-----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, HBgsatQDC9kE8o+GvzfJDGtl+R1XQw0m0LHAFPJQERsQKWgSuXyLg4YMJ2TvtG8V x7RhWANUycdaypkvnFcLDA== 0000950109-01-501182.txt : 20010510 0000950109-01-501182.hdr.sgml : 20010510 ACCESSION NUMBER: 0000950109-01-501182 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010401 FILED AS OF DATE: 20010509 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: 1626747 BUSINESS ADDRESS: STREET 1: MEAD WORLD HEADQUARTERS STREET 2: COURTHOUSE PLZ NORTHEAST CITY: DAYTON STATE: OH ZIP: 45463 BUSINESS PHONE: 9374954439 10-Q 1 d10q.txt FORM 10-Q ================================================================================ 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 April 1, 2001 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 April 1, 2001 was 99,107,586. ================================================================================ THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES -------------------------------------------------- QUARTERLY PERIOD ENDED APRIL 1, 2001 ------------------------------------ PART I - FINANCIAL INFORMATION ------------------------------ ITEM. 1 FINANCIAL STATEMENTS -------------------- THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- BALANCE SHEETS (unaudited) - -------------- (All dollar amounts in millions)
April 1, Dec. 31, 2001 2000 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 14.4 $ 29.4 Accounts receivable 496.8 557.3 Inventories 655.2 561.5 Other current assets 138.8 133.1 ---------- ---------- Total current assets 1,305.2 1,281.3 Investments and other assets 1,131.8 1,128.8 Property, plant and equipment 6,065.1 6,032.4 Less accumulated depreciation and amortization (2,822.5) (2,762.5) ---------- ---------- 3,242.6 3,269.9 ---------- ---------- Total assets $ 5,679.6 $ 5,680.0 ========== ========== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Notes payable $ 218.2 $ 200.3 Accounts payable 262.2 269.1 Accrued liabilities 429.3 530.3 Current maturities of long-term debt 112.7 12.6 ---------- ---------- Total current liabilities 1,022.4 1,012.3 Long-term debt 1,337.3 1,322.8 Deferred items 967.8 947.1 Shareowners' equity: Common shares 147.8 147.4 Additional paid-in capital 129.6 125.2 Retained earnings 2,109.6 2,172.9 Other comprehensive loss (34.9) (47.7) ---------- ---------- 2,352.1 2,397.8 ---------- --------- Total liabilities and shareowners' equity $ 5,679.6 $ 5,680.0 ========== ==========
See notes to financial statements. 2 THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF OPERATIONS (unaudited) - ------------------------- (All dollar amounts in millions, except per share amounts)
First Quarter Ended ----------------------------------------- April 1, April 2, 2001 2000 -------------- -------------- Net sales $ 944.5 $ 953.6 Costs and expenses: Cost of sales 850.7 776.6 Selling and administrative expenses 113.5 118.6 --------- --------- 964.2 895.2 --------- ---------- Earnings (loss) from operations (19.7) 58.4 Other revenues - net .4 1.5 Interest and debt expense (28.8) (29.7) --------- --------- Earnings (loss) before income taxes (48.1) 30.2 Income taxes (10.3) 11.0 --------- --------- Earnings (loss) before equity in net earnings of investees (37.8) 19.2 Equity in net earnings of investees 1.2 4.0 --------- --------- Earnings (loss) before cumulative effect of change in accounting principle (36.6) 23.2 Cumulative effect of change in accounting principle (10.4) (2.4) --------- --------- Net earnings (loss) $ (47.0) $ 20.8 ========= ========= Earnings (loss) per common share - basic: Earnings (loss) before cumulative effect of change in accounting principle $ (.37) $ .22 Cumulative effect of change in accounting principle (.10) (.02) --------- --------- Net earnings (loss) $ (.47) $ .20 ========= ========= Earnings (loss) per common share - diluted: Earnings (loss) before cumulative effect of change in accounting principle $ (.37) $ .22 Cumulative effect of change in accounting principle (.10) (.02) --------- --------- Net earnings (loss) $ (.47) $ .20 ========= ========= Cash dividends per common share $ .17 $ .17 ========= ========= Average common shares outstanding (millions) - basic 99.1 102.7 ========= ========= Average common shares outstanding (millions) - diluted 99.1 104.4 ========= =========
See notes to financial statements. 3 THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF CASH FLOWS (unaudited) - ------------------------ (All dollar amounts in millions)
First Quarter Ended ---------------------------------------- April 1, April 2, 2001 2000 --------------- --------------- Cash flows from operating activities: Net earnings (loss) $ (47.0) $ 20.8 Adjustments to reconcile net earnings (loss) to net cash (used in) operating activities: Depreciation, amortization and depletion of property, plant and equipment 71.3 69.0 Depreciation and amortization of other assets 15.7 14.9 Deferred income taxes 22.6 17.4 Investees-earnings and dividends (1.9) (4.2) Cumulative effect of change in accounting principle 10.4 2.4 Other (5.6) (6.6) Change in current assets and liabilities: Accounts receivable 60.5 60.6 Inventories (93.7) (137.3) Other current assets (7.7) (10.0) Accounts payable and accrued liabilities (107.9) (94.3) -------------- -------------- Net cash (used in) operating activities (83.3) (67.3) Cash flows from investing activities: Capital expenditures (45.5) (32.2) Additions to equipment rented to others (8.0) (7.5) Other 1.8 (9.0) -------------- -------------- Net cash (used in) investing activities (51.7) (48.7) Cash flows from financing activities: Additional borrowings 113.9 Payments on borrowings (.3) (21.7) Notes payable 17.9 105.2 Cash dividends paid (16.3) (17.4) Common shares issued 4.8 5.8 -------------- -------------- Net cash provided by financing activities 120.0 71.9 -------------- -------------- (Decrease) in cash and cash equivalents (15.0) (44.1) Cash and cash equivalents at beginning of year 29.4 56.4 -------------- -------------- Cash and cash equivalents at end of quarter $ 14.4 $ 12.3 ============== ==============
See notes to financial statements. 4 THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - ----------------------------- (All dollar amounts in millions) A - FINANCIAL STATEMENTS The balance sheet at December 31, 2000, 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 of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the interim periods presented have been made. These financial statements should be read in conjunction with the company's Annual Report on Form 10-K for the year ended December 31, 2000. The results of operations for the first quarter ended April 1, 2001, are not necessarily indicative of the results for the full year. 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): April 1, Dec. 31, 2001 2000 ----------- ----------- Finished and semi-finished products $ 436.5 $ 360.1 Raw materials 131.2 117.2 Stores and supplies 87.5 84.2 ----------- ----------- $ 655.2 $ 561.5 =========== =========== D - LOCATION CLOSURES AND EMPLOYEE TERMINATION COSTS During 2000, the company recorded a pretax charge of $9.5 million in cost of sales associated with the shutdown and disposal of one Consumer and Office Products location and the shutdown of one Packaging and Paperboard location. The charges included $1.3 million for transferring equipment to other locations, $6.8 million for severance costs including medical, dental and other benefits, and an additional $1.4 million in depreciation expense. Machinery and equipment was transferred to various Consumer and Office Products and Packaging and Paperboard locations and expensed as incurred. The severance costs related to 269 salaried and hourly employees who have left the company on or before April 1, 2001. The following is a summary of the related severance charges. 