<PAGE> UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 laws I.R.S. Employer
of Virginia Identification No. 54-0166880
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350
Telephone Number (804) 697-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $1 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The aggregate market value on February 27, 1998, of the voting stock held
by non-affiliates of the registrant was $710 million. In determining this
figure, the registrant has assumed that all of its directors and officers are
affiliates. This assumption shall not be deemed conclusive for any other
purpose.
21,218,856 shares of the registrant's common stock, par value $1, were
outstanding as of February 28, 1998.
Portions of the registrant's Annual Report to Stockholders for the year
ended December 31, 1997 are incorporated in Parts I, II and IV by reference.
Portions of the registrant's definitive Proxy Statement for the annual
meeting of stockholders to be held on April 22, 1998, are incorporated in
Part III by reference.<PAGE>
<PAGE>
PART I
Item 1. Business
GENERAL
Chesapeake Corporation, a Virginia corporation organized in 1918, is
primarily engaged in the manufacture and sale of value-added tissue products,
specialty packaging and displays, and forest and building products. The
Company conducts its business in three industry segments. The business units
comprising each industry segment and their respective principal products are
as follows: the Tissue segment -- Wisconsin Tissue Mills Inc. and Wisconsin
Tissue de Mexico, S.A. de C.V.(commercial and industrial tissue products);
the Specialty Packaging segment -- Chesapeake Display and Packaging Company,
Chesapeake Europe S.A., and Chesapeake Packaging Co. (point-of-sale displays,
graphic packaging, and corrugated shipping containers); and the Forest
Products/Land Development segment -- Chesapeake Forest Products Company and
Chesapeake Building Products Company (woodlands operations and building
products); and Delmarva Properties, Inc. and Stonehouse Inc. (land
development).
Chesapeake competes in specialty products markets that management
believes have growth potential or in which the Company has or may be able to
achieve competitive advantages. Chesapeake's strategy for success with its
specialty products is to utilize its recycling expertise creatively, to
differentiate itself from its competition by manufacturing products that are
distinctive, and to respond quickly to changing customer requirements.
Management believes this strategy allows the Company to achieve greater
profits and better utilize Chesapeake's strengths. Chesapeake expanded
internationally for the first time during 1996, acquiring display and
packaging facilities in Canada and France as well as tissue converting
operations in Mexico. See "Financial Review 1995-1997" of the Company's 1997
Annual Report to Stockholders (the "1997 Annual Report"), incorporated herein
by reference.
Property, plant, and equipment, including timber and timberlands,
comprise approximately 56% of Chesapeake's total assets. Tissue operations
require major investments in paper machines, fiber preparation equipment, and
converting equipment. In 1995, Chesapeake expanded its tissue business with
the acquisition of two paper mills. Further expansion of the tissue business
occurred in 1996 as two additional converting facilities became fully
operational and tissue converting assets and distribution facilities were
acquired in Mexico. Growth in the Specialty Packaging segment within the
past three years included: new graphic packaging plants in California and
Mississippi; a new custom packing operation in Tennessee; and the acquisition
of point-of-sale and packaging operations in Kentucky, Canada, and France.
Also, capital expenditures intended to enhance efficiency, and to improve
product quality and productivity, were made at several existing packaging
facilities from 1995 through 1997.
On May 23, 1997, Chesapeake sold the West Point, VA kraft products mill,
four corrugated container plants, and other related assets to St. Laurent
Paperboard (U.S.) Inc. This sale was a major step forward in Chesapeake's
long-term strategy of focusing on its faster-growing packaging and tissue
operations. The sale also reduced the capital intensity and cyclicality of
the Company's businesses. See "Notes to Consolidated Financial Statements,
Note 2 - Divestitures and Acquisitions" of the 1997 Annual Report,
incorporated herein by reference.
1<PAGE>
<PAGE>
Information with respect to business segments and export sales
presented in "Notes to Consolidated Financial Statements, Note 15 - Business
Segment Information" of the 1997 Annual Report is incorporated herein by
reference. Information with respect to the Company's working capital
practices is set forth under the caption "Financial Review 1995-1997,
Liquidity and Capital Structure" of the 1997 Annual Report and is
incorporated herein by reference. Information regarding the Company's
anticipated capital spending is set forth under the caption "Financial Review
1995-1997, Capital Expenditures" of the 1997 Annual Report and is
incorporated herein by reference.
TISSUE
Chesapeake's Tissue segment consists of Wisconsin Tissue Mills Inc. and
Wisconsin Tissue de Mexico, S.A. de C.V. (collectively, _Wisconsin Tissue_),
which produce tissue for industrial and commercial markets.
Wisconsin Tissue manufactures napkins, tablecovers, toweling, placemats,
wipers, and facial and bathroom tissue for commercial and industrial markets.
Operations of the Tissue segment include: paper mills in Menasha, WI;
Flagstaff, AZ; and Chicago, IL; converting facilities in Bellemont, AZ;
Greenwich, NY; and Toluca, Mexico; and distribution facilities in Toluca and
Monterey, Mexico. The operations located in Mexico were acquired late in
1996 from Jokel Desarrollos, S.A. de C.V. and Ambitec, S.A. de C.V. The
Bellemont and Greenwich converting operations became fully operational in
1996. The 1995 addition of the paper mills in Arizona and Illinois increased
primary tissue production capacity by 90,000 tons per year, or approximately
50%. The combined operations sell approximately 2,200 products, which are
found in full-menu and fast-food restaurants, hotels, motels, clubs, health
care facilities, schools and office locations, and on airlines.
The raw material for the paper manufactured by Wisconsin Tissue is 100%
recovered paper. Seven paper machines manufacture base tissue stock that is
converted on approximately 150 specialized machines. Wisconsin Tissue's
products are sold throughout the United States, Canada, and Mexico using both
a dedicated sales force as well as third party brokers. Shipments of
converted products by Wisconsin Tissue were 268,000 tons in 1997, 253,000
tons in 1996, and 224,000 tons in 1995.
SPECIALTY PACKAGING
Chesapeake's Specialty Packaging segment is composed of Chesapeake
Display and Packaging (point-of-sale displays and packaging, rigid boxes,
folding cartons, and graphic packaging) and Chesapeake Packaging (corrugated
shipping containers).
Chesapeake Display and Packaging
During 1997, as part of the Company's strategy to focus on specialty
packaging and to better meet the needs of its customers, the Company
restructured the operations of Chesapeake Display and Packaging Company,
Color-Box, Inc., and Chesapeake Europe, S.A., into one business called
Chesapeake Display and Packaging (CD&P). This restructuring included
management realignment and the closing of two facilities. See _Notes to
Consolidated Financial Statements, Note 14 - Commitments and Other Matters_
of the 1997 Annual Report, incorporated herein by reference.
Through a network of regional sales and design offices, CD&P provides
its customers with a wide range of products and services, including single-
and double-face corrugated and permanent displays, preprint, process direct
2<PAGE>
<PAGE>
print, lithograph lamination, custom packing, set-up boxes, and folding
cartons. CD&P's goal is to fully understand a customer's requirements and
develop the appropriate packaging or merchandising solution for the
customer's products. CD&P offers a turnkey process that not only is
concerned with creating the right product image, but can also produce a
quality display or package, and, if appropriate, provide custom packing and
distribution. CD&P's manufacturing facilities utilize modern production,
assembly, and packaging processes to meet its customers' stringent quality
and shipment demands.
Chesapeake has four strategically located point-of-sale display and
specialty packaging manufacturing plants and six custom packing plants, which
provide service to customers in the United States and Canada. Included in
these facilities are the operations of the former Display Division of Dyment
Limited, in Erlanger, KY, and Toronto, Canada, which were acquired in 1996, a
custom packing plant in Memphis, TN, which began operations during 1996, and
custom packing plants in Mechanicsburg, PA, and Cincinnati, OH, which
commenced operations during 1997. The Sandusky, OH, display manufacturing
facility was closed during 1997 as part of the second quarter restructuring
program.
CD&P's three graphic packaging facilities supply customers with full
litho-laminated retail packaging nationwide. A graphic packaging plant in
Visalia, CA, began operations late in the second quarter of 1995, with the
second phase of this plant completed in 1996. Also in 1996, a graphic
packaging facility, located in Pelahatchie, MS, became operational. The
Buffalo, NY, graphic packaging facility was closed during 1997 as part of the
restructuring.
As part of its strategy to expand its packaging business globally,
Chesapeake purchased the point-of-sale display and packaging businesses of
Sailliard S.A., a leading French manufacturer of displays, rigid boxes, and
specialty folding cartons in 1996. The businesses acquired included
Sailliard PLV, specializing in the design and manufacture of permanent and
temporary point-of-sale displays; Coffrets and Plastiphane, specializing in
the design and manufacture of rigid boxes, with a focus on perfume,
champagne, and specialty products customers; and Raab Pige, specializing in
the design, printing, and manufacture of folding cartons for the luxury goods
and pharmaceutical industries. These businesses, known collectively as
Chesapeake Europe, S.A., complement the U.S. operations by offering customers
global packaging solutions.
Chesapeake Packaging
Chesapeake Packaging consists of eight corrugated shipping container
plants located in five states, which manufacture corrugated boxes and
specialty packaging for customers within each plant's geographic area. The
raw materials for the packaging plants include linerboard and corrugating
medium, which is converted to make the walls of the packaging unit. Various
converting equipment is used to print, cut, slot, and glue the container to
customer specifications. In February, 1998, Chesapeake Packaging acquired
substantially all of the assets, and assumed certain liabilities, of Rock
City Box Co., Inc., in Utica, NY. This operation manufactures corrugated
containers, trays, and pallets, as well as wood and foam packaging products.
FOREST PRODUCTS/LAND DEVELOPMENT
Chesapeake's Forest Products/Land Development segment consists of
Chesapeake Forest Products Company and Chesapeake Building Products Company,
and two companies involved in land development.
3<PAGE>
<PAGE>
Chesapeake Forest Products
Chesapeake Forest Products Company owns and actively manages
approximately 325,000 acres of timberland located in Virginia, Maryland, and
Delaware. With the sale of the Company's West Point kraft mill to St.
Laurent Paperboard (U.S.) Inc., Chesapeake's forests are now being managed to
maximize sawtimber harvest. Chesapeake's foresters use environmentally
sound, modern forestry methods intended to ensure a long-term, low-cost wood
supply to customers. Chesapeake's genetically superior pine seedlings, which
are used in the Company's reforestation program, grow quicker and provide
higher quality, more uniform fibers at the time of harvest than traditional
seedlings. Chesapeake actively utilizes natural reforestation techniques to
generate new timber stands on company-owned and privately held land. For more
than 25 years, Chesapeake has participated in research programs that have
improved the quality, disease resistance and growth rate of planted trees.
Chesapeake Building Products
Chesapeake Building Products Company operates three sawmills in Virginia
and Maryland, which manufacture pine and hardwood lumber. The raw materials
are provided from company-owned timberlands and from other landowners.
Sawmill products are sold by an internal sales force to independent users.
Delmarva Properties, Inc. and Stonehouse Inc.
Delmarva Properties, Inc. develops and markets land that has potential
for value greater than the value available when the land is managed as
timberland. Nearly all of Delmarva Properties' present land inventory of
approximately 5,200 acres was formerly timberland owned by Chesapeake Forest
Products company. Delmarva Properties develops land in Virginia, Maryland,
and Delaware primarily for residential housing. Sales also include large
lots and acreage for third parties to develop for both residential and
commercial uses. A major project involves the development of a 3,200 acre
mixed-use site next to a horse racetrack in New Kent, VA.
Stonehouse Inc.'s joint venture with Dominion Capital, Inc. provides a
partnership for the development of the first residential phase of a 7,600
acre planned community in James City County, VA. Most of Stonehouse's land
was formerly timberland owned by Chesapeake Forest Products Company.
RAW MATERIALS
Most of the Company's raw materials are readily available at competitive
prices. Prices of recycled fiber, a major raw material, reached historic
highs in 1994 and early 1995, but moderated by year-end 1995. Prices
remained at moderate levels in 1996 and 1997. See "Financial Review 1995-
1997" of the 1997 Annual Report, incorporated herein by reference.
ENVIRONMENTAL
The information presented under the caption "Financial Review 1995-1997,
Environmental" of the 1997 Annual Report is incorporated herein by reference.
EMPLOYEES
As of December 31, 1997, the Company had 5,184 employees. The Company
believes that its relations with its employees are good. In 1997, Wisconsin
Tissue entered into a five-year collective bargaining agreement with the
4<PAGE>
<PAGE>
union representing employees in Wisconsin Tissue's Menasha, WI, mill. During
1997, Wisconsin Tissue implemented an enhanced retirement program for certain
hourly employees. See _Notes to Consolidated Financial Statements, Note 6 -
Employee Retirement Plans and Note 7 - Postretirement Benefits Other Than
Pensions_ of the 1997 Annual Report, incorporated herein by reference.
COMPETITION AND SEASONALITY
Chesapeake has many customers who buy different products and is not
dependent on any single customer, or group of customers, in any market
segment. Longstanding relationships exist with many customers who place
orders on a continuing basis. Because of the nature of Chesapeake's
businesses, order backlogs are not large. The third and fourth quarters of
each year usually generate the highest sales and earnings. Chesapeake's
largest businesses generally experience peak operational activity during the
months of August through October.
Competition is intense in the Tissue and Specialty Packaging segments
from much larger companies and from local and regional producers and
converters. The Company believes that competitive factors in our industry
preclude a meaningful estimate of the number of competitors and, except as
noted, the Company's relative competitive position.
RESEARCH AND DEVELOPMENT
In addition to forestry research programs, the Company conducts limited
continuing technical research and development projects relating to new
products and improvements of existing products and processes. Expenditures
for research and development activities are not material.
Item 2. Properties
At year-end 1997, Chesapeake manufactured or converted paper and wood
products at multiple facilities in 16 states, Canada, Mexico and France. The
information presented under "Operating Locations" in the 1997 Annual Report
is incorporated herein by reference. The Company believes that its
production facilities are well maintained and in good operating condition,
and are utilized at practical capacities that vary in accordance with product
mixes, market conditions, and machine configurations.
Item 3. Legal Proceedings
The information presented in "Notes to Consolidated Financial
Statements, Note 11 - Litigation" of the 1997 Annual Report is incorporated
herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None
5<PAGE>
<PAGE>
Executive Officers of the Registrant
The name and age of each executive officer of the Company as of
February 28, 1998, together with a brief description of the principal
occupation or employment of each such person during the past five years, is
set forth below. Executive officers serve at the pleasure of the board of
directors and are elected at each annual organizational meeting of the board
of directors.
J. Carter Fox (58)
Chairman since 1994
Chief Executive Officer 1980-1997
President 1980-1995, 1996-1997
Thomas H. Johnson (48)
President and Chief Executive Officer since 1997
Vice Chairman 1996-1997 Riverwood International Corporation
President and Chief Executive Officer 1989-1996 Riverwood International
Corporation
Andrew J. Kohut (39)
Group Vice President-Specialty Packaging & Merchandising Services
since 1996
Group Vice President-Finance & Strategic Development 1995-1996
Chief Financial Officer 1991-1996
Vice President-Finance 1991-1995
William A. Raaths (51)
Group Vice President-Tissue Products since 1995
President-Wisconsin Tissue Mills Inc. since 1995
Executive Vice President- Wisconsin Tissue Mills Inc. 1994-1995
President, Chesapeake Consumer Products Company 1989-1994
William T. Tolley (40)
Group Vice President-Finance & Chief Financial Officer since 1996
Vice President, Finance & Chief Financial Officer, Carrier Corporation,
North American Operations, a division of United Technologies 1995-1996
Vice President & Chief Financial Officer, Carrier Transicold, a
division of United Technologies 1991-1995
J. P. Causey Jr. (54)
Senior Vice President, Secretary & General Counsel since 1995
Vice President, Secretary & General Counsel 1986-1995
Thomas A. Smith (51)
Vice President-Human Resources & Assistant Secretary since 1987
6<PAGE>
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The dividend and stock price information presented under the caption
"Recent Quarterly Results" of the 1997 Annual Report is incorporated herein
by reference. The Company's common stock is listed on the New York Stock
Exchange under the symbol "CSK". As of February 28, 1998, there were 6,483
stockholders of record of the Company's common stock.
Item 6. Selected Financial Data
The information for the years 1993-1997 presented under the caption
"Eleven-Year Comparative Record" of the 1997 Annual Report is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The information presented under the caption "Financial Review 1995-1997"
of the 1997 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company and its
subsidiaries, including the notes thereto, and the information presented
under the caption "Recent Quarterly Results" of the 1997 Annual Report are
incorporated herein by reference. The _Report of Independent Accountants_
as presented in the Company's 1997 Annual Report is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
7<PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information presented under the captions "Information Concerning
Nominees" and "Directors Continuing in Office" of the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held April 22,
1998 (the "1998 Proxy Statement") is incorporated herein by reference.
