##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-Q



---



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended July 3, 2005



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



---



LOGO



CHESAPEAKE CORPORATION

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Virginia                                                       |  | 54-0166880                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|1021 East Cary Street Richmond, Virginia                       |  | 23219                               
|(Address of principal executive offices)                       |  | Zip Code                            



Registrants
telephone number, including area code: 804-697-1000



Not
Applicable

(Former name, former address, and former fiscal year, if changed since last report)



---



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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).    Yes  x    No ̈



Number of shares of $1.00 par value common stock outstanding as of August 15, 2005:

19,705,755 shares.



---



---

##### Table of Contents

CHESAPEAKE CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JULY 3, 2005

INDEX



|                              |  |         |  |                                                                                                               |  |           
|----------------------------- |  | ------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----------
|                              |  |         | 
|                              |  |         |  |                                                                                                               |  | PAGENUMBER
|                              | 
|PART I.
FINANCIAL INFORMATION |  |        
|                              |  |         | 
|                              |  | Item 1. |  | Financial Statements (Unaudited)                                                                              |  |           
|                              |  |         | 
|                              |  |         |  | Consolidated Statements of Earnings  Quarters and Six Months ended July 3, 2005, and July 4, 2004 (Restated) |  | 3         
|                              |  |         | 
|                              |  |         |  | Consolidated Balance Sheets at July 3, 2005, and January 2, 2005 (Restated)                                   |  | 4         
|                              |  |         | 
|                              |  |         |  | Consolidated Statements of Cash Flows - Six Months ended July 3, 2005, and July 4, 2004 (Restated)            |  | 6         
|                              |  |         | 
|                              |  |         |  | Notes to Consolidated Financial Statements                                                                    |  | 7         
|                              |  |         | 
|                              |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 22        
|                              |  |         | 
|                              |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 27        
|                              |  |         | 
|                              |  | Item 4. |  | Controls and Procedures                                                                                       |  | 27        
|                              | 
|PART II.
OTHER INFORMATION    |  |        
|                              |  |         | 
|                              |  | Item 1. |  | Legal Proceedings                                                                                             |  | 30        
|                              |  |         | 
|                              |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                                           |  | 30        
|                              |  |         | 
|                              |  | Item 6. |  | Exhibits                                                                                                      |  | 30        
|                              | 
|Signature                     |  | 32     



Introductory Note



On August 11, 2005, the Company filed a Form 8-K relating to the restatement
of the Companys financial statements as of and for the year ended January 2, 2005 and for the financial statements as of and for the quarter ended April 3, 2005. On August 17, 2005, the Company filed Amendment No. 1 to its Annual Report on
Form 10-K to restate the consolidated financial statements as of and for the year ended January 2, 2005, and for all of the quarterly periods in the year ended January 2, 2005. The results for the quarter and six months ended July 4, 2004, and the
balance sheet as of January 2, 2005, included herein are restated. Please refer to Note 1 to the consolidated financial statements included herein as well as to Note 1 to the consolidated financial statements in the Form 10-K/A for additional
information with respect to the restatement.



2



---

##### Table of Contents

PART I  FINANCIAL INFORMATION



Item 1: Financial Statements



CHESAPEAKE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(in millions, except per share data; unaudited)



|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | - | ------------------- | - | ----- | ----------- |  | - | ------------------- | - |  | - | ----- | -
|                                                                                                                                                         |  | Quarters Ended |       |   | Six Months Ended    |  
|                                                                                                                                                         |  | Jul. 3,2005    |       |   | Jul. 4,2004Restated |   |       | Jul. 3,2005 |  |   | Jul. 4,2004Restated |  
|Net sales                                                                                                                                                |  | $              | 259.9 |   |                     | $ | 239.3 |             |  | $ | 532.3               |   |  | $ | 502.9 |  
|                                                                                                                                                         |  |                |       |  
|Costs and expenses:                                                                                                                                      |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Cost of products sold                                                                                                                                    |  |                | 215.1 |   |                     |   | 196.6 |             |  |   | 440.2               |   |  |   | 416.5 |  
|Selling, general and administrative expenses                                                                                                             |  |                | 34.9  |   |                     |   | 34.4  |             |  |   | 72.8                |   |  |   | 67.6  |  
|Loss on divestitures and plant closures                                                                                                                  |  |                | 6.4   |   |                     |   |      |             |  |   | 6.4                 |   |  |   |      |  
|Other income, net                                                                                                                                        |  |                | 4.7   |   |                     |   | 2.3   |             |  |   | 6.3                 |   |  |   | 4.1   |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Earnings from continuing operations before interest and taxes                                                                                            |  |                | 8.2   |   |                     |   | 10.6  |             |  |   | 19.2                |   |  |   | 22.9  |  
|                                                                                                                                                         |  |                |       |  
|Interest expense, net                                                                                                                                    |  |                | 8.1   |   |                     |   | 8.6   |             |  |   | 17.0                |   |  |   | 19.9  |  
|Loss on extinguishment of debt                                                                                                                           |  |                |      |   |                     |   | 8.4   |             |  |   |                    |   |  |   | 8.4   |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Income (loss) from continuing operations before taxes                                                                                                    |  |                | 0.1   |   |                     |   | (6.4  | )           |  |   | 2.2                 |   |  |   | (5.4  | )
|                                                                                                                                                         |  |                |       |  
|Income tax expense (benefit)                                                                                                                             |  |                | 2.1   |   |                     |   | (6.0  | )           |  |   | 2.9                 |   |  |   | (5.6  | )
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Income (loss) from continuing operations                                                                                                                 |  | $              | (2.0  | ) |                     | $ | (0.4  | )           |  | $ | (0.7                | ) |  | $ | 0.2   |  
|                                                                                                                                                         |  |                |       |  
|Discontinued operations:                                                                                                                                 |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Loss from discontinued operations, net of income tax expense benefit of $0.1                                                                             |  |                |      |   |                     |   |      |             |  |   |                    |   |  |   | (0.2  | )
|Gain on disposal of discontinued operations, net of income tax expense of $0.0 and $0.1 for six months ended July 3, 2005 and July 4, 2004,
respectively |  |                |      |   |                     |   |      |             |  |   | 0.7                 |   |  |   | 0.2   |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|                                                                                                                                                         |  |                |       |  
|Net (loss) income                                                                                                                                        |  | $              | (2.0  | ) |                     | $ | (0.4  | )           |  | $ |                    |   |  | $ | 0.2   |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Basic earnings per share:                                                                                                                                |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Income from continuing operations                                                                                                                        |  | $              | (0.10 | ) |                     | $ | (0.02 | )           |  | $ | (0.04               | ) |  | $ | 0.01  |  
|Discontinued operations                                                                                                                                  |  |                |      |   |                     |   |      |             |  |   | 0.04                |   |  |   |      |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Net (loss) income                                                                                                                                        |  | $              | (0.10 | ) |                     | $ | (0.02 | )           |  | $ |                    |   |  | $ | 0.01  |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Diluted earnings per share:                                                                                                                              |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Earnings from continuing operations                                                                                                                      |  | $              | (0.10 | ) |                     | $ | (0.02 | )           |  | $ | (0.04               | ) |  | $ | 0.01  |  
|Discontinued operations                                                                                                                                  |  |                |      |   |                     |   |      |             |  |   | 0.04                |   |  |   |      |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Net (loss) income                                                                                                                                        |  | $              | (0.10 | ) |                     | $ | (0.02 | )           |  | $ |                    |   |  | $ | 0.01  |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Weighted average number of common shares outstanding:                                                                                                    |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Basic                                                                                                                                                    |  |                | 19.4  |   |                     |   | 19.3  |             |  |   | 19.4                |   |  |   | 17.7  |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Diluted                                                                                                                                                  |  |                | 19.4  |   |                     |   | 19.3  |             |  |   | 19.4                |   |  |   | 17.7  |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  
|Cash dividends declared per share of common stock                                                                                                        |  | $              | 0.22  |   |                     | $ | 0.22  |             |  | $ | 0.44                |   |  | $ | 0.44  |  
|                                                                                                                                                         |  |                |       |   |                     |   |       |             |  |   |                     |   |  |   |       |  



The accompanying Notes to
Consolidated Financial Statements are an integral part of the financial statements.



3



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except shares; unaudited)



|                                                      |  |             |         |                     |   |        
|----------------------------------------------------- |  | ----------- | ------- | ------------------- | - | -------
|                                                      |  | Jul. 3,2005 |         | Jan. 2,2005Restated
|ASSETS                                                |  |             |         |                     |   |        
|                                                      |  |            
|Current assets:                                       |  |             |         |                     |   |        
|Cash and cash equivalents                             |  | $           | 16.6    |                     | $ | 54.3   
|Accounts receivable (less allowance of $4.1 and $6.2) |  |             | 150.9   |                     |   | 148.8  
|                                                      |  |            
|Inventories:                                          |  |             |         |                     |   |        
|Finished goods                                        |  |             | 65.4    |                     |   | 64.6   
|Work-in-process                                       |  |             | 20.4    |                     |   | 21.3   
|Materials and supplies                                |  |             | 28.2    |                     |   | 28.4   
|                                                      |  |             |         |                     |   |        
|Total inventories                                     |  |             | 114.0   |                     |   | 114.3  
|                                                      |  |            
|Prepaid expenses and other current assets             |  |             | 23.7    |                     |   | 19.5   
|                                                      |  |             |         |                     |   |        
|Total current assets                                  |  |             | 305.2   |                     |   | 336.9  
|                                                      |  |             |         |                     |   |        
|Property, plant and equipment, net                    |  |             | 366.1   |                     |   | 427.2  
|Goodwill                                              |  |             | 642.1   |                     |   | 694.6  
|Other assets                                          |  |             | 83.9    |                     |   | 96.2   
|                                                      |  |             |         |                     |   |        
|Total assets                                          |  | $           | 1,397.3 |                     | $ | 1,554.9
|                                                      |  |             |         |                     |   |        



The accompanying Notes to
Consolidated Financial Statements are an integral part of the financial statements



