EXHIBIT 13.1


                                                   



















                         Portions of the 
                     CHESAPEAKE CORPORATION
                 Annual Report to Stockholders
              For the year ended December 31, 1996
                                















<TABLE>
RECENT QUARTERLY RESULTS
<CAPTION>
<S>                   <C>       <C>         <C>        <C>         <C>         <C>      <C>    
                                                                Per Share                      
                                                            
              Net       Gross        Net                    Dividends    Stock Price   
Quarter            Sales     Profit       Income    Earnings     Declared   High        Low

                             (Dollar amounts in millions except per share amounts)

1994:
 First                $  212.0     $ 35.2       $ 2.0                  $0.09                $0.18       $27.25         $22.25  
 Second                  236.9       42.9         4.9      0.21         0.18      26.38             22.63  
 Third                   266.9       56.7        14.4      0.60         0.18      35.00             24.63  
 Fourth                  274.7       61.1        16.3      0.68         0.18      35.88     28.25
     
    Totals            $  990.5     $195.9       $37.6     $1.58        $0.72

1995:
 First                $  291.1     $ 70.5       $20.8     $0.87        $0.18     $34.25    $28.50
 Second                  315.1       71.4        18.5      0.77         0.20      33.75     28.50
 Third                   330.8       82.6        29.9      1.24         0.20      39.00     30.75
 Fourth                  296.7       67.7        24.2      1.00         0.20      35.38             27.50
       
    Totals            $1,233.7     $292.2       $93.4     $3.88        $0.78

1996:
 First                $  277.7     $ 53.8       $ 7.9     $0.33        $0.20     $30.50    $25.25
 Second                  276.6       51.5         3.9      0.17         0.20      30.50     25.25
 Third                   309.3       62.8         9.5      0.40         0.20      27.63     23.13
 Fourth                  295.0       60.4         8.8      0.37         0.20      31.75             26.50
       
                Totals           $1,158.6      $228.5    $30.1         $1.27      $0.80


</TABLE>
                                     

                     REPORT OF INDEPENDENT ACCOUNTANTS




To the Stockholders and Board of Directors
Chesapeake Corporation:

         We have audited the accompanying consolidated balance sheet of
Chesapeake Corporation and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income and retained earnings and
cash flows for each of the three years in the period ended December 31,
1996.  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 in accordance with generally accepted
auditing standards.  Those standards 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.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Chesapeake Corporation and subsidiaries as of December 31, 1996
and 1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. 

         
                                                                
                                        /s/ Coopers & Lybrand L.L.P.

Richmond, Virginia
January 23, 1997













<TABLE>
                  CHESAPEAKE CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEET
                                                                            
<CAPTION>  
                                                      December 31,
                                                    1996        1995 
                                                         (In millions)
ASSETS
<S>                                               <C>          <C>
Current assets:
      Cash and cash equivalents                       $    9.8     $    5.2
      Accounts receivable, net                           153.9        140.4
      Inventories                                        134.4        112.5
      Deferred income taxes                               16.5         16.6
      Other                                               11.2          6.9

          Total current assets                           325.8        281.6


Property, plant, and equipment:
      Plant sites and buildings                          197.1        163.0
      Machinery and equipment                          1,342.9      1,208.3
      Construction in progress                            40.0         45.1
                                                       1,580.0      1,416.4
      Less accumulated depreciation                      756.3        675.5

                                                         823.7        740.9

      Timber and timberlands                              39.8         40.0

           Net property, plant, and equipment            863.5        780.9

Other assets                                             100.9         83.8

                                                      $1,290.2     $1,146.3
                                                            

</TABLE>
   














<TABLE>
                                                       December 31,
                                                    1996          1995
                                                     (In millions)
<CAPTION>                                           
LIABILITIES AND STOCKHOLDERS' EQUITY                                
<S>                                                 <C>          <C>
Current liabilities:
      Accounts payable and accrued expenses             $  157.6    $  130.2
      Current maturities of long-term debt                   3.9         0.9
      Dividends payable                                      4.7         4.8
      Income taxes payable                                   0.6         3.4

           Total current liabilities                       166.8       139.3 

Long-term debt                                             499.4       393.6


Postretirement benefits other
 than pensions                                              28.0        26.5


Deferred income taxes                                      126.9       118.6  
 
  
Stockholders' equity:
      Common stock, $1 par value;
        authorized, 60 million shares;
        outstanding, 23.4 million and
         23.8 million shares                                23.4        23.8
      Additional paid-in capital                            97.2       107.3
      Retained earnings                                    348.5       337.2
                                                                            
                                            
                                                           469.1       468.3

                                                        $1,290.2    $1,146.3

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















</TABLE>
<TABLE>
                   CHESAPEAKE CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
                                                
<CAPTION>

                                         For the years ended December 31, 
                                            1996          1995      1994
                                       (In millions except per share data)
<S>                                       <C>          <C>         <C>
Income:

 Net sales                                    $ 1,158.6     $1,233.7    $990.5

 Costs and expenses:

   Cost of products sold                          843.0        867.9     723.7
   Depreciation and cost of timber
    harvested                                      87.1         73.6      70.9
   Selling, general, and administrative
    expenses                                      154.2        130.9     114.8
     Income from operations                        74.3        161.3      81.1
  
   Other income, net                                6.7         11.1       8.2
     Income before interest and taxes              81.0        172.4      89.3

 Interest expense                                 (33.9)       (30.8)    (31.1)
  
     Income before taxes                           47.1        141.6      58.2

 Income taxes                                      17.0         48.2      20.6

     Net income                                $   30.1      $  93.4    $ 37.6    

 Earnings per share                            $   1.27      $  3.88    $ 1.58

Retained earnings:                                                        
 Balance, beginning of year                    $  337.2      $ 262.4    $241.9
 Net income                                        30.1         93.4      37.6
 Cash dividends declared per share,
  $0.80 in 1996, $0.78 in 1995, and 
  $0.72 in 1994                                   (18.8)       (18.6)    (17.1)
                     
     Balance, end of year                      $  348.5      $ 337.2    $262.4

</TABLE>
The accompanying Notes to Consolidated Financial Statements are part
of the financial statements.
















<TABLE>
                     CHESAPEAKE CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
                                           For the years ended December 31,
                                                   1996      1995      1994 
                                                         (In millions)
<S>                                              <C>       <C>       <C>
Operating activities:
  Net income                                       $ 30.1    $ 93.4    $ 37.6
  Adjustments to reconcile net income to
   net cash provided by operating activities:
      Depreciation, cost of timber harvested,
        and amortization of intangibles              90.2      75.8      73.3
      Deferred income taxes                           7.8      11.6      (0.1)
      (Gains) losses on sales of property,
         plant, and equipment, net                    0.5                (5.6)     (1.4)
      Gain on sale of business                        -        (1.8)      -
      Changes in operating assets and 
         liabilities, net of acquisitions
          and dispositions:
           Accounts receivable                       12.8               (22.6)    (34.2)
           Inventories                              (10.8)              (29.0)     (5.4)
           Other assets                              (5.0)      8.4       0.3 
           Accounts payable and accrued expenses                6.9      12.6      28.4 
           Income taxes payable                      (2.8)               (2.3)      2.3 
           Other payables                             1.5       3.2       2.8
  Net cash provided by operating activities         131.2     143.7     103.6

Investing activities:
  Purchases of property, plant and equipment       (128.8)   (157.7)    (54.3)
  Acquisitions                                      (47.2)    (69.7)    (16.7)
  Proceeds from sales of property, plant,
      and equipment                                   3.3       7.4       3.3
  Proceeds from sale of business                       -       28.9        - 
  Other                                                -        6.7       5.0 

  Net cash used in investing activities            (172.7)   (184.4)    (62.7)

Financing activities:
  Proceeds from long-term debt                       11.5       1.2      49.4
  Payments on long-term debt                        (15.2)              (71.7)    (35.4)
  Net borrowings (payments) on credit lines                    84.7     100.0      (3.1)
  Proceeds from issuances of common stock             0.1       2.2       1.9
  Purchases of outstanding common stock             (16.0)     (5.6)      -
  Dividends paid                                    (18.9)              (18.1)    (17.1)
  Other                                              (0.1)      0.9      (0.3)

  Net cash provided by (used in) financing
    activities                                       46.1       8.9      (4.6)
    Increase (decrease) in cash and
     cash equivalents                                 4.6               (31.8)     36.3
  Cash and cash equivalents
     at beginning of year                             5.2      37.0       0.7

  Cash and cash equivalents at end of year          $ 9.8     $ 5.2     $37.0
</TABLE>

The accompanying Notes to Consolidated Financial Statements are part of
the financial statements.
                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 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 substantially all applicable 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.  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.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 1.      Summary of Significant Accounting Policies, continued
    e.   Depreciation:  Depreciation for financial reporting purposes is
         computed principally by the straight-line method, based on the
         estimated useful lives of the assets.  Depreciation rates vary
         according to the class of equipment or buildings and average 6%
         for equipment and 4% for buildings.
    f.   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.
    g.   Income Taxes:  The Company defers to future periods the income
         tax  effects resulting from temporary differences (principally
         depreciation) between the financial and income tax basis of
         assets and liabilities.
    h.   Earnings Per Share:  Earnings per share are based on the weighted
         average number of outstanding common shares and equivalents
         (23,644,843 in 1996; 24,050,719 in 1995; and 23,775,582 in 1994).
    i.   Stock-Based Compensation: During 1996, the Company adopted
         Statement of Financial Accounting Standards ("SFAS") No. 123,
         "Accounting for Stock-Based Compensation."  This standard defines
         a "fair-value-based" method of accounting for stock option plans
         and similar equity instruments, but also allows for continued use
         of Accounting Principles Board ("APB") Opinion No. 25 to account
         for these plans and instruments, provided that financial statements
        include pro forma disclosure as if the fair value method had been 

