-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NMB+slOMvAN/pLc66CHiTffhgE7kZX9Ie0pvGc0gg9QX1xIMED4/GtxNYW9wdCyM rnmJ+KU/2SwXGnWIzbQTtw== 0000064394-94-000033.txt : 19940825 0000064394-94-000033.hdr.sgml : 19940825 ACCESSION NUMBER: 0000064394-94-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940703 FILED AS OF DATE: 19940816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEAD CORP CENTRAL INDEX KEY: 0000064394 STANDARD INDUSTRIAL CLASSIFICATION: 2600 IRS NUMBER: 310535759 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02267 FILM NUMBER: 94544532 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 July 3, 1994 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: 513-495-6323 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 July 3, 1994 was 59,314,164. ================================================================================ THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES -------------------------------------------------- QUARTERLY PERIOD ENDED JULY 3, 1994 ----------------------------------- PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS -------------------- THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - - -------------------------------------------------- BALANCE SHEETS - - -------------- (All dollar amounts in millions) July 3, Dec. 31, 1994 1993 -------- -------- ASSETS - - ------ Current assets: Cash and cash equivalents $ 17.7 $ 9.3 Accounts receivable 783.8 598.2 Inventories 447.7 446.8 Other current assets 77.3 77.0 -------- -------- Total current assets 1,326.5 1,131.3 Investments and other assets: Investees 80.1 65.1 Other assets 563.5 555.2 -------- -------- 643.6 620.3 Property, plant and equipment 4,531.4 4,382.6 Less accumulated depreciation and amortization (2,059.5) (1,969.7) -------- -------- 2,471.9 2,412.9 -------- -------- Total assets $4,442.0 $4,164.5 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY - - ------------------------------------ Current liabilities: Notes payable $ 204.4 $ Accounts payable 319.8 350.3 Accrued liabilities 367.0 348.7 Current maturities of long-term debt 12.8 12.5 -------- -------- Total current liabilities 904.0 711.5 Long-term debt 1,368.8 1,368.8 Commitments and contingent liabilities Deferred items 538.9 506.2 Shareowners' equity: Common shares 176.9 176.5 Additional paid-in capital 30.5 26.3 Foreign currency translation adjustment (7.6) (7.7) Net unrealized gain on securities 6.3 9.1 Retained earnings 1,424.2 1,373.8 -------- -------- 1,630.3 1,578.0 -------- -------- Total liabilities and shareowners' equity $4,442.0 $4,164.5 ======== ======== See notes to financial statements THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - - -------------------------------------------------- STATEMENTS OF EARNINGS - - ---------------------- (All amounts in millions, except per share amounts)
Second Quarter Ended First Half Ended -------------------- -------------------- July 3, July 4, July 3, July 4, 1994 1993 1994 1993 -------- -------- -------- -------- Net sales $1,317.2 $1,263.4 $2,472.8 $2,398.9 Cost of products sold 1,039.0 1,003.9 1,958.4 1,914.5 -------- -------- -------- -------- Gross profit 278.2 259.5 514.4 484.4 Selling, administrative and research expenses 188.4 169.2 364.9 340.0 -------- -------- -------- -------- Earnings from operations 89.8 90.3 149.5 144.4 Other revenues (expenses) - net 3.7 4.7 (4.2) 5.5 Interest and debt expense (26.0) (24.1) (50.6) (48.5) -------- -------- -------- -------- Earnings before income taxes 67.5 70.9 94.7 101.4 Income taxes 27.4 27.3 38.4 39.0 -------- -------- -------- -------- Earnings before equity in net earnings of investees 40.1 43.6 56.3 62.4 Equity in net earnings of investees 12.3 3.6 23.7 10.4 -------- -------- -------- -------- Net earnings $ 52.4 $ 47.2 $ 80.0 $ 72.8 ======== ======== ======== ======== Net earnings per common and common equivalent share $ .86 $ .78 $1.33 $1.22 ===== ===== ===== ===== Cash dividends per common share $ .25 $ .25 $ .50 $ .50 ===== ===== ===== ===== Average common and common equivalent shares outstanding (millions) 62.4 62.3 62.4 62.1 ===== ===== ===== =====
