SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended May 31, 2000 Commission File Number: 1-9852
CHASE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 11-1797126
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
26 Summer St.
Bridgewater, Massachusetts 02324
(Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Common Shares Outstanding as of June 30, 2000 3,981,099
PART 1: FINANCIAL INFORMATION
CHASE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
May 31, Aug.31,
2000 1999
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $17,672 $185,269
Trade receivables,less allowance
for doubtful accounts of $249,900 and
$257,049 respectively 11,608,715 8,870,786
Note receivable from related party 107,582 107,582
Inventories(Note B)
Finished and in process 3,634,679 2,041,496
Raw materials 5,996,957 5,407,813
---------- ---------
9,631,636 7,449,309
Prepaid expenses & other curr assets 274,877 330,710
Deferred taxes 139,950 90,294
---------- ---------
TOTAL CURRENT ASSETS 21,780,432 17,033,950
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 514,423 322,423
Buildings 4,479,167 3,587,304
Machinery & equipment 15,650,394 14,609,754
Construction in progress 1,219,928 835,445
---------- ----------
21,863,912 19,354,926
Less allowance for depreciation 13,000,157 12,047,487
---------- ----------
8,863,755 7,307,439
OTHER ASSETS
Note receivable from related party
Excess of cost over net assets of
acquired businesses less amortization 8,812,836 9,304,559
Patents, agreements and trademarks
less amortization 872,904 946,193
Cash surrender value of life ins. net 3,313,229 2,931,984
Deferred taxes 63,266 81,266
Investment in joint venture 1,100,797 1,044,797
Other 641,325 333,948
---------- ----------
14,804,357 14,642,747
---------- ----------
$45,448,544 $38,984,136
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, Aug.31
2000 1999
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Accounts payable $7,323,934 $4,387,943
Notes payable 2,086,840 1,576,477
Accrued expenses 1,961,578 2,456,838
Accrued pension expense - current 231,504 251,273
Income taxes (534,199) 53,008
Deferred compensation 13,509 41,999
Current portion of L.T. debt 2,543,497 2,540,457
--------- ---------
TOTAL CURRENT LIABILITIES 13,626,663 11,307,995
LONG-TERM DEBT, less current portion 7,476,212 6,508,471
Long-term deferred compensation
obligations 637,804 338,582
ACCRUED PENSION EXPENSE 601,879 294,023
STOCKHOLDERS' EQUITY
First Serial Preferred Stock, par value
$1.00 a share authorized 100,000
shares; (issued-none)
Common Stock. par value $.10 a share,
Authorized 10,000,000 shares; issued
and outstanding 5,069,683 shares at
May 31, 2000 and 4,994,928 shares at
Aug. 31, 1999 respectively 506,968 499,493
Additional paid-in capital 3,587,888 3,466,834
Treasury Stock, 1,088,584 and 1,088,584
May 31, 2000, and August 31, 1999,
respectively. (4,687,565) (4,687,565)
Cum. G/(L) on currency translation (192,667) (188,331)
Retained earnings 23,891,362 21,444,634
---------- -----------
23,105,986 20,535,065
---------- -----------
$45,448,544 $38,984,136
=========== ===========
See accompanying notes to the consolidated financial
statements and accountants' review report.
CHASE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
Nine Months Ended Three Months Ended
May 31, May 31, May 31, May 31,
2000 1999 2000 1999
Sales $48,284,762 $34,855,355 $18,529,601 $12,928,890
Commissions and other income 395,040 220,163 134,691 66,675
Interest 453 42,600 124 12,468
----------- ----------- ----------- -----------
48,680,255 35,118,118 18,664,416 13,008,033
Cost and Expenses
Cost of products sold(Note B) 34,219,945 23,258,195 13,367,438 8,716,368
Sell.,gen. and admin. expen. 8,596,519 6,913,575 3,054,715 2,340,292
Bad debt expense (1,247) 30,300 10,080 9,100
Interest expense 659,202 139,368 248,598 57,903
----------- ----------- ---------- ----------
43,474,419 30,341,438 16,680,831 11,123,663
=========== =========== ========== ==========
Income before income taxes and minority
interests and participations 5,205,836 4,776,680 1,983,585 1,884,370
Income taxes 1,759,900 1,781,900 672,900 659,400
---------- ----------- --------- ----------
Income before minority interests
and participations 3,445,936 2,994,780 1,310,685 1,224,970
Income from minority interest 251,000 180,000 85,000 55,000
Minority participation in subsidary 99,633 -
---------- --------- --------- ---------
NET INCOME $3,696,936 $3,274,413 $1,395,685 $1,279,970
========== ========== ========== ==========
Net income per share of Common Stock
Basic $ 0.942 $ 0.840 $ 0.353 $ 0.328
========== ========== ========== ==========
Fully Diluted $ 0.929 $ 0.823 $ 0.348 $ 0.321
========== ========== ========== ==========
See accompanying notes to the consolidated financial statements
and accountants' review report.