Item 11. Executive Compensation
The information presented under the captions "Compensation of Directors"
and "Executive Compensation" of the 1998 Proxy Statement (excluding, however,
the information presented under the subheadings "Compensation Committee
Report on Executive Compensation" and "Performance Graph") is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information presented under the caption "Security Ownership of
Certain Beneficial Owners and Management" of the 1998 Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information presented under the caption "Certain Transactions" of the
1998 Proxy Statement is incorporated herein by reference.
8<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
a. Documents
(i) Financial Statements
The consolidated balance sheet of Chesapeake Corporation
and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income and retained
earnings and cash flows for each of the three years in the
period ended December 31, 1997, including the notes
thereto, are presented in the Company's 1997 Annual Report
and are incorporated herein by reference. The "Report of
Independent Accountants" as presented in the Company's
1997 Annual Report is incorporated herein by reference.
With the exception of the aforementioned information, and
the information incorporated by reference in numbered
Items 1, 2, 3, 5, 6, 7 and 8, no other data appearing in
the 1997 Annual Report is deemed to be "filed" as part of
this Form 10-K.
(ii) Financial Statement Schedules
Schedule II _Valuation and Qualifying Accounts_ for the
three years ended December 31, 1997, is found on page 14
hereof. No other schedules are filed as part of this
report because they are not applicable or are not
required.
The _Report of Independent Accountants_ is found
on page 13 hereof.
(iii) Exhibits filed or incorporated by reference
The exhibits that are required to be filed or incorporated
by reference herein are listed in the Exhibit Index found
on pages 14-15 hereof. Exhibits 10.1-10.14 hereto
constitute management contracts or compensatory plans or
arrangements required to be filed as exhibits hereto.
b. Reports on Form 8-K
None
9<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CHESAPEAKE CORPORATION
(Registrant)
February 10, 1998 By /s/ CHRISTOPHER R BURGESS
Christopher R. Burgess
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
By By /s/ WALLACE STETTINIUS
M. Katherine Dwyer Wallace Stettinius
Director Director
By /s/ J. CARTER FOX By
J. Carter Fox John Hoyt Stookey
Chairman of the Board Director
By By /s/ RICHARD G. TILGHMAN
Robert L. Hintz Richard Tilghman
Director Director
By /s/ THOMAS JOHNSON By /s/ JOSEPH P. VIVIANO
Thomas Johnson Joseph P. Viviano
Director; Chief Executive Director
Officer and President
By /s/ HARRY H. WARNER
By /s/ WILLIAM D. McCOY Harry H. Warner
William D. McCoy Director
Director
By /s/ WILLIAM T. TOLLEY
William T. Tolley
By /s/ JOHN W. ROSENBLUM Chief Financial Officer
John W. Rosenblum
Director By /s/ CHRISTOPHER R. BURGESS
Christopher R. Burgess
By /s/ FRANK S. ROYAL Controller
Frank S. Royal
Director
Each of the above signatures is affixed as of February 10, 1998.
10<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Chesapeake Corporation:
Our report on the consolidated financial statements of Chesapeake Corporation
has been incorporated by reference in this Form 10-K from the 1997 Annual
Report to Shareholders of Chesapeake Corporation. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedule listed in item 14a(ii) on this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
Richmond, Virginia
January 22, 1998, except for the fifth paragraph
of Note 8, as to which the date is
February 10, 1998
11<PAGE>
<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
Balance at Additions
beginning charged to costs Balance
Description of year and expenses Deductions end of year
(In millions)
Valuations accounts deducted
from assets to which they
apply--for doubtful accounts
receivable
<S> <C> <C> <C> <C>
Year Ended:
December 31, 1995 $3.8 $1.4 $2.0 $3.2
December 31, 1996 $3.2 $1.7 $ .2 $4.7
December 31, 1997 $4.7 $2.6 $1.4 $5.9
</TABLE>
12<PAGE>
<PAGE> EXHIBIT INDEX
2.1 Purchase Agreement, dated as of April 30, 1997, by and between
Chesapeake Corporation, St. Laurent Paperboard Inc. and St. Laurent
Paperboard (U.S) Inc. (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8- K filed May 23, 1997, and incorporated
herein by reference)
3.1 Articles of Incorporation (filed as Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1989 and
incorporated herein by reference)
3.2 Bylaws (filed as Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996 and incorporated herein by
reference)
4.1 Indenture, dated as of July 15, 1985, between the Registrant and Sovran
Bank, N.A., as Trustee (filed as Exhibit 4.1 to Form S-3 Registration
Statement No. 33-30900 and incorporated herein by reference)
4.2 First Supplemental Indenture, dated as of September 1, 1989, to the
Indenture dated as of July 15, 1985, between the Registrant and Sovran
Bank, N.A., as Trustee (filed as Exhibit 4.1 to the Registrant's
Current Report on Form 8-K filed October 9, 1990, and incorporated
herein by reference)
4.3 Rights Agreement, dated as of March 15, 1988, between the Registrant
and Crestar Bank (filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated March 15, 1988, and incorporated herein by
reference)
4.4 Rights Agreement Amendment, dated as of August 24, 1992, between the
Registrant and Harris Trust and Savings Bank, as successor rights agent
(filed as Exhibit 4.4 to the Registrant's Registration Statement on
Form S-8 Registration Statement No. 33-56473, and incorporated herein
by reference)
4.5 Rights Agreement, dated as of March 15, 1998, between Registrant and
Harris Trust and Savings Bank, as rights agent (filed as Exhibit 1 to
Registration Statement on Form 8-A, dated March 13, 1998)
The registrant agrees to furnish to the Securities and Exchange Commission,
upon request, copies of those agreements defining the rights of holders of
long-term debt of the registrant and its subsidiaries that are not filed
herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K.
10.1 1987 Stock Option Plan (filed as Exhibit A to the Registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders held
April 22, 1987 and incorporated herein by reference)
10.2 Directors' Deferred Compensation Plan (filed as Exhibit VII to the
Registrant's Annual Report on Form 10-K for the year ended December 28,
1980 and incorporated herein by reference)
10.3 Non-Employee Director Stock Option Plan (filed as Exhibit 4.1 to Form
S-8 Registration Statement No. 33-53478 and incorporated herein by
reference)
10.4 Executive Supplemental Retirement Plan (filed as Exhibit VI to the
Registrant's Annual Report on Form 10-K for the year ended December 28,
1980 and incorporated herein by reference)
13<PAGE>
<PAGE>
10.5 Retirement Plan for Outside Directors (filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1987 and incorporated herein by reference)
10.7 Chesapeake Corporation Salaried Employees' Benefits Continuation Plan
(filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989 and incorporated herein by
reference)
10.8 Chesapeake Corporation Long-Term Incentive Plan (filed as Exhibit 10.9
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference)
10.9 Chesapeake Corporation 1993 Incentive Plan (filed as Exhibit 4.1 to
Form S-8 Registration Statement No. 33-67384 and incorporated herein by
reference)
10.10 Chesapeake Corporation Directors' Stock Option and Deferred
Compensation Plan (filed as Exhibit 10.10 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996 and incorporated herein by reference)
10.11 Chesapeake Corporation 401(k) Restoration Plan (filed as
Exhibit 10.11 to the Annual Report on Form 10-K for the year
December 31, 1996 and incorporated herein by reference)
10.12 Chesapeake Corporation 1997 Incentive Plan (filed as Exhibit
4.5 to Form S-8 Registration Statement No. 333-30763 and
incorporated herein by reference)
10.13 Agreement with Thomas H. Johnson (filed as Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the period ended
September 30, 1997 and incorporated herein by reference)
10.14 Agreement with J. Carter Fox
11.1 Computation of Net Income Per Share of Common Stock
13.1 Portions of the Chesapeake Corporation Annual Report to Stockholders
for the year ended December 31, 1997
21.1 Subsidiaries
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
99.1 Form 11-K Annual Report, Hourly Employees' Stock Purchase
Plan for the plan fiscal year ended November 30, 1997.
14<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000019731
<NAME> CHESAPEAKE CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 73,300,000
<SECURITIES> 0
<RECEIVABLES> 111,800,000
<ALLOWANCES> 5,900,000
<INVENTORY> 98,800,000
<CURRENT-ASSETS> 308,300,000
<PP&E> 858,400,000
<DEPRECIATION> 350,100,000
<TOTAL-ASSETS> 913,000,000
<CURRENT-LIABILITIES> 133,400,000
<BONDS> 264,300,000
<COMMON> 0
0
21,300,000
<OTHER-SE> 400,700,000
<TOTAL-LIABILITY-AND-EQUITY> 913,000,000
<SALES> 1,021,000,000
<TOTAL-REVENUES> 1,117,200,000
<CGS> 749,800,000
<TOTAL-COSTS> 1,001,500,000
<OTHER-EXPENSES> 5,900,000
<LOSS-PROVISION> 2,600,000
<INTEREST-EXPENSE> 22,000,000
<INCOME-PRETAX> 85,200,000
<INCOME-TAX> 34,300,000
<INCOME-CONTINUING> 50,900,000
<DISCONTINUED> 0
<EXTRAORDINARY> (2,300,000)
<CHANGES> 0
<NET-INCOME> 48,600,000
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.08<F1><F2>
<FN>
<F1>TAG NUMBER 40 REPRESENTS BASIC EARNINGS PER SHARE
<F2>TAG NUMBER 41 REPRESENTS DILUTED EARNINGS PER SHARE
</FN>
</TABLE>
<PAGE>
EXHIBIT 10.14
SUPPLEMENTAL RETIREMENT AGREEMENT
This Supplemental Retirement Agreement is entered into this 31st day of
October, 1997, between Chesapeake Corporation (Chesapeake) and J. Carter Fox
(Fox) in connection with Fox's expressed desire to step down as Chesapeake's
President and Chief Executive Officer in order to facilitate and expedite
Chesapeake's management succession process. This Agreement is entered into
in consideration of Fox's uninterrupted and valued service to Chesapeake for
35 years, 17 of which were in the capacity of Chesapeake's Chief Executive
Officer, and in consideration of the other mutual promises and undertakings
set forth herein and in a separate Agreement and Release between Chesapeake
and Fox, attached as Attachment A to this Agreement, regarding certain other
matters not addressed in this Agreement. Accordingly, Chesapeake and Fox
have agreed to the following:
(1) Fox will cease active employment with Chesapeake on March 31, 1998.
Fox will be paid salary at the rate of $525,000 a year through that
date.
Fox will work actively through December 31, 1997 and will be on
call but on vacation from January 1, 1998 through March 31, 1998.
Fox will be entitled to receive an incentive award under the
Officers' Incentive Program for 1997 as determined by the Executive
Compensation Committee of Chesapeake's Board of Directors. This
incentive award will be determined in accordance with the
Committee's normal procedures and paid when the annual incentives
are paid to other senior officers of Chesapeake (the A Bonus
Payment Date). This incentive award was estimated by Wally
Stettinius (A Stettinius), Chairman of Chesapeake's Executive
Compensation Committee, in a meeting with Fox on July 9, 1997 to be
$315,000 based on the then projected 1997 financial results for
Chesapeake.
In addition, at this meeting it was agreed that Fox would be paid
$200,000 as a bonus for his work on the sale to St. Laurent and
$100,000 as a bonus to cover the estimated FICA taxes on his
Supplemental Plan payments. These bonus payments are to be paid to
Fox on the Bonus Payment Date. All of these bonus payments ( the
annual incentive award, the $200,000 St. Laurent deal award and the
$100,000 FICA bonus) will be considered 1997 incentive bonuses in
calculating retirement benefits to Fox under the Supplemental Plan.
Fox will remain as an active participant in and be entitled to
receive any awards under the 1994-1997 Cycle and the Vision 2000
(1996-2000 Cycle) of the Long-Term Incentive Program earned for
Chesapeake's financial performance or Chesapeake's stock price
performance. These awards will be paid to Fox at the same time as
payments are made to other participants in these cycles of the
Long-Term Incentive Program. Except as otherwise provided in this
Agreement, Chesapeake has no other obligations to Fox for any
compensation, including but not limited to, salary, bonus,
severance or vacation pay.
Fox will be eligible to elect early retirement as of April 1, 1998
(his A Retirement Date) under the provisions of the Chesapeake
Corporation Retirement Plan for Salaried Employees (the A
Qualified Plan) and the Chesapeake Corporation Executive
Supplemental Retirement Plan (the A Supplemental Plan). If Fox <PAGE>
<PAGE>
elects early retirement at that time or if Fox should die before
April 1, 1998, his benefits under both retirement plans will be
enhanced by adding five (5) years to his age and service. This
enhancement of both benefits will be paid as an additional benefit
under the Supplemental Plan and will be subject to the provisions
of the Supplemental Plan. The preceding notwithstanding, if Fox
should die before April 1, 1998, his additional benefit under the
Supplemental Plan, shall be reduced by any payment under Section
4.05(b) of the Supplemental Plan.
(2) Fox will continue to be eligible to participate in Chesapeake's
employee benefits plans on the same basis as active employees,
subject to their terms, as outlined below:
(A) Fox will continue to be covered under the group medical and
life insurance programs under the same terms and conditions
applicable to active employees until his Retirement Date. At
the time Fox's coverage ceases he will have the following
options concerning his group insurance.
If Fox elects early retirement, he will be eligible to
participate in the retiree medical and life insurance programs
in accordance with their terms.
If Fox does not elect early retirement, he will have the
option under the COBRA provisions to continue his medical
coverage after termination by paying the required premium
amounts. This option will be explained to him in a separate
letter at that time.
Fox will also have the option of converting his group life
insurance coverage that is not continued under the retiree
life insurance program, or any part of that coverage, to an
individual insurance policy. His application for conversion
to an individual policy must be received by the insurance
carrier within 31 days from the date his coverage terminates
or he loses this conversion right.
(B) Fox will continue to be covered under the group dental program
until his Retirement Date. At that time he will have the
option to continue coverage for up to 18 months under the
COBRA provisions by paying the required premium amounts.
(C) Fox's elections under the Flexible Benefits Program will
continue in effect in accordance with the terms of the Program
until his Retirement Date.
(D) Unless Fox otherwise notifies Chesapeake in writing, he will
remain a participant in the Chesapeake Corporation Salaried
Employees' Stock Purchase Plan, the 401(k) Savings Plan and
the 401(k) Restoration Plan, subject to the terms of each
Plan, until his Retirement Date. Fox may continue to
participate in these Plans after his retirement to the extent,
and with the same rights, as other retired Chesapeake
employees.
(E) Fox will continue until his Retirement Date as a participant
in the Qualified Plan and the Supplemental Plan in accordance
with the terms of each plan.<PAGE>
<PAGE>
(F) Fox's rights to exercise any stock options granted to him will
expire on his Retirement Date unless he elects early
retirement. If Fox elects early retirement, his rights to
exercise his outstanding stock options will continue
thereafter until the original expiration dates of the
individual option grants.
(G) Fox will continue to be eligible to receive reimbursement for
his monthly dues at the Commonwealth Club and his automobile
reimbursement under the terms of Chesapeake's reimbursement
programs until his Retirement Date.
(H) Fox will be eligible to participate under Chesapeake's
financial planning program until his Retirement Date to assist
him in his retirement financial planning.
(I) Fox's participation in or entitlement to any and all other
benefits or benefits plans will terminate effective as of
March 31, 1998.
(3) Chesapeake agrees to reimburse Fox for his travel expenses
reasonably incurred as an active employee of Chesapeake through
March 31, 1998 upon presentation by him of proper vouchers for such
expenses. It is understood that Fox will pay all personal expenses
incurred by him on credit cards that may be issued in the name of,
or guaranteed by Chesapeake or its affiliates. Fox will return to
Chesapeake all credit cards issued to him on which Chesapeake or
its affiliates are liable either directly or as guarantor on March
31, 1998. Chesapeake will provide office space, in a location
utilized by Chesapeake in the metropolitan Richmond area, and
administrative assistance to Fox for the period August 1, 1997
through September 8, 2004. Fox may retain for his personal use the
personal computers he currently uses for business purposes.
(4) Except as authorized by, or under the terms of, the letter dated
October 31, 1997 from Harry H. Warner to Fox attached as Attachment
B to this Agreement, Fox shall not enter into an employment or
other arrangement with an enterprise in competition with Chesapeake
during the period August 1, 1997 through March 31, 1998 or during
the period Fox is receiving benefits under the Supplemental Plan.