See notes to financial statements THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - - -------------------------------------------------- STATEMENTS OF CASH FLOWS - - ------------------------ (All dollar amounts in millions) First Half Ended ---------------- July 3, July 4, 1994 1993 ------ ------ Cash flows from operating activities: Net earnings $ 80.0 $ 72.8 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, amortization and depletion of property, plant and equipment 115.1 128.4 Depreciation and amortization of other assets 26.8 27.0 Deferred income taxes 23.8 26.7 Investees-earnings and dividends (17.8) (4.1) Other 12.5 (13.6) Change in assets and liabilities: Accounts receivable (185.6) (156.7) Inventories (.9) (42.8) Other current assets (5.4) 7.4 Accounts payable and accrued liabilities (12.2) (37.4) Cash (used in) discontinued operations (2.1) (1.0) ------ ------ Net cash provided by operating activities 34.2 6.7 ------ ------ Cash flows from investing activities: Capital expenditures (172.7) (134.6) Additions to equipment rented to others (26.6) (24.9) Investments in and advances to investees (.7) (.6) Other (4.8) (3.5) ------ ------ Net cash (used in) investing activities (204.8) (163.6) ------ ------ Cash flows from financing activities: Additional borrowings 174.4 213.1 Payments on borrowings (174.8) (209.5) Notes payable 204.4 165.4 Cash dividends paid (29.6) (29.5) Common shares issued 4.6 10.3 ------ ------ Net cash provided by financing activities 179.0 149.8 ------ ------ Increase (decrease) in cash and cash equivalents 8.4 (7.1) Cash and cash equivalents at beginning of year 9.3 18.4 ------ ------ Cash and cash equivalents at end of half $ 17.7 $ 11.3 ====== ====== See notes to financial statements THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - - -------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - - ----------------------------- (All dollar amounts in millions, except per share amounts) A - FINANCIAL STATEMENTS The balance sheet at December 31, 1993 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): July 3, Dec. 31, 1994 1993 ------ ------ Finished and semi-finished products $316.8 $301.3 Raw materials 67.0 81.0 Stores and supplies 63.9 64.5 ------ ------ $447.7 $446.8 ====== ====== D - INVESTEES The summarized operating data for all investees is presented in the following table: Second Quarter Ended First Half Ended -------------------- -------------------- July 3, July 4, July 3, July 4, 1994 1993 1994 1993 -------- -------- -------- -------- Revenues $174.5 $122.7 $326.2 $275.8 ====== ====== ====== ====== Gross profit $ 45.9 $ 18.4 $ 88.0 $ 48.5 ====== ====== ====== ====== Net earnings $ 27.5 $ 10.2 $ 53.5 $ 27.3 ====== ====== ====== ====== E - ADDITIONAL INFORMATION ON CASH FLOWS First Half Ended ------------------ July 3, July 4, 1994 1993 ------ ------ Cash paid for: Interest $ 42.2 $ 45.8 ====== ====== Income taxes $ 6.9 $ 18.4 ====== ====== F - LONG-TERM DEBT Long-term debt at July 3, 1994, includes $236.0 million of short-term borrowings which have been classified as long-term debt since the company has the intent to consummate these transactions on a long-term basis and has the ability to do so under the existing $550 million bank credit agreement. After reduction for these financings, the company has unused lines of credit of $314.0 million. G - CHANGE IN ACCOUNTING ESTIMATE Effective January 1, 1994, the depreciable lives of certain paper mill equipment were changed to 20 years from 16 years to more closely reflect the current service lives of the assets. The effect of the change was to increase net earnings by $6.4 million ($.10 per share) in the second quarter of 1994 and $12.9 million ($.21 per share) in the first half of 1994. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- RESULTS OF OPERATIONS - - --------------------- Net Sales - - --------- Net sales for the first half of 1994 increased 3% to $2.473 billion from $2.399 billion for the first half of 1993. Net sales for the second quarter increased to $1.317 billion in 1994 from $1.263 billion in 1993. Increased search volume at Mead Data Central and a favorable sales mix in School & Office Product's Back-to-School season provided much of the improvement. Many of Mead's markets, however, continue to be weak. Selling prices for coated and uncoated papers, coated natural kraft and beverage packaging are averaging below 1993 levels. There are signs of improvement in some segments, but the magnitude of these improvements remains uncertain. Operating Costs and Expenses - - ---------------------------- Strong operating performance and productivity improvements helped to offset the impact of weaker selling prices. Additionally, in the first quarter of 1994, Mead lengthened the depreciable life of certain paper mill equipment to twenty years from sixteen years. Gross profit as a percent of sales was 20.8% for the first half of 1994 and 21.1% for the second quarter compared to 20.2% and 20.5% for the corresponding periods in 1993. Without the depreciation change this ratio would have been 19.9% for the first half of 1994 and 20.3% for