News Column

MEADWESTVACO CORP - 10-K - Management's discussion and analysis of financial condition and results of operations

February 24, 2014

OVERVIEW

For the year ended December 31, 2013, MeadWestvaco Corporation ("MeadWestvaco", "MWV," or the "company") reported a 2% increase in sales and higher overall earnings from continuing operations primarily due to growth in targeted packaging and specialty chemicals markets, as well as from improved pricing within the Industrial segment and consistently running its expanded Brazilian operation at designed capacity levels. The company continued to gain share with food and beverage brand owners and grew volumes in higher value dispensing solutions, including gains in medical plastics, fragrance pumps and personal care dispensers. In addition, steady growth across the global asphalt, oilfield and activated carbon markets drove increased sales and earnings within the Specialty Chemicals segment. These benefits were partially offset by unfavorable foreign currency exchange compared to 2012. For the year ended December 31, 2013, the company reported net income attributable to the company from continuing operations of $320 million, or $1.78 per share. These results include after-tax income from the release of reserves for alternative fuel mixture credits of $165 million, or $0.92 per share, after-tax restructuring and other charges of $32 million, or $0.18 per share, after-tax pension settlement charges of $11 million, or $0.06 per share, and discrete income tax benefits of $13 million, or $0.07 per share. Comparable results for prior years are noted later in this discussion. Cash provided by operating activities from continuing operations improved to $358 million for the year ended December 31, 2013 compared to $220 million for the year ended December 31, 2012, primarily reflecting lower working capital levels. Capital expenditures from continuing operations declined to $506 million for the year ended December 31, 2013 compared to $654 million for the year ended December 31, 2012, primarily reflecting lower investment related to the company's expansion in Brazil, which was substantially completed in 2012. On December 6, 2013, the company completed the sale of all of its U.S. forestlands and certain related assets to Plum Creek Timber Company, Inc. ("Plum Creek"), resulting in the recognition of a pre-tax gain of $780 million presented within discontinued operations on an after-tax basis. The company received total consideration of $934 million, of which approximately $74 million was paid in cash and $860 million was in the form of a ten-year term installment note. Using the installment note as collateral, the company received $774 million in proceeds under a non-recourse secured financing agreement with a bank on December 20, 2013. The results of the company's forestry business and related assets, as well as the gain on the sale, are reported in discontinued operations in the consolidated financial statements. These businesses were previously reported within the Community Development and Land Management segment. This segment's principal activities are now focused on maximizing the value of the remaining 109,000 development acres located in the Charleston, South Carolina region through a land development partnership with Plum Creek which was created coincident with the sale of the company's forestry and certain minerals-related businesses on December 6, 2013. Plum Creek contributed approximately $152 million in cash and the company contributed 109,000 development acres to establish the partnership. Refer to Note S of Notes to Consolidated Financial Statements included in Part II, Item 8 for further information. Savings associated with the company's cost reduction initiative announced in April 2013 were $43 million for full-year 2013. The company remains on track to achieve $75 million in cumulative savings from this initiative by the end of 2014. In January 2014, the company announced a new margin improvement program to generate increased earnings and cash flow. The program is designed to deliver annual pre-tax savings of $100 million to $125 million by the end of 2015, with at least $75 million to be realized in 2014. These savings are incremental to the company's 2013 cost reduction initiative. Free 16



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cash flow is expected to increase by at least $100 million in 2014 from higher after-tax earnings and a $50 million reduction in capital expenditures resulting in a target spend of $350 million. Key elements of the margin improvement program include:



implementing a leaner organization design across the packaging businesses

to simplify the structure and speed decision making; aligning the corporate infrastructure to the revenue base;



reassessing participation to focus on business lines and markets within

packaging that provide the greatest opportunity for profitable growth; and

prioritizing capital on the highest return projects to improve free cash flow. OUTLOOK For the first quarter of 2014, earnings excluding special items are expected to be well above last year. The principal factors driving the expected improvement are: improved demand across targeted paperboard packaging and high value

dispensing, pine chemicals and carbon technologies solutions;



increased price realizations across key consumer and industrial paperboard

packaging grades;



improved productivity in the major domestic mills and significant

productivity benefits from higher production in the Brazilian operation;

and



continued benefits from the overhead reduction program that started at the

beginning of 2013, as well as initial contribution from the new margin

improvement program.

Certain statements in this document and elsewhere by management of the company that are neither reported financial results nor other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to the "Forward-looking Statements" section located later in this report. 17



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RESULTS OF OPERATIONS

The following table summarizes MWV's results for the years ended December 31, 2013, 2012 and 2011, as reported in accordance with accounting principles generally accepted in the U.S ("GAAP"). All references to per share amounts are presented on an after-tax basis. Years ended December 31, In millions, except per share data 2013 2012 2011 Net sales $ 5,389$ 5,287$ 5,179 Cost of sales 4,429 4,257 4,126 Selling, general and administrative expenses 638 682 669 Interest expense 159 152 161 Other income, net (59 ) (14 ) (28 ) Income from continuing operations before income taxes 222 210 251 Income tax (benefit) provision (97 ) 54 70 Income from continuing operations 319 156 181 Income from discontinued operations, net of income taxes 519 52 69 Net income 838 208 250 Less: Net (loss) income attributable to non-controlling interests (1 ) 3 4 Net income attributable to the company $ 839 $



205 $ 246

Income from continuing operations attributable to the company $ 320 $



153 $ 177

Net income per share - basic: Income from continuing operations $ 1.81$ 0.88$ 1.04 Income from discontinued operations 2.93 0.30 0.41 Net income attributable to the company $ 4.74 $



1.18 $ 1.45

Net income per share - diluted: Income from continuing operations $ 1.78$ 0.87$ 1.02 Income from discontinued operations 2.88 0.29 0.40 Net income attributable to the company $ 4.66 $



1.16 $ 1.42

Comparison of Years Ended December 31, 2013 and 2012

Sales from continuing operations increased 2% to $5.40 billion in 2013 compared to $5.29 billion in 2012. Growth in targeted packaging and specialty chemicals markets, as well as improved pricing drove the increase in sales. During 2013, the company continued to gain share with food and beverage brand owners and grew volumes in higher value dispensing solutions, including gains in medical plastics, fragrance pumps and personal care dispensers. Sales growth in 2013 within the Industrial segment was driven by improved pricing, as well as contributions from the corrugated business in India acquired in the fourth quarter of 2012. The Specialty Chemicals segment achieved increased sales in 2013 driven by steady growth across its offerings for the global asphalt, oilfield and activated carbon markets, as well as contributions from the pine chemicals business in Brazil. These overall gains in 2013 were partially offset by unfavorable foreign currency exchange compared to 2012. 18



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Costs of sales were $4.43 billion and $4.26 billion for the years ended December 31, 2013 and 2012, respectively. In 2013, costs increased in line with the sales contributions from the corrugated business in India and the pine chemicals business in Brazil which were both acquired during the fourth quarter of 2012. In addition, input costs for energy, raw materials and freight included in cost of sales were $28 million higher compared to 2012. Selling, general and administrative expenses were $638 million and $682 million for the years ended December 31, 2013 and 2012, respectively. In 2013, lower overall selling, general and administrative expenses compared to 2012 reflect lower variable employee incentive and equity compensation, savings associated with the company's cost reduction initiative, and higher pension income compared to 2012. Restructuring charges attributable to individual segments and by nature of cost, as well as cost of sales ("COS") and selling, general and administrative expenses ("SG&A") classifications in the consolidated statements of operations for the years ended December 31, 2013 and 2012 are presented below. Although these charges related to individual segments, such amounts are included in Corporate and Other for segment reporting purposes. Year ended December 31, 2013 Asset write-downs Employee-related costs and other costs Total In millions COS SG&A Total COS SG&A Total COS SG&A Total Food & Beverage $ 1$ 5$ 6$ 1$ 0$ 1$ 2$ 5$ 7 Home, Health & Beauty 7 1 8 13 0 13 20 1 21 Industrial 1 1 2 4 0 4 5 1 6 Specialty Chemicals 0 0 0 6 0 6 6 0 6 All other 0 4 4 0 1 1 0 5 5 Total charges $ 9$ 11$ 20$ 24$ 1$ 25$ 33$ 12$ 45



