EXHIBIT 13b
 

**Management's discussion and analysis of financialcondition and results of operations** 

***Analysis of operations***Fiscal year 2000 financial results benefited from improved marketsand from companywide initiatives taken following a comprehensive strategicreview completed in 1999. These initiatives include the acquisition ofa well-invested bleached paperboard mill in Evadale, TX, and the acquisitionsof Mebane Packaging Group (Mebane) and the IMPAC Group, Inc. (IMPAC), aswell as steps to reduce costs, improve product mix and strengthen our marketpositions. Sales for fiscal 2000 were $3.7 billion, a 30.7% increase comparedto 1999, and reflect an increase in volume of 24.9% and a 5.8% benefitfrom price and product mix improvement. Sales from acquisitions completedin 2000 represented two-thirds of the increase in sales. Net income in2000 was $245.9 million, or $2.44 per share, basic and diluted, an increaseof 121% from 1999 earnings of $111.2 million, or $1.11 per share, basicand diluted. Earnings for fiscal 2000 included a pretax restructuring chargeof $27.2 million, or $.18 per share, resulting primarily from a writedownof assets due to an expected decline in sales of folding cartons to domestictobacco markets, a pretax gain of $11.2 million, or $.07 per share, fromthe sale of a liquid packaging plant previously written down as part ofthe restructuring charge in 1999, an after-tax extraordinary charge of$8.8 million, or $.09 per share, from the early retirement of higher interestrate debt and a pretax gain of $3.6 million, or $.04 per share, from thesale of our interest in a joint venture in China (see "Notes to the FinancialStatements"). Earnings for 1999 included a pretax restructuring chargeof $80.5 million, or $.49 per share, basic and diluted, in connection witha business performance improvement plan and an income tax benefit of $15.0million, or $.15 per share, basic and diluted, related to a release ofdeferred taxes, as discussed below.
Export sales from the United States increased 17% compared to 1999 andaccounted for 16% of the company's consolidated sales. Total sales outsideof the United States, including sales of our foreign operating subsidiaries,accounted for approximately 22% of consolidated sales compared to 24% inthe prior year. Gross profit margin for the year improved to 23% from 20%in the prior year, due primarily to savings resulting from our 1999 restructuringand other cost reduction initiatives, partially offset by the impact ofa provision to reflect inventories at LIFO value. Fiscal year 2000 operatingresults also benefited from an increase in non-cash pension credits of$26.0 million, reflecting cumulative favorable investment returns on pensionplan assets. We anticipate that earnings in fiscal year 2001 will benefitfrom an increase in non-cash pension credits of $22 million to approximately$130 million before tax.
*Packaging segment:* Packaging segment sales increased by 46.8%from the prior year to $2.15 billion in 2000, reflecting the effects ofhigher shipment volume, product mix improvement and strong performanceby the company's recently acquired bleached paperboard mill in Evadale,TX; segment volume increased 43.0% and price and product mix improvementsincreased revenues by 3.8%. The increase in shipment volume reflects thecontributions by acquisitions including the Evadale, TX, mill, IMPAC andMebane. Fourth quarter shipments were well ahead of 1999 fourth quarterlevels, but demand softened in the fourth quarter relative to the secondand third quarters of 2000. To balance demand and production, we took downtimeat the Covington, VA, and Evadale, TX, mills of about 12,000 tons. Thecompany plans to take nearly 35,000 tons of downtime in the first quarterat the Covington and Evadale bleached paperboard mills to balance demandand production. Operating profit for the packaging segment for 2000 increasedby 84.4% to $351.2 million due to acquisitions, product mix improvements,reduced costs and stronger business conditions. Revenues and profits forRigesa, Ltda., our Brazilian subsidiary, showed strong improvement reflectingimproved economic conditions in Brazil and product mix enhancements. During2000, approximately 19% of packaging segment sales were made to the tobaccoindustry compared to about 26% for 1999. About 13% of segment sales werefor overseas tobacco markets with the remaining 6% for tobacco sales inthe United States. Increasingly competitive conditions as well as the currentlegal and regulatory pressures on the tobacco industry may have an adverseeffect on packaging segment profitability. While we expect to compensatefor such an adverse effect by continuing our growth in other consumer packagingmarkets, these alternatives may not, in the short run, fully offset anydecline in profitability related to sales to the tobacco industry.
*Paper segment:* Paper segment sales for the year of $1.17 billionincreased 13.3% from the prior year, due to improvements in price and productmix of 8.4% and volume gains of 4.9%. Sales of coated printing papers increasedsharply in 2000 compared to 1999, as new products and a focused sellingeffort led to an increase in market share and higher prices. Operatingprofit for the paper segment was $140.6 million for the year, comparedto $62.0 million for the prior year period. Coated papers accounted fornearly all of the improvement. Manufacturing efficiencies, higher prices,higher shipment volumes and cost reductions contributed to the improvement.
*Chemicals segment:* Chemicals segment sales for the year increased9.4% from 1999 to $344.2 million, due to favorable changes in price andproduct mix of 3.3% and volume gains of 6.1%. Operating profit for thechemicals segment was $64.5 million compared to $52.5 million in the prioryear. This increase reflects strong U.S. demand in a number of our markets.In the past year, we increased our market share for tall oil based ingredientsused for ink resins. Other markets for tall oil ingredients including papersize, and rubber emulsifiers were also strong in response to the strongeconomy and results were enhanced by cost savings. Asphalt emulsifier salesincreased sharply compared to the prior year period, due in part to theacquisition of the asphalt emulsion business of Raschig GmbH in 2000. Ouractivated carbon business benefited from record U.S. auto sales and strongglobal sales.
The above segment discussion does not take into account the restructuringcharges for 2000 and 1999 which are included in Corporate and other segmentinformation.
*Other items:* "Other income [expense]" increased from the prioryear due to increased gains on land sales, a gain on the sale of our interestin a folding carton plant in China and higher interest income from thetemporary investment of cash raised to finance acquisitions. Gains on landsales totaled $31.0 million before tax for 2000 compared to $23.0 millionpretax in 1999. We expect gains on land sales to be in the range of $35to $40 million before taxes in 2001. Interest expense increased by 56%for the year compared to the prior year, due to the issuance of long-termdebt in the first and third quarters of 2000 and increased commercial paperborrowings to support our acquisition activities. We expect interest expenseto be slightly higher in 2001 reflecting a full year of higher interestcosts related to acquisitions closed in 2000. The effective tax rate for2000 increased to 36.9% from 24.9% in the prior year, principally due tothe one-time 1999 release of deferred taxes and the effects of fiscal 2000goodwill amortization.
***Acquisitions***On December 29, 1999, Westvaco completed the acquisition of a bleachedpaperboard mill in Evadale, TX from Temple-Inland, Inc. The total purchaseprice was $648 million, including $82 million of debt assumed. The transactionalso included a long-term contract with Temple-Inland for the supply ofwood fiber to the mill. The Evadale mill's annual production capacity of670,000 tons increased Westvaco's total annual bleached paperboard productioncapacity to 1.6 million tons.
On January 7, 2000, Westvaco completed the acquisition of Mebane, aleading supplier of packaging for pharmaceutical products and personalcare items, based in Mebane, NC. Mebane has seven packaging plants locatedin the U.S. and Puerto Rico. This acquisition increased the company's presencein select packaging markets, particularly pharmaceutical, health care andpersonal care.
On July 11, 2000, Westvaco completed the acquisition of IMPAC, a leadingglobal supplier of high-value specialty packaging and printing solutionsfor a wide variety of consumer product markets including entertainment,cosmetics and personal care. The purchase price for IMPAC, which has 13plants in Europe and eight in the United States, was approximately $530million, including the assumption of $294 million in debt and preferredstock. Westvaco redeemed substantially all of the debt and all of the preferredstock shortly after closing. In the fourth quarter, Westvaco acquired threeadditional foreign plants which expanded our reach in the DVD, multimediaand music packaging markets.
All of the acquisitions completed during the current year were accountedfor using the purchase method. The operating results of the acquisitionshave been included in the "Consolidated Statements of Income" from thedates of acquisition. The accompanying "Consolidated Balance Sheets" asof October 31, 2000, reflects preliminary allocations of the purchase pricesof the current year's acquisitions to the fair value of the assets acquiredand liabilities assumed. Related goodwill of approximately $610 million,representing the excess of purchase price over fair value of net assetsacquired, is amortized on a straight-line basis over 40 years, which isthe expected period to be benefited.
On September 5, 2000, the company announced a definitive agreement toacquire a majority interest in Alfred Wall AG, a leading European supplierof consumer packaging based in Graz, Austria. Wall has six packaging plantsin Austria, Germany, Poland and the United Kingdom. The transaction isscheduled to close in 2001. The company expects that Wall's operationswill have a neutral effect on its earnings for about a year before becomingaccretive.
