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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File No. 1-2267
THE MEAD CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-0535759
(State of Incorporation) (I.R.S. Employer Identification No.)
MEAD WORLD HEADQUARTERS
COURTHOUSE PLAZA NORTHEAST
DAYTON, OHIO 45463
(Address of principal executive offices)
Registrant's telephone number, including area code: 513-495-6323
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
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Common Shares Without Par Value New York Stock Exchange
and Common Share Purchase Rights Chicago Stock Exchange
Pacific Stock Exchange
9% Debentures due 2017 New York Stock Exchange
6 3/4% Convertible Subordinated New York Stock Exchange
Debentures due 2012
_________________________
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 subject to such
filing requirements for the past 90 days. Yes X No __.
_________________________
Indicate by check mark if disclosure of delinquent filers pursuant to
tem 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form any amendment
to this Form 10-K. [ ]
_________________________
As of January 27, 1994, the aggregate market value of the voting shares
held by non-affiliates of the Registrant was approximately $2,749,360,000
determined by multiplying the highest selling price of a Common Share on the New
York Stock Exchange--Composite Transactions Tape on such date times the amount
by which the total shares outstanding exceeded the shares beneficially owned
by directors and executive officers of the Registrant. Such determination shall
not, however, be deemed to be an admission that any person is an "affiliate"
as defined in Rule 405 under the Securities Act of 1933.
The number of Common Shares outstanding at March 1, 1994 was 59,271,120.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on April 28, 1994, are incorporated by
reference in Part III; definitive copies of said Proxy Statement were filed
with the Securities and Exchange Commission on March 14, 1994.
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PART I
Item 1. Business
Mead manufactures and sells paper, pulp, paperboard, lumber and
other wood products. Mead also manufactures and distributes school and
office supplies, distributes paper and other industrial supplies and is
engaged in the electronic publishing business.
Mead was incorporated in 1930 under the laws of the state of Ohio as
the outgrowth of a paper manufacturing business founded in 1846, and has
its principal executive offices at Mead World Headquarters, Courthouse
Plaza Northeast, Dayton, Ohio 45463, telephone (513) 495-6323. Except as
otherwise indicated by the context, the terms "Company" or "Mead" as used
herein refer to The Mead Corporation and its subsidiaries.
Segment Information
Segment information is also included in Note R on page 52.
Paper
Mead's Fine Paper division manufactures cut-size copier paper;
uncoated and coated papers for commercial printing; form bond and
carbonless paper and papers for conversion by others into business forms;
and other uncoated papers for conversion by others into such products as
greeting cards and bank checks. Mead's Publishing Paper division
manufactures web coated offset paper for use by book, magazine, catalog
and advertising brochure publishers. The Fine Paper division sells papers
manufactured by both divisions nationwide, both on a direct basis to
printers and converters and through paper merchants, including merchants
owned by Mead. Additionally, Escanaba Paper Company, a wholly-owned
subsidiary, sells its output to the Publishing Paper division of Mead,
which resells the paper directly to publishers and printers. The pulp
mills adjacent to the paper mills of these divisions and the pulp mill
owned by an affiliate (see "Forest Products Affiliates") produce virtually
all of the pulp required for use in these paper mills.
The Company's Gilbert division manufactures cotton content and
premium sulfite paper and premium recycled papers, including bond,
banknote, texts and cover, and technical and specialty papers, and sells
these products principally through paper merchants, including merchants
owned by Mead.
Mead's Specialty Paper division manufactures and sells, primarily
through its own sales force, decorative laminating papers. This division
also manufactures absorbent, filter, fire resistant, synthetic fiber and
other specialty papers. The division's principal customers include
manufacturers that serve the building materials, automotive and furniture
industries.
The Mead Pulp Sales division sells market pulp manufactured by
Northwood Forest Industries Ltd. and by a non-affiliate, Aracruz Celulose
S.A. The division maintains one sales office and is represented by
affiliates and independent agents in all major pulp-consuming areas of the
world. The principal market areas for pulp are in North America, western
Europe and Japan.
Packaging and Paperboard
The Mead Packaging division designs and produces multiple packaging
and packaging systems primarily for the beverage take-home market. The
division operates through a network of subsidiaries, affiliates and
licensees in the United States, Canada, Europe, Japan, the Far East and
Pacific Rim, Mexico and Latin America. Demand for most beverage packaging
is seasonal with inventories being built from November to March for the
peak soft drink and beer sales of April through October.
Mead Coated Board, Inc., a wholly-owned subsidiary of Mead, operates
a coated paperboard mill near Phenix City, Alabama, and two sawmills in
Cottonton, Alabama and Greenville, Georgia, and owns various timberlands
in Alabama and Georgia. The subsidiary is engaged primarily in the
manufacture of coated natural kraft products used by the beverage
packaging industry and by manufacturers of folding cartons for soaps, food
products, hardware and apparel. The entire output of the Phenix City mill
is sold by Mead Coated Board, Inc. to the Mead Coated Board division. The
division sells approximately 50% of the mill output to the Mead Packaging
division. The remainder is sold to a wide range of domestic and foreign
carton converters. The division's customers are most concerned about
physical strength properties of the paperboard and its quality for
reprographics. Mead started up a new CNK(R) paperboard facility adjacent to
the Phenix City mill in late 1990, and has constructed additional sheeting
facilities in foreign countries to handle a portion of the increased
capacity. In 1993, the division commenced operations at new facilities at
the Phenix City mill designed to enable the division to meet beverage
packaging customer demand for post-consumer recycled content.
The Mead Containerboard division sells standard and special purpose
corrugated shipping containers manufactured at eight converting plants
located in the Midwestern and Southeastern regions of the United States
from raw materials received from outside sources and from the division's
Stevenson, Alabama corrugating medium mill. The division also sells
corrugating medium from the Stevenson mill to unaffiliated manufacturers
of containers.
Forest Products Affiliates
Northwood Forest Industries Ltd. ("Northwood"), which is owned 50%
by Mead and 50% by Noranda Forest Inc. ("Noranda"), manufactures bleached
softwood kraft pulp at its 1,600 ton-per-day mill in Prince George,
British Columbia. The principal markets for its pulp are in the
midwestern United States, western Europe and Japan. Lumber and plywood
products are also produced at Northwood's three sawmills and its plywood
plant in British Columbia. Northwood has the annual capacity to produce
over one billion board feet of lumber and 175 million square feet of
plywood (3/8-inch basis). Northwood's solid wood products' operations
provide about 670,000 tons (ODT) of wood chips or 70% of the fiber
requirements for the pulp mill. A wood preserving operation also treats
lumber and custom treats plywood from other sources.
Northwood Panelboard Company, a partnership owned 50% by Mead and
50% by Noranda and located in Bemidji, Minnesota, has the annual capacity
to produce approximately 340 million square feet of oriented structural
board (3/8-inch basis).
All of the wood products produced by Northwood and Northwood
Panelboard Company are sold through a subsidiary of Noranda primarily in
North America with approximately 20% sold to export markets. Mead has a
long-term contract with Northwood pursuant to which Mead is entitled to
purchase such of Northwood's pulp production as it may require.
Timberlands
Mead obtains most of its wood requirements from private contractors
or suppliers and from Company owned timberlands. The annual wood
requirement for Mead's wholly-owned operations is approximately 8,000,000
tons, of which approximately 16% is obtained from timberlands owned or
leased by Mead.
The approximate annual requirement of wood for Northwood is
5,800,000 tons, the majority of which is obtained from Crown Lands through
various types of cutting rights which are terminable or renegotiable at
the government's initiative and from third parties having similar cutting
rights.
As of December 31, 1993, Mead owned or controlled approximately
1,337,000 acres of timberlands in the United States. Approximately
106,000 acres of land are controlled by Mead under long-term agreements
which expire at different times through 2027.
Distribution and School and Office Products
Zellerbach, Mead's distribution operation, is a national
distribution business which distributes a full line of printing papers,
industrial supplies and packaging materials and equipment. These products
are distributed through a network of wholesale locations and
printer-supply retail outlets. The business units carry inventory or
order products against sales orders, depending upon the product and
service requirements. Zellerbach distributes not only products of Mead,
but also those of several hundred other manufacturers. In the
distribution of paper and other products, competing merchants frequently
distribute products of the same supplier.
The Mead School and Office Products division manufactures and
distributes a line of school supplies (including filler paper, wirebound
notebooks, portfolios and looseleaf binders) as well as a line of office
supply products (including envelopes, filing supplies and vinyl folders
and binders). The division's products are distributed primarily through
mass market retailers, office supply superstores and warehouse clubs. The
school supply segment is highly seasonal with inventories beginning to be
built in the winter and spring for shipment in late spring and summer,
while the home and office products portion of the business is generally
less seasonal in nature. Manufacturing and distribution is done from
seven United States plants/distribution centers, and a small manufacturing
facility operated in Nuevo Laredo, Mexico.
Electronic Publishing
The Mead Data Central division ("MDC") markets electronic
information services worldwide to corporations, financial institutions,
news media, governments and the legal, medical and accounting professions.
Based in Dayton, Ohio, MDC has sales offices in approximately 50 major U.
S. cities, with international offices in London, Zurich and Toronto.
Principal services include LEXIS(R), a computer-assisted legal research
service, and NEXIS(R), a computer-assisted news, financial, marketing and
general information retrieval service. MDC's services are distributed to
subscribers via subscribers' own computer equipment and custom terminals
supplied by MDC.
MDC operates several other businesses, including The Michie Company
division, which publishes, reports and edits state statutes and other
legal reference materials in book and CD-ROM format; LEXIS(R) Document
Services division, which provides public records searching and retrieval
services for law firms, financial institutions and other customers; and
Folio Corporation and Jurisoft, software development companies. MDC also
controls a minority interest in Star Data Systems, Inc., a Canadian
company that provides real-time quote services to Canadian customers.
International Sales and Operations
Outside of the United States and Canada, Mead and its affiliates
operate a paperboard sheeting facility and are engaged in the manufacture
of multiple systems and folding carton packaging in Europe, Asia and Latin
America. Mead also has sales subsidiaries, affiliates, agents or
distributors in a number of countries in Europe, Asia, Australia and Latin
America.
Competition
Mead competes on a world-wide basis in its product lines, and the
markets in which Mead sells its products are highly competitive. Several
factors affect Mead's competitive position, including quality, technology,
product design, customer service, price and cost. The Fine Paper and
Publishing Paper divisions compete with numerous other major paper
manufacturers. The Gilbert division competes with a number of other
manufacturers of premium cotton, sulphite and recycled papers. The Coated
Board division competes with other boxboard producers, including
manufacturers of all types of coated recycled boxboard, coated solid
bleach sulfate and folding boxboard. The Packaging division competes with
a number of carton suppliers and machine manufacturers and one other
global systems-based multiple packaging supplier. The Containerboard
division competes primarily with container producers in several market
areas. The Zellerbach division competes with national and regional
merchant chains, as well as independent local merchants. The School and
Office Products division competes with national and regional converters,
some with broad product offerings and others focused on narrow product
segments. MDC faces increasing competition for new products and markets
from numerous on-line and CD-ROM information providers as well as book
publishers.
Employee and Labor Relations
Mead employs approximately 19,600 persons, of whom approximately
7,700 are production, maintenance and clerical employees represented by
labor unions. Mead's 50% owned company, Northwood, employs approximately
2,300 persons. Mead and Northwood have approximately 50 labor agreements
currently in force of which approximately one-third are subject to
renegotiation each year.
Mead's employee relation policies are based on mutual confidence and
trust. All Mead labor contract negotiations during 1993 were concluded
without any strikes.
Trademarks, Trade Names, Patents, and Franchises
Mead has a large number of trademarks and trade names under which it
conducts its business, including "Mead," "Mead Papers," "Mead Packaging,"
"Zellerbach," "Montag," "LEXIS," "Lexpat," "NEXIS," "Super Shades,"
"Trans/Rite," "Trans/Tab," "Cluster-Pak," "Cambridge," "Chief," "Apex,"
"Info," "Moistrite," "Trapper," "Trapper Keeper," "Neatbook," "Gilbert,"
"OPAS," "Signature," "CNK," "Five Star," "First Gear," "Neu-Tech,"
"Gilcrest," "Esse," "ORGANIZER," "Spiral," "Sig-NATURE," "Management
Series," "NO! RULES" and many others. Mead also has a great number and
variety of patents, patent rights, licenses and franchises relating to its
business. While, in the aggregate, the foregoing are of material
importance to Mead's business, the loss of any one or any related group of
such intellectual property rights would not have a material adverse effect
on the business of Mead.
Environmental Laws and Regulations
Mead's operations are subject to extensive regulation by various
federal, state, provincial and local environmental control statutes and
regulations. These regulations impose effluent and emission limitations,
waste disposal and other requirements upon the operations of Mead, and
require Mead to obtain and operate in compliance with the conditions of
permits and similar authorizations from the appropriate governmental
authorities. Mead has obtained, has applications pending, or is making
application for such permits and authorizations. Mead does not anticipate
that compliance with such statutes and regulations will have a material
adverse effect on its competitive position since its competition is
subject to the same statutes and regulations to a relatively similar
degree.
During the past five years (January 1, 1989 - December 31, 1993),
Mead (including its share of Northwood expenditures) constructed air and
water pollution control and other environmental facilities at a cost of
approximately $115 million. Significant environmental expenditures in the
future are anticipated to include long-term projects for the construction
of solid waste disposal facilities, and maintenance and upgrade of
wastewater treatment plants and air emission controls. Due to changes in
environmental laws and regulations, the application of such laws and
regulations and changes in environmental control technology, it is not
possible for Mead to predict with certainty the amount of capital
expenditures to be incurred for environmental purposes, though management
anticipates that these expenditures will increase as regulatory
requirements become more stringent. Taking these uncertainties into
account, Mead estimates that in the next five years it may be required to
incur expenditures of approximately $200 million.
A substantial portion of the expected increase in capital
expenditures for the next five years is related to new regulations under
the Clean Air Act and Clean Water Act, which are expected to be
promulgated in final form by the United States Environmental Protection
Agency ("USEPA") in late 1995. These regulations, proposed in December
1993, are intended to reduce air and water discharges of specific
substances from pulp and paper mills in the United States, and to require
installation of additional pollution control equipment based on best
available technology. The American Forest and Paper Association estimates
that these regulations, if implemented in their present form, could cost
the pulp and paper industry over $10 billion in capital expenditures, and
force the closing of approximately 30 plants and the loss of an estimated
19,000 mill jobs. Mead believes, based on a review of Mead's operations,
that implementation of the proposed regulations in their present form
could significantly increase Mead's capital investments and operating
costs over the next five years. Mead opposes these regulations as
proposed because it believes that the environment can be protected for
billions of dollars less in capital investment and without a significant
negative impact on the United States pulp and paper industry's competitive
position worldwide. Mead expects that the proposed regulations will be
modified before being issued in final form in 1995.
The USEPA recently issued proposed regulations implementing the
Federal Great Lakes Critical Programs Act of 1990 ("GLCPA"), which was
enacted as a result of an agreement between the United States and Canada
in the 1970s to seek greater consistency for water quality standards among
the Great Lakes states. The proposed regulations establish minimum water
quality criteria, anti-degradation policies and implementation procedures.
Current industry estimates indicate that compliance with these proposed
regulations may cost affected forest products companies, in the aggregate,
over $800 million. In September 1993, in response to the USEPA's request
for comments on the proposed regulations, and based on certain assumptions
and uncertainties described in Mead's comment letter, Mead estimated that
the cost of complying with the proposed regulations, in respect of Mead's
Escanaba facility, could range from $100 million to $150 million in
capital expenditures, with a significant increase in annual operating
costs. These costs are not included in Mead's anticipated environmental
expenditures discussed above. Mead opposes these regulations as proposed
because Mead believes they are unnecessary and unreasonable. At this
time, Mead cannot make any conclusions as to the effect of the final
rules, which are expected to be promulgated by the USEPA in 1995.
Mead believes that most of its earlier expenditures for
environmental control have been beneficial. However, Mead and its trade
associations have challenged and are continuing to challenge in
administrative and judicial proceedings federal and state environmental
control regulations which they do not believe are beneficial to the
environment or the public. In some instances, those trade associations
may also seek legislative remedies to correct unnecessary or impractical
requirements of existing laws.
Trace amounts of dioxin were first detected several years ago in the
effluents and sludge of bleached paper mills. Mead has changed its
bleaching process at each of its three bleached paper mills which has
significantly reduced dioxin generation. Dioxin currently cannot be
detected under normal operating conditions in treated effluents from
Mead's three U. S. bleached paper mills. Taking into account current
regulatory efforts and the process and control equipment installed at
Mead's bleached paper mills, management does not believe that any required
actions in response to these concerns will have a material adverse effect
on the Company.