4



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS,continued

(in millions, except
shares and par values; unaudited)



|                                                                                                                   |  |             |         |   |                     |   |         |  
|------------------------------------------------------------------------------------------------------------------ |  | ----------- | ------- | - | ------------------- | - | ------- | -
|                                                                                                                   |  | Jul. 3,2005 |         |   | Jan. 2,2005Restated |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                               |  |             |         |   |                     |   |         |  
|                                                                                                                   |  |            
|Current liabilities:                                                                                               |  |             |         |   |                     |   |         |  
|Accounts payable                                                                                                   |  | $           | 139.3   |   |                     | $ | 141.7   |  
|Accrued expenses                                                                                                   |  |             | 77.7    |   |                     |   | 81.4    |  
|Income taxes payable                                                                                               |  |             | 24.9    |   |                     |   | 26.2    |  
|Current maturities of long-term debt                                                                               |  |             | 14.0    |   |                     |   | 64.1    |  
|Dividends payable                                                                                                  |  |             | 4.3     |   |                     |   | 4.3     |  
|                                                                                                                   |  |             |         |   |                     |   |         |  
|Total current liabilities                                                                                          |  |             | 260.2   |   |                     |   | 317.7   |  
|                                                                                                                   |  |             |         |   |                     |   |         |  
|Long-term debt                                                                                                     |  |             | 359.7   |   |                     |   | 364.8   |  
|Environmental liabilities                                                                                          |  |             | 33.7    |   |                     |   | 41.8    |  
|Pensions and postretirement benefits                                                                               |  |             | 64.1    |   |                     |   | 77.1    |  
|Deferred income taxes                                                                                              |  |             | 22.9    |   |                     |   | 25.0    |  
|Other long-term liabilities                                                                                        |  |             | 13.8    |   |                     |   | 17.5    |  
|                                                                                                                   |  |             |         |   |                     |   |         |  
|Total liabilities                                                                                                  |  |             | 754.4   |   |                     |   | 843.9   |  
|                                                                                                                   |  |             |         |   |                     |   |         |  
|Stockholders equity:                                                                                              |  |             |         |   |                     |   |         |  
|Preferred stock, $100 par value, issuable in series; authorized, 500,000 shares; issued, none                      |  |             |        |   |                     |   |        |  
|Common stock, $1 par value; authorized, 60 million shares; outstanding 19.7 million shares and 19.6 million shares |  |             | 19.7    |   |                     |   | 19.6    |  
|Additional paid-in capital                                                                                         |  |             | 98.5    |   |                     |   | 96.1    |  
|Unearned compensation                                                                                              |  |             | (5.3    | ) |                     |   | (3.7    | )
|Accumulated other comprehensive income                                                                             |  |             | 14.5    |   |                     |   | 74.9    |  
|Retained earnings                                                                                                  |  |             | 515.5   |   |                     |   | 524.1   |  
|                                                                                                                   |  |             |         |   |                     |   |         |  
|Total stockholders equity                                                                                         |  |             | 642.9   |   |                     |   | 711.0   |  
|                                                                                                                   |  |             |         |   |                     |   |         |  
|Total liabilities and stockholders equity                                                                         |  | $           | 1,397.3 |   |                     | $ | 1,554.9 |  
|                                                                                                                   |  |             |         |   |                     |   |         |  



The accompanying Notes to
Consolidated Financial Statements are an integral part of the financial statements.



5



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions; unaudited)



|                                                                                   |  |                  |       |   |                     |   |       |  
|---------------------------------------------------------------------------------- |  | ---------------- | ----- | - | ------------------- | - | ----- | -
|                                                                                   |  | Six Months Ended |      
|                                                                                   |  | Jul. 3,2005      |       |   | Jul. 4,2004Restated |  
|Operating activities:                                                              |  |                  |       |   |                     |   |       |  
|Net (loss) income                                                                  |  | $                |      |   |                     | $ | 0.2   |  
|Adjustments to reconcile net income to net cash provided by operating activities:  |  |                  |       |   |                     |   |       |  
|Depreciation                                                                       |  |                  | 29.3  |   |                     |   | 31.2  |  
|Deferred income taxes                                                              |  |                  | 0.4   |   |                     |   | (11.8 | )
|Loss on extinguishment of debt                                                     |  |                  |      |   |                     |   | 8.4   |  
|Loss on divestitures and plant closures                                            |  |                  | 6.4   |   |                     |   |      |  
|Gain on sales of property, plant and equipment                                     |  |                  | (1.2  | ) |                     |   | (0.7  | )
|Changes in operating assets and liabilities, net of acquisitions and dispositions: |  |                  |       |   |                     |   |       |  
|Accounts receivable, net                                                           |  |                  | (15.8 | ) |                     |   | 0.4   |  
|Inventories                                                                        |  |                  | (12.2 | ) |                     |   | (5.6  | )
|Other assets                                                                       |  |                  | 1.6   |   |                     |   | 5.3   |  
|Accounts payable                                                                   |  |                  | 10.6  |   |                     |   | (0.7  | )
|Accrued expenses                                                                   |  |                  | (1.3  | ) |                     |   | (7.1  | )
|Income taxes payable and receivable, net                                           |  |                  | 0.1   |   |                     |   | 24.8  |  
|Termination of interest rate swaps                                                 |  |                  |      |   |                     |   | 6.4   |  
|Premium paid for early extinguishment of debt                                      |  |                  |      |   |                     |   | (6.9  | )
|Contributions to defined benefit pension plans                                     |  |                  | (14.7 | ) |                     |   | (11.0 | )
|Other                                                                              |  |                  | 5.9   |   |                     |   | 5.1   |  
|                                                                                   |  |                  |       |   |                     |   |       |  
|Net cash provided by operating activities                                          |  |                  | 9.1   |   |                     |   | 38.0  |  
|                                                                                   |  |                  |       |   |                     |   |       |  
|Investing activities:                                                              |  |                  |       |   |                     |   |       |  
|Purchases of property, plant and equipment                                         |  |                  | (15.9 | ) |                     |   | (23.4 | )
|Proceeds from sales of property, plant and equipment                               |  |                  | 2.8   |   |                     |   | 2.0   |  
|Other                                                                              |  |                  |      |   |                     |   | 0.7   |  
|                                                                                   |  |                  |       |   |                     |   |       |  
|Net cash used in investing activities                                              |  |                  | (13.1 | ) |                     |   | (20.7 | )
|                                                                                   |  |                  |       |   |                     |   |       |  
|Financing activities:                                                              |  |                  |       |   |                     |   |       |  
|Net borrowings (payments) on lines of credit                                       |  |                  | 41.6  |   |                     |   | (30.3 | )
|Payments on long-term debt                                                         |  |                  | (67.8 | ) |                     |   | (81.5 | )
|Proceeds from long-term debt                                                       |  |                  | 2.5   |   |                     |   | 6.0   |  
|Proceeds from issuance of common stock, net of issuance costs                      |  |                  |      |   |                     |   | 92.2  |  
|Debt issue costs                                                                   |  |                  |      |   |                     |   | (2.6  | )
|Dividends paid                                                                     |  |                  | (8.5  | ) |                     |   | (7.6  | )
|                                                                                   |  |                  |       |   |                     |   |       |  
|Net cash used in financing activities                                              |  |                  | (32.2 | ) |                     |   | (23.8 | )
|Effect of exchange rate changes on cash and cash equivalents                       |  |                  | (1.5  | ) |                     |   | 1.5   |  
|                                                                                   |  |                  |       |   |                     |   |       |  
|Decrease in cash and cash equivalents                                              |  |                  | (37.7 | ) |                     |   | (5.0  | )
|Cash and cash equivalents at beginning of period                                   |  |                  | 54.3  |   |                     |   | 11.9  |  
|                                                                                   |  |                  |       |   |                     |   |       |  
|Cash and cash equivalents at end of period                                         |  | $                | 16.6  |   |                     | $ | 6.9   |  
|                                                                                   |  |                  |       |   |                     |   |       |  



The accompanying Notes to
Consolidated Financial Statements are an integral part of the financial statements.



6



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis of Presentation



The consolidated interim financial statements of Chesapeake Corporation and subsidiaries included herein are unaudited. The January 2, 2005,
consolidated balance sheet was derived from audited financial statements. These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in accordance with those rules and
regulations, we have condensed or omitted certain information and footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). We believe
that the disclosures made are adequate for a fair presentation of results of our operations and financial position. In the opinion of management, the consolidated financial statements reflect all adjustments, all of a normal recurring nature,
necessary to present fairly our consolidated financial position and results of operations for the interim periods presented herein. All significant intercompany accounts and transactions are eliminated. The preparation of consolidated financial
statements in conformity with GAAP requires management to make extensive use of estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from these estimates. Certain prior year amounts have been
reclassified to conform to current presentations.



Our 52-53 week fiscal year
ends on the Sunday nearest to December 31. Fiscal year 2005 contains 52 weeks, and fiscal year 2004 contained 53 weeks. The additional week in 2004 is included in the first quarter.



These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto
included in our latest Annual Report on Form 10-K; additional details on our significant accounting policies are provided therein. The results of operations for the 2005 interim periods are not necessarily indicative of the results that may be
expected for the full year.



In this report, unless the context requires
otherwise, references to we, us, our, Chesapeake or the Company are intended to mean Chesapeake Corporation and its consolidated subsidiaries.



Restatement of Prior Period Financial Statements



As described in Amendment No. 1 to our Annual Report on Form 10-K for the year ended January
2, 2005 (Form 10-K/A), we have restated our consolidated financial statements for the year ended January 2, 2005. This Note should be read in conjunction with Note 1, Summary of Significant Accounting Policies in our Notes to
consolidated financial statements included in the Form 10-K/A, which provides further information on the nature and impact of the restatement. In addition, we have restated our consolidated financial statements for the quarter ended April 3, 2005.



The determination to restate these financial statements and selected financial
information was made as a result of managements identification, in connection with the preparation of the Companys financial statements for the quarter ended July 3, 2005, of accounting errors at one of the Companys Plastic
Packaging locations and related to the accounting for certain long-term incentive compensation.



7



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



As a result of the restatements, the interim consolidated financial statements included in the Companys Quarterly Reports on Form 10-Q for the periods ended April 4, 2004, July 4, 2004, October 3, 2004 and April
3, 2005, filed by the Company with the SEC should no longer be relied upon.



Certain amounts in other notes to our consolidated financial statements within this Form 10-Q have been restated to reflect the restatement described above. The following table sets forth the effects of the restatement on affected line
items within our previously reported Consolidated Statements of Earnings for the three and six month periods ended July 4, 2004, and Consolidated Balance Sheet as of January 2, 2005. The restatement had no effect on our net cash provided by or used
in operating, investing or financing activities.



Consolidated Statement of
Earnings

(in millions, except per share amounts)



|                                                              |  |                            |       |   |                               |   |       |                       |  |   |             |   |  |   |       |  
|------------------------------------------------------------- |  | -------------------------- | ----- | - | ----------------------------- | - | ----- | --------------------- |  | - | ----------- | - |  | - | ----- | -
|                                                              |  | Quarter ended July 4, 2004 |       |   | Six months ended July 4, 2004 |  
|                                                              |  | As previouslyreported      |       |   | As restated                   |   |       | As previouslyreported |  |   | As restated |  
|Cost of products sold                                         |  | $                          | 195.9 |   |                               | $ | 196.6 |                       |  | $ | 415.7       |   |  | $ | 416.5 |  
|Selling, general and administrative expenses                  |  |                            | 34.5  |   |                               |   | 34.4  |                       |  |   | 67.8        |   |  |   | 67.6  |  
|Earnings from continuing operations before interest and taxes |  |                            | 11.2  |   |                               |   | 10.6  |                       |  |   | 23.5        |   |  |   | 22.9  |  
|Income (loss) from continuing operations before taxes         |  |                            | (5.8  | ) |                               |   | (6.4  | )                     |  |   | (4.8        | ) |  |   | (5.4  | )
|Income tax expense (benefit)                                  |  |                            | (5.8  | ) |                               |   | (6.0  | )                     |  |   | (5.5        | ) |  |   | (5.6  | )
|Income (loss) from continuing operations                      |  |                            |      |   |                               |   | (0.4  | )                     |  |   | 0.7         |   |  |   | 0.2   |  
|Net income (loss)                                             |  |                            |      |   |                               |   | (0.4  | )                     |  |   | 0.7         |   |  |   | 0.2   |  
|                                                              |  |                            |       |  
|Basic earnings per share:                                     |  |                            |       |   |                               |   |       |                       |  |   |             |   |  |   |       |  
|Income from continuing operations                             |  | $                          |      |   |                               | $ | (0.02 | )                     |  | $ | 0.04        |   |  | $ | 0.01  |  
|Discontinued operations                                       |  |                            |      |   |                               |   |      |                       |  |   |            |   |  |   |      |  
|                                                              |  |                            |       |   |                               |   |       |                       |  |   |             |   |  |   |       |  
|Net income                                                    |  | $                          |      |   |                               | $ | (0.02 | )                     |  | $ | 0.04        |   |  | $ | 0.01  |  
|                                                              |  |                            |       |   |                               |   |       |                       |  |   |             |   |  |   |       |  
|Diluted earnings per share:                                   |  |                            |       |   |                               |   |       |                       |  |   |             |   |  |   |       |  
|Earnings from continuing operations                           |  | $                          |      |   |                               | $ | (0.02 | )                     |  | $ | 0.04        |   |  | $ | 0.01  |  
|Discontinued operations                                       |  |                            |      |   |                               |   |      |                       |  |   |            |   |  |   |      |  
|                                                              |  |                            |       |   |                               |   |       |                       |  |   |             |   |  |   |       |  
|Net income                                                    |  | $                          |      |   |                               | $ | (0.02 | )                     |  | $ | 0.04        |   |  | $ | 0.01  |  
|                                                              |  |                            |       |   |                               |   |       |                       |  |   |             |   |  |   |       |  



