FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 theI.R.S. Employer
laws of VirginiaIdentification
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, 23,102,561 shares.
Page 1 of 33 Pages.
PART I
<TABLE>
Item 1. Financial Statements.
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THIRD QUARTER AND YEAR TO DATE ENDED
SEPTEMBER 30, 1997 AND 1996
<CAPTION>
Third Quarter Year to Date
1997 1996 1997 1996
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net sales $233.7 $309.3 $792.5 $863.6
Costs and expenses:
Cost of products sold 165.6 224.3 590.5 629.5
Depreciation and cost
of timber harvested 14.2 22.2 60.7 66.0
Selling, general and
administrative expenses 36.4 38.1 118.9 112.4
Restructuring/special charges - - 18.9 -
Income from operations 17.5 24.7 3.5 55.7
Gain on sale of businesses - - 86.3 -
Other income and expenses, net (0.8) (0.8) 2.3 3.3
Interest expense, net (2.2) (8.7) (18.5) (24.9)
Income before taxes and
extraordinary item 14.5 15.2 73.6 34.1
Income taxes 4.8 5.7 30.3 12.8
Income before extraordinary
item 9.7 9.5 43.3 21.3
Extraordinary item, net of
income tax - - (2.3) -
Net income $ 9.7 $ 9.5 $ 41.0 $ 21.3
Per share:
Earnings before extraordinary
item $0.41 $0.40 $ 1.83 $ .90
Extraordinary item, net of
income taxes - - (0.10) -
Earnings $0.41 $0.40 $ 1.73 $ .90
Weighted average number of
common shares and
equivalents outstanding 23.7 23.5 23.7 23.7
Cash dividends declared per
share of common stock $0.20 $0.20 $0.60 $ .60
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Sept. 30, 1997Dec. 31, 1996
<CAPTION> (In millions)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $135.7 $ 9.8
Accounts receivable, less
allowances for doubtful
accounts of $4.8 and $4.7 132.3 153.9
Inventories, at lower of cost
or market 99.5 134.4
Deferred income taxes 15.7 16.5
Other 6.1 11.2
Total current assets 389.3 325.8
Property, plant and equipment, at cost:
Land, buildings, machinery
and equipment 832.1 1,580.0
Less accumulated depreciation (362.1) (756.3)
470.0 823.7
Timber and timberlands, net 39.4 39.8
Net property, plant and equipment 509.4 863.5
Goodwill, net 44.7 58.3
Other assets 47.4 42.6
$990.8$1,290.2
<S> <C> <C>
Sept. 30, 1997Dec. 31, 1996
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $142.2 $ 157.6
Current maturities of long-term debt 0.7 3.9
Dividends payable 4.6 4.7
Income taxes payable 11.4 0.6
Total current liabilities 158.9 166.8
Long-term debt 266.0 499.4
Postretirement benefits other than pensions 16.5 28.0
Deferred income taxes 66.9 126.9
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 23,102,561 and
23,398,137 shares 23.1 23.4
Additional paid-in capital 85.3 97.2
Foreign currency translation adjustment (1.4) -
Retained earnings 375.5 348.5
482.5 469.1
$990.8 $1,290.2
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR TO DATE ENDED SEPTEMBER 30, 1997 AND 1996
<CAPTION>
1997 1996
<S> (In millions)
Operating activities <C> <C>
Net income $ 41.0 $ 21.3
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, cost of timber harvested and
amortization of intangibles 63.4 68.2
Deferred income taxes (62.5) 6.6
(Gain) loss on sale of property, plant and equipment 0.3 (0.2)
Gain on sale of businesses (86.3) -
Restructuring/special charges 18.9 -
Extraordinary item 4.0 -
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (23.9) (5.0)
Inventories (3.4) 3.0
Other assets 3.7 8.5
Accounts payable and accrued expenses 6.4 1.8
Income taxes payable 5.7 (3.9)
Other payables 3.3 1.6
Net cash (used in) provided by operating activities (29.4) 101.9
Investing activities
Purchases of property, plant and equipment (53.8) (102.6)
Acquisitions (0.7) (39.4)
Proceeds from sale of property, plant and equipment 0.7 0.2
Proceeds from sale of businesses, net of disposition
expenses 472.1 -
Other (0.4) -
Net cash provided by (used in) investing activities 417.9 (141.8)
Financing activities
Net borrowings (payments) on credit lines (169.2) 70.7
Payments on long-term debt (64.5) (3.9)
Proceeds from long-term debt 0.5 10.5
Proceeds from issuances of common stock 1.3 -
Purchases of outstanding common stock (16.6) (15.2)
Dividends paid (14.1) (14.2)
Net cash provided by (used in) financing activities (262.6) 47.9
Increase in cash and cash equivalents 125.9 8.0
Cash and cash equivalents at beginning of period 9.8 5.2
Cash and cash equivalents at end of period $135.7 $ 13.2
Supplemental cash flow information:
Interest payments $ 26.0 $ 23.3
Income tax payments, net of refunds $ 77.0 $ 8.6
</TABLE>
See accompanying notes.
CHESAPEAKE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements of Chesapeake
Corporation and subsidiaries (the "Company") included herein are
unaudited, except for the December 31, 1996 consolidated balance
sheet, and have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. In the
opinion of management, the condensed consolidated financial
statements 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. These
condensed consolidated financial statements should 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 1997 interim period should not be regarded as
necessarily indicative of the results that may be expected for the
entire year.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." This standard, which is effective for financial statements
issued for periods ending after December 15, 1997, simplifies the
computation of earnings per share ("EPS") by replacing the
presentation of primary EPS with a presentation of basic EPS. This
standard requires dual presentation of basic and diluted EPS by
entities with complex capital structures. Basic EPS includes no
dilution, while diluted EPS reflects potential dilution of
securities that could share in the earnings of an entity. The
Company does not expect the impact of this standard to be material
to its financial statements or earnings.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure." This standard, which is
effective for financial statements for periods ending after
December 15, 1997, establishes standards for disclosing information
about an entity's capital structure, including rights and
privileges of the various securities outstanding. The Company does
not expect the impact of this statement to be material to its
financial statements.
In June, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." This standard, which is effective for
fiscal years beginning after December 15, 1997, requires the
reporting of comprehensive income and its components in a full set
of general-purpose financial statements in a statement displayed
with the same prominence as other financial statements.
Comprehensive income includes all changes in equity during a period
except those resulting from investment by owners or distributions
to owners. This includes items that now bypass the income
statement and are shown as a separate component of equity. The
Company does not expect the impact of this statement to be material
to its financial statements or earnings.
