UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
COMMISSION FILE NUMBER 1-3013
Westvaco Corporation
(Exact name of registrant as specified in its charter)
Delaware 299 Park Avenue
(State of incorporation) New York, New York 10171
Telephone 212-688-5000
13-1466285 (Address and telephone number of
(I.R.S. Employer registrant's principal executive offices)
Identification No.)
Securities Registered Pursuant To Section 12(b) Of The Act:
Name of each exchange
Title of each class on which registered
Common Stock- $5 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Sinking Fund Debentures:
8 1/8%, due 2000-2007 New York Stock Exchange
10 1/4%, due 2000-2018 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
At October 31, 1999, the latest practicable date, the number of shares
of common stock outstanding and aggregate market value of voting common
stock held by nonaffiliates were 100,292,843 and $2,958,638,869,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the
fiscal year ended October 31, 1999 (the "1999 Westvaco Annual Report")
are incorporated by reference into Parts I, II and IV of this Form 10-K.
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held February 22, 2000 ("Westvaco's 2000
Proxy Statement") are incorporated by reference into Part III of this
Form 10-K.
Part I
Item 1. Business
General
Westvaco Corporation, a Delaware Corporation incorporated in 1899
as West Virginia Pulp and Paper Company, is one of the major
producers of paper and paperboard in the United States. The
company converts paper and paperboard into a variety of end
products, manufactures a variety of specialty chemicals, produces
lumber, sells timber from its timberlands and is engaged in land
development. In Brazil, it is a major producer of paperboard and
corrugated packaging for the markets of that country and also
operates a folding carton plant. Westvaco also has a folding
carton plant in the Czech Republic. Westvaco exports products from
the United States, Brazil and the Czech Republic to other countries
throughout the world. The term "Westvaco" or "the company"
includes Westvaco Corporation and its consolidated subsidiaries
unless otherwise noted.
Business segments
The company's operating divisions have been classified into
reportable segments based upon the nature of their products and
services within three major product categories, with separate
disclosure of our Brazilian packaging operation, Rigesa, Ltda.
Financial information about the company's business segments is
contained in Note O to the consolidated financial statements,
included in the 1999 Westvaco Annual Report on pages 31 to 32, and
is incorporated herein by reference.
Marketing and distribution
The principal markets for Westvaco's products are in the United
States. Sales to customers outside the United States made up
approximately 24% of Westvaco's total sales in 1999 (1998 and 1997-
25%). Substantially all products are sold through the company's
own sales force. Westvaco maintains 30 sales offices located
throughout the United States and 30 in foreign countries.
Forest resources
The principal raw material used in the manufacture of paper,
paperboard and pulp is wood. Westvaco owns 1,446,000 acres of
forest land in the United States and southern Brazil (more than
1,000 miles from the Amazon rainforests). Westvaco's Cooperative
Forest Management Program provides an additional source of wood
fiber from the 1,370,000 acres owned by participating landowners
and managed with assistance from Westvaco foresters.
Westvaco's strategy, based on the location of its mills and the
composition of surrounding forest land ownership, is to provide a
portion of its wood fiber from company-owned land and to rely on
private woodland owners and residues from independent solid wood
products plants for substantial quantities of wood. During 1999,
Westvaco furnished 39% (1998-36%, 1997-39%) of its wood
requirements from company-owned land, and an additional 8% (19987%,
1997-8%) was purchased from landowners in the Cooperative Forest
Management Program. The remainder was purchased from
other private landowners and sawmills by mill wood procurement
organizations. The wood procurement system includes 27 pulpwood
concentration and processing yards that are strategically located
to store and ship wood to the mills as needed. The Cooperative
Forest Management Program, private landowners and sawmills
continue to provide adequate volumes of timber to meet our
external fiber needs. The company has no reason to expect that
these sources will be unable to furnish adequate wood supply in
the future. Westvaco supplied 100% of the wood for its Brazilian
mill from company plantations.
Westvaco forests include plantations, natural stands and fiber
farms. The inventory of growing trees, the basis for volume
production, has increased steadily over the last decade in spite of
a steady rise in the volume of wood harvested. Most of the pine
stands harvested are plantations that are regenerated by
establishing new pine plantations. Most hardwood stands that are
harvested are re-established by planned natural regeneration from
seeds and sprouts. Westvaco's hardwood plantation and fiber farm
programs are expanding and involve several domestic species. The
quantity of wood harvested by Westvaco from its lands in any year
is primarily controlled by long-range forest management programs
based on integrated wood supply plans.
Patents
Westvaco has obtained a number of foreign and domestic patents as a
result of its research and product development efforts.
Westvaco is the owner of many registered trademarks for its
products. Although in the aggregate, its patents and trademarks are
of material importance to Westvaco's business, the loss of any one
or any related group of such intellectual property rights would not
have a material adverse effect on the business of the company.
Competition
Westvaco competes in very competitive domestic and foreign markets.
Westvaco's strategy is to develop distinctive and innovative
products and services for its customers in the United States and
world markets. There are many large, well established and highly
competitive sellers competing in these markets as well. The company
competes principally through quality, value-added products and
services, customer service, innovation, technology, product design
and price. The company's business is affected by a range of
macroeconomic conditions, such as industry capacity, economic
growth in the U.S. and abroad, and currency exchange rates.
Research
Westvaco operates major research facilities at Laurel, MD, North
Charleston, SC, and Covington, VA, which provide process and
product support for our manufacturing operations as well as a
forest science laboratory at Summerville, SC. Forest research
conducted there, and at satellite centers at Wickliffe, KY, Rupert,
WV, and Tres Barras, State of Santa Catarina, Brazil, is focused on
biotechnology, genetics, tree nutrition, regeneration, stand
management, environmental protection and forest measurements. The
goal is increased timber and fiber production on a sustainable
basis. The company's larger divisions and subsidiaries also have
product development staffs which work on product-related projects
directed toward specific opportunities of the individual units.
In 1999, the company incurred $47.3 million (1998-$45.1 million,
1997-$42.9 million) of research and development costs.
Substantially all of the research projects are company sponsored.
Approximately 245 scientists were employed in research and
development activities.
Environmental protection
Westvaco is subject to federal and state environmental laws and
regulations in all jurisdictions in which it has operating
facilities. Compliance with these requirements involves the
diversion of capital from production facilities and increases
operating costs. In the opinion of Westvaco's management,
environmental protection requirements are not likely to adversely
affect the company's competitive industry position since other
domestic companies are subject to similar requirements. 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, represented a
major step by Westvaco in addressing subsequent EPA regulations for
the U.S. pulp and paper industry regarding air and water quality.
These regulations, known as the Cluster Rule, were published in the
Federal Register in April 1998. The company anticipates additional
capital costs to comply with other parts of these new regulations
over the next several years to be in the range of $100 million to
$150 million, which will also increase operating costs in the range
of $3 million to $7 million annually. Environmental organizations
are challenging the EPA regarding certain aspects of the Cluster
Rule in the U. S. Court of Appeals. Westvaco and other companies
are participating in that litigation. If the legal challenge by
environmental organizations to the regulations is successful, the
company could face additional compliance costs of up to $150
million over the next several years. See Part I, Item 3, "Legal
proceedings," "Other matters."
Employees
At October 31, 1999, Westvaco employed approximately 12,750
persons, of whom 5,980 domestic employees are represented by
various labor unions under collective bargaining agreements.
Approximately 1,990 employees of Rigesa, Ltda. ("Rigesa"),
Westvaco's Brazilian subsidiary, are represented under collective
bargaining arrangements. Westvaco believes its labor relations are
good.
International operations
In Brazil, Rigesa operates a paperboard mill, a corrugated box
plant and a consumer packaging plant in Valinhos, State of Sao
Paulo; a paperboard mill in Tres Barras, State of Santa Catarina;
and corrugated box plants in Blumenau, State of Santa Catarina;
Manaus, State of Amazonia; and Pacajus, State of Ceara. Rigesa
is one of the few paper companies in Brazil which is integrated
from the forests to the markets. This fact, combined with
technology drawn from Westvaco's U.S. experience, has provided
Rigesa with a history of high-quality products and strong growth.
Rigesa accounted for approximately 13% of packaging segment
operating profit in 1999. The international economic crisis has
adversely impacted economic growth in Brazil and negatively
impacted the operating results of Rigesa.
Westvaco's Czech Republic subsidiary, Westvaco Svitavy, spol. s
r.o. ("Svitavy"), operates a consumer packaging plant in that
country. Svitavy supplies consumer packaging to the markets of
Eastern, Central and Western Europe. The packaging is made
primarily from distinctive paper and paperboard produced by
Westvaco in the United States.
During 1999, the company completed its acquisition of a 45%
interest in a new consumer packaging business with a plant in
Guangzhou, China. The plant is owned by a subsidiary of Shorewood
Packaging Corporation.
Export sales from Westvaco's U.S. operations made up approximately
18% of Westvaco's 1999 sales (1998-17%, 1997-16%). Sales of our
foreign operating subsidiaries, including exports, were 6% of
Westvaco's total sales (1998-8%, 1997-9%). While there are risks
inherent in foreign investments, Westvaco does not believe at this
time that such risks are material to its overall business
prospects.
Item 2. Properties
The location of Westvaco's production facilities and their
principal products in each business segment as of October 31, 1999,
were as follows:
Paper
Location Product
Luke, Maryland White printing and converting
papers
Wickliffe, Kentucky White printing and converting papers,
and market pulp
Tyrone, Pennsylvania White printing and converting papers
Atlanta, Georgia Envelopes
Dallas, Texas Envelopes
Enfield, Connecticut Envelopes
Indianapolis, Indiana Envelopes
Kenosha, Wisconsin Envelopes
Los Angeles, California Envelopes
Springfield, Massachusetts Envelopes
West Boylston, Massachusetts Envelopes
Williamsburg, Pennsylvania Envelopes
Springfield, Massachusetts Flexible packaging and paper cups
Packaging
Location Product
Covington, Virginia Bleached paperboard
North Charleston,
South Carolina Saturating kraft, containerboard and
folding carton stock
Low Moor, Virginia Extrusion coated bleached paperboard
Cleveland, Tennessee Folding cartons
Newark, Delaware Folding cartons
Richmond, Virginia Folding cartons
Svitavy, Czech Republic Folding cartons
Valinhos, Sao Paulo,
Brazil Folding cartons
Richmond, Virginia Cartons for liquid products
Tres Barras, Santa
Catarina, Brazil Containerboard and kraft papers
Valinhos, Sao Paulo,
Brazil Corrugating medium (principally from
recycled papers)
Blumenau, Santa Catarina,
Brazil Corrugated boxes
Manaus, Amazonia, Brazil Corrugated boxes
Pacajus, Ceara, Brazil Corrugated boxes
Valinhos, Sao Paulo, Brazil Corrugated boxes
Summerville, South Carolina Building products
Chemicals
Location Product
Covington, Virginia Activated carbon products and services
Wickliffe, Kentucky Activated carbon products and services
DeRidder, Louisiana Printing ink resins and tall oil
derivatives
North Charleston, South
Carolina Lignin-based surfactants and tall oil
derivatives
Other
Location Product
Summerville, South Carolina Land development
Capacity and production
Capacity estimates are based on the expected operations and
product mix of each of the locations. Whether these estimates can
in practice be attained or exceeded is dependent upon a variety of
factors such as actual product mix, quantity and timing of
production runs, required maintenance time and labor conditions.
The approximate annual productive capacity is 3,143,000 tons for
the paper and paperboard mills and 761,000 tons for the converting
plants. The 1999 production from these facilities was 2,992,000
and 538,000 tons, respectively. The mills supplied 70% of the
paper and paperboard needs of the converting plants. The annual
productive capacity for the chemical plants is 459,000 tons. In
1999, 363,000 tons of specialty chemicals were produced.
Leases
See Note I to the consolidated financial statements, incorporated
by reference in Part II of this report, for financial data on
leases. Substantially all of the leases of production facilities
contain options to purchase or renew for future periods.
Forest resources
Westvaco owns 1,446,000 acres of forest land. There are 1,094,000
acres in the South and Middle Atlantic United States, 232,000
acres in the Central United States and 120,000 acres in southern
Brazil.
Other information
Certain Westvaco facilities are owned, in whole or in part, by
municipal or other public authorities pursuant to standard
industrial revenue bond financing arrangements and are accounted
for as property owned by Westvaco. Westvaco holds options under
which it may purchase each of these facilities from such
authorities by paying a nominal purchase price and assuming the
indebtedness owing on the industrial revenue bonds at the time of
the purchase.
The company owns in fee all of the mills, plants and timberlands
listed in Item 2, except leased facilities and those described
above.
Westvaco's mills, plants and related machinery and equipment are
considered by the company to be well maintained and in good
operating condition.
Item 3. Legal proceedings
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,
represented a major step by Westvaco in addressing subsequent EPA
regulations for the U.S. pulp and paper industry regarding air and
water quality. These regulations, known as the Cluster Rule, were
published in the Federal Register in April 1998. The company
anticipates additional capital costs to comply with other parts of
these new regulations over the next several years to be in the
range of $100 million to $150 million which will also increase
operating costs in the range of $3 million to $7 million annually.
