-----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, CJgdqIlVJecXj0Pja1sDv6DvAaUScKQ9UabMBJ/n0EeT19STgC2KFRI+cdXeiXTh ere9Gs0hhxLGcZMSc5f9EA== 0000950109-01-502670.txt : 20010809 0000950109-01-502670.hdr.sgml : 20010809 ACCESSION NUMBER: 0000950109-01-502670 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010701 FILED AS OF DATE: 20010808 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: 1934 Act SEC FILE NUMBER: 001-02267 FILM NUMBER: 1700489 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 July 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 July 1, 2001 was 99,130,549. ================================================================================ THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES -------------------------------------------------- QUARTERLY PERIOD ENDED JULY 1, 2001 ----------------------------------- PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS -------------------- THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- BALANCE SHEETS (unaudited) - --------------- (All dollar amounts in millions)
July 1, Dec. 31, 2001 2000 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 19.8 $ 29.4 Accounts receivable 677.3 557.3 Inventories 655.2 561.5 Other current assets 122.3 133.1 --------- --------- Total current assets 1,474.6 1,281.3 Investments and other assets 1,132.7 1,128.8 Property, plant and equipment 6,089.9 6,032.4 Less accumulated depreciation and amortization (2,879.9) (2,762.5) --------- --------- 3,210.0 3,269.9 --------- --------- Total assets $ 5,817.3 $ 5,680.0 ========= ========= LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Notes payable $ 332.9 $ 200.3 Accounts payable 244.7 269.1 Accrued liabilities 487.9 530.3 Current maturities of long-term debt 113.1 12.6 --------- --------- Total current liabilities 1,178.6 1,012.3 Long-term debt 1,335.5 1,322.8 Deferred items 933.7 947.1 Shareowners' equity: Common shares 147.8 147.4 Additional paid-in capital 130.6 125.2 Retained earnings 2,123.7 2,172.9 Other comprehensive loss (32.6) (47.7) --------- --------- 2,369.5 2,397.8 --------- --------- Total liabilities and shareowners' equity $ 5,817.3 $ 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)
Second Quarter Ended First Half Ended ------------------------------------ ----------------------------------- July 1, July 2, July 1, July 2, 2001 2000 2001 2000 ---------------- --------------- --------------- --------------- Net sales $1,151.9 $1,151.4 $2,096.4 $2,105.0 Costs and expenses: Cost of sales 964.4 906.4 1,815.1 1,683.0 Selling and administrative expenses 123.7 125.6 237.2 244.2 -------- -------- -------- -------- 1,088.1 1,032.0 2,052.3 1,927.2 -------- -------- -------- -------- Earnings from operations 63.8 119.4 44.1 177.8 Other revenues - net 2.6 4.7 3.0 6.2 Interest and debt expense (29.5) (31.3) (58.3) (61.0) -------- -------- -------- -------- Earnings (loss) before income taxes 36.9 92.8 (11.2) 123.0 Income taxes 7.9 32.5 (2.4) 43.5 -------- -------- -------- -------- Earnings (loss) before equity in net earnings of investees 29.0 60.3 (8.8) 79.5 Equity in net earnings of investees 2.0 3.6 3.2 7.6 -------- -------- -------- -------- Earnings (loss) before cumulative effect of change in accounting principle 31.0 63.9 (5.6) 87.1 Cumulative effect of change in accounting priciple (10.4) (2.4) -------- -------- -------- -------- Net earnings (loss) $ 31.0 $ 63.9 $ (16.0) $ 84.7 ======== ======== ======== ======== Earnings (loss) per common share - basic: Earnings (loss) before cumulative effect of change in accounting principle $ .31 $ .62 $ (.06) $ .84 Cumulative effect of change in accounting principle (.10) (.02) -------- -------- -------- -------- Net earnings (loss) $ .31 $ .62 $ (.16) $ .82 ======== ======== ======== ======== Earnings (loss) per common share - diluted: Earnings (loss) before cumulative effect of change in accounting principle $ .31 $ .62 $ (.06) $ .83 Cumulative effect of change in accounting principle (.10) (.02) -------- -------- -------- -------- Net earnings (loss) $ .31 $ .62 $ (.16) $ .81 ======== ======== ======== ======== Cash dividends per common share $ .17 $ .17 $ .34 $ .34 ======== ======== ======== ======== Average common shares outstanding (millions) - basic 99.1 102.7 99.1 102.7 ======== ======== ======== ======== Average common shares outstanding (millions) - diluted 99.5 103.9 99.1 104.2 ======== ======== ======== ======== See notes to financial statements.
