================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File No. 1-2267
THE MEAD CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-0535759
(State of Incorporation) (I.R.S. Employer Identification No.)
MEAD WORLD HEADQUARTERS
COURTHOUSE PLAZA NORTHEAST
DAYTON, OHIO 45463
(Address of principal executive offices)
Registrant's telephone number, including area code: 937-495-6323
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
X No __ .
The number of Common Shares outstanding at June 28, 1998 was
103,849,073.
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<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
--------------------------------------------------
QUARTERLY PERIOD ENDED JUNE 28, 1998
------------------------------------
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------
BALANCE SHEETS
- --------------
(All dollar amounts in millions)
June 28, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 31.2 $ 29.5
Accounts receivable 582.7 421.4
Inventories 495.2 424.4
Other current assets 90.4 75.9
-------- --------
Total current assets 1,199.5 951.2
Investments and other assets:
Investees 150.0 151.1
Other assets 513.3 493.5
-------- --------
663.3 644.6
Property, plant and equipment 5,622.3 5,465.1
Less accumulated depreciation and
amortization (2,288.1) (2,191.3)
-------- --------
3,334.2 3,273.8
Net assets of distribution segment 294.4 282.8
-------- --------
Total assets $5,491.4 $5,152.4
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Notes payable $ 273.8 $
Accounts payable 311.9 279.2
Accrued liabilities 431.6 357.5
Current maturities of long-term debt 2.3 1.8
-------- --------
Total current liabilities 1,019.6 638.5
Long-term debt 1,377.4 1,428.0
Commitments and contingent liabilities
Deferred items 800.8 797.4
Shareowners' equity:
Common shares 154.9 154.9
Additional paid-in capital 65.2 53.5
Foreign currency translation adjustment (23.3) (20.5)
Retained earnings 2,096.8 2,100.6
-------- --------
2,293.6 2,288.5
-------- --------
Total liabilities and
shareowners' equity $5,491.4 $5,152.4
======== ========
See notes to financial statements.
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------
STATEMENTS OF EARNINGS
- ----------------------
(All dollar amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
Second Quarter Ended First Half Ended
--------------------- ---------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $1,050.9 $1,001.4 $1,889.9 $1,830.9
Cost of products sold 853.4 807.7 1,514.4 1,479.4
-------- -------- -------- --------
Gross profit 197.5 193.7 375.5 351.5
Selling and administrative expenses 101.3 94.8 197.6 193.3
-------- -------- -------- --------
Earnings from operations 96.2 98.9 177.9 158.2
Other revenues (expenses) 1.6 (2.7) 4.2
Interest and debt expense (28.9) (24.6) (55.4) (47.9)
-------- -------- -------- --------
Earnings from continuing
operations before income taxes 68.9 71.6 126.7 110.3
Income taxes 28.2 26.3 49.4 40.3
-------- -------- -------- --------
Earnings from continuing
operations before equity in
net earnings (loss) of investees 40.7 45.3 77.3 70.0
Equity in net earnings (loss)
of investees (.5) 4.3 (3.5) 4.1
-------- -------- -------- --------
Earnings from continuing
operations 40.2 49.6 73.8 74.1
Discontinued operations (25.0) (1.8) (28.0) (6.1)
-------- -------- -------- --------
Net earnings $ 15.2 $ 47.8 $ 45.8 $ 68.0
======== ======== ======== ========
Per common share - basic:
Earnings from continuing
operations $ .39 $ .48 $ .71 $ .71
Discontinued operations (.24) (.02) (.27) (.06)
-------- -------- -------- --------
Net earnings $ .15 $ .46 $ .44 $ .65
======== ======== ======== ========
Per common share - assuming
dilution:
Earnings from continuing
operations $ .38 $ .47 $ .70 $ .70
Discontinued operations (.24) (.02) (.27) (.06)
-------- -------- -------- --------
Net earnings $ .14 $ .45 $ .43 $ .64
======== ======== ======== ========
Cash dividends per
common share $ .16 $ .15 $ .32 $ .30
======== ======== ======== ========
Weighted-average number of common
shares outstanding (millions)
- basic 103.9 104.4 103.9 104.4
======== ======== ======== ========
Weighted-average number of common
shares outstanding (millions)
- assuming dilution 105.8 106.1 105.8 106.1
======== ======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------
(All dollar amounts in millions)
First Half Ended
--------------------
June 28, June 29,
1998 1997
------- -------
Cash flows from operating activities:
Net earnings $ 45.8 $ 68.0
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and depletion of property, plant
and equipment 125.7 118.6
Depreciation and amortization of other assets 20.9 22.0
Deferred income taxes (6.5) 15.2
Investees-earnings and dividends 4.4 (1.7)
Discontinued operations 28.0 6.1
Other 14.4 (9.9)
Change in current assets and liabilities:
Accounts receivable (160.0) (173.0)
Inventories (67.7) (16.2)
Other current assets (12.7) (4.2)
Accounts payable and accrued liabilities 90.1 30.6
Cash (used in) discontinued operations (22.8) (25.3)
------ ------
Net cash provided by operating activities 59.6 30.2
------ ------
Cash flows from investing activities:
Capital expenditures (192.1) (184.2)
Additions to equipment rented to others (14.8) (18.4)
Payment for acquired business (13.6)
Other (21.8) (11.8)
------ ------
Net cash (used in) investing activities (242.3) (214.4)
------ ------
Cash flows from financing activities:
Additional borrowings 140.5 564.2
Payments on borrowings (191.9) (532.6)
Notes payable 273.8 173.8
Cash dividends paid (33.3) (31.3)
Common shares issued 12.7 21.7
Common shares purchased (17.4) (16.4)
------ ------
Net cash provided by financing activities 184.4 179.4
------ ------
Increase (decrease) in cash and cash equivalents 1.7 (4.8)
Cash and cash equivalents at beginning of year 29.5 20.6
------ ------
Cash and cash equivalents at end of half $ 31.2 $ 15.8
====== ======
See notes to financial statements.
