SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-K-A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 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 Street, Bridgewater, Massachusetts 02324
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 279-1789
Securities registered pursuant to section 12(b) of the Act:
Common Stock, $.10 par value American Stock Exchange
(Title of class) (Name of each exchange on which
registered)
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.10 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [x]
As of October 31,2000, the Company had outstanding 3,989,603 shares of
common stock, $.10 par value, which is its only class of common stock;
and the aggregate market value of the voting stock held by non-affiliates
of the registrant was $36,405,000.
DOCUMENT INCORPORATED BY REFERENCE
The registrant's definitive proxy statement (the "Definitive Proxy
Statement") to be filed in connection with the Annual Meeting of
Shareholders to be held on January 16, 2001, is incorporated by this
reference into items 10-13 hereof.
Item 1. Business.
General Development and Industry Segment.
Chase Corporation (the "Company") is a multi-divisional advanced
manufacturing company providing industrial products to a wide variety of
industries including wire and cable, construction and electronics. During
fiscal 1991, the Company implemented a strategy of maximizing the core
businesses while seeking future opportunities through selective
acquisitions. During 1992, a facility that manufactures tape and related
products in Webster, Massachusetts became operational. In April 1992,
the Company acquired certain tape product lines and associated assets for
cash from The Stewart Group, Ltd. This division, Chase Canada, maintains
manufacturing operations in Winnipeg, Manitoba, Canada. Effective May
25, 1994, the Company purchased the electrical cable insulation tape
product lines and certain associated assets from Haartz Mason, Inc. and
these products were folded into the Chase & Sons division. On June 5,
1995, the Company formed a joint venture with The Stewart Group, Ltd.
which was called The Stewart Group, Inc. This venture produced a variety
of dielectric strength members from composite materials and sold into the
fiber optic cable market. The original investment was increased on
February 1, 1996 and at that time the Company owned 42% of the venture.
It was announced on May 16, 1997 that the majority of the assets related
to the original business were sold to Owens Corning. The venture will
continue to provide consulting services to Owens Corning while pursuing
other market opportunities. On June 29, 1995, certain assets of Fluid
Polymers, Inc. of Las Vegas, Nevada were acquired and then relocated to
the Royston facility. On August 7, 1996 the Company announced that it had
purchased a 20% interest in DC Scientific and then purchased a
controlling interest on January 16, 1997. On January 27, 1999 the
Company acquired the remaining interest of DC Scientific Inc. and changed
the name to Sunburst Electronic Manufacturing Solutions Inc., (Sunburst
EMS). The Company expanded its electronic manufacturing holding on May
26, 1999 with the acquisition of RWA, Inc, Melrose, MA. and acquired the
assets of NETCO Automation, Inc. effective February 1, 2000. Northeast
Quality Products, Co. Inc., Newburyport, MA, a specialty printer producing
custom pressure sensitive labels, was acquired July 29, 1999. There have
not been any other material changes or developments since September 1,
2000.
As of October 31, 2000 the Company employed approximately 347
people.
Products and Markets.
The Company's principal products are protective coatings and tape
products that are sold by Company salespeople and manufacturers'
representatives. These products consist of: (i) insulating and
conducting materials for the manufacture of electrical and telephone wire
and cable, electrical splicing, and terminating and repair tapes which
are marketed to wire and cable manufacturers and public utilities; (ii)
protective pipe coating tapes and other protectants for valves,
regulators, casings, joints, metals, concrete, and wood that are sold to
oil companies, gas utilities, and pipeline companies; (iii) protectants
for highway bridge deck metal supported surfaces sold to municipal
transportation authorities; (iv)thermo-electric insulation for
transformers, motors, and other electrical equipment that are sold to
original equipment manufacturers; (v)moisture protective coatings that
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are sold to the electronics industry. The Company's electronic
manufacturing group, Sunburst EMS, RWA, Inc. and NETCO Automation,
provide circuit board assembly services to electronic goods
manufacturers. There are no material seasonal aspects to the
Company's business and the Company has introduced no new products or
segments requiring an investment of a material amount of the Company's
assets.
Backlog, Customers and Competition.
As of October 31, 2000, the backlog of orders believed to be firm
was about $12,951,000, of which $9,974,000 was related to our electronic
contract-manufacturing group. This compared with a total of $7,888,000
as of October 29, 1999 with $5,949,000 associated with electronic
manufacturing. The backlog is not seasonal. Prior to fiscal 1999, no
domestic customer accounted for more than ten percent of sales. During
fiscal years 2000 and 1999 one customer accounted for approximately 12%
and 15%, respectively, of total sales. No material portion of the
Company's business is subject to renegotiation or termination of profits
or contracts at the election of the government.
There are other companies that manufacture or sell products and
services similar to those made and sold by the Company. Many of those
companies are larger and have greater financial resources than the
Company. Competition is principally based on technical performance,
service reliability, quality and price.
Raw Materials.
The Company obtains raw materials from a wide variety of suppliers
with alternative sources of all essential materials available within
reasonable lead times.
Patents, Trademarks, Licenses, Franchises and Concessions.
Other than Humiseal, a trademark for moisture protective coatings
sold to the electronics industry, Chase BLH2OCK, a trademark for water
blocking compound sold to the wire and cable industry, and Rosphalt50, a
trademark for an asphalt additive used predominantly on bridge decks for
waterproofing protection, there are no material trademarks, licenses,
franchises, or concessions. The Company holds various patents, but
believes that at this time they are not material to the success of the
business.
Working Capital and Research and Development.
There are no special practices followed by the Company relating to
working capital. Approximately $620,000, $618,000,and $574,000 was spent
for Company-sponsored research and development during the fiscal years
2000, 1999 and 1998, respectively.
Financial Information about Foreign and Domestic Operations and Export
Sales.
Export sales from continuing domestic operations to unaffiliated
third parties were $4,936,000, $4,460,000,and $5,207,000 for the years
ended August 31, 2000, 1999 and 1998, respectively. The Company does not
anticipate any material change to export sales during fiscal 2001. The
Company's products are sold worldwide with no foreign geographic area
accounting for more than 10% of revenues. The Company's Canadian
operations accounted for 5.4% of consolidated sales and 2.0% of its
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assets.
The Company has very limited currency exposure since all invoices,
except those from the Canadian operation to Canadian customers, are
denominated in US dollars. The Company maintains minimal cash balances
in Canada and, other than the currency conversion effects on the fixed
assets in Canada, which are deferred and recorded directly in equity per
FAS52, and reported in the Statement of Changes in Equity per FAS 130,
there are no significant assets held in foreign currencies. The Company
does not engage in hedging activities. Foreign currency transaction
gains or losses have not been material.
Item 1A. Executive Officers of the Registrant.
The following table sets forth information concerning the Company's
Executive officers. Each officer is selected by the Company's Board of
Directors and holds office until his successor is elected and qualified.
Name Age Offices Held and Business Experience during
Past Five Years.
Peter R. Chase 52 Chief Executive Officer of the Company since
September 1993 and President of the Company
since April 1992; Chief Operating Officer of
the Company since September 1988.
Everett Chadwick,Jr. 59 Treasurer of the Company since September 1993
and Chief Financial Officer since September,
1992; Director of Finance of the Company from
April 1991 to August 1993 and Controller of the
Company from September 1988 to August 1993.
ITEM 2. Properties
During 1998 the Company purchased a building containing about 5,200
square feet located in Bridgewater, Massachusetts to which it relocated
its principle executive office. The Company also rents a modern one-story
building of approximately 5,000 square feet in Woodside, New York, which
is used by the conformal coatings division.
