OVERVIEW

For the three months ended September 30, 2009, MeadWestvaco Corporation ("MeadWestvaco", "MWV" or the "company") reported net income from continuing operations of $128 million, or $0.74 per share, compared to net income from continuing operations of $46 million, or $0.26 per share, for the three months ended September 30, 2008. The results from continuing operations for the three months ended September 30, 2009 include after-tax income of $64 million, or $0.37 per share, from an excise tax credit earned under 2007 legislation enacted to provide a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. This item is described below under "Alternative fuel mixture credit." The results from continuing operations for the three months ended September 30, 2009 also include after-tax restructuring charges of $28 million, or $0.16 per share, after-tax income of $13 million, or $0.07 per share, from vacation accrual adjustments due to a policy change, an after-tax net charge of $11 million, or $0.06 per share, from early extinguishment of debt, and an after-tax gain of $4 million, or $0.02 per share, from the recognition of a pension curtailment.

For the nine months ended September 30, 2009, the company reported net income from continuing operations of $174 million, or $1.01 per share, compared to net income from continuing operations of $96 million, or $0.55 per share, for the nine months ended September 30, 2008. The results from continuing operations for the nine months ended September 30, 2009 include after-tax income of $176 million, or $1.02 per share, from the alternative fuel mixture credit mentioned above, after-tax restructuring charges of $104 million, or $0.60 per share, after-tax income of $13 million, or $0.07 per share, from vacation accrual adjustments due to a policy change, an after-tax net charge of $11 million, or $0.06 per share, from early extinguishment of debt, and an after-tax gain of $4 million, or $0.02 per share, from the recognition of a pension curtailment. The results from continuing operations for the nine months ended September 30, 2008 include after-tax restructuring charges of $11 million, or $0.07 per share, an after-tax gain of $9 million, or $0.05 per share, from a sale of corporate real estate, and an after-tax gain of $6 million, or $0.04 per share, from the recognition of a pension curtailment.

Sales from continuing operations were $1.63 billion for the three months ended September 30, 2009 compared to $1.81 billion for the three months ended September 30, 2008. Sales from continuing operations were $4.41 billion for the nine months ended September 30, 2009 compared to $5.04 billion for the nine months ended September 30, 2008. Decreased sales reflect continued lower demand for packaged goods due to weak global economic conditions, as well as the impact of unfavorable foreign currency exchange. Lower sales also reflect the company's transformation strategy of exiting lower-return packaging product lines. Cash flow from continuing operations increased to $546 million for the nine months ended September 30, 2009 from $182 million for the nine months ended September 30, 2008, driven by the receipt of alternative fuel tax credits of $248 million in 2009, as well as from improved working capital consumption and higher earnings compared to 2008.

MWV is continuing to implement a series of broad cost reduction actions to strengthen the company's financial position and improve its operational effectiveness. These actions include productivity initiatives at all facilities, aggressive sourcing strategies, restructuring the company's manufacturing footprint and significant reductions in overhead costs. By the end of 2009, these actions are expected to result in the elimination of over 2,000 positions, or 10% of MWV's global workforce, and the closure or restructure of 16 manufacturing facilities. During the three months ended September 30, 2009, the company realized savings of $44 million ($90 million year-to-date) and these cost management efforts are expected to result in $140 million in savings in 2009. Including sourcing savings, the company expects to achieve a targeted run-rate of $300 million by mid-2010 from its strategic cost management actions.

Alternative fuel mixture credit

The U.S. Internal Revenue Code allows an excise tax credit for alternative fuel mixtures produced by a taxpayer for sale, or for use as a fuel in a taxpayer's trade or business. MWV qualifies for the alternative fuel mixture credit because it uses an alternative fuel known as black liquor, which is a byproduct of its wood pulping process, to power its paperboard mills. The company submitted refund claims totaling $281 million, after associated expenses, based on fuel usage at its three U.S. paperboard mills from mid-January 2009 through September 30, 2009. The company received refunds from the Internal Revenue Service totaling $248 million through September 30, 2009. The pre-tax impact of the excise tax credit, net of associated expenses, is included in other (income) expense in the consolidated statements of operations in the amounts of $103 million and $281 million for the three and nine months ended September 30, 2009, respectively, and is included in Corporate and Other for segment reporting purposes. The credit is currently scheduled to expire on December 31, 2009.

