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Exhibit Index
Appears on Page 14
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
COMMISSION FILE NUMBER 1-3013
WESTVACO CORPORATION
(A Delaware Corporation)
(I.R.S. Employer Identification No. 13-1466285)
299 PARK AVENUE, NEW YORK, NEW YORK 10171
TELEPHONE 212-688-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
Common Stock- $5 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Sinking Fund Debentures:
12.30%, due 1996 New York Stock Exchange
8 1/8%, due 1996-2007 New York Stock Exchange
10 1/4%, due 1999-2018 New York Stock Exchange
10.30%, due 2000-2019 None
10 1/8%, due 2000-2019 None
8.30%, due 2003-2022 None
7%, due 2004-2023 None
7.75%, due 2004-2023 None
Debentures:
9.65%, due 2002 None
9 3/4%, due 2020 None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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.
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 November 30, 1995, the latest practicable date, the number of
shares of common stock outstanding and aggregate market value of
voting common stock held by nonaffiliates were 101,561,097 and
$2,799,277,736, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the
fiscal year ended October 31, 1995 are incorporated by reference
into Parts I, II and IV of this Form 10-K.
Portions of the registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held February 27, 1996 are
incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Westvaco Corporation is one of the major producers of paper and
paperboard in the United States. It converts paper and paperboard
into a variety of end-products, manufactures a variety of
specialty chemicals, produces lumber, sells timber from its
timberlands and is engaged in land development. In Brazil, it is
a major producer of paperboard and corrugated packaging for the
markets of that country. It also exports products from both the
United States and Brazil to other countries throughout the world.
The term "Westvaco" or "the company" includes Westvaco Corporation
and its consolidated subsidiaries unless otherwise noted.
BUSINESS SEGMENTS
The company's principal business segments are the manufacture of
bleached paper, paperboard and packaging products, unbleached
paper, paperboard and packaging products and specialty chemicals.
Financial information about the company's business segments is
contained in Note N to the consolidated financial statements,
included in the 1995 Westvaco Annual Report on pages 30 to 31, and
is incorporated herein by reference.
MARKETING AND DISTRIBUTION
The principal markets for Westvaco's products are in the United
States. Sales to customers outside the United States made up
approximately 21% of Westvaco's total sales in 1995 (1994-19%,
1993-18%). Substantially all products are sold through the
company's own sales force. Westvaco maintains 28 sales offices
located throughout the United States and 25 in foreign countries.
TIMBERLANDS
The principal raw material used in the manufacture of paper,
paperboard and pulp is wood. Westvaco owns 1,453,000 acres of
timberland in the United States and Brazil. Westvaco's
Cooperative Forest Management Program provides an additional
source of wood fiber for its mills from the 1,394,000 acres
covered by the program. All acreage is located within economic
reach of the company's mills.
Westvaco timberlands are well stocked, mainly with vigorous pine
plantations and natural hardwoods. Most pine stands harvested are
plantations and are regenerated by establishing new pine
plantations. Most hardwood stands harvested are re-established by
planned natural regeneration, but Westvaco also operates hardwood
plantation programs involving several species. Westvaco's
intensive program of planting, fertilizing, control of competing
vegetation and improvement through tree breeding has substantially
increased wood fiber yield per acre from plantations. While
Westvaco's lands have the potential to supply considerably more
timber resources than the amount currently being harvested from
them, the location of its mills and composition of surrounding
land ownership make it possible to rely on other growers for
substantial quantities of wood. The quantity of wood harvested by
Westvaco from its lands in any year is primarily controlled by
long-range forest management programs.
During 1995, Westvaco's timberlands harvested the equivalent of
approximately 37% (1994-36%, 1993-36%) of the wood requirements of
its mills. In 1995, the company purchased 8% (1994-9%, 1993-9%)
of its wood requirements from non-industrial private owners of
timberlands participating in its Cooperative Forest Management
Program. The remainder of its mill needs was purchased from other
independent wood, chip and sawmill waste suppliers. Each mill is
supported by a wood procurement organization. Approximately 31
pulpwood concentration and processing yards are strategically
located and have facilities for storing and shipping wood to the
mills.
The supply of wood available to Westvaco from its lands and from
other sources has been adequate for its production requirements.
Westvaco anticipates that there will continue to be an adequate
supply of
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wood fiber available from its own lands and from other
sources to satisfy its requirements. The company continues to
invest in forest research and practice its intensive forest
management techniques, both of which increase the ability to
provide fiber to its mills in the future. Westvaco's sole source
of fiber for its domestic operations is from the United States.
The company's Brazilian subsidiary uses only Brazilian fiber
sources. It has a high degree of fiber self-sufficiency from pine
plantations on its own timberlands base, located in the temperate
area of southern Brazil over 1,000 miles south of the Amazon
basin.
PATENTS
Westvaco has obtained a number of patents as a result of its
research and product development efforts, and such patents and any
licenses granted thereunder can be regarded as measures of its
accomplishments. Westvaco is the owner of many registered
trademarks for its products. Westvaco is not materially dependent
on trademarks, patents or licenses under patents held by others.
DEPENDENCE UPON A SINGLE CUSTOMER
In fiscal year 1995, approximately 15% of the company's bleached
segment sales were made to the domestic tobacco industry, which
consists of a limited number of major companies. However, a
significant portion of this paper and board is used for products
which are exported. Excluding this portion, approximately 8.5% of
bleached segment sales were made to the domestic tobacco industry
for sale in the United States. The current legal and regulatory
pressures on that industry could have an adverse effect on future
bleached segment sales and profitability. The company would
expect to offset unit volume declines, if any, in U. S. tobacco
sales by continuing growth in sales to the liquid, dry and frozen
food, personal care, foreign tobacco and other consumer product
markets of the world.
COMPETITION
Westvaco's strategy is to compete by developing distinctive and
innovative products and services for our customers in the United
States and world markets. There are many large, well established
and highly competitive sellers competing in these markets as well.
RESEARCH
Westvaco operates major research facilities at Laurel, MD,
Charleston, SC, and Covington, VA, and a forest science laboratory
at Summerville, SC. Forest research centers at Wickliffe, KY,
Rupert, WV, and Tres Barras, State of Santa Catarina, Brazil, are
working on research relating to growing and sustaining the
production of timber and fiber, such as genetics, tree nutrition,
regeneration, stand management, environmental protection and
forest measurements. The company's larger divisions and
subsidiaries also have product development staffs which work on
product-related projects directed toward specific opportunities of
the individual units.
The company incurred $31.4 million (1994-$30.6 million, 1993-$30.5
million) of research and development costs. Substantially all of
the research projects are company sponsored. Approximately 190
scientists were employed in research and development activities.
ENVIRONMENTAL PROTECTION
Westvaco is subject to federal and state pollution control laws
and regulations in all jurisdictions in which it has operating
facilities. Compliance with these requirements involves the
diversion of capital from productive facilities and increases
operating costs. In the opinion of Westvaco's management,
environmental protection requirements will not adversely affect
the company's competitive industry position since other domestic
companies are subject to similar requirements. Capital
expenditures for pollution control facilities are expected to
approximate $150 and $120 million in 1996 and 1997, respectively,
which includes the investment for the removal of elemental
chlorine as noted below.
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 U. S. paper
industry. In 1995, the company authorized the final step in a long-
term program initiated in 1989 which will result in the removal of
elemental chlorine from all of
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our pulp bleaching processes. To
accomplish this, Westvaco authorized an expenditure of $140 million in
the spring of 1995, and we expect the program to be complete in 1997.
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 several years thereafter. It will be difficult to
develop more precise estimates until the proposed rules become final.
EMPLOYEES
At November 30, 1995, Westvaco employed approximately 13,030
persons, of whom 6,275 domestic employees are represented by
various labor unions under collective bargaining agreements.
Approximately 1,990 employees of Rigesa, Ltda. ("Rigesa"),
Westvaco's Brazilian subsidiary, are represented under collective
bargaining arrangements. Westvaco believes its labor relations
are good.
INTERNATIONAL OPERATIONS
In Brazil, Rigesa operates a paperboard mill and a corrugated box
plant in Valinhos, State of Sao Paulo; a paperboard mill in Tres
Barras, State of Santa Catarina; and corrugated box plants in
Blumenau, State of Santa Catarina; Manaus, State of Amazonia; and
Fortaleza, State of Ceara. Rigesa is one of the few paper
companies in Brazil which is integrated from the forests to the
markets. This fact, combined with technology drawn from
Westvaco's U.S. experience, has provided Rigesa with a history of
high-quality products and strong historic growth. Operating
results at Rigesa continue to be subject to the uncertain economic
and political conditions in Brazil.
Westvaco's Czech Republic subsidiary, Westvaco Svitavy, spol. s
r.o.("Svitavy"), began operating a paper converting plant in that
country during the 1995 fiscal fourth quarter. Svitavy supplies
consumer packaging to the markets of Eastern, Central and Western
Europe. The packaging is made primarily from distinctive paper
and paperboard produced by Westvaco in the United States.
Export sales from Westvaco's U.S. operations made up approximately
14% of Westvaco's 1995 sales (1994-13%, 1993-12%). Rigesa's
sales, including exports, were 7% of Westvaco's total sales (1994-
6%, 1993-6%). For information concerning the income of Westvaco's
foreign subsidiaries for the three years ended October 31, 1995
and the assets for the two-year period then ended, see Note J to
the consolidated financial statements, incorporated by reference
in Part II of this report. While there are risks inherent in
foreign investments, Westvaco does not believe at this time that
such risks are material to its overall business prospects.
ITEM 2. PROPERTIES
The location of Westvaco's production facilities and their
principal products in each business segment as of October 31,
1995 were as follows:
BLEACHED PAPER, PAPERBOARD AND PACKAGING PRODUCTS
Location Product
Covington, Virginia Bleached paperboard
Luke, Maryland White printing and converting papers
Wickliffe, Kentucky White printing and converting papers,
and market pulp
Tyrone, Pennsylvania White printing and converting papers (from
purchased or transferred pulp and recovered
materials)
Low Moor, Virginia Extrusion coated bleached paperboard
Cleveland, Tennessee Folding cartons
Newark, Delaware Folding cartons
Richmond, Virginia Folding cartons
Svitavy, Czech Republic Folding cartons
Richmond, Virginia Cartons for liquid products
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Atlanta, Georgia Envelopes
Dallas, Texas Envelopes
Enfield, Connecticut Envelopes
Indianapolis, Indiana Envelopes
Los Angeles, California Envelopes
North Chicago, Illinois Envelopes
San Francisco, California Envelopes
Springfield, Massachusetts Envelopes
Williamsburg, Pennsylvania Envelopes
Springfield, Massachusetts Flexible packaging and paper cups
UNBLEACHED PAPER, PAPERBOARD AND PACKAGING PRODUCTS
Location Product
Charleston, South Carolina Linerboard, saturating kraft and
folding carton stock
Covington, Virginia Corrugating medium
Tres Barras, Santa Catarina, Brazil Containerboard and kraft papers
Valinhos, Sao Paulo, Brazil Corrugating medium (principally
from waste papers)
Richmond, Virginia Pre-printed linerboard
Baltimore, Maryland* Corrugated boxes
Blumenau, Santa Catarina, Brazil Corrugated boxes
Buffalo, New York* Corrugated boxes
Chicago, Illinois* Corrugated boxes
Cleveland, Ohio* Corrugated boxes
Cleveland, Tennessee* Corrugated boxes
Columbus, Georgia* Corrugated boxes
Eaton, Ohio* Corrugated boxes
Fortaleza, Ceara, Brazil Corrugated boxes
Gastonia, North Carolina* Corrugated boxes
Manaus, Amazonia, Brazil Corrugated boxes
Meriden, Connecticut* Corrugated boxes
Richmond, Virginia* Corrugated boxes
Valinhos, Sao Paulo, Brazil Corrugated boxes
Cameron, South Carolina Building products
Summerville, South Carolina Building products
CHEMICALS
Location Product
Charleston, South Carolina Lignin-based surfactants and tall oil
derivatives
Covington, Virginia Activated carbon products and services
DeRidder, Louisiana Printing ink resins and tall oil
derivatives
Mulberry, Florida Tall oil derivatives
OTHER
Location Product
Summerville, South Carolina Land development
* In November 1995, the company disposed of its domestic corrugated box
business.