Chase & Sons, a division engaged in the manufacture and sale of
electrical protective coatings and tape products, uses offices and plants
owned by the Company that are located on seven acres in Randolph,
Massachusetts and consist of a three-story building containing about
10,500 square feet and ten one-story buildings, aggregating about 67,000
square feet. Also, this division had previously leased about 25,000
square feet of manufacturing space in Webster, Massachusetts. During
March, 2000, the Company executed its option to purchase the facility.
This plant manufactures tape and related products for the electronic and
telecommunication industries.
The Canadian division of the Company is engaged in the process
of laminating and slitting film, foils and papers primarily for the wire
and cable industry. This division leases about 14,000 square feet of
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manufacturing space in Winnipeg, Manitoba, Canada.
The Royston and Fluid Polymers divisions use offices and a plant,
owned by the Company, that are located on three acres in Pittsburgh,
Pennsylvania. The facilities consist of thirteen buildings, three of
which are used for offices, one of which is rented as a residence and the
rest of which are used as manufacturing and warehouse facilities. These
facilities, excluding the residence, contain about 44,000 square feet and
are used in the manufacture and sale of protective coatings and tape
products.
A subsidiary of the Company, Northeast Quality Products Co., Inc.,
is a specialty printer producing custom pressure-sensitive labels and
leases about 15,000 square foot of space in Newburyport, Ma.
Sunburst EMS, RWA, Inc. and NETCO Automation provide
electronic manufacturing services. Sunburst EMS leases 35,700 square
feet in West Bridgewater, MA. and RWA rents about 21,000 square feet in
Melrose, MA. NETCO Automation leases about 7000 square feet in a building
located in Haverhill, MA.
The above facilities range in age from new to about 100 years, are
generally in good condition and, in the opinion of management, adequate
and suitable for present operations. The company also owns equipment and
machinery that is in good repair and, in the opinion of management,
adequate and suitable for present operations. The Company could
significantly add to its capacity by increasing shift operations.
Availability of machine hours through additional shifts would provide
expansion of current product volume without significant additional
capital investment.
Item 3. Legal Proceedings.
The Company has no material legal matters to report.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the Company's last fiscal year.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock is traded on the American Stock Exchange
(Symbol CCF). The approximate number of shareholder's of common stock on
October 31, 2000 was 1735.
The quarterly high and low sales prices for the Company's common stock
over the last two years were as follows:
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Year ended August 31, 2000 Year ended August 31, 1999
Sales Price Sales Price
Quarter Ended High Low High Low
November 30 12 1/2 9 1/8 16 5/8 8 7/8
February 29 & 28 12 1/8 9 13/16 13 1/4 11
May 31 11 3/4 9 5/8 12 1/2 9 1/8
August 31 11 3/8 9 12 3/4 10 3/4
Item 6. Selected Financial Data.
2000 1999 1998 1997 1996
Net Sales and other $68,551,490 $49,569,430 $46,639,338 $40,991,125 $34,366,029
operating revenues
Inc from operations 5,443,923 4,870,677 4,101,643 2,811,460 2,194,985
Equity in earnings
of unconsolidated
joint venture 326,000 238,000 195,000 195,375 82,965
Minority Participation
in Subsidiary - 99,633 107,585 303,680 -
Gain in sale of assets
from unconsolidated
joint venture - - 1,718,425 - -
Net Income 5,769,923 5,208,310 6,122,653** 3,312,515 2,277,950
Total Assets 45,352,786 38,984,136 25,261,786 22,635,761 19,786,824
Long-term portion of
debt and capital
leases 6,273,478 6,508,471 682,576 3,020,708 4,481,071
Per Common Share:
Diluted 1.44 1.30 1.56** .84 .61
Basic 1.46 1.34 1.58** .84 .61
Cash dividends* .36 .32 .28 .21 .15
*Single annual payments declared and paid subsequent to fiscal year
end.
** Includes a non-recurring gain of $1,718,425 ($0.44 per share) related
to the sale of certain assets by The Stewart Group, Inc. joint venture.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED
STATEMENTS OF OPERATIONS
Years Ended August 31,
2000 1999 1998
(Dollars in thousands)
Net revenue..............................$68,551 $49,569 $46,639
Net Income from Operations...............$ 5,770 $ 5,208 $ 4,404
Increase in net revenue from previous
year......................
Amount............................ $18,982 $ 2,930 $ 5,648
Percentage........................ 38% 6% 14%
Increase in net income from
Operations from previous year........... $ 562 $ 804 $ 1,091
Percentage of net revenue:
Net revenue....................... 100.0% 100.0% 100.0%
Expenses:
Cost of Sales................ 69.5 65.9 64.3
Selling, general and
administrative expenses.... 17.2 18.1 20.8
Other expenses............... 1.4 0.5 0.5
Income from operations
before income taxes.......... 11.9 15.5 14.3
Provision for income taxes........ 0.4 5.7 5.5
Income from operations............ 7.9% 9.8% 8.8%
Minority participation in subsidiary - .2 .2
Equity in earnings of unconsolidated
joint venture................ .5 .5 .4
Gain on sales of assets by
Unconsolidated joint venture.... - - 3.7
Net Income....................... 8.4% 10.5% 13.1%
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Overview
During fiscal 1999, the Company acquired the remaining interest in
its subsidiary, Sunburst Electronics Manufacturing Services and also
completed its acquisition of RWA, Inc. Effective February 1, 2000 the
Company acquired the assets of NETCO Automation, Inc. These companies
participate within the electronic manufacturing services industry. To
align the requirements of the Financial Accounting Standards with the
Company's operational and organizational structure, the Company now has two
reportable segments, the Specialized Manufacturing segment and the
Electronic Manufacturing Services segment.
Results of Operations.
Total revenues for fiscal 2000 increased $19 million to $68.6 million,
an increase of 38% over the prior year. A significant portion of this
increase relates to the Company's electronic contract manufacturing
investments. Seventy-five percent of the current year sales increase was
attributed to the EMS group. The consolidated compounded rate of revenue
growth over the past three years has been 19%.
Sales and Operating Profit by Segment
Operating
Fiscal 2000 Sales Profit %
($-000's)
Specialized Manufacturing $ 47,110 $ 10,019 21.3
Electronic Manufacturing Services $ 20,870 $ 1,809 8.7
$ 67,980 $ 11,828 17.4
Fiscal 1999
($-000's)
Specialized Manufacturing $ 43,033 $ 9,182 21.5
Electronic Manufacturing Services $ 6,536 $ 164 2.5
$ 49,248 $ 9,346 19.0
Prior to the year ended August 31, 1999, the electronic manufacturing
services segment accounted for less than 10% of operations and assets.
Fiscal 1999 revenue increased about 6% to $49.6 million when compared to
1998. A significant portion of that increase related to the Company's
improvement within the electronic cable tape market and the benefits received
from growth as a result of the investments and acquisitions made in electronic
manufacturing services during fiscal 1999.
The dollar value of cost of products was higher in fiscal 2000
compared to both 1999 and 1998. These increases were mostly volume
related. As a percent of sales, cost of products increased to 70.1% in 2000
when compared to 66.3% and 64.9% during 1999 and 1998 respectively. The
increase this year as a percent of sales relates to the increased volume and
change of business philosophy within our electronic manufacturing service
segment. The raw material cost as a percent
of sales is typically higher in this market segment than in the Company's more
traditional Specialized Manufacturing segment. Also, during the current year,
electronic manufacturing service customers require that the Company provide a
full service operation. This requires complete ownership and control of
inventory, which while improving overall gross margin dollars, it also
increased the Company's cost of products as a percent of sales.