***Fiscal year 1999***Sales of $2.8 billion for fiscal 1999 were down 2.9% from 1998, theresult of a 4.3% decrease in price and product mix, partially offset bya 1.4% improvement in the volume of shipments. Net income in 1999 was $111.2million, or $1.11 per share, basic and diluted, a 15.8% decrease from 1998earnings of $132.0 million, or $1.30 per share, basic and diluted. Earningsfor the 1999 fiscal year included a pretax restructuring charge of $80.5million, or $.49 per share, basic and diluted, in connection with a businessperformance improvement plan and an income tax benefit of $15.0 million,or $.15 per share, basic and diluted, related to a release of deferredtaxes, both recorded in the fourth quarter. The restructuring charge included$76.0 million for the writedown of fixed assets. The income tax benefitresulted from a business reorganization which reduced the company's deferredstate income tax liability. Earnings for 1999 included an after-tax gainof $14.0 million, or $.14 per share, basic and diluted, from the sale ofnonstrategic timberlands.
Sales for the year were affected by weak pricing primarily due to globalovercapacity combined with a strong U.S. dollar. During the second halfof fiscal 1999, pressures from lower-priced imported coated printing papersbegan to ease as demand increased for papers used in catalogue and directmail applications. Late in the third quarter, the company announced a $60per ton price increase for coated web-offset paper products, as well asprice increases on other grades, including linerboard and bleached paperboard.Export sales from the United States increased compared to 1998 and accountedfor 18% of the company's consolidated sales. Total sales outside of theUnited States, including sales of foreign operating subsidiaries, accountedfor approximately 24% of consolidated sales compared to 25% in the prioryear. Gross profit margin for the year improved to 20% compared with 19%for the prior year, due mainly to cost improvement initiatives. Fiscalyear 1999 operating results also benefited from an increase in non-cashpension credits of $26.9 million, reflecting cumulative favorable investmentreturns on pension plan assets.
Packaging segment sales for 1999 decreased 6.8% from the prior yearto $1.46 billion in 1999, due to decreases in price and product mix of5.3% and volume of 1.5%. Markets for the company's paperboard productscontinue to be very competitive, and net sales realizations per ton werebelow 1998 levels. Operating profit for 1999 decreased 8.2% to $190.5 millionprimarily due to product pricing pressures which offset the company's progressin cost improvement initiatives. Rigesa accounted for 13% of 1999 packagingsegment 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% comparedto the year earlier period. During 1999, approximately 26% of packagingsegment sales were made to the tobacco industry for packaging tobacco productscompared to approximately 28% for 1998. Approximately 18% of segment saleswere exported or used to produce products for export with the remaining8% made for the domestic tobacco industry for sale in the United States.
Paper segment sales for the 1999 fiscal year of $1.03 billion increasedmarginally from the prior year, due to an increase in volume of 7.1% offsetby a decrease in price and product mix of 6.8%. Markets for the company'spaper products continued to be very competitive, resulting in net salesrealizations being substantially below 1998 levels. Paper shipments forthe fourth quarter of 1999 were up approximately 15% compared to the sameprior year period. Late in the third quarter, the company announced thefirst price increase since 1996 for coated paper products. Operating profitfor the paper segment for the year was $62.0 million, lower than the $84.8million reported for fiscal year 1998, due mainly to lower prices.
Chemicals segment sales for 1999 decreased by 5.3% from 1998 to $314.5million. Favorable changes in price and product mix of 3.3% were more thanoffset by a decrease in volume of 8.6%. Operating profit for the chemicalssegment was $52.5 million compared to $53.2 million in 1998.
"Other income [expense]" increased compared to 1998 due to an increasein gains on the sales of timberlands. Interest expense increased 12% forthe year compared to 1998, due to lower levels of capitalized interestand increased use of commercial paper. The effective tax rate for 1999decreased to 24.9% compared to 35.4% in the prior year, principally dueto the reduction in the deferred state income tax liability to reflecta lower effective state income rate, as described above.
***Liquidity and capital resources***At October 31, 2000, the ratio of current assets to current liabilitieswas 1.9 compared to 1.7 and 1.6 in 1999 and 1998, respectively. The twelve-monthaverage collection period for trade receivables was 34 days in 2000 and1999 and 35 days in 1998. Cash flows from operations were $583 millionfor 2000, compared to $413 million in 1999 and $407 million in 1998. Managementbelieves that the company's ability to generate cash from operations andits capacity to issue short-term and long-term debt are adequate to fundworking capital, capital spending and other needs in the foreseeable future.
New investment in plant and timberlands was $212 million for 2000, comparedto $232 million in 1999 and $420 million in 1998. Cash payments for theseinvestments totaled $214 million in 2000, $229 million in 1999 and $423million in 1998. As part of its program to improve return on investment,Westvaco plans to continue to hold annual capital spending below annualdepreciation and amortization levels over the next few years. At October31, 2000, the funds required to complete all authorized capital projectswere approximately $249 million. Capital expenditures for 2001 are expectedto be approximately $275 million, reflecting acquisitions and the postponementof capital projects that were expected to occur during fiscal year 2000.These expenditures will be used to support our current primary productioncapacity levels and address requirements of packaging facilities to satisfyanticipated customer needs.
The company maintains a $500 million revolving credit agreement, andthere was no borrowing under this arrangement during the current year period.The ratio of debt to total capital employed was 46% at October 31, 2000,and 34% for 1999 and 1998. Short-term borrowings amounting to $270 million,whose repayment terms can be extended under the loan agreement and whichare intended to be outstanding more than one year, have been classifiedas long-term debt. In November 1999, the company issued $200 million of6.85% five-year notes and $200 million of 7.10% ten-year notes, and inJanuary 2000, the company issued $400 million of 8.20% thirty-year notesin part to fund the purchases of the Evadale mill and Mebane PackagingGroup. The remainder was added to the company's general corporate fundsand available for repayment of existing debt, future capital outlays andworking capital purposes. In connection with the acquisition of IMPAC discussedabove, the company issued $200 million of floating rate three-year notes,at LIBOR plus 0.9% reset quarterly and $200 million of 8.40% seven-yearnotes on June 5, 2000. During 2000, 80,000 common shares were purchased,under a repurchase program approved by the Board of Directors in 1997,at a cost of $2.3 million and 514,633 shares were issued out of treasuryto satisfy stock option exercises.
*Environmental matters:*  In 1995, the company authorized the removal of elemental chlorine fromall of our pulp bleaching processes. This important initiative, completedduring 1997 at a cost of approximately $110 million, represented a majorstep by Westvaco in anticipating EPA regulations for the U.S. pulp andpaper industry regarding air and water quality. These regulations, knownas the Cluster Rule, were published in the Federal Register in April 1998.The company anticipates additional capital costs to comply with other partsof these new regulations over the next several years to be in the rangeof $100 million to $150 million which will also increase operating costsin the range of $3 million to $7 million annually. Environmental organizationsare challenging the Cluster Rule in the U.S. Court of Appeals. Westvacoand other companies are participating in that litigation. If the legalchallenge by environmental organizations to the regulations is successful,the company could face additional compliance costs of up to $150 millionover the next several years.
The company is currently named as a potentially responsible party withrespect to the cleanup of a number of hazardous waste sites under the ComprehensiveEnvironmental Response, Compensation, and Liability Act (CERCLA) and similarstate laws. While joint and several liability is authorized under CERCLA,as a practical matter, remediation costs will be allocated among the wastegenerators and others involved. The company has accrued approximately $5million for estimated potential cleanup costs based upon our close monitoringof ongoing activities and our past experience with these matters. In addition,the company is involved in the remediation of certain other than CERCLAsites and has accrued approximately $11 million for remediation of thesesites.
The company is involved in various legal proceedings and environmentalactions, generally arising in the normal course of its business. Althoughthe ultimate outcome of such matters cannot be predicted with certainty,the company does not believe that the outcome of any proceeding, lawsuitor claim that is pending or threatened, or all of them combined, will havea material adverse effect on its consolidated financial position, liquidityor long-term results of operations. In any given quarter or quarters, however,it is possible such proceedings or matters could have a material effecton results of operations. 
