SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------------------- For Quarter Ended June 30, 1998 Commission file number 1-3157 INTERNATIONAL PAPER COMPANY (Exact name of registrant as specified in its charter) New York 13 0872805 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) Two Manhattanville Road, Purchase, NY 10577 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 914-397-1500 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 the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common stock outstanding on July 31, 1998: 307,247,628 shares.
INTERNATIONAL PAPER COMPANY INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> PART I. Financial Information Item 1. Financial Statements Consolidated Statement of Earnings - Three Months and Six Months Ended June 30, 1998 and 1997 3 Consolidated Balance Sheet - June 30, 1998 and December 31, 1997 4-5 Consolidated Statement of Cash Flows - Six Months Ended June 30, 1998 and 1997 6 Consolidated Statement of Common Shareholders' Equity - Three Months and Six Months Ended June 30, 1998 and 1997 7-8 Notes to Consolidated Financial Statements 9-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 Item 3. Other Financial Information 18-21 PART II. Other Information Item 1. Legal Proceedings * Item 2. Changes in Securities * Item 3. Defaults upon Senior Securities * Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25 </TABLE> * Omitted since no answer is called for, answer is in the negative or inapplicable. 2
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERNATIONAL PAPER COMPANY Consolidated Statement of Earnings (Unaudited) (In millions, except per-share amounts) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------ 1998 1997 1998 1997 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Net Sales $ 4,707 $ 5,034 $ 9,575 $ 9,896 ---------- ---------- ---------- ---------- Costs and Expenses Cost of products sold 3,524 3,786 7,178 7,422 Selling and administrative expenses 371 391 745 770 Depreciation and amortization 291 318 589 638 Distribution expenses 198 233 422 470 Taxes other than payroll and income taxes 49 53 99 105 Write off of in-process research and development costs acquired by an investee company 6 6 Business improvement charge 535 535 Provision for legal reserve 150 150 ---------- ---------- ---------- ---------- Total Costs and Expenses 4,439 5,466 9,039 10,090 ---------- ---------- ---------- ---------- Earnings (Loss) Before Interest, Income Taxes and Minority Interest 268 (432) 536 (194) Interest expense, net 128 125 255 255 ---------- ---------- ---------- ---------- Earnings (Loss) Before Income Taxes and Minority Interest 140 (557) 281 (449) Income tax provision (benefit) 38 (167) 84 (127) Minority interest expense, net of taxes 16 29 36 63 ---------- ---------- ---------- ---------- Net Earnings (Loss) $ 86 $ (419) $ 161 $ (385) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings (Loss) Per Common Share $ 0.28 $ (1.39) $ 0.53 $ (1.28) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings (Loss) Per Common Share - Assuming Dilution $ 0.28 $ (1.39) $ 0.53 $ (1.28) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Average Shares of Common Stock Outstanding 306.7 301.1 304.5 300.9 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash Dividends Per Common Share $ 0.25 $ 0.25 $ 0.50 $ 0.50 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> The accompanying notes are an integral part of these financial statements. 3
INTERNATIONAL PAPER COMPANY Consolidated Balance Sheet (Unaudited) (In millions) <TABLE> <CAPTION> June 30, December 31, 1998 1997 ------------ ------------ <S> <C> <C> Assets Current Assets Cash and temporary investments $ 578 $ 398 Accounts and notes receivable, net 2,316 2,404 Inventories 2,670 2,760 Other current assets 491 383 ------------ ------------ Total Current Assets 6,055 5,945 ------------ ------------ Plants, Properties and Equipment, Net 12,177 12,369 Forestlands 2,752 2,969 Investments 1,151 1,166 Goodwill 2,517 2,557 Deferred Charges and Other Assets 1,889 1,748 ------------ ------------ Total Assets $ 26,541 $ 26,754 ------------ ------------ ------------ ------------ </TABLE> The accompanying notes are an integral part of these financial statements. 4
INTERNATIONAL PAPER COMPANY Consolidated Balance Sheet (Unaudited) (In millions) <TABLE> <CAPTION> June 30, December 31, 1998 1997 ---------------- --------------- <S> <C> <C> Liabilities and Common Shareholders' Equity Current Liabilities Notes payable and current maturities of long-term debt $ 1,791 $ 2,212 Accounts payable 1,084 1,338 Accrued liabilities 1,150 1,330 ---------------- --------------- Total Current Liabilities 4,025 4,880 ---------------- --------------- Long-Term Debt 7,045 7,154 Deferred Income Taxes 2,687 2,681 Other Liabilities 1,200 1,236 Minority Interest 1,571 1,643 International Paper-Obligated Mandatorily Redeemable Preferred Securities of Subsidiaries Holding International Paper Subordinated Debentures 1,000 450 Common Shareholders' Equity Common stock, $1 par value, issued 1998 - 307.7 shares, 1997 - 302.9 shares 308 303 Paid-in capital 3,872 3,654 Retained earnings 5,195 5,186 Accumulated other comprehensive income (loss) (350) (396) ---------------- --------------- 9,025 8,747 Less: Common stock held in treasury, at cost, 1998 - 0.3 shares, 1997 - 0.7 shares 12 37 ---------------- --------------- Total Common Shareholders' Equity 9,013 8,710 ---------------- --------------- Total Liabilities and Common Shareholders' Equity $ 26,541 $ 26,754 ---------------- --------------- ---------------- --------------- </TABLE> The accompanying notes are an integral part of these financial statements. 5
INTERNATIONAL PAPER COMPANY Consolidated Statement of Cash Flows (Unaudited) (In millions) <TABLE> <CAPTION> Six Months Ended June 30, ---------------------------------- 1998 1997 -------------- ---------------- <S> <C> <C> Operating Activities Net earnings (loss) $ 161 $ (385) Depreciation and amortization 589 638 Deferred income taxes 46 (176) Business improvement charge 535 Provision for legal reserve 150 Payments related to restructuring and legal reserves (63) (12) Write off of in-process research and development costs acquired by an investee company 6 Other, net (32) 72 Changes in current assets and liabilities Accounts and notes receivable (7) (160) Inventories (23) (82) Accounts payable and accrued liabilities (140) (60) Other (4) (23) -------------- ---------------- Cash Provided by Operations 533 497 -------------- ---------------- Investment Activities Invested in capital projects (472) (460) Mergers and acquisitions, net of cash acquired (202) Proceeds from divestitures 230 Other (48) (69) -------------- ---------------- Cash Used for Investment Activities (492) (529) -------------- ---------------- Financing Activities Issuance of common stock 67 91 Issuance of preferred securities by subsidiaries 720 Issuance of debt 121 299 Reduction of debt (503) (203) Change in bank overdrafts (68) 47 Dividends paid (152) (150) Other (23) 74 -------------- ---------------- Cash Provided by Financing Activities 162 158 -------------- ---------------- Effect of Exchange Rate Changes on Cash (23) (23) -------------- ---------------- Change in Cash and Temporary Investments 180 103 Cash and Temporary Investments Beginning of the period 398 352 -------------- ---------------- End of the period $ 578 $ 455 -------------- ---------------- -------------- ---------------- </TABLE> The accompanying notes are an integral part of these financial statements. 6