the second quarter. Selling, administrative and research expenses were higher for both the first half ($364.9 million) and second quarter ($188.4 million) of 1994 compared to the prior year ($340.0 million and $169.2 million, respectively). Most of the increase came from higher sales-related expenses at Zellerbach, Packaging, Mead Data Central and School and Office Products and from continuing restructuring costs, most notably at Zellerbach. Other Revenues (Expenses) - Net - - ------------------------------- Other (expenses) were $(4.2) million for the first half of 1994 compared to other revenues of $5.5 million for the first half of 1993. For the second quarter, other revenues were $3.7 million in 1994 compared to $4.7 million for 1993. In the first quarter of 1994, Mead incurred $12.1 million ($7.4 million after tax, or 12 cents per share) in losses relating to adjustments to market of certain interest rate options, principally a one-time loss on the close-out of a leveraged written option embedded in an interest rate swap transaction with Bankers Trust Company. Interest and Debt Expense - - ------------------------- Due to higher interest rates and slightly higher debt levels, interest and debt expense increased 8% to $26.0 million for the second quarter of 1994 and 4% to $50.6 million for the first half compared to similar periods in 1993. Income Taxes - - ------------ The effective tax rate was 40.6% for the second quarter of 1994 and 40.5% for the first half. In 1993, it was 38.5% for both the second quarter and first half. The Omnibus Budget Reconciliation Act of 1993 increased the federal corporate income tax rate by 1 percentage point and limited the deduction of certain expenses. In the third quarter of 1993, Mead recorded the cumulative effect of the higher rate. The difference in the effective tax rate from 1993 to 1994 is due primarily to provisions of the Act. Equity in Net Earnings of Investees - - ----------------------------------- Continued strong markets for wood products and improving prices and demand for pulp provided increased earnings from Mead's 50%-owned Northwood companies. Mead's share of 1994 first half earnings from all investees are more than double 1993 earnings while second quarter earnings improved from $3.6 million in 1993 to $12.3 million in 1994. Financial Data by Business - - -------------------------- Comparisons between 1994 and 1993 earnings in the following discussion have been made prior to the effect on depreciation expense resulting from the change in asset lives. This change increased the first half earnings of the Paper segment by $14.3 million and the Paperboard and Packaging segment by $7.1 million. Mead's Paper segment generated sales to unaffiliated customers of $543.6 million in the first half of 1994, down 4% from last year's level driven principally by lower selling prices. Sales for the second quarter of 1994 were about 2% behind the same period of 1993. On a comparable basis, first half 1994 earnings dropped slightly from $44.5 million in 1993 to $41.2 million in 1994. Mead's two largest paper mills, Chillicothe, Ohio, and Escanaba, Michigan, have operated well thus far in 1994, each having set a number of mill production records in the second quarter. Improved operations and productivity gains at these two mills helped to offset continuing losses at the Kingsport, Tennessee, mill. Overall, second quarter 1994 Paper segment earnings were level with that of the 1993 second quarter. First half and second quarter 1994 sales in the Packaging and Paperboard segment increased slightly over the corresponding periods of 1993. The sales gains can be attributed to increases in volume. Prices, particularly for coated natural kraft and beverage packaging, continue to be under pressure. This situation contributed to the decline in this segment's first half 1994 earnings (comparable basis) to $61.8 million from the $81.5 million in earnings posted a year ago. Similarly, earnings for the second quarter of 1994 were below that of the same period of 1993. Mead's coated board mill in Phenix City, Alabama, has run well in 1994 and is producing at a rate above its design capacity. It also set a number of mill production records. Good operations and the strong results of the division's two sawmill operations caused first half 1994 earnings to be level with last year. For the second quarter, however, earnings were about 10% lower than the same period of last year. During 1994's second quarter, Mead Packaging scheduled costly short production runs to satisfy domestic customer needs and is incurring start-up expenses as it penetrates new markets, particularly in Latin America and the Pacific Rim. These factors and the lower selling prices for beverage packaging have caused 1994 Packaging earnings to decline to about half of the levels of 1993. In Mead's Distribution and School and Office Products segment, sales increased 4% to $1,017.3 million for the first half of 1994 compared to the first half of 1993. 