5 Severance Charge ---------------- Balance at December 31, 2000 $ 1.3 Used for intended purpose (1.3) ------- Balance at April 1, 2001 $ ======= E - SHAREOWNERS' EQUITY The company has outstanding authorization from the Board of Directors to repurchase up to ten million common shares; however, no shares were repurchased in the first quarter of 2001. As of the first quarter of 2001, 4.1 million shares have been repurchased on the open market. Comprehensive earnings for the first quarter ended April 1, 2001 and April 2, 2000, were $(34.2) million and $14.6 million; respectively. The difference between net earnings and comprehensive earnings for the first quarter ended April 1, 2001 relates to the change in foreign currency translation adjustment, unrealized loss on available-for-sale securities, additional minimum pension liability and the adoption of Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". F - ADDITIONAL INFORMATION ON CASH FLOWS First Quarter Ended ---------------------- April 1, April 2, 2001 2000 --------- -------- Cash paid for: Interest $ 43.4 $ 45.1 ======== ======= Income Taxes $ 24.7 $ 30.5 ======== ======= 6 G - SEGMENT INFORMATION First Quarter Ended -------------------------------- April 1, April 2, 2001 2000 ------------- ------------- Net sales: Industry segments: Paper $ 476.3 $ 468.6 Packaging and Paperboard 363.2 388.8 Consumer and Office Products 105.0 96.2 ------------- ------------- Total $ 944.5 $ 953.6 ============= ============= Earnings (loss) from operations before income taxes: Industry segments: Paper $ (6.3) $ 48.5 Packaging and Paperboard 11.9 42.2 Consumer and Office Products (8.5) (11.9) Corporate and other (1) (45.2) (48.6) ------------- ------------- Total $ (48.1) $ 30.2 ============= ============= (1) Corporate and other includes the following: Other revenues (expenses) $ (.4) $ 2.0 Interest expense (28.8) (29.7) Other expenses (16.0) (20.9) ------------- ------------- Total $ (45.2) $ (48.6) ============= ============= Identifiable assets have not changed significantly at April 1, 2001, compared to December 31, 2000. H - DERIVATIVES FINANCIAL INSTRUMENTS Effective January 1, 2001, the company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivative instruments are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the 7 fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive loss and is recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings currently. The adoption of SFAS No. 133 resulted in a cumulative effect after-tax charge to earnings of $10.4 million and a reduction in other comprehensive loss of $10.3 million. The reduction to income is mostly attributable to an embedded option within a convertible debenture classified as an available for sale investment. The debenture was received as part of the consideration for the sale of an equity investee in 1999. The embedded derivative has been bifurcated from the debenture and is not designated as a hedge. The change in fair value of the derivative during the first quarter of 2001 is recorded in other revenues. The net derivative loss included in other comprehensive loss at the end of the first quarter 2001 which is expected to be reclassified to earnings within the next 12 months is approximately $100 thousand. The company uses various derivative financial instruments as part of an overall strategy to manage exposures to market risks associated with interest rates, commodity prices and foreign currency exchange fluctuations. The company's objective for engaging in derivatives is to manage the risks to an acceptable level while using the most cost effective methods. Interest Rate Risk The company utilizes interest rate swap and cap agreements to manage its interest rate risks on its debt instruments including the reset of interest rates on variable rate debt. As part of an overall strategy to maintain an acceptable level of exposure to interest rate fluctuation, the company has developed a targeted mix of fixed-rate or cap-protected debt and variable rate debt. To efficiently manage this mix, the company may utilize interest rate swap and cap agreements. The company utilizes interest rate cap agreements to limit the impact of increases in interest rates on its floating rate. The fair value of the cap is not material. The company has interest rate swaps with a $34.3 million notional amount designated as fair value hedges of certain fixed rate borrowings. The maturity dates on these swaps match the maturity dates of the underlying debt. Included in other revenues is pre-tax income of approximately $350 thousand associated with the ineffectiveness of fair value hedges of interest rate risk during the first quarter. The company also has an interest rate swap with a notional amount of $50 million and remaining life of five years, designated as a cash flow hedge. There was no ineffectiveness during the first quarter of 2001 for this hedge. Commodities Price Risk The company is exposed to price changes in raw materials, components, and items purchased for resale. The prices of some of these items can vary significantly over time due to changes in the markets in which the company's many suppliers operate. The company's selling prices often change in a similar fashion, although often to a greater or lesser degree. The company currently uses a limited amount of derivative financial instruments to manage its exposure to changes in certain commodity prices. The company has entered swap transactions on a notional amount of 8 old corrugated containers ("OCC") and corrugated medium sales. These contracts are designated as cash flow hedges of the forecasted purchases of OCC and forecasted sales of medium. There is no ineffectiveness associated with these contracts. Foreign Currency Risk The company uses foreign currency forward contracts to manage the foreign currency exchange risks associated with its international operations. The company utilizes forward contracts which are short-term in duration and receives or pays the difference between the contracted forward rate and the exchange rate at the settlement date. The forward contracts, which are not designated as hedging instruments under SFAS No. 133, are used to hedge the impact of the variability of exchange rates on the company's cash flow. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- RESULTS OF OPERATIONS - --------------------- Net sales - --------- First quarter net sales were $944.5 million, a 1% decrease from $953.6 million in the first quarter of 2000. The slight decline in sales revenue was primarily from lower prices and sales volume of coated paper and corrugating medium. Costs and expenses - ------------------ Costs of sales of $850.7 million increased 10% from $776.6 million in 2000 primarily as a result of higher costs for energy and oil-derived raw materials and due to operating difficulties at one of Mead's larger paper mills. Selling and administrative expenses of $113.5 million decreased 4% from $118.6 million in 2000 as a result of lower consulting and compensation-related expenses. Interest and debt expense - ------------------------- First quarter interest and debt expense of $28.8 million decreased 3% from $29.7 million in 2000 as a result of slightly lower interest rates in 2001. Income taxes - ------------ The effective income tax rate was 21.4% compared to 36.4% in the first quarter of 2001. The tax rate was much lower because of the expected earnings reduction in 2001 combined with the tax benefits of certain export sales arrangements. Equity in net earnings of investees - ----------------------------------- Mead's share of earnings from investees was $1.2 million compared to $4 million in the first quarter of 2000. The decline was a result of lower selling prices for oriented strand board (OSB). Net earnings (loss) - ------------------- Mead reported a net loss for the first quarter of 2001 of $47 million compared to net earnings of $20.8 million in the first quarter of 2000. The net loss in the first quarter of 2001 included an after-tax charge of $10.4 million for the cumulative effect of an accounting change related to adoption of SFAS No. 133 as discussed in Note H to the Financial Statements on this Form 10-Q. The decline in operating results compared to the first quarter of 2000 was a result of lower selling prices and shipments of coated paper and corrugating medium, operating difficulties and higher costs for energy and certain raw materials. In the first quarter of 2000, net earnings included an after-tax charge of $2.4 million, reflecting the cumulative effect of a change in accounting principle related to adoption of Securities and Exchange Commission Staff Accounting Bulletin No. 101. 