EX 13.1
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                         Portions of the
                     CHESAPEAKE CORPORATION
                  Annual Report to Stockholders
              For the year ended December 31, 1998
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 




                    RECENT QUARTERLY RESULTS

                                        Income(Loss)
                                           Before
                                         Cumulative
                                         Effect Of
                                         Accounting
                                           Change
                                         And Extra-   Net
                        Net      Gross    ordinary   Income
Quarter                Sales     Profit     item     (Loss)
------------------------------------------------------------
(Dollar amounts in millions except per share amounts)
------------------------------------------------------------
1996:
 First                $  277.7    $ 53.8    $  7.9    $  7.9
 Second                  276.6      51.5       3.9       3.9
 Third                   309.3      62.8       9.5       9.5
 Fourth                  295.0      60.4       8.8       8.8
                           --------    ------    ------    ------
   Year               $1,158.6    $228.5    $ 30.1    $ 30.1
                    ==========  ========  ========  ========

1997:
 First                $  294.5    $ 44.2    $ (3.5)   $ (3.5)
 Second                  264.3      43.2      37.1*     34.8*
 Third                   233.7      53.9       9.7       9.7
 Fourth                  228.5      57.6       7.6       7.6
                      --------    ------    ------    ------
   Year               $1,021.0    $198.9    $ 50.9*   $ 48.6*
                      ========    ======    ======    ======

1998:
 First                $  216.8    $ 49.3    $  8.0**   $21.3**
 Second                  237.0      52.0      10.6      10.6
 Third                   260.7      59.2      13.2      13.2
 Fourth                  235.9      57.1       2.2       2.2
                      --------    ------    ------    ------
   Year               $  950.4    $217.6    $ 34.0**  $ 47.3**
                      ========    ======    ======    ======



* Includes after-tax gain of $49.1 million, or $2.07 per share,
on the sale of the Divested Businesses to St. Laurent (U.S.)
during the second quarter of 1997.
**Includes after-tax gain of $13.3 million, or $.62 per share, on
the cumulative effect of change in accounting for certain timber
reforestation costs that were previously expensed.


                               -1-
               RECENT QUARTERLY RESULTS, CONTINUED

             Earnings(Loss)
                 Before
           Cumulative Effect
             Of Accounting
               Change And
             Extraordinary
                  Item      Earnings(Loss)Dividends Stock Price
Quarter      Basic Diluted  Basic Diluted Declared   High  Low
---------------------------------------------------------------
(Dollar amounts in millions except per share amounts)

1996:
 First       $0.33   $0.33  $0.33   $0.33   $0.20  $30.50 $25.25
 Second       0.17    0.17   0.17    0.17    0.20   30.50  25.25
 Third        0.41    0.40   0.41    0.40    0.20   27.63  23.13
 Fourth       0.38    0.37   0.38    0.37    0.20   31.75  26.50
                                            -----
   Year      $1.28   $1.27  $1.28   $1.27   $0.80
                                            =====

1997:
 First      $(0.15) $(0.15)$(01.5) $(0.15)  $0.20  $32.50 $27.13
 Second       1.58*   1.56*  1.48*   1.46*   0.20   36.00  27.25
 Third        0.41    0.41   0.41    0.41    0.20   36.50  29.94
 Fourth       0.34    0.34   0.34    0.34    0.20   36.75  31.44
                                            -----
   Year      $2.20*  $2.18* $2.10*  $2.08*  $0.80
                                            =====

1998:
 First       $0.38*  $0.37**$1.00** $0.99** $0.20  $35.63 $31.75
 Second       0.51    0.50   0.51    0.50    0.20   39.13  33.63
 Third        0.61    0.60   0.61    0.60    0.20   41.75  32.06
 Fourth       0.10    0.10   0.10    0.10    0.22   36.88  32.75
                                            -----
   Year      $1.60** $1.57**$2.23** $2.19** $0.82
                                            =====



* Includes after-tax gain of $49.1 million, or $2.07 per share,
on the sale of the Divested Businesses to St. Laurent (U.S.)
during the second quarter of 1997.
**Includes after-tax gain of $13.3 million, or $.62 per share, on
the cumulative effect of change in accounting for certain timber
reforestation costs that were previously expensed.



                               -2-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

CHESAPEAKE'S BUSINESS

Chesapeake conducts its business in three segments: Tissue;
Specialty Packaging; and Forest Products/Land Development.

Tissue Segment

Chesapeake's Tissue segment, which consists of Wisconsin Tissue
Mills Inc. and Wisconsin Tissue de Mexico, S.A. de C.V.
(collectively, "Wisconsin Tissue" or "WT"), produces tissue for
industrial and commercial markets including full-menu and fast-
food restaurants, hotels, motels, clubs, health care facilities,
schools, office locations, and commercial airlines. Operations of
the Tissue segment include: paper mills in Menasha, WI;
Flagstaff, AZ; and Chicago, IL; and converting and distribution
facilities in Neenah, WI; Bellemont, AZ; Greenwich, NY; and
Toluca, Mexico. The combined operations sell over 2,200 products
including napkins, tablecovers, toweling, placemats, wipers, and
facial and bathroom tissue. Wisconsin Tissue's products are sold
throughout the United States, Canada, and Mexico using a
dedicated sales force and independent distributors.

Specialty Packaging Segment

Chesapeake's Specialty Packaging segment is composed of
Chesapeake Display and Packaging Company ("CD&P"), which designs
and manufactures point-of-sale displays and graphic packaging in
the United States, Canada, and Europe; and Chesapeake Packaging
Co. ("CP"), which produces corrugated shipping containers in the
United States.

Chesapeake Display and Packaging: CD&P designs, manufactures,
and, in some cases, packs and distributes display and promotional
units that are used as marketing tools in supermarkets, video
stores, convenience stores, and other retail locations. Point-of-
sale displays are free-standing and highlight or advertise a
specific product or set of products for customers. Most point-of-
sale displays are temporary and are used to support a specific
product advertisement or roll-out. However, they can also be more
permanent when constructed out of wood and/or plastic. Design
creativity, strength, print quality, and appearance are critical
performance features.

CD&P operates a network of sixteen design, manufacturing,
assembly, packaging, and distribution facilities throughout the
United States and Europe and provides its customers with a wide
range of products and services, including graphic and structural
                               -3-
design, in-house manufacturing, project management, assembly,
custom packing, and distribution.

CD&P also designs and manufactures light-weight graphic packaging
that is used by consumer products companies to pack, store,
stack, and display retail products. This is a litho-labeled,
printed corrugated product, which is preferred by mass
merchandisers because of its superior graphic appearance and
stacking strength.

As with point-of-sale displays, CD&P offers turn-key service to
its graphic packaging customers by providing CAD-CAM mechanical
design, digital art board, graphic design, die making, product
testing, and full customer support. Chesapeake operates three
dedicated graphic packaging facilities in Visalia, CA, Richmond,
IN, and Pelahatchie, MS, that are capable of servicing national
accounts.

Chesapeake Packaging: CP consists of ten corrugated shipping
container plants located in seven states, which manufacture
corrugated boxes and specialty packaging primarily for customers
within each plant's regional area. The raw materials for the
packaging plants include linerboard and corrugating medium, which
are converted to make the walls of the packaging unit. Various
converting equipment is used to print, cut, slot, and glue the
container to customer specifications.

Forest Products/Land Development Segment

Chesapeake's Forest Products/Land Development segment consists of
Chesapeake Forest Products Company, Chesapeake Building Products
Company, Delmarva Properties, Inc. and Stonehouse Inc. The
Company is currently evaluating strategic alternatives regarding
this segment's timberlands and building products businesses.

Chesapeake Forest Products: Chesapeake Forest Products Company
owns and actively manages approximately 321,000 acres of
timberland located in Virginia, Maryland,and Delaware.
Chesapeake's forests are managed to maximize the harvest of
sawtimber using environmentally sound, modern forestry methods.

Chesapeake Building Products: Chesapeake Building Products
Company operates three sawmills in Virginia and Maryland, which
manufacture pine lumber. Over 50% of the raw timber processed at
the mills is provided from Chesapeake's timberlands. Sawmill
products are sold by an internal sales force to independent
brokers and retailers.


                               -4-
Delmarva Properties, Inc. and Stonehouse Inc.: Delmarva
Properties, Inc. and Stonehouse Inc. develop and market land that
is more valuable when used as developed property than as
timberland. Delmarva Properties is currently developing
approximately 5,200 acres in Virginia, Maryland, and Delaware,
primarily for residential housing. Sales include large lots and
acreage for third parties to develop for both residential and
commercial uses. A major project involves the development of a
3,200 acre mixed-use site in New Kent, VA. Stonehouse Inc. is a
50% partner in a joint venture with Dominion Capital, Inc. to
develop a 7,600 acre planned community in James City County, VA.
The majority of the land currently being developed by both
entities was timberland formerly owned by Chesapeake Forest
Products Company.

EARNINGS OVERVIEW

The Company reported net income of $47.3 million, or $2.19 per
share, for 1998; $48.6 million, or $2.08 per share, for 1997; and
$30.1 million, or $1.27 per share, for 1996. Results for 1998 and
1997 include unusual items that affect the comparability of
reported results as described below. Earnings per share amounts
are on a diluted basis throughout this discussion.

Graph:
                                            1996    1997   1998
----                                        ----    ----
Diluted Earnings per Share
(Dollars)
As reported                                 1.27    2.08   2.19
Pro Forma - Ongoing Operations              1.63    1.13   1.98

Unusual Items

Unusual items affecting 1998's results are: 1) a $13.3 million,
or $0.62 per share, after-tax gain resulting from a change in
accounting to capitalize certain timber reforestation costs that
were previously expensed, which the Company believes is
preferable because it achieves better matching of reforestation
costs with the revenues realized from the eventual harvesting of
the timber; and 2) restructuring charges related to Chesapeake's
Tissue and Specialty Packaging segments of $8.8 million after
tax, or $0.41 per share, the details of which are described in
the next section of this report.





                               -5-
Unusual items affecting 1997's results include: 1) a gain of
$86.3 million ($49.1 million after tax, or $2.07 a share) from
the sale of the West Point, VA, kraft products mill (the "West
Point Mill") and related assets; 2) restructuring and other
special charges related primarily to Chesapeake's Specialty
Packaging businesses of $10.8 million after tax, or $.45 a share;
and 3) an extraordinary loss of $2.3 million after
tax, or $.10 per share, associated with the repurchase of long-
term debt.

Management evaluates the Company's financial performance by
excluding the financial results of divested operations,
restructuring and other special charges, and extraordinary items.
The terms "from ongoing operations" and "pro forma" reflect those
adjustments and will be used throughout the
following analysis. More information about Chesapeake's
businesses is provided under the caption "Business Segment
Highlights" and in Note 15 to the consolidated financial
statements.

Restructuring

During 1998, management initiated a review of the Tissue and
Specialty Packaging segments with the objective of reducing
costs and increasing productivity. The review included
organization and cost structures, facility utilization, and
product offerings. As a result of this review, the Company
formulated a restructuring plan which resulted in a fourth
quarter 1998 charge of $11.8 million before taxes ($8.8 million
after tax, or $.41 per share).

The 1998 restructuring program consists primarily of a 5%
reduction in the Company's global workforce (approximately 250
employees) through the elimination of redundant and overlapping
positions and facility consolidations. The reductions are
taking place in Chesapeake's Tissue and Specialty Packaging
segments.

Wisconsin Tissue has implemented a combination of early
retirement and voluntary severance programs to reduce its work
force by approximately 70 positions. CD&P has implemented a work
force reduction of approximately 60 positions and will close two
facilities in 1999. The 1998 restructuring plan, when completely
executed, is expected to generate annualized pretax savings of
$5.0 million.






                               -6-
The following table sets forth the details of the restructuring
charge recognized in the fourth quarter of 1998:
                                                Specialty
                                        Tissue  Packaging Total
                                        ------  --------- -----
Employment reduction                     $5.0      $4.6    $ 9.6
Facility consolidation:
   Closure costs                            -        .9       .9
   Inventory write-down                     -        .2       .2
   Fixed asset write-down                   -       1.1      1.1
                                         ----      ----    -----
Totals                                   $5.0      $6.8    $11.8
                                         ====      ====    =====

During the second quarter of 1997, the Company recorded
restructuring and other special charges of $18.9 million before
taxes ($10.8 million after tax, or $.45 per share) related
primarily to its Specialty Packaging segment. The restructuring
charge provided for the costs associated with management
reorganization and the closures of one point-of-sale display
facility and one graphic packaging facility. The intent of these
initiatives was to eliminate redundant overhead and processes,
improve geographic efficiency, and reduce fixed costs. Execution
of the 1997 restructuring plan was completed during 1998. The
1997 reserve for restructuring costs was completely used by
December 31, 1998.

Divested Businesses

The West Point Mill, four corrugated container plants, and a
building products facility (the "Divested Businesses") were sold
to St. Laurent Paperboard (U.S.) Inc. ("St. Laurent (U.S.)") on
May 23, 1997. In the first half of 1997, the corrugated container
and building products facilities were profitable, while the West
Point Mill, which operates in a highly cyclical industry,
recorded a loss due to unfavorable pricing conditions. The
Divested Businesses contributed $155.5 million in net sales in
1997, and recorded an Earnings Before Interest and Taxes ("EBIT")
loss of $14.3 million. Net sales and EBIT from Divested
Businesses in 1996 were $384.7 million and $7.2 million,
respectively.

RESULTS OF OPERATIONS

Overview

The following analysis of consolidated results highlights major
year-to-year changes in the Company's income statement. More
detail regarding these changes is found under the caption
"Segment Review" below.

                               -7-
1998 vs. 1997

Sales: Chesapeake's 1998 net sales were $950.4 million, down 7%
from 1997's net sales of $1,021.0 million, due primarily to the
sale of the Divested Businesses. 1998 net sales were 10% higher
than 1997 net sales from ongoing operations of $865.5 million due
primarily to higher Tissue and Specialty Packaging shipments.

