UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the third quarter ended July 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission File Number 1-3013
WESTVACO CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1466285
(State of Incorporation) (I.R.S. Employer Identification No.)
299 Park Avenue, New York, New York 10171
(Address of principal executive offices)
Telephone Number 212-688-5000
(Registrants's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
At July 31, 1996 the latest practicable date, there were 101,857,421 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 nine months ended July 31, 1996 and 1995 2
Consolidated Balance Sheet as of July 31, 1996
and October 31, 1995 3
Consolidated Statement of Cash Flows for the
nine months ended July 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 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
1
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF INCOME
[Unaudited]
In thousands, except per share data
Three Months Ended Nine Months Ended
July 31 July 31
1996 1995 1996 1995
Sales $757,715 $854,567 $2,266,727 $2,400,864
Other income 636 8,557 22,237 20,404
758,351 863,124 2,288,964 2,421,268
Cost of products sold (excludes
depreciation shown below) 550,478 582,132 1,618,570 1,675,455
Selling, research and
administrative expenses 58,066 62,583 173,501 175,217
Depreciation and amortization 60,145 59,483 178,516 171,490
Interest expense 21,443 25,573 66,017 77,306
690,132 729,771 2,036,604 2,099,468
Income before taxes 68,219 133,353 252,360 321,800
Income taxes 24,600 53,200 95,800 127,300
Income before extraordinary charge 43,619 80,153 156,560 194,500
Extraordinary charge - extinguishment
of debt, net of taxes -0- (2,590) -0- (2,590)
Net income $ 43,619 $ 77,563 $ 156,560 $ 191,910
Average number of common
shares outstanding 101,816 101,374 101,695 101,086
Per share of common stock:
Income before extraordinary charge $ .43 $ .79 $1.54 $1.92
Extraordinary charge -
extinguishment of debt -0- (.02) -0- (.02)
Net income $ .43 $ .77 $1.54 $1.90
Cash dividends per share of
common stock $ .22 $ .18 1/3 $ .66 $ .55
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED BALANCE SHEET
In thousands
July 31 October 31
1996 1995
[Unaudited] [Audited]
ASSETS
Cash and marketable securities $ 163,215 $ 151,823
Receivables 256,006 311,366
Inventories 278,685 274,144
Prepaid expenses 67,056 49,683
Current assets 764,962 787,016
Plant and timberlands:
Machinery 4,131,320 4,082,419
Buildings 558,370 565,081
Other property, including plant land 199,893 193,506
4,889,583 4,841,006
Less: accumulated depreciation 2,212,613 2,152,901
2,676,970 2,688,105
Timberlands - net 237,609 241,324
Construction in progress 338,550 210,661
3,253,129 3,140,090
Other assets 354,107 325,626
$4,372,198 $4,252,732
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 343,401 $ 338,237
Notes payable and current maturities of
long-term obligations 32,495 41,191
Income taxes 19,196 49,273
Current liabilities 395,092 428,701
Long-term obligations 1,162,187 1,147,020
Deferred income taxes 639,251 596,460
Shareholders' equity:
Common stock, $5 par, at stated value
shares authorized: 200,000,000
shares issued: 102,723,716 (1995-102,334,244) 749,614 741,193
Retained income 1,445,691 1,356,408
Common stock in treasury, at cost
shares held: 866,295 (1995-783,033) (19,637) (17,050)
2,175,668 2,080,551
$4,372,198 $4,252,732
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
[Unaudited]
In thousands
Nine Months Ended
July 31
1996 1995
Cash flows from operating activities:
Net income $ 156,560 $ 191,910
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 178,516 171,490
Provision for deferred income taxes 32,494 52,752
Gains on sales of plant and timberlands (7,509) (4,628)
Pension credits and other employee benefits (28,216) (2,853)
Foreign currency translation (gains) losses 296 (1,601)
Changes in assets and liabilities:
Decrease (increase) in receivables 55,336 (33,820)
Increase in inventories (4,312) (53,336)
Increase in prepaid expenses (7,076) (3,703)
Increase in accounts payable and
accrued expenses 15,115 19,634
(Decrease) increase in income taxes payable (30,077) 27,532
Other, net 6,972 6,007
Net cash provided by operating activities 368,099 369,384
Cash flows from investing activities:
Additions to plant and timberlands (346,821) (189,900)
Proceeds from sales of plant and timberlands 64,604 7,321
Other, net (4,226) (700)
Net cash used in investing activities (286,443) (183,279)
Cash flows from financing activities:
Proceeds from issuance of common stock 4,857 12,510
Proceeds from issuance of debt 40,608 67,871
Dividends paid (67,115) (55,595)
Repayment of notes payable and long-term
obligations (48,326) (153,676)
