FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 1-3203
CHESAPEAKE CORPORATION
Incorporated under the I.R.S. Employer
laws of Virginia Identification
No. 54-0166880
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350
Telephone Number (804) 697-1000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
The number of shares outstanding of each of the issuer's classes of
common stock, as of the close of period covered by this report:
Common stock of $1 par value, 23,807,306 shares.
Page 1 of 22 Pages.
PART I
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE SECOND QUARTER AND YEAR TO DATE ENDED
JUNE 30, 1995 AND 1994
<CAPTION>
Second Quarter Year to Date
1995 1994 1995 1994
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net sales $315.1 $236.9 $606.2 $448.9
Costs and expenses:
Cost of products sold 225.2 175.7 426.9 334.4
Depreciation and cost
of timber harvested 18.5 18.3 37.4 36.4
Selling, general and
administrative expenses 32.6 29.9 64.5 55.2
Income from operations 38.8 13.0 77.4 22.9
Other income and expenses, net (1.3) 2.6 1.1 4.3
Interest expense (8.1) (7.7) (16.1) (16.0)
Income before taxes 29.4 7.9 62.4 11.2
Income taxes 10.9 3.0 23.1 4.3
Net income $ 18.5 $ 4.9 $ 39.3 $ 6.9
Earnings per share $ .77 $ .21 $ 1.64 $ .30
Weighted average number of
common shares and
equivalents outstanding 24.0 23.6 24.0 23.6
Cash dividends declared per
share of common stock $ .20 $ .18 $ .38 $ .36
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, 1995 Dec. 31, 1994
(In millions)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ .6 $ 33.2
Accounts receivable, less
allowances for doubtful
accounts of $4.4 and $3.8 147.3 127.1
Inventories, at lower of cost
or market 111.7 89.8
Deferred income taxes 15.9 15.9
Other 7.9 5.6
Total current assets 283.4 271.6
Property, plant and equipment, at cost:
Land, buildings, machinery
and equipment 1,305.5 1,228.8
Less accumulated depreciation (659.5) (622.7)
646.0 606.1
Timber and timberlands, net 40.5 40.3
Net property, plant and equipment 686.5 646.4
Goodwill, net 42.9 43.6
Other assets 46.0 51.5
$1,058.8 $1,013.1
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995 Dec. 31, 1994
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 130.1 $ 116.8
Current maturities of long-term debt 1.1 1.0
Dividends payable 4.8 4.3
Income taxes payable 2.8 5.2
Total current liabilities 138.8 127.3
Long-term debt 359.1 364.0
Postretirement benefits other than pensions 25.9 23.3
Deferred income taxes 110.2 105.2
Stockholders' equity:
Preferred stock, $100 par value,
issuable in series;
authorized, 500,000 shares;
issued, none
Common stock, $1 par value;
authorized 60,000,000 shares;
outstanding 23,807,306 and
23,753,706 shares 23.8 23.8
Additional paid-in capital 108.4 107.1
Retained earnings 292.6 262.4
424.8 393.3
$1,058.8 $1,013.1
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR TO DATE ENDED JUNE 30, 1995 AND 1994
<CAPTION>
1995 1994
(In millions)
<S> <C> <C>
Operating activities
Net income $ 39.3 $ 6.9
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, cost of timber harvested and
amortization of intangibles 38.5 37.9
Deferred income taxes 5.0 .8
Gain on sale of property, plant and equipment (1.4) (.6)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (20.2) (17.6)
Inventories (21.9) .4
Other assets 2.7 (1.1)
Accounts payable and accrued expenses 13.5 2.8
Income taxes payable (2.4) (2.0)
Other payables 2.6 2.1
Net cash provided by operating activities 55.7 29.6
Investing activities
Purchases of property, plant and equipment (67.1) (21.5)
Acquisition (net of notes issued to sellers of $16.0
in 1994) (10.5) (16.3)
Proceeds from sale of property, plant and equipment 1.6 .7
Other - 3.5
Net cash used in investing activities (76.0) (33.6)
Financing activities
Net borrowings (payments) on credit lines 5.4 (3.1)
Payments on long-term debt (10.7) (33.0)
Proceeds from long-term debt .3 49.0
Proceeds from issuances of common stock 2.2 .4
Dividends paid (8.6) (8.5)
Other (.9) (.9)
Net cash provided by (used in) financing activities (12.3) 3.9
Increase (decrease) in cash (32.6) (.1)
Cash at beginning of period 33.2 .7
Cash at end of period $ .6 $ .6
Supplemental cash flow information:
Interest payments $15.4 $15.2
Income tax payments, net of refunds $20.4 $ 5.8
</TABLE>
See accompanying notes.
