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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO 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 October 3, 1999
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 October 3, 1999
was 102,644,297.
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<PAGE>
This Amendment is filed to correct two typographical mistakes in Item 2.
Results of Operation. The first mistake is in the second sentence under "Net
Sales" where the year 1998 was referenced twice. The first reference in the
sentence is "1999." The second mistake in the second sentence under "Interest
and Debt Expense" is an incomplete reference to the year "1999."
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
--------------------------------------------------
QUARTERLY PERIOD ENDED OCTOBER 3, 1999
-------------------------------------
PART I - FINANCIAL INFORMATION
-------------------------------------
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------
BALANCE SHEETS
- -------------
(All amounts in millions)
Oct. 3, Dec. 31,
1999 1998
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 139.0 $ 102.0
Accounts receivable 515.6 414.7
Inventories 438.5 479.5
Other current assets 86.0 90.2
-------- --------
Total current assets 1,179.1 1,086.4
Investments and other assets:
Investees 146.3 127.5
Other assets 595.4 555.6
-------- --------
741.7 683.1
Property, plant and equipment 5,818.5 5,741.8
Less accumulated depreciation and
amortization (2,515.4) (2,369.1)
-------- --------
3,303.1 3,372.7
-------- --------
Total assets $5,223.9 $5,142.2
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 260.3 $ 275.9
Accrued liabilities 390.8 395.7
Current maturities of long-term debt 35.1 7.9
-------- --------
Total current liabilities 686.2 679.5
Long-term debt 1,333.2 1,367.4
Commitments and contingent liabilities
Deferred items 864.2 843.3
Shareowners' equity:
Common shares 153.1 151.9
Additional paid-in capital 117.8 66.3
Retained earnings 2,112.6 2,076.9
Other comprehensive loss (43.2) (43.1)
-------- --------
2,340.3 2,252.0
-------- --------
Total liabilities and
shareowners' equity $5,223.9 $5,142.2
======== ========
See notes to financial statements.
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------
STATEMENTS OF EARNINGS
- ----------------------
(All amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
--------------------- ---------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 982.2 $1,009.3 $2,850.2 $2,899.2
Cost of products sold 808.1 811.7 2,336.3 2,326.1
-------- -------- -------- --------
Gross profit 174.1 197.6 513.9 573.1
Selling and administrative expenses 94.0 120.9 301.8 318.5
-------- -------- -------- --------
Earnings from operations 80.1 76.7 212.1 254.6
Other revenues (expenses) (.1) (.5) 8.7 3.7
Interest and debt expense (25.6) (27.1) (77.4) (82.5)
-------- -------- -------- --------
Earnings from continuing
operations before income taxes 54.4 49.1 143.4 175.8
Income taxes 19.6 16.5 51.7 65.9
-------- -------- -------- --------
Earnings from continuing
operations before equity in
net earnings (loss) of investees 34.8 32.6 91.7 109.9
Equity in net earnings (loss)
of investees 16.0 2.8 26.8 (.7)
-------- -------- -------- --------
Earnings from continuing
operations 50.8 35.4 118.5 109.2
Discontinued operations (28.0)
-------- -------- -------- --------
Net earnings $ 50.8 $ 35.4 $ 118.5 $ 81.2
======== ======== ======== ========
Per common share - basic:
Earnings from continuing
operations $ .50 $ .34 $ 1.16 $ 1.05
Discontinued operations (.27)
-------- -------- -------- --------
Net earnings $ .50 $ .34 $ 1.16 $ .78
======== ======== ======== ========
Per common share - assuming
dilution:
Earnings from continuing
operations $ .48 $ .34 $ 1.13 $ 1.04
Discontinued operations (.27)
-------- -------- -------- --------
Net earnings $ .48 $ .34 $ 1.13 $ .77
======== ======== ======== ========
Cash dividends per
common share $ .16 $ .16 $ .48 $ .48
======== ======== ======== ========
Weighted-average number of common
shares outstanding
- basic 102.6 103.3 102.2 103.7
======== ======== ======== ========
Weighted-average number of common
shares outstanding
- assuming dilution 105.4 104.5 104.9 105.4
