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 First Quarter Ended Commission File Number
January 31, 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 January 31, 1995, the latest practicable date, there were
67,283,993 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 ended January 31, 1995 and 1994 2
Consolidated Balance Sheet as of January 31, 1995
and October 31, 1994 3
Consolidated Statement of Cash Flows for the
three months ended January 31, 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 - 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 9 - 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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
January 31
1995 1994
Sales $741,675 $577,254
Other income 8,194 7,681
749,869 584,935
Cost of products sold (excludes
depreciation shown below) 535,963 431,137
Selling, research and administrative expenses 51,054 48,724
Depreciation and amortization 56,024 53,384
Interest expense 26,111 26,873
669,152 560,118
Income before taxes 80,717 24,817
Income taxes 31,400 9,000
Net income $ 49,317 $ 15,817
Average number of common shares outstanding 67,214 66,937
Net income per share of common stock $.73 $.24
Cash dividends per share of common stock $.27 1/2 $.27 1/2
The accompanying notes are an integral part of these financial
statements.
2
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED BALANCE SHEET
In thousands
January 31 October 31
1995 1994
[Unaudited]
ASSETS
Cash and marketable securities $ 68,873 $ 75,003
Receivables 292,027 269,403
Inventories 245,409 236,041
Prepaid expenses 56,340 50,106
Current assets 662,649 630,553
Plant and timberlands:
Machinery 3,969,344 3,950,692
Buildings 527,001 526,876
Other property, including plant land 187,866 186,757
4,684,211 4,664,325
Less: accumulated depreciation 2,013,252 1,964,285
2,670,959 2,700,040
Timberlands - net 235,586 237,199
Construction in progress 149,600 126,112
3,056,145 3,063,351
Other assets 301,936 289,089
$4,020,730 $3,982,993
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 295,641 $ 302,569
Notes payable and current maturities of
long-term obligations 25,547 41,640
Income taxes 30,865 17,357
Current liabilities 352,053 361,566
Long-term obligations 1,233,439 1,234,300
Deferred income taxes 539,271 525,112
Shareholders' equity:
Common stock, $5 par, at stated value
shares authorized: 200,000,000
shares issued: 67,740,588 (1994-67,597,227) 555,400 551,265
Retained income 1,354,819 1,323,982
Common stock in treasury, at cost
shares held: 456,595 (1994-430,409) (14,252) (13,232)
1,895,967 1,862,015
$4,020,730 $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
Three Months
Ended
January 31
1995 1994
Cash flows from operating activities:
Net income $ 49,317 $ 15,817
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 56,024 53,384
Provision for deferred income taxes 14,104 6,248
Gains on sales of plant and timberlands (4,338) (10,653)
Pension credits and other employee benefits (5,935) (8,429)
Foreign currency translation (gains) losses (1,573) 5,217
Changes in assets and liabilities:
(Increase) decrease in receivables (22,485) 11,968
Increase in inventories (9,251) (12,156)
Increase in prepaid expenses (6,180) (4,551)
Decrease in accounts payable and
accrued expenses (7,127) (19,361)
Increase in income taxes payable 13,475 356
Other, net (1,546) (1,212)
Net cash provided by operating activities 74,485 36,628
Cash flows from investing activities:
Additions to plant and timberlands (52,974) (63,452)
Proceeds from sales of plant and timberlands 6,288 11,496
Other, net (211) (460)
Net cash used in investing activities (46,897) (52,416)
Cash flows from financing activities:
Proceeds from issuance of common stock 3,082 4,573
Proceeds from issuance of debt 18,734 49,851
Dividends paid (18,480) (18,398)
Repayment of notes payable and long-term
obligations (38,202) (21,677)
Net cash (used in) provided by financing activities (34,866) 14,349
Effect of exchange rate changes on cash 1,148 (4,945)
Decrease in cash and marketable securities (6,130) (6,384)
Cash and marketable securities:
At beginning of period 75,003 56,559
At end of period $ 68,873 $ 50,175
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 January 31, 1995 and the
results of operations and its cash flows for the three months
ended January 31, 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 $49,077,000 ($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:
January 31 October 31
In thousands 1995 1994
Raw materials $ 61,059 $ 55,748
Production materials, stores
and supplies 72,123 71,622
Finished and in process goods 112,227 108,671
Total $245,409 $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 400 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 (1,877)
Balance at 1/31/95 $ 6,259
The company has incurred over 85% of the initial restructuring
program cost at January 31, 1995 and expects to spend 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
In thousands Ended January 31
1995 1994
Sales $52,697 $34,641
Net income (loss) $10,658 $ (237)
Rigesa's results for the first quarter of 1995 were positively
affected by increases in both the volume of shipments and price
and product mix, mainly for its corrugated packaging products.
