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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, 1998
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 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
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]
The aggregate market value on February 26, 1999, of the voting stock
held by non-affiliates of the registrant was $658 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.
21,473,622 shares of the registrant's common stock, par value $1, were
outstanding as of February 26, 1999.
Portions of the registrant's Annual Report to Stockholders for the year
ended December 31, 1998 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 28, 1999, are
incorporated in Part III by reference.
PART I
Item 1. Business
GENERAL
Chesapeake Corporation (the "Company"), a Virginia
corporation organized in 1918, is primarily engaged in the
manufacture and sale of value-added commercial tissue products
and specialty packaging and displays; and Forest Products and
Land Development. The Company conducts its business in three
industry segments. The business units included in 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 product markets that
management believes have growth potential or in which the Company
has or may be able to achieve competitive advantages.
Chesapeake's strategy is to utilize its recycling expertise
creatively, to differentiate itself from its competition by
designing and manufacturing products that are distinctive, and to
respond to changing customer requirements by providing a
combination of products and services that it believes other
suppliers cannot provide. Management believes this strategy
allows the Company to achieve greater profits and better utilize
Chesapeake's strengths. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" of the
Company's 1998 Annual Report to Stockholders (the "1998 Annual
Report") incorporated herein by reference.
Information with respect to business segments and
international sales and long-lived assets is presented in "Notes
to Consolidated Financial Statements, Note 15-Business Segment
Information" of the 1998 Annual Report and is incorporated herein
by reference. Information with respect to the Company's working
capital practices is set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations, Liquidity and Capital Resources" of the 1998 Annual
Report and is incorporated herein by reference. Information
regarding the Company's anticipated capital spending is set forth
under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations, 1999 Outlook" of
the 1998 Annual Report and is incorporated herein by reference.
RECENT COMPANY HISTORY
Over the past several years Chesapeake repositioned itself,
reconfiguring its mix of business from that of a natural
resources based, commodity products company to a marketing
focused supplier of specialty products for selected markets.
In 1995, Chesapeake expanded its Tissue segment with the
acquisition of paper mills in Arizona and Illinois, which
increased primary tissue production capacity by 90,000 tons per
year, or approximately 50%. Further expansion of the Tissue
segment occurred in 1996 as new converting facilities in Arizona
and New York began full operation.
Expansion in the Specialty Packaging segment over the last
three years has included: new graphic packaging plants in
California and Mississippi; new custom packing operations in
Tennessee, Pennsylvania, and Ohio; and the acquisitions of point-
of-sale and packaging operations in Kentucky. Capital
expenditures intended to enhance efficiency, and to improve
product quality and productivity, were made at several existing
packaging facilities during the same period.
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.
Included in these acquisitions were the operations of the former
Display Division of Dyment Limited, with locations in Canada and
the United States. In 1996, Chesapeake also purchased the point-
of-sale display and packaging businesses of Sailliard S.A., a
French manufacturer. The businesses acquired included operations
specializing in the design and manufacture of permanent and
temporary point-of-sale displays; the design and manufacture of
rigid boxes, with a focus on perfume, champagne, and specialty
products customers; and 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 Specialty Packaging segment's U.S.
operations by offering customers global packaging solutions. The
Tissue segment's operations located in Mexico were acquired in
late 1996 from Jokel Desarrollos, S.A. de C.V. and Ambitec, S.A.
de C.V.
In February 1998, CP 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. In November 1998, the Company acquired all of
the outstanding capital stock of Capitol Packaging Corporation, a
specialty packaging company in Denver, CO.
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 strategy of focusing on
its faster-growing packaging and tissue operations. The sale also
reduced the capital intensity and cyclicality of the Company's
mix of businesses. See "Notes to Consolidated Financial
Statements, Note 2 - Acquisitions and Divestitures" of the 1998
Annual Report, incorporated herein by reference.
During 1997, the Company recorded restructuring and other
special charges related primarily to its Specialty Packaging
segment that provided for costs associated with management
reorganization and the closures of one point-of-sale display
facility and one graphic packaging facility. See "Notes to
Consolidated Financial Statements, Note 13 - Commitments and
Other Matters" of the 1998 Annual Report, incorporated herein by
reference.
