SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The First Quarter Ended Commission File Number
January 31, 1996 1-3013
WESTVACO CORPORATION
299 Park Avenue, New York, New York 10171
Telephone Number 212-688-5000
Delaware 13-1466285
(State of Incorporation) (I.R.S. Employer Identification No.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
At January 31, 1996, the latest practicable date, there were 101,608,331
shares outstanding of Common Stock, $5 par value.
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Statement of Income for the three
months ended January 31, 1996 and 1995 2
Consolidated Balance Sheet as of January 31, 1996
and October 31, 1995 3
Consolidated Statement of Cash Flows for the
three months ended January 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
1
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WESTVACO CORPORATION
and Consolidated Subsidiary Companies
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF INCOME
[Unaudited]
In thousands, except per share data
Three Months Ended
January 31
1996 1995
Sales $748,728 $741,675
Other income 13,100 8,194
761,828 749,869
Cost of products sold (excludes
depreciation shown below) 520,802 535,963
Selling, research and
administrative expenses 57,119 51,054
Depreciation and amortization 58,984 56,024
Interest expense 22,536 26,111
659,441 669,152
Income before taxes 102,387 80,717
Income taxes 40,000 31,400
Net income $ 62,387 $ 49,317
Average number of common
shares outstanding 101,577 100,821*
Net income per share of
common stock $.61 $.49*
Cash dividends per share of
common stock $.22 $.18 1/3*
*Adjusted to give effect to the three-for-two common stock split declared in
August 1995.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED BALANCE SHEET
In thousands
January 31 October 31
1996 1995
[Unaudited]
ASSETS
Cash and marketable securities $ 229,550 $ 151,823
Receivables 282,485 311,366
Inventories 295,414 274,144
Prepaid expenses 56,031 49,683
Current assets 863,480 787,016
Plant and timberlands:
Machinery 3,996,382 4,082,419
Buildings 545,282 565,081
Other property, including plant land 193,063 193,506
4,734,727 4,841,006
Less: accumulated depreciation 2,116,865 2,152,901
2,617,862 2,688,105
Timberlands - net 239,783 241,324
Construction in progress 246,596 210,661
3,104,241 3,140,090
Other assets 336,934 325,626
$4,304,655 $4,252,732
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 321,863 $ 338,237
Notes payable and current maturities of
long-term obligations 29,966 41,191
Income taxes 69,567 49,273
Current liabilities 421,396 428,701
Long-term obligations 1,151,890 1,147,020
Deferred income taxes 610,064 596,460
Shareholders' equity:
Common stock, $5 par, at stated value
shares authorized: 200,000,000
shares issued: 102,424,065
(1995-102,334,244) 742,793 741,193
Retained income 1,396,447 1,356,408
Common stock in treasury, at cost
shares held: 815,734 (1995-783,033) (17,935) (17,050)
2,121,305 2,080,551
$4,304,655 $4,252,732
The accompanying notes are an integral part of these financial statements.
3
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WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
[Unaudited]
In thousands
Three Months Ended
January 31
1996 1995
Cash flows from operating activities:
Net income $ 62,387 $ 49,317
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 58,984 56,024
Provision for deferred income taxes 13,925 14,104
Gains on sales of plant and timberlands (796) (4,338)
Pension credits and other employee benefits (7,101) (5,935)
Foreign currency translation gains (415) (1,573)
Changes in assets and liabilities:
(Increase) decrease in receivables 28,858 (22,485)
Increase in inventories (21,270) (9,251)
Increase in prepaid expenses (6,670) (6,180)
Decrease in accounts payable and
accrued expenses (10,067) (7,127)
Increase in income taxes payable 20,389 13,475
Other, net (1,745) (1,546)
Net cash provided by operating activities 136,479 74,485
Cash flows from investing activities:
Additions to plant and timberlands (88,056) (52,974)
Proceeds from sales of plant and timberlands 57,800 6,288
Other, net 90 (211)
Net cash used in investing activities (30,166) (46,897)
Cash flows from financing activities:
Proceeds from issuance of common stock 700 3,082
Proceeds from issuance of debt 9,394 18,734
Dividends paid (22,348) (18,480)
Repayment of notes payable and long-term
obligations (16,356) (38,202)
Net cash used in financing activities (28,610) (34,866)
Effect of exchange rate changes on cash 24 1,148
Increase (decrease) in cash and
marketable securities 77,727 (6,130)
Cash and marketable securities:
At beginning of period 151,823 75,003
At end of period $229,550 $ 68,873
The accompanying notes are an integral part of these financial statements.
