SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 laws I.R.S. Employer
of Virginia Identification No. 54-0166880
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350
Telephone Number (804) 697-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $1 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K
or any amendment to this Form 10-K. [X]
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 aggregate market value on February 14, 1995, of the voting stock
held by non-affiliates of the registrant was $753 million. In determining
this figure, the registrant has assumed that all of its directors and
officers are affiliates. This assumption shall not be deemed conclusive for
any other purpose.
23,761,395 shares of the registrant's common stock, par value $1, were
outstanding as of February 14, 1995.
Portions of the registrant's Annual Report to Stockholders for the year
ended December 31, 1994 are incorporated in Parts I, II and IV by reference.
Portions of the registrant's definitive Proxy Statement for the annual
meeting of stockholders to be held on April 26, 1995, are incorporated in
Part III by reference.
PART I
Item 1. Business
GENERAL
Chesapeake Corporation, a Virginia corporation organized in
1918, is a paper and packaging company, whose primary businesses
are kraft products, tissue and packaging. Our operating
businesses include: Chesapeake Paper Products Company and
Chesapeake Forest Products Company (kraft products, building
products and woodlands operations); Wisconsin Tissue Mills Inc.
(commercial and industrial tissue products); Chesapeake Consumer
Products Company (consumer tabletop tissue products); Chesapeake
Packaging Co. (point-of-sale displays and specialty packaging,
consumer graphic packaging and corrugated shipping containers);
and Delmarva Properties, Inc. and Stonehouse Inc. (land
development).
Chesapeake competes in a large, capital-intensive industry.
Until the mid 1980s, Chesapeake's products were primarily kraft
commodity products manufactured by Chesapeake Paper Products. In
commodity markets, selling prices are controlled by total market
supply and demand. To be successful in these markets, it is
important to maximize production and minimize operating costs.
Selling prices and profits for commodity products are usually
cyclical and follow general economic conditions.
During the past several years, Chesapeake has pursued a
strategy of focusing on specialty products in markets that
management believes have growth potential or in which the Company
has or may be able to achieve competitive advantages. The
Company's strategy for success with its specialty products is to
utilize its recycling expertise creatively, to differentiate
itself from its competition by producing products which are
distinctive and to utilize its superior ability to respond to
customers' requirements. Management believes this strategy
allows the Company to achieve less cyclical and greater profits
than with commodity products and to better utilize Chesapeake's
strengths. During 1994, sales of specialty products were more
than 60% of Chesapeake's total sales. During the three years
prior to 1994, low selling prices for commodity products offset
much of the benefit derived from specialty product sales. In
1994, sales prices for the paper industry recovered
significantly. See "Financial Review 1992-1994" of the Company's
1994 Annual Report to Stockholders (the "1994 Annual Report"),
incorporated herein by reference.
Because we understand the service needs of our customers, we
believe we are able to provide quality products quickly and
efficiently. Our decentralized management style allows quick and
creative decisionmaking. Our operations are designed to be
flexible to changing customer demands and business conditions.
Chesapeake's businesses are run to generate cash flow and
earn an acceptable long-term return on investment for
stockholders.
Our manufacturing and converting processes are capital
intensive; property, plant and equipment, including timber and
timberlands, comprise approximately 64% of our total assets. Our
tissue and kraft operations require major investments in paper
machines, fiber preparation equipment and converting equipment.
In 1992, the Company completed an eight-year $600 million capital
spending program for machinery, equipment and new technology to
increase production of specialty products while reducing the
Company's emphasis on commodity products such as brown paperboard
and bleached hardwood pulp. About one-half of these expenditures
were for paper machine projects for our kraft and tissue
businesses. This program also included a $100 million project
for a recovery boiler, evaporators and related equipment for our
kraft business. In our other businesses, we have continued to
invest in specialized converting and processing equipment needed
to meet our strategic goals and customer requirements. Other
recent capital spending has focused on enhancing efficiency,
productivity and product quality. Recent acquisitions, primarily
in packaging, have benefited the Company with immediate expertise
or marketing strength for our future needs and requirements.
Our businesses are grouped into three major segments: kraft
products, tissue and packaging. The information presented in
"Notes to Consolidated Financial Statements, Note 14 - Business
Segment Information" of the 1994 Annual Report is incorporated
herein by reference. Information with respect to the Company's
working capital is set forth under the caption "Financial Review
1992-1994, Liquidity and Capital Structure" of the 1994 Annual
Report and is incorporated herein by reference. Information
regarding the Company's anticipated capital spending is set forth
under the caption "Financial Review 1992-1994, Capital
Expenditures" of the 1994 Annual Report and is incorporated
herein by reference.
KRAFT PRODUCTS
Chesapeake's kraft products segment consists of Chesapeake
Paper Products Company, our kraft products operations, and
Chesapeake Forest Products Company, our woodlands and building
products operations, both based in West Point, Virginia.
Chesapeake Building Products Company, a wholly owned subsidiary
of Chesapeake Forest Products Company, was formed in 1993 with
the merger of the company's lumber division and Chesapeake Wood
Treating Co.
Chesapeake Paper Products Company
Chesapeake Paper Products manufactures white top paperboard,
which accounts for approximately 80% of the total paperboard
product mix, kraft paperboard, kraft paper, corrugating medium
and bleached hardwood pulp at its mill located in West Point,
Virginia. Paperboard and corrugating medium, the outer and inner
materials of a corrugated container, are sold to external and
company-owned container and packaging plants. Kraft paper is
sold to external converters to make bags and wrappings. Bleached
hardwood pulp is sold primarily to non-pulp producing paper
manufacturers which manufacture predominantly printing and
writing paper. Most of our customers are located in the eastern
half of the United States, primarily in the mid-Atlantic and
northeastern states, where we have the advantage of lower freight
rates compared to many of our competitors. We also sell to
international customers, primarily in Europe, Asia and Canada.
Our salesforce markets these products to integrated and
independent converters and manufacturers. Total shipments from
the West Point mill were 850,000 tons in 1994, 798,000 tons in
1993 and 721,000 tons in 1992.
In 1994, approximately 66% of the raw material for products
manufactured by our kraft products mill was virgin wood fiber,
with the remainder being recycled fiber recovered through our
recycling system. Three company-owned recycling centers collect
recycled fiber for the mill, which has the capacity to use
360,000 tons of recycled fiber annually. About 78% of the virgin
wood fiber used in 1994 was purchased from wood producers or
independent timberland owners and the rest was from company-owned
timberlands. In addition to our three paper machines and a
market pulp machine, the West Point facility includes wood
storage, wood pulping, paper recycling and steam and power
generation equipment.
In recent years much emphasis has been placed on training,
problem-solving and employee involvement in all phases of the
mill's operation. These factors, as well as the installation of
new equipment, have enabled the mill to improve product quality
and lower reject levels.
Chesapeake Forest Products Company, Woodlands Division
Chesapeake Forest Products, Woodlands Division,owns and
actively manages approximately 328,000 acres of timberland
located in Virginia, Maryland,and Delaware. The primary
objective of our woodlands operation is to provide an adequate
supply of wood at a competitive cost to our kraft products mill
located at West Point. Wood comes from our company-owned lands
and from independent landowners. Our foresters use
environmentally sound, modern forestry methods intended to ensure
a long-term, low-cost fiber supply. Our genetically superior
pine seedlings, which are used in our reforestation program on
company-owned land and made available to private landowners, grow
quicker and provide higher quality, more uniform fibers at the
time of harvest than traditional seedlings. We are actively
utilizing natural reforestation techniques to generate new
hardwood timber stands on company-owned and privately held land.
For more than 25 years, Chesapeake has participated in research
programs that have improved the quality, disease resistance and
growth rate of our planted trees.
Chesapeake Building Products Company
Chesapeake Building Products operates four sawmills in
Virginia and Maryland, manufacturing pine and hardwood lumber.
The raw materials are provided from both company-owned
timberlands and from other landowners. Our sawmill products are
sold by our own salesforce to independent users.
Substantially all of the assets of the former Chesapeake
Wood Treating Co. were conveyed to Universal Forest Products,
Inc. under lease and purchase agreements in October 1993.
Chesapeake Wood Treating Co. produced chemically treated pine
lumber for the home improvement and residential construction
markets. Net sales of this business were $85.8 million in 1993
and $97.7 million in 1992.
TISSUE
Chesapeake's tissue segment consists of Wisconsin Tissue
Mills Inc., which produces tissue for industrial and commercial
markets, and Chesapeake Consumer Products Company, a converter of
tissue products for the consumer market.
Wisconsin Tissue Mills Inc.
Wisconsin Tissue, acquired in 1985, manufactures napkins,
tablecovers, toweling, placemats, wipers and facial and bathroom
tissue for commercial and industrial markets at its paper mill
and converting facilities located in Menasha, Wisconsin and
Neenah, Wisconsin. Our strategy is to provide a full line of
disposable products for the commercial and industrial tissue
markets. Our 2,200 products are found in full-menu and fast-food
restaurants, hotels, motels, clubs, health care facilities,
schools and office locations and on airlines.
The raw material for the paper manufactured by Wisconsin
Tissue is 100% recycled fiber. Four paper machines manufacture
base tissue stock that is converted on over 100 specialized
machines, with additional converting machines scheduled to come
on-line in 1995. The Company believes that its computerized
warehouse inventory and distribution systems give it an advantage
over many of its competitors in product shipping efficiency and
inventory control. Our tissue products are sold throughout the
United States and in Canada by our own salesforce. Shipments by
Wisconsin Tissue were 217,000 tons in 1994, 220,000 tons in 1993
and 211,000 tons in 1992.
Chesapeake Consumer Products Company
The strategic objective of Chesapeake Consumer Products,
formed in 1989 from acquired companies and an internally
developed product line, is to expand the marketing and
distribution of tabletop tissue products and boost the
nonseasonal sales volume of these products. In 1990, the product
line was narrowed to focus on napkins, plates, cups, tablecovers
and accessories, and in 1992 and 1993 the company reorganized the
former Finess portion of the business to reduce the variety of
products sold, increase operating efficiencies and lower
overhead. With our narrower product focus we believe we can be
successful in the highly competitive consumer products
marketplace. In 1994, more consistent sales levels combined with
improved operating efficiencies produced the company's first
profitable year. Our consumer products are sold throughout the
United States by our own salesforce and by independent
representatives, and can be found in supermarkets, retail chain
and specialty stores and other mass merchandisers. We have
improved our manufacturing process by installing flexographic
edge-to-edge printing technology, state-of-the-art napkin
converting and napkin wrapping machines and adding a new
warehouse and shipping area.
PACKAGING
Chesapeake Packaging Co.
Chesapeake Packaging has three marketing thrusts: point-of-sale displays
and specialty packaging, consumer graphic packaging
and corrugated shipping containers.
We believe that our packaging group is a leader in serving
the point-of-sale display and specialty packaging needs of major
national consumer products companies. Through a network of
regional sales and design offices, the point-of-sale group,
Chesapeake Display and Packaging Company, provides creative
design services to our customers to meet their promotional and
permanent display needs. Our manufacturing facilities utilize
modern production, assembly and packaging processes to meet our
customers' stringent quality and shipment demands. We have two
strategically located point-of-sale display and specialty
packaging manufacturing plants and three assembly plants which
provide service to customers throughout the United States.
Our Color-Box subsidiary, the fastest growing area of our
packaging segment, supplies consumer graphic packaging to
customers nationwide that require attractive full litho-laminated
retail packaging. The final phase of a $13 million expansion
project to double the capacity of this business was completed in
1993. In January 1994, Chesapeake Packaging acquired Lawless
Holding Corporation, which included Lawless Packaging and
Display, a consumer graphic packaging plant in Buffalo, New York,
which is now operated as the Buffalo division of Color-Box.
Further expansion of Color-Box is planned for 1995, with the
expected start-up of a new graphic packaging plant in Visalia,
California, and installation of additional equipment at the
existing Color-Box facility in Richmond, Indiana.
Eleven corrugated shipping container plants located in seven
states manufacture corrugated boxes and specialty packaging for
customers within each plant's geographic area. The raw materials
for the packaging plants include paperboard and corrugating
medium (purchased both from independent suppliers and from
Chesapeake Paper Products) that are converted to make the walls
of the packaging unit. Various converting equipment is used to
print, cut, slot and glue the container to customer
specifications. The Lawless acquisition in January 1994 included
the Lawless Container Corporation corrugated container plant in
North Tonawanda, New York and corrugated sheet plants in Scotia,
New York, Le Roy, New York and Madison, Ohio.
OTHER BUSINESSES
Delmarva Properties, Inc. and Stonehouse Inc.
Delmarva Properties develops and markets land that has
potential for value greater than as timberland. Nearly all of
Delmarva Properties' present land inventory of approximately
15,000 acres was formerly timberland owned by Chesapeake Forest
Products. Delmarva Properties develops land in Virginia,
Maryland and Delaware primarily for residential housing. Sales
also include large lots and acreage for others to develop for
both residential and commercial uses. A major project involves
the development of a mixed-use site next to a proposed horse
racing track in New Kent, Virginia.
Stonehouse Inc. is managing the planning for development of
a new 7,600-acre planned community near Williamsburg, Virginia.
The company is in the process of applying for required permits
and approvals for this large project. While the first sales are
anticipated in 1995, significant sales are not anticipated until
at least the latter part of the 1990s. Most of Stonehouse's land
was formerly timberland owned by Chesapeake Forest Products.
RAW MATERIALS
Most of the Company's raw materials are readily available at
competitive prices. Currently, supplies of recycled fiber, a
major raw material for our paper mills, are tight and these costs
have risen significantly. See "Financial Review 1992-1994" of
the 1994 Annual Report, incorporated herein by reference.
ENVIRONMENTAL
The information presented under the caption "Financial
Review 1992-1994, Environmental" of the 1994 Annual Report is
incorporated herein by reference.
EMPLOYEES
As of December 31, 1994, the Company had 5,209 employees.
The Company believes that its relations with its employees are
good. In 1992, Wisconsin Tissue and Chesapeake Paper Products
entered into five-year collective bargaining agreements with the
unions representing employees at these mills. During 1994, a
five-year labor contract extension was negotiated with the union
representing employees at Chesapeake Paper Products. During
1994, Chesapeake Paper Products Company and Chesapeake Forest
Products Company implemented an enhanced retirement program
affecting about 55 employees at these operations. See "Financial
Review 1992-1994" of the 1994 Annual Report incorporated herein
by reference.
COMPETITION AND SEASONALITY
With its diversity of products, Chesapeake has many
customers buying different products and is not dependent on any
single customer, or group of customers, in any market segment.
Longstanding relationships exist with many of our customers who
place orders on a continuing basis. Because of the nature of our
business, order backlog is not large. The third and fourth
quarters of each year are usually the highest in sales and
earnings. Our major businesses generally experience peak
activity during the months of August through October.
Competition is intense in all business segments from much
larger companies and from local and regional producers and
converters. The Company believes that competitive factors in our
industry preclude a meaningful estimate of the number of
competitors and, except as noted, the Company's relative
competitive position. The Company does not have any appreciable
market share in commodity products, such as bleached hardwood
pulp and brown paperboard. For this reason, the Company has
de-emphasized these products to pursue specialty products that we
believe will provide less pricing volatility and increased
profitability. We believe that, with our strengths of customer
service and competitive products, we are well positioned to
compete in these specialized markets.
RESEARCH AND DEVELOPMENT
In addition to forestry research programs, the Company
conducts limited continuing technical research and development
projects relating to new products and improvements of existing
products and processes. Expenditures for research and
development activities are not material.
Item 2. Properties
At year-end 1994, Chesapeake manufactured or converted paper
and wood products at 38 facilities in 11 states. The information
presented under "Operating Managers and Locations" in the 1994
Annual Report is incorporated herein by reference. The Company
owns most of its production facilities, which are well maintained
and in good operating condition, and are utilized at practical
capacities that vary in accordance with product mixes, market
conditions and machine configurations.
Item 3. Legal Proceedings
The information presented in "Notes to Consolidated
Financial Statements, Note 10 - Litigation" of the 1994 Annual
Report is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
Executive Officers of the Registrant
The name and age of each executive officer of the Company as of
February 15, 1995, together with a brief description of the principal
occupation or employment of each such person during the last five
years, is set forth below. Executive officers serve at the pleasure
of the board of directors and are elected at each annual
organizational meeting of the board of directors.
J. Carter Fox (55)
Chairman since 1994
Chief Executive Officer since 1980
President 1980-1995
Paul A. Dresser, Jr. (52)
President since 1995
Chief Operating Officer since 1991
Executive Vice President 1990-1995
Chief Financial Officer 1981-1991
Group Vice President-Finance & Administration 1984-1990
Thomas Blackburn (43)
Group Vice President-Kraft Products since 1991
President, Chesapeake Paper Products Company and
Chesapeake Forest Products Company since 1991
Kraft Products-Executive Vice President 1990-1991
General Manager, Crossett, Arkansas,
Georgia-Pacific Corporation 1988-1990
Andrew J. Kohut (36)
Group Vice President-Finance & Strategic Development since 1995
Chief Financial Officer since 1991
Vice President-Finance 1991-1995
President and General Manager, Color-Box, Inc. 1989-1991
Senior Director-Strategic Development 1987-1989
William A. Raaths (48)
Group Vice President-Tissue Products since 1995
President-Wisconsin Tissue Mills Inc. since 1995
Executive Vice President- Wisconsin Tissue Mills Inc. 1994-1995
President, Chesapeake Consumer Products Company 1989-1994
Samuel J. Taylor (55)
Group Vice President-Packaging since 1988
President, Chesapeake Packaging Co. since 1988
J. P. Causey Jr. (51)
Vice President, Secretary & General Counsel since 1986
John W. Kirk (48)
Vice President-Strategic Development since 1992
Controller & Chief Accounting Officer 1990-1992
Controller 1981-1992
Thomas A. Smith (48)
Vice President-Human Resources & Assistant Secretary since 1987
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The dividend and stock price information presented under the
caption "Recent Quarterly Results" and the information concerning
retained earnings available for dividends presented in "Notes to
Consolidated Financial Statements, Note 3 - Long-Term Debt" of the
1994 Annual Report are incorporated herein by reference. The
Company's common stock is listed on the New York Stock Exchange under
the symbol - "CSK". As of February 28, 1995, there were 7,510
stockholders of record of the Company's common stock.