During 1998, the Company recorded a restructuring charge as
a result of a management review of its Tissue and Specialty
Packaging segments, which included organization and cost
structures, facility utilization, and product offerings. See
"Notes to Consolidated Financial Statements, Note 13 -
Commitments and Other Matters" of the 1998 Annual Report,
incorporated herein by reference.
The Company is currently evaluating strategic alternatives
regarding the Forest Products/Land Development segment's
timberlands and building products businesses.
In January 1999, the Company announced plans to build a new
tissue mill and converting facility in Halifax County, North
Carolina. Also, in January 1999, the Company made an offer to
acquire all of the outstanding shares of Field Group plc, a
leading European packaging company with headquarters in the
United Kingdom. In February 1999, the Company increased its
offer. On March 5, 1999, the Company announced it had received
shareholder acceptances, received irrevocable undertakings, or
acquired shares totaling 88% of the outstanding share capital of
Field Group PLC and therefore declared the offer wholly
unconditional. See "Notes to Consolidated Financial Statements,
Note 14 - Subsequent Events" of the 1998 Annual Report,
incorporated herein by reference.
TISSUE SEGMENT
Chesapeake's Tissue segment, which consists of Wisconsin
Tissue Mills Inc. and Wisconsin Tissue de Mexico, S.A. de C.V.
(collectively, "Wisconsin Tissue" or "WT"), produces tissue for
industrial and commercial markets including full-menu and fast-
food restaurants, hotels, motels, clubs, health care facilities,
schools, office locations, and commercial airlines. Print
quality and the ability to deliver a full range of products to
customers quickly throughout North America are critical
capabilities.
Operations of the Tissue segment include: paper mills in
Menasha, WI, Flagstaff, AZ, and Chicago, IL; and converting and
distribution facilities in Neenah, WI, Bellemont, AZ, Greenwich,
NY, and Toluca, Mexico. The combined operations sell over 2,200
products, including napkins, tablecovers, toweling, placemats,
wipers, and facial and bathroom tissue. Wisconsin Tissue's
products are sold throughout the United States, Canada, and
Mexico using a dedicated sales force and independent
distributors.
The raw material for the paper manufactured by Wisconsin
Tissue is 100% recovered paper. Tissue operations require major
investments in paper machines, fiber preparation equipment, and
converting equipment. Wisconsin Tissue's seven paper machines
manufacture various weights and grades of tissue that is
converted on approximately 150 specialized machines. Shipments
of converted products by Wisconsin Tissue were 299,000 tons in
1998, 268,000 tons in 1997, and 253,000 tons in 1996.
SPECIALTY PACKAGING SEGMENT
Chesapeake's Specialty Packaging segment is composed of
Chesapeake Display and Packaging Company ("CD&P"), which designs
and manufactures point-of-sale displays and graphic packaging in
the United States, Canada, and Europe, and Chesapeake Packaging
Co. ("CP"), which produces corrugated shipping containers in the
United States. Specialty Packaging products are sold using a
dedicated sales force. Specialty Packaging operations use
various converting equipment to print, cut, slot, and glue
packaging, displays, or containers to customer specifications.
The primary raw materials for the packaging plants include
linerboard and corrugating medium, which are converted to make
the walls of the packaging unit.
Chesapeake Display and Packaging
CD&P designs, manufactures, and, in some cases, packs and
distributes display and promotional units that are used as
marketing tools in supermarkets, video stores, convenience
stores, and other retail locations. Point-of sale displays are
free-standing and highlight or advertise a specific product or
set of products for customers. Most point-of-sale displays are
temporary and are used to support a specific product
advertisement or roll-out. However, they can also be more
permanent when constructed out of wood and/or plastic. Design
creativity, strength, and high quality printing are critical
capabilities.
CD&P operates a network of sixteen design, manufacturing,
assembly, packaging, and distribution facilities throughout the
United States and Europe and provides its customers with a wide
range of products and services, including graphic and structural
design, in-house manufacturing, project management, assembly,
custom packing, and distribution.
