FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 1-3203
CHESAPEAKE CORPORATION
Incorporated under the I.R.S. Employer
laws of Virginia Identification
No. 54-0166880
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350
Telephone Number (804) 697-1000
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 .
The number of shares outstanding of each of the issuer's classes of common
stock, as of the close of period covered by this report:
Common stock of $1 par value, 23,690,398 shares.
Page 1 of 22 Pages.<PAGE>
<TABLE>
PART I
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THIRD QUARTER AND YEAR TO DATE ENDED
SEPTEMBER 30, 1994 AND 1993
<CAPTION>
Third Quarter Year to Date
1994 1993 1994 1993
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net sales $266.9 $238.3 $715.8 $684.0
Costs and expenses:
Cost of products sold 190.6 179.7 522.8 521.0
Depreciation and cost
of timber harvested 18.5 17.6 54.9 53.9
Selling, general and
administrative expenses 28.8 26.5 84.0 78.0
Income from operations 29.0 14.5 54.1 31.1
Other income and expenses, net 2.5 1.6 6.8 2.5
Interest expense (7.4) (7.8) (23.4) (24.2)
Income before taxes 24.1 8.3 37.5 9.4
Income taxes 9.0 5.7 14.1 6.3
Net income $ 15.1 $ 2.6 $ 23.4 $ 3.1
Earnings per share $ .64 $ .11 $ .99 $ .13
Weighted average number of
common shares and
equivalents outstanding 23.9 23.5 23.7 23.4
Cash dividends declared per
share of common stock $ .18 $ .18 $ .54 $ .54
</TABLE>
See accompanying notes.
2
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
Sept. 30, 1994 Dec. 31, 1993
(In millions)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12.6 $ .7
Accounts receivable, less
allowances for doubtful
accounts of $4.3 and $3.0 124.0 87.5
Inventories, at lower of cost
or market 92.0 79.7
Deferred income taxes 12.2 12.2
Other 6.1 6.1
Total current assets 246.9 186.2
Property, plant and equipment, at cost:
Land, buildings, machinery
and equipment 1,218.5 1,159.5
Less accumulated depreciation 615.6 545.5
602.9 614.0
Timber and timberlands, net 40.0 39.8
Net property, plant and equipment 642.9 653.8
Goodwill, net 43.9 28.0
Other assets 53.6 51.3
$ 987.3 $ 919.3
</TABLE>
3
<TABLE>
Sept. 30, 1994 Dec. 31, 1993
(In millions)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $103.6 $ 90.5
Current maturities of long-term debt 1.1 1.5
Dividends payable 4.3 4.2
Income taxes payable 5.6 2.9
Total current liabilities 114.6 99.1
Long-term debt 364.6 333.1
Postretirement benefits other than pensions 23.1 20.5
Deferred income taxes 103.9 98.6
Stockholders' equity:
Preferred stock, $100 par value,
issuable in series;
authorized, 500,000 shares;
issued, none
Common stock, $1 par value;
authorized 60,000,000 shares;
outstanding 23,690,398 and
23,514,378 shares 23.7 23.5
Additional paid-in capital 105.0 102.6
Retained earnings 252.4 241.9
381.1 368.0
$987.3 $919.3
</TABLE>
See accompanying notes.
<TABLE>
4
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR TO DATE ENDED SEPTEMBER 30, 1994 AND 1993
<CAPTION>
1994 1993
(In millions)
<S> <C> <C>
Operating activities
Net income $ 23.4 $ 3.1
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, cost of timber harvested and
amortization of intangibles 56.6 55.5
Deferred income taxes 2.3 .8
Gain on sale of property, plant and equipment (1.6) (2.7)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (30.7) (12.6)
Inventories (7.6) 14.2
Other assets (3.1) (2.5)
Accounts payable and accrued expenses 9.1 14.0
Income taxes payable 2.4 2.5
Other payables 2.5 1.1
Net cash provided by operating activities 53.3 73.4
Investing activities
Purchases of property, plant and equipment (33.6) (49.7)
Acquisition (net of notes issued to sellers of $15.9) (16.7) -
Proceeds from sale of property, plant and
equipment 2.7 3.2
Other 5.1 .4
Net cash used in investing activities (42.5) (46.1)
Financing activities
Net borrowings (payments) on credit lines (3.1) (50.4)
Payments on long-term debt (34.7) (58.5)
Proceeds from long-term debt 49.1 92.0
Proceeds from issuances of common stock 3.4 2.1
Dividends paid (12.7) (12.6)
Other ( .9) -
Net cash provided by (used in) financing activities 1.1 (27.4)
Increase (decrease) in cash and cash equivalents 11.9 (.1)
Cash and cash equivalents at beginning of period .7 .7
Cash and cash equivalents at end of period $12.6 $ .6
Supplemental cash flow information:
Interest payments $23.2 $23.7
Income tax payments, net of refunds $ 9.5 $ .6
</TABLE>
See accompanying notes.
