<PAGE>
 
================================================================================
                       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, 1996

                                       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:  937-495-6323
     Securities registered pursuant to Section 12(b) of the Act:
    
                                            Name of Each Exchange
     Title of Each Class                     on which Registered
     -------------------                    ---------------------

     Common Shares Without Par Value         New York Stock Exchange
      and Common Share Purchase Rights       Chicago Stock Exchange
                                             Pacific Stock Exchange
                           _________________________

     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 been subject to such
filing requirements for the past 90 days. Yes X  No __.
                           _________________________

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
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 10-K or any amendment to this
Form 10-K. [ ]
                           _________________________

     As of January 24, 1997, the aggregate market value of the voting shares
held by non-affiliates of the Registrant was approximately $3,148,633,552
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 February 25, 1997 was 
52,236,180.

                      DOCUMENTS INCORPORATED BY REFERENCE
     Portions of Registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on April 24, 1997, are incorporated by
reference in Part III; definitive copies of said Proxy Statement were filed with
the Securities and Exchange Commission on March 12, 1997.
================================================================================
<PAGE>
 
                                    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, and distributes paper and other industrial supplies.

     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 (937) 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 pages 50-52.

                                     Paper

     Mead's Fine Paper division manufactures coated and uncoated papers for
commercial printing; form bond and carbonless paper and papers for conversion by
others into business forms; cut-size copier paper; 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 and Mead Oxford
Corporation, wholly-owned subsidiaries, sell 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 Paper division manufactures cotton content and
premium sulfite paper and premium recycled papers, including bond, banknote,
text and cover, and papers for ink jet and laser printers, and sells these
products principally through paper merchants, including merchants owned by Mead,
as well as retail stores.

     Mead's Specialty Paper division manufactures and sells, primarily through
its own sales force, decorative laminating papers. This division also
manufactures and sells specialty papers used in industrial applications. The
division's principal customers include manufacturers that serve the building
materials, automotive and furniture industries.

     The Mead Pulp Sales division sells market pulp worldwide manufactured by
Northwood Pulp and Timber Ltd. of Canada, Great Lakes Pulp and Fibre, Inc. in
Menominee, Michigan, and Mead Publishing Paper of Escanaba, Michigan and
Rumford, Maine. Mead Pulp Sales also represents MODO Paper AB, of Sweden, and
Votorantim Celulose e Papel, of Brazil, for the sale of pulp in North America.
Mead Pulp Sales also sells through its affiliates International Fibre Sales in
Europe and Pulp Asia Ltd. in Japan, and through independent agents in all major
pulp consuming areas of the world.

                                       1
<PAGE>
 
                            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, 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.

     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 corrugated 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 1,650 short ton-per-day mill in Prince George, British Columbia. The
principal markets for its pulp are in North America, western Europe and the Far
East. Lumber and plywood products are also produced at Northwood's five sawmills
and its plywood plant in British Columbia. Northwood has the annual capacity to
produce over one billion board feet of lumber and 170 million square feet of
plywood (3/8-inch basis). Northwood's solid wood products operations provide
about 760,000 tons (Metric 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 ("Panelboard"), a partnership owned 50% by
Mead and 50% by Noranda located in Bemidji, Minnesota, has the annual capacity
to produce approximately 370 million square feet of oriented structural board
("OSB") (3/8-inch basis).

     All of the wood products produced by Northwood and Panelboard are
sold through a subsidiary of Noranda primarily in North America with
approximately 10% sold to export markets. All of the market pulp produced by
Northwood is sold by Mead Pulp Sales. 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.

                                       2
<PAGE>
 
                                  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 (including Rumford, Maine for two months) in 1996
was approximately 7,500,000 tons, of which approximately 19% was obtained from
timberlands owned or leased by Mead. The annual wood requirement for Mead's
wholly-owned operations (including Rumford, Maine for twelve months) expected in
1997 will be approximately 9,100,000 tons, of which approximately 22% will be
obtained from timberlands owned or leased by Mead.

     The approximate annual requirement of wood for both Northwood and
Panelboard is 6,100,000 tons. At Northwood, the majority of wood 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. At Panelboard, wood is obtained from both private
landowners and various governmental sources (federal, state and county).
 
     As of December 31, 1996, Mead owned or controlled approximately 2,050,000
acres of timberlands in the United States. Approximately 107,000 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 division, is a national distributor of a
full line of printing papers, packaging materials and equipment, and industrial
supplies. These products are distributed through a network of wholesale
locations and printer-supply centers. 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 is done in six
facilities and distributed from seven distribution centers in the United States.
Internationally, one manufacturing facility and distribution center is located
in Canada and one manufacturing facility is located in Mexico.

                       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.

                                       3
<PAGE>
 
                                  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 Specialty division
competes primarily with North American and European based decorative laminating
papermakers. The Gilbert division competes with a number of other manufacturers
of premium cotton, sulfite and recycled papers. The Coated Board division
competes with other boxboard producers, including manufacturers of all types of
coated recycled boxboard, coated solid bleached sulfate and folding boxboard.
The Packaging division competes with a number of carton suppliers and machine
manufacturers and other global systems-based multiple packaging suppliers, as
well as suppliers of other non-boxboard packaging systems. The Containerboard
division competes primarily with container producers, and corrugating and medium
producers in several market areas in the United States. 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.

                          Employee and Labor Relations

     Mead employs approximately 14,100 persons within the United States and
2,000 persons outside the United States. Approximately 7,800 are production,
maintenance and clerical employees represented by labor unions. Mead's 50% owned
company, Northwood, employs approximately 2,500 persons. Mead and Northwood
together have approximately 50 labor agreements currently in force of which
approximately one-fifth are subject to renegotiation each year.

     Mead's employee relation policies are based on mutual confidence and trust.
All Mead labor contract negotiations during 1996 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," "Z," "Montag," "M and Design," "Trans/Rite," "Trans/Tab,"
"Duodozen," "Cluster-Pak," "Aria," "Cambridge," "Apex," "Info," "Trapper,"
"Trapper Keeper," "Neatbook," "Gilbert," "Oxford," "Gilcrest," "OPAS,"
"Signature," "CNK," "Five Star," "First Gear," "Neu-Tech," "Esse," "Organizer,"
"Spiral," "sig-NATURE," "Management Series," "Duraline," "Appli," "Duoply," and
many others. Mead also has a great number and variety of patents, patent rights
and licenses 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

                                       4
<PAGE>
 
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, 1992 - December 31, 1996), Mead
(including its share of Northwood expenditures) constructed air and water
pollution control and other environmental facilities at a cost of approximately
$117 million. Significant environmental expenditures in the future are
anticipated to include long-term projects for maintenance and upgrade of
wastewater treatment plants, air emission controls and the construction of solid
waste disposal facilities. 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 $153 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 1997. 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
("AF&PA") has estimated these regulations, if implemented as proposed, 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. However, Mead does not expect these regulations to be enacted as
presently proposed. Mead has included in its capital spending plans amounts
necessary to comply with the regulations in the form Mead expects them to be
enacted.

     The USEPA issued proposed regulations implementing the Federal Great Lakes
Critical Programs Act of 1990 in 1993, 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 Great
Lakes Initiative or "GLI"). The USEPA issued final regulations in 1995 which
establish minimum water quality criteria, anti-degradation policies and
implementation procedures. In 1995, several parties filed lawsuits challenging
the final regulations, including the AF&PA. Current industry estimates indicate
that compliance with these regulations may cost affected forest products
companies, in the aggregate, over $800 million. While the lawsuits remain
pending, various Great Lake states, including Michigan, have proceeded to
propose or adopt state regulations purporting to meet the requirements of the
federal GLI regulations. The Michigan regulations are substantially similar to
the federal regulations, and Mead has 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 because Mead believes they are unnecessary and most are
unreasonable. The State of Ohio has determined at this time that it will not
apply GLI regulations to facilities discharging into the Ohio River Basin.
Mead's Chillicothe, Ohio facility discharges into the Ohio River Basin.

     Mead believes that most of the earlier expenditures for environmental
control have been beneficial. However, Mead and the trade associations of which
Mead is a member have challenged and are continuing to challenge in

                                       5
<PAGE>
 
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.

     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 dioxin concerns will have a material adverse
effect on the Company.

     Mead has been notified by the USEPA or by various state or local
governments that it may be liable under federal environmental laws or under
applicable state or local laws with respect to the cleanup of hazardous
substances at 6 sites currently operated or used by Mead. Mead is also currently
named as a potentially responsible party ("PRP"), or has received third party
requests for contribution under federal, state or local laws with respect to at
least 12 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 but for which Mead has not received any
notice or claim. Mead's potential liability for all these sites will depend upon
several factors, including the extent of contamination, the method of
remediation, insurance coverage and contribution by other PRPs. Although the
costs that Mead may be required to pay for remediation of all these owned and
unowned sites are not certain at this time, Mead has established reserves of
approximately $39 million relating to current environmental litigation and
proceedings which it believes are probable and reasonably estimable. These
reserves were established after considering the number of other PRPs, their
ability to pay their portion of the costs, the volumetric amount, if any, of
Mead's contribution, and other factors. Expenses to be charged to this reserve
are not included in the anticipated capital expenditures for the next five years
discussed above. Mead believes that it is reasonably possible that costs
associated with these owned and unowned sites may exceed current reserves by
amounts that may prove insignificant or by as much as approximately $50 million.
This estimate of the range of reasonably possible additional costs is less
certain than the estimate upon which reserves are based.

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 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 49. For additional information concerning Mead's timberlands and
properties of affiliates, see Part 1, Item 1. "Business".

     Mead's corporate headquarters are in Dayton, Ohio and its principal
facilities are at the locations listed below:

                                       6
<PAGE>
 
<TABLE>
<CAPTION>
 
 
Business Unit       Facility Locations         Principal Use
-------------       -------------------        -------------                  
<S>                 <C>                        <C>
Fine Paper          Chillicothe, Ohio          Pulp mill, coated, uncoated and
                                               carbonless paper mill

                    Indianapolis, Indiana      Carbonless coating facility
 
Publishing Paper    Escanaba, Michigan         Pulp mill, coated paper mill
                    Rumford, Maine             Pulp mill, coated, uncoated
                                               and specialty paper mill
 
Gilbert Paper       Menasha, Wisconsin         Cotton and recycled content
                                               and specialty paper mill

Specialty Paper     South Lee, Massachusetts   Decorative laminating and
                                               specialty paper mill
 
Packaging           Anniston, Alabama          Paperboard packaging, multiple
                    Lanett, Alabama            packaging systems for beverage
                    Atlanta, Georgia           and food, packaging machinery
                    Buena Park, California     manufacturing or repair
                    Chicago, Illinois          facilities and ink manufacture
                    Ajax, Ontario, Canada
                    Chateauroux, France
                    Trento, Italy
                    Roosendaal, The Netherlands
                    Trier-Ehrang, Germany
                    Bristol, England
                    Shimada, Japan
                    Bilbao, Spain
 
Containerboard      8 plants within the United Corrugated container
                    States in midwest and      manufacturing facilities
                    southern regions
 
                    Stevenson, Alabama         Corrugating medium mill

Coated Board        Phenix City, Alabama       Coated paperboard mill,
                    Venlo, The Netherlands     sheeting facilities and sawmills 
                    Cottonton, Alabama            
                    Greenville, Georgia
 
School and Office   6 manufacturing and 7      Home, office and school products
Products            distribution locations     manufacturing and distribution   
                    throughout the United      facilities
                    States, one manufacturing     
                    and distribution location
                    in Toronto, Ontario, Canada
                    and one manufacturing
                    location in Nuevo Laredo,
                    Mexico
</TABLE>

                                       7
<PAGE>
 
<TABLE>
<CAPTION>

<S>                 <C>                        <C>
Zellerbach          38 wholesale locations     Paper, packaging equipment and
                    throughout the United      supplies distribution facilities
                    States; one converting
                    operation; 41 printer-
                    supply centers; and 5
                    third party warehouses
</TABLE>

                                       8
<PAGE>
 
Item 3. Legal Proceedings

     In September 1993 Mead signed a Consent Order with USEPA under Section
3008(h) of the Resource Conservation and Recovery Act with respect to a landfill
(the Storage Depot Site) owned and operated by Mead Fine Paper division's
Chillicothe, Ohio, mill. Pursuant to the terms of that Order, Mead has performed
investigative and remedial work designed to control releases of hazardous
substances from the Site. USEPA has approved final reports for each of the tasks
required under the Order, and Mead is awaiting USEPA approval of a long-term
operation and monitoring program for the Site. Early in 1996, Mead and the U.S.
Navy reached an agreement under which the U.S. Navy agreed to pay approximately
$1.1 million of past costs incurred and 60% of costs to be incurred under the
Order with USEPA, including future operation and monitoring costs for 25 years.
In May 1996, Mead received a notice from USEPA alleging that Mead was not
operating and maintaining the groundwater treatment system at the Site in
accordance with the terms of the Order and demanding stipulated penalties of
approximately $250,000. Mead denied the allegations and invoked the dispute
resolution provisions of the Order. Mead asserted that the groundwater treatment
system was down for extraordinary repairs and maintenance and that the non-
operation of the system did not constitute a violation of the Order. In January
1997, the penalty dispute was resolved in accordance with the terms of the
Order, and Mead was ordered to pay a penalty of $29,000.

     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 Mead
is liable to Beazer for contribution for past and future environmental
remediation costs to be incurred by Beazer as a result of any corrective
measures required at the Woodward Facility located in Dolomite, Alabama. Mead
acquired the Woodward Facility by merger in 1968, and in 1974 sold it to
Koppers, Inc., which was later acquired by Beazer. Proceedings continue in court
regarding Beazer's contribution claim. Although the extent of contamination and
the method of remediation to be required are not known at this time, based on
information currently available to Mead, after considering established reserves,
rights to contribution and potential insurance coverage, Mead does not expect
this proceeding will have a material adverse effect on the financial condition
or results of operations of the Company.

     The Tennessee Department of Environment and Conservation ("TDEC") advised
Mead in September 1991 that a closed coke manufacturing facility located in
Chattanooga, Tennessee (the "Coke Plant Site") 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 June 1994 Mead agreed
with TDEC to commence a removal action at the closed coke plant site to permit
demolition of structures, removal of asbestos, control of surface water ponding
and repairs to fencing. The removal action was completed by December 1994. In
August 1993, the federal Agency for Toxic Substances and Disease Registry
("ATSDR") issued a health advisory for a site identified as the Tennessee
Products Site, which included the coke manufacturing facility formerly owned by
Mead. In January 1994, the USEPA proposed adding the Tennessee Products Site to
the National Priorities List ("NPL"). Mead objected to the proposed listing on
several grounds, but in particular because of the inclusion of the coke facility
with non-contiguous, geographically distinct properties in the area, including
the Chattanooga Creek. In September 1995, the USEPA promulgated a final listing
of the Tennessee Products Site. In December 1995, Mead filed a notice of appeal
in the Court of Appeals for the District of Columbia challenging the USEPA's
listing action. In November 1996, the Court of Appeals ruled in Mead's favor and
vacated the inclusion of the Coke Plant Site as part of the Tennessee Products
Site. Jurisdiction over the coke plant property reverted back to the State of
Tennessee. 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 in 1964, and Mead

                                       9
<PAGE>
 
sold the coke plant site to third parties in 1974. Although the extent of
contamination and the possible methods of remediation are not known at this
time, based on information currently available to Mead, after considering
established reserves, rights to contribution and potential insurance coverage,
Mead does not believe that this proceeding will have a material adverse effect
on the financial condition or results of operations of the Company.

