FORM 10-Q
UNITED STATES 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 March 31, 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 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 23,434,876 shares.
<TABLE>
PART I
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE FIRST QUARTER ENDED MARCH 31, 1997 AND 1996
<CAPTION>
First Quarter
<S> <c< <C>
1997 1996
(In millions, except per share data)
<S> <C> <C>
Net sales $294.5 $277.7
Costs and expenses:
Cost of products sold 223.6 202.0
Depreciation and cost of timber harvested 26.7 21.9
Selling, general and administrative expenses 41.3 36.5
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Income from operations 2.9 17.3
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Other income and expenses, net 1.0 2.9
Interest expense (9.5) (7.8)
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Income (loss) before taxes (5.6) 12.4
<S> <C> <C>
Income taxes (2.1) 4.5
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Net income (loss) $ (3.5) $ 7.9
<S> <C> <C>
Earnings (loss) per share $ (.15) $ .33
<S> <C> <C>
Weighted average number of common shares and
equivalents outstanding 23.4 23.8
<S> <C> <C>
Cash dividends declared per share of common stock $ .20 $ .20
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
<S> <C> <C>
March 31, 1997 Dec. 31, 1996
(In millions)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10.7 $ 9.8
Accounts receivable, less
allowances for doubtful
accounts of $6.0 and $4.7 168.4 153.9
Inventories, at lower of cost
or market 133.4 134.4
Deferred income taxes 16.5 16.5
Other 12.3 11.2
<S> <C> <C>
Total current assets 341.3 325.8
<S> <C> <C>
Property, plant and equipment, at cost:
Land, buildings, machinery
and equipment 1,593.0 1,580.0
Less accumulated depreciation (783.0) (756.3)
<S> <C> <C>
810.0 823.7
<S> <C> <C>
Timber and timberlands 39.5 39.8
<S> <C> <C>
Net property, plant and equipment 849.5 863.5
<S> <C> <C>
Goodwill, net 58.4 58.3
<S> <C> <C>
Other assets 42.4 42.6
<S> <C> <C>
$1,291.6 $1,290.2
</TABLE>
<TABLE>
March 31, 1997 Dec. 31, 1996
(In millions)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 148.9 $ 157.6
Current maturities of long-term debt 3.9 3.9
Dividends payable 4.7 4.7
Income taxes payable (2.6) 0.6
<S> <C> <C>
Total current liabilities 154.9 166.8
<S> <C> <C>
Long-term debt 518.7 499.4
<S> <C> <C>
Postretirement benefits other than
pensions 29.4 28.0
<S> <C> <C>
Deferred income taxes 127.4 126.9
<S> <C> <C>
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 23,434,876 and
23,398,137 shares 23.4 23.4
Additional paid-in capital 98.0 97.2
Foreign currency translation adjustment (.5) -
Retained earnings 340.3 348.5
<S> <C> <C>
461.2 469.1
<S> <C> <C>
$1,291.6 $1,290.2
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FIRST QUARTER ENDED MARCH 31, 1997 AND 1996
<CAPTION>
<S> <C> <C>
1997 1996
<S> (In millions)
Operating activities <C> <C>
Net income (loss) $(3.5) $ 7.9
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, cost of timber harvested and
amortization of intangibles 27.7 22.4
Deferred income taxes .5 1.1
(Gain)loss on sale of property, plant and
equipment (.6) -
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (14.5) (1.7)
Inventories 1.0 4.9
Other assets 2.4 -
Accounts payable and accrued expenses (8.7) (5.3)
Income taxes payable (3.2) 1.5
Other payables .9 .6
<S> <C> <C>
Net cash provided by operating activities 2.0 31.4
<S> <C> <C>
Investing activities
Purchases of property, plant and equipment (15.1) (37.8)
Acquisitions - (1.7)
Proceeds from sale of property, plant and
equipment .6 .1
Other (.3) -
<S> <C> <C>
Net cash used in investing activities (14.8) (39.4)
<S> <C> <C>
Financing activities
Net borrowings on credit lines 23.9 20.3
Payments on long-term debt (5.3) (3.1)
Proceeds from long-term debt - .2
Proceeds from issuance of common stock .3 -
Purchases of outstanding common stock - (3.8)
Dividends paid (4.7) (4.8)
<S> <C> <C>
Net cash provided by financing activities 14.2 8.8
<S> <C> <C>
Effect of exchange rate changes on cash (.5) -
<S> <C> <C>
Increase in cash .9 .8
<S> <C> <C>
Cash at beginning of period 9.8 5.2
Cash at end of period $10.7 $ 6.0
<S> <C> <C>
Supplemental cash flow information:
Interest payments $ 8.1 $ 6.9
Income tax payments, net of refunds $ 2.1 $ 1.8
</TABLE>
See accompanying notes.