Year ended December 31, 2012

Asset write-downs Employee-related costs and other costs Total In millions COS SG&A Total COS SG&A Total COS SG&A Total Food & Beverage $ 0$ 2$ 2$ 0$ 0$ 0$ 0$ 2$ 2 Home, Health & Beauty 6 1 7 2 0 2 8 1 9 Industrial 9 0 9 2 0 2 11 0 11 All other 0 3 3 0 1 1 0 4 4 Total charges $ 15$ 6$ 21$ 4$ 1$ 5$ 19$ 7$ 26 Pension income was $85 million (net of charges for settlements and termination benefits of $21 million) and $69 million for the years ended December 31, 2013 and 2012, respectively. Pension income is included in Corporate and Other for segment reporting purposes. Pension income is expected to be approximately $120 million in 2014, excluding impacts from settlements and curtailments. 19



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Interest expense was $159 million for the year ended December 31, 2013 and was comprised of $121 million related to bond and bank debt, $4 million related to long-term obligations non-recourse to MWV, $24 million related to borrowings under life insurance policies and $10 million related to other borrowings. Interest expense was $152 million for the year ended December 31, 2012 and was comprised of $117 million related to bond and bank debt, $3 million related to a long-term obligation non-recourse to MWV, $23 million related to borrowings under life insurance policies and $9 million related to other borrowings. Other income, net was $59 million and $14 million for the years ended December 31, 2013 and 2012, respectively, and was comprised of the following: Years ended December 31, In millions 2013 2012 Interest income $ 14 $ 11 Foreign currency exchange losses (4 ) (5 ) Transition services 1 10 Alternative fuel mixture credits1 24 (15 ) Insurance settlements 14 0 Other, net 10 13 $ 59 14



(1) In the fourth quarter of 2013, the company released $24 million of reserves

related to alternative fuel mixture credits. In the fourth quarter of 2012,

the company made a determination to claim cellulosic biofuel producer

credits in 2013 in exchange for the repayment of $15 million of alternative

fuel mixture credits received from excise tax filings during 2009 and 2010.

The company's effective tax rate benefit attributable to continuing operations was 44% for the year ended December 31, 2013 and the effective tax rate provision attributable to continuing operations was 26% for the year ended December 31, 2012. For the year ended December 31, 2013, an income tax benefit of $142 million related to the release of reserves for alternative fuel mixture credit as a result of the settlement of certain audits is reflected within the tax provision. For the year ended December 31, 2012, an income tax benefit of $24 million related to cellulosic biofuel producer credits ("CBPC") is reflected within the tax provision. For both 2013 and 2012, the effective tax rates also reflect the mix and level and pre-tax earnings between the company's domestic and foreign operations. Discontinued operations presented in the consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011 primarily relate to the sale of the company's forestry and minerals-related businesses on December 6, 2013, the spin-off of the Consumer & Office Products business on May 1, 2012, and the sale of the Envelope Products business on February 1, 2011. Refer to Note S of Notes to Consolidated Financial Statements included in Part II, Item 8 for further information. In addition to the information discussed above, the following sections discuss the results of operations for each of the company's segments. MWV's segments are (i) Food and Beverage, (ii) Home, Health and Beauty, (iii) Industrial, (iv) Specialty Chemicals, and (v) Community Development and Land Management. Refer to Note U of Notes to Consolidated Financial Statements included in Part II, Item 8 for a reconciliation of the sum of the results of the segments and Corporate and Other to consolidated income from continuing operations before income taxes. Corporate and Other includes expenses associated with corporate support staff services, as well as income and expense items not directly associated with ongoing segment operations, such as alternative fuel mixture credits, restructuring charges, pension income and curtailment gains and losses, interest expense and income, non-controlling interest income and losses, certain legal settlements, gains and losses on certain asset sales and other items. 20



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Table of Contents Food & Beverage Years ended December 31, In millions 2013 2012 Sales $ 3,106$ 3,105 Segment profit 1 239 309



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes, and non-controlling

interest income and losses.

The Food & Beverage segment produces packaging materials, and designs and produces packaging solutions primarily for the global food, food service, beverage, dairy and tobacco end markets, as well as paperboard for commercial printing. For the global food market, the segment develops and produces materials and innovative solutions that are used to package frozen food, dry goods, ready-to-eat meals, hot and cold drinks, and various shelf-stable dairy products. For the global beverage market, the segment has a fully integrated business model, including high-performance paperboard, carton design and converting operations, as well as beverage packaging machinery. For the global tobacco market, the segment produces high performance paperboard, and designs and produces cartons for the world's leading tobacco brand owners. The segment's materials are manufactured in the U.S. and converted into packaging solutions at plants located in North America, Europe and Asia. Sales for the Food & Beverage segment were $3.11 billion in both 2013 and 2012. In 2013, benefits from growth in targeted food and beverage markets and favorable foreign currency exchange were offset by overall lower sales in tobacco packaging compared to 2012. Food packaging sales increased in 2013 primarily due to gains with major brand owners in a range of applications, including frozen food and club store packaging, as well as liquid packaging in Asia and Europe. In beverage packaging, sales were down compared to 2012 as strong sales in emerging markets and continued gains with large strategic soft drink and beer customers were more than offset by lower volumes across more developed markets. In tobacco packaging, the decline in sales was primarily due to the residual effects from economic impacts during the first half of 2013. Profit for the Food & Beverage segment was $239 million in 2013 compared to $309 million in 2012. Profit in 2013 was negatively impacted by $28 million in higher costs from planned mill maintenance outages and $5 million from the negative impacts from operating challenges following a system implementation at the company's paperboard mill in Covington, Virginia. The decline in 2013 was also driven by $27 million from inflation and $26 million from unfavorable pricing and product mix compared to 2012. Profit in 2013 benefited by $11 million from improved productivity, $3 million from increased volume and $2 million from favorable foreign currency exchange and other items compared to 2012. Home, Health & Beauty Years ended December 31, In millions 2013 2012 Sales $ 743$ 770 Segment profit 1 21 35



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes, and non-controlling

interest income and losses.