======== ======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------
(All amounts in millions)
Three Quarters Ended
--------------------
Oct. 3, Sept. 27,
1999 1998
------- -------
Cash flows from operating activities:
Net earnings $118.5 $ 81.2
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and depletion of property, plant
and equipment 198.2 192.0
Depreciation and amortization of other assets 30.9 32.1
Deferred income taxes 7.1 28.4
Investees-earnings and dividends (13.3) 9.5
Discontinued operations 28.0
Other 11.0 9.2
Change in current assets and liabilities:
Accounts receivable (100.8) (97.6)
Inventories 39.6 (26.9)
Other current assets 10.1 (4.2)
Accounts payable and accrued liabilities (26.6) (15.1)
Cash (used in) discontinued operations (7.8)
------ ------
Net cash provided by operating activities 274.7 228.8
------ ------
Cash flows from investing activities:
Capital expenditures (142.5) (277.1)
Additions to equipment rented to others (24.0) (23.7)
Proceeds from sale of assets 21.4 262.5
Payment for acquired business (23.5) (13.6)
Other (30.6) (20.2)
------ ------
Net cash (used in) investing activities (199.2) (72.1)
------ ------
Cash flows from financing activities:
Additional borrowings 15.0 140.5
Payments on borrowings (23.4) (200.6)
Cash dividends paid (49.1) (49.8)
Common shares issued 55.1 13.4
Common shares purchased (36.1) (51.5)
------ ------
Net cash (used in) financing activities (38.5) (148.0)
------ ------
Increase in cash and cash equivalents 37.0 8.7
Cash and cash equivalents at beginning of year 102.0 29.5
------ ------
Cash and cash equivalents at end of third quarter $139.0 $ 38.2
====== ======
See notes to financial statements.
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(All amounts in millions)
A - FINANCIAL STATEMENTS
The balance sheet at December 31, 1998, 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. Mead's policy for recognizing sales revenue is
to do so when title passes, generally when products are
shipped to customers.
C - INVENTORIES
The amount of inventories is (principally last-in, first-out
method):
Oct. 3, Dec.31,
1999 1998
------- -------
Finished and semi-finished products $262.4 $295.0
Raw materials 98.2 109.2
Stores and supplies 77.9 75.3
------ ------
$438.5 $479.5
====== ======
D - INVESTEES
The summarized operating data for all investees is presented
in the following table:
Third Quarter Ended Three Quarters Ended
-------------------- ----------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1999 1998 1999 1998
------- ------- ------- -------
Revenues $ 218.6 $ 172.1 $ 587.7 $ 529.9
====== ====== ====== ======
Gross profit $ 61.0 $ 12.2 $ 115.0 $ 24.9
====== ====== ====== ======
Net earnings $ 38.9 $ 13.5 $ 71.3 $ 15.3
====== ====== ====== ======
During the third quarter of 1999, the company signed an
agreement to sell its 50%-owned investment in Northwood
Forest Industries Ltd. The sale is expected to close during
the fourth quarter of 1999.
E - ASSET WRITE-DOWNS AND EMPLOYEE TERMINATION COSTS
The company recorded pre-tax charges in the second quarter
of 1999 totaling $15.6 million for asset write-downs and
severance costs related to the shutdown and disposal of four
uncoated paper machines at its Rumford, Maine, paper mill.
The decision to shut down and dispose of the machines
prompted a review for impairment, which resulted
<PAGE>
in the recognition of a $9.2 million impairment charge to
adjust the carrying amount of the fixed assets and related
spare parts included in stores and supplies inventory. The
charge also included $2.9 million in severance costs for
salaried personnel notified during the second quarter,$2.6
million to write-off other assets which are affected by the
decision, and $.9 million related to certain contractual
obligations. Of the above charges, $14.2 million is included
in cost of sales and $1.4 million is included in selling and
administrative expenses.
The severance costs relate to 52 salaried employees and
includes medical, dental and other benefits. Through
October 3, 1999, 8 people have left the company. The
remainder are expected to leave by December 31, 1999, and
the remaining costs are expected to be paid prior to the end
of the first quarter 2000.