Environmental organizations are challenging the EPA regarding
certain aspects of the Cluster Rule in the U.S. Court of Appeals.
Westvaco and other companies are participating in that litigation.
If the legal challenge by environmental organizations to the
regulations is successful, the company could face additional
compliance costs of up to $150 million over the next several years.
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 addition, the company is
involved in the remediation of certain other than CERCLA sites and
has accrued approximately $10 million for remediation of these
sites.
Other matters
In April 1999, EPA, Region III, issued Notices of Violation
(NOVs) to seven paper industry facilities, including the
company's Luke, MD, mill, alleging violation of EPA's Prevention
of Significant Deterioration (PSD) regulations requiring special
permitting and emissions evaluation prior to industrial expansion.
The NOV received by the company primarily targets three capital
projects at the mill, one in 1982 and two in 1989. The NOV alleges
that the company did not obtain PSD permits or install required
pollution controls, and it sets forth EPA's authority to seek
$27,500 per day for each violation. The company has presented
substantial data demonstrating that PSD requirements did not apply
to the targeted projects and that new emission controls proposed
by EPA are not required by the governing regulations. Unless the
matter is resolved, an enforcement action may be brought against
the company.
Item 4. Submission of matters to a vote of security holders
There were no matters submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the
fourth quarter ended October 31, 1999.
Executive officers of the registrant
The following table sets forth certain information concerning the
executive officers of Westvaco Corporation:
Year in which
service in present
Name Age Present position position began
John A. Luke, Jr.* 51 Chairman, 1996
President and
Chief Executive Officer 1992
Rudolph G.
Johnstone, Jr.* 63 Executive Vice President 1995
David E. McIntyre 59 Group Vice President 1999
Richard N. Burton 51 Senior Vice President 1998
Philip H. Emery, Jr. 65 Senior Vice President 1995
Rita V. Foley 46 Senior Vice President 1999
Gilbert M. Gillespie 59 Senior Vice President 1998
James F. Jordan 52 Senior Vice President 1999
James L. Martin 61 Senior Vice President 1999
Karen R. Osar 50 Senior Vice President 1999
James E. Stoveken, Jr. 60 Senior Vice President and 1996
Comptroller 1999
Samuel L. Torrence 59 Senior Vice President 1996
R. Scott Wallinger 60 Senior Vice President 1987
Wendell L. Willkie, II 48 Senior Vice President and
General Counsel 1996
William S. Beaver 48 Vice President 1996
and Treasurer 1987
John W. Hetherington 61 Vice President, 1987
Assistant General Counsel
and Secretary 1978
Ned W. Massee 49 Vice President 1991
* Director of Westvaco
Westvaco's officers are elected by the Board of Directors
annually for one-year terms. Westvaco's executive officers have
served in their present capacities for the past five years or
longer with the following exceptions:
Rudolph G. Johnstone, Jr., Senior Vice President, 1990-1995;
Richard N. Burton, Vice President, 1994-1998; David E. McIntyre,
Senior Vice President, 1998-1999, Vice President, 1996-1998, an
Officer of Bowater Incorporated, 1986-1995; Philip H. Emery, Jr.,
Vice President, 1987-1995; Rita V. Foley, Independent Consultant,
1998-1999, Executive Vice President Sales and Marketing, QAD,
Inc., 1997-1998, an Officer of Digital Equipment Corporation,
1994-1997; Gilbert M. Gillespie, Vice President, 1990-1998; James
F. Jordan, Vice President and Manager of Westvaco Worldwide, 1998-
1999, Manager of Marketing and Administration for Westvaco
Worldwide, 1991-1998; James L. Martin, Vice President and
Assistant Division Manager of the Bleached Board Division, 1996-
1999, President and Managing Director of Rigesa, Ltda., 1993-
1996; Karen R. Osar, Vice President and Treasurer of Tenneco
Inc., 1994-1999; James E. Stoveken, Jr., Vice President, 1986-
1996, Comptroller, 19791995; Samuel L. Torrence, Vice President,
1991-1996; Wendell L. Willkie, II, Vice President and Associate
General Counsel, 19951996, served as a Fellow in legal policy and
international trade at the American Enterprise Institute, 1993-
1995.
Information required by Item 405 of Regulation S-K will be
included in Westvaco's 2000 Proxy Statement, pursuant to
Regulation 14A, to be filed with the Securities and Exchange
Commission by January 31, 2000, and is incorporated herein by
reference.
Part II
Item 5. Market for the registrant's common stock and related
security holder matters
(a) Market and price range of common stock
The company's common stock is traded on the New York,
Chicago and Pacific Stock Exchanges under the symbol W. The
New York Stock Exchange is the principal market on which the
common stock is traded.
The quarterly price range of common stock for 1999 and 1998
is included on the inside front cover of the 1999 Westvaco
Annual Report under the caption "Stock price," and is
incorporated herein by reference.
(b) Approximate number of common shareholders
At October 31, 1999, the number of shareholders of record of
Westvaco common stock was approximately 7,070. In addition, there
were 12,000 current or former employees of the company who were
Westvaco shareholders by virtue of their participation in the
company's savings and investment plans.
(c) Dividends
The company's record of uninterrupted quarterly cash
dividends extends 104 years. Information concerning
quarterly dividends per share for 1999 and 1998 is included
on the inside front cover of the 1999 Westvaco Annual Report
under the caption "Dividends per share," and is incorporated
herein by reference. There were no restrictions on
dividends at October 31, 1999.
Item 6. Selected financial data
Information required by this item is included on page 35 of the
1999 Westvaco Annual Report under the caption "Eleven-year
comparison," and is incorporated herein by reference.
Item 7. Management's discussion and analysis of financial
condition and results of operations
Information required by this item is included on pages 14-20 of
the 1999 Westvaco Annual Report under the captions "Analysis of
operations," "Fiscal year 1998," "Liquidity and capital
resources," "Year 2000" and "Forward-looking statements," and is
incorporated herein by reference.
Item 7A. Quantitative and qualitative disclosures about market
risk
The company's financial market risk arises from fluctuations in
interest rates and foreign currency exchange rates.
Most of the company's debt obligations at year-end 1999 were at
fixed interest rates. Consequently, a 10% change in market
interest rates would not have a material effect on the company's
2000 results of operations or cash flows. The company's
exposure to foreign currency fluctuations on its financial
instruments is not material because most of these instruments
are denominated in U.S. dollars. Furthermore, the company's
exposure to foreign currency fluctuations on its income is not
material because a majority of the company's sales are in U. S.
dollars. The company does not hold financial instruments for
trading purposes.
Item 8. Financial statements and supplementary data
Information required by this item is included on pages 21-34 of the
1999 Westvaco Annual Report under the captions "Consolidated
statement of income," "Consolidated balance sheet," "Consolidated
statement of shareholders' equity," "Consolidated statement of cash
flows," "Notes to financial statements" and "Report of independent
accountants," and is incorporated herein by reference.
Item 9. Changes in and disagreements with accountants on accounting
and financial disclosure
Not applicable.
Part III
Item 10. Directors and executive officers of the registrant
Information required by this item for the company's directors
will be contained in Westvaco's 2000 Proxy Statement, pursuant
to Regulation 14A, to be filed with the Securities and Exchange
Commission by January 31, 2000, and is incorporated herein by
reference. Information required by this item for the company's
executive officers is contained in Part I of this report under
the caption "Executive officers of the registrant."
Item 11. Executive compensation
Information required by this item will be contained in
Westvaco's 2000 Proxy Statement, pursuant to Regulation 14A, to
be filed with the Securities and Exchange Commission by January
31, 2000, and is incorporated herein by reference.
Item 12. Security ownership of certain beneficial owners and
management
Information required by this item will be contained in
Westvaco's 2000 Proxy Statement, pursuant to Regulation 14A, to
be filed with the Securities and Exchange Commission by January
31, 2000, and is incorporated herein by reference.
Item 13. Certain relationships and related transactions
Information required by this item will be contained in
Westvaco's 2000 Proxy Statement, pursuant to Regulation 14A, to
be filed with the Securities and Exchange Commission by January
31, 2000, and is incorporated herein by reference.
Part IV
Item 14. Exhibits, financial statement schedules and reports on
Form 8-K
(a) Documents filed as part of this report:
1. Consolidated financial statements
The consolidated financial statements of Westvaco
Corporation and consolidated subsidiaries listed below are
incorporated herein by reference to the following pages of
the 1999 Westvaco Annual Report:
Page
Consolidated statement of income for fiscal years
ended October 31, 1999, 1998 and 1997 21
Consolidated balance sheet at October 31, 1999
and 1998 22
Consolidated statement of shareholders' equity at
October 31, 1999, 1998 and 1997 23
Consolidated statement of cash flows for fiscal
years ended October 31, 1999, 1998 and 1997 24
Notes to financial statements 25 - 33
Report of independent accountants 34
2. Consolidated financial statement schedules
All financial statement schedules have been omitted
because they are inapplicable, not required, or shown in
the consolidated financial statements and notes thereto
contained in the 1999 Westvaco Annual Report and
incorporated herein by reference.
3. Exhibits
3.i Restated Certificate of Incorporation, previously filed
as Exhibit 3(i) to the company's Annual Report on Form 10-
K for the fiscal year ended October 31, 1997,
incorporated herein by reference.
3.iiBylaws of Westvaco Corporation, previously filed as
Exhibit 3a to the company's Quarterly Report on Form 10
Q/A for the nine months ended July 31, 1996, File No. 1
3013, and incorporated herein by reference.
4.a Credit Agreement dated June 21, 1993, as amended
September 19, 1997, previously filed as Exhibit 4(a) to
the company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1997, incorporated herein by
reference.
4.b Form of Indenture, dated as of March 1, 1983, between
Westvaco Corporation and The Bank of New York (formerly
Irving Trust Company), as trustee, previously filed as
Exhibit 2 to the company's Registration Statement on Form
8-A, File No. 1-3013, dated January 24, 1984.
4.c The company agrees to furnish copies of other instruments
defining the rights of holders of long-term debt to the
Commission upon its request.
4.d Rights Agreement dated as of September 23, 1997 between
Westvaco Corporation and The Bank of New York, previously
filed as Exhibit 1 to the company's Form 8-A dated October
31, 1997, File No. 1-3013, incorporated herein by
reference.
10.a The 1983 Stock Option and Stock Appreciation Rights
Plan, as amended, previously filed as Exhibit 28(b) to
Post-Effective Amendment No. 1 to Registration
Statement on Form S-8, File No. 2-94699, incorporated
herein by reference.
10.b The 1988 Stock Option and Stock Appreciation Rights
Plan, as amended, previously filed as Exhibit 28(c) to
Registration Statement on Form S-8, File No. 33-26823,
incorporated herein by reference.
10.c Copies of Westvaco Corporation Savings and Investment
Restoration Plan, as amended, effective January 1, 1990,
and Retirement Income Restoration Plan and Excess Benefit
Plan, as amended, effective January 1, 1990, previously
filed as Exhibit 10(d) to the company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1989,
incorporated herein by reference.
10.d Amendment to the Savings and Investment Restoration Plan,
effective January 1, 1991, previously filed as Exhibit 10(e)
to the company's Annual Report on Form 10K for the fiscal
year ended October 31, 1991, incorporated herein by reference.
10.e Amendment to the Savings and Investment Restoration Plan,
effective October 1, 1995, previously filed as Exhibit 10(e)
to the company's Annual Report on Form 10K for the
fiscal year ended October 31, 1996, incorporated herein
by reference.
10.f The 1995 Salaried Employee Stock Incentive Plan,
effective February 28, 1995, previously filed as
Exhibit 99 to Registration Statement on Form S-8, File
No. 33-57879, incorporated herein by reference.
10.g The Westvaco Corporation Annual Incentive Compensation
Plan, effective November 1, 1995, previously filed as
Appendix A to the company's Notice of 1996 Annual Meeting
of Shareholders and Proxy Statement dated December 29,
1995, File No. 1 3013, incorporated herein by reference.
10.h The 1995 Non-Employee Director Stock Incentive Plan,
effective February 28, 1995, previously filed as
Exhibit 99 to Registration Statement on Form S-8, File
No. 33-57881, incorporated herein by reference.
10.i Westvaco Corporation Deferred Compensation Plan for
Outside Directors dated December 1986, previously filed
as Exhibit 10(j) to the company's Annual Report on Form
10-K for the fiscal year ended October 31, 1996,
incorporated herein by reference.
10.j Employment Agreement dated as of January 25, 1999, by
and between Westvaco Corporation and John A. Luke, Jr.,
previously filed as Exhibit 10(a) to the company's
Quarterly Report on Form 10-Q for the three months ended
January 31, 1999, File No. 1-3013, and incorporated
herein by reference.
10.k Employment Agreement dated as of January 26, 1999, by
and between Westvaco Corporation and Rudolph G.
Johnstone, Jr., previously filed as Exhibit 10(b) to the
company's Quarterly Report on Form 10-Q for the three
months ended January 31, 1999, File No. 1-3013, and
incorporated herein by reference.