1994 second quarter sales were also slightly above those of the same period of last year. Both Zellerbach, Mead's distribution business, and Mead School and Office Products posted sales gains for the second quarter and the half compared to last year. Earnings for the second quarter and first half of 1994 were below those of the corresponding periods of 1993 due to continuing competitive pressure on margins at Zellerbach and additional expenses incurred by that division for continued restructuring activities. Mead expects the market pressures at Zellerbach to continue, at least into the near future. Mead School and Office Products benefitted from a favorable product mix of value-added products at the beginning of the traditional Back-to-School season and 1994 first half and second quarter earnings are ahead of comparable periods in 1993. At Mead Data Central, Mead's Electronic Publishing segment, both sales and earnings were significantly higher in 1994 than they were in 1993 for both the first half and second quarter. Increased search volume sparked a 14% increase in first half sales, from $262.6 million in 1993 to $299.3 million in 1994. Sales for the second quarter of 1994 were also 14% higher than the same quarter of 1993. During the first half of 1993, Mead Data Central incurred significant expense in reshaping and expanding its sales force. In the last half of that year, a significant restructuring program was introduced with an emphasis on lowering costs. 1994 earnings have benefitted from these efforts. Lower costs, along with the increased search volume and lower amortization of certain intangible assets related to a previous acquisition, resulted in 1994 first half earnings of $34.0, more than twice the amount earned in 1993. Second quarter earnings were about 60% higher in 1994 than in 1993. In the second quarter of 1994, The Mead Corporation announced its intention to divest Mead Data Central. This transaction is expected to be completed by the end of 1994. Liquidity and Capital Resources - - ------------------------------- Mead's consolidated working capital at July 3, 1994 was $422.5 million compared to $419.8 million at December 31, 1993. The seasonal increase in accounts receivable, caused primarily by Mead School and Office Product's Back-to-School season, was financed through short-term borrowings. The current ratio was 1.5 at the end of the second quarter of 1994 compared to 1.6 at December 31, 1993. Borrowed capital (long-term debt) as a percent of total capital (long-term debt plus shareowners' equity) decreased from 46.4% at December 31, 1993 to 45.6% at July 3, 1994. Capital expenditures totaled $172.7 million and $92.0 million for the first half and second quarter of 1994, respectively. In 1993, capital expenditures were $134.6 million in the first half and $82.2 million in the second quarter. Much of the 1994 spending was at the Escanaba, Michigan, and Chillicothe, Ohio, paper mills to upgrade Mead's coated paper system. Mead uses various financial instruments, including derivative products, with off-balance sheet risk, to manage its interest rate exposure. These derivatives include options, forward contracts and interest rate swaps. The current derivative portfolio includes: (A) Interest rate caps with notional amount of $400 million having an average strike rate of 10.1% and an average maturity of 4.7 years. Purchased caps give Mead the right to receive a payment to offset an increase in interest rates above strike rates. Mead uses caps to protect its floating rate debt from abnormal rate increases such as those experienced in the early 1980's. (B) Interest rate swaps with a notional amount of $275 million convert a floating rate liability into a fixed rate liability for one party and achieves the reverse for the other party. These swap agreements do not involve a transfer of any principal dollars, only the exchange of interest payments for a specified period. Mead uses swaps to adjust its mix of fixed and floating rate debt. The average fixed interest rate received is 5.8% for an average maturity of 3.3 years and the average fixed interest rate paid is 8.4% for an average maturity 4.9 years. In the opinion of management, the risk of loss to the Company in