RESULTS OF OPERATIONS

Presented below are results for the three and nine months ended September 30,
2009 and 2008 reported in accordance with accounting principles generally
accepted in the U.S. All per share amounts are presented on an after-tax basis.



                                                     Three Months Ended          Nine Months Ended
                                                       September 30,               September 30,
In millions, except per share amounts               2009            2008        2009           2008
Net sales                                         $   1,627        $ 1,811    $   4,413       $ 5,038

Cost of sales                                         1,297          1,490        3,693         4,189
Selling, general and administrative expenses            188            212          591           615
Interest expense                                         52             52          155           155
Other (income) expense, net                             (94 )            6         (287 )         (22 )


Income from continuing operations before
income taxes                                            184             51          261           101

Income tax provision                                     56              5           87             5


Income from continuing operations                       128             46          174            96

Income from discontinued operations, net of
income taxes                                             -               8           -             10


Net income attributable to the company            $     128        $    54    $     174       $   106


Net income per share - basic:
Income from continuing operations                 $    0.75        $  0.26    $    1.02       $  0.55
Income from discontinued operations                      -            0.05           -           0.06

Net income attributable to the company            $    0.75        $  0.31    $    1.02       $  0.61


Net income per share - diluted:
Income from continuing operations                 $    0.74        $  0.26    $    1.01       $  0.55
Income from discontinued operations                      -            0.05           -           0.06

Net income attributable to the company            $    0.74        $  0.31    $    1.01       $  0.61

Sales were $1.63 billion for the three months ended September 30, 2009 compared to $1.81 billion for the three months ended September 30, 2008. Sales were $4.41 billion for the nine months ended September 30, 2009 compared to $5.04 billion for the nine months ended September 30, 2008. Lower sales primarily reflect declines in overall volumes and the impact of unfavorable foreign currency exchange. Lower sales also reflect the company's transformation strategy of exiting lower-return packaging product lines. Refer to the individual segment discussions below for detailed sales information for each segment.

Cost of sales was $1.30 billion for the three months ended September 30, 2009 compared to $1.49 billion for the three months ended September 30, 2008. Cost of sales was $3.69 billion for the nine months ended September 30, 2009 compared to $4.19 billion for the nine months ended September 30, 2008. Decreased cost of sales was primarily due to lower volume, input cost deflation and the impact of foreign currency exchange. Total input costs, including energy, raw materials and freight, were $56 million and $68 million lower during the three and nine months ended September 30, 2009, respectively, compared to the same periods in 2008. The results for 2009 reflect higher restructuring charges of $41 million and $129 million for the three and nine months ended September 30, 2009, respectively, compared to the same periods in 2008.

Selling, general and administrative expenses were $188 million for the three months ended September 30, 2009 compared to $212 million for the three months ended September 30, 2008. Selling, general and administrative expenses were $591 million for the nine months ended September 30, 2009 compared to $615 million for the nine months ended September 30, 2008. The benefits achieved from productivity initiatives and overhead reduction actions drove the year-over-year improvement, as well as the impact of foreign currency exchange.

Pension income, excluding the effects of termination benefits and curtailments, was $18 million for the three months ended September 30, 2009 compared to $20 million for the three months ended September 30, 2008. Pension income, excluding the effects of termination benefits and curtailments, was $47 million for the nine months ended September 30, 2009 compared to $63 million for the nine months ended September 30, 2008. Pension income is reported in Corporate and Other for segment reporting purposes.