10.l Employment Agreement dated as of January 27, 1999, by
and between Westvaco Corporation and R. Scott Wallinger,
previously filed as Exhibit 10(e) to the company's
Quarterly Report on Form 10-Q for the three months ended
January 31, 1999, File No. 1-3013, and incorporated
herein by reference.
10.m Form of Employment Agreement by and between Westvaco
Corporation and certain individual officers of the
company dated January 1999, previously filed as Exhibit
10(f) to the company's Quarterly Report on Form 10-Q
for the three months ended January 31, 1999, File No. 13013,
and incorporated herein by reference.
10.n Form of Employment Agreement by and between Westvaco
Corporation and certain individual officers of the
company dated January 1999, previously filed as Exhibit
10(g) to the company's Quarterly Report on Form 10-Q
for the three months ended January 31, 1999, File No. 1
3013, and incorporated herein by reference.
10.o The 1999 Salaried Employee Stock Incentive Plan,
effective September 17, 1999, previously filed as Exhibit
99 to Registration Statement on Form S-8, File No. 33-
87275, incorporated herein by reference.
10.p Form of Indemnification Contract between the company
and each of its officers and directors as listed in the
Westvaco Corporation 1999 Annual Report to
Shareholders, incorporated herein by reference.
13 The inside front cover and pages 14 through 35 of the
Westvaco Corporation 1999 Annual Report to Shareholders.
Except for the information that is expressly incorporated
by reference, the Annual Report to Shareholders is furnished
for the information of the Securities and Exchange Commission
and is not deemed to be filed as part of this report.
21 Subsidiaries of the registrant.
23 Consent of independent accountants.
27 Financial data schedule.
(b)Reports on Form 8-K
A report on Form 8-K was filed on October 5, 1999, and is
incorporated herein by reference. The contents of the
report are summarized below:
Item 2. Acquisition or Other Disposition of Assets - News
release dated October 4, 1999, the Board of
Directors authorized a definitive agreement to
acquire Temple-Inland Inc.'s bleached paperboard
mill in Evadale, TX.
Item 5. Other Events - News release dated October 4,
1999, the Company announced a series of actions to
improve the company's performance and a related
charge which primarily consisted of a non-cash write-
down of assets.
Item 7. Financial Statements and Exhibits.
A report on Form 8-K was filed on November 12, 1999, and
is incorporated herein by reference. The contents of the
report are summarized below:
Item 5. Other Events - The Company announced the issuance
in an underwritten public offering of $400,000,000
in notes comprised of $200,000,000 aggregate
principal amount of 6.85% Notes due November 15,
2004 and $200,000,000 aggregate principal amount
of 7.10% Notes due November 15, 2009.
Item 7. Financial Statements and Exhibits.
A report on Form 8-K was filed on November 23, 1999, and
is incorporated herein by reference. The contents of the
report are summarized below:
Item 5. Other Events - On November 18, 1999, the Company
reported its fourth quarter and audited year-end
sales and earnings for the fiscal year ended October
31, 1999.
Item 7. Financial Statements and Exhibits.
A report on Form 8-K was filed on December 3, 1999, and
is incorporated herein by reference. The contents of the
report are summarized below:
Item 5. Other Events - News release dated November 29,
1999, the Company announced that it signed a
definitive agreement to acquire Mebane Packagiing
Group, Inc.
Item 7. Financial Statements and Exhibits.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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)
November 23, 1999 By
John A. Luke, Jr.
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
Chairman, President, November 23, 1999
John A. Luke, Jr. Chief Executive Officer
and Director
Executive Vice President November 23, 1999
Rudolph G. Johnstone, Jr. and Director
Senior Vice President November 23, 1999
Karen R. Osar (Principal Financial Officer)
Senior Vice President
James E. Stoveken, Jr. and Comptroller November 23, 1999
(Principal Accounting Officer)
Director November 23, 1999
Samuel W. Bodman III
Director November 23, 1999
W. L. Lyons Brown, Jr.
Director November 23, 1999
Michael E. Campbell
Director November 23, 1999
Dr. Thomas W. Cole, Jr.
Director November 23, 1999
David L. Hopkins, Jr.
Director November 23, 1999
Douglas S. Luke
Director November 23, 1999
William R. Miller
Director November 23, 1999
Jane L. Warner
Director November 23, 1999
Richard A. Zimmerman
Exhibit 13
HIGHLIGHTS OF THE YEAR
WESTVACO CORPORATION AND CONSOLIDATED SUBSIDIARY COMPANIES
Year ended October 31 1999 1998
In millions, except per share
INCOME STATEMENT
Net Sales $2,801.8 $2,885.9
Operating profit
(before corporate and other) $305.0 $345.5
Net income before
nonrecurring items 1 $145.1 $135.0
Net income $111.2 $132.0
PER SHARE DATA
Earnings before
nonrecurring items 1 $1.45 $1.33
Earnings $1.11 $1.30
Book value $21.65 $22.39
Dividends $.88 $.88
1 Excludes the 1999 fourth quarter after-tax charge for restructuring
of $48.9 million, or $.49 per share, and a credit of $15.0 million,
or $.15 per share, for a release of deferred taxes. 1998 fourth
quarter excludes an after-tax charge for restructuring of $3 million,
or $.03 per share. All per share data is for basic and diluted.
CASH FLOW
Cash from operations $412.7 $406.7
Capital Expenditures $228.9 $423.0
Dividends $88.2 $89.3
BALANCE SHEET
Total assets $4,896.7 $5,008.7
Long-term obligations $1,502.2 $1,526.3
Shareholders' equity $2,171.3 $2,246.4
Net change in working capital $40.8 ($127.6)
Debt to capital 33.6% 33.6%
Return on capital employed 2.5% 2.9%
QUARTERLY HIGHLIGHTS
SALES 1999 1998
In millions
First 650.7 $702.1
Second 679.5 724.2
Third 700.2 727.8
Fourth 771.4 731.8
Year $2,801.8 $2,885.9
DIVIDENDS PER SHARE 1999 1998
First $.22 $.22
Second .22 .22
Third .22 .22
Fourth .22 .22
Year $.88 $.88
EARNINGS 1999 1998 1999 1998
EARNINGS PER SHARE EARNINGS PER SHARE
BEFORE NONRECURRING ITEMS 1
First $ .25 $ .32 $.25 $.32
Second .27 .34 .27 .34
Third .35 .31 .35 .31
Fourth .58 .36 .24 .33
Year $1.45 $1.33 $1.11 $1.30
STOCK PRICES 2 1999 1998
High Low High Low
First $29.50 $21.44 $34.19 $29.44
Second 29.88 20.81 34.13 29.56
Third 32.81 28.19 31.63 24.94
Fourth 31.25 24.75 27.38 21.00
2 This table reflects the range of market prices of Westvaco
common stock as quoted in the New York Stock Exchange - Composite
Transactions. The New York Stock Exchange is the principal market
in which the securities are traded.
MAJOR BUSINESS SEGMENTS
Dollars, in millions
(Pie charts)
SALES
Packaging (Includes
Rigesa, Ltda.) $1,461.7 52%
Specialty Chemicals $ 314.5 11%
Paper (Includes Envelopes) $1,028.5 37%
OPERATING PROFIT
Packaging (Includes
Rigesa, Ltda.) $190.5 63%
Specialty Chemicals $ 52.5 17%
Paper (Includes Envelopes) $ 62.0 20%
CAPITAL EXPENDITURES
Packaging (Includes
Rigesa, Ltda.) $130.8 62%
Specialty Chemicals $ 18.1 9%
Paper (Includes Envelopes) $ 60.0 29%
Management's discussion and analysis of financial condition
and results of operations
Analysis of operations
Sales of $2.8 billion for the fiscal year were down 2.9% from
1998, the result of a 4.3% decrease in price and product mix
partially offset by a 1.4% improvement in the volume of
shipments. Net income in 1999 was $111.2 million, or $1.11
per share, basic and diluted, a 15.8% decrease from 1998
earnings of $132.0 million, or $1.30 per share, basic and
diluted. Earnings for the current year include a pretax
restructuring charge of $80.5 million, or $.49 per share,
basic and diluted, in connection with a business performance
improvement plan and an income tax benefit of $15.0 million,
or $.15 per share, basic and diluted, related to a release of
deferred taxes, both recorded in the fourth quarter (see
notes to the financial statements). The restructuring charge
included $76.0 million for the writedown of fixed assets. We
expect to obtain about $35 million in pretax annual savings
from both operational efficiencies and from scaling back
operations that no longer meet our financial or strategic
objectives. We estimate these restructuring activities will
be completed by the end of fiscal year 2000. The income tax
benefit results from a business reorganization which reduced
the company's deferred state income tax liability. Earnings
for 1999 include an after-tax gain of $14.0 million, or $.14
per share, basic and diluted, from the sale of nonstrategic
timberlands.
Sales for the year continued to be affected by weak pricing
primarily due to global overcapacity combined with a strong
U.S. dollar. During the second half of the year, pressures from
lower-priced imported coated printing papers began to ease as
demand increased for papers used in catalogue and direct mail
applications. Late in the third quarter, the company
announced a $60 per ton price increase for coated web-offset
paper products, as well as increases on additional grades,
including linerboard and bleached board. Export sales from
the United States increased compared to 1998 and accounted
for 18% of the company's consolidated sales. Total sales
outside of the United States, including sales of our
foreign operating subsidiaries, accounted for
approximately 24% of consolidated sales compared to
25% in the prior year. Gross profit margin for the
year improved to 20% compared with 19% for the prior
year, due mainly to cost improvement initiatives.
Fiscal year 1999 operating results also benefited
from an increase in noncash pension credits of $26.9
million, reflecting cumulative favorable investment
returns on pension plan assets. We anticipate that
earnings in fiscal year 2000 will benefit from a
similar increase over fiscal year 1999.
Paper segment: Paper segment sales for the year of
$1.03 billion increased marginally from the prior
year, due to an increase in volume of 7.1% offset by
a decrease in price and product mix of 6.8%. Markets
for the company's paper products continue to be very
competitive, resulting in net sales realizations
being substantially below 1998 levels. Paper
shipments for the fourth quarter of 1999 were up
approximately 15% compared to the same prior year
period. Late in the third quarter, the company
announced the first price increase since 1996 for
coated paper products. Operating profit for the
paper segment for the year was $62.0 million, which
decreased from $84.8 million for the prior year
period, due mainly to lower sales prices.
Packaging segment: Packaging segment sales
decreased 6.8% from the prior year to $1.46 billion
in 1999, due to decreases in price and product mix of
5.3% and volume of 1.5%. Markets for the company's
paperboard products continue to be very competitive,
and our net sales realizations per ton were below
1998 levels. Operating profit for 1999 decreased
8.2% to $190.5 million primarily due to product
pricing pressures which offset the company's
progress in cost improvement initiatives. Promising
trends in our packaging businesses include improved
linerboard prices, increased sales of unbleached
folding carton board and higher shipments in Brazil
during the second half of the year compared to the
first half. Rigesa, Ltda., our Brazilian subsidiary,
accounted for 13% of 1999 packaging segment operating
profit compared to 17% for the 1998 comparable period,
due primarily to the 64% devaluation of the Brazilian
real during the year, following the Brazilian government's
decision to allow the real to float. In the local currency,
Rigesa's sales for the year increased 12% compared to
the year earlier period. We anticipate that the
unsettled global economic conditions will continue to
pose special challenges for our industry. During
1999, approximately 26% of packaging segment sales
were made to the tobacco industry for packaging
tobacco products compared to approximately 28% for
1998. Approximately 18% of segment sales were
exported or used to produce products for export with
the remaining 8% made for the domestic tobacco
industry for sale in the United States. The current
legal, regulatory and legislative pressures on the
tobacco industry may have an adverse effect on
packaging segment profitability. While we would
expect to compensate for such an adverse effect by
continuing growth in other consumer product markets,
these alternatives may not, in the short run, fully
offset any decline in profitability related to sales
to the tobacco industry.
Chemicals segment: Chemicals segment sales for the
year decreased 5.3% from 1998 to $314.5 million, due
to favorable changes in price and product mix of 3.3%
which were more than offset by a decrease in volume
of 8.6%. Operating profit for the chemicals segment
was $52.5 million compared to $53.2 million in the
prior year.
Other items: Other income (expense) increased from
the prior year due to the increased gains on the
sales of timberlands in the current year. Interest
expense increased 12% for the year compared to the
prior year, due to the lower levels of capitalized
interest in the current year and increased use of
commercial paper. The effective tax rate for 1999
decreased to 24.9% compared to 35.4% in the prior
year, principally due to the reduction in the
deferred state income tax liability to reflect a
lower effective state income rate, as described
above.
In October 1999, Westvaco signed a definitive
agreement to acquire Temple-Inland's bleached
paperboard mill in Evadale, TX. The company will pay
$575 million for the mill's fixed assets and
approximately $50 million for working capital. The
transaction is scheduled to close in December 1999.
On November 29, 1999, Westvaco signed a definitive
agreement to acquire Mebane Packaging Group, a
leading supplier of packaging for pharmaceutical
products and personal care items. The sale
is scheduled to close by the end of the first quarter
of fiscal 2000.
