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, 1998 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 30, 1998 3,874,232
PART 1: FINANCIAL INFORMATION
CHASE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS May 31 Aug.31
1998 1997
CURRENT ASSETS (UNAUDITED) (AUDITED)
Cash and cash equivalents $ 1,578,025 $ 158,881
Trade receivables,less allowance
for doubtful accounts of $182,000 and
$100,000 respectively 7,088,060 7,121,218
Note receivable from related party 46,406 92,517
Inventories(Note B)
Finished and in process 1,988,448 1,209,960
Raw materials 2,946,399 3,069,372
---------- ----------
4,934,847 4,279,332
Prepaid expenses & other curr assets 265,921 168,285
Deferred federal taxes 101,561 119,561
------------ -----------
TOTAL CURRENT ASSETS 14,014,820 11,939,794
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 332,536 332,536
Buildings 2,303,378 2,255,684
Machinery & equipment 11,491,144 11,211,621
Construction in progress 512,879 244,173
----------- -----------
14,639,937 14,044,014
Less allowance for depreciation 9,790,720 9,131,813
----------- -----------
4,849,217 4,912,201
OTHER ASSETS
Excess of cost over net assets of
acquired businesses less amortization 1,127,216 1,189,487
Patents, agreements and trademarks
less amortization 1,068,152 1,142,818
Cash surrender value of life ins. net 2,296,396 1,962,849
Deferred federal taxes 52,814 70,814
Investment in joint venture 743,144 1,410,798
Other 7,000 7,000
----------- ----------
5,294,722 5,783,766
----------- -----------
$24,158,759 $22,635,761
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY May 31 Aug.31
1998 1997
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Accounts payable $ 2,801,027 $ 2,386,390
Notes payable 1,095,000 662,063
Accrued expenses 2,957,426 2,821,061
Accrued pension expense - current 289,478 316,714
Federal income taxes 44,002 208,916
Deferred compensation 100,000 258,000
Current portion of L.T. debt 927,431 952,878
----------- -----------
TOTAL CURRENT LIABILITIES 8,214,364 7,606,022
LONG-TERM DEBT, less current portion 842,759 3,020,708
LONG-TERM DEFERRED COMPENSATION
OBLIGATIONS 55,769 66,518
ACCRUED PENSION EXPENSE 156,559 222,702
MINORITY INTEREST 65,028 166,508
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 4,946,316 shares at
May 31, 1998 and 4,873,797 shares at
Aug. 31, 1997 respectively 494,632 487,380
Additional paid-in capital 3,348,591 3,191,328
Treasury Stock, 1,072,084 and 1,040,473 shares at
May 31, 1998, and August 31, 1997, respe (4,535,476) (4,017,850)
Cum. G/(L) on currency translation (168,394) (122,121)
Retained earnings 15,684,927 12,014,566
----------- -----------
14,824,280 11,553,303
----------- -----------
$24,158,759 $22,635,761
=========== ===========
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
1998 1997 1998 1997
Sales $ 33,554,677 $29,429,798 $11,830,508 $11,263,033
Commissions and other income 202,297 218,180 77,734 63,227
Interest 49,872 28,361 29,707 8,069
33,806,846 29,676,339 11,937,949 11,334,329
Cost and Expenses
Cost of products sold(Note B) 22,082,785 19,616,680 7,824,390 7,406,511
Sell.,gen. and admin. expen. 7,385,339 6,685,844 2,392,874 2,594,064
Bad debt expense 23,834 65,800 9,600 42,600
Interest expense 202,797 354,341 63,792 125,664
29,694,755 26,722,665 10,290,656 10,168,839
Income before income taxes and minorit
interests and participations 4,112,091 2,953,674 1,647,293 1,165,490
Income taxes 1,605,800 1,193,400 596,700 470,900
Income before minority inter and partic 2,506,291 1,760,274 1,050,593 694,590
Income from minority interest 151,347 152,375 52,000 55,000
Minority participation in subsidiary 101,480 162,702 (21,879) 74,386
Gain on sale of minority assets, net 1,718,425 -- -- --
NET INCOME $ 4,477,543 $ 2,075,351 $ 1,080,714 $ 823,976
Net income per share of Common Stock
Basic $ 1.156 $ 0.544 $ 0.279 $ 0.216
Fully Diluted $ 1.137 $ 0.529 $ 0.274 $ 0.210
See accompanying notes to the consolidated financial statements
and accountants' review report.