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included herein
are unaudited, except for the December 31, 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 has not determined the impact of this standard, but does
not expect it to be material to its financial statements or
earnings.
<CAPTION>
<S> <C> <C>
2. Inventories:
Mar. 31, 1997 Dec. 31, 1996
(In millions)
<S> <C> <C>
Inventories consist of:
Finished goods $ 53.8 $44.1
Work-in-process 28.3 35.9
Materials and supplies 51.3 54.4
<S> <C> <C>
Totals $133.4 $134.4
</TABLE>
3. Commitments and Other Matters:
At March 31, 1997, commitments, primarily for capital
expenditures, approximated $61 million. These commitments include
3. Commitments and Other Matters (continued):
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, Virginia and Wisconsin.
The remaining commitments of $59 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.
As of April 30, 1997, Chesapeake Corporation signed a definitive
agreement with St. Laurent Paperboard Inc. (Toronto and
Montreal:SPI) wherein St. Laurent will purchase Chesapeake's West
Point, VA, kraft products mill, four box plants and other related
assets for approximately $500 million. The proposed transaction
will represent a major step forward in Chesapeake's long-term
business strategy of focusing on its faster-growing packaging and
tissue operations.
Under the terms of the proposed transaction, Chesapeake will
retain ownership of its timberlands and will enter into a 15-year
agreement to supply the West Point mill with a substantial portion
of its virgin fiber requirements at market prices. St. Laurent
will also enter into a five-year agreement to supply paper at
market prices to Chesapeake's packaging operations. Chesapeake
expects to record a gain on the sale upon the closing of the
transaction.
The four box plants involved in the transaction are located in
Richmond, VA; Roanoke, VA; Baltimore, MD; and North Tonawanda, NY.
The total operations to be sold employ approximately 1,750 people.
The annual manufacturing capacity of the West Point mill is about
920,000 tons of kraft pulp and paper products.
The anticipated sale price of approximately $500 million will
consist of at least $425 million in cash and up to $75 million of
St. Laurent common stock.
Assuming current market values and after giving effect to a planned
concurrent public offering by St. Laurent Paperboard Inc., the shares
to be acquired by Chesapeake would represent up to approximately 14%
of the issued and outstanding common shares of St. Laurent Paperboard
Inc. Any common shares of St. Laurent Paperboard Inc. acquired by
Chesapeake pursuant to the purchase agreement described above will
be subject to a Stand-Still Agreement, dated as of the closing date.
The Stand-Still Agreement will provide, in relevant part, that for
a period of 180 days after the closing date, Chesapeake may
not sell, contract to sell or otherwise dispose of, loan, pledge
or grant any rights to acquire any such shares without the prior
written consent of St. Laurent Paperboard Inc.
3. Commitments and Other Matters (continued):
Funds received from the transaction are expected to be used to
reduce debt, expand the Company's stock repurchase program and
finance growth initiatives internally and through acquisitions.