The Home, Health & Beauty segment designs and produces packaging solutions for the global personal care, fragrance, home care, lawn and garden, prescription drug and healthcare end markets. For the global beauty and personal care market, the segment produces pumps for fragrances, lotions, creams and soaps, flip-top and applicator closures for bath and body products and lotions, and paperboard and plastic packaging for hair and skin care products. For the global home and garden market, the segment produces 21



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trigger sprayers for surface cleaners and fabric care, aerosol actuators for air fresheners, hose-end sprayers for lawn and garden maintenance, and spouted and applicator closures for a variety of other home and garden products. For the global healthcare market, the segment produces secondary packages designed to enhance patient adherence for prescription drugs, as well as healthcare dispensing systems, paperboard packaging and closures for over-the-counter and prescription drugs. Paperboard and plastic materials are converted into packaging solutions at plants located in North America, South America, Europe and Asia. Sales for the Home, Health & Beauty segment were $743 million in 2013 compared to $770 million in 2012. Sales decreased in 2013 primarily due to significant volume declines in home and garden packaging as well as beauty and personal care folding carton packaging in Europe and Brazil. The decline in beauty and personal care folding carton packaging was primarily due to the repurposing of the Brazilian folding carton facility. In addition, as previously announced the company is continuing to pursue an exit from the beauty and personal care folding carton operation in Europe through a sale of the business. The strong lawn and garden season which drives volumes in home and garden packaging did not materialize due to unseasonably cool and wet weather in North America, and as a result, the overall market volume was down compared to 2012. In addition to the negative volume impacts of these market trends in home and garden packaging, volumes in 2013 were also negatively impacted by customer transitions to the next generation trigger sprayers in North America. These impacts were partially offset by volume gains in higher value beauty and personal care solutions, including strong gains in fragrance and airless dispensers compared to 2012. Healthcare sales increased from continued gains in medical dispensers compared to 2012. Profit for the Home, Health & Beauty segment was $21 million in 2013 compared to $35 million in 2012. Profit in 2013 was negatively impacted by $18 million from inflation, $3 million from transformation costs to repurpose the segment's Brazilian folding carton facility to manufacture higher value plastic pumps and dispensers and $3 million from certain asset write-downs compared to 2012. Profit in 2013 benefited by $6 million from favorable foreign currency exchange and other items, $2 million from improved productivity, $1 million from higher volume and $1 million from favorable pricing and product mix compared to 2012. Industrial Years ended December 31, In millions 2013 2012 Sales $ 548$ 457 Segment profit 1 65 49



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes, and non-controlling

interest income and losses.

The Industrial segment designs and produces corrugated packaging solutions, primarily for produce, meat, consumer products and bulk goods. In Brazil, where most of this business is based, the integrated business includes forestlands, paperboard mills and corrugated box plants. This segment also includes operations in India, which develop corrugated packaging materials as well as corrugated packaging solutions for Indian fresh produce. In Brazil, the segment manufactures high-quality virgin kraftliner and recycled material medium paperboards, and converts the board to corrugated packaging at four box plants across the country. In India, the segment converts raw materials to corrugated packaging at its facility in Pune and manufactures containerboard at two mills in Vapi and Morai. Sales for the Industrial segment were $548 million in 2013 compared to $457 million in 2012. Sales growth in 2013 was driven by price improvement across targeted Brazilian packaging markets and revenue benefits from the addition of the high-quality industrial packaging materials business in India. 22



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During 2013, the segment increased prices in the Brazilian market to offset labor and input cost inflation. Volumes in Brazil were modestly higher year-over-year as gains in high-quality paper sales more than offset lower corrugated box sales. Volumes of corrugated products declined in 2013 due to pricing actions the segment took to offset inflation and due to the sale of the Feira de Santana box plant early in the third quarter of 2013. Sales in 2013 were also impacted by unfavorable foreign currency exchange compared to 2012. Profit for the Industrial segment was $65 million in 2013 compared to $49 million in 2012. Profit in 2013 benefited by $49 million from improved pricing and product mix, $4 million from improved productivity, and $2 million from higher volumes compared to 2012. Profit in 2013 was negatively impacted by $26 million from inflation, principally fiber and labor, and $13 million from unfavorable foreign currency exchange and other items compared to 2012. Specialty Chemicals Years ended December 31, In millions 2013 2012 Sales $ 980$ 940 Segment profit 1 229 224



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes, and non-controlling

interest income and losses.

The Specialty Chemicals segment manufactures, markets and distributes specialty chemicals derived from sawdust and other byproducts of the papermaking process in North America, Europe, South America and Asia. Products include performance chemicals derived from pine chemicals used in printing inks, asphalt paving and adhesives as well as in the agricultural, paper and petroleum industries. This segment also produces activated carbon products used in gas vapor emission control systems for automobiles and trucks, as well as applications for air, water and food purification. Sales for the Specialty Chemicals segment were $980 million in 2013 compared to $940 million in 2012. Sales increase in 2013 was led by benefits from the addition of the Brazilian pine chemicals business, which was acquired during the fourth quarter of 2012, as well as solid volume growth in targeted pine chemicals markets. During 2013, the segment continued to penetrate higher-value pine chemicals end markets of adhesives, asphalt and oilfield services. Carbon technology volumes increased during 2013 as global automobile manufacturers increased production in response to strong global demand. These gains were partially offset by unfavorable pricing in more standard product lines and unfavorable foreign currency exchange compared to 2012. Profit for the Specialty Chemicals segment was $229 million in 2013 compared to $224 million in 2012. Profit in 2013 benefited by $14 million from non-recurring items related to certain legal and insurance settlements and contributions from the recently acquired pine chemicals business in Brazil, $5 million from higher volumes, and $2 million from improved productivity compared to 2012. Profit in 2013 was negatively impacted by $10 million from unfavorable pricing in more standard product lines and product mix and $6 million from planned and unplanned maintenance outages at the segment's pine chemicals and carbon facilities compared to 2012. 23



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Community Development and Land Management

Years ended December 31, In millions 2013 20122 Sales $ 20$ 18 Segment loss 1 (14 ) (13 )



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes.

2 Results for 2012 have been recast to exclude the discontinued operations of

the forestry and certain minerals-related businesses. Refer to Note S of

Notes to Consolidated Financial Statements included in Part II, Item 8 for

further discussion.

The Community Development and Land Management segment is responsible for maximizing the value of 109,000 development acres in the Charleston, South Carolina region through a land development partnership with Plum Creek. The segment develops real estate including (i) selling development property, (ii) entitling and improving high-value tracts, and (iii) master planning of select landholdings. The earnings of this segment exclude the non-controlling interest attributable to Plum Creek. Sales on a continuing operations basis for the Community Development and Land Management segment were $20 million in 2013 compared to $18 million in 2012. Segment loss on a continuing operations basis was $14 million in 2013 compared to $13 million in 2012 and primarily reflects costs related to the ramp-up of the development business.



Comparison of Years Ended December 31, 2012 and 2011

Sales from continuing operations increased 2% to $5.29 billion in 2012 compared to $5.18 billion in 2011. During 2012, benefits from volume growth and improved pricing and product mix in targeted packaging markets, as well as continued strong performance by the Specialty Chemicals segment were partially offset by $152 million from unfavorable foreign currency exchange compared to 2011. The company continued to outperform industry trends in the markets for corrugated packaging in Brazil, beverage packaging in North America and packaging solutions across Asia reflecting positive momentum from the company's profitable growth strategies despite challenges associated with the current macroeconomic climate. Growth in emerging markets continued to produce favorable results with revenues comprising 26% of the company's total sales, as well as contributions from the 2011 acquisition of Polytop and the 2012 acquisition of Ruby Macons. Costs of sales were $4.26 billion and $4.13 billion for the years ended December 31, 2012 and 2011, respectively. In 2012, increased costs due to higher input cost inflation for certain raw materials and freight more than offset the benefits from productivity improvements compared to 2011. In 2012, input costs for energy, raw materials and freight included in cost of sales were $58 million higher compared to 2011. Selling, general and administrative expenses were $682 million and $669 million for the years ended December 31, 2012 and 2011, respectively. In 2012, higher selling, general and administrative expenses compared to 2011 reflect increased costs associated with growth investments in the Industrial and Specialty Chemicals segments, as well as from the addition of Polytop acquired in the fourth quarter of 2011. 24



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Restructuring charges attributable to individual segments and by nature of cost, as well as COS and SG&A classifications in the consolidated statements of operations for the years ended December 31, 2012 and 2011 are presented below. Although these charges related to individual segments, such amounts are included in Corporate and Other for segment reporting purposes.