If Chesapeake believes Fox has entered into an employment or other
arrangement in competition with Chesapeake, Chesapeake shall give
written notice to Fox and Fox shall have ninety (90) days to
terminate such employment or other arrangement. If the employment
or other arrangement is in competition with Chesapeake and Fox
fails to terminate such relationship, the payments and benefits
provided under this Agreement and the Supplemental Plan shall cease
as of the date of such written notice. If the employment or other
arrangement in competition with Chesapeake occurs before March 31,
1998 and Fox fails to terminate the relationship, Chesapeake
reserves the right to also require Fox to cease the competing
employment or other arrangement in competition with Chesapeake. If
the employment or other arrangement is in competition with
Chesapeake and occurs after March 31, 1998 and during the period
Fox is entitled to receive benefits under the Supplemental Plan and
Fox fails to terminate such relationship, Chesapeake=s sole remedy
for Fox=s failure to cease the competing employment or other
arrangement shall be cessation of the benefits payable under the
Supplemental Plan. If the parties cannot agree as to whether Fox is
in competition with Chesapeake, Chesapeake and Fox agree to use
their best efforts to resolve the dispute through mediation or <PAGE>
<PAGE>
arbitration during the 90-day period. In any mediation,
arbitration, or litigation over these issues, the reasonable legal
fees and expenses shall be paid by the party incurring the
expenses. For purposes of this Agreement, including Fox's rights to
receive benefits under the Supplemental Plan, Fox will be deemed to
be in competition with Chesapeake if he engages in competitive
activities as set forth in Section 4.07(b) of the Supplemental
Plan. Notwithstanding the foregoing, nothing in this Agreement
shall prohibit the ownership by Fox of investments in one or more
businesses that are registered under section 12 of the Securities
Exchange Act of 1934 and constitute together with all such
investments owned by any immediate family member or affiliate of or
person acting in concert with Fox less than 5% of the outstanding
registered investments in each such business.
(5) Fox shall continue to have the benefit and rights of
indemnification as a director and officer for claims against him in
connection with his activities on or before March 31, 1998 as an
officer or director of Chesapeake and as long thereafter as Fox
serves as a Director of Chesapeake or any of its subsidiaries or
affiliates.
(6) If Fox serves as a Director of Chesapeake or any of its
subsidiaries or affiliates after March 31, 1998, he will be paid on
the same basis as other outside directors.
(7) This Agreement contains all the promises and covenants made by Fox
and Chesapeake with respect to its subject matter except Chesapeake
may designate, by written notification to Fox, any specific
activity by Fox as an activity not considered in competition with
Chesapeake under the terms of Attachment B to this Agreement.
(8) This Agreement shall be binding upon Chesapeake and any purchasers
or successors to all or a substantial portion of the business of
Chesapeake.
(9) This Agreement shall be construed and enforced, to the extent not
preempted by federal law, in accordance with the laws of the
Commonwealth of Virginia (except the provisions thereof regarding
conflicts of law).
IN WITNESS WHEREOF, the parties hereto affix their signatures on the
dates indicated as follows:
CHESAPEAKE CORPORATION
Date:___________________
By:_________________________
Chairman, Committee of
Outside Directors
_________________________
Vice President
Date:___________________
_________________________
J. Carter Fox<PAGE>
<PAGE>
Attachment A to
Supplemental Retirement
Agreement dated
October 31, 1997
by and between
Chesapeake Corporation
and J. Carter Fox
AGREEMENT AND RELEASE
In consideration of the mutual promises and undertakings set forth
herein, J. Carter Fox ("Fox") and Chesapeake Corporation, and its corporate
affiliates and their officers, agents and employees ("Chesapeake"), do hereby
covenant and agree as follows:
(1) Fox acknowledges his responsibility to not use or divulge any
confidential or proprietary information to which he has had access during
his employment with Chesapeake to others in any way except by subpoena,
court order or in connection with a legal proceeding
(2) In exchange for the benefits provided by the Supplemental
Retirement Agreement (to which Fox acknowledges he would not
otherwise be entitled), Fox waives, releases, quitclaims and
covenants not to sue Chesapeake from or on account of each and
every claim, damage, demand, liability or cause of action which he
may have of any kind or nature whatsoever (whether arising under
the various state and federal laws, including, by way of example,
but not limited to, rights and possible remedies under Title VII of
the Civil Rights Act of 1964 and the Age Discrimination in
Employment Act of 1967 as amended, or any other law, order,
regulation or under the common law) occurring or arising on or
before the date that this Agreement becomes effective, which he may
have or may have had against Chesapeake, its corporate affiliates,
and their officers, agents and employees and their successors and
assigns as a result of his employment or his retirement from his
employment. This means that if Fox has any kind of legal claim
against Chesapeake because of his employment or his retirement,
whether under the Age Discrimination in Employment Act or any other
law, order, regulation or under the common law, he is giving it up
forever by signing and accepting benefits under this Agreement. He
is giving up such claims and agreeing not to sue Chesapeake for
them, if they arose before the date of this Agreement, even if he
may not know about them when he signs this Agreement. He does not
give up any right or claim which may arise after he signs this
Agreement.
(3) Fox may revoke this Agreement at any time within seven (7) days
following the date he signs it. In the event he does not revoke
it, this Agreement shall become effective on the eighth day
following the date he has signed it.
(4) Fox has read this Agreement and Release. He has had a full
twenty-one (21) days to review it and to consider it. He
has been advised and has had the opportunity to consult with
an attorney of his own choosing about it. He understands
its terms and he agrees to it voluntarily and knowingly,
understanding that it will be binding on himself, his
dependents and any successor in interest to them.<PAGE>
<PAGE>
(5) Fox and Chesapeake agree that except as required by law or a
regulatory body neither party will disclose or allow anyone else to
disclose the terms of this Agreement and Release without
Chesapeake's or Fox's, as the case may be, prior written
authorization. In addition, Fox may make necessary disclosure to
his spouse, counsel, accountant, banks with which Fox regularly does
business and tax advisor and Chesapeake may make necessary
disclosure to its legal and financial advisors.
IN WITNESS WHEREOF, the parties hereto affix their signatures on the dates
indicated as follows:
CHESAPEAKE CORPORATION
Date: ____________________
By:______________________
Chairman, Committee of
Outside Directors
_______________________
Vice President
_____________________
J. Carter Fox
Date:_____________________
<PAGE>
<PAGE>
Attachment B to
Supplemental Retirement
Agreement dated
October 31, 1997
by and between
Chesapeake Corporation
and J. Carter Fox
October 31, 1997
Mr. J. Carter Fox
8019 Riverside Drive
Richmond, VA 23225
Re: Executive Supplemental Retirement Plan
Dear Carter:
You have requested a waiver of the non-compete provisions of the Executive
Supplemental Retirement Plan (the "Plan") as to certain activities described
in your letter of July 9, 1997, to me and Wally.
With regard to the category C activities (teaching and advocating
sustainable forestry), I concur that those activities would not violate the
non-compete provisions of the Plan.
With regard to the Category A activities (serving on Boards of Directors
and buying and operating small businesses), the provisions of the non-compete
would generally control, but the company will, upon your request, consider
from time to time whether specific activities you may consider would violate
the non-compete provisions of the Plan or not and, if they do appear to
violate the non-compete provisions, whether the Company would waive the non-
compete as to such activities. The Company will not unreasonably refuse to
consider, or unreasonably delay responding to, a request you may make for a
waiver of the non-compete. I suggest that such consideration be requested
before you make any significant investment in such activities so that any
issues which may exist can be resolved in an orderly manner.
With regard to the category B activities:
a. The Company waives the non-compete provisions of the Plan as to
(i) oyster culture and the oyster business in general and (ii) ownership
or management of Spaulding Lumber Company.
b. The Company waives the non-compete provisions of the Plan as to
(i) consulting to commercial or investment banks on investment advice,
mergers and acquisitions, and financing, and (ii) securities analysis of
forest products, paper and packaging stocks. These waivers are subject
to the conditions that such activities (i) will not breach your
obligations to not disclose confidential, non-public information about
Chesapeake, (ii) will not involve your use or disclosure of information
obtained while you were an employee of Chesapeake which is restricted by
the terms of a confidentiality agreement signed by Chesapeake, and (iii)
will not involve advice on Chesapeake.
c. The Company waives the non-compete provisions of the Plan as to
your personal buying and selling of timberlands, including the growing, <PAGE>
<PAGE>
harvesting and selling trees thereon, and advocating the practice of
sustainable forestry. The Company waives the non-compete provisions of
the Plan as to consulting forestry services conducted with regard to
land which lies outside the geographical area of Virginia, Delaware and
the Eastern Shore of Maryland. The Company waives the non-compete
provisions of the Plan as to consulting forestry activities involving
land within the geographical area of Virginia, Delaware and the Eastern
Shore of Maryland provided such services do not directly compete with
Chesapeake. To the extent that you consider specific activities which
you feel may violate the non-compete provisions of the Plan, the Company
will consider such matters in the same manner as Category A activities
are to be considered. In the event of a sale or transfer of
substantially all of Chesapeake's timberlands to an unrelated third
party or parties, the non-compete provisions of the Plan would be deemed
to not restrict your consulting forestry activities.
To the extent you have questions from time to time about the potential
application of the non-compete provisions of the Plan to activities you are
considering, please contact J.P. Causey and he will provide you a response.
Sincerely,
Harry H. Warner
Chairman,
Committee of Outside
Directors<PAGE>
EXHIBIT 11.1
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
for the three years ended December 31, 1997
(Share amounts in thousands, dollar amounts
in millions, except for per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic:
Weighted average number of common shares
outstanding 23,149 23,528 23,824
====== ====== ======
Income before extraordinary item $50.9 $30.1 $93.4
Extraordinary item (2.3) - -
----- ----- -----
Net income $48.6 $30.1 $93.4
===== ===== =====
Per share amount:
Earnings before extraordinary item $2.20 $1.28 $3.92
Extraordinary item (.10) - -
----- ----- -----
Earnings $2.10 $1.28 $3.92
===== ===== =====
Diluted:
Weighted average number of common
shares outstanding 23,149 23,528 23,824
Net additional common shares
issuable upon exercise of
dilutive options, determined
by treasury stock method using
the average price 211 117 227
Common shares, equivalents, and other ------ ------ ------
potentially dilutive securities 23,360 23,645 24,051
====== ====== ======
Income before extraordinary item $50.9 $30.1 $93.4
Extraordinary item (2.3) - -
----- ----- -----
Net income $48.6 $30.1 $93.4
===== ===== =====
Per share amount:
Earnings before extraordinary item $2.18 $1.27 $3.88
Extraordinary item (.10) - -
----- ----- -----
Earnings $2.08 $1.27 $3.88
===== ===== =====
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARY CORPORATIONS OF CHESAPEAKE CORPORATION
December 31, 1997
State of
Name Incorporation
Cary St. Company Delaware
The Chesapeake Corporation of Virginia Virginia
Chesapeake Display and Packaging Company Iowa
Chesapeake Forest Products Company Virginia
Chesapeake Packaging Co. Virginia
Chesapeake Recycling Co. Virginia
Chesapeake Resources Company Virginia
Chesapeake Trading Corp. Virginia
Chesapeake Trading Company, Inc. U. S. Virgin Islands
Chesapeake Building Products Company Virginia
Color-Box, Inc. Indiana
Delmarva Properties, Inc. Virginia
Stonehouse Inc. Virginia
Wisconsin Tissue Mills Inc. Delaware
Chesapeake International Holding Company Virginia
Wisconsin Tissue de Mexico S.A. de C.V. Mexico
Chesapeake Display and Packaging
(Canada) Limited Ontario, Canada
Chesapeake Europe S.A. France
Sailliard PLV France
Raab-Pige France
Chesapeake Coffrets France
Plastiphane France<PAGE>
EXHIBIT 23.1
CONSENT OF COOPERS & LYBRAND L.L.P.
We consent to the incorporation by reference of our report dated January 22,
1998, except for the fifth paragraph of Note 8, as to which the date is February
10, 1998, on our audits of the consolidated financial statements of Chesapeake
Corporation and subsidiaries ("Chesapeake Corporation") as of December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
which report is incorporated by reference in this Annual Report on Form 10-K, in
the following registration statements on Form S-8:
The Chesapeake Corporation of Virginia 1981 Stock Incentive Plan (File No.
2-71595)
Salaried Employees' Stock Purchase Plan (File No. 33-14926)
Hourly Employees' Stock Purchase Plan (File No. 2-79636)
Chesapeake Corporation 1987 Stock Option Plan (File No. 33-14925)
Chesapeake Corporation 401(k) Savings Plan for Salaried Employees (File No.
33-14927)
Chesapeake Corporation 401(k) Savings Plan for Hourly Employees (File No.
33-26150)
Chesapeake Corporation Non-Employee Director Stock Option Plan (File No.
33-53478)
Wisconsin Tissue Mills Inc. 401(k) Savings Plan for Hourly Employees (File
No. 33-55558)
Chesapeake Corporation 1993 Incentive Plan (File No. 33-67384)
Chesapeake Packaging Co. 401(k) Savings Plan for Hourly Employees (File No.
33-56473)
Chesapeake Corporation Stock Purchase Plan for Hourly Employees of Wisconsin
Tissue Mills Inc. (File No. 33-314189)
Chesapeake Corporation 1997 Incentive Plan (File No. 333-30763)
We consent to the incorporation by reference in the registration statement on
Form S-8 for the Hourly Employees' Stock Purchase Plan (File No. 2-79636) of our
report dated March 3, 1998, on our audits of the balance sheet of the Hourly
Employees' Stock Purchase Plan of Chesapeake Corporation as of November 30, 1997
and 1996, and the related statement of changes in plan equity for each of the
three years in the period ended November 30, 1997, which report is included in
the Annual Report on Form 11-K (Exhibit 99.1).
/s/ Coopers & Lybrand L.L.P.
Richmond, Virginia
March 23, 1998<PAGE>
<PAGE>
Exhibit 13.1
Portions of the
CHESAPEAKE CORPORATION
Annual Report to Stockholders
For the year ended December 31, 1997
<PAGE>
<PAGE>
RECENT QUARTERLY RESULTS
<TABLE>
<CAPTION>
Income(loss)
Before
Extra- Net
Net Gross ordinary Income
Quarter Sales Profit Item (loss)
- --------------------------------------------------------------------
(Dollar amounts in millions except per share amounts)
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995:
First $ 291.1 $ 70.5 $20.8 $20.8
Second 315.1 71.4 18.5 18.5
Third 330.8 82.6 29.9 29.9
Fourth 296.7 67.7 24.2 24.2
------- ----- ----- -----
Year $1,233.7 $292.2 $93.4 $93.4
======== ====== ===== =====
1996:
First $ 277.7 $ 53.8 $ 7.9 $ 7.9
Second 276.6 51.5 3.9 3.9
Third 309.3 62.8 9.5 9.5
Fourth 295.0 60.4 8.8 8.8
------- ----- ----- -----
Year $1,158.6 $228.5 $30.1 $30.1
======== ====== ===== =====
1997:
First $ 294.5 $ 44.2 $(3.5) $(3.5)
Second 264.3 43.2 37.1* 34.8*
Third 233.7 53.9 9.7 9.7
Fourth 228.5 57.6 7.6 7.6
-------- ------ ---- ----
Year $1,021.0 $198.9 $50.9* $48.6*
======== ====== ===== =====
</TABLE>
<PAGE>
<PAGE>
RECENT QUARTERLY RESULTS, Continued
<TABLE>
<CAPTION> Per Share
-----------------------------------------------------------------
Earnings(loss)
Before
Extra-
ordinary Earnings
Item (loss) Dividends Stock Price
Quarter Basic Diluted Basic Diluted Declared High Low
- -------------------------------------------------------------------------------
(Dollar amounts in millions except per share amounts)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995:
First $ 0.87 $ 0.87 $ 0.87 $ 0.87 $0.18 $34.25 $28.50
Second 0.78 0.77 0.78 0.77 0.20 33.75 28.50
Third 1.25 1.24 1.25 1.24 0.20 39.00 30.75
Fourth 1.01 1.01 1.01 1.01 0.20 35.38 27.50
-----
Year 3.92 3.88 3.92 3.88 $0.78
=====
1996:
First $ 0.33 $ 0.33 $ 0.33 $ 0.33 $0.20 $30.50 $25.25
Second 0.17 0.17 0.17 0.17 0.20 30.50 25.25
Third 0.41 0.40 0.41 0.40 0.20 27.63 23.13
Fourth 0.38 0.37 0.38 0.37 0.20 31.75 26.50
-----
Year 1.28 1.27 1.28 1.27 $0.80
=====
1997:
First $(0.15) $(0.15) $(0.15) $(0.15) $0.20 $32.50 $27.13
Second 1.58* 1.56* 1.48* 1.46* 0.20 36.00 27.25
Third 0.41 0.41 0.41 0.41 0.20 36.50 29.94
Fourth 0.34 0.34 0.34 0.34 0.20 36.75 31.44
-----
Year 2.20* 2.18* 2.10* 2.08 $0.80
=====
</TABLE>
* Includes after-tax gain of $49.1 million, or $2.07 per share, on the sale of
the West Point Mill and four box plants to St. Laurent Paperboard (U.S.) during
the second quarter of 1997.