INTERNATIONAL PAPER COMPANY Consolidated Statement of Common Shareholders' Equity (Unaudited) (In millions, except share amounts in thousands) Three Months Ended June 30, 1998 <TABLE> Common Stock Issued Treasury Stock ----------------------- ----------------------- Accumulated Other Paid-In Retained Comprehensive Shares Amount Capital Earnings Income (Loss) Shares Amount ----------- --------- ----------- ----------- --------------- ----------- ---------- <S> <C> <C> <C> <C> <C> <C> Balance, March 31, 1998 302,944 $ 303 $ 3,647 $ 5,186 $ (475) 379 $ 19 Issuance of stock for acquisition 4,683 5 227 Issuance of stock for various plans 48 (2) (749) (38) Repurchase of stock 630 31 Cash dividends - common stock ($.25 per share) (77) Comprehensive income Net earnings 86 Change in cumulative foreign currency translation adjustment 125 Total comprehensive income ----------- --------- ----------- ----------- --------------- ----------- ---------- Balance, June 30, 1998 307,675 $ 308 $ 3,872 $ 5,195 $ (350) 260 $ 12 ----------- --------- ----------- ----------- --------------- ----------- ---------- ----------- --------- ----------- ----------- --------------- ----------- ---------- </TABLE> <TABLE> <CAPTION> Total Common Shareholders' Equity --------------- <S> <C> Balance, March 31, 1998 $ 8,642 Issuance of stock for acquisition 232 Issuance of stock for various plans 36 Repurchase of stock (31) Cash dividends - common stock ($.25 per share) (77) Comprehensive income Net earnings 86 Change in cumulative foreign currency translation adjustment 125 --------------- Total comprehensive income 211 --------------- Balance, June 30, 1998 $ 9,013 --------------- --------------- </TABLE> Three Months Ended June 30, 1997 <TABLE> Common Stock Issued Treasury Stock ----------------------- ----------------------- Accumulated Other Paid-In Retained Comprehensive Shares Amount Capital Earnings Income (Loss) Shares Amount ----------- --------- ----------- ----------- --------------- ----------- ---------- <S> <C> <C> <C> <C> <C> <C> ------------ --------- ----------- ----------- --------------- ---------- ---------- Balance, March 31, 1997 301,337 $ 301 $ 3,614 $ 5,598 $ (177) 541 $ 23 Issuance of stock for various plans 1,102 1 35 (503) (22) Repurchase of stock 640 29 Cash dividends - common stock ($.25 per share) (75) Comprehensive income Net earnings (loss) (419) Change in cumulative foreign currency translation adjustment (55) Total comprehensive income (loss) ------------ --------- ----------- ----------- --------------- ---------- ---------- Balance, June 30, 1997 302,439 $ 302 $ 3,649 $ 5,104 $ (232) 678 $ 30 ------------ --------- ----------- ----------- --------------- ---------- ---------- ------------ --------- ----------- ----------- --------------- ---------- ---------- </TABLE> <TABLE> <CAPTION> Total Common Shareholders' Equity --------------- <S> <C> Balance, March 31, 1997 $ 9,313 Issuance of stock for various plans 58 Repurchase of stock (29) Cash dividends - common stock (75) ($.25 per share) Comprehensive income Net earnings (loss) (419) Change in cumulative foreign currency translation adjustment (55) --------------- Total comprehensive income (loss) (474) --------------- Balance, June 30, 1997 $ 8,793 --------------- --------------- </TABLE> The accompanying notes are an integral part of these financial statements. 7
INTERNATIONAL PAPER COMPANY Consolidated Statement of Common Shareholders' Equity (Unaudited) (In millions, except share amounts in thousands) Six Months Ended June 30, 1998 <TABLE> <CAPTION> Common Stock Issued Treasury Stock ----------------------- ----------------------- Accumulated Other Paid-In Retained Comprehensive Shares Amount Capital Earnings Income (Loss) Shares Amount ----------- --------- ----------- ----------- --------------- ----------- ---------- <S> <C> <C> <C> <C> <C> <C> ------------ --------- ----------- ----------- --------------- ---------- ---------- Balance, December 31, 1997 302,910 $ 303 $ 3,654 $ 5,186 $ (396) 726 $ 37 Issuance of stock for acquisition 4,683 5 227 Issuance of stock for various plans 82 (9) (1,706) (84) Repurchase of stock 1,240 59 Cash dividends - common stock ($.50 per share) (152) Comprehensive income Net earnings 161 Realized foreign currency translation related to divestitures 11 Change in cumulative foreign currency translation adjustment 35 Total comprehensive income ----------- --------- ----------- ----------- --------------- ------------ -------- Balance, June 30, 1998 307,675 $ 308 $ 3,872 $ 5,195 $ (350) 260 $ 12 ----------- --------- ----------- ----------- --------------- ------------ -------- ----------- --------- ----------- ----------- --------------- ------------ -------- </TABLE> <TABLE> <CAPTION> Total Common Shareholders' Equity --------------- <S> <C> Balance, December 31, 1997 $ 8,710 Issuance of stock for acquisition 232 Issuance of stock for various plans 75 Repurchase of stock (59) Cash dividends - common stock ($.50 per share) (152) Comprehensive income Net earnings 161 Realized foreign currency 11 Change in cumulative foreign currency translation adjustment 35 ---------------- Total comprehensive income 207 ---------------- Balance, June 30, 1998 $ 9,013 ---------------- ---------------- </TABLE> Six Months Ended June 30, 1997 <TABLE> <CAPTION> Common Stock Issued Treasury Stock ----------------------- ----------------------- Accumulated Other Paid-In Retained Comprehensive Shares Amount Capital Earnings Income (Loss) Shares Amount ----------- --------- ----------- ----------- --------------- ----------- ---------- <S> <C> <C> <C> <C> <C> <C> ------------ --------- ----------- ----------- --------------- ---------- ---------- Balance, December 31, 1996 300,824 $ 301 $ 3,599 $ 5,639 $ (173) 554 $ 22 Issuance of stock for various plans 1,615 1 50 (1,123) (46) Repurchase of stock 1,247 54 Cash dividends - common stock ($.50 per share) (150) Comprehensive income Net earnings (loss) (385) Change in cumulative foreign currency translation adjustment (59) Total comprehensive income (loss) ------------ --------- ----------- ----------- --------------- ------------ --------- Balance, June 30, 1997 302,439 $ 302 $ 3,649 $ 5,104 $ (232) 678 $ 30 ------------ --------- ----------- ----------- --------------- ------------ --------- ------------ --------- ----------- ----------- --------------- ------------ --------- </TABLE> <TABLE> <CAPTION> Total Common Shareholders' Equity --------------- <S> <C> Balance, December 31, 1996 $ 9,344 Issuance of stock for various plans 97 Repurchase of stock (54) Cash dividends - common stock ($.50 per share) (150) Comprehensive income Net earnings (loss) (385) Change in cumulative foreign currency translation adjustment (59) ---------------- Total comprehensive income (loss) (444) ---------------- Balance, June 30, 1997 $ 8,793 ---------------- ---------------- </TABLE> The accompanying notes are an integral part of these financial statements. 8
INTERNATIONAL PAPER COMPANY Notes to Consolidated Financial Statements (Unaudited) 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments (consisting only of normal recurring accruals) which are necessary for the fair presentation of results for the interim periods. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto incorporated by reference in the Company's Form 10-K for the year ended December 31, 1997, which has previously been filed with the Commission. 2. Earnings per common share were computed by dividing net earnings by the weighted average number of common shares outstanding. Earnings per common share-assuming dilution were computed assuming that all potentially dilutive securities were converted into common shares at the beginning of each period. A reconciliation of the amounts included in the computation of earnings per common share and earnings per common share-assuming dilution is as follows. <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, In millions 1998 1997 1998 1997 ------------- ------------- -------------- -------------- <S> <C> <C> <C> <C> Net earnings (loss) $ 86 $ (419) $ 161 $ (385) Effect of dilutive securities Preferred securities of subsidiary trust ------------- ------------- -------------- -------------- Net earnings (loss) - assuming dilution $ 86 $ (419) $ 161 $ (385) ------------- ------------- -------------- -------------- ------------- ------------- -------------- -------------- Average common shares outstanding 306.7 301.1 304.5 300.9 Effect of dilutive securities Long-term incentive plan deferred compensation (0.8) (0.7) (0.8) (0.7) Stock options 2.0 1.9 Preferred securities of subsidiary trust ------------- ------------- -------------- -------------- Average common shares outstanding-assuming dilution 307.9 300.4 305.6 300.2 ------------- ------------- -------------- -------------- ------------- ------------- -------------- -------------- Earnings (loss) per common share $ 0.28 $ (1.39) $ 0.53 $ (1.28) ------------- ------------- -------------- -------------- ------------- ------------- -------------- -------------- Earnings (loss) per common share - assuming dilution $ 0.28 $ (1.39) $ 0.53 $ (1.28) ------------- ------------- -------------- -------------- ------------- ------------- -------------- -------------- </TABLE> If an amount does not appear in the above table, the security was antidilutive for the period presented. 3. In April 1998, International Paper completed the previously announced acquisition of Weston Paper and Manufacturing Company by exchanging about 4.7 million International Paper common shares valued at approximately $232 million for the outstanding Weston shares in a non cash transaction. In February 1998, the Company entered into a joint venture with Olmuksa in Turkey for the manufacture of containerboard and corrugated boxes for markets in Turkey and Europe. Also in February 1998, Carter Holt Harvey and International Paper jointly acquired Australian-based Continental Cup. This acquisition will allow Carter Holt Harvey and International Paper's cup subsidiary, Imperial Bondware, to offer a full line of food service products in the Australian and New Zealand markets. 9
In September 1997, the Company acquired Merbok Formtec, a company that has pioneered the development of door facing products through postforming medium-density fiberboard. In November 1997, the stock of Taussig Graphics Supply, Inc. was acquired. All of the above acquisitions were accounted for using the purchase method. 4. In June 1998, a $6 million pre-tax charge ($4 million after taxes or $.01 per share) was recorded to write off in-process research and development costs related to an acquisition by Scitex, an investee company owned approximately 13% by International Paper. 5. In June 1998, IP Timberlands, Ltd. completed the fourth in a series of transactions relating to the sale of a subsidiary partnership interest in approximately 175,000 acres of forestlands in Pennsylvania and New York. This second-quarter 1998 transaction resulted in a gain of approximately $37 million before taxes. A similar transaction was completed in the 1998 first quarter. 6. In March 1998, IP Forest Resources Company, a wholly-owned subsidiary of International Paper, in accordance with the IP Timberlands, Ltd. partnership agreement, purchased all of the 7,299,500 publicly traded Class A Depositary Units of IP Timberlands, Ltd. for a cash purchase price of $13.6325 per unit. 7. In March 1998, Timberlands Capital Corp. II, Inc., a wholly-owned consolidated subsidiary of International Paper, issued $170 million of 7.005% preferred securities as part of the financing to repurchase the outstanding units of IP Timberlands, Ltd. These securities are not mandatorily redeemable and are classified in the consolidated balance sheet as a minority interest liability. Dividend payments on these securities are included in minority interest expense in the consolidated statement of earnings. 8. In June 1997, a $535 million pre-tax business improvement reserve ($385 million after taxes or $1.28 per share) was established under a plan to improve the Company's financial performance through closing or divesting of operations that no longer meet financial or strategic objectives. It included approximately $230 million for asset write-downs, $210 million for the estimated losses on sales of businesses included in the reserve and $95 million for severance and other expenses. The majority of the reserve related to the restructuring of the printing papers business in the United States and overseas and the sale of certain specialty businesses. In December 1997, an additional pre-tax charge of $125 million ($80 million after taxes or $.26 per share) was recorded for anticipated losses on the sale of the remaining imaging businesses. 9. Also in June 1997, the Company recorded a $150 million pre-tax charge ($93 million after taxes or $.31 per share) to add to its legal reserves. On July 14, 1997, Masonite Corporation, a wholly-owned subsidiary of the Company, announced that it had reached a proposed settlement in a class action pending in Mobile County, Alabama. The Company believes its legal reserves are adequate to cover any amounts to be paid pursuant to the proposed settlement, which is now final. 10. In December 1997, the Company recorded a $170 million pre-tax gain ($97 million after taxes and minority interest expense or $.32 per share) from the redemption of certain retained west coast partnership interests and the release of a related debt guaranty. 10