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When comparing 1999 to 1998, the change as a percent of sales was due to
some higher raw material costs, product mix and some selling price erosion
created by competitive pressure.
During fiscal 2001 the Company expects its margins in both segments to be
relatively stable as long as current market trends prevail. However, no
assurances can be given in this regard. Competitive pressures prevent the
Company from recovering any significant amount of related cost increases.
Selling and administrative expenses increased $2.9 million to $11.8
million during fiscal 2000 compared to fiscal 1999. Expenses in 1999 were
lower than 1998 by $800,000. As a percent of sales, expenses were lower by
0.7% and 2.9% respectively, when compared to the prior two years. Fiscal 1999
expenses were lower than fiscal 1998 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 further adjust the values of
certain investments. The Company will continue to be focused on expense
reduction while maintaining and improving the quality of its products and
services to the marketplace.
Interest expense increased to $910,000 in fiscal 2000 as compared to
$341,000 and $258,000 respectively against the 1999 and 1998 fiscal years.
The increase is related to the borrowing required to complete the investments
and acquisitions, as well as the cost of borrowing associated with interest
rate adjustments. During fiscal 1998 the Company received the benefit of a
large cash dividend that was declared and paid by our joint venture partner,
The Stewart Group, Inc. The Company continued to benefit from this cash
dividend during fiscal 1998. The Company expects to benefit from solid
earnings and favorable borrowing rates from its financial institutions.
A majority of the earnings improvement this fiscal year as compared to
last year was 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 the Company's
traditional Specialized Manufacturing group remained solid although somewhat
affected by certain economic factors, which created a higher cost structure
that had not been passed on to customers.
When comparing 1999 to 1998 the Company benefited during the last quarter
from the acquisition of RWA, Inc. The Company was also able to eliminate the
need to adjust the value of certain investments during 1999.
The effective tax rates for fiscal 2000 when compared to the prior
two years are lower. In all three years the Company received the benefit of
solid export sales through the Chase Export Corporation subsidiary. Also,
effective January 1999, the Company acquired 100% ownership of Sunburst EMS
that enabled consolidating of historical losses for income tax purposes.
Minority participation in subsidiaries during the prior two years
represented the Company's 49.9% equity in the losses of Sunburst EMS, Inc.
January 1999, the Company acquired 100% ownership of Sunburst EMS.
The equity in earnings of unconsolidated joint ventures over the past
few years is from the Company's 42% ownership position in The Stewart Group
Inc., Toronto, Canada.
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The gain on sales of assets by unconsolidated joint venture during fiscal
1998 is a non-recurring gain and the result of the sales of certain assets by
The Stewart Group, Inc. joint venture to Owens Corning.
Liquidity and Sources of Capital
Cash flow generated from operations was $4,520,000 in 2000 as compared to
$3,264,000 and $5,551,000 during 1999 and 1998 respectively. Receivable and
inventory increases during both 2000 and 1999 were the result of increased
sales and acquisitions. During fiscal 1998 a cash dividend was received from
our joint venture partner, The Stewart Group, Inc., which was related to the
sale of assets to Owens Corning.
The ratio of current assets to current liabilities was 1.7 at the end of
fiscal 2000 as compared to 1.5 and 1.9 for 1999 and 1998, respectively.
The unused available long-term credit amounted to $2,740,000 as compared
to $5,140,000 at the previous year-end. 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-K (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.
Impact of Inflation.
Inflation has not had a significant long-term impact on earnings. In the
event of significant inflation, the Company's efforts to recover cost increases
would be hampered as a result of the competitive nature of its products.
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Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary financial information required to
be filed hereunder may be located through the List of Financial Statements and
Schedules attached to this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to the names, ages, positions with the Company,
terms of office, periods of service, business experience, and other
directorships of the Company's Directors and Executive Officers is incorporated
herein by reference to Item 1A of the report and to the Definitive Proxy
Statement (under the caption "Election of Directors").
Item 11. Executive Compensation
The information required in Item 10 is contained in the Definitive Proxy
Statement (under the caption "Executive Compensation"). Such information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding the ownership of the Company's common stock by
certain beneficial owners and by management is incorporated herein by
reference to the Definitive Proxy Statement (under the captions "Principal
Holders of Voting Securities" and "Election of Director's").
Item 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions
with the Company's Directors and Executive Officers is incorporated herein by
reference to the Definitive Proxy Statement under the captions "Election of
Directors" and "Remuneration of Directors and Executive Officers."
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-
K
See the List of Financial Statements and Schedules included in this
report for a list of the financial statements and schedules included with this
report and see the Exhibit Index included in this report for a list of the
exhibits required to be filed with this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 Date
By /s/ Peter R. Chase President and November 21, 2000
Peter R. Chase Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
thisreport has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Capacity Date
By /s/ Peter R. Chase President, Chief November 21, 2000
Peter R. Chase Executive Officer and
Director (Principal
Executive Officer)
By /s/ Everett Chadwick, Jr. Treasurer and Chief November 21, 2000
Everett Chadwick, Jr. Financial Officer
(Principal Financial
and Accounting Officer)
By /s/ Edward L. Chase Director November 21, 2000
Edward L. Chase
By /s/ Sarah Chase Director November 21, 2000
Sarah Chase
By /s/ William H. Dykstra Director November 21, 2000
William H. Dykstra
By /s/ George M. Hughes Director November 21, 2000
George M. Hughes
By /s/ Ronald Levy Director November 21, 2000
Ronald Levy
By /s/ Ernest E. Siegfriedt, Jr. Director November 21, 2000
Ernest E. Siegfriedt, Jr.
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EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Organization (incorporated by reference from Exhibit 3 to the
Company's annual report on Form 10-K for the fiscal year ended August 31,1988)
3.2 By-Laws (incorporated by reference from Exhibit 3 to the Company's annual
report on Form 10-K for the fiscal year ended August 31, 1988)
3.3 Amendment to By-Laws (adding Article IV, Section 7) (incorporated by
reference from Exhibit 3.3 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1990)
10.1 Split Dollar Insurance Agreement dated December 2, 1983 by and between the
Company and Edward L. Chase (incorporated by reference from Exhibit 10.1 to the
Company's annual report on Form 10-K for the fiscal year ended August 31, 1990)
10.2 Split Dollar Insurance Agreement dated December 2, 1983 by and between the
Company and Francis M. Chase (incorporated by reference from Exhibit 10.2 to
the Company's annual report on Form 10-K for the fiscal year ended August 31,
1990)
10.11 Purchase and Sale Agreement dated October 26, 1990 by and between the
Company and Avon Custom Mixing Service, Inc. (incorporated by reference from
Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 26, 1990)
10.17 Amendment dated April 30, 1992 to Split Dollar Insurance Agreement dated
December 2, 1983 by and between the Company and Edward L. Chase (incorporated
by reference from Exhibit 10.17 to the Company's annual report on Form 10-K for
the fiscal year ended August 31,1992)
10.18 Amendment dated April 30, 1992 to Split Dollar Insurance Agreement dated
November 10, 1987 by and between the Company and Edward L. Chase and Claire
Chase (incorporated by reference from Exhibit 10.18 to the Company's annual
report on Form 10-K for the fiscal year ended August 31, 1992)
10.20 Amendment dated August 31, 1992 to Split Dollar Insurance Agreement dated
December 2, 1983 by and between the Company and Francis M. Chase (incorporated
by reference from Exhibit 10.20 to the Company's annual report on Form 10-K for
the fiscal year ended August 31,1992)
10.21 Amendment dated August 31, 1992 to Split Dollar Insurance Agreement dated
November 10, 1987 by and between the Company and Francis M. Chase and Barbara
Chase (incorporated by reference from Exhibit 10.21 to the Company's annual
report on Form 10-K for the fiscal year ended August 31,1992)
10.25 Endorsement Split-Dollar Agreement dated June 8, 1995 by and between the
Company and Edward L. Chase and Claire Chase.