Item 6. Selected Financial Data
The information for the years 1990-1994 presented under the
caption "Eleven-Year Comparative Record" of the 1994 Annual Report is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The information presented under the caption "Financial Review
1992-1994" of the 1994 Annual Report is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company and its
subsidiaries, including the notes thereto, and the information
presented under the caption "Recent Quarterly Results" of the 1994
Annual Report are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information presented under the captions "Information
Concerning Nominees" and "Directors Continuing in Office" of the
Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held April 26, 1995 (the "1995 Proxy Statement") is
incorporated herein by reference.
Item 11. Executive Compensation
The information presented under the captions "Compensation of
Directors" and "Executive Compensation" of the 1995 Proxy Statement
(excluding, however, the information presented under the subheadings
"Compensation Committee Report on Executive Compensation" and
"Performance Graph") is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information presented under the caption "Security Ownership
of Certain Beneficial Owners and Management" of the 1995 Proxy
Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information presented under the caption "Certain
Transactions" of the 1995 Proxy Statement is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. Documents
(i) Financial Statements
The consolidated balance sheet of Chesapeake
Corporation and subsidiaries as of December
31, 1994 and 1993, and the related
consolidated statements of income and
retained earnings and cash flows for each of
the three years in the period ended December
31, 1994, including the notes thereto, are
presented in the Company's 1994 Annual Report
and are incorporated herein by reference. The
"Report of Independent Accountants" as
presented in the Company's 1994 Annual
Report, is incorporated herein by reference.
With the exception of the aforementioned
information, and the information incorporated
by reference in numbered Items 1, 2, 3, 5, 6,
7 and 8, no other data appearing in the 1994
Annual Report is deemed to be "filed" as part
of this Form 10-K.
(ii) Financial Statement Schedules
No schedules are filed as part of this report
because they are not applicable or are not
required.
(iii) Exhibits filed or incorporated by reference
The exhibits that are required to be filed or
incorporated by reference herein are listed
in the Exhibit Index found on pages 16-17
hereof. Exhibits 10.1 - 10.9 hereto
constitute management contracts or
compensatory plans or arrangements required
to be filed as exhibits hereto.
b. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
February 14, 1995 By /s/ CHRISTOPHER R. BURGESS
Christopher R. Burgess
Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated.
By /s/ PAUL A. DRESSER, JR. By /s/ WALLACE STETTINIUS
Paul A. Dresser, Jr. Wallace Stettinius
Director Director
By /s/ J. CARTER FOX By /s/ JOHN HOYT STOOKEY
J. Carter Fox John Hoyt Stookey
Chairman of the Board Director
of Directors; President &
Chief Executive Officer
By /s/ ROBERT L. HINTZ By /s/ RICHARD G. TILGHMAN
Robert L. Hintz Richard G. Tilghman
Director Director
By /s/ WILLIAM D. McCOY By /s/ JOSEPH P. VIVIANO
William D. McCoy Joseph P. Viviano
Director Director
By /s/ C. ELIS OLSSON By /s/ H. H. WARNER
C. Elis Olsson Harry H. Warner
Director Director
By /s/ JOHN W. ROSENBLUM By /s/ ANDREW J. KOHUT
John W. Rosenblum Andrew J. Kohut
Director Vice President - Finance
& Chief Financial Officer
By /s/ FRANK S. ROYAL By /s/ CHRISTOPHER R. BURGESS
Frank S. Royal Christopher R. Burgess
Director Controller
Each of the above signatures is affixed as of February 14, 1995.
EXHIBIT INDEX
3.1 Articles of Incorporation (filed as Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989 and incorporated herein by
reference)
3.2 Bylaws
4.1 Indenture, dated as of July 15, 1985, between the
Registrant and Sovran Bank, N.A., as Trustee (filed as
Exhibit 4.1 to Form S-3 Registration Statement No. 33-30900 and
incorporated herein by reference)
4.2 First Supplemental Indenture, dated as of September 1,
1989, to the Indenture dated as of July 15, 1985,
between the Registrant and Sovran Bank, N.A., as Trustee
(filed as Exhibit 4.1 to the Registrant's Current Report
on Form 8-K filed October 9, 1990, and incorporated
herein by reference)
4.3 Rights Agreement, dated as of March 15, 1988, between
the Registrant and Crestar Bank (filed as Exhibit 4.1 to
the Registrant's Current Report on Form 8-K dated March
15, 1988, and incorporated herein by reference)
4.4 Rights Agreement Amendment, dated as of August 24, 1992,
between the Registrant and Harris Trust and Savings
Bank, as successor rights agent (filed as Exhibit 4.4 to
the Registrant's Registration Statement on Form S-8,
File No. 33-56473, and incorporated herein by reference)
The registrant agrees to furnish to the Securities and Exchange
Commission, upon request, copies of those agreements defining
the rights of holders of long-term debt of the registrant and its
subsidiaries that are not filed herewith pursuant to Item
601(b)(4)(iii) of Regulation S-K.
10.1 1987 Stock Option Plan (filed as Exhibit A to the
Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders held April 22, 1987 and
incorporated herein by reference)
10.2 Directors' Deferred Compensation Plan (filed as Exhibit
VII to the Registrant's Annual Report on Form 10-K for
the year ended December 28, 1980 and incorporated herein
by reference)
10.3 Non-Employee Director Stock Option Plan (filed as
Exhibit 4.1 to Form S-8 Registration Statement No. 33-53478 and
incorporated herein by reference)
10.4 Executive Supplemental Retirement Plan (filed as Exhibit
VI to the Registrant's Annual Report on Form 10-K for
the year ended December 28, 1980 and incorporated herein
by reference)
10.5 Retirement Plan for Outside Directors (filed as Exhibit
10.9 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1987 and incorporated herein
by reference)
10.6 Officers' Incentive Program (filed as Exhibit 10.8 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987 and incorporated herein by
reference)
10.7 Chesapeake Corporation Salaried Employees' Benefits
Continuation Plan (filed as Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989 and incorporated herein by
reference)
10.8 Chesapeake Corporation Long-Term Incentive Plan (filed
as Exhibit 10.9 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989 and
incorporated herein by reference)
10.9 Chesapeake Corporation 1993 Incentive Plan (filed as
Exhibit 4.1 to Form S-8 Registration Statement No. 33-67384
and incorporated herein by reference)
11.1 Computation of Net Income Per Share of Common Stock
13.1 Portions of the Chesapeake Corporation Annual Report to
Stockholders for the year ended December 31, 1994
18.1 Preferability letter from Coopers & Lybrand L.L.P.
regarding change in accounting method
21.1 Subsidiaries
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
99.1 Form 11-K Annual Report, Hourly Employees' Stock
Purchase Plan for the plan fiscal year ended November
30, 1994
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
of
CHESAPEAKE CORPORATION
(as adopted 2/13/90, with amendments through 2/14/95)
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation in the
Commonwealth of Virginia shall be in the City of Richmond or such other
location as may be designated by the Board of Directors from time to time.
Section 2. Other Offices. The Corporation may have offices at such other
place or places as the Board of Directors may from time to time designate or
appoint.
ARTICLE II
Capital Shares
Section 1. Certificates. Shares of the Corporation shall be evidenced by
certificates in forms prescribed by the Board of Directors and executed in
any manner permitted by law and stating thereon the information required by
law.
Transfer books in which shares shall be transferred shall be kept by the
Corporation or by one or more transfer agents appointed by it. A record
shall be kept of each share certificate that is issued. The Corporation
shall have the right to appoint at any time or from time to time one or more
registrars of its capital shares.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable or assignable only on the books of the Corporation by the holder
in person or by an attorney on surrender of the certificate representing such
shares duly endorsed and, if sought to be transferred by an attorney,
accompanied by a written power of attorney. The Corporation will recognize,
however, the exclusive right of the person registered on its books as the
owner of shares to receive dividends and to vote as such owner.
Section 3. Lost, Destroyed and Mutilated Certificates. After receiving
notice from a shareholder of any loss, destruction or mutilation of a share
certificate, the Secretary or his nominee may in his discretion cause one or
more new certificates for the same number of shares in the aggregate to be
issued to such shareholder upon the surrender of the mutilated certificate or
upon satisfactory proof of such loss or destruction and the deposit of a bond
in such form and amount and with such surety as the Secretary or his nominee
may require.
Section 4. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose,
the Board of Directors may fix in advance a date as the record date for any
such determination of shareholders, such date in any case to be not more than
seventy (70) days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If no record date is
fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive payment of
a dividend, the date on which notices of the meeting are first mailed or the
date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders.
ARTICLE III
Shareholders
Section 1. Annual Meeting. Subject to the Board of Directors' ability to
postpone a meeting under Virginia law, the annual meeting and all other
meetings of shareholders shall be held on such date and at such time and
place as may be fixed by the Board of Directors and stated in the notice of
the meeting. The annual meeting shall be held for the purpose of electing
Directors and for the transaction of only such other business as is properly
brought before the meeting in accordance with these bylaws. To be properly
brought before an annual meeting, business must be (i) specified in the
notice of annual meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (ii) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors, or
(iii) otherwise properly brought before the annual meeting by a shareholder.
In addition to any other applicable requirements for business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary. To be timely, a
shareholder's notice must be in writing and delivered or mailed to and
received by the Secretary not less than sixty (60) days before the first
anniversary of the date of the Corporation's proxy statement in connection
with the last annual meeting. A shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the shareholder proposing
such business, (iii) the class, series and number of the Corporation's shares
that are beneficially owned by the shareholder, and (iv) any material
interest of the shareholder in such business. Notwithstanding anything in
these bylaws to the contrary, no business shall be conducted at the annual
meeting except in accordance with the procedures set forth in this Article
III(1); provided, however, that nothing in this Article III(1) shall be
deemed to preclude discussion by any shareholder of any business properly
brought before the annual meeting. In the event that a shareholder attempts
to bring business before an annual meeting without complying with the
provisions of this Article III(1), the chairman of the meeting shall declare
to the shareholders present at the meeting that the business was not properly
brought before the meeting in accordance with the foregoing procedures, and
such business shall not be transacted.
Section 2. Special Meetings. Special meetings of the shareholders may be
held at any time and at any place designated in the notice thereof, upon call
of the Chairman of the Board of Directors, the President or a majority of the
Board of Directors.
Section 3. Notice. Notice in writing of every annual or special meeting of
the shareholders, stating the date, time and place, and, in case of a special
meeting, the purpose or purposes thereof, shall be mailed not less than ten
(10) nor more than sixty (60) days before any such meeting to each
shareholder of record entitled to vote at such meeting, at his address as it
appears in the share transfer books of the Corporation. Such further notice
shall be given as may be required by law, but meetings may be held without
notice if all of the shareholders entitled to vote at the meeting waive such
notice, by attendance at the meeting or otherwise, in accordance with law.
Section 4. Quorum. A majority of the votes entitled to be cast by any
voting group on any matter, represented in person or by proxy, shall
constitute a quorum of such voting group with respect to action on such
matter. If at the time and place of the meeting there be present less than a
quorum, the meeting may be adjourned from time to time by the vote of a
majority of the shares present in person or by proxy without notice other
than announcement at the meeting.
Section 5. Voting. Except as otherwise specified in the Articles of
Incorporation or the Virginia Stock Corporation Act, at all meetings of the
shareholders, each holder of an outstanding share may vote in person or by
proxy, and shall be entitled to one vote on each matter voted on at such
meeting for each share registered in the name of such shareholder on the
books of the Corporation on the record date for such meeting. Every proxy
shall be in writing, dated and signed by the shareholder entitled to vote or
his duly authorized attorney-in-fact.
Unless a greater vote is required pursuant to the Articles of
Incorporation or the Virginia Stock Corporation Act, if a quorum exists,
action on a matter (other than the election of Directors) by a voting group
is approved if the votes cast favoring the action exceed the votes cast
opposing the action. Unless otherwise provided in the Article of
Incorporation, Directors shall be elected by a plurality of votes cast by
shares entitled to vote in the election at a meeting at which a quorum is
present.
Section 6. Presiding Officer. All meetings of the shareholders shall be
presided over by the Chairman of the Board of Directors or, in his absence or
at his request, by the President. In case there be present neither the
Chairman of the Board of Directors nor the President, the meeting shall elect
a chairman. The Secretary or, in his absence or at his request, an Assistant
Secretary, shall act as secretary of such meetings. In case there be present
neither the Secretary nor an Assistant Secretary, a secretary may be
appointed by the chairman of the meeting.
Section 7. Inspectors and Tellers. An appropriate number of inspectors and
tellers for any meeting of the shareholders may be appointed by or pursuant
to the direction of the Board of Directors. Inspectors and tellers so
appointed will open and close the polls, will receive and take charge of
proxies and ballots and will decide all questions as to the qualifications of
voters, validity of proxies and ballots and the number of votes properly
cast.
ARTICLE IV
Directors
Section 1. General Powers. The business and the affairs of the Corporation
shall be managed under the direction of the Board of Directors, and, except
as expressly provided by law, the Articles of Incorporation or these bylaws,
all of the powers of the Corporation shall be vested in such Board of
Directors.
Section 2. Number and Election of Directors. The number of Directors
constituting the Board of Directors shall be twelve (12), who shall be
divided into three classes, Class I, Class II and Class III, as nearly equal
in number as possible. Directors of each class shall be elected by the
shareholders to serve for the terms specified in the Articles of
Incorporation and, unless sooner removed in accordance with the Articles of
Incorporation and applicable law, shall serve until their respective
successors are duly elected and qualified. The Board of Directors may
increase the number of Directors by two (2) during any twelve month period
and may decrease the number of Directors by thirty (30) percent or less of
the number of Directors last elected by the shareholders. Any vacancy,
including a vacancy resulting from an increase in the number of Directors as
specified above, may be filled by the affirmative vote of a majority of the
remaining Directors, though less than a quorum of the Board of Directors, and
Directors so chosen shall hold office until the next meeting of the
shareholders at which Directors are elected. At such meeting of the
shareholders, the shareholders shall elect a Director to fill the vacancy,
and the newly elected Director shall hold office for a term expiring at the
annual meeting of the shareholders at which the term of the class to which he
has been elected expires.
Subject to any rights of holders of preferred shares, only persons who
are nominated in accordance with the procedures set forth in this Article
IV(2) shall be eligible for election as Directors. Notice of nominations
made by shareholders entitled to vote for the election of Directors shall be
received in writing by the Secretary not less than fifty (50) nor more than
seventy-five (75) days before the first anniversary of the date of the
Corporation's proxy statement in connection with the last meeting of
shareholders called for the election of Directors. Each notice shall set
forth (i) the name, age, business address and, if known, residence address of
each nominee proposed in such notice, (ii) the principal occupation or
employment of each such nominee, and (iii) the number of capital shares of
the Corporation beneficially owned by each such nominee. The Secretary shall
deliver all such notices to the Corporation's Nominating Committee, or such
other committee as may be appointed by the Board of Directors from time to
time for such purpose, for review. The Nominating Committee shall thereafter
make its recommendation with respect to nominees to the Board of Directors.
The chairman of any meeting of shareholders called for the election of
Directors may, if the facts warrant, determine that a nomination was not made
in accordance with the foregoing procedures, and if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 3. Annual Meeting. A regular annual meeting of the Board of
Directors shall be held following the adjournment of the annual meeting of
the shareholders at such place as the Board of Directors may designate. The
regular annual meeting of the Board of Directors then just elected by the
shareholders shall be held for the election of officers of the Corporation
and the transaction of all other business as shall come before the said
meeting.
Section 4. Special Meetings. Special meetings of the Board of Directors may
be called at any time by the Chairman of the Board of Directors, the
President or by any two members of the Board of Directors on such date and at
such time and place as may be designated in such call, or may be held on any
date and at any time and place without notice by the unanimous written
consent of all the members or by the presence of all of the members at such
meeting.
Section 5. Notice of Meetings. Notice of the time and place of every
meeting of the Board of Directors shall be mailed, telephoned or transmitted
by any other means of telecommunication by or at the direction of the
Secretary or other officer of the Corporation to each Director at his last
known address not less than twenty-four (24) hours before such meeting,
provided that notice need not be given of the annual meeting or of regular
meetings held at times and places fixed by resolution of the Board of
Directors. Such notice need not describe the purpose of a special meeting.
Meetings may be held at any time without notice if all the Directors waive
such notice, by attendance at the meeting or otherwise, in accordance with
law.
Section 6. Quorum; Presence at Meeting. A quorum at any meeting of the
Board of Directors shall consist of a majority of the number of Directors
fixed from time to time in these bylaws. Members of the Board of Directors
may participate in any meeting of the Board of Directors by means of a
conference telephone or similar communications equipment whereby all persons
participating in the meeting may simultaneously hear each other, and
participation by such means shall be deemed to constitute presence in person
at such meeting.
Section 7. Voting. If a quorum is present when a vote is taken, the
affirmative vote of a majority of Directors present is the act of the Board
of Directors, unless the Articles of Incorporation or these bylaws require
the vote of a greater number of Directors. A Director who is present at a
meeting of the Board of Directors or any committee thereof when corporate
action is taken is deemed to have assented to the action unless (i) he
objects at the beginning of the meeting, or promptly upon his arrival, to
holding it or transacting specified business at the meeting, or (ii) he votes
against, or abstains from, the action taken.
