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 Third Quarter Ended Commission File Number
July 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 July 31, 1995, the latest practicable date, there were
101,503,688* shares outstanding of Common Stock, $5 par value.
* Restated to reflect the three-for-two common stock split in
the form of a 50% stock dividend declared August 22, 1995 and
payable October 2, 1995 to shareholders of record on September 1, 1995.
<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 nine months ended July 31, 1995 and 1994 2
Consolidated Balance Sheet as of July 31, 1995
and October 31, 1994 3
Consolidated Statement of Cash Flows for the
nine months ended July 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 - 10
PART II. OTHER INFORMATION
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 Nine Months Ended
July 31 July 31
1995 1994 1995 1994
Sales $854,567 $641,270 $2,400,864 $1,844,960
Other income 8,557 184 20,404 3,348
863,124 641,454 2,421,268 1,848,308
Cost of products sold (excludes
depreciation shown below) 582,132 475,659 1,675,455 1,373,166
Selling, research and
administrative expenses 62,583 49,757 175,217 145,777
Depreciation and amortization 59,483 55,564 171,490 163,519
Interest expense 25,573 27,401 77,306 82,072
729,771 608,381 2,099,468 1,764,534
Income before taxes 133,353 33,073 321,800 83,774
Income taxes 53,200 12,900 127,300 31,500
Income before extraordinary charge 80,153 20,173 194,500 52,274
Extraordinary charge - extinguishment
of debt, net of taxes (2,590) - (2,590) -
Net income $ 77,563 $ 20,173 $ 191,910 $ 52,274
Average number of common
shares outstanding 101,374 100,648 101,086 100,544
Per share of common stock:
Income before extraordinary charge $ .79 $.20 $1.92 $.52
Extraordinary charge -
extinguishment of debt (.02) - (.02) -
Net income $ .77 $.20 $1.90 $.52
Cash dividends per share of
common stock $ .18 1/3 $.18 1/3 $ .55 $.55
Per share information and average shares outstanding have been
restated to reflect the three-for-two stock split described in Note 7.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED BALANCE SHEET
In thousands
July 31 October 31
1995 1994
[Unaudited]
ASSETS
Cash and marketable securities $ 133,068 $ 75,003
Receivables 303,156 269,403
Inventories 289,569 236,041
Prepaid expenses 51,580 50,106
Current assets 777,373 630,553
Plant and timberlands:
Machinery 4,050,938 3,950,692
Buildings 532,078 526,876
Other property, including plant land 190,253 186,757
4,773,269 4,664,325
Less: accumulated depreciation 2,116,706 1,964,285
2,656,563 2,700,040
Timberlands - net 233,243 237,199
Construction in progress 195,147 126,112
3,084,953 3,063,351
Other assets 318,694 289,089
$4,181,020 $3,982,993
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 338,325 $ 302,569
Notes payable and current maturities of
long-term obligations 37,991 41,640
Income taxes 44,688 17,357
Current liabilities 421,004 361,566
Long-term obligations 1,171,204 1,234,300
Deferred income taxes 575,637 525,112
Shareholders' equity:
Common stock, $5 par, at stated value
shares authorized: 200,000,000
shares issued: 102,268,356 (1994-101,395,841) 738,564 551,265
Retained income 1,291,097 1,323,982
Common stock in treasury, at cost
shares held: 764,669 (1994-645,614) (16,486) (13,232)
2,013,175 1,862,015
$4,181,020 $3,982,993
Number of shares issued have been adjusted to reflect the three-for-
two stock split described in Note 7.
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
Nine Months Ended
July 31
1995 1994
Cash flows from operating activities:
Net income $ 191,910 $ 52,274
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 171,490 163,519
Provision for deferred income taxes 52,752 21,813
Gains on sales of plant and timberlands (4,628) (10,948)
Pension credits and other employee benefits (2,853) (31,221)
Foreign currency translation (gains) losses (3,689) 14,020
Changes in assets and liabilities:
Increase in receivables (33,820) (26,184)
(Increase) decrease in inventories (53,336) 68
Increase in prepaid expenses (3,703) (16)
Increase (decrease) in accounts payable and
accrued expenses 19,634 (23,054)
Increase in income taxes payable 27,532 1,911
Other, net 8,095 927
Net cash provided by operating activities 369,384 163,109
Cash flows from investing activities:
Additions to plant and timberlands (189,900) (154,985)
Proceeds from sales of plant and timberlands 7,321 12,090
Other, net (700) (2,636)
Net cash used in investing activities (183,279) (145,531)
Cash flows from financing activities:
Proceeds from issuance of common stock 12,510 5,848
Proceeds from issuance of debt 67,871 321,690
Dividends paid (55,595) (55,298)
Repayment of notes payable and long-term
obligations (153,676) (289,655)
Net cash used in financing activities (128,890) (17,415)
Effect of exchange rate changes on cash 850 (12,443)
Increase (decrease) in cash and
marketable securities 58,065 (12,280)
Cash and marketable securities:
At beginning of period 75,003 56,559
At end of period $ 133,068 $ 44,279
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 July 31, 1995, the results of
operations for the three and nine months ended July 31, 1995 and
1994 and the cash flows for the nine months ended July 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. In accordance with generally accepted
accounting principles and practices the average shares outstanding,
number of shares issued and all per share information have been
adjusted to reflect the three-for-two stock split described in Note 7.