CAPACITY AND PRODUCTION
Capacity is based on the expected operations and product mix of
each of the locations. Whether capacity can in practice be
attained or exceeded is dependent upon a variety of factors such
as actual product mix, quantity and timing of production runs,
required maintenance time and labor conditions.
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The annual productive capacity is approximately 3,142,000 tons for
the paper and paperboard mills and 1,168,000 tons for the
converting plants. The 1995 production from these facilities was
3,105,000 and 926,000 tons, respectively. The mills supplied 74%
of the paper and paperboard needs of the converting plants. The
annual productive capacity for the chemical plants is 495,000
tons. In 1995, 452,000 tons of specialty chemicals were produced.
LEASES
See Note H to the consolidated financial statements, incorporated
by reference in Part II of this report, for financial data on
leases. Substantially all of the leases of production facilities
contain options to purchase or renew for future periods.
TIMBERLANDS
Westvaco owns 1,453,000 acres of timberlands. There are 1,103,000
acres in the South and Middle Atlantic United States, 235,000
acres in the Central United States and 115,000 acres in Brazil.
Minor sales and purchases are continuous to improve management and
transportation efficiency.
OTHER INFORMATION
Certain of the facilities at the Wickliffe mill, the Indianapolis
envelope plant and minor components of other plants, owned by
municipal or other public authorities pursuant to standard
industrial revenue bond financing arrangements, are accounted for
as property owned by Westvaco. Westvaco holds options under which
it may purchase each of these facilities from such authorities by
paying a nominal purchase price and assuming the indebtedness
owing on the industrial revenue bonds at the time of the purchase.
The company owns in fee all of the mills, plants and timberlands
listed in Item 2, except leased facilities and those described
above.
Westvaco's mills and plants and related machinery and equipment
are considered by the company to be well maintained and in good
operating condition.
ITEM 3. LEGAL PROCEEDINGS
The company is involved in contractual disputes, administrative
and legal proceedings and investigations of various types,
generally incidental to its business. In addition, the company is
currently named as a potentially responsible party with respect to
the cleanup of several 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, as of October 31, 1995, accrued
approximately $5 million for estimated potential cleanup costs
based upon its close monitoring of ongoing activities and its past
experience with these matters. The company periodically reviews
the status of the hazardous waste sites and adjusts its accrual as
appropriate. While any litigation, proceeding or investigation
has an element of uncertainty, the company and its General Counsel
do not believe that the outcome of any proceeding, lawsuit or
claim that is pending or threatened, or all of them combined, will
have a material adverse effect on its consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the
fourth quarter ended October 31, 1995.
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Executive officers of the registrant
The following table sets forth certain information concerning the
executive officers of Westvaco Corporation:
Year in which
service in present
Name Age Present position
position began
David L. Luke III* 72 Chairman of the Board 1980
John A. Luke, Jr.* 47 President and
Chief Executive Officer 1992
Rudolph G. Johnstone* 59 Executive Vice President 1995
E. Lee Andrews 60 Senior Vice President 1988
George E. Cruser* 65 Senior Vice President 1980
Philip H. Emery, Jr. 61 Senior Vice President 1995
Frederick C. Haas 59 Senior Vice President 1982
Jack A. Hammond 57 Senior Vice President 1992
Thomas R. Long 65 Senior Vice President 1986
and General Counsel 1977
William D. Major 63 Senior Vice President 1992
Brantley D. Thomas, Jr. 62 Senior Vice President 1987
R. Scott Wallinger 56 Senior Vice President 1987
John W. Hetherington 57 Vice President and 1987
Secretary 1978
Ned W. Massee 45 Vice President 1991
James E. Stoveken, Jr. 56 Vice President 1986
Wendell L. Willkie II 44 Vice President and
Associate General Counsel 1995
William S. Beaver 44 Treasurer 1987
John E. Banu 48 Comptroller 1995
* Director of Westvaco
Westvaco's officers are elected by the Board of Directors annually
for one-year terms. Westvaco's executive officers have served in
their present capacities for the past five years or longer with
the following exceptions:
John A. Luke, Jr., Executive Vice President, 1990-1992; Rudolph G.
Johnstone, Senior Vice President, 1990-1995; Jack A. Hammond, Vice
President and Assistant Manager of the Bleached Board Division,
1987-1992; Philip H. Emery, Jr., Vice President, 1987-1995;
William D. Major, Vice President, 1990-1992; Ned W. Massee,
Manager of the Public Affairs Department since August 1991,
Assistant Manager of the Public Affairs Department, March 1991-
August 1991, Manager of Government Relations, 1986-1991; James E.
Stoveken, Jr., Comptroller, 1979-1995; Wendell L. Willkie II,
served as a Fellow in legal policy and international trade at the
American Enterprise Institute, 1993-1995, prior to which he held
several senior law and management positions with the U. S.
government; John E. Banu, Assistant Comptroller, 1980-1995.
Information required by Item 405 of Regulation S-K will be
included in Westvaco's Notice of 1996 Annual Meeting of
Shareholders and Proxy Statement, pursuant to Regulation 14A, to
be filed with the Securities and Exchange Commission by January
29, 1996, and is incorporated herein by reference.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) Market and price range of common stock
The company's common stock is traded on the New York, Chicago
and Pacific Stock Exchanges under the symbol W. The New York
Stock Exchange is the principal market in which the common
stock is traded.
The quarterly price range of common stock and the quarterly
dividends per share for 1995 and 1994 are included on page 2
of the 1995 Westvaco Annual Report under the captions
"Quarterly price ranges of stock" and "Quarterly dividends
per share," and are incorporated herein by reference.
(b) Approximate number of common shareholders
At October 31, 1995, the number of individuals and
institutions owning Westvaco common shares was about 20,490.
(c) Dividends
The company's record of uninterrupted quarterly cash
dividends extends to 100 years. There were no restrictions
on dividends at October 31, 1995.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is included on pages 34-35 of
the 1995 Westvaco Annual Report under the caption "An eleven-year
comparison," and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required by this item is included on pages 14-17 of
the 1995 Westvaco Annual Report under the captions "Liquidity and
capital resources," "Environmental matters," "Analysis of
operations," "Fiscal year 1994" and "Fiscal year 1993," and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is included on pages 18-33 of
the 1995 Westvaco Annual Report under the captions "Consolidated
statement of income," "Consolidated balance sheet," "Consolidated
statement of cash flows," "Notes to financial statements" and
"Report of independent accountants," and is incorporated herein by
reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item for the company's directors will
be contained in Westvaco's Notice of 1996 Annual Meeting of
Shareholders and Proxy Statement, pursuant to Regulation 14A, to
be filed with the Securities and Exchange Commission by January
29, 1996, and is incorporated herein by reference. Information
required by this item for the company's executive officers is
contained in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will be contained in Westvaco's
Notice of 1996 Annual Meeting of Shareholders and Proxy Statement,
pursuant to Regulation 14A, to be filed with the Securities and
Exchange Commission by January 29, 1996, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this item will be contained in Westvaco's
Notice of 1996 Annual Meeting of Shareholders and Proxy Statement,
pursuant to Regulation 14A, to be filed with the Securities and
Exchange Commission by January 29, 1996, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will be contained in Westvaco's
Notice of 1996 Annual Meeting of Shareholders and Proxy Statement,
pursuant to Regulation 14A, to be filed with the Securities and
Exchange Commission by January 29, 1996, and is incorporated
herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report:
1. Consolidated financial statements
The consolidated financial statements of Westvaco Corporation
and consolidated subsidiaries listed below are incorporated
herein by reference to the following pages of the 1995
Westvaco Annual Report:
Page
Consolidated statement of income for fiscal years
ended October 31, 1995, 1994 and 1993 18
Consolidated balance sheet at October 31, 1995 and 1994 19
Consolidated statement of cash flows for fiscal years
ended October 31, 1995, 1994 and 1993 20
Notes to financial statements 21-32
Report of independent accountants 33
2. Consolidated financial statement schedules
All financial statement schedules have been omitted
because they are inapplicable or the required information
is either immaterial or shown in the consolidated
financial statements and notes thereto.
Financial statements of a 50%-owned company have been
omitted because the company does not constitute a
"significant subsidiary."
3. Exhibits
3.i Restated Certificate of Incorporation, previously filed as
Exhibit 3b to the company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1992, File No. 1-3013, and
incorporated herein by reference.
3.ii Bylaws of Westvaco Corporation,
previously filed as Exhibit 3a to the company's Annual
Report on Form 10-K for the fiscal year ended October 31,
1992, File No. 1-3013, and incorporated herein by reference.
4.a Credit Agreement dated June 21,
1993, as amended August 22, 1994, previously filed as
Exhibit 4(a) to the company's Quarterly Report on Form l0-Q
for the third quarter ended July 31, 1993 and July 31, 1994,
incorporated herein by reference.
4.b Copies of instruments defining
the rights of holders of long-term debt will be furnished to
the Commission upon request.
4.c Rights Agreement dated as of
November 24, 1987 between Westvaco Corporation and Chemical
Bank (formerly Manufacturers Hanover Trust Company)
previously filed as Exhibit 1 to the company's Form 8-A
dated December 7, 1987, File No. 1-3013, incorporated herein
by reference.
4.d Amendment No. 1 to Rights
Agreement, dated as of October 25, 1988, previously filed as
Exhibit 28(a) to the company's Form 8-K dated November 10,
1988, File No. 1-3013, incorporated herein by reference.
4.e Amendment No. 2 to Rights
Agreement, dated as of October 24, 1989, previously filed as
Exhibit 4 to the company's Form 8-K dated October 24, 1989,
File No. 1-3013, incorporated herein by reference.
10.a The 1980 Stock Option and Stock
Appreciation Rights Plan, as amended, previously filed as
Exhibit 28(a) to Post-Effective Amendment No. 4 to
Registration Statement on Form S-8, File No. 2-71723,
incorporated herein by reference.
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10.b The 1983 Stock Option and Stock
Appreciation Rights Plan, as amended, previously filed as
Exhibit 28(b) to Post-Effective Amendment No. 1 to
Registration Statement on Form S-8, File No. 2-94699,
incorporated herein by reference.
10.c The 1988 Stock Option and Stock
Appreciation Rights Plan, as amended, previously filed as
Exhibit 28(c) to Registration Statement on Form S-8, File
No. 33-26823, incorporated herein by reference.
10.d Copies of Westvaco Corporation
Savings and Investment Restoration Plan, as amended,
effective January 1, 1990, and Retirement Income Restoration
Plan and Excess Benefit Plan, as amended, effective January
1, 1990, previously filed as Exhibit 10(d) to the company's
Annual Report on Form 10-K for the fiscal year ended October
31, 1989, incorporated herein by reference.