When the sale of the West Point mill and related assets is
completed, Chesapeake will be a more focused, growth-oriented
company with reduced capital intensity and cyclicality. Closing
of the proposed sale is expected in late May 1997 subject to
regulatory approvals and the successful completion of St.
Laurent's financing initiatives, as well as other customary
conditions to closing.
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. See Note 6 for further information regarding this notice.
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 37.5% in the first
quarter 1997 compared to 36.5% for first quarter 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
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.
6. Environmental Matters (continued):
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. Except
for the United States Department of Interior, Fish and Wildlife
Service ("FWS") claims related to 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 operation.
In June 1994, the 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 notice 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 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 proposed
damage assessment and the basis for resolution of the restoration
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
and restoration work. WT's obligation under the interim
settlement would not be material to the Company's financial
position or results of operations. Based on presently available
6. Environmental Matters (continued):
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 ultimate cost to WT, if any, associated with this 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. 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
all 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 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. The State of Wisconsin is in
the process of modifying state regulations to comply with the Final
Guidance. Assuming state approval, compliance with the modified
state regulations will be required as early as the third quarter
of 1997. Based on the regulations as presently proposed by
Wisconsin, 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.
The rules as currently proposed would primarily affect the
Company's bleached kraft products mill in West Point, VA. 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 $55.0 million at the Company's two largest paper
mills located in West Point, VA, and Menasha, WI. As discussed in
Note 3 above, the Company anticipates that the sale of its West
Point, VA, mill will be completed in late May. The eventual
capital expense impact on the Company of compliance with the
6. Environmental Matters (continued):
definitive Cluster Rules is not presently determinable and will
depend on a number of factors, including: the scope of the
standards imposed and time permitted for compliance; the Company's
strategic decisions related to compliance, including potential
changes in product mix and markets; and developments in compliance
technology. The additional effect, if any, on the Company's
business of compliance with the definitive Cluster Rules will
depend on a number of other factors, including: the domestic and
international competitive effects of compliance; and the effect of
evolving consumer demands related to environmental issues on the
Company and its competitors.
Chesapeake operates under, and believes that it is in substantial
compliance with, the terms of various air emission and water and
effluent discharge permits and other environmental regulations.
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1st Quarter 1997 vs. 1st Quarter 1996
Net sales for the three months ended March 31, 1997, were $294.5
million, 6% higher than net sales of $277.7 million in the first three
months of 1996. The higher sales were primarily the result of volume
growth in all three segments, offset in part by weak pricing
conditions for kraft products.
The Company experienced a net loss of $3.5 million, or $.15 a
share, for the first quarter of 1997, compared to net income of $7.9
million, or $.33 a share, for the first quarter of 1996. The loss was
primarily attributable to continuing weak market pricing in the kraft
products business. Cost of products sold as a percentage of net sales
was 3% higher than in the first quarter of last year. Selling,
general and administrative expenses as a percentage of net sales were
up about 1%. Expenses were higher due to the start-up of various
growth initiatives, particularly in the packaging segment.
Depreciation was up 22% over 1996's amount as a result of capital
spending and acquisitions in 1996. Other income and expenses was down
$1.9 million compared to the prior year. Interest expense of $9.5
million was up $1.7 million over first quarter 1996 due to increased
borrowings used to fund the 1996 capital expenditures and
acquisitions.
<CAPTION>
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BUSINESS SEGMENT HIGHLIGHTS
First Quarter Fourth Quarter
1997 1996 1996
<S> <C> <C> <C>
Net Sales:
Packaging $124.1 $109.2 $127.5
Tissue 94.7 93.8 92.9
Kraft products 74.5 73.2 72.0
Corporate 1.2 1.5 2.6
$294.5 $277.7 $295.0
<S> <C> <C> <C>
EBIT:
Packaging $ .4 $ 4.8 $ 6.2
Tissue 13.2 12.5 12.9
Kraft products (6.3) 7.3 11.3
Corporate (3.4) (4.4) (8.4)
$ 3.9 $ 20.2 $ 22.0
</TABLE>
As of April 30, 1997, Chesapeake Corporation signed an agreement
with St. Laurent Paperboard Inc. (Toronto and Montreal:SPI) for St.