In the third quarter of 1998, the company adopted a plan to
make organizational changes and reduce its workforce, and
recorded a charge of approximately $22 million for employee
severance and related costs in selling and administrative
expenses. This plan involved terminating 318 domestic
employees, primarily salaried, and was communicated to
affected employees in the third quarter of 1998. The charge
covered severance payments and medical, dental and other
benefits. Pursuant to this plan, 291 people left the
company, with the remainder of the planned terminations not
occurring as a result of refinements in the plan that
necessitated fewer terminations. As a result of fewer
people being terminated, lower severance benefits paid than
estimated and less utilization of outplacement benefits by
terminated employees, the company reversed $2.7 million
of the original charge to selling and administrative
expenses in the third quarter of 1999.
The following is a summary of the remaining accruals at
October 3, 1999 (in millions):
1999 1998
Severance Severance
Accrual Accrual
Balance at December 31, 1998 $ $ 9.9
Charge recorded 2.9
Used for intended purpose (.2) (5.4)
Charge reversed (2.7)
------- -------
Balance at October 3, 1999 $ 2.7 $ 1.8
======= =======
The remaining $1.8 million balance for the 1998 accrual
relates to amounts due to severed employees who have not yet
been fully paid.
F - SHAREOWNERS' EQUITY
During the first three quarters of 1999, the company
repurchased approximately 1 million 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 9.8 million shares have been
repurchased as of the end of the third quarter of 1999. The
company completed this program on October 28, 1999.
Subsequent to the end of the third quarter, the Board of
Directors authorized an additional repurchase of up to 10
million common shares in the open market.
Comprehensive earnings for the three quarters ended October
3, 1999 and September 27, 1998, were $118.4 million and
$62.1 million. Comprehensive earnings for the quarters
ended October 3, 1999 and September 27, 1998, were $51.4
million and $19.1 million. The difference between net
earnings and comprehensive earnings for the third quarter
and the three quarters ended October 3, 1999, relates to
the change in foreign currency translation adjustment and
changes in the minimum pension liability adjustment.
<PAGE>
G - ADDITIONAL INFORMATION ON CASH FLOWS
Three Quarters Ended
--------------------
Oct. 3, Sept. 27,
1999 1998
------- -------
Cash paid for:
Interest $ 96.0 $108.5
====== ======
Income taxes $ 40.1 $ 25.7
====== ======
H - SEGMENT INFORMATION
<TABLE>
<CAPTION>
Third Quarter Ended Three Quarters Ended
-------------------- --------------------
Oct. 3, Sept.27, Oct. 3, Sept. 27,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales:
Industry segments:
Paper $ 447.3 $ 451.5 $1,335.0 $1,330.6
Packaging and Paperboard 389.1 388.0 1,140.5 1,139.4
School and Office Products 145.8 169.8 374.7 429.2
-------- -------- -------- --------
Total $ 982.2 $1,009.3 $2,850.2 $2,899.2
======== ======== ======== ========
Earnings (loss) from Continuing
Operations Before Income Taxes:
Industry segments:
Paper $ 43.7 $ 45.7 $ 105.0 $ 152.4
Packaging and Paperboard 42.2 39.6 126.1 106.8
School and Office Products 9.2 9.0 33.0 47.3
Corporate and Other (1) (40.7) (45.2) (120.7) (130.7)
-------- -------- -------- --------
Total $ 54.4 $ 49.1 $ 143.4 $ 175.8
======== ======== ======== ========
(1) Corporate and other includes the following:
Other revenue $ 1.3 $ .6 $ 10.6 $ 5.1
Interest expense (25.6) (27.1) (77.4) (82.5)
Other expense (16.4) (18.7) (53.9) (53.3)
-------- -------- ------- -------
Total $ (40.7) $ (45.2) $(120.7) $(130.7)
======== ======== ======= ========
</TABLE>
Identifiable assets have not changed significantly at
October 3, 1999, compared to December 31, 1998.