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(All dollar amounts in millions)
A - FINANCIAL STATEMENTS
The balance sheet at December 31, 1997, is condensed financial information
taken from the audited balance sheet. The interim financial statements
are unaudited. In the opinion of management, all adjustments (which
consist only of normal recurring adjustments) necessary to present fairly
the financial position and results of operations for the interim periods
presented have been made.
B - ACCOUNTING POLICIES
On an interim basis, all costs subject to recurring year-end adjustments
have been estimated and allocated ratably to the quarters. Income taxes
have been provided based on the estimated tax rate for the respective
years after excluding infrequently occurring items whose specific tax
effect is reported during the same interim period as the related
transaction.
C - INVENTORIES
The amount of inventories is (principally last-in, first-out method):
June 28, Dec. 31,
1998 1997
------- -------
Finished and semi-finished products $325.9 $242.4
Raw materials 95.7 99.3
Stores and supplies 73.6 82.7
------ ------
$495.2 $424.4
====== ======
D - INVESTEES
The summarized operating data for all investees is presented in the
following table:
Second Quarter Ended First Half Ended
-------------------- ----------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
------- ------- ------- -------
Revenues $181.4 $193.0 $357.8 $372.3
====== ====== ====== ======
Gross profit $ 11.1 $ 21.4 $ 12.7 $ 33.1
====== ====== ====== ======
Net earnings $ 4.3 $ 11.0 $ 1.8 $ 13.0
====== ====== ====== ======
E - SHAREOWNERS' EQUITY
During the second quarter of 1998, the company repurchased approximately
252,000 common shares on the open market. The company has outstanding
authorization from the Board of Directors to repurchase up to ten million
common shares, of which 6.6 million shares have been repurchased as of the
end of the first half of 1998.
<PAGE>
F - COMPREHENSIVE INCOME
Effective January 1, 1998, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
The company's difference between net earnings and comprehensive income
relates to the changes in foreign currency translation adjustment.
Comprehensive income for the second quarters ended June 28, 1998 and June
29, 1997, was $16.4 million and $45.9 million, respectively, and for the
first halves ended June 28, 1998 and June 29, 1997, comprehensive income
was $43.0 million and $59.8 million, respectively.
G - ADDITIONAL INFORMATION ON CASH FLOWS
First Half Ended
-------------------
June 28, June 29,
1998 1997
------- -------
Cash paid for:
Interest $ 56.7 $ 31.7
====== ======
Income taxes $ 20.0 $ 18.1
====== ======
H - DISCONTINUED OPERATIONS
On June 9, 1998, the Board of Directors approved a plan to discontinue
Zellerbach, the company's distribution segment. The company subsequently
announced that it had reached an agreement to sell the Zellerbach business
to International Paper Company. The sale closed July 31, 1998, and the
company recorded a pre-tax charge of $49.3 million in the second quarter
for the estimated loss on disposal and operating losses. At June 28,
1998, the discontinued operation had assets of $401.4 million and
liabilities of $107.0 million. Loss from operations from January 1, 1998,
through June 9, 1998, totaled $6.0 million ($3.0 million applicable to the
first quarter), net of income tax benefits of $3.1 million ($1.5 million
applicable to the first quarter). Estimated losses related to the sale of
the segment totaled $22.0 million, net of income tax benefits of $22.7
million. Included in the loss on the sale of the segment are anticipated
operating losses from June 10, 1998, through July 31, 1998, of $3.2
million, net of taxes.
I - SEGMENT INFORMATION
Effective March 30, 1998, the company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information."