Income: Net income for 1998 was $47.3 million, or $2.19 a share,
up 5% from net income of $48.6 million, or $2.08 a share, earned
in 1997. Earnings for 1998 include an extraordinary gain of $13.3
million after tax, or $.62 a share, from the cumulative effect of
an accounting change. The 1998 results also include restructuring
charges related to Chesapeake's Tissue and Specialty Packaging
segments of $8.8 million after tax, or $.41 a share. Net income
for 1998 excluding these unusual items was $42.8 million, or
$1.98 per share, up 75% compared to net income from ongoing
operations for 1997 of $26.4 million, or $1.13 per share, due
primarily to higher EBIT in all segments.

1998 gross profit margin increased by 31_2 points compared to the
previous year due primarily to the sale of the Divested
Businesses in 1997. 1998 gross profit margin compared to 1997
gross margin from ongoing operations, dropped by half a point due
to lower corrugated container and pine lumber margins, partially
offset by increased margins for Wisconsin Tissue and
CD&P.

Selling, General, and Administrative ("SG&A") expenses in 1998
decreased $27.6 million, or 17%, compared to 1997, and were 14%
of net sales in 1998 compared to 16% in 1997. 1998 SG&A expenses
as a percentage of sales dropped by over 31_2 points to 14% from
1997 SG&A expenses from continuing operations as a result of
controls on spending spread over a larger sales base.

EBIT for 1998 was $86.5 million, up $32.4 million, or 60%,
compared to 1997 EBIT from ongoing operations of $54.1 million,
due primarily to higher shipments and improved operating
efficiencies.

Net interest expense decreased $3.1 million from 1997 due
primarily to lower average debt outstanding and interest earned
from the remaining cash proceeds from the sale of the Divested
Businesses in 1997.

The Company's effective income tax rate decreased to 39.1% in
1998 compared to 40.3% in 1997. The decrease is primarily due to
a reduction in goodwill amortization.


                               -8-
Graph:
                                            1996    1997   1998
                                            ----    ----   ----
Interest Expense, Net
(In millions of $)
As reported                                 33.9    22.0   18.9
Pro Forma                                   12.3    13.6   18.9
                                
1997 vs. 1996

Sales: Chesapeake's 1997 net sales were $1,021.0 million, down
12% from 1996's net sales of $1,158.6 million, due to partial
year net sales of the Divested Businesses in 1997 compared to
full year net sales of the Divested Businesses in 1996. Net sales
from ongoing operations in 1997 of $865.5 million were 12% higher
than 1996 net sales from ongoing operations of $773.9 million.
Higher shipment volumes for all three business segments were
partially offset by lower average selling prices in the Tissue
segment.

Income: Net income for 1997 was $48.6 million, or $2.08 per
share, up 64% from 1996 net income of $30.1 million, or $1.27 per
share. Earnings for 1997 include a gain of $86.3 million ($49.1
million after tax, or $2.07 a share) from the sale of the
Divested Businesses. Net income for 1997 also includes
restructuring and other special charges related primarily to
Chesapeake's Specialty Packaging segment of $10.8 million after
tax, or $.45 a share, and an extraordinary loss of $2.3 million
after tax, or $.10 per share, associated with the repurchase of
long-term debt. Net income for 1997 from ongoing operations prior
to these unusual items was $26.4 million, or $1.13 per share,
down from net income from ongoing operations of $1.63 per share
in 1996 due primarily to lower Tissue and Specialty Packaging
EBIT.

The gross profit margin in 1997 was unchanged compared to 1996.
1997 gross profit margin from ongoing operations compared to 1996
gross profit margin from ongoing operations was down 21 1/2
points due primarily to lower tissue margins and higher costs in
certain packaging businesses.

SG&A expenses in 1997 increased $6.3 million, or 4%, compared to
1996, and were 16% of net sales in 1997, compared to 13% in 1996.
Certain costs previously allocated to the Divested Businesses
remained in SG&A for the full year in 1997.





                               -9-
EBIT for 1997 from ongoing operations was $54.1 million compared
to EBIT from ongoing operations of $73.8 million in 1996, due
primarily to lower pricing for tissue products and process cost
inefficiencies in certain packaging businesses.

1997 net interest expense decreased $11.9 million from 1996 due
primarily to lower average debt outstanding and interest earned
on the remaining cash proceeds from the sale of the Divested
Businesses in 1997.

The Company's effective income tax rate increased to 40.3% in
1997 from 36.1% in 1996, primarily due to non-deductible write-
offs associated with the 1997 restructuring program.

SEGMENT REVIEW

Tissue

1998 vs. 1997

Net sales of $433.3 million in 1998 were 6% higher than 1997, due
to growth in converted product volume and higher sales of jumbo
rolls, partially offset by modestly lower average selling prices.
1998 EBIT of $69.6 million was up 25% compared to EBIT of $55.8
million in 1997, while 1998 EBIT return on net sales (operating
margin) rose by 21_2 points to 16.1%. The improvements in EBIT
and operating margin were the result of favorable product mix and
improved papermaking and tissue
converting efficiencies.

Graph:
                                            1996    1997   1998
                                            ----    ----   ----
Tissue Segment Net Sales
(In millions of $)
Net sales                                  392.0   410.7  433.3
Percent change                              +21%     +5%    +6%

1997 vs. 1996

Net sales of $410.7 million in 1997 were 5% higher than 1996, due
to growth in converted product volume, partially offset by
lower average selling prices. EBIT of $55.8 million in 1997 was
down 14.2% from EBIT of $65.0 million in 1996, while 1997
operating margin declined by 3 points, to 13.6%, due to higher
wastepaper costs and start-up costs associated with increased
converting capacity.




                              -10-
Graph:
                                            1996    1997   1998
                                            ----    ----   ----
Tissue Segment Operating Margin
(percent)
Operating Margin                            16.6    13.6   16.1
                                
Specialty Packaging

1998 vs. 1997

Net sales of $472.3 million in 1998 increased 13% compared to
1997 net sales from ongoing operations due primarily to higher
display and graphic packaging volume and higher corrugated
container prices. The Specialty Packaging segment's 1998 EBIT of
$13.3 million was up $7.9 million from 1997 EBIT from ongoing
operations of $5.4 million, while operating margins improved 11
1/2 points to 2.8%. These improvements were due to volume growth,
higher capacity utilization, and operating cost reductions,
partially offset by slightly lower corrugated container gross
profit margins.

Graph:
                                            1996    1997   1998
                                            ----    ----   ----
Specialty Packaging Segment Net sales
(Ongoing Operations)
(In millions of $)
Net sales                                  357.6   416.8  472.3
Percent change                              +12%    +17%   +13%

1997 vs. 1996

Net sales from ongoing operations of $416.8 million increased 17%
compared to 1996 net sales from ongoing operations due to volume
growth and the full year impact of Chesapeake Europe, which was
acquired during the third quarter of 1996. The Specialty
Packaging segment's 1997 EBIT from ongoing operations of $5.4
million was down substantially from 1996 EBIT from
ongoing operations of $17.7 million, while operating margins
dropped to 1.3% in 1997 from 5.0% in 1996. These declines were
due primarily to process cost inefficiencies and additional costs
associated with operating graphic packaging facilities below
capacity.







                              -11-
Graph:
                                            1996    1997   1998
                                            ----    ----   ----
Specialty Packaging Segment Operating Margin
(Ongoing Operations)
(percent)
Operating margin                             5.0     1.3    2.8
                                
Forest Products/Land Development

1998 vs. 1997

Net sales for 1998 were $44.8 million, up 18% from 1997's net
sales from ongoing operations of $38.0 million, while EBIT of
$16.3 million for 1998 was up 29% from 1997 EBIT from ongoing
operations due to higher pine lumber volume, the addition of
external pulpwood shipments after the sale of the Divested
Businesses in 1997, and higher land sales, partially offset by
lower pine lumber prices.

Graph:
                                            1996    1997   1998
                                            ----    ----   ----
Forest Products/Land Development Segment
Net Sales (Ongoing Operations)
(In millions of $)
Net sales                                   24.3    38.0   44.8
% change                                     +2%    +56%   +18%

1997 vs. 1996

Net sales from ongoing operations for 1997 were $38.0 million, up
56% from 1996 net sales from ongoing operations of $24.3
million, due to the addition of external pulpwood sales to St.
Laurent (U.S.), increased lumber shipments, and higher lumber
prices. EBIT from ongoing operations of $12.6 million for 1997
was up 25% from 1996 due to increased shipments, favorable
pricing, and improved sawmill operating efficiency.

Graph:
                                            1996    1997   1998
                                            ----    ----   ----
Forest Products/Land Development Segment
EBIT (Ongoing Operations)
(In millions of $)
EBIT                                        10.1    12.6   16.3





                              -12-
LIQUIDITY AND CAPITAL RESOURCES

Management assesses the Company's liquidity in terms of its
overall ability to generate cash to fund its operating and
investing activities. Significant factors affecting the
management of liquidity are cash flows from operating activities,
capital expenditures, adequate bank lines of credit, and
financial flexibility to attract long-term capital with
satisfactory terms.

Capital Structure

Chesapeake uses financial markets worldwide for its financing
needs. The Company is party to various bank credit facilities
which are discussed in Note 4 to the consolidated financial
statements. These credit facilities give Chesapeake the financing
flexibility it needs to take advantage of investment
opportunities that may arise and to satisfy future
funding requirements.

Chesapeake targets a capital structure that is consistent for an
"investment grade" senior debt rating. This capital structure
allows Chesapeake's stockholders to enjoy the benefits of prudent
financial leverage, while protecting debtholder interests and
ensuring ready access to capital markets.

Chesapeake's total capitalization (consisting of long-term debt
net of cash, deferred taxes, and stockholders' equity) was $723.6
million at the end of 1998, compared to $681.4 million at the end
of 1997. The year-end ratio of long-term debt net of cash to
total capital was 28.8% for 1998, up slightly from 28.0% for
1997, but still well below Chesapeake's long-term debt-to-total-
capital ratio target range of 35% to 45%.

Graph:
                                            1996    1997   1998
                                            ----    ----   ----
Capital Structure
(In millions of $)
Long Term Debt, net of cash                489.6   191.0  208.0
Deferred Taxes                             126.9    67.3   74.3
Stockholders' Equity                       469.1   423.1  441.3
                                         -------   -----  -----
                                         1,085.6   681.4  723.6
                                         =======   =====  =====

During each of 1998 and 1997, the Company paid cash dividends of
$0.80 per share. A 10% increase in the quarterly dividend to $.22
per share was declared in the fourth quarter of 1998 to be


                              -13-
paid February 12, 1999. Outstanding common stock at year-end 1998
totaled 21.4 million shares, an increase of .1 million shares
from year-end 1997, as purchases of .2 million shares by
the Company during the year were slightly less than the number of
shares issued for employee benefit plans. See Note7 to the
consolidated financial statements for more details on capital
stock and additional paid-in capital.  Year-end 1998
stockholders' equity was $441.3 million, or $20.62 per share, up
$.78 compared to year-end 1997. The market price for Chesapeake's
common stock ranged from a low of $31.75 per share to a high of
$41.75 per share in 1998, with a year-end price of $36.88 per
share, up 7% from 1997's year-end price of $34.38 per share.

Graph:
                                            1996    1997   1998
                                            ----    ----   ----
Common Stock Price Range & Stockholders'
Equity
(dollars)
Equity Per Share                           20.05   19.84  20.62
Common Stock Price Range
 High                                      31.75   36.75  41.75
 Low                                       23.13   27.13  31.75

In August 1997, Standard and Poor's raised its rating on
Chesapeake senior debt from BBB- to BBB, largely as a result of
debt reduction associated with the sale of the Divested
Businesses in May 1997. Moody's maintained its rating at Baa3.

In January 1999, the Company entered into a new $450 million bank
credit facility which will be used primarily to fund the purchase
of Field Group plc, as discussed in Note 14 to the consolidated
financial statements. The credit facility includes a five-year
$250 million revolving line of credit and a 364-day $200 million
revolving line of credit, which is convertible at the Company's
option to a two year term loan.

The Company is considering various alternatives for its Forest
Products businesses that may result in a sale of such businesses.
The net proceeds from any such sale are likely to be used to
reduce the Company's debt, repurchase shares, and finance future
growth opportunities.

The Company believes that existing sources of liquidity are
adequate to meet anticipated borrowing needs at comparable risk-
based interest rates for the foreseeable future.




                              -14-
Cash Flow

Net cash provided by operating activities of $90.4 million was up
significantly from net cash used by operating activities of $31.4
million in 1997, but down from $131.2 million provided by
operations in 1996. The increase in 1998 net cash flow from
operations compared to 1997 is due primarily to higher EBIT in
all three business segments and lower working capital
requirements.

EBITDA, a measure of internal cash flow combining earnings before
interest and income taxes plus non-cash charges for depreciation,
cost of timber harvested, and amortization, and excluding the
effects of restructuring and accounting changes, was $148.8
million for 1998, 32% higher than 1997's EBITDA of
$112.4 million, excluding the 1997 gain on sale of businesses,
restructuring and other special charges, and extraordinary items
due primarily to higher EBIT in all business segments.

Graph:
                                            1996    1997   1998
                                            ----    ----   ----
EBITDA (Ongoing Operations)
(In millions of $)
Earnings Before Interest and Income
 Taxes (not including one-time gain,
 restructuring, special charges, or
 extraordinary item)                        73.8    54.1   86.5
Noncash charges for depreciation,
 cost of timber harvested, and amortization 48.1    58.3   62.3
                                           -----   -----  -----
                                           121.9   112.4  148.8
                                           =====   =====  =====

1998 year-end working capital decreased by $10.2 million from
year-end 1997, primarily due to an increase in accounts payable
and accrued expenses and a reclassification of long-term debt,
offset in part by an increase in accounts receivable. For ongoing
operations, the 1998 average collection period of 45 days
improved by 3 days versus 1997, while 1998 net inventory turnover
of 7.2 turns improved by .4 turns. The improvements were due to
Company-wide initiatives to improve working
capital efficiency.