10.e Amendment to the Savings and
Investment Restoration Plan, effective January 1, 1991,
previously filed as Exhibit 10(e) to the company's Annual
Report on Form 10-K for the fiscal year ended October 31,
1991, incorporated herein by reference.
10.f Copies of the 1995 Salaried
Employee Stock Incentive Plan, effective February 28, 1995,
filed as Registration Statement on Form S-8, File No. 33-
57879, incorporated herein by reference.
10.g Copies of the 1995 Non-Employee
Director Stock Incentive Plan, effective February 28, 1995,
filed as Registration Statement on Form S-8, File No. 33-
57881, incorporated herein by reference.
10.h Copies of Westvaco Corporation
Savings and Investment Plan for Hourly Employees, effective
June 1, 1995, filed as Registration Statement on Form S-8,
File No. 33-59765, incorporated herein by reference.
13 Pages 2 and 14 through 35 of the Westvaco Corporation 1995
Annual Report to Shareholders, filed in connection with the
company's proxy under Rule 14a-3. Except for the
information that is expressly incorporated by reference, the
Annual Report to Shareholders is furnished for the
information of the Securities and Exchange Commission and is
not deemed to be filed as part of this report.
21 Subsidiaries of the Registrant.
23 Consent of independent accountants.
27 Financial data schedules.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fiscal
quarter ended October 31, 1995.
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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.
WESTVACO CORPORATION
(Registrant)
December 19, 1995 By /s/John A. Luke, Jr.
John A. Luke, Jr.
President 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.
Signature Title Date
/s/David L. Luke III Chairman of the Board and Director December 19, 1995
David L. Luke III
/s/John A. Luke, Jr. President, Chief Executive Officer December 19, 1995
John A. Luke, Jr. and Director
/s/Rudolph G. Johnstone Executive Vice President December 19, 1995
Rudolph G. Johnstone and Director
/s/George E. Cruser Senior Vice President and Director December 19, 1995
George E. Cruser (Principal Financial Officer)
/s/John E. Banu Comptroller December 19, 1995
John E. Banu (Principal Accounting Officer)
/s/John C. Bierwirth Director December 19, 1995
John C. Bierwirth
/s/Samuel W. Bodman III Director December 19, 1995
Samuel W. Bodman III
/s/Walter H. Brown Director December 19, 1995
Walter H. Brown
/s/W. L. Lyons Brown, Jr. Director December 19, 1995
W. L. Lyons Brown, Jr.
/s/David L. Hopkins, Jr. Director December 19, 1995
David L. Hopkins, Jr.
/s/John A. Luke Director December 19, 1995
John A. Luke
/s/William R. Miller Director December 19, 1995
William R. Miller
/s/Katherine G. Peden Director December 19, 1995
Katherine G. Peden
IV-3
12
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED OCTOBER 31, 1995
COMMISSION FILE NUMBER 1-3013
WESTVACO CORPORATION
(a Delaware Corporation)
(I.R.S. Employer Identification No. 13-1466285)
299 Park Avenue, New York, New York 10171
Telephone 212-688-5000
EXHIBITS
INDEX TO EXHIBITS
Exhibit
Sequential
No. Page No.
3.i Restated Certificate of Incorporation, previously filed as
Exhibit 3b to the company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1992 (File no. 1-3013)
and incorporated herein by reference.
3.ii Bylaws of Westvaco Corporation, previously filed as
Exhibit 3a to the company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1992 (File no. 1-3013)
and incorporated herein by reference.
4.a Credit Agreement dated June 21, 1993, as amended August
22, 1994, previously filed as Exhibit 4(a) to the
company's Quarterly Report on Form l0-Q for the third
quarter ended July 31, 1993 and July 31, 1995,
incorporated herein by reference.
4.b Copies of instruments defining the rights of holders of
long-term debt will be furnished to the Commission upon
request.
4.c Rights Agreement dated as of November 24, 1987 between
Westvaco Corporation and Chemical Bank (formerly
Manufacturers Hanover Trust Company) previously filed as
Exhibit 1 to the company's Form 8-A dated
December 7, 1987, File No. 1-3013, incorporated herein by
reference.
4.d Amendment No. 1 to Rights Agreement, dated as of October
25, 1988, previously filed as Exhibit 28(a) to the
company's Form 8-K dated November 10, 1988, File No. 1-
3013, incorporated herein by reference.
4.e Amendment No. 2 to Rights Agreement, dated as of October
24, 1990, previously filed as Exhibit 4 to the company's
Form 8-K dated October 24, 1989, File No. 1-3013,
incorporated herein by reference.
10.a The 1980 Stock Option and Stock Appreciation Rights Plan,
as amended, previously filed as Exhibit 28(a) to Post-
Effective Amendment No. 4 to Registration Statement on
Form S-8, File No. 2-71723, incorporated herein by
reference.
10.b The 1983 Stock Option and Stock Appreciation Rights Plan,
as amended, previously filed as Exhibit 28(b) to Post-
Effective Amendment No. 1 to Registration Statement on
Form S-8, File No. 2-94699, incorporated herein by
reference.
10.c The 1988 Stock Option and Stock Appreciation Rights Plan,
as amended, previously filed as Exhibit 28(c) to
Registration Statement on Form S-8, File No. 33-26823,
incorporated herein by reference.
10.d Copies of Westvaco Corporation Savings and Investment
Restoration Plan, as amended, effective January 1, 1990,
and Retirement Income Restoration Plan and Excess Benefit
Plan, as amended, effective January 1, 1990, previously
filed as Exhibit 10(d) to the company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1989,
incorporated herein by reference.
10.e Amendment to the Savings and Investment Restoration Plan
effective January 1, 1991, previously filed as Exhibit
10(e) to the company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1991, incorporated herein by
reference.
13
<PAGE>
INDEX TO EXHIBITS (continued)
Exhibit
Sequential
No. Page No.
10.f Copies of the 1995 Salaried Employee Stock Incentive Plan,
effective February 28, 1995 filed as Registration
Statement on Form S-8, File No. 33-57879, incorporated
herein by reference.
10.g Copies of the 1995 Non-Employee Director Stock Incentive
Plan,effective February 28, 1995 filed as Registration
Statement on Form S-8, File No. 33-57881, incorporated
herein by reference.
10.h Copies of Westvaco Corporation Savings and Investment Plan
for Hourly Employees, effective June 1, 1995, filed as
Registration Statement on Form S-8, File No. 33-59765,
incorporated herein by reference.
13 Pages 2 and 14 through 35 of the Westvaco Corporation 1995
Annual Report to Shareholders filed in connection with the
company's proxy under Rule 14a-3. Except for the information
that is expressly incorporated by reference, the Annual Report
to Shareholders is furnished for the information of the
Securities and Exchange Commission and is not deemed to be
filed as part of this report. 15
21 Subsidiaries of the Registrant. 38
23 Consent of independent accountants. 39
27 Financial data schedules. 40
14
<PAGE>
Highlights of the year Exhibit No. 13
1995 1994
Sales $3,272,447,000 $2,607,474,000
Net income before extraordinary
charge $283,426,000 $103,606,000(2)
Extraordinary charge - extinguishment
of debt, net of taxes $[2,590,000] -
Net income $280,836,000 $103,606,000
Net income per common share
before extraordinary charge $2.80 $1.03(2)
Extraordinary charge -
extinguishment of debt $[.02] -
Net income per common share $2.78 $1.03
Common stock dividends $77,929,000 $73,754,000
Dividends per common share $.77 $.73 1/3
Capital expenditures $309,020,000 $207,257,000
Sales by quarter Earnings by quarter
In millions In millions Per share
Quarter 1995 1994 Quarter 1995 1994 1995 1994
First $ 742 $ 577 First $ 49.3 $ 15.8(2) $ .49 .16(2)
Second 804 627 Second 65.0 16.3 .64 .16
Third 855 641 Third 77.6(1) 20.2 .77(1) .20
Fourth 871 762 Fourth 88.9 51.3 .88 .51
Total $3,272 $2,607 Total $280.8 $103.6 $2.78 $1.03
Quarterly dividends per share Quarterly price ranges of stock*
1995 1994
Quarter 1995 1994 Quarter High Low High Low
First $.18 1/3 $.18 1/3 First $26 1/2 $21 1/6 $25 1/3 $21
Second .18 1/3 .18 1/3 Second 29 1/12 24 1/3 24 1/12 19 3/4
Third .18 1/3 .18 1/3 Third 31 2/3 27 3/4 23 1/12 19 5/6
Fourth .22 .18 1/3 Fourth 31 2/3 26 3/4 26 22 1/3
Total $.77 $.73 1/3
(1) Includes an extraordinary charge of $2.6 million, or $.02 per
share, from the extinguishment of high interest rate debt.
(2) Includes a combined pretax gain of $10.1 million, or $.06 per
share, from the sale of property and the sale of an operating
lease.
* This table reflects the range of market prices of Westvaco common
stock as quoted in the New York Stock Exchange - Composite
Transactions. The New York Stock Exchange is the principal
market in which the securities are traded.
All per share data and quarterly price ranges of stock have been
adjusted to give effect to the 1995 three-for-two common stock
split as described in Note K to the consolidated financial
statements.
Westvaco Corporation
and consolidated subsidiary companies
2
15
<PAGE>
Management's discussion and analysis of financial condition and
results of operations
Liquidity and capital resources
At October 31, 1995, the ratio of current assets to current
liabilities was 1.8 compared to 1.7 in both 1994 and 1993. The
twelve-month average collection period for trade receivables was
32 days in 1995, the same as in 1994 and compared with 31 days in
1993. Cash and marketable securities increased $77 million
reflecting strong operating cash flows partially offset by cash
used for investing and financing activities. Cash flows from
operations were $523 million for 1995, compared to $326 million in
1994 and $240 million in 1993. Inventories increased from October
1994 levels but remained historically low relative to sales.
Receivables increased 15.5% reflecting the increased sales in
1995.
New investment in plant and timberlands of $309 million for 1995
included $290 million in cash expenditures, compared to capital
expenditures of $207 million in 1994 and $442 million in 1993
which included cash expenditures of $215 million and $433 million,
respectively. At October 31, 1995, the amounts committed to
complete all authorized capital projects were $730 million.
Capital expenditures for 1996 are expected to range from $500
million to $550 million. The company may from time to time use
outside sources to supplement its internal cash flows in order to
support future levels of capital investments, as it has in the
past.
Cash flows from financing activities for 1995 reflected the
issuance and repayment of commercial paper and the repayment of
$82.5 million of sinking fund debentures, including $64 million of
high interest rate debentures retired during the third quarter.
At October 31, 1995, the company had no outstanding commercial
paper but may continue to utilize commercial paper as it has in
the past. 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 during the year under
any of these arrangements. The ratio of debt to total capital
employed was 30% at October 31, 1995, compared to 34% in 1994 and
35% in 1993.
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 board also voted to increase the quarterly dividend by 20% to
$.22 per quarter after the split (see notes to the financial
statements).
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. In 1995, the company authorized the
final step in a long-term program initiated in 1989 which will result
in the removal of elemental chlorine from all of our pulp bleaching
processes. To accomplish this, Westvaco authorized an expenditure of
$140 million in the spring of 1995, and we expect the program to be
complete in 1997. 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 several years thereafter. 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.
Analysis of operations
Record sales for the fiscal year ended October 31, 1995 reflect
the very strong business conditions during most of the year.
