UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the second quarter ended April 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission File Number 1-3013
WESTVACO CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1466285
(State of Incorporation) (I.R.S. Employer Identification No.)
299 Park Avenue, New York, New York 10171
(Address of principal executive offices)
212-688-5000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
At April 30, 2000, the latest practicable date, there were
100,654,831 shares outstanding of
Common Stock, $5 par value.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Statement of Income for the three months
and six months ended April 30, 2000 and 1999 2
Consolidated Balance Sheet as of April 30, 2000
and October 31, 1999 3
Consolidated Statement of Cash Flows for the
six months ended April 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF INCOME
[Unaudited]
In thousands, except per share data
Three Months Ended Six Months Ended
April 30 April 30
2000 1999 2000 1999
Sales 904,658 679,481 1,704,251 1,330,196
Other income (expense) 14,854 4,611 27,213 13,316
919,512 684,092 1,731,464 1,343,512
Cost of products sold
(excludes depreciation
shown below) 617,434 485,836 1,171,677 950,196
Selling, research and
administrative expenses 66,402 56,232 127,184 111,238
Depreciation and
amortization 78,907 68,786 150,809 138,117
Interest expense 45,401 30,843 90,701 61,444
808,144 641,697 1,540,371 1,260,995
Income before taxes and
extraordinary charge 111,368 42,395 191,093 82,517
Income taxes 41,200 15,100 70,700 30,000
Income before extraordinary
charge 70,168 27,295 120,393 52,517
Extraordinary charge -
extinguishment of debt,
net of taxes (8,803) - (8,803) -
Net income 61,365 27,295 111,590 52,517
Net income per share:
Basic and Diluted:
Income before extraordinary
item .70 .27 1.20 .52
Extraordinary item (.09) - (.09) -
Net income .61 .27 1.11 .52
Shares used to compute net
income per share:
Basic 100,607 100,111 100,501 100,188
Diluted 100,978 100,145 100,963 100,308
Cash dividends per share of
common stock 0.22 0.22 0.44 0.44
The accompanying notes are an integral part of these financial
statements.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED BALANCE SHEET
[Unaudited]
In thousands
April 30, 2000 October 31, 1999
ASSETS
Cash and marketable
securities 124,645 108,792
Receivables, net 352,552 318,369
Inventories 296,701 248,963
Prepaid expenses
69,704 61,884
Current assets 843,602 738,008
Plant and timberlands:
Machinery 5,615,966 5,094,773
Buildings 759,653 672,744
Other property,
including plant land 226,977 242,139
6,617,758 5,994,494
Less: accumulated
depreciation 2,885,971 2,779,199
3,731,787 3,215,295
Timberlands - net 264,127 266,386
Construction in progress 125,249 99,702
4,121,163 3,581,383
Other assets 826,653 577,301
5,791,418 4,896,692
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and
accrued expenses 423,493 361,959
Notes payable and current
maturities of
long-term obligations 18,650 50,200
Income taxes 4,532 12,955
Current liabilities 446,675 425,114
Long-term obligations 2,238,841 1,502,177
Deferred income taxes 848,354 798,113
Shareholders' equity:
Common stock, $5 par, at
stated value
shares authorized:
300,000,000
shares issued:
103,170,667
(1999-103,170,667) 765,585 765,810
Retained income 1,671,776 1,607,504
Accumulated other
comprehensive income
(loss) (119,786) (129,981)
Common stock in
treasury, at cost
shares held: 2,515,836
(1999-2,877,824) (61,027) (72,045)
2,257,548 2,171,288
5,791,418 4,896,692
The accompanying notes are an integral part of these
financial statements.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
[Unaudited]
In thousands Six Months Ended
April 30
2000 1999
Cash flows from operating
activities:
Net income 111,590 52,517
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation and
amortization 150,809 138,117
Provision for deferred income
taxes 48,528 26,620