CHESAPEAKE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included
herein are unaudited, except for the December 31, 1994
consolidated balance sheet, have been prepared by the
Company pursuant to the rules and regulations of the
Securities and Exchange Commission, and, in the opinion of
management, reflect all adjustments, all of a normal
recurring nature, necessary to present fairly the Company's
consolidated financial position, results of operations and
cash flows. It is suggested that these condensed
consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes
thereto included or incorporated by reference in the
Company's latest Annual Report on Form 10-K. The results of
operations for the 1995 interim periods should not be
regarded as necessarily indicative of the results that may
be expected for the entire year. The 1994 results have been
restated to reflect the change in method of accounting for
certain inventories to the LIFO method effective January 1,
1994.
<TABLE>
2. Inventories:
<CAPTION> June 30, 1995 Dec. 31, 1994
(In millions)
<S> <C> <C>
Inventories consist of:
Finished goods $ 42.0 $ 26.6
Work in process 18.1 21.5
Materials and supplies 51.6 41.7
Totals $111.7 $ 89.8
</TABLE>
3. Commitments and Other Matters:
At June 30, 1995, commitments, primarily for capital
expenditures, approximated $81 million. These commitments
include anticipated expenditures of $8 million in 1995 and
$2 million in 1996 related to environmental protection in
connection with planned expansions and upgrades mainly at
the Company's paper mills in West Point, Virginia and
Menasha, Wisconsin. The remaining commitments of $71
million include expenditures related to Wisconsin Tissue's
western operations in Arizona. Also included are various
other capital projects, none of which is individually
material.
Uncommitted environmental protection projects may cost the
Company another $4 million during the next several years.
Additional non-determinable environmental protection
expenditures could be required in the future when facilities
3. Commitments and Other Matters continued:
are expanded or if more stringent standards become
applicable. See Note 6.
The Company has recently made four strategic moves in its
tissue segment as a part of its overall strategy to expand
its commercial and industrial tissue business on a national
basis to meet the market demands of its customers.
(1) In May 1995, Wisconsin Tissue Mills Inc., a wholly
owned subsidiary ("WTM"), completed the purchase
of the assets of the Flagstaff, Arizona, mill of
Orchids Paper Products Company. This mill should
add approximately 30,000 tons per year of tissue
papermaking capacity.
(2) In July 1995, Chesapeake Corporation signed a
letter of intent for WTM to acquire the Alsip,
Illinois, mill of Chicago Tissue Company L.P.
This acquisition should add approximately 50,000
tons per year of tissue papermaking capacity.
(3) On July 17, 1995, Chesapeake announced that it
would not build a tissue mill on the 1,200 acre
site in Alabama purchased in 1991. After review
of the total capital costs, commercial and
industrial tissue markets and other requirements
for doing business, it was determined that it was
not cost effective for the Company to build a
major tissue mill at this time.
(4) On June 22, 1995, Chesapeake announced its
intention to sell Chesapeake Consumer Products
Company, part of its tissue segment. Although
many improvements have been made in this business,
resulting in profitability and positive cash flow
in 1994 and 1995, it was determined that
Chesapeake had better strategic alternatives for
its capital.
4. Litigation:
WTM has received a notice from the United States Fish and
Wildlife Service that it has been identified as a
potentially responsible party with respect to possible
natural resource damages in the Fox River and Green Bay
System. See Note 6 to the consolidated financial statements
for further information regarding this notice.
4. Litigation (continued):
In December 1994, WTM 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 related to the investigation for the period
commencing January 1, 1990. WTM has cooperated in the
investigation by providing a response to the request for
information.
The Company is a party to various legal actions which are
ordinary and incidental to its business. While the outcome
of legal actions cannot be predicted with certainty, the
Company believes the outcome of any of these proceedings, or
all of them combined, will not have a materially adverse
effect on its consolidated financial position or results of
operations.
5. Income Taxes:
The Company's effective income tax rate was 37.0% in 1995
compared to 38.2% for the first two quarters of 1994. The
differences between the Company's effective income tax rate
and the statutory federal income tax rate are primarily due
to state income taxes and purchase accounting adjustments
resulting from acquisitions.
