-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KTTld/ucuHdgkgB0+AcFbH4YPMgvNh6BRp0T6W3hcqP5EYiACqnys8pK/DFxaLai 6NI1N0ZMZ0u0Yqmp0JJKxg== 0000064394-98-000010.txt : 19980812 0000064394-98-000010.hdr.sgml : 19980812 ACCESSION NUMBER: 0000064394-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980810 SROS: CSX SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEAD CORP CENTRAL INDEX KEY: 0000064394 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 310535759 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02267 FILM NUMBER: 98681038 BUSINESS ADDRESS: STREET 1: MEAD WORLD HEADQUARTERS STREET 2: COURTHOUSE PLZ NORTHEAST CITY: DAYTON STATE: OH ZIP: 45463 BUSINESS PHONE: 5134956323 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________ Commission File No. 1-2267 THE MEAD CORPORATION (Exact name of registrant as specified in its charter) Ohio 31-0535759 (State of Incorporation) (I.R.S. Employer Identification No.) MEAD WORLD HEADQUARTERS COURTHOUSE PLAZA NORTHEAST DAYTON, OHIO 45463 (Address of principal executive offices) Registrant's telephone number, including area code: 937-495-6323 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 __ . The number of Common Shares outstanding at June 28, 1998 was 103,849,073. ================================================================================ THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES -------------------------------------------------- QUARTERLY PERIOD ENDED JUNE 28, 1998 ------------------------------------ PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS -------------------- THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- BALANCE SHEETS - -------------- (All dollar amounts in millions) June 28, Dec. 31, 1998 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 31.2 $ 29.5 Accounts receivable 582.7 421.4 Inventories 495.2 424.4 Other current assets 90.4 75.9 -------- -------- Total current assets 1,199.5 951.2 Investments and other assets: Investees 150.0 151.1 Other assets 513.3 493.5 -------- -------- 663.3 644.6 Property, plant and equipment 5,622.3 5,465.1 Less accumulated depreciation and amortization (2,288.1) (2,191.3) -------- -------- 3,334.2 3,273.8 Net assets of distribution segment 294.4 282.8 -------- -------- Total assets $5,491.4 $5,152.4 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Notes payable $ 273.8 $ Accounts payable 311.9 279.2 Accrued liabilities 431.6 357.5 Current maturities of long-term debt 2.3 1.8 -------- -------- Total current liabilities 1,019.6 638.5 Long-term debt 1,377.4 1,428.0 Commitments and contingent liabilities Deferred items 800.8 797.4 Shareowners' equity: Common shares 154.9 154.9 Additional paid-in capital 65.2 53.5 Foreign currency translation adjustment (23.3) (20.5) Retained earnings 2,096.8 2,100.6 -------- -------- 2,293.6 2,288.5 -------- -------- Total liabilities and shareowners' equity $5,491.4 $5,152.4 ======== ======== See notes to financial statements. THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF EARNINGS - ---------------------- (All dollar amounts in millions, except per share amounts)
Second Quarter Ended First Half Ended --------------------- --------------------- June 28, June 29, June 28, June 29, 1998 1997 1998 1997 -------- -------- -------- -------- Net sales $1,050.9 $1,001.4 $1,889.9 $1,830.9 Cost of products sold 853.4 807.7 1,514.4 1,479.4 -------- -------- -------- -------- Gross profit 197.5 193.7 375.5 351.5 Selling and administrative expenses 101.3 94.8 197.6 193.3 -------- -------- -------- -------- Earnings from operations 96.2 98.9 177.9 158.2 Other revenues (expenses) 1.6 (2.7) 4.2 Interest and debt expense (28.9) (24.6) (55.4) (47.9) -------- -------- -------- -------- Earnings from continuing operations before income taxes 68.9 71.6 126.7 110.3 Income taxes 28.2 26.3 49.4 40.3 -------- -------- -------- -------- Earnings from continuing operations before equity in net earnings (loss) of investees 40.7 45.3 77.3 70.0 Equity in net earnings (loss) of investees (.5) 4.3 (3.5) 4.1 -------- -------- -------- -------- Earnings from continuing operations 40.2 49.6 73.8 74.1 Discontinued operations (25.0) (1.8) (28.0) (6.1) -------- -------- -------- -------- Net earnings $ 15.2 $ 47.8 $ 45.8 $ 68.0 ======== ======== ======== ======== Per common share - basic: Earnings from continuing operations $ .39 $ .48 $ .71 $ .71 Discontinued operations (.24) (.02) (.27) (.06) -------- -------- -------- -------- Net earnings $ .15 $ .46 $ .44 $ .65 ======== ======== ======== ======== Per common share - assuming dilution: Earnings from continuing operations $ .38 $ .47 $ .70 $ .70 Discontinued operations (.24) (.02) (.27) (.06) -------- -------- -------- -------- Net earnings $ .14 $ .45 $ .43 $ .64 ======== ======== ======== ======== Cash dividends per common share $ .16 $ .15 $ .32 $ .30 ======== ======== ======== ======== Weighted-average number of common shares outstanding (millions) - basic 103.9 104.4 103.9 104.4 ======== ======== ======== ======== Weighted-average number of common shares outstanding (millions) - assuming dilution 105.8 106.1 105.8 106.1 ======== ======== ======== ========
