                                                                                                                                  |  | Incorporated by reference to Exhibit 10.29 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                                                              
|10.21      |  | General Agreement, dated as of April 12, 1999, by and between AT&T Corp. and Bronner Slosberg Humphrey                                                                                                                                        |  | Incorporated by reference to Exhibit 10.30 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                                                              
|10.22      |  | Advertising Agreement, dated as of April 12, 1999, by and between AT&T Corp. and Bronner Slosberg Humphrey (including the Agreement Amendment, dated as of May 12, 1999)                                                                      |  | Incorporated by reference to Exhibit 10.31 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                                                              
|10.23      |  | Advertising/Marketing Agreement, dated as of October 11, 1995, by and between AT&T Communications, Inc.-Business Communications Services and Bronner Slosberg Humphrey Inc. (including the
Agreement Amendment dated as of November 27, 1995) |  | Incorporated by reference to Exhibit 10.32 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                                                              
|10.24      |  | Direct Marketing Agreement, dated as of July 24, 1997, by and between Cellular Telephone Company (d/b/a AT&T Wireless Services, Northeast Region) and Bronner Slosberg Humphrey
Inc.                                                          |  | Incorporated by reference to Exhibit 10.33 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                                                              
|10.25      |  | Letter of Engagement, dated as of July 1, 1999, by and among AT&T Interactive Group, AT&T Corporation, and Strategic Interactive Group                                                                                                        |  | Incorporated by reference to Exhibit 10.34 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                                                              
|10.26      |  | Marketing & Advertising Services Agreement, dated as of January 1, 2000, by and between Bronnercom, LLC and General Motors Corporation                                                                                                        |  | Incorporated by reference to Exhibit 10.35 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                                                              
|10.27      |  | Agreement 2000 Compensation, dated as of January 5, 2000, by and between General Motors Corporation, Oldsmobile Division and Bronnercom, LLC                                                                                                  |  | Incorporated by reference to Exhibit 10.36 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                                                              
|10.28      |  | Advertising/Marketing Promotion Agency Agreement, dated as of October 1, 1997, by and between American Express Travel Related Services Company, Inc. and Bronner Slosberg Humphrey
Inc.                                                       |  | Incorporated by reference to Exhibit 10.37 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission
|           |  |                                                                                                                                                                                                                                              
|10.29      |  | Form of Indemnification Agreement                                                                                                                                                                                                             |  | Incorporated by reference to Exhibit 10.38 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended, as filed with the Securities and Exchange Commission



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##### Table of Contents

|           |  |                                                                                                                                                                                                                                                                                               |  |                                                                                                                        
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Index Title                                                                                                                                                                                                                                                                           |  | Method of Filing                                                                                                       
|           |  |                                                                                                                                                                                                                                                                                              
|10.30      |  | Ninth Amendment to Lease, dated as of February 24, 2000, by and between BP Prucenter Acquisition, LLC and Digitas LLC, formerly known as Bronnercom, LLC, formerly known as Bronner Slosberg
Humphrey, LLC                                                                                    |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter ended March 31, 2000    
|           |  |                                                                                                                                                                                                                                                                                              
|10.31      |  | Tenth Amendment to Lease, dated as of April 20, 2000, by and between BP Prucenter Acquisition, LLC and Digitas LLC, formerly known as Bronnercom, LLC, formerly known as Bronner Slosberg
Humphrey, LLC                                                                                       |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000     
|           |  |                                                                                                                                                                                                                                                                                              
|10.32      |  | First Amendment to Office Lease, dated as of April 27, 2000, by and between Mosten Management Company, Inc. and Digitas LLC, formerly known as Bronnercom, LLC                                                                                                                                |  | Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000     
|           |  |                                                                                                                                                                                                                                                                                              
|10.33      |  | Copley Place Office Lease, dated as of March 3, 2000, by and between Copley Place Associates, LLC and Digitas LLC                                                                                                                                                                             |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000
|           |  |                                                                                                                                                                                                                                                                                              
|10.34      |  | First Amendment to Copley Place Office Lease, dated as of June 15, 2000, by and between Copley Place Associates, LLC and Digitas LLC                                                                                                                                                          |  | Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000
|           |  |                                                                                                                                                                                                                                                                                              
|10.35      |  | Second Amendment to Copley Place Office Lease, dated as of October 6, 2000, by and between Copley Place Associates, LLC and Digitas LLC                                                                                                                                                       |  | Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000
|           |  |                                                                                                                                                                                                                                                                                              
|10.36      |  | London Office Lease, dated as of July 27, 2000, by and between the Mayor and Commonality and Citizens of the City of London and Digitas (Europe) Inc. and Digitas Inc.                                                                                                                        |  | Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000
|           |  |                                                                                                                                                                                                                                                                                              
|10.37      |  | Revolving Credit Agreement, dated as of July 25, 2000, by and among Digitas LLC (as borrower); The Lenders listed therein (as Lenders); Fleet National Bank (as agent); and Digitas, Inc.,
Vesuvio, Inc., Bronner Slosberg Humphrey Co., and BSH Holding LLC (as guarantors)                  |  | Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000
|           |  |                                                                                                                                                                                                                                                                                              
|10.38      |  | Amendment to Digitas LLC Employee Savings Plan effective January 1, 2002                                                                                                                                                                                                                      |  | Incorporated by reference to Exhibit 3.1 to the Annual Report of Form 10-K for the year ended December 31, 2001        
|           |  |                                                                                                                                                                                                                                                                                              
|10.39      |  | Amendment to Digitas LLC Employee Savings Plan effective May 1, 2001                                                                                                                                                                                                                          |  | Incorporated by reference to Exhibit 10.39 to the Annual Report of Form 10-K for the year ended December 31, 2001      
|           |  |                                                                                                                                                                                                                                                                                              
|10.40      |  | Second Amendment to Revolving Credit Agreement, dated November 26, 2001, by And among Digitas LLC (as borrower); the Lenders listed therein (as Lenders); Fleet National Bank (as agent); and
Digitas Inc., Vesuvio, Inc., Bronner Slosberg Humphrey Co., and BSH Holding LLC (as guarantors) |  | Incorporated by reference to Exhibit 10.40 to the Annual Report of Form 10-K for the year ended December 31, 2001      