5
CHESAPEAKE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included herein
are unaudited, except for the December 31, 1993 consolidated
balance sheet, have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission,
and, in the opinion of management, reflect all adjustments, all
of a normal recurring nature, necessary to present fairly the
Company's consolidated financial position, results of operations
and cash flows. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included
or incorporated by reference in the Company's latest Annual
Report on Form 10-K. The results of operations for the 1994
interim period should not be regarded as necessarily indicative
of the results that may be expected for the entire year.
<TABLE>
2. Inventories:
<CAPTION>
Sept. 30, 1994 Dec. 31, 1993
(In millions)
<S> <C> <C>
Inventories consist of:
Finished goods and work
in process $ 50.8 $ 49.3
Materials and supplies 41.2 30.4
Totals $ 92.0 $ 79.7
</TABLE>
The amount of work in process inventories is insignificant in
relation to total inventories.
3. Commitments and Other Matters:
At September 30, 1994, commitments, primarily for capital
expenditures, approximated $49 million. These commitments
include anticipated expenditures of $6 million in 1994 related
to environmental protection in connection with planned expansions
and upgrades mainly at the Company's paper mills in West Point,
Virginia and Menasha, Wisconsin. The remaining commitments of
$43 million are for various capital projects, none of which is
individually material.
Uncommitted environmental protection projects may cost the
Company another $9 million during the next several years.
Additional non-determinable environmental protection expenditures
could be required in the future when facilities are expanded or
if more stringent standards become applicable. See Note 6.
6
3. Commitments and Other Matters (continued):
On October 11, 1994, the Board of Directors approved expansion
plans totaling $48 million for the Company's packaging and kraft
businesses. The planned expansions include a new manufacturing
plant on the west coast for the Company's Color-Box graphic
packaging business and additional equipment at the existing
Color-Box plant in Richmond, Indiana. The expansions are
expected to increase Color-Box's graphic packaging manufacturing
capacity by approximately 30 percent. In addition, an upgrade of
the No. 2 paper machine at the Chesapeake Paper Products Company
kraft mill in West Point, Virginia was approved. The upgrade is
expected to increase mill production capacity by about 8
percent. These projects are consistent with Chesapeake's
strategy of expanding the packaging business, lowering costs
and focusing capital spending on projects that are expected to
have a high return on investment. The expansions are expected
to be financed by internally generated funds and existing
credit facilities.
In the second quarter of 1994, Chesapeake Paper Products Company
and Chesapeake Forest Products Company implemented an enhanced
retirement program which resulted in a second quarter pre-tax
charge of approximately $4.9 million. Anticipated pre-tax
savings from implemention of the program are projected to be $1
million in 1994 and $3.5 million annually thereafter.
4. Litigation:
The Company is a party to various legal actions which are
ordinary and incidental to its business. While the outcome of
legal actions cannot be predicted with certainty, the Company
believes the outcome of any of these proceedings, or all of them
combined, will not have a materially adverse effect on its
consolidated financial position or results of operations.
5. Income Taxes:
The Company's effective income tax rate was 37.7% in 1994
compared to 62.5% in 1993. The third quarter 1993 income tax
expense included a one-time, non-cash charge of $2.4 million, or
$.10 a share, to reflect changes in deferred taxes resulting from
the 1993 Revenue Reconciliation Act. Without this charge, the
Company's 1993 effective income tax rate would have been 41.4%.
The differences between the Company's effective income tax rate
and the statutory federal income tax rate are due to state income
taxes and purchase accounting adjustments resulting from
acquisitions.
7
6. Environmental Matters:
Chesapeake operates under, and is in substantial compliance with,
the terms of various air emission and water and effluent
discharge permits and other environmental regulations.
