MeadWestvaco Reports Fourth Quarter Results; Net Income of $36 Million
Press release from the issuing company
STAMFORD, Conn., Jan. 29 - MeadWestvaco Corporation today reported net income, in accordance with generally accepted accounting principles, for the fourth quarter of 2002 of $36 million or 18 cents per share, including unusual charges totaling 16 cents per share and gains on the sale of 126,000 acres of timberland of $41 million or 21 cents per share on proceeds of $85 million. Income was 13 cents per share or $27 million, without unusual charges or the benefits of timberland gains. Fourth quarter sales were $1.9 billion.
For the full year 2002(1), the company reported sales of $7.2 billion and a net loss, in accordance with generally accepted accounting principles, of $2.02 per share, which included the net after-tax cost of specific items of $2.18 per share. These items included: gains on the sale of 186,000 acres of timberland of $65 million or 34 cents per share on proceeds of $134 million; a loss from discontinued operations of 18 cents per share from the sale of the Stevenson, Alabama, mill and related assets, an accounting charge for the impairment of goodwill (due to the initial adoption of SFAS No. 142) of $1.83 per share, recognized as of January 1, 2002; nonrecurring restructuring and merger-related expenses of 49 cents per share; and costs due to the early retirement of debt of 2 cents per share.
"During the year we generated $191 million in synergies, over $100 million ahead of our original target of $90 million. Today we are raising our 2003 synergy goal to $360 million," said John A. Luke, Jr., chairman, president and chief executive officer. "We will achieve our full merger integration synergies a year ahead of our original schedule. These synergies reflect meaningful actions taken since the merger was announced, including shutting down six paper machines, consolidating the data centers, closing a research center, divesting assets and reducing our workforce by approximately 4,000 positions."
"All of our businesses are benefiting from reduced operating costs from merger-related synergies. Confidence in the potential of our global packaging platform continues to grow. The Packaging segment's results reflect the benefit of lower costs and, more importantly, excellent fourth quarter revenues of $1 billion driven by higher shipments and revenue growth in our consumer packaging businesses," said Mr. Luke. "Paper results benefited from significant cost reductions and year over year results improved despite lower selling prices for coated paper. Restructuring actions we have taken represent substantial progress towards our goal of becoming the most efficient producer of high-quality coated paper in North America. Consumer & Office Products results improved due in part to much lower costs from facility closures and restructuring over the last several years."
Pro forma references contained within this release are intended to reflect combined operations of Mead and Westvaco as if the merger had been in effect in 2001.
In the Packaging segment, operating profit for the fourth quarter, a seasonally weaker period for most of the segment's operations, was $110 million, up from the prior year pro forma operating profit of $42 million. The improvement reflected higher shipments for paperboard grades, no market-related downtime, lower mill operating costs resulting from merger synergies, the elimination of goodwill amortization and improved pricing for some grades of paperboard. Operating profit in the segment's consumer packaging businesses was higher than the prior year due to stronger sales, aided by successful new packaging for cosmetics, media and pharmaceutical products, and reduced operating costs. Performance for the beverage packaging systems business also improved over the prior year as a result of lower costs, improved productivity and favorable exchange rates. Results for the company's Brazilian packaging company, Rigesa Ltda., improved over the prior year due to higher shipments and improved prices, which were offset somewhat by weaker exchange rates. Sales for the Packaging segment for the fourth quarter were $1 billion, compared to the prior year pro forma sales of $862 million.
Packaging segment operating profit improved over third quarter results of $88 million as seasonal strength in consumer packaging, cost efficiencies and lower maintenance expense more than offset seasonally lower shipments of most paperboard grades.
Full year operating profit in the Packaging segment was $316 million, up from the prior year pro forma operating profit of $246 million, due to higher bleached board and linerboard shipments, less market-related downtime and lower operating costs offsetting lower paperboard prices. Operating results for the consumer packaging businesses improved significantly due to improved product mix, strong cosmetics and media and entertainment sales, and improved operating efficiencies. Results for beverage packaging systems and Rigesa Ltda. also improved over the prior year. Segment sales for the full year were $3.7 billion, compared to the prior year pro forma sales of $3.6 billion.