Section 8. Compensation of Directors. Directors, as such, shall not receive
any stated salary for their services, except that, by resolution of the Board
of Directors, Directors may be paid (i) a retainer in an amount determined by
the Board of Directors for their services as such, (ii) an additional
retainer in an amount determined by the Board of Directors for their services
as Chairman of the Board of Directors or chairman of any special or standing
committee of the Board of Directors, and (iii) a fixed sum and expenses for
attendance at each regular, adjourned, or special meeting of the Board of
Directors or any special or standing committee thereof. Nothing herein
contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 9. Eligibility. Except as hereinafter provided, no person shall be
elected or re-elected to the Board of Directors if at the time of any
proposed election or re-election he shall have attained the age of 70 years;
provided, however, that the foregoing provision shall not apply to persons
who were members of the Board of Directors on January 1, 1966. Any Director
who (i) separates from employment with the business or professional
organization by which he was principally employed as of the date of his most
recent election or re-election to the Board of Directors, or (ii) ceases to
serve as an officer in any of the capacities in which he served with such
business or professional organization as of the date of his most recent
election or re-election to the Board of Directors, shall be deemed to have
submitted his resignation as a Director effective upon such separation from
employment or cessation of service as an officer. Such resignation shall be
considered by the Board of Directors at its next regularly scheduled meeting.
ARTICLE V
Executive and Other Committees
Section 1. Creation of Executive Committee. The Board of Directors may,
whenever it sees fit, by a majority vote of the number of Directors fixed
from time to time in these bylaws, designate an Executive Committee which
shall consist of three (3) or more Directors, including the Chairman of the
Board of Directors and the President, provided that the President shall be a
member of the Executive Committee only if designated the Chief Executive
Officer. The Chairman of the Board shall be the Chairman of the Executive
Committee. The members of the Executive Committee shall serve until their
successors are designated by the Board of Directors or until removed or until
the Executive Committee is dissolved by a majority vote of the number of
Directors fixed from time to time in these bylaws.
Section 2. Powers of Executive Committee. Except as otherwise provided by
the Articles of Incorporation or these bylaws, the Executive Committee, when
the Board of Directors is not in session, shall have all powers vested in the
Board of Directors by law, by the Articles of Incorporation or by these
bylaws; provided, that the Executive Committee shall not have the authority
to take any action that may not be delegated to a committee under the
Virginia Stock Corporation Act. The Executive Committee shall report at the
next regular or special meeting of the Board of Directors on all action it
has taken since the last regular or special meeting of the Board of
Directors.
Section 3. Committee of Outside Directors. The Directors who are not
employees or former employees of the Corporation ("Outside Directors"), shall
constitute the Committee of Outside Directors. The Committee of Outside
Directors shall (a) evaluate the performance of the Chairman of the Board and
the Chief Executive Officer, (b) recommend, when appropriate, a successor for
the Chairman of the Board and the Chief Executive Officer, (c) in
consultation with the Chairman of the Board, consider and make
recommendations to the Board of Directors for the election of the other
officers of the Corporation and (d) perform such other duties as may be
delegated to the Committee of Outside Directors by the Board of Directors.
The Committee of Outside Directors shall at the annual meeting of the Board
of Directors elect from their number by a majority vote of the number of
Outside Directors a Chairman of the Committee of Outside Directors who shall
preside at meetings of the Committee of Outside Directors and perform such
other duties as may be assigned by the Committee of Outside Directors. No
Director shall be elected Chairman of the Committee of Outside Directors
for more than three (3) consecutive full terms, provided that a director
shall be eligible for election as Chairman if he has not served as Chairman
during the immediately preceding eleven (11) months.
Section 4. Audit Committee. The Board of Directors, by resolution adopted
by a majority of the number of Directors fixed in accordance with these
bylaws, shall elect an Audit Committee which shall consist of a Chairman and
not less than two (2) Directors, all of whom shall be Outside Directors. The
Audit Committee shall review and discuss with the corporation's independent
accountants the financial records of the Corporation and report to the Board
of Directors with respect thereto, and shall perform such other duties as may
be assigned by the Board of Directors. The Audit Committee shall report
regularly to the Board of Directors all action which it has taken. Section
5. Executive Compensation Committee. The Board of Directors, by resolution
adopted by a majority of the number of Directors fixed in accordance with
these bylaws, shall elect an Executive Compensation Committee which shall
consist of a Chairman and not less than two (2) other members, all of whom
shall be Outside Directors. The Executive Compensation Committee shall
approve officers' incentive awards and stock option grants, recommend to the
Board of Directors remuneration levels for executive officers, and perform
such other duties as may be assigned to it by the Board of Directors. The
Executive Compensation Committee shall report regularly to the Board of
Directors all action which it has taken.
Section 6. Nominating Committee. The Board of Directors, by resolution
adopted by a majority of the number of Directors fixed in accordance with
these bylaws, shall elect a Nominating Committee which shall consist of a
Chairman and not less than two (2) other members, all of whom shall be
Outside Directors. The Nominating committee shall review annually the
attendance and performance of the Directors, review the compensation of
Directors and make recommendations to the Board of Directors as to such
compensation, recommend nominees for election to the Board of Directors and
perform such other duties as may be assigned to it by the Board of Directors.
The Nominating Committee shall report regularly to the Board of Directors all
action which it has taken.
Section 7. Other Committees. The Board of Directors, by resolution
adopted by a majority of the number of Directors fixed in accordance with
these bylaws, may establish such other standing or special committees of the
Board of Directors as it may deem advisable, consisting of two (2) or more
Directors. The members, terms and authority of such committees shall be set
forth in the resolutions establishing the same.
Section 8. Meetings. Regular and special meetings of any committee
established pursuant to this Article may be called by the Chairman of the
Board, the President, the Chairman of the committee involved or any two (2)
members of the committee involved and held subject to the same requirements
with respect to date, time, place and notice as are specified in these bylaws
for regular and special meetings of the Board of Directors.
Section 9. Quorum and Manner of Acting. A quorum of the members of any
committee serving at the time of any meeting thereof for the transaction of
business at such meeting shall consist of (i) one-third (but not fewer than
two (2)) of such members in the case of any committee other than the
Executive Committee, and (ii) a majority of such members in the case of the
Executive Committee. The action of a majority of those members present at a
committee meeting at which a quorum is present shall constitute the act of
the committee.
Section 10. Term of Office. Members and the chairman of any committee,
excluding the Committee of Outside Directors, shall be elected at the annual
meeting of the Board of Directors and shall hold office until the next annual
meeting of the Board of Directors and until their successors are elected by
the Board of Directors, or until such committee is dissolved by the Board of
Directors.
Section 11. Resignation and Removal. Any member of a committee may resign
at any time by giving written notice of his intention to do so to the
Chairman of the Board or the Secretary, or may be removed, with or without
cause, at any time by such vote of the Board of Directors or, in the case of
the Committee of Outside Directors, by such vote of the Committee as would
suffice for his election.
Section 12. Vacancies. Any vacancy occurring in a committee resulting from
any cause whatever may be filled by a vote of a majority of the number of
Directors fixed by these bylaws.
ARTICLE VI
Officers
Section 1. Required Officers. The officers of the Corporation shall be a
Chairman of the Board, a President and a Secretary, together with such other
officers, including one or more Vice Presidents (whose seniority and titles
may be specified by the Board of Directors) and a Treasurer, as may be
elected from time to time by the Board of Directors. Any two or more offices
may be held by the same person.
Section 2. Election of Officers; Compensation. The officers of the
Corporation shall be elected by the Board of Directors and shall hold office
until the next annual meeting of the Board of Directors and until their
successors are duly elected and qualified; provided, however, that any
officer may be removed and the resulting vacancy filled at any time, with or
without cause, by the Board of Directors. The salaries or compensation of
all officers of the Corporation shall be fixed by or pursuant to the
direction of the Board of Directors.
Section 3. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the shareholders, Directors and the Executive Committee
and shall have such other powers as may be conferred upon him by the Board of
Directors. If the Chairman of the Board is not the Chief Executive Officer,
he shall, in the absence of or inability of the Chief Executive Officer to
act, be the Acting Chief Executive Officer until such time as another person
is designated by the Board of Directors as Chief Executive Officer or Acting
Chief Executive Officer. He may sign and execute in the name of the
Corporation share certificates, deeds, mortgages, bonds, contracts or other
instruments except in cases where the signing and the execution thereof shall
be expressly and exclusively delegated by the Board of Directors or by these
bylaws to some other officer or agent of the Corporation or shall be required
by law otherwise to be signed or executed.
Section 4. President. The President shall perform such duties as shall be
required of him by the Chairman of the Board or the Board of Directors. If
the President is not the Chief Executive Officer, he shall, in the absence of
or inability of the Chief Executive Officer to act, be the Acting Chief
Executive Officer until such time as another person is designated by the
Board of Directors as Chief Executive Officer or Acting Chief Executive
Officer. He may sign and execute in the name of the Corporation share
certificates, deeds, mortgages, bonds, contracts or other instruments except
in cases where the signing and the execution thereof shall be expressly and
exclusively delegated by the Board of Directors or by these bylaws to some
other officer or agent of the Corporation or shall be required by law
otherwise to be signed or executed.
Section 5. Chief Executive Officer. The Board of Directors shall designate
one of the officers of the Corporation as the Chief Executive Officer of the
Corporation. The Chief Executive Officer shall be primarily responsible for
the implementation of policies of the Board of Directors. He shall have
authority over the general management and direction of the business and
operations of the Corporation and its divisions, if any, subject only to the
ultimate authority of the Board of Directors.
Section 6. Vice Presidents. The Vice Presidents shall perform such duties
as shall be required of them by the Chairman of the Board, the President or
the Board of Directors. Any Vice President may sign and execute in the name
of the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board of Directors, except where the signing and execution
of such documents shall be expressly and exclusively delegated by the Board
of Directors, the Chairman of the Board or the President to some other
officer or agent of the Corporation or shall be required by law or otherwise
to be signed or executed.
Section 7. Secretary. The Secretary shall prepare and maintain custody of
the minutes of all meetings of the Board of Directors and stockholders of the
Corporation. When requested, he shall also act as secretary of the meetings
of the committees of the Board of Directors. He shall see that all notices
required to be given by the Corporation are duly given and served; he shall
have custody of all deeds, leases, contracts and other important corporate
documents; he shall have charge of the books, records and papers of the
Corporation relating to its organization and management as a Corporation; and
he shall in general perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Chairman of the Board, the President or the Board of Directors. An
Assistant Secretary may exercise any of the functions or perform any of the
duties of the Secretary.
Section 8. Treasurer. The Treasurer shall have custody of the moneys and
securities of the Corporation, shall sign or countersign such instruments as
require his signature and shall perform such other duties as may be incident
to his office or are properly required of him by the Chairman of the Board,
the President, or the Board of Directors. An Assistant Treasurer may
exercise any of the functions or perform any of the duties of the Treasurer.
ARTICLE VII
Limit on Liability; Indemnification
Section 1. Definitions. In this Article:
"applicant" means the person seeking indemnification
pursuant to this Article;
"expenses" includes counsel fees;
"liability" means the obligation to pay a judgment,
settlement, penalty, fine, including any excise tax assessed
with respect to an employee benefit plan, or reasonable
expenses incurred with respect to a proceeding;
"party" includes an individual who was, is or is threatened to
be made a named defendant or respondent in a proceeding; and
"proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or
informal.
Section 2. Limitation on Liability. To the full extent that the Virginia
Stock Corporation Act, as it exists on the date hereof or may hereafter be
amended, permits the limitation or elimination of the liability of Directors
and officers, no Director or officer of the Corporation shall be liable to
the Corporation or its shareholders for monetary damages with respect to any
transaction, occurrence or course of conduct, whether prior or subsequent to
the effective date of this Article.
Section 3. Indemnification. The Corporation shall indemnify (a) any person
who was or is a party to any proceeding, including a proceeding brought by or
in the right of the Corporation, by reason of the fact that he is or was a
Director or officer of the Corporation, and (b) any Director or officer of
the Corporation who is or was serving at the request of the Corporation as a
director, trustee, partner or officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against any
liability incurred by him in connection with such proceeding unless he
engaged in willful misconduct or a knowing violation of the criminal law. A
person is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose duties on,
or otherwise involve services by, him to the plan or to participants in or
beneficiaries of the plan. The Board of Directors is hereby empowered, by a
majority vote of a quorum of disinterested Directors, to enter into a
contract to indemnify any Director or officer in respect of any proceeding
arising from any act or omission, whether occurring before or after the
execution of such contract.
Section 4. Application; Amendment. The provisions of this Article shall be
applicable to all proceedings commenced after the adoption hereof by the
shareholders of the Corporation, arising from any act or omission, whether
occurring before or after such adoption. No amendment or repeal of this
Article shall have any effect on the rights provided under this Article with
respect to any act or omission occurring prior to such amendment or repeal.
The Corporation shall promptly take all such actions, and make all such
determinations, as shall be necessary or appropriate to comply with its
obligation to make any indemnity under this Article and shall promptly pay or
reimburse all reasonable expenses, including attorneys' fees, incurred by any
Director or officer in connection with such actions and determinations or
proceedings of any kind arising therefrom.
Section 5. Termination of Proceeding. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent, shall not of itself create a presumption that the applicant
engaged in willful misconduct or a knowing violation of the criminal law.
Section 6. Determination of Availability. Any indemnification under
Section (3) of this Article (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the applicant is proper in the circumstances because he
did not engage in willful misconduct or a knowing violation of the criminal
law. The determination shall be made:
(a) by the Board of Directors by a majority vote of a quorum consisting
of Directors not at the time parties to the proceeding;
(b) if a quorum cannot be obtained under subsection (a) of this
section, by majority vote of a committee duly designated by the Board of
Directors (in which designation Directors who are parties may participate),
consisting solely of two or more Directors not at the time parties to the
proceeding;
(c) by special legal counsel:
(i) selected by the Board of Directors or its committee in the manner
prescribed in subsection (a) or (b) of this section; or
(ii) if a quorum of the Board of Directors cannot be obtained under
subsection (a) of this section and a committee cannot be designated
under subsection (b) of this subsection, selected by majority vote of
the full Board of Directors, in which selection Directors who are
parties may participate; or
(d) by the shareholders, but shares owned by or voted under the
control of Directors who are at the time parties to the proceeding may
not be voted on the determination.
Any evaluation as to the reasonableness of expenses shall be made in the
same manner as the determination that indemnification is permissible, except
that if the determination is made by special legal counsel, such evaluation
as to reasonableness of expenses shall be made by those entitled under
subsection (c) of this section to select counsel.
Notwithstanding the foregoing, in the event there has been a change in the
composition of a majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification is claimed, any
determination as to indemnification and advancement of expenses with respect
to any claim for indemnification made pursuant to this Article shall be made
by special legal counsel agreed upon by the Board of Directors and the
applicant. If the Board of Directors and the applicant are unable to agree
upon such special legal counsel, the Board of Directors and the applicant
each shall select a nominee, and the nominees shall select such special legal
counsel.
Section 7. Advances. (a) The Corporation may pay for or reimburse the
reasonable expenses incurred by any applicant who is a party to a proceeding
in advance of final disposition of the proceeding or the making of any
determination under Section (6) if:
(i) the applicant furnishes the Corporation a written statement of his
good faith belief that he has met the standard of conduct described in
Section (3); and
(ii) the applicant furnishes the Corporation a written undertaking,
executed personally or on his behalf, to repay the advance if it is
ultimately determined that he did not meet such standard of conduct.
Section 8. Indemnification of Others. The Board of Directors of Directors
is hereby empowered, by majority vote of a quorum of disinterested Directors,
to cause the Corporation to indemnify or contract to indemnify any person not
specified in Section (3) of this Article who was, is or may become a party to
any proceeding, by reason of the fact that he is or was an employee or agent
of the Corporation, or is or was serving at the request of the Corporation as
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, to the same
extent as if such person were specified as one to whom indemnification is
granted in Section (3). The provisions of Sections (4) through (7) of this
Article shall be applicable to any indemnification provided hereafter
pursuant to this Section (8).
Section 9. Insurance. The Corporation may purchase and maintain insurance
to indemnify it against the whole or any portion of the liability assumed by
it in accordance with this Article and may also procure insurance, in such
amounts as the Board of Directors may determine, on behalf of any person who
is or was a Director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any liability asserted
against or incurred by him in any such capacity or arising from his status as
such, whether or not the Corporation would have power to indemnify him
against such liability under the provisions of this Article.
Section 10. Further Indemnity. Every reference herein to Directors,
officers, employees and agents shall include former Directors, officers,
employees and agents and their respective heirs, executors and
administrators. The indemnification hereby provided and provided hereafter
pursuant to the power hereby conferred on the Board of Directors shall not be
exclusive of any other rights to which any person may be entitled, including
any right under policies of insurance that may be purchased and maintained by
the Corporation or others, with respect to claims, issues or matters in
relation to which the Corporation would not have the power to indemnify such
person under the provisions of this Article. Such rights shall not prevent
or restrict the power of the Corporation to make or provide for any further
indemnity, or provisions for determining entitlement to indemnity, pursuant
to one or more indemnification agreements, bylaws, or other arrangements
(including, without limitation, creation of trust funds or security interests
funded by letters of credit or other means) approved by the Board of
Directors (whether or not any of the Directors of the Corporation shall be a
party to or beneficiary of any such agreements, bylaws or arrangements);
provided, however, that any provision of such agreements, bylaws or other
arrangements shall not be effective if and to the extent that it is
determined to be contrary to this Article or applicable laws of the
Commonwealth of Virginia.
