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.

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

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

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

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.

----------------------------------------------------------------------------------------------------------------------
(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)
----------------------------------------------------------------------------------------------------------------------
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)
======================================================================================================================

FINANCIAL INFORMATION
----------------------------------------------------------------------
(in thousands)                  1998           1997           1996
----------------------------------------------------------------------
EARNINGS DATA
 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
---------------------------------------------------------------------

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.

---------------------------------------------------------------------------------------------------------------------
(in thousands)                                                                                  As of December 31,
---------------------------------------------------------------------------------------------------------------------
                                                                 Useful Lives                    1998          1997
---------------------------------------------------------------------------------------------------------------------
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
=====================================================================================================================

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

----------------------------------------------------------------------------------
(IN THOUSANDS)                             FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
                                          1998           1997           1996
---------------------------------------------------------------------------------
Domestic                               $ (127,325)     $12,304       $ (242,578)
Foreign                                    40,328       24,000           (8,039)
---------------------------------------------------------------------------------
Total                                  $  (86,997)     $36,304       $ (250,617)
=================================================================================

The following summarizes the (benefit) provision for income taxes:

------------------------------------------------------------------------------------
(IN THOUSANDS)                                 FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
                                              1998           1997           1996
------------------------------------------------------------------------------------
Current:
 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)
====================================================================================

The reconciliation of the United States statutory rate to the effective rate is as follows:

-------------------------------------------------------------------------------------------------------
                                                                  For the year ended December 31,
-------------------------------------------------------------------------------------------------------
PERCENT OF (LOSS) INCOME BEFORE INCOME TAXES                      1998          1997           1996
-------------------------------------------------------------------------------------------------------
 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)%
=======================================================================================================

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

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:

------------------------------------------------------------------------------------
(in thousands)                                                As of December 31,
------------------------------------------------------------------------------------
                                                             1998           1997
------------------------------------------------------------------------------------
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
====================================================================================

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

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.

--------------------------------------------------------------------------------
(IN THOUSANDS)      UNITED STATES       EUROPE        OTHER          TOTAL
--------------------------------------------------------------------------------
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
================================================================================

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

-------------------------------------------------------------------------------------------------------
(IN THOUSANDS)                                        FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
                                                   1998                               1997
-------------------------------------------------------------------------------------------------------
                                       U.S.      NON-U.S.      TOTAL       U.S.     NON-U.S.     TOTAL
-------------------------------------------------------------------------------------------------------
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
=======================================================================================================

-------------------------------------------------------------------
(IN THOUSANDS)                     FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
                                                 1996
-------------------------------------------------------------------
                                      U.S.     NON-U.S.     TOTAL
-------------------------------------------------------------------
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
==================================================================

Changes in the benefit obligation and plan assets are as follows:

--------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)                                                                 AS OF DECEMBER 31,
--------------------------------------------------------------------------------------------------------------------------------
                                                                       1998                                  1997
--------------------------------------------------------------------------------------------------------------------------------
                                                     U.S.        NON-U.S.        TOTAL        U.S.       NON-U.S.       TOTAL
--------------------------------------------------------------------------------------------------------------------------------
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
==============================================================================================================================

Assumptions used were:
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WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,             1998                     1997                      1996
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                                                     U.S.      NON-U.S.       U.S.       NON-U.S.       U.S.      NON-U.S.
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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
============================================================================================================================

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.

Long-term loans payable are comprised of the following at December 31:
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(IN THOUSANDS)                                               AS OF DECEMBER 31,
--------------------------------------------------------------------------------
                                                            1998          1997
--------------------------------------------------------------------------------
Unsecured revolving credit facility                     $ 31,460      $      --
Senior secured credit facility                                --        330,552
Capital lease obligations                                     34            404
Other borrowings                                             462            818
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                                                          31,956        331,774

Less -- Current portion                                      462          1,222
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                                                        $ 31,494      $ 330,552
================================================================================

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.