Form 10-Q

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10-Q 1 d895807d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015

¨	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 001-31215

MeadWestvaco Corporation

(Exact name of registrant as specified in its charter)

Delaware

31-1797999

(State of

incorporation)

(I.R.S. Employer

Identification No.)

501 South 5^th Street

Richmond, Virginia 23219-0501

Telephone 804-444-1000

(Address and telephone number of registrant’s principal executive offices)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES ¨ NO x

At April 24, 2015, there were 167,813,882 shares of MeadWestvaco common stock outstanding.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

INDEX TO FORM 10-Q


	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited):

Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014		1

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014		2

Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014		3

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014		4

Notes to Consolidated Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3. Quantitative and Qualitative Disclosures About Market Risk		29

Item 4. Controls and Procedures		29

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		30

Item 1A. Risk Factors		30

Item 6. Exhibits		30

SIGNATURES		31

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


*In millions, except per share amounts*	Three Months Ended March 31,
*In millions, except per share amounts*	2015			2014
Net sales	$	1,282		$	1,322
Cost of sales		1,045			1,075
Selling, general and administrative expenses		159			161
Interest expense		52			53
Other income, net		(18	)		(13	)

Income from continuing operations before income taxes		44			46
Income tax provision		13			15

Income from continuing operations		31			31
Income from discontinued operations, net of income taxes		2			0

Net income		33			31
Less: Net income attributable to non-controlling interests, net of income taxes		0			0

Net income attributable to the company	$	33		$	31

Income from continuing operations attributable to the company	$	31		$	31

Net income per share attributable to the company – basic:
Income from continuing operations	$	0.19		$	0.18
Income from discontinued operations		0.01			0.00

Net income attributable to the company	$	0.20		$	0.18

Net income per share attributable to the company – diluted:
Income from continuing operations	$	0.18		$	0.18
Income from discontinued operations		0.01			0.00

Net income attributable to the company	$	0.19		$	0.18

Shares used to compute net income per share attributable to the company:
Basic		167.9			170.7
Diluted		170.8			173.5
Cash dividends per share¹	$	0.25		$	1.25

¹	Cash dividends per share for the three months ended March 31, 2014 include a special dividend of $1.00 per share paid on March 3, 2014.

The accompanying notes are an integral part of these financial statements.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


*In millions*	Three Months Ended March 31,
*In millions*	2015			2014
Net income	$	33		$	31

Other comprehensive (loss) income, net of tax:
Foreign currency translation		(153	)		19
Adjustments related to pension and other benefit plans		3			1
Net unrealized income on derivative instruments		5			0

Other comprehensive (loss) income, net of tax		(145	)		20

Comprehensive (loss) income		(112	)		51
Less: Comprehensive income attributable to non-controlling interests		0			0

Comprehensive (loss) income attributable to the company	$	(112	)	$	51

The accompanying notes are an integral part of these financial statements.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

CONSOLIDATED BALANCE SHEETS

(Unaudited)


*In millions, except share and per share amounts*	March 31, 2015			December 31, 2014
ASSETS
Cash and cash equivalents	$	262		$	454
Accounts receivable, net		688			608
Inventories		681			673
Other current assets		139			135
Assets held for sale		93			104

Current assets		1,863			1,974
Property, plant, equipment and forestlands, net		3,306			3,422
Prepaid pension asset		1,401			1,374
Goodwill		680			692
Restricted assets held by special purpose entities		1,258			1,258
Other assets		625			644

	$	9,133		$	9,364

LIABILITIES AND EQUITY
Accounts payable	$	519		$	540
Accrued expenses		322			388
Notes payable and current maturities of long-term debt		74			82
Liabilities held for sale		22			19

Current liabilities		937			1,029
Long-term debt		1,810			1,790
Non-recourse liabilities held by special purpose entities		1,112			1,112
Deferred income taxes		1,319			1,330
Other long-term obligations		672			695
Commitments and contingencies		—			—
Equity:
Shareholders’ equity:
Common stock, $0.01 par
Shares authorized: 600,000,000 Shares issued and outstanding: 2015 – 167,806,112 (2014 – 167,198,221)		2			2
Additional paid-in capital		2,902			2,872
Retained earnings		857			866
Accumulated other comprehensive loss		(631	)		(486	)

Total shareholders’ equity		3,130			3,254
Non-controlling interests		153			154

Total equity		3,283			3,408

	$	9,133		$	9,364

The accompanying notes are an integral part of these financial statements.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


*In millions*	Three Months Ended March 31,
*In millions*	2015			2014
Cash flows from operating activities:
Net income	$	33		$	31
Discontinued operations		(2	)		0
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, depletion and amortization		82			93
Deferred income taxes		3			7
Pension income (excluding curtailments)		(17	)		(30	)
Impairment of long-lived assets		0			13
Appreciation in cash surrender value insurance policies		(8	)		(6	)
Changes in working capital, excluding the effects of acquisitions and dispositions		(203	)		(213	)
Payment of alternative minimum taxes – forestlands sale		0			(98	)
Other, net		(1	)		(4	)

Net cash used in operating activities from continuing operations		(113	)		(207	)
Discontinued operations		0			(1	)

Net cash used in operating activities		(113	)		(208	)
Cash flows from investing activities:
Capital expenditures		(65	)		(66	)
Proceeds from dispositions of assets		0			3
Other		0			3

Net cash used in investing activities		(65	)		(60	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		50			50
Repayment of long-term debt		(19	)		(20	)
Changes in notes payable and other short-term borrowings, net		(2	)		3
Changes in bank overdrafts		1			14
Dividends paid (including special dividend of $175 million paid in March 2014)		(42	)		(218	)
Stock repurchases		0			(305	)
Proceeds from exercises of stock options		12			13
Other		6			3

Net cash provided by (used in) financing activities		6			(460	)
Effect of exchange rate changes on cash		(20	)		3

Decrease in cash and cash equivalents		(192	)		(725	)
Cash and cash equivalents:
At beginning of period		454			1,057

At end of period	$	262		$	332

The accompanying notes are an integral part of these financial statements.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of presentation and recent developments

MeadWestvaco Corporation (“MeadWestvaco”, “MWV”, or the “company”) is a global packaging company providing innovative solutions to the world’s most admired brands in the healthcare, beauty and personal care, food, beverage, home and garden, tobacco, and agricultural industries. The company also produces specialty chemicals for the automotive, energy, and infrastructure industries and maximizes the value of its development land holdings in the Charleston, South Carolina region. MeadWestvaco is a Delaware corporation, incorporated in 2001 and the successor to Westvaco Corporation and The Mead Corporation. MWV’s reporting segments are (i) Food & Beverage, (ii) Home, Health & Beauty, (iii) Industrial, (iv) Specialty Chemicals, and (v) Community Development and Land Management.

These interim consolidated financial statements have not been audited. However, in the opinion of management, all normal recurring adjustments necessary to state fairly the financial position and the results of operations for the interim periods presented have been made. These interim consolidated financial statements have been prepared on the basis of accounting principles and practices generally accepted in the U.S. (“GAAP”) applied consistently with those used in the preparation of the consolidated financial statements included in the company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Certain information and footnote disclosures normally included in annual consolidated financial statements presented in accordance with GAAP 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 consolidated financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2014.