CHASE CORPORATION
CONSOLATED STAREMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
9 MONTHS ENDED MAY 31, 2000 AND MAY 31, 1999
Cumulative
Common Stock Additional Effect of Total
Shares Paid-In Treasury Stock Retained Currency Shareholders'
Issued Amount Capital Shares Amount Earnings Translation Equity
Balance @ Aug. 31, 1998 4,977,650 $497,765 $3,370,066 1,072,084 $(4,535,476) $17,330,039 $(238,728) $16,423,666
Curr. translation adjmt. 58,651 58,651
Exer.of stock options 16,216 1,621 (1,621) -
Compensatory stock issuan 73,872 73,872
Purchase of treasury stock 16,500 (152,089) (152,089)
Net Income for 9 months 3,274,413 3,274,413
Dividends paid in cash
$.28 a share on common stock (1,093,715) (1,093,715)
--------------------------------------------------------------------------------------------
Balance @ May 31, 1999 4,993,866 499,386 3,442,317 1,088,584 (4,687,565) 19,510,737 (180,077) 18,584,798
Curr. translation adjmt. (8,254) (8,254)
Exer.of stock options 1,062 107 (107) -
Compensatory stock issuan 24,624 24,624
Net Income for 3 months 1,933,897 1,933,897
--------------------------------------------------------------------------------------------
Balance @ Aug. 31, 1999 4,994,928 499,493 3,466,834 1,088,584 (4,687,565) 21,444,634 (188,331) 20,535,065
Curr. translation adjmt. (4,336) (4,336)
Tax effect of non ISO
stock issued 54,656 54,656
Exer. Of stock options 74,755 7,475 (7,475)
Compensatory stock issuance. 73,873 73,873
Net income for 9 months 3,696,936 3,696,936
Dividends paid in cash
$.32 a share on common stock (1,250,208) (1,250,208)
--------------------------------------------------------------------------------------------
Balance @ May 31, 2000 5,069,683 $506,968 $3,587,888 1,088,584 $(4,687,565) $ 23,891,362 $(192,667) $23,105,986
============================================================================================
See accompanying notes to the consolidated financial statements
and accountants' review report
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
May 31, May 31,
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
Net Income $3,696,936 $3,274,413
Adjmts. to reconcile net income to net
cash provided by operating activities:
Income from joint venture (251,000) (300,002)
Minority interest 0 (99,633)
Depreciation 982,338 689,486
Amortization 565,012 187,485
Provision for losses on accts. receivable (7,149) 32,765
Stock issued for compensation 73,873 73,872
Tax effect of cashless option exercise 54,656 0
Deferred taxes (31,656) (9,000)
Change in assets and liabilities
Trade receivables (2,730,780) (118,846)
Inventories (2,182,327) (626,839)
Prepd. expenses & other curr. assets 55,833 37,158
Accounts payable 2,935,991 147,975
Accrued expenses (207,173) (971,322)
Income taxes payable (587,207) (97,501)
Deferred compensation 270,732 104,808
---------- ---------
TOTAL ADJUSTMENTS (1,058,857) (949,594)
NET CASH FROM OPERATIONS 2,638,079 2,324,819
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,542,990) (2,482,637)
Cash paid for investment (30,000)
Cash paid for acuisition of RWA, Inc.
less cash received (5,024,769)
Investment in trusteed assets (307,377) (130,996)
Purchase of cash surrender value (381,245) (381,099)
Proceeds from note receivable 0
Dividend received from joint venture 225,000 0
--------- ----------
(3,036,612) (8,019,501)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 9,200,000 5,052,970
Payments of principal on debt (8,229,219) (341,850)
Net borrowing under line-of-credit 510,363 260,679
Dividend paid (1,250,208) (1,093,714)
Purchase of Common Shares for Treasury 0 (152,089)
---------- ----------
230,936 3,725,996
NET CHANGE IN CASH (167,597) (1,968,686)
CASH AT BEGINNING OF PERIOD 185,269 2,296,384
---------- ----------
CASH AT END OF PERIOD $ 17,672 $ 327,698
========== ==========
CASH PAID DURING PERIOD FOR:
Income taxes $2,321,400 $1,799,600
Interest $ 485,134 $ 438,351
See accompanying notes to the consolidated financial statements
and accountants' review report.
