SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Second Quarter Ended Commission File Number
April 30, 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 April 30, 1996, the latest practicable date, there were 101,756,382 shares
outstanding of Common Stock, $5 par value.
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Statement of Income for the three
months and six months ended April 30, 1996 and 1995 2
Consolidated Balance Sheet as of April 30, 1996
and October 31, 1995 3
Consolidated Statement of Cash Flows for the
six months ended April 30, 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 - 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
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 Six Months Ended
April 30 April 30
1996 1995 1996 1995
Sales $760,284 $804,622 $1,509,012 $1,546,297
Other income (expense) 8,501 3,653 21,601 11,847
768,785 808,275 1,530,613 1,558,144
Cost of products sold
(excludes depreciation
shown below) 547,290 557,360 1,068,092 1,093,323
Selling, research and
administrative expenses 58,316 61,580 115,435 112,634
Depreciation and
amortization 59,387 55,983 118,371 112,007
Interest expense 22,038 25,622 44,574 51,733
687,031 700,545 1,346,472 1,369,697
Income before taxes 81,754 107,730 184,141 188,447
Income taxes 31,200 42,700 71,200 74,100
Net income $ 50,554 $ 65,030 $ 112,941 $ 114,347
Average number of common
shares outstanding 101,680 101,060* 101,634 100,943*
Net income per share of
common stock $.50 $.64* $1.11 $1.13*
Cash dividends per share of
common stock $.22 $.18 1/3* $ .44 $ .36 2/3*
*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
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WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED BALANCE SHEET
In thousands
April 30 October 31
1996 1995
[Unaudited]
ASSETS
Cash and marketable securities $ 194,570 $ 151,823
Receivables 256,994 311,366
Inventories 291,588 274,144
Prepaid expenses 68,483 49,683
Current assets 811,635 787,016
Plant and timberlands:
Machinery 4,047,751 4,082,419
Buildings 545,530 565,081
Other property, including plant land 195,271 193,506
4,788,552 4,841,006
Less: accumulated depreciation 2,163,809 2,152,901
2,624,743 2,688,105
Timberlands - net 238,443 241,324
Construction in progress 283,887 210,661
3,147,073 3,140,090
Other assets 341,362 325,626
$4,300,070 $4,252,732
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 315,519 $ 338,237
Notes payable and current maturities of
long-term obligations 27,944 41,191
Income taxes 14,532 49,273
Current liabilities 357,995 428,701
Long-term obligations 1,159,339 1,147,020
Deferred income taxes 629,997 596,460
Shareholders' equity:
Common stock, $5 par, at stated value
shares authorized: 200,000,000
shares issued: 102,591,131
(1995-102,334,244) 746,606 741,193
Retained income 1,424,638 1,356,408
Common stock in treasury, at cost
shares held: 834,749 (1995-783,033) (18,505) (17,050)
2,152,739 2,080,551
$4,300,070 $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
Six Months Ended
April 30
1996 1995
Cash flows from operating activities:
Net income $ 112,941 $ 114,347
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 118,371 112,007
Provision for deferred income taxes 23,717 28,606
Gains on sales of plant and timberlands (1,968) (4,766)
Pension credits and other employee benefits (11,263) (3,313)
Other, net 4,229 (838)
Changes in assets and liabilities:
(Increase) decrease in receivables 54,375 (46,675)
Increase in inventories (17,444) (32,490)
Increase in prepaid expenses (8,980) (4,289)
Increase (decrease) in accounts payable and
accrued expenses (15,498) 7,735
Increase (decrease) in income taxes payable (34,797) 13,646
Other, net 4,501 159
Net cash provided by operating activities 228,184 184,129
Cash flows from investing activities:
Additions to plant and timberlands (192,611) (113,263)
Proceeds from sales of plant and timberlands 59,786 6,965
Other, net (4,324) (369)
Net cash used in investing activities (137,149) (106,667)
Cash flows from financing activities:
Proceeds from issuance of common stock 3,035 8,229
Proceeds from issuance of debt 34,814 47,591
Dividends paid (44,711) (37,010)
Repayment of notes payable and long-term
obligations (41,625) (73,404)
Net cash used in financing activities (48,487) (54,594)
Effect of exchange rate changes on cash 199 3,311
Increase in cash and
marketable securities 42,747 26,179
Cash and marketable securities:
At beginning of period 151,823 75,003
At end of period $ 194,570 $101,182
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 April 30, 1996 and the results
of operations and its cash flows for the three months and six months
ended April 30, 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 $141,027,000 ($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:
April 30 October 31
In thousands 1996 1995
Raw materials $ 56,354 $ 71,998
Production materials, stores
and supplies 78,766 77,769
Finished and in process goods 156,468 124,377
Total $291,588 $274,144
5
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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 Six Months
In thousands Ended April 30 Ended April 30
1996 1995 1996 1995
Sales $60,427 $65,143 $119,153 $117,840
Net income $13,078 $13,147 $ 27,159 $ 23,805
Rigesa's results for the second quarter and six months of 1996 were affected
by changes in price and product mix of (8.7)% and 4.3%, respectively, and
changes in the volume of shipments of 1.5% and (3.2)%, respectively.