On January 26, 2015, MWV announced it has entered into a Business Combination Agreement to merge with Rock-Tenn Company to create a leading global provider of consumer and corrugated packaging. The company expects this transaction to close in the second calendar quarter of 2015. Additional information about the Business Combination Agreement is set forth in the company’s Current Report on Form 8-K filed with the SEC on January 27, 2015 and the company’s Annual Report on Form 10-K filed with the SEC on February 23, 2015.

On January 8, 2015, the company announced its Board of Directors has approved a plan to fully separate its Specialty Chemicals business from the rest of the company by the end of 2015. Additional information about this planned transaction is set forth in the company’s Annual Report on Form 10-K filed with the SEC on February 23, 2015.

2. New accounting guidance

In January 2015, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that eliminates from GAAP the concept of extraordinary items. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The new guidance may be applied prospectively or retrospectively to all periods presented in the financial statements. The impact of adoption is not expected to have a material effect on the company’s consolidated financial statements.

In February 2015, the FASB issued new accounting guidance regarding the consolidation analysis for certain legal entities. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The new guidance may be applied retrospectively or using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The impact of adoption is not expected to have a material effect on the company’s consolidated financial statements.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

During the three months ended March 31, 2015, there were no other new accounting standards issued by the FASB that would have an impact on the company’s consolidated financial statements.

3. Fair value measurements

The following information is presented for assets and liabilities that are recorded in the consolidated balance sheets at fair value at March 31, 2015 and December 31, 2014, measured on a recurring basis. There were no significant transfers of assets and liabilities that are recorded at fair value between Level 1 and Level 2 during the three months ended March 31, 2015 and 2014.


*In millions*	March 31, 2015			Level 1 ⁽¹⁾		Level 2 ⁽²⁾			Level 3 ⁽³⁾
Recurring fair value measurements:
Derivatives-assets ⁽⁴⁾	$	14		$	0	$	14		$	0
Derivatives-liabilities ⁽⁴⁾		(5	)		0		(5	)		0
Cash equivalents		174			174		0			0


*In millions*	December 31, 2014			Level 1 ⁽¹⁾		Level 2 ⁽²⁾			Level 3 ⁽³⁾
Recurring fair value measurements:
Derivatives-assets ⁽⁴⁾	$	8		$	0	$	8		$	0
Derivatives-liabilities ⁽⁴⁾		(4	)		0		(4	)		0
Cash equivalents		369			369		0			0

⁽¹⁾	Quoted prices in active markets for identical assets.

⁽²⁾	Quoted prices for similar assets and liabilities in active markets.

⁽³⁾	Significant unobservable inputs.

⁽⁴⁾

Derivative instruments consist of hedge contracts on natural gas and foreign currencies. Natural gas hedge instruments are valued using models with market inputs such as NYMEX natural gas futures contract pricings. Foreign currency forward contracts are valued using models with market inputs such as prices of instruments of a similar nature.

At March 31, 2015, the book value of debt was $1.9 billion and the fair value was estimated to be $2.3 billion. The difference between book value and fair value is derived from the difference between the period-end market interest rates and the stated fixed rates for the company’s long-term debt. The company estimates the fair values of financial instruments using Level 2 inputs which are 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.

4. Restructuring charges

At times the company initiates certain restructuring actions to reduce its overhead related to its global and domestic operations. In January 2014, the company initiated a margin improvement program, which was largely complete at the end of 2014. Key elements of the program include implementing a leaner organization design, aligning the corporate infrastructure to the revenue base, reassessing participation within certain business lines and markets and prioritizing capital on the highest return projects. Restructuring charges incurred during the three months ended March 31, 2015 and 2014 were pursuant to these actions. Cumulative charges included in the results from continuing operations through March 31, 2015 since the inception of the 2014 program were $47 million. Although these charges related to individual segments, such amounts are included in Corporate and Other for segment reporting purposes.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Restructuring charges attributable to individual segments and by nature of cost, as well as cost of sales (“COS”) and selling, general and administrative expenses (“SG&A”) classification in the consolidated statements of operations for the three months ended March 31, 2015 and 2014 are presented below.

Three months ended March 31, 2015


*In millions*	Employee-related costs						Asset write-downs and other costs								Total
*In millions*	COS		SG&A		Total		COS			SG&A		Total			COS			SG&A		Total
Food & Beverage	$	0	$	0	$	0	$	(1	)	$	0	$	(1	)	$	(1	)	$	0	$	(1	)
Home, Health & Beauty All		5		0		5		1			0		1			6			0		6

Total charges	$	5	$	0	$	5	$	0		$	0	$	0		$	5		$	0	$	5

Three months ended March 31, 2014


*In millions*	Employee-related costs						Asset write-downs and other costs						Total
*In millions*	COS		SG&A		Total		COS		SG&A		Total		COS		SG&A		Total
Food & Beverage	$	0	$	3	$	3	$	1	$	0	$	1	$	1	$	3	$	4
Home, Health & Beauty All		1		4		5		1		0		1		2		4		6
Industrial		1		1		2		0		0		0		1		1		2
All other		0		15		15		0		12		12		0		27		27

Total charges	$	2	$	23	$	25	$	2	$	12	$	14	$	4	$	35	$	39

Activity in the restructuring reserve balances was as follows for the three months ended March 31, 2015:


*In millions*	Employee related
*In millions*	2014 program			Other actions		Total
Balance at December 31, 2014	$	4		$	22	$	26
Charges		0			5		5
Payments		(2	)		0		(2	)

Balance at March 31, 2015	$	2		$	27	$	29

5. Inventories and property, plant and equipment

Inventories consist of:


*In millions*	March 31, 2015		December 31, 2014
Raw materials	$	165	$	162
Production materials, stores and supplies		108		113
Finished and in-process goods		408		398

	$	681	$	673

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Property, plant and equipment is net of accumulated depreciation of:


*In millions*	March 31, 2015		December 31, 2014
Accumulated depreciation	$	3,912	$	3,910

6. Intangible assets

The following table summarizes intangible assets subject to amortization included in other assets:


*In millions*	March 31, 2015				December 31, 2014
*In millions*	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Trademarks and trade names	$	27	$	23	$	27	$	22
Customer contracts and lists		246		124		255		125
Patents		51		41		53		43
Other – primarily licensing rights		14		11		14		10

	$	338	$	199	$	349	$	200

Included in other assets are indefinite-lived intangible assets with carrying values of:


*In millions*	March 31, 2015		December 31, 2014
Trademarks and trade names	$	87	$	91

7. Financial instruments

The company uses various derivative financial instruments as part of an overall strategy to manage exposure to market risks associated with natural gas price fluctuations, foreign currency exchange rates and interest rates. The company does not hold or issue derivative financial instruments for trading purposes. The risk of loss to the company in the event of non-performance by any counterparty under derivative financial instrument agreements is not significant. Although the derivative financial instruments expose the company to market risk, fluctuations in the value of the derivatives are generally offset in earnings by the recognition of the hedged item in earnings or the earnings impact from the underlying exposures.

All derivative instruments are recorded in the consolidated balance sheets as assets or liabilities, measured at estimated fair values. Fair value estimates are based on relevant market information, including market rates and prices. For a derivative instrument designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive income and is recognized in earnings when the hedged item affects earnings. The ineffective portions of cash flow hedges are recognized, as incurred, in earnings. Changes in the fair value of a derivative instrument not designated as a qualifying hedge are recognized in earnings.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

The pre-tax effect of derivative instruments, which excludes the offsetting impact of the hedged item and underlying exposures, in the consolidated statements of operations and accumulated other comprehensive income (loss) for the three months ended March 31, 2015 and 2014 are presented below.