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Chesapeake Corporation:
We have audited the accompanying consolidated balance sheet of
Chesapeake Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income and retained earnings and cash
flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Chesapeake Corporation and subsidiaries as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Richmond, Virginia
January 22, 1998, except for
the fifth paragraph of Note 8,
as to which the date is February 10, 1998
<PAGE>
<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<OPTION>
December 31,
1997 1996
---- ----
(In millions)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 73.3 $ 9.8
Accounts receivable, net 111.8 153.9
Inventories 98.8 134.4
Deferred income taxes 17.8 16.5
Other 6.6 6.2
------- --------
Total current assets 308.3 320.8
------- --------
Property, plant, and equipment:
Plant sites and buildings 160.6 197.1
Machinery and equipment 632.7 1,342.9
Construction in progress 25.3 40.0
------- --------
818.6 1,580.0
Less accumulated depreciation 350.1 756.3
------- --------
468.5 823.7
Timber and timberlands 39.8 39.8
------- --------
Net property, plant, and equipment 508.3 863.5
------- --------
Other assets 96.4 105.9
------- --------
$ 913.0 $1,290.2
======= ========
</TABLE>
<PAGE>
<PAGE>
December 31,
1997 1996
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $126.6 $ 150.3
Current maturities of long-term debt .6 3.9
Dividends payable 4.3 4.7
Income taxes payable 1.9 0.6
----- ------
Total current liabilities 133.4 159.5
----- ------
Long-term debt 264.3 499.4
----- ------
Other long-term liabilities 5.8 7.3
----- ------
Postretirement benefits other
than pensions 19.1 28.0
----- ------
Deferred income taxes 68.4 126.9
----- ------
Stockholders' equity:
Common stock, $1 par value;
authorized, 60 million shares;
outstanding, 21.3 million and
23.4 million shares 21.3 23.4
Additional paid-in capital 26.4 97.2
Foreign currency translation adjustment (2.8) -
Other (1.7) -
Retained earnings 378.8 348.5
----- ------
422.0 469.1
------ -------
$913.0 $1,290.2
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are part
of the financial statements.<PAGE>
<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
(In millions except per share data)
<S> <C> <C> <C>
Income:
Net sales $1,021.0 $1,158.6 $1,233.7
Costs and expenses:
Cost of products sold 749.8 843.0 867.9
Depreciation and cost of timber
harvested 72.3 87.1 73.6
Selling, general, and administrative
expenses 160.5 154.2 130.9
Restructuring/special charges 18.9 - -
-------- ------ ------
Income from operations 19.5 74.3 161.3
Gain on sale of businesses 86.3 - 1.8
Other income, net 1.4 6.7 9.3
-------- ------ ------
Income before interest, taxes,
and extraordinary item 107.2 81.0 172.4
Interest expense, net (22.0) (33.9) (30.8)
-------- ------ ------
Income before taxes and
extraordinary item 85.2 47.1 141.6
Income taxes 34.3 17.0 48.2
-------- ------ ------
Income before extraordinary item 50.9 30.1 93.4
Extraordinary item, net of income taxes (2.3) - -
-------- ------- -------
Net income $ 48.6 $ 30.1 $ 93.4
======== ======= =======
Basic earnings per share:
Earnings before extraordinary
item $ 2.20 $ 1.28 $ 3.92
Extraordinary item, net of income
taxes (.10) - -
-------- ------- -------
Earnings $ 2.10 $ 1.28 $ 3.92
======== ======= =======
Diluted earnings per share:
Earnings before extraordinary
item $ 2.18 $ 1.27 $ 3.88
Extraordinary item, net of income
taxes (.10) - -
-------- ------- -------
Earnings $ 2.08 $ 1.27 $ 3.88
======== ======= =======
</TABLE>
<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
(In millions except per share data)
<S> <C> <C> <C>
Retained earnings:
Balance, beginning of year $ 348.5 $ 337.2 $ 262.4
Net income 48.6 30.1 93.4
Cash dividends declared per share,
$0.80 in 1997 and 1996, and
$0.78 in 1995 (18.3) (18.8) (18.6)
-------- ------- ------
Balance, end of year $ 378.8 $ 348.5 $ 337.2
======== ======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
part of the financial statements.<PAGE>
<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
(In millions)
<S> <C> <C> <C>
Operating activities:
Net income $ 48.6 $ 30.1 $ 93.4
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation, cost of timber harvested,
and amortization of intangibles 75.8 90.2 75.8
Deferred income taxes (59.8) 7.8 11.6
(Gains) losses on sales of property,
plant, and equipment, net (.2) 0.5 (5.6)
Gain on sale of businesses (86.3) - (1.8)
Restructuring/special charges 18.9 - -
Changes in operating assets and
liabilities, net of acquisitions
and dispositions:
Accounts receivable, net (6.3) 12.8 (22.6)
Inventories (2.6) (10.8) (29.0)
Other assets (18.8) (5.0) 8.4
Accounts payable and accrued expenses (4.0) 6.9 12.6
Income taxes payable 1.2 (2.8) (2.3)
Other payables 2.1 1.5 3.2
----- ----- -----
Net cash (used in) provided by operating
activities (31.4) 131.2 143.7
----- ----- -----
Investing activities:
Purchases of property, plant, and equipment (68.2) (128.8) (157.7)
Acquisitions - (47.2) (69.7)
Proceeds from sales of property, plant,
and equipment 1.7 3.3 7.4
Proceeds from sale of businesses 491.0 - 28.9
Other - - 6.7
----- ----- ------
Net cash provided by(used in)investing
activities 424.5 (172.7) (184.4)
------ ------ ------
Financing activities:
Net borrowings (payments) on credit lines (179.0) 84.7 100.0
Payments on long-term debt (66.7) (15.2) (71.7)
Proceeds from long-term debt 8.5 11.5 1.2
Proceeds from issuances of common stock 1.5 0.1 2.2
Purchases of outstanding common stock (79.4) (16.0) (5.6)
Dividends paid (18.7) (18.9) (18.1)
Other 4.2 (0.1) 0.9
------ ------ ------
Net cash (used in) provided by financing
activities (329.6) 46.1 8.9
------ ------ ------
Increase (decrease) in cash and
cash equivalents 63.5 4.6 (31.8)
Cash and cash equivalents
at beginning of year 9.8 5.2 37.0
Cash and cash equivalents at end of year $ 73.3 $ 9.8 $ 5.2
====== ===== =====
</TABLE>
The accompanying Notes to Consolidated Financial Statements are part of
the financial statements.<PAGE>
<PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Principles of Consolidation: The consolidated financial
statements include the accounts and operations of Chesapeake
Corporation and subsidiaries (the "Company"). All significant
intercompany accounts and transactions are eliminated. Certain
prior-year amounts have been reclassified to conform to current
presentations.
b. Cash and Cash Equivalents: Cash and cash equivalents include
highly liquid, temporary cash investments with original maturities
of three months or less.
c. Inventories: Inventories are valued at the lower of cost or
market. The cost of substantially all applicable product and
manufacturing materials inventories is determined by the last-in,
first-out (LIFO) method. The cost of other inventories is
determined principally by the average cost method.
d. Property, Plant, and Equipment: Property, plant, and equipment,
except timber and timberlands, are stated at cost. Timber and
timberlands are stated at cost net of the accumulated cost of
timber harvested. The costs of major rebuilds and replacements of
plant and equipment are capitalized, and the costs of ordinary
maintenance and repairs are charged to income as incurred. When
properties are sold or retired, their costs and the related
accumulated depreciation are removed from the accounts, and the
gains or losses are reflected in income. Assets are periodically
reviewed for impairment based on evaluation of expected future
cash flows.
e. Depreciation: Depreciation for financial reporting purposes is
computed principally by the straight-line method, based on the
following estimated useful lives of the assets:
Building and improvements 10 - 40 years
Machinery and equipment 5 - 20 years
Furniture and fixtures 3 - 10 years
f. Cost of Timber Harvested: Cost of timber harvested is computed on
quantities cut from individual Company-owned tracts based on costs
and estimated volumes of recoverable timber.
g. Income Taxes: The Company defers to future periods the income tax
effects resulting from temporary differences (principally benefit
accruals and depreciation) between the financial and income tax
basis of assets and liabilities.
h. Earnings Per Share: During 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," which requires the dual presentation of basic EPS and
diluted EPS. Basic EPS is based on the weighted average number of
outstanding common shares for the period (23,148,978 in 1997;
23,527,594 in 1996; and 23,824,350 in 1995). Diluted EPS adjusts
the weighted average for the potential dilution that could occur
if stock options or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that would then share in earnings
(23,360,129 in 1997; 23,644,843 in 1996; and 24,050,719 in 1995).
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. Summary of Significant Accounting Policies, continued
Differences between historical quarterly EPS amounts, reported on a
primary EPS basis, and amounts now reported as basic or diluted are
$.01 per share or less.
i. Stock-Based Compensation: During 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation." This standard
defines a "fair-value-based" method of accounting for stock option
plans and similar equity instruments, but also allows for
continued use of Accounting Principles Board ("APB") Opinion No.
25 to account for these plans and instruments, provided that
financial statements include pro forma disclosure as if the fair
value method had been adopted. APB No. 25 measures compensation
cost using the intrinsic-value-based method. The Company has
elected to continue to use APB No. 25 and provide pro forma
disclosures.
j. Other: Goodwill, the cost in excess of estimated fair value of
identifiable assets of acquired businesses (net of $16.4 million
and $13.8 million accumulated amortization at year-end 1997 and
1996, respectively), is being amortized on a straight-line basis
over 40 years or less. During 1997, goodwill was reduced by $5.5
million for restructuring write-offs and by $5.4 million due to
sale of businesses. The Company reviews goodwill annually for
impairment based on expected future cash flows. Research and
development costs, not significant in amount, are charged to
income as incurred.
k. Risks and Uncertainties: Chesapeake operates in three business
segments--Tissue, Specialty Packaging, and Forest Products/Land
Development--which offer a diversity of products over a broad
geographic base. The Company is not dependent on any single
customer, group of customers, market, geographic area, or supplier
of materials, labor, or services. Financial statements include,
where necessary, amounts based on the judgments and estimates or
services. Financial statements include, where necessary, amounts
based on the judgments and estimates of management. These
estimates include allowances for bad debts, accruals for landfill
closing costs, inventories, environmental remediation costs, loss
contingencies for litigation, self-insured medical and workers
compensation insurance, income taxes, and determinations of
discount and other rate assumptions for pensions and
post-retirement benefit expenses. Actual results could differ from
these estimates.
l. Fair Value of Financial Instruments and Risk Concentrations:
The carrying amounts of temporary cash investments, trade
receivables, and trade payables approximate fair value because of
the short maturity of the instruments. Financial instruments that
potentially subject the Company to concentrations of credit risk
consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments in
high quality financial instruments and, by policy, limits the
amount of credit exposure related to any one instrument.
Concentrations of credit risk in regard to trade receivables are
PAGE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. Summary of Significant Accounting Policies, continued
limited due to the large number of customers and their dispersion
across different industries and geographic areas. The Company has
no material derivative instruments or transactions outstanding as
of the end of 1997.
m. New Accounting Standards: During 1997, the Financial Accounting
Standards Board ("FASB") issued several new pronouncements,
including standards on information about capital structure,
comprehensive income, and business segment reporting. These
standards are not expected to have a material impact on the
Company's financial statements.
n. Foreign Currency Transactions: 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.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Divestitures and Acquisitions
On May 23, 1997, the Company completed the sale to St. Laurent
Paperboard (U.S.) Inc. ("St. Laurent (U.S.)"), a wholly-owned subsidiary
of St. Laurent Paperboard Inc. ("St. Laurent")(Toronto and Montreal:
SPI), of: (i) the sole membership interest in Chesapeake Paper Products
Company LLC (successor to Chesapeake Paper Products Company ("CPPC")),
a wholly-owned subsidiary of the Company which, as of the closing date,
owned and operated the Company's kraft products mill located in West
through a subsidiary substantially all of the assets of four of the
Company'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 million was paid in cash
at closing, with a post-closing purchase price adjustment of
approximately $10 million paid to the buyer. The transaction resulted
in a pre-tax gain for Chesapeake of $86.3 million ($49.1 million
after-tax, or $2.07 a share), which was recorded in the second quarter
of 1997. Chesapeake used approximately $250 million of the net after-
tax proceeds to reduce debt, $79.4 million of the net after-tax proceeds
to repurchase its common stock, and plans to use the remainder of the
net after-tax proceeds for further repurchases of its common stock and
to finance growth opportunities internally and through acquisitions.
Chesapeake retained ownership of its 325,000 acres of timberlands
following the transaction, and entered into a 15-year agreement with St.
Laurent Forest Products Corp., a wholly-owned subsidiary of St. Laurent
(U.S.), to supply the West Point Mill with a substantial portion of its
virgin fiber requirements at market prices. St. Laurent Paper Products
Corp. and St. Laurent Packaging Corp., each wholly-owned subsidiaries of
St. Laurent (U.S.), entered into five-year agreements with Chesapeake to
supply Chesapeake's remaining packaging operations with a portion of
their liner board, corrugating medium, and corrugated sheet
requirements.
Chesapeake has agreed to indemnify St. Laurent and St. Laurent
(U.S.) against losses incurred by them which are attributable to any
breach of a representation, warranty, or covenant made by Chesapeake in
the Purchase Agreement, provided notice is given to Chesapeake within
the applicable survival period specified therein.
In December, 1995, the Company sold its consumer tissue business,
Chesapeake Consumer Products Company, to The Fonda Group, Inc.
In February, 1998, Chesapeake Packaging Co. purchased substantially
all of the assets, and assumed certain liabilities, of Rock City Box
Co., Inc., of Utica, NY. This operation manufactures corrugated
containers, trays, and pallets, as well as wood and foam packaging
products.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Divestitures and Acquisitions, continued
Packaging segment acquisitions during 1996 included the April purchase
of substantially all of the assets associated with the Display Division
of Dyment Limited, with locations in Erlanger, KY, and Toronto, Canada;
and the August purchase of the point-of-sale display and packaging
business of Sailliard S.A., with 10 locations in France. In December,
1996, the tissue converting assets of Jokel Desarrollos, S.A. de C.V.
and Ambitec, S.A. de C.V., both in Mexico, were acquired and are
included in the Tissue segment.
Acquisitions completed in 1995 were all in the Tissue segment
and were comprised of the May purchase of the assets of the Flagstaff,
AZ, mill of Orchids Paper Products Company; the November purchase of the
Chicago, IL, mill of Chicago Tissue Company, L. P., and the purchase of
a tissue-converting facility in Greenwich, NY. <PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
3. Inventories
Year-end inventories consist of:
1997 1996 1995
(In millions)
<S> <C> <C> <C>
Finished goods $ 26.7 $ 44.1 $ 33.7
Work in process 36.2 35.9 33.3
Materials and supplies 35.9 54.4 45.5
------ ------ ------
Totals $ 98.8 $134.4 $112.5
====== ====== ======
</TABLE>
Inventories determined by the LIFO method, included in the above,
totaled (in millions) $46.0 for 1997, $75.7 for 1996, and $63.7 for
1995, or $5.3, $5.1, and $16.2 less than the respective amounts of such
inventories stated at lower of cost or market.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
4. Long-Term Debt
Long-term debt at year-end consists of:
1997 1996
(In millions)
<S> <C> <C>
Notes payable - banks (unsecured):
Credit lines, interest 3.86% to 6.00% $ 8.7 $187.7
Term loan, interest 5.15%, due 2002 8.3 -
Term loan, interest 6.78%, due 2000 - 25.0
Unsecured notes:
5.25% notes, due 1997 - 9.0
10.375% notes, due 2000 55.0 55.0
9.875% notes, due 2003 33.6 60.0
7.20% notes, due 2005 85.0 85.0
Industrial development authority
obligations:
6.375% to 6.875% notes, due 1998-2003 5.8 5.9
6.25% to 6.375% notes, due 2019 50.0 50.0
6.21% notes, due 2021 10.0 10.0
Other debt 8.5 15.7
------ ------
Totals 264.9 503.3
Less current maturities .6 3.9
------ ------
$264.3 $499.4
====== ======
/TABLE
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Long-Term Debt, continued
Principal payments on long-term debt (excluding credit lines and
capital leases) for the next five years are (in millions): 1998 $0.1;
1999 $3.4; 2000 $55.8; 2001 $.8; and 2002 $9.1.
The Company maintains credit lines with several banks, domestically
and internationally, maturing in 2000-2002, under which it can borrow up
to $68 million at interest rates not to exceed LIBOR plus 0.275%.
Nominal facility fees are paid on the credit lines. Other lines of
credit totaling $105 million are maintained with several banks on an
uncommitted basis.
Certain loan agreements include provisions permitting the holder of
the debt to require the Company to repurchase all or a portion of such
debt outstanding upon the occurrence of specified events involving a
change of control or ownership. In addition, various loan agreements
contain provisions that restrict the disposition of certain assets,
require the Company to maintain a ratio of long-term debt to total
capital not in excess of 60%, and to meet an annual cash flow test.
During 1997, the Company used proceeds from the sale of businesses to
reduce credit line borrowings by $179.0 million and long-term debt by
$66.7 million. The reduction of long-term debt included certain
repurchases of debt that resulted in an extraordinary loss of $2.3
million after tax.
Interest expense is net of capitalized interest of $0.2 million
and $0.3 million for 1997 and 1996, respectively. No interest was
capitalized in 1995.