Cash used for investing activities in 1998 of $87.0 million was
down $511.5 million from the prior year's cash provided by
investing activities of $424.5 million as a result of cash
proceeds from the sale of the Divested Businesses in 1997 of
$491.0 million and acquisitions in 1998.


                              -15-
Cash used in financing activities in 1998 was $14.3 million
compared to $329.6 million in 1997, due to the use in 1997 of the
proceeds from the sale of the Divested Businesses to reduce
credit line borrowings by $179.0 million and long-term debt by
$66.7 million, and to purchase 2.3 million shares of the
Company's common stock at a net cost of $79.4 million. The
Company used $6.9 million to purchase 197,300 shares of its
common stock during 1998. See Note 4 to the consolidated
financial statements for additional information regarding long-
term debt.

Capital Expenditures & Acquisitions

1998: Expenditures for property, plant, and equipment totaled
$73.3 million. Major initiatives included: new tissue converting
equipment at the Menasha, WI, Bellemont, AZ, and Greenwich, NY,
facilities; a new warehouse adjacent to the Bellemont, AZ,
converting facility; new printing equipment at the Visalia, CA,
and Richmond, IN, graphic packaging facilities; implementation of
new information systems throughout the company; and expansion and
modernization of the West Point, VA, sawmill. No other 1998
capital projects were individually material.

Acquisition expenditures in 1998 were $18.1 million and included
the purchase of all of the outstanding capital stock of Capitol
Packaging Corporation in Denver, CO, and substantially all of the
assets and assumption of certain liabilities of Rock City Box
Co., Inc. in Utica, NY.

1997: Expenditures for property, plant, and equipment, totaled
$68.2 million. Major initiatives included new tissue converting
equipment at the Bellemont, AZ, and Greenwich, NY, facilities
and expansion of the Erlanger, KY, display and packaging plant.
No other 1997 capital expenditures were individually material.
There were no business acquisitions completed during 1997.

1996: Expenditures for property, plant, and equipment totaled
$128.8 million and included: expansion of the Visalia, CA,
graphic packaging plant; a new graphic packaging plant in
Pelahatchie, MS; a new custom packing operation in Memphis, TN;
and new tissue converting equipment at the Bellemont, AZ, and
Greenwich, NY, sites.

Acquisition expenditures in 1996 were $47.2 million and included
the purchase of the assets of the Display Division of Dyment
Limited in Erlanger, KY, and Toronto, Canada; the acquisition
of the point-of-sale display and packaging businesses of Salliard
S.A. in France; and the acquisition of certain tissue converting
assets and distribution facilities of Jokel Desarrollos, S.A. de
C.V. and Ambitec, S.A. de C.V. in Mexico.

                              -16-
1999 Outlook

These forward-looking statements reflect management's view of the
Company's outlook for 1999 as of February 12, 1999. The forward-
looking statements do not reflect the potential impact of any
mergers, acquisitions, divestitures, or other structural changes
in the Company's business that may occur during 1999,
and are subject to certain risks and uncertainties, including
those listed under the caption "Forward-Looking Statements".
- The Company expects net sales for 1999 to be in the $970
million to $1.0 billion range.
- Full-year earnings improvements in all three business segments
(Tissue,Specialty Packaging, and Forest Products/Land
Development) are expected in 1999 compared to 1998.
- The Company's effective income tax rate in 1999 is expected to
be 36.5%.
- Capital spending for 1999 is expected to be approximately $80
million, compared to $73 million in 1998, excluding acquisitions.
- Depreciation, cost of timber harvested, and amortization
expenses are expected to total approximately $66 million in 1999,
up from $62 million in 1998.
- Earnings per share (diluted) expectations are in the range of
$2.15 to $2.35 per share for 1999.

Planned capital spending initiatives include: a cost improvement
project at the Flagstaff, AZ, tissue mill; the continued
implementation of new information systems throughout the Company;
and new printing equipment at the Richmond, IN, manufacturing
facility. The Company's plan tobuild a new tissue mill and
converting facility in Halifax County, NC, was approved by the
board of directors in January 1999. The total cost of the
project is projected to be $160-$180 million, including expected
1999 capital spending of $10-$20 million.  No other 1999 projects
are expected to account for more than 5% of the
total planned spending. Projected 1999 capital expenditures are
expected to be funded with internally generated cash.

All 1999 capital projects are expected to be consistent with
Chesapeake's strategy of expanding the Tissue and Specialty
Packaging businesses, reducing costs, and focusing capital
spending on projects that are expected to generate a return on
investment that exceeds the Company's cost of capital. See Note
13 to the consolidated financial statements for information
regarding capital commitments.






                              -17-
Subsequent Events

In January 1999, the Company announced that it plans to build a
new tissue mill and converting facility in Halifax County, NC.
Construction of this mill is planned to begin in the third
quarter of 1999, with converting production beginning in the
third quarter of 2000 and paper production in the first quarter
of 2001. Total cost is projected to be $160-$180 million.

On January 20, 1999, the Company announced that it made an offer
to acquire all of the outstanding shares of Field Group plc, a
leading European packaging company with headquarters in the
United Kingdom. The all cash offer, as amended, of approximately
$355 million plus the assumption of $50 million in debt values
the total enterprise at $405 million. On March 5, 1999, the
Company announced it had received shareholder acceptances,
irrevocable undertakings, or acquired shares totaling 88% of the
outstanding share capital of Field Group plc and therefore
declared the offer wholly unconditional.

Risk Management

Chesapeake continually evaluates risk retention and insurance
levels for product liability, property damage, and other
potential exposures to risk. The Company devotes significant
effort to maintaining and improving safety and internal control
programs, which are intended to reduce its exposure to certain
risks. Management determines the amount of insurance coverage to
purchase and the appropriate amount of risk to retain based on
the cost and availability of insurance and the likelihood of a
loss. Management believes that the current levels of risk
retention are consistent with those of comparable companies in
the industries in which Chesapeake operates. There can be no
assurance that Chesapeake will not incur losses beyond the limits
of, or outside the coverage of, its insurance. However, the
Company's liquidity, financial position, and profitability are
not expected to be materially affected by the levels of risk
retention that the Company accepts.

Chesapeake's financial results could be affected by changes in
foreign currency exchange rates or weak economic conditions in
the foreign markets in which its products are manufactured or
sold. The Company's currency exposures are cash, debt, and
foreign currency transactions denominated primarily in the French
franc, the Canadian dollar, and the Mexican peso.
Chesapeake manages its foreign currency exposures primarily by
funding certain foreign currency denominated assets with
liabilities in the same currency and, as such, certain exposures
are naturally offset.

                              -18-
As part of managing its foreign currency exposures, Chesapeake
enters into foreign currency forward exchange contracts. These
agreements are generally used to fix the local currency cost of
purchased goods or services or selling prices denominated in
currencies other than the local currency. The use of these
agreements allows Chesapeake to reduce its overall exposure to
exchange rate fluctuations, as the gains and losses on the
agreements substantially offset the gains and losses on the
liabilities being hedged. Forward exchange agreements are viewed
as risk management tools, involve little complexity, and, in
accordance with Company policy, are not used for trading or
speculative purposes. Chesapeake is not a party to any leveraged
derivatives. As of December 31, 1998, Chesapeake's exposure
resulting from fluctuations in foreign currency exchange rates
was not material.

The Company's long-term debt portfolio consists mostly of fixed
rate instruments. At year-end 1998 the Company did not hold
interest rate derivative contracts.

The Company's cash position includes amounts denominated in
foreign currencies. The Company manages its worldwide cash
requirements considering available funds among its subsidiaries
and the cost effectiveness with which these funds can be
accessed. The repatriation of cash balances from some of the
Company's subsidiaries could have adverse tax consequences.

Year 2000 Readiness Disclosure

Until recently, many computer systems and software products used
only two digit entries to define a year. As a result, computer
programs that have date sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. Unless
remedied, this "Year 2000 problem" could result in disruptions of
normal business operations due to system failures,
miscalculations, or the inability to process necessary
transactions. In addition to computer systems, any equipment
using embedded chips with date sensitive functions, such as
switchgear, machinery and process control systems, and telephone
exchanges, could also be at risk.











                              -19-
Year 2000 Readiness Initiative

In 1997, Chesapeake established a plan intended to address the
impact of the Year 2000 problem on its internal systems and
facilities, as well as its key suppliers and customers. The
project consists of the following four phases:
-  Phase 1 - inventory and analysis of key business systems and
infrastructure for Year 2000 problems. Phase 1 was completed in
July 1997.
-  Phase 2 - remediation of non-compliant systems. As discussed
below, this phase is underway and should be completed by mid-
1999.
-  Phase 3 - testing of mission critical systems. This phase has
begun and is scheduled to be completed by mid-1999.
-  Phase 4 - development of contingency plans. This phase has
also begun. As discussed below, the Company expects that its
contingency plans will be fully developed by mid-1999.

The Company's Year 2000 team consists of location and business
unit Year 2000 coordinators and project managers who, for the
purpose of this project, report and are accountable to the
Company's Chief Financial Officer.

State of Readiness

Most of the Company's mission critical business systems utilize
packaged applications, which are purchased from third party
software vendors. As part of its overall business strategy, the
Company is installing new integrated Enterprise Resource Planning
("ERP") software that is expected to provide enhanced reporting
and operational benefits. The installation of Year 2000 compliant
ERP software is also the principal element of the Company's Year
2000 remediation plan. The Company's Tissue segment is scheduled
to implement Year 2000 compliant ERP software in April 1999.
Chesapeake's other business segments and corporate headquarters
are in the process of installing Year 2000 compliant ERP
software. Those installations are approximately 50% complete as
of January 1999, and are scheduled to be completed at all
locations by mid-1999.

In addition to the installation of Year 2000 compliant ERP
software, the Company's remediation efforts include the upgrading
or replacement of proprietary computer software systems
(primarily in the Tissue segment), and the upgrading or
replacement of computer hardware, machinery, and equipment,
process control systems, security systems, and telecommunications
equipment. The Company has begun the process of upgrading or
replacing these systems and equipment, as necessary for Year 2000
compliance, and expects the process to be completed by mid-1999.

                              -20-
Cost to Address Year 2000 Readiness

The cost of installing the new ERP software, no material portion
of which relates specifically to achieving Year 2000 compliance,
is expected to be approximately $20 million. Of this amount,
approximately $16 million is expected to be capitalized, with
$8.6 million capitalized during the Company's fiscal year ending
December 31, 1998. To date, the Company has incurred
approximately $12.4 million of the expected ERP implementation
cost. Other specifically identifiable costs related to Year 2000
compliance are in the range of $2-3 million, approximately $1
million of which has been incurred to date. The Company expects
to fund the costs associated with its Year 2000 compliance
program with cash generated from operations. Management does not
believe that any of Chesapeake's material information technology
projects have been deferred due to the Company's Year 2000
compliance efforts.

Because of the interdependence of information systems today, Year
2000 compliant companies may be affected by the Year 2000
readiness of their material suppliers, customers, and other third
parties. As part of Chesapeake's evaluation of the Year 2000
readiness of its suppliers, customers, and other third parties,
the Company has contacted substantially all of its critical
suppliers to request written assurance that they have
Year 2000 readiness programs in place as well as an affirmation
that they will be compliant when necessary. Responses to these
inquiries are currently being gathered and reviewed. To date, no
such parties have informed the Company that they do not expect to
be Year 2000 compliant in a timeframe that would expose
Chesapeake to material business risks. Further analysis will be
conducted as necessary. Although management has not yet
determined the risk associated with the failure of any such
party to become Year 2000 compliant, the Company can provide no
assurance that such failure would not have a material adverse
effect on the Company's results of operations and financial
condition. However, in an effort to minimize such risks, in most
cases (with utilities and banking institutions as notable
exceptions), the Company utilizes multiple suppliers of goods
and services and is prepared to substitute suppliers if one or
more have Year 2000 related difficulties.

Business Continuity and Contingency Planning

The ultimate effects on the Company or its suppliers or customers
of not being fully Year 2000 compliant cannot be reasonably
estimated. While Chesapeake believes its efforts are adequate to
address its Year 2000 concerns, the Company could experience a
material adverse effect on its results of operations, financial
position, or cash flows if its Year 2000

                              -21-
compliance schedule is not met, if the costs to remediate the
Company's Year 2000 issues materially exceed current estimates,
or if material suppliers, customers, or other businesses
encounter serious problems in their Year 2000 remediation
efforts. Therefore, the Company is in the process of developing
plans to address such contingencies, with a focus on mission
critical applications and material suppliers. Such contingency
plans may include the development of back-up procedures, the
purchase of additional inventory, and utilization of alternate
suppliers. The Company expects to complete its contingency plans
by mid-1999.

Accounting Developments

The Financial Accounting Standards Board recently issued a new
pronouncement regarding derivatives, which is effective for all
fiscal quarters of all fiscal years beginning after June 15,
1999. When this standard is adopted it is not expected to have a
material impact on the Company's financial statements.

Environmental

Chesapeake has a strong commitment to protecting the environment.
The Company has an environmental audit program to monitor
compliance with environmental laws and regulations. The Company
is committed to abiding by the environmental, health, and safety
principles of the American Forest & Paper Association. Each
expansion project has been planned to comply with applicable
environmental regulations and to enhance environmental protection
at existing facilities. The Company faces increasing capital
expenditures and operating costs to comply with expanding and
more stringent environmental regulations, although compliance
with existing environmental regulations is not expected to have a
material adverse effect on the Company's earnings, financial
position, cash flows, or competitive position.

The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and similar state "Superfund" laws
impose liability, without regard to fault or to the legality of
the original action, on certain classes of persons (referred to
as potentially responsible parties or "PRPs") associated with a
release or threat of a release of hazardous substances into the
environment. Financial responsibility for the clean-up or other
remediation of contaminated property or for natural resource
damages can extend to previously owned or used properties,
waterways, and properties owned by third parties, as well as to
properties currently owned and used by a company even if
contamination is attributable entirely to prior owners. As

                              -22-
discussed below, the U.S. Environmental Protection Agency ("EPA")
has given notice of its intent to list the lower Fox River in
Wisconsin on the National Priorities List under CERCLA and has
identified WT as a PRP.