See notes to financial statements. THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF CASH FLOWS - ------------------------ (All dollar amounts in millions) First Half Ended -------------------- June 28, June 29, 1998 1997 ------- ------- Cash flows from operating activities: Net earnings $ 45.8 $ 68.0 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and depletion of property, plant and equipment 125.7 118.6 Depreciation and amortization of other assets 20.9 22.0 Deferred income taxes (6.5) 15.2 Investees-earnings and dividends 4.4 (1.7) Discontinued operations 28.0 6.1 Other 14.4 (9.9) Change in current assets and liabilities: Accounts receivable (160.0) (173.0) Inventories (67.7) (16.2) Other current assets (12.7) (4.2) Accounts payable and accrued liabilities 90.1 30.6 Cash (used in) discontinued operations (22.8) (25.3) ------ ------ Net cash provided by operating activities 59.6 30.2 ------ ------ Cash flows from investing activities: Capital expenditures (192.1) (184.2) Additions to equipment rented to others (14.8) (18.4) Payment for acquired business (13.6) Other (21.8) (11.8) ------ ------ Net cash (used in) investing activities (242.3) (214.4) ------ ------ Cash flows from financing activities: Additional borrowings 140.5 564.2 Payments on borrowings (191.9) (532.6) Notes payable 273.8 173.8 Cash dividends paid (33.3) (31.3) Common shares issued 12.7 21.7 Common shares purchased (17.4) (16.4) ------ ------ Net cash provided by financing activities 184.4 179.4 ------ ------ Increase (decrease) in cash and cash equivalents 1.7 (4.8) Cash and cash equivalents at beginning of year 29.5 20.6 ------ ------ Cash and cash equivalents at end of half $ 31.2 $ 15.8 ====== ====== See notes to financial statements. THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - ----------------------------- (All dollar amounts in millions) A - FINANCIAL STATEMENTS The balance sheet at December 31, 1997, is condensed financial information taken from the audited balance sheet. The interim financial statements are unaudited. In the opinion of management, all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the interim periods presented have been made. B - ACCOUNTING POLICIES On an interim basis, all costs subject to recurring year-end adjustments have been estimated and allocated ratably to the quarters. Income taxes have been provided based on the estimated tax rate for the respective years after excluding infrequently occurring items whose specific tax effect is reported during the same interim period as the related transaction. C - INVENTORIES The amount of inventories is (principally last-in, first-out method): June 28, Dec. 31, 1998 1997 ------- ------- Finished and semi-finished products $325.9 $242.4 Raw materials 95.7 99.3 Stores and supplies 73.6 82.7 ------ ------ $495.2 $424.4 ====== ====== D - INVESTEES The summarized operating data for all investees is presented in the following table: Second Quarter Ended First Half Ended -------------------- ---------------------- June 28, June 29, June 28, June 29, 1998 1997 1998 1997 ------- ------- ------- ------- Revenues $181.4 $193.0 $357.8 $372.3 ====== ====== ====== ====== Gross profit $ 11.1 $ 21.4 $ 12.7 $ 33.1 ====== ====== ====== ====== Net earnings $ 4.3 $ 11.0 $ 1.8 $ 13.0 ====== ====== ====== ====== E - SHAREOWNERS' EQUITY During the second quarter of 1998, the company repurchased approximately 252,000 common shares on the open market. The company has outstanding authorization from the Board of Directors to repurchase up to ten million common shares, of which 6.6 million shares have been repurchased as of the end of the first half of 1998. F - COMPREHENSIVE INCOME Effective January 1, 1998, the company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." The company's difference between net earnings and comprehensive income relates to the changes in foreign currency translation adjustment. Comprehensive income for the second quarters ended June 28, 1998 and June 29, 1997, was $16.4 million and $45.9 million, respectively, and for the first halves ended June 28, 1998 and June 29, 1997, comprehensive income was $43.0 million and $59.8 million, respectively. G - ADDITIONAL INFORMATION ON CASH FLOWS First Half Ended ------------------- June 28, June 29, 1998 1997 ------- ------- Cash paid for: Interest $ 56.7 $ 31.7 ====== ====== Income taxes $ 20.0 $ 18.1 ====== ====== H - DISCONTINUED OPERATIONS On June 9, 1998, the Board of Directors approved a plan to discontinue Zellerbach, the company's distribution