5. Supplemental Cash Flow Information
Cash payments for interest excluding amounts capitalized were
$28,236,000 and $26,573,000 for the quarter ended January 31, 1995
and January 31, 1994, respectively. Cash payments for income
taxes were $3,512,000 and $1,968,000 in the first quarter 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
January 31
1995 1994
In millions
Sales
Bleached $476.8 $362.8
Unbleached 200.0 158.4
Chemicals 68.2 57.5
Corporate items (3.3) (1.4)
Consolidated sales $741.7 $577.3
Operating profit
Bleached $ 76.4 $ 45.0
Unbleached 37.7 6.8
Chemicals 11.6 10.5
Corporate items (45.0) (37.5)
Consolidated income
before taxes $ 80.7 $ 24.8
RESULTS OF OPERATIONS
We have seen a very positive change in the conditions of our
markets since the first quarter of 1994. Sales were a record
$741.7 million for the 1995 first quarter, a 28.5% increase over
the 1994 first quarter, the result of a 17.8% increase in the
volume of shipments and a 10.7% increase in price and product mix.
These strong markets and our continued focus on supporting the
growth of products which are distinctive and superior in their
market areas has served to enhance the demand for our products in
the United States and in many areas of the world. Export sales
increased 31.3% from the first quarter of 1994 and accounted for
over 13% of the company's record first quarter sales. This growth
in exports reflects improvements in volume and pricing. Gross
profit margin for the first quarter of 1995 was 20%, compared with
16% for the prior year period as sales increased at a faster pace
than the 24.3% increase in cost of products sold. The increase in
the cost of products sold is primarily attributable to volume
increases.
Bleached
Bleached segment sales for the first quarter increased 31.4% from
the comparable 1994 period, due mainly to a 26.0% increase in the
volume of shipments and a 5.4% increase in price and product mix.
Bleached board accounted for a significant portion of the increase
in shipments, with both domestic and export volumes showing strong
improvement over the prior year period. Bleached segment
operating profit for the first quarter increased 69.8% from the
comparable 1994 period reflecting increased profits at all
bleached segment operations. Prices for bleached board and fine
paper are above first quarter 1994 levels and are expected to
remain strong throughout the 1995 fiscal year. Year to date,
approximately 15% of bleached segment
7
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
RESULTS OF OPERATIONS (cont'd)
sales were made to the domestic tobacco industry. However, a
significant portion of this paper is used to produce products for
export. Excluding this portion, approximately 8.5% 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 26.3% from the 1994 first
quarter, due to a 23.2% increase in price and product mix and a 3.1%
increase in volume. Prices for linerboard improved over the comparable
1994 period. Operating profit for the unbleached segment increased to
$37.7 million in the first quarter of 1995, as a result of improvements
in all major business units of the segment, including Rigesa, Ltda., our
Brazilian subsidiary. During the second half of our 1994 fiscal year the
Brazilian government adopted a new economic plan to control
inflation. The impact on 1995 first quarter sales and earnings was
very positive, but it is too early to predict the continued success
of the plan. During March 1995, the Brazilian government announced
a phased-in devaluation of its currency in the range of 12%, which
is not now expected to have a major impact on Rigesa's clearly
improving results.