Fiscal year 1998
Extremely challenging global business conditions were
felt throughout our industry during our 1998 fiscal
year. Asian markets were particularly challenging as
a result of currency devaluations and reduced
economic activity in the region. Sales of $2.9
billion for the fiscal year were down 3.2% from 1997,
the result of decreases of 1.8% in the volume of
shipments and 1.4% in price and product mix. Net
income in 1998 was $132.0 million, or $1.30 per share,
basic and diluted, a decline of 18.9% from $162.7
million, or $1.60 per share basic and $1.58 per share
diluted, earned in 1997. Other principal factors
contributing to our decline in earnings included a
strike within our Envelope Division and difficult
circumstances within our Consumer Packaging Division,
which are discussed in the paper and packaging segment
analyses, respectively. Despite stiff challenges resulting
from turmoil in international markets and adverse
currency valuations, export sales from the United
States increased slightly compared to 1997 and
represented approximately 17% of the company's
consolidated sales for 1998. Sales outside of the
United States, including sales of our foreign
operating subsidiaries, accounted for approximately
25% of consolidated sales and were slightly below
prior year levels. The marginal improvements in most
international markets were more than offset by
reduced business for our packaging operations in
Brazil, where the government's austerity measures
enacted last fall in response to the Asian crisis had
sharply curtailed economic growth. Gross profit
margin for the year was 19% in both 1998 and 1997.
As discussed further below, the effect of weakened
product pricing was largely offset by our cost
improvement initiatives. Depreciation and
amortization expense for the year increased 4.4% from
the prior year, due to several important projects
having been placed in service and the effect of
acceleration of lives on replaced assets.
Paper segment sales for the year decreased 2.8% to
$1.03 billion, due to decreases in volume of .8% and
in price and product mix of 2.0%. Operating profit
for the paper segment for the year was $84.8 million
which increased from $82.0 million for the prior year
period due mainly to increased efforts in our cost
improvement initiatives that were offset by the
effect of the Envelope Division strike. In February
1998, six of the company's eight Envelope Division
locations went on strike. The strike, which was
settled in early March, reduced second quarter
consolidated earnings by approximately $.05 per share
and continued to adversely impact earnings for the
balance of the year. During 1998, we completed the
second major coated paper machine rebuild in two
years at our mill in Luke, MD. The rebuilds reduced
both 1997 and 1998 fiscal year earnings by
approximately $.05 per share.
Packaging segment sales decreased 4.4% from the
prior year to $1.57 billion, due to decreases in volume of
3.1% and price and product mix of 1.3%. Lower
shipments of domestic commodity grade containerboard
products and Brazilian corrugated boxes were marginally
offset by improvements in our differentiated saturating
kraft paper. Operating profit for the year decreased 9.2%
from 1997, primarily due to product pricing pressures,
from both manufacturing difficulties and marketing
challenges. Together these combined to offset the
company's progress in cost improvement initiatives.
Rigesa accounted for 17% of packaging segment
operating profit compared to 21% for the 1997
comparable period. The Brazilian government's
financial reforms enacted in the fall of 1997 have
sharply curtailed economic growth, which has
reduced business for our packaging operations. 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
since then have been 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. During 1998, approximately
28% of packaging segment sales were made to the
tobacco industry for packaging. Approximately 18%
of the segment sales were exported or used to produce
products for export with the remaining 10% made for
the domestic tobacco industry for sale in the United
States. In the fourth quarter of 1998, a pretax charge
of $5 million, or $.03 per share, was recorded, which
was the result of operational changes to strengthen the
Consumer Packaging Division. The charge reflects costs
associated with announced terminations for
approximately 240 employees and the writedown of
certain assets.
Chemicals segment sales for the year increased
2.6% from 1997 to $332.1 million, due to favorable
changes in price and product mix of 1.4% and volume
of 1.2%. Operating profit for the chemicals
segment increased 8.5% to a level of $53.2 million.
Other income (expense) decreased from the prior
year, due to losses on the sales of plant and
equipment reported in 1998 compared to gains in
1997. Interest expense increased 18.1% for the
year compared to the prior year period, due to the
issuance of sinking fund debentures in March and
June 1997 and lower levels of capitalized interest
in the current year. The effective tax rate for
1998 increased to 35.4% compared to 34.0% in the
prior year, principally due to the decline in
foreign earnings subject to lower tax rates.
Liquidity and capital resources
At October 31, 1999, the ratio of current assets to
current liabilities was 1.7 compared to 1.6 and 2.0
in 1998 and 1997, respectively. The twelve-month
average collection period for trade receivables was
34 days in 1999 compared to 35 days in 1998 and 32
days in 1997. Finished goods inventories decreased
from prior year levels, reflecting the selective
shutdown of paper machines to control inventory
levels and improved fourth quarter shipments. Cash
flows from operations were $413 million for 1999,
compared to $407 million in 1998 and $391 million in
1997. Management believes that the company's ability
to generate cash from operations and its capacity to
issue short-term and long-term debt are adequate to
fund working capital, capital spending and other needs
in the foreseeable future.
New investment in plant and timberlands was $232
million for 1999, compared to $420 million in 1998
and $614 million in 1997. Cash payments for these
investments totaled $229 million in 1999, $423
million in 1998 and $621 million in 1997. This
planned lower level of capital spending follows the
completion of several important initiatives that
added significant support to our long-term
strategy. At October 31, 1999, the funds required
to complete all authorized capital projects were
approximately $147 million. Capital expenditures
for 2000 are expected to be approximately $250
million, including the expenditures at the Evadale,
TX, mill after the acquisition, and will be used to
support our current production capacity levels.
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 had
$15 million in commercial paper outstanding at
October 31, 1999, compared to $80 million at
October 31, 1998, and none at October 31, 1997.
The company maintains a $500 million revolving
credit agreement, and there was no borrowing under
this arrangement during the current year period.
The ratio of debt to total capital employed was 34%
at October 31, 1999, 1998 and 1997. In 1997, the
Board of Directors authorized the periodic
repurchase of the company's common stock to satisfy
issuances under its stock option plans. During
1999, 460,000 shares were purchased at a cost of
$11 million and 466,169 shares were issued out of
treasury to satisfy stock option exercises.
During the second quarter of 1999 the company
completed the acquisition of an equity interest in
a new consumer packaging business with a plant in
Guangzhou, China. The company paid $22.7 million
for a 45% interest in the Chinese operations. The
investment was financed from operating cash flows.
As discussed earlier the company signed two
definitive agreements to acquire Temple-Inland's
bleached board mill and the Mebane Packaging Group.
In November 1999, the company issued $200 million of
6.85% five-year notes and $200 million of 7.10% ten-
year notes to fund part of these purchases, with the
remainder to be financed with short-term debt backed
by a revolving credit facility which will be replaced
with long-term debt as market conditions permit.
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, represented a major step
by Westvaco in addressing subsequent EPA regulations
for the U.S. pulp and paper industry regarding air
and water quality. These regulations, known as the
Cluster Rule, were published in the Federal Register
in April 1998. The company anticipates additional
capital costs to comply with other parts of these new
regulations over the next several years to be in the
range of $100 million to $150 million which will also
increase operating costs in the range of $3 million
to $7 million annually. Environmental organizations
are challenging the EPA regarding certain aspects of
the Cluster Rule in the U.S. Court of Appeals.
Westvaco and other companies are participating in
that litigation. If the legal challenge by
environmental organizations to the regulations is
successful, the company could face additional
compliance costs of up to $150 million over the next
several years.
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 addition, the
company is involved in the remediation of certain
other than CERCLA sites and has accrued approximately
$10 million for remediation of these sites.
Year 2000 (as of mid-December 1999)
Westvaco's six-phase base program aimed at identifying
and eliminating the company's Year 2000 problems in
high-risk areas was substantially complete by June 30,
1999. The six phases (inventory, assessment of
business criticality, technical assessment of
potential Year 2000 failures, remediation,
testing and contingency planning) encompassed
both information and noninformation technology
systems. For both our domestic and foreign
operations, the program included a review of all
computer hardware and software, whether used
directly to support business and manufacturing
processes or embedded in components of machinery
and other equipment.
As the company's Year 2000 compliance efforts are
an ongoing process, Westvaco has, where
necessary, expanded and advanced its Year 2000
base program to enhance the company's level of
readiness beyond the base program June 30 target
date. With the goal of identifying and tracking
any remaining tasks needing to be accomplished between
now and December 31, the advanced program is designed
to (1) review and properly archive all records
associated with Year 2000 measures to date; (2)
refine Westvaco's contingency plans after
consulting with experts in the power and process
manufacturing industries and reviewing procedures
to be followed prior to and upon any computer-
related system failure at Westvaco or at a
utility serving Westvaco; (3) establish a
communications center at Westvaco's Laurel, MD
data center to collect and disseminate all Year
2000-related information during key transition
periods; and (4) identify and resolve open items
by taking steps similar to those undertaken as
part of the company's six-phase base program.
Open items may include (a) newly reclassified,
high-risk items, as well as medium- and low-risk
items where remediation may have been planned but
not yet completed; (b) components overlooked
during the base program; (c) new components
purchased subsequent to June 30, 1999 (excluding
those acquired in connection with the Evadale,
TX, mill and Mebane Packaging Group transactions
discussed below); (d) storeroom items not
included in the base program; and (e) key vendors
and customers from whom Westvaco has not yet seen
confirmation of readiness. The advanced program
is progressing, yet significant work remains.
Nevertheless, the company continues to be
optimistic concerning its readiness, particularly
in light of growing confidence in the national
electrical supply grid.
The contingency plans noted above may, as
appropriate, include the identification of
alternate suppliers, vendors and service
providers; accumulation of inventory;
identification of manual alternatives;
arrangement for rapid access to qualified vendor
technical support; enhancement of operational
communications; and limited configuration of
manufacturing processes to prepare for the
possibility of external power or communication
failures.
Westvaco has contacted key vendors whose
noncompliance, either individually or
cumulatively, could materially impact the
company's business. As of October 31, 1999, 86%
of vendors contacted have responded,
substantially all indicating they have addressed
or expect to address their Year 2000 issues in a
timely manner. The company continues to follow
up with vendors yet to respond satisfactorily or
at all to its inquiries. Fewer than 30 of these
remaining vendors could individually be of such
significance to the company or to a particular
facility that such vendor's potential
noncompliance could materially impact the
company. Westvaco cannot provide assurance that
the Year 2000 compliance plans of its vendors,
particularly those providing broad
infrastructural services or those in
international markets, will be successfully
completed in a timely manner.
The Year 2000 disclosures of major customers are
reviewed on an ongoing basis. To date, Westvaco
is not aware of any major customer failing to
progress toward Year 2000 compliance. Although
the company cannot predict the likelihood of
disruption of its customers' businesses, Westvaco
believes that its customer base is broad enough
to minimize the impact of any single customer's
disruption.
Estimated costs of the work necessary to address
the company's Year 2000 issues are now between $7
million and $8 million. Previously estimated
costs of $9 million to $12 million reflected
initial uncertainty concerning the scope of the
company's Year 2000 challenge. As before, the
current estimate includes internal costs (e.g., related
payroll and required downtime) and external costs
(e.g., hiring consultants to assist in compliance
efforts). Program costs do not include the cost
of major new business system implementations
scheduled prior to the company's specific Year
2000 compliance efforts described herein and
completed during the last three years. Estimated
costs would have been substantially greater but
for the fact that recent modernization of many of
the company's business systems involved the
replacement of software with new software that is
Year 2000 compliant at a cost of approximately
$30 million. No significant technology projects
have been deferred as a result of the company's
Year 2000 compliance work.
As of October 31, 1999, approximately $7.1
million in costs incurred to date have been
funded by operating cash flows and expensed as
incurred except for newly installed systems which
were capitalized in accordance with the company's
accounting policies. Although such costs may be
significant to the company's results of
operations in one or more fiscal quarters,
Westvaco does not expect a material adverse
impact on its long-term results of operations,
liquidity or financial position. Cost estimates
may be further refined as technical assessment,
remediation, testing and contingency planning
continue and as compliance status information
becomes available from third-party business
partners.
If Westvaco were not taking any of the remedial
steps detailed above, Year 2000 issues could
possibly cause significant technological problems
for the company, disrupting business and
resulting in a decline in earnings. At this time,
however, management does not believe this will
happen.
The most reasonably likely worst case scenario
should Westvaco, its customers or vendors be
unable to adequately resolve Year 2000 issues
would include reduced demand and a temporary
slowdown or abrupt stoppage of operations at one
or more of the company's facilities due to the
failure of one or more critical process control
elements or business systems. Such failures could
result in interruptions in manufacturing, safety
and/or environmental systems; and/or a temporary
inability to receive raw materials, ship finished
products and process orders and invoices.
Although management does not believe that this
will happen, if such or similar scenarios were to
occur, they could, depending on their duration,
have a material impact on the company's results
of operations and financial position. Such
theoretical consequences are of a kind and
magnitude generally shared with other
manufacturing companies. Assuming the successful
completion of its Year 2000 efforts in a timely
manner, the company expects any Year 2000
disruptions which occur, should there be any,
will be minor and not material to its business.