However, in the near term we expect to experience a quieter
period of market demand as the rate of growth in the United
States economy slows and some of our customers reduce inventory
levels. Sales of $3.3 billion for the fiscal year were up 25.5%
from 1994, primarily due to a 19.2% increase in price and product
mix and a 6.3% increase in the volume of shipments. Export sales
increased 30% from 1994 and accounted for nearly 14% of the
company's 1995 consolidated sales. Total sales outside of the
United States, including Rigesa, Ltda., our Brazilian subsidiary,
accounted
14
16
<PAGE>
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 year was 24%, compared with 18% in
1994. Cost of products sold increased 18% in 1995, due to volume
increases and increases in the costs for direct materials.
Bleached segment: Bleached segment sales were up 24.6% from 1994,
reflecting a 15.6% increase in price and product mix and a 9%
increase in volume. Bleached segment sales increases during 1995
reflect the improved pricing and demand in both domestic and
export markets. Operating profit for the bleached segment
increased to $394.6 million from $242.1 million as a result of
the strong market conditions. For the year, approximately 15% of
bleached segment sales were made to the domestic tobacco
industry, which consists of a limited number of major companies.
However, a significant portion of this paper and board is used
for products which are exported. Excluding this portion,
approximately 8.5% of bleached segment sales were made to the
domestic tobacco industry for sale in the United States. The
current legal and regulatory pressures on that industry 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 segment: Sales for the unbleached segment increased
32.4% for the year as a result of a 31.5% increase in price and
product mix and a .9% increase in volume. Operating profit for
the unbleached segment increased to $221.2 million from $51.8
million in 1994, as a result of improvements in all major
business units of the segment, including Rigesa. Rigesa
accounted for approximately 27% and 40% of unbleached segment
sales and operating profit, respectively. 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 has been positive, but the
company cannot predict the continued success of the plan. The
company has signed a contract to sell its domestic corrugated box
business. The sale is expected to take place during the first
fiscal quarter of 1996 and not have a material impact on the
company's operating results.
Chemicals segment: Sales for the chemicals segment increased 15%
from 1994, reflecting a price and product mix improvement of
11.5% and a volume increase of 3.5%. Operating profit decreased
to $43.9 million, compared to $48.4 million in 1994. The 1995
operating results for the chemicals segment reflect the impact of
our active new product efforts which have temporarily affected
earnings.
Other income (expense) increased $24.6 million in 1995 due
principally to foreign currency translation gains as compared to
losses in 1994 and higher interest income, partially offset by
the lower level of gains on property transactions in 1995. The
16.6% increase in selling, research and administrative expenses
included increases in costs related to stock appreciation rights
and payroll and benefit costs. Interest expense decreased 8.1%
for the year, reflecting the early extinguishment and scheduled
repayment of sinking fund debt and a decrease in the interest
paid on commercial paper.
Record net income for the year of $280.8 million, or $2.78 per
share, surpassed last year's net income of $103.6 million, or
$1.03 per share, by a considerable margin. Earnings for 1995
included an extraordinary charge of $2.6 million, or $.02 per
share, from the extinguishment of high interest rate debt.
Earnings for 1994 included a net gain of $.06 per share from the
sale of property and the sale of an operating lease. The
effective tax rate increased to 39.7% for the 1995 fiscal year
compared to 36% in 1994, due mainly to increased foreign source
income, taxed at higher rates.
Fiscal year 1994
Results for the fiscal year ended October 31, 1994 reflected the
accelerating demand for our products through the year. Sales of
$2.6 billion for the fiscal year set a record and were up 11.2%
from 1993, primarily due to an 11.9% increase in the volume of
shipments. Export sales increased almost 24% from 1993. In
1994, exports accounted for nearly 14% of the company's
consolidated sales, up from 12% in 1993. Gross profit margin for
1994 was 18%, compared with 19% in 1993. Cost of products sold
increased 12.4% in 1994, due mainly to the increase in the volume
of shipments. Depreciation and amortization expense for the
fiscal
15
17
<PAGE>
year increased 12.5%, following the commencement of
operations of the company's new bleached board machine in late
1993.
Bleached segment sales were up 11.3% from 1993, reflecting a
13.7% increase in volume, partially offset by a 2.4% decline due
to changes in price and product mix. Bleached segment unit
volume increases during 1994 were primarily due to increases in
bleached board shipments following the completion of our bleached
board expansion project. Operating profit for the bleached
segment increased to $242.1 million from $220.1 million, due
mainly to the inclusion of a portion of the special charge in
1993 (see notes to the financial statements). During the 1994
fiscal year, approximately 24% of bleached segment sales were
made to the tobacco industry, which consisted of a limited number
of major companies. However, a significant portion of this paper
and board was exported or used to produce products for export.
Excluding that portion, approximately 10% of bleached segment
sales were made to the domestic tobacco industry for sale in the
United States.
Sales for the unbleached segment increased 11.3% in 1994 as a
result of a 10.3% increase in volume and a 1% increase in price
and product mix. Shipments from our United States operations and
from Rigesa were strong during the year. Operating profit for
the unbleached segment increased to $51.8 million from $1.6
million in 1993, due mainly to the increase in the volume of
unbleached paper shipments and Rigesa's results which showed
significant improvement. The Brazilian government's economic
plan to control inflation had a positive impact on Rigesa's sales
and earnings in 1994.
Sales for the chemicals segment increased 10.1% from 1993,
reflecting a price and product mix improvement of 6.3% and a
volume increase of 3.8%. Operating margins for the segment
remained strong, with operating profit at $48.4 million, compared
to $42.6 million in 1993.
Other income (expense) increased $20.5 million in 1994 due to
gains on property transactions and decreased foreign currency
translation losses related to Rigesa. Interest expense increased
31.9% for the year, reflecting a decrease in interest capitalized
in connection with our bleached board expansion project, which
was completed in late 1993.
Net income for fiscal 1994 of $103.6 million, or $1.03 per
share, decreased from 1993 net income of $104.3 million, or $1.04
per share. Earnings for 1994 included a combined pretax gain of
$10.1 million, or $.06 per share, from property transactions
which was included in other income. Earnings for 1993 were
favorably impacted by $55.2 million, or $.55 per share, for the
cumulative effect of the adoption of three new accounting
standards. Earnings for 1993 were adversely impacted by $.46 per
share, due to a special pretax charge of $43.4 million, or $.26
per share, in connection with a restructuring program designed to
improve productivity and permanently reduce costs (see
notes to the financial statements); a provision of $12.9 million,
or $.13 per share, for the impact of an increase in the federal
income tax rate; and an extraordinary charge of $7.4 million, or
$.07 per share, from the extinguishment of debt. Although the
savings from these initiatives reached planned levels during
1994, the effect on net income of the savings, primarily related
to the planned reduction in salaried employees, was more than
offset by the intensely competitive conditions existing during
the first three quarters of 1994 and by increased interest
expense and depreciation. The effective tax rate decreased to
36% for the 1994 fiscal year from 39% in 1993, reflecting the
adjustment of the deferred tax reserves in 1993 primarily due to
the effect of the increase in the federal income tax rate.
Fiscal year 1993
Results for the fiscal year ended October 31, 1993 reflected the
slow growth in the United States economy and soft economies in
major foreign markets. Sales of $2.3 billion for the fiscal year
were up .4% from 1992, reflecting a 2.3% increase in the volume
of shipments offset by a 1.9% decrease in price and product mix.
Gross profit margin for the year was 19%, compared with 21% in
1992. Cost of products sold increased 2.4% in 1993, due mainly to
the increase in the volume of shipments. Sales for the bleached
segment were down .7% from 1992, reflecting a 2.3% decline in
price and product mix, partially offset by a 1.6% increase in
volume. Coated and uncoated paper shipments increased over 1992,
although prices remained under pressure due to industry capacity
additions. Bleached board export volume was up almost 18%; this
increase was more than offset by a decline in domestic volume.
Operating profit for the bleached segment decreased 18%, due to
the impact of the 1993 special charge and competitive conditions
in bleached board markets. Sales for the unbleached segment
increased 3.2% for the year as a result of increased volume at
Rigesa. Operating profit for the
16
18
<PAGE>
unbleached segment declined to
$1.6 million from $43.5 million in 1992, reflecting weak volume
in our domestic operations, higher materials costs and the impact
of the special charge. Operating results at Rigesa remained
subject to the uncertain economic and political conditions in
Brazil. Sales for the chemicals segment increased 1.2% from 1992,
reflecting a 7% improvement in the volume of shipments, offset by
declines in price and product mix for certain chemical products.
Other income (expense) decreased $11.5 million in 1993 due to
higher currency translation losses in 1993 and the inclusion in
1992 of gains from two significant land sales. Depreciation and
amortization expense for the fiscal year increased 6.5% as
capital projects were completed. Selling, research and
administrative expenses increased 5.5% in 1993 in connection with
budgeted increases in worldwide marketing and distribution
capabilities and higher payroll costs at Rigesa. Interest expense
increased 4.7% in 1993, reflecting interest costs associated with
the issuance of $300 million of debentures in 1993.
Net income for the year of $104.3 million, or $1.04 per share,
declined from last year's net income of $135.9 million, or $1.37
per share. Earnings for the year included a special pretax charge
of $43.4 million, or $.26 per share, in connection with the
restructuring plan announced in August 1993 (see notes to the
financial statements). Earnings for 1993 were also affected by a
provision of $12.9 million, or $.13 per share, for the impact of
an increase in the federal income tax rate and an extraordinary
charge of $7.4 million, or $.07 per share, from the
extinguishment of debt, both recorded in the fourth quarter (see
notes to the financial statements). Earnings for 1993 also
included $55.2 million, or $.55 per share, for the cumulative
effect of the adoption of three new accounting standards. The
effective tax rate was 39% for the 1993 fiscal year compared to
34% for 1992, due to the increase in the federal income tax rate,
partially offset by the favorable resolution of prior years' tax
issues and the favorable impact of Rigesa's lower effective tax
rate. Each of these items had greater impact in 1993 due to lower
consolidated pretax income.
Fourth quarter results
Sales were $871 million for the fourth quarter of 1995, compared to
sales of $762 million for the fourth quarter of 1994. In the fourth
quarter of 1995, the company recorded net income of $88.9 million, or
$.88 per share, compared to net income of $51.3 million, or $.51 per
share, for the prior year period.
Dividend reinvestment plan
At year end, 14,910 shareholders, including members of the company's
savings and investment plans for salaried and hourly employees,
representing 13,801,790 shares of Westvaco common stock, were
participants in the company's Dividend Reinvestment Plan.
Number of shareholders
At year end, the number of individuals and institutions owning
Westvaco common shares was about 20,490. This number includes 11,890
members of the company's salaried and hourly savings and investment
plans. The plans, established in 1968 and 1995, respectively, hold
12,344,965 shares of Westvaco common stock for the accounts of
participants. This represents 12% of the 101,551,211 shares of
common stock outstanding at year end.
Payroll and benefit costs
The total cost of payroll and benefits was $694 million, compared
with $632 million in 1994. This includes $47.7 million in Social
Security taxes in 1995 and $44 million in 1994. Payroll and benefit
costs were 21% of sales in 1995 and 24% of sales in 1994. Sales per
employee have increased 43% in the last five years. In 1990, they
stood at $160,289, rising to $228,842 in 1995.