In June, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related
Information." This standard, which is effective for financial
statements for periods beginning after December 15, 1997,
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that selected operating segment information
be reported in interim financial statements. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. Segments are generally
required to be reported based on the way management internally
organizes its segments for making operating decisions and assessing
performance. While more disclosure and descriptive information
will be required regarding its operating segments, the Company
already uses the "management" approach in reporting its segments and
includes certain segment information with its interim financial
statements.
<TABLE>
2. Inventories:
Sept. 30, 1997Dec. 31, 1996
(In millions)
<CAPTION>
<S> <C> <C>
Inventories consist of:
Finished goods $34.3 $ 44.1
Work in process 32.3 35.9
Materials and supplies 32.9 54.4
Totals $99.5 $134.4
</TABLE>
3.Commitments:
At September 30, 1997, commitments, primarily for capital
expenditures, approximated $45 million. These commitments include
anticipated expenditures of $2 million in 1997 for environmental
protection related to planned expansions and upgrades primarily at
the Company's paper mills in Arizona and Wisconsin. The remaining
commitments of $43 million are primarily for various capital
projects, none of which is individually material.
Additional non-determinable environmental protection expenditures
could be required in the future if facilities are expanded or if
more stringent standards become applicable. See Note 6.
4.Litigation:
Wisconsin Tissue ("WT"), a wholly-owned subsidiary of the Company,
has been identified by the federal government and the state of
Wisconsin as a potentially responsible party with respect to
possible natural resource damages in the Fox River and Green Bay
System. Color-Box, Inc., a wholly-owned subsidiary of the Company,
has been notified by the federal government that it may be a
potentially responsible party with respect to the PCB Treatment,
Inc., Superfund sites in Kansas and Missouri. See Note 6 for
further information regarding these notices.
On May 13, 1997, the Attorney General of Florida filed a civil
complaint against WT alleging violations of antitrust laws. The
complaint also sues nine other commercial and industrial tissue
manufacturers and seeks compensatory monetary damages, civil
penalties, and injunctive relief. At least 35 other private civil
antitrust class actions have also been filed against WT (or against
the Company, identifying WT as a "division" of the Company), and
against the other defendants. No discovery has been conducted to
date. WT and the Company believe that they have valid defenses to
the plaintiffs' claims, and they intend to defend the actions
vigorously.
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.
5.Income Taxes:
The Company's effective income tax rate was 41.2% for the first
three quarters of 1997 compared to 37.5% for the first three
quarters of 1996. 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 one-time second quarter 1997
dispositions and restructuring charges and from acquisitions.
6. Environmental Matters:
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.
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 hazardous substances into the
environment. Financial responsibility for the clean-up or other
remediation of contaminated property or for natural resource
damages can extend to previously owned or used properties,
waterways, and properties owned by third parties, as well as to
properties currently owned and used by a company even if
contamination is attributable entirely to prior owners. On June
18, 1997, The U.S. Environmental Protection Agency ("EPA") announced
that it was initiating the process of listing the lower Fox River
on the CERCLA National Priorities List of hazardous waste sites.
EPA identified several possible PRP's including WT. EPA has
requested the participation of the PRP's in performing a remedial
investigation/feasibility study of the lower Fox River site. WT
and other PRP's are in the process of negotiating the terms of
their possible involvement in preparation of the remedial
investigation/feasibility study.
In June 1994, the United States Departmment of Interior, Fish
and Wildlife Service ("FWS"), a federal natural resources
trustee, notified WT that it had identified WT 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. Two
other companies subsequently received similar notices from the
FWS. The FWS and other governmental and tribal entities,
including the State of Wisconsin, allege that natural
resources, including endangered species, fish, birds, tribal
lands, or lands held by the United States in trust for various
Indian tribes, have been exposed to PCBs that were released
from facilities located along the lower Fox River. The FWS is
proceeding with a natural resource damage assessment with respect
to the alleged discharges and, on January 31, 1997, the FWS
notified WT of its intent to file suit, subject to final approval
by the Department of Justice, against WT to recover alleged
natural resource damages. WT and other PRPs
are engaged in discussions with the parties asserting federal
trusteeship of the natural resources concerning the damage
assessment and the basis for resolution of the federal natural
resource damage claims.
WT and other PRPs are also engaged in discussions with the State of
Wisconsin with respect to resolving possible state claims
concerning remediation, restoration, and natural resource damages
related to the alleged discharge of PCBs into the Fox River and
Green Bay System. On January 31, 1997, the PRPs signed an interim
partial settlement with the State of Wisconsin under which the PRPs
will provide funds for an interim phase of resource damage
assessment and restoration work. WT's obligation under the interim
settlement would not be material to the Company's financial
position or results of operations.
The ultimate cost to WT, if any, associated with the foregoing
matter cannot be predicted with certainty at this time, due to: the
inability to determine the outcome of pending settlement
discussions or, if a settlement cannot be reached, WT's share of
any multi-party clean-up; the uncertain extent of any
contamination; the varying costs of alternative restoration
methods; the evolving nature of clean-up technologies and
governmental regulations; the lack of controlling legal precedent;
the extent to which contribution will be available from other
parties; and the scope of potential recoveries from insurance
carriers and prior owners of WT. Based on 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 final settlement. The Company
believes that it is entitled to indemnification from a prior owner
of WT, pursuant to a stock purchase agreement between the parties,
with respect to liabilities related to this matter. The prior
owner has reimbursed WT for out-of-pocket costs and attorneys' fees
related to investigation of the matter. The Company believes that
the prior owner intends to, and has the financial ability to, honor
its indemnification obligation under the stock purchase agreement.
In October, 1997, the EPA notified the Company's Color-Box, Inc.,
subsidiary that EPA believes that Color-Box may be a PRP in
connection with the PCB Treatment, Inc. sites in Kansas and
Missouri. Because the notice on the PCB Treatment, Inc. site has
only been recently received, the Company has not yet this matter,
but over 1,500 parties have been identified that evaluated the
potential liability, if any, associated with allegedly sent
hazardous materials to the sites, and preliminary indications are
that Color-Box shipped only minimal hazardous materials to the
sites and may qualify as a de minimis contributor with minimal
financial responsibilities.
Except for the WT and Color-Box matters discussed above, 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 operation.
In March 1995, the 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.
The State of Wisconsin has modified state regulations to comply
with the Final Guidance, but the application of these regulations
to WT's mill in Menasha, WI, has not been determined by the State
of Wisconsin. Based on the anticipated effect of these regulations
on WT's mill, WT does not anticipate significant capital
expenditures or additional operating costs as a result of complying
with the modified regulations.
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
definitive Cluster Rules, when promulgated, are expected to require
compliance within three years after the date of adoption. Based on
the Company's preliminary estimates, if the Cluster Rules were
adopted in substantially the form currently proposed, compliance
would require capital expenditures totaling not more than
approximately $5 to 6 million at the Company's largest paper mill
located in Menasha, WI. 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.
