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, 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 June 30, 1999 3,905,282
PART 1: FINANCIAL INFORMATION
CHASE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS May 31 Aug.31
1999 1998
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 327,698 $ 2,296,384
Trade receivables,less allowance
for doubtful accounts of $380,400 and
$201,135 respectively 8,732,485 7,320,022
Note receivable from related party 61,407 46,406
Inventories(Note B)
Finished and in process 3,646,850 1,671,770
Raw Materials 2,787,353 3,064,684
--------- ---------
6,434,203 4,736,454
Prepaid expenses & other curr assets 348,989 380,062
Deferred taxes 90,294 90,294
---------- ----------
TOTAL CURRENT ASSETS 15,995,076 14,869,622
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 322,423 332,536
Buildings 2,320,686 2,385,647
Machinery & equipment 13,355,835 11,763,321
Construction in progress 1,920,805 532,628
---------- ----------
17,919,749 15,014,132
Less allowance for depreciation 11,106,989 9,904,243
---------- ----------
6,812,760 5,109,889
OTHER ASSETS
Note receivable from related party
Excess of cost over net assets of
acquired businesses less amortization 7,948,192 1,106,462
Patents, agreements and trademarks
less amortization 970,415 1,044,404
Cash surrender value of life ins. net 2,804,950 2,423,851
Deferred taxes 81,266 72,266
Investment in joint venture 786,797 486,795
Other 279,493 148,497
----------- -----------
12,871,113 5,282,275
----------- -----------
$35,678,949 $25,261,786
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31 Aug.31
1999 1998
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Accounts payable $ 3,803,211 $ 2,848,199
Notes payable 1,396,679 1,136,000
Accrued expenses 2,738,663 3,227,937
Accrued pension expense - current 251,273 289,478
Income taxes (232,310) (134,809)
Deferred compensation 41,999 41,999
Current portion of L.T. debt 2,583,475 287,317
---------- -----------
TOTAL CURRENT LIABILITIES 10,582,990 7,696,121
LONG-TERM DEBT, less current portion 6,015,625 682,576
Long-term deferred compensation
obligations 303,939 199,131
ACCRUED PENSION EXPENSE 232,306 201,369
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
May 31, 1999 and 4,977,650 shares at
Aug. 31, 1998 respectively 499,386 497,765
Additional paid-in capital 3,442,317 3,370,066
Treasury Stock, 1,088,584 and
1,072,084 shares at May 31, 1999,
and August 31, 1998, respectively (4,687,565) (4,535,476)
Cum. G/(L) on currency translation (180,077) (238,728)
Retained earnings 19,510,738 17,330,039
---------- ----------
18,584,799 16,423,666
---------- ----------
$35,678,949 $25,261,786
========== ==========
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, 1999 AND MAY 31, 1998
Cummulative
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. (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
Curr. translation adjmt. (70,334) (70,334)
Exer.of stock options 31,334 3,133 (3,133) 0
Compensatory stock issuance 24,608 24,608
Net income for 3 months 1,645,112 1,645,112
Purchase of treasury stock
--------- ------- --------- --------- ---------- ---------- -------- ----------
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 58,651 58,651
Exer.of stock options 1,621 (1,621) 0
Compensatory stock issuance. 73,872 73,872
Purchase of treasury stock 16,500 (152,089) (152,089)
Net income for 9 months 3,274,413 3,274,413
Dividends paid in cash
$.28 a share on
common stock (1,093,714) (1,093,714)
--------- -------- ---------- --------- ----------- ----------- --------- -----------
Balance @ May 31,1999 4,977,650 $499,386 $3,442,317 1,088,584 $(4,687,565) $20,604,452 $(180,077) $18,584,799
========= ======== ========= ========= ========== ========== ======== ==========
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
1999 1998 1999 1998
Sales $34,855,355 $33,554,677 $12,928,890 $11,830,508
Commissions and other income 220,163 202,297 66,675 77,734