Laurent to purchase Chesapeake's West Point, VA, kraft products mill,
four box plants and other related assets, for approximately $500
million. The proposed transaction will represent a major step forward
in Chesapeake's long-term business strategy of focusing on its faster-growing
packaging and tissue operations. See Note 3 to the
consolidated financial statements for further information regarding
this sale.
Net sales for the packaging segment of $124.1 million were up 14%
compared to first quarter last year due to a 7% growth in unit volume
and the third quarter 1996 acquisition of Chesapeake Europe. Volume
was higher in all three packaging businesses: point-of-sale displays,
consumer graphic packaging, and corrugated shipping containers.
However, EBIT for this segment declined 92% to $.4 million from $4.8
million last year, as a result of lower selling prices and higher
fixed operating costs at several recently expanded facilities. Both
the European and Canadian packaging operations were profitable in the
first quarter of 1997.
Net sales for the tissue segment of $94.7 million were up 1%
compared to the first quarter of last year. Shipments of converted
tissue products were 62,531 tons, a 13% increase over the first
quarter of 1996. For the quarter, 89% of tissue shipments were
converted products, up from 75% during the first quarter 1996. EBIT
for the tissue segment for the first quarter of 1997 was up 6%
compared to the first quarter of last year. This increase was due to
the increased volume of converted products and improved productivity,
which offset the impact of slightly lower average prices than in the
first quarter of last year. Chesapeake's Mexican tissue operations,
acquired in the fourth quarter of 1996, were profitable in first
quarter 1997.
Net sales for the kraft products segment of $74.5 million
increased 2% compared to the first quarter of 1996. Shipments of
216,215 tons were up 12% from the first quarter of last year as a
result of operating efficiencies generated by the rebuild of the #2
paper machine at the West Point, VA, kraft mill. Average selling
prices were 20% lower than in the first quarter of 1996 as market
conditions continued to be weak. This segment generated a $6.3 million
operating loss, $13.6 million lower than last year's first quarter
EBIT of $7.3 million. The loss was due to extremely unfavorable
pricing conditions that more than offset the sales volume and
production efficiency gains at the mill.
1st Quarter 1997 vs. 4th Quarter 1996
Net sales for the first quarter of 1997 were approximately the
same as those for the fourth quarter of 1996. Volume increased for
kraft products, but was down slightly for the tissue and packaging
businesses. The first quarter is normally the seasonal low-point for
many of Chesapeake's businesses. Selling prices for kraft products
continued to decline. Selling prices for packaging and tissue
products were approximately the same as those of the fourth quarter of
last year.
The net loss for the first quarter of 1997 of $3.5 million was
$12.3 million less than net income of $8.8 million earned in the
fourth quarter of 1996, primarily because of the increase in cost of
products sold, higher depreciation, increased interest expense and
lower miscellaneous income. Cost of products sold as a percentage of
net sales increased about 4%. Selling, general, and administrative
expenses as a percentage of net sales was about the same as last
quarter. Depreciation was $5.5 million higher due to capital spending
and acquisitions. Other income and expenses, net decreased by $3.4
million because of outside timber sales and hunting rights income in
the fourth quarter of last year. Interest expense was up 4% because
of increased borrowings related to the 1996 capital expenditures and
acquisitions.
Net sales of the packaging segment for the first quarter of 1997
were down $3.4 million, or 3%, from the fourth quarter of 1996. Sales
volume approximated that of the previous quarter. Earnings for the
segment declined $5.8 million to $.4 million as a result of lower
selling prices and higher fixed operating costs at several recently
expanded facilities. The European packaging operations were
profitable in the first quarter of 1997 compared to a small loss in
fourth quarter 1996. The near-term outlook for the consumer graphic
packaging business is unfavorable, as the Company expanded this
business in anticipation of market growth which is occurring at a rate
which is slower than expected. Overall, the outlook for the packaging
segment continues to be positive.