INDUSTRY SEGMENTS
The company classifies its businesses into three industry segments. A
comparison of the operations of the company's businesses based on sales,
earnings from continuing operations before income taxes and identifiable
assets is shown below. All prior periods have been restated to reflect
the discontinued segment (Note H). The Paper operations manufacture and
sell printing, writing, carbonless copy, publishing and specialty paper
primarily to domestic publishers, printers and converters. The Packaging
and Paperboard operations manufacture and sell beverage and food packaging
materials, corrugated shipping containers and paperboard to those markets
primarily located in the United States with other operations conducted in
Europe, Canada, Latin America and the Pacific Rim. The School and Office
Products operations are predominantly domestic and manufacture and
distribute school and office paper related products to retailers.
<TABLE>
<CAPTION>
Year Ended Second Quarter Ended First Half Ended
---------- -------------------- ------------------
Dec. 31, June 28, June 29, June 28, June 29,
1997 1998 1997 1998 1997
-------- -------- -------- -------- --------
Sales:
<S> <C> <C> <C> <C> <C>
Paper $1,797.8 $ 445.2 $ 430.4 $ 879.1 $ 872.8
Packaging and Paperboard 1,431.8 408.5 378.2 751.4 693.7
School and Office Products 516.2 197.2 192.8 259.4 264.4
-------- -------- -------- -------- --------
Total $3,745.8 $1,050.9 $1,001.4 $1,889.9 $1,830.9
======== ======== ======== ======== ========
Earnings from Continuing
Operations Before Income Taxes:
Paper $ 195.6 $ 47.0 $ 44.8 $ 106.7 $ 86.9
Packaging and Paperboard 129.6 37.8 30.1 67.2 51.6
School and Office Products 57.3 31.6 34.5 38.3 43.8
Corporate and Other (1) (140.5) (47.5) (37.8) (85.5) (72.0)
-------- -------- -------- -------- --------
Total $ 242.0 $ 68.9 $ 71.6 $ 126.7 $ 110.3
======== ======== ======== ======== ========
(1) Corporate and Other includes the following:
Other Revenues (expense) $ 13.0 $ 1.5 $ (.2) $ 4.5 $ 3.2
Interest Expense (98.2) (28.9) (24.6) (55.4) (47.9)
Other Expenses (55.3) (20.1) (13.0) (34.6) (27.3)
-------- -------- -------- -------- --------
$ (140.5) $ (47.5) $ (37.8) $ (85.5) $ (72.0)
======== ======== ======== ======== ========
As of and for the Year Ended December 31, 1997
</TABLE>
<TABLE>
<CAPTION>
Depreciation,
Identifiable Depletion and Capital
Assets (2) Amortization Expenditures
------------ ------------- ------------
<S> <C> <C> <C>
Paper $2,135.5 $111.2 $110.5
Packaging and Paperboard 1,941.3 149.1 293.8
School and Office Products 191.3 8.2 11.6
Intersegment Elimination (22.6)
Corporate and Other 906.9 14.0 21.4
-------- --------- --------
Total $5,152.4 $282.5 $437.3
======== ========= ========
</TABLE>
(2) Identifiable assets have not changed significantly at June 28, 1998,
compared to December 31, 1997.
GEOGRAPHIC AREAS
The company has sales from foreign subsidiaries primarily in Europe,
Canada, Latin America and the Pacific Rim. No individual foreign
geographic area is significant to the company relative to total net sales,
earnings from continuing operations before taxes or identifiable assets.
<PAGE>
The following represent net sales and total assets related to the
company's foreign subsidiaries:
Year Ended
December 31, 1997 December 31, 1997
Net Sales Assets
--------- ---------
Europe $ 309.1 $ 226.9
Canada 132.3 55.0
Pacific Rim 52.7 48.4
Latin America 40.5 35.5
--------- ---------
$ 534.6 $ 365.8
========= =========
J - SPECIAL CHARGES
During the second quarter of 1998, the company recorded pre-tax charges of
$31.5 million related to the writedown of certain assets including stores
and supplies inventory and other capital assets.
K - ACCOUNTING PRONOUNCEMENT
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. The statement requires derivatives to be
recorded on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in fair value of the
derivatives are recorded depending upon whether the instruments meet the
criteria for hedge accounting. The company has not determined the impact
of adopting this statement. This statement is effective for fiscal years
beginning after June 15, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
On June 18, 1998 Mead signed a definitive agreement to sell its
distribution segment, Zellerbach, for $263 million in cash, subject to
adjustment related to changes in working capital. The sale was completed
on July 31, 1998. The financial statements of The Mead Corporation reflect
Zellerbach as a discontinued operation. Mead recorded a charge in the
second quarter related to the sale of Zellerbach and the write down of
certain assets. The total pre-tax charge of $80.8 million included $49.3
million in charges related to the sale of Zellerbach and $31.5 million
related to the write down of certain assets. The after-tax charge related
to the sale of Zellerbach is included in discontinued operations. The
charges related to the write down of certain assets reduced earnings in
each of Mead's three remaining business segments.