Net cash used in financing activities (69,976) (128,890)
Effect of exchange rate changes on cash (288) 850
Increase in cash and marketable securities 11,392 58,065
Cash and marketable securities:
At beginning of period 151,823 75,003
At end of period $ 163,215 $ 133,068
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion
of management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the company
as of July 31, 1996 and the results of its operations and its cash flows for
the three months and nine months ended July 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 $127,387,000 ($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:
July 31 October 31
In thousands 1996 1995
Raw materials $ 53,117 $ 71,998
Production materials, stores
and supplies 79,034 77,769
Finished and in process goods 146,534 124,377
Total $278,685 $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 Nine Months
In thousands Ended July 31 Ended July 31
1996 1995 1996 1995
Sales $60,311 $70,052 $179,464 $187,892
Net Income $ 7,314 $14,734 $ 34,473 $ 38,539
Rigesa's results for the third quarter and nine months of 1996 were affected
by changes in price and product mix of (30.0)% and (7.6)%, respectively, and
changes in the volume of shipments of 10.7% and 1.1%, respectively.
4. Supplemental Cash Flow Information
Cash payments for interest excluding amounts capitalized were $62,185,000 and
$78,700,000 for the nine months ended July 31, 1996 and 1995, respectively.
Cash payments for income taxes were $93,351,000 and $41,333,000 in the first
nine months of fiscal 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 Nine Months Ended
July 31 July 31
1996 1995 1996 1995
In millions
Sales
Bleached $519.4 $541.4 $1,527.1 $1,533.5
Unbleached 166.5 243.9 527.9 666.8
Chemicals 75.6 71.7 218.7 209.2
Corporate items (3.8) (2.4) (7.0) (8.6)
Consolidated sales $757.7 $854.6 $2,266.7 $2,400.9
Operating profit
Bleached $ 74.2 $104.7 $ 231.4 $ 283.7
Unbleached 26.8 67.3 110.5 155.6
Chemicals 15.8 11.3 35.0 32.0
Corporate items (48.5) (49.9) (124.5) (149.5)
Consolidated income
before taxes $ 68.3 $133.4 $ 252.4 $ 321.8
Results of Operations
Sales and earnings for the third quarter and nine months of fiscal 1996
reflect the very competitive market conditions that began late in 1995
causing prices and shipments of key paper and paperboard grades to decline
from 1995's record setting levels. Sales of $757.7 million for the 1996
third quarter were down 11.3% from the record levels set during the 1995
third quarter, the result of a 9.0% decrease in price and product mix and a
2.3% decrease in the volume of shipments. This decline reflects market softness
which developed last fall when our markets were affected by relatively high
customer inventories as well as capacity additions in certain sectors of our
industry. Signs of improvement in market conditions are appearing as we begin
the fourth quarter, traditionally one of our stronger periods. While pricing
remains under pressure, demand for kraft linerboard is improving. Orders for
coated printing papers are also increasing, and our bleached board markets,
which have remained reasonably stable throughout the year, are improving as
well. Sales of $2,266.7 million for the nine months were down 5.6% from the
comparative 1995 period when record levels were achieved, due principally to
a 6.4% decrease in the volume of shipments. Export sales from the United States
represented approximately 15% of the company's consolidated sales for the third
quarter and the nine months of fiscal 1996, a moderate increase over last
year's level. Sales outside of the United States, including sales of our
foreign operating subsidiaries, accounted for approximately 24% of
consolidated third quarter and year to date sales. Gross profit margin for
the third quarter and nine months of 1996 was 20% and 21%, respectively,
compared with 25% and 23% for the prior year periods. The reduction in the
third quarter gross profit margin is primarily the result of the market
pressure on prices felt
7
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations (cont'd)
throughout our industry and some temporary machine downtime. Earnings for the
third quarter and the nine months of fiscal 1996 reflect an adverse impact of
approximately six cents per share resulting from planned manufacturing
improvements which temporarily interrupted production at two locations. The
decrease in cost of products sold for the third quarter of 1996 was attributable
to volume declines and some direct material cost decreases. The decrease in
cost of products sold for the nine months of 1996 was attributable to volume
declines, partially offset by some direct materials and labor cost increases.