The Paper segment reported a loss for the fourth quarter of $11 million, an improvement over the prior year pro forma loss of $22 million, due to the benefits of lower market-related downtime, the significant consolidation of facilities and equipment and workforce reductions over last year. These benefits were somewhat offset by lower coated paper prices and shipments. Shipments of carbonless paper declined slightly; prices were unchanged from the prior year. Segment sales for the fourth quarter were $553 million, compared to prior year pro forma sales of $566 million.
Compared to the third quarter, the Paper segment operating loss increased from $3 million as a result of seasonally weaker shipments for coated and carbonless paper and less favorable operating performance. Prices for coated paper increased for some grades in the quarter but the benefit was offset by higher returns and allowances and a weaker product mix.
Full year results for the Paper segment were a loss of $71 million, compared to the prior year pro forma loss of $47 million, due to a decline in prices and shipments of coated and carbonless paper, somewhat offset by lower operating costs and manufacturing efficiencies resulting from merger synergies. Segment sales for the full year were $2.1 billion, compared to the prior year pro forma sales of $2.5 billion.
Consumer & Office Products
In Consumer & Office Products, fourth quarter operating profit was $32 million, up from the prior year pro forma results of $5 million. Pro forma results in 2001 included $13 million of bad debt expense and goodwill amortization that were not included in 2002. The additional improvement is largely due to facility closures and divestitures. Segment sales of $247 million declined from pro forma sales of $262 million in the fourth quarter of 2001 primarily as a result of these actions as well as a movement away from lower margin commodity product lines. Sales were seasonally lower than the third quarter.
Full year operating profit in the Consumer & Office Products segment was $131 million, compared to pro forma operating profit of $88 million in 2001 due to the items noted above affecting fourth quarter results as well as lower product obsolescence and sales-related expenses. Sales for the full year of $1.1 billion declined from pro forma sales of $1.2 billion during the prior year, primarily due to revenues lost through the sale of some divested business units and lower sales of commodity products.
In the Specialty Chemicals segment, reported profit for the fourth quarter was $12 million, compared to the prior year reported profit of $14 million. Sales were higher for automotive carbons, some ink resins and asphalt emulsifiers, and weaker in some industrial chemicals markets. Energy and operating costs were lower. Segment results declined seasonally from the third quarter. Fourth quarter sales of $83 million improved over prior year sales of $79 million.
Full year reported profit in the Specialty Chemicals segment was $57 million, compared to prior year reporting profit of $61 million. Sales and prices were lower in some industrial chemicals markets, while market conditions improved for automotive carbons, dye dispersants, asphalt and some ink resins, and operating costs were lower. Sales for the full year of $343 million increased over prior year sales of $341 million.
* Depreciation, depletion and amortization expense was $674 million in
2002 and is estimated to be $700 million in 2003.
* Capital expenditures (including rental equipment and capitalized
software) were $424 million in 2002 and are estimated to be
$500 million in 2003.
* Fourth quarter pension income was $31 million pretax, full year pension
income was $124 million pretax and 2003 pension income is estimated to
be $65 million pretax.
* Debt to capital at the end of the year was 48.8%, excluding deferred
taxes. Adjusting for cash held for debt retirement, debt to capital
During the quarter, earnings benefited from adjustments to inventory primarily related to LIFO (last in-first out), and other adjustments, partially offset by increased benefit accruals principally related to healthcare costs and workers' compensation.
"With the significant restructuring actions taken thus far, the opportunities to improve our business performance continue to be compelling," said Mr. Luke. "MeadWestvaco is better positioned to improve our profitability in 2003, independent of a global rebound. Our excellent balance sheet, commitment to disciplined capital spending, continued synergy realization and ongoing timber divestitures should enable us to honor our attractive dividend, and reduce debt while building financial flexibility through improved cash flow."
"Equally important, the company's very successful integration gives us increased confidence in realizing the full measure of the combined business platform. We see excellent potential ahead for our global packaging business which combines the resources of a strong international customer base,world-class assets and diverse skills in design, materials, converting and machinery systems," Mr. Luke said. "Additionally, in the Paper, Consumer & Office Products and Specialty Chemicals segments, our high-quality products, customer focus and increased efficiencies will continue to position our products as market leaders"
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