11. In the third quarter of 1995, International Paper Capital Trust (the Trust) issued $450 million of International Paper-obligated mandatorily redeemable preferred securities. The Trust is a wholly-owned consolidated subsidiary of International Paper and its sole assets are International Paper 5 1/4% convertible subordinated debentures. The obligations of the Trust related to its preferred securities are fully and unconditionally guaranteed by International Paper. These preferred securities are convertible into International Paper common stock. Preferred securities distributions of $12 million were paid during each of the six months ended June 30, 1998 and 1997. In June 1998, IP Finance (Barbados) Limited, a non-U.S. wholly-owned consolidated subsidiary of International Paper, issued $550 million of preferred securities with a dividend payment based on LIBOR. These preferred securities are mandatorily redeemable on June 30, 2008. Distributions related to each of the above preferred securities are classified as minority interest expense in the consolidated statement of earnings. 12. Inventories by major category include (in millions): <TABLE> <CAPTION> June 30, December 31, 1998 1997 --------------------- -------------------- <S> <C> <C> Raw materials $ 447 $ 478 Finished pulp, paper and packaging products 1,495 1,466 Finished lumber and panel products 175 160 Operating supplies 384 387 Other 169 269 --------------------- -------------------- Total $ 2,670 $ 2,760 --------------------- -------------------- --------------------- -------------------- </TABLE> 13. Interest payments made during the six month periods ended June 30, 1998 and 1997 were $326 million and $361 million, respectively. The Company capitalized net interest costs of $24 million for the six months ended June 30, 1998 and $34 million for the six months ended June 30, 1997. Total interest expense was $300 million for the 1998 six months and $288 million for the 1997 six months. Income tax payments made during the six months ended June 30, 1998 and 1997 were $96 million and $82 million, respectively. 14. Temporary investments with a maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $277 million and $268 million at June 30, 1998 and December 31, 1997, respectively. 15. Accumulated depreciation was $10.2 billion at June 30, 1998 and $10.0 billion at December 31, 1997. The allowance for doubtful accounts was $92 million at June 30, 1998 and $93 million at December 31, 1997. 16. The Company uses financial instruments primarily to hedge its exposure to currency and interest rate risk. To qualify as hedges, financial instruments must reduce the currency or interest rate risk associated with the related underlying items and be designated as hedges by management. Gains or losses from the revaluation of financial instruments which do not qualify for hedge accounting treatment are recognized in earnings. The Company has a policy of financing a portion of its investments in overseas operations with borrowings denominated in the same currency as the investment or by entering into foreign exchange contracts in tandem with U.S. dollar borrowings. These contracts are effective in providing a hedge against fluctuations in currency exchange rates. Gains or losses from the revaluation of these contracts, which are fully offset by 11
gains or losses from the revaluation of the net assets being hedged, are determined monthly based on published currency exchange rates and are recorded as translation adjustments in common shareholders' equity. Upon liquidation of the net assets being hedged or early termination of the foreign exchange contracts, the gains or losses from the revaluation of foreign exchange contracts are included in earnings. Amounts payable to or due from the counterparties to the foreign exchange contracts are included in accrued liabilities or accounts receivable as applicable. The Company also utilizes foreign exchange contracts to hedge certain transactions that are denominated in foreign currencies, primarily export sales and equipment purchases from nonresident vendors. These contracts serve to protect the Company from currency fluctuations between the transaction and settlement dates. Gains or losses from the revaluation of these contracts, based on published currency exchange rates, along with offsetting gains or losses resulting from the revaluation of the underlying transactions, are recognized in earnings or deferred and recognized in the basis of the underlying transaction when completed. Any gains or losses arising from the cancellation of the underlying transactions or early termination of the foreign currency contracts are included in earnings. The Company uses cross-currency and interest rate swap agreements to manage the composition of its fixed and floating rate debt portfolio. Amounts to be paid or received as interest under these agreements are recognized over the life of the swap agreements as adjustments to interest expense. Gains or losses from the revaluation of cross-currency swap agreements that qualify as hedges of investments are recorded as translation adjustments in common shareholders' equity. Gains or losses from the revaluation of cross-currency swap agreements that do not qualify as hedges of investments are included in earnings. The related amounts payable to or receivable from the counterparties to the agreements are included in accrued liabilities or accounts receivable. If swap agreements are terminated early, the resulting gain or loss is deferred and amortized over the remaining life of the related debt. The Company does not hold or issue financial instruments for trading purposes. 17. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured by its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Statement is effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance. The Statement cannot be applied retroactively. The Statement must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). We have not yet quantified the impacts of adopting the Statement on our consolidated financial statements and have not determined the timing of or method of our adoption. However, adoption of the provisions of the Statement could increase volatility in earnings and other comprehensive income. 12