Mead has been notified by the USEPA and by several state or local
governments that it may be liable under federal environmental laws or
under applicable local laws with respect to the cleanup of hazardous
substances at several sites currently operated or used by Mead. Mead has
resolved actions relating to several of these sites at minimal cost, and
Mead believes that the costs associated with other sites will not be
material or will be mitigated by the presence of additional potentially
responsible parties, contractual indemnities, insurance coverage or other
factors.
Mead is currently named as a potentially responsible party ("PRP"),
or has received third party requests for contribution, in several
superfund proceedings under federal, state and local laws with respect to
at least 24 sites sold by Mead over many years or owned by contractors
used by Mead for disposal purposes. Some of these proceedings are
described in more detail in Part I, Item 3, "Legal Proceedings." There
are other former Mead facilities and those of contractors which may
contain contamination or which may have contributed to potential superfund
sites. Mead's potential liability for these sites will depend upon
several factors, including the extent of the contamination, method of
remediation, insurance coverage and contribution by other PRPs. Although
the costs that Mead may be required to pay for remediation of these sites
are not certain at this time, Mead has accrued amounts to cover estimates
of such costs, based upon the number of other PRPs, their ability to pay
their portion of the costs, the volumetric amount, if any, of Mead's
contribution, and several other factors. These costs are not included in
the anticipated capital expenditures for the next five years discussed
above.
Item 2. Properties
Mead considers that its facilities are suitable and adequate for the
operations involved. With the exception of certain warehouses, general
offices and timberlands which are leased, including properties which are
leased from corporations the common shares of which are owned by The Mead
Retirement Master Trust, and certain warehouses which are owned or leased
and managed by third parties for Zellerbach, Mead owns all of the
properties described herein. For additional information regarding leases
see Note O on page 50. For additional information concerning Mead's
timberlands and properties of affiliates, see Item 1. Business.
Mead's corporate headquarters are in Dayton, Ohio and its principal
facilities are at the locations listed below:
Business Unit Facility Locations Principal Use
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Fine Paper Chillicothe, Ohio Pulp mill, coated, uncoated and
carbonless paper mill
Kingsport, Tennessee Pulp mill, coated and uncoated
paper mill
Publishing Paper Escanaba, Michigan Pulp mill, coated paper mill
Gilbert Paper Menasha, Wisconsin Cotton and recycled content and
specialty paper mill
Specialty Paper South Lee, Massachusetts Decorative laminating and
specialty paper mills
Packaging Anniston, Alabama Paperboard packaging, multiple
Atlanta, Georgia packaging systems for beverage
Buena Park, California and food, packaging machinery
Chicago, Illinois manufacturing or repair
Godfrey, Illinois facilities and ink manufacture
Fairless Hills,
Pennsylvania
Ajax, Ontario, Canada
Chateauroux, France
Trento, Italy
Roosendaal, The Netherlands
Trier-Ehrang, Germany
Bristol, England
Shimada, Japan
Containerboard 8 plants within the Corrugated shipping containers
United States located manufacturing facilities
primarily in midwest
and southern regions
Stevenson, Alabama Corrugating medium mill
Coated Board Phenix City, Alabama Coated paperboard mill,
Venlo, The Netherlands sheeting facilities and
Cottonton, Alabama sawmills
Greenville, Georgia
Hong Kong
United Kingdom
School and Office 7 manufacturing and Home office and school products
Products distribution locations manufacturing and distribution
throughout the United facilities
States, and one
manufacturing location in
Nuevo Laredo, Mexico
Zellerbach 45 wholesale locations Paper, packaging equipment and
throughout the United supplies distribution facilities
States; one converting
operation; 34 printer-
supply retail outlets; and
3 third party warehouses
Mead Data Central Dayton, Ohio Headquarters and database
location
Springfield, Illinois Headquarter of LEXIS(R)
Document Services
Charlottesville, Virginia Headquarters of The Michie
Company division
Provo, Utah Headquarters of Folio
Corporation
Cambridge, Massachusetts Headquarters of Jurisoft
Item 3. Legal Proceedings
In March 1989, the Ohio Attorney General filed a lawsuit against
Mead alleging violations of state solid waste and water pollution laws at
two landfills (the Paint Street Site and the Storage Depot Site) owned and
operated by Mead Fine Paper Division's Chillicothe, Ohio mill. The
lawsuit sought injunctive relief (orders closing one landfill and
modifying operations at the other landfill) and civil penalties. Mead has
denied the allegations in the complaint, and since the filing of the suit,
Mead has ceased use of and proceeded to close both landfills. Mead is
currently disposing of its solid wastes at alternate permitted facilities
and using its paper mill sludge to reclaim strip mines. Mead believes
that it has closed both landfills to the satisfaction of the Ohio EPA,
although certain issues concerning groundwater monitoring and treatment,
as well as civil penalties, remain to be resolved. While Mead cannot
predict the outcome of this litigation, because the estimate of closure
costs have already been accrued, Mead does not believe that the litigation
will have a material adverse impact upon its financial condition or
results of operations.
In a related matter, in September 1993 Mead signed a Consent Order
with USEPA under Section 3008(h) of the Resource Conservation and Recovery
Act with respect to the Storage Depot Site. Pursuant to the terms of that
Order, Mead will undertake certain investigative and remedial work
designed to control releases of hazardous substances from the site. Work
has begun and is expected to continue into 1995.
Mead believes that the U.S. Navy is legally responsible for the
groundwater contamination at the Storage Depot site, including the cost of
implementing the Consent Order discussed above. In 1992, Mead filed a
declaratory judgment action against the U.S. Navy seeking to have the Navy
take responsibility for any required remediation. In 1993, both Mead and
the U.S. Navy filed motions for partial summary judgment on the issues of
liability, and allocation of responsibility for clean up costs, both of
which motions were denied in January 1994. Attempts to mediate this
proceeding ended in October 1993 without any resolution.
In March 1991, Mead was served with a complaint entitled Beazer East
-----------
Inc. v. The Mead Corporation, C.A. No. 91-0408, filed in the United States
- - ----------------------------
District Court for the Western District of Pennsylvania. The complaint
alleges that the USEPA seeks to require Beazer to conduct a site-wide
environmental investigation regarding hazardous substances, wastes and
constituents at the Woodward Facility located in Dolomite, Alabama, and to
propose preferred corrective measures for the site. Mead acquired the
Woodward Facility by merger in 1968, and in 1974 sold it to Koppers, Inc.,
which was later acquired by Beazer. The complaint alleges that Mead is
liable to Beazer for contribution for past and future costs to be incurred
by Beazer as a result of any corrective measures required at the site. In
October 1992, the district court granted Mead's motion to dismiss all of
plaintiff's allegations in this proceeding except those relating to
alleged liability under CERCLA and alleged indemnity under the 1974 sale
contract. In June 1993, the court granted Mead's motion for summary
judgment and dismissed the case. In July 1993, the plaintiff filed a
notice of appeal. Although the potential costs and damages, if any,
associated with this litigation are not determinable at this time, Mead
does not believe that the outcome of this litigation will have a material
effect on its financial condition or results of operations, based on,
among other things, rights to contribution, potential insurance coverage
and indemnification and other defenses, including that the contract of
sale barred any such claim by Beazer.
The Tennessee Department of Conservation ("TDC") advised Mead in
September 1991 that a closed coke manufacturing facility located in
Chattanooga, Tennessee (formerly owned by Mead) is a hazardous substance
site within the meaning of the Tennessee Hazardous Waste Management Act,
and that Mead may be a potentially responsible or liable party. In August
1993, the federal Agency for Toxic Substances and Disease Registry
("ATSDR") issued a health advisory for a site which includes the facility
formerly owned by Mead. The ATSDR concluded there is coal tar at the site
and recommended the site be considered for inclusion on the USEPA's
National Priorities List ("NPL") of hazardous waste sites. In January
1994, the USEPA proposed adding the site to the NPL. USEPA Region IV will
likely take the lead on overseeing the remediation if the site is placed
on the NPL.
A preliminary potentially responsible party search conducted by
USEPA Region IV indicates that dumping likely occurred at this Chattanooga
site to meet World War II government requirements when the coke plant
doubled in size. The coke plant was owned by the Defense Plant
Corporation during World War II and sold by the War Assets Administration
in 1946. Woodward Iron Company, formerly a division of Mead, acquired the
coke plant manufacturing facility in 1964, and Mead sold the coke plant
manufacturing site to third parties in 1974. Although the extent of
contamination and the possible method of remediation are not known at this
time, based on information currently available to Mead, rights to
contribution and potential insurance coverage, Mead does not believe that
this proceeding will have a material adverse effect on the Company.
The USEPA informed Mead in June 1992 that the Mead Publishing Paper
mill in Escanaba, Michigan, allegedly violated federal air emissions rules
by exceeding limits for emissions of total reduced sulfur from one boiler
and by failing to properly maintain continuous emissions monitoring
systems on two boilers. The alleged violations occurred during 1990 and
1991. In August 1993, USEPA served on Mead an administrative complaint
and proposed order, including a proposed penalty of $194,000, under
Section 113 of the Clean Air Act for alleged air emissions violations
during the preceding twelve months. USEPA and Mead have entered into
settlement negotiations, and Mead does not believe that this proceeding
will have a material adverse effect on the Company.
Additional information is included in Part I, Item 1,
"Business--Environmental Laws and Regulations."
Mead is involved in various other litigation and administrative
proceedings arising in the normal course of business, which, in the
opinion of management, will not have a material adverse effect on the
financial condition or results of operations of Mead.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Company
The Executive Officers of Mead as of February 1, 1994, their ages,
their positions and offices with Mead, and the principal occupation
(unless otherwise stated, position is with Mead) of such Executive
Officers during the past five years are as follows:
Name Age Position and Offices
---- --- --------------------
Samuel S. Benedict 63 Director; President and Chief
Operating Officer since April
1991; prior thereto President
of the Publishing Paper
division
William R. Graber 50 Vice President and Chief
Financial Officer since
December 1993; prior thereto
Vice President and Treasurer
since April 1993; Treasurer
since September 1992;
Controller since April 1991;
Manager, Finance Operations,
Motor Business, General
Electric Company ("GE") since
July 1990; Manager, Financial
Service Operations, GE
Aircraft Engines, since 1987.
Elias M. Karter 53 Vice President, Manufacturing
& Technology
Steven C. Mason 57 Director; Chairman of the
Board and Chief Executive
Officer since May 1992; Vice
Chairman during 1991-1992;
prior thereto President and
Chief Operating Officer
Charles J. Mazza 51 Vice President, Human
Resources
Wallace O. Nugent 55 Vice President, Purchasing and
Logistics since January 1993;
prior to that Vice President,
Marketing and Supply
Thomas E. Palmer 54 Vice President and General
Counsel since September 1991;
prior thereto a partner with
Squire, Sanders & Dempsey
All Executive Officers of Mead are elected annually by the Board of
Directors.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Mead's Common Shares are listed on the New York, Chicago and Pacific
Stock Exchanges, trading under the symbol "MEA." Information on market
prices and dividends is set forth below:
MARKET PRICES PER COMMON SHARE
- - ------------------------------
1993 1992
---- ----
High Low High Low
---- --- ---- ---
First quarter $45.875 $37.500 $39.375 $33.75
Second quarter 47.375 40.500 39.375 33.25
Third quarter 48.500 41.250 41.625 35.00
Fourth quarter 45.750 39.500 41.50 33.125
DIVIDENDS PAID PER COMMON SHARE
- - -------------------------------
1993 1992
---- ----
First quarter $ .25 $ .25
Second quarter .25 .25
Third quarter .25 .25
Fourth quarter .25 .25
---- ----
Year $1.00 $1.00
==== ====
The number of Common shareowners of record as of March 1, 1994, was
17,145. See Note G for information regarding the amount of retained
earnings available for dividends.
Item 6. Selected Financial Data
Five-Year Data on Operations, Liquidity, Financial Condition and Capital Resources
December 31 1993 1992 1991 1990 1989
- - ----------------------------------------------------------------------------------------------
(All dollar amounts in millions, except per share amounts)
< c>
Operations:
Net sales $4,790.3 $4,703.2 $4,579.3 $4,772.4 $4,608.2
Earnings from continuing operations 124.1 37.6 75.6 106.4 247.3
Earnings per common share from
continuing operations 2.08 0.63 1.29 1.71 3.80
Liquidity:
Working capital 419.8 399.5 346.6 288.8 288.6
Current ratio 1.6 1.5 1.5 1.4 1.4
Net cash provided by
operating activities 376.3 329.7 267.3 359.7 366.1
Assets:
Property, plant and equipment-net 2,412.9 2,350.1 2,365.1 2,358.8 2,079.7
Total assets 4,164.5 4,031.4 3,986.2 3,889.0 3,690.2
Deferred income tax liability 310.7 275.2 248.8 294.5 330.2
Capital:
Borrowed capital-
due beyond one year 1,368.8 1,332.3 1,315.7 1,256.6 949.8
Equity capital 1,578.0 1,495.4 1,478.4 1,531.3 1,680.8
------- ------- ------- ------- -------
Total capital $2,946.8 $2,827.7 $2,794.1 $2,787.9 $2,630.6
Borrowed capital as a
percent of total capital 46.4% 47.1% 47.1% 45.1% 36.1%
Cash dividends per common share $ 1.00 $ 1.00 $ 1.00 $ .97 $ .85
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
REVIEW OF OPERATIONS
--------------------
OVERVIEW OF 1993
- - ----------------
Despite negative market conditions facing most of its
businesses, Mead's earnings improved over 1992 and 1991 levels. Driving
the earnings increase were significantly improved results from Mead's
Northwood affiliates; the large paper mills in Escanaba, Michigan, and
Chillicothe, Ohio; and the Coated Board and School and Office Products
divisions. Earnings from Mead's Containerboard, Packaging and Zellerbach
divisions were lower than 1992 results.
Sales increased as a result of higher levels of sales volume
in many businesses. Pricing pressures continued into 1993 for almost all
operations resulting in lower average prices in 1993 than in 1992 and
1991. Pulp prices, which plunged in 1991, deteriorated even further in
1992 and 1993. The exception for pricing was Mead's affiliate, Northwood
Forest Industries, where wood products' prices increased significantly in
1993 compared to 1992 and 1991, and provided the impetus for Northwood's
earnings improvement.
Within Mead's paper operations, sales volumes were higher than
1992 and 1991 but average selling prices, continuing 1991's downward
trend, were slightly lower, reflecting the lackluster economy and large
increases to industry capacity in recent years.
Mead Coated Board's volume grew in 1993 as it did in 1992 and
1991. Mead Packaging's sales dropped from the 1992 level due in large
measure to increased competitive pressures on pricing and weaker foreign
markets and currencies. The Containerboard Division was adversely
affected by lower prices across its businesses, despite volume increases
in the converting markets, and continued strong operations at the
Stevenson, Alabama, corrugated medium mill.
Market difficulties in the paper and industrial/commercial
supplies businesses continued to affect Zellerbach, Mead's nationwide
network of paper merchant distributors. Improvements in productivity and
cost reduction actions did not offset the effect of deteriorating prices.
Mead School and Office Products had another good year in 1993,
with earnings higher than in both 1992 and 1991. The division liquidated
the inventory purchased from Union Camp's school and office products
business, contributing marginally to its favorable results.
Mead Data Central revenues grew 11% in 1993. However,
strategic investments to enhance the features and functionality of its
services, as well as expenditures for new product development and sales
force restructuring, offset the effect of sales growth resulting in little
earnings change from 1992.
OPERATING RESULTS
- - -----------------
Sales increased to $4.790 billion in 1993, compared to $4.703
billion in 1992 and $4.579 billion in 1991. The gains for both 1993 and
1992 were achieved despite the effects of lower paper prices and the sale
of Ampad Corporation in July, 1992.
Earnings Per Share Analysis
----------------------------------------------------------
1993 1992 1991
---- ---- ----
Comparable earnings $2.20 $ 1.93 $ 1.21
Other expenses (1.00) (.37)
Sale of business (.30) .45
Effect of tax rate change on
deferred tax balance at
beginning of year (.12)
---- ----- -----
Earnings from continuing
operations 2.08 .63 1.29
Discontinued operations (.17)
Cumulative effect of change
in accounting principle .58 (1.00)
---- ----- -----
Net earnings $2.08 $1.21 $ .12
==== ==== =====
----------------------------------------------------------
Comparable earnings were up almost 14% in 1993. However, the
effect of the 1993 corporate tax rate increase of 1% on deferred taxes at
January 1, 1993, negatively affected Mead's 1993 earnings from continuing
operations by $.12 per share.
1992 comparable earnings were significantly improved over 1991
levels. The following items reduced 1992 earnings from continuing
operations:
- A comprehensive performance improvement program resulted
in an after tax charge of $58.9 million, or $1.00 per
share.
- A $17.7 million after tax, or $.30 per share charge,
represented a loss on the sale of the Ampad office
products business.
In 1991, the $.37 per share charge related to costs for
changing environmental requirements, business consolidations and the
writeoff of certain engineering costs. The $.45 per share gain relates to
sale of Micromedex.