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 $99,690,000 ($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:
July 31 October 31
In thousands 1995 1994
Raw materials $ 81,305 $ 55,748
Production materials, stores
and supplies 76,791 71,622
Finished and in process goods 131,473 108,671
Total $289,569 $236,041
3. Retirement of Debt
On July 31, 1995, the company retired $63,750,000 of 12.3%
debentures. The transaction resulted in an extraordinary charge
of $2,590,000, net of an income tax benefit of $1,690,000.
5
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
4. 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. Under the program, which is now complete, the company
eliminated approximately 450 salaried positions, closed certain
specialized facilities and consolidated certain product lines. At
July 31, 1995, there was no balance remaining in the reserve.
5. Foreign Operations
Results of operations for Rigesa, Ltda., our Brazilian operating
subsidiary, were as follows:
Three Months Nine Months
In thousands Ended July 31 Ended July 31
1995 1994 1995 1994
Sales $70,052 $33,943 $187,892 $107,618
Net income $14,734 $ 4,357 $ 38,539 $ 6,550
Compared to the prior year periods, Rigesa's results for the third
quarter and nine months of 1995 were positively affected by changes
in price and product mix of 94.9% and 56.5%, respectively, and
increases in the volume of shipments of 11.5% and 18.1%,
respectively.
6. Supplemental Cash Flow Information
Cash payments for interest excluding amounts capitalized were
$78,700,000 and $96,196,000 for the nine months ended July 31, 1995
and July 31, 1994, respectively. Cash payments for income taxes
were $41,333,000 and $8,724,000 in the first nine months of 1995
and 1994, respectively.
7. Subsequent Events
On August 22, 1995 the Board of Directors declared a three-for-two
common stock split in the form of a 50% stock dividend, payable
October 2, 1995 to shareholders of record on September 1, 1995.
The split results in a transfer of $169 million ($5.00 per share)
from retained income to the common stock account which has been
given retroactive effect in the consolidated balance sheet as of
July 31, 1995. All references in this report to the number of
common shares and per share data have been adjusted to reflect the
stock split. On the same date, the Board authorized an increase
in the dividend per share by 20% to a new quarterly rate of $.22
per share after the split. The new rate will be payable on
October 2, 1995 to shareholders of record on September 1, 1995.
6
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS [Unaudited]
Segment Information
Three Months Ended Nine Months Ended
July 31 July 31
1995 1994 1995 1994
In millions
Sales
Bleached $541.4 $416.0 $1,533.5 $1,179.2
Unbleached 243.9 162.7 666.8 487.7
Chemicals 71.7 64.1 209.2 181.7
Corporate items (2.4) (1.5) (8.6) (3.6)
Consolidated sales $854.6 $641.3 $2,400.9 $1,845.0
Operating profit
Bleached $104.7 $ 60.6 $ 283.7 $ 154.9
Unbleached 67.3 9.2 155.6 24.6
Chemicals 11.3 13.7 32.0 35.6
Corporate items (49.9) (50.4) (149.5) (131.3)
Consolidated income
before taxes $133.4 $ 33.1 $ 321.8 $ 83.8
RESULTS OF OPERATIONS
Record sales of $854.6 million for the 1995 third quarter were up
33.3% from the 1994 third quarter, the result of a positive 26.0%
change in price and product mix and an 7.3% increase in the volume
of shipments. Sales of $2.4 billion for the nine months also set a
new record and were up 30.1% from the comparative 1994 period, due
to a 18.7% increase in price and product mix and a 11.4% increase in
the volume of shipments. Export sales were up 38.9% and 32.3%
compared to the respective third quarter and nine 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 21% of consolidated sales. The growth in
exports and international sales reflects a strong demand for the
company's distinctive and differentiated products outside of the
United States. The company is continuing to vigorously support
efforts to cultivate opportunities in international markets. Gross
profit margin for the third quarter and nine months of 1995 was 25%
and 23%, 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 attributable to volume
increases and some direct materials cost increases.