10.26 Amendment to and Confirmation of Split Dollar Insurance Agreement dated
June 8, 1995 by and between the Company and Edward L. Chase and Claire Chase.
10.27 Stock Purchase Agreement effective May 25, 1999 by and between the
Company and RWA, Inc., (incorporated by reference from Exhibit 2.1 to the
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Company's current report on Form 8K dated 6/8/99 and amended on 8/12/99 to
include financials).
22 Subsidiaries of the Company
List of Financial Statements and Schedules
Report of Independent Certified Public
Accountants..................................................................16
Consolidated Balance Sheets as of August 31, 2000 and
August 31, 1999......................................................17
Consolidated Statements of Operations for each of the three
fiscal years in the period ended August 31, 2000....................19
Consolidated Statements of Shareholders' Equity for each of
the three fiscal years in the period ended August 31, 2000..........20
Consolidated Statements of Cash Flows for each of the three
Fiscal years in the period ended August 31, 2000.....................22
Notes to Consolidated Financial
Statements............................................................23
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CHASE CORPORATION AND SUBSIDIARIES
BRIDGEWATER, MASSACHUSETTS
CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
AUGUST 31, 2000 AND 1999
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INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Chase Corporation
Bridgewater, Massachusetts
We have audited the consolidated balance sheets of Chase Corporation and
subsidiaries as of August 31, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity and cash flows for each year in
the three year period ended August 31, 2000 and the Schedule II, Valuation and
Qualifying Accounts and Reserves. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 Chase
Corporation and subsidiaries at August 31, 2000 and 1999, and the consolidated
results of their operations and cash flows for each year in the three year
period ended August 31, 2000, in conformity with generally accepted accounting
principles, and the schedule referred to above presents fairly, in all material
respects, when read in conjunction with the related financial statements, the
information therein set forth.
Wellesley, Massachusetts
- 16 -
CHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2000 AND 1999
ASSETS 2000 1999
----------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 65,289 $ 185,269
Trade receivables, less allowance for
Doubtful accounts of $292,443 and
$257,049, at August 31,
2000 and 1999, respectively 11,880,228 8,870,786
Inventories:
Finished and in process 1,321,210 2,041,496
Raw materials 7,621,750 5,407,813
---------- ----------
8,942,960 7,449,309
Prepaid expenses 376,694 330,710
Receivable from related parties 147,000 107,582
Deferred income taxes 116,977 90,294
---------- ----------
TOTAL CURRENT ASSETS 21,529,148 17,033,950
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 514,423 322,423
Buildings 4,625,764 3,587,304
Machinery and equipment 16,688,701 14,609,754
Construction in progress 559,188 835,445
---------- ----------
22,388,076 19,354,926
Less allowances for depreciation 13,272,188 12,047,487
---------- ----------
9,115,888 7,307,439
OTHER ASSETS
Excess of cost over net assets of acquired
businesses, less amortization of $1,255,344
and $595,270 at August 31, 2000 and 1999,
respectively 8,731,486 9,304,559
Patents, agreements and trademarks, less
amortization of $792,213 and $694,530 at
August 31, 2000 and 1999, respectively 848,510 946,193
Cash surrender value of life insurance, net of
loans of $47,618 and $158,049 at August 31,
2000 and 1999, respectively 3,473,091 2,931,984
Deferred income taxes 172,483 81,266
Investments in minority interests 1,208,797 1,044,797
Other\ 643,849 333,948
---------- ----------
15,078,216 14,642,747
---------- ----------
$45,723,252 $38,984,136
=========== ===========
See accompanying notes to the consolidated financial statements.
- 17 -
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
CURRENT LIABILITIES
Accounts payable $ 5,790,018 $ 4,387,943
Notes payable to bank 2,050,726 1,576,477
Accrued payroll and other compensation 1,029,506 1,292,816
Accrued pension expense - current 231,507 251,273
Other accrued expenses 1,297,508 1,164,022
Federal Taxes payable (68,452) 53,008
Deferred compensation - 41,999
Current portion of long-term debt 2,605,284 2,540,457
---------- ----------
TOTAL CURRENT LIABILITIES 12,936,097 11,307,995
LONG-TERM DEBT, less current portion 6,569,352 6,508,471
DEFERRED COMPENSATION 636,849 338,582
ACCRUED PENSION EXPENSE 351,859 294,023
COMMITMENTS (See Note G) - -
CONTINGENCIES - -
SHAREHOLDERS' EQUITY
First Serial Preferred Stock,
par value $1.00 a share:
Authorized 100,000 shares; none issued - -
Common Stock, par value $.10 a share:
Authorized 10,000,000 shares;
issued and outstanding 5,073,613 and
4,994,928 shares at August 31, 2000
and 1999, respectively 507,361 499,493
Additional paid-in capital 3,625,023 3,466,834
Treasury Stock, 1,088,584 shares of
Common Stock at August 31, 2000 and
1999 (4,687,565) (4,687,565)
Cumulative effect of currency translation (180,073) (188,331)
Retained earnings 25,964,349 21,444,634
---------- ----------
25,229,095 20,535,065
__________ ___________
$45,723,252 $38,984,136
========== ===========
- 18 -
CHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
2000 1999 1998
Revenue:
Sales $67,980,176 $49,247,915 $46,228,818
Commissions and other income 546,673 272,320 331,354
Interest 24,641 49,195 79,166
---------- ---------- ----------
68,551,490 49,569,430 46,639,338
Costs and expenses:
Costs of products and services sold 47,656,084 32,695,014 30,003,343
Selling, general and administrative
Expenses 11,809,638 8,931,753 9,731,083
Bad debt expense-net of recoveries 5,733 (88,940) (5,807)
Interest expense 910,499 340,977 258,476
---------- ---------- ----------
60,381,954 41,878,804 39,987,095
---------- ---------- ----------
INCOME FROM OPERATIONS
BEFORE INCOME TAXES 8,169,536 7,690,626 6,652,243
Income taxes 2,725,613 2,819,949 2,550,600
--------- --------- ---------
INCOME FROM OPERATIONS 5,443,923 4,870,677 4,101,643
Minority participation in subsidiary - 99,633 107,585
Equity in earnings of unconsolidated
joint venture 326,000 238,000 195,000
Gain on sales of assets by
unconsolidated joint venture - - 1,718,425
--------- --------- ----------
NET INCOME $ 5,769,923 $5,208,310 $6,122,653*
========= ========= =========
Net income per share of Common Stock
Basic $1.45 $1.34 $1.58*
=========== ========== ========
Fully diluted $1.43 $1.30 $1.56*
=========== ========== ========
* Includes a non-recurring gain of $1,718,425 ($0.44 per share) related
to the sale of certain unconsolidated assets by The Stewart Group, Inc. joint
venture.
See accompanying notes to the consolidated financial statements.