     In June 1996, USEPA announced plans to undertake an interim removal action
involving the excavation and treatment/disposal of bulk tar deposits located in
or near the Chattanooga Creek and certain waste piles located near the Coke
Plant Site. Costs of the proposed removal action were estimated by USEPA to be
approximately $5.1MM. In July 1996, several PRPs, including Mead and the U.S.
Department of Defense, received special notice letters from USEPA advising them
of their potential liability for the removal action. In December 1996, USEPA
issued Unilateral Administrative Orders under Section 106 of CERCLA to Mead and
two other private parties. In January 1997, Mead indicated its intent to not
comply with the 106 Order. Preliminary analyses by USEPA have indicated that
dumping in Chattanooga Creek occurred when the coke plant was doubled in size to
meet World War II government requirements. A party who, without sufficient
cause, refuses to comply with an order issued under Section 106 of CERCLA may be
subject to fines of up to $27,500 per day and punitive damages in an amount up
to three times the costs incurred by the USEPA as a result of the failure to
comply with such order. Mead believes, based on its review of the facts and the
law applicable to the matter, including the absence of findings by the USEPA,
that it has sufficient cause for its decision not to comply with the 106 Order.
However, if the USEPA decides to bring an enforcement action against Mead as a
result of its failure to comply with the 106 Order, there can be no assurance as
to the outcome of such action.

     In 1996, Mead received proposed Findings and Orders from Ohio EPA in
connection with various alleged, unrelated air violations at the Mead Fine Paper
mill in Chillicothe, Ohio dating back to 1989. The alleged violations concerned
particulate emissions from a coal-fired boiler in 1989, the alleged absence of a
permit for the facility's chlorine unloading station and the delayed
installation of equipment to control odors. Mead has objected to the Findings
and Orders and is negotiating with the Agency. Mead does not believe that any
such proceeding will have a material adverse effect on the Company.

     Additional information is included in Part I, Item 1, "Business--
Environmental Laws and Regulations," Note L on pages 44-45 and Note P on 
page 50.

     Mead is involved in various other litigation and administrative proceedings
arising in the normal course of business, which, in the opinion of management,
after considering established reserves, 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.

                                      10
<PAGE>

Executive Officers of the Company

     The Executive Officers of Mead as of February 1, 1997, 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:

<TABLE>
<CAPTION>
     Name                   Age              Position and Office
     ----                   ---              -------------------
<S>                         <C>     <C>         

William R. Graber            53     Vice President and Chief Financial Officer
                                    since December 1993; prior to that Vice
                                    President and Treasurer since April 1993;
                                    Treasurer since September 1992; Controller
                                    since April 1991.

Elias M. Karter              56     Executive Vice President since April,
                                    1996; prior to that Vice President,
                                    Operating Officer since July 1994; prior to
                                    that Vice President, Manufacturing &
                                    Technology.

Raymond W. Lane              48     Executive Vice President since April, 1996;
                                    prior to that Vice President, Operating
                                    Officer since July 1994; prior to that
                                    President of Mead School and Office Products
                                    Division.

Steven C. Mason              60     Director; Chairman of the Board and Chief
                                    Executive Officer since May 1992; prior to
                                    that President from December 1994 to April
                                    1996, and Vice Chairman from April 1991 to
                                    May 1992.

Charles J. Mazza             54     Vice President, Human Resources.

Wallace O. Nugent            58     Vice President, Purchasing and Logistics
                                    since January 1993; prior to that Vice
                                    President, Marketing and Supply.

Thomas E. Palmer             57     Vice President, General Counsel and
                                    Secretary since November 1996; prior to that
                                    Vice President and General Counsel since
                                    September 1991.

Jerome F. Tatar              50     Director; President and Chief Operating
                                    Officer since April 1996; prior to that
                                    Vice President, Operating Officer since July
                                    1994; prior to that President of Mead Fine
                                    Paper Division.
</TABLE>

All Executive Officers of Mead are elected annually by the Board of Directors.

                                      11
<PAGE>
 
<TABLE>
<CAPTION>

                                    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
------------------------------
                                         1996                       1995
                                         ----                       ----
                                     High     Low               High      Low
                                     ----     ---               ----      ---
<S>                                <C>      <C>                <C>       <C>

First quarter                      $57.625  $49.000            $55.500  $48.625
Second quarter                      57.625   50.875             59.750   48.625
Third quarter                       61.375   48.500             64.125   57.250
Fourth quarter                      60.375   54.500             59.500   50.500
 
 
DIVIDENDS PAID PER COMMON SHARE
-------------------------------
                                        1996                   1995
                                        ----                   ----    
First quarter                          $ .28                  $ .25
Second quarter                           .30                    .28
Third quarter                            .30                    .28
Fourth quarter                           .30                    .28
                                       -----                  -----
Year                                   $1.18                  $1.09
                                       =====                  =====    
</TABLE>

     The number of Common shareowners of record as of February 25, 1997, was
52,236,180. See Note H on pages 39-40 for information regarding the amount of
retained earnings available for dividends.

                                      12
<PAGE>

<TABLE>
<CAPTION>
 
Item 6. Selected Financial Data
Five-Year Data on Operations, Liquidity, Financial Condition and Capital 
Resources
          (All dollar amounts in millions, except per share amounts)
------------------------------------------------------------------------------------------------
Year Ended December 31                        1996       1995       1994       1993       1992
------------------------------------------------------------------------------------------------ 
<S>                                         <C>        <C>        <C>        <C>        <C> 
Operations:
 Net sales                                  $4,706.5   $5,179.4   $4,557.5   $4,239.0   $4,208.4
 Earnings from continuing operations           189.9      342.5       89.6       95.7       13.7
 Earnings from continuing operations per
   common and common equivalent share           3.57       6.19       1.52       1.61        .23
Liquidity:
 Working capital                               431.6      545.5      806.5      380.3      375.2
 Current ratio                                   1.6        1.7        1.7        1.6        1.6
Assets:
 Property, plant and equipment-net           3,120.4    2,364.1    2,313.9    2,239.6    2,175.1
 Total assets                                4,985.9    4,372.8    4,862.6    4,073.3    3,934.4
Capital:
 Borrowed capital-long-term debt             1,239.7      694.8      957.7    1,360.0    1,317.5
 Equity capital                              2,246.4    2,160.2    2,182.6    1,578.0    1,495.4
                                            --------   --------   --------   --------   --------
   Total capital                            $3,486.1   $2,855.0   $3,140.3   $2,938.0   $2,812.9
Borrowed capital as a
 percent of total capital                       35.6%      24.3%      30.5%      46.3%      46.8%
Cash dividends per common share             $   1.18   $   1.09   $   1.00   $   1.00   $   1.00
</TABLE>

                                      13
<PAGE>
 
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

                             REVIEW OF OPERATIONS
                             --------------------
OVERVIEW OF 1996

Sales volume increased for many of Mead's major products in 1996, but earnings
from operations did not reach the record level of 1995, as a general weakening
in market demand led to a decline in prices for pulp, paper and containerboard
from the levels reached in the prior year. Price declines were significant for
coated papers, corrugating medium and pulp. Pricing was relatively stable in
specialty papers, carbonless papers and coated paperboard. Mead's mills and
facilities operated well in 1996.

Earnings improved in 1996 over 1995 at Packaging, Specialty Paper, Coated Board
and Gilbert Paper. For 1996, earnings decreased at Publishing Paper,
Containerboard, Fine Paper, Zellerbach, School and Office Products and Mead's
Northwood affiliates.

Sales revenue of $4.707 billion declined from $5.179 billion in 1995 as a result
of lower pricing in many businesses and lower printing paper sales volume in
Mead's distribution business. Pricing had strengthened in 1994 and 1995,
especially for pulp, coated paper, corrugating medium and coated paperboard.
However, in the fourth quarter of 1995, prices for many grades started to weaken
as market demand softened. Prices continued to decline through much of 1996.

Within Mead's paper operations, sales volume of coated papers produced at
Escanaba, Michigan, and Chillicothe, Ohio, increased significantly during 1996
as customer orders increased during the second half of the year. Sales volume of
carbonless and specialty papers also increased in 1996. Lower prices for coated
papers, however, led to lower earnings for the paper segment. In the fourth
quarter of 1996, Mead acquired an integrated coated paper mill in Rumford,
Maine, which strengthened the company's position as a leading producer of a full
range of coated papers, and enhanced its position in specialty papers. The
acquisition included 667,000 acres of timberland which increased Mead's
integrated fiber supply.

At the Containerboard division, a steep drop in selling prices during the year
led to a significant decline in operating results from 1995, despite favorable
operating performance and increased sales volume of medium. The division
completed construction and started up a second paperboard machine in the third
quarter of 1996 ahead of schedule. Sales and earnings at Mead Packaging
continued to grow worldwide. At Coated Board, operating efficiencies led to
increased production, and earnings improved, despite a slight decline in sales
volume.

Sales and earnings for Mead's distribution business, Zellerbach, declined as
market weakness, especially in the commercial printing market, led to lower
pricing and sales volume. For School and Office Products, sales volume continued
to improve, although earnings were slightly below 1995's record level on lower
prices for paper-based products.

                                      14
<PAGE>
 
<TABLE>
<CAPTION>

Earnings Per Share Analysis
-----------------------------------------------------------------
                                      1996      1995      1994
                                    ---------  -------  ---------
<S>                                 <C>        <C>      <C>
 
Continuing operations
 before significant items            $3.57     $6.19    $ 2.29
Significant items                                         (.77)
                                     -----     -----    ------
Continuing operations                 3.57      6.19      1.52



Discontinued operations                .10       .14      9.87
Extraordinary item                                        (.18)
                                     -----     -----    ------
Net earnings                         $3.67     $6.33    $11.21
                                     =====     =====    ======

-----------------------------------------------------------------
</TABLE>

In 1996, the company realized a gain of $5.4 million ($.10 per share) resulting
from the sale of a previously discontinued business, Mead Imaging. In 1996, the
company also completed the sale of its previously discontinued reinsurance
business with no impact on earnings.

In 1995, the company realized a gain of $7.5 million ($.14 per share) resulting
from adjustments related to the sale of its Electronic Publishing segment in
1994. In 1994, the company realized $9.87 per share from discontinued operations
which consisted of a gain on the sale of the Electronic Publishing segment, that
segment's operating earnings through the sale date, adjustments affecting Mead's
reinsurance business and charges related to environmental matters at the
company's discontinued Industrial Manufacturing segment. The extraordinary item
in 1994 of $.18 was for per share losses associated with the prepayment of debt.
The company also recorded significant items totaling $.77 per share. Those items
included charges for the estimated loss from the sale of the Kingsport,
Tennessee, paper mill, facilities consolidations and related severance primarily
at Zellerbach, the negative effect of an unusually large dollar amount of
pension settlement payments and other smaller matters. Also included in
significant items is the positive effect of an amount for Mead's share of
Northwood's earnings due to refunds of countervailing duties on lumber exports
from Canada in prior years.

Depreciation, amortization and depletion of property, plant and equipment
amounted to $203 million in 1996, compared to $191 million in 1995 and $188
million in 1994. Most of the increase in 1996 was a result of the acquisition of
the Rumford mill in November 1996.

                                     PAPER

<TABLE>
<CAPTION>
--------------------------------------------------------------
Segment Summary (in millions)      1996      1995      1994
---------------                  --------  --------  ---------
<S>                              <C>       <C>       <C>
 
Sales                            $1,251.3  $1,243.3  $1,156.8
                                 ========  ========  ========
Earnings before
  significant items
  and income taxes                  193.8     330.8     137.9
                                 --------  --------  -------- 
Significant items                                       (65.9)
Earnings before                                         
  income taxes                   $  193.8  $  330.8  $   72.0
                                 ========  ========  ========
--------------------------------------------------------------
</TABLE>

Sales in Mead's paper segment increased by 1% over 1995 on an 11% increase in
volume as a result of lower selling prices for coated and uncoated papers.
Earnings before income taxes were 41% below 1995 primarily because of lower
prices.

                                      15
<PAGE>
 
Market weakness which began in the second half of 1995 continued through the
first half of 1996 as customers cut back orders and worked down the inventories
they had built during a period of rising paper prices in 1994 and 1995. Weaker
markets led to a sharp decline in selling prices for coated and uncoated papers.
The average price for coated publishing paper was about 20% lower in 1996 than
in 1995. The average price for other coated paper was about 10% lower in 1996
than in 1995. By mid-year 1996, customer order levels began to improve, and
sales volume strengthened. Prices, however, continued to weaken through the end
of the year. European coated paper capacity is expected to grow at a faster rate
than domestic capacity in 1997 and 1998, and the impact of that increase on the
U.S. market is uncertain. Demand and prices for carbonless and specialty grades
remained relatively stable in 1996.

Mead's paper mills operated well in 1996. Mill inventories increased during much
of the year but as orders strengthened and shipments increased in the second
half of the year, inventories began to decline late in the year. For the full
year 1996, both production and sales volume were ahead of 1995.

In 1995, paper segment sales improved 7% over 1994. Earnings before significant
items and income taxes improved 140% as a result of higher selling prices and
productivity gains from cost reductions and improved product mix.

Mead Publishing Paper
---------------------

The Publishing Paper division produces coated papers for book and magazine
publishers and catalog and commercial printers.

Division sales revenue declined, and earnings were much lower in 1996 than 1995
as a result of lower selling prices for coated paper. Despite the general market
weakness that was reflected in lower pricing, both mill production and sales
volume reached record levels. Inventories at the division's Escanaba, Michigan,
publishing paper mill rose during the first half of the year. The mill took
market-related downtime in the second and third quarters of the year. As
customer order rates improved in the second half of the year, inventories
declined, ending the year about 15% below where they began.

In November 1996, Mead acquired an integrated coated paper mill in Rumford,
Maine, including 600,000 acres of timberland. The mill adds about 600,000 tons
of annual capacity, primarily coated paper. The mill also produces high-value
specialty papers and some uncoated commodity papers. The purchase strengthens
Mead's position as a leading producer of a full range of coated papers and is
expected to result in increased efficiencies in pulp usage, manufacturing,
distribution and service. The mill will be managed as part of the Publishing
Paper division.

In 1995, the division's sales increased over 1994 and earnings improved
significantly as a result of a rapid rise in coated paper prices and strong
volume during much of the year.

Mead Fine Paper
---------------

Mead Fine Paper produces coated and uncoated papers for business and specialty
uses and is a leading producer of carbonless copy papers.