Consolidated Balance Sheets

(in millions)



|                                           |  |                       |         |            |   |        
|------------------------------------------ |  | --------------------- | ------- | ---------- | - | -------
|                                           |  | January 2, 2005      
|                                           |  | As previouslyreported |         | Asrestated
|Inventories: Finished Goods                |  | $                     | 64.7    |            | $ | 64.6   
|Total inventories                          |  |                       | 114.4   |            |   | 114.3  
|Total current assets                       |  |                       | 337.0   |            |   | 336.9  
|Property, plant and equipment, net         |  |                       | 427.1   |            |   | 427.2  
|Total assets                               |  |                       | 1,554.9 |            |   | 1,554.9
|Accounts payable                           |  |                       | 141.4   |            |   | 141.7  
|Accrued expenses                           |  |                       | 80.5    |            |   | 81.4   
|Income taxes payable                       |  |                       | 26.6    |            |   | 26.2   
|Total current liabilities                  |  |                       | 316.9   |            |   | 317.7  
|Total liabilities                          |  |                       | 843.1   |            |   | 843.9  
|Total stockholders equity                 |  |                       | 711.8   |            |   | 711.0  
|Total liabilities and stockholders equity |  |                       | 1,554.9 |            |   | 1,554.9



8



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



Stock-Based Compensation



We use the
intrinsic value method of accounting for our stock option plans. Under the intrinsic value method, compensation cost is not recognized for stock options unless the options are granted at an exercise price lower than the market price on the date of
grant. See New Accounting Pronouncements for additional information regarding our method of accounting for stock options.



Had the compensation cost for our stock option plans been determined based on the fair value at the grant date, rather than the intrinsic value method, our pro forma
amounts would be as follows:



|                                                                                        |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |       |  
|--------------------------------------------------------------------------------------- | ----------- | -------------- | ----- | ------------------- | ---------------- | - | ----------- | - |  | ------------------- | ----- | - |  | - | ----- | -
|(in millions, except per share data)                                                    |             | Quarters Ended |       |                     | Six Months Ended |  
|                                                                                        | Jul. 3,2005 |                |       | Jul. 4,2004Restated |                  |   | Jul. 3,2005 |   |  | Jul. 4,2004Restated |      
|Stock-based compensation expense, net of tax, included in net income (loss) as reported |             | $              | 0.3   |                     |                  | $ | 0.1         |   |  | $                   | 0.4   |   |  | $ | 0.2   |  
|                                                                                        |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |       |  
|Net income (loss) as reported                                                           |             | $              | (2.0  | )                   |                  | $ | (0.4        | ) |  | $                   |      |   |  | $ | 0.2   |  
|Additional stock-based compensation expense, net of tax                                 |             |                | 0.2   |                     |                  |   | 0.2         |   |  |                     | 0.4   |   |  |   | 0.4   |  
|                                                                                        |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |       |  
|Pro forma net income (loss)                                                             |             | $              | (2.2  | )                   |                  | $ | (0.6        | ) |  | $                   | (0.4  | ) |  | $ | (0.2  | )
|                                                                                        |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |       |  
|Earnings (loss) per share                                                               |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |       |  
|As reported:                                                                            |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |       |  
|Basic                                                                                   |             | $              | (0.10 | )                   |                  | $ | (0.02       | ) |  | $                   |      |   |  | $ | 0.01  |  
|Diluted                                                                                 |             |                | (0.10 | )                   |                  |   | (0.02       | ) |  |                     |      |   |  |   | 0.01  |  
|Pro forma:                                                                              |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |       |  
|Basic                                                                                   |             | $              | (0.11 | )                   |                  | $ | (0.03       | ) |  | $                   | (0.02 | ) |  | $ | (0.01 | )
|Diluted                                                                                 |             |                | (0.11 | )                   |                  |   | (0.03       | ) |  |                     | (0.02 | ) |  |   | (0.01 | )



Pro forma disclosures for stock option
accounting may not be representative of the effects on reported net income in future periods.



The stock-based compensation expense included in net income (loss), as reported, principally represents the vesting of restricted stock under the Companys long-term incentive program. Approximately 0.1 million
shares were granted under this program during the first half of both 2005 and 2004.



New Accounting Pronouncements



In December 2004, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123 (revised 2004), Share-Based Payment(SFAS 123R). SFAS 123R is a revision of SFAS 123, Accounting for
Stock-Based Compensation(SFAS 123), and it supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires compensation cost related to share-based payment
transactions to be recognized in the financial statements. That cost will be measured based on the fair value of the award on the grant date and recognized as expense over the requisite service or vesting period. We currently



9



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



use the intrinsic value method of accounting for our stock option plans as defined in APB Opinion No. 25. Based on this method, no compensation cost has been recognized for our stock options, as the stock options
granted had an exercise price equal to the fair market value of the underlying stock on the date of grant. We currently provide pro forma disclosures regarding the impact on net income and earnings per share as if we had applied the fair value
method of accounting for stock-based compensation expense, which is based upon a Black-Scholes option pricing model. Depending on the model used to calculate stock-based compensation expense in the future and other requirements of SFAS 123R, the pro
forma disclosure may not be indicative of the stock-based compensation expense that will be recognized in our financial statements in the future. SFAS 123R is effective for the first annual period beginning after June 15, 2005. We expect to adopt
the new standard as of the beginning of fiscal year 2006 using the modified prospective method of transition, under which compensation cost for all share-based awards granted after the effective date is recognized in accordance with SFAS 123R, and
compensation cost related to the unvested awards granted prior to the effective date is based on the requirements of SFAS 123 similar to the pro forma calculations provided herein. We are currently evaluating the impact this standard will have on
our financial statements.



On March 29, 2005, the SEC staff issued Staff
Accounting Bulletin (SAB) No. 107, Share-Based Payment, which expresses the SEC staffs views on SFAS 123R. Among other things, SAB 107 describes the SEC staffs views on share-based payment transactions with nonemployees,
valuation methods, the classification of compensation expense in the financial statements and first-time adoption of SFAS 123R in an interim period.



In November 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43, Chapter 4(SFAS 151). SFAS 151 amends the guidance
in Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) are to be recognized as current-period charges. SFAS 151
is effective for fiscal years beginning after June 15, 2005. SFAS 151 is not expected to have a material impact on our financial statements.



NOTE 2. EARNINGS PER SHARE (EPS)



Calculation



Basic EPS is calculated using the weighted-average number of outstanding common shares during each period. Diluted EPS is calculated using the weighted-average number of diluted outstanding common shares during each
period. Diluted EPS reflects the potential dilution that could occur if securities are exercised or converted into common stock, or result in the issuance of common stock that would then share in earnings. The difference between the weighted-average
shares used for the basic and diluted calculation is due to the number of shares for which in-the-money stock options are outstanding.



There was not a material amount of dilutive options as of July 3, 2005, or as of July 4, 2004, for purposes of calculating diluted EPS. As of July 3, 2005, and July 4,
2004, 1.5 million of potentially dilutive options were not included in the computation of diluted EPS, because the effect would be antidilutive.



10



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



Common Stock Public Offering



On March
15, 2004, Chesapeake completed the sale of 3.65 million shares of common stock at a public offering price of $24 per share. Our net proceeds from the sale of these shares, after deducting discounts, commissions, and expenses, were approximately
$82.6 million. On April 8, 2004, the underwriters of the common stock offering partially exercised their over-allotment option and acquired an additional 0.4 million shares at a public offering price of $24 per share. Our net proceeds from the sale
of these additional shares, after deducting discounts, commissions and expenses, were approximately $9.2 million. For information on the use of the proceeds, see Note 7.



NOTE 3. COMPREHENSIVE (LOSS) INCOME



Comprehensive (loss) income is as follows:



|                                                       |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |      |  
|------------------------------------------------------ | ----------- | -------------- | ----- | ------------------- | ---------------- | - | ----------- | - |  | ------------------- | ----- | - |  | - | ---- | -
|(in millions)                                          |             | Quarters Ended |       |                     | Six Months Ended |  
|                                                       | Jul. 3,2005 |                |       | Jul. 4,2004Restated |                  |   | Jul. 3,2005 |   |  | Jul. 4,2004Restated |      
|Net (loss) income                                      |             | $              | (2.0  | )                   |                  | $ | (0.4        | ) |  | $                   |      |   |  | $ | 0.2  |  
|Foreign currency translation                           |             |                | (44.5 | )                   |                  |   | 4.5         |   |  |                     | (61.3 | ) |  |   | 8.3  |  
|Change in fair market value of derivatives, net of tax |             |                | (2.7  | )                   |                  |   | (1.4        | ) |  |                     | (3.8  | ) |  |   | 0.4  |  
|Minimum pension liability, net of tax                  |             |                | 3.4   |                     |                  |   |            |   |  |                     | 4.7   |   |  |   | (1.8 | )
|                                                       |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |      |  
|Comprehensive (loss) income                            |             | $              | (45.8 | )                   |                  | $ | 2.7         |   |  | $                   | (60.4 | ) |  | $ | 7.1  |  
|                                                       |             |                |       |                     |                  |   |             |   |  |                     |       |   |  |   |      |  



NOTE 4. LOSS ON DIVESTITURES AND
PLANT CLOSURES



Loss on Divestiture of Bourgeot:



On April 18, 2005, the Company completed the sale of the assets of its French wine and
spirits label operation, Bourgeot Etiqso Lesbats (Bourgeot), to Autajon Group. The sale price was 1.16 million (approximately $1.5 million at the sale date). The Company incurred a pre-tax and after-tax, non-cash loss on the sale
of $3.0 million in the second quarter of 2005, which is included in loss on divestitures and plant closures in the accompanying consolidated statement of earnings. The transaction was a sale of substantially all of the assets of the
operation, including machinery, equipment and inventory, and an assignment by the Company of the rights, and an assumption by the buyer of the obligations, under certain contracts related to the Bourgeot operation, including a lease for the plant
building and substantially all of the post-closing employee obligations and contracts. The Company retained the trade accounts receivable and trade accounts payable of Bourgeot, as well as employee obligations pertaining to the operations of
Bourgeot prior to the sale date.



Loss on Write-Down of CPI Notes:



In connection with the 2001 divestiture of Consumer Promotions
International, Inc. (CPI), a component of the Companys former Merchandising and Specialty Packaging segment, the Company provided seller financing for a portion of the proceeds through receipt of subordinated promissory notes.
Included in the promissory notes were term notes of approximately $5.0 million and performance notes payable based on the post-sale performance of CPI of approximately $13.6 million. The performance notes have been fully reserved from the date of
divestiture because payments due on the notes were contingent on future events which were not viewed as probable and determinable.



