OVERVIEW

For the year ended December 31, 2008, MeadWestvaco Corporation ("MeadWestvaco", "MWV", or the "company") reported net income from continuing operations of $80 million, or $0.46 per share. Net income from continuing operations includes after-tax restructuring charges of $44 million, or $0.26 per share, related to employee separation costs, asset write-downs and other restructuring actions. Restructuring charges are included in Corporate and Other for segment reporting purposes. Comparable results for prior years are noted later in this discussion.

Sales from continuing operations were $6.64 billion, up 4% from sales of $6.41 billion in 2007. During 2008, revenue growth was driven primarily from MWV's ongoing efforts to improve pricing and product mix and from the benefit of favorable foreign currency exchange. MWV continued to generate sales momentum and improved pricing in targeted global packaging markets, including growth from new products and packaging sales from emerging markets where the company has focused much of its expansion investments in recent years.

Earnings in 2008 were adversely impacted by significant input cost inflation and reflect lower year-over-year demand in some consumer packaging markets, largely during the latter part of 2008 when the company experienced the effects of the global economic contraction. In 2008, pre-tax costs for energy, raw materials and freight were $254 million higher compared to 2007, offsetting improvements in pricing and product mix of $165 million on a continuing operations basis. In 2008, cash flow from continuing operations of $364 million was a significant source of funds for the company, driven by our continued focus of prioritizing cash generation as a key operating principle across our businesses.

On July 1, 2008, the company completed the sale of its North Charleston, South Carolina kraft paper mill and related assets (collectively, the "Kraft business") for net cash proceeds of $466 million, which resulted in an after-tax gain of $8 million. For the year ended December 31, 2008, the after-tax gain as well as the after-tax operating results of the Kraft business are reported as income from discontinued operations in the consolidated statements of operations. Prior period amounts have been recast on a comparable basis. The results of operations and assets and liabilities of the Kraft business were previously included in the Packaging Resources segment.

On January 15, 2009, MWV announced that it is implementing a series of broad cost reduction actions to further reduce its corporate and business unit overhead cost structure, optimize its manufacturing footprint, and realize sourcing savings throughout its supply chain. These actions are expected to result in the elimination of about 2,000 positions, or 10% of MWV's global workforce, and the closure or restructuring of 12 to 14 manufacturing facilities by the end of 2009. These cost management actions, which build on MWV's recent commercial alignment improvements and are in addition to our ongoing productivity improvement initiatives, are designed to achieve $125 million in pre-tax savings in 2009, with a targeted run-rate range of $250 million to $300 million by mid-2010. In connection with these actions, we expect to incur pre-tax restructuring charges of $200 million to $250 million, of which $29 million was recorded during the fourth quarter of 2008 with the remainder expected to be recorded during 2009. The cash portion of these charges is expected to be $50 million to $60 million in 2009.

RESULTS OF OPERATIONS

The following table summarizes our results for the years ended December 31, 2008, 2007 and 2006, as reported in accordance with accounting principles generally accepted in the U.S. All references to per share amounts are presented on an after-tax basis.

                                                                Years ended December 31,
In millions, except per share data                            2008         2007        2006
Net sales                                                   $   6,637     $ 6,407     $ 6,050
Cost of sales                                                   5,573       5,262       4,964
Selling, general and administrative expenses                      809         870         894
Interest expense                                                  210         205         195
Other income, net                                                 (34 )      (301 )       (83 )


Income from continuing operations before income taxes              79         371          80
Income tax (benefit) provision                                     (1 )       105          (1 )


Income from continuing operations                                  80         266          81
Income from discontinued operations, net of income taxes           10          19          12


Net income                                                  $      90     $   285     $    93


Net income per share - basic and diluted:
Income from continuing operations                           $    0.46     $  1.45     $  0.45
Income from discontinued operations                              0.06        0.11        0.07

Net income                                                  $    0.52     $  1.56     $  0.52

Comparison of Years ended December 31, 2008 and 2007

Sales were $6.64 billion and $6.41 billion for the years ended December 31, 2008 and 2007, respectively. Increased sales in 2008 were driven by improved pricing and product mix and the impact of favorable foreign currency exchange, partially offset by lower volumes compared to 2007, primarily due to the effects of the global economic contraction in the second half of 2008. Refer to the individual segment discussion that follows for detailed sales information.

Costs of sales were $5.57 billion and $5.26 billion for the years ended December 31, 2008 and 2007, respectively. Increased cost of sales in 2008 was driven by continued significant input cost inflation, partially offset by lower volumes compared to 2007. In 2008, pre-tax input costs for energy, raw materials and freight included in cost of sales were $260 million higher compared to 2007. Restructuring charges included in cost of sales were $41 million and $57 million in 2008 and 2007, respectively.