7.Recent Developments:
On May 23, 1997, Chesapeake Corporation ("Chesapeake") completed the
sale to St. Laurent Paperboard (U.S.) Inc. ("St. Laurent (U.S.)"),
a wholly-owned subsidiary of St. Laurent Paperboard Inc. (Toronto
and Montreal: SPI), of : (i) the sole membership interest in
Chesapeake Paper Products Company LLC (successor to Chesapeake
Paper Products Company), a wholly-owned subsidiary of Chesapeake
which, as of the closing date, owned and operated Chesapeake's
kraft products mill located in West Point, VA (the "West Point
Mill"); (ii) all of the capital stock of Chesapeake Box Company
which, as of the closing date, owned and operated directly or
through a subsidiary substantially all of the assets of four of
Chesapeake's corrugated box plants; and (iii) all of the capital
stock of Chesapeake Fiber Company which, as of the closing date,
owned and operated directly or through a subsidiary certain assets
related to the West Point Mill's wood procurement operations. The
four box plants involved in the transaction are located in
Richmond, VA; Roanoke, VA; Baltimore, MD; and North Tonawanda, NY.
The purchase price of approximately $500.0 million was paid in cash
at closing, with a post-closing adjustment of approximately $10
million paid to the buyer. The transaction resulted in an after-
tax gain for Chesapeake of $49.1 million, or $2.07 a share,
recorded in the second quarter of 1997. Chesapeake used about half
of the proceeds ($250 million) to reduce debt, and plans to use the
remainder of the net after tax proceeds to repurchase its common
stock and finance growth opportunities internally and through
acquisitions in the packaging and tissue businesses.
During the second quarter, the Company decided to restructure its
Specialty Packaging and Merchandising Services business. The
restructuring includes management reorganization and the closing of
the Sandusky, OH, point-of-sale display facility and the Buffalo,
NY, consumer graphic packaging facility. The intent of these moves
is to eliminate redundant overhead and processes, improve
geographic efficiency and reduce fixed costs. The plant closings
resulted in a one-time second quarter charge. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
During the third quarter, the Company repurchased 481,838 shares of
its common stock for an aggregate purchase price of $16.6 million
in accordance with its announced authorization to repurchase up to
two million shares over the next year. Since the end of the third
quarter the Company repurchased the remainder of the two million
shares covered by such authorization.
<TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
BUSINESS SEGMENT HIGHLIGHTS
<CAPTION>
Third QuarterSecond QuarterYear-to-date
19971996199719971996
<S> <C> <C> <C> <C> <C>
Net Sales:
Tissue $108.8 $104.7 $102.0 $305.5 $299.1
Specialty packaging 114.3 101.8 97.1 305.2 258.1
Forest products/
land development 10.6 6.6 9.2 26.3 17.5
Ongoing operations 233.7 213.1 208.3 637.0 574.7
Divested businesses - 96.2 56.0 155.5 288.9
$233.7 $309.3 $264.3 $792.5 $863.6
EBIT:
Tissue $14.3 $19.5 $ 13.5 $ 41.0 $ 52.1
Specialty packaging 4.7 5.6 (0.6) 2.1 12.7
Forest products/
land development 3.0 2.9 2.9 8.6 5.6
Corporate (5.3) (2.4) (3.4) (12.7) (10.4)
Ongoing operations 16.7 25.6 12.4 39.0 60.0
Divested businesses - (1.7) (8.3) (14.3) (1.0)
Gain on sale of
businesses - - 86.3 86.3 -
Restructuring/
special charges - - (18.9) (18.9) -
$16.7 $23.9 $71.5 $92.1 $59.0
</TABLE>
3rd Quarter 1997 vs. 3rd Quarter 1996
Net income for the three months ended September 30, 1997, was $9.7
million, or $.41 a share, compared with 1996 third-quarter net income of
$9.5 million, or $.40 a share.
Net income from ongoing operations for the third quarter of 1996 on
a pro forma basis (after giving effect to the May 23, 1997, sale of the
West Point, VA, kraft mill and related assets and the application of the
net proceeds to reduce long-term debt), was $13.9 million, or $.59 a
share.
Net sales for the three months ended September 30, 1997, were
$233.7 million, compared with third-quarter 1996 net sales of $309.3
million. Third quarter 1997 net sales from ongoing operations of $233.7
million were up 10% from third-quarter 1996 ongoing net sales of $213.1
million. This increase in net sales from ongoing operations was
primarily the result of growth in unit volume.
Net sales for the tissue segment of $108.8 million for third
quarter 1997 were a record, up 4% from third quarter 1996. Shipments of
converted tissue products were 72,057 tons, a 3% increase over third
quarter last year. For the 1997 quarter, 88% of tissue shipments were
converted products, up from 85% for the third quarter last year. EBIT
for the tissue segment for the third quarter of 1997 of $14.3 million
was down 27% compared to the third quarter of last year. The third
quarter 1997 segment operating margin of 13% was down substantially from
last year's peak of 18%, primarily due to a reduction in average selling
prices and increased fiber costs. Mexican tissue operations were
profitable for the 1997 quarter despite absorbing significant costs for
a scheduled and successfully completed facility consolidation.
Net sales from ongoing operations for the specialty packaging
segment for the third quarter of 1997 of $114.3 million were up 12%
compared to the third quarter of 1996 due to 13% growth in unit volume
and the Chesapeake Europe acquisition in third quarter 1996. Improvement
in net sales was realized by each of the three speciality packaging
businesses: display and packaging, Europe and shipping containers. The
increase in net sales was partially offset by lower pricing in most
product lines. EBIT of $4.7 million for this segment in the third
quarter of 1997 was 16% less than EBIT of $5.6 million in third quarter
1996 due to lower pricing and underutilization of manufacturing
capacity.
Net sales for the forest products/land development segment for the
third quarter of 1997 were $10.6 million, up 61% from net sales of $6.6
million in the third quarter of 1996. EBIT for the quarter was $3.0
million compared to $2.9 million in the third quarter of last year.
3rd Quarter Year-to-date 1997 vs. 3rd Quarter Year-to-date 1996
Net income for the nine months ended September 30, 1997, was $41.0
million, or $1.73 a share, compared with 1996 third quarter year-to-date
net income of $21.3 million, or $.90 a share. Results for 1997 included
the after-tax gain of $49.1 million, or $2.07 a share, from the sale of
the West Point mill and related assets. Also included in 1997's results
were second quarter restructuring and special charges of $10.8 million
after tax, or $.45 a share, and an extraordinary loss on repurchase of
debt of $2.3 million after tax, or $.10 a share.