Interest 42,600 49,872 12,468 29,707
---------- ---------- ---------- ----------
35,118,118 33,806,846 13,008,033 11,937,949
Cost and Expenses
Cost of products sold(Note B) 23,258,195 22,082,785 8,716,368 7,824,390
Sell.,gen. and admin. expen. 6,913,575 7,385,339 2,340,292 2,392,874
Bad debt expense 30,300 23,834 9,100 9,600
Interest expense 139,368 202,797 57,903 63,792
---------- ---------- --------- ----------
30,341,438 29,694,755 11,123,663 10,290,656
---------- ---------- ---------- ----------
Income before income taxes and minority
interests and participations 4,776,680 4,112,091 1,884,370 1,647,293
Income taxes 1,781,900 1,605,800 659,400 596,700
---------- ---------- ---------- ----------
Income before minority interests
and participations 2,994,780 2,506,291 1,224,970 1,050,593
Income from minority interest 180,000 151,347 55,000 52,000
Minority participation in subsidary 99,633 101,480 - (21,879)
Gain on sale of minority assets,net 1,718,425 -- --
---------- ---------- ---------- ----------
NET INCOME $3,274,413 $ 4,477,543 $ 1,279,970 $ 1,080,714
========= ========== ========== ==========
Net income per share of Common Stock
Basic $ 0.840 $ 1.156 $ 0.328 $ 0.279
========= ========== ========= ==========
Fully Diluted $ 0.823 $ 1.137 $ 0.321 $ 0.274
========= ========== ========= ==========
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,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,274,413 $ 4,477,543
Adjmts. to reconcile net income to net
cash provided by operating activities:
Income from joint venture (300,002) (1,799,772)
Minority interest (99,633) (101,480)
Depreciation 689,486 658,907
Amortization 187,485 136,937
Provision for losses on accts. receivable 32,765 29,500
Stock issued for compensation 73,872 73,829
Tax effect of cashless option exercise 0 90,686
Deferred taxes (9,000) 36,000
Change in assets and liabilities
Trade receivables (118,846) 3,658
Inventories (626,839) (655,515)
Prepd. expenses & other curr. assets 37,158 (97,636)
Accounts payable 147,975 414,637
Accrued expenses (971,322) 42,986
Income taxes payable (97,501) (164,914)
Deferred compensation 104,808 (168,749)
---------- ----------
TOTAL ADJUSTMENTS (949,594) (1,500,926)
NET CASH FROM OPERATIONS 2,324,819 2,976,617
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,482,637) (642,196)
Cash paid for acuisition of RWA, Inc.
less cash received (5,024,769)
Investment in trusteed assets (130,996)
Purchase of cash surrender value (381,099) (333,547)
Proceeds from note receivable 46,111
Dividend received from joint venture 0 2,467,426
---------- ----------
(8,019,501) 1,537,794
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 5,052,970 800,000
Payments of principal on debt (341,850) (3,003,396)
Net borrowing under line-of-credit 260,679 432,937
Dividend paid (1,093,714) (807,182)
Purchase of Common Shares for Treasury (152,089) (517,626)
---------- ----------
3,725,996 (3,095,267)
NET CHANGE IN CASH (1,968,686) 1,419,144
CASH AT BEGINNING OF PERIOD 2,296,384 158,881
---------- ----------
CASH AT END OF PERIOD $ 327,698 $ 1,578,025
========== ==========
CASH PAID DURING PERIOD FOR:
Income taxes $ 1,799,600 $ 1,293,812
Interest $ 438,351 $ 202,797
See accompanying notes to the consolidated financial statements
and accountants' review report.
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
July 13, 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 subsidiaries.
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 3,896,408 and
3,905,282 for the period of nine months and three months ended May 31, 1999.
Earnings per share on a fully diluted basis were calculated on 3,979,401 and
3,988,414 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 - Acquisition of RWA Inc.
Chase Corporation has purchased all of the stock of RWA, Inc. ("RWA") from
its sole shareholder for cash of five million dollars and a promissory note,
payable over three years, with a discounted value of $2.7 million dollars.