17
19
<PAGE>
Financial statements
Consolidated statement of income
In thousands, except per share
Year ended October 31
1995 1994 1993
Sales $3,272,447 $2,607,474 $2,344,560
Other income [expense] 30,297 5,686 [14,774]
3,302,744 2,613,160 2,329,786
Cost of products sold [excludes
depreciation shown separately below] 2,266,807 1,921,363 1,708,676
Selling, research and
administrative expenses 235,100 201,540 207,102
Depreciation and amortization 230,306 219,282 194,994
Special charge - - 43,406
Interest expense 100,205 109,069 82,696
2,832,418 2,451,254 2,236,874
Income before taxes 470,326 161,906 92,912
Income taxes 186,900 58,300 36,400
Income before extraordinary charge and
cumulative effect of accounting
changes 283,426 103,606 56,512
Extraordinary charge - extinguishment
of debt, net of taxes [2,590] - [7,351]
Cumulative effect of accounting
changes, net of taxes - - 55,180
Net income $ 280,836 $ 103,606 $ 104,341
Per share of common stock:
Income before extraordinary
charge and cumulative effect
of accounting changes $ 2.80 $ 1.03 $ .56
Extraordinary charge [.02] - [.07]
Cumulative effect of accounting changes - - .55
Net income $ 2.78 $ 1.03 $ 1.04
All per share data has been adjusted to give effect to the 1995
three-for-two common stock split as described in Note K.
The accompanying notes are an integral part of these financial
statements.
Westvaco Corporation
and consolidated subsidiary companies
18
20
<PAGE>
Consolidated balance sheet
In thousands
At October 31
1995 1994
Assets
Cash and marketable securities $ 151,823 $ 75,003
Receivables 311,366 269,403
Inventories 274,144 236,041
Prepaid expenses
and other current assets 49,683 50,106
Current assets 787,016 630,553
Plant and timberlands:
Machinery 4,082,419 3,950,692
Buildings 565,081 526,876
Other property, including plant land 193,506 186,757
4,841,006 4,664,325
Less: accumulated depreciation 2,152,901 1,964,285
2,688,105 2,700,040
Timberlands-net 241,324 237,199
Construction in progress 210,661 126,112
3,140,090 3,063,351
Other assets 325,626 289,089
$4,252,732 $3,982,993
Liabilities and shareholders' equity
Accounts payable and accrued expenses $ 338,237 $ 302,569
Notes payable and current maturities of
long-term obligations 41,191 41,640
Income taxes 49,273 17,357
Current liabilities 428,701 361,566
Long-term obligations 1,147,020 1,234,300
Deferred income taxes 596,460 525,112
Shareholders' equity:
Common stock, $5 par, at stated value
Shares authorized: 200,000,000
Shares issued: 102,334,244
[1994-101,395,841 as adjusted for the
three-for-two stock split] 741,193 551,265
Retained income 1,356,408 1,323,982
Common stock in treasury, at cost
Shares held: 783,033
[1994-645,614 as adjusted for the
three-for-two stock split] [17,050] [13,232]
2,080,551 1,862,015
$4,252,732 $3,982,993
The accompanying notes are an integral part of these financial
statements.
Westvaco Corporation
and consolidated subsidiary companies
19
21
<PAGE>
Consolidated statement of cash flows
In thousands
Year ended October 31
1995 1994 1993
Cash flows from operating activities:
Net income $ 280,836 $103,606 $104,341
Adjustments to reconcile net income
to net cash provided by operating activities:
Cumulative effect of accounting changes - - [55,180]
Provision for depreciation and amortization 230,306 219,282 194,994
Provision for deferred income taxes 74,057 47,699 17,260
Provision for special charge - - 43,406
Gains on sales of plant and timberlands [7,792] [10,025] [302]
Pension credit and other employee benefits [13,851] [40,736] [38,715]
Foreign currency translation [gains] losses [2,561] 11,738 21,893
Net changes in assets and liabilities [44,033] [7,151] [50,086]
Other, net 5,682 2,003 2,848
Net cash provided by operating activities 522,644 326,416 240,459
Cash flows from investing activities:
Additions to plant and timberlands [290,053] [214,751] [433,499]
Proceeds from sales of plant and timberlands 11,754 13,894 5,928
Other, net [909] [2,983] [2,779]
Net cash used in investing activities [279,208] [203,840] [430,350]
Cash flows from financing activities:
Proceeds from issuance of common stock 13,237 7,160 16,553
Proceeds from issuance of debt 96,214 402,457 338,737
Common stock purchased - - [1,311]
Dividends paid [77,929] [73,754] [73,301]
Repayment of notes payable and long-term
obligations [201,172] [429,796] [207,172]
Net cash [used in] provided by
financing activities [169,650] [93,933] 73,506
Effect of exchange rate changes on cash 3,034 [10,199] [18,145]
Increase [decrease] in cash and
marketable securities 76,820 18,444 [134,530]
Cash and marketable securities:
At beginning of period 75,003 56,559 191,089
At end of period $ 151,823 $ 75,003 $ 56,559
The accompanying notes are an integral part of these financial
statements.
Westvaco Corporation
and consolidated subsidiary companies
Notes to financial statements
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Summary of significant accounting policies
Basis of consolidation: The consolidated financial statements
include the accounts of all subsidiaries more than 50% owned.
Accounting changes: During the fourth quarter of fiscal 1993, the
company adopted, retroactive to November 1, 1992, Statement of
Financial Accounting Standards (SFAS) 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions; SFAS 109, Accounting for
Income Taxes; and SFAS 112, Employers' Accounting for Postemployment
Benefits. The 1993 first quarter was restated to include the
cumulative effect on prior years.
Translation of foreign currencies: The functional currency for the
company's Brazilian operations is the U.S. dollar, due to the
hyperinflationary economy which has existed in that country. Foreign
currency asset and liability accounts are remeasured into U.S.
dollars at fiscal year-end rates except for inventories, properties
and accumulated depreciation, which are translated at historical
rates; revenues and expenses (other than those relating to assets
translated at historical rates) are translated at average rates
prevailing during the year. Translation gains and losses are
included in other income (expense).
Marketable securities: For financial statement purposes, marketable
securities purchased three months or less from maturity are
considered to be cash equivalents.
Inventories: Inventories are valued at the lower of cost or market.
Cost is determined using the last-in, first-out (LIFO) method for raw
materials, finished goods and certain production materials, where
allowed for U.S. federal income tax purposes. Cost of all other
inventories is determined by the first-in, first-out (FIFO) or
average cost method.
Plant and timberlands: Owned assets are recorded at cost. Also
included in the cost of these assets is interest on funds borrowed
during the construction period. When assets are sold, retired or
disposed of, their cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is
reflected in other income (expense). Costs of renewals and
betterments of properties are capitalized; costs of maintenance and
repairs are charged to income. Costs of reforestation of timberlands
are capitalized.
Depreciation and amortization: The cost of plant and equipment is
depreciated over the estimated useful lives generally by the straight-
line method. For certain major projects, the units-of-production
method is used until a commercial level of production is reasonably
sustained. The cost of standing timber is amortized as timber is
cut, at rates determined annually based on the relationship of
unamortized timber costs to the estimated volume of recoverable
timber.
Revenue recognition: The company recognizes revenues at the point of
passage of title, which is generally at the time of shipment.
Income taxes: Deferred income taxes are recorded for temporary
differences between financial statement carrying amounts and the tax
basis of assets and liabilities. Deferred tax assets and liabilities
reflect the enacted tax rates in effect for the years the differences
are expected to reverse.
Preoperating costs: Preoperating costs relating to major facilities
are deferred and all others are charged to income as incurred.
Deferred preoperating costs are amortized over a sixty-month period
following commencement of commercial operations of the facility.
Income per share: Net income per common share is based on the
weighted average number of common shares and common share equivalents
outstanding during the year.
Special charge: During the fourth quarter of 1993, the company
established a special charge of $43,406,000, or $.26 per share, in
connection with a restructuring program designed to improve
productivity and permanently reduce costs. Under the program, which
is now complete, the company eliminated over 450 salaried positions,
closed certain specialized facilities and consolidated certain product
lines. At October 31, 1995, there wasno balance remaining in the
reserve.
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A. Other income (expense)
Components of other income (expense) are as follows:
In thousands 1995 1994 1993
Gains on sales of plant, equipment
and timberlands $ 7,792 $10,025 $ 302
Interest income 14,738 7,832 6,608
Foreign currency translation gains [losses] 2,561 [11,738] [21,893]
Other, net 5,206 [433] 209
$30,297 $ 5,686 $[14,774]
B. Research and development
Expenditures of $31,397,000 (1994-$30,642,000, 1993-$30,479,000)
were expensed as incurred.
C. Income taxes
Income before provision for income taxes consisted of:
In thousands 1995 1994 1993
Domestic $365,156 $133,616 $80,681
Foreign 105,170 28,290 12,231
$470,326 $161,906 $92,912
The provision for income taxes is composed of:
In thousands 1995 1994 1993
Current:
Federal $ 58,151 $ 6,632 $22,403
State 8,700 728 560
Foreign 45,992 3,241 [3,823]
112,843 10,601 19,140
Deferred:
Federal 56,315 34,771 11,815
State 16,846 9,880 5,752
Foreign 896 3,048 [307]
74,057 47,699 17,260
$186,900 $58,300 $36,400
Under the Omnibus Budget Reconciliation Act enacted in the company's
1993 fourth quarter, the federal income tax rate was increased to 35%
retroactive to January 1, 1993. The provision for income taxes for
the 1993 fourth quarter included $11.7 million, or $.12 per share,
for the impact of the higher tax rate on the deferred tax liability
balance, and $1.2 million, or $.01 per share, for the impact on 1993
results.
The net deferred income tax liability at October 31, 1995 and 1994
includes the following components:
In thousands 1995 1994
Current deferred tax asset
Employee benefits $ 11,339 $ 16,172
Other, net 21,103 19,058
32,442 35,230
Noncurrent deferred tax assets
Alternative minimum tax carryforward 141,069 102,710
Net operating loss carryforward - 32,012
Other, net - 579
141,069 135,301
Noncurrent deferred tax liabilities
Depreciation 548,437 505,569
Pension and other employee benefits 87,979 73,989
State and local taxes 81,393 67,817
Other, net 19,720 13,038
737,529 660,413
Total net deferred tax liability $564,018 $489,882
In fiscal year 1993, the company adopted SFAS 109, Accounting for
Income Taxes. The cumulative effect of adoption as of November 1,
1992 was a reduction of $70.5 million in the deferred tax liability,
resulting in an increase in 1993 earnings per share of $.71.
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<PAGE>
The differences (expressed as a percentage of pretax income) between
the U.S. statutory federal income tax rate and the effective income
tax rate as reflected in the accompanying consolidated statement of
income are:
1995 1994 1993
Statutory federal income tax rate 35.0% 35.0% 34.8%
State and local taxes 3.5 4.3 4.4
Foreign income at other than U.S. rates 2.7 [2.2] [9.3]
Resolution of prior years' tax issues [1.1] [.5] [2.2]
Tax rate changes - - 12.6
Other items, net [.4] [.6] [1.1]
Effective tax rate 39.7% 36.0% 39.2%
At October 31, 1995, for tax purposes, the company had available
$141 million of alternative minimum tax credit carryforwards, which
do not expire under current laws.
Provision has not been made for income taxes which would become
payable upon remittance of $178 million of the October 31, 1995
undistributed earnings of certain foreign subsidiaries representing
that portion of such earnings which the company considers to have
been indefinitely reinvested in the subsidiaries, principally in
Brazil. Computation of the potential deferred tax liability
associated with these undistributed earnings is not practicable.