10 Financial Data by Business - -------------------------- Paper segment First Quarter -------------------------------- 2001 2000 % Change -------------------------------- (All dollar amounts in millions) Net sales $476.3 $468.6 2% Segment earnings (loss) before income tax (6.3) 48.5 (113)% Earnings in the Paper segment declined from last year's first quarter as a result of higher costs for energy and certain raw materials, lower shipments and selling prices for coated paper, lower selling prices for carbonless paper and operating issues. Operating issues related to the conversion to alkaline papermaking at the company's Ohio mill and other matters led to higher costs of approximately $15 million pretax in the quarter. Shipments of carbonless paper increased during the quarter compared to the first quarter of 2000 as a result of a multi-year sales agreement signed in late 2000 with a new customer. Packaging and Paperboard segment First Quarter ------------------------------- 2001 2000 % Change ------------------------------- (All dollar amounts in millions) Net sales $363.2 $388.8 (7)% Segment earnings before income tax 11.9 42.2 (72)% Sales in the Packaging and Paperboard segment declined 7% from the prior year. Earnings declined 72% from the prior year primarily as a result of market- related issues that included higher costs for energy and certain raw materials, lower shipments and prices for corrugating medium, containers and wood products as well as the effect of foreign currency exchange rates on European operations. To better match production to demand, the Containerboard division slowed production of corrugating medium at its Stevenson, Alabama, mill, taking the equivalent of 33,000 tons of market-related downtime during the first quarter at a cost of approximately $5 million pretax. Consumer and Office Products segment First Quarter ------------------------------- 2001 2000 % Change ------------------------------- (All dollar amounts in millions) Net sales $105.0 $96.2 9% Segment (loss) before income tax (8.5) (11.9) 29% 11 Sales in the Consumer and Office Products segment increased 9% from the prior year due to higher sales of consumer products. The segment reported a narrower seasonal loss in the first quarter compared to the prior year's first quarter as a result of higher sales and improvements in productivity. The segment generally reports a seasonal operating loss in the first quarter of the year as the selling season for its major product lines of school supplies and time management products occurs later in the year. During the quarter, Mead acquired selected assets formerly used by Pen-Tab, which had been a supplier of school products to the marketplace. These assets included a facility in Front Royal, Virginia, which Mead is now operating. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital on April 1, 2001 was $283 million compared to $269 million on December 31, 2000. The current ratio was 1.3 at the end of the first quarter of 2001, unchanged from December 31, 2000. Inventories of $655 million were up 17% from December 31, 2000 due in large part to the seasonal build for the Consumer and Office Products segment. Inventories were up 2% from the level of the first quarter of 2000, reflecting slightly higher inventories in the Paper segment. Borrowed capital (long-term debt) as a percentage of total capital (long-term debt plus shareowner's equity) was 36.2% at the end of the first quarter compared to 35.6% on December 31, 2000. Total debt to total capital at the end of the first quarter 2001 was 41.5% compared to 39% on December 31, 2000, reflecting the seasonality of the Consumer and Office Products business. Capital expenditures totaled $46 million for the first quarter of 2001 compared to $32 million for the first quarter of 2000. At the end of the first quarter, Mead paid a fixed rate or a capped rate of interest on 63% 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 $.04 change in earnings per share for the year. The estimated market value of long-term debt, excluding capital leases, was $9.3 million less than book value at the end of the first quarter. OUTLOOK - ------- During the quarter, Mead continued the multi-year implementation of an enterprise resource planning ("ERP") software system across the company. Mead expects to spend approximately $125 million to implement the ERP system between 1998 and early 2003. Through the first quarter of 2001, the company had spent a total of $82 million. In 2000, Mead implemented the system at its Coated Board division and implemented a portion of the system, the source and supply components, at its other four major mills. During the first quarter of 2001, two of the company's three major paper mills completed the system implementation by adding the order management components. The third paper mill is scheduled to complete the implementation later this year. The containerboard mill is also scheduled to complete the ERP implementation later this year. Implementation at additional company divisions will follow in 2002 and 2003. Mead expects energy-related costs to be higher in the second quarter of 2001 than in the same period last year. In the first quarter of 2001, energy-related costs increased approximately $20 million on a pretax basis compared to the first quarter of 2000. In its more cyclical businesses of 12 containerboard and coated paper, the company expects lower prices and sales volume in the second quarter of 2001 compared to a year ago as a result of a weaker economy and a continuing strong dollar. To better match production to demand, Mead expects to take production downtime of approximately 25,000 tons in corrugating medium and approximately 5,000 tons in coated paper during the second quarter. Mead expects unfavorable currency exchange rates will continue to impact the results of the international locations of the Paperboard and Packaging segment in the second quarter of 2001. In 2001, the company expects to continue capital spending at a level below the rate of depreciation. Mead expects capital expenditures for the year will total less than $250 million, subject to opportunities that may be presented to and pursued by the company. FORWARD-LOOKING STATEMENTS - -------------------------- Forward-looking statements throughout this report are based upon current expectations and are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed. These risks and uncertainties include, but are not limited to: growth in supply of different sectors of the paper and forest products industry, particularly in the U.S., Europe and Asia Pacific; demand for paper and paperboard in the U.S., Europe and Asia Pacific markets; market prices for these products; fluctuations in foreign currency, primarily in Europe; stability of financial markets; capacity spending levels in the industry; general business and economic conditions in the U.S., Europe, Asia Pacific and Latin America; interest rates and their volatility; energy costs and availability; government actions; competitive factors; and opportunities that may be presented to and pursued by the company not known at this time. 13 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, 2000. PART II - OTHER INFORMATION --------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits (10) Material Contracts: (1) Corporate Annual Incentive Plan for 2001 in which executive officers participate. (2) Corporate Long Term Incentive Plan effective 2001 in which executive officers participate. (3) Corporate Long Term Incentive Plan effective 2002 in which executive officers participate. (b) No current reports on Form 8-K were filed with the Commission in the first quarter of 2001. 14 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: May 9, 2001 THE MEAD CORPORATION - -------------------- (Registrant) By: /s/ PETER H. VOGEL, JR. -------------------------------- Peter H. Vogel, Jr. Vice President, Finance and Treasurer (Chief Accounting Officer) 15 EX-10.1 2 dex101.txt CORPORATE ANNUAL INCENTIVE PLAN FOR 2001 Exhibit 10(1) THE MEAD CORPORATION CORPORATE ANNUAL INCENTIVE PLAN ------------------------------- 2001 ---- OBJECTIVE - --------- The objective of the Corporate Annual Incentive Plan is to recognize and reward Mead's key executive officers and division leaders for achieving and sustaining superior business financial results. PARTICIPATION ELIGIBILITY - ------------------------- All Officers of the Corporation are participants in this Plan. In addition, the formula of this Plan provides funding for the annual incentives of all Corporate Center employees. PAYOUT ELIGIBILITY - ------------------ Participants must be employees of the company, an affiliate or a subsidiary at the end of the 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 Plan year. In such cases, the annual incentive target will be pro-rated to reflect the months of service. Provisions detailed in Attachment 1 and forming a part of this Plan govern in the event of a Change in Control of the company. ANNUAL INCENTIVE TARGET - ----------------------- The annual incentive target for each grade is the difference between Mead's policy Total Annual Compensation (TAC) target and the midpoint. This target will be adjusted annually, based on market total cash compensation data. The current annual targets are shown in Attachment 2. PAYOUT FUNDING - -------------- Payout Factor is determined by the aggregate of all eligible individual annual incentive targets multiplied by the greater of: 1. The Funding Formula, determined as: Funding = Mead ROTC X Mead ROTC ---------------------- ------------- Formula Mead Cost of Capital FP Peers ROTC where ROTC = (EAT + ((1 - Tax Rate) X Current Interest Expense)) X 100 --------------------------------------------------- (Average Equity + Average Long-Term Debt) 16 2. Relative Financial Results determined from the table following:
- -------------------- --------- -------- -------- ------- -------- -------- -------- ---------- ---------- ---------- ---------- If Mead ROTC Rank 1 2 3 4 5 6 7 8 9 10 11 is: - -------------------- --------- -------- -------- ------- -------- -------- -------- ---------- ---------- ---------- ---------- Then Payout 100% 88% 75% 63% 50% 30% 15% ZERO ZERO ZERO ZERO Funding is: - -------------------- --------- -------- -------- ------- -------- -------- -------- ---------- ---------- ---------- ----------
Mead's Forest Products peers (FP Peers) are comprised of those members of the Forest and Paper Industry Compensation Association (FPICA) whose major business lines are similar to the Mead business segments, and for which public financial reporting is provided by Value Line Reports. For the 2001 Plan year, these companies are identified as: Boise Cascade Bowater Georgia Pacific International Paper Potlatch Smurfit-Stone Temple-Inland Westvaco Weyerhaeuser Willamette The Compensation Committee may alter the membership of this FP Peer group as corporate structures or market business lines of the indicated companies change. The annual incentive payout pool is determined as: Annual Incentive Payout Pool = Aggregate Annual Incentive Targets X Payout Factor While this formula determines an available pool of annual incentive dollars, allocation of incentive awards to individuals is based solely on the criteria for "Individual Payout Determination" defined in the following section. INDIVIDUAL PAYOUT DETERMINATION - ------------------------------- Payout under this Plan for all Participants will be determined by an assessment of each individual's contribution to the business results for the performance period. This assessment for each Participant shall be determined by that participant's manager, subject to review of the CEO. PAYOUT LIMITATIONS - ------------------ Payout shall be limited on the basis of the following financial results of the Corporation: 1. There shall be no payout to any participant if corporate earnings are negative for the calendar year, after adjustments for special items by the Committee: or 17 2. Payout is capped at 200% of target, for any level of performance. ACCOUNTING FOR PAYOUT - --------------------- The aggregate payout amount will be estimated periodically, and the required accruing for the payout will be charged against earnings during the year. Approved individual incentive payments will be determined after year end and charged against the previously established balance sheet accrual. RECOMMENDATIONS AND APPROVAL - ---------------------------- The Compensation Committee approves this Plan, and reviews total funding and individual payouts under the Plan. The CEO recommends all individual payouts to the Compensation Committee of the Board of Directors for approval. Payouts for the CEO and the COO are recommended to the Board of Directors by the Compensation Committee. The Compensation Committee may also determine if payout will be in cash, restricted stock, or replaced with stock options, or a combination thereof. The Board of Directors may require a mandatory deferral of all or any portion of the payout to ensure full deductibility of compensation to any executive. 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. RESERVED RIGHTS - --------------- The Mead Corporation reserves the right to alter, amend, suspend or terminate any or all provisions of this Corporate Annual 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. 18 Attachment 1 Effect of Change in Control - --------------------------- Notwithstanding any foregoing Plan provision to the contrary (and notwithstanding any lack of satisfaction of any condition or requirement which would otherwise apply to an award), immediately upon the occurrence of a Change in Control (as defined in the next section hereof), (i) if the Change in Control occurs after the completion of the performance period ending December 31, 2001 (the "Performance Period"), any award with respect to the Performance Period which has already been determined, but has not yet been paid or deferred, shall be immediately paid in full in cash to the respective Participant, (ii) if the Change in Control occurs after the completion of the Performance Period, if no awards have been determined with respect to the Performance Period, the amount (if any) of each such award shall be immediately determined in accordance with the provisions of the Plan and shall be immediately paid in full in cash to the respective Participant, and (iii) if the Change in Control occurs during the Performance Period (the 'Change-in-Control Performance Period'), each Participant shall immediately be paid a pro-rata award for the Performance Period, the amount of which shall equal the product of multiplying the Participant's individual incentive target by a fraction, the numerator of which shall be the number of days in the Change-in-Control Performance Period which have elapsed as of the date of the Change in Control, and the denominator of which shall be the number of days in the Performance Period. Notwithstanding the immediately preceding sentence, no amounts shall be paid pursuant thereto which would, in the opinion of counsel selected by Mead's independent auditors, constitute 'parachute payments' within the meaning of Section 280G(b)(2)(A) of the Internal Revenue Code (the 'Code') and, when added to any other 'parachute payments' which would be received by the Participant pursuant to the terms of any other plan, arrangement or agreement with Mead, any person whose actions result in a change in control of Mead or any person affiliated with Mead or such person, would be subject to the tax imposed by Section 4999 of the Code. Notwithstanding any provision to the contrary in the Plan, upon and after the occurrence of a Change in Control, (i) the Compensation Committee shall have no power to cause a Participant's award to be paid in any manner other than as a cash lump sum, (ii) the Board of Directors shall have no power to require a mandatory deferral of all or any portion of the award, and (iii) neither the Compensation Committee, the Board of Directors nor any other person or entity shall have the right to terminate or amend the Plan in any manner which would adversely affect the rights or expectancies of a Participant with respect to payment of an award pursuant to this section, as in effect immediately before the Change in Control. Definition of Change in Control - ------------------------------- A 'Change in Control' shall be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred: (i) date of expiration of a Tender Offer (as defined below), other than an offer by Mead, if the offeror acquires Shares (as defined below) pursuant to such Tender Offer; (ii) the date of approval by the shareholders of Mead of a definitive agreement: (x) for the merger or consolidation of Mead or any direct or indirect subsidiary of Mead into or with another corporation, other than (1) a merger or consolidation which would result in the voting securities of 19 Mead outstanding immediately prior thereto continuing to represent ((i) in the case of a merger or consolidation of Mead, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, or (ii) in the case of a merger or consolidation of any direct or indirect subsidiary of Mead, either by remaining outstanding if Mead continues as a parent of the merged or consolidated subsidiary or by being converted into voting securities