**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**CHESAPEAKE’SBUSINESS**Chesapeake Corporation (“Chesapeake”) is an international supplier of specialty value-added paperboard packaging products and a leading supplier of plastic packaging products to niche markets. We focus on specific end-usemarkets, where multinational customers demand creative packaging designs and desire broad geographic coverage from their packaging supplier.           Chesapeake operates in three businesssegments:

***Paperboard Packaging***The Paperboard Packaging segment designs and manufactures folding cartons, leaflets, labels and other value-added packaging products. Our primaryend-use markets are pharmaceuticals and healthcare; premium branded products (such as fine spirits, premium confectioneries, tobacco products and luxury goods, such as cosmetics and fragrances); food and household; and multimedia andtechnology.

***Plastic Packaging***The Plastic Packaging segment designs and manufactures plastic containers, bottles, preforms and closures. The primary end-use markets areagrochemicals and other specialty chemicals; beverages; and pharmaceuticals and healthcare.

***Land Development***The Land Development segment holds approximately 6,500 acres of realestate in Virginia as of December 29, 2002. We expect that the liquidation of our land holdings will be substantially complete in the next 12 to 18 months.

***Acquisitions***Historically,Chesapeake was a manufacturer of commodity paper products, forest products and corrugated packaging products with operations located primarily in the United States. In the mid-1990s, management and the board of directors recognized that ourcommodity-based businesses were competing in increasingly consolidating, capital intensive and cyclical markets. Seeking to increase shareholder value, we embarked on a new strategic direction. Beginning with the sale of the West Point pulp andpaper mill in 1997, we divested our commodity paper products, forest products and corrugated packaging businesses and invested the sale proceeds in several acquisitions that have transformed Chesapeake into a value-added paperboard and plasticpackaging products leader with a focus on specific end-use markets. The principal acquisitions included: 

| • | Field Group plc (“Field Group”), acquired in March 1999, a European paperboard packaging company headquartered in England.                                                         |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                         |
| • | Boxmore International PLC (“Boxmore”), acquired in February 2000, a paperboard and plastic packaging company headquartered in Northern Ireland.                                    |
|   |                                                                                                                                                                                         |
| • | First Carton Group Limited (“First Carton”), acquired in October 2000, a paperboard packaging supplier focused on the premium branded food, confectionery and finespirits markets. |

          Other recent acquisitions included: Field Group’s acquisitions of Berry’s (Holding)Limited, one of Ireland’s largest suppliers of printed pharmaceutical leaflets, in May 1999; Lithoprint Holdings Limited, a Scottish supplier of wet-applied labels and commercial printing, in September 2000; and the in-house carton printingoperations of British American Tobacco in Bremen, Germany, in January 2001; and Chesapeake’s acquisition of Green Printing Company, Inc., a specialty packaging producer and printer in Lexington, North Carolina, in March 2000. 

***Divestitures***In the fourth quarter of 2000, we decided to sell the principal businesses that were included in our former Merchandising and Specialty Packaging segment and the remaining interest inour former Tissue segment, a 5 percent equity interest in Georgia-Pacific Tissue, LLC (the “Tissue JV”). These segments are accounted for as discontinued operations.           Thebusinesses that made up the Merchandising and Specialty Packaging segment were:

| • | Chesapeake Display and Packaging Company, sold on July 30, 2001, to CorrFlex Graphics, LLC, and Chesapeake Display and Packaging Company (Canada) Limited, sold on October 4, 2001,to Atlantic Decorated & Display Inc.; each of these businesses designed, manufactured, assembled and packed temporary and permanent point-of-purchase displays. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                   |
| • | Consumer Promotions International, Inc. (“CPI”), which designed, manufactured and assembled permanent point-of-purchase displays, sold on October 15, 2001, to amanagement investment group.                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                   |
| • | Chesapeake Packaging Co., which designed and manufactured corrugated shipping containers and other corrugated packaging products, sold on May 18, 2001, to Inland Paperboard andPackaging, Inc., a subsidiary of Temple-Inland, Inc.                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                   |
| • | Our 46 percent interest in Color-Box LLC, a joint venture with Georgia-Pacific Corporation (“G-P”), which designed and manufactured litho-laminated corrugated graphicpackaging, sold to G-P in two transactions that were finalized in November 2001.                                                                                       |