- 19 -
CHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
ADDITIONAL
COMMON STOCK PAID-IN TREASURY STOCK
SHARES AMOUNT CAPITAL SHARES AMOUNT
Balance at August 31,
1997 4,873,797 $487,380 $3,191,328 1,040,473 $(4,017,850)
Cash dividend paid,
$0.21 per share - - - - -
adjustment - - - - -
Exercise stock options 103,853 10,385 80,301 - -
Compensatory stock
issuance - - 98,437 - -
Purchase of Treasury
Stock - - - 31,611 (517,626)
Net income - - - - -
_______________________________________________________
Balance at August 31,
1998 4,977,650 497,765 3,370,066 1,072,084 $(4,535,476)
Cash dividend paid
$0.28 per share - - - - -
Currency translation
Adjustment - - - - -
Exercise of stock
options 17,278 1,728 (1,728) - -
Compensatory stock
issuance - - 98,496 - -
Purchase of Treasury
Stock - - - 16,500 (152,089)
Net income - - - - -
_________________________________________________________
Balance at August 31,
1999 4,994,928 499,493 3,466,834 1,088,584$(4,687,565)
Cash dividend paid,
$0.32 per share - - - - -
adjustment - - - - -
Exercise of stock
Options 78,685 7,868 46,788 - -
Compensatory stock
Issuance - - 98,496 - -
Gain on stock sales - - 12,905 - -
Net income - - - - -
________________________________________________________
Balance at August 31,
2000 5,073,613 $507,361 $3,625,023 1,088,584$(4,687,565)
========= ======== ========= ========= ==========
See accompanying notes to the consolidated financial statements.
- 20 -
CHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
CUMULATIVE
EFFECT OF
RETAINED CURRENCY SHAREHOLDERS'
EARNINGS TRANSLATION EQUITY
Balance at August 31,
1997 $12,014,566 $(122,121) $11,553,303
Cash dividend paid,
$0.21 per share (807,180) - (807,180)
Currency translation
Adjustment - (116,607) (116,607)
Exercise of stock options - - 90,686
Compensatory stock
Issuance - - 98,437
Purchase of Treasury
Stock - - (517,626)
Net income 6,122,653 - 6,122,653
____________________________________________
Balance at August 31,
1998 17,330,039 (238,728) 16,423,666
Cash dividend paid,
$0.28 per share (1,093,715) - (1,093,715)
Currency translation
Adjustment - 50,397 50,397
Exercise of stock
Options - - -
Compensatory stock
Issuance - - 98,496
Purchase of Treasury
Stock - - (152,089)
Net income 5,208,310 - 5,208,310
____________________________________________
Balance at August 31,
1999 21,444,634 (188,331) 20,535,065
Cash dividend paid,
$0.32 per share (1,250,208) - (1,250,208)
Currency translation
Adjustment - 8,258 8,258
Exercise of stock
Options - - 54,656
Compensatory stock
Issuance - - 98,496
Gain on stock sales - - 12,905
Net income 5,769,923 - 5,769,923
____________________________________________
Balance at August 31,
2000 $25,964,349 $(180,073) $25,229,095
========== ========= ==========
See accompanying notes to the consolidated financial statements.
- 21 -
CHASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999 1998
Net income $5,769,923 $5,208,310 $6,122,653
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,224,701 1,019,715 844,237
Amortization 757,758 371,761 181,442
(Gain) on sale of assets - - (1,718,425)
Stock issued for compensation 98,496 98,496 98,437
Change in provision for losses
on trade receivables 35,394 (64,086) 48,635
Deferred federal tax (117,900) 9,000 27,815
Revaluation of investments in
minority interests - (300,000) 470,000
Change in assets and liabilities:
Trade receivables (3,044,836) (1,547,854) (247,439)
Inventories (1,493,650) (2,712,855) (457,122)
Prepaid expenses and other (40,451) 49,352 211,777)
Accounts payable 1,402,075 1,539,744 461,809
Accrued expenses 91,754 (716,651) 358,307
Federal taxes payable (121,460) 169,817 (343,725)
Deferred compensation (41,999) 139,451 (83,388)
TOTAL ADJUSTMENTS (1,250,118) (1,944,110) (571,194)
NET CASH FROM OPERATIONS 4,519,805 3,264,200 5,551,459
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds of note receivable (39,418) - 46,111
Capital expenditures including patents
and agreements (2,659,962) (3,166,868) (1,158,535)
Investment in trusteed assets (309,901) (185,451) (141,497)
(Increase)in net cash surrender value (541,106) (508,133) (461,002)
Investments in minority interests - (258,002) -
Dividend received from joint venture - - 1,757,693
Investment in subsidiaries (141,777) (8,530,570) -
__________________________________
(3,692,164)(12,649,024) 42,770
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 12,419,390 8,941,219 200,000
Payments of principal on debt (12,658,613) (862,184) 2,829,452)
Net borrowing under line-of-credit 474,249 440,477 473,937
Cash dividends paid (1,250,208) (1,093,714) (807,180)
Purchase of Common Shares for Treasury - (152,089) (517,626)
Cash received on options exercise 67,561 - 23,595
___________________________________
(947,621) 7,273,709 (3,456,726)
NET CHANGE IN CASH (119,980) (2,111,115) 2,137,503
CASH AT BEGINNING OF YEAR 185,269 2,296,384 158,881
___________________________________
CASH AT END OF YEAR $ 65,289 $ 185,269 $ 2,296,384
========= ========= ==========
See Note M for supplemental cash flow data.
See accompanying notes to the consolidated financial statements.
- 22 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE A - ACCOUNTING POLICIES
The principal accounting policies of Chase Corporation ("the
Company") and its subsidiaries are as follows:
Basis of Presentation
The financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Investments in unconsolidated companies
which are at least 20% owned are carried at cost plus equity in undistributed
earnings since acquisition. All significant intercompany transactions and
balances have been eliminated in consolidation. The Company uses the U.S.
dollar as the functional currency for financial reporting.
Products and Markets
The Company's principal products are protective coatings and
tape products that are sold in national and international markets. These
products consist of: (i) insulating and conducting materials for the
manufacture of electrical and telephone wire and cable, and electrical
splicing, terminating and repair tapes which are marketed to wire and cable
manufacturers and public utilities; (ii) protective pipe coating tapes and
other protectants for valves, regulators, casings, joints, metals, concrete,
and wood that are sold to oil
companies, gas utilities and pipeline companies; (iii) protectants for highway
bridge deck metal supported surfaces which are sold to municipal
transportation authorities; (iv) thermo-electric insulation for transformers,
motors, and other electrical equipment that are sold to original equipment
manufacturers, and (v) moisture protective coatings that are sold to the
electronics industry. The Company's electronics manufacturing services group
provides assembly and contract manufacturing services to the electronics
industry.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash
For the purpose of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
- 23 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE A - ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at first-in, first-out cost, which is
not in excess of market.
Investment in Minority Interests
The Company makes investments in closely held companies.
These investments are recorded on the equity method reflecting the Company's
original investment and a proportional interest in the net operations of these
companies since no public quotations exist for these investments. The carrying
values of these investments are periodically reviewed based upon estimated
market values.
Property, Plant and Equipment
These assets are reflected at cost. Provisions for depreciation of
property, plant and equipment were computed by both straight-line and
accelerated methods.