***Accounting changes***The company is required to adopt a new accounting standard issued bythe Financial Accounting Standards Board, Statement of Financial AccountingStandards No. 133*, Accounting for Derivative Instruments and HedgingActivities,* in fiscal year 2001. The company does not believe thatthe adoption of this statement will have a material effect on the company'sfinancial position or results of operations.In 1999, the Securities and Exchange Commission staff issued StaffAccounting Bulletin No. 101, (SAB 101) *Revenue Recognition in FinancialStatements*. SAB 101 clarifies the basic principles of revenue recognitionin generally accepted accounting principles. SAB 101 is required to beimplemented by our fourth quarter of fiscal year 2001. The company anticipatesno material effect on income from operations or financialposition from the adoption of SAB 101. In September 2000, the EmergingIssues Task Force reached a consensus on Issue No. 00-10 (EITF 00-10),*Accounting for Shipping and Handling Fees and Costs*. EITF 00-10implementation is consistent with the requirements of SAB 101. The companyintends to adopt EITF 00-10 in the fourth quarter of 2001 and reclassifyshipping and handling costs from sales to cost of goods sold. The reclassificationwill have no effect on income from operations or financial position. Forfurther 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 thecompany that are neither reported financial results nor other historicalor present information are forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995. Such informationincludes, without limitation, the business outlook, assessment of marketconditions, anticipated financial and operating results, strategies, futureplans, contingencies and contemplated transactions of the company. Suchforward-looking statements are not guarantees of future performance andare subject to known and unknown risks, uncertainties and other factorswhich 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-lookingstatements. In addition to any such risks, uncertainties and other factorsdiscussed elsewhere herein, risks, uncertainties and other factors thatcould cause or contribute to actual results differing materially from thoseexpressed in or implied by the forward-looking statements include, butare 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 and facilities acquired; ongoing cost reductionefforts; changes in the availability and cost of raw materials and energy;unanticipated manufacturing and distribution disruptions; changes in productioncapacities; changes in economic growth in the U.S. and international economies,especially in Asia, Europe and Brazil; stability of financial markets;governmental policies and regulations, including but not limited to thoseaffecting the environment and the tobacco industry; restrictions on trade;interest rates and currency movements.
We undertake no obligation to publicly update any forward-looking statement,whether as a result of new information, future events or otherwise. Youare advised, however, to consult any further disclosure we make on relatedsubjects in our 10-Q, 8-K and next 10-K reports filed with the SEC.      
***Fourth quarter results***Sales were $1.0 billion for the fourth quarter of 2000,compared to sales of $771.5 million for the fourth quarter of 1999. Inthe fourth quarter of 2000, the company recorded net income of $80.7 million,or $.80 per share, basic and diluted, compared to net income of $23.7 million,or $.24 per share, basic and diluted, for the prior year period.
Fiscal fourth quarter 2000 net income reflects a chargeof $.02 per share for completion of a restructuring plan begun in the thirdquarter 2000, bringing the total charge for the plan to $.18 per share.The restructuring charge resulted principally from a writedown of U.S.assets due to an expected decline in sales of folding cartons to domestictobacco markets. Fourth quarter 2000 results also reflect a gain of $.04cents per share from the sale of a minority interest in a packaging operationin China and the impact of a provision of $.06 to reflect inventories atLIFO value. In the fourth quarter of fiscal 1999, unusual items includeda credit of $.15 per share, for a release of deferred taxes and a chargeof $.49 per share for a restructuring plan. The restructuring plan in 1999involved a series of actions, principally non-cash reductions in book valueof assets, that enhanced the strength and focus of Westvaco's packaging-relatedbusinesses.
***Investor services plan***At year end, 15,160 shareholders, including members ofthe company's savings and investment plans for salaried and hourly employees,representing 15,622,448 shares of Westvaco common stock, were participantsin the company's Investor Services Plan.
***Number of shareholders***At year end, the number of individuals and institutionsowning Westvaco common shares was about 19,000. This number includes 12,400members of the company's salaried and hourly savings and investment plans.The plans, established in 1968 and 1995, respectively, hold 14,303,823shares of Westvaco common stock for the accounts of participants. Thisrepresents 14% of the 100,662,409 shares of common stock outstanding atyear end.
***Payroll and benefit costs***The total cost of payroll and benefits was $742 million,compared with $623 million in 1999. This includes $52.5 million in SocialSecurity taxes in 2000 and $44.7 million in 1999. Payroll and benefit costswere 20% of sales in 2000 and 22% in 1999.                   
**  **FINANCIAL STATEMENTS
   CONSOLIDATED STATEMENTS OF INCOME*In thousands, exceptper share*Year ended October31**2000****1999****1998**Sales      $3,662,991$2,801,849$2,885,917Other income, net[expense]            56,940     29,384     18,747        3,719,9312,831,2332,904,664Cost of products sold[excludes depreciation  shown separatelybelow]2,512,4861,969,5152,071,011Selling, researchand administrative expenses281,694230,963238,097Depreciation and amortization313,948280,470280,981Restructuring charges16,08678,771-Interest expense  192,145   123,538   110,1623,316,3592,683,2572,700,251Income before taxes403,572147,976204,413Income taxes  148,900   36,800   72,400Income before extraordinarycharge254,672   111,176     132,013Extraordinary charge- extinguishment of    debt, net of taxes of $5,500    (8,803)         -         -Net income$   245,869     $  111,176$   132,013=====================Net income per share- basic and diluted:Income before extraordinaryitem$ 2.53$1.11$1.30Extraordinary item     (.09)         -         -Net income$ 2.44$1.11$1.30=====================Shares used to computenet income per share:Basic100,578100,236101,311Diluted100,916100,495101,788
*The accompanying notes are an integral part of thesefinancial statements.*   
Westvaco Corporation and consolidated subsidiary companies
**FINANCIAL STATEMENTS** 
Consolidated balance sheets*In thousands* At October 31** 2000**** 1999**ASSETSCash and marketablesecurities$   225,308$   108,792Receivables421,707318,369Inventories333,284248,963Prepaid expenses andother current assets     83,378     61,884  Current assets   1,063,677 738,008Plant and timberlands:  Machinery5,673,4555,094,773  Buildings 794,114672,744  Other property,including plant land   248,761   226,977 6,716,3305,994,494  Less: accumulated depreciation 2,916,4022,779,199  3,799,9283,215,295  Timberlands-net    268,699266,386  Constructionin progress    127,956     99,702   4,196,5833,581,383Other assets  1,309,643   577,301 $6,569,903$4,896,692================LIABILITIES AND SHAREHOLDERS'EQUITYAccounts payable andaccrued expenses $   523,187$   361,959Notes payable andcurrent maturities of  long-term obligations 30,09850,200Income taxes     13,633     12,955  Current liabilities566,918425,114Long-term debt2,686,6741,426,854Other long-term obligations  75,97975,323Deferred income taxes907,739798,113Shareholders' equity:  Common stock,$5 par, at stated value    Shares authorized: 300,000,000    Shares issued: 103,170,667 [1999-103,170,667]767,552765,810  Retained income1,761,7641,607,504  Accumulatedother comprehensive income [loss][135,731][129,981]  Common stockin treasury, at cost    Shares held: 2,508,258 [1999-2,877,824]  [60,992] [72,045]2,332,5932,171,288$6,569,903$4,896,692================
* The accompanying notes are an integral part ofthese financial statements.*     
*             Westvaco Corporation and consolidated subsidiary companies*  
**FINANCIAL STATEMENTS**
Consolidated Statements of Shareholders'  Equity In thousands 
**Outstanding****shares** 
**Common****stock** **Common****stock in****treasury** 
**Retained****income****Accumulated****other****comprehensive****income [loss]** **Total****shareholders'****equity**Balance at October31, 1997101,930 $761,522 $[32,310]$1,549,356$           -  $2,278,568  Comprehensiveincome   Net income- - - 132,013- 132,013   Foreign currency translation- - - -  [32,167] [32,167]      Comprehensive income99,846  Cash dividends- - -  [89,300]-  [89,300]  Repurchasesof common stock [1,822]- [50,176]- -  [50,176]  Issuance      218    3,052       7,595      [3,137]        -       7,510Balance at October31, 1998100,326764,574 [74,891]1,588,932 [32,167]2,246,448  Comprehensiveincome   Net income- - - 111,176- 111,176   Foreign currency translation- - - -  [97,814] [97,814]      Comprehensive income13,362  Cash dividends- - -  [88,191]-  [88,191]  Repurchasesof common stock [499]-  [11,961]- -  [11,961]  Issuance      466    1,236 14,807      [4,413]          -      11,630Balance at October31, 1999100,293765,810[72,045]1,607,504 [129,981]2,171,288  Comprehensiveincome   Net income- - -     245,869-           245,869   Foreign currency translation- - - - [5,750][5,750]       Comprehensive income240,119  Cash dividends- - -      [88,494]- [88,494]  Repurchasesof common stock[145]- [4,441]- - [4,441]  Issuance      514     1,742    15,494      [3,115]         -      14,121Balance at October31, 2000100,662$767,552$[60,992]$1,761,764$[135,731]$2,332,593==============================================
*The accompanying notes are an integral part of thesefinancial statements.*      
Westvaco Corporation and consolidated subsidiary companies  
**FINANCIAL STATEMENTS**
Consolidated statements of cash flows*In thousands* Year ended October 31 **2000****1999****1998**CASH FLOWS FROM OPERATINGACTIVITIES:  Net income$     245,869$111,176$132,013  Adjustments to reconcilenet income  to net cash provided by operatingactivities:     Provision fordepreciation and amortization313,948280,470280,981    Provision fordeferred income taxes94,91432,28657,244    Restructuringcharges16,08680,500-    Pension creditand other employee benefits[92,858][78,658][50,869]    [Gains] losseson sales of plant and timberlands[26,822][17,891]894    Foreign currencytransaction [gains] losses9173,6012,506    Loss on extinguishmentof debt, net of taxes8,803--  Net changes in assets andliabilities25,305  [2,577][17,063]  Other, net     [3,017]     3,806    1,000      Netcash provided by operating activities583,145412,713406,706CASH FLOWS FROM INVESTINGACTIVITIES:  Additions to plant and timberlands[213,976][228,879][422,984]  Payments for acquisitions,net of cash acquired[1,342,858][22,659]-  Proceeds from sales of assets   81,63922,7816,905  Other, net        160   [1,135]         50      Netcash used in investing activities    [1,475,035][229,892][416,029]CASH FLOWS FROM FINANCINGACTIVITIES:  Proceeds from issuance ofcommon stock9,2669,1223,766  Proceeds from issuance ofdebt2,611,504881,518548,194  Dividends paid  [88,494][88,191][89,300]  Treasury stock purchases    [2,345][10,792][49,484]  Repayment of notes payableand long-term debt  [1,523,702][952,230][470,146]      Netcash provided by [used in] financing activities1,006,229[160,573][56,970]Effect of exchange rate changeson cash     2,177  [18,506]   [4,011]  Increase [decrease] in cashand marketable securities116,5163,742[70,304]Cash and marketable securities:  At beginning of period  108,792 105,050  175,354  At end of period$ 225,308$108,792$105,050======================== 
*The accompanying notes are an integral part of thesefinancial statements.* 
Westvaco Corporation and consolidated subsidiary companies
**Notes to financial statements**
**Summary of significant accounting policies***Basis of consolidation and preparation of financialstatements:* The consolidated financial statements include the accountsof all subsidiaries more than 50% owned. Investments in 20%- to 50%- ownedcompanies are accounted for using the equity method. Accordingly, the company'sshare of the earnings of these companies is included in consolidated netincome. In accordance with generally accepted accounting principles, thepreparation of financial statements requires management to make estimatesand assumptions that affect the reported amounts of some assets and liabilitiesand, in some instances, the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from these estimates.Certain prior years' amounts have been reclassified to conform with thecurrent year's presentation.