Selling, general and administrative expenses were $809 million and $870 million, or 12.2% and 13.6% as a percentage of sales, for the years ended December 31, 2008 and 2007, respectively. Lower expense in 2008 compared to 2007 was due primarily to improved productivity, lower restructuring charges and one-time costs, and lower employee incentive compensation, partially offset by the impact of unfavorable foreign currency exchange. In 2008, improved productivity lowered selling, general and administrative expenses by $83 million compared to 2007. Restructuring charges and one-time costs included in selling, general and administrative expenses were $26 million and $48 million in 2008 and 2007, respectively.

Pension income from continuing operations was $93 million and $58 million for the years ended December 31, 2008 and 2007, respectively. For 2008, pension income includes a pre-tax curtailment gain of $11 million resulting from U.S. employee reductions associated with the company's 2005 cost initiative. Pension income is reported in cost of sales and selling, general and administrative expenses, and is included in Corporate and Other for segment reporting purposes.

Interest expense was $210 million for the year ended December 31, 2008 and was comprised of $164 million related to bond and bank debt, $13 million related to a long-term obligation non-recourse to MWV and $33 million related to other borrowings. Interest expense was $205 million for the year ended December 31, 2007 and was comprised of $178 million related to bond and bank debt and $27 million related to other borrowings.

Other income, net was $34 million and $301 million for the years ended December 31, 2008 and 2007, respectively, and was comprised of the following:

                                                     Years ended December 31,
   In millions                                      2008                 2007
   Gains on sales of large-tract forestlands 1   $        -          $        (250 )
   Gains on sales of small-tract forestlands 1            -                    (24 )
   Gains on sales of other assets                        (16 )                  -
   Interest income                                       (39 )                 (19 )
   Asset impairments                                      -                      2
   Foreign currency exchange losses (gains)               23                   (12 )
   Other, net                                             (2 )                   2

                                                 $       (34 )       $        (301 )

1 In 2008, sales of landholdings are included in net sales in the consolidated statements of operations to reflect the strategic view and structure of the operations of the Community Development and Land Management segment established in 2008. For periods prior to 2008, gains from sales of landholdings are included in other income, net in the consolidated statements of operations.

The company's annual effective tax rate attributable to continuing operations was approximately (1)% and 28% for the years ended December 31, 2008 and 2007, respectively. The decrease in the effective tax rate in 2008 compared to 2007 was primarily due to favorable settlements of certain federal tax audit issues, benefits from changes in federal tax laws and regulations, and the mix of results between the company's domestic and foreign operations, including lower pre-tax domestic gains of $234 million from sales of forestlands in 2008 compared to 2007.

In addition to the information discussed above, the following sections discuss the results of operations for each of the company's business segments and Corporate and Other. MWV's business segments are (i) Packaging Resources,
(ii) Consumer Solutions, (iii) Consumer & Office Products, (iv) Specialty Chemicals, and (v) Community Development and Land Management. The company is presenting the Community Development and Land Management business as a separate segment (previously included in Corporate and Other) to align segment disclosures with management's analysis of results of operations and the process to allocate resources adopted in 2008. Results for 2007 and 2006 have been recast to reflect the new segment structure. Refer to Note R of Notes to Consolidated Financial Statements included in Part II, Item 8 for a reconciliation of the sum of the results of the business segments and Corporate and Other to the company's consolidated income from continuing operations before income taxes. Restructuring charges are included in Corporate and Other for segment reporting purposes. Refer to the discussion included in "Significant Transactions" herein below for restructuring charges attributable to the company's business segments.

Packaging Resources



                                          Years ended December 31,
                 In millions               2008             2007
                 Sales 1               $       2,667    $       2,504
                 Segment profit 1, 2             195              281

1 Results for 2007 have been recast to exclude the discontinued operations of the Kraft business.

2 Segment profit is measured as results before restructuring charges and one-time costs, pension income, interest expense and income, income taxes, minority interest income and losses and discontinued operations.