In 1992, Mead adopted Statement of Financial Accounting
Standards (SFAS) No. 109, requiring the determination of all income tax
liabilities at current rates. The effect of adopting the new standard was
an increase in net earnings of $34 million, or $.58 a share. In 1991,
earnings were negatively impacted by
adjustments affecting Mead's discontinued reinsurance business, and
adoption of SFAS No. 106 related to postretirement benefits.
In 1993, the company adopted SFAS No. 112, "Employers'
Accounting for Post-employment Benefits." Adoption had no impact on the
company.
Depreciation, amortization and depletion of property, plant
and equipment amounted to $261 million in 1993, compared with $246 million
in 1992 and $236 million in 1991.
PAPER
----------------------------------------------------------
Segment Summary ($ millions) 1993 1992 1991
--------------- ---- ---- ----
Sales $1,111.4 $1,090.6 $1,091.3
------- ------- -------
Comparable earnings 101.9 85.6 112.8
Other expenses (22.3) (20.7)
------- ------- -------
Earnings before
income taxes $ 101.9 $ 63.3 $ 92.1
----------------------------------------------------------
Mead's paper segment earnings improved 19% on a comparable
basis versus 1992, driven by strong operating results at the Chillicothe
and Escanaba mills. Sales increased 2% in 1993 to $1.11 billion. Volume
increased by about 11%, although prices across the board continued to be
depressed. In 1992, sales were
essentially flat compared with 1991, despite a 3% volume increase.
Industry capacity for coated paper in North America increased
8% during the last two years. Coated paper prices decreased slightly from
1992 throughout the industry. The American Forest and Paper Association
(AF&PA) reports that total coated paper capacity will grow 3% in 1994 and
2% in 1995. As general economic conditions improve, demand is expected to
outpace capacity growth, relieving some price pressures.
Mead Publishing Paper
- - ---------------------
The Publishing Paper division provides book and magazine
publishers, catalog printers and commercial printers with more than
500,000 tons of medium-weight coated paper each year. The division has
developed a full line of recycled book and glossy grades in response to
customer interest.
Sales volume increased due to improved order volume. While
pricing was flat for 1993 when compared to 1992, the division's earnings
grew significantly as a result of reduced costs and improved operating
efficiencies. In 1992, sales were approximately 9% lower than 1991, and
earnings dropped considerably as well. In spite of some optimism about
economic recovery, the publishing industry is predicting modest growth, at
best, but not enough to absorb a continuing oversupply of paper.
To upgrade the product mix and improve quality, Mead is
investing $115 million in two major capital projects that are expected to
be completed in 1994 and 1995.
Mead Fine Paper
- - ---------------
Mead Fine Paper produces both coated and uncoated papers for
business, printing and specialty uses. The division is also a leading
producer of carbonless paper.
Continued weak market conditions and depressed prices held
sales growth to a modest increase for the division's Chillicothe, Ohio,
mill. However, improved productivity and good cost controls, due in part
to capital investments and performance improvement efforts, resulted in
significantly increased operating profit for the division. Additional
savings and productivity increases are
expected for 1994 as a result of continued cost reduction efforts and the
effects of capital investment. Mead is investing $111 million to upgrade
its coated sheet quality. Earnings growth is expected to be moderate in
1994 in light of the pricing conditions. Despite weak market conditions
and depressed prices, 1992 sales were up 6% compared to 1991, while earnings
were flat.
The Kingsport, Tennessee, mill continued to be hit hard by
market conditions. The mill did not run as well as anticipated in 1993.
Sales decreased slightly, and operating results fell significantly
compared to 1992.
Mead Specialty Paper
- - --------------------
Mead Specialty Paper manufactures saturating papers for use in
decorative laminates used in commercial and home construction, remodeling
and furniture; and specialty grades in various industrial applications
including automobiles.
Sales for 1993 were up slightly from 1992 levels while
earnings decreased. Excess global capacity and poor economic conditions
in Europe limited growth in 1993. Cost reduction efforts could not offset
operating inefficiencies associated with the start-up of a capacity
expansion project completed early in the year.
The U.S. housing, remodeling and auto production markets were
stronger in 1993 than 1992 and these industries are forecasting a
continuation of this trend. The division reported increased sales and
earnings in 1992 compared to 1991.
Mead's Specialty division obtained ISO 9001 certification by
meeting a set of international standards designed to improve product
quality and consistency.
Gilbert Paper
- - -------------
The Gilbert Paper division produces high-quality
communications papers, including cotton-content bonds, and specialty text
and cover papers.
Gilbert reported slightly lower sales and earnings in 1993 due
to reduced volume, a less profitable product mix, merchant consolidations
and the weak economy. Productivity initiatives and performance
improvement efforts should result in improved 1994 earnings. Sales of
recycled grades and laser-compatible sheets continue to grow, as does potential
for export growth.
The division reported a modest gain in 1992 sales compared to
1991, while earnings remained flat.
PACKAGING AND PAPERBOARD
-----------------------------------------------------------
Segment Summary ($ millions) 1993 1992 1991
--------------- ---- ---- ----
Sales $1,156.9 $1,163.2 $1,022.8
------- ------- -------
Comparable earnings 132.8 140.9 106.1
Other expenses (23.8) (1.6)
------- ------- -------
Earnings before
income taxes $ 132.8 $ 117.1 $ 104.5
-----------------------------------------------------------
Sales were essentially flat at $1.16 billion in 1993, and
comparable earnings decreased 6%. Sales in 1992 rose 14% over 1991, while
comparable earnings increased more than 32%.
A weak global economy and heightened competition leading to
pricing pressures were key factors inhibiting growth in this segment.
While cost improvements were significant across the divisions, they were
not enough to combat difficult market conditions brought on by
overcapacity.
Mead Packaging
- - --------------
Mead Packaging is a leading supplier of multiple beverage
packaging and packaging systems. It also provides multiple packages of
food and other products. Customers include large and small brewers, soft
drink bottlers, food and other consumer products companies.
Lower brewery volume and lower than expected growth in the
soft drink area, as well as price pressures, contributed to decreased
sales and significantly reduced earnings for 1993 in North America. 1992
sales and earnings were flat compared with 1991.
International earnings were near 1992 levels. Exchange rates,
weak European and Japanese economies, and increased pricing pressures were
offset by good cost controls.
An ongoing series of cost-effective packaging systems
solutions is expected to enhance the division's position with customers
overall. To counter worldwide competition and continuing price pressures
in the future, the division is intensifying ongoing cost reduction efforts
and investing additional capital on productivity improvements for 1994.
Packaging opened subsidiaries in Mexico and Brazil in 1993 and
increased its business in Australia. Groundwork has also been laid for
new operations in Argentina, Chile and Poland for 1994, as well as other
points around the globe.
Mead Coated Board
- - -----------------
Mead Coated Board manufactures coated paperboard for use in
multiple packaging and folding cartons. Customers include folding carton
manufacturers in North America, Europe and Asia, in addition to Mead
Packaging's worldwide business.
1993 was the third full year of operation for the expanded
Mahrt mill in Alabama. Production increased more than 5% to exceed
designed capacity of 800,000 tons. More significantly, production of
first quality coated board increased by over 13% as operating efficiency
and quality improved, and as sales increases eliminated the need to fill
capacity with uncoated board. Despite weaker market conditions worldwide
in 1993, sales volume increased 5% primarily due to the folding carton
business worldwide. As a result of quality, cost and productivity
initiatives, and more favorable results from the division's related wood
products operations, earnings significantly improved. However,
competitive pressures in the global board market have eroded prices for
CNK(R) paperboard, Mead's coated natural kraft board. Sales rose 14% in
1992 and earnings rose compared to 1991.
The global market for coated paperboard is expected to grow
modestly over the next few years. Mead Coated Board, however, expects its
sales growth to be above the industry average as market development
efforts of the past couple of years take hold.
Mead Containerboard
- - -------------------
Mead's Containerboard division produces corrugating medium
used in shipping containers and operates eight corrugated container
plants.
Solid volume growth in the converting business and good cost
controls at the medium mill could not offset the effects of oversupply and
price deterioration in both the medium and converted box markets. While
sales were flat, earnings decreased compared to 1992. The division
doubled its earnings in 1992 compared to 1991.
Independently conducted surveys in customer satisfaction
showed the division's medium system has moved to preferred status with its
customers. Its Stevenson, Alabama, mill obtained ISO 9002 certification.
Containerboard's inventory levels are stable and demand is on
the upturn. It is expected that prices will solidify in 1994, and that
additional productivity improvements will drive earnings improvement.
DISTRIBUTION AND SCHOOL AND OFFICE PRODUCTS
----------------------------------------------------------
Segment Summary ($ millions) 1993 1992 1991
--------------- ---- ---- ----
Sales $1,970.7 $1,954.6 $1,995.7
------- ------- -------
Comparable earnings 38.4 45.6 36.3
Other expenses (16.3) (9.2)
------- ------- -------
Earnings before
income taxes $ 38.4 $ 29.3 $ 27.1
----------------------------------------------------------
Sales increased to $1.97 billion for the Distribution and
School and Office Products segment while comparable earnings were down 16%
in 1993 versus 1992. Sales include those resulting from the liquidation
of inventory purchased from Union Camp's school and office products
division. Zellerbach's performance in a poor market and costs associated
with productivity improvements and restructuring were the reasons for
decline in comparable earnings. 1992 sales were 2% below 1991 primarily
as a result of the loss of revenue due to the sale of Ampad Corporation.
Zellerbach
- - ----------
Zellerbach distributes paper, packaging materials and
machines, and industrial/commercial supplies in 65 local markets
throughout the United States.
Continued price pressures offset the sales gains over 1992 for
both the paper and industrial/commercial supplies businesses. The
packaging business continued positive trends in sales growth and margin
percentage. Earnings for the division declined significantly in 1993 due
to market pressures and the ongoing reengineering of the logistics system,
including the consolidation of warehouses and the transition to selective
use of third party providers of logistics services. Sales declined
slightly in 1992 compared to 1991 but earnings were substantially
improved.
Zellerbach accelerated strategic initiatives in 1993,
including restructuring and reengineering projects that continue to
improve customer satisfaction ratings, provide a competitive cost
structure, and should positively impact performance in 1994. Zellerbach
will continue to invest in its long-term growth in 1994.
School and Office Products
- - --------------------------
Mead's School and Office Products division is the nation's
largest manufacturer of school supplies. It also provides stationery
products for home and office use, and is an industry leader in fashion and
product design.
The division's sales grew 6% in 1993 and 4% in 1992. This
excludes sales related to the liquidation of inventory purchased from
Union Camp's school supply business in 1993, and 1992 sales of Ampad, a
business that was divested in 1992. The 1993 growth was primarily fueled
by sales in the Five Star(R), Five Star(R) First Gear(TM) and Cambridge(R)
product lines.
Pre-tax earnings for School and Office Products increased over
1992 levels due to strong sales and operating performance; 1992 earnings
were penalized by losses associated with the bankruptcy of a major
customer.
In 1993, the division began to implement fully integrated
production planning, inventory control, purchasing and accounts payable
systems which are expected to reduce costs over the long term. Mead also
entered into a licensing agreement with Nike, Inc., which should
positively impact the 1994 back-to-school season.
ELECTRONIC PUBLISHING
--------------------------------------------------------
Segment Summary ($ millions) 1993 1992 1991
--------------- ---- ---- ----
Sales $ 551.3 $ 494.8 $ 469.5
------ ------ -------
Comparable earnings 50.4 50.6 41.2
Other expenses (9.2) (3.0)
------ ------ -------
Earnings before
income taxes $ 50.4 $ 41.4 $ 38.2
---------------------------------------------------------
Mead Data Central (MDC) is a leading electronic publisher of
legal, business, and financial news and information. Its LEXIS(R) and
NEXIS(R) information retrieval services are used by professionals in a wide
range of disciplines throughout the world.
MDC's sales increased by 11% to $551.3 million in 1993
compared to 1992. However, comparable earnings were essentially flat at
$50.4 million, due in large part to strategic investments to enhance the
features and functionality of its services, new product development, and
costs associated with sales force restructuring. Competitive pressures remained
intense, affecting pricing and costs in 1993.
In 1992, sales increased 9%, adjusted for the 1991 sale of a
subsidiary. 1992 comparable earnings increased 23% from 1991.
MDC introduced a number of new products and product
enhancements in 1993, most notably FREESTYLE(TM) which enables online users
to search the databases using natural language rather than Boolean logic.
MDC also added a FINDER(R) library of current addresses, phone numbers and
demographic data on 111 million individuals which helps attorneys locate
heirs, witnesses and parties in legal actions. MDC's Folio business
released version 3.0 of its electronic publishing software that enables
users to create their own information bases for searching and retrieving
internal information.
Sales from the business information services area led the way
for MDC as it aggressively targeted new business while strengthening
relationships with existing customers. The legal information area
identified key customer segments and also expanded service to smaller
firms.
MDC will continue to focus on market-driven product
development and anticipates increased margins in 1994 due to an overall
performance improvement effort conducted in 1993, and completion of the
amortization of certain intangibles acquired in the purchase of The Michie
Company in 1988.
Investees
- - ---------
Mead's primary investees are Northwood Forest Industries,
Ltd., a large producer of bleached softwood kraft pulp and wood products
in British Columbia, Canada, and Northwood Panelboard Company, an oriented
structural board (OSB) mill at Bemidji, Minnesota. Both are 50%-owned by
Mead and Noranda Forest Inc. of Canada. Pulp from Northwood is sold
throughout the world by Mead Pulp Sales. Wood products sales are handled
by Noranda Forest Sales Inc.
Northwood's 1993 sales were up 12% from 1992. Mead's share of
1993 earnings of all investees was $18.4 million, up from $6 million in
1992. Mead's share of 1991 results was an $18.1 million loss.
Lumber prices were up substantially during the year, more than
offsetting depressed pulp prices. Improved housing starts and increased
repair and remodeling boosted demand, as did log supply curtailments,
particularly in the Pacific Northwest. The industry expects more of the
same in 1994, as the outlook is strong.
Pulp prices were weak in 1993. The average domestic price for
1993 was down 19% from 1992 and represents the third straight year of
declining prices caused by oversupply, high inventories and sluggish paper
markets, particularly overseas.
A gradual improvement in prices is expected for 1994, although
full year average prices are expected to remain depressed.
Selling, Administrative and Research Expenses
- - ---------------------------------------------
Selling, administrative and research expenses rose by 2% in
1993, versus 6% in 1992. Administrative expenses decreased from 1992
levels as a result of Mead's performance improvement program. Selling and
research expenses increased in 1992 and 1991 primarily due to MDC's
accelerated sales and marketing programs.
Interest and Debt Expense
- - -------------------------
Interest and debt expense declined to $96 million in 1993 from
$101 million in 1992 and from $114 million in 1991. The 1993 reduction
reflected lower average interest rates, and the 1992 reduction resulted
from both lower rates and a somewhat lower average level of debt.
FINANCIAL REVIEW
----------------
Reflecting Mead's higher earnings, cash provided by operations
rose to $376 million. That compares with $330 million in 1992 and $267
million in 1991.
Working capital amounted to $420 million at year-end, compared
with $400 million at the end of 1992 and $347 million at the end of 1991.
Mead's current ratio was 1.6 at the end of 1993, and 1.5 at the end of
both 1992 and 1991.
Inventory levels rose to $447 million in 1993, compared with
$426 million in 1992 and $455 million in 1991. The replacement value of
inventories exceeded their LIFO value by $194 million at the end of 1993.
Adjusted for LIFO, Mead's current ratio would be 1.7 at year-end.
In 1992, Mead made a $95 million provision for the costs
associated with the comprehensive performance improvement program. The
program was undertaken to reduce costs and improve operations, and should
be substantially complete in 1994. Disbursements made under the program
were approximately $24 million in 1992 and $58 million in 1993. There are
no significant non-cash items included in the $95 million provision as it
relates primarily to personnel costs. Management will continue its
efforts to improve the competitive position of Mead's businesses. These
efforts could result in additional costs relating to reduction of
personnel or other actions. It is anticipated that any such costs will be
charged to earnings as they are incurred.
Mead's long-term debt totaled $1.369 billion at the close of
1993, up slightly from the 1992 level of $1.332 billion. The 1991 level
was $1.316 billion.
The company's ratio of long-term debt to total capital
improved slightly to 46% at the end of 1993, compared with 47% at the end
of both 1992 and 1991. The ratios of the past three years reflect the
combination of high rates of capital spending since 1988, the repurchase
of 5.1 million Mead common shares in 1990, and the pressure on earnings
caused by the disappointing worldwide economic environment of the past
several years. Management believes that the appropriate
debt-to-total-capital ratio for Mead over time is 30% to 40%, though it
may exceed that range from time to time, as warranted by strategic
opportunities.
