Form 10-K

December 31

In millions

Notional amount

Fair value

Carrying amount

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RxRtFtgjkT6vFyWLdscl9nZKB+Wx3tvLN64RcQ6ZVtkt/qEVuhW1KS2yKAcIuy4a eUZuy5bJuzKLag9BymvGSA== 0001193125-06-043364.txt : 20060302 0001193125-06-043364.hdr.sgml : 20060302 20060302091214 ACCESSION NUMBER: 0001193125-06-043364 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060302 DATE AS OF CHANGE: 20060302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEADWESTVACO CORP CENTRAL INDEX KEY: 0001159297 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 311797999 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31215 FILM NUMBER: 06657961 BUSINESS ADDRESS: STREET 1: ONE HIGH RIDGE PARK STREET 2: _ CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2034617500 MAIL ADDRESS: STREET 1: ONE HIGH RIDGE PARK STREET 2: _ CITY: STAMFORD STATE: CT ZIP: 2034617500 FORMER COMPANY: FORMER CONFORMED NAME: MW HOLDING CORP DATE OF NAME CHANGE: 20010918 10-K 1 d10k.htm FORM 10-K Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

¨	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-31215

MeadWestvaco Corporation

(Exact name of registrant as specified in its charter)


Delaware (State of incorporation)		One High Ridge Park Stamford, CT 06905 Telephone 203-461-7400 (Address and telephone number of registrant’s principal executive offices)
31-1797999
(I.R.S. Employer Identification No.)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class

Name of each exchange

on which registered

Common Stock- $0.01 par value

Preferred Stock Purchase Rights

New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨ No x

At June 30, 2005, the aggregate market value of voting common stock held by nonaffiliates was $5,250,369,563 determined by multiplying the highest selling price of a common share on the New York Stock Exchange - Composite Transaction Tape on such date times the amount by which the total stock outstanding exceeded the stock beneficially owned by directors and executive officers of the Registrant. Such determination shall not, however, be deemed to be an admission that any person is an “affiliate” as defined in Rule 405 under the Securities Act of 1933.

At January 31, 2006, the number of shares of common stock of the Registrant outstanding was 181,467,819.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Annual Report to Shareholders are incorporated by reference in Part I and II. Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on April 25, 2006, are incorporated by reference in Part III; definitive copies of said Proxy Statement will be filed with the Securities and Exchange Commission on or before March 24, 2006.

TABLE OF CONTENTS


PART I

Item		Page
1.	Business	1
1A.	Risk factors	5
1B.	Unresolved staff comments	8
2.	Properties	8
3.	Legal proceedings	10
4.	Submission of matters to a vote of security holders	11
PART II

5.	Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities	13
6.	Selected financial data	15
7.	Management’s discussion and analysis of financial condition and results of operations	16
7A.	Quantitative and qualitative disclosures about market risk	16
8.	Financial statements and supplementary data	17
9.	Changes in and disagreements with accountants on accounting and financial disclosure	35
9A.	Controls and procedures	35
9B.	Other information	37
PART III

10.	Directors and executive officers of the registrant	38
11.	Executive compensation	38
12.	Security ownership of certain beneficial owners and management and related stockholder matters	38
13.	Certain relationships and related transactions	38
14.	Principal accountant fees and services	38
PART IV

15.	Exhibits and financial statement schedules	39

	Signatures	46

Part I

Item 1.

Business

Introduction

This report covers the twelve-month period ended December 31, 2005. MeadWestvaco Corporation was formed in 2001 in connection with the merger of The Mead Corporation (“Mead”) and Westvaco Corporation (“Westvaco”), which was completed on January 29, 2002. For accounting purposes, the merger was treated as an acquisition of Mead by Westvaco. Therefore, the historical financial statements of Westvaco are the consolidated historical financial statements of MeadWestvaco. Accordingly, the financial results for the periods prior to the merger included in this report are the financial results of Westvaco.

General

MeadWestvaco Corporation, a Delaware corporation, is a global company with leading positions in packaging, consumer and office products, specialty chemicals and specialty papers. MeadWestvaco’s principal operating business segments are (1) packaging, (2) consumer and office products and (3) specialty chemicals. Prior-year industry segment information has been restated to reflect the printing and writing papers business sold in 2005 as discontinued operations.

Packaging

The Packaging segment produces bleached paperboard, Coated Natural Kraft^® paperboard, kraft paperboard, linerboard and saturating kraft, and packaging for consumer products including packaging for media, beverage and dairy, cosmetics, tobacco, pharmaceuticals and health care products. In addition, the Packaging segment designs and produces multi-pack cartons and packaging systems primarily for the beverage take-home market. The Packaging segment also manufactures printed plastic packaging and injection-molded products used for packaging DVDs and CDs. This segment’s paperboard products are manufactured at four domestic mills and two mills located in Brazil. Paper, paperboard and plastic are converted into packaging products at plants located in North America, Europe, Brazil and Asia. These products are sold primarily in North America, Europe, Brazil and Asia. In addition, the segment manufactures equipment that is leased to its beverage and dairy customers to package their products. Bleached paperboard is used for packaging high-value consumer products such as pharmaceuticals, cosmetics, tobacco, food service, media products and aseptic cartons. Coated Natural Kraft^® paperboard is used for a range of packaging applications, the largest of which for MeadWestvaco is multi-pack beverage packaging. Kraft paperboard is used for folding carton applications. Linerboard is used in the manufacture of corrugated boxes and containers. Saturating kraft is used in the manufacture of decorative laminates for kitchen countertops, furniture, flooring, wall panels, as well as pad stock for electronic components.

Consumer and Office Products

The Consumer and Office Products segment manufactures, markets and distributes school and office products, time-management products and envelopes in North America and Brazil through both retail and commercial channels. MeadWestvaco 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^®.

Specialty Chemicals

The Specialty Chemicals segment manufactures, markets and distributes specialty chemicals derived from sawdust and byproducts of the papermaking process. Products include, but are not limited to, activated carbon used in emission control systems for automobiles and trucks, printing ink resins, and emulsifiers used in asphalt paving and dyestuffs.

For a more detailed description of our segments, including financial information, see Note R of the consolidated financial statements included in the MeadWestvaco 2005 Annual Report to Shareholders, incorporated herein by reference.

Marketing and distribution

The principal markets for our products are in the United States, Canada, Latin America, Europe and Asia. We operate in 29 countries and serve customers in approximately 100 nations. Our products are sold through a mixture of our own sales force and through paperboard merchants and distributors. The company has sales offices in key cities throughout the world.

Forestry

The principal raw material used in the manufacture of paper, paperboard and pulp is wood. The company’s strategy, based on the location of our mills and the composition of surrounding forestland ownership, is to provide a portion of our wood fiber from company-owned land and to rely on private woodland owners and private contractors and suppliers for the balance. As of December 31, 2005, we owned 133,000 acres of forestland in Brazil (more than 1,200 miles from the Amazon rainforests); and approximately 1,118,000 acres of forestland in the United States, including 377,000 acres in the Central region and 741,000 acres in the South. An additional 102,000 acres are managed in the South. We buy and sell land to maintain certain levels of fiber self-sufficiency.

We expect to continue to obtain our wood requirements from company-owned or controlled forestlands, from private woodland owners and private contractors or suppliers, including participants in our Cooperative Forest Management Program (CFM) which provides an additional source of wood fiber from acreage owned by participating landowners and managed with assistance from company foresters. We believe that these sources will be able to adequately supply our needs.

Intellectual property

MeadWestvaco has a large number of foreign and domestic trademarks, trade names, patents, patent rights and licenses relating to its business. While, in the aggregate, intellectual property rights are material to our business, the loss of any one or any related group of such rights would not have a material adverse effect on our business, with the exception of the “Mead^®” trademark and the “AT-A-GLANCE^®” trademark for consumer and office products.

Competition

MeadWestvaco operates in very challenging domestic and international markets and competes with many large, well-established and highly competitive manufacturers and service providers. In addition, our

business is affected by a range of macroeconomic conditions, including industry capacity, a trend in packaging, paperboard and forest products industry toward consolidation, global competition, economic conditions in the U.S. and abroad, and currency exchange rates.

We compete principally through quality, price, value-added products and services such as packaging solutions, customer service, innovation, technology, and product design. Our proprietary trademarks and patents, in the aggregate, are also important to our competitive position in certain markets.

MeadWestvaco’s Packaging segment competes globally with manufacturers of value-added bleached and unbleached paperboard for packaging and graphic applications, as well as specialty paperboards, and numerous national and regional packaging service providers in the package design, development and manufacturing arenas. The Consumer and Office Products segment competes with national and regional converters as well as foreign producers especially from Asia. The Specialty Chemicals segment competes on a worldwide basis with producers of activated carbons, refined tall oil products, lignin-based chemicals and specialty resins.

Research

MeadWestvaco conducts research and development in the areas of packaging, chemicals, specialty paper and forestry. Innovative product development and manufacturing process improvement are the main objectives of these efforts. New and emerging technologies which may enable new product development and manufacturing cost reductions are evaluated and adapted for use. Increased timber and fiber production on a sustainable basis is the major thrust of the forestry research.

Environmental Laws and Regulations

MeadWestvaco’s 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 management 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 approximately $32 million in environmental capital expenditures in 2006, and approximately $23 million in 2007. Approximately $47 million was spent on environmental capital projects in 2005.

experience with these matters. This liability does not include the anticipated capital expenditures previously stated. Management believes that it is reasonably possible that costs associated with these sites may exceed amounts of recorded liabilities by an amount that could range from an insignificant amount to as much as $30 million. This estimate is less certain than the estimate upon which the recorded environmental liabilities were based. After consulting with legal counsel and after considering established liabilities, it is management’s 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.

Additional matters involving environmental proceedings for MeadWestvaco are set forth in Part I, Item 3, “Legal proceedings.”

Employees

MeadWestvaco employs approximately 22,200 people worldwide, of whom approximately 13,700 are employed in the United States and 8,500 are employed internationally. Of this group, approximately 7,300 employees are represented by various labor unions under collective bargaining agreements. Additionally, most of MeadWestvaco’s European facilities have separate house union agreements or series of agreements specific to the workforce at each facility.

International operations

MeadWestvaco’s operations outside the United States are conducted through subsidiaries located in Canada, Latin America, Europe and Asia. While there are risks inherent in foreign investments, we do not believe at this time that such risks are material to our overall business prospects. MeadWestvaco’s sales that were attributable to domestic operations were 72%, 74% and 76% for the years ended December 31, 2005, 2004 and 2003, respectively. Export sales from MeadWestvaco’s U.S. operations were approximately 13% in each of the years ended December 31, 2005, 2004 and 2003, respectively. Sales that were attributable to foreign operations were 28%, 26% and 24% for the years ended December 31, 2005, 2004 and 2003. For more information about domestic and foreign operations, see Note R to the consolidated financial statements included in the MeadWestvaco 2005 Annual Report to Shareholders, incorporated herein by reference.

Available Information

Our Internet address is www.meadwestvaco.com. Please note that MeadWestvaco’s Internet address is included in this Annual Report on Form 10-K as an inactive textual reference only. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report. MeadWestvaco files annual, quarterly and current reports, proxy statements and other information with the SEC and we make available free of charge most of our SEC filings through our Internet website as soon as reasonably practicable after these materials are filed electronically with the SEC. You may access these filings via the hyperlink to the SEC website provided on the Investor Information page of our website.

The MeadWestvaco Corporation’s Corporate Governance Principles and our charters (Nominating and Governance Committee, Audit Committee, Compensation and Organization Development Committee, Finance Committee, and Safety, Health and Environment Committee) are included on our website at the following address: http://www.meadwestvaco.com/corporate.nsf/investor. Our Code of Conduct can be found on

our website at the following address: http://www.meadwestvaco.com/corporate.nsf/investor/conduct, and printed copies are available upon request.

Item 1A.

Risk factors

Risks Relating to Our Business

Certain of the company’s businesses are affected by cyclical market conditions which can significantly impact operating results and cash flows.

Certain of the company’s businesses are affected by cyclical market conditions that can significantly influence the demand for the company’s products, as well as the pricing we can obtain for our products. The company’s paperboard business is particularly subject to cyclical market conditions. The company may be unable to sustain pricing in the face of weaker demand, and weaker demand may in turn cause us to take production downtime, particularly at our paperboard facilities. In addition to lost revenue from lower shipment volumes, production downtime causes unabsorbed fixed manufacturing costs due to lower production levels. As a result, the company’s results of operations and cash flows may be materially impacted in a period of prolonged and significant market weakness. Moreover, the company is not able to predict market conditions or its ability to sustain pricing and production levels during periods of weak demand with any degree of certainty. Market conditions will also impact the company’s ability to achieve its planned or announced price increases.

The company’s businesses are subject to significant cost pressures. Our ability to pass these higher costs on to our customers through price increases or other adjustments is uncertain and dependent on market conditions.

The pricing environment for raw materials used in a number of our businesses continues to be challenging, as suppliers of certain raw materials have implemented price increases. Additionally, energy costs have risen significantly and remain volatile and unpredictable.

Further increases in the cost of raw materials or energy may materially impact our results of operations as depending on market forces and the terms of customer contracts, our ability to recover these costs through increased pricing may be limited.

The company faces intense competition in each of its businesses, and competitive challenges from lower cost manufacturers in overseas markets. If we can not successfully compete in an increasingly global market place, our operating results may be adversely affected.

The company operates in competitive domestic and international markets and competes with many large, well-established and highly competitive manufacturers and service providers, both domestically and on a global basis. The company’s businesses are facing competition from lower cost manufacturers in Asia and elsewhere. In addition, there is a risk that growth in paperboard capacity could outpace demand. All of these conditions can contribute to substantial pricing and demand pressures, adversely affecting the company’s operating results.

The company’s operations are increasingly global in nature, particularly in our consumer packaging businesses. Our business, financial condition and results of operations could be adversely affected by the political and economic conditions of the countries in which we conduct business, by fluctuations in exchange rates and other factors related to our international operations.

Approximately 40% of the company’s annual revenues in 2005 were derived from locations outside of North America. As our international operations and activities expand, we face increasing exposure to the risks of operating in many foreign countries. These factors include:

•

Changes in foreign currency exchange rates which could adversely affect our competitive position, selling prices and manufacturing costs, and therefore the demand for our products in a particular market.

•

Trade protection measures in favor of local producers of competing products, including government subsidies, tax benefits, trade actions (such as anti-dumping proceedings) and other measures giving local producers a competitive advantage over the company.

•

Changes generally in political, regulatory or economic conditions in the countries in which we conduct business.

These risks could affect the cost of manufacturing and selling our products, our pricing, sales volume, and ultimately our financial performance. The likelihood of such occurrences and their potential effect on the company vary from country to country and are unpredictable.

The company has recently announced a plan to realign its packaging businesses, to establish a new packaging innovation research center and to move its corporate operations and key administrative functions into a new headquarters in Richmond, Virginia. In addition, the company is establishing a new Global Business Services function, which will include many of the company’s internal services operations, including shared services for HR, finance, procurement, logistics and information technology. Although the company is engaged in intensive planning as it implements these actions and believes that it will manage the reorganization effectively to achieve substantial savings for the company, these major changes have attendant inherent risks, including:

•

The potential for disruption in our businesses and operations as we implement the realignment of our existing packaging businesses and centralize our packaging innovation activities in a new central location

The company’s six divisions in its Packaging segment are being transitioned into two focused packaging groups, to be located at the new headquarters. Additionally, the company’s packaging innovation activities are being moved to a new centralized location. The company’s leadership is engaged in intensive planning and expects to successfully and seamlessly manage these transitions. However, any major reorganization presents challenges and it is possible that there could be disruptions in our business and operations during the transition period. The relocation of employees to the new headquarters, with associated issues relating to retention, may increase the potential for disruption. Disruptions in production, quality control, customer service and innovation, as well as in other aspects of our operations, could negatively impact our results of operations.

•

The potential that the significant changes being implemented could result in weakness or deficiencies in the company’s internal controls and procedures

Effective internal controls are necessary for the company to provide reliable financial reports, effectively prevent fraud and effectively manage our operations. The significant changes being implemented in our businesses, and in particular, our corporate support functions, may require the implementation of new internal controls and changes in existing internal controls. Any failure to implement new or improved controls, if warranted, or difficulties encountered in their implementation, or failure to make appropriate changes to controls, could harm the reporting of our operating results or cause us to fail to meet our reporting obligations.

The company has announced a G&A Cost Reduction Initiative. If we fail to fully execute on this initiative, we may not fully realize all the improvements we have publicly announced.

In the second quarter of 2005, the company announced a cost initiative with the goal of achieving $175 million to $200 million of cost reductions, pre-tax and before inflation, on an annual run rate basis by the end of 2007. This initiative is described more fully in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Although we believe that these results are reasonable and achievable, if we do not fully achieve these goals within the expected time frame, or at all, we may not fully realize the improvements we expect in our operating earnings and cash flows.

The company has engaged a third party to provide certain information technology services, and will be dependent on this third party for performance of these services which were previously performed by our employees.

Beginning in the second quarter of 2006, the company will start to rely on a third-party provider to provide certain information technology services, including helpdesk support, desktop application services, server and storage administration, data center operations, database administration, and voice, video and remote access. Although we believe that we have prudently planned for unforeseen matters, we cannot guarantee that that our outside provider will fulfill its responsibilities in a timely manner and in accordance with the contract terms. Our internal operations including the ordering and shipment of our products to our customers could be adversely affected by failures in performance.

The company is subject to extensive regulation under various environmental laws and regulations, and is involved in various legal proceedings related to the environment. Environmental regulation and legal proceedings have the potential for involving significant costs and liability for the company.

The company’s operations are subject to a wide range of general and industry-specific environmental laws and regulations. Changes in environmental laws and regulation, or their application, could subject the company to significant additional capital expenditures and operating expenses. However, any such changes are uncertain and, therefore, it is not possible for the company to predict with certainty the amount of additional capital expenditures or operating expenses that could be necessary for compliance with respect to any such changes.

The company is also subject to various environmental proceedings and may be subject to additional proceedings in the future. In the case of known potential liabilities, it is management’s 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. The company could also be subject to new environmental proceedings which could cause the company to incur substantial additional costs with resulting impact on results of operations.

Additional matters involving environmental proceedings for MeadWestvaco are set forth in Part I, Item 3, “Legal proceedings.”

Item 1B.

Unresolved staff comments

None.

Item 2.

Properties

MeadWestvaco is headquartered in Stamford, Connecticut, and maintains a significant corporate and operational presence in Dayton, Ohio, and Richmond, Virginia. MeadWestvaco believes that its facilities have sufficient capacity to meet current production requirements. For information concerning our forestlands, see Part I, Item 1, “Business.” The locations of MeadWestvaco’s production facilities are as follows:


Packaging

Paperboard Mills

Cottonton, Alabama		North Charleston, South Carolina

Covington, Virginia		Tres Barras, Santa Catarina, Brazil

Evadale, Texas		Valinhos, São Paulo, Brazil

Extrusion and Sheeting Plants

Low Moor, Virginia		Venlo, The Netherlands

Silsbee, Texas

Consumer Packaging Plants

Birmingham, United Kingdom

Bydgoszcz, Poland		Louisville, Kentucky (Leased)

Caguas, Puerto Rico (Leased)		Manaus, Amazonas, Brazil

Corby, United Kingdom		Mebane, North Carolina

Dresden, Germany		Melrose Park, Illinois (Leased)

Dublin, Ireland (Leased)		Moscow, Russian Federation (Leased)

Elizabethtown, Kentucky		Pittsfield, Massachusetts (Leased)

Enschede, The Netherlands		Slough, United Kingdom (Leased)

Freden, Germany		Svitavy, Czech Republic

Garner, North Carolina		Swindon, United Kingdom (Leased)

Graz, Austria		Sydney, Australia (Leased)

Grover, North Carolina		Thalgau, Austria (Leased)

Jacksonville, Illinois		Uden, The Netherlands (Leased)

Krakow, Poland		Valinhos, São Paulo, Brazil

Littlehampton, United Kingdom (Leased)		Warrington, Pennsylvania (Leased)

London, United Kingdom (Leased)		Warsaw, Poland (Leased)


Los Angeles, California

Louisa, Virginia (Leased)

Lumber Product Plants

Cottonton, Alabama		Summerville, South Carolina

Corrugated Container Plants

Blumenau, Santa Catarina, Brazil		Pacajus, Ceara, Brazil

Manaus, Amazonas, Brazil		Valinhos, São Paulo, Brazil

Feira de Santana, Bahia, Brazil

Packaging Systems Plants

Ajax, Ontario, Canada		Deols, France

Atlanta, Georgia		Lanett, Alabama

Bilboa, Spain		Roosendaal, The Netherlands

Borghetto di Avio, Italy		Shimada, Japan

Bristol, United Kingdom		Smyrna, Georgia

Chateauroux, France		Trier, Germany

Chicago, Illinois		Troyes, France

Specialty Papers

Paper Mills

Potsdam, New York		South Lee, Massachusetts

Consumer & Office Products

Plants and Distribution Centers

Alexandria, Pennsylvania		Sidney, New York

Bauru, São Paulo, Brazil		Toronto, Ontario, Canada

Garden Grove, California

Envelope Plants

Atlanta, Georgia		Kenosha, Wisconsin

Dallas, Texas		Los Angeles, California

Enfield, Connecticut		Williamsburg, Pennsylvania

Indianapolis, Indiana

Specialty Chemicals

Albuquerque, New Mexico		North Charleston, South Carolina

Covington, Virginia		Waynesboro, Georgia

DeRidder, Louisiana		Wickliffe, Kentucky



Forestry Centers

Rupert, West Virginia		Tres Barras, Santa Catarina, Brazil

Summerville, South Carolina


Research Facilities

Chillicothe, Ohio		North Charleston, South Carolina

Laurel, Maryland		Summerville, South Carolina

Leases

For financial data on certain MeadWestvaco leases, see Note H to the consolidated financial statements, included in the MeadWestvaco 2005 Annual Report to Shareholders, and incorporated herein by reference.

Other information

A limited number of MeadWestvaco facilities are owned, in whole or in part, by municipal or other public authorities pursuant to standard industrial revenue bond financing arrangements and are accounted for as property owned by MeadWestvaco. MeadWestvaco holds options under which it may purchase each of these facilities from such authorities by paying a nominal purchase price and assuming the indebtedness of the industrial revenue bonds at the time of the purchase.

MeadWestvaco owns in fee all of the facilities listed above, except certain warehouses and general offices, as noted, and pending purchases.

Item 3.

Legal proceedings

In 1998 and 1999, the EPA issued Notices of Violation to eight paper industry facilities, including Westvaco’s Luke, Maryland mill, alleging violation of the PSD regulations under the Clean Air Act. On August 28, 2000, an enforcement action in Federal District Court in Maryland was brought against Westvaco asserting violations in connection with capital projects at the mill carried out in the 1980s. The action alleges that Westvaco did not obtain PSD permits or install required pollution controls, and sought penalties of $27,500 per day for each claimed violation together with the installation of control equipment. MeadWestvaco strongly disagrees with the EPA’s allegations of Clean Air Act violations by Westvaco and is vigorously defending this action. On April 23, 2001, the Court granted Westvaco’s Motion for Partial Dismissal and dismissed the EPA’s claims for civil penalties under the major counts of the complaint. The Court held that these significant penalties were barred by the applicable statute of limitations. Following initial discovery, and in response to Motions for Partial Summary Judgment filed by Westvaco, the government abandoned several of its claims for injunctive relief. Motions for summary judgment on discrete issues were filed and a hearing was conducted in 2005. No trial date has been set, but a trial, if needed, is not expected to commence before late 2006. Based on information currently available, MeadWestvaco does not expect this proceeding will have a material adverse effect on our consolidated financial condition or liquidity. In any given period or periods, however, it is possible such proceeding could have a material effect on the results of operations.

In 2004, the company and other potentially responsible parties (PRPs) reached a settlement and signed a Consent Decree with the U.S. EPA concerning the Chattanooga Creek Superfund Site. The Consent Decree was formally approved in 2005 by federal district court after notice and opportunity for public comment. Under the terms of the Consent Decree, the private PRPs, including MeadWestvaco, are implementing final remedial action at the Creek Superfund Site. In addition, the PRPs, including

MeadWestvaco, reimbursed the U.S. EPA for a portion of past costs incurred in connection with the Site. MeadWestvaco does not expect this proceeding will have a material adverse effect on our consolidated financial condition or liquidity. In any given period or periods, however, it is possible such proceeding could have a material effect on the results of operations.

MeadWestvaco has established liabilities of approximately $27 million relating to environmental proceedings. Additional information is included in Part I, Item 1, “Business - Environmental Laws and Regulations,” and Note O to the consolidated financial statements included in the MeadWestvaco 2005 Annual Report to Shareholders incorporated herein by reference.

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, we do not believe that the currently expected outcome of any proceeding, lawsuit or claim that is pending or threatened, or all of them combined, will have a material adverse effect on its consolidated financial 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.

Item 4.

Submission of matters to a vote of security holders

There were no matters submitted to a vote of security holders of MeadWestvaco, through the solicitation of proxies or otherwise, during the fourth quarter of 2005.

Executive officers of the registrant

The following table sets forth certain information concerning the executive officers of MeadWestvaco:


Name	Age*	Present position	Year in which service in present position began
John A. Luke, Jr.**	57	Chairman and Chief Executive Officer	2002
James A. Buzzard	51	President	2003
E. Mark Rajkowski	47	Senior Vice President and Chief Financial Officer	2004
Linda V. Schreiner	46	Senior Vice President	2002
Mark T. Watkins	52	Senior Vice President	2002
Wendell L. Willkie, II	54	Senior Vice President, General Counsel and Secretary	2002
Donna O. Cox	42	Vice President	2005
Robert E. Birkenholz	45	Treasurer	2004
John E. Banu	58	Controller	2002

*	As of March 1, 2006

**	Director of MeadWestvaco

MeadWestvaco’s officers are elected by the Board of Directors annually for one-year terms.

John A. Luke, Jr., President and Chief Executive Officer 2002-2003, Chairman of the Board, Chief Executive Officer and President of Westvaco 1996-2002;

James A. Buzzard, Executive Vice President 2002-2003, Executive Vice President of Westvaco, 2000-2002, Senior Vice President, 1999, Vice President, 1992-1999;

E. Mark Rajkowski, Vice President, Eastman Kodak Company and General Manager Worldwide Operations for Kodak’s Digital and Film Imaging Systems Business 2003-2004; Chief Operating Officer of Eastman Kodak’s Consumer Digital Business 2003; Vice President, Finance of Eastman Kodak 2001-2002; Corporate Controller of Eastman Kodak 1998-2001;

Linda V. Schreiner, Senior Vice President of Westvaco 2000-2002, Manager of Strategic Leadership Development 1999-2000, Senior Manager of Arthur D. Little, Inc. 1998-1999, Vice President of Signet Banking Corporation 1988-1998;

Mark T. Watkins, Vice President of Mead 2000-2002, Vice President, Human Resources and Organizational Development of the Mead Paper Division 1999, Vice President, Michigan Operations of Mead Paper Division 1997;

Wendell L. Willkie, II, Senior Vice President and General Counsel of Westvaco 1996-2002;

Donna O. Cox, Director, External Communications 2003-2005, Manager, Integration / Internal Communications 2002-2003, Public Affairs Manager of Westvaco’s Packaging Resources Group 1999-2002;

Robert E. Birkenholz, Assistant Treasurer 2003-2004; Assistant Treasurer, Amerada Hess Corporation 1997-2002;

John E. Banu, Vice President of Westvaco 1999-2002, Controller 1995-1999.

There are no family relationships among executive officers or understandings between any executive officer and any other person pursuant to which the officer was selected as an officer.

Part II

Item 5.

Market for the registrant’s common equity, related stockholder matters and issuer purchases of equity securities

(a)

Market and price range of common stock

MeadWestvaco’s common stock is traded on the New York Stock Exchange under the symbol MWV.


	Year ended December 31, 2005				Year ended December 31, 2004
	High		Low		High		Low
STOCK PRICES
First Quarter	$	34.33	$	28.50	$	30.19	$	25.78
Second Quarter		32.13		27.80		29.40		25.16
Third Quarter		29.87		26.93		31.90		28.31
Fourth Quarter		28.77		25.06		34.34		29.56

This table reflects the range of market prices of MeadWestvaco common stock as quoted in the New York Stock Exchange Composite Transactions.

(b)

Approximate number of common shareholders

At December 31, 2005, the number of shareholders of record of MeadWestvaco common stock was approximately 30,000. This number includes approximately 17,000 current or former employees of the company who were MeadWestvaco shareholders by virtue of their participation in our savings and investment plans.

(c)

Dividends

The following table reflects historical dividend information for MeadWestvaco for the periods indicated.


	Year ended December 31, 2005		Year ended December 31, 2004
DIVIDENDS PER SHARE
First Quarter	$	.23	$	.23
Second Quarter		.23		.23
Third Quarter		.23		.23
Fourth Quarter		.23		.23

Year	$	.92	$	.92

MeadWestvaco currently expects that comparable cash dividends will continue to be paid in the future.

(d)

The information required by this item and included under the caption “Securities Authorized for Issuance Under Equity Compensation Plans” will be contained in MeadWestvaco’s 2006 Proxy Statement, pursuant to Regulation 14A, to be filed with the SEC on or before March 24, 2006, and is incorporated herein by reference.

Common stock repurchases

In November of 2003, under Item 703 of Regulation S-K, the SEC adopted rules requiring disclosure of all repurchases of registered equity securities in the preceding fiscal quarter made by or on behalf of the issuer.

The common stock shares repurchased by the company during the quarter ended December 31, 2005 are as follows:


	(a) Total Number of Shares (or Units) Purchased⁽¹⁾	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
October 1, 2005 – October 31, 2005	—	—	—	—
November 1, 2005 – November 30, 2005	292,578	36.08	N/A	N/A
December 1, 2005 - December 31, 2005	84,052	25.80	N/A	N/A

⁽¹⁾

Employee(s) exercising options delivered 84,052 shares to the company to pay the exercise price and tax withholding obligations upon exercise. These shares were purchased in a private transaction pursuant to the terms of the option agreement. The company repurchased 292,578 shares in connection with the company’s past acquisition of a consolidated investment. The sale agreement associated with the investment gave the seller the right to put shares back to the company at a fixed price per share.

Item 6.

Selected financial data

In millions, except per share data


	Years ended December 31												Two-month transition period ended December 31			Fiscal year ended October 31
	2005			2004			2003			2002			2001			2001
EARNINGS
Net sales	$	6,170		$	6,060		$	5,566		$	5,289		$	503		$	3,238
Income (loss) from continuing operations		119			224			84			89			(14	)		114
Discontinued operations		(91	)		(573	)		(62	)		(128	)		(8	)		(26	)
Cumulative effect of accounting change		—			—			(4	)		(359	)		—			—
Net income (loss)		28	¹		(349	)²		18	³		(398	)⁴		(22	)		88⁵
Income (loss) from continuing operations per share - basic		0.62			1.11			0.42			0.46			(0.14	)		1.12
per share - diluted		0.62			1.10			0.42			0.46			(0.14	)		1.12
Net income (loss) per share - basic		0.14			(1.73	)		0.09			(2.07	)		(0.21	)		0.87
Net income (loss) per share - diluted		0.14			(1.72	)		0.09			(2.07	)		(0.21	)		0.87
Depreciation, depletion and amortization		491			489			479			451			48			262
COMMON STOCK
Number of common shareholders		29,630			34,730			36,740			37,200			18,920			19,070
Weighted average number of shares outstanding:
Basic		192			202			200			192			102			101
Diluted		193			204			202			192			102			102
Cash dividends	$	178		$	186		$	184		$	206			—		$	89
Per share:
Dividends declared		0.92			0.92			0.92			0.92			0.22			0.88
Book value		19.20			21.17			23.46			23.76			22.58			22.86
FINANCIAL POSITION⁶
Working capital	$	988		$	882		$	910		$	794		$	308		$	315
Current ratio		1.9			1.5			1.6			1.5			1.4			1.4
Property, plant, equipment and forestlands, net	$	4,487		$	4,688		$	7,378		$	7,834		$	4,203		$	4,227
Total assets		8,908			11,646			12,470			12,904			6,828			6,787
Long-term debt, excluding current maturities		2,417			3,282			3,969			4,233			2,697			2,660
Shareholders’ equity		3,483			4,317			4,713			4,753			2,315			2,341
Debt to total capital		41	%		46	%		47	%		49	%		55	%		55	%
OPERATIONS⁶
Primary production of paper, paperboard and market pulp (tons, in thousands)		3,945			6,702			6,318			6,034			553			3,641
New investment in property, plant, equipment and forestlands (in millions)	$	305		$	317		$	393		$	424		$	56		$	296
Acres of forestlands owned (in thousands)		1,251			2,179			2,347			3,182			1,378			1,378
Employees		22,200			29,400			29,500			30,700			17,410			17,530

2005 results include an after-tax loss from discontinued operations associated with the sale of the printing and writing papers business of $91 million, or $.48 per share, after-tax charges of $56 million, or $.29 per share related to the retirement of debt, and after-tax charges of $20 million, or $.10 per share, for restructuring activities.

²	2004 results include an after-tax loss from discontinued operations associated with the sale of the printing and writing papers business of $573 million, or $2.82 per share, and after-tax charges of $67 million, or $.33 per share, for restructuring activities.

2003 results include an after-tax loss from discontinued operations associated with the sale of the printing and writing papers business of $62 million, or $.31 per share, an after-tax charge of $4 million, or $.02 per share, for the cumulative effect of the initial adoption of SFAS No. 143, after-tax charges of $42 million, or $.21 per share, for restructuring activities, after-tax charges of $17 million, or $.08 per share related to the early retirement of debt and after-tax gains of $8 million, or $.04 per share, on the recovery of insurance settlements.

⁴

2002 results include an after-tax loss from discontinued operations of $128 million, or $.66 per share, a charge for the impairment of goodwill (due to the initial adoption of SFAS 142) of $359 million, or $1.87 per share, net after-tax restructuring and merger-related expenses of $95 million or $.49 per share and after-tax costs related to the early retirement of debt of $4 million, or $.02 per share.

⁵

Fiscal year 2001 results include an after-tax loss from discontinued operations associated with the sale of the printing and writing papers business of $26 million, or $.25 per share, an after-tax restructuring charge of $35 million, or $.35 per share, a credit of $11 million, or $.11 per share, for tax benefits related to audits and other adjustments, and an after-tax gain of $3 million, or $.03 per share, from the sale of a lease.

⁶	Certain data for 2004 and all data for 2003 and prior years have not been revised to exclude discontinued operations.

Item 7.

Management’s discussion and analysis of financial condition and results of operations

Information required by this item is included on pages 2 through 27 of the MeadWestvaco 2005 Annual Report to Shareholders and attached hereto as Exhibit 13 and is incorporated herein by reference.

Item 7A.

Quantitative and qualitative disclosures about market risk

The quantitative and qualitative disclosures about market risk information required by this Item are set forth on pages 15 through 18 of the MeadWestvaco 2005 Annual Report to Shareholders and are incorporated herein by reference.

Item 8.

Financial statements and supplementary data

The financial statements and related notes for MeadWestvaco, together with the report of PricewaterhouseCoopers LLP dated March 1, 2006, appearing on pages 28 through 83 of the MeadWestvaco 2005 Annual Report to Shareholders and attached hereto as Exhibit 13 are incorporated by reference in this Annual Report on Form 10-K.

The financial statements and related notes for Northwood Panelboard Company as of December 31, 2003 and March 31, 2004 are included below. The financial statements are included as Northwood Panelboard Company was deemed in 2003 to be a significant subsidiary under Rule 3-09 under Regulation S-X. Our investment in Northwood Panelboard was sold in the first quarter of 2004.

Financial Statements

Northwood Panelboard Company

December 31, 2003 and 2002

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of

Northwood Panelboard Company

We have audited the balance sheets of Northwood Panelboard Company as of December 31, 2003 and 2002 and the related statements of earnings, partners’ equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 2003. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as at December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2003 in conformity with United States generally accepted accounting principles.

/s/ Ernst & Young LLP

Ernst & Young LLP

Toronto, Canada,

January 9, 2004 [except as to note 6 which

is as of January 26, 2004 and note 8[a]

which is as of February 2, 2004]. Chartered Accountants

Northwood Panelboard Company

BALANCE SHEETS

As at December 31


	2003 $	2002 $
ASSETS
Current
Cash	13,118	173,167
Due from manager [note 2]	5,064,525	2,624,958
Other receivables	158,917	82,777
Inventories [note 3]	4,015,715	4,240,396
Prepaid expenses	201,852	170,488

Total current assets	9,454,127	7,291,786

Capital assets, net [note 4]	12,528,634	13,337,610
Deferred financing costs, net of accumulated amortization of $188,382 [2002 - $147,167]	198,472	202,553

	22,181,233	20,831,949

LIABILITIES AND PARTNERS’ EQUITY (DEFICIENCY)
Current
Bank indebtedness	925,505	1,236,451
Accounts payable and accrued liabilities [note 5]	5,872,802	3,335,734

Total current liabilities	6,798,307	4,572,185

Long-term debt [note 6]	15,200,000	18,000,000

Total liabilities	21,998,307	22,572,185

Commitments and contingencies [notes 6 and 8]
Partners’ equity (deficiency)	182,926	(1,740,236	)

	22,181,233	20,831,949

See accompanying notes

Northwood Panelboard Company

STATEMENTS OF EARNINGS

Years ended December 31


	2003 $	2002 $	2001 $
Sales [note 2]	102,867,739	59,462,259	57,615,324

Costs and expenses
Direct costs	43,722,506	40,156,572	40,428,014
Commission expense [note 2]	2,929,759	1,667,305	1,611,881
Fringe benefits and indirect salaries [note 7]	6,743,214	4,379,825	4,245,215
General and administrative	1,581,934	1,465,691	1,663,006
Depreciation and amortization	1,562,662	1,586,075	1,833,571

	56,540,075	49,255,468	49,781,687

Operating income	46,327,664	10,206,791	7,833,637
Interest expense	404,502	464,758	745,856

Net earnings for the year	45,923,162	9,742,033	7,087,781

See accompanying notes

Northwood Panelboard Company

STATEMENTS OF PARTNERS’ EQUITY (DEFICIENCY)

Years ended December 31


	Capital contribution $	Retained earnings (deficit) $		Total partners’ equity (deficiency) $
Balance at December 31, 2000	10,000,000	(9,070,050	)	929,950
Net earnings for the year	—	7,087,781		7,087,781
Distributions	—	(6,000,000	)	(6,000,000	)

Balance at December 31, 2001	10,000,000	(7,982,269	)	2,017,731
Net earnings for the year	—	9,742,033		9,742,033
Distributions	—	(13,500,000	)	(13,500,000	)

Balance at December 31, 2002	10,000,000	(11,740,236	)	(1,740,236	)
Net earnings for the year	—	45,923,162		45,923,162
Distributions	—	(44,000,000	)	(44,000,000	)

Balance at December 31, 2003	10,000,000	(9,817,074	)	182,926

See accompanying notes

Northwood Panelboard Company

STATEMENTS OF CASH FLOWS

Years ended December 31


	2003 $		2002 $		2001 $
OPERATING ACTIVITIES
Net earnings for the year	45,923,162		9,742,033		7,087,781
Add (deduct) items not affecting cash
Depreciation and amortization	1,562,662		1,586,075		1,833,571
Gain on disposal of capital assets	—		(11,000	)	—
Changes in operating assets and liabilities
Due from manager	(2,439,567	)	(418,082	)	(31,681	)
Other receivables	(76,140	)	448,209		(68,386	)
Inventories	224,681		449,371		(1,494,657	)
Prepaid expenses	(31,364	)	(88,443	)	(70,731	)
Accounts payable and accrued liabilities	2,537,068		297,609		(839,982	)

Cash provided by operating activities	47,700,502		12,005,772		6,415,915

INVESTING ACTIVITIES
Purchase of capital assets	(712,471	)	(330,831	)	(335,773	)
Proceeds on disposal of capital assets	—		11,000		—
Cash used in investing activities	(712,471	)	(319,831	)	(335,773	)

FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness	(310,946	)	831,232		(527,170	)
Additions to deferred financing costs	(37,134	)	—		(56,631	)
Increase (decrease) in long-term debt	(2,800,000	)	1,150,000		390,000
Distributions to partners	(44,000,000	)	(13,500,000	)	(6,000,000	)

Cash used in financing activities	(47,148,080	)	(11,518,768	)	(6,193,801	)

Net increase (decrease) in cash during the year	(160,049	)	167,173		(113,659	)
Cash, beginning of year	173,167		5,994		119,653

Cash, end of year	13,118		173,167		5,994

Supplemental cash flow information
Interest paid	397,226		477,801		798,150

See accompanying notes

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and ownership

Northwood Panelboard Company [the “Partnership”] is a partnership, organized under the Minnesota Uniform Partnership Act, between Mead Panelboard, Inc. [a wholly-owned subsidiary of MeadWestvaco Corporation] and Nexfor (USA), Inc. [a wholly-owned subsidiary of Nexfor Inc.]. Each partner has a 50% interest in the Partnership’s equity and any distributions. The Partnership operates an oriented strand board mill near Bemidji, Minnesota.