On June 23, 1994, Wisconsin Tissue Mills Inc., a wholly-owned
subsidiary of the Company, received a notice from the United
States Fish and Wildlife Service that it had been identified as a
potentially responsible party ("PRP") under the Comprehensive
Environmental Response, Compensation and Liability Act with
respect to possible natural resource liability relating to
polychlorinated biphenyls in the Fox River and Green Bay System.
The notice invites the PRPs to participate in the development and
performance of a natural resource damage assessment with respect
to the alleged discharges. Wisconsin Tissue and the four other
PRPs have requested that the U.S. Fish and Wildlife Service delay
the proposed damage assessment to permit voluntary restoration
and remediation to proceed. The U.S. Fish and Wildlife Service
has not yet commenced the natural resource damage assessment
process. The ultimate cost to Wisconsin Tissue, if any,
associated with this matter cannot be predicted with certainty at
this time, due to: the unknown magnitude of any contamination;
the varying costs of alternative clean-up methods; the evolving
nature of clean-up technologies and governmental regulations; and
the inability to determine the company's share of any multi-party
clean-up, the extent to which contribution will be available from
other parties and the scope of potential recoveries from
insurance carriers and prior owners of Wisconsin Tissue.
The U.S. Environmental Protection Agency ("EPA") has published
draft rules under the Clean Water Act and the Clean Air Act which
would impose new air and water quality standards for pulp and
paper mills (the "Cluster Rules").
The EPA has indicated that it intends to issue the final Cluster
Rules in the fall of 1995. The definitive Cluster Rules are
expected to require compliance within three years after the date
of their adoption. Based on the Company's preliminary estimates,
if the Cluster Rules were adopted in substantially their present
form, compliance would require capital expenditures totaling
approximately $55 million at the Company's two paper mills. The
Company has joined with the American Forest & Paper Products
Association and most of its members in stating that they believe
that the Cluster Rules, as proposed, are inappropriate,
unjustified and do not comply with applicable law. The eventual
capital expense impact to the Company of compliance with the
definitive Cluster Rules is not presently determinable, and will
depend on a number of factors, including: the scope of
8
6. Environmental Matters (continued):
the standards imposed and time permitted for compliance; the
Company's strategic decisions related to compliance, including
potential changes in product mix and markets; and developments in
compliance technology. The additional effect, if any, on the
Company's business of compliance with the definitive Cluster
Rules will depend on a number of other factors, including: the
domestic and international competitive effects of compliance and
the effect of evolving consumer demands related to environmental
issues on the Company and its competitors.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
3rd Quarter 1994 vs. 3rd Quarter 1993
Net sales for the three months ended September 30, 1994 were a record
$266.9 million, up 12% over net sales of $238.3 million in the third quarter
of 1993. Sales of $19 million from Lawless Holding Corporation, acquired in
January 1994, partially offset the absence of $24 million in sales during
1993 from the Company's former treated wood business. Sales from continuing
businesses were up 16%, as each major business--kraft products, tissue and
packaging--experienced third quarter gains over 1993 levels. Increased
shipments of kraft products and packaging and sales price recovery for
most major products contributed to the increase.
Net income for the third quarter was $15.1 million, or $.64 a share,
compared to $2.6 million, or $.11 a share, in the third quarter of 1993.
Continued solid operating performance, effective cost control and price
relief lowered cost of products sold as a percentage of net sales from 75% in
the 1993 quarter to 71% in the 1994 quarter. Selling, general and
administrative expenses as a percentage of net sales approximated that of
last year. Depreciation and cost of timber harvested for the 1994 quarter was
up slightly compared to the prior year. Other income was up $.9 million and
included gains from sales of land that was no longer considered strategic,
hunting income and interest income from cash investments. Excluding small
amounts of capitalized interest, interest expense for the 1994 quarter was
down 6% compared to 1993, due primarily to lower debt levels. The third
quarter of 1993 income tax expense included a one-time, non-cash charge of
$2.4 million, or $.10 a share, to reflect a change in deferred taxes
resulting from the 1993 Revenue Reconciliation Act.