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

1.  Summary of Significant Accounting Policies, continued
         adopted.  APB No. 25 measures compensation cost using the
         intrinsic-value-based method.  The Company has elected to
         continue to use APB No. 25 and provide pro forma disclosures.
    j.   Other:  Goodwill, the cost in excess of estimated fair value of
         identifiable assets of acquired businesses (net of $13.8 million
         and $12.5 million accumulated amortization at year-end 1996 and
         1995, respectively), is being amortized on a straight-line basis
         over 40 years or less.  The Company reviews goodwill annually for
         impairment. Specifically identifiable purchased intangible assets
         (net of $4.2 million and $4.1 million accumulated amortization at
         year-end 1996 and 1995, respectively) are being amortized on a
         straight-line basis according to estimated economic lives. 
         Research and development costs, not significant in amount, are
         charged to operations as incurred.
    k.   Risks and Uncertainties: Chesapeake operates in three business
         segments -- Packaging, Tissue and Kraft Products -- which offer a
         diversity of products over a broad geographic base.  The Company
         is not dependent on any 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 and income taxes, and determinations of
         discount and other rate assumptions for pensions and post-retirement
         benefit expenses.  Actual results could differ from these estimates.
<TABLE>                                               
2.      Inventories
     
        Year-end inventories consist of:          
 <CAPTION>    
                                            1996      1995     1994 
                                                 (In millions)
<S>                                        <C>      <C>       <C>
        Finished goods                         $ 44.1    $ 33.7    $ 26.6
        Work in process                          35.9      33.3      21.5
        Materials and supplies                   54.4      45.5      41.7

                Totals                         $134.4    $112.5    $ 89.8 
   </TABLE>                                                                
Inventories determined by the LIFO method, included in the above,
totaled (in millions) $75.7 for 1996, $63.7 for 1995, and $43.6 for 1994,
or $5.1, $16.2 and $12.1 less than the respective amounts of such
inventories stated at current costs.
    Effective January 1, 1994, the Company changed the method of valuation
of raw materials, work in process and finished goods of Wisconsin Tissue
Mills Inc. ("WT"), a wholly-owned subsidiary of the Company, from the
average cost method to the LIFO method and expanded the use of the LIFO
method to include  substantially all of the work in process and finished
goods of its Chesapeake Packaging Co. subsidiary.  The Company believes
that, in periods of rapid cost increases, use of the LIFO method will
result in a better matching of current costs with current revenues.  The
effects of adopting the LIFO method at WT and expanding the use of the LIFO
method at Chesapeake Packaging were to reduce consolidated 1994 year-end
inventories by $4.4 million and decrease net income for 1994 by $2.8
million ($0.12 per share).  The cumulative effect of this change to the
LIFO method on the operating results as of the beginning of 1994 has not
been presented, as the effect is not readily determinable.


<TABLE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                                               
<CAPTION>
                                                                       
3.  Long-Term Debt

    Long-term debt at year-end consists of:
                                                       1996      1995 
                                                       (In millions)
<S>                                                   <C>       <C>
    Notes payable - banks (unsecured):
         Credit lines, interest 3.71% to 6.95%        $187.7    $100.0

         Term loan, interest 6.78%, due 2000            25.0      25.0

      Unsecured notes:

         5.25% notes, due 1997                           9.0      11.2
        
         10.375% notes, due 2000                        55.0      55.0
      
         9.875% notes, due 2003                         60.0      60.0 
 
         7.20% notes, due 2005                          85.0      85.0

      Industrial development authority 
        obligations:

         6.375% to 6.875% notes, due 1997-2003           5.9       6.0

         6.25% to 6.375% notes, due 2019                50.0      50.0
         
         5.8% notes, due 2021                           10.0         -

      Other debt                                         15.7       2.3

         Totals                                         503.3     394.5

      Less current maturities                             3.9       0.9
                                                       $499.4    $393.6
</TABLE>













 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                               
3.  Long-Term Debt, continued
         Principal payments on long-term debt (excluding credit lines and
    capital leases) for the next five years are (in millions): 1997 $1.9;
    1998 $1.5; 1999 $4.7; 2000 $81.1; and 2001 $1.1.  Because of the
    availability of long-term financing under the terms of the committed
    credit lines, the $9.0 million notes due in 1997 and the borrowings
    under uncommitted credit lines have been classified as long-term debt.
         The Company maintains credit lines with several banks,
    domestically and internationally, maturing in 1999-2001, under which
    it can borrow up to $225 million at interest rates not to exceed LIBOR
    plus 0.3%.  Nominal facility fees are paid on the credit lines.  Other
    lines of credit totaling $120 million are maintained with several
    banks on an uncommitted basis. 
         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.   
         Interest expense is net of capitalized interest of $0.3 million
    and $0.5 million for 1996 and 1994, respectively. No interest was
    capitalized in 1995.


           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued



3. Long-Term Debt, continued
         The Company has estimated the fair value of long-term debt for
    1996 to be $515.9 million, or 3% higher than the book value of $499.4
    million.  For 1995, the Company estimated the fair value of long-term
    debt to be $419.7 million, or 7% higher than the book value of $393.6
    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.  The carrying amounts of temporary cash
    investments, trade receivables, and trade payables approximate fair
    value because of the short maturity 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 amount of credit exposure relating 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 geographic areas. The Company has no
    material derivative instruments or transactions outstanding as of the
    end of 1996.






<TABLE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

<CAPTION>

4.  Income Taxes
    The provision for income taxes consists of:

                                             1996     1995      1994
                                                   (In millions)
<S>                                          <C>      <C>      <C>
        Currently payable:
          Federal                                $ 9.4    $32.7     $19.2
          State                                   (0.2)     2.8       1.5
              Total current                        9.2     35.5      20.7

        Deferred:
          Federal                                  7.4     12.5       0.7 
          State                                    1.1      0.2      (0.8)
          Foreign                                 (0.7)           -    - 
              Total deferred                       7.8     12.7      (0.1)

                 Total income taxes              $17.0    $48.2     $20.6

</TABLE>













<TABLE>
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<CAPTION>                                                        

4. Income Taxes, continued
     Significant components of the year-end deferred income tax assets
   and liabilities are:
                                                 1996           1995
                                                    (In millions)
<S>                                             <C>           <C>

   Postretirement medical benefits                   $ 10.8        $ 10.2
   Other                                               20.9          23.6
     Deferred tax assets                               31.7          33.8
   Accumulated depreciation                          (133.3)       (124.4)
   Pension accruals                                    (7.5)         (7.0)
   Other                                               (1.3)         (4.4)
     Deferred tax liabilities                        (142.1)       (135.8)
     Net deferred taxes                             $(110.4)      $(102.0)

   Classified in balance sheet as
     Current assets                                  $ 16.5       $  16.6
     Long-term liabilities                           (126.9)       (118.6)
       Net deferred taxes                           $(110.4)      $(102.0)


</TABLE>
      




















<TABLE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                                        
<CAPTION>
4.  Income Taxes, continued
         The differences between the Company's effective income tax rate
    and the statutory federal income tax rate are:
                                               1996     1995      1994
<S>                                            <C>      <C>       <C>
 
   Federal income tax rate                           35.0%             35.0%          35.0%

   State income tax, net of federal
     income tax benefit                               1.2               1.4            0.8

   Other, net                                        (0.1)             (2.4)          (0.4)

   Consolidated effective income
     tax rate                                        36.1%             34.0%          35.4%
    
   </TABLE>
           
   The Company's intention is to reinvest permanently the undistributed
earnings of its foreign subsidiaries.  Computation of the potential
deferred taxes associated with these undistributed earnings is not
practicable.

         










<TABLE>
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


5.  Employee Retirement Plans
         The Company maintains several noncontributory defined benefit
    retirement plans covering substantially all U.S. employees.  Pension
    benefits are based primarily on the employees' compensation and/or
    years of service.  Annual pension costs are actuarially determined,
    and the plans are funded with sufficient assets to meet future benefit
    payment and regulatory requirements.  The net periodic pension cost
    includes amortization of prior service costs over periods of the
    greater of 15 years or the average remaining employee service period.
         Assumptions used in determining the net pension credit (based on
    beginning-of-the-year assumptions) for 1996, 1995, and 1994 and
    related pension obligations (based on year-end assumptions) as of
    October 1 were:
<CAPTION>
                                            1996      1995      1994
<S>                                          <C>       <C>       <C>
    Discount rate                            7 %       7 %       8 1/4%

         Increase in future
          compensation levels                4         4         5 

         Long-term rate of return
          on assets                          9 1/4      9 1/4    9 1/4  
</TABLE>












<TABLE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


5.  Employee Retirement Plans, continued
         The following table, based on actuarial valuations as of October
    1, 1996 and 1995, sets forth the plans' funded status and amounts
    recognized in the Company's consolidated financial statements for 1996
    and 1995:
<CAPTION>
                                                      1996      1995 
                                                      (In millions)
        <S>                                         <C>      <C>
        Accumulated benefit obligation:
            Vested benefits                              $103.8    $ 93.9
            Nonvested benefits                             12.2       9.9 
               Totals                                     116.0     103.8

        Effect of projected future
         salary increases                                  21.1      19.1