3 THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF CASH FLOWS (unaudited) - ------------------------- (All dollar amounts in millions)
First Half Ended --------------------------------------- July 1, July 2, 2001 2000 ----------------- ----------------- Cash flows from operating activities: Net earnings (loss) $ (16.0) $ 84.7 Adjustments to reconcile net earnings (loss) to net cash (used in) operating activities: Depreciation, amortization and depletion of property, plant and equipment 141.0 137.1 Depreciation and amortization of other assets 31.9 30.2 Deferred income taxes (11.2) 21.3 Investees-earnings and dividends (3.4) (1.5) Cumulative effect of change in accounting principle 10.4 2.4 Other (2.1) (6.2) Change in current assets and liabilities: Accounts receivable (120.0) (75.2) Inventories (93.7) (142.0) Other current assets 4.9 (4.9) Accounts payable and accrued liabilities (66.2) (54.1) ------- ------- Net cash (used in) operating activities (124.4) (8.2) Cash flows from investing activities: Capital expenditures (93.3) (84.1) Additions to equipment rented to others (15.6) (14.1) Other 5.9 (13.7) ------- ------- Net cash (used in) investing activities (103.0) (111.9) Cash flows from financing activities: Additional borrowings 113.9 Payments on borrowings (.8) (21.7) Notes payable 132.6 137.2 Cash dividends paid (33.1) (34.9) Common shares issued 5.2 6.4 Common shares purchased (7.7) ------- ------- Net cash provided by financing activities 217.8 79.3 ------- ------- (Decrease) in cash and cash equivalents (9.6) (40.8) Cash and cash equivalents at beginning of year 29.4 56.4 ------- ------- Cash and cash equivalents at end of quarter $ 19.8 $ 15.6 ======= ======= 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 second quarter ended July 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): July 1, Dec. 31, 2001 2000 -------- -------- Finished and semi-finished products $434.3 $360.1 Raw materials 133.3 117.2 Stores and supplies 87.6 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, all of which have been paid, related to 269 salaried and hourly employees who left the company on or before April 1, 2001. 5 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 second quarter of 2001. As of the second quarter of 2001, 4.1 million shares have been repurchased on the open market. Comprehensive earnings for the half years ended July 1, 2001 and July 2, 2000 were $(0.9) million and $73.4 million, respectively. Comprehensive earnings for the quarters ended July 1, 2001 and July 2, 2000, were $33.3 million and $58.8 million, respectively. The difference between net earnings and comprehensive earnings for the first half ended July 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 Half Ended -------------------------------- July 1, July 2, 2001 2000 --------- --------- Cash paid for: Interest $ 54.8 $ 57.5 ======== ======== Income Taxes $ 31.8 $ 43.4 ======== ======== 6 G - SEGMENT INFORMATION
Second Quarter Ended First Half Ended ----------------------------- ----------------------------- July 1, July 2, July 1, July 2, 2001 2000 2001 2000 -------- -------- -------- -------- Net sales: Industry segments: Paper $ 463.0 $ 454.4 $ 939.3 $ 923.0 Packaging and Paperboard 411.8 435.6 775.0 824.4 Consumer and Office Products 277.1 261.4 382.1 357.6 -------- -------- -------- -------- Total $1,151.9 $1,151.4 $2,096.4 $2,105.0 ======== ======== ======== ======== Earnings (loss) from operations before income taxes: Industry segments: Paper $ (2.8) $ 50.5 $ (9.1) $ 99.0 Packaging amd Paperboard 44.2 53.6 56.1 95.8 Consumer and Office Products 41.6 34.3 33.1 22.4 Corporate and other (1) (46.1) (45.6) (91.3) (94.2) -------- -------- -------- -------- Total $ 36.9 $ 92.8 $ (11.2) $ 123.0 ======== ======== ======== ======== (1) Corporate and other includes the following: Other revenues $ 2.3 $ 2.4 $ 1.9 $ 4.4 Interest and debt expense (29.5) (31.3) (58.3) (61.0) General corporate expenses (18.9) (16.7) (34.9) (37.6) -------- -------- -------- -------- Total $ (46.1) $ (45.6) $ (91.3) $ (94.2) ======== ======== ======== ========