Depreciation and amortization expense for the nine months of 1996 increased 4.1%
from the prior year period.
Bleached
Bleached segment sales for the third quarter decreased 4.1% from the
comparable 1995 period, due to a decrease in price and product mix of 7.5%,
offset by an increase in unit volume of 3.4%. Sales for the nine months
decreased .4% from the comparable 1995 period, due to a decrease in unit
volume of 2.3%, offset by a favorable change in price and product mix of
1.9%. Bleached segment operating profit for the third quarter and nine
months decreased 29.1% and 18.4%, 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 third quarter and the nine months decreased
31.7% and 20.8%, respectively, due to decreases in volume of 15.7% and 16.5%,
respectively, as a result of the sale of the domestic corrugated box business
in November 1995 and decreases in price and product mix of 16.0% and 4.3%,
respectively. During the third quarter, the unbleached segment pricing was
adversely affected by the very competitive market conditions in the U. S.
linerboard and Brazilian corrugated box business. Operating profit for the
unbleached segment for the third quarter and nine months of 1996 was $26.8
million and $110.5 million, respectively, compared with $67.3 million and
$155.6 million for the prior year periods. Rigesa accounted for nearly half
of unbleached segment operating profit in the first nine months of 1996. The
impact of Rigesa on the first nine months of 1996 sales and earnings has been
positive, but the company cannot predict the future strength of the Brazilian
market.
Chemicals
Chemical segment sales for the third quarter increased 5.4% from the
comparable 1995 period due to volume increases of 2.8% and a favorable change
in price and product mix of 2.6%. Sales for the nine months increased 4.5% due
8
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations (cont'd)
to improvements in price and product mix of 6.5%, partially offset by a
volume decrease of 2.0%. Operating profit for the chemicals segment increased
39.8% and 9.4%, respectively, for the third quarter and nine months of 1996,
from the comparable 1995 periods.
Other Items
Other income for the 1996 third quarter and nine months increased over 1995
comparable periods due primarily to higher interest income. Interest expense
decreased by 14.6% for the nine months compared to 1995 due to the repayment
of certain sinking fund debentures in the prior fiscal year. The effective
tax rate decreased to 38.0% for the first nine months of 1996 compared to 39.6%
for the 1995 period, due to foreign earnings being taxed at lower rates.
Earnings for the third quarter ended July 31, 1996 were $.43 per share, compared
to $.77 for the 1995 period. Earnings per share of $1.54 for the nine months
compare to $1.90 for the 1995 period.
Liquidity and Capital Resources
At July 31, 1996, the ratio of current assets to current liabilities was 1.9
compared to 1.8 at October 31, 1995. Cash and marketable securities
increased from the October 31, 1995 level reflecting the continued strong
cash flows from operations partially offset by cash used for investing and
financing activities. Cash flows from operations totaled $368.1 million for the
nine months ended July 31, 1996, compared to $369.4 million for the comparable
1995 period. Inventories increased from unusually low 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 $346.8 million for the nine months of 1996,
compared to $189.9 million for the comparable 1995 period. This increase is
related to projects including the purchase of a consumer products printing and
packaging plant in Valinhos, Brazil, 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 July
31, 1996, the amounts committed to complete all authorized capital projects
were approximately $815 million and total capital expenditures are expected
to approximate between $450 to $500 million in 1996. 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 July 31, 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.
9
<PAGE>
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (cont'd)
Total required expenditures related to the 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedules
(b) Report on Form 8-K: There were no Form 8-K reports filed during the
quarter ended July 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTVACO CORPORATION
(Registrant)
September 10, 1996 /s/John E. Banu
John E. Banu
Comptroller
10
<PAGE>
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