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

Sales for the Packaging Resources segment increased to $2.67 billion in 2008 compared to $2.50 billion in 2007. Increased sales were driven by improved pricing and product mix in key paperboard grades and by volume growth in bleached board. Shipments of bleached paperboard in 2008 were 1,646,000 tons, up 5% from 2007 reflecting, in part, a shift by the company away from lower value grades. Shipments of CNK in 2008 were 1,043,000 tons, down 5% from 2007, mainly reflecting declines in beverage and general packaging grades in late 2008 as customers de-stocked inventories in response to weak economic conditions. In 2008, bleached paperboard prices were up 5% and CNK prices were up 4% compared to 2007. Sales for the company's Brazilian packaging operation, Rigesa Ltda., increased 19% in 2008 over 2007, due primarily to continued solid demand for corrugated packaging solutions in the domestic Brazilian market.

Profit for the Packaging Resources segment decreased to $195 million in 2008 compared to $281 million in 2007, reflecting record input cost inflation offsetting improvements in pricing and product mix and higher volume. Earnings in 2008 were negatively impacted by $162 million from higher input costs for energy, raw materials and freight and $51 million from unfavorable productivity due primarily to unscheduled maintenance and hurricane-related downtime. Earnings in 2008 benefited by $98 million from improved pricing and product mix, $12 million from the impact of favorable foreign currency exchange, $8 million from higher volume and $9 million from other favorable items compared to 2007.

Consumer Solutions



                                        Years ended December 31,
                  In millions            2008             2007
                  Sales              $       2,511    $       2,431
                  Segment profit 1              56               86

1 Segment profit is measured as results before restructuring charges and one-time costs, pension income, interest expense and income, income taxes, minority interest income and losses and discontinued operations.

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

Sales for the Consumer Solutions segment increased to $2.51 billion in 2008 compared to $2.43 billion in 2007. In 2008, higher sales were driven by growth in global beverage, home and garden and healthcare markets, and from the impact of favorable foreign currency exchange compared to 2007. These positive effects were partially offset by year-over-year volume declines in media and personal care packaging due to weakening economic conditions in the second half of 2008.

Profit for the Consumer Solutions segment decreased to $56 million in 2008 compared to $86 million in 2007. In 2008, earnings were negatively impacted by $40 million from higher input costs of energy, raw materials and freight and $9 million from other unfavorable items compared to 2007. In 2008, earnings benefited by $11 million from improved productivity, $5 million from improved pricing and product mix and $3 million from higher volume compared to 2007.

Consumer & Office Products



                                        Years ended December 31,
                  In millions            2008             2007
                  Sales              $       1,063    $       1,147
                  Segment profit 1              96              139

1 Segment profit is measured as results before restructuring charges and one-time costs, pension income, interest expense and income, income taxes, minority interest income and losses and discontinued operations.

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

Sales for the Consumer & Office Products segment decreased to $1.06 billion in 2008 compared to $1.15 billion in 2007. In 2008, volume declines across key product lines due to the weakening U.S. economy offset improvements in pricing and product mix compared to 2007, as well as higher year-over-year sales in the Brazilian school products business. This segment continues to be impacted by Asian-based imported products.

Profit for the Consumer & Office Products segment decreased to $96 million in 2008 compared to $139 million in 2007. In 2008, earnings were negatively impacted by $38 million from lower volume, $28 million from higher input costs, $5 million from the impact of unfavorable foreign currency exchange and $9 million from other unfavorable items compared to 2007. In 2008, earnings benefited by $23 million from improved productivity and $14 million from improved product mix compared to 2007.

Specialty Chemicals



                                        Years ended December 31,
                   In millions            2008             2007
                   Sales              $        547     $        494
                   Segment profit 1             48               37

1 Segment profit is measured as results before restructuring charges and one-time costs, pension income, interest expense and income, income taxes, minority interest income and losses and discontinued operations.

The Specialty Chemicals segment manufactures, markets and distributes specialty chemicals derived from sawdust and other byproducts of the papermaking process in North America, South America and Asia. Products include activated carbon used in emission control systems for automobiles and trucks and performance chemicals used in printing inks, asphalt paving, adhesives and lubricants for the agricultural, paper and petroleum industries.

Sales for the Specialty Chemicals segment increased to $547 million in 2008 compared to $494 million in 2007. In 2008, improved pricing and product mix in most markets were partially offset by volume declines for carbon-based products due to lower automobile production volumes in North America compared to 2007, and volume declines for printing ink resins due to weakness in the publication inks industry.

Profit for the Specialty Chemicals segment increased to $48 million in 2008 compared to $37 million in 2007. In 2008, earnings benefited by $53 million from improved pricing and product mix and $8 million from other favorable items compared to 2007. In 2008, earnings were negatively impacted by $28 million from higher input costs of energy, raw materials and freight and $22 million from unfavorable productivity compared to 2007.