Division sales increased over 1995 as a result of increased sales volume of
coated, uncoated and carbonless papers. Earnings were below 1995, however, as
weaker overall market demand, which began in the second half of 1995, continued
during most of the year and led to lower selling prices for coated and uncoated
papers. The effect on earnings of lower selling prices was partially offset by
production efficiencies, improved sales mix and cost

                                      16
<PAGE>
 
reductions. Paper mill production increased in 1996 for all grades. Mill
inventories increased during the first part of the year but were reduced in the
second half. The enhanced coated paper grade line introduced in 1995 was well
received in the marketplace in 1996. The grade line introduction was the result
of a $110 million mill upgrade. Coated paper shipments in 1996 were
significantly ahead of 1995 levels. Also during the year, distribution through
paper merchant channels was expanded in the western United States.

In 1995, sales increased over 1994, and operating earnings improved as a result
of higher selling prices for paper and continued productivity improvements,
primarily in cost control at the Chillicothe, Ohio, mill. In May of 1995, Mead
completed the sale of the division's mill in Kingsport, Tennessee.

Mead Specialty Paper
--------------------

Mead Specialty Paper manufactures a variety of decorative papers for both high
and low pressure laminates used in furniture, flooring, countertops and
cabinets, and specialty grades used in various industrial applications,
including automotive.

The division's sales and earnings improved in 1996 over 1995, driven by a
stronger sales mix, new product introductions and productivity improvements.
Overall production and sales volumes were up slightly from 1995. Costs remained
stable during the year as costs for purchased pulp moderated from high levels in
1995. Product growth continued in wear-resistant overlay papers used in flooring
applications.

Demand for decorative papers, which had weakened in the second half of 1995,
began to strengthen in mid-1996 as housing and remodeling markets improved.
Automotive markets remained strong throughout 1996.

In 1995, earnings improved over 1994, based on higher selling prices, a strong
sales mix and productivity improvements.

Gilbert Paper
-------------

The Gilbert Paper division produces high-quality communications papers,
including cotton-content bonds, specialty text and cover papers and papers for
ink-jet and laser printers.

Sales increased over 1995 on higher sales volume, despite lower average selling
prices. Earnings were up slightly over 1995 as a result of higher sales volume
and lower costs for purchased wood pulp. Sales volume growth was driven by the
continued increase in retail sales of ink-jet and laser printing papers which
began in 1995, reflecting growing demand from small businesses and home offices.
During the year the division introduced a product line aimed at the growing
market for mid-priced text and cover papers, upgraded three product lines and
began construction of a converting and distribution facility to be completed in
the first half of 1997.

In 1995, sales increased over 1994 as a result of higher selling prices and
increased volume, but earnings declined slightly on higher costs for purchased
pulp and expenses related to capital improvements and market growth strategies.

                                      17
<PAGE>

<TABLE>
<CAPTION>

                            PACKAGING AND PAPERBOARD

-------------------------------------------------------------
 
Segment Summary (in millions)      1996      1995      1994
---------------                  --------  --------  --------
<S>                              <C>       <C>       <C>
 
Sales                            $1,371.4  $1,428.8  $1,254.5
                                 ========  ========  ========
Earnings before          
  significant items and     
  income taxes                      138.6     184.9     130.7
Significant items                                        (6.9)
                                 --------  --------  --------
Earnings before          
  income taxes                   $  138.6  $  184.9  $  123.8
                                 ========  ========  ========
--------------------------------------------------------------
</TABLE>
Sales for the Packaging and Paperboard segment decreased 4% in 1996 despite 7%
higher sales volume. Earnings declined as a result of much lower selling prices
for corrugating medium. Near the end of 1995, prices for medium began to decline
from peak levels, falling sharply in 1996 following an increase in industry
capacity and a weakening in demand for corrugated containers. New U.S.
containerboard capacity is expected to grow at a more moderate rate in the next
two years than it did over the last several years. Market prices for medium
averaged almost 45% lower in 1996 than in 1995, and prices for containers
declined 10%.

1995 sales increased over 1994, and earnings improved on the strength of higher
prices for both corrugating medium and coated paperboard as well as productivity
improvements.

Mead Coated Board
-----------------

Mead Coated Board manufactures coated unbleached kraft paperboard for use in
multiple beverage packaging and folding cartons. Customers include folding
carton manufacturers in North America and Europe, and Mead Packaging's worldwide
business.

Sales for the division were up slightly from 1995. Earnings improved slightly
from the prior year, as lower sales volume of paperboard was offset by cost
reductions and production efficiencies and higher sales volume and prices at the
division's sawmill operations. Sales of coated paperboard to Mead Packaging for
multiple beverage packaging increased during the year. Growth continued in sales
and earnings from coated paperboard sold to European folding carton
manufacturers. In the North American folding carton market, weak demand which
started in the fourth quarter of 1995 continued into 1996 and resulted in lower
sales volume and a decline in selling prices during the second half of the year.
In the division's sawmill operations, results improved in 1996 as sawlog costs
declined and a strengthening in the housing market led to an increase in sales
volume and selling prices for wood products.

Production at the division's Mahrt mill in Alabama continued to increase in
1996, moving up 3% from 1995. Inventories increased during the year, in part
because of a decline in sales volume, and also in preparation for a scheduled
shutdown and rebuild of the mill's #1 paperboard machine in 1997. The machine
rebuild includes extensive quality improvements and will increase machine
capacity by 35,000 tons annually beginning in 1998. The rebuild is expected to
be completed in mid-1997. During 1996, the rebuild of the mill's #2 paperboard
machine was completed. Both rebuilds are part of a $60 million capital
investment program begun in 1995 to improve quality.

                                      18
<PAGE>
 
     In 1995, division earnings improved over 1994 as a result of higher selling
     prices for paperboard as well as productivity improvements that included
     cost reductions, higher production volume and favorable sales mix.

     Mead Packaging
     --------------

     Mead Packaging is a leading worldwide supplier of multiple beverage
     packaging and packaging systems. It also provides multiple packaging for
     food and other products. Customers include large and small brewers, soft
     drink bottlers, and food and other consumer products companies.

     Earnings improved over 1995 on increased sales volume, cost reductions and
     productivity improvements from increased efficiencies in converting
     operations. Selling prices for beverage cartons improved modestly overall,
     but varied by market. Sales volume increased worldwide as a result of
     strong demand in the North American market and the placement of new
     packaging systems in Europe, South America, Asia and Australia.
     International sales and earnings were ahead of 1995. During 1996, the
     division consolidated some North American converting operations. It
     completed construction and began operation of a new printing and converting
     facility in Lanett, Alabama, closed a converting facility in Fairless
     Hills, Pennsylvania, and announced the planned closing of another
     converting facility in Godfrey, Illinois.

     In 1995, earnings improved over 1994 on increased sales volume and
     productivity improvements that resulted from cost reductions in converting
     operations.

     Mead Containerboard
     -------------------

     Mead Containerboard produces corrugating medium used in shipping containers
     and operates eight corrugated container plants.

     Sales and earnings declined significantly from 1995 as market weakness led
     to much lower selling prices for corrugating medium and a decline in prices
     and sales volume of shipping containers. Despite a slow recovery in demand
     for containerboard in the second half of the year, selling prices for
     medium remained depressed through the end of 1996.

     During 1996, the division completed construction and started up a new
     paperboard machine at its Stevenson, Alabama, mill for the production of
     corrugating medium. The #2 paperboard machine, budgeted at $185 million and
     scheduled for startup in the first quarter of 1997, began operation near
     the end of the third quarter of 1996 and was completed for $176 million. As
     a result of an early and efficient startup and increased production from
     the #1 machine, overall mill production and sales volume increased
     significantly in 1996. Production and sales volumes at Mead's corrugated
     container plants were below 1995 levels.

     In June 1996, Mead announced a capital investment program of $224 million
     to expand the capacity of the new corrugating medium machine and to upgrade
     the environmental systems at the mill. This second phase of construction
     will add virgin pulp-making capabilities, a wood fuel boiler and additional
     dryers to the new machine. It will increase annual capacity of the #2
     machine from 225,000 tons to 390,000 tons and replace the mill's chemical
     recovery system. Completion of the second phase of construction is expected
     in 1999.

     In 1995, the division's sales and earnings increased significantly over
     1994 as a result of strong market demand and higher selling prices. Markets
     which had been depressed in 1993, improved significantly in 1994 and the
     first half of 1995 leading to improved prices for medium and containers.


                                       19
<PAGE>

 
                  DISTRIBUTION AND SCHOOL AND OFFICE PRODUCTS
<TABLE>
<CAPTION>
--------------------------------------------------------------
Segment Summary (in millions)      1996       1995       1994
                                 --------   --------   --------
<S>                              <C>        <C>        <C>
 
         Sales                   $2,083.8   $2,507.3   $2,146.2
                                 ========   ========   ========
         Earnings before
           significant items and
           income taxes              69.3       77.3       37.8
         Significant items                                (17.3)
                                 --------   --------   -------- 
         Earnings before
           taxes                 $   69.3   $   77.3   $   20.5
                                 ========   ========   ========
---------------------------------------------------------------
</TABLE>

     Sales decreased 17% in 1996 in the Distribution and School and Office
     Products segment on lower prices and volume in the distribution business.
     Earnings decreased 10% for the segment as a result of declining sales at
     Zellerbach, Mead's distribution business, and operating results in the
     School and Office Products division that were slightly below last year's
     record level. In 1995, sales and earnings increased over 1994 as a result
     of strong markets and improved operations.

     Zellerbach
     ----------

     Zellerbach is a sales and marketing organization distributing value-added
     solutions and services for business through its three units: printing
     papers; packaging systems including equipment and supplies; and
     industrial/commercial supplies.

     Sales revenue declined from 1995 and 1994 levels as a result of declines in
     prices in all three business units, particularly printing paper. Overall
     prices for printing paper declined 15%, with prices for uncoated paper down
     36% from the peak in 1995. At the end of 1996, printing paper prices
     remained at low levels. In 1996, sales volume declined about 10% in the
     three business units as a result of weaker market demand and the strategic
     refocusing of the customer base.

     Operating earnings decreased from 1995 as a result of lower prices and
     volume, though margin rates improved as a result of lower product costs.
     1996 operating earnings were above the 1994 level. During 1996, the
     division continued to improve its processes and procedures in an effort to
     increase operating efficiency and the organization's effectiveness in
     serving customers.

     In 1995, sales revenue increased over 1994 and operating earnings improved
     significantly as a result of stronger markets, much higher selling prices
     for printing papers and reduced operating expenses through operating
     improvements and facility consolidations.


     Mead School and Office Products
     -------------------------------

     Mead's School and Office Products division is a leading converter and
     distributor of paper-based school supplies. It also provides stationery
     products for home and office use and is the industry leader in fashion and
     product design.

     Division sales and earnings declined slightly from the record level of
     1995, despite somewhat higher sales volume, as a result of lower selling
     prices for paper-based products. Sales volume growth in the Canadian market
     continued through Hilroy, the leading converter of paper-based school and
     office products in Canada which Mead acquired in 1994. In 1995, division
     sales and


                                       20
<PAGE>
 

     earnings increased over 1994 as a result of higher selling prices,
     continued productivity improvement, an improved sales mix of value-added
     products and the additional sales of Hilroy.

     The growth in 1996 of value-added products was driven by the Five Star/R/
     and Five Star/R/ First Gear/R/ lines. Strong plant operating performance
     also contributed to productivity improvements in 1996.


     INVESTEES
     ---------

     Mead's primary investees are Northwood Forest Industries Limited, a large
     producer of northern bleached softwood kraft (NBSK) pulp and solid wood
     products in British Columbia, Canada, and Northwood Panelboard Company, an
     oriented structural board (OSB) mill in 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. Sales of wood products,
     including lumber, plywood, and OSB, are managed by Noranda Forest Sales
     Inc. Additionally, as part of the purchase of the Rumford, Maine, paper
     mill, Mead acquired a 30% ownership interest in a limited partnership which
     operates the cogeneration facility located at the mill.

     1996 sales of the Northwood companies were down 16% from 1995 as
     significantly lower prices for pulp, lower sales volume for pulp and lower
     OSB prices were only partially offset by stronger lumber prices. Mead's
     share of all investees' earnings in 1996 of $4.3 million was well below
     1995 earnings of $39.0 million. This decrease in earnings was due primarily
     to lower pulp prices and reduced operating performance in pulp as a result
     of lower production and market-related downtime. Mead's share of 1994
     earnings was $59.8 million which included refunds of lumber export duties
     related to prior years.

     In the first half of 1996, worldwide demand for chemical paper-grade market
     pulp declined 3% from the 1995 level as a result of a major reduction in
     customer paper inventories and lower paper production. Northwood's NBSK
     pulp list prices, which peaked in the domestic market at $985 per metric
     ton (MT) in September of 1995, fell rapidly during the first quarter of
     1996, bottoming out in April at $520/MT. Prices remained weak for the
     balance of the year, ending marginally higher at $580/MT. Overall,
     Northwood's pulp prices declined over 40% from the prior year. Pulp sales
     volume declined 6% from the prior year, as a result of weaker market
     demand.

     Strong markets in housing, repair and remodeling in North America and
     overseas led to increased consumption of solid wood products. Lumber prices
     in 1996 averaged nearly 20% higher than the prior year. Lumber prices
     improved in the second half of 1996 as demand strengthened following an
     accord by the U.S. and Canadian governments which would impose duties on
     lumber shipments to the U.S. above a specific level. The resulting
     uncertainty surrounding supply led to an increase in lumber prices in 1996.
     The effect on production and market prices in 1997 is uncertain. Plywood
     prices were unchanged from the prior year, reflecting strong overseas
     demand and tight supply due to mill closures. Despite strong OSB demand in
     1996, the startup of new mills led to increased supply and lower prices in
     the later part of the year. OSB prices for 1996 averaged over 20% lower
     than 1995.

     SELLING AND ADMINISTRATIVE EXPENSES
     -----------------------------------

     Selling and administrative expenses rose by 2.2% in 1996; the 1995 increase
     over the prior year was 1.6%. As percentages of sales, such expenses were
     12.0% in 1996, 10.7% in 1995 and 11.9% in 1994. General inflation drove
     certain expenses above prior year levels, while sales-related costs were
     lower due to reduced overall sales values. The 1995 dollar increase
     resulted


                                       21
<PAGE>
 
     primarily from general inflationary pressures; however, prices for Mead's
     products rose at a higher rate. Also, expenses for 1994 included
     significant items related to costs associated with facilities
     consolidations and related severance, the negative impact of an unusually
     large dollar amount of pension settlements, and other smaller matters.

     Excluding the effects of these significant items in 1994, selling and
     administrative expenses increased by 6% in 1995. Most of the 1995 increase
     was attributable to higher sales-related expenses at Packaging and School
     and Office Products, and expenses related to new markets at those two
     divisions.

     INTEREST AND DEBT EXPENSE
     -------------------------

     Due primarily to lower average interest rates and higher amounts of
     interest capitalized in 1996, interest and debt expense declined to $58
     million in 1996, from $69 million in 1995. Lower average interest rates and
     debt levels caused the reduction of expense in 1995 from the $101 million
     level in 1994.