segment. The company subsequently announced that it had reached an agreement to sell the Zellerbach business to International Paper Company. The sale closed July 31, 1998, and the company recorded a pre-tax charge of $49.3 million in the second quarter for the estimated loss on disposal and operating losses. At June 28, 1998, the discontinued operation had assets of $401.4 million and liabilities of $107.0 million. Loss from operations from January 1, 1998, through June 9, 1998, totaled $6.0 million ($3.0 million applicable to the first quarter), net of income tax benefits of $3.1 million ($1.5 million applicable to the first quarter). Estimated losses related to the sale of the segment totaled $22.0 million, net of income tax benefits of $22.7 million. Included in the loss on the sale of the segment are anticipated operating losses from June 10, 1998, through July 31, 1998, of $3.2 million, net of taxes. I - SEGMENT INFORMATION Effective March 30, 1998, the company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." INDUSTRY SEGMENTS The company classifies its businesses into three industry segments. A comparison of the operations of the company's businesses based on sales, earnings from continuing operations before income taxes and identifiable assets is shown below. All prior periods have been restated to reflect the discontinued segment (Note H). The Paper operations manufacture and sell printing, writing, carbonless copy, publishing and specialty paper primarily to domestic publishers, printers and converters. The Packaging and Paperboard operations manufacture and sell beverage and food packaging materials, corrugated shipping containers and paperboard to those markets primarily located in the United States with other operations conducted in Europe, Canada, Latin America and the Pacific Rim. The School and Office Products operations are predominantly domestic and manufacture and distribute school and office paper related products to retailers.
Year Ended Second Quarter Ended First Half Ended ---------- -------------------- ------------------ Dec. 31, June 28, June 29, June 28, June 29, 1997 1998 1997 1998 1997 -------- -------- -------- -------- -------- Sales: Paper $1,797.8 $ 445.2 $ 430.4 $ 879.1 $ 872.8 Packaging and Paperboard 1,431.8 408.5 378.2 751.4 693.7 School and Office Products 516.2 197.2 192.8 259.4 264.4 -------- -------- -------- -------- -------- Total $3,745.8 $1,050.9 $1,001.4 $1,889.9 $1,830.9 ======== ======== ======== ======== ======== Earnings from Continuing Operations Before Income Taxes: Paper $ 195.6 $ 47.0 $ 44.8 $ 106.7 $ 86.9 Packaging and Paperboard 129.6 37.8 30.1 67.2 51.6 School and Office Products 57.3 31.6 34.5 38.3 43.8 Corporate and Other (1) (140.5) (47.5) (37.8) (85.5) (72.0) -------- -------- -------- -------- -------- Total $ 242.0 $ 68.9 $ 71.6 $ 126.7 $ 110.3 ======== ======== ======== ======== ======== (1) Corporate and Other includes the following: Other Revenues (expense) $ 13.0 $ 1.5 $ (.2) $ 4.5 $ 3.2 Interest Expense (98.2) (28.9) (24.6) (55.4) (47.9) Other Expenses (55.3) (20.1) (13.0) (34.6) (27.3) -------- -------- -------- -------- -------- $ (140.5) $ (47.5) $ (37.8) $ (85.5) $ (72.0) ======== ======== ======== ======== ======== As of and for the Year Ended December 31, 1997
Depreciation, Identifiable Depletion and Capital Assets (2) Amortization Expenditures ------------ ------------- ------------ Paper $2,135.5 $111.2 $110.5 Packaging and Paperboard 1,941.3 149.1 293.8 School and Office Products 191.3 8.2 11.6 Intersegment Elimination (22.6) Corporate and Other 906.9 14.0 21.4 -------- --------- -------- Total $5,152.4 $282.5 $437.3 ======== ========= ========
(2) Identifiable assets have not changed significantly at June 28, 1998, compared to December 31, 1997. GEOGRAPHIC AREAS The company has sales from foreign subsidiaries primarily in Europe, Canada, Latin America and the Pacific Rim. No individual foreign geographic area is significant to the company relative to total net sales, earnings from continuing operations before taxes or identifiable assets. The following represent net sales and total assets related to the company's foreign subsidiaries: Year Ended December 31, 1997 December 31, 1997 Net Sales Assets --------- --------- Europe $ 309.1 $ 226.9 Canada 132.3 55.0 Pacific Rim 52.7 48.4 Latin America 40.5 35.5 --------- --------- $ 534.6 $ 365.8 ========= ========= J - SPECIAL CHARGES During the second quarter of 1998, the company recorded pre-tax charges of $31.5 million related to the writedown of certain assets including stores and supplies inventory and other capital assets. K - ACCOUNTING PRONOUNCEMENT In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. The statement requires derivatives to be recorded on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in fair value of the derivatives are recorded depending upon whether the instruments meet the criteria for hedge accounting. The company has not determined the impact of adopting this statement. This statement is effective for fiscal years beginning after June 15, 1999. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- RESULTS OF OPERATIONS - --------------------- On June 18, 1998 Mead signed a definitive agreement to sell its distribution segment, Zellerbach, for $263 million in cash, subject to adjustment related to changes in working capital. The sale was completed on July 31, 1998. The financial statements of The Mead Corporation reflect Zellerbach as a discontinued operation. Mead recorded a charge in the second quarter related to the sale of Zellerbach and the write down of certain assets. The total pre-tax charge of $80.8 million included $49.3 million in charges related to the sale of Zellerbach and $31.5 million related to the write down of certain assets. The after-tax charge related to the sale of Zellerbach is included in discontinued operations. The charges related to the write down of certain assets reduced earnings in each of Mead's three remaining business segments. Net Sales - --------- Second quarter net sales were $1.05 billion, a 5% increase over the $1.0 billion in the second quarter of 1997. Selling prices were higher in the second quarter of 1998 for many of the company's products, primarily corrugating medium, and coated and uncoated paper, compared with the second quarter of 1997. During the quarter, sales volume of coated paper, carbonless paper and corrugating medium was lower compared with the second quarter of 1997. Sales of school and office products were slightly higher for the second quarter of 1998. Operating Costs and Expenses - ---------------------------- Gross profit as a percentage of sales decreased to 18.8% for the second quarter of 1998 from 19.3% in the second quarter of 1997. Selling and administrative expenses totaled $101.3 million, up from $94.8 million in the second quarter of 1997. The levels of both gross profit and selling and administrative expenses were negatively affected by the write down taken in the quarter. Interest and Debt Expense - ------------------------- Interest and debt expense in the second quarter of $28.9 million increased from $24.6 million in the second quarter of 1997. The increase is attributable to higher debt levels associated with the expansion project at the Stevenson, Alabama, paperboard mill and higher levels of working capital. Income Taxes - ------------ The effective tax rate was 40.9% for the second quarter of 1998 compared with 36.7% for the second quarter of 1997. Without the effect of a non- deductible portion of the asset write down, the tax rate would have been unchanged from the second quarter of 1997. Equity in Net Earnings (Loss) of Investees - ------------------------------------------ Mead's investees experienced a loss of $.5 million in the second quarter of 1998 compared with earnings of $4.3 million in the second quarter of 1997, primarily as a result of lower prices for lumber, lower prices and sales volume for plywood and lower sales volume of pulp at its 50%-owned Northwood companies. The decline was partially offset by higher prices for pulp and oriented structural board. During the quarter, Northwood announced the permanent closing of a sawmill in Prince George, British Columbia, with an annual capacity of 46 million board feet. It also announced a lumber production curtailment of approximately 130 million board feet or 25 percent of second-half 1998 production at the remainder of its sawmills. Discontinued Operations - ----------------------- The loss from discontinued operations of $25.0 million represents the after-tax charge related to the sale of the Zellerbach distribution segment, including operating losses through the sale date of July 31, 1998. Financial Data by Business - -------------------------- Paper segment
Second Quarter First Half ------------------------ ----------------------- 1998 1997 % Change 1998 1997 % Change ---- ---- -------- ---- ---- -------- (All dollar amounts in millions) Net sales (to unaffiliated customers and Zellerbach) $445.2 $430.4 3% $879.1 $872.8 1% Segment earnings before taxes 47.0 44.8 5% 106.7 86.9 23%
Sales and earnings in the segment increased over the second quarter of 1997 as a result of higher prices and improved productivity. Earnings of $47.0 million included $12.1 million in charges related to the write down of certain assets. Prices for coated freesheet and coated groundwood grades were higher than those of the prior year, though sales volume of these grades declined. Sales volume also declined for carbonless paper. Sales volumes for uncoated and specialty papers increased, and prices were stable. Order backlogs for coated paper declined during the quarter, and inventories for coated and uncoated papers were higher at the end of the quarter than at the end of the second quarter in 1997. Productivity performance improved at the company's three coated paper mills with increased output and improvements in costs. Packaging and Paperboard segment
