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, 1995
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, 23,899,228 shares.
Page 1 of 20 Pages.
PART I
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THIRD QUARTER AND YEAR TO DATE ENDED
SEPTEMBER 30, 1995 AND 1994
<CAPTION>
Third Quarter Year to Date
1995 1994 1995 1994
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net sales $330.8 $266.9 $937.0 $715.8
Costs and expenses:
Cost of products sold 229.1 191.7 656.0 526.1
Depreciation and cost
of timber harvested 19.1 18.5 56.5 54.9
Selling, general and
administrative expenses 33.0 28.8 97.5 84.0
Income from operations 49.6 27.9 127.0 50.8
Other income and expenses, net 3.5 2.5 4.6 6.8
Interest expense (7.4) (7.4) (23.5) (23.4)
Income before taxes 45.7 23.0 108.1 34.2
Income taxes 15.8 8.6 38.9 12.9
Net income $ 29.9 $ 14.4 $ 69.2 $ 21.3
Earnings per share $ 1.24 $ .60 $ 2.88 $ .90
Weighted average number of
common shares and
equivalents outstanding 24.1 23.9 24.1 23.7
Cash dividends declared per
share of common stock $ .20 $ .18 $ .58 $ .54
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
Sept. 30, 1995 Dec. 31, 1994
(In millions)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ .3 $ 33.2
Accounts receivable, less
allowances for doubtful
accounts of $4.2 and $3.8 156.9 127.1
Inventories, at lower of cost
or market 119.7 89.8
Deferred income taxes 15.9 15.9
Other 7.8 5.6
Total current assets 300.6 271.6
Property, plant and equipment, at cost:
Land, buildings, machinery
and equipment 1,357.1 1,228.8
Less accumulated depreciation (677.9) (622.7)
679.2 606.1
Timber and timberlands, net 40.3 40.3
Net property, plant and equipment 719.5 646.4
Goodwill, net 42.5 43.6
Other assets 45.1 51.5
$1,107.7 $l,013.1
</TABLE>
<TABLE>
<CAPTION>
Sept. 30, 1995 Dec. 31, 1994
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 133.9 $ 116.8
Current maturities of long-term debt .9 1.0
Dividends payable 4.8 4.3
Income taxes payable 4.3 5.2
Total current liabilities 143.9 127.3
Long-term debt 370.7 364.0
Postretirement benefits other than pensions 26.1 23.3
Deferred income taxes 116.0 105.2
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 23,899,228 and
23,753,706 shares 23.9 23.8
Additional paid-in capital 109.3 107.1
Retained earnings 317.8 262.4
451.0 393.3
$1,107.7 $1,013.1
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR TO DATE ENDED SEPTEMBER 30, 1995 AND 1994
<CAPTION>
1995 1994
(In millions)
<S> <C> <C>
Operating activities
Net income $ 69.2 $ 21.3
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, cost of timber harvested and
amortization of intangibles 58.2 56.6
Deferred income taxes 10.8 2.3
Gain on sale of property, plant and equipment (3.0) (1.6)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (29.8) (30.7)
Inventories (29.9) (4.3)
Other assets 3.6 (3.1)
Accounts payable and accrued expenses 17.4 9.1
Income taxes payable (.9) 1.2
Other payables 2.8 2.5
Net cash provided by operating activities 98.4 53.3
Investing activities
Purchases of property, plant and equipment (114.5) (33.6)
Acquisitions (net of notes issued to sellers
of $16.0 in 1994) (15.8) (16.7)
Proceeds from sale of property, plant and equipment 3.4 2.7
Other .3 5.1
Net cash used in investing activities (126.6) (42.5)
Financing activities
Net borrowings (payments) on credit lines 76.7 (3.1)
Payments on long-term debt (71.1) (34.7)
Proceeds from long-term debt .6 49.1
Proceeds from issuances of common stock 3.3 3.4
Dividends paid (13.3) (12.7)
Other ( .9) (.9)
Net cash provided by (used in) financing activities (4.7) 1.1
Increase (decrease) in cash and cash equivalents (32.9) 11.9
Cash and cash equivalents at beginning of period 33.2 .7
Cash and cash equivalents at end of period $ .3 $ 12.6
Supplemental cash flow information:
Interest payments $ 24.6 $ 23.2
Income tax payments, net of refunds $ 29.1 $ 9.5
See accompanying notes.
</TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included herein are
unaudited, except for the December 31, 1994 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 1995 interim period should
not be regarded as necessarily indicative of the results that may be
expected for the entire year. The 1994 results have been restated to
reflect the change in method of accounting for certain inventories to
the LIFO method effective January 1, 1994.
<TABLE>
2. Inventories:
<CAPTION>
Sept. 30, 1995 Dec. 31, 1994
(In millions)
<S> <C> <C>
Inventories consist of:
Finished goods $ 49.9 $ 26.6
Work in process 21.4 21.5
Materials and supplies 48.4 41.7
Totals $119.7 $ 89.8
</TABLE>
3. Commitments and Other Matters:
At September 30, 1995, commitments, primarily for capital expenditures,
approximated $141 million. These commitments include anticipated
expenditures of $8 million in 1995 and $6 million in 1996 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 $127 million include
expenditures related to new operations in Arizona and planned operations
in New York and Illinois for Wisconsin Tissue Mills, Inc., a wholly owned
subsidiary ("WTM"). Also included are various other capital projects,
none of which is individually material.
3. Commitments and Other Matters (continued):
Uncommitted environmental protection projects may cost the Company
another $4 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.
During the third quarter of 1995, WTM purchased 25 acres of property near
Flagstaff, Arizona, and began construction of a new tissue converting
facility. This facility will support the recently acquired Flagstaff
Tissue mill. This mill, purchased in May, 1995, by WTM, began operations
in the third quarter and should add 30,000 tons per year to tissue
papermaking capacity. Also during the third quarter the company
acquired a facility in upstate New York which it expects to operate as
an additional tissue converting plant. In November, 1995, WTM acquired
the Alsip, Illinois, mill of Chicago Tissue Company L.P. This
acquisition should add at least 50,000 tons per year of tissue
papermaking capacity.
On October 16, 1995, Chesapeake announced that it had entered into a
definitive agreement for the sale of its wholly owned subsidiary,
Chesapeake Consumer Products Company, to The Fonda Group, Inc. This
transaction is expected to close by year end.
On October 18, 1995, Color-Box, Inc., Chesapeake's consumer graphic
packaging business, announced plans to build a new facility to be located
in the mid-south region of the United States. This plant, combined with
Color-Box's three other facilities, will give Chesapeake a national
presence in the consumer graphic packaging industry. This plant is
expected to be operational by third quarter 1996.
4. Litigation:
WTM has received a notice from the United States Fish and Wildlife
Service that WTM has been identified as a potentially responsible party
with respect to possible natural resource damages in the Fox River and
Green Bay System. See Note 6 to the consolidated financial statements
for further information regarding this notice.
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 36.0% in 1995 compared to
37.7% in 1994. The differences between the Company's effective income
tax rate and the statutory federal income tax rate are due primarily to
state income taxes and purchase accounting adjustments resulting from
acquisitions.
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.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and similar state "superfund" laws impose liability, without
regard to fault or to the legality of the original action, on certain
classes of persons (referred to as potentially responsible parties or
("PRPs") associated with a release or threat of a release of a hazardous
substance into the environment. Financial responsibility for the
clean-up or other remediation of contaminated property or for natural
resource damages can extend to previously owned or used properties,
waterways and properties owned by third parties, as well as to properties
currently owned and used by a company even if contamination is
attributable entirely to prior owners. While joint and several liability
is authorized under CERCLA, as a practical matter the cost of clean-up or
other remediation is generally allocated among the waste generators.
Except for the United States Department of Interior, Fish and Wildlife
Service ("FWS") assessment of the Fox River discussed below, the Company
is not presently named as a PRP at any CERCLA-related sites. However,
there can be no assurance that the Company will not be named as a PRP at
any other sites in the future or that the costs associated with
additional sites would not be material to the Company's financial
position or results of operations.
In June 1994, the FWS, a federal natural resources trustee, notified WTM
that it had identified WTM and four other companies located along the
lower Fox River in northeast Wisconsin as PRPs for purposes of natural
resources liability under CERCLA arising from alleged releases of
polychlorinated biphenyls (PCBs) in the Fox River and Green Bay System.
The FWS alleges that natural resources including endangered species,
fish, birds, tribal lands or lands held by the United States in trust for
various tribes, have been exposed to PCBs that were released from
facilities located along the Fox River. The notice invites the PRPs
to participate in the development and performance of a natural resource
damage assessment with respect to the alleged discharges. WTM and the
four other PRPs are engaged in negotiations with FWS concerning the
proposed damage assessment and the possible resolution of the claims
to allow voluntary resolution and remediation to proceed.