Section 11. Further Board Action. Any other provision of this Article
notwithstanding, the Board of Directors shall be empowered to amend this
Article from time to time, to the extent permitted by then applicable law, to
limit, eliminate or extend the rights provided hereunder, provided that no
such amendment shall limit or reduce the rights provided under this article
with respect to any act or omission occurring prior to such amendment.
Section 12. Severability. Each provision of this Article shall be
severable, and an adverse determination as to any such provision shall in no
way affect the validity of any other provision.
ARTICLE VIII
Emergency Bylaws
The emergency bylaws provided in this Article shall be operative during any
emergency, notwithstanding any different provision in the preceding Articles
of these bylaws, in the Articles of Incorporation or in the Virginia Stock
Corporation Act (other than those provisions relating to emergency bylaws).
An emergency exists if a quorum of the Board of Directors cannot readily be
assembled because of some catastrophic event. To the extent not inconsistent
with these emergency bylaws, the bylaws provided in the preceding Articles
shall remain in effect during such emergency. Upon the termination of such
emergency, the emergency bylaws shall cease to be operative unless and until
another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be called by any
officer of the Corporation or by any Director. The notice thereof shall
specify the date, time and place of the meeting. To the extent feasible,
notice shall be given in accord with Article IV, Section (5) above, but
notice may be given only to such of the Directors as it may be feasible to
reach at the time, by such means as may be feasible at the time, including
publication or radio, and at a time less then twenty-four (24) hours before
the meeting if deemed necessary by the person giving notice. Notice shall be
similarly given, to the extent feasible, to the other persons referred to in
Subsection (b) below.
(b) At any meeting of the Board of Directors, a quorum shall consist
of a majority of the number of Directors fixed at the time in accordance with
Article IV, Section (6) of these bylaws. If the Directors present at any
particular meeting shall be fewer than the number required for such quorum,
other persons present as referred to below to the number necessary to make up
such quorum shall be deemed Directors for such particular meeting as
determined by the following provisions and in the following order of
priority:
(i) the President, if not already serving as a Director;
(ii) Vice Presidents not already serving as Directors, first in the
order of the seniority of their title as designated by the Board of
Directors before the emergency, and then in the order of their seniority of
first election to such offices; provided, that if two or more shall have
the same seniority of title or shall have been first elected to such
offices on the same day, then in the order of their seniority in age;
(iii) [reserved for future use]
(iv) all other officers of the Corporation in the order of their
seniority of first election to such offices, or if two or more shall have
been first elected to such offices on the same day, then in the order of
their seniority in age; and
(v) any other persons who are designated on a list that shall have
been approved by the Board of Directors before the emergency, such persons
to be taken in such order of priority and subject to such conditions as may
be provided in the resolution approving the list.
(c) The Board of Directors, during as well as before any such
emergency, may provide, and from time to time modify, lines of succession in
the event that during such an emergency any or all officers or agents of the
Corporation shall for any reason be rendered incapable of discharging their
duties.
(d) The Board of Directors, during as well as before any such
emergency, may, effective in the emergency, change the principal office, or
designate several alternative offices, or authorize the officers so to do.
No officer, Director or employee shall be liable for action taken in
good faith in accordance with these emergency bylaws.
These emergency bylaws shall be subject to repeal or change by further
action of the Board of Directors or by action of the shareholders, except
that no such repeal or change shall modify the provisions of the next
preceding paragraph with regard to action or inaction prior to the time of
such repeal or change. Any such amendment of these emergency bylaws may make
any further or different provisions that may be practical and necessary for
the circumstances of the emergency.
ARTICLE IX
Miscellaneous
Section 1. Voting of Shares. Shares of any corporation which this
Corporation shall be entitled to vote may be voted, either in person or by
proxy, by this Corporation's Chairman of the Board or President or by any
other officer expressly authorized by this Corporation's Board of Directors
or Executive Committee, and each such officer is authorized to give this
Corporation's consent in writing to any action of such corporation, and to
execute waivers and take all other necessary action on behalf of the
Corporation with respect to such shares.
Section 2. Seal. The corporate seal of the Corporation shall consist of a
flat-faced circular die, of which there may be any number of counterparts, on
which there shall be engraved two concentric circles between which is
inscribed the name of the corporation, and in the center the year of its
organization and the words "corporate seal".
Section 3. Amendments to Bylaws. Unless proscribed by the Articles of
Incorporation, the Board of Directors of the Corporation shall have the power
to adopt and from time to time amend, alter, change or repeal these bylaws
with or without the approval of the shareholders of the Corporation, but
bylaws so made, amended, altered or changed, may be further amended, altered,
changed or repealed by the shareholders. The shareholders in adopting or
amending a particular bylaw may provide expressly that the Board of Directors
may not amend or repeal that bylaw.
<TABLE>
EXHIBIT 11.1
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
for the three years ended December 31, 1994
<CAPTION>
(Share amounts in thousands, dollar amounts
in millions, except for per share amounts)
<S> <C> <C> <C>
1994 1993 1992
Primary:
Weighted average number of common shares
outstanding 23,569 23,393 22,585
Net additions to common shares assuming
exercise of dilutive options,
determined by treasury stock method 206 38 94
Common shares and equivalents 23,775 23,431 22,679
Income before cumulative effect of
accounting changes $37.6 $10.4 $14.4
Cumulative effect of accounting
changes - - (9.7)
Net income $37.6 $10.4 $ 4.7
Per share amount
Before cumulative effect of
accounting changes $1.58 $ .44 $ .63
Cumulative effect of
accounting changes - - (.46)
Net $1.58 $ .44 $ .17
Fully diluted:
Common shares and equivalents 23,775 23,431 22,679
Net additional common shares
issuable upon exercise of
dilutive options, determined
by treasury stock method using
year-end market price, if higher
than average price 28 27 6
Common shares, equivalents and other
potentially dilutive securities 23,803 23,458 22,685
Income before cumulative effect of
accounting changes $37.6 $10.4 $14.4
Cumulative effect of accounting
changes - - (9.7)
Net income for fully diluted
computation $37.6 $10.4 $ 4.7
Per share amount (a)
Before cumulative effect of
accounting changes $1.58 $ .44 $ .63
Cumulative effect of accounting
changes - - (.46)
Net $1.58 $ .44 $ .17
</TABLE>
NOTE: (a) Dilution is less than 3%.
EXHIBIT 18.1
Chesapeake Corporation
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350
Gentlemen:
We are providing this letter to you for inclusion as an exhibit to your Form
10-K filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting from the
average cost method to the last-in, first-out ("LIFO") method for the
valuation of inventories at the Company's subsidiary, Wisconsin Tissue Mills
Inc., and for the finished goods and work-in-process at the Company's
subsidiary, Chesapeake Packaging Co., contained in the Company's Form 10-K
for the year ended December 31, 1994. Based on our reading of the data and
discussions with Company officials of the business judgment and business
planning factors relating to the change, we believe management's
justification to be reasonable. Accordingly, in reliance on management's
determination as regards elements of business judgment and business planning,
we concur that the newly adopted accounting principle described above is
preferable in the Company's circumstances to the method previously applied.
Richmond, Virginia
February 28, 1995
EXHIBIT 21.1
SUBSIDIARY CORPORATIONS OF
CHESAPEAKE CORPORATION
December 31, 1994
State of
Name Incorporation
Cary St. Company Delaware
Chesapeake Consumer Products Company Virginia
The Chesapeake Corporation of Virginia Virginia
Chesapeake Display and Packaging Company Iowa
Chesapeake Forest Products Company Virginia
Chesapeake Packaging Co. Virginia
Chesapeake Paper Products Company Virginia
Chesapeake Recycling Co. Virginia
Chesapeake Resources Company Virginia
Chesapeake Trading Corp. Virginia
Chesapeake Trading Company, Inc. U. S. Virgin Islands
Chesapeake Building Products Company Virginia
Color-Box, Inc. Indiana
Delmarva Properties, Inc. Virginia
Lawless Container Corporation New York
Lawless Holding Corporation Delaware
Stonehouse Inc. Virginia
Wisconsin Tissue Mills Inc. Delaware
EXHIBIT 23.1
Consent of Coopers & Lybrand L.L.P.
We consent to the incorporation by reference of our report dated January 25,
1995 on our audits of the consolidated financial statements of Chesapeake
Corporation and subsidiaries as of December 31, 1994 and 1993, and for each
of the three years in the period ended December 31, 1994, which report is
incorporated by reference in this Annual Report on Form 10-K, in the
following registration statements on Form S-8:
The Chesapeake Corporation of Virginia 1981 Stock Incentive Plan (File No.
2-71595)
Salaried Employees' Stock Purchase Plan (File No. 33-14926)
Hourly Employees' Stock Purchase Plan (File No. 2-79636)
Chesapeake Corporation 1987 Stock Option Plan (File No. 33-14925)
Chesapeake Corporation 401(k) Savings Plan for Salaried Employees (File
No. 33-14927)
Chesapeake Corporation 401(k) Savings Plan for Hourly Employees (File No.
33-26150)
Chesapeake Corporation Non-Employee Director Stock Option Plan (File No.
33-53478)
Wisconsin Tissue Mills Inc. 401(k) Savings Plan for Hourly Employees (File
No. 33-55558)
Chesapeake Corporation 1993 Incentive Plan (File No. 33-67384)
Chesapeake Packaging Co. 401(k) Savings Plan for Hourly Employees (File
No. 33-56473)
We consent to the incorporation by reference in the registration statement on
Form S-8 for the Hourly Employees' Stock Purchase Plan (File No. 2-79636) of
our report dated February 2, 1995 on our audits of the balance sheet of the
Hourly Employees' Stock Purchase Plan of Chesapeake Corporation and
participating subsidiaries as of November 30, 1994 and 1993, and the related
statement of changes in plan equity for each of the three fiscal years in the
period ended November 30, 1994, which report is included in the Annual Report
on Form 11-K (Exhibit 99.1).
/s/ Coopers & Lybrand L.L.P.
Richmond, Virginia
March 7, 1995<PAGE>
EXHIBIT 99.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
for the fiscal year ended November 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
for the transition period from _______ to _______
Commission file number 2-79636
HOURLY EMPLOYEES' STOCK PURCHASE PLAN
CHESAPEAKE CORPORATION
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350
HOURLY EMPLOYEES' STOCK PURCHASE PLAN
Administration of the Plan:
The Plan is administered by the Hourly Employees' Stock Purchase
Plan Committee (the "Committee") under the direction of the Board of
Directors of Chesapeake Corporation (the "Corporation"). The
present members of the Committee, of which Thomas A. Smith is
Chairman, are:
Name Address
Thomas A. Smith (1) Richmond, Virginia 23218
J. P. Causey Jr. (2) Richmond, Virginia 23218
Andrew J. Kohut (3) Richmond, Virginia 23218
(1) Mr. Smith is Vice President - Human Resources & Assistant
Secretary of the Corporation.
(2) Mr. Causey is Vice President, Secretary & General Counsel of
the Corporation.
(3) Mr. Kohut is Group Vice President - Finance & Strategic
Development & Chief Financial Officer of the Corporation.
Committee members are appointed by and serve at the pleasure of the
Board of Directors of the Corporation. Committee members are
employees of the Corporation and receive no additional compensation
for serving on the Committee. The Plan provides that the
Corporation will indemnify members of the Committee to the same
extent and on the same terms as it indemnifies its officers and
directors by reason of their being officers and directors.
Financial Statements and Exhibits:
(a) Financial statements:
Hourly Employees' Stock Purchase Plan:
Balance Sheet
Statement of Changes in Plan Equity
(b) Exhibits:
See Exhibit 23.1 to the Chesapeake Corporation Annual Report on Form 10-K
for the year ended December 31, 1994 for consent of independent
accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the members
of the Committee have duly caused this annual report to be signed by the
undersigned hereunto duly authorized.
HOURLY EMPLOYEES' STOCK PURCHASE PLAN
By: /s/ Thomas A. Smith
Thomas A. Smith, Chairman of the
Committee
February 24, 1995
Report of Independent Accountants
To the Hourly Employees' Stock
Purchase Plan Committee:
We have audited the balance sheet of the Hourly Employees' Stock Purchase Plan
(the "Plan") of Chesapeake Corporation and participating subsidiaries as of
November 30, 1994 and 1993, and the related statement of changes in plan equity
for each of the three years in the period ended November 30, 1994. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Plan as of November 30,
1994 and 1993, and the changes in plan equity for each of the three years in the
period ended November 30, 1994, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Richmond, Virginia
February 2, 1995
<TABLE>
BALANCE SHEET
November 30, 1994 and 1993
<CAPTION>
<S> <C> <C>
1994 1993
Asset:
Funds held by Chesapeake Corporation
and participating subsidiaries (Note 3) $12,900 $9,292
Plan equity $12,900 $9,292
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN PLAN EQUITY
for the fiscal years ended November 30, 1994, 1993 and 1992
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
Contributions:
Employees $1,145,546 $1,063,957 $936,107
Employer: $546,775 in 1994,
$510,826 in 1993, and
$451,512 in 1992; less withheld
taxes of $213,046, $165,268 and
$144,925, respectively 333,729 345,559 306,587
1,479,275 1,409,516 1,242,694
Deductions:
Purchase and distribution to
participants at year end of 46,937
shares in 1994 ($30.6438 per share),
60,012 shares in 1993
($23.0125 per share), and 55,439
shares in 1992 ($21.90625 per share)
of common stock of Chesapeake
Corporation (Note 1) 1,438,325 1,381,024 1,214,458
Refunds to employees withdrawing
from the Plan attributable to:
Employees' contributions for the
year 27,344 23,917 24,238
Employees' account balances at
beginning of year 535 492 420
1,466,204 1,405,433 1,239,116
Net transfers to Salaried Employees'
Stock Purchase Plan 9,463 2,694 2,942
1,475,667 1,408,127 1,242,058
Increase in plan equity 3,608 1,389 636
Plan equity, beginning of year 9,292 7,903 7,267
Plan equity, end of year $ 12,900 $ 9,292 $ 7,903
</TABLE>
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
1. Description of the Plan:
The stockholders of Chesapeake Corporation (the "Corporation")
have approved the Hourly Employees' Stock Purchase Plan (the
"Plan") and reserved a total of 900,000 shares of the
Corporation's common stock for sale to eligible hourly
employees of the Corporation and participating subsidiaries
(the "Employer").
Participants in the Plan, which became effective in December
1982, are permitted to invest up to 5% of their basic
compensation. The Employer contributes to the Plan, as of the
end of the Plan Year (see Note 2), a percentage (generally 30%
to 50%) of the participant's contribution reduced by amounts
required to be withheld under income tax, F.I.C.A. and
comparable laws. The combined amount becomes available to
purchase from the Corporation shares of its common stock at a
price equal to the average of the closing prices of such
common stock on the New York Stock Exchange (composite tape)
for the 20 consecutive trading days immediately preceding the
last day of the Plan Year.
As of November 30, 1994, 555,532 shares (46,937 shares in the
current year and 508,595 in prior years) of the Corporation's
common stock had been issued under the Plan and 344,468 shares
were available for future issuance.
2. Plan Year:
The fiscal year of the Plan ("Plan Year") ends each November
30.
3. Funds Held by Chesapeake Corporation and Participating Subsidiaries:
Funds received or held by the Employer with respect to the
Plan may be used for any corporate purpose; therefore, the
Plan does not prevent the Employer from creating a lien on
these funds.
4. Taxes and Expenses:
The Employer's contribution, when made to the Plan, is taxable
to a participant as ordinary income. Purchases of stock by
the Plan result in no gain or loss to the participant;
therefore, no tax consequences are incurred by a participant
upon receipt of stock purchased under the Plan. Sale by a
participant of shares acquired under the Plan will result in
a gain or loss in an amount equal to the difference between
the sale price and the price paid for the stock acquired
pursuant to the Plan. The Plan is not subject to income
taxes.
Expenses of administering the Plan are borne by the Employer.
<TABLE>
NOTES TO FINANCIAL STATEMENTS, Continued
5. Contributions to the Plan:
<CAPTION>
Contributions (net of withheld taxes) were as follows:
1994 1993 1992
Employer Employees Employer Employees Employer Employees
<S> <C> <C> <C> <C> <C> <C>
Chesapeake Corporation
Subsidiaries:
Chesapeake Packaging Co. $ 96,776 $ 296,295 $ 88,700 $ 260,356 $ 75,261 $230,385
Chesapeake Forest Products Company 14,342 65,107 17,014 62,880 10,283 31,386
Chesapeake Paper Products Company 222,611 784,144 239,845 740,721 221,043 674,336
Totals $333,729 $1,145,546 $345,559 $1,063,957 $306,587 $936,107
</TABLE>
February 27, 1995
EXHIBIT 13.1
Portions of the
CHESAPEAKE CORPORATION
Annual Report To Stockholders
For the year ended December 31, 1994
Financial Review 1992-1994
Earnings Overview
Significant increases in pulp and paper prices made 1994 the "year of
recovery" for the paper industry, as producers were able to restore much of the
profitability lost in the down cycle of the prior four years. These price
increases were driven by stronger demand for paper products, resulting from the
strengthening global economy; and by tight supplies, caused by limited capacity
additions by paper manufacturers during the down cycle. These factors have much
of the paper industry currently operating at high utilization rates.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: Sales by Business Segment 888.4 885.0 990.5
(Millions of Dollars)
Kraft products 41% 39% 34%
Tissue 32 32 31
Packaging 27 29 35
Corporate - - -
Total 100% 100% 100%
</TABLE>
For Chesapeake, the price recovery, coupled with the Company's
productivity gains and improved product mix resulting from strategic investments
made during the past few years, enabled the Company to achieve record net sales
in 1994 and the highest earnings since 1989. Chesapeake's 1994 net sales were
a record $990.5 million, 12% higher than 1993's net sales of $885.0 million and
11% higher than the previous record net sales of $888.4 million in 1992. Net
income for 1994 was $37.6 million, or $1.58 a share, up from $10.4 million, or
$.44 a share, earned in 1993, and up from $14.4 million, or $.63 a share, earned
in 1992, before the cumulative effect of accounting changes. Besides improved
selling<PAGE>
prices, 1994 earnings were positively impacted by outstanding operating
performances and cost control. Increased prices for certain raw materials
offset part of this impact. Earnings for 1994 include an after-tax charge of
$2.8 million, or $.12 a share, related to adoption of the LIFO method of
accounting for substantially all applicable inventories in the tissue and
packaging segments. See Note 2 to the consolidated financial statements for
additional information regarding the change in inventory valuation methods.