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
July 13, 2000
Note A - Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with the instructions to Form 10-Q and all adjustments
(consisting of nonrecurring accruals) have been made which are, in the
opinion of Management, necessary to a fair statement of the results for the
interim periods reported. The financial statements of Chase Corporation
include the activities of its divisions and its foreign sales subsidiary.
Note B - Inventories
Certain divisions used estimated gross profit rates to determine the cost of
goods sold. No significant adjustments have resulted from reconciling with
the interim physical inventories as a result of using this method.
Note C - Income per Share of Common Stock
Income per share is based on the average number of shares and share
equivalents outstanding during the period. The average number of shares
outstanding used in determining basic per share results was 3,926,460 and
3,958,629 for the period of nine months and three months ended May 31, 2000.
Earnings per share on a fully diluted basis were calculated on 3,981,126 and
4,013,827 common shares and share equivalents. Common share equivalents arise
from the issuance of certain stock options.
Note D - Review by Independent Public Accountant
The financial information included in this form has been reviewed by an
independent public accountant in accordance with established professional
standards and procedures. Based upon such review, no adjustments or
additional disclosures were recommended.
Letter from the independent public accountant is included as a part of this
report.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Chase Corporation
Bridgewater, Massachusetts
We have reviewed the consolidated balance sheet of Chase
Corporation and Subsidiaries as of May 31, 2000, and the
related consolidated statements of operations, stockholders'
equity, and cash flows for the periods of three and nine months
ended May 31, 2000, and May 31, 1999, in accordance with
Statements on Standards for Accounting and Review Services issued
by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation
of the management of Chase Corporation.
A review of interim financial information consists principally of
obtaining an understanding of the system for the preparation of
interim financial information, applying analytical procedures to
financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Chase
Corporation and Subsidiaries as of August 31, 1999, and the
related statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our
report dated November 24, 1999, we expressed an unqualified
opinion on those financial statements. In our opinion, the
information set forth in the accompanying consolidated balance
sheet as of August 31, 1999, is fairly stated in all material
respects in relation to the consolidated balance sheet from which
it has been derived.
/S/ LIVINGSTON & HAYNES, P.C.
Wellesley, Massachusetts
July 12, 2000
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net revenues for the third quarter and for the nine months ended May 31,
2000 of increased by 43% and 39% respectively over comparable periods in
1999. A significant amount of the increase was the result of our investments
and acquisitions within our Electronic Manufacturing Services (EMS) segment.
When comparing fiscal 1999 to the previous year, the period to date increase
of 4% related to the continued market penetration within the electronic cable
market along with the benefit of some sales from our acquisition of RWA, Inc.
During fiscal 1999, the Company acquired the remaining interest in its
subsidiary, Sunburst EMS, and in May 1999 acquired RWA, Inc. Effective
February 1, 2000 the Company acquired the assets of Netco Automation. These
companies participate within the electronic manufacturing services industry.
Therefore, the Company now has two reportable segments, Specialized
Manufacturing and Electronic Manufacturing Services.
Sales and Operating Profit by Segment
($-000) Electronic
Specialized Manufacturing
Manufacturing Services
For the 9 Months ended 05/31/00:
Sales $ 36,536 $ 14,217
Operating Profit $ 6,885 $ 1,029
During the first nine months of fiscal 1999, the Electronic Manufacturing
Services segment accounted for less than 10% of the sales, operating profit
or the assets of Chase Corporation.
Cost of products sold increased in both the current quarter and year to date
when compared to the previous period. To a large extent, this amount is
volume related. For the first nine months as a percent of sales, there was
an increase of 4%. The percentage increase is largely due to some increases
in raw materials, selling price erosion associated with some new large volume
contracts and the increased volume through our Electronic Manufacturing
Services segment. When comparing the like period of fiscals 1999 and 1998,
there was an increase of only 1%. This small increase was due to some increase
to certain raw materials and product mix. The Company's products associated
with the Specialized Manufacturing segment are largely mature and some are
highly competitive which could result in lower margins. Competitive pressure
prevents us from being able to recover all our material price increases from
our customers.
