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SECOND QUARTER 2004 EARNINGS
John A. Luke, Jr.Chairman and CEO
James A. BuzzardPresident
Peter H. Vogel, Jr.
Interim Principal Financial Officer July 27, 2004
Second Quarter 2004
2
FORWARD-LOOKING STATEMENT
Certain statements in this document and elsewhere by management of the company that are neither reported financial results nor other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such information includes, without limitation, the business outlook, assessment of market conditions, anticipated financial and operating results, strategies, future plans, contingencies and contemplated transactions of the company. Such forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors which may cause or contribute to actual results of company operations, or the performance or achievements of each company, or industry results, to differ materially from those expressed or implied by the forward-looking statements. In addition to any such risks, uncertainties and other factors discussed elsewhere herein, risks, uncertainties and other factors that could cause or contribute to actual results differing materially from those expressed or implied for the forward-looking statements include, but are not limited to, events or circumstances which affect the ability of MeadWestvaco to realize improvements in operating earnings and cash flow expected from the company's productivity initiative; competitive pricing for the company's products; changes in raw materials pricing; energy and other costs; fluctuations in demand and changes in production capacities; changes to economic growth in the United States and international economies; government policies and regulations, including, but not limited to those affecting the environment and the tobacco industry; adverse results in current or future litigation, currency movements and other risk factors discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2003 and in other filings made from time to time with the SEC. MeadWestvaco undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Investors are advised, however, to consult any further disclosures made on related subjects in the company's reports filed with the SEC.
Second Quarter 2004
3
SECOND QUARTER EPS
Net earnings of $48 million, or 24 cents per share
Gains on forestland sales: 7 cents per share
Restructuring charges: 2 cents per share
John A. Luke Jr.Chairman and
Chief Executive Officer
Second Quarter 2004
5
SECOND QUARTER HIGHLIGHTS
Synergies and productivity delivering results
Second quarter shows clear progress
Increased demand and volume helped – but price relief not yet a factor
Productivity initiatives driving results
Second Quarter 2004
6
SECOND QUARTER HEADLINES
Volume up in paper and packaging
Price increases in paper and paperboard will contribute to second-half results
Productivity initiative on track
Improved cash flow through working capital management
Forestland sales going well
Second Quarter 2004
7
DISCIPLINE AND PROFITABLE GROWTH
Disciplined capital spending
Debt reduction
Focused acquisitions
Strong dividend payout
Profitable growth: innovation, productivity and customer focus
James A. BuzzardPresident
Second Quarter 2004
9
$1 $(11) $9
$24 $(16)
$42 $(14) $32 $67
($20)($10)
$0$10$20$30$40$50$60$70$80
2nd Qtr 03 Actual
Mill Based Price
Other Price/Mix
Volume
Energy/Wood/Freight
CostLand Sales G
ains
Other**
2nd Qtr 04 Actual
($ Millions)
* Variance Analysis reconciling EBT (Earnings Before Tax)** Other includes: restructuring of $23 million, interest expense of $4 million, F/X of $2 million and other items for $3 million
MEADWESTVACOQ2 03 ACTUAL VS Q2 04 ACTUAL*
Revenue Productivity$33 million
Cost Productivity$26 million