        Projected benefit obligation
         for service rendered to date                     137.1     122.9

        Plan assets at fair value,
         primarily corporate equity and
         debt securities                                  158.2     143.3

        Plan assets in excess of projected
         benefit obligation                                21.1      20.4

        Unrecognized net (gain) loss from past
          experience different from that assumed
          and effects of changes in assumptions            (2.2)      2.3

        Unrecognized net asset at beginning of 
          plan year being amortized principally
        over 17 years                                      (9.2)    (10.6)

        Prepaid pension cost recognized in Other
            assets                                        $ 9.7    $ 12.1
</TABLE>









<TABLE>
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued



5.  Employee Retirement Plans, continued
         The components of the net pension cost (credit) for 1996, 1995,
    and 1994 are as follows:
<CAPTION>                                  1996      1995      1994
                                                (In millions)
<S>                                       <C>       <C>       <C>
        Service cost - benefits
         earned during the period              $ 4.9     $ 3.9     $ 4.2

        Interest cost on
         projected benefit obligation            9.4       8.2       7.0

        Actual return on plan assets           (18.6)    (22.1)     (6.8)

        Net amortization and deferral            5.4       9.4      (5.4)

          Net pension cost (credit)            $ 1.1     $(0.6)    $(1.0)

</TABLE>
         In the second quarter of 1995, Chesapeake Paper Products Company
    ("CPPC") implemented an enhanced retirement program for certain hourly
    employees at its West Point, VA, mill which resulted in a pre-tax charge
    of approximately $3.1 million related to pensions.  In the second quarter
    of 1994, CPPC and Chesapeake Forest Products Company ("CFPC") implemented
    an enhanced retirement program for certain salaried employees which
    resulted in a pre-tax charge of approximately $3.4 million related to
    pensions.
    






<TABLE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


                                    
6.  Postretirement Benefits Other Than Pensions
         The Company 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.
         During 1995 and 1994, CPPC and CFPC implemented enhanced retirement
    programs for certain hourly and salaried employees (see Note 5).  Service
    cost of $1.6 million relates to the 1995 program and service cost of $1.3
    million and interest cost of $0.1 million relate to the 1994 program.  The
    components of postretirement benefits expense for 1996, 1995, and 1994 are
    as follows:
        <CAPTION>
                                               1996     1995     1994
                                                    (In millions)
      <S>                                     <C>       <C>      <C>
        Service cost-benefits
         earned during the period                 $ 1.1      $2.4     $2.2
        Interest cost on accumulated
         postretirement benefit obligation          2.1       2.3      1.9
        Amortization of net loss                 -            0.2      0.2
        Net postretirement benefit cost            $3.2      $4.9     $4.3

        </TABLE>                                     









<TABLE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                                              
6.  Postretirement Benefits Other Than Pensions, continued
         The following table sets forth the accumulated postretirement benefit
    obligation recognized in the Company's consolidated balance sheet as of
    December 31, 1996 and 1995.
<CAPTION>
                                                      1996      1995 
                                                       (In millions)
<S>                                                   <C>      <C> 
        Retirees                                          $19.6     $19.6
        Fully eligible active plan participants             5.0       4.0
        Other active plan participants                      5.1       4.8 
          Accumulated postretirement benefit
           obligation                                      29.7       28.4 
        Unrecognized prior service cost                    (0.1)          (0.1)
        Unrecognized net loss                              (1.6)     (1.8)
          Accrued postretirement benefit
           obligation                                     $28.0     $26.5

</TABLE>
         The assumed health care cost trend rate used in measuring future
    benefit costs was 12% in 1994, 11% in 1995 and 10% in 1996, gradually
    declining to 5.75% by 2002 and remaining at that level thereafter.  A 1%
    change in this annual trend rate would change the accumulated
    postretirement benefit obligation at December 31, 1996 by $2.3 million and
    the 1996 postretirement benefit expense by $0.3 million.  The assumed
    discount rate used in determining the accumulated postretirement benefit
    obligation was 7.75% in 1996, 7.75% in 1995 and 8.5% in 1994 and the
    assumed rate of increase in future compensation levels was 4.75% in 1996,
    4.75% in 1995, and 5% in 1994.
         During 1994, the Company adopted Statement of Financial Accounting
    Standards No. 112, "Employers' Accounting for Postemployment Benefits." 
    The effects of this adoption were not material to the Company's
    consolidated financial statements.

<TABLE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

7.  Capital Stock and Additional Paid-In Capital
    Changes in common stock and additional paid-in capital during 1994,
  1995, and 1996 were:
<CAPTION>                              
                                           Common Stock
                                                              Additional
                                                    Aggregate   Paid-In
                                        Shares      Par Value   Capital  
                                           (Dollar amounts in millions)
<S>                                    <C>            <C>         <C>
  Balances, January 1, 1994            23,514,378     $23.5       $102.6

  Issuances of shares:
    Employee stock plans                  239,328       0.3          4.8
  
  Other                                         -         -         (0.3)
  
  Balances, December 31, 1994          23,753,706       23.8        107.1

  Issuances of shares:
    Employee stock plans                  231,327        0.2          4.7
  
  Purchases of shares                    (192,600)      (0.2)        (5.4)

  Other                                         -          -          0.9 
  
  Balances, December 31, 1995          23,792,433       23.8        107.3

  Issuances of shares:
    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

</TABLE>











       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                        

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

         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").  None was outstanding during the three years ended
    December 31, 1996.
            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 $70 a share, subject to adjustment. 
    The rights will become exercisable only if a person or group acquires
    or announces a tender offer for 20% or more of Chesapeake's common
    stock.  When 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 30% or more of the common stock,
    each right will 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 will
    expire on March 15, 1998, and may be redeemed by the Company at any
    time prior to the tenth day after an announcement that a 20% position 

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
 
7.  Capital Stock and Additional Paid-In Capital, continued
    has been acquired, unless such period has been extended by the board of
    directors.                        
        
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                                                  

8.  Stock Options
         The 1993 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 the sum of 1% of the
    outstanding shares of common stock as of January 1 of each calendar
    year during the term of the plan.  The plan also limits the number of
    shares that may be covered by the grant of options, SARs, stock awards,
    performance shares, and stock units in any calendar year. The annual
    limitation is 1% of the outstanding shares of common stock as of
    January 1 of that year increased by (1) the number of shares available
    but not awarded during all prior years during the term of the plan plus
    (2) any forfeited or terminated grants that were not exercised. 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 annual share
    limitation. The annual share limitation for 1996 was 320,954 shares. 
    The options granted may be either incentive stock options ("ISOs") or
    nonqualified stock options.  Options may be granted at not less than
    the fair market value at the date of grant if the option is an ISO, or
    not less than 85% of the fair market value if the option is a
    nonqualified stock option.  SARs may be granted in relation to option
    grants ("corresponding SARs") or independently of option grants. 
    Grants may provide options and SARs exercisable over periods of up to
    10 years.  Most grants vest over a period of one to three years.
         The Nonemployee Director Stock Option Plan provided for grants to
    the Company's nonemployee directors of stock options for up to 93,500
    shares of Chesapeake common stock.  The grants consisted of Automatic
    Awards as a part of the nonemployee directors' compensation, in
    addition to a cash retainer and meeting fees, and Elective Awards which
    participants could choose to receive in lieu of all or a portion of
    their cash retainer.  The option price was the average closing price of
    Chesapeake common stock for the 20 trading days before the October 31
    that immediately preceded the grant date.  Options for a total of
    47,825 shares were granted to nonemployee directors under the
    Nonemployee Director Stock Option Plan.  In 1996 the Nonemployee
    Director Stock Option Plan was replaced by 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.  Participants will each receive options for
    1,500 shares on May 1, 1997. 
         For these plans, payment of the option price may be made by the
    participant in cash or by surrendering shares of Chesapeake common
    stock.  Up to 1,148,888 shares, plus 1% of shares outstanding as of
    January 1 of each calendar year through 2002, may be issued after
    December 31, 1995, upon exercise of options or SARs granted under the
    three plans.
         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, 1996, there were 653,317 shares issuable related to
    options granted under this plan. With the adoption of the 1993
    Incentive Plan, awards under this plan were discontinued.
<TABLE>
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                                             
8.  Stock Options, continued
        The following schedule summarizes stock option activity for the

     three years ended December 31, 1996:
<CAPTION>
                                       Number of     Weighted-Average
                                     Stock Options    Exercise Price 
    <S>                                  <C>           <C>
    Outstanding, January 1, 1994           853,706             $20.27
        Granted                            203,200              27.72 
        Exercised                          166,189              19.75
        Forfeited/expired                   40,209              18.05

    Outstanding, December 31, 1994         850,508              22.26
        Granted                            214,725              32.96 
    Outstanding, December 31, 1995         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  

    Exercisable:
    December 31, 1994                      478,381                
    December 31, 1995                      453,744                
    December 31, 1996                      616,252                
    
    Weighted-average fair value of
     options granted during the year
    1995   $8.73
    1996    6.78
</TABLE>


<TABLE>
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


8. Stock Options, continued

            Information about options outstanding at December 31, 1996, is 

    summarized below:
<CAPTION>
<S>
                           Options                          Options 
                            Outstanding                       Exercisable        
                               Weighted-
                   Range       Number         Average                  Weighted-            Number    Weighted
                   of  Outstanding    Remaining   Average      Exercisable        Average
                   Exercise           At          Contractual  Exercise           at   Exercise
                   Prices             12/31/96    Life         Price              12/31/96  Price   
                   <C>              <C>               <C>        <C>          <C>          <C> 
                   $15.00-$20.00          250,426  5.0                    $19.20  250,426          $19.20
                   
