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 second quarter ended April 30, 1997
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
(Registrant'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 April 30, 1997, the latest practicable date, there were 101,960,349
shares outstanding of Common Stock, $5 par value.
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, 1997 and 1996 2
Consolidated Balance Sheet as of April 30, 1997
and October 31, 1996 3
Consolidated Statement of Cash Flows for the
six months ended April 30, 1997 and 1996 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 11
SIGNATURES 11
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
1997 1996 1997 1996
Sales $724,593 $760,284 $1,460,948 $1,509,012
Other income (expense) 4,620 8,501 12,453 21,601
729,213 768,785 1,473,401 1,530,613
Cost of products sold (excludes
depreciation shown below) 527,658 547,290 1,071,834 1,068,092
Selling, research and
administrative expenses 56,059 58,316 114,599 115,435
Depreciation and amortization 64,442 59,387 127,596 118,371
Interest expense 21,814 22,038 43,022 44,574
669,973 687,031 1,357,051 1,346,472
Income before taxes 59,240 81,754 116,350 184,141
Income taxes 21,300 31,200 42,900 71,200
Net income $ 37,940 $ 50,554 $ 73,450 $ 112,941
Average number of common
shares outstanding 101,952 101,680 101,931 101,634
Net income per share of
common stock $.37 $.50 $.72 $1.11
Cash dividends per share of
common stock $.22 $.22 $.44 $ .44
The accompanying notes are an integral part of these financial statements.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED BALANCE SHEET
In thousands
April 30 October 31
1997 1996
[Unaudited]
ASSETS
Cash and marketable securities $ 135,135 $ 115,368
Receivables 270,828 277,135
Inventories 299,625 263,292
Prepaid expenses 64,944 60,300
Current assets 770,532 716,095
Plant and timberlands:
Machinery 4,359,975 4,249,814
Buildings 590,435 558,865
Other property, including plant land 212,043 204,098
5,162,453 5,012,777
Less: accumulated depreciation 2,361,635 2,245,338
2,800,818 2,767,439
Timberlands - net 249,025 248,299
Construction in progress 490,886 334,581
Construction funds held by trustee 1,327 3,414
3,542,056 3,353,733
Other assets 389,395 367,670
$4,701,983 $4,437,498
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 360,567 $ 372,445
Notes payable and current maturities of
long-term obligations 28,388 27,883
Income taxes 23,381 18,609
Current liabilities 412,336 418,937
Long-term obligations 1,376,086 1,153,447
Deferred income taxes 673,993 655,377
Shareholders' equity:
Common stock, $5 par, at stated value
shares authorized: 300,000,000 (1996-200,000,000)
shares issued: 102,860,628 (1996-102,761,119) 752,556 750,457
Retained income 1,507,624 1,479,025
Common stock in treasury, at cost
shares held: 900,279 (1996-870,075) (20,612) (19,745)
2,239,568 2,209,737
$4,701,983 $4,437,498
The accompanying notes are an integral part of these financial statements.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
[Unaudited]
In thousands
Six Months Ended
April 30
1997 1996
Cash flows from operating activities:
Net income $ 73,450 $ 112,941
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 127,596 118,371
Provision for deferred income taxes 16,903 23,717
Gains on sales of plant and timberlands (4,652) (6,743)
Pension credits and other employee benefits (21,307) (11,263)
Other, net 551 4,229
Changes in assets and liabilities:
Decrease in receivables 6,288 54,375
Increase in inventories (36,293) (17,444)
Increase in prepaid expenses (2,932) (8,980)
Decrease in accounts payable and
accrued expenses (11,643) (15,498)
Decrease in income taxes payable (3,172) (34,797)
Other, net (24) 4,476
Net cash provided by operating activities 144,765 223,384
Cash flows from investing activities:
Additions to plant and timberlands (317,185) (192,611)
Proceeds from sales of plant and timberlands 5,947 64,586
Other, net 2,069 (4,324)
Net cash used in investing activities (309,169) (132,349)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,188 3,035
Proceeds from issuance of debt 492,274 34,814
Dividends paid (44,851) (44,711)
Repayment of notes payable and long-term obligations (264,358) (41,625)
Net cash provided by (used in)
financing activities 184,253 (48,487)
Effect of exchange rate changes on cash (82) 199
Increase in cash and marketable securities 19,767 42,747
Cash and marketable securities:
At beginning of period 115,368 151,823
At end of period $ 135,135 $ 194,570
The accompanying notes are an integral part of these financial statements.
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, 1997 and the results of operations and its cash
flows for the three months and six months ended April 30, 1997 and 1996.