D. Current assets
Marketable securities of $90,080,000 (1994-$45,546,000) are valued at
cost, which approximates market value. Receivables include
$9,055,000 from sources other than trade (1994-$4,522,000) and have
been reduced by allowances for discounts and doubtful accounts of
$15,550,000 (1994-$14,381,000). Inventories at October 31 are
composed of:
In thousands 1995 1994
Raw materials $ 71,998 $ 55,748
Production materials, stores and supplies 77,769 71,622
Finished and in process goods 124,377 108,671
$274,144 $236,041
If inventories had been valued at current cost, they would have been
$415,431,000 in 1995 (1994-$342,848,000).
E. Accounts payable and accrued expenses
Accounts payable and accrued expenses at October 31 consist of:
In thousands 1995 1994
Accounts payable:
Trade $121,683 $101,066
Other 9,890 8,910
Accrued expenses:
Taxes, other than income 19,535 18,462
Interest 26,263 29,162
Payroll and employee benefit costs 103,502 90,781
Special charge - 8,087
Other 57,364 46,101
$338,237 $302,569
F. Interest capitalization
In 1995, $107,501,000 of interest cost was incurred (1994-
$114,947,000, 1993-$115,494,000) of which $7,296,000 was
capitalized (1994-$5,878,000, 1993-$32,798,000).
G. Cash flows
Changes in assets and liabilities are as follows:
In thousands 1995 1994 1993
[Increase] decrease in:
Receivables $[41,974] $[41,602] $[ 5,928]
Inventories [37,911] 35,968 [40,141]
Prepaid expenses
and other current assets [2,287] 2,650 [ 2,267]
Increase [decrease] in:
Accounts payable and
accrued expenses 6,153 [5,951] 5,417
Income taxes payable 31,986 1,784 [ 7,167]
$[44,033] $ [7,151] $[50,086]
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Reconciliation of capital expenditures on a cash basis:
In thousands 1995 1994 1993
New investment in plant and timberlands $309,020 $207,257 $442,168
Less: debt assumed [159] [10] [29,091]
net change in related
current liabilities [18,808] 7,504 20,422
Cash additions to plant and timberlands $290,053 $214,751 $433,499
Cash payments for interest excluding amounts capitalized were
$103,313,000 in 1995 (1994-$118,850,000, 1993-$82,542,000). Cash
payments for income taxes were $78,563,000 in 1995 (1994-$15,775,000,
1993-$28,586,000).
H. Leasing activities and other commitments
The company leases a variety of assets for use in its operations.
Leases for administrative offices, converting plants and storage
facilities generally contain options which allow the company to
extend lease terms for periods up to 25 years, or to purchase the
properties. Certain leases provide for escalation
of the lease payments as maintenance costs and taxes increase.
The company has no significant capital lease liabilities. Minimum
rental payments under operating leases that have noncancellable lease
terms in excess of 12 months, are as follows:
Operating
In thousands leases
1996 $ 22,395
1997 18,107
1998 14,177
1999 10,857
2000 7,919
Later years 46,073
Minimum lease payments $119,528
Rental expense under operating leases was $33,973,000 in 1995
(1994-$30,657,000, 1993-$28,972,000).
At October 31, 1995, commitments required to complete currently
authorized capital projects are $730 million.
I. Notes payable and long-term obligations
At October 31, 1995, notes payable and long-term obligations
include:
In thousands Current Noncurrent
Debentures:
9.65%, due 2002 $ 100,000
9 3/4%, due 2020 100,000
Sinking Fund Debentures:
7%, due 2004-2023 150,000
7.75%, due 2004-2023 150,000
8 1/8%, due 1996-2007 $ 2,350 28,850
8.30%, due 2003-2022 125,000
10 1/8%, due 2000-2019 100,000
10 1/4%, due 1999-2018 100,000
10.30%, due 2000-2019 100,000
12.30%, due 1996 11,250
Pollution Control Revenue Bonds:
5.2-6.2%, due 1998-2008 9,200
5.85-6.65%, due 2004-2018 26,620
5 7/8-5.9%, due 1996-2003 965 12,400
5 7/8-6.2%, due 1997-2007 13,430
7 1/8-7 1/2%, due 1996-2001 300 4,600
8 1/4%, due 2000-2010 4,100
9 1/8-9.6%, due 2006-2015 10,100
10 1/2%, due 2004 1,500
Industrial Revenue Bonds:
7%, due 1999-2009 15,300
Economic Development Bonds:
8 3/4%, due 2000-2010 4,300
Notes payable and other 26,326 91,620
$ 41,191 $1,147,020
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<PAGE>
Outstanding noncurrent obligations maturing in the four years after
1996 are (in millions): 1997-$29.4; 1998-$26.7; 1999-$14.6; 2000-$25.9.
Westvaco is a party to a revolving credit agreement for $400 million.
Borrowings under the agreement may be in unsecured domestic or
Eurodollar notes and may be at rates approximating prime or the
London Interbank Offered Rate, at the company's option. There is a
nominal commitment fee on the unused funds. The company also has
available $75 million of additional unsecured domestic lines of
credit at interest rates approximating the prime rate. There were no
borrowings under any of these facilities during 1995 or 1994.
During the 1995 third quarter, the company retired, at a premium,
$63,750,000 of 12.3% debentures due in 2015. The transaction
resulted in an extraordinary charge of $2,590,000, net of an income
tax benefit of $1,690,000. During the 1993 fourth quarter, the
company irrevocably set aside funds for the early payment of
principal, premium and interest of long-term debt which was
subsequently retired. The transaction resulted in an extraordinary
charge to 1993 net income of $7,351,000, net of an income tax
benefit of $4,765,000.
At October 31, 1995, the book value of financial instruments
included in notes payable and long-term obligations was
$1,129,849,000 (1994-$1,220,384,000), and the fair value was
estimated to be $1,226,188,000 (1994-$1,221,227,000). The company
has estimated the fair value of financial instruments based upon
quoted market prices for the same or similar issues or on the
current interest rates available to the company for debt of similar
terms and maturities.
J. Foreign subsidiaries
Income of foreign subsidiaries included in consolidated net income
amounted to
$58,282,000 in 1995 (1994-$22,001,000, 1993-$16,361,000).
Results of operations for Rigesa, Ltda., our Brazilian operating
subsidiary, were as follows:
In thousands 1995 1994 1993
Sales $247,424 $151,941 $137,838
Net income $ 52,792 $ 15,900 $ 8,668
Dividends received from foreign subsidiaries amounted to $25,349,000 in
1995 (1994-$8,275,000, 1993-$12,630,000). Assets of these
subsidiaries, principally Rigesa, included in the consolidated balance
sheet are $290,230,000 (1994-$186,127,000).
K. Shareholders' equity
On August 22, 1995, the Board of Directors declared a three-for-two
split of the common stock in the form of a 50% stock dividend to
holders of record on September 1, 1995. As a result, $170,481,000
($5 for each share issued pursuant to the stock split) has been
transferred from retained earnings to the common stock account. All
per share data and number of shares for all periods included in the
financial statements and notes have been adjusted to reflect the
split.
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Changes in shareholders' equity for 1993, 1994 and 1995 are
summarized below:
Common stock Treasury stock
Dollars in thousands Shares Amount Shares Amount
Balance at October 31, 1992 67,265,616 $540,089 865,159 $ 26,099
Net income - - - -
Cash dividends - - - -
Issuances 120,182 3,289 - - -
Repurchases of common stock - - 56,638 1,981 -
Sales of treasury stock to benefit
and dividend reinvestment plans - 1,788 [421,910] [12,772]
Balance at October 31, 1993 67,385,798 545,166 499,887 15,308
Net income - - - -
Cash dividends - - - -
Issuances 211,429 5,701 - -
Repurchases of common stock - - 9,025 329
Sales of treasury stock to benefit
and dividend reinvestment plans - 398 [78,503] [2,405] -
Balance at October 31, 1994 67,597,227 551,265 430,409 13,232
Net income - - - -
Cash dividends - - - -
Issuances 640,911 19,447 - - -
Repurchases of common stock - - 96,540 3,818 -
Three-for-two stock split 34,096,106 170,481 256,084 -
Balance at October 31, 1995 102,334,244 $741,193 783,033 $17,050
Retained
earnings
Dollars in thousands Amount
Balance at October 31, 1992 $1,263,090
Net income 104,341
Cash dividends [73,301]
Issuances -
Repurchases of common stock -
Sales of treasury stock to benefit
and dividend reinvestment plans -
Balance at October 31, 1993 1,294,130
Net income 103,606
Cash dividends [73,754]
Issuances -
Repurchases of common stock -
Sales of treasury stock to benefit
and dividend reinvestment plans -
Balance at October 31, 1994 1,323,982
Net income 280,836
Cash dividends [77,929]
Issuances -
Repurchases of common stock -
Three-for-two stock split [170,481]
Balance at October 31, 1995 $1,356,408
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Treasury shares are sold at market prices to the company's savings
and investment and dividend reinvestment plans with the excess of
market value over cost credited to the common stock account. There
were no purchases in 1993, 1994 or 1995 under the stock repurchase
program authorized in 1987 by the Board of Directors.
At October 31, 1995, there were 44,170 shares of nonvoting $100 par
value cumulative preferred stock authorized and 10 million shares of
preferred stock without par value authorized and available for issue.
Pursuant to its Shareholder Rights Plan, the company in 1987 declared
a dividend distribution of one right for each outstanding share of
common stock. The rights expire in December 1997. Initially, the
rights will not be exercisable, certificates will not be sent to
shareholders, and will automatically trade with the common stock.
The plan provides that each right when exercisable entitles the
registered holder to purchase from the company a unit consisting of
one one-hundredth share of Series A Junior Participating Preferred
Stock at an exercise price of $150 per unit. The rights will become
exercisable and separate certificates representing the rights will be
distributed 15 business days (or such later date as may be determined
by the company's Board of Directors) after a person or group either
acquires 20% or more of the company's outstanding common shares or
announces an offer the consummation of which would result in
ownership by a person or group of 30% or more of the company's
outstanding common shares. In general, if a person or group exceeds
20% ownership other than pursuant to certain offers for all the
company's shares, if after someone acquires 20% or more of the
outstanding shares the company merges with any party and its shares
are exchanged, or 50% or more of the company's earning power or
assets are sold, then the holder of each right other than in certain
instances a holder of 20% or more of the outstanding common shares
may purchase common shares, or the equivalent, worth twice the
exercise price of $150. In lieu of the right to purchase stock, the
Board of Directors in its sole discretion, following the acquisition
by a person or group of 20% or more of the outstanding shares and
before any person acquires 50% or more of the outstanding shares, may
cause each outstanding right, other than those held by the 20% or
more holder, to be exchanged automatically for one share of common
stock or a fraction of a share of preferred stock which is the
economic equivalent of one share of common stock. The company
generally may redeem each right for $.05 until 15 days after someone
acquires 20% or more of the outstanding common shares. The plan may
be amended by the Board of Directors in most respects prior to the
date the rights become exercisable.
L. Stock option plans
The company has stock option plans that provide for the granting of
stock options and stock appreciation rights to key employees and
nonmanagement directors. Stock options may be granted with or
without appreciation rights and are granted at market value. They
are exercisable after a period of six months to one year and expire
not later than ten years from the date of grant. The company also
may grant, to employees, options with limited stock appreciation
rights, which are exercisable upon the occurrence of certain events
related to changes in corporate control.
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In February 1995, the shareholders approved a new Salaried Employee
Stock Incentive Plan which provides for the granting of stock options
and stock appreciation rights for an additional 4,837,500 shares of
common stock. At the February 1995 meeting, the shareholders also
approved a new Non-Employee Director Stock Incentive Plan for the
granting of stock options and stock appreciation rights up to 112,500
shares. These 1995 plans are substantially the same as the existing
plans.