Net Sales
- ---------
Second quarter net sales were $1.05 billion, a 5% increase over the $1.0
billion in the second quarter of 1997. Selling prices were higher in the
second quarter of 1998 for many of the company's products, primarily
corrugating medium, and coated and uncoated paper, compared with the
second quarter of 1997. During the quarter, sales volume of coated paper,
carbonless paper and corrugating medium was lower compared with the second
quarter of 1997. Sales of school and office products were slightly higher
for the second quarter of 1998.
Operating Costs and Expenses
- ----------------------------
Gross profit as a percentage of sales decreased to 18.8% for the second
quarter of 1998 from 19.3% in the second quarter of 1997. Selling and
administrative expenses totaled $101.3 million, up from $94.8 million in
the second quarter of 1997. The levels of both gross profit and selling
and administrative expenses were negatively affected by the write down
taken in the quarter.
Interest and Debt Expense
- -------------------------
Interest and debt expense in the second quarter of $28.9 million increased
from $24.6 million in the second quarter of 1997. The increase is
attributable to higher debt levels associated with the expansion project
at the Stevenson, Alabama, paperboard mill and higher levels of working
capital.
Income Taxes
- ------------
The effective tax rate was 40.9% for the second quarter of 1998 compared
with 36.7% for the second quarter of 1997. Without the effect of a non-
deductible portion of the asset write down, the tax rate would have been
unchanged from the second quarter of 1997.
Equity in Net Earnings (Loss) of Investees
- ------------------------------------------
Mead's investees experienced a loss of $.5 million in the second quarter
of 1998 compared with earnings of $4.3 million in the second quarter of
1997, primarily as a result of lower prices for lumber, lower prices and
sales volume for plywood and lower sales volume of pulp at its 50%-owned
Northwood companies. The decline was partially offset by higher prices for
pulp and oriented structural board. During the quarter, Northwood
announced the permanent closing of a sawmill in Prince George, British
Columbia, with an annual capacity of 46 million board feet. It also
announced a lumber production curtailment of approximately 130 million
board feet or 25 percent of second-half 1998 production at the remainder
of its sawmills.
Discontinued Operations
- -----------------------
The loss from discontinued operations of $25.0 million represents the
after-tax charge related to the sale of the Zellerbach distribution
segment, including operating losses through the sale date of July 31,
1998.
<PAGE>
Financial Data by Business
- --------------------------
Paper segment
<TABLE>
<CAPTION>
Second Quarter First Half
------------------------ -----------------------
1998 1997 % Change 1998 1997 % Change
---- ---- -------- ---- ---- --------
(All dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales (to unaffiliated
customers and Zellerbach) $445.2 $430.4 3% $879.1 $872.8 1%
Segment earnings before
taxes 47.0 44.8 5% 106.7 86.9 23%
</TABLE>
Sales and earnings in the segment increased over the second quarter of
1997 as a result of higher prices and improved productivity. Earnings of
$47.0 million included $12.1 million in charges related to the write down
of certain assets. Prices for coated freesheet and coated groundwood
grades were higher than those of the prior year, though sales volume of
these grades declined. Sales volume also declined for carbonless paper.
Sales volumes for uncoated and specialty papers increased, and prices were
stable. Order backlogs for coated paper declined during the quarter, and
inventories for coated and uncoated papers were higher at the end of the
quarter than at the end of the second quarter in 1997. Productivity
performance improved at the company's three coated paper mills with
increased output and improvements in costs.
Packaging and Paperboard segment
<TABLE>
<CAPTION>
Second Quarter First Half
------------------------ -----------------------
1998 1997 % Change 1998 1997 % Change
---- ---- -------- ---- ---- --------
(All dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales (to unaffiliated
customers) $408.5 $378.2 8% $751.4 $693.7 8%
Segment earnings before
taxes 37.8 30.1 26% 67.2 51.6 30%
</TABLE>
Sales and earnings in the segment increased from the second quarter of
1997 on higher prices, slightly higher sales volume and improved operating
performance. Earnings of $37.8 million included $18.1 million in charges
related to the write down of certain assets. Within the Containerboard
division, prices for both corrugating medium and boxes increased compared
with the second quarter of 1997. Sales volume of medium declined slightly
during the quarter, while sales volume for boxes improved. The #2
paperboard machine at the Stevenson, Alabama, corrugating medium mill took
17 days of scheduled downtime to facilitate completion of its expansion
project. The machine startup was on schedule. However, the startup of the
chemical recovery system was slower than expected resulting in increased
operating costs.
Within the Coated Board System, shipments of coated paperboard from the
Mahrt mill in Alabama to Mead's integrated beverage packaging operations
and to the open market increased compared with the second quarter of 1997.