	Cash flow hedges										Derivatives not designated as hedges
*In millions*	Foreign currency hedges					Natural gas hedges					Foreign currency derivatives
	2015		2014			2015			2014		2015			2014
Gain (loss) recognized in other comprehensive income (effective portion)	$	15	$	(1	)	$	(4	)	$	1	$	0		$	0

Gain (loss) reclassified to earnings from accumulated comprehensive income (effective portion)	$	6	$	(1	)	$	(3	)	$	1	$	0		$	0
(Loss) gain recognized in earnings ⁽¹⁾		0		0			0			0		(2	)		2

Total gain (loss) recognized in earnings ⁽²⁾	$	6	$	(1	)	$	(3	)	$	1	$	(2	)	$	2

⁽¹⁾	Amounts represent the ineffective portion or items excluded from effectiveness testing for all derivatives in cash flow hedging relationships or represent realized and unrealized gains (losses) associated with those derivatives not designated as hedges.

⁽²⁾	Gains and losses recognized in earnings are generally offset by the recognition of the hedged item in earnings or the earnings impact from the underlying exposures.

The fair values and the effect of derivative instruments on the consolidated balance sheets as of March 31, 2015 and December 31, 2014 are presented below:


	March 31, 2015
*In millions*	Gross amount of recognized assets (liabilities)			Gross amount offset in the consolidated balance sheet			Net amount of assets (liabilities) presented in the consolidated balance sheet			Classification
Assets
Derivatives designated as hedges:
Foreign currency hedges		17			0			17		Other current assets
Natural gas hedges	$	0		$	(4	)	$	(4	)	Other current assets
Derivatives not designated as hedges:
Foreign currency derivatives		2			(1	)		1		Other current assets

Total assets	$	19		$	(5	)	$	14
Liabilities
Derivatives designated as hedges:
Foreign currency hedges		0			3			3		Accounts payable
Natural gas hedges	$	(4	)	$	0		$	(4	)	Accounts payable
Natural gas hedges		(1	)		0			(1	)	Other long-term obligations
Derivatives not designated as hedges:
Foreign currency derivatives		(6	)		3			(3	)

Total liabilities	$	(11	)	$	6		$	(5	)

Total derivatives							$	9

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies


	December 31, 2014
*In millions*	Gross amount of recognized assets (liabilities)			Gross amount offset in the consolidated balance sheet			Net amount of assets (liabilities) presented in the consolidated balance sheet			Classification
Assets
Derivatives designated as hedges:
Foreign currency hedges	$	9		$	0		$	9		Other current assets
Natural gas					(2	)		(2	)	Other current assets
Derivatives not designated as hedges:
Foreign currency derivatives		3			(2	)		1		Other current assets

Total assets	$	12		$	(4	)	$	8

Liabilities
Derivatives designated as hedges:
Foreign currency hedges	$	0		$	2		$	2		Accounts payable
Natural gas		(5	)		0			(5	)	Accounts payable
Natural gas		(1	)		0			(1	)	Other long-term obligations

Total liabilities	$	(6	)	$	2		$	(4	)

Total derivatives							$	4

Natural gas

In order to better predict and control the future cost of natural gas consumed at the company’s mills and plants, the company engages in financial hedging of future gas purchase prices. Gas usage is relatively predictable month-by-month. The company hedges primarily with financial instruments that are priced based on New York Mercantile Exchange (NYMEX) natural gas futures contracts. The company does not hedge basis (the effect of varying delivery points or locations) or transportation (the cost to transport the gas from the delivery point to a company location) under these transactions. The notional values of these contracts in Million British Thermal Units (“MMBTUs”) at March 31, 2015 and December 31, 2014 are presented below.


*In MMBTUs*
March 31, 2015		December 31, 2014
12		10

Unrealized gains and losses on contracts maturing in future months are recorded in accumulated other comprehensive income and are charged or credited to earnings for the ineffective portion of the hedge. Once a contract matures, the company has a realized gain or loss on the contract up to the quantities of natural gas in the forward hedge agreements for that particular period, which are charged or credited to earnings when the related hedged item affects earnings. The ineffective portion of these cash flow hedges, as well as realized hedge gains and losses, are recorded within cost of sales in the consolidated statements of operations. The estimated pre-tax loss to be recognized in earnings is $8 million during the next twelve months. As of March 31, 2015, the maximum remaining term of existing hedges was two years. For the three months ended March 31, 2015 and 2014, no gains or losses were recognized in earnings due to the probability that forecasted transactions will not occur.

Foreign currency risk

The company uses foreign currency forward contracts to manage some of the foreign currency exchange risks associated with short-term foreign inter-company loans, foreign cash deposits, foreign currency sales and purchases of its international operations, and foreign sales of its U.S. operations. These contracts are used to hedge the variability of exchange rates on the company’s cash flows and foreign cash deposits.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

The foreign currency forward contracts related to certain inter-company loans and foreign cash deposits are short term in duration and are not designated as hedging instruments. Gains and losses related to these forward contracts are included in other income, net in the consolidated statements of operations. The notional amounts of these foreign currency forward contracts at March 31, 2015 and December 31, 2014 are presented below.


*In millions*	March 31, 2015		December 31, 2014
Notional amount of foreign currency forward contracts – not designated as hedges	$	102	$	112

Other foreign currency forward contracts, which are for terms of up to one year, are designated as cash flow hedges. These hedges are used to reduce the foreign currency exposure related to certain foreign and inter-company sales. For these hedges, realized hedge gains and losses are recorded in net sales in the consolidated statements of operations concurrent with the recognition of the hedged sales. The ineffective portion of these hedges is also recorded in net sales. The estimated pre-tax gain to be recognized in earnings during the next twelve months is $20 million. As of March 31, 2015, the maximum remaining term of existing hedges was one year. For the three months ended March 31, 2015 and 2014, no significant gains or losses were recognized in earnings due to the probability that forecasted transactions will not occur. The notional amounts of these foreign currency forward contracts at March 31, 2015 and December 31, 2014 are presented below.


*In millions*	March 31, 2015		December 31, 2014
Notional amount of foreign currency forward contracts – designated as hedges	$	113	$	150

8. Employee retirement and postretirement benefits

The components of net periodic benefit (income) cost for the company’s retirement and post retirement plans for the three months ended March 31, 2015 and 2014 are presented below.


	Three months ended March 31,
*In millions*	Pension benefits						Postretirement benefits
*In millions*	2015			2014			2015			2014
Service cost—benefits earned during the period	$	16		$	10		$	1		$	1
Interest cost on projected benefit obligation		30			31			1			1
Expected return on plan assets		(71	)		(73	)		0			0
Amortization of prior service cost (income)		1			1			(3	)		0
Amortization of net actuarial loss		7			1			0			0
Curtailments ⁽¹⁾		0			2			0			0

Net periodic benefit (income) cost	$	(17	)	$	(28	)	$	(1	)	$	2

⁽¹⁾	For the three months ended March 31, 2014, the company recorded within restructuring charges a curtailment loss of approximately $2 million.

Employer contributions

The company does not anticipate any required contributions to its U.S. qualified retirement plans in the foreseeable future as the plans do not require any minimum regulatory funding contribution. Accordingly, no contributions were made to these plans during the three months ended March 31, 2015. However, the company expects to contribute $2 million to the funded non-U.S. plans in 2015.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

9. Income per common share

Basic net income per share for all the periods presented has been calculated using the weighted average shares outstanding. In computing diluted net income per share, incremental shares issuable upon the assumed exercise of stock options and other share-based compensation awards are included in the weighted average shares outstanding, if dilutive. Below is the number of potentially dilutive shares not included in the calculation of diluted net income per share because to do so would have been anti-dilutive for the periods presented.


