STAMFORD, Conn., Dec. 18 -- MeadWestvaco Corporation today announced a $500-million productivity initiative that will enhance the company's leadership positions in key businesses and improve both earnings and cash flow. The productivity initiative is intended to generate, by the end of 2005, an additional $250 million in annual earnings before interest and taxes, plus a one-time working capital improvement of $250 million. This initiative is the next phase of productivity improvement which follows the completion of the company's merger synergy program which began in early 2002. The company said today that it expects to realize more than $400 million in annual cost savings by yearend 2003. The final report on merger synergy savings will be announced with the company's yearend results on January 29, 2004. "Boosting productivity is essential to improving our returns to MeadWestvaco shareholders," said John A. Luke, Jr., chairman and chief executive officer. "This new initiative will accomplish that through further cost reductions and enhancements to our product mix, sales volume, cash management and overall competitive position." The new program is based on productivity enhancement opportunities identified by MeadWestvaco's individual business units. The program has two components: Operating Earnings Improvement. The company expects to achieve annual improvement of $250 million in earnings through a combination of cost reduction, product mix enhancement and volume growth. The expected earnings improvement is independent of any increase that might occur in selling prices for MeadWestvaco's mill-based products. To achieve this goal over the next two years, the company will: * Reduce costs through manufacturing and converting efficiencies, and facility closures. As part of this initiative, the company expects to eliminate approximately 1,000 full-time positions in 2004, incurring $75 to $100 million in one-time costs related to these actions through the end of 2004. These reductions will take place at both the corporate and business unit levels. * Improve margins through a greater focus on packaging solutions and product mix upgrades in all of our businesses. * Improve volume growth from 2003 levels in targeted customer segments. Working Capital Reduction. By the end of 2005, MeadWestvaco expects to achieve a one-time cash flow improvement equivalent to $250 million. To achieve this goal, MeadWestvaco has identified opportunities to reduce inventories and receivables and improve payables. As with its merger savings program, MeadWestvaco will report its progress toward meeting its productivity goals on a quarterly basis, beginning with its first quarter 2004 report. In terms of operating earnings improvements, the company will track total earnings improvement arising from cost, volume and mix initiatives. For the working capital reductions, the company will track and report working capital as a percentage of sales, as well as seasonal and structural working capital changes. MeadWestvaco will also outline the one- time costs and headcount reductions associated with its plan. The earnings improvement reported will be net of inflation and exclude any benefit of improved market pricing for the mill-based products, providing a normalized view of the improvement in earnings and cash flow. "While we would welcome any improvement in pricing as the market strengthens, our approach must continue to focus on what we can control," continued Mr. Luke. "We are confident of our ability to achieve these new goals and will continue to make productivity enhancement an integral part of the way we do business."