                   $20.00-$25.00          380,536  7.5                     23.62         170,436           22.68
                   
                   $25.00-$30.00          196,116  7.6                     27.77         120,581           27.79
                   
                   $30.00-$35.00            216,525                8.5                           32.96   74,809           33.01
                   
                           1,043,603      7.1              25.28   616,252                       23.52
                   
                   </TABLE>
                   



                      <TABLE>
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                      
                      
                      8.          Stock Options, continued
                      
                                  Information about performance shares is shown below:
                      <CAPTION>
                      
                                                 1996      1995
                      <S>      <C>                                         <C>       <C>           
                                                Outstanding grants January 1              9,939    47,593
                      
                                                New shares granted  89,250                    -
                      
                                                Shares forfeited     3,741                    -
                      
                                                Shares converted to restricted stock units          7,920*   37,654
                      
                                                Shares paid out          -                    -
                      
                                                Outstanding grants December 31           87,528     9,939
                      
                      </TABLE>
                                                
                      <TABLE>
                      
                                               Information about restricted stock and stock units is shown
    below:
<CAPTION>
  1996                                                1995
<S>                                                 <C>       <C>
Outstanding grants January 1                         52,661    15,007

New grants                                                -         -
 
Converted performance shares                          7,920*   37,654

Shares forfeited                                          -         -

Shares vested                                         5,159         -

Outstanding grants December 31                       55,422    52,661

</TABLE>

*Estimate for restricted stock earned for 1996 performance








<TABLE>
       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                                                          
8.  Stock Options, continued

    During 1995, the Financial Accounting Standards Board issued
  SFAS No. 123, "Accounting for Stock-Based Compensation."  This
  standard, effective in 1996, defines a "fair-value-based"  method of
  accounting for stock option plans and similar equity instruments, but
  also allows for the continued use of present accounting standards
  with respect to stock-based employee compensation.  The Company has
  elected to continue use of present accounting standards in accounting
  for its plans.
    Had compensation cost related to the issuance of stock options
  been determined on the "fair-value-based" methodology described in
  SFAS No. 123 at the grant dates, the Company's net income and
  earnings per share would have declined to the pro forma amounts
  indicated below:
<CAPTION>
             1996                            1995
    
                        (In millions except per share data)
<S>                                          <C>          <C>
     Net Income
         As reported                              $30.1        $93.4
         Pro forma                                $29.5        $92.2 

    Earnings per share
         As reported                              $1.27        $3.88
         Pro forma                                $1.23        $3.83  
</TABLE>


                                   
                                   
                                   
                                   
                                   
                                   
<TABLE>
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


8.  Stock Options, continued
         The Black-Scholes option pricing model was used to calculate      "fair-value" based on the following assumptions:
<CAPTION>
                                               1996        1995
<S>                                             <C>         <C>
         Dividend yield                         2.7%        2.7%

         Risk-free interest rates               6.6%        6.3%

         Volatility                            26.4        26.4

         Expected option term                   6.0         6.0
</TABLE>
         The effects of applying SFAS No. 123 for providing pro forma
    disclosures are not likely to be representative of the effects on
    reported net income for future years.

            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, 1996,
    1,124,792 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, 1996, 500,000 shares of
    Chesapeake common stock are reserved for issuance under these programs.
         The 1993 Incentive Plan (see Note 8) provides that the 
    executive compensation committee of the board of directors 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. 
         The 1993 Incentive Plan provides that the executive compensation
    committee of the board of directors may grant performance share awards
    to key employees and officers.  During 1994, performance share awards
    with respect to 62,600 shares of common stock were granted, of which
    9,605 shares of restricted stock and 5,402 restricted stock units were
    earned for 1994 performance; 24,098 shares of restricted stock and
    13,556 restricted stock units were earned for 1995 performance; and an
    estimated 5,070 shares of restricted stock and 2,850 restricted stock
    units were earned for 1996 performance.  During 1996, performance share
    awards with respect to 89,250 shares of common stock were granted.  No
    shares were earned for 1996 performance.
         With the adoption in 1993 of the 1993 Incentive Plan, awards under
    the Officers' Incentive Program and the Long-Term Incentive Plan were
    discontinued.  As of December 31, 1996, 6,364 shares of restricted
    stock and 3,077 restricted stock units had been earned under the Long-Term
    Incentive Plan. There are no outstanding grants under this plan.
    The Company has other incentive compensation plans in effect for key
    employees under which awards are based principally on operating
    results.
   
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                      


9.  Employees' Stock Plans and Other Compensation Plans, continued

         The charges to income for these plans approximated $7.8 million in
    1996, $10.8 million in 1995, and $8.3 million in 1994.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


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 in the Fox River and Green Bay System.  See
    "Financial Review 1994-1996, Environmental" for further information
    regarding this notice.
       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 materially
    adverse effect on its consolidated financial position or results of
    operations.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                                                 
11. Supplemental Balance Sheet Information
<CAPTION>
                                                     1996      1995 
                                                      (In millions)
<S>                                                  <C>      <C>
    a.   Accounts receivable, net:
         Trade                                           $154.5         $128.4
         Other                                              4.1      15.2
         Allowance for doubtful accounts                   (4.7)     (3.2)

                Totals                                   $153.9    $140.4
                                       

         b.  Other assets:
               Goodwill, net                             $ 58.3     $41.5
               Purchased intangible assets, net             3.1            1.4
               Other                                       39.5      40.9

                    Totals                               $100.9     $83.8
                 
     
         c.  Accounts payable and accrued expenses:
              Accounts payable:
                Trade creditors                          $ 55.6     $38.4
                Bank checks in transit                     18.5      20.5
                                                           74.1      58.9
              Accrued expenses: 
                Interest                                    6.6       6.7
                Compensation and employee benefits         39.1      36.0
                Other                                      37.8      28.6
                                                           83.5      71.3
                      Totals                             $157.6    $130.2
                 
</TABLE>

<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                                               


12.  Supplemental Cash Flow Information
<CAPTION>

                                             1996      1995      1994 
                                                  (In Millions)
<S>                                          <C>      <C>       <C>
        Cash paid for:

    Interest                                     $33.1     $32.8     $30.5

    Income taxes,
      net of refunds                             $12.9     $36.4     $18.6 
    
    
    Supplemental investing and
           financing non-cash transactions

          Capital lease obligations
            assumed in acquisitions              $10.1          $   -     $   -
          
          Long-term debt assumed in
            acquisitions                          17.1                 -         2.3
    
          Acquisitions financed by
            debt                                -         -           16.0

          Issuance of common stock 
            for employee benefit plans             5.4       2.7       3.2

          Dividends declared not paid              4.7       4.8       4.3
    
          Real estate transactions                 2.2       0.4       0.1

</TABLE>


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                                                

13. Commitments and Other Matters

         At December 31, 1996, commitments, primarily for capital
    expenditures, approximated $53 million of the Company's 1997 capital
    spending estimate of $100 million.   These commitments include
    anticipated expenditures of $7 million in 1997 related to environmental
    protection in connection with planned expansions and upgrades mainly at
    the Company's tissue and kraft products mills.  The remaining
    commitments of $46 million are for various capital projects, none of
    which is individually material. Additional nondeterminable
    environmental protection expenditures could be required in the future
    when facilities are expanded or if more stringent standards become
    applicable.
         The Company leases certain assets (principally manufacturing,
    transportation, and information processing equipment and office space)
    generally for three- to five-year terms.  Rental expense for operating
    leases totaled (in millions) $14.9 for 1996, $13.8 for 1995, and $12.7
    for 1994.  As of December 31, 1996, aggregate minimum rental payments
    in future years on noncancelable operating leases approximated $45.5
    million.  The amounts applying to future years are (in millions):  1997
    $12.5; 1998 $9.7; 1999 $7.7; 2000 $5.0; 2001 $3.8; and thereafter $6.8.
    The Company leases certain assets (principally manufacturing equipment)
    under agreements which are classified  as capital leases.  As of
    December 31, 1996, the aggregate minimum payments under capitalized
    leases included in other long-term debt totaled $10.1 million.  The
    amounts applying to future years are (in millions): 1997 $2.0; 1998
    $4.0; and 1999 $4.1.  The present value of minimum capitalized lease
    payments at year-end was approximately $9.2 million.  The present value
    of any unrecorded capital leases and the impact on net income if these
    leases were recorded are not material. 
         In December, 1995, CPPC announced its planned participation in a
    comprehensive energy project with Virginia Power.  Through the project,
    Virginia Power plans to build a steam and electricity generating
    facility at CPPC's mill in West Point, VA, and become the primary
    supplier of all forms of energy to the mill.  This facility is
    scheduled for completion in 1998 and is subject to regulatory approval
    by the Virginia  State Corporation Commission and the signing of
    definitive agreements with Virginia Power and outside financing
    entities. If the transaction is not consummated, the Company is liable
    to Virginia Power and others for reimbursement of such parties'
    expenses incurred in connection with the project, which the Company
    estimates total approximately $6 million to date.
         Packaging segment acquisitions during 1996 were comprised of the
    April purchase of substantially all assets associated with the Display
    Division of Dyment Limited, with locations in Erlanger, KY, and
    Toronto, Canada; the August purchase of the point-of-sale display and
    packaging business of Sailliard S.A., with 10 locations in France; and
    the September purchase of the assets of Triad Packaging Co., Inc. in
    Richmond, VA, a manufacturer of corrugated containers.  In December, 