The following table summarizes activity in the plans for 1994 and
1995. At October 31, 1995, 3,165,351 outstanding options have
related stock appreciation rights, including 2,870,167 with limited
stock appreciation rights. At October 31, 1995, 3,675,245 options
were exercisable. At October 31, 1994 and 1993, all outstanding
options were exercisable.
Options Price per share
Outstanding at October 31, 1993 5,022,221 $11.11-24.25
Granted 761,078 23.08
Exercised [743,475] 11.11-24.25
Cancelled [3,690] 18.29-24.25
Outstanding at October 31, 1994 5,036,134 11.11-24.25
Granted 937,650 26.50
Exercised [1,745,494] 11.11-26.50
Cancelled [17,322] 18.33-26.50
Outstanding at October 31, 1995 4,210,968 13.04-26.50
There were 4,413,002 shares available for grant as of
October 31, 1995 (1994-393,173, 1993-1,151,535).
M. Employee retirement, postretirement and postemployment
benefits
Pension and retirement plans
The company provides retirement benefits for substantially all
domestic employees under several noncontributory trusteed plans and
also provides benefits to employees whose retirement benefits exceed
maximum amounts permitted by current tax law under an unfunded
benefit plan. Benefits are based on a final average pay formula for
the salaried plans and a unit benefit formula for the hourly-paid
plans. Prior service costs are amortized on a straight-line basis
over the average remaining service period for active employees.
Contributions are made to the funded plans in accordance with ERISA
requirements.
The 1995 net pension credit relating to employee pension and
retirement benefits was $33,926,000 (1994-$42,089,000, 1993-
$40,984,000). The net pension credits reflect cumulative favorable
investment returns on plan assets. The 1995 credit also reflects
changes in certain economic assumptions. The components of the net
pension credit for 1995, 1994 and 1993 are as follows:
In thousands 1995 1994 1993
Service cost-benefits earned during the period $ 21,895 $ 22,693 $ 23,541
Interest cost on projected benefit obligation 58,562 53,459 53,160
Actual return on plan assets [261,720] [69,598] [16,912]
Net amortization and deferrals 147,337 [48,643][100,773]
Net pension credit $ [33,926]$[42,089]$[40,984]
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The following table sets forth the funded status of the plans and
amounts recognized in the consolidated balance sheet at October 31,
based on a valuation date of July 31:
In thousands 1995 1994
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of $[668,196]
(1994-$[631,926]) $ [694,696] $ [657,891]
Projected benefit obligation $ [815,026] $ [772,864]
Plan assets at fair value:
Mainly listed stocks, including $85 million
of company stock, and money market and fixed
income investments 1,274,951 1,047,969
Plan assets in excess of projected
benefit obligation 459,925 275,105
Unrecognized net gain from past experience
different from that assumed [175,996] [20,562]
Unrecognized prior service cost 39,873 41,497
Unrecognized net transition asset [43,445] [50,330]
Net prepaid pension cost included in
consolidated balance sheet $ 280,357 $ 245,710
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected
benefit obligation were
7.75% and 5.5% in 1995 (7.75% and 5.5% in 1994 and 7.5% and 5.5% in
1993). The expected long-term rate of return on plan assets used in
determining net pension cost was 9.75% for 1995, 10.5% for 1994,
11.5% for 1993 and will be 9.75% for 1996. The net prepaid pension
cost, from the previous table, is included in other assets except for
an obligation of $15.5 million for an unfunded excess benefit plan
which is recorded as a long-term liability.
Postretirement benefits
The company provides life insurance for substantially all retirees and
medical benefits to certain retirees in the form of cost subsidies
until medicare eligibility is reached and to certain other retirees,
medical benefits up to a maximum lifetime amount. None of these
benefits is funded. Effective November 1, 1992, the company adopted
SFAS 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions. This standard requires recognition of the cost of
postretirement benefits during the employee's period of service to the
company.
The adoption of this standard resulted in a charge of $14.1 million
(net of a tax benefit of $8.9 million), or $.14 per share, for the
cumulative effect on prior periods, which is reflected in restated 1993
first quarter earnings. The increase in expense under this accounting
standard did not have a material effect on 1993 net income.
The components of net periodic postretirement benefits cost for the
fiscal years ended October 31, 1995, 1994 and 1993 are as follows:
In thousands 1995 1994 1993
Service cost-benefits earned
during the period $1,300 $1,600 $1,400
Interest cost 1,800 1,900 1,600
Net amortization [300] - -
Net periodic postretirement benefits cost $2,800 $3,500 $3,000
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The accumulated postretirement benefit obligation as of July 31, the
valuation date, was as follows:
In thousands 1995 1994
Retirees $13,800 $20,400
Fully eligible active employees 4,600 4,400
Other active participants 5,000 5,400
23,400 30,200
Unrecognized net gain 5,900 800
Accrued postretirement benefits cost included
in consolidated balance sheet $29,300 $31,000
The discount rate used in determining the accumulated benefit
obligation was 7.75% for 1995 and 1994. The annual rate of increase in
health care costs was assumed at 12% for 1994, 11% for 1995 and
decreasing ratably to a 5.5% annual rate in 2001 and remaining at that
level thereafter. The effect of a 1% increase in the assumed health
care cost trend rate would increase the July 31, 1995 accumulated
postretirement benefit obligation by $300,000 and the net
postretirement benefits cost for 1995 by $100,000.
Postemployment benefits
The company provides limited postemployment benefits to former or
inactive employees including short-term disability, workers'
compensation and severance. Effective November 1, 1992, the company
adopted SFAS 112, Employers' Accounting for Postemployment Benefits,
which requires the recognition of these costs on an accrual basis. The
adoption of this standard resulted in an after-tax charge of $1.2
million, or $.01 per share, against first quarter 1993 income.
N. Business segment information
The company's operations are classified in the following business
segments:
Bleached paper, paperboard and packaging products: The company
manufactures bleached products at four domestic mills and markets
those products as pulp, printing grade papers and board, envelopes,
food containers, folding cartons and cartons for liquid products.
Company woodlands provide significant volumes of wood fiber to these
mills. Sales of printing grade papers and board accounted for
41% of consolidated sales for 1995 (1994 and 1993-40%). Sales of
envelopes accounted for 10% of consolidated sales in 1995 (1994 and
1993-11%).
Unbleached paper, paperboard and packaging products: The company
manufactures unbleached products at four mills, including two in
Brazil, and markets those products as kraft paper and board and
corrugated shipping containers. Company woodlands provide
significant volumes of wood fiber to these mills. Sales of
corrugated shipping containers accounted for 16% of consolidated
sales for 1995 (1994 and 1993-14%). Sales of kraft paper and board
accounted for 10% of consolidated sales for 1995 (1994-10%, 1993-9%).
Chemicals: The company manufactures specialty chemical products at
four domestic locations. Major product groups are: activated carbon
products and services; printing ink resins and lignin-based
surfactants; tall oil fatty acid, rosin and derivative products.
The company's land development activities have been included in
corporate items.
Segment sales include intersegment sales valued at market prices.
Segment operating profit is revenue less allocable operating
expenses. General net corporate expense includes nonoperating
overhead, research and development expenditures, interest expense and
interest and other income (expense).
Segment identifiable assets are those which are directly used in
segment operations. Corporate assets are principally marketable
securities, certain nontrade receivables, prepaid items and other
assets.
Export sales from the United States amounted to $448,361,000 in
1995 (1994-$344,394,000, 1993-$280,082,000). Total export sales,
including exports from our Brazilian subsidiary, were $454,237,000 in
1995 (1994-$353,974,000, 1993-$286,567,000).
30
32
<PAGE>
Financial information by business segment follows:
In millions 1995 1994 1993
Sales
Bleached
Sales to unaffiliated companies $2,090.0 $1,677.8 $1,507.7
Intersegment sales 5.1 3.6 2.6
Total 2,095.1 1,681.4 1,510.3
Unbleached
Sales to unaffiliated companies 894.9 676.0 607.3
Intersegment sales 7.6 5.5 5.0
Total 902.5 681.5 612.3
Chemicals
Sales to unaffiliated companies 269.3 236.2 214.7
Intersegment sales 18.2 13.7 12.2
Total 287.5 249.9 226.9
Corporate items
Sales to unaffiliated companies 18.2 17.5 14.9
Eliminations [30.9] [22.8] [19.8]
Total [12.7] [5.3] [4.9]
Consolidated sales $3,272.4 $2,607.5 $2,344.6
Operating profit
Bleached $ 394.6 $ 242.1 $ 220.1
Unbleached 221.2 51.8 1.6
Chemicals 43.9 48.4 42.6
Corporate items [189.4] [180.4] [171.4]
Consolidated income before taxes $ 470.3 $ 161.9 $ 92.9
Depreciation and amortization
Bleached $ 157.2 $ 147.1 $ 127.3
Unbleached 55.1 56.1 52.0
Chemicals 12.5 11.2 11.4
Corporate items 5.5 4.9 4.3
Consolidated depreciation and
amortization $ 230.3 $ 219.3 $ 195.0
Capital expenditures
Bleached $ 164.0 $ 118.1 $ 306.6
Unbleached 110.0 57.5 116.1
Chemicals 25.4 25.7 15.3
Corporate items 9.6 6.0 4.2
Consolidated capital expenditures $ 309.0 $ 207.3 $ 442.2
Identifiable assets
Bleached $2,785.5 $2,709.8 $2,679.4
Unbleached 1,083.1 953.1 935.9
Chemicals 193.2 166.8 145.7
Corporate items 190.9 153.3 166.8
Consolidated assets $4,252.7 $3,983.0 $3,927.8
The 1993 special charge decreased operating profit by segment as follows:
Bleached - $26.0 million; Unbleached - $13.0 million; Chemicals - $1.9
million.
31
33
<PAGE>
O. Selected quarterly information [unaudited]
In thousands, except per share data
Quarter 1995(a) 1994(b) 1993(c)
Sales
First $ 741,675 $ 577,254 $ 561,099
Second 804,622 626,436 579,542
Third 854,567 641,270 585,973
Fourth 871,583 762,514 617,946
Year $3,272,447 $2,607,474 $2,344,560
Gross profit
First $ 151,139 $ 94,211 $ 103,940
Second 192,831 106,947 106,918
Third 214,490 111,467 108,277
Fourth 222,904 160,028 127,118
Year $ 781,364 $ 472,653 $ 446,253
Net income before extraordinary
charge and cumulative effect of
accounting changes
First $ 49,317 $ 15,817 $ 20,898
Second 65,030 16,284 19,443
Third 80,153 20,173 22,533
Fourth 88,926 51,332 [6,362]
Year $ 283,426 $ 103,606 $ 56,512
Net income
First $ 49,317 $ 15,817 $ 76,078
Second 65,030 16,284 19,443
Third 77,563 20,173 22,533
Fourth 88,926 51,332 [13,713]
Year $ 280,836 $ 103,606 $ 104,341
Net income per common share before
extraordinary charge and cumulative
effect of accounting changes
First $ .49 $ .16 $ .21
Second .64 .16 .20
Third .79 .20 .22
Fourth .88 .51 [.07]
Year $2.80 $1.03 $ .56
Net income per common share
First $ .49 $ .16 $ .76
Second .64 .16 .20
Third .77 .20 .22
Fourth .88 .51 [.14]
Year $2.78 $1.03 $1.04
(a)Results for the 1995 third quarter include an extraordinary charge
of $2.6 million, or $.02 per share, from the extinguishment of
high interest rate debt.