Net income from ongoing operations on a pro forma basis (after
giving effect to the sale of the West Point mill and related assets and
the application of the net proceeds to reduce long-term debt, and
excluding the special charges and extraordinary loss recorded in 1997),
was $18.8 million, or $.79 a share, for the first nine months of 1997,
compared to $32.0 million, or $1.35 a share, pro forma, in the first
nine months of 1996.
Net sales for the nine months ended September 30, 1997, were $792.5
million, compared with net sales of $863.6 million for the first nine
months of 1996. Third-quarter 1997 year-to-date net sales from ongoing
operations were $637.0 million, up 11% from third quarter year-to-date
1996 ongoing net sales of $574.7 million. This increase in net sales
from ongoing operations was primarily the result of improved volume
during 1997 and acquisitions completed in the second half of 1996.
Net sales for the tissue segment of $305.5 million for the first
nine months of 1997 were up 2% from the first nine months of 1996.
Shipments of converted tissue products were 201,033 tons, a 7% increase
over last year. EBIT for the tissue segment for the first nine months
of 1997 of $41.0 million was down 21% compared to the first nine months
of last year. Average selling prices were down 4% from last year.
Mexican tissue operations were profitable for the 1997 year-to-date
period.
Net sales from ongoing operations for the specialty packaging
segment for the first three quarters of 1997 were up 18% compared to the
first three quarters of 1996 primarily due to growth in unit volume and
acquisitions completed in the second half of 1996. The increase was
partially offset by lower pricing in most product lines. EBIT from
ongoing operations for this segment was $2.1 million compared to $12.7
million last year due to lower prices and underutilization of
manufacturing capacity.
Net sales of the forest products/land development segment for the
first three quarters of 1997 of $26.3 million improved 50% over 1996,
while EBIT was $8.6 million compared to $5.6 million last year.
Improvements were due to a substantial increase in lumber shipments,
higher sales of pulpwood and chips to the West Point mill, favorable
lumber pricing, and improvements in sawmill efficiency.
3rd Quarter 1997 vs 2nd Quarter 1997
Net income for third quarter 1997 was $41.0 million, or $1.73 a
share, compared with a 1997 second quarter net income of $34.8 million,
or $1.47 a share. Results for the second quarter of 1997 included an
after-tax gain of $49.1 million, or $2.07 a share, from the sale of the
West Point mill and related assets. The second quarter results also
included restructuring and special charges of $10.8 million after tax,
or $.45 a share, and an extraordinary loss on repurchase of debt of
$2.3 million after tax, or $.10 a share.
Net income from ongoing operations for the second quarter 1997 on
a pro forma basis (after giving effect to the sale of the West Point
mill and related assets as if it had occurred as of the beginning of
1997 and to the application of the net proceeds to reduce long-term
debt, and excluding the special charges and extraordinary loss recorded
in the second quarter 1997), was $5.4 million, or $.23 a share.
Net sales for the quarter ended September 30, 1997, were $233.7
million, compared with net sales of $264.3 million in the second
quarter. Third quarter 1997 net sales from ongoing operations were
$233.7 million, up 12% from second-quarter 1997 ongoing net sales of
$208.3 million.
Net sales for the tissue segment of $108.8 million for the third
quarter of 1997 were up $6.8 million, or 7%, from second quarter 1997.
Shipments of converted tissue products were up 8%. EBIT for the tissue
segment for the third quarter of 1997 was up 6% compared to last
quarter. Tissue EBIT for the third quarter was impacted by higher
wastepaper pricing and start-up costs associated with increased
converting capacity. Mexican tissue operations were again profitable,
but EBIT was lower than second quarter 1997 due to significant costs for
a scheduled and successfully completed facility consolidation.
Net sales from ongoing operations for the specialty packaging
segment for the third quarter of 1997 were up 18% compared to the second
quarter of 1997, as volume was up 11%. Higher margins and improved
manufacturing efficiencies resulted in EBIT of $4.7 million for the
third quarter of 1997, compared to a loss of $.6 million in the second
quarter of 1997.
Net sales of the forest products/land development segment for the
third quarter of 1997 improved $1.4 million, or 15%, over the second
quarter, while EBIT was $3.0 million compared to $2.9 million last
quarter. Improvements were primarily due to higher volume.
Capital Expenditures
Capital expenditures and acquisitions for the first nine months of
1997 totaled $54.5 million and related primarily to strategic
initiatives in the packaging and tissue businesses. Capital
expenditures and acquisitions in 1996 totaled $142.0 million and also
included strategic initiatives in the packaging and tissue businesses,
capital spending in divested business, and the acquisitions of the
Display Division of Dyment Limited and Chesapeake Europe. Capital
expenditures and acquisitions for 1997 are expected to be approximately
$80 million. These initiatives include: new tissue converting equipment
at the Bellemont, AZ, and Greenwich, NY, facilities; and expansion of
the Erlanger, KY, display and packaging plant. These projects are
consistent with Chesapeake's strategy of expanding the packaging and
tissue businesses, reducing costs, and focusing capital spending on
projects that generate a high return on investment. No other 1997
capital project is expected to account for more than 5% of the total
planned spending. Capital expenditures and acquisitions for 1997 are
expected to be financed with internally generated cash and the net
proceeds from the sale of the West Point mill and related assets.
Liquidity and Capital Structure
Working capital decreased $26.4 million during the third quarter of
1997. The decrease was primarily due to the decrease in cash and cash
equivalents resulting from the repurchase of Company stock, and tax
payments of $75.6 million offset in part by an increase in accounts
receivable. The average accounts receivable collection period for the
first nine months of 1997 has improved one day over the first nine
months of 1996. The inventory turnover rate for the first nine months
of 1997 was approximately the same as the first nine months of last
year. The ratio of current assets to current liabilities was 2.4 at the
end of the third quarter of 1997 compared to 2.1 at the end of the
second quarter of 1997 and 2.0 at year end 1996.
EBITDA, a measure of internal cash flow combining earnings before
interest and income taxes plus non-cash charges for depreciation, cost
of timber harvested and amortization, was $31.9 million for the third
quarter of 1997. This was 32% lower than EBITDA of $46.9 million for
the third quarter of 1996. Year-to-date EBITDA was $88.1 million, or
31% less than EBITDA of $127.2 million in the third quarter of 1996, not
including the second quarter 1997 one-time gain on the sale of
businesses, restructuring/special charges, or extraordinary item. Net
cash used by operating activities for the third quarter was $75.6
million, down from $34.1 million of net cash provided by operating
activities for the third quarter of 1996 primarily due to income tax
payments related to the sale to St. Laurent. Year-to-date net cash used
by operating activities was $29.4 million compared to $101.9 million of
net cash provided by operating activities for the first nine months of
1996.