11



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



The $5.0 million term notes were recorded at fair value on the date of sale, and under the terms of the notes, have been adjusted to reflect accrued interest through December 31, 2003. Beginning in 2004, CPI began
paying interest on the notes and has paid interest currently through the first quarter of 2005.



In July 2005 CPI informed the Company of its inability to continue interest payments under the term notes. Also, CPI provided the Company with updated financial information that indicated a significant deterioration
in the operating results of CPI. These factors resulted in a change in our estimate as to the recovery of these notes. Due to the subordinated nature of our position as a creditor and the risks associated with pursuing recovery, we have written down
the value of these notes to zero in the second quarter of 2005 and will recognize recoveries, if any, on a cash basis in future periods. This loss of $3.4 million has been classified as loss on divestitures and plant closures in the
accompanying consolidated statement of earnings.



NOTE 5. DISCONTINUED
OPERATIONS



Our former Land Development segment owned real estate that we
retained when we sold the timberland associated with our former pulp and paper operations because we believed this land was more valuable when sold for development or other uses. The real estate was marketed to third parties for residential and
commercial development, real estate investment and land conservation. As of the end of the first quarter of 2004, the Land Development segment was liquidated and, as a result, this segment is now accounted for as a discontinued operation.



Discontinued operations in 2005 primarily represent the reduction of the
liability for contractual obligations related to our former Merchandising and Specialty Packaging segment that was divested in 2001.



NOTE 6. INCOME TAXES



The effective tax rate for the second quarter and first half of 2005 reflects the inability to currently recognize benefits for losses in the U.S. and France. The income tax benefit recorded in the second quarter and
first half of 2004 included $2.6 million related to favorable settlements with tax authorities and $0.8 million related to a reduction in deferred tax liabilities as a result of a reduction in the Belgian statutory income tax rate. See Note 9 for
information regarding a United States Internal Revenue Service (IRS) proposed adjustment.



NOTE 7. DEBT



In the first quarter of
2005 we paid $38.8 million principal amount of loan note maturities and we redeemed, at par, the remaining $18.2 million principal amount of the 7.2 percent notes which also matured during the first quarter.



In the first quarter of 2004 we terminated interest rate swaps and received a net cash
settlement of $6.4 million from the counterparties. This amount will be recognized as an interest rate yield adjustment over the remaining life of the underlying debt.



12



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



On April 19, 2004, $82.6 million of the net proceeds from our common stock offering (see Note 2 for more details on the common stock offering) was used to redeem 40.0 million pounds Sterling principal amount of our
10.375 percent senior subordinated notes due 2011 at a redemption price equal to 110.375 percent of the principal amount plus accrued and unpaid interest. The cost of extinguishing this debt early, which primarily consisted of the redemption premium
of 10.375 percent and a write-off of deferred financing fees, was approximately $8.4 million. The remaining net proceeds from the public stock offering of approximately $9.0 million were used to repay outstanding borrowings under our senior credit
facility.



NOTE 8. EMPLOYEE RETIREMENT AND POSTRETIREMENT BENEFITS



The components of the net periodic benefit cost recognized during the
quarters and the six month periods ended July 3, 2005, and July 4, 2004, were as follows:



|                               |             |                  |      |                |                                           |   |             |   |  |             |       |   |             |   |             |   |  |   |     |  |   |    
|------------------------------ | ----------- | ---------------- | ---- | -------------- | ----------------------------------------- | - | ----------- | - |  | ----------- | ----- | - | ----------- | - | ----------- | - |  | - | --- |  | - | ---
|(in millions)                  |             | Pension Benefits |      |                | PostretirementBenefits OtherThan Pensions
|                               | U.S. Plans  |                  |      | Non-U.S. Plans |                                           |  
|                               | Jul. 3,2005 |                  |      | Jul. 4,2004    |                                           |   | Jul. 3,2005 |   |  | Jul 4,2004  |       |   | Jul. 3,2005 |   | Jul. 4,2004
|Quarter Ended:                 |             |                  |      |                |                                           |   |             |   |  |             |       |   |             |   |             |   |  |   |     |  |   |    
|                               |             |                  |      |                |                                           |  
|Service cost                   |             | $                | 0.2  |                |                                           | $ | 0.1         |   |  | $           | 1.5   |   |             | $ | 1.1         |   |  | $ |    |  | $ |   
|Interest cost                  |             |                  | 0.9  |                |                                           |   | 1.0         |   |  |             | 5.0   |   |             |   | 4.1         |   |  |   | 0.2 |  |   | 0.3
|Expected return on plan assets |             |                  | (1.2 | )              |                                           |   | (1.3        | ) |  |             | (5.0  | ) |             |   | (4.6        | ) |  |   |    |  |   |   
|Recognized actuarial loss      |             |                  | 0.6  |                |                                           |   | 0.3         |   |  |             | 1.4   |   |             |   | 0.9         |   |  |   | 0.1 |  |   | 0.1
|                               |             |                  |      |                |                                           |   |             |   |  |             |       |   |             |   |             |   |  |   |     |  |   |    
|Net pension expense            |             | $                | 0.5  |                |                                           | $ | 0.1         |   |  | $           | 2.9   |   |             | $ | 1.5         |   |  | $ | 0.3 |  | $ | 0.4
|                               |             |                  |      |                |                                           |   |             |   |  |             |       |   |             |   |             |   |  |   |     |  |   |    
|                               |             |                 
|(in millions)                  |             | Pension Benefits |      |                | PostretirementBenefits OtherThan Pensions
|                               | U.S. Plans  |                  |      | Non-U.S. Plans |                                           |  
|                               | Jul. 3,2005 |                  |      | Jul. 4,2004    |                                           |   | Jul. 3,2005 |   |  | Jul. 4,2004 |       |   | Jul. 3,2005 |   | Jul. 4,2004
|Six Months Ended:              |             |                  |      |                |                                           |   |             |   |  |             |       |   |             |   |             |   |  |   |     |  |   |    
|                               |             |                  |      |                |                                           |  
|Service cost                   |             | $                | 0.3  |                |                                           | $ | 0.2         |   |  | $           | 3.0   |   |             | $ | 2.3         |   |  | $ |    |  | $ |   
|Interest cost                  |             |                  | 1.9  |                |                                           |   | 2.0         |   |  |             | 10.1  |   |             |   | 8.3         |   |  |   | 0.4 |  |   | 0.5
|Expected return on plan assets |             |                  | (2.4 | )              |                                           |   | (2.6        | ) |  |             | (10.0 | ) |             |   | (9.3        | ) |  |   |    |  |   |   
|Recognized actuarial loss      |             |                  | 1.1  |                |                                           |   | 0.7         |   |  |             | 2.8   |   |             |   | 1.8         |   |  |   | 0.2 |  |   | 0.2
|                               |             |                  |      |                |                                           |   |             |   |  |             |       |   |             |   |             |   |  |   |     |  |   |    
|Net pension expense            |             | $                | 0.9  |                |                                           | $ | 0.3         |   |  | $           | 5.9   |   |             | $ | 3.1         |   |  | $ | 0.6 |  | $ | 0.7
|                               |             |                  |      |                |                                           |   |             |   |  |             |       |   |             |   |             |   |  |   |     |  |   |    



NOTE 9. COMMITMENTS AND
CONTINGENCIES



Environmental Matters



The costs of compliance with existing environmental regulations are not expected to have a
material adverse effect on our financial position or results of operations.



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 remediation and restoration of
contaminated property and for natural resource



13



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



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 identified our subsidiary, Wisconsin Tissue Mills Inc., now WTM I Company (WT),
as a PRP for the Lower Fox River site.



Except for the Fox River matter, we
have not been identified as a PRP at any other CERCLA-related sites. However, there can be no assurance that we 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
our financial position or results of operations.



In June 1994 the U.S.
Department of Interior, Fish and Wildlife Service (FWS), a federal natural resources trustee, notified WT that it had identified WT as a PRP for natural resources damage liability under CERCLA arising from alleged releases of
polychlorinatedbiphenyls (PCBs) in the Fox River and Green Bay System in Wisconsin from WTs former recycled tissue mill in Menasha, Wisconsin. In addition to WT, six other companies (Appleton Papers, Inc., Fort Howard Corporation,
P.H. Glatfelter Company (Glatfelter), NCR Corporation, Riverside Paper Corporation and U.S. Paper Mills Corporation) have been identified as PRPs for the Fox River site. The FWS and other governmental and tribal entities, including the
State of Wisconsin (Wisconsin), allege that natural resources, including federal lands, state lands, endangered species, fish, birds, tribal lands or lands held by the U.S. in trust for various Indian tribes, have been exposed to PCBs
that were released from facilities located along the Lower Fox River. On January 31, 1997, the FWS notified WT of its intent to file suit, subject to final approval by the U.S. Department of Justice (DOJ), against WT to recover alleged
natural resource damages, but the FWS has not yet instituted such litigation. 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. On
September 30, 2003, EPA and the Wisconsin Department of Natural Resources (DNR), in connection with the issuance of General Notice Letters under CERCLA to the PRPs requesting a good faith offer to conduct the remedial design for
downstream portions of the Lower Fox River site, also notified Menasha Corporation and Sonoco Products Company that those companies were also considered potentially liable for the cost of response activities at the Lower Fox River site.



In January 2003 DNR and EPA released a Record of Decision (the OU1-2 ROD) for
Operable Units 1 and 2 (OU1 and OU2) of the Fox River site. OU1 is the reach of the river that is the farthest upstream and is immediately adjacent to the former WT mill. The OU1-2 ROD selects a remedy, consisting primarily
of dredging, to remove substantially all sediment in OU1 with concentrations of PCBs of more than 1 part per million in order to achieve a surface weighted-average PCB concentration level (SWAC) of not more than 0.25 parts per million.
The OU1-2 ROD estimates the present-worth cost of the proposed remedy for OU1 is $66.2 million. Present-worth cost as stated in the OU1-2 ROD means capital costs in undiscounted 2001 dollars and long-term operation, maintenance and monitoring costs
discounted at 6 percent. This estimate is an engineering cost estimate and the OU1-2 ROD states that the actual project cost is expected to be within +50 percent to -30 percent of the estimate. The OU1-2 ROD estimates that the proposed dredging
remedy for OU1 will be accomplished over a six-year period after commencement of dredging. For OU2, the reach of the river covering approximately 20 miles downstream from OU1, the OU1-2 ROD proposes a remedy of monitored natural recovery over a
40-year period. The OU1-2 ROD states that the present-worth cost of the proposed remedy for OU2 is an engineering cost estimate of $9.9 million, based on estimated costs discounted at 6 percent.



14



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



On July 1, 2003, DNR and EPA announced that they had signed an agreement with WT under which WT will complete the design work for the sediment clean-up in OU1. The design work to be done by WT is estimated to cost
approximately $3.7 million. On October 1, 2003, EPA and DNR announced that WT and Glatfelter had entered into a proposed Consent Decree (the Consent Decree) regarding the remediation of OU1. The Consent Decree was entered by the court on
April 12, 2004. Under the terms of the Consent Decree, WT and Glatfelter agreed to perform appropriate remedial action in accordance with the OU1-2 ROD. The remedial action will be performed under oversight by EPA and DNR. To fund the remedial
action, WT and Glatfelter have each paid $25 million to an escrow account, and EPA and Wisconsin will use their best efforts to obtain an additional $10 million from another source to supplement the funding. Contributions and cooperation may also be
obtained from local municipalities, and additional assistance may be sought from other potentially liable parties. As provided in the Consent Decree, WT has been reimbursed from the escrow account for $2 million of OU1 design costs expended under
the July 1, 2003, design agreement.