Second Quarter First Half ------------------------ ----------------------- 1998 1997 % Change 1998 1997 % Change ---- ---- -------- ---- ---- -------- (All dollar amounts in millions) Net sales (to unaffiliated customers) $408.5 $378.2 8% $751.4 $693.7 8% Segment earnings before taxes 37.8 30.1 26% 67.2 51.6 30%
Sales and earnings in the segment increased from the second quarter of 1997 on higher prices, slightly higher sales volume and improved operating performance. Earnings of $37.8 million included $18.1 million in charges related to the write down of certain assets. Within the Containerboard division, prices for both corrugating medium and boxes increased compared with the second quarter of 1997. Sales volume of medium declined slightly during the quarter, while sales volume for boxes improved. The #2 paperboard machine at the Stevenson, Alabama, corrugating medium mill took 17 days of scheduled downtime to facilitate completion of its expansion project. The machine startup was on schedule. However, the startup of the chemical recovery system was slower than expected resulting in increased operating costs. Within the Coated Board System, shipments of coated paperboard from the Mahrt mill in Alabama to Mead's integrated beverage packaging operations and to the open market increased compared with the second quarter of 1997. Pricing of paperboard sold in the open market was stable. Beverage packaging markets were strong, especially in North America and Europe. The Mahrt mill improved its cost position and production volume during the quarter. Also in the second quarter the operating performance of the Packaging division's converting facilities improved over the second quarter of 1997. School and Office Products segment
Second Quarter First Half ------------------------ --------------------------- 1998 1997 % Change 1998 1997 % Change ---- ---- -------- ---- ---- -------- (All dollar amounts in millions) Net sales (to unaffiliated customers) $197.2 $192.8 2% $259.4 $264.4 (2)% Segment earnings before taxes 31.6 34.5 (8)% 38.3 43.8 (13)%
Sales for the division increased slightly over the second quarter of 1997, while earnings declined. Earnings of $31.6 million included $.6 million in charges related to the write down of certain assets. Sales revenue from school products was higher than the previous year, while sales revenue from office products was lower. Order receipts and order backlogs for the "back-to-school" retail buying season were below the same period a year ago, and inventory levels at the end of the second quarter were higher than that of the prior year. The division's converting facilities operated well during the quarter, and delivery performance improved over the same quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital on June 28, 1998 was $179.9 million compared to $312.7 million on December 31, 1997. The current ratio of 1.2 at the end of the second quarter was lower than the 1.5 at December 31, 1997. Consistent with Mead's highly seasonal School and Office products business, inventories and receivables increased during the first half. During the quarter, inventories of coated and uncoated paper also increased and ended the quarter higher than at the end of the second quarter of 1997. This growth was funded by short-term borrowings and increases in payables and accruals. Borrowed capital (long-term debt) as a percentage of total capital (long- term debt plus shareowners' equity) was 37.5% on June 28, 1998, and was 38.4% on December 31, 1997. On June 28, 1998, no short-term debt was classified as long term. Capital expenditures totaled $192.1 million for the first half of 1998 compared with $184.2 million in the first half of 1997. The major project in both time periods was the expansion at the Stevenson corrugating medium mill, which was completed during the second quarter of 1998. Under a Board of Directors authorization, Mead repurchased 252,000 shares of its common stock in the second quarter of 1998. By June 28, 1998, the 10 million-share repurchase was 66% completed. At the end of the first quarter, Mead paid a fixed rate or capped rate on 65% of its debt and paid a floating rate of interest on the remainder. A change of 1% in the floating rate, on an annual basis, would result in a $.03 change in earnings per share for the year. The estimated market value of long-term debt, excluding capital leases, was $80.3 million more than the book value at the end of the second quarter of 1998. OUTLOOK - ------- In June, the company announced several initiatives to