of the surviving entity or any parent thereof) at least 51% of the combined voting power of the voting securities of Mead or such surviving or parent entity outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Mead (or similar transaction) in which no Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of Mead (not including in the securities Beneficially Owned by such Person any securities acquired directly from Mead or its Affiliates) representing 25% or more of the combined voting power of Mead's then outstanding securities, or (y) for the sale or disposition of all or substantially all of the assets of Mead, other than a sale or disposition by Mead for all or substantially all of Mead's assets to an entity, at least 51% of the combined voting power of the voting securities of which are owned (directly or indirectly) by shareholders of Mead in substantially the same proportions as their ownership of Mead immediately prior to such sale or disposition. (iii) (x) any Person is or becomes the Beneficial Owner of 25% or more of the voting power of the then outstanding securities of Mead (not including in the securities beneficially owned by such Person any securities acquired directly or indirectly from Mead or its affiliates), excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (x)(1) of paragraph (ii) above or (y) the date of authorization, by both a majority of the voting power of Mead and a majority of the portion of such voting power excluding the voting power of interested Shares, of a control share acquisition (as such term is defined in Chapter 1701 of the Ohio Revised Code); and (iv) a change in the composition of the Board of Directors such that individuals who were members of the Board of Directors on the date two years prior to such change (and any new directors (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Mead) who were elected, or were nominated for election by Mead's shareholders with the affirmative vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved) no longer constitute a majority of the Board of Directors. Notwithstanding the foregoing, a 'Change in Control' shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Mead immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of Mead immediately following such transaction or series of transactions. 'Affiliate' shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. 'Beneficial Owner' shall have the meaning defined in Rule 13d-3 under the Exchange Act. 20 'Exchange Act' shall mean the Securities Exchange Act of 1934, as amended from time to time. 'Person' shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Mead or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Mead or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of Mead in substantially the same proportions as their ownership of stock of Mead. 'Shares' shall mean shares of common stock, without par value, of The Mead Corporation. 'Tender Offer' shall mean a tender offer or a request or invitation for tenders or an exchange offer subject to regulation under Section 14(d) of the Exchange Act and the rules and regulations thereunder, as the same may be amended, modified or superseded from time to time. 21 Attachment 2 CORPORATE ANNUAL INCENTIVE PLAN ------------------------------- PAYOUT TARGETS -------------- 2001 ---- 2001 2001 Annual 2001 Policy Grade Midpoint Incentive Target TAC Target ----- --------- ---------------- ----------- 33 $891,804 $845,100 $1,736,904 32 773,316 699,800 1,473,116 31 668,472 579,100 1,247,572 30 578,640 474,900 1,053,540 29 500,184 390,000 890,184 28 432,408 319,600 752,008 27 374,376 262,500 636,876 26 324,708 216,000 540,708 25 281,472 179,800 461,272 24 245,388 151,800 397,188 23 215,220 130,200 345,420 22 192,264 112,410 304,674 21 169,788 91,160 260,948 22 EX-10.2 3 dex102.txt CORPORATE LONG TERM INCENTIVE PLAN EFFECTIVE 2001 Exhibit 10(2) THE MEAD CORPORATION THE CORPORATE LONG TERM INCENTIVE PLAN -------------------------------------- 2001 ---- OBJECTIVE - --------- The objective of the Corporate Long Term Incentive Plan is to reward senior executives for adding value to the Corporation by delivering shareholder value that ranks high relative to shareholder value achieved by the S&P 500 Index and by Mead's Forest Products peers. TERM OF THE PLAN - ---------------- This Corporate Long Term Incentive Plan is a two-year Plan spanning 2000 and 2001, with the performance period ending December 31, 2001. The next Long Term Incentive Plan covers the period 2001 and 2002, with the performance period ending December 31, 2002. All eligible executives are thus participants in two plan cycles at any time. Provisions detailed in Attachment 1 and forming a part of this Plan govern in the event of a Change in Control of the company. PARTICIPATION ELIGIBILITY - ------------------------- All Officers of the Corporation at salary grade 23 or above and all Division Presidents are participants in this Plan. The Compensation Committee of the Board of Directors may designate any other executive as a participant at its sole discretion. PAYOUT ELIGIBILITY - ------------------ Participants must be employees of the company, an affiliate or a subsidiary at the end of the two-year Plan performance period 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 second year of the performance period. In such cases, the incentive target will be pro-rated to reflect the months of service. There will be no such adjustment for death, disability, or retirement during the first year of the performance period. LONG TERM INCENTIVE TARGET - -------------------------- The 2001 Long Term Incentive Targets by grade are shown in Attachment 2. These Targets will be adjusted annually, based on competitive data. TOTAL PAYOUT DETERMINATION - -------------------------- This Plan uses as the key performance measure, the 2-year Total Shareholder Return - TSR - (stock price growth plus dividend reinvestment) of Mead relative to two comparator groups: 1. The S&P 500 Index 2. Mead's Forest Products peers (FP Peers), comprising of those members of the Forest and Paper Industry Compensation Association (FPICA) whose major business lines are similar to the Mead business segments, and for which public financial reporting is provided by Value Line Reports. For the Plan cycle ending December 31, 2001, these companies are identified as: 23 Boise Cascade Bowater Georgia Pacific International Paper Potlatch Smurfit/Stone Container Temple-Inland Westvaco Weyerhaeuser Willamette For the current Plan period, the TSR is measured on December 31, 1999 and December 31, 2001. A single matrix (Attachment 3) determines the Payout Factor on the basis of Mead's TSR relative to the TSR of each of the above comparator groups. The long term incentive payout is determined as: L. T. Incentive Payout = L.T. Incentive Target X Payout Factor INDIVIDUAL PAYOUT DETERMINATION - ------------------------------- The above calculation will not normally be further adjusted for any participant on the basis of individual contribution, except by approval of the Compensation Committee. PAYOUT LIMITATIONS - ------------------ Payout shall be limited on the basis of the following financial results for the Corporation: 1. The Committee may, but is not obligated to, determine a ZERO payout if Mead TSR for the two-year performance period is negative, even if Mead TSR exceeds either or both comparator groups; or 2. There shall be no payout to any participant if corporate earnings are negative in the final year of the performance period, after adjustments for special items by the Committee; or 3. Payout is capped at 200% of target, for any level of performance. The Compensation Committee shall monitor the TSR of Mead, of the S&P 500 Index, and of the FP Peers for the 24-month measurement period ending in each of the eight quarters of this Plan, and may make an adjustment to the Payout Factor on the basis of an assessment of Mead's relative TSR performance in each of these eight quarters. ACCOUNTING FOR PAYOUT - --------------------- The aggregate payout amount will be estimated periodically, and the required accruing for the payout will be charged against earnings over time. Approved individual incentive payments will 24 be determined after the measurement period and charged against the previously established balance sheet accrual. RECOMMENDATIONS AND APPROVAL - ---------------------------- The Compensation Committee approves this Plan, and reviews total funding and individual payouts under the Plan. The CEO recommends all individual payouts to the Compensation Committee of the Board of Directors for approval. Payouts for the CEO and the COO are approved by the Board of Directors. Form of payout will be determined by the Compensation Committee. The Committee anticipates that the payout will normally be delivered to all participants as a minimum of 25% restricted stock (with a 3-year vesting period), and the balance delivered in either cash, or deferred into Mead's Executive Capital Accumulation Plan, or as restricted stock, as elected by each participant. The Board of Directors may require a mandatory deferral of all or any portion of the payout to ensure full deductibility of compensation paid to any executive. 