Except for the Fox River matter, the Company has not been
identified as a PRP at any CERCLA-related sites. However, there
can be no assurance that the Company will not be named as a PRP
at any other sites in the future, or that the costs associated
with additional sites would not be material to the Company's
financial position, results of operations, or cash flows.

In June 1994, the United States Department of Interior, Fish and
Wildlife Service ("FWS"), a federal natural resources trustee,
notified WT that it had identified WT and four other companies
located along the lower Fox River in northeast Wisconsin as PRPs
for purposes of natural resources liability under CERCLA arising
from alleged releases of polychlorinated biphenyls ("PCBs") in
the Fox River and Green Bay System. Two other companies
subsequently received similar notices from the FWS. The FWS and
other governmental and tribal entities, including the State of
Wisconsin, allege that natural resources, including endangered
species, fish, birds, tribal lands, or lands held by the United
States in trust for various Indian tribes, have been exposed to
PCBs that were released from facilities located along the lower
Fox River. The FWS is proceeding with a natural resource damage
assessment with respect to the alleged discharges. On January 31,
1997, the FWS notified WT of its intent to file suit, subject to
final approval by the Department of Justice, against WT to
recover alleged natural resource damages. WT and other PRPs are
engaged in discussions with the parties asserting trusteeship of
the natural resources concerning the damage assessment and the
basis for resolution of the natural resource damage claims.

WT and other PRPs are also engaged in discussions with the State
of Wisconsin with respect to resolving possible state claims
concerning remediation, restoration, and natural resource damages
related to the alleged discharge of PCBs into the Fox River and
Green Bay System. Under an interim agreement with the State of
Wisconsin, the PRPs are providing funds for an interim phase of
resource damage assessment and restoration work. WT's
obligation under the agreement is not material to the Company's
financial position, results of operations, or cash flows.

On June 18, 1997, the EPA announced that it was initiating the
process of listing the lower Fox River on the CERCLA National
Priorities List of hazardous waste sites. The EPA identified
several PRPs including WT. The EPA and the State of Wisconsin are
proceeding with a remedial investigation/feasibility study of the
lower Fox River site.
                              -23-
The ultimate cost to WT, if any, associated with these matters
cannot be predicted with certainty at this time due to the
inability to determine the outcome of pending settlement
discussions or, if a settlement cannot be reached, WT's share of
any multi-party clean-up expenses; the uncertain extent of any
contamination; the varying costs of alternative restoration
methods; the evolving nature of clean-up technologies and
governmental regulations; the lack of controlling legal
precedent; the extent to which contribution will be available
from other parties; and the scope of potential recoveries from
insurance carriers and prior owners of WT. Based on presently
available information, the Company believes that there are
additional parties, some of which may have substantial resources,
that may also be identified as PRPs with respect to this matter
and could be expected to participate in any final settlement. The
Company believes that it is entitled to indemnification from a
prior owner of WT, pursuant to a stock purchase agreement between
the parties, with respect to liabilities related to this matter.
The prior owner has reimbursed WT for out-of-pocket costs and
attorneys' fees related to investigation of the matter. The
Company believes that the prior owner intends to, and has the
financial ability to, honor its indemnification obligation under
the stock purchase agreement.

The EPA has stated its intent to develop additional draft rules
under the Clean Water Act and the Clean Air Act, which would
impose new air and water quality standards for pulp and paper
mills (the "Cluster Rules"). The eventual capital cost impact on
the Company of compliance with the additional Cluster Rules is
not presently determinable and will depend on a number of
factors, including the scope of the standards imposed and time
permitted for compliance; the Company's strategic decisions
related to compliance, including potential changes in product mix
and market; and development in compliance technology.

In March 1998, WT's Chicago, IL, tissue mill received a Notice of
Violation from EPA alleging violation of the Illinois State
Implementation Plan as adopted pursuant to the Clean Air Act. The
alleged violation involves the emission of volatile organic
material. WT is in the process of negotiating a possible
resolution of the alleged violation with EPA. The ultimate cost
to WT, if any, associated with the alleged violation cannot be
determined with certainty at this time due to the absence of a
determination that there has been a violation, and, if a
violation is found to have occurred, a determination of the
appropriate capture and control techniques or other corrective
action and the cost thereof, and the amount of any penalties


                              -24-
imposed by EPA. WT believes that it is entitled to significant
indemnification for any costs or expenses incurred with regard
to this matter from the prior owner of the Chicago mill and that
the prior owner has the financial ability to honor its
indemnification obligation.

On July 17, 1998, WT's Menasha, WI, tissue mill received a Notice
of Violation from the Wisconsin Department of Natural Resources
("WDNR") alleging violations involving emission of volatile
organic compounds and reporting requirements. WT has resolved the
alleged violations by agreement with WDNR without a finding that
violations occurred and without significant financial or
operational effects on WT.

Other Litigation

The Company is a party to various legal actions, including those
which are ordinary and incidental to its business. See Note 10 to
the consolidated financial statements.

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" and words or
phrases of similar import. Changes in the following important
factors, among others, could cause Chesapeake's 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 waste paper and
corrugated box and display materials; fluctuations in demand;
governmental policies and regulations affecting the environment;
interest rates; currency translation movements; Year 2000
compliance issues; and other risks that are detailed from time to
time in reports filed by the Company with the Securities and
Exchange Commission.







                                
                                
                                
                                
                              -25-
                REPORT OF INDEPENDENT ACCOUNTANTS




To the Stockholders and Board of Directors
Chesapeake Corporation:

In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of income, retained earnings,
and comprehensive income, and cash flows present fairly, in all
material respects, the financial position of Chesapeake
Corporation and its subsidiaries at December 31, 1998 and 1997
and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.

     As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of accounting for
certain timber reforestation costs in 1998.





                                   /s/ PricewaterhouseCoopers LLP
                                   -----------------------------
                                   PricewaterhouseCoopers LLP
                                                                 
                                                                 
                                                                 


Richmond, Virginia
February 12, 1999
                                                                 
                                                                 
                              -26-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED BALANCE SHEET
                      (Millions of Dollars)
                                
                                
                                                   December 31,
                                                   1998    1997
                                                   ----    ----
ASSETS

Current assets:
  Cash and cash equivalents                      $ 62.4  $ 73.3
  Accounts receivable, net                        127.6   111.8
  Inventories                                     102.7    98.8
  Deferred income taxes                            12.4    17.8
  Other                                             8.3     6.6
                                                 ------  ------
     Total current assets                         313.4   308.3
                                                 ------  ------

Property, plant, and equipment:
  Plant sites and buildings                       167.6   160.6
  Machinery and equipment                         692.1   632.7
  Construction in progress                         12.7    25.3
                                                 ------  ------
                                                  872.4   818.6
  Less accumulated depreciation                   385.9   350.1
                                                 ------  ------
                                                  486.5   468.5

  Timber and timberlands(less accumulated cost
     of timber harvested of $33.9 and $25.5)       56.7    39.8
                                                 ------  ------
     Net property, plant, and equipment           543.2   508.3
                                                 ------  ------
Goodwill(less accumulated amortization of
     $18.7 and $16.4)                              50.3    44.0
                                                 ------  ------
Other assets                                       72.5    61.3
                                                 ------  ------
                                                 $979.4  $921.9
                                                 ======  ======









                              -27-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
              CONSOLIDATED BALANCE SHEET, Continued
            (Millions of dollars, except share data)


                                                   December 31,
                                                   1998    1997
                                                   ----    ----
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                               $ 57.4  $ 52.1
  Accrued expenses                                 89.7    83.4
  Current maturities of long-term debt              5.8      .6
  Dividends payable                                 4.7     4.3
  Income taxes payable                                -     1.9
                                                 ------  ------
     Total current liabilities                    157.6   142.3
                                                 ------  ------
Long-term debt                                    270.4   264.3
                                                 ------  ------
Other long-term liabilities                        16.3     5.8
                                                 ------  ------
Postretirement benefits other than pensions        19.5    19.1
                                                 ------  ------
Deferred income taxes                              74.3    67.3
                                                 ------  ------

Stockholders' equity:
  Common stock, $1 par value; authorized,
     60 million shares; outstanding,21.4 million
     and 21.3 million shares                       21.4    21.3
  Additional paid-in capital                       20.0    24.7
  Accumulated other comprehensive income(loss)     (8.7)   (1.7)
  Retained earnings                               408.6   378.8
                                                 ------  ------
     Total stockholders' equity                   441.3   423.1
                                                 ------  ------
                                                 $979.4  $921.9
                                                 ======  ======


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







                              -28-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      CONSOLIDATED STATEMENT OF INCOME, RETAINED EARNINGS,
                    AND COMPREHENSIVE INCOME
              (In millions, except per share data)
                                
                                   For the years ended December 31,
                                       1998      1997      1996
                                       ----      ----      ----
Income:
Net sales                            $950.4  $1,021.0  $1,158.6
Costs and expenses:
  Cost of products sold               679.8     749.8     843.0
  Depreciation and cost of timber
     harvested                         59.7      72.3      87.1
  Selling, general, and
     administrative expenses          132.9     160.5     154.2
  Restructuring/special charges        11.8      18.9         -
                                     ------  --------  --------
  Income from operations               66.2      19.5      74.3
  Gain on sale of businesses              -      86.3         -
Other income, net                       8.5       1.4       6.7
                                     ------  --------  --------
  Income before interest, taxes,
     cumulative effect of accounting
     change, and extraordinary item    74.7     107.2      81.0
Interest expense, net                 (18.9)    (22.0)    (33.9)
                                     ------  --------  --------
  Income before taxes, cumulative
     effect of accounting change, and
     extraordinary item                55.8      85.2      47.1
Income taxes                           21.8      34.3      17.0
                                     ------  --------  --------
  Income before cumulative effect of
     accounting change and
     extraordinary item                34.0      50.9      30.1
Cumulative effect of accounting
  change, net of income taxes of $8.4  13.3         -         -
Extraordinary item, net of income
  taxes of $1.7                           -      (2.3)        -
                                     ------  --------  --------
  Net income                         $ 47.3  $   48.6  $   30.1
                                     ======  ========  ========









                              -29-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      CONSOLIDATED STATEMENT OF INCOME, RETAINED EARNINGS,
               AND COMPREHENSIVE INCOME, Continued
              (In millions, except per share data)
                                
                                   For the years ended December 31,
                                       1998      1997      1996
Basic earnings per share:              ----      ----      ----
  Earnings before cumulative effect
     of accounting change and
     extraordinary item              $ 1.60  $   2.20  $   1.28
  Cumulative effect of accounting
     change, net of income taxes        .63         -         -
  Extraordinary item, net of income
     taxes                                -      (.10)        -
                                     ------  --------  --------
  Basic earnings per share           $ 2.23  $   2.10  $   1.28
                                     ======  ========  ========
Diluted earnings per share:
  Earnings before cumulative effect
     of accounting change and
     extraordinary item              $ 1.57  $   2.18  $   1.27
  Cumulative effect of accounting
     change, net of income taxes        .62         -         -
  Extraordinary item, net of income
     taxes                                -      (.10)        -
                                     ------  --------  --------
  Diluted earnings per share         $ 2.19  $   2.08  $   1.27
Retained earnings:                   ======  ========  ========
Balance, beginning of year           $378.8  $  348.5  $  337.2
Net income                             47.3      48.6      30.1
Cash dividends declared per share,
  $0.82 in 1998, $0.80 in 1997 and
  1996                                (17.5)    (18.3)    (18.8)
                                     ------  --------  --------
Balance, end of year                 $408.6  $  378.8  $  348.5
Comprehensive income:                ======  ========  ========
Net income                           $ 47.3  $   48.6  $   30.1
Other comprehensive income (loss),
 net of income taxes:
  Minimum pension liability (net of
     tax expense of $3.4 in 1998)      (5.7)        -         -
  Foreign currency translation (net
     of tax expense of $0.9 and $1.1
     in 1998 and 1997 respectively)    (1.3)     (1.7)        -
                                     ------  --------  --------
Comprehensive income                 $ 40.3  $   46.9  $   30.1
                                     ======  ========  ========
The accompanying Notes to Consolidated Financial Statements are
an integral part of the financial statements.