I - SUBSEQUENT EVENT
On November 1, 1999, the company acquired the At-A-Glance
Group of Cullman Ventures, Inc., a manufacturer of diaries,
appointment books, calendars, posters, organizers and
planners for approximately $550 million in cash. The
acquisition has been accounted for as a purchase.
<PAGE
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
During the third quarter of 1999, Mead announced the
intention to divest its 50% ownership in Northwood Inc. of
British Columbia, Canada, for approximately $240 million in
cash (Canadian) and $77.5 million in debentures (Canadian).
Mead also purchased a specialty paper mill in the United
Kingdom, and announced the intention to purchase the
At-A-Glance group of Cullman Ventures, Inc. The
purchase of At-A-Glance was completed on November 1, 1999.
In the third quarter of 1998, Mead recorded a pre-tax charge
of $22 million, or 13 cents per share, for an organizational
change and workforce reduction program that included 318
positions. Pursuant to this program, 291 people left the company,
with the remainder of the plan terminations not occurring as
a result of refinements in the program that necessitated fewer
terminations. As a result of fewer people being eliminated,
lower severance benefits paid than estimated and less utilization
of outplacement benefits by terminated employees, the company
reversed $2.7 million (pre-tax), or 2 cents per share, of the
original charge to selling and administrative expenses in the
third quarter of 1999.
Net Sales
- ---------
Third quarter net sales of $982 million declined 3% from
$1,009 million in the third quarter of 1998. For the three quarters,
net sales were $2.85 billion in 1999 compared to 2.90 billion in 1998.
The decline in sales was a result of lower volume and prices for school and
office products and lower prices for coated paper.
Operating Costs and Expenses
- ----------------------------
Gross profit as a percentage of sales decreased to 17.7%
from 19.6% in the third quarter of 1998 as a result of lower
selling prices in the paper segment. Likewise, this percentage was 18.0% for
the three quarters compared with 19.8% in the same period of last year.
Selling and administrative expenses of $94 million declined from $121
million in 1998. Excluding the charges for organization
change and workforce reduction in 1998 and a related
adjustment in 1999, selling and administrative expenses were
$97 million in 1999 and $101 million in 1998.
Other Revenues (Expenses)
- ------------------------
Other revenues (expenses) of $(.1) million in the quarter and $8.7 million
through three quarters of 1999 increased from $(.5) million and $3.7 million in
the third quarter and three quarters of 1998, respectively. The increase
through the quarter is largely the result of a gain on the sale of non-strategic
real estate in the second quarter.
Interest and Debt Expense
- -------------------------
Interest and debt expense for the third quarter of $26
million decreased 6% from $27 million in 1998 reflecting
lower average debt levels. Similarly, three quarters 1999 interest and
debt expense of $77.4 million decreased 6% from $82.5 million in 1998.
Income Taxes
- ------------
The effective tax rate was 36% in the third quarter of 1999
and for the year to date, compared to an effective tax rate
of 33.6% for the third quarter of 1998 and 37.5% for the
first three quarters of 1998.
Equity in Net Earnings (Loss) of Investees
- ------------------------------------------
Mead's investees earned $16 million in the third quarter of
1999 compared to earnings of $2.8 million in the third
quarter of 1998. For the three quarters, Mead's share of
earnings was $26.8 million in 1999 compared to a loss of
$.7 million posted for 1998. The increase was primarily a result of
higher prices and shipments of lumber and higher prices for
plywood and oriented structural board (OSB). Of the $16
million third quarter 1999 earnings from investees, $11.3 million was
generated by Northwood Inc. which produces pulp, lumber and
plywood.
Earnings from Continuing Operations
- ----------------------------------
Earnings from continuing operations for the third quarter of 1999 were
$50.8 million compared to $35.4 million in the third quarter of 1998.
For the three quarters of 1999, earnings from continuing operations
were $118.5 million compared to $109.2 million in 1998 reflecting a 9%
increase.