*Accounting standards changes:*  In June 1998, the Financial Accounting Standards Board(FASB) issued SFAS No. 133, *Accounting for Derivative Instruments andHedging Activities* which requires derivative instruments to be recordedin the balance sheet at their fair value, with changes in their fair valuebeing recognized in earnings unless specific hedge accounting criteriaare met. Given the current level of its derivative and hedging activities,the company believes the impact of this new standard, effective in fiscalyear 2001, will not be material.
In 1999, the Securities and Exchange Commission staffissued Staff Accounting Bulletin No. 101 (SAB 101), *Revenue Recognitionin Financial Statements*. SAB 101 clarifies the basic principles ofrevenue recognition in existing generally accepted accounting principles.SAB 101 is required to be implemented no later than the fourth quarterof fiscal years beginning after December 15, 1999. The company anticipatesno material effect on income from operations or financial position fromthe adoption of SAB 101.In September 2000, the Emerging Issues Task Force reacheda consensus on Issue No. 00-10 (EITF 00-10), *Accounting for Shippingand Handling Fees and Costs*. EITF 00-10 implementation is consistentwith the requirements of SAB 101. The company intends to adopt EITF 00-10in the fourth quarter of 2001 and reclassify shipping and handling costsfrom "Sales" to "Cost of products sold." The reclassification will haveno effect on income from operations or financial position.
*Environmental matters:*Environmental expendituresthat increase useful lives are capitalized, while other environmental expendituresare expensed. Liabilities are recorded when remedial efforts are probableand the costs can be reasonably estimated. The estimated closure costsfor existing landfills based on current environmental requirements andtechnologies are accrued over the expected useful lives of the landfills.
The company is currently named as a potentially responsibleparty with respect to the cleanup of a number of hazardous waste sitesunder the Comprehensive Environmental Response, Compensation, and LiabilityAct (CERCLA) and similar state laws. While joint and several liabilityis authorized under CERCLA, as a practical matter, remediation costs willbe allocated among the waste generators and others involved. The companyhas accrued approximately $5 million for estimated potential cleanup costsbased upon its close monitoring of ongoing activities and its past experiencewith these matters. In addition, the company is involved in the remediationof certain other than CERCLA sites and has accrued approximately $11 millionfor remediation of these sites.
*Translation of foreign currencies:*  Generally,the local currency is the functional currency for the company's operationsoutside the United States. The assets and liabilities of the company'sforeign subsidiaries are translated into U.S. dollars using period-endexchange rates and adjustments resulting from these financial statementtranslations are included in "Accumulated other comprehensive income [loss]"in the balance sheet. Revenues and expenses are translated at average ratesprevailing during the period.
*Marketable securities:* For financial statement purposes, highly liquidsecurities purchased three months or less from maturity are consideredto 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 certainraw materials, finished goods and certain production materials. Cost ofall other inventories is determined by the first-in, first-out (FIFO) oraverage cost method.
*Plant and timberlands:* Owned assets are recorded at cost. Also includedin the cost of these assets is interest on funds borrowed during the constructionperiod. When assets are sold, retired or disposed of, their cost and relatedaccumulated depreciation are removed from the accounts, and any resultinggain or loss is reflected in "Other income [expense]." Costs of renewalsand betterments of properties are capitalized; costs of maintenance andrepairs are charged to income. Costs of reforestation of timberlands arecapitalized.
*Depreciation and amortization:* The cost of plant and equipment isdepreciated, generally by the straight-line method, over the estimateduseful lives of the respective assets, which range from 20 to 40 yearsfor buildings and 5 to 30 years for machinery and equipment. The cost ofstanding timber is amortized as timber is cut, at rates determined annuallybased on the relationship of unamortized timber costs to the estimatedvolume of recoverable timber. The company periodically evaluates whethercurrent events or circumstances warrant adjustments to the carrying valueor estimated useful lives of its long-lived assets.
*Other assets:* Included in "Other assets" are goodwill, other intangiblesand prepaid pension costs. Goodwill represents the excess of the cost overthe fair value of net assets of purchased businesses and is being amortizedon a straight-line basis over periods not exceeding 40 years. The costof other acquired intangibles is amortized on a straight-line basis overtheir estimated useful lives. The company continually evaluates the carryingvalue of goodwill and other intangible assets. Any impairments are recognizedwhen the expected future operating cash flows derived from such intangibleassets is less than their carrying value. Goodwill included in "Other assets"was $606,220,000 at October 31, 2000 (1999-$5,063,000). Amortization expensecharged to operations for 2000 was $7,243,000 (1999-$30,000, 1998 -$0).
*Revenue recognition:* The company recognizes revenues at the pointof passage of title, which is at the time of shipment.
*Income taxes:* Deferred income taxes are recorded for temporary differencesbetween financial statement carrying amounts and the tax basis of assetsand liabilities. Deferred tax assets and liabilities reflect the enactedtax rates in effect for the years the differences are expected to reverse.
*Income per share:* Basic net income per share for all the periodspresented has been calculated using the weighted average shares outstanding.In computing diluted net income per share, incremental shares issuableupon the assumed exercise of stock options have been added to the weightedaverage shares outstanding. For the year ended October 31, 2000, stockoptions for shares of 3.9 million were not included because their effectwas antidilutive (1999-1.9 million, 1998-4.4 million). 
**A. Acquisitions**In December 1999, the company completed its acquisition of Temple-Inland'sbleached paperboard mill in Evadale, TX (Evadale). The total purchase price,net of $82 million of debt assumed, was $566 million. The company usedexisting cash reserves, commercial paper and $400 million of debenturesissued in November 1999 to fund the purchase.
In January 2000, the company completed the purchase of Mebane PackagingGroup (Mebane), a leading supplier of packaging for pharmaceutical productsand personal care items, based in Mebane, NC. The company used existingcash reserves, commercial paper and a portion of the $400 million of debenturesissued in January 2000 to fund the purchase.
In July 2000, the company completed its acquisition of IMPAC Group,Inc. (IMPAC), a leading global supplier of packaging for entertainmentproducts, cosmetics and health and beauty aids with 13 plants in Europeand eight plants in the United States. The company used existing cash reserves,commercial paper and $400 million of notes issued in June 2000 to fundthe purchase.
Also, in July 2000, Rigesa, Ltda. (Rigesa), Westvaco's Braziliansubsidiary, acquired all of the assets of Agaprint Embalagens, a leadingsupplier of consumer packaging in Brazil. In August 2000, IMPAC EuropeLimited, a Westvaco subsidiary, acquired the privately held DuBOIS HoldingsLimited, global licenser and European manufacturer of the DVD-Safetm;(or Amaray®) DVD pack, the world's top-selling DVD package. In October2000, IMPAC Europe acquired Sony Music Printing (Holland) BV. Sony MusicPrinting is located adjacent to Sony's CD/DVD distribution center in Haarlem,The Netherlands, and produces printed booklets, folders and inlay cardsfor Sony as well as multimedia products sold to Sony and other companiesthroughout Europe.