                              -30-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
              CONSOLIDATED STATEMENT OF CASH FLOWS
                      (Millions of dollars)
                                
                                   For the years ended December 31,
                                       1998      1997      1996
                                       ----      ----      ----
Operating activities:
  Net income                          $47.3     $48.6     $30.1
  Adjustments to reconcile net income
     to net cash provided by (used in)
     operating activities:
      Depreciation, cost of timber
      harvested, and amortization of
      intangibles                      62.3      75.8      90.2
     Deferred income taxes              9.2     (59.8)      7.8
     (Gains) losses on sales of
     property, plant, and equipment,net (.6)      (.2)      0.5
     Gain on sale of businesses           -     (86.3)        -
     Restructuring/special charges     11.8      18.9         -
     Cumulative effect of accounting
      change                          (21.7)        -         -
     Changes in operating assets and
      Liabilities, net of acquisitions
      and dispositions:
       Accounts receivable, net       (13.0)     (6.3)     12.8
       Inventories                      4.5      (2.6)    (10.8)
       Other assets                   (17.2)    (27.7)     (5.0)
       Accounts payable and accrued
        expenses                        6.9       4.9       6.9
       Income taxes payable            (2.2)      1.2      (2.8)
       Other payables                   3.1       2.1       1.5
                                      -----     -----     -----
     Net cash provided by (used in)
     operating activities              90.4     (31.4)    131.2
                                      -----     -----     -----
Investing activities:
  Purchases of property, plant, and
   equipment                          (73.3)    (68.2)   (128.8)
  Acquisitions                        (18.1)        -     (47.2)
  Proceeds from sales of property,
   plant, and equipment                 2.8       1.7       3.3
  Proceeds from sale of businesses        -     491.0         -
  Other                                 1.6         -         -
                                      -----     -----     -----
     Net cash (used in) provided by
     investing activities             (87.0)    424.5    (172.7)
                                      -----     -----     -----



                              -31-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
         CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
                      (Millions of dollars)
                                
                                   For the years ended December 31,
                                       1998      1997      1996
                                       ----      ----      ----
Financing activities:
  Net borrowings (payments) on
   credit lines                         7.7    (179.0)     84.7
  Payments on long-term debt           (1.8)    (66.7)    (15.2)
  Proceeds from long-term debt           .7       8.5      11.5
  Proceeds from issuances of common
   stock                                1.3       1.5       0.1
  Purchases of outstanding common
   stock                               (6.9)    (79.4)    (16.0)
  Dividends paid                      (17.1)    (18.7)    (18.9)
  Other                                 1.8       4.2      (0.1)
                                      -----     -----     -----
     Net cash (used in) provided by
     financing activities             (14.3)   (329.6)     46.1
                                      -----     -----     -----
     (Decrease) increase in cash and
     cash equivalents                 (10.9)     63.5       4.6

  Cash and cash equivalents at
   beginning of year                   73.3       9.8       5.2
                                      -----     -----     -----
  Cash and cash equivalents at
   end of year                        $62.4     $73.3     $ 9.8
                                      =====     =====     =====



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

                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                              -32-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
           Notes to Consolidated Financial Statements
                                
1. Summary of Significant Accounting Policies

   a. Principles of Consolidation: The consolidated financial
statements include the accounts and operations of Chesapeake
Corporation and all of its subsidiaries (the "Company"). All
significant intercompany accounts and transactions are
eliminated. Certain prior-year amounts have been reclassified
to conform to current presentations.
   b. Cash and Cash Equivalents: Cash and cash equivalents
include highly liquid, temporary cash investments with original
maturities of three months or less.
   c. Inventories: Inventories are valued at the lower of cost or
market. The cost of certain product and manufacturing materials
inventories is determined by the last-in, first-out (LIFO)
method. The cost of other inventories is determined principally
by the average cost method.
   d. Property, Plant, and Equipment: Property, plant, and
equipment, except timber and timberlands, are stated at cost.
Timber and timberlands are stated at cost net of the accumulated
cost of timber harvested. The costs of major rebuilds and
replacements of plant and equipment are capitalized, and the
costs of ordinary maintenance and repairs are charged to income
as incurred. The costs of software developed or obtained for
internal use are capitalized in accordance with SOP 98-1,
"Accounting for Computer Software Developed or Obtained for
Internal Use." When properties are sold or retired, their costs
and the related accumulated depreciation are removed from the
accounts, and the gains or losses are reflected in income.
Long-lived assets are periodically reviewed for impairment based
on evaluation of expected future undiscounted cash flows.
Depreciation for financial reporting purposes is computed
principally by the straight-line method, based on the following
estimated useful asset lives:

 Buildings and improvements   10 - 40 years
 Machinery and equipment       5 - 20 years
 Furniture and fixtures        3 - 10 years

In the fourth quarter of 1998, the Company changed its accounting
policy to capitalize certain timber reforestation costs that were
previously expensed in order to achieve a better matching of
these costs with the revenues realized from the eventual
harvesting of timber. The Company believes that this change is
more consistent with industry practice and is preferable under
the circumstances in which the Company now
operates its forest products business. Costs related to pre-


                              -33-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
1. Summary of Significant Accounting Policies, Continued
                                
merchantable and merchantable timber that are now capitalized
include a portion of real estate taxes, insect control,
fertilization, and salaries and fringe benefits for certain land
management personnel.

The new capitalization policy was applied retroactively as of
January 1, 1998, and resulted in restating first quarter 1998
results for the cumulative effect of the accounting change
through December 31, 1997. This restatement increased 1998 net
income by $13.3 million (net of an $8.4 million reduction for
income taxes), or $.62 per diluted share. Implementation of the
new accounting method increased 1998 earnings before the
cumulative effect of the accounting change by approximately
$.7 million, or $.03 per diluted share.

Pro forma amounts, assuming the change in accounting was applied
retroactively, are:

(In millions except per share data)      1998      1997    1996
                                         ----      ----    ----
Income before
  extraordinary item                    $34.0     $51.7   $30.9
Net income                               34.0      49.4    30.9
Basic earnings per share:
  Earnings before
     extraordinary item                 $1.60     $2.23   $1.31
  Earnings                               1.60      2.13    1.31
Diluted earnings per share:
  Earnings before
     extraordinary item                 $1.57     $2.21   $1.30
  Earnings                               1.57      2.11    1.30
                                        -----     -----   -----

   e. Cost of Timber Harvested: Cost of timber harvested is
computed on quantities cut from individual Company-owned tracts
based on costs and estimated volumes of recoverable timber.
   f. Income Taxes: The Company recognizes deferred income taxes
for temporary differences between the financial reporting basis
and income tax basis of assets and liabilities.
   g. Earnings Per Share ("EPS"): Basic EPS is calculated using
the weighted average number of outstanding common shares for the
period, which were 21,202,801 in 1998; 23,148,978 in 1997; and
23,527,594 in 1996. Diluted EPS reflects the potential dilution
that could occur if securities are exercised or converted into


                              -34-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
1. Summary of Significant Accounting Policies, Continued

common stock or result in the issuance of common stock that would
then share in earnings. Shares used in the diluted
EPS calculation were 21,567,908 in 1998; 23,360,129 in 1997; and
23,644,843 in 1996.
   h. Stock-Based Compensation: The Company uses the intrinsic-
value-based method of accounting for its stock options plans as
permitted by SFAS No. 123. Under the intrinsic-value-based
method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock.
   i. Goodwill: The cost in excess of the estimated fair value of
identifiable assets of acquired businesses is being amortized on
a straight-line basis over 40 years or less. The Company reviews
goodwill annually for impairment by comparing the carrying amount
to estimated future undiscounted cash flows. If this review
indicates that goodwill is not recoverable, the
carrying amount is reduced to fair value. During 1997, goodwill
was reduced by $5.5 million for restructuring write-offs and by
$5.4 million due to sales of businesses.
   j. Risks and Uncertainties: Chesapeake operates in three
business segments - Tissue, Specialty Packaging, and Forest
Products/Land Development. The Company is not dependent on any
single customer, group of customers, market, geographic area, or
supplier of materials, labor, or services. Financial statements
include, where necessary, amounts based on the judgments and
estimates of management. These estimates include allowances for
bad debts, accruals for landfill closing costs, environmental
remediation costs, loss contingencies for litigation, self-
insured medical and workers compensation insurance, income taxes,
and determinations of discount and other rate assumptions for
pension and post-retirement benefit expenses. Actual results
could differ from these estimates.
   k. Fair Value of Financial Instruments and Risk
Concentrations: The carrying amounts of temporary cash
investments, trade receivables, and trade payables approximate
fair value because of the short maturities of the instruments.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary
cash investments and trade receivables. The Company places its
temporary cash investments in high quality financial instruments
and, by policy, limits the amounts of credit exposure related to
any one instrument. Concentrations of credit risk in regard to
trade receivables are limited due to the large number of
customers and their dispersion across different industries and


                              -35-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
1. Summary of Significant Accounting Policies, Continued

geographic areas. The Company had no material derivative
instruments or transactions outstanding as of the end of 1998.
   l. New Accounting Standards: The Financial Accounting
Standards Board recently issued a new pronouncement regarding
derivatives. The accounting for this standard is not expected
to have a material impact on the Company's financial statements.
   m. Foreign Currencies: Assets and liabilities are translated
at the exchange rate in effect at each year-end. Revenues and
expenses are translated at the average rates of exchange
prevailing during the year. Gains and losses resulting from
foreign currency transactions are included in income currently.
   n. Research and Development: The costs associated with
research and development are not significant and are expensed as
incurred.

2. Acquisitions and Divestitures

On November 20, 1998, Chesapeake Corporation acquired all of the
outstanding capital stock of Capitol Packaging Corporation, a
specialty packaging company located in Denver, CO.

On February 2, 1998, Chesapeake Packaging Co. purchased
substantially all of the assets, and assumed certain liabilities,
of Rock City Box Co., Inc., located in Utica, NY. This operation
manufactures corrugated containers, trays, and pallets, as well
as wood and foam packaging products.

Both acquisitions were accounted for using the purchase method of
accounting. Accordingly, the operating results of the acquired
companies have been included in the Company's financial
statements since their respective dates of acquisition.

The purchase prices have been allocated to the assets acquired
and liabilities assumed based on their estimated market values at
the respective dates of acquisition. The purchase prices for the
acquired companies exceeded the fair value of net assets acquired
by approximately $8.8 million, which is being amortized on a
straight line basis over 40 years. The pro forma effects of these
acquisitions on the company's results of operations and financial
position are not material.

On May 23, 1997, the Company completed the sale to St. Laurent
(U.S.), a wholly-owned subsidiary of St. Laurent Paperboard Inc.
("St. Laurent")(Toronto and Montreal: SPI), of: (i) the sole
membership interest in Chesapeake Paper Products Company LLC

                              -36-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

2. Acquisitions and Divestitures, Continued
                                
(successor to Chesapeake Paper Products Company), a wholly-owned
subsidiary of the Company which, as of the closing date, owned
and operated the Company's kraft products mill located in West
Point, VA; (ii) all of the capital stock of Chesapeake Box
Company which, as of the closing date, owned and operated
directly or through a subsidiary substantially all of the assets
of four of the Company's corrugated box plants; and (iii) all of
the capital stock of Chesapeake Fiber Company which, as of the
closing date, owned and operated directly or through a subsidiary
certain assets related to the West Point Mill's wood procurement
operations. The four box plants involved in the
transaction are located in Richmond, VA; Roanoke, VA; Baltimore,
MD; and North Tonawanda, NY.

The purchase price of approximately $500 million was paid in cash
at closing, with a post-closing adjustment of approximately $10
million paid to the buyer. The transaction resulted in an after-
tax gain for Chesapeake of $49.1 million, or $2.07 a share, which
was recorded in the second quarter of 1997.  Chesapeake used
approximately $250 million of the net after-tax proceeds to
reduce debt and $79 million of the net after-tax
proceeds to repurchase its common stock.

Chesapeake retained ownership of its 325,000 acres of timberlands
following the transaction, and entered into a 15-year agreement
with St. Laurent Forest Products Corp., a wholly-owned subsidiary
of St. Laurent (U.S.), to supply the West Point Mill with a
substantial portion of its virgin fiber requirements at market
prices. St. Laurent Paper Products Corp. and St. Laurent
Packaging Corp., each wholly-owned subsidiaries of St. Laurent
(U.S.), entered into five-year agreements with Chesapeake to
supply Chesapeake's remaining packaging operations with a portion
of their linerboard, corrugating medium, and corrugated sheet
requirements.

Chesapeake has agreed to indemnify St. Laurent and St. Laurent
(U.S.) against losses incurred by them which are attributable to
certain breaches of representations, warranties or covenants made
by Chesapeake in the Purchase Agreement, provided notice is given
to Chesapeake within the applicable survival periods specified
therein.





                              -37-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

3. Inventories

Year-end inventories consist of:

(In millions)                                      1998    1997
                                                   ----    ----
Finished goods                                   $ 34.5   $26.7
Work in process                                    27.0    36.2
Materials and supplies                             41.2    35.9
                                                 ------   -----
Totals                                           $102.7   $98.8
                                                 ======   =====

Inventories determined by the LIFO method, included in the
preceding chart, totaled (in millions) $42.3 for 1998 and $46.0
for 1997, or $1.8 and $5.3 less than the respective amounts of
such inventories stated at the lower of cost or market.

4. Long-Term Debt

Long-term debt at year-end consists of:

(In millions)                                      1998    1997
                                                   ----    ----
Notes payable - banks (unsecured):
   Credit lines, interest 3.62% to 6.75%         $ 16.4   $ 8.7
   Term loan, interest 5.15%, due 2002              8.9     8.3
Unsecured notes:
   10.375% notes, due 2000                         55.0    55.0
   9.875% notes, due 2003                          33.6    33.6
   7.20% notes, due 2005                           85.0    85.0
Industrial development authority
   obligations:
      5.04% to 6.875% notes, due 1999-2003          8.2     8.3
      6.25% to 6.375% notes, due 2019              50.0    50.0
      5.55% notes, due 2021                        10.0    10.0
Other debt                                          9.1     6.0
                                                 ------  ------
   Totals                                         276.2   264.9
Less current maturities                             5.8      .6
                                                 ------  ------
                                                 $270.4  $264.3
                                                 ======  ======

Principal payments on long-term debt (excluding credit lines and
capital leases) for the next five years are (in millions): 1999
$3.8; 2000 $55.9; 2001 $0.9; 2002 $9.7; and 2003 $34.4.

                              -38-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

4. Long-Term Debt, Continued

The Company maintains credit lines with several banks,
domestically and internationally, maturing in 2000-2002, under
which it can borrow up to $69 million. Nominal facility fees are
paid on the credit lines. Other lines of credit totaling $65
million are maintained with several banks on an uncommitted
basis. See Note 14 "Subsequent Events" in regards to a new credit
facility incurred in connection with the purchase of Field Group
plc.

Certain loan agreements include provisions permitting the holder
of the debt to require the Company to repurchase all or a portion
of such debt outstanding upon the occurrence of specified events
involving a change of control or ownership. In addition, various
loan agreements contain provisions that restrict the disposition
of certain assets, require the Company to maintain a ratio of
long-term debt to total capital not in
excess of 60% and to meet an annual cash flow test.

During 1997, the Company used proceeds from the sale of
businesses to reduce credit line borrowings by $179.0 million and
long-term debt by $66.7 million. The reduction of long-term debt
included open market repurchases of debt that resulted in an
extraordinary loss of $2.3 million after tax.