Results for 1994 also include a pre-tax charge of $4.9 million, or $.13 a share
after tax, associated with an enhanced retirement program at Chesapeake Paper
Products Company and Chesapeake Forest Products Company.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: Net Income
(Millions of Dollars)
Income before cumulative
effect of accounting
changes 14.4 10.4 37.6
Net Income 4.7 10.4 37.6
</TABLE>
Chesapeake continues its emphasis on specialty products that the Company
believes have less price volatility and higher growth and profitability
potential than commodity products. Because of strategic changes implemented by
management, more than 60% of Chesapeake's total sales now come from these
specialty products. Until the early 1980s, Chesapeake's products were primarily
commodities in slow growth markets. During 1993 and 1992, low selling prices
for commodity products offset much of the benefit
derived from specialty product sales.
Another strategic emphasis is the use of recycled fiber. Chesapeake is a
leader among paper manufacturers in the use of recycled fiber. The total of all
fiber used at Wisconsin Tissue and Chesapeake Paper Products together is
balanced at one-half virgin fiber and one-half recycled fiber. During 1994,
Chesapeake recycled over 564,000 tons of fiber. At Wisconsin Tissue, 100% of
the paper produced is made from recycled fiber, while approximately 34% of
Chesapeake Paper Products' raw material was recycled fiber in 1994. This high
recycled content provides marketing advantages and, overall, reduces solid waste
sent to landfills. At both mills, the Company has the technology to utilize
less expensive grades of recycled fiber to help offset the rapidly escalating
cost of this raw material.
Liquidity and Capital Structure
Net cash provided by operating activities was $96.6 million in 1994, 15%
less than the record $113.6 million generated in 1993. EBIT + D, a measure of
internal cash flow combining earnings before interest, income taxes and the
cumulative effect of accounting changes plus non-cash charges for depreciation,
cost of timber harvested and amortization, was $162.1 million for 1994, 30%
higher than 1993's $124.6 million. Compared to 1993, working capital increased
$57.2 million to $144.3 million at year-end 1994, due to temporary cash
investments, higher accounts receivable related to stronger sales and higher
inventories due, in part, to the Lawless acquisition. The ratio of current
assets to current liabilities was 2.1 at year end 1994 compared to 1993's 1.9
and 1992's 2.4. Accounts receivable increased $39.5 million, with the
average collection period up three days from last year. Inventories at the
end of the year increased $10.1 million compared to 1993. Inventories of the
Lawless Container Corporation, acquired in the first quarter of 1994, were
approximately $6 million at year-end 1994. The remaining increase occurred
primarily in finished goods and manufacturing supplies at other packaging
facilities, offset in part by decreases in finished goods of kraft products
and by a $4.4 million reduction in inventories due to a change to the LIFO
method of valuing substantially all applicable inventories at Wisconsin
Tissue and Chesapeake Packaging. The annual inventory turnover rate
increased from 7.6 to 8.6. Accounts payable and accrued expenses increased
$26.3 million due to the Lawless acquisition and the timing of payments.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: Income from Operations 52.2 44.0 81.1
(Millions of Dollars)
</TABLE>
The Company is in a very capital intensive industry and generally
uses long-term debt to fund major capital expansions that cannot be funded by
internally generated funds. In 1994, increased sales volume and productivity,
effective cost control and controlled capital spending resulted in net cash
provided by operations exceeding capital expenditures and acquisitions by nearly
$25 million. Long-term debt increased $30.9 million during<PAGE>
1994; however,
Chesapeake had $32.8 million of temporary cash investment year end, as the
Company elected not to use these funds to reduce long-term debt in order to
avoid prepayment penalties. During the first quarter, Chesapeake
completed the public offering of $50 million of 25-year tax-exempt bonds
associated with projects at its Chesapeake Paper Products Company kraft products
mill. See Note 3 to the consolidated financial statements for additional
long-term debt information.
Chesapeake's total capitalization was $862.5 million at the end of
1994. The year-end ratio of long-term debt to total capital was 42% for 1994
compared to 42% for 1993 and 45% for 1992. Chesapeake's long-term debt to total
capital ratio target range is 35% to 45%. The year-end ratio of long-term debt
to stockholders' equity was 93% for 1994, 91% for 1993 and 103% for 1992. The
large 1993 decrease in the ratio of long-term debt to stockholders' equity was
attributable to lower debt levels.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: Interest Expense 31.4 32.0 31.1
(Millions of Dollars)
</TABLE>
During 1994, the Company maintained cash dividends of $.72 a share,
the same level as the previous five years. Chesapeake's dividends paid as a
percentage of net cash provided by operating activities were 18% for 1994, 15%
for 1993 and 24% for 1992. Outstanding common shares at year-end 1994 totaled
23.8 million, up .3 million for shares issued in connection with employee
benefit plans. In the five years prior to 1992, when 2.5 million shares of the
Company's common stock were issued in connection with a public offering, the
number of outstanding shares of common stock remained virtually unchanged, as
purchases of shares by the Company generally offset shares issued for
employee benefit plans. No shares were purchased by the Company under board
of directors' stock purchase authorizations in 1994, 1993 or 1992. See Note
7 to the consolidated financial statements for capital stock and additional
paid-in capital information. Year-end 1994 stockholders' equity was $393.3
million, or $16.56 a share, up 7% over year-end 1993. The market price for
Chesapeake's common stock ranged from $22.25 per share to $35.88 per share in
1994, with a year-end market price of $33.00 per share, 29% higher than 1993's
year-end market price of $25.50 per share.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: EBIT + D
(Millions of Dollars)
Earnings before interest,
income taxes and the cumulative
effect of accounting changes 53.9 52.7 89.3
Noncash charges for depreciation,
cost of timber harvested and
amortization 68.3 71.9 72.8
Total EBIT + D 122.2 124.6 162.1
</TABLE>
Capital Expenditures
Expenditures for property, plant and equipment in 1994 were $54 million,
16% less than the $64 million spent in 1993. Capital spending in 1992 was $85
million. None of the 1994 capital expenditures was individually material, as
capital spending focused on smaller incremental additions and operational
improvements throughout the Company.
About one-third of the capital spending in 1993 was related to modifications
in the paper mill and bleach plant areas at the West Point kraft products mill.
About one-half of capital spending in 1992 related to the completion of a
recovery boiler, evaporators and related equipment at the West Point kraft
products mill. Planned capital spending for 1995 is expected to be in the
$120-$130 million range. Approximately $48 million of this spending relates to
expansion plans for the packaging and kraft businesses. The planned expansions
include a new West Coast manufacturing plant to be located in Visalia,
California, 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%. Also planned is an upgrade of the No. 2 paper
machine at the Chesapeake Paper Products Company kraft mill in West Point,
Virginia, that is expected to increase mill production capacity by about 8%.
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. No other 1995 projects
are expected to account for more than 5% of the total planned spending.
Projected capital expenditures are expected to be funded with internally
generated cash supplemented by proceeds from borrowings. See Note 13 to the
consolidated financial statements for information regarding capital commitments.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: Capital Structure
(Millions of Dollars) 849.6 799.7 862.5
Long-Term Debt 45% 42% 42%
Deferred Taxes 11 12 12
Stockholders' Equity 44 46 46
Total 100% 100% 100%
</TABLE>
Operating Results
1994 vs. 1993
Chesapeake's 1994 net sales were a record $990.5 million, up 12% over
1993's net sales of $885.0 million. Improved sales prices for kraft products
and tissue, increased shipments of kraft products and packaging and improved
product mix for tissue accounted for most of the improvement. Sales from
continuing operations were up 16%. Sales of $64 million from Lawless Holding
Corporation, acquired in January 1994, partially offset the absence of $86
million in sales during 1993 from the Company's former treated wood business.
For the fourth consecutive year, the Company's kraft and packaging businesses
achieved record shipments. Net sales of consumer products were up 11% over last
year, while sales of the lumber division of Chesapeake Building Products
improved 16%. Sales of the Company's land development business, a small part
of Chesapeake's total operations, were down slightly compared to 1993.
Net income for 1994 was $37.6 million, or $1.58 a share, up from $10.4
million, or $.44 a share, earned in 1993. Included in 1994 earnings is a
pre-tax charge of $4.4 million, or $.12 a share after tax,
the method of accounting for certain inventories in the tissue and packaging
segments from the average cost valuation method to the LIFO valuation method.
Also included is a pre-tax charge of $4.9 million, or $.13 a share after tax,
associated with an enhanced retirement program at Chesapeake Paper Products
Company and Chesapeake Forest Products Company. Pre-tax savings from
implementation of the program were approximately $1 million in 1994 and are
projected to be $3.5 million annually thereafter. Included in 1993 results
was an after-tax gain of $3.4 million, or $.15 a share, resulting from the
disposal of certain assets which were no longer of strategic importance.
These transactions included the conveyance of the assets of the Company's
wood treating business to Universal Forest Products, Inc., the consolidation
of a packaging plant at West Des Moines, Iowa, with one at Sandusky, Ohio,
and the sale of approximately 19,000 acres of timberlands.
Net income for 1993 also included a charge of $2.4 million, or $.10 a share, to
reflect changes in deferred taxes resulting from the 1993 Revenue Reconciliation
Act.
Income from operations for 1994 was $81.1 million, or $37.1 million greater
than in 1993. Depreciation increased less than $1 million over the previous
year due to the low capital spending of the past two years. Operating expenses
included a $4.4 million charge relating to the expansion of the LIFO method of
valuing substantially all applicable inventories of the tissue and packaging
segments and a $4.9 million pre-tax charge relating to the enhanced retirement
program for Chesapeake Paper Products and Chesapeake Forest Products.
Operating expenses for 1993 included approximately $2.0 million relating to
the consolidation of two packaging facilities and expenses relating to the
reorganization of the consumer products business. Cost of products sold was
up $55 million, or 8%, from 1993, and represented approximately 73% of net
sales for 1994 compared to 76% in 1993. Gross profit and operating margins
were up 3% compared to the previous year. Selling, general and administrative
expenses in 1994 increased $12.7 million compared to 1993, but remained at
12% of net sales.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: Net Cash Provided by
Operating Activities 69.2 113.6 96.6
(Millions of Dollars)
</TABLE>
Other income, net in 1994 was $8.2 million as a result
sale of land that was no longer considered to be of strategic importance, a
nonrecurring gain from the settlement of an indemnification issue related to a
prior business acquisition, the sale of equipment that was no longer used by the
Company and interest income from cash investments. In the fourth quarter of
1993 the Company sold approximately 19,000 acres of timberland holdings that
were no longer considered to be of strategic importance, producing a pre-tax
gain of approximately $8.0 million. Interest expense for 1994, net of $.5
million of capitalized interest, was $31.1 million, while interest expense for
1993, net of $.4 million of capitalized interest, was $32.0 million. Excluding
capitalized interest, interest expense in 1994 decreased $.8 million due
primarily to lower debt levels.
Income taxes for 1993 included a charge of $2.4 million, or $.10 a share,
to reflect changes in deferred taxes resulting from the 1993 Revenue
Reconciliation Act.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: Total Assets 958.9 919.3 1,013.1
(Millions of Dollars)
Goodwill & Other 8% 9% 9%
Current Assets 22 20 27
Property, Plant & Equipment 70 71 64
Total 100% 100% 100%
</TABLE>
Kraft Products
EBIT for the kraft products segment was $39.0 million in 1994
compared to $12.5 million in 1993. Results of 1994 include a $4.9 million
charge for the enhanced retirement program at Chesapeake Paper Products Company
and Chesapeake Forest Products Company, while results of 1993 include a gain of
over $8.0 million related to the sale of land that was no longer considered to
be of strategic importance to the Company. Gains on sales of non-strategic land
totaled $.6 million in 1994.
Earnings of Chesapeake Paper Products Company in 1994 improved
significantly from last year's slight loss due to higher sales prices, record
shipments and improved production and quality. Containerboard and market pulp
price increases implemented during 1994 resulted in overall prices that were 20%
above 1993 levels. The largest gains came from market pulp. Shipments of kraft
products were a record 850,000 tons, up 6% over the previous record set last
year. Production volume for 1994 averaged a record 2,170 good tons per day
compared to 2,018 good tons per day in 1993. <PAGE>
Operating rates for the West Point
mill's four machines averaged at or above 100%, while off-quality production
was reduced 14% from the prior year.
Specialty white top paperboard, which has a higher profit margin than brown
paperboard, increased to 83% of the paperboard mix compared to approximately 80%
last year. Earnings in 1994 were negatively impacted by higher recycled fiber
costs, which caused the West Point mill to absorb approximately $15 million in
additional costs compared to 1993. Further sales price increases were
implemented in January 1995; however, recycled fiber costs remained at record
high levels.
Earnings of Chesapeake Building Products, formed in 1993 with the
merger of Chesapeake Forest Products' lumber division and Chesapeake Wood
Treating Co., improved over 1993's good results, as volume of the lumber
division increased 16% and sales prices for lumber remained strong. The wood
treating portion of this business was conveyed to Universal Forest Products,
Inc. at the beginning of the fourth quarter of 1993. Net sales of the wood
treating business were $86 million in 1993, while 1993 charges of $1.3 million
related to the conveyance were approximately offset by earnings from normal
operations that year.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: Capital Expenditures 84.7 63.9 54.3
(Millions of Dollars)
</TABLE>
Tissue
Wisconsin Tissue's EBIT for 1994 was a record due to improved product mix,
higher sales prices and high productivity. Shipments of converted products were
up 3% compared to 1993. Overall tissue shipments were 217,000 tons, or 1% below
1993 levels, as fewer nonconverted parent rolls were sold. Tissue pricing for
1994 was 6% above 1993 levels as a result of price increases in late 1993 and
in 1994 and improved product mix. Paper machine operating rates averaged at or
above 100% and productivity for the converting operations was excellent. Higher
recycled fiber costs during the latter part of the year reduced earnings by
approximately $5 million. During 1994, the Company changed the method of
valuation of raw materials, work-in-process and finished goods of Wisconsin
Tissue from the average cost method to the LIFO method resulting in a charge of
$3.9 million. Results of the tissue segment in 1994 were positively impacted
by a nonrecurring settlement gain. The uncertain pricing environment for
recycled fiber could possibly offset any benefit of 1995 price improvements.
The Consumer Products business, formed in 1989, achieved its first
positive EBIT in 1994, as the business continued to benefit from the
reorganization efforts of 1992 and 1993 which reduced the variety of products
sold, increased operating efficiencies and reduced overhead. EBIT of this
business improved $3.6 million over last year's loss and net sales improved 11%
over the prior year. Operating expenses for 1993 included additional costs
related to the reorganization.
Packaging
Chesapeake Packaging's EBIT for 1994 improved 40% from 1993, as results
improved for two of its three businesses. Compared to 1993, net sales were up
for each business and up 38% overall. Lawless Holding Corporation, acquired in
January 1994, added $64 million to sales for the year, with profitable results
that were in line with expectations. Average sales prices were up approximately
5%. Shipments for 1994 were at record levels, with the fastest growth in
graphic packaging, which benefited from the completion late in 1993 of the final
phase of a capital expansion program which doubled the capacity of this
business. Earnings for the corrugated shipping container business were down
slightly because rising containerboard prices caused margins to be down for much
of the year. A focus on new end users, permanent displays and expanding
assembly and packing services contributed to improvement in the point-of-sale
display business after several years of flat sales and earnings. Also
contributing were cost savings realized from the consolidation of the West Des
Moines, Iowa, packaging facility into the Sandusky, Ohio, facility. EBIT of the
fast growing graphic packaging business also improved over 1993 levels. During
1994, the Company changed the method of valuation of certain inventories in the
packaging segment to the LIFO valuation method, resulting in a charge to
operations of $.5 million. Additional growth is anticipated for the packaging
segment in 1995 with the expected start-up of the Color-Box West Coast
manufacturing facility in Visalia, California, and additional planned capital
investments throughout the packaging system.
1993 vs. 1992
Chesapeake's 1993 net sales were $885.0 million, 1% less than 1992's
then-record net sales of $888.4 million. For the third straight year, all
three of Chesapeake's major businesses--kraft products, tissue and packaging
-- achieved record shipments. Competitive pricing pressures that began for
the industry in 1990 continued to confront Chesapeake for many of its
products in 1993. Overall kraft product prices were down 13% from 1992.
Tissue prices, which began to improve during the second quarter of 1993 with
the first of three price increases implemented during that year, were up
slightly compared to 1992.
Overall packaging prices approximated those of the previous year. Net sales of
the Consumer Products business declined 5% as a result of the reorganization of
that business, and net sales of building products were down 6% from 1992 because
of the conveyance of the assets of the wood treating business to Universal
Forest Products, Inc. at the beginning of the fourth quarter of 1993. Sales
of Chesapeake's land development business more than doubled over 1992's
depressed levels, but remained a small part of Chesapeake's total operations.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Graph: Earnings Per Share
(Dollars)
Earnings before cumulative
effect of accounting changes .63 .44 1.58
Earnings .17 .44 1.58
</TABLE>
Net income for 1993 was $10.4 million, or $.44 a share, million, or $.63 a
share, earned in 1992 before the cumulative effect of accounting changes.
