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 first quarter ended January 31, 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
(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 January 31, 1997, the latest practicable date, there were
101,940,282 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 ended January 31, 1997 and 1996 2
Consolidated Balance Sheet as of January 31, 1997
and October 31, 1996 3
Consolidated Statement of Cash Flows for the
three months ended January 31, 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 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
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
__________________________________
1997 1996
_________ _________
Sales $736,355 $748,728
Other income 7,833 13,100
744,188 761,828
Cost of products sold (excluding
depreciation shown below) 544,176 520,802
Selling, research and administrative expenses 58,540 57,119
Depreciation and amortization 63,154 58,984
Interest expense 21,208 22,536
687,078 659,441
Income before taxes 57,110 102,387
Income taxes 21,600 40,000
Net income $ 35,510 $ 62,387
Average number of common shares outstanding 101,912 101,577
Net income per share of common stock $.35 $.61
Cash dividends per share of common stock $.22 $.22
The accompanying notes are an integral part of these financial
statements.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED BALANCE SHEET
In thousands
January 31 October 31
1997 1996
_______________ _______________
[Unaudited]
ASSETS
Cash and marketable securities $ 101,563 $ 115,368
Receivables 287,394 277,135
Inventories 286,666 263,292
Prepaid expenses 70,811 60,300
Current assets 746,434 716,095
Plant and timberlands:
Machinery 4,291,406 4,249,814
Buildings 586,278 558,865
Other property, including plant land 209,719 204,098
5,087,403 5,012,777
Less: accumulated depreciation 2,303,494 2,245,338
2,783,909 2,767,439
Timberlands - net 250,468 248,299
Construction in progress 413,322 334,581
Construction funds held by trustee 19,568 3,414
3,467,267 3,353,733
Other assets 373,415 367,670
$4,587,116 $4,437,498
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 349,233 $ 372,445
Notes payable and current maturities of
long-term obligations 87,939 27,883
Income taxes 28,786 18,609
Current liabilities 465,958 418,937
Long-term obligations 1,233,677 1,153,447
Deferred income taxes 663,788 655,377
Shareholders' equity:
Common stock, $5 par, at stated value
shares authorized: 200,000,000
shares issued: 102,830,150
(1996-102,424,065) 751,891 750,457
Retained income 1,492,114 1,479,025
Common stock in treasury, at cost
shares held: 889,868 (1996-815,734) (20,312) (19,745)
2,223,693 2,209,737
$4,587,116 $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
Three Months Ended
January 31
1997 1996
Cash flows from operating activities:
Net income $ 35,510 $ 62,387
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 63,154 58,984
Provision for deferred income taxes 7,547 13,925
Gains on sales of plant and timberlands (2,962) (5,596)
Pension credits and other employee benefits (8,723) (7,101)
Foreign currency translation gains 36 (415)
Changes in assets and liabilities:
(Increase) decrease in receivables (10,266) 28,858
Increase in inventories (23,355) (21,270)
Increase in prepaid expenses (9,648) (6,670)
Decrease in accounts payable and
accrued expenses (18,831) (10,067)
Increase (decrease) in income taxes payable 10,177 20,389
Other, net 5,503 (1,745)
Net cash provided by operating activities 48,142 131,679
Cash flows from investing activities:
Additions to plant and timberlands (166,519) (88,056)
Proceeds from sales of plant and timberlands 3,451 62,600
Other, net (16,371) 90
Net cash used in investing activities (179,439) (25,366)
Cash flows from financing activities:
Proceeds from issuance of common stock 868 700
Proceeds from issuance of debt 212,765 9,394
Dividends paid (22,421) (22,348)
Repayment of notes payable and long-term
obligations (73,854) (16,356)
Net cash provided by (used in) financing
activities 117,358 (28,610)
Effect of exchange rate changes on cash 134 24
(Decrease) increase in cash and marketable
securities (13,805) 77,727
Cash and marketable securities:
At beginning of period 115,368 151,823
At end of period $ 101,563 $229,550
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
January 31, 1997 and the results of operations and its cash
flows for the three months ended January 31, 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 $28,202,000 ($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:
January 31 October 31
In thousands 1997 1996
Raw materials $ 61,581 $ 61,094
Production materials, stores
and supplies 79,500 78,850
Finished and in process goods 145,585 123,348
Total $286,666 $263,292
3. Foreign Operations
Results of operations for Rigesa, Ltda., our Brazilian
operating subsidiary, were as follows:
Three Months Ended
In thousands January 31
1997 1996
Sales $57,330 $58,726
Net income $ 9,766 $14,081
Rigesa's results for the first quarter of 1997 were
negatively affected by a decrease in price and product mix,
partially offset by an increase in the volume of shipments.