(Gains) losses on sales of
plants and timberlands (13,639) (6,481)
Pension credits and other
employee benefits (48,726) (38,921)
Foreign currency transaction
loss (gain) 287 3,251
Loss on extinguishment of debt 8,803 -0-
Changes in assets and
liabilities:
(Increase) decrease in
receivables (2,222) (1,890)
(Increase) decrease in
inventories 316 (4,851)
(Increase) decrease in prepaid
expenses (5,066) (5,719)
(Decrease) increase in accounts
payable and accrued expenses 14,328 (12,744)
(Decrease) increase in income
taxes payable 982 (2,519)
Other, net (1,821) 1,180
Net cash provided by
operating activities 264,169 148,560
Cash flows from investing
activities:
Additions to plant and
timberlands (71,986) (125,470)
Payments for acquisitions (765,060) (22,659)
Proceeds from sales of plant
and timberlands 25,294 11,635
Other, net (1,315) (172)
Net cash used in investing
activities (813,067) (136,666)
Cash flows from financing
activities:
Proceeds from issuance of common
stock 8,137 5,777
Proceeds from issuance of debt 1,408,765 498,205
Treasury stock purchases (1,255) (9,608)
Dividends paid (44,201) (44,071)
Repayment of notes payable and
long-term obligations (807,150) (462,621)
Net cash (used in) provided
by financing activities 564,296 (12,318)
Effect of exchange rate changes on
cash 455 (13,221)
Increase (decrease) in cash and
marketable securities 15,853 (13,645)
Cash and marketable securities:
At beginning of period 105,050 108,792
At end of period 124,645 91,405
The accompanying notes are an integral part of these
financial statements.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have
been prepared in accordance with Form 10-Q instructions and in
the opinion of management contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position and the results of operations for the interim
periods presented. These results have been determined on the
basis of generally accepted accounting principles and practices
applied consistently with those used in the preparation of the
company's 1999 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that the accompanying consolidated financial
statements be read in conjunction with the financial statements
and notes thereto incorporated by reference in the company's
1999 Annual Report on Form 10-K.
2. Current Assets
Marketable securities of $32,420,000 ($39,349,000 at October 31,
1999) have maturities of three months or less and are valued at
cost, which approximates market.
Inventories included in the consolidated balance sheet
consist of the following:
April 30 October 31
In thousands 2000 1999
Raw materials 49,162 45,453
Production materials, stores
and supplies 81,795 66,191
Finished and in process goods 165,744 137,319
Total 296,701 248,963
If inventories had been valued at current cost, they would
have been $447,422 in 2000 (1999-$368,105).
3. Net Income Per Common Share
Basic earnings per share for all the periods presented have been
calculated using the weighted average shares outstanding. In
computing diluted earnings per share, incremental shares issuable
upon the assumed exercise of stock options have been added to the
weighted average shares outstanding. For the three months ended
April 30, 2000 and 1999, options of 2.1 million and 5.3 million
for the exercise of common stock, respectively, were not included
in the calculation of weighted average shares for diluted EPS
because their effects would have been antidilutive. For the six
months ended April 30, 2000 and 1999, antidilutive shares of 2.1
million and 4.6 million, respectively, were not included.
4. Segment Information
In 1997, the Financial Accounting Standards Board issued SFAS
No. 131, Disclosures about Segments of an Enterprise and
Related Information, which the company adopted at October 31,
1999. Adoption of this standard had no impact on our net
income. Previously reported segment information has been
restated to conform to the new standard.