                                       22
<PAGE>
 
                               FINANCIAL REVIEW
                               ----------------

     Mead acquired the net assets of a paper mill in Rumford, Maine, and related
     timberlands from Boise Cascade on November 1, 1996. The acquisition, which
     cost $640 million, was funded with available cash and $530 million of
     borrowings.

     During the year, Mead continued its stock buyback activities, repurchasing
     1.1 million shares for $60 million. Stock repurchases amounted to $355
     million (6.7 million shares) in 1995 and $44 million (.9 million shares) in
     1994. The share repurchase and debt reduction program of the past two years
     was a result of cash flows from operations and the cash flows from the late
     1994 sale of Mead's Electronic Publishing segment, Mead Data Central. Cash
     flows from operating and investing activities in 1994 were also
     comparatively high due to the sale. Capital spending in 1996 amounted to
     $433 million, up over spending levels of the past several years.

     At the end of 1996, Mead's total debt aggregated $1.255 billion, up from
     $768 million in 1995 and $974 million in 1994. In 1995, Mead retired $130
     million of 9% debentures and $84 million of other debt. As a percentage of
     total capital, Mead's total debt amounted to 35.8% at the end of 1996,
     26.2% at the end of 1995 and 30.9% at the end of 1994. The ratio may change
     as Mead continues its 1995 announced stock purchase program and, as
     warranted, by borrowings for strategic opportunities. Mead has a $540
     million bank credit agreement which extends until August 2001 and a $400
     million bank credit agreement that expires October 1997.

     Mead has filed a shelf registration with the Securities and Exchange
     Commission that would permit the Company to offer up to $850 million of
     debt securities. Up to $154 million of medium-term notes are currently
     authorized to be issued as a part of that registered debt offering. In
     February 1997 the Company issued $550 million of debt securities, due from
     2002 through 2047, under the registration statement. As a result of the
     issuance of this debt, the Company terminated the $400 million bank credit
     agreement expiring in October 1997.

     At the end of 1996, Mead paid a fixed or capped rate of interest on 41% of
     its debt and paid a floating rate on the remainder. After giving effect to
     the issuance of fixed-rate, long-term debt in February 1997, a 1% change in
     the floating interest rate would result in a $.04 change in annual net
     earnings per share. The estimated market value of Mead's long-term debt,
     excluding capitalized leases, was $10.8 million higher than the book value
     at the end of 1996.

     Working capital at year-end 1996 amounted to $432 million compared with
     1995 and 1994 year-end amounts of $546 million and $807 million,
     respectively. A working capital reduction took place in 1996 as Mead
     continued its stock buyback program and used available cash in payment of
     part of the Rumford acquisition. The 1995 reduction was due to using cash
     to fund the stock buyback program of early 1995. Mead's current ratios at
     the end of 1996, 1995 and 1994 were 1.6, 1.7 and 1.7, respectively.

     Due to several factors including the Rumford acquisition and inventory
     builds in some products in 1996, company inventory levels rose to $509
     million compared with $411 million in 1995 and $382 million in 1994. The
     1995 growth was primarily the result of reduced demand late in the year.
     The replacement value of inventories exceeded their LIFO value by $220
     million at the end of 1996. Adjusted for LIFO, Mead's 1996 current ratio
     would be 1.7 at year end.


                                       23
<PAGE>
 
     CAPITAL SPENDING
     ----------------

     Capital spending in 1996 increased to $433 million from $263 million in
     1995 and $316 million in 1994.  Major projects in 1996 were the completion
     of an expansion project adding a new paperboard machine at Mead's
     Stevenson, Alabama, corrugating medium mill and the rebuilding of a
     paperboard machine at the Mahrt coated paperboard mill in Alabama.  During
     1996, Mead also announced a $224 million project at Stevenson to expand the
     capacity of the newly completed machine and to upgrade environmental
     systems at the mill.  This second phase of construction will add virgin
     pulp-making capabilities, a wood fuel boiler and additional dryers to the
     machine.  This expansion will increase the annual capacity of the new
     machine from 225,000 tons to 390,000 tons and will replace the mill's
     chemical recovery system.  Completion of this phase is expected in 1999.

     Mead expects capital spending in 1997 will be in the range of $450 - $550
     million, including approximately $30 million for timber and timberland.
     Mead expects to fund this spending from 1997 operations, although some
     external borrowing may be needed.


     ENVIRONMENTAL PROCEEDINGS
     -------------------------

     Mead has been notified by the United States Environmental Protection Agency
     ("USEPA") or by various state or local governments that it may be liable
     under federal environmental laws or under applicable state or local laws
     with respect to the cleanup of hazardous substances at six sites currently
     operated or used by Mead. Mead is also currently named a potentially
     responsible party ("PRP"), or has received third-party requests for
     contributions under federal, state or local laws with respect to at least
     12 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 but for which Mead has not received any notice
     or claim. Mead's potential liability for all these sites will depend upon
     several factors, including the extent of contamination, the method of
     remediation, insurance coverage and contribution by other PRPs. Although
     the costs that Mead may be required to pay for remediation of all these
     owned and unowned sites are not certain at this time, Mead has reserves of
     $39 million relating to current environmental litigation and proceedings
     which it believes are probable and reasonably estimable.

     Mead believes that it is reasonably possible that costs associated with
     these sites may exceed current reserves by an amount that could range from
     an insignificant amount to as much as $50 million. The estimate of this
     range is less certain than the estimates upon which reserves are based.

     In 1993, USEPA issued proposed regulations under the Clean Air Act and
     Clean Water Act (the "Cluster Rules") intended to reduce air and water
     discharges of specific substances from U.S. paper and pulp mills. At
     present, these Cluster Rules are in the proposal stage, and are expected to
     be finalized in 1997. In 1995, USEPA issued final regulations implementing
     the Federal Great Lakes Critical Programs Act (the "GLI"). The GLI
     regulations require the Great Lakes states to develop regulatory programs
     for the protection and enhancement of the water quality of the Great Lakes,
     consistent with USEPA's promulgated guidelines. Implementation of the GLI
     regulations by the affected states is expected in 1997. If the Cluster
     Rules are enacted in their present form and if the states implement
     regulations identical to the USEPA regulations under GLI, these regulations
     would significantly increase Mead's capital spending and operating costs
     over the next five years. However, Mead does not expect the Cluster Rules
     to be enacted as proposed in their present form. Mead has included in its
     capital spending plans amounts necessary to comply with the

                                       24
<PAGE>
 
     Cluster Rules in the form that Mead expects to be enacted. Michigan has
     proposed regulations substantially similar to the federal GLI regulations.
     Mead has not included in its capital spending plans amounts necessary to
     comply with these regulations. Ohio has determined at this time to not
     apply its GLI regulations in the Ohio River Basin, including Mead's
     Chillicothe facility.


     EFFECTS OF INFLATION
     
     Inflation remained at a moderate rate during 1996 and is not expected to
     have a significant effect in the near term.


                                       25
<PAGE>
<TABLE>
<CAPTION> 
Item 8.  Financial Statements and Supplementary Data


                              Financial Statements          Page
                                                            ----           
<S>                                                        <C>
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 .......................     33-52
</TABLE>

                              Supplementary Data

Selected quarterly financial data ....................        53


                                       26
<PAGE>
 
                         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, 1996 and 1995, and the related
     statements of earnings, shareowners' equity and cash flows for each of the
     three years in the period ended December 31, 1996. Our audits also included
     the financial statement schedule listed in the Index at Item 14(a)2. These
     financial statements and financial statement schedule are the
     responsibility of the Company's management. Our responsibility is to
     express an opinion on these financial statements and financial statement
     schedule 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, 1996 and 1995, and the results of their
     operations and their cash flows for each of the three years in the period
     ended December 31, 1996, in conformity with generally accepted accounting
     principles. Also, in our opinion, such financial statement schedule, when
     considered in relation to the basic financial statements taken as a whole,
     presents fairly in all material respects the information set forth therein.



     DELOITTE & TOUCHE LLP

     Dayton, Ohio
     January 23, 1997

                                       27
<PAGE>
 
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES

<TABLE>
<CAPTION>
 
STATEMENTS OF EARNINGS
<S>                                               <C>           <C>        <C>
Year Ended December 31                              1996        1995       1994
(All amounts in millions,                                            
 except per share amounts)                                           
                                                                     
Net sales                                        $4,706.5    $5,179.4   $4,557.5
Cost of products sold                             3,803.9     4,104.0    3,805.8
                                                 --------    --------   --------
  Gross profit                                      902.6     1,075.4      751.7
                                                                     
Selling and administrative expenses                 564.0       552.0      543.1
                                                 --------    --------   --------
  Earnings from operations                          338.6       523.4      208.6
                                                                     
Other revenues (expenses) - net (Note J)             13.7        33.7      (55.1)
Interest and debt expense                           (57.7)      (69.4)    (101.1)
                                                 --------    --------   --------
  Earnings from continuing operations before                         
   income taxes                                     294.6       487.7       52.4
                                                                     
Income taxes (Note K)                               109.0       184.2       22.6
                                                 --------    --------   --------
  Earnings from continuing operations before                         
   equity in net earnings of investees              185.6       303.5       29.8
                                                                     
Equity in net earnings of investees (Note D)          4.3        39.0       59.8
                                                 --------    --------   --------
  Earnings from continuing operations               189.9       342.5       89.6
                                                                     
Discontinued operations (Note L)                      5.4         7.5      617.4
                                                 --------    --------   --------
  Earnings before extraordinary item                195.3       350.0      707.0
                                                                     
Extraordinary item (Note F)                                                (11.3)
                                                 --------    --------   --------
  Net earnings                                   $  195.3    $  350.0   $  695.7
                                                 ========    ========   ========
                                                                     
Per common and common equivalent share (Note A):                                 
   Earnings from continuing operations           $   3.57    $   6.19   $   1.52
   Discontinued operations                            .10         .14       9.87
                                                 --------    --------   --------
   Earnings before extraordinary item                3.67        6.33      11.39
   Extraordinary item                                                       (.18)
                                                 --------    --------   --------
   Net earnings                                  $   3.67    $   6.33   $  11.21
                                                 ========    ========   ========
Average common and common equivalent                                 
  shares outstanding                                 53.2        55.3       62.6
                                                 ========    ========   ========
</TABLE>
     See notes to financial statements.

                                      28
<PAGE>
 
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES

<TABLE>
<CAPTION>
 
BALANCE SHEETS
ASSETS
<S>                                                  <C>       <C>  
December 31                                             1996     1995
(All dollar amounts in millions)

Current assets:
  Cash and cash equivalents                          $   20.6  $  292.6
  Accounts receivable, less allowance for   
   doubtful accounts of $28.0 in 1996 and   
   $26.8 in 1995                                        578.2     585.7
  Inventories (Note C)                                  509.3     410.5
  Deferred tax asset (Note K)                            36.6      29.5
  Other current assets                                   44.6      49.0
                                                     --------  --------
     Total current assets                             1,189.3   1,367.3
                                            
Investments and other assets:               
  Investees (Note D)                                    154.9     141.0
  Other assets (Note E)                                 521.3     500.4
                                                     --------  --------
                                                        676.2     641.4

Property, plant and equipment, at cost (Note O):
  Land and land improvements                            154.0     130.5
  Buildings                                             585.7     524.5
  Machinery and equipment                             3,929.7   3,309.3
  Construction in progress                              162.9     120.7
                                                     --------  --------
                                                      4,832.3   4,085.0
  Less accumulated amortization and depreciation     (2,078.1) (1,954.6)
                                                     --------  --------
                                                      2,754.2   2,130.4
  Timber and timberlands, net of timber depletion       366.2     233.7
                                                     --------  --------
    Property, plant and equipment, net                3,120.4   2,364.1
                                                     --------  --------
     Total assets                                    $4,985.9  $4,372.8
                                                     ========  ========
</TABLE>

See notes to financial statements.

                                      29
<PAGE>
 
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES

BALANCE SHEETS

LIABILITIES AND SHAREOWNERS' EQUITY

<TABLE>
<CAPTION>
 
December 31                                         1996       1995
<S>                                               <C>        <C>
(All dollar amounts in millions)
 
Current liabilities:
  Accounts payable:
   Trade                                         $   271.1   $  242.3
   Affiliated companies                               34.9       52.1
   Outstanding checks                                 52.9       86.1
  Accrued wages                                       99.7       96.6
  Taxes, other than income                            46.0       44.1
  Other current liabilities (Note P)                 238.0      227.6
  Current maturities of long-term debt                15.1       73.0
                                                  --------   --------
    Total current liabilities                        757.7      821.8
 
Long-term debt (Note F)                            1,239.7      694.8
 
Commitments and contingent liabilities
 (Notes O and P)
 
Deferred items:
  Income tax liability (Note K)                      514.2      449.7
  Postretirement benefits (Note N)                   126.9      117.0
  Other                                              101.0      129.3
                                                  --------   --------
   Total deferred items                              742.1      696.0
 
Shareowners' equity (Notes H and I):
  Common shares                                      155.5      157.8
  Additional paid-in capital                          13.2
  Foreign currency translation adjustment             (2.4)       (.8)
  Retained earnings                                2,080.1    2,003.2
                                                  --------   --------
                                                   2,246.4    2,160.2
                                                  --------   --------
     Total liabilities and shareowners' equity    $4,985.9   $4,372.8
                                                  ========   ========
</TABLE>

     See notes to financial statements.

                                       30
<PAGE>
 
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF SHAREOWNERS' EQUITY
(All dollar amounts in millions, except per
share amounts; all share amounts in thousands)

<TABLE>
<CAPTION>
                                                             Foreign            Net                  
                         Common Shares       Additional      Currency        Unrealized      
                        ---------------       Paid-In       Translation       Gain on        Retained
                        Shares   Amount       Capital       Adjustment       Securities      Earnings
                        ---------------      ----------     -----------      ----------      --------
<S>                     <C>      <C>         <C>            <C>              <C>             <C> 
December 31, 1993       59,185   $176.5       $ 26.3        $(7.7)            $9.1           $1,373.8
 Net earnings                                                                                   695.7
 Stock option                                                                                
  activity - net           363      1.1         12.8                                         
 Shares issued              28       .1          1.2                                         
 Shares purchased         (927)    (2.8)       (40.3)                                            (1.3)
 Cash dividends -                                                                            
  $1.00 a common                                                                             
  share                                                                                         (59.4)
 Change in net                                                                               
  unrealized gain                                                                            
  on securities                                                               (5.4)          
 Foreign currency                                                                            
  translation                                                                                
  adjustment                                                  2.9                            
                        ------   ------         ----          ---             ----           --------
December 31, 1994       58,649    174.9                      (4.8)             3.7            2,008.8
 Net earnings                                                                                   350.0
 Stock option                                                                                
  activity - net           936      2.8         38.3                                         
 Shares issued               9       .1           .4                                         
 Shares purchased       (6,697)   (20.0)       (38.7)                                          (296.0)
 Cash dividends -                                                                            
  $1.09 a common                                                                             
  share                                                                                         (59.6)
 Change in net                                                                               
  unrealized gain                                                                            
  on securities                                                               (3.7)          
 Foreign currency                                                                            
  translation                                                                                
  adjustment                                                  4.0                            
                        ------   ------        -----          ---             ----           --------
December 31, 1995       52,897    157.8                       (.8)                            2,003.2
 Net earnings                                                                                   195.3
 Stock option                                                                                
  activity - net           334       .9         13.3                                         
 Shares issued               2                    .1                                         
 Shares purchased       (1,097)    (3.2)         (.2)                                           (56.5)
 Cash dividends -                                                                            
  $1.18 a common                                                                             
  share                                                                                         (61.9)
 Foreign currency                                                                            
  translation                                                                                
  adjustment                                                 (1.6)                           
                        ------   ------        -----         -----            ----          ---------
December 31, 1996       52,136   $155.5        $13.2         $(2.4)                          $2,080.1
                        ======   ======        =====         =====            ====          =========
</TABLE> 

See notes to financial statements.