Year ended December 31, 2012

Asset write-downs Employee-related costs and other costs Total In millions COS SG&A Total COS SG&A Total COS SG&A Total Food & Beverage $ 0$ 2$ 2$ 0$ 0$ 0$ 0$ 2$ 2 Home, Health & Beauty 6 1 7 2 0 2 8 1 9 Industrial 9 0 9 2 0 2 11 0 11 All other 0 3 3 0 1 1 0 4 4 Total charges $ 15$ 6$ 21$ 4$ 1$ 5$ 19$ 7$ 26



Year ended December 31, 2011

Asset write-downs Employee-related costs and other costs Total In millions COS SG&A Total COS SG&A Total COS SG&A Total Food & Beverage $ 5$ 3$ 8$ 3$ 0$ 3$ 8$ 3$ 11 Home, Health & Beauty 3 1 4 0 0 0 3 1 4 Industrial 0 1 1 0 0 0 0 1 1 All other(1) 0 6 6 1 7 8 1 13 14 Total charges $ 8$ 11$ 19$ 4$ 7$ 11$ 12$ 18$ 30



(1) Includes $7 million related to employee relocation costs.

Pension income was $69 million and $82 million (net of charges for settlements and termination benefits of $12 million) for the years ended December 31, 2012 and 2011, respectively. Interest expense was $152 million for the year ended December 31, 2012 and was comprised of $117 million related to bond and bank debt, $3 million related to a long-term obligation non-recourse to MWV, $23 million related to borrowings under life insurance policies and $9 million related to other borrowings. Interest expense was $161 million for the year ended December 31, 2011 and was comprised of $129 million related to bond and bank debt, $2 million related to a long-term obligation non-recourse to MWV, $21 million related to borrowings under life insurance policies and $9 million related to other borrowings. 25



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Other income, net was $14 million and $28 million for the years ended December 31, 2012 and 2011, respectively, and was comprised of the following: Years ended December 31, In millions 2012 2011 Interest income $ 11$ 23

Equity investment gain1 0



10

Foreign currency exchange (losses) gains (5 )



2

Transition services 10



4

Exchange of alternative fuel mixture credits2 (15 )

0 Other, net 13 (11 ) $ 14$ 28



1 For the year ended December 31, 2011, the company recorded a net pre-tax gain

of $10 million pursuant to the sale of commercial real estate consummated

through an equity investment held by the Community Development and Land Management segment.



2 In the fourth quarter of 2012, the company made a determination to claim

cellulosic biofuel producer credits in 2013 in exchange for the repayment of

alternative fuel mixture credits received from excise tax filings during 2009

and 2010. Refer to discussion of the company's effective tax rate for 2012

that follows for additional information.

The company's effective tax rate attributable to continuing operations was 26% and 28% for the years ended December 31, 2012 and 2011, respectively. For both 2012 and 2011, the effective tax rates reflect the mix and level and pre-tax earnings between the company's domestic and foreign operations. For the year ended December 31, 2012, an income tax benefit of $24 million related to cellulosic biofuel producer credits ("CBPC") is reflected within the tax provision. Food & Beverage Years ended December 31, In millions 2012 2011 Sales $ 3,105$ 3,078 Segment profit 1 309 312



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes, and non-controlling

interest income and losses.

Sales for the Food & Beverage segment were $3.11 billion in 2012 compared to $3.08 billion in 2011. Sales increased in 2012 primarily due to improved pricing and product mix, as well as from volume growth in targeted end market applications, pulp sales, and sales of caps and closures from the acquisition of Polytop in the fourth quarter of 2011. Overall food and beverage packaging volumes declined in 2012 as lower shipments of less differentiated general packaging paperboard more than offset growth in targeted end markets. Beverage packaging continues to be impacted by the ongoing global economic climate, particularly in Europe; however, volumes outperformed industry trends driven by growth in North America and Asia compared to 2011. In food packaging, strong volumes in differentiated frozen food and liquid packaging were more than offset by volume declines in general packaging paperboard, primarily in China, compared to 2011. Sales in 2012 in all food and beverage packaging markets were negatively impacted by $50 million from unfavorable foreign currency exchange compared to 2011. Profit for the Food & Beverage segment was $309 million in 2012 compared to $312 million in 2011. Profit in 2012 was negatively impacted by $58 million from inflation, primarily higher input costs for certain raw materials and freight, and $37 million from unfavorable foreign currency exchange and other items compared to 2011. Profit in 2012 benefited by $48 million from improved pricing and product mix, $43 million from improved productivity and $1 million from increased volume compared to 2011. 26



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Table of Contents Home, Health & Beauty Years ended December 31, In millions 2012 2011 Sales $ 770$ 766 Segment profit 1 35 34



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes, and non-controlling

interest income and losses.

Sales for the Home, Health & Beauty segment were $770 million in 2012 compared to $766 million in 2011. Sales increased in 2012 due to volume growth in personal care dispensing and healthcare packaging solutions, as well as from sales of caps and closures from the acquisition of Polytop in the fourth quarter of 2011. These benefits were partially offset by unfavorable foreign currency exchange, contractual resin-based pricing adjustments and lower volumes of home and garden and beauty and personal care folding carton packaging compared to 2011. In personal care dispensing solutions, gains in airless dispensing with major skin care brand owners and fragrance sprayers drove volume growth compared to 2011. In healthcare packaging, volume growth was driven by continued strong demand for the segment's preservative-free and metered dosage medical pumps. Adherence-enhancing packaging volume declined as part of a planned transition to Shellpak Renew with a major customer. In home and garden packaging, volume declines in North America due to aggressive inventory management actions by a major customer were partially offset by strong trigger sprayer volumes with major homecare brand owners in Europe and Asia. Profit for the Home, Health & Beauty segment was $35 million in 2012 compared to $34 million in 2011. Profit in 2012 benefited by $6 million from productivity initiatives and overhead reduction actions, $3 million from higher volume and $5 million of other benefits. Profit in 2012 was negatively impacted by $5 million from inflation, $5 million pricing and product mix and $3 million from unfavorable foreign currency exchange compared to 2011. Industrial Years ended December 31, In millions 2012 2011 Sales $ 457$ 507 Segment profit 1 49 80



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes, and non-controlling

interest income and losses.

Sales for the Industrial segment were $457 million in 2012 compared to $507 million in 2011. In 2012, volume growth within its corrugated packaging solutions for targeted meat, produce and consumer goods markets was more than offset by unfavorable foreign currency exchange, as well as unfavorable pricing and product mix compared to 2011. Despite slower than expected growth in Brazil, the segment's volumes in 2012 outpaced the overall growth rate of the corrugated industry from its strategy of delivering innovative high-quality solutions to the fastest growing end-markets. The segment also saw modest top-line contribution from Ruby Macons, a leading producer of high-quality corrugated packaging material in India that the company acquired on November 30, 2012. Profit for the Industrial segment was $49 million in 2012 compared to $80 million in 2011. Profit in 2012 was negatively impacted by $6 million from unfavorable pricing and product mix, $17 million from inflation, primarily higher labor costs, $12 million from unfavorable foreign currency exchange and $18 million from lower productivity and higher expansion expenses compared to 2011. Profit in 2012 benefited by $5 million from higher volumes and $17 million from benefits related to certain non-income tax matters in Brazil and other benefits compared to 2011. 27



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Table of Contents Specialty Chemicals Years ended December 31, In millions 2012 2011 Sales $ 940$ 811 Segment profit 1 224 203



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes, and non-controlling

interest income and losses.

