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 February 28,1999 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)
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 March 31, 1999 3,905,282
PART 1: FINANCIAL INFORMATION
CHASE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS Feb. 28 Aug.31
1999 1998
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 910,934 $ 2,296,384
Trade receivables,less allowance
for doubtful accounts of $225,800 and
$201,135 respectively 6,553,492 7,320,022
Note receivable from related party 46,407 46,406
Inventories(Note B)
Finished and in process 2,223,048 1,671,770
Raw materials 2,849,235 3,064,684
------------ -----------
5,072,283 4,736,454
Prepaid expenses & other curr assets 383,845 380,062
Deferred taxes 90,294 90,294
------------ -----------
TOTAL CURRENT ASSETS 13,057,255 14,869,622
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 322,423 332,536
Buildings 2,285,965 2,385,647
Machinery & equipment 12,035,572 11,763,321
Construction in progress 1,659,569 532,628
------------ -----------
16,303,529 15,014,132
Less allowance for depreciation 10,324,042 9,904,243
------------ -----------
5,979,487 5,109,889
OTHER ASSETS
Note receivable from related party
Excess of cost over net assets of
acquired businesses less amortization 1,776,092 1,106,462
Patents, agreements and trademarks
less amortization 994,945 1,044,404
Cash surrender value of life ins. net 2,677,917 2,423,851
Deferred taxes 86,766 72,266
Investment in joint venture 631,797 486,795
Other 282,972 148,497
------------ -----------
6,450,489 5,282,275
------------ -----------
$ 25,487,231 $ 25,261,786
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY Feb.28 Aug.31
1999 1998
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Accounts payable $ 2,790,109 $ 2,848,199
Notes payable 1,195,792 1,136,000
Accrued expenses 2,246,116 3,227,937
Accrued pension expense - current 289,478 289,478
Income taxes (621,775) (134,809)
Deferred compensation 41,999 41,999
Current portion of L.T. debt 240,717 287,317
------------ -----------
TOTAL CURRENT LIABILITIES 6,182,436 7,696,121
LONG-TERM DEBT, less current portion 1,403,538 682,576
Long-term deferred compensation
obligations 310,606 199,131
ACCRUED PENSION EXPENSE 375,827 201,369
Minority interest (40,710) 58,923
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 4,993,866 shares at
Feb. 28, 1999 and 4,977,650 shares at
Aug. 31, 1998 respectively 499,386 497,765
Additional paid-in capital 3,417,693 3,370,066
Treasury Stock, 1,088,584 and 1,072,084 sh
Feb. 28, 1999, and August 31, 1998, resp (4,687,565) (4,535,476)
Cum. G/(L) on currency translation (204,748) (238,728)
Retained earnings 18,230,768 17,330,039
------------ -----------
17,255,534 16,423,666
------------ -----------
$ 25,487,231 $ 25,261,786
============ ===========
See accompanying notes to the consolidated financial
statements and accountants' review report.
CHASE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended
Feb. 28 Feb. 28 Feb. 28 Feb. 28
1,999 1998 1,999 1998
Sales $21,926,465 $21,724,169 $10,414,555 $10,166,586
Commissions and other income 153,488 124,563 68,970 63,072
Interest 30,132 20,165 10,152 18,013
22,110,085 21,868,897 10,493,677 10,247,671
Cost and Expenses
Cost of products sold(Note B) 14,541,827 14,258,395 7,085,275 6,912,884
Sell.,gen. and admin. expen. 4,573,283 4,992,465 2,205,245 2,230,141
Bad debt expense 21,200 14,234 8,900 9,600
Interest expense 81,465 139,005 41,237 62,390
19,217,775 19,404,099 9,340,657 9,215,015
Income before income taxes and minority
interests and participations 2,892,310 2,464,798 1,153,020 1,032,656
Income taxes 1,122,500 1,009,100 429,200 420,400
Income before minority interests and
Participation. 1,769,810 1,455,698 723,820 612,256
Income from minority interest 125,000 99,347 65,000 53,347
Minority participation in subsidiary 99,633 123,359 44,815 54,962
Gain on sale of minority assets, net 1,718,425 -- ---
NET INCOME $ 1,994,443 $ 3,396,829 $ 833,635 $ 720,565
Net income per share of Common Stock
Basic $ 0.512 $ 0.856 $ 0.214 $ 0.181
Fully Diluted $ 0.502 $ 0.855 $ 0.210 $ 0.181
See accompanying notes to the consolidated financial statements
and accountants' review report.