                                      31
<PAGE>
 
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CASH FLOWS
(All dollar amounts in millions)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year Ended December 31                                1996       1995      1994
<S>                                                <C>         <C>       <C>
 
Cash flows from operating activities:
  Net earnings                                     $   195.3   $ 350.0   $  695.7
  Adjustments to reconcile net earnings to
   net cash provided by operating activities:
    Depreciation, amortization and depletion
     of property, plant and equipment                  203.0     190.7      188.1
    Depreciation and amortization of
     other assets                                       47.4      46.0       37.4
    Deferred income taxes                               54.2      89.1       (7.3)
    Investees - earnings and dividends                   7.1     (29.5)     (46.8)
    Discontinued operations                             (5.4)     (7.5)    (617.4)
    Extraordinary item                                                       11.3
    Other                                              (16.2)    (65.1)      47.5
    Change in assets and liabilities, excluding
     effects of acquisitions and dispositions:
      Accounts receivable                               49.0      20.9     (109.4)
      Inventories                                      (25.8)    (52.7)      65.0
      Other current assets                               6.6     (23.4)       3.7
      Accounts payable and accrued liabilities         (49.2)   (325.8)      62.1
  Cash (used in) discontinued operations               (40.5)     (5.8)      (2.9)
                                                   ---------   -------   --------
      Net cash provided by operating
       activities                                      425.5     186.9      327.0
                                                   ---------   -------   --------
Cash flows from investing activities:
  Capital expenditures                                (433.4)   (263.0)    (315.6)
  Additions to equipment rented to others              (40.6)    (56.0)     (49.0)
  Payments for acquired businesses                    (640.4)               (22.0)
  Proceeds from sale of businesses                      19.6      39.8    1,500.0
  Restricted funds                                               461.0     (461.0)
  Other                                                 19.2      20.1      (18.8)
                                                   ---------   -------   --------
      Net cash provided by (used in)
       investing activities                         (1,075.6)    201.9      633.6
                                                   ---------   -------   --------
Cash flows from financing activities:
  Additional borrowings                                561.1       6.0      175.6
  Payments on borrowings                               (75.5)   (213.5)    (572.9)
  Cash dividends paid                                  (61.9)    (59.6)     (59.4)
  Common shares issued                                  14.3      41.6       15.2
  Common shares purchased                              (59.9)   (354.7)     (44.4)
                                                   ---------   -------   --------
      Net cash provided by (used in)
       financing activities                            378.1    (580.2)    (485.9)
                                                   ---------   -------   --------
Increase (decrease) in cash and cash
 equivalents                                          (272.0)   (191.4)     474.7
Cash and cash equivalents at beginning of year         292.6     484.0        9.3
                                                   ---------   -------   --------
 
Cash and cash equivalents at end of year           $    20.6   $ 292.6   $  484.0
                                                   =========   =======   ========
</TABLE>
See notes to financial statements.


                                       32
<PAGE>
 
     THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES

     NOTES TO FINANCIAL STATEMENTS

     YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


     A - Significant Accounting Policies

     CONSOLIDATION.  The accompanying statements include the accounts of the
     Company and its wholly-owned subsidiaries. Investments in investees are
     stated at cost plus the Company's equity in their undistributed net
     earnings since acquisition. All significant intercompany transactions are
     eliminated.

     CASH AND CASH EQUIVALENTS.  The Company considers all highly liquid
     investments with an original maturity of three months or less when
     purchased to be cash equivalents.

     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 10 to 40 years. The Company periodically reviews
     goodwill balances for impairment based on the expected future cash flows of
     the related businesses acquired.

     DEPRECIATION AND DEPLETION.  Depreciation of property, plant and equipment
     and amortization of capital leases and land improvements are 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 and are calculated
     annually.

     INTEREST RATE AND FOREIGN EXCHANGE FINANCIAL INSTRUMENTS.  Amounts
     currently due to or from interest rate swap counterparties are recorded in
     interest expense in the period in which they accrue. The premiums paid to
     purchase interest rate caps, as well as gains or losses on terminated
     interest rate swap and cap agreements, are included in long-term
     liabilities or assets and amortized to interest expense over the shorter of
     the original term of the agreements or the life of the financial
     instruments to which they are matched. Gains or losses on foreign currency
     forward contracts are recognized currently through income and generally
     offset the transaction losses or gains on the foreign currency cash flows
     which they are intended to hedge.

     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 (SFAS) 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.

     ESTIMATES AND ASSUMPTIONS.  The preparation of financial statements in
     conformity with generally accepted accounting principles requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and the reported revenues and expenses
     during a period. Estimates and assumptions are also used in the disclosures
     of contingent assets and liabilities at the date of the financial
     statements. Actual results could differ from those estimates.


                                       33
<PAGE>
 
     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 as primary net earnings per share.

     STOCK OPTIONS.  The Company measures compensation cost for stock options
     issued to employees using the intrinsic value based method of accounting in
     accordance with Accounting Principles Board Opinion No. 25.

     B - Acquisition
  
     In November 1996, the Company acquired an integrated coated paper mill, and
     related accounts receivable and inventories, in Rumford, Maine, 667,000
     acres of timberlands and a partnership interest in a cogeneration facility
     associated with the mill from Boise Cascade Corporation for $640.4 million
     in cash. The mill primarily produces several grades of coated paper and
     some specialty and commodity grades. The acquisition has been accounted for
     as a purchase, and the results of its operations are reflected in the
     accompanying financial statements from the date of acquisition.

     To comply with disclosures required by generally accepted accounting
     principles related to acquisitions, the following unaudited pro forma
     financial information is presented as though the acquisition occurred at
     the beginning of 1995. The expected synergy of this acquisition after
     integration with existing businesses is not permitted to be reflected in
     the pro forma results. Therefore, pro forma results are not indicative of
     results of operations in the future or in the periods presented below.

     The following pro forma information includes adjustments for income taxes,
     interest expense and depreciation and depletion expense to reflect the
     accounting bases used to record the acquisition:
<TABLE>
<CAPTION>
     Year Ended December 31                       1996      1995
<S>                                             <C>       <C>
     (All dollar amounts in millions,
      except per share amounts)
     (Unaudited)
 
     Net sales                                  $5,005.2  $5,705.3
                                                ========  ========
     Earnings from continuing operations        $  176.5  $  400.0
                                                ========  ========
     Net earnings                               $  181.9  $  407.5
                                                ========  ========
     Per common and common equivalent share:
       Earnings from continuing operations      $   3.32  $   7.23
                                                ========  ========
       Net earnings                             $   3.42  $   7.37
                                                ========  ========
</TABLE>


                                       34
<PAGE>
 
<TABLE>
<CAPTION>
     C - Inventories

     December 31                                                  1996     1995
     (All dollar amounts in millions)
     <S>                                                       <C>      <C> 
     Finished and semi-finished products                       $ 337.8  $ 270.4
     Raw materials                                                91.2     86.9
     Stores and supplies                                          80.3     53.2
                                                               -------  -------
                                                               $ 509.3  $ 410.5
                                                               =======  =======
</TABLE>
     For purposes of comparison to non-LIFO companies, inventories valued at
     current replacement cost would have been $220.0 million and $229.3 million
     higher than reported at December 31, 1996 and 1995, respectively.


     D - 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. Additionally, as part of the purchase of the
     Rumford, Maine, paper mill, the Company acquired a 30% ownership interest
     in a limited partnership which operates the cogeneration facility located
     at the mill.

     Total investments in investees are as follows:

<TABLE>
<CAPTION>
     December 31                                                 1996     1995
     (All dollar amounts in millions)
     <S>                                                       <C>      <C> 
     Investments, at cost                                      $ 46.9   $ 25.5
     Foreign currency translation adjustment                    (10.5)   (10.0)
     Equity in undistributed net earnings                       118.5    125.5
                                                               ------   ------ 
     Total investments in investees (equal to
       Mead's share of investees' equity)                      $154.9   $141.0
                                                               ======   ======
     The summarized operating data for all investees 
       is presented in the following table:

 
     Year Ended December 31                             1996     1995     1994
     (All dollar amounts in millions)
     <S>                                              <C>      <C>      <C>  
     Revenues:
       Sales to Mead                                  $ 21.6   $ 45.8   $ 38.6
       Sales to other customers                        647.2    730.2    692.6
                                                      ------   ------   ------
                                                      $668.8   $776.0   $731.2
                                                      ======   ======   ======
     Gross profit                                     $ 49.5   $160.0   $215.6
                                                      ======   ======   ======
     Net earnings                                     $ 14.0   $ 86.8   $131.1
                                                      ======   ======   ======
     Mead's share of net earnings, after
      elimination of intercompany
      transactions and reduction for Mead's
      income taxes on partnership earnings            $  4.3   $ 39.0   $ 59.8
                                                      ======   ======   ======
     Dividends and partnership
      distributions received                          $ 13.4   $ 13.8   $ 18.9
                                                      ======   ======   ======
</TABLE>


                                       35
<PAGE>


     The summarized balance sheet data for all investees is as follows:
<TABLE>
<CAPTION> 
     <S>                                              <C>            <C>
     December 31                                          1996             1995
     (All dollar amounts in millions)

     Current assets                                   $  248.3         $  268.0
     Noncurrent assets                                   801.6            650.0
     Current liabilities                                (127.2)          (122.9)
     Long-term debt and deferred items                  (589.6)          (513.1)
                                                      --------         --------
     Shareholders' equity                             $  333.1         $  282.0
                                                      ========         ========

     E - Other Assets

     December 31                                          1996             1995
     (All dollar amounts in millions)

     Pension asset                                    $  222.5         $  214.8
     Equipment rented to others, at cost
      (net of accumulated depreciation
      of $242.1 in 1996 and $218.3 in 1995)              103.9            106.7
     Goodwill and other intangibles (net of
      accumulated amortization of $40.6 in
      1996 and $37.3 in 1995)                             73.8             77.1
     Cash surrender value of life insurance,
      less policy loans of $35.0 in 1996 and
      $30.4 in 1995                                       75.7             57.9
     Miscellaneous                                        45.4             43.9
                                                      --------         --------
                                                      $  521.3         $  500.4
                                                      ========         ========

     F - Long-Term Debt

     December 31                                          1996             1995
     (All dollar amounts in millions)

     Capital lease obligations                        $  162.7         $  131.4
     Variable-rate Industrial Development Revenue
      Bonds, due from 2001 through 2023, average
      effective rate approximately 3.4%                  163.4            163.4
     8-1/8% debentures, face amount of $150.0,
      due 2023 (effective rate approximately 8.4%)       147.7            147.6
     7-1/8% debentures, face amount of $150.0,
      due 2025 (effective rate approximately 7.4%)       146.9            146.8
     Medium-term notes, 7.3% to 9.8%,
      face amount of $78.5 in 1996 and $86.0
      in 1995, due from 2000 through 2020
      (effective rate approximately 10.0%)                73.8             80.1
     Short-term borrowings to be refinanced,
      average effective rate approximately
      6.2% at December 31                                530.3
     Other                                                14.9             25.5
                                                      --------         --------
                                                      $1,239.7         $  694.8
                                                      ========         ========
</TABLE> 

                                       36
<PAGE>
 
     Capital lease obligations consist primarily of Industrial Revenue Bonds and
     Notes with an average effective rate of approximately 3.9%.  The variable-
     rate Industrial Development Revenue Bonds are supported by letters of
     credit.  The interest rates on the variable-rate tax-exempt bonds closely
     follow the tax-exempt commercial paper rates.

     A loss on extinguishment of debt, net of $6.9 million income tax benefit,
     is included in the 1994 statement of earnings as an extraordinary item and
     represents call premiums on the early retirement of debentures and the
     write-off of the related financing expenses.

     The 8-1/8% and 7-1/8% debentures are callable by the Company at
     approximately 103% beginning in 2003.

     The Company has an unused $540 million bank credit agreement that extends
     until August 2001 and an unused $400 million bank credit agreement that
     expires October 27, 1997.  These agreements contain restrictive covenants
     and require commitment fees in accordance with standard banking practice.
     The Company has classified $530.3 million of short-term borrowings as long-
     term based on management's intent to refinance the short-term debt on a
     long-term basis.  The Company has filed shelf registration statements to
     issue up to $850 million in debt securities and intends to issue a total of
     $550 million of these securities with maturities from 5 years to 50 years
     in February 1997.  The weighted-average interest rate paid on short-term
     borrowings for 1996 was approximately 5.5%.

     Maturities of long-term debt for the next five years, after giving effect
     to the planned refinancing of the short-term borrowings on a long-term
     basis, are $15.1 million in 1997, $2.3 million in 1998, $8.3 million in
     1999, $35.5 million in 2000 and $13.0 million in 2001.

     The Company has guaranteed obligations of certain affiliated operations and
     others totaling approximately $41.4 million at December 31, 1996.  In
     addition, the Company has a 50% interest in a partnership with Kimberly-
     Clark Corporation (successor to 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, however, the Company does
     not expect to incur losses as a result of these guarantees.

     G - Financial Instruments

     The Company uses various derivative financial instruments as part of an
     overall strategy to manage the Company's exposure to market risks
     associated with interest rate and foreign currency exchange rate
     fluctuations.  The Company uses foreign currency forward contracts to
     manage the foreign currency exchange rate risks associated with its
     international operations.  The Company utilizes interest rate swap and cap
     agreements to manage its interest rate risks on its debt instruments,
     including the reset of interest rates on variable rate debt.  The Company
     does not hold or issue derivative financial instruments for trading
     purposes.

     The risk of loss to the Company in the event of nonperformance by any
     counterparty under derivative financial instrument agreements is not
     significant.  All counterparties are rated A or higher by Moody's and
     Standard and Poor's.  Although the derivative financial instruments expose
     the Company to market risk, fluctuations in the value of the derivatives
     are mitigated by expected offsetting fluctuations in the matched
     instruments.


                                       37
<PAGE>
 
As part of an overall strategy to maintain an acceptable level of exposure to
the risk of interest rate fluctuation, the Company has developed a targeted mix
of fixed-rate and cap-protected debt versus variable-rate debt. To efficiently
manage this mix, the Company utilizes interest rate swap, cap and option
agreements to effectively convert the debt portfolio into an acceptable fixed-
rate, capped-rate and variable-rate mix.

