SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Second Quarter Ended Commission File Number
April 30, 1995 1-3013
WESTVACO CORPORATION
299 Park Avenue, New York, New York 10171
Telephone Number 212-688-5000
Delaware 13-1466285
(State of Incorporation) (I.R.S. Employer Identification No.)
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, and
(2) has been subject to such filing requirements for the past 90
days. YES X NO
At April 30, 1995, the latest practicable date, there were
67,488,480 shares outstanding of Common Stock, $5 par value.
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Statement of Income for the three months
and six months ended April 30, 1995 and 1994 2
Consolidated Balance Sheet as of April 30, 1995
and October 31, 1994 3
Consolidated Statement of Cash Flows for the
six months ended April 30, 1995 and 1994 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
OMITTED FINANCIAL STATEMENTS
Financial statements of a 50%-owned company, accounted for by the
equity method, have been omitted because the company does not
constitute a "significant subsidiary".
1
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF INCOME
[Unaudited]
In thousands, except per share data
Three Months Ended Six Months Ended
April 30 April 30
1995 1994 1995 1994
Sales $804,622 $626,436 $1,546,297 $1,203,690
Other income (expense) 3,653 (4,517) 11,847 3,164
808,275 621,919 1,558,144 1,206,854
Cost of products sold (excludes
depreciation shown below) 557,360 466,370 1,093,323 897,507
Selling, research and
administrative expenses 61,580 47,296 112,634 96,020
Depreciation and amortization 55,983 54,571 112,007 107,955
Interest expense 25,622 27,798 51,733 54,671
700,545 596,035 1,369,697 1,156,153
Income before taxes 107,730 25,884 188,447 50,701
Income taxes 42,700 9,600 74,100 18,600
Net income $ 65,030 $ 16,284 $ 114,347 $ 32,101
Average number of common
shares outstanding 67,374 67,073 67,295 66,999
Net income per share of
common stock $.97 $.24 $1.70 $.48
Cash dividends per share of
common stock $.27 1/2 $.27 1/2 $ .55 $.55
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED BALANCE SHEET
In thousands
April 30 October 31
1995 1994
[Unaudited]
ASSETS
Cash and marketable securities $ 101,182 $ 75,003
Receivables 311,901 269,403
Inventories 268,723 236,041
Prepaid expenses 53,425 50,106
Current assets 735,231 630,553
Plant and timberlands:
Machinery 4,010,654 3,950,692
Buildings 530,181 526,876
Other property, including plant land 189,661 186,757
4,730,496 4,664,325
Less: accumulated depreciation 2,064,209 1,964,285
2,666,287 2,700,040
Timberlands - net 234,357 237,199
Construction in progress 163,343 126,112
3,063,987 3,063,351
Other assets 309,945 289,089
$4,109,163 $3,982,993
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 321,826 $ 302,569
Notes payable and current maturities of
long-term obligations 28,809 41,640
Income taxes 31,003 17,357
Current liabilities 381,638 361,566
Long-term obligations 1,226,444 1,234,300
Deferred income taxes 552,750 525,112
Shareholders' equity:
Common stock, $5 par, at stated value
shares authorized: 200,000,000
shares issued: 67,972,922 (1994-67,597,227) 562,390 551,265
Retained income 1,401,319 1,323,982
Common stock in treasury, at cost
shares held: 484,442 (1994-430,409) (15,378) (13,232)
1,948,331 1,862,015
$4,109,163 $3,982,993
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
[Unaudited]
In thousands
Six Months Ended
April 30
1995 1994
Cash flows from operating activities:
Net income $ 114,347 $ 32,101
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 112,007 107,955
Provision for deferred income taxes 28,606 14,959
Gains on sales of plant and timberlands (4,766) (11,044)
Pension credits and other employee benefits (3,313) (21,869)
Foreign currency translation (gains) losses (838) 11,726
Changes in assets and liabilities:
Increase in receivables (46,675) (10,748)
Increase in inventories (32,490) (1,622)
Increase in prepaid expenses (4,289) (2,084)
Increase (decrease) in accounts payable and
accrued expenses 7,735 (32,619)
Increase (decrease) in income taxes payable 13,646 (2,958)
Other, net 159 1,423
Net cash provided by operating activities 184,129 85,220
Cash flows from investing activities:
Additions to plant and timberlands (113,263) (107,839)
Proceeds from sales of plant and timberlands 6,965 11,825
Other, net (369) (2,194)
Net cash used in investing activities (106,667) (98,208)
Cash flows from financing activities:
Proceeds from issuance of common stock 8,229 5,441
Proceeds from issuance of debt 47,591 186,033
Dividends paid (37,010) (36,840)
Repayment of notes payable and long-term
obligations (73,404) (139,837)
Net cash (used in) provided by
financing activities (54,594) 14,797
Effect of exchange rate changes on cash 3,311 (10,058)
Increase (decrease) in cash and
marketable securities 26,179 (8,249)
Cash and marketable securities:
At beginning of period 75,003 56,559
At end of period $ 101,182 $ 48,310
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have
been prepared in accordance with Form 10-Q instructions and in the
opinion of management contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position of the company as of April 30, 1995, the results of
operations for the three and six months ended April 30, 1995 and
1994 and the cash flows for the six months ended April 30, 1995 and
1994. These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently
with those used in the preparation of the company's 1994 Annual
Report on Form 10-K.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. It is
suggested that the accompanying consolidated financial statements be
read in conjunction with the financial statements and notes thereto
incorporated by reference in the company's 1994 Annual Report on
Form 10-K.