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                     
13. Commitments and Other Matters, continued
    1996, the tissue converting assets of Jokel Desarrollos, S.A. de C.V.
    and Ambitec, S.A. de C.V., both in Mexico, were acquired as part of the
    Tissue segment.  Acquisitions in 1995 were all in the Tissue segment
    and were comprised of the May purchase of the assets of the Flagstaff,
    AZ, mill of Orchids Paper Products Company; the November purchase of
    the Chicago, IL, mill of Chicago Tissue Company, L. P., and the
    purchase of a facility in Greenwich, NY, for a planned tissue
    converting operation.  In December, 1995, the Company sold its consumer
    tissue business, Chesapeake Consumer Products Company, to The Fonda
    Group, Inc.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                    
14. Business Segment Information
         The Company's three business segments are Packaging, Tissue and
    Kraft Products.  Packaging consists of point-of-sale displays, graphic
    packaging, and corrugated shipping containers.  Tissue is comprised of
    commercial and industrial tissue products.  The Kraft Products segment
    includes kraft, forest, and building products.    General corporate
    expenses, gain from the sale of a business and land development are
    shown as corporate.
         Sales between segments reflect transfer prices at market value. 
    Intersegment sales not included below were $52.8 million in 1996, $48.4
    million in 1995, and $28.0 million in 1994.  Segment operating income 

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                     
14.  Business Segment Information, continued

     is revenue less allocable operating expenses.  Operating expenses
     include all expenses except interest and income taxes.
         Segment identifiable assets are those which are directly used in
     segment operations.  Timber and timberlands are included in the Kraft
     Products segment.  Corporate assets are cash, certain nontrade
     receivables, real estate held for sale, and other assets.
         Export sales, principally to Europe, Canada and Asia, were (in
     millions):  1996 $114.5; 1995 $138.0; and 1994 $94.9. 
<TABLE>
   Financial information by business segments:
<CAPTION>
                                             1996      1995      1994 
                                                   (In millions)
<S>                                       <C>       <C>         <C>
   Net sales:
      Packaging                               $  474.1  $  452.6    $349.8
      Tissue                                     392.0     372.7     304.1
      Kraft Products                             284.5               401.0     330.8
      Corporate                                    8.0       7.4       5.8
         Consolidated net sales               $1,158.6  $1,233.7    $990.5
                        
   Operating income:
      Packaging                                $  22.8   $  36.9    $ 24.7
      Tissue                                      65.0      48.1      40.7
      Kraft Products                              11.3     100.4      36.1
                                                  99.1               185.4     101.5

      Corporate                                  (18.1)    (13.0)    (12.2) 
      Income before interest and
       taxes                                      81.0               172.4      89.3
   Interest expense                              (33.9)    (30.8)    (31.1) 
      Income before taxes                      $  47.1   $ 141.6    $ 58.2
                       
   Identifiable assets:
      Packaging                               $  359.7             $ 231.3  $  190.3
      Tissue                                     439.4               411.7     324.1
      Kraft Products                             456.4     461.9     434.7
      Corporate                                   34.7      41.4      67.8
        
          Consolidated assets                 $1,290.2  $1,146.3  $1,016.9 

   Capital expenditures and acquisitions:
      Packaging                                 $ 83.2    $ 43.5    $ 37.5
      Tissue                                      61.7     107.4       9.9
      Kraft Products                              30.0      76.2      23.5
      Corporate                                    1.1       0.3       0.1
         Totals                                 $176.0    $227.4    $ 71.0
                                                                      
   Depreciation and cost of timber
    harvested:
      Packaging                                 $ 17.5    $ 13.1    $ 11.0
      Tissue                                      28.0      23.9      23.6
      Kraft Products                              41.2      36.3      36.0
      Corporate                                    0.4       0.3       0.3
        Totals                                  $ 87.1    $ 73.6    $ 70.9
</TABLE>

<TABLE>
   ELEVEN-YEAR COMPARATIVE RECORD

(Dollar amounts in millions except per share data)
<CAPTION>               
                                       1996      1995     1994 1993 1992
<S>                                 <C>        <C>       <C>     <C>    <C> 
Operating Results
  Net sales                           $1,158.6   $1,233.7  $990.5 $885.0  $888.4
  Net cost except depreciation,
   cost of timber harvested, and
    interest expense                     990.5      987.7   830.3  762.1   768.0
  Depreciation and cost of
   timber harvested                       87.1       73.6    70.9   70.2    66.5
  Interest expense                        33.9       30.8    31.1   32.0    31.4
  Income before taxes and
   cumulative effect of
    accounting changes                    47.1      141.6    58.2   20.7    22.5
  Income taxes                            17.0       48.2    20.6   10.3     8.1
  Income before cumulative
   effect of accounting changes           30.1       93.4    37.6   10.4    14.4
  Cumulataive effect of
   accounting changes                      -         -       -       -       9.7
  Net income                              30.1       93.4    37.6   10.4     4.7
  Cash dividends declared
   on common stock                        18.8       18.6    17.1   16.8    16.7
  Income retained for use
   in the business                        11.2       74.8    20.5   (6.4)  (12.0)
  Net cash provided by
   operating activities                  131.2      143.7   103.6  113.6    69.2
  Percent of income before cumulative
   effect of accounting changes 
    To net sales                           2.6%       7.6%    3.8%   1.2%    1.6%
    To stockholders' equity                6.4       23.7    10.2    2.8     4.5
    To total assets                        2.6        9.2     4.1    1.1     1.6
Common Stock
  Number of stockholders of record       7,567      7,456   7,804  7,778   7,964
  Shares outstanding (in thousands)     23,398     23,792  23,754 23,514  23,330
  Per share
    Earnings before cumulative
      effect of accounting changes      $ 1.27     $ 3.88  $ 1.58  $0.44   $0.63
  Earnings                                1.27       3.88    1.58   0.44   $0.17
  Dividends declared                      0.80       0.78    0.72   0.72    0.72
  Stockholders' equity                   20.05      19.68   16.56  15.65   15.88
Financial Position                                     
  Working capital                       $159.0     $142.3  $144.3 $ 87.1  $122.2
  Property, plant and 
   equipment, net                        863.5      780.9   646.4  653.8   668.3
  Total assets                         1,290.2    1,146.3 1,016.9  919.3   958.9
  Total capital                        1,095.4      980.5   862.5  799.7   849.6
   Long-term debt                        499.4      393.6   364.0  333.1   382.8
   Deferred income taxes                 126.9      118.6   105.2   98.6    96.4
   Stockholders' equity                  469.1      468.3   393.3  368.0   370.4
  Percent of long-term debt
   To total capital                       45.6%      40.1%   42.2%  41.7%   45.1%
   To stockholders' equity               106.5       84.0    92.6   90.5   103.3 
Additional Data
  Capital expenditures and
   acquisitions                            $176.0     $227.4   $71.0          $63.9     $85.0
    Acres of timberland owned
  (in thousands)  326325328329350
 Number of employees                     6,914      5,305   5,209  4,833   5,062
</TABLE>


NOTES TO ELEVEN-YEAR COMPARATIVE RECORD

    Accounting policies are stated in Note 1 of Notes to Consolidated
Financial Statements.  This summary retroactively reflects common stock
splits of two-for-one in 1987 and three-for-two in 1986.  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 charge of $2.8 million, or $0.12 per share,
         related to a change to the LIFO method of accounting for certain
         inventories.
    2.   Includes net one-time, after-tax charge of $9.7 million, or $0.46
         per share, related to the adoption of SFAS 106 and SFAS 109 in
         1992.
    3.   Excludes 13,000 - 25,000 acres held by land development
                  subsidiaries during 1988 - 1996.<PAGE>
         <TABLE>
Financial Review  1994-1996
Earnings Overview

    Net sales for 1996 were $1,158.6 million, down 6% from 1995's record
net sales of $1,233.7 million, but 17% higher than net sales of $990.5
million in 1994.  Net income for 1996 of $30.1 million, or $1.27 a share,
was 67% less than record net income of $93.4 million, or $3.88 a share,
earned in 1995, and 20% less than the $37.6 million, or $1.58 a share,
earned in 1994.  Cash flow from operations of $131.2 million was down 9%
from the record $143.7 million of last year, but was 27% higher than the
$103.6 million achieved in 1994.  Results for 1996 were unfavorably impacted
by weak market conditions for certain products in the kraft products
business and start-up costs associated with several strategic growth
initiatives in the packaging and tissue businesses.  Significant growth in
tissue shipments helped to mitigate the impact of these conditions and
costs.
<CAPTION>
                                        1994      1995               1996
<S>                                   <C>       <C>        <C>
Graph: Sales by Business Segment      
       (Millions of $)
          Packaging                        349.8     452.6     474.1
         Tissue                            304.1     372.7     392.0
         Kraft Products                    330.8     401.0     284.5