sharpen its focus on its core businesses of coated and specialty papers, packaging and paperboard, and school & office products. These actions include the planned sale of Mead Ink Products; a hardwood sawmill and surrounding timberland in South Range, Michigan; and selected real estate and undeveloped mill sites. The company said it would also combine its coated paper divisions, including the Escanaba, Rumford and Chillicothe mills, to provide more effectively to the marketplace a broad line of quality products and services while better leveraging the skills and capabilities of the organizations. The company said it will continue to identify strategic alliances such as the new arrangement with Shinho Paper Manufacturing Company of Korea which will expand Mead's coated paper product line and optimize manufacturing capabilities. In addition to the reduction of 2,100 Zellerbach employees resulting from the sale of that business, the company expects to reduce its salaried employee base in the short term by 5%. That reduction is expected to result in a charge of as much as $10 million in the third quarter. Mead announced plans to reduce capital spending to about $300 million in 1999 and 2000, excluding major acquisitions, from the $400 - $450 level in 1998. The company also announced that it would implement enterprise resource planning software across the company to achieve meaningful cost reductions and enhanced operating efficiencies. As a result of this implementation, the company expects a further reduction in employees over the next several years for which the company expects to take charges in future quarters. Certain statements in this report are forward-looking statements. These statements include risks and uncertainties. Actual results may differ. Certain factors that could cause actual results to differ include changes in market prices for real estate and timber, the final scope of restructuring and consolidation plans, the receipt of regulatory approvals to dispositions, timely and cost effective software implementation, as well as factors described in the company's annual report on Form 10-K for the year ended December 31, 1997. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- No material changes occurred to information previously provided in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. PART II - OTHER INFORMATION --------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------- (a) The Annual Meeting of Shareholders of Mead was held on April 23, 1998. (b) Proxies were solicited for the meeting pursuant to Regulation 14A. There was no solicitation in opposition to management's nominees listed in the proxy statement, and John C. Bogle, John G. Breen, William E. Hoglund, James G. Kaiser, Robert J. Kohlhepp, John A. Krol, Susan J. Kropf, Charles S. Mechem, Jr., Lee J. Styslinger, Jr., Jerome F. Tatar and J. Lawrence Wilson were elected. (c) The results of the election of directors are as follows: Number of Votes --------------- Nominee For Withheld ------- --- -------- John C. Bogle 92,316,101 488,532 John G. Breen 92,322,597 482,035 William E. Hoglund 92,296,958 507,675 James G. Kaiser 92,307,587 497,045 Robert J. Kohlhepp 92,340,642 463,990 John A. Krol 84,871,800 7,932,832 Susan J. Kropf 92,329,676 474,956 Charles S. Mechem, Jr. 92,297,448 507,184 Lee J. Styslinger, Jr. 92,332,829 471,803 Jerome F. Tatar 92,339,785 464,847 J. Lawrence Wilson 92,333,654 470,978 Nominee Abstentions Broker Non-Votes ------- ----------- ---------------- John C. Bogle 50,500 -0- John G. Breen 50,500 -0- William E. Hoglund 50,500 -0- James G. Kaiser 50,500 -0- Robert J. Kohlhepp 50,500 -0- John A. Krol 50,500 -0- Susan J. Kropf 50,500 -0- Charles S. Mechem, Jr. 50,500 -0- Lee J. Styslinger, Jr. 50,500 -0- Jerome F. Tatar 50,500 -0- J. Lawrence Wilson 50,500 -0- ITEM 5. OTHER INFORMATION ----------------- Consistent with the recommendation of the Securities and Exchange Commission that the notice deadline date referenced in new Exchange Act Rule 14a-4 be disclosed on the company's next 10-Q, Mead states the notice deadline date is January 31, 1999 for the 1999 annual meeting. Notice must be received by Mead at Courthouse Plaza Northeast, Dayton, Ohio 45463 Attention: Thomas E. Palmer, Secretary. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits (4) Instruments defining the rights of security holders, including indentures. (1) Amendment No. 6 dated April 10, 1998 to the Credit Agreement dated November 15, 1989, as amended November 30, 1991, May 1, 1994, August 31, 1995, August 31, 1996 and October 31, 1997 among The Mead Corporation, and The First National Bank of Chicago and Morgan Guaranty Trust Company of New York as Co-Agents for the banks. (27.1) Financial Data Schedule Quarter 2, 1998 (27.2) Restated Financial Data Schedule Quarter 1, 1998 and Fiscal Year end 1997. (27.3) Restated Financial Data Schedule Quarters 1, 2, 3 and 4 of 1996 and Fiscal Year end 1995. (27.4) Restated Financial Data Schedule Quarter 1, 2 and 3 of 1997. (b) No current reports on Form 8-K were filed with the Commission in the second quarter of 1998. SIGNATURE 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. Date: August 10, 1998 THE MEAD CORPORATION - -------------------- (Registrant) By: G. T. GESWEIN __________________________________ G. T. Geswein Vice President, Controller and Chief Accounting Officer EX-4.1 2 Exhibit (4)(1) THIS AMENDMENT NO. 6 dated as of April 10, 1998 to the CREDIT AGREEMENT dated as of November 15, 1989, as amended November 30, 1991, as supplemented by letter dated February 26, 1993 and by supplement dated April 6, 1993, as amended May 1, 1994 and August 31, 1995, as supplemented by two agreements dated July 15, 1996, and as amended August 31, 1996 and October 31, 1997 (as so amended and supplemented, the "Credit Agreement"), among THE MEAD CORPORATION, an Ohio corporation (the "Company"), the banks listed on the signature page hereto (each a "Bank" and collectively, the "Banks") and THE FIRST NATIONAL BANK OF CHICAGO and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Co-Agents for the Banks (in such capacity, each an "Agent" and together, the "Agents"). WITNESSETH: WHEREAS, the Banks, the Agents and the Company have entered the Credit Agreement; and WHEREAS, the Banks, the Agents and the Company desire to amend the Credit Agreement as herein provided; NOW THEREFORE, it is agreed: 1. The definition of "Loan and Guaranty Agreement" in Section 10.1 of the Credit Agreement is hereby amended and restated in its entirety as follows: "Loan and Guaranty Agreement" shall mean the Loan and Guaranty --------------------------- Agreement dated as of August 23, 1988 among Cabin Bluff Partners, the Company and Scott Paper Company, as Guarantors, and The Sumitomo Bank, Limited, New York Branch, or the Loan and Guaranty Agreement among Cabin Bluff Partners, the Company and Kimberly-Clark Corporation, as Guarantors, the Lenders party thereto, The Sumitomo Bank, Limited, New York Branch, as a Lender and Syndication Agent, Bank of America National Trust and Savings Association, as a Lender and Documentation Agent, and The Chase Manhattan Bank, as a Lender and Administrative Agent, as the same or any substitute or replacement agreement may be amended, modified or replaced from time to time." The amended definition of "Loan and Guaranty Agreement" shall be used in each place in the Credit Agreement that such term appears, including within the definition of other defined terms and in Section 6.2. 2. The Company represents and warrants that the representations and warranties of the Company contained in the Credit Agreement are true and correct in all material respects on and as of the date hereof as though made on and as of such date. The Company hereby certifies that no event has occurred and is continuing which constitutes an Even of Default under the Credit Agreement or which upon the giving of notice or the lapse of time or both would constitute such an Event of Default. 3. This Amendment No. 6 shall be effective as of April 10, 1998 upon its execution by the Company and each of the Required Banks. Except as modified hereby, the Credit Agreement is ratified and confirmed in all respects and remains in full force and effect. All references to the "Agreement" in the Credit Agreement shall include and mean the Credit Agreement as supplemented and amended hereby. Terms defined in the Credit Agreement are used with the same meaning herein. 4. This Amendment No. 6 may be executed in counterparts, each of which will be deemed an original instrument. This Amendment No. 5 shall be governed by and construed and interpreted in accordance with the laws of the State of New York. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment No. 6 to be duly executed and delivered as of the date first above written. THE MEAD CORPORATION By WILLIAM R. GRABER ---------------------------------------------- Name: William R. Graber ---------------------------------------- Title: Vice President & Chief --------------------------------------- Financial Officer -------------------------------------- THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By ROBERT J. JACKSON --------------------------------------------- Name: Robert J. Jackson ---------------------------------------- Title: Managing Director as Agent ---------------------------------------- MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Individually and as Agent By JOHN M. MIKCLAY ---------------------------------------------- Name: John M. Mikclay ----------------------------------------- Title: Vice President ---------------------------------------- ABN AMRO BANK N.V. By PATRICK M. PASTORE ---------------------------------------------- Name: Patrick M. Pastore ----------------------------------------- Title: Vice President ---------------------------------------- CITIBANK, N.A. By STUART G. MILLER ---------------------------------------------- Name: Stuart G. Miller ---------------------------------------- Title: Attorney-in-fact ---------------------------------------- DEUTSCHE BANK AG New York and/or Cayman Islands Branches By STEPHEN A. WIEDEMANN ---------------------------------------------- Name: Stephen A. Wiedemann ----------------------------------------- Title: Director ---------------------------------------- By SUSAN L. PEARSON ---------------------------------------------- Name: Susan L. Pearson ---------------------------------------- Title: Director ---------------------------------------- NATIONAL WESTMINSTER BANK PLC New York Branch By ANNE MARIE TORRE ---------------------------------------------- Name: Anne Marie Torre ----------------------------------------- Title: Vice President ---------------------------------------- THE BANK OF NOVA SCOTIA (Scotia Bank) By M. D. SMITH ---------------------------------------------- Name: M. D. Smith ----------------------------------------- Title: Agent ---------------------------------------- THE SUMITOMO BANK, LIMITED New York Branch By C. MICHAEL GARRIDO ---------------------------------------------- Name: C. Michael Garrido ----------------------------------------- Title: Sr. Vice President ---------------------------------------- WACHOVIA BANK OF GEORGIA (formerly WACHOVIA BANK AND TRUST CO., N.A.) By TERRENCE A. SNELLINGS ---------------------------------------------- Name: Terrence A. Snellings ---------------------------------------- Title: Sr. Vice President ---------------------------------------- NATIONSBANK, N.A. (formerly SOVRAN BANK, N.A.) By JOSEPH L. CORAH ---------------------------------------------- Name: Joseph L. Corah ----------------------------------------- Title: Vice President ---------------------------------------- SOCIETE GENERALE By E. BELLAICHE ---------------------------------------------- Name: E. Bellaiche ----------------------------------------- Title: Vice President ---------------------------------------- EX-27.1 3 FISCAL YEAR END 1998
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q OF THE MEAD CORPORATION FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION STATEMENT TO WHICH IT RELATES. 6-MOS DEC-31-1998 JUN-28-1998 31 0 583 0 495 1,200 5,622 2,288 5,491 1,020 1,377 0 0 155 2,139 5,491 1,890 1,890 1,514 1,514 0 0 55 127 49 74 (28) 0 0 46 .44 .43
EX-27.2 4 RESTATED FDS QTRS 1, 1998 & FISCAL YEAR END 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q OF THE MEAD CORPORATION FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION STATEMENT TO WHICH IT RELATES. 3-MOS YEAR DEC-31-1997 DEC-31-1997 MAR-31-1998 MAR-31-1998 19 30 0 0 436 421 0 0 510 424 1,052 951 5,533 5,465 2,245 2,191 5,308 5,152 771 639 1,428 1,428 0 0 0 0 155 155 2,145 2,134 5,308 5,152 839 3,746 839 3,746 661 3,009 661 3,009 0 0 0 0 27 98 58 242 21 88 34 163 (3) (13) 0 0 0 0 31 150 .29 1.44 .29 1.41
EX-27.3 5 RESTATED FDS QTRS 1 - 3 & 4 OF 1996 & 1995
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-K OF THE MEAD CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION STATEMENT TO WHICH IT RELATES. YEAR 9-MOS 6-MOS 3-MOS YEAR DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995 DEC-31-1996 SEP-29-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995 21 122 22 138 293 0 0 0 0 0 422 469 544 364 416 0 0 0 0 0 436 340 403 459 349 959 1,023 1,059 1,051 1,135 5,126 4,462 4,384 4,305 4,247 2,041 2,019 1,992 1,957 1,918 4,906 4,325 4,303 4,257 4,284 679 609 663 647 734 1,240 721 727 726 695 0 0 0 0 0 0 0 0 0 0 156 156 156 157 158 2,091 2,085 2,035 2,013 2,002 4,906 4,325 4,303 4,257 4,284 3,304 2,496 1,620 712 3,403 3,304 2,496 1,620 712 3,403 2,578 1,931 1,248 551 2,522 2,578 1,931 1,248 551 2,522 0 0 0 0 0 0 0 0 0 0 58 40 27 15 69 284 245 162 59 473 105 89 59 22 178 184 156 95 30 334 12 10 9 6 16 0 0 0 0 0 0 0 0 0 0 195 166 103 36 350 1.86 1.58 .98 .34 3.22 1.84 1.56 .97 .34 3.17
EX-27.4 6 RESTATED FDS QTRS 1 - 3 OF 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-K OF THE MEAD CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION STATEMENT TO WHICH IT RELATES. 9-MOS 6-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 SEP-29-1997 JUN-29-1997 MAR-30-1997 20 16 15 0 0 0 512 595 422 0 0 0 386 452 501 1,002 1,153 1,024 5,368 5,269 5,165 2,175 2,129 2,083 5,136 5,215 4,992 768 882 743 1,274 1,274 1,249 0 0 0 0 0 0 156 156 156 2,148 2,124 2,090 5,136 5,215 4,992 2,862 1,831 830 2,862 1,831 830 2,309 1,479 672 2,309 1,479 672 0 0 0 0 0 0 74 48 23 189 110 39 69 40 14 129 74 25 (11) (6) (4) 0 0 0 0 0 0 118 68 20 1.13 .65 .19 1.11 .64 .19
-----END PRIVACY-ENHANCED MESSAGE-----