The company accounted for all of these transactions using the purchasemethod of accounting. Accordingly, the assets and liabilities of the acquiredbusinesses are included in the "Consolidated Balance Sheets" at October31, 2000. The purchase price for these acquisitions, including transactioncosts, has been allocated to assets acquired and liabilities assumed basedon estimated market values at the date of acquisition. The purchase priceallocation for these acquisitions is preliminary and further refinementsare likely to be made upon completion of final valuation studies. Relatedgoodwill of approximately $610 million, which represents the excess ofpurchase price over fair value of net tangible and intangible assets acquired,is amortized on a straight-line basis over 40 years, which is the expectedperiod to be benefited. Goodwill has been recorded in the "Other assets"on the balance sheet. 
 The following unaudited pro forma consolidated resultsof operations are presented as if the Evadale mill, Mebane and IMPAC acquisitionshad been made at the beginning of the periods presented.  The following unaudited pro forma data for the fiscal year 2000 reflects308 days, 299 days and 113 days of Westvaco's operation of the Evadalemill, Mebane and IMPAC, respectively. The balance of the fiscal year 2000and all of the prior year reflect the results of these operations underthe management of the prior owners. The unaudited pro forma amounts ofthe other fiscal year 2000 acquisitions are not included as their effectis not material to the company's financial position or results of operations.  Pro forma in thousands,Except per share [unaudited]20001999Net sales $3,985,558$3,634,767Income before extraordinaryitems   235,395     75,487   Per shareof common stock:Basic$2.34$.75Diluted2.33.75Net income$   226,592$     75,487   Per shareof common stock:Basic$2.25$.75Diluted2.25.75
The pro forma consolidated results of operations includeadjustments to give effect to depreciation, amortization of goodwill ona straight-line basis over 40 years and interest expense on acquisitiondebt, together with related income tax effects. The pro forma informationis not necessarily indicative of the results of operations that would haveoccurred had the purchases been made at the beginning of the periods presented,nor is it necessarily indicative of the future results of the combinedoperations. 
**B**. **Provisions for restructuring**During the third quarter of 2000, due to an expected decline insales of folding cartons to U.S. tobacco markets, the company reviewedcertain long-lived assets in its consumer packaging business for impairment.As a result of the review, production facilities were written down to theirfair value using an assets-held-for-use model and a pretax impairment chargeof $24.3 million, including $3.3 million of associated goodwill, was recordedin the third quarter of 2000 in "Restructuring charges" in the "ConsolidatedStatement of Income." The impairment was recorded because undiscountedcash flows were less than the carrying value of the assets prior to theimpairment charge. During the fourth quarter of 2000, the company recordedan additional pretax charge of $2.9 million due to the adjustment of theearlier charge and related employee costs. During the second quarter offiscal 2000, the liquid packaging plant was sold, resulting in a pretaxgain of $11.2 million, which is included in the "Restructuring charges."As noted below, the liquid packaging plant was written down in fiscal 1999in connection with the restructuring charge recorded in the fourth quarter.The gain resulted from a change in facts and circumstances existing duringthe fourth quarter of fiscal 1999.
During the fourth quarter of 1999, following completion of its strategicreview process, the company adopted a plan to improve the company's performance,principally to enhance the strength and focus of its packaging-relatedbusinesses. Additionally, the company reviewed certain long-lived assetsin its business for impairment. As a result of these initiatives, a pretaxcharge of $80.5 million was recorded in the fourth quarter of 1999. Includedin this charge are certain assets of the company's liquid packaging plantthat were written down to reflect the plant's planned shutdown. This chargewas primarily due to the writedown of impaired long-lived assets, involuntaryemployee termination and other exit costs.  Production facilitieswere written down to their fair value using an assets-held-for-use model.An impairment of $67.4 million was recorded as undiscounted cash flowswere less than the carrying value of the assets prior to the impairment.Further, the company wrote off a paper machine and certain equipment witha total carrying value of $8.6 million and abandoned the assets.
During the fourth quarter of fiscal 1999, in addition to the assetimpairments described above, the company also recognized inventory writedownsof $1.7 million, which have been included within the "Cost of productssold," employee termination costs of $1.5 million and other exit costsof $1.2 million. Such reserves at October 31, 2000 for these activitieswere substantially utilized. 
**C. Other income (expense)**Components of other income (expense) are as follows: In thousands    2000     1999     1998Gains [losses] on salesof plant, equipment  And timberlands$26,822$17,891 $    [894]Interest income  28,41715,11518,010Foreign currency transaction gains[losses][917][3,601][2,506]Other, net    2,618        [21]    4,137 $56,940  $29,384 $18,747
**D**. **Research and development**Expenditures of $49,527,000 (1999-$47,321,000, 1998-$45,139,000)were expensed as incurred.
**E. Income taxes**Income before provision for income taxes consistedof: In thousands      2000      1999      1998Domestic$354,387$113,350 $157,075 Foreign    49,185    34,626    47,338$403,572$147,976 $204,413 
The provision for income taxes is composed of: In thousands     2000      1999     1998Current:  Federal$38,112$   4,430 $  9,254   State7,622[4,634][3,243]  Foreign    8,252     4,718    9,145  53,986     4,514  15,156Deferred:  Federal85,75043,25445,871  State7,923[15,366]11,792  Foreign      1,241     4,398    [419]    94,914   32,286  57,244$148,900$ 36,800 $72,400   
The net deferred income tax liability at October 31, 2000and 1999 includes the following components: In thousands         2000      1999Current deferred taxassets: Employee benefits$     19,321$  15,397  Other    38,078  28,089    57,399  43,486Noncurrent deferredtax assets: Alternativeminimum tax carryforward  111,983143,802Noncurrent deferredtax liabilities: Depreciation686,517654,604 Pension andother employee benefits 199,421161,512 State and localtaxes98,13391,662 Other     35,651    34,1371,019,722941,915 Total net deferredtax liability$  850,340$754,627 ================
The differences (expressed as a percentage of pretax income)between the U.S. statutory federal income tax rate and the effective incometax rate as reflected in the accompanying "Consolidated Statements of Income"are: 200019991998Statutory federalincome tax rate 35.0%35.0%35.0%State and local taxes2.5 [8.8]2.7Foreign income atother than U.S. rates[1.7] [1.3][2.6]Other, net1.1        -   0.3Effective tax rate36.9%24.9%35.4% 
At October 31, 2000, for tax purposes, the company hadavailable $112 million of alternative minimum tax credit carryforwards,which do not expire under current laws. At October 31, 2000, the companyhad available $5.3 million of foreign tax credit carryforwards, which,if unused, will expire in fiscal years 2001 to 2005. The increase in thecompany's fiscal 2000 income tax expense compared to fiscal 1999 is primarilyattributable to a one-time $15 million reduction in the state deferredtax liability, resulting from a business reorganization completed duringfiscal 1999. The reorganization lowered the state tax rates at which certaintemporary differences, principally depreciation, are expected to reverse.
Provision has not been made for income taxes which wouldbecome payable upon remittance of $189 million of the October 31, 2000undistributed earnings of certain foreign subsidiaries representing thatportion of such earnings which the company considers to have been indefinitelyreinvested in the subsidiaries, principally in Brazil. Computation of thepotential deferred tax liability associated with these undistributed earningsis not practicable. Current deferred taxes of $57,399,000 (1999-$43,486,000)are included in "Prepaid expenses and other current assets."
**F.****Current assets**Marketable securities of $22,032,000 (1999-$39,349,000)are valued at cost, which approximates market value. Receivables include$15,915,000 from sources other than trade (1999-$12,438,000), and havebeen reduced by allowances for discounts and doubtful accounts of $17,615,000(1999-$12,828,000). Inventories at October 31 are composed of: In thousands       2000       1999Raw materials$  73,064$  45,453 Production materials, stores andsupplies78,82466,191Finished and in process goods  181,396  137,319$333,284$248,963 ==============
If inventories had been valued at current cost, they wouldhave been $469,456,000 in 2000 (1999-$368,105,000) Inventories valuedon the LIFO basis were $202,419,000 in 2000. (1999-$157,036,000).
**G. Interest capitalization**In 2000, $197,671,000 of interest cost was incurred (1999-$132,428,000,1998-$130,914,000) of which $5,526,000 was capitalized (1999-$8,890,000,1998-$20,752,000).