2. Current Assets
Marketable securities of $87,036,000 ($45,546,000 at October 31,
1994) are valued at cost, which approximates market.
Inventories included in the consolidated balance sheet consist of
the following:
April 30 October 31
In thousands 1995 1994
Raw materials $ 70,055 $ 55,748
Production materials, stores
and supplies 74,489 71,622
Finished and in process goods 124,179 108,671
Total $268,723 $236,041
3. Special Charge
During the fourth quarter of 1993, the company established a special
charge of $43.4 million in connection with a restructuring program
designed to improve productivity and permanently reduce costs. The
program is expected to result in a reduction of 450 salaried
positions through a voluntary early retirement program and job
elimination. To date, approximately 435 of these reductions have
taken place. The current status of the charge is as follows:
5
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
3. Special Charge (continued)
In thousands
Initial provision $43,406
Balance at 10/31/94 $ 8,136
Less: current year activity (4,870)
Balance at 4/30/95 $ 3,266
The company has incurred over 90% of the initial restructuring
program cost at April 30, 1995 and expects to utilize the balance
of the special charge reserve during the current fiscal year.
4. Foreign Operations
Results of operations for Rigesa, Ltda., our Brazilian operating
subsidiary, were as follows:
Three Months Six Months
In thousands Ended April 30 Ended April 30
1995 1994 1995 1994
Sales $65,143 $39,034 $117,840 $73,675
Net income $13,147 $ 2,430 $ 23,805 $ 2,193
Rigesa's results for the second quarter and six months of 1995 were
positively affected by changes in price and product mix of 46.1%
and 38.4%, respectively, and increases in the volume of shipments
of 20.8% and 21.5%, respectively.
5. Supplemental Cash Flow Information
Cash payments for interest excluding amounts capitalized were
$52,555,000 and $63,883,000 for the six months ended April 30, 1995
and April 30, 1994, respectively. Cash payments for income taxes
were $31,128,000 and $8,380,000 in the first six months of 1995 and
1994, respectively.
6
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Segment Information
Three Months Ended Six Months Ended
April 30 April 30
1995 1994 1995 1994
In millions
Sales
Bleached $515.3 $400.4 $ 992.1 $ 763.2
Unbleached 222.9 166.6 422.9 325.0
Chemicals 69.3 60.1 137.5 117.6
Corporate items (2.9) (0.7) (6.2) (2.1)
Consolidated sales $804.6 $626.4 $1,546.3 $1,203.7
Operating profit
Bleached $102.6 $ 49.3 $ 179.0 $ 94.3
Unbleached 50.6 8.6 88.3 15.4
Chemicals 9.1 11.4 20.7 21.9
Corporate items (54.6) (43.4) (99.6) (80.9)
Consolidated income
before taxes $107.7 $ 25.9 $ 188.4 $ 50.7
RESULTS OF OPERATIONS
During the first half of 1995, demand for our products was strong
throughout the world. At the end of April 1995, primary product
backlogs were the highest at this time of the year for any year in
our history. Record sales of $1.55 billion for the six months were
up 28.5% from the comparative 1994 period, the result of a positive
14.9% change in price and product mix and a 13.6% increase in the
volume of shipments. Sales of $804.6 million for the 1995 second
quarter also set a new record and were up 28.4% over the 1994 second
quarter, due to an 18.7% increase in price and product mix and a
9.7% increase in the volume of shipments. Export sales were up
26.8% and 28.9% compared to the respective second quarter and six
months of 1994 and accounted for nearly 14% of the company's year to
date consolidated sales. Total sales outside of the United States,
including Rigesa, accounted for more than 20% of consolidated sales.