During 1993, Mead issued $150.0 million ($148.8 million net of
discount) of 8-1/8% debentures due February 1, 2023, and $150.0 million
($148.3 million net of discount) of 7-1/8% debentures due August 1, 2025.
The proceeds of both issues were used to retire short-term borrowings
previously classified as long-term. Also, during 1993, Mead reduced the
amount of its bank credit agreements from $750 million to $550 million.
That action was taken to reduce expense and to reflect the debenture issues
which lowered the size of the credit line needed. The $550 million bank credit
agreement extends until November, 1995. Based upon the existence of this
agreement, $80.2 million of short-term borrowings have been classified as long-
term debt. After reduction for these financings, and the January, 1994
prepayment of the $165.5 million purchase note, Mead had $304.3 million of
unused credit lines, which management believes are adequate for anticipated
future needs.
Mead has filed shelf registration statements with the
Securities and Exchange Commission which would permit the company to offer
up to $300 million of debt securities. Up to $154 million of medium-term
notes are currently authorized to be issued as a part of this registered
debt offering.
Mead commenced its medium-term note program in 1989. Between
1989 and 1992, a total of $186 million of medium-term notes was issued
with interest rates ranging from 5-2/3% to 9-7/8%. The largest
medium-term note issue was in May, 1991 for $100 million of five-year
notes yielding 8.33%.
During 1991, Mead retired in advance of scheduled maturities
$85.1 million of long-term debt, including current maturities. This was
refinanced with variable rate debt issued at lower rates.
Under an authorization made by its Board of Directors in 1990,
Mead can repurchase up to approximately 1.6 million additional shares of
its common stock.
Mead common stock has paid a quarterly dividend of $.25 a
share since June, 1990. Annual dividends have totaled $1.00 a share since
that date.
CAPITAL SPENDING
- - ----------------
Capital spending totaled $347 million in 1993, compared to
$271 million in 1992 and $274 million in 1991. The company announced a
$226 million investment in its coated paper operations at Chillicothe,
Ohio, and Escanaba, Michigan. At Chillicothe, this investment totaled
$111 million, $32 million of which was spent in 1993. These projects are
expected to be completed in 1995. At Escanaba, this investment totaled $115
million, $22 million of which was spent in 1993. These projects are also
expected to be completed in 1995.
Mead plans capital spending in 1994 in the range of $375
million to $425 million. It expects that funds to finance these projects
will be internally generated.
ENVIRONMENTAL PROCEEDINGS
- - -------------------------
Mead is currently named a potentially responsible party (PRP),
or has received third party requests for contributions, in several
superfund proceedings under federal, state and local laws with respect to
at least 24 sites sold by Mead over many years or owned by contractors
used by Mead for disposal purposes. There are other former Mead
facilities and those of contractors which may contain contamination or
which may have contributed to potential superfund sites. Mead's potential
liability for these sites will depend upon several factors, including the
extent of the contamination, method of remediation, insurance coverage and
contribution by other PRPs. Although the costs that Mead may be required
to pay for remediation of these sites are not certain at this time, Mead
has accrued amounts to cover estimates of such costs, based upon the
number of other PRPs, their ability to pay their portion of the costs, the
volumetric amount, if any, of Mead's contribution and several other
factors.
In 1993 the U.S. Environmental Protection Agency issued
proposed regulations under the Clean Air Act and Clean Water Act intended
to reduce air and water discharges of specific substances from U.S. paper
and pulp mills, and other proposed regulations implementing the Federal
Great Lakes Critical Programs Act. At present, these regulations are in
the proposal stage, and are not expected to be finalized until 1995. However,
if enacted in their present form, these regulations would significantly increase
Mead's capital spending and operating costs over the next five years.
EFFECTS OF INFLATION
- - --------------------
Inflation remained at a moderate level in 1993 and is not
expected to have a significant effect over the long term. While it is
true that inflation increases the replacement cost of long-lived
facilities and equipment, higher selling prices and the repayment of
borrowings with cheaper dollars would work to maintain satisfactory cash
flow.
Item 8. Financial Statements and Supplementary Data
Financial Statements
Page
----
Financial Statements:*
Independent Auditors' Report. . . . . . . . . . . . . . . . . 27
Statements of earnings. . . . . . . . . . . . . . . . . . . . 28
Balance sheets. . . . . . . . . . . . . . . . . . . . . . . . 29-30
Statements of shareowners' equity . . . . . . . . . . . . . . 31
Statements of cash flows. . . . . . . . . . . . . . . . . . . 32
Notes to financial statements . . . . . . . . . . . . . . . . 33-54
Supplementary Data
Selected quarterly financial data. . . . . . . . . . . . . . . 55
____________________
*Except as otherwise indicated by the context, the "company" referred to
herein means The Mead Corporation and its subsidiaries.
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Mead Corporation
Dayton, Ohio
We have audited the accompanying balance sheets of The Mead Corporation and
consolidated subsidiaries as of December 31, 1993 and 1992, and the related
statements of earnings, shareowners' equity and cash flows for each of the three
years in the period ended December 31, 1993. Our audits also included the
financial statement schedules listed in the Index at Item 14(a)2. These
financial statements and financial statement schedules are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Mead Corporation and consolidated
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
The company changed its method of accounting for income taxes in 1992 (Note K)
and its method of accounting for postretirement benefits other than pensions in
1991 (Note N).
DELOITTE & TOUCHE
Dayton, Ohio
January 27, 1994
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF EARNINGS
(All dollar amounts in millions, except per share amounts)
Year Ended December 31 1993 1992 1991
- - ------------------------------------- -------- -------- --------
Net sales $4,790.3 $4,703.2 $4,579.3
Cost of products sold 3,834.5 3,779.4 3,712.2
-------- -------- --------
Gross profit 955.8 923.8 867.1
Selling, administrative and
research expenses 685.1 671.7 634.7
Other expenses (Note I) 95.0 34.5
-------- -------- --------
Earnings from operations 270.7 157.1 197.9
Other revenues (expenses) - net
(Note J) 9.3 (.5) 64.5
Interest and debt expense (96.2) (101.1) (114.4)
-------- -------- --------
Earnings from continuing
operations before income taxes 183.8 55.5 148.0
Income taxes (Note K) 78.1 23.9 54.3
-------- -------- --------
Earnings from continuing operations
before equity in net earnings
(loss) of investees 105.7 31.6 93.7
Equity in net earnings (loss) of
investees (Note C) 18.4 6.0 (18.1)
-------- -------- --------
Earnings from continuing operations 124.1 37.6 75.6
Loss from discontinued
operations (Note L) (10.0)
-------- -------- --------
Earnings before cumulative effect of
change in accounting principle 124.1 37.6 65.6
Cumulative effect of change in
accounting principle (Notes K and N) 34.0 (58.7)
-------- -------- --------
Net earnings $ 124.1 $ 71.6 $ 6.9
======== ======== ========
Per common and common equivalent
share (Note A):
Earnings from continuing operations $2.08 $ .63 $1.29
Loss from discontinued operations (.17)
----- ----- -----
Earnings before cumulative effect of
change in accounting principle 2.08 .63 1.12
Cumulative effect of change in
accounting principle .58 (1.00)
----- ----- -----
Net earnings $2.08 $1.21 $ .12
===== ===== =====
See notes to financial statements
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(All dollar amounts in millions)
ASSETS
December 31 1993 1992
- - ------------------------------------------ -------- --------
Current assets:
Cash and cash equivalents $ 9.3 $ 18.4
Accounts receivable, less allowance for
doubtful accounts of $24.8 in 1993 and
$24.9 in 1992 598.2 582.1
Inventories (Note B) 446.8 425.9
Deferred tax asset (Note K) 43.5 51.3
Prepaid expenses 33.5 51.7
-------- --------
Total current assets 1,131.3 1,129.4
Investments and other assets:
Investments in and advances to
investees (Note C) 65.1 58.9
Other assets (Note D) 555.2 493.0
-------- --------
620.3 551.9
Property, plant and equipment, at cost
(Notes E and O):
Land and land improvements 135.5 128.2
Buildings 601.6 602.6
Machinery and equipment 3,300.1 3,113.5
Construction in progress 126.1 78.2
-------- --------
4,163.3 3,922.5
Less accumulated amortization and
depreciation (1,969.7) (1,785.5)
-------- --------
2,193.6 2,137.0
Timber and timberlands, net of timber
depletion 219.3 213.1
-------- --------
Property, plant and equipment, net 2,412.9 2,350.1
-------- --------
Total assets $4,164.5 $4,031.4
======== ========
See notes to financial statements
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(All dollar amounts in millions)
LIABILITIES AND SHAREOWNERS' EQUITY
December 31 1993 1992
- - ------------------------------------------ -------- --------
Current liabilities:
Accounts payable:
Trade $ 238.6 $ 256.5
Affiliated companies 34.7 27.0
Outstanding checks 77.0 81.2
Accrued wages 96.2 92.5
Taxes, other than income 59.7 58.0
Other current liabilities 192.8 204.0
Current maturities of long-term debt 12.5 10.7
-------- --------
Total current liabilities 711.5 729.9
Long-term debt (Note E) 1,368.8 1,332.3
Deferred items:
Income tax liability (Note K) 310.7 275.2
Postretirement benefits (Note N) 108.4 98.3
Other 87.1 100.3
-------- --------
Total deferred items 506.2 473.8
Commitments and contingent liabilities
(Notes O and P)
Shareowners' equity (Notes G and H):
Common shares 176.5 175.2
Additional paid-in capital 26.3 12.3
Foreign currency translation adjustment (7.7) (.8)
Net unrealized gain on securities 9.1
Retained earnings 1,373.8 1,308.7
-------- --------
1,578.0 1,495.4
-------- --------
Total liabilities and
shareowners' equity $4,164.5 $4,031.4
======== ========
See notes to financial statements
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF SHAREOWNERS' EQUITY
(All dollar amounts in millions, except per share
amounts; all share amounts in thousands)
Foreign Net
Common Shares Additional Currency Unrealized
---------------- Paid-In Translation Gain on Retained
Shares Amount Capital Adjustment Securities Earnings
------ ------ --------- ----------- ---------- --------
December 31, 1990 58,274 $173.8 $ .2 $10.2 $ $1,347.1
Net earnings 6.9
Stock option activity - net 50 .1 1.0
Shares issued 13 .1 .3
Cash dividends - $1.00 a common share (58.3)
Foreign currency translation adjustment (3.0)
------ ------ ----- ----- ----- --------
December 31, 1991 58,337 174.0 1.5 7.2 1,295.7
Net earnings 71.6
Stock option activity - net 390 1.1 10.6
Shares issued 7 .1 .2
Cash dividends - $1.00 a common share (58.6)
Foreign currency translation adjustment (8.0)
------ ------ ----- ----- ----- --------
December 31, 1992 58,734 175.2 12.3 (.8) 1,308.7
Net earnings 124.1
Stock option activity - net 440 1.2 13.6
Shares issued 11 .1 .4
Cash dividends - $1.00 a common share (59.0)
Net unrealized gain on securities (Note D) 9.1
Foreign currency translation adjustment (6.9)
------ ------ ----- ----- ----- --------
December 31, 1993 59,185 $176.5 $26.3 $(7.7) $ 9.1 $1,373.8
====== ====== ===== ===== ===== ========
See notes to financial statements
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(All dollar amounts in millions)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (NOTE Q)
Year Ended December 31 1993 1992 1991
- - ------------------------------------------------------- ------ ------ ------
Cash flows from operating activities:
Net earnings $124.1 $ 71.6 $ 6.9
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and depletion of
property, plant and equipment 261.1 246.1 236.4
Depreciation and amortization of other assets 55.0 53.5 52.0
Other expenses 95.0 34.5
Deferred income taxes 37.4 11.1 (13.1)
Investees - earnings and dividends (7.9) 3.9 24.6
(Gain) loss on sale of subsidiaries 22.5 (44.1)
Current income taxes on gain (loss) (20.6) 14.2
Loss from discontinued operations 10.0
Cumulative effect of change in accounting principle (34.0) 58.7
Other (27.4) (23.6) (12.0)
Change in assets and liabilities, excluding
effects of acquisitions and dispositions:
Accounts receivable (17.8) (38.5) 6.0
Inventories (20.9) 4.3 (53.7)
Prepaid expenses 18.2 (29.7) 1.3
Accounts payable and accrued liabilities (41.7) (23.1) (27.6)
Cash used in discontinued operations (3.8) (8.8) (26.8)
------ ------ ------
Net cash provided by operating activities 376.3 329.7 267.3
------ ------ ------
Cash flows from investing activities:
Capital expenditures (346.7) (265.1) (265.5)
Additions to equipment rented to others (50.6) (43.7) (35.9)
Payments for acquired businesses (14.0) (7.4)
Proceeds from sale of subsidiaries 76.5
Investments in and advances to investees (1.3) (1.3) (1.5)
Other 20.0 (1.6) 18.0
------ ------ ------
Net cash (used in) investing activities (378.6) (249.2) (292.3)
------ ------ ------
Cash flows from financing activities:
Additional borrowings 396.6 49.7 148.4
Payments on borrowings (359.7) (44.8) (108.1)
Notes payable (45.0) 45.0
Cash dividends paid (59.0) (58.6) (58.3)
Common shares issued 15.3 12.0 1.5
------ ------ ------
Net cash provided by (used in) financing activities (6.8) (86.7) 28.5
------ ------ ------
Increase (decrease) in cash and cash equivalents (9.1) (6.2) 3.5
Cash and cash equivalents at beginning of year 18.4 24.6 21.1
------ ------ ------
Cash and cash equivalents at end of year $ 9.3 $ 18.4 $ 24.6
====== ====== ======
See notes to financial statements
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
A - Accounting Policies
CONSOLIDATION. The accompanying statements include the accounts of the
company and all significant wholly-owned subsidiaries. Investments in
investees are stated at cost plus the company's equity in their
undistributed net earnings (loss) since acquisition. All significant
intercompany transactions are eliminated.
CASH AND CASH EQUIVALENTS. The company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. The carrying amount of these short-term investments is
a reasonable estimate of fair value.
INVENTORIES. The inventories of finished and semi-finished products and
raw materials are stated at the lower of cost or market, determined on the
last-in, first-out (LIFO) basis. Stores and supplies are stated at cost
determined on the first-in, first-out (FIFO) basis.
OTHER ASSETS. Included in other assets are goodwill and other intangibles
which are being amortized using the straight-line method over their
estimated useful lives of five to 40 years.
DEPRECIATION AND DEPLETION. For financial reporting purposes,
depreciation, including amortization of capital leases and land
improvements, is calculated using the straight-line method over the
estimated useful lives of the properties. The rates used to determine
timber depletion are based on projected quantities of timber available for
cutting.
CAPITALIZED SOFTWARE COSTS. The company capitalizes certain costs related
to the development of computer software under the requirements of
Statement of Financial Accounting Standards No. 86. These costs are
being amortized using the straight-line method over the five years
following the general release of the software.
INTEREST RATE AND FOREIGN EXCHANGE FINANCIAL INSTRUMENTS. Premiums and
realized and unrealized gains or losses associated with interest rate and
foreign exchange options and futures and forward contracts, which serve as
hedges, are deferred and amortized over the lives of the contracts or the
hedged items.
ENVIRONMENTAL LIABILITIES. The company records accruals for environmental
costs based on estimates developed in consultation with environmental
consultants and legal counsel in accordance with the requirements of
Statement of Financial Accounting Standards No. 5. The estimated costs to
be incurred in closing existing landfills, based on current environmental
requirements and technologies, are accrued over the expected useful lives
of the landfills.
INCOME TAXES. Income taxes are computed in accordance with Statement of
Financial Accounting Standards No. 109 in 1993 and 1992 and APB Opinion
No. 11 in 1991. Earnings of corporate investees and overseas operations
are reinvested in the business, and no provision for domestic income tax
is made on their earnings until distributed.
POSTEMPLOYMENT BENEFITS. During 1993, the company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." Adoption of this standard had no impact on the
financial statements of the company.
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE. Net earnings per
common and common equivalent share are computed by dividing net earnings
by the weighted average number of common shares and the dilutive effect,
if any, of common share equivalents (convertible subordinated debentures
and stock options) outstanding during each year. Net earnings have been
adjusted by adding back interest expense (net of tax) on the debentures
when dilutive. Fully diluted net earnings per share data are
substantially the same.
B - Inventories
(All dollar amounts in millions)
December 31 1993 1992
- - ------------------------------------------ ------ ------
Finished and semi-finished products $301.3 $283.2
Raw materials 81.0 79.2
Stores and supplies 64.5 63.5
------ ------
$446.8 $425.9
====== ======
For purposes of comparison to non-LIFO companies, inventories valued at
current replacement cost would have been $194.0 million and $199.4 million
higher than reported at December 31, 1993 and 1992, respectively.
C - Investees
The company's principal investee is the 50%-owned Northwood Forest
Industries, Ltd., which manufactures bleached softwood kraft pulp, lumber
and plywood. Under an agreement with Northwood, Mead is entitled to
purchase the pulp it requires.