Community Development and Land Management



                                         Years ended December 31,
                  In millions              2008             2007
                  Sales 1              $        135     $         87
                  Segment profit 1,2             59              294

1 In 2008, sales of landholdings are included in net sales in the consolidated statements of operations to reflect the strategic view and structure of the operations of the Community Development and Land Management segment established in 2008. For periods prior to 2008, gains from sales of landholdings are included in other income, net in the consolidated statements of operations.

2 Segment profit is measured as results before restructuring charges and one-time costs, pension income, interest expense and income, income taxes, minority interest income and losses and discontinued operations.

During 2008, MWV established a real estate business to maximize the value of its land holdings. As a result, the company is presenting the Community Development and Land Management business as a separate segment for the year ended December 31, 2008, which was previously included in Corporate and Other. Results prior to 2008 have been recast to conform to the new segment structure.

Profit for the Community Development and Land Management segment was $59 million for the year ended December 31, 2008 compared to $294 million for the year ended December 31, 2007. Sales were $135 million in 2008 compared to $87 million in 2007. Profit in 2007 includes pre-tax gains of $250 million related to sales of non-strategic large-tract forestlands. Profit from real estate activities related to small-tract land sales was $40 million in 2008 compared to $24 million in 2007. Profit from forestry operations and leasing activities was $19 million in 2008 compared to $20 million in 2007. The company sold approximately 21,200 small-tract acres for gross proceeds of $57 million in 2008 compared to approximately 7,900 acres for gross proceeds of $26 million in 2007. As the U.S. economy continued to weaken in 2008, the company shifted its marketing focus to smaller recreational properties primarily located in rural Alabama, Georgia and Virginia.

The Community Development and Land Management segment is responsible for maximizing the value of the company's landholdings. Operations of the segment include real estate development, forestry operations and leasing activities. Real estate development includes (i) improving and selling rural tracts primarily for recreational and residential uses, (ii) entitling and improving high-value tracts through joint ventures and other ownership arrangements,
(iii) master planning select landholdings, and (iv) monetizing non-core forestlands. Forestry operations include growing and harvesting softwood and hardwood on the company's forestlands for external consumption and for use by the company's mill-based business. Leasing activities include fees from third parties undertaking mineral extraction operations, as well as fees from recreational leases on the company's forestlands.

The goal of the Community Development and Land Management business is to create and manage a land portfolio capable of generating sustainable earnings and cash flow and maximizing shareholder value. To accomplish this goal, during 2008 the company evaluated its land portfolio to determine the potential maximum value for each tract and the real estate strategies for realizing those values. Based on our landholdings at December 31, 2008, management has determined that approximately 545,000 acres are most suitable for rural land sales, approximately 115,000 acres are developable and approximately 140,000 acres are strategic fiber sources for the company's mill operations with mineral extraction potential. Current segmentation may change as a result of the company's continuous evaluation of its landholdings for the highest and best use.

Current real estate industry conditions remain challenging due to significant credit tightening and weaker consumer spending. These factors will likely continue to influence near-term results. During this time, the company will continue to move forward with its near- and long- term real estate value creation plans, including enhancing rural land and entitling and master planning its highest potential development land.

Corporate and Other



                                              Years ended December 31,
            In millions                        2008              2007
            Sales 1                         $       105       $       130
            Corporate and Other loss 1, 2          (375 )            (466 )

1 Results for 2007 have been recast to include certain costs previously associated with the discontinued operations of the Kraft business and to conform to the new segment structure adopted in 2008 reflecting the separate presentation of the Community Development and Land Management business previously included in Corporate and Other.

2 Corporate and Other loss includes minority interest income and losses, restructuring charges and one-time costs, pension income, interest expense and income, and gains and losses on certain asset sales.

Corporate and Other includes corporate support staff services and related assets and liabilities, including merger-related goodwill, and the Specialty Papers business. The results include income and expense items not directly associated with segment operations, such as certain legal settlements, net pension income, interest expense and income, sales of corporate real estate, restructuring charges and one-time costs and other activities.

Corporate and Other loss was $375 million in 2008 compared to a loss of $466 million in 2007. Contributing to the decreased loss in 2008 were lower restructuring charges and one-time costs of $40 million, higher pension income of $35 million, higher interest income of $20 million, a gain of $15 million from the sale of corporate real estate, and $8 million from other net favorable items, partially offset by $27 million from unfavorable foreign currency exchange compared to 2007.

Comparison of Years ended December 31, 2007 and 2006

Sales were $6.41 billion and $6.05 billion for the years ended December 31, 2007 and 2006, respectively. Increased sales in 2007 were driven by the addition of . . .