Other (income) expense, net is comprised of the following items for the three and nine months ended September 30, 2009 and 2008:

                                                   Three months ended            Nine months ended
                                                      September 30,                September 30,
In millions                                        2009            2008          2009           2008
Alternative fuel tax credit                      $    (103 )      $   -        $    (281 )      $  -
Loss on early extinguishment of debt                    18            -               18           -
Interest income                                         (5 )         (10 )           (15 )        (28 )
Foreign currency exchange (gains) losses                (2 )          15              (2 )         17
Loss (gains) on asset sales, net                         1            -                1          (13 )
Other                                                   (3 )           1              (8 )          2

                                                 $     (94 )      $    6       $    (287 )      $ (22 )

Interest expense was $52 million for the three months ended September 30, 2009 and was comprised of $44 million related to bond and bank debt, $1 million related to a long-term obligation non-recourse to MWV, and $5 million related to borrowings on insurance polices and $2 million related to other items. Interest expense was $52 million for the three months ended September 30, 2008 and was comprised of $41 million related to bond and bank debt, $3 million related to an long-term obligation non-recourse to MWV, and $4 million related to borrowings on insurance polices and $4 million related to other items. Interest expense was $155 million for the nine months ended September 30, 2009 and was comprised of $128 million related to bond and bank debt, $4 million related to a long-term obligation non-recourse to MWV, and $14 million related to borrowings on insurance polices and $9 million related to other items. Interest expense was $155 million for the nine months ended September 30, 2008 and was comprised of $122 million related to bond and bank debt, $10 million related to a long-term obligation non-recourse to MWV, $12 million related to borrowings on insurance polices and $11 million related to other items.

For the three and nine months ended September 30, 2009, the effective tax rates attributable to income from continuing operations were approximately 30% and 33%, respectively. For the three and nine months ended September 30, 2008, the effective tax rates attributable to income from continuing operations were approximately 10% and 5%, respectively. The differences in the effective tax rates compared to statutory rates were primarily the result of changes to the mix of expected income levels between the company's domestic and foreign operations, and discrete items including favorable tax settlements in 2008. The annual effective rate for 2009 is expected to be about 30%, excluding discrete items.

On July 1, 2008, the company completed the sale of its North Charleston, South Carolina kraft paper mill and related assets (collectively, the "Kraft business") for net cash proceeds of $466 million. For the three and nine months ended September 30, 2008, the after-tax operating results of the Kraft business are being reported as discontinued operations in the consolidated statements of operations. The results of operations and assets and liabilities of the Kraft business were previously included in the Packaging Resources segment. Income from discontinued operations was $8 million, or $0.05 per share, for the three months ended September 30, 2008, and income from discontinued operations was $10 million, or $0.06 per share, for the nine months ended September 30, 2008. Refer to Note 13 of Notes to Consolidated Financial Statements for further discussion of the sale of the Kraft business and discontinued operations treatment.

In addition to the information discussed above, the following sections discuss the results of operations for each of the company's business segments and Corporate and Other. MWV's business segments are (i) Packaging Resources, (ii) Consumer Solutions, (iii) Consumer & Office Products, (iv) Specialty Chemicals, and (v) Community Development and Land Management. Refer to Note 10 of Notes to Consolidated Financial Statements for a reconciliation of the sum of the results of the business segments and Corporate and Other to the company's consolidated income from continuing operations before income taxes. Restructuring charges are included in Corporate and Other for segment reporting purposes. Refer to the discussion included in "Significant Transactions" herein below for restructuring charges attributable to the company's business segments.

Packaging Resources



                                   Three months ended       Nine months ended
                                     September 30,            September 30,
            In millions            2009         2008         2009        2008
            Sales                $     627    $     730   $    1,809    $ 2,035
            Segment profit (1)          74           64          142        150

(1) Segment profit is measured as results before restructuring charges, pension income, interest expense and income, income taxes, non-controlling interest income and losses, and discontinued operations.

The Packaging Resources segment produces bleached paperboard ("SBS"), Coated Natural Kraft® paperboard ("CNK") and linerboard. This segment's paperboard products are manufactured at three mills located in the U.S. and two mills located in Brazil. SBS is used for packaging high-value consumer products such as pharmaceuticals, personal and beauty care, cosmetics, tobacco, food service and aseptic cartons. CNK paperboard is used for a range of packaging applications, the largest of which for MWV is multi-pack beverage packaging. Linerboard is used in the manufacture of corrugated boxes and other containers.