There was no interest capitalized in 1998. Interest expense is
net of capitalized interest of $0.2 million and $0.3 million for
1997 and 1996, respectively.

The Company has estimated the fair value of long-term debt for
1998 to be $285.7 million, or 6% higher than the book value of
$270.4 million. For 1997, the Company estimated the fair value of
long-term debt to be $282.8 million, or 7% higher than the book
value of $264.3 million. The fair value is based on the quoted
market prices for similar issues or current rates offered for
debt of the same or similar maturities.











                              -39-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
5. Income Taxes

The provision for income taxes consists of:

(In millions)                            1998      1997    1996
                                         ----      ----    ----
Currently payable:
   Federal                              $17.9     $85.7   $ 9.4
   State                                    -       8.6    (0.2)
   Foreign                               (0.3)      0.1       -
                                        -----     -----   -----
   Total current                         17.6      94.4     9.2
                                        -----     -----   -----
Deferred:
   Federal                                3.5     (52.9)    7.4
   State                                  0.3      (7.1)    1.1
   Foreign                                0.4      (0.1)   (0.7)
                                        -----     -----   -----
   Total deferred                         4.2     (60.1)    7.8
                                        -----     -----   -----
   Total income taxes                   $21.8     $34.3   $17.0
                                        =====     =====   =====

Significant components of the year-end deferred income tax assets
and liabilities are:

(In millions)                                      1998    1997
                                                   ----    ----
Postretirement medical benefits                  $  7.5  $  7.2
Workers compensation accruals                       2.2     3.3
Obsolete inventory accruals                         1.3     0.9
Tax carryforward benefits                           3.8     3.9
Foreign tax carryforward losses                     3.3     1.2
Valuation allowance                                (5.1)   (3.8)
Other                                              11.8    15.5
                                                 ------  ------
   Deferred tax assets                             24.8    28.2
                                                 ------  ------
Accumulated depreciation/depletion                (81.6)  (70.1)
Pension accruals                                   (2.7)   (6.3)
Other                                              (2.4)   (1.3)
                                                 ------  ------
   Deferred tax liabilities                       (86.7)  (77.7)
                                                 ------  ------
   Net deferred taxes                            $(61.9) $(49.5)
                                                 ======  ======


                              -40-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
5. Income Taxes, Continued

The valuation allowance primarily relates to state income tax
credit carryforwards that expire from 2001 through 2010.

The differences between the Company's effective income tax rate
and the statutory federal income tax rate are:


                                         1998      1997    1996
                                         ----      ----    ----
Federal income tax rate                 35.0%     35.0%   35.0%
State income tax, net of
   federal income tax benefit             0.2       0.8     1.2
Goodwill and other purchase
   accounting adjustments                 0.7       4.7     1.1
Foreign losses not benefited              3.4       0.6     1.5
Other, net                               (0.2)     (0.8)   (2.7)
                                        -----     -----   -----
Consolidated effective income
   tax rate                              39.1%     40.3%   36.1%
                                        =====     =====   =====

The Company's intention is to permanently reinvest the
undistributed earnings of its foreign subsidiaries, thus no
United States income taxes have been provided.

6. Employee Retirement and Postretirement Benefits

The Company maintains several noncontributory defined benefit
retirement plans covering substantially all U.S. and foreign
employees. Pension benefits are based primarily on the employees'
compensation and/or years of service. Annual pension costs are
actuarially determined. The net periodic cost includes
amortization of prior service costs over periods of the greater
of 15 years or the average remaining employee service period.

The Company also provides certain health care and life insurance
benefits to certain hourly and salaried employees who retire
under the provisions of the Company's retirement plans. The
Company does not pre-fund these benefits.

The tables below, based on actuarial valuations as of October 1,
1998 and 1997, provide a reconciliation of the changes in the
plans' benefit obligations and fair values of assets over the two-
year period ending December 31, 1998, and a Statement of the
funded status as of December 31 of each year.

                              -41-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
6. Employee Retirement and Postretirement Benefits, Continued
   
   Postretirement
                                  Pensions       Benefits Other
                                  Benefits       Than Pensions
                               --------------    --------------
(In millions)                  1998      1997      1998    1997
                               ----      ----      ----    ----
Reconciliation of
benefit obligation
Benefit obligation at
   January 1                 $102.8    $138.1    $ 21.2  $ 29.8
Service cost                    3.6       4.0       0.7     1.1
Interest cost                   7.3       8.3       1.5     1.8
Plan participants'
   contributions                0.1       0.1       0.1     0.1
Amendments                      0.8       2.1         -       -
Actuarial gain                 11.4       8.1       0.2     0.5
Curtailments                   (0.1)    (12.6)        -    (9.8)
Settlements                       -     (43.9)        -       -
Special termination
   benefits                     1.2       3.4         -       -
Benefits paid                  (6.4)     (4.8)     (1.8)   (2.3)
                             ------    ------    ------  ------
Benefit obligation at
   December 31                120.7     102.8      21.9    21.2
                             ------    ------    ------  ------
Reconciliation of fair
value of plan assets
Fair value of plan assets
   at beginning of year       113.3     160.1         -       -
Actual return on
   plan assets                    -      29.7         -       -
Employer contributions          3.9       1.9       1.7     2.2
Plan participants'
   contributions                0.1       0.1       0.1     0.1
Settlements                       -     (73.7)        -       -
Benefits paid                  (6.4)     (4.8)     (1.8)   (2.3)
                             ------    ------    ------  ------
Fair value of plan assets
   at end of year             110.9     113.3         -       -
                             ------    ------    ------  ------






                              -42-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
6. Employee Retirement and Postretirement Benefits, Continued


Funded status
Funded status at
   December 31                 (9.8)     10.6     (21.9)  (21.2)
Unrecognized actuarial
   loss                        19.6       0.1       2.4     2.1
Unrecognized transition
   obligation                  (3.1)     (3.8)        -       -
Unrecognized prior
   service cost                 5.5       5.0         -       -
Contribution made
   between measurement
   date and fiscal year end     0.5       0.4         -       -
                             ------    ------    ------  ------
Net amount recognized        $ 12.7    $ 12.3    $(19.5) $(19.1)
                             ======    ======    ======  ======

The following table provides the amounts recognized in the
statement of financial position as of December 31 of each year:

                                                 Postretirement
                                  Pensions       Benefits Other
                                  Benefits       Than Pensions
                               --------------    --------------
(In millions)                  1998      1997      1998    1997
                               ----      ----      ----    ----
Prepaid benefit cost          $23.6     $23.8    $    -  $    -
Accrued benefit liability     (23.7)    (16.9)    (19.5)  (19.1)
Intangible asset                3.7       5.4         -       -
Accumulated other
   comprehensive income         9.1         -         -       -
                              -----     -----    ------  ------
Net amount recognized         $12.7     $12.3    $(19.5) $(19.1)
                              =====     =====    ======  ======
Certain pension plans have accumulated benefit obligations in
excess of plan assets. The accumulated benefit obligation for
these plans was $51.1 million at the end of 1998 and $43.7
million at the end of 1997. The fair value of the plan assets
related to these plans was $24.3 million at the end of 1998 and
$23.7 million at the end of 1997. Postretirement benefit
obligations have no plan assets. The aggregate benefit obligation
for those plans was $21.9 million at the end of 1998 and $21.2
million at the end of 1997.


                              -43-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
6. Employee Retirement and Postretirement Benefits, Continued

The following table provides the components of net periodic cost
for the plans for 1998 and 1997:
                                                 Postretirement
                                  Pensions       Benefits Other
                                  Benefits       Than Pensions
                               --------------    --------------
(In millions)                  1998      1997      1998    1997
                               ----      ----      ----    ----
Service cost                   $3.6      $4.0      $0.7    $1.1
Interest cost                   7.3       8.3       1.5     1.8
Expected return on
   plan assets                 (9.0)    (10.7)        -       -
Amortization of
   unrecognized transition
   obligation or asset         (0.7)     (1.0)        -       -
Prior service cost recognized   0.5       0.4         -       -
Recognized actuarial loss       0.6       0.2         -       -
                               ----      ----      ----    ----
Net periodic benefit cost       2.3       1.2       2.2     2.9
Loss due to curtailment         1.2       4.4         -       -
                               ----      ----      ----    ----
Net periodic benefit cost
   after curtailments          $3.5      $5.6      $2.2    $2.9
                               ====      ====      ====    ====

Net periodic benefit costs for 1996 were $1.1 million for pension
benefits and $3.2 million for postretirement benefits other than
pensions.

During 1998, Wisconsin Tissue Mills Inc. ("WT") implemented an
enhanced retirement program for certain salaried employees, which
resulted in a pre-tax charge of approximately $1.2 million
related to pension plans.

During 1997, WT implemented an enhanced retirement program for
certain hourly employees, which resulted in a pre-tax charge of
approximately $1.3 million related to pension plans and a $.3
million service cost related to postretirement benefits.

During 1997, Chesapeake sold the West Point Mill, four box
plants, and other related assets to St. Laurent (U.S.). This
transaction resulted in a pre-tax charge of approximately $11.0
million related to pension settlement, offset in part by a pre-
tax curtailment gain of approximately $10.0 million. This


                              -44-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
6. Employee Retirement and Postretirement Benefits, Continued
                                
transaction also resulted in a decrease in the postretirement
benefit liability and pre-tax curtailment gain of $9.8 million.

Assumptions used in determining the net domestic pension credit
(based on beginning-of-the-year assumptions) for 1998 and 1997,
and related pensions and postretirement benefits obligations
(based on year-end assumptions) as of October 1 were:

                                                Postretirement
                                Pensions        Benefits Other
                                Benefits         Than Pensions
                            ----------------   ----------------
                           1998   1997  1996  1998  1997   1996
                           ----   ----  ----  ----  ----   ----
Discount rate              6.75% 7.25%  7.75% 6.75% 7.25% 7.75%
Expected return
   on plan
   assets                  9.50% 9.25%  9.25%   N/A   N/A   N/A
Rate of
   compensation
   increase                4.75% 4.75%  4.75% 4.75% 4.75% 4.75%
                           ===== =====  ===== ===== ===== =====

For measurement purposes, an 8% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
1998. The rate was assumed to decrease gradually each year to a
rate of 4.75% for 2004 and remain at that level thereafter.

In regards to postretirement benefits, a 1% change in assumed
health care cost trend rates would have the following effects:

(In millions)                     1% Increase   1% Decrease
                                  -----------   -----------
Effect on total of service
   and interest cost                  $0.1         $(0.1)
Effect on postretirement
   benefit obligation                  1.0          (0.9)
                                      ====         ======








                              -45-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

7. Capital Stock and Additional Paid-In Capital

Changes in common stock and additional paid-in capital during
1996, 1997, and 1998 were:
                                     Common Stock
                                ----------------------
                                                        Additional
(Dollar amounts                              Aggregate   Paid-In
in millions)                       Shares    Par Value   Capital
                                  -------    ------------------
Balances,
   January 1, 1996               23,792,433     $23.8    $107.3
Issuances of shares for
   employee stock plans             195,748       0.2       5.3
Purchases of shares               (590,044)      (0.6)    (15.4)
                                 ----------     -----    ------
Balances,
   December 31, 1996             23,398,137      23.4      97.2
Issuances of shares for
   employee stock plans             253,232        .2       6.3
Purchases of shares              (2,321,138)     (2.3)    (77.1)
Other                                     -         -      (1.7)
                                 ----------     -----    ------
Balances,
   December 31, 1997             21,330,231      21.3      24.7
Issuances of shares for
   employee stock plans             306,454        .3      10.0
Purchases of shares               (197,300)       (.2)     (6.7)
Other                                     -         -      (8.0)
                                 ----------     -----    ------
Balances,
   December 31, 1998             21,439,385     $21.4    $ 20.0
                                 ==========     =====    ======

During 1998, in accordance with board of directors
authorizations, the Company repurchased and immediately retired
197,300 shares of its common stock for an aggregate purchase
price of $6.9 million.

In addition to its common stock, the Company's authorized capital
includes 500,000 shares of preferred stock ($100 par), of which
100,000 shares are designated as Series A Junior Participating
Preferred Stock ("Series A Preferred"). No preferred shares were
outstanding during the three years ended December 31, 1998.



                              -46-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

7. Capital Stock and Additional Paid-In Capital, Continued

Under the terms of a shareholder rights plan approved February
10, 1998, each outstanding share of the Company's common stock
has attached to it one preferred share purchase right, which
entitles the shareholder to buy one unit (one one-thousandth of a
share) of Series A Preferred at an exercise price of $120 per
share, subject to adjustment. The rights will separate from the
common stock and become exercisable only if a person or group
acquires or announces a tender offer for 15% or more of
Chesapeake's common stock. When the rights are exercisable,
Chesapeake may issue a share of common stock in exchange for each
right other than those held by such person or group. If a person
or group acquires 15% or more of the Company's common stock, each
right shall entitle the holder, other than the acquiring party,
upon payment of the exercise price, to acquire Series A Preferred
or, at the option of Chesapeake, common stock, having a value
equal to twice the right's purchase price. If Chesapeake is
acquired in a merger or other business combination or if 50% of
its earnings power is sold, each right will entitle the holder,
other than the acquiring person, to purchase securities of the
surviving company having a market value equal to twice the
exercise price of the rights. The rights expire on March 15,
2008, and may be redeemed by the Company at any time prior to the
tenth day after an announcement that a 15% position has been
acquired, unless such period has
been extended by the board of directors.

8. Stock Options

The 1997 Incentive Plan provides that the executive compensation
committee of the board of directors or its delegate may grant
stock options, stock appreciation rights ("SARs"), stock awards,
performance shares, or stock units and may make incentive awards
to the Company's key employees and officers. The maximum
aggregate number of shares of common stock that may be issued
under the plan is 1,169,906, plus the number of shares of common
stock surrendered in payment of all or part of the option price
of any option. In addition, the maximum aggregate number of
shares that may be covered by performance shares and that may be
issued in any calendar year as a stock award or in settlement of
stock units is 30% of the number of shares issuable under the
plan. The maximum aggregate number of shares that may be issued
pursuant to the exercise of options may not exceed the lesser of
(1) 1,100,000 shares, or (2) the sum of 5% of the outstanding
shares of common stock as of December 31, 1996, plus the number
of shares of common stock surrendered in payment of all or part

                              -47-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
8. Stock Options, Continued

of the option price of any option. No individual may be granted
or awarded, in any calendar year, options, corresponding SARs, or
SARs granted independently of options covering more than 100,000
shares of common stock in the aggregate.