The accompanying financial statements of the Partnership are presented in U.S. dollars in conformity with United States generally accepted accounting principles.

Revenue recognition

Sales are recognized when the risks of ownership pass to the purchaser. This is generally when goods are shipped. For a certain customer, sales are recognized when goods are received by the purchaser.

Financial instruments

The fair values of cash, due from manager, other receivables, bank indebtedness and accounts payable and accrued liabilities approximate their carrying values due to the short-term nature of these instruments. The fair value of long-term debt approximates its carrying value due to variable interest rates.

Inventories

Inventories are stated at the lower of cost or market value on a first-in, first-out basis. The cost for finished goods includes material, direct labour and an applicable share of overhead. Market value is defined as net realizable value for finished goods and replacement cost for raw materials and supplies.

Capital assets

Capital assets are stated at historical cost less accumulated depreciation. Costs of maintenance and repairs are charged to earnings. Depreciation is provided using the straight-line method based on the following estimated useful lives of the depreciable assets:


Buildings and land improvements		20 years
Machinery and equipment		10-15 years
Vehicles		5 years

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

Long-lived assets

The Partnership assesses the recoverability of long-lived assets in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”. When the carrying value of a long-lived asset is less than its net recoverable value as determined on an undiscounted basis, an impairment loss is recognized to the extent that its fair value, measured as the discounted cash flows over the life of the asset when quoted market prices are not readily available, is below the asset’s carrying value.

Deferred financing costs

Deferred financing costs consist of costs incurred to obtain long-term financing and are stated net of accumulated amortization, calculated using the straight-line method and amortized over the term of the related debt.

Income taxes

The Partnership pays no income taxes. Each partner is responsible for reporting its proportionate share of the Partnership’s taxable earnings or loss and tax credits in its tax return.

Use of estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

2.	RELATED PARTY TRANSACTIONS

Management services agreement

The Partnership receives services under a management services agreement with its manager, a wholly-owned subsidiary of Nexfor Inc. No amounts were paid or accrued under this agreement in 2003, 2002 and 2001.

Marketing agreement and concentration of sales

The Partnership has an exclusive sales agreement with its manager under which the company acts as sales agent for the oriented strand board produced by the mill. The manager sells the product at prevailing market prices and is paid a commission which is calculated as 3% of sales. The manager is responsible for sales, billings and collections, including all costs for bad debts. The manager’s sales to three end customers amounted to approximately 28%, 22% and 7% of total sales from the Partnership [2002 - 27%, 22% and 7%; 2001 - 23%, 18% and 8%], respectively. The Partnership derives its sales from customers in the U.S. and capital assets are located in the U.S.

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

The balance due from the manager is non-interest bearing and is due in approximately 20 days from the date of shipment to the ultimate customer.

In addition, during 2003, 2002 and 2001, the manager reimbursed the Partnership for expenditures related primarily for salaries and insurance costs made on its behalf amounting to $699,519, $914,829 and $2,277,514, respectively.

3.	INVENTORIES

Inventories consist of the following:


	2003 $	2002 $
Raw materials	1,494,140	1,869,227
Finished goods	517,739	558,669
Repair and replacement parts	1,944,689	1,780,827
Supplies	59,147	31,673

	4,015,715	4,240,396

4.	CAPITAL ASSETS

Capital assets consist of the following:


	2003			2002
	Cost $	Accumulated depreciation $	Net book value $	Cost $	Accumulated depreciation $	Net book value $
Land	150,905	—	150,905	150,905	—	150,905
Buildings	9,707,578	8,245,070	1,462,508	9,687,716	8,128,378	1,559,338
Land improvements	1,674,649	1,406,929	267,720	1,584,634	1,390,727	193,907
Machinery and equipment	52,872,950	42,702,227	10,170,723	52,705,038	41,415,901	11,289,137
Construction in progress	468,555	—	468,555	131,989	—	131,989
Vehicles	72,037	63,814	8,223	72,037	59,703	12,334

	64,946,674	52,418,040	12,528,634	64,332,319	50,994,709	13,337,610

Depreciation expense totalled $1,521,447, $1,522,104 and $1,821,244 in 2003, 2002 and 2001, respectively.

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

5.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:


	2003 $	2002 $
Trade payables	2,069,666	1,530,498
Accrued employee salaries and benefits	3,329,891	1,385,130
Other	473,245	420,106

	5,872,802	3,335,734

6.	LONG-TERM DEBT

Long-term debt consists of the following:


	2003 $	2002 $
Note payable under a $10,000,000 revolving credit agreement	3,600,000	5,200,000
Environmental Control Revenue Refunding Bonds due December 1, 2021 with interest payable monthly at a variable rate, secured by a standby letter of credit expiring March 31, 2005	5,800,000	7,000,000
Environmental Improvement Revenue Bonds due July 1, 2025, with interest payable monthly at a variable rate, secured by a standby letter of credit expiring March 3, 2004	5,800,000	5,800,000

	15,200,000	18,000,000

The Partnership has a revolving credit agreement with a bank that allows for borrowings up to $10,000,000 until January 27, 2004 at any one or a combination of the following interest rates:

•

Prime commercial lending rate,

•

¹/2 of 1% in excess of the relevant fixed certificate of deposit rate, or

•

1.25% in excess of the Eurodollar quoted rate.

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

At December 31, 2003, the prime commercial lending rate was 4.00%, the certificate of deposit rate was 1.06%, and the Eurodollar quoted rate was 1.1575%. At December 31, 2003, the interest rate on the outstanding debt is 1.56% [2002 - 2.90%].

The agreement contains covenants and restrictions regarding, among other things, additional borrowings, mergers, sale of assets, mortgaging of properties and distributions. At December 31, 2003, additional distributions of $14,976,018 could be made without violating the restrictive covenant. The Partnership pays a commitment fee of 0.2 of 1% of the average daily unused portion of the commitment. Nexfor Inc. and MeadWestvaco Corporation each guarantee 50% of the borrowings.

Effective January 26, 2004, an amendment was made to the Partnership’s revolving credit agreement described above that amends the maturity date to January 25, 2005.

The Environmental Control Revenue Refunding Bonds are secured by a standby letter of credit provided by Nexfor Inc. Should the standby letter of credit not be renewed prior to expiry, the bondholders have the ability to draw down on the outstanding letter of credit. At December 31, 2003, the variable rate on the bonds was 1.26%.

The Environmental Improvement Revenue Bonds are secured by a standby letter of credit provided by MeadWestvaco Corporation. Should the standby letter of credit not be renewed prior to expiry, the bondholders have the ability to draw down on the outstanding letter of credit. At December 31, 2003, the variable rate on the bonds was 1.31%.

There are no mandatory principal repayments in the next five years.

7.	INCENTIVE PLANS

[a]

The Partnership has a non-qualified cash bonus plan for substantially all of its employees. Under the plan, the Partnership distributes 5% of net earnings to employees, as defined by the plan. The expense under this arrangement totalled $2,399,810, $483,691 and $334,508 in 2003, 2002 and 2001, respectively.

[b]	The Partnership also has a defined contribution plan for its employees. The Partnership’s expense under these arrangements totalled $631,404, $540,648 and $559,055 in 2003, 2002 and 2001, respectively.

The Partnership can change or eliminate these arrangements at its discretion.

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

8.	COMMITMENTS AND CONTINGENCIES

[a]

As a result of new regulations, the Partnership has performed a review of their air emissions and carried out a Best Available Current Technology review at the request of the Minnesota Pollution Control Agency [“MPCA”]. The Partnership has proposed changes to their emission control equipment to the MPCA that may result in capital expenditures of approximately $8,000,000. On December 30, 2003, the MPCA issued a notice to the public indicating that the Partnership has applied for an air emission facility permit for modification and operation of the mill. The public comment period expired on January 29, 2004. There were no comments received from the public as a result of the notice. The application for the air emission facility permit has been provided to the federal agency for final review. Failure to obtain the permit would prevent the Partnership from operating. The capital expenditures will be made within 18 months of receiving the permit from the MPCA. Penalties and/or fines associated with the air emissions review are not anticipated.

[b]

The Partnership is subject to claims and proceedings in the ordinary course of business. Each of these claims and proceedings is subject to various uncertainties and it is possible that some of these matters may be resolved unfavourably to the Partnership. Management believes that any liability that may ultimately result will not have a material adverse effect on the Partnership’s financial position or results of operations.

Financial Statements (Unaudited)

Northwood Panelboard Company

for the quarterly period ended March 31, 2004

BALANCE SHEETS

(Unaudited)


*In dollars*	March 31, 2004		December 31, 2003
ASSETS
Current
Cash	$	4,618,669	$	13,118
Due from manager [note 2]		8,366,901		5,064,525
Other receivables		150,159		158,917
Inventories [note 3]		7,620,357		4,015,715
Prepaid expenses		130,956		201,852

Total current assets		20,887,042		9,454,127

Capital assets, net [note 4]		12,292,300		12,528,634
Deferred financing costs, net of accumulated amortization of $188,382 in 2003		—		198,472

	$	33,179,342	$	22,181,233

LIABILITIES AND PARTNERS’ EQUITY (DEFICIENCY)
Current
Bank indebtedness	$	—	$	925,505
Accounts payable and accrued liabilities [note 5]		4,028,004		5,872,802

Total current liabilities		4,028,004		6,798,307

Long-term debt [note 6]		—		15,200,000

Total liabilities		4,028,004		21,998,307

Commitments and contingencies [notes 6 and 8]
Partners’ equity		29,151,338		182,926

	$	33,179,342	$	22,181,233

See accompanying notes

Northwood Panelboard Company

STATEMENTS OF EARNINGS

(Unaudited)


	First Quarter ended March 31
*In dollars*	2004		2003
Sales [note 2]	$	32,432,679	$	15,853,644
Costs and expenses
Direct costs		11,010,868		10,214,889
Commission expense [note 2]		925,496		440,543
Fringe benefits and indirect salaries [note 7]		2,087,616		1,189,308
General and administrative		394,737		425,847
Depreciation and amortization		579,323		383,931

Operating income		17,434,639		3,199,126
Interest expense		66,226		119,344

Net earnings for the quarter	$	17,368,413	$	3,079,782

See accompanying notes

Northwood Panelboard Company

STATEMENTS OF CASH FLOWS

(Unaudited)


	First Quarter ended March 31
*In dollars*	2004			2003
OPERATING ACTIVITIES
Net earnings for the quarter	$	17,368,413		$	3,079,782
Add (deduct) items not affecting cash
Depreciation and amortization		579,323			383,931
Gain on disposal of capital assets		—			—
Changes in operating assets and liabilities
Due from manager		(3,302,376	)		(1,067,449	)
Other receivables		8,758			(52,220	)
Inventories		(3,604,642	)		(2,918,645	)
Prepaid expenses		70,896			66,926
Accounts payable and accrued liabilities		(1,844,798	)		(292,939	)

Cash provided by operating activities		9,275,574			(800,614	)

INVESTING ACTIVITIES
Purchase of capital assets		(144,518	)		(18,475	)
Proceeds on disposal of capital assets		—			—

Cash used in investing activities		(144,518	)		(18,475	)

FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness		(4,525,505	)		1,862,642
Decrease in long-term debt		(11,600,000	)		(1,200,000	)
Contributions from partners		11,600,000			—

Cash used in financing activities		(4,525,505	)		662,642

Net increase (decrease) in cash during the quarter		4,605,551			(156,447	)
Cash, beginning of quarter		13,118			173,167

Cash, end of quarter	$	4,618,669		$	16,720

Supplemental cash flow information
Interest paid	$	129,315		$	95,737

See accompanying notes

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and ownership

Northwood Panelboard Company [the “Partnership”] is a partnership, organized under the Minnesota Uniform Partnership Act, between Mead Panel board, Inc. [a wholly-owned subsidiary of MeadWestvaco Corporation] and Nexfor (USA), Inc. [a wholly-owned subsidiary of Nexfor Inc.]. Each partner had a 50% interest in the Partnership’s equity and any distributions. The Partnership operates an oriented strand board mill near Bemidji, Minnesota.

During the quarter, MeadWestvaco Corporation sold its interest in the Partnership to Nexfor. The transaction resulted in an additional capital contribution to the Partnership by Nexfor, to pay down the long-term debt of the Partnership.

These interim consolidated financial statements have not been audited. However, in the opinion of management, all normal recurring adjustments necessary to present fairly the financial position and the results of operations for the interim periods presented have been made. These interim financial statements have been prepared on the basis of accounting principles and practices generally accepted in the United States of America (“GAAP”) applied consistently with those used in the preparation of the annual financial statements for the year ended December 31, 2003.

Certain information and footnote disclosures normally included in annual financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The consolidated results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the annual financial statements for the year ended December 31, 2003.

Revenue recognition

Financial instruments

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Inventories

Capital assets


Buildings and land improvements		20 years
Machinery and equipment		10-15 years
Vehicles		5 years

Long-lived assets

Deferred financing costs

Income taxes

The Partnership pays no income taxes. Each partner is responsible for reporting its proportionate share of the Partnership’s taxable earnings or loss and tax credits in its tax return.

Use of estimates

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

2.	RELATED PARTY TRANSACTIONS

Management services agreement

Marketing agreement and concentration of sales

The Partnership has an exclusive sales agreement with its manager under which the company acts as sales agent for the oriented strand board produced by the mill. The manager sells the product at prevailing market prices and is paid a commission which is calculated as 3% of sales. The manager is responsible for sales, billings and collections, including all costs for bad debts. The manager’s sales to three end customers amounted to approximately 26%, 13% and 9% of total sales from the Partnership [2003 - 26%, 17% and 9%; 2001 - 23%, 18% and 8%], respectively. The Partnership derives its sales from customers in the U.S. and capital assets are located in the U.S.

The balance due from the manager is non-interest bearing and is due in approximately 20 days from the date of shipment to the ultimate customer.

In addition, during the first quarter of 2004 and 2003, the manager reimbursed the Partnership for expenditures related primarily for salaries and insurance costs made on its behalf amounting to $382,733 and $249,516, respectively.

3.	INVENTORIES

Inventories consist of the following:


*In dollars*	March 31, 2004		December 31, 2003
Raw materials	$	4,932,766	$	1,494,140
Finished goods		616,850		517,739
Repair and replacement parts		2,018,583		1,944,689
Supplies		52,158		59,147

	$	7,620,357	$	4,015,715

Northwood Panelboard Company

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

4.	LONG-TERM DEBT

Long-term debt consists of the following:


*In dollars*	March 31, 2004	December 31, 2003
Note payable under a $10,000,000 revolving credit agreement	—	$	3,600,000
Environmental Control Revenue Refunding
Bonds due December 1, 2021 with interest payable monthly at a variable rate, secured by a standby letter of credit expiring March 31, 2005	—		5,800,000
Environmental Improvement Revenue Bonds due July 1, 2025, with interest payable monthly at a variable rate, secured by a standby letter of credit expiring March 3, 2004	—		5,800,000

	—	$	15,200,000

As a result of the change in ownership, as well as positive operations in the first quarter, all of the long-term debt of the Partnership was paid off. See Note 1 for further information on the change in ownership.

6.	COMMITMENTS AND CONTINGENCIES

[a]

As a result of new regulations, the Partnership has performed a review of their air emissions and carried out a Best Available Current Technology review at the request of the Minnesota Pollution Control Agency [“MPCA”]. The Partnership has proposed changes to their emission control equipment to the MPCA that may result in capital expenditures of approximately $8,000,000. On December 30, 2003, the MPCA issued a notice to the public indicating that the Partnership has applied for an air emission facility permit for modification and operation of the mill. The public comment period expired on January 29, 2004. There were no comments received from the public as a result of the notice. The air emission permit was issued on May 11, 2004. The project is expected to be completed by November 2005.

[b]

Item 9.

Changes in and disagreements with accountants on accounting and financial disclosure

None.

Item 9A.

Controls and procedures

Management’s Report on Internal Control Over Financial Reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. In order to evaluate the effectiveness of internal control over financial reporting, management has conducted an assessment, including testing, using the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our assessment, under the criteria established in Internal Control – Integrated Framework, issued by the COSO, management has concluded that the company maintained effective internal control over financial reporting as of December 31, 2005.

Management’s assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, 2005, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on pages 82 and 83 of the 2005 Annual Report to Shareholders which is incorporated by reference in this Annual Report on Form 10-K.

Evaluation of the Company’s Disclosure Controls and Procedures.

As of the end of the period covered by this Annual Report on Form 10-K, we evaluated the effectiveness of our “disclosure controls and procedures.” This evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based on the evaluation of disclosure controls and procedures, our CEO and CFO have concluded that the disclosure controls and procedures were effective, as of December 31, 2005, to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 have been accumulated and communicated to management, including our CEO and CFO, and other persons responsible for preparing such reports to allow timely decisions regarding required disclosure and that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal control over financial reporting.

As of December 31, 2004, we did not maintain effective controls over the determination and reporting of the provision for income taxes and related deferred income tax balances. Accordingly, management determined that the condition constituted a material weakness at December 31, 2004. Changes in the design of the control procedures over the provision for income taxes and related income tax balances to

both the quarterly and annual financial reporting periods were implemented in 2005. These included among other things: hired a new Vice President of Tax; expanded supervisory activities and monitoring techniques; educated and trained individuals involved in accounting and reporting for income taxes; and enhanced the reconciliation of income tax accounts.

Disclosure Controls, Internal Controls and CEO and CFO Certifications.

Disclosure controls and procedures are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 (“Exchange Act”), such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

We also reviewed our “internal control over financial reporting” for purposes (among other matters) of identifying any “significant deficiencies” or “material weaknesses” in our internal control over financial reporting, as discussed below.

Appearing as exhibits to this Annual Report are the Certifications of the CEO and the CFO required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item of the Annual Report that you are currently reading is the information concerning the evaluation of the Disclosure Controls referred to in Item 4(c) of the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented. The certifications by our Chief Executive Officer and Chief Financial Officer of this Annual Report on Form 10-K, as required by Section 302 of the Sarbanes-Oxley Act of 2002, have been filed as Exhibits 31.1 and 31.2 to this report. The certifications by such officers of this Annual Report on Form 10-K, as required by Section 906 of the Sarbanes-Oxley Act of 2002, have been furnished to the SEC as Exhibits 32.1 and 32.2 to this report.

Limitations on the Effectiveness of Controls.

Our management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We monitor our disclosure controls and procedures and internal control over financial reporting and make modifications as necessary; our intent in this regard is that the disclosure controls and procedures and the internal control over financial reporting will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant.

Scope of the Controls Evaluation.

The CEO/CFO evaluation of our disclosure controls and procedures included a review of the disclosure controls and procedures’ objectives and design, the disclosure controls and procedures’ implementation by the company and the effectiveness of the disclosure controls and procedures in ensuring that material information relating to the company and its subsidiaries is made known to management and is appropriately reflected in our SEC filings and submissions. This type of evaluation is conducted on a quarterly basis so that the conclusions concerning effectiveness of disclosure controls and procedures can be reported in our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K.

Our internal control over financial reporting is also evaluated on an ongoing basis by the Internal Audit Department and by other personnel in our Finance organization. Among other matters, we sought in our evaluation to determine whether there were any “significant deficiencies” or “material weaknesses” in our internal control over financial reporting, or whether we had identified any acts of fraud involving management or other employees who have a significant role in our internal control over financial reporting. This information was important both as a matter of good corporate practice and because item 5 in the Section 302 Certifications requires that the CEO and CFO disclose that information to the Board’s Audit Committee and to its independent auditors and to report material weaknesses in this Item of the Annual Report. An internal control deficiency is present when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A “significant deficiency” is a control deficiency, or a combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of our annual or interim financial statements, that is more than inconsequential, will not be prevented or detected. A “material weakness” is a significant deficiency or a combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Item 9B.

Other information

None.

Part III

Item 10.

Directors and executive officers of the registrant

Information required by this item for MeadWestvaco’s directors will be contained in MeadWestvaco’s 2006 Proxy Statement, pursuant to Regulation 14A, to be filed with the SEC on or before March 24, 2006, and is incorporated herein by reference. A portion of the information required by this item for the MeadWestvaco’s executive officers is also contained in Part I of this report under the caption “Executive officers of the registrant.”

Item 11.

Executive compensation

Information required by this item will be contained in MeadWestvaco’s 2006 Proxy Statement, pursuant to Regulation 14A, to be filed with the SEC on or before March 24, 2006, and is incorporated herein by reference.

Item 12.

Security ownership of certain beneficial owners and management and related stockholder matters

Item 13.

Certain relationships and related transactions

Item 14.

Principal accountant fees and services

Part IV

Item 15.

Exhibits and financial statement schedules

(a)	Documents filed as part of this report:

1.	Consolidated financial statements

The consolidated financial statements of MeadWestvaco Corporation and consolidated subsidiaries listed below are incorporated herein by reference to the following pages of the MeadWestvaco 2005 Annual Report to Shareholders and are attached hereto as Exhibit 13:


		Page

Consolidated statements of operations for the years ended December 31, 2005, 2004 and 2003		28

Consolidated balance sheets at December 31, 2005 and 2004		29

Consolidated statements of shareholders’ equity for the years ended December 31, 2005, 2004 and 2003		30-31

Consolidated statements of cash flows for the years ended December 31, 2005, 2004 and 2003		32-33

Notes to financial statements		34-79

Report of independent registered public accounting firm		82-83

2.	Consolidated financial statement schedules

All financial statement schedules have been omitted because they are inapplicable, not required, or shown in the consolidated financial statements and notes thereto contained herein.

3.	Exhibits



3.1		Amended and Restated Certificate of Incorporation of the Registrant, previously filed as Exhibit 3.1 to the company’s Form 8-K filed on January 29, 2002, and incorporated herein by reference.

3.2		Amended and Restated By-laws of the Registrant, previously filed as Exhibit 4.2 to the company’s Form S-8 filed on March 1, 2004, File No. 333-113183, and incorporated herein by reference.

4.1		Indenture dated as of April 2, 2002 by and among the Registrant, Westvaco Corporation, The Mead Corporation and The Bank of New York, as Trustee, previously filed as Exhibit 4.1 to the company’s Form 8-K on April 2, 2002, and incorporated herein by reference.



4.2		First Supplemental Indenture between Westvaco Corporation and The Bank of New York dated January 31, 2002, previously filed as Exhibit 4.1 to the company’s Form 8-K, filed on February 1, 2002, and incorporated herein by reference.

4.3		Second Supplemental Indenture between the Registrant and The Bank of New York dated December 31, 2002, previously filed as Exhibit 4.1 to the company’s Form 8-K, filed on January 7, 2003, and incorporated herein by reference.

4.4		Fourth Supplemental Indenture between The Mead Corporation and Bankers Trust Company dated January 31, 2002, previously filed as Exhibit 4.2 to the company’s Form 8-K, filed on February 1, 2002, and incorporated herein by reference.

4.5		Fifth Supplemental Indenture between MW Custom Papers, Inc. and Deutsche Bank Trust Company Americas dated December 31, 2002, previously filed as Exhibit 4.2 to the company’s Form 8-K, filed on January 7, 2003, and incorporated herein by reference.

4.6		Sixth Supplemental Indenture between the Registrant and Deutsche Bank Trust Company Americas dated December 31, 2002, previously filed as Exhibit 4.3 to the company’s Form 8-K, filed on January 7, 2003, and incorporated herein by reference.

4.7		Form of Indenture, dated as of March 1, 1983, between Westvaco Corporation and The Bank of New York (formerly Irving Trust Company), as trustee, previously filed as Exhibit 2 to Westvaco’s Registration Statement on Form 8-A, File No. 1-3013, dated January 24, 1984, and incorporated herein by reference.

4.8		Rights Agreement dated as of January 29, 2002 between the Registrant and The Bank of New York, previously filed as Item 2 to the company’s Form 8-A dated January 29, 2002, and incorporated herein by reference.

4.9		Indenture dated as of July 15, 1982 between The Mead Corporation and The Bankers Trust Company, as Trustee, First Supplemental Indenture dated as of March 1, 1987, Second Supplemental Indenture dated as of October 15, 1989 and Third Supplemental Indenture dated as of November 15, 1991, previously filed as Exhibit 4.ix to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

4.10		Indenture dated as of February 1, 1993 between The Mead Corporation and The First National Bank of Chicago, as Trustee, previously filed as Exhibit 4.x to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.



4.11		First Supplemental Indenture between The Mead Corporation and Bank One Trust Company, NA dated January 31, 2002, previously filed as Exhibit 4.3 to the company’s Form 8-K, filed on February 1, 2002, and incorporated herein by reference.

4.12		Second Supplemental Indenture between MW Custom Papers, Inc. and Bank One Trust Company, N.A. dated December 31, 2002, previously filed as Exhibit 4.4 to the company’s Form 8-K, filed on January 7, 2003, and incorporated herein by reference.

4.13		Third Supplemental Indenture between the Registrant and Bank One Trust Company, N.A. dated December 31, 2002, previously filed as Exhibit 4.5 to the company’s Form 8-K, filed on January 7, 2003, and incorporated herein by reference.

10.1+		The Westvaco Corporation Savings and Investment Restoration Plan, as amended, effective January 1, 1990, and Retirement Income Restoration Plan and Excess Benefit Plan, as amended, effective January 1, 1990, previously filed as Exhibit 10(e) to Westvaco’s Annual Report on Form 10-K for the fiscal year ended October 31, 1989, File No. 1-3013, and incorporated herein by reference.

10.2+		Amendment to the Westvaco Corporation Savings and Investment Restoration Plan, effective January 1, 1991, previously filed as Exhibit 10(e) to Westvaco’s Annual Report on Form 10-K for the fiscal year ended October 31, 1991, File No. 1-3013, and incorporated herein by reference.

10.3+		Amendment to the Westvaco Corporation Savings and Investment Restoration Plan, effective October 1, 1995, previously filed as Exhibit 10(e) to Westvaco’s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, File No. 1-3013, and incorporated herein by reference.

10.4+		The Westvaco Corporation Deferred Compensation Plan effective March 1, 2001, previously filed as Exhibit 10.c to Westvaco’s Quarterly Report on Form 10-Q/A for the period ended April 30, 2001, File No. 1-3013, and incorporated herein by reference.

10.5+		The Mead Corporation 1996 Stock Option Plan, as amended through June 24, 1999 and amended February 22, 2001, previously filed as Exhibit 10.3 to Mead’s Quarterly Report on Form 10-Q for the period ended July 4, 1999 and Appendix 2 to Mead’s definitive proxy statement for the 2001 Annual Meeting of Shareholders, and incorporated herein by reference; SEC File No. 333-81638.

10.6+		Amendment to The Mead Corporation 1996 Stock Option Plan, effective April 23, 2002, previously filed as Exhibit 10.3 to the company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002, and incorporated herein by reference.



10.7+		1985 Supplement to The Mead Corporation’s Incentive Compensation Election Plan, as amended November 17, 1987, and as further amended October 29, 1988; as amended effective June 24, 1998; as amended effective October 26, 2001, previously filed as Exhibit 10.xxix to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

10.8+		The Mead Corporation Excess Benefit Plan dated January 1, 1996; as amended effective June 24, 1998; as amended effective October 26, 2001, previously filed as Exhibit 10.xxx to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

10.9+		Amendment to The Mead Corporation Section 415 Excess Benefit Plan in which executive officers participate, previously filed as Exhibit 10.3 to the company’s Quarterly Report on Form 10-Q for the period ended March 30, 2002, and incorporated herein by reference.

10.10+		The Mead Corporation Excess Earnings Benefit Plan dated January 1, 1996; as amended effective June 24, 1998; as amended effective October 26, 2001, previously filed as Exhibit 10.xxxi to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

10.11+		Amendment to The Mead Corporation Excess Earnings Benefit Plan in which executive officers participate, previously filed as Exhibit 10.2 to the company’s Quarterly Report on Form 10-Q for the period ended March 30, 2002, and incorporated herein by reference.

10.12+		Restated Supplemental Executive Retirement Plan effective January 1, 1997; as amended effective June 24, 1998; as amended effective August 28, 2001, previously filed as Exhibit 10.xxxii to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

10.13+		Third Amendment to The Mead Corporation Supplemental Executive Retirement Plan in which executive officers participate, previously filed as Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q for the period ended March 30, 2002, and incorporated herein by reference.

10.14+		Restated Benefit Trust Agreement dated August 27, 1996 between The Mead Corporation and Society Bank, National Association; as amended effective June 24, 1998; as amended effective October 28, 2000; as amended effective June 28, 2001; as amended August 28, 2001, previously filed as Exhibit 10.xxxiv to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.



10.15+		The Mead Corporation Restricted Stock Plan effective December 10, 1987, as amended through June 24, 1999, previously filed as Exhibit 10.xxxv to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

10.16+		Ninth Amendment to The Mead Corporation Restricted Stock Plan, previously filed as Exhibit 10.5 to the company’s Quarterly Report on Form 10-Q for the period ended March 30, 2002, and incorporated herein by reference.

10.17+		The Mead Corporation Deferred Compensation Plan for Directors, as amended through October 29, 1988; as amended effective June 24, 1998; as amended effective October 26, 2001, previously filed as Exhibit 10.xxxvi to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

10.18+		1985 Supplement to The Mead Corporation Deferred Compensation Plan for Directors, as amended through October 29, 1988; as amended effective June 24, 1998; as amended effective October 26, 2001, previously filed as Exhibit 10.xxxvii to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

10.19+		The Mead Corporation Amended and Restated Directors Capital Accumulation Plan effective January 1, 2000; as amended effective October 26, 2001, previously filed as Exhibit 10.xxxviii to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

10.20+		The Mead Corporation Amended and Restated Executive Capital Accumulation Plan effective January 1, 2000; as amended effective October 26, 2001, previously filed as Exhibit 10.xxxxi to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, and incorporated herein by reference.

10.21+		The MeadWestvaco Corporation Compensation Plan for Non-Employee Directors, previously filed as Exhibit B to the company’s definitive Proxy Statement for the 2002 Annual Meeting of Shareholders, and incorporated herein by reference.

10.22+		MeadWestvaco Corporation Annual and Long-term Incentive Plan (as amended and restated as of February 26, 2002), previously filed as Exhibit 10.40 to the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference.



10.23+		MeadWestvaco Corporation Annual and Long-term Incentive Plan for Executives Exempt from Internal Revenue Code Section 162(m) (as amended and restated as of February 26, 2002), previously filed as Exhibit 10.41 to the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference.

10.24		Lease Agreement between The Industrial Development Board of the City of Phenix City, Alabama and Mead Coated Board, Inc., dated as of June 1, 1993, as amended, previously filed as Exhibit 10.xxiv to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, incorporated herein by reference.

10.25		Lease Agreement between The Industrial Development Board of the City of Phenix City, Alabama and Mead Coated Board, Inc., dated as of September 1, 1997, as amended, previously filed as Exhibit 10.xxv to the company’s Annual Report on Form 10-K for the Transition Period ended December 31, 2001, incorporated herein by reference.

10.26+		Form of Employment Agreement for John A. Luke, Jr. and James A. Buzzard, dated January 29, 2004, previously filed as Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q for the period ended March 31, 2004, incorporated herein by reference.

10.27+		Form of Employment Agreement for Mark T. Watkins, dated January 29, 2004, previously filed as Exhibit 10.2 to the company’s Quarterly Report on Form 10-Q for the period ended March 31, 2004, incorporated herein by reference.

10.28		Equity and Asset Purchase Agreement dated January 14, 2005 between Registrant and Maple Acquisition LLC, previously filed on the company’s Form 8-K on January 21, 2005, for the sale of its papers business and associated assets, and incorporated herein by reference.

10.29		$1 billion Five-Year Credit Agreement dated as of December 1, 2004 among the Registrant, The Bank of New York, as agent, and the banks named therein, as amended on December 1, 2005 to reduce the Credit Facility from $1 billion to $750 million and to extend the maturity date to December 1, 2010, previously filed on the company’s Form 8-K on December 19, 2005.

10.30+		MeadWestvaco Corporation 2005 Compensation for Non-Employee Directors, previously filed as Exhibit 10.30 to the company’s Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference.

10.31+		MeadWestvaco Corporation 2005 Compensation for Named Executive Officers, previously filed as Exhibit 10.31 to the company’s Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference.



10.32+		MeadWestvaco Corporation 2005 Performance Incentive Plan, previously filed as Annex D to the company’s definitive Proxy Statement for the 2005 Annual Meeting of Shareholders, and incorporated herein by reference.

10.33+*		MeadWestvaco Corporation Executive Retirement Plan effective January 29, 2004.

10.34+		MeadWestvaco Corporation Retirement Restoration Plan effective January 1, 2003, previously filed as exhibit 10.32 to the company’s Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference.

10.35+		Form of Employment Agreement dated January 29, 2004 for Wendell L. Willkie, II, previously filed as exhibit 10.33 to the company’s Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference.

10.36+		Form of Employment Agreement dated September 30, 2004 for E. Mark Rajkowski, II, previously filed as exhibit 10.34 to the company’s Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference.

13.*		Page 2 through 83 of the MeadWestvaco 2005 Annual Report to Shareholders, incorporated by reference in response to Item 1, 7, 7A and 8 of this Annual Report on Form 10-K. Except for the information that is expressly incorporated by reference, the Annual Report to Shareholders is furnished for the information of the Securities and Exchange Commission and is not deemed to be filed as part of this report.

21.*		Subsidiaries of the Registrant.

23.1*		Consent of PricewaterhouseCoopers LLP.

23.2*		Consent of Ernst & Young LLP.

31.1*		Rule 13a-14(a) Certification by Chief Executive Officer.

31.2*		Rule 13a-14(a) Certification by Chief Financial Officer.

32.1*		Section 1350 Certification by Chief Executive Officer.

32.2*		Section 1350 Certification by Chief Financial Officer.

*	Filed herewith.

+	Management contract or compensatory plan or arrangement.

We agree to furnish copies of other instruments defining the rights of holders of long-term debt to the Commission upon its request.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


				MEADWESTVACO CORPORATION (Registrant)

March 1, 2006				/s/ E. Mark Rajkowski
				Name: E. Mark Rajkowski Title: Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ John A. Luke, Jr.	Chairman of the Board of Directors and Chief Executive Officer	March 1, 2006
John A. Luke, Jr.

/s/ E. Mark Rajkowski	Senior Vice President (Chief Financial Officer)	March 1, 2006
E. Mark Rajkowski

/s/ John E. Banu	Controller (Principal Accounting Officer)	March 1, 2006
John E. Banu

/s/ Michael E. Campbell	Director	March 1, 2006
Michael E. Campbell

/s/ Dr. Thomas W. Cole, Jr.	Director	March 1, 2006
Dr. Thomas W. Cole, Jr.

/s/ Duane E. Collins	Director	March 1, 2006
Duane E. Collins

/s/ James G. Kaiser	Director	March 1, 2006
James G. Kaiser

/s/ Richard B. Kelson	Director	March 1, 2006
Richard B. Kelson

/s/ John A. Krol	Director	March 1, 2006
John A. Krol

/s/ Susan J. Kropf	Director	March 1, 2006
Susan J. Kropf

/s/ Douglas S. Luke	Director	March 1, 2006
Douglas S. Luke

/s/ Robert C. McCormack	Director	March 1, 2006
Robert C. McCormack

/s/ Timothy H. Powers	Director	March 1, 2006
Timothy H. Powers

/s/ Edward M. Straw	Director	March 1, 2006
Edward M. Straw

/s/ Jane L. Warner	Director	March 1, 2006
Jane L. Warner

/s/ J. Lawrence Wilson	Director	March 1, 2006
J. Lawrence Wilson

EXHIBIT INDEX



10.33		MeadWestvaco Corporation Executive Retirement Plan effective January 29, 2004.

13.		Attached hereto is a copy of the MeadWestvaco 2005 Annual Report to Shareholders, specifically pages 2 through 83, incorporated by reference in response to Items 1, 7, 7A and 8 of this Annual Report on Form 10-K. Except for the information that is expressly incorporated by reference, the Annual Report to Shareholders is furnished for the information of the Securities and Exchange Commission and is not deemed to be filed as part of this report.