WTM and the four other PRPs are also engaged in discussions with the
Wisconsin Department of Natural Resources ("WDNR") with respect to
resolving possible state claims concerning remediation, restoration and
natural resource damage related to the alleged discharge of PCBs into the
Fox River and Green Bay System. The PRPs have proposed a settlement to
WDNR, and are engaged with WDNR in continuing discussions of the
settlement proposal. WTM's obligation under the proposed settlement
would not be material to the Company's financial position or results of
operations. Based upon presently available information, the Company
believes that there are additional parties, some of which may have
substantial resources, that may also be identified as PRPs with respect
to this matter and could be expected to participate in any settlement.
The ultimate cost to WTM, if any, associated with this matter cannot be
predicted with certainly at this time, due to: the inability to determine
the outcome of pending settlement discussions or, if a settlement cannot
be reached, the Company's share of any multi-party clean-up; the unknown
magnitude of any contamination; the varying cost of alternative clean-up
methods; the evolving nature of clean-up technologies and governmental
regulations; the extent to which contribution will be available from
other parties; and the scope of potential recoveries from insurance
carriers and prior owners of WTM. The Company believes that it is
entitled to indemnification from the prior owner of WTM, pursuant to a
stock purchase agreement between the parties, with respect to all
liabilities related to this matter. That prior owner has reimbursed the
Company for out-of-pocket costs and attorney's fees related to
investigation of the matter. The Company believes that such prior owner
intends to, and has the financial ability to, honor its indemnification
obligation under the stock purchase agreement.
In March 1995, the United States Environmental Protection Agency ("EPA")
issued "Final Guidance" for basin-wide water quality standards pursuant
to the Great Lakes Water Quality Agreement between the U.S. and Canada
regarding the development of water quality standards for the Great
Lakes and their tributaries. Under federal law, the affected states will
be required within two years to implement specific regulations that are
consistent with the provisions of the Final Guidance. Dischargers would
then have an additional period of up to five years during which to comply
with any new, more stringent, permit limits derived under the Final
Guidance. The Final Guidance is currently the subject of administrative
and judicial challenges by the paper industry and other groups, and of
pending legislation in the U.S. Congress. WTM is evaluating the
potential effects of the Final Guidance on its operations and results,
which effects cannot be predicted with certainty at this time. However,
based on the Company's initial review of the Final Guidance, the Company
believes that compliance would not have a material adverse effect on its
financial position or results of operations.
The 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 on 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 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
3rd Quarter 1995 vs. 3rd Quarter 1994
Net sales for third quarter 1995 were a record $330.8 million, up 24%
from net sales of $266.9 million for the third quarter of last year. Higher
shipments for the tissue segment, improved product mix and higher selling
prices for all major products were responsible for the increase.
Net income for third quarter 1995 was $29.9 million, or $1.24 a share, an
increase of 108% over third quarter 1994 net income of $14.4 million, or $.60 a
share. Strategic initiative start-up costs during the quarter reduced pre-tax
earnings by approximately $3 million, or $.08 a share after-tax. Higher selling
prices and improved operating performance helped lower cost of products sold
as a percentage of net sales to 69% for third quarter 1995 compared to 71%
for third quarter of 1994. Selling, general and administrative expenses as a
percentage of net sales were 10% for third quarter 1995 and 11% for third
quarter of 1994. Depreciation was up 3% compared to prior year amounts due
to increased capital spending. Other income and expenses, net in both 1995
and 1994 included gains from the sale of land no longer considered strategic
and hunting rights income. Interest expense for the quarter was the same as
third quarter 1994.
<TABLE>
BUSINESS SEGMENT HIGHLIGHTS
<CAPTION>
Third Quarter Second Quarter Year-to-date
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Net Sales:
Packaging $122.5 $ 96.4 $112.7 $342.1 $250.1
Kraft products 107.8 88.0 109.8 322.3 237.8
Tissue 98.8 80.9 90.6 267.6 223.3
Corporate 1.7 1.6 2.0 5.0 4.6
$330.8 $266.9 $315.1 $937.0 $715.8
EBIT:
Packaging $ 9.8 $ 8.4 $ 8.8 $ 26.6 $17.2
Kraft products 35.2 12.8 20.0 81.9 17.3
Tissue 11.3 11.4 11.4 31.6 31.9
Corporate (3.2) (2.2) (2.7) (8.5) (8.8)
$53.1 $30.4 $37.5 $131.6 $57.6
</TABLE>
Packaging net sales improved 27% compared to third quarter 1994, with gains in
all three packaging businesses--corrugated shipping containers, point-of-sale
displays and consumer graphic packaging. Overall packaging shipments were
down 2% versus last year's third quarter. Shipments of higher margin
point-of-sale displays continued to show improvement. "EBIT" (earnings
before interest and taxes) for third quarter 1995 was up 17% compared to
third quarter 1994. The new graphic packaging plant at Visalia, California,
which started-up in late second quarter 1995, contributed over $1 million in
sales during the third quarter.