An additional amount may be paid contingent upon future performance of RWA
based upon fifty percent of the amount by which average annual earnings for
the thirty six months ended May 31,2002, before interest, tax, depreciation
and amortization multiplied by four, exceed eight million dollars and a
performance consideration based upon thirty percent of the amount by which
net income before taxes exceeds certain base amounts.
RWA is engaged in electronic manufacturing services to the electronics
industry and will continue its current operations.
Note G - Review by Independent Public Accountant
The financial information included in this form has been reviewed by an
independent public accountant in accordance with established professional
standards and procedures. Based upon such review, no adjustments or
additional disclosures were recommended.
Letter from the independent public accountant is included as a part of this
report.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Chase Corporation
Bridgewater, Massachusetts
We have reviewed the consolidated balance sheet of Chase Corporation and
Subsidiaries as of May 31, 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the periods of nine
months and three months ended May 31, 1999 and 1998, in accordance with
Statements on Standard 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 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 materail modification 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, 1998, and the related statements of operations, stockholders'
equity, and cash flows for the year ended(not presented herin); 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 & Hayes, P.C.
Wellesley, Massachusetts
July 14, 1999
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,
1999 increased by 9% and 4% respectively, over the comparable period in 1998.
A significant amount of the increase relates to our continued market
penetration within the electronic cable markets. The Company also received
the benefit of some sales from our recent acquisition(RWA, Inc), which was
effective May 1, 1999. Last year the quarter and nine month periods included
sales from a distribution agreement that was terminated as of September 30,
1998. The compounded rate of revenue growth over the past two years is
about 9%.
When compared to fiscal 1997, the revenue increase was due to our investment
in Sunburst EMS(formerly DC Scientific), improved sales of highway related
products and the continued strength within the power and electronic cable
market.
Cost of products sold increased slightly in both the third quarter and year
to date for the current year when compared to the previous period. For the
nine months, 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
and product mix. 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 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 associated
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 majority of
the interest expense is because of the revolving line of credit established
to provide working capital for our subsidiary, Sunburst EMS, formerly DC
Scientific. The Company continues to benefit from solid earnings and low
borrowing rates from its lender.
The sales performance from our traditional products remained solid and we
also benefited somewhat from recently concluded acquisition of RWA, Inc.
effective May 1, 1999 during this fiscal period as compared to last year.
Other factors associated with the improved profitability were due to the
reduction in certain costs last year related to the bridge construction
project, the replacement of the terminated distribution sales with Chase
manufactured value added product and the elimination of the need to further
adjust the value of certain investments all added to the improved profit for
this quarter and period to date 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 Sunburst EMS (formerly DC Scientific, Inc.)
The investment enabled the Company to consolidate their losses for income tax
purposes. During fiscal 1998, the tax benefit from the export sales were
somewhat offset by the losses of Sunburst EMS which were reserved against and
not consolidated for tax filings. Also included in the prior years was the
tax associated with the gain in 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.
The minority participation in subsidiary relates to the minority shareholders
49.9% equity in the losses of Sunburst EMS for the period up to January 27,
1999. Effective that date Chase acquired the remaining shares of Sunburst EMS.
Liquidity and Sources of Capital
The ratio of current assets to current liabilities was 1.5 at the end of the
third quarter of fiscal 1999 as compared to 1.9 at the prior year end. The
reduction to the current ratio is associated with the current portion of
notes payable required to accomplish the acquisition of RWA, Inc.
The majority of our increase in long term debt and total debt is the result
of the RWA, Inc. acquisition which was purchased at a price of $7.7 million
of which $6.7 million was converted to notes payable either to our bank or
the shareholder of RWA, Inc.
The Company had $5,840,000 in available credit at May 31, 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 third fiscal quarter, new hardware has been purchased and
installed, modification to software code and the system conversion has been
completed at all divisions with exception of Chase Canada. Chase Canada will
be converted effective July 31, 1999 at which time we will have completed our
system conversion and be Y2K compliant.
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
Form 8-K was filed referencing the acquisition of RWA,
Inc. on June 8, 1999.
No financial statements were filed during the three months
ended May 31, 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: July 15, 1999