The plans and actions described above do not include
the Evadale, TX, bleached paperboard mill which
Westvaco has agreed to purchase from Temple-
Inland nor the seven packaging plants Westvaco
has recently agreed to purchase from Mebane
Packaging Group.
Temple-Inland has adopted and is implementing a
companywide Year 2000 plan. On a corporate
basis, most systems were reportedly compliant
before the end of 1998. Westvaco has evaluated, to
the extent feasible, the preparations and current
status of Year 2000 readiness of the Evadale
facility. This limited evaluation indicates that important
remediation and testing remain to be completed in
the process systems at Evadale. This work is
expected to be accomplished during a previously
planned 10-day shutdown in mid-December 1999.
Temple-Inland has represented to Westvaco that
assuming the successful completion of Temple-
Inland's Year 2000 plan in a timely manner that any
Year 2000-related problems that occur, should there
be any, will be minor and not material to the
facility.
Mebane has also adopted and is implementing a
companywide Year 2000 plan. Westvaco has not been
able to ascertain the extent to which Mebane's
program has been effectively executed. Given the
company's recent agreement to acquire Mebane and its
inability to review thoroughly Mebane's progress
before the transition date, Westvaco has asked
Mebane to focus on business contingency planning.
With respect to both the Evadale facility and the
Mebane plants, Westvaco is currently unable to make
a comprehensive assessment of their respective
readiness or determine with certainty whether all
necessary Year 2000 preparations will be complete
by the acquisition dates.
Accounting changes
The company is required to adopt a new accounting
standard issued by the Financial Accounting
Standards Board, Statement of Financial Accounting
Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, in fiscal year
2001. The company does not believe that the
adoption of this statement will have a material
effect on the company's financial position or
results of operations. For further discussion, see
the "Summary of significant accounting policies" in
the notes to the financial statements.
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 information
includes, without limitation, the business outlook,
assessment of market conditions, anticipated financial and
operating results, strategies, future plans, contingencies
and contemplated transactions of the company. 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; the success of new initiatives,
acquisitions and ongoing cost reduction efforts; changes in
raw materials, energy and other costs; impact of Year 2000
issues; unanticipated manufacturing disruptions;
fluctuations in demand and changes in production capacities;
changes to economic growth in the U.S. and international
economies, especially in Asia and Brazil; stability of
financial markets; governmental policies and regulations,
including but not limited to those affecting the environment
and the tobacco industry; restrictions on trade; interest
rates and currency movements.
Fourth quarter results
Sales were $771.5 million for the fourth quarter of 1999
compared to sales of $731.8 million for the fourth quarter
of 1998. In the fourth quarter of 1999, the company
recorded net income of $23.7 million, or $.24 per share,
basic and diluted, compared to net income of $33.2 million,
or $.33 per share basic and diluted, for the
prior year period.
During the fourth quarter of 1999, as a result of its
recently completed strategic review process, the company
adopted a plan to improve performance and established a
related pretax restructuring charge of $80.5 million, or
$.49 per share after-tax, basic and diluted. The
restructuring charge is primarily a noncash writedown of
assets, including underutilized production capacity in our
packaging and bleached board operations and an older paper
machine in our fine papers operations.
Net income for the fourth quarter also benefited from a
decrease in the company's income tax expense, primarily
attributable to a one-time $15 million, or $.15 per share
after-tax, basic and diluted, reduction in the state
deferred tax liability, resulting from a business
reorganization.
Investor services plan
At year end, 14,890 shareholders, including members of the
company's savings and investment plans for salaried and
hourly employees, representing 14,886,201 shares of Westvaco
common stock, were participants in the company's Investor
Services Plan.
Number of shareholders
At year end, the number of individuals and institutions
owning Westvaco common shares was about 19,070. This number
includes 12,000 members of the company's salaried and hourly
savings and investment plans. The plans, established in
1968 and 1995, respectively, hold 13,490,136 shares of
Westvaco common stock for the accounts of participants.
This represents 13% of the 100,292,843 shares of common
stock outstanding at year end.
Payroll and benefit costs
The total cost of payroll and benefits was $623 million,
compared with $671 million in 1998. This includes $44.7
million in Social Security taxes in 1999 and $47.4 million
in 1998. Payroll and benefit costs were 22% of sales in
1999 and 23% in 1998. Sales per employee have increased 19%
in the last five years. In 1994, they stood at $184,014,
rising to $219,753 in 1999.
Financial statements
CONSOLIDATED STATEMENT OF INCOME
In thousands, except per share
Year ended October 31
1999 1998 1997
Sales $2,801,849 $2,885,917 $2,982,288
Other income [expense] 29,384 18,747 28,743
2,831,233 2,904,664 3,011,031
Cost of products sold [excludes
Depreciation shown separately
below] 1,969,515 2,071,011 2,161,194
Selling, research and
administrative expenses 230,963 238,097 240,814
Depreciation and amortization 280,470 280,981 269,151
Restructuring charge 78,771 - -
Interest expense 123,538 110,162 93,272
2,683,257 2,700,251 2,764,431
Income before taxes 147,976 204,413 246,600
Income taxes 36,800 72,400 83,900
Net income $ 111,176 $132,013 $ 162,700
Net income per share:
Basic $1.11 $1.30 $1.60
Diluted 1.11 1.30 1.58
Shares used to compute net
income per share:
Basic 100,236 101,311 101,978
Diluted 100,495 101,788 102,704
The accompanying notes are an integral part of these financial statements.
Westvaco Corporation and
consolidated subsidiary companies
CONSOLIDATED BALANCE SHEET
In thousands
At October 31
1999 1998
Assets
Cash and marketable securities $ 108,792 $105,050
Receivables 318,369 286,423
Inventories 248,963 285,783
Prepaid expenses and other current assets 61,884 61,936
Current assets 738,008 739,192
Plant and timberlands:
Machinery 5,094,773 5,079,177
Buildings 672,744 655,020
Other property, including plant land 226,977 224,229
5,994,494 5,958,426
Less: accumulated depreciation 2,779,199 2,634,702
3,215,295 3,323,724
Timberlands-net 266,386 273,975
Construction in progress 99,702 204,732
3,581,383 3,802,431
Other assets 577,301 467,045
$4,896,692 $5,008,668
Liabilities and shareholders' equity
Accounts payable and accrued expenses $ 361,959 $ 346,552
Notes payable and current maturities of
long-term obligations 50,200 99,072
Income taxes 12,955 21,501
Current liabilities 425,114 467,125
Long-term obligations 1,502,177 1,526,343
Deferred income taxes 798,113 768,752
Shareholders' equity:
Common stock, $5 par, at stated value
Shares authorized: 300,000,000
Shares issued: 103,170,667 [1998-
103,170,667] 765,810 764,574
Retained income 1,607,504 1,588,932
Accumulated other comprehensive
income [loss] [129,981] [32,167]
Common stock in treasury, at cost
Shares held: 2,877,824 [1998-
2,844,300] [72,045] [74,891]
2,171,288 2,246,448
$4,896,692 $5,008,668
The accompanying notes are an integral part of these financial
statements.
Westvaco Corporation and
consolidated subsidiary companies
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
In thousands
<CAPTION>
Accumulated
Common other Total
Outstanding Common stock in Retained comprehensive shareholders'
shares stock treasury income income/(loss) equity
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996 101,891 $750,457 $[19,745] $1,479,025 - $2,209,737
Net income - - - 162,700 - 162,700
Cash dividends - - - [89,778] - [89,778]
Repurchases of
common stock [610] - [20,880] - - [20,880]
Issuance 649 11,065 8,315 [2,591] - 16,789
Balance at October 31, 1997 101,930 761,522 [32,310] 1,549,356 - 2,278,568
Comprehensive income
Net income - - - 132,013 - 132,013
Foreign currency
translation - - - - $ [32,167] [32,167]
Comprehensive income 99,846
Cash dividends - - - [89,300] - [89,300]
Repurchases of
common stock [1,822] - [50,176] - - [50,176]
Issuance 218 3,052 7,595 [3,137] - 7,510
Balance at October 31, 1998 100,326 764,574 [74,891] 1,588,932 [32,167] 2,246,448
Comprehensive income
Net income - - - 111,176 - 111,176
Foreign currency
translation - - - - [97,814] [97,814]
Comprehensive income 13,362
Cash dividends - - - [88,191] - [88,191]
Repurchases of
common stock [499] - [11,961] - - [11,961]
Issuance 466 1,236 14,807 [4,413] - 11,630
Balance at October 31, 1999 100,293 $765,810 $[72,045] $1,607,504 $[129,981 $2,171,288
<FN>
<F1>
The accompanying notes are an integral part of these financial
statements.
</FN>
Westvaco Corporation and consolidated subsidiary companies
</TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands
Year ended October 31
1999 1998 1997
Cash flows from operating activities:
Net income $ 111,176 $ 132,013 $ 162,700
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for depreciation and
amortization 280,470 280,981 269,151
Provision for deferred income taxes 32,286 57,244 46,798
Restructuring charge 80,500 - -
Pension credit and other employee
benefits [78,658] [50,869] [39,296]
[Gains] losses on sales of plant
and timberlands [17,891] 894 [10,537]
Foreign currency transaction
[gains] losses 3,601 2,506 4,316
Net changes in assets and
liabilities [2,577] [17,063] [43,380]
Other, net 3,806 1,000 931
Net cash provided by operating
activities 412,713 406,706 390,683
Cash flows from investing activities:
Additions to plant and timberlands [228,879] [422,984] [621,172]
Proceeds from sales of plant and
timberlands 22,781 6,905 22,292
Other investments [22,659] - -
Other, net [1,135] 50 5,912
Net cash used in investing
activities [229,892] [416,029] [592,968]
Cash flows from financing activities:
Proceeds from issuance of common stock 9,122 3,766 10,901
Proceeds from issuance of debt 881,518 548,194 649,186
Dividends paid [88,191] [89,300] [89,778]
Treasury stock purchases [10,792] [49,484] [17,374]
Repayment of notes payable and
long-term obligations [952,230] [470,146] [290,018]
Net cash [used in] provided by
financing activities [160,573] [56,970] 262,917
Effect of exchange rate changes on cash [18,506] [4,011] [646]
Increase [decrease] in cash and
marketable securities 3,742 [70,304] 59,986
Cash and marketable securities:
At beginning of period 105,050 175,354 115,368
At end of period $ 108,792 $ 105,050 $ 175,354
The accompanying notes are an integral part of these
financial statements.
Westvaco Corporation
and consolidated subsidiary companies
Summary of significant accounting policies
Basis of consolidation and preparation of financial
statements: The consolidated financial statements
include the accounts of all subsidiaries more than
50% owned. Investments in 20%- to 50%-owned
companies are accounted for using the equity
method. Accordingly, the company's share of the
earnings of these companies is included in
consolidated net income. In accordance with
generally accepted accounting principles, the
preparation of financial statements requires
management to make estimates and assumptions that
affect the reported amounts of some assets and
liabilities and, in some instances, the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ from
these estimates. Certain prior years' amounts have been
reclassified to conform with the current year's
presentation.
Accounting standards changes: Effective November
1, 1998, the company adopted Statement of
Financial Accounting Standards (SFAS) No.130,
Reporting Comprehensive Income, which establishes
standards for the reporting and displaying of
comprehensive income. During the fourth quarter
of fiscal 1999, the company adopted, SFAS No. 132,
Employers' Disclosures about Pensions and Other
Postretirement Benefits which standardizes the
disclosure requirements for pensions and other
postretirement benefits. These two standards
do not affectfinancial statement presentation and
disclosure but do not have a material impact on
the company's consolidated financial position or
results of operations. The 1998 and 1997
comparative financial information has been
restated to conform with the 1999 presentation.
In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
which requires derivative instruments to be
recorded in the balance sheet at their fair value,
with changes in their fair value being recognized
in earnings unless specific hedge accounting
criteria are met. SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133,
delayed the effective date of SFAS No. 133 to the
company's 2001 fiscal year. Given the current
level of its derivative and hedging activities,
the company believes the impact of this new
standard will not be material.
Environmental matters: Environmental expenditures
that increase useful lives are capitalized, while
other environmental expenditures are expensed.
Liabilities are recorded when remedial efforts are
probable and the costs can be reasonably
estimated. The estimated closure costs for
existing landfills based on current environmental
requirements and technologies are accrued over the
expected useful lives of the landfills.
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 addition, the company is involved in
the remediation of certain other than CERCLA sites
for which the company has accrued approximately
$10 million for remediation and closure costs.
Translation of foreign currencies: 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. The assets
and liabilities of the company's Brazilian
subsidiary are translated into U.S. dollars using
periodend exchange rates and adjustments resulting
from financial statement translations are included
inin the "Accumulated other comprehensive income
(loss)" in the balance sheet. Revenues and
expenses are translated at average rates
prevailing during the period.
Prior to November 1, 1997, the functional currency
for these operations was the U.S. dollar due to the
high inflation rate which previously existed in
that country. Foreign currency asset and liability
accounts were remeasured into U.S. dollars at
fiscal year-end rates except for inventories,
properties and accumulated depreciation, which
were translated at historical rates; revenues and
expenses (other than those relating to assets
translated at historical rates) were translated at
average rates prevailing during the year.
