The Mead Corporation Business Information, Profile, and History

Company Perspectives:

Mead's Vision is "to become recognized by the results we achieve for customers, shareowners and employees. To act in ways consistent with a set of shared values: honesty, integrity and candor; customer focus; individual participation; results driven; a learning organization. To use a common set of tools to achieve results: total customer satisfaction, total productivity improvement, and commitment to high performance. Mead's Mission: To become number one in customer satisfaction in the markets we choose to serve."

History of The Mead Corporation

The Mead Corporation is one of the world's largest manufacturers of paper (producing more than 1.7 million tons each year) pulp, and lumber. Each year Mead produces more than 1.5 million tons of paperboard and the company is an industry leader in coated paperboard, containerboard, and multiple packaging. Mead also distributes paper and packaging and is a leading maker and distributor of school supplies in the United States and Canada.

Early History, 1846-1910

The Mead Corporation began as Ellis, Chafflin & Company. Founded in 1846 by Colonel Daniel Mead and his partners, the company produced book and other printing papers at a mill in Dayton, Ohio. In 1856 Mead bought out his original partners with a friend from Philadelphia, Pennsylvania, forming Weston and Mead. This company became Mead and Weston in 1860, then Mead and Nixon in 1866. In 1873 Daniel Mead spearheaded a reorganization of the firm as the Mead & Nixon Paper Company, and in 1881 Mead bought out Nixon, establishing the Mead Paper Company in 1882. He immediately upgraded the Dayton mill and in 1890 purchased a facility in nearby Chillicothe, Ohio. During the first decade of its existence, Mead Paper Company averaged annual profits of $22,000, peaking at nearly $50,000 in 1891, the year of Mead's death.

In the years after Mead's death, the management of the company passed to his sons, Charles and Harry, who became president and vice-president, respectively. Despite the fact that Mead had left a thriving business, Mead Paper soon fell on hard times, owing largely to personal overdrafts by family members amounting to more than $200,000, as well as to the substantial salaries drawn by Harry and Charles Mead and Charles's travel expense and cash accounts, which in 1900 amounted to $13,800. Combined losses for 1901 and 1902 added up to more than $36,000, and banks began calling in the company's loans. By 1904 the Teutonia National Bank instituted a suit that resulted in trusteeship of the company by bankers in Dayton, Chillicothe, and Cincinnati, Ohio.

As Mead Paper Company teetered on the brink of total collapse in 1905, the banker-trustees turned to George Mead, Harry Mead's independent and business-minded son, requesting that he take over the helm at Mead. George, then about to leave his post at the General Artificial Silk Company in Philadelphia, accepted the opportunity to rejuvenate the family company. He reorganized it as the Mead Pulp and Paper Company and was appointed vice-president and general manager. George Mead's business philosophy would influence the company substantially during his 43-year tenure.

Mead Pulp and Paper made its first public stock offering in 1906. A year later operations were consolidated at the Chillicothe mill, costing the company more than $32,000. The economic recession of 1907 and the tremendous cost of moving almost destroyed Mead once again, but the sale of the Dayton property saved the company. Finally, in 1908, the company made profits of almost $25,000, and it continued to operate in the black until the Great Depression.

Growth via Acquisitions, 1910s through 1940s

During the 1910s, Mead expanded through acquisition and began to maximize machine output by restricting its product lines. In 1916 Mead purchased a share in the Kingsport Pulp Corporation of Kingsport, Tennessee, and in 1917 it acquired full control of the Peerless Paper Company of Dayton. George Mead had been reducing the number of different types of paper made at Mead since his entry in 1905, when the company produced 15 different grades of paper. Seeing that profits would be maximized if each machine could concentrate on producing one type of paper rather than continually changing production methods for different papers, Mead specialized his mills as far as possible.

Toward this end, in 1917 Mead secured a five-year contract to produce magazine paper for Crowell Publishing Company. The magazine paper called for 75 percent of the Chillicothe mill's production. Consequently, Crowell remained Mead's principal customer throughout the decade. In 1918 the Management Engineering and Development Company was established in Dayton as a separate firm to supervise engineering of new Mead plants and to market Mead's engineering services to other paper companies. In 1921 the Mead Sales Company was established as a separate corporation to sell white paper produced by Mead mills and other U.S. and Canadian mills.