The Company has estimated the fair value of long-term debt for 1997
to be $282.8 million, or 7% higher than the book value of
$264.3 million. For 1996, the Company estimated the fair value of
long-term debt to be $515.9 million, or 3% higher than the book value
of $499.4 million. The fair value is based on the quoted market prices
for similar issues or current rates offered for debt of the same or
similar maturities.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Income Taxes
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996 1995
(In millions)
<S> <C> <C> <C>
Currently payable:
Federal $85.7 $ 9.4 $32.7
State 8.6 (0.2) 2.8
Foreign 0.1 - -
---- ---- ----
Total current 94.4 9.2 35.5
---- ---- ----
Deferred:
Federal (52.9) 7.4 12.5
State (7.1) 1.1 0.2
Foreign (0.1) (0.7) -
----- ----- -----
Total deferred (60.1) 7.8 12.7
----- ----- -----
Total income taxes $34.3 $17.0 $48.2
===== ===== =====
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Income Taxes, continued
Significant components of the year-end deferred income
tax assets and liabilities are:
<TABLE>
<CAPTION> 1997 1996
(In millions)
<S> <C> <C>
Postretirement medical benefits $ 7.2 $ 10.8
Workers compensation accruals 3.3 3.2
Tax carryforward benefits 3.9 4.0
Valuation allowance (2.6) (2.3)
Other 15.3 16.0
------ ------
Deferred tax assets 27.1 31.7
------ ------
Accumulated depreciation (70.1) (133.3)
Pension accruals (6.3) (7.5)
Other (1.3) (1.3)
------ ------
Deferred tax liabilities (77.7) (142.1)
------ ------
Net deferred taxes $(50.6) $(110.4)
====== =======
Classified in balance sheet as
Current assets $ 17.8 $ 16.5
Long-term liabilities (68.4) (126.9)
------ -------
Net deferred taxes $(50.6) $(110.4)
====== =======
</TABLE>
The valuation allowance primarily relates to state income tax credit
carryforwards that expire from 2001 through 2010.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Income Taxes, continued
The differences between the Company's effective income
tax rate and the statutory federal income tax rate are:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
income tax benefit 0.8 1.2 1.4
Goodwill and other purchase
accounting adjustment 4.7 1.1 0.2
Other, net (0.2) (1.2) (2.6)
---- ---- ----
Consolidated effective income
tax rate 40.3% 36.1% 34.0%
==== ==== ====
</TABLE>
The Company's intention is to permanently reinvest the undistributed
earnings of its foreign subsidiaries. Computation of the potential
deferred taxes associated with these undistributed earnings is not
practicable.
<PAGE>
<PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Employee Retirement Plans
The Company maintains several noncontributory defined benefit
retirement plans covering substantially all U.S. and foreign employees.
Pension benefits are based primarily on the employees' compensation
and/or years of service. Annual pension costs are actuarially
determined, and the domestic plans are funded with sufficient assets to
meet future benefit payment and regulatory requirements. Foreign plans
are funded in accordance with local practices. The net periodic
pension cost includes amortization of prior service costs over periods
of the greater of 15 years or the average remaining employee service
period.
Assumptions used in determining the net domestic pension credit
(based on beginning-of-the-year assumptions) for 1997, 1996, and 1995
and related pension obligations (based on year-end assumptions) as of
October 1 were:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Discount rate 7 1/4% 7 3/4% 7 3/4%
Increase in future
compensation levels 4 3/4 4 3/4 4 3/4
Long-term rate of return
on assets 9 1/2 9 1/4 9 1/4
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Employee Retirement Plans, continued
The following table, based on actuarial valuations as of October
1, 1997 and 1996, sets forth the plans' funded status and amounts
recognized in the Company's consolidated financial statements for 1997
and 1996, including the effect of the transfer of certain plan assets
to St. Laurent(U.S.) in December, 1997:
<TABLE>
<CAPTION> 1997 1996
(In millions)
<S> <C> <C>
Accumulated benefit obligation:
Vested benefits $ 82.5 $103.8
Nonvested benefits 7.1 12.2
------ ------
Totals 89.6 116.0
Effect of projected future
salary increases 13.1 21.1
------ ------
Projected benefit obligation
for service rendered to date 102.7 137.1
Plan assets at fair value,
primarily corporate equity and
debt securities 113.3 158.2
----- -----
Plan assets in excess of projected
benefit obligation 10.6 21.1
Unrecognized net (gain) loss from past
experience different from that assumed
and effects of changes in assumptions .1 (2.2)
Unrecognized net asset at beginning of
plan year being amortized principally
over 17 years (3.8) (9.2)
----- -----
Prepaid pension cost recognized in Other
assets $ 6.9 $ 9.7
====== =====
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Employee Retirement Plans, continued
The components of the net pension cost (credit) for 1997,
1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In millions)
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 4.0 $ 4.9 $ 3.9
Interest cost on
projected benefit obligation 8.3 9.4 8.2
Actual return on plan assets (31.4) (18.6) (22.1)
Net amortization and deferral 20.2 5.4 9.4
------ ------ ------
Net pension cost (credit) $ 1.1 $ 1.1 $ (0.6)
====== ====== ======
</TABLE>
In the second quarter of 1997, Chesapeake sold the West Point
Mill, four box plants, and other related assets to St. Laurent (U.S.).
This transaction resulted in a pre-tax charge of approximately $11.0
million related to pension settlement, offset in part by a pre-tax
curtailment gain of approximately $10.0 million.
In the third quarter of 1997, Wisconsin Tissue Mills Inc. ("WT")
implemented an enhanced retirement program for certain hourly
employees which resulted in a pre-tax charge of approximately $1.3
million.
In the second quarter of 1995, CPPC implemented an enhanced
retirement program for certain hourly employees at its West Point Mill
which resulted in a pre-tax charge of approximately $3.1 million
related to pensions. <PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Postretirement Benefits Other Than Pensions
The Company provides certain health care and life insurance
benefits to certain hourly and salaried employees who retire under
the provisions of the Company's retirement plans. The Company does
not pre-fund these benefits.
During 1997, Chesapeake sold the West Point Mill, four box
plants, and other related assets to St. Laurent (U.S.) resulting in a
decrease to the postretirement benefit liability and pre-tax
curtailment gain of $9.8 million. Also during 1997, WT implemented an
enhanced retirement program for certain hourly employees. A service
cost of $.3 million was related to this program. During 1995, CPPC
implemented enhanced retirement programs for certain hourly employees.
A service cost of $1.6 million was related to the 1995 program. The
components of postretirement benefits expense for 1997, 1996, and 1995
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In millions)
<S> <C> <C> <C>
Service cost-benefits
earned during the period $1.1 $1.1 $2.4
Interest cost on accumulated
postretirement benefit obligation 1.8 2.1 2.3
Amortization of net loss - - 0.2
---- ---- ----
Net postretirement benefit cost $2.9 $3.2 $4.9
==== ==== ====
</TABLE> <PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Postretirement Benefits Other Than Pensions, continued
The following table sets forth the accumulated postretirement
benefit obligation recognized in the Company's consolidated balance
sheet as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
(In millions)
<S> <C> <C>
Retirees $14.3 $19.6
Fully eligible active plan participants 3.8 5.0
Other active plan participants 3.1 5.1
----- -----
Accumulated postretirement benefit
obligation 21.2 29.7
Unrecognized prior service cost - (0.1)
Unrecognized net loss (2.1) (1.6)
----- -----
Accrued postretirement benefit
obligation $19.1 $28.0
===== =====
</TABLE>
The assumed health care cost trend rate used in measuring future
benefit costs was 11% in 1995, 10% in 1996, and 9% in 1997, gradually
declining to 5.25% by 2003 and remaining at that level thereafter. A
1% increase or decrease in this annual trend rate would change the
accumulated postretirement benefit obligation at December 31, 1997, by
$1.4 million and the 1997 postretirement benefit expense by $.2
million. The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% in 1997 and 7.75% in 1996
and 1995 and the assumed rate of increase in future compensation levels
was 4.75% in 1997, 1996, and 1995.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Capital Stock and Additional Paid-In Capital
Changes in common stock and additional paid-in capital during 1995,
1996, and 1997 were:
<TABLE>
<CAPTION>
Common Stock
-----------------------
Additional
Aggregate Paid-In
Shares Par Value Capital
-------- --------- ----------
(Dollar amounts in millions)
<S> <C> <C> <C>
Balances, January 1, 1995 23,753,706 $23.8 $107.1
Issuances of shares:
Employee stock plans 231,327 0.2 4.7
Purchases of shares (192,600) (0.2) (5.4)
Other - - 0.9
---------- ----- ------
Balances, December 31, 1995 23,792,433 23.8 107.3
Issuances of shares:
Employee stock plans 195,748 0.2 5.3
Purchases of shares (590,044) (0.6) (15.4)
---------- ---- -----
Balances, December 31, 1996 23,398,137 23.4 97.2
Issuances of shares:
Employee stock plans 253,233 0.2 6.3
Purchases of shares (2,321,138) (2.3) (77.1)
---------- ----- -----
Balances, December 31, 1997 21,330,232 $21.3 $26.4
========== ===== =====
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Capital Stock and Additional Paid-In Capital, continued
During the year, in accordance with board of directors
authorizations, the Company repurchased, in open market and privately
negotiated transactions, and immediately retired 2,321,138 shares of
its common stock for an aggregate purchase price of $ 79.4 million.
In addition to its common stock, the Company's authorized capital
includes 500,000 shares of preferred stock ($100 par), of which 100,000
shares are designated as Series A Junior Participating Preferred Stock
("Series A Preferred"). There were no preferred shares outstanding
during the three years ended December 31, 1997.
Under the terms of a shareholder rights plan adopted in 1988 (the
"1988 Plan"), each outstanding share of the Company's common stock has
attached to it one preferred share purchase right, which entitles the
shareholder to buy one unit (one one-thousandth of a share) of Series A
Preferred at an exercise price of $70 a share, subject to adjustment.
The rights will become exercisable only if a person or group acquires, or
announces a tender offer for, 20% or more of Chesapeake's common stock.
When exercisable, Chesapeake may issue a share of common stock in
exchange for each right other than those held by such person or group.
If a person or group acquires 30% or more of the common stock, each right
will entitle the holder, other than the acquiring party, upon payment of
the exercise price, to acquire Series A Preferred or, at the option of
Chesapeake, common stock having a value equal to twice the right's
purchase price. If Chesapeake is acquired in a merger or other business
combination or if 50% of its earnings power is sold, each right will
entitle the holder, other than the acquiring person, to purchase
securities of the surviving company having a market value equal to twice
the exercise price of the rights. The rights expire on March 15, 1998,
and may be redeemed by the Company at any time prior to the tenth day
after an announcement that a 20% position has been acquired, unless such
period has been extended by the board of directors.
On February 10, 1998, the Company's Board of Directors approved a
new Shareholder Rights Plan (the "1998 Plan"). The rights under the
1998 Plan will be distributed on March 30, 1998, to stockholders of
record on March 16, 1998. The other terms of the 1998 Plan are similar
to the terms of the 1988 Plan, except that the rights will become
exercisable if a person or group acquires, or announces a tender offer
for, 15% or more of Chesapeake's common stock; when the rights become
exercisable, they will entitle the shareholder to buy one unit (one
one-thousandth of a share) of Series A Preferred at an exercise price of
$120 a share, subject to adjustment; and, the rights will expire March
15, 2008.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Stock Options
The 1997 Incentive Plan provides that the executive compensation
committee of the board of directors or its delegate may grant stock
options, stock appreciation rights ("SARs"), stock awards, performance
shares, or stock units and may make incentive awards to the Company's
key employees and officers. The maximum aggregate number of shares of
common stock that may be issued under the plan is 1,169,906, plus the
number of shares of common stock surrendered in payment of all or part
of the option price of any option. In addition, the maximum aggregate
number of shares that may be covered by performance shares and that may
be issued in any calendar year as a stock award or in settlement of
stock units is 30% of the number of shares issuable under the plan.
The maximum aggregate number of shares that may be issued pursuant to
the exercise of options may not exceed the lesser of (i) 1,100,000
shares, or (ii) the sum of 5% of the outstanding shares of common stock
as of December 31, 1996, plus the number of shares of common stock
surrendered in payment of all or part of the option price of any
option. No individual may be granted or awarded, in any calendar year,
options or SARs covering more than 100,000 shares of common stock in
the aggregate. In addition, no individual may, in any calendar year,
be granted or awarded in the aggregate, stock awards, performance
shares, stock units, or an incentive award covering more than 100,000
shares of common stock. The options granted may be either incentive
stock options ("ISOs") or nonqualified stock options. Options may be
granted at not less than the fair market value at the date of grant if
the option is an ISO, or not less than 85% of the fair market value at
the date of the grant if the option is a nonqualified stock option.
SARs may be granted in relation to option grants ("corresponding SARs")
or independently of option grants. Grants may provide options and
SARs exercisable over periods of up to 10 years. Most grants vest over a
period of one to three years.
The Nonemployee Director Stock Option Plan provided for grants to
the Company's nonemployee directors of stock options for up to 93,500
shares of Chesapeake common stock. The grants consisted of Automatic
Awards as a part of the nonemployee directors' compensation, in
addition to a cash retainer and meeting fees, and Elective Awards which
participants could choose to receive in lieu of all or a portion of
their cash retainer. The option price was the average closing price of
Chesapeake common stock for the 20 trading days before the October 31
that immediately preceded the grant date. Options for a total of
47,825 shares were granted to nonemployee directors under the
Nonemployee Director Stock Option Plan. In 1996, the Nonemployee
Director Stock Option Plan was replaced by the Directors' Stock Option
and Deferred Compensation Plan, which provides for annual grants of
stock options each May 1, beginning May 1, 1997, and ending May 1,
2007, to nonemployee directors as a part of the directors'
compensation, in addition to their cash retainer and meeting fees. A
maximum of 350,000 shares of common stock may be issued under the
Directors' Stock Option and Deferred Compensation Plan. The option
price is the average closing price of Chesapeake common stock for the
20 trading days preceding the grant date. Participants each received
options for 1,500 shares on May 1, 1997 and will receive options for
1,700 shares on May 1, 1998.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Stock Options, continued
For these plans, payment of the option price may be made by the
participant in cash or by surrendering shares of Chesapeake common
stock. Up to 1,566,381 shares may be issued after December 31, 1997,
upon exercise of options or SARs granted under the three plans.
The 1987 Stock Option Plan provided for grants to the Company's key
employees and officers of stock options and corresponding SARs for up to
1,000,000 shares of Chesapeake's authorized but unissued common stock
and up to 200,000 SARs independent of stock options. As of December 31,
1997, there were 183,680 shares issuable related to options granted under
this plan. With the adoption of the 1993 Incentive Plan, awards under
this plan were discontinued.
The 1993 Incentive Plan provided for grants to the Company's key
employees and officers of stock options, SARs, stock awards, performance
shares, stock units, and incentive awards for up to the sum of 1% of the
outstanding shares of common stock as of January 1 of each calendar year
during its term. As of December 31, 1997, there were 576,417 shares
issuable related to options granted under this plan. With the adoption
of the 1997 Incentive Plan, awards under this plan were discontinued.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Stock Options, continued
The following schedule summarizes stock option activity
for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
Number of Weighted-Average
Stock Options Exercise Price
------------- ----------------
<S> <C> <C>
Outstanding, January 1, 1995 850,508 $22.26
Granted 214,725 32.96
Exercised 187,856 20.71
Forfeited/expired 34,977 21.19
---------
Outstanding, December 31, 1995 842,400 25.32
Granted 228,775 24.95
Exercised 16,317 20.22
Forfeited/expired 11,255 28.44
---------
Outstanding, December 31, 1996 1,043,603 25.28
Granted 226,900 33.15
Exercised 112,233 21.72
Forfeited/expired 133,073 26.20
---------
Outstanding, December 31, 1997 l,025,197 27.29
Exercisable:
December 31, 1995 453,744
December 31, 1996 616,252
December 31, 1997 635,814
Weighted-average fair value of
options granted during the year
1996 $6.78
1997 $9.18
/TABLE
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Stock Options, continued
Information about options outstanding and exercisable at
December 31, 1997, is summarized below:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
- ---------------------------------------------------- -------------------
Weighted-
Range Average Weighted- Weighted
of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- -------------------------------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
$15.00-$20.00 161,366 4.5 $19.22 161,366 $19.22
$20.00-$25.00 302,789 6.5 23.59 199,602 23.13
$25.00-$30.00 157,440 6.7 27.80 146,930 27.78
$30.00-$35.00 403,102 8.6 33.08 127,916 32.95
$35.00-$40.00 500 9.5 35.52 - -
--------- -------
1,025,197 7.1 27.29 635,814 25.19
========= =======
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Stock Options, continued
Information about performance shares is shown below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Outstanding grants January 1 95,448 9,939
New shares granted 6,550 89,250
Shares forfeited (13,623) (3,741)
Shares converted to restricted stock units (9,067) -
Outstanding grants December 31 79,308 95,448
</TABLE>
Information about restricted stock and stock units is shown
below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Outstanding grants January 1 47,502 52,661
New grants 63,000 -
Converted performance shares 9,067 -
Shares forfeited ( 535) -
Shares vested ( 54,344) (5,159)
Outstanding grants December 31 64,690 47,502
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Stock Options, continued
During 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Com pensation." This standard, effective in 1996, defines a
"fair-value-based" method of accounting for stock option plans and
similar equity instruments, but also allows for the continued use of
present accounting standards with respect to stock-based employee
compensation. The Company has elected to continue the use of present
accounting standards in accounting for its plans.