Sales for the Specialty Chemicals segment were $940 million in 2012 compared to $811 million in 2011. Sales growth in 2012 was driven by continued penetration of developed and emerging markets with the company's value-added solutions for infrastructure, industrial and energy markets. Increased penetration of higher value pine chemicals end markets of adhesives, asphalt and oilfield services drove pricing and product mix improvement in 2012. These benefits were partially offset by unfavorable foreign currency exchange compared to 2011. Profit for the Specialty Chemicals segment was $224 million in 2012 compared to $203 million in 2011. Profit in 2012 benefited by $20 million from improved pricing and product mix and $32 million from increased volume compared to 2011. Profit in 2012 was negatively impacted by $15 million from growth investments and lower productivity, $13 million from inflation, primarily higher input costs for certain raw materials and freight, and $3 million from unfavorable foreign currency exchange and other items compared to 2011.



Community Development and Land Management

Years ended December 31, In millions 20122 20112 Sales $ 18 $ 19 Segment profit 1 (13 ) (1 )



1 Segment profit is measured as results before restructuring charges, pension

income, interest expense and income, income taxes, and non-controlling interest income and losses. 2 Results for 2012 and 2011 have been recast to exclude the discontinued



operations of the forestry and certain minerals-related businesses. Refer to

Note S of Notes to Consolidated Financial Statements included in Part II,

Item 8 for further discussion.

Sales on a continuing operations basis for the Community Development and Land Management segment were $18 million in 2012 compared to $19 million in 2011. Segment loss on a continuing operations basis was $13 million in 2012 compared to $1 million in 2011. 28



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LIQUIDITY AND CAPITAL RESOURCES

Cash flow from continuing operations, current cash levels and other sources of currently available liquidity are expected to be adequate to fund scheduled debt payments, dividends to shareholders and capital expenditures in 2014. In addition, the company's U.S. qualified retirement plans remain well over funded and management does not anticipate any required regulatory funding contributions to such plans in the foreseeable future. Cash and cash equivalents totaled $1.06 billion at December 31, 2013, of which 83% was held in the U.S. with the remaining portions of 8% in Europe, 4% in Brazil and 5% in other foreign jurisdictions. The credit quality of the company's portfolio of short-term investments remains strong with the majority of its cash equivalents invested in U.S. government securities. Of the company's cash and cash equivalents, approximately 81% were invested in U.S. government securities at December 31, 2013. Funding for the company's domestic operating, investing and financing activities in the foreseeable future is expected to come from sources of liquidity within its U.S. operations, including cash holdings, operating cash flow and bank-committed credit capacity. As such, the company's offshore cash holdings are not a key source of liquidity to its U.S. operations, and management does not intend to transfer cash held by foreign subsidiaries to the U.S. that would be subject to potential tax impacts associated with the repatriation of undistributed earnings on foreign subsidiaries.



Operating activities

Cash provided by operating activities from continuing operations was $358 million in 2013, compared to $220 million in 2012 and $397 million in 2011. The increase in cash flow in 2013 compared to 2012 was primarily attributable to lower working capital levels. The decrease in cash flow in 2012 compared to 2011 was primarily attributable to higher working capital levels. Cash provided by operating activities from discontinued operations was $79 million in 2013, $218 million in 2012 and $163 million in 2011. Refer to Note S of Notes to Consolidated Financial Statements included in Part II, Item 8 for information regarding discontinued operations.



Investing activities

Cash used in investing activities from continuing operations was $481 million in 2013, compared to $736 million in 2012 and $673 million in 2011. Cash used in investing activities from continuing operations in 2013 was driven by capital expenditures of $506 million, of which $127 million related to the new bio-mass boiler at the company's paperboard mill in Covington, Virginia. Cash used in investing activities from continuing operations also reflects contributions to joint ventures of $20 million, payments for acquired businesses (net of cash acquired) of $2 million, and other uses of funds of $5 million, offset in part by proceeds from dispositions of assets of $52 million. Cash used in investing activities from continuing operations in 2012 was driven by capital expenditures of $654 million, payments for acquired businesses (net of cash acquired) of $101 million, and contributions to joint ventures of $13 million, offset in part by proceeds from dispositions of assets of $29 million and other sources of funds of $3 million. Cash used in investing activities from continuing operations in 2011 was driven by capital expenditures of $652 million, payments for acquired businesses (net of cash acquired) of $70 million, contributions to joint ventures of $7 million, offset in part by proceeds from dispositions of assets of $56 million. 29



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Cash provided by investing activities from discontinued operations was $70 million in 2013 compared to cash used in investing activities from discontinued operations of $63 million in 2012 and cash provided by investing activities from discontinued operations of $30 million in 2011. Cash provided by discontinued operations in 2013 relates to proceeds received from the sale of certain assets related to the transaction with Plum Creek. Cash used in investing activities from discontinued operations in 2012 was driven primarily by cash deposits totaling $59 million held by the Consumer & Office Products business that was spun-off and subsequently merged with ACCO Brands Corporation on May 1, 2012. Cash provided by discontinued operations in 2011 primarily relates to proceeds received from dispositions of certain businesses.



Capital spending in 2014 is expected to be about $350 million driven primarily by certain productivity initiatives, maintenance capital and environmental compliance.

Financing activities

Cash provided by financing activities from continuing operations was $393 million in 2013 compared to $378 million in 2012, and cash used in financing activities was $26 million in 2011.

As part of the consideration for the sale of the company's U.S. forestlands and related assets which occurred on December 6, 2013, the company received an installment note in the amount of $860 million (the "Installment Note"). The Installment Note does not require any principal payments until its maturity in December 2023 and bears interest at a fixed rate of 5.207%. Using the Installment Note as collateral, the company received $774 million in proceeds under a secured financing agreement with a bank. Under the terms of the agreement, the liability from this transaction is non-recourse to the company and shall be paid from the Installment Note proceeds upon its maturity. As a result, the Installment Note is not available to satisfy the obligations of the company. The non-recourse liability does not require any principal payments until its maturity in December 2023 and bears interest at a fixed rate of 5.425%. In addition to the $774 million of proceeds as discussed above, cash provided by financing activities from continuing operations in 2013 include a non-controlling interest contribution of $152 million related to the formation of the land development partnership with Plum Creek, as well as proceeds from the exercises of stock options of $54 million, proceeds from notes payable and other short-term borrowings of $35 million and proceeds from long-term debt borrowings of $8 million. Cash used in financing activities from continuing operations in 2013 include repayment of long-term debt of $293 million, dividend payments of $177 million, stock repurchases of $126 million, purchase of the remaining 50% non-controlling interest in a pharmaceutical packaging company for $13 million, and other uses of funds of $21 million. Cash provided by financing activities from continuing operations in 2012 included proceeds from debt instruments totaling $460 million received in connection with the spin-off of the Consumer & Office Products business. Prior to the effective time of the spin-off, the company received debt proceeds of $460 million from third-party financing. The associated obligation totaling $460 million was included in the net assets of the disposal group representing the Consumer & Office Products business pursuant to the spin-off. Cash provided by financing activities from continuing operations in 2012 also included proceeds from the issuance of long-term debt of $357 million, proceeds from the exercises of stock options of $61 million, and other sources of funds of $8 million, offset in part by repayment of long-term debt of $327 million, dividend payments of $173 million, net repayments of notes payable and other short-term borrowings of $4 million, and the purchase of a non-controlling interest for $4 million. 30