Payment of the option price under the 1997 Incentive Plan may be
made by the participant in cash or by surrendering shares of
Chesapeake common stock. Up to 956,512 shares may be issued after
December 31, 1998, upon exercise of options or SARs granted under
the 1997 Incentive Plan. The board of directors has approved an
amendment to the 1997 Incentive Plan, subject to shareholder
approval at the 1999 annual meeting, that increases the number of
shares that may be issued to 1,400,000.

In 1996, the Company chose to replace the Nonemployee Director
Stock Option Plan with the Directors' Stock Option and Deferred
Compensation Plan, which provides for annual grants of stock
options each May 1, beginning May 1, 1997, and ending May 1,
2007, to nonemployee directors as a part of the directors'
compensation, in addition to their cash retainer and meeting
fees. A maximum of 350,000 shares of common stock may be issued
under the Directors' Stock Option and Deferred Compensation Plan.
The option price will be the average closing price of Chesapeake
common stock for the 20 trading days preceding the grant date.

The 1987 Stock Option Plan provided for grants to the Company's
key employees and officers of stock options and corresponding
SARs for up to 1,000,000 shares of Chesapeake's authorized but
unissued common stock and up to 200,000 SARs independent of stock
options. As of December 31, 1998, there were 139,830 shares
issuable related to options granted under this plan. With the
adoption of the 1993 Incentive Plan, awards under this plan were
discontinued.

The 1993 Incentive Plan provided for grants to the Company's key
employees and officers of stock options, SARs, stock awards,
performance shares, stock units and incentive awards for up to
the sum of 1% of the outstanding shares of common stock as of
January 1 of each calendar year during its term. As of December
31, 1998, there were 528,853 shares issuable related to options
granted under this plan. With the adoption of the 1997 Incentive
Plan, awards under this plan were discontinued.



                              -48-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
8. Stock Options, Continued

The following schedule summarizes stock option activity for the
three years ended December 31, 1998:

                                                     Weighted-
                                                      Average
                                     Number Of        Exercise
                                   Stock Options       Price
                                   -------------     ---------
Outstanding, January 1, 1996            842,400        $25.32
   Granted                              228,775         24.95
   Exercised                             16,317         20.22
   Forfeited/expired                     11,255         28.44
                                      ---------
Outstanding, December 31, 1996        1,043,603         25.28
   Granted                              226,900         33.15
   Exercised                            112,233         21.72
   Forfeited/expired                    133,073         26.20
                                      ---------
Outstanding, December 31, 1997        l,025,197         27.29
   Granted                              245,450         38.11
   Exercised                             79,866         22.75
   Forfeited/expired                     21,765         29.96
                                      ---------
Outstanding, December 31, 1998        1,169,016         29.82
                                      =========
Exercisable:
   December 31, 1996                    616,252
   December 31, 1997                    635,814
   December 31, 1998                    746,831
Weighted-average fair value of
   options granted during the year
   1996                                   $6.78
   1997                                   $9.18
   1998 $10.36
   
   
   
   
   
   
   
   
   
   

   
                              -49-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
   Notes to Consolidated Financial Statements, Continued
   
8. Stock Options, Continued
   
Information  about options outstanding at December 31,  1998,  is
summarized below:

            Options Outstanding             Options Exercisable
---------------------------------------------------------------
                           Weighted
                           Average   Weighted           Weighted
  Range of                Remaining  Average            Average
  Exercise      Number   Contractual Exercise   Number  Exercise
   Prices    Outstanding Life(Years)  Price  Exercisable Price
  --------   ----------- ----------- --------------------------
$15.00-$20.00   123,160       3.6     $19.21    123,160  $19.21
$20.00-$25.00   268,750       5.6      23.54    229,273   23.36
$25.00-$30.00   145,538       5.7      27.79    140,783   27.79
$30.00-$35.00   391,318       7.6      33.10    253,448   32.99
$35.00-$40.00   240,250       9.5      38.17        167   35.52
              ---------       ---     ------    -------  ------
              1,169,016       6.9      29.82    746,831   26.79
              =========       ===     ======    =======  ======

During 1998, the executive compensation committee of the board of
directors made a grant of restricted stock to the Company's
officers and certain managers under the 1998-2001 Performance
Cycle of the Long-Term Incentive Program. In order to receive
these awards, the participants were required to place shares of
stock, of which at least one-half were required to be newly
acquired shares, on deposit with the Company. For each share of
stock placed on deposit, the participant received up to two
shares of time-based restricted stock, and up to one and one-half
shares of performance-based restricted stock. The Company
issued 111,892 shares of time-based restricted stock and 83,919
shares of performance-based restricted stock under this cycle
during 1998. The time-based restricted stock will vest in 25%
installments at the end of each year from 1998 to 2001. The
performance-based restricted stock will be earned any time after
June 30, 1999, that the Company's return on equity (ROE) over the
prior five calendar quarters meets the goals set by the executive
compensation committee. This performance-based restricted stock
will be forfeited if the ROE goals are not achieved. No amounts
of compensation expense have recognized as of December 31, 1998,
with respect to these performance based
shares.




                              -50-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

8. Stock Options, Continued

During 1996, the executive compensation committee of the board of
directors granted performance shares to the Company's officers
and certain managers under the 1996-2000 Performance Cycle of the
Long-Term Incentive Program. At December 31, 1998, 57,800 of
these performance shares remained outstanding. A portion of the
performance shares were earned and converted to restricted stock
in 1997 when Chesapeake's common stock price
exceeded $35 per share, and additional amounts will be earned
when the price equals or exceeds each $5 per share increment in
excess thereof up to $60 per share.

Information about performance shares is shown below:

                                            1998          1997
                                            ----          ----
Outstanding grants January 1                79,308       95,448
New shares granted                               -        6,550
Shares forfeited                           (21,508)     (13,623)
Shares converted to
   restricted stock units                        -       (9,067)
                                            ------       ------
Outstanding grants December 31              57,800       79,308
                                            ======       ======

Information about restricted stock and stock units is shown
below:
                                            1998          1997
                                            ----          ----
Outstanding grants January 1                64,690       47,502
New shares granted                         203,811       63,000
Converted performance shares                     -        9,067
Shares forfeited                            (3,455)        (535)
Shares vested                              (36,088)     (54,344)
                                           -------      -------
Outstanding grants December 31             228,958       64,690
                                           =======      =======










                              -51-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

8. Stock Options, Continued

The pro forma effect of applying the fair-value-based method of
accounting for stock options pursuant to SFAS No. 123 is:

(In millions except per share data)          1998          1997
                                             ----          ----
Net Income
As reported                                  $47.3        $48.6
Pro forma                                    $45.8        $47.4

Earnings per share
As reported
   Basic                                     $2.23        $2.10
   Diluted                                    2.19         2.08
Pro forma
   Basic                                     $2.16        $2.05
   Diluted                                    2.12         2.03
                                             =====        =====

Pro forma disclosures for stock option accounting are not likely
to be representative of the effects on reported net income for
future years.

The Black-Scholes option pricing model was used to calculate fair
value based on the following assumptions:

                                             1998          1997
                                             ----          ----
Dividend yield                                2.1%         2.3%
Risk-free interest rates                      5.6%         5.9%
Volatility                                   26.6          26.9
Expected option term                          6.0           6.0
                                             ====          ====

Under these assumptions, the weighted average fair value of an
option to purchase one share granted in 1998 and 1997,
respectively, was approximately $10.36 and $9.18.










                              -52-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
9. Employees' Stock Plans and Other Compensation Plans

The Company has stock purchase plans for certain eligible
salaried and hourly employees. Shares of Chesapeake common stock
are purchased based on participant and company contributions. At
December 31, 1998, 936,212 shares remain available for issuance
under these plans.

The Company also sponsors, in accordance with the provisions of
Section 401(k) of the Internal Revenue Code, pre-tax savings
programs for eligible salaried and hourly employees. Certain
participants' contributions are matched up to designated
contribution levels by the Company. Contributions are invested in
several investment options, which may include Chesapeake
common stock, as selected by the participating employee. At
December 31, 1998, 400,000 shares of Chesapeake common stock are
reserved for issuance under these programs.

The 1993 and 1997 Incentive Plans (see Note 8) provide that the
executive compensation committee of the board of directors may
grant performance share awards and stock awards to key employees
and officers and may select certain officers to receive annual
incentive awards in the form of cash, common stock, or a
combination, based on the Company's overall financial performance
and the officer's individual performance. With the adoption of
the 1997 Incentive Plan, awards under the 1993 plan were
discontinued.

The charges to income for these plans approximated $7.2 million
in 1998, $7.4 million in 1997, and $7.8 million in 1996.

10. Litigation

WT has been identified by the federal government and the State of
Wisconsin as a potentially responsible party with respect to
possible natural resource damages and superfund liability in the
Fox River and Green Bay System.

On May 13, 1997, the attorney general of Florida filed a civil
complaint against WT alleging violations of antitrust laws. The
complaint also names nine other commercial and industrial tissue
manufacturers and seeks compensatory monetary damages, civil
penalties, and injunctive relief. At least 35 other private civil
antitrust class actions have also been filed against WT (or
against the Company, identifying WT as a division of the
Company), and against the other defendants. WT and the Company
believe that WT has valid defenses to the plaintiffs' claims, and
intend to defend the actions vigorously.
                              -53-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

10. Litigation, Continued

The Company is a party to various other legal actions which are
ordinary and incidental to its business.

While the outcome of legal actions cannot be predicted with
certainty, the Company believes the outcome of any of these
proceedings, or all of them combined, will not have a material
adverse effect on its consolidated financial position or results
of operations.

11. Supplemental Balance Sheet Information

(In millions)                               1998          1997
                                            ----          ----
a.   Accounts receivable, net:
     Trade                                  $130.5       $114.7
     Other                                     1.2          3.0
     Allowance for doubtful accounts          (4.1)        (5.9)
                                            ------       ------
          Totals                            $127.6       $111.8
                                            ======       ======
b.   Other assets:
     Real estate for development            $ 28.5       $ 30.9
     Other                                    44.0         30.4
                                            ------       ------
          Totals                            $ 72.5       $ 61.3
                                            ======       ======
c.   Accrued expenses:
     Interest                               $  5.9       $  5.5
     Compensation and employee benefits       47.6         42.4
     Other                                    36.2         35.5
                                            ------       ------
          Totals                            $ 89.7       $ 83.4
                                            ======       ======
12. Supplemental Cash Flow Information

(In millions)                           1998      1997     1996
                                        ----      ----     ----
Cash paid for:
Interest, net                           $21.4     $23.1   $33.1
                                        =====     =====   =====
Income taxes, net of refunds            $19.3     $92.4   $12.9
                                        =====     =====   =====




                              -54-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
12. Supplemental Cash Flow Information, Continued

Supplemental investing and
   financing non-cash transactions:
Capital lease obligations
   assumed in acquisitions              $ 2.1     $   -   $10.1
Long-term debt assumed in
   acquisitions                             -         -    17.1
Issuance of common stock
   for employee benefit plans             3.6       5.0     5.4
Dividends declared not paid               4.7       4.3     4.7
Real estate transactions                    -        .5     2.2
Assets obtained by capital lease          4.5         -       -
Goodwill reductions:
   Restructuring                            -       5.5       -
   Sale of businesses                       -       5.4       -

13. Commitments and Other Matters

At December 31, 1998, commitments, primarily for capital
expenditures, approximated $35 million of the Company's 1999
capital spending estimate of $80 million. These commitments are
for various capital projects, none of which is individually
material.

The Company leases certain assets (principally manufacturing,
office space, transportation, and information processing
equipment) generally for three-to five-year terms. Rental expense
for operating leases totaled (in millions) $16.5 for
1998, $15.3 for 1997, and $14.9 for 1996. As of December 31,
1998, aggregate minimum rental payments in future years on
noncancelable operating leases approximated $50.9 a million. The
amounts applying to future years are (in millions): 1999 $15.3;
2000 $12.4; 2001 $9.1; 2002 $7.0; 2003 $3.9; and thereafter $3.2.

The Company leases certain assets (principally manufacturing
equipment) under agreements which are classified as capital
leases. As of December 31, 1998, the aggregate minimum payments
under capitalized leases included in other long-term debt totaled
$3.8 million. The amounts applying to future years are (in
millions): 1999 $1.7; 2000 $0.9; 2001 $0.6; 2002 $0.4; and
2003 $0.2. The present value of minimum capitalized lease
payments at year-end was approximately $3.4 million.

During 1998, management initiated a review of its Tissue and
Specialty Packaging segments in an effort to reduce costs and

                              -55-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
13. Commitments and Other Matters, Continued

increase productivity.  The review included organization and cost
structures, facility utilization, and product offerings. As a
result of this review, the Company formulated a restructuring
plan which resulted in a one-time fourth quarter 1998 charge of
$11.8 million before taxes ($8.8 million after tax).

The 1998 restructuring program consists primarily of a 5%
reduction in the Company's global workforce (approximately 250
employees) through the elimination of redundant and overlapping
positions and facility consolidations. The reductions are taking
place in Chesapeake's Tissue and Specialty Packaging segments.

Wisconsin Tissue, based in Menasha, WI, has implemented a
combination of early retirement and voluntary severance programs
to reduce its work force by approximately 70 positions.
Chesapeake Display and Packaging, based in Winston-Salem, NC, has
implemented a work force reduction of approximately 60 positions
and will close two facilities in 1999.