Kraft Products
EBIT (earnings before interest and income taxes) for the kraft products
segment was $12.8 million for the third quarter of 1994 compared to a small
loss for the third quarter of 1993, the low point in the cycle for this
business. Shipments of kraft products were a quarterly record at 217,000
tons, an increase of 10% over third quarter of 1993. Productivity and
quality continued to improve with third quarter 1994 production volume
averaging over 2,200 tons per day, compared to slightly over 2,000 tons per
day for the third quarter of last year. Containerboard and market pulp price
increases implemented during the first nine months of 1994 resulted in
pricing levels for the third quarter of 1994 well above those of the third
quarter of 1993. The largest gains were from market pulp. Third quarter
1994 earnings were negatively impacted by wastepaper costs which increased
rapidly during the first half of the year, causing this business to absorb
10
almost $7 million in additional costs in the third quarter of 1994 compared
to third quarter 1993. Prices for old corrugated containers began to
moderate late in the third quarter, but are not expected to return to 1993
levels in the near term. The kraft products segment includes the results of
the building products business, a small part of Chesapeake's total
operations, which improved over 1993's solid results, as sales volumes
increased and prices for lumber continued to be strong. Third quarter 1993
net sales for the kraft products segment included $24 million in sales from
the Company's former treated wood business.
Tissue
EBIT of the tissue segment for the third quarter of 1994 was up $.7
million compared to the third quarter of 1993, primarily due to improved
pricing. Tissue pricing was 6% above third quarter 1993 levels as a result
of sales price improvements and improved product mix. Third quarter 1994
tissue shipments were down 6% compared to third quarter 1993 shipments due to
a planned maintenance outage to replace a yankee dryer and heavy shipments at
the end of the second quarter just prior to the summer price increase.
Shipments of converted products were down 4%. Fewer non-converted parent
rolls are being sold in 1994. Escalating wastepaper prices added over $1
million to fiber costs compared to the third quarter of 1993. Third quarter
net sales of the consumer products business increased 15% and operating
profit improved $.4 million compared to last year's third quarter.
Packaging
EBIT for the packaging segment for the third quarter of 1994 improved
$1.1 million over the third quarter of 1993. Third quarter 1994 packaging
net sales were up 37% compared to the third quarter of 1993. Lawless Holding
Corporation added $19 million to net sales for the 1994 quarter. Same plant
net sales were up 11%. Graphic packaging continued to be the fastest growing
business for this segment, although sales also were up for the point-of-sale
and corrugated shipping container businesses. Rising containerboard costs
caused margins to be under pressure during most of the quarter.
<TABLE>
BUSINESS SEGMENT HIGHLIGHTS
<CAPTION>
Third Quarter
Third Quarter Second Quarter Year-to-Date
1994 1993 1994 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales:
Kraft products $ 88.0 $ 87.8 $ 78.7 $237.8 $279.6
Tissue 80.9 78.2 77.7 223.3 210.6
Packaging 96.4 70.4 79.7 250.1 190.6
Corporate 1.6 1.9 .8 4.6 3.2
$266.9 $238.3 $236.9 $715.8 $684.0
11
EBIT:
Kraft products $ 12.8 $ (1.4) $ 1.6 $ 17.3 $ 4.6
Tissue 12.4 11.7 14.3 34.8 20.9
Packaging 8.5 7.4 4.8 17.6 14.9
33.7 17.7 20.7 69.7 40.4
Corporate (2.2) (1.6) (4.0) (8.8) (6.8)
$ 31.5 $ 16.1 $ 16.7 $ 60.9 $ 33.6
</TABLE>
3rd Quarter Year-to-date 1994 vs. 3rd Quarter Year-to-date 1993
Net sales for the nine months ended September 30, 1994 were a record
$715.8 million, up 5% over net sales of $684.0 million for the first nine
months of 1993. Sales of $46 million by Lawless Holding Corporation,
acquired in January 1994, partially offset the absence of approximately $84
million in sales from the Company's former treated wood business. Sales from
continuing businesses were up 12%, as each major business--kraft products,
tissue and packaging--experienced gains for the current year-to-date over
1993 levels. Increased shipments of kraft products and graphic packaging,
improved product mix for tissue and sales price increases for tissue and
kraft products accounted for most of the improvement.