Sales
(In millions) Inter- Operating Segment
Trade segment Total Profit Assets
Quarter ended
April 30, 2000
Packaging $493.8 $ 0.5 $494.3 $ 82.6 $2,902.6
Rigesa 42.1 42.1 4.6 283.4
Total Packaging 535.9 .5 536.4 87.2 3,186.0
total
Paper 281.5 6.2 287.7 35.4 1,394.5
Chemical 76.7 7.3 84.0 18.3 318.2
Corporate and other 10.6 10.4 21.0 (29.5) 892.7
Total 904.7 24.4 929.1 111.4 5,791.4
Intersegment
eliminations (24.4) (24.4)
Consolidated
totals $904.7 $ $904.7 $111.4 $5,791.4
Sales
(In millions) Inter- Operating Segment
Trade segment Total Profit Assets
Quarter ended
April 30, 1999
Packaging $331.2 $ 0.9 $332.1 $44.5 $2,156.3
Rigesa 30.3 30.3 6.9 259.8
Total Packaging 361.5 .9 362.4 51.4 2,416.1
Paper 239.1 2.6 241.7 5.7 1,483.3
Chemical 70.0 5.0 75.0 14.0 318.1
Corporate and other 8.9 10.1 19.0 (28.7) 755.2
Total 679.5 18.6 698.1 42.4 4,972.7
Intersegment
eliminations (18.6) (18.6)
Consolidated
totals $679.5 $ $679.5 $ 42.4 $4,972.7
Sales
(In millions) Inter- Operating
Trade segmentTotal Profit
Six months ended
April 30, 2000
Packaging $880.3 $ 1.7 $882.0 $140.4
Rigesa 79.3 79.3 10.1
Total Packaging 959.6 1.7 961.3 150.5
Paper 569.6 12.9 582.5 68.4
Chemical 152.4 13.0 165.4 31.0
Corporate an other 22.7 19.4 42.1 (58.8)
Total 1,704.3 47.0 1,751.3 191.1
Intersegment
eliminations (47.0) (47.0)
Consolidated
totals $1,704.3 $ $1,704.3 $191.1
Sales
(In millions) Inter- Operating
Trade segment Total Profit
Six months ended
April 30, 1999
Packaging $ 625.8 $ 2.0 $627.8 $77.0
Rigesa 69.8 69.8 10.6
Total Packaging 695.6 2.0 697.6 87.6
Paper 475.3 7.9 483.2 18.6
Chemical 139.3 9.1 148.4 25.3
Corporate and other 20.0 19.9 39.9 (49.0)
Total 1,330.2 38.9 1,369.1 82.5
Intersegment
eliminations (38.9) (38.9)
Consolidated
totals $1,330.2 $ $1,330.2 $82.5
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
5. Comprehensive Income
Comprehensive income reflects changes in equity that result
from transactions and economic events from non-owner
sources. Comprehensive income for the periods presented
below included foreign currency translation adjustments
associated with the company's Brazilian and Czech Republic
operations. There was no tax expense or tax benefit
associated with the foreign currency translation items.
(In thousands) Three Months ended Six Months Ended
April 30, April 30,
2000 1999 2000 1999
Net income $61,365 $27,295 $111,590 $52,517
Other comprehensive
income (loss):
Foreign currency
translation adjustments (1,608) 23,921 10,195 (71,971)
Comprehensive income (loss) $59,757 $51,216 $121,785 $(19,454)
6. Acquisitions/Dispositions
On December 29, 1999, the company completed its acquisition of
Temple-Inland's bleached paperboard mill in Evadale, TX
("Evadale"). The total purchase price, net of $82 million of debt
assumed, was $566 million. The company used existing cash
reserves, commercial paper and $400 million of debentures issued
on November 5, 1999 to fund the purchase.
On January 7, 2000, the company completed the purchase of Mebane
Packaging Group ("Mebane"), a leading supplier of packaging for
pharmaceutical products and personal care items, based in Mebane,
NC. The company used existing cash reserves and commercial paper
to fund the purchase.
The company accounted for these transactions using the purchase
method of accounting. Accordingly, the assets and liabilities
of the acquired businesses were included in the consolidated
balance sheet at April 30, 2000. The purchase price for these
acquisitions, including transaction costs, has been allocated to
assets acquired and liabilities assumed based on estimated
market values at the date of acquisition. The purchase price
allocation for these acquisitions is preliminary and further
refinements are likely to be made upon completion of final
valuation studies. Results for the second quarter of fiscal 2000
include a full three months of contributions from Evadale and
Mebane. The following pro forma consolidated results of
operations are presented as if the Evadale and Mebane
acquisitions had been made at the beginning of the periods
presented. The pro forma data for the first half of fiscal 2000
reflects 124 days and 115 days of Westvaco's operation of the
Evadale mill and Mebane plants, respectively. The balance of
the first half of fiscal 2000 and all of the prior year reflect
the results of operations under the management of the prior
owners.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
6. Acquisitions/Dispositions (cont'd)
(Pro forma-in thousands,
except per share) Three Months Ended Six Months Ended
April 30, April 30,
2000 1999 2000 1999
Net sales $904,658 $813,996 $1,789,514 $1,580,952
Income before 70,168 19,492 118,680 39,279
extraordinary items
Per share of
common stock:
Basic $0.70 $0.19 $1.18 $0.39
Diluted $0.70 $0.19 $1.18 $0.39
Net Income 61,365 19,492 109,877 39,279
Per share of
common stock:
Basic $0.61 $0.19 $1.09 $0.39
Diluted $0.61 $0.19 $1.09 $0.39
The pro forma consolidated results of operations include
adjustments to give effect to depreciation, amortization of
goodwill on a straight-line basis over 40 years and interest
expense on acquisition debt, together with related income tax
effects. The pro forma information is not necessarily indicative
of the results of operations that would have occurred had the
purchase been made at the beginning of the periods presented nor
is it necessarily indicative of the future results of the
combined operations.