Under interest rate swap agreements, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and 
variable-rate interest amounts calculated by reference to an agreed-upon
notional principal amount. The fair value of the interest rate swap agreements
is estimated using quotes from brokers and represents the cash requirement if
the existing agreements had been settled at year end.

Selected information related to the Company's interest rate swap agreements is
as follows:
<TABLE>
<CAPTION>
 
December 31                          1996     1995
<S>                                 <C>      <C>
(All dollar amounts in millions)
 
Notional amount                     $180.0   $180.0
                                    ======   ======
 
Fair value                          $ (5.4)  $ (7.4)
Carrying amount                       (5.7)    (6.6)
                                    ------   ------
Net unrecognized gain (loss)        $   .3   $  (.8)
                                    ======   ======
</TABLE>

In addition, the Company has entered into forward-starting interest rate swaps
in order to fix the interest rate on a portion of the long-term debt anticipated
to be issued in early 1997. The swaps have a total notional amount of $374
million and maturities from 10 years to 30 years and effectively fix $384
million of long-term debt with maturities from 10 years to 50 years at a
weighted-average interest rate of 7.2%. Upon the issuance of the debt, any gain
or loss realized on the swaps will be amortized to interest expense over the
term of the related debt. As of December 31, 1996, the fair value of these swaps
was $(2.6) million with a carrying amount of $1.8 million, resulting in a net
deferred loss of $(4.4) million. Any gain (loss) on the swaps will be offset by
higher (lower) interest rates on the related debt.

The Company utilizes interest rate cap agreements to limit the impact of
increases in interest rates on its floating rate debt. The interest rate cap
agreements require premium payments to counterparties based upon a notional
principal amount. Interest rate cap agreements entitle the Company to receive
from the counterparties the amounts, if any, by which the selected market
interest rates exceed the strike rates stated in the agreements. The fair value
of the interest rate cap agreements is estimated by obtaining quotes from
brokers and represents the cash requirement if the existing contracts had been
settled at year end.

                                      38
<PAGE>
 
Selected information related to the Company's interest rate cap agreements is as
follows:
<TABLE>
<CAPTION>
 
December 31                          1996     1995
<S>                                 <C>      <C>
(All dollar amounts in millions)
 
Notional amount                     $150.0   $200.0
                                    ======   ======
 
Fair value                          $   .1   $   .2
Carrying amount                         .6       .9
                                    ------   ------
Net unrecognized gain (loss)        $  (.5)  $  (.7)
                                    ======   ======
</TABLE>

The Company utilizes foreign currency forward contracts to reduce exposure to
exchange rate risks primarily associated with transactions in the regular course
of the Company's international operations. The forward contracts establish the
exchange rates at which the Company will purchase or sell the contracted amount
of local currencies for specified foreign currencies at a future date. The
Company utilizes forward contracts which are short-term in duration (generally
one month) and receives or pays the difference between the contracted forward
rate and the exchange rate at the settlement date. The major currency exposures
hedged by the Company include the German mark, Canadian dollar, Dutch guilder,
French franc and British pound. The contract amount of foreign currency forwards
at December 31, 1996 and 1995, is $119.9 million and $130.7 million,
respectively. The carrying amount and fair value of these contracts are not
significant.

The fair value of the Company's long-term debt is estimated based on quoted
market prices for the same or similar issues or on current rates offered to the
Company for debt of the same remaining maturities. The fair value of long-term
debt, excluding capital leases, was $1,087.8 million and $600.1 million at
December 31, 1996 and 1995, respectively, and the related carrying amounts were
$1,077.0 million and $563.4 million, respectively.

At December 31, 1996 and 1995, the Company held short-term investments which are
included in cash and cash equivalents. The carrying amount of these short-term
investments is a reasonable estimate of fair value.

H - Shareowners' Equity

The Company has authorized 300 million no par common shares. The Company has
outstanding authorization from the Board of Directors to repurchase up to five
million common shares of which 2.0 million have been repurchased as of December
31, 1996. A total of 14.1 million and 13.0 million common shares were held in
treasury at December 31, 1996 and 1995, respectively.

In 1996, the Board of Directors approved a Rights Agreement to replace the
Rights Agreement that expired in 1996. Each outstanding common share presently
has one right attached which trades with the 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 certain circumstances, cash, property or other
securities of the Company) having a value of $400 for $200, the initial exercise
price. The rights expire in 2006

                                      39
<PAGE>
 
and are presently redeemable at $.01 per right. At December 31, 1996, there were
75.1 million 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.

The Company has preferred shares authorized but unissued as follows: 61,500
undesignated cumulative preferred, par value $100; 20 million undesignated
voting cumulative preferred, without par value; 20 million cumulative preferred,
without par value; and 295,540 cumulative second preferred, par value $50.

At December 31, 1996, there is $1.3 billion available for common dividends which
represents the maximum amount of additional indebtedness that can be incurred
solely to pay common dividends while remaining in compliance with certain debt
covenants.

I - Stock-Based Compensation Plans

Officers and key employees have been granted stock options under various plans.
Options as to 1.5 million shares are accompanied by limited rights which may be
exercised in lieu of the option under certain circumstances. The exercise price
of all options equals the market price of the Company's stock on the date of the
grant. The options and rights have a maximum term of ten years and vest after
one year or three years. Under the 1996 Stock Option Plan, additional options
(reload options) can be granted upon the exercise of the original incentive
stock option at the then current market price. The option holder must hold the
shares acquired for three years in order to vest in the reload options. There
are 7.8 million shares reserved for issuance under these plans.

A Restricted Stock Plan provides for the issuance of restricted common shares to
certain employees and to directors who are not officers or employees of the
Company. These shares are restricted for periods of six months to five years. As
of December 31, 1996, 39,000 common shares are issued and outstanding under the
plan. There are 402,000 shares reserved for issuance under this plan. There were
2,000 and 9,000 shares granted in 1996 and 1995, respectively, at a weighted-
average price of $54.46 and $53.94, respectively.

                                      40
<PAGE>
 
The following table summarizes activity in the Company's stock-based
compensation plans:
<TABLE>
<CAPTION>

(All share amounts
in thousands)                           1996                     1995                       1994
                              ------------------------  --------------------------  -------------------------
                                              Weighted-                 Weighted-                   Weighted-
                                               Average                   Average                     Average
                                              Exercise                  Exercise                    Exercise
                                 Shares         Price     Shares          Price         Shares       Price
 <S>                             <C>     <C>              <C>          <C>              <C>         <C>
 Outstanding at beginning
  of year                         3,264        $41.94      3,516         $38.28          2,991       $35.69
 Granted                            872         53.21        721          54.40            935        44.75
 Exercised                         (361)        37.70       (960)         37.64           (378)       33.32
 Canceled                           (40)        51.73        (13)         53.72            (32)       44.02
                                  -----                    -----                         -----
 Outstanding at end of year       3,735        $44.88      3,264         $41.94          3,516       $38.28
                                  =====                    =====                         =====

 Exercisable at year end          2,889        $42.44      2,566         $38.55          2,608       $36.03
                                  =====                    =====                         =====
 Weighted-average fair value
  of options granted during
  the year using the extended
  binomial option-pricing
  model                          $13.42                   $16.06
 Weighted-average assumptions
  used for grants:
   Expected dividend yield            2%                       2%
   Expected volatility               22%                      22%
   Risk-free interest rate          5.6%                     7.2%
   Expected life of option          5.5                      5.5
     (in years)
</TABLE>

                                       41
<PAGE>
 
The following table shows various information about stock options outstanding at
December 31, 1996:

(All share amounts in thousands)
<TABLE>
<CAPTION> 
                               Options Outstanding                 Options Exercisable
                      -------------------------------------     --------------------------
                                    Weighted-
                                      Average
                         Number     Remaining     Weighted-            Number    Weighted-
                    Outstanding   Contractual       Average     Exercisable at     Average
   Range of         at December          Life      Exercise      December 31,     Exercise
Exercise Prices        31, 1996     (in years)        Price              1996        Price
<S>                 <C>           <C>             <C>           <C>              <C>
$26.63 - $36.63          968              3.8       $ 32.51               968       $32.51
 39.25 -  44.94        1,249              6.1         43.75             1,249        43.75
 49.69 -  56.50        1,518              8.8         53.70               672        54.30
                       -----                                            -----
$26.63 - $56.50        3,735              6.6       $ 44.88             2,889       $42.44
                       =====                                            =====
</TABLE>

Total compensation costs charged to earnings from continuing operations before
income taxes for all stock-based compensation awards were less than $1 million
in each of 1996, 1995 and 1994. Had compensation costs been determined based on
the fair value method of SFAS No. 123 for all plans, the Company's net earnings
and earnings per common and common equivalent share would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
Year ended December 31                                        1996    1995
<S>                                                         <C>     <C>
Net earnings (in millions):
 As reported                                                $195.3  $350.0
                                                            ======  ======
 Pro forma                                                  $188.8  $344.3
                                                            ======  ======
Earnings per common and common
 equivalent share:
 As reported                                                $ 3.67  $ 6.33
                                                            ======  ======
 Pro forma                                                  $ 3.55  $ 6.23
                                                            ======  ======
</TABLE> 
J - Other Revenues (Expenses) - Net
<TABLE> 
<CAPTION> 
Year Ended December 31                                  1996    1995    1994
(All dollar amounts in millions)
<S>                                                   <C>     <C>     <C> 
Investment income                                     $  6.2  $ 18.1  $  6.5
Provision for (loss) on sale of facility                               (60.0)
Other                                                    7.5    15.6    (1.6)
                                                      ------  ------  ------
                                                      $ 13.7  $ 33.7  $(55.1)
                                                      ======  ======  ======
</TABLE> 

In 1994, the Company recorded a charge to earnings to reflect the estimated loss
on sale of its Kingsport, Tennessee, facility. The Company completed the sale of
the facility in the second quarter of 1995.

The Company incurred a $12.1 million loss in 1994 on derivatives used to manage
the Company's exposure to interest rate risks, including the termination of
certain leveraged interest rate options, which did not qualify for hedge
accounting, entered into in conjunction with swap transactions.

                                       42
<PAGE>
 
K - Income Taxes

The principal current and non-current deferred tax assets and (liabilities) are
as follows:
<TABLE>
<CAPTION>
December 31                                                               1996     1995
(All dollar amounts in millions)
<S>                                                                    <C>       <C>
Deferred tax liabilities:
  Accelerated depreciation for tax purposes                            $(439.9)  $(396.9)
  Nontaxable pension asset                                               (84.6)    (81.1)
  Deferred installment gain                                              (47.5)    (47.5)
  Other                                                                  (60.7)    (63.2)
                                                                       -------   -------
                                                                        (632.7)   (588.7)
Deferred tax assets:
  Compensation and fringe benefits accruals                               53.0      42.4
  Postretirement benefit accrual                                          48.2      43.8
  Loss provisions and other expenses not
   currently deductible                                                   27.0      51.2
  Other                                                                   26.9      31.1
                                                                       -------   -------
                                                                         155.1     168.5
                                                                       -------   -------
    Net deferred liability                                             $(477.6)  $(420.2)
                                                                       =======   =======

Included in the balance sheets:
  Current assets - deferred tax asset                                  $  36.6   $  29.5
  Deferred items - income tax liability                                 (514.2)   (449.7)
                                                                       -------   -------
    Net deferred liability                                             $(477.6)  $(420.2)
                                                                       =======   =======
</TABLE>
 
The significant components of income tax expense are as follows:
<TABLE>
<CAPTION> 
Year Ended December 31                                                   1996     1995      1994
(All dollar amounts in millions)
<S>                                                                     <C>       <C>      <C>
Currently payable:
  Federal                                                               $ 36.9   $ 86.3   $358.0
  State and local                                                          6.8      6.9     17.0
  Foreign                                                                 13.1      8.5      5.2
                                                                        ------   ------   ------
                                                                          56.8    101.7    380.2
Change in deferred income taxes                                           57.4     91.3     61.7
                                                                        ------   ------   ------
                                                                         114.2    193.0    441.9
Allocation to partnership earnings                                        (2.0)    (4.3)    (5.9)
Allocation to discontinued
 operations                                                               (3.2)    (4.5)  (420.3)
Allocation to extraordinary item                                                             6.9
                                                                         ------   ------  ------
                                                                         $109.0   $184.2  $ 22.6
                                                                         ======   ======  ======
</TABLE>

                                       43
<PAGE>
 
The following table summarizes the major differences between the actual income
tax provision attributable to continuing operations and taxes computed at the
federal statutory rates:
<TABLE>
<CAPTION>

Year Ended December 31                       1996     1995     1994
(All dollar amounts in millions)
<S>                                         <C>      <C>      <C>
Federal taxes computed at
 statutory rate of 35%                      $103.1   $170.7   $18.4
State and local income taxes,
 net of federal benefit                        6.5     12.9      .2
Impact related to difference in tax
 rates for foreign operations                 (1.3)     3.2     3.8
Other                                           .7     (2.6)     .2
                                            ------   ------   -----
Income taxes                                $109.0   $184.2   $22.6
                                            ======   ======   =====
Effective tax rate                            37.0%    37.8%   43.1%
                                            ======   ======   =====
</TABLE>

At December 31, 1996, 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 $250.6 million, including foreign currency
translation adjustments. The aggregate amount of unrecognized deferred tax
liability is approximately $13 million at December 31, 1996.

<TABLE>
<CAPTION>
L - Discontinued Operations
Year Ended December 31                    1996   1995    1994
(All dollar amounts in millions)
<S>                                       <C>    <C>     <C>
Gain on sale of Imaging business,
 net of income tax of $3.2                $5.4   $       $
Earnings from operations of
 Electronic Publishing segment,
 net of income tax of $27.8                                37.9
Gain on sale of Electronic Publishing
  segment, net of income tax of $4.5
  and $420.2                                      7.5     628.8
Provision for loss in Insurance
  operations, net of income tax
  benefit of $18.2                                        (33.8)
Provision for losses in Industrial
  Manufacturing segment, net of
  income tax benefit of $9.5                              (15.5)
                                           ----  ------  ------
Discontinued operations                    $5.4  $  7.5  $617.4
                                           ====  ======  ======
</TABLE>
In December 1994, the Company sold its Electronic Publishing segment (Mead Data
Central) for $1.5 billion in cash. The additional gain on sale recognized in the
fourth quarter of 1995 resulted primarily from the adjustment of certain items
related to this sale. Revenues of the Electronic Publishing segment were $565.2
million for the period January 1, 1994 through November 30, 1994.

                                       44
<PAGE>
 
In 1986, the Company adopted a plan to discontinue the insurance business which
had been conducted through its wholly-owned insurance subsidiaries and wrote off
its investment. These subsidiaries were put in a "runoff" position whereby they
ceased underwriting activities but continued to settle claims. During the fourth
quarter of 1994, the Company revised its runoff strategy in view of the long-
term nature of the payout for claim settlements, sold one subsidiary and settled
a significant portion of the outstanding claims liability. The revised strategy
included the disposition of the remaining insurance operations. During the
fourth quarter of 1996, the Company completed the sale of the insurance
operations. The result of this sale had no impact on the Company's earnings in
the current year.