Translation gains and losses were included in
"Other income (expense)."
Marketable securities: For financial statement
purposes, highly liquid securities purchased three
months or less from maturity are considered to be
cash equivalents.
Inventories: Inventories are valued at the lower
of cost or market. Cost is determined using the
last-in, first-out (LIFO) method for raw
materials, finished goods and certain production
materials. Cost of all other inventories is
determined by the first-in, first-out (FIFO) or
average cost method.
Plant and timberlands: Owned assets are recorded
at cost. Also included in the cost of these assets is
interest on funds borrowed during the construction
period. When assets are sold, retired or disposed of,
their cost and related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is
reflected in "Other income (expense)." Costs of
renewals and betterments of properties are
capitalized; costs of maintenance and repairs are
charged to income. Costs of reforestation of
timberlands are capitalized.
Depreciation and amortization: The cost of plant
and equipment is depreciated, generally by the
straight-line method, over the estimated useful
lives of the respective assets, which range from
20 to 40 years for buildings and 5 to 30 years
for machinery and equipment. The cost of
standing timber is amortized as timber is cut, at
rates determined annually based on the
relationship of unamortized timber costs to the
estimated volume of recoverable timber. The
company periodically evaluates whether current
events or circumstances warrant adjustments to
the carrying value or estimated useful lives of
its long-lived assets.
Other assets: Included in other assets are
goodwill and other intangibles, which are
amortized using the straightline method over
their estimated useful lives of 10 years. The
company periodically reviews goodwill balances
for impairment based on the expected future cash
flows of the related businesses acquired.
Revenue recognition: The company recognizes
revenues at the point of passage of title, which
is at the time of shipment.
Income taxes: Deferred income taxes are recorded
for temporary differences between financial
statement carrying amounts and the tax basis of
assets and liabilities. Deferred tax assets and
liabilities reflect the enacted tax rates in effect
for the years the differences are expected to reverse.
Income per share: Basic net income per share
for all the periods presented has been
calculated using the weighted average shares
outstanding. In computing diluted net income
per share, incremental shares issuable upon the
assumed exercise of stock options have been
added to the weighted average shares
outstanding.
Notes to financial statements
A. Provision for restructuring
During the fourth quarter of 1999, following
completion of its strategic review process, the
company adopted a plan to improve the its
performancecompany's performance, principally to
enhance the strength and focus of its packaging-
related businesses. Additionally, the company
reviewed certain long-lived assets in its
business for impairment. As a result of the
above initiatives, a pretax charge of
$80,500,000 was recorded in the fourth quarter
of 1999. This charge is primarily due to the
writedown of impaired long-lived assets, involuntary
employee termination and other exit costs.
Production facilities were written down to
their fair value using an assets-held-for-use model.
An impairment of $67,430,000 was recorded as
undiscounted cash flows were less than the
carrying value of the assets prior to the
impairment. Further, the company wrote off a
paper machine and certain equipment with a
total carrying value of $8,593,000 and abandoned
the assets.
In addition to the asset impairments described
above, the company also recognized inventory
write downs of $1,729,000 which have been
included within the cost of products sold,
employee termination costs of $1,508,000 and
other exit costs of $1,240,000.
B. Other income (expense)
Components of other income (expense) are as follows:
In thousands 1999 1998 1997
Gains [losses] on sales of plant,
equipment and timberlands $17,891 $ [894] $10,537
Interest income 15,115 18,010 15,089
Foreign currency transaction
gains [losses] [3,601] [2,506] [4,316]
Other, net [21] 4,137 7,433
$29,384 $18,747 $28,743
C. Research and development
Expenditures of $47,321,000 (1998-$45,139,000, 1997-$42,944,000)
were expensed as incurred.
D. Income taxes
Income before provision for income taxes consisted of:
In thousands 1999 1998 1997
Domestic $113,350 $157,075 $177,323
Foreign 34,626 47,338 69,277
$147,976 $204,413 $246,600
The provision for income taxes is composed of:
In thousands 1999 1998 1997
Current:
Federal $ 4,430 $ 9,254 $23,982
State [4,634] [3,243] 3,503
Foreign 4,718 9,145 9,617
4,514 15,156 37,102
Deferred:
Federal 43,254 45,871 35,949
State [15,366] 11,792 9,375
Foreign 4,398 [419] 1,474
32,286 57,244 46,798
$36,800 $72,400 $83,900
The net deferred income tax liability at October 31, 1999
and 1998 includes the following components:
In thousands 1999 1998
Current deferred tax assets:
Employee benefits $ 15,397 $ 15,430
Other 28,089 25,288
43,486 40,718
Noncurrent deferred tax assets:
Alternative minimum tax carryforward 143,802 143,581
Noncurrent deferred tax liabilities:
Depreciation 654,604 643,834
Pension and other employee benefits 161,512 133,351
State and local taxes 91,662 99,487
Other 34,137 35,661
941,915 912,333
Total net deferred tax liability $754,627 $728,034
The differences (expressed as a percentage of pretax
income) between the U.S. statutory federal income tax rate and
the effective income tax rate as reflected in the accompanying
consolidated statement of income are:
1999 1998 1997
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local taxes [8.8] 2.7 3.4
Foreign income at other than U.S. rates [1.3] [2.6] [4.0]
Other, net - .3 [.4]
Effective tax rate 24.9% 35.4% 34.0%
The reduction in the company's fiscal 1999 income tax
expense compared to fiscal 1998 is primarily
attributable to a one-time $15 million
reduction in the state deferred tax liability,
resulting from a business reorganization completed
during fiscal 1999. The reorganization lowered the
state tax rates at which certain temporary differences,
principally depreciation, are expected to reverse.
At October 31, 1999, for tax purposes, the
company had available $144 million of
alternative minimum tax credit carryforwards,
which do not expire under current laws. At
October 31, 1999 the company had available
$4.9 million of foreign tax credit
carryforwards, which, if unused, will expire
in fiscal years 2000 to 2004.
Provision has not been made for income
taxes which would become payable upon
remittance of $167 million of the October 31,
1999 undistributed earnings of certain
foreign subsidiaries representing that
portion of such earnings which the company
considers to have been indefinitely
reinvested in the subsidiaries, principally
in Brazil. Computation of the potential
deferred tax liability associated with these
undistributed earnings is not practicable.
E. Current assets
Marketable securities of $39,349,000 (1998-
$12,032,000) are valued at cost, which
approximates market value. Receivables
include $12,438,000 from sources other than
trade (1998-$5,731,000), and have been
reduced by allowances for discounts and
doubtful accounts of $12,828,000 (1998-
$12,748,000). Inventories at October 31
are composed of:
In thousands 1999 1998
Raw materials $ 45,453 $ 55,580
Production materials, stores and supplies 66,191 74,338
Finished and in process goods 137,319 155,865
$248,963 $285,783
If inventories had been valued at current cost, they would
have been $368,105,000 in 1999 (1998-$409,043,000).
F. Interest capitalization
In 1999, $132,428,000 of interest cost was incurred
(1998-$130,914,000, 1997-$119,234,000) of which
$8,890,000 was capitalized (1998-$20,752,000, 1997-
$25,962,000).
G. Accounts payable and accrued expenses
Accounts payable and accrued expenses at October 31:
In thousands 1999 1998
Accounts payable:
Trade $118,413 $117,306
Other 18,812 24,258
Accrued expenses:
Taxes, other than income 18,989 17,239
Interest 32,927 32,996
Payroll and employee benefit costs 85,179 83,652
Other 87,639 71,101
$361,959 $346,552
H. Cash flows
Changes in assets and liabilities are as follows:
In thousands 1999 1998 1997
[Increase] decrease in:
Receivables $[41,054] $ 12,765 $[23,674]
Inventories 24,545 [17,249] [7,577]
Prepaid expenses
and other current assets [1,148] [5,905] 1,633
Increase [decrease] in:
Accounts payable and
accrued expenses 24,766 [5,597] [9,957]
Income taxes payable [9,686] [1,077] [3,805]
$[2,577] $[17,063] $[43,380]
Reconciliation of capital expenditures on a cash basis:
In thousands 1999 1998 1997
New investment in plant and
timberlands $232,292 $419,705 $613,896
Less: debt assumed [158] [4] [21]
net change in related
current liabilities [3,255] 3,283 7,297
Cash additions to plant and
timberlands $228,879 $422,984 $621,172
Cash payments for interest, excluding amounts capitalized, were
$112,066,000 in 1999 (1998-$108,082,000, 1997-$84,503,000). Cash
payments for income taxes were $12,108,000 in 1999 (1998-$13,744,000,
1997-$39,331,000).
I. Leasing activities and other commitments
The company leases a variety of assets for use
in its operations. Leases for administrative
offices, converting plants and storage
facilities generally contain options which
allow the company to extend lease terms for
periods up to 25 years, or to purchase the
properties. Certain leases provide for
escalation of the lease payments as maintenance
costs and taxes increase.
The company has no significant capital lease
liabilities. Minimum rental payments under operating
leases that have noncancellable lease terms in excess
of 12 months are as follows:
Operating
In thousands leases
2000 $ 20,636
2001 17,829
2002 14,583
2003 11,438
2004 9,383
Later years 41,473
Minimum lease payments $115,342
Rental expense under operating leases was
$38,412,000 in 1999 (1998-$40,179,000,
1997-$38,031,000).
At October 31, 1999, commitments required to
complete currently authorized capital projects are
$147 million.
J. Notes payable and long-term obligations
Notes payable and long-term obligations at October
31, 1999:
In thousands Current Noncurrent
Debentures:
9.65%, due 2002 $ 100,000
9 3/4%, due 2020 100,000
Sinking Fund Debentures:
7%, due 2004-2023 150,000
7 1/2%, due 2008-2027 150,000
7.65%, due 2008-2027 150,000
7.75%, due 2004-2023 150,000
8 1/8%, due 2000-2007 $ 2,350 17,100
8.30%, due 2003-2022 125,000
10 1/8%, due 2000-2019 5,000 95,000
10 1/4%, due 2000-2018 5,000 80,000
10.30%, due 2000-2019 5,000 95,000
Pollution Control Revenue Bonds:
5.85-6.65%, due 2004-2018 26,620
5 7/8-5.9%, due 2000-2003 1,865 6,740
5 7/8-6.2%, due 2000-2007 550 11,480
5.9-6.2%, due 2004-2008 5,900
6 3/8%, due 2026 5,740
7 1/8-7 1/2%, due 2000-2001 1,500 2,000
8 1/4%, due 2000-2010 105 3,995
9 1/8-9.6%, due 2006-2015 10,100
10 1/2%, due 2004 1,500
Industrial Revenue Bonds:
7-7.67%, due 2000-2027 385 94,530
Economic Development Bonds:
8 3/4%, due 2000-2010 110 4,190
Notes payable and other 28,335 117,282
$50,200 $1,502,177
Outstanding noncurrent obligations maturing in the
four years after 2000 are (in millions); 2001-$37.1;
2002-$133.3; 2003-$36.1; 2004-$56.6.
The company has a revolving credit agreement
for $500 million which expires December 31,
2000. Borrowings under the agreement may be in
unsecured domestic or Eurodollar notes and may
be at rates approximating prime or the London
Interbank Offered Rate, at the company's option.
There is a nominal commitment fee on the unused funds.
These facilities are used to support commercial paper
borrowings. There were no borrowings under this
facility during 1999 and none inor 1998.
At October 31, 1999, the book value of
financial instruments included in notes payable
and long-term obligations was $1,477,162,000
(1998-$1,557,477,000), and the fair value was
estimated to be $1,495,290,000 (1998-$1,636,093,000).
The company has estimated the fair value of financial
instruments based upon quoted market prices for
the same or similar issues or on the current
interest rates available to the company for
debt of similar terms and maturities.
K Shareholders' equity
During 1999, the company repurchased
460,000 shares (1998-1,800,000, 1997-500,000) of
company stock under a repurchase program
authorized in 1997 by the Board of Directors.
The program was initiated to satisfy issuances
under the company's stock option plans. There
were no purchases in 1997, 1998 or 1999 under
the stock repurchase program authorized in 1987
by the Board of Directors.
At October 31, 1999, there were 44,170 shares
of nonvoting $100 par value cumulative preferred
stock authorized and 10 million shares of preferred
stock without par value authorized and available for
issue.
Pursuant to a Rights Agreement approved by the company's
Board of Directors in 1997, in the event a person or
group were to acquire a 15% or greater position in
Westvaco, each right would entitle its holder
(other than the acquiror) to buy that number of shares of
common stock of Westvaco which, at the time of the 15%
acquisition, had a market value of two times
the exercise price of the rights. If, after the rights
have been triggered, an acquiring company were to merge
or otherwise combine with Westvaco, or Westvaco
were to sell 50% or more of its assets or earning power,
each right would entitle its holder (other than the
acquiror) to buy that number of shares of common stock of the
acquiring company which, at the time of such transaction,
would have a market value of two times the exercise
price of the rights. The rights have no effect on
earnings per share until they become exercisable. The
rights expire in December 2007.