Sales for the Packaging Resources segment were $627 million for the three months ended September 30, 2009 compared to $730 million for the three months ended September 30, 2008. Sales declined compared to the prior year due to weaker demand for the majority of the segment's paperboard grades and from the impact of unfavorable foreign currency exchange. Shipments of SBS were 348,000 tons in 2009, down 19% from 2008, driven by lower volumes in global general packaging, tobacco packaging and foodservice packaging. Shipments of CNK were 239,000 tons in 2009, down 10% from 2008, driven by lower volumes in beverage packaging and global general packaging. In 2009, SBS pricing was up 3% and CNK pricing was up 8% compared to 2008. Backlogs for both SBS and CNK currently remain about two weeks. Sales of the company's Brazilian packaging operation, Rigesa Ltda., were 19% lower in 2009, driven primarily by unfavorable foreign currency exchange and lower volume compared to 2008. In addition, the segment permanently removed approximately 200,000 tons of annual SBS paperboard capacity pursuant to the permanent shutdown of a paperboard machine at its Evadale, Texas mill during August 2009.

Profit for the Packaging Resources segment was $74 million for the three months ended September 30, 2009 compared to $64 million for the three months ended September 30, 2008. Profit in 2009 benefited by $32 million from input cost deflation, $7 million from improved pricing and product mix and $3 million from productivity initiatives and overhead reduction actions compared to 2008. Profit in 2009 was negatively impacted by $19 million from higher unabsorbed fixed manufacturing costs due to market-related downtime, $12 million from lower sales volume and $1 million from unfavorable foreign currency exchange compared to 2008. During 2009, the segment took aggressive actions to match production with demand resulting in lower production volumes. During the three months ended September 30, 2009, market-related downtime totaled 64,000 tons (33,000 CNK and 31,000 SBS).

Sales for the Packaging Resources segment were $1.81 billion for the nine months ended September 30, 2009 compared to $2.04 billion for the nine months ended September 30, 2008. Sales declined compared to the prior year due to weaker demand for the majority of the segment's paperboard grades and from the impact of unfavorable foreign currency exchange. Shipments of SBS were 1,006,000 tons in 2009, down 17% from 2008, driven by lower volumes in global general packaging, tobacco packaging and foodservice packaging. Shipments of CNK were 757,000 tons in 2009, down 7% from 2008, driven by lower volumes of beverage packaging and global general packaging. In 2009, both SBS and CNK pricing were up 5% compared to 2008. Sales of the company's Brazilian packaging operation, Rigesa Ltda., were 24% lower in 2009, driven primarily by the impact of unfavorable foreign currency exchange compared to 2008.

Profit for the Packaging Resources segment was $142 million for the nine months ended September 30, 2009 compared to $150 million for the nine months ended September 30, 2008. Profit in 2009 was negatively affected by $80 million from higher unabsorbed fixed manufacturing costs due to market- and maintenance-related downtime, $31 million from lower sales volume and $19 million from unfavorable foreign currency exchange compared to 2008. Profit in 2009 benefited by $64 million from improved pricing and product mix, $30 million from productivity initiatives and overhead reduction actions and $28 million from input cost deflation compared to 2008. During 2009, the segment took aggressive actions to match production with demand, in addition to its planned maintenance outages, resulting in lower production volumes. During the nine months ended September 30, 2009, market- and maintenance-related downtime totaled 254,000 tons (154,000 SBS and 100,000 CNK).