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
6 MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
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, 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 adjmt. (25,951) (25,951)
Exer.of stock options 72,519 7,252 83,434 90,686
Compensatory stock issuan 49,219 49,219
Purchase of treasury stock 20,946 (327,636) (327,636)
Net Income for 6 months 3,396,829 3,396,829
Dividends paid in cash
$.21 a share on
common stock (807,182) (807,182)
Balance @ Feb. 28, 1998 4,946,316 494,632 3,323,981 1,061,419 (4,345,486) 14,604,213 (148,072) 13,929,268
Curr. translation adjmt. (90,656) (90,656)
Exer.of stock options 31,334 3,133 (3,133) 0
Compensatory stock issuance 49,218 49,218
Net income for 6 months 2,725,826 2,725,826
Purchase of treasury stock 10,665 (189,990) (189,990)
Balance @ Aug. 31, 1998 4,977,650 497,765 3,370,066 1,072,084 (4,535,476) 17,330,039 (238,728) 16,423,666
Curr. translation adjustment 33,980 33,980
Exer.of stock options 16,216 1,621 (1,621) 0
Compensatory stock issuance. 49,248 49,248
Purchase of treasury stock 16,500 (152,089) (152,089)
Net income for 6 months 1,994,443 1,994,443
Dividends paid in cash
$.28 a share on
common stock (1,093,714) (1,093,714)
Balance @ Feb. 28, 1999 4,993,866 $499,386 $3,417,693 1,088,584 $(4,687,565) $19,324,482 $(204,748) $ 17,255,534
See accompanying notes to the consolidated financial statements
and accountants' review report.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
Feb.28, Feb.28,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,994,443 $ 3,396,829
Adjmts. to reconcile net income to net
cash provided by operating activities:
Income from joint venture (145,002) (1,747,772)
Minority interest (99,633) (123,359)
Depreciation 440,003 444,691
Amortization 95,447 91,292
Provision for losses on accts. receivable 24,665 22,700
Stock issued for compensation 49,248 49,219
Tax effect of cashless option exercise 90,686
Deferred taxes (14,500) 18,000
Change in assets and liabilities
Trade receivables 741,865 839,077
Inventories (335,830) (480,829)
Prepd. expenses & other curr. assets (3,783) (181,766)
Accounts payable (58,090) 132,600
Accrued expenses (807,363) (348,437)
Income taxes payable (486,966) (190,871)
Deferred compensation 111,475 (112,500)
TOTAL ADJUSTMENTS (488,464) (1,497,269)
NET CASH FROM OPERATIONS 1,505,979 1,899,560
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,991,238) (404,690)
Investment in trusteed assets (134,475)
Purchase of cash surrender value (254,066) (217,770)
Proceeds from note receivable 59,792 46,110
Dividend received from joint venture 0 2,316,320
(2,319,987) 1,739,970
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 0 800,000
Payments of principal on debt (328,571) (2,716,027)
Net borrowing under line-of-credit 1,002,932 472,937
Dividend paid (1,093,714) (807,182)
Purchase of Common Shares for Treasury (152,089) (327,636)
(571,442) (2,577,908)
NET CHANGE IN CASH (1,385,450) 1,061,622
CASH AT BEGINNING OF PERIOD 2,296,384 158,881
CASH AT END OF PERIOD $ 910,934 $ 1,220,503
CASH PAID DURING PERIOD FOR:
Income taxes $ 1,709,978 $ 1,250,199
Interest $ 81,465 $ 139,005
See accompanying notes to the consolidated financial statements
and accountants' review report.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Chase Corporation
Bridgewater, Massachusetts
We have reviewed the consolidated balance sheet of Chase Corporation and
Subsidiary as of February 28, 1999, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the periods of six
months and three months ended February 28, 1998 and 1999, 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, 1998, 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, 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, 1998, 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
March 23, 1999
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
April 8, 1999
Note A - Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with the instructions to Form 10-Q and all adjustments
(consisting of nonrecurring accruals) have been made which are, in the
opinion of Management, necessary to a fair statement of the results for the
interim periods reported. The financial statements of Chase Corporation
include the activities of its divisions and its foreign sales subsidiary.
Note B - Inventories
Certain divisions used estimated gross profit rates to determine the cost of
goods sold. No significant adjustments have resulted from reconciling with
the interim physical inventories as a result of using this method.