21.		Subsidiaries of the Registrant.

23.1		Consent of PricewaterhouseCoopers LLP.

23.2		Consent of Ernst & Young LLP.

31.1		Rule 13a-14(a) Certification by Chief Executive Officer.

31.2		Rule 13a-14(a) Certification by Chief Financial Officer.

32.1		Section 1350 Certification by Chief Executive Officer.

32.2		Section 1350 Certification by Chief Financial Officer.

LOGO

MeadWestvaco Corporation

World Headquarters

One High Ridge Park

Stamford, Connecticut 06905

www.meadwestvaco.com

EX-10.33 2 dex1033.htm EXECUTIVE RETIREMENT PLAN EFFECTIVE JANUARY 29, 2004 Executive Retirement Plan effective January 29, 2004

Exhibit 10.33

MEADWESTVACO CORPORATION

MEADWESTVACO CORPORATION EXECUTIVE RETIREMENT PLAN

Amended and Restated

Effective January 29, 2004

TABLE OF CONTENTS


ARTICLE 1. INTRODUCTION		1
1.01.	History of the Plan	1
1.02.	Purposes of the Plan	1
1.03.	American Jobs Creation Act of 2004	1
1.04.	Appendices	2
1.05.	Effective Date	2

ARTICLE 2. DEFINITIONS AND CONSTRUCTION		3
2.01.	Definitions	3
2.02.	Construction	6

ARTICLE 3. PARTICIPATION		7
3.01.	Active Participation	7
3.02.	Inactive Participation	7

ARTICLE 4. AMOUNT AND PAYMENT OF BENEFITS		8
4.01.	Amount of Benefits	8
4.02.	Normal and Early Retirement	8
4.03.	Pre-2004 Participants	9
4.04.	Timing and Form of Benefit Payments to Participant	11
4.05.	Disability	12
4.06.	Pre-Retirement Death Benefits	13

ARTICLE 5. VESTING, NON-COMPETITION AND CHANGE OF CONTROL		15
5.01.	Vesting	15
5.02.	Forfeiture	15
5.03.	Change of Control	16

ARTICLE 6. PLAN ADMINISTRATION		21
6.01.	Plan Administrator	21
6.02.	Incorporation of Certain Provisions of ERISA	21
6.03.	Interpretations	21
6.04.	Elections and Designations	21
6.05.	Funding Policy	21

ARTICLE 7. AMENDMENT, MERGER, AND TERMINATION OF PLAN		23
7.01.	Amendment of the Plan	23
7.02.	Termination of the Plan	23
7.03.	Design Decisions	23

ARTICLE 8. MISCELLANEOUS PROVISIONS		24
8.01.	Employment Rights Not Affected by Plan	24
8.02.	Integration Clause	24
8.03.	Liability Limited	24


8.04.	Overpayments	24
8.05.	Incapacity and Minor Status	24
8.06.	Assignment and Liens	24
8.07.	Withholding Taxes	25
8.08.	Titles and Headings Not to Control	25
8.09.	Governing Law and Limitation on Actions	25
8.10.	Class Action Forum Selection Clause	25
8.11.	Severability	26
8.12.	Complete Statement of Plan	26


Appendix A.		PARTICIPANTS WHO PARTICIPATED IN THE PRE-2004 PLAN BUT DID NOT ACCRUE PRE-AJCA BENEFITS

Appendix B.		PARTICIPANTS WHO BECAME ACTIVE PARTICIPANTS ON JANUARY 29, 2004 WITH PAST SERVICE CREDITS

Appendix C.		NONQUALIFIED DEFERRED COMPENSATION PLANS WHOSE BENEFITS OFFSET BENEFITS UNDER THIS PLAN

Appendix D.		PROVISIONS FOR PARTICIPANTS WITH PRE-AJCA BENEFITS

Appendix E.		TERMS OF THE PRE-2004 PLAN

ARTICLE 1. INTRODUCTION

1.01.

HISTORY OF THE PLAN

(a)

The Mead Corporation and Westvaco Corporation became wholly owned subsidiaries of MW Holding Corporation, the name of which was subsequently changed to MeadWestvaco Corporation, effective January 29, 2002. In connection with this event, MeadWestvaco Corporation (the “Company”) assumed sponsorship of the benefit plans maintained by the Mead Corporation and Westvaco Corporation.

(b)

Prior to the events described in Section 1.01(a) above, the Mead Corporation sponsored a supplemental executive retirement plan for its eligible employees and the eligible employees of certain of its subsidiaries, known as the Mead Corporation Supplemental Executive Retirement Plan (the “Mead SERP”).

(c)

The Board of Directors of the Company adopted resolutions in 2004 providing for participation by certain senior executives of the Company and its affiliates in a supplemental executive retirement plan having terms approved by the Compensation and Organizational Development Committee of the Board of Directors. The Board of Directors further authorized certain officers of the Company, including the Chief Executive Officer, to take all actions deemed by such officers to be necessary or appropriate to effectuate the resolutions. The Mead SERP has been amended and restated in accordance with these resolutions and has been renamed as the MeadWestvaco Corporation Executive Retirement Plan (the “Plan”).

1.02.

PURPOSES OF THE PLAN

(a)

The purposes of the Plan are to attract mid-career senior executive hires, retain talented senior executives, and provide recognition to long-service senior executives by providing them with competitive supplementary retirement income, in addition to that provided under the Company’s tax-qualified and other non-qualified defined benefit plans.

(b)

The Plan is intended to be and shall be operated and administered as a plan primarily providing deferred compensation to a “select group of management or highly compensated employees” within the meaning of Sections 201(2), 301(a)(3), or 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and shall not be subject to the participation and vesting requirements, funding provisions, or the fiduciary duty rules of ERISA (except as provided in Section 6.02).

1.03.

AMERICAN JOBS CREATION ACT OF 2004

(a)

All benefits under the Plan other than Pre-AJCA Benefits (as defined in Section 2.01(x), below) shall be subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). Except with respect to Pre-AJCA Benefits: (1) the Plan shall comply with the requirements of, and shall be operated, administered, and interpreted in accordance with, a good faith interpretation of Section 409A of the Code and Section 885 of the American Jobs Creation Act of 2004 (the “AJCA”); and (2) if any provision of the Plan is inconsistent with the restrictions imposed by Section 409A or the AJCA, that provision shall be deemed to be amended to the extent that the Company determines is necessary to bring it into compliance with Section 409A and the AJCA.

(b)	With respect to Pre-AJCA Benefits, the special provisions set forth in Appendix D shall apply. The benefits under the Plan for any Participant who has a Pre-AJCA Benefit shall be determined in accordance with Appendix D.

1.04.

APPENDICES

The Plan includes the following Appendices:

(a)

Appendix A lists Participants without Pre-AJCA Benefits (as defined in Section 2.01(x)) who participated in the version of the Plan that was in effect before January 29, 2004, their service as of December 31, 2004 (“Years of Appendix A Service”), and the amount of their Grandfathered Benefits (as defined in Section 2.01(o) and Grandfathered CIC Benefits (as defined in Section 2.01(p)).

(b)	Appendix B lists past-service credits for certain individuals who became Participants in the Plan on January 29, 2004.

(c)	Appendix C lists the nonqualified deferred compensation plans whose benefits offset benefits under this Plan.

(d)	Appendix D sets forth special rules for Participants who have Pre-AJCA Benefits (as defined in Section 2.01(x)).

(e)	Appendix E sets forth the terms of the Plan that were in effect on January 28, 2004 (the “Pre-2004 Plan”).

1.05.

EFFECTIVE DATE

The effective date of this restatement of the Plan is January 29, 2004.

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ARTICLE 2. DEFINITIONS AND CONSTRUCTION

2.01.

DEFINITIONS

For purposes of the Plan, unless the context clearly or necessarily indicates the contrary, the following words and phrases shall have the meaning set forth in the definitions below:

(a)

“Affiliate” shall mean the Company and any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) that includes the Company; any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with the Company; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) that includes the Company; and any other entity required to be aggregated with the Company pursuant to the regulations under Section 414(o) of the Code. The term “Affiliate” shall also include any entity that would be included among the entities described in the first sentence of this Section 2.01(a) but for the fact that the Company’s interest in such entity is limited to 50 percent, and for purposes of Section 2.01(ii), the term “Affiliate” shall include any entity that would have been an Affiliate of the Mead Corporation or Westvaco Corporation if such corporation were substituted for “Company” in the first sentence of this Section 2.01(a).

(b)	“AJCA” shall mean the American Jobs Creation Act of 2004, Pub. L. No. 108-357 (Oct. 22, 2004).

(c)	“All-MERP Benefit” shall have the meaning set forth in Section 4.03(b)(1).

(d)	“Authorized Party” shall mean, (1) for the Chief Executive Officer and any Participant who reports directly to the Chief Executive Officer, the Committee, and (2) for any Participant who does not report directly to the Chief Executive Officer, the Chief Executive Officer or his designee.

(e)	“Board of Directors” shall mean the board of directors of the Company.

(f)	“Cause” shall mean:

(1)

the willful and continued failure of the Participant to perform substantially the Participant’s duties with the Company or Affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Participant by the Authorized Party which specifically identifies the manner in which the Authorized Party believes that the Participant has not substantially performed the Participant’s duties;

(2)

the willful engaging by the Participant in illegal conduct or gross misconduct; or

(3)

a clearly established violation by the Participant of the Company’s Code of Conduct that the Authorized Party determines to be materially and demonstrably injurious to the Company or any Affiliate;

provided that no act or failure to act on the part of the Participant shall be considered “willful” unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that the Participant’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the

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Board of Directors or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Company.

(g)	“Change of Control” shall have the meaning set forth in Section 5.03(c) and (d). This definition of Change of Control is different than the Pre-2004 Plan’s definition of “Change in Control,” which is set forth in Section E-10.3.

(h)	“Chief Executive Officer” shall mean the chief executive officer of the Company.

(i)	“Code” shall mean the Internal Revenue Code of 1986, as amended.

(j)	“Committee” shall mean the Compensation and Organizational Development Committee of the Board of Directors.

(k)	“Company” shall mean MeadWestvaco Corporation, a Delaware corporation.

(l)	“Early Retirement Date” for a Participant shall mean his 62nd birthday.

(m)	“Employer” shall mean the Company and any Affiliate that, with the consent of the Board of Directors, has adopted the Plan. For purposes of Section 2.01(ii), the term “Employer” shall include the Mead Corporation and Westvaco Corporation.

(n)	“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

(o)	“Grandfathered Benefit” shall have the meaning set forth in Section 4.03(b)(2).

(p)	“Grandfathered CIC Benefit” shall have the meaning set forth in Section 5.03(f)(3).

(q)	“Normal Retirement Date” for a Participant shall mean his 65th birthday.

(r)	“Ongoing-SERP Benefit” shall have the meaning set forth in Section 4.03(b)(3).

(s)

“Participant” shall mean an individual who satisfies the requirements for participation in the Plan in Section 3.01 and whose accrued benefit under the Plan has not been forfeited or completely distributed. An “Active Participant” shall mean a person who is an Active Participant as described in Section 3.01 and an “Inactive Participant” shall mean a person who is an Inactive Participant as described in Section 3.02.

(t)	“PIA” shall mean the Participant’s Primary Insurance Amount, as defined in the applicable Qualified Plan.

(u)	“Plan” shall mean the MeadWestvaco Corporation Executive Retirement Plan, as amended from time to time.

(v)	“Plan Administrator” shall mean the plan administrator appointed pursuant to Section 6.01(a).

(w)	“Plan FAP” shall mean a Participant’s “Final Average Pay” as defined in the applicable Qualified Plan, but calculated without regard to the provisions of the applicable Qualified Plan implementing Section 401(a)(17) of the Code or any successor thereto.

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(x)	“Pre-AJCA Benefit” shall have the meaning set forth in Section D-3.01.

(y)	“Pre-2004 Plan” shall mean the Plan as in effect as of January 28, 2004, as set forth in Appendix E.

(z)

“Qualified Plan” shall mean the MeadWestvaco Corporation Retirement Plan for Salaried and Non-Bargained Hourly Employees, the MeadWestvaco Corporation Envelope Division Retirement Plan for Salaried and Non-Bargained Employees and any other “defined benefit plan” (as defined in Section 3 of ERISA) sponsored by the Company or an Affiliate that is qualified under Section 401(a) of the Code and that is designated by the Board of Directors or the Committee as a “Qualified Plan” for purposes of this Plan. For purposes of Section 4.01(a)(2) (and for any other purposes established by the Board of Directors or the Committee in accordance with the preceding sentence), the term “Qualified Plan” shall include the MeadWestvaco Corporation Retirement Plan for Bargained Hourly Employees.

(aa)

“Qualified Plan Assumptions” shall mean the actuarial tables and interest rates (including variations that apply for specific purposes, such as converting benefits to a lump sum amount) set forth in the last Qualified Plan covering the Participant for purposes of calculating actuarial equivalence and present value.

(bb)	“Retirement Plan” shall mean the MeadWestvaco Corporation Retirement Plan for Salaried and Non-Bargained Hourly Employees or any successor thereto.

(cc)	“Spouse” shall have the meaning set forth in the applicable Qualified Plan.

(dd)	“Totally and Permanently Disabled” shall have the same meaning as under the last Qualified Plan covering the Participant.

(ee)	“Vested Benefit” shall mean a Participant’s benefit under Sections 4.01 and 4.02, or Section 4.03, as applicable, that has become vested under Section 5.01 or Section 4.05(b) and has not been forfeited under Section 5.02 or any other provision of the Plan.

(ff)	“Years of Appendix A Service” shall mean, with respect to a Participant listed in Appendix A or Appendix D, the number of years of service (in years and months) through December 31, 2003 shown for the Participant in Appendix A or Appendix D.

(gg)	“Years of Appendix B Service” shall mean, with respect to a Participant listed in Appendix B, the number of years of service (in years and months) credited as of December 31, 2003, as shown in Appendix B.

(hh)	“Years of Benefit Service” shall mean the Participant’s Years of Benefit Service under the applicable Qualified Plan.

(ii)

“Years of Plan Benefit Service” shall mean a Participant’s Years of Plan Service, except that a Participant’s Years of Plan Benefit Service shall not exceed the number determined by subtracting 30 from his age (in years and completed months) on the date he commenced employment with the Employer or an Affiliate.

(jj)

“Years of Plan Service” shall mean the number of months since his most recent employment date (or such earlier date as set forth in a resolution pursuant to Section 3.01(b) that applies with respect to his most recent employment date) during which an individual is an Active Participant, divided by 12. For purposes of this calculation, an individual shall be deemed to be an Active Participant for any month in which he is an Active Participant for one

-5-

or more calendar days. Unless stated otherwise, a Participant’s Years of Plan Service shall be the sum of his service as an Active Participant (as determined under the first two sentences of this Section 2.01(jj)) since January 29, 2004 plus his Years of Appendix A Service or Years of Appendix B Service, if any.

2.02.

CONSTRUCTION

For purposes of the Plan, unless the contrary is clearly indicated by the context: (a) the use of the masculine gender shall also include within its meaning the feminine and vice versa; (b) the use of the singular shall also include within its meaning the plural and vice versa; (c) the word “include” shall mean to include, but not to be limited to; and (d) any reference to a statute or section of a statute shall further be a reference to any successor or amended statute or section, and any regulations or other guidance of general applicability issued thereunder.

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ARTICLE 3. PARTICIPATION

3.01.

ACTIVE PARTICIPATION

(a)	The persons listed in Appendix A and Appendix D (all of whom accrued benefits under the Pre-2004 Plan) who are employed by the Employer on January 29, 2004 shall continue to be Active Participants as of January 29, 2004.

(b)

Any other senior executive of the Employer who has been designated as eligible to participate in the Plan by a resolution adopted by the Committee shall become an Active Participant as of the date set forth in such resolution. The persons listed in Appendix B became Active Participants on January 29, 2004, but received a past service credit; Appendix B shows each such Participant’s Years of Plan Service as of December 31, 2003.

(c)	An Active Participant shall remain an Active Participant for so long as he is employed by the Employer or until the Committee determines that he is no longer eligible to accrue benefits under the Plan, if earlier.

3.02.

INACTIVE PARTICIPATION

(a)	An Active Participant shall become an “Inactive Participant” as of the earlier of: (1) the effective date of his termination of employment; or (2) the effective date of the Committee’s determination that he is no longer eligible to accrue benefits under the Plan.

(b)	The persons listed in Appendix D who are no longer accruing benefits under the Plan on January 29, 2004 shall continue to be Inactive Participants as of January 29, 2004.

(c)	An Inactive Participant shall remain an Inactive Participant for so long as his benefits under the Plan have not been fully distributed and he does not again become an Active Participant pursuant to Section 3.01.

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ARTICLE 4. AMOUNT AND PAYMENT OF BENEFITS

4.01.

AMOUNT OF BENEFITS

(a)

Unless he is listed in Appendix A (in which case Section 4.03 applies) or Appendix D, the amount of a Participant’s benefit under the Plan, expressed as an annual amount payable beginning on the first day of the month coincident with or next following his Normal Retirement Date (or the first day of the month coincident with or next following his termination of employment with the Employer and Affiliates, if later), shall equal the amount determined under (1) less the sum of the amounts determined under (2) and (3), where:

(1)

equals (A) minus (B), where—

(A)

equals 1.6 percent of the Participant’s Plan FAP, multiplied by the sum, not to exceed 40, of (i) 75 percent of his Years of Plan Benefit Service and (ii) his Years of Benefit Service; and

(B)

equals 1.25 percent of his PIA multiplied by his Years of Benefit Service;

(2)

equals the total amount determined to be payable to the Participant under the Qualified Plans, expressed as an annual amount payable as a single-life annuity beginning on the first day of the month coincident with or next following his termination of employment with the Employer and Affiliates, but not including any restructuring or other supplemental benefits payable to the Participant under such Qualified Plans.

(3)

equals the total amount, if any, determined to be payable to the Participant under the plans listed in Appendix C, and expressed as an annual amount payable as a single-life annuity beginning on the first day of the month coincident with or next following his termination of employment with the Employer and Affiliates, but not including any restructuring or other supplemental benefits payable to the Participant under such plans.

(b)

For purposes of Section 4.01(a), the amount payable to a Participant under the Qualified Plans and the plans listed in Appendix C shall be determined without regard to any qualified domestic relations order (as defined in Section 414(p) of the Code) or other order or settlement agreement that reduces or divides the Participant’s benefit under such plans.

4.02. NORMAL AND EARLY RETIREMENT

Unless he is listed in Appendix A (in which case Section 4.03 applies) or Appendix D (in which case Appendix D applies):

(a)

A Participant who terminates employment on or after his Normal Retirement Date shall be entitled to receive his Vested Benefit under the Plan (if any) at the time and in the manner described in Section 4.04 without any reduction for early commencement of benefits or any increase for late commencement of benefits (except as provided in Section 4.04(a) with respect to delayed payments).

(b)	A Participant who terminates employment with a Vested Benefit before his Normal Retirement Date (and on or after his 55th birthday) and who attains the Rule of 80 before he

-8-

terminates employment shall be entitled to receive his Vested Benefit (if any) at the time and in the manner described in Section 4.04, but subject to the following:

(1)

If the Participant terminates employment on or after his Early Retirement Date, such Vested Benefit shall be paid without any reduction for early commencement of benefits.

(2)

If the Participant terminates employment before his Early Retirement Date, the amount determined under Section 4.01(a)(1) shall be reduced by ¹/4 of 1 percent for each month by which the first day of the month coincident with or next following his termination of employment precedes the first day of the month coincident with or next following his Early Retirement Date.

(c)

A Participant who terminates employment with a Vested Benefit before his Normal Retirement Date (and on or after his 55th birthday) and who does not attain the Rule of 80 before he terminates employment shall be entitled to receive his Vested Benefit at the time and in the manner described in Section 4.04, subject to the following:

(1)

The amount determined under Section 4.01(a)(1) shall be reduced pursuant to the rules applicable to him under Section 5.2(a) (including the proviso) of the Retirement Plan or any successor provision thereto (or the comparable provision of the applicable Qualified Plan, if the Retirement Plan is not the applicable Qualified Plan with respect to him).

(2)

For purposes of the reduction described in Section 4.04(c)(1), the Participant’s assumed benefit commencement date shall be the first day of the month coincident with or next following his termination of employment, even though the actual commencement date is the date set forth in Section 4.04.

(d)	For purposes of this Article 4:

(1)

A Participant attains the Rule of 80 when the sum of his Age and Rule of 80 Service equals 80.

(2)

A Participant’s “Age” shall mean his complete years of age, plus the number of complete or partial calendar months since his most recent birthday, divided by 12.

(3)

“Rule of 80 Service” shall mean the Participant’s Years of Benefit Service under the applicable Qualified Plan.

4.03.

PRE-2004 PARTICIPANTS

This Section 4.03 shall apply only to Participants listed in Appendix A. For the comparable provisions that apply to a Participant who has a Pre-AJCA Benefit, see Appendix D.

(a)	Notwithstanding anything to the contrary in Section 4.01 or 4.02, the benefits of a Participant listed in Appendix A:

(1)

who terminates employment on or after his Normal Retirement Date and after his Benefit under the Plan becomes vested under Section 5.01(a) or (b) shall equal the greatest of: (A) the Participant’s All-MERP Benefit; (B) the Participant’s Grandfathered Benefit; or (C) the Participant’s Average Benefit.

-9-

(2)

who terminates employment before his Normal Retirement Date but after his benefit under the Plan becomes vested under Section 5.01(a) or (b) shall equal the greatest of:

(A)

The Participant’s All-MERP Benefit, reduced by applying the rules in Sections 4.02(b) through (d);

(B)

The Participant’s Grandfathered Benefit (without any adjustment to account for termination of employment before or after age 62); or

(C)

The average of (i) and (ii), where:

(i)

equals the greater of (I) the amount determined under Section 4.03(a)(2)(A); and (II) the amount determined under Section 4.03(a)(2)(B).

(ii)

equals the Participant’s Ongoing-SERP Benefit, reduced by applying Section E-4.2, based on the assumption that his benefit commencement date is the first day of the month coincident with or next following his termination of employment (even though the actual commencement date is the date set forth in Section 4.04).

(3)

who terminates employment before his benefit under the Plan becomes vested under Section 5.01(a) or (b), but after his Grandfathered Benefit becomes vested under Section 5.01(c), shall receive his Grandfathered Benefit (without any adjustment to account for termination of employment before or after age 62).

(b)	For purposes of this Section 4.03:

(1)

A Participant’s All-MERP Benefit equals the amount described in Section 4.01(a).

(2)

A Participant’s Grandfathered Benefit equals the amount set forth in Appendix A or Appendix D. (Persons not listed in Appendix A or Appendix D do not have a Grandfathered Benefit.) A Participant’s Grandfathered Benefit is based on the benefit he would have received under the terms of the Pre-2004 Plan if he had: (A) terminated employment involuntarily without Cause on December 31, 2004; and (B) begun receiving his benefit on the first day of the month coincident with or next following his 62nd birthday (or December 31, 2004, if later).

(3)

A Participant’s Ongoing-SERP Benefit equals the amount determined by applying Section E-3 (not including Section E-3.3) to the Participant’s Final Average Earnings (as defined in Section E-3.4) as of the date of his termination of employment with the Employer and Affiliates.

(4)

A Participant’s Average Benefit equals the average of the amounts in subsections (A) and (B), where:

(A)

equals the greater of (i) the Participant’s All-MERP Benefit; or (ii) the Participant’s Grandfathered Benefit; and

(B)

equals the Participant’s Ongoing-SERP Benefit.

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4.04.

TIMING AND FORM OF BENEFIT PAYMENTS TO PARTICIPANT

This Section 4.04 applies only to Participants who do not have a Pre-AJCA Benefit. For the comparable provisions that apply to a Participant who has a Pre-AJCA Benefit, see Appendix D.

(a)

The Vested Benefit, if any, of a Participant not listed in Appendix A or Appendix D shall commence on the first day of the first month that begins at least six months after his termination of employment. The first payment to any such Participant shall include all payments that would have been made up to the actual commencement date if payments had commenced on the first day of the month coincident with or next following his termination of employment, plus interest on the delayed payments at an annual rate (compounded monthly) equal to the interest rate that is used in the applicable Qualified Plan for purposes of calculating the value of an optional form of benefit that is subject to Section 417(e)(3) of the Code and that commences as of the first day of the month coincident with or next following his termination of employment.

(b)

Except as provided in Section 5.03(a) (relating to an involuntary termination of employment following a Change of Control), the Vested Benefit, if any, of a Participant not listed in Appendix A or Appendix D shall be paid to a Participant who is living, at the time set forth in Section 4.04(a), in the following form:

(1)

If the Participant is not married on the date his benefit commences, the form of payment shall be a single-life annuity.

(2)

If the Participant is married on the date his benefit commences, the form of payment shall be a 50% joint and survivor annuity, with his Spouse (as of the date his benefit commences) as joint annuitant; provided that, a Participant may elect, at the time and in the manner prescribed by the Plan Administrator, to receive his Vested Benefit in the form of a single-life annuity. For purposes of this Section 4.04(b)(2), a benefit in the form of a 50% joint and survivor annuity shall be computed so as to be the actuarial equivalent of the benefit in the form of a single-life annuity, using the Qualified Plan Assumptions.

(c)	Except as provided in Section 5.03(a) (relating to an involuntary termination of employment following a Change of Control), the Vested Benefit, if any, of a Participant listed in Appendix A shall be paid to a Participant who is living, at the time and in the form set forth below:

(1)

The Participant’s Grandfathered Benefit (if vested) shall be paid in an actuarially equivalent lump sum on the later of (x) the date set forth in Section 4.04(a) or (y) the first day of the month coincident with or next following his 62nd birthday; the amount of the payment shall be adjusted as described in Section 4.04(a) to reflect any delay from (i) the later of (I) the first day of the month coincident with or next following his termination of employment and (II) the first day of the month coincident with or next following his 62nd birthday to (ii) the actual commencement date. Actuarial equivalence shall be determined using the Qualified Plan Assumptions and the following assumed commencement date:

(A)

If his actual commencement date is the first day of the month coincident with or next following his 62nd birthday, such date shall also be his assumed commencement date for purposes of the calculation described in this Section 4.04(c)(1).

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(B)

If his actual commencement date is the date described in Section 4.04(a), the assumed commencement date for purposes of the calculation described in this Section 4.04(c)(1) shall be the first day of the month coincident with or next following his termination of employment (even though the assumed commencement date is before the actual commencement date).

(2)

The portion (if any) of the Participant’s Vested Benefit that exceeds the value of the Participant’s Grandfathered Benefit shall be paid at the time described in Section 4.04(a) and in the form described in Section 4.04(b) (with the first payment being adjusted as described in Section 4.04(a)).

(d)	Continuing Payments after Rehire

(1)

If a Participant with a Vested Benefit terminates employment with the Employer and Affiliates and is rehired and reinstated as an Active Participant before payment of his Vested Benefit commences, he shall continue to accrue additional benefits under the Plan, and his prior termination of employment shall not be treated as a termination of employment for purposes of this Section 4.04.

(2)

If a Participant with a Vested Benefit terminates employment with the Employer and Affiliates and is rehired and reinstated as an Active Participant after payment of his Vested Benefit commences, he shall continue receiving benefit payments in accordance with the payment schedule determined under Section 4.04(b) or (c). Upon his subsequent termination of employment, his benefit shall be determined under the terms of the Plan based on his service before and after his rehire and shall be offset by the actuarial equivalent value (determined using the Qualified Plan Assumptions) of the benefit he received or is receiving for his original term of participation in the Plan.

(e)	For purposes of this Section 4.04:

(1)

A Participant will not be deemed to be “married” on any date unless he has a Spouse on such date; and

(2)

A Participant will not be deemed to have terminated employment unless he has had a “separation from service” within the meaning of Section 409A(a)(2)(A) of the Code.

4.05.

DISABILITY

If a Participant becomes Totally and Permanently Disabled, then:

(a)	If, with or without reasonable accommodation, he is unable to continue working in his then-current position, he shall become an Inactive Participant pursuant to Sections 3.01(c) and 3.02(a);

(b)

If he has not satisfied the vesting requirements set forth in Section 5.01 and he remains Totally and Permanently Disabled on or after his Normal Retirement Date (or the date he terminates employment with the Employer and Affiliates, if later), his benefit under the Plan (based only on his service as an Active Participant) shall become 100 percent vested as of his Normal Retirement Date (or the date he terminates employment with the Employer and Affiliates, if later); and

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(c)

He shall receive his benefit under the Plan in the form set forth in Section 4.04(b) or (c), commencing on the later of (1) the date set forth in Section 4.04(a) or (c), or (2) the first day of the month after his benefit under the Plan becomes 100 percent vested. His first payment shall be adjusted as described in Section 4.04(a) to reflect any delay from (i) the later of (A) the first day of the month coincident with or next following his termination of employment and (B) the first day of the month after his benefit under the Plan becomes 100 percent vested to (ii) the actual commencement date.

4.06.

PRE-RETIREMENT DEATH BENEFITS

This Section 4.06 shall apply only to Participants who do not have a Pre-AJCA Benefit. For the comparable provisions that apply to a Participant who has a Pre-AJCA Benefit, see Appendix D.

(a)

If a Participant’s death occurs before payment of his benefit under the Plan begins and he: (1) has not completed at least five Years of Plan Service or (2) terminated employment before attaining age 55 and before his death, his benefit shall be forfeited and no death benefit shall be paid under the Plan with respect to him; provided, however, that if he is listed in Appendix A, and his Spouse satisfies the eligibility criteria set forth in Section E-9.1, such Spouse shall receive the benefit described in Section 4.06(b), below, but only with respect to the Participant’s Grandfathered Benefit.

(b)

If a Participant’s death occurs after he has completed five or more Years of Plan Service but before his termination of employment with the Employer and Affiliates (or before payment of his benefit under the Plan begins, if he terminated employment with the Employer and Affiliates after attaining age 55), and he is survived by a Spouse who is entitled to receive a qualified preretirement survivor annuity under the applicable Qualified Plan, such Spouse shall be entitled to receive a preretirement death benefit under the Plan, commencing on the first day of the month after the Participant’s death (or as soon as practicable thereafter, to the extent permitted under Section 409A of the Code), and calculated as follows:

(1)

If the Participant terminated employment with the Employer and Affiliates on or after his 55th birthday, his Spouse shall receive a preretirement survivor annuity based on his service as an Active Participant, calculated in the same manner as the qualified preretirement survivor annuity payable to such Spouse under Section 7.1(a)(i) of the Retirement Plan or any successor provision thereto (or the comparable provision of the applicable Qualified Plan, if the Retirement Plan is not the applicable Qualified Plan with respect to the Participant). For purposes of determining whether this Section 4.06(b)(1) applies to a Participant, and for purposes of applying Sections 4.01(a)(2) and (3) to determine the amount of the preretirement survivor annuity with respect to a Participant described in this Section 4.06(b)(1), a Participant who dies while employed by the Employer or an Affiliate shall be deemed to have terminated employment on the date of his death.

(2)

If the Participant’s death occurs before his 55th birthday (and before his termination of employment with the Employer and Affiliates), his Spouse shall receive a lump sum payment, calculated as follows:

(A)

First, a preretirement survivor annuity based on his service as an Active Participant, payable as of the first day of the month after the Participant would have attained age 55, shall be calculated in the same manner as the qualified preretirement survivor annuity payable to such Spouse under Section 7.1(a)(ii) of the Retirement Plan or any successor provision thereto (or the comparable provision of the applicable Qualified Plan, if the

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Retirement Plan is not the applicable Qualified Plan with respect to the Participant). For purposes of calculating the amounts described in Section 4.01(a)(2) and (3) and the early retirement reduction factors set forth in Sections 4.02(b) and (c) and 4.03(a)(2), as applicable, it shall be assumed that the Participant attained age 55 on the date that he terminated employment; however, this assumption shall not apply for other purposes, such as to increase the Participant’s service or final average pay.

(B)

Second, the preretirement survivor annuity computed under Section 4.06(b)(2)(A) shall be converted to an actuarially equivalent lump sum that is paid as of the first day of the month after the Participant’s death, using the most recent FAS 87 discount rate in effect as of the date of payment and the mortality table that is used in the applicable Qualified Plan as of such date for purposes of calculating the value of an optional form of benefit that is subject to Section 417(e)(3) of the Code.

(c)

If a Participant meets all of the requirements set forth in Section 4.06(b) except that he does not have a Spouse at the time of his death, the benefit set forth in Section 4.06(b) shall be payable to a beneficiary elected by the Participant in accordance with procedures established by the Plan Administrator. The death benefit described in this Section 4.06(c) shall not be paid on behalf of any Participant with respect to whom the Plan Administrator (or its designee) determines there is no valid beneficiary election (on the form designated by the Plan Administrator) on file.

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ARTICLE 5. VESTING, NON-COMPETITION AND CHANGE OF CONTROL

This Article 5 is modified with respect to any Participant who has a Pre-AJCA Benefit, as set forth in Appendix D.

5.01. VESTING

Except as otherwise provided in Section 4.06 or Section 5.02:

(a)	A Participant shall become 100 percent vested in his benefit under the Plan if he attains age 55 before his termination of employment with the Employer and Affiliates and he has five or more Years of Plan Service.

(b)

If a Participant’s employment with the Employer and Affiliates is involuntarily terminated under the circumstances described in Section 5.03(a), then he shall become 100 percent vested in his benefit under the Plan as of such date. Also, if a “Change in Control” (within the meaning of Section E-10.3) occurs, then each Participant listed in Appendix A (to the extent not already vested) shall become 100 percent vested in his Grandfathered CIC Benefit only.

(c)

If a Participant listed in Appendix A terminates employment with the Employer and Affiliates: (1) after he attains age 55 but before he has five Years of Plan Service, or (2) involuntarily for reasons other than Cause before he attains age 55, then he shall become 100 percent vested in his Grandfathered Benefit only.

5.02. FORFEITURE

(a)

Forfeiture of Benefits. A Participant shall not have any right to a benefit or payment under the Plan if his benefit under the Plan (including any benefit that has otherwise vested pursuant to Section 5.01) is forfeited under Section 5.02(a), (b) or (c), or Section 4.06. A Participant shall forfeit any portion of his benefit under the Plan that is not vested in accordance with the terms of the Plan as of his termination of employment with the Employer and the Affiliates, and such forfeiture shall not be reinstated if he is rehired unless provided otherwise in a resolution adopted by the Committee.

(b)	Termination for Cause. If a Participant’s employment with an Employer or Affiliate is terminated for Cause, his benefits under the Plan shall be automatically and permanently forfeited.

(c)

Competitive Activities, Solicitation, and Disparagement. If the Authorized Party determines that after termination of employment but prior to receiving his entire Vested Benefit and without the express prior written consent of the Authorized Party, a Participant directly or indirectly, individually or as an agent, officer, director, employee, shareholder, partner or in any other capacity whatsoever:

(1)

has engaged, or is engaging, in any activity competitive with or adverse to the Employer’s or Affiliate’s businesses or in the sale, distribution, production, or attempted sale, distribution or production, of any goods, products or services then sold or being developed by any Employer or Affiliate;

(2)

personally engages in Competitive Activities or works for, owns, manages, operates, controls, or participates in the ownership, management, operation or control of, or

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provides consulting or advisory services to, any individual, partnership, firm, corporation, or institution engaged in Competitive Activities (provided that the Participant’s purchase or holding, for investment purposes, of securities of a publicly traded company shall not constitute “ownership” or “participation in ownership” for purposes of this Section 5.02(c)(2) so long as the Participant’s equity interest in any such company is less than a controlling interest);

(3)

solicits, induces, or attempts to induce any of the Company’s or an Affiliate’s employees to leave the employ of such Company or Affiliate;

(4)

makes disparaging remarks with respect to the Company, an Affiliate, any of the Company’s or Affiliates’ products or businesses, or any of the Company’s or Affiliates’ employees, directors, consultants, independent contractors, or other service providers;

(5)

communicates or reveals any secret or confidential information, knowledge, or data related to the Company or an Affiliate, and their respective businesses, except to the extent that the right to make such a communication or revelation is expressly protected by applicable law; or

(6)

otherwise violates the Company’s Code of Conduct in a manner that the Authorized Party determines to be materially and demonstrably injurious to the Company,

such Participant’s benefits under the Plan shall be automatically and permanently forfeited and payment of such benefits to the Participant or any other person, if commenced, shall cease.

For purposes of this Section 5.02(c), “Competitive Activity” shall mean a business activity relating to products or services of the same or similar type as the products or services that (x) are sold (or, pursuant to an existing business plan, will or might be sold) to paying customers of the Company or an Affiliate; and (y) for which the Participant had responsibility to plan, develop, manage, market, or oversee within the prior 24 months or within the 24 months preceding his termination of employment the Company and Affiliates.

5.03. CHANGE OF CONTROL

(a)

Notwithstanding anything to the contrary in Section 4.04, if a Participant’s employment with the Employer and Affiliates is involuntarily terminated within 24 months after the date of a Change of Control for reasons other than Cause and he was an Active Participant on the date of the Change of Control, his Vested Benefit shall be paid to him in the form of a single lump sum on the date described in Section 4.04(a), with the amount of the payment being adjusted as described in Section 4.04(a), except that the interest rate for the delay described in Section 4.04(a) shall be the rate set forth in Section 5.03(b)(2)(A). A Participant who receives the lump sum payment described in this Section 5.03(a) shall not be eligible to receive any other benefit under the Plan.

(b)	The amount of the lump sum payment described in Section 5.03(a) shall be computed as follows:

(1)

First, the Participant’s Vested Benefit shall be calculated as a single-life annuity.

(A)

For a Participant who terminates employment on or after his 55th birthday, such single-life annuity shall be calculated in accordance with Sections 4.01

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and 4.02, or Section 4.03, as applicable, except that the Grandfathered Benefit for any Participant listed in Appendix A shall be replaced with his Grandfathered CIC Benefit.

(B)

For a Participant who terminates employment before his 55th birthday, such single life annuity shall be calculated in accordance with Sections 4.01 and 4.02, or Section 4.03, as applicable, except that—

(i)

The amount determined under Sections 4.01(a)(2) (i.e., the offset for Qualified Plan benefit) and 4.01(a)(3) (i.e., the offset for benefits under plans listed in Appendix C) shall be determined by replacing the phrase “beginning on the first day of the month coincident with or next following his termination of employment” with “beginning on the first day of the month coincident with or next following his 55th birthday;”

(ii)

The amount determined under Section 4.02(b)(2) (i.e., the Rule of 80 reduction for early termination, if applicable) shall be determined by replacing the phrase “the first day of the month coincident with or next following his termination of employment” with “the first day of the month coincident with or next following his 55th birthday;”

(iii)

The amount determined under Section 4.02(c) (i.e., the reduction for early termination for Participants who do not satisfy the Rule of 80, if applicable) shall be determined by replacing the assumed commencement date described in Section 4.02(c)(2) with the first day of the month coincident with or next following his 55th birthday (even though the actual commencement date is the date referenced in Section 5.03(a));

(iv)

The adjustments described in Sections 5.03(b)(1)(B)(ii) and (iii) shall apply for purposes of the calculation described in Section 4.03(a)(2)(A));

(v)

The Grandfathered Benefit for any Participant listed in Appendix A (as referenced in Section 4.03(a)(2)(B)) shall be replaced with his Grandfathered CIC Benefit;

(vi)

The amount described in Section 4.03(a)(2)(C)(ii) (i.e., the reduced Ongoing-SERP Benefit) shall be replaced with the modified “Pre-Age 55 Benefit” described in Section E-10.3(a).

(2)

Second, the single-life annuity computed under Section 5.03(b)(1) shall be converted to an actuarially equivalent lump sum amount that is paid as of the first day of the month coincident with or next following his termination of employment, using the mortality table that is used in the applicable Qualified Plan as of such date for purposes of calculating the value of an optional form of benefit that is subject to Section 417(e)(3) of the Code and the following interest rate:

(A)

If the Participant is not listed in Appendix A, then the interest rate shall be the most recent FAS 87 discount rate in effect as of the first day of the month coincident with or next following his termination of employment.

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(B)

If the Participant is listed in Appendix A, then the interest rate shall be (i) the rate described in Section E-10.3 for his Grandfathered CIC Benefit and (ii) the rate described in Section 5.03(b)(2)(A) for the portion (if any) of his Vested Benefit that exceeds the value of his Grandfathered CIC Benefit.