The growth in exports reflects a recovery in pricing as well as
strong demand for the company's distinctive and differentiated
products overseas. The company is continuing to vigorously support
efforts to cultivate opportunities in international markets where
the prospects for percentage gains in growth may be larger and
possibly more consistent in the near term than in the United States.
Gross profit margin for the second quarter and six months of 1995
was 24% and 22%, respectively, compared with 17% for the prior year
periods as sales increased at a faster pace than the cost of
products sold. The increase in cost of products sold was primarily
attributable to volume increases as well as some direct materials
cost increases.
Bleached
Bleached segment sales for the second quarter and six months
increased 28.7% and 30.0%, respectively, from the comparable 1994
periods, due to unit volume increases of 14.0% and 19.7%,
respectively, and favorable changes in price and
7
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
RESULTS OF OPERATIONS (cont'd)
product mix of 14.7% and 10.3%, respectively. Our bleached board
products continued to account for a significant portion of the volume
increase, with both domestic and export shipments showing strong
improvement over the prior year period. Bleached segment operating
profit was up in the second quarter and six months ended April 30,
1995, reflecting increased production efficiency combined with
improved product demand and pricing. Year to date, approximately 15%
of bleached segment sales were made to the domestic tobacco industry.
However, a significant portion of this paper and paperboard is used
for products which are exported. Excluding this portion,
approximately 9% of bleached segment sales were made to the domestic
tobacco industry for final sale in the United States. The current
legal and regulatory pressures on that industry in the United States
could have an adverse effect on future bleached segment sales and
profitability. We would expect to offset any unit volume declines in
United States tobacco sales by continuing growth in our sales to the
liquid, dry and frozen food, personal care, foreign tobacco and other
consumer product markets of the world.
Unbleached
Sales for the unbleached segment increased 33.8% and 30.1%,
respectively, compared to the 1994 second quarter and six months, due
to improvements in price and product mix of 31.6% and 27.4%,
respectively, and increases in volume of 2.2% and 2.7%, respectively.
During the second quarter, prices for linerboard continued to reflect
improvements over the comparable 1994 prices. Pricing at Rigesa,
Ltda., our Brazilian subsidiary has also improved significantly
compared to 1994 levels. Operating profit for the unbleached segment
increased to $50.6 million for the 1995 second quarter and $88.3
million for the 1995 six month period, as a result of improvements in
all major business units of the segment, including Rigesa. During the
second half of our 1994 fiscal year the Brazilian government adopted a
new economic plan to control inflation. The impact on 1995 sales and
earnings, to date, has been positive, but it is too early to predict
the continued success of the plan. As anticipated, the phased-in
devaluation of the Brazilian currency, announced by the Brazilian
government in March 1995, has not had a major impact on Rigesa's
improved results.
Chemicals
Sales for the chemicals segment increased 15.3% and 16.9%,
respectively, from the 1994 second quarter and six months due to price
and product mix improvements of 13.6% and 12.6%, respectively, and
volume increases of 1.7% and 4.3%, respectively. Operating margins
for the chemicals segment continue to be good. Operating profit for
the chemicals segment was $9.1 million and $20.7 million,
respectively, for the second quarter and six months of 1995, compared
to $11.4 million and $21.9 million last year. Operating results for
the chemicals segment reflect the impact of our active new product
efforts which have temporarily affected earnings.
Selling research and administrative expenses increased 30.2% for the
quarter and 17.3% for the six months primarily reflecting costs
associated with stock appreciation rights as well as costs for
several other administrative items in 1995. Other income (expense)
for the 1995 second quarter increased, reflecting lower foreign
currency translation losses compared to the 1994 second quarter.
