SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                             --------------------

                                   FORM 10-K

                             --------------------
             Annual Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

For the Fiscal Year Ended: December 31, 1998   Commission File Number: 001-14093

                             YOUNG & RUBICAM INC.
            (Exact name of registrant as specified in its charter)

                 Delaware                                 13-1493710
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
      incorporation or organization)

     285 Madison Avenue, New York, NY                        10017
  (Address of principal executive offices)                 (Zip Code)

      Registrant's telephone number, including area code: (212) 210-3000

          Securities Registered Pursuant to Section 12(b) of the Act:
     
                                                       Name of each exchange
       Title of each class                              on which registered
------------------------------                         ------------------------
Common Stock, $.01 Par Value                           New York Stock Exchange

       Securities Registered Pursuant to Section 12(g) of the Act: NONE

     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  the  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

     At  March  26,  1999,   there  were  66,521,003   shares  of  Common  Stock
outstanding;  the  aggregate  market value of the voting and  non-voting  common
equity held by nonaffiliates at March 26, 1999 was approximately  $1,172,564,432
(based  upon the  closing  price of such  stock as quoted on the New York  Stock
Exchange on such date).

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest practicable date.

             Class                           Outstanding as of March 26, 1999
Common Stock, $.01 Par Value                          66,521,003

                      DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's  definitive proxy statement relating to its
annual  meeting  of  stockholders  scheduled  to be  held on May  14,  1999  are
incorporated by reference into Part III of this Form 10-K.
<PAGE>

                             YOUNG & RUBICAM INC.

                           -------------------------
                      INDEX TO ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PART I                                                                               Page
                                                                                     ----

<S>       <C>                                                                        <C>
Item 1.    Business ................................................................    1
Item 2.    Properties ..............................................................    7
Item 3.    Legal Proceedings .......................................................    7
Item 4.    Submission of Matters to a Vote of Security Holders .....................    7

PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters ...    8
Item 6.    Selected Financial Data .................................................    9
           Management's Discussion and Analysis of Financial Condition and
Item 7.    Results of Operations ...................................................   10
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk ..............   16
Item 8.    Financial Statements and Supplementary Data .............................   16
           Changes in and Disagreements with Accountants on Accounting and
Item 9.    Financial Disclosure ....................................................   16

PART III

Item 10.   Directors and Executive Officers of the Registrant ......................   17
Item 11.   Executive Compensation ..................................................   17
Item 12.   Security Ownership of Certain Beneficial Owners and Management ..........   17
Item 13.   Certain Relationships and Related Transactions ..........................   17

     The  information  called  for by Items 10,  11,  12 and 13 is  incorporated
herein by  reference  to the  information  to be  included  under  the  captions
"Election  of  Directors,"   "Executive  Officers,"  "Executive   Compensation,"
"Compensation of Directors" and "Security  Ownership of Principal  Stockholders,
Directors and Executive  Officers" in the Company's  definitive  proxy statement
relating  to its 1999  Annual  Meeting of  Stockholders  which is expected to be
filed by April 9, 1999.

PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... 18
</TABLE>



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This  document  may  contain   statements   that   constitute   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended.
These  forward-looking   statements  include  statements  in  the  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
section of this  document  relating to the  performance  of Young & Rubicam Inc.
("Y&R" or the  "Company").  It is  important to note that the  Company's  actual
results could differ materially from those anticipated in these  forward-looking
statements  depending on, among other important  factors,  (i) revenues received
from clients, including revenues pursuant to incentive compensation arrangements
entered  into by the  Company  with  certain  clients,  (ii)  gains or losses of
clients and client  business and  projects,  as well as changes in the marketing
and communications  budgets of clients,  (iii) the level of economic activity in
the principal  markets in which the Company  conducts  business and other trends
affecting the Company's financial  condition or results of operations,  (iv) the
impact of  competition  in the marketing and  communications  industry,  (v) the
Company's  liquidity  and  financing  plans and (vi) risks  associated  with the
Company's  efforts to comply with Year 2000  requirements.  All  forward-looking
statements in this document are based on information available to the Company on
the date hereof.
<PAGE>

ITEM 1. BUSINESS

     Young  &  Rubicam  Inc.  ("Y&R"  or the  "Company")  is the  fifth  largest
consolidated  marketing and communications  organization in the world. Since our
founding 75 years ago, we have evolved from a single New York-based  advertising
agency to a diversified global marketing and communications company operating in
121 cities in 76 countries  worldwide  as of December 31, 1998.  We are a single
agency  network,  allowing us to  centrally  manage and  utilize our  resources.
Through multi-disciplinary, client-focused teams, we provide clients with global
access to fully integrated  marketing and communications  solutions.  We operate
through recognized market leaders including:

o Young & Rubicam Advertising (full-service advertising); 
o The Bravo Group/Kang & Lee (multi-cultural  marketing and  communications);  
o Wunderman Cato Johnson (direct  marketing and sales promotion);  
o Brand Dialogue (digital  interactive branding and digital  commerce);  
o The Media Edge (media  planning,  buying and placement  services);  
o  Burson-Marsteller  (perception  management  and public relations);  
o Cohn & Wolfe (full-service public relations); 
o Landor Associates (branding   consultation  and  design  services);   and  
o  Sudler  &  Hennessey (healthcare communications).

     In late 1992, we created the Key Corporate  Account,  or KCA,  program,  to
enhance  the  coordination  of  services  sought by  clients  from both a global
coverage as well as an integrated solutions  perspective.  KCAs are large global
client accounts that, as a group,  contribute the greatest share of our revenues
and  profits,  and are  served  on a  multinational  basis by two or more of our
businesses.  Revenues  from the KCAs, as a group,  accounted  for  approximately
48.6% of our consolidated revenues in 1998. As part of our client focus, members
of our senior  management team retain on-going  responsibilities  for individual
KCAs in addition to their managerial roles.

INDUSTRY OVERVIEW

     The  marketing  and  communications  industry  encompasses  a wide range of
services  used to  develop  and  deliver  messages  to both  broad and  targeted
audiences  through  multiple  communication   channels.  The  industry  includes
traditional  advertising  services as well as other marketing and communications
services  such as  direct  marketing  and  sales  promotion,  public  relations,
branding  consultation  and  design  services,  new  media  marketing  and other
specialized services.

     Traditional  advertising  services  include the development and planning of
marketing  and  branding  campaigns;  the  creative  design  and  production  of
advertisements;  the  planning  and buying of time and/or  space in a variety of
media,  including  broadcast and cable television,  radio,  newspapers,  general
interest/specialty magazines,  billboards and the Internet; and the provision of
consumer, product and other market research to clients on an ongoing basis.

     Direct marketing and sales promotion incorporate a broad range of services,
including  direct  mail  and  direct  response  television   advertising  (using
toll-free 800 numbers),  inbound and outbound telemarketing,  database marketing
and  online  marketing.  Sales  promotion  includes  the  planning,  design  and
implementation  of  merchandising  and sales  promotions  as well as design  and
implementation of targeted interactive campaigns.

     Perception  management  and  public  relations  address  clients'  external
corporate or brand  positioning,  public image and  relations  with key external
constituencies.  Functions  provided by public relations firms include corporate
communications,  public affairs, lobbying, crisis management,  issue advertising
and internal, consumer grassroots communications.

                                       1

<PAGE>

     Branding  consultation and design services encompass a range of services to
create, build and revitalize clients' brands. Among these services are corporate
identity,  package  design,  retail  design  and  branded  environments,  verbal
branding  and  nomenclature   systems,   corporate  literature  and  interactive
branding.

     New media marketing services include  interactive  marketing  campaigns and
strategic consulting services, the design of Internet websites, banners and home
pages, the development of corporate intranets and digital commerce applications.

OPERATIONS

     The following  section  contains a brief  description of the Company's main
service offerings.

     YOUNG &  RUBICAM  ADVERTISING.  Young & Rubicam  Advertising  is one of the
world's leading full-service consumer advertising  agencies,  offering expertise
in creative development,  consumer research and marketing,  and media buying and
planning. In 1997, Young & Rubicam Advertising was ranked by industry sources as
the seventh largest advertising agency based in the United States.

     Young  &  Rubicam  Advertising  operates  in  86  cities  in  61  countries
worldwide,  in the  Americas,  Europe and  Africa.  Young & Rubicam  Advertising
services  clients through the Dentsu,  Young & Rubicam  Partnerships  across the
Asia/Pacific region.

     DENTSU,  YOUNG  &  RUBICAM  PARTNERSHIPS.   The  Dentsu,  Young  &  Rubicam
Partnerships  ("DY&R") are a network of full-service  advertising  agencies that
provide  Young & Rubicam  Advertising  with access to major  markets  across the
Asia/Pacific region. DY&R was created as a joint venture between Y&R and Dentsu,
Inc.  ("Dentsu") in 1991. In 1997, Dentsu ranked as the fourth largest marketing
and  communications  organization  in the world and the  largest  marketing  and
communications  organization based in the Asia/Pacific  region. DY&R is a series
of local  ventures in which Y&R  typically  has a 50%  interest,  and is jointly
managed  and  operated by Y&R and Dentsu.  To  maximize  local brand  equity and
minimize conflicts,  DY&R operates under different brand names and management in
each of its three regions -- Asia, Australia/New Zealand and the United States.

     THE  BRAVO   GROUP/KANG   &  LEE.   The  Bravo  Group   ("Bravo")   creates
multi-cultural   marketing   and   communications   programs   targeted  to  the
fast-growing  U.S.  Hispanic  community.   Bravo's  multi-disciplinary  services
include advertising,  promotion and event marketing, public relations,  research
and direct  marketing.  The Company  expanded its  multi-cultural  marketing and
communications  capabilities in October 1998 with its acquisition of Kang & Lee,
an agency that creates  Asian-language  integrated  marketing programs which are
designed to establish strong product  positions in the  Asian-American  consumer
segments.

     WUNDERMAN  CATO  JOHNSON.  Wunderman  Cato  Johnson  ("WCJ")  is a  leading
behavior-driven marketing and communications company.  Behavior-driven marketing
and communications  are designed to assist clients in producing  immediate sales
and building  brand and customer  equity.  WCJ addresses its clients'  marketing
objectives through direct marketing, sales promotion, television commercials and
infomercials,   customer  loyalty  programs,  relationship  marketing  programs,
database  development and management,  merchandising,  entertainment  and sports
marketing, lead generation and new product launches.

     WCJ was  created  by the  1992  merger  of  Wunderman  Worldwide,  a direct
marketing company acquired by Y&R in 1973, and Cato Johnson Associates,  a sales
promotion  company  acquired  by Y&R in 1976.  Headquartered  in New  York,  WCJ
operates in 47 cities in 31  countries  worldwide.  WCJ also has major  database
facilities in Europe and Latin America.

                                       2
<PAGE>

     BRAND DIALOGUE.  Brand Dialogue specializes in digital interactive branding
and  digital  commerce.  Brand  Dialogue's  primary  offerings  consist  of  web
advertising, including the design, creation and production of websites, banners,
home  pages  and   comprehensive   interactive   campaigns;   digital   commerce
applications;  the development of corporate intranets to improve  communications
and  productivity  within  and among a defined  set of  users;  and  interactive
marketing consulting services.

     THE MEDIA EDGE. The Media Edge provides  integrated media planning,  buying
and  placement  services  for both  Young &  Rubicam  Advertising  and  WCJ.  In
addition,  The Media Edge provides  planning and buying of both  traditional and
direct response media, and offers a range of  media-related  services to clients
other than those of Young & Rubicam  Advertising  and WCJ, as well as to smaller
independent advertising and communications agencies.

     BURSON-MARSTELLER.  Burson-Marsteller is a leading international perception
management,   public  relations  and  public  affairs  company.  It  provides  a
comprehensive  range  of  perception  management  capabilities  to its  clients,
including issues analysis,  crisis  management,  consumer and business marketing
and research,  corporate  communications,  investor relations and public affairs
advocacy.  The  perception  management  process  begins with a statement  of the
desired business results and then identifies  current and targeted  perceptions,
as well  as  different  approaches  to  create  the  desired  mindset  with  key
audiences.

     Burson-Marsteller  was  founded  in 1953 and was  acquired  by Y&R in 1979.
Burson-Marsteller  is  headquartered in New York and operates in 49 cities in 33
countries around the world.

     COHN & WOLFE.  Cohn & Wolfe is a  full-service  public  relations firm that
provides creative,  results-driven  services to its clients.  Cohn & Wolfe helps
its clients establish and communicate  corporate and brand identity,  launch new
products and expand sales. Areas of expertise include consumer marketing, sports
publicity and issues management,  as well as healthcare,  information technology
and business-to-business communications.

     Cohn & Wolfe was founded in 1970 and was acquired by  Burson-Marsteller  in
1984. Cohn & Wolfe operates in 12 cities in North America, Europe and Australia.

     LANDOR  ASSOCIATES.  Landor  Associates  ("Landor")  is a leading  branding
consultancy and strategic  design firm.  Landor creates,  builds and revitalizes
clients' brands and helps position these brands for continued success.  Landor's
branding and identity  consultants,  designers and researchers work with clients
on a full range of branding and identity projects, including corporate identity,
packaging and brand identity  systems,  retail design and branded  environments,
interactive  branding  and design,  verbal  branding and  nomenclature  systems,
corporate literature, brand extensions and new brand development.

     Landor  was  founded  in 1941 and was  acquired  by Y&R in 1989.  Landor is
headquartered  in San  Francisco  and  operates  in 15  cities  in 11  countries
worldwide,  including  multidisciplinary  consulting  and design  studios in New
York, Seattle, Mexico City, Hamburg, London, Paris, Hong Kong and Tokyo.

     SUDLER &  HENNESSEY.  Sudler &  Hennessey  ("S&H") is a leading  healthcare
communications  firm,  which  develops  strategic  promotional  and  educational
programs for a wide  spectrum of  healthcare  brands.  S&H creates  advertising,
direct  marketing  and  sales  promotion  programs  for  prescription  drugs and
over-the-counter  medications.  In addition,  S&H provides strategic consultancy
and  communications  support in the areas of managed care,  medical  devices and
equipment, nutrition, veterinary medicine and general healthcare. Communications
programs produced by S&H on behalf of its largely pharmaceutical industry client
base  are  directed  to a wide  range  of  healthcare  professionals  as well as
patients and their support networks.

                                       3
<PAGE>

     S&H  was  founded  in  1941  and  was  acquired  by  Y&R  in  1973.  S&H is
headquartered  in New York and  operates in 15 cities in 10  countries  in North
America, Europe and Asia/Pacific.

CLIENTS

     We represent clients in various industries,  including automotive, consumer
packaged goods, financial services, food and beverages,  government services and
telecommunications.  Among our approximately  5,500 client accounts are a number
of   large    multinational    organizations,    including    AT&T,    Citibank,
Colgate-Palmolive,  Ford Motor  Company  and Philip  Morris.  Our top 20 clients
accounted for  approximately  45.7% of consolidated  revenues in 1998; our three
largest clients  accounted for approximately  20.2% of consolidated  revenues in
1998 and our largest  client,  Ford Motor Company,  accounted for  approximately
10.5% of consolidated revenues in 1998.

OTHER INFORMATION

     For information  concerning revenues and assets on a geographical basis for
each of the  last  three  years,  reference  is  made  to Note 12 --  "Worldwide
Operations" of Notes to the Consolidated  Financial Statements beginning on page
F-1.

DEVELOPMENTS IN 1998

     The Company completed an initial public offering of Common Stock on May 15,
1998. Of the aggregate of 19,090,000 shares sold to the public, 6,912,730 shares
were sold by the Company  and  12,177,270  shares  were sold by certain  selling
stockholders.  For  additional  information,  see  Note  4  --  "Initial  Public
Offering" of Notes to the Consolidated  Financial  Statements  beginning on page
F-1.

     In addition,  a secondary  public offering of Common Stock was completed on
November  30,  1998,  pursuant to which  certain  selling  stockholders  sold an
aggregate of 11,500,000 shares to the public.

     The Company did not receive any proceeds  from the sale of shares of Common
Stock by selling stockholders in either of such offerings.

COMPETITION

     The marketing and  communications  industry is highly  competitive,  and we
expect it to remain so. Our principal  competitors  in the  advertising,  direct
marketing and perception  management and public  relations  businesses are large
multinational  marketing  and  communications  companies,  as well  as  numerous
smaller  agencies  that  operate  only in the  United  States  or in one or more
countries  or local  markets.  We must compete  with these other  companies  and
agencies to maintain existing client relationships and to obtain new clients and
assignments.  Some clients, such as U.S. governmental agencies, require agencies
to compete for business at mandatory periodic intervals.  We compete principally
on the basis of the following factors:

o creative reputation;
o knowledge of media;
o quality and breadth of services;  
o geographical  coverage and  diversity;  
o relationships with clients; and 
o financial controls.

     Recently,  traditional  advertising  agencies also have been competing with
major  consulting  firms  which  have  developed   practices  in  marketing  and
communications.  New competitors also include smaller  companies such as systems
integrators, database marketing and modeling companies and

                                       4
<PAGE>

telemarketers,   which  offer   technological   solutions   to   marketing   and
communications  issues  faced  by  clients.  In  addition,   the  trend  towards
consolidation  of  global  accounts   requires   companies  seeking  to  compete
effectively in the international  marketing and communications  industry to make
significant  investments.  These  investments  include  additional  offices  and
personnel  around the world and new and improved  technology  for linking  these
offices and people.

     U.S.  clients  typically may cancel  contracts  with agencies upon 90 days'
notice,  and non-U.S.  clients typically also may cancel contracts with agencies
on 90 to 180 days' notice.  In addition,  clients  generally remain able to move
from one agency to another with relative ease.  However, we believe that clients
may find it increasingly difficult to terminate relationships with agencies that
represent  their  brands  on  a  global  basis  because  of  the  complexity  of
coordinating  creative,  media and  non-media  services.  As is  typical  in the
marketing and communications  industry, we have lost or resigned client accounts
and assignments, including Blockbuster Video and International Home Foods, for a
variety of reasons,  including  conflicts with newly acquired clients.  Although
typically we have replaced these losses with new clients and assignments, we may
not be  successful  in  replacing  clients  that may leave  Y&R or in  replacing
revenues when a client significantly  reduces the amount of work given to Y&R. A
significant  reduction in the marketing and  communications  spending by, or the
loss of,  one or more of our  largest  clients,  if not  replaced  by new client
accounts or an increase in business from existing clients, would have a material
adverse effect on our prospects,  business,  financial  condition and results of
operations.

     When we  represent a client,  we do not always  handle all  advertising  or
public relations for that client. Many large multinational  companies are served
by a number of agencies  within the marketing and  communications  industry.  In
many cases,  clients'  policies on conflicts of interest or desires to be served
by multiple agencies result in one or more global agency networks representing a
client only for a portion of its marketing and  communications  needs or only in
particular  geographic  areas.  In  addition,  the  ability of  agencies  within
marketing and communications  organizations to acquire new clients or additional
assignments  from  existing  clients  may be  limited  by the  conflicts  policy
followed by many clients.  This conflicts  policy typically  prohibits  agencies
from  performing  similar  services for  competing  products or  companies.  Our
principal  international  competitors  are holding  companies  for more than one
global  advertising  agency network.  As a result, in some situations,  separate
agency networks within these holding  companies may be able to perform  services
for  competing  products or for  products of  competing  companies.  We have one
global advertising agency network.  Accordingly,  our ability to compete for new
advertising   assignments   and,  to  a  lesser  extent,   other  marketing  and
communications assignments, may be limited by these conflicts policies.