4
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WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the company
as of January 31, 1996 and the results of operations and its cash flows for
the three months ended January 31, 1996 and 1995. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
company's 1995 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the
accompanying consolidated financial statements be read in conjunction with
the financial statements and notes thereto incorporated by reference in the
company's 1995 Annual Report on Form 10-K.
2. Current Assets
Marketable securities of $138,916,000 ($90,080,000 at October 31, 1995) are
valued at cost, which approximates market.
Inventories included in the consolidated balance sheet consist of the
following:
January 31 October 31
In thousands 1996 1995
Raw materials $ 62,168 $ 71,998
Production materials, stores
and supplies 77,879 77,769
Finished and in process goods 155,367 124,377
Total $295,414 $274,144
5
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
3. Foreign Operations
Results of operations for Rigesa, Ltda., our Brazilian operating
subsidiary, were as follows:
Three Months Ended
In thousands January 31
1996 1995
Sales $58,726 $52,697
Net income $14,081 $10,658
Rigesa's results for the first quarter of 1996 were positively affected by
an increase in price and product mix, partially offset by a decrease in the
volume of shipments.
4. Supplemental Cash Flow Information
Cash payments for interest excluding amounts capitalized were $20,388,000
and $28,236,000 for the quarter ended January 31, 1996 and January 31,
1995, respectively. Cash payments for income taxes were $5,909,000 and
$3,512,000 in the first quarter of 1996 and 1995, respectively.
6
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Segment Information
Three Months Ended
January 31
1996 1995
In millions
Sales
Bleached $490.2 $476.8
Unbleached 188.9 200.0
Chemicals 72.2 68.2
Corporate items (2.6) (3.3)
Consolidated sales $748.7 $741.7
Operating profit
Bleached $ 76.6 $ 76.4
Unbleached 48.8 37.7
Chemicals 12.5 11.6
Corporate items (35.5) (45.0)
Consolidated income
before taxes $102.4 $ 80.7
RESULTS OF OPERATIONS
Record sales of $748.7 million for the 1996 first quarter were up 1.0% from
the 1995 first quarter, the result of a 12.3% increase in price and product
mix, offset by an 11.3% decrease in the volume of shipments. Economic
activity in the United States has clearly slowed in recent months and has
led to a renewal of more competitive conditions and some pricing pressure
in certain sectors of our field. Export sales were up 2.9% compared to
the first quarter of 1995 and accounted for nearly 14% of the company's
first quarter sales. Total sales outside of the United States, including
sales of our foreign operating subsidiaries, accounted for more than 21% of
consolidated sales. This growth in foreign sales reflects the strong
interest in our products as the emphasis on quality and product performance
grows in both developed and developing markets. The company is continuing
to support our growth in the global marketplace through exports from this
country, considering investments similar to the folding carton plant built
in the Czech Republic and continuing to invest in Brazil. Gross profit
margin for the first quarter of 1996 was 23% compared with 20% for the prior
year period as sales increased while cost of products sold decreased by 2.8%.
The decrease in cost of products sold was attributable to volume declines,
offset by some direct materials cost increases. Depreciation and
amortization expense for the first quarter increased 5.3% from the prior year
period.
Bleached
Bleached segment sales for the first quarter increased 2.8% from the
comparable 1995 period due to favorable changes in price and product mix of
12.7% offset
7
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[Unaudited]
RESULTS OF OPERATIONS (cont'd)
by a decrease in unit volume of 9.9%. Bleached segment operating profit was
up less than 1% in the first quarter ended January 31, 1996 compared to the
same 1995 period. During the first quarter of 1996, approximately 16% of
bleached segment sales were made to the domestic tobacco industry, which
consists of a number of major companies. However, a significant portion of
this paper and board is used for products which are exported. Excluding this
portion, approximately 10% 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
Sales for the unbleached segment decreased 5.6% compared to the 1995 first
quarter due to a decrease in volume of 15.8% mainly due to the sale of the
domestic corrugated box business on November 30, 1995. Operating profit for
the unbleached segment increased from the 1995 first quarter as a result of
improvements in all major business units of the segment, including Rigesa.
