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, 1997 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.)
Suite 220
50 Braintree Hill Park
Braintree, Massachusetts 02184
(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 25, 1997 3,814,280
PART 1: FINANCIAL INFORMATION
CHASE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS May 31, Aug.31
1997 1996
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash $ 219,230 $ 191,429
Trade receivables,less allowance
for doubtful accounts of $228,453 and
$127,500 respectively 7,051,428 5,770,152
Note receivable from related party 199,363 208,966
Inventories(Note B)
Finished and in process 1,717,770 1,073,226
Raw materials 2,589,118 2,599,427
------------ -----------
4,306,888 3,672,653
Prepaid expenses & other curr assets 553,830 272,626
Deferred federal taxes 120,864 148,886
------------ -----------
TOTAL CURRENT ASSETS 12,451,603 10,264,712
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 332,536 322,423
Buildings 2,224,806 1,758,538
Machinery & equipment 11,030,310 9,839,816
Construction in progress 169,187 4,639
------------ -----------
13,756,839 11,925,416
Less allowance for depreciation 8,926,984 7,741,587
------------ -----------
4,829,855 4,183,829
OTHER ASSETS
Note receivable from related party 216,525 309,042
Excess of cost over net assets of
acquired businesses less amortization 1,253,334 80,080
Patents, agreements and trademarks
less amortization 1,170,084 1,237,160
Cash surrender value of life ins. net 1,837,765 1,658,288
Deferred federal taxes 18,978
Investment in joint venture 1,405,110 2,027,735
Other 7,000 7,000
------------ -----------
5,889,818 5,338,283
------------ -----------
$ 23,171,276 $ 19,786,824
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY May 31, Aug.31
1997 1996
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Accounts payable $ 2,821,473 $ 2,370,616
Notes payable 90,875 ---
Accrued expenses 2,464,951 2,049,718
Accrued pension expense - current 316,714 389,322
Federal income taxes (198,489) 67,261
Deferred compensation 258,000 302,216
Current portion of L.T. debt 1,663,949 1,223,178
------------ -----------
TOTAL CURRENT LIABILITIES 7,417,473 6,402,311
LONG-TERM DEBT, less current portion 4,940,211 4,481,071
Long-term deferred compensation
obligations 114,119 217,539
ACCRUED PENSION EXPENSE 166,203 227,968
Minority interest 307,487
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 4,851,973 shares at
May 31, 1997 and 4,676,397 shares at
Aug. 31, 1996 respectively 485,197 467,640
Additional paid-in capital 3,066,046 2,815,216
Treasury Stock, 1,037,693 shares at
May 31, 1997, and August 31, 1996 (3,990,400) (3,990,400)
Cum. G/(L) on currency translation (112,462) (108,100)
Retained earnings 10,777,402 9,273,579
------------ -----------
10,225,783 8,457,935
------------ -----------
$ 23,171,276 $ 19,786,824
============ ===========
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,
1997 1996 1997 1996
Sales $ 29,429,798 $24,570,987 $11,263,033 $8,673,573
Comm. and other income 218,180 277,921 63,227 106,368
Interest 28,361 58,488 8,069 15,752
----------- ----------- ----------- ----------
29,676,339 24,907,396 11,334,329 8,795,693
Cost and Expenses
Cost of products sold(Note B) 19,616,680 16,811,956 7,406,511 5,881,525
Sell.,gen. and admin. expen. 6,685,844 5,458,260 2,594,064 1,977,069
Bad debt expense 65,800 64,500 42,600 21,500
Interest expense 354,341 488,972 125,664 161,709
----------- ----------- ----------- ----------
26,722,665 22,823,688 10,168,839 8,041,803
Income before income taxes 2,953,674 2,083,708 1,165,490 753,890
Income taxes 1,193,400 749,400 470,900 268,400
----------- ----------- ----------- ----------
Income from operations 1,760,274 1,334,308 694,590 485,490
Income from minority interest 152,375 58,832 55,000 25,649
Minority interest in subsidiary 162,702 74,386
----------- ----------- ----------- ----------
$ 2,075,351 $ 1,393,140 $ 823,976 $ 511,139
=========== =========== =========== ==========
Income per share
of Common Stock
Primary $ 0.529 $ 0.371 $ 0.210 $ 0.136
=========== ============ =========== ==========
Fully Diluted $ 0.529 $ 0.371 $ 0.210 $ 0.136
=========== ============ =========== ==========
See accompanying notes to the consolidated financial
statements and accountant's review report.