Identifiable assets have not changed significantly at July 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 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. 7 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 second quarter of 2001 is recorded in other revenues. The net derivative loss included in other comprehensive loss at the end of the second quarter 2001 which is expected to be reclassified to earnings within the next 12 months is approximately $240 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 risk 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 $590 thousand associated with the ineffectiveness of fair value hedges of interest rate risk during the second 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 second 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 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. 8 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. I - ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates the pooling-of-interests method of accounting for combinations. SFAS No. 142 eliminates the amortization of purchased goodwill and requires goodwill to be reviewed for impairment at least annually and expensed to earnings only in the periods in which the recorded value of goodwill is more than the fair value. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001, and SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The company is evaluating the potential impact of these statements. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- RESULTS OF OPERATIONS - --------------------- Net sales - --------- Net sales in the second quarter of 2001 of $1.152 billion were essentially unchanged from $1.151 billion in the second quarter of 2000. For the first half of 2001, net sales of $2.096 billion were essentially unchanged from $2.105 billion in the first half of 2000. In the first half of 2001, an increase in sales volume of coated paper and corrugating medium was offset by lower selling prices for those products compared to the first half of 2000. Costs and expenses - ------------------ Cost of sales in the second quarter of $964.4 million increased 6% from $906.4 million in 2000. For the first half, cost of sales of $1.815 billion increased 8% from $1.683 billion in the first half of 2000. The increase in both periods was primarily a result of higher costs for energy and energy-related raw materials and higher shipment volumes of paper and containerboard. For the second quarter, selling and administrative expenses of $123.7 million decreased 2% from $125.6 million in 2000. For the first half of 2001, selling and administrative expenses of $237.2 million decreased 3% from $244.2 million. The decreases were primarily a result of reduced expenses for travel and entertainment, consulting and compensation-related items. Interest and debt expense - ------------------------- Interest and debt expense in the second quarter of $29.5 million decreased 6% from $31.3 million in the second quarter of 2000. In the first half of 2001, interest and debt expense of $58.3 million decreased 4% from $61.0 million in the first half of 2000. The decreases in 2001 resulted from lower interest rates. Income taxes - ------------ The effective income tax rate was 21.4% in the second quarter of 2001 and for the first half of 2001 compared to 35.0% in the second quarter of 2000 and 35.4% in the first half of 2000. The tax rate was lower than in 2000 due to the tax benefits of certain export sales arrangements combined with expected lower earnings levels in 2001. Equity in net earnings of investees - ----------------------------------- Mead's share of earnings from investees was $2.0 million compared to $3.6 million in the second quarter of 2000. For the first half, equity in earnings from investees was $3.2 million compared to $7.6 million in the first half of 2000. The decline was a result of lower selling prices for oriented strand board (OSB). Net earnings (loss) - ------------------- Mead reported net earnings of $31.0 million in the second quarter of 2001 compared to $63.9 million in the second quarter of 2000. For the first half of 2001, Mead reported a net loss of $16.0 million compared to net earnings of $84.7 million in the first half of 2000. The decline in earnings in the first half of 2001 compared to the first half of 2000 was primarily a result of lower selling prices for coated paper and corrugating medium and higher costs for energy and energy-related raw materials. In the first half of 2001, net earnings also included a first quarter after-tax charge of $10.4 million for the cumulative effect of an accounting change related to adoption of Statement of Financial Accounting Standards No. 133. In the first half of 2000, net earnings included a first quarter after-tax charge of $2.4 10 million, reflecting the cumulative effect of a change in accounting principle related to adoption of Securities and Exchange Commission Staff Accounting Bulletin No. 101.