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
9 MONTHS ENDED MAY 31, 1998 AND MAY 31, 1997
Cumulative
Common Stock Additional Effect of Total
Shares Paid-In Treasury Stock Retained Currency Shareholders
Issued Amount Capital Shares Amount Earnings Translation Equity
Balance @ Aug. 31, 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 adjmt. (4,362) (4,362)
Exer.of stock options 175,576 17,557 177,002 194,559
Compensatory stock issuan 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)
Balance @ 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
Curr. translation adjmt. (9,659) (9,659)
Exer.of stock options 21,824 2,183 125,282 127,465
Net income for 3 months 1,237,164 1,237,164
Purchase of treasury stock 2,780 (27,450) (27,450)
Balance @ Aug. 31, 1997 4,873,797 487,380 3,191,328 1,040,473 (4,017,850) 12,014,566 (122,121) 11,553,303
Curr. translation adjustment (46,273) (46,273)
Exer.of stock options 72,519 7,252 83,434 90,686
Compensatory stock issuance. 73,829 73,829
Purchase of treasury stock 31,611 (517,626) (517,626)
Net income for 9 months 4,477,543 4,477,543
Dividends paid in cash
$.21 a share on
common stock (807,182) (807,182)
Balance @ May 31, 1998 4,946,316 $ 494,632 $ 3,348,591 1,072,084 $(4,535,476)$15,684,927 $(168,394) $ 14,824,280
See accompanying notes to the consolidated financial statements
and accountants' review report.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months End
May 31, May 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 4,477,543 $ 2,075,351
Adjmts. to reconcile net income to net
cash provided by operating activities:
Income from joint venture (1,799,772) (554,573)
Minority interest (101,480) 307,487
Depreciation 658,907 641,249
Amortization 136,937 78,066
Provision for losses on accts. receivable 29,500 100,953
Stock issued for compensation 73,829 73,828
Tax effect of cashless option exercise 90,686 194,560
Deferred federal taxes 36,000 22,000
Change in assets and liabilities
Trade receivables 3,658 (866,795)
Inventories (655,515) (202,375)
Prepd. expenses & other curr. assets (97,636) (281,204)
Accounts payable 414,637 193,186
Accrued expenses 42,986 184,754
Federal income taxes payable (164,914) (246,755)
Deferred compensation (168,749) (147,636)
TOTAL ADJUSTMENTS (1,500,926) (503,255)
NET CASH FROM OPERATIONS 2,976,617 1,572,096
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (642,196) (495,588)
Purchase of cash surrender value (333,547) (179,477)
Proceeds from note receivable 46,111 102,120
Dividend received from joint venture 2,467,426
1,537,794 (572,945)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 800,000 4,100,000
Payments of principal on debt (3,003,396) (3,200,089)
Net borrowing under line-of-credit 432,937 (1,299,733)
Dividend paid (807,182) (571,528)
Purchase of Common Shares for Treasury (517,626)
(3,095,267) (971,350)
NET CHANGE IN CASH 1,419,144 27,801
CASH AT BEGINNING OF PERIOD 158,881 191,429
CASH AT END OF PERIOD $ 1,578,025 $ 219,230
CASH PAID DURING PERIOD FOR:
Income taxes $ 1,293,812 $ 1,068,729
Interest $ 202,797 $ 354,341
See accompanying notes to the consolidated financial statements
and accountants' review report.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Chase Corporation
Braintree, Massachusetts
We have reviewed the consolidated balance sheet of Chase Corporation and
Subsidiaries as of May 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the periods of nine
months ended May 31, 1998 and 1997, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants. All information included in these financial
statements is the representation of the management of Chase Corporation.
A review of interim financial information consists principally of obtaining
an understanding of the system for the preparation of interim financial
information, applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Chase Corporation and
Subsidiaries as of August 31, 1997, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated April 2, 1998, 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, 1997,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
/s/Livingston and Haynes, P.C.
Wellesley, Massachusetts
June 18, 1998
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 14% and 5% respectively, over the comparable periods in 1997.