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
9 MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996
Cummulative
Common Stock Additional Effect of Total
Shares Paid-In Treasury Stock Retained Currency Shareholders
Issued Amount Capital Shares Amount Earnings Translation Equity
Bal.@ Aug. 31, 1995 4,459,848 $ 445,985 $ 2,674,897 1,037,693 (3,990,400) $ 7,352,900 $ (79,030) $ 6,404,352
Curr. translation adjmt. (27,710) (27,710)
Exer.of stock options 174,553 17,455 (16,765) 690
Compensatory stock issuance 18,750 18,750
Net Income for 9 months 1,393,140 1,393,140
Dividends paid in cash
$.10 a share on
common stock (357,271) (357,271)
---------- -------- ---------- ---------- ----------- ---------- ---------- ----------
Bal.@ May 31, 1996 4,634,401 463,440 2,676,882 1,037,693 (3,990,400) 8,388,769 (106,740) 7,431,951
Curr. translation adjmt. (1,360) (1,360)
Exer.of stock options 41,996 4,200 100,834 105,034
Compensatory stock issuance. 37,500 37,500
Net income for 3 months 884,810 884,810
---------- -------- ---------- ---------- ----------- ---------- ---------- ----------
Bal.@ Aug. 31, 1996 4,676,397 467,640 2,815,216 1,037,693 (3,990,400) 9,273,579 (108,100) 8,457,935
Curr. translation adjustment (4,362) (4,362)
Exer.of stock options 175,576 17,557 177,002 194,559
Compensatory stock issuance. 73,828 73,828
Net income for 9 months 2,075,351 2,075,351
Dividends paid in cash
$.15 a share on
common stock (571,528) (571,528)
---------- -------- ---------- ---------- ----------- ---------- ----------- -----------
Bal.@ May 31, 1997 4,851,973 $ 485,197 $ 3,066,046 1,037,693 $ (3,990,400)$10,777,402 $ (112,462) $10,225,783
========== ======== ========== ========= =========== ========== ========== ==========
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,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,075,351 $ 1,393,140
Adjmts. to reconcile net income to net
cash provided by operating activities:
(Gain) on sale of fixed assets (40,000)
Depreciation 641,249 660,982
Amortization 78,066 77,707
Provision for losses on accts.rec. 100,953 52,184
Stock issued for compensation 73,828 37,500
Tax effect of cashless option exercised 194,560
Deferred federal taxes 22,000 80,325
Change in assets and liabilities
Trade receivables (866,795) 74,762
Inventories (202,375) 1,183,350
Prepd. expenses & other curr. asset (281,204) 206,699
Accounts payable 193,186 (1,263,263)
Accrued expenses 184,754 (222,691)
Federal income taxes payable (246,755) 21,111
Deferred compensation (147,636) (116,433)
------------ -----------
TOTAL ADJUSTMENTS (299,533) 752,233
NET CASH FROM OPERATIONS 1,775,818 2,145,373
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (491,226) (212,843)
Purchase of cash surrender value (179,477) (182,382)
Proceeds from note receivable 102,120 100,101
Cum. effect of currency translation (4,362) (27,710)
Investment in joint venture (554,573) (808,832)
Proceeds of sale of fixed assets 122,649
Minority interest 307,487
------------ ----------
(2,167,275) (1,009,017)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 4,100,000 3,400,000
Payments of principal on debt (3,200,089) (4,093,941)
Net borrowing under line-of-credit (1,299,733) 9,474
Dividend paid (571,528) (357,271)
------------ -----------
419,258 (1,041,738)
NET CHANGE IN CASH 27,801 94,618
CASH AT BEGINNING OF PERIOD 191,429 108,587
------------ -----------
CASH AT END OF PERIOD $ 219,230 $ 203,205
============ ===========
CASH PAID DURING PERIOD FOR:
Income taxes $ 1,068,729 $ 475,200
Interest $ 354,341 $ 488,972
See accompanying notes to the consolidated financial statement
and accountants' review report.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
June 26, 1997
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 and share equivalents outstanding used in
determining primary per share results was 3,922,658 for the
period of nine months ended May 31, 1997. Earnings per share on
a fully diluted basis are calculated on 3,923,676 common shares
and share equivalents. Common share equivalents arise from the
issuance of certain stock options.
Note D - Stock Issued for Compensation
The Company issued 100,000 shares of common stock restricted
as to sale to its president. The fair market value of the stock
at time of grant is being amortized over the nine year vesting
period. The restriction on sale is removed at the end of nine
years subject to certain service requirements.