	Three Months Ended March 31,
*In millions*	2015		2014
Anti-dilutive shares		0.2		1.3

10. Equity

Changes in equity for the three months ended March 31, 2015 and 2014 are as follows:


Three months ended March 31, 2015	Shareholders’ equity												Non-controlling interests			Total equity
*In millions*	Outstanding shares		Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive loss			Non-controlling interests			Total equity
Balance at December 31, 2014		167.2	$	2	$	2,872	$	866		$	(486	)	$	154		$	3,408
Net income		0		0		0		33			0			0			33
Other comprehensive loss		0		0		0		0			(145	)		0			(145	)
Dividends declared		0		0		0		(42	)		0			0			(42	)
Non-controlling interests distribution		0		0		0		0			0			(3	)		(3	)
Non-controlling interest contribution		0		0		0		0			0			2			2
Share-based employee compensation		0.1		0		14		0			0			0			14
Exercises of stock options		0.5		0		16		0			0			0			16

Balance at March 31, 2015		167.8	$	2	$	2,902	$	857		$	(631	)	$	153		$	3,283


Three months ended March 31, 2014	Shareholders’ equity														Non-controlling interests			Total equity
*In millions*	Outstanding shares			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Non-controlling interests			Total equity
Balance at December 31, 2013		174.4		$	2	$	3,172		$	950		$	(180	)	$	155		$	4,099
Net income		0			0		0			31			0			0			31
Other comprehensive income		0			0		0			0			20			0			20
Dividends declared		0			0		0			(220	)		0			0			(220	)
Non-controlling interests distribution		0			0		0			0			0			(1	)		(1	)
Non-controlling interest contribution		0			0		0			0			0			5			5
Stock repurchases		(7.5	)		0		(300	)		0			0			0			(300	)
Share-based employee compensation		0.2			0		10			0			0			0			10
Exercises of stock options		0.7			0		15			0			0			0			15

Balance at March 31, 2014		167.8		$	2	$	2,897		$	761		$	(160	)	$	159		$	3,659

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Changes in accumulated other comprehensive loss by component for the three months ended March 31, 2015 and 2014 are as follows:

Three months ended March 31, 2015


*In millions*	Foreign currency translation⁽¹⁾			Pension and other benefit plans⁽¹⁾			Derivative instruments⁽¹⁾			Total
Balance as of December 31, 2014	$	(234	)	$	(254)		$	2		$	(486	)
Other comprehensive (loss) income before reclassifications		(153	)		0			7			(146	)
Amounts reclassified from accumulated other comprehensive loss		0			3			(2	)		1

Other comprehensive (loss) income, net		(153	)		3			5			(145	)

Balance as of March 31, 2015	$	(387	)	$	(251	)	$	7		$	(631	)


Three months ended March 31, 2014

*In millions*
Balance as of December 31, 2013	$	(60	)	$	(119	)	$	(1	)	$	(180	)
Other comprehensive income before reclassifications		19			0			0			19
Amounts reclassified from accumulated other comprehensive loss		0			1			0			1

Other comprehensive income, net		19			1			0			20

Balance as of March 31, 2014	$	(41	)	$	(118	)	$	(1	)	$	(160	)

⁽¹⁾	All amounts are net of tax.

Reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2015 and 2014 are as follows:


Details about accumulated other comprehensive income components	Amounts reclassified from accumulated other comprehensive loss						Affected line item in the consolidated statements of operations
	Three months ended
*In millions*	March 31, 2015			March 31, 2014
Derivative instruments
Foreign currency cash flow hedges	$	6		$	(1	)	Net sales
Natural gas cash flow hedges		(3	)		1		Cost of sales

Total before tax		3			0
Tax benefit		(1	)		0

Total, net of tax	$	2		$	0

Amortization of pension and other benefit plan items
Prior service income (cost)	$	2		$	(1	)	Cost of sales and selling, general and administrative expenses
Net actuarial loss		(7	)		(1	)	Cost of sales and selling, general and administrative expenses

Total before tax		(5	)		(2	)
Tax benefit		2			1

Total, net of tax	$	(3	)	$	(1	)

Total reclassifications for the period, net of tax	$	(1	)	$	(1	)

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

11. Segment information

MWV’s segments are (i) Food & Beverage, (ii) Home, Health & Beauty (iii) Industrial, (iv) Specialty Chemicals, and (v) Community Development and Land Management.

The Food & Beverage segment produces packaging materials, and designs and produces packaging solutions primarily for the global food, food service, beverage, dairy and tobacco end markets, as well as paperboard for commercial printing. For the global food market, the segment develops and produces materials and innovative solutions that are used to package frozen food, dry goods, ready-to-eat meals, hot and cold drinks, and various shelf-stable dairy products. For the global beverage market, the segment has a fully integrated business model, including high-performance paperboard, carton design and converting operations, as well as beverage packaging machinery. For the global tobacco market, the segment produces high performance paperboard, and designs and produces cartons for the world’s leading tobacco brand owners. The segment’s materials are manufactured in the U.S. and converted into packaging solutions at plants located in North America, Europe and Asia.

The Home, Health & Beauty segment designs and produces packaging solutions for the global personal care, fragrance, home care, lawn and garden, prescription drug and healthcare end markets. For the global beauty and personal care market, the segment produces pumps for fragrances, lotions, creams and soaps, flip-top and applicator closures for bath and body products and lotions, and plastic packaging for hair and skin care products. For the global home and garden market, the segment produces trigger sprayers for surface cleaners and fabric care, aerosol actuators for air fresheners, hose-end sprayers for lawn and garden maintenance, and spouted and applicator closures for a variety of other home and garden products. For the global healthcare market, the segment produces secondary packages designed to enhance patient adherence for prescription drugs, as well as healthcare dispensing systems, paperboard packaging and closures for over-the-counter and prescription drugs. Paperboard and plastic materials are converted into packaging solutions at plants located in North America, South America, Europe and Asia.

The Industrial segment designs and produces corrugated packaging solutions, primarily for produce, meat, consumer products and bulk goods. In Brazil, where most of this business is based, the integrated business includes forestlands, paperboard mills and corrugated box plants. This segment also includes operations in India, which develop corrugated packaging materials as well as corrugated packaging solutions for Indian fresh produce. In Brazil, the segment manufactures high-quality virgin kraftliner and recycled material medium paperboards, and converts the board to corrugated packaging at four box plants across the country. In India, the segment converts raw materials to corrugated packaging at its facility in Pune and manufactures containerboard at two mills in Vapi and Morai.

The Specialty Chemicals segment manufactures, markets and distributes specialty chemicals derived from sawdust and other byproducts of the papermaking process in North America, Europe, South America and Asia. Products include performance chemicals derived from pine chemicals used in printing inks, asphalt paving and adhesives as well as in the agricultural, paper and petroleum industries. This segment also produces activated carbon products used in gas vapor emission control systems for automobiles and trucks, as well as applications for air, water and food purification.

The Community Development and Land Management segment is responsible for maximizing the value of 94,000 development acres in the Charleston, South Carolina region through a land development partnership with Plum Creek. The segment develops real estate including (i) selling development property, (ii) entitling and improving high-value tracts, and (iii) master planning of select landholdings. The earnings of this segment exclude the non-controlling interest attributable to Plum Creek.

