MeadWestvaco Reports Westvaco Transition Period Financial Results
Press release from the issuing company
Impact of Adopting Financial Accounting Standards No. 142 Regarding Goodwill
MeadWestvaco Provides Outlook for First Quarter 2002
STAMFORD, Conn., March 15 -- MeadWestvaco Corporation today reported financial results for Westvaco Corporation's two-month transition period ended December 31, 2001, prior to merging with The Mead Corporation. The company is reporting for this transition period because of the change in its fiscal year to a calendar year end.
For the two months ended December 31, 2001, the former Westvaco Corporation had sales of $602.7 million and a net loss of $21.7 million or $.21 per share, compared to sales of $631.3 million and net income of $26.0 million or $.26 per share for the same prior year period. The company's performance for the two months ended December 31, 2001, reflected generally soft demand and lower selling prices for paper and some grades of paperboard as a result of weakness in the U.S. economy. Additionally, in the case of papers, performance was also affected by increased import competition because of the strong U.S. dollar.
During the period, Westvaco took downtime to manage inventories to market demand. This resulted in 70,000 tons of lowered production with an estimated negative impact of $.09 per share. Other factors negatively affecting results included write downs of plant and equipment taken out of service, write downs of inventories under lower of cost or market valuations, the acceleration of maintenance expenses in connection with market-related downtime, and other charges principally relating to accrued employee benefits and receivables.
Westvaco's packaging segment reported a pretax operating loss of $6.4 million. Segment sales totaled $393.3 million. Pricing was weak for unbleached products and for bleached paperboard sold to economically sensitive markets. Responding to market conditions, Westvaco took downtime at its packaging mills of approximately 57,000 tons, which reduced profits by nearly $11 million pretax or $.07 per share. In consumer packaging, most markets remained stable to strong with lower than anticipated growth in the end markets for CDs and continued rapid growth in demand for packaging of DVDs and games.
Rigesa, Ltda, Westvaco's Brazilian subsidiary, reported pretax operating earnings of $2.3 million on sales of $25.1 million. The business benefited from good demand for most of its value-added products, particularly fruit packaging, although its operating profit and revenues declined compared to the prior year 2000 period as a result of weaker local currency exchange rates.
Westvaco's paper segment, including the envelope business, reported a pretax operating loss of $2.8 million on sales of $157.3 million. Segment results reflected lower prices and demand for printing papers. The company took approximately 13,000 tons of downtime at an estimated cost of $4 million pretax or $.02 per share.
Westvaco's specialty chemicals business reported pretax operating profit of $4.4 million on sales of $50 million. Ink resin markets were strong due to the increase in seasonal newspaper inserts and holiday catalogs. Results for the activated carbon business remained stable, reflecting solid unit volume in the auto industry. Weaker results for the specialty chemicals segment were due to the slower economy and increased competition in the Far East.
Impact of Adopting Financial Accounting Standards No. 142
The company also announced that it will adopt, as required, Statement of Financial Accounting Standards (SFAS) No. 142, effective as of January 1, 2002. Under the Standard, goodwill and intangible assets with indefinite lives will no longer be amortized, but instead will be tested for impairment at least annually. Westvaco goodwill at the end of 2001 was approximately $560 million.
In compliance with SFAS No. 142, the company is in the process of completing an evaluation of the carrying value of goodwill.Based upon the goodwill assessment work to date, the company estimates that a non-cash goodwill impairment charge in the range of $250-350 million will be recorded in 2002. The impairment charge will be the same before and after taxes as the goodwill is not deductible and will not affect cash flow or future operating results.
MeadWestvaco Outlook for First Quarter 2002
For the first quarter of 2002, MeadWestvaco's operating results are expected to be weaker than the sum of Mead and Westvaco's first quarter results last year. As a result of a weakening global economy, prices for coated papers, containerboard and bleached paperboard sold in economically sensitive markets declined during 2001. Therefore, pricing for some grades of paper and paperboard are much lower this quarter than in last year's first quarter. In addition, due to the timing of the merger, the quarter will reflect only two months of results of operations for the former Mead Corporation. Due to merger accounting rules, non-cash depreciation for the former Mead Corporation will be higher.
Total downtime in MeadWestvaco's medium and bleached paperboard operations is expected to be approximately 100,000 tons in the first quarter of 2002, compared to 68,000 tons in 2001. This downtime includes scheduled maintenance reducing production at its domestic corrugating medium operations at Stevenson, Alabama and market downtime and extended maintenance at its Evadale, Texas bleached paperboard operations. In 2001, downtime included 33,000 tons for the former Mead and 35,000 tons for the former Westvaco. In coated and specialty papers, the company will take approximately 37,000 tons of market-related downtime to more closely align production with demand. First quarter 2002 results will also include charges for previously announced restructuring and other merger-related actions of approximately $40 million.
MeadWestvaco Background and Other Developments
MeadWestvaco Corporation was formed on January 29, 2002, as a result of a merger between The Mead Corporation and Westvaco Corporation. The merger was structured as a stock-for-stock exchange and will be accounted for in 2002 as a purchase transaction under recent guidelines for business combinations. MeadWestvaco had announced plans, following the merger, to take actions in the first two years, leading to annual synergies of $325 million. Of the $325 million in synergies, $125 million is expected to come from optimization of the Papers Group. Specific activities to achieve these synergies will include the elimination of high cost manufacturing equipment and the streamlining of processes and staffing. In addition, $70 million in synergies relate to purchasing and logistics, $90 million to corporate overhead and technology, and $40 million to the packaging segment. On February 5, MeadWestvaco announced initial merger-related restructuring plans for its corporate groups, and on March 4 announced plans to shut down permanently four paper machines and related equipment.
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