Pricing of paperboard sold in the open market was stable. Beverage
packaging markets were strong, especially in North America and Europe. The
Mahrt mill improved its cost position and production volume during the
quarter. Also in the second quarter the operating performance of the
Packaging division's converting facilities improved over the second
quarter of 1997.
<PAGE>
School and Office Products segment
<TABLE>
<CAPTION>
Second Quarter First Half
------------------------ ---------------------------
1998 1997 % Change 1998 1997 % Change
---- ---- -------- ---- ---- --------
(All dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales (to unaffiliated
customers) $197.2 $192.8 2% $259.4 $264.4 (2)%
Segment earnings before
taxes 31.6 34.5 (8)% 38.3 43.8 (13)%
</TABLE>
Sales for the division increased slightly over the second quarter of 1997,
while earnings declined. Earnings of $31.6 million included $.6 million in
charges related to the write down of certain assets. Sales revenue from
school products was higher than the previous year, while sales revenue
from office products was lower. Order receipts and order backlogs for the
"back-to-school" retail buying season were below the same period a year
ago, and inventory levels at the end of the second quarter were higher
than that of the prior year. The division's converting facilities
operated well during the quarter, and delivery performance improved over
the same quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital on June 28, 1998 was $179.9 million compared to $312.7
million on December 31, 1997. The current ratio of 1.2 at the end of the
second quarter was lower than the 1.5 at December 31, 1997. Consistent
with Mead's highly seasonal School and Office products business,
inventories and receivables increased during the first half. During the
quarter, inventories of coated and uncoated paper also increased and ended
the quarter higher than at the end of the second quarter of 1997. This
growth was funded by short-term borrowings and increases in payables and
accruals.
Borrowed capital (long-term debt) as a percentage of total capital (long-
term debt plus shareowners' equity) was 37.5% on June 28, 1998, and was
38.4% on December 31, 1997. On June 28, 1998, no short-term debt was
classified as long term.
Capital expenditures totaled $192.1 million for the first half of 1998
compared with $184.2 million in the first half of 1997. The major project
in both time periods was the expansion at the Stevenson corrugating medium
mill, which was completed during the second quarter of 1998.
Under a Board of Directors authorization, Mead repurchased 252,000 shares
of its common stock in the second quarter of 1998. By June 28, 1998, the
10 million-share repurchase was 66% completed.
At the end of the first quarter, Mead paid a fixed rate or capped rate on
65% of its debt and paid a floating rate of interest on the remainder. A
change of 1% in the floating rate, on an annual basis, would result in a
$.03 change in earnings per share for the year. The estimated market value
of long-term debt, excluding capital leases, was $80.3 million more than
the book value at the end of the second quarter of 1998.
OUTLOOK
- -------
In June, the company announced several initiatives to sharpen its focus on
its core businesses of coated and specialty papers, packaging and
paperboard, and school & office products. These actions include the
planned sale of Mead Ink Products; a hardwood sawmill and surrounding
timberland in South Range, Michigan; and selected real estate and
undeveloped mill sites. The company said it would also combine its coated
paper divisions, including the Escanaba, Rumford and Chillicothe mills, to
provide more effectively to the marketplace a broad line of quality
products and services while better leveraging the skills and capabilities
of the organizations. The company said it will continue to identify
strategic alliances such as the new arrangement with Shinho Paper
Manufacturing Company of Korea which will expand Mead's coated paper
product line and optimize manufacturing capabilities. In addition to the
reduction of 2,100 Zellerbach employees resulting from the sale of that
business, the company expects to reduce its salaried employee base in the
short term by 5%. That reduction is expected to result in a charge of as
much as $10 million in the third quarter. Mead announced plans to reduce
capital spending to about $300 million in 1999 and 2000, excluding major
acquisitions, from the $400 - $450 level in 1998. The company also
announced that it would implement enterprise resource planning software
across the company to achieve meaningful cost reductions and enhanced
operating efficiencies. As a result of this
<PAGE>
implementation, the company expects a further reduction in employees over the
next several years for which the company expects to take charges in future
quarters.
Certain statements in this report are forward-looking statements. These
statements include risks and uncertainties. Actual results may differ.
Certain factors that could cause actual results to differ include changes
in market prices for real estate and timber, the final scope of
restructuring and consolidation plans, the receipt of regulatory approvals
to dispositions, timely and cost effective software implementation, as
well as factors described in the company's annual report on Form 10-K for
the year ended December 31, 1997.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
No material changes occurred to information previously provided in the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997.
PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
----------------------------------------------------
(a) The Annual Meeting of Shareholders of Mead was held on April
23, 1998.