In 1920 Mead bought out the other owners of Kingsport Pulp. The plant began white paper production in 1923 and became a central Mead factory. Mead began to diversify its product lines in the 1920s as it started to manufacture paperboard. By 1925 Mead research led to the discovery of the semi-chemical pulping process by which wood chips from which tannin had been extracted could be converted into paperboard. Mead expanded the paperboard business in the late 1920s with the purchase of mills throughout Appalachia that produced corrugating medium from wood waste. In 1927 The Mead Paperboard Corporation was founded as a holding company for the paperboard operations, including the Sylvia Paperboard Company, The Harriman Company, The Southern Extract Company, and the Chillicothe Company.

The Mead Corporation was incorporated on February 17, 1930, and George Mead was appointed president. The company subsumed the operations of the Mead Pulp and Paper Company, The Mead Paperboard Corporation, and the Management Engineering and Development Company, although the separate legal existence of these organizations continued for some years. At that time, the company had 1,000 employees and plants in four states. In 1935 Mead's common and preferred stock were listed on the New York Stock Exchange.

During the 1930s Mead made substantial acquisitions that diversified its lines. Although concentration on a few types of paper was necessary when the company was small, Mead had grown large enough to produce a number of grades of papers profitably. Mead's own major mills had attempted to sell business, envelope, and writing papers, but they had no luck. Two major purchases were Dill & Collins in 1932 and Geo. W. Wheelwright Company in 1934. Each of these companies had established names and well-developed distribution systems. This allowed Mead to market effectively large quantities of specialty papers produced at Chillicothe as well as smaller quantities produced in the acquired mills.

In 1938 Mead entered two joint ventures in an effort to reduce its dependence on imported pulp and to enter the kraft linerboard business. With Scott Paper Company, it formed the Brunswick Pulp & Paper Company at Brunswick, Georgia to supply both parent companies. In addition, with the holding company of the Alfred du Pont estate, Almours Security Company, it built a huge pulping plant in Port St. Joe, Florida. By 1937 the Brunswick mill was producing 150 tons of pulp per day. Soon the Port St. Joe facility was yielding 300 tons of pulp and 300 tons of linerboard daily. It was widely regarded as the leading linerboard mill in the country and by 1940 was making $1 million a year before taxes. Relations with the Almours Security Company deteriorated, however, and Mead sold its share of the operation. Mead intended to launch another linerboard mill immediately, but World War II halted this plan.

In 1942 George Mead became chairman of the board and Sydney Fergusen, who had been with the company since the 1910s, became the corporation's president. In the same year, Mead purchased a small white-paper mill from the Escanaba Paper Company in Michigan's upper peninsula. Eventually the Escanaba mill would become one of Mead's largest operations. Two other acquisitions were made, in 1943, that of the Manistique Pulp and Paper Company, of Manistique, Michigan and, in 1946, that of the Columbia Paper Company in Bristol, Virginia. The Manistique plant was sold in the early 1950s, and the Virginia company was consolidated with the Wheelwright plant in 1946. Other plants bought to meet postwar demand were subsequently sold.

Although Mead had continued production at a breakneck pace to meet domestic and overseas container and paper requirements, wartime price and profit controls, as well as raw material shortages, stunted the company's growth. In 1945 Mead's assets had risen only $2.1 million from a prewar figure of $37 million.

Immediately following the war, however, Mead was back on course. Its well-defined postwar plan allotted $23 million for plant expansion. In the brown paper division, plans were readily revived to build a kraft linerboard plant to replace the Port St. Joe operation. Mead firmly entrenched itself in paperboard-making through its joint projects with Inland Container Corporation. The companies first collaborated in 1946 to found the Macon Kraft Company to build and operate a paperboard mill in Macon, Georgia. This was followed by successive joint mills built in Rome, Georgia in 1951 and Phenix City, Alabama in 1966.

Diversification Beyond Paper Products in the 1950s

Mead saw a rapid succession of presidents after Fergusen, who in 1948 became chairman of the board and handed the presidency on to Charles R. Van de Carr, Jr. In 1952 Howard E. Whittaker became president, and five years later he was replaced by Donald R. Morris. The year 1955 marked the beginning of a new period of growth for Mead, as the company diversified beyond its traditional paper products. A 1957 acquisition, the Atlanta Paper Company, led Mead into the packaging business and was the forerunner of Mead's packaging division, which invented the familiar paper six-pack carrier for bottled beverages and became the largest supplier of paperboard beverage packaging in the world. The specialty paper division, which produced papers for filters and insulation, was started with the purchase of Hurlburt Paper Company of South Lee, Massachusetts in 1957.