Had compensation cost related to the issuance of stock options
been determined on the "fair-value-based" methodology described in SFAS
No. 123 at the grant dates, the Company's net income and earnings per
share would have declined to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
(In millions except per share data)
<S> <C> <C>
Net Income
As reported $48.6 $30.1
Pro forma $47.4 $29.5
Earnings per share
As reported
Basic $2.10 $1.28
Diluted 2.08 1.27
Pro forma
Basic $2.05 $1.25
Diluted 2.03 1.25
/TABLE
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Stock Options, continued
The Black-Scholes option pricing model was used to calculate
"fair-value" based on the following assumptions:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Dividend yield 2.3% 2.7%
Risk-free interest rates 5.9% 6.6%
Volatility 26.9 26.4
Expected option term 6.0 6.0
</TABLE>
The effects of applying SFAS No. 123 for providing pro forma
disclosures are not likely to be representative of the effects on
reported net income for future years.<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Employees' Stock Plans and Other Compensation Plans
The Company has stock purchase plans for certain eligible salaried
and hourly employees. Shares of Chesapeake common stock are purchased
based on participant and Company contributions. At December 31, 1997,
1,008,841 shares remain available for issuance under these plans.
The Company also sponsors, in accordance with the provisions of
Section 401(k) of the Internal Revenue Code, pre-tax savings programs
for eligible salaried and hourly employees. Certain participants'
contributions are matched up to designated contribution levels by the
Company. Contributions are invested in several investment options,
which may include Chesapeake common stock, as selected by the
participating employee. At December 31, 1997, 400,000 shares of
Chesapeake common stock are reserved for issuance under these programs.
The 1993 and 1997 Incentive Plans (see Note 9) provide that the
executive compensation committee of the board of directors may grant
performance share awards and stock awards to key employees and officers
and may select certain officers to receive annual incentive awards in
the form of cash, common stock, or a combination, based on the
Company's overall financial performance and the officer's individual
performance. With the adoption of the 1997 Incentive Plan, awards
under the 1993 plan were discontinued.
The charges to income for these plans approximated $7.4 million in
1997, $7.8 million in 1996, and $10.8 million in 1995.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. Litigation
WT has been identified by the federal government and the State of
Wisconsin as a potentially responsible party with respect to possible
natural resource damages and Superfund liability 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 "Financial Review 1995-1997,
Environmental" 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 names 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 substantial discovery has been conducted to date. WT
and the Company believe that WT has valid defenses to the plaintiffs'
claims and 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 material adverse
effect on its consolidated financial position or results of operations.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Supplemental Balance Sheet Information
<TABLE>
<CAPTION>
1997 1996
(In millions)
<S> <C> <C>
a. Accounts receivable, net:
Trade $114.7 $154.5
Other 3.0 4.1
Allowance for doubtful accounts (5.9) (4.7)
------ ------
Totals $111.8 $153.9
====== ======
b. Other assets:
Goodwill, net $ 44.0 $58.3
Purchased intangible assets, net - 3.1
Real estate for development 30.9 29.4
Other 21.5 15.1
------ ------
Totals $ 96.4 $105.9
====== ======
c. Accounts payable and accrued expenses:
Accounts payable:
Trade creditors $ 39.2 $ 55.6
Bank checks in transit 12.9 18.5
----- -----
52.1 74.1
----- -----
Accrued expenses:
Interest 5.5 6.6
Compensation and employee benefits 33.5 39.1
Other 35.5 30.5
----- -----
74.5 76.2
----- -----
Totals $126.6 $150.3
====== ======
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1997 1996 1995
(In millions)
<S> <C> <C> <C>
Cash paid for:
Interest, net $23.1 $33.1 $32.8
===== ===== =====
Income taxes,
net of refunds $92.4 $12.9 $36.4
===== ===== =====
Supplemental investing and
financing non-cash transactions:
Capital lease obligations
assumed in acquisitions $ - $10.1 $ -
Long-term debt assumed in
acquisitions - 17.1 -
Issuance of common stock
for employee benefit plans 5.0 5.4 2.7
Dividends declared not paid 4.3 4.7 4.8
Real estate transactions .5 2.2 0.4
/TABLE
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. Commitments and Other Matters
At December 31, 1997, commitments, primarily for capital
expenditures, approximated $58 million of the Company's 1998 capital
spending estimate of $75 million. These commitments include
anticipated expenditures of $1.5 million in 1998 related to
environmental protection in connection with planned expansions and
upgrades, mainly at the Company's tissue mills. The remaining
commitments of $56.5 million are for various capital projects, none of
which is individually material. Additional nondeterminable
environmental protection expenditures could be required in the future
when facilities are expanded or if more stringent standards become
applicable.
The Company leases certain assets (principally manufacturing,
office space, transportation, and information processing equipment)
generally for three- to five-year terms. Rental expense for operating
leases totaled (in millions) $15.3 for 1997, $14.9 for 1996, and $13.8
for 1995. As of December 31, 1997, aggregate minimum rental payments
in future years on noncancelable operating leases approximated $35.1
million. The amounts applying to future years are (in millions): 1998
$10.5; 1999 $8.8; 2000 $6.7; 2001 $4.2; 2002 $1.9 and thereafter $3.0.
The Company leases certain assets (principally manufacturing equipment)
under agreements which are classified as capital leases. As of
December 31, 1997, the aggregate minimum payments under capitalized
leases included in other long-term debt totaled $7.6 million. The
amounts applying to future years are (in millions): 1998 $.5; 1999
$1.2; 2000 $1.3; 2001 $1.3; 2002 $1.3; and thereafter $1.9. The
present value of minimum capitalized lease payments at year-end was
approximately $5.2 million. The present value of any unrecorded
capital leases and the impact on net income if these leases were
recorded are not material.
During the second quarter of 1997, the Company recorded
restructuring and other special charges of $18.9 million before taxes
($10.8 million after tax, or $.45 per share) related primarily, to
restructuring its Specialty Packaging and Merchandising Services
business. The restructuring included 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
initiatives 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. The remaining balance of
the restructuring liability as of December 31, 1997, was $4.8 million.
During the first quarter of 1998, the Company plans to complete
the relocation of its LeRoy, NY, packaging facility into the Buffalo
facility.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. Business Segment Information
The Company's business segments are Tissue, Specialty Packaging, and
Forest Products/Land Development. The Tissue segment is comprised of
commercial and industrial tissue products. The Specialty Packaging segment
consists of point-of-sale displays, graphic packaging, and corrugated
shipping containers. The Forest Products/Land Development segment includes
forest products, building products, and land development. General corporate
expenses are shown as Corporate.
Intersegment sales not included in the following table were: the
divested kraft products business sales to Specialty Packaging of $6.9
million in 1997, $26.0 million in 1996, and $23.7 million in 1995; and the
Forest Products/Land Development segment sales to the divested kraft
business of $22.7 million in 1997, $48.6 million in 1996, and $42.0 million
in 1995. Segment operating income consists of revenue less allocable
operating expenses. Operating expenses include all expenses except
interest and income taxes.
Segment identifiable assets are those that are directly used in
segment operations. Timber and timberlands and real estate held for sale
are included in the Forest Products/Land Development segment. Corporate
assets are cash, certain nontrade receivables, and other assets.
Following the sale of the West Point Mill and related assets in May
1997, industry segment groupings were changed to more closely reflect the
way Chesapeake manages its businesses. Prior year results have been
restated to conform to this change. Results of divested businesses, gain
on the sale of businesses, and restructuring/special charges are presented
separately from ongoing operations.
Export sales, principally to Europe, Canada, and Asia, were (in
millions): 1997 $65.3; 1996 $114.5; and 1995 $138.0.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. Business Segment Information, continued
Financial information by business segment:
<TABLE>
<CAPTION>
1997 1996 1995
(In millions)
<S> <C> <C> <C>
Net sales:
Tissue $ 410.7 $ 392.0 $ 324.4
Specialty Packaging 416.8 357.6 319.4
Forest Products/Land Development 38.0 24.3 23.8
------ ------ ------
Ongoing operations 865.5 773.9 667.6
Divested businesses 155.5 384.7 566.1
------ ------ ------
Consolidated net sales $1,021.0 $1,158.6 $1,233.7
======== ======== ========
Operating income:
Tissue $ 55.8 $ 65.0 $ 47.0
Specialty Packaging 5.4 17.7 30.4
Forest Products/Land Development 12.6 10.1 8.7
----- ----- -----
73.8 92.8 86.1
Corporate (19.7) (19.0) (16.6)
----- ----- -----
Ongoing operations 54.1 73.8 69.5
Divested businesses (14.3) 7.2 101.1
Gain on sale of businesses 86.3 - 1.8
Restructuring/special charges (18.9) - -
----- ----- -----
Income before interest, taxes,
and extraordinary item 107.2 81.0 172.4
Interest expense (22.0) (33.9) (30.8)
----- ----- -----
Income before taxes and
extraordinary item $ 85.2 $ 47.1 $141.6
====== ====== ======
Identifiable assets:
Tissue $ 453.9 $ 439.4 $ 411.7
Specialty Packaging 275.6 289.8 165.9
Forest Products/Land Development 94.1 91.5 89.8
Corporate 89.4 9.1 15.9
====== ====== ======
Ongoing operations 913.0 829.8 683.3
Divested businesses - 460.4 463.0
====== ======= =======
Consolidated assets $ 913.0 $1,290.2 $1,146.3
======== ======== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. Business Segment Information, continued
Financial information by business segment:
<TABLE>
<CAPTION>
1997 1996 1995
(In millions)
<S> <C> <C> <C>
Capital expenditures and acquisitions:
Tissue $ 44.1 $ 61.7 $105.4
Specialty Packaging 14.6 79.0 26.3
Forest Products/Land Development 4.7 2.4 3.8
Corporate 0.5 1.1 0.3
----- ----- -----
Ongoing operations 63.9 144.2 135.8
Divested businesses 4.3 31.8 91.6
----- ----- -----
Totals $ 68.2 $176.0 $227.4
====== ====== ======
Depreciation and cost of timber
harvested:
Tissue $ 31.7 $ 28.0 $ 22.6
Specialty Packaging 19.8 12.9 9.4
Forest Products/Land Development 2.6 3.2 2.8
Corporate 0.7 0.9 0.7
----- ----- -----
Ongoing operations 54.8 45.0 35.5
Divested businesses 17.5 42.1 38.1
----- ----- -----
Totals $ 72.3 $ 87.1 $ 73.6
====== ====== ======
</TABLE>
<PAGE>
<PAGE>
EXCERPT FROM ELEVEN-YEAR COMPARATIVE RECORD
<TABLE>
<CAPTION>
(Dollar amounts in millions except per share data)
1997(1) 1996 1995 1994(2) 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
Net sales $1,021.0 $1,158.6 $l,233.7 $990.5 $885.0
Net cost except depreciation,
cost of timber harvested,
and interest expense 841.5 990.5 987.7 830.3 762.1
Depreciation and cost of
timber harvested 72.3 87.1 73.6 70.9 70.2
Interest expense 22.0 33.9 30.8 31.1 32.0
Income before taxes,
extraordinary item and cumulative
effect of accounting changes 85.2 47.1 141.6 58.2 20.7
Income taxes 34.3 17.0 48.2 20.6 10.3
Income before extraordinary item
and cumulative effect of
accounting changes 50.9 30.1 93.4 37.6 10.4
Extraordinary item (2.3) - - - -
Cumulative effect of accounting
changes - - - - -
Net income 48.6 30.1 93.4 37.6 10.4
Cash dividends declared on
common stock 18.3 18.8 18.6 17.1 16.8
Income retained for use in
the business 30.3 11.3 74.8 20.5 (6.4)
Net cash (used in) provided by
operating activities (31.4) 131.2 143.7 103.6 113.6
Percent of income before gain
on sale of businesses,
restructuring and other special
charges, extraordinary item, and
cumulative effect of accounting
changes
To net sales 1.2% 2.6% 7.6% 3.8% 1.2%
To stockholders' equity 2.7 6.4 23.7 10.2 2.8
To total assets 1.0 2.6 9.2 4.1 1.1
Common Stock
Number of stockholders of record 6,564 7,567 7,456 7,804 7,778
Shares outstanding(in thousands) 21,330 23,398 23,792 23,754 23,514
Per share
Basic earnings before
extraordinary item and
cumulative effect of
accounting changes $ 2.20 $ 1.28 $ 3.92 $ 1.59 $ 0.45
Basic earnings 2.10 1.28 3.92 1.59 0.45
<PAGE>
EXCERPT FROM ELEVEN-YEAR COMPARATIVE RECORD (Continued)
(Dollar amounts in millions except per share data)
</TABLE>
<TABLE>
<CAPTION>
1997(1) 1996 1995 1994(2) 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Diluted earnings before
extraordinary item and
cumulative effect of
accounting changes $ 2.18 $ 1.27 $ 3.88 $ 1.58 $0.45
Diluted earnings 2.08 1.27 3.88 1.58 0.45
Dividends declared .80 0.80 0.78 0.72 0.72
Stockholders' equity 19.78 20.05 19.68 16.56 15.65
Financial Position
Working capital $174.9 $161.3 $142.3 $144.3 $ 87.1
Property, plant, and
equipment, net 508.3 863.5 780.9 656.4 653.8
Total assets 913.0 1,290.2 1,146.3 1,016.9 919.3
Total capital 754.7 1,095.4 980.5 862.5 799.7
Long-term debt 264.3 499.4 393.6 364.0 333.1
Deferred income taxes 68.4 126.9 118.6 105.2 98.6
Stockholders' equity 422.0 469.1 468.3 393.3 368.0
Percent of long-term debt
To total capital 35.0% 45.6% 40.1% 42.2% 41.7%
To stockholders' equity 62.6 106.5 84.0 92.6 90.5
Additional Data
Capital expenditures and
acquisitions $68.2 $176.0 $227.4 $ 71.0 $ 63.9
Acres of timberland
owned (in thousands) 325(4) 326(4) 325(4) 328(4) 329(4)
Number of employees 5,184 6,914 5,305 5,209 4,833
</TABLE>
<PAGE>
<PAGE>
NOTES TO ELEVEN-YEAR COMPARATIVE RECORD
Accounting policies are stated in Note 1 of the Notes to Consolidated
Financial Statements. Percent of income before cumulative effect of accounting
changes information is calculated using beginning of year and acquisition
amounts where appropriate.
1. Includes an after-tax gain of $49.1, or $2.07 per share, on the
sale of the West Point Mill and four box plants to St. Laurent
(U.S.), and after-tax restructuring/special charges of $10.8
million, or $.45 per share.
2. Includes an after-tax charge of $2.8 million, or $0.12 per share,
related to a change to the LIFO method of accounting for certain
inventories.
4. Excludes 12,000 - 25,000 acres held by land development
subsidiaries during 1993 - 1997.<PAGE>
<PAGE>
FINANCIAL REVIEW 1995 - 1997
EARNING OVERVIEW
Net income for 1997 of $48.6 million, or $2.08 a share, was 61% higher
than 1996's net income of $30.1 million, or $1.27 a share, and 48% less than
1995's net income of $93.4 million, or $3.88 a share. In 1997, the Company
realized a $49.1 million, or $2.07 per share, after-tax gain from the sale of
the West Point, VA, kraft products mill (the "West Point mill"), four
corrugated container plants, and other related assets to St. Laurent Paperboard
(U.S.) Inc.("St. Laurent (U.S.)") on May 23, 1997. Results for 1997 also
include restructuring and other special charges related to Chesapeake's tissue
and specialty packaging businesses of $10.8 million after tax, or $.45 per
share, and an extraordinary loss of $2.3 million after tax, or $.10 per share,
associated with repurchases of long-term debt. Pro forma net income from
ongoing operations for 1997, after giving effect to the sale of the West Point
Mill and the application of the net proceeds to reduce long-term debt and
generate interest income, was $26.4 million, or $1.13 per share, compared to
pro forma net income from ongoing operations for 1996 of $38.8 million, or
$1.63 per share, and $39.5 million, or $1.64 per share, for 1995.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Graph: Sales by Business Segment
Ongoing Operations
(In millions of $)
Tissue 324.4 392.0 410.7
Specialty Packaging 319.4 357.6 416.8
Forest Products 23.8 24.3 38.0
----- ----- -----
667.6 773.9 865.5
</TABLE>
Net sales for 1997 were $1,021.0 million, down 12% from 1996's net sales
of $1,158.6 million, and 17% lower than net sales of $1,233.7 million in 1995.
Net sales from ongoing operations in 1997 were $865.5 million, up 12% from
last year's net sales from ongoing operations of $773.9 million and up 30%
from 1995's sales from ongoing operations of $667.6 million.