Note C - Income per Share of Common Stock
Income per share is based on the average number of shares and share
equivalents outstanding during the period. The average number of shares
outstanding used in determining basic per share results was 3,891,898 and
3,893,316 for the period of six months and three months ended February 28,
1999. Earnings per share on a fully diluted basis were calculated on
3,970,850 and 3,972,699 common shares and share equivalents. Common share
equivalents arise from the issuance of certain stock options.
Note D - Purchase of Subsidiary Stock
Effective January 27, 1999, Chase Corporation acquired all of the outstanding
stock of DC Scientific, Inc., that it had not previously owned.
Note E - 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 during the six months
ended February 28, 1998.
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. 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.
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 second quarter and first half of fiscal 1999 were about
the same over the comparable periods of fiscal 1998. When comparing the
revenue to fiscal 1997, the compounded rate of growth during the two year
period was 10%. The strong increase last year related to the completion of a
significant bridge construction project. The second quarter of fiscal 1999
has been negatively affected by the recently terminated distribution agreement.
Cost of products sold increased slightly in both the second quarter and year
to date for the current fiscal year when compared to the previous period.
For the first half as a percent of sales, there was an increase of almost 1%.
The relatively small increase was due to some increase to certain raw
material. We do not expect to see any significant changes to raw material
because of the previously negotiated supply contracts. The Company products
are largely mature and some are highly competitive which could result in low
margins. Competitive pressure prevents us from being able to recover all of
our material price increases from our customers.
Selling and administrative expenses were lower during the current year and
as a percent of sales decreased about 2%. Most of the decrease relates to a
reduction in certain warranty and administrative related costs associated
with the bridge construction contract, continued corporate cost containment
procedures and the elimination of the need to further adjust the values of
certain investments. Fiscal 1998 expenses were also higher than the previous
period and related to costs associated with our corporate development efforts
and expenses related to the increased level of sales.
Interest expense decreased during the comparable periods and is related to a
reduction in bank debt. A significant amount of the bank debt reduction
occurred during fiscal 1998 as a result of the cash dividend declared and
paid by our joint venture partner, The Stewart Group, Inc. The Company also
continues to benefit from solid earnings and low borrowing rates from its
lender.
While revenue has remained relatively constant during this fiscal period as
compared to last year, the reduction in certain costs last year related to
the bridge construction project, the replacement of the terminated
distribution sales with Chase value added manufactured product, and the
elimination of the need to further adjust the value of certain investments
have assisted in our profit improvement during this quarter as compared to
last year.
The income improvement in fiscal 1998 vs 1997 was mostly attributable to the
increased sales volume and the net gain realized from the sale of minority
assets by our joint venture partner, The Stewart Group, Inc. to Owens Corning.
The effective tax rate for the periods are lower than the applicable tax rate.
In both years, the Company received the benefit of solid export sales through
our Chase Export Corporation subsidiary. Effective January 27, 1999, Chase
acquired 100% ownership of DC Scientific, Inc. The investment enabled the
Company to consolidate their losses for income tax purposes. In the prior
year the tax benefits from the export sales were somewhat offset by the
losses of DC Scientific, Inc which were reserved against and not consolidated
for tax filings. Also included in the prior years taxes was the tax
associated with the gain on the sale of the minority assets.
The income from minority interest for 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. for the period up to
January 27, 1999. Effective that date Chase acquired the remaining shares of
DC Scientific, Inc.
Liquidity and Sources of Capital
The ratio of current assets to current liabilities was 2.1 at the end of the
second quarter of fiscal 1999 as compared to 1.9 at the prior year end.
While long term debt has increased by $721,000, total liabilities have
decreased by $505,000. The increase to long term debt relates to the
obligations associated with the cost of new computer system and costs
associated with our new office space.
The Company had $5,840,000 in available credit at February 28, 1999
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.
Year 2000
At the end of the second fiscal quarter, new hardware has been purchased and
installed, modification to software code is being implemented, system
education has begun and two divisions will be converted over to the new
system shortly. Our schedule is to complete our transition to a new Y2K
compliant system June 30, 1999.
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
February 28, 1999.
No financial statements were filed during the three months
ended February 28, 1999.
Pursuant to the requirements of the
Securities Exchange Act of 1934, the
registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
CHASE CORPORATION
/s/ Peter R.Chase
Peter R.Chase, President & CEO
Dated: April 8, 1999