NEWS RELEASE
For Immediate Release
August 8, 2007
Chesapeake Reports Second-Quarter 2007 Results
RICHMOND, Va. - Chesapeake Corporation (NYSE: CSK) today reported financial results for the second quarter of 2007.
Second-Quarter 2007 Financial Highlights
| · | Net sales of $250.9 million were up 6 percent when compared to second quarter of 2006, or were comparable excluding the effect of changes in foreign currency exchange rates |
| · | Operating income exclusive of gains or losses on divestitures and restructuring expenses, asset impairments and other exit costs (collectively “special items”) was $8.3 million, down $1.6 million when compared to second quarter of 2006, and down $2.4 million excluding the effect of changes in foreign currency exchange rates |
| · | Loss from continuing operations was $11.7 million, or $0.60 per share, compared to a loss from continuing operations of $0.7 million, or $0.04 per share, for the second quarter of 2006. Excluding special items, the loss was $2.4 million, or $0.12 per share, compared to income of $0.8 million, or $0.04 per share, for the second quarter of 2006 |
“Our results were in line with our expectations but down when compared to last year,” said Andrew J. Kohut, Chesapeake’s president and chief executive officer. “Reduced tobacco packaging sales and the seasonal low point for many of our branded products customers overshadowed a very strong quarter in our Plastic Packaging segment. We continue to expect 2007 operating income, excluding special items, to improve over last year and remain confident that our plan to reduce our cost basis in Western Europe and accelerate growth in developing markets will produce tangible benefits to our shareholders.”
Segment Results
The following discussion compares the results of the business segments for the second quarter of 2007 with the second quarter of 2006 and excludes the effect of changes in foreign currency exchange rates and special items.
Paperboard Packaging
Net sales for the second quarter of 2007 were down 5 percent, or $9.0 million, compared to the same period in 2006. The decline in sales for the second quarter was primarily due to lower sales of tobacco and branded products packaging. The decline in sales in tobacco packaging was expected, and the decline in branded products packaging was primarily due to subdued demand for confectionery packaging in the U.K.
Operating income for the second quarter of 2007 was down 37 percent, or $3.9 million, compared to the same period in 2006. The decline in operating income was primarily due to lower sales of tobacco and branded products packaging, as well as a less favorable product mix of branded products packaging, partially offset by reductions in pension and other postretirement benefits expense.
Plastic Packaging
Net sales for the second quarter of 2007 increased 27 percent, or $9.1 million, over the comparable quarter in 2006. The increase in net sales during the quarter was primarily due to increased volume in our South Africa beverage operation and the partial pass-through of higher raw material costs throughout the segment.
Operating income for the second quarter of 2007 was up 61 percent, or $2.2 million, compared to the same period in 2006. The increase in operating income was primarily due to increased volumes throughout the segment.
Special Items
In November 2005, the company announced a $25-million global cost savings program aimed at improving or rationalizing underperforming operations, improving operational processes and reducing the overall company-wide cost structure. Since the program’s inception, the company has recorded net pre-tax charges for divestitures and restructuring, asset impairments and other exit costs of approximately $30.2 million ($7.9 million of which are included in discontinued operations) and made cash payments related to program initiatives of approximately $26.1 million. In addition, the company has recovered approximately $26.7 million of cash in sale proceeds on operations and other assets divested under this program. Global cost saving program actions initiated to date, once complete, are expected to result in annualized cost savings of approximately $25 million. The company is evaluating potential additional cost savings actions that, combined with the cost savings actions initiated to date, would exceed the $25-million annualized cost savings goal.
Special items included restructuring expenses, asset impairments and other exit costs of $10.9 million for the second quarter of 2007 compared to $2.1 million for the second quarter of 2006. Special items for the second quarter of 2007 included employee-related costs of $6.0 million associated with planned workforce reductions in the tobacco packaging business as a result of reduced volume, as well as other general workforce reductions under the company’s $25-million global cost savings program.
Cash Flow
Net cash generated by operating activities was $15.4 million for the first half of 2007, compared to net cash used in operating activities of $1.0 million for the first half of 2006. The increase in net cash generated by operating activities was primarily due to decreased spending associated with the global cost savings program, pension funding and working capital requirements. Exclusive of restructuring spending, net cash generated by operating activities was $19.6 million for the first half of 2007 compared to $9.0 million for the first half of 2006.
Total debt at July 1, 2007, was $486.2 million compared to $467.8 million at December 31, 2006. Changes in foreign currency exchange rates increased total debt approximately $7.7 million at the end of the second quarter of 2007 compared to the end of year 2006.
Income Taxes
The company’s effective income tax rate is heavily influenced by the relationship of U.S. to non-U.S. pre-tax income (losses), as well as by management’s expectations as to recovery of its U.S. and certain foreign jurisdiction deferred income tax assets and any settlements of income tax contingencies with income tax authorities.
During July 2007, the company completed negotiations with a non-U.S. tax authority to allow additional deductions of certain interest payments. As a result, the company will record a $3.5 million income tax benefit in the third quarter of 2007 related to 2005 and 2006 tax years. In addition, this will have a favorable impact on the company’s 2007 tax rate.
Conference Call
Chesapeake will hold a conference call today at 11 a.m. Eastern Daylight Time to discuss its second-quarter 2007 results. The conference call may be accessed via the Investor Relations section of Chesapeake Corporation's website at http://www.cskcorp.com. Simply click on the "Investor Relations" button in the left column, then on "Conference Calls." A replay of the webcast will be available later today in that same section of Chesapeake's website.
About Chesapeake Corporation
Chesapeake Corporation is a leading international supplier of value-added specialty paperboard and plastic packaging with headquarters in Richmond, Va. The company is one of Europe’s premier suppliers of folding cartons, leaflets and labels, as well as plastic packaging for niche markets. Chesapeake has 47 locations in Europe, North America, Africa and Asia and employs approximately 5,500 people worldwide.
Forward-looking Statements
This news release, including the comments by Andrew J. Kohut, contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause Chesapeake's actual results to differ materially from those expressed in the forward-looking statements including, but not limited to: the company’s inability to realize the full extent of the expected savings or benefits from the $25-million global cost savings program and to complete such activities in accordance with its planned timetable and within the expected cost range; competitive products and pricing; production costs, particularly for raw materials such as folding carton and plastics materials, and the ability of the company to pass through increases in raw material costs to its customers; fluctuations in demand; possible recessionary trends in U.S. and global economies; government policies and regulations; interest rates; fluctuations in foreign currency exchange rates; the ability of the company to remain in compliance with its debt covenants; and other risks that are detailed from time to time in reports filed by the company with the Securities and Exchange Commission.