4. Supplemental Cash Flow Information
Cash payments for interest excluding amounts capitalized were $43,214,000 and
$52,555,000 for the six months ended April 30, 1996 and April 30, 1995,
respectively. Cash payments for income taxes were $82,193,000 and
$31,128,000 in the first six months 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 Six Months Ended
April 30 April 30
1996 1995 1996 1995
In millions
Sales
Bleached $517.5 $515.3 $1,007.7 $ 992.1
Unbleached 172.5 222.9 361.4 422.9
Chemicals 70.9 69.3 143.1 137.5
Corporate items (0.6) (2.9) (3.2) (6.2)
Consolidated sales $760.3 $804.6 $1,509.0 $1,546.3
Operating profit
Bleached $ 80.6 $102.6 $ 157.2 $ 179.0
Unbleached 34.9 50.6 83.7 88.3
Chemicals 6.7 9.1 19.2 20.7
Corporate items (40.5) (54.6) (76.0) (99.6)
Consolidated income
before taxes $ 81.7 $107.7 $ 184.1 $ 188.4
RESULTS OF OPERATIONS
Our sales and earnings for the second quarter and first half of fiscal 1996
reflect the very competitive market conditions that began late in 1995 as
demand for paper products weakened. Sales of $760.3 million for the 1996
second quarter were down 5.5% from the record levels set during the 1995 second
quarter, the result of a 3.2% decrease in price and product mix and a 2.3%
decrease in the volume of shipments. This market softness occurred at the
same time our markets were affected by relatively high product inventories as
well as capacity additions in certain sectors of our industry. These
circumstances have lead to lower prices and demand, but as customer inventories
in certain sectors appear to be approaching more normal levels, demand for some
of our products is improving. Sales of $1,509.0 million for the six months
were down 2.4% from the comparative 1995 period when record levels were
achieved, due to a 6.9% decrease in the volume of shipments, partially offset
by a 4.5% increase in price and product mix. Export sales from the United
States represented approximately 14% of the company's consolidated sales for
the second quarter and the first six months of 1996. Sales outside of the
United States, including sales of our foreign operating subsidiaries,
accounted for approximately 23% of consolidated second quarter and year to date
sales. Gross profit margin for the second quarter and six months of 1996 was
20% and 22%, respectively, compared with 24% and 22% for the prior year
periods. The reduction in the second quarter gross profit margin is
primarily the result of the market pressure on prices felt throughout our
industry. The decrease in cost of products sold for the second quarter of
1996 is primarily due to volume decreases. The decrease in cost of products
sold for the six months of 1996 was attributable to volume declines, partially
offset by some direct materials cost increases. Depreciation and amortization
expense for the six months of 1996 increased 5.7% from the prior year period.
