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, 1998
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)
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, 1998, the latest practicable date, there were
101,453,151 shares outstanding of Common Stock, $5 par value.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statement of Income for the three
months ended January 31, 1998 and 1997
Consolidated Balance Sheet as of January 31, 1998
and October 31, 1997
Consolidated Statement of Cash Flows for the
three months ended January 31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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
___________________________________
1998 1997
_________ _________
Sales $ 702,113 $736,355
Other income (expense) 4,260 7,833
706,373 744,188
Cost of products sold (excluding
depreciation shown below) 501,290 544,176
Selling, research and administrative expenses 57,307 58,540
Depreciation and amortization 69,500 63,154
Interest expense 27,460 21,208
-------- --------
655,557 687,078
Income before taxes 50,816 57,110
Income taxes 18,300 21,600
-------- ---------
Net income $ 32,516 $ 35,510
========= =========
Net income per share of common stock - basic $.32 $.35
Average number of common shares outstanding 101,691 101,912
Net income per share of common stock - diluted $.32 $.35
Average number of common shares outstanding 102,419 102,542
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
1998 1997
_______________ _______________
[Unaudited]
ASSETS
Cash and marketable securities $ 113,733 $ 175,354
Receivables 290,170 300,827
Inventories 288,245 270,519
Prepaid expenses 64,971 58,508
----------- -----------
Current assets 757,119 805,208
Plant and timberlands:
Machinery 4,772,924 4,739,179
Buildings 630,050 626,559
Other property, including plant land 226,002 226,082
----------- ----------
5,628,976 5,591,820
Less: accumulated depreciation 2,506,340 2,447,575
----------- ----------
3,122,636 3,144,245
Timberlands - net 267,172 269,216
Construction in progress 332,081 270,897
----------- ----------
3,721,889 3,684,358
Other assets 422,955 409,221
---------- ----------
$ 4,901,963 $ 4,898,787
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 355,556 $ 356,691
Notes payable and current maturities of
long-term obligations 26,376 26,121
Income taxes 26,675 22,765
Current liabilities 408,607 405,577
Long-term obligations 1,516,734 1,512,621
Deferred income taxes 725,291 702,021
Shareholders' equity:
Common stock, $5 par, at stated value
shares authorized: 300,000,000
shares issued: 103,170,667
(1997-103,170,667) 761,662 761,522
Retained income 1,558,849 1,549,356
Cumulative translation adjustment (22,000) -
Common stock in treasury, at cost
shares held: 1,717,516 (1997-1,240,644) (47,180) (32,310)
2,251,331 2,278,568
---------- ----------
$ 4,901,963 $ 4,898,787
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
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 32,516 $ 35,510
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and
amortization 69,500 63,154
Provision for deferred income taxes 10,845 7,547
(Gains) losses on sales of plant
and timberlands (45) (2,962)
Pension credits and other employee
benefits (9,665) (8,723)
Foreign currency translation
(gains) losses 336 36
Changes in assets and liabilities:
(Increase) decrease in receivables 10,301 (10,266)
(Increase) decrease in inventories (18,208) (23,355)
(Increase) decrease in prepaid expenses (6,097) (9,648)
(Decrease) increase in accounts payable
and accrued expenses (9,114) (18,831)
(Decrease) increase in income taxes payable 3,371 10,177
Other, net 1,393 5,503
Net cash provided by operating activities 85,133 48,142
Cash flows from investing activities:
Additions to plant and timberlands (112,280) (166,519)
Proceeds from sales of plant and timberlands 605 3,451
Other, net 147 (16,371)
Net cash used in investing activities (111,528) (179,439)
Cash flows from financing activities:
Proceeds from issuance of common stock 859 868
Proceeds from issuance of debt 7,242 212,765
Treasury stock purchases (15,754) -0-
Dividends paid (22,420) (22,421)
Repayment of notes payable and long-term
obligations (4,218) (73,854)
Net cash (used in) provided by
financing activities (34,291) 117,358
Effect of exchange rate changes on cash (935) 134
Increase (decrease) in cash and
marketable securities (61,621) (13,805)
Cash and marketable securities:
At beginning of period 175,354 115,368
At end of period $ 113,733 $ 101,563
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, 1998 and the results of its operations and its
cash flows for the three months ended January 31, 1998 and
1997. 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 1997 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 1997 Annual Report on Form 10-K.
2. Current Assets
Marketable securities of $10,010,000 ($82,647,000 at October
31, 1997) are valued at cost, which approximates market.