Kraft products net sales were up 23% compared to third quarter 1994. Higher
selling prices were the primary cause for the improvement in EBIT to $35.2
million for third quarter 1995 versus $12.8 million for third quarter 1994.
Shipments for the third quarter of 1995 were 189,000 tons, 13% less than
third quarter 1994, due to outages related to a paper machine rebuild project
and reduced demand for certain products. Shipments of white top paperboard
were about 10% higher than third quarter 1994. Prices for recovered paper, a
major raw material, averaged 3% higher than in the third quarter of 1994.
Tissue shipments of 60,000 tons for the third quarter of 1995 were 6% higher
than the 1994 quarter. Third quarter 1995 sales were a record, up 22% from
third quarter 1994, primarily due to higher selling prices and shipments.
Average sales prices were up 18% from third quarter 1994. EBIT was about the
same as it was in third quarter 1994, as increases in recovered paper prices
added approximately $10 million in costs versus last year's quarter. The
Flagstaff, Arizona mill, purchased in May, successfully began operating in
the third quarter.
3rd Quarter Year-to-date 1995 vs. 3rd Quarter Year-to-date 1994.
Net sales for the nine months ended September 30, 1995, were a record $937.0
million, up 31% over net sales of $715.8 million in the first nine months of
1994. Higher shipments for the packaging and tissue segments and greatly
improved selling prices for all major products were responsible for the
increase.
Year-to-date net income was $69.2 million, or $2.88 a share, up 225% from
$21.3 million, or $.90 a share, earned in the first three quarters of 1994.
Included in 1995 results are pre-tax charges of approximately $8 million for
the enhanced hourly retirement program in the kraft products segment and
post-closing obligations related to Chesapeake's former wood treating
business. Results for 1995 also include approximately $3 million in pre-tax
expenses related to strategic initiative start-ups. Results for 1994 include a
pre-tax charge of $4.9 million for the enhanced salaried retirement program
in the kraft products segment. Cost of products sold as a percentage of net
sales was 70% in 1995 and 73% in 1994 as a result of improved sales prices
and continued solid operating performance. Selling, general and
administrative expenses as a percentage of net sales improved from 12% to 10%.
Depreciation was up 3% over 1994 due to increased capital spending and
acquisitions. Other income and expenses, net was down $2.2 million from last
year, as 1995 included the charge relating to the wood treating post-closing
obligations. Both years included proceeds of sales of land no longer
considered strategic. Interest expense approximated prior year levels.
Year-to-date packaging net sales for 1995 were up 37% compared to 1994. Net
sales and shipments were up for all three packaging businesses, with
point-of-sale displays continuing to show the strongest improvement. EBIT
for 1995 was up 55% compared to the first nine months of 1994. The new
graphic packaging plant in Visalia, California, has contributed over $1
million in sales during 1995.
Kraft products net sales for 1995 were up 36% compared to the first nine
months of 1994. Sales prices averaged 52% higher than in the first three
quarters of 1994. Good tons per day of production remained above last year's
excellent production rate. Product mix improved, with shipments of white top
paperboard up 10% over the prior year. Year-to-date shipments were 601,000
tons, down 6% from the previous year, due to planned maintenance, improved
product mix and shipments from inventory in 1994. Recovered paper prices
averaged 86% higher than the first three quarters of last year, adding
approximately $19 million to costs.
Year-to-date tissue shipments of 169,000 tons were 4% higher than 1994. Net
sales for the first nine months were a record, up 22% compared to the first nine
months of last year, due to strong shipments, improved product mix and higher
selling prices. Higher recovered paper costs added approximately $29 million in
additional costs compared to the first nine months of 1994. Year-
to-date EBIT approximated 1994 levels despite these additional costs.