Selling and administrative expenses are higher during the current year
compared to the previous year, basically the result of the volume increase
associated with acquisitions. However, as a percent of sales, these expenses
decreased by 1.3%. We continue to invest in the personnel required to
support increased revenue and profitability. Fiscal 1999 expenses were lower
than the previous fiscal year due to a reduction in certain warranty and
administrative related costs associated with a large bridge construction
contract and the elimination of the need to future adjust the values of certain
investments. The Company will continue to be focused on expense reduction
while maintaining and improving the quality of our products and services to
the marketplace.
Interest expense increased to $659,000 as compared to $139,000 and $203,000
respectively against the 1999 and 1998 fiscal years. The increase is
associated with the borrowing required to complete our investments and
acquisitions and increases to our cost of borrowing associated with the
interest rate adjustments. During the prior periods the Company received
the benefit of a large cash dividend declared and paid by our joint venture
partner, The Stewart Group, Inc. The Company continues to benefit from solid
earnings and low borrowing rates from its financial institutions.
A majority of the earnings improvement this fiscal year as compared to last
year were related to the financial benefits received from the investments in
the Electronic Manufacturing Services segment primarily concluded over the
last few months of fiscal 1999. Sales and profitability from our traditional
Specialized Manufacturing group remained solid although somewhat effected by
certain economic factors which have created a higher cost structure that had
not been passed on to customers.
When comparing fiscal 1999 vs. 1998, during the third quarter of 1999 we
benefited somewhat from the acquisition of RWA, Inc. There were also
reductions in certain costs when compared to the previous year related to a
major bridge construction project and also the elimination of the need to
adjust the value of certain prime period investments.
The effective tax rates for the periods to date are lower than the effective
tax rates. In both years the Company received the benefit of solid export
sales through our Chase Export Corporation subsidiary. Also, effective
January 1999, Chase acquired 100% ownership of Sunburst EMS that enabled us
to consolidate its losses for income tax purposes.
The income from minority interest relates to our equity position ownership
in The Stewart Group, Inc., Toronto, Canada.
Minority participation in subsidiary during the prior year represented the
Company's 49.9% equity in the losses of Sunburst EMS. In January 1999, the
Company acquired 100% ownership of Sunburst EMS.
Liquidity & Sources of Capital
The ratio of current assets to current liabilities was 1.6 at the end of the
second quarter of fiscal 2000 as compared to 1.5 at the prior year-end.
When compared to the previous year end, total liabilities increased by
$3,900,000 while long term debt increased by almost $1,000,000. Sales for
the nine months ended 05/31/00 have increased 39%. Our liabilities increase
is associated with the increase to inventory and receivables which were
affected by the sales increases. The Company has also exercised it's option
to purchase the Webster, MA manufacturing facility.
The Company had $2,160,000 in available credit at May 31, 2000 under its
credit arrangements with its bank and plans to utilize this means to help
finance its interim needs during the year. Current financial resources and
anticipated funds from operations are expected to be adequate to meet
requirements for funds in the year ahead.
Forward-Looking Information
From time to time, the Company may publish, verbally or in written form,
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. In fact, this Form
10-Q (or any other periodic reporting documents required by the 1934 Act) may
contain forward-looking statements reflecting the current views of the
Company concerning potential future events or developments. The Private
Securities Litigation Reform Act of 1995 (the "ACT") provides a "safe harbor"
for forward-looking statements. In order to comply with the terms of the
"safe harbor," the Company cautions investors that any forward-looking
statements made by the Company are not guarantees of future performance and
that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties which may affect the operations, performance, development and
results of the Company's business include, but are not limited to, the
following: uncertainties relating to economic conditions; uncertainties
relating to government and regulatory policies; uncertainties relating to
customer plans and commitments; the pricing and availability of equipment,
materials and inventories; technological developments; performance issues with
key suppliers and subcontractors; worldwide political stability and economic
growth; regulatory uncertainties; delays in testing of new products; rapid
technology changes and the highly competitive environment in which the
Company operates. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statement was
made.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Reg. S-K
Item 601
Subsection Description of Exhibit State Page Number
Pursuant to reg. S-K item 601
no exhibits are required.
(b) Reports on Form 8-K
No 8-K reports were filed during the nine months ended
May 31, 2000.
No financial statements were filed during the nine months
ended May 31, 2000.
Pursuant to the requirements of the
Securities Exchange Act of 1934, the
registrant has duly caused this report to
be signed on its behalf by the undersigned
thereunto duly authorized.
CHASE CORPORATION
/s/ Peter R. Chase
Peter R. Chase, President & CEO
Dated: July 13, 2000