6. Environmental Matters:
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.
The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and similar state "superfund" laws
impose liability, without regard to fault or to the legality
of the original action, on certain classes of persons
(referred to as potentially responsible parties or "PRPs")
associated with a release or threat of a release of a
hazardous substance into the environment. Financial
responsibility for the clean-up or other remediation of
contaminated property or for natural resource damages can
extend to previously owned or used properties, waterways and
properties owned by third parties, as well as to properties
currently owned and used by the Company even if
contamination is attributable entirely to prior owners.
While joint and several liability is authorized under
CERCLA, as a practical matter the cost of clean-up or other
remediation is generally allocated among the waste
6. Environmental Matters (continued):
generators. Except for the United States Department of
Interior, Fish and Wildlife Service ("FWS") assessment of
the Fox River discussed below, the Company is not presently
named as a PRP at any CERCLA-related sites. However, there
can be no assurance that the Company will not be named as a
PRP at any other sites in the future or that the costs
associated with additional sites would not be material to
the Company's financial position or results of operations.
On June 23, 1994, the FWS, a federal natural resources
trustee, notified WTM that it had identified WTM and four
other companies located along the lower Fox River in
northeast Wisconsin as PRPs for purposes of natural
resources liability under CERCLA arising from alleged
releases of polychlorinated biphenyls (PCBs) in the Fox
River and Green Bay System. The FWS alleges that natural
resources including endangered species, fish, birds, tribal
lands or lands held by the United States in trust for
various tribes have been exposed to PCBs that were released
from facilities located along the Fox River. The notice
invites the PRPs to participate in the development and
performance of a natural resource damage assessment with
respect to the alleged discharges. WTM and the four other
PRPs are engaged in negotiations with FWS concerning the
proposed damage assessment and the possible resolution of
the claims to allow voluntary resolution and remediation to
proceed. It is anticipated that any such damage assessment
would require considerable time to complete.
WTM and the four other PRPs are also engaged in discussions
with the Wisconsin Department of Natural Resources ("WDNR")
with respect to resolving possible state claims concerning
remediation, restoration and natural resource damage related
to the alleged discharge of PCBs into the Fox River and
Green Bay System. The PRPs have proposed a settlement to
WDNR. WDNR has not responded to the settlement proposal.
WTM's obligation under the proposed settlement would not be
material to its financial position or results of operations.
Based upon presently available information, the Company
believes that there are additional parties, some of which
may have substantial resources, that may also be identified
as PRPs with respect to this matter and could be expected to
participate in any settlement.
6. Environmental Matters (continued):
The ultimate cost to WTM, if any, associated with this
matter cannot be predicted with certainly at this time, due
to: the inability to determine the outcome of pending
settlement discussions or, if a settlement cannot be
reached, the Company's share of any multi-party clean-up;
the unknown magnitude of any contamination; the varying cost
of alternative clean-up methods; the evolving nature of
clean-up technologies and governmental regulations; the
extent to which contribution will be available from other
parties; and the scope of potential recoveries from
insurance carriers and prior owners of WTM. The Company
believes that it is entitled to indemnification from the
prior owner of WTM, pursuant to a stock purchase agreement
between the parties, with respect to all liabilities related
to this matter. That prior owner has reimbursed the Company
for out-of-pocket costs and attorney's fees related to
investigation of the matter. The Company believes that such
prior owner intends to, and has the financial ability to,
honor its indemnification obligation under the stock
purchase agreement.
In March 1995, the United States Environmental Protection
Agency ("EPA") issued "Final Guidance" for basin-wide water
quality standards pursuant to the Great Lakes Water Quality
Agreement between the U.S. and Canada regarding the
development of water quality standards for the Great Lakes
and their tributaries. Under federal law, the affected
states will be required within two years to implement
specific regulations that are consistent with the provisions
of the Final Guidance. Dischargers would then have an
additional period of up to five years during which to comply
with any new, more stringent, permit limits derived under
the Final Guidance. The Final Guidance is currently the
subject of administrative and judicial challenges by the
paper industry and other groups, and of pending legislation
in the U.S. Congress. WTM is evaluating the potential
effects of the Final Guidance on its operations and results,
which effects cannot be predicted with certainty at this
time. However, based on the Company's initial review of the
Final Guidance, the Company believes that compliance would
not have a material adverse effect on its financial position
or results of operations.