Included in 1993 results was an after-tax gain of $3.4 million, or $.15 a
share, resulting from the disposal of certain assets as part
of the Company's plan to reduce assets which were no longer of strategic
importance. These transactions included the conveyance of the assets of the
Company's wood treating business to Universal Forest Products, Inc.; the
consolidation of a packaging plant at West Des Moines, Iowa, with one in
Sandusky, Ohio; and the sale of approximately 19,000 acres of timberlands. Net
income for 1993 also includes a charge of $2.4 million, or $.10 a share, to
reflect changes in deferred taxes resulting from the 1993 Revenue Reconciliation
Act. During 1992, Chesapeake adopted Statements of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and No. 109, "Accounting for Income Taxes," which resulted in a net
one-time, after-tax charge of $9.7 million, or $.46 a share. The one-time
effect consisted of a transition obligation charge of $11.9 million to accrue
for the costs of future health benefits for retirees and current employees after
retirement, and an increase in net income of $2.2 million from changing the
method of accounting for income taxes. These accounting standards, which
reduced net income for 1992 to $4.7 million, or $.17 a share, had no effect on
cash flow or income before the cumulative effect of accounting changes. See
Notes 4, 6 and 13 to the consolidated financial statements for information
regarding these accounting changes.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1992 1993 1994
Return on Common Stockholders'
Equity 4.5% 2.8% 10.2%
(Percent)
</TABLE>
Income from operations for 1993 was $44.0 million, or $8.2 million less
than in 1992. Increased depreciation expense of $3.7 million in 1993 was
primarily related to the first full year of depreciation on the recovery boiler
and related equipment completed at Chesapeake Paper Products' West Point,
Virginia, kraft mill during 1992. Included in 1993's operating expenses was
approximately $2.0 million relating to the consolidation of the Company's West
Des Moines, Iowa, packaging plant into its Sandusky, Ohio, facility and
additional expenses related to the reorganization of the consumer products
business. Operating expenses for 1992 included approximately $4.8 million of
unusual charges related primarily to the reorganization of the Finess consumer
products business and the write-off of some older equipment replaced by the new
recovery boiler at the West Point kraft mill. Also, the shutdown of an old
recovery boiler at the West Point kraft mill before its replacement was
operational increased 1992 costs by $2.8 million. Cost of products sold
increased by 1% from 1992 and represented approximately 76% of net sales for the
year. Gross profit and operating margins were down 1% compared to the previous
year. Selling, general and administrative expenses in 1993 decreased $4.6
million, or 4%, from 1992 and remained at 12% of net sales.
The $7.0 million increase in other income, net in 1993 resulted primarily
from the sale, in the fourth quarter, of approximately 19,000 acres of
timberland holdings that were no longer of strategic importance and produced
a pre-tax gain of approximately $8.0 million. Interest expense for
1993, net of $.4 million of capitalized interest, was $32.0 million, while
interest expense for 1992, net of $3.7 million of capitalized interest, was
$31.4 million. Excluding capitalized interest, interest expense in 1993
decreased $2.7 million from 1992 due to reduced debt levels and lower interest
rates.
Income taxes for 1993 included a charge of $2.4 million, or $.10 a share,
to reflect changes in deferred taxes resulting from the 1993 Revenue
Reconciliation Act.
Kraft Products
Chesapeake Paper Products recorded a slight loss in 1993 because of
terrible market conditions. Negative price variances from 1992 totaled
approximately $40 million. Overall average sales prices declined an additional
13% from 1992's already depressed levels. Prices for bleached hardwood pulp,
which dropped dramatically late in 1992, fell another 33% in 1993. Total
shipments were up 11% in 1993 to a then-record 798,000 tons. Productivity and
quality gains were experienced in all product categories, as the mill achieved
then-record good tons produced per day for the year and reduced off quality
production by 8% compared to 1992. Specialty white top paperboard, which has
higher profit margins than brown board, remained at 80% of the paperboard mix.
Depreciation expense increased 15% because of the first full year of
depreciation on the recovery boiler and related equipment, which were
completed near the end of the third quarter of 1992. Operating costs for 1992
were increased by the premature shutdown of an old recovery boiler prior to the
start of the new boiler and by the write-off of the old recovery boiler and
related equipment.
Earnings of the lumber division of Chesapeake Building Products improved
significantly, as sales volume and prices increased 6% and 27%, respectively,
from 1992 levels. Net sales of the wood treating business, conveyed to
Universal Forest Products at the beginning of the fourth quarter of 1993, were
down $21 million compared to 1992. The Company recorded charges of $1.3 million
in 1993 and $1.0 million in 1992 related to the conveyance. The combined
earnings in 1993 and 1992 of normal operations of this business nearly offset
these charges.
Tissue
Wisconsin Tissue's EBIT for 1993 improved 6% over 1992. Sales
prices, which eroded in 1992, began to recover in the second half of 1993 when
the first of three 1993 price increases was implemented, and for the year
averaged slightly higher than in 1992. Even with the increases achieved during
the year, average sales prices remained below levels experienced in the late
1980s. Shipments were a record 220,000 tons in 1993, up 4% from 1992. Recycled
fiber costs increased during 1993 resulting in slightly lower margins. Paper
machine operating rates averaged at or above 100% for all four paper machines.
The reorganized Chesapeake Consumer Products business reduced its loss in
1993 by $2.9 million, or 52%, from 1992. Net sales declined 5% from 1992,
because of the reorganization of the Finess portion of this business. Operating
expenses increased due to additional costs related to the reorganization of the
business.
Packaging
Chesapeake Packaging's EBIT for 1993 increased 15% from 1992, as
results improved for two of its three businesses. Average sales prices
approximated 1992 levels, while total shipments were at then-record levels.
Overall net sales increased 4% over 1992. Sales of corrugated shipping
containers increased 2%, while sales of point-of-sale displays decreased 2%.
Sales of consumer graphic packaging increased 13% as a result of the completion
of the final phase of a capital expansion program that doubled the capacity of
the Color-Box facility. Operating expenses for 1993 included a charge for the
consolidation of the operations of the West Des Moines, Iowa, packaging facility
into the Sandusky, Ohio, facility.
Other
More information about Chesapeake's businesses is provided in Note
14 to the consolidated financial statements.
Environmental
Chesapeake has a strong commitment to protecting the environment.
The Company has an environmental audit program to monitor compliance with
environmental laws and regulations. The Company is committed to abiding by the
environmental, health and safety principles of the American Forest & Paper
Association. Each expansion project has been planned to comply with
applicable environmental regulations and to enhance environmental protection
at existing facilities. The Company faces increasing capital expenditures
and operating costs to comply with expanding and more stringent environmental
regulations, although compliance with existing environmental regulations is
not expected to have a materially adverse effect on the Company's earnings,
financial position or competitive position. See Note 13 to the consolidated
financial statements for further capital spending information relating to
environmental compliance.
Wisconsin Tissue Mills Inc., a wholly owned subsidiary of the
Company, has received a notice from the United States Fish and Wildlife Service
that it had been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to possible natural resource damages liability relating to
polychlorinated biphenyls in the Fox River and Green Bay system. See Note 10 to
the consolidated financial statements for further information regarding this
notice.
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. Base 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.
Chesapeake operates under, and believes that it is in substantial
compliance with, the terms of various air emission and water and effluent
discharge permits and other environmental regulations.
<TABLE>
RECENT QUARTERLY RESULTS
<CAPTION>
Per Share
Income (loss) Earnings (loss)
Before Before
Cumulative Cumulative
Effect of Net Effect of
Net Gross Accounting Income Accounting Earnings Dividends Stock Price
Quarter Sales Profit* Changes* (loss)* Changes* (loss)* Declared High Low
(Dollar amounts in millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992:
First $210.1 $ 37.1 $ 2.3 $(7.4) $ .11 $(.35) $ .18 $29.13 $23.00
Second 229.3 40.6 4.3 4.3 .19 .19 .18 25.38 21.88
Third 236.2 44.1 6.5 6.5 .28 .28 .18 25.25 19.38
Fourth 212.8 37.1 1.3 1.3 .05 .05 .18 23.25 18.25
Totals $888.4 $158.9 $14.4 $ 4.7 $ .63 $ .17 $ .72
1993:
First $209.3 $ 32.4 $ (.8) $ (.8) $(.03) $(.03) $ .18 $23.13 $19.00
Second 236.4 35.7 1.3 1.3 .05 .05 .18 21.50 17.63
Third 238.3 41.0 2.6 2.6 .11 .11 .18 20.63 17.13
Fourth 201.0 37.0 7.3 7.3 .31 .31 .18 25.75 19.63
Totals $885.0 $146.1 $10.4 $10.4 $ .44 $ .44 $ .72
1994:
First $212.0 $ 35.2 $ 2.0 $ 2.0 $ .09 $ .09 $ .18 $27.25 $22.25
Second 236.9 42.9 4.9 4.9 .21 .21 .18 26.38 22.63
Third 266.9 56.7 14.4 14.4 .60 .60 .18 35.00 24
Fourth 274.7 61.1 16.3 16.3 .68 .68 .18 35.88 28.25
Totals $990.5 $195.9 $37.6 $37.6 $1.58 $1.58 $ .72
</TABLE>
*First, second and third quarters of 1994 have been restated to reflect the
change in method of accounting for certain inventories as of January 1, 1994.
Before restatement, amounts for the first three quarters, respectively, were:
Gross Profit (in millions): $36.3, $44.0 and $57.8; Net Income (in millions):
$2.7, $5.6 and $15.1; and Earnings Per Share: $.11, $.24 and $.64.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Chesapeake Corporation:
We have audited the accompanying consolidated balance sheet of Chesapeake
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income and retained earnings and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Chesapeake
Corporation and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, the
Company changed its method of accounting for certain inventories in 1994. As
discussed in notes 4, 6 and 13 to the consolidated financial statements, the
Company changed its methods of accounting for postretirement benefits other than
pensions and accounting for income taxes in 1992.
/s/ Coopers & Lybrand L.L.P.
Richmond, Virginia
January 25, 1995
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31,
1994 1993
(In millions)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33.2 $ .7
Accounts receivable 127.1 87.5
Inventories 89.8 79.7
Deferred income taxes 15.9 12.2
Other 5.6 6.1
Total current assets 271.6 186.2
Property, plant and equipment:
Plant sites and buildings 155.5 140.8
Machinery and equipment 1,052.2 999.4
Construction in progress 21.1 19.3
1,228.8 1,159.5
Less accumulated depreciation 622.7 545.5
606.1 614.0
Timber and timberlands 40.3 39.8
Net property, plant and equipment 646.4 653.8
Other assets 95.1 79.3
$1,013.1 $ 919.3
</TABLE>
<TABLE>
December 31,
1994 1993
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 116.8 $ 90.5
Current maturities of long-term debt 1.0 1.5
Dividends payable 4.3 4.2
Income taxes payable 5.2 2.9
Total current liabilities 127.3 99.1
Long-term debt 364.0 333.1
Postretirement benefits other
than pensions 23.3 20.5
Deferred income taxes 105.2 98.6
Stockholders' equity:
Common stock, $1 par value;
authorized, 60 million shares;
outstanding, 23.8 million and
23.5 million shares 23.8 23.5
Additional paid-in capital 107.1 102.6
Retained earnings 262.4 241.9
393.3 368.0
$1,013.1 $919.3
</TABLE>
The accompanying Notes to Consolidated Financial Statements are part of the
financial statements.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<CAPTION>
For the years ended December 31,
1994 1993 1992
(In millions except per share data)
<S> <C> <C> <C>
Income:
Net sales $990.5 $885.0 $888.4
Costs and expenses:
Cost of products sold 723.7 668.7 663.0
Depreciation and cost of timber
harvested 70.9 70.2 66.5
Selling, general and administrative
expenses 114.8 102.1 106.7
Income from operations 81.1 44.0 52.2
Other income, net 8.2 8.7 1.7
Income before interest, taxes
and cumulative effect of
accounting changes 89.3 52.7 53.9
Interest expense (31.1) (32.0) (31.4)
Income before taxes and cumulative
effect of accounting
changes 58.2 20.7 22.5
Income taxes 20.6 10.3 8.1
Income before cumulative effect
of accounting changes 37.6 10.4 14.4
Cumulative effect of accounting
changes - - (9.7)
Net income $ 37.6 $ 10.4 $ 4.7
Per share:
Earnings before cumulative effect
of accounting changes $ 1.58 $ .44 $ .63
Cumulative effect of accounting
changes - - (.46)
Earnings $ 1.58 $ .44 $ .17
Retained earnings:
Balance, beginning of year $241.9 $248.3 $260.3
Net income 37.6 10.4 4.7
Cash dividends declared,
$.72 per share each year (17.1) (16.8) (16.7)
Balance, end of year $262.4 $241.9 $248.3
</TABLE>
The accompanying Notes to Consolidated Financial Statements are part of the
financial statements.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the years ended December 31,
1994 1993 1992
(In millions)
<S> <C> <C> <C>
Operating activities:
Net income $ 37.6 $ 10.4 $ 4.7
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, cost of timber
harvested and amortization
of intangibles 73.3 72.4 68.6
Deferred income taxes (.1) 2.4 (2.5)
Cumulative effect of accounting
changes - - 9.7
Gains on sales of property,
plant and equipment (1.4) (9.4) (.4)
Losses on sales of businesses - 1.3 1.0
Changes in operating assets and
liabilities, net of acquisitions
and dispositions:
Accounts receivable (34.2) .9 (4.4)
Inventories (5.4) 25.5 2.0
Other assets .3 (3.0) (4.3)
Accounts payable and accrued
expenses 21.4 10.5 (3.5)
Income taxes payable 2.3 1.7 (2.2)
Other payables 2.8 .9 .5
Net cash provided by operating activities 96.6 113.6 69.2
Investing activities:
Purchases of property, plant and equipment (54.3) (63.9) (84.7)
Acquisitions (net of notes payable of $16.0) (16.7) - -
Proceeds from sales of property, plant
and equipment 3.3 15.9 1.5
Other 5.0 ( .3) ( .2)
Net cash used in investing activities (62.7) (48.3) (83.4)
Financing activities:
Proceeds from long-term debt 49.4 82.1 .2
Payments on long-term debt (35.4) (80.3) (36.8)
Net borrowings (payments) on credit lines (3.1) (54.3) 2.7
Proceeds from issuances of common stock 5.7 3.7 63.7
Dividends paid (17.1) (16.8) (16.3)
Other (.9) .3 .4
Net cash (used in) provided by
financing activities (1.4) (65.3) 13.9
Increase (decrease) in cash and
cash equivalents 32.5 .0 ( .3)
Cash and cash equivalents
at beginning of year .7 .7 1.0
Cash and cash equivalents at end of year $ 33.2 $ .7 $ .7
</TABLE>
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the years ended December 31,
1994 1993 1992
(In Millions)
<S> <C> <C> <C>
Supplemental cash flow information:
Interest payments $30.5 $32.7 $35.2
Income tax payments, net of refunds $18.6 $ 3.7 $13.9
</TABLE>
The accompanying Notes to Consolidated Financial Statements are part of the
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Principles of Consolidation: The consolidated financial
statements include the accounts and operations of Chesapeake
Corporation and subsidiaries (the "Company"). All significant
intercompany accounts and transactions are eliminated.
b. Cash and Cash Equivalents: Cash and cash equivalents include
highly liquid, temporary cash investments with original
maturities of three months or less.
c. Inventories: Inventories are valued at the lower of cost or
market. The cost of substantially all applicable product and
manufacturing materials inventories is determined by the last-in,
first-out (LIFO) method. The cost of other inventories is
determined principally by the average cost method.
d. Property, Plant and Equipment: Property, plant and equipment,
except timber and timberlands, are stated at cost. Timber and
timberlands are stated at cost net of the accumulated cost of
timber harvested. The costs of major rebuilds and replacements
of plant and equipment are capitalized, and the costs of
ordinary maintenance and repairs are charged to income as
incurred. When properties are sold or retired, their costs and
the related accumulated depreciation are removed from the
accounts, and the gains or losses are reflected in income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, continued
e. Depreciation: Depreciation for financial reporting purposes is
computed principally by the straight-line method, based on the
estimated useful lives of the assets. Depreciation rates vary
according to the class of equipment or buildings and average 6%
for equipment and 4% for buildings.
f. Cost of Timber Harvested: Cost of timber harvested is computed
on quantities cut from individual company-owned tracts based on
costs and estimated volumes of recoverable timber.
g. Income Taxes: The Company defers to future periods the income
tax effects resulting from temporary differences (principally
depreciation) between the financial and income tax basis of
assets and liabilities.
h. Earnings Per Share: Earnings per share are based on the
weighted average number of outstanding common shares and
equivalents (23,775,582 in 1994, 23,431,411 in 1993 and
22,679,425 in 1992).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, continued
i. Other: Goodwill, the cost in excess of estimated fair value of
identifiable assets of acquired businesses (net of $11.5 million
and $10.1 million accumulated amortization at year-end 1994 and
1993, respectively), is being amortized on a straight-line basis
over 40 years or less. Specifically identifiable purchased
intangible assets (net of $4.4 million and $3.9 million
accumulated amortization at year-end 1994 and 1993,
respectively) are being amortized on a straight-line basis
according to estimated economic lives. Research and
development costs, not significant in amount, are charged to
operations as incurred.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<CAPTION>
2. Inventories
Year-end inventories consist of:
<S> <C> <C> <C>
1994 1993 1992
(In millions)
Finished goods $ 26.6 $ 29.4 $ 47.0
Work in process 21.5 19.9 23.6
Materials and supplies 41.7 30.4 34.6
Totals $ 89.8 $ 79.7 $105.2
</TABLE>
Inventories determined by the LIFO method, included in the above,
totaled (in millions) $38.9 for 1994, $15.8 for 1993 and $22.9 for
1992, or $12.1, $4.5 and $5.6 less than the respective amounts of
such inventories stated at current costs.