The onetime pre-tax charge of $4.9 million for the enhanced retirement
program in the kraft products segment lowered 1994 earnings (see Note 3 to
the Consolidated Financial Statements included herein). After the onetime
charge, year-to-date net income for 1994 was $23.4 million, or $.99 a share,
compared to $3.1 million, or $.13 a share, in 1993. Continued solid
operating performance and effective cost control lowered cost of products
sold as a percentage of net sales from 76% in 1993 to 73% in 1994. Selling,
general and administrative expenses were up from last year primarily due to
the onetime charge related to the enhanced retirement program. Depreciation
and cost of timber harvested for 1994 was $1 million higher than 1993
amounts. Other income, net was up $4.3 million as a result of sale of land
that was no longer considered strategic, a nonrecurring gain from the
settlement of indemnification issues related to a prior business acquisition,
the sale of equipment that was no longer used by the Company and interest
income from cash investments. Excluding small amounts of capitalized
interest, interest expense for 1994 was down 3% compared to 1993, due
primarily to lower debt levels. The 1993 income tax expense reflected a one-
time charge of $2.4 million related to the 1993 Revenue Reconciliation Act.
Kraft Products
Shipments of kraft products for the first nine months of 1994 were a
record 638,000 tons, an increase of 7% over the first nine months of 1993.
Productivity and quality improved over the previous year, with 1994
production volume averaging 2,170 tons per day, compared to slightly under
2,000 tons per day for 1993. Containerboard and market pulp price increases
implemented during 1994 resulted in pricing levels that were 13% above those
of the first three quarters of 1993. The largest price gains have come from
market pulp. Results of the kraft products segment for 1994 include a charge
for the enhanced retirement program at Chesapeake Paper Products Company and
12
Chesapeake Forest Products Company. Earnings in 1994 have been negatively
impacted by higher wastepaper costs which have caused this segment to absorb
nearly $11 million in additional costs in 1994 compared to the first nine
months of the prior year. The kraft products segment includes the results of
the building products business, which improved over 1993's solid results, as
sales volumes and prices for lumber increased 20% and 2%, respectively,
compared to the first nine months of 1993. Year-to-date net sales for the
kraft products segment in 1993 included $84 million in sales from the
Company's former treated wood business.
Tissue
Shipments of converted products for 1994 were up 2% compared to 1993.
Overall tissue shipments were 2% below 1993 levels, as fewer non-converted
parent rolls were sold. Tissue pricing for the first three quarters of 1994
was 7% above 1993 levels as a result of the implementation of price increases
in late 1993 and in 1994 and improved product mix. This improved pricing,
together with continued high productivity and cost reduction, resulted in
earnings for the first three quarters of 1994 that were 67% ahead of last
year. The results of the tissue segment in 1994 were also positively
impacted by the nonrecurring settlement gain. Net sales of the consumer
products business increased 9% compared to last year and operating results
were profitable, improving $2.5 million.
Packaging
Year-to-date packaging net sales for 1994 were up 31% compared to 1993.
Lawless Holding Corporation, acquired by Chesapeake in January 1994, added
$45 million to 1994 net sales. Volume from Color-Box, a graphic packaging
subsidiary, increased from the prior year with the completion late in 1993 of
the final phase of a capital expansion program which doubled the capacity of
this facility. By the end of the third quarter of 1994, sales price
increases had basically covered the increased containerboard costs which have
caused margins to be under pressure for much of the year.
3rd Quarter 1994 vs. 2nd Quarter 1994
Net sales for the third quarter of 1994 were up $30.0 million, or 13%,
from net sales of $236.9 million for the second quarter of 1994. This
improvement is due to the normal seasonally stronger third quarter and sales
price relief for most products. Improved volume for each of the three major
businesses also contributed to the increase in sales over the second quarter.
Net income for the third quarter of 1994 was $9.5 million greater than
net income for the second quarter. The second quarter included a pre-tax
charge for the enhanced retirement package offset in part by a nonrecurring
settlement gain. The remainder of the improvement resulted from higher
selling prices, improved sales volumes, lower interest expense and higher
interest income. These positive factors were offset in part by higher
wastepaper costs. Depreciation and cost of timber harvested approximated
second quarter levels. Excluding capitalized interest, interest expense for
the third quarter was 5% lower than in the second quarter.
13
Kraft Products
EBIT for the kraft products segment for the third quarter of 1994
improved $11.6 million over the second quarter of the year. Shipments of
kraft products for the third quarter of 1994 increased 2% compared to the
second quarter. Second quarter results were negatively impacted by a charge
related to the enhanced retirement program and lower production as a result
of a planned maintenance outage. Price increases were implemented for most
products and productivity continued to improve. Wastepaper costs, which
began to escalate in the first quarter and continued to climb rapidly in the
second quarter, began to moderate near the end of the third quarter, but are
still well above year-end 1993 levels. This caused the kraft products
segment to absorb an additional $3 million in wastepaper costs during the
third quarter compared to the second quarter. Earnings of the building
products business was down 8% compared to the seasonal peak achieved in the
second quarter. Implementation of additional sales price increases on
October 1, 1994 for all kraft paper products is expected to further add to
the earnings momentum for this segment. There is, however, a scheduled
maintenance outage in November and wastepaper costs continue to be high.