**H. Accounts payable and accrued expenses**Accounts payable and accrued expenses at October 31:  In thousands        2000       1999 Accounts payable:     Trade$156,398$118,413    Other34,91418,812 Accrued expenses:     Taxes, other than income25,51818,989   Interest52,82432,927   Payroll and employee benefit costs118,19885,179   Other  135,335    87,639 $523,187$361,959  ==============
**I. Cash flows**Changes in assets and liabilities are as follows:In thousands         2000         1999      1998[Increase] decrease in:Receivables$ [15,594]$ [41,054]$ 12,765 Inventories[788]24,545[17,249]Prepaid expenses and other current assets1,898[1,148][5,905]Increase [decrease] in:Accounts payable and accrued expenses38,96024,766[5,597]Income taxes payable         829    [9,686]     [1,077]$   25,305$  [2,577]$ [17,063]=====================Reconciliation of capital expenditureson a cash basis:In thousands       2000       1999       1998New investment in plant and timberlands$212,263 $232,292 $419,705Less:  debt assumed[260][158]    [4]         net change in related current liabilities      1,973    [3,255]      3,283Cash additions to plant and timberlands$213,976 $228,879 $422,984===================== Cash payments for interest, excluding amounts capitalized,were $167,145,000 in 2000 (1999-$112,066,000, 1998-$108,082,000). Cashpayments for income taxes were $40,203,000 in 2000 (1999-$12,108,000, 1998-$13,744,000). Dividends paid per share were $.88 for 2000, 1999 and 1998.
**J.****Leasing activities and other commitments**The company leases a variety of assets for use in itsoperations. Leases for administrative offices, converting plants and storagefacilities generally contain options which allow the company to extendlease terms for periods up to 25 years, or to purchase the properties.Certain leases provide for escalation of the lease payments as maintenancecosts and taxes increase.
The company has no significant capital lease liabilities.Minimum rental payments under operating leases that have noncancellablelease terms in excess of 12 months are as follows:In thousandsOperating leases2001$      35,5342002       31,9342003       24,236 2004       19,1632005       15,927Later years       65,000Minimum lease payments$    191,794 ========= 
Rental expense under operating leases was $48,411,000in 2000 (1999-$38,412,000, 1998-$40,179,000).  At October 31, 2000,commitments required to complete currently authorized capital projectsare approximately $249 million.                        
**K. Long-term debt**Long-term debt, less installments due within one year,are summarized below:   In thousands20001999Notes:  6.85%, due 2004$   200,000$             -7.10%, due 2009200,000-8.40%, due 2007200,000-Floating rate, due 2003200,000-Debentures:  8.20%, due 2030400,000-9.65%, due 2002100,000100,0009 3/4%, due 2020100,000100,000Sinking Fund Debentures:  7%, due 2004-2023150,000150,0007 1/2%, due 2008-2027150,000150,0007.65%, due 2008-2027150,000150,0007.75%, due 2004-2023150,000150,0008 1/8%, due 2001-200712,40017,1008.30%, due 2003-2022125,000  125,00010 1/8%, due 2000-2019-95,00010 1/4%, due 2000-2018-80,00010.30%, due 2000-2019-95,000Pollution Control Revenue Bonds:  5.85-6.65%, due 2004-201826,62026,6205 7/8-5.9%, due 2001-20034,8756,7405 7/8-6.2%, due 2001-200710,93011,4805.9-6.2%, due 2004-20085,9005,9006 3/8%, due 20265,7405,7407 1/8%, due 2001-2,0008 1/4%, due 2001-20103,8903,9959 1/8-9.6%, due 2006-201510,10010,10010 1/2%, due 20041,5001,500Industrial Revenue Bonds:     7-7.67%, due 2001-202794,14594,530   Floating rate, due2001-201444,383-Economic Development Bonds:     8 3/4%, due 2001-20104,0804,190Notes payable and other     337,111      41,959 $2,686,674 $1,426,854  ================ Outstanding noncurrent debt maturing in the next fiveyears are (in millions); 2001-$30.1; 2002-$295.3; 2003-$331.9; 2004-$241.9;2005-$40.6.
The company has a revolving credit agreement for $500million which expires November 16, 2005. Borrowings under the agreementmay be in unsecured domestic or Eurodollar notes and may be at rates approximatingprime or the London Interbank Offered Rate (LIBOR), at the company's option.There is a nominal commitment fee on the unused funds. These facilitiesare used to support commercial paper borrowings. The revolving credit agreementcontains financial covenants relating to the ratio of total debt to totalcapitalization. There were no borrowings under this facility during 2000or 1999. Included in "Notes payable and other" in the prior table are short-termborrowings amounting to $270 million, which have been classified as long-termobligations. These borrowings have repayment terms that can be extendedunder the loan agreement and are intended to be outstanding more than oneyear.
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 January2000, the company issued $400 million of 8.20% thirty-year notes in partto fund the purchases of the Evadale mill and Mebane Packaging Group. Inconnection with the acquisition of IMPAC Group, the company issued $200million of floating rate three-year notes, at LIBOR plus 0.9% reset quarterlyand $200 million of 8.40% seven-year notes on June 5, 2000. During thesecond quarter of fiscal 2000, the company recorded an extraordinary chargeof $8.8 million after tax, or $.09 per share, from the early retirementof $270 million of higher interest rate debt.
At October 31, 2000, the book value of financial instrumentsincluded in long-term debt was $2,716,772,000 (1999-$1,477,162,000), andthe fair value was estimated to be $2,627,696,000 (1999-$1,495,290,000).The company has estimated the fair value of financial instruments basedupon quoted market prices for the same or similar issues or on the currentinterest rates available to the company for debt of similar terms and maturities. 
**L. Shareholders' equity**During 2000, the company repurchased 80,000 shares (1999-460,000,1998-1,800,000) of company stock under a repurchase program authorizedin 1997 by the Board of Directors. The program was initiated to satisfyissuances under the company's stock option plans. There were no purchasesin 1998, 1999 or 2000 under the stock repurchase program authorized in1987 by the Board of Directors.
At October 31, 2000, there were 44,170 shares of nonvoting$100 par value cumulative preferred stock authorized and 10 million sharesof preferred stock without par value authorized and available for issue.
Pursuant to a Rights Agreement approved by the company'sBoard of Directors in 1997, in the event a person or group were to acquirea 15% or greater position in Westvaco, each right would entitle its holder(other than the acquiror) to buy that number of shares of common stockof Westvaco which, at the time of the 15% acquisition, had a market valueof two times the exercise price of the rights. If, after the rights havebeen triggered, an acquiring company were to merge or otherwise combinewith Westvaco, or Westvaco were to sell 50% or more of its assets or earningpower, each right would entitle its holder (other than the acquiror) tobuy 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 timesthe exercise price of the rights. The rights have no effect on earningsper share until they become exercisable. The rights expire in December2007.
**M. Stock option plans**At October 31, 2000, the company had five stock optionplans. The 1983 and 1988 Stock Option and Stock Appreciation Rights Plans,1995 Salaried Employee Stock Incentive Plan and the 1999 Salaried EmployeeStock 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 appreciationrights to key employees. The 1995 Non-Employee Director Stock IncentivePlan provides for the granting of up to 112,500 stock options and stockappreciation rights to outside directors. For the employee plans, stockoptions may be granted with or without stock appreciation rights and aregranted at market value. They are exercisable after a period of six monthsto 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 withoutlimited stock appreciation rights, which are exercisable upon the occurrenceof certain events related to changes in corporate control. In 1999, nearlyall outstanding limited stock appreciation rights, which had previouslybeen granted to employees were cancelled or surrendered. Subject to limitedexceptions, no new grants for stock appreciation rights were awarded during2000.
The company applies APB Opinion No. 25,*Accountingfor Stock Issued to Employees*, in accounting for its plans and, accordingly,no compensation cost has been recognized. If compensation cost for thecompany's stock options had been determined based on the fair value methodof SFAS 123, *Accounting for Stock-Based Compensation,*the company'snet income and net income per share would have been reduced to the unauditedpro forma amounts as follows:  In thousands, exceptper shareNet income       2000       1999       1998  As reported$245,869$111,176 $132,013   Pro forma240,774107,924127,470Income per share - basic  As reported$2.44$1.11 $1.30   Pro forma2.391.081.26Income per share - diluted  As reported$2.44$1.11 $1.30   Pro forma2.391.071.25
In determining the fair value of options for pro formapurposes, the company used the Black-Scholes option pricing model and assumedthe following for options granted in 2000, 1999 and 1998, respectively:risk-free interest rate of 6.13%, 4.72% and 5.80%; dividend yield of 2.87%,3.05% and 2.71%; an expected option life of six years for each year; andan expected volatility of 22%, 20% and 20% for each year. The weightedaverage fair values of the options granted during 2000, 1999 and 1998 were$7.65, $5.34 and $7.61 per share, respectively. The following table summarizesactivity in the plans for 2000, 1999 and 1998:Weighted average    Options      exercisepriceOutstanding at October 31, 19974,376,212$24.84      Granted                 981,78032.53     Exercised               [218,159]20.44     Cancelled                      [992]18.75Outstanding at October 31, 1998              5,138,84126.49     Granted1,001,65528.78     Exercised               [466,169]22.31     Cancelled                 [19,527]26.71Outstanding at October 31, 19995,654,80027.24     Granted         1,079,45530.63     Exercised           [514,611]24.48     Cancelled               [9,087]27.33Outstanding at October 31, 2000         6,210,55728.08========The following table shows various information aboutstock options outstanding at October 31, 2000: Range of exercise prices$18.29 -$25.06 -Over   $24.25     $27.50     $27.50      Total Number outstanding 799,7502,406,967 3,003,8406,210,557 Weighted averageprice $23.31$26.41$30.68 $28.08 Weighted averageremaining life (in years)2.045.318.106.24 Number exercisable 799,7502,406,9671,937,8855,144,602 Weighted averageprice$23.31$26.41$30.71$27.55 
There were 4,417,999 shares available for grant as ofOctober 31, 2000 (1999-5,488,367, 1998-1,470,495). At October 31, 2000,595,171 outstanding options had related limited stock appreciation rights.