Upon completion of the remedial action for
OU1 to the satisfaction of EPA and Wisconsin, WT and Glatfelter will receive covenants not to sue from EPA and Wisconsin for OU1, subject to conditions typical of settlements under CERCLA. We believe the required remedial action for OU1 can be
completed with the expected funding provided under the Consent Decree. If the funding provided through the Consent Decree is not adequate to pay for the required remedial action, WT and Glatfelter have the option, but not the obligation, to
contribute additional funds to complete the remedial action. WT remains potentially liable for the additional costs necessary to achieve the performance standards for OU1 specified in the OU1-2 ROD.



Under the terms of the Consent Decree, WT also paid EPA and the State of Wisconsin $375,000
for past response costs, and paid $1.5 million for natural resource damages (NRD) for the Fox River site and $150,000 for past NRD assessment costs. These payments have been credited toward WTs potential liability for response
costs and NRD associated with the Fox River site as a whole. As discussed later in this section, we believe that WT is entitled to substantial indemnification from a prior owner of WT with respect to these costs, and the prior owner has reimbursed
WT for the payments made as required in the Consent Decree.



In July 2003 EPA
and DNR announced a Record of Decision (the OU3-5 ROD) for Operable Units 3, 4 and 5 (OU3, OU4 and OU5, respectively), the remaining operable units for this site. The OU3-5 ROD requires primarily
dredging and disposal of PCB contaminated sediments from OU3 and OU4 (the downstream portion of the river) and monitored natural recovery in OU5 (Green Bay). The OU3-5 ROD remedy for OU3 and OU4 provides for removal of substantially all sediment
with concentrations of PCBs of more than 1 part per million in order to achieve a SWAC of not more than 0.25 parts per million. The OU3-5 ROD estimates the present-worth cost of the proposed remedy for OU3-5 is $324 million. Present-worth cost as
stated in the ROD means capital costs in undiscounted 2001 dollars and long-term operation, maintenance and monitoring costs discounted at 6 percent. This estimate is an engineering cost estimate, and the OU3-5 ROD states that the actual project
cost is expected to be within +50 percent to -30 percent of the estimate.



Based on information available to us at this time, we believe that the range of reasonable estimates of the total cost of remediation and restoration for the Fox River site is $280 million to $1.59 billion. The low end of this range assumes
costs estimated in the OU1-2 ROD and the OU3-5 ROD and takes into account the -30 percent engineering estimating factor. The upper end of the range assumes costs estimated by consultants for the PRPs and includes a +50 percent engineering estimating
factor. The OU1-2 ROD and the OU3-5 ROD indicate that most of the active remediation and restoration at the site is expected to take place in the next 10 years.



15



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



Based on current information and advice from our environmental consultants, we believe that the 1 part per million remedial action level, and the resulting aggressive effort to remove substantial amounts of
PCB-contaminated sediments (most of which are buried under cleaner material or are otherwise unlikely to move) and dispose of the sediment off-site, as contemplated by the OU1-2 ROD and the OU3-5 ROD are excessive and would be environmentally
detrimental and therefore inappropriate. The OU1-2 ROD includes provisions that a contingent remedy for OU1 consisting of a combination of dredging and capping may be implemented if certain conditions in the OU1-2 ROD are met and such remedy would
provide the same level of protection to human health and the environment as the selected remedy. We believe that alternative remedies that are less intrusive than those selected in the OU1-2 ROD and the OU3-5 ROD are more environmentally
appropriate, cost effective and responsible methods of managing the risks attributable to the sediment contamination. Any enforcement of a definitive remedial action plan may be subject to judicial review.



On October 25, 2000, the federal and tribal natural resources trustees released a Restoration
and Compensation Determination Plan (RCDP) presenting the federal and tribal trustees planned approach for restoring injured federal and tribal natural resources and compensating the public for losses caused by the release of PCBs
at the Fox River site. The RCDP states that the final natural resource damage claim (which is separate from, and in addition to, the remediation and restoration costs that will be associated with remedial action plans) will depend on the extent of
PCB clean-up undertaken by EPA and DNR, but estimates past interim damages to be $65 million, and, for illustrative purposes only, estimates additional costs of restoration to address present and future PCB damages in a range of $111 million to $268
million. To date Wisconsin has not issued any estimate of natural resource damages. We believe, based on the information currently available to us, that the estimate of natural resource damages in the RCDP represents the reasonably likely upper
limit of the total natural resource damages. We believe that the alleged damages to natural resources are overstated in the RCDP and joined in the PRP group comments on the RCDP to that effect. No final assessment of natural resource damages has
been issued.



Under CERCLA, each PRP generally will be jointly and severally
liable for the full amount of the remediation and restoration costs and natural resource damages, subject to a right of contribution from other PRPs. In practice PRPs generally negotiate among themselves to determine their respective contributions
to any multi-party activities based upon factors including their respective contributions to the alleged contamination, equitable considerations and their ability to pay. In draft analyses by DNR and federal government consultants, the volume of
WTs PCB discharges into the Fox River has been estimated to range from 2.72 percent to 10 percent of the total discharges of PCBs. This range may not be indicative of the share of the cost of the remediation and restoration costs and natural
resource damages that ultimately will be allocated to WT because of: inaccuracies or incompleteness of information about mill operations and discharges; inadequate consideration of the nature and location of various discharges of PCBs to the river,
including discharges by persons other than the named PRPs and the relationship of those discharges to identified contamination; uncertainty of the geographic location of the remediation and restoration eventually performed; uncertainty about the
ability of other PRPs to participate in paying the costs and damages; and uncertainty about the extent of responsibility of the manufacturers of the carbonless paper recycled by WT which contained the PCBs. We have evaluated the ability of other
PRPs to participate in paying the remediation and restoration costs and natural resource damages based on our estimate of their reasonably possible shares of the liability and on public



16



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



financial information indicating
their ability to pay such shares. While we are unable to determine at this time what shares of the liability for the Fox River costs will be paid by the other identified PRPs (or other entities who are subsequently determined to have liability),
based on information currently available to us and the analysis described above, we believe that most of the other PRPs have the ability to pay their reasonably possible shares of the liability.



The ultimate cost to WT of remediation and restoration costs and natural resource damages
related to the Fox River site and the time periods over which the costs and damages may be incurred cannot be predicted with certainty at this time due to uncertainties with respect to: what remediation and restoration will be implemented; the
actual cost of that remediation and restoration; WTs share of any multi-party remediation and restoration costs and natural resource damages; the outcome of the federal and state natural resource damage assessments; the timing of any
remediation and restoration; the evolving nature of remediation and restoration technologies and governmental regulations; controlling legal precedent; the extent to which contributions will be available from other parties; and the scope of
potential recoveries from insurance carriers and prior owners of WT. While such costs and damages cannot be predicted with certainty at this time, we believe that WTs reasonably likely share of the ultimate remediation and restoration costs
and natural resource damages associated with the Fox River site, including disbursement on behalf of WT of the remaining amount deposited by WT under the terms of the Consent Decree, may fall within the range of $32 million to $130 million, payable
over a period of up to 40 years. In our estimate of the lower end of the range, we have assumed remediation and restoration costs as estimated in the OU1-2 ROD and the OU3-5 ROD, and the low end of the governments estimates of natural resource
damages and WTs share of the aggregate liability. In our estimate of the upper end of the range, we have assumed large-scale dredging at a higher cost than estimated in the OU1-2 ROD and the OU3-5 ROD, and that our share of the ultimate
aggregate liability for all PRPs will be higher than we believe it will ultimately be determined to be. We have accrued an amount for the Fox River liability based on our estimate of the reasonably probable costs within the range as described above.



We believe that, pursuant to the terms of a stock purchase agreement between
Chesapeake and Philip Morris Incorporated (now known as Philip Morris USA Inc., or PM USA, a wholly owned subsidiary of Altria Group, Inc.), a former owner of WT, we are entitled to substantial indemnification from PM USA with respect to
the liabilities related to this matter. Based on the terms of that indemnity, we believe that the costs and damages within our estimated range of liability should be indemnified by PM USA. We understand, however, that PM USA is subject to certain
risks (including litigation risk in cases relating to health concerns regarding the use of tobacco products). Accordingly, there can be no assurance that PM USA will be able to satisfy its indemnification obligations in the future. However, PM USA
is currently meeting its indemnification obligations under the stock purchase agreement and, based on our review of currently available financial information, we believe that PM USA has the financial ability to continue to meet its indemnification
obligations.



Pursuant to the Joint Venture Agreement with Georgia-Pacific
Corporation for Georgia-Pacific Tissue, LLC, WT has retained liability for, and the third party indemnity rights associated with, the discharge of PCBs and other hazardous materials in the Fox River and Green Bay System. Based on currently available
information, we believe that if remediation and restoration are done in an environmentally appropriate, cost effective and responsible manner, and if natural resource damages are determined in a reasonable manner, the matter is unlikely to have a
material adverse effect on our financial position or results of operations. However, because of the uncertainties described above, there can be no assurance that the ultimate liability with respect to the Lower Fox River site will not have a
material adverse effect on our financial position or results of operations.





17



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



Our accrued environmental liabilities totaled approximately $45.7 million as of July 3, 2005, of which $12 million was considered short-term, and $46.9 million as of January 2, 2005, of which $5.1 million was
considered short-term.



Legal and Other Commitments



Chesapeake is a party to various other legal actions and tax audits, which are ordinary and
incidental to our business. While the outcome of environmental, tax and legal actions cannot be predicted with certainty, we believe the outcome of any of these proceedings, or all of them combined, will not have a material adverse effect on our
consolidated financial position or results of operations.



On March 26, 2001,
the SEC issued a formal order that a private investigation be conducted concerning matters related to our financial reporting. The investigation was based on SEC inquiries arising out of our restatements of earnings in 2000 related to the U.S.
Display business which was included in our former Merchandising and Specialty Packaging segment. The U.S. Display business was sold in 2001. On October 21, 2004, the staff of the SEC notified the Company and four of our former employees that the
staff of the SEC had preliminarily decided to recommend that the SEC file civil enforcement actions against the Company and those former employees based on alleged violations of U.S. securities laws related to issues surrounding the earnings
restatements in 2000. In May 2005 we reached an agreement with the SEC on a final settlement resolving its investigation into this matter. As part of the settlement, the Company agreed, without admitting or denying any wrongdoing, to an injunction
against future violations of certain antifraud, financial reporting and internal controls provisions of the federal securities laws. No financial penalty was imposed on the Company.



The IRS has proposed certain adjustments relating to our tax treatment of our disposition of assets of WT in 1999. We have estimated our
maximum potential exposure with respect to the matter to be approximately $26 million; however, we are disputing the proposed adjustment as we continue to believe that our tax treatment of the transaction was correct and our tax advisor has
confirmed its view that we should prevail in any dispute with the IRS related to this matter. Accordingly, no amount has been accrued for this proposed IRS adjustment. We expect to defend the matter vigorously through the IRS appeal process and, if
necessary, through litigation. We do not expect that the ultimate resolution of this matter will have a material adverse effect on our financial condition or results of operations.