CD&P also designs and manufactures light-weight graphic
packaging that is used by consumer products companies to pack,
store, stack, and display retail products. Litho-laminated,
printed corrugated packaging is preferred by mass merchandisers
because of its superior graphic appearance and stacking strength.
As with point-of sale displays, CD&P offers turn-key service
to its graphic packaging customers by providing CAD-CAM
mechanical design, digital art board, graphic design, die making,
product testing, and full customer support. CD&P operates three
dedicated graphic packaging facilities in Visalia, CA, Richmond,
IN, and Pelahatchie, MS, that are capable of servicing national
accounts.
Chesapeake Europe produces point-of-sale displays, rigid and
luxury boxes, and specialty folding cartons in seven facilities
in France, primarily for consumer and luxury goods producers in
France.
Chesapeake Packaging
CP consists of ten corrugated shipping container plants
located in seven states, which manufacture corrugated boxes and
specialty packaging primarily for customers within each plant's
regional area.
FOREST PRODUCTS/LAND DEVELOPMENT SEGMENT
Chesapeake's Forest Product/Land Development segment
consists of Chesapeake Forest Products Company, Chesapeake
Building Products Company, Delmarva Properties, Inc. and
Stonehouse Inc.
Chesapeake Forest Products
Chesapeake Forest Products Company ("CFPC") owns and
actively manages approximately 321,000 acres of timberland
located in Virginia, Maryland, and Delaware. Chesapeake's
forests are managed to maximize the harvest of sawtimber using
environmentally sound, modern forestry methods.
Approximately 98% of CFPC's external sales consist of
pulpwood sales to St. Laurent. CFPC also produces sawtimber
which it sells internally to Chesapeake Building Products.
Chesapeake Building Products
Chesapeake Building Products Company operates three sawmills
in Virginia and Maryland, which primarily manufacture pine
lumber. Over 50% of the sawtimber processed at the mills is
purchased from CFPC. The remainder is purchased from independent
timber owners. Sawmill products are sold by an internal sales
force to independent brokers and retailers.
Delmarva Properties, Inc. and Stonehouse Inc.
Delmarva Properties, Inc. and Stonehouse Inc. develop and
market land that is expected to be more valuable when used as
developed property than as timberland. Delmarva Properties is
currently developing approximately 5,200 acres in Virginia,
Maryland, and Delaware, primarily for residential housing. Sales
include large lots and acreage for third parties to develop for
both residential and commercial uses. Another major project
involves the development of a 3,200 acre mixed-use site in New
Kent, VA.
Stonehouse Inc. is a 50% partner in a joint venture with
Dominion Capital, Inc. to develop a 7,600 acre planned community
in James City County, VA. The majority of the land currently
being developed by both of Chesapeake's land development entities
was timberland formerly owned by Chesapeake Forest Products
Company.
RISKS AND UNCERTAINITIES
The information presented under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations, Risk Management" and "Notes to Consolidated Financial
Statements, Note 1(j)-Risks and Uncertainties" of the 1998 Annual
Report is incorporated herein by reference.
RAW MATERIALS
Most of the Company's raw materials are readily available at
competitive market prices. The raw material for the paper
manufactured by the Tissue segment is 100% recovered paper
purchased from independent dealers and brokers on the open
market. Prices of recovered paper remained at moderate levels in
1997 and 1998. The primary raw materials for the Specialty
Packaging segment are linerboard and corrugating medium, which is
converted to make the walls of the packaging unit. The raw
materials for the Specialty Packaging segment are purchased from
various suppliers at market prices.
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
material adverse effect on the Company's earnings, financial
position, cash flows, 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 WT as a PRP.
Except for the Fox River matter, the Company has not been
identified 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, results of operations, or cash flows.