     Industry  practices  in other  areas of the  marketing  and  communications
business reflect similar concerns with respect to client relationships.

REGULATION

     The  regulation of advertising  takes several forms.  The primary source of
governmental  regulation in the United  States is the Federal  Trade  Commission
("FTC") which is charged with  administering  the Federal Trade  Commission  Act
(the "FTC Act").  The FTC Act covers a wide range of practices  involving false,
misleading  and unfair  advertising.  In the event of violations of federal laws
and regulations,  the FTC may seek cease and desist orders,  may impose monetary
penalties   and  may  require  other   remedies.   The  Federal  Food  and  Drug
Administration,  the Federal  Communications  Commission and other agencies also
have regulatory  authority that affects the advertising  business.  In addition,
many state and local  governments have adopted statutes and regulations  similar
in scope to the FTC Act and the regulations thereunder.

     Self-regulatory activities have become significant in the advertising
business. The Council of Better Business Bureaus has created the National
Advertising Division and the National Advertising Review

                                       5
<PAGE>

Board,  which review and process possible  violations of proper business conduct
through  advertising.  The national  television networks and various other media
have also adopted  strict and extensive  regulations  governing the  advertising
that they will  accept for  broadcast  or  publication.  Trade  associations  in
certain  industries  publish  advertising  guidelines  for their members and, in
addition,  various  consumer  groups  have  been  and  continue  to be  powerful
advocates of increased regulation of advertising.

     Advertising  is also  subject to  regulation  in  countries  other than the
United  States in which we and our  affiliates  do business.  We have  developed
internal review procedures to help ensure that our work product, as well as that
of our affiliates,  is in compliance with standards of accuracy, fair disclosure
and ethical proprieties, including those established by federal, state and local
laws and regulations and the pre-clearance procedures of the broadcast media.

     In addition, as an international organization we are subject to the Foreign
Corrupt  Practices Act (the "FCPA").  The FCPA imposes civil and criminal  fines
and penalties on companies and  individuals  that violate its  anti-bribery  and
other provisions.

EMPLOYEES

     We are highly  dependent upon the skills of our creative,  research,  media
and account personnel and practice group  specialists,  and their  relationships
with our clients.  Employees  generally are not subject to employment  contracts
and are,  therefore,  typically  able to move within the industry  with relative
ease.  Competition among the Company and its competitors for qualified personnel
is substantial,  and the Company, like its principal competitors,  is vulnerable
to the potentially adverse  consequences which would arise from the inability to
attract  or  retain  such  qualified  personnel.  We have  approximately  13,000
employees  (including part-time employees)  worldwide,  including  approximately
5,000 employed in the United States.  None of our U.S.  employees are covered by
collective bargaining  agreements.  We believe that our relations with employees
are good.

                                       6
<PAGE>

ITEM 2. PROPERTIES

     We own our  headquarters  office building at 285 Madison Avenue,  New York,
New York. We lease other  offices and space for our  facilities in New York City
and  elsewhere  throughout  the world.  The  following  table sets forth certain
information relating to our principal properties:

<TABLE>
<CAPTION>
                                                                                         APPROXIMATE
                                                                                           SQUARE
          LOCATION                                       USE                               FOOTAGE      EXPIRATION
          --------                                       ---                               -------      ----------

<S>                           <C>                                                         <C>          <C>      
285 Madison Avenue (owned)     Young & Rubicam Advertising, WCJ, Brand Dialogue and        370,000         N/A
New York, New York             corporate headquarters
230 Park Avenue South          Burson-Marsteller, Bravo, Landor and WCJ                    340,500       1/22/06
New York, New York
Gallus Park                    Young & Rubicam Advertising, WCJ, Burson-Marsteller         154,000       4/26/04
Frankfurt, Germany             and Sudler & Hennessey
825 Seventh Avenue             The Media Edge                                              111,832       1/31/01
New York, New York
200 Renaissance Center         Young & Rubicam Advertising and WCJ                          96,000      11/30/99
Detroit, Michigan
675 Avenue of the Americas     WCJ                                                          92,500       6/30/03
New York, New York
Greater London House           Young & Rubicam Advertising, WCJ and Sudler &                80,000       5/31/13
London, U.K.                   Hennessey
295 Madison Avenue             Young & Rubicam Advertising                                  65,821       1/22/06
New York, New York
49-59 Avenue Andre Morizet     Young & Rubicam Advertising and WCJ                          65,000       3/30/08
Paris, France
100 First Street               Young & Rubicam Advertising, WCJ, Burson-Marsteller          65,000       4/30/03
San Francisco, California      and Bravo
One South Wacker Drive         Young & Rubicam Advertising, WCJ and Landor                  63,000      11/30/99
Chicago, Illinois
1801 K Street N.W.             Burson-Marsteller and Cohn & Wolfe                           60,000      10/31/06
Washington, D.C.
7535 Irvine Center Drive       Young & Rubicam Advertising and WCJ                          53,794      12/14/09
Irvine, California
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

     We are  involved  from time to time in  various  claims  and legal  actions
incident to our operations,  both as plaintiff and defendant.  In the opinion of
management,  these existing claims, in the aggregate, are not expected to have a
material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters  were  submitted to a vote of security  holders  during the last
quarter of 1998.

                                       7
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's  Common Stock is listed on the New York Stock  Exchange under
the symbol  "YNR." The table below shows the range of reported  last sale prices
on the New York Stock Exchange Composite Tape for the Company's Common Stock for
the  periods  indicated;  the  reported  last sale  price on March 26,  1999 was
$38.50. As of March 26, 1999, there were  approximately  1,025 holders of record
of Common Stock.

<TABLE>
<CAPTION>
                                               HIGH       LOW
                                             --------   ------
           1998
<S>                                         <C>          <C>    
               Second Quarter                                      
               (commencing May 12, 1998)     33 1/16     26 1/2      
               Third Quarter                 35 7/8      28 3/8      
               Fourth Quarter                33 5/8      19 3/4      
</TABLE>
               
     Since December  1996, the Company has not paid any cash or other  dividends
on its Common Stock (other than a stock  dividend  paid in  connection  with the
Company's  initial public offering in May 1998). The credit agreement  governing
the  Company's  credit  facility   contains  certain   financial  and  operating
restrictions  and  covenant  requirements  and permits the payment of  dividends
except in the event of a  continuing  default  under the credit  agreement.  The
Company  expects to declare and pay a cash dividend by the end of the first half
of 1999. The decision whether to apply legally available funds to the payment of
dividends  on  Common  Stock  will be made at the  discretion  of the  Board  of
Directors  and will depend upon,  among other  factors,  results of  operations,
financial condition,  capital  requirements and the contractual  restrictions of
the credit facility.  

                                       8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The following selected  consolidated  financial information for each of the
five  years in the  period  ended  December  31,  1998 set forth  below has been
derived  from and  should  be read in  conjunction  with the  Company's  audited
consolidated financial statements and notes thereto (the "Consolidated Financial
Statements") beginning on page F-1 and the other financial information presented
elsewhere  herein.  Capitalized  terms  are as  defined  and  described  in such
Consolidated Financial Statements.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                          YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------------------------
SELECTED STATEMENT OF OPERATIONS DATA              1998             1997             1996             1995            1994
------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>              <C>              <C>              <C>      
Revenues                                       $ 1,522,464      $ 1,382,740      $ 1,222,139      $ 1,085,494      $ 959,275
Compensation expense, including employee
 benefits (1)                                      903,948          836,150          730,261          672,026        594,322
General and administrative expenses (1)            455,578          463,936          391,617          356,523        323,087
Other operating charges (2)                        234,449           11,925           17,166           31,465          4,507
Recapitalization-related charges (2)                    --               --          315,397               --             --
(Loss) income from operations                      (71,511)          70,729         (232,302)          25,480         37,359
(Loss) income before extraordinary charge          (81,635)         (23,938)        (238,311)             820         15,432
Net (loss) income (3)                              (86,068)         (23,938)        (238,311)             820         15,432
Loss per share (basic and diluted) (3)

 Loss before extraordinary charge              $     (1.34)     $     (0.51)
 Extraordinary charge                              (  0.08)              --
 Net loss                                      $     (1.42)     $     (0.51)
Weighted average shares outstanding             60,673,994       46,949,355
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) For a discussion  of charges  included in  compensation  expense,  including
    employee   benefits,   and  general   and   administrative   expenses,   see
    "Management's  Discussion and Analysis of Financial Condition and Results of
    Operations" under the heading "Results of Operations."

(2) For a discussion  of  Recapitalization-related  charges and other  operating
    charges for the years ended December 31, 1998, 1997 and 1996, see Notes 4, 6
    and 9 of Notes to the Consolidated Financial Statements.

(3) Net loss in 1998 includes an extraordinary loss on the retirement of debt of
    $4.4 million ($.08 per share of Common Stock).

<TABLE>
<CAPTION>
                                             ---------------------------------------------------------------------------------
                                                                             DECEMBER 31,
                                             ---------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA                      1998           1997           1996            1995           1994
                                             ---------------------------------------------------------------------------------
<S>                                           <C>            <C>            <C>            <C>             <C>       
Cash and cash equivalents ................    $  122,138     $  160,263     $  110,180     $   21,646      $   36,535
Total assets .............................    1,635,255      1,537,807      1,598,812      1,226,581       1,118,846
Total debt (4) ...........................        63,959        351,051        267,238        230,831         256,032
Mandatorily Redeemable Equity Securities .            --        508,471        363,264             --              --
Total stockholders' equity (deficit) .....       114,969       (661,714)      (480,033)       (55,485)         69,982
                                             ---------------------------------------------------------------------------------
</TABLE>

(4) Total debt includes current and non-current loans and installment notes.

                                       9
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The  following   discussion   should  be  read  in  conjunction   with  the
Consolidated Financial Statements beginning on page F-1.

RESULTS OF OPERATIONS

     The  following  table sets forth,  for the years  indicated,  certain items
derived  from  the  Company's  consolidated  statements  of  operations  and the
percentages of revenue represented by such items.
<TABLE>
<CAPTION>
                                          ------------------------------------------------------------------------------------
                                                                          YEAR ENDED DECEMBER 31,
                                                             % OF                        % OF                        % OF
                                             1998        REVENUES        1997        REVENUES        1996        REVENUES
                                          ------------     --------    -----------    ---------     ------------ -----------
                                                                               (IN MILLIONS)
<S>                                         <C>              <C>        <C>              <C>        <C>             <C>   
Revenues ...........................        $  1,522.5       100.0%     $  1,382.7       100.0%     $  1,222.1      100.0%
Compensation expense, including employee
 benefits ..........................             903.9        59.4%          836.2        60.5%          730.3       59.8%
General and administrative expenses.             455.6        29.9%          463.9        33.6%          391.6       32.0%
------------------------------------      -------------     -------     ----------     --------     --------------------------
Income before non-recurring charges(1)           162.9        10.7%           82.7         6.0%          100.3        8.2%
Other operating charges ............             234.4        15.4%           11.9         0.9%           17.2        1.4%
Recapitalization-related charges ...                --         0.0%             --         0.0%          315.4       25.8%
------------------------------------      -------------     -------     ----------     --------     --------------------------
(Loss) income from operations ......             (71.5)      ( 4.7%)          70.7         5.1%         (232.3)     (19.0%)
Net loss ...........................        $    (86.1)      ( 5.7%)    $    (23.9)      ( 1.7%)    $   (238.3)     (19.5%)
====================================      =============     =======     ==========     ========     ==========================
</TABLE>

* Totals may not add due to rounding.

(1) Management  believes  that  income  before   non-recurring   charges  is  an
    appropriate measure for evaluating the operating performance of the Company;
    however,  it should be considered  in addition to, not as a substitute  for,
    operating  income,  net income and other  measures of financial  performance
    reported in accordance with generally accepted accounting principles.

1998 COMPARED TO 1997

     Revenues  for 1998  increased  by $139.8  million,  or 10.1%,  to  $1,522.5
million  compared to 1997.  The increase was  primarily  due to net new business
(including  business from new clients and higher revenue from existing  clients)
generated  from  clients  such as  Citibank  and Ford.  United  States  revenues
increased by 17.3% to $775.7  million for 1998  compared to 1997.  International
revenues  increased  by 3.5% to  $746.8  million  for  1998  compared  to  1997,
primarily due to strong  performance in Europe,  partially offset by declines in
Latin  America and the impact of the overall  strengthening  of the U.S.  dollar
against foreign currencies.  Organic revenue growth (excluding  acquisitions and
foreign  currency  fluctuations)  was  12.2%.  Excluding  the  effect of foreign
currency  fluctuations,  international  revenues  increased by 7.9%  compared to
1997.

     Compensation  expense increased by $67.7 million to $903.9 million for 1998
compared to 1997. The growth in compensation expense was primarily  attributable
to  additional  staffing  to support  business  growth and to salary  increases.
Compensation  expense in 1997 also included a $12.3 million charge primarily for
deferred compensation awards granted to senior executives.  Excluding the effect
of the 1997 deferred compensation awards, compensation expense in 1998 decreased
as a percentage of revenues to 59.4% from 59.6% in 1997.

     General and  administrative  expenses  decreased  by $8.3 million to $455.6
million for 1998  compared to 1997.  This  decrease was primarily due to a $25.5
million write-off in 1997 of accounts receivable,  costs billable to clients and
other capitalized costs with respect to the operations of  Burson-Marsteller  in
Europe and Asia,  partially offset in 1998 by additional  operating  expenses to
support  business  growth.   Excluding  the  effect  of  the   Burson-Marsteller
write-off, general and administrative expenses in 1998 decreased as a percentage
of revenues to 29.9% from 31.7% in 1997.

                                       10
<PAGE>

      Income before non-recurring  charges increased by $80.2 million, or 97.0%,
to $162.9 million for 1998 compared to 1997.  This increase was primarily due to
net  new  business  gains  in  1998,   improved  operating   margins,   and  the
Burson-Marsteller write-off and deferred compensation charge in 1997.

     Effective upon the consummation of the Company's initial public offering of
Common  Stock  in May  1998  (the  "Offering"),  the  Company  recognized  other
operating charges of $234.4 million.  These other operating charges consisted of
non-recurring,  non-cash  compensation  charges  resulting  from the  vesting of
shares  of  restricted  stock  allocated  to  employees.  In 1997,  the  Company
recognized  $11.9  million  of  other  operating   charges  for  non-cash  asset
impairment  write-downs  principally related to certain operations in the United
States, Africa, Latin America and Europe.

     As a result of the $234.4  million in other  operating  charges  associated
with the Offering,  the Company reported a loss from operations of $71.5 million
for 1998.  Excluding the other operating  charges  described above for both 1998
and 1997, and the  Burson-Marsteller  write-off and deferred compensation charge
in 1997,  income from  operations in 1998 increased by $42.4 million,  or 35.2%,
compared to 1997.

     Net interest  expense  decreased by $16.7 million to $17.7 million for 1998
compared  to 1997.  The decline was due to lower  average  borrowing  levels and
lower average borrowing rates during 1998 compared to 1997.

     The  Company  recognized  an income tax  benefit of $2.6  million  for 1998
compared to income tax expense of $58.3 million for 1997. Included in 1998 is an
income tax benefit of $64.6 million  attributable to the other operating charges
of $234.4 million  described above and reflects the anticipated  federal,  state
and foreign tax effect of such other operating  charges after  consideration  of
valuation  allowance  amounts for certain  non-U.S.  deductions.  The  effective
income tax rate was a benefit of 3.0% for 1998.  Excluding  the benefit  derived
from the other  operating  charges,  the  effective tax rate was 42% for 1998, a
decrease from the 160.6% effective tax rate 1997. The effective tax rate in 1997
includes the effect of incremental foreign taxes arising from losses outside the
United States which provided little or no tax benefit.

     Equity in net income of  unconsolidated  companies was $4.7 million in 1998
compared  to $0.3  million  in 1997,  reflecting  improved  worldwide  operating
results by advertising agency affiliates.

     Minority  interest  in net  income of  consolidated  subsidiaries  was $2.0
million  in 1998  compared  to $2.3  million  in  1997,  primarily  due to lower
earnings from a Latin American operation.

     The Company incurred an extraordinary charge of $4.4 million in 1998, which
is net of a tax benefit of approximately  $2.8 million,  due to the write-off of
unamortized  deferred  financing  costs related to a credit  facility  which was
replaced in May 1998 in connection with the Offering.

     Net loss for 1998 was $86.1 million compared to a net loss of $23.9 million
for  1997.  Excluding  the  after-tax  effect  of the  other  operating  charges
associated with the Offering and the extraordinary charge in 1998, and the other
operating charges, the Burson-Marsteller write-off and the deferred compensation
charge in 1997, net income  increased by $86.3 million in 1998 compared to 1997.
This  increase was primarily the result of revenue  growth,  improved  operating
margins, lower net borrowing costs and a reduced effective tax rate.

1997 COMPARED TO 1996

     Revenues  for 1997  increased  by $160.6  million,  or 13.1%,  to  $1,382.7
million  compared to 1996.  This  increase was primarily due to net new business
(including  business from new clients and higher revenues from existing clients)
generated  from  clients such as  Campbell's  Soup,  Citibank,  Merck and United
Airlines.  United States revenues  increased by 15.8% to $661.3 million for 1997
compared to 1996.  International  revenues for 1997 increased by 10.8% to $721.4
million for 1997 compared to 1996.

                                       11
<PAGE>

Organic revenue growth was 13.6%. An additional 3.0% of the revenue increase was
due to the acquisition of majority interests in investments previously accounted
for under the equity method.  Such  increases  were  partially  offset by a 3.5%
decline  related to a  strengthening  (on  average) of the U.S.  dollar  against
foreign currencies.

     Compensation expense increased by $105.9 million to $836.2 million for 1997
compared to 1996. The growth in compensation  expense was generally in line with
revenue growth and also included a $12.3 million  charge  primarily for deferred
compensation  awards granted to senior executives in 1997.  Excluding the effect
of  the  1997  deferred  compensation  charges,  compensation  expense  in  1997
decreased as a percentage of revenues to 59.6% from 59.8% in 1996.

     General and  administrative  expenses  increased by $72.3 million to $463.9
million  for 1997  compared  to 1996.  This  increase  included a $25.5  million
write-off in 1997 of accounts  receivable,  costs  billable to clients and other
capitalized costs with respect to the operations of  Burson-Marsteller in Europe
and Asia. The write-offs in Europe were primarily related to Burson-Marsteller's
implementation of a new management  information system in 1997 which resulted in
delayed and inaccurate  billing of certain clients and necessitated the creation
of  additional  reserves  against  accounts  receivable  and costs  billable  to
clients. The write-offs in Asia were attributable to the Company's evaluation of
Burson-Marsteller's  recent operating  performance in Asia and the determination
that  Burson-Marsteller  was unlikely to collect certain accounts receivable and
costs  billable to  clients.  As a result of its  analysis of the  circumstances
which  led  to  these  write-offs,   the  Company  made  management  changes  at
Burson-Marsteller  in  Europe  and Asia  and  implemented  additional  financial
control and reporting requirements for these operations, including strengthening
controls and procedures  regarding  regional  billing and collection  practices.
Excluding  the  effect  of the 1997  Burson-Marsteller  write-off,  general  and
administrative  expenses in 1997  decreased as a percentage of revenues to 31.7%
from 32.0% in 1996.

     Income before  non-recurring  charges decreased by $17.6 million, or 17.5%,
to $82.7 million for 1997  compared to 1996.  This decrease was primarily due to
the  inclusion  of  the  deferred   compensation  charge  and  Burson-Marsteller
write-off in 1997, offset in part by net new business gains.