3rd Quarter 1995 vs 2nd Quarter 1995
Net sales for the third quarter of 1995 were up $15.7 million, or 5%, from
net sales of $315.1 million for the second quarter of 1995. This was the
Company's seventh consecutive quarter of increasing sales. This improvement
was due to slightly higher average selling prices for major product lines,
higher shipments of tissue and improved product mix. Third quarter is
normally the seasonally strongest for Chesapeake.
Net income for the third quarter of 1995 was up $11.4 million from net income
of $18.5 million in the second quarter, due to higher sales and the two pre-tax
charges of approximately $8 million in the second quarter.
Net sales for the packaging segment were up 9% from the second quarter of
this year. Shipments approximated second quarter levels. EBIT was 11%
higher than in the second quarter. Color-Box's new graphic packaging
manufacturing facility at Visalia, California, which began operations in late
second quarter, added approximately $1 million to third quarter sales.
Chesapeake recently announced plans to build another consumer graphics
packaging facility, with the new plant to be located in the mid-south region of
the United States.
Shipments of kraft products in the third quarter were 6% lower than second
quarter's volume primarily due to outages in relation to the paper machine
rebuild project and weak market conditions for certain commodity oriented
products. The rebuilt machine, which will add 70,000 tons of capacity, is on
schedule for a start-up in late fourth quarter following approximately three
weeks of downtime. Net sales were 2% lower than second quarter. Sales
prices of kraft products remained at record levels, but market conditions
were not as strong by the end of third quarter. EBIT was $15.2 million
higher than in the second quarter, which included charges related to the
enhanced retirement package for hourly employees, wood treating post-closing
obligations and a planned maintenance outage. Recovered paper prices
declined during the third quarter, averaging 37% lower than the second
quarter, and maintenance spending also was down.
Third quarter tissue shipments were up 6% and average sales prices were up 1%
compared to the second quarter, resulting in a 9% increase in net sales for this
segment. Tissue prices remain firm. Recovered paper costs for tissue grades
moderated during the third quarter, but still added approximately $.4 million in
costs compared to the second quarter. EBIT for the tissue segment was even with
second quarter 1995. The Flagstaff, Arizona, mill, purchased in May,
successfully began operating in the third quarter and construction commenced
on a new tissue converting facility in the Flagstaff area to support WTM's
growth plans. WTM also acquired a facility in upstate New York which it
expects to operate as an additional tissue converting plant. In addition,
WTM closed the acquisition of Chicago Tissue during November. This modern
tissue manufacturing facility will add more than 50,000 tons of primary
capacity.
By the end of the third quarter of 1995, Chesapeake had already surpassed its
previous annual earnings record. However, market conditions are not as
strong as they were earlier in the year, which is expected to put pressure on
earnings. The successful implementation of the strategic growth initiatives
in each of the Company's three major businesses is expected to help offset
this pressure and better position the Company for the future. Fourth quarter
1995 earnings are expected to be lower than the third quarter, but well ahead
of fourth quarter of last year.
Capital Expenditures
Capital expenditures for the first nine months of 1995 totaled $130
million and included $15 million for the purchase of the assets of the
Flagstaff tissue mill and the New York tissue converting facility. Other
capital expenditures in 1995 have related primarily to the internal
expansions of the packaging and kraft businesses announced in 1994.
Expenditures for capital investments and acquisitions for the first three
quarters of 1994 were approximately $66 million and included $33 million
for the acquisition of five packaging plants. Capital expenditures for 1994
(excluding acquisitions) were focused on maintenance and reliability rather
than growth projects. Capital expenditures for 1995 (excluding acquisitions)
are expected to be approximately $140 million and include the recently
operational manufacturing plant located in Visalia, California, for the
Company's Color-Box graphic packaging business; additional equipment at the
existing Color-Box plant in Richmond, Indiana; modernization of the North
Tonawanda, New York, corrugated container plant; and an upgrade of the No. 2
paper machine at the West Point, Virginia mill. No other 1995 capital
projects are individually more than 5% of the total planned spending. Capital
expenditures for 1995 are expected to be financed with internally generated
cash supplemented by proceeds from borrowings.
Liquidity and Capital Structure
Working capital increased $12.1 million during the third quarter of 1995.