</TABLE>
     Chesapeake continues to concentrate on providing specialty products and
services that the Company believes have less price volatility and higher
growth and profitability potential than commodity products.  Because of
strategic initiatives implemented by management, more than 70% of
Chesapeake's total 1996 sales came from these specialty products.  Until the
early 1980s, Chesapeake's products were primarily commodities in slow-growth
markets.  
         During 1993, the bottom of the last down cycle in the paper
industry, Chesapeake earned $0.44 a share.  During 1996, with margins in the
kraft products segment similar to 1993, Chesapeake earned $1.27 a share. 
This substantial bottom-to-bottom earnings improvement is primarily due to
the packaging and tissue businesses becoming larger and more important parts
of the corporation, a strategy that Chesapeake continues to implement.
         Chesapeake expanded internationally for the first time during
1996, acquiring display and packaging facilities in Canada and France and
tissue converting operations in Mexico.  These acquisitions are part of the
Company's strategy to expand its packaging and tissue businesses globally.
Liquidity and Capital Structure
     Net cash provided by operating activities was $131.2 million in 1996,
down 9% from the record $143.7 million in 1995, but 27% higher than the
$103.6 million achieved in 1994.  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, was $170.7
million for 1996, 31% lower than 1995's EBITDA of $247.8 million.  Changes
in net income were the primary reason for the differences in cash flow from
operations and EBITDA comparisons.  Compared to year-end 1995, working
capital increased $16.7 million to $159.0 million at year-end 1996,
primarily as a result of higher accounts receivable and inventories, offset
in part by higher accounts payable and accrued expenses.  The ratio of
current assets to current liabilities was  1.95 at year-end 1996, compared
to year-end 1995's 2.0 and year-end 1994's 2.1.  Accounts receivable
increased $13.5 million from year-end 1995, with the average collection
period increasing 5 days from last year.  Inventories at the end of the year
were up $21.9 million compared to 1995.  The annual inventory turnover rate
decreased from 8.1 for 1995 to 7.0 for 1996.  Accounts payable and accrued
expenses increased $27.4 million from year-end 1995.  The increases in
accounts receivable, inventories, and accounts payable  and the reduction in
the annual inventory turnover rate are primarily the result of growth in the
specialty packaging business. 
<TABLE>
 <CAPTION>                             1994      1995      1996
<S>                                    <C>       <C>       <C>  
    Graph:  Net Income                      37.6      93.4      30.1
        (Millions of $)

</TABLE>
     The Company generally uses long-term debt to fund major capital
expansions that cannot be funded by internally generated funds.  Net cash
used in investing activities of $172.7 million was down $11.7 million, or
6%, from the prior year as a result of lower capital expenditures and
acquisition costs.  Net cash used in investing activities exceeded net cash
provided by operating activities by $41.5 million.  This was one of the
primary reasons that long-term debt increased by $105.8 million in 1996 to
$499.4 million.  Net cash flow provided by financing activities in 1996 was
$46.2 million compared to $8.9 million in 1995. This increase was primarily
attributable to the change in long-term debt.  See Note 3 to the
consolidated financial statements for additional long-term debt information.
<TABLE>
 <CAPTION>                             1994      1995      1996
<S>                                    <C>       <C>       <C>
Graph:  EBITDA
 (Millions of $)
    Earnings before interest
      and income taxes                      89.3     172.4      81.0

    Noncash charges for depreciation,
     cost of timber harvested and
       amortization                         72.8      75.4      89.7
</TABLE>

   
    Chesapeake's total capitalization was $1,095.4 million at the end of
1996 compared, to $980.5 million at the end of 1995.  The year-end ratio of
long-term debt to total capital was 45.6% for 1996, up from 40.1% for 1995. 
Chesapeake's long-term debt-to-total-capital ratio target range is 35% to
45%.  The year-end ratio of long-term debt to stockholders' equity was
106.5% for 1996 and 84.0% for 1995. The higher ratios in 1996 are the result
of the increase in long-term debt.
    During 1996, the Company paid quarterly cash dividends of $0.20 a
share.  For the year, dividends were $0.80 a share compared to $0.78 a share
in 1995, as quarterly dividends were raised to $0.20 a share from $0.18 a
share beginning with the second quarter of 1995.  Chesapeake's dividends
paid as a percentage of net cash provided by operating activities were 14%
for 1996, 13% for 1995, and 17% for 1994.  Outstanding common shares at
year-end 1996 totaled 23.4 million shares, a decrease of 0.4 million shares
from year-end 1995, as purchases of 0.6 million shares by the Company during
the year exceeded shares issued for employee benefit plans.  Shares
purchased in 1995 generally offset shares issued for benefit plans.  No
shares were purchased by the Company under board of directors' stock
purchase authorizations in 1994.  See Note 7 to the consolidated financial
statements for capital stock and additional paid-in capital information. 
Year-end 1996 stockholders' equity was $469.1 million, or $20.05 a share, up
slightly over year-end 1995.  The market price for Chesapeake's common stock
ranged from $23.13 per share to $31.75 per share in 1996, with a year-end
market price of $31.38 per share, up $1.75 a share from 1995's closing price
of $29.63 per share.


<TABLE> 
<CAPTION>                              1994      1995      1996
<S>                                    <C>      <C>        <C>

Graph:  Income from Operations              81.1     161.3      74.3
        (Millions of $) 

</TABLE>
                                   
Capital Expenditures
      Expenditures in 1996 for property, plant, and equipment and
acquisitions totaled $176.0 million and related primarily to growth
initiatives in the packaging and tissue businesses.  Acquisition
expenditures in 1996 were $47.2 million and included: the purchase of
substantially all assets of the Display Division of Dyment Limited with
locations in Erlanger, KY and Toronto, Canada; the acquisition of the
point-of-sale display and packaging businesses of Sailliard S.A. with 10
locations in France; the purchase of substantially all of the assets of Triad
Packaging Co., Inc., a manufacturer of corrugated containers in Richmond,
VA; 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.,
both in Mexico.  The remaining capital expenditures of $128.7 million in
1996 included: the second phase of the Visalia, CA, manufacturing plant for
the Company's Color-Box graphic packaging business; a new consumer graphic
packaging  manufacturing 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.  No other 1996 capital projects
were individually material.  Capital spending and acquisitions in 1995 were
$227.4 million, of which more than 60% were for acquisitions and other
growth-related projects.  Acquisition costs in 1995 totaled $69.7 million,
and included the purchase of the assets of the Flagstaff, AZ, tissue mill,
the tissue-converting facility in Greenwich, NY, and the Chicago, IL, tissue
mill.  The remaining capital expenditures of $157.7 million in 1995 related
primarily to the internal expansions of the packaging and kraft businesses.
These expenditures included the first phase of the manufacturing plant
located in Visalia, CA, for the Company's Color-Box graphic packaging
business; additional equipment at the existing Color-Box plant in Richmond,
IN; modernization of the North Tonawanda, NY, corrugated container plant; a
new tissue converting facility in Bellemont, AZ; and an upgrade of the No. 2
paper machine at the West Point, VA, kraft products mill.  Capital spending
in 1994 was $71.0 million and included the acquisition of Lawless Holding
Corporation, which included five packaging plants.  The remaining 1994
expenditures focused primarily on maintenance and reliability of the West
Point, VA, kraft products mill.               
 <TABLE> 
 <CAPTION>                             1994      1995      1996
<S>                                    <C>       <C>       <C>
Graph: Interest Expense                     31.1      30.8      33.9
       (Millions of $)                            

 </TABLE>  
 Planned capital spending for 1997 is expected to be about $100 million, a
level that approximates expected depreciation.  Planned initiatives include:
new tissue converting equipment at the Bellemont, AZ, and Greenwich, NY,
facilities; expansion of the Erlanger, KY, display and packaging plant; and
maintenance and reliability projects at the West Point, VA, kraft products
mill.  These projects are consistent with Chesapeake's strategy of expanding
the packaging and tissue businesses, reducing costs, and focusing capital
spending on projects that generate a high return on investment.  No other
1997 projects are expected to account for more than 5% of the total planned
spending.  Projected 1997 capital expenditures are expected to be funded
with internally generated cash.  See Note 13 to the consolidated financial
statements for information regarding capital commitments.  
Operating Results
1996 vs 1995
      Chesapeake's 1996 net sales were $1,158.6 million, down 6% from 1995's
record net sales of $1,233.7 million.  Higher shipments for all three
business segments, but most significantly the tissue segment, were more than
offset by substantially lower selling prices in the kraft products business. 
<TABLE>
<CAPTION>
                                       1994      1995      1996
<S>                                    <C>       <C>       <C>
Graph:  Capital Structure
        (Millions of $)
          Long-Term Debt                   364.0     393.6     499.4
          Deferred Taxes                   105.2     118.6     126.9
          Stockholders' Equity             393.3     468.3     469.1