Note E - Joint Venture Sale of Assets
Effective May 16, 1997, the Company and The Stewart Group,
Ltd., joint venture partners in The Stewart Group, Inc.,
announced an agreement to sell assets related to the manufacture
of reinforcement products for the telecommunications industry to
Owens Corning. Chase expects to realize a net financial gain in
excess of $1.7 million upon completion of the terms of agreement
early in our next fiscal year.
Note F - 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 such review, no
adjustments or additional disclosures were recommended.
Letter from the independent public accountant is included as a
part of this report.
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, increased by 28% and 19% respectively, over the
comparable periods in 1996. Some of the sales increases are the
result of our increased investment in DC Scientific which became
a subsidiary in January 1997 and to the continued strength in
sales within the power and electronic cable markets.
When compared to fiscal 1995, the increase of about $5.5
million relates primarily to the steady growth of sales from the
Webster facility of the Chase & Sons division, the improved
economic environment in Canada and the addition of D.C.
Scientific as a subsidiary to the Company.
The increase in the cost of products sold for the third
quarter and nine months of the current year over the same period
last year is largely volume related. As a percent of sales,
during the period to date, there has been a reduction of almost
2%. This reduction was due mostly because of a more favorable
product mix and also some decreases to certain raw material
costs. The Company's products are largely mature and some are
highly competitive which result in low margins. Competitive
pressure prevents us from being able to recover all of our
material price increases.
Selling and administrative expenses were higher during the
current year and as a percent or sales increased by less than 1%.
Most of this increase relates to costs associated with our
ongoing corporate development efforts and the additional expenses
associated with our continued strong results this year.
Interest expense decreased during the comparable periods
mostly because of a reduction in bank debt during most of the
period.
The sales increase, lower operating costs and associated
changes in product mix and productivity improvements, along with
stronger earnings from minority owned companies, this year
compared to last year, assisted in the improved profitability of
both income before taxes and net income.
The effective tax rate for 1997 is about equal to the
applicable tax rate. However, the benefit received as a result
of strong export sales through our Chase Export Corporation
subsidiary was offset by losses incurred by DC Scientific which
were reserved against and which are not consolidated for tax
filings. During 1996 the effective tax rate was somewhat lower
as a result of the export sales through Chase Export Corporation.
Income from minority interest for the nine month period
through both 1997 and 1996 primarily relates to the equity
position ownership in The Stewart Group, Inc., Toronto, Canada.
Effective May 16, 1997, the Company and The Stewart Group,
Ltd., joint venture partners in The Stewart Group, Inc.,
announced an agreement to sell assets related to the manufacture
of reinforcement products for the telecommunications industry to
Owens Corning. Chase expects to realize a net financial gain in
excess of $1.7 million upon completion of the terms of agreement
early in our next fiscal year. SGI will also provide management
services to Owens Corning for the next several years along with
the continuation of its role to develop and market products for
the telecommunications industry.
Minority Interest in subsidiary represents the minority
shareholder's 49.9% equity in the losses of DC Scientific.
Liquidity and Sources of Capital
The ratio of current assets to current liabilities was 1.7
at the end of the third quarter of 1997, compared to 1.6 at the
prior year end. The improved ratio is the result of increases in
receivables and inventory that are associated with the improved
sales and strong cash flow from operations which are related to
the additional profitability.
Long term debt increased $900,000 from the prior year end
and total liabilities, inclusive of long term debt increased
$1,334,000. The increased long term debt is the result of
borrowing associated with our investment in DC Scientific and
while total liabilities have also increased as the liabilities of
DC Scientific are now consolidated with those of of Chase.
The Company had $2,640,000 in unused available credit at May
31, 1997 under its credit arrangement 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.
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Chase Corporation
Braintree, Massachusetts
We have reviewed the consolidated balance sheet of Chase
Corporation and Subsidiary as of May 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for the periods of nine months ended May 31, 1997 and
1996, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified
Public Accountants.
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 Subsidiary as of August 31, 1996, and the related
statements of operations, stockholders' equity, and cash flows for
the year then ended (not presented herein); and in our report
dated October 16, 1996, 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, 1996, 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
June 25, 1997
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Reg. S-K
Item 601
SubsectionDescription of ExhibitStatePage 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 three months ended
May 31, 1997.
No financial statements were filed during the three months
ended May 31, 1997.
Pursuant to the requirements ofthe
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: June 26, 1997