     In 1997, the Company had income from  operations of $70.7 million  compared
to a loss from operations of $232.3 million in 1996, primarily due to charges of
$315.4  million  related  to  the  recapitalization  of  the  Company  that  was
consummated  in December 1996 (the  "Recapitalization")  which is described more
fully in Note 6 of Notes to the Consolidated  Financial Statements.  Income from
operations in 1997 included $11.9 million of other  operating  charges for asset
impairment  write-downs  principally related to certain operations in the United
States, Africa, Latin America and Europe.

     Net interest  expense  increased by $16.1 million to $34.4 million for 1997
compared to 1996.  The increase was  primarily due to higher  average  borrowing
levels in 1997 as a result of the Recapitalization.

     The  Company  recognized  income  tax  expense  of $58.3  million  for 1997
compared  to an income tax  benefit of $20.6  million  for 1996.  The  effective
income tax rate for 1997 was  160.6%.  The primary  difference  between the U.S.
statutory  tax  rate  and  Y&R's  effective  tax  rate  in  1997  resulted  from
incremental  foreign taxes  arising from losses  outside the United States which
provided little or no tax benefit.  The effective income tax rate for 1996 was a
benefit of 8.2%. This reflects the tax benefit from the Recapitalization-related
charges  partially offset by foreign income taxed at rates greater than the U.S.
statutory rate. See Note 11 of Notes to the Consolidated Financial Statements.

     Equity in net income of  unconsolidated  companies was $0.3 million in 1997
compared to a loss of $9.8 million in 1996. A $9.3 million  charge to write down
an Australian equity investment was recorded in 1996.

     Minority  interest  in net  income of  consolidated  subsidiaries  was $2.3
million  in 1997  compared  to  minority  interest  in net loss of  consolidated
subsidiaries of $1.5 million in 1996, primarily reflecting the

                                       12


<PAGE>

minority interest share of charges for asset impairment  write-downs relating to
an Italian operation in 1996.

     Net loss  for  1997 was  $23.9  million  compared  to a net loss of  $238.3
million for 1996,  primarily as a result of charges  recorded in connection with
the Recapitalization in 1996.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company  historically  has  financed  its  working  capital,   capital
expenditures,  acquisitions  and equity  repurchases  from cash  generated  from
operations and  third-party  borrowings.  In addition,  in May 1998, the Company
consummated the Offering. Net proceeds to the Company were $158.6 million, after
deducting  underwriting  discounts  and  commissions  and  expenses  paid by the
Company in connection with the Offering.  The Company used the net proceeds from
the Offering  together with $155 million of borrowings under the Credit Facility
to repay all of the outstanding borrowings under the replaced credit facilities.

     Cash and cash  equivalents  were  $122.1  million  and  $160.3  million  at
December 31, 1998 and 1997, respectively.  Cash provided by operating cash flows
in 1998 was $195.6  million,  reflecting  strong  operating  performance and the
Company's  continued  focus  on  cash  management.   Operating  cash  flows  are
significantly  impacted by the seasonal media spending  patterns of advertisers,
including the timing of payments made to media and other  suppliers on behalf of
clients  as well as the  timing of cash  collections  from  clients to fund such
expenditures.  The Company's practice is to bill and collect from its clients in
sufficient time to pay the amounts due the media.

     Cash used in investing  activities  in 1998 was $99.7  million and included
$76.4 million in capital expenditures and $23.3 million for net acquisitions and
investments.   The  majority  of  capital   expenditures  were  for  information
technology-related  purchases  and  leasehold  improvements.   Acquisitions  and
investments consisted primarily of the purchase of a multi-cultural  advertising
agency and certain  other  related  assets in the United  States and  additional
investment in partially owned international affiliates. Capital expenditures are
estimated  to be  approximately  $80 million in 1999  primarily  for  additional
information technology-related purchases and leasehold improvements.

     Cash used in  financing  activities  in 1998 was $136.2  million.  In 1998,
proceeds  from  a new  $400  million  revolving  credit  facility  (the  "Credit
Facility") and the Offering, along with cash generated by operations,  were used
to repay obligations of the Company under its previous credit facilities.

     During 1998, the Company announced that the Board of Directors had approved
a plan to  repurchase  an aggregate of up to 8.0 million  shares of Common Stock
over the next two years  (the  "Plan").  The shares  may be  repurchased  by the
Company  from  time to time  in the  open  market  or in  private  transactions,
possibly including  transactions with employees.  Through December 31, 1998, the
Company  repurchased  approximately  1.9 million  shares of Common  Stock for an
aggregate of $51.0  million  under the Plan.  Prior to the adoption of the Plan,
the Company had repurchased approximately 0.7 million shares for an aggregate of
$10.0 million from certain  employees in private  transactions.  As of March 26,
1999,  approximately  0.9  million  additional  shares of Common  Stock had been
repurchased in 1999 for an aggregate of $36.9 million under the Plan.

     In 1997,  cash  provided  by  operating  cash  flows  was  $224.5  million,
reflecting the  implementation  by the Company of cash  management  improvements
relating to the timing of billings, accounts receivable collections and payments
of obligations to media and other suppliers.

     In 1997,  cash used in investing  activities was $67.1 million and included
$51.9 million in capital expenditures and $15.2 million for net acquisitions and
investments.   The  majority  of  capital   expenditures  were  for  information
technology-related purchases, while the remaining expenditures were for

                                       13
<PAGE>

leasehold  improvements,  furniture and equipment.  Acquisitions and investments
consisted  primarily of additional  investments in partially  owned domestic and
international affiliates.

     In 1997, cash flows used in financing  activities  were $98.7 million.  Net
proceeds  from the former  credit  facility  were more than  offset by  payments
incurred in connection with the Recapitalization.

     At  December  31,  1998,  the  Company  had $31.5  million  in  outstanding
indebtedness under the Credit Facility. The Company expects to fund its payments
of principal and interest under the Credit  Facility with cash from  operations.
As of December 31, 1998,  the Company had entered into interest rate  protection
agreements with respect to its  indebtedness  under the Credit  Facility,  which
effectively  changed the Company's  interest  rate under the Credit  Facility to
fixed rate borrowings. The interest rate protection agreements mature at various
times through 2001.

     At December 31,  1998,  the  Company's  net deferred tax assets were $205.4
million,  $110.4  million  of  which  related  to  net  operating  loss  ("NOL")
carryforwards of approximately $258.3 million for U.S. tax purposes which expire
in the year  2018 and  approximately  $91.4  million  of NOL  carryforwards  for
foreign tax  purposes  with  carryforward  periods  ranging  from one year to an
indefinite time. The remaining net deferred tax assets principally resulted from
compensation  payments  made in  connection  with the  Recapitalization  and the
Offering.  The  consummation  of the  Offering  gave  rise  to a  non-recurring,
non-cash,  pre-tax  compensation  charge of $234.4  million,  which  resulted in
additional tax benefits to the Company of $64.6 million.

     The Credit Facility contains certain  financial and operating  restrictions
and covenant  requirements,  and permits the payment of cash dividends except in
the event of a  continuing  default  under the  credit  agreement.  The  Company
expects to declare and pay a cash dividend by the end of the first half of 1999.
However,  any  determination  to pay dividends  will be at the discretion of the
Board and will  depend  upon,  among other  factors,  the  Company's  results of
operations,   financial   condition,   capital   requirements   and  contractual
restrictions  pursuant to the Credit  Facility. 

     The Company may, from time to time, pursue  acquisition  opportunities that
would expand or enhance existing  capabilities or expand the geographic scope of
the Company's operations.

     The Company  believes that cash provided by operations and funds  available
under the  Credit  Facility  will be  sufficient  to meet its  anticipated  cash
requirements as presently contemplated.

MARKET RISK MANAGEMENT

     At  December  31,  1998 and  1997,  the  carrying  value  of the  Company's
financial instruments approximated fair value in all material respects.

Interest Rate Risk

     The Company  enters into  interest rate  protection  agreements in order to
reduce its exposure to changes in interest  rates on its variable rate long-term
debt. At December 31, 1998 and 1997,  the Company had entered into interest rate
protection  agreements  with  respect to $31.5  million and $275  million of its
indebtedness,  respectively,  which  expire at various  times  through  2001 and
result in the Company  paying,  on a quarterly  basis,  fixed  interest  amounts
ranging from 6.0% to 6.5%. 

Foreign Exchange Rate Risk

     The Company's  Consolidated  Financial  Statements are  denominated in U.S.
dollars.  In 1998, the Company  derived  approximately  49% of its revenues from
operations outside of the United States.  Currency fluctuations may give rise to
translation gains or losses when financial statements of foreign

                                       14
<PAGE>

operating units are translated into U.S. dollars.  Significant  strengthening of
the U.S.  dollar  against other major foreign  currencies  could have a material
adverse  effect on the Company's  results of  operations.  Most of the Company's
revenues  are billed in the same  currency as the costs  incurred to support the
revenues, thereby reducing exposure to transaction gains and losses. The Company
typically does not hedge foreign currency profits into U.S.  dollars,  believing
that over time the costs of a hedging  program  would  outweigh  any  benefit of
greater  predictability  in  the  Company's  U.S.   dollar-denominated  profits.
However, the Company selectively hedges some positions where management believes
it is  economically  beneficial  to do so,  and  bases  its  foreign  subsidiary
capitalization,  debt and dividend  policies on minimizing  currency  risk.  The
Company also seeks,  through  pricing and other means,  to anticipate  and avoid
economic currency losses.

     The Company enters into forward foreign exchange contracts to hedge certain
assets and liabilities  which are recorded in a currency  different from that in
which they settle.  These contracts are generally entered into in order to hedge
intercompany transactions.  Gains and losses on these contracts generally offset
losses  and  gains on the  related  foreign  currency  denominated  intercompany
transactions.  The gains and losses on these positions are deferred and included
in the basis of the transaction  upon  settlement.  The terms of these contracts
are  generally  a one-month  maturity.  At December  31,  1998,  the Company had
contracts  for the sale of $19.4  million and the  purchase  of $6.1  million of
foreign  currencies at fixed rates,  compared to contracts for the sale of $18.5
million and the purchase of $12.8 million of foreign  currencies at December 31,
1997.

     Management  believes that any losses  resulting  from market risk would not
have a material adverse impact on the consolidated  financial position,  results
of operations or cash flows of the Company.

International Business Risk

     Economic  prospects  throughout Latin America may be adversely  affected by
the devaluation of the Brazilian real which occurred in January 1999.  Since its
devaluation, the value of the real has weakened by approximately 40% against the
U.S.  dollar.  In addition,  there was a  significant  economic  downturn in the
Asia/Pacific  region in 1998  which has  continued  into  1999.  There can be no
assurance as to when the value of the  Brazilian  real or the  conditions in the
Asia/Pacific region will improve. However, because the Company does not derive a
significant amount of its revenues from these regions,  the above conditions are
not expected to be material to the consolidated  financial position,  results of
operations or cash flows of the Company.

     On  January  1,  1999,  certain  member  countries  of the  European  Union
established  fixed  conversion  rates between their existing  currencies and the
European  Union's common  currency (the "euro").  The transition  period for the
introduction  of the euro began on January 1, 1999.  Beginning  January 1, 2002,
the participating  countries will issue new euro-denominated bills and coins for
use in cash  transactions.  No  later  than  July  1,  2002,  the  participating
countries  will  withdraw  all  bills  and  coins   denominated  in  the  legacy
currencies, so that the legacy currencies no longer will be legal tender for any
transactions, making the conversion to the euro complete.

     The Company is addressing the issues involved with the  introduction of the
euro, including converting information technology systems,  reassessing currency
risk and  negotiating  and amending  agreements.  Based on progress to date, the
Company believes that the use of the euro will not have a significant  impact on
the manner in which it conducts its  business.  Accordingly,  conversion  to the
euro is not  expected  to have a  material  effect on the  Company's  liquidity,
financial condition or results of operations.

SEASONALITY

     The  Company's  revenues  generally  reflect the media  buying  patterns of
advertisers and are concentrated in the second and fourth quarters of the year.

                                       15
<PAGE>

YEAR 2000 COMPLIANCE

     The Company is working to resolve the potential  impact of the year 2000 on
the ability of the Company's computer systems to accurately process  information
with  dates  later  than  December  31,  1999,  or  to  process   date-sensitive
information  accurately after the turn of the century  (referred to as the "Year
2000" issue).  The Company has  completed an assessment of its computer  systems
and is in the process of  completing  the  modification  or  replacement  of all
affected  systems for  compliance  with the Year 2000  issue.  While the Company
believes it has made substantial progress in resolving any Year 2000 issues, the
modifications and testing necessary to fully validate  readiness are still being
conducted in some operating  units.  The Company is also monitoring the adequacy
of the processes and progress of third-party vendors of systems and applications
that may be affected by the Year 2000 issue. The Company is dependent in part on
third-party computer systems and applications, particularly with respect to such
critical tasks as accounting, billing and buying, planning and paying for media,
as well as on its own computer systems. The Company has performed tests of major
systems  in this  category  and  continues  to seek  assurances  from other less
critical vendors that their systems are Year 2000 compliant.

     While the  Company  believes  its  process is  designed  to be  successful,
because  of the  complexity  of the Year 2000 issue and the  interdependence  of
organizations using computer systems, it is possible that the Company's efforts,
or  those  of  third  parties  with  whom  the  Company  interacts,  will not be
satisfactorily  completed in a timely fashion. Failure to satisfactorily address
the Year 2000  issue  could  have a  material  adverse  effect on the  Company's
prospects, business, financial condition or results of operations.

     The  costs of the  Company's  Year  2000  project  are not  expected  to be
material, and all identified remedial projects in connection therewith have been
funded.  However, there can be no assurance that the Company will not experience
cost overruns or delays in  connection  with its plan for replacing or modifying
systems,  which could have a material adverse effect on the Company's prospects,
business, financial condition or results of operations.

     The Company has not yet determined the extent of contingency  planning that
may be required.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133,  "Accounting  for Derivative  Instruments and Hedging  Activities,"  ("SFAS
133") which is required to be adopted in years  beginning  after June 15,  1999.
The  Company  anticipates  that the  adoption  of SFAS  No.  133 will not have a
significant effect on the financial condition of the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     For information  required in response to this Item 7A, reference is made to
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  under the heading "Market Risk  Management" and to Notes 2 and 20 of
Notes to the Consolidated Financial Statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial  statements  and  supplementary  data required in response to
this Item 8 appear beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                       16
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  with respect to the  executive  officers and  directors of the
Company and compliance  with Section 16(a) of the Securities and Exchange Act of
1934 and the rules  thereunder  is  incorporated  by reference to the  Company's
definitive  proxy  statement for its 1999 Annual  Meeting of  Stockholders  (the
"Proxy Statement") expected to be filed by April 9, 1999.

ITEM 11. EXECUTIVE COMPENSATION

     Incorporated  by reference to the Proxy  Statement  expected to be filed by
April  9,  1999.  Such   incorporation   shall  not  be  deemed  to  incorporate
specifically  by  reference  the  information  referred to in Item  402(a)(8) of
Regulation S-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated  by reference to the Proxy  Statement  expected to be filed by
April 9, 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated  by reference to the Proxy  Statement  expected to be filed by
April  9,  1999.  Such   incorporation   shall  not  be  deemed  to  incorporate
specifically  by  reference  the  information  referred to in Item  402(a)(8) of
Regulation S-K.

                                       17
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS; FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<TABLE>

(a)1.   FINANCIAL STATEMENTS:                                                               Page
                                                                                            ----
<S>                                                                                        <C> 
        Index to Consolidated Financial Statements ........................................  F-1
        Report of Independent Accountants .................................................  F-2
        Consolidated Balance Sheets as of December 31, 1998 and 1997 ......................  F-3
        Consolidated Statements of Operations for the three years ended December 31, 1998 .  F-4
        Consolidated Statements of Cash Flows for the three years ended December 31, 1998 .  F-5
        Consolidated Statements of Changes in Equity (Deficit) for the three years ended
        December 31, 1998 .................................................................  F-6
        Notes to Consolidated Financial Statements ........................................  F-7
        Quarterly Financial Information (Unaudited) ....................................... F-25
        Report of Management .............................................................. F-26

2.      FINANCIAL STATEMENT SCHEDULES:

        Schedule II -- Valuation and Qualifying Accounts for the three years ended
        December 31, 1998 .................................................................  S-1
        All other schedules are omitted because they are not applicable.

3.      EXHIBITS:

3.1     Amended and Restated  Certificate  of  Incorporation  of Young & Rubicam
        Inc.  (incorporated  by reference  from Exhibit 4.4 to the  Registration
        Statement on Form S-8 (File No. 333-57605) filed by the Company).

3.2     Amended and  Restated  Bylaws of Young & Rubicam Inc.  (incorporated  by
        reference  from  Exhibit 4.5 to the  Registration  Statement on Form S-8
        (File No. 333-57605) filed by the Company).

4.1     Specimen   Certificate   of  Common   Stock  of  Young  &  Rubicam  Inc.
        (incorporated   by  reference  from  Exhibit  4.1  to  the  Registration
        Statement on Form S-1 (File No. 333-46929) filed by the Company).

4.2     Rights  Agreement,  dated as of May 1, 1998  (incorporated  by reference
        from  Exhibit 4.9 to the  Registration  Statement  on Form S-8 (File No.
        333-57605) filed by the Company).

4.3     Certificate of Designation  for  Registrant's  Cumulative  Participating
        Junior  Preferred Stock  (incorporated  by reference from Exhibit 4.3 to
        the Registration Statement on Form S-1 (File No. 333-66883) filed by the
        Company).

9.1     Management  Voting  Trust  Agreement,  dated  as of  December  12,  1996
        (incorporated   by  reference  from  Exhibit  9.1  to  the  Registration
        Statement on Form S-1 (File No. 333-46929) filed by the Company).

9.2     Young & Rubicam  Inc.  Restricted  Stock  Trust  Agreement,  dated as of
        December 12, 1996  (incorporated  by  reference  from Exhibit 9.2 to the
        Registration  Statement  on Form S-1 (File No.  333-46929)  filed by the
        Company).
</TABLE>

                                       18
<PAGE>

10.1    Stockholders'  Agreement,  dated  as of May  8,  1998  (incorporated  by
        reference  from  Exhibit 4.8 to the  Registration  Statement on Form S-8
        (File No. 333-57605) filed by the Company).

10.2    Contribution Agreement dated October 30, 1996 (incorporated by reference
        from  Exhibit 10.3 to the  Registration  Statement on Form S-1 (File No.
        333-46929) filed by the Company).

10.3    Young & Rubicam  Holdings Inc.  Restricted  Stock Plan  (incorporated by
        reference  from Exhibit 10.4 to the  Registration  Statement on Form S-1
        (File No. 333-46929) filed by the Company).

10.4    Young & Rubicam Holdings Inc. Management Stock Option Plan (incorporated
        by reference from Exhibit 10.5 to the Registration Statement on Form S-1
        (File No. 333-46929) filed by the Company).

10.5    Young & Rubicam Inc. 1997 Incentive  Compensation Plan  (incorporated by
        reference  from Exhibit 10.6 to the  Registration  Statement on Form S-1
        (File No. 333-46929) filed by the Company).

10.6    Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of December 19, 1997, with Peter A. Georgescu (incorporated by reference
        from  Exhibit 10.7 to the  Registration  Statement on Form S-1 (File No.
        333-46929) filed by the Company).

10.7    Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of January 1, 1995, with Peter A. Georgescu  (incorporated  by reference
        from  Exhibit 10.8 to the  Registration  Statement on Form S-1 (File No.
        333-46929) filed by the Company).