In June 1994, the United States Department of Interior, Fish
and Wildlife Service ("FWS"), a federal natural resources
trustee, notified WT that it had identified WT and four other
companies located along the lower Fox River in northeast
Wisconsin as PRPs for purposes of natural resources liability
under CERCLA arising from alleged releases of polychlorinated
biphenyls ("PCBs") in the Fox River and Green Bay System. Two
other companies subsequently received similar notices from the
FWS. The FWS and other governmental and tribal entities,
including the State of Wisconsin, allege that natural resources,
including endangered species, fish, birds, tribal lands, or lands
held by the United States in trust for various Indian tribes,
have been exposed to PCBs that were released from facilities
located along the lower Fox River. The FWS is proceeding with a
natural resource damage assessment with respect to the alleged
discharges. On January 31, 1997, the FWS notified WT of its
intent to file suit, subject to final approval by the Department
of Justice, against WT to recover alleged natural resource
damages. WT and other PRPs are engaged in discussions with the
parties asserting trusteeship of the natural resources concerning
the damage assessment and the basis for resolution of the natural
resource damage claims.
WT and other PRPs are also engaged in discussions with the
State of Wisconsin with respect to resolving possible state
claims concerning remediation, restoration and natural resource
damages related to the alleged discharge of PCBs into the Fox
River and Green Bay System. Under an interim agreement with the
State of Wisconsin, the PRPs are providing funds for an interim
phase of resource damage assessment and restoration work. WT's
obligation under the 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 PRPs, including WT. By early 1998, the EPA and the
Wisconsin Department of Natural Resources ("DNR") had initiated a
remedial investigation/ feasibility study ("RI/FS") of the lower
Fox River site.
On February 26, 1999, the DNR released for public comment a
draft RI/FS for the lower Fox River site. In the draft RI/FS,
the DNR reviewed and summarized several categories of possible
remedial alternatives for the site, estimated to cost in the
range of $143 million to $721 million, but did not identify a
preferred remedy. (As required by applicable regulations, the
draft RI/FS also includes a "no action" alternative that does not
entail remediation costs, but the Company does not believe that
the "no action" alternative will be selected). There can be no
assurance that many of the cost estimates in the draft RI/FS will
not differ significantly from actual costs. Public comments on
the draft RI/FS must be submitted by April 12, 1999. WT intends
to submit its comments prior to that deadline. After
consideration of public comment, the draft RI/FS may be revised
to add to, delete or amend the alternatives for managing
contaminated sediments. Later this year, after finalizing the
RI/FS, the DNR and the EPA are expected to announce a preferred
remedial alternative in a Proposed Remedial Action Plan. The
Proposed Remedial Action Plan will be subject to a public comment
period, and enforcement of any definitive Remedial Action Plan
may be subject to judicial review.
The largest components of the costs of the more expensive
clean-up alternatives presented in the draft RI/FS are
attributable to large-scale sediment removal, treatment and
disposal. Based on current information and advice from its
environmental consultants, WT believes that an aggressive effort
to remove substantial amounts of PCB-contaminated sediments (most
of which are buried under cleaner material or are otherwise
unlikely to move), as contemplated by certain alternatives
presented in the draft RI/FS, would be environmentally
detrimental and therefore inappropriate. Instead, WT believes
that less intrusive alternatives are more environmentally
appropriate, cost effective and responsible methods of managing
risks attributable to sediment contamination.
The ultimate cost to WT associated with these matters cannot
be predicted with certainty at this time, due to uncertainties
with respect to: which, if any, of the remedial alternatives
presented in the draft RI/FS will be implemented, and
uncertainties associated with the actual costs of each of the
potential alternatives; the outcome of the federal and state
natural resource damage assessments; WT's share of any multi-
party clean-up/restoration expenses; the timing of any clean-
up/restoration; the evolving nature of clean-up/restoration
technologies and governmental regulations; controlling legal
precedent; the extent to which contribution will be available
from other parties; and the scope of potential recoveries from
insurance carriers and prior owners of WT. While such costs
cannot be predicted with certainty at this time, the Company
believes that the ultimate clean-up/restoration costs associated
with the lower Fox River site may exceed $100 million for all
PRPs in the aggregate. Under CERCLA, each PRP generally will be
jointly and severally liable for the full amount of the clean-up
costs, subject to a right of contribution from the other PRPs.