          Our 5 percent interest in the TissueJV was sold to G-P on March 2, 2001. Consideration for this sale was received

CSK 2002 AR     p16

**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

for ouragreement to terminate the joint venture, our ownership interest and certain indemnifiable deferred tax liabilities.           The consideration for these discontinued operations consisted ofcash proceeds of approximately $427.1 million and promissory notes of approximately $42.6 million. During 2002, we received cash prepayments on these promissory notes of $24.9 million. As of December 29, 2002, there were remaining note balances of$16.7 million due from CPI that are collateralized by subordinated liens on substantially all of CPI’s U.S. assets. In accordance with the terms of the CPI term note, the principal balance has been adjusted for the working capital settlementrelated to the sale and accrued interest. Included in the promissory notes was a $13.6 million performance note received from CPI which is payable based on the financial performance of CPI during the period from October 15, 2001, through October 10,2006. The performance note has been fully reserved because payments due on it are contingent on future events.           Net cash proceeds from the sales of discontinued operations were used topay down debt and pay taxes related to the sales.

***Outlook***Over the next few years, we plan to expand our network of value-added packaging capabilities, which is now locatedprimarily in Europe, through the acquisitions, joint ventures, alliances, and/or internal development of complementary businesses in North America, Europe, Asia and South America. We expect such expansion would improve our geographical andproduct-line balance and satisfy multinational customers’ desire for broad geographic coverage from their packaging supplier. 

**RESULTS OF OPERATIONS*Overview***The followingoverview of consolidated results from continuing operations highlights major year-to-year changes in our income statement (see page 20 for a discussion of financial results other than continuing operations). More detail regarding these changes isfound under the caption “Segment Review.” All per share amounts included in Management’s Discussion and Analysis are presented on a diluted basis.           The preparation ofconsolidated financial statements in conformity with United States generally accepted accounting principles (GAAP) requires management to make extensive use of estimates and assumptions that affect the reported amounts and disclosures. Theseestimates include the estimated loss on disposition of discontinued operations, allowances for bad debts and inventory obsolescence, environmental remediation costs, restructuring costs, loss contingencies for litigation, income taxes and taxvaluation reserves, fair values of financial instruments, estimates of future cash flows associated with assets, asset impairments including goodwill, and determinations of discount and other assumptions for pension and postretirement benefitexpenses. Actual results could differ from these estimates.

***2002 vs. 2001*******Net sales:** Chesapeake’s 2002 net sales of $822.2 million were up 4 percent compared tonet sales in 2001 of $790.5 million. The increase was primarily due to the effect of foreign currency translation, increased land sales and increased sales volumes in the premium branded market sector and the African beverage market. These increaseswere partially offset by competitive pricing pressure throughout the Paperboard Packaging segment and reduced sales volumes in certain market sectors, primarily technology, food and household, and tobacco.

**Gross margin:** Gross margin, which is defined as net sales less cost of products sold, for 2002 was $158.0 million compared to $161.2 million in 2001. Gross margin as a percentage of net sales for 2002 decreasedapproximately 1.2 percent compared to 2001, primarily due to reduced margins in the Paperboard Packaging segment resulting from competitive pricing pressure and lower sales volumes in some markets. These reductions were offset, in part, by improvedmargins in the Plastic Packaging segment.

**Selling, general and administrative (“SG&A”) expenses:** SG&A expenses as a percentage of net sales decreased from 14 percent in 2001to 11 percent in 2002. The decrease was primarily due to the discontinuation of goodwill amortization  (see Note 4 to the Consolidated Financial Statements) and reduced corporate headquarters’ costs. Goodwill amortization expense was $14.4million in 2001.