</TABLE>

     Net income for 1996 was $30.1 million, or $1.27 a share, down  67% from
record net income of $93.4 million, or $3.88 a share, earned in 1995. 
Earnings for 1996 were unfavorably impacted by lower selling prices in the
kraft products segment and costs related to various growth initiatives in
the packaging and tissue businesses, offset in part by higher packaging and
tissue shipments and lower prices for recovered paper, a major raw material
for the tissue and kraft businesses.  Earnings for 1995 included a pre-tax
gain of $1.8 million, or $0.05 a share after tax, from the sale of the
Consumer Products business; a $3.0 million pre-tax, or $0.08 a share after
tax, reduction in earnings related to lost production associated with
completion of the No.2 paper machine rebuild project at the West Point, VA,
kraft products mill; and onetime pre-tax charges of $8.0 million, or $0.21 a
share after tax, associated with an enhanced retirement package for certain
hourly employees at Chesapeake Paper Products and with certain post-closing
obligations related to the sale of Chesapeake's wood treating operations.  
     Income from operations for 1996 was $74.3 million, down 54%  compared
to 1995's $161.3 million.  Depreciation increased $13.5 million over the
previous year due to higher capital investment.  Cost of products sold was
down $24.9 million, or 3%,  from 1995, but as a percentage of net sales
increased to 73% for 1996 compared to 70% for 1995.  Gross profit and
operating margins were down 4 points and 7 points, respectively, compared to
the previous year.  Selling, general and administrative expenses in 1996
increased $23.3 million, or 18%, compared to 1995, and were 13% of net sales
in 1996, compared to 11% last year. 
     Other income (net) in 1996 was $6.7 million, down $4.4 million, as a
result of the gains in 1995 on the sale of Consumer Products and the sale of
land that was no longer considered to be of strategic importance.   Interest
expense for 1996, net of $0.3 million of capitalized interest, was $33.9
million.  Interest expense for 1995 was $30.8 million, with no interest
capitalized during the year.  Excluding capitalized interest, interest
expense increased $3.4 million due to increased borrowings. 
Packaging
     The packaging segment was again the largest in terms of  revenue. 
Overall net sales were up 5% compared to 1995, and up 3% excluding the
European acquisition. The domestic point-of-sale display business led the
way with a 19% sales increase for the year.  For the sixth consecutive year,
this segment achieved record shipments, as shipments from domestic
operations were up for all three packaging businesses--point-of-sale
displays, consumer graphic packaging and corrugated shipping containers. 
The packaging segment's EBIT of $22.8 million for 1996 was down 38% from its
EBIT of $36.9 million for 1995, as this segment incurred start-up costs
related to various growth initiatives.  A fourth consumer graphic packaging
facility located in Pelahatchie, MS, came on-line during the year, as did a
new custom packing facility in Memphis, TN.  The Display Division of Dyment
Limited, with locations in Erlanger, KY, and Toronto, Canada, was acquired
in April, 1996, and in August, 1996, Chesapeake completed the acquisition of
Chesapeake Europe S.A., a point-of-sale display and packaging business in
France.  Growth is anticipated from our specialty packaging businesses as
sales and marketing efforts are expanded to effectively utilize the capacity
in our new facilities in the U.S. and Europe. 
<TABLE>
<CAPTION>
                                       1994      1995      1996
<S>                                    <C>       <C>       <C>
Graph:  Net Cash Provided by
          Operating Activities             103.6     143.7     131.2
        (Millions of $)                                    
</TABLE>
Tissue
     Wisconsin Tissue's net sales were a record in 1996, about 20% higher
than last year, excluding the sale of the Consumer Products business, which
was sold in the latter part of the fourth quarter of 1995.  Increased sales
from expanded mill and converting operations more than offset the loss of
sales attributable to the Consumer Products business.  Overall average
selling prices changed little from 1995, but tissue shipments of 305,000
tons were 30% higher than last year.  Almost 20% of shipments were from new
facilities in northern AZ, Chicago, IL, and Greenwich, NY.  The Flagstaff,
AZ, mill, and the Chicago, IL, mill purchased in May, 1995 and November,
1995, respectively, both operated for a full year in 1996.  The converting
site at Bellemont, AZ, became fully operational in the first quarter of 1996
and the Greenwich, NY, site, started up in the third quarter of 1996.  EBIT
for 1996 was a record, up 35% over the previous record set in 1995, and up
38% excluding the Consumer Products business.  Costs for recovered paper, a
major raw material for this segment, were down considerably from the high
prices experienced last year.  Tissue converted-product sales growth
continues to be strong and above industry growth rates.
<TABLE>
<CAPTION>
                                        1994     1995      1996
<S>                                    <C>       <C>       <C>
Graph:  Total Assets                  
        (Millions of $)
                
       Goodwill & Other Assets              95.1      83.8      100.9
       Current Assets                      275.4     281.6      325.8
       Property, Plant & Equipment         646.4     780.9      863.5 
        
</TABLE>
Kraft Products
     The kraft products segment, which earned more than $100 million in
1995, experienced an $89 million reduction in EBIT in 1996 to $11.3 million,
almost entirely due to reduced market pricing for its products.  Earnings
for 1995 included the charges related to an enhanced retirement program and
the charges related to post closing obligations for the Company's former
treated wood business.  There were no significant sales of non-strategic
land in 1996.  Gains on sales were $3.7 million in 1995.
     Earnings of Chesapeake Paper Products Company in 1996 declined
significantly from last year, due primarily to weak market conditions.  Net
sales were 29% lower than the prior year as selling prices were down for all
major product lines.  Average selling prices were 32% lower than last year,
with the largest decline in market pulp.  Shipments of 831,000 tons were up
8% from 1995, when  production was lost related to a rebuild of the No. 2
paper machine.  However, the rebuilt machine has increased production
capacity of the West Point, VA, mill by 70,000 tons per year.  Shipments of
specialty white-top paperboard, which has a higher profit margin than brown
paperboard, continued to increase.  Prices of recovered paper, a major raw
material, dropped significantly compared to 1995, favorably impacting costs
by nearly $25 million.       
     Earnings of Chesapeake Building Products declined somewhat from 1995's
results, as lumber markets were weaker for much of the year.  Net sales
increased 2% from 1995, as average selling prices were down with shipments
up slightly.
1995 vs 1994
      Chesapeake's 1995 net sales were a record $1,233.7 million, up 25%
over 1994's net sales of $990.5 million.  Higher shipments for the packaging
and tissue segments and greatly improved selling prices for most product
lines were responsible for the increase.  The Company's packaging segment
achieved its fifth consecutive year of record shipments in 1995. 
<TABLE>
<CAPTION>
                                       1994      1995      1996
<S>                                    <C>       <C>       <C>          
Graph:  Capital Expenditures           
          and Acquisitions                  71.0               227.4     176.0
        (Millions of $)

</TABLE>
    Net income for 1995 was a record $93.4 million, or $3.88 a share, up 2.5
times the $37.6 million, or $1.58 a share, earned in 1994.  Earnings for
1995 included: a pre-tax gain of $1.8 million, or $0.05 a share after tax,
from the sale of the Consumer Products business; a $3.0 million pre-tax, or
$0.08 a share after tax, reduction in earnings related to lost production
associated with completion of a paper machine rebuild project at the West
Point,  VA, kraft products mill; and one-time pre-tax charges of $8.0
million, or $0.21 a share after tax, associated with an enhanced retirement
package for certain hourly employees at Chesapeake Paper Products and with
certain post-closing obligations related to Chesapeake's former wood
treating operations.  Included in 1994 earnings was a pre-tax charge of $4.4
million, or $0.12 a share after tax, reflecting a change in the method of
accounting for certain inventories in the tissue and packaging segments from
the average cost valuation method to the LIFO valuation method.  Also
included in 1994 results was a pre-tax charge of $4.9 million, or $0.13 a
share after tax, associated with an enhanced retirement program for certain
salaried employees at Chesapeake Paper Products Company and Chesapeake
Forest Products Company. 
<TABLE>
<CAPTION>
                                        1994      1995      1996
<S>                                     <C>       <C>       <C>
Graph: Earnings Per Share                    1.58      3.88      1.27
        (Dollars)                                

</TABLE>
     Income from operations for 1995 was $161.3 million, or nearly twice
1994's $81.1 million.  Depreciation increased $2.7 million over 1994 due to
higher capital spending.  Income for 1995 was reduced as a result of lost
production associated with the No. 2 paper machine rebuild project. 
Operating expenses for 1995 and 1994 included one-time charges related to
the enhanced retirement programs, while operating expenses for 1994 included
the charge relating to the expansion of the LIFO method of valuing certain
inventories.  Cost of products sold was up $144.2 million, or 20%, from
1994, but as a percentage of net sales dropped to 70%  for 1995 compared to
73% for 1994.  Gross profit and operating margins for 1995 were up 4 points
and 5 points, respectively, compared to 1994.  Selling, general, and
administrative expenses in 1995 increased $16.1 million, or 14%, compared to
1994, but were 11% of net sales in 1995, compared to 12% in 1994. 
     Other income (net) in 1995 was $11.1 million, up $2.9 million from
1994, as a result of the gain on the sale of the Consumer Products business
and the sale of land that was no longer considered to be of strategic
importance.  Interest expense for 1995 was $30.8 million, with no interest
capitalized during the year.  Interest expense for 1994, net of $0.5 million
of capitalized interest, was $31.1 million.  Excluding capitalized interest,
interest expense decreased $0.8 million. 
Packaging
     The packaging segment was the largest in terms of  revenue in 1995, as
net sales and shipments were at record levels for all three packaging
businesses--point-of-sale displays, consumer graphic packaging, and
corrugated shipping containers.  Higher-margin point-of-sale displays showed
the strongest improvement, continuing the momentum begun in 1994.  Net sales
of point-of-sale displays were up 36% and shipments were up 15% compared to
1994.  Overall net sales in 1995 were up 29% compared to 1994.  Chesapeake
Packaging's EBIT of $36.9 million for 1995 improved 49% from its EBIT of
$24.7 million for 1994. Packaging results for 1994 included the change in
the method of valuing certain inventories to the LIFO  method, which
resulted in a pre-tax charge to operations of $0.5 million.  The graphic
packaging plant at Visalia, CA, which began production late in the second
quarter of 1995, was in full operation by the end of the year. <PAGE>
<TABLE>
<CAPTION>
                                        1994     1995      1996
<S>                                     <C>      <C>       <C>
Graph:  Common Stock Price Range
          & Stockholders' Equity       
        (Dollars)

       Equity Per Share                     16.56     19.68     20.05            
       Common Stock Price Range               
             High                           35.88     39.00     31.75 
             Low                            22.25     27.50     23.13
</TABLE>