Corporate and Other includes expenses associated with corporate support staff services, as well as income and expense items not directly associated with ongoing segment operations, such as alternative fuel mixture credits, restructuring charges, pension income and curtailment gains and losses, interest expense and income, non-controlling interest income and losses, certain legal settlements, gains and losses on certain asset sales and other items.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Segment results for the three months ended March 31, 2015 and 2014 are as follows:


Three months ended March 31, 2015	Sales						Segment
*In millions*	External		Inter-segment		Total		profit
Food & Beverage	$	739	$	6	$	745	$	57
Home, Health & Beauty		180		0		180		19
Industrial		121		0		121		23
Specialty Chemicals		239		0		239		49
Community Development and Land Management		3		0		3		(3	)

Total	$	1,282	$	6	$	1,288		145

Corporate and Other								(101	)

Consolidated totals							$	44


Three months ended March 31, 2014	Sales						Segment
*In millions*	External		Inter-segment		Total		profit
Food & Beverage	$	756	$	7	$	763	$	55
Home, Health & Beauty		204		1		205		12
Industrial		128		0		128		16
Specialty Chemicals		232		0		232		51
Community Development and Land Management		2		0		2		(3	)

Total	$	1,322	$	8	$	1,330		131

Corporate and Other								(85	)

Consolidated totals							$	46

12. Environmental and legal matters

The company has been notified by the U.S. Environmental Protection Agency or by various state or local governments that it may be liable under federal environmental laws or under applicable state or local laws with respect to the cleanup of hazardous substances at sites previously operated or used by the company. The company is currently named as a potentially responsible party (“PRP”), or has received third-party requests for contribution under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar state or local laws with respect to numerous sites. There are other sites which may contain contamination or which may be potential Superfund sites, but for which MeadWestvaco has not received any notice or claim. The potential liability for all these sites will depend upon several factors, including the extent of contamination, the method of remediation, insurance coverage and contribution by other PRPs. The company regularly evaluates its potential liability at these various sites. At March 31, 2015, MeadWestvaco had recorded liabilities of approximately $4 million for estimated potential cleanup costs based upon its close monitoring of ongoing activities and its past experience with these matters. The company believes that it is reasonably possible that costs associated with these sites may exceed amounts of recorded liabilities by an amount that could range from an insignificant amount to as much as $2 million. This estimate is less certain than the estimate upon which the environmental liabilities were based. After consulting with legal counsel and after considering established liabilities, it is our judgment that the resolution of pending litigation and proceedings is not expected to have a material adverse effect on the company’s consolidated financial condition or liquidity. In any given period or periods, however, it is possible such proceedings or matters could have a material effect on the results of operations.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

As with numerous other large industrial companies, the company has been named a defendant in asbestos-related personal injury litigation. Typically, these suits also name many other corporate defendants. To date, the costs resulting from the litigation, including settlement costs, have not been significant. As of March 31, 2015, there were about 700 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. Management believes 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 March 31, 2015, the company had recorded litigation liabilities of approximately $22 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.

13. Other income, net

Other income, net is comprised of the following for the three months ended March 31, 2015 and 2014:


*In millions*	Three months ended March 31,
*In millions*	2015		2014
Interest income ⁽¹⁾	$	14	$	13
Foreign currency exchange losses		0		(2	)
Other		4		2

	$	18	$	13

⁽¹⁾	Interest income for both the three months ended March 31, 2015 and 2014 includes $11 million related to a long-term note receivable from the 2013 transaction with Plum Creek.

14. Disposition

On January 22, 2015, the company entered into a definitive agreement to sell its European tobacco folding carton business. For the year ended December 31, 2014, the company recorded restructuring charges of $30 million related to asset write-downs within the consolidated statement of operations. Assets of $84 million and liabilities of $22 million at March 31, 2015 and assets of $92 million and liabilities of $19 million at December 31, 2014 were classified as assets and liabilities held for sale in the consolidated balance sheets. The change in the fair value of the assets and liabilities held for sale is primarily due to foreign currency exchange. The transaction closed on April 30, 2015. This business is reported within the Food & Beverage segment.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

The following table shows the major categories of assets and liabilities that are classified as held for sale in the consolidated balance sheets at March 31, 2015 and December 31, 2014:


*In millions*	March 31, 2015		December 31, 2014
Accounts receivable, net	$	17	$	19
Inventories		20		20
Other current assets		4		3

Current assets		41		42
Property, plant, equipment and forestlands, net		43		50
Accounts payable		11		7
Accrued expenses		5		5

Current liabilities		16		12
Other long-term liabilities		6		7

In connection with certain business dispositions, MeadWestvaco has provided certain guarantees and indemnities to the respective buyers and other parties. These obligations include both potential environmental matters as well as certain contracts with third parties. The total aggregate exposure to the company for these matters could be up to $35 million. The company has evaluated the fair value of these guarantees and indemnifications which did not result in a material impact to the company’s consolidated financial statements.

15. Income taxes

For the three months ended March 31, 2015 and 2014, the effective tax rates, including discrete items, attributable to continuing operations were as follows:


	Three months ended March 31,
	2015			2014
Effective tax rate provision		30	%		33	%

The differences in the effective tax rates for the three months ended March 31, 2015 and 2014 compared to statutory rates are primarily due to the mix and levels between domestic and foreign earnings, as well as from discrete items.

During the three months ended March 31, 2015, there were no significant changes to the company’s uncertain tax positions.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

For the three months ended March 31, 2015, MeadWestvaco Corporation (“MeadWestvaco”, “MWV”, or the company”) generated solid earnings performance as a result of continued success from its commercial and market-participation strategies, benefits from operating efficiencies, and savings from ongoing cost reduction initiatives. The combined benefits to revenue from improved pricing and product mix and volume growth were more than offset by unfavorable foreign currency exchange and portfolio dispositions which in total impacted year-over-year top-line results by $86 million.

For the three months ended March 31, 2015, income from continuing operations before income taxes was $44 million compared to $46 million in 2014. Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) adjusted to exclude certain special items was $188 million, or 14.7% of sales, in the first quarter of 2015 compared to $191 million, or 14.4% of sales, in the first quarter of 2014. Refer to the “Use of Non-GAAP Measures” section herein for further information regarding the operational measures of both consolidated and segment-level EBITDA and EBITDA Margins.

For both the three months ended March 31, 2015 and 2014, income from continuing operations attributable to the company was $31 million, or $0.18 per share. The results from continuing operations attributable to the company for the three months ended March 31, 2015 include after-tax restructuring and other charges of $15 million, or $0.09 per share. The results from continuing operations attributable to the company for the three months ended March 31, 2014 include after-tax restructuring and other charges of $25 million, or $0.15 per share, and after-tax income from an insurance settlement regarding litigation claims of $17 million, or $0.10 per share.

Cash used in operating activities from continuing operations decreased to $113 million for the three months ended March 31, 2015 compared to $208 million for the three months ended March 31, 2014. In the year-ago period, the company paid alternative minimum taxes totaling $98 million related to the sale of the company’s U.S. forestlands in 2013.

Savings associated with the previously announced margin improvement program were $19 million for the three months ended March 31, 2015, bringing cumulative program savings to $104 million.