Mead entered the container business in 1955 and 1956 with the acquisition of Jackson Box Company of Cincinnati, Ohio. This firm became the nucleus of Mead's containerboard division. In 1960 Mead's rapid expansion in paperboard manufacture prompted the Federal Trade Commission (FTC) to file a complaint against Mead, alleging that Mead's growth since 1956 was anticompetitive. Mead and the FTC settled in 1965 when Mead signed a consent decree, agreeing to sell off seven of its plants over five years and place a ten-year moratorium on paperboard acquisitions.

Mead began its wholesale distribution network with the acquisition of Cleveland Paper Company in 1957. Mead's aggressive expansion of its wholesale force provoked a 1968 suit by the Justice Department. The suit claimed that Mead's acquisition between 1957 and 1964 of six paper wholesalers with 38 outlets caused an unlawful concentration in the paper industry. Mead agreed in 1970 to sell off within two years 22 of the outlets operated by Chatfield & Woods Company, acquired in 1961, and Cleveland Paper Company.

Acquired Businesses Unrelated to Papermaking in 1960s

With the retirement of Chairman Howard E. Whitaker and President George H. Pringle in 1968, the new president, James W. McSwiney, began to acquire businesses that were unrelated to papermaking. During the 1950s, and with the 1968 allocation of $50 million for the expansion of the Escanaba mill, Mead had spent in excess of $400 million on maintaining and improving its papermaking facilities. Then its business emphasis in paper products shifted from production to marketing. The paper markets, however, were fairly mature, and growth had to be sought elsewhere. Mead's management anticipated a boom in family spending and homebuilding and bought companies that would benefit from such a boom. Mead's acquisition of an educational products supplier in 1966 was followed in 1968 by the purchase of Woodward Corporation, a maker of pipe and pipe fittings, castings, and chemicals and of Data Corporation, which produced computer software. In 1969 Mead bought a furniture maker.

1970s Recession Leads to Divestments

These purchases did not shield Mead from an economic recession in the early 1970s. In 1971 the Escanaba mill was operating at a loss despite a $15 million investment in upgrading the plant. Another $45 million investment went into the plant the following year, but profitability continued to elude the operation. As a result of its flagging profits, Mead began to sell off some of the acquisitions it had made only a few years earlier.

Mead managers sold more than $80 million of interests in low-growth markets between 1973 and 1976. For example, lower-grade tablet paper and low-volume colored envelope interests were eliminated. Mead sold off facilities such as the corrugated-shipping-container plant it had built at a cost of $3.5 million in Edison, New Jersey in 1967, but which had never made a profit. Mead's corrugated-paper business was concentrated in Stevenson, Alabama in 1975. Mead also directed its attention to potential growth in paper; for example, the company responded to an anticipated hike in mail rates by investing $60 million in a computer-controlled paper machine to make lightweight paper.

Mead retained substantially diverse operations, including furniture factories, foundries, and Alabama coal mines. Despite these far-flung interests, in 1974, about 24 percent of Mead's pretax earnings came from paper, 35 percent from paperboard, and 5 percent from wholesaling. Metal products contributed 11 percent and furniture five percent, while about 20 percent was derived from sundry jointly owned forest products operations. Mead lost an estimated $85 million in sales owing to strikes at several pulp and paper mills. By 1975, however, sales and profits were on the upturn.

In 1977 the consolidation of the box-making business became problematic as two small Pennsylvania paper-box makers, Franklin Container Corporation, of Philadelphia, and Tim-Bar Corporation, filed a $1.2 billion antitrust suit against Mead and eight other box makers. The suit charged the defendants with price fixing and with attempting to push smaller makers out of the market by buying independent box makers and opening operations where they would compete with smaller businesses. The suit was one of the largest price fixing lawsuits in U.S. legal history. Mead was found not guilty in a 1979 criminal trial, but a jury found the company guilty in a civil class-action suit of 1980. The other defendants had settled out of court prior to the civil suit, and Mead was left with a potential liability of $750 million. Finally, Mead also settled out of court in 1982 for $45 million, considerably less than it might have had to pay in court, but still five times more than any of the other defendants paid.