Tissue
EBIT for the tissue segment was down $1.9 million in the third quarter
compared to the second quarter as a result of lower shipments, higher
wastepaper costs of approximately $1 million and the nonrecurring settlement
gain realized in the second quarter. Tissue shipments were down 1% because
of a planned maintenance outage to replace a yankee dryer and heavy sales
near the end of the second quarter prior to the summer price increase.
Improved sales prices and mix, excellent productivity by the converting
operations and the profitable performance of the consumer products business
helped offset the negative factors. These positive trends are expected to
continue in the fourth quarter and an additional price increase is expected.
However, high wastepaper costs are expected to continue in the fourth
quarter.
Packaging
EBIT for the packaging segment in the third quarter improved $3.7
million, or 77%, compared to the second quarter. Net sales improved 21% as
the seasonal peak for this business began during the latter part of the third
quarter. Margins were under pressure during much of the third quarter.
However, average pricing improved about 7% during the third quarter to
basically cover the July containerboard price increase by the end of the
September. Containerboard price increases implemented October 1 will cause
renewed pressure on margins. In order to cover the increase in raw material,
box prices increases of 8 to 12% are expected to be attempted. Backlogs
remain strong for this segment as its peak selling season continues in the
early part of the fourth quarter. Strong growth is expected to continue in
the graphic packaging area and the Lawless facilities are performing in line
with Company expectations.
14
Capital Expenditures
Capital expenditures for the third quarter of 1994 were $12.1 million.
For the first nine months of 1994 capital expenditures were $33.6 million,
down 32% compared to the first nine months of 1993, as investments focused on
smaller incremental additions rather than large projects. Planned capital
expenditures for 1994 are expected to be approximately $55 million. Capital
expenditures for 1993 were $64 million. The 1994 planned capital
expenditures are for various operational improvements throughout the Company,
with no 1994 capital project individually more than 5% of the total planned
spending. Capital expenditures for 1994 are expected to be financed with
internally generated funds supplemented by proceeds from borrowings from
existing credit facilities. During October 1994 the company announced
expansion plans totaling $48 million for the packaging and kraft businesses.
The expansions are expected to increase graphic packaging manufacturing
capacity by approximately 30% and increase production capacity at the West
Point, Virginia kraft mill by about 8%. During 1995 capital expenditures are
expected to be in the $120-$130 million range resulting from carryovers of
1994 projects and the announced expansion plans.
Liquidity and Capital Structure
Working capital increased $21.9 million during the third quarter of 1994
as a result of heightened business activity. Increases in accounts
receivable of $13.5 million and inventories of $5.9 million were partially
offset by increases in accounts payable of $5.1 million. Cash and cash
investments were also up $12 million during the quarter. The average
collection period for accounts receivable remained the same during the third
quarter, but is three days higher than 1993's average. Accounts receivable,
inventories and accounts payable are higher than year end levels due in part
to the inclusion of the accounts of Lawless Holding Corporation acquired in
January 1994. The ratio of current assets to current liabilities was 2.2 at
the end of third quarter 1994 compared to 2.0 at the end of the second
quarter of 1994 and 1.9 at year end 1993.
"EBIT + D" (earnings before interest and income taxes plus non-cash
charges for depreciation, cost of timber harvested and amortization) was
$50.5 million for the third quarter of 1994, or 48% higher than $34.1 million
for the third quarter of 1993. Improved income before taxes was primarily
responsible for this increase. EBIT + D for the third quarter of 1994 was
42% higher than EBIT + D of $35.5 million for the second quarter of 1994.
Year-to-date EBIT + D was $117.2 million, 32% higher than $88.7 million in
1993. Net cash provided by operating activities for the third quarter of
1994 was $23.7 million, or $3.6 million less than in the third quarter of
last year. Year-to-date, net cash provided by operating activities was $53.3
million, or $20.1 million less than last year's record, as improved net
income was offset by changes in accounts receivable, inventories and accounts
payable.