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 1996 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 1996 Annual Report on Form 10-K.
2. Current Assets
Marketable securities of $43,326,000 ($53,233,000 at October 31, 1996) are
valued at cost, which approximates market.
Inventories included in the consolidated balance sheet consist of the
following:
April 30 October 31
In thousands 1997 1996
Raw materials $ 63,542 $ 61,094
Production materials, stores
and supplies 77,520 78,850
Finished and in process goods 158,563 123,348
Total $299,625 $263,292
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
1997 1996 1997 1996
Sales $53,631 $60,427 $110,961 $119,153
Net income $10,547 $13,078 $ 20,313 $ 27,159
Rigesa's results for the second quarter and six months of 1997 were
affected by changes in price and product mix of (10.5)% and (13.3)%,
respectively, and changes in the volume of shipments of (.7)% and 6.4%,
respectively.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
4. Supplemental Cash Flow Information
Cash payments for interest excluding amounts capitalized were $44,894,000
and $43,214,000 for the six months ended April 30, 1997 and April 30,
1996, respectively. Cash payments for income taxes were $21,624,000 and
$82,193,000 in the first six months of 1997 and 1996, respectively.
5. Net Income Per Common Share
Income per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Common stock
equivalents which would arise from the exercise of stock options were
not included in the weighted average due to immateriality.
The Company calculates earnings per share using methods prescribed by
Accounting Principles Board (APB) Opinion No. 15, "Earnings per Share."
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share," which replaces APB No. 15 and requires adoption for periods
ending after December 15, 1997. The Statement will require dual
presentation of basic and diluted earnings per share on the face of the
income statement. For the periods ended April 30, 1997 and 1996, the
basic and diluted earnings per share calculated pursuant to SFAS No. 128
are not materially different from primary earnings per share calculated
under APB No. 15.
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
1997 1996 1997 1996
In millions
Sales
Bleached $497.5 $517.5 $1,002.1 $1,007.7
Unbleached 154.1 172.5 313.6 361.4
Chemicals 75.7 70.9 150.4 143.1
Corporate items (2.8) (0.6) (5.2) (3.2)
Consolidated sales $724.5 $760.3 $1,460.9 $1,509.0
Operating profit
Bleached $ 67.2 $ 80.6 $ 131.9 $ 157.2
Unbleached 21.4 34.9 44.9 83.7
Chemicals 14.8 6.7 27.8 19.2
Corporate items (44.1) (40.5) (88.2) (76.0)
Consolidated income
before taxes $ 59.3 $ 81.7 $ 116.4 $ 184.1
Results of Operations
Our sales and earnings for the second quarter and first half of fiscal
1997 reflect the continued pressure on prices for paper products. Sales
of $724.5 million for the 1997 second quarter were down 4.7% from the 1996
second quarter, the result of a 7.7% decrease in price and product mix,
partially offset by a 3.0% increase in the volume of shipments. While
pricing remains under pressure, there have been signs of improvement in
demand, specifically in coated papers and linerboard. Sales of $1,460.9
million for the six months were down 3.2% from the comparative 1996
period, due to a 8.3% decrease in price and product mix, partially offset
by a 5.1% increase in the volume of shipments. Export sales from the
United States represented approximately 17% of the company's consolidated
sales for both the second quarter and the first six months of 1997. Sales
outside of the United States, including sales of our foreign operating
subsidiaries, accounted for approximately 25% of consolidated second
quarter and year to date sales. Gross profit margin for the second
quarter and first six months of 1997 was 19% and 18%, respectively,
compared with 20% 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, partially offset
by a decrease in cost of products sold for the second quarter of 1997,
primarily due to cost decreases. Depreciation and amortization expense
for the second quarter and six months of 1997 increased 8.5% and 7.8%,
respectively, from the prior year periods. Earnings for the second
quarter ended April 30, 1997 were $.37 per share, compared to $.50 for the
1996 period. Earnings per share of $.72 for the six months compare to
$1.11 for the 1996 period.
Bleached
Bleached segment sales for the second quarter decreased 3.9% from the
comparable 1996 period, due to a decrease in price and product mix of
7.9%, partially offset by a unit volume increase of 4.0%. Sales for the
first six months of 1997 decreased less than 1% from the comparable 1996
period, reflecting a decrease in price and product mix of 8.5%, mostly
offset by a 7.9% increase in unit volume. Bleached segment operating
profit for the second quarter and six months decreased 16.6% and 16.1%,
respectively, from the comparable 1996 periods due principally to lower
printing paper prices. Year to date, approximately 27% of bleached
segment sales were made to the tobacco industry for packaging tobacco
products. A majority of this paper and board was exported or used to
produce products for export. Excluding that portion, approximately 10%
of bleached segment sales consisted of packaging materials made for the
domestic tobacco industry for sale in the United States.