In practice, PRPs generally negotiate among themselves to
determine their respective contributions to any multi-party
cleanup/restoration, based upon factors including their
respective contributions to the alleged contamination and their
ability to pay. Based on presently available information, the
Company believes that several of the named PRPs will be able to
pay substantial shares toward remediation and restoration, and
that there are additional parties, some of which have substantial
resources, that may also be jointly and severally liable.
The Company also believes that it is entitled to substantial
indemnification from a prior owner of WT, pursuant to a stock
purchase agreement between the parties, with respect to
liabilities related to this matter. The Company believes that
the prior owner intends to, and has the financial ability to,
honor its indemnification obligation under the stock purchase
agreement.
Based on presently available information, the Company
believes that if any remediation/restoration is done in an
environmentally appropriate, cost effective and responsible
manner, the matter is unlikely to have a material adverse effect
on the Company's financial position, liquidity or results of
operations. However, because of the uncertainties described
above, there can be no assurance that WT's ultimate liability
with respect to the lower Fox River site will not have a material
adverse effect on the Company's financial position, liquidity or
results of operations.
The EPA has stated its intent to develop additional draft
rules under the Clean Water Act and the Clean Air Act, which
would impose new air and water quality standards for pulp and
paper mills (the "Cluster Rules"). The eventual capital cost
impact on the Company of compliance with the 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 market; and development in compliance technology.
In March 1998, WT's Chicago, IL, tissue mill received a
Notice of Violation from EPA alleging violation of the Illinois
State Implementation Plan as adopted pursuant to the Clean Air
Act. The alleged violation involves the emission of volatile
organic material. WT is in the process of negotiating a possible
resolution of the alleged violation with EPA. The ultimate cost
to WT, if any, associated with the alleged violation cannot be
determined with certainty at this time due to the absence of a
determination that there has been a violation, and, if a
violation is found to have occurred, a determination of the
appropriate capture and control techniques or other corrective
action and the cost thereof, and the amount of any penalties
imposed by EPA. WT believes that it is entitled to significant
indemnification for any costs or expenses incurred with regard to
this matter from the prior owner of the Chicago mill and that the
prior owner has the financial ability to honor its
indemnification obligation.
On July 17, 1998, WT's Menasha, WI, tissue mill received a Notice
of Violation from the Wisconsin Department of Natural Resources
("WDNR") alleging violations involving emission of volatile
organic compounds and reporting requirements. WT has resolved the
alleged violations by agreement with WDNR without a finding that
violations occurred and without significant financial or
operational effects on WT.
EMPLOYEES
As of December 31, 1998, the Company had 5,557 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 union representing
employees in Menasha, WI. During 1998, Wisconsin Tissue
implemented an enhanced retirement program for certain salaried
employees. See "Notes to Consolidated Financial Statements, Note
6 - Employee Retirement and Postretirement Benefits" of the 1998
Annual Report, incorporated herein by reference.
COMPETITION AND SEASONALITY
Chesapeake has many customers who buy its products. With
the exception of CFPC's pulpwood sales to St. Laurent, the
Company is not dependent on any single customer, or group of
customers, in any of its business segments. 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 quarter of
each year usually generates 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 competes by
differentiating itself through product design and exceptional
customer service. The Company believes that competitive factors
in the industries in which it competes preclude a meaningful
estimate of the number of competitors and 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.
TRADEMARKS
The Company utilizes various trademarks in the course of its
business, none of which are individually material.
Item 2. Properties
At year-end 1998, Chesapeake manufactured its products at
multiple facilities in 17 states, Canada, Mexico, and France. The
information presented under "Operating Locations" in the 1998
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 10 - Litigation" of the 1998 Annual
Report is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None
Executive Officers of the Registrant
The name and age of each executive officer of the Company
as of February 28, 1999, 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 generally elected
at each annual organizational meeting of the board of directors.