Guarantees and Indemnifications



We have entered into agreements for the sale of assets or businesses that contain provisions in which we agree to indemnify the buyers or third parties involved in the
sale for certain liabilities or risks related to the sale. In these sale agreements, we typically agree to indemnify the buyers or other involved third parties against a broadly-defined range of potential losses (typically including, but
not limited to, claims, costs, damages, judgments, liabilities, fines or penalties, and attorneys fees) arising from: (i) a breach of our representations or warranties in the sale agreement or ancillary documents; (ii) our failure to perform
any of the covenants or obligations of the sale agreement or ancillary documents; and (iii) other liabilities expressly retained or assumed by us related to the sale. Most of our indemnity



18



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



obligations under these sale
agreements are: (i) limited to a maximum dollar value significantly less than the final purchase price; (ii) limited by time within which indemnification claims must be asserted (often between one and three years); and (iii) subject to a deductible
or basket. Many of the potential indemnification liabilities under these sale agreements are unknown, remote or highly contingent, and most are unlikely to ever require an indemnity payment. Furthermore, even in the event that an
indemnification claim is asserted, liability for indemnification is subject to determination under the terms of the applicable sale agreement, and any payments may be limited or barred by a monetary cap, a time limitation or a deductible or basket.
For these reasons, we are unable to estimate the maximum potential amount of the potential future liability under the indemnity provisions of the sale agreements. However, we accrue for any potentially indemnifiable liability or risk under these
sale agreements for which we believe a future payment is probable and a range of loss can be reasonably estimated. Other than the Fox River matter discussed in Environmental Matters above, as of July 3, 2005, we believe our liability under such
indemnification obligations was immaterial.



In the ordinary course of our
business, we may enter into agreements for the supply of goods or services to customers that provide warranties to their customers on one or more of the following: (i) the quality of the goods and services supplied by us; (ii) the performance of the
goods supplied by us; and (iii) our compliance with certain specifications and applicable laws and regulations in supplying the goods and services. Liability under such warranties often is limited to a maximum amount, by the nature of the claim or
by the time period within which a claim must be asserted. As of July 3, 2005, we believe our warranty obligations under such supply agreements were immaterial.



In the ordinary course of our business, we may enter into service agreements with service providers in which we agree to indemnify the service provider against certain
losses and liabilities arising from the service providers performance of the agreement. Generally, such indemnification obligations do not apply in situations in which the service provider is grossly negligent, engages in willful misconduct or
acts in bad faith. As of July 3, 2005, we believe our liability under such service agreements was immaterial.



NOTE 10. SEGMENT DISCLOSURE



We
currently conduct our business in two segments: the Paperboard Packaging segment and the Plastic Packaging segment. Our Paperboard Packaging segment designs and manufactures folding cartons, leaflets, labels and other value-added paperboard
packaging products. The primary end-use markets for this segment are pharmaceutical and healthcare; international and branded products (such as alcoholic drinks, confectioneries, cosmetics and fragrances); tobacco; and food and household. Our
Plastic Packaging segment designs and manufactures plastic containers, bottles, preforms and closures. The primary end-use markets for this segment are agrochemicals and other specialty chemicals, and food and beverages. General corporate expenses
are shown as Corporate. Earnings from continuing operations before interest and taxes is abbreviated hereafter as EBIT. EBIT by segment excludes any gains or losses related to business divestitures and plant closures. As discussed in Note 4, during
the second quarter we sold our French wine and spirits label operation, Bourgeot, for a loss of $3.0 million and recorded a charge of $3.4 million for the write down of a promissory note received as consideration on the 2001 sale of CPI, a component
of the Companys former Merchandising and Specialty Packaging segment. Bourgeot was formerly an operation of the Companys Paperboard Packaging segment. The following tables summarize the net sales from continuing operations; EBIT;
depreciation; and identifiable assets for each of our segments:



19



---

##### Table of Contents

CHESAPEAKE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)



|                                                               |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|-------------------------------------------------------------- | ---- | -------------- | ------- | ---- | ------------ | - | ------- | - |  | ---- | ----- | - |  | - | ----- | -
|(in millions)                                                  |      | Second Quarter |         |      | Year to Date |  
|                                                               | 2005 |                |         | 2004 |              |   | 2005    |   |  | 2004 |      
|Net sales:                                                     |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|Paperboard Packaging                                           |      | $              | 213.4   |      |              | $ | 197.8   |   |  | $    | 435.1 |   |  | $ | 416.9 |  
|Plastic Packaging                                              |      |                | 46.5    |      |              |   | 41.5    |   |  |      | 97.2  |   |  |   | 86.0  |  
|                                                               |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|                                                               |      | $              | 259.9   |      |              | $ | 239.3   |   |  | $    | 532.3 |   |  | $ | 502.9 |  
|                                                               |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|Earnings from continuing operations before interest and taxes: |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|Paperboard Packaging                                           |      | $              | 15.0    |      |              | $ | 11.1    |   |  | $    | 25.6  |   |  | $ | 22.2  |  
|Plastic Packaging  Restated for 2004 (A)                      |      |                | 3.9     |      |              |   | 3.5     |   |  |      | 8.9   |   |  |   | 8.5   |  
|Corporate  Restated for 2004 (A)                              |      |                | (4.3    | )    |              |   | (4.0    | ) |  |      | (8.9  | ) |  |   | (7.8  | )
|Loss on Divestitures and Plant Closures                        |      |                | (6.4    | )    |              |   |        |   |  |      | (6.4  | ) |  |   |      |  
|                                                               |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|                                                               |      | $              | 8.2     |      |              | $ | 10.6    |   |  | $    | 19.2  |   |  | $ | 22.9  |  
|                                                               |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|Depreciation expense:                                          |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|Paperboard Packaging                                           |      | $              | 12.0    |      |              | $ | 12.3    |   |  | $    | 24.3  |   |  | $ | 25.7  |  
|Plastic Packaging                                              |      |                | 2.5     |      |              |   | 2.6     |   |  |      | 4.9   |   |  |   | 5.3   |  
|Corporate                                                      |      |                |        |      |              |   | 0.1     |   |  |      | 0.1   |   |  |   | 0.2   |  
|                                                               |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|                                                               |      | $              | 14.5    |      |              | $ | 15.0    |   |  | $    | 29.3  |   |  | $ | 31.2  |  
|                                                               |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|                                                               |      |                |         |     
|(in millions)                                                  |      | Jul. 3,2005    |         |      | Jan. 2,2005  |   |         |   |  |      |       |  
|Identifiable assets:                                           |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|Paperboard Packaging                                           |      | $              | 1,132.1 |      |              | $ | 1,273.2 |   |  |      |       |   |  |   |       |  
|Plastic Packaging                                              |      |                | 173.4   |      |              |   | 183.2   |   |  |      |       |   |  |   |       |  
|Corporate                                                      |      |                | 91.8    |      |              |   | 98.5    |   |  |      |       |   |  |   |       |  
|                                                               |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  
|                                                               |      | $              | 1,397.3 |      |              | $ | 1,554.9 |   |  |      |       |   |  |   |       |  
|                                                               |      |                |         |      |              |   |         |   |  |      |       |   |  |   |       |  

---

|(A) | Certain 2004 amounts have been restated to reflect the correction of accounting errors discussed under Restatement of Prior Period Financial Results in Note 1, as
follows:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                       |  |                            |      |   |                               |   |      |                       |  |   |             |   |  |   |      |  
|---------------------- |  | -------------------------- | ---- | - | ----------------------------- | - | ---- | --------------------- |  | - | ----------- | - |  | - | ---- | -
|                       |  | Quarter ended July 4, 2004 |      |   | Six months ended July 4, 2004 |  
|                       |  | As previouslyreported      |      |   | As restated                   |   |      | As previouslyreported |  |   | As restated |  
|Plastic Packaging EBIT |  | $                          | 4.2  |   |                               | $ | 3.5  |                       |  | $ | 9.3         |   |  | $ | 8.5  |  
|Corporate EBIT         |  |                            | (4.1 | ) |                               |   | (4.0 | )                     |  |   | (8.0        | ) |  |   | (7.8 | )



NOTE 11. SUBSEQUENT EVENT



On August 2, 2005, the company entered into a definitive agreement (the
Stock Purchase Agreement) with Impaxx Pharmaceutical Packaging Group, Inc. (Arlington Press) to acquire all of the issued and outstanding stock of Arlington Press for $65 million, subject to a post-closing working capital
purchase price adjustment.



20



---

##### Table of Contents

The acquisition of Arlington Press is subject to antitrust review and other customary closing conditions. The Stock
Purchase Agreement contains customary representations, warranties, covenants and indemnities made by the parties to each other.



21



---

##### Table of Contents

Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations



Overview



This Managements Discussion and Analysis reflects the restatement of our consolidated financial statements for the year ended January 2, 2005 and the quarter ended April 3, 2005, as discussed in Note 1 to the
consolidated financial statements.



In light of the restatement, readers should
no longer rely on our previously filed financial statements for the quarters ended April 4, 2004, July 4, 2004, October 3, 2004 and April 3, 2005 and for the year ended January 2, 2005.



Earnings from continuing operations before interest and taxes is abbreviated hereafter as EBIT. Consistent with our segment reporting in
Note 10 to the Consolidated Financial Statements, EBIT by segment excludes any gains or losses related to business divestitures and plant closures. Excluding these amounts from our calculation of segment EBIT is consistent with how our management
reviews segment performance and, we believe, affords the reader consistent measures of our operating performance.



The following table sets forth second quarter and year-to-date net sales from continuing operations and EBIT by business segment and on a consolidated basis:



Sales and EBIT by Segment and Consolidated



|                                        |           |                           |       |  |                                     |           |   |                              |   |       |                                        |   |      |   |  |           |       |      |   |      |   |  |   |       |  |   |      |  
|--------------------------------------- | --------- | ------------------------- | ----- |  | ----------------------------------- | --------- | - | ---------------------------- | - | ----- | -------------------------------------- | - | ---- | - |  | --------- | ----- | ---- | - | ---- | - |  | - | ----- |  | - | ---- | -
|(in millions)                           |           | Quarter EndedJul. 3, 2005 |       |  | Quarter EndedJul. 4, 2004(Restated) |           |   | Six Months EndedJul. 3, 2005 |   |       | Six Months EndedJul. 4, 2004(Restated) |  
|                                        | Net Sales |                           | EBIT  |  |                                     | Net Sales |   | EBIT                         |   |       | Net Sales                              |   | EBIT |   |  | Net Sales |       | EBIT |  
|Paperboard Packaging                    |           | $                         | 213.4 |  | $                                   | 15.0      |   |                              | $ | 197.8 |                                        | $ | 11.1 |   |  | $         | 435.1 |      | $ | 25.6 |   |  | $ | 416.9 |  | $ | 22.2 |  
|Plastic Packaging                       |           |                           | 46.5  |  |                                     | 3.9       |   |                              |   | 41.5  |                                        |   | 3.5  |   |  |           | 97.2  |      |   | 8.9  |   |  |   | 86.0  |  |   | 8.5  |  
|Corporate                               |           |                           |      |  |                                     | (4.3      | ) |                              |   |      |                                        |   | (4.0 | ) |  |           |      |      |   | (8.9 | ) |  |   |      |  |   | (7.8 | )
|Loss on Divestitures and Plant Closures |           |                           |      |  |                                     | (6.4      | ) |                              |   |      |                                        |   |     |   |  |           |      |      |   | (6.4 | ) |  |   |      |  |   |     |  
|                                        |           |                           |       |  |                                     |           |   |                              |   |       |                                        |   |      |   |  |           |       |      |   |      |   |  |   |       |  |   |      |  
|Total                                   |           | $                         | 259.9 |  | $                                   | 8.2       |   |                              | $ | 239.3 |                                        | $ | 10.6 |   |  | $         | 532.3 |      | $ | 19.2 |   |  | $ | 502.9 |  | $ | 22.9 |  
|                                        |           |                           |       |  |                                     |           |   |                              |   |       |                                        |   |      |   |  |           |       |      |   |      |   |  |   |       |  |   |      |  



Net sales from continuing operations
for the second quarter of 2005 were $259.9 million, an increase of $20.6 million over the comparable period in 2004. Excluding changes in foreign currency exchange rates, which increased net sales by $8.0 million, sales were up 5 percent for the
quarter. The increase in net sales resulted primarily from improved sales volumes in the international and branded, tobacco and pharmaceutical and healthcare packaging markets in the Paperboard Packaging segment and increased volumes in the
specialty chemical and food and beverage packaging sectors in the Plastic Packaging segment, as well as increased net selling prices in the Plastic Packaging segment as a result of the partial pass through of resin price increases.