Accounts receivable increased $9.6 million during the quarter due to higher
sales; however, the average collection period for the first three quarters
was down 1 day compared to 1994's first three quarter average. Inventories
increased $8.0 million during the third quarter of 1995 due to higher
inventories of kraft and tissue products. The inventory turnover rate for
the first three quarters of 1995 approximated the first three quarters of
last year. Accounts payable and accrued expenses increased $3.8 million
during the quarter as a result of higher capital spending. The ratio of
current assets to current liabilities was 2.1 at the end of the third quarter
1995 compared to 2.0 at the end of the second quarter of 1995 and 2.1 at year
end 1994.
"EBIT + D" (earnings before interest and income taxes plus non-cash charges
for depreciation, cost of timber harvested and amortization) was $72.7
million for the third quarter of 1995, or 47% higher than $49.4 million for
the third quarter of 1994. Improved income before taxes was primarily
responsible for this increase. Year-to-date EBIT + D was $189.6 million, or
66% higher than $113.9 million in 1994. Net cash provided by operating
activities for the third quarter was a record $42.7 million, up from $23.7
million for the third quarter of 1994, primarily because of improved net
income. For the year-to-date, net cash provided by operating activities
was $98.4 million, or 85% higher than $53.3 million for the first three
quarters of 1994. Improved earnings were responsible for this increase.
At the end of the third quarter, long-term debt totaled $370.7 million, or
$11.6 million higher than long-term debt of $359.1 million at the end of the
second quarter of 1995 and $6.7 million higher than year-end 1994. The
increase in debt, the reduction of temporary cash investments and cash
provided by operating activities were used to finance working capital
requirements and capital investments during the first three quarters of the
year. On August 1, 1995, the Company repaid at maturity $50 million of
11.75% notes with the proceeds of borrowings under lower-cost credit
lines. The ratio of long-term debt to total capital was 40% at the end of
the third quarter, equal to 40% at the end of the second quarter of 1995 and
down from 43% at the end of the third quarter of 1994.
Environmental Matters
See Note 6 of the Notes to Consolidated Financial Statements included
herein.
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
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 13, 1995 BY: /s/Christopher R. Burgess
Christopher R. Burgess
Controller
Date: November 13, 1995 BY: /s/Andrew J. Kohut
Andrew J. Kohut
Group Vice President - Finance &
Strategic Development & Chief
Financial Officer
<TABLE>
EXHIBIT INDEX
<CAPTION>
Page
<S> <C>
Exhibit 11.1
Computation of Net Income per Share of
Common Stock 20
</TABLE>
<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, 1995 AND 1994
(Share amounts in thousands, dollar amounts in millions,
except for per share amounts)
<CAPTION>
Third Quarter Year to Date
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary:
Weighted average number of common
shares outstanding 23,853 23,656 23,812 23,521
Net additions to common shares
assuming exercise of dilutive
options, determined by treasury
stock method 266 254 250 183
Common shares and equivalents 24,119 23,910 24,062 23,704
Net Income $ 29.9 $ 15.1 $ 69.2 $ 23.4
Per share amount $ 1.24 $ .64 $ 2.88 $ .99
Fully diluted:
Common shares and equivalents 24,119 23,910 24,062 23,704
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 14 63 7 34
Common shares, equivalents and
other potentially dilutive
securities 24,133 23,973 24,069 23,738
Net income for fully diluted
computation $ 29.9 $ 15.1 $ 69.2 $ 23.4
Per share amount $ 1.24 $ .63 $ 2.88 $ .98
</TABLE>
NOTE: (a) Dilution is less than 3%
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000019731
<NAME> CHESAPEAKE CORP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 300,000
<SECURITIES> 0
<RECEIVABLES> 161,100,000
<ALLOWANCES> 4,200,000
<INVENTORY> 119,700,000
<CURRENT-ASSETS> 300,600,000
<PP&E> 1,357,100,000
<DEPRECIATION> 677,900,000
<TOTAL-ASSETS> 1,107,700,000
<CURRENT-LIABILITIES> 143,900,000
<BONDS> 370,700,000
<COMMON> 23,900,000
0
0
<OTHER-SE> 427,100,000
<TOTAL-LIABILITY-AND-EQUITY> 1,107,700,000
<SALES> 937,000,000
<TOTAL-REVENUES> 947,000,000
<CGS> 656,000,000
<TOTAL-COSTS> 810,000,000
<OTHER-EXPENSES> 5,400,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,500,000
<INCOME-PRETAX> 108,100,000
<INCOME-TAX> 38,900,000
<INCOME-CONTINUING> 69,200,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,200,000
<EPS-PRIMARY> 2.88
<EPS-DILUTED> 2.88
</TABLE>