Thomas H. Johnson (49)
President and Chief Executive Officer since 1997
Vice Chairman, Riverwood International Corporation(1996-1997)
President and Chief Executive Officer, Riverwood
International Corporation (1989-1996)
Octavio Orta (54)
Executive Vice President-Display & Packaging since 1998
President of Chesapeake Display & Packaging Company since 1998
Senior Vice President-Coated Board Sales & Packaging
Operations Groups, Riverwood International
Corporation(1995-1998)
Senior Vice President, Europe and Asia/Pacific, Riverwood
International Corporation (1993-1995)
William A. Raaths (52)
Executive Vice President-Tissue Products since 1998
President-Wisconsin Tissue Mills Inc. since 1995
Group Vice President-Tissue Products (1995-1998)
Executive Vice President-Wisconsin Tissue Mills Inc. (1994-
1995)
President, Chesapeake Consumer Products Company (1989-1994)
J. P. Causey Jr. (55)
Senior Vice President, Secretary & General Counsel since 1995
Vice President, Secretary & General Counsel (1986-1995)
Andrew J. Kohut (40)
Senior Vice President-Strategic Business Development since
1998
Group Vice President-Specialty Packaging & Merchandising
Services (1996-1998)
Group Vice President-Finance & Strategic Development (1995-
1996)
Chief Financial Officer (1991-1996)
Vice President-Finance (1991-1995)
Robert F. Schick (56)
Senior Vice President-Containers since 1998
President of Chesapeake Packaging Co. since 1996
Vice President-Containers (1997-1998)
Vice President-Operations Chesapeake Packaging Co. (1988-1996)
William T. Tolley (41)
Senior Vice President-Finance & Chief Financial Officer since
1998
Group Vice President-Finance & Chief Financial Officer (1996-
1998)
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)
Jack C. King (56)
Vice President - Forest Resources since 1998
President of Chesapeake Forest Products Company since 1996
President of Chesapeake Building Products Company since 1990
Vice President of Cheapeake Forest Products Company (1989-
1996)
Thomas A. Smith (52)
Vice President-Human Resources & Assistant Secretary since
1987
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 1998 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, 1999, there were 6,681 stockholders of record of
the Company's common stock.
The Company has certain loan agreements related to a portion
of its debt, none of which materially limit the Company's ability
to pay dividends. See "Notes to Consolidated Financial
Statements, Note 4 - Long-Term Debt" of the 1998 Annual Report,
incorporated herein by reference.
Item 6. Selected Financial Data
The information for the years 1994-1998 presented under the
caption "Eleven-Year Comparative Record" of the 1998 Annual
Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information presented under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" of the 1998 Annual Report, except the information set
forth under the caption "Environmental" therein, is incorporated
herein by reference. The information set forth under the caption
"Environmental" in Item 1 - "Business" of this Form 10-K 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
1998 Annual Report, are incorporated herein by reference. The
"Report of Independent Accountants" as presented in the Company's
1998 Annual Report is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information presented under the captions "Information
Concerning Nominees", "Directors Continuing in Office", and
"Section 16(a) Beneficial Ownership Reporting Compliance" of the
Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held April 28, 1999 (the "1999 Proxy
Statement"), and the information presented under the caption
"Executive Officers of the Registrant" in Part I of this Form 10-
K, is incorporated herein by reference.
Item 11. Executive Compensation
The information presented under the captions "Compensation
of Directors" and "Executive Compensation" of the 1999 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
1999 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information presented under the caption "Certain
Relationships and Related Transactions" of the 1999 Proxy
Statement is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
a. Documents
(i) Financial Statements
The consolidated balance sheet of
Chesapeake Corporation and subsidiaries as of
December 31, 1998 and 1997, and the related
consolidated statements of income, retained
earnings, and comprehensive income, and cash
flows for each of the three years in the
period ended December 31, 1998, including the
notes thereto, are presented in the 1998
Annual Report and are incorporated herein by
reference. The "Report of Independent
Accountants" as presented in the 1998 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 of this Form 10-K, no other data
appearing in the 1998 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, 1998, is found on page 20 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 on
Financial Statements Schedules" with respect
to the foregoing schedule is found on page 19
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 21-
23 hereof. Exhibits 10.1-10.16 hereto
constitute management contracts or
compensatory plans or arrangements required
to be filed as exhibits hereto.
b. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHESAPEAKE CORPORATION
(Registrant)
February 17, 1999
By /s/ WILLIAM T. TOLLEY
William T. Tolley
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated.