10.8    Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of January 1, 1986, with Peter A. Georgescu  (incorporated  by reference
        from  Exhibit 10.9 to the  Registration  Statement on Form S-1 (File No.
        333-46929) filed by the Company).

10.9    Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of  December  19,  1997,  with John P.  McGarry,  Jr.  (incorporated  by
        reference from Exhibit 10.10 to the  Registration  Statement on Form S-1
        (File No. 333-46929) filed by the Company).

10.10   Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of January 1, 1986, with John P. McGarry, Jr. (incorporated by reference
        from Exhibit 10.11 to the  Registration  Statement on Form S-1 (File No.
        333-46929) filed by the Company).

10.11   Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of  December  31,  1994,  with John P.  McGarry,  Jr.  (incorporated  by
        reference from Exhibit 10.12 to the  Registration  Statement on Form S-1
        (File No. 333-46929) filed by the Company).

10.12   Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of December 19, 1997, with Edward Vick  (incorporated  by reference from
        Exhibit  10.13  to the  Registration  Statement  on Form S-1  (File  No.
        333-46929) filed by the Company).

10.13   Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of January 1, 1995,  with Edward Vick  (incorporated  by reference  from
        Exhibit  10.14  to the  Registration  Statement  on Form S-1  (File  No.
        333-46929) filed by the Company).


                                       19
<PAGE>


10.14   Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of December 19, 1997,  with Alan J. Sheldon  (incorporated  by reference
        from Exhibit 10.15 to the  Registration  Statement on Form S-1 (File No.
        333-46929) filed by the Company).

10.15   Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of January 1, 1995, with Alan J. Sheldon (incorporated by reference from
        Exhibit  10.16  to the  Registration  Statement  on Form S-1  (File  No.
        333-46929) filed by the Company).

10.16   Young & Rubicam Inc. Select Executive  Retirement  Income Plan, dated as
        of January 1, 1988, with Alan J. Sheldon (incorporated by reference from
        Exhibit  10.17  to the  Registration  Statement  on Form S-1  (File  No.
        333-46929) filed by the Company).

10.17   Registration   Rights   Agreement,   dated  as  of  December   12,  1996
        (incorporated  by  reference  from  Exhibit  10.18  to the  Registration
        Statement on Form S-1 (File No. 333-46929) filed by the Company).

10.18   Letter  Agreement  dated as of October 16,  1997 by and between  Young &
        Rubicam  Inc.  and  Michael J. Dolan  (incorporated  by  reference  from
        Exhibit  10.19  to the  Registration  Statement  on Form S-1  (File  No.
        333-46929) filed by the Company).

10.19   Letter Agreement dated June 28, 1996 by and between Young & Rubicam Inc.
        and Michael J. Dolan  (incorporated  by reference  from Exhibit 10.20 to
        the Registration Statement on Form S-1 (File No. 333-46929) filed by the
        Company).

10.20   Lease  Agreement  for 230 Park Avenue South  (incorporated  by reference
        from Exhibit 10.21 to the  Registration  Statement on Form S-1 (File No.
        333-46929) filed by the Company).

10.21   H&F Option  Agreement,  dated as of  December  12,  1996,  among Young &
        Rubicam  Holdings  Inc., a New York  corporation  ("Holdings"),  Young &
        Rubicam Inc., a New York  corporation,  Young & Rubicam Inc., a Delaware
        corporation  and a  wholly-owned  subsidiary of Holdings,  and Hellman &
        Friedman  Capital  Partners III, L.P.  (incorporated  by reference  from
        Exhibit  10.22  to the  Registration  Statement  on Form S-1  (File  No.
        333-46929) filed by the Company).

10.22   H&F Option  Agreement,  dated as of  December  12,  1996,  among Young &
        Rubicam  Holdings  Inc., a New York  corporation  ("Holdings"),  Young &
        Rubicam Inc., a New York  corporation,  Young & Rubicam Inc., a Delaware
        corporation and a wholly-owned  subsidiary of Holdings,  and H&F Orchard
        Partners III, L.P.  (incorporated by reference from Exhibit 10.23 to the
        Registration  Statement  on Form S-1 (File No.  333-46929)  filed by the
        Company).

10.23   Form of  Young &  Rubicam  Inc.  Key  Corporation  Managers  Bonus  Plan
        (incorporated  by  reference  from  Exhibit  10.24  to the  Registration
        Statement on Form S-1 (File No. 333-46929) filed by the Company).

10.24   Amendment No. 1 to Restricted  Stock Trust  Agreement  dated as of March
        13,  1998   (incorporated   by  reference  from  Exhibit  10.25  to  the
        Registration  Statement  on Form S-1 (File No.  333-46929)  filed by the
        Company).

10.25   Young  &  Rubicam  Inc.  Deferred  Compensation  Plan  (incorporated  by
        reference from Exhibit 10.26 to the  Registration  Statement on Form S-1
        (File No. 333-46929) filed by the Company).

10.26   Amendment  No. 1 to Young &  Rubicam  Inc.  Deferred  Compensation  Plan
        effective as of November 19, 1997.*


                                       20
<PAGE>


10.27   Amendment  No. 2 to Young &  Rubicam  Inc.  Deferred  Compensation  Plan
        effective as of January 1, 1999.*

10.28   Young & Rubicam Inc. Grantor Trust Agreement  (incorporated by reference
        from Exhibit 10.27 to the  Registration  Statement on Form S-1 (File No.
        333-46929) filed by the Company).

10.29   Amendment  to Young & Rubicam  Inc.  1997  Incentive  Compensation  Plan
        (incorporated  by  reference  from  Exhibit  10.28  to the  Registration
        Statement on Form S-1 (File No. 333-46929) filed by the Company).

10.30   Credit Agreement for the Credit Facility (incorporated by reference from
        Exhibit  10.28  to the  Registration  Statement  on Form S-1  (File  No.
        333-66883) filed by the Company).

21.1    List of  Subsidiaries  (incorporated  by reference from Exhibit 10.28 to
        the Registration Statement on Form S-1 (File No. 333-66883) filed by the
        Company).

23.1    Consent of PricewaterhouseCoopers LLP. *

24.1    Powers  of  Attorney  to sign  Form  10-K  and  resolution  of  Board of
        Directors re Power of Attorney.*


---------------------
* Filed herewith.

(b) REPORTS ON FORM 8-K:

     No  reports on Form 8-K were  filed  during the fourth  quarter of the year
ended December 31, 1998.

                                       21


<PAGE>



                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                        -----
<S>                                                                                     <C>
Report of Independent Accountants .....................................................  F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 ..........................  F-3
Consolidated Statements of Operations for the three years ended December 31, 1998 .....  F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 1998 .....  F-5
Consolidated Statements of Changes in Equity (Deficit) for the three years ended
 December 31, 1998 ....................................................................  F-6
Notes to Consolidated Financial Statements ............................................  F-7
Quarterly Financial Information ....................................................... F-25
Report of Management .................................................................. F-26
Financial Statement Schedule II -- Valuation and Qualifying Accounts ..................  S-1
</TABLE>

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Young & Rubicam Inc.

     In our  opinion,  the  accompanying  consolidated  balance  sheets  and the
related consolidated  statements of operations,  of cash flows and of changes in
equity  (deficit)  present  fairly,  in all  material  respects,  the  financial
position  of Young &  Rubicam  Inc.  (the  "Company")  and its  subsidiaries  at
December 31, 1998 and 1997,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  1998,  in
conformity  with  generally  accepted  accounting  principles.  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 audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

PricewaterhouseCoopers LLP
New York, New York
February 16, 1999

                                      F-2


<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                     December 31,
                                                                                            -------------------------------
(in thousands, except share and per share amounts)                                               1998             1997
-----------------------------------------------------------------------------------------   --------------   --------------
<S>                                                                                         <C>               <C>
CURRENT ASSETS
 Cash and cash equivalents                                                                   $   122,138      $   160,263
 Accounts receivable, net of allowance for doubtful accounts of $17,938 and $14,125 at
  December 31, 1998 and 1997, respectively                                                       835,284          790,342
 Costs billable to clients                                                                        55,187           60,267
 Other receivables                                                                                37,177           35,218
 Deferred income taxes                                                                            46,803           32,832
 Prepaid expenses and other assets                                                                25,979           17,989
                                                                                             -----------      -----------
  Total Current Assets                                                                         1,122,568        1,096,911
                                                                                             -----------      -----------
NONCURRENT ASSETS
 Property and equipment, net                                                                     150,413          125,014
 Deferred income taxes                                                                           158,646          124,192
 Goodwill, less accumulated amortization of $84,292 and $80,166 at December 31, 1998 and
  1997, respectively                                                                             120,075          116,637
 Equity in net assets of and advances to unconsolidated companies                                 38,397           26,393
 Other assets                                                                                     45,156           48,660
                                                                                             -----------      -----------
  Total Noncurrent Assets                                                                        512,687          440,896
                                                                                             -----------      -----------
  Total Assets                                                                               $ 1,635,255      $ 1,537,807
                                                                                             ===========      ===========
CURRENT LIABILITIES
 Loans payable                                                                               $    31,365      $    10,765
 Accounts payable                                                                              1,008,624          861,939
 Accrued expenses and other liabilities                                                          203,099          235,253
 Accrued payroll and bonuses                                                                      77,078           65,458
 Income taxes payable                                                                             19,290           29,665
                                                                                             -----------      -----------
  Total Current Liabilities                                                                    1,339,456        1,203,080
                                                                                             -----------      -----------
NONCURRENT LIABILITIES
 Loans payable                                                                                    31,494          330,552
 Deferred compensation                                                                            30,635           31,077
 Other liabilities                                                                               114,128          119,354
                                                                                             -----------      -----------
  Total Noncurrent Liabilities                                                                   176,257          480,983
                                                                                             -----------      -----------
Commitments and Contingencies (Note 19)

Minority Interest                                                                                  4,573            6,987
                                                                                             -----------      -----------
MANDATORILY REDEEMABLE EQUITY SECURITIES

 Common stock, par value $.01 per share; authorized -- 250,000,000 shares; issued and
  outstanding -- 0 shares and 50,658,180 shares at December 31, 1998 and 1997,                        --          508,471
  respectively                                                                               -----------      -----------
STOCKHOLDERS' EQUITY (DEFICIT)
 Money Market Preferred Stock -- cumulative variable dividend; liquidating value of $115
  per share; one-tenth of one vote per share; authorized--50,000 shares; issued and 
   outstanding--87 shares at December 31, 1998 and 1997                                               --               --
 Cumulative  Participating  Junior  Preferred  Stock -- minimum $1.00  dividend;
  liquidating  value of $1.00 per  share;  100 votes per  share,  authorized  --
  2,500,000 shares; issued and outstanding -- 0 shares at December 31, 1998 and 1997                  --               --
 Common stock, par value $.01 per share; authorized--250,000,000 shares; issued and
  outstanding -- 66,374,569 shares and 11,086,950 shares at December 31, 1998 and
  1997, respectively
  (excluding 3,976,941 shares and 1,115,160 shares in treasury)                                      704              111
 Capital surplus                                                                                 934,676           23,613
 Accumulated deficit                                                                            (758,292)        (522,866)
 Cumulative translation adjustment                                                               (10,810)         (16,577)
 Pension liability adjustment                                                                     (1,738)            (706)
                                                                                             -----------      -----------
                                                                                                 164,540         (516,425)

 Common stock in treasury, at cost                                                               (49,571)          (8,550)
 Unearned compensation--Restricted Stock                                                              --         (136,739)
                                                                                             -----------      -----------
  Total Stockholders' Equity (Deficit)                                                           114,969         (661,714)
                                                                                             -----------      -----------
  Total Liabilities, Mandatorily Redeemable Equity Securities and Stockholders' Equity       
  (Deficit)                                                                                  $ 1,635,255      $ 1,537,807 
                                                                                             ===========      =========== 
</TABLE>


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

                                      F-3


                                       
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
(in thousands, except share and                                -------------------------------------------
per share amounts)                                                  1998          1997           1996
-------------------------------------------------------------- ------------- ------------- ---------------
<S>                                                             <C>           <C>            <C>        
Revenues                                                        $ 1,522,464   $ 1,382,740    $ 1,222,139

Compensation expense, including employee benefits                   903,948       836,150        730,261
General and administrative expenses                                 455,578       463,936        391,617
Other operating charges                                             234,449        11,925         17,166
Recapitalization-related charges                                         --            --        315,397
                                                                -----------   -----------    -----------
Operating expenses                                                1,593,975     1,312,011      1,454,441
                                                                -----------   -----------    -----------
(Loss) income from operations                                       (71,511)       70,729       (232,302)
Interest income                                                       8,315         8,454         10,269
Interest expense                                                    (26,001)      (42,879)       (28,584)
Other income                                                          2,200            --             --
                                                                -----------   -----------    -----------
(Loss) income before income taxes                                   (86,997)       36,304       (250,617)
Income tax (benefit) provision                                       (2,644)       58,290        (20,611)
                                                                -----------   -----------    -----------
                                                                    (84,353)      (21,986)      (230,006)
Equity in net income (loss) of unconsolidated companies               4,707           342         (9,837)
Minority interest in net (income) loss of consolidated
 subsidiaries                                                        (1,989)       (2,294)         1,532
                                                                -----------   -----------    -----------
Loss before extraordinary charge                                    (81,635)      (23,938)      (238,311)
Extraordinary charge for early retirement of debt, net of tax
 benefit of $2,834                                                   (4,433)           --             --
                                                                -----------   -----------    -----------
Net loss                                                        $   (86,068)  $   (23,938)   $  (238,311)
                                                                ===========   ===========    ===========
Loss per share (basic and diluted):
 Loss before extraordinary charge                               $     (1.34)  $     (0.51)
 Extraordinary charge                                               (  0.08)           --
                                                                -----------   -----------
 Net loss                                                       $     (1.42)  $     (0.51)
                                                                ===========   ===========
Weighted average shares outstanding (Note 3)                     60,673,994    46,949,355
                                                                ===========   ===========
</TABLE>



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

                                      F-4

                                       
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                            Year Ended December 31,
                                                                                 ---------------------------------------------
(in thousands)                                                                        1998           1997            1996
-------------------------------------------------------------------------------- -------------- -------------- ---------------
<S>                                                                               <C>             <C>            <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                         $   (86,068)    $  (23,938)    $  (238,311)
Adjustments to reconcile net loss to net cash provided by operating activities:
 Recapitalization-related charges                                                          --             --         315,397
 Depreciation and amortization                                                         60,610         56,721          53,030
 Extraordinary charge, net                                                              4,433             --              --
 Other operating charges                                                              234,449         11,925          11,096
 Deferred income tax benefit                                                          (38,664)          (384)        (59,671)
 Equity in net (income) loss of unconsolidated companies                               (4,707)          (342)          9,837
 Dividends from unconsolidated companies                                                3,467          2,728           2,691
 Minority interest in net income (loss) of consolidated subsidiaries                    1,989          2,294          (1,532)
Change  in  assets  and  liabilities,   excluding  effects  from   acquisitions,
 dispositions, recapitalization and foreign exchange:
 Accounts receivable                                                                  (29,398)        42,144        (209,518)
 Costs billable to clients                                                              5,418         15,834           7,784
 Other receivables                                                                     (2,346)        13,930          (2,883)
 Prepaid expenses and other assets                                                     (6,702)           269           8,776
 Accounts payable                                                                      87,290         69,324         256,460
 Accrued expenses and other liabilities                                               (29,374)       (15,368)         (7,565)
 Accrued payroll and bonuses                                                            8,869          2,179           3,192
 Income taxes payable                                                                 (10,652)        19,352           4,263
 Deferred compensation                                                                  3,234         13,052           4,950
 Other                                                                                 (6,233)        14,791          20,068
                                                                                  -----------     ----------     -----------
Net cash provided by operating activities                                         $   195,615     $  224,511     $   178,064
                                                                                  -----------     ----------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to property and equipment                                              $   (76,378)    $  (51,899)    $   (51,792)
 Acquisitions, net of cash acquired                                                   (17,423)       (11,281)        (23,887)
 Investment in net assets of and advances to unconsolidated companies                  (7,072)        (5,640)           (775)
 Proceeds from notes receivable                                                         1,190          1,678             360
                                                                                  -----------     ----------     -----------
Net cash used in investing activities                                             $   (99,683)    $  (67,142)    $   (76,094)
                                                                                  -----------     ----------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from loans payable, long-term                                               225,834        226,770         319,282
 Repayment of loans payable, long-term                                               (524,883)      (105,870)       (252,496)
 Proceeds from loans payable, short-term, net                                          71,997         20,103          27,849
 Proceeds from issuance of common stock in initial public offering, net               158,637             --              --
 Deferred financing costs                                                                (667)            --          (9,157)
 Recapitalization cash contributions                                                       --             --         242,007
 Recapitalization payments                                                                 --       (247,789)       (323,920)
 Payments of non-recapitalization deferred compensation                                (3,535)        (1,118)        (11,624)
 Common stock/LPUs issued                                                               7,995         10,390           4,163
 Common stock/LPUs repurchased                                                        (60,956)        (1,500)         (8,971)
 Payment of installment notes, net                                                     (8,883)            --              --
 Other financing activities                                                            (1,781)           347             253
                                                                                  -----------     ----------     -----------
Net cash used in financing activities                                             $  (136,242)    $  (98,667)    $   (12,614)
                                                                                  -----------     ----------     -----------
Effect of exchange rate changes on cash and cash equivalents                            2,185         (8,619)           (822)
Net (decrease) increase in cash and cash equivalents                                  (38,125)        50,083          88,534
Cash and cash equivalents, beginning of period                                        160,263        110,180          21,646
                                                                                  -----------     ----------     -----------
Cash and cash equivalents, end of period                                          $   122,138     $  160,263     $   110,180
                                                                                  ===========     ==========     ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid                                                                     $    29,439     $   39,986     $    28,612
                                                                                  ===========     ==========     ===========
Income taxes paid                                                                 $    36,288     $   25,020     $    20,732
                                                                                  ===========     ==========     ===========
NONCASH INVESTING ACTIVITY:
Common stock issued in acquisition                                                $        --     $    1,126     $        --
                                                                                  ===========     ==========     ===========
</TABLE>