Rigesa accounted for approximately 45% of unbleached segment operating profit
in the first quarter of 1996. The impact of Rigesa on the first quarter 1996
sales and earnings has been positive, but the company cannot predict the
continued strength of the Brazilian market.
Chemicals
Sales for the chemicals segment increased 5.9% from the 1995 first quarter
due to price and product mix improvements of 10.9%, offset by a decrease in
volume of 5.0%. Operating profit for the chemicals segment increased to
$12.5 million for the first quarter.
Other Items
Other income for the 1996 first quarter increased over the 1995 first quarter
due primarily to higher interest income principally at Rigesa. Interest
expense decreased by 13.7% compared to the 1995 first quarter due to the
repayment of certain sinking fund debentures in the prior fiscal year. The
11.9% increase in selling, research and administrative expenses included
increases in wages and benefits and forestry research activities. The
effective tax rate was 39.1% for the first quarter of 1996 compared to 38.9%
for the 1995 period.
Record earnings from operations for the first quarter ended January 31,
1996 were $.61 per share, compared to $.49 per share for the 1995 period
after adjustment for the three-for-two stock split declared in August 1995.
8
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[Unaudited]
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1996 the ratio of current assets to current liabilities was
2.0 compared to 1.8 at October 31, 1995. Cash and marketable securities
increased reflecting strong cash flows from operations, partially offset by
cash used for investing and financing activities. Overall inventories were
up from the October 1995 level. Finished goods inventories have increased
since October, as the company has maintained near normal production levels
in a period of slower economic activity and industry additions to capacity
in certain sectors. Cash flows from operations totaled $136.5 million for
the three months ended January 31, 1996, compared to $74.5 million for the
comparable 1995 period. Cash expenditures for capital investments totaled
$88.1 million for the first quarter of 1996, compared to $53.0 million for
the comparable 1995 period. The increase in proceeds from sales of plant
and timberlands is due principally to the sale of the domestic corrugated
box business. At January 31, 1996, the amounts committed to complete all
authorized capital projects were approximately $772 million. Total capital
expenditures are expected to approximate between $500 to $550 million in
1996. The company may from time to time use outside sources as needed to
finance future capital investments, as it has in the past. Cash flows from
financing activities during the first quarter of 1996 reflected the
repayment of $11.3 million of sinking fund debentures. At January 31,
1996, the company had no commercial paper outstanding. The company
maintains a $400 million revolving credit agreement and has access to an
additional $75 million of unsecured bank credit lines; there were no
borrowings under any of these arrangements during the current period. The
ratio of debt to total capital employed was 30% at January 31, 1996, the
same as at October 31, 1995.
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, the Board of Directors 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 later in 1996 with implementation
required over several years thereafter. It is not possible 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
9
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[Unaudited]
Environmental Matters (cont'd)
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.
10
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[Unaudited]
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual meeting of Shareholders of Westvaco Corporation was held on
February 27, 1996.
(b) The directors named in the Proxy Statement were elected to three year
terms expiring in 1999, with the following results:
Shares Shares Broker
Voted For Withheld Nonvotes
W. L. Lyons Brown, Jr. 96,191,894 819,474 716,538
John A. Luke, Jr. 96,203,180 808,188 716,538
William R. Miller 96,491,629 519,739 716,538
(c) The appointment of Price Waterhouse as independent accountants was
ratified by a vote of 96,686,240 shares in favor, 155,948 shares in
opposition, 169,180 shares abstained and 716,538 broker nonvotes.
(d) The proposal relating to the adoption of the Annual Incentive
Compensation Plan was ratified by a vote of 92,820,924 shares in
favor, 3,434,004 shares in opposition, 756,440 shares abstained and
716,538 broker nonvotes.
The "Notice of Annual Meeting of Shareholders and Proxy Statement for
Westvaco Corporation" dated December 29, 1995 was filed with the Securities
and Exchange Commission pursuant to Regulation 14A of the Act and is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Report on Form 8-K:
A report on Form 8-K covering Item 5, Other Events, was filed on
February 29, 1996 describing the election of John A. Luke, Jr.,
President and Chief Executive Officer, to the additional post of
Chairman, following the retirement of David L. Luke III. The report
also covers the retirement of two other senior officers, one who was
also a director, and two outside directors.
11
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTVACO CORPORATION
(Registrant)
March 15, 1996 /S/James E. Stoveken, Jr.
James E. Stoveken, Jr.
Senior Vice President
(Principal Financial Officer)
12
PAGE>
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