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. RESERVED RIGHTS - --------------- The Mead Corporation reserves the right to alter, amend, suspend or terminate any or all provisions of this Corporate Long Term 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. 25 Attachment 1 Effect of Change in Control - --------------------------- Notwithstanding any foregoing Plan provision to the contrary (and notwithstanding any lack of satisfaction of any condition or requirement which would otherwise apply to an award), immediately upon the occurrence of a Change in Control (as defined in the next section hereof), (i) if the Change in Control occurs after the completion of the performance period ending December 31, 2001 (the "Performance Period"), any award with respect to the Performance Period which has already been determined, but has not yet been paid or deferred, shall be immediately paid in full in cash to the respective Participant, (ii) if the Change in Control occurs after the completion of the Performance Period, if no awards have been determined with respect to the Performance Period, the amount (if any) of each such award shall be immediately determined in accordance with the provisions of the Plan and shall be immediately paid in full in cash to the respective Participant, and (iii) if the Change in Control occurs during the Performance Period (the `Change-in-Control Performance Period'), each Participant shall immediately be paid a pro-rata award for the Performance Period, the amount of which shall equal the product of multiplying the Participant's individual incentive target by a fraction, the numerator of which shall be the number of days in the Change-in-Control Performance Period which have elapsed as of the date of the Change in Control, and the denominator of which shall be the number of days in the Performance Period. Notwithstanding the immediately preceding sentence, no amounts shall be paid pursuant thereto which would, in the opinion of counsel selected by Mead's independent auditors, constitute `parachute payments' within the meaning of Section 280G(b)(2)(A) of the Internal Revenue Code (the `Code') and, when added to any other `parachute payments' which would be received by the Participant pursuant to the terms of any other plan, arrangement or agreement with Mead, any person whose actions result in a change in control of Mead or any person affiliated with Mead or such person, would be subject to the tax imposed by Section 4999 of the Code. Notwithstanding any provision to the contrary in the Plan, upon and after the occurrence of a Change in Control, (i) the Compensation Committee shall have no power to cause a Participant's award to be paid in any manner other than as a cash lump sum, (ii) the Board of Directors shall have no power to require a mandatory deferral of all or any portion of the award, and (iii) neither the Compensation Committee, the Board of Directors nor any other person or entity shall have the right to terminate or amend the Plan in any manner which would adversely affect the rights or expectancies of a Participant with respect to payment of an award pursuant to this section, as in effect immediately before the Change in Control. Definition of Change in Control - ------------------------------- A `Change in Control' shall be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred: (i) date of expiration of a Tender Offer (as defined below), other than an offer by Mead, if the offeror acquires Shares (as defined below) pursuant to such Tender Offer; (ii) the date of approval by the shareholders of Mead of a definitive agreement: (x) for the merger or consolidation of Mead or any direct or indirect subsidiary of Mead into or with another corporation, other than (1) a merger or consolidation which would result in the voting securities of 26 Mead outstanding immediately prior thereto continuing to represent ((i) in the case of a merger or consolidation of Mead, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, or (ii) in the case of a merger or consolidation of any direct or indirect subsidiary of Mead, either by remaining outstanding if Mead continues as a parent of the merged or consolidated subsidiary or by being converted into voting securities of the surviving entity or any parent thereof) at least 51% of the combined voting power of the voting securities of Mead or such surviving or parent entity outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Mead (or similar transaction) in which no Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of Mead (not including in the securities Beneficially Owned by such Person any securities acquired directly from Mead or its Affiliates) representing 25% or more of the combined voting power of Mead's then outstanding securities, or (y) for the sale or disposition of all or substantially all of the assets of Mead, other than a sale or disposition by Mead for all or substantially all of Mead's assets to an entity, at least 51% of the combined voting power of the voting securities of which are owned (directly or indirectly) by shareholders of Mead in substantially the same proportions as their ownership of Mead immediately prior to such sale or disposition. (iii) (x) any Person is or becomes the Beneficial Owner of 25% or more of the voting power of the then outstanding securities of Mead (not including in the securities beneficially owned by such Person any securities acquired directly or indirectly from Mead or its affiliates), excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (x)(1) of paragraph (ii) above or (y) the date of authorization, by both a majority of the voting power of Mead and a majority of the portion of such voting power excluding the voting power of interested Shares, of a control share acquisition (as such term is defined in Chapter 1701 of the Ohio Revised Code); and (iv) a change in the composition of the Board of Directors such that individuals who were members of the Board of Directors on the date two years prior to such change (and any new directors (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Mead) who were elected, or were nominated for election by Mead's shareholders with the affirmative vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved) no longer constitute a majority of the Board of Directors. Notwithstanding the foregoing, a `Change in Control' shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Mead immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of Mead immediately following such transaction or series of transactions. `Affiliate' shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. `Beneficial Owner' shall have the meaning defined in Rule 13d-3 under the Exchange Act. 27 `Exchange Act' shall mean the Securities Exchange Act of 1934, as amended from time to time. `Person' shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Mead or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Mead or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of Mead in substantially the same proportions as their ownership of stock of Mead. `Shares' shall mean shares of common stock, without par value, of The Mead Corporation. `Tender Offer' shall mean a tender offer or a request or invitation for tenders or an exchange offer subject to regulation under Section 14(d) of the Exchange Act and the rules and regulations thereunder, as the same may be amended, modified or superseded from time to time. 28 Attachment 2 THE CORPORATE LONG TERM INCENTIVE PLAN -------------------------------------- 2000-2001 Plan Period --------------------- 2001 Payout Targets ------------------- Grade Incentive Target ----- ---------------- 33 $834,700 32 692,700 31 571,200 30 471,000 29 385,900 28 316,800 27 260,400 26 214,800 25 178,300 24 146,000 23 125,800 22 75,700 21 59,300 29 Mead Long Term Incentive Payout ------------------------------- For 2000-2001 Performance Cycle -------------------------------