**Restructuring charges:** The 2002 results included a restructuring charge of $2.6 million ($1.8 million after taxes) for severance costs for approximately 120 employees relatedto the closure of a facility in Congleton, England, which produced packaging for the food and household market, and the consolidation of two facilities in Scotland serving the premium branded packaging market of our Paperboard Packaging segment.During 2002, $2.3 million was paid out to approximately 108 employees. During 2001, we recognized a restructuring charge of $14.6 million, which is discussed in the 2001 vs. 2000 overview below.

**Other income:** Other income, net, increased to $10.2 million in 2002 compared to $9.4 million in 2001. The increase is due to a reduction in facility closure costs, offset, in part, by a reduction in gains on sales offixed assets.

p17     CSK 2002 AR

**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Earnings beforeinterest and taxes from continuing operations (“EBIT”):** EBIT was $71.8 million for 2002 compared to EBIT of $46.0 million for 2001. The increase in EBIT was primarily due to the restructuring charge in 2001 for the reduction of thecorporate headquarters staff, the elimination of goodwill amortization expense in 2002, the benefit realized in 2002 from the staff reduction, the strong results in the Plastic Packaging segment and the favorable effects of foreign currencytranslation. These increases were partially offset by the reduced operating margins in the Paperboard Packaging segment and the 2002 restructuring charge.

**Interest expense, net:** Net interestexpense for 2002 was $45.4 million, up $14.1 million from net interest expense for the same period in 2001. The increase in interest expense was primarily due to a higher average cost of debt resulting from 2001’s fourth quarter issuance ofsubordinated notes and an amendment to our principal bank credit facility, changes in currency exchange rates and the interest costs attributed to discontinued operations in 2001, as well as the timing of the receipt of cash proceeds fromdiscontinued operations in 2001 that were used to pay down debt.

**Tax expense:** The effective income tax rate for 2002 was approximately 22.3 percent compared to a reported 28.6 percent for2001. The decrease in the effective income tax rate was due to the elimination of non-deductible goodwill amortization. Without goodwill amortization and restructuring charges, the 2001 income tax rate would have been approximately 22.0percent.

**Income from continuing operations:** Net income from continuing operations for 2002 was $20.5 million, or $1.35 per share, up from 2001 net income from continuing operations of $10.5million, or $0.69 per share. The increase in income from continuing operations was primarily due to the absence of goodwill amortization in 2002 (see Note 4), a reduction in restructuring expenses and a reduction in corporate expenses, offset inpart by increased interest expense and reduced operating margins in the Paperboard Packaging segment.

***2001 vs. 2000*******Net sales:** Chesapeake’s 2001 net sales were$790.5 million, up 21 percent compared to 2000 net sales of $654.7 million, reflecting the additional sales from businesses acquired during 2000 and volume growth in the Paperboard Packaging segment’s pharmaceutical and tobacco market sectors,which were offset in part by unfavorable foreign currency translation rates.

**Gross margin:** Gross margin was $161.2 million in 2001 compared to $146.4 million in 2000. Gross margin as apercentage of net sales for 2001 decreased approximately 2 percent compared to 2000, primarily due to increases in raw material costs, principally resins used in the plastics business, and competitive pricing pressures in the plasticsbusiness.

**SG&A expenses:** SG&A expenses in 2001 increased  $11.0 million, or 11 percent, compared to 2000, primarily due to the acquisitions of Boxmore, First Carton and GreenPrinting. However, SG&A expenses as a percent of net sales from continuing operations in 2001 of 13.9 percent decreased from 15.1 percent in 2000 as our restructuring efforts after the acquisitions of Boxmore and First Carton reduced overheadcosts. Goodwill amortization for continuing operations was $14.4 million in 2001 compared to $11.7 million in 2000.