At the end of the third quarter of 1997, long-term debt totaled
$266.0 million, or $233.4 million lower than long-term debt at year-end
1996. The decrease in borrowings resulted from the use of about half of
the proceeds ($250 million) from the second quarter sale of businesses
to reduce debt. During the second quarter, Chesapeake paid down its
bank credit lines, repaid a term loan that was due in the year 2000, and
repurchased in open market transactions $26 million of its 9.875% notes
due in 2003. An after-tax extraordinary loss of $2.3 million was
recorded in the second quarter to recognize the premium paid to
extinguish this debt. The ratio of long-term debt to total capital was
33% at the end of the third quarter, compared to 32% at the end of the
second quarter of 1997 and 45% at the end of the third quarter of 1996.
The ratio of long-term debt to stockholders' equity was 55% at the end
of the third quarter of 1997, compared to 54% at the end of the second
quarter of 1997 and 110% at the end of the third quarter of 1996. Out
of a total of $68.5 million committed and $120 million uncommitted
domestic and foreign credit lines available at the end of the third
quarter of 1997, $10 million were utilized.
Foreign currency transactions and financial statements of foreign
subsidiaries are translated into U.S. dollars at prevailing or current
rates respectively, except for revenue, costs and expenses, which are
translated at average current rates during each reporting period. Gains
and losses resulting from foreign currency transactions are included in
income currently. Transaction gains and losses of subsidiaries
operating in hyper-inflationary economies are included in net income
currently.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" may include "forward-looking statements" that are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Changes in the following important
factors, among others, could cause Chesapeake's actual results to differ
materially from those expressed in the forward-looking statements:
competitive products and pricing; production costs, particularly for raw
materials such as waste paper and corrugated box and display materials;
fluctuations in demand; governmental policies and regulations affecting
the environment; interest rates; currency translation movements; and the
availability of suitable acquisition candidates.
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 10.1 - Agreement between Chesapeake
Corporation and Thomas H. Johnson
dated as of July 17, 1997
Exhibit 11.1 - Computation of Net Income Per
Share of Common Stock
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CHESAPEAKE CORPORATION
(Registrant)
Date: November 13, 1997BY: /s/William T. Tolley
William T. Tolley
Chief Financial Officer
EXHIBIT INDEX
Page
Exhibit 10.1
Agreement between Chesapeake Corportion
and Thomas H. Johnson dated as of July 17, 199722
Exhibit 11.1
Computation of Net Income per Share of
Common Stock33
EXHIBIT 10.1
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT (the "Agreement"),
dated as of July 17, 1997, between CHESAPEAKE CORPORATION, a Virginia
corporation (the "Company"), and THOMAS H. JOHNSON (the "Executive").
WHEREAS, the Board of Directors and the Executive Compensation
Committee (the "Committee") of the Board of Directors of the Company
expect that the Executive will make substantial contributions to the
future growth and prospects of the Company; and
WHEREAS, the Board and the Committee desire to obtain for the
Company the services of the Executive; and
WHEREAS, the Executive desires to be employed by the Company and to
remain in the employ of the Company during the term of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto covenant
and agree as follows:
1.Definitions. When used in this Agreement, the following terms
shall have the meanings specified:
(a)Cause. "Cause," when referring to a termination of employment,
shall mean: (i) conviction by a court of competent jurisdiction for, or
pleading no contest to, a felony; (ii) breach of any material obligation
to the Company under any material agreement concerning any term of
employment; or (iii) willful neglect of duties to the Company which is
not corrected within 30 days after written notice from the Company, or
willful and material misconduct in the performance of such duties. All
determinations as to whether a termination of employment is for Cause
shall be made in good faith by the Board of Directors of the Company and
shall be binding on the parties hereto.
(b)Change in Control. "Change in Control" shall have the meaning
given in the Chesapeake Corporation Salaried Employees' Benefits
Continuation Plan, as such plan may be amended from time to time.
(c)Code. "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(d)Disability. "Disability" shall mean a condition, determined on
the basis of medical evidence satisfactory to a physician (whose
specialty is in the subject area) designated by the Committee or by the
Board of Directors of the Company, rendering the Executive, due to
bodily injury or disease or mental illness, unable to perform the duties
pertaining to his employment with the Company on a full-time basis for
180 consecutive days.
2. Term. Subject to Section 7 hereof, the term of this Agreement (the
"Employment Term") shall commence on August 1, 1997, and shall continue
in full force and effect through July 31, 2000; provided, however, that
on July 31, 1998, and on July 31 thereafter, the Employment Term shall
be extended by one year from the then-effective expiration date (with
the result that the remaining Employment Term shall at no time be less
than two years).
3.Employment; Duties; Election to the Board of Directors.
(a) The Company agrees to employ the Executive throughout the
Employment Term as its President and Chief Executive Officer, with a job
description, responsibilities and duties commensurate with such
position; provided, however, that the Company may terminate the
Executive's employment hereunder at any time in accordance with Section
7 hereof. In consideration of the Company's obligations under this
Agreement, the Executive agrees that throughout the Employment Term he
will devote his full business time and attention to service to the
Company and its subsidiaries commensurate with his position. As part of
the Executive's business efforts and duties on behalf of the Company, he
may participate in social, charitable and civic activities and, if
specifically approved by the Board of Directors of the Company, he may
serve on the boards of directors of other companies, provided that such
activities do not interfere with the performance of, and do not involve
a conflict of interest with, his duties and responsibilities hereunder.
(b) The Board of Directors of the Company agrees to elect the
Executive to such Board as of the commencement of the Employment Term
and, so long as the Employment Term remains in effect, to (i) nominate
the Executive for re-election to such Board at the 1998 annual meeting
of shareholders and at each subsequent annual meeting of shareholders at
which the Executive's term as a Director would otherwise expire, and
(ii) use its best efforts to cause the Executive to be duly elected to
such Board at each such annual meeting of shareholders.
4.Compensation. The Company agrees that, throughout the Employment
Term and subject to Section 7 hereof, it shall:
(a)Pay the Executive as compensation for his services hereunder an
annual base salary of not less than Five Hundred Thousand Dollars
($500,000) (it being understood that the parties contemplate a good
faith review of such base salary on an annual basis for possible
increase in light of business conditions, competitive considerations,
increases given to other employees of the Company and the Executive's
performance). Such base salary shall be payable in equal periodic
installments, not less frequently than monthly, less any sums which may
be required to be deducted or withheld under applicable provisions of
law. The base salary for any partial year shall be prorated in
accordance with the Company's normal policies for salaried employees.
(b)Provide for the benefit of the Executive such vacation, pension
and disability benefits as are, and such coverage under life, accident,
medical and dental plans as is, generally provided from time to time to
the Company's senior executive employees.