Net sales from continuing operations for the first half of 2005 were $532.3 million, an
increase of $29.4 million over the comparable period in 2004. Excluding changes in foreign currency exchange rates, which increased net sales by $18.6 million, sales were up 2 percent for the first half of the year. The increase in net sales for the
first half of 2005 was driven by strong sales volumes within the tobacco and international and branded packaging sectors in the Paperboard Packaging segment. Pharmaceutical and healthcare packaging volume in the first half of 2005 was essentially
even with a strong first half in 2004. Sales in the first half of 2005 were also benefited by the partial pass through of resin price increases in our Plastic Packaging segment.



22



---

##### Table of Contents

Gross margin, which is defined as net sales less cost of products sold, for the second quarter of 2005 was $44.8 million
compared to $42.7 million for the second quarter of 2004. As a percentage of sales, gross margin was 17 percent during the second quarter of 2005 compared to 18 percent during the second quarter of 2004. This decrease is due in part to an increase
in pension costs. Gross margin was $92.1 million for the first half of 2005 compared to gross margin of $86.4 for the same period in 2004. As a percentage of sales, gross margin remained flat at 17 percent for both the first half of 2005 and 2004.



Selling, general and administrative (SG&A) expenses as a
percentage of net sales remained flat at approximately 14 percent for the second quarter and first half of 2005 compared to the same periods in 2004.



Loss on divestitures and plant closures includes the pre and after tax loss on the sale of our French wine and spirits label business, Bourgeot, in the amount of $3.0
million. Also included in loss on divestitures and plant closures is the pre and after tax loss related to the write-down of the CPI promissory notes in the amount of $3.4 million.



EBIT for the second quarter of 2005 was $8.2 million compared to EBIT of $10.6 million for the second quarter of 2004. Losses on
divestitures and plant closures reduced EBIT by $6.4 million in the second quarter of 2005. In addition, changes in foreign currency exchange rates increased EBIT for the second quarter of 2005 by approximately $0.5 million. EBIT for the first half
of 2005 was $19.2 million compared to EBIT of $22.9 million for the first half of 2004. Losses on divestitures and plant closures reduced EBIT by $6.4 million in the first half of 2005. Changes in foreign currency exchange rates increased EBIT by
approximately $1.1 million for the first half of 2005.



Net interest expense
was $8.1 million for the second quarter of 2005 and $17.0 million for the first half of 2005, down $0.5 million and $2.9 million compared to the second quarter and first half of 2004, respectively. The decreases in net interest expense for both the
second quarter and first half of 2005 were primarily due to the redemption of higher-rate debt in the second quarter of 2004 with a portion of the proceeds from the March 2004 common stock offering.



The effective tax rate for the second quarter and first half of 2005 reflects the inability
to currently recognize benefits for losses in the U.S. and for the loss incurred on the sale of Bourgeot. The income tax benefit recorded in the second quarter and first half of 2004 included $2.6 million related to favorable settlements with tax
authorities and $0.8 million related to a reduction in deferred tax liabilities as a result of a reduction in the Belgian statutory income tax rate. See Note 9 to the consolidated financial statements for information regarding an IRS proposed
adjustment.



Net loss for the second quarter of 2005 was $2.0 million, or $0.10
per diluted share, compared to a net loss of $0.4 million, or $0.02 per diluted share, for the second quarter of 2004. Net income for the first half of 2005 was breakeven compared to net income of $0.2 million, or $0.01 per diluted share, in the
first half of 2004.



23



---

##### Table of Contents

Discontinued Operations



Our former Land Development segment owned real estate that we retained when we sold the timberland associated with our former pulp and paper operations. The real
estate was marketed to third parties for residential and commercial development, real estate investment and land conservation. As of the end of the first quarter of 2004, the Land Development segment was liquidated and, as a result, this segment is
now accounted for as a discontinued operation.



Discontinued operations
in 2005 primarily represent the reduction of the liability for contractual obligations related to our former Merchandising and Specialty Packaging segment that was divested in 2001.



Subsequent Event



On August 5, 2005, the company announced an agreement to acquire Impaxx Pharmaceutical Packaging Group, Inc. (Arlington Press) for $65 million, subject to a
working capital adjustment. Arlington Press is the leading supplier of leaflets to the pharmaceutical market in North America. The acquisition is expected to be accretive to earnings in 2005.



Segment Information



Paperboard Packaging



|                      |             |   |       |             |  |   |       |          |   |      |  |   
|--------------------- | ----------- | - | ----- | ----------- |  | - | ----- | -------- | - | ---- |  | --
|(dollars in millions) |             |   |       |             |  |   |       | Increase
|                      | July 3,2005 |   |       | July 4,2004 |  |   | $     |          | %
|Six months ended:     |             |   |       |             |  |   |       |          |   |      |  |   
|Net sales             |             | $ | 435.1 |             |  | $ | 416.9 |          |   | 18.2 |  | 4 
|EBIT                  |             |   | 25.6  |             |  |   | 22.2  |          |   | 3.4  |  | 15
|Operating margin      |             |   | 5.9   | %           |  |   | 5.3   | %        |   |      |  |   
|                      |             |   |       |            
|Second quarter ended: |             |   |       |             |  |   |       |          |   |      |  |   
|Net sales             |             | $ | 213.4 |             |  | $ | 197.8 |          |   | 15.6 |  | 8 
|EBIT                  |             |   | 15.0  |             |  |   | 11.1  |          |   | 3.9  |  | 35
|Operating margin      |             |   | 7.0   | %           |  |   | 5.6   | %        |   |      |  |   



Net sales for the Paperboard Packaging
segment were $213.4 million for the second quarter of 2005, an increase of $15.6 million, or 8 percent, over the comparable period in 2004. Excluding changes in foreign currency exchange rates, which increased net sales by $6.7 million, sales were
up 5 percent for the quarter. The increase in net sales resulted primarily from improved sales volume in alcoholic drinks packaging in the international and branded market, and increased volume in the tobacco and pharmaceutical and healthcare
packaging markets.



Net sales for the Paperboard Packaging segment for the
first half of 2005 were $435.1 million, an increase of $18.2 million, or 4 percent, over the first half of 2004. Excluding changes in foreign currency exchange rates, which increased net sales by $14.8 million, net sales were up 1 percent for the
first half of 2005. The increase in net sales for the first half of 2005 was primarily due to strong sales volume within the tobacco and international and branded packaging market. Pharmaceutical and healthcare packaging volume in the first half of
2005 was essentially even with a strong first half in 2004.



Earnings before
interest and income taxes (EBIT) for the Paperboard Packaging segment was $15.0 million for the second quarter of 2005, an increase of $3.9 million, or 35 percent, compared to the second quarter of 2004. Excluding changes in foreign currency
exchange rates, which increased EBIT



24



---

##### Table of Contents

by $0.3 million, EBIT was up 32 percent for the quarter. EBIT for the first half of 2005 was $25.6 million, an increase of $3.4 million, or 15 percent, over
the first half of 2004. Excluding changes in foreign currency exchange rates, which increased EBIT by $0.6 million, EBIT was up 13 percent for the first half of 2005. The increase in EBIT for both the second quarter and first half of 2005 was
principally attributable to the increased sales volumes discussed above, as well as the continued improved performance of two new German factories that began operations in early 2004. EBIT for the second quarter and first half of 2005 also included
a gain of $1.3 million on the favorable settlement of a press installation claim against one of the companys vendors. Increases in EBIT for the 2005 periods were partially offset by increased pension costs.



Plastic Packaging



|                      |             |   |      |                     |  |   |      |                     |   |      |  |   
|--------------------- | ----------- | - | ---- | ------------------- |  | - | ---- | ------------------- | - | ---- |  | --
|(dollars in millions) |             |   |      |                     |  |   |      | Increase/(Decrease)
|                      | July 3,2005 |   |      | July 4,2004Restated |  |   | $    |                     | %
|Six months ended:     |             |   |      |                     |  |   |      |                     |   |      |  |   
|Net sales             |             | $ | 97.2 |                     |  | $ | 86.0 |                     |   | 11.2 |  | 13
|EBIT                  |             |   | 8.9  |                     |  |   | 8.5  |                     |   | 0.4  |  | 5 
|Operating margin      |             |   | 9.2  | %                   |  |   | 9.9  | %                   |   |      |  |   
|                      |             |   |      |                    
|Second quarter ended: |             |   |      |                     |  |   |      |                     |   |      |  |   
|Net sales             |             | $ | 46.5 |                     |  | $ | 41.5 |                     |   | 5.0  |  | 12
|EBIT                  |             |   | 3.9  |                     |  |   | 3.5  |                     |   | 0.4  |  | 11
|Operating margin      |             |   | 8.4  | %                   |  |   | 8.4  | %                   |   |      |  |   



Net sales for the Plastic Packaging
segment were $46.5 million for the second quarter of 2005, an increase of $5.0 million, or 12 percent, over the comparable period in 2004. Excluding changes in foreign currency exchange rates, which increased net sales by $1.3 million, net sales
were up 9 percent for the quarter. The increase in net sales for the quarter was primarily due to strong volume in both the specialty chemical and food and beverage packaging markets, as well as increased net selling prices as a result of the
partial pass through of resin price increases.



Net sales for the Plastic
Packaging segment were $97.2 million for the first half of 2005, an increase of $11.2 million, or 13 percent, over the comparable period in 2004. Excluding changes in foreign currency exchange rates, which increased net sales by $3.8 million, net
sales were up 9 percent for the first half of 2005. The increase in net sales for the period was similarly attributable to increased volumes and the partial pass through of resin price increases relative to the comparable 2004 period.



EBIT for the Plastic Packaging segment was $3.9 million for the second quarter of 2005, an
increase of $0.4 million, or 11 percent, versus the second quarter of 2004. Excluding changes in foreign currency exchange rates, which increased EBIT by $0.2 million, EBIT was up 6 percent for the quarter. EBIT for the first half of 2005 was $8.9
million, an increase of $0.4 million, or 5 percent, compared to the first half of 2004. Excluding changes in foreign currency exchange rates, which increased EBIT by $0.5 million, EBIT was essentially flat compared to the first half of 2004. EBIT
for both the second quarter and first half of 2005 was adversely affected by product mix, as well as by increases in resin prices that were not fully recovered through sales price increases.