During the fourth quarter of fiscal 1999, certain assets of the
company's liquid packaging plant were written down to reflect
the plant's planned shutdown. During the second quarter of
fiscal 2000, the liquid packaging plant was sold to Blue Ridge
Paper Products, Inc, resulting in a pretax gain of $11.2
million, which is included in Other income (expense).
7.Extraordinary Item
Earnings for the second quarter and six months of 2000 include
an extraordinary charge of $8.8 million, or $.09 per share from
the early retirement of high interest rate debt.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Company-wide initiatives implemented in connection with a
strategic review initiated last year, including the Evadale
and Mebane acquisitions, cost containment steps and success in
improving our market positions, have beneficially impacted
second quarter financial results. Sales in the second quarter
of 2000 ended April 30 totaled $904.7 million, 33.1% more than
the same period a year ago, and reflect an increase in volume
of 26.4 % and a 6.7% increase in price and product mix. Sales
for the first six months of 2000 totaled $1.7 billion, a 28.1%
increase compared to the first half of fiscal 1999, reflecting
a 24.2% increase in volume and a 3.9% increase in price and
product mix. Second quarter 2000 earnings were $.61 per share
(basic and diluted) compared to $.27 per share (basic and
diluted) for the 1999 period. Earnings for the first six
months of fiscal 2000 totaled $111.6 million, or $1.11 per
share (basic and diluted) up from the $52.5 million, or $.52
per share (basic and diluted), earned during the first half of
1999. Earnings for the second quarter and six months of 2000
include an extraordinary charge of $8.8 million, or $.09 per
share from the early retirement of high interest rate debt and
a gain of $11.2 million pretax, or $.07 per share from the
sale of liquid packaging assets. Earnings for the second
quarter of 1999 include $.03 per share from the recovery of
excess costs associated with the start-up of a power
cogeneration facility at our mill in Charleston, SC. Sales
and income for the second quarter of 2000 benefited from a
full three months of contributions by the acquisitions made in
the first quarter of a bleached paperboard mill in Evadale,
TX, and Mebane Packaging Group, as well as stronger business
conditions.
Export sales from the United States increased 16% compared to
the second quarter of 1999, and accounted for 17% of the
company's second quarter sales. Total sales outside of the
United States, including sales of our foreign operating
subsidiaries accounted for approximately 22% of consolidated
sales. Currently international demand has begun to improve
for the company's bleached board, as well as saturating kraft
paper used in decorative laminates. Gross profit margin for
the second quarter of 2000 was 23% compared with 19% for the
prior year period due principally to volume increases as well
as benefits of our cost reduction program. For the second
quarter and the six months ended April 30, 2000, operating
expenses also benefited from an increase in the non-cash
pension credits of $6.0 million and $13.9 million,
respectively, reflecting cumulative favorable investment
returns on pension plan assets.
Packaging
Sales for the packaging segment increased 48.0% compared to
the 1999 second quarter reflecting the effects of higher
shipment volume, product mix improvement and very strong
performance by the company's recently acquired bleached
paperboard mill in Evadale, TX; unit volume increased 41.2%
and price and product mix improved by 6.8%. Operating profit
for the packaging segment increased to $87.2 million from the
1999 second quarter profit of $51.4 million. Both the increase
in our operating profit and higher shipment volume reflect a
full three months of contributions by our bleached paperboard
mill in Evadale, TX, and Mebane Packaging Group as well as
stronger business conditions. We acquired Evadale in late
December and Mebane in early January. Promising trends in
packaging businesses include increased sales of unbleached
folding carton board and
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Packaging (cont'd)
higher shipments in Brazil in the second quarter than the
first quarter. Rigesa's operation accounted for approximately
5% of segment operating profit in the second quarter of 2000,
compared to approximately 13% for the 1999 comparable period; this
decrease is due to the writedown of underutilized assets.