Recent developments

On January 22, 2015, the company announced a definitive agreement to sell its European tobacco folding carton business to AR Packaging Group AB. The transaction closed on April 30, 2015. Refer to Note 14. Disposition within the Notes to Consolidated Financial Statements included in Part I, Item 1 for further information.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

RESULTS OF OPERATIONS

Presented below are results for the three months ended March 31, 2015 and 2014 reported in accordance with accounting principles generally accepted in the U.S. All per share amounts are presented on an after-tax basis.


*In millions, except per share amounts*	Three Months Ended March 31,
*In millions, except per share amounts*	2015			2014
Net sales	$	1,282		$	1,322
Cost of sales		1,045			1,075
Selling, general and administrative expenses		159			161
Interest expense		52			53
Other income, net		(18	)		(13	)

Income from continuing operations before income taxes		44			46
Income tax provision		13			15

Income from continuing operations		31			31
Income from discontinued operations, net of income taxes		2			0

Net income		33			31
Less: Net income attributable to non-controlling interests, net of income taxes		0			0

Net income attributable to the company	$	33		$	31

Income from continuing operations attributable to the company	$	31		$	31

Net income per share attributable to the company – basic:
Income from continuing operations	$	0.19		$	0.18
Income from discontinued operations		0.01			0.00

Net income attributable to the company	$	0.20		$	0.18

Net income per share attributable to the company – diluted:
Income from continuing operations	$	0.18		$	0.18
Income from discontinued operations		0.01			0.00

Net income attributable to the company	$	0.19		$	0.18

Shares used to compute net income per share attributable to the company:
Basic		167.9			170.7
Diluted		170.8			173.5

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Sales decreased 3% to $1.28 billion for the three months ended March 31, 2015 compared to $1.32 billion for the three months ended March 31, 2014 as improvements in pricing and product mix and gains in volume were more than offset by impacts from unfavorable foreign currency exchange and portfolio dispositions. Refer to the segment discussions herein for further information regarding the decrease in sales for the three months ended March 31, 2015.

Cost of sales (“COS”) was $1.05 billion for the three months ended March 31, 2015 compared to $1.08 billion for the three months ended March 31, 2014. The decrease in COS was primarily driven by lower input costs for energy, raw materials and freight, partially offset by increased volumes compared to 2014.

Selling, general and administrative expenses (“SG&A”) were $159 million for the three months ended March 31, 2015 compared to $161 million for the three months ended March 31, 2014. The decrease in SG&A for 2015 was primarily driven by savings from cost reduction initiatives, largely offset by one-time charges for merger and spin-off related activities compared to 2014.

Restructuring charges attributable to individual segments and by nature of cost, as well as COS and SG&A classification in the consolidated statements of operations for the three months ended March 31, 2015 and 2014 are presented below. Although these charges related to individual segments, such amounts are included in Corporate and Other for segment reporting purposes.

Three months ended March 31, 2015


*In millions*	Employee-related costs						Asset write-downs and other costs								Total
*In millions*	COS		SG&A		Total		COS			SG&A		Total			COS			SG&A		Total
Food & Beverage	$	0	$	0	$	0	$	(1	)	$	0	$	(1	)	$	(1	)	$	0	$	(1	)
Home, Health & Beauty All		5		0		5		1			0		1			6			0		6

Total charges	$	5	$	0	$	5	$	0		$	0	$	0		$	5		$	0	$	5

Three months ended March 31, 2014


*In millions*	Employee-related costs						Asset write-downs and other costs						Total
*In millions*	COS		SG&A		Total		COS		SG&A		Total		COS		SG&A		Total
Food & Beverage	$	0	$	3	$	3	$	1	$	0	$	1	$	1	$	3	$	4
Home, Health & Beauty All		1		4		5		1		0		1		2		4		6
Industrial		1		1		2		0		0		0		1		1		2
All other		0		15		15		0		12		12		0		27		27

Total charges	$	2	$	23	$	25	$	2	$	12	$	14	$	4	$	35	$	39

Pension income, excluding curtailments, was $17 million and $30 million for the three months ended March 31, 2015 and 2014, respectively. Pension income is reported in Corporate and Other for segment reporting purposes.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Other income, net is comprised of the following for the three months ended March 31, 2014 and 2013:


*In millions*	Three months ended March 31,
*In millions*	2015		2014
Interest income ⁽¹⁾	$	14	$	13
Foreign currency exchange losses		0		(2	)
Other		4		2

	$	18	$	13

⁽¹⁾	Interest income for both the three months ended March 31, 2015 and 2014 include $11 million related to a long-term note receivable from the 2013 transaction with Plum Creek.

Interest expense from continuing operations was $52 million for the three months ended March 31, 2015 and was comprised of $33 million related to bond and bank debt, $11 million related to long-term obligations non-recourse to the company, $7 million related to borrowings on insurance policies and $1 million related to other items. Interest expense from continuing operations was $53 million for the three months ended March 31, 2014 and was comprised of $33 million related to bond and bank debt, $11 million related to long-term obligations non-recourse to the company, $6 million related to borrowings on insurance policies and $3 million related to other items.

The effective tax rate attributable to continuing operations was approximately 30% and 33% for the three months ended March 31, 2015 and 2014, respectively. The differences in the effective tax rates for the three months ended March 31, 2015 and 2014 compared to statutory rates are primarily due the mix and levels between domestic and foreign earnings, as well as from discrete items.

In addition to the information discussed above, the following sections discuss the results of operations for each of the company’s segments and Corporate and Other on a continuing operations basis. MWV’s segments are (i) Food & Beverage, (ii) Home, Health & Beauty (iii) Industrial, (iv) Specialty Chemicals, and (v) Community Development and Land Management.

Refer to Note 11 of Notes to Consolidated Financial Statements for a description of each of the company’s segments and a reconciliation of the sum of the results of the segments to the company’s consolidated income from operations before income taxes on a continuing operations basis.

Food & Beverage


*In millions*	Three months ended March 31,
*In millions*	2015		2014
Sales	$	745	$	763
Profit ⁽¹⁾		57		55

⁽¹⁾	Profit is measured as results before restructuring charges, pension income, interest expense and income, income taxes, and results from non-controlling interests.

Sales for the Food & Beverage segment were $745 million and $763 million for the three months ended March 31, 2015 and 2014, respectively. Sales decreased in 2015 primarily due to unfavorable foreign currency exchange and lower volumes. The decrease was partially offset by improved pricing and product mix across all targeted paperboard end-markets.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Profit for the Food & Beverage segment was $57 million and $55 million for the three months ended March 31, 2015 and 2014, respectively. Profit increased in 2015 primarily due to $19 million from favorable productivity and cost reduction benefits, $10 million from improved pricing and product mix and $1 million from net deflation compared to 2014. These benefits were partially offset by $20 million of costs related to planned maintenance outages, $7 million from unfavorable foreign currency exchange and other items and $1 million from lower volumes compared to 2014. EBITDA decreased 6% to $103 million for the three months ended March 31, 2015 compared to $109 million for the same period of 2014. Refer to the “Use of Non-GAAP Measures” section herein for further information.

Home, Health & Beauty


*In millions*	Three months ended March 31,
*In millions*	2015		2014
Sales	$	180	$	205
Profit ⁽¹⁾		19		12

⁽¹⁾	Profit is measured as results before restructuring charges, pension income, interest expense and income, income taxes, and results from non-controlling interests.

Sales for the Home, Health & Beauty segment were $180 million and $205 million for the three months ended March 31, 2015 and 2014, respectively. Sales decreased in 2015 primarily due to unfavorable foreign currency exchange and the exit of the beauty and personal care folding carton packaging business in Europe in 2014.