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information", which requires the presentation of segment information on a basis consistent with that used by management for operating decisions. The provisions of this statement will be adopted in the 1998 fourth quarter. 18. Certain reclassifications have been made to prior-year amounts to conform with the current-year presentation. 19. Subsequent Events In the 1998 third quarter, the Veratec nonwovens business was sold for $282 million as part of the Company's previously announced restructuring plan. Also in the 1998 third quarter, the Zellerbach distribution business was acquired from the Mead Corporation for approximately $263 million. In June 1998, the Company signed an agreement to purchase OAO Svetogorsk, a Russia-based pulp and paper business. This acquisition is expected to be completed by the end of 1998. 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS International Paper's second-quarter 1998 net sales were $4.7 billion compared with 1997 second-quarter net sales of $5.0 billion and 1998 first-quarter net sales of $4.9 billion. The decline in net sales reflects lower pricing for some products and the sale of businesses under the Company's restructuring program. Second-quarter 1998 earnings were $90 million or $.29 per share before special items compared with net earnings of $75 million or $.25 per share in the 1998 first quarter and $59 million or $.20 per share before special items in the 1997 second quarter. Second-quarter 1998 net earnings were $86 million or $.28 per share after a $6 million pretax charge ($4 million after taxes or $.01 per share) to write off in-process research and development costs related to an acquisition by Scitex, a 13% investee company of International Paper. Second-quarter 1997 results were a net loss of $419 million or $1.39 per share after a $535 million pretax business improvement charge ($385 million after taxes or $1.28 per share) and a $150 million pretax charge ($93 million after taxes or $.31 per share) to add to the Company's legal reserves. Although net sales declined from the 1998 first quarter and the 1997 second quarter, earnings before special items improved as the result of cost reduction efforts and the disposition of certain businesses that were generating operating losses. Despite the improvement in earnings, industry market conditions in the second quarter were more difficult than expected. The paper and forest products industry benefited from healthy economies in the United States and Europe but was negatively impacted by the continued weakness in Asian demand and the strong U.S. dollar. The Company continues to closely monitor inventory levels and customer demand and took about 300,000 tons of market and maintenance related downtime in the second quarter. Second-quarter 1998 operating profit totaled $305 million compared with $290 million in the 1998 first quarter and $270 million in the 1997 second quarter before special items. After consideration of the components of the special items which impacted the segment operating results, an overall operating loss of $255 million was recorded for the 1997 second-quarter. Following are further discussions of 1998 second-quarter results for each of the business segments. These discussions are based on earnings before the special items that were recorded in the 1997 second quarter. Printing Papers 1998 second-quarter net sales of $1.3 billion were about even with the 1997 second quarter and down slightly from the 1998 first quarter. Operating profit for the 1998 second quarter was $50 million, down from $70 million in the previous quarter and double the $25 million recorded in the 1997 second quarter. The decline from the 1998 first quarter reflects the continuation of the poor pulp market and lower sales volumes and price declines for uncoated grades. However, pricing improved during the quarter for coated grades despite lower volumes. The increase over the 1997 second quarter results from ongoing cost reduction efforts and higher prices for uncoated and coated grades that offset lower pulp earnings. Packaging 1998 second-quarter net sales increased to $1.3 billion from $1.2 billion in the 1998 first quarter and were about even with the 1997 second quarter. Second-quarter 1998 operating profit increased to $90 million from $60 million in the 1998 first quarter primarily due to increased bleached board demand and cost reduction efforts. Second-quarter 1998 operating profit was also ahead of the $60 million recorded in the 1997 second quarter reflecting improved results for containerboard and bleached board. Results for Carter Holt Harvey improved slightly over the 1998 first quarter but were below the 1997 second quarter due to the continued weakness in Asian markets. 14
Distribution 1998 second-quarter net sales of $1.2 billion were ahead of the 1997 second quarter and about even with the 1998 first quarter. Operating profit remained at $20 million for the 1998 second quarter, even with the previous quarter and below the $25 million recorded in the 1997 second quarter due to lower margins. The current quarter included the results of Taussig Graphic Supply that was acquired in November of 1997. Specialty Products 1998 second-quarter net sales declined to $625 million, down from $750 million in the 1998 first quarter and $890 million in the 1997 second quarter, primarily due to the divestiture of the imaging products businesses and lower Carter Holt Harvey sales. Second-quarter operating profit for the specialty products segment was $55 million, up slightly from the $50 million posted in the 1998 first quarter but down significantly from $90 million in the 1997 second quarter. Lower oil and gas prices, the sale of the imaging businesses and lower earnings for Carter Holt Harvey's tissue business were primarily responsible for the decline in operating profit from the 1997 second quarter. The decline in the New Zealand dollar currency exchange rate versus the U.S. dollar was partially responsible for the lower Carter Holt Harvey results. Forest Products 1998 