During the first six months of 2000, approximately 20% of
packaging segment sales were made to the tobacco industry for
packaging tobacco products compared to approximately 27% for
the 1999 comparable period. Of these tobacco sales,
approximately 14% (1999-19%) of the segment sales were
exported or used to produce products for export with the
remaining 6% (1999-8%) made for the domestic tobacco industry
for sale in the United States. Increasingly competitive
conditions as well as 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 our 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.
Paper
Paper segment sales for the second quarter increased 19.1%
from the comparable 1999 period. This change reflects an
increase in unit volume of 9.7% and an increase in price and
product mix of 9.4%. Sales of coated printing papers
increased sharply in the second quarter compared to the same
period in 1999 as new products led to increased market share
and higher prices. Operating profit for the paper segment was
$35.4 million for the 2000 second quarter compared to $5.7
million for the 1999 period. Nearly all of the improvement
resulted from our coated papers business including price and
mix improvement, manufacturing efficiencies and higher
shipment volumes along with cost reductions.
Chemicals
Sales for the chemicals segment increased 12.1% from the 1999
second quarter. This change reflects an increase in volume of
9.5% and an increase in price and product mix of 2.6%.
Operating profit for the chemicals segment was $18.3 million
for the 2000 second quarter compared to $14.0 million for the
1999 period. This increase was due to strong U.S. demand for
activated carbon products used in automotive emission controls
and tall oil based ingredients for ink resins, coating, paper
sizing, adhesives and other products and cost savings
activities. We expect demand for activated carbon to increase
as auto manufacturers phase in emission control features for
trucks, including sport utility vehicles.
Corporate & other items:
During the fourth quarter of fiscal 1999, certain assets of the
company's liquid packaging plant were written down to reflect
the plant's planned shutdown. During the second quarter of
fiscal 2000, the liquid packaging plant was sold to Blue Ridge
Paper Products, Inc, resulting in a pretax gain of $11.2
million which is included in Other income (expense). Interest
expense has increased $14.6 million from the 1999 second
quarter due to the issuance of long-term debt in the first
quarter of 2000.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Acquisitions
On December 29, 1999, Westvaco completed its acquisition of
Temple-Inland Inc.'s bleached paperboard mill in Evadale,
Texas. The total purchase price, net of $82 million of debt
assumed, was $566 million, including working capital. The
transaction also included a long-term contract with Temple-
Inland for the supply of wood fiber to the mill. The
Evadale mill's annual production capacity of 670,000 tons
will increase Westvaco's total bleached paperboard
production capacity to 1.6 million tons. The Evadale mill
has been accretive to our earnings and cash flow since its
acquisition, reflecting the mill's significant progress in
improving productivity and product quality. These initial
results reinforce our earlier projection that the mill will
add at least $100 million a year to pretax earnings by 2002.
On January 7, 2000, Westvaco completed the acquisition of
Mebane Packaging Group, Inc., a leading supplier of
packaging for pharmaceutical products and personal care
items, based in Mebane, NC. Mebane has seven packaging
plants located in Greenville, MS, Garner and Mebane, NC,
Chatham and Kearny, NJ, Memphis, TN, and Caguas, Puerto
Rico. The integration of Mebane into Westvaco is proceeding
on schedule, and the acquisition is expected to be accretive
to the company's cash flow and earnings within two years.
This acquisition increases our presence in select packaging
markets particularly pharmaceutical, health care and
personal care. Our combined product development
capabilities and manufacturing base will enable us to gain
more business with existing and new customers.
On April 24, 2000, Westvaco announced it had signed a
definitive agreement to acquire IMPAC Group, Inc., a leading
global supplier of high-value specialty packaging and
printing solutions for a wide variety of consumer product
markets including entertainment, cosmetics and health and
beauty aids. The purchase price for IMPAC, which has
production facilities in the United States and Europe, is
approximately $500 million, including the assumption of $294
million in net debt and preferred stock. Westvaco intends to
refinance substantially all of IMPAC's debt and redeem all
preferred stock as soon as practicable after the acquisition
closes, which is expected to occur in July 2000.
Liquidity and Capital Resources
At April 30, 2000, the ratio of current assets to current
liabilities was 1.9 compared to 1.7 at October 31, 1999.