(c)	A “Change of Control” shall mean, except as provided in Section 5.03(d) (relating to a Merger of Equals):

(1)

The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (i) the Outstanding Company Common Stock or (ii) the Outstanding Company Voting Securities; provided, however, that for purposes of this Section 5.03(c)(1), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of Section 5.03(c)(3); or

(2)

Individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Board of Directors; or

(3)

Consummation of a Business Combination unless, following such Business Combination: (i) all or substantially all of the individuals and entities that were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Resulting Corporation in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Resulting Corporation and its affiliates or any employee benefit plan (or related trust) of the Resulting Corporation and its affiliates) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the Resulting Corporation or the combined voting power of the then outstanding voting securities of the Resulting Corporation except to the extent that such ownership existed with respect to the Company prior to the Business Combination, and (iii) at least a majority of the members of the Resulting Board were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or

(4)

Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

(d)

Notwithstanding anything to the contrary in Section 5.03(c), a transaction or event described in Section 5.03(c) shall not constitute a “Change of Control” if the conditions of a Merger of Equals are met at all times from the date of the transaction or event until the first anniversary of such transaction or event. If the conditions of a Merger of Equals are met at the time of the transaction or event, but cease to be met prior to the first anniversary of such transaction or event, then such transaction or event shall constitute a Change of Control as of the date

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the conditions of a Merger of Equals cease to be met. For purposes of this Section 5.03(d), the requirements of a “Merger of Equals” are that:

(1)

the event or transaction is a Business Combination;

(2)

at least 50 percent of the members of the Resulting Board are individuals who were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors providing for such Business Combination; and

(3)

either (A) the position of chief executive officer of the Resulting Corporation is occupied by an individual who was employed by the Company immediately before such Business Combination, or (B) a majority of the leadership positions reporting directly to the chief executive officer of the Resulting Corporation are occupied by individuals who were employed by the Company immediately before such Business Combination.

(e)

If a Participant listed in Appendix A terminates employment voluntarily or involuntarily (for any reason other than Cause) within 24 months after an event that constitutes a Change in Control within the meaning of Section E-10.3 and he does not qualify for the lump sum payment described in Section 5.03(a) (e.g., because he terminates employment voluntarily or a Change of Control within the meaning of Section 5.03(c) has not occurred), his Grandfathered CIC Benefit shall be paid to him in the form of a single lump sum (determined using the Actuarial Present Value assumptions set forth in Section E-10.3) on the date described in Section 4.04(a) (with the amount of the payment being adjusted as described in Section 4.04(a)).

(f)	For purposes of Section 5.03:

(1)

“Business Combination” shall mean a reorganization, merger, statutory share exchange or consolidation, or similar corporate transaction involving the Company or any of its subsidiaries, or a sale or other disposition of all or substantially all of the assets of the Company.

(2)

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(3)

“Grandfathered CIC Benefit” shall mean the amount set forth in Appendix A. (Persons not listed in Appendix A do not have a Grandfathered CIC Benefit.) A Participant’s Grandfathered CIC Benefit is based on the annual benefit he would have received under the terms of the Pre-2004 Plan if a Change in Control (within the meaning of Section E-10.3) had occurred less than 24 months prior to December 31, 2004 and he had terminated employment on December 31, 2004, if such benefit were paid in the form of a single-life annuity commencing on the first day of the month coincident with or next following his 62nd birthday.

(4)

“Incumbent Board” shall mean the Board of Directors as of January 29, 2004, (the “Incumbent Board”); provided, however, that any individual becoming a director subsequent to January 29, 2004 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or

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other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.

(5)

“Person” shall mean any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act.

(6)

“Resulting Board” shall mean the board of directors of the Resulting Corporation.

(7)

“Resulting Corporation” shall mean the corporation resulting from a Business Combination (including a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries).

(8)

“Outstanding Company Common Stock” shall mean outstanding shares of the common stock of the Company as of the acquisition described in Section 5.03(c)(1).

(9)

“Outstanding Company Voting Securities” shall mean outstanding voting securities\ of the Company entitled to vote generally in the election of directors as of the acquisition described in Section 5.03(c)(1).

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ARTICLE 6. PLAN ADMINISTRATION

6.01.

PLAN ADMINISTRATOR

(a)	The fiduciaries appointed by the Chief Executive Officer to administer the Retirement Plan shall also administer this Plan, unless the Chief Executive Officer appoints different fiduciaries to administer this Plan.

(b)

The Plan Administrator shall adopt such procedures and rules as it deems necessary or advisable to administer the Plan, including providing a claims procedure to provide adequate notice to any Participant or beneficiary whose claim is denied setting forth the specific reasons for a denial, written in a manner calculated to be understood by such person and offering a reasonable opportunity for a full and fair review of such denial by the appropriate named fiduciary. In the absence of a separate written claims procedure, the claims procedure under the Retirement Plan shall apply under the Plan.

(c)	Any fiduciary under this Plan may employ one or more persons to render advice with regard to any responsibility such fiduciary has under the Plan.

(d)	All costs and expenses and fees of the Plan Administrator shall be borne by the Employer, which also shall bear all other costs and expenses incurred in administering the Plan.

6.02.

INCORPORATION OF CERTAIN PROVISIONS OF ERISA

To the extent the Plan is not subject to the provisions of Part 4 of Title I of ERISA, the provisions of Part 4 of Title I of ERISA other than Section 403 shall be incorporated by reference as part of this Plan to define and govern the actions of the fiduciaries hereafter.

6.03.

INTERPRETATIONS

All interpretations pertaining to facts or provisions of the Plan made by the Plan Administrator, the Authorized Party, or the Committee shall be made in the complete and exclusive discretion of the Committee, the Plan Administrator, or the Authorized Party, as applicable, and shall be binding and conclusive on all parties. The Plan Administrator shall have the complete and exclusive discretion to resolve ambiguities and inconsistencies in the language of the Plan and to supply omissions in the language of the Plan.

6.04.

ELECTIONS AND DESIGNATIONS

All elections and designations that Participants are required or permitted to make under the Plan shall be made in writing or electronically in the form prescribed by the Plan Administrator (or its designees).

6.05.

FUNDING POLICY

The Plan shall be unfunded and the benefits due under the Plan shall be payable, when due, from the general assets of the Employer or, in the sole discretion of the Plan Administrator, from the assets of a specified trust, the assets of which shall be subject to the claims of the unsecured creditors of the Employer. The Plan shall not be funded through a trust or other arrangement described in Section 409A(b)(1) of the Code and no assets of the Company or any Affiliate shall become restricted in the manner described in Section 409A(b)(2) of the Code in connection with a

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change in the financial health of the Company or any Affiliate, as described in Section 409A(b)(2) of the Code.

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ARTICLE 7. AMENDMENT, MERGER, AND TERMINATION OF PLAN

7.01.

AMENDMENT OF THE PLAN

(a)	The Company reserves the right, at any time and from time to time, to amend in whole or in part, either retroactively or prospectively, any or all of the provisions of this Plan without the consent of any Participant or beneficiary hereunder; provided, however, that—

(1)

No amendment shall have any retroactive effect to deprive any Participant of his vested interest already accrued, except an amendment that the Company deems necessary or appropriate: (A) to conform the Plan to mandatory provisions of applicable federal or state laws, regulations, or rulings or to secure or maintain favorable tax treatment of amounts deferred under the Plan; or (B) to conform the Plan to the requirements of the AJCA and Section 409A of the Code.

(2)

No amendment shall be made to the Plan that would constitute or result in a “material modification” of the Plan (within the meaning of Section 885(d)(2)(B) of the AJCA) with respect to Pre-AJCA Benefits unless, and only to the extent that, such amendment or other action expressly states that it is intended to constitute a “material modification” of the Plan with respect to such amounts. Unless expressly provided otherwise, any amendment or other action that would be deemed to constitute a “material modification” with respect to such Pre-AJCA Benefits shall be null and void (to the extent that such amendment or other action constitutes a “material modification”).

(b)

Any amendment of this Plan may be enacted by written resolution of the Board of Directors. In addition, the Chairman of the Board of Directors, the Chief Executive Officer, the President of the Company, and the Senior Vice President of the Company with responsibility for Human Resources may make any amendment in writing which: (1) may be necessary or desirable to improve the administration of the Plan, so long as the amendment does not materially affect the substance of the Plan or the level of benefits it provides; or (2) may be required to comply with various federal or state laws (including Section 409A of the Code).

7.02.

TERMINATION OF THE PLAN

(a)

The Company expects to continue the Plan and any corresponding trust indefinitely but reserves the right to terminate either or both at any time in whole or in part without the consent of any Participant, surviving spouse, joint annuitant, alternate payee or beneficiary hereunder. Such termination shall be effected by resolution of the Board of Directors.

(b)	Unless expressly permitted under guidance of general applicability interpreting Section 409A of the Code, termination of the Plan shall not result in an acceleration of payment of benefits under the Plan.

7.03.

DESIGN DECISIONS

Decisions regarding the design of the Plan shall be made in a settlor capacity and shall not be governed by the fiduciary responsibility provisions of ERISA as applied to the Plan pursuant to Section 6.02. The act of modifying, altering, amending, or terminating the Plan and any corresponding trust shall be taken on behalf of the Company as employer, sponsor of the Plan, and settlor of any trust, and shall not be construed under any circumstances as an act taken in a fiduciary capacity under or with respect to the Plan.

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ARTICLE 8. MISCELLANEOUS PROVISIONS

8.01.

EMPLOYMENT RIGHTS NOT AFFECTED BY PLAN

The adoption and maintenance of the Plan shall not be deemed to constitute a contract between the Employer and any employee. Nothing herein contained shall be deemed to give to any employee the right to be retained in the employ of the Employer or to interfere with the right of the Employer to discharge any employee at any time; nor shall it be deemed to give the Employer the right to require the employee to remain in its employ or to interfere with the employee’s right to terminate his employment.

8.02.

INTEGRATION CLAUSE

No Participant, surviving spouse, beneficiary, alternate payee, or any other person shall be entitled to or have any vested right in or claim to a benefit under the Plan, except as expressly provided herein. The Employer may from time to time issue to Participants one or more booklets or brochures or make presentations summarizing the Plan. In the event of any conflict between the terms of the Plan document and any trust agreement and the terms of any such booklets, brochures, and presentations summarizing the Plan, the terms of the Plan document and any trust agreement shall control.

8.03.

LIABILITY LIMITED

Except as and to the extent otherwise provided by applicable law, no liability shall attach to or be incurred by the shareholders, directors, officers, or employees of the Company under or by reason of any of the terms and conditions contained in the Plan or in any of the contracts procured pursuant thereto or implied therefrom.

8.04.

OVERPAYMENTS

If any overpayment of benefits is made under the Plan, the amount of the overpayment may be set off against further amounts payable to or on account of the person who received the overpayment until the overpayment has been recovered. The foregoing remedy is not intended to be exclusive.

8.05.

INCAPACITY AND MINOR STATUS

If any person is a minor or unable to care for his affairs because of illness or accident, unless a duly qualified guardian or other legal representative has been appointed, any payment due from the Plan to that person may be paid, for the benefit of such person, to his spouse, parent, brother, sister, or other person deemed by the Plan Administrator to have incurred expenses for such person. Such payment, to the extent thereof, shall discharge all liability for such payment under the Plan.

8.06.

ASSIGNMENT AND LIENS

(a)

Nonalienability of Benefits. Except as otherwise provided in Section 8.06(b), the right of any person to any benefit or payment under the Plan shall not be subject to alienation, transfer, assignment, or encumbrance, or otherwise subject to lien, and any such attempt to alienate, transfer, assign, or encumber any benefit or payment under the Plan shall be null and void.

(b)	Exception for Qualified Domestic Relations Orders. Section 8.06(a) shall not apply to payments made pursuant to a qualified domestic relations order applicable to this Plan. Any domestic relations order shall be subject to the terms of the applicable Qualified Plan with

-24-

respect to such orders; provided that all qualified domestic relations orders shall be construed and executed in a manner consistent with the terms of the Plan and Section 409A of the Code.

8.07.

WITHHOLDING TAXES

The Plan Administrator may make any appropriate arrangements to deduct from all amounts paid under the Plan, or to collect any taxes reasonably determined to be required to be withheld under applicable laws. To the extent that taxes are not withheld, and irrespective of whether withholding is required, the Participant, surviving spouse, beneficiary, or alternate payee, as the case may be, shall bear all taxes on amounts paid under the Plan and on any other income resulting from the operation of the Plan.

8.08.

TITLES AND HEADINGS NOT TO CONTROL

The titles to articles and the headings of sections, subsections, paragraphs, and clauses in the Plan are placed herein for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

8.09.

GOVERNING LAW AND LIMITATION ON ACTIONS

(a)

The Plan shall be construed, administered, and regulated in accordance with the provisions of federal law, and, to the extent not preempted thereby, in accordance with the laws of the State of Connecticut, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction.

(b)

No claim for non-payment or underpayment of benefits allegedly owed by the Plan (regardless of whether such benefits are allegedly due under the terms of the Plan or by reason of any law) may be filed in court until the claimant has exhausted the claims review procedures established in accordance with Section 6.01(b). Claims for underpayment of benefits must be filed in a court with jurisdiction to hear the claim no later than 36 months after the date when the distribution of the benefit commenced. Claims for non-payment of benefits must be filed in a court located with jurisdiction to hear the claim no later than 36 months after the date when the first payment was allegedly due. The running of the 36 month limitations period shall be suspended during the time that any request for review of the claim pursuant to Section 6.01(b) is pending before the Plan Administrator. The foregoing limitations period is expressly intended to replace and to supersede any limitations period that might otherwise be deemed applicable under state or federal law in the absence of this Section 8.09. Claims filed after the expiration of the limitations period prescribed by this Section 8.09 shall be deemed to be time-barred.

8.10.

CLASS ACTION FORUM SELECTION CLAUSE

(a)

To the fullest extent permitted by law, any putative class action lawsuit brought in whole or in part under Section 502 of ERISA or any successor provision or under state law and relating to the Plan, the administration of the Plan, the trust (if any), or the performance or non-performance of Plan fiduciaries or administrators shall be filed in one of the following jurisdictions: (1) the jurisdiction in which the Plan is principally administered; or (2) the jurisdiction in which the largest number of putative class members resides (or if that jurisdiction cannot be determined, the jurisdiction in which the largest number of class members is reasonably believed to reside).

-25-

(b)

If any putative class action within the scope of Section 8.10(a) is filed in a jurisdiction other than one of those described in Section 8.10(a), or if any non-class action filed in such a jurisdiction is subsequently amended or altered to include class action allegations, then the Plan, any Plan affiliates, and all alleged Plan participants shall take all necessary steps to have the action removed to, transferred to, or re-filed in a jurisdiction described in Section 8.10(a). Such steps may include, but are not limited to: (1) a joint motion to transfer the action; or (2) a joint motion to dismiss the action without prejudice to its re-filing in a jurisdiction described in Section 8.10(a), with any applicable time limits or statutes of limitations applied as if the suit or class action allegation had originally been filed or asserted in a jurisdiction described in Section 8.10(a) at the same time that it was filed or asserted in a jurisdiction not described therein.

(c)	This forum selection provision is waived if no party invokes it within 120 days of the filing of a putative class action or the assertion of class action allegations.

(d)

This Section 8.10 does not relieve the Plan or any putative class member of any obligation existing under the Plan or by law to exhaust administrative remedies (including the applicable claims procedures) before initiating litigation or to comply with the limitation of actions provision set forth in Section 8.09(b).

8.11.

SEVERABILITY

If any provision of the Plan should be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.

8.12.

COMPLETE STATEMENT OF PLAN

This document is a complete statement of the Plan.

-26-

IN WITNESS WHEREOF the undersigned has executed this statement of the Plan.

/s/ John A. Luke, Jr.

John A. Luke, Jr.

Chairman and Chief Executive Officer

APPROVALS

LAW DEPARTMENT


FILED: February 28, 2006

By		/s/ John J. Carrara
		John J. Carrara Assistant Secretary & Associate General Counsel

		/s/ Wendell L. Willkie, II
		Wendell L. Willkie, II Senior Vice President, General Counsel and Corporate Secretary

-27-

APPENDIX A

PARTICIPANTS WHO PARTICIPATED IN THE PRE-2004 PLAN BUT

DID NOT ACCRUE PRE-AJCA BENEFITS


Participant	Appendix A Service (Years of Service Through December 31, 2003)*	Grandfathered Benefit (Expressed as an Annual Single-Life Annuity Beginning at Age 62)**		Grandfathered CIC Benefit (Expressed as an Annual Single-Life Annuity Beginning at Age 62)***
Mark T. Watkins	3.083	$	54,306	$	82,333
William J. Biedenham	5.417	$	79,831	$	97,623
Neil A. McLachlan	4.917	$	19,133	$	58,969
Robert A. Feeser	3.583	$	0¹	$	0¹
Peter H. Vogel, Jr.	7.000	$	0²		N/A²
Gary M. Curtis³	21.500	$	17,374		N/A
James C. Tyrone³	13.750	$	14,730		N/A

As set forth in Sections 4.03(b)(2) and 5.03(f)(3), although Appendix A Service refers only to service through December 31, 2003, the Grandfathered Benefit and Grandfathered CIC Benefit are based on the benefit the Participant would have received if he had terminated employment voluntarily on December 31, 2004.

**	The Grandfathered Benefit (if vested) shall be paid in an actuarially equivalent lump sum, determined in accordance with Section 4.04(c)(1), at the time set forth in Section 4.04(c).

***

If a Participant listed in this Appendix A terminates employment under the circumstances described in Section 5.03(a), his Grandfathered CIC Benefit shall be paid in an actuarially equivalent lump sum, determined in accordance with Section 5.03(b)(2)(B), at the time set forth in Section 5.03(a). If he terminates employment under the circumstances described in Section 5.03(e), his Grandfathered CIC Benefit shall be paid in an actuarially equivalent lump sum, determined in accordance with Section 5.03(e), at the time set forth therein.

¹	Mr. Feeser’s age as of December 31, 2004, was 43.25 years. As a result of the reduction described in Section E-5.2(a), if Mr. Feeser had terminated employment involuntarily on December 31, 2004, his benefit under the terms of the Pre-2004 Plan would have been $0.

Mr. Vogel terminated employment involuntarily (not for Cause) before age 55 on May 1, 2005, as a result of the Company’s divestiture of its Papers group. Although Mr. Vogel is eligible to receive his Grandfathered Benefit in a lump sum on the first day of the month coincident with or next following his 62nd birthday, the amount of such Grandfathered Benefit is $0 because the amount of the offsets described in Section E-3.2(b) and (c) is greater than the amount described in Section E-3.2(a).

Messrs. Curtis and Tyrone terminated employment involuntarily (not for Cause) before age 55 on May 1, 2005, as a result of the Company’s divestiture of its Papers group. As set forth in Sections 5.01(c), 4.04(c), and E-5 of the Plan, each shall receive his Grandfathered Benefit (but no additional benefit) in an actuarially equivalent lump sum on the first day of the month coincident with or next following his 62nd birthday.

APPENDIX B

PARTICIPANTS WHO BECAME ACTIVE PARTICIPANTS ON

JANUARY 29, 2004 WITH PAST SERVICE CREDITS


Participant		Years of Plan Service Before January 2004
John A. Luke		15.000
James A. Buzzard		6.000
Wendell L. Willkie, II		7.833
Linda V. Schreiner		3.167
Rita V. Foley		4.583
James M. McGrane		5.500
Benjamin F. Ward		2.250
Richard N. Burton		5.500
David A. Reinhart		1.833
Daniel J. McIntyre*		0.750

*	Mr. McIntyre has since terminated employment with the Employer and Affiliates with fewer than five Years of Plan Service. Pursuant to Section 5.02(a) of the Plan, he therefore does not have a right to any benefit or payment under the Plan.

APPENDIX C

NONQUALIFIED DEFERRED COMPENSATION PLANS WHOSE

BENEFITS OFFSET BENEFITS UNDER THIS PLAN

1. The Mead Corporation Section 415 Excess Benefit Plan

2. The Mead Corporation Excess Earnings Benefit Plan

3. Westvaco Corporation Excess Benefit Plan

4. Westvaco Corporation Retirement Income Restoration Plan

5. MeadWestvaco Corporation Retirement Restoration Plan

APPENDIX D

PROVISIONS FOR PARTICIPANTS WITH PRE-AJCA BENEFITS

D-1.

APPLICABILITY

D-1.01.

This Appendix D applies only to Participants who have Pre-AJCA Benefits, as set forth in Section D-3.01 (referred to as “Appendix D Participants”). To have a Pre-AJCA Benefit, an individual must be listed in Section D-3.01 and must have had a vested benefit under the applicable Qualified Plan and attained age 55 before January 1, 2005.

D-1.02.

This Appendix D is intended to preserve the rights and features provided under the Pre-2004 Plan with respect to Pre-AJCA Benefits and shall be interpreted in a manner consistent with this intent. With respect to such Pre-AJCA Benefits, the Plan shall not be “materially modified” (within the meaning of Section 885(d)(2)(B) of the AJCA), whether by amendment to the Plan or otherwise, unless (and only to the extent that) the amendment or other action that would materially modify the Plan expressly states that it is intended to constitute a “material modification” of the Plan with respect to such amounts. Unless expressly stated otherwise, any amendment or other action that would be deemed to constitute a “material modification” with respect to Pre-AJCA Benefits shall be null and void.

D-2.

DEFINITIONS

For purposes of this Appendix D, capitalized terms shall have the meaning set forth in Section 2.01 of the Plan. In addition, the term “Post-AJCA Benefit” shall mean the benefit described in Section D-3.02.

D-3.

AMOUNT OF BENEFITS

An Appendix D Participant shall receive his Pre-AJCA Benefit and his Post-AJCA Benefit.

D-3.01.

Pre-AJCA Benefit shall mean the portion (if any) of a Participant’s Grandfathered Benefit that was “deferred” (i.e., “earned and vested”) on or before December 31, 2004 and earnings on such amount, determined in accordance with this Section D-3.01 and Section 885(d) of the AJCA and Section 409A of the Code. A Participant’s Pre-AJCA Benefit shall not include any benefits accrued under the terms of the Plan in effect since January 29, 2004; all benefits accrued under the terms of the Plan in effect since January 29, 2004 shall be subject to Section 409A of the Code. All vested benefits under the Pre-2004 Plan for Inactive Participants who terminated employment before January 29, 2004 are Pre-AJCA Benefits.

The chart below shows the Pre-AJCA Benefit (expressed as a lump sum determined as of December 31, 2004, based on an interest rate of 5.06 percent and the mortality assumptions set forth in the 1994 Group Annuity Reserving Table as published in Rev. Rul. 2001-62); Grandfathered Benefit (expressed as an annual single-life annuity beginning as of the first day of the month coincident with or next following his termination of employment); and Years of Appendix A Service for each Appendix D Participant who is an Active Participant as of January 29, 2004:

D-1

Participant

Appendix A Service

(Years of Service

Through
December 31, 2003)

Grandfathered

Benefit (Annual

Single-Life

Annuity)

Pre-AJCA Benefit

(Lump Sum)

Dr. James C. Goldfrank

9.417

174,399

2,161,469

After December 31, 2004, the Pre-AJCA Benefit in the chart above shall accrue interest at a rate of 5.06 percent per year until it is paid in full.

Unless he was an Inactive Participant as of January 29, 2004, any Participant not listed above shall not have a Pre-AJCA Benefit and shall not have the rights of an Appendix D Participant. The chart below lists each Inactive Participant as of January 29, 2004, his benefit (which is a Pre-AJCA Benefit, expressed as a annual single-life annuity), and his benefit commencement date:


Participant	Benefit (Annual Sin gle- Life Annuity)		Benefit Commencement Date
Robinson	$	17,408	December 1, 2014
Rosetti	$	60,245	February 1, 2008
Simpson	$	110,162	September 1, 2003
Snowball	$	26,247	September 1, 2016

D-3.02.

Post-AJCA Benefit. The amount of an Appendix D Participant’s Post-AJCA Benefit, expressed as an annual single-life annuity, shall equal the benefit calculated under Section 4.03 of the Plan (treating him as if he were listed in an Appendix A), minus his Pre-AJCA Benefit (expressed as an actuarially equivalent single life annuity commencing on the date as of which his Post-AJCA Benefit commences). For purposes of calculating an Appendix D Participant’s Post-AJCA Benefit, actuarial equivalence shall be determined using the same assumptions as were used to calculate the Pre-AJCA Benefit set forth in Section D-3.01.

No Post-AJCA Benefit shall be payable to, or on behalf of, any individual who is not an Active Participant on or after January 1, 2005.

D-4.

TIMING AND FORM OF PAYMENT

D-4.01.

Time and Form of Payment of Pre-AJCA Benefit. An Appendix D Participant’s Pre-AJCA Benefit shall commence (a) at the time and in the form set forth in Section E-3.3 (if he terminates employment with the Employer and Affiliates at age 62 or older) or (b) at the time and in the form set forth in Section E-4.3 (if he terminates employment with the Employer and Affiliates before age 62). To the extent permitted under Section E-7 and Sections E-3.3 and E-4.3 (as applicable), an Appendix D Participant may elect to receive his Pre-AJCA Benefit in one of the optional forms set forth in Section E-7.2.

D-4.02.

Time and Form of Payment of Post-AJCA Benefit. An Appendix D Participant’s Post-AJCA Benefit shall commence on the date set forth in Section

D-2

4.04(a) of the Plan (with the first payment being adjusted as described in Section 4.04(a)) and shall be paid in the following forms:

(a)

The portion (if any) of his Grandfathered Benefit that exceeds the value of his Pre-AJCA Benefit shall be paid in a lump sum, determined using the assumptions described in Section 4.04(c)(1) of the Plan; and

(b)

The portion of his Post-AJCA Benefit that exceeds the value of his Grandfathered Benefit shall be paid in the form set forth in Section 4.04(c)(2) of the Plan (as if he were listed in Appendix A).

D-5.

DISABILITY

Section 4.05 of the Plan shall apply with respect to any Appendix D Participant. If an Appendix D Participant terminates employment as a result of becoming Totally and Permanently Disabled, he shall receive the benefit set forth in Section D-3, at the time and in the form set forth in Section D-4.

D-6.

DEATH

D-6.01.

Death Benefit with Respect to Pre-AJCA Benefit.

(a)

If an Appendix D Participant dies before payment of his Pre-AJCA Benefit commences and he is survived by his Spouse, his Spouse shall receive the Spousal Survivor Benefit set forth in Section E-9, except that the amount described in Section E-9.2 shall be of Actuarial Equivalent Value (within the meaning of Section E-9.2) to the Appendix D Participant’s Pre-AJCA Benefit (as opposed to the “single life annuity computed with respect to the deceased Participant pursuant to subsection 3.1, 4.1 or 5.1, whichever is applicable”).

(b)

If an Appendix D Participant begins receiving his Pre-AJCA Benefit at the time and in the form described in Section E-4.3 and dies before he receives his entire Pre-AJCA Benefit, his Beneficiary (within the meaning of Section E-8.3) shall receive the Death Benefit set forth in Section E-8, except that the term “Early Benefit” shall be replaced with “Pre-AJCA Benefit” each time it appears. The death benefit described in this Section D-6.01(b) shall not be payable on behalf of any Appendix D Participant who, pursuant to Section E-7, elects to receive his benefit in an optional form.

D-6.02.

Death Benefit with Respect to Post-AJCA Benefit.

(a)

If an Appendix D Participant dies before payment of his Post-AJCA Benefit commences and he is survived by his Spouse, his Spouse shall receive the preretirement death benefit described in Section 4.06(b)(1) of the Plan, calculated based on his Post-AJCA Benefit (as opposed to his full benefit under the Plan or his Pension or Accrued Benefit (each within the meaning of the applicable Qualified Plan)).

(b)

If an Appendix D Participant dies before payment of his Post-AJCA Benefit commences and he is not survived by a Spouse, his beneficiary (if any) shall receive the preretirement death benefit described in Section 4.06(c) of the Plan, calculated based on his Post-AJCA Benefit (as

D-3

opposed to his full benefit under the Plan or his Pension or Accrued Benefit (each within the meaning of the applicable Qualified Plan)).

D-7.

FORFEITURE

D-7.01.

Forfeiture of Pre-AJCA Benefit. The “Competition” and “Termination for Cause” provisions set forth in Sections E-10.1 and E-10.2 shall apply with respect to an Appendix D Participant’s Pre-AJCA Benefit.

D-7.02.

Forfeiture of Post-AJCA Benfeit. The forfeiture provisions set forth in Section 5.02 of the Plan shall apply only with respect to an Appendix D Participant’s Post-AJCA Benefit.

D-8.

CHANGE OF CONTROL

D-8.01.

Effect of Change of Control on Pre-AJCA Benefit. In case of a “Change in Control” within the meaning of Section E-10.3, the provisions set forth in Section E-10.3 shall apply only with respect to an Appendix D Participant’s Pre-AJCA Benefit (as opposed to the “Plan Benefit” described in Section E-10.3).

D-8.02.

Effect of Change of Control on Post-AJCA Benefit. In case of a “Change of Control” within the meaning of Section 5.03(c) of the Plan, the provisions set forth in Section 5.03 of the Plan shall apply only with respect to an Appendix D Participant’s Post-AJCA Benefit (as opposed to his entire Vested Benefit).

D-9.

OTHER SPECIAL PROVISIONS

Unless provided otherwise in this Appendix D, all rights and features set forth in the Pre-2004 Plan shall be preserved with respect to Pre-AJCA Benefits, except that the right to an ECAP Credit in Lieu of a Distribution (as set forth in Section E-10.5) shall be available only if the required election was made before January 1, 2005.

D-4

APPENDIX E: TERMS OF THE PRE-2004 PLAN

TABLE OF CONTENTS


E-1.	GENERAL		E-1
	E-1.1	History and Effective Date	E-1
	E-1.2	Purpose of Plan	E-1
	E-1.3	Purpose of Appendix E	E-1
	E-1.4	Plan Funding and Administration	E-1
	E-1.5	Applicable Law	E-2
	E-1.6	Gender and Number	E-2
	E-1.7	Assignment	E-2
	E-1.8	Notices	E-2

E-2.	PARTICIPATION		E-2
	E-2.1	Eligibility for Participation	E-2
	E-2.2	Participation Not Contract of Employment	E-2

E-3.	BASIC BENEFIT		E-3
	E-3.1	Eligibility for Basic Benefit	E-3
	E-3.2	Amount of Basic Benefit	E-3
	E-3.3	Form and Time of Payment of Basic Benefit	E-3
	E-3.4	Final Average Earnings	E-3
	E-3.5	Earnings	E-4
	E-3.6	Other Benefits	E-4

E-4.	EARLY BENEFIT		E-4
	E-4.1	Eligibility for Early Benefit	E-4
	E-4.2	Amount of Early Benefit	E-5
	E-4.3	Form and Time of Payment of Early Benefit	E-5

E-5.	PRE-AGE 55 BENEFIT		E-5
	E-5.1	Eligibility for Pre-Age 55 Benefit	E-5
	E-5.2	Amount of Pre-Age 55 Benefit	E-5
	E-5.3	Form and Time of Payment of Pre-Age 55 Benefit	E-5
	E-5.4	Involuntary Termination	E-6
	E-5.5	Termination for Cause	E-6

E-6.	DISABILITY BENEFIT		E-7
	E-6.1	Eligibility for Disability Benefit	E-7
	E-6.2	Amount of Disability Benefit	E-7
	E-6.3	Form and Time of Payment of Disability Benefit	E-7

E-7.	OPTIONAL FORMS OF BENEFIT		E-7
	E-7.1	Request for Optional Payment Form	E-7
	E-7.2	Optional Forms of Benefit Payment	E-7
	E-7.3	Limitations on Optional Forms of Payment	E-8


E-8.	DEATH BENEFIT		E-8
	E-8.1	Eligibility for Death Benefit	E-8
	E-8.2	Amount of Death Benefit	E-8
	E-8.3	Beneficiary	E-8
E-9.	SPOUSAL SURVIVOR BENEFIT		E-9
	E-9.1	Eligibility for Spousal Survivor Benefit	E-9
	E-9.2	Amount of Spousal Survivor Benefit	E-9
	E-9.3	Form and Time of Payment of Spousal Survivor Benefit	E-9
	E-9.4	Reduction for Spousal Survivor Benefit	E-9
E-10.	SPECIAL PROVISIONS AFFECTING PAYMENT OF BENEFITS		E-10
	E-10.1	Competition	E-10
	E-10.2	Termination for Cause	E-10
	E-10.3	Payments After a Change in Control	E-10
	E-10.4	Emergency Payments	E-13
	E-10.5	ECAP Credit in Lieu of Distribution	E-13
	E-10.6	Payment to Incapacitated Persons	E-14
	E-10.7	Withholding	E-14
E-11.	DISPUTE RESOLUTION		E-14
	E-11.1	Claims Procedures	E-14
	E-11.2	Records, Data and Information	E-14
E-12.	AMENDMENT AND TERMINATION		E-14
	E-12.1	Amendment and Termination	E-14
	E-12.2	Contingencies Affecting the Employers	E-14
	E-12.3	Protected Benefits	E-14

E-ii

E-1.

GENERAL

E-1.1. History and Effective Date. Effective January 1, 1982, The Mead Corporation, an Ohio corporation (“Mead”) established The Mead Corporation Supplemental Executive Retirement Plan, then known as “The Mead Management Income Parity Plan,” (the “Plan”). The Plan was subsequently amended and restated, effective January 1, 1985, amended, effective November 1, 1986, October 1, 1987, October 28, 1989 and February 28, 1991, again amended and restated, effective July 1, 1992, again amended and restated, effective January 1, 1997, and again amended, effective January 25, 2002. Following the transactions described in Section 1.01(a) of the Plan, MeadWestvaco Corporation (“MeadWestvaco”) assumed sponsorship of the Plan. This Appendix E sets forth the provisions of the Plan as in effect on January 28, 2004.

The Plan is intended to be a “top hat plan” (within the meaning of the Employee Retirement Income Security Act of 1974).

E-1.2. Purpose of Plan. The purpose of the Plan is to supplement the amount of the “Pension” (as defined in the MeadWestvaco Corporation Retirement Plan for Salaried and Non-Bargained Hourly Employees, which is the successor to The Mead Retirement Plan) payable from the MeadWestvaco Corporation Retirement Plan for Salaried and Non-Bargained Hourly Employees (the “MeadWestvaco Retirement Plan”) to or on account of certain executives of MeadWestvaco or of certain “Affiliates” (as defined below) of MeadWestvaco and, thereby, enhance MeadWestvaco’s ability to:

(a) recruit mid-career executives;

(b) retain and motivate employed executives; and

The term “Affiliate” means any entity during the period that it is, along with MeadWestvaco, a member of a controlled group of corporations, a controlled group of trades and businesses, an affiliated service group or any other entity designated by the Secretary of the Treasury as described in sections 414(b), 414(c), 414(m), and 414(o), respectively, of the Internal Revenue Code of 1986 (the “Code”). MeadWestvaco and any Affiliate designated by the Compensation and Organizational Development Committee of MeadWestvaco’s Board of Directors (the “Committee”) and employing a “Participant” (as described in subsection E-2.1) hereunder are sometimes referred to below, individually, as an “Employer” and, collectively, as the “Employers.”

E-1.3. Purpose of Appendix E. The purpose of this Appendix E is to set forth the terms of the Plan as in effect on January 28, 2004. This Appendix E shall not be construed in a manner that results in a “material modification” (within the meaning of Section 885(d) of the American Jobs Creation Act of 2004) of the Plan.

E-1.4. Plan Funding and Administration. The benefits payable under the Plan are unfunded and are payable, when due, from the general assets of

MeadWestvaco; provided, however, that MeadWestvaco, in its discretion, may establish or maintain a trust to pay such amounts, which trust shall be subject to the claims of MeadWestvaco’s unsecured general creditors in the event of MeadWestvaco’s bankruptcy or insolvency; and provided, further, that MeadWestvaco shall remain responsible for the payment of any such amounts which are not so paid by any such trust. The Plan shall be administered by the Senior Vice President of MeadWestvaco with responsibility for human resources or such other person as is hereafter named by the Committee (the “Administrator”) who shall have the rights, powers and duties with respect to the Plan that are hereinafter set forth and the authority to establish such rules, regulations and interpretations with respect to the Plan as are reasonably necessary to administer the Plan. Any such rules, regulations and interpretations shall be uniformly applied to all persons similarly situated.

E-1.5. Applicable Law. The Plan will be construed and administered in accordance with the laws of the State of Ohio to the extent that those laws are not preempted by the laws of the United States of America.

E-1.6. Gender and Number. Where the context admits, words in any gender include any other gender, words in the singular will include the plural and words in the plural include the singular.

E-1.7. Assignment. No Plan right or interest of any person under the Plan shall be assignable or transferable, in whole or in part, either directly or otherwise, including without limitation thereto, by execution, levy, attachment, garnishment, pledge or in any other manner, but excluding transfers by reason of death or mental incompetency; no attempted assignment or transfer thereof shall be effective; and no such right or interest shall be liable for, or subject to, any obligation or liability of any Participant or Beneficiary; except that a Participant may direct that payments be made during his lifetime, when due, to a trust established by him and evidenced to the Administrator to be a trust created as a grantor trust within the meaning of section 671 of the Code.

E-1.8. Notices. Any notice required or permitted to be given to any person under the Plan will be properly given if delivered or mailed, postage prepaid, to that person at his last post office address as shown on his Employer’s records. Any notice to the Committee or the Administrator shall be properly given if delivered or mailed, postage prepaid, to the Corporate Secretary of MeadWestvaco Corporation at its principal place of business. Any notice required under the Plan may be waived by the person entitled to notice.

E-2.

PARTICIPATION

E-2.1. Eligibility for Participation. Each individual who was a participant in the Plan on January 29, 2002 shall continue as a Participant, subject to the terms and conditions of the Plan.

Subject to the terms and conditions of the Plan, an individual who has once become a Participant in the Plan shall continue as such, notwithstanding his transfer to employment with an Employer in a non-designated job classification or with an Affiliate.

E-2.2. Participation Not Contract of Employment. The Plan does not constitute a contract of employment and participation in the Plan will not

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give any employee the right to be retained in the employ of the Employers or Affiliates nor give any person any right or claim to any benefit under the terms of the Plan unless such right or claim has specifically accrued under the terms of the Plan.

E-3.

BASIC BENEFIT

E-3.1. Eligibility for Basic Benefit. If a Participant’s employment with the Employers and the Affiliates is terminated (for a reason other than his death) at or after he has attained age 62 years, he shall be entitled to receive a “Basic Benefit” in an amount determined pursuant to the provisions of subsection E-3.2 and paid in the form and at the time provided in subsection E-3.3.

E-3.2. Amount of Basic Benefit. A Participant’s Basic Benefit is an amount that, when expressed as an annual amount payable as a single life annuity commencing on the first day of the calendar month coincident with or next following the date of his termination of employment, is equal to:

(a) 55 percent of his “Final Average Earnings” (as defined in subsection E-3.4);

REDUCED BY

(b) the amount of the Participant’s “Other Benefits” (as defined in subsection E-3.6); and

FURTHER REDUCED BY

(c) the reduction, if any, required by subsection E-9.4 which relates to “Spousal Survivor Benefits” (as described in subsection E-9.1).

E-3.3. Form and Time of Payment of Basic Benefit. Except as otherwise specifically provided by Section E-7, relating to optional forms of payment, the “Actuarial Present Value” (as defined in the MeadWestvaco Retirement Plan) of the amount of a Participant’s Basic Benefit will be distributed to him in the form of a single, lump sum payment, on or as soon as practicable after the date on which the Participant’s employment with the Employers and the Affiliates is terminated.