Profit for the Home, Health & Beauty segment was $19 million and $12 million for the three months ended March 31, 2015 and 2014, respectively. Profit increased in 2015 primarily due to $6 million from favorable productivity and cost reduction benefits, $2 million from favorable pricing and product mix, $2 million from the exit of the beauty and personal care folding carton packaging business in Europe in 2014 and $1 million from net deflation compared to 2014. These benefits were partially offset by $2 million from lower volumes and $2 million from unfavorable foreign currency exchange compared to 2014. EBITDA increased 17% to $34 million for the three months ended March 31, 2015 compared to $29 million for the same period of 2014. Refer to the “Use of Non-GAAP Measures” section herein for further information.

Industrial


*In millions*	Three months ended March 31,
*In millions*	2015		2014
Sales	$	121	$	128
Profit ⁽¹⁾		23		16

⁽¹⁾	Profit is measured as results before restructuring charges, pension income, interest expense and income, income taxes, and results from non-controlling interests.

Sales for the Industrial segment were $121 million and $128 million for the three months ended March 31, 2015 and 2014, respectively. In 2015, the decrease in sales was driven by unfavorable foreign currency exchange which was partially offset by improved pricing and product mix from initiatives aimed to recover margins and offset inflation, as well as increased volumes of corrugated packaging solutions compared to 2014.

Profit for the Industrial segment was $23 million and $16 million for the three months ended March 31, 2015 and 2014, respectively. Profit in 2015 benefited $6 million from favorable pricing and product mix, $5 million from favorable productivity and cost reduction benefits and $1 million from increased volumes compared to 2014. These benefits were partially offset by $5 million from net inflation compared to 2014. EBITDA increased 23% to $32 million for the three months ended March 31, 2015 compared to $26 million for the same period of 2014. Refer to the “Use of Non-GAAP Measures” section herein for further information.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Specialty Chemicals


*In millions*	Three months ended March 31,
*In millions*	2015		2014
Sales	$	239	$	232
Profit ⁽¹⁾		49		51

⁽¹⁾	Profit is measured as results before restructuring charges, pension income, interest expense and income, income taxes, and results from non-controlling interests.

Sales for the Specialty Chemicals segment were $239 million and $232 million for the three months ended March 31, 2015 and 2014, respectively. This increase in sales in 2015 was driven by volume growth from gains in higher value strategic markets for asphalt, adhesives and carbon technologies compared to 2014. These gains were partially offset by unfavorable foreign currency exchange compared to 2014.

Profit for the Specialty Chemicals segment was $49 million and $51 million for the three months ended March 31, 2015 and 2014, respectively. Profit decreased in 2015 primarily due to $4 million of unfavorable foreign currency exchange, $3 million from unfavorable productivity and $1 million from unfavorable pricing and product mix compared to 2014. These decreases were partially offset by $5 million from increased volumes and $1 million from net deflation compared to 2014. EBITDA decreased 2% to $58 million for the three months ended March 31, 2015 compared to $59 million for the same period of 2014. Refer to the “Use of Non-GAAP Measures” section herein for further information.

Community Development and Land Management


*In millions*	Three months ended March 31,
*In millions*	2015			2014
Sales	$	3		$	2
Loss ⁽¹⁾		(3	)		(3	)

⁽¹⁾	Loss is measured as results before restructuring charges, pension income, interest expense and income and income taxes.

Sales for the Community Development and Land Management segment were $3 million for the three months ended March 31, 2015 compared to $2 million for the three months ended March 31, 2014. Segment loss for both the three months ended March 31, 2015 and 2014 was $3 million.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

LIQUIDITY AND CAPITAL RESOURCES

The company’s cash flow from continuing operations, current cash levels and other sources of currently available liquidity are expected to be adequate to fund scheduled debt payments, dividends to shareholders and capital expenditures in 2015. In addition, the company’s U.S. qualified retirement plans remain well over funded and management does not anticipate any required regulatory funding contributions to such plans in the foreseeable future. Cash and cash equivalents totaled $262 million at March 31, 2015, of which 36% was held in the U.S. with the remaining portions of 13% in Europe, 31% in Brazil and 20% in other foreign jurisdictions. The credit quality of the company’s portfolio of short-term investments remains strong with 55% of its cash equivalents invested in U.S. government securities. Of the company’s cash and cash equivalents, approximately 37% were invested in U.S. government securities at March 31, 2015.

Funding for the company’s domestic operating, investing and financing activities in the foreseeable future is expected to come from sources of liquidity within its U.S. operations, including cash holdings, operating cash flow and bank-committed credit capacity. As such, the company’s offshore cash holdings are not a key source of liquidity to its U.S. operations and management does not intend to transfer cash held by foreign subsidiaries to the U.S. that would be subject to potential tax impacts associated with the repatriation of undistributed earnings on foreign subsidiaries.

Operating activities

Cash used in operating activities from continuing operations was $113 million for the three months ended March 31, 2015 compared to $207 million for the three months ended March 31, 2014. In the year-ago period, the company paid alternative minimum taxes totaling $98 million related to the sale of the company’s U.S. forestlands in 2013.

Investing activities

Cash used in investing activities from continuing operations was $65 million for the three months ended March 31, 2015 compared to $60 million for the three months ended March 31, 2014.

Cash used in investing activities from continuing operations for the three months ended March 31, 2015 was driven by capital expenditures of $65 million. Cash used in investing activities from continuing operations for the three months ended March 31, 2014 was driven by capital expenditures of $66 million, partially offset by proceeds from dispositions of assets of $3 million and other sources of funds of $3 million.

Financing activities

Cash provided by financing activities from continuing operations was $6 million for the three months ended March 31, 2015 compared to cash used in financing activities from continuing operations of $460 million for the three months ended March 31, 2014. In the year-ago period the company returned to shareholders, through stock repurchases and dividends, the proceeds from the company’s sale of its U.S. forestlands and related assets to Plum Creek in 2013.

Cash provided by financing activities from continuing operations for the three months ended March 31, 2015 included proceeds from the issuance of long-term debt of $50 million, proceeds from exercises of employee stock options of $12 million and net changes in bank overdrafts and other sources of funds of $7 million. Cash used in financing activities from continuing operations for the three months ended March 31, 2015 was driven by a dividend payment of $42 million, repayment of long-term debt of $19 million and net repayment of notes payable and other short-term borrowings of $2 million.

Cash used in financing activities from continuing operations for the three months ended March 31, 2014 was driven by stock repurchases of $305 million (including $300 million pursuant to an accelerated share repurchase program), dividend payments of $218 million (including a special dividend of $175 million), and repayment of long-term debt of

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

$20 million. Cash provided by financing activities from continuing operations for the three months ended March 31, 2014 included proceeds from credit facility borrowings of $50 million, proceeds from exercises of employee stock options of $13 million, net changes in bank overdrafts of $14 million, proceeds from notes payable and other short-term borrowings of $3 million and other sources of funds of $3 million.

MeadWestvaco has a $600 million five-year revolving credit facility with a syndicate of banks. The credit facility is scheduled to expire on January 30, 2017. The principal purpose of the credit facility is to obtain funds for general corporate purposes. In March 2015, the company borrowed $50 million from this credit facility bearing interest at a rate of 1.3550%. In April 2015, the company repaid $30 million of the borrowings. The credit facility’s agreement contains a financial covenant limiting the percentage of total debt to total capitalization (including deferred taxes) to 55%, as well as certain other covenants with which the company was in compliance as of March 31, 2015.