second-quarter net sales were $575 million compared with $590 million for the 1998 first quarter and $680 million for the 1997 second quarter. Operating profit of $90 million for the 1998 second quarter was even with the 1998 first quarter and improved over the $70 million recorded in the 1997 second quarter. Sales and earnings for Carter Holt Harvey's forest products business declined from the 1997 second quarter due to significant reductions in prices and log exports into Asian markets. The 1998 second quarter benefited from a $37 million gain before taxes from the sale of a partnership interest in the Company's Allegheny forestlands. This sale was the fourth in a series of transactions announced in the 1997 second quarter. Carter Holt Harvey reported net sales of $365 million in the 1998 second quarter, down from $415 million in the 1998 first quarter and $525 million in the 1997 second quarter. Second-quarter 1998 operating profit for Carter Holt Harvey declined to $10 million from $35 million in the 1997 second quarter largely due to the weak Asian markets that have particularly affected log exports and pulp prices, disruptions to production associated with the Kinleith mill modernization and a lower contribution from Carter Holt Harvey's investments in Chile. About $5 million of the earnings decline from the prior year is due to unfavorable currency exchange rate changes. Carter Holt Harvey's results, which have been adjusted to conform with U.S. generally accepted accounting principles and International Paper's classifications, are included in the preceding segment discussions as applicable. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations totaled $533 million for the 1998 first half compared with $497 million in the 1997 six-month period. Improved earnings together with lower working capital requirements accounted for the increase. Investments in capital projects totaled $472 million for the 1998 six months, slightly ahead of the $460 million spent during the 1997 six-month period. Mergers and acquisitions totaled $202 million for the 1998 first half. A description of the acquisitions completed during the first half of 1998 is included in the following mergers and acquisitions section. Proceeds from divested businesses totaled $230 million which included certain imaging businesses, the label business and the building products business of Carter Holt Harvey. Cash flow generated by operations is anticipated to be adequate to fund expected capital expenditures, which have been lowered to approximately $1.1 billion for 1998, below expected 1998 depreciation expense. Capital spending will continue to be focused on the Company's stronger, more competitive businesses and is expected to be less than $1.0 billion for 1999. 15
Financing activities for the 1998 first half include a $382 million net reduction in primarily short-term debt compared with net borrowings of $96 million for the 1997 first half. During the 1998 first quarter, $170 million of 7.005% preferred securities were issued by a subsidiary of the Company as part of the financing to repurchase the outstanding units of IP Timberlands, Ltd. These preferred securities are classified in the consolidated balance sheet as a minority interest liability. In June 1998, a non-US subsidiary of the Company issued $550 million of preferred securities with a dividend payment that is based on LIBOR. Proceeds from the latter transaction were used to retire short-term borrowings and for other corporate purposes. Dividend payments on both of these preferred securities will be included in minority interest expense. Common stock dividend payments were $152 million or $.50 per common share for the 1998 first half, even with the prior-year period on a per share basis. MERGERS AND ACQUISITIONS In February 1998, the Company entered into a joint venture with Olmuksa in Turkey for the manufacture of containerboard and corrugated boxes for markets in Turkey and Europe. In February 1998, Carter Holt Harvey and International Paper jointly acquired Australian-based Continental Cup. This acquisition will allow Carter Holt Harvey and International Paper's cup subsidiary, Imperial Bondware, to offer a full line of food service products in the Australian and New Zealand markets. In March 1998, IP Forest Resources Company, a subsidiary of International Paper, purchased all of the 7,299,500 publicly traded Class A Depositary Units of IP Timberlands, Ltd. for a cash purchase price of $13.6325 per unit. Early in the 1998 second quarter, Carter Holt Harvey acquired the Australian folding carton business of Riverwood International. In April 1998, the Company completed the acquisition of Weston Paper and Manufacturing Company, a corrugated manufacturer, in a noncash transaction by exchanging approximately 4.7 million shares of International Paper common stock worth approximately $232 million for all of the outstanding Weston Paper shares. In June 1998, the Company signed an agreement to purchase OAO Svetogorsk, a Russia-based pulp and paper business. This acquisition should complement International Paper's leading European position in business papers and should enhance the Company's ability to serve growing market demand in Russia and Eastern Europe. This acquisition is expected to be completed by the end of 1998. In the 1998 third quarter, the Company acquired the Zellerbach distribution business from the Mead Corporation for approximately $263 million. This business will be combined with the Company's xpedx distribution operations. RESTRUCTURING ACTIONS Certain of the imaging products printing and graphic arts businesses were sold in late February 1998 and the remaining imaging businesses were sold early in the 1998 second quarter. The Company's label business and Carter Holt Harvey's building products business were also sold during the 1998 second quarter. The sale of the Veratec nonwovens business was completed in the 1998 third quarter. 16