The EPA has published draft rules under the Clean Water Act
and the Clean Air Act which would impose new air and water
quality standards for pulp and paper mills (the "Cluster
Rules"). The EPA has indicated that it intends to issue the
final Cluster Rules in the fall of 1995. The definitive
6. Environmental Matters (continued):
Cluster Rules are expected to require compliance within
three years after the date of their adoption. Based on the
Company's preliminary estimates, if the Cluster Rules were
adopted in substantially their present form, compliance
would require capital expenditures totaling approximately
$55 million at the Company's two paper mills. The Company
has joined with the American Forest & Paper Products
Association and most of its members in stating that they
believe that the Cluster Rules, as proposed, are
inappropriate, unjustified and do not comply with applicable
law. The eventual capital expense impact on the Company of
compliance with the definitive Cluster Rules is not
presently determinable, and will depend on a number of
factors, including: the scope of the standards imposed and
time permitted for compliance; the Company's strategic
decisions related to compliance, including potential changes
in product mix and markets; and developments in compliance
technology. The additional effect, if any, on the Company's
business of compliance with the definitive Cluster Rules
will depend on a number of other factors, including: the
domestic and international competitive effects of
compliance; and the effect of evolving consumer demands
related to environmental issues on the Company and its
competitors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
2nd Quarter 1995 vs. 2nd Quarter 1994
Net sales for second quarter 1995 were a record $315.1
million, up 33% from net sales of $236.9 million for the second
quarter of last year. Higher shipments for the packaging segment
and improved selling prices for all major products were
responsible for the increase.
Net income for second quarter 1995 was $18.5 million, or
$.77 a share, an increase of 267% compared to second quarter 1994
net income of $4.9 million, or $.21 a share. Included in second
quarter 1995 results were pre-tax charges of approximately $8
million, or $.21 a share, associated with an enhanced retirement
package for hourly employees at Chesapeake Paper Products and
with certain post-closing obligations related to Chesapeake's
former wood treating operations. Without these charges,
quarterly earnings would have been a record $.98 a share. Second
quarter 1994 results included a pre-tax charge of $4.9 million,
or $.13 a share, associated with an enhanced retirement package
for certain salaried employees at Chesapeake Paper Products and
Chesapeake Forest Products. All of these charges for both years
were in the kraft products segment. Continued sales price
improvement and excellent operating performance helped lower cost
of products sold as a percentage of net sales to 71% for second
quarter 1995 compared to 74% for second quarter of 1994.
Selling, general and administrative expenses as a percentage of
net sales were 10% for the second quarter 1995 and 13% for the
second quarter of 1994. Depreciation approximated prior year
amounts. Other income and expenses, net in 1995 was a net
expense of $1.3 million due in part to the charge for the wood
treating post-closing obligations. Other income and expense, net
in the 1994 quarter was income of $2.6 million, and included a
gain from the settlement of indemnification issues related to a
prior business acquisition and from the sale of equipment that
was no longer used by the Company. Interest expense for the
quarter was slightly higher than second quarter 1994.
<TABLE>
BUSINESS SEGMENT HIGHLIGHTS
<CAPTION>
Second Quarter First Quarter Year-to-date
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Net Sales:
Packaging $112.7 $ 79.7 $106.9 $219.6 $153.7
Kraft products 109.8 78.7 104.7 214.5 149.8
Tissue 90.6 77.7 78.2 168.8 142.4
Corporate 2.0 .8 1.3 3.3 3.0
$315.1 $236.9 $291.1 $606.2 $448.9
</TABLE>
<TABLE>
BUSINESS SEGMENT HIGHLIGHTS (Continued):
<CAPTION>
Second Quarter First Quarter Year-to-date
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
EBIT:
Packaging $ 8.8 $ 4.7 $ 8.0 $16.8 $ 8.8
Kraft products 20.0 1.6 26.7 46.7 4.5
Tissue 11.4 13.3 8.9 20.3 20.5
Corporate (2.7) (4.0) (2.6) (5.3) (6.6)
$37.5 $15.6 $41.0 $78.5 $27.2
</TABLE>
Packaging shipments improved 11% and net sales improved 41%
over second quarter 1994, with volume and sales gains in all
three packaging businesses--corrugated shipping containers,
point-of-sale displays and consumer graphic packaging.