Second Quarter 2004
10
PACKAGING
Operating profit $113 million
Sales $1.1 billion
Sales up 7%; profit up 22% over 2Q 03 Shipments increased for bleached board and Coated
Natural Kraft®
Substantial progress improving mill performance
Backlogs strengthening; price increases in some grades in second half
Second Quarter 2004
11
PACKAGING
Operating profit $113 million
Sales $1.1 billion
Converting: higher sales volume, improved productivity mix and lowering manufacturing costs Robust growth in media and entertainment
Productivity drives lower operating costs
Strong volume demand
Second Quarter 2004
12
PAPERS
Operating loss $25 million
Sales $583 million
Sales up 20% from prior year; 5% from first quarter
Shipments up 27% from prior year, well ahead of industry
Strong demand in coated papers markets
Inventory levels declined
Improved market share
Second Quarter 2004
13
Operating profit $50 million
Sales $302 million
Solid shipments of consumer products
Benefit from focused acquisitions
Enhanced distribution and customer service
CONSUMER & OFFICE PRODUCTS
Second Quarter 2004
14
SPECIALTY CHEMICALS
Operating profit $20 million
Sales $107 million
Continued growth in activated carbon products
Benefit of cost reductions and improved product mix
Peter H. VogelInterim Principal Financial Officer
Second Quarter 2004
16
KEY PRODUCTIVITY INFORMATION
$60 million in earnings improvement
2% reduction in working capital (as a percentage of sales)
Days inventory on hand dropped 6 days from June 30, 2003
Second Quarter 2004
17
KEY FINANCIAL INFORMATION
17
2004$ million, pre-tax 2Q 04
Restructuring $ 6
Interest expense $ 69
Debt to capital 47.4%
Pension income $ 18
Corporate and other expense $ 55
Cash flow items YTD
Cash from operations $230
Asset sales $144
Dividend payments $ 93
Capital expenditures $155
Second Quarter 2004
18
MOVING FORWARD
First half 2004 accomplishments
Synergies in place
Productivity initiative on track
Disciplined asset management
Growing demand
Continued focus on Quality, innovation, productivity
Strategy-based initiatives
Rigorous approach to our business
QUESTIONS
APPENDIX
VARIANCE ANALYSIS Q2 2004
(Including Productivity)
Q2 03 Actual vs Q2 04 Actual
Second Quarter 2004
23
$4$(8) $113 $4 $16
$4 $93
$0
$20
$40
$60
$80
$100
$120
2nd Qtr 03 Actual
Other Price/Mix
Volume
Energy/Wood/Freight
Cost
Other
2nd Qtr 04 Actual
PACKAGING SEGMENTQ2 03 ACTUAL VS Q2 04 ACTUAL
($ Millions)
Revenue Productivity$20 million
Cost Productivity$(4) million
Second Quarter 2004
24
$(25)
$23
$8
$4
$(7) $(1)
$(11)
$(42)
($60)
($50)
($40)
($30)
($20)
($10)
$0
2nd Qtr 03 Actual
Mill Based Price
Other Price/Mix
Volume
Energy/Wood/Freight
Cost
Other
2nd Qtr 04 Actual
PAPERS SEGMENTQ2 03 ACTUAL VS Q2 04 ACTUAL
($ Millions)
Revenue Productivity*$8 million
Cost Productivity$16 million
* Numbers may not add up due to rounding
Second Quarter 2004
25
$50 $(1) $1 $1 $49
$0
$20
$40
$60
2nd Qtr 03 Actual
Price / Mix
Volume
Other
2nd Qtr 04 Actual
CONSUMER & OFFICE PRODUCTSQ2 03 ACTUAL vs Q2 04 ACTUAL
($ Millions)
Revenue Productivity$2 million
Second Quarter 2004
26
$20 $(1) $5 $(2) $5
$3$10
$0
$10
$20
$30
2nd Qtr 03 Actual
Price / Mix
Volume
Energy/Freight
Cost
Other
2nd Qtr 04 Actual
SPECIALTY CHEMICALS SEGMENTQ2 03 ACTUAL VS Q2 04 ACTUAL
($ Millions)
Revenue Productivity$8 million
Cost Productivity$3 million
PRODUCTIVITY INITIATIVE Q2 03 Actual vs Q2 04 Actual
Second Quarter 2004
28
EARNINGS PRODUCTIVITY INITIATIVE Q2 03 ACTUAL VS Q2 04 ACTUAL
($ Millions)
Mill-Based Other Energy/ TotalBusiness Unit Pricing Price/Mix Volume Wood/Freight Cost Productivity*
Packaging ($0) $4 $16 ($8) $4 $16
Paper ($11) ($1) $8 ($7) $23 $24
Consumer & Office $0 $1 $1 $0 $0 $2
Specialty Chemicals $0 $3 $5 ($2) $5 $11