(c)Permit the Executive to participate in the Company's Executive
Supplemental Retirement Plan, Deferred Compensation Program, 401(k)
Restoration Plan, Financial Planning and Tax Preparation Program and
Runzheimer automobile reimbursement policy (or such comparable successor
plans and programs as the Company may maintain for its senior executive
officers from time to time).
(d)Reimburse the Executive for his initiation and annual membership
fees for membership in a country club and a dining club located in the
Richmond, Virginia, metropolitan area in accordance with the Company's
reimbursement policies.
5.Annual Incentive Compensation.
In addition to the foregoing compensation and benefits and subject
to Section 7 hereof, the Company agrees to permit the Executive to
participate in the Company's Officers' Incentive Program (or such
comparable successor program that may be in effect from time to time),
with a target incentive amount of 60% of base salary and a maximum
incentive opportunity of 120% of base salary (it being understood that
the Executive's annual incentive compensation pursuant to this Section
for the remainder of 1997 and for 1998 shall not be less than $100,000
and $200,000, respectively).
6.Long-Term Incentive Compensation.
(a)On or about August 11, 1997, the Company shall make the
following grants to the Executive under the Chesapeake Corporation 1997
Incentive Plan: (i) 10,000 shares of restricted stock, with one-half of
such shares to vest and become freely transferable on each of the second
and third anniversaries of the grant date; and (ii) 50,000 nonqualified
stock options, with one-third of such options to become exercisable on
each of the first three anniversaries of the grant date. Each of such
grants shall be made pursuant to forms of agreement, and subject to
terms and conditions, that are consistent with the terms of such plan
and are no less favorable than the other grants to be made
contemporaneously by the Committee to certain senior executive officers
of the Company. Such agreements shall provide, among other things, that
(i) in the event of a Change in Control, all such stock options shall
become immediately exercisable, and (ii) in the event that the
Executive's employment is terminated within two (2) years following a
Change in Control, all such shares of restricted stock that are unvested
as of the date of such termination shall immediately vest and become
freely transferrable. The Executive shall be eligible to receive future
grants under the Company's stock-based benefit plans as determined from
time to time by the Committee.
(b)In addition to the foregoing restricted stock award, if the
Executive purchases at least an additional 10,000 shares of the
Company's common stock on the open market on or before December 31,
1997, the Company shall grant to the Executive as of such date a one-to-
one matching number of shares of restricted stock (not to exceed 30,000
matching shares) under the 1997 Incentive Plan, with one-half of such
matching shares to vest and become freely transferable on each of the
fourth and fifth anniversaries of the grant date. Such matching grant
shall be made pursuant to a form of agreement, and subject to terms and
conditions, consistent with the grant contemplated in subsection (a)
hereof. The parties agree that the Company will extend the December 31,
1997, purchase deadline by a reasonable period in the event that the
Executive is unable to complete his intended purchases by such date
because of restrictions imposed by the Company's securities trading
policies.
(c)In addition to the foregoing option and restricted stock grants,
effective with the commencement of the Employment Term the Company shall
permit the Executive to participate in the Vision 2000 Cycle of the
Company's Long-Term Incentive Program in accordance with the terms of
such program, pursuant to which the Executive shall be granted (i) an
incentive award opportunity of up to $300,000, which incentive award
opportunity shall be governed by the performance objectives established
by the Committee for the Vision 2000 Cycle (subject to adjustment to
reflect the Company's sale of the West Point, Virginia, kraft products
mill and associated assets on May 23, 1997), and (ii) 4,900 performance
shares. The Executive shall have the opportunity to earn up to 90% of
such performance shares based on the price of the Company's common stock
(as defined in the program) during the period commencing August 1, 1997,
and ending with the conclusion of the Vision 2000 Cycle, with 10% of
such shares earned when the Company's common stock price first equals or
exceeds $40.00 per share and an additional 20% of such shares earned at
each additional increment of $5.00 thereafter, such that the entire 90%
would be earned when the Company's common stock price first equals or
exceeds $60.00 per share. The Executive shall be eligible to
participate in any future cycles under the Long-Term Incentive Plan (or
such comparable successor plan that may be in effect from time to time)
as determined from time to time by the Committee.
7. Termination of Employment.
(a)By the Company For Cause. The Company may terminate the
Executive's employment under this Agreement at any time for Cause by
delivery of written notice of termination to the Executive (which notice
shall specify in reasonable detail the basis upon which such termination
is made). In the event the Executive's employment is terminated for
Cause, all provisions of this Agreement (other than Sections 8, 9 and 11
through 19 hereof) and the Employment Term shall be terminated. Upon
any such termination, the Executive shall be entitled only to payment of
his earned and unpaid salary to the date of termination, any earned and
unpaid bonus under the Company's Officers' Incentive Program (or such
comparable successor program that may be in effect from time to time)
for the prior fiscal year, unreimbursed business and entertainment
expenses in accordance with the Company's policy, and unreimbursed
medical, dental and other employee benefit expenses incurred in
accordance with the Company's employee benefit plans (hereinafter
referred to as the "Standard Termination Payments").
(b)Upon Death or Disability. If the Executive dies, all provisions
of this Agreement (other than rights or benefits arising as a result of
such death) and the Employment Term shall be automatically terminated;
provided, however, that the Standard Termination Payments, together with
additional salary payments equal to and in lieu of the Executive's
accrued and unused vacation and pro rata bonus under the Company's
Officers' Incentive Program (or such comparable successor program that
may be in effect from time to time) for the fiscal year during which
such death occurs, shall be paid to the Executive's surviving spouse or,
if none, his estate, and the death benefits under the Company's employee
benefit plans shall be paid in accordance with the terms of the
individual plans. If the Executive becomes Disabled, either the Company
or the Executive may terminate this Agreement and the Employment Term at
any time thereafter. In such event, the Executive shall be entitled to
receive his normal compensation hereunder through the date of such
termination, and shall thereafter be entitled to receive the Standard
Termination Payments, together with additional salary payments equal to
and in lieu of the Executive's accrued and unused vacation and pro rata
bonus under the Company's Officers' Incentive Program (or such
comparable successor program that may be in effect from time to time)
for the fiscal year during which such Disability occurs and such
disability and other employee benefits as may be provided under the
terms of the Company's employee benefit plans.
(c) By the Company Without Cause.