**Restructuring/special charges:** During 2001, Chesapeake recognizedrestructuring charges before income taxes of $14.6 million ($9.3 million after taxes). Approximately $9.2 million was recognized for costs associated with a salaried staff reduction at our corporate headquarters and in our Plastic Packaging segmentof approximately 50 positions achieved primarily through a voluntary separation program. The voluntary separation program benefits were funded primarily by surplus assets of our U.S. defined benefit salaried pension plan. Approximately 70 percent ofthe staff reduction had occurred by December 30, 2001, and the remainder occurred during the first quarter of 2002. Approximately $2.6 million was recognized for the elimination of two corporate office sites and the reduction of the carrying valueof a corporate aircraft that was sold in January 2002. As of December 29, 2002, the reserve has been utilized, and approximately 50 employees have received severance benefits. During 2001, the Paperboard Packaging segment incurred approximately $2.8million of severance costs for approximately 100 employees, primarily associated with the integration of its recent acquisitions. As of December 29, 2002, approximately 90 employees have received severance benefits. See Note 5 to the ConsolidatedFinancial Statements for the non-cash amounts and cash payments through December 29, 2002.           The following table sets forth the details of our restructuring/special charges recognized in2001:

| ***(in millions)***  |   | **Paperboard****Packaging** |               | **Plastic****Packaging** |   | **Corporate**      |   | **Total** |   |
|----------------------|--------|-----------------------------|--------------------|--------------------------|--------|--------------------|--------|-----------|--------|
|                      |   |                             |                    |                     |        |                    |   |           |        |   |  |  |   |
| 2001 provision:      |   |                        |               |                     |   |               |   |      |   |   |   |   |   |
| Employment reduction |   | $                           | 2.8                |                     | $      | 1.8                |   | $         | 7.4    |   | $ | 12.0 |   |
| Facility closures    |   |                        | —   |                     |   | —   |   |      | 0.7    |   |   | 0.7 |   |
| Asset held for sale  |   |                        | —   |                     |   | —   |   |      | 1.9    |   |   | 1.9 |   |
|                 |   |                             |                    |                     |        |                    |   |           |        |   |  |  |   |
| Total                |   | $                           | 2.8                |                     | $      | 1.8                |   | $         | 10.0   |   | $ | 14.6 |   |
|                 |   |                             |                    |                     |        |                    |   |           |        |   |  |  |   |

          During 2000, we recordedrestructuring/special charges before income taxes of $7.7 million ($4.7 million after taxes), which consisted of defense fees incurred to respond to an unsolicited proposal by Shorewood Packaging

CSK2002 AR     p18

**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

Corporation(“Shorewood”) to acquire Chesapeake, and severance and exit costs associated with the closure of one of our Paperboard Packaging facilities in the United Kingdom, which was redundant after the acquisition of First Carton. Severance costsincluded planned workforce reductions of approximately 160 employees, which were partially offset by a pension termination benefit. The 2000 restructuring liability has been fully utilized with payments completed for the approximately 160 employeesand for the defense fees.           The following table sets forth the details of our restructuring/special charges recognized in 2000:

| ***(in millions)***  |   | **Paperboard****Packaging** |               | **Corporate** |   | **Total**          |   |
|----------------------|--------|-----------------------------|--------------------|---------------|--------|--------------------|--------|
|                      |   |                             |                    |          |        |                    |   |  |  |   |
| 2000 provision:      |   |                        |               |          |   |               |   |   |   |   |
| Defense fees         |   | $                           | —   |          | $      | 5.1                |   | $ | 5.1 |   |
| Employment reduction |   |                        | 1.9                |          |   | —   |   |   | 1.9 |   |
| Facility closure     |   |                        | 0.7                |          |   | —   |   |   | 0.7 |   |
|                 |   |                             |                    |          |        |                    |   |  |  |   |
|                 |   | $                           | 2.6                |          | $      | 5.1                |   | $ | 7.7 |   |
|                 |   |                             |                    |          |        |                    |   |  |  |   |