Total investments in and advances to investees are as follows:
(All dollar amounts in millions)
December 31 1993 1992
- - --------------------------------------------- ----- -----
Investments, at cost $24.8 $23.5
Foreign currency translation adjustment (8.1) (5.4)
Equity in undistributed net earnings 48.4 40.6
----- -----
Total investments (equal to Mead's share
of investees' equity) 65.1 58.7
Advances .2
----- -----
Total investments in and advances to
investees $65.1 $58.9
===== =====
The summarized operating data for all investees is presented in the
following table:
(All dollar amounts in millions)
Year Ended December 31 1993 1992 1991
- - ------------------------------------ ------ ------ ------
Revenues:
Sales to Mead $ 18.2 $ 26.9 $ 39.7
Sales to other customers 547.9 481.0 406.9
------ ------ ------
$566.1 $507.9 $446.6
====== ====== ======
Gross profit (loss) $ 86.5 $ 51.9 $(14.2)
====== ====== ======
Net earnings (loss) $ 47.0 $ 20.5 $(36.3)
====== ====== ======
Mead's share of net earnings (loss),
after elimination of intercompany
transactions and reduction for Mead's
income taxes on partnership earnings $ 18.4 $ 6.0 $(18.1)
====== ====== ======
Dividends and partnership
distributions received $ 15.7 $ 14.2 $ 6.4
====== ====== ======
The summarized balance sheet data for all investees is as follows:
(All dollar amounts in millions)
December 31 1993 1992
- - ------------------------------------------ ------ ------
Current assets $171.6 $145.6
Noncurrent assets 631.6 663.7
Current liabilities (169.9) (161.0)
Long-term debt and deferred items (503.1) (530.5)
------ ------
Shareholders' equity $130.2 $117.8
====== ======
D - Other Assets
(All dollar amounts in millions)
December 31 1993 1992
- - ---------------------------------------------- ------ ------
Goodwill and other intangibles (net of
accumulated amortization of $135.2 in 1993
and $112.9 in 1992) $206.3 $236.7
Pension asset 141.4 97.0
Rental equipment 78.3 60.7
Cash surrender value of life insurance, less
policy loans of $21.4 in 1993 and $18.0 in 1992 39.6 33.3
Computer software development costs (net of
accumulated amortization of $1.6 in 1993) 12.3 10.5
Miscellaneous 77.3 54.8
------ ------
$555.2 $493.0
====== ======
At December 31, 1993, the company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Accordingly, miscellaneous other assets includes
equity securities available-for-sale with a cost of $.1 million which have
been recorded at the current market price ($15.1 million) along with the
deferred income tax liability ($5.9 million) and the net unrealized gain
($9.1 million) recorded as a separate component of shareowners' equity.
E - Long-Term Debt
(All dollar amounts in millions)
December 31 1993 1992
- - -------------------------------------------- -------- --------
Capital lease obligations:
Industrial Development Revenue Bonds and
Notes, average effective rate
approximately 3.0% $ 134.3 $ 116.5
Other, average effective rate 8.25% 24.5 31.4
-------- --------
Total 158.8 147.9
Medium-term notes, 5-2/3% to 9-7/8%,
face amount of $186.0, due from 1996 through
2020 (effective rate approximately 9.2%) 177.7 176.4
Purchase Note, due in 1998, interest at
LIBOR plus 1/2% (4.1% at December 31, 1993) 165.5 165.5
8-1/8% debentures, face amount of $150.0,
due 2023 (effective rate approximately 8.4%) 147.5
7-1/8% debentures, face amount of $150.0,
due 2025 (effective rate approximately 7.4%) 146.6
6-3/4% convertible subordinated debentures 139.0 139.0
9% debentures, due in annual installments of
$7.5 from 2000 through 2017 130.0 130.0
Variable-rate Escanaba tax-exempt bonds,
$10.0 due in 2013 and $83.5 due in 2023,
average effective rate approximately 2.2% 93.5 93.5
Variable-rate Industrial Development Revenue
Bonds, due from 2001 through 2023, average
effective rate approximately 2.2% 78.6 69.6
Short-term borrowings to be refinanced 80.2 378.8
Other 51.4 31.6
-------- --------
$1,368.8 $1,332.3
======== ========
The Purchase Note, the variable-rate Industrial Development Revenue Bonds
and the variable-rate Escanaba tax-exempt bonds are supported by letters
of credit. The interest rates on the variable-rate tax-exempt bonds
closely follow the tax-exempt commercial paper rate.
The 6-3/4% convertible subordinated debentures are convertible into common
shares at any time at a conversion price of $52.85 per share. The
debentures are due in annual installments of $9 million in 2004, $10
million from 2005 through 2011 and $60 million in 2012, and are callable
by the company at 102.7% until September 1994, and at declining prices
thereafter.
During 1993, the company issued $150.0 million of 8-1/8% debentures and
$150.0 million of 7-1/8% debentures to replace short-term borrowings. The
debentures are callable by the company at approximately 103% beginning in
2003.
In January 1994, the company prepaid the $165.5 million Purchase Note, due
in 1998. In addition, the company intends to refinance $80.2 million of
short-term debt on a long-term basis. Since the company has the intent to
consummate these transactions on a long-term basis and has the ability to
do so under its $550 million bank credit agreement that extends until
November 30, 1995, the amounts are classified as long-term debt at
December 31, 1993. After reduction for the above transactions, the
company has unused long-term lines of credit of $304.3 million. This
agreement contains restrictive covenants and requires commitment fees in
accordance with standard banking practice.
Maturities of long-term debt for the next five years, after giving effect
to the prepayment of the Purchase Note, are $12.5 million in 1994, $269.4
million in 1995, $110.0 million in 1996, $16.5 million in 1997 and $3.3
million in 1998.
The fair value of the company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current
rates offered to the company for debt of the same remaining maturities.
The fair value of long-term debt, excluding capital leases, was $1,253.8
million and $1,209.0 million at December 31, 1993 and 1992, respectively,
and the related carrying amounts were $1,210.0 million and $1,184.4
million, respectively.
Property, plant and equipment carried at $110.4 million is pledged as
collateral under the above debt (principally capital leases).
The company has guaranteed obligations of certain affiliated operations
and others totaling approximately $49.2 million at December 31, 1993. In
addition, the company has a 50% interest in a partnership with Scott Paper
Company which has borrowed $300 million under a loan agreement with The
Sumitomo Bank, Limited, New York Branch, which matures in 1998. The loan,
one-half of which has been guaranteed by the company, may be prepaid at
any time either in cash or by delivery of notes receivable from
Georgia-Pacific Corporation held by the partnership as part of the
consideration from the 1988 sale of Brunswick Pulp and Paper Company, a
former affiliate. It is not practicable to estimate the fair value of the
above guarantees.
F - Financial Instruments
The company uses various financial instruments with off-balance-sheet
market risk to manage its interest rate and foreign currency exchange rate
risks. The risk of loss to the company in the event of nonperformance by
any party under these agreements is not significant.
Option and swap agreements require payments to be calculated based upon a
notional principal amount. Fair values of these contracts are estimated
by obtaining quotes from brokers.
Options are written as an element of an overall strategy to manage
specific interest rate or foreign exchange rate risk and are generally
combined with purchased options. For written options, the company
receives a premium at the outset and then bears the market risk of an
unfavorable change in the value of the financial instrument underlying the
options. Based upon the estimated fair values at December 31, 1993, had
the company entered into these foreign currency option contracts on that
date it would have received $.2 million for writing the options and would
have paid $2.5 million to enter into the purchased option contracts.
Included in written interest rate options are options written by the
company which would allow holders to enter into interest rate swap
agreements with the company. If the company had entered into interest
rate option contracts with similar terms on December 31, 1993, the company
would have received $8.3 million on the written option contracts and would
have paid $1.2 million for the purchased interest rate option contracts.
Interest rate swap agreements allow counterparties to exchange interest
cash flows on a specified amount of debt for a specified period. The
company is exposed to market risk due to the possibility of exchanging a
lower interest rate for a higher interest rate. At December 31, 1993, the
company would have received $.7 million to enter into contracts with
similar terms.
The forward foreign currency and interest rate forward contracts (which
are carried at market) reduce the company's risk due to exchange and
interest rate movement because gains and losses on these contracts
generally offset losses and gains on the assets, liabilities and
transactions being hedged. The fair values of foreign currency forward
contracts are estimated using quotes from brokers and a matrix pricing
model. The fair value amounts for forward foreign exchange and interest
rate contracts in the following table represent the principal to be
exchanged if the existing contracts had been settled at year end.
Selected information related to the company's financial instruments
described above is as follows:
(All dollar amounts in millions)
December 31, 1993
----------------------------------
Net Contract
Fair Unrecognized or Notional
Value Gain (Loss) Amount
------ ----------- -----------
Foreign currency options:
Written $ (.2) $ (.2) $ 36.2
Purchased 2.5 2.5 56.5
Interest rate options:
Written (8.3) - 175.0
Purchased (caps) 1.2 (4.1) 400.0
Interest rate swaps (.7) (2.4) 375.0
Forward foreign exchange
contracts:
Dollar purchases 80.1 (.3) 79.8
Dollar sales 35.0 .4 34.6
December 31, 1992
----------------------------------
Net Contract
Fair Unrecognized or Notional
Value Gain (Loss) Amount
------ ----------- -----------
Foreign currency options:
Written $(1.8) $(1.8) $ 69.4
Purchased 5.4 5.4 125.2
Interest rate options:
Written (2.0) - 115.0
Purchased (caps) 1.5 (4.4) 450.0
Interest rate swaps (.2) (.8) 215.0
Forward foreign exchange
contracts:
Dollar purchases 82.9 2.6 85.5
Dollar sales 58.6 (1.2) 59.8
Forward interest rate
contracts 43.5 - 43.5
G - Shareowners' Equity
The company has authorized 300 million no par common shares. There were
59,184,894 and 58,733,725 common shares outstanding at December 31, 1993
and 1992, respectively. In prior years, the Board of Directors authorized
the company to purchase up to 7,000,000 common shares for corporate
purposes. A total of 5,405,292 and 5,404,519 common shares were held in
treasury at December 31, 1993 and 1992, respectively.
Under a Rights Plan, one right is presently attached to and trades with
each outstanding common share. Generally, the rights become exercisable
and trade separately ten days after a third party acquires 20% or more of
the common shares or commences a tender offer for a specified percentage
of the common shares. In addition, the rights become exercisable if any
party becomes the beneficial owner of 10% or more of the outstanding
common shares and is determined by the Board of Directors to be an adverse
party. Upon the occurrence of certain additional triggering events
specified in the Rights Agreement, each right would entitle its holder
(other than, in certain instances, the holder of 20% or more of the common
shares) to purchase common shares of the company (or, in some cases, a
potential acquiring company) or other property having a value of $180 for
$90, the initial exercise price. The rights expire in 1996 and are
presently redeemable at $.025 per right. At December 31, 1993, there were
73,376,392 common shares reserved for issuance under this plan.
The Board of Directors has approved termination benefits for certain key
executives and a severance plan for all other salaried employees and
established a Benefit Trust in connection with the company's unfunded
supplemental retirement plan, deferred compensation plan, directors
retirement plan and excess benefits plan to preserve the benefits earned
thereunder in the event of a change in control of the company.
A Restricted Stock Plan provides for the issuance of restricted common
shares to certain selected employees and to directors who are not officers
or employees of the company. As of December 31, 1993, 30,424 common
shares are issued and outstanding under the plan. There were 432,997
common shares reserved for issuance under this plan at December 31, 1993.
The company has preferred shares authorized but unissued as follows:
61,500 undesignated cumulative preferred, par value $100; 20,000,000
undesignated voting cumulative preferred, without par value; 20,000,000
cumulative preferred, without par value; and 295,540 cumulative second
preferred, par value $50.
At December 31, 1993, undistributed net earnings of investees and
partially-owned foreign affiliates of $50.2 million are included in
retained earnings. At December 31, 1993, there are no covenants in the
company's loan agreements that significantly restrict retained earnings.
H - Stock Options and Rights
Officers and key employees have been granted stock options under various
plans. At December 31, 1993, there were outstanding options granted under
the 1991 Stock Option Plan and a prior stock option plan to purchase
2,991,203 common shares (of which 2,275,968 are exercisable) at a weighted
average price of $35.69. Options as to 680,860 shares are accompanied by
limited rights which may be exercised in lieu of the option under certain
circumstances. The options and rights expire at various dates through
October 2003. There are 5,568,848 common shares reserved for issuance
under these plans.
I - Other Expenses
In 1992, the company recorded a $95.0 million provision in connection with
a comprehensive performance improvement program. The provision was
comprised of employee severance, special termination benefits in
connection with the settling of pension liabilities, redeployment and
relocation costs, outplacement and counseling of terminated employees and
other related costs. The company has expended $58.0 million in 1993,
$24.0 million in 1992 and expects to expend the remainder of the amount in
1994.
J - Other Revenues (Expenses) - Net
(All dollar amounts in millions)
Year Ended December 31 1993 1992 1991
- - ---------------------------------------- ----- ----- -----
Investment income $ 2.3 $ 1.5 $ 2.9
Gain (loss) on sale of subsidiary (22.5) 44.1
Other 7.0 20.5 17.5
----- ----- -----
$ 9.3 $ (.5) $64.5
===== ===== =====
After-tax loss on sale of subsidiary was $17.7 million ($.30 per share) in
1992 and after-tax gain was $26.4 million ($.45 per share) in 1991. Net
assets and results of operations of these subsidiaries were not material.
K - Income Taxes
Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and recognized
a cumulative effect to that date of the change of $34.0 million ($.58 per
share). The effect of adopting Statement No. 109 for the year ended
December 31, 1992 was not material.
The principal current and non-current deferred tax assets and
(liabilities) are as follows:
(All dollar amounts in millions)
December 31 1993 1992
- - ---------------------------------------------- ------- -------
Deferred tax liabilities:
Accelerated depreciation for tax purposes $(344.3) $(315.8)
Nontaxable pension asset (50.7) (34.5)
Other (29.6) (13.9)
------- -------
(424.6) (364.2)
------- -------
Deferred tax assets:
Alternative minimum tax carryforward 73.6 54.0
Nondeductible items:
Allowance for doubtful accounts 8.0 8.9
Compensation and fringe benefits accruals 21.1 30.1
Postretirement benefit accrual 39.9 35.0
Other 14.8 12.3
------- -------
157.4 140.3
------- -------
Net deferred liability $(267.2) $(223.9)
======= =======
Included in the balance sheets:
Current assets - deferred tax asset $ 43.5 $ 51.3
Deferred items - income tax liability (310.7) (275.2)
------- -------
Net deferred liability $(267.2) $(223.9)
======= =======
The significant components of income tax expense are as follows:
(All dollar amounts in millions)
Year Ended December 31 1993 1992 1991
- - -------------------------------------- ------ ------ ------
Currently payable:
Federal $ 26.5 $ .8 $ 29.3
Federal alternative minimum tax 19.6 12.1 29.6
State and local 3.3 2.9 5.3
Foreign 3.2 3.3 3.2
Allocation to partnership earnings (5.1) (4.3)
------ ------ ------
47.5 14.8 67.4
------ ------ ------
Deferred:
Effect of increase in federal income
tax rate as of January 1, 1993 7.6
Excess tax depreciation 17.8 18.7 26.1
Alternative minimum tax carryforward (19.6) (12.1) (29.6)
Pension income 13.6 .3 7.7
Effect of loss on sale of subsidiary 15.8
Other expenses 11.4 (14.4) (10.3)
Miscellaneous (.2) .8 (7.0)
------ ------ ------
30.6 9.1 (13.1)
------ ------ ------
$ 78.1 $ 23.9 $ 54.3
====== ====== ======
Principal reasons for the difference between the statutory federal rate
and the effective tax rate are:
Year Ended December 31 1993 1992 1991
- - ---------------------------------------- ----- ----- -----
Federal income tax rate 35.0% 34.0% 34.0%
Effect of increase in federal income
tax rate as of January 1, 1993 4.1
State and local income taxes, net of
federal benefit 2.0 (3.8) (1.1)
Effect of loss on sale of subsidiary 5.2
Impact of additional taxes related to
foreign operations .6 8.7 2.5
Other .8 (1.0) 1.3
----- ----- -----
Effective tax rate 42.5% 43.1% 36.7%
===== ===== =====
Earnings from continuing operations before income taxes includes $12.8
million, $6.0 million and $9.3 million in 1993, 1992 and 1991,
respectively, of foreign earnings.
At December 31, 1993, no domestic income taxes have been provided on
Mead's share of the undistributed net earnings of corporate investees and
overseas operations. Those earnings totaled $135.6 million, including
foreign currency translation adjustments. The aggregate amount of
unrecognized deferred tax liability is approximately $20.0 million at
December 31, 1993.
