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 November 30, 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 December 31, 1997 3,809,630
<TABLE>
<CAPTION>
PART 1: FINANCIAL INFORMATION
CHASE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS Nov. 30 Aug.31
1997 1997
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 612,823 $ 158,881
Trade receivables,less allowance
for doubtful accounts of $169,115 and
$152,500 respectively 6,937,789 7,121,218
Note receivable from related party 57,963 92,517
Inventories(Note B)
Finished and in process 1,846,503 1,209,960
Raw materials 2,676,177 3,069,372
------------ -----------
4,522,680 4,279,332
Prepaid expenses & other curr assets 387,656 168,285
Deferred federal taxes 119,561 119,561
------------ -----------
TOTAL CURRENT ASSETS 12,638,472 11,939,794
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 336,911 332,536
Buildings 2,301,696 2,255,684
Machinery & equipment 11,570,899 11,211,621
Construction in progress 126,771 244,173
------------ -----------
14,336,277 14,044,014
Less allowance for depreciation 9,347,894 9,131,813
------------ -----------
4,988,383 4,912,201
OTHER ASSETS
Note receivable from related party
Excess of cost over net assets of
acquired businesses less amortization 1,168,730 1,189,487
Patents, agreements and trademarks
less amortization 1,117,930 1,142,818
Cash surrender value of life ins. net 2,054,489 1,962,849
Deferred federal taxes 70,814 70,814
Investment in joint venture 858,903 1,410,798
Other 7,000 7,000
------------ -----------
5,277,866 5,783,766
------------ -----------
$ 22,904,721 $ 22,635,761
============ ===========
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY Nov. 30 Aug.31
1997 1997
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,676,228 $ 2,386,390
Notes payable 720,829 662,063
Accrued expenses 2,388,333 2,821,061
Accrued pension expense - current 316,714 316,714
Federal income taxes 474,401 208,916
Deferred compensation 258,000 258,000
Current portion of L.T. debt 952,793 952,878
------------ -----------
TOTAL CURRENT LIABILITIES 7,787,298 7,606,022
LONG-TERM DEBT, less current portion 1,384,864 3,020,708
Long-term deferred compensation
obligations 10,268 66,518
ACCRUED PENSION EXPENSE 297,147 222,702
Minority interest 98,111 166,508
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 4,889,641 shares at
Nov. 30, 1997 and 4,873,797 shares at
Aug. 31, 1997 respectively 488,964 487,380
Additional paid-in capital 3,214,354 3,191,328
Treasury Stock, 1,046,473 and 1,040,473
shares at Nov. 30, 1997, and
August 31, 1997, respectively (4,106,350) (4,017,850)
Cum. G/(L) on currency translation (151,739) (122,121)
Retained earnings 13,881,804 12,014,566
------------ -----------
13,327,032 11,553,303
------------ -----------
$ 22,904,721 $ 22,635,761
============ ===========
See accompanying notes to the consolidated financial
statements and accountants' review report.