**Other income:** Other income increased to $9.4 million in 2001 from $6.0 million in 2000. Theincrease in other income was largely due to a $4.0 million gain recognized in 2001 on the sale of a plant in Paperboard Packaging’s food and household market sector, which was partially offset by moving costs associated with that plant ofapproximately $1.8 million, and a special charge in 2000 of $2.6 million for the net expenses of Chesapeake’s offer to acquire Shorewood. The offer to acquire Shorewood was initiated after Shorewood publicized an unsolicited bid to acquireChesapeake (the costs related to the defense against this bid were categorized as restructuring/special charges in 2000).

**EBIT:** EBIT for 2001 increased to $46.0 million from $45.7 million in2000, due primarily to the acquisitions of Boxmore, Green Printing and First Carton, offset, in part, by the impact of unfavorable foreign currency translation rates and increases in restructuring charges. EBIT for 2001 included restructuringcharges of $14.6 million compared with $7.7 million in restructuring charges included in EBIT for 2000.

**Interest expense, net:** Interest expense, net, increased to $31.3 million in 2001, from$28.1 million in 2000, due primarily to borrowings associated with the acquisitions completed in 2000 and additional borrowing required to fund tax payments triggered by the sale of our 5 percent interest in the Tissue JV.

**Tax expense:** The effective income tax rate for 2001 was approximately 28.6 percent compared to a reported 36.6 percent for 2000. Tax expense for 2001 included a $5.3 million tax benefit related torestructuring/special charges. Tax expense for 2000 included a $5.6 million tax benefit related to the transaction costs associated with the offer to acquire Shorewood and restructuring/special charges. Our effective income tax rate for continuingoperations excluding these restructuring/special charges was approximately 32.4 percent for 2001 compared to approximately 42.9 percent for 2000. Approximately 6 percent of the 10.5 percent decrease in the effective income tax rate was due to theability to utilize foreign tax credits in 2001, 2 percent of the decrease was related to lower foreign income tax rates applied to foreign source income from the prior year and the remaining 2 percent of the decrease was due to a favorable taxsettlement related to 1999 accrued income taxes.

**Income from continuing operations:** Income from continuing operations in 2001 of $10.5 million, or $0.69 per share, compared to 2000 incomefrom continuing operations of $11.2 million, or $0.70 per share. Income from continuing operations remained essentially flat year over year, as the favorable impact of the acquisitions completed during 2000 was offset by increasedrestructuring/special charges in 2001.

**SEGMENT REVIEW*Paperboard Packaging***

| ***(dollars in millions)*** |   | **2002** |      | **2001** |   | **2000** |   |
|-----------------------------|--------|----------|-----------|----------|--------|----------|--------|
|                             |   |          |           |     |        |          |   |  |  |   |
| Net sales                   |   | **$**    | **678.1** |     | $      | 671.4    |   | $ | 547.1 |   |
| EBIT                        |   |     | **62.3**  |     |   | 62.1     |   |   | 50.7 |   |
| Operating margin %          |   |     | **9.2**   | **%**    |   | 9.2      | %      |   | 9.3 | % |

**2002 vs. 2001:** Net sales for 2002 increased 1 percent compared to the prioryear. The increase in net sales was due primarily to the effects of foreign currency translation, partially offset by lower sales volumes in the technology and food and household sectors and pricing pressure throughout the Paperboard Packagingsegment. Sales in the pharmaceutical, premium branded and tobacco sectors for 2002 are consistent with the amounts in the comparable period of 2001, as volume improvements generally offset pricing decreases to our customers.          EBIT for 2002 was $62.3 million, compared to $62.1 million in the prior year. The gains on sales of facilities in 2001 was approximately $4 million greater than 2002 gains. Additionally, weexpensed approximately $5.4 million in 2002 for costs associated with the factory consolidation effort in the premium branded sector in Scotland. These factors are offset by the elimination of goodwill amortization of $11.9 million. The remainingdecrease in EBIT is primarily due to reduced volumes in technology, food and household, and tobacco markets and competitive pricing pressure.