L - Discontinued Operations
Effective November 1986, the company adopted a plan to divest the
insurance operations conducted through its wholly-owned subsidiaries and
wrote off its investment. The insurance subsidiaries ceased underwriting
activities and are settling existing claims. In 1991, the company
provided $10.0 million (net of tax benefit of $6.0 million) for additional
losses during the runoff of the operations.
The net assets of the insurance operations at December 31, 1993, include
total assets of $181.8 million, claims reserves of $166.2 million and the
remaining accrual of $15.6 million for estimated administrative costs to
be incurred during runoff.
In December 1990, the Board of Directors approved a plan to curtail
further development of the company's imaging products. Since that date,
the company has charged $12.8 million for operating losses to the accrual
for operating losses. At December 31, 1993, remaining net liabilities of
$6.2 million are included in other deferred items. The net amount includes
assets of $10.3 million and the remaining accrual for operating losses of
$16.5 million.
M - Pension Plans
The company has pension plans that cover substantially all employees.
Pension benefits for bargaining employees are primarily based upon years
of credited service. Benefits for salaried and other non-bargaining
employees are based upon years of service and the employee's average final
earnings. Mead's funding policy is to contribute amounts to the plans
sufficient to meet or exceed the minimum requirements of the Employee
Retirement Income Security Act.
Summary information on the company's funded plans is as follows:
(All dollar amounts in millions)
December 31 1993 1992
- - ------------------------------------------------ ------ ------
Financial status of plans:
Plan assets at fair value (primarily common
stocks, fixed income securities and
real estate) $780.1 $747.3
Actuarial present value of accumulated
benefit obligation:
Vested (543.3) (473.4)
Non-vested (46.1) (26.8)
Estimated effect of future salary increases
at 1% over expected inflation (66.4) (60.7)
------ ------
Projected benefit obligation (655.8) (560.9)
------ ------
Plan assets in excess of projected benefit
obligation 124.3 186.4
Reconciliation of financial status of plans to
amounts recorded in Mead's balance sheets:
Unamortized plan assets in excess of plan
liabilities (overfunding) at January 1,
1986 - to be recognized as a reduction of
future years' pension expense (69.8) (79.4)
Unrecorded effect of net (gain) loss arising
from differences between actuarial assumptions
used to determine periodic pension expense
and actual experience 76.7 (24.3)
Unamortized prior service cost 10.2 14.3
------ ------
Pension asset recorded in the balance sheets $141.4 $ 97.0
====== ======
Benefit obligation discount rate 7.5% 8.5%
====== ======
The projected benefit obligation for the company's two unfunded plans was
$20.4 million and $10.0 million at December 31, 1993 and 1992,
respectively, of which $15.6 million and $10.0 million represent the
accumulated benefit obligation. Of the projected benefit obligation,
$14.2 million and $6.5 million at December 31, 1993 and 1992,
respectively, is subject to later amortization. Unfunded accrued pension
cost is $6.2 million and $3.5 million at December 31, 1993 and 1992,
respectively.
The components of net pension (income) for all plans are as follows:
(All dollar amounts in millions)
Year Ended December 31 1993 1992 1991
- - ----------------------------------- ------ ------ ------
Service cost, benefits earned
during the year $ 19.8 $ 20.1 $ 18.7
Interest cost on projected benefit
obligation 46.8 43.5 41.9
Actual return on plan assets (103.8) (39.8) (174.0)
Net amortization and deferral 23.9 (42.6) 105.7
------ ------ ------
Net pension (income) $(13.3) $(18.8) $ (7.7)
====== ====== ======
The expected long-term rate of return on plan assets used in determining
net pension income was 10% in each of these years. The company's pension
plans require the allocation of excess plan assets to plan members if the
plans are terminated, merged or consolidated following a change in control
(as defined) of the company opposed by the Board of Directors of the
company. Amendment of these provisions after such a change in control
would require approval of plan participants.
N - Postretirement Benefits Other than Pensions
In 1991, the company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" and recognized the cumulative effect of the change in accounting
for postretirement benefits of $93.5 million ($58.7 million net of income
tax benefit). The company funds certain health care benefit costs
principally on a pay-as-you-go basis, with the retiree paying a portion of
the costs. Certain retired employees of businesses acquired by the
company are covered under other health care plans that differ from current
plans in coverage, deductibles and retiree contributions.
Summary information on the company's plans (funded and unfunded) is as
follows:
(All dollar amounts in millions)
December 31 1993 1992
- - ------------------------------------------------ ------- ------
Financial status of plans:
Accumulated postretirement benefit obligation:
Retirees $ (69.2) $(64.2)
Fully eligible, active plan participants (25.1) (21.5)
Other active plan participants (41.1) (32.0)
------- ------
(135.4) (117.7)
Less plan assets at fair value 8.3 14.3
------- ------
Accumulated postretirement benefit obligation
in excess of plan assets (127.1) (103.4)
Reconciliation of financial status of plans to
amounts recorded in Mead's balance sheets -
Unrecorded effect of net loss arising from
differences between actuarial assumptions used
to determine periodic postretirement benefit
expense and actual experience 18.7 5.1
------- ------
Accrued postretirement benefit cost $(108.4) $(98.3)
======= ======
Benefit obligation discount rate 7.5% 8.5%
====== ======
The accumulated postretirement benefit obligation for the unfunded plans
at December 31, 1993 and 1992, was $128.9 million and $105.7 million,
respectively.
The components of net periodic postretirement benefit cost are as follows:
(All dollar amounts in millions)
Year Ended December 31 1993 1992 1991
- - ----------------------------------------- ----- ----- -----
Service cost, benefits attributed to
employee service during the year $ 3.1 $ 2.4 $ 2.0
Interest cost on accumulated
postretirement benefit obligation 9.5 9.4 8.5
Actual return on plan assets (1.1) (1.5) (.9)
Net amortization and deferral .1 .4
----- ----- -----
Net periodic postretirement benefit cost $11.6 $10.7 $ 9.6
===== ===== =====
The expected long-term rate of return on plan assets used in determining
the net periodic postretirement benefit cost was 8% in each year. The
assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 14% in 1993, declining by 1% per
year to an ultimate rate of 6%.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1993,
would be increased by 10%. The effect of this change on the sum of the
service cost and interest cost components of net periodic postretirement
benefit cost for 1993 would be an increase of 11%.
O - Leases
At December 31, 1993, future minimum annual rental commitments under
noncancelable lease obligations are as follows:
(All dollar amounts in millions)
Capital Operating
Leases Leases
------- ---------
Year Ending December 31:
1994 $ 17.7 $ 42.4
1995 14.0 31.0
1996 10.1 22.7
1997 8.7 18.6
1998 7.7 13.5
Later years through 2025 235.8 62.6
------ ------
Total minimum lease payments 294.0 $190.8
======
Less:
Sublease rentals (5.9)
Amount representing interest (122.5)
------
Present value of net minimum lease payments 165.6
Less current maturities of capital lease
obligations (6.8)
------
Capital lease obligations $158.8
======
Capital leases are for manufacturing facilities, equipment and warehouse
and office space. Capital lease property included in property, plant and
equipment is as follows:
(All dollar amounts in millions)
December 31 1993 1992
- - ------------------------------------------ ------ ------
Land and buildings $ 37.7 $ 43.8
Machinery and equipment 165.1 157.2
------ ------
202.8 201.0
Less accumulated amortization (101.6) (105.4)
------ ------
$101.2 $ 95.6
====== ======
The majority of rent expense is for operating leases having terms of up to
25 years which are for office, warehouse and manufacturing facilities and
delivery, manufacturing and computer equipment. A number of these leases
have renewal options. Rent expense was $60.8 million, $63.6 million and
$59.9 million in 1993, 1992 and 1991, respectively.
The company has additional subleases of property recorded under capital
leases. Total rentals to be received in future years are approximately
$15.9 million at December 31, 1993.
P - Litigation and Other Proceedings
The company is involved in various litigation generally incidental to
normal operations, as well as proceedings regarding equal employment
opportunity matters, among others. The company has also been named a
potentially responsible party in several environmental proceedings. It is
not possible to determine the ultimate liability, if any, in these
matters. In the opinion of management, after consultation with legal
counsel, the resolution of such litigation and proceedings will not have
a material effect on the financial position or results of operations of
the company.
Q - Additional Information on Cash Flows
(All dollar amounts in millions)
Year Ended December 31 1993 1992 1991
- - -------------------------------------- ------ ------ ------
Cash paid during the year for:
Interest $ 87.8 $101.6 $117.0
Less amount capitalized (2.6) (2.3) (4.5)
------ ------ ------
Interest, net of amount capitalized 85.2 99.3 112.5
Income taxes 33.6 39.5 41.9
Non-cash activities:
Capital lease obligations 5.5 8.9
Sale of subsidiary (proceeds received
in January 1992) 45.0
Debt securities issued in retirement
of previously outstanding borrowings
(face amount $100.0) 99.8
R - Industry Segments
The company operates in a number of industry segments. The PAPER segment includes the manufacture and sale of printing, writing,
carbonless copy, publishing and specialty paper and pulp. The PACKAGING AND PAPERBOARD segment includes the manufacture and
marketing of beverage and food packaging materials, corrugated shipping containers and paperboard. The DISTRIBUTION AND SCHOOL
AND OFFICE PRODUCTS segment includes the distribution of a full line of paper products and the manufacture and distribution of
school and office products. The ELECTRONIC PUBLISHING segment includes the electronic delivery of legal and news information
services and the publishing of state statutes and other publications for the legal profession.
(All dollar amounts in millions)
Sales (1)
- - ---------------------- --------------------------------------------------------------
Year Ended December 31 1993 1992 1991
- - ---------------------- ------------------ ------------------ ------------------
Unaffil- Inter- Unaffil- Inter- Unaffil- Inter-
iated segment iated segment iated segment
-------- ------- -------- ------- -------- -------
Industry segments:
Paper $1,111.4 $169.0 $1,090.6 $162.6 $1,091.3 $149.0
Packaging and Paperboard 1,156.9 9.2 1,163.2 8.3 1,022.8 7.3
Distribution and School
and Office Products 1,970.7 9.1 1,954.6 10.0 1,995.7 5.5
Electronic Publishing 551.3 .2 494.8 .2 469.5 .2
Intersegment elimination (187.5) (181.1) (162.0)
-------- -------- --------
Total $4,790.3 $4,703.2 $4,579.3
======== ======== ========
Other - Included in Earnings (Loss) from
Determining Earnings (Loss) Continuing Operations
from Continuing Operations (2) Before Income Taxes (2)(3)(4)
- - ---------------------- ----------------------------- --------------------------
Year Ended December 31 1992 1991 1993 1992 1991
- - ---------------------- ------ ------ ------ ------ ------
Industry segments:
Paper $ 22.3 $ 20.7 $101.9 $ 63.3 $ 92.1
Packaging and Paperboard 23.8 1.6 132.8 117.1 104.5
Distribution and School
and Office Products 16.3 9.2 38.4 29.3 27.1
Electronic Publishing 9.2 3.0 50.4 41.4 38.2
Corporate and other 45.9 (44.1) (139.7) (195.6) (113.9)
------ ------ ------ ------ ------
Total $117.5 $ (9.6) $183.8 $ 55.5 $148.0
====== ====== ====== ====== ======
Capital Expenditures Depreciation,
Identifiable Assets (5) (Including Capital Leases) Depletion and Amortization
- - ---------------------- -------------------------------- -------------------------- --------------------------
Year Ended December 31 1993 1992 1991 1993 1992 1991 1993 1992 1991
- - ---------------------- -------- -------- -------- ------ ------ ------ ------ ------ ------
Industry segments:
Paper $1,345.7 $1,295.2 $1,274.3 $158.6 $ 92.2 $101.7 $ 94.2 $ 88.1 $ 85.9
Packaging and Paperboard 1,405.7 1,379.9 1,383.8 114.6 102.5 101.4 134.4 125.9 114.9
Distribution and School
and Office Products 510.2 482.8 522.3 22.6 13.0 11.9 12.0 13.6 18.6
Electronic Publishing 459.1 460.8 475.4 40.6 52.6 43.1 62.4 57.8 54.9
Intersegment elimination (17.8) (17.2) (16.1)
Corporate and other 461.6 429.9 346.5 10.3 10.3 16.3 13.1 14.2 14.1
-------- -------- -------- ------ ------ ------ ------ ------ ------
Total $4,164.5 $4,031.4 $3,986.2 $346.7 $270.6 $274.4 $316.1 $299.6 $288.4
======== ======== ======== ====== ====== ====== ====== ====== ======
<FN>
(1) Intersegment sales are made at substantially the same prices and on
the same terms as to unaffiliated customers.
(2) The earnings (loss) from continuing operations before income taxes
includes other expenses related to the performance improvement
program and a loss on the sale of a subsidiary in 1992; and
environmental costs and costs of business consolidations and a gain
on the sale of a subsidiary in 1991.
(3) Earnings from continuing operations before income taxes for
"Corporate and other" includes the following:
Year Ended December 31 1993 1992 1991
----------------------- ------- ------- -------
Other revenues:
Gain (loss) on sale of
subsidiary $ $ (22.5) $ 44.1
Other 3.7 7.6 5.2
Interest expense (96.2) (101.1) (114.4)
Comprehensive performance
improvement program (23.4)
Other expenses (47.2) (56.2) (48.8)
------- ------- -------
$(139.7) $(195.6) $(113.9)
======= ======= =======
(4) During 1993, in connection with the comprehensive performance
improvement program, the company reorganized its corporate functions
whereby certain expenditures are allocated to the operating units.
Accordingly, earnings before income taxes for 1992 and 1991 have
been increased (decreased) from amounts previously reported as
follows:
Year Ended December 31 1992 1991
----------------------------------- ----- -----
Industry segments:
Paper $(1.7) $(2.8)
Packaging and Paperboard (8.9) (9.6)
Distribution and School and
Office Products (5.1) (4.7)
Electronic Publishing (4.5) (3.3)
Corporate and other 20.2 20.4
----- -----
$ 0.0 $ 0.0
===== =====
(5) The assets of "Corporate and other" consist primarily of cash and
cash equivalents, property, plant and equipment and investments in
and advances to investees.
The cumulative effect of the change in accounting principle in 1991 is
applicable to segments as follows:
Year Ended December 31 1991
- - ------------------------------------------------------- -----
Industry segments:
Paper $30.2
Packaging and Paperboard 15.6
Distribution and School and Office Products 38.0
Electronic Publishing 2.8
Corporate and other 6.9
-----
$93.5
=====
Selected Quarterly Financial Data (unaudited)
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
- - ---------------------------------------------------------------------------------------------------------------------------------
(All dollar amounts in millions, except per share data)
Net sales:
1993 $1,135.5 $1,263.4 $1,261.8 $1,129.6 $4,790.3
1992 $1,088.2 1,225.4 1,254.5 1,135.1 4,703.2
1991 1,097.2 1,176.5 1,210.8 1,094.8 4,579.3
Gross profit:
1993 224.9 259.5 247.2 224.2 955.8
1992 200.5 250.5 254.1 218.7 923.8
1991 204.6 218.2 226.4 217.9 867.1
Earnings (loss) from continuing operations:
1993 25.6 47.2 30.0 21.3 124.1
1992 17.7 (34.7) 37.5 17.1 37.6
1991 13.4 18.7 25.3 18.2 75.6
Earnings (loss) before cumulative
effect of change in accounting principle:
1993 25.6 47.2 30.0 21.3 124.1
1992 17.7 (34.7) 37.5 17.1 37.6
1991 13.4 18.7 25.3 8.2 65.6
Net earnings (loss):
1993 25.6 47.2 30.0 21.3 124.1
1992 51.7 (34.7) 37.5 17.1 71.6
1991 (45.3) 18.7 25.3 8.2 6.9
Per common and common equivalent share:(1)
Earnings (loss) from continuing operations:
1993 .43 .78 .50 .36 2.08
1992 .31 (.59) .63 .29 .63
1991 .23 .32 .43 .31 1.29
Earnings (loss) before cumulative
effect of change in accounting principle:
1993 .43 .78 .50 .36 2.08
1992 .31 (.59) .63 .29 .63
1991 .23 .32 .43 .14 1.12
Cumulative effect of change in accounting principle:
1992 .55 .58
1991 (1.00) (1.00)
Net earnings (loss):
1993 .43 .78 .50(2) .36 2.08
1992 .86 (.59)(3) .63 .29 1.21
1991 (.77) .32 .43 .14(4) .12
Cash dividends per common share:
1993 .25 .25 .25 .25 1.00
1992 .25 .25 .25 .25 1.00
1991 .25 .25 .25 .25 1.00
<FN>
(1) The number of shares used in the calculation of per share data varies from period to period
since stock options and convertible debentures are included in the calculations only for the
periods in which they are dilutive; therefore, the sum of individual quarterly earnings per
share may not equal the annual computation.