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##### Table of Contents

|           |  |                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                  
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Index Title                                                                                                                                                                                                                                                                                                                                                               |  | Method of Filing                                                                                                                                                                 
|           |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.41      |  | Third Amendment to Revolving Credit Agreement, dated September 30, 2002, by And among Digitas LLC (as borrower); the Lenders listed therein (as Lenders); Fleet National Bank (as agent); and
Digitas Inc., Bronner Slosberg Humphrey Inc., and BSH Holding LLC (as guarantors)                                                                                                   |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002                                                          
|           |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.42      |  | Fourth Amendment to Revolving Credit Agreement, dated February 24, 2003, by And among Digitas LLC (as borrower); the Lenders listed therein (as Lenders); Fleet National Bank (as agent); and
Digitas Inc., Bronner Slosberg Humphrey Inc., and BSH Holding LLC (as guarantors)                                                                                                   |  | Incorporated by reference to Exhibit 10.42 to the Annual Report of Form 10-K for the year ended December 31, 2002                                                                
|           |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.43      |  | Form of Executive Employment Agreement                                                                                                                                                                                                                                                                                                                                            |  | Incorporated by reference to Exhibit 10.43 to the Annual Report of Form 10-K for the year ended December 31, 2002                                                                
|           |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.44      |  | Consulting Agreement, dated January 9, 2003, by and between Michael Ward and Digitas LLC                                                                                                                                                                                                                                                                                          |  | Incorporated by reference to Exhibit 10.44 to the Annual Report of Form 10-K for the year ended December 31, 2002                                                                
|           |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.45      |  | The Digitas LLC Deferred Compensation Plan, dated as of January 1, 2003                                                                                                                                                                                                                                                                                                           |  | Incorporated by reference to Exhibit 10.45 to the Annual Report of Form 10-K for the year ended December 31, 2002                                                                
|           |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.46      |  | Fifth Amendment to Revolving Credit Agreement, dated as of September 12, 2003, by and among Digitas LLC (the Borrower) and Digitas Inc., Bronner Slosberg Humphrey Inc., and BSH
Holding LLC (as Guarantors) and Fleet National Bank and the other lending institutions listed there in (collectively, the Banks) and Fleet National Bank (the Agent)                       |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2003                                                          
|           |  |                                                                                                                                                                                                                                                                                                                                                                                  
|10.47      |  | Sixth Amendment to Revolving Credit Agreement, dated as of December 18, 2003, by and among Digitas LLC (the Borrower) and Digitas Inc., Bronner Slosberg Humphrey Inc., BSH Holding
LLC and Digitas Security Corp. (as Guarantors) and Fleet National Bank and the other lending institutions listed there in (collectively, the Banks) and Fleet National Bank (the Agent) |  | Filed herewith                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                                                                                                  
|14.1       |  | Code of Conduct                                                                                                                                                                                                                                                                                                                                                                   |  | Filed herewith                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                                                                                                  
|16.1       |  | Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated March 28, 2002                                                                                                                                                                                                                                                                                    |  | Incorporated by reference to Exhibit 16 to the Registration Statement on Form 8-K (SEC File No. 000-29723), as filed with the Securities and Exchange Commission on April 2, 2002



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##### Table of Contents

|           |  |                                                                                |  |                                                                                                                 
|---------- |  | ------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Index Title                                                            |  | Method of Filing                                                                                                
|           |  |                                                                               
|21.1       |  | Subsidiaries of Digitas Inc.                                                   |  | Filed herewith                                                                                                  
|           |  |                                                                               
|23.1       |  | Consent of Independent Auditors                                                |  | Filed herewith                                                                                                  
|           |  |                                                                               
|23.2       |  | Information Regarding Consent of Arthur Andersen LLP                           |  | Filed herewith                                                                                                  
|           |  |                                                                               
|24.1       |  | Powers of Attorney                                                             |  | Included on signature page hereto                                                                               
|           |  |                                                                               
|31.1       |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002        |  | Filed herewith                                                                                                  
|           |  |                                                                               
|31.2       |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002        |  | Filed herewith                                                                                                  
|           |  |                                                                               
|32.1       |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002        |  | Filed herewith                                                                                                  
|           |  |                                                                               
|99.1       |  | Letter to the Securities and Exchange Commission Pursuant to Temporary Note 3T |  | Incorporated by reference to Exhibit 99.1 to the Annual Report of Form 10-K for the year ended December 31, 2001