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, 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.)
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 December 31, 1998 3,889,681
<TABLE>
<CAPTION>
PART 1: FINANCIAL INFORMATION
CHASE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS Nov. 30 Aug.31
1998 1998
(UNAUDITED) (AUDITED)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,499,260 $ 2,296,384
Trade receivables,less allowance
for doubtful accounts of $219,300 and
$201,135 respectively 6,547,177 7,320,022
Note receivable from related party 46,407 46,406
Inventories(Note B)
Finished and in process 2,088,011 1,671,770
Raw materials 2,896,151 3,064,684
------------ -----------
4,984,162 4,736,454
Prepaid expenses & other curr assets 532,477 380,062
Deferred taxes 90,294 90,294
------------ -----------
TOTAL CURRENT ASSETS 13,699,777 14,869,622
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 322,423 332,536
Buildings 2,269,999 2,385,647
Machinery & equipment 11,869,939 11,763,321
Construction in progress 1,392,599 532,628
------------ -----------
15,854,960 15,014,132
Less allowance for depreciation 10,106,081 9,904,243
------------ -----------
5,748,879 5,109,889
OTHER ASSETS
Note receivable from related party
Excess of cost over net assets of
acquired businesses less amortization 1,085,705 1,106,462
Patents, agreements and trademarks
less amortization 1,019,674 1,044,404
Cash surrender value of life ins. net 2,550,884 2,423,851
Deferred taxes 86,766 72,266
Investment in joint venture 546,797 486,795
Other 258,184 148,497
------------ -----------
5,548,010 5,282,275
------------ -----------
$ 24,996,666 $ 25,261,786
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY Nov. 30 Aug.31
1998 1998
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Accounts payable $ 2,783,168 $ 2,848,199
Notes payable 1,192,538 1,136,000
Accrued expenses 2,265,568 3,227,937
Accrued pension expense - current 289,478 289,478
Income taxes (432,688) (134,809)
Deferred compensation 41,999 41,999
Current portion of L.T. debt 194,663 287,317
------------ -----------
TOTAL CURRENT LIABILITIES 6,334,726 7,696,121
LONG-TERM DEBT, less current portion 590,056 682,576
Long-term deferred compensation
obligations 297,318 199,131
ACCRUED PENSION EXPENSE 296,927 201,369
Minority interest 4,105 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 4,978,265 shares at
Nov. 30, 1998 and 4,977,650 shares at
Aug. 31, 1998 respectively 497,826 497,765
Additional paid-in capital 3,394,629 3,370,066
Treasury Stock, 1,088,584 and 1,072,084 shares at
Nov. 30, 1998, and August 31, 1998, resp (4,687,565) (4,535,476)
Cum. G/(L) on currency translation (222,203) (238,728)
Retained earnings 18,490,847 17,330,039
------------ -----------
17,473,534 16,423,666
------------ -----------
$ 24,996,666 $ 25,261,786
============ ===========
See accompanying notes to the consolidated financial
statements and accountants' review report.
</TABLE>
<TABLE>
<CAPTION>
CHASE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
3 Months End
Nov.30 Nov.30
1998 1997
<S> <C> <C>
Sales $ 11,511,910 $ 11,557,583
Comm. and other income 84,518 61,491
Interest 19,980 2,152
11,616,408 11,621,226
Cost and Expenses
Cost of products sold(Note B) 7,456,552 7,345,511
Sell.,gen. and admin. expen. 2,368,038 2,762,324
Bad debt expense 12,300 4,634
Interest expense 40,228 76,615
9,877,118 10,189,084
Income before income taxes and minority interest
and participations 1,739,290 1,432,142
Income taxes 693,300 588,700
Income before minority interests and
participation 1,045,990 843,442
Income from minority interest 60,000 46,000
Minority participation in subsidiary 54,818 68,397
Gain on sale of minority assets, net 1,718,425
NET INCOME 1,160,808 2,676,264
Net income per share of Common Stock
Primary $ 0.298 0.677
Fully Diluted $ 0.292 0.677
</TABLE>
<TABLE>
<CAPTION>
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
3 MONTHS ENDED NOVEMBER 30, 1998 AND NOVEMBER 30, 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> <C>
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. (29,618) (29,618)
Exer.of stock options 15,844 1,584 (1,584) 0
Compensatory stock issuan 24,610 24,610
Purchase of treasury stock 6,000 (88,500) (82,500)
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
Dividend adjustment 1,846 1,846
Curr. translation adjmt. (86,989) (86,989)
Exer.of stock options 88,009 8,801 81,885 90,686
Compensatory stock issuance 73,827 73,827
Net income for 9 months 3,446,389 3,446,389
Purchase of treasury stock 25,611 (429,126) (429,126)
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 16,525 16,525
Exer.of stock options 615 61 (61) 0
Compensatory stock issuance. 24,624 24,624
Purchase of treasury stock 16,500 (152,089) (152,089)
Net income for 3 months 1,160,808 1,160,808
Balance @ Nov. 30, 1998 4,978,265 $497,826 $3,394,629 1,088,584$(4,687,565) $18,490,847 $(222,203) 17,473,534
See accompanying notes to the consolidated financial statements
and accountants' review report.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED) Three Months Ended
Nov. 30 Nov. 30
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Income $ 1,160,808 $