(2) Includes $.12 per share charge related to the revaluation of deferred income taxes at January
1, 1993, resulting from 1993 income tax legislation.
(3) Includes a charge of $1.00 per share for other expenses related to a comprehensive performance
improvement program and a charge of $.30 per share related to the sale of a subsidiary.
(4) Includes a charge of $.37 per share for other expenses related primarily to environmental costs
and costs of business consolidations, a gain of $.45 per share from sale of a subsidiary and
a charge of $.17 per share related to discontinued operations.
Item 9. Changes in and Disagreements with Accountants on Acco
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information pursuant to this item is incorporated herein by
reference to pages 3 through 5 of the Company's Proxy Statement,
definitive copies of which were filed with the Securities and Exchange
Commission ("Commission") on March 14, 1994. Information concerning
executive officers is also included in Part I of this report following
Item 4.
Item 11. Executive Compensation
Information pursuant to this item is incorporated herein by
reference to pages 8 through 20 of the Company's Proxy Statement
(excluding the "Report of Compensation Committee on Executive
Compensation" on pages 10-12 and the "Performance Graph" on page 17),
definitive copies of which were filed with the Commission on March 14,
1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information pursuant to this item is incorporated herein by
reference to pages 9 and 10 of the Company's Proxy Statement, definitive
copies of which were filed with the Commission on March 14, 1994.
Item 13. Certain Relationships and Related Transactions
Information pursuant to this item is incorporated herein by
reference to pages 19-20 of the Company's Proxy Statement, definitive
copies of which were filed with the Commission on March 14, 1994.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The financial statements of The Mead Corporation and
consolidated subsidiaries are included in Part II, Item 8.
2. Financial Statement Schedules
Page
----
Schedule V--Property, Plant and Equipment . . . . . . . 65-67
Schedule VI--Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment. . . . . 68
Schedule VII--Guarantees of Securities of Other
Issuers. . . . . . . . . . . . . . . . . . . . . . . . 69
Schedule VIII--Valuation and Qualifying Accounts. . . . 70
Schedule IX--Short-term Borrowings. . . . . . . . . . . 71
Schedule X--Supplementary Statement of Earnings
Information. . . . . . . . . . . . . . . . . . . . . . 72
The information required to be submitted in Schedules I, II, III,
IV, XI, XII, XIII, and XIV for The Mead Corporation and consolidated
subsidiaries has either been shown in the financial statements or notes
thereto, or is not applicable or required under rules of Regulation S-X,
and, therefore, those schedules have been omitted.
3. Exhibits
(3) Articles of Incorporation and Bylaws:
(i) Amended Articles of Incorporation of the Registrant
adopted May 28, 1987 (incorporated by reference to Exhibit
(3)(i) of Registrant's Annual Report on Form 1O-K for the year
ended December 31, 1987).
(ii) Regulations of the Registrant, as amended April 23,
1987 (incorporated by reference to Exhibit (3)(ii) of
Registrant's Annual Report on Form 1O-K for the year ended
December 31, 1987).
(4) Instruments defining the rights of security holders, including
indentures:
(i) Credit Agreement dated as of November 15, 1989 with
Bankers Trust Company, The First National Bank of Chicago,
Morgan Guaranty Trust Company of New York and fifteen other
banks (incorporated by reference to Exhibit (4)(i) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989) and Amendment No. 1 thereto dated as of
November 30, 1991 (incorporated by reference to Exhibit (4)(i)
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991).
(ii) Indenture dated as of July 15, 1982 between the
Registrant and Bankers Trust Company, as Trustee, First
Supplemental Indenture dated as of March 1, 1987 (incorporated
by reference to Exhibit (4)(iv) of Registrant's Annual Report on
Form 1O-K for the year ended December 31, 1987), Second
Supplemental Indenture dated as of October 15, 1989
(incorporated by reference to Exhibit (4) to Registrant's
Current Report on Form 8-K dated October 11, 1989) and Third
Supplemental Indenture dated as of November 15, 1991
(incorporated by reference to Exhibit (4)(ii) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1991).
(iii) Indenture dated as of February 1, 1993 between the
Registrant and The First National Bank of Chicago, as Trustee
(incorporated by reference to Exhibit (4)(iii) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1992).
The total amount of securities authorized under other long-term
debt instruments does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. A copy
of each such instrument will be furnished to the Commission upon
request.
(10) Material Contracts:
(i) Agreement dated as of April 24, 1964 between Northwood
Mills Limited, Canamead, Inc., the Registrant and Noranda Mines,
Limited and Supplemental Agreements relating thereto dated as of
July 2, 1964, April 5, 1965, March 15, 1966, February 1, 1967,
December 15, 1970 and April 1, 1974 (incorporated by reference
to Exhibit (10)(v) of Registrant's Annual Report on Form 1O-K
for the year ended December 31, 1980 included in File No. 1-2267
in the Public Reference Room of the Securities and Exchange
Commission in Washington, D.C.).
(ii) Pulp Purchase Agreement dated as of April 1, 1965 among
Northwood Pulp Limited, the Registrant, Northwood Mills Ltd. and
Noranda Mines Limited (incorporated by reference to Exhibit
(10)(vi) of Registrant's Annual Report on Form 1O-K for the year
ended December 31, 1980 included in File No. 1-2267 in the
Public Reference Room of the Securities and Exchange Commission
in Washington, D.C.).
(iii) Rights Agreement dated as of November 1, 1986 between
Registrant and The First National Bank of Cincinnati, as Rights
Agent, as amended December 29, 1987 and December 9, 1988
(incorporated herein by reference to Registrant's Amendment No.
1 on Form 8, dated November 28, 1986 and Exhibits 28(a) and
28(b) to Registrant's Current Report on Form 8-K dated December
9, 1988).
(iv) Amended Board Purchase Agreement dated as of January
4, 1988 among the Registrant, Georgia Kraft Company and Inland
Container Corporation (incorporated by reference to Exhibit
(1O)(xviii) of Registrant's Annual Report on Form 1O-K for the
year ended December 31, 1987).
(v) Indemnification Agreement dated as of January 4, 1988
among the Registrant, Mead Coated Board, Inc., Temple-Inland
Inc., Inland Container Corporation I, Inland Container
Corporation, GK Texas Holding Company and Georgia Kraft Company
(incorporated by reference to Exhibit (1O)(xix) of Registrant's
Annual Report on Form 1O-K for the year ended December 31, 1987).
(vi) Lease Agreement between The Industrial Development
Board of the City of Phenix City, Alabama and Mead Coated Board,
Inc., dated as of December 1, 1988, as amended (incorporated by
reference to Exhibit (10)(xviii) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989 and Exhibit
(10)(xviii) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991).
The following are compensatory plans and arrangements in which
directors or executive officers participate:
(vii) 1984 Stock Option Plan of the Registrant, as amended
and restated as of January 25, 1990 (incorporated by reference
to Exhibit (10)(v) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989), and Amendment dated
January 23, 1992 (incorporated by reference to Exhibit 10(iv) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991).
(viii) 1991 Stock Option Plan of the Registrant (incorporated
by reference to Exhibit (10)(xxi) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990).
(ix) Incentive Compensation Election Plan of the Registrant
as amended November 17, 1987 (incorporated by reference to
Exhibit (10)(viii) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1987), as amended October 29,
1988 (incorporated by reference to Exhibit (10)(vi) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988).
(x) 1985 Supplement to Registrant's Incentive Compensation
Election Plan, as amended November 17, 1987 (incorporated by
reference to Exhibit (1O)(xi) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1985 and Exhibit
(10)(ix) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987), and as further amended October 29,
1988 (incorporated by reference to Exhibit (10)(vii) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988).
(xi) Excess Benefit Plan of the Registrant (1988
Restatement), dated October 29, 1988 (incorporated by reference
to Exhibit (10)(vii) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990).
(xii) Supplemental Executive Retirement Plan (formerly The
Mead Management Income Parity Plan) effective January 1, 1985,
as amended and restated as of July 1, 1992 (incorporated by
reference to Exhibit (10)(xiii) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
(xiii) Form of Indemnification Agreement between Registrant
and each of Samuel S. Benedict, John C. Bogle, John G. Breen,
Vincent L. Gregory, Jr., William E. Hoglund, Barbara C. Jordan,
Steven C. Mason, Charles S. Mechem, Jr., Paul F. Miller, Jr.,
William S. Shanahan, Thomas B. Stanley, Jr. and Lee J.
Styslinger, Jr. (incorporated herein by reference to Exhibit
(10)(xiv) of Registrant's Annual Report on Form 10-K for the
year ended December 31, 1986).
(xiv) Form of Severance Agreement between Registrant and
each of Steven C. Mason and Samuel S. Benedict (incorporated
herein by reference to Exhibit (10)(xvi) of Registrant's Annual
Report on Form 10-K for the year ended December 31, 1986 and
Exhibit (10)(xii) of Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988).
(xv) Form of Severance Agreement between Registrant and each
of William R. Graber, Elias M. Karter, Charles J. Mazza, Wallace
0. Nugent, Thomas E. Palmer and other key employees
(incorporated by reference to Exhibit (10)(xiii) of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1988).
(xvi) Benefit Trust Agreement dated January 9, 1987 between
Registrant and Society Bank, National Association (incorporated
herein by reference to Exhibit (1O)(xviii) to Registrant's
Annual Report on Form 1O-K for the year ended December 31,
1986), as amended October 29, 1988 (incorporated by reference to
Exhibit (10)(xiv) of Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988) and January 24, 1991
(incorporated by reference to Exhibit (10)(xiii) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1990).
(xvii) Restricted Stock Plan effective December 10, 1987,
as amended through July 23, 1992 (incorporated by reference to
Exhibit (10)(xviii) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992).
(xviii) Deferred Compensation Plan for Directors of the
Registrant, as amended through October 29, 1988 (incorporated by
reference to Exhibit (10)(xix) of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989).
(xix) 1985 Supplement to Registrant's Deferred Compensation
Plan for Directors, as amended through October 29, 1988
(incorporated by reference to Exhibit (10)(xx) of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1989).
(xx) Directors Retirement Plan, effective October 27, 1990
(incorporated by reference to Exhibit (10)(xx) of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1990).
(xxi) Form of Executive Life Insurance Policy for Key
Executives (incorporated by reference to Exhibit (10) of
Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period Ended March 31, 1991).
(xxii) The "Direction 2000" Executive Incentive Plan, dated
April 21, 1993 (incorporated by reference to Exhibit 10(i) of
Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period Ended April 4, 1993).
(xxiii) Mead Management Incentive Plan for 1993
(incorporated by reference to Exhibit 10(ii) of Registrant's
Quarterly Report on Form 10-Q for the Quarterly Period Ended
April 4, 1993).
(11) Calculation of Earnings per Share.
(12) Ratio of Earnings to Fixed Charges.
(21) List of significant subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE MEAD CORPORATION
Date: February 24, 1994 By Steven C. Mason
-------------------------------
Steven C. Mason
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: February 24, 1994 By Steven C. Mason
-------------------------------
Steven C. Mason
Director, Chairman of the
Board and Chief Executive Off
Date: February 24, 1994 By Samuel S. Benedict
-------------------------------
Samuel S. Benedict
Director, President and Chief
Operating Officer
Date: February 24, 1994 By William R. Graber
-------------------------------
William R. Graber
Vice President and Chief
Financial Officer (principal
financial officer)
Date: February 24, 1994 By John D. Fuller
-------------------------------
John D. Fuller
Controller
(principal
accounting officer)
Date: February 24, 1994 By John C. Bogle
-------------------------------
John C. Bogle
Director
Date: February 24, 1994 By John G. Breen
-------------------------------
John G. Breen
Director
Date: February 24, 1994 By Vincent L. Gregory, Jr.
-------------------------------
Vincent L. Gregory, Jr.
Director
Date: February 24, 1994 By William E. Hoglund
-------------------------------
William E. Hoglund
Director
Date: February 24, 1994 By Barbara C. Jordan
-------------------------------
Barbara C. Jordan
Director
Date: February 24, 1994 By Charles S. Mechem, Jr.
-------------------------------
Charles S. Mechem, Jr.
Director
Date: February 24, 1994 By Paul F. Miller, Jr.
-------------------------------
Paul F. Miller, Jr.
Director
Date: February 24, 1994 By William S. Shanahan
-------------------------------
William S. Shanahan
Director
Date: February 24, 1994 By Thomas B. Stanley, Jr.
-------------------------------
Thomas B. Stanley, Jr.
Director
Date: February 24, 1994 By Lee J. Styslinger
-------------------------------
Lee J. Styslinger
Director
THE MEAD CORPORATION AND
CONSOLIDATED SUBSIDIARIES
______________________
SCHEDULES FURNISHED PURSUANT
TO REQUIREMENTS
OF FORM 10-K
______________________
Years Ended December 31, 1993, 1992 and 1991
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
(All dollar amounts in millions)
Column A Column B Column C Column D Column E Column F
- - ----------------------------- --------- --------- --------- --------- ---------
Other
Balance Changes-
at Add Balance
Beginning Additions Retire- (Deduct)- at End of
Classification of Period at Cost ments Describe Period
- - ----------------------------- --------- --------- -------- --------- ---------
Year Ended December 31, 1993:
Buildings $ 602.6 $ 6.1 $ 18.9 $ 11.8 (A) $ 601.6
Machinery and equipment 3,113.5 55.8 44.8 175.6 (B) 3,300.1
Construction in progress 78.2 250.6 (202.7)(C) 126.1
-------- ------ ------ ------- --------
3,794.3 312.5 63.7 (15.3) 4,027.8
Land and land improvements 128.2 .3 1.0 8.0 (D) 135.5
Timber and timberlands--
net of timber depletion 213.1 33.9 .5 (27.2)(E) 219.3
-------- ------ ------ ------- --------
$4,135.6 $346.7 $ 65.2 $ (34.5) $4,382.6
======== ====== ====== ======= ========
Year Ended December 31, 1992:
Buildings $ 595.7 $ 3.8 $ 14.9 $ 18.0 (F) $ 602.6
Machinery and equipment 2,971.3 65.6 75.3 151.9 (G) 3,113.5
Construction in progress 71.8 178.9 (172.5)(C) 78.2
-------- ------ ------ ------- --------
3,638.8 248.3 90.2 (2.6) 3,794.3
Land and land improvements 125.1 .3 .1 2.9 (H) 128.2
Timber and timberlands--
net of timber depletion 212.6 22.0 1.2 (20.3)(I) 213.1
-------- ------ ------ ------- --------
$3,976.5 $270.6 $ 91.5 $ (20.0) $4,135.6
======== ====== ====== ======= ========
Year Ended December 31, 1991:
Buildings $ 573.0 $ 16.0 $ 14.5 $ 21.2 (J) $ 595.7
Machinery and equipment 2,809.9 88.2 47.7 120.9 (K) 2,971.3
Construction in progress 68.4 150.3 8.4 (138.5)(L) 71.8
-------- ------ ------ ------- --------
3,451.3 254.5 70.6 3.6 3,638.8
Land and land improvements 121.5 4.2 7.9 7.3 (M) 125.1
Timber and timberlands--
net of timber depletion 217.0 15.7 .8 (19.3)(N) 212.6
-------- ------ ------ ------- --------
$3,789.8 $274.4 $ 79.3 $ (8.4) $3,976.5
======== ====== ====== ======= ========
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT- Continued
(All dollar amounts in millions)
(A) Inter-account transfers ($12.4) and foreign currency translation
adjustment ($-.6).
(B) Inter-account transfers ($180.9) and foreign currency translation
adjustment ($-5.3).
(C) Inter-account transfers.
(D) Inter-account transfers ($7.7) and foreign currency translation
adjustment ($.3).
(E) Timber depletion ($-28.9) and inter-account transfers ($1.7).
(F) Inter-account transfers ($16.8), foreign currency translation adjustment
($-.4) and acquisitions ($1.6).
(G) Inter-account transfers ($151.4), foreign currency translation adjustment
($-1.2) and acquisitions ($1.7).
(H) Inter-account transfers ($3.2) and foreign currency translation
adjustment ($-.3).
(I) Timber depletion ($-21.4) and inter-account transfers ($1.1).
(J) Inter-account transfers ($16.7), transfers from other assets ($5.6), and
foreign currency translation adjustments ($-1.1)
(K) Inter-account transfers ($115.9), transfers from other assets ($9.4) and
foreign currency translation adjustments ($-4.4).
(L) Inter-account transfers ($-138.1) and foreign currency translation
adjustments ($-.4).
(M) Inter-account transfers ($4.4), transfers from other assets ($3.3), and
foreign currency translation adjustments ($-.4).
(N) Timber depletion ($-20.4) and inter-account transfers ($1.1).