Net sales of the tissue segment for the first quarter of 1997
increased 2% compared to the fourth quarter of 1996 as sales from the
new operations in Mexico, acquired in December 1996, more than offset
the effects of the normally seasonally slow first quarter. Sales
volume of converted tissue products was down 3% from last quarter,
while selling prices increased 1%. Additional converting equipment is
scheduled to come on line during the year which is expected to
favorably impact the sales volume of higher-margin converted products.
Net sales of kraft products for first quarter 1997 increased 3%
compared to the fourth quarter of 1996. Shipments improved 3%, while
average selling prices dropped 7%. EBIT was down $17.6 million from
last quarter to a loss of $6.3 million due primarily to the impact of
lower selling prices.
Capital Expenditures
Capital expenditures and acquisitions for the first three months
of 1997 totaled $15.1 million and related primarily to strategic
initiatives in the tissue and packaging businesses. These expenditures
were down $24.4 million compared to the first quarter capital spending
of $39.5 million last year and well below depreciation levels.
Capital expenditures for 1997 are expected to be approximately $89
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 projects are expected to account for more than 5% of the total
planned spending. Capital expenditures for 1997 are expected to be
financed with internally generated cash.
Liquidity and Capital Structure
Working capital increased $27.4 million during the first quarter
of 1997 primarily as a result of increased accounts receivable and a
reduction of accounts payable. Accounts receivable increased $14.5
million from year end amounts. However, the average collection period
for the quarter approximated that of the first quarter of last year.
Inventories decreased $1.0 million during the first quarter of 1997.
The inventory turnover rate for the quarter approximated that of the
first quarter of 1996. Accounts payable and accrued expenses
decreased $8.7 million during the quarter as a result of lower capital
spending and timing of payments. The ratio of current assets to
current liabilities was 2.2 at the end of the first quarter of 1997,
2.1 at the end of the first quarter of 1996 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 $31.6 million for the first
quarter of 1997, or 26% lower than $42.6 million for the first
quarter of 1996. Lower income before taxes was primarily responsible
for this decrease. EBITDA for the first quarter of 1997 was 28% lower
than EBITDA of $44.0 million for the fourth quarter of 1996. Net cash
provided by operating activities for the first quarter of 1996 was
$2.0 million, or $29.4 million less than in the first quarter of last
year, primarily due to lower earnings and the change in accounts
receivable.
At the end of the first quarter of 1997, long-term debt totaled
$518.7 million, or $19.3 million higher than at year-end. The ratio
of long-term debt to total capital was 47% at the end of the first
quarter of 1997, compared to 41% at the end of the first quarter of
last year and 46% at year end 1996. Chesapeake's target range for its
ratio of long-term debt to total capital is 35% - 45%. The ratio of
long-term debt to stockholders' equity was 112% at the end of the
first quarter of 1997, compared to 88% at the end of first quarter
1996 and 106% at year end 1996. Out of a total of $245 million
committed and $120 million uncommitted credit lines available at the
end of the first quarter, $220 million were utilized. The Company
intends to use a portion of the proceeds from its planned sale of the
West Point, VA, kraft products mill to reduce debt. See Note 3 to the
consolidated financial statements.
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, other
than transactions used to hedge the value of investments in certain
foreign subsidiaries, are included in income currently. Gains and
losses resulting from hedging transactions and from translation of
financial statements are excluded from the statement of income and are
credited or charged directly to a separate component of shareholders'
equity. Translation gains and losses of subsidiaries operating in
hyperinflationary economies are included in net income currently.