During the second quarter of 1997, the Company recorded
restructuring and other special charges of $18.9 million before
taxes ($10.8 million after tax) related primarily to its
Specialty Packaging segment. The restructuring charge provided
for the costs associated with management reorganization and the
closures of one point-of-sale display facility and one graphic
packaging facility. The intent of these initiatives was to
eliminate redundant overhead and processes, improve geographic
efficiency, and reduce fixed costs. The restructuring liability,
which was established in 1997, was completely utilized by
December 31, 1998.

14. Subsequent Events

In January 1999, the Company announced that it plans to build a
new tissue mill and converting facility in Halifax County, NC.
Construction of this mill is planned to begin in the third
quarter of 1999, with converting production beginning in the
third quarter of 2000 and paper production in the first quarter
of 2001. Total cost is projected to be $160-$180 million.

On January 20, 1999, the Company announced that it made an offer
to acquire all of the outstanding shares of Field Group plc, a
leading European packaging company with headquarters in the
United Kingdom. The all cash offer, as amended, of approximately
$355 million plus the assumption of $50 million in debt values
the total enterprise at $405 million.
                              -56-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued
                                
14. Subsequent Events, Continued

In January 1999, the Company entered into a new $450 million bank
credit facility that will be used primarily to fund the purchase
of Field Group plc. The credit facility includes a five-year $250
million revolving line of credit and a 364-day $200 million
revolving line of credit, which is convertible at the Company's
option to a two-year term loan.

15. Business Segment Information

The Company's business segments are Tissue, Specialty Packaging,
and Forest Products/Land Development. The Tissue segment is
composed of commercial and industrial tissue operations of
Wisconsin Tissue and Wisconsin Tissue de Mexico. The Specialty
Packaging segment is composed of Chesapeake Display and
Packaging, Chesapeake Packaging, and Chesapeake Europe, which
produce and sell point-of-sale displays, graphic packaging, and
corrugated shipping containers. The Forest Products/Land
Development segment includes subsidiaries that together manage
the Company's timberlands and real estate holdings. General
corporate expenses are shown as Corporate.

Segments are determined by the "management approach" as described
in SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information," which the Company adopted in 1998.
Management assesses operations based on operating income derived
from similar groupings of products and services. Segment
operating income consists of revenue less allocable operating
expenses excluding interest and income taxes. In line
with management's assessment of performance, results of divested
businesses, gain on the sale of businesses, and restructuring are
excluded from ongoing operations. Certain businesses that have
the same or similar products, production processes, customers,
performance expectations, or other economic characteristics have
been aggregated for segment presentation.

Intersegment sales not included in the following table are: the
divested kraft products business sales to Specialty Packaging of
$6.9 million in 1997 and $26.0 million in 1996; and the Forest
Products/Land Development segment sales to the divested kraft
business of $22.7 million in 1997 and $48.6 million in 1996.
There were no intersegment sales in 1998. No one customer
represented more than 10% of total net sales.

Segment identifiable assets are those that are directly used in
segment operations. Timberlands and real estate held for sale

                              -57-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

15. Business Segment Information, Continued

are included in the Forest Products/Land Development segment.
Corporate assets are cash, certain nontrade receivables, and
other assets. Long-lived assets are primarily property, plant,
and equipment, real estate held for development, and goodwill.

Financial information by business segment:

(In millions)                        1998       1997      1996
                                     ----       ----      ----
Net sales:
   Tissue                           $433.3   $  410.7  $  392.0
   Specialty Packaging               472.3      416.8     357.6
   Forest Products/Land Development   44.8       38.0      24.3
                                    ------   --------  --------
   Ongoing operations                950.4      865.5     773.9
   Divested businesses                   -      155.5     384.7
                                    ------   --------  --------
      Consolidated net sales        $950.4   $1,021.0  $1,158.6
                                    ======   ========  ========
Operating income:
   Tissue                           $ 69.6   $   55.8  $   65.0
   Specialty Packaging                13.3        5.4      17.7
   Forest Products/Land Development   16.3       12.6      10.1
                                    ------   --------  --------
                                      99.2       73.8      92.8
   Corporate                         (12.7)     (19.7)    (19.0)
                                    ------   --------  --------
   Ongoing operations                 86.5       54.1      73.8
   Divested businesses                   -      (14.3)      7.2
   Gain on sale of businesses            -       86.3         -
   Restructuring/special charges     (11.8)     (18.9)        -
                                    ------   --------  --------
      Income before interest, taxes,
      cumulative effect of
      accounting change, and
      extraordinary item              74.7      107.2      81.0
   Interest expense, net             (18.9)     (22.0)    (33.9)
                                    ------   --------  --------
      Income before taxes,
      cumulative effect of
      accounting change, and
      extraordinary item            $ 55.8   $   85.2  $   47.1
                                    ======   ========  ========



                              -58-
             CHESAPEAKE CORPORATION AND SUBSIDIARIES
      Notes to Consolidated Financial Statements, Continued

15. Business Segment Information, Continued
Identifiable assets:
   Tissue                           $447.6   $  453.9  $  439.4
   Specialty Packaging               330.6      275.6     289.8
   Forest Products/Land Development  121.4       94.1      91.5
   Corporate                          79.8       98.3       9.1
                                    ------   --------  --------
   Ongoing operations                979.4      921.9     829.8
   Divested businesses                   -          -     460.4
                                    ------   --------  --------
      Consolidated assets           $979.4   $  921.9  $1,290.2
                                    ======   ========  ========
Capital expenditures:
   Tissue                           $ 26.4   $   44.1  $   53.8
   Specialty Packaging                34.5       14.6      39.7
   Forest Products/Land Development    7.8        4.7       2.4
   Corporate                           4.6        0.5       1.1
                                    ------   --------  --------
   Ongoing operations                 73.3       63.9      97.0
   Divested businesses                   -        4.3      31.8
                                    ------   --------  --------
      Totals                        $ 73.3   $   68.2  $  128.8
                                    ======   ========  ========
Depreciation, cost of timber
 harvested, and amortization:
   Tissue                           $ 35.5   $   33.0  $   28.9
   Specialty Packaging                21.8       21.0      15.0
   Forest Products/Land Development    3.6        2.6       3.2
   Corporate                           1.4        1.7       1.0
                                    ------   --------  --------
   Ongoing operations                 62.3       58.3      48.1
   Divested businesses                   -       17.5      42.1
                                    ------   --------  --------
      Totals                        $ 62.3   $   75.8  $   90.2
                                    ======   ========  ========
Geographic information:
Net sales:
   United States                    $856.3   $  931.8  $1,123.5
   International                      94.1       89.2      35.1
                                    ------   --------  --------
      Total                         $950.4   $1,021.0  $1,158.6
                                    ======   ========  ========
Long-lived assets:
   United States                    $636.0   $  585.1  $  930.5
   International                      30.0       28.5      38.9
                                    ------   --------  --------
      Total                         $666.0   $  613.6  $  969.4
                                    ======   ========  ========
                              -59-
EXCERPT FROM ELEVEN-YEAR COMPARATIVE RECORD
(Dollar amounts in millions except per share data)

                        1998(1)  1997(2)   1996     1995   1994(3)
                        -------  -------   ----     ----   -------
Operating Results
  Net sales             $950.4  $1,021.0 $1,158.6 $1,233.7 $990.5
  Net costs and expenses
   except depreciation,
   cost of timber
   harvested, and
   interest expense      816.0     841.5    990.5    987.7  830.3
  Depreciation and cost
   of timber harvested    59.7      72.3     87.1     73.6   70.9
  Interest expense, net   18.9      22.0     33.9     30.8   31.1

  Income before taxes,
   extraordinary item, and
   cumulative effect of
   accounting changes     55.8      85.2     47.1    141.6   58.2
  Income taxes            21.8      34.3     17.0     48.2   20.6
  Income before
   extraordinary item and
   cumulative effect of
   accounting changes     34.0      50.9     30.1     93.4   37.6
  Extraordinary item, net
   of income taxes           -     (2.3)        -        -      -
  Cumulative effect of
   accounting changes, net
   of income taxes        13.3         -        -        -      -
  Net income              47.3      48.6     30.1     93.4   37.6
  Cash dividends declared
   on common stock        17.5      18.3     18.8     18.6   17.1
  Net cash provided by
   (used in) operating
   activities             90.4    (31.4)    131.2    143.7  103.6
  Percent of income
   Before gain on sale of
   businesses,
   restructuring and other
   special charges,
   extraordinary item, and
   cumulative effect of
   accounting changes
   To net sales            4.8%     1.2%      2.6%    7.6%    3.8%
   To stockholders'equity 10.1       2.7      6.4     23.7   10.2
   To total assets         4.6       1.0      2.6      9.2    4.1
                         -----     -----    -----    -----  -----



                              -60-
EXCERPT FROM ELEVEN-YEAR COMPARATIVE RECORD
(Dollar amounts in millions except per share data)
                        1998(1)  1997(2)   1996     1995   1994(3)
                        -------  -------   ----     ----   -------
Common Stock
  Number of stockholders
   of record at year-end 6,741     6,564    7,567    7,456  7,804
  Shares outstanding at
   year-end
   (in thousands)       21,439    21,330   23,398   23,792 23,754
  Per share
   Basic earnings before
    extraordinary item
    and cumulative effect
    of accounting changes$1.60     $2.20    $1.28    $3.92  $1.59
   Basic earnings         2.23      2.10     1.28     3.92   1.59
   Diluted earnings
    before extraordinary
    item and cumulative
    effect of accounting
    changes              $1.57     $2.18    $1.27    $3.88  $1.58
   Diluted earnings       2.19      2.08     1.27     3.88   1.58
   Dividends declared     0.82      0.80     0.80     0.78   0.72
        Year-end stockholders'
    equity               20.62     19.84    20.05    19.68  16.56
                         -----     -----    -----    -----  -----
Financial Position at
 Year-end
  Working capital       $155.8    $166.0   $161.3   $142.3 $144.3
  Property, plant and
   equipment, net        543.2     508.3    863.5    780.9  646.4
  Total assets           979.4     921.9  1,290.2  1,146.31,016.9
  Total capital          786.0     754.7  1,095.4    980.5  862.5
   Long-term debt        270.4     264.3    499.4    393.6  364.0
   Deferred income taxes  74.3      67.3    126.9    118.6  105.2
   Stockholders' equity  441.3     423.1    469.1    468.3  393.3
  Percent of long-term
   debt
   To total capital       34.4%    35.0%     45.6%   40.1%   42.2%
   To stockholders'
    equity                61.3      62.5    106.5     84.0   92.6
                         -----     -----    -----    -----  -----
Additional Data
  Capital expenditures
   and acquisitions      $91.4     $68.2   $176.0   $227.4  $71.0
  Acres of timberland
   owned at year-end
   (in thousands) (4)      320       325      326      325    328
  Number of employees
   at year-end           5,557     5,184    6,914    5,305  5,209
                         -----     -----    -----    -----  -----
                              -61-
Notes to Eleven-Year Comparative Record

Accounting policies are stated in Note 1 of the Notes to
Consolidated Financial Statements. Percent of income before
cumulative effect of accounting changes information is calculated
using beginning of year and acquisition amounts where
appropriate.

1. Includes an after-tax restructuring charge of $8.8 million,
and an after-tax gain on the cumulative effect of an accounting
change of $13.3 million or $.62 per share.

2. Includes an after-tax gain of $49.1, million or $2.07 per
share, on the sale of the Divested Businesses to St. Laurent
(U.S.), and after-tax restructuring/special charges of $10.8
million.

3. Includes an after-tax charge of $2.8 million, or $.12 per
share, related to a change to the LIFO method of accounting for
certain inventories.

4. Excludes 12,000-25,000 acres held by land development
subsidiaries during 1988-1998.


                                                                 
                                
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                              -62-
                OPERATING MANAGERS AND LOCATIONS
                    (as of December 31, 1998)

TISSUE
------
William A. Raaths
Wisconsin Tissue Mills Inc.
     Menasha, Wisconsin
     Bellemont, Arizona
     Chicago, Illinois
     Flagstaff, Arizona
     Greenwich, New York
     Neenah, Wisconsin

Wisconsin Tissue de Mexico, S.A. de C.V.
     Mexico, D.F*
     Guadalajara*
     Monterrey
     Toluca*

SPECIALTY PACKAGING
-------------------
Octavio Orta
Chesapeake Display & Packaging Company
     Winston-Salem, North Carolina
     Cincinnati, Ohio*
     Cinnaminson, New Jersey*
     Erlanger, Kentucky
     Marion, Iowa
     Mechanicsburg, Pennsylvania*
     Memphis, Tennessee*
     Pelahatchie, Mississippi
     Richmond, Indiana
     Rural Hall, North Carolina*
     Toronto, Ontario, Canada
     Visalia, California*

Chesapeake Display & Packaging - Europe S.A. (France)
     Noisy-le-Grand*
     Avallon
     Ezy sur Eure
     Migennes
     Rosny sous Bois*
     St. Pierre des Corps
     Ussel*






                              -63-
                OPERATING MANAGERS AND LOCATIONS
                    (as of December 31, 1998)

Robert F. Schick
Chesapeake Packaging Co.
     Richmond, Virginia*
     Binghamton, New York
     Buffalo, New York
     Denver, Colorado*
     Louisville, Kentucky
     Madison, Ohio
     St. Anthony, Indiana
     Scotia, New York
     Scranton, Pennsylvania
     Utica, New York

LAND DEVELOPMENT
----------------
Joel K. Mostrom
Delmarva Properties, Inc.
     Richmond, Virginia*
     Stonehouse Inc.
     Williamsburg, Virginia*


Forest Resources
----------------
Jack C. King
Chesapeake Forest Products Company
     West Point, Virginia
     Keysville, Virginia
     Pocomoke City, Maryland
Chesapeake Building Products Company
     West Point, Virginia
     Milford, Virginia
     Princess Anne, Maryland


Corporate Headquarters
1021 East Cary Street, Box 2350
Richmond, Virginia 23218-2350*
(804) 697-1000
www.cskcorp.com


Shared services
Richmond, Virginia*


*leased real property

                              -64-