(b) Proxies were solicited for the meeting pursuant to Regulation
14A. There was no solicitation in opposition to management's
nominees listed in the proxy statement, and John C. Bogle,
John G. Breen, William E. Hoglund, James G. Kaiser, Robert J.
Kohlhepp, John A. Krol, Susan J. Kropf, Charles S. Mechem,
Jr., Lee J. Styslinger, Jr., Jerome F. Tatar and J. Lawrence
Wilson were elected.
(c) The results of the election of directors are as follows:
Number of Votes
---------------
Nominee For Withheld
------- --- --------
John C. Bogle 92,316,101 488,532
John G. Breen 92,322,597 482,035
William E. Hoglund 92,296,958 507,675
James G. Kaiser 92,307,587 497,045
Robert J. Kohlhepp 92,340,642 463,990
John A. Krol 84,871,800 7,932,832
Susan J. Kropf 92,329,676 474,956
Charles S. Mechem, Jr. 92,297,448 507,184
Lee J. Styslinger, Jr. 92,332,829 471,803
Jerome F. Tatar 92,339,785 464,847
J. Lawrence Wilson 92,333,654 470,978
Nominee Abstentions Broker Non-Votes
------- ----------- ----------------
John C. Bogle 50,500 -0-
John G. Breen 50,500 -0-
William E. Hoglund 50,500 -0-
James G. Kaiser 50,500 -0-
Robert J. Kohlhepp 50,500 -0-
John A. Krol 50,500 -0-
Susan J. Kropf 50,500 -0-
Charles S. Mechem, Jr. 50,500 -0-
Lee J. Styslinger, Jr. 50,500 -0-
Jerome F. Tatar 50,500 -0-
J. Lawrence Wilson 50,500 -0-
<PAGE>
ITEM 5. OTHER INFORMATION
-----------------
Consistent with the recommendation of the Securities and Exchange
Commission that the notice deadline date referenced in new Exchange Act
Rule 14a-4 be disclosed on the company's next 10-Q, Mead states the notice
deadline date is January 31, 1999 for the 1999 annual meeting. Notice
must be received by Mead at Courthouse Plaza Northeast, Dayton, Ohio 45463
Attention: Thomas E. Palmer, Secretary.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(4) Instruments defining the rights of security holders,
including indentures.
(1) Amendment No. 6 dated April 10, 1998 to the
Credit Agreement dated November 15, 1989, as
amended November 30, 1991, May 1, 1994, August
31, 1995, August 31, 1996 and October 31, 1997
among The Mead Corporation, and The First
National Bank of Chicago and Morgan Guaranty
Trust Company of New York as Co-Agents for the
banks.
(27.1) Financial Data Schedule Quarter 2, 1998
(27.2) Restated Financial Data Schedule Quarter 1, 1998 and
Fiscal Year end 1997.
(27.3) Restated Financial Data Schedule Quarters 1, 2, 3 and 4
of 1996 and Fiscal Year end 1995.
(27.4) Restated Financial Data Schedule Quarter 1, 2 and 3 of
1997.
(b) No current reports on Form 8-K were filed with the Commission
in the second quarter of 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 10, 1998
THE MEAD CORPORATION
- --------------------
(Registrant)
By: G. T. GESWEIN
__________________________________
G. T. Geswein
Vice President, Controller and
Chief Accounting Officer
Exhibit (4)(1)
THIS AMENDMENT NO. 6 dated as of April 10, 1998 to the CREDIT
AGREEMENT dated as of November 15, 1989, as amended November 30, 1991, as
supplemented by letter dated February 26, 1993 and by supplement dated
April 6, 1993, as amended May 1, 1994 and August 31, 1995, as supplemented
by two agreements dated July 15, 1996, and as amended August 31, 1996 and
October 31, 1997 (as so amended and supplemented, the "Credit Agreement"),
among THE MEAD CORPORATION, an Ohio corporation (the "Company"), the banks
listed on the signature page hereto (each a "Bank" and collectively, the
"Banks") and THE FIRST NATIONAL BANK OF CHICAGO and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Co-Agents for the Banks (in such capacity, each an
"Agent" and together, the "Agents").
WITNESSETH:
WHEREAS, the Banks, the Agents and the Company have entered the
Credit Agreement; and
WHEREAS, the Banks, the Agents and the Company desire to amend the
Credit Agreement as herein provided;
NOW THEREFORE, it is agreed:
1. The definition of "Loan and Guaranty Agreement" in Section
10.1 of the Credit Agreement is hereby amended and restated in its
entirety as follows:
"Loan and Guaranty Agreement" shall mean the Loan and Guaranty
---------------------------
Agreement dated as of August 23, 1988 among Cabin Bluff Partners,
the Company and Scott Paper Company, as Guarantors, and The Sumitomo
Bank, Limited, New York Branch, or the Loan and Guaranty Agreement
among Cabin Bluff Partners, the Company and Kimberly-Clark
Corporation, as Guarantors, the Lenders party thereto, The
Sumitomo Bank, Limited, New York Branch, as a Lender and
Syndication Agent, Bank of America National Trust and Savings
Association, as a Lender and Documentation Agent, and The
Chase Manhattan Bank, as a Lender and Administrative Agent, as
the same or any substitute or replacement agreement may be
amended, modified or replaced from time to time."