E-3.4. Final Average Earnings. The term “Final Average Earnings” means, with respect to any Participant, the average of his annual “Earnings” (as defined in subsection E-3.5) for the highest 3 calendar years of his employment with the Employers (or his average monthly Earnings if less than 3 calendar years of such employment) selected from the 11 calendar years during which he received Earnings commencing with the earlier of the calendar year in which the Participant attains age 62 years or terminates his employment with the Employers and the 10 preceding calendar years. Notwithstanding the foregoing, for purposes of determining the amount of a Spousal Survivor Benefit payable pursuant to Section E-9 on account of a Participant who has not attained age 55 years on the date of his death, it shall be assumed that the amount of his Final Average Earnings is equal to the amount of his “Earnings” (as defined in the MeadWestvaco Retirement Plan) during the calendar year next preceding the year of his death.

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E-3.5. Earnings. For any calendar year, the term “Earnings” means, with respect to any Participant, the cash remuneration and the value of property given to him in lieu of cash (without regard to any restriction or risk of forfeiture), payable to him in that year by the Employers in the form of base pay, bonuses, short term incentive compensation and amounts payable in lieu of short term incentive compensation in that year (and any portion of any such amounts deferred by the Participant pursuant to the terms of any deferred compensation arrangement maintained by the Employers). In no event shall a Participant’s Earnings:

(a) include payments from long term incentive compensation plans, stock option plans, stock appreciation rights, severance payments, special agreements, contracts or payments, expense reimbursements or relocation allowances; or

(b) exceed 2 times his base pay.

E-3.6. Other Benefits. The term “Other Benefits” means, with respect to any Participant, the sum of:

(a) 50 percent of the annual primary Social Security benefit payable (or, in the case of a Participant whose benefit is being determined prior to the date he attains age 62 years, estimated by the Administrator, in his absolute discretion, to be payable) to the Participant at age 62;

(b) the annual amounts (expressed as single life annuities) determined to be payable to the Participant under The MeadWestvaco Retirement Plan, The Mead Corporation Section 415 Excess Benefit Plan, The Mead Corporation Excess Earnings Benefit Plan, and the MeadWestvaco Corporation Retirement Restoration Plan (the “MeadWestvaco Plans”), but determined without taking into account any restructuring or other supplemental benefits payable to the Participant under the MeadWestvaco Plans, as of his termination date, or such other determination date as is specifically provided with respect to a particular Plan Benefit and disregarding any reduction on account of a “qualified domestic relations order” (as defined in section 414(p) of the Code); and

(c) the annual amount (expressed as a single life annuity) payable to the Participant from the employer-funded portion of any deferred, vested or lump sum benefit earned under a “Prior Retirement Plan” (that is, any defined benefit plan or similar primary retirement plan intended to meet the requirements of section 401(a) of the Code (including any governmental plan) maintained by any previous employer of the Participant) prior to age 55 and payable no earlier than 10 years prior to the date on which the Participant was employed by the Employers and Affiliates, but disregarding any reduction on account of a qualified domestic relations order.

E-4.

EARLY BENEFIT

E-4.1. Eligibility for Early Benefit. If a Participant’s employment with the Employers and the Affiliates is terminated (for a reason other than his death) at or after he has attained age 55 years, but prior to the date on which he attains age 62 years, he shall be entitled to receive an “Early

E-4

Benefit” in an amount determined pursuant to the provisions of subsection E-4.2 and paid in the form and at the time provided in subsection E-4.3.

E-4.2. Amount of Early Benefit. A Participant’s Early Benefit is an amount determined in accordance with the provisions of subsection E-3.2, but computed by reducing the percentage “55 percent” found in paragraph E-3.2(a) by 1/4 of one percent for each full month by which the commencement of payment of the Participant’s Early Benefit precedes the first day of the calendar month coincident with, or next following, the date on which he attains age 62 years.

E-4.3. Form and Time of Payment of Early Benefit. Except as otherwise specifically provided by Section E-7, relating to optional forms of payment, the amount of a Participant’s Early Benefit shall be payable monthly, in the form of a single life annuity, from the first day of the calendar month next following his termination of employment through the calendar month during which the Participant attains age 62 years. As of the first day of the calendar month next following the date on which the Participant attains age 62 years, an amount equal to the Actuarial Present Value of his Early Benefit, (which Actuarial Present Value shall be reduced by the aggregate amount of the monthly payments previously made to him and increased by interest on the undistributed portion of his Early Benefit calculated from his termination date to the payment date), determined as of his termination date, will be distributed to the Participant in the form of a single, lump sum payment.

E-5.

PRE-AGE 55 BENEFIT

E-5.1. Eligibility for Pre-Age 55 Benefit. If a Participant’s employment with the Employers and the Affiliates is “Involuntarily Terminated” (as described in subsection E-5.4) prior to the date on which he attains age 55 years, or if his employment is terminated prior to that date for any other reason approved for purposes of the Plan by MeadWestvaco’s Chief Executive Officer, he shall be entitled to receive a “Pre-Age 55 Benefit” in an amount determined pursuant to the provisions of subsection E-5.2 and paid in the form and at the time provided in subsection E-5.3.

E-5.2. Amount of Pre-Age 55 Benefit. A Participant’s Pre-Age 55 Benefit is an amount determined in accordance with the provisions of subsection E-3.2 as of the date he attains age 62, but computed by:

(a) reducing the percentage “55 percent” found in paragraph E-3.2(a) by 1/4 of one percent for each full month by which the date of the Participant’s termination of employment with the Employers and the Affiliates precedes the first day of the calendar month coincident with, or next following, the date on which he will attain age 62 years; and

(b) by assuming, for purposes of determining the amount of his Other Benefits attributable to the MeadWestvaco Plans, that he will continue as a Participant under those Plans until the date on which he will attain age 55 years and that his benefits under the MeadWestvaco Plans will be payable on that date.

E-5.3. Form and Time of Payment of Pre-Age 55 Benefit. Except as otherwise specifically provided by Section E-7, an amount equal to the

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Actuarial Present Value of a Participant’s Pre-Age 55 Benefit will be distributed to the Participant, in a single, lump sum payment as of the first day of the calendar month coincident with or next following the date on which the Participant attains age 62 years.

E-5.4. Involuntary Termination. The term “Involuntary Termination” means, with respect to any Participant, the termination of the Participant’s employment with the Employers and the Affiliates, either:

(a) at the option of his employer, for a reason other than “Cause” (as defined in subsection E-5.5); or

(b) at the Participant’s option, exercised within the 24-month period following the occurrence, without the express consent of the Participant, of any one or more of the following events:

(i) the assignment of duties to the Participant which are substantially inconsistent with the Participant’s duties, responsibilities and status at the time of the assignment, or that constitute a substantial reduction or alteration in the nature or status of such duties and responsibilities;

(ii) a reduction in the amount of the Participant’s base pay;

(iii) the transfer of the work location of the Participant to a place that is in excess of 25 miles from his work location at the time the transfer is made;

(iv) the failure of the Participant’s Employer or Affiliate employer to continue in effect any of its employee benefit plans, policies, practices or arrangements, including, but not limited to, those plans, policies and arrangements maintained solely for the benefit of key management personnel in which the Participant participates, or the failure of it to continue the Participant’s participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of participation relative to other participants, unless such benefits, policies and arrangements are replaced by one or more alternative or substitute plans, policies or arrangements providing substantially equivalent benefits in the aggregate.

The determination of whether an event described in paragraph (b) above has occurred shall be made by the Committee, based on its comparison of circumstances existing after the alleged occurrence with the circumstances prevailing immediately prior thereto.

E-5.5. Termination for Cause. For purposes of the Plan, a termination of a Participant’s employment for “Cause” shall mean termination as a result of the Participant’s:

(a) willful and continued failure to perform duties with the Employers and Affiliates (other than any such failure resulting from an Involuntary Termination) after a written demand for substantial performance has been delivered to the Participant specifically

E-6

identifying the manner in which the Employer or Affiliate, as the case may be, believes the Participant has not substantially performed such duties and the Participant has failed to resume substantial performance on a continuous basis within 14 days of receiving such demand;

(b) willfully engaging in conduct which the Committee determines is demonstrably and materially injurious to the Employers or Affiliates, monetarily or otherwise; or

(c) conviction of a felony, or conviction of a misdemeanor which impairs the Participant’s ability to perform his duties with the Employer or Affiliate employing him.

E-6.

DISABILITY BENEFIT

E-6.1. Eligibility for Disability Benefit. If a Participant’s employment with the Employers and the Affiliates is terminated by reason of his becoming “Disabled” (as defined in the MeadWestvaco Retirement Plan) prior to the date on which he attains age 62 years and he continues to be Disabled until age 62, he shall be eligible to receive a “Disability Benefit” in an amount determined pursuant to the provisions of subsection E-6.2 and paid in the form and at the time provided in subsection E-6.3.

E-6.2. Amount of Disability Benefit. A Participant’s Disability Benefit is an amount determined in accordance with the provisions of subsection E-3.2, but expressed as a single life annuity commencing as of the later of the date the Participant attains age 62 or the date as of which Pension payments to him commence under the MeadWestvaco Retirement Plan.

E-6.3. Form and Time of Payment of Disability Benefit. Except as otherwise specifically provided by Section E-7, relating to optional forms of payment, the Actuarial Present Value of the amount of a Participant’s Disability Benefit will be distributed to him in the form of a single, lump sum payment as soon as practicable after the later of the date on which the Participant attains age 62 years or the date as of which Pension payments to him commence under the MeadWestvaco Retirement Plan.

E-7.

OPTIONAL FORMS OF BENEFIT

E-7.1. Request for Optional Payment Form. A Participant, by writing filed with the Administrator at least one year prior to his termination date (or within 60 days after becoming Disabled) in such form as the Administrator may require, may request to have his Plan Benefit paid in an optional form permitted by subsection E-7.2. Any such request shall be deemed to be approved by the Administrator unless disapproved within 15 days of its receipt. Any such approved request shall be void and of no force or effect if the Participant dies before payment in the optional form requested begins.

E-7.2. Optional Forms of Benefit Payment. Subject to the provisions of subsection E-7.3, the optional forms of payment under the Plan are:

(a) a single life annuity in the amount calculated under subsection E-3.2, E-4.2, E-5.2 or E-6.2, whichever is applicable, payable commencing at the time permitted under subsection E-3.3, E-4.3, E-5.3 or E-6.3, whichever is applicable;

E-7

(b) any optional form of benefit permitted (assuming, for this purpose, that election of an optional form of Disability Pension is permitted) under the provisions of the MeadWestvaco Retirement Plan at the time the request is made, the amount of which shall be determined by applying the actuarial assumptions utilized under that plan; and

(c) in the case of an Early Benefit payable monthly pursuant to subsection E-4.3, by forgoing those monthly amounts and instead receiving the Actuarial Present Value of the Early Benefit computed as of age 62, but without regard to the percentage reduction otherwise required by subsection E-4.2, payable in a single, lump sum distribution as of the first day of the month coincident with, or next following, the date on which the Participant attains age 62 years.

E-7.3. Limitations on Optional Forms of Payment. No optional form of payment shall permit:

(a) payment of any single, lump sum amount to a Participant prior to the first day of the month coincident with, or next following, the date on which the Participant attains age 62 years; or

(b) payment of a Disability Benefit prior to the time specified in subsection E-6.3.

E-8.

DEATH BENEFIT

E-8.1. Eligibility for Death Benefit. If a Participant dies after payment of monthly amounts of his Early Benefit begins under subsection E-4.3 and prior to receiving his entire Early Benefit, a Death Benefit, in an amount determined under subsection E-8.2, shall be paid, as soon as practicable, in a single, lump sum, to his “Beneficiary” (as defined in subsection E-8.3). Except as specifically provided by an optional form of payment permitted by subsection E-7.2 and by Section E-9, relating to “Spousal Survivor Benefits,” no other amount shall be payable to any person from the Plan on account of the death of a Participant.

E-8.2. Amount of Death Benefit. The Death Benefit payable on account of a deceased Participant shall be an amount equal to the Actuarial Present Value of his Early Benefit (which Actuarial Present Value shall be reduced by the aggregate amount of the monthly payments previously made to him and increased by interest on the undistributed portion of his Early Benefit calculated from his termination date to the payment date), determined as of his termination date.

E-8.3. Beneficiary. The term “Beneficiary” means, with respect to any Participant, such natural or legal person or persons as may be designated by him (who may be designated contingently or successively) to receive the Death Benefit payable if he dies before a total payment of his Early Benefit is made to him. A Beneficiary designation will be effective with respect to a Participant only when a signed and dated beneficiary designation form is filed with the Committee while the Participant is alive, which form will cancel any beneficiary designation form signed and filed earlier. If a Participant is not survived by a Beneficiary the Committee shall pay the Death Benefit to his “Spouse” (as defined in the MeadWestvaco Retirement Plan) or, if he is not survived by a Spouse, to the legal representative or representatives of the estate of the Participant.

E-8

E-9.

SPOUSAL SURVIVOR BENEFIT

E-9.1. Eligibility for Spousal Survivor Benefit. Subject to the reduction required by subsection E-9.4, if a Participant dies while employed by the Employers or after his termination of employment with the Employers, but, prior to the date on which he is first receives payment of a Benefit to which he is entitled under Section E-3, E-4 or E-5, his Spouse, if any, shall be eligible to receive a Spousal Survivor Benefit, in an amount determined under subsection E-9.2, if she has a right to receive a Pre-Retirement Survivor Pension under the MeadWestvaco Retirement Plan and has not waived that right.

E-9.2. Amount of Spousal Survivor Benefit. The Spousal Survivor Benefit payable to a Spouse on account of a deceased Participant is an amount determined by:

(a) calculating the amount, expressed as a joint and survivor annuity of 50, 66 2/3 or 75 percent (whichever is payable to the Spouse as a Pre-Retirement Survivor Pension under the MeadWestvaco Retirement Plan), which is of Actuarial Equivalent Value to a single life annuity computed with respect to the deceased Participant pursuant to subsection E-3.1, E-4.1 or E-5.1, whichever is applicable; and

(b) then determining the annual amount that would be payable to the surviving Spouse on the basis of the joint and survivor annuity computed under paragraph (a) above.

Notwithstanding the provisions of paragraph E-3.2(b) to the contrary, in computing the amount of a “Spousal Survivor Benefit” with respect to the surviving Spouse of a deceased Participant who had not attained age 55 years on the date of his death, the Other Benefit attributable to the MeadWestvaco Retirement Plan shall be an amount equal to the Participant’s “Accrued Benefit” (as defined under that plan) as of the date of his death, assuming that the amount of his Final Average Earnings used in computing his Accrued Benefit equaled the “Earnings” (as defined in the MeadWestvaco Retirement Plan) payable to him by the Employers during his last full calendar year of employment by them and that his “Pension” under the MeadWestvaco Retirement Plan would be payable at the date the deceased Participant would have attained age 55 years.

E-9.3. Form and Time of Payment of Spousal Survivor Benefit. The Actuarial Present Value (determined taking into account the date on which a Benefit would have commenced under Section E-3, E-4 or E-5, whichever would have been applicable, and the surviving Spouse’s age on that date) of the amount determined under paragraph E-9.2(b) will be distributed to the surviving Spouse, in the form of a single, lump sum payment, as soon as practicable after the date of the Participant’s death.

E-9.4. Reduction for Spousal Survivor Benefit. As provided by paragraph E-3.2(c), the amount of a Participant’s Plan Benefit will be reduced by a percentage thereof, determined in accordance with the following table, for the portion of the calendar period beginning on the date on which the Participant attains age 55 years and ending on the earlier of the date payment of his Benefit begins or the date on which he attains age 62 years, during which his Spouse is eligible to receive a Pre-Retirement Survivor Pension under the MeadWestvaco Retirement Plan. The percentage reduction

E-9

will be computed on a pro rata basis for completed months of coverage which are less than a whole year.


Percentage of Benefit Payable to Spouse		Percentage Reduction for Each Full Year of Coverage

50 percent		1/2 of one percent

66 2/3 percent		2/3 of one percent

75 percent		3/4 of one percent

Notwithstanding the foregoing table, in no event will a percentage reduction under this Plan be greater than the percentage reduction for a Pre-Retirement Survivor Pension of a like amount under the MeadWestvaco Retirement Plan.

E-10. SPECIAL PROVISIONS AFFECTING PAYMENT OF BENEFITS.

E-10.1. Competition. Subject to his right of appeal under Section E-11, if the Committee determines that a Participant, without the express prior written consent of MeadWestvaco, directly or indirectly, individually or as an agent, officer, director, employee, shareholder (other than being the holder of any stock which represents a less than one percent interest in a corporation), partner or in any other capacity whatsoever, after termination of employment and prior to attainment of age 62, has engaged, or is engaging, in any activity competitive with or adverse to the Employer’s and Affiliate’s businesses or in the sale, distribution, production, or attempted sale, distribution or production, of any goods, products or services then sold or being developed by any Employer or Affiliate, all Benefits otherwise payable at any time under the Plan shall be permanently forfeited and payment of Benefits, if commenced, shall cease. This subsection E-10.1 shall not apply to a Participant whose employment with the Employers and Affiliates terminates on or after a “Change in Control” (as defined in subsection E-10.3) of MeadWestvaco.

E-10.2. Termination for Cause. Subject to his right of appeal under Section E-11, if the employment of a Participant with the Employers and Affiliates is terminated for Cause, all Benefits otherwise payable to any person, at any time, under the Plan shall be automatically and permanently forfeited.

E-10.3. Payments After a Change in Control. Upon the occurrence of a Change in Control of MeadWestvaco, the accrued benefit of an employee who is a Participant on the date of the Change in Control shall immediately and fully vest; provided, however, that such benefit shall be forfeited pursuant to subsection E-10.2 hereof if the employment of the employee shall be terminated for “Cause” as that term is defined in this Plan immediately prior to the Change in Control. If the employment of a Participant whose benefit has vested in accordance with the immediately preceding sentence is terminated within 24 months after the date of a Change in Control for a reason other than death or Cause (as that term is defined in this Plan immediately prior to the Change in Control), he shall be entitled to receive a “Termination Benefit,” payable within 30 days after his termination date. A Participant’s Termination Benefit is a single lump sum amount equal to the “Actuarial Present Value” of the amounts that would have been his Plan Benefit if determined as of the date of his termination of employment pursuant to the provisions of the Plan in effect immediately prior to the

E-10

Change in Control. The Actuarial Present Value of those amounts shall be determined for purposes of this Section by applying the actuarial assumptions and methods being utilized for that purpose under the MeadWestvaco Retirement Plan on the day prior to the date of the Change in Control. For purposes of computing the amount of the Plan Benefit:

(a) a Participant who has not attained age 55 years on the date of his actual termination of employment will be deemed to have had his employment with the Employers and Affiliates Involuntarily Terminated on the date of his termination and his Pre-Age 55 Benefit shall be computed pursuant to subsection E-5.2 hereof without applying the assumption contained in subsection E-5.2(b) but, instead, determining the Other Benefits attributable to MeadWestvaco Plans based on the Deferred Vested Pension on a Participant’s employment termination with the Employers and Affiliates; and

(b) in the case of a Participant terminated on account of becoming Disabled, it shall be assumed that he will continue to be Disabled until he attains age 62 years.

If a Participant, surviving Spouse or Beneficiary is receiving payment of periodic Plan Benefits on the date of a Change in Control, the Actuarial Present Value of any remaining payments (determined as of the day immediately preceding that date) shall be payable to him, in a single, lump sum, within 30 days of the date of the Change in Control. For purposes of the Plan, a “Change in Control” shall be deemed to have occurred if an event set forth in any of the following paragraphs shall have occurred:

(i) the date of expiration of a Tender Offer (other than an offer by MeadWestvaco ), if the offeror acquires Shares pursuant to such Tender Offer;

(ii) the date of approval by the shareholders of MeadWestvaco of a definitive agreement: (x) for the merger or consolidation of MeadWestvaco or any direct or indirect subsidiary of MeadWestvaco into or with another corporation, other than (1) a merger or consolidation which would result in the voting securities of MeadWestvaco outstanding immediately prior thereto continuing to represent (i) in the case of a merger or consolidation of MeadWestvaco, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, or (ii) in the case of a merger or consolidation of any direct or indirect subsidiary of MeadWestvaco, either by remaining outstanding if MeadWestvaco continues as a parent of the merged or consolidated subsidiary or by being converted into voting securities of the surviving entity or any parent thereof) at least 51% of the combined voting power of the voting securities of MeadWestvaco or such surviving or parent entity outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of MeadWestvaco (or similar transaction) in which no Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of MeadWestvaco (not including in the securities Beneficially Owned by such Person any securities acquired directly from MeadWestvaco or its Affiliates) representing 25% or

E-11

more of the combined voting power of MeadWestvaco’s then outstanding securities, or (y) for the sale or disposition of all or substantially all of the assets of MeadWestvaco, other than a sale or disposition by MeadWestvaco of all or substantially all of MeadWestvaco’s assets to an entity, at least 51% of the combined voting power of the voting securities of which are owned (directly or indirectly) by shareholders of MeadWestvaco in substantially the same proportions as their ownership of MeadWestvaco immediately prior to such sale or disposition;

(iii) (x) any Person is or becomes the Beneficial Owner of 25% or more of the voting power of the then outstanding securities of MeadWestvaco (not including in the securities beneficially owned by such Person any securities acquired directly from MeadWestvaco or its affiliates), excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (x) (1) of paragraph (ii) above or (y) the date of authorization, by both a majority of the voting power of MeadWestvaco and a majority of the portion of such voting power excluding the voting power of interested Shares, of a control share acquisition (as such term is defined in Chapter 1701 of the Ohio Revised Code); and

(iv) a change in the composition of the Board of Directors such that individuals who were members of the Board of Directors on the date two years prior to such change (and any new directors (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of MeadWestvaco) who were elected, or were nominated for election, by MeadWestvaco’s shareholders with the affirmative vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved) no longer constitute a majority of the Board of Directors.

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of MeadWestvaco immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of MeadWestvaco immediately following such transaction or series of transactions.

“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.

“Beneficial Owner” shall have the meaning defined in Rule 13d-3 under the Exchange Act.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

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“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) MeadWestvaco or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of MeadWestvaco or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of MeadWestvaco in substantially the same proportions as their ownership of stock of MeadWestvaco.

“Shares” shall mean shares of common stock, without par value, of MeadWestvaco Corporation.

“Tender Offer” shall mean a tender offer or a request or invitation for tenders or an exchange offer subject to regulation under Section 14(d) of the Exchange Act and the rules and regulations thereunder, as the same may be amended, modified or superseded from time to time.

E-10.4. Emergency Payments. If it is determined (as provided below) that a Participant or Beneficiary has experienced an “Unforeseeable Emergency” (as defined below), the terms and manner of payment of Benefits provided in the Plan or selected by a Participant may be changed to the extent appropriate to satisfy the Participant’s or Beneficiary’s emergency need. The term “Unforeseeable Emergency” means severe financial hardship to the Participant or Beneficiary resulting from a sudden and unexpected illness or accident of the Participant or Beneficiary or of a “dependent” (as defined in section 152(a) of the Code) of the Participant or Beneficiary, loss of the Participant’s or Beneficiary’s property due to a casualty, or other similar extra-ordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant or Beneficiary. A determination with respect to whether a Participant or Beneficiary has experienced an Unforeseeable Emergency shall be made:

(a) in the case of a Participant employed, or last employed, by an Employer as other than an elected officer of the Employer and his Beneficiary, the Chairperson of the Committee; and

(b) in the case of a Participant employed, or last employed, by an Employer as an elected officer of the Employer and his Beneficiary, the Committee.

The provisions of Section E-11 of the Plan shall not be applicable with respect to any determination made pursuant to this subsection E-10.4.

E-10.5. ECAP Credit in Lieu of Distribution. A Participant who is also a Participant in The Mead Corporation Executive Capital Accumulation Plan (“ECAP”) may elect to waive his right to receive any amount otherwise distributable to him pursuant to the provisions of the Plan and to have the same amount credited for his benefit (as of the date distribution would have been made) and subsequently distributed to him under the terms of the ECAP. An election made by a Participant in accordance with the provisions of this subsection must be in such written form as the Committee shall decide and filed with the Administrator at least three months prior to the Participant’s employment termination with the Employers and Affiliates with respect to distributions made on or after employment termination or, as an additional alternative, filed prior to a Change in Control with respect to distributions

E-13

made on or after a Change in Control. An election made by a Participant pursuant to the foregoing sentence is revocable at any time that is at least three months prior to the date of employment termination with the Employer and Affiliates or a Change in Control, as appropriate. In no event shall this subsection be applicable to any amount distributable to any person other than a Participant.

E-10.6. Payment to Incapacitated Persons. Notwithstanding any other provision of the Plan, if a Participant or other person entitled to a Benefit payment under the Plan is determined by a court of competent jurisdiction to be physically, mentally or legally incapacitated and unable to manage his financial affairs and claim is made by a conservator or other person legally charged by such court with the care of his person, the Committee shall make distributions to such conservator or other person. Any distribution made in accordance with this subsection shall fully acquit and discharge all persons from all further liability on account thereof.

E-10.7. Withholding. The Administrator shall cause to be withheld from the amount of any Benefit paid to a Participant or Beneficiary pursuant to the terms of the Plan any amount required to be withheld by federal, state or local law.

E-11. DISPUTE RESOLUTION

E-11.1. Claims Procedures. All disputes relating to benefits under the Plan shall be reviewed and resolved in accordance with claims procedures established by the Administrator. Such claims procedures shall offer a reasonable opportunity for a full and fair review of each claim and shall be consistent with the requirements of 29 C.F.R. § 2560.503-1.

E-11.2. Records, Data and Information. Unless proven to the satisfaction of the Administrator to be in error, the records, data and information of the Employers, Affiliates and administrators of the MeadWestvaco Plans shall be conclusive on all Participants, surviving Spouses and Beneficiaries with respect to all matters relating to the Plan.

E-12. AMENDMENT AND TERMINATION

E-12.1. Amendment and Termination. MeadWestvaco expects the Plan to be permanent, but since future conditions affecting MeadWestvaco cannot be anticipated or foreseen, MeadWestvaco must necessarily and does hereby reserve the right to amend, modify or terminate the Plan at any time by action of its Board of Directors.

E-12.2. Contingencies Affecting the Employers. In the event of a merger or consolidation of the Employer, or the transfer of substantially all of the assets of the Employer to another corporation, such successor corporation shall be substituted for the Employer under the terms and provisions of the Plan.

E-12.3. Protected Benefits. If the Plan is terminated, revoked, or amended so as to decrease benefits provided under the Plan, the full benefits earned by each terminated Participant and Beneficiary shall not be reduced. A Participant who is in active service at the time of a Plan termination, revocation or amendment shall be entitled to full Benefits under the prior provisions of the Plan; provided, however, that his Earnings for periods

E-14

subsequent to such termination, revocation or amendment shall not be used in determining the amount of benefits based on Final Average Earnings that are protected by this subsection. The time and manner of payment of Benefits protected by this subsection shall remain subject to the prior terms and conditions of the Plan.

E-15

EX-13 3 dex13.htm PAGE 2 THROUGH 83 OF THE MEADWESTVACO 2005 ANNUAL REPORT Page 2 through 83 of the MeadWestvaco 2005 Annual Report

Exhibit 13

MANAGEMENT‘S DISCUSSION AND ANALYSIS

OVERVIEW // For the year ended December 31, 2005, MeadWestvaco Corporation (“MeadWestvaco” or the “company”) reported net income of $28 million, or $0.14 per share. After-tax income from continuing operations for 2005 was $119 million, or $0.62 per share. Net income for the year included an after-tax loss from discontinued operations of $91 million, or $0.48 per share. Also included in net income were after-tax charges for debt retirement of $56 million, or $0.29 per share, after-tax charges for restructuring of $20 million, or $0.10 per share, and after-tax gains of $37 million, or $0.19 per share, on the sale of forestlands. Comparable amounts for prior periods are noted later in this discussion. The amounts related to the items noted above are reflected in corporate and other for segment reporting purposes.

In April 2005, the company sold its interests in the printing and writing papers business and related forestlands (“printing and writing papers business”) to an affiliate of Cerberus Management LLC, a private investment firm. Upon closing, we received proceeds from the buyer of $2.2 billion in cash and $100 million in aggregate principal amount of senior unsecured payable-in-kind (PIK) promissory notes (fair value of $75 million at date of issuance) of a subsidiary of the purchaser. As a result of the sale, the company incurred an after-tax accounting loss on sale of approximately $687 million, of which $548 million was recorded in the fourth quarter of 2004 for impairments of goodwill and other long-lived assets, and pension and other employee benefit settlements and curtailments. The remaining $139 million of after-tax loss was recorded in the first half of 2005. We began reporting the printing and writing papers business as a discontinued operation in the first quarter of 2005. Prior periods have been presented on a comparable basis.

Using proceeds from the sale of the printing and writing papers business, we repurchased a total of almost 24 million shares, or 12% of the outstanding common shares. At the end of 2005, the number of actual shares outstanding was 181.4 million, compared to 203.9 million shares at the end of 2004. Using the proceeds from the sale of the printing and writing papers business, we also reduced our total debt by approximately $1 billion which improved our total debt to total capital ratio to 41.1% at December 31, 2005, compared to 45.9% at December 31, 2004.

During 2005, the company benefited from modest revenue increases from higher selling prices and improved product mix in many of our businesses, which were offset by weaker overall demand for many of our products compared to the robust demand in 2004. All of our businesses experienced significant inflation in energy and raw material costs, and several operations of our packaging and specialty chemicals businesses were impacted by the effects from a Gulf Coast hurricane. During 2005, the pretax cost of energy, raw materials and freight was approximately $150 million higher than in 2004, offsetting improvements in price and mix of $120 million. During the third quarter, the impact of the

2 MeadWestvaco 2005 Annual Report

hurricane amounted to approximately $20 million, primarily related to lost production and shipments, property damage and related expenses. There were also effects that lingered into the fourth quarter.

In the Packaging segment, sales revenue increased 2% compared to 2004, and segment earnings decreased 22% compared to the prior year. The Packaging segment had increased sales as a result of higher selling prices realized for most products in 2005. Improvement in demand year over year in volumes for tobacco and cosmetics packaging in Europe were offset by weaker demand for media packaging. Beverage packaging volumes improved slightly over 2004. Revenue in the mill-based businesses declined compared to the prior year primarily due to a decline in shipments of bleached paperboard. Segment profits and revenues were negatively impacted compared to 2004 by significantly higher costs for raw materials, energy and freight in all of the businesses, market-related downtime taken in the mill-based businesses, and the lingering effects of the hurricane on the mill-based businesses. These negative impacts were partially offset by the effects of higher selling prices for most paperboard grades and improved volume and mix in tobacco and cosmetics packaging in Europe. This segment, which includes most of the company’s internationally focused businesses, was negatively impacted by the weakening of the euro against the dollar.

In the Consumer and Office Products segment, revenue increased 3% compared to 2004, and segment profits decreased 5%. Revenues were positively impacted by growth in the Brazilian school and office products business, which was acquired in 2004, offset by a decrease in revenues from consolidation of commodity product lines and the continuing challenge of global competitive pressures from lower priced imports. The decline in the segment’s operating profit was driven by higher costs for paper and distribution, partially offset by improved sales mix and cost savings from facility consolidations made in 2004.

In the Specialty Chemicals segment, sales revenue increased 4% and operating profit decreased by 32% from the prior year. Sales increased due to higher selling prices and strong demand in several markets, but those positive effects were offset by lower sales volume for some activated carbon products as a result of changes in design of emission systems by an automaker customer. Higher raw material and energy costs were the primary drivers of the decline in the segment’s operating profit compared to the prior year.

In 2005, the company began its cost reduction initiative, which is focused on reducing general and administrative costs, streamlining our warehousing and logistics network, and reducing our real estate footprint, in order to establish a more flexible, lean and responsive business model. Through this new initiative, we expect to reduce our overall cost structure by $175 million to $200 million, before inflation, on an annual run rate basis by the end of 2007. In 2005, specific actions were completed that resulted in annual run rate savings of about $65 million, before inflation.

Financial Review 3

MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS // The following table summarizes our results for the three years ended December 31, 2005, 2004 and 2003, as reported in accordance with accounting principles generally accepted in the United States (GAAP). All references to per share amounts are presented on an after-tax basis.


	Years ended December 31
In millions, except per share data	2005			2004			2003
Net sales	$	6,170		$	6,060		$	5,566
Cost of sales		5,087			4,925			4,593
Selling, general and administrative expenses		756			800			780
Interest expense		208			209			210
Other income, net		(16	)		(197	)		(105	)

Income from continuing operations before income taxes		135			323			88
Income tax provision		(16	)		(99	)		(4	)

Income from continuing operations		119			224			84
Discontinued operations		(91	)		(573	)		(62	)
Cumulative effect of accounting change		—			—			(4	)

Net income (loss)	$	28		$	(349	)	$	18

Income (loss) per share – basic:
Income from continuing operations	$	0.62		$	1.11		$	0.42
Discontinued operations		(0.48	)		(2.84	)		(0.31	)
Cumulative effect of accounting change		—			—			(0.02	)

Net income (loss)	$	0.14		$	(1.73	)	$	0.09

Income (loss) per share – diluted:
Income from continuing operations	$	0.62		$	1.10		$	0.42
Discontinued operations		(0.48	)		(2.82	)		(0.31	)
Cumulative effect of accounting change		—			—			(0.02	)

Net income (loss)	$	0.14		$	(1.72	)	$	0.09

Sales for the year ended December 31, 2005, were $6.2 billion compared to $6.1 billion for the year ended December 31, 2004, and $5.6 billion for the year ended December 31, 2003. Increased sales, compared to 2004, were the result of higher selling prices and improved product mix in most of our businesses, which were partially offset by weaker overall demand for many of our products compared to the robust demand in 2004. Refer to the individual segment discussions that follow for detailed sales information for each segment.

Cost of sales for the year ended December 31, 2005, was $5.1 billion, compared to $4.9 billion and $4.6 billion for the years ended December 31, 2004 and 2003, respectively. Our gross margin declined about one point from

4 MeadWestvaco 2005 Annual Report

2004 and was slightly improved over 2003. The decline in gross margin was primarily related to increased costs in 2005 for raw materials and energy, and higher market-related downtime in 2005. During 2005, the pretax cost of energy, raw materials and freight was approximately $150 million higher than in 2004. Restructuring charges for the year that were included in cost of sales were $18 million, compared to $89 million in 2004 and $40 million in 2003.

Maintenance costs and the effects of market-related downtime are reflected in cost of sales. Market-related downtime in 2005 was higher than in 2004 and 2003. Total market-related downtime in 2005 was about 109,000 tons, which had a negative impact on results of approximately $31 million. The 2005 market-related downtime was taken primarily in the first three quarters of the year. In 2004, the company took 17,000 tons of market-related downtime, which had an impact on results of $3 million; in 2003, the company took 88,000 tons of market-related downtime, which had an impact on results of $24 million. In all three years, the mix of market-related downtime varied by business. The effects of market-related downtime consist of the unabsorbed fixed manufacturing costs due to lower production, but do not include lost profits due to lower shipment levels. Maintenance costs in 2005 were similar to 2004 costs. Total maintenance costs in 2005 were about $244 million, compared to $242 million and $227 million in 2004 and 2003, respectively.

Selling, general and administrative expenses were $756 million, $800 million and $780 million for the years ended December 31, 2005, 2004 and 2003, respectively. Selling, general and administrative expenses as a percentage of sales were 12.3%, 13.2% and 14.0% for the years ended December 31, 2005, 2004 and 2003, respectively. A portion of the decrease in 2005 was a result of various activities which focused on reduced spending and staff reductions throughout the company. Restructuring charges included in selling, general and administrative expenses were $11 million in both 2005 and 2004, and $21 million in 2003. Additionally, beginning in 2005, about $30 million of certain costs classified as cost of sales, were, in prior years, included in selling, general and administrative expenses for the consumer packaging business, as the company integrated the business and shifted certain functions to production. Also included in selling, general and administrative expenses in 2005 were approximately $25 million of costs associated with transition services provided to NewPage Corporation, a subsidiary of the purchaser of the printing and writing papers business, pursuant to the sale agreement; however, the revenue from those services was included in other income, net.

Pension income for continuing operations, before settlements and curtailments, was $67 million in 2005 compared to $86 million in 2004 and $83 million in 2003. Pension income is reflected in cost of sales and selling, general and administrative expenses, and is reported in corporate and other for segment reporting.

Interest expense of $208 million in 2005 was similar to 2004 and 2003 interest expense of $209 million and $210 million, respectively, after excluding the interest expense allocated to discontinued operations.

Financial Review 5

MANAGEMENT’S DISCUSSION AND ANALYSIS

Other income, net, was $16 million in 2005, compared to $197 million and $105 million for the years ended December 31, 2004 and 2003, respectively. The decrease in other income in the current year was primarily related to lower gains on the sales of forestland compared to the prior years. Gains on the sales of forestland were $60 million before taxes in 2005, compared to gains of $176 million and $85 million before taxes in 2004 and 2003, respectively. During 2005, the company reduced total debt by approximately $1 billion, incurring pretax charges of approximately $90 million for debt retirement, compared to charges of $1 million and $26 million for 2004 and 2003, respectively. In 2005, investee loss was $4 million, compared to 2004 and 2003 investee income of $2 million and $18 million, respectively, primarily from the company’s investment in Northwood Panelboard Company. Current year results exclude earnings from this investment, as it was sold early in 2004.

For the years ended December 31, 2005, 2004 and 2003, the effective tax rate was approximately 12%, 31% and 5%, respectively. The decline in the rate from 2004 to 2005 was due to a lower proportion of domestic earnings in 2005, a change in the allocation of state taxes as a result of the sale of the printing and writing papers business, and tax credits. The increase in the rate from 2003 to 2004 reflects changes in the composition and mix of earnings and losses in certain jurisdictions (primarily our domestic operations) and is comparable to the statutory rate. We expect the effective tax rate for 2006 to be in the range of 25% to 30%.

Net income in 2003 included an after-tax charge of $4 million, or $0.02 per share, for the cumulative effect of an accounting change related to the adoption of Statement of Financial Accounting Standard (SFAS) No.143, Accounting for Asset Retirement Obligations. The company adopted FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations – An Interpretation of SFAS No.143, as of December 31, 2005; the cumulative effect of this accounting change was immaterial.

In addition to the information discussed above, the following sections discuss the results of operations for each of our business segments and corporate and other.

Packaging segment


	Years ended December 31
In millions	2005		2004		2003
Sales	$	4,476	$	4,402	$	4,020
Segment profit¹		336		431		267

¹	Segment profit is measured as results before restructuring charges, pension income, interest income and expense, income taxes, minority interest, discontinued operations, extraordinary items and cumulative effect of accounting changes.

6 MeadWestvaco 2005 Annual Report

The Packaging segment produces bleached paperboard, Coated Natural Kraft paperboard™ (CNK^®), kraft paperboard, linerboard and saturating kraft, and packaging for consumer products markets. The Packaging segment also manufactures printed plastic packaging and injection-molded products used for packaging DVDs, CDs, cosmetics and pharmaceutical products. In addition, the Packaging segment designs and produces multi-pack cartons and packaging systems primarily for the beverage take-home market. This segment’s products are manufactured at four domestic mills and two mills located in Brazil. Paperboard and plastic are converted into packaging products at plants located in North America, Brazil, Asia and Europe. These products are sold primarily in North America, with additional markets located in Latin America, Europe, Asia and the Pacific Rim.