Payout - % of Target -------------------- +35% 1.70 0% 136% 153% 170% 187% 200% 200% +30% 1.60 0% 128% 144% 160% 176% 192% 200% +25% 1.50 0% 120% 135% 150% 165% 180% 195% +20% 1.40 0% 112% 126% 140% 154% 168% 182% +15% 1.30 0% 104% 117% 130% 143% 156% 169% +10% 1.20 0% 96% 108% 120% 132% 144% 156% Mead 2-Yr TSR +5% 1.10 0% 88% 99% 110% 121% 132% 143% Relative to Average 1.00 0% 80% 90% 100% 110% 120% 130% S&P 500 -5% 0.90 0% 72% 81% 90% 99% 108% 117% -10% 0.80 0% 64% 72% 80% 88% 96% 104% -15% 0.70 0% 56% 63% 70% 77% 84% 91% -20% 0.60 0% 48% 54% 60% 66% 72% 78% -25% 0.50 0% 40% 45% 50% 55% 60% 65% -30% 0.40 0% 32% 36% 40% 44% 48% 52% -35% 0.30 0% 24% 27% 30% 33% 36% 39% -40% 0.20 0% 16% 18% 20% 22% 24% 26% -45% 0.10 0% 8% 9% 10% 11% 12% 13% -50% 0.00 0% 0% 0% 0% 0% 0% 0% Multipliers 0 0.80 0.90 1.00 1.10 1.20 1.30 7-11 6 5 4 3 2 1 Median Top Max Payout: 200% Mead vs. Forest Products Ranking of 2-Year Total Shareholder Return (TSR)
30 EX-10.3 4 dex103.txt CORPORATE LONG TERM INCENTIVE PLAN EFFECTIVE 2002 Exhibit 10(3) THE MEAD CORPORATION THE CORPORATE LONG TERM INCENTIVE PLAN -------------------------------------- 2002 ---- OBJECTIVE - --------- The objective of the Corporate Long Term Incentive Plan is to reward senior executives for adding value to the Corporation by delivering shareholder value that ranks high relative to shareholder value achieved by the S&P 500 Index and by Mead's Forest Products peers. TERM OF THE PLAN - ---------------- This Corporate Long Term Incentive Plan is a two-year Plan spanning 2001 and 2002, with the performance period ending December 31, 2002. The next Long Term Incentive Plan covers the period 2002 and 2003, with the performance period ending December 31, 2003. All eligible executives are thus participants in two plan cycles at any time. Provisions detailed in Attachment 1 and forming a part of this Plan govern in the event of a Change in Control of the company. PARTICIPATION ELIGIBILITY - ------------------------- All Officers of the Corporation at salary grade 23 or above and all Division Presidents are participants in this Plan. The Compensation Committee of the Board of Directors may designate any other executive as a participant at its sole discretion. PAYOUT ELIGIBILITY - ------------------ Participants must be employees of the company, an affiliate or a subsidiary at the end of the two-year Plan performance period 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 second year of the performance period. In such cases, the incentive target will be pro-rated to reflect the months of service. There will be no such adjustment for death, disability, or retirement during the first year of the performance period. LONG TERM INCENTIVE TARGET - -------------------------- The 2002 Long Term Incentive Targets by grade are shown in Attachment 2. These Targets will be adjusted annually, based on competitive data. TOTAL PAYOUT DETERMINATION - -------------------------- This Plan uses as the key performance measure, the 2-year Total Shareholder Return - TSR - (stock price growth plus dividend reinvestment) of Mead relative to two comparator groups: 1. The S&P 500 Index 2. Mead's Forest Products peers (FP Peers), comprising of those members of the Forest and Paper Industry Compensation Association (FPICA) whose major business lines are similar to the Mead business segments, and for which public financial reporting is provided by Value Line Reports. For the Plan cycle ending December 31, 2002, these companies are identified as: 31 Boise Cascade Bowater Georgia Pacific International Paper Potlatch Smurfit/Stone Container Temple-Inland Westvaco Weyerhaeuser Willamette For the current plan period, the TSR of Mead, of the S&P 500 Index and of the FP Peers are each measured at the end of each calendar quarter for the two-year period: - ------------------------------------------------------------- Period Quarter Ending TSR Measured - ------------------------------------------------------------- 1 Mar 31, 2001 From 03/31/1999 to 03/31/2001 - ------------------------------------------------------------- 2 Jun 30, 2001 From 06/30/1999 to 06/30/2001 - ------------------------------------------------------------- 3 Sep 30, 2001 From 09/30/1999 to 09/30/2001 - ------------------------------------------------------------- 4 Dec 31, 2001 From 12/31/1999 to 12/31/2001 - ------------------------------------------------------------- 5 Mar 31, 2002 From 03/31/2000 to 03/31/2002 - ------------------------------------------------------------- 6 Jul 30, 2002 From 06/30/2000 to 06/30/2002 - ------------------------------------------------------------- 7 Sep 30, 2002 From 09/30/2000 to 09/30/2002 - ------------------------------------------------------------- 8 Dec 31, 2002 From 12/31/2000 to 12/31/2002 - ------------------------------------------------------------- Mead's TSR ranking with respect to the FP Peers is averaged for all eight periods to determine an Overall Mead FP Rank; and Mead's TSR relative to that of the S&P 500 Index is averaged for all eight periods to determine an Overall Mead Competitive Return. A single matrix (Attachment 3) determines the Payout Factor on the basis of the Overall Mead FP Rank and the Overall Mead Competitive Return. Interpolation between matrix values will be calculated. The long term incentive payout is determined as: L. T. Incentive Payout = L.T. Incentive Target X Payout Factor INDIVIDUAL PAYOUT DETERMINATION - ------------------------------- The above calculation will not normally be further adjusted for any participant on the basis of individual contribution, except by approval of the Compensation Committee. PAYOUT LIMITATIONS - ------------------ Payout shall be limited on the basis of the following financial results for the Corporation: 32 1. The Committee may, but is not obligated to, determine a ZERO payout if Mead TSR for the two-year performance period is negative, even if Mead TSR exceeds either or both comparator groups; or 2. There shall be no payout to any participant if corporate earnings are negative in the final year of the performance period, after adjustments for special items by the Committee; or 3. Payout is capped at 200% of target, for any level of performance. ACCOUNTING FOR PAYOUT - --------------------- The aggregate payout amount will be estimated periodically, and the required accruing for the payout will be charged against earnings over time. Approved individual incentive payments will be determined after the measurement period and charged against the previously established balance sheet accrual. Restricted stock certificates will be issued by the Transfer Agent of the Corporation. RECOMMENDATIONS AND APPROVAL - ---------------------------- The Compensation Committee approves this Plan, and reviews total funding and individual payouts under the Plan. The CEO recommends all individual payouts to the Compensation Committee of the Board of Directors for approval. Payouts for the CEO and the COO are approved by the Board of Directors. Form of payout will be determined by the Compensation Committee. The Committee anticipates that the payout will normally be delivered to all participants as a minimum of 25% restricted stock (with a 3-year vesting period), and the balance delivered in either cash, or deferred into Mead's Executive Capital Accumulation Plan, or as restricted stock, as elected by each participant. The Board of Directors may require a mandatory deferral of all or any portion of the payout to ensure full deductibility of compensation paid to any executive. 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. RESERVED RIGHTS - --------------- The Mead Corporation reserves the right to alter, amend, suspend or terminate any or all provisions of this Corporate Long Term 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. 