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1998 Annual Report

     As a result of the Merger with Stone, which has significant operations
outside of the United States, the Company is exposed to foreign currency rate
risk. In general, a weakening of these currencies relative to the U.S. dollar
has a negative translation effect. Conversely, a strengthening of these
currencies would have the opposite effect.
     Assets and liabilities outside the United States are primarily located in
Canada and Germany. The Company's investments in foreign subsidiaries with a
functional currency other than the U.S. dollar are not hedged. The net assets in
foreign subsidiaries translated into U.S. dollars using the year-end exchange
rates were approximately $1,070 million at December 31, 1998. The potential loss
in fair value resulting from a hypothetical 10% adverse change in foreign
currency exchange rates would be approximately $107 million at December 31,1998.
Any loss in fair value would be reflected as a cumulative translation adjustment
in Accumulated Other Comprehensive Income and would not impact net income of the
     The Company is exposed to foreign currency transaction gains and losses on
the translation of a 90 million German Mark obligation at December 31, 1998.
During 1998, the transaction gains and losses on this obligation were immaterial
to the Company.
     The Company's earnings and cash flows are significantly affected by the
amount of interest on its indebtedness. The Company's financing arrangements
include both fixed and variable rate debt in which changes in interest rates
will impact the fixed and variable debt differently. A change in the interest
rate of fixed rate debt will impact the fair value of the debt whereas a change
in the interest rate on the variable rate debt will impact interest expense and
cash flows. Management's objective is to protect the Company from interest rate
volatility and reduce or cap interest expense within acceptable levels of market
risk. The Company periodically enters into interest rate swaps, caps or options
to hedge interest rate exposure and manage risk within Company policy. The
Company does not utilize derivatives for speculative or trading purposes. Any
derivative would be specific to the debt instrument, contract or transaction,
which would determine the specifics of the hedge. The amount of interest rate
swaps entered into by the Company were not material to the consolidated
financial position of the Company at December 31, 1998.
     The table below presents principal amounts by year of anticipated maturity
for the Company's debt obligations and related average interest rates based on
the weighted average interest rates at the end of the period. Variable interest
rates disclosed do not attempt to project future interest rates. This
information should be read in conjunction with Note 5 to the Company's Notes to
Consolidated Financial Statements.
Outstanding as of December 31, 1998     
                                                                                          There-              Fair 
(in US$ millions)                        1999      2000      2001      2002      2003     after     Total     Value
U.S. bank term loans and
  revolver — 8.9% average
  interest rate (variable) ........    $   43    $  593    $   66    $   66    $  659    $1,114    $2,541    $2,531
U.S. accounts receivable
  securitization — 5.7% average
  interest rate (variable) ........                 210                 209                           419       419
U.S. senior and senior subordinated
  notes — 10.8% average interest
  rate (fixed) ....................       130         9       578     1,081       504       948     3,250     3,317
U.S. industrial revenue
  bonds — 7.9% average
  interest rate (fixed) ...........         2         6        13        13        18       218       270       270
Other— U.S. ......................        11         9        11         9         5         8        53        53
German mark bank
  term loans — 5.9% average
  interest rate (variable) ........        14        12        15        15        10        13        79        79
Other— Foreign ...................         5         4         3         2         2         5        21        21
Total debt ........................    $  205    $  843    $  686    $1,395    $1,198    $2,306    $6,633    $6,690
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