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Cash used in financing activities from continuing operations in 2011 was driven by dividend payments of $170 million and repayment of long-term debt of $42 million, offset in part by proceeds from issuance of long-term debt of $113 million, proceeds from the exercises of stock options of $38 million, proceeds from notes payable and other short-term borrowings of $32 million and other sources of funds of $4 million. There was no cash used in or provided by financing activities from discontinued operations in 2013 and 2012 compared to cash used in financing activities from discontinued operations of $1 million in 2011. MeadWestvaco has a $600 million five-year revolving credit facility with a syndicate of banks. The Credit Facility is scheduled to expire on January 30, 2017. The principal purpose of the Credit Facility is to obtain funds for general corporate purposes. The $600 million revolving credit facility was undrawn at December 31, 2013. The Credit Facility's agreement contains a financial covenant limiting the percentage of total debt to total capitalization (including deferred taxes) to 55%, as well as certain other covenants with which the company was in compliance as of December 31, 2013. As part of the monitoring activities surrounding the credit quality of the company's credit facilities, management evaluates credit default activities and bank ratings of our lenders. In addition, management undertakes similar measures and evaluates deposit concentrations to monitor the credit quality of the financial institutions that hold the company's cash and cash equivalents.



The company's percentage of total debt to total capital (shareholders' equity and total debt) was 32% and 39% at December 31, 2013 and 2012, respectively.

On January 27, 2014 the company's Board of Directors approved the final form of shareholder returns of proceeds from the company's sale of its U.S. forestlands and related assets to Plum Creek, which was completed on December 6, 2013. The Board of Directors approved the following:



Approximately $175 million ($1.00 per share) in the form of a special

dividend to be paid on March 3, 2014 to shareholders of record as of February 6, 2014.



Approximately $394 million of share repurchases to be comprised of $300

million under an accelerated repurchase program, which was initiated on

February 7, 2014 with the repurchase and retirement of 7.5 million shares,

and $94 million pursuant to open market repurchases, which are expected to

be largely completed by the end of the second quarter of 2014.



Also, on January 27, 2014, the company's Board of Directors declared a regular quarterly dividend of $0.25 per common share to be paid on March 3, 2014 to shareholders of record as of February 6, 2014.

EFFECTS OF INFLATION

Prices for energy, including natural gas, oil and electricity, as well as for raw materials and freight, increased in 2013 compared to 2012. During 2013, pre-tax input costs of energy, raw materials and freight were $28 million higher than in 2012 on a continuing operations basis. During 2012, pre-tax input costs of energy, raw materials and freight were $58 million higher than in 2011 on a continuing operations basis. 31



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ENVIRONMENTAL AND LEGAL MATTERS

Our operations are subject to extensive regulation by federal, state and local authorities, as well as regulatory authorities with jurisdiction over foreign operations of the company. Due to changes in environmental laws and regulations, the application of such regulations, and changes in environmental control technology, it is not possible for us to predict with certainty the amount of capital expenditures to be incurred for environmental purposes. Taking these uncertainties into account, we estimate that we will incur $50 million and $75 million in environmental capital expenditures in 2014 and 2015, respectively. Approximately $32 million was spent on environmental capital projects in 2013. Included in the 2014 and 2015 estimated expenditures are capital costs associated with compliance with the Maximum Achievable Compliance Technology for industrial boilers rules that were finalized by the United States Environmental Protection Agency in January 2013. Total expenditures for compliance with this rule are estimated to be in a range of $40 million to $60 million over the period of 2014 through 2015 and possibly extending into 2016. The company has been notified by the U.S. Environmental Protection Agency or by various state or local governments that it may be liable under federal environmental laws or under applicable state or local laws with respect to the cleanup of hazardous substances at sites previously operated or used by the company. The company is currently named as a potentially responsible party ("PRP"), or has received third-party requests for contribution under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state or local laws with respect to numerous sites. There are other sites which may contain contamination or which may be potential Superfund sites, but for which MeadWestvaco has not received any notice or claim. The potential liability for all these sites will depend upon several factors, including the extent of contamination, the method of remediation, insurance coverage and contribution by other PRPs. The company regularly evaluates its potential liability at these various sites. At December 31, 2013, MeadWestvaco had recorded liabilities of approximately $4 million for estimated potential cleanup costs based upon its close monitoring of ongoing activities and its past experience with these matters. The company believes that it is reasonably possible that costs associated with these sites may exceed amounts of recorded liabilities at December 31, 2013 by an amount that could range from an insignificant amount to as much as $3 million. This estimate is less certain than the estimate upon which the environmental liabilities were based. After consulting with legal counsel and after considering established liabilities, it is our judgment that the resolution of pending litigation and proceedings is not expected to have a material adverse effect on the company's consolidated financial condition or liquidity. In any given period or periods, however, it is possible such proceedings or matters could have a material effect on the results of operations. As with numerous other large industrial companies, the company has been named a defendant in asbestos-related personal injury litigation. Typically, these suits also name many other corporate defendants. To date, the costs resulting from the litigation, including settlement costs, have not been significant. As of December 31, 2013, there were approximately 560 lawsuits. Management believes that the company has substantial indemnification protection and insurance coverage, subject to applicable deductibles and policy limits, with respect to asbestos claims. The company has valid defenses to these claims and intends to continue to defend them vigorously. Additionally, based on its historical experience in asbestos cases and an analysis of the current cases, the company believes that it has adequate amounts accrued for potential settlements and judgments in asbestos-related litigation. At December 31, 2013, the company had recorded litigation liabilities of approximately $32 million, a significant portion of which relates to asbestos. Should the volume of litigation grow substantially, it is possible that the company could incur significant costs resolving these cases. After consulting with legal counsel and after considering established liabilities, it is our judgment that the resolution of pending litigation and proceedings is not expected to have a material adverse effect on the company's consolidated financial condition or liquidity. In any given period or periods, however, it is possible such proceedings or matters could have a material effect on the results of operations. 32



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MeadWestvaco is involved in various other litigation and administrative proceedings arising in the normal course of business. Although the ultimate outcome of such matters cannot be predicted with certainty, management does not believe that the currently expected outcome of any matter, lawsuit or claim that is pending or threatened, or all of them combined, will have a material adverse effect on the company's consolidated financial condition or liquidity. In any given period or periods, however, it is possible such proceedings or matters could have a material effect on the results of operations.



CONTRACTUAL OBLIGATIONS

The company enters into various contractual obligations throughout the year. Presented below are the contractual obligations of the company as of December 31, 2013, and the time period in which payments under the obligations are due. Disclosures related to long-term debt, capital lease obligations and operating lease obligations are included in Note G and Note I of Notes to Consolidated Financial Statements included in Part II, Item 8. Also included below are disclosures regarding the amounts due under purchase obligations. A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The company has included in the below disclosure all normal and recurring purchase orders, take-or-pay contracts, supply arrangements as well as other purchase commitments that management believes meet the above definition of a purchase obligations. Payments due by period 1-3 3-5 More than Less than years years 5 years 1 year 2015 2017 2019 In millions Total 2014 and 2016 and 2018 and beyond Contractual obligations: Debt, excluding capital lease obligations $ 1,744$ 77$ 35$ 192$ 1,440 Interest on debt (1) 1,769 129 256 235 1,149 Capital lease obligations (2) 292 11 21 19 241 Operating leases obligations 312 56 82 57 117 Purchase obligations 1,150 1,013 78 57 2 Other long-term obligations (3) 728 49 96 95 488 Total(4) $ 5,995$ 1,335$ 568$ 655$ 3,437 (1) Amounts are based on weighted-average interest rates of 7.7% for the



company's fixed-rate long-term debt for 2014. The weighted-average interest

rate for 2015 and thereafter, is 7.8% for the company's fixed rate debt. See

related discussion in Note G of Notes to Consolidated Financial Statements

included in Part II, Item 8.