4. Supplemental Cash Flow Information
Cash payments for interest excluding amounts capitalized
were $17,443,000 and $20,388,000 for the quarter ended
January 31, 1997 and January 31, 1996, respectively. Cash
payments for income taxes were $4,270,000 and $5,909,000 in
the first quarter 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.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
[Unaudited]
Segment Information
Three Months Ended
January 31
1997 1996
In millions
Sales
Bleached $504.6 $490.2
Unbleached 159.5 188.9
Chemicals 74.7 72.2
Corporate items (2.4) (2.6)
Consolidated sales $736.4 $748.7
Operating profit
Bleached $ 64.7 $ 76.6
Unbleached 23.5 48.8
Chemicals 13.0 12.5
Corporate items (44.1) (35.5)
Consolidated income
before taxes $ 57.1 $102.4
Results of Operations
Overall, the results of the first quarter of 1997 reflect
very competitive market conditions in some of our paper and
paperboard grades. The most pronounced effect was in pricing
in unbleached kraft linerboard and coated printing paper
products. Sales of $736.4 million for the 1997 first
quarter were down 1.7% from the record levels achieved in the
1996 first quarter, the result of a 10.3% decrease in price
and product mix, offset by an 8.6% increase in the volume of
shipments. While pricing remains under pressure, there has
been a general improvement in demand despite the usual soft
seasonal influences during this period. Export sales from
the United States were up 26% compared to the first quarter
of 1996 and accounted for approximately 17% of the company's
first quarter sales. Total sales outside of the United
States, including sales of our foreign operating
subsidiaries, accounted for nearly 26% of consolidated sales,
and increased 18% from the prior year period. This
continued growth in foreign sales reflects the strong
interest in our products in both developed and developing
markets. Gross profit margin for the first quarter of 1997
was 18% compared with 23% for the prior year period as sales
decreased while cost of products sold increased by 4.5%. The
increase in cost of products sold was attributable to
increased volume, partially offset by some direct materials
cost decreases. Depreciation and amortization expense for
the first quarter increased 7.1% from the prior year period.
Bleached
Bleached segment sales for the first quarter increased 2.9% from
the comparable 1996 period due to favorable changes in unit volume
of 13.8% offset by a decrease in price and product mix of 10.9%.
Our coated printing papers and bleached board products account
for a significant portion of the volume improvements.
Bleached segment operating profit was down more than 13% in
the first quarter ended January 31, 1997 compared to the
same 1996 period. During the first quarter of 1997,
approximately 25% 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. Approximately 9% of bleached segment
sales consisted of packaging materials made for the domestic
tobacco industry for sale in the United States.
Unbleached
Sales for the unbleached segment decreased 15.6% compared to
the 1996 first quarter due to a decrease in price and
product mix of 13.5%, and a decrease in unit volume of 2.1%.
Operating profit for the unbleached segment decreased to
$23.5 million from the 1996 first quarter profit of $48.8
million. The unbleached segment pricing continues to be
adversely affected by the very competitive conditions in
U.S. containerboard markets through most of our fiscal 1996
year. In Brazil, results reflect an increase in unit volume
offset by competitive pricing conditions which have shown
some signs of improvement during the first quarter.
Rigesa's unbleached operation accounted for nearly half
of segment operating profit in the first quarter of
1997. The company cannot predict the continued strength of
the Brazilian market.