The provision for losses in 1994 in the previously discontinued Industrial
Manufacturing segment is a result of environmental liabilities. Late in 1994,
the U.S. Court of Appeals for the Third Circuit reversed the opinion of a
District Court which had found the Company not responsible to the current owners
for environmental liabilities at a former plant. At another former plant, the
Company was named, in the fourth quarter of 1994, a potentially responsible
party with regard to alleged contamination of a nearby creek.

During the first quarter of 1996, the Company sold its previously discontinued
Imaging business. The sale resulted in a gain of $5.4 million, net of income tax
of $3.2 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.

                                       45
<PAGE>
 
Summary information on the Company's funded plans is as follows:
<TABLE>
<CAPTION>
December 31                                     1996      1995
(All dollar amounts in millions)
<S>                                            <C>       <C>
Financial status of plans:
  Plan assets at fair value (primarily
   common stocks and fixed income
   securities)                                 $888.7    $874.1
  Actuarial present value of accumulated
   benefit obligation:
    Vested                                     (546.8)   (563.6)
    Non-vested                                  (53.3)    (47.5)
  Estimated effect of future salary
   increases at 1% over expected inflation      (62.2)    (61.3)
                                               ------    ------
  Projected benefit obligation                 (662.3)   (672.4)
                                               ------    ------
  Plan assets in excess of projected
   benefit obligation                           226.4     201.7
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                              (40.7)    (48.9)
  Unrecorded effect of net loss arising
   from differences between actuarial
   assumptions used to determine periodic
   pension expense and actual experience          5.0      50.2
  Unamortized prior service cost                 31.8      11.8
                                               ------    ------
Pension asset                                  $222.5    $214.8
                                               ======    ======
Benefit obligation discount rate                 7.75%     7.25%
                                               ======    ======
</TABLE>

The projected benefit obligation for the Company's unfunded plans was $30.1
million and $25.0 million at December 31, 1996 and 1995, respectively, of which
$22.6 million and $17.3 million represent the accumulated benefit obligation. Of
the projected benefit obligation, $19.2 million and $16.3 million at December
31, 1996 and 1995, respectively, is subject to later amortization. Unfunded
accrued pension cost is $10.9 million and $8.7 million at December 31, 1996 and
1995, respectively.

                                       46
<PAGE>
 
The components of net pension (income) expense for all plans are as follows:
<TABLE>
<CAPTION>

Year Ended December 31                   1996     1995     1994
(All dollar amounts in millions)
<S>                                     <C>      <C>      <C>
Service cost, benefits earned
 during the year                        $ 20.4   $ 15.5   $ 22.7
Interest cost on projected benefit
 obligation                               49.6     46.4     48.7
Actual return on plan assets             (99.2)  (181.2)   (10.0)
Net amortization and deferral             21.7    114.4    (52.0)
                                        ------   ------   ------
Net pension (income) expense              (7.5)    (4.9)     9.4
Less - net pension expense allocated
 to discontinued operations                                 (3.9)
                                        ------   ------   ------
Net pension (income) expense -
 continuing operations                  $ (7.5)  $ (4.9)  $  5.5
                                        ======   ======   ======
</TABLE>

The expected long-term rate of return on plan assets used in determining net
pension income was 9% in 1996 and 1995 and 9.5% in 1994. Included in net pension
expense for 1994 is a charge of $11.5 million related to the retirement of a
number of personnel, including several senior personnel, who opted for lump sum
settlements.

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

The Company funds certain health care benefit costs principally on a pay-as-you-
go basis, with retirees 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.

                                       47
<PAGE>
 
Summary information on the Company's plans is as follows:

<TABLE>
<CAPTION>
 
December 31                                                 1996        1995
(All dollar amounts in millions)
<S>                                                        <C>         <C> 
Financial status of plans:
    Accumulated postretirement benefit obligation:
        Retirees                                           $ (64.5)    $ (69.5)
        Fully eligible, active plan participants             (19.9)      (23.8)
        Other active plan participants                       (29.9)      (39.8)
                                                           -------     -------
                                                            (114.3)     (133.1)
    Less plan assets at fair value                             8.2         8.5
                                                           -------     -------
    Accumulated postretirement benefit obligation in
      excess of plan assets                                 (106.1)     (124.6)
 
Reconciliation of financial status of plans to amounts
  recorded in Mead's balance sheets -
    Unrecorded effect of net (gain) loss arising from
      differences between actuarial assumptions used 
      to determine periodic postretirement benefit
      expense and actual experience                          (20.8)        7.6
                                                           -------     -------
Accrued postretirement benefit cost                        $(126.9)    $(117.0)
                                                           =======     =======
Benefit obligation discount rate                              7.75%       7.25%
                                                           =======     =======
</TABLE> 
 

The components of net periodic postretirement benefit cost are as follows:

<TABLE>
<CAPTION> 
 
Year Ended December 31                               1996      1995      1994
(All dollar amounts in millions)   
<S>                                                 <C>       <C>       <C>  
Service cost, benefits attributed to employee
  service during the year                           $  2.4    $  2.3    $  3.9
Interest cost on accumulated postretirement 
  benefit obligation                                   8.6       9.6      11.2
Actual return on plan assets                          (1.0)     (1.1)      (.7)
Net amortization and deferral                           .3        .5       1.7
                                                    ------    ------    ------
Net periodic postretirement benefit cost              10.3      11.3      16.1
Less - net periodic postretirement benefit cost 
       allocated to discontinued operations                                (.8)
                                                    ------    ------    ------
Net periodic postretirement benefit cost -
  continuing operations                             $ 10.3    $ 11.3    $ 15.3
                                                    ======    ======    ======
</TABLE>


                                       48

<PAGE>
 
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 in 1996 was 9%, declining by .8% per year to an ultimate rate of 5%.
The assumed health care trend rates used in 1995 and 1994 were 12% and 13%,
respectively, 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, 1996, would be
increased by 9%. The effect of this change on the sum of the service cost and
interest cost components of net periodic postretirement benefit cost for 1996
would be an increase of 10%.


O - Leases

At December 31, 1996, future minimum annual rental commitments under
noncancelable lease obligations are as follows:

<TABLE>
<CAPTION>
                                                         Capital    Operating
(All dollar amounts in millions)                         Leases      Leases
<S>                                                      <C>        <C>
Year Ending December 31: 
     1997                                                $   7.5     $ 34.6
     1998                                                    7.6       28.5
     1999                                                    8.3       19.5
     2000                                                    8.7       13.7
     2001                                                    7.2       11.3
     Later years through 2028                              318.3       63.5
                                                         -------     ------
Total minimum lease payments                               357.6     $171.1
                                                                     ======

Less amount representing interest                         (194.4)
                                                         -------
Present value of net minimum lease payments                163.2

Less current maturities of capital lease obligations         (.5)
                                                         -------
Capital lease obligations                                $ 162.7
                                                         ======= 
</TABLE>

Capital leases are for manufacturing facilities, equipment and warehouse and
office space. Capital lease property included in property, plant and equipment
is as follows:

<TABLE>
<CAPTION>
 
December 31                               1996       1995
<S>                                      <C>        <C>
(All dollar amounts in millions)
 
Land and buildings                       $  4.5     $  5.2
Machinery and equipment                   170.6      138.6
                                         ------     ------
                                          175.1      143.8
Less accumulated amortization             (73.4)     (68.3)
                                         ------     ------     
                                         $101.7     $ 75.5
                                         ======     ======
</TABLE>

The majority of rent expense is for operating leases 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 $54.9
million, $49.3 million and $52.8 million in 1996, 1995 and 1994, respectively.


                                       49

<PAGE>
 
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 identified as a potentially
responsible party in at least 18 environmental proceedings. It is not possible
to determine the ultimate liability, if any, in all these matters. The Company
has established reserves of $39 million relating to environmental liabilities,
including those related to discontinued operations, which it believes are
probable and reasonably estimable. The Company believes that it is reasonably
possible that costs associated with these sites may exceed current reserves by
an amount that could range from an insignificant amount to as much as $50
million. The estimate of this range is less certain than the estimates upon
which reserves are based. In order to establish this range, assumptions less
favorable to the Company among those outcomes that are considered reasonably
possible were used. In the opinion of management, after consultation with legal
counsel and after considering established reserves, the resolution of pending
litigation and proceedings is not expected to have a material effect on the
financial condition, results of operations or liquidity of the Company.


Q - Additional Information on Cash Flows

<TABLE>
<CAPTION>
 
Year Ended December 31                           1996      1995     1994
(All dollar amounts in millions)
<S>                                              <C>      <C>       <C> 
Cash paid during the year for:
    Interest                                     $69.0    $ 69.4    $98.4
        Less amount capitalized                   (6.9)     (2.0)    (5.7)
                                                 -----    ------    -----
        Interest, net of amount capitalized      $62.1    $ 67.4    $92.7
                                                 =====    ======    =====
    Income taxes                                 $58.8    $417.4    $59.5
                                                 =====    ======    =====
</TABLE>


R - Segment Information

Industry Segments

The Company classifies its businesses into three industry segments. A comparison
of the operations of the Company's businesses based on sales, earnings from
continuing operations before income taxes and identifiable assets is shown
below. The PAPER operations manufacture and sell printing, writing, carbonless
copy, publishing and specialty paper primarily to domestic publishers, printers
and converters. The PACKAGING AND PAPERBOARD operations manufacture and sell
beverage and food packaging materials, corrugated shipping containers and
paperboard to those markets primarily located in the United States with other
operations conducted in Europe, Latin America and the Pacific Rim. The
DISTRIBUTION AND SCHOOL AND OFFICE PRODUCTS operations are predominantly
domestic and market a full line of paper products to users of printing papers,
industrial supplies and packaging materials. These operations also manufacture
and distribute school and office paper related products to retailers.


                                       50

<PAGE>

<TABLE>
<CAPTION>
                                          (All dollar amounts in millions)

                                                                               Sales (1)
                                                   -----------------------------------------------------------------
Year Ended December 31                                     1996                   1995                   1994
                                                   -----------------------------------------------------------------
                                                   Unaffil-     Inter-    Unaffil-     Inter-    Unaffil-     Inter-
                                                    iated      segment     iated      segment     iated      segment
<S>                                                <C>         <C>        <C>         <C>        <C>         <C>
Industry segments:
    Paper                                          $1,251.3    $ 197.5    $1,243.3    $ 217.7    $1,156.8    $ 206.4
    Packaging and Paperboard                        1,371.4        4.6     1,428.8        7.0     1,254.5        8.3
    Distribution and School and Office Products     2,083.8        8.9     2,507.3        9.3     2,146.2       10.3
Intersegment elimination                                        (211.0)                (234.0)                (225.0)
                                                   --------               --------               --------
    Total                                          $4,706.5               $5,179.4               $4,557.5
                                                   ========               ========               ========
</TABLE> 

<TABLE> 
<CAPTION> 
                                                              Earnings from
                                                          Continuing Operations                Depreciation,
                                                        Before Income Taxes (2)(3)       Depletion and Amortization
                                                     -------------------------------    -----------------------------
Year Ended December 31                                1996        1995        1994        1996       1995       1994
<S>                                                  <C>         <C>         <C>         <C>        <C>        <C> 
Industry segments:
    Paper                                            $ 193.8     $ 330.8     $  72.0     $ 84.3     $ 72.3     $ 69.6
    Packaging and Paperboard                           138.6       184.9       123.8      141.4      139.4      131.9
    Distribution and School and Office Products         69.3        77.3        20.5       13.4       13.0       12.9
Corporate and other                                   (107.1)     (105.3)     (163.9)      11.3       12.0       11.1
                                                     -------     -------     -------     ------     ------     ------
    Total                                            $ 294.6     $ 487.7     $  52.4     $250.4     $236.7     $225.5
                                                     =======     =======     =======     ======     ======     ======
</TABLE> 

<TABLE> 
<CAPTION> 
                                                            Identifiable Assets (4)           Capital Expenditures
                                                       --------------------------------    --------------------------
Year Ended December 31                                   1996        1995        1994       1996      1995      1994
<S>                                                    <C>         <C>         <C>         <C>       <C>       <C>  
Industry segments:
    Paper                                              $2,149.4    $1,425.6    $1,432.1    $101.5    $ 73.7    $175.7
    Packaging and Paperboard                            1,782.7     1,631.6     1,457.9     294.9     165.0     111.8 
    Distribution and School and Office Products           473.4       471.0       541.9      15.4       8.3       8.0
Intersegment elimination                                  (19.2)      (21.7)      (29.5)
Corporate and other                                       599.6       866.3     1,460.2      21.6      16.0      20.1
                                                       --------    --------    --------    ------    ------    ------
    Total                                              $4,985.9    $4,372.8    $4,862.6    $433.4    $263.0    $315.6
                                                       ========    ========    ========    ======    ======    ======
</TABLE>


                                       51

<PAGE>
 
     (1)  Intersegment sales are made at substantially the same prices and on
          the same terms as to unaffiliated customers.

     (2)  Earnings from continuing operations before income taxes in 1994
          include the provision for loss on the sale of a facility, costs of
          severance and closing costs for certain warehouses and office
          facilities and costs of pension settlements.  The effect of the above
          charges by segment is Paper - $65.9, Packaging and Paperboard - $6.9,
          Distribution and School and Office Products - $17.3 and Corporate and
          other - $2.7.

     (3)  Earnings from continuing operations before income taxes for "Corporate
          and other" includes the following:
<TABLE>
<CAPTION>
          Year Ended December 31           1996      1995      1994
<S>                                        <C>       <C>       <C>
          Other revenues                   $  10.7   $  25.9   $  (2.5)
          Interest expense                   (57.7)    (69.4)   (101.1)
          Other expenses                     (60.1)    (61.8)    (60.3)
                                           -------   -------   -------
                                           $(107.1)  $(105.3)  $(163.9)
                                           =======   =======   =======
</TABLE>
     (4)  The assets of "Corporate and other" consist primarily of cash and cash
          equivalents, property, plant and equipment, investments in investees
          and net assets of discontinued operations.

     Geographic Areas

     The Company has sales from foreign subsidiaries primarily in Canada,
     Europe, Latin America and the Pacific Rim.  No individual foreign
     geographic area is significant to the Company relative to total net sales,
     earnings from continuing operations before taxes or identifiable assets.
     Net sales to unaffiliated customers from the Company's foreign subsidiaries
     were $528.5 million, $495.3 million and $389.6 million in 1996, 1995 and
     1994, respectively.  Earnings from operations for foreign subsidiaries were
     $45.1 million, $33.8 million and $7.0 million in 1996, 1995 and 1994,
     respectively.  Foreign identifiable assets were $383.2 million, $427.9
     million and $350.8 million in 1996, 1995 and 1994, respectively.

     S - Fourth Quarter Operations (Unaudited)

     During the fourth quarter of 1994, the Company recorded several significant
     transactions, including the sale of the Electronic Publishing segment, a
     charge for additional losses in its discontinued insurance operations and a
     provision for environmental remediation costs at two sites formerly part of
     Mead's previously discontinued Industrial Manufacturing segment.