Financial Data by Business
- --------------------------
Paper segment
<TABLE>
<CAPTION>
Third Quarter Three Quarters
----------------------------- -------------------------------
1999 1998 % Change 1999 1998 % Change
(All dollar amounts in millions) ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales (to unaffiliated
customers) $447.3 $451.5 (1)% $1,335.0 $1,330.6 --%
Segment earnings before
taxes 43.7 45.7 (4)% 105.0 152.4 (31)%
</TABLE>
Sales and earnings in the paper segment declined from the
third quarter of 1998 as a result of lower selling prices
across all paper grades, despite an overall increase in
<PAGE>
shipments. For the first three quarters of 1999, sales were slightly above
the level of the prior year. Earnings for the first three quarters of 1999
were $105 million compared to $152.4 million in 1998 as the impact of
lower selling prices more than offset an increase in shipping volume.
Excluding the impact of the 1998 organizational
change and workforce reduction program in the third quarter
of both 1999 and 1998 earnings were $42.2 and $55.6,
respectively. In the third quarter of 1999, shipments of
coated and uncoated paper increased over the third quarter
of 1998, while shipments of carbonless paper were unchanged
from the same quarter last year. Order backlogs for coated
paper strengthened during the quarter, but selling prices
remained almost 10% below the level of the third quarter of
1998. Inventory levels for coated and uncoated paper
declined in the third quarter as a result of strong
shipments and continued market-related downtime of about
17,000 tons in the company's coated paper mill system. In
September, the company restarted a coated paper machine,
which had been out of production for a full year. Mead
expects to operate the machine as market conditions permit.
The company's three-mill coated paper system operated well
during the quarter with improved productivity as lower
operating cost and increased volume partially offset the
negative impact of declining selling prices.
Packaging and Paperboard segment
<TABLE>
<CAPTION>
Third Quarter Three Quarters
------------------------------ ----------------------------------
1999 1998 % Change 1999 1998 % Change
(All dollar amounts in millions) ---- ---- -------- ---- ---- --------
<C> <C> <C> <C> <C> <C>
Net sales (to unaffiliated
customers) $389.1 $388.0 -% $1,140.5 $1,139.4 -%
Segment earnings before
taxes 42.2 39.6 7% 126.1 106.8 18%
</TABLE>
Sales for the segment in 1999 were essentially unchanged from the
third quarter and year to date of 1998. Higher sales revenue in
containerboard that resulted from higher selling prices
was offset by lower sales in the coated board system,
including beverage packaging. Excluding the impact of the
1998 organizational change and workforce reduction program
in the third quarter of both 1999 and 1998 earnings were
$41.4 and $46.7, respectively. The earnings reduction for the quarter
was primarily attributable to reduce earnings in Mead's coated board
system. Earnings for the first three quarters
were $126.1 million in 1999 compared to $106.8 million in 1998.
The increase was primarily the result of higher selling prices for
corrugating medium. Sales of beverage packaging
were below the third quarter of the prior year in North
America and Europe. International sales of beverage
packaging were affected somewhat by the strength of the
dollar compared to European currencies. Shipments of coated
paperboard were lower, and selling prices for paperboard
sold to folding carton converters declined from prior year.
Operating costs at the Mahrt coated paperboard mill were
higher than in the prior year as the mill took 20,000 tons
market-related downtime during the quarter and additional
downtime for scheduled maintenance. The Containerboard
division made progress toward resolving operating issues
related to the recently-expanded paper machine and related
chemical recovery systems at the Stevenson mill, although
operating costs remained high during the quarter.
School and Office Products segment
<TABLE>
<CAPTION>
Third Quarter Three Quarters
------------------------------ ----------------------------------
1999 1998 % Change 1999 1998 % Change
(All dollar amounts in millions) ---- ---- -------- ---- ---- --------
<C> <C> <C> <C> <C> <C>
Net sales (to unaffiliated
customers) $145.8 $169.8 (14%) $374.7 $429.2 (13)%
Segment earnings before
taxes 9.2 9.0 2% 33.0 47.3 (30)%
</TABLE>
Sales in the third quarter of 1999 declined 14% from the
third quarter of 1998. Earnings were $9.2 million in the
third quarter of 1999. Excluding the impact of the 1998 organizational
change and workforce reduction program in the third quarter of both
1999 and 1998 earnings were $9.1 and $13.1, respectively.
