MeadWestvaco Reports 1Q Results, Net Sales of $1.46 Billion
Press release from the issuing company
STAMFORD, Conn., April 22 - MeadWestvaco Corporation today announced a net loss of $63 million or 37 cents per share in the first quarter of 2002. Excluding restructuring and other merger-related costs, the first quarter results would be a net loss of $30 million or 17 cents per share. Net sales for the first quarter of 2002 were $1.46 billion.
MeadWestvaco Corporation was formed on January 29, 2002, as a result of a merger of equals between The Mead Corporation and Westvaco Corporation. The merger was structured as a stock-for-stock exchange and has been accounted for as a purchase transaction with Westvaco being the acquirer. Since the merger closed at the end of January, the quarter reflects three months of results for operations of Westvaco and two months (February and March) for Mead. For the quarter, the weighted average number of shares outstanding was 168 million. This average reflects 101 million shares for January when Westvaco only results are reflected and approximately 200 million shares following the merger for the remainder of the quarter.
"Since completing our merger on January 29, we have made tremendous progress in integrating our organizations and in taking actions toward achieving our targeted synergies," said John A. Luke, Jr., President and CEO. "The structure of a merger of equals has allowed MeadWestvaco to start on sound footing with excellent financial strength and without the burden of a large premium or acquisition debt.
"In this first quarter, our operating results reflect the challenging economic and business environment. Weak market conditions have resulted in lower prices and weaker sales volume for printing papers and some paperboard grades," said Mr. Luke. "We have responded by taking market-related downtime to manage inventories. At the same time, the performance of several of our businesses -- consumer and office products, specialty chemicals, and many of our packaging operations -- were steady in the face of weaker economic conditions."
The Packaging segment's sales totaled $826 million in the first quarter of 2002. Operating profit was $13 million. Prices and volume for bleached board markets were stable in higher value consumer markets, but weakened in more economically sensitive markets. Selling prices were significantly lower than last year for linerboard and medium and profitability in these grades was also eroded by a weaker mix as export sales increased and domestic demand weakened. In response to these markets, the company took approximately 46,000 tons of market-related downtime across its paperboard operations, which reduced pretax profits by $10 million or 4 cents per share.
In consumer packaging, the company's businesses are focused on markets where demand growth is generally stable, although the business experienced some weakness. Rigesa, Ltda., the company's Brazilian packaging operation, had solid operating results from generally good demand and continued efforts to improve mix and control costs. In the packaging systems business, the company's global beverage packaging operation, worldwide sales volume remained stable with a slight improvement in the North American market.
In the Paper segment, first quarter 2002 sales were $407 million. These markets continued to reflect weak economic demand and the strong dollar that continues to attract high levels of imports. Declining prices and volume for coated paper and the resulting market-related downtime led to an operating loss for the segment of $12 million. In this segment, the company took 55,000 tons of market-related downtime to more closely align production with demand in the first quarter, which reduced profits by $24 million pretax or 9 cents per share. Prices and shipments of carbonless paper were also lower than in the same period last year, reflecting overall weaker business conditions.
As part of the company's planned integration strategy, MeadWestvaco announced the permanent closure of four older, high-cost coated paper machines during the quarter -- three at Chillicothe, Ohio, and one at the Luke, Md., mill. The capacity of those four machines totaled 310,000 tons. These and other actions, including the shutdown of Westvaco's Tyrone, Pa., coated papers mill, will result, when fully implemented, in more than half of the $125 million in annual synergies expected from the Paper segment by the end of two years.
Consumer & Office Products
Reflecting two months of results in what is a seasonally low quarter, the Consumer and Office Products' group reported sales of $144 million and operating profit of $2 million for the first quarter. Results benefited from cost control and restructuring actions taken last year.
The Specialty Chemicals segment's sales were $77 million with operating profit of $13 million. Overall results were stable, reflecting some impact from the generally weaker economy. Sales of activated carbon products were slightly weaker. Asphalt emulsifier sales increased over last year with growth in domestic and export markets. Markets for ink resins for printing inks were relatively stable.
MeadWestvaco had previously announced plans to take actions resulting in annual synergies of $325 million by the end of two years. A number of actions were taken before the merger, including the closure of a paper mill in Tyrone, Pa., and restructuring actions in the Packaging segment. Since the merger, the company has announced the permanent shutdown of four paper machines and the reorganization of corporate departments and the coated paper operations. These and other integration actions are expected to result in employee reductions of approximately 3,000 positions, or about 10% of the total employee base, by the end of 2003. At the end of the first quarter, 1,700 positions had been eliminated. By year-end 2002, total work force reduction is expected to be 2,500.
"With this early momentum, we are on track to achieve our target of at least $325 million in synergies by the end of two years," said Mr. Luke. "The potential of this new company reaches far beyond synergies. Across the company, we are engaged in a broad range of initiatives to identify new business opportunities we can create by leveraging the expertise and knowledge of our two companies."
Restructuring and Other Merger-Related Charges
During the quarter, the company recorded a pretax charge of $54 million for restructuring and other merger-related costs of which $13 million represents cash expense. For the full year, the company expects restructuring and merger-related expenses to total $115-120 million of which about $40 million is expected to be cash expense.
Sales and earnings in economically sensitive markets continue to be affected by the generally weak economy, which may continue to result in lower prices and sales volume versus a year ago on a combined basis.
In the second quarter of 2002, MeadWestvaco expects to take production downtime of approximately 25,000 tons for paperboard and approximately 32,000 tons for coated paper, which would reduce profits by about $16 million pretax or 5 cents per share.
On March 15, 2002, MeadWestvaco announced its intent to adopt, as required, Statement of Financial Accounting Standards (SFAS) No. 142, effective as of January 1, 2002. The goodwill impairment charge has not yet been recorded, however, the company expects that a non-cash goodwill impairment charge in the amount of $250-350 million will be recorded in second quarter of 2002.
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