A significant amount of the increase to date was the result of our investment
in DC Scientific which became a subsidiary of Chase during January 1997,
improved sales of highway related products through our Royston division, and
the continued strength in sales within the power and electronic cable markets.
When compared to fiscal 1996, the increase of about $9 million relates
primarily to the continued growth of electronic and communication tape sales
through our Webster facility, the addition of DC Scientific as a subsidiary
and an improved construction market that generally helped support several
of our other product lines.
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. For the nine-month period, as a per cent of sales, there was a
reduction of almost 1%. The reduction was due mostly to some decrease in
raw material costs. The Company's products are largely mature and some are
highly competitive which at times could result in low margins. Competitive
pressure not only prevents us from recovering raw material price increases,
but also reduces our opportunity to improve profitability during periods
of raw material price decreases.
Selling and administrative expenses were higher during the current year,
however as a percent of sales decreased by 0.7%. The dollar increase relates
to costs associated with our increased levels of sales as well as investments
in staffing required to continue our ability to improve revenue and
profitability.
Interest expense decreased during the comparable periods and is related
to the reduction in bank debt. A significant amount of the bank debt
reduction was the cash dividend declared and paid by The Stewart Group, Inc.,
the result of the previously announced sale of certain assets to Owens
Corning, which was concluded during our first quarter. The Company also
continues to benefit from solid earnings and low borrowing rates from its
lender.
The sales increase combined with lower operating costs, associated
changes in product mix and productivity improvements have assisted in our
profit improvement over the past few years. The substantial gain to net
income relates to the non-recurring net gain of $1,718,000 resulting from
the sale of certain assets by The Stewart Group, Inc. joint venture to
Owens Corning.
The effective tax rate for 1998 is slightly lower than 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 not consolidated for
tax filings. Also included in the income taxes this year are taxes
associated with the gain on the sale of minority assets. During 1996 the tax
rate was about equal to the applicable rate.
The income from minority interest for the both this year and last year
relates to the equity position ownership in The Stewart Group, Inc., Toronto,
Canada.
Minority participation in subsidiary relates to the minority
shareholders 49.9% equity in the losses of DC Scientific, Inc.
Liquidity and Sources of Capital
The ratio of current assets to current liabilities was 1.7 at the end of
the third quarter of 1998, compared to 1.6 at the prior year-end.
Long term debt has decreased $2,178,000 from the prior year-end while
total liabilities, exclusive of long term debt increased $500,000. The
decrease to long term debt is associated with the sale of certain assets to
Owens Corning by The Stewart Group, Inc. joint venture while the increase is
mostly associated with the increased level of sales and the liabilities of DC
Scientific, which are consolidated with those of Chase.
The Company had $5,840,00 in available credit at May 31, 1998 under its
credit arrangement with its bank and plans to utilize this means to help
finance its interim funding requirements 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.
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
July 13, 1998
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 weighted average number of shares and
contingency issuable shares outstanding during the period. The average
number of shares and share equivalents outstanding used in determining basic
per share results was 3,874,272 for the period of nine months ended May 31,
1998. Earnings per share on a fully diluted basis are calculated on
3,938,699 common shares and share equivalents. Common share equivalents
arise from the issuance of certain stock options.
Note D - Joint Venture Sale of Assets
The Company and The Stewart Group, Ltd., joint venture partners in The
Stewart Group, Inc., completed an agreement to sell assets related to the
manufacture of reinforcement products for the telecommunications industry to
Owens Corning. Chase realized a net financial gain of $1,718,425 or $0.435
per share upon completion of the terms of the agreement.
Note E - Review by Independent Public Accountant
The financial information included in this form has been reviewed by an
independent public accountant in accordance with established professional
standards and procedures. Based upon such review, no adjustments or
additional disclosures were recommended.
Letter from the independent public accountant is included as a part of this
report.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Reg. S-K
Item 601
Subsection Description of Exhibit State Page Number
Pursuant to reg. S-K item 601
no exhibits are required.
(b) Reports on Form 8-K
No 8-K reports were filed during the three months ended
May 31, 1998.
No financial statements were filed during the three months
ended May 31, 1998.
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: July 13, 1998