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, 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 March 31, 1998 3,874,232
<TABLE>
<CAPTION>
PART 1: FINANCIAL INFORMATION
CHASE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS Feb 28 Aug.31
1998 1997
(UNAUDITED) (AUDITED)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,220,602 $ 158,881
Trade receivables,less allowance
for doubtful accounts of $175,200 and
$152,500 respectively 6,259,441 7,121,218
Note receivable from related party 46,407 92,517
Inventories(Note B)
Finished and in process 1,973,763 1,209,960
Raw materials 2,786,398 3,069,372
---------- ---------
4,760,161 4,279,332
Prepaid expenses & other curr assets 350,051 168,285
Deferred federal taxes 101,561 119,561
---------- ---------
TOTAL CURRENT ASSETS 12,738,223 11,939,794
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 332,536 332,536
Buildings 2,301,498 2,255,684
Machinery & equipment 11,405,019 11,211,621
Construction in progress 383,700 244,173
---------- ----------
14,422,753 14,044,014
Less allowance for depreciation 9,576,504 9,131,813
---------- ----------
4,846,249 4,912,201
OTHER ASSETS
Excess of cost over net assets of
acquired businesses less amortization 1,147,973 1,189,487
Patents, agreements and trademarks
less amortization 1,093,041 1,142,818
Cash surrender value of life ins. net 2,180,619 1,962,849
Deferred federal taxes 70,814 70,814
Investment in joint venture 842,250 1,410,798
Other 7,000 7,000
---------- ----------
5,341,697 5,783,766
---------- ----------
$22,926,169 $22,635,761
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY Feb 28 Aug.31
1998 1997
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 2,518,990 $ 2,386,390
Notes payable 1,135,000 662,063
Accrued expenses 2,323,834 2,821,061
Accrued pension expense - current 316,714 316,714
Federal income taxes 18,045 208,916
Deferred compensation 158,000 258,000
Current portion of L.T. debt 946,790 952,878
---------- ---------
TOTAL CURRENT LIABILITIES 7,417,373 7,606,022
LONG-TERM DEBT, less current portion 1,110,769 3,020,708
LONG-TERM DEFERRED COMPENSATION
OBLIGATIONS 54,018 66,518
ACCRUED PENSION EXPENSE 371,592 222,702
MINORITY INTEREST 43,149 166,508
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
Feb. 28, 1998 and 4,873,797 shares at
Aug. 31, 1997 respectively 494,632 487,380
Additional paid-in capital 3,323,981 3,191,328
Treasury Stock, 1,061,419 and 1,040,473 shares at
Feb. 28, 1998, and August 31, 1997, resp (4,345,486) (4,017,850)
Cum. G/(L) on currency translation (148,072) (122,121)
Retained earnings 14,604,213 12,014,566
---------- ----------
13,929,268 11,553,303
---------- ----------
$22,926,169 $22,635,761
========== ==========
See accompanying notes to the consolidated financial
statements and accountants' review report.
</TABLE>
<TABLE>
<CAPTION>
CHASE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended
Feb. 28 Feb. 28 Feb. 28 Feb. 28
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales $21,724,169 $18,166,765 $10,166,586 $9,162,770
Commissions and other income 124,563 154,953 63,072 75,451
Interest 20,165 20,292 18,013 9,719
21,868,897 18,342,010 10,247,671 9,247,940
Cost and Expenses
Cost of products sold(Note B) 14,258,395 12,210,169 6,912,884 6,279,594
Sell.,gen. and admin. expen. 4,992,465 4,091,780 2,230,141 2,052,401
Bad debt expense 14,234 23,200 9,600 14,200
Interest expense 139,005 228,677 62,390 123,179
19,404,099 16,553,826 9,215,015 8,469,374
Inc.before income taxes and minority
interests and participations 2,464,798 1,788,184 1,032,656 778,566
Income taxes 1,009,100 722,500 420,400 345,800
Income before minority interests
and participations 1,455,698 1,065,684 612,256 432,766
Income from minority interest 99,347 97,375 53,347 35,000
Minority participation in subsidary 123,359 88,316 54,962 88,316
Gain on sale of minority assets, net 1,718,425 -- -- --
NET INCOME $ 3,396,829 $ 1,251,375 $ 720,565 $ 556,082
Net income per share of Common Stock
Basic $ 0.856 $ 0.320 $ 0.181 $ 0.142
Fully Diluted $ 0.855 $ 0.320 $ 0.181 $ 0.142
See accompanying notes to the consolidated financial statements
and accountants' review report.