the event of nonperformance by any counterparty under these agreements is not significant. All counterparties are rated A or higher by Moody's and Standard and Poor's with the majority of the contracts executed with counterparties rated AA or higher by both agencies. At the end of the second quarter, the Company paid a fixed rate or variable rate subject to a capped rate on 67% of its debt and paid a floating rate of interest on the remainder. A change of 1% in the floating interest rate, on an annual basis, would result in a $.07 change in net earnings per share for the year. The estimated market value of long-term debt, excluding capital leases, was $15.3 million less than the book value at the end of the second quarter of 1994. The Company also uses foreign currency options and forward contracts to reduce the Company's risk due to foreign currency exchange rate movement. Gains and losses on these contracts generally offset losses and gains on the assets, liabilities and transactions being hedged. These financial instruments are used to minimize exposure and to reduce risk from exchange rate fluctuations in the regular course of the Company's global business. Based on the opinion of management, no material exposure exists in any of these instruments. PART II - OTHER INFORMATION - - --------------------------- ITEM 1. LEGAL PROCEEDINGS ----------------- Reference is made to the fifth and sixth paragraphs under "Item 3. Legal Proceedings" in Mead's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, regarding a hazardous substance site involving a closed coke manufacturing facility located in Chattanooga, Tennessee. Mead signed an agreement with the Tennessee Department of Environment and Conservation to commence a removal action at the site to permit demolition of structures, removal of asbestos, control of surface water ponding and repairs to fencing. Execution of this agreement does not resolve the underlying proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- (a) The Annual Meeting of Shareholders of Mead was held on April 28, 1994. (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 all of management's nominees were elected. (c) (1) The results of the election of directors are as follows: Number of Votes --------------- Nominee For Withheld ------- --- -------- J. C. Bogle 51,781,194 971,147 W. E. Hoglund 51,821,727 930,614 B. C. Jordan 51,642,840 1,109,501 W. S. Shanahan 51,842,446 909,895 Nominee Abstentions Broker Non-Votes ------- ----------- ---------------- J. C. Bogle -0- -0- W. E. Hoglund -0- -0- B. C. Jordan -0- -0- W. S. Shanahan -0- -0- (2) The results of a shareholder proposal introduced by The United Paperworkers International Union urging the Board of Directors to take steps to declassify the Board of Directors for the purpose of director elections are as follows: Number of Votes --------------- For Against Abstain Broker Non-Votes --- ------- ------- ---------------- 26,254,461 22,423,407 559,315 3,515,158 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits (10) Material Contracts: (1) Amendment No. 2 dated May 1, 1994 to the Credit Agreement dated November 15, 1989, as amended November 30, 1991 and supplemented February 26, 1993 and April 6, 1993, among The Mead Corporation, the banks listed in the Amendment and The First National Bank of Chicago and Morgan Guaranty Trust Company of New York as Co-Agents for the banks. (2) The "Direction 2000" Executive Incentive Plan for 1994 in which executive officers participate. (11.1), (11.2) Calculations of Net Earnings per Share. (b) Mead filed a Current Report on Form 8-K (Item 5 and Item 7) with the Commission on May 18, 1994. 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 16, 1994 THE MEAD CORPORATION - - -------------------- (Registrant) By J. D. Fuller ----------------------------- J. D. Fuller Controller and Chief Accounting Officer QUARTERLY\FORM10Q.WP 081594 EX-10.1 2 Exhibit (10)(1) THIS AMENDMENT NO. 2, dated as of May 1, 1994, to the CREDIT AGREEMENT, dated as of November 15, 1989, as amended November 30, 1991, and as supplemented by letter dated February 26, 1993 and a supplement dated April 6, 1993 (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"). W I T N E S S E T H: 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 "Termination Date" in Section 10.1 of the Credit Agreement is hereby rewritten in full as follows: "'Termination Date' shall mean (i) with respect to each Bank, the earlier of (A) May 1, 1998 (the 'Renewal Date'), or (B) the date on which the Company has terminated such Bank's Commitment pursuant to Section 1.13; provided that (1) at least 30 calendar days before each May 1, commencing May 1, 1995, the Company may request all the Banks in writing (such request being irrevocable) to extend the Renewal Date for an additional one year period; and (2) the Renewal Date with respect to each Bank shall be automatically extended by one additional year if such Bank agrees in writing to extend the Renewal Date for one additional year and all conditions, if any, to the extension shall have been met, and (ii) with respect to all the Banks, the date upon which the Total Commitment is terminated by the Company pursuant to Section 1.13 or by all Banks pursuant to clause (i) of this definition." 