By /s/ ROBERT L. HINTZ By /s/ WALLACE STETTINIUS
Robert L. Hintz Wallace Stettinius
Director Director
By /s/ THOMAS H. JOHNSON By /s/ RICHARD G. TILGHMAN
Thomas H. Johnson Richard G. Tilghman
Director; Chief Executive Director
Officer and President
By /s/ WILLIAM D. McCOY By /s/ JOSEPH P. VIVIANO
William D. McCoy Joseph P. Viviano
Director Director
By /s/ JOHN W. ROSENBLUM By /s/ HARRY H. WARNER
John W. Rosenblum Harry H. Warner
Director Chairman of the Board
By /s/ FRANK S. ROYAL By /s/ WILLIAM T. TOLLEY
Frank S. Royal William T. Tolley
Director Chief
Financial and
Accounting Officer
Each of the above signatures is affixed as of February 17, 1999.
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
of Chesapeake Corporation:
Our audits of the consolidated financial statements referred to
in our report dated February 12, 1999 appearing in the 1998
Annual Report to Shareholders of Chesapeake Corporation (which
report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item
14(a)(ii) of this Form 10-K. In our opinion, the financial
statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Richmond, Virginia
February 12, 1999
CHESAPEAKE CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(A) (B) (C) (D) (E)
Additions
Balance at charged to
beginning costs and Balance
Description of year expenses Deductions end of year
(In millions)
Valuation accounts deducted
from assets to which they
apply - for doubtful accounts
receivable
Year Ended:
December 31, 1996 $3.2 $1.7 $ .2 $4.7
December 31, 1997 $4.7 $2.6 $1.4 $5.9
December 31, 1998 $5.9 $1.4 $3.2 $4.1
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
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 Amended and Restated Credit Agreement, dated as of March 15,
1999, among Chesapeake Corporation, Chesapeake UK Holdings
Limited, Various Lenders, and First Union National Bank as
Administrative Agent
4.4 Rights Agreement, dated as of March 15, 1998, between the
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)
10.5 Retirement Plan for Outside Directors (filed as Exhibit
10.9 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1987, and incorporated herein
by reference)
10.6 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)
10.7 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)
10.8 Chesapeake Corporation 1993 Incentive Plan (filed as
Exhibit 4.1 to Form S-8 Registration Statement No. 33-
67384 and incorporated herein by reference)
10.9 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)
10.10 Chesapeake Corporation 401(k) Restoration Plan (filed as
Exhibit 10.11 to the Registrant's Annual Report on Form
10-K for the year December 31, 1996, and incorporated
herein by reference)
10.11 Chesapeake Corporation 1997 Incentive Plan (filed as
Exhibit 4.5 to Form S-8 Registration Statement No. 333-
30763 and incorporated herein by reference)
10.12 Agreement with Thomas H. Johnson (filed as Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, and incorporated herein
by reference)
10.13 Agreement with J. Carter Fox (filed as Exhibit 10.14 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997, and incorporated herein by
reference)
10.14 Agreement with Robert F. Schick (filed as Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, and incorporated herein by
reference)
10.15 Agreement with Jack C. King (filed as Exhibit 10.2 to
the Quarterly Report on Form 10-Q for the quarter ended June
30, 1998, and incorporated herein by reference)
10.16 Amendment to Agreement with Jack C. King (filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended October 31, 1998, and incorporated
herein by reference)
11.1 Computation of Net Income Per Share of Common Stock
13.1 Portions of the Chesapeake Corporation Annual Report to
Stockholders for the year ended December 31, 1998
18.1 Letter re change in accounting principle from
PricewaterhouseCoopers LLP
21.1 Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
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, 1998