On a comparable basis, 1999 third quarter earnings declined
30% from the third quarter of 1998. Sales and earnings
for the third quarter and the first three quarters of 1999 were
lower than the levels for the same periods of the prior year as a
result of several factors including
shifts in the way mass retailers managed inventories leading
to an overall reduction in the inventory levels they hold,
increased foreign competition in commodity' based and some
value-added products and a lack of strong new products for
the back-to-school selling season. The segment, under the
direction of
<PAGE>
new division management, has begun to strengthen its new
product development, announcing new licensing agreements
during the quarter, which should lead to new products for
next year's back-to-school selling season. During the
quarter, the division reduced its fixed spending levels, and
had strong operating and on-time shipping performance. Mead
also announced plans to purchase At-A-Glance, a leading
producer of paper-based time management products. The closing
occurred November 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital on October 3, 1999 was $493 million compared
to $407 million on December 31, 1998. The current ratio was
1.7 at the end of the third quarter 1999 and 1.6 on December 31,
1998. Consistent with Mead's seasonal School and
Office Products business, inventories and receivables
increased during the first half of the year and declined
during the third quarter. Inventories also declined from
the third quarter level of 1998. Market-related downtime
was taken during the third quarter in coated paper and in
coated paperboard.
Borrowed capital (long-term debt) as a percentage of total capital
(long-term debt plus shareowners'equity) was 36.3% on October 3,
1999 and was 37.8% on December 31, 1998.
Capital expenditures totaled $143 million for the first
three quarters of 1999 compared to $277 million in the first
three quarters of 1998.
The company did not repurchase shares in the third quarter
of 1999. By the end of the third quarter, the company had
repurchased 9.8 million shares under the 10 million share
authorization approved by the Board of Directors in April
1995. The company completed the 10 million share
authorization program on October 28,
1999.
At the end of the third quarter, Mead paid a fixed rate or a
capped rate of interest on 77% 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 $.02 change in earnings per share for the year.
The estimated market value of long-term debt, excluding
capital leases, was $4.3 million more than book value at the
end of the third quarter.
OUTLOOK
- -------
Year 2000 Readiness Disclosure
- ------------------------------
The Year 2000 issue concerns the inability of computerized
information and process control systems to properly
recognize and process date-sensitive information as the Year
2000 approaches. Mead expects costs associated with the
Year 2000 issue will not have a material adverse impact on
results of operations, liquidity or capital resources.
Mead has worked through a five-step process in dealing with
the Year 2000 issue: inventory; assessment; corrective
action; testing; and implementation. With regard to its
Information Technology (IT) systems, corrective action,
has been completed for the company's corporate functions and its
three business segments: Paper; Packaging and Paperboard; and School and
Office Products. Testing and implementation have been completed for
all these areas with the exception of School and Office Products which
will be completed in the fourth quarter. The company expects the risk
to be low that its IT systems will be disrupted by the Year 2000 issue.
Non-IT systems include process control systems in
manufacturing and converting facilities for monitoring and
regulating power, production, emissions and safety
equipment. With regard to its non-IT systems, corrective
action and testing have been completed for all critical
systems. Mead has engaged a third-party consultant to
assist in this process. In the School and Office Products
segment, corrective action and testing of some non-IT
systems will be completed by year-end or by the first
quarter of 2000. Year-end completion of corrective action
and testing of non-IT systems is not as critical to School &
Office Products given the seasonal nature of its business
with most orders produced and shipped in the second and
third quarters of the year. The company expects the risk to
be low that its non-IT systems will be disrupted by the Year
2000 issue. Mead has initiated both internal and external
reviews of non-IT systems to provide an independent
assessment of its Y2K readiness.
<PAGE>
The costs associated with the company's remediation of the
Year 2000 issue include amounts for upgrading and replacing
non-compliant software and hardware systems and the costs
related to the use of third-party solution providers.
Through the third quarter of 1999, the total cost of
remediation was $24 million. This total includes
approximately $13 million in repair costs and $11 million in
replacement costs. The total cost Mead expects to incur
beginning in 1997 through 2000 related to the Year 2000 issue is $30
million, a reduction from original estimates of $35 million
to $45 million. The majority of the remaining costs relate
to replacement or modification of process control systems.