Sales in the Packaging segment increased to $4.5 billion for the year ended December 31, 2005, compared to 2004 sales of $4.4 billion and 2003 sales of $4.0 billion. The sales increase of 2% for 2005 over the prior year was a result of higher selling prices realized for many products and strengthening demand for tobacco and cosmetics packaging in Europe, and global compliance healthcare packaging. Demand was weaker than last year for media packaging, while demand for beverage packaging was slightly higher than 2004. Revenue in the mill-based businesses declined, compared to the prior year, partially due to a decline in shipments of bleached paperboard as a result of the impact of a hurricane. Bleached paperboard shipments of 1.7 million tons were down 7% from the prior year, but the business realized a year-over-year net price improvement of about 5% across the bleached board grades. Shipments for CNK paperboard of over one million tons were similar to shipments in the prior year, with open market pricing increases of 3% over 2004. Linerboard shipments increased 17% from the prior year, with pricing similar to last year. During 2005, we indefinitely shut down an older, smaller, bleached paperboard machine and announced the indefinite shutdown of another bleached paperboard machine. The segment’s consumer packaging businesses reported lower sales of print and plastic packaging for the media and entertainment industries but increased demand for cosmetics and tobacco packaging in Europe. In the beverage packaging business, sales were down compared to the prior year due to weaker soft drink demand in North America and weaker demand in beer markets worldwide. The company’s Brazilian packaging operation, Rigesa Ltda., had an increase in sales over 2004 driven by higher prices and a stronger Brazilian currency. A weaker euro had a negative impact on sales for the European packaging operations.

Segment profit for the year decreased to $336 million compared to 2004 results of $431 million. The 22% decrease from 2004 reflects significantly higher costs for raw materials and energy in all of the businesses compared to 2004, higher market-related downtime taken in the mill-based businesses, and the impact of the hurricane on the mill-based businesses. The consumer packaging results were positively impacted by improved volume and mix in tobacco and cosmetics packaging in Europe, but this positive impact was offset by weaker

Financial Review 7

MANAGEMENT’S DISCUSSION AND ANALYSIS

volume in media and entertainment packaging as a result of a lack of blockbuster titles in 2005, weakness and some share loss in games, DVD and music markets, and increased resin costs that could not be passed on to customers. In the packaging systems business, operating profit was positively impacted by growth in nonbeverage dairy packaging from our European acquisition in 2004. This segment was negatively impacted by the weakening of the euro against the U.S. dollar.

Year-over-year segment results declined $95 million. Earnings benefited by $73 million from price increases and mix improvements. Earnings were adversely affected by $22 million from increased market-related downtime, $74 million for higher costs for energy, wood and freight, $23 million for volume decreases, and $49 million from other operating cost increases compared to the prior year, primarily related to the effects of the hurricane and lower absorption of fixed manufacturing costs.

Consumer and Office Products segment


	Years ended December 31
In millions	2005		2004		2003
Sales	$	1,125	$	1,090	$	1,055
Segment profit¹		130		137		126

¹	Segment profit is measured as results before restructuring charges, pension income, interest income and expense, income taxes, minority interest, discontinued operations, extraordinary items and cumulative effect of accounting changes.

The Consumer and Office Products segment manufactures, sources, markets and distributes school, office, envelope and time-management products to retailers and commercial distributors. This segment’s operations are conducted predominantly in North America and Brazil.

Sales for this segment increased to $1.13 billion in 2005 compared to $1.09 billion for 2004 and $1.06 billion in 2003. The 3% sales growth was driven by prior year acquisitions and improved demand for time-management products, which were offset by the continuing challenge of global competitive pressures from lower priced Asian-based imports, especially related to commodity-based paper products. Sales from the Brazilian school and office products business acquired in 2004, Tilibra S.A. Produtos de Papelaria (“Tilibra”), were a significant portion of the sales increase in 2005 over 2004. Segment profit for the year decreased to $130 million compared to 2004 results of $137 million. Segment operating profit also benefited from the prior year acquisition, as well as added contribution from the segment’s Canadian business and costs savings from facility consolidations made in 2004. Segment profit was negatively impacted by Asian import price pressures and higher raw materials costs, primarily uncoated paper, which could not be fully passed on to customers in the current year. Year-over-year results were positively impacted by $25 million for price

8 MeadWestvaco 2005 Annual Report

increases and mix improvements, and $2 million for other cost reductions, offset by the negative impact of higher costs of about $26 million and volume decreases of about $8 million.

Specialty Chemicals segment


	Years ended December 31
In millions	2005		2004		2003
Sales	$	425	$	410	$	353
Segment profit¹		39		57		45

¹	Segment profit is measured as results before restructuring charges, pension income, interest income and expense, income taxes, minority interest, discontinued operations, extraordinary items and cumulative effect of accounting changes.

The Specialty Chemicals segment globally markets and distributes products which are manufactured at four primary domestic locations. Major product groups are: activated carbon products; printing ink resins and lignin-based surfactants; and tall oil fatty acid, rosin and derivative products.

Sales increased in 2005 to $425 million from $410 million in 2004 and $353 million in 2003 due to higher selling prices and strong demand for the segment’s chemicals used in asphalt paving, dyes, printing inks and industrial pine chemical markets. However, those positive effects were offset by lower volumes for some activated carbon products as a result of changes in design of emission systems by an automaker customer. Higher raw material and energy costs were the primary drivers of the decline in the segment’s operating profit compared to the prior year. Year-over-year results were positively impacted by price increases and mix improvements of $15 million, offset by the negative impact of higher costs for raw materials and energy of about $23 million, volume decreases of $6 million, and other cost increases of $4 million.

Corporate and other


	Years ended December 31
In millions	2005			2004			2003
Sales	$	213		$	216		$	200
Corporate and other loss¹		(370	)		(302	)		(350	)

¹	Corporate and other loss may include goodwill impairment charges, minority interest, debt retirement charges, restructuring charges, net pension income, interest income and expense, and gains on asset sales.

Corporate and other includes the company’s specialty paper business, forestry operations and corporate support staff services, and related assets and liabilities. The results also include income and expense items not directly associated with segment operations, such as certain legal charges and settlements, pension income, interest income and expense, and other charges.

Financial Review 9

MANAGEMENT’S DISCUSSION AND ANALYSIS

The loss for corporate and other was $370 million, compared to a loss of $302 million and $351 million in 2004 and 2003, respectively. The increase in the loss reflects lower forestland sales gains in 2005 of $116 million, lower pension income of $19 million, and higher debt retirement costs of $89 million. These negative effects were partially offset by $71 million of lower restructuring charges in 2005, higher transition services income of $25 million, higher interest income of $21 million, reduced corporate spending of $33 million, and lower other costs of $6 million.

Discontinued Operations Discontinued operations for 2005 related to the sale of the printing and writing papers business included only four months of operations as the business was sold on April 30, 2005.

The company recorded an after-tax loss from discontinued operations for the years ended December 31, 2005, 2004 and 2003 of $91 million, $573 million and $62 million, respectively. Results in 2005 and 2004 were negatively impacted by sale-related costs, including lease termination charges, asset impairments, debt extinguishment costs, pension settlement and curtailment losses, and other related costs that were not incurred during 2003.

Comparison of Years ended December 31, 2004 and 2003 The information in this section has been restated on a continuing operations basis.

Packaging segment: Sales revenue increased 10% compared to 2003, and segment earnings increased 61%. This strong increase in earnings was the result of increased demand for most grades of paperboard as evidenced by stronger shipments, higher selling prices and better product mix, as well as by more efficient operations in the segment’s mill-based businesses. The segment’s converting operations also performed well during the year, especially in the company’s consumer packaging businesses, which had strong growth in media and entertainment packaging markets, and also in cosmetics and tobacco packaging. In the packaging systems business, results benefited from improved productivity and the contribution of the segment’s packaging acquisition in France. This segment, which includes most of the company’s internationally focused businesses, also benefited from a strengthening of other currencies against the U.S. dollar.

Consumer and Office Products segment: In the Consumer and Office Products segment, results were positively impacted by acquisitions of school and office and time-management products businesses made during the current and prior year, which contributed to the improvement of both sales and earnings for the year. Offsetting the favorable effects from these additions to the business were the continuing challenge of global competitive pressures from lower priced imports and higher costs for paper and distribution.

Specialty Chemicals segment: Sales revenue and operating profit both increased from the prior year. Sales were higher, primarily in automotive markets, and the business had solid shipments of the chemicals used in asphalt paving, solvent ink

10 MeadWestvaco 2005 Annual Report

and industrial pine chemical markets. Although the overall segment results improved for the year, results were offset in part by higher energy, freight and other costs compared to 2003.

Other items: Selling, general and administrative expenses were $800 million in 2004 compared to $780 million in 2003. Selling, general and administrative expenses included $11 million of restructuring charges compared to $21 million of restructuring and merger-related expenses in 2003. The decrease of selling, general and administrative expenses as a percent of sales was a result of various activities which focused on reducing spending and staff levels throughout the company, offset by acquisitions in the Consumer and Office Products and Packaging segments.

Interest expense of $209 million in 2004 was similar to interest expense of $210 million in 2003.

Pension income, before settlements and curtailments, was $86 million before taxes compared to $83 million in 2003, reflecting the company’s continued overfunded position in its qualified plans.

Other income, net, increased in 2004 to $197 million from $105 million in 2003. Included in other income, net, are gains on the sales of forestland of $176 million. The gains recorded in 2003 were $85 million. Total investee income in 2004 was $2 million, compared to $18 million in 2003 due primarily to the sale of the company’s oriented strand board investee in early 2004. In 2004, the company incurred $1 million of expenses in connection with the early extinguishment of debt compared to $26 million of similar charges in 2003.

The company’s annual effective tax benefit rate for 2004 was 31% compared to 5% in 2003. The increase in the 2004 annual effective tax rate reflects changes in the composition and mix of earnings and losses in certain jurisdictions, primarily domestic operations, and is comparable to the statutory rate.

Outlook The company’s Packaging segment had weaker results in 2005 compared to the very strong results in 2004. The segment saw improvement in demand year over year in tobacco and cosmetics packaging in Europe, and management expects demand to remain stable in 2006. Demand for print and plastic packaging in the media and entertainment markets is expected to decline seasonally in the first quarter of 2006 after the holiday season, while demand for beverage packaging is expected to remain at levels similar to the fourth quarter of 2005. Healthcare markets continue to be challenging with intense price competition in standard product lines. In the segment’s mill-based businesses, demand for bleached paperboard declined in 2005, but demand in the first quarter of 2006 is expected to remain at fourth quarter 2005 levels.

Demand for our consumer and office products is expected to remain stable in 2006. Strengthened by several acquisitions in 2003 and 2004, we believe our time-management products exhibit a strong presence in major retail and commercial channels and continue to be among the best-recognized brands in the marketplace. Our management expects continued integration of these

Financial Review 11

MANAGEMENT’S DISCUSSION AND ANALYSIS

acquisitions and facility consolidations to contribute to improved operating performance in 2006. This segment’s traditional back-to-school products have experienced pressure from Asian imports, especially in its commodity lines. Strong proprietary brands, along with licensed products, continue to provide positive results in the business segment’s value-added product lines, offsetting losses in lower margin commodity and private label products. The Consumer and Office Products segment typically incurs a small loss in the first quarter as the business builds inventory for its back-to-school selling season in the second and third quarters and for the peak selling season for time-management products in the second half of the year.

The Specialty Chemicals segment saw growth in 2005 in its asphalt, dye and pine chemicals markets, and those markets are expected to remain strong in 2006. Sales of activated carbon products decreased in 2005 as a result of changes in design of emission systems by an automaker customer; however, demand for other carbon products remained strong and is expected to continue into 2006.

We expect to continue to implement higher selling prices based on previously announced price increases in an effort to offset expected ongoing pressures from cost inflation in energy and raw materials for all of our businesses.

Earlier in the year, we launched a new cost reduction initiative to improve the efficiency of our business model. As part of the initiative, we are focusing on reducing the general and administrative cost structure across the company by redesigning general and administrative services with a plan to move to a more simplified, standardized, global model. We also plan to reduce our real estate footprint and streamline our warehousing and logistics network. The goal of this initiative is to reduce the overall cost structure of the company by $175 million to $200 million, before inflation, on an annual run rate basis by the end of 2007. In 2005, specific actions were completed that resulted in annual run rate savings of about $65 million, before inflation. As part of this initiative, a total of approximately 350 positions were eliminated from general and administrative areas in the company’s U.S. operations. Our goal for 2006 is to realize another $65 million in annual run rate savings. As part of this initiative and other restructuring activities, the company expects to incur about $75 million to $100 million in restructuring and related costs in 2006.

Capital spending was $305 million in 2005 and is expected to be between $300 million and $325 million in 2006. Depreciation and depletion expense was $404 million in 2005 and is expected to be similar in 2006.

Interest expense totaled $208 million in 2005. Management expects interest expense to be in the range of $190 million to $200 million in 2006.

Management currently estimates overall pension income in 2006 to be about $50 million which is derived primarily from the domestic plans. This estimate assumes a discount rate of 5.5%, a salary increase rate of 4.0% and an expected rate of return on assets of 8.5%.

12 MeadWestvaco 2005 Annual Report

Also, beginning in the first quarter of 2006, the company will begin to expense stock options in accordance with SFAS No.123-revised 2004 (SFAS No.123R), Share-Based Payments. The effect of adoption of SFAS No.123R is currently estimated to be an incremental noncash expense of approximately $15 million before taxes for 2006.

The company generated gross proceeds of $68 million and $229 million from the sales of forestland in 2005 and 2004, respectively. We have completed our forestland sales program and expect proceeds from forestland sales to be less significant in 2006.

On February 15, 2006, the company announced plans designed to accelerate progress toward a new packaging platform, a new innovation center, and the consolidation of corporate activities to a new corporate headquarters located in Richmond, Virginia. The changes are expected to begin in the second quarter of 2006 and are expected to be completed by early 2007. Management expects to incur costs associated with these actions, which are included in the cost reduction initiative and other restructuring activities noted above, of about $75 million to $100 million.

Also, in February 2006, the company repurchased and retired 1.3 million shares, related to an obligation under a share put option to the former owner of a subsidiary. The cash impact of this transaction was approximately $47 million.

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 later in this document.

LIQUIDITY AND CAPITAL RESOURCES // Cash generated from operations and the proceeds from the sale of the printing and writing papers business provided the major source of funds for the company. Forestland sales also provided a source of funds in 2005 but are not expected to be a significant source of funds in 2006. As disclosed in Note P to the company’s consolidated financial statements, the company received approximately $2.2 billion in proceeds from the second quarter sale of its printing and writing papers business and related forestlands, which was effective April 30, 2005. Approximately $1.1 billion of the cash proceeds from the sale were used to repay approximately $1 billion of debt and related fees of about $90 million, in the second quarter. The proceeds were also used in the second and third quarters to repurchase a total of 24 million shares, or 12%, of the company’s outstanding shares for about $700 million. The company has been authorized by the Board of Directors to repurchase up to five million additional shares, primarily to avoid dilution of earnings per share relating to employee equity awards. Cash and cash equivalents totaled $297 million at December 31, 2005, compared to $270 million at December 31, 2004. There were no short-term investments at December 31, 2005, compared to $5 million at December 31, 2004.

Financial Review 13

MANAGEMENT’S DISCUSSION AND ANALYSIS

Operating activities The company generated cash flows from continuing operations of $305 million in 2005, compared to $633 million in 2004 and $379 million in 2003. The decline in operating cash flows from continuing operations was primarily attributable to lower after-tax earnings from continuing operations, which declined by $105 million in 2005 from 2004. Included in 2005 cash flows from continuing operations is approximately $160 million in tax payments related to the sale of the printing and writing papers business. Cash flow from discontinued operations was a use of cash in 2005 of $78 million, compared to cash provided by operations of $289 million and $91 million in 2004 and 2003, respectively.

Investing activities The company generated about $2 billion of cash from investing activities in 2005, compared to using cash of $207 million in 2004 and $95 million in 2003. The primary source of the funds was the proceeds from the sale of the printing and writing papers business noted above. Capital spending totaled $305 million for the year ended December 31, 2005, compared to $317 million during 2004 and $309 million in 2003. Management anticipates that this lower level of capital spending will continue during 2006 with estimated spending of between $300 million and $325 million. Depreciation, depletion and amortization is expected to be approximately $500 million for 2006.

During 2005, we acquired DZN, The Design Group, a full service design and marketing company which will enhance MeadWestvaco’s package design capabilities, enabling the company to provide a more competitive and comprehensive set of creative design services. During 2004, we acquired Aries Packaging, a machinery systems company which supports the company’s dairy packaging systems business in Europe, and Tilibra, a manufacturer of school, office and time-management stationery products in Brazil. These transactions, as well as other smaller acquisitions, did not have a material impact on the cash flows of the company.

The company completed the sale of 20,000 acres of forestlands, generating proceeds of $68 million in 2005. Overall, asset sales generated $109 million of proceeds in 2005, compared to $281 million last year. For 2003, the company generated $224 million of proceeds from the sales of assets, primarily nonstrategic forestland. With the completion of our land sale program in 2005, management does not expect forestland sales to be a significant source of funds in 2006.

Financing activities The company used about $2.2 billion of cash in financing activities during 2005, compared to cash used in financing activities of $672 million during 2004 and $547 million during 2003. Proceeds received from the sale of the company’s printing and writing papers business discussed above were used to retire approximately $1 billion in debt and repurchase almost 24 million shares of outstanding common stock at a cost of about $700 million. All of the repurchased shares of common stock have been retired. In October 2005, the company’s Board of Directors authorized the future repurchase of an additional

14 MeadWestvaco 2005 Annual Report

five million shares primarily to avoid dilution of earnings per share relating to employee equity awards. At December 31, 2005, the company had a $750 million bank credit facility available, that expires in December 2010, which was not utilized at December 31, 2005. Borrowings under this agreement can be in unsecured domestic or eurodollar notes and at rates approximating prime or the London Interbank Offered Rate (LIBOR) at the company’s option. The $750 million credit 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 is in compliance.

There were $11 million of short-term borrowings at December 31, 2005, related to certain foreign operations, compared to $30 million of short-term borrowings at December 31, 2004. The maximum amounts of combined commercial paper outstanding during the years ended December 31, 2005, 2004 and 2003, were $115 million, $53 million and $752 million, respectively. The average amount of commercial paper outstanding during the years ended December 31, 2005, 2004 and 2003, was $1 million, $4 million and $304 million, respectively, with an average interest rate of 3.1%, 1.4% and 1.3%, respectively. There were no commercial paper borrowings at December 31, 2005 and 2004. In the past, these borrowings funded seasonal increases in inventory and receivables at the company’s Packaging and Consumer and Office Products segments. At December 31, 2005, approximately 15% of the company’s debt was variable rate, after factoring in the company’s interest-rate swaps. The weighted average interest rate on the company’s variable-rate debt was approximately 4.9% in 2005. This compares to approximately 20% variable-rate debt at December 31, 2004, with an average rate of 3.0%.

At December 31, 2005 and 2004, the company had $13 million and $234 million of notes payable and current maturities of long-term debt. At December 31, 2005, the percentage of debt to total capital was 41.1% and 45.9% at December 31, 2005 and 2004, respectively.

In 2005, the Board of Directors declared dividends of $0.92 per share, paying a total of $178 million of dividends to shareholders in 2005. During 2004 and 2003, the company paid $186 million and $184 million, respectively, of dividends to shareholders.

In February 2006, the company repurchased and retired 1.3 million shares, related to an obligation under a share put option to the former owner of a subsidiary. The cash impact of this transaction was approximately $47 million.

Effects of inflation Costs for energy, including natural gas, oil and electricity, and costs for certain raw materials and freight increased significantly in 2005 and are expected to increase in 2006 on a full-year basis. The increase in these costs affected many of the company’s businesses. During 2005, the pretax cost of energy, raw materials and freight was approximately $150 million higher than in 2004.

Financial Review 15

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 approximately $32 million in environmental capital expenditures in 2006 and approximately $23 million in 2007. Approximately $47 million was spent on environmental capital projects in 2005.

We have been notified by the U.S. Environmental Protection Agency (the “EPA”) 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. Some of these proceedings are described in more detail in Part I, Item 3, “Legal Proceedings.” There are other sites which may contain contamination or which may be potential Superfund sites, but for which we have not received any notice or claim. The potential liability for all of 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, 2005, the company had recorded liabilities of approximately $27 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 by an amount that could range from an insignificant amount to as much as $30 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 management’s 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.

16 MeadWestvaco 2005 Annual Report

were approximately 200 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, 2005, the company had recorded litigation liabilities of approximately $29 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 management’s 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.

The company 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.

Interest rates It is management’s objective to manage its interest expense through a blend of fixed and floating interest rate instruments. The company primarily funds itself with long-term debt, having final maturities ranging from two to 40 years at date of issue, a portion of which has variable interest rates, and with variable interest rate commercial paper. The company uses interest-rate swaps in managing its mix of fixed and floating rate debt. See Note G in the notes to the consolidated financial statements.

Foreign currency The company has foreign-based operations, primarily in Brazil, Canada, Mexico, Europe and Asia, which accounted for approximately 28% of its 2005 net sales. In addition, certain of the company’s domestic operations have sales to foreign customers. In the conduct of its foreign operations, the company also makes intercompany sales and receives royalties and dividends denominated in many different currencies. All of this exposes the company to the effect of changes in foreign currency exchange rates.

Flows of foreign currencies into and out of the company’s domestic operations are generally stable and regularly occurring and are recorded at fair market value in the company’s financial statements. The company’s foreign currency management policy permits it to enter into foreign currency hedges when these flows exceed

Financial Review 17

MANAGEMENT’S DISCUSSION AND ANALYSIS

a threshold, which is a function of these cash flows and forecasted annual operations. During 2005, the company entered into foreign currency hedges to partially offset the foreign currency impact of these flows on operating income. See Note G in the notes to the consolidated financial statements.

The company also issues intercompany loans to its foreign subsidiaries in their local currencies, exposing it to the effect of changes in spot exchange rates between loan issue and loan repayment dates. Generally, management uses foreign-exchange hedge contracts with terms of less than one year to hedge these exposures. When applied to the company’s derivative and other foreign currency sensitive instruments at December 31, 2005, a 10% adverse change in currency rates would have about a $12 million effect on the company’s results.

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, 2005, 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 the footnotes to the consolidated financial statements of the company. Also included below are disclosures regarding the amounts due under purchase obligations. 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 disclosure below all normal and recurring purchase orders, take-or-pay contracts, supply arrangements as well as other purchase commitments that management believes meet the definition of purchase obligations above.


	Payments due by period
In millions	Total		Less than 1 year 2006		1-3 years 2007 and 2008		3-5 years 2009 and 2010		More than 5 years 2011 and beyond
Contractual Obligations:
Debt	$	2,369	$	13	$	18	$	81	$	2,257
Interest on debt		3,271		182		363		356		2,370
Capital lease obligations		167		5		8		8		146
Operating leases		187		58		61		33		35
Purchase obligations		563		432		72		19		40
Other long-term obligations		814		—		226		157		431

Total	$	7,371	$	690	$	748	$	654	$	5,279

18 MeadWestvaco 2005 Annual Report

OTHER ITEMS INCLUDING RESTRUCTURING AND

BUSINESS IMPROVEMENT ACTIONS //

Year ended December 31, 2005 For the year ended December 31, 2005, MeadWestvaco recorded total pretax charges of $29 million for asset writedowns, facility closures and employee separation costs, of which $18 million and $11 million were recorded within cost of sales and selling, general and administrative expenses, respectively. Of these amounts, $1 million and $4 million were recorded within cost of sales and selling, general and administrative expenses, respectively, in the fourth quarter of 2005.

Although these charges related to individual segments, such amounts are reflected in corporate and other for segment reporting purposes.

The following table and discussion present additional detail of the 2005 charges by business segment:


In millions	Asset writedowns and other costs			Employee costs		Total
Packaging	$	5		$	9	$	14
Consumer and Office Products		7			1		8
All other		3			6		9

	$	15		$	16	$	31

Gain on sale of Consumer and Office Products assets previously written down	$	(2	)	$	—	$	(2	)


Productivity initiative	$	5		$	4	$	9
Cost initiative		8			12		20

Packaging segment: During the year, the company incurred charges of $14 million for asset writedowns, employee separation costs and other restructuring costs related to the closing of a packaging converting plant in the United States and various other restructuring activities in its packaging operations in the United States and Europe. The charges included employee separation costs of $9 million related to approximately 250 employees. Most of these employees have separated from the company as of December 31, 2005. The remaining $5 million included $4 million of asset impairments and $1 million of other closure-related costs.

Consumer and Office Products segment: During 2005, the company recorded charges of $8 million for asset writedowns, employee separation costs and other restructuring costs incurred in connection with various restructuring activities in its consumer and office products manufacturing operations in North America. The charges included employee separation costs of $1 million, related to approximately 50 employees, $2 million for asset writedowns, including assets

Financial Review 19

MANAGEMENT’S DISCUSSION AND ANALYSIS

impairments of $1 million, and $5 million for other closure-related costs. The affected employees will separate from the company by the end of 2006.

Additionally, during the first half of the year, the company sold previously written-down assets, resulting in gains of $2 million.

All other: During the year, the company also recorded charges of approximately $6 million related to employee separation costs covering approximately 190 employees. As of December 31, 2005, about 60% of these employees had separated from the company, and the remaining employees will be separated by the end of 2006. Additionally, the company incurred charges of $3 million for other restructuring-related costs.

Year ended December 31, 2004 For the year ended December 31, 2004, MeadWestvaco recorded total pretax charges of $100 million for asset writedowns, facility closures and employee separation costs, of which $89 million and $11 million were recorded within cost of sales and selling, general and administrative expenses, respectively. The charges related primarily to the closing of a domestic packaging systems plant and various consolidation activities in the company’s packaging facilities, primarily in Europe; actions taken to consolidate the consumer and office products operations in North America and close several facilities; and the reorganization of corporate functions and other business units. As of December 31, 2005, all of the actions related to these charges were complete, and the accruals for employee and other costs were substantially utilized. Although the charges were not recorded as part of segment results, $39 million related to the Packaging segment, $45 million to the Consumer and Office Products segment, and $16 million to corporate and other. Additionally, in 2004, the company sold a previously written-down corporate asset, resulting in gains of $2 million recorded by the company.

Year ended December 31, 2003 For the year ended December 31, 2003, MeadWestvaco recorded total pretax restructuring charges and other merger-related costs from continuing operations of $61 million. This amount excludes $7 million related to the printing and writing papers business which is now a discontinued operation. Approximately $40 million and $21 million were recorded within cost of sales and selling, general and administrative expenses, respectively. The charges included in continuing operations related primarily to actions taken to streamline the packaging operations through the shutdown of a sawmill and three packaging converting plants in Richmond, Virginia, Cleveland, Tennessee, and Newark, Delaware; and the reorganization of corporate functions and other business units. As of December 31, 2004, all of the actions related to these charges were complete and the balance of the accruals for employee and other costs were substantially utilized. Although the charges were not recorded as part of segment results, $37 million related to the Packaging segment, $1 million to the Consumer and Office Products segment, and $23 million to corporate and other. Additionally, in 2003, the company

20 MeadWestvaco 2005 Annual Report

sold two previously written-down facilities, resulting in gains of $5 million recorded by the company.

Summary of all restructuring charges The activity in the accrued restructuring balances related to all of the plans described above was as follows for the year ended December 31, 2003 to the year ended December 31, 2005:


Productivity initiative:
In millions	Employee costs			Other costs			Total
Balance of related accruals at December 31, 2003	$	20		$	6		$	26
Current charges		34			33			67
Change in estimate		(2	)		—			(2	)
Payments		(39	)		(31	)		(70	)

Balance of related accruals at December 31, 2004		13			8			21
Current charges		4			3			7
Payments		(15	)		(9	)		(24	)

Balance of related accruals at December 31, 2005	$	2		$	2		$	4


Cost initiative:
In millions	Employee costs			Other costs			Total
Balance of related accruals at December 31, 2004	$	—		$	—		$	—
Current charges		12			5			17
Payments		(7	)		(3	)		(10	)

Balance of related accruals at December 31, 2005	$	5		$	2		$	7

Financial Review 21

MANAGEMENT’S DISCUSSION AND ANALYSIS

CRITICAL ACCOUNTING POLICIES // Our principal accounting policies are described in the Summary of Significant Accounting Policies in the Notes to Financial Statements filed with the accompanying consolidated financial statements. 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 business improvement and productivity initiatives. These events require estimates of liabilities for employee separation payments and related benefits, demolition, environmental cleanup and other costs, which could differ from actual costs incurred.

Pension and postretirement benefits: Assumptions used in the determination of pension income 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 management, reviewed with the plans’ 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

22 MeadWestvaco 2005 Annual Report

are less favorable than assumptions, could increase expense and cash contributions. In accordance with GAAP, actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, affect expense in such future periods.

In 2005, we recorded pretax pension income, before settlements and curtailments, of $67 million compared to $86 million in 2004 and $83 million in 2003. We currently estimate overall pretax pension income in 2006 will decline by approximately $16 million, primarily attributable to asset losses recognized through the market-related value method and a reduction in the discount rate, which will not have any effect on cash flows. The estimate assumes a long-term rate of return on plan assets of 8.5% and a discount rate of 5.5%. If the expected rate of return on plan assets were to change by 0.5%, annual pension income would change by approximately $15 million. Similarly, if the discount rate were to change by 0.5%, annual pension income would change by approximately $18 million.

At December 31, 2005, the aggregate value of pension fund assets had decreased to $3.1 billion from $3.4 billion at December 31, 2004. As a result of the sale of the printing and writing papers business and related forestlands, approximately $303 million of pension assets, and related liabilities of approximately $236 million, for bargained hourly employees were transferred to the buyer in July 2005.

Unrecognized prior service cost and actuarial gains and losses in the retirement and postretirement benefit plans subject to amortization are amortized over the average remaining service, which is about 11 years and eight years, respectively. Effective January 1, 2004, we modified certain postretirement healthcare benefits provided to future retirees. The impact of these changes reduced the postretirement benefit obligation by approximately $68 million, which is being amortized over the remaining life of the eligible employees, which is approximately 24 years.

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.

Tangible assets: We review long-lived assets other than goodwill and indefinite-lived intangible assets for impairment in accordance with SFAS No.144, Accounting for the Impairment or Disposal of Long-lived Assets. The statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review for impairment involves management to predict the estimated cash flows that will be generated by the long-lived asset over its remaining estimated useful life. Considerable judgment must

Financial Review 23

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 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.

Goodwill: Goodwill arises in business combinations when the purchase price of assets acquired exceeds the appraised value. As with tangible and other intangible assets, periodic impairment reviews are required, at least annually, as well as when events or circumstances change. As with its review of impairment of tangible and intangible assets, management uses judgment in assessing goodwill for impairment. We will review the recorded value of our goodwill annually in the fourth quarter or sooner, if events or changes in circumstances indicate that the carrying amount may exceed fair value. The review for impairment involves management to predict the estimated cash flows that will be generated by the long-lived asset over its remaining estimated useful life. Considerable judgment must be exercised in determining future cash flows and their timing and, possibly, choosing business value comparables or selecting discount rates to be used in any value computations.

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 (free on board) shipping point. 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 SFAS No.109, Accounting for Income Taxes, 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.

24 MeadWestvaco 2005 Annual Report

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. While actual results could vary, in management’s judgment, the company has adequate accruals with respect to the ultimate outcome of such unresolved tax matters.

Each quarter, management must 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 its 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 forestland sales gains. 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.

New accounting standards On October 22, 2004, President Bush signed the American Jobs Creation Act of 2004 or the Act. On December 21, 2004, the Financial Accounting Standards Board (FASB) issued two FASB Staff Positions, or FSPs, regarding the accounting implications of the Act related to (1) the deduction for qualified domestic production activities (FSP 109-1) and (2) the one-time tax benefit for the repatriation of foreign earnings (FSP 109-2). The guidance in the FSPs applies to financial statements for periods ending after the date the Act was enacted. The adoption did not have a material impact on the company’s consolidated financial statements.

Financial Review 25

MANAGEMENT’S DISCUSSION AND ANALYSIS

in APB No. 29 for assessing whether the fair value of a nonmonetary asset is determinable within reasonable limits. SFAS No.153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No.153 did not have a material impact on the company’s consolidated financial statements.

In December 2004, the FASB issued SFAS No.123-revised 2004 (SFAS No.123R), Share-Based Payment, which replaces SFAS No.123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No.123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the consolidated statements of operations. The accounting provisions of SFAS No.123R are required to be applied no later than the beginning of the first fiscal year beginning after June 15, 2005. The company adopted SFAS No.123R effective January 1, 2006, using the modified prospective method. The effect of adoption of SFAS No.123R is currently estimated to be an incremental expense of approximately $15 million pretax for 2006. However, the actual share-based compensation expense in 2006 depends on a number of factors, including fair value of awards at the time of grant.

In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No.107, Share Based Payments (SAB No.107). SAB No.107 addresses the interaction between SFAS No.123R and certain SEC rules and regulations and provides the SEC staff’s views regarding the valuation of share-based payment arrangements for public companies. The company intends to follow the interpretive guidance set forth in SAB No.107 during its adoption of SFAS No.123R.

In May 2005, the FASB issued SFAS No.154, Accounting Changes and Error Corrections, which replaces APB Opinions No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements –An Amendment of APB Opinion No. 28. SFAS No.154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, unless impracticable, as the required method for reporting a change in accounting principle and the reporting of a correction of an error and for reporting a change when retrospective application is impracticable. SFAS No.154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, and is required to be adopted by the company in the first quarter of 2006. The adoption of SFAS No.154 is not expected to have an impact on the company’s consolidated financial statements.

26 MeadWestvaco 2005 Annual Report

historical waste, which is associated with products placed on the market on or before August 13, 2005. FSP SFAS No.143-1 is required to be applied to the later of the first reporting period ending after June 8, 2005, or the date of the adoption of the law by the applicable European Union member country. The adoption of FSP SFAS No.143-1 did not have a significant impact on the company’s consolidated financial statements.

There were no other new accounting standards issued in 2005 that had or are expected to have a material impact on the company’s financial position or results of operations.

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 expected from the company’s general and administrative cost reduction initiative; competitive pricing for the company’s products; changes in raw materials pricing; energy and other costs; fluctuations in demand and changes in production capacities; changes to economic growth in the United States and international economies; government policies and regulations, including, but not limited to those affecting the environment and the tobacco industry; adverse results in current or future litigation, currency movements and other risk factors discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2005, 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.

Financial Review 27

/ FINANCIAL STATEMENTS /

CONSOLIDATED STATEMENTS OF OPERATIONS


	Years ended December 31
In millions, except per share data	2005			2004			2003
Net sales	$	6,170		$	6,060		$	5,566
Cost of sales		5,087			4,925			4,593
Selling, general and administrative expenses		756			800			780
Interest expense		208			209			210
Other income, net		(16	)		(197	)		(105	)

Income from continuing operations before income taxes		135			323			88
Income tax provision		(16	)		(99	)		(4	)

Income from continuing operations		119			224			84
Discontinued operations		(91	)		(573	)		(62	)
Cumulative effect of accounting change		—			—			(4	)

Net income (loss)	$	28		$	(349	)	$	18

Income (loss) per share – basic:
Income from continuing operations	$	0.62		$	1.11		$	0.42
Discontinued operations		(0.48	)		(2.84	)		(0.31	)
Cumulative effect of accounting change		—			—			(0.02	)

Net income (loss)	$	0.14		$	(1.73	)	$	0.09

Income (loss) per share – diluted:
Income from continuing operations	$	0.62		$	1.10		$	0.42
Discontinued operations		(0.48	)		(2.82	)		(0.31	)
Cumulative effect of accounting change		—			—			(0.02	)

Net income (loss)	$	0.14		$	(1.72	)	$	0.09

Shares used to compute net income (loss) per share:
Basic		191.7			201.9			200.4
Diluted		192.7			203.6			201.8

The accompanying notes are an integral part of these financial statements.

MeadWestvaco Corporation and consolidated subsidiary companies

28 MeadWestvaco 2005 Annual Report

/ FINANCIAL STATEMENTS /

CONSOLIDATED BALANCE SHEETS


	December 31
In millions, except share and per share data	2005			2004
Assets
Cash and cash equivalents	$	297		$	270
Short-term investments		—			5
Accounts receivable, net		922			845
Inventories		714			735
Other current assets		97			135
Current assets of discontinued operations		—			537

Current assets		2,030			2,527
Property, plant, equipment and forestlands, net		4,487			4,688
Prepaid pension asset		994			1,040
Goodwill		559			557
Other assets		838			834
Noncurrent assets of discontinued operations		—			2,000

	$	8,908		$	11,646

Liabilities and shareholders’ equity
Accounts payable	$	416		$	432
Accrued expenses		613			722
Notes payable and current maturities of long-term obligations		13			234
Current liabilities of discontinued operations		—			257

Current liabilities		1,042			1,645
Long-term debt		2,417			3,282
Other long-term obligations		814			778
Deferred income taxes		1,152			1,470
Noncurrent liabilities of discontinued operations		—			154
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par
Shares authorized: 600,000,000 Shares issued: 181,418,672 (2004 – 203,930,342)		2			2
Additional paid-in capital		3,294			3,952
Retained earnings		243			394
Accumulated other comprehensive loss		(56	)		(31	)

		3,483			4,317

	$	8,908		$	11,646

The accompanying notes are an integral part of these financial statements.

MeadWestvaco Corporation and consolidated subsidiary companies

Financial Review 29

/ FINANCIAL STATEMENTS /

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


In millions	Outstanding shares		Common stock
Balance at December 31, 2002	200.0		$	2
Comprehensive income (loss):
Net income	—			—
Foreign currency translation	—			—
Minimum pension liability, net of taxes	—			—
Net unrealized gain on derivative instruments, net of taxes	—			—
Comprehensive income
Cash dividends	—			—
Exercise of stock options	0.9			—

Balance at December 31, 2003	200.9			2
Comprehensive income (loss):
Net loss	—			—
Acquisitions	—			—
Foreign currency translation	—			—
Minimum pension liability, net of taxes	—			—
Comprehensive loss
Tax benefit on nonqualified stock options	—			—
Cash dividends	—			—
Restricted stock grants issued	0.2			—
Unamortized restricted stock	—			—
Exercise of stock options	2.8			—

Balance at December 31, 2004	203.9			2
Comprehensive income (loss):
Net income	—			—
Foreign currency translation	—			—
Minimum pension liability, net of taxes	—			—
Unrealized gain on derivative instruments, net	—			—
Unrealized loss on investment in debt security, net	—			—
Comprehensive income
Tax benefit on nonqualified stock options	—			—
Cash dividends	—			—
Foreign operations concurrent reporting	—			—
Restricted stock grants issued	0.3			—
Stock repurchased	(23.9	)		—
Share put option	(0.3	)		—
Unamortized restricted stock	—			—
Exercise of stock options	1.4			—

Balance at December 31, 2005	181.4		$	2

The accompanying notes are an integral part of these financial statements.