Expenditures for maintenance repairs and minor renewals have
been charged to expense as incurred. Betterments and major renewals have been
capitalized. Upon retirement or other disposition of assets, related
allowances for depreciation and amortization have been eliminated from the
accounts and any resulting profit or loss reflected in consolidated net
income. The annual provisions for depreciation have been computed principally
in accordance with the following range of rates:
Buildings - 4% to 7%
Machinery and equipment - 10% to 20%
Excess of Cost Over Net Assets of Acquired Businesses
The excess of cost over the fair value of net assets of
acquired businesses is being amortized over periods from fifteen to forty
years or until the disposal of the acquired business. The carrying value of
goodwill is periodically reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
Patents and Agreements
The Company capitalizes costs related to patent applications and
technology agreements. The costs of these assets are amortized using the
straight-line method over the lesser of the useful life of the asset or its
statutory life. Capitalized costs are periodically reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable.
- 24 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE A - ACCOUNTING POLICIES (Continued)
Pension Plan
The projected unit credit method is utilized for measuring net
periodic pension cost over the employee's service life.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its stock-based compensation plans,
rather than the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based
Compensation". Grants of restricted stock are recorded as compensation
expense over the vesting period at the fair market value of the stock at the
date of grant. No compensation expense is recorded for options granted in
which the exercise price equals or exceeds the market price of the underlying
stock on the date of grant.
Deferred Compensation
The net present value of the estimated payments to be made under
agreements for deferred compensation is accrued over the period of active
employment from the time of the agreement to the anticipated date of
retirement.
Translation of Foreign Currency
The financial position and results of operations of the Company's
Canadian branch are measured using the Canadian dollar as the functional
currency. Revenues and expenses of the branch have been translated at average
exchange rates. Assets and liabilities have been translated at the year-end
exchange rate. Translation gains and losses are being deferred as a separate
component of shareholders' equity, unless there is a sale or liquidation of the
underlying foreign investments. The Company has no present plans for the sale
or Liquidation of its foreign investment. Aggregate foreign currency
transaction gains and losses are included in determining net income. The
amounts of gains and losses were immaterial in 2000, 1999 and 1998.
Income Taxes
The Company has adopted the method of accounting for income taxes of SFAS No.
109. This method compares the tax basis and financial reporting basis of the
Company's assets and liabilities and recognizes the related tax benefits and
liabilities under enacted tax law. Assets arising from future tax benefits
are recognized when it is more likely than not that the Company will have
sufficient future taxable income or has had sufficient taxable income in the
available carryback period to allow realization of the tax asset. A
valuation allowance is provided for potential limitations on the realization
of future benefits.
- 25 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE A - ACCOUNTING POLICIES (Continued)
Income Per Share of Common Stock
Income per share is computed based upon the weighted average number of
shares outstanding, after giving effect to the number of shares purchased for
Treasury and the dilutive effect of stock options. The number of shares used
in the computation of basic income per share was 3,985,029 at August 31, 2000,
3,898,735 at August 31, 1999 and 3,874,896 at August 31, 1998. Fully diluted
income per share was computed based upon 4,038,745 shares at August 31, 2000,
3,994,472 shares at August 31, 1999 and 3,935,919 shares at August 31, 1998.
NOTE B - NOTE RECEIVABLE - RELATED PARTIES
The Company has a note receivable from Avon Custom Mixing Service, Inc.,
the purchaser of its Avon Custom Mixing Division, secured by the assets of the
purchaser.
NOTE C - CASH SURRENDER VALUE OF LIFE INSURANCE
The Company recognizes cash surrender value in life insurance policies,
net of loans secured by the policies, with Aurora National Life Assurance
Company, the Manufacturers' Life Insurance Company, Sun Life Assurance Company
of Canada, Metropolitan Life Insurance and other carriers of $215,809;
$1,617,372; $482,376; $651,055 and $554,097, respectively. Subject to periodic
review, the Company intends to maintain these policies through the lives of the
insureds.
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following at August 31, 2000 and 1999:
2000 1999
Note payable to bank $3,100,000 $ 700,000
Term note payable to bank in 20 quarterly
payments of $250,000 through May 2004
with interest at the Eurodollar rate
plus 1.5% 2,500,000 3,700,000
Term note payable to bank in 20 quarterly
payments of $34,500 commencing February
1999 with interest at the Eurodollar
rate plus 1.5%. 483,000 621,000
- 26 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE D - LONG-TERM DEBT (Continued)
2000 1999
Term note payable to an individual in
connection with the acquisition of
RWA, Inc. with quarterly payments of
$250,000 including interest at 7.5%
through August 2002 $1,700,000 2,700,000
Term notes payable to bank with principal
payments of $12,267 per month with
interest at the bank's base rate plus
1/2 percent secured by all assets of
Sunburst EMS, Inc. 223,698 396,267
Equipment notes with monthly payments of
$7,943 with interest averaging 9.11%
secured by manufacturing equipment 182,767 283,036
Equipment notes with monthly payments of
$1,624 with interest at 9.75% secured
by printing equipment 12,534 22,833
Equipment note with monthly payments of
$2,942 with interest at 7.43% secured
by manufacturing equipment 108,526 134,708
Equipment note with monthly payments of
$11,138 with interest at 7.05% secured
by data processing equipment 387,803 491,084
Equipment note with 60 monthly payments of
$7,368 with interest at 8.11% secured by
manufacturing equipment 364,931 -
Equipment note with monthly payments of
$935 with interest at 5.82% secured by
printing equipment 39,987 -
Equipment notes with monthly payments of
$5,319 with interest at 12.35% secured by
manufacturing equipment 71,390 -
_________________________
9,174,636 9,048,928
Less portion payable within one year
classified as a current liability. 2,605,284 2,540,457
_________________________
$6,569,352 $6,508,471
========== ==========
- 27 -
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE D - LONG-TERM DEBT (Continued)
The Company has long-term unsecured credit available up to a maximum
amount of $6,000,000 at the bank's base lending rate or, at the option of the
Company, at the effective London Interbank Offered Rate (LIBOR) for ninety
days plus 1.5 percent. The unused available long-term credit amounted to
$2,740,000 at August 31, 2000.
NOTE E - NOTES PAYABLE TO BANK
The Company has a short-term credit facility at one half percent over
prime with a Canadian bank secured by a letter of credit.
The Company's Sunburst EMS subsidiary has a revolving line of credit,
secured by its assets.
The weighted average interest rate on short-term borrowings was 8.90%
and 7.22% at August 31, 2000 and 1999, respectively.