These costs are expensed as incurred, except for new systems
that are capitalized in accordance with generally accepted
accounting principles.
Mead has completed a detailed review of its critical
suppliers of raw materials, energy, equipment, supplies and
transportation to determine their level of Year 2000
readiness. Based on this review, the company expects there
is a low level of risk related to Year 2000. The company
has developed plans for alternative sources of supply where
it believes it is necessary. Significant interruptions
caused by suppliers could affect Mead's operations overall
and its ability to deliver products and services to its
customers.
The company has prepared contingency plans within each of
its businesses for addressing the greatest areas of risk of
noncompliance or threats to business operations or company
assets related to the Year 2000 issue. Except for recent
acquisitions, the company believes that the greatest risk to
company assets from Year 2000 issues would most likely
result from the failure of third-parties, including
government agencies, to deliver utilities or fuel to operate
the boiler systems of the company's major paper and
paperboard mills during a severe winter. The greatest risk
of interruption to the manufacturing process would result
from the failure of suppliers to deliver raw materials for
an extended period of time. The company could supply
customers from finished inventory for a period of time.
If customers were to experience Year 2000 interruptions in
their own operation, it could result in reduced sales for
Mead. With respect to recent acquisitions, prior owners
have performed Y2K remediation which has been disclosed to
the company in due diligence.
THE ESTIMATES AND CONCLUSIONS STATED HERE CONTAIN
FORWARD-LOOKING STATEMENTS AND ARE BASED ON MANAGEMENT'S
BEST ESTIMATES OF FUTURE EVENTS. RISKS TO COMPLETING
THE PLAN INCLUDE THE CONTINUED AVAILABILITY OF RESOURCES
FROM SUPPLIERS AND THIRD-PARTY CONTRACTORS, THE ABILITY OF
SUPPLIERS AND CUSTOMERS TO BE Y2K COMPLIANT, ADEQUACY OF Y2K
REMEDIATION ACTIVITIES AT RECENTLY ACQUIRED BUSINESSES, AND
THE ABILITY TO IDENTIFY AND COMPLETE CONTINGENCY PLANS FOR
SYSTEMATIC FAILURES NOT UNDER COMPANY CONTROL.
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 ARE
DESCRIBED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31 1998, QUARTERLY REPORTS AND
PERIOD REPORTS FILED IN 1999.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
----------------------------------------
No material changes occurred during the quarter to
information previously provided in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
Reference is made to the third paragraph
under "Item 3. Legal Proceedings" in Mead's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998,
regarding the excavation and treatment/disposal of bulk tar
deposits located in or near Chattanooga Creek located in
Chattanooga, Tennessee. In July, 1999, USEPA released for
comment a Revised Focused Feasibility Study ("FFS") for the
Tennessee Products Superfund Site (Chattanooga Creek). The
FFS contained a description of alternatives for remediation
of the portions of Chattanooga Creek not addressed by the
interim removal action. The estimated costs of various
removal alternatives, excluding the No Action Alternative,
ranged from approximately $6.3 million to $12.6 million.
The FFS included a recommendation for a preferred
alternative with an estimated cost of approximately $7.5
million. Mead submitted comments on the FFS in August,
1999. It is not known when the final FFS or a Record of
Decision for the site will be published.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(27) Financial Data Schedule Quarter 3, 1999.
(b) Reports on Form 8-K
(1) A Form 8-K was filed on October 1,
1999 reporting under Item 5
the signing of a definitive agreement
and plan of merger to acquire the
common stock of Cullman Ventures,
Inc. for approximately $550 million
in cash. Also filed as an exhibit
was a copy of a Press Release dated
September 30, 1999.
<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: November 16, 1999
THE MEAD CORPORATION
- --------------------
(Registrant)
By: TIMOTHY R. MCLEVISH
__________________________________
Timothy R. McLevish
Vice President, Finance and Treasurer
(Chief Accounting Officer)
<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 OCTOBER 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSED 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>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> OCT-03-1999
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0
0
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