(i)The Company may terminate the Executive's employment
under this Agreement without Cause, and other than by reason of his
death or Disability, by sending written notice of termination to the
Executive, which notice shall specify a date not less than ten (10) and
not more than ninety (90) days after the date of such notice as the
effective date of such termination (the "Termination Date"). From the
date of such notice through the Termination Date, the Executive shall
continue to perform the normal duties of his employment hereunder, and
shall be entitled to receive when due all compensation and benefits
applicable to the Executive hereunder. Promptly following the
Termination Date, the Company shall pay the Standard Termination
Payments to the Executive. In addition, from the Termination Date
through the expiration of the then-current Employment Term, the Company
shall (A) continue to pay the Executive, in accordance with Section 4(a)
hereof, his base salary as in effect as of the Termination Date, and (B)
pay the Executive the target bonus (regardless of the Company's actual
performance) under the Company's Officers' Incentive Program (or such
comparable successor program that may be in effect from time to time),
with such bonus for any partial year to be determined on a pro rata
basis. The Executive shall have no obligation whatsoever to mitigate
any damages, costs or expenses suffered or incurred by the Company with
respect to the severance obligations set forth in this Section 7(c)(i)
and, except as set forth in subsection (iii) of this Section, no such
severance payments received or receivable by the Executive shall be
subject to any reduction, offset, rebate or repayment as a result of any
subsequent employment or other business activity by the Executive.
(ii)Following any termination of the Executive's employment
pursuant to this Section 7(c), the Company shall also be obligated to
provide continued coverage under the Company's medical, dental and life
insurance benefit plans or arrangements with respect to the Executive
from the Termination Date through the expiration of the then-current
Employment Term (or, if the Executive is not eligible for continuing
coverage under the terms of such plans or arrangements, the Company
shall provide substantially similar coverage on an individual basis for
such period). The Company's obligation to provide continued benefits
coverage in accordance with this Section 7(c)(ii) shall be subject to
mitigation to the extent that substantially similar benefits are
provided by any successor employer during such continuation period.
(iii)Any other provision of this Section 7(c) to the contrary
notwithstanding, the Company's obligation to make any payments to, or to
provide any benefits for, the Executive (other than the Standard
Termination Payments) following termination of his employment pursuant
to Section 7(c)(i) hereof shall immediately cease in the event that the
Executive is employed by, or acts as a consultant or advisor to, or
agent of, or directly or indirectly owns, manages, controls, invests in
or affirmatively permits his name to be used by, any current or future
direct competitor throughout the world of the Company or any of its
subsidiaries; provided, however, that this subsection shall not apply to
any passive investment by the Executive consisting of not more than 2%
of the equity securities of a corporation engaged in such business which
is publicly traded, so long as he has no active participation in the
business of such corporation.
(d)By the Executive. The Executive may terminate his
employment, and any further obligations which Executive may have to
perform services on behalf of the Company hereunder at any time after
the date hereof, by sending written notice of termination to the Company
not less than ninety (90) days prior to the effective date of such
termination. During such ninety (90) day period, the Executive shall
continue to perform the normal duties of his employment hereunder, and
shall be entitled to receive when due all compensation and benefits
applicable to the Executive hereunder. Except as provided below, if the
Executive elects to terminate his employment hereunder (other than as a
result of Disability), then the Executive shall be entitled to receive
the Standard Termination Payments, but the Company shall have no further
obligation to make payments or provide benefits to the Executive.
Anything in this Agreement to the contrary notwithstanding, the
termination of the Executive's employment by the Executive within one
year after a Change in Control of the Company shall be deemed to be a
termination of the Executive's employment without Cause by the Company
for purposes of this Agreement, and the Executive shall be entitled to
the payments and benefits set forth in Section 7(c) above.
(e)Preservation of Vested Benefits. Termination of the Executive's
employment by the Company or the Executive pursuant to any provision of
this Section 7 shall not divest the Executive of any previously vested
benefits provided in this Agreement or under any benefit plan of the
Company in which the Executive participates as of the date of such
termination. Notwithstanding the preceding sentence or any other
provision of this Agreement, if any benefit, payment, accelerated
vesting or other right of the Executive under this Agreement or under
any benefit plan of the Company in which the Executive participates
constitutes a "parachute payment" (as defined in Code section
280G(b)(2)(A), but without regard to Code section 280G(b)(2)(A)(ii))
with respect to the Executive, the Company shall reduce the amount of
any such parachute payment if, and only to the extent, that such
reduction will allow the Executive to receive a greater "net after tax
amount" than the Executive would receive absent such reduction. For
purposes of this Agreement, "net after tax amount" means the amount of
any parachute payments, as applicable, net of taxes imposed under Code
sections 1, 3101(b) and 4999 and any state or local income taxes
applicable to the Executive as in effect on the date of the first of
such parachute payments.
8. Confidential Information. The Executive understands and
acknowledges that during his employment with the Company he will be
exposed to Confidential Information (as defined below) which is
proprietary and which rightfully belongs to the Company. The Executive
agrees that he will not use or cause to be used for his own benefit,
either directly or indirectly, or disclose any of such Confidential
Information at any time, either during or after his employment with the
Company, without the Company's prior written consent. The Executive
shall take all reasonable steps to safeguard such Confidential
Information that is within his possession or control and to protect such
information against disclosure, misuse, loss or theft. The Executive's
obligations under this Section with respect to any specific Confidential
Information shall cease when that specific Confidential Information
becomes publicly known or when it is disclosed by any person, firm,
corporation or business entity which is not bound by the terms of a
confidentiality agreement with the Company. The term "Confidential
Information" shall mean any information not generally known in the
relevant trade or industry, which was obtained from the Company, or
which was learned as a result of the performance of any services by the
Executive on behalf of the Company, and which falls within the following
general categories: (i) information concerning trade secrets of the
Company; (ii) information concerning existing or contemplated products,
services, technology, designs, processes and research or product
developments of the Company; (iii) information concerning business
plans, sales or marketing methods, methods of doing business, customer
lists, customer usages and/or requirements, or supplier information of
the Company; and (iv) any other confidential information which the
Company may reasonably have the right to protect by patent, copyright or
by keeping it secret and confidential. Upon termination of the
Executive's employment with the Company, the Executive shall, if
requested by the Company, reaffirm in writing the Executive's
recognition of the importance of maintaining the confidentiality of the
Company's proprietary information and trade secrets and reaffirm all of
the obligations set forth in this Section 8.
9. Return of Documents. All writings, records and other documents and
things containing any Confidential Information in the Executive's
custody or possession shall be the exclusive property of the Company,
shall not be copied and/or removed from the premises of the Company,
except in pursuit of the business of the Company, and shall be delivered
to the Company, without retaining any copies, upon the termination of
the Executive's employment or at any time as requested by the Company.
10.Reimbursement of Certain Expenses. The Company shall reimburse the
Executive (a) in accordance with the Company's Relocation Policy for
expenses incurred by him in connection with relocating his principal
residence to the Richmond, Virginia, metropolitan area, and (ii) in
accordance with the Company's reimbursement policies for all reasonable
legal fees and charges, not to exceed $5,000, incurred by him in
connection with entering into this Agreement and the other agreements
contemplated herein.