Bleached
Bleached segment sales for the third quarter and nine months
increased 30.1% and 30.0%, respectively, from the comparable 1994
periods, due to unit volume increases of 9.0% and 15.8%, respectively,
and favorable changes in price and
7
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS [Unaudited]
RESULTS OF OPERATIONS (cont'd)
product mix of 21.1% and 14.2%, respectively. Improved demand in both
domestic and export markets was supported by strong productivity
improvement in the bleached segment. Bleached segment
operating profit was up in the third quarter and nine months
ended July 31, 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 the
portion exported, 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 49.9% and 36.7%,
respectively, compared to the 1994 third quarter and nine months, due
to improvements in price and product mix of 44.4% and 33.2%,
respectively, and increases in volume of 5.5% and 3.5%, respectively.
Pricing at Rigesa, Ltda., our Brazilian subsidiary has improved
significantly compared to 1994 levels as a result of the improved
stability of the value of the local currency. Operating profit for
the unbleached segment increased to $67.3 million for the 1995 third
quarter and $155.6 million for the 1995 nine 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 that has significantly reduced
inflation. The impact on 1995 sales and earnings, to date, has been
positive, but the company cannot predict the continued success of the
plan. Recently, the Brazilian government has implemented restraints
on the general economy which have negatively effected box volumes
somewhat. However, Rigesa's volumes are still strong by historical
standards. Rigesa accounted for approximately 40% of unbleached
segment operating profit in the 1995 nine month period.
Chemicals
Sales for the chemicals segment increased 11.9% and 15.1%,
respectively, from the 1994 third quarter and nine months due to price
and product mix improvements of 11.0% and 11.7%, respectively, and
volume increases of .9% and 3.4%, respectively. Operating margins for
the chemicals segment continue to be good. Operating profit for the
chemicals segment decreased slightly to $11.3 million and $32.0
million, respectively, for the third quarter and nine months of 1995.
The 1995 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 25.8% for the
quarter and 20.2% for the nine months primarily reflecting costs
associated with stock
8
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS [Unaudited]
RESULTS OF OPERATIONS (cont'd)
appreciation rights as well as costs for several other administrative
items in 1995. Other income for the 1995 third quarter and nine
months increased over the 1994 respective periods 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 39.6% for the first nine months of
1995 compared to 37.6% for the 1994 period, due to increased foreign
source income, taxed at higher rates.
Record earnings for the third quarter ended July 31, 1995 were $.77
per share after adjustment for the three-for-two stock split (see
notes to the financial statements), compared to $.20 per share after
the split, for the 1994 period. Earnings per share of $1.90 per
share after the split, for the nine months of 1995 were also a record
and compare to $.52 per share after the split, for the 1994 period.
Earnings for the 1995 third quarter and nine months include an
extraordinary charge of $.02 per share after the split, for the
retirement of debt. Earnings for the 1994 nine months include a net
gain of $.06 per share after the split, from the sale of property and
the sale of an operating lease.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1995, the ratio of current assets to current liabilities
was 1.8 compared to 1.7 at October 31, 1994. Cash and marketable
securities increased reflecting strong cash flows from operations
partially offset by cash used for investing and financing
activities. Cash flows from operations totaled $369.4 million for
the nine months ended July 31, 1995, compared to $163.1 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 and the cost of some direct materials
increased. Cash expenditures for capital investments totaled $189.9
million for the nine months of 1995, compared to $155.0 million for
the comparable 1994 period. At July 31, 1995, the amounts committed
to complete all authorized capital projects were approximately $443
million, including approximately $140 million associated with the
elemental chlorine free bleaching initiative discussed under
Environmental matters below. Total capital expenditures are
expected to approximate $280 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 nine months of 1995 primarily reflected the
issuance and repayment of commercial paper and the repayment of
$82.5 million of sinking fund debentures. At July 31, 1995, the
company had $10 million of 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 31%
at July 31, 1995, compared to 34% at October 31, 1994. On August
22, 1995 the Board of Directors voted to increase the quarterly cash
dividend by 20%, resulting in a new annual rate of $.88 per share,
or $.22 per quarter after the split (see notes to the financial
statements).
9
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS [Unaudited]
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
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 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
could fall in the range of $175 to $400 million. Additional
operating costs, including depreciation, for these new facilities
could fall in the range of $25 to $50 million pretax annually.
Currently, the company does not expect final rules until sometime in
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:
27. Financial Data Schedules
(b) Report on Form 8-K: There were no Form 8-K reports filed during
the quarter ended July 31, 1995.
10
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
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)
September 12, 1995 /s/James E. Stoveken, Jr.
James E. Stoveken, Jr.
Vice President, Finance
11
<PAGE>
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