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 Event 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. 2 shall be effective when executed by the Company and each of the 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 amended hereby. Terms defined in the Credit Agreement are used with the same meaning herein. 4. This Amendment No. 2 may be executed in counterparts, each of which will be deemed an original instrument. This Amendment No. 2 shall be governed by and construed and interpreted in accordance with the law of State of New York. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment No. 2 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: VP and Chief Financial Officer THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By Robert L. Jackson --------------------------- Name: Robert L. Jackson Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Individually and as Agent By Timothy S. Broadbent --------------------------- Name: Timothy S. Broadbent Title: Vice President CITIBANK, N.A. By Carolyn A. Kee --------------------------- Name: Carolyn A. Kee Title: Attorney-in-Fact ABN AMRO BANK N.V. (formerly AMSTERDAM-ROTTERDAM BANK N.V.) By Craig Guinane --------------------------- Name: Craig Guinane Title: AVP By J. M. Janovsky --------------------------- Name: J. M. Janovsky Title: Group V. P. DEUTSCHE BANK AG New York and/or Cayman Islands Branches By Jeffrey N. Wieser --------------------------- Name: Jeffrey N. Wieser Title: Director By Gregory M. Hill --------------------------- Name: Gregory M. Hill Title: Vice President NATIONAL WESTMINSTER BANK PLC Chicago and New York Branch By Ernest V. Hodge --------------------------- Name: Ernest V. Hodge Title: Vice President NATIONAL WESTMINSTER BANK PLC-Nassau Branch By Ernest V. Hodge --------------------------- Name: Ernest V. Hodge Title: Vice President BANQUE PARIBAS By Richard Burrows --------------------------- Name: Richard Burrows Title: Vice President By Stanley P. Berkman --------------------------- Name: Stanley P. Berkman Title: Senior Vice President THE BANK OF NOVA SCOTIA By F. C. H. Ashby --------------------------- Name: F. C. H. Ashby Title: Senior Manager Loan Operations SWISS BANK CORPORATION By Nancy A. Hanrahan --------------------------- Name: Nancy A. Hanrahan Title: Associate Director Merchant Banking By Jennifer L. Match --------------------------- Name: Jennifer L. Match Title: Associate Director Merchant Banking NBD BANK, N.A. (formerly NATIONAL BANK OF DETROIT) By Victoria L. Decker --------------------------- Name: Victoria L. Decker Title: Vice President THE SUMITOMO BANK, LIMITED NEW YORK BRANCH By Y. Kawamura --------------------------- Name: Y. Kawamura Title: Joint General Manager UNION BANK OF SWITZERLAND By David M. Danhauer --------------------------- Name: David M. Danhauer Title: Vice President By Michelle Moreno --------------------------- Name: Michelle Moreno Title: Vice President WACHOVIA BANK OF GEORGIA (formerly WACHOVIA BANK AND TRUST CO., N.A.) By David L. Gores --------------------------- Name: David L. Gores Title: Senior Vice President NATIONSBANK, N.A. (formerly SOVRAN BANK, N.A.) By James L. Sigman --------------------------- Name: James L. Sigman Title: Vice President QUARTERLY\EX-10(1).WP 081594 EX-10.2 3 Exhibit (10.2) THE "DIRECTION 2000" EXECUTIVE INCENTIVE PLAN --------------------------------------------- 1994 ---- OBJECTIVE The objective of the "Direction 2000" Executive - - --------- Incentive Plan is to reward executives for adding value to the Corporation by providing a return that is above the cost of capital, with increasing revenues and improving performance over time. TERM OF THE PLAN Beginning January 1, 1993, the "Direction 2000" - - ---------------- Plan is an eight year plan (to the year 2000) with annual payments. Business year 1994 is the second performance period of the eight year plan term. PARTICIPATION All corporate executives grade 23 and above, plus ELIGIBILITY Division