Cash flows from operations totaled $264.2 million for the
six months ended April 30, 2000, compared to $148.6 million
for the comparable 1999 period. Excluding acquisitions, new
investment in plant and timberlands totaled $78.1 million
for the first six months of 2000, compared to $129.9 million
for the same period of 1999. Cash payments for these
investments totaled $72.0 million compared to $125.5 million
in 1999. This planned lower level of capital spending
reflects our intent to maintain the level of capital
expenditures under depreciation levels over the next
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (cont'd)
few years and follows the completion of several important
initiatives that added significant support to our long-term
strategy. Current estimates indicate that 2000 capital
spending will total approximately $260 million, and will be
used to support our current production capacity levels. At
April 30, 2000, the amounts committed to complete all
authorized capital projects totaled approximately $155.3
million. The company may from time to time use outside
sources as needed to finance future capital investments, as
it has in the past.
The company maintains a $500 million revolving credit
agreement, and there was no borrowing under this arrangement
during the current period. The ratio of debt to total
capital employed was 42% at April 30, 2000, and 34% at
October 31, 1999. During the second quarter the company
repaid $270 million of higher coupon debt and some
commercial paper. Short-term borrowings amounting to $120
million, whose repayment terms can be extended under the
loan agreement and which are intended to be outstanding more
than one year, have been reclassified as long-term
obligations. In connection with the acquisitions of Temple-
Inland's bleached paperboard mill and the Mebane Packaging
Group discussed above, in November 1999 the company issued
$200 million of 6.85% five-year notes and $200 million of
7.10% ten-year notes, and in January 2000, the company
issued $400 million of 8.20% thirty-year notes to fund these
purchases, with the remainder to be added to the company's
general corporate funds and available for repayment of
existing debt, future capital outlays and working capital
purposes. In connection with the anticipated acquisition of
IMPAC Group, discussed above, on June 5, 2000, the company
issued $200 million of floating rate three-year notes, at
LIBOR plus .9% reset quarterly and $200 million of 8.40%
seven-year notes, to fund this purchase, with the remainder
to be added to the company's general corporate funds and
available for repayment of existing debt, future capital
outlays and working capital purposes.
Accounting changes: In 2001, the company is required to
adopt a new accounting standard issued by the Financial
Accounting Standards Board: Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. 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.
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 EPA regulations for the U.S. pulp and paper
industry regarding air and water quality. These regulations,
known as the Cluster Rule, were
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Environmental Matters (cont'd)
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 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
$11 million for remediation of these sites.
With regard to environmental matters, an additional matter
in which the company disputes any liability for fines and
the need to install additional pollution controls is
described hereafter under "Item 1. Legal Proceedings."
Forward-looking statements
Certain statements in this document and elsewhere by
management of the company that are neither reported
financial results nor other historical or present
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, demand and competitive pricing for the company's
products; developments in information technology as well as
other technological developments; the success of new
businesses
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-looking statements (cont'd)
and facilities acquired; ongoing cost reduction efforts;
changes in the availability and cost of raw materials and
energy; unanticipated manufacturing and distribution
disruptions; changes in production capacities; changes in
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.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
The company's financial market risk arises from fluctuations
in interest rates and foreign currency exchange rates. No
material changes occurred during the quarter to information
previously provided in the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, in April 1999, EPA, Region III,
issued Notices of Violation (NOV's) to seven paper industry
facilities, including the company's Luke, Maryland, 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 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
27. Financial data schedule
(b)Reports on Form 8-K:
A report on Form 8-K was filed on April 24, 2000,
and is incorporated herein by reference. The
contents of the report are summarized below:
Item 5. Other Events - News release dated April 24, 2000,
the Company announced that it signed a
definitive agreement to acquire IMPAC Group,
Inc.
Item 7. Financial Statements and Exhibits.
WESTVACO CORPORATION
and Consolidated Subsidiary Companies
(b)Reports on Form 8-K: (cont'd)
A report on Form 8-K was filed on May 25, 2000, and
is incorporated herein by reference. The contents
of the report are summarized below:
Item 5. Other Events - News release dated May 25, 2000, the
Company reported its second quarter 2000 sales
and earnings.
Item 7. Financial Statements and Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
WESTVACO CORPORATION
(Registrant)
June 12, 2000
Karen R. Osar
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