Unbleached
Unbleached segment sales for the second quarter and the first six months
of 1997 decreased 10.7% and 13.2%, respectively, primarily due to
decreases in price and product mix of 10.7% and 11.8%, respectively.
During the second quarter, the unbleached segment pricing was adversely
affected by the very competitive market conditions in the paper industry
which depressed operating profit for the unbleached segment for the
second quarter and six months of 1997 to $21.4 million and $44.9
million, respectively, compared with $34.9 million and $83.7 million for
the prior year periods. Rigesa accounted for nearly half of segment
operating profit in the first six months of 1997. The impact of Rigesa
on the first six months of 1997 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 6.8% and 5.1% from the 1996
second quarter and comparable six months, respectively, due to price and
product mix improvements of 4.2% and 3.8%, respectively, along with
volume increases of 2.6% and 1.3%, respectively. Operating profit for
the chemicals segment was $14.8 million and $27.8 million, respectively,
for the second quarter and the first six months of 1997, compared to
$6.7 million and $19.2 million last year.
Other Items
Other income (expense) for the 1997 second quarter and six months
decreased from 1996 comparable periods due primarily to lower interest
income principally at Rigesa. Interest expense decreased by 3.5% for
the six months compared to 1996 reflecting an increase in interest
capitalized in connection with our capital spending activities. The
effective tax rate decreased to 36.9% for the first six months of 1997
compared to 38.7% for the 1996 period, due to foreign earnings being
taxed at lower rates.
Liquidity and Capital Resources
At April 30, 1997, the ratio of current assets to current liabilities was
1.9 compared to 1.7 at October 31, 1996. Cash flows from operations
totaled $144.8 million for the six months ended April 30, 1997, compared
to $223.4 million for the comparable 1996 period. Inventories increased
from October 1996 levels, reflecting increased competition in our major
business areas and planned inventory levels. New investment in plant and
timberlands totaled $318.7 million for the first six months of 1997,
compared to $181.6 million for the same period of 1996. Cash payments for
these investments totaled $317.2 million compared to $192.6 million in
1996. This increase is related to the construction of the Chemical
Division's new carbon plant in Wickliffe, KY, which will assist automobile
manufacturers in meeting new pollution control regulations for 1998
vehicles, and to projects associated with paper machine improvements and
the removal of elemental chlorine from the pulp bleaching process. At
April 30, 1997, the amounts committed to complete all authorized capital
projects totaled approximately $589 million and total capital expenditures
in 1997 are expected to approximate between $550 and $600 million. The
company may from time to time use debt to supplement its internal cash
flows to support future levels of capital investments, as it has in the
past. In March 1997, the company issued $150 million of 7.65%, 30-year
sinking fund debentures due March 15, 2027 of the $300 million shelf
registration. The funds are to be used for capital spending and general
purposes. Cash flows from financing activities for the first six months
of 1997 reflect, in addition, the issuance and repayment of commercial
paper. At April 30, 1997, the company had no commercial paper
outstanding. The company maintains a $400 million revolving credit
agreement and there was no borrowing under this arrangement during the
current periods. The ratio of debt to total capital employed was 32% at
April 30, 1997, compared to 29% at October 31, 1996.
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. The company expects final rules to be issued this year 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.
In 1996, the American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities." This
statement, which provides guidance on the recognition and disclosure of
environmental liabilities, is effective for fiscal years beginning after
December 15, 1996. The company is required to adopt the new statement in
its fiscal year 1998. Based on the company's evaluation of this statement,
the company does not expect the adoption will have a material effect on the
company's consolidated results of operations or financial position.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial data schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on March 17, 1997 and amended
on June 10, 1997 and is incorporated herein by reference.
The contents of the report are summarized below:
Item 5. Other Events - describing the issuance in an
underwritten public offering of $150,000,000 of
the company's 7.65% Sinking Fund Debentures due
March 15, 2027 under a Registration Statement
on Form S-3 for an aggregate of $300,000,000
(Registration No. 333-22405), and the related
Prospectus dated March 5, 1997. The issuance of
$150,000,000 of debentures is covered by a
related Prospectus Supplement dated March 12, 1997.
Item 7. Financial Statements and Exhibits
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 11, 1997
__________________________________________
James E. Stoveken, Jr.
Senior Vice President
(Principal Financial Officer)
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