The amended definition of "Loan and Guaranty Agreement" shall
be used in each place in the Credit Agreement that such term appears,
including within the definition of other defined terms and in Section 6.2.
2. The Company represents and warrants that the representations
and warranties of the Company contained in the Credit Agreement are true
and correct in all material respects on and as of the date hereof as
though made on and as of such date. The Company hereby certifies that no
event has occurred and is continuing which constitutes an Even of Default
under the Credit Agreement or which upon the giving of notice or the lapse
of time or both would constitute such an Event of Default.
3. This Amendment No. 6 shall be effective as of April 10, 1998
upon its execution by the Company and each of the Required Banks. Except
as modified hereby, the Credit Agreement is ratified and confirmed in all
respects and remains in full force and effect. All references to the
"Agreement" in the Credit Agreement shall include and mean the Credit
Agreement as supplemented and amended hereby. Terms defined in the Credit
Agreement are used with the same meaning herein.
4. This Amendment No. 6 may be executed in counterparts, each of
which will be deemed an original instrument. This Amendment No. 5 shall
be governed by and construed and interpreted in accordance with the laws
of the State of New York.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment No. 6 to be duly executed and delivered as
of the date first above written.
THE MEAD CORPORATION
By WILLIAM R. GRABER
----------------------------------------------
Name: William R. Graber
----------------------------------------
Title: Vice President & Chief
---------------------------------------
Financial Officer
--------------------------------------
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By ROBERT J. JACKSON
---------------------------------------------
Name: Robert J. Jackson
----------------------------------------
Title: Managing Director as Agent
----------------------------------------
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
Individually and as Agent
By JOHN M. MIKCLAY
----------------------------------------------
Name: John M. Mikclay
-----------------------------------------
Title: Vice President
----------------------------------------
ABN AMRO BANK N.V.
By PATRICK M. PASTORE
----------------------------------------------
Name: Patrick M. Pastore
-----------------------------------------
Title: Vice President
----------------------------------------
CITIBANK, N.A.
By STUART G. MILLER
----------------------------------------------
Name: Stuart G. Miller
----------------------------------------
Title: Attorney-in-fact
----------------------------------------
DEUTSCHE BANK AG
New York and/or Cayman Islands Branches
By STEPHEN A. WIEDEMANN
----------------------------------------------
Name: Stephen A. Wiedemann
-----------------------------------------
Title: Director
----------------------------------------
By SUSAN L. PEARSON
----------------------------------------------
Name: Susan L. Pearson
----------------------------------------
Title: Director
----------------------------------------
NATIONAL WESTMINSTER BANK PLC
New York Branch
By ANNE MARIE TORRE
----------------------------------------------
Name: Anne Marie Torre
-----------------------------------------
Title: Vice President
----------------------------------------
THE BANK OF NOVA SCOTIA (Scotia Bank)
By M. D. SMITH
----------------------------------------------
Name: M. D. Smith
-----------------------------------------
Title: Agent
----------------------------------------
THE SUMITOMO BANK, LIMITED
New York Branch
By C. MICHAEL GARRIDO
----------------------------------------------
Name: C. Michael Garrido
-----------------------------------------
Title: Sr. Vice President
----------------------------------------
<PAGE>
WACHOVIA BANK OF GEORGIA
(formerly WACHOVIA BANK AND TRUST CO.,
N.A.)
By TERRENCE A. SNELLINGS
----------------------------------------------
Name: Terrence A. Snellings
----------------------------------------
Title: Sr. Vice President
----------------------------------------
NATIONSBANK, N.A.
(formerly SOVRAN BANK, N.A.)