**N. Employee retirement, postretirement and postemploymentbenefits**
**Pension and retirement plans**The company provides retirement benefits for substantiallyall domestic employees under several noncontributory trusteed plans andalso provides benefits to employees whose retirement benefits exceed maximumamounts permitted by current tax law under an unfunded benefit plan. Benefitsare based on a final average pay formula for the salaried plans and a unitbenefit formula for the hourly paid plans. Prior service costs are amortizedon a straight-line basis over the average remaining service period foractive employees. Contributions are made to the funded plans in accordancewith ERISA requirements.  Plan assets are comprised mainly of listedstocks, including $68,491,000 of company stock, money market and fixedincome investments.
The 2000 net pension credit relating to employee pensionand retirement benefits was $108,247,000 (1999-$82,280,000, 1998-$55,337,000).The net pension credits reflect cumulative favorable investment returnson plan assets. The components of the net pension credit for 2000, 1999and 1998 are as follows:In thousands        2000        1999        1998Service cost-benefits earned duringthe period$    28,638$   28,966    $   26,934 Interest cost on projected benefitobligation74,19971,714  71,293Expected return on plan assets [187,501] [171,223] [148,042]Net transition asset [6,940] [6,940]   [6,940]Amortization of prior service cost5,4985,473    5,312Net gain     [22,141]   [10,270]    [3,894]Net pension credit$ [108,247]  $ [82,280]$ [55,337]  
**Postretirement benefits**The company provides life insurance for substantiallyall retirees and medical benefits to certain retirees in the form of costsubsidies until medicare eligibility is reached and to certain other retirees,medical benefits up to a maximum lifetime amount. None of these benefitsis funded. The components of net periodic postretirement benefits costfor the fiscal years ended October 31, 2000, 1999 and 1998 are as follows: 
**Postretirement benefits**The company provides life insurance for substantiallyall retirees and medical benefits to certain retirees in the form of costsubsidies until medicare eligibility is reached and to certain other retirees,medical benefits up to a maximum lifetime amount. None of these benefitsis funded. The components of net periodic postretirement benefits costfor the fiscal years ended October 31, 2000, 1999 and 1998 are as follows: In thousands  2000   1999   1998Service cost-benefits earned duringthe period$1,300 $1,200 $1,400 Interest cost 1,300 1,200 1,500 Net amortization  [900] [1,100]  [800] Net periodic postretirement benefitscost$1,700 $1,300 $2,100 
The changes in the consolidated prepaid pension assetfor defined benefit plans and the accrued postretirement benefit obligationare shown on the next page. The net prepaid pension cost, from the followingtable, is included in "Other assets," except for an obligation of $25.7million for an unfunded excess benefit plan which is recorded as a long-termliability.
The following table sets forth the funded status of theplans and amounts recognized in the "Consolidated Balance Sheets" at October31, based on a valuation date of July 31: In thousandsPension and retirement benefitsPostretirement benefits        2000         1999     2000      1999Change in benefitobligationBenefit obligation at beginning of year$1,123,389$1,084,468$19,900$ 23,200Service cost28,63828,9661,3001,200Interest cost74,19971,7141,3001,200Actuarial gain [loss] 718[13,833][500][2,800]Plan amendments20,631380--Acquisitions9,662---Termination benefits-1,491--Benefits paid    [53,078]    [49,797]  [2,400]  [2,900]Benefit obligation at end of year$1,204,159$1,123,389$19,600$19,900============================Change in plan assetsFair value of plan assets at beginning of year $2,614,295 $2,337,713 $       - $       -Actual return on plan assets179,787324,716--Company contributions1,9051,6632,400   2,900Acquisitions10,804---Benefits paid    [53,078]     [49,797]  [2,400] [2,900]Fair value of plan assets at end of year$2,753,713$2,614,295$       -$     - ============================     Funded status of theplans$1,549,554$1,490,906$[19,600]$[19,900]Unrecognized net actuarial gain[986,706][1,017,279][6,800][7,100]Unrecognized prior service cost [credit]62,15147,018-[100]Unrecognized net transition obligation      [9,026]    [15,966]         -         -Net prepaid [accrued] benefit cost included in the consolidatedbalance sheet $   615,973 $   504,679 $[26,400] $[27,100]============================Prepaid benefit cost$   641,665$   528,770$            -$           -Accrued benefit liability     [25,692]     [24,091]  [26,400]  [27,100]Total recognized$   615,973$   504,679$[26,400]$[27,100]============================The assumptions used in the measurementof the company's benefit obligations are as follows: 200019991998Pension and retirementbenefits  Discount rate6.75%6.75%6.75%  Expected returnon plan assets8.75%8.75%9.50%  Rate of compensationincrease5.00%5.00%5.00%Postretirement benefits  Discount rate6.75%6.75%6.75%  Rate of compensationincrease5.00%5.00%5.00%
The annual rate of increase in health care costs was assumedat 7% for 1999, 6% for 2000 and 5% thereafter. The effect of a 1% increasein the assumed health care cost trend rate would increase the July 31,2000 accumulated postretirement benefit obligation by $284,000 and thenet postretirement benefits cost for 2000 by $76,000. The effect of a 1%decrease in the assumed health care cost trend rate would decrease theJuly 31, 2000 accumulated postretirement benefit obligation by $248,000and the net postretirement benefits cost for 2000 by $68,000.
The company also has defined contribution plans that coversubstantially all U.S. employees. Expense for company matching contributionsunder these plans was approximately $24.6 million in 2000 and $18.0 millionin 1999 and 1998.
**Postemployment benefits**The company provides limited postemployment benefitsto former or inactive employees, including short-term disability, workers'compensation and severance. 
**O. Legal and environmental matters**The company is involved in various legal proceedingsand environmental actions, generally arising in the normal course of itsbusiness. Although the ultimate outcome of such matters cannot be predictedwith 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 materialeffect on results of operations.
**P. Business segment information**Westvaco is a leading manufacturer of packaging, paperand chemicals serving both U.S. and international markets. The company'soperating divisions have been classified into reportable segments basedupon the nature of their products and services within these three majorproduct categories, with separate disclosure of Rigesa, Ltda., our whollyowned Brazilian packaging subsidiary. Following is a description of ourreportable business segments:
The packaging segment manufactures, markets and distributesbleached paperboard, kraft paper and board, and premium packaging for consumerproducts markets. These products are manufactured at three domestic millsand two mills located in Brazil; paper and board are converted into packagingproducts at plants located in the United States, Brazil and Europe. Theseproducts are sold primarily in the United States with additional marketslocated in Brazil, Europe, Asia and the Pacific Rim. In Brazil, Rigesais a major producer of paperboard and corrugated packaging for the marketsof that country. Operating results for Rigesa are subject to the economicconditions in Brazil, including its inflation and currency fluctuations.
The paper segment is engaged in the manufacturing andmarketing of printing grade papers and envelopes. All of this segment'soperations are in the United States. It operates three mills in the easternhalf of the country and manufactures envelopes at nine domestic plants.
The chemical segment manufactures products at four domesticlocations. 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'sforestry operations and income and expense items and activities not directlyassociated with segment operations, including corporate support staff servicesand related assets and liabilities.
The segments are measured on operating profits beforerestructuring charges, interest expense, income taxes, extraordinary itemsand cumulative effect of accounting changes, except for Rigesa in the packagingsegment, whose operating profit includes interest income of $10.0 millionin 2000 (1999- $13.2 million, 1998- $14.6 million) and interest expenseof $5.3 million in 2000 (1999- $4.6 million, 1998- $4.5 million). The segmentsfollow the same accounting principles described in the *Summary of SignificantAccounting Policies*. Sales between the segments are recorded primarilyat market prices. The 2000 restructuring charge of $27.2 million relatedto the expected decline in sales of folding cartons to U.S. tobacco marketsand the gain of $11.2 million from the sale of the liquid packaging plantrelate to the packaging segment. The 1999 restructuring charge followingthe completion of the company's strategic review related to packaging,paper and chemicals was $57.7 million, $21.2 million and $1.6 million,respectively.  No single customer accounts for 10% or more of consolidatedtrade sales in 2000 and 1999. In 1998, sales to a single customer accountedfor approximately 11% of consolidated sales primarily from the company'spackaging segment.