33 Attachment 1 Effect of Change in Control - --------------------------- Notwithstanding any foregoing Plan provision to the contrary (and notwithstanding any lack of satisfaction of any condition or requirement which would otherwise apply to an award), immediately upon the occurrence of a Change in Control (as defined in the next section hereof), (i) if the Change in Control occurs after the completion of the performance period ending December 31, 2002 (the "Performance Period"), any award with respect to the Performance Period which has already been determined, but has not yet been paid or deferred, shall be immediately paid in full in cash to the respective Participant, (ii) if the Change in Control occurs after the completion of the Performance Period, if no awards have been determined with respect to the Performance Period, the amount (if any) of each such award shall be immediately determined in accordance with the provisions of the Plan and shall be immediately paid in full in cash to the respective Participant, and (iii) if the Change in Control occurs during the Performance Period (the `Change-in-Control Performance Period'), each Participant shall immediately be paid a pro-rata award for the Performance Period, the amount of which shall equal the product of multiplying the Participant's individual incentive target by a fraction, the numerator of which shall be the number of days in the Change-in-Control Performance Period which have elapsed as of the date of the Change in Control, and the denominator of which shall be the number of days in the Performance Period. Notwithstanding the immediately preceding sentence, no amounts shall be paid pursuant thereto which would, in the opinion of counsel selected by Mead's independent auditors, constitute `parachute payments' within the meaning of Section 280G(b)(2)(A) of the Internal Revenue Code (the `Code') and, when added to any other `parachute payments' which would be received by the Participant pursuant to the terms of any other plan, arrangement or agreement with Mead, any person whose actions result in a change in control of Mead or any person affiliated with Mead or such person, would be subject to the tax imposed by Section 4999 of the Code. Notwithstanding any provision to the contrary in the Plan, upon and after the occurrence of a Change in Control, (i) the Compensation Committee shall have no power to cause a Participant's award to be paid in any manner other than as a cash lump sum, (ii) the Board of Directors shall have no power to require a mandatory deferral of all or any portion of the award, and (iii) neither the Compensation Committee, the Board of Directors nor any other person or entity shall have the right to terminate or amend the Plan in any manner which would adversely affect the rights or expectancies of a Participant with respect to payment of an award pursuant to this section, as in effect immediately before the Change in Control. Definition of Change in Control - ------------------------------- A `Change in Control' shall be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred: (i) date of expiration of a Tender Offer (as defined below), other than an offer by Mead, if the offeror acquires Shares (as defined below) pursuant to such Tender Offer; (ii) the date of approval by the shareholders of Mead of a definitive agreement: (x) for the merger or consolidation of Mead or any direct or indirect subsidiary of Mead into or with another corporation, other than (1) a merger or consolidation which would result in the voting securities of 34 Mead outstanding immediately prior thereto continuing to represent ((i) in the case of a merger or consolidation of Mead, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, or (ii) in the case of a merger or consolidation of any direct or indirect subsidiary of Mead, either by remaining outstanding if Mead continues as a parent of the merged or consolidated subsidiary or by being converted into voting securities of the surviving entity or any parent thereof) at least 51% of the combined voting power of the voting securities of Mead or such surviving or parent entity outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Mead (or similar transaction) in which no Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of Mead (not including in the securities Beneficially Owned by such Person any securities acquired directly from Mead or its Affiliates) representing 25% or more of the combined voting power of Mead's then outstanding securities, or (y) for the sale or disposition of all or substantially all of the assets of Mead, other than a sale or disposition by Mead for all or substantially all of Mead's assets to an entity, at least 51% of the combined voting power of the voting securities of which are owned (directly or indirectly) by shareholders of Mead in substantially the same proportions as their ownership of Mead immediately prior to such sale or disposition. (iii) (x) any Person is or becomes the Beneficial Owner of 25% or more of the voting power of the then outstanding securities of Mead (not including in the securities beneficially owned by such Person any securities acquired directly or indirectly from Mead or its affiliates), excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (x)(1) of paragraph (ii) above or (y) the date of authorization, by both a majority of the voting power of Mead and a majority of the portion of such voting power excluding the voting power of interested Shares, of a control share acquisition (as such term is defined in Chapter 1701 of the Ohio Revised Code); and (iv) a change in the composition of the Board of Directors such that individuals who were members of the Board of Directors on the date two years prior to such change (and any new directors (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Mead) who were elected, or were nominated for election by Mead's shareholders with the affirmative vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved) no longer constitute a majority of the Board of Directors. Notwithstanding the foregoing, a `Change in Control' shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Mead immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of Mead immediately following such transaction or series of transactions. `Affiliate' shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. `Beneficial Owner' shall have the meaning defined in Rule 13d-3 under the Exchange Act. 35 `Exchange Act' shall mean the Securities Exchange Act of 1934, as amended from time to time. `Person' shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Mead or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Mead or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of Mead in substantially the same proportions as their ownership of stock of Mead. `Shares' shall mean shares of common stock, without par value, of The Mead Corporation. `Tender Offer' shall mean a tender offer or a request or invitation for tenders or an exchange offer subject to regulation under Section 14(d) of the Exchange Act and the rules and regulations thereunder, as the same may be amended, modified or superseded from time to time. 36 Attachment 2 THE CORPORATE LONG TERM INCENTIVE PLAN -------------------------------------- 2001-2002 Plan Period --------------------- 2001 Payout Targets ------------------- Grade Incentive Target ----- ---------------- 33 $834,700 32 692,700 31 571,200 30 471,000 29 385,900 28 316,800 27 260,400 26 214,800 25 178,300 24 146,000 23 125,800 22 75,700 21 59,300 37 Mead Long Term Incentive Payout ------------------------------- For 2001-2002 Performance Cycle ------------------------------- Payout - % of Target -------------------- +35% 1.70 0% 136% 153% 170% 187% 200% 200% +30% 1.60 0% 128% 144% 160% 176% 192% 200% +25% 1.50 0% 120% 135% 150% 165% 180% 195% +20% 1.40 0% 112% 126% 140% 154% 168% 182% +15% 1.30 0% 104% 117% 130% 143% 156% 169% +10% 1.20 0% 96% 108% 120% 132% 144% 156% +5% 1.10 0% 88% 99% 110% 121% 132% 143% Overall Mead Average 1.00 0% 80% 90% 100% 110% 120% 130% Industrial Return -5% 0.90 0% 72% 81% 90% 99% 108% 117% -10% 0.80 0% 64% 72% 80% 88% 96% 104% Mead 2-Yr TSR -15% 0.70 0% 56% 63% 70% 77% 84% 91% Relative to S&P 500 -20% 0.60 0% 48% 54% 60% 66% 72% 78% average of 8 periods -25% 0.50 0% 40% 45% 50% 55% 60% 65% -30% 0.40 0% 32% 36% 40% 44% 48% 52% -35% 0.30 0% 24% 27% 30% 33% 36% 39% -40% 0.20 0% 16% 18% 20% 22% 24% 26% -45% 0.10 0% 8% 9% 10% 11% 12% 13% -50% 0.00 0% 0% 0% 0% 0% 0% 0% ------------------------------------------------------------------------------------ Multipliers 0 0.80 0.90 1.00 1.10 1.20 1.30 ------------------------------------------------------------------------------------ 7-11 6 5 4 3 2 1 Median Top Max Payout: 200% Overall Mead FP Rank Mead vs. Forest Products Ranking of 2-Year TSR - average of 8 periods
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