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<CAPTION>
CHASE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
3 Months Ended
Nov.30 Nov.30
1997 1996
<S> <C> <C>
Sales $ 11,557,583 $ 9,003,995
Comm. and other income 61,491 79,502
Interest 2,152 10,573
11,621,226 9,094,070
Cost and Expenses
Cost of products sold(Note B) 7,345,511 5,930,575
Sell.,gen. and admin. expen. 2,762,324 2,039,379
Bad debt expense 4,634 9,000
Interest expense 76,615 105,498
10,189,084 8,084,452
Income before taxes and minority 1,432,142 1,009,618
Interests and participation
Income Taxes 588,700 376,700
Income before minority interests and
participation 843,442 632,918
Income from minority interest 46,000 62,375
Minority participation in subsidiary 68,397
Gain on sale of minority assets, net 1,718,425
--------- ---------
3,264,964 1,071,993
NET INCOME $ 2,676,264 $ 695,293
Income before gain per share
of Common Stock
Primary $ 0.242 $ 0.178
Fully Diluted $ 0.242 $ 0.178
Net income per share of Common Stock
Primary $ 0.677 $ 0.178
Fully Diluted $ 0.677 $ 0.178
</TABLE>
<TABLE>
<CAPTION>
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
3 MONTHS ENDED NOVEMBER 30, 1997 AND NOVEMBER 30, 1996
Cummulative
Common Stock Additional Effect of Total
Shares Paid-In Treasury Stock Retained Currency Shareholders
Issued Amount Capital Shares Amount Earnings Translation Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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. 14,160 14,160
Exer.of stock options 70,926 7,093 89,031 96,124
Compensatory stock issuan 100,000 10,000 88,437 98,437
Net Income for 3 months 695,293 695,293
Dividends paid in cash
$.15 a share on
common stock (571,528) (571,528)
Balance @ Nov. 30, 1996 4,847,323 484,733 2,992,684 1,037,693 (3,990,400) 9,397,344 (93,940) 8,790,421
Curr. translation adjmt. (28,181) (28,181)
Exer.of stock options 26,474 2,647 198,644 201,291
Net income for 9 months 2,617,222 2,617,222
Purchase of treasury stock 2,780 (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 (29,618) (29,618)
Exer.of stock options 15,844 1,584 (1,584)
Compensatory stock issuance. 24,610
Purchase of treasury stock 6,000 (88,500) (88,500)
Net income for 3 months 2,676,264 2,676,264
Dividends paid in cash
$.21 a share on
common stock (809,026) (809,026)
Balance @ Nov. 30, 1997 4,889,641 $ 488,964 $ 3,214,354 1,046,473 $ (4,106,350)$13,881,804 $ (151,739) $ 13,327,033
See accompanying notes to the consolidated financial statements
and accountants' review report.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
Nov. 30 Nov. 30
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 2,676,264 $ 695,293
Adjmts. to reconcile net income to net
cash provided by operating activities:
Income from joint venture (1,764,425) (30,375)
Minority interest (68,397)
Depreciation 216,081 194,431
Amortization 45,646 26,023
Provision for losses on accts. receivable 16,615 8,725
Stock issued for compensation 24,610 24,609
Tax effect of cashless option exercise 194,560
Deferred federal taxes 11,000
Change in assets and liabilities
Trade receivables 166,814 135,559
Inventories (243,348) (278,945)
Prepd. expenses & other curr. assets (219,371) 24,598
Accounts payable 289,839 219,954
Accrued expenses (358,283) (297,566)
Federal income taxes payable 265,485 (75,376)
Deferred compensation (56,250) (52,434)
TOTAL ADJUSTMENTS (1,684,984 104,763
NET CASH FROM OPERATIONS 991,280 800,056
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (292,265) (67,228)
Purchase of cash surrender value (91,640) (55,730)
Proceeds from note receivable 34,554 33,870
Cum. effect of currency translation (29,618) 14,160
Dividend received from joint venture 2,316,320 _______
1,937,351 (74,928)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 800,000 1,200,000
Payments of principal on debt (2,435,929) (1,575,717)
Net borrowing under line-of-credit 58,766 62,950
Dividend paid (809,026) (571,528)
Purchase of Common Shares for Treasury (88,500) _________
(2,474,689) (884,295)
NET CHANGE IN CASH 453,942 (159,167)
CASH AT BEGINNING OF PERIOD 158,881 191,429
CASH AT END OF PERIOD $ 612,823 $ 32,262
CASH PAID DURING PERIOD FOR:
Income taxes $ 477,912 $ 262,729
Interest $ 76,617 $ 105,498
See accompanying notes to the consolidated financial statements
and accountants' review report.
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CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
January 14, 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 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
3,952,997 for the period of three months ended November 30, 1997. Earnings per
share on a fully diluted basis are calculated on 3,953,324 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.