Effective January 1, 1994, the Company changed the method of
valuation of raw materials, work-in-process and finished goods of
its Wisconsin Tissue Mills Inc. subsidiary from the average cost
method to the LIFO method and expanded the use of the LIFO method to
include all of the work-in-process and finished goods of its
Chesapeake Packaging Co. subsidiary. The Company believes that, in
periods of rapid cost increases such as were experienced by the
paper industry during 1994, use of the LIFO method will result in a
better matching of current costs with current revenues. The effects
of adopting the LIFO method at Wisconsin Tissue and expanding the
use of the LIFO method at Chesapeake Packaging were to reduce
consolidated year-end inventories by $4.4 million and to decrease
net income for 1994 by $2.8 million ($.12 per share). The
cumulative effect of this change to the LIFO method on the operating
results as of the beginning of 1994 and the pro forma effects on the
operating results of prior years have not been presented, as the
effects are not readily determinable.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<CAPTION>
3. Long-Term Debt
Long-term debt at year-end consists of:
<S> <C> <C>
1994 1993 (In millions)
Notes payable - banks (unsecured):
Credit lines, interest 3.40% $ - $ 3.1
Term loan, interest 6.125% to 6.641%,
due 1996-2003 40.0 40.0
Unsecured notes:
11.75% notes, due 1995 50.0 50.0
5.25% notes, due 1997 16.0 -
10.375% notes, due 2000 55.0 55.0
9.875% notes, due 2003 60.0 60.0
7.20% notes, due 2005 85.0 85.0
Industrial development authority
obligations:
6.25% to 6.375% notes, due 2019 50.0 -
9% to 10.125% notes - 31.3
6.375% to 6.875% notes, due 1995-2003 6.1 6.2
Other debt 2.9 4.0
Totals 365.0 334.6
Less current maturities 1.0 1.5
$364.0 $333.1
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Long-Term Debt, continued
Principal payments on long-term debt (excluding the $50.0
million notes due in 1995) for the next five years are (in
millions): 1995 $1.0; 1996 $5.2; 1997 $22.6; 1998 $5.6; and
1999 $9.2. Because of the availability of long-term financing
under the terms of the committed credit lines, the $50.0
million notes due in 1995 have been classified as long-term
debt.
The Company maintains one- and two-year renewable credit
lines with several banks under which it can borrow up to $100
million at the prime rate or lower. Nominal commitment fees
are paid on the facilities. Other lines of credit totaling $90
million are maintained with several banks on an uncommitted
basis.
During the first quarter of 1994, Chesapeake completed the
public offering of an aggregate $50 million principal amount of
25-year tax-exempt bonds associated with capital 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 1994 first quarter interest expense by $.8
million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Long-Term Debt, continued
Certain loan agreements include provisions permitting the
holder of the debt to require the Company to repurchase all or
a portion of such debt outstanding upon the occurrence of
specified events involving a change of control or ownership.
In addition, various loan agreements contain provisions that
restrict the disposition of certain assets, require the Company
to maintain a ratio of long-term debt to total capital not in
excess of 60% and to meet an annual cash flow test. The
Company is required to maintain stockholders' equity of at
least $299 million and a consolidated current ratio of at least
1.5 under the provisions of certain loan agreements. Under the
most restrictive covenant, the Company had approximately $94.3
million of retained earnings available for dividends as of
December 31, 1994.
Interest expense is net of capitalized interest of $.5
million, $.4 million and $3.7 million for 1994, 1993 and 1992,
respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Long-Term Debt, continued
In accordance with Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial
Instruments," the Company has estimated the fair value of long-term
debt for 1994 to be $358.1 million, or 2% lower than
book value of $364.0 million. For 1993, the Company estimated
the fair market value of long-term debt to be $365.6 million,
or 10% higher than the book value of $333.1 million. The fair
value is based on the quoted market prices for similar issues
or current rates offered for debt of the same or similar
maturities. The carrying amounts of temporary cash
investments, trade receivables and trade payables approximate
fair value because of the short maturity of the instruments.
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of
temporary cash investments and trade receivables. The Company
places its temporary cash investments in high quality financial
instruments and, by policy, limits the amount of credit
exposure relating to any one instrument. Concentrations of
credit risk in regard to trade receivables are limited due to
the large number of customers and their dispersion across
different industries and geographic areas. The Company has no
derivative instruments or transactions outstanding as of the
end of 1994.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Income Taxes
The provision for income taxes consists of:
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
(In millions)
Currently payable:
Federal $19.2 $ 7.2 $10.9
State 1.5 .7 (.3)
Total current 20.7 7.9 10.6
Deferred:
Federal .7 2.2 (3.0)
State (.8) .2 .5
Total deferred (.1) 2.4 (2.5)
Total income taxes $20.6 $10.3 $ 8.1
</TABLE>
<TABLE>
Significant components of the year-end deferred income tax
assets and liabilities are:
<CAPTION>
<S> <C> <C>
1994 1993
(In millions)
Postretirement medical benefits $ 9.0 $ 7.9
Alternative minimum tax credit 16.2 21.2
Other 17.9 14.2
Deferred tax assets 43.1 43.3
Accumulated depreciation (121.3) (117.1)
Pension accruals (7.4) (7.8)
Other (3.7) (4.8)
Deferred tax liabilities (132.4) (129.7)
Net deferred taxes $ (89.3) $ (86.4)
Classified in balance sheet as
Current assets $ 15.9 $ 12.2
Long-term liabilities (105.2) (98.6)
Net deferred taxes $ (89.3) $(86.4)
</TABLE>
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Income Taxes, continued
The differences between the Company's effective income tax rate and the
statutory federal income tax rate are:
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
Federal income tax rate 35.0% 35.0% 34.0%
State income tax, net of federal
income tax benefit .8 2.6 .5
Effect on deferred taxes of tax
rate increase - 11.7 -
Other, net (.4) .3 1.6
Consolidated effective income
tax rate 35.4% 49.6% 36.1%
</TABLE>
Income tax expense for 1993 includes a charge of $2.4 million, or $.10
a share, to reflect changes in deferred taxes resulting from the 1993
Revenue Reconciliation Act.
In 1992 the Company elected early adoption of the liability method of
accounting for deferred income taxes pursuant to Statement of Financial
Accounting Standards No. 109. As a result, first quarter 1992 earnings
were restated for the cumulative effect of an accounting change that
increased net income $2.2 million, or $.11 per share.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Employee Retirement Plans
The Company maintains several noncontributory defined
benefit retirement plans covering substantially all employees.
Pension benefits are based primarily on the employees'
compensation and/or years of service. Annual pension costs
are actuarially determined, and the plans are funded with
sufficient assets to meet future benefit payment and
regulatory requirements. The net periodic pension cost
includes amortization of prior service costs over periods of
the greater of 15 years or the average remaining employee
service period.
Assumptions used in determining the net pension credit
(based upon beginning of the year assumptions) for 1994, 1993
and 1992 and related pension obligations (based upon year-end
assumptions) as of October 1 were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
Discount rate 8 1/2% 7 1/2% 8 1/2%
Increase in future
compensation levels 5 5 5 1/4
Long-term rate of return
on assets 9 1/4 9 1/2 9 1/2
</TABLE>
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Employee Retirement Plans, continued
The following table, based on actuarial valuations as of
October 1, 1994 and 1993, sets forth the plans' funded status
and amounts recognized in the Company's consolidated financial
statements for 1994 and 1993:
<CAPTION>
<S> <C> <C>
1994 1993
(In millions)
Accumulated benefit obligation:
Vested benefits $ 74.1 $ 63.0
Nonvested benefits 8.8 8.6
Totals 82.9 71.6
Effect of projected future
salary increases 15.7 20.6
Projected benefit obligation
for service rendered to date 98.6 92.2
Plan assets at fair value,
primarily corporate equity and
debt securities 125.2 119.3
Plan assets in excess of projected
benefit obligation 26.6 27.1
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions 1.2 3.1
Unrecognized net (asset) at beginning of
plan year being amortized principally
over 17 years (12.0) (13.4)
Prepaid pension cost recognized in Other
assets $ 15.8 $ 16.8
</TABLE>
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Employee Retirement Plans, continued
The components of the net pension credit for 1994, 1993
and 1992 are as follows:
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
(In millions)
Service cost - benefits
earned during the period $ 4.2 $ 3.5 $ 3.0
Interest cost on
projected benefit obligation 7.0 6.1 4.8
Actual (return) on plan assets (6.8) (13.3) (19.3)
Net amortization and deferral (5.4) 1.9 9.7
Net pension credit $(1.0) $(1.8) $(1.8)
</TABLE>
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, of which
approximately $3.4 million related to pensions. Pre-tax
savings from implementation of the program were approximately
$1 million in 1994 and are projected to be $3.5 million
annually thereafter.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Postretirement Benefits Other Than Pensions
The Company provides certain health care and life insurance
benefits to certain hourly and salaried employees who retire
under the provisions of the Company's retirement plans. The
Company does not pre-fund these benefits.
In 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"),
which requires recognition of the liability for these benefits
during the period employees render service rather than the
Company's previous practice of recognizing these costs as
claims were paid. The Company elected to immediately
recognize, as an accounting change, the accumulated liability
measured as of January 1, 1992. First quarter 1992 results
were restated for a one-time pre-tax charge of $19.1 million
($11.9 million, or $ .57 per share, net of taxes). The
adoption of SFAS 106 decreased 1992 income before taxes and
cumulative effect of accounting changes by approximately $.5
million.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Postretirement Benefits Other Than Pensions
During 1994, Chesapeake Paper Products Company and
Chesapeake Forest Products Company implemented an enhanced
retirement program (see Note 5). For 1994, service cost of
$1.3 million and interest cost of $.1 million relate to this
program. The components of postretirement benefits expense for
1994, 1993 and 1992 are as follows:
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
(In millions)
Service cost-benefits
earned during the period $2.2 $ .6 $ .6
Interest cost on accumulated
postretirement benefit obligation 1.9 1.7 1.6
Amortization of net loss .2 - -
Net postretirement benefit cost $4.3 $2.3 $2.2
</TABLE>
<TABLE>
The following table sets forth the accumulated
postretirement benefit obligation recognized in the Company's
consolidated balance sheet as of December 31, 1994 and 1993.
<CAPTION>
<S> <C> <C>
1994 1993
(In millions)
Retirees $19.1 $15.6
Fully eligible active plan participants 4.0 5.2
Other active plan participants 4.5 4.1
Accumulated postretirement benefit
obligation 27.6 24.9
Unrecognized prior service cost (.1) -
Unrecognized net loss (4.2) (4.4)
Accrued postretirement benefit
obligation $23.3 $20.5
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Postretirement Benefits Other Than Pensions, continued
The assumed health care cost trend rate used in measuring
future benefit costs was 13% in 1993 and 12% in 1994,
gradually declining to 6.5% by 2002 and remaining at that
level thereafter. A 1% increase in this annual trend rate
would increase the accumulated postretirement benefit
obligation at December 31, 1994 by $1.3 million and the 1994
postretirement benefit expense by $.1 million. The assumed
discount rate used in determining the accumulated
postretirement benefit obligation was 8.5% in 1994 and 7.5%
in 1993 and the assumed rate of increase in future
compensation levels was 5% in 1994 and 1993.
The Company will continue to manage and control
postretirement benefits, and pay benefits as incurred.
During 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The effects of this adoption were
not material to the Company's consolidated financial
statements.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Capital Stock and Additional Paid-In Capital
Changes in common stock and additional paid-in capital during 1992,
1993 and 1994 were:
<CAPTION>
Common Stock Additional
Aggregate Paid-In
Shares Par Value Capital
(Dollar amounts in millions)
<S> <C> <C> <C>
Balances, January 1, 1992 20,635,135 $20.6 $ 37.5
Issuances of shares:
Public Offering 2,500,000 2.5 57.0
Employee stock plans 194,397 .2 4.0
Other - - .3
Balances, December 31, 1992 23,329,532 23.3 98.8
Issuances of shares:
Employee stock plans 184,846 .2 3.5
Other - - .3
Balances, December 31, 1993 23,514,378 $23.5 $102.6
Issuances of shares:
Employee stock plans 239,328 .3 5.4
Other - - (.9)
Balances, December 31, 1994 23,753,706 $23.8 $107.1
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Capital Stock and Additional Paid-In Capital, continued
In addition to its common stock, the Company's authorized
capital includes 500,000 shares of preferred stock ($100 par), of
which 100,000 shares are designated as Series A Junior Participating
Preferred Stock ("Series A Preferred"). None was outstanding
during the three years ended December 31, 1994.
Each outstanding share of the Company's common stock has
attached to it one preferred share purchase right, which entitles
the shareholder to buy one unit (one one-thousandth of a share) of
Series A Preferred at an exercise price of $70 a share, subject to
adjustment. The rights will become exercisable only if a person or
group acquires or announces a tender offer for 20% or more of
Chesapeake's common stock. When exercisable, Chesapeake may issue
a share of common stock in exchange for each right other than those
held by such person or group. If a person or group acquires 30% or
more of the common stock, each right will entitle the holder, other
than the acquiring party, upon payment of the exercise price, to
acquire Series A Preferred or, at the option of Chesapeake, common
stock, having a value equal to twice the right's purchase price. If
Chesapeake is acquired in a merger or other business combination or
if 50% of its earnings power is sold, each right will entitle the
holder, other than the acquiring
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Capital Stock and Additional Paid-In Capital, continued
person, to purchase securities of the surviving company having a
market value equal to twice the exercise price of the rights. The
rights will expire on March 15, 1998, and may be redeemed by the
Company at any time prior to the tenth day after an announcement
that a 20% position has been acquired, unless such period has been
extended by the board of directors.
On April 1, 1992, the Company sold 2.5 million shares of its
common stock in an underwritten public offering at $25.00 per share.
The net proceeds from the sale, after underwriting discounts and
expenses payable by the Company, were approximately $59.5 million,
and were used to reduce certain long-term debt and amounts
outstanding under the Company's committed and uncommitted bank lines
of credit and for general corporate purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Stock Options
The 1993 Incentive Plan provides that the executive compensation
committee of the board of directors or its delegate may grant stock
options, stock appreciation rights ("SARs"), stock awards,
performance shares or stock units and may make incentive awards to
the Company's key employees and officers. The maximum aggregate
number of shares of common stock that may be issued under the plan
is the sum of 1% of the outstanding shares of common stock as of
January 1 of each calendar year during the term of the plan. The
plan also limits the number of shares that may be covered by the
grant of options, SARs, stock awards, performance shares and stock
units in any calendar year. The annual limitation is 1% of the
outstanding shares of common stock as of January 1 of that year
increased by 1) the number of shares available but not awarded
during all prior years during the term of the plan plus 2) any
forfeited or terminated grants that were not exercised. In addition,
the maximum aggregate number of shares that may be covered by
performance shares and that may be issued in any calendar year as a
stock award or in settlement of stock units is 30% of the annual
share limitation. The annual share limitation for 1994 was 301,788
shares. The options granted may be either incentive stock options
("ISOs") or nonqualified stock options. Options may be granted at
not less than the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Stock Options, continued
fair market value at the date of grant if the option is an ISO, or
not less than 85% of the fair market value if the option is a
nonqualified stock option. SARs may be granted in relation to
option grants ("corresponding SARs") or independently of option
grants. Grants may provide options and SARs exercisable over
periods of up to 10 years.
The Nonemployee Director Stock Option Plan provides for grants
to the Company's nonemployee directors of stock options for up to
93,500 shares of Chesapeake common stock. Automatic awards will be
made in lieu of projected increases in the cash retainer and meeting
fees payable to participants. Each participant may also choose to
receive an elective award in lieu of all or part of his or her
regular cash retainer of 125 shares for each $1,000 of foregone
retainer. The option price per share for automatic awards and
elective awards will be the average closing price of Chesapeake
common stock for the twenty trading days before the October 31 that
immediately precedes the grant date.
For both plans, payment may be made by the participant in cash
or Chesapeake common stock. Up to 328,643 shares, plus 1% of
shares outstanding as of January 1 of each calendar year through
2002, may be issued after December 31, 1994, upon exercise of
options or SARs granted under the two plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Stock Options, continued
The 1987 Stock Option Plan provided for grants to the Company's
key employees and officers of stock options and corresponding SARs
for up to 1,000,000 shares of Chesapeake's authorized but unissued
common stock and up to 200,000 SARs independent of stock options.
As of December 31, 1994, there were 842,699 shares issuable related
to options granted under this plan. With the adoption of the 1993
Incentive Plan, awards under this plan were discontinued.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENT, Continued
8. Stock Options, continued
The following schedule summarizes stock option activity for the
three years ended December 31, 1994:
<CAPTION>
Number of Option Price
Stock Options Per Share
<S> <C> <C>
Outstanding, January 1, 1992 673,334 $13.89 to $22.75
Granted 163,900 21.66 to 25.23
Exercised 101,079 13.89 to 21.43
Cancelled 32,662 18.65 to 21.43
Outstanding, December 31, 1992 703,493 13.89 to 25.23
Granted 194,100 19.15 to 20.49
Exercised 11,905 18.65 to 20.88
Cancelled 31,982 16.63 to 23.88
Outstanding, December 31, 1993 853,706 13.89 to 25.23
Granted 203,200 20.63 to 32.63
Exercised 166,189 18.65 to 23.88
Cancelled 40,009 16.63 to 22.88
Outstanding, December 31, 1994 850,708 13.89 to 32.63
Exercisable:
December 31, 1992 389,842 13.89 to 22.75
December 31, 1993 504,044 13.89 to 25.23
December 31, 1994 478,381 13.89 to 32.63
Available for grants:
December 31, 1992 438,099
December 31, 1993 506,203
December 31, 1994 483,321
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Employees' Stock Plans and Other Compensation Plans
The Company has stock purchase plans for certain eligible
salaried and hourly employees. Shares of Chesapeake common stock
are purchased based upon participant and company contributions. At
December 31, 1994, 1,094,468 shares remain available for issuance
under these plans.