11.Remedies. The parties hereto agree that each would suffer
irreparable harm from a breach by the other of any of the covenants or
agreements contained herein. Therefore, in the event of the actual or
threatened breach by either party hereto of any of the provisions of
this Agreement, the other party hereto may, in addition and
supplementary to other rights and remedies existing in favor of such
party, apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to
enforce or prevent any violation of the provisions hereof.
12.Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company and its affiliates and their
successors and assigns, and shall be binding upon and inure to the
benefit of the Executive and his legal representatives and assigns,
provided that in no event shall the Executive's obligations to perform
services for the Company and its affiliates be delegated or transferred
by the Executive. The Company may assign or transfer its rights
hereunder to a successor corporation in the event of a merger,
consolidation or transfer or sale of all or substantially all of the
assets of the Company or of the Company's business (provided, however,
that no such assignment or transfer shall have the effect of relieving
the Company of any liability to the Executive hereunder or under any
other agreement or document contemplated herein), but only if such
assignment or transfer does not result in employment terms, conditions,
duties or responsibilities which are or may be materially different than
the terms, conditions, duties or responsibilities of the Executive
hereunder.
13.Modification or Waiver. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be binding or
effective for any purpose unless it is made in a writing signed by the
party against whom enforcement of such amendment, modification, waiver,
termination or cancellation is sought. No course of dealing between or
among the parties to this Agreement shall be deemed to affect or to
modify, amend or discharge any provision or term of this Agreement. No
delay on the part of the Company or the Executive in the exercise of any
of their respective rights or remedies shall operate as a waiver
thereof, and no single or partial exercise by the Company or the
Executive of any such right or remedy shall preclude other or further
exercises thereof. A waiver of a right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy
on any other occasion.
14.Notice. For purposes of this Agreement, notice and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Company:Chesapeake Corporation
James Center II, 22nd Floor
1021 East Cary Street
Richmond, Virginia 23219
Attention:Chairman of the
Compensation Committee
of the Board of Directors
with a copy to:
Chesapeake Corporation
James Center II, 22nd Floor
1021 East Cary Street
Richmond, Virginia 23219
Attention:General Counsel
If to the Executive, to his address as reflected from time-to-
time in the personnel records of the Company. Either party hereto may
change its address for purposes of this Section by furnishing written
notice to the other party in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
15. Governing Law; Jurisdiction. This Agreement and all rights,
remedies and obligations hereunder, including, but not limited to,
matters of construction, validity and performance shall be governed by
the laws of the Commonwealth of Virginia without regard to its conflict
of laws principles or rules. To the full extent lawful, each of the
Company and the Executive hereby consents irrevocably to personal
jurisdiction, service and venue in connection with any claim or
controversy arising out of this Agreement in the courts of the
Commonwealth of Virginia located in Richmond, Virginia, and in the
federal courts in the Eastern District of Virginia.
16.Severability. Whenever possible each provision and term of
this Agreement shall be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision or term of this
Agreement shall be held to be prohibited by or invalid under such
applicable law, then such provision or term shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating or
affecting in any manner whatsoever the remainder of such provisions or
term or the remaining provisions or terms of this Agreement.
17.Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which
taken together constitute one and the same Agreement.
18.Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a
part hereof and shall not affect the construction or interpretation of
this Agreement.
19.Entire Agreement. This Agreement (together with all documents
and instruments referred to herein) constitutes the entire agreement,
and supersedes all other prior agreements and undertakings, both written
and oral, among the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf, and the Executive has duly executed this
Agreement, all as of the date first above written.
CHESAPEAKE CORPORATION
By: /s/ Harry H. Warner
Harry H. Warner
Director
EXECUTIVE:
/s/ Thomas H. Johnson
THOMAS H. JOHNSON
EXHIBIT 11.1
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
FOR THE THIRD QUARTER AND YEAR TO DATE
ENDED SEPTEMBER 30, 1997 AND 1996
(Share amounts in thousands, dollar amounts in millions,
except for per share amounts)
<CAPTION>
Third QuarterYear to Date
1997199619971996
<S> <C> <C> <C> <C>
Primary:
Weighted average number of common
shares outstanding23,45023,41723,47623,588
Net additions to common shares
assuming exercise of dilutive
options, determined by treasury
stock method 219 80 215 104
Common shares and equivalents23,66923,49723,69124,692
Income before extraordinary item $ 9.7 $ 9.5 $ 43.3 $ 21.3
Extraordinary item - - (2.3) -
Net Income $ 9.7 $ 9.5 $ 41.1 $ 21.3
Per share amount:
Earnings before extraordinary item $ .41 $ .40 $ 1.83 $ .90
Extraordinary item - - (.10) -
Earnings $ .41 $ .40 $ 1.73 $ .90
Fully diluted:
Common shares and equivalents23,66923,49723,69123,692
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 37 28 17 22
Common shares, equivalents and
other potentially dilutive
securities 23,706 23,52523,70823,714
Income before extraordinary item $ 9.7 $ 9.5 $ 43.3 $ 21.3
Extraordinary item - - (2.3) -
Net income for fully diluted
computation$ 9.7$ 9.5$ 41.0$ 21.3
Per share amount: (a)
Earnings before extraordinary item$ .41 $ .40 $ 1.83 $ .90
Extraordinary item - - (0.10) -
Earnings $ .41 $ .40 $ 1.73 $ .90
NOTE: (a) Dilution is less than 3%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000019731
<NAME> CHESAPEAKE CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 135,700,000
<SECURITIES> 0
<RECEIVABLES> 137,100,000
<ALLOWANCES> 4,800,000
<INVENTORY> 99,500,000
<CURRENT-ASSETS> 389,300,000
<PP&E> 832,100,000
<DEPRECIATION> (362,100,000)
<TOTAL-ASSETS> 990,800,000
<CURRENT-LIABILITIES> 158,900,000
<BONDS> 266,000,000
<COMMON> 23,100,000
0
0
<OTHER-SE> 459,400,000
<TOTAL-LIABILITY-AND-EQUITY> 990,800,000
<SALES> 792,500,000
<TOTAL-REVENUES> 878,900,000
<CGS> 590,500,000
<TOTAL-COSTS> 789,000,000
<OTHER-EXPENSES> 2,800,000
<LOSS-PROVISION> (600,000)
<INTEREST-EXPENSE> 18,500,000
<INCOME-PRETAX> 73,600,000
<INCOME-TAX> 30,300,000
<INCOME-CONTINUING> 43,300,000
<DISCONTINUED> 0
<EXTRAORDINARY> 2,300,000
<CHANGES> 0
<NET-INCOME> 41,000,000
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
</TABLE>