8
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
RESULTS OF OPERATIONS (cont'd)
Other income for the 1995 six months increased over 1994 due to
foreign currency translation gains as compared to losses last year,
partially offset by the lower level of gains on property transactions
in 1995. The effective tax rate increased to 39.3% for the first six
months of 1995 compared to 36.7% for the 1994 period, due to increased
foreign source income, taxed at higher rates.
Record earnings for the second quarter ended April 30, 1995 were $.97
per share, compared to $.24 for the 1994 period. Earnings per share
of $1.70 for the six months of 1995 were also a record and compare to
$.48 for the 1994 period. Earnings for the 1994 six months include a
net gain of $.09 per share from the sale of property and the sale of
an operating lease.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1995, the ratio of current assets to current
liabilities was 1.9 compared to 1.7 at October 31, 1994. Cash and
marketable securities increased 34.9% from the October 31, 1994
level reflecting strong cash flows from operations partially offset
by cash used for investing and financing activities. Cash flows
from operations totaled $184.1 million for the six months ended
April 30, 1995, compared to $85.2 million for the comparable 1994
period. Inventories recovered from unusually low October 1994
levels, relative to sales, as the volume of finished goods on hand
at the converting facilities and the cost of some direct materials
increased. Cash expenditures for capital investments totaled $113.3
million for the six months of 1995, compared to $107.8 million for
the comparable 1994 period. At April 30, 1995, the amounts
committed to complete all authorized capital projects were
approximately $307 million and total capital expenditures are
expected to approximate between $300 to $325 million in 1995. The
company may from time to time use outside sources as needed to
finance future capital investments, as it has in the past. Cash
flows from financing activities for the first six months of 1995
reflected the issuance and repayment of commercial paper and the
repayment of $21.1 million of sinking fund debentures. At April 30,
1995, the company had no commercial paper outstanding. The company
maintains a $400 million revolving credit agreement and has access
to an additional $75 million of unsecured bank credit lines; there
were no borrowings under any of these arrangements during the
current period. The ratio of debt to total capital employed was 33%
at April 30, 1995, compared to 34% at October 31, 1994.
Environmental matters
The company operates in an industry subject to extensive
environmental regulations. Future capital expenditures for
pollution control facilities are expected to increase substantially
as a result of proposed EPA air and water quality regulations for
the United States paper industry. The company has continued its
efforts to eliminate the use of elemental chlorine in its pulp
bleaching operations. The final phase of this recently announced
effort will involve an investment of about $140 million and take
approximately two years to complete. This is an initial step in
addressing the anticipated regulations. Total required expenditures
related to EPA's proposals are expected to fall in a range of $175
to $400 million. Additional operating costs, including depreciation,
for these new facilities are expected to fall in a range of $25 to $50
million pretax annually. Currently, the company does not expect final
9
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
rules until 1996 with implementation required over a three-year
period following release of the final rules. It will be difficult
to develop more precise estimates until the proposed rules become
final.
The company is currently named as a potentially responsible party
with respect to the cleanup of a number of hazardous waste sites
under the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) and similar state laws. While joint and
several liability is authorized under CERCLA, as a practical matter,
remediation costs will be allocated among the waste generators and
others involved. The company has accrued approximately $5 million
for estimated potential cleanup costs based upon its close
monitoring of ongoing activities and its past experience with these
matters.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Report on Form 8-K: There were no Form 8-K reports filed during
the quarter ended April 30, 1995.
SIGNATURES
Pursuant to the requirements 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.
WESTVACO CORPORATION
(Registrant)
June 8, 1995 /s/ James E. Stoveken, Jr.
James E. Stoveken, Jr.
Vice President, Finance
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<CASH> 14146
<SECURITIES> 87036
<RECEIVABLES> 317701
<ALLOWANCES> 13824
<INVENTORY> 268723
<CURRENT-ASSETS> 735231
<PP&E> 5128196
<DEPRECIATION> 2064209
<TOTAL-ASSETS> 4109163
<CURRENT-LIABILITIES> 381638
<BONDS> 1226444
<COMMON> 547012
0
0
<OTHER-SE> 1401319
<TOTAL-LIABILITY-AND-EQUITY> 4109163
<SALES> 1546297
<TOTAL-REVENUES> 1546483
<CGS> 1093323
<TOTAL-COSTS> 1093323
<OTHER-EXPENSES> 112007
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51733
<INCOME-PRETAX> 188447
<INCOME-TAX> 74100
<INCOME-CONTINUING> 114347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114347
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
</TABLE>