Shipments and sales of point-of-sale displays showed the most
improvement. "EBIT" (earnings before interest and taxes) for
second quarter 1995 was up 87% compared to second quarter 1994.
A successful start-up of Color-Box's new graphic packaging
manufacturing facility at Visalia, California, took place in late
second quarter 1995.
Kraft products net sales were a record, up 40% compared to
second quarter 1994. Sales prices were at record levels and were
the primary cause for the improvement in EBIT to $20.0 million
for second quarter 1995 versus $1.6 million for second quarter
1994. Production volume was strong for both years; however,
results of the second quarters of both 1995 and 1994 included
planned maintenance that lowered production. Shipments for the
second quarter of 1995 were 201,000 tons, 6% less than second
quarter 1994, due primarily to more extensive planned maintenance
in 1995, improvements in product mix and shipments from inventory
in 1994. Prices for recovered paper, a major raw material,
averaged 126% higher than in the second quarter of 1994.
Tissue shipments of 57,000 tons for the second quarter of
1995 were about the same as for the 1994 quarter. Second quarter
1995 sales were a record, up 17% from second quarter 1994.
Average sales prices were up 19% from second quarter 1994. EBIT
was down $1.9 million, compared to second quarter 1994, as
increases in recovered paper prices added $11 million in costs
versus last year's quarter.
2nd Quarter Year-to-date 1995 vs. 2nd Quarter Year-to-date 1994.
Net sales for the six months ended June 30, 1995, were
$606.2 million, a first half record and up 35% over net sales of
$448.9 million in the first half of 1994. Higher shipments for
the packaging and tissue segments and greatly improved selling
prices for all major products were responsible for the increase.
Year-to-date net income was $39.3 million, or $1.64 a
share, up 447% from $6.9 million, or $.30 a share, earned in the
first half of 1994. Included in 1995 results are pre-tax charges
of approximately $8 million for the enhanced hourly retirement
program in the kraft products segment and post-closing
obligations related to Chesapeake's former wood treating
business. Results for 1994 include a pre-tax charge of $4.9
million for the enhanced salaried retirement program in the kraft
products segment. Cost of products sold as a percentage of net
sales was 70% in 1995 and 74% in 1994 as a result of improved
sales prices and continued solid operating performance. Selling,
general and administrative expenses as a percentage of net sales
improved from 12% to 10%. Depreciation was up slightly over
1994. Other income was down $3.2 million from last year, as 1995
included the charge relating to the wood treating post-closing
obligations, while 1994 included a settlement gain, sale of land
no longer considered strategic and the sale of equipment no
longer used by the Company. Interest expense approximated prior
year levels.
Year-to-date packaging net sales for 1995 were up 43%
compared to 1994. Net sales of point-of-sales displays and
corrugated containers were up nearly 50%, while sales of graphic
packaging were up nearly 20%. Shipments were up for all three
packaging businesses. EBIT for 1995 was up 91% compared to the
first six months of 1994.
Kraft products net sales for 1995 were up 43% compared to
the first six months of 1994. Sales prices are at record levels
and averaged 56% higher than in the first half of 1994. Good
tons per day of production improved 2% over last year's excellent
production rate. Product mix improved with more shipments of
white top paper board and market pulp. Year-to-date shipments
were 412,000 tons, down 2% from the previous year, due to planned
maintenance, improved product mix and shipments from inventory in
1994. Recovered paper prices averaged 149% higher than the first
half of last year, adding approximately $18 million to costs.
First half tissue shipments of 109,000 tons were 3% higher
than 1994. First half net sales were a record, up 19%, due to
strong shipments, improved product mix and price increases.
Higher recovered paper costs added approximately $19 million in
additional costs compared to the first six months of 1994.
Year-to-date EBIT approximated 1994 levels despite these additional
costs.
2nd Quarter 1995 vs 1st Quarter 1995
Net sales for the second quarter of 1995 were up $24
million, or 8%, from net sales of $291.1 million for the first
quarter of 1995. This improvement was due to higher average
selling prices for all major product lines. First quarter is
normally the seasonally slowest for Chesapeake; however, strong
first quarter shipments lessened the normal seasonal volume
impact.
Net income for the second quarter of 1995 was down $2.3
million from net income of $20.8 million in the first quarter due
to the two pre-tax charges in the second quarter which totaled
approximately $8 million. Without these charges, net income
would have been 13% higher than the first quarter.