With the sale of the Veratec nonwovens business, the Company has successfully completed the sale of approximately $1 billion of assets previously announced as part of its 1997 restructuring plan. In addition to these divestitures, an incremental $500 million of non-strategic assets are expected to be sold over the next nine months. OTHER Minority interest expense for the 1998 second quarter declined primarily due to lower earnings for Carter Holt Harvey, which is owned approximately 50% by International Paper. The effective income tax rate for the 1998 first half declined to 30% from 34% in the 1997 first half before special items primarily due to certain state tax credits and changes in the mix of estimated annual earnings. YEAR-2000 COSTS The Year-2000 problem concerns the inability of information systems to properly recognize and process date-sensitive information beyond January 1, 2000. Many of our systems and related software are year-2000 compliant. However, we have a program in place designed to bring the remaining software and systems into year-2000 compliance in time to minimize any significant detrimental effects on operations. The program covers information systems infrastructure, financial and administrative systems, process control and manufacturing operating systems, significant vendors and customers. We are utilizing internal personnel, contract programmers and vendors to identify year-2000 noncompliance problems, modify code and test the modifications. In some cases, noncompliant software and hardware will be replaced. We now estimate that the incremental costs will be approximately $135 million plus or minus 30%, exclusive of software and systems that are being replaced or upgraded in the normal course of business. The majority of these costs are expected to be incurred during the next twelve months. The increase over the previously reported forecast of $65 million is the result of the identification of more production facility systems that need to be modified as detailed inventories are being completed. These systems represent our greatest area of risk and plans are currently being formulated to reduce the risk of non-compliance of these systems. Our policy is to expense as incurred information system maintenance and modification costs and to capitalize the cost of new software and amortize it over the assets' useful lives. In the event our plan for achieving Year-2000 compliance is not completed on time, critical processes may not work which could result in safety and environmental exposures and significant losses in production. However, failure to meet critical milestones identified in our plans would provide advance notice and steps would be taken to prevent injuries to employees and others and to prevent environmental contamination. Customers and suppliers would also receive advance notice allowing them to implement alternative plans. THE ESTIMATES AND CONCLUSIONS HEREIN CONTAIN FORWARD-LOOKING STATEMENTS AND ARE BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS TO COMPLETING THE PLAN INCLUDE THE AVAILABILITY OF RESOURCES AND THE ABILITY OF SUPPLIERS TO BRING THEIR SYSTEMS INTO YEAR-2000 COMPLIANCE. 17
ITEM 3. OTHER FINANCIAL INFORMATION Financial Information by Industry Segment (Unaudited) (In millions) Net Sales by Industry Segment <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ---------------------------------- ------------------------------------ 1998 1997 1998 1997 --------------- ---------------- --------------- ---------------- <S> <C> <C> <C> <C> Printing Papers $ 1,255 $ 1,340 $ 2,635 $ 2,720 Packaging 1,285 1,255 2,485 2,445 Distribution 1,205 1,125 2,430 2,215 Specialty Products 625 890 1,375 1,750 Forest Products 575 680 1,165 1,285 Less: Intersegment Sales (238) (256) (515) (519) --------------- ---------------- --------------- ---------------- Net Sales $ 4,707 $ 5,034 $ 9,575 $ 9,896 --------------- ---------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- </TABLE> The above amounts include Carter Holt Harvey net sales of $365 million and $525 million for the three months ended June 30, 1998 and 1997, respectively, and $780 million and $995 million for the six months ended June 30, 1998 and 1997, respectively. Operating Profit by Industry Segment <TABLE> <CAPTION> Six Months Ended June 30, 1997 Six Months Before After Ended June 30, Special Special Special 1998 Items Items(2) Items -------------------- ----------------- --------------- ---------------- -------------------- ----------------- --------------- ---------------- <S> <C> <C> <C> <C> Printing Papers $ 120 $ 25 $ (215) $ (190) Packaging 150 115 (45) 70 Distribution 40 50 (15) 35 Specialty Products 105 170 (200) (30) Forest Products 180 160 (50) 110 -------------------- ----------------- --------------- ---------------- -------------------- ----------------- --------------- ---------------- Operating Profit (Loss) 595 520 (525) (5) Corporate items, net (59) (1) (29) (160) (189) Interest expense, net (255) (255) (255) Income tax (provision) benefit (84) (1) (80) 207 127 Minority interest expense, net of taxes (36) (63) (63) -------------------- ----------------- --------------- ---------------- -------------------- ----------------- --------------- ---------------- Net Earnings (Loss) $ 161 (1) $ 93 $ (478) $ (385) -------------------- ----------------- --------------- ---------------- -------------------- ----------------- --------------- ---------------- </TABLE> The above amounts include Carter Holt Harvey operating profit of $20 million and $65 million for the six months ended June 30, 1998 and 1997, respectively. (1) Includes a $6 million pre-tax charge ($4 million after taxes or $.01 per share) to write off in-process research and development costs related to an acquisition by an investee company. (2) Includes a $535 million pre-tax business improvement charge ($385 million after taxes or $1.28 per share ) and a $150 million pre-tax provision for legal reserve ($93 million after taxes or $.31 per share). 18
<TABLE> <CAPTION> June 30, December 31, Assets by Industry Segment 1998 1997 --------------------- --------------------- <S> <C> <C> Printing Papers $ 7,747 $ 7,810 Packaging 6,330 6,198 Distribution 1,447 1,421 Specialty Products 2,715 3,106 Forest Products 4,540 4,868 Equity Investments 1,014 1,046 Corporate 2,748 2,305 --------------------- --------------------- --------------------- --------------------- Assets $ 26,541 $ 26,754 --------------------- --------------------- --------------------- --------------------- </TABLE> 19