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Result of Operations
Net revenues increased 28% to $11,621,000 an increase of $2,527,000 when
compared to the first quarter of 1997. This increase is primarily related to
an improvement of sales of highway related products through our Royston
division and the benefit from recording the sales of DC Scientific, Inc. our
subsidiary. When compared to fiscal 1996, we also received the benefit of
increased sales of highway related products along with some improved sales from
Chase Canada.
The cost of products sold increased in the most recent quarter over the
same quarter last year. To a large extent this is volume related. As a percent
of sales, there was a reduction of 2.3%. To a large extent, this reduction
relates to some raw material price reductions, but also to a more favorable
product mix. The Company's 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 our material price increases from our
customers.
Selling and administrative expenses were higher during the current
year and as a percent of sales increased by 1.3%. Most of this increase
relates to costs associated with our ongoing corporate development efforts,
additional expenses related with the increased level of sales and investments
in staffing required to continue our ability to improve revenues and
profitability.
Interest expense decreased during the comparable periods and is related to
a reduction in bank debt. A significant amount of the bank debt reduction is
the result of the cash dividend declared and paid by the Stewart Group Inc., a
result of the previously announced sale of certain assets with Owens Corning,
which was concluded during our first quarter. The Company also continues to
benefit from low borrowing rates from its lender which provides funds at its
prime rate of a LIBOR-based rate, whichever is lower.
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 increase to net income was because of the net gain realized on
the sale of minority assets by our joint venture to Owens Corning.
The effective tax rate for the quarter this year vs last year is somewhat
higher than the applicable tax rate. Benefits received as a result of solid
export sales through our Chase Export Corporation subsidiary were more than
offset by losses incurred by D C Scientific which were reserved against and not
consolidated for tax filings. Also included in the income taxes for this year
are taxes associated with the gain on the sale of minority assets. Last year
the taxes were somewhat lower as a result of the export sale through Chase
Export Corporation.
The income from minority interest for both this year and last primarily
relates to the equity position ownership in The Stewart Group, Inc., Toronto,
Canada.
Minority interest in subsidiary represents the minority shareholders 49.9%
equity in the losses of D C Scientific, Inc.
Liquidity and Sources of Capital
The ratio of current assets to current liabilities was 1.6 both at the end
of the first quarter for fiscal 1998 and the prior year end.
Long-Term Debt decreased by $1,635,000 while total liabilities exclusive
of Long-term debt increased by $130,000. The most significant reason for the
debt reduction was the result of the cash dividend declared and paid by our
joint venture, The Stewart Group, Inc.
The Company had $5,840,000 in available credit at November 30, 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 November 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for the periods of three months ended November 30, 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, 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 October 15, 1997, 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 & Haynes, P.C.
Wellesley , Massachusetts
January 14, 1998
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
November 30, 1997.
No financial statements were filed during the three months
ended November 30, 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: January 14, 1998
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial stateme
nts.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 612,823
<SECURITIES> 0
<RECEIVABLES> 7,106,904
<ALLOWANCES> 169,115
<INVENTORY> 4,522,680
<CURRENT-ASSETS> 12,638,472
<PP&E> 14,336,277
<DEPRECIATION> 9,347,894
<TOTAL-ASSETS> 22,904,721
<CURRENT-LIABILITIES> 7,787,299
<BONDS> 0
0
0
<COMMON> 488,964
<OTHER-SE> 12,838,068
<TOTAL-LIABILITY-AND-EQUITY> 22,904,721
<SALES> 11,557,583
<TOTAL-REVENUES> 11,557,583
<CGS> 7,345,511
<TOTAL-COSTS> 7,345,511
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,634
<INTEREST-EXPENSE> 76,615
<INCOME-PRETAX> 1,432,142
<INCOME-TAX> 588,700
<INCOME-CONTINUING> 843,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,676,264
<EPS-PRIMARY> 0.677
<EPS-DILUTED> 0.677
</TABLE>