Chemicals
Sales for the chemicals segment increased 18.6% from the 1994 first
quarter due to price and product mix improvements of 12.0% and a
volume increase of 6.6%. Operating margins for the chemicals
segment remained strong, with 1995 first quarter operating profit up
10.5% from the prior year period.
Other income for the 1995 first quarter increased slightly over
the 1994 first quarter due to foreign currency translation gains
as compared to losses in the first quarter of 1994, partially
offset by lower property sales in 1995. The effective tax rate
increased to 38.9% for the first three months of 1995 compared to
36.3% for the 1994 period, due to increased foreign source income,
taxed at higher rates.
Earnings for the first quarter ended January 31, 1995 were $.73 per
share, compared to $.24 for the 1994 period. Earnings for the 1994
period 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 January 31, 1995, the ratio of current assets to current
liabilities was 1.9 compared to 1.7 at October 31, 1994. Cash
flows from operations were $74.5 million for the three months ended
January 31, 1995, compared to $36.6 million for the comparable 1994
period. Cash expenditures for capital investments
8
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
totaled $53.0 million for the first quarter of 1995, compared to
$63.5 million for the comparable 1994 period. At January 31,
1995, the amounts committed to complete all authorized capital
projects were approximately $256 million and total capital
expenditures are expected to approximate $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 during the first quarter of 1994
reflected the issuance and repayment of commercial paper and the
repayment of $18.8 million of sinking fund debentures. 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 34% at January 31, 1995, the same as 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 paper industry has
proposed more cost-effective methods which would achieve virtually
the same environmental improvement. Additional required
expenditures related to these proposals might possibly fall in a
range of $150 to $400 million over the next five years.
Additional operating costs, including depreciation, for these new
facilities might possibly fall in a range of $25 to $50 million
pretax annually. Currently, the company does not expect final
rules until the middle of 1996 with implementation over the three-
year period following release of the final rules. It will be
difficult to develop more precise estimates until the proposed
rules move closer to becoming 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 4. Submission of Matters to a Vote of Security Holders
(a) The Annual meeting of Shareholders of Westvaco Corporation
was held on February 28, 1995.
9
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders (cont'd)
(b) The directors named in the Proxy Statement were elected to
three year terms expiring in 1998, with the following
results:
Shares Shares Broker
Voted For Withheld Nonvotes
David L. Hopkins, Jr. 61,416,706 229,773 176,857
David L. Luke, III 61,395,729 250,750 176,857
Katherine G. Peden 61,411,947 234,532 176,857
Richard A. Zimmerman 61,462,254 184,225 176,857
(c) The appointment of Price Waterhouse as independent
accountants was ratified by a vote of 61,407,875 shares in
favor, 145,645 shares in opposition, 92,959 shares abstained
and 176,857 broker nonvotes.
(d) The proposal relating to the adoption of the 1995 Salaried
Employee Stock Incentive Plan was ratified by a vote of
54,667,340 shares in favor, 6,512,527 shares in opposition,
466,612 shares abstained and 176,857 broker nonvotes.
(e) The proposal relating to the adoption of the 1995 Non-
Employee Director Stock Incentive Plan was ratified by a vote
of 57,169,683 shares in favor, 4,053,407 shares in
opposition, 423,389 shares abstained and 176,857 broker
nonvotes.
The "Notice of Annual Meeting of Shareholders and Proxy Statement
for Westvaco Corporation" dated December 30, 1994 was filed with
the Securities and Exchange Commission pursuant to Regulation 14A
of the Act and is incorporated herein by reference.
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 January 31, 1995.
10
<PAGE>
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)
March 16, 1995 /s/ James E. Stoveken, Jr.
James E. Stoveken, Jr.
Vice President, Finance
11
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