During the third quarter of 1994, long-term debt decreased by
approximately $1 million to $364.6 million. In addition to the reduction of
long-term debt, $11 million of cash was invested during the quarter. Long-
term debt has increased $31.5 million since the beginning of the year
15
primarily because of the acquisition of Lawless Holding Corporation. During
the first quarter Chesapeake completed the public offering of $50 million of
25-year tax exempt bonds associated with projects at its West Point, Virginia
mill. The offering consisted of $31.25 million of 6.25% bonds, the proceeds
of which were used to repay 9.0% to 10.125% tax exempt bonds issued in 1984,
and $18.75 million of 6.375% bonds, the proceeds of which are being used to
finance new qualified projects. The call premium and write-off of the
remaining deferred debt costs for the 1984 bonds increased first quarter
interest expense by $.8 million. Out of a total of $100 million committed
and $115 million uncommitted credit lines available at the end of third
quarter, none were utilized. The ratio of long-term debt to total capital
was 43% at the end of third quarter 1994 compared to 44% at the end of second
quarter 1994 and 44% at the end of third quarter 1993. The ratio of long-
term debt to stockholders' equity was 96% at the end of third quarter 1994
compared to 100% at the end of second quarter 1994 and 101% at the end of
third quarter 1993.
Environmental Matters
See Note 6 of the Notes to Consolidated Financial Statements included
herein.
16
PART II
Item 1. Legal Proceedings
Reference is made to Note 4 of the Notes to Consolidated
Financial Statements included herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11.1 - Computation of Net Income Per Share
of Common Stock.
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None
17
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.
CHESAPEAKE CORPORATION
(Registrant)
Date: November 9, 1994 BY: /s/Christopher R. Burgess
Christopher R. Burgess
Controller
Date: November 9, 1994 BY: /s/Andrew J. Kohut
Andrew J. Kohut
Vice President - Finance &
Chief Financial Officer
18
EXHIBIT INDEX
Page
Exhibit 11.1
Computation of Net Income per Share of
Common Stock 21
Exhibit 27.1
Financial Data Schedule 22
19
<TABLE>
EXHIBIT 11.1
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
FOR THE THIRD QUARTER AND YEAR TO DATE
ENDED SEPTEMBER 30, 1994 AND 1993
(Share amounts in thousands, dollar amounts in millions,
except for per share amounts)
<CAPTION>
Third Quarter Year to Date
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Primary:
Weighted average number of common
shares outstanding 23,656 23,446 23,521 23,369
Net additions to common shares
assuming exercise of dilutive
options, determined by treasury
stock method 254 6 183 20
Common shares and equivalents 23,910 23,452 23,704 23,389
Net Income $ 15.1 $ 2.6 $ 23.4 $ 3.1
Per share amount $ .64 $ .11 $ .99 $ .13
Fully diluted:
Common shares and equivalents 23,910 23,452 23,704 23,389
Net additional common shares
issuable upon exercise of
dilutive options, determined
by treasury stock method using
period end market price, if
higher than average price 63 19 34 6
Common shares, equivalents and
other potentially dilutive
securities 23,973 23,471 23,738 23,395
Net income for fully diluted
computation $ 15.1 $ 2.6 $ 23.4 $ 3.1
Per share amount $ .63 $ .11 $ .98 $ .13
</TABLE>
NOTE: (a) Dilution is less than 3%
20
21
18<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000019731
<NAME> CHESAPEAKE CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 12,600,000
<SECURITIES> 0
<RECEIVABLES> 124,000,000
<ALLOWANCES> 4,300,000
<INVENTORY> 92,000,000
<CURRENT-ASSETS> 246,900,000
<PP&E> 1258,500,000
<DEPRECIATION> 615,600,000
<TOTAL-ASSETS> 987,300,000
<CURRENT-LIABILITIES> 114,600,000
<BONDS> 364,600,000
<COMMON> 23,700,000
0
0
<OTHER-SE> 357,400,000
<TOTAL-LIABILITY-AND-EQUITY> 987,300,000
<SALES> 715,800,000
<TOTAL-REVENUES> 726,600,000
<CGS> 522,800,000
<TOTAL-COSTS> 661,700,000
<OTHER-EXPENSES> 4,000,000
<LOSS-PROVISION> 4,300,000
<INTEREST-EXPENSE> 23,400,000
<INCOME-PRETAX> 37,500,000
<INCOME-TAX> 14,100,000
<INCOME-CONTINUING> 23,400,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,400,000
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