L. Stock option plans
At October 31, 1999, the company had five stock option
plans. The 1983 and 1988 Stock Option and Stock
Appreciation Rights Plans, 1995 Salaried Employee Stock
Incentive Plan and the 1999 Salaried Employee Stock
Incentive Plan provide for the granting of up to
4,725,000, 4,500,000, 4,837,500 and 5,000,000,
respectively, of stock options and stock appreciation
rights to key employees. The 1995 Non-Employee Director
Stock Incentive Plan provides for the granting of up to
112,500 stock options and stock appreciation rights to
outside directors. For the employee plans, stock
options may be granted with or without stock
appreciation rights and are granted at market value.
They are exercisable after a period of six months to one
year and expire not later than ten years from the date
of grant. Under each employee plan, stock options may
be granted with or without limited stock appreciation
rights, which are exercisable upon the occurrence of
certain events related to changes in corporate control.
In 1999, nearly all outstanding limited stock
appreciation rights, which had previously been granted
to employees were cancelled or surrendered. In 1997,
nearly all outstanding stock appreciation rights, which
had previously been granted to employees and nonemployee
directors, were cancelled or surrendered. Subject to
limited exceptions, no new grants for stock appreciation
rights were awarded during 1999.
The company applies APB Opinion 25, Accounting for
Stock Issued to Employees, in accounting for its plans
and, accordingly, no compensation cost has been
recognized. If compensation cost for the company's
stock options had been determined based on the fair
value method of SFAS 123, Accounting for Stock-Based
Compensation, the company's net income and net income
per share would have been reduced to the pro forma
amounts as follows:
In thousands,
except per share
Net income 1999 1998 1997
As reported $111,176 $132,013 $162,700
Pro forma 107,924 127,470 159,089
Income per share - basic
As reported $1.11 $1.30 $1.60
Pro forma 1.08 1.26 1.56
Income per share - diluted
As reported $1.11 $1.30 $1.58
Pro forma 1.07 1.25 1.55
In determining the fair value of options for pro forma
purposes, the company used the Black-Scholes
option pricing model and assumed the following
for options granted in 1999, 1998 and 1997,
respectively: risk-free interest rate of
4.72%, 5.80% and 6.14%; dividend yield of
3.05%, 2.71% and 3.21%; an expected option
life of six years for each year; and an
expected volatility of 20% for each year. The
weighted average fair values of the options
granted during 1999, 1998 and 1997 were $5.34,
$7.61 and $6.16 per share, respectively. The
following table summarizes activity in the
plans for 1999, 1998 and 1997:
Weighted average
Options exercise price
Outstanding at October 31, 1996 4,438,224 $23.61
Granted 964,015 27.44
Exercised [1,022,792] 21.92
Cancelled [3,235] 24.55
Outstanding at October 31, 1997 4,376,212 24.84
Granted 981,780 32.53
Exercised [218,159] 20.44
Cancelled [992] 18.75
Outstanding at October 31, 1998 5,138,841 26.49
Granted 1,001,655 28.78
Exercised [466,169] 22.31
Cancelled [19,527] 26.71
Outstanding at October 31, 1999 5,654,800 27.24
The following table shows various information about stock
options outstanding at October 31, 1999:
Range of exercise prices
$18.29- $23.08- $27.44- $18.29-
$19.13 $26.88 $32.53 $32.53
Number outstanding 128,322 2,639,003 2,887,475 5,654,800
Weighted average price $18.52 $25.15 $29.63 $27.24
Weighted average
remaining life (in years) .85 4.84 8.10 6.41
Number exercisable 128,322 2,609,003 1,933,320 4,670,645
Weighted average price $18.52 $25.16 $30.02 $26.92
There were 5,488,367 shares available for grant as of
October 31, 1999 (1998-1,470,495, 1997-2,468,055). At
October 31, 1999, 876,716 outstanding options had
related limited stock appreciation rights.
M. Employee retirement, postretirement and postemployment benefits
Pension and retirement plans
The company provides retirement benefits for substantially
all domestic employees under several noncontributory
trusteed plans and also provides benefits to employees whose
retirement benefits exceed maximum amounts permitted by
current tax law under an unfunded benefit plan. Benefits are
based on a final average pay formula for the salaried plans
and a unit benefit formula for the hourly paid plans. Prior
service costs are amortized on a straight-line basis over
the average remaining service period for active employees.
Contributions are made to the funded plans in accordance with
ERISA requirements. The 1999 net pension credit relating to
employee pension and retirement benefits was $82,280,000
(1998-$55,337,000, 1997-$42,058,000). The net pension credits
reflect cumulative favorable investment returns on plan assets.
The components of the net pension credit for 1999, 1998 and
1997 are as follows:
In thousands 1999 1998 1997
Service cost-benefits earned during
the period $ 28,966 $ 26,934 $ 23,369
Interest cost on projected benefit
obligation 71,714 71,293 65,947
Expected return on plan assets [171,223] [148,042] [126,808]
Net transition asset [6,940] [6,940] [6,940]
Amortization of prior service cost 5,473 5,312 4,774
Net gain [10,270] [3,894] [2,400]
Net pension credit $ [82,280] $ [55,337] $ [42,058]
Postretirement benefits
The company provides life insurance for substantially all
retirees and medical benefits to certain retirees in the
form of cost subsidies until medicare eligibility is
reached and to certain other retirees, medical benefits up
to a maximum lifetime amount. None of these benefits is
funded. The components of net periodic postretirement benefits cost
for the fiscal years ended October 31, 1999, 1998 and 1997
are as follows:
In thousands 1999 1998 1997
Service cost-benefits earned
during the period $1,200 $1,400 $1,300
Interest cost 1,200 1,500 1,500
Net amortization [1,100] [800] [900]
Net periodic postretirement
benefits cost $1,300 $2,100 $1,900
The changes in the consolidated prepaid pension asset for
defined benefit plans and the accrued postretirement
benefit obligation are shown below. The net prepaid
pension cost, from the following table, is included in
other assets, except for an obligation of $24.1 million for
an unfunded excess benefit plan which is recorded as a long-
term liability.
The following table sets forth the funded status of the
plans and amounts recognized in the consolidated balance
sheet at October 31, based on a valuation date of July 31:
Pension and Postretirement
retirement benefits benefits
In thousands 1999 1998 1999 1998
Change in benefit obligation
Benefit obligation at
beginning of year $1,084,468 $1,003,647 $23,200 $21,700
Service cost 28,966 26,934 1,200 1,400
Interest cost 71,714 71,293 1,200 1,500
Actuarial [loss] gain [13,833] 24,205 [2,800] 1,100
Plan amendments 380 2,469 - -
Termination benefits 1,491 - - -
Benefits paid [49,797] [44,080] [2,900] [2,500]
Benefit obligation at
end of year $1,123,389 $1,084,468 $19,900 $23,200
Change in plan assets
Fair value of plan assets
at beginning of year $2,337,713 $2,088,419 $ - $ -
Actual return on plan
assets 324,716 291,895 - -
Company contributions 1,663 1,479 2,900 2,500
Benefits paid [49,797] [44,080] [2,900] [2,500]
Fair value of plan assets
at end of year $2,614,295 $2,337,713 $ - $ -
Funded status of the plans $1,490,906 $1,253,245 $[19,900] $[23,200]
Unrecognized net actuarial
[gain] loss [1,017,279] [860,223] [7,100] [5,300]
Unrecognized prior service
cost [credit] 47,018 52,111 [100] [200]
Unrecognized net transition
obligation [15,966] [22,906] - -
Net prepaid [accrued]
benefit cost included in
the consolidated balance
sheet $ 504,679 $ 422,227 $[27,100] $[28,700]
Prepaid benefit cost $ 528,770 $ 444,075 $ - $ -
Accrued benefit liability [24,091] [21,848] [27,100] [28,700]
Total recognized $ 504,679 $ 422,227 $[27,100] $[28,700]
The assumptions used in the measurement of the company's benefit
obligations are as follows:
1999 1998 1997
Pension and retirement benefits
Discount rate 6.75% 6.75% 7.25%
Expected return on plan assets 8.75% 9.50% 9.75%
Rate of compensation increase 5.00% 5.00% 5.50%
Postretirement benefits
Discount rate 6.75% 6.75% 7.25%
Rate of compensation increase 5.00% 5.00% 5.50%
The annual rate of increase in health care costs was assumed
at 6% for 1998, 5% for 1999 and remaining at that level
thereafter. The effect of a 1% increase in the assumed
health care cost trend rate would increase the July 31, 1999
accumulated postretirement benefit obligation by $288,000
and the net postretirement benefits cost for 1999 by
$70,000. The effect of a 1% decrease in the assumed health
care cost trend rate would decrease the July 31, 1999
accumulated postretirement benefit obligation by $252,000
and the net postretirement benefits cost for 1999 by
$63,000.
The company also has defined contribution plans that cover
substantially all U.S. employees. Expense for company
matching contributions under these plans was approximately
$18.0 million in 1999, 1998 and 1997.
Postemployment benefits
The company provides limited postemployment benefits to
former or inactive employees, including short-term
disability, workers' compensation and severance.
N. Legal and environmental matters
The company is involved in various legal proceedings and
environmental actions, generally arising in the normal
course of its business. Although the ultimate outcome
of such matters cannot be predicted with certainty, the company
does not believe that the outcome of any proceeding, lawsuit or
claim that is pending or threatened, or all of them combined,
will have a material adverse effect on its consolidated
financial position, liquidity or long-term results of
operations. In any given quarter or quarters, however, it is
possible such proceedings or matters could have a material
effect on results of operations.
O. Business segment information
In 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." We adopted this statementInformation,
which the company adopted at October 31, 1999. Adoption of the
standard had no impact on our net income. Previously reported
segment information has been restated to conform to the new
standard.
Westvaco is a leading manufacturer of paper, packaging and
chemicals serving both U.S. and international markets.
The company's operating divisions have been classified into
reportable segments based upon the nature of their products and
services within these three major product categories, with
separate disclosure of Rigesa, Ltda., our wholly owned
Brazilian packaging subsidiary. Following is a description of
our reportable business segments:
The paper segment is engaged in the manufacturing and
sellingmarketing of printing grade papers and envelopes. All of
this segment's operations are in the United States. It
operates three mills in the eastern half of the country and
manufactures envelopes at nine domestic plants.
The packaging segment manufactures, markets, and distributes
various bleached paperboard, kraft paper and board, corrugated
shipping containers, food containers, folding cartons and
cartons for liquid products. These products are manufactured at
two domestic mills and two mills located in Brazil; paper and
sold to marketsboard are converted into packaging products at
plants located in the eastern United States, Brazil and the
Czech Republic. These products are sold primarilylocated in
the United States withother operations conductedadditional
markets located in Brazil, Europe, Asia and the Pacific Rim. In
Brazil, Rigesa is a major producer of paperboard and corrugated
packaging for the markets of that country. Operating results
for Rigesa are subject to the economic conditions in Brazil,
including its inflation and currency fluctuations.
The chemical segment manufactures products at four domestic
locations. Major product groups are: activated carbon products
and services; printing ink resins and lignin-based surfactants;
tall oil fatty acid, rosin and derivative products.
The corporate and other segment includes the company's forestry
operations and income and expense items and activities not
directly associated with segment operations, including
corporate support staff services and related assets and
liabilities.
The segments are measured on operating profits before interest
expense, income taxes,minority interest, extraordinary items
and cumulative effect of accounting changes, except for Rigesa
which is included in the Packaging Segment,in the packaging
segment, whose operating profit includes interest income of
$13.2 million in 1999 (1998-$14.6 million, 1997-$10.3 million)
and interest expense of $4.6 million in 1999 (1998-$4.5
million, 1997-$6.1 million). The segments follow the same
accounting principles described in the Summary of Significant
Accounting Policies. Sales between the segments are recorded
primarily at market prices. The restructuring charge following
the completion of the company's strategic review related to
paper, packaging, and chemicals was $21.2 million, $57.7 million
and $1.6 million, respectively.
No single customer accounts for 10% or more of consolidated
trade sales in 1999. In 1998 and 1997, sales to a single
customer accounted for approximately 11% of consolidated sales
primarily from the company's packaging segment.
Total sales outside of the United States, including sales of
our foreign operating subsidiaries, accounted for
approximately $663,483,000 in 1999 (1998-$709,567,000, 1997-
$741,902,000). Export sales from the United States amounted
to $504,480,000 in 1999 (1998-$499,792,000, 1997-$487,698,000).