p19     CSK 2002AR

**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**2001 vs. 2000:** Netsales for 2001 increased by $124.3 million, or 23 percent, over net sales for 2000, due primarily to the inclusion for a full year of the businesses that were acquired in 2000. Sales volumes in 2001 reflect strong tobacco and pharmaceutical sales,largely offset by the impact of unfavorable foreign currency translation rates and lower food and household packaging volumes. This continued a positive sales trend in the more specialized design markets such as tobacco, pharmaceutical and premiumbranded products, while the food and household packaging markets continued to be impacted by significant competition from the sale of commodity products.           EBIT for this segment for 2001increased over 2000 largely due to the addition of the Boxmore paperboard packaging business and the sale of a plant in the food and household market sector. The 2001 sales volume growth and productivity improvements were offset by lower margins infood and household markets and the impact of unfavorable foreign currency translation rates.

***Plastic Packaging***

| ***(dollars in millions)*** |   | **2002** |      | **2001** |   | **2000** |   |
|-----------------------------|--------|----------|-----------|----------|--------|----------|--------|
|                             |   |          |           |     |        |          |   |  |  |   |
| Net sales                   |   | **$**    | **103.7** |     | $      | 98.5     |   | $ | 86.4 |   |
| EBIT                        |   |     | **8.5**   |     |   | 3.0      |   |   | 7.2 |   |
| Operating margin %          |   |     | **8.2**   | **%**    |   | 3.0      | %      |   | 8.3 | % |

**2002 vs. 2001:** Net sales of $103.7 million for 2002 were up 5.3 percentcompared to net sales of $98.5 million for 2001. The increase in sales was primarily due to strong sales volumes in the African beverage market, where we recently expanded our manufacturing capabilities with a satellite operation in Mauritius. Thespecialty chemicals market experienced increased sales volumes for 2002, while the Irish beverage market experienced decreased sales volumes in 2002.           EBIT of $8.5 million for 2002increased compared to EBIT for 2001 of $3.0 million. The improvement in EBIT for 2002 reflects the elimination of goodwill amortization in 2002 of $2.5 million (see Note 4), stronger sales volumes, lower raw material costs and improved plantoperating efficiencies.

**2001 vs. 2000:** Net sales and EBIT for the segment were $98.5 million and $3.0 million for 2001, respectively, compared to $86.4 million and $7.2 million, respectively,in 2000. The sales increase was primarily due to the full-year inclusion of the businesses that were acquired in 2000. The 2001 sales also reflected higher beverage container volume, which was more than offset by the impact of unfavorable foreigncurrency translation rates. The lower EBIT reflected lower selling prices in food and beverage packaging markets due to increased competition and higher resin costs and the impact of unfavorable foreign currency translation rates.

***Land Development***

| ***(dollars in millions)*** |   | **2002** |     | **2001** |   | **2000** |   |
|-----------------------------|--------|----------|----------|----------|--------|----------|--------|
|                             |   |          |          |     |        |          |   |  |  |   |
| Net sales                   |   | **$**    | **40.4** |     | $      | 20.6     |   | $ | 21.2 |   |
| EBIT                        |   |     | **15.7** |     |   | 15.0     |   |   | 15.5 |   |
| Operating margin %          |   |     | **38.9** | **%**    |   | 72.8     | %      |   | 73.1 | % |

**2002 vs. 2001:** Net sales of $40.4 million in 2002 were up 96.1 percent over2001 net sales due to a higher volume of land sales. EBIT of $15.7 million for 2002 compared to $15.0 million for 2001. The reduction in operating margin percentage reflects the sales of land with higher cost basis in 2002. We expect that theliquidation of our remaining land holdings will be substantially complete in the next 12 to 18 months.