Tissue
     Wisconsin Tissue's net sales for 1995 were 23% higher than in  1994 as
a result of higher selling prices, an improved product mix for converted
products, and strategic growth initiatives.  Selling prices were up 16%,
while tissue shipments of 235,000 were 8% higher than 1994.  EBIT for 1995
was a then-record, up 18% over the previous record set in 1994, despite
recovered paper costs adding approximately $30 million in costs compared to
1994.  Recovered paper costs moderated during the second half of 1995.  The
change in the method of valuation of raw materials, work in process, and
finished goods inventories of Wisconsin Tissue from the average cost method
to the LIFO method resulted in a charge of $3.9 million in 1994.  Results of
the tissue segment in 1994 were positively impacted by a nonrecurring
settlement gain.  The Flagstaff, AZ, mill, purchased in May, 1995,
successfully began operating in the third quarter, and construction of a
tissue converting facility in Bellemont, AZ, was near completion by the end
of the year.  The acquisition of Chicago Tissue was concluded in November
1995.  These acquisitions increased primary tissue production capacity by
90,000 tons per year, or approximately 50%.  The Greenwich, NY, facility was
acquired in the third quarter of 1995, with plans to operate it as an
additional tissue converting plant. 
      The Consumer Products business achieved its second positive EBIT in
1995, with net sales increasing to approximately $48 million, up 5% from
1994.  During 1995,  Chesapeake announced its intention to sell this
business.  Although many improvements had been made in this business,
resulting in profitability in 1994 and 1995, the Company determined it had
better strategic alternatives for its capital.  The sale of this business to
The Fonda Group, Inc. was completed on December 29, 1995.
<TABLE>

<CAPTION>                              1994      1995      1996
<S>                                    <C>       <C>       <C>
Graph:   Return on Common
           Stockholders' Equity             10.2%     23.7%      6.4%
      (Percent)                                                   
</TABLE>

Kraft Products
     EBIT for the kraft products segment was $100.4 million in 1995,
compared to $36.1 million in 1994.  Earnings for both years included charges
related to enhanced retirement programs.  Earnings for 1995 also included
charges for post-closing obligations related to the Company's former treated
wood business.  Gains on the sale of land no longer considered to be of
strategic importance were $3.7 million in 1995, compared to $0.6 million in
1994.
     Earnings of Chesapeake Paper Products Company in 1995 improved
significantly from 1994, due primarily to higher selling prices.   Net sales
improved 21% over 1994 as selling prices were up for all major product
lines.  Average selling prices in 1995 were 41% higher than in 1994.  The
largest gains were in market pulp.  Shipments of 769,000 tons were down 10%
from 1994 due to lost production associated with a rebuild of the No. 2
paper machine and weaker market conditions near the end of 1995. However,
the rebuilt machine increased production capacity of the West Point, VA,
mill by 70,000 tons per year.  Specialty white top paperboard, which has a
higher profit margin than brown paperboard, increased to 90% of the
paperboard mix compared to approximately 83% in 1994.  Prices of recycled
paper, a major raw material, dropped significantly by year-end 1995 from a
mid-year peak, but averaged 50% higher in 1995 than in 1994, and added
approximately $17.0 million in additional costs compared to 1994. 
     Earnings of Chesapeake Building Products in 1995 declined somewhat from
1994's excellent results, as lumber markets were weaker for most of the
year.  Selling prices and shipments for lumber were down, causing net sales
to decline by 9%.
Other
     More information about Chesapeake's businesses is provided under the
caption "Business Segment Highlights"  and in Note 14 to the consolidated
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 materially adverse effect on the
Company's earnings, financial position, or competitive position.  See Note
13 to the consolidated financial statements on page 32 for further capital
spending information relating to environmental compliance.
     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.  Except for the United States Department of Interior, Fish and
Wildlife Service ("FWS") claims related to the Fox River discussed below,
the Company is not presently named 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
or results of operation.
     In June 1994, the FWS, a federal natural resources trustee, notified
Wisconsin Tissue ("WT"), a wholly-owned subsidiary of the Company, 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.  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 Fox River.  The FWS is proceeding with a natural resource damage
assessment with respect to the alleged discharges and on January 31, 1997,
the FWS notified WT of it intent to file suit, subject to final approval by
the Department of Justice, against WT to recover natural resource damages. 
WT and other PRPs are engaged in negotiations with the parties asserting
trusteeship of the natural resources concerning the proposed damage
assessment and restoration plans.
     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.  The PRPs
have signed an interim partial settlement with Wisconsin.  WT's obligation
under the interim settlement would not be material to the Company's
financial position or results of operations.  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 ultimate cost to WT, if any, associated with this matter 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; the uncertain extent of any
contamination; the varying costs of alternative clean-up methods; the
evolving nature of clean-up technologies and governmental regulations; 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.  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 all 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.
     In March 1995, the United States Environmental Protection Agency
("EPA") issued "Final Guidance" for basin-wide water quality standards
pursuant to the Great Lakes Water Quality Agreement between the U.S. and
Canada regarding the development of water quality standards for the Great
Lakes and their tributaries.  The State of Wisconsin is in the process of
modifying state regulations to comply with the Final Guidance.  Assuming
state approval, compliance with the modified state regulations will be
required as early as the third quarter of 1997. Based on the regulations as
presently proposed by Wisconsin, WT does not anticipate significant capital
expenditures or additional operating costs in complying with the modified
regulations. 
     The EPA has published 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 definitive Cluster Rules,
when promulgated, are expected to require compliance within three years
after the date of adoption.  The rules as currently proposed would primarily
affect the Company's bleached kraft products mill in West Point, VA.  Based
on the Company's preliminary estimates, if the Cluster Rules were adopted in
substantially the form currently proposed, compliance would require capital
expenditures totaling not more than approximately $55.0 million at the
Company's two largest paper mills located in West Point, VA, and Menasha,
WI.  The eventual capital expense impact on the Company of compliance with
the definitive 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 markets; and
developments in compliance technology.  The additional effect, if any, on
the Company's business of compliance with the definitive Cluster Rules will
depend on a number of other factors, including: the domestic and
international competitive effects of compliance; and the effect of evolving
consumer demands related to environmental issues on the Company and its
competitors. 
     Chesapeake operates under, and believes that it is in substantial
compliance with, the terms of various air emission and water and effluent
discharge permits and other environmental regulations.               
      The "Financial Review" may include "forward-looking statements" that
involve risks and uncertainties.  Political, climatic, currency, regulatory,
technological, competitive, and other factors could cause actual results to
differ materially from those anticipated in the forward-looking statements. 
Additional information regarding these risk factors and uncertainties is
detailed from time to time in Chesapeake Corporation's SEC filings.

                    OPERATING MANAGERS AND LOCATIONS
                      (as of December 31, 1996)





KRAFT PRODUCTS                    
CHESAPEAKE PAPER PRODUCTS COMPANY
  Thomas Blackburn
    West Point, VA

CHESAPEAKE FOREST PRODUCTS COMPANY
  Thomas Blackburn
   Jack C. King
    West Point, VA
     Pocomoke City, MD
     Elizabeth City, NC
     Keysville, VA
  Chesapeake Building Products Company
       Princess Anne, MD
       Keysville, VA
       Milford, VA
       West Point, VA

  
TISSUE                    
WISCONSIN TISSUE MILLS INC.
  William A. Raaths
       Menasha, WI
        Bellemont, AZ
        Flagstaff, AZ
        Chicago, IL
        Greenwich, NY
        Neenah, WI

WISCONSIN TISSUE de MEXICO, S.A. de C.V.
  Alberto Navarro Bori
       Mexico, D.E.*
        Guadalajara*
        Monterrey
        Puebla*

<PAGE>
OPERATING MANAGERS AND LOCATIONS, (Continued)


PACKAGING                                    
SPECIALITY PACKAGING & MERCHANDISING SERVICES
    Andrew J. Kohut
    Chesapeake Display and Packaging Company
       George F. Barnes
         Winston-Salem, NC
          Marion, IA 
          Erlanger, KY
          Rural Hall, NC*
          Pennsauken, NJ*
          Sandusky, OH*
          Memphis, TN*
          Toronto, Ontario, Canada
    Color-Box, Inc.
       Jack L. Creech
         Richmond, IN
          Visalia, CA
          Pelahatchie, MS
          Buffalo, NY
   Chesapeake Europe S.A. (France)
      Vincent W. Hockett
         Noisy-le-Grand
          Chesapeake Coffrets
           Ezy sur Eure
           Noisy-le-Grand
          Linea
           Angouleme*
          Plastiphane
           Migennes
          Raab-Pige
           Avallon
           Noisy-le-Grand
           St. Pierre des Corps
           Ussel
          Sailliard PLV
           Noisy-le-Grand
           Rosny sous Bois
<PAGE>
OPERATING MANAGERS AND LOCATIONS, (Continued)


   Chesapeake Packaging Co.
       Robert F. Schick
        Edward R. Badyna
            Binghamton, NY
            Scranton, PA
       Anthony S. Brozna
            Richmond, VA
       Edward P. Godsey
            Baltimore, MD
       John A. Goodloe
            Roanoke, VA
       Wesley N. Herman
            Le Roy, NY
            North Tonawanda, NY
            Scotia, NY
       Terry R. Jenkins
            St. Anthony, IN
            Louisville, KY
       Ronald J. Marchewka
            Madison, OH



LAND DEVELOPMENT
  Joel K. Mostrom
     Delmarva Properties, Inc.
         West Point, VA*
    Stonehouse Inc.
         Williamsburg, VA*


Corporate Headquarters
1021 East Cary Street, Box 2350
Richmond, VA  23218-2350*
804/697-1000                              


* Leased real property