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations" may include "forward-looking statements" that
involve risks and uncertainties. The assumptions used as a basis for
the forward-looking statements include many estimates which, among
other things, depend on the achievement of future volume increases and
cost savings, the consummation of projected divestitures on favorable
terms, and the availability of suitable acquisition candidates.
General economic, political, currency, regulatory, technological,
competitive, and other factors outside of the control of the Company
could cause actual results to differ materially from those anticipated
in the forward-looking statements. <PAGE>
<TABLE>
PART II
Item 1. Legal Proceedings
Reference is made to Note 4 of the Notes to Consolidated
Financial Statements included herein.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on April 23, 1997, the
following business was transacted:
(1) All nominees for election to the Board of
Directors were elected.
<CAPTION> Number Number
of of Shares
Shares Authority
For Withheld
<S> <C> <C> <C>
C. Elis Olsson 20,937,227 135,861
Wallace Stettinius 20,936,301 136,787
Joseph P. Viviano 20,937,904 135,184
Harry H. Warner 20,917,386 155,702
</TABLE>
(2) The 1997 Incentive Plan was approved. There were
18,413,096 votes for the proposal and 2,379,776 against
with 280,216 abstentions.
(3) The appointment of Coopers & Lybrand L.L.P. as
independent accountants for the fiscal year ending
December 31, 1997 was ratified. There were
20,961,439 votes for the proposal and 52,438
against with 59,211 abstentions.
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: May 14, 1997 BY: /s/Christopher R. Burgess
Christopher R. Burgess
Controller
Date: May 14, 1997 BY: /s/William T. Tolley
William T. Tolley
Chief Financial Officer
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Page
<S> <C>
Exhibit 11.1 20
Computation of Net Income per Share of
Common Stock
</TABLE>
<TABLE> EXHIBIT 11.1
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
FOR THE FIRST QUARTER ENDED MARCH 31, 1997 AND 1996
(Share amounts in thousands, dollar amounts in millions,
except for per share amounts)
<CAPTION>
<S> <C> <C>
1997 1996
<S> <C> <C>
Primary:
Weighted average number of common shares
outstanding 23,433 23,722
Net additions to common shares assuming
exercise of dilutive options, determined by
treasury stock method - 119
Common shares and equivalents 23,433 23,841
<S> <C> <C>
Net income (loss) $ (3.5) $ 7.9
<S> <C> <C>
Per share amount $ (.15) $ .33
<S> <C> <C>
Fully diluted:
Common shares and equivalents 23,433 23,841
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
Common shares, equivalents and other
potentially dilutive securities 23,433 23,878
<S> <C> <C>
Net income (loss) for fully diluted
computation $ (3.5) $ 7.9
<S> <C> <C>
Per share amount $ (.15) $ .33
</TABLE>
NOTE: (a) Dilution is less than 3%
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000019731
<NAME> CHESAPEAKE CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,700,000
<SECURITIES> 0
<RECEIVABLES> 168,400,000
<ALLOWANCES> 6,000,000
<INVENTORY> 133,400,000
<CURRENT-ASSETS> 341,300,000
<PP&E> 1,632,500,000
<DEPRECIATION> 783,000,000
<TOTAL-ASSETS> 1,291,600,000
<CURRENT-LIABILITIES> 154,900,000
<BONDS> 518,700,000
<COMMON> 23,400,000
0
0
<OTHER-SE> 437,800,000
<TOTAL-LIABILITY-AND-EQUITY> 1,291,600,000
<SALES> 294,500,000
<TOTAL-REVENUES> 297,300,000
<CGS> 250,300,000
<TOTAL-COSTS> 290,300,000
<OTHER-EXPENSES> 1,800,000
<LOSS-PROVISION> 1,300,000
<INTEREST-EXPENSE> 9,500,000
<INCOME-PRETAX> (5,600,000)
<INCOME-TAX> (2,100,000)
<INCOME-CONTINUING> (3,500,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,500,000)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