The company’s percentage of total debt to total capital (shareholders’ equity and total debt) was 38% at March 31, 2015 and 37% at December 31, 2014.

The effects of foreign currency exchange rate changes on cash and cash equivalents had an unfavorable impact of $20 million for the three months ended March 31, 2015 compared to a favorable impact of $3 million for the three months ended March 31, 2014.

On April 27, 2015, the company’s Board of Directors declared a regular quarterly dividend of $0.25 per common share. The payment of the dividend will be made on May 29, 2015, to shareholders of record at the close of business on May 7, 2015.

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 $48 million and $67 million in environmental capital expenditures in 2015 and 2016, respectively. Approximately $16 million was spent on environmental capital projects in 2014. Included in the 2015 and 2016 estimated expenditures are capital costs associated with compliance with the Maximum Achievable Compliance Technology for industrial boilers rules that were finalized by the United States Environmental Protection Agency in January 2013. Total expenditures for compliance with this rule are estimated to be in a range of $3 million to $8 million during 2015 and possibly extending into 2016.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

As with numerous other large industrial companies, the company has been named a defendant in asbestos-related personal injury litigation. Typically, these suits also name many other corporate defendants. To date, the costs resulting from the litigation, including settlement costs, have not been significant. As of March 31, 2015, there were about 700 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 March 31, 2015, the company had recorded litigation liabilities of approximately $22 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.

CRITICAL ACCOUNTING POLICIES

Our principal accounting policies are described in the Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2014. Those accounting policies that management believes require the exercise of judgment, where a different set of judgments could result in the greatest changes to reported results, are detailed in Critical Accounting Policies of Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2014. 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 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.

NEW ACCOUNTING GUIDANCE

Refer to Note 2. New accounting guidance within the Notes to Consolidated Financial Statements included in Part I, Item 1 for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on the company’s consolidated financial statements.

USE OF NON-GAAP MEASURES

The company has presented certain financial measures, defined below, which have not been prepared in accordance with generally accepted accounting principles (“GAAP”) and has provided a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. The company believes these non-GAAP measures provide investors, potential investors, securities

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

analysts and others with useful information to evaluate the performance of the business, because such measures, when viewed together with our financial results computed in accordance with GAAP, provide a more complete understanding of factors and trends affecting our historical financial performance and projected future results.

Set forth below is a reconciliation of the operational measures of both consolidated and segment-level EBITDA and EBITDA Margins (excluding special items) to the most directly comparable GAAP measures, net sales, net income, and segment profit.

Consolidated EBITDA, as adjusted and EBITDA Margins, as adjusted (unaudited)


	Three Months Ended March 31,
($ in millions)	2015			2014
Net income	$	33		$	31
Add:
Restructuring and other charges		24			39
Depreciation, depletion, and amortization		82			93
Interest expense		52			53
Income tax provision		13			15
Deduct:
Insurance settlements		—			(27	)
Interest income		(14	)		(13	)
Income from discontinued operations		(2	)		—

EBITDA, as adjusted	$	188		$	191

Net sales	$	1,282		$	1,322
EBITDA Margin		14.7	%		14.4	%

Segment EBITDA and EBITDA Margins (unaudited)


($ in millions)	Sales		Segment profit			Depreciation, depletion and amortization		EBITDA			EBITDA Margins
Three Months Ended March 31, 2015
Food & Beverage	$	745	$	57		$	46	$	103			13.8	%
Home, Health & Beauty		180		19			15		34			18.9	%
Industrial		121		23			9		32			26.4	%
Specialty Chemicals		239		49			9		58			24.3	%
Community Development and Land Management		3		(3	)		—		(3	)		NM
Three Months Ended March 31, 2014
Food & Beverage	$	763	$	55		$	54	$	109			14.3	%
Home, Health & Beauty		205		12			17		29			14.1	%
Industrial		128		16			10		26			20.3	%
Specialty Chemicals		232		51			8		59			25.4	%
Community Development and Land Management		2		(3	)		—		(3	)		NM

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

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 the 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 by the forward-looking statements include, but are not limited to, events or circumstances which affect the ability of MeadWestvaco to realize improvements in operating earnings from the company’s ongoing cost reduction initiatives; the ability of MeadWestvaco to close announced and pending transactions, including whether or when the business combination with Rock-Tenn Company (“Rock-Tenn”) will occur (the “Merger Transaction”), and whether and when the spin-off of Specialty Chemicals will occur; competitive pricing for the company’s products; impact from unpredictable costs of energy and raw materials, including wood fiber and other input costs; fluctuations in demand and changes in production capacities; relative growth or decline in the United States and international economies; government policies and regulations, including, but not limited, to those affecting the environment, climate change, tax policies and the tobacco industry; the company’s continued ability to reach agreement with its unionized employees on collective bargaining agreements; the company’s ability to maximize the value of its development land holdings; adverse results in current or future litigation; currency movements; volatility or deterioration of the capital markets; and other risk factors discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2014, and in other filings made from time to time with the SEC. Forward-looking statements include, but are not limited to, statements regarding the anticipated closing date of the Merger Transaction, the ability to obtain regulatory and shareholder approvals and satisfy the other conditions to the closing of the Merger Transaction, the successful closing of the Merger Transaction and the integration of Rock-Tenn and MeadWestvaco as well as opportunities for operational improvement including but not limited to cost reduction and capital investment, the strategic opportunity and perceived value to Rock-Tenn’s and MeadWestvaco’s respective shareholders of the Merger Transaction, the Merger Transaction’s impact on, among other things, the combined company’s prospective business mix, margins, transitional costs and integration to achieve the synergies and the timing of such costs and synergies. With respect to these statements, MeadWestvaco and Rock-Tenn have made assumptions regarding, among other things, whether and when the proposed Merger Transaction will be approved; whether and when the proposed Merger Transaction will close; and the results and impacts of the proposed Merger Transaction. 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.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of the company’s exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2014. There was no material change in the company’s exposure to market risk from December 31, 2014 to March 31, 2015.

Item 4. CONTROLS AND PROCEDURES

Evaluation of the Company’s Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). 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 March 31, 2015, to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is 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

During the three months ended March 31, 2015, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially effect, our internal control over financial reporting.

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

During the three months ended March 31, 2015, there have been no material changes to legal proceedings from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2014.

Item 1A. RISK FACTORS

During the three months ended March 31, 2015, there have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2014.

Item 6. EXHIBITS


2.1		Business Combination Agreement, dated as of January 25, 2015, by and between MeadWestvaco Corporation and Rock-Tenn Company previously filed as Exhibit 2.1 to the company’s Form 8-K on January 27, 2015, and incorporated herein by reference.

2.2		First Amendment to the Second Amended and Restated Business Combination Agreement, dated as of May 5, 2015, by and among Rome-Milan Holdings, Inc., MeadWestvaco Corporation, Rock-Tenn Company, Rome Merger Sub, Inc., and Milan Merger Sub, LLC.

10.50		Summary of MeadWestvaco Corporation 2015 Annual Incentive Plan

10.51		Summary of MeadWestvaco Corporation 2015 Long-Term Incentive Plan

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

101		XBRL Instance Document and Related Items

MEADWESTVACO CORPORATION

and Consolidated Subsidiary Companies

SIGNATURES

Pursuant to the requirements 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)

May 11, 2015						/s/ E. Mark Rajkowski
						E. Mark Rajkowski
						Chief Financial Officer

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