</TABLE)
</TABLE>
<TABLE>
<CAPTION>
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
6 MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
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. 1,172 1,172
Exer.of stock options 175,576 17,557 177,002 194,559
Compensatory stock issuan 49,219 49,219
Net Income for 6 months 1,251,375 1,251,375
Dividends paid in cash
$.15 a share on
common stock (571,528) (571,528)
Balance @ Feb. 28, 1997 4,851,973 485,197 3,041,437 1,037,693 (3,990,400) 9,953,426 (106,928) 9,382,732
Curr. translation adjmt. (15,193) (15,193)
Exer.of stock options 21,824 2,183 149,891 152,074
Net income for 6 months 2,061,140 2,061,140
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 adjmt. (25,951) (25,951)
Exer.of stock options 72,519 7,252 83,434 90,686
Compensatory stock issuance. 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
See accompanying notes to the consolidated financial statements
and accountants' review report.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
Feb. 28 Feb. 28
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 3,396,829 $ 1,251,375
Adjmts. to reconcile net income to net
cash provided by operating activities:
Income from joint venture (1,747,772) (630,573)
Minority interest (123,359) 410,172
Depreciation 444,691 955,157
Amortization 91,292 52,044
Provision for losses on accts. receivable 22,700 58,287
Stock issued for compensation 49,219 49,219
Tax effect of cashless option exercise 90,686 194,560
Deferred federal taxes 18,000 22,000
Change in assets and liabilities
Trade receivables 839,077 (259,942)
Inventories (480,829) (495,662)
Prepd. expenses & other curr. assets (181,766) (274,405)
Accounts payable 132,600 (21,517)
Accrued expenses (348,437) (162,969)
Federal income taxes payable (190,871) (348,186)
Deferred compensation (112,500) (95,201)
---------- ----------
TOTAL ADJUSTMENTS (1,497,269) (547,016)
NET CASH FROM OPERATIONS 1,899,560 704,359
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (404,690) (1,409,888)
Purchase of cash surrender value (217,770) (128,607)
Proceeds from note receivable 46,110 67,910
Dividend received from joint venture 2,316,320
1,739,970 (1,470,585)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 800,000 3,000,000
Payments of principal on debt (2,716,027) (1,683,313)
Net borrowing under line-of-credit 472,937 69,435
Dividend paid (807,182) (571,528)
Purchase of Common Shares for Treasury (327,636)
---------- ----------
(2,577,908) 814,594
NET CHANGE IN CASH 1,061,622 48,368
CASH AT BEGINNING OF PERIOD 158,881 191,429
----------- -----------
CASH AT END OF PERIOD $ 1,220,503 $ 239,797
=========== ===========
CASH PAID DURING PERIOD FOR:
Income taxes $ 1,250,199 $ 770,729
Interest $ 139,005 $ 228,677
See accompanying notes to the consolidated financial statements
and accountants' review report.
</TABLE>
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
April 9, 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 3,967,497 for the period of six
months ended February 28, 1998. Earnings per share on a fully diluted
basis are calculated on 3,971,083 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.
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 February 28, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the
periods of six months ended February 28, 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 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.
Wellesley, Massachusetts
April 2, 1998
Results of Operations
Net revenues for the second quarter and first half of fiscal
1998 increased by 11% and 19% respectively, over comparable periods in
fiscal 1997. A majority of the increase, both for the quarter and year
to date, is the result of our increased investment in DC Scientific which
became a subsidiary of Chase during January 1997 and improved sales of
highway related products through our Royston Division. The improved
volume also relates to the benefits generated from capital expenditure
investments by each division and with a more favorable business climate.
When compared to 1996, the increase of about $6 million
relates primarily to the continued growth in sales from the Webster
facility, the addition of DC Scientific as a subsidiary to the Company
and improved sales associated with our highway related products.
The increase in the cost of products sold for the second
quarter and the first half of the current year over the same periods last
year are primarily volume related. For the first half as a percent of
sales, there was a reduction of 1.6%. The reduction was due mostly to 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 at times could result in low margins.
Competitive pressure prevents us from being able to recover all of our
raw material price increases.
Selling and administrative expenses were higher during the
current year and as a percent of sales increased by 0.5%. 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 the reduction to 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., 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 continued strong
earnings and from low borrowing rates from its lender which provides
funds at its prime rate or 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 relates to the non-recurring net gain
of $1,718,000 related to the sales of certain assets by The Stewart
Group, Inc. joint venture to Owens Corning.
The effective tax rates for the applicable periods 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 our subsidiary, DC
Scientific Inc, 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.
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.
Liquidity and Sources of Capital
The ratio of current assets to current liabilities was 1.7 at
the end of the second quarter of 1998, compared to 1.6 at the prior year
end.
Long term debt has decreased $1,910,000 from the prior year
end while total liabilities exclusive of long term debt remain unchanged.
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 $5,825,000 in available credit at February
28, 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.
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, 1998.
No financial statements were filed during the three months
ended February 28, 1998.
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 14, 1998
<TABLE> <S> <C>
<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 statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 1,220,602
<SECURITIES> 0
<RECEIVABLES> 6,434,641
<ALLOWANCES> 175,000
<INVENTORY> 4,760,161
<CURRENT-ASSETS> 12,738,223
<PP&E> 14,422,753
<DEPRECIATION> 9,576,504
<TOTAL-ASSETS> 22,926,169
<CURRENT-LIABILITIES> 7,417,373
<BONDS> 0
0
0
<COMMON> 494,632
<OTHER-SE> 13,434,636
<TOTAL-LIABILITY-AND-EQUITY> 22,926,169
<SALES> 21,724,169
<TOTAL-REVENUES> 21,724,169
<CGS> 14,258,395
<TOTAL-COSTS> 14,258,395
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,234
<INTEREST-EXPENSE> 139,005
<INCOME-PRETAX> 2,464,798
<INCOME-TAX> 1,009,100
<INCOME-CONTINUING> 1,455,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,396,829
<EPS-PRIMARY> 0.856
<EPS-DILUTED> 0.856
</TABLE>