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

                                      F-5

<PAGE>


YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                         Limited
                                              Non-voting     Voting     Partners'
                                  Preferred     Common       Common    Contributed     Capital
(in thousands)                      Stock        Stock       Stock        Equity       Surplus
-------------------------------------------------------------------------------------------------
<S>                                <C>        <C>          <C>         <C>          <C>       
Balance at December 31, 1995        $ 66       $  4,000     $  --       $  2,536     $   57,103
-------------------------------------------------------------------------------------------------
Net loss                              --             --        --             --             --
Foreign currency translation
adjustments                           --             --        --             --             --
Minimum pension liability
adjustments                           --             --        --             --             --
--------------------------------------------------------------------------------------------------
 Comprehensive income (loss)          --             --        --             --             --
Dividends paid                        --             --        --             --             --
Common stock/Limited
Partnership Units issued               3             --        --          4,067         13,269
Limited Partnership Units
repurchased/capital
distributions                         --             --        --         (2,370)            --
Common stock repurchased              (2)            --        --             --        (14,699)
Recapitalization redemptions         (67)        (3,900)       --         (1,534)       (36,435)
Recapitalization issuances            --             --       427             --        326,590
Recapitalization exchanges            --           (100)      158         (2,914)       122,732
Mandatorily Redeemable
Equity Securities                     --             --      (474)            --       (362,790)
Equityholder loans                    --             --        --            215          1,055
-----------------------------------------------------------------------------------------------
Balance at December 31, 1996        $ --       $     --     $ 111       $     --     $  106,825
-----------------------------------------------------------------------------------------------
Net loss                              --             --        --             --             --
Foreign currency translation
 adjustments                          --             --        --             --             --
Minimum pension liability
 adjustments                          --             --        --             --             --
-----------------------------------------------------------------------------------------------
 Comprehensive income (loss)          --             --        --             --             --
Common stock issued                   --             --        --             --          1,501
Common stock repurchased              --             --        --             --             --
Unearned compensation --
 Restricted Stock                     --             --        --             --         51,739
Common stock options
 exercised                            --             --        44             --          8,711
Accretion of Mandatorily
Redeemable Equity Securities          --             --       (44)            --       (145,163)
-----------------------------------------------------------------------------------------------
Balance at December 31, 1997        $ --       $     --     $ 111       $     --     $   23,613
-----------------------------------------------------------------------------------------------
Net loss                              --             --        --             --             --
Foreign currency translation
 adjustments                          --             --        --             --             --
Minimum pension liability
adjustments                           --             --        --             --             --
-----------------------------------------------------------------------------------------------
 Comprehensive income (loss)          --             --        --             --             --
Issuance of Restricted Stock          --             --        --             --         94,039
Common stock options
 exercised and other                  --             --        17             --          1,134
Common stock repurchased              --             --        --             --             --
Issuance of common stock in
 initial public offering, net of
 expenses                             --             --        69             --        158,568
Accretion of Mandatorily
Redeemable Equity Securities          --             --        (3)            --       (137,942)
Conversion of Mandatorily
Redeemable Equity Securities          --             --       510             --        795,264
-----------------------------------------------------------------------------------------------
Balance at December 31, 1998        $ --       $     --     $ 704       $     --     $  934,676
-----------------------------------------------------------------------------------------------
<CAPTION>
<PAGE>

                                   Retained and
                                  Undistributed                                 Accumulated
                                     Earnings        Common                        Other
                                   (Accumulated     Stock in     Restricted    Comprehensive
(in thousands)                       Deficit)       Treasury        Stock         Income          Total
------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>          <C>             <C>            <C>        
Balance at December 31, 1995       $    17,636     $  (3,317)   $        --     $  (22,539)    $    55,485
------------------------------------------------------------------------------------------------------------
Net loss                              (238,311)           --             --             --        (238,311)
Foreign currency translation
 adjustments                                 --            --             --        (3,565)         (3,565)
Minimum pension liability
 adjustments                                 --            --             --        23,063          23,063
------------------------------------------------------------------------------------------------------------
 Comprehensive income (loss)          (238,311)           --             --         19,498        (218,813)
Dividends paid                            (696)           --             --             --            (696)
Common stock/Limited
Partnership Units issued                    --            61             --             --          17,400
Limited Partnership Units
 repurchased/capital
 distributions                          (3,329)           --             --             --          (5,699)
Common stock repurchased                (8,863)         (123)            --             --         (23,687)
Recapitalization redemptions          (265,365)        3,379             --             --        (303,922)
Recapitalization issuances                  --            --        (85,000)            --         242,017
Recapitalization exchanges                  --            --             --             --         119,876
Mandatorily Redeemable
Equity Securities                           --            --             --             --        (363,264)
Equityholder loans                          --            --             --             --           1,270
------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996       $  (498,928)    $      --    $   (85,000)    $   (3,041)    $  (480,033)
------------------------------------------------------------------------------------------------------------
Net loss                               (23,938)           --             --             --         (23,938)
Foreign currency translation
 adjustments                                 --            --             --       (14,255)        (14,255)
Minimum pension liability
 adjustments                                 --            --             --            13              13
-------------------------------------------------------------------------------------------------------------
 Comprehensive income (loss)           (23,938)           --             --        (14,242)        (38,180)
Common stock issued                         --            --             --             --           1,501
Common stock repurchased                    --        (8,550)            --             --          (8,550)
Unearned compensation --
 Restricted Stock                            --            --       (51,739)            --              --
Common stock options
 exercised                                   --            --             --            --           8,755
Accretion of Mandatorily
Redeemable Equity Securities                --            --             --             --        (145,207)
-------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997       $  (522,866)    $  (8,550)   $  (136,739)    $  (17,283)    $  (661,714)
-------------------------------------------------------------------------------------------------------------
Net loss                               (86,068)           --             --             --         (86,068)
Foreign currency translation
 adjustments                                 --           --             --          5,767           5,767
Minimum pension liability
 adjustments                                 --           --             --         (1,032)         (1,032)
-------------------------------------------------------------------------------------------------------------
 Comprehensive income (loss)           (86,068)           --             --           4,735        (81,333)
Issuance of Restricted Stock                --            --        136,739             --         230,778
Common stock options
 exercised and other                        --        19,935             --             --          21,086
Common stock repurchased                    --       (60,956)            --             --         (60,956)
Issuance of common stock in
initial public offering, net of
expenses                                    --            --             --             --         158,637
Accretion of Mandatorily
Redeemable Equity Securities          (149,358)           --             --             --        (287,303)
Conversion of Mandatorily
Redeemable Equity Securities                --            --             --             --         795,774
-------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998       $  (758,292)    $ (49,571)   $        --     $  (12,548)    $   114,969
-------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                      F-6

                                       
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

NOTE (1)--OPERATIONS AND BASIS OF PRESENTATION:

NATURE OF  OPERATIONS:  Young  and  Rubicam  Inc.  (the  "Company")  is a global
marketing and communications enterprise with integrated services in advertising,
perception  management and public relations,  branding  consultation and design,
sales  promotion,  direct marketing and healthcare  communications.  The Company
operates in the United States, Canada, Europe, Latin America and Asia/Pacific as
well as through certain affiliations in other parts of the world.

BASIS  OF   PRESENTATION:   On  December  12,  1996,  the  Company   effected  a
recapitalization  (the  "Recapitalization")  of Young & Rubicam Inc., a New York
corporation  (the  "Predecessor  Company").  As the equity  holders prior to the
Recapitalization  retained  control of the  Company,  the  financial  statements
reflect the  consolidated  financial  position,  results of operations  and cash
flows of the Company on a continuous  basis (see Note 6).  References  herein to
the "Company"  refer to the  Predecessor  Company prior to December 12, 1996 and
Young & Rubicam Inc. thereafter unless the context indicates otherwise.  Certain
reclassifications  have been made to the prior years'  financial  statements  to
conform to the 1998 presentation.

NOTE (2)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION:  The consolidated  financial statements include the
accounts of the Company, a Delaware  corporation,  and all subsidiaries in which
it holds a controlling interest, including a Delaware limited partnership, Young
& Rubicam L.P.  Investments  in affiliates in which the Company has  significant
influence,  but not a controlling  interest,  are accounted for under the equity
method. All significant intercompany transactions are eliminated.

CASH EQUIVALENTS:  The Company  considers all highly liquid  instruments with an
initial  maturity of three months or less to be cash  equivalents at the time of
purchase.  The Company  records book  overdrafts in accounts  payable.  Accounts
payable  included  $51.8  million  and $41.0  million of book  overdrafts  as of
December 31, 1998 and 1997, respectively.

REVENUE RECOGNITION:  Revenue from advertising and related services is comprised
of  commissions  and fees  derived  from  billings  to  clients  for  media  and
production activities.  Public relations, sales promotion and other services are
generally  billed  on the  basis  of  fees.  Commission  revenue  is  recognized
primarily when media placements  appear on television,  on radio or in print and
when labor and  production  costs are  billed.  Fee revenue is  recognized  when
services are rendered.

DEPRECIATION AND AMORTIZATION:  Depreciation and amortization are computed using
the straight-line method over the estimated useful life of the respective asset.
Leasehold  improvements are amortized over the shorter of their estimated useful
life  or  the  remaining  term  of  the  lease.   Goodwill  is  amortized  on  a
straight-line basis over a period not exceeding forty years.

INCOME TAXES:  In accordance  with Statement of Financial  Accounting  Standards
("SFAS")  No.  109,  "Accounting  for  Income  Taxes,"  deferred  tax assets and
liabilities are determined based on differences  between the financial reporting
and the tax basis of assets and liabilities and are measured by applying enacted
tax rates and laws to taxable  years in which such  differences  are expected to
reverse.  The Company's  practice is to provide currently for taxes that will be
payable upon remittance of foreign  earnings of  subsidiaries  and affiliates to
the extent that such earnings are not considered to be reinvested indefinitely.

                                      F-7

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

STOCK-BASED   COMPENSATION:   SFAS  No.   123,   "Accounting   for   Stock-Based
Compensation"  ("SFAS 123"),  encourages  entities to account for employee stock
options or similar equity instruments using a fair value approach.  However,  it
also allows an entity to continue to measure compensation costs using the method
prescribed by Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting
for Stock Issued to  Employees."  The Company has elected to continue to account
for such plans under the  provisions of APB Opinion No. 25 and has included,  in
Note 18, the required  SFAS 123 pro forma  disclosures  of net income (loss) and
earnings  (loss) per share as if the fair  value-based  method of accounting had
been applied.

FOREIGN  CURRENCY:  Assets and liabilities of certain non-U.S.  subsidiaries are
translated  at current  exchange  rates,  and related  revenues and expenses are
translated  at average  exchange  rates in effect  during the period.  Resulting
translation  adjustments are recorded as a separate  component of  stockholders'
equity.  Financial  results of non-U.S.  subsidiaries  in countries  with highly
inflationary  economies  are  translated  using a  combination  of  current  and
historical  exchange rates and recorded in general and administrative  expenses.
Net  remeasurement  losses  resulting  from  operations  in highly  inflationary
economies  were $1.4  million,  $2.6 million and $1.7 million in 1998,  1997 and
1996,  respectively.  Foreign  currency  transaction  gains and  losses are also
recorded in general  and  administrative  expenses.  The  Company  recorded  net
foreign  currency  transaction  losses of $12  thousand,  $1.3  million and $0.9
million in 1998, 1997 and 1996, respectively.

DERIVATIVE FINANCIAL  INSTRUMENTS:  Derivative financial instruments are used by
the Company  principally  in the  management  of its  interest  rate and foreign
currency  exposures.  The Company  does not hold or issue  derivative  financial
investments for trading purposes.  Gains and losses on hedges of existing assets
and  liabilities  are  included  in the  carrying  amounts  of those  assets and
liabilities  and are  ultimately  recognized in income as part of those carrying
amounts.  Gains  and  losses  related  to hedges  of firm  commitments  are also
deferred  and  included in the basis of the  transaction  when it is  completed.
Amounts to be paid or received under  interest rate swap  agreements are accrued
as  interest  and are  recognized  over the life of the  swap  agreements  as an
adjustment to interest expense.

LONG-LIVED  ASSETS:  In  accordance  with  SFAS  No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of,"
management  reviews  long-lived  assets and the  related  intangible  assets for
impairment  whenever  events or changes in  circumstances  indicate the carrying
amount of such assets may not be recoverable.  Recoverability of these assets is
determined  by  comparing  the  forecasted  undiscounted  net cash  flows of the
operation  to  which  the  assets  relate  to  the  carrying  amount,  including
associated  intangible assets of such operation.  If the operation is determined
to be unable to recover  the  carrying  amount of its  assets,  then  intangible
assets are written down first,  followed by the other  long-lived  assets of the
operation,  to fair value.  Fair value is determined  based on  discounted  cash
flows or appraised values, depending upon the nature of the assets.

CONCENTRATIONS  OF CREDIT  RISK:  The  Company's  clients are engaged in various
businesses  located  primarily  in North  America,  Europe,  Latin  America  and
Asia/Pacific.  The Company performs  ongoing credit  evaluations of its clients.
Allowances  for credit losses are  maintained at levels  considered  adequate by
management. The Company invests its excess cash in deposits with major banks and
in money market securities. These securities typically mature within 90 days and
are highly rated  instruments.  Additionally,  the Company is  dependent  upon a
relatively  small number of clients who  contribute a significant  percentage of
revenues.  The Company's largest client accounted for approximately 10%, 10% and
9% of  consolidated  revenues for the years ended  December  31, 1998,  1997 and
1996, respectively.

USE OF ESTIMATES:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the reported amounts of

                                      F-8

                
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

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 reporting  period.  Actual  results could differ from those
estimates.

RECENT  ACCOUNTING  PRONOUNCEMENTS:  In  June  1998,  the  Financial  Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging  Activities"  ("SFAS 133"), which is required to be adopted in years
beginning after June 15, 1999. The Company anticipates that the adoption of SFAS
133  will  not have a  significant  effect  on the  financial  condition  of the
Company.

NOTE (3)--NET LOSS PER COMMON SHARE:

Basic net loss per share is  calculated  by  dividing  net loss by the  weighted
average shares of common stock  outstanding  during the years ended December 31,
1998 and 1997.  Diluted  earnings per share would reflect the dilutive effect of
stock  options and other stock  awards  granted to employees  under  stock-based
compensation plans in periods where the effect would not be antidilutive.

As of December  31, 1998,  there were  approximately  30.1 million  common stock
options  outstanding that could  potentially  dilute basic earnings per share in
the future that were excluded from the computation of diluted net loss per share
because the effect would be antidilutive.

In computing  basic net loss per share for the year ended December 31, 1997, the
Company's  11.1  million  shares of  restricted  stock  were  excluded  from the
weighted  average number of common shares  outstanding.  Such shares vested upon
the consummation of the Company's initial public offering of common stock on May
15, 1998, a condition which was not satisfied at December 31, 1997 (see Note 4).

Earnings  per share for the year ended  December  31,  1996  cannot be  computed
because the Company's capital structure prior to the Recapitalization  consisted
of both common shares and limited partnership units in predecessor entities (see
Note 6).

NOTE (4) -- INITIAL PUBLIC OFFERING:

On May 15, 1998,  the Company  closed an initial  public  offering of its common
stock (the "Offering").  An aggregate of 19,090,000 shares (including  2,490,000
shares  subject to the  underwriters'  overallotment  option)  of the  Company's
common stock was offered to the public,  of which 6,912,730  shares were sold by
the Company and 12,177,270 shares were sold by certain selling stockholders. Net
proceeds  to the Company  were  $158.6  million,  after  deducting  underwriting
discounts and  commissions  and expenses paid by the Company in connection  with
the  Offering.  The Company did not receive any proceeds from the sale of common
stock by the selling  stockholders.  The Company used the net proceeds  from the
Offering together with $155 million of borrowings under a new credit facility to
repay all of the  outstanding  borrowings  under its then  existing $700 million
senior secured credit facility.

Upon  the  consummation  of the  Offering,  9,231,105  shares  of  common  stock
("Restricted  Stock")  held in a  restricted  stock trust vested and resulted in
non-recurring,  non-cash,  pre-tax  compensation charges of $234.4 million which
have been  reflected as other  operating  charges in the Company's  consolidated
statement  of  operations  for the year ended  December  31,  1998.  The Company
redeemed the remaining 1,855,845 shares of

                                      F-9
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

Restricted Stock held in the restricted stock trust upon the consummation of the
Offering.  At December 31, 1997, the Company had recorded unearned  compensation
of $136.7 million, representing the fair value of the Restricted Stock.

NOTE (5)--COMMON STOCK DIVIDEND:

On April 6, 1998, the Board of Directors  declared a stock dividend of 14 shares
(the "Stock  Dividend")  of common stock  payable for each share of common stock
outstanding,  which dividend became  effective and was paid on May 11, 1998, the
effective date of the Registration Statement filed on Form S-1 for the Offering.
The  Company's  historical  financial  statements  have been  presented  to give
retroactive effect to the Stock Dividend.  In addition,  the number of shares of
common stock the Company is authorized to issue was increased from 10,000,000 to
250,000,000  and the number of authorized  preferred  shares was increased  from
50,000 to 10,000,000.  Of the authorized  preferred  shares,  50,000 shares have
been designated as Money Market  Preferred Stock and 2,500,000  shares have been
designated as Cumulative Participating Junior Preferred Stock.

NOTE (6)--RECAPITALIZATION:

On December 12, 1996, the  Recapitalization  of Young & Rubicam Inc., a New York
corporation  (the   "Predecessor   Company")  was  effected,   whereby  (a)  the
Predecessor Company, Young & Rubicam Holdings Inc. ("Holdings"), or subsidiaries
of the Predecessor  Company (i) acquired 2,058,678 of the 2,458,102  outstanding
shares of Predecessor Company common stock for an amount equal to $115 per share
less the principal and accrued  interest of any  outstanding  loans  relating to
such shares  (which loans were thereby  repaid),  (ii)  acquired  760,232 of the
1,869,682 outstanding Limited Partnership Units of the LP ("LPUs") together with
any related  subordinated  promissory  notes of the  Predecessor  Company for an
amount  equal to $115 per LPU less the  principal  and  accrued  interest of any
outstanding loans relating to such LPUs (which loans were thereby repaid); (iii)
canceled  332,636  of the  690,249  common  stock  options  and  596,448  of the
1,600,414  LPU  options  (collectively,   the  "Nonrollover  Options")  and  all
outstanding Growth  Participation  Units ("GPUs") for cash consideration of $115
per unit less the aggregate  option  exercise  price and (iv)  exchanged for, or
canceled in consideration of, the remaining  outstanding  common stock, LPUs and
options on common stock and LPUs held by certain  members of the  management  of
the Predecessor  Company (the "Management  Investors") for 15,815,985  shares of
Holdings  common  stock  and  16,823,565  options  on common  stock of  Holdings
("Rollover Options"); (b) Hellman & Friedman Capital Partners III, L.P. ("HFCP")
and certain  other  investors  contributed  $242  million in cash to Holdings in
exchange for 31,566,345  shares of Holdings common stock at a price of $7.67 per
share  ($115 per share prior to the Stock  Dividend)  and  2,598,105  options to
purchase additional shares of Holdings common stock at $7.67 per share ($115 per
share prior to the Stock Dividend) (the "HFCP Options"),  and (c) senior secured
credit facilities of $700 million were arranged.

Common stock, LPUs,  Nonrollover  Options on common stock and LPUs and GPUs held
by non U.S.-based equity holders were acquired or canceled prior to December 31,
1996.  Payment for previously  tendered  Nonrollover  Options and GPUs of $161.7
million held by U.S.-based equity holders occurred in March 1997.

Under  a   stockholders'   agreement   entered  into  in  connection   with  the
Recapitalization (the "Stockholders'  Agreement"),  the Management Investors are
required to deposit all Company  common stock  currently held or acquired in the
future  into a voting  trust (the  "Management  Voting  Trust")  under which all
rights to vote such  shares are  assigned  to certain  members of the  Company's
senior management as voting trustees.

As the  equity  holders  of the  Predecessor  Company  retained  control  of the
Company, the transaction has been reported as a recapitalization.  The financial
statements reflect the financial position, results of operations

                                      F-10
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

and cash flows of the Company and the Predecessor Company on a continuous basis.
The  excess of the  Predecessor  common  stock and LPUs  repurchase  transaction
amount  over  the  stated  amount  of the  Predecessor  common  stock  and  LPUs
repurchased has been reported as a distribution to equity holders and charged to
limited partners' contributed equity, capital surplus and accumulated deficit.

As a result of the  Recapitalization,  the  Company  recorded  charges of $315.4
million,  primarily  related  to  compensation.  A  summary  of the  significant
Recapitalization-related charges include the following:

(1) The  cancellation of 1,244,647 GPUs  outstanding for cash  consideration  of
$115 per unit.  Compensation  expense of $83.1 million represents the difference
between the cash  consideration paid to GPU holders and the amount of previously
accrued compensation under the original terms of the GPU plan.