Presidents. - - ----------- PAYOUT Participants must be employees of the company, ELIGIBILITY an affliate or a subsidiary at the end of each - - ----------- plan year to receive payout from this plan. An appropriate proration of earned awards may be made in case of death, disability, retirement, hire or transfer during the year. INCENTIVE TARGET The 1994 Incentive Target by grade is shown - - ---------------- in Attachment 1. This Target will be adjusted annually, based on competitive data. The Incentive Target will be prorated for participants gaining or losing eligibility, or for changes in grade during each year of the plan term. TOTAL PAYOUT Payout under the "Direction 2000" Executive DETERMINATION Incentive Plan consists of two components, each - - ------------- of which is 50% weighting in 1994: ROTC Improvement Component - rewards for the -------------------------- degree to which ROTC has improved relative to expectations for the business, as indicated by the following Business Track: YEAR 1993 1994 1995 1996 1997 1998 1999 2000 -------------------------------------------------- % ROTC 9.5 11.1 11.8 12.0 12.0 12.0 12.0 12.0 The payout for this component is determined from the table in Attachment 2. High Performance Component - rewards for achieving -------------------------- higher levels of ROTC while increasing revenues over the previous year. The payout is determined from the matrix in Attachment 3. In the first calendar year following the year when 12% ROTC has been attained, the weighting will change to 30% Improvement and 70% High Performance. The sum of these two components produces a Mead ---- Performance Factor (MPF) which is a measure of the ----------------------- degree to which the performance relative to the Business Track has been achieved. The MPF is multiplied by a Competitive Industry Factor (CIF) to determine the final payout. The CIF is determined as: Competitive = Mead ROTC X Mead ROTC ---------------- ------------- Industry Factor All Industry Forest Products ROTC ROTC The incentive payout is determined as: Incentive = Incentive X MPF X CIF Payout Target ADMINISTRATION The Plan is administered by the Compensation - - -------------- Committee of the Board. The Compensation Committee has delegated administration to the Corporate Vice President, Human Resources. ACCOUNTING Payout will be estimated periodically and FOR PAYOUT Corporate Aaccounting will provide a cumulative - - ---------- accrual over the term of the plan. Approved incentive checks will be prepared by Corporate payroll at time of payout. Payout will be charged against the Corporate Accrual Account. RECOMMENDATIONS The Compensation Committee reviews and approves AND APPROVAL total funding and individual payouts under the - - ------------ plan, and the amount, use and replenishment of any reserve funds. The CEO and COO recommend all individual payouts to the Compensation Committee of the Board of Directors for approval. Payout for the CEO and COO is recommended to the Board of Directors by the Compensation Committee. Form of payout will be determined by the Compensation Committee. Payout to those executive officers named in the proxy will be delivered as 100% restricted stock. Payout to the other participants will be 30% cash and 70% restricted stock (with a 3-year vesting period). RESERVED RIGHTS The Mead Corporation reserves the right to alter, - - --------------- amend, suspend or terminate any or all provisions of this "Direction 2000" Executive Incentive Plan, except such actions shall neither inhibit nor hinder the rights of any individual with respect to earned and credited awards which have been deferred. Designation of a position as eligible for participation neither guarantees the individual a right to an incentive payment nor a right to continued employment. S. C. Mason ------------------------ Approved July 15, 1994 ------------------------ Date Attachment 1 THE "DIRECTION 2000" EXECUTIVE INCENTIVE PLAN --------------------------------------------- PAYOUT TARGETS -------------- 1994 Grade Incentive Target ----- ---------------- 33 $510,400 32 422,400 31 348,700 30 289,600 29 243,800 28 201,700 27 166,500 26 136,600 25 113,700 24 91,300 23 71,400 22 52,900 Attachment 2 This graph illustrates the payout for the ROTC Improvement Component that is tabularized on the right. The line plots the relationship between 1994 ROTC performance (on the X-axis) versus the incentive payout as a percent of the target (on the Y-axis) for this component. The resulting payout line is non-linear, with zero payout at or below 8.1% ROTC, rising to 50% of target incentive at 