(2) Amounts include both principal and interest payments.

(3) Total Other long-term obligations include $95 million of unrecognized tax

benefits and $89 million of related accrued interest and penalties at

December 31, 2013 due to the uncertainty of timing of payment. See Note O of

Notes to Consolidated Financial Statements included in Part II, Item 8 for

additional information.

(4) Total excludes $1.1 billion of liabilities that are held by consolidated

special purpose entities and non-recourse to MeadWestvaco. See related

discussion in Note R of Notes to Consolidated Financial Statements included in Part II, Item 8. 33



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CRITICAL ACCOUNTING POLICIES

Our principal accounting policies are described in the Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part II, Item 8. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management believes the accounting policies discussed below represent those accounting policies requiring the exercise of judgment where a different set of judgments could result in the greatest changes to reported results. Management has discussed the development and selection of the critical accounting estimates with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the company's disclosure. Environmental and legal liabilities: We record accruals for estimated environmental liabilities when remedial efforts are probable and the costs can be reasonably estimated. These estimates reflect assumptions and judgments as to the probable nature, magnitude and timing of required investigation, remediation and monitoring activities, as well as availability of insurance coverage and contribution by other potentially responsible parties. Due to the numerous uncertainties and variables associated with these assumptions and judgments, and changes in governmental regulations and environmental technologies, accruals are subject to substantial uncertainties, and actual costs could be materially greater or less than the estimated amounts. We record accruals for other legal contingencies, which are also subject to numerous uncertainties and variables associated with assumptions and judgments, when the loss is probable and reasonably estimable. Liabilities recorded for claims are limited to pending cases based on the company's historical experience, consultation with outside counsel and consultation with an actuarial specialist concerning the feasibility of reasonably estimating liabilities associated with claims that may arise in the future. We recognize insurance recoveries when collection is reasonably assured. Restructuring and other charges: We periodically record charges for the reduction of our workforce, the closure of manufacturing facilities and other actions related to broad cost reduction actions and productivity initiatives. These events require estimates of liabilities for employee separation payments and related benefits, demolition, facility closures and other costs, which could differ from actual costs incurred. Pension and postretirement benefits: Assumptions used in the determination of net pension cost and postretirement benefit expense, including the discount rate, the expected return on plan assets, and increases in future compensation and medical costs, are evaluated by the company, reviewed with the plan actuaries annually and updated as appropriate. Actual asset returns and compensation and medical costs, which are more favorable than assumptions, can have the effect of lowering expense and cash contributions, and, conversely, actual results, which are less favorable than assumptions, could increase expense and cash contributions. In accordance with generally accepted accounting principles, actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, affect expense in such future periods. In 2013, the company recorded pre-tax pension income from continuing operations of $85 million (net of charges for settlements and termination benefits of $21 million), compared to $69 million in 2012 and $82 million (net of charges for settlements and termination benefits of $12 million) in 2011. The company currently estimates pre-tax pension income in 2014 from its domestic and foreign plans to be approximately $120 million before the impacts from settlements and curtailments. This estimate assumes a long-term rate of return on plan assets of 7.90%, and a discount rate of 4.90% for the U.S. plans. The company determined the discount rate for the U.S. plans by referencing the Aon Hewitt Aa Only Above Median curve. The company believes that using a yield curve approach most accurately reflects changes in the present value of liabilities over time since each cash flow is discounted at the rate at which it could effectively be settled. 34



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If the expected rate of return on plan assets were to change by 0.5%, annual pension income in 2014 would change by approximately $18 million. Similarly, if the discount rate were to change by 0.5%, annual pension income in 2014 would change by approximately $3 million. At December 31, 2013, the aggregate value of pension fund assets had decreased to $3.9 billion from $4.3 billion at December 31, 2012, resulting primarily from the previously announced lump sum program that provided former U.S. employees who terminated from the company prior to November 30, 2012 with the value of their retirement benefit in a single lump sum. These payments were funded with assets of the U.S. retirement plans. For further details regarding pension fund assets, see Note L of Notes to Consolidated Financial Statements included in Part II, Item 8. Prior service cost and unrecognized actuarial gains and losses in the retirement and postretirement benefit plans subject to amortization are amortized over the average remaining service periods, which are about 11 years for the salaried and bargained retirement plans, and about 5 years for the postretirement benefit plan, and are a component of accumulated other comprehensive loss. Prior service cost and unrecognized actuarial gains and losses associated with the Envelope Products salaried plan are being amortized over the average remaining life expectancy of the plan participants which is about 21 years. The Envelope Products salaried plan was retained by the company. Long-lived assets useful lives: Useful lives of tangible and intangible assets are based on management's estimates of the periods over which the assets will be productively utilized in the revenue-generation process or for other useful purposes. Factors that affect the determination of lives include prior experience with similar assets, product life expectations and industry practices. The determination of useful lives dictates the period over which tangible and intangible long-lived assets are depreciated or amortized, typically using the straight-line method. Impairment of long-lived assets: We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to carrying value to determine whether impairment exists. For an asset that is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. Considerable judgment must be exercised as to determining future cash flows and their timing and, possibly, choosing business value comparables or selecting discount rates to use in any value computations. Intangible assets: Business acquisitions often result in recording intangible assets. Intangible assets are recognized at the time of an acquisition, based upon their fair value. Similar to long-lived tangible assets, intangible assets with finite lives are subject to periodic impairment reviews whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As with tangible assets, considerable judgment must be exercised. Periodic impairment reviews of intangible assets assigned an indefinite life are required, at least annually, as well as when events or circumstances change. As with our review of impairment of tangible assets and goodwill, we employ significant assumptions in assessing our indefinite-lived intangible assets for impairment (primarily Calmar trademarks and trade names). An income approach (the relief from royalty method) is used to determine the fair values of our indefinite-lived intangible assets. Although our estimate of fair values of the company's indefinite-lived intangible assets under the income approach exceed the respective carrying values, different assumptions regarding projected performance and other factors could result in significant non-cash impairment charges in the future. Based on our annual review of our indefinite-lived intangible assets as of October 1, 2013, there was no indication of impairment. 35



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Goodwill: Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. As with tangible and other intangible assets, periodic impairment reviews are required, at least annually, as well as when events or circumstances change. We review the recorded value of our goodwill annually on October 1 or sooner, if events or changes in circumstances indicate that the carrying amount may exceed fair value. As with our review of impairment of tangible and intangible assets, we employ significant assumptions in assessing goodwill for impairment. These assumptions include relevant considerations of market-participant data. When it is determined that the two-step impairment test is required, an income approach is generally used to determine the fair values of our reporting units. In applying the income approach in assessing goodwill for impairment, changes in assumptions could materially affect the determination of fair value for a reporting unit. Although our fair value estimates of the company's reporting units under the income approach exceed the respective carrying values, different assumptions regarding projected performance and other factors could result in significant non-cash impairment charges in the future. The following are key assumptions to our income approach: Business projections - Projections are based on three-year forecasts that are developed internally by management and reviewed by the company's Board of Directors. These projections include significant assumptions such as estimates of future revenues, profits, working capital requirements, operating plans, costs of restructuring actions and capital expenditures. Assumptions surrounding macro-economic data and estimates include industry projections, inflation, foreign currency exchange rates and costs of energy, raw materials and freight. Growth rates - A growth rate based on market participant data considerations is used to calculate the terminal value of a reporting unit. The growth rate is the expected rate at which a reporting unit's earnings stream is projected to grow beyond the three-year forecast period. Discount rates - Future cash flows are discounted at a rate that is consistent with a weighted average cost of capital for a potential market participant. The weighted average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise. The discount rates selected for the reporting units are based on existing conditions within the respective markets and reflect appropriate adjustments for potential risk premiums in those markets as well as appropriate weighting of the market cost of equity versus debt, which is developed with the assistance of external financial advisors.