(2) The cancellation of 929,084 Nonrollover Options for cash consideration.  The
cash  consideration  and the  associated  compensation  expense of $66.6 million
represents the difference  between the  transaction  price of $115 and the $40.2
million aggregate exercise price of the Nonrollover Options.

(3)  Cancellation  of the  remaining  outstanding  options and award of Rollover
Options to acquire  16,823,565  shares of Company  common  stock at an  exercise
price of $1.92 per share  ($28.75 per share prior to the Stock  Dividend),  with
certain  limited  exceptions  outside of the United  States.  As a result of the
change in the terms of the former  stock option  plan,  which  resulted in a new
measurement date, the Company recognized  compensation  expense of $96.7 million
representing the difference between the transaction price per Rollover Option of
$7.67 per share ($115 per share prior to the Stock  Dividend)  and the aggregate
exercise price of the Rollover Options.

(4) Professional fees and other charges amounted to approximately $69.0 million.

NOTE (7)--EQUITY IN NET ASSETS OF UNCONSOLIDATED COMPANIES:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
(in thousands)                                          1998                   1997                    1996
----------------------------------------------------------------------------------------------------------------------
                                                             Equity                 Equity                  Equity
                                                Equity in    in Net    Equity in    in Net    Equity in     in Net
                                  Ownership        Net       Income       Net       Income       Net        Income
Affiliate                          Interest       Assets     (Loss)      Assets     (Loss)      Assets      (Loss)
----------------------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>         <C>        <C>         <C>         <C>         <C>      
Dentsu, Y&R Partnerships       Generally 50%    $ 27,790    $ 2,389    $ 17,510    $  2,587    $12,954     $ (9,181)
J.M.C. Creatividad
 Orientada (Venezuela)              49%            1,474        412         953      (1,515)     2,471       (2,038)
Prolam (Chile)                      30%            3,075        950       2,851         825      2,656          262
Eco S.A. (Guatemala)                40%            2,085        (75)      2,206          96      2,134           26
Cresswell, Munsell, Fultz &
 Zirbel (United States)             33%            2,183        500       1,922         508      1,635          624
National Public Relations
 (Canada)                           22%              527        (19)        647          98        607          204
Other                           50% or less        1,263        550         304      (2,257)     2,762          266
----------------------------------------------------------------------------------------------------------------------
                                                $ 38,397    $ 4,707    $ 26,393    $    342    $25,219     $ (9,837)
======================================================================================================================
</TABLE>



                                      F-11
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-------------------------------------------------------------------------------

The  summarized  financial  information  below  represents an aggregation of the
Company's unconsolidated companies.

<TABLE>
<CAPTION>
FINANCIAL INFORMATION
----------------------------------------------------------------------
(in thousands)                  1998           1997           1996
----------------------------------------------------------------------
EARNINGS DATA
<S>                          <C>            <C>            <C>      
 Revenues                    $ 218,973      $ 207,668      $ 238,810
 Income from operations         22,320         13,768         22,132
 Net income (loss)              15,424          4,347        (16,097)
----------------------------------------------------------------------
BALANCE SHEET DATA
 Current assets              $ 317,916      $ 321,372      $ 348,325
 Noncurrent assets              60,624         40,147         33,996
 Current liabilities           266,090        287,101        323,406
 Noncurrent liabilities         17,023         13,215         11,683
 Equity                         95,427         61,203         47,232
---------------------------------------------------------------------
</TABLE>

NOTE 8 -- ACQUISITIONS AND INVESTMENTS

The Company  acquires and makes  investments in certain  entities related to its
business  if it believes it is  strategically  beneficial  to do so. The Company
acquired,  both domestically and  internationally,  full or partial interests in
certain entities and obtained  additional  interests in certain  partially owned
entities for an aggregate  purchase  price of $17.6  million,  $14.7 million and
$26.8 million during 1998, 1997 and 1996,  respectively.  In 1998,  acquisitions
included  the  Company's  purchase of a  multi-cultural  advertising  agency and
certain other assets located in the United States.

In addition, effective January 1, 1997, the Company acquired an additional 37.5%
equity interest in the Australian and New Zealand joint ventures with Dentsu. In
consideration  for this additional equity interest,  the Company  contributed to
Dentsu  12.5% of its equity  interest in its  advertising  and direct  marketing
agencies in Australia and New Zealand.

NOTE (9) -- OTHER OPERATING CHARGES

During 1998,  the Company  recorded  $234.4 million in other  operating  charges
incurred in  connection  with the  Offering.  During 1997 and 1996,  the Company
recorded  $11.9  million and $17.2  million,  respectively,  in other  operating
charges for certain asset impairment writedowns.

NOTE (10)--PROPERTY AND EQUIPMENT:

Property and equipment are recorded at cost and are comprised of the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(in thousands)                                                                                  As of December 31,
---------------------------------------------------------------------------------------------------------------------
                                                                 Useful Lives                    1998          1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                                       <C>           <C>      
Land and buildings                                  20-40 years                               $  29,706     $  29,716
Furniture, fixtures and equipment                   3-10 years                                  252,673       235,836
Leasehold improvements                              Shorter of 10 years or life of lease         93,797        77,804
Automobiles                                         3-5 years                                     5,892         6,609
---------------------------------------------------------------------------------------------------------------------
                                                                                                382,068       349,965
---------------------------------------------------------------------------------------------------------------------
Less--Accumulated depreciation and amortization                                                 231,655       224,951
---------------------------------------------------------------------------------------------------------------------
                                                                                              $ 150,413     $ 125,014
=====================================================================================================================
</TABLE>

                                      F-12
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

During 1998,  1997 and 1996,  depreciation  expense  amounted to $49.2  million,
$47.6 million, and $42.0 million, respectively.

NOTE (11)--INCOME TAXES:

The components of (loss) income before income taxes are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
(IN THOUSANDS)                             FOR THE YEAR ENDED DECEMBER 31,        
--------------------------------------------------------------------------------- 
                                          1998           1997           1996      
--------------------------------------------------------------------------------- 
<S>                                    <C>             <C>           <C>          
Domestic                               $ (127,325)     $12,304       $ (242,578)  
Foreign                                    40,328       24,000           (8,039)  
--------------------------------------------------------------------------------- 
Total                                  $  (86,997)     $36,304       $ (250,617)  
================================================================================= 
</TABLE>                                     

The following summarizes the (benefit) provision for income taxes:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
(IN THOUSANDS)                                 FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
                                              1998           1997           1996
------------------------------------------------------------------------------------
Current:
<S>                                        <C>            <C>            <C>      
 Federal                                   $   3,938      $  18,195      $  16,993
 State and local                               3,512          4,220          3,921
 Foreign                                      28,570         36,259         18,146
------------------------------------------------------------------------------------
                                              36,020         58,674         39,060
------------------------------------------------------------------------------------
Deferred:
 Federal                                     (28,126)         7,547        (51,363)
 State and local                              (6,415)         2,472        (22,111)
 Foreign                                      (4,123)       (10,403)        13,803
------------------------------------------------------------------------------------
                                             (38,664)          (384)       (59,671)
------------------------------------------------------------------------------------
 (Benefit) provision for income taxes      $  (2,644)     $  58,290      $ (20,611)
====================================================================================
</TABLE>

The  reconciliation of the United States statutory rate to the effective rate is
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                  For the year ended December 31,
-------------------------------------------------------------------------------------------------------
PERCENT OF (LOSS) INCOME BEFORE INCOME TAXES                      1998          1997           1996
-------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>           <C>    
 United States statutory rate                                     (35.0)%        35.0%         (35.0)%
 Effect of Offering *                                              32.1            --             --
 State and local income taxes, net of federal tax effect          ( 6.3)         17.1          ( 4.5)
 Foreign income taxed greater than the United States
   statutory rate                                                   7.2         107.2           15.2
 Change in valuation allowance and related components             ( 2.8)        (13.1)           5.9
 Amortization of goodwill                                           0.7           8.5            2.1
 Travel, entertainment and other non-deductible expenses            1.2           6.2            8.4
 Other, net                                                       ( 0.1)        ( 0.3)         ( 0.3)
-------------------------------------------------------------------------------------------------------
 Consolidated effective tax rate                                  ( 3.0)%       160.6%         ( 8.2)%
=======================================================================================================
</TABLE>

* Represents  charges  related  to  the  Offering  for  which  the  Company  has
  determined it will receive little or no tax benefit.

                                      F-13
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

The Company's share of the  undistributed  earnings of foreign  subsidiaries not
included in its consolidated  Federal income tax return that could be subject to
additional income taxes if remitted was approximately  $59.1 million at December
31, 1998.  No provision  has been  recorded for the United  States in respect of
foreign  taxes that  could  result  from the  remittance  of such  undistributed
earnings since the earnings are permanently reinvested outside the United States
and it is not  practicable  to estimate  the amount of such  taxes.  Withholding
taxes of  approximately  $8.1 million  would be payable upon  remittance  of all
previously unremitted earnings at December 31, 1998.

The components of the Company's net deferred income tax assets are:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
(in thousands)                                                As of December 31,
------------------------------------------------------------------------------------
                                                             1998           1997
------------------------------------------------------------------------------------
<S>                                                       <C>            <C>      
Allowance for doubtful accounts                          $   4,274      $   3,118
Net operating loss carryforwards                            45,126         32,797
Deferred compensation                                        2,424          1,172
------------------------------------------------------------------------------------
                                                            51,824         37,087

Valuation allowance                                         (5,021)        (4,255)
------------------------------------------------------------------------------------
Current portion                                             46,803         32,832 
Deferred compensation                                       53,501         40,650 
Depreciable and amortizable assets                          30,417         30,561 
Long-term leases                                             7,377          7,436 
Postretirement benefits                                      3,570          3,654 
Other non-current items                                     11,801         11,989 
Net operating loss carryforwards                            65,300         42,338 
Tax credit carryforwards                                     3,658          3,658 
------------------------------------------------------------------------------------
                                                           175,624        140,286 
Valuation allowance                                        (16,978)       (16,094)
------------------------------------------------------------------------------------
Non-current portion                                        158,646        124,192
Net deferred income tax assets                           $ 205,449      $ 157,024
====================================================================================
</TABLE>

The Company's net deferred  income tax assets arise from  temporary  differences
which  represent the cumulative  deductible or taxable  amounts  recorded in the
financial  statements in different years than recognized in the tax returns. The
majority of the temporary differences result from expenses accrued for financial
reporting purposes which are not deductible for tax purposes until actually paid
and net operating losses.

The net operating loss ("NOL") carryforwards  represent the benefit recorded for
U.S.,  state and local,  and foreign NOLs. At December 31, 1998, the Company had
approximately  $258.3 million of NOL  carryforwards  for U.S. tax purposes which
expire in the year 2018 and approximately $91.4 million of NOL carryforwards for
foreign tax  purposes  with  carryforward  periods  ranging  from one year to an
indefinite  time.  The Company had  approximately  $3.2  million of  alternative
minimum tax  credits  which are not subject to  expiration  and $0.4  million of
foreign tax credits which expire in the year 2001.

The Company is required to provide a valuation allowance against deferred income
tax assets when it is more likely than not that some or all of the  deferred tax
assets will not be realized.  Valuation  allowances  of $22.0  million and $20.4
million were recorded at December 31, 1998 and 1997, respectively. The valuation

                                      F-14
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

allowances  represent a  provision  for  uncertainty  as to the  realization  of
certain   deferred  tax  assets,   including   NOL   carryforwards   in  certain
jurisdictions.  The  Company  has  concluded  that  based upon  expected  future
results, it is more likely than not that the net deferred tax asset balance will
be realized.

NOTE (12) -- Worldwide Operations

The  Company   conducts   and  manages  its   business   using  an   integrated,
multi-disciplinary  approach.  It operates as a single agency network,  allowing
the Company to centrally manage and utilize its resources.  The Company operates
in one business segment: global marketing and communications. Amounts related to
specified geographic areas are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(IN THOUSANDS)      UNITED STATES       EUROPE        OTHER          TOTAL
--------------------------------------------------------------------------------
<S>                    <C>            <C>           <C>           <C>       
1998
Revenues               $775,700       $532,404      $214,360      $1,522,464
Total assets            844,070        589,128       202,057       1,635,255
--------------------------------------------------------------------------------
1997
Revenues               $661,367       $472,225      $249,148      $1,382,740
Total assets            697,250        582,424       258,133       1,537,807
--------------------------------------------------------------------------------
1996
Revenues               $571,155       $444,644      $206,340      $1,222,139
Total assets            819,828        533,318       245,666       1,598,812
================================================================================
</TABLE>

NOTE (13)--Employee Benefits:

The  Company has a defined  benefit  pension  plan ("the  Plan") that covers all
full-time U.S.  employees upon commencement of employment.  Contributions to the
Plan are based  upon  current  costs and prior  service  costs.  Both  costs are
actuarially  computed and the latter are  amortized  over the average  remaining
service  period.  Effective July 1, 1996, the  Predecessor  Company  amended the
Plan.  Benefits credited to each employee's  account under the Plan are based on
3.2% of the employee's annual compensation up to $150,000. The Plan also credits
each  employee's  account  with  interest  based on the  average  one-year  U.S.
Treasury Bill interest rate  multiplied by the account  balance at the beginning
of the year.  Subject to certain  limitations,  most vested retirement  benefits
available under the Plan are insured by the Pension Benefit Guaranty Corporation
("PBGC").  The  Company is in  compliance  with the  minimum  funding  standards
required by the Employee Retirement Income Security Act of 1974 ("ERISA").

Total  contributions  to the Plan made in 1998 and 1997 were $10.0  million  and
$6.6 million, respectively.  Pursuant to an agreement with the PBGC, the Company
has also agreed to make contributions to the Plan in an amount required to cause
the credit  balance  at the end of each Plan year to be at least  equal to $12.5
million  plus  interest.  The Company is not  required to make any payment  that
would not be deductible  under Internal  Revenue Code section 404. The Company's
credit  balance  maintenance  requirement  terminates  when the  Company's  debt
obtains  specified  rating levels (or, if there are no such ratings from certain
major ratings  agencies,  when the Company meets a fixed charge  coverage  ratio
test), but in no event earlier than December 31, 2001. In addition,  such credit
balance  maintenance  requirements  terminate  if the  Plan's  unfunded  benefit
liabilities are zero at the end of two consecutive Plan years.

The Company also contributes to government  mandated plans and maintains various
noncontributory retirement plans at certain foreign subsidiaries,  some of which
are considered to be defined benefit plans for

                                      F-15
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

accounting  purposes.  Plans  are  funded  in  accordance  with  the laws of the
countries  where the plans are in effect  and,  in  accordance  with such  local
statutory requirements, may have no plan assets.

A summary  of the  components  of net  periodic  pension  costs for the  defined
benefit plans is as follows:
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------
(IN THOUSANDS)                                        FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
                                                   1998                               1997
-------------------------------------------------------------------------------------------------------
                                       U.S.      NON-U.S.      TOTAL       U.S.     NON-U.S.     TOTAL
-------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>        <C>          <C>        <C>        <C>     
Service costs for benefits earned
 during the period                  $    3,801   $   543    $    4,344   $  2,671   $   550    $  3,221
Interest costs on projected
 benefit obligation                      9,151       722         9,873      8,804       789       9,593
Expected return on plan assets         (10,263)       --       (10,263)    (9,281)       --      (9,281)
Amortization of prior service
 benefit                                  (411)       --          (411)      (411)       --        (411)
Amortization of transition
 (asset)/obligation                        (61)       80            19        (61)       82          21
Recognized actuarial loss                1,910        69         1,979      1,057        68       1,125
-------------------------------------------------------------------------------------------------------
Net periodic pension cost
 of the plans                       $    4,127   $ 1,414    $    5,541   $  2,779   $ 1,489    $  4,268
=======================================================================================================
<CAPTION>

-------------------------------------------------------------------
(IN THOUSANDS)                     FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
                                                 1996
-------------------------------------------------------------------
                                      U.S.     NON-U.S.     TOTAL
-------------------------------------------------------------------
<S>                                 <C>        <C>        <C>     
Service costs for benefits earned
 during the period                  $  2,834   $   674    $  3,508
Interest costs on projected
 benefit obligation                    8,488       893       9,381
Expected return on plan assets        (7,561)       --      (7,561)
Amortization of prior service
 benefit                                (107)       --        (107)
Amortization of transition
 (asset)/obligation                      (61)       96          35
Recognized actuarial loss              2,327        92       2,419
------------------------------------------------------------------
Net periodic pension cost
 of the plans                       $  5,920   $ 1,755    $  7,675
==================================================================
</TABLE>

Changes in the benefit obligation and plan assets are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)                                                                 AS OF DECEMBER 31,
--------------------------------------------------------------------------------------------------------------------------------
                                                                       1998                                  1997                
--------------------------------------------------------------------------------------------------------------------------------
                                                     U.S.        NON-U.S.        TOTAL        U.S.       NON-U.S.       TOTAL
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>       <C>             <C>          <C>         <C>           <C>    
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year           $ 130,036     $   10,753    $ 140,789    $ 114,710    $  12,198    $ 126,908
 Service costs                                        3,801            543        4,344        2,671          550        3,221
 Interest costs                                       9,151            722        9,873        8,804          789        9,593
 Foreign currency exchange rate loss/(gain)              --            888          888           --       (1,770)      (1,770)
 Actuarial loss/(gain)                                6,958            716        7,674       10,874         (241)      10,633
 Benefits paid                                      (11,530)          (717)     (12,247)      (7,023)        (773)      (7,796)
---------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year                   138,416         12,905      151,321      130,036       10,753      140,789
---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year,
 primarily fixed income and equity securities       129,421             --      129,421      114,264           --      114,264
 Actual return on plan assets                        11,309             --       11,309       15,558           --       15,558
 Company contributions                               10,000            717       10,717        6,622          773        7,395
 Benefits paid                                      (11,530)          (717)     (12,247)      (7,023)        (773)      (7,796)
------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year            139,200             --      139,200      129,421           --      129,421
------------------------------------------------------------------------------------------------------------------------------
Funded status                                           784        (12,905)     (12,121)        (615)     (10,753)     (11,368)
Unrecognized net transition (asset) obligation         (103)           425          322         (164)         471          307
Unrecognized prior service benefit                   (2,131)            --       (2,131)      (2,542)          --       (2,542)
Unrecognized net loss                                20,354          2,029       22,383       16,352        1,260       17,612
Additional liability                                     --         (1,738)      (1,738)          --         (706)        (706)
------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension costs for defined
 benefit plans                                    $  18,904     $  (12,189)   $   6,715    $  13,031    $  (9,728)   $   3,303
==============================================================================================================================
</TABLE>

                                      F-16
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assumptions used were:
----------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,             1998                     1997                      1996
----------------------------------------------------------------------------------------------------------------------------
                                                     U.S.      NON-U.S.       U.S.       NON-U.S.       U.S.      NON-U.S.
----------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>    <C>  <C>      <C>         <C>  <C>      <C>        <C>  <C> 
Discount and settlement rate                         7.0%   5.5%-6.0%     7.25%       6.5%-7.0%     8.0%       7.0%-8.0%
Rate of increase in compensation levels              5.0%   2.5%-4.0%      5.0%       3.5%-5.0%     5.5%       3.5%-5.0%
Expected long-term rate of return on assets          9.0%      N/A         9.0%          N/A        9.0%          N/A
============================================================================================================================
</TABLE>

The Company  recorded  liabilities  of $1.7 million and $0.7 million at December
31,  1998 and  1997,  respectively,  for the  portion  of its  unfunded  pension
liabilities  that  had  not  been  recognized  as  expense  with   corresponding
adjustments to equity.