1980s Highlighted by the Increasing Success of Mead Data Central

In 1979 Mead ranked fourth among forest products companies and hit its all-time earnings peak of $5.19 a share while fending off an unwanted takeover by Occidental Petroleum Corporation. By the early 1980s, earnings began to fall from their 1979 peak of $141 million to a loss of $86 million in 1982--Mead's first loss since 1938. Among the factors responsible were a drastic decrease in demand for lumber products and the costly settlement of the box suit. In addition, Mead's $1.5 billion five-year expansion plan begun in 1978 may have equipped it to benefit from the next paper market boom, but it also left the company in 1983 with a debt amounting to more than half of its total capitalization. Mead whittled away at the sum by selling several noncore businesses. By 1984 debt was down to 42 percent of capital, still a dangerously high level but better than in the previous year.

Business improved in 1984, as Mead's electronic information-retrieval services became profitable. Mead Data Central Inc. (MDC), the subsidiary whose primary product was LEXIS, a service that made case law and statutes available through online computer searches, had been growing at a rate of 43 percent a year. Unveiled in 1973, LEXIS took in about 75 percent of the computerized legal research market by the late 1980s. The system's success was enough to spark its own court battle with West Publishing Company, which claimed that MDC intended to infringe on its copyrights by distributing its information with West's pagination. Mead in turn filed its own antitrust suit against West. The case was settled in 1988 with a licensing agreement permitting MDC to offer West-copyrighted material via the LEXIS service.

By 1988 MDC boasted 200,000 subscribers, who bought $300 million worth of information. In 1988 LEXIS was responsible for MDC's 33 percent growth. LEXIS accounted for an estimated $215 million of MDC's $307.6 million revenues. MDC's other products included NEXIS, which distributed newspaper and magazine reprints. MDC also carried other services, such as LEXPAT, which distributed patent information, and LEXIS Financial Information Service, which provided stock information. Micromedex, a subsidiary acquired in 1988, provided information about poison and emergency medicine on compact disc.

In 1988, to enhance the scope of its service to attorneys, paralegals, and the court, MDC purchased The Michie Company, a legal publisher based in Charlottesville, Virginia, publishing statutes from 24 states in printed form. MDC made these statutes searchable electronically through the LEXIS service and developed compact disc products combining case law and statutes.

In addition to the promising enterprises at MDC, in 1988 Mead unveiled Cycolor, a new paper for color photocopying. The specially coated paper contained a chemical that, like an instant film, performs the reproduction internally, eliminating the complex machinery formerly needed to create color photocopies. Mead contracted several Japanese companies to manufacture copiers compatible with the paper. By 1990, two Japanese companies were marketing copiers using Cycolor. Development of this product was costly, and it diminished Mead's earnings from 1986 to 1990. After losing almost $200 million developing the special paper, Mead closed its Cycolor division in December 1990.

While developing these nonpaper interests, Mead also undertook some rationalization of its traditional sectors. Most important was the restructuring of its paperboard operations to focus on the production of coated board. Mead dissolved its partnerships with Temple-Inland in the Georgia Kraft Company, sold six of its container plants, and doubled its coated board capacity. The Macon mill was sold in 1987 to Pratt Holding, Ltd., an Australian firm; Temple-Inland took control of the Rome, Georgia plant; and in 1988 Mead took full control of the Phenix City coated board mill. In 1991, Mead completed a $580 million expansion of this mill, which added 370,000 tons of coated board annually. Mead also sold its share of the Brunswick pulp and paper mill in August of 1988 and sold its recycled products business to Rock-Tenn Company in 1988.

Steven Mason Leads 1990s Turnaround

These rationalization moves were important, but Mead's revenues were flat from 1988 through 1992 and net earnings fell from a record $352.7 million in 1988 to $38.5 million in 1990, $6.9 million in 1991, and $71.6 million in 1992. After ten years as chairman and CEO, Burnell Roberts retired in 1992 and was replaced by Steven Mason, who had been president and vice-chairman. A third-generation Mead employee with 35 years at the company, Mason moved quickly and boldly to turn Mead around.

In mid-1992 Mason announced the start of a three-year performance-improvement plan that aimed to increase both productivity and customer satisfaction. As part of the plan, Mead laid off about 1,000 employees, setting up a $95 million special reserve for such expenses as severance pay, retraining, relocation, counseling, and outplacement. Another component of the plan called for overall productivity increases of three percent per year, which would lead to annual savings of about $60 million. By year-end 1996 Mead had successfully hit this target, as it had achieved an overall productivity gain of 12 percent since 1992. During this same period Mead's customer satisfaction rankings markedly improved; in 1992 less than half of the company's business units were ranked first in customer satisfaction compared with Mead competition, but by 1996 three-quarters were ranked first.