25



---

##### Table of Contents

Liquidity and Financial Position



Net cash provided by operating activities was $9.1 million for the first half of 2005, a decrease of $28.9 million from the first half of
2004. The decrease primarily reflects receipt of a $21.5 million income tax refund and $6.4 million from the termination of interest rate swaps in the first half of 2004 as well as an additional $3.7 million in pension funding in the first half of
2005.



Net cash used in investing activities in the first half of 2005 was
$13.1 million compared to net cash used in investing activities of $20.7 million in the first half of 2004. The cash used in investing activities in 2005 and 2004 was primarily used for capital expenditures.



Net cash used in financing activities in the first half of 2005 was $32.2 million, compared
to $23.8 million in the first half of 2004. During the first half of 2005 we made debt repayments of $67.8 million, offset in part by an increase in borrowings on our credit line of $41.6 million. During the first half of 2004 we completed the sale
of 4.05 million shares of our common stock at a public offering price of $24 per share. Our net proceeds from the sale of these shares, after deducting discounts, commissions and estimated expenses, were approximately $91.8 million. Cash provided by
the common stock offering was more than offset by payments on lines of credit and long-term debt. We paid cash dividends of $8.5 million, or $0.44 per share, in the first half of 2005, and $7.6 million, or $0.44 per share, in the first half of 2004.



Our debt at July 3, 2005, was $373.7 million, down $55.2 million compared to
January 2, 2005. Our debt-to-capital ratio was 37 percent as of July 3, 2005, compared to 38 percent at January 2, 2005. (Capital consists of debt and stockholders equity.) The change in the ratio from year-end 2004 to second quarter-end 2005
is primarily due to the redemption of debt which matured during the first quarter of 2005.



We were in compliance with all of our debt covenants as of the end of the second quarter of 2005. We believe we will have adequate financial resources to support anticipated short-term and long-term capital needs and
commitments.



Critical Accounting Policies



Our consolidated financial statements have been prepared by management in accordance with
GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported
amounts of revenue and expenses. We believe that the estimates, assumptions and judgments described in the section Managements Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies
of our most recent Annual Report on Form 10-K/A have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. These policies include our accounting for: (a) goodwill and other long-lived
asset valuations; (b) environmental and other contingencies; (c) pension and other postretirement employee benefits; and (d) deferred tax assets. Because of the uncertainty inherent in these matters, reported results could have been materially
different using a different set of assumptions and estimates for these critical accounting policies. We believe that the consistent application of these policies enables us to provide readers of our financial statements with useful and reliable
information about our operating results and financial condition. There has been no significant change in these policies, or the estimates used in the application of the policies, since our 2004 fiscal year end.



Environmental



See Note 9 to the Consolidated Financial Statements for additional information on environmental matters.



26



---

##### Table of Contents

New Accounting Pronouncements



See Note 1 to the Consolidated Financial Statements.



Seasonality



Our Paperboard Packaging segment competes in several end-use markets, such as alcoholic drinks, confectioneries, cosmetics and fragrances, that are seasonal in nature. As
a result, our Paperboard Packaging segment earnings stream is seasonal, with peak operational activity during the third and fourth quarters of the year. Our Plastic Packaging segments markets include beverage and agrochemical markets in the
southern hemisphere that are seasonal in nature. As a result, our Plastic Packaging segment earnings stream is also seasonal, with peak operational activity during the first and fourth quarters of the year.



Forward-Looking Statements



Forward-looking statements in the foregoing Managements Discussion and Analysis of
Financial Condition and Results of Operations include statements that are identified by the use of words or phrases including, but not limited to, the following: will likely result, expected to, will continue,
is anticipated, estimated, project, believe, expect, and words or phrases of similar import. Changes in the following important factors, among others, could cause our actual results to
differ materially from those expressed in any such forward-looking statements: competitive products and pricing; production costs, particularly for raw materials such as folding carton and plastics materials; fluctuations in demand; possible
recessionary trends in United States and global economies; governmental policies and regulations; interest rates; fluctuations in currency translation rates; our ability to remain in compliance with our debt covenants; and other risks that are
detailed from time to time in reports we file with the SEC.



Item 3. Quantitative and Qualitative Disclosure about Market Risk



There are no material changes to the disclosure on this matter made in our Annual Report on Form 10-K/A for the year ended January 2, 2005.



Item 4. Controls and Procedures



We maintain
disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management timely.



As discussed in Note 1 to the Consolidated Financial Statements, management of the Company has amended its Annual Report on Form 10-K for the fiscal year ended January 2,
2005 (fiscal 2004), to restate the Companys financial statements and related financial information for fiscal 2004 and for each of the quarters within the year, and to restate Managements Report on Internal Control over Financial
Reporting. The



27



---

##### Table of Contents

determination to restate these consolidated financial statements and other financial information was made as a result of managements identification of
accounting errors at the Companys Plastic Packaging manufacturing facility in Crewe, England (Crewe), and related to the accounting for certain long-term incentive compensation.



As of July 3, 2005, the Company did not maintain effective controls over the preparation and
approval of manual journal entries at Crewe. Specifically, the Company did not maintain effective independent review to ensure that manual journal entries were complete, valid and accurate. Furthermore, the Company did not maintain effective
controls over the preparation and independent review of reconciliations for certain general ledger accounts at Crewe. These control deficiencies resulted in the misstatement through improper journal entries of the Crewe financial statement
information by the Crewe finance director resulting in the misstatement of cost of products sold, income tax benefit and certain balance sheet accounts, including accounts payable, accrued expenses, and income taxes payable that resulted in the
restatement of the Companys January 2, 2005 consolidated financial statements, each of the quarters within the fiscal year 2004, and the quarterly consolidated financial statements as of and for the quarter ended April 3, 2005. Additionally,
these control deficiencies could result in a misstatement to net sales, cost of products sold, income tax benefit or expense and certain balance sheet accounts, including accounts receivable, accounts payable, accrued expenses and income taxes
payable or receivable that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. Accordingly, management has determined that these control deficiencies constitute material
weaknesses.



Management of the Company, under the direction of our Chief
Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of July 3, 2005. Based upon this
re-evaluation and solely as a result of the material weaknesses discussed above, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of
July 3, 2005. Management has concluded that the accounting errors related to the accounting for certain long-term incentive compensation were not the result of a material weakness.



Remediation of Material Weaknesses



Management has taken, or is in the process of taking, the following steps with respect to the control deficiencies at Crewe:



| |  |  | All significant accounts impacted by the control deficiencies have been properly reconciled.
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | The interface between the general ledger and financial reporting systems will be automated, reducing the frequency of and need for manual intervention.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Manual journal entries initiated by the plant finance manager will be reviewed by the divisional finance director.
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | Management will conduct comprehensive walkthroughs of the business processes and internal controls at this site. As a result of this process, training programs will be developed and
roles and responsibilities may be reassigned, as appropriate.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

##### Table of Contents

| |  |  | Division management is in the process of recruiting a new finance manager for this site. As an interim measure, the monthly financial close process will be supervised by a
divisional finance director with secondary review by a manager from the corporate consolidation group.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To the extent they have been implemented, the changes in the Companys internal controls over financial reporting described in the preceding paragraph were
implemented subsequent to the quarter ended July 3, 2005. There was no change in our internal control over financial reporting during the second quarter of fiscal 2005 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.



29



---

##### Table of Contents

PART II - OTHER INFORMATION



Item 1. Legal Proceedings



Reference is made to
Note 9 of the Notes to Consolidated Financial Statements included herein.



Item 4. Submission of Matters to a Vote of Security Holders



At the Annual Meeting of Stockholders on April 27, 2005, the following business was transacted:



(1) Election of Directors -



All the nominees for election to the Board of Directors were elected:



|                                              |  |                     |  |                                    |  |                           
|--------------------------------------------- |  | ------------------- |  | ---------------------------------- |  | --------------------------
|                                              |  | Number ofShares For |  | Number of SharesAuthority Withheld |  |                           
|Sir David Fell                                |  | 17,847,343          |  | 217,284                            |  |                           
|Keith Gilchrist                               |  | 17,738,904          |  | 325,723                            |  |                           
|John W. Rosenblum                             |  | 17,359,813          |  | 704,814                            |  |                           
|Beverly L. Thelander                          |  | 17,842,717          |  | 221,910                            |  |                           
|                                              |  |                     | 
|                                              |  | Number ofShares For |  | Number of SharesAuthority Withheld |  | Number of SharesAbstaining
|(2) Approval of the 2005 Stock Incentive Plan |  | 12,055,058          |  | 2,626,330                          |  | 566,605                   



Item 5. Other Information



On August 12, 2005, the Company amended its existing employment
agreements with the following officers: Thomas H. Johnson, Chairman of the Board of Directors & Chief Executive Officer; Andrew J. Kohut, President; J.P Causey Jr., Executive Vice President, Secretary & General Counsel; Joel K. Mostrom,
Senior Vice President & Chief Financial Officer; Peter Lee, Vice President  Special Assistant to the Chairman of China Affairs; Michael D. Beverly, Associate General Counsel & Assistant Secretary; Candace C. Formacek, Treasurer; and
Thomas G. Hayes, Controller.



The employment agreements for the above
individuals were amended, as appropriate, to revise the date upon which the Company is required to provide notice of the non-renewal of such Executives employment agreement from September 1 to November 1 to accommodate changes to the regular
meeting dates for committees of the Board of Directors.



The amendements are
included herein as Exhibits 10.1 through 10.8



Item 6. Exhibits



|(a) | Exhibits:
|--- | ---------



|     |  |                                                                                                                                        
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Fifth Amendment to the Employment and Severance Benefits Agreement with Thomas H. Johnson, dated as of August 12, 2005, filed herewith.
|     | 
|10.2 |  | Second Amendment to the Employment and Severance Benefits Agreement with Andrew J. Kohut, dated as of August 12, 2005, filed herewith. 



30



---

##### Table of Contents

|     |  |                                                                                                                                          
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|10.3 |  | Second Amendment to the Employment and Severance Benefits Agreement with J.P. Causey Jr., dated as of August 12, 2005, filed herewith.   
|     | 
|10.4 |  | Second Amendment to the Employment and Severance Benefits Agreement with Joel K. Mostrom, dated as of August 12, 2005, filed herewith.   
|     | 
|10.5 |  | Second Amendment to the Employment and Severance Benefits Agreement with Peter L. Lee, dated as of August 12, 2005, filed herewith.      
|     | 
|10.6 |  | Second Amendment to the Employment and Severance Benefits Agreement with Michael D. Beverly, dated as of August 12, 2005, filed herewith.
|     | 
|10.7 |  | First Amendment to the Employment and Severance Benefits Agreement with Candace Formacek, dated as of August 12, 2005, filed herewith.   
|     | 
|10.8 |  | First Amendment to the Employment and Severance Benefits Agreement with Thomas G. Hayes, dated as of August 12, 2005, filed herewith.    
|     | 
|31.1 |  | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                           
|     | 
|31.2 |  | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                           
|     | 
|32   |  | Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   



31



---

##### Table of Contents

SIGNATURE



Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                      |  |     |  |                               
|--------------------- |  | --- |  | ------------------------------
|                      |  |     |  | CHESAPEAKE CORPORATION        
|                      |  |     |  | (Registrant)                  
|                      |  |    
|Date: August 17, 2005 |  | BY: |  | /s/ Thomas G. Hayes           
|                      |  |     |  | Thomas G. Hayes               
|                      |  |     |  | Controller                    
|                      |  |     |  | (Principal Accounting Officer)



32