EBIT, earnings before interest and taxes, from ongoing operations for
1997, excluding the one-time gain, restructuring and other special charges,
and extraordinary loss recorded in the second quarter of 1997, was $54.1
million compared to $73.8 million in 1996 and $69.5 million in 1995. Cash
flow used in operations activities of $31.4 million was down significantly
from cash flow provided by operating activities of $131.2 million last year
and $143.7 million achieved in 1995.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Graph: Income Before Interest, Taxes,
and Extraordinary Item
Ongoing Operations
(In millions of $)
Tissue 47.0 65.0 55.8
Specialty Packaging 30.4 17.7 5.4
Forest Products 8.7 10.1 12.6
---- ---- ----
86.1 92.8 73.8
</TABLE>
The sale of the West Point Mill and related assets was a major step
forward in Chesapeake's long-term business strategy of focusing on its
faster-growing packaging and tissue operations. The sale also reduced the
capital intensity and cyclicality of the Company's businesses.
<TABLE>
<OPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Graph: Net Income
(In millions of $)
As reported 93.4 30.1 48.6
Pro Forma 39.5 38.8 26.4
</TABLE>
Liquidity and Capital Structure
Net cash used in operating activities was $31.4 million in 1997, down
significantly from net cash provided by operating activities of $131.2 million
in 1996 and $143.7 million in 1995. 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, and excluding the
1997 gain on the sale of businesses, restructuring and other special charges,
and extraordinary item, was $115.6 million for 1997, 32% lower than 1996's
EBITDA of $171.2 million. The sale of businesses and restructuring charges
were the primary reasons for the differences in cash flow from operations.
Compared to year-end 1996, working capital increased $11.9 million to $173.2
million at year-end 1997, primarily due to the increase in cash and cash
equivalents resulting from the 1997 sale of businesses to St Laurent (U.S.),
partially offset by the working capital reduction due to the sale of
businesses. The ratio of current assets to current liabilities was 2.3 at
year-end 1997, compared to year-end 1996's and 1995's current ratio of 2.0.
Accounts receivable decreased $42.1 million from year-end 1996, with the
average collection period approximately the same as last year. Inventories at
the end of the year were down $35.6 million compared to 1996. The annual
inventory turnover rate decreased from 6.8 for 1996 to 6.4 for 1997. Accounts
payable and accrued expenses decreased $27.0 million from year-end 1996. The
decreases in accounts receivable, inventories, accounts payable, and accrued
expenses, and the
<PAGE>
<PAGE>
reduction in the annual inventory turnover rate, are primarily the result of
the sale of the West Point Mill and related assets, offset in part by growth
in the tissue and specialty packaging businesses.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Graph: EBITDA from Ongoing Operations
(In millions of $)
Earnings before interest and
income taxes (not including
gain on sale of business,
restructuring/special charges,
or extraordinary item) 69.5 73.8 54.1
Noncash charges for
depreciation, cost of
timber harvested, and
amortization 37.7 48.1 58.3
----- ----- -----
107.2 121.9 112.4
</TABLE>
Net cash provided by investing activities in 1997 of $424.5 million was
up $597.2 million from the prior year is net cash used by investing activities
of $172.7 million as a result of lower capital expenditures and proceeds from
the sale of businesses. Net cash used in financing activities in 1997 was
$329.6 million compared to net cash provided by financing activities of $46.2
million in 1996. This change was primarily attributable to the use of a
portion of the proceeds from the sale of businesses to reduce credit line
borrowings by $179.0 million and long-term debt by $66.7 million. A portion of
the net proceeds from the sale of businesses were also used to purchase 2.3
million shares of the Company's common stock at a net cost of $79.4 million.
See Note 4 to the consolidated financial statements for additional information
regarding long-term debt.
Chesapeake's total capitalization (consisting of long-term debt,
deferred taxes, and stockholders' equity) was $754.7 million at the end of
1997, compared to $1,095.4 million at the end of 1996. The year-end ratio of
long-term debt to total capital was 35.0% for 1997, down from 45.6% for 1996.
Chesapeake's long-term debt-to-total-capital ratio target range is 35% to 45%.
The year-end ratio of long-term debt to stockholders' equity was 62.6% for
1997 and 106.5% for 1996. The lower ratios in 1997 are the result of using a
portion of the net proceeds from the sale businesses to reduce debt, partially
offset by the impact of the Company's common stock repurchases.
During 1997 and 1996, the Company paid cash dividends of $0.80 a share
compared to $0.78 a share in 1995. Quarterly dividends were raised to $0.20 a
share from $0.18 a share beginning with the second quarter of 1995.
Outstanding common shares at year-end 1997 totaled 21.3 million shares, a
decrease of 2.1 million shares from year-end 1996, as purchases of 2.3 million
shares by the Company during the year exceeded shares issued for employee
benefit plans. See Note 8 to the consolidated financial statements for
capital stock and additional paid-in capital information. Year-end 1997
stockholders' equity was $422.0 million, or $19.78 a share, down slightly
compared to year-end 1996. The market price for Chesapeake's common stock
ranged from $27.13 per share to $36.75 per share in 1997, with a year-end
<PAGE>
market price of $34.38 per share, up $3.00 a share from 1996's year-end price
of $31.38 per share.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Graph: Interest Expense, Net
(In millions of $)
As reported 30.8 33.9 22.0
Pro Forma 8.8 12.3 13.6
</TABLE>
Capital Expenditures
Expenditures in 1997 for property, plant, and equipment totaled $68.2
million and related primarily to strategic initiatives in the packaging and
tissue businesses. These initiatives included new tissue converting equipment
at the Bellemont, AZ, and Greenwich, NY, facilities and expansion of the
Erlanger, KY, display and packaging plant. No other 1997 capital projects
were individually material. Expenditures in 1996 for property, plant, and
equipment and acquisitions totaled $176.0 million and related primarily to
growth initiatives in the packaging and tissue businesses. Acquisition
expenditures in 1996 were $47.2 million and included: the purchase of
substantially all assets of the Display Division of Dyment Limited with
locations in Erlanger, KY, and Toronto, Canada; the acquisition of the
point-of-sale display and packaging businesses of Sailliard S.A. with 10
locations in France; and the acquisition of certain tissue converting assets and
distribution facilities of Jokel Desarrollos, S.A. de C.V. and Ambitec, S.A.
de C.V., both in Mexico. The remaining capital expenditures of $128.8 million
in 1996 included: the second phase of the Visalia, CA, manufacturing plant for
the Company's Color-Box graphic packaging business; a new consumer graphic
packaging manufacturing plant in Pelahatchie, MS; a new custom packing
operation in Memphis, TN; and new tissue converting equipment at the
Bellemont, AZ, and Greenwich, NY, sites. No other 1996 capital projects were
individually material. Capital spending and acquisitions in 1995 were $227.4
million, of which more than 60% were for acquisitions and other growth-related
projects. Planned capital spending for 1998 is expected to be approximately
$75 million, compared to depreciation of approximately $60 million. Planned
initiatives include: new tissue converting equipment at the Menasha, WI,
Bellemont, AZ, and Greenwich, NY, facilities; implementation of several new
information systems throughout the Company; and expansion and modernization of
the West Point, VA, sawmill. These projects are consistent with Chesapeake's
strategy of expanding the specialty packaging and tissue businesses, reducing
costs, and focusing capital spending on projects that are expected to generate
a high return on investment. No other 1998 projects are expected to account
for more than 5% of the total planned spending. Projected 1998 capital
expenditures are expected to be funded with internally generated cash. See
Note 14 to the consolidated financial statements for information regarding
capital commitments.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Graph: Capital Structure
(In millions of $)
Long-term Debt 393.6 499.4 264.3
Deferred Taxes 118.6 126.9 68.4
Stockholders' Equity 468.3 469.1 422.0
----- ----- -----
980.5 1,095.4 754.7
</TABLE>
OPERATING RESULTS
1997 vs 1996
Chesapeake's 1997 net sales were $1,021.0 million, down 12% from 1996's
net sales of $1,158.6 million. Higher shipments for all three business
segments --Tissue, Specialty Packaging, and Forest Products/Land Development--
were offset in part by lower average selling prices in the Tissue segment.
Sales from divested companies were $155.5 million in 1997 compared to $384.7
million in 1996. Net sales from ongoing operations in 1997 of $865.5 million
were up 12% from net sales from ongoing operations of $773.9 million in 1996
due to higher tissue and specialty packaging shipments.
Net income for 1997 was $48.6 million, or $2.08 a share, up 6% from
net income of $30.1 million, or $1.27 a share, earned in 1996. Earnings for
1997 include a gain of $86.3 million ($49.1 million after tax, or $2.07 a
share) from the sale of the West Point Mill and related assets. The 1997
results also include restructuring and other special charges related to
Chesapeake's tissue and specialty packaging business of $10.8 million after
tax, or $.45 a share, and an extraordinary loss of $2.3 million after-tax, or
$.10 per share, associated with the repurchase of long-term debt. Income from
operations for 1997 was $19.5 million compared to 1996's $74.3 million.
Depreciation decreased $14.8 million over the previous year due primarily to
the sale of businesses. Cost of products sold was down $93.2 million, or 11%,
from 1996, but was flat as a percentage of net sales compared to 1996. The
gross profit margin in 1997 was flat compared to the previous year, while the
operating margin was down 5% due primarily to restructuring and other special
charges in 1997. Selling, general, and administrative expenses in 1997
increased $6.3 million, or 4%, compared to 1996, and were 16% of net sales in
1997, compared to 13% last year. Included in selling, general, and
administrative expenses in 1997 were approximately $2.4 million of overhead
costs previously allocated to divested businesses. The Company is in the
process of right-sizing its support services for its ongoing businesses.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Graph: Total Assets
(In millions of $)
Plant, Property, & Equipment 780.9 863.5 508.3
Current Assets 276.6 320.8 308.3
Goodwill and Other Assets 88.8 105.9 96.4
------- ------ -----
1,146.3 1,290.2 913.0
</TABLE>
Other income (net) in 1997, excluding the gain on the sale of businesses,
was $1.4 million, down $5.3 million from 1996, as a result of reduced land
sales. Net interest expenses decreased $11.9 million from 1996 due primarily
to lower average debt outstanding and interest earned from investments of the
proceeds from the sale of businesses in 1997.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Graph: Earnings per Share
(Dollars)
Diluted Earnings Per Share
(as reported) 3.88 1.27 2.08
Pro Forma Diluted Earnings
Per Share (Ongoing Operations) 1.64 1.63 1.13
</TABLE>
Tissue
Tissue segment net sales of $410.7 million in 1997 were 5% higher than
1996's due to 6% growth in converted volume, partially offset by lower
average selling prices. Full year 1997 EBIT was negatively impacted by
higher wastepaper costs, costs associated with an enhanced retirement
program, and start-up costs associated with increased converting capacity.
The Company's Mexican tissue operations were profitable for the year, but
earnings were lower than expected due to nonrecurring facility consolidation
and moving costs incurred during the first-half of the year. Tissue
converted product sales growth continues to be strong and above industry
growth rates.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Graph: Common Stock Price Range
& Stockholders' Equity
(Dollars)
Equity Per Share 19.68 20.05 19.78
Common Stock Price Range
High 39.00 31.75 36.75
Low 27.50 23.13 27.13
</TABLE>
Specialty Packaging
Net sales from ongoing operations of $416.8 million increased 17%
compared to 1996 due to volume growth and the full year impact of Chesapeake
Europe, which was acquired during the third quarter of 1996. Shipments from
ongoing operations were up 8% year over year. The Specialty Packaging
segment's 1997 EBIT from ongoing operations of $5.4 million was down
substantially from 1996 EBIT from ongoing operations of $17.7 million due to
process cost inefficiencies and additional costs associated with operating
facilities below capacity. During the second quarter of 1997, management
decided to restructure its specialty display and packaging business. The
restructuring includes management reorganization, salaried workforce
reduction, and the closure of the Sandusky, OH, point-of-sale display
facility and the Buffalo, NY, consumer graphic packaging facility. The
restructuring is expected to eliminate redundant overhead and processes,
improve geographic efficiency, and reduce fixed costs.
<PAGE>
<PAGE>
FOREST PRODUCTS/LAND DEVELOPMENT
Forest Products/Land Development net sales from ongoing operations for
1997 were $38.0 million, up 56% from 1996's net sales from ongoing operations
of $24.3 million, due to the addition of external pulpwood sales to St.
Laurent, increased lumber shipments, and favorable lumber pricing. EBIT of
$12.6 million for 1997 was up 25% from 1996 due to increased shipments,
favorable pricing and improved sawmill operating efficiency.
DIVESTED BUSINESSES
The West Point Mill, four corrugated plants, and a building products
facility were sold to St. Laurent (U.S) on May 23, 1997. The divested
businesses contributed $155.5 million in net sales in 1997, but had an EBIT
loss of $14.3 million. Net sales and EBIT from divested operations in 1996
were $384 million and a positive $7.2 million, respectively. The containers
and building products facilities were profitable in 1997, while the kraft
mill, a highly cyclical business, had a loss due to extremely unfavorable
pricing conditions during the first part of the year.
OPERATING RESULTS
1996 vs 1995
Chesapeake's 1996 net sales were $1,158.6 million, down 6% from 1995's
net sales of $1,233.7 million. Higher shipments from all business segments were
more than offset by lower average selling prices in the now divested kraft
products business. Sales from divested companies were $384.7 million in 1996
and $566.1 million in 1995. Net sales from ongoing operations in 1996 of $773.9
million were up 16% from net sales from ongoing operations of $667.6 million in
1995 due to higher shipments from the Tissue and Specialty Packaging segments.
Net income for 1996 was $30.1 million, or $1.27 a share, down 67% from
net income of $93.4 million, or $3.88 a share, earned in 1995. Earnings for
1996 were unfavorably impacted by lower selling prices in the divested kraft
products business and costs related to various growth initiatives in the
packaging and tissue businesses, offset in part by higher packaging and tissue
shipments and lower prices for recovered paper, a major raw material for the
tissue and kraft products businesses. Earnings for 1995 included a pre-tax gain
of $1.8 million, or $0.05 a share after tax, from the sale of the Consumer
Products business; a $3.0 million pre-tax, or $0.08 a share after tax, reduction
in earnings related to lost production associated with completion of the No.2
paper machine rebuild project at the West Point Mill; and onetime pre-tax
charges of $8.0 million, or $0.21 a share after tax, associated with an enhanced
retirement package for certain hourly employees at Chesapeake Paper Products and
with certain post-closing obligations related to the sale of Chesapeake's wood
treating operations.
Income from operations for 1996 was $74.3 million, down 54% compared to
1995's $161.3 million. Depreciation increased $13.5 million over the previous
year due to higher capital investment. Cost of products sold was down $24.9
million, or 3%, from 1995, but as a percentage of net sales increased to 73%
for 1996 compared to 70% for 1995. Gross profit and operating margins were
down 4 points and 7 points, respectively, compared to the previous year.
Selling, general and administrative expenses in 1996 increased $23.3 million,
or 18%, compared to 1995, and were 13% of net sales in 1996, compared to 11% in
1995.
Other income (net) in 1996 was $6.7 million, down $2.6 million, as a
<PAGE>
<PAGE>
result of the gains in 1995 on the sale of Consumer Products and the sale of
land that was no longer considered to be of strategic importance. Interest
expense for 1996, net of $0.3 million of capitalized interest, was $33.9
million. Interest expense for 1995 was $30.8 million, with no interest
capitalized during that year. Excluding capitalized interest, interest expense
increased $3.4 million due to increased borrowing.
TISSUE
The Tissue segment's net sales were 20% higher in 1996 than 1995,
excluding the sale of the Consumer Products business, which was sold in the
fourth quarter of 1995, due to increased sales from expanded mill and
converting operations. Average selling prices changed little from 1995, but
tissue shipments of 305,000 tons were 30% higher than 1995. Almost 20% of
shipments were from new facilities in Bellemont and Flagstaff, AZ, Chicago,
IL, and Greenwich, NY. The Flagstaff, AZ, mill, and the Chicago, IL, mill
purchased in May and November, 1995, respectively, both operated for a full
year in 1996. The converting site at Bellemont, AZ, became fully operational
in the first quarter of 1996 and the Greenwich, NY, site started up in the
third quarter of 1996. EBIT from ongoing operations for 1996 was up 38% over
that of 1995.
SPECIALTY PACKAGING
Net sales from ongoing operations were up 12% compared to 1995. The
Specialty Packaging segment's EBIT from ongoing operations of $17.7 million
for 1996 was down 42% from its EBIT from ongoing operations of $30.4 million
for 1995, as this segment incurred start-up costs related to various growth
initiatives. A fourth consumer graphic packaging facility located in
Pelahatchie, MS, came on-line during the year, as did a new custom packing
facility in Memphis, TN. The Display Division of Dyment Limited, with
locations in Erlanger, KY, and Toronto, Canada, was acquired in April, 1996,
and in August, 1996, Chesapeake completed the acquisition of Chesapeake Europe
S.A., a point-of-sale display and packaging business in France.
FOREST PRODUCTS / LAND DEVELOPMENT
Forest products/Land Development net sales from ongoing operations for 1996
were $24.3 million, up 2% from 1996's net sales from ongoing operations of
$23.8 million, due to higher lumber shipments. EBIT from ongoing operations of
$10.1 million for 1996 was up 16% from 1995's $8.7 million, due primarily to
higher volume.