Financial Data by Business Paper segment Second Quarter First Half ------------------------- -------------------------- 2001 2000 % Change 2001 2000 % Change ------ ------ -------- ------ ------ ---------- (All dollar amounts in millions) Net sales $463.0 $454.4 2% $939.3 $923.0 2% Segment earnings (loss) before income tax (2.8) 50.5 (106)% (9.1) 99.0 (109)%
Earnings in the Paper segment declined from the second quarter and first half of 2000 as a result of lower selling prices for coated paper, higher costs for energy and certain raw materials, and less efficient operations. Selling prices for coated paper in the second quarter were 10% below the level for the second quarter of 2000, primarily as a result of high levels of imports which led to increased supply and an economic slowdown which led to weak demand. Shipments of carbonless paper increased during the first half of 2001 compared to the first half of 2000 as a result of a multi-year sales agreement signed in late 2000 with a new customer. Operating issues at the Ohio mill during the first quarter of 2001 continued to affect performance in the second quarter. These issues were resolved by the end of the second quarter. In Mead's specialty paper businesses, results were below the level of the second quarter of 2000, reflecting the effects of the slowing economy and the strong U.S. dollar. Packaging and Paperboard segment
Second Quarter First Half -------------------------- -------------------------- 2001 2000 % Change 2001 2000 % Change ------ ------ -------- ------ ------ ---------- (All dollar amounts in millions) Net sales $411.8 $435.6 (5)% $775.0 $824.4 (6)% Segment earnings before income tax 44.2 53.6 (18)% 56.1 95.8 (41)%
Net sales in the Packaging and Paperboard segment declined 5% in the second quarter and 6% in the first half of 2001 compared to the prior year. Earnings declined 18% in the second quarter of 2001 and 41% in the first half of 2001 compared to 2000. The decline in earnings was primarily a result of lower selling prices for corrugating medium which were 15% lower in the second quarter of 2001 than in the second quarter of 2000. Shipments of corrugating medium declined 5% in the first half of 2001 compared to the first half of 2000. To better match production to demand, the Containerboard division slowed production of corrugating medium at its Stevenson, Alabama, mill, taking the equivalent of 43,000 tons of market-related downtime during the first half of 2001. Segment earnings were also affected by higher costs for energy and certain raw materials and the effect of foreign currency exchange rates on international sales of packaging and coated paperboard. 11 In the company's Coated Board system, results from the worldwide beverage packaging business reflected stable volumes overall, as an increase in North American soft drink volume offset weakness in European markets. Shipments to open-market customers of coated paperboard increased during the first half of 2001 compared to the first half of 2000. Pricing for coated paperboard in the open market was essentially unchanged in the first half of 2001 compared to the first half of 2000. Consumer and Office Products segment
Second Quarter First Half -------------------------- -------------------------- 2001 2000 % Change 2001 2000 % Change ------ ------ -------- ------ ------ -------- (All dollar amounts in millions) Net sales $277.1 $261.4 6% $382.1 $357.6 7% Segment earnings before income tax 41.6 34.3 21% 33.1 22.4 48%
Sales in the Consumer and Office Products segment increased 6% in the second quarter and 7% in the first half of 2001 compared to the same periods in 2000. Segment earnings increased 21% in the second quarter and 48% in the first half of 2001 compared to 2000. The increase in operating performance was a result of consolidation of converting facilities, improved efficiency of a more integrated business organization developed from the former School and Office Products and AT-A-GLANCE units, sales growth in Mexico and overall volume gains. In the second quarter, shipments were strong as Mead's line of school products, including new proprietary and licensed products, were well received by retailers in preparation for the back-to-school selling season in the third quarter. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital on July 1, 2001 was $296 million compared to $269 million on December 31, 2000. The current ratio of 1.3 at the end of the second quarter of 2001 was unchanged from December 31, 2000. Inventories and accounts receivable increased from December 31, 2000 due in large part to sales growth and the seasonal build in the first half of the year, primarily in the Consumer and Office Products business. In the second quarter, inventories were up 2% from the level of the second quarter of 2000 as higher levels in Consumer and Office Products were offset by lower levels in paper and paperboard. Long-term debt as a percentage of total capital (long-term debt plus shareowner's equity) was 36.0% at the end of the second quarter compared to 35.6% on December 31, 2000. Total debt to total capital at the end of the second quarter 2001 was 42.9% compared to 39.0% on December 31, 2000, reflecting the seasonality of the Consumer and Office Products business. Capital expenditures totaled $93 million for the first half of 2001 compared to $84 million for the first half of 2000. At the end of the second quarter, Mead paid a fixed rate or a capped rate of interest on 60% 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 $.03 change in earnings per share for the year. The estimated market value of debt was $9.5 million less than book value at the end of the second quarter. 12 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 second quarter of 2001, the company had spent a total of $89 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 half of 2001, the company's three major paper mills completed the system implementation by adding the order management components. The company's containerboard mill is 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 half of 2001 than for the same period last year. In the first half of 2001, energy-related costs increased approximately $34 million on a pretax basis compared to the first half of 2000. In its more cyclical businesses of containerboard and coated paper, the company expects lower prices in the second half of 2001 compared to the second half of 2000 as a result of a weaker economy and a continuing strong dollar. To better match production to demand in the second half of 2001, Mead expects to take production downtime of approximately 15,000 tons in corrugating medium, and it expects to reduce coated paper production by 50,000 to 55,000 tons. The impact of foreign currency fluctuations, primarily the Euro and the Canadian dollar, can affect the results of the company's businesses, directly in the packaging and paperboard segment and indirectly in the paper segment. The general strength of retail sales can affect results for the Consumer and Office Products segment. 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 and Canada; 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------- (a) The Annual Meeting of Shareholders of Mead was held on April 26, 2001. (b) Proxies were solicited for the meeting pursuant to Regulation 14A. There was no solicitation in opposition to management's nominees listed in the proxy statement, and John G. Breen, Duane E. Collins, William E. Hoglund, James G. Kaiser, Robert J. Kohlhepp, John A. Krol, Susan J. Kropf, Heidi G. Miller, Lee J. Styslinger, Jr., Jerome F. Tatar and J. Lawrence Wilson were elected. (c) The results of the election of directors are as follows:
Number of Votes --------------- Nominee For Withheld Abstentions Broker Non-Votes - ------- --- -------- ----------- ---------------- John G. Breen 83,847,846 2,996,596 -0- -0- Duane E. Collins 83,871,299 2,973,143 -0- -0- William E. Hoglund 83,870,887 2,973,555 -0- -0- James G. Kaiser 83,870,977 2,973,465 -0- -0- Robert J. Kohlhepp 83,871,599 2,972,843 -0- -0- John A. Krol 83,870,977 2,973,465 -0- -0- Susan J. Kropf 83,870,852 2,973,590 -0- -0- Heidi G. Miller 83,663,922 3,180,520 -0- -0- Lee J. Styslinger, Jr. 83,869,847 2,974,595 -0- -0- Jerome F. Tatar 83,866,706 2,977,736 -0- -0- J. Lawrence Wilson 83,870,427 2,974,015 -0- -0-
(d) The results of the proposal to approve the Amendment to The Mead Corporation 1996 Stock Option Plan are as follows:
Number of Votes --------------- For Against Abstentions Broker Non-Votes --- ------- ----------- ---------------- 77,833,279 7,785,932 1,225,231 -0-