Net sales for the packaging segment were up 5% from the
first quarter of this year. Shipments approximated first quarter
levels. Rising containerboard prices caused margins to be under
pressure during much of the quarter, but an April 1 packaging
price increase began being realized late in the quarter. EBIT
was 26% higher than in the first quarter. Start-up of Color-Box's
new graphic packaging manufacturing facility at Visalia,
California, took place in late second quarter. Chesapeake
continues to upgrade and make improvements to this business
segment, with growth-related projects completed or underway at 10
of its 20 packaging facilities.
Shipments of kraft products were 5% lower than first
quarter's strong volume primarily due to extensive planned
maintenance in the second quarter. Net sales were 5% higher than
first quarter, as an increase in average sales prices of 12%
offset the lower shipments. Sales prices are at record levels.
Without the pre-tax charges related to the enhanced retirement
package for hourly employees and wood treating post-closing
obligations, EBIT for the kraft products segment would have been
up 1%, despite the planned maintenance outage. Recovered paper
prices began to moderate late in the quarter, but averaged 24%
higher than the first quarter.
Second quarter tissue shipments were up 9% and average
sales prices were up 6% compared to the first quarter, resulting
in a 16% increase in net sales for this segment. An additional
price increase of 10-12% was announced in June for shipments
beginning in July. Recovered paper costs for tissue grades have
begun to stabilize, but added approximately $3 million in costs
compared to the first quarter. EBIT for the tissue segment was
up $2.5 million, or 28%, compared to first quarter 1995. Growth
is expected in this business with the July 1995 start-up of the
Flagstaff, Arizona, mill purchased in May. Additionally, during
the second quarter, Chesapeake announced that it had signed a
letter of intent to acquire the Alsip, Illinois, mill of Chicago
Tissue Company L.P. See Note 3 of the Notes to Consolidated
Financial Statements included herein.
Sales and earnings are expected to continue to improve as
the Company moves into its seasonally strongest period of the
year.
Capital Expenditures
Capital expenditures for the first six months of 1995
totaled $78 million and included $10.5 million for the purchase
of the assets of the Flagstaff tissue mill. Capital expenditures
in 1995 have related primarily to the expansions of the packaging
and kraft businesses announced in 1994. Expenditures for capital
investments and acquisitions for the first half of 1994 were
approximately $54 million and included $32 million for the
acquisition of five packaging plants. Capital expenditures for
1994 (excluding acquisitions) were focused on maintenance and
reliability rather than growth projects. Capital expenditures
for 1995, not including the Flagstaff mill or possible
acquisitions, are expected to be approximately $125 million and
include the recently operational manufacturing plant located in
Visalia, California, for the Company's Color-Box graphic
packaging business; additional equipment at the existing Color-Box
plant in Richmond, Indiana; modernization of the North
Tonawanda, New York, corrugated container plant; and an upgrade
of the No. 2 paper machine at the West Point, Virginia. No other
1995 capital projects are individually more than 5% of the total
planned spending. Capital expenditures for 1995 are expected to
be financed with internally generated cash supplemented by
proceeds from borrowings.
Liquidity and Capital Structure
Working capital decreased $4.3 million during the second
quarter of 1995 to approximately year-end 1994 levels. Cash and
cash equivalents decreased $31.9 million during the quarter as
the Company used its temporary cash investments of $32 million.
Accounts receivable increased $17.0 million during the second
quarter due to higher sales; however, the average collection
period for the first half was down 1 day compared to 1994's first
half average. Inventories increased $8.1 million during the
second quarter of 1995 due to higher inventories of tissue
products and higher roll stock inventories for the packaging
segment, but the inventory turnover rate for the first half of
1995 was slightly better than the first half of last year.
Accounts payable and accrued expenses increased $7.6 million
during the quarter as a result of higher capital spending.
Income taxes payable decreased $8.1 million during the quarter
related to higher earnings and the timing of payments. The ratio
of current assets to current liabilities was 2.0 at the end of
the second quarter 1995 compared to 2.1 at both the end of the
first quarter of 1995 and year end 1994.
"EBIT + D" (earnings before interest and income taxes plus
non-cash charges for depreciation, cost of timber harvested and
amortization) was $56.5 million for the second quarter of 1995,
or 65% higher than $34.3 million for the second quarter of 1994.