DIVESTED BUSINESSES
Net sales of divested business were $384.7 million in 1996, down 32% from
1995. EBIT for these businesses was $7.2 million in 1996 compared to $101.1
million in 1995.
The West Point Mill, which earned more than $90 million in 1995,
experienced an $88 million reduction in EBIT in 1996 to approximately $2.0
million, almost entirely due to reduced market pricing for its products.
Earnings for 1995 included the charges related to an enhanced retirement
program. Net sales were 29% lower than in 1995 as selling prices were down for
all major product lines. Average selling prices were 32% lower than 1995,
with the largest decline in market pulp. Shipments of 831,000 tons were up 8%
from 1995, when production was lost related to a rebuild of the No. 2 paper
machine. Prices of recovered paper, a major raw material, dropped
significantly compared to 1995, favorably impacting costs by nearly $25
million.
<PAGE>
Net sales from the four divested corrugated container plants in 1996 were
down 12% compared to 1995. EBIT results, however, were up 9%. Results of the
divested building products facility were similar for both years. The Consumer
Products business, sold on December 29, 1995, operated at a small profit in
1995 and had sales of approximately $48.0 million.
OTHER
More information about Chesapeake's businesses is provided under the
caption "Business Segment Highlights" and in Note 15 to the consolidated
financial statements.
During 1997, the Financial Accounting Standards Board issued several new
pronouncements, including standards on information about capital structure,
comprehensive income, and business segment reporting. These standards are not
expected to have a material impact on the Company's financial statements.
YEAR 2000
The Company is in the process of determining the impact of the year 2000
dating problem on the Company's information systems as part of an overall
assessment of its systems. Management is currently working with the
appropriate application vendors and consultants to formulate and implement the
most cost-effective approach to resolving this issue. The associated costs
required to address this issue have not yet been determined.
ENVIRONMENTAL
Chesapeake has a strong commitment to protecting the environment. The
Company has an environmental audit program to monitor compliance with
environmental laws and regulations.
The Company is committed to abiding by the environmental, health and
safety principles of the American Forest & Paper Association. Each expansion
project has been planned to comply with applicable environmental regulations
and to enhance environmental protection at existing facilities. The Company
faces increasing capital expenditures and operating costs to comply with
expanding and more stringent environmental regulations, although compliance
with existing environmental regulations is not expected to have a materially
adverse effect on the Company's earnings, financial position, or competitive
position.
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. As discussed
below, the U.S. Environmental Protection Agency ("EPA") has given notice of
its intent to list the lower Fox River in Wisconsin on the National Priorities
List under CERCLA and has identified Wisconsin Tissue as a possible PRP. In
addition, the <PAGE>
<PAGE>
EPA recently notified the Company's Color-Box, Inc., subsidiary that the EPA
believes that Color-Box may be a PRP in connection with certain sites operated
by PCB Treatment, Inc. in Kansas and Missouri. Because the notice on the PCB
Treatment, Inc. sites has only recently been received, it is not possible to
evaluate the potential liability to the Company. However, over 1,500 parties
have been identified that may have sent hazardous materials to the sites, and
preliminary indications are that Color-Box shipped only minimal hazardous
materials to the sites and, accordingly, may qualify as a de minimis
contributor. Except for these matters, 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 United States Fish and Wildlife Service ("FWS"), a
federal natural resources trustee, notified Wisconsin Tissue that it had
identified Wisconsin Tissue 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 Wisconsin Tissue of its intent to file suit, subject to final
approval by the Department of Justice, against Wisconsin Tissue to recover
alleged natural resource damages. Wisconsin Tissue 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.
Wisconsin Tissue 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 agreement with the State of Wisconsin under
which the PRPs will provide funds for an interim phase of resource damage
assessment and restoration work. Wisconsin Tissue's obligation under the
interim agreement is not material to the Company's financial position or
results of operations.
On June 18, 1997, the EPA announced that it was initiating the process of
listing the lower Fox River on the CERCLA National Priorities List of
hazardous waste sites. The EPA identified several possible PRPs including WT.
EPA has announced that it will proceed with a remedial
investigation/feasibility study of the lower Fox River site.
The ultimate cost to Wisconsin Tissue, if any, associated with these
matters 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, Wisconsin Tissue's share of any multi-party clean-up
expenses; the uncertain extent of any contamination; the varying
<PAGE>
<PAGE>
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 Wisconsin Tissue. 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
Wisconsin Tissue, pursuant to a stock purchase agreement between the parties,
with respect to liabilities related to this matter. The prior owner has
reimbursed Wisconsin Tissue for out-of-pocket costs and attorneys' fees
related to investigation of the matter. The Company believes that the prior
owner intends, and has the financial ability, to honor its indemnification
obligation under the stock purchase agreement.
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. Wisconsin has modified state
regulations to comply with the Final Guidance, but the application of these
regulations to Wisconsin Tissue's mill in Menasha, WI, has not been determined
by the state. Based on the anticipated effect of these regulations on
Wisconsin Tissue's mill, Wisconsin Tissue does not anticipate significant
capital expenditures or additional operating costs as a result of complying
with the modified regulations.
The EPA has published rules under the Clean Water Act and the Clean Air
Act that would impose certain new air and water quality standards for pulp and
paper mills (the "Cluster Rules"). The recently published Cluster Rules,
which are primarily applicable to the bleached kraft industry, require
compliance within three years after the date of adoption. Based on the
Company's preliminary estimates, compliance with the recently published
Cluster Rules will require capital expenditures totaling not more than
approximately $5 to $6 million, primarily at the Company's largest tissue mill
located in Menasha, WI. EPA has stated its intent to develop additional
Cluster Rules. The eventual capital expense impact on the Company of
compliance with additional 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.
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.
FORWARD-LOOKING STATEMENTS
The "Financial Review" may include "forward-looking statements" that
involve risks and uncertainties. Political, climatic, currency, regulatory,
technological, competitive, and other factors could cause actual results to
differ materially from those anticipated in the forward looking statements.
Additional information regarding these risk factors and uncertainties is
detailed from time to time in Chesapeake Corporation's filings with the
Securities and Exchange Commission.<PAGE>
<PAGE>
OPERATING MANAGERS AND LOCATIONS
(as of December 31, 1997)
TISSUE
William A. Raaths
Wisconsin Tissue Mills Inc.
Menasha, WI
Bellemont, AZ
Flagstaff, AZ
Chicago, IL
Greenwich, NY
Neenah, WI
Wisconsin Tissue de Mexico, S.A. de C.V.
Mexico, D.F.*
Monterrey
Toluca*
SPECIALITY PACKAGING
Andrew J. Kohut
Chesapeake Display and Packaging Company
Winston-Salem, NC
Cincinnati, OH*
Erlanger, KY
Marion, IA
Mechanicsburg, PA*
Memphis, TN*
Pelahatchie, MS
Pennsauken, NJ*
Richmond, IN
Rural Hall, NC*
Toronto, Ontario, Canada
Visalia, CA
Chesapeake Europe S.A. (France)
Noisy-le-Grand
Avallon
Ezy sur Eure
Migennes
Rosny sous Bois
St. Pierre des Corps
Ussel
Robert F. Schick
Chesapeake Packaging Co.
Binghamton, NY
Buffalo, NY
Louisville, KY
Madison, OH
St. Anthony, IN
Scotia, NY
Scranton, PA
Utica, NY
<PAGE>
OPERATING MANAGERS AND LOCATIONS
(as of December 31, 1997)
LAND DEVELOPMENT
Joel K. Mostrom
Delmarva Properties, Inc.
Richmond, VA*
Stonehouse Inc.
Williamsburg, VA*
FOREST RESOURCES
Jack C. King
Chesapeake Forest Products Company
West Point, VA
Pocomoke City, MD
Keysville, VA
Chesapeake Building Products Company
Princess Anne, MD
Milford, VA
West Point, VA
CORPORATE HEADQUARTERS
1021 East Cary Street, Box 2350
Richmond, VA 23218-2350*
804/697-1000
www.cskcorp.com
*Leased real property
<PAGE>
EXHIBIT 99.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 11-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
for the fiscal year ended November 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
for the transition period from _______ to _______
Commission file number 2-79636
HOURLY EMPLOYEES' STOCK PURCHASE PLAN
CHESAPEAKE CORPORATION
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350<PAGE>
<PAGE>
HOURLY EMPLOYEES' STOCK PURCHASE PLAN
Administration of the Plan:
The Plan is administered by the Hourly Employees' Stock Purchase Plan
Committee (the "Committee") under the direction of the Board of Directors of
Chesapeake Corporation (the "Corporation"). At November 30, 1997, the
Committee members were:
Name Address
Thomas A. Smith*(1) Richmond, Virginia 23218
J. P. Causey Jr. (2) Richmond, Virginia 23218
Willliam T. Tolley (3) Richmond, Virginia 23218
(1) Mr. Smith is Vice President - Human Resources &
Assistant Secretary of the Corporation.
(2) Mr. Causey is Senior Vice President, Secretary &
General Counsel of the Corporation.
(3) Mr. Tolley is Group Vice President - Finance & Chief
Financial Officer of the Corporation.
* Committee Chairman
Committee members are appointed by and serve at the pleasure of the Board
of Directors of the Corporation. Committee members are employees of the
Corporation and receive no additional compensation for serving on the
Committee. The Plan provides that the Corporation will indemnify members
of the Committee to the same extent and on the same terms as it indemnifies
its officers and directors by reason of their being officers and directors.
Financial Statements and Exhibits:
(a) Financial statements:
Hourly Employees' Stock Purchase Plan:
Balance Sheet
Statement of Changes in Plan Equity
(b) Exhibits:
See Exhibit 23.1 to the Chesapeake Corporation Annual
Report on Form 10-K for the year ended December 31, 1997
for consent of independent accountants.<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
members of the Committee have duly caused this annual report to be signed by
the undersigned hereunto duly authorized.
HOURLY EMPLOYEES' STOCK PURCHASE PLAN
By: /s/ Thomas A. Smith
Thomas A. Smith,
Chairman of the Committee
March 13, 1998
<PAGE>
<PAGE>
Report of Independent Accountants
To the Hourly Employees' Stock
Purchase Plan Committee:
We have audited the balance sheet of the Hourly Employees' Stock
Purchase Plan (the "Plan") of Chesapeake Corporation and participating
subsidiaries as of November 30, 1997 and 1996, and the related statement of
changes in plan equity for each of the three years in the period ended
November 30, 1997. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Plan as of
November 30, 1997 and 1996, and the changes in plan equity for each of the
three years in the period ended November 30, 1997, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Richmond, Virginia
March 3, 1998
<PAGE>
<PAGE>
HOURLY EMPLOYEES' STOCK PURCHASE PLAN OF CHESAPEAKE CORPORATION AND
PARTICIPATING SUBSIDIARIES
BALANCE SHEET
November 30, 1997 and 1996
1997 1996
Asset:
Funds held by Chesapeake Corporation
and participating subsidiaries
(Note 4) $4,598 $12,222
====== =======
Plan equity $4,598 $12,222
====== =======
STATEMENT OF CHANGES IN PLAN EQUITY
for the years ended November 30, 1997, 1996 and 1995
1997 1996 1995
Contributions:
Employees, net of refunds $301,928 $1,226,144 $1,191,273
Employer: $144,964 in 1997,
$598,671 in 1996, and
$586,903 in 1995; less
withheld taxes of $59,132,
$245,301 and $240,413,
respectively 85,832 353,370 346,490
-------- --------- ----------
387,760 1,579,514 1,537,763
-------- --------- ----------
Deductions:
Purchase and distribution to
participants at year end of
11,764 shares in 1997($32.8891 per share),
53,574 shares in 1996($29.1688 per share),
and 52,112 shares in 1995($29.4375 per share)
of common stock of Chesapeake
Corporation (Note 1) 386,907 1,562,687 1,534,045
-------- --------- ---------
386,907 1,562,687 1,534,045
Net transfers to Salaried Employees'
Stock Purchase Plan 516 2,640 3,791
Net transfers due to sale to St.Laurent
Paperboard Inc. 7,961
Net transfers to the Wisconsin Tissue
Mill Hourly Employees' Stock Purchase
Plan 14,792
--------- ---------- ----------
395,384 1,580,119 1,537.836
-------------------- ----------
Decrease in plan equity (7,624) (605) (73)
Plan equity, beginning of year 12,222 12,827 12,900
---------- --------- ----------
Plan equity, end of year $ 4,598 $ 12,222 $ 12,827
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Description of the Plan:
The stockholders of Chesapeake Corporation (the "Corporation") have
approved the Hourly Employees' Stock Purchase Plan (the "Plan") and
reserved a total of 900,000 shares of the Corporation's common stock
for sale to eligible hourly employees, as defined, of the
Corporation and participating subsidiaries (the "Employer").
The Plan is administered by a committee (the "Committee") appointed
by the Corporation's Board of Directors. Participants in the Plan,
which became effective in December 1982, are permitted to invest
between one and five percent of their basic compensation, as defined.
The Employer contributes to the Plan, as of the end of the Plan
Year (see Note 3), a percentage (determined by the Committee of the
Plan, generally 30% to 50%) of the participant's contribution
reduced by amounts required to be withheld under income tax,
Federal Insurance Contributions Act tax and comparable
laws. The combined amount becomes available to purchase from the
Corporation, shares of its common stock at a price equal to the
average of the closing prices of such common stock on the New York
Stock Exchange (composite tape) for the 20 consecutive trading days
immediately preceding the last day of the Plan Year. The funds held
by the Employer at the end of the year represent the remaining amounts
in participants' accounts after the purchase of whole shares as the
Plan does not provide for the purchase of fractional shares. A
participant may terminate his participation in the Plan at any time.
Upon termination, the Employer will return his contributions and the
participant will forfeit all rights to any contribution which
would have made at the end of the plan year.
As of November 30, 1997, 672,982 shares (11,764 shares in the current
year and 661,218 in prior years) of the Corporation's common stock had
been issued under the Plan and 227,018 shares were available for
future issuance.
Hourly paid employees of all divisions of Chesapeake Display and
Packaging Company and the Pelahatchie, MS division of Color-Box, Inc.
are eligible to become participants in the Hourly Employees' Stock
Purchase Plan effective with the Plan Year beginning December 1, 1997
provided that such employees otherwise meet the requirements for
participation set forth in the Plan.
2. Reclassifications:
Certain 1996 and 1995 amounts have been reclassified to conform with
the current year's presentation.
3. Plan Year:
The fiscal year of the Plan ends each November 30.
4. Funds Held by Chesapeake Corporation and Participating Subsidiaries:
Funds received or held by the Employer with respect to the Plan may be
used for any corporate purpose; therefore, the Plan does not prevent the
Employer from creating a lien on these funds.
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
5. Taxes and Expenses:
The Plan is not qualified under Section 401(a) of the Internal Revenue
Code and is not subject to the provisions of the Employee Retirement
Income Security Act of 1974. The Employer's contribution, when made to
the Plan, is taxable to a participant as ordinary income. Purchases of
stock by the Plan result in no gain or loss to the participant; therefore,
no tax consequences are incurred by a participant upon receipt of stock
purchased under the Plan. Sale by a participant of shares acquired under
the Plan will result in a gain or loss in an amount equal to the
difference between the sale price and the price paid for the stock
acquired pursuant to the Plan. The Plan is not subject to income taxes.
Expenses of administering the Plan are borne by the Employer.
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
6. Contributions to the Plan:
Contributions (net of withheld taxes and refunds) were as follows:
1997 1996 1995
Employer Employees Employer Employees Employer Employees
Chesapeake
Corporation
Subsidiaries:
Chesapeake Display
and Packaging
Company $41,187 $141,345 $ 36,962 $ 126,154 $ 35,590 $ 118,478
Chesapeake
Packaging Co. 11,067 36,869 32,143 108,514 33,706 115,261
Chesapeake Paper
Products Company 237,010 804,273 12,854 55,550
Chesapeake Forest
Products Company 5,006 28,419 13,513 59,316 238,585 816,082
Color-Box, Inc. 28,572 95,295 33,742 113,095 25,755 85,902
Wisconsin Tissue
Mills Inc. 14,792*
-------- ------- --------- ---------- --------- ----------
Totals $ 85,832 $301,928 $353,370 $1,226,144 $346,490 $1,191,273
======== ======== ======== ========== ======== ==========
*During the Plan year contributions totaling $14,792 attributable to the
Wisconsin Tissue Mills hourly employees were made to the Plan. Such
contributions were made prior to the establishment of the Wisconsin Tissue.
Mills Hourly Employees' Stock Purchase Plan ("WTM Plan"). Such assets were
transferred to the WTM Plan on November 1, 1996.
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
7. Sale to St. Laurent Paperboard Inc.:
On May 22, 1997, the Corporation sold specific kraft and packaging
facilities to St. Laurent Paperboard Inc. ("St. Laurent"). The
Corporation transferred accumulated 1996 carryover employee and
employer contributions and 1997 employee contributions made to the Plan
prior to the date of the sale of St. Laurent.<PAGE>