Inventories included in the consolidated balance sheet
consist of the following:
January 31 October 31
In thousands 1998 1997
----------- -----------
Raw materials $ 55,009 $ 62,025
Production materials, stores
and supplies 78,532 81,618
Finished and in process goods 154,704 126,876
Total $ 288,245 $ 270,519
3. Foreign Operations
Results of operations for Rigesa, Ltda., our Brazilian operating
subsidiary, were as follows:
Three Months Ended
In thousands January 31
1998 1997
--------- ---------
Sales $ 43,048 $ 57,330
Net income $ 5,579 $ 9,766
Rigesa's results for the first quarter of 1998 were negatively
affected by a 13.8% decrease in the volume of shipments and
an 11.1% decrease in price and product mix.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
4. Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share," which replaced Accounting Principles Board
Opinion No. 15, "Earnings per Share." For the periods ended
January 31, 1998 and 1997, the basic and diluted earnings per
share calculated pursuant to SFAS No. 128 are as follows:
Basic EPS Effect of Dilutive Diluted
In thousands, except per Securities: EPS
share data Options
For the Three Months
Ended January 31, 1998
Net income $ 32,516 - $ 32,516
Weighted average number
of common shares 101,691 728 102,419
Earnings per share $0.32 - $0.32
For the Three Months
Ended January 31, 1997
Net income $ 35,510 - $ 35,510
Weighted average number
of common shares 101,912 630 102,542
Earnings per share $0.35 $0.35
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
[Unaudited]
Business Segment Information
Three Months Ended
January 31
1998 1997
In millions
Sales
Bleached $ 478.7 $ 504.6
Unbleached 146.8 159.5
Chemicals 79.3 74.7
Corporate items (2.7) (2.4)
Consolidated sales $ 702.1 $ 736.4
Operating profit
Bleached $ 66.6 $ 64.7
Unbleached 22.2 23.5
Chemicals 16.2 13.0
Corporate items (54.2) (44.1)
Consolidated income
before taxes $ 50.8 $ 57.1
Results of Operations
Overall, the results of the first quarter of 1998 reflect the
very competitive market conditions created by excess capacity
over demand in various product segments that continue to keep
pressure on the prices of some products. These conditions
have affected our entire industry since late 1995. Sales of
$702.1 million for the 1998 first quarter were down 4.7% from
the 1997 first quarter, primarily the result of a decrease in
the volume of shipments. Coated fine printing paper sales
have improved, as have sales of saturating kraft paper used
in decorative laminates. Likewise, market conditions are
generally good for our unbleached paperboard used in consumer
and industrial packaging and we are experiencing solid demand
for our specialty chemicals. Export sales from the United
States were down 5% compared to the first quarter of 1997 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,
decreased 11% from the prior year period, principally at
Rigesa, Ltda., our Brazilian subsidiary, and accounted for
approximately 24% of consolidated sales. The global
repercussions of the financial turmoil in Asia prompted the
Brazilian government to implement austerity measures there
that are dramatically slowing that economy following three
years of rapid expansion. Earnings from operations for the
first quarter ended January 31, 1998 were $.32 per share
(basic and diluted), compared to $.35 per share (basic and
diluted) for the 1997 period. Gross profit margin for the
first quarter of 1998 was 19% compared with 18% for the prior year
period as sales decreased 4.7% while cost of products sold
decreased by 7.9%. The decrease in cost of products sold was
attributable to decreases in volume and cost improvement
initiatives. Depreciation and amortization expense for the
first quarter increased 10% from the prior year period due to
several important projects having been placed in service in
1997.
Bleached
Bleached segment sales for the first quarter decreased 5.1% from
the comparable 1997 period due to lower unit volume. Bleached
segment operating profit was up 3% in the first quarter ended
January 31, 1998 compared to the same 1997 period principally due
to the company's cost improvement initiatives. Challenging
conditions exist in our bleached board and consumer
packaging businesses which are currently facing very
competitive markets. During the first quarter of 1998,
approximately 24% 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
9% of bleached segment sales consisted of packaging
materials made for 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 U.S. 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. In early February of
this year, six of the company's eight envelope plants went
out on strike. The strike, which was settled in early
March, will have an adverse effect on earnings for the
second quarter of 1998. While the company currently
estimates the strike will reduce earnings by a range of $.05
to $.07 per share (basic and diluted), the full impact
cannot be determined until normal operations are restored.
Unbleached
Sales for the unbleached segment decreased 7.9% compared to
the 1997 first quarter due to a decrease in unit volume of
4.4% and a decrease in price and product mix of 3.5%,
although domestic pricing improved during the first quarter
of 1998 for several of our unbleached products, compared
with the prior year period. Operating profit for the
unbleached segment decreased to $22.2 million from the 1997
first quarter profit of $23.5 million. The Brazilian
government has initiated financial reforms designed to
stabilize the country's economy in the face of the current
pressures, while enhancing Brazil's longer term economic
prospects. Consequently, Rigesa's unbleached operation
accounted for approximately 18% of segment operating profit
in the first quarter of 1998, compared to approximately 46%
for the 1997 comparable period, and 1998 will likely be a
year of little or no economic growth in Brazil. Due to the
decline in the rate of inflation in Brazil in recent years,
effective November 1, 1997, the Brazilian Real became the
functional currency for the company's Brazilian operations and
adjustments resulting from financial statement translations are
now included in the shareholders' equity section of the balance
sheet. The effect of this change did not have a significant impact
on earnings for the period.