Improved income before taxes was primarily responsible for this
increase. Year-to-date EBIT + D was $116.9 million, or 81%
higher than $64.5 million in 1994. Net cash provided by
operating activities for the second quarter was $18.6 million,
down from $28.1 million for the second quarter of 1994, primarily
because of higher receivables and tax payments related to
stronger sales and earnings. For the year-to-date, net cash
provided by operating activities was $55.7 million, or 88% higher
than $29.6 million for the first half of 1994. Improved earnings
were responsible for this increase.
At the end of the second quarter, long-term debt totaled
$359 million, or $5 million less than long-term debt of $364
million at both the end of the first quarter of 1995 and year-end
1994. Temporary cash investments decreased $32 million. The
reduction of investments and cash provided by operating
activities were used to finance working capital requirements and
capital investments during the first half of the year. On August
1, 1995, the Company repaid at maturity $50 million of 11.75%
notes with the proceeds of borrowings under lower cost credit
lines. The ratio of long-term debt to total capital improved to
40% at the end of the second quarter, compared to 41% at the end
of the first quarter of 1995 and 44% at the end of the second
quarter of 1994.
Environmental Matters
See Notes 4 and 6 of the Notes to Consolidated Financial
Statements included herein.
PART II
Item 1. Legal Proceedings
Reference is made to Note 4 of the Notes to
Consolidated Financial Statements included herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11.1 - Computation of Net Income Per Share
of Common Stock
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CHESAPEAKE CORPORATION
(Registrant)
Date: August 14, 1995 BY: /s/Christopher R. Burgess
Christopher R. Burgess
Controller
Date: August 14, 1995 BY: /s/Andrew J. Kohut
Andrew J. Kohut
Group Vice President - Finance &
Strategic Development &
Chief Financial Officer
EXHIBIT INDEX
Page
Exhibit 11.1
Computation of Net Income per Share of
Common Stock 21
Exhibit 27.1
Financial Data Schedule 22
EXHIBIT 11.1
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
FOR THE SECOND QUARTER AND YEAR TO DATE
ENDED JUNE 30, 1995 AND 1994
<CAPTION>
(Share amounts in thousands, dollar amounts in millions,
except for per share amounts)
Second Quarter Year to Date
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary:
Weighted average number of common
shares outstanding 23,823 23,455 23,791 23,453
Net additions to common shares
assuming exercise of dilutive
options, determined by treasury
stock method 226 154 241 147
Common shares and equivalents 24,049 23,609 24,032 23,600
Net Income $ 18.5 $ 4.9 $ 39.3 $ 6.9
Per share amount $ .77 $ .21 $ 1.64 $ .30
Fully diluted:
Common shares and equivalents 24,049 23,609 24,032 23,600
Net additional common shares
issuable upon exercise of
dilutive options, determined
by treasury stock method using
period end market price, if
higher than average price 8 17 4 20
Common shares, equivalents and
other potentially dilutive
securities 24,057 23,626 24,036 23,620
Net income for fully diluted
computation $ 18.5 $ 4.9 $ 39.3 $ 6.9
Per share amount $ .77 $ .21 $ 1.64 $ .30
</TABLE>
NOTE: (a) Dilution is less than 3%
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000019731
<NAME> CHESAPEAKE CORP /VA/
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 600,000
<SECURITIES> 0
<RECEIVABLES> 151,700,000
<ALLOWANCES> 4,400,000
<INVENTORY> 111,700,000
<CURRENT-ASSETS> 283,400,000
<PP&E> 1,305,500,000
<DEPRECIATION> 659,500
<TOTAL-ASSETS> 1,058,800,000
<CURRENT-LIABILITIES> 138,800,000
<BONDS> 359,100,000
<COMMON> 23,800,000
0
0
<OTHER-SE> 401,000,000
<TOTAL-LIABILITY-AND-EQUITY> 1,058,800,000
<SALES> 606,200,000
<TOTAL-REVENUES> 612,000,000
<CGS> 426,900,000
<TOTAL-COSTS> 528,800,000
<OTHER-EXPENSES> 4,400,000
<LOSS-PROVISION> 300,000
<INTEREST-EXPENSE> (16,100,000)
<INCOME-PRETAX> 62,400,000
<INCOME-TAX> 23,100,000
<INCOME-CONTINUING> 39,300,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,300,000
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
</TABLE>