Consumer Solutions



                                   Three months ended       Nine months ended
                                     September 30,            September 30,
            In millions            2009         2008         2009        2008
            Sales                $     585    $     653   $    1,672    $ 1,915
            Segment profit (1)          35           14           73         45

(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 Consumer Solutions segment offers a full range of converting and consumer packaging solutions including printed plastic packaging and injection-molded products used for personal and beauty care, cosmetics and pharmaceutical products; dispensing and sprayer systems for personal and beauty care, healthcare, fragrance and home and garden markets; and packaging for media products such as DVDs, CDs, video games and software. This segment designs and produces multi-pack cartons and packaging systems primarily for the global beverage take-home market and packaging for the global tobacco market. Paperboard and plastic are converted into packaging products at plants located in North America, South America, Europe and Asia. This segment also has pharmaceutical packaging contracts with retailers, including well-known mass-merchants. In addition, this segment manufactures equipment that is leased or sold to its beverage and dairy customers to package their products.

Sales for the Consumer Solutions segment were $585 million for the three months ended September 30, 2009 compared to $653 million for the three months ended September 30, 2008. Decreased sales in 2009 were driven by lower overall volumes due to lower demand for premium products and declines in overall consumer spending, as well as from unfavorable foreign currency exchange. In addition, sales declined as the result of the segment's transformation strategy to exit lower-return packaging business in North America. These declines were partially offset by strong volume growth in the emerging Asia beverage market and increased demand for personal care and home and garden packaging due to heightened awareness of the H1N1 virus. In addition, the company continues to experience strong demand for its Shellpak® solution.

Profit for the Consumer Solutions segment was $35 million for the three months ended September 30, 2009 compared to $14 million for the three months ended September 30, 2008. Successful implementation of the segment's transformation strategies, including maximizing production efficiency and exiting unprofitable product lines, drove favorable net cost productivity of $38 million compared to 2008. Profit in 2009 also benefited by $6 million from input cost deflation and $1 million from favorable foreign currency exchange compared to 2008. Profit in 2009 was negatively impacted by $20 million from unfavorable pricing, largely tied to declining resin costs, and product mix in media, and $4 million from lower sales volume compared to 2008.

Sales for the Consumer Solutions segment were $1.67 billion for the nine months ended September 30, 2009 compared to $1.92 billion for the nine months ended September 30, 2008. Decreased sales in 2009 were driven by lower overall volumes due to lower demand for premium products and declines in overall consumer spending, as well as from unfavorable foreign currency exchange. In addition, sales declined as the result of the segment's transformation strategy to exit lower-return packaging business in North America. These declines were partially offset by strong volume growth in the emerging Asia beverage market and increased demand for personal care and home and garden packaging due to heightened awareness of the H1N1 virus. In addition, the company continues to experience strong demand for its Shellpak® solution.

Profit for the Consumer Solutions segment was $73 million for the nine months ended September 30, 2009 compared to $45 million for the nine months ended September 30, 2008. Successful implementation of the segment's transformation strategies, including maximizing production efficiency and exiting unprofitable product lines, drove favorable net cost productivity of $81 million compared to 2008. Profit in 2009 also benefited by $7 million from input cost deflation compared to 2008. Profit in 2009 was negatively impacted by $33 million from unfavorable pricing, largely tied to declining resin costs, and product mix in media, $14 million from lower sales volume and $13 million from unfavorable foreign currency exchange compared to 2008.

Consumer & Office Products



                                   Three months ended       Nine months ended
                                     September 30,            September 30,
            In millions            2009         2008        2009         2008
            Sales                $     303    $     312   $     700    $     790
            Segment profit (1)          51           38          77           62

(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 Consumer & Office Products segment manufactures, sources, markets and distributes school and office products, time-management products and envelopes in North America and Brazil through both retail and commercial channels. MWV produces many of the leading brand names in school supplies, time-management and commercial office products, including AMCAL, ® AT-A-GLANCE, ® Cambridge, ®COLUMBIAN, ® Day Runner, ® Five Star, ® Mead ® and Trapper Keeper. ®

Sales for the Consumer & Office Products segment were $303 million for the three months ended September 30, 2009 compared to $312 million for the three months ended September 30, 2008. During 2009, the segment had a solid back-to-school season in North America, with strong positioning and sell-through of proprietary, branded products at leading retailers. Sales of envelopes and office products were lower due to the weak global economic environment as financial services customers have significantly reduced direct mail offerings. . . .