Chemicals
Sales for the chemicals segment increased 3.5% from the 1996
first quarter primarily due to improvements in price and
product mix of 2.7%. Operating profit for the chemicals
segment increased to $13 million for the first quarter.
Other Items
Other income for the 1997 first quarter decreased from the
1996 first quarter due primarily to lower interest income.
The effective tax rate was 37.8% for the first quarter of 1997
compared to 39.1% for the 1996 period. The decline was due to
foreign earnings being taxed at lower rates.
Earnings from operations for the first quarter ended January
31, 1997 were $.35 per share, compared to the record of $.61
per share for the comparable 1996 period.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1997 the ratio of current assets to current
liabilities was 1.6 compared to 1.7 at October 31, 1996.
Cash and marketable securities decreased in the first
quarter as cash used for investing activities exceeded cash
flows from operations and financing activities. Overall
inventories were up from the October 1996 level. Finished
goods inventories have increased since October, as the
company maintained normal production levels in a seasonally
slower period. Cash flows from operations totaled $48.1
million for the three months ended January 31, 1997,
compared to $131.7 million for the comparable 1996 period.
Cash expenditures for capital investments totaled $160.6
million for the first quarter of 1997, compared to $79.7
million for the comparable 1996 period. The increase in
capital expenditures 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 all of our pulp bleaching
processes. Construction of the carbon plant was financed by
$80 million of 30-year revenue bonds which were issued in
January 1997. At January 31, 1997, the amounts committed to
complete all authorized capital projects were approximately
$690 million. Total capital expenditures are expected to
approximate between $600 to $650 million in 1997 primarily
in support of the company's strategy of product and service
differentiation. The company may from time to time use debt
to supplement its internal cash flows to support future
capital investments as it has in the past. At January 31,
1997, the company had approximately $60 million in
commercial paper outstanding. In February 1997, the company
filed a Registration Statement relating to the issuance of
$300 million of 30-year sinking fund debentures which will
be used for future capital spending and general purposes.
The company maintains a $400 million revolving credit
agreement and there was no borrowing under this arrangement
during the current period. The ratio of debt to total
capital employed was 30% at January 31, 1997, and 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, Westvaco authorized an
expenditure of $140 million in the spring of 1995, and we
expect the removal of elemental chlorine, which addresses
the anticipated EPA regulations, to be complete in 1997.
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 $20 to $40 million
pretax annually. Currently, the company does not expect
final rules until sometime later in 1997 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.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
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 25, 1997.
(b) The directors named in the Proxy Statement were elected
to three-year terms expiring in 2000, with the
following results:
Shares Shares Broker
Voted For Withheld Nonvotes
Samuel W. Bodman III 96,314,952 858,960 109,484
Dr. Thomas W. Cole, Jr. 96,333,665 840,247 109,484
Rudolph G. Johnstone, Jr. 96,264,043 909,869 109,484
John A. Luke 96,355,885 818,027 109,484
(c) The appointment of Price Waterhouse LLP as independent
accountants was ratified by a vote of 96,884,045 shares
in favor, 164,397 shares in opposition, 125,470 shares
abstained and 109,484 broker nonvotes.
(d) The proposal to amend Westvaco Corporation's Restated
Certificate of Incorporation to increase the number of
authorized shares of common stock from 200,000,000 to
300,000,000 was ratified by a vote of 89,603,770 shares
in favor, 7,276,090 shares in opposition, 294,052
shares abstained and 109,484 broker nonvotes.
The "Notice of Annual Meeting of Shareholders and Proxy
Statement for Westvaco Corporation" dated December 27, 1996
was filed with the Securities and Exchange Commission
pursuant to Regulation 14A of the Act and is incorporated
herein by reference.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
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 covering Item 5, Other
Events, was filed on November 12, 1996
reporting the adjustment of the Rights
Agreement for the October 2, 1995, three-for-two stock split.
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 11, 1997 James E. Stoveken, Jr.
James E. Stoveken, Jr.
Senior Vice President
(Principal Financial Officer)
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