NOTE F - INCOME TAXES
A reconciliation of federal income taxes computed at applicable rates of
income from continuing operations before income taxes to the amounts provided
in the consolidated financial statements is as follows:
Year Ended August 31,
2000 1999 1998
Federal income taxes at applicable
rates $2,777,642 $2,614,649 $2,260,405
Adjustments resulting from the tax
effect of:
Increase in cash surrender value
of life insurance (229,404) (172,765) (191,722)
Benefit plans not qualified for
deduction from federal tax - 146,905 231,374
Net loss of subsidiary not
consolidated for tax - (140,231) 43,034
State and local taxes net of
federal tax effect 347,825 413,531 408,144
Foreign dividend received net
of foreign tax credit - - (172,878)
Other (170,450) (42,140) (27,757)
--------- --------- ---------
INCOME TAXES $2,725,613 $2,819,949 $2,550,600
========= ========= =========
- 28 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE F - INCOME TAXES (Continued)
Year Ended August 31,
2000 1999 1998
Current $2,662,368 $2,828,949 $2,655,595
Deferred (benefit):
Pension expense 23,133 26,185 (19,425)
Depreciation (35,127) (32,668) (21,910)
Allowance for doubtful accounts 14,157 32,365 19,455
Market valuation of investments (16,400) (120,000) 188,000
Deferred compensation 118,907 77,287 (73,267)
Deferred state taxes 1,230 7,831 (120,668)
Reserve 12,000 - _
________________________________
Total Deferred 117,900 (9,000) (27,815)
(Benefit) of option exercises
credited to shareholders' equity (54,655) - (77,180)
_______________________________
$2,725,613 $2,819,949 $2,550,600
========= ========= =========
The timing differences that give rise to the components of net
tax assets are as follows at August 31, 2000 and 1999:
Assets: 2000 1999
Reserve for bad debt $ 116,977 $ 102,820
Patents and agreements 35,200 35,200
Pension accrual 140,743 117,610
State tax accrual 28,900 27,670
Deferred compensation 254,740 135,833
Investments marked to market 161,600 178,000
738,160 597,133
Less valuation allowance - 12,000
738,160 585,133
Liabilities:
Depreciation 448,700 413,573
Net Assets $ 289,460 $ 171,560
========== ==========
NOTE G - OPERATING LEASES
The following is a schedule for the next five years of future
minimum rental payments required under operating leases that have initial or
remaining noncancellable lease terms in excess of one year as of August 31,
2000:
Year Ending August 31, Buildings
2001 $ 293,324
2002 152,610
2003 82,500
2004 75,625
2005 -
$ 604,059
==========
- 29 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE G - OPERATING LEASES (Continued)
Total rental expense for all operating leases amounted to
$572,623, $519,293, and $563,375 for the years ended August 31, 2000, 1999
and 1998, respectively.
NOTE H - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for 2000, 1999 and
1998, is as follows:
Quarter
2000 First Second Third Fourth Year
Net sales $14,827,683 $14,917,478 $18,529,601 $19,705,414 $67,980,176
Gross profit $4,635,238 $4,267,396 $5,162,163 $6,259,295 $20,324,092
Net income $1,310,069 $991,182 $1,395,685 $2,072,987 $5,769,923
Net income per
common share $.34 $.25 $.35 $.51 $1.45
========== ========== ========== ========== ==========
Quarter
1999 First Second Third Fourth Year
Net sales $11,551,910 $10,414,555 $12,928,890 $14,352,560 $49,247,915
Gross profit $4,055,358 $3,329,280 $4,212,522 $4,955,741 $16,552,901
Net income $1,160,808 $833,635 $1,279,970 $1,933,897 $5,208,310
Net income per
common share $.30 $.21 $.33 $.50 $1.34
========== =========== =========== =========== ==========
Quarter
1998 First Second Third Fourth Year
Net sales $11,557,583 $10,166,586 $11,830,508 $12,674,141 $46,228,818
Gross profit $4,212,072 $3,253,702 $4,006,118 $4,753,583 $16,225,475
Net income $2,676,264* $720,565 $1,080,714 $1,645,110 $6,122,653*
Net income per
common share $.68* $.18 $.28 $.44 $1.58*
========== =========== =========== =========== ==========
* Includes gain on sales of assets by a non-consolidated subsidiary
of $1,718,425 ($0.44 per share)
- 30 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE I - EXPORT SALES AND FOREIGN OPERATIONS
Export sales from continuing domestic operations to unaffiliated third
parties were $4,935,701, $4,459,743 and $5,207,413 for the years ended August
31, 2000, 1999 and 1998, respectively. The Company's products are sold world-
wide with no foreign geographic area accounting for more than 10 percent of
revenues from continuing operations. The Company's Canadian operations
accounted for 5.4 percent of consolidated sales and 2.0 percent of assets.
Prior to fiscal year 1999, no domestic customer accounted for more
than ten percent of sales. During fiscal years 2000 and 1999 one customer
accounted for approximately twelve and fifteen percent, respectively, of
total sales.
NOTE J - RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense amounted to approximately
$620,037, $617,789, and $573,978 for the years ended August 31, 2000, 1999
and 1998, respectively.
NOTE K - BENEFITS
401(K) Plan
The Company has a deferred compensation plan adopted pursuant to
Section 401(k) of the Internal Revenue Code of 1986. Any qualified employee
who has attained age 21 and has been employed by the Company for at least six
months may contribute a portion of their salary to the plan and the Company
will match 50% of such contribution up to an amount equal to three percent of
such employee's yearly salary. The Company's contribution expense was
$168,604, $91,219 and $112,418 for the years ended August 31, 2000, 1999 and
1998, respectively.
Non-Qualified Deferred Savings Plan
The Company has a non-qualified deferred savings plan covering directors
and selected employees. Participants may elect to defer a portion of their
compensation for future payment. The plan is funded by trusteed assets that
are restricted to the payment of deferred compensation or satisfaction of the
Company's general creditors. The Company's liability under the plan was
$636,849 at August 31, 2000.
Pension Plan
The Company has non-contributory defined benefit pension plans
covering substantially all employees excluding subsidiaries. Net periodic
pension cost was $301,714, $327,266 and $268,149 for the years ended August 31,
2000, 1999 and 1998, respectively. The Company has a funded, qualified plan
and an unfunded supplemental retirement plan designed to maintain benefits
for all employees at the plan formula level. The plans provide for pension
benefits determined by a participant's years of service and final average
compensation. The qualified plan assets consist of separate pooled investment
accounts with an insurance company.
- 31 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE K - BENEFITS (Continued)
Net pension expense components: Year Ended August 31,
2000 1999 1998
Service cost of benefits earned
during the period $289,503 $283,651 $237,130
Interest cost on projected benefit
Obligations 350,585 355,789 321,667
Return on plan assets (500,035) (334,303) (94,718)
Net amortization and deferral 149,290 22,129 (195,930)
------- ------- -------
Net periodic pension cost $289,343 $327,266 $268,149
======= ======= =======
The following table sets forth the actuarial present value of
benefit obligations and funded status:
August 31,
2000 1999 1998
Accumulated benefit obligations,
including vested benefits of
$3,049,651, $2,738,122 and
$2,843,506 at August 31, 2000,
1999 and 1998, respectively $ 3,149,248 $ 2,706,803 $ 2,874,059
========= ========== ==========
Projected benefit obligations $(4,939,023) $(4,701,105) $(4,502,041)
Plan assets at fair value,
including prefunded amounts 4,207,214 3,761,924 3,273,542
-------- --------- ---------
Funded status (731,809) (939,181) (1,228,499)
Unrecognized net (gain) loss (42,238) 186,130 496,164
Unrecognized prior service cost 190,681 214,752 255,484
Unamortized net transition assets - (6,997) (13,996)
-------- --------- ---------
(Accrued) pension expense $ (583,366) $ (545,296) $ (490,847)
=========== =========== ===========
- 32 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE K - BENEFITS (Continued)
The net transition assets amount is being amortized at a level rate over
15 years. The actuarial calculations were based on assumptions of a weighted
average discount rate of 8.0% and a future rate of increase in compensation
levels of 5%. The expected rate of return on plan assets is 10%. Prior
service cost arose from the amendment of the plan's benefit schedules to
comply with the Tax Reform Act of 1986 (TRA) and adoption of the unfunded
supplemental pension plan.
Deferred Compensation
Life insurance is provided under a split dollar life insurance agreement
whereby the Company will recover the premiums paid from the proceeds of the
policies. The Company recognizes an offset to expense for the growth in the
cash surrender value of the policies.