MeadWestvaco Corporation and consolidated subsidiary companies

30 MeadWestvaco 2005 Annual Report

/ FINANCIAL STATEMENTS /

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, continued


Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
$	3,851		$	1,095		$	(195	)	$	4,753

	—			18			—			18
	—			—			107			107
	—			—			(1	)		(1	)
	—			—			1			1
										125
	—			(184	)		—			(184	)
	19			—			—			19

	3,870			929			(88	)		4,713

	—			(349	)		—			(349	)
	—			—			2			2
	—			—			58			58
	—			—			(3	)		(3	)
										(292	)
	6			—			—			6
	—			(186	)		—			(186	)
	8			—			—			8
	(6	)		—			—			(6	)
	74			—			—			74

	3,952			394			(31	)		4,317

	—			28			—			28
	—			—			(20	)		(20	)
	—			—			2			2
	—			—			2			2
	—			—			(9	)		(9	)
										3
	2			—			—			2
	—			(178	)		—			(178	)
	—			(1	)		—			(1	)
	8			—			—			8
	(701	)		—			—			(701	)
	—			—			—			—
	(3	)		—			—			(3	)
	36			—			—			36

$	3,294		$	243		$	(56	)	$	3,483

Financial Review 31

/ FINANCIAL STATEMENTS /

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years ended December 31
In millions	2005			2004			2003
Cash flows from operating activities
Net income (loss)	$	28		$	(349	)	$	18
Discontinued operations		91			573			62
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		491			489			479
Deferred income taxes		(17	)		58			(8	)
Gain on sales of assets		(56	)		(165	)		(83	)
Loss on early retirement of long-term debt		90			1			26
Pension income before settlements and curtailments		(67	)		(86	)		(83	)
Impairment of other long-lived assets		10			35			15
Cumulative effect of accounting change		—			—			4
Changes in working capital, excluding the effects of acquisitions and dispositions		(271	)		78			(62	)
Other, net		6			(1	)		11

Net cash provided by operating activities of continuing operations		305			633			379
Net cash provided by (used in) discontinued operations		(78	)		289			91

Net cash provided by operating activities		227			922			470
Cash flows from investing activities
Additions to property, plant and equipment		(305	)		(317	)		(309	)
Payments for acquired businesses, net of cash acquired		(5	)		(101	)		(56	)
Proceeds from sale of a business		2,186			—			—
Proceeds from sales of assets		109			281			224
Purchase of short-term investments		—			(701	)		(40	)
Sale of short-term investments		5			706			30
Other		(7	)		(8	)		(12	)
Discontinued operations		2			(67	)		68

Net cash provided by (used in) investing activities		1,985			(207	)		(95	)

The accompanying notes are an integral part of these financial statements.

MeadWestvaco Corporation and consolidated subsidiary companies

32 MeadWestvaco 2005 Annual Report

/ FINANCIAL STATEMENTS /

CONSOLIDATED STATEMENTS OF CASH FLOWS, continued


	Years ended December 31
In millions	2005			2004			2003
Cash flows from financing activities
Proceeds from issuance of long-term debt		1			2			331
Repayment of long-term debt		(1,133	)		(525	)		(709	)
Stock repurchased and put option		(711	)		—			—
Dividends paid		(178	)		(186	)		(184	)
Notes payable, net		(19	)		(20	)		—
Changes in book overdrafts		(14	)		22			(7	)
Proceeds from issuance of common stock and exercises of stock options		36			74			19
Discontinued operations		(163	)		(39	)		3

Net cash (used in) financing activities		(2,181	)		(672	)		(547	)
Effect of exchange rate changes on cash		(4	)		12			15

Increase (decrease) in cash and cash equivalents		27			55			(157	)
Cash and cash equivalents:
At beginning of period		270			215			372

At end of period	$	297		$	270		$	215

Financial Review 33

NOTES TO FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES // Basis of consolidation and preparation of financial statements: MeadWestvaco Corporation is a Delaware corporation formed for the purpose of consummating the business combination of The Mead Corporation and Westvaco Corporation, which was completed on January 29, 2002. Unless otherwise indicated or the context otherwise requires, the terms “MeadWestvaco” or the “company” refer to MeadWestvaco Corporation and its consolidated subsidiaries.

The consolidated financial statements include all majority-owned or controlled entities, and all intercompany transactions are eliminated. Certain foreign entities report results using a November 30 yearend. In 2005, a number of these entities converted to a reporting yearend of December 31. The December activity associated with these entities was recorded directly to retained earnings.

Discontinued operations: Effective April 30, 2005, the company completed the previously announced sale of its printing and writing papers business, including its coated and carbonless papers operations consisting of five mills, and approximately 900,000 acres of related forestlands to an affiliate of Cerberus Management LLC, a private investment firm. See Note P for further information. In the quarter ended March 31, 2005, the company began reporting the printing and writing papers business as a discontinued operation. Prior periods have been presented on a comparable basis.

Estimates and assumptions: The preparation of financial statements in accordance with generally accepted accounting principles 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.

Translation of foreign currencies: The local currency is the functional currency for substantially all of the company’s significant operations outside the United States. The assets and liabilities of the company’s foreign subsidiaries are translated into U.S. dollars using period-end exchange rates, and adjustments resulting from these financial statement translations are included in accumulated other comprehensive income or loss in the consolidated balance sheets. Revenues and expenses are translated at average rates prevailing during the period.

Cash equivalents: Highly liquid securities with an original maturity of three months or less are considered to be cash equivalents.

Accounts receivable and allowance for doubtful accounts: Trade accounts receivable are recorded at the invoice amount and do not bear interest. The allowance for doubtful accounts is the company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The company determines the allowance based on historical write-off experience

34 MeadWestvaco 2005 Annual Report

by industry. The company reviews the allowance for doubtful accounts monthly. Past due balances over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.

Inventories: Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for substantially all raw materials, finished goods and production materials of U.S. manufacturing operations. Cost of all other inventories, including stores and supplies inventories and inventories of non-U.S. manufacturing operations, is determined by the first-in, first-out (FIFO) or average cost methods.

Property, plant, equipment and forestlands: Owned assets are recorded at cost. Also included in the cost of these assets is interest on funds borrowed during the construction period. When assets are sold, retired or disposed of, their cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in cost of sales. Gains on the sales of forestland are recorded in other income, net. Costs of renewals and betterments of properties are capitalized; costs of maintenance and repairs are charged to expense. Costs of reforestation of forestlands are capitalized. These costs include the costs of seedlings, site preparation, planting of seedlings, early-stage fertilization and the cost of permanent roads.

Depreciation and depletion: The cost of plant and equipment is depreciated, utilizing the straight-line method, over the estimated useful lives of the assets, which range from 20 to 40 years for buildings and five to 30 years for machinery and equipment. Timber is depleted as timber is cut at rates determined annually based on the relationship of undepleted timber costs to the estimated volume of recoverable timber. Timber volumes used in calculating depletion rates are based upon merchantable timber volumes at a specific point in time. The depletion rates for company-owned land do not include an estimate of either future reforestation costs associated with a stand’s final harvest or future volume in connection with replanting of a stand subsequent to the final harvest.

Impairment of long-lived assets: The company periodically evaluates whether current events or circumstances indicate that the carrying value of its long-lived assets, including intangible assets, to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived assets, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists. If an asset 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. The company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.

Financial Review 35

NOTES TO FINANCIAL STATEMENTS

Goodwill: The company has classified as goodwill the excess of the acquisition cost over the fair values of the net tangible and intangible assets of businesses acquired. The company has determined its reporting units to be components within its Packaging, Consumer and Office Products and Specialty Chemicals segments. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, goodwill was tested for impairment upon adoption of the standard and is required to be tested at least annually thereafter. SFAS No. 142 requires that goodwill be tested for impairment using a two-step process. The first step is to identify a potential impairment and the second step measures the amount of the impairment loss, if any. Goodwill is deemed to be impaired if the carrying amount of a reporting unit’s goodwill exceeds its estimated fair value. See Note C and Note P for further information.

Other assets: Capitalized software, equipment leased to customers and other intangible assets are included in other assets. Capitalized software and other intangibles are amortized using the straight-line method over their estimated useful lives of three to 20 years. Equipment leased to customers is amortized using the sum-of-the-years-digits method over the estimated useful life of the machine, generally 10 years. Revenue is recognized for the leased equipment on a straight-line basis over the life of the lease and is included in net sales of the company. The company records software development costs in accordance with the American Institute of Certified Public Accountants’ Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.

Financial instruments: The company has, where appropriate, estimated the fair value of financial instruments. These fair value amounts may be significantly affected by the assumptions used, including the discount rate and estimates of cash flow. Accordingly, the estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange. Where these estimates approximate carrying value, no separate disclosure of fair value is shown. The company utilizes well-defined financial derivatives in the normal course of its operations as a means to manage some of its interest rate and foreign currency risks. For those derivative instruments, the company has formally designated each as a hedge of specific and well-defined risks. See Note G for further information.

Investment in debt securities: Investments in debt securities are classified as either held to maturity, trading or available-for-sale in accordance with SFAS No. 115, Accounting for Investments in Debt and Equity Securities, as determined by management on an annual basis. Those investments classified as trading or available-for-sale securities shall be measured at fair value in the balance sheet. Unrealized gains or losses on trading securities are recorded to the statement of operations. Unrealized gains or losses on available-for-sale securities are

36 MeadWestvaco 2005 Annual Report

reported in other comprehensive income (loss) unless it is determined that a loss exists and that loss is determined as “other-than-temporary” in accordance with Staff Positions No. 115-1 and No. 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.

Environmental and legal liabilities: Environmental expenditures that increase useful lives of assets are capitalized, while other environmental expenditures are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. The company records accruals for other legal contingencies when 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. The company recognizes insurance recoveries when collection is reasonably assured. See Note O for further information.

Landfills: Effective January 1, 2003, the company adopted SFAS No. 143, Accounting for Asset Retirement Obligations, which requires that an obligation associated with the retirement of a tangible long-lived asset be recognized as a liability when incurred. Subsequent to initial measurement, an entity recognizes changes in the amount of the liability resulting from the passage of time and revisions to either the timing or amount of estimated cash flows. The adoption of this standard resulted in a cumulative adjustment of $4 million during the year ended December 31, 2003.

Conditional asset retirement obligations: Effective December 31, 2005, the company adopted FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations – an Interpretation of FASB Statement No. 143 (FIN No. 47), which clarifies that the term conditional asset retirement obligation, as used in SFAS No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Thus, the timing and/or method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The company has certain conditional and unconditional asset retirement obligations associated with owned or leased property, plant and equipment, including leases, surface impoundments, asbestos and water supply wells. Management does not have sufficient information to estimate the fair value of certain obligations, primarily associated with surface impoundments and asbestos, because the settlement date or range of potential settlement dates have not been specified and information is not available to apply expected present value techniques. The adoption of this interpretation did not have a material impact on the company’s consolidated financial statements.

Financial Review 37

NOTES TO FINANCIAL STATEMENTS

Revenue recognition: The company recognizes revenues at the point when title and the risk of ownership passes to the customer. Substantially all of the company’s 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 where shipping terms are FOB (free 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. The company provides 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. 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.

Shipping and handling costs: Shipping and handling costs are classified as a component of cost of sales. Amounts billed to a customer in a sales transaction related to shipping and handling are classified as revenue.

Research and development: Included in cost of sales and selling, general and administrative expense are expenditures for research and development of approximately $50 million for the year ended December 31, 2005, and approximately $55 million for each of the years ended December 31, 2004 and 2003, which were expensed as incurred.

Income taxes: Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the enacted tax rates in effect for the years the differences are expected to reverse. The company evaluates the need for a deferred tax asset valuation allowance by assessing whether it is more likely than not that it will realize its deferred tax assets in the future. For tax-advantaged transactions, the tax benefits are recognized when it is probable that the tax position will be sustained. Otherwise, a tax contingency is recorded and classified in other long-term liabilities.

Stock options: The company measures compensation cost for stock options issued to employees and directors using the intrinsic value-based method of accounting in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The company applies APB Opinion No. 25, as amended, in accounting for its plans. The company adopted the disclosure requirements of SFAS No.148, Accounting for Stock-Based Compensation – Transition and Disclosure. If compensation cost for the company’s

38 MeadWestvaco 2005 Annual Report

stock options had been determined based on the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation, the company’s net income and net income per share would have been reduced to the pro forma amounts as follows:


	Years ended December 31
In millions, except per share data	2005		2004			2003
Net income (loss) – as reported	$	28	$	(349	)	$	18
Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effect		3		1			—
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect		11		8			5

Pro forma net income (loss)	$	20	$	(356	)	$	13

Net income (loss) per share – basic
As reported	$	0.14	$	(1.73	)	$	0.09
Pro forma		0.11		(1.77	)		0.06
Net income (loss) per share – diluted
As reported	$	0.14	$	(1.72	)	$	0.09
Pro forma		0.11		(1.76	)		0.06

Income (loss) per share: Basic net income (loss) per share for all the periods presented has been calculated using the weighted average shares outstanding. In computing diluted net income (loss) per share, incremental shares issuable upon the assumed exercise of stock options and other stock-based compensation awards have been added to the weighted average shares outstanding, if dilutive. For the years ended December 31, 2005, 2004 and 2003, 8.0 million, 7.3 million and 15.8 million options, respectively, were excluded from the calculation of weighted average shares, as the exercise price per share was greater than the average market value, resulting in an antidilutive effect on diluted earnings per share.

Related party transactions: The company has certain related party transactions in the ordinary course of business that are insignificant and the terms of which are no more or less favorable to the company than the terms of any other arms-length transaction.

Reclassification: Certain prior periods’ amounts have been reclassified to conform with the current presentation.

Financial Review 39

NOTES TO FINANCIAL STATEMENTS

New accounting standards On October 22, 2004, President Bush signed the American Jobs Creation Act of 2004 or the Act. On December 21, 2004, the Financial Accounting Standards Board (FASB) issued two FASB Staff Positions, or FSPs regarding the accounting implications of the Act related to (1) the deduction for qualified domestic production activities (FSP 109-1) and (2) the one-time tax benefit for the repatriation of foreign earnings (FSP 109-2). The guidance in the FSPs applies to financial statements for periods ending after the date the Act was enacted. The adoption did not have a material impact on the company’s consolidated financial statements.

In December 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 153, Exchanges of Nonmonetary Assets – An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (APB No. 29), (SFAS No. 153). SFAS No. 153 is based on the principle that nonmonetary asset exchanges should be recorded and measured at the fair value of the assets exchanged, with certain exceptions. This standard requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (i) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (ii) the transactions lack commercial substance (as defined). In addition, the FASB decided to retain the guidance in APB No. 29 for assessing whether the fair value of a nonmonetary asset is determinable within reasonable limits. SFAS No.153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 did not have a material impact on the company’s consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123-revised 2004 (SFAS No. 123R), Share-Based Payment, which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the consolidated statements of operations. The accounting provisions of SFAS No. 123R are required to be applied no later than the beginning of the first fiscal year beginning after June 15, 2005. The company adopted SFAS No. 123R effective January 1, 2006, using the modified prospective method. The effect of adoption of SFAS No. 123R is currently estimated to be an incremental expense of approximately $15 million pretax for 2006. However, the actual share-based compensation expense in 2006 depends on a number of factors, including fair value of awards at the time of grant.

40 MeadWestvaco 2005 Annual Report

In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107, Share Based Payments (SAB No. 107). SAB No. 107 addresses the interaction between SFAS No. 123R and certain SEC rules and regulations and provides the SEC staff ‘s views regarding the valuation of share-based payment arrangements for public companies. The company intends to follow the interpretive guidance set forth in SAB No. 107 during its adoption of SFAS No. 123R.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements – An Amendment of APB Opinion No. 28. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, unless impracticable, as the required method for reporting a change in accounting principle and the reporting of a correction of an error and for reporting a change when retrospective application is impracticable. SFAS No.154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, and is required to be adopted by the company in the first quarter of 2006. The adoption of SFAS No. 154 is not expected to have an impact on the company’s consolidated financial statements.

In June 2005, the FASB issued FSP SFAS No. 143-1, Accounting for Electronic Equipment Waste Obligations, which addresses the accounting for obligations associated with Directive 2002/96/EC, Waste Electrical and Electronic Equipment (the “Directive”), which was adopted by the European Union. FSP SFAS No.143-1 provides guidance on how to account for historical waste, which is associated with products placed on the market on or before August 13, 2005. FSP SFAS No.143-1 is required to be applied to the later of the first reporting period ending after June 8, 2005, or the date of the adoption of the law by the applicable European Union member country. The adoption of FSP SFAS No. 143-1 did not have a significant impact on the company’s consolidated financial statements.

There were no other new accounting standards issued in 2005 that had or are expected to have a material impact on the company’s financial position or results of operations.

Financial Review 41

NOTES TO FINANCIAL STATEMENTS

A.	CURRENT ASSETS

Cash equivalents of $162 million and $129 million at December 31, 2005 and 2004, respectively, are valued at cost, which approximates market value. In addition to the cash equivalents, the company had short-term investments of $5 million at December 31, 2004, which approximated market value. The company had no short-term investments at December 31, 2005. Total purchases and sales of these short-term investments are shown separately in the consolidated statements of cash flows. Trade receivables have been reduced by an allowance for doubtful accounts of $18 million and $17 million at December 31, 2005 and 2004, respectively. Receivables also include $114 million and $64 million from sources other than trade at December 31, 2005 and 2004, respectively. Inventories at December 31, 2005 and 2004, are comprised of:


	December 31
In millions	2005		2004
Raw materials	$	170	$	172
Production materials, stores and supplies		101		95
Finished and in-process goods		443		468

	$	714	$	735

Approximately 66% of inventories at December 31, 2005 and 2004, are valued using the LIFO method. If inventories had been valued at current cost, they would have been $813 million and $798 million at December 31, 2005 and 2004, respectively. The effect of a 2005 LIFO layer decrement was not significant to the company’s results of operations.

42 MeadWestvaco 2005 Annual Report

B.	PROPERTY, PLANT, EQUIPMENT AND FORESTLANDS

Depreciation and depletion expense was $404 million, $409 million and $412 million, for the years ended December 31, 2005, 2004 and 2003, respectively.


	December 31
In millions	2005			2004
Land and land improvements	$	281		$	301
Buildings		903			917
Machinery and other		5,799			5,786

		6,983			7,004
Less: accumulated depreciation		(3,167	)		(2,964	)

		3,816			4,040
Forestlands		490			496
Construction in progress		181			152

	$	4,487		$	4,688

C.	GOODWILL AND OTHER INTANGIBLE ASSETS

Unless otherwise deemed necessary by changes in circumstances, the company performs its annual impairment review during the fourth quarter of each year.

In the second quarter of 2005, the company sold its printing and writing papers business to an affiliate of Cerberus Management LLC. The net proceeds from the sale were less than the carrying value of the net assets sold, resulting in an impairment of all goodwill related to those operations ($238 million, or $1.18 per share), which was recorded in 2004. The goodwill impairment charge for 2004 is included in discontinued operations. See Note P for additional details associated with the sale of the printing and writing papers business. No additional goodwill impairment charge was necessary as a result of the 2005 annual impairment review or the 2004 or 2003 annual impairment reviews.

As of December 31, 2005, goodwill allocated to each of the company’s business segments was $307 million to Packaging, $243 million to Consumer and Office Products, and $9 million to Specialty Chemicals.

Financial Review 43

NOTES TO FINANCIAL STATEMENTS

The changes in the carrying amount of goodwill for the years ended December 31 are as follows:


In millions	2005		2004
Beginning balance	$	557	$	750
Acquired goodwill¹		—		48
Adjustments²		2		(3	)
Impairments³		—		(238	)

Ending balance	$	559	$	557

¹	In 2004, amount represents goodwill primarily associated with the acquisition of the assets of Tilibra and Aries Packaging.

²	In 2005 and 2004, amounts represent adjustments to tax contingencies and foreign currency translation.

³	In 2004, amount reflects the impairment charge, recorded in discontinued operations, related to the sale of the printing and writing papers business.

The following table summarizes intangible assets subject to amortization included in other assets:


	December 31, 2005				December 31, 2004
In millions	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Intangible assets, subject to amortization:
Trademarks and trade names	$	207	$	42	$	201	$	31
Customer contracts and lists		102		32		102		23
Patents		39		20		41		16
Other – primarily licensing rights		35		10		28		6

	$	383	$	104	$	372	$	76

The company recorded amortization expense of $33 million, $30 million and $25 million for the years ended December 31, 2005, 2004 and 2003, respectively, relating to intangible assets subject to amortization.

Based on the current value of intangible assets subject to amortization, the estimated amortization expense for each of the next five years are as follows: 2006 – $33 million, 2007 – $31 million, 2008 – $27 million, 2009 – $26 million, and 2010 – $25 million. As acquisitions and dispositions occur in the future, these amounts may vary.

44 MeadWestvaco 2005 Annual Report

D.	OTHER ASSETS


	December 31
In millions	2005		2004
Identifiable intangibles	$	279	$	296
Cash surrender value of life insurance, net		229		230
Capitalized software, net		60		55
Equipment leased to customers		86		97
Available-for-sale securities		70		—
Other miscellaneous		114		156

	$	838	$	834

As part of the consideration from the sale of the printing and writing papers business, the company received $100 million in aggregate principal amount of senior unsecured payable-in-kind (PIK) promissory notes (fair value of $75 million at date of issuance) of a subsidiary (NewPage Corporation or “NewPage”) of the purchaser. These securities are floating rate notes that bear interest at a rate of six-month LIBOR (London Interbank Offered Rate), at the interest reset date, plus 700 basis points (11.45% at December 31, 2005), which interest shall be payable-in-kind until November 1, 2013, and shall compound semi-annually. The PIK notes are classified as available-for-sale securities and must be repaid to the company by the purchaser before there are any distributions made to the equity holders of the purchaser. During the second half of 2005, the company recorded a net unrealized loss of $9 million on these PIK notes. This net unrealized loss is included in other comprehensive income (OCI). Management concluded that the decline in the value of the PIK notes at December 31, 2005, is not “other-than-temporary.” This conclusion was based upon a number of factors including: length and magnitude of the decline in fair value; volatility in fair value; financial condition of NewPage; and ability and intent to hold the security until maturity. At each successive quarter, management will review all available evidence to determine whether or not the decline in fair value, which may or may not exist at that date, is other-than-temporary.

Financial Review 45

NOTES TO FINANCIAL STATEMENTS

E.	ACCOUNTS PAYABLE AND ACCRUED EXPENSES


	December 31
In millions	2005		2004
Accounts payable:
Trade	$	374	$	376
Other		42		56

	$	416	$	432

Accrued expenses:
Taxes, other than income	$	35	$	35
Interest		60		69
Payroll and employee benefit costs		231		294
Accrued rebates and allowances		126		130
Environmental and litigation		35		32
Income taxes payable		13		35
Other		113		127

	$	613	$	722

F.	LONG-TERM DEBT


	December 31
In millions	2005			2004
Notes, rates from 2.75% to 8.40%, due 2009-2012	$	679		$	1,343
Debentures, rates from 6.80% to 9.75%, due 2017-2047		1,227			1,552
Sinking Fund Debentures, rates from 7.50% to 7.65%, due 2008-2027		299			299
Medium-term notes		6			6
Pollution Control Revenue Bonds:
Rate 6.35%, due 2026		6			16
Industrial Revenue Bonds:
Rate 7.67%, due 2027		80			205
Floating rate, due 2009		—			17
Other bank term loans		58			58
Capital lease obligations		61			110
Notes payable and other		14			55

		2,430			3,661
Less: amounts due within one year		(13	)		(234	)
Less: long-term debt of discontinued operations		—			(145	)

Long-term debt	$	2,417		$	3,282

46 MeadWestvaco 2005 Annual Report

Outstanding debt maturing in the next five years is (in millions): 2006 – $13, 2007 – $2, 2008 – $16, 2009 – $66, and 2010 – $15.

Capital lease obligations consist primarily of Industrial Development Revenue Bonds and Notes with an average effective rate of 6.3%.

In December 2005, MeadWestvaco amended its bank credit agreement. The agreement was amended on December 1, 2005, to reduce the credit facility from $1 billion to $750 million and to extend the maturity date to December 1, 2010. The company’s credit facility was unused as of December 31, 2005. Borrowings under the agreement can be unsecured domestic or eurodollar notes and at rates approximating prime or the London Interbank Offered Rate (LIBOR) at the company’s option. The $750 million credit 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 at December 31, 2005.

The company utilized cash proceeds from the sale of its printing and writing papers business to repay approximately $1 billion of debt in 2005. The charges incurred to retire the debt in 2005 were approximately $90 million, compared to insignificant debt retirement fees in 2004 and charges of $26 million incurred in 2003.

At December 31, 2005, the book value of financial instruments included in long-term debt was $2.4 billion, and the fair value was estimated to be $2.7 billion. At December 31, 2004, the book value of financial instruments included in long-term debt was $3.3 billion, and the fair value was estimated to be $3.8 billion. The difference between book value and market value is derived from the difference between the period-end market interest rate and the stated rate for the company’s fixed-rate, long-term debt. The company has estimated the fair value of financial instruments based upon quoted market prices for the same or similar issues or on the current interest rates available to the company for debt of similar terms and maturities.

Financial Review 47

NOTES TO FINANCIAL STATEMENTS

G.	FINANCIAL INSTRUMENTS

The company uses various derivative financial instruments as part of an overall strategy to manage exposure to market risks associated with interest rate and foreign currency exchange rate fluctuations. The company does not hold or issue derivative financial instruments for trading purposes. The risk of loss to the company in the event of nonperformance by any counterparty under derivative financial instrument agreements is not considered significant by management. Although the derivative financial instruments expose the company to market risk, fluctuations in the value of the derivatives are mitigated by expected offsetting fluctuations in the matched instruments. All derivative instruments are required to be recorded on the consolidated balance sheets as assets or liabilities, measured at fair value. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash-flow hedge, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income (loss) and is recognized in the statements of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash-flow hedges and financial instruments not designated as hedges are recognized in earnings.

Interest rate risk The company utilizes interest-rate swap agreements to manage some of its interest-rate risk on its debt instruments, including the reset of interest rates on variable-rate debt. As part of an overall strategy to maintain an acceptable level of exposure to interest-rate fluctuations, the company has developed a targeted mix of fixed-rate and variable-rate debt. To efficiently manage this mix, the company may utilize interest-rate swap agreements. The company has interest-rate swaps designated as fair-value hedges of certain fixed-rate borrowings. There were no interest-rate swaps designated as cash-flow hedges at December 31, 2005 and 2004. The maturity dates on these swaps match the maturity dates of the underlying debt. During the years ended December 31, 2005, 2004 and 2003, the interest-rate swaps were an effective hedge and, therefore, required no charge to earnings due to ineffectiveness under SFAS No. 133. Details on the interest-rate swaps are included below:


	December 31
In millions	2005		2004
Notional amount	$	475	$	675
Fair value		2		26
Carrying amount		1		2
Net unrecognized gain		1		24

48 MeadWestvaco 2005 Annual Report

Foreign currency risk The company uses foreign currency forward contracts to manage some of the foreign currency exchange risks associated with certain short-term foreign intercompany loans, some foreign currency sales and purchases of its international operations, and some foreign sales of its USA operations. Using such forward contracts, the company receives or pays the difference between the contracted forward rate and the exchange rate at the settlement date. These contracts are used to hedge the variability of exchange rates on the company’s cash flows. The forward contracts related to certain intercompany loans are short term in duration and are not designated as hedging instruments under SFAS No. 133. Other forward contracts, which are for terms of up to one year, are designated as cash-flow hedges under SFAS No. 133. Information related to the company’s foreign currency forward contracts is as follows:

Intercompany loans, without hedge accounting:

Foreign currency sales and purchases, with hedge accounting:


	December 31
In millions	2005		2004
Notional amount	$	106	—
Estimated amount to be recognized in results of operations within the next year		2	—
Maximum remaining term (in years) of existing hedges		1	—


	Years ended December 31
In millions	2005		2004	2003
Net unrealized gains in accumulated other comprehensive income (loss)	$	2	—	—
Net gains reclassified to results of operations		4	—	—
Amount of gain or loss recognized in results of operations due to the probability that forecasted transactions will not occur		—	—	—

Financial Review 49

NOTES TO FINANCIAL STATEMENTS

H.	LEASING ACTIVITIES AND OTHER COMMITMENTS

The company leases a variety of assets for use in its operations. Leases for administrative offices, converting plants and storage facilities generally contain options, which allow the company to extend lease terms for periods up to 25 years or to purchase the properties. Certain leases provide for escalation of the lease payments as maintenance costs and taxes increase. Minimum rental payments under operating leases that have noncancellable lease terms in excess of 12 months and under capital leases are as follows:


In millions	Operating leases		Capital leases
2006	$	58	$	5
2007		37		4
2008		24		4
2009		19		5
2010		14		3
Later years		35		146

Minimum lease payments	$	187		167

Less: amounts representing interest				(106	)

Capital lease obligations			$	61

Rental expense under operating leases was $75 million, $86 million and $91 million for the years ended December 31, 2005, 2004 and 2003, respectively.

I.	SHAREHOLDERS’ EQUITY

The value included in common stock at December 31, 2005 and 2004, reflects the outstanding shares of common stock at the $0.01 par value per share.

Pursuant to the company’s Annual and Long-Term Incentive Plan and the MeadWestvaco Corporation Restricted Stock Plan, the company granted approximately 280,000 shares of performance-based restricted common stock to certain key executives in February 2005. These shares have been accounted for under the guidance of APB No. 25, Accounting for Stock Issued to Employees, and FIN No.44, Accounting for Certain Transactions involving Stock Compensation. The total compensation expense is being recorded over the shares’ three-year vesting period. Under the plans, the owners of the stock are entitled to voting rights and to receive dividends, but will forfeit the stock if the individual holder separates from the company during the three-year vesting period or if predetermined goals are not accomplished relative to return on invested capital, revenue from new products, total procurement savings and reduction in selling, general and administrative expenses.

50 MeadWestvaco 2005 Annual Report

During the year ended December 31, 2005, approximately $700 million, of the approximately $2.2 billion in proceeds from the sale of the company’s printing and writing papers business, was used to repurchase a total of almost 24 million, or 12%, of the company’s outstanding common shares. The repurchased shares, upon retirement, were recorded as a reduction of common stock and additional paid-in capital pursuant to the regulations of the State of Delaware, the state of incorporation, and the approval by the company’s Board of Directors.

During the second half of 2005, the company recorded a net unrealized loss of $9 million on the PIK notes received as part of the consideration from the sale of the printing and writing papers business. This net unrealized loss is included in other comprehensive income (loss). See Note D for further discussion.

The components of accumulated other comprehensive income (loss) for 2005 and 2004 are as follows:


	December 31
In millions	2005			2004
Foreign currency translation	$	(39	)	$	(19	)
Minimum pension liability		(10	)		(12	)
Unrealized loss on investment in debt security		(9	)		—
Unrealized gain on derivative instruments		2			—

	$	(56	)	$	(31	)

At December 31, 2005, there were approximately 181 million preferred stock purchase rights outstanding, each representing the right to purchase 1/100th of a share of Series A Junior Participating Preferred Stock for an exercise price of $150. Pursuant to a Rights Agreement approved by the company’s Board of Directors in 2002, in the event a person or group were to acquire a 15% or greater position in the company, each right would become exercisable for 1/100th of a share of preferred stock which would entitle its holder (other than the acquirer) to buy that number of shares of common stock of MeadWestvaco which, at the time of the 15% acquisition, had a market value of two times the exercise price of the rights. If, after the rights have been triggered, an acquiring company were to merge or otherwise combine with the company or MeadWestvaco were to sell 50% or more of its assets or earning power, each right would entitle its holder (other than the acquirer) to buy that number of shares of common stock of the acquiring company which, at the time of such transaction, would have a market value of two times the exercise price of the rights. The rights have no effect on earnings per share until they become exercisable. The rights expire in December 2012. At December 31, 2005, there were authorized and available for issue 30 million shares of preferred stock, par value $0.01 per share, of which six million shares were designated as Series A Junior Participating Preferred Stock and reserved for issuance upon exercise of the rights.

Financial Review 51

NOTES TO FINANCIAL STATEMENTS

Dividends declared were $0.92 per share in each of the years ended December 31, 2005, 2004 and 2003.

The company had an original obligation to the former owner of a subsidiary to buy back approximately 1.6 million shares (share put) of MeadWestvaco stock issued as part of the purchase price at a fixed rate; the value of this share repurchase approximated $58 million. During the fourth quarter of 2005, the company purchased and retired approximately 300,000 of these shares for approximately $11 million. At December 31, 2005, the remaining obligation of approximately $47 million was recorded in other long-term obligations. In February 2006, the company repurchased and retired the remaining 1.3 million shares for approximately $47 million.

J.	STOCK OPTION PLANS

Officers and key employees have been granted stock options under various stock-based compensation plans, all of which have been approved by the shareholders. At December 31, 2005, MeadWestvaco had five stock option plans. There are 28 million shares reserved under the 1991 and 1996 Stock Option Plans, the 1995 Salaried Employee Stock Incentive Plan, the 1999 Salaried Employee Stock Incentive Plan and the 2005 Performance Incentive Plan for the granting of stock options, stock appreciation rights, restricted stock and restricted stock units to key employees. Grants of stock options and other stock-based compensation awards are approved by the Compensation and Organization Development Committee of the Board of Directors. Approximately 900,000 options were issued in February 2006, which represents the majority of the options that will be granted under these plans in 2006. The exercise price of all options equals the market price of the company’s stock on the date of grant. Under certain employee plans, stock options may be granted with or without stock appreciation rights or limited stock appreciation rights, which are exercisable upon the occurrence of certain events related to changes in corporate control and are exercisable after a period of six months to three years and expire not later than 10 years from the date of grant. Granting of stock appreciation rights is generally limited to employees of the company that are located in countries where the issuance of stock options is not advantageous.

Approximately 700,000 service and performance based restricted stock units were issued in February 2006 under the 2005 Performance Incentive Plan. This award is subject to a three-year vesting restriction, expiring on the third anniversary of the grant date and the satisfaction of performance and service objectives.

At December 31, 2005, the company had one stock option plan for the granting of up to approximately 364,000 stock options to outside directors. There were no options granted from this plan in 2005.

Options to purchase 1.3 million shares issued under the 1996 Stock Option Plan are accompanied by a feature that allows option holders, who exercise their stock options and hold the common shares they received at

52 MeadWestvaco 2005 Annual Report

exercise, to receive an additional stock option grant with an exercise price at the then-current market price. Options granted with this feature are accounted for as a fixed award.

Pursuant to the MeadWestvaco Corporation Restricted Stock Plan, restricted common shares may be issued to certain employees and to directors who are not officers or employees of the company. Restricted stock, if any, issued to directors is expensed when awarded. Other than any annual grants to directors, restricted stock is issued from the plan as payment under the company’s incentive compensation plan. The incentive compensation under this plan is expensed, as earned, and paid either annually or after a specified time period with a combination of cash and restricted stock. The number of restricted shares awarded to individual participants is based upon the portion of the incentive compensation liability payable in restricted stock divided by the company’s stock price at the date of grant. During 2005 and 2004, there were 281,420 and 245,500 shares of restricted stock granted under this plan, respectively, with a vesting period of three years, and as of December 31, 2005, 519,870 of these shares of restricted stock were issued and outstanding.

The following table summarizes stock option activity in the plans:


Shares, in thousands	Options		Weighted average exercise price
Outstanding at December 31, 2002	17,580		$	28.82
Granted	2,216			23.99
Exercised	(943	)		22.16
Cancelled	(618	)		28.21

Outstanding at December 31, 2003	18,235			28.60
Granted	1,095			28.62
Exercised	(2,816	)		26.72
Cancelled	(484	)		28.53

Outstanding at December 31, 2004	16,030			28.92
Granted	1,661			30.19
Exercised	(1,471	)		26.51
Cancelled	(980	)		29.30

Outstanding at December 31, 2005	15,240			29.27

Financial Review 53

NOTES TO FINANCIAL STATEMENTS

The following table shows various information about stock options outstanding at December 31, 2005:


	Range of exercise prices
Shares, in thousands	$18.91- $ 27.14		$27.20- $ 31.75		$32.99- $ 41.84		Total
Number outstanding		2,743		10,577		1,920		15,240
Weighted average price	$	24.85	$	29.63	$	33.56	$	29.27
Weighted average remaining life (in years)		5.37		4.30		2.16		4.23
Number exercisable		2,251		8,434		1,920		12,605
Weighted average price	$	25.04	$	29.60	$	33.56	$	29.39

There were 12.7 million and 2.1 million shares available for grant as of December 31, 2005 and 2004, respectively. At December 31, 2005, approximately 19,000 outstanding options had limited stock appreciation rights and approximately 227,400 stock appreciation rights were outstanding. The company measures compensation expense related to the stock appreciation rights at the end of each period. The amount by which the quoted market value of the shares of the company’s stock covered by a grant exceeds the option price specified under the plan is charged to expense over the periods the employee performs the related services. Changes in the quoted market value are reflected as an adjustment of accrued compensation and compensation expense in the periods in which the changes occur. For all periods presented, the expenses related to stock appreciation rights were not material. There were no exercises of stock appreciation rights for the periods presented.

The company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, as amended, in accounting for its plans. Assumptions used to calculate the pro forma effects of option grants were as follows (see Summary of Significant Accounting Policies for pro forma disclosures):


	Years ended December 31
	2005			2004			2003
Weighted average fair value of options granted during the period using a binomial option pricing model	$	8.51		$	7.68		$	6.84
Weighted average assumptions used for grants:
Expected dividend yield		3.05	%		3.21	%		3.83	%
Expected volatility		32	%		32	%		36	%
Risk-free interest rate		3.98	%		3.30	%		3.27	%
Expected life of option (in years)		6			6			6

54 MeadWestvaco 2005 Annual Report

K.	EMPLOYEE RETIREMENT, POSTRETIREMENT AND POST EMPLOYMENT BENEFITS

Retirement plans MeadWestvaco provides retirement benefits for substantially all U.S. and certain non-U.S. employees under several noncontributory trusteed plans and also provides benefits to employees whose retirement benefits exceed maximum amounts permitted by current tax law under unfunded benefit plans. Benefits are based on a final average pay formula for the salaried plans and a unit benefit formula for the bargained hourly plans. Prior service costs are amortized on a straight-line basis over the average remaining service period for active employees. Unrecognized prior service cost and actuarial gains and losses in the retirement benefit plans subject to amortization are amortized over the average remaining service, which is about 11 years. Contributions are made to the funded plans in accordance with ERISA requirements.

Net periodic pension (income)/cost relating to employee retirement benefits was $48 million, $(36) million and $(64) million for the years ended December 31, 2005, 2004 and 2003, respectively. In accordance with the provisions of SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, settlements, curtailments and termination benefits associated with restructuring activities were recorded. Net pension income reflects cumulative favorable investment returns on plan assets. The components of net pension (income)/cost for each of the periods presented are as follows:


	Years ended December 31
In millions	2005			2004			2003
Service cost-benefits earned during the period	$	53		$	67		$	71
Interest cost on projected benefit obligation		141			148			156
Expected return on plan assets		(273	)		(298	)		(303	)
Amortization of prior service cost		7			11			11
Amortization of net (gain) loss		2			(1	)		(5	)

Pension income before settlements and curtailments		(70	)		(73	)		(70	)
Settlements		115			—			1
Curtailments		—			37			5
Termination benefits		3			—			—

Net periodic pension (income) cost	$	48		$	(36	)	$	(64	)

Net increase (decrease) in minimum pension liability – before taxes	$	(2	)	$	4		$	1

Financial Review 55

NOTES TO FINANCIAL STATEMENTS

In January 2005, the company reached an agreement to sell its printing and writing papers business and related assets. As a result, the company recorded a charge of $37 million relating to special termination benefits and a curtailment loss in the retirement plans at December 31, 2004. In 2005, a sale-related settlement loss in the retirement plans of $110 million was also recorded. Tabular amounts shown above were not adjusted for discontinued operations resulting from the sale. Net pension income from continuing operations, before settlements and curtailments, was $67 million, $86 million and $83 million in 2005, 2004 and 2003, respectively.