11.1% ROTC, and rising at increasing increments for performance above 11.1% ROTC. Attachment 3 Mead "Direction 2000" Executive Incentive Plan ---------------------------------------------- High Performance Matrix ----------------------- (%'s Indicate Payout Under High Performance Component of Plan) 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 18% 17% 22% 27% 35% 44% 55% 69% 86% 107% 133% 166% 205% 18% 17% 16% 20% 26% 32% 41% 51% 64% 80% 100% 124% 154% 191% 17% 16% 15% 19% 24% 30% 38% 47% 59% 74% 93% 115% 143% 177% 16% 15% 14% 17% 22% 28% 35% 44% 55% 69% 86% 107% 133% 165% 15% 14% 13% 16% 20% 26% 32% 41% 51% 64% 80% 99% 123% 153% 14% 13% 12% 15% 19% 24% 30% 38% 47% 59% 74% 92% 114% 142% 13% 12% 11% 14% 18% 22% 28% 35% 44% 55% 68% 85% 106% 131% 12% 11% 10% 13% 16% 20% 26% 32% 41% 51% 63% 79% 98% 121% 11% 10% 9% 12% 15% 19% 24% 30% 38% 47% 59% 73% 91% 112% 10% Change 9% 9% 11% 14% 18% 22% 28% 35% 43% 54% 67% 84% 104% 9% In 8% 8% 10% 13% 16% 20% 26% 32% 40% 50% 62% 77% 96% 8% Revenue 7% 7% 9% 12% 15% 19% 24% 30% 37% 46% 57% 71% 88% 7% 6% 7% 9% 11% 14% 17% 22% 27% 34% 43% 53% 66% 82% 6% 5% 6% 8% 10% 13% 16% 20% 25% 31% 39% 49% 61% 75% 5% 4% 6% 7% 9% 12% 15% 18% 23% 29% 36% 45% 56% 69% 4% 3% 5% 7% 9% 11% 14% 17% 21% 27% 33% 41% 51% 64% 3% 2% 5% 6% 8% 10% 12% 16% 20% 24% 30% 38% 47% 58% 2% 1% 4% 6% 7% 9% 11% 14% 18% 22% 28% 35% 43% 54% 1% 0% 4% 5% 7% 8% 10% 13% 16% 21% 26% 32% 40% 49% 0% -1% 4% 5% 6% 8% 10% 12% 15% 19% 24% 29% 36% 45% -1% -2% 3% 4% 6% 7% 9% 11% 14% 17% 22% 27% 33% 41% -2% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% Return on Total Capital
EX-11.1 4 Exhibit (11.1) THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - - -------------------------------------------------- CALCULATION OF PRIMARY NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - - -------------------------------------------------------------------------- (All amounts in thousands, except per share amounts)
Second Quarter Ended First Half Ended --------------------- ---------------------- July 3, July 4, July 3, July 4, 1994 1993 1994 1993 ------- -------- ------- ------- NET EARNINGS APPLICABLE TO COMMON AND COMMON EQUIVALENT SHARES $52,382 $47,215 $79,999 $72,813 ADJUSTMENT FOR OTHER POTENTIALLY DILUTIVE SECURITIES - Interest savings (net of tax) on Convertible Subordinated Debentures as if converted at the beginning of the period 1,396 1,454 2,791 2,909 ------- -------- ------- ------- NET EARNINGS APPLICABLE TO COMMON AND COMMON EQUIVALENT SHARES $53,778 $48,669 $82,790 $75,722 ======= ======== ======= ======= AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING: Average number of common shares outstanding 59,295 59,006 59,273 58,917 Dilutive effect of stock options after application of treasury stock method 489 657 539 594 Adjustment for other potentially dilutive securities - Dilutive effect of Convertible Subordinated Debentures as if converted at the beginning of the period 2,630 2,630 2,630 2,630 ------- ------- ------- ------- AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 62,414 62,293 62,442 62,141 ======= ======= ======= ======= PRIMARY NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ .86 $ .78 $1.33 $1.22 ===== ===== ===== =====
QUARTERLY\EX-11(1).WP 081594 EX-11.2 5 Exhibit (11.2) THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - - -------------------------------------------------- CALCULATION OF FULLY DILUTED NET EARNINGS PER COMMON AND COMMON EQUIVALENT) - - --------------------------------------------------------------------------- SHARE (1) - - --------- (All amounts in thousands, except per share amounts)
Second Quarter Ended First Half Ended --------------------- --------------------- July 3, July 4, July 3, July 4, 1994 1993 1994 1993 ------- -------- ------- ------- NET EARNINGS APPLICABLE TO COMMON AND COMMON EQUIVALENT SHARES $53,778 $48,669 $82,790 $75,722 ======= ======== ======= ======= AVERAGE NUMBER OF SHARES OUTSTANDING ON A FULLY DILUTED BASIS: Shares used in calculating primary earnings per share 62,414 62,293 62,442 62,141 Additional dilutive effect of stock options after application of treasury stock method 1 2 58 ------- ------- ------- ------- AVERAGE NUMBER OF SHARES OUTSTANDING ON A FULLY DILUTED BASIS 62,415 62,295 62,442 62,199 ======= ======= ======= ======= FULLY DILUTED NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ .86 $ .78 $1.33 $1.22 ===== ===== ===== =====
(1) This calculation is submitted in accordance with 17 CFR 229.601(b)(11) although not required by APB Opinion No. 15 because it results in dilution of less than 3%. QUARTERLY\EX-11(2).WP 081594 -----END PRIVACY-ENHANCED MESSAGE-----