14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits (10) Material Contracts: (1) Amendment dated February 22, 2001 to the Registrant's 1996 Stock Option Plan. (2) Third Amendment to Benefit Trust Agreement effective June 28, 2001 between Registrant and Key Bank, N.A. (b) No current reports on Form 8-K were filed with the Commission in the second quarter of 2001. 15 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 8, 2001 THE MEAD CORPORATION - -------------------- (Registrant) By: /s/ PETER H. VOGEL, JR. ------------------------------------------ Peter H. Vogel, Jr. Vice President, Finance and Treasurer (Chief Accounting Officer) 16 EX-10.(1) 3 dex101.txt AMENDMENT TO THE 1996 STOCK OPTION PLAN Exhibit 10(1) AMENDMENT TO THE MEAD CORPORATION 1996 STOCK OPTION PLAN THIS AMENDMENT (this "Amendment") is made as of February 22, 2001 to The Mead Corporation 1996 Stock Option Plan (the "Plan"). WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of The Mead Corporation (the "Company"), its shareholders and Grantees that the Plan be amended, in accordance with Section 13 thereof, as provided herein; NOW, THEREFORE, the Plan is hereby amended as follows, provided that this Amendment shall be subject to the approval of the Company's shareholders at the Company's annual shareholder's meeting on April 26, 2001: 1. The first sentence of Section 3 (a) of the Plan is hereby amended in its entirety to read as follows: Number of Shares. Subject to adjustment as provided in Section 11, the ---------------- maximum number of Shares that may be issued and/or delivered under the Plan upon the exercise of options is 10,500,000. 2. The second paragraph of Section 4 of the Plan is hereby amended by adding the phrase "under option agreements entered into prior to April 26, 2001" after the phrase "Reload Options" in the second sentence thereof. 3. Section 4 of the Plan is hereby amended by the addition of the following sentence at the end of the second paragraph thereof: Notwithstanding the foregoing, except in connection with an adjustment pursuant to Section 11 hereof, in no event shall the Committee have the authority to take any action which would have the result of adjusting downward the exercise price of any Incentive Stock Option or Nonqualified Option granted hereunder, whether through any amendment of the terms of such option, through the cancellation and subsequent replacement of such option with a new option in connection therewith or through any other means. 4. The first sentence of Section 5 of the Plan is hereby amended in its entirety to read as follows: From time to time during the term of the Plan, the Committee may grant one or more Incentive Stock Options, Nonqualified Options and Reload Options under option agreements entered into prior to April 26, 2001 to any person who is then an officer or other key employee of the Company. 17 5. Section 6 (b) (5) of the Plan is hereby amended in its entirety to read as follows: At the time the option is granted, or at such other time as the Committee may determine, the Committee may provide that, if the Grantee of the option ceases to be employed by the Company for any reason (including, but not limited to, the Grantee's disability), other than death or retirement of the Grantee, the option will continue to be exercisable by the Holder (including a Transferee under Section 10 hereof) for such additional period (not to exceed the remaining term of such option) as the Committee may provide. Unless otherwise determined by the Committee at the time an option is granted, if the Grantee of an option granted after April 26, 2001 ceases to be employed by the Company due to the Grantee's retirement, all options granted after April 26, 2001 which are then exercisable by such Grantee shall remain exercisable by the Holder for up to five (5) years after the date of such termination of employment, but in no event may the option be exercised later than its otherwise applicable expiration date. 6. Section 6 (d) of the Plan is hereby amended by adding the phrase "under option agreements entered into prior to April 26, 2001" immediately before the defined term "(the "Original Option")." 7. Section 6 (e) of the Plan is hereby amended by adding the phrase "under option agreements entered into prior to April 26, 2001" after the phrase "including a Reload Option" from the first parenthetical contained therein. This Amendment shall be effective as of the date first written above to options first granted after April 26, 2001, but shall be subject to the approval of the Company's shareholders at the Company's annual shareholder's meeting in the year 2001. Except as modified by this Amendment, the Plan shall remain in full force and effect. 18 EX-10.