     The Company recorded a charge to earnings in 1994 of $60.0 million to
     reflect the estimated loss on the sale of its Kingsport, Tennessee,
     facility.  The Company announced its intent to sell the facility in October
     1994.  In addition, the Company recorded charges to earnings in 1994 of
     $21.3 million, principally for severance and closing costs for certain
     warehouses and office facilities at its Coated Board and Zellerbach
     operations; a charge for settlements of pension liabilities of $11.5
     million and an extraordinary loss on the extinguishment of debt of $11.3
     million (after-tax).
   
     Reflected in earnings of equity investees in 1994 is $9.1 million (after-
     tax) of refunds from duties levied on lumber exported from Canada by
     Northwood Forest Industries Ltd. in prior years.

                                       52
<PAGE>
    
     Selected Quarterly Financial Data (unaudited)
     (All dollar amounts in millions, except per share data)
<TABLE>
<CAPTION>
 
 
                                         1st Qtr.  2nd Qtr.  3rd Qtr.  4th Qtr.     Year
                                         --------  --------  --------  ---------  --------
<S>                                      <C>       <C>       <C>       <C>        <C>
     Net sales:
          1996                           $1,067.2  $1,258.5  $1,231.1  $1,149.7   $4,706.5
          1995                            1,240.8   1,442.2   1,352.4   1,144.0    5,179.4
          1994                            1,007.6   1,165.9   1,208.2   1,175.8    4,557.5
     Gross profit:
          1996                              204.0     258.1     236.0     204.5      902.6
          1995                              221.9     312.2     299.1     242.2    1,075.4
          1994                              162.5     204.3     201.6     183.3      751.7
     Earnings (loss) from
      continuing operations:
          1996                               30.9      67.1      62.7      29.2      189.9
          1995                               61.7     102.2     104.5      74.1      342.5
          1994                               15.9      44.7      41.6     (12.6)      89.6
     Earnings before
      extraordinary item:
          1996                               36.3      67.1      62.7      29.2      195.3
          1995                               61.7     102.2     104.5      81.6      350.0
          1994                               27.6      52.4      53.2     573.8      707.0
     Net earnings:
          1996                               36.3      67.1      62.7      29.2      195.3
          1995                               61.7     102.2     104.5      81.6      350.0
          1994                               27.6      52.4      53.2     562.5      695.7
     Per common and common
      equivalent share:(1)
        Earnings (loss) from
         continuing operations:
          1996                                .58      1.26      1.18       .55       3.57
          1995                               1.07      1.87      1.91      1.37       6.19
          1994                                .27       .74       .68      (.18)      1.52
        Earnings before
         extraordinary item:
          1996                                .68      1.26      1.18       .55       3.67
          1995                               1.07      1.87      1.91      1.51       6.33
          1994                                .46       .86       .87      9.18      11.39
        Net earnings:
          1996                                .68      1.26      1.18       .55       3.67
          1995                               1.07      1.87      1.91      1.51       6.33
          1994                                .46       .86       .87      9.00 (2)  11.21
     Cash dividends per common share:
          1996                                .28       .30       .30       .30       1.18
          1995                                .25       .28       .28       .28       1.09
          1994                                .25       .25       .25       .25       1.00
</TABLE>

     (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 a charge of $.92 per share related to asset impairments,
     restructuring and related severance charges and pension settlement charges;
     a $.15 per share gain on refund of countervailing duties; a gain of $10.04
     per share on sale of Mead Data Central; a $.79 per share charge related to
     discontinued insurance operations and environmental matters; and a charge
     of $.18 per share for extinguishment of debt.

                                       53
<PAGE>
 
     Item 9. Changes in and Disagreements with Accountants on Accounting and
     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 6 and 22 of the Company's Proxy Statement, definitive
     copies of which were filed with the Securities and Exchange Commission
     ("Commission") on March 12, 1997.  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 10 through 22 of the Company's Proxy Statement (excluding the
     "Report of Compensation Committee on Executive Compensation" on pages 11
     through 13 and the "Performance Graph" on page 20), definitive copies of
     which were filed with the Commission on March 12, 1997.

     Item 12.  Security Ownership of Certain Beneficial Owners and Management

          Information pursuant to this item is incorporated herein by reference
     to pages 9 through 11 of the Company's Proxy Statement, definitive copies
     of which were filed with the Commission on March 12, 1997.

     Item 13.  Certain Relationships and Related Transactions

          Information pursuant to this item is incorporated herein by reference
     to pages 22 and 23 of the Company's Proxy Statement, definitive copies of
     which were filed with the Commission on March 12, 1997.


                                    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.

                                       54
<PAGE>
 
               2. Financial Statement Schedule

                                                                          Page
                                                                          ----
               Schedule II --Valuation and Qualifying Accounts.........    63

          The information required to be submitted in Schedules I and III
     through V 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.

                (ii)  Regulations of the Registrant, as amended April 25, 1996
             (incorporated by reference to Exhibit (3)(ii) of Registrant's
             Quarterly  Report on Form 10-Q for the Quarterly Period ended March
             31, 1996).

     (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); 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); Amendment No. 2 thereto dated as of May
             1, 1994 (incorporated by reference to Exhibit (10)(1) to
             Registrant's Quarterly Report on Form 10-Q for the Quarterly Period
             ended July 3, 1994);  Amendment No. 3 thereto dated as of August
             31, 1995 (incorporated by reference to Exhibit (4)(1) to
             Registrant's Quarterly Report on Form 10-Q for the Quarterly Period
             ended October 1, 1995); and Amendment No. 4 thereto dated as of
             August 31, 1996 (incorporated by reference to Exhibit (4)(i) to
             Registrant's Quarterly Report on Form 10-Q for the Quarterly Period
             ended September 29, 1996).

                (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 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).

                                       55
<PAGE>
 
               (iv)  364 Day Revolving Credit Line dated as of October 17, 1996
     with The First National Bank of Chicago and Morgan Guarantory Trust
     Company of New York and ten other banks.

     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 9, 1996 between
             Registrant and  First National Bank of Boston, as Rights Agent,
             (incorporated herein by reference to Registrant's Form 8-A, dated
             November 13, 1996).

                (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).

                (vii)  Lease Agreement between The Industrial Development Board
             of the City of Phenix City, Alabama and Mead Coated Board, Inc.,
             dated as of June 1, 1993 (incorporated by reference to Exhibit
             (10)(3) to Registrant's Quarterly Report on Form 10-Q for the
             Quarterly Period ended April 3, 1994).

                                       56
<PAGE>
 
     (viii)  Acquisition Agreement dated September 28, 1996 among Boise Cascade
Corporation, Oxford Paper Company, Mead Oxford Corporation and The Mead
Corporation (incorporated by reference to Exhibit (c) 2 to the Registrant's Form
8-K dated November 1, 1996).

The following are compensatory plans and arrangements in which directors or
executive officers participate:

     (ix)    1984 Stock Option Plan of the Registrant, as amended and restated
through November 9, 1996.

     (x)     1991 Stock Option Plan of the Registrant, as amended through
November 9, 1996.

     (xi)    1996 Stock Option Plan of the Registrant as amended through
November 9, 1996.

     (xii)   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).

     (xiii)  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).

     (xiv)   Excess Benefit Plan of the Registrant dated January 1, 1996
(incorporated by reference to Exhibit (10)(3) to Registrant's Quarterly Report
on Form 10-Q for the Quarterly Period ended March 31, 1996).

     (xv)    Excess Earnings Benefit Plan of the Registrant dated January 1,
1996 (incorporated by reference to Exhibit (10)(4) to Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period ended March 31, 1996).

     (xvi)   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).

     (xvii)  Form of Indemnification Agreement between Registrant and each of
John C. Bogle, John G. Breen, Vincent L. Gregory, Jr., William E. Hoglund, James
G. Kaiser, John A. Krol, Susan J. Kropf, Steven C. Mason, Charles S. Mechem,
Jr., Paul F. Miller, Jr., Thomas B. Stanley, Jr., Lee J. Styslinger, Jr. and
Jerome F. Tatar (incorporated herein by reference to Exhibit (10)(xiv) of
Registrant's Annual Report on Form 10-K for the year ended December 31, 1986).

     (xviii) Form of Severance Agreement between Registrant and Steven C. Mason
(incorporated herein by reference to Exhibit (10)(xvi) of Registrant's Annual
Report on Form 10-K for the year

                                       57
<PAGE>
 
ended December 31, 1986 and Exhibit (10)(xii) of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988).

     (xix)   Form of Severance Agreement between Registrant and each of William
R. Graber, Elias M. Karter, Raymond W. Lane, Thomas E. Palmer, Jerome F. Tatar
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).

     (xx)    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), as restated August 27, 1996 (incorporated by reference to
Exhibit (10)(1) of Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period ended September 29, 1996).

     (xxi)   Restricted Stock Plan effective December 10, 1987, as amended
through November 9, 1996.

     (xxii)  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).

     (xxiii) 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).

     (xxiv)  Directors Capital Accumulation Plan (incorporated by reference to
Exhibit (10)(1) of Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period ended June 30, 1996).

     (xxv)   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).

     (xxvi)  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).

     (xxvii) Long Term Incentive Plan effective 1996 (incorporated by reference
to Exhibit (10)(2) of Registrant's Quarterly Report on Form 10-Q for the
Quarterly Period ended March 31, 1996).

     (xxviii) Annual Incentive Plan for 1996 (incorporated by reference to
Exhibit (10)(1) of Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period ended March 31, 1996).

     (xxix)  Form of Mead Executive Capital Accumulation Plan effective January
1, 1995 (incorporated by reference to Exhibit (10)(1) of Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period ended July 2, 1995.)

                                       58
<PAGE>
 
(11)   Statement re Computation of per Share Earnings.

(12)   Statements re Computation of Ratios.

(21)   Subsidiaries of the Registrant.

(23)   Consent of Independent Auditors.

(27)   Financial Data Schedule

          (b) Reports on Form 8-K

          (1)  A Form 8-K was filed on October 11, 1996 reporting under Item 5
Registrant's execution of an agreement to acquire an integrated coated paper
mill located in Rumford, Maine from Boise Cascade for approximately $650
million.

          (2)  A Form 8-K was filed on November 5, 1996 reporting under Item 2
the completion of the acquisition of the paper mill located in Rumford, Maine
from Boise Cascade. Also filed as an exhibit was a copy of the Acquisition
Agreement.

          (3)  A Form 8-K was filed on November 13, 1996 reporting under Item 5
Registrant's extension of a Shareholder Rights Plan. Also filed as an exhibit
was a copy of the Rights Agreement.

                                      59
<PAGE>
 
                                   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 27, 1997          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 27, 1997          By          STEVEN C. MASON
                                       ----------------------------------
                                               Steven C. Mason
                                      Director, Chairman of the Board and
                                            Chief Executive Officer
 


Date:   February 27, 1997          By         WILLIAM R. GRABER
                                       ----------------------------------
                                              William R. Graber
                                          Vice President and Chief
                                        Financial Officer (principal
                                            financial officer)



Date:   February 27, 1997          By         GREGORY T. GESWEIN
                                       ----------------------------------
                                              Gregory T. Geswein
                                            Controller (principal
                                             accounting officer)
 

Date:   February 27, 1997          By            JOHN C. BOGLE
                                       ----------------------------------
                                                 John C. Bogle
                                                    Director 


Date:   February 27, 1997          By            JOHN G. BREEN
                                       ----------------------------------
                                                 John G. Breen
                                                   Director


Date:   February 27, 1997          By         WILLIAM E. HOGLUND
                                       ----------------------------------
                                              William E. Hoglund
                                                  Director

                                       60
<PAGE>
 
Date:   February 27, 1997          By         JAMES G. KAISER
                                       ----------------------------------
                                              James G. Kaiser
                                                  Director



Date:   February 27, 1997          By          JOHN A. KROL
                                       ----------------------------------
                                               John A. Krol
                                                 Director


Date:   February 27, 1997          By         SUSAN J. KROPF
                                       ----------------------------------
                                              Susan J. Kropf
                                                  Director


Date:   February 27, 1997          By       CHARLES S. MECHEM, JR.
                                       ----------------------------------
                                            Charles S. Mechem, Jr.
                                                  Director


Date:   February 27, 1997          By         PAUL F. MILLER, JR.
                                       ----------------------------------
                                              Paul F. Miller, Jr.
                                                   Director



Date:   February 27, 1997          By       THOMAS B. STANLEY, JR.
                                       ----------------------------------
                                            Thomas B. Stanley, Jr.
                                                  Director


Date:   February 27, 1997          By        LEE J. STYSLINGER, JR.
                                       ----------------------------------
                                             Lee J. Styslinger, Jr.
                                                    Director

Date:   February 27, 1997          By          JEROME F. TATAR
                                       -----------------------------------
                                               Jerome F. Tatar
                                           Director, President and
                                           Chief Operating Officer

                                       61
<PAGE>
 
              THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES



                        SCHEDULE FURNISHED PURSUANT TO
                           REQUIREMENTS OF FORM 10-K



                 Years Ended December 31, 1996, 1995 and 1994






                                       62
<PAGE>
 
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in millions)




<TABLE>
<CAPTION>
 
     Column A                         Column B           Column C          Column D    Column E
-----------------------------------  ----------  ----------------------   ----------  -----------
                                                        Additions
                                                  -------------------- 
<S>                                  <C>         <C>         <C>         <C>          <C>
 
                                                  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, 1996:
Allowance for doubtful accounts          $26.8       $ 7.1        $-0-  $  5.9  (A)      $28.0    
                                         =====       =====        ====  ======           ===== 
Accumulated amortization of good-                                                              
 will and other intangibles              $37.3       $ 3.3        $-0-  $  -0-           $40.6 
                                         =====       =====        ====  ======           ===== 
                                                                                               
Year Ended December 31, 1995:                                                                  
Allowance for doubtful accounts          $23.9       $10.2        $-0-  $  7.3  (A)      $26.8 
                                         =====       =====        ====  ======           ===== 
Accumulated amortization of good-                                                              
 will and other intangibles              $34.0       $ 3.3        $-0-  $  -0-           $37.3 
                                         =====       =====        ====  ======           ===== 
                                                                                               
Reserve for asset impairment             $60.0       $ -0-        $-0-  $ 60.0  (B)      $ -0- 
                                         =====       =====        ====  ======           ===== 
Year Ended December 31, 1994:                                                                  
Allowance for doubtful accounts          $22.5       $ 8.9        $-0-  $  7.5  (A)      $23.9 
                                         =====       =====        ====  ======           ===== 
Accumulated amortization of good-                                                              
 will and other intangibles              $31.0       $ 3.0        $-0-  $  -0-           $34.0 
                                         =====       =====        ====  ======           ===== 
                                                                                               
Reserve for asset impairment             $ -0-       $60.0        $-0-  $  -0-           $60.0 
                                         =====       =====        ====  ======           =====  
 
</TABLE>
(A)  Accounts charged off, net of recoveries.

(B)  Reserve of sold business.

                                       63
<PAGE>















 
                             THE MEAD CORPORATION



                      EXHIBITS TO FORM 10-K ANNUAL REPORT



                     FOR THE YEAR ENDED DECEMBER 31, 1996
















                                      64