Equal in significance to the performance-improvement plan was Mason's decision to refocus Mead on core value-added forest products. In addition to selling its imaging and reinsurance businesses, Mead reduced its uncoated paper operations through the 1995 sale of the loss-making Kingsport, Tennessee uncoated paper mill. The largest divestment, however, came in December 1994 when the company sold Mead Data Central to Anglo-Dutch publishing giant Reed Elsevier for $1.5 billion, taking Mead out of the electronic publishing business. Following these moves, Mead had three core areas of operation: paper (primarily coated paper, a sector with more growth potential than uncoated paper), packaging and paperboard, and distribution and school/office supplies.

Much of the $1 billion after-tax proceeds from the MDC sale was used to pay down debt and make stock repurchases. Overall, from 1992 to 1996 Mead was able to reduce its debt-to-capital ratio from 47 percent to 36 percent. Meanwhile, company shareholders were kept happy through repurchases of 8.7 million shares valued at $459 million.

To shore up its core areas, Mead spent heavily to upgrade and add machinery to its mills and also made one strategic acquisition. The Escanaba and Chillicothe coated paper mills were the recipients of large capital investment programs, with $200 million spent in 1994 and 1995. In November 1996 Mead increased its coated paper capacity by 600,000 tons a year with the $640 million purchase of a coated paper mill located in Rumford, Maine from Boise Cascade. The mill also brought with it 667,000 acres of woodlands, which increased Mead's timber holdings to 2.1 million acres in eight states, a 65 percent increase over 1992 holdings.

Mead's paperboard capacity was also increased through the 1996 completion of a 225,000 ton-per-year, $176 million corrugating medium machine at the Stevenson mill. That same year the company announced a second phase to the capital upgrades at this mill, whereby the new machine's output would increase to 390,000 tons annually when virgin pulp-making capability, a wood fuel boiler, and additional dryers were added by 1999. The second phase was expected to cost an additional $224 million.

Following record-breaking revenues of $5.18 billion and robust net earnings of $350 million in 1995--a year with market conditions favorable to paper companies--Mead celebrated its 150th anniversary in 1996 with solid revenues ($4.71 billion) and earnings ($195.3 million). Mason's various initiatives as chairman and CEO clearly had born fruit. The company's future also seemed bright, as the April 1996 appointment of Jerome F. Tatar--a 23-year Mead veteran and former president (over an eight-year period) of Mead's Fine Paper Division&mdash president and chief operating officer (and expected Mason successor) pointed to the likelihood that Mead would continue on a steady course into the early 21st century.

Principal Subsidiaries: Escanaba Paper Co.; Forest Kraft Company; LCC Holding Company; M-B Pulp Company; Mead Coated Board Intl., Inc.; Mead European Holdings, Inc.; Mead Export, Inc.; Mead Foreign Holdings, Inc.; Mead International Holdings, Inc.; Mead Packaging International, Inc.; Mead Panelboard, Inc.; Mead Realty Group, Inc.; Mead Reco, Inc.; Mead SA, Inc.; Mead Supplyco, Inc.; Mead Timber Co.; Pulp Asia Limited; Zephyer Properties, Inc.; Mead Packaging Proprietary Ltd. (Australia); Bermead Insurance Company Ltd. (Bermuda); Mead Packaging (Canada) Ltd.; Mead Holdings S.A. (France); Mead-Emballage S.A. (France; 99.53%); Mead Europe Engineering, S.A.R.L. (France); Mead Reassurance S.A. (France); Mead Packaging Europe, s.a.r.l. (France); Mead Verpackung G.m.b.H. (Germany); Aviocart S.p.A. (Italy); Mead Packaging Korea, Inc.; Productros para Escuela y Oficina, S.A. de C.V. (Mexico); Mead Holdings B.V. (Netherlands); Mead Coated Board Europe B.V. (Netherlands); Mead Verpakking B.V. (Netherlands); Mead Packboard B.V. (Netherlands); Mead Sistemas Embalaje S.A. (Spain); Mead Management Services S.A. (Switzerland); Mead Packaging Ltd. (U.K.).

Principal Divisions: Fine Paper Division; Gilbert Paper; Mead Coated Board Division; Mead Containerboard; Mead Packaging; Mead Publishing Paper; Mead Pulp Sales, Inc.; Mead School & Office Products; Mead Specialty Paper; Zellerbach Division.