The changes in consolidated benefit obligations, plan assets and funded status for the defined benefit and postretirement benefit plans are shown below. The net prepaid pension cost is included in other assets, except for an obligation of $94 million for the unfunded benefit plans and plans with accumulated benefit obligations in excess of plan assets, which are recorded as long-term liabilities.

Postretirement benefits MeadWestvaco provides life insurance for substantially all retirees and medical benefits to certain retirees in the form of cost subsidies until Medicare eligibility is reached and to certain other retirees, medical benefits up to a maximum lifetime amount. The company funds certain medical benefits on a current basis with retirees paying a portion of the costs. Certain retired employees of businesses acquired by the company are covered under other medical plans that differ from current plans in coverage, deductibles and retiree contributions. Effective January 1, 2004, MeadWestvaco modified certain postretirement healthcare benefits to be provided to future retirees. Unrecognized prior service cost and actuarial gains and losses in the postretirement benefit plans subject to amortization are amortized over the average remaining service, which is about eight years.

56 MeadWestvaco 2005 Annual Report

The impact of these changes reduced the postretirement benefit obligation and net postretirement benefit cost by about $68 million, which is being amortized over the remaining life of the eligible employees. The components of net postretirement benefits cost for each of the periods presented are as follows:


	Years ended December 31
In millions	2005			2004			2003
Service cost-benefits earned during the period	$	5		$	7		$	9
Interest cost		9			12			15
Expected return on plan assets		–			–			(1	)
Net amortization		–			5			1

Postretirement expense before settlements and curtailments		14			24			24
Curtailments		(29	)		–			–
Termination benefits		–			(1	)		1

Net postretirement benefits cost (income)	$	(15	)	$	23		$	25

In 2005, a curtailment gain of $29 million, related to the sale of the printing and writing papers business, was recorded in the postretirement benefit plan. Tabular amounts shown above were not adjusted for discontinued operations resulting from the sale of the company’s printing and writing papers business. Net periodic postretirement benefits cost from continuing operations, before settlements and curtailments, was $13 million in 2005 and $21 million in each of 2004 and 2003.

Passage of the Medicare Prescription Drug Improvement and Modernization Act of 2003 resulted in a reduction in the company’s 2005 postretirement benefit obligation and postretirement benefit cost of approximately $11 million and $1 million, respectively.

The following table also sets forth the funded status of the plans and amounts recognized in the consolidated balance sheets at December 31, 2005 and 2004, based on a measurement date of December 31 for each period.

Financial Review 57

NOTES TO FINANCIAL STATEMENTS

Obligations, assets and funded status


	Years ended December 31
	Retirement benefits						Postretirement benefits
In millions	2005			2004			2005			2004
Change in benefit obligation:
Benefit obligation at beginning of period	$	2,676		$	2,546		$	185		$	211
Service cost		53			67			5			7
Interest cost		141			148			9			12
Actuarial (gain) loss		206			138			(15	)		(28	)
Plan amendments		7			10			(2	)		—
Foreign currency exchange rate changes		(6	)		6			—			—
Employee contributions		—			1			17			17
Termination benefit costs		14			20			—			(1	)
Settlements		(236	)		—			—			—
Benefits paid (including termination benefits)		(212	)		(182	)		(35	)		(32	)
Curtailments		—			(78	)		(11	)		(1	)

Benefit obligation at end of year	$	2,643		$	2,676		$	153		$	185

Change in plan assets:
Fair value of plan assets at beginning of period	$	3,409		$	3,176		$	—		$	6
Actual return on plan assets		268			395			—			—
Company contributions		10			15			18			9
Foreign currency exchange rate changes		(2	)		4			—			—
Employee contributions		—			1			17			17
Settlements		(303	)		—			—			—
Benefits paid (including termination benefits)		(212	)		(182	)		(35	)		(32	)

Fair value of plan assets at end of year	$	3,170		$	3,409		$	—		$	—

Funded status of the plans:	$	527		$	733		$	(153	)	$	(185	)
Unrecognized net actuarial loss		323			164			—			27
Unrecognized prior service cost (benefit)		66			66			(34	)		(61	)

Net pension asset (liability)	$	916		$	963		$	(187	)	$	(219	)

Amounts recognized in the balance sheet consist of:
Prepaid pension asset	$	994		$	1,040		$	–		$	—
Accrued benefit liability		(94	)		(95	)		(187	)		(219	)
Intangible assets		1			1			—			—
Accumulated other comprehensive income		15			17			—			—

Total net pension asset (liability)	$	916		$	963		$	(187	)	$	(219	)

58 MeadWestvaco 2005 Annual Report

The accumulated benefit obligation for all defined benefit plans was $2,485 million and $2,529 million at December 31, 2005 and 2004, respectively.

For plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets were:


	December 31
In millions	2005		2004
Projected benefit obligation	$	144	$	143
Accumulated benefit obligation		128		123
Fair value of plan assets		37		32

Assumptions The weighted average assumptions used to determine the company’s benefit obligations at December 31:


	2005		2004
Retirement benefits:
Discount rate	5.50	%	5.75	%
Rate of compensation increase	4.00	%	4.00	%
Postretirement benefits:
Discount rate	5.50	%	5.75	%
Healthcare cost increase	10.00	%	13.00	%
Prescription drug cost increase	14.00	%	—

The weighted average assumptions used to determine net pension income and postretirement benefits cost for the years presented:


	Years ended December 31
	2005		2004		2003
Retirement benefits:
Discount rate	5.68	%	6.00	%	6.50	%
Rate of compensation increase	4.00	%	4.00	%	4.50	%
Expected return on plan assets	8.50	%	8.50	%	8.50	%
Postretirement benefits:
Discount rate	5.60	%	6.00	%	6.50	%
Expected return on plan assets	—		6.35	%	8.00	%
Healthcare cost increase	12.00	%	13.00	%	14.00	%

MeadWestvaco’s approach to developing capital market assumptions combines an analysis of historical performance, the drivers of investment performance by asset class and current economic fundamentals. For returns, the company utilizes

Financial Review 59

NOTES TO FINANCIAL STATEMENTS

a building block approach starting with an inflation expectation and adds an expected real return to arrive at a long-term nominal expected return for each asset class. Long-term expected real returns are derived in the context of future expectations for the U.S. Treasury real yield curve. The company derives return assumptions for all other equity and fixed income asset classes by starting with either the U.S. Equity or U.S. Fixed Income return assumption and adding a risk premium, which reflects any additional risk inherent in the asset class.

The company determined the discount rates by referencing indices for long-term, high-quality bonds, ensuring that the durations of those indices were not materially different from the duration of the plans’ liabilities, or if different, that adjusting the discount rate would not have produced results that were materially different from using a common discount rate for all of its plans.

The annual rate of increase in healthcare and prescription drug costs is assumed to decline ratably each year until reaching 5% in 2015 and thereafter. The effect of a 1% increase in the assumed combined cost trend rate would increase the December 31, 2005 accumulated postretirement benefit obligation by $7 million and the total service and interest cost for 2005 by $1 million. The effect of a 1% decrease in the assumed combined cost trend rate would decrease the December 31, 2005 accumulated postretirement benefit obligation by $7 million and the total service and interest cost for 2005 by $1 million.

The company also has defined contribution plans that cover substantially all U.S. and certain non-U.S. based employees. Expense for company matching contributions under these plans was approximately $30 million, $37 million and $41 million for the years ended December 31, 2005, 2004 and 2003, respectively.

Retirement plan assets The MeadWestvaco retirement plan asset allocation at December 31, 2005 and 2004, long-term target allocation for 2005, and expected long-term rate of return by asset category are as follows:

Asset category:


	Target allocation		Percentage of plan assets at December 31				Weighted average expected long-term rate of return
	Target allocation		2005		2004		2005
Equity securities	66	%	66	%	71	%	9.4	%
Debt securities	21	%	30	%	26	%	5.3	%
Real estate	8	%	2	%	1	%	7.2	%
Other	5	%	2	%	2	%	16.0	%

Total	100	%	100	%	100	%

60 MeadWestvaco 2005 Annual Report

The MeadWestvaco Master Retirement Trust maintains a well-diversified investment program through both the long-term allocation of trust fund assets among asset classes and the selection of investment managers whose various styles are fundamentally complementary to one another and serve to achieve satisfactory rates of return. Active management of assets is used in asset classes and strategies where there is the potential to add value over a benchmark. The long-term trust fund asset allocation policy emphasizes the use of the equity class of securities that are expected to provide the long-term growth necessary to cover the growth of the plans’ obligations. The policy may also allocate funds to other asset classes that serve to enhance long-term, risk-adjusted return expectations. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews. A portion of the overall fund will remain in short-term fixed income investments in order to meet the ongoing operating cash requirements of the plans.

The plan did not hold company stock at December 31, 2005. At December 31, 2004, equity securities included $82 million of company stock, representing approximately 2% of total plan assets.

As a result of the sale of the printing and writing papers business, approximately $303 million of pension assets, and related liabilities, for bargained hourly employees were transferred to the buyer in July 2005.

Cash flows Contributions: The company does not anticipate any required contributions to the U.S.-qualified retirement plans in the foreseeable future as the plans are not required to make any minimum regulatory funding contribution.

The company expects to pay $20 million in benefits to participants of the nonqualified pension and postretirement plans in 2006.

Estimated future benefit payments:


	Retirement benefits		Postretirement benefits before Medicare Part D subsidy		Postretirement benefits after Medicare Part D subsidy
In millions	Retirement benefits		Postretirement benefits before Medicare Part D subsidy		Postretirement benefits after Medicare Part D subsidy
2006	$	142	$	18	$	17
2007		153		18		16
2008		157		17		16
2009		162		16		15
2010		170		15		14
2011-2015		949		58		52

Postemployment benefits MeadWestvaco provides limited postemployment benefits to former or inactive employees, including short-term and long-term disability, workers’ compensation, severance and health and welfare continuation.

Financial Review 61

NOTES TO FINANCIAL STATEMENTS

L.	RESTRUCTURING AND OTHER MERGER-RELATED EXPENSES

Although these charges related to individual segments, such amounts are reflected in corporate and other for segment reporting purposes.

The following table and discussion present additional detail of the 2005 charges by business segment:


In millions	Asset writedowns and other costs			Employee costs		Total
Packaging	$	5		$	9	$	14
Consumer and Office Products		7			1		8
All other		3			6		9

	$	15		$	16	$	31

Gain on sale of Consumer and Office Products assets previously written down	$	(2	)	$	—	$	(2	)


Productivity initiative	$	5		$	4	$	9
Cost initiative		8			12		20

Packaging segment: During the year, the company incurred charges of $14 million for asset writedowns, employee separation costs and other restructuring costs related to the closing of a packaging converting plant in the U.S. and various other restructuring activities in its packaging operations in the U.S. and Europe. The charges included employee separation costs of $9 million related to approximately 250 employees. Most of these employees have separated from the company as of December 31, 2005. The remaining $5 million included $4 million of asset impairments and $1 million of other closure-related costs.

62 MeadWestvaco 2005 Annual Report

Additionally during the first half of the year, the company sold previously written-down assets, resulting in gains of $2 million.

All Other: During the year, the company also recorded charges of approximately $6 million related to employee separation costs covering approximately 190 employees. As of December 31, 2005, about 60% of these employees had separated from the company, and the remaining employees will be separated by the end of 2006. Additionally, the company incurred charges of $3 million for other restructuring-related costs.

Financial Review 63

NOTES TO FINANCIAL STATEMENTS

Productivity initiative:


In millions	Employee costs			Other costs			Total
Balance of related accruals at December 31, 2003	$	20		$	6		$	26
Current charges		34			33			67
Change in estimate		(2	)		—			(2	)
Payments		(39	)		(31	)		(70	)

Balance of related accruals at December 31, 2004		13			8			21
Current charges		4			3			7
Payments		(15	)		(9	)		(24	)

Balance of related accruals at December 31, 2005	$	2		$	2		$	4


Cost initiative:

In millions	Employee costs			Other costs			Total
Balance of related accruals at December 31, 2004	$	—		$	—		$	—
Current charges		12			5			17
Payments		(7	)		(3	)		(10	)

Balance of related accruals at December 31, 2005	$	5		$	2		$	7

64 MeadWestvaco 2005 Annual Report

M.	OTHER INCOME, NET

Components of other income, net are as follows:


	Years ended December 31
In millions	2005			2004			2003
(Gains) on sales of forestland	$	(60	)	$	(176	)	$	(85	)
Interest (income)		(33	)		(12	)		(12	)
Transition services income		(25	)		—			—
Share of investees’ losses (earnings)		4			(2	)		(18	)
Loss on the extinguishment of debt		90			1			26
Foreign currency transaction losses (gains)		8			(10	)		(1	)
(Gain) on insurance recovery		—			—			(12	)
Other, net		—			2			(3	)

	$	(16	)	$	(197	)	$	(105	)

During 2005, the company completed the sale of 20,000 acres of forestlands generating pretax gains of $60 million compared to pretax gains of $176 million on the sale of 129,000 acres of forestlands in 2004. During 2003, the company completed the sale of 83,000 acres of forestlands generating pretax gains of $85 million. In 2005, income of $25 million was recorded from services provided to NewPage Corporation pursuant to the printing and writing papers sale agreement (see Note P for further detail on the sale). The company utilized cash proceeds from the sale of its printing and writing papers business to repay approximately $1 billion of debt in 2005 and, as a result, incurred charges for debt retirement of $90 million, compared to $1 million of charges incurred in 2004, and charges of $26 million incurred in 2003. In 2003, the company recorded an insurance recovery settlement gain of $12 million related to the reimbursement of certain past defense costs incurred by the company. Included in 2003 is the positive contribution of the Northwood Panelboard investment of $22 million, compared to $1 million in 2004. The Northwood Panelboard investment was sold in 2004.

N.	INCOME TAXES

Earnings from continuing operations before income taxes is comprised of the following:


	Years ended December 31
In millions	2005			2004		2003
U.S. domestic (losses) earnings	$	(27	)	$	137	$	(37	)
Foreign earnings		162			186		125

	$	135		$	323	$	88

Financial Review 65

NOTES TO FINANCIAL STATEMENTS

The significant components of the income tax provision (benefit) are as follows:


	Years ended December 31
In millions	2005			2004			2003
Currently payable:
U.S. federal	$	103		$	—		$	—
State and local		13			—			—
Foreign		46			41			12

		162			41			12

Deferred:
U.S. federal		(165	)		(149	)		(78	)
State and local		(37	)		2			(9	)
Foreign		(1	)		1			27

Provision for deferred income taxes		(203	)		(146	)		(60	)

		(41	)		(105	)		(48	)
Allocation to discontinued operations		(57	)		(204	)		(52	)

Income tax provision¹	$	16		$	99		$	4

¹	Related to continuing operations.

66 MeadWestvaco 2005 Annual Report

The following table summarizes the major differences between the actual income tax provision (benefit) attributable to continuing operations and taxes computed at the U.S. federal statutory rate:


	Years ended December 31
In millions	2005			2004			2003
Income tax provision (benefit) computed at the U.S. federal statutory rate of 35%	$	47		$	113		$	31
State and local income taxes, net of federal benefit		(11	)		(3	)		(5	)
Foreign income tax rate differential		(14	)		(20	)		(10	)
Provision to return adjustment		—			(5	)		(1	)
Resolution of prior year tax matters		—			—			(3	)
Fixed asset deferred tax adjustment		—			—			(15	)
Valuation allowances		2			22			11
Other permanent differences		(8	)		(3	)		(4	)
Credits		(4	)		—			—
Other		4			(5	)		—

Income tax provision¹	$	16		$	99		$	4

Effective tax rate¹		11.9	%		30.6	%		4.5	%

¹	Related to continuing operations.

Financial Review 67

NOTES TO FINANCIAL STATEMENTS

The principal current and noncurrent deferred tax assets and liabilities are as follows:


	December 31
In millions	2005			2004
Deferred tax assets:
Employee benefits	$	148		$	165
Postretirement benefit accrual		65			74
Other accruals and reserves		101			95
Identifiable intangibles		23			43
Impairment of long-lived assets for discontinued operations		—			151
Alternative minimum tax carryforward		—			132
Net operating loss carryforwards		151			227
Other		48			57

Total deferred tax assets		536			944
Valuation allowance		(132	)		(118	)

Net deferred tax assets		404			826
Deferred tax liabilities:
Depreciation and depletion		(986	)		(1,596	)
Nontaxable pension asset		(348	)		(364	)
State and local taxes		(86	)		(132	)
Other		(95	)		(130	)

Total deferred tax liabilities		(1,515	)		(2,222	)

Net deferred liability	$	(1,111	)	$	(1,396	)

Included in the balance sheet:
Current assets – deferred tax asset	$	41		$	74
Noncurrent net deferred tax liability		(1,152	)		(1,470	)

Net deferred liability	$	(1,111	)	$	(1,396	)

The company has U.S. state and foreign tax net operating loss carryforwards which are available to reduce future taxable income in various state and foreign jurisdictions. The company’s prior federal net operating loss carryforward and alternative minimum tax credit carryforward were utilized due to the sale of the printing and writing papers business. The company’s valuation allowance against deferred tax assets primarily relates to these state and foreign tax net operating losses for which the ultimate realization of future benefits is uncertain.

As a result of the sale of the printing and writing papers business, the company expects there to be changes in state income tax apportionments for

68 MeadWestvaco 2005 Annual Report

tax years ended December 31, 2005 and future periods due generally to changes in historic mix of sales, payroll and property in different states.

At December 31, 2005 and 2004, no domestic income taxes have been provided on the company’s share of undistributed net earnings of overseas operations due to management’s intent to reinvest such amounts indefinitely. Those earnings totaled $788 million and $611 million at December 31, 2005 and 2004, including foreign currency translation adjustments. Determination of the potential deferred tax liability associated with these undistributed earnings is not practicable.

The company has operations in 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. While actual results could vary, in management’s judgment, the company has adequate accruals with respect to the ultimate outcome of such audits. Such accruals are included in other long-term obligations and deferred income taxes, and include certain pre-acquisition contingencies.

Approximately $5 million of deferred income tax benefits were provided for components of other comprehensive income (loss) during the year ended December 31, 2005. There were insignificant amounts of deferred income tax benefits recorded during the years ended December 31, 2004 and 2003.

O.	ENVIRONMENTAL AND LEGAL MATTERS

The company has been notified by the U.S. Environmental Protection Agency (the “EPA”) 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, 2005, MeadWestvaco had recorded liabilities of approximately $27 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 by an amount that could range from an insignificant amount to as much as $30 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

Financial Review 69

NOTES TO FINANCIAL STATEMENTS

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. All of the claims against the company resolved to date have been concluded before trial, either through dismissal or through settlement with payments to the plaintiff that are not material to the company. To date, the costs resulting from the litigation, including settlement costs, have not been significant. As of December 31, 2005, there were approximately 200 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, 2005, the company had recorded litigation liabilities of approximately $29 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.

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.

P.	ACQUISITIONS AND DISPOSITIONS

2005 acquisitions During the fourth quarter of 2005, MeadWestvaco acquired DZN, The Design Group (DZN) for approximately $5 million. DZN is a full service design and marketing company based in Los Angeles, California, which will enhance MeadWestvaco’s package design capabilities, enabling the company to provide a more competitive and comprehensive set of creative design services, and is included in the company’s Packaging segment.

70 MeadWestvaco 2005 Annual Report

Pro forma results for this acquisition are not presented, as the transaction was not significant.

2004 acquisitions During the second quarter of 2004, MeadWestvaco acquired Aries Packaging for approximately $21 million. Aries is a machinery systems company in Troyes, France, which supports the company’s dairy packaging systems business in Europe and also represents a platform for growth in other markets, and is included in the company’s Packaging segment. This acquisition did not have a material impact on the company’s consolidated financial statements. The purchase price allocation resulted in approximately $4 million of identifiable intangible assets, that will be amortized over their estimated useful lives of 10 years, and goodwill of $12 million. The remainder was primarily allocated to working capital items.

During the third quarter of 2004, the company acquired Tilibra, a manufacturer of school, office and time-management stationery products in Bauru, Sao Paulo state, Brazil, which will help the company extend its consumer and office products franchise in Latin America’s largest market, while creating an ideal platform for expansion elsewhere in the region. This acquisition is included in the company’s Consumer and Office Products segment. This acquisition did not have a material impact on the company’s consolidated financial statements. The purchase price was $71 million and resulted in approximately $25 million of identifiable intangible assets, that will be amortized over their estimated useful lives of five to 20 years, and goodwill of $36 million with the remainder allocated to fixed assets and working capital items.

Additionally, another small acquisition was made in 2004, with a purchase price of $9 million.

Pro forma results for these acquisitions are not presented, as the transactions were not significant.

2003 acquisitions During the first quarter of 2003, MeadWestvaco acquired AMCAL, a company that designs and supplies licensed calendars, gifts and stationery products, for approximately $12 million. AMCAL is included in the company’s Consumer and Office Products segment. This acquisition did not have a material impact on the company’s consolidated financial statements. The purchase price allocation resulted in approximately $9 million of identifiable intangible assets that will be amortized over their estimated useful lives of five years.

During the fourth quarter of 2003, the company completed the purchase of the assets of Day Runner, Inc., a designer, developer and distributor of loose-leaf, personal organizers and related products for the retail stationery market. This acquisition is also included in the company’s Consumer and Office Products segment. This acquisition did not have a material impact on the company’s consolidated financial statements. The purchase price was $43 million and

Financial Review 71

NOTES TO FINANCIAL STATEMENTS

resulted in approximately $20 million of identifiable intangible assets, which will be amortized over their estimated useful lives of three to seven years, and goodwill of $12 million with the remainder allocated to working capital items.

Additionally, another small acquisition was made in 2003, with a purchase price of $1 million.

Pro forma results for these acquisitions are not presented, as the transactions were not significant.

Dispositions On January 14, 2005, the company entered into an agreement to sell its printing and writing papers business, including its coated and carbonless papers operations, and related forestlands to an affiliate of Cerberus Management LLC, a private investment firm.

Effective April 30, 2005, this divestiture was completed. Upon closing, the company received proceeds from the buyer of $2.2 billion in cash (subject to certain adjustments) and $100 million in aggregate principal amount of senior unsecured payable-in-kind (PIK) promissory notes (fair value of $75 million at date of issuance) of a subsidiary of the purchaser. Refer to Note D for a discussion of the unrealized loss on the PIK notes at December 31, 2005.

As a result of the sale, the company incurred a pretax accounting loss on sale of approximately $916 million ($687 million after tax), of which $710 million ($548 million after tax) was recorded in the fourth quarter of 2004 for impairments of goodwill and other long-lived assets, and pension and other employee benefit settlements and curtailments. The remaining $206 million ($139 million after tax) in charges was recorded in the first half of 2005. The company began reporting the papers business as a discontinued operation in the first quarter of 2005. Prior periods have been presented on a comparable basis.

The company recorded a loss from discontinued operations, net of income taxes, of $91 million, or $0.48 per share, for the year ended December 31, 2005, compared to a loss from discontinued operations, net of income taxes, of $573 million, or $2.82 per share for the year ended December 31, 2004. Included in discontinued operations is interest expense directly attributable to the papers business and an allocation of general interest expense pursuant to the guidance under EITF 87-24: Allocation of Interest to Discontinued Operations. Under the guidance of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the assets associated with the sale of the printing and writing papers business were classified as held-for-sale and were not depreciated or amortized in 2005. Included in discontinued operations for 2005 was the benefit of a LIFO decrement of about $30 million. In connection with the sale of the printing and writing papers business, the company provided certain guarantees and indemnities to the buyer and other parties. These obligations include both potential environmental matters as well as certain contracts with third parties. The company has evaluated these guarantees and indemnifications in accordance with

72 MeadWestvaco 2005 Annual Report

Financial Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which did not result in a material impact on the company’s consolidated financial statements.

The following table shows the major categories for discontinued operations in the consolidated statements of operations for the years ended December 31, 2005, 2004 and 2003, which includes both the loss on the sale and results of operations for the printing and writing papers business. For the year ended December 31, 2005, there are only four months of operations included, as the business was sold April 30, 2005.


	Years ended December 31
In millions, except per share amounts	2005			2004			2003
Net sales	$	712		$	2,166		$	1,987
Cost of sales		611			2,104			1,964
Selling, general and administrative expenses		26			81			84
Interest expense		20			69			82
Other (income) expense, net		203			689			(29	)

Loss from discontinued operations before income taxes		(148	)		(777	)		(114	)
Income tax benefit		(57	)		(204	)		(52	)

Net loss from discontinued operations	$	(91	)	$	(573	)	$	(62	)

Net loss from discontinued operations per share	$	(0.48	)	$	(2.82	)	$	(0.31	)

Results of operations, excluding the loss on sale, for the years ended December 31, 2005, 2004 and 2003, were income of $48 million, a loss of $25 million and a loss of $62 million, respectively.

Financial Review 73

NOTES TO FINANCIAL STATEMENTS

Q.	CASH FLOWS

Changes in current assets and liabilities, net of acquisitions and dispositions, are as follows:


	Years ended December 31
In millions	2005			2004			2003
(Increase) decrease in:
Receivables	$	(52	)	$	(108	)	$	(5	)
Inventories		21			(12	)		(30	)
Prepaid expenses		(3	)		(1	)		11
Increase (decrease) in:
Accounts payable and accrued expenses		(57	)		184			(32	)
Income taxes payable¹		(180	)		15			(6	)

	$	(271	)	$	78		$	(62	)


	Years ended December 31
In millions	2005			2004			2003
Cash paid for:
Interest	$	220		$	214		$	238
Less capitalized interest		(3	)		(2	)		(2	)

Interest paid, net	$	217		$	212		$	236

Income taxes paid (refunded)	$	225		$	19		$	(11	)

¹	Includes approximately $160 million related to taxes payable upon the sale of the printing and writing papers business.

R.	BUSINESS SEGMENT INFORMATION

MeadWestvaco’s principal business segments are (1) Packaging, (2) Consumer and Office Products, and (3) Specialty Chemicals. In 2005, the company exited its printing and writing papers business, which is recorded as discontinued operations in the consolidated financial statements.

The Packaging segment produces bleached paperboard, Coated Natural Kraft paperboard™ (CNK^®), kraft paperboard, linerboard and saturating kraft and packaging for consumer products markets. The Packaging segment also manufactures printed plastic packaging and injection-molded products used for packaging DVDs and CDs. In addition, the Packaging segment designs and produces multi-pack cartons and packaging systems primarily for the beverage take-home market. This segment’s products are manufactured at four domestic mills and two mills located in Brazil; paper, board and plastic are converted into packaging products at plants located in the United States, Brazil,

74 MeadWestvaco 2005 Annual Report

Asia and Europe. These products are sold primarily in North America, with additional markets located in Latin America, Europe, Asia and the Pacific Rim.

The Consumer and Office Products segment manufactures, markets and distributes school, office, envelope and time-management products to retailers and commercial distributors. This segment’s operations are conducted predominantly in North America and Brazil.

The Specialty Chemicals segment manufactures, markets and distributes products at four primary domestic locations. Major product groups are: activated carbon products; printing ink resins and lignin-based surfactants; and tall oil fatty acid, rosin and derivative products.

Corporate and other includes the company’s specialty papers and forestry operations as well as corporate support staff services and related assets and liabilities, including merger-related goodwill. The results include income and expense items not directly associated with segment operations, such as restructuring charges, legal settlements, net pension income, interest expense, goodwill impairment charges, gains on sales of forestlands and other activities.

The segments are measured on operating profits before restructuring charges, interest expense, minority interest, income taxes, extraordinary items and cumulative effect of accounting changes. The segments follow the same accounting principles described in the Summary of Significant Accounting Policies. Sales between the segments are recorded primarily at market prices.

No single customer accounted for 10% or more of consolidated trade sales in the periods presented.


	Years ended December 31
In millions	2005		2004		2003
Total sales outside of the United States	$	1,745	$	1,582	$	1,337
Export sales from the United States		829		826		711
Long-lived assets located outside the United States		772		809		793
Long-lived assets located in the United States		6,106		6,310		6,417

Financial Review 75

NOTES TO FINANCIAL STATEMENTS

Financial information by business segment follows:


	Sales
In millions	Trade		Intersegment			Total
Year ended December 31, 2005
Packaging	$	4,467	$	9		$	4,476
Consumer and Office Products		1,125		—			1,125
Specialty Chemicals		396		29			425
Corporate and other		182		31			213

Total		6,170		69			6,239
Intersegment eliminations		—		(69	)		(69	)

Consolidated totals	$	6,170	$	—		$	6,170

Year ended December 31, 2004
Packaging	$	4,395	$	7		$	4,402
Consumer and Office Products		1,090		—			1,090
Specialty Chemicals		385		25			410
Corporate and other		190		26			216

Total		6,060		58			6,118
Assets of discontinued operations¹
Intersegment eliminations		—		(58	)		(58	)

Consolidated totals	$	6,060	$	—		$	6,060

Year ended December 31, 2003
Packaging	$	4,017	$	3		$	4,020
Consumer and Office Products		1,055		—			1,055
Specialty Chemicals		332		21			353
Corporate and other		162		38			200

Total		5,566		62			5,628
Assets of discontinued operations¹
Intersegment eliminations		—		(62	)		(62	)

Consolidated totals	$	5,566	$	—		$	5,566

¹	Assets of discontinued operations represent the assets of the printing and writing papers business, which was sold in 2005.

76 MeadWestvaco 2005 Annual Report

Financial information by business segment follows: (continued)


Segment profit (loss)	Depreciation, depletion and amortization		Segment assets		Capital expenditures

$336	$	372	$	4,929	$	237
130		39		843		11
39		20		328		18
(370)		60		2,808		39

135		491		8,908		305
—		—		—		—

$135	$	491	$	8,908	$	305


$431	$	370	$	5,144	$	238
137		37		830		14
57		21		318		22
(302)		61		2,817		43

323		489		9,109		317
				2,537
—		—		—		—

$323	$	489	$	11,646	$	317


$267	$	362	$	5,235	$	237
126		34		671		11
45		19		317		20
(350)		64		2,820		41

88		479		9,043		309
				3,427
—		—		—		—

$88	$	479	$	12,470	$	309

Financial Review 77

NOTES TO FINANCIAL STATEMENTS

S.	SELECTED QUARTERLY INFORMATION (UNAUDITED)


	Years ended December 31
In millions, except per share data	2005¹			2004²
Sales
First	$	1,373		$	1,314
Second		1,587			1,556
Third		1,583			1,569
Fourth		1,627			1,621

Year	$	6,170		$	6,060

Gross profit
First	$	225		$	214
Second		285			325
Third		288			298
Fourth		285			298

Year	$	1,083		$	1,135

Income (loss) from continuing operations
First	$	17		$	26
Second		(13	)		74
Third		55			82
Fourth		60			42

Year	$	119		$	224

Net income (loss)
First	$	(6	)	$	(2	)
Second		(83	)		47
Third		55			105
Fourth		62			(499	)

Year	$	28		$	(349	)

78 MeadWestvaco 2005 Annual Report

S.	SELECTED QUARTERLY INFORMATION (UNAUDITED), continued


	Years ended December 31
In millions, except per share data	2005¹			2004²
Income (loss) from continuing operations per common share, basic
First	$	0.08		$	0.13
Second		(0.06	)		0.36
Third		0.30			0.40
Fourth		0.33			0.21
Income (loss) from continuing operations per common share, diluted
First	$	0.08		$	0.13
Second		(0.06	)		0.36
Third		0.30			0.40
Fourth		0.33			0.20
Net income (loss) per common share, basic
First	$	(0.03	)	$	(0.01	)
Second		(0.41	)		0.23
Third		0.30			0.52
Fourth		0.34			(2.46	)
Net income (loss) per common share, diluted
First	$	(0.03	)	$	(0.01	)
Second		(0.41	)		0.23
Third		0.30			0.52
Fourth		0.34			(2.43	)

First quarter 2005 results include an after-tax charge of $3 million, or $0.01 per share, for employee termination costs, asset writedowns and other restructuring-related costs, and an after-tax gain from the sale of forestlands of $25 million, or $0.12 per share. Second quarter 2005 results include an after-tax charge of $6 million, or $0.03 per share, related to asset writedowns, employee separation costs and other restructuring-related costs, an after-tax charge for debt retirement of $56 million, or $0.28 per share, and an after-tax gain from the sale of forestlands of $1 million, or $0.01 per share. Third quarter 2005 results include an after-tax charge of $7 million, or $0.04 per share, related to asset writedowns, facility closures and employee separation costs, and an after-tax gain from the sale of forestlands of $10 million, or $0.05 per share. Fourth quarter 2005 results include an after-tax charge of $3 million, or $0.02 per share, related primarily to employee separation costs, and an after-tax gain from the sale of forestlands of $2 million, or $0.01 per share.

First quarter 2004 results include an after-tax charge of $7 million, or $0.04 per share, for employee termination costs, asset writedowns and other restructuring-related costs, and an after-tax gain from the sale of forestlands of $40 million, or $0.20 per share. Second quarter 2004 results include an after-tax charge of $4 million, or $0.02 per share, related to asset writedowns, employee separation costs and other restructuring-related costs and an after-tax gain from the sale of forestlands of $12 million, or $0.06 per share. Third quarter 2004 results include an after-tax charge of $33 million, or $0.16 per share, related to asset writedowns, facility closures and employee separation costs, and an after-tax gain from the sale of forestlands of $40 million, or $0.19 per share. Fourth quarter 2004 results include an after-tax charge of $23 million, or $0.11 per share, related primarily to employee separation and other restructuring-related costs, and an after-tax gain from the sale of forestlands of $17 million, or $0.08 per share.

Financial Review 79

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management’s responsibility for financial statements Management is responsible for the information and representations in the accompanying consolidated financial statements and related notes as well as all other financial information contained in this report. These financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and by necessity include some amounts determined using informed estimates and assumptions.

PricewaterhouseCoopers LLP, the company’s independent registered public accounting firm, was engaged to audit the consolidated financial statements and was responsible for conducting an audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). The appointment of PricewaterhouseCoopers LLP as the company’s independent registered public accounting firm by the Board of Directors, on the recommendation of the Audit Committee, has been ratified each year by the shareholders. PricewaterhouseCoopers LLP’s opinion on the company’s consolidated financial statements is stated in their report which is included herein.

The Audit Committee of the Board of Directors, composed solely of nonmanagement directors, meets regularly with the company’s management, the internal audit director and representatives of the independent registered public accounting firm to discuss accounting and financial reporting matters, internal control over financial reporting, and the nature, scope and results of audits. The Audit Committee meets with the independent registered public accounting firm both with and without management. The Committee also meets with the company’s general counsel to review the company’s legal compliance program as well as significant litigation issues. The independent registered public accounting firm and the director of internal audit have full and free access to the Audit Committee.

Management’s report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. In order to evaluate the effectiveness of internal control over financial reporting, management has conducted an assessment, including testing, using the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation

80 MeadWestvaco 2005 Annual Report

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

John A. Luke, Jr.

Chairman and Chief Executive Officer

E. Mark Rajkowski

Senior Vice President and Chief Financial Officer

March 1, 2006

Financial Review 81

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of MeadWestvaco Corporation

We have completed integrated audits of MeadWestvaco Corporation’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of MeadWestvaco Corporation and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted

82 MeadWestvaco 2005 Annual Report

our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Stamford, Connecticut

March 1, 2006

Financial Review 83

World Headquarters

MeadWestvaco Corporation

One High Ridge Park

Stamford, Connecticut 06905

Telephone 203 461 7400

www.meadwestvaco.com

LOGO

EX-21 4 dex21.htm SUBSIDIARIES OF THE REGISTRANT Subsidiaries of the Registrant

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT*

The following were significant subsidiaries of the Registrant as of December 31, 2005:


Name		State or Jurisdiction of Incorporation
Alfred Wall GmbH		Austria
AGI Media Packaging Ltd.		United Kingdom
MeadWestvaco Coated Board, Inc.		Delaware
MeadWestvaco Consumer Packaging Group, LLC		Illinois
MeadWestvaco Forestry, LLC		Delaware
MeadWestvaco South Carolina, LLC		Delaware
MeadWestvaco Spain S.L.		Spain
MeadWestvaco Virginia Corporation		Delaware
Rigesa, Celulose, Papel E. Embalagens Ltda.		Brazil

*	The names of additional subsidiaries have been omitted because the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. Subsidiaries which are consolidated into the above-listed subsidiaries are also omitted.

EX-23.1 5 dex231.htm CONSENT OF PRICEWATERHOUSECOOPERS LLP Consent of PricewaterhouseCoopers LLP

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-81638, 333-91660, 333-113183, 333-116860, 333-116862 and 333-127861) and on Form S-3 (No. 333-103918) of MeadWestvaco Corporation of our report dated March 1, 2006 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Stamford, Connecticut

March 1, 2006

EX-23.2 6 dex232.htm CONSENT OF ERNST & YOUNG LLP Consent of Ernst & Young LLP

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-81638, 333-91660, 333-116860, 333-116862, 333-113183 and 333-127861) and on Form S-3 (No. 333-103918) of MeadWestvaco Corporation of our report dated January 9, 2004 (except as to note 6 which is as of January 26, 2004 and note 8(a) which is as of February 2, 2004) relating to the financial statements of Northwood Panelboard Company for the year ended December 31, 2003, which is included in the MeadWestvaco Corporation Annual Report on Form 10-K for the year ended December 31, 2005.

/s/ Ernst & Young LLP

Ernst & Young LLP

Toronto, Canada

March 1, 2006

EX-31.1 7 dex311.htm SECTION 302 CEO CERTIFICATION Section 302 CEO Certification

Exhibit 31.1

CERTIFICATION

I, John A. Luke, Jr., Chief Executive Officer, certify that:

1.	I have reviewed this annual report on Form 10-K of MeadWestvaco Corporation, registrant;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2006



/s/ John A. Luke, Jr.
Name: Title:		John A. Luke, Jr. Chief Executive Officer

EX-31.2 8 dex312.htm SECTION 302 CFO CERTIFICATION Section 302 CFO Certification

Exhibit 31.2

CERTIFICATION

I, E. Mark Rajkowski, Chief Financial Officer, certify that:

1.	I have reviewed this annual report on Form 10-K of MeadWestvaco Corporation, registrant;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

All significant deficiencies and material weaknesses in the design or the operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2006



/s/ E. Mark Rajkowski
Name: Title:		E. Mark Rajkowski Chief Financial Officer

EX-32.1 9 dex321.htm SECTION 906 CEO CERTIFICATION Section 906 CEO Certification

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as an officer of MeadWestvaco Corporation (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

•

the Annual Report of the Company on Form 10-K for the period ended December 31, 2005 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

•

the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: March 1, 2006



/s/ John A. Luke, Jr.
Name:		John A. Luke, Jr.
Title:		Chief Executive Officer

EX-32.2 10 dex322.htm SECTION 906 CFO CERTIFICATION Section 906 CFO Certification

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

•

the Annual Report of the Company on Form 10-K for the period ended December 31, 2005 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

•

the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: March 1, 2006

/s/ E. Mark Rajkowski

Name: E. Mark Rajkowski

Title: Chief Financial Officer

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