Total sales outside of the United States, including salesof our foreign operating subsidiaries, accounted for approximately $808,494,000in 2000 (1999-$663,483,000, 1998-$709,567,000). Export sales from the UnitedStates amounted to $590,807,000 in 2000 (1999-$504,480,000, 1998-$499,792,000).Income of foreign subsidiaries included in consolidated net income amountedto $49,185,000 in 2000 (1999-$40,518,000, 1998 $38,612,000).  Long-livedassets located outside the United States are $326,350,000 (1999-$195,104,000).).  Long-lived assets located in the United States are $5,179,876,000(1999-$3,963,580,000). 
Financial information by business segment follows: SalesDepreciationInter-OperatingandSegmentCapital In millionsTradeSegmentTotalProfitamortizationassetsexpenditures **Year ended October31, 2000**Packaging$1,974.0 $ 4.4 $1,978.4$318.7$161.9$3,555.8$104.6Rigesa166.9 -166.932.510.8285.113.6     Packagingtotal2,140.9 4.42,145.3351.2172.73,840.9118.2Paper1,145.5 20.21,165.7140.696.71,383.739.7Chemical319.1 25.1344.264.523.5321.410.8Corporateand other57.5 39.196.6[152.7]21.01,023.943.6Total3,663.0 88.83,751.8403.6313.96,569.9212.3Intersegmenteliminations[88.8][88.8]Consolidatedtotals$3,663.0 $ - $3,663.0$403.6$313.9$6,569.9$212.3**Year ended October31, 1999**Packaging$1,316.9$    4.0
$1,320.9
$ 165.3$128.6$2,043.5$  99.8Rigesa   140.8       -    140.8   25.2  9.4  257.4 31.0     Packagingtotal1,457.7     4.01,461.7 190.5138.02,300.9130.8Paper
1,005.1
   23.41,028.5   62.0100.6 1,441.8 60.0Chemical   293.9   20.6    314.5   52.5  23.8  314.7  18.1Corporateand other  45.1   35.7      80.8[157.0]  18.1  839.3  23.4Total2,801.8 83.72,885.5 148.0280.54,896.7232.3Intersegmenteliminations [83.7]
[83.7]
    Consolidatedtotals$2,801.8$       -$2,801.8$ 148.0$280.5$4,896.7$232.3**Yearended October 31, 1998 **Packaging$1,380.2$    4.0$1,384.2$ 172.3$128.1$2,146.6$158.6Rigesa  184.0       -   184.0  35.2  12.4  322.4  41.1     Packagingtotal1,564.2    4.01,568.2 207.5 140.52,469.0199.7Paper  972.9   52.71,025.6  84.8 100.11,497.2157.8Chemical  310.9   21.2   332.1  53.2  22.6  326.6  38.0Corporateand other   37.9   34.8    72.7[141.1]  17.8  715.9  24.2Total2,885.9 112.72,998.6 204.4281.05,008.7419.7Intersegmenteliminations [112.7][112.7]    Consolidatedtotals$2,885.9   $     -$2,885.9$ 204.4$281.0$5,008.7$419.7 
**Q. Subsequent event [unaudited]**On December 6, 2000, the company announced the formationof Paxonix, a new Internet-enabled packaging solutions business offeringa unique array of integrated software applications, expert professionalservices and best-in-class resources around the world. Paxonix's missionis to help consumer product companies develop packaging solutions, shortenpackage development cycles and increase the speed of product launches andrelaunches in one country, a region or globally.
As the creator of Paxonix, Westvaco intends to providethe initial funding of about $50 million. A select group of 17 companieshave joined Westvaco as charter members of Paxonix. These charter membersoperate in 60 countries and collectively possess expertise that spans advertising,branding, graphic and structural design, packaging materials and packagingproduction.
**R. Selected quarterly information [unaudited]**
In thousands, except per share data Quarter200011999219983Sales    First$   799,593$   650,715$   702,113    Second904,658679,481724,187    Third928,022700,202727,826    Fourth1,030,718   771,451   731,791    Year $3,662,991$2,801,849$2,885,917======================Gross profit    First$   175,433$   119,239$   133,682    Second211,288127,052139,135    Third216,473139,515130,835    Fourth   244,740   176,907   139,644    Year$   847,934$   562,713$   543,296======================Net income before extraordinarycharge    First$     50,225$     25,222$     32,516    Second70,16827,29534,606    Third53,55234,98631,674    Fourth     80,727      23,673     33,217    Year$   254,672$   111,176$   132,013=======================Net income    First$     50,225$     25,222$     32,516    Second61,36527,29534,606    Third53,55234,98631,674    Fourth     80,727     23,673      33,217    Year$   245,869$   111,176$   132,013=======================Net income before extraordinarycharge per common share-    First$  .50$  .25$  .32    Second .70.27 .34    Third.53.35.31    Fourth    .80    .24    .33    Year$2.53$1.11$1.30============Net income per common share- basic and diluted     First$  .50$  .25$  .32    Second .61.27.34    Third.53.35.31    Fourth    .80    .24    .33    Year$2.44$1.11$1.30============  1)Resultsfor the 2000 second quarter include an extraordinary charge of $8.8 millionafter tax, or $.09 per share, from the retirement of higher coupon debtand a pretax gain of $11.2 million, or $.07 per share from the sale ofa liquid packaging plant previously written down as part of the 1999 restructuringcharge. Third quarter 2000 results include a pretax charge of $24.3 million,or $.16 per share, as a result of restructuring. Fourth quarter 2000 resultsinclude a pretax charge of $3.0 million, or $.02 per share, for the completionof the third quarter restructuring and a pretax gain of $3.6 million, or$.04 per share, resulting from the sale of our equity interest in a foreignoperation. Fourth quarter results also include a pretax LIFO provisionof $9.0 million, or $.06 per share.2)Results for the 1999fourth quarter include a pretax charge of $80.5 million, or $.49 per share,as a result of restructuring,and a $15.0 million tax benefit, or $.15 per share, resulting from a releaseofdeferred taxes.3)Results for the 1998fourth quarter include a pretax charge of $5.0 million, or $.03 per share,as a result of restructuring.    
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the information and representationsin the accompanying consolidated financial statements and related notesas well as all other financial information contained in this report. Thesefinancial statements were prepared in accordance with accounting principlesgenerally accepted in the United States of America and by necessity includesome amounts determined using informed estimates and judgments.
Management is responsible for establishing and maintaininga system of internal control. The company's accounting systems includeinternal controls which management believes provide reasonable assuranceof the reliability of its financial records and the proper safeguardingand use of its assets. In establishing the basis for reasonable assurance,management balances the cost of the internal controls with the benefitsthey provide. Additionally, it has long been the policy of the companyto conduct its business affairs in accordance with high ethical standards,as set forth in the Westvaco Code of Conduct.
PricewaterhouseCoopers LLP, the company's independentaccountants, were engaged to audit the consolidated financial statementsand were responsible for conducting their audit in accordance with auditingstandards generally accepted in the United States of America. The appointmentof PricewaterhouseCoopers LLP as the company's independent accountantsby the Board of Directors, on the recommendation of the Audit Committee,has been ratified each year by the shareholders. Their report immediatelyfollows this statement.The Audit Committee of the Board of Directors, composedsolely of nonmanagement directors, meets regularly with the company's management,the internal audit manager and the independent accountants to discuss accountingand financial reporting matters and the nature, scope and results of audits.The Audit Committee meets with the independent accountants both with andwithout the presence of management. The committee also meets with the company'sgeneral counsel to review the company's legal compliance program as wellas significant litigation issues. The independent accountants and the internalaudit manager have full and free access to the Audit Committee.  
John A. Luke, Jr.Chairman, President andChief Executive Officer  
Karen R. OsarSenior Vice President and Chief Financial Officer
November 20, 2000        
**REPORT OF INDEPENDENT ACCOUNTANTS**
To the Board of Directors andShareholders ofWestvaco Corporation
In our opinion, the accompanying consolidated financialstatements present fairly, in all material respects, the financial positionof Westvaco Corporation and its subsidiaries at October 31, 2000 and 1999,and the results of their operations and their cash flows for each of thethree years in the period ended October 31, 2000, in conformity with accountingprinciples generally accepted in the United States of America. These financialstatements are the responsibility of the company's management; our responsibilityis to express an opinion on these financial statements based on our audits.We conducted our audits of these statements in accordance with auditingstandards generally accepted in the United States of America, which requirethat we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management and evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.   
PricewaterhouseCoopers LLP
New York, New YorkNovember 20, 2000