The Company also has an agreement with its former Chairman of the Board,
who retired August 31, 1991, that the Company will make ten annual payments of
$58,000 to him or his beneficiaries.
Stock Option Plans
1995 Stock Option Plan - Effective July 18, 1995, the Company adopted,
and the stockholders subsequently approved, a stock award plan and an
incentive plan which permit the issuance of options and restricted stock to
selected employees and independent directors of the Company. The plans
reserve 600,000 shares of Common Stock for grant.
Under the terms of the 1995 stock option plan, options granted
may be either nonqualified or incentive stock options and the exercise price
may not be less than the fair market value of a share at the date of grant.
The board of directors approved issuance of 450,000 options (at $3.375, based
upon the market value at July 18, 1995). The options vest ratably over ten
years. In addition, the board of directors granted 250,000 shares of
restricted Common Stock to the Company's CEO, Mr. Peter Chase. Compensation
expense of approximately $98,000 per year is being recognized over nine years.
Other than the restrictions which limit the sale and transfer of these shares,
Mr. Chase is entitled to all rights of a shareholder. The grants vest at the
end of nine years. If Mr. Chase is not providing services to the Company
prior to vesting, the shares revert to the Company.
- 33 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE K - BENEFITS (Continued)
Stock Option Plans (Continued)
Options at August 31, 2000:
Weighted Weighted
Average Average
Exercise Exercise Remaining Exercise
Outstanding Prices Price Life Exercisable Price
276,856 $3.375-4.625 $ 3.40 5 years 75,355 $ 3.63
10,500 $ 5.09-5.625 $ 5.29 6 years 7,500 $ 5.21
15,000 $ 8.75-9.09 $ 8.98 7 years 13,000 $ 9.02
5,000 $ 11.83 $11.83 8 years 2,000 $ 11.83
Stock option plan activity was as follows:
Weighted Weighted
Average Officers Average
Exercise and Exercise
Directors Price Employees Price
Outstanding August 31, 1997 117,000 $3.79 454,000 $ 3.55
Exercisable 71,500 - 96,920 -
Grants at market price - - 5,000 $ 8.75
Exercises (16,500) $1.43 (86,526) $ 3.68
Exercises (30,000) $4.63 (2,000) $ 5.63
------ -------
Outstanding August 31, 1998 70,500 $4.00 370,474 $ 3.59
Exercisable 40,500 $2.92 57,573 $ 3.43
Grants at market price - - 5,000 $11.83
Exercises (19,000) $4.63 (3,000) $ 5.63
------ -------
Outstanding August 31, 1999 51,500 $3.76 372,474 $ 3.68
Exercisable 36,500 $3.59 107,774 $ 3.73
Grants at market price - - - -
Exercises (30,000) $3.14 (86,618) $ 3.79
------ -------
Outstanding August 31, 2000 21,500 $6.84 285,856 $ 3.65
Exercisable 21,500 $6.84 76,355 $ 3.84
- 34 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE K - BENEFITS (Continued)
Proforma Disclosures - The Company accounts for stock options issued
to directors, officers and employees under Accounting Principles Board
Opinion No. 25 (see Note A). The proforma net income and earnings per share,
based upon a Black-Scholes pricing model, using a volatility of 26.57%, a risk-
free interest rate of 7.5%, a dividend yield of 4% and an expected life of 5
years, had Financial Accounting Standards Board Statement No. 123 been applied,
are as follows:
August 31,
2000 1999 1998
Net income $5,711,089 $5,121,614 $6,043,212
Basic net income per share $1.43 $1.31 $1.56
NOTE L - SEGMENT DATA
Chase Corporation operates in two business segments, a specialized
manufacturing segment consisting of protective coatings and tapes and an
electronic manufacturing services segment. Specialized manufacturing products
include insulating and conducting materials for wire and cable manufacturers,
protective coatings for pipeline applications and moisture protective coatings
for electronics and printing services. Electronic manufacturing services
include printed circuit board and electro-mechanical assembly services for the
electronics industry. Prior to the year ended August 31, 1999, the electronic
manufacturing services segment accounted for less than 10% of operations and
assets.
August 31, 2000 August 31, 1999
Electronic Electronic
Specialized Manufacturing Specialized Manufacturing
Manufacturing Services Manufacturing Services
Sales $47,109,676 $20,870,500 $42,711,390 $6,536,525
Operating profit $10,018,565 $ 1,809,332 $ 9,182,016 $ 164,278
Identifiable assets $29,428,664 $ 8,995,454 $24,441,128 $8,067,407
- 35 -
CHASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 2000
NOTE M - SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
2000 1999 1998
Income taxes $2,846,770 $2,817,685 $2,163,812
Interest $ 706,993 $ 340,591 $ 258,476
NOTE N - INVESTMENT IN MINORITY INTERESTS
The Company has formed a joint venture, The Stewart Group, Inc., with
The Stewart Group, Ltd. of Canada, to produce various products for the fiber
optic cable market. Chase Corporation owns a 42% interest in the joint
venture at August 31, 2000.
NOTE O - ACQUISITIONS
Effective January 27, 1999, Chase Corporation acquired the outstanding
shares of D.C. Scientific, Inc., that it did not previously own. In
connection with the acquisition, D.C. Scientific, Inc. changed its name to
Sunburst Electronic Manufacturing Solutions, Inc.
Effective April 30, 1999, the Company acquired RWA, Inc., an electronic
manufacturing services company. The Company purchased the stock of RWA, Inc.
for cash of $5,000,000 and a note for $2,700,000, discounted at 7.5%. An
additional amount may be paid contingent upon the future performance based
upon fifty percent of the amount by which average annual earnings before
interest, taxes, depreciation and amortization multiplied by four exceeds
eight million dollars and a performance consideration based upon net income
for the thirty-six months ended May 31, 2002.
Any amounts due under contingent agreements will be recorded as
additions to goodwill. Goodwill is being amortized ratably over fifteen
years, subject to period review of anticipated future cash flows from the
acquired business.
Effective August 1, 1999, the Company acquired Northeast Quality
Products, Inc. ("NEQP"), a printer of high quality pressure sensitive
materials.
Effective February 1, 2000, the Company acquired the assets and
operations of NETCO Automation, Inc., an electronic manufacturing services
company specializing in prototyping and rework.
- 36 -
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
CHASE CORPORATION AND SUBSIDIARIES
COL. A COL. B COL. C
COL. D COL. E
BALANCE AT (1) (2)(3)
BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO
END OF
DESCRIPTION OF PERIOD AND EXPENSES OTHER ACCOUNTS
DEDUCTIONS PERIOD
Year ended August 31, 2000:
Allowance for doubtful
accounts $257,049 $ 5,733 $ 29,661 $ -
$292,443
Year ended August 31, 1999:
Allowance for doubtful
accounts $201,135 $(88,940) $146,458 $ 1,604
$257,049
Year ended August 31, 1998:
Allowance for doubtful
accounts $152,500 $ (5,807) $ 57,860 $ 3,418
$201,135
(1) Deductions are charged to accounts receivable when specific accounts are
judged to be uncollectible.
Reserves are adjusted based on reviews of the risk associated with specific
accounts and with the overall
collectibility expectations of the total receivables.
(2) $29,661 reserve acquired with the purchase of assets of NETCO
Automation, Inc.
(3) $146,458 reserve acquired with purchase of RWA, Inc., $57,860
adjustment to insurance adjustment receivable recorded as prepaid
insurance and $25,000 reserve acquired with majority interest in DC
Scientific, Inc..
- 37 -