Tax rates - Tax rates are based on estimates of the tax rates that a market participant would realize in the respective primary markets and geographic areas in which the reporting units operate.

Based on the company's annual review of recorded goodwill at October 1, 2013, there was no indication of impairment. The leadership of the Home, Health and Beauty segment changed during 2013 which also resulted in a change to the reporting units effective October 1, 2013 based on how the new leadership manages cash flow and other key metrics of the segment. The Home, Health and Beauty Primary Plastics Operations ("PPO") reporting unit included within the Home, Health and Beauty reporting segment had $362 million of goodwill, as well as an indefinite-lived trade name asset with a carrying value of $95 million at December 31, 2013. The estimated fair value of this reporting unit exceeded its carrying value by approximately 15% at December 31, 2013, representing the lowest headroom coverage of the company's reporting units. Holding other valuation assumptions constant, it would take a downward shift in operating profits of more than 15% from projected levels before the fair value of the PPO reporting unit would be below its carrying value, thereby triggering the requirement to perform further analysis which may indicate potential goodwill impairment. The projections used in the impairment analysis for this reporting unit reflect the strategic direction of the new Home, Health & Beauty leadership, most notably certain growth, productivity improvement and cost reduction initiatives. Different assumptions regarding projected performance and other factors associated with this reporting unit could result in significant non-cash impairment charges in the future. 36



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See Note D of Notes to Consolidated Financial Statements included in Part II, Item 8 for further information regarding goodwill.

Revenue recognition: We recognize revenue at the point when title and the risk of ownership passes to the customer. Substantially all of our revenues are generated through product sales, and shipping terms generally indicate when title and the risk of ownership have passed. Revenue is recognized at shipment for sales when shipping terms are FOB (freight on board) shipping point unless risk of loss is maintained under freight terms. For sales where shipping terms are FOB destination, revenue is recognized when the goods are received by the customer. We provide for all allowances for estimated returns and other customer credits such as discounts and volume rebates, when the revenue is recognized, based on historical experience, current trends and any notification of pending returns. The customer allowances are, in many instances, subjective and are determined with significant management judgment and are reviewed regularly to determine the adequacy of the amounts. Changes in economic conditions, markets and customer relationships may require adjustments to these allowances from period to period. Also included in net sales is service revenue, which is recognized as the service is performed. Revenue is recognized for leased equipment to customers on a straight-line basis over the estimated term of the lease and is included in net sales of the company. Income taxes: Income taxes are accounted for in accordance with the guidelines provided by the Financial Accounting Standards Board, which recognizes deferred tax assets and liabilities based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the enacted tax laws. We evaluate the need for a deferred tax asset valuation allowance by assessing whether it is more likely than not that the company will realize its deferred tax assets in the future. The assessment of whether or not a valuation allowance is required often requires significant judgment, including the forecast of future taxable income and the valuation of tax planning initiatives. Adjustments to the deferred tax valuation allowance are made to earnings in the period when such assessment is made. The company has tax jurisdictions located in many areas of the world and is subject to audit in these jurisdictions. Tax audits by their nature are often complex and can require several years to resolve. In the preparation of the company's financial statements, management exercises judgments in estimating the potential exposure to unresolved tax matters. The company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the position is sustainable. For those tax positions that meet the more likely than not criteria, the company records only the portion of the tax benefit that is greater than 50% likely to be realized upon settlement with the respective taxing authority. Interest and penalties related to unrecognized tax benefits are recorded within income tax expense in the consolidated statements of operations. While actual results could vary, in management's judgment, the company has adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters. Each quarter, we estimate our effective tax rate for the full year. This estimate includes assumptions about the level of income that will be achieved for the full year in both our domestic and international operations. The forecast of full-year earnings includes assumptions about markets in each of our businesses as well as the timing of certain transactions, including gains from forestland sales and restructuring charges. Should business performance or the timing of certain transactions change during the year, the level of income achieved may not meet the level of income estimated earlier in the year at interim periods. This change in the income levels and mix of earnings can result in significant adjustments to the tax provision in the quarter in which the estimate is refined. 37



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NEW ACCOUNTING GUIDANCE

In January 2013, the company adopted new guidance regarding the reporting of amounts reclassified out of accumulated other comprehensive income. The new guidance requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The company has presented the amounts reclassified out of accumulated other comprehensive income by the respective line items of net income in the notes to the consolidated financial statements. The impact of adoption did not have a material effect on the company's consolidated financial statements. Refer to Note J for further information. In January 2013, the company adopted new accounting guidance regarding additional disclosures for financial instruments that are offset, including the gross amount of the asset and liability as well as the impact of any net amount presented in the consolidated financial statements. The impact of adoption did not have a material effect on the company's consolidated financial statements. Refer to Note H for further information. In March 2013, new accounting guidance was issued regarding foreign currency matters. The new guidance clarifies existing guidance regarding circumstances when cumulative translation adjustments should be released into earnings. These provisions are effective prospectively for fiscal and interim periods beginning after December 15, 2013. The impact of adoption will not have a material effect on the company's consolidated financial statements. In July 2013, new accounting guidance was issued regarding derivatives and hedging. The new guidance includes an additional benchmark interest rate for hedge accounting purposes and removes the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The impact of adoption will not have a material effect on the company's consolidated financial statements. In July 2013, new accounting guidance was issued regarding the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance requires an unrecognized tax benefit be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, unless certain exceptions are met. The amendments are effective prospectively for fiscal and interim periods beginning after December 15, 2013. The impact of adoption will not have a material effect on the company's consolidated financial statements.



There were no other accounting standards issued in 2013 that had or are expected to have a material impact on the company's financial position or results of operations.

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Forward-looking Statements

Certain statements in this document and elsewhere by management of the company that are neither reported financial results nor other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such information includes, without limitation, the business outlook, assessment of market conditions, anticipated financial and operating results, strategies, future plans, contingencies and contemplated transactions of the company. Such forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors which may cause or contribute to actual results of company operations, or the performance or achievements of each company, or industry results, to differ materially from those expressed 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 or implied for the forward-looking statements include, but are not limited to, events or circumstances which affect the ability of MeadWestvaco to realize improvements in operating earnings from the company's ongoing cost reduction initiatives; the ability of MeadWestvaco to close announced and pending transactions; competitive pricing for the company's products; impact from inflation on raw materials, energy and other costs; fluctuations in demand and changes in production capacities; relative growth or decline in the United States and international economies; government policies and regulations, including, but not limited to those affecting the environment, climate change, tax policies and the tobacco industry; the company's continued ability to reach agreement with its unionized employees on collective bargaining agreements; the company's ability to maximize the value of its development land holdings; adverse results in current or future litigation; currency movements; volatility and further deterioration of the capital markets; and other risk factors discussed in this Annual Report on Form 10-K for the year ended December 31, 2013, and in other filings made from time to time with the SEC. MeadWestvaco undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Investors are advised, however, to consult any further disclosures made on related subjects in the company's reports filed with the SEC. 39



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