Financial Information by Geographic Area (Unaudited) (In millions) <TABLE> <CAPTION> Net Sales by Geographic Area Six Months Ended June 30, ---------------------------------------------- 1998 1997 --------------------- --------------------- <S> <C> <C> United States $ 7,270 $ 7,180 Europe 1,510 1,735 Pacific Rim 845 1,080 Other 110 105 Less: Intergeographic Sales (160) (204) --------------------- --------------------- Net Sales $ 9,575 $ 9,896 --------------------- --------------------- --------------------- --------------------- </TABLE> Operating Profit by Geographic Area <TABLE> <CAPTION> Six Months Ended June 30, 1997 ------------------------------------------------------- Six Months Before After Ended June 30, Special Special Special 1998 Items Items (1) Items -------------------- ---------------- ---------------- ---------------- -------------------- ---------------- ---------------- ---------------- <S> <C> <C> <C> <C> United States $ 510 $ 395 $ (340) $ 55 Europe 55 45 (185) (140) Pacific Rim 20 70 70 Other 10 10 10 -------------------- ---------------- ---------------- ---------------- Operating Profit (Loss) $ 595 $ 520 $ (525) $ (5) -------------------- ---------------- ---------------- ---------------- -------------------- ---------------- ---------------- ---------------- </TABLE> (1) Includes a $535 million pre-tax business improvement charge ($385 million after taxes or $1.28 per share). Assets by Geographic Area <TABLE> <CAPTION> June 30, 1998 December 31, 1997 --------------------- ------------------------ --------------------- ------------------------ <S> <C> <C> United States $ 15,748 $ 15,650 Europe 3,506 3,635 Pacific Rim 3,348 3,929 Other 177 189 Equity Investments 1,014 1,046 Corporate 2,748 2,305 --------------------- ------------------------ Assets $ 26,541 $ 26,754 --------------------- ------------------------ --------------------- ------------------------ </TABLE> 20
Production by Products <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ------------------------------------ -------------------------------------------- 1998 1997 1998 1997 --------------- ------------------- ------------------- --------------------- <S> <C> <C> <C> <C> Printing Papers (In thousands of tons) White Papers and Bristols 916 978 1,906 2,005 Coated Papers 308 334 640 644 Market Pulp (A) 438 526 950 1,101 Newsprint 23 19 47 40 Packaging (In thousands of tons) Containerboard 698 698 1,407 1,397 Bleached Packaging Board 551 542 1,072 1,091 Industrial Papers 151 167 312 339 Industrial and Consumer Packaging (B) 936 897 1,718 1,704 Specialty Products (In thousands of tons) Tissue 37 39 72 71 Forest Products (In millions) Panels (sq. ft. 3/8" basis) (C) 414 369 774 670 Lumber (board feet) 563 545 1,092 1,026 MDF (sq. ft. 3/4" basis) 49 54 97 106 Particleboard (sq. ft. 3/4" basis) 48 47 95 92 </TABLE> (A) This excludes market pulp purchases. (B) A significant portion of this tonnage was fabricated from paperboard and paper produced at the Company's own mills and included in the containerboard, bleached packaging board, and industrial papers amounts in this table. (C) Panels include plywood and oriented strand board. 21
PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of the common stock of the Company was held on May 12, 1998. The shareholders voted on*: (a) the election of three directors to Class I. The votes for and those withheld for each nominee were: <TABLE> <CAPTION> For Withheld --- -------- <S> <C> <C> Mr. Bijur 243,047,662 2,235,079 Mr. Dillon 242,997,831 2,284,910 Mr. Kennedy 243,076,566 2,206,175 </TABLE> (b) the appointment of Arthur Andersen LLP as independent auditors for 1998 was approved and the votes were: <TABLE> <CAPTION> For: Against: Abstentions: <S> <C> <C> 244,271,893 434,775 576,073 </TABLE> (c) the shareholder proposal for a schedule of total phaseout of chlorine-containing compounds for papermaking was defeated and the votes were: <TABLE> <CAPTION> For: Against: Abstentions: <S> <C> <C> 5,903,541 194,206,666 8,756,997 </TABLE> - ------------ *If a specific category for, against withheld, abstentions and broker no-votes is omitted, the number is zero. 22
ITEM 5. OTHER INFORMATION The Company announced changes in senior management responsibility and the appointment of an additional officer. The executive officers of the Company are now: John T. Dillon, 59, Chairman and Chief Executive Officer; James P. Melican, 57, Executive Vice President-Legal & External Affairs, responsible for Business Development and Planning, Corporate Communications, Public Affairs, Investor Relations, Legal, Secretary's Office, IP Realty and the Company's business development in Asia and Latin/South America; David W. Oskin, 55, Executive Vice President-Consumer Packaging, responsible for the Company's Bleached Board, Liquid Packaging, Folding Carton and Imperial Bondware businesses, and for Carter Holt Harvey; C. Wesley Smith, 59, Executive Vice President-Operations Group, responsible for Technology, Logistics, Environment Health & Safety, Work Systems, Quality Management staff organizations, the Land & Timber, and Logging & Fiber Supply operations; Milan J. Turk, 59, Executive Vice President-Specialty Businesses, responsible for Arizona Chemical, Petroleum & Minerals, Industrial Papers, Fine Papers and Pulp; Robert M. Amen, 49, President of International Paper-Europe, responsible for Aussedat Rey, Zanders, Tait and Kwidzyn operations; Robert M. Byrnes, 61, Senior Vice President-Human Resources, responsible for Human Resources; Thomas E. Costello, 59, Senior Vice President-Distribution, responsible for the Company's distribution activities; Douglas Fox, 50, Senior Vice President-Marketing, responsible for Marketing and Corporate Advertising; Newland A. Lesko, 53, Senior Vice President-Industrial Packaging, responsible for the Company's Containerboard & Kraft businesses, U.S. Container and International Container; Marianne M. Parrs, 54, Senior Vice President-Administration and Chief Financial Officer, responsible for Finance, Information Technology and Human Resources; William H. Slowikowski, 54, Senior Vice President-Printing Papers, responsible for Printing & Office Papers, Coated Publication & Bristols, and Converting and Specialty; Manco Snapp, 55, Senior Vice President-Building Materials, responsible for the Company's Decorative Products, Masonite and Wood Products businesses; Dennis W. Thomas, 54, Senior Vice President-Public Affairs and Communications; Andrew R. Lessin, 55, Vice President and Controller; William B. Lytton, 49, Vice President and General Counsel. 23
PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (10) International Paper Company Long-Term Incentive Compensation Plan. (11) Statement of Computation of Per Share Earnings (12) Computation of Ratio of Earnings to Fixed Charges (27) Financial Data Schedule (b) Reports on Form 8-K Reports on Form 8-K were filed on April 14, 1998 and June 9, 1998. The April 14, 1998 Report on Form 8-K attached a press release announcing first-quarter earnings. The June 9, 1998 Report on Form 8-K announced a restructuring of the company, changes in senior management responsibility and the appointment of additional officers. 24
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERNATIONAL PAPER COMPANY (Registrant) Date: August 14, 1998 By /s/ MARIANNE M. PARRS --------------------- Marianne M. Parrs Senior Vice President and Chief Financial Officer Date: August 14, 1998 By /s/ ANDREW R. LESSIN -------------------- Andrew R. Lessin Vice President, Controller and Chief Accounting Officer 25