(2) 4 dex102.txt THIRD AMENDMENT TO BENEFIT TRUST AGREEMENT Exhibit 10(2) THIRD AMENDMENT TO BENEFIT TRUST AGREEMENT ----------------------- WHEREAS, the Benefit Trust Agreement was established by trust agreement dated August 27, 1996, by and between The Mead Corporation, an Ohio corporation (the "Company") and Key Bank, N.A., a national banking association (the "Trustee"), as a restatement in its entirety and continuation of a trust established January 9, 1987, by and between the Company and Society Bank, National Association, a national banking association, and subsequently amended, effective as of June 24, 1998, and October 28, 2000; and WHEREAS, it is desirable to further amend the Benefit Trust Agreement; NOW, THEREFORE, the Benefit Trust Agreement, as amended, is hereby further amended, effective as of June 28, 2001, as follows: 1. The second paragraph thereof is amended to read, in its entirety, as follows: "WHEREAS, the Company is obligated under The Mead Supplemental Executive Retirement Plan, The Mead Corporation Incentive Compensation Election Plan, The Mead Corporation Deferred Compensation Plan for Directors, The Mead Corporation Section 415 Excess Benefit Plan, The Mead Corporation Excess Earnings Benefit Plan, The 1985 Supplement to The Mead Corporation Incentive Compensation Election Plan, The 1985 Supplement to The Mead Corporation Deferred Compensation Plan for Directors, The Mead Corporation Executive Capital Accumulation Plan, The Mead Corporation Directors Capital Accumulation Plan, The Mead Corporation Directors Retirement Plan, The Mead School & Office Products (Canada) Limited Supplemental Employee Retirement Plan, the McSherry Letter dated May 7, 2001, and all Change in Control Severance Agreements with Executives and Staff directors, as each such plan, letter or agreement may be amended from time to time (together with any prior version thereof (except in the case of the McSherry Letter) or predecessor plan thereto under which benefits remain payable from time to time, the 'Plans,' and singly, the 'Plan') to make certain deferred payments to certain of the Company's present and former directors and executives (together, the "Executives"); and " 2. The first phrase of the first sentence of Section 2.01(b) of the Benefit Trust Agreement, "Upon the occurrence of a Potential Change in Control, as defined in Section 3.02 hereof," is amended to read, in its entirety, as follows: "No later than the tenth business day (the "Funding Date") following the occurrence of a Potential Change in Control, as defined in Section 3.02 hereof,". 3. The last clause of the first sentence of Section 6.01 of the Benefit Trust Agreement, "provided, however, that, prior to the occurrence of any Potential Change in Control or Change in Control, the Company, in its sole discretion, may terminate this Trust." is amended to read, in its entirety, as follows: "provided, however, that, prior to the earlier of the Funding Date or any Change in Control, the Company, in its sole discretion, may terminate this Trust; and, provided, further, that the Company, in its sole discretion, may terminate this Trust during the ten-business-day period immediately following any return of the Trust Corpus to the Company pursuant to Section 4.01 hereof." 19 4. The first sentence of Section 6.02 of the Benefit Trust Agreement is amended to read, in its entirety, as follows: "Prior to the earlier of the Funding Date or any Change in Control (and also during the ten-business-day period immediately following any return of the Trust Corpus to the Company pursuant to Section 4.01 hereof), this Trust can be amended by an instrument in writing signed on behalf of the parties hereto." 5. The first phrase of the second sentence of Section 6.02 of the Benefit Trust Agreement, "After a Potential Change in Control or Change in Control has occurred," is amended to read, in its entirety, as follows: "On and after the earlier of the Funding Date or any Change in Control (except during the ten- business-day period immediately following any return of the Trust Corpus to the Company pursuant to Section 4.01 hereof),". IN WITNESS WHEREOF, the parties have executed this Third Amendment to the Benefit Trust Agreement as of the effective date written above. THE MEAD CORPORATION By /s/ SUE K. MCDONNELL ------------------------------------------ Name: Sue K. McDonnell Title: Vice President, General Counsel and Secretary KEY BANK, N.A. By /s/ JANICE L. CULVER ------------------------------------------ Name: Janice L. Culver, CPA Title: Senior Vice President 20 -----END PRIVACY-ENHANCED MESSAGE-----