7
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WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (cont'd)
Bleached
Bleached segment sales for the second quarter increased .4% from the
comparable 1995 period, due to a unit volume increase of 4.9%, offset by a
decrease in price and product mix of 4.5%. Sales for the six months increased
1.6% from the comparable 1995 period, due to a favorable change in price and
product mix of 4.1%, partially offset by a decrease in unit volume of 2.5%.
Bleached segment operating profit for the second quarter and six months
decreased 21.4% and 12.2%, respectively, from the comparable 1995 periods.
Year to date, approximately 17% of bleached segment sales were made to the
domestic tobacco industry. However, a significant portion of this paper and
paperboard is used for products which are exported. Excluding this portion,
approximately 9% of bleached segment sales were made to the domestic tobacco
industry for final sale in the United States. The current legal and regulatory
pressures on that industry in the United States could have an adverse effect on
future bleached segment sales and profitability. We would expect to offset any
unit volume declines in United States tobacco sales by continuing growth in our
sales to the liquid, dry and frozen food, personal care, foreign tobacco and
other consumer product markets of the world.
Unbleached
Unbleached segment sales for the second quarter and the six months decreased
22.6% and 14.5%, respectively, primarily due to decreases in volume of 17.6%
and 16.7%, respectively, as a result of the sale of the domestic corrugated box
business in November 1995. During the second quarter, the unbleached segment
pricing was adversely affected by the very competitive market conditions in the
paper industry. Operating profit for the unbleached segment for the second
quarter and six six months of 1996 was $34.9 million and $83.7 million,
respectively, compared with $50.6 million and $88.3 million for the prior year
periods. Rigesa accounted for nearly half of unbleached segment operating
profit in the first six months of 1996. The impact of Rigesa on the first six
months of 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 2.3% and 4.1% from the 1995 second
quarter and six months, respectively, due to price and product mix improvements
of 5.8% and 9.5%, respectively, offset by volume decreases of 3.5% and 5.4%,
respectively. Operating profit for the chemicals segment was $6.7 million and
$19.2 million, respectively, for the second quarter and six months of 1996,
compared to $9.1 million and $20.7 million last year.
Other Items
Other income for the 1996 second quarter and six months increased over 1995
comparable periods due primarily to higher interest income principally at
Rigesa. Interest expense decreased by 13.8% for the six months compared to
1995 due to the repayment of certain sinking fund debentures in the prior
fiscal year. The effective tax rate decreased to 38.7% for the first six
months of 1996 compared to 39.3% for the 1995 period, due to foreign earnings
being taxed at lower rates. Earnings for the second quarter ended April 30,
1996 were $.50 per share, compared to $.64 for the 1995 period. Earnings per
share of $1.11 for the six months compare to $1.13 for the 1995 period.
8
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1996, the ratio of current assets to current liabilities was
2.3 compared to 1.8 at October 31, 1995. Cash and marketable securities
increased 28.2% from the October 31, 1995 level reflecting strong cash flows
from operations partially offset by cash used for investing and financing
activities. Cash flows from operations totaled $228.2 million for the six
months ended April 30, 1996, compared to $184.1 million for the comparable
1995 period. Inventories increased from October 1995 levels, reflecting
capacity additions in certain sectors of our industry and increased
competition in our major business areas. Cash expenditures for capital
investments totaled $192.6 million for the six months of 1996, compared to
$113.3 million for the comparable 1995 period. This increase is related to
projects including paper machine improvements, the construction of the
Chemical Division's new carbon plant in Wickliffe, Ky. and the removal of
elemental chlorine from the pulp bleaching process. At April 30, 1996, the
amounts committed to complete all authorized capital projects totaled
approximately $774 million and total capital expenditures are expected to
approximate between $450 to $500 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. 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 29% at
April 30, 1996, compared to 30% 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 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.
9
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
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 covered the retirement of two other senior officers, one of whom
was also a director, and two outside directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WESTVACO CORPORATION
(Registrant)
June 7, 1996 /s/James E. Stoveken, Jr.
James E. Stoveken, Jr.
Senior Vice President
(Principal Financial Officer)
10
<PAGE>
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