(b)Results for the 1994 first quarter include a combined pretax gain
of $10.1 million, or $.06 per share, resulting from the sale of
property and the sale of an operating lease.
(c)First quarter 1993 results were restated for the adoption of three
new accounting standards which increased net income by $55.2
million, or $.55 per share. Fourth quarter 1993 results include a
pretax special charge of $43.4 million, or $.26 per share, a
provision of $12.9 million, or $.13 per share, for the impact of
an increase in the federal income tax rate and an extraordinary
charge of $7.4 million, or $.07 per share, from the retirement of
high interest rate debt.
32
34
<PAGE>
Responsibility for financial statements
Management is responsible for the information and representations in the
consolidated financial statements and related notes which appear on pages 18
through 31 as well as all other financial information contained in this
report. These financial statements were prepared in accordance with
generally accepted accounting principles and by necessity include some
amounts determined using informed estimates and judgments.
Management is responsible for establishing and maintaining a system of
internal control. The company's accounting systems include internal
controls which management believes provide reasonable assurance of the
reliability of its financial records and the proper safeguarding and use of
its assets. In establishing the basis for reasonable assurance, management
balances the cost of the internal controls with the benefits they provide.
Additionally, it has long been the policy of the company to work to conduct
its business affairs in accordance with high ethical standards, as set forth
in the Westvaco Memorandum on Business Conduct.
The company's independent accountants, Price Waterhouse LLP, were engaged to
audit the consolidated financial statements and were responsible for
conducting their audit in accordance with generally accepted auditing
standards. The appointment of Price Waterhouse LLP as the company's
independent accountants by the Board of Directors, on the recommendation of
the Audit Committee, has been ratified each year by the shareholders. Their
report immediately follows this statement.
The Audit Committee of the Board of Directors, composed solely of
nonmanagement directors, meets several times each year. The committee meets
with the company's management, the internal audit manager and the
independent accountants, to discuss accounting and financial reporting
matters and the nature, scope and results of audits. The Audit Committee
meets with the independent accountants both with and without the presence of
management. The committee also meets with the company's general counsel to
review litigation issues. The independent accountants and the internal
audit manager have full and free access to the Audit Committee.
David L. Luke III
Chairman of the Board
John A. Luke, Jr.
President and
Chief Executive Officer
George E. Cruser
Senior Vice President
Report of independent accountants
To the Board of Directors and Shareholders of
Westvaco Corporation
In our opinion, the consolidated financial statements appearing on
pages 18 through 31 of this report present fairly, in all material
respects, the financial position of Westvaco Corporation and its
subsidiaries at October 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the
period ended October 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
1177 Avenue of the Americas, New York, New York
November 16, 1995
33
35
<PAGE>
An eleven-year comparison
Year ended October 31 1995 1994 1993
Earnings [in thousands]
Sales $3,272,447 $2,607,474 $2,344,560
Net income before extraordinary charge
and cumulative effect of
accounting changes 283,426 103,606 56,512
Extraordinary charge -
extinguishment of debt, net of taxes [2,590] - [7,351]
Cumulative effect of accounting
changes, net of taxes - - 55,180
Net income 280,836 103,606 104,341
Depreciation and amortization 230,306 219,282 194,994
Common stock
Number of common shareholders 20,490 13,890 14,570
Weighted average number
of shares outstanding [in thousands] 101,190 100,581 99,954
Cash dividends [in thousands] $77,929 $73,754 $73,301
Per share:
Net income before
extraordinary charge and
cumulative effect of accounting changes $2.80 $1.03 $.56
Extraordinary charge-
extinguishment of debt [.02] - [.07]
Cumulative effect of
accounting changes - - .55
Net income 2.78 1.03 1.04
Dividends .77 .73 1/3 .73 1/3
Book value 20.49 18.48 18.18
Financial position [in thousands]
Working capital $358,315 $268,987 $243,959
Current ratio 1.8 1.7 1.7
Plant and timberlands, net $3,140,090 $3,063,351 $3,077,505
Total assets 4,252,732 3,982,993 3,927,837
Long-term obligations 1,147,020 1,234,300 1,258,312
Shareholders' equity 2,080,551 1,862,015 1,823,988
Debt to total capital 30% 34% 35%
Operations [in thousands,
except for number of employees]
Primary production of paper,
paperboard and market pulp [in tons] 3,105 2,848 2,626
New investment in plant and
timberlands $309,020 $207,257 $442,168
Acres of timberlands owned 1,453 1,453 1,462
Employees 14,300 14,170 14,440
All per share data and shares outstanding have been adjusted to
give effect to the 1995 three-for-two common stock split as
described in Note K to the consolidated financial statements.
Westvaco Corporation
and consolidated subsidiary companies
34
36
<PAGE>
An eleven-year comparison
Year ended October 31 1992 1991 1990
Earnings [in thousands]
Sales $2,335,617 $2,301,204 $2,410,751
Net income before extraordinary charge
and cumulative effect of
accounting changes 135,912 137,398 188,236
Extraordinary charge -
extinguishment of debt, net of taxes - - -
Cumulative effect of accounting
changes, net of taxes - - -
Net income 135,912 137,398 188,236
Depreciation and amortization 183,052 179,354 168,948
Common stock
Number of common shareholders 14,970 15,020 15,630
Weighted average number
of shares outstanding [in thousands] 99,179 98,353 97,531
Cash dividends [in thousands] $72,756 $69,676 $65,808
Per share:
Net income before extraordinary charge
and cumulative effect of
accounting changes $1.37 $1.40 $1.93
Extraordinary charge-extinguishment of
debt - - -
Cumulative effect of accounting changes - - -
Net income 1.37 1.40 1.93
Dividends .73 1/3 .70 5/6 .67 1/2
Book value 17.84 17.21 16.53
Financial position [in thousands]
Working capital $318,883 $309,726 $370,062
Current ratio 1.9 2.0 2.2
Plant and timberlands, net $2,838,143 $2,674,623 $2,539,149
Total assets 3,703,914 3,461,818 3,331,966
Long-term obligations 1,055,473 969,731 961,294
Shareholders' equity 1,777,080 1,699,463 1,618,667
Debt to total capital 31% 31% 32%
Operations [in thousands,
except for number of employees]
Primary production of paper,
paperboard and market pulp [in tons] 2,595 2,587 2,512
New investment in plant and timberlands $352,233 $321,870 $472,064
Acres of timberlands owned 1,468 1,483 1,487
Employees 14,520 14,440 15,040
An eleven-year comparison
Year ended October 31 1989 1988 1987
Earnings[in thousands]
Sales $2,284,059 $2,133,889 $1,903,606
Net income before extraordinary
charge and cumulative effect of
accounting changes 223,090 200,434 146,191
Extraordinary charge - extinguishment
of debt, net of taxes - - -
Cumulative effect of accounting
changes, net of taxes - - -
Net income 223,090 200,434 146,191
Depreciation and amortization 155,684 139,845 129,723
Common stock
Number of common shareholders 15,530 15,730 15,330
Weighted average number
of shares outstanding [in thousands] 97,111 97,015 97,467
Cash dividends [in thousands] $60,834 $53,668 $45,494
Per share:
Net income before
extraordinary charge
and cumulative effect of
accounting changes $2.30 $2.07 $1.50
Extraordinary charge-
extinguishment of debt - - -
Cumulative effect of accounting
changes - - -
Net income 2.30 2.07 1.50
Dividends .62 2/3 .55 1/3 .46 2/3
Book value 15.27 13.59 12.10
Financial position [in thousands]
Working capital $328,204 $317,627 $311,768
Current ratio 2.1 2.2 2.3
Plant and timberlands, net $2,239,975 $1,871,328 $1,625,582
Total assets 2,960,945 2,512,825 2,213,990
Long-term obligations 767,951 576,577 489,630
Shareholders' equity 1,488,433 1,318,267 1,178,356
Debt to total capital 29% 26% 25%
Operations [in thousands,
except for number of employees]
Primary production of paper,
paperboard and market pulp [in tons] 2,499 2,488 2,386
New investment in plant and
timberlands $536,932 $392,954 $279,590
Acres of timberlands owned 1,467 1,462 1,458
Employees 14,960 14,750 14,670
An eleven-year comparison
Year ended October 31 1986 1985
Earnings [in thousands]
Sales $1,811,937 $1,721,783
Net income before extraordinary charge
and cumulative effect of
accounting changes 108,096 104,625
Extraordinary charge - extinguishment
of debt, net of taxes - -
Cumulative effect of accounting
changes, net of taxes - -
Net income 108,096 104,625
Depreciation and amortization 121,603 122,716
Common stock
Number of common shareholders 15,290 15,930
Weighted average number
of shares outstanding [in thousands] 97,374 96,758
Cash dividends [in thousands] $39,390 $37,832
Per share:
Net income before
extraordinary charge and
cumulative effect of accounting changes $1.11 $1.08
Extraordinary charge - extinguishment
of debt - -
Cumulative effect of accounting changes - -
Net income 1.11 1.08
Dividends .40 4/9 .39 1/9
Book value 11.11 10.42
Financial position [in thousands]
Working capital $352,267 $338,025
Current ratio 2.8 2.7
Plant and timberlands, net $1,492,743 $1,375,697
Total assets 2,060,066 1,922,972
Long-term obligations 526,395 526,848
Shareholders' equity 1,082,791 1,012,860
Debt to total capital 28% 30%
Operations [in thousands,
except for number of employees]
Primary production of paper,
paperboard and market pulp [in tons] 2,351 2,204
New investment in plant and
timberlands $250,363 $316,590
Acres of timberlands owned 1,477 1,466
Employees 15,110 15,080
35
37
<PAGE>
Exhibit No. 21
SUBSIDIARIES OF THE REGISTRANT
Domestic Subsidiaries Foreign Subsidiaries
Clupak, Inc. (50% owned) Rigesa, Ltda.
New York, New York Valinhos, Sao Paulo, Brazil
Upland Resources, Inc. Westvaco Asia, K.K.
Keyser, West Virginia Tokyo, Japan
Westvaco Development Corporation Westvaco Canada, Ltd.
Summerville, South Carolina Toronto, Canada
WV Services, Inc. Westvaco Europe, S.A.
New York, New York Brussels, Belgium
Westvaco Foreign Sales Corporation
Brussels, Belgium
Westvaco Hong Kong, Ltd.
Hong Kong
Westvaco Korea, Ltd.
Seoul, South Korea
Westvaco de Mexico S.A. de C.V.
Mexico City, Mexico
Westvaco Pacific Pty. Limited
Sydney, Australia
Westvaco Singapore Pte., Ltd.
Singapore
Westvaco Specialty Products, S.A.
Brussels, Belgium
Westvaco Svitavy, spol. s r.o.
Svitavy, Czech Republic
Westvaco Taiwan, Ltd.
Taipei, Taiwan
Westvaco Worldwide Distribution, S.A.
Neuchatel, Switzerland
38
<PAGE>
Exhibit No. 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-53967, 2-71723,
2-94699, 33-26823, 33-57879, 33-57881 and 33-59765) and in the
Prospectus constituting part of the Registration Statement on Form
S-3 (No. 33-60645) of Westvaco Corporation of our report dated
November 16, 1995 appearing on page 33 of the 1995 Annual Report
to Shareholders which is incorporated by reference in this Annual
Report on Form 10-K.
Price Waterhouse LLP
New York, NY
December 19, 1995
39
<PAGE>
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