Financial information by business segment follows:
<TABLE>
In millions
Depreciation
Inter- Sales Operating and Segment Captial
Trade segment total profit amortization assets expenditures
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended October 31, 1999
Paper $1,005.1 $ 23.4 $1,028.5 $ 62.0 $100.6 $1,441.8 $ 60.0
Packaging 1,316.9 4.0 1,320.9 165.3 128.6 2,043.5 99.8
Rigesa 140.8 - 140.8 25.2 9.4 257.4 31.0
Packaging total 1,457.7 4.0 1,461.7 190.5 138.0 2,300.9 130.8
Chemical 293.9 20.6 314.5 52.5 23.8 314.7 18.1
Corporate and other 45.1 35.7 80.8 [157.0] 18.1 839.3 23.4
Total 2,801.8 83.7 2,885.5 148.0 280.5 4,896.7 232.3
Intersegment eliminations [83.7] [83.7]
Consolidated totals $2,801.8 $ - $2,801.8 $148.0 $280.5 $4,896.7 $232.3
Year Ended October 31, 1998
Paper $ 972.9 $ 52.7 $1,025.6 $ 84.8 $100.1 $1,497.2 $157.8
Packaging 1,380.2 4.0 1,384.2 172.3 128.1 2,146.6 158.6
Rigesa 184.0 - 184.0 35.2 12.4 322.4 41.1
Packaging total 1,564.2 4.0 1,568.2 207.5 140.5 2,469.0 199.7
Chemical 310.9 21.2 332.1 53.2 22.6 326.6 38.0
Corporate and other 37.9 34.8 72.7 [141.1] 17.8 715.9 24.2
Total 2,885.9 112.7 2,998.6 204.4 281.0 5,008.7 419.7
Intersegment eliminations [112.7] [112.7]
Consolidated totals $2,885.9 $ - $2,885.9 $204.4 $281.0 $5,008.7 $419.7
Year Ended October 31, 1997
Paper $1,003.3 $ 52.2 $1,055.5 $ 82.0 $ 96.2 $1,430.7 $236.7
Packaging 1,415.6 4.5 1,420.1 180.7 125.2 2,128.0 214.4
Rigesa 220.5 - 220.5 47.9 11.9 301.4 30.7
Packaging total 1,636.1 4.5 1,640.6 228.6 137.1 2,429.4 245.1
Chemical 304.5 19.3 323.8 49.1 17.1 304.6 97.6
Corporate and other 38.4 32.6 71.0 [113.1] 18.8 734.1 34.5
Total 2,982.3 108.6 3,090.9 246.6 269.2 4,898.8 613.9
Intersegment eliminations [108.6] [108.6]
Consolidated totals $2,982.3 $ - $2,982.3 $246.6 $269.2 $4,898.8 $613.9
</TABLE>
P. Business Combination
In October 1999, Westvaco signed a definitive agreement
to acquire Temple-Inland's bleached paperboard mill in
Evadale, TX. The company will pay $575 million for the
mill's fixed assets and approximately $50 million for
working capital. The acquisition will be accounted for
as a purchase. The transaction is scheduled to close in
December 1999. In connection with this pending
acquisition, on November 5, 1999, the company issued
$400,000,000 in notes comprised of $200,000,000 of 6.85%
notes due November 15, 2004 and $200,000,000 of 7.10%
notes due November 15, 2009.
Q. Subsequent event [unaudited]
On November 29, 1999, Westvaco signed a definitive
agreement to acquire Mebane Packaging Group, Inc., a
leading supplier of packaging for pharmaceutical products
and personal care items. The sale is scheduled to close
by the end of the first quarter of fiscal 2000.
R. Selected quarterly information [unaudited]
In thousands, except per share data
Quarter 1999 1998 1997
Sales
First $ 650,715 $ 702,113 $ 736,355
Second 679,481 724,187 724,593
Third 700,202 727,826 738,227
Fourth 771,451 731,791 783,113
Year $2,801,849 $2,885,917 $2,982,288
Gross profit
First $ 119,239 $ 133,682 $ 131,145
Second 127,052 139,135 134,929
Third 139,515 130,835 137,467
Fourth 176,907 139,644 157,545
Year $ 562,713 $ 543,296 $ 561,086
Net income
First $ 25,222 $ 32,516 $ 35,510
Second 27,295 34,606 37,940
Third 34,986 31,674 37,538
Fourth 23,673 33,217 51,712
Year $ 111,176 $ 132,013 $ 162,700
Net income per common share-basic
First $ .25 $ .32 $ .35
Second .27 .34 .37
Third .35 .31 .37
Fourth .24 .33 .51
Year $1.11 $1.30 $1.60
Net income per common share-diluted
First $ .25 $ .32 $ .35
Second .27 .34 .37
Third .35 .31 .37
Fourth .24 .33 .50
Year $1.11 $1.30 $1.58
Responsibility for financial statements
Management is responsible for the information and
representations in the consolidated financial statements
and related notes which appear on pages 21 through 33 as
well as all other financial information contained in
this report. These financial statements were prepared
in accordance with generally accepted accounting
principles and by necessity include some amounts
determined using informed estimates and judgments.
Management is responsible for establishing and
maintaining a system of internal control. The company's
accounting systems include internal controls which
management believes provide reasonable assurance of the
reliability of its financial records and the proper
safeguarding and use of its assets. In establishing the
basis for reasonable assurance, management balances the
cost of the internal controls with the benefits they
provide. Additionally, it has long been the policy of
the company to conduct its business affairs in
accordance with high ethical standards, as set forth in
the Westvaco Code of Conduct.
PricewaterhouseCoopers LLP, the company's independent
accountants, were engaged to audit the consolidated
financial statements and were responsible for conducting
their audit in accordance with generally accepted
auditing standards. The appointment of
PricewaterhouseCoopers LLP as the company's independent
accountants by the Board of Directors, on the
recommendation of the Audit Committee, has been ratified
each year by the shareholders. Their report immediately
follows this statement.
The Audit Committee of the Board of Directors, composed
solely of nonmanagement directors, meets regularly with
the company's management, the internal audit manager and
the independent accountants to discuss accounting and
financial reporting matters and the nature, scope and
results of audits. The Audit Committee meets with the
independent accountants both with and without the
presence of management. The committee also meets with
the company's general counsel to review the company's
legal compliance program as well as significant
litigation issues. The independent accountants and the
internal audit manager have full and free access to the
Audit Committee.
John A. Luke, Jr.
Chairman, President and
Chief Executive Officer
Karen R. Osar
Senior Vice President and Chief Financial Officer
November 17, 1999
Report of independent accountants
To the Board of Directors and
Shareholders of
Westvaco Corporation:
In our opinion, the consolidated financial statements appearing on
pages 21 through 33 of this report present fairly, in all material
respects, the financial position of Westvaco Corporation and its
subsidiaries at October 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years
in the period ended October 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of the company's management; our responsibility
is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
November 17, 1999
ELEVEN - YEAR COMPARISON
Year ended October 31 1999 1998 1997 1996 1995 1994
EARNINGS, in millions, except per share data
Sales $2,802 $2,886 $2,982 $3,045 $3,272 $2,607
Net income before
extraordinary charge
and cumulative effect
of accounting changes 111 132 163 212 283 104
Net income 111 a 132 b 163 212 281 c 104
Net income per
share - basic 1.11 1.30 1.60 2.09 2.78 1.03
Net income per
share - diluted 1.11 1.30 1.58 2.07 2.76 1.03
Depreciation and
amortization 280 281 269 240 230 219
COMMON STOCK
Number of common
shareholders 19,070 20,140 20,240 20,760 20,490 13,890
Weighted average
number of shares
outstanding [in
millions]
Basic 100 101 102 102 101 101
Diluted 100 102 103 102 102 101
Cash dividends [in
millions] $88 $89 $90 $90 $78 $74
Per share:
Dividends .88 .88 .88 .88 .77 .73 1/3
Book value 21.65 22.39 22.35 21.69 20.49 18.48
FINANCIAL POSITION, in millions
Working capital $313 $272 $400 $297 $358 $269
Current ratio 1.7 1.6 2.0 1.7 1.8 1.7
Plant and
timberlands, net $3,581 $3,802 $3,684 $3,354 $3,140 $3,063
Total assets 4,897 5,009 4,899 4,437 4,253 3,983
Long-term
obligations 1,502 1,526 1,513 1,153 1,147 1,234
Shareholders'
equity 2,171 2,246 2,279 2,210 2,081 1,862
Debt to total
capital 34% 34% 34% 29% 30% 34%
OPERATIONS
Primary production of
paper,paperboard and
market pulp [tons,
in thousands] 2,992 3,028 3,058 3,001 3,105 2,848
New investment in
plant and timberlands
[in millions] $232 $420 $614 $511 $309 $207
Acres of timberlands
owned [in tons] 1,446 1,465 1,461 1,452 1,453 1,453
Employees 12,750 13,070 13,370 13,430 14,300 14,170
The following per share data is for basic and diluted:
a 1999 results include an after-tax charge for restructuring of $49
million, or $.49 per share, and a credit of $15 million, or $.15
per share, for a release of deferred taxes.
b 1998 results include an after-tax charge for restructuring of $3
million, or $.03 per share.
c 1995 results include an after-tax extraordinary charge of $2 million,
or $.02 per share, for the extinguishment of debt.
Westvaco Corporation and consolidated subsidiary companies
ELEVEN - YEAR COMPARISON, continued
Year ended October 31 1993 1992 1991 1990 1989
EARNINGS, in millions, except per share data
Sales $2,345 $2,336 $2,301 $2,411 $2,284
Net income before
extraordinary charge
and cumulative effect
of accounting changes 57 136 137 188 223
Net income 104 d 136 137 e 188 223
Net income per
share - basic 1.04 1.37 1.40 1.93 2.30
Net income per
share - diluted 1.04 1.36 1.39 1.92 2.28
Depreciation and
amortization 195 183 179 169 156
COMMON STOCK
Number of common
shareholders 14,570 14,970 15,020 15,630 15,530
Weighted average number
of shares outstanding
[in millions]
Basic 100 99 98 98 97
Diluted 101 100 99 98 98
Cash dividends
[in millions] $73 $73 $70 $66 $61
Per share:
Dividends .73 1/3 .73 1/3 .70 5/6 .67 1/2 .62 2/3
Book value 18.18 17.84 17.21 16.53 15.27
FINANCIAL POSITION, dollars in millions
Working capital $244 $319 $310 $370 $328
Current ratio 1.7 1.9 2.0 2.2 2.1
Plant and
timberlands, net $3,078 $2,838 $2,675 $2,539 $2,240
Total assets 3,928 3,704 3,462 3,332 2,961
Long-term obligations 1,258 1,055 970 961 768
Shareholders' equity 1,824 1,777 1,699 1,619 1,488
Debt to total
capital 35% 31% 31% 32% 29%
OPERATIONS
Primary production of paper,
paperboard and market pulp
[tons, in thousands] 2,626 2,595 2,587 2,512 2,499
New investment in plant
and timberlands
[in millions] $442 $352 $322 $472 $537
Acres of timberlands
owned [in thousands] 1,462 1,468 1,483 1,487 1,467
Employees 14,440 14,520 14,440 15,040 14,960
The following per share data is for basic and diluted:
d 1993 results includes income of $55 million, or $.55 per share, from
the cumlative effect of accounting changes, a provision of $12 million,
or $.12 per share, for the impact of an increase in the federal income
tax rate, an extraordinary charge of $8 million, or $.07 per share,
for the extinguishment of high interest rate debt and a charge for
restructuring of $26 million, or $.26 per share.
e 1991 results include an after-tax charge for restructuring of $15
million, or $.16 per share.
Westvaco Corporation and consolidated subsidiary companies
Exhibit No. 21
SUBSIDIARIES OF THE REGISTRANT
Domestic Subsidiary Foreign Subsidiaries
Westvaco Development Corporation Rigesa, Ltda.
Summerville, South Carolina Valinhos, Sao Paulo, Brazil
Westvaco Kentucky, L.P. Westvaco Asia, K.K.
Wickliffe, Kentucky Tokyo, Japan
The Forest Technology Group, Inc. Westvaco Europe, S.A.
Summerville, South Carolina Brussels, Belgium
Westvaco Virginia, Inc. Westvaco Canada, Ltd.
Covington, Virginia Toronto, Canada
Westvaco (Barbados) Foreign
Sales Corporation Bridgtown,
Barbados
Westvaco Hong Kong, Ltd.
Hong Kong
Westvaco Korea, Ltd.
Seoul, South Korea
Westvaco de Mexico, S.A.
de C.V.
Mexico City, Mexico
Westvaco Pacific Pty. Limited
Sydney, Australia
Westvaco Singapore Pte., Ltd.
Singapore
Westvaco Specialty Products,
S.A.
Brussels, Belgium
Westvaco South Africa (Pty)
Ltd.
Cape Town, South Africa
Westvaco Svitavy, SPOL. S R.O.
Svitavy, Czech Republic
Westvaco Taiwan, Ltd
Taipei, Taiwan
Westvaco Worldwide
Distribution, S.A.
Neuchatel, Switzerland
Exhibit No. 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in
the Registration Statements on Form S-8 (Nos. 333-50703, 2-
71723, 2-94699, 33-26823, 33-57879, 33-57881, 33387275 and
333-50711) and in the Prospectus constituting part of the
Registration Statement on Form S-3 (Nos. 33351423, 333-
79267 and 333-91635) of Westvaco Corporation of our report
dated November 17, 1999 relating to the financial
statements, which appears in the Annual Report to
Shareholders, which is incorporated in this Annual Report
on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
December 16, 1999
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