Contributions  to foreign  defined  contribution  plans were $7.2 million,  $7.5
million and $6.2 million in 1998, 1997 and 1996, respectively.

The  Company  also has an employee  savings  plan that  qualifies  as a deferred
salary  arrangement under section 401(k) of the Internal Revenue Code. Under the
plan, participating U.S. employees may defer a portion of their pre-tax earnings
up to the  Internal  Revenue  Service  annual  contribution  limit.  The Company
currently matches 100% of each employee's  contribution up to a maximum of 5% of
the employee's earnings up to $150,000.  Amounts expensed by the Company for its
contributions  to the plan were $8.4  million,  $7.8 million and $7.0 million in
1998, 1997 and 1996, respectively.

At December  31,  1998 and 1997,  other  non-current  liabilities  include  $8.6
million and $7.9 million relating to postretirement and postemployment  benefits
other than pensions.

The Company  maintains  certain  deferred cash incentive  plans which are either
tied to operating performance or contractual deferred  compensation  agreements.
The costs of these  compensation plans were expensed over the applicable service
period. At December 31, 1998 and 1997, included in non-current  liabilities were
deferred   compensation   liabilities   of  $30.6  million  and  $31.1  million,
respectively.

NOTE (14) -- INSTALLMENT PAYMENT OBLIGATIONS:

Effective  through the closing of the  Offering,  pursuant to the  Stockholders'
Agreement,  the Company was able, at its election,  to pay for shares  purchased
from Management Investors pursuant to a call or put at the applicable call price
or  applicable  put  price in up to four  equal  installments.  Pursuant  to the
Stockholders'  Agreement,  effective at the time of the Offering, the Company no
longer had the right or obligation to pay for shares  purchased from  Management
Investors pursuant to a call or put. The Company also accelerated the payment of
substantially  all of the  outstanding  installment  notes to June 30, 1998.  At
December 31, 1998, other current and non-current liabilities include installment
notes  payable of $0.7 million and $0.4 million,  respectively.  At December 31,
1997,  other  current and  non-current  liabilities  include  installment  notes
payable of $3.2 million and $6.5 million, respectively.

NOTE (15)--LOANS PAYABLE:

The Company's  short term loans payable are primarily  advances under bank lines
of credit and generally bear interest at prevailing  market rates. The Company's
current  loans payable of $31.4  million and $10.8  million  include  short-term
portions of long-term loans payable of $0.5 million and $1.2 million at December
31, 1998 and 1997, respectively.

                                      F-17
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-term loans payable are comprised of the following at December 31:
--------------------------------------------------------------------------------
(IN THOUSANDS)                                               AS OF DECEMBER 31,
--------------------------------------------------------------------------------
                                                            1998          1997
--------------------------------------------------------------------------------
<S>                                                     <C>           <C>       
Unsecured revolving credit facility                     $ 31,460      $      -- 
Senior secured credit facility                                --        330,552 
Capital lease obligations                                     34            404 
Other borrowings                                             462            818 
------------------------------------------------------------------------------- 
                                                          31,956        331,774 
                                                                                
Less -- Current portion                                      462          1,222 
------------------------------------------------------------------------------- 
                                                        $ 31,494      $ 330,552 
================================================================================
</TABLE>
                                                       
On May 15, 1998, the Company  entered into a $400 million,  five-year  unsecured
multicurrency revolving credit facility (the "Credit Facility") and used the net
proceeds from the Offering  together  with $155 million of borrowings  under the
Credit Facility to repay all outstanding  borrowings  outstanding under its then
existing $700 million senior secured credit facility. Approximately $7.3 million
of unamortized  deferred financing costs related to the replaced credit facility
were charged to expense and have been reflected as an extraordinary  charge, net
of an applicable  tax benefit of  approximately  $2.8 million,  in the Company's
consolidated statement of operations for the year ended December 31, 1998.

The Credit Facility permits borrowings of up to $400 million.  Amounts due under
the Credit  Facility are  required to be repaid on May 15, 2003.  The Company is
required  to pay varying  rates of  interest,  generally  based on LIBOR plus an
applicable  margin ranging from 0.275% to 0.3% depending on its leverage  ratio,
or the  Federal  Funds Rate plus 0.5%.  The  Company is also  required  to pay a
facility fee  depending on its leverage  ratio  ranging from 0.125% and 0.2% per
annum.  In 1998,  the total  facility  fee under the  Credit  Facility  was $0.4
million.

Under the Credit  Facility,  the  Company is  subject to certain  financial  and
operating restrictions and covenant  requirements,  including a maximum leverage
ratio and a minimum interest coverage requirement.

At December  31, 1998 and 1997,  the Company  had  entered  into  interest  rate
protection  agreements  with  respect to $31.5  million and $275  million of its
indebtedness,  respectively,  which  expire at various  times  through  2001 and
result in the Company paying, on a quarterly basis,  fixed interest amounts from
6.0% to 6.5%. The weighted average interest rate on outstanding debt,  including
the effect of interest rate swap  contracts,  was 6.27% and 6.875% for the years
ended December 31, 1998 and 1997, respectively.

The  interest  expense  amount for the year ended  December  31,  1996  includes
prepayment  penalties  of $2.9  million  related  to certain  prior  outstanding
indebtedness.

At December 31, 1998,  the Company had $543  million in  availability  under its
commercial  lines of credit ($435  million in the United States and $108 million
outside the United States).  Unused  commercial  lines of credit at December 31,
1998 were $480 million.  The Company has no obligation to pay commitment fees on
the  Credit  Facility.   During  1998,  the  Company  paid  commitment  fees  of
approximately  $0.1  million  on  the  unused  portion  of the  replaced  credit
facility.  At December  31, 1997,  the Company had $690 million in  availability
under its commercial lines of credit ($449 million in the United States and $241
million  outside  the  United  States).  Unused  commercial  lines of  credit at
December  31,  1997 were $349  million.  The  Company  paid  commitment  fees of
approximately $0.9 million in 1997.

                                      F-18
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

NOTE (16) -- EQUITY

The  following  schedule  summarizes  the  changes in the number of  outstanding
shares of preferred stock, common stock, LPUs and treasury stock:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                  Voting                              Limited
                                Preferred         Common          Non-voting       Partnerships      Common Stock
                                  Stock           Stock          Common Stock          Units          in Treasury
-----------------------------------------------------------------------------------------------------------------
<S>                                <C>                             <C>               <C>               <C>       
BALANCE JANUARY 1, 1996            1,324                --         16,000,000        2,032,010         13,266,072
-----------------------------------------------------------------------------------------------------------------
Issued                                67                --                 --           83,993           (215,907)
Repurchased                           --                --                 --         (246,321)           491,733
Recapitalization                  (1,391)       58,469,280        (16,000,000)      (1,869,682)       (13,541,898)
-----------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996             --        58,469,280                 --               --                 --
-----------------------------------------------------------------------------------------------------------------
Issued                                --         4,391,010                 --               --                 --
Repurchased                           --        (1,115,160)                --               --          1,115,160
-----------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997             --        61,745,130                 --               --          1,115,160
-----------------------------------------------------------------------------------------------------------------
Issued -- Offering                    --         6,912,730                 --               --                 --
Issued -- Option Exercises            --         2,178,436                 --               --         (1,599,946)
Restricted Stock Redeemed             --        (1,855,845)                --               --          1,855,845
Repurchased                           --        (2,605,882)                --               --          2,605,882
-----------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998             --        66,374,569                 --               --          3,976,941
=================================================================================================================
</TABLE>

The  preferred  stock of the  Predecessor  Company  was owned by  members of the
Predecessor Company's Board of Directors.  On December 12, 1996, all outstanding
Predecessor  Company  equity was  purchased  for cash or  exchanged  for Company
common stock  pursuant to the  Recapitalization.  In addition,  all  outstanding
Predecessor Company options were canceled for cash consideration or the award of
Company  options and all outstanding  GPUs were canceled for cash  consideration
(see Note 6). In addition, all treasury shares were retired.

In connection with the  consummation of the  Recapitalization  in December 1996,
the  Company  created a class of  preferred  stock  designated  as Money  Market
Preferred  Stock (the "Money  Market  Preferred").  The Money  Market  Preferred
carries a variable rate dividend and is redeemable at the Company's election for
$115.00 per share following the fifth  anniversary of the issuance  thereof.  At
December  31,  1998 and 1997,  50,000  shares  of Money  Market  Preferred  were
authorized and 87 shares were issued and outstanding.

NOTE (17)--MANDATORILY REDEEMABLE EQUITY SECURITIES:

Concurrent with the  Recapitalization,  the Company entered into a stockholders'
agreement  which  included  both put  rights and calls on the  Company's  common
stock. Effective at the time of the Offering,  such call and put provisions were
terminated and, accordingly,  the carrying value of such mandatorily  redeemable
equity securities was reclassified to stockholders'  equity.  The carrying value
of the mandatorily redeemable equity securities held by the Management Investors
was equivalent to the redemption value of $12.33 per share at December 31, 1997.
The carrying value of the mandatorily  redeemable  equity  securities for common
shares held by HFCP was being  accreted to  redemption  value over the  six-year
period from the date of the Recapitalization. Accordingly, the carrying value of
mandatorily  redeemable  equity  securities  held by HFCP was $8.47 per share at
December 31, 1997.

                                      F-19
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------
NOTE (18)--OPTIONS:

The Company has adopted the Young & Rubicam  Inc.  1997  Incentive  Compensation
Plan  (the  "ICP").  The ICP  superseded  the  pre-existing  stock  option  plan
maintained by the Company (the "Stock Option Plan"); however, all awards granted
under the Stock Option Plan will remain  outstanding  in  accordance  with their
terms and will be subject to the Stock Option Plan.

The ICP  provides  for  grants  of  stock  options,  stock  appreciation  rights
("SARS"),  restricted stock,  deferred stock,  other  stock-related  awards, and
performance  or annual  incentive  awards that may be settled in cash,  stock or
other property ("Awards").  Under the ICP, the total number of shares of Company
common stock reserved and available for delivery to  participants  in connection
with Awards is  19,125,000,  plus the number of shares of Company  common  stock
subject to awards under pre-existing plans that become available  (generally due
to  cancellation or forfeiture)  after the effective date of the ICP;  provided,
however that the total number of shares of Company  common stock with respect to
which  incentive  stock options may be granted shall not exceed  1,000,000.  Any
shares of Company common stock delivered under the ICP may consist of authorized
and unissued shares or treasury shares.

The Board of Directors is authorized to grant stock options, including incentive
stock options,  non-qualified stock options,  and SARS entitling the participant
to receive the excess of the fair market value of a share of common stock on the
date of exercise  over the grant price of the SAR. The exercise  price per share
subject to an option and the grant price of a SAR is  determined by the Board of
Directors,  but must not be less than the fair market value of a share of common
stock on the date of grant. The maximum term of each option or SAR, the times at
which  each  option  or  SAR  will  be  exercisable,  and  provisions  requiring
forfeiture  of  unexercised  options  or SARS  at or  following  termination  of
employment generally is fixed by the Board of Directors, except no option or SAR
may have a term exceeding ten years.

Generally,  options granted under the ICP become  exercisable  over a three-year
vesting period beginning on the three-year  anniversary of the date of grant and
expire ten years from the date of grant. However, the Board of Directors may, at
its discretion,  accelerate the exercisability,  the lapsing of restrictions, or
the expiration of deferral or vesting periods of any award, and such accelerated
exercisability,  lapse,  expiration and vesting shall occur automatically in the
case of a "change in  control"  of the  Company  except to the extent  otherwise
provided in the award agreement. In addition, the Board of Directors may provide
that the  performance  goals  relating to any  performance-based  awards will be
deemed to have been met upon the occurrence of any change in control.

At the  closing of the  Recapitalization,  the Board of  Directors  granted  the
Rollover  Options which were immediately  vested and exercisable.  Each Rollover
Option has an exercise price of $1.92 per share, with certain limited exceptions
outside of the United States. Of the Rollover  Options,  50% have a term of five
years and the remaining 50% have a term of seven years.  In connection  with the
issuance of the Rollover Options, the Company recognized compensation expense of
$96.7 million.

At the  closing  of the  Recapitalization,  the Board of  Directors  granted  to
employees options to purchase  5,200,590 shares of Company common stock at $7.67
per  share.  In  addition,  from the  closing  of the  Recapitalization  through
December 31, 1997, the Board of Directors granted additional options to purchase
1,891,200  shares of Company  common  stock at $7.67 per share (the  "Additional
Options").  As a result of the granting of the Additional  Options,  during 1997
the Company  recognized a  compensation  charge of $1.3 million  reflecting  the
difference between the estimated fair market value of Company

                                      F-20
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

common  stock on the  date of grant  and the  exercise  price of the  Additional
Options.   All   options   granted  to   employees   in   connection   with  the
Recapitalization were pursuant to and are governed by the Stock Option Plan.

Additionally,  at the closing of the  Recapitalization,  the Company  granted to
HFCP options to purchase  2,598,105  shares of Company common stock at $7.67 per
share which were exercisable  immediately and expire on the seventh  anniversary
of the closing. The HFCP Options are not governed by the Stock Option Plan.

The Company has adopted SFAS 123 (see Note 2). In accordance with the provisions
of  SFAS  123,   the   Company   applies   APB   Opinion  No.  25,  and  related
interpretations,  in  accounting  for its plans.  If the  Company had elected to
recognize  compensation  expense based upon the fair value at the grant date for
awards under its plans  consistent with the methodology  prescribed by SFAS 123,
the Company's net loss would be increased by $7.8 million, $6.3 million and $9.4
million for the years ended December 31, 1998, 1997 and 1996, respectively,  and
the net loss per common  share would be increased by $0.13 for each of the years
ended December 31, 1998 and 1997.

These SFAS 123 pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period,  and additional options may be granted in future years. The fair
value  for  these  options  was  estimated  at  the  date  of  grant  using  the
Black-Scholes  option-pricing model with the following assumptions for the years
ended December 31, 1998, 1997 and 1996, respectively:

<TABLE>
<CAPTION>
                            1998               1997               1996
------------------------------------------------------------------------------
<S>                     <C>                <C>                <C>       
Expected term           6 years            10 years           5-10 years
Risk-free rate           4.26%-5.84%        5.59%-7.12%        5.92-6.61%
Dividend yield                   0%                 0%                0%
Expected volatility          24.90%                 0%                0%
========================================================================
</TABLE>

Since the Company's  common stock was publicly traded for the first time in 1998
as a  result  of the  Offering,  it does  not  yet  have  sufficient  historical
information to make a reasonable assumption as to the expected volatility of its
common stock price in the future. As a result, the assumption in the table above
reflects the  expected  volatility  of stock  prices of entities  similar to the
Company.  In addition,  the decrease in the expected term of options for 1998 as
compared  to 1997 is due to the  creation  of an active,  liquid  market for the
Company's  common stock resulting from the Company's  initial public offering in
1998.

The  weighted-average  fair value and weighted average exercise price of options
granted on and subsequent to the  Recapitalization  for which the exercise price
equals the fair value of  Company  common  stock on the grant date was $5.25 and
$22.59 in 1998, respectively,  $5.28 and $12.33 in 1997, respectively, and $3.69
and $7.67 in 1996,  respectively.  The weighted-average  fair value and weighted
average  exercise  price of options  granted prior to the  Recapitalization  for
which the exercise  price  equals the fair value of Company  common stock on the
grant date was $13.28 and $47.14 in 1996, respectively.

In 1997 and 1996, the Company granted options to certain  executives at exercise
prices below the fair value of Company  common  stock on the date of grant.  The
weighted-average fair value and weighted-average exercise price of these options
was  $6.76  and  $7.67 in  1997,  respectively,  and  $6.30  and  $1.97 in 1996,
respectively.

                                      F-21
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

The Black-Scholes option valuation model was developed for use in estimating the
weighted-average fair value of traded options which have no vesting restrictions
and are fully  transferable.  Because the Company's  employee stock options have
characteristics  significantly  different  from  those of  traded  options,  and
because changes in the subjective  input  assumptions can materially  affect the
fair  value  estimate,  in  management's  opinion,  the  existing  models do not
necessarily  provide a reliable single measure of the fair value of its employee
stock options.

Transactions involving options are summarized as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                       OPTIONS       WEIGHTED-AVERAGE
                                    OUTSTANDING*     EXERCISE PRICE*
--------------------------------------------------------------------------------
JANUARY 1, 1996                       2,426,108          $ 42.99
--------------------------------------------------------------------------------
<S>                                 <C>                  <C>  
Granted                                 284,773            47.14
Exercised                              (252,278)           41.94
Cancellations                          (167,940)           42.83
Recapitalization cancellations       (2,290,663)           43.64
Recapitalization grants              24,622,260             3.76
--------------------------------------------------------------------------------
December 31, 1996                    24,622,260             3.76
--------------------------------------------------------------------------------
Granted                              11,469,150            11.56
Exercised                            (4,250,790)            2.19
Cancellations                          (827,415)            4.50
--------------------------------------------------------------------------------
December 31, 1997                    31,013,205             6.84
--------------------------------------------------------------------------------
Granted                               2,472,933            22.59
Exercised                            (2,178,436)            3.10
Cancelled                            (1,230,060)           10.81
--------------------------------------------------------------------------------
December 31, 1998                    30,077,642          $  8.23
================================================================================
</TABLE>

* Options outstanding and related weighted-average  exercise prices prior to the
  Recapitalization have not been retroactively adjusted for the Stock Dividend.

At December  31, 1998,  1997 and 1996,  the Company had  exercisable  options of
14,963,354, 17,242,995, and 21,501,900, respectively.

The following information is as of December 31, 1998:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------
                                         Options Outstanding                  Options Exercisable
-----------------------------------------------------------------------------------------------------
                                               Weighted-
                                                Average       Weighted-                     Weighted-
                                 Number        Remaining       Average         Number        Average
                              Outstanding     Contractual      Exercise     Exercisable     Exercise
Range of Exercise Prices      at 12/31/98         Life          Price       at 12/31/98       Price
-----------------------------------------------------------------------------------------------------
<S>                           <C>                  <C>        <C>           <C>             <C>     
 $         1.92               10,563,983           4.11       $   1.92      10,563,983      $   1.92
 $         7.67                8,297,586           7.24           7.67       4,369,371          7.67
 $ 12.00-$15.00                9,734,850           9.11          12.46          30,000         12.33
 $ 25.00-$31.00                1,481,223           9.95          28.55              --            --
-----------------------------------------------------------------------------------------------------
Total                         30,077,642           6.88       $   8.23      14,963,354      $   3.62
=====================================================================================================
</TABLE>

                                      F-22
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

NOTE (19)--LITIGATION, COMMITMENTS AND CONTINGENT LIABILITIES:

The Company has performed,  and continues to perform,  services for clients in a
wide range of businesses, including tobacco products manufacturers. As a result,
the Company may from time to time be joined as a defendant in litigation brought
against its  clients and others by third  parties,  including  its  competitors,
governmental  and regulatory  bodies,  or consumers,  alleging that  advertising
claims made  through the Company  with  respect to such  clients'  products  are
false,  deceptive or  misleading;  that such  clients'  products are  defective,
injurious  or pose  some  manner  of threat  to the  public  generally;  or that
marketing or communications materials created for such clients infringe upon the
proprietary  rights of third  parties.  The Company's  practice is to attempt to
minimize  such  potential   liabilities   through   insurance   coverage  and/or
indemnification provisions in its agreements with clients and others.