The Company also has a noncontributory Employee Stock Ownership
Plan that covers eligible salaried and hourly employees. Shares of
Chesapeake common stock are purchased at the Company's discretion.
No purchases were made in 1994, 1993 or 1992.
The Company also sponsors, in accordance with the provisions of
Section 401(k) of the Internal Revenue Code, pre-tax savings
programs for eligible salaried and hourly employees. Certain
participants' contributions are matched up to designated
contribution levels by the Company. Contributions are invested in
several investment options, which may include Chesapeake common
stock, as selected by the participating employee. At December 31,
1994, 500,000 shares of Chesapeake common stock are reserved for
issuance under these programs.
The 1993 Incentive Plan (see Note 8) provides that the executive
compensation committee of the board of directors may select certain officers
to receive annual incentive awards in
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Employees' Stock Plans and Other Compensation Plans, continued
the form of cash, common stock or a combination, based upon the
Company's overall financial performance and the officer's individual
performance. Annual incentive awards for officers during 1992 were
granted under the Officers' Incentive Program.
The 1993 Incentive Plan provides that the executive compensation
committee of the board of directors may grant performance share
awards to key employees and officers. During 1994, performance
share awards with respect to 62,600 shares of common stock were
granted, of which an estimated 13,572 restricted stock shares and
7,635 restricted stock units were earned for 1994 performance.
With the adoption in 1993 of the 1993 Incentive Plan, awards
under the Officers' Incentive Program and the Long-Term Incentive
Plan were discontinued. As of December 31, 1994, 6,364 restricted
stock shares and 3,077 restricted stock units had been earned under
the Long-Term Incentive Plan. There are no outstanding grants under
this plan. The Company has other incentive compensation plans in
effect for key employees under which awards are based principally on
operating results.
The charges to income for these plans approximated $8.3 million
in 1994, $4.9 million in 1993 and $4.8 million in 1992.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Litigation
The Company is a defendant in various litigation related to fire
retardant treated plywood ("FRT plywood"). Between 1984 and 1988,
the Company treated plywood with a chemical intended to retard the
spread of flames. It has been alleged that the fire retardant
chemical applied to the FRT plywood has caused some of the plywood
prematurely to lose some of its structural strength under certain
circumstances. Management believes that, to the extent that the
Company has responsibility for any such claims, its insurance
carriers and the supplier of the fire retardant chemical will
indemnify the Company for significant portions of the claims.
Although the outcome of the claims related to FRT plywood is not
determinable at this time, the Company believes that the resolution
of the claims, individually or in the aggregate, will not have a
materially adverse effect on its consolidated financial position or
results of operations.
In June 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 damages liability relating to
polychlorinated biphenyls in the Fox River and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Litigation, continued
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 the
clean-up technologies and governmental regulations; 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.
In December 1994, the Company's Wisconsin Tissue Mills Inc.
subsidiary was notified by the United States Department of Justice
of a civil antitrust investigation into possible agreements in
restraint of trade in the commercial and industrial markets for
sanitary tissue products. The Department of Justice requested
information and documents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Litigation, continued
related to the investigation for the period commencing January 1,
1990. Wisconsin Tissue is cooperating in the investigation by
providing a response to the request for information.
The Company is a party to various other 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.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<CAPTION>
11. Supplemental Income Statement Information
<S> <C> <C> <C>
1994 1993 1992
(In millions)
Other income, net:
Interest earned $ .6 $ .2 $ .1
Gains on sales of property
and equipment 3.0 9.4 1.3
Losses from sales of
businesses - (1.3) (1.0)
Miscellaneous income 8.4 5.4 4.8
Miscellaneous deductions (3.8) (5.0) (3.5)
Totals $ 8.2 $ 8.7 $ 1.7
</TABLE>
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Supplemental Balance Sheet Information
<CAPTION>
<S> <C> <C>
1994 1993
(In millions)
a. Accounts receivable, net:
Trade $128.1 $89.4
Other 2.8 1.1
Allowance for doubtful accounts (3.8) (3.0)
Totals $127.1 $87.5
b. Other assets:
Goodwill, net $ 43.6 $28.0
Purchased intangible assets, net 1.8 2.3
Other 49.7 49.0
Totals $ 95.1 $79.3
c. Accounts payable and accrued expenses:
Accounts payable:
Trade creditors $ 44.6 $31.0
Bank checks in transit 13.3 10.2
57.9 41.2
Accrued expenses:
Interest 9.2 7.8
Compensation and employee benefits 31.0 24.3
Other 18.7 17.2
58.9 49.3
Totals $116.8 $90.5
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. Commitments and Other Matters
At December 31, 1994, commitments, primarily for capital
expenditures, approximated $57 million of the Company's 1995 $125
million capital spending estimate. These commitments include
anticipated expenditures of $6 million in 1995 related to
environmental protection in connection with planned expansions and
upgrades, mainly at the Company's facilities in West Point,
Virginia, and Menasha, Wisconsin. The remaining commitments of $51
million are for various capital projects, none of which is
individually material.
Uncommitted environmental protection projects may cost the
Company another $8.0 million during the next several years.
Additional nondeterminable environmental protection expenditures
could be required in the future when facilities are expanded or if
more stringent standards become applicable.
The Company leases certain assets (principally transportation
and information processing equipment and office space) generally for
three to five-year terms. The present value of any unrecorded
capital leases and the impact on net income if these leases were
recorded are not material. Rental expense for operating leases
totaled (in millions) $12.7 for 1994, $13.1 for 1993 and $14.0 for
1992. As of December 31, 1994, aggregate minimum rental payments in
future years on noncancelable leases approximated $21.0 million.
The amounts applying to future years are (in millions): 1995 $7.1;
1996 $4.9; 1997 $3.6; 1998 $2.3; 1999 and thereafter $3.1.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT, Continued
13. Commitments and Other Matters, continued
On January 24, 1994, Chesapeake Packaging Co. acquired Lawless
Holding Corporation, based in North Tonawanda, New York. Lawless
Holding Corporation had annual sales of approximately $60 million in
1993 and includes the Lawless Container Corporation corrugated
container plant in North Tonawanda; corrugated sheet plants located
in Scotia, New York, Le Roy, New York and Madison, Ohio; and Lawless
Packaging and Display, a consumer graphic packaging plant located in
Buffalo, New York.
Early in the fourth quarter of 1993, Chesapeake conveyed to
Universal Forest Products, Inc. the assets of Chesapeake's
Fredericksburg, Virginia; North East, Maryland; Stockertown,
Pennsylvania; Elizabeth City, North Carolina; and Holly Hill, South
Carolina facilities; and the machinery and equipment from the
Pocomoke City, Maryland facility. The assets, which were conveyed
under lease and purchase agreements having a present value of $3.4
million, represented substantially all of the assets of the former
Chesapeake Wood Treating Co. Net sales of this business were $85.8
million in 1993 and $97.7 million in 1992. This conveyance
concluded Chesapeake's involvement in the wood treating business and
enabled the Company to better focus on its three primary businesses.
Also, in the fourth quarter of 1993, Chesapeake announced the
consolidation of the Company's West Des Moines, Iowa, packaging
plant into its Sandusky, Ohio, facility. Lastly, during the fourth
quarter of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. Commitments and Other Matters, continued
1993, the Company sold approximately 19,000 acres of timberland
holdings which were no longer of strategic importance. These three
events netted to a $5.4 million pre-tax gain during the fourth
quarter of 1993.
During the fourth quarter of 1992, Chesapeake adopted new,
required accounting rules for postretirement benefits other than
pensions and for income taxes, recording, as accounting changes, a
net one-time, after-tax charge of $9.7 million, or $.46 per share.
The cumulative effect consisted of a transition obligation charge of
$19.1 million pre-tax, or $11.9 million after-tax, to accrue for the
costs of future health benefits for retirees and current employees
after retirement, and an increase in net income of $2.2 million from
changing the method of accounting for income taxes. These new
accounting rules had no effect on cash flow or income before the
cumulative effect of accounting changes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. Business Segment Information
The Company's three business segments are kraft products, tissue
and packaging. The kraft products segment includes kraft, forest
and building products. Tissue is comprised of commercial,
industrial and consumer tissue products. Packaging consists of
corrugated shipping containers, point-of-sale displays and consumer
graphic packaging. General corporate expenses, gains (losses) from
the sales of businesses and land development are shown as corporate.
Sales between segments reflect transfer prices at market value.
Intersegment sales not included below were $28.0 million in 1994,
$18.5 million in 1993 and $17.3 million in 1992. Segment operating
income is revenue less allocable operating expenses. Operating
expenses include all expenses except interest, income taxes and the
cumulative effect of accounting changes.
Segment identifiable assets are those which are directly used in
segment operations. Timber and timberlands are included in the
kraft products segment. Corporate assets are cash, certain nontrade
receivables, real estate held for sale and other assets.
Export sales, principally to Europe, Canada and Asia, were (in
millions): 1994 $94.9; 1993 $62.9; and 1992 $67.1.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. Business Segment Information, continued
Financial information by business segments:
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
(In millions)
Net sales:
Kraft products $330.8 $343.5 $365.8
Tissue 304.1 283.5 276.2
Packaging 349.8 252.7 243.8
Corporate 5.8 5.3 2.6
Consolidated net sales $990.5 $885.0 $888.4
Operating income:
Kraft products $ 36.1 $12.5 $23.8
Tissue 40.7 31.1 26.3
Packaging 24.7 17.6 15.5
101.5 61.2 65.6
Corporate (12.2) (8.5) (11.7)
Income before interest,
taxes and cumulative effect
of accounting changes 89.3 52.7 53.9
Interest expense (31.1) (32.0) (31.4)
Income before taxes and
cumulative effect of accounting
changes $ 58.2 $20.7 $22.5
Identifiable assets:
Kraft products $ 434.7 $433.5 $451.8
Tissue 323.9 335.1 358.8
Packaging 189.7 118.4 111.4
Corporate 64.8 32.3 36.9
Consolidated assets $1,013.1 $919.3 $958.9
Capital expenditures:
Kraft products $23.5 $41.9 $66.8
Tissue 9.9 9.5 6.9
Packaging 20.8 12.4 11.2
Corporate .1 .1 .1
Totals $54.3 $63.9 $85.0
Depreciation and cost of timber
harvested:
Kraft products $36.0 $36.3 $33.1
Tissue 23.6 24.3 24.3
Packaging 11.0 9.2 8.7
Corporate .3 .4 .4
Totals $70.9 $70.2 $66.5
</TABLE>
<TABLE>
EXCERPT FROM ELEVEN-YEAR COMPARATIVE RECORD
<CAPTION>
(Dollar amounts in millions except per share data)
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
Operating Results
Net sales $990.5 $885.0 $888.4 $840.5 $841.2
Net cost except depreciation
and cost of timber harvested 861.4 794.1 799.4 752.3 756.3
Depreciation and cost of timber
harvested 70.9 70.2 66.5 62.1 55.8
Income before taxes and
cumulative effect of accounting
changes 58.2 20.7 22.5 26.1 29.1
Income taxes 20.6 10.3 8.1 10.7 12.4
Income before cumulative effect
of accounting changes 37.6 10.4 14.4 15.4 16.7
Cumulative effect of accounting
changes - - 9.7 - -
Net income 37.6 10.4 4.7 15.4 16.7
Cash dividends declared on common
stock 17.1 16.8 16.7 14.8 14.8
Income retained for use in the
business 20.5 (6.4) (12.0) .6 1.9
Net cash provided by operating
activities 96.6 113.6 69.2 67.8 69.2
Percent of income before cumulative
effect of accounting changes
To net sales 3.8% 1.2% 1.6% 1.8% 2.0%
To stockholders' equity 10.2 2.8 4.5 4.9 5.3
To total assets 4.1 1.1 1.6 1.8 2.1
Common Stock
Number of stockholders of record 7,804 7,778 7,964 7,741 7,789
Shares outstanding (in thousands) 23,754 23,514 23,330 20,635 20,436
Per share
Earnings before cumulative effect
of accounting changes $ 1.58 $ .44 $ .63 $ .75 $ .81
Earnings 1.58 .44 .17 .75 .81
Dividends declared .72 .72 .72 .72 .72
Stockholders' equity 16.56 15.65 15.88 15.43 15.36
Financial Position
Working capital $ 144.3 $ 87.1 $122.2 $101.7 $ 92.8
Property, plant and
equipment, net 646.4 653.8 668.3 641.6 616.2
Total assets 1,013.1 919.3 958.9 915.5 875.9
Total capital 862.5 799.7 849.6 820.8 783.7
Long-term debt 364.0 333.1 382.8 415.9 381.0
Deferred income taxes 105.2 98.6 96.4 86.5 88.9
Stockholders' equity 393.3 368.0 370.4 318.4 313.8
Percent of long-term debt
To total capital 42.2% 41.7% 45.1% 50.7% 48.6%
To stockholders' equity 92.6 90.5 103.3 130.6 121.4
Additional Data
Capital expenditures $54.3 $63.9 $ 85.0 $ 92.2 $128.5
Acres of timberland owned
(in thousands) 328 329 350 350 350
Number of employees 5,209 4,833 5,062 5,039 5,104
</TABLE>
EXCERPT FROM NOTES TO ELEVEN-YEAR COMPARATIVE RECORD
Accounting policies are stated in Note 1 of Notes to Consolidated
Financial Statements. Percent of income before cumulative effect of accounting
changes information is calculated using beginning of year and acquisition
amounts where appropriate.
1. Includes an after-tax charge of $2.8 million, or $.12 per share,
related to a change to the LIFO method of accounting for certain
inventories.
2. Includes net one-time, after tax charge of $9.7 million, or $.46
per share, related to the adoption of SFAS 106 and SFAS 109 in
1992.
5. Excludes 17,000 - 25,000 acres held by land development
subsidiaries during 1990 - 1994.
OPERATING MANAGERS AND LOCATIONS*
CHESAPEAKE PAPER PRODUCTS COMPANY
Thomas Blackburn
West Point, Virginia
Recycling Centers
Baltimore, Maryland
Greensboro, North Carolina
Norfolk, Virginia
CHESAPEAKE FOREST PRODUCTS COMPANY
Thomas Blackburn
West Point, Virginia
Elizabeth City, North Carolina
Keysville, Virginia
Pocomoke City, Maryland
Chesapeake Building Products Company
Jack C. King
West Point, Virginia
Keysville, Virginia
Milford, Virginia
Princess Anne, Maryland
WISCONSIN TISSUE MILLS INC.
Charles S. Cianciola
Menasha, Wisconsin
Neenah, Wisconsin
CHESAPEAKE CONSUMER PRODUCTS COMPANY
Vincent W. Hockett
Appleton, Wisconsin
LAND DEVELOPMENT
Joel K. Mostrom
Delmarva Properties, Inc.
Robert F. Brake
West Point, Virginia
Stonehouse Inc.
Joel K. Mostrom
Williamsburg, Virginia**
OPERATING MANAGERS AND LOCATIONS, (Continued)
CHESAPEAKE PACKAGING CO.
Samuel J. Taylor
Chesapeake Display and Packaging Company
George F. Barnes
Bruce M. Pinover
Winston-Salem, North Carolina
Rural Hall, North Carolina**
Pennsauken, New Jersey**
Bruce A. Watson
Sandusky, Ohio**
Marion, Iowa
Permanent Display Division
George F. Barnes
Rural Hall, North Carolina**
Color-Box, Inc.
Jack L. Creech
Richmond, Indiana
Buffalo, New York
Chesapeake Packaging Divisions
Robert F. Schick
Robert S. Argabright, II
Baltimore, Maryland
Edward R. Badyna
Binghamton, New York
Scranton, Pennsylvania
Edward P. Godsey
Roanoke, Virginia
Wesley N. Herman
North Tonawanda, New York
Le Roy, New York
Madison, Ohio
Scotia, New York
Terry R. Jenkins
Louisville, Kentucky
St. Anthony, Indiana
Gerald E. Nelson
Richmond, Virginia
Corporate Headquarters
1021 E. Cary Street, Box 2350
Richmond, Virginia 23218-2350**
804/697-1000
* As of December 31, 1994
** Leased real property
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000019731
<NAME> CHESAPEAKE CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 33,200,000
<SECURITIES> 0
<RECEIVABLES> 127,100,000
<ALLOWANCES> 3,800,000
<INVENTORY> 89,800,000
<CURRENT-ASSETS> 271,600,000
<PP&E> 1,269,100,000
<DEPRECIATION> 622,700,000
<TOTAL-ASSETS> 1,013,100,000
<CURRENT-LIABILITIES> 127,300,000
<BONDS> 364,000,000
<COMMON> 23,800,000
0
0
<OTHER-SE> 369,500,000
<TOTAL-LIABILITY-AND-EQUITY> 1,013,100,000
<SALES> 990,500,000
<TOTAL-REVENUES> 1,002,500,000
<CGS> 723,700,000
<TOTAL-COSTS> 909,400,000
<OTHER-EXPENSES> 3,800,000
<LOSS-PROVISION> 3,800,000
<INTEREST-EXPENSE> 31,100,000
<INCOME-PRETAX> 58,200,000
<INCOME-TAX> 20,600,000
<INCOME-CONTINUING> 37,600,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,600,000
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
</TABLE>