For financial reporting purposes, depreciation, including amortization of
capital leases, is calculated using the straight-line method over the estimated
useful lives of the properties. The range of annual depreciation rates for
assets used by Mead and its subsidiaries is as follows:
Concrete and brick buildings . . . . . . . 2-1/2% - 3-1/3%
Machinery and equipment . . . . . . . . . . 6-1/4% - 8-1/3%
Office and laboratory equipment . . . . . . 10% - 20%
Autos and trucks . . . . . . . . . . . . . 16-2/3% - 33-1/3%
The rates used to determine timber depletion are based on projected
quantities of timber available for cutting.
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(All dollar amounts in millions)
Column A Column B Column C Column D Column E Column F
- - ---------------------------- ---------- --------- -------- -------- ---------
Other
Balance Additions Changes-
at Charged to Add Balance
Beginning Costs and Retire- (Deduct)- at End of
Description of Period Expenses ments Describe Period
- - ---------------------------- --------- --------- -------- -------- ---------
Year Ended December 31, 1993:
Buildings $ 233.1 $ 22.4 $ 7.3 $ .5 (A) $ 248.7
Machinery & equipment 1,507.2 204.5 38.8 (2.2)(A) 1,670.7
Land improvements 45.2 5.3 .2 50.3
-------- ------- ------ ----- --------
$1,785.5 $ 232.2 $ 46.3 $(1.7) $1,969.7
======== ======= ====== ===== ========
Year Ended December 31, 1992:
Buildings $ 201.2 $ 22.3 $ 1.7 $11.3 (B) $ 233.1
Machinery & equipment 1,369.4 197.5 52.1 (7.6)(C) 1,507.2
Land improvements 40.8 4.9 .5 45.2
-------- ------- ------ ----- --------
$1,611.4 $ 224.7 $ 54.3 $ 3.7 $1,785.5
======== ======= ====== ===== ========
Year Ended December 31, 1991:
Buildings $ 180.1 $ 23.1 $ 5.2 $ 3.2 (D) $ 201.2
Machinery & equipment 1,215.5 187.4 37.6 4.1 (E) 1,369.4
Land improvements 35.4 5.5 .1 40.8
-------- ------- ------ ----- --------
$1,431.0 $ 216.0 $ 42.9 $ 7.3 $1,611.4
======== ======= ====== ===== ========
<FN>
(A) Foreign currency translation adjustment.
(B) Foreign currency translation adjustment ($.3), acquisitions ($1.3) and inter-account
transfers ($9.7).
(C) Foreign currency translation adjustment ($.8), acquisitions ($1.3) and inter-account
transfers ($-9.7).
(D) Transfer from other assets ($3.5) and foreign currency translation adjustment
($-.3).
(E) Transfer from other assets ($6.4) and foreign currency translation adjustment
($-2.3).
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VII--GUARANTEES OF SECURITIES OF OTHER ISSUERS
December 31, 1993
(All dollar amounts in millions)
Column A Column B Column C Column D Column E Column F Column G
- - -------- -------- -------- -------- -------- -------- --------
Nature of Any
Default By
Issuer of Securi-
Name of ties Guaranteed
Issuer of Amount in Principal,
Securities Title Owned Interest,
Guaranteed of Issue Total By Person Amount in Sinking Fund
By Person of Each Amount or Persons Treasury of or Redemption
for Which Class of Guaranteed for Which Issuer of Provisions, or
Statement Securities and Out- Statement Securities Nature of Payment of
is Filed Guaranteed standing is Filed Guaranteed Guarantee Dividends
- - -------- ---------- -------- -------- ---------- --------- ---------
Cabin Bluff Partners(1) Bank loan $150.0 None None Principal and None
interest
Georgia Kraft Company(2) IDR bonds 2.3 None None Principal and None
interest
Lynchburg Foundry
Company(3) IDR bonds 7.0 None None Principal and None
interest
Northwood Panelboard
Company (affiliate) IDR bonds 7.0 None None Principal and None
interest
Revolving
credit line 3.0 None None Principal and None
interest
TBC Realty(4) Promissory Notes 23.3 None None Principal and None
interest
_____________________________
<FN>
(1) Mead has a 50% interest in a partnership with Scott Paper Company which has borrowed $300 million under a 10-year loan
agreement with The Sumitomo Bank, Limited, New York Branch, which expires in 1998. The loan, one-half of which has
been guaranteed by Mead, may be prepaid any time either in cash or by delivery of notes receivable
from Georgia-Pacific Corporation held by the partnership as part of the consideration for the sale of Brunswick Pulp & Paper
Company.
(2) Affiliate of Mead prior to 1988.
(3) Subsidiary sold in 1983.
(4) TBC Realty is the lessor of real property to Mead or unaffiliated third parties. Mead guaranteed all or a portion of the
debt owned by TBC Realty in connection with these leases.
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in millions)
Column A Column B Column C Column D Column E
- - -------------------------------- ---------- -------------------- ----------- ---------
Additions
--------------------
Charged Charged Balance
Balance at to to Other at
Beginning Costs & Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
- - -------------------------------- ---------- --------- --------- ----------- ---------
Year Ended December 31, 1993:
Allowance for doubtful accounts $ 24.9 $ 12.2 $-0- $ 12.3 (A) $ 24.8
====== ====== ==== ====== ======
Accumulated amortization of good-
will and other intangibles $112.9 $ 22.3 $-0- $ -0- $135.2
====== ====== ==== ====== ======
Year Ended December 31, 1992:
Allowance for doubtful accounts $ 27.9 $ 11.7 $-0- $ 14.7 (B) $ 24.9
====== ====== ==== ====== ======
Accumulated amortization of good-
will and other intangibles $ 89.7 $ 23.2 $-0- $ -0- $112.9
====== ====== ==== ====== ======
Year Ended December 31, 1991:
Allowance for doubtful accounts $ 24.0 $ 16.3 $-0- $ 12.4 (A) $ 27.9
====== ====== ==== ====== ======
Accumulated amortization of good-
will and other intangibles $ 70.2 $ 24.5 $-0- $ 5.0 (C) $ 89.7
====== ====== ==== ====== ======
<FN>
(A) Accounts charged off, net of recoveries.
(B) Accounts charged off, net of recoveries ($14.6), and allowances of sold
business ($.1).
(C) Accumulated amortization of sold business
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
(All dollar amounts in millions)
Column A Column B Column C Column D Column E Column F
- - ----------------------- ---------- -------- ----------- ----------- ----------
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Category of Balance Average Outstanding Outstanding Rate
Aggregate Short- at End of Interest During the During the During the
Term Borrowings (1) Period (2) Rate Period (3) Period (4) Period (5)
- - ----------------------- ---------- -------- ----------- ----------- ----------
December 31, 1993:
Commercial Paper $ --- ---% $249.3 $148.6 3.3%
Money Market Loans 46.9 3.3 100.0 54.7 3.3
Bankers Acceptances 25.0 3.2 100.0 33.7 3.2
Bank Borrowings -
Foreign 8.3 5.8 64.8 37.4 8.1
December 31, 1992:
Commercial Paper $102.3 3.8% $266.0 $205.6 4.0%
Money Market Loans 172.0 3.7 172.0 112.4 4.0
Bankers Acceptances 40.2 3.6 119.2 76.0 3.9
Bank Borrowings -
Foreign 64.3 7.7 64.3 47.8 8.8
December 31, 1991:
Commercial Paper $133.9 5.4% $313.1 $197.8 6.4%
Money Market Loans 182.5 5.2 257.5 172.8 6.1
Bankers Acceptances 57.4 5.4 75.3 40.4 6.1
Bank Borrowings -
Foreign 39.4 8.6 42.9 38.9 9.1
- - ----------------------
<FN>
(1) The terms of short-term borrowings are negotiated at each issuance with
interest rates being generally less than the prime rate and maturity not
exceeding 270 days.
(2) Certain short-term borrowings outstanding at the end of each period were
classified as long-term debt based upon Mead's credit lines and intent to
refinance.
(3) Maximum amounts for different financing arrangements occurred in different
periods and consist of amounts classified as short-term and long-term.
(4) Average amount outstanding during the period is calculated by aggregating the
daily outstanding principal balances and dividing by 360 days.
(5) Weighted average interest rate during the period is calculated by dividing
the actual interest expense by the average amount of debt outstanding during
the period as shown in Column E above.
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY STATEMENT OF EARNINGS INFORMATION
(All dollar amounts in millions)
Year Ended
December 31,
------------------------------
1993 1992 1991
------ ------ ------
Maintenance and repairs charged to costs and expenses $182.4 $176.6 $184.3
====== ====== ======
Royalties charged to costs and expenses $ 58.0 $ 52.0 $ 48.3
====== ====== ======
THE MEAD CORPORATION
EXHIBITS TO FORM 1O-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1993
EXHIBIT INDEX
Exhibit
No.
- - -------
(3) Articles of Incorporation and Bylaws:
(i) Amended Articles of Incorporation of the Registrant
adopted May 28, 1987 (incorporated by reference to Exhibit
(3)(i) of Registrant's Annual Report on Form 1O-K for the year
ended December 31, 1987).
(ii) Regulations of the Registrant, as amended April 23,
1987 (incorporated by reference to Exhibit (3)(ii) of
Registrant's Annual Report on Form 1O-K for the year ended
December 31, 1987).
(4) Instruments defining the rights of security holders, including
indentures:
(i) Credit Agreement dated as of November 15, 1989 with
Bankers Trust Company, The First National Bank of Chicago,
Morgan Guaranty Trust Company of New York and fifteen other
banks (incorporated by reference to Exhibit (4)(i) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989) and Amendment No. 1 thereto dated as of
November 30, 1991 (incorporated by reference to Exhibit (4)(i)
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991).
(ii) Indenture dated as of July 15, 1982 between the
Registrant and Bankers Trust Company, as Trustee, First
Supplemental Indenture dated as of March 1, 1987 (incorporated
by reference to Exhibit (4)(iv) of Registrant's Annual Report
on Form 1O-K for the year ended December 31, 1987), Second
Supplemental Indenture dated as of October 15, 1989
(incorporated by reference to Exhibit (4) to Registrant's
Current Report on Form 8-K dated October 11, 1989) and Third
Supplemental Indenture dated as of November 15, 1991
(incorporated by reference to Exhibit (4)(ii) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1991).
(iii) Indenture dated as of February 1, 1993 between the
Registrant and The First National Bank of Chicago, as Trustee
(incorporated by reference to Exhibit (4)(iii) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1992).
The total amount of securities authorized under other
long-term debt instruments does not exceed 10% of the total
assets of the Registrant and its subsidiaries on a
consolidated basis. A copy of each such instrument will be
furnished to the Commission upon request.
(10) Material Contracts:
(i) Agreement dated as of April 24, 1964 between
Northwood Mills Limited, Canamead, Inc., the Registrant and
Noranda Mines, Limited and Supplemental Agreements relating
thereto dated as of July 2, 1964, April 5, 1965, March 15,
1966, February 1, 1967, December 15, 1970 and April 1, 1974
(incorporated by reference to Exhibit (10)(v) of Registrant's
Annual Report on Form 1O-K for the year ended December 31,
1980 included in File No. 1-2267 in the Public Reference Room
of the Securities and Exchange Commission in Washington,
D.C.).
(ii) Pulp Purchase Agreement dated as of April 1, 1965
among Northwood Pulp Limited, the Registrant, Northwood Mills
Ltd. and Noranda Mines Limited (incorporated by reference to
Exhibit (10)(vi) of Registrant's Annual Report on Form 1O-K
for the year ended December 31, 1980 included in File No.
1-2267 in the Public Reference Room of the Securities and
Exchange Commission in Washington, D.C.).
(iii) Rights Agreement dated as of November 1, 1986
between Registrant and The First National Bank of Cincinnati,
as Rights Agent, as amended December 29, 1987 and December 9,
1988 (incorporated herein by reference to Registrant's
Amendment No. 1 on Form 8, dated November 28, 1986 and
Exhibits 28(a) and 28(b) to Registrant's Current Report on
Form 8-K dated December 9, 1988).
(iv) Amended Board Purchase Agreement dated as of
January 4, 1988 among the Registrant, Georgia Kraft Company
and Inland Container Corporation (incorporated by reference to
Exhibit (1O)(xviii) of Registrant's Annual Report on Form 1O-K
for the year ended December 31, 1987).
(v) Indemnification Agreement dated as of January 4, 1988
among the Registrant, Mead Coated Board, Inc., Temple-Inland
Inc., Inland Container Corporation I, Inland Container
Corporation, GK Texas Holding Company and Georgia Kraft
Company (incorporated by reference to Exhibit (1O)(xix) of
Registrant's Annual Report on Form 1O-K for the year ended
December 31, 1987).
(vi) Lease Agreement between The Industrial Development
Board of the City of Phenix City, Alabama and Mead Coated
Board, Inc., dated as of December 1, 1988, as amended
(incorporated by reference to Exhibit (10)(xviii) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989 and Exhibit (10)(xviii) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1991).
The following are compensatory plans and arrangements in which
directors or executive officers participate:
(vii) 1984 Stock Option Plan of the Registrant, as
amended and restated as of January 25, 1990 (incorporated by
reference to Exhibit (10)(v) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989), and Amendment
dated January 23, 1992 (incorporated by reference to Exhibit
10(iv) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991).
(viii) 1991 Stock Option Plan of the Registrant
(incorporated by reference to Exhibit (10)(xxi) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990).
(ix) Incentive Compensation Election Plan of the
Registrant as amended November 17, 1987 (incorporated by
reference to Exhibit (10)(viii) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1987), as amended
October 29, 1988 (incorporated by reference to Exhibit
(10)(vi) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988).
(x) 1985 Supplement to Registrant's Incentive
Compensation Election Plan, as amended November 17, 1987
(incorporated by reference to Exhibit (1O)(xi) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1985 and Exhibit (10)(ix) of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987), and as
further amended October 29, 1988 (incorporated by reference to
Exhibit (10)(vii) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988).
(xi) Excess Benefit Plan of the Registrant (1988
Restatement), dated October 29, 1988 (incorporated by
reference to Exhibit (10)(vii) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990).
(xii) Supplemental Executive Retirement Plan (formerly
The Mead Management Income Parity Plan) effective January 1,
1985, as amended and restated as of July 1, 1992 (incorporated
by reference to Exhibit (10)(xiii) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992).
(xiii) Form of Indemnification Agreement between
Registrant and each of Samuel S. Benedict, John C. Bogle, John
G. Breen, Vincent L. Gregory, Jr., William E. Hoglund, Barbara
C. Jordan, Steven C. Mason, Charles S. Mechem, Jr., Paul F.
Miller, Jr., William S. Shanahan, Thomas B. Stanley, Jr. and
Lee J. Styslinger, Jr. (incorporated herein by reference to
Exhibit (10)(xiv) of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1986).
(xiv) Form of Severance Agreement between Registrant and
each of Steven C. Mason and Samuel S. Benedict (incorporated
herein by reference to Exhibit (10)(xvi) of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1986 and Exhibit (10)(xii) of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988).
(xv) Form of Severance Agreement between Registrant and
each of William R. Graber, Elias M. Karter, Charles J. Mazza,
Wallace 0. Nugent, Thomas E. Palmer and other key employees
(incorporated by reference to Exhibit (10)(xiii) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988).
(xvi) Benefit Trust Agreement dated January 9, 1987
between Registrant and Society Bank, National Association
(incorporated herein by reference to Exhibit (1O)(xviii) to
Registrant's Annual Report on Form 1O-K for the year ended
December 31, 1986), as amended October 29, 1988 (incorporated
by reference to Exhibit (10)(xiv) of Registrant's Annual
Report on Form 10-K for the year ended December 31, 1988) and
January 24, 1991 (incorporated by reference to Exhibit
(10)(xiii) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990).
(xvii) Restricted Stock Plan effective December 10, 1987,
as amended through July 23, 1992 (incorporated by reference to
Exhibit (10)(xviii) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992).
(xviii) Deferred Compensation Plan for Directors of the
Registrant, as amended through October 29, 1988 (incorporated
by reference to Exhibit (10)(xix) of Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989).
(xix) 1985 Supplement to Registrant's Deferred
Compensation Plan for Directors, as amended through
October 29, 1988 (incorporated by reference to Exhibit
(10)(xx) of Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989).
(xx) Directors Retirement Plan, effective October 27,
1990 (incorporated by reference to Exhibit (10)(xx) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990).
(xxi) Form of Executive Life Insurance Policy for Key
Executives (incorporated by reference to Exhibit (10) of
Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period Ended March 31, 1991).
(xxii) The "Direction 2000" Executive Incentive Plan,
dated April 21, 1993 (incorporated by reference to Exhibit
10(i) of Registrant's Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 4, 1993).
(xxiii) Mead Management Incentive Plan for 1993
(incorporated by reference to Exhibit 10(ii) of Registrant's
Quarterly Report on Form 10-Q for the Quarterly Period Ended
April 4, 1993).
(11) Calculation of Earnings per Share.
(12) Ratio of Earnings to Fixed Charges.
(21) List of significant subsidiaries of the Registrant.
(23) Consent of Independent Auditors.