Total Operations ($11) $7 $30 ($17) $33 $53
Corporate & Other $0 $2 ($5) $1 $9 $7
Total Company ($11) $9 $24 ($16) $42 $60
Numbers may not add up due to rounding* Excluded from Productivity Initiative:- Cost initiatives exclude F/X, land sales gains, and assets sales gains- Revenue initiatives exclude price impact for mill-based businesses
Second Quarter 2004
29
Net operating working capital (NOWC) is defined as accounts receivable and inventory, less accounts payable
Reduction in NOWC is measured as a percent of sales, against 2003 sales levels. NOWC accounts are measured as the average of beginning and ending balance, a 2-point average, to accommodate for seasonality
The calculation of sales in the percent of sales calculation is annualized quarterly sales for the quarter being measured
We believe NOWC is a supplemental measure of our productivity initiative progress because these working capital items are more directly associated with factors that our businesses can influence through payment terms and other methods
Measuring NOWC productivity in terms of 2003 sales allows for the increase in NOWC necessary to support sales growth
WORKING CAPITAL PRODUCTIVITY INITIATIVE - DEFINITIONS
Second Quarter 2004
30
WORKING CAPITAL PRODUCTIVITY INITIATIVE – KEY DATA
($ Millions)
Reconciliation of GAAP Working Capital to Net Operating Working Capital
($ in millions) Actual Actual Actual Actual Actual Actual Actual12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 06/30/04
Cash & Cash Equivalents 372$ 96$ 141$ 177$ 225$ 271$ 313$
Accounts Receivable ** 894$ 836$ 980$ 996$ 943$ 884$ 1,038$
Inventories ** 1,002$ 1,124$ 1,196$ 1,134$ 1,098$ 1,143$ 1,105$
Other Current Assets 163$ 180$ 163$ 161$ 160$ 173$ 171$ Current Assets 2,431$ 2,236$ 2,480$ 2,468$ 2,426$ 2,471$ 2,627$
Notes Payable & Current Maturities 363$ 324$ 675$ 632$ 269$ 281$ 281$
Accounts Payable ** 365$ 378$ 408$ 359$ 380$ 385$ 434$
Accrued Liabilities 912$ 865$ 957$ 884$ 867$ 840$ 932$ Current Liabilities 1,640$ 1,567$ 2,040$ 1,875$ 1,516$ 1,506$ 1,647$
GAAP Working Capital* 791$ 669$ 440$ 593$ 910$ 965$ 980$
Net Operating Working Capital** 1,531$ 1,582$ 1,768$ 1,771$ 1,661$ 1,642$ 1,709$ * GAAP Working Capital = Current Assets - Current Liabilities** Net Operating Working Capital = Accounts Receivable+Inventory-Accounts Payable
Q1 04 ACTUAL VS Q2 04 ACTUAL
Second Quarter 2004
32
($ Millions)
MEADWESTVACOQ1 04 ACTUAL VS Q2 04 ACTUAL
$(3) $13
$40
$46 $7 $2 $(46)
$8 $67
($20)
$0
$20
$40
$60
$80
$100
$120
1st Qtr 04 Actual
Mill Based Price
Other Price/Mix
Volume
Energy/Wood/Freight
CostLand Sales G
ains
Other
2nd Qtr 04 Actual
Second Quarter 2004
33
PACKAGING SEGMENTQ1 04 ACTUAL VS Q2 04 ACTUAL*
($ Millions)
* Numbers may not add up due to rounding
$113 $8$23
$2 $3
$5 $7 $65
$0
$20
$40
$60
$80
$100
$120
1st Qtr 04 Actual
Mill Based Price
Other Price/Mix
Volume
Energy/Wood/Freight
Cost
Other
2nd Qtr 04 Actual
Second Quarter 2004
34
PAPERS SEGMENTQ1 04 ACTUAL VS Q2 04 ACTUAL*
($ Millions)
$4 $2
$(25) $(32)
$6 $2 $2 $(9)
($40)
($30)
($20)
($10)
$0
1st Qtr 04 Actual
Mill Based Price
Other Price/Mix
Volume
Energy/Wood/Freight
Cost
Other
2nd Qtr 04 Actual
* Numbers may not add up due to rounding
Second Quarter 2004
35
CONSUMER & OFFICE PRODUCTSQ1 04 ACTUAL VS Q2 04 ACTUAL*
($ Millions)
$3 $50 $20
$29
$(2)
($20)
$0
$20
$40
$60
1st Qtr 04 Actual
Price / Mix
Volume
Cost
2nd Qtr 04 Actual
* Numbers may not add up due to rounding
Second Quarter 2004
36
SPECIALTY CHEMICALS SEGMENTQ1 04 ACTUAL VS Q2 04 ACTUAL*
($ Millions)
* Numbers may not add up due to rounding
$20 $(1)
$3 $5
$3$10
$0
$10
$20
$30
1st Qtr 04 Actual
Price / Mix
Volume
Cost
Other
2nd Qtr 04 Actual
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