**2001 vs. 2000:** Net sales and EBIT for 2001were $20.6 million and $15.0 million,respectively, compared to 2000 net sales and EBIT of $21.2 million and $15.5 million, respectively. The decreases in sales and EBIT were primarily attributable to slightly lower average sales prices per acre during 2001 due to the mix of landsold.

**DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM*Discontinued Operations***Based on our decision to sell the principal businesses that made up our former Merchandising andSpecialty Packaging and Tissue segments, these segments were accounted for as discontinued operations. We completed the sales of all the components of these segments in 2001. The impact of discontinued operations on reported income (loss) is asfollows:

| ***(in millions)***                                |   | **2002** |                   |   | **2001** |               | **2000** |   |
|----------------------------------------------------|--------|----------|------------------------|--------|----------|--------------------|----------|--------|
|                                                    |   |          |                        |   |          |                    |     |        |  |   |
| Discontinued operations:                           |   |     |                   |   |     |               |     |   |   |   |
| (Loss) income from discontinued operations         |   | **$**    | **—  ** |   | $        | —   |     | $      | (33.4 | ) |
| (Loss) gain on disposal of discontinued operations |   |     | **1.4**                |   |     | 113.0              |     |   | (43.6 | ) |

          In 2002, Chesapeakerecognized an after-tax decrease of $1.4 million in the estimated net loss on disposal of discontinued operations, primarily related to the settlement of accrued obligations associated with the discontinued operations.          In 2001, we recorded an after-tax gain on the sale of our 5 percent interest in the Tissue JV of approximately $140.6 million, offset in part by a revision to the estimated loss on thesales of other discontinued operations of $27.6 million after taxes. In 2000, we recorded an estimated net loss of $43.6 million after taxes on the sales of discontinued operations. Net sales for the discontinued operations were $407.4 million for2000, and the loss from

CSK 2002 AR     p20

**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

discontinuedoperations was $33.4 million. See Note 3 for more information on discontinued operations.

***Extraordinary Item***The 2000 results included an after-tax charge of $1.5 million, or $0.09per share, for the early extinguishment of debt.

**SEASONALITY**Chesapeake’s earnings stream is seasonal, with peak operational activity during the third and fourth quarters of theyear.

**LIQUIDITY AND CAPITAL RESOURCES**Management assesses Chesapeake’s liquidity in terms of our overall ability to generate cash to fund our operating and investing activities.Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, access to bank lines of credit and our ability to attract long-term capital with satisfactory terms. Chesapeake uses financialmarkets worldwide for its financing needs. We are a party to public and private long-term debt agreements, including various bank credit facilities, which are discussed in Note 7 to the Consolidated Financial Statements. Chesapeake has no material“off-balance sheet” liabilities or nonconsolidated special purpose entities.

          The following tables summarize our contractualobligations and other commercial commitments:

***Contractual Obligations***

|                               |   | **Payments Due by Period** |   |
|------------------------------------|--------|----------------------------|--------|
|                               |   |                            |   |
| ***(in millions)***                |   | **Total**                  |   | **Less Than 1 Year** |   | **1 – 3 Years** |   | **4 – 5 Years** |   | **After 5 Years** |   |
|                                    |   |                            |        |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Long-term debt*                    |   | $                          | 491.4  |   | $ | 53.0 |   | $ | 187.7 |   | $ | 13.7 |   | $ | 237.0 |   |
| Operating leases                   |   |                       | 21.1   |   |   | 6.8 |   |   | 6.5 |   |   | 3.3 |   |   | 4.5 |   |
|                               |   |                            |        |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Total contractual cash obligations |   | $                          | 512.5  |   | $ | 59.8 |   | $ | 194.2 |   | $ | 17.0 |   | $ | 241.5 |   |
|                               |   |                            |        |   |  |  |   |  |  |   |  |  |   |  |  |   |