Chemicals
Sales for the chemicals segment increased 6.2% from the 1997
first quarter primarily due to improvements in price and
product mix of 9.5%, partially offset by a decrease in
volume of 3.3% due to the sale of a small chemical plant in
Mulberry, FL, in October 1997. Operating profit for the
chemicals segment increased to $16.2 million for the 1998
first quarter. During the third quarter of 1997 operations
began at the company's new activated carbon plant in
Wickliffe, KY.
Other Items
The effective tax rate was 36.0% for the first quarter of 1998
compared to 37.8% for the 1997 period. Based upon its
continuing analysis and planning, the company expects that any
remediation of its data processing systems and associated
hardware required to address the impact of Year 2000 will be
accomplished well in advance. Further, the company does not
expect the financial impact of such remediation to be material
to the company's financial position or results of operation.
Liquidity And Capital Resources
At January 31, 1998 the ratio of current assets to current
liabilities was 1.9 compared to 2.0 at October 31, 1997.
Cash and marketable securities decreased in the first
quarter as cash used for investing activities exceeded cash
flows from operations. Overall inventories were up from the
October 1997 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 $85.1 million
for the three months ended January 31, 1998, compared to
$48.1 million for the comparable 1997 period. Cash
expenditures for capital investments totaled $112.3 million
for the first quarter of 1998, compared to $166.5 million
for the comparable 1997 period. The decrease in capital
expenditures is related to the completion of 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 which were completed by the end of the
prior year. At January 31, 1998, the amounts committed to
complete all authorized capital projects were approximately
$372.2 million. Total capital expenditures are expected to
approximate $450 million in 1998, primarily in support of
the company's strategy of product and service
differentiation. 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
$500 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 34% at
January 31, 1998, and October 31, 1997.
Environmental Matters
In 1995, the company authorized removal of elemental
chlorine from all of its pulp bleaching processes. This
important initiative, completed during 1997 at a cost of
approximately $110 million, represents a major step already
taken by Westvaco in addressing new EPA regulations for the
U.S. pulp and paper industry regarding air and water
quality. These regulations, which have long been
anticipated, were announced in November 1997; they have not
as yet been published as we prepare this report. It is
expected that implementation of these new regulations will
be required over the next several years. In the next few
months, as the regulations are finalized under federal
rulemaking procedures, the company expects to reduce
substantially the upper end of the range of its previously
estimated compliance costs from $400 million to $200
million, including expenditures already incurred. Downward
revisions to its previously estimated additional operating
costs, which were in the range of $25 to $50 million pretax
annually, are also anticipated.
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. The company has also received a notice
of violation from the Kentucky Division for Air Quality in
connection with the company's Wickliffe, KY, carbon plant
(see Legal Proceedings in Part II).
Forward-looking statements
Certain statements in this document and elsewhere by management
of the company that are neither reported financial results nor
other historical information are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are not guarantees
of future performance and are subject to known and unknown risks,
uncertainties and other factors which may cause or contribute to
actual results of company operations, or the performance or
achievements of the company, or industry results, to differ
materially from those expressed in or implied by the forward-looking
statements. In addition to any such risks, uncertainties
and other factors discussed elsewhere herein, risks,
uncertainties and other factors that could cause or contribute to
actual results differing materially from those expressed in or implied
by the forward-looking statements include, but are not limited to,
competitive pricing for the company's products; changes in raw
materials, energy and other costs; fluctuations in demand and
changes in production capacities; changes to economic growth in
the U.S. and international economies, especially in the Far East
and Brazil; governmental policies and regulations affecting the
environment; and currency movements.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Not applicable
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 3, 1997, Westvaco received the first of three
notices of violation from the Kentucky Division for Air
Quality ("KDAQ") in connection with the company's alleged
failure to demonstrate compliance with a Prevention of
Significant Deterioration permit issued to the company's
Wickliffe, KY, carbon plant. On January 20, 1998, the KDAQ
proposed a draft administrative consent order in resolution
of the non-compliance. While negotiations are currently
underway, management anticipates a final administrative
consent order to result in the implementation of corrective
actions which will demonstrate compliance by November 1,
1998, and the assessment of civil penalties of up to $285,000.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Westvaco Corporation
was held on February 24, 1998.
(b) The directors named in the Proxy Statement were elected to
three-year terms expiring in 2001, with the following results:
Shares Shares
Voted For Withheld
David L. Hopkins, Jr. 96,781,780 565,779
Douglas S. Luke 96,787,596 559,963
Jane L. Warner 96,276,716 1,070,843
Richard A. Zimmerman 96,788,036 559,523
(c) The appointment of Price Waterhouse LLP as independent
accountants was ratified by a vote of 97,126,919 shares in
favor, 91,618 shares in opposition and 129,022 shares
abstained.
The "Notice of Annual Meeting of Shareholders and Proxy
Statement for Westvaco Corporation" dated December 26, 1997 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 was filed on March 6, 1998 and is
incorporated herein by reference. The contents of the
report are summarized below:
Item 5. Other Events: - describing that the strike at six
of the company's eight envelope plants had been
settled.
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 16, 1998 James E. Stoveken, Jr.
James E. Stoveken, Jr.
Senior Vice President
(Principal Financial Officer)
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