The Company is also named as party in  litigation  matters which arise from time
to time in the ordinary  course of its business,  including  without  limitation
claims by former  employees  for money  damages and other  relief based upon the
circumstances or consequences of their  separation from employment.  The Company
believes that it has  meritorious  defenses to these  claims,  and is contesting
such claims  vigorously.  In addition,  the Company is covered by insurance with
respect to some of such  claims.  Accordingly,  the Company does not expect such
current matters to have a material adverse effect on its consolidated  financial
position, results of operations or cash flows.

Net rental expense was $75.5 million,  $74.4 million, and $62.9 million in 1998,
1997 and 1996,  respectively.  Future minimum rental  commitments as of December
31, 1998 are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------
(IN THOUSANDS)
----------------------------------------------------------
<S>                                          <C>      
  1999                                       $ 68,060 
  2000                                         54,613 
  2001                                         50,137 
  2002                                         47,056 
  2003                                         41,114 
  Thereafter                                  131,018 
==========================================================
</TABLE>

Certain leases contain  renewal options  calling for increased  rentals.  Others
contain  certain  escalation  clauses  relating  to taxes  and  other  operating
expenses.

The Company  had  outstanding  guarantees  of $8.6  million and $7.6  million at
December 31, 1998 and 1997,  respectively,  primarily in support of credit lines
of unconsolidated companies.

The Company and its corporate  affiliates conduct business in various developing
countries in Asia, Africa,  Latin America and Eastern Europe,  where the systems
and bodies of commercial  law and trade  practices  arising  thereunder are in a
continuing  state of  evolution.  Commercial  laws in such  countries  are often
vague, arbitrary,  contradictory,  inconsistently administered and retroactively
applied. Under such circumstances,  it is difficult for the Company to determine
with  certainty  at all  times  the  exact  requirements  of  such  local  laws.
Nevertheless,  the Company believes that any difficulty in compliance with local
laws in such developing  countries will not have a materially  adverse impact on
the consolidated financial position,  results of operations or cash flows of the
Company.

                                      F-23
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------
NOTE (20) -- FAIR VALUE OF FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY

At December 31, 1998 and 1997,  the carrying  value of the  Company's  financial
instruments approximated fair value in all material respects.

The Company enters into interest rate  protection  agreements  with  off-balance
sheet risk in order to reduce its  exposure to changes in interest  rates on its
variable rate long-term debt. These interest rate protection agreements included
interest  rate swaps,  interest  rate floors and interest rate caps. At December
31,  1998 and 1997,  the  Company  had entered  into  interest  rate  protection
agreements  with respect to $31.5 million and $275 million of its  indebtedness.

The Company  enters into forward  foreign  exchange  contracts to hedge  certain
assets and liabilities  which are recorded in a currency  different from that in
which they settle.  These contracts are generally entered into in order to hedge
intercompany transactions.  Gains and losses on these contracts generally offset
losses  and  gains on the  related  foreign  currency  denominated  intercompany
transactions.  The gains and losses on these positions are deferred and included
in the basis of the transaction  upon  settlement.  The terms of these contracts
are  generally  a one-month  maturity.  At December  31,  1998,  the Company had
contracts  for the sale of $19.4  million and the  purchase  of $6.1  million of
foreign  currencies at fixed rates,  compared to contracts for the sale of $18.5
million and the purchase of $12.8 million of foreign  currencies at December 31,
1997.

Management  believes that any losses resulting from market risk would not have a
material  adverse  impact on the  consolidated  financial  position,  results of
operations or cash flows of the Company.

                                      F-24
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                               EARNINGS PER SHARE
                                              INCOME (LOSS)    BEFORE EXTRAORDINARY
                              INCOME (LOSS)       BEFORE              CHARGE                           COMMON STOCK
                                   FROM       EXTRAORDINARY  -----------------------   NET INCOME  -------------------
QUARTER          REVENUES       OPERATIONS        CHARGE        BASIC      DILUTED       (LOSS)       HIGH      LOW
----------------------------------------------------------------------------------------------------------------------
<S>            <C>             <C>             <C>            <C>         <C>         <C>           <C>       <C>   
1998
1st            $   348,173     $   25,333      $   12,190     $   0.24    $   0.19    $   12,190    $    --   $   --
2nd (1) (2)        372,128       (190,472)       (145,391)      ( 2.45)     ( 2.45)     (149,824)     33 1/16   26 1/2
3rd                375,419         42,178          24,306         0.36        0.29        24,306      35 7/8    28 3/8
4th                426,744         51,450          27,260         0.41        0.34        27,260      33 5/8    19 3/4
----           -----------     ----------      ----------                             ----------
Year             1,522,464        (71,511)        (81,635)      ( 1.34)     ( 1.34)      (86,068)     35 7/8    19 3/4
1997
1st            $   298,206     $   14,093      $    4,089     $   0.09    $   0.07    $    4,089
2nd                345,474         35,156          13,516         0.29        0.22        13,516
3rd                333,387         (4,302)         (5,700)      ( 0.12)     ( 0.12)       (5,700)
4th                405,673         25,782         (35,843)      ( 0.77)     ( 0.77)      (35,843)
----           -----------     ----------      ----------                             ----------
Year             1,382,740         70,729         (23,938)      ( 0.51)     ( 0.51)      (23,938)
=======================================================================================================================
</TABLE>

(1) Income  from  operations  for the  second  quarter of 1998  includes  $234.4
    million of non-recurring,  non-cash, pre-tax compensation charges recognized
    upon the  consummation of the Offering  resulting from the vesting of shares
    of  restricted  stock  allocated  to  employees.  Net  income for the second
    quarter of 1998 also includes an extraordinary charge of $4.4 million, which
    is net of a tax benefit of $2.8 million, due to the write-off of unamortized
    deferred financing costs related to the Company's replaced credit facility.

(2) The high and low  prices of common  stock  reflect  amounts  from the period
    commencing upon the  consummation of the Offering on May 12, 1998, the first
    day of public trading, through June 30, 1998.

                                      F-25
<PAGE>


                             REPORT OF MANAGEMENT

The management of Young & Rubicam Inc. (the  "Company") and its  subsidiaries is
responsible  for the  integrity of the  financial  data reported by the Company.
Management  uses its best  judgment  to  ensure  that the  financial  statements
present fairly, in all material  respects,  the consolidated  financial position
and results of operations of the Company.  These financial  statements have been
prepared in accordance with generally accepted accounting principles.

The system of internal controls of the Company is designed to provide reasonable
assurance  that  assets are  safeguarded,  that  transactions  are  executed  in
accordance with management's  authorization and are properly recorded,  and that
accounting  records  may  be  relied  upon  for  the  preparation  of  financial
statements  and  other  financial   information.   Underlying  this  concept  of
reasonable  assurance is the premise that the cost of control  should not exceed
the benefits derived and that the evaluation of those factors requires estimates
and judgments by  management.  Further,  because of inherent  limitations in any
system of internal  accounting  control,  errors or irregularities may occur and
not be detected. Nevertheless, management believes that a high level of internal
control is  maintained  by the Company  through the  selection  and  training of
qualified  personnel,  the  establishment  and  communication  of accounting and
business policies, and its internal audit program.

The financial  statements  have been audited by independent  accountants.  Their
report  expresses  an  independent  informed  judgment  as to  the  fairness  of
management's reported operating results and financial position. This judgment is
based on the procedures described in their report.

The Audit  Committee of the Board of  Directors,  which is  comprised  solely of
directors who are not officers or employees of the Company, meets regularly with
corporate management, the Company's internal auditors and legal counsel, and the
independent  accountants  to review the activities of each and to satisfy itself
that each is properly  discharging its  responsibility.  In addition,  the Audit
Committee meets on a scheduled basis with the independent  accountants,  without
management's  presence, to discuss the audit of the financial statements as well
as other auditing and financial reporting matters.

               Peter A. Georgescu                    Michael J. Dolan
         Chairman and Chief Executive Officer        Vice Chairman and
                                                 Chief Financial Officer

                                      F-26
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES                       SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                             ADDITIONS
                                                   -------------------------------
                                     BALANCE AT     CHARGED TO                                       BALANCE AT
                                      BEGINNING      COSTS AND       CHARGED TO                        END OF
DESCRIPTION                           OF PERIOD      EXPENSES      OTHER ACCOUNTS     DEDUCTIONS       PERIOD
----------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>                                <C>          <C>     
Year ended December 31, 1998
Allowance for Doubtful Accounts       $ 14,125       $  9,404           --              $ 5,591      $ 17,938
----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
Allowance for Doubtful Accounts       $  9,849       $ 14,269           --              $ 9,993      $ 14,125
----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996
Allowance for Doubtful Accounts       $ 11,526       $ 11,411           --              $13,088      $  9,849
=================================================================================================================
</TABLE>

                                      S-1


<PAGE>

                                  SIGNATURES

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

<TABLE>
<CAPTION>
          Signature                            Title                         Date
          ---------                            -----                         ----

<S>                            <C>                                     <C> 
/s/ Peter A. Georgescu         Chairman of the Board and Chief         March 31, 1999
------------------------       Executive Officer
Peter A. Georgescu

/s/ Edward H. Vick             Chief Operating Officer and             March 31, 1999
------------------------       Director
Edward H. Vick

/s/ Thomas D. Bell, Jr.        Chairman and Chief Executive            March 31, 1999
------------------------       Officer, Young & Rubicam
Thomas D. Bell, Jr.            Advertising and Director

/s/ Michael J. Dolan           Vice Chairman, Chief Financial          March 31, 1999
------------------------       Officer and Director
Michael J. Dolan

/s/ Stephanie W. Abramson      Executive Vice President, General       March 31, 1999
------------------------       Counsel and Secretary
Stephanie W. Abramson

/s/ John A. Wozniak            Senior Vice President -- Controller     March 31, 1999
------------------------       (Principal Accounting Officer)
John A. Wozniak

/s/ Richard S. Bodman          Director                                March 31, 1999
------------------------
Richard S. Bodman

/s/ Philip U. Hammarskjold     Director                                March 31, 1999
------------------------
Philip U. Hammarskjold

/s/ F. Warren Hellman          Director                                March 31, 1999
------------------------
F. Warren Hellman

/s/ John F. McGillicuddy       Director                                March 31, 1999
------------------------
John F. McGillicuddy

/s/ Alan D. Schwartz           Director                                March 31, 1999
------------------------
Alan D. Schwartz
</TABLE>


<PAGE>


                                 EXHIBIT INDEX

3.1      Amended and Restated  Certificate of  Incorporation  of Young & Rubicam
         Inc.  (incorporated  by reference from Exhibit 4.4 to the  Registration
         Statement on Form S-8 (File No. 333-57605) filed by the Company).

3.2      Amended and Restated  Bylaws of Young & Rubicam Inc.  (incorporated  by
         reference  from Exhibit 4.5 to the  Registration  Statement on Form S-8
         (File No. 333-57605) filed by the Company).

4.1      Specimen   Certificate   of  Common  Stock  of  Young  &  Rubicam  Inc.
         (incorporated  by  reference  from  Exhibit  4.1  to  the  Registration
         Statement on Form S-1 (File No. 333-46929) filed by the Company).

4.2      Rights  Agreement,  dated as of May 1, 1998  (incorporated by reference
         from  Exhibit 4.9 to the  Registration  Statement on Form S-8 (File No.
         333-57605) filed by the Company).

4.3      Certificate of Designation for  Registrant's  Cumulative  Participating
         Junior  Preferred Stock  (incorporated by reference from Exhibit 4.3 to
         the  Registration  Statement on Form S-1 (File No.  333-66883) filed by
         the Company).

9.1      Management  Voting  Trust  Agreement,  dated as of  December  12,  1996
         (incorporated  by  reference  from  Exhibit  9.1  to  the  Registration
         Statement on Form S-1 (File No. 333-46929) filed by the Company).

9.2      Young & Rubicam  Inc.  Restricted  Stock Trust  Agreement,  dated as of
         December 12, 1996  (incorporated  by reference  from Exhibit 9.2 to the
         Registration  Statement on Form S-1 (File No.  333-46929)  filed by the
         Company).

10.1     Stockholders'  Agreement,  dated  as of May 8,  1998  (incorporated  by
         reference  from Exhibit 4.8 to the  Registration  Statement on Form S-8
         (File No. 333-57605) filed by the Company).

10.2     Contribution   Agreement  dated  October  30,  1996   (incorporated  by
         reference from Exhibit 10.3 to the  Registration  Statement on Form S-1
         (File No. 333-46929) filed by the Company).

10.3     Young & Rubicam Holdings Inc.  Restricted  Stock Plan  (incorporated by
         reference from Exhibit 10.4 to the  Registration  Statement on Form S-1
         (File No. 333-46929) filed by the Company).


<PAGE>


10.4     Young  &  Rubicam   Holdings   Inc.   Management   Stock   Option  Plan
         (incorporated  by  reference  from  Exhibit  10.5  to the  Registration
         Statement on Form S-1 (File No. 333-46929) filed by the Company).

10.5     Young & Rubicam Inc. 1997 Incentive  Compensation Plan (incorporated by
         reference from Exhibit 10.6 to the  Registration  Statement on Form S-1
         (File No. 333-46929) filed by the Company).

10.6     Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of  December  19,  1997,  with  Peter  A.  Georgescu  (incorporated  by
         reference from Exhibit 10.7 to the  Registration  Statement on Form S-1
         (File No. 333-46929) filed by the Company).

10.7     Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of January 1, 1995, with Peter A. Georgescu  (incorporated by reference
         from Exhibit 10.8 to the  Registration  Statement on Form S-1 (File No.
         333-46929) filed by the Company).

10.8     Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of January 1, 1986, with Peter A. Georgescu  (incorporated by reference
         from Exhibit 10.9 to the  Registration  Statement on Form S-1 (File No.
         333-46929) filed by the Company).

10.9     Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of December  19,  1997,  with John P.  McGarry,  Jr.  (incorporated  by
         reference from Exhibit 10.10 to the Registration  Statement on Form S-1
         (File No. 333-46929) filed by the Company).

10.10    Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of  January  1,  1986,  with  John P.  McGarry,  Jr.  (incorporated  by
         reference from Exhibit 10.11 to the Registration  Statement on Form S-1
         (File No. 333-46929) filed by the Company).

10.11    Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of December  31,  1994,  with John P.  McGarry,  Jr.  (incorporated  by
         reference from Exhibit 10.12 to the Registration  Statement on Form S-1
         (File No. 333-46929) filed by the Company).

10.12    Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of December 19, 1997, with Edward Vick  (incorporated by reference from
         Exhibit  10.13 to the  Registration  Statement  on Form S-1  (File  No.
         333-46929) filed by the Company).

10.13    Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of January 1, 1995,  with Edward Vick  (incorporated  by reference from
         Exhibit  10.14 to the  Registration  Statement  on Form S-1  (File  No.
         333-46929) filed by the Company).


<PAGE>


10.14    Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of December 19, 1997, with Alan J. Sheldon  (incorporated  by reference
         from Exhibit 10.15 to the Registration  Statement on Form S-1 (File No.
         333-46929) filed by the Company).

10.15    Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of January 1, 1995,  with Alan J.  Sheldon  (incorporated  by reference
         from Exhibit 10.16 to the Registration  Statement on Form S-1 (File No.
         333-46929) filed by the Company).

10.16    Young & Rubicam Inc. Select Executive  Retirement Income Plan, dated as
         of January 1, 1988,  with Alan J.  Sheldon  (incorporated  by reference
         from Exhibit 10.17 to the Registration  Statement on Form S-1 (File No.
         333-46929) filed by the Company).

10.17    Registration   Rights   Agreement,   dated  as  of  December  12,  1996
         (incorporated  by  reference  from  Exhibit  10.18 to the  Registration
         Statement on Form S-1 (File No. 333-46929) filed by the Company).

10.18    Letter  Agreement  dated as of October 16, 1997 by and between  Young &
         Rubicam  Inc.  and Michael J. Dolan  (incorporated  by  reference  from
         Exhibit  10.19 to the  Registration  Statement  on Form S-1  (File  No.
         333-46929) filed by the Company).

10.19    Letter  Agreement  dated June 28, 1996 by and  between  Young & Rubicam
         Inc. and Michael J. Dolan (incorporated by reference from Exhibit 10.20
         to the Registration Statement on Form S-1 (File No. 333-46929) filed by
         the Company).

10.20    Lease  Agreement for 230 Park Avenue South  (incorporated  by reference
         from Exhibit 10.21 to the Registration  Statement on Form S-1 (File No.
         333-46929) filed by the Company).

10.21    H&F Option  Agreement,  dated as of December  12,  1996,  among Young &
         Rubicam  Holdings Inc., a New York  corporation  ("Holdings"),  Young &
         Rubicam Inc., a New York corporation,  Young & Rubicam Inc., a Delaware
         corporation  and a wholly-owned  subsidiary of Holdings,  and Hellman &
         Friedman  Capital  Partners III, L.P.  (incorporated  by reference from
         Exhibit  10.22 to the  Registration  Statement  on Form S-1  (File  No.
         333-46929) filed by the Company).

10.22    H&F Option  Agreement,  dated as of December  12,  1996,  among Young &
         Rubicam  Holdings Inc., a New York  corporation  ("Holdings"),  Young &
         Rubicam Inc., a New York corporation,  Young & Rubicam Inc., a Delaware
         corporation and a wholly-owned  subsidiary of Holdings, and H&F Orchard
         Partners III, L.P. (incorporated by reference from Exhibit 10.23 to the
         Registration  Statement on Form S-1 (File No.  333-46929)  filed by the
         Company).


<PAGE>



10.23    Form of Young &  Rubicam  Inc.  Key  Corporation  Managers  Bonus  Plan
         (incorporated  by  reference  from  Exhibit  10.24 to the  Registration
         Statement on Form S-1 (File No. 333-46929) filed by the Company).

10.24    Amendment No. 1 to Restricted  Stock Trust  Agreement dated as of March
         13,  1998   (incorporated  by  reference  from  Exhibit  10.25  to  the
         Registration  Statement on Form S-1 (File No.  333-46929)  filed by the
         Company).

10.25    Young &  Rubicam  Inc.  Deferred  Compensation  Plan  (incorporated  by
         reference from Exhibit 10.26 to the Registration  Statement on Form S-1
         (File No. 333-46929) filed by the Company).

10.26    Amendment  No. 1 to Young & Rubicam  Inc.  Deferred  Compensation  Plan
         effective as of November 19, 1997.*

10.27    Amendment  No. 2 to Young & Rubicam  Inc.  Deferred  Compensation  Plan
         effective as of January 1, 1999.*

10.28    Young & Rubicam Inc. Grantor Trust Agreement (incorporated by reference
         from Exhibit 10.27 to the Registration  Statement on Form S-1 (File No.
         333-46929) filed by the Company).

10.29    Amendment  to Young & Rubicam Inc.  1997  Incentive  Compensation  Plan
         (incorporated  by  reference  from  Exhibit  10.28 to the  Registration
         Statement on Form S-1 (File No. 333-46929) filed by the Company).

10.30    Credit  Agreement for the Credit  Facility  (incorporated  by reference
         from Exhibit 10.28 to the Registration  Statement on Form S-1 (File No.
         333-66883) filed by the Company).

21.1     List of Subsidiaries  (incorporated  by reference from Exhibit 10.28 to
         the  Registration  Statement on Form S-1 (File No.  333-66883) filed by
         the Company).

23.1     Consent of PricewaterhouseCoopers LLP. *

24.1     Powers  of  Attorney  to sign  Form  10-K  and  resolution  of Board of
         Directors re Power of Attorney.*


----------
*    Filed herewith.