By JOSEPH L. CORAH
----------------------------------------------
Name: Joseph L. Corah
-----------------------------------------
Title: Vice President
----------------------------------------
SOCIETE GENERALE
By E. BELLAICHE
----------------------------------------------
Name: E. Bellaiche
-----------------------------------------
Title: Vice President
----------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q OF THE MEAD CORPORATION FOR THE QUARTERLY PERIOD
ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE
SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND
SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE
LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION
STATEMENT TO WHICH IT RELATES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-28-1998
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 583
<ALLOWANCES> 0
<INVENTORY> 495
<CURRENT-ASSETS> 1,200
<PP&E> 5,622
<DEPRECIATION> 2,288
<TOTAL-ASSETS> 5,491
<CURRENT-LIABILITIES> 1,020
<BONDS> 1,377
0
0
<COMMON> 155
<OTHER-SE> 2,139
<TOTAL-LIABILITY-AND-EQUITY> 5,491
<SALES> 1,890
<TOTAL-REVENUES> 1,890
<CGS> 1,514
<TOTAL-COSTS> 1,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 127
<INCOME-TAX> 49
<INCOME-CONTINUING> 74
<DISCONTINUED> (28)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46
<EPS-PRIMARY> .44
<EPS-DILUTED> .43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q OF THE MEAD CORPORATION FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE
SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND
SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE
LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION
STATEMENT TO WHICH IT RELATES.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1998
<CASH> 19 30
<SECURITIES> 0 0
<RECEIVABLES> 436 421
<ALLOWANCES> 0 0
<INVENTORY> 510 424
<CURRENT-ASSETS> 1,052 951
<PP&E> 5,533 5,465
<DEPRECIATION> 2,245 2,191
<TOTAL-ASSETS> 5,308 5,152
<CURRENT-LIABILITIES> 771 639
<BONDS> 1,428 1,428
0 0
0 0
<COMMON> 155 155
<OTHER-SE> 2,145 2,134
<TOTAL-LIABILITY-AND-EQUITY> 5,308 5,152
<SALES> 839 3,746
<TOTAL-REVENUES> 839 3,746
<CGS> 661 3,009
<TOTAL-COSTS> 661 3,009
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27 98
<INCOME-PRETAX> 58 242
<INCOME-TAX> 21 88
<INCOME-CONTINUING> 34 163
<DISCONTINUED> (3) (13)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 31 150
<EPS-PRIMARY> .29 1.44
<EPS-DILUTED> .29 1.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K OF THE MEAD CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE
SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND
SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE
LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION
STATEMENT TO WHICH IT RELATES.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 SEP-29-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995
<CASH> 21 122 22 138 293
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 422 469 544 364 416
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 436 340 403 459 349
<CURRENT-ASSETS> 959 1,023 1,059 1,051 1,135
<PP&E> 5,126 4,462 4,384 4,305 4,247
<DEPRECIATION> 2,041 2,019 1,992 1,957 1,918
<TOTAL-ASSETS> 4,906 4,325 4,303 4,257 4,284
<CURRENT-LIABILITIES> 679 609 663 647 734
<BONDS> 1,240 721 727 726 695
0 0 0 0 0
0 0 0 0 0
<COMMON> 156 156 156 157 158
<OTHER-SE> 2,091 2,085 2,035 2,013 2,002
<TOTAL-LIABILITY-AND-EQUITY> 4,906 4,325 4,303 4,257 4,284
<SALES> 3,304 2,496 1,620 712 3,403
<TOTAL-REVENUES> 3,304 2,496 1,620 712 3,403
<CGS> 2,578 1,931 1,248 551 2,522
<TOTAL-COSTS> 2,578 1,931 1,248 551 2,522
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 58 40 27 15 69
<INCOME-PRETAX> 284 245 162 59 473
<INCOME-TAX> 105 89 59 22 178
<INCOME-CONTINUING> 184 156 95 30 334
<DISCONTINUED> 12 10 9 6 16
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 195 166 103 36 350
<EPS-PRIMARY> 1.86 1.58 .98 .34 3.22
<EPS-DILUTED> 1.84 1.56 .97 .34 3.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K OF THE MEAD CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE
SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND
SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE
LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION
STATEMENT TO WHICH IT RELATES.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-29-1997 JUN-29-1997 MAR-30-1997
<CASH> 20 16 15
<SECURITIES> 0 0 0
<RECEIVABLES> 512 595 422
<ALLOWANCES> 0 0 0
<INVENTORY> 386 452 501
<CURRENT-ASSETS> 1,002 1,153 1,024
<PP&E> 5,368 5,269 5,165
<DEPRECIATION> 2,175 2,129 2,083
<TOTAL-ASSETS> 5,136 5,215 4,992
<CURRENT-LIABILITIES> 768 882 743
<BONDS> 1,274 1,274 1,249
0 0 0
0 0 0
<COMMON> 156 156 156
<OTHER-SE> 2,148 2,124 2,090
<TOTAL-LIABILITY-AND-EQUITY> 5,136 5,215 4,992
<SALES> 2,862 1,831 830
<TOTAL-REVENUES> 2,862 1,831 830
<CGS> 2,309 1,479 672
<TOTAL-COSTS> 2,309 1,479 672
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 74 48 23
<INCOME-PRETAX> 189 110 39
<INCOME-TAX> 69 40 14
<INCOME-CONTINUING> 129 74 25
<DISCONTINUED> (11) (6) (4)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 118 68 20
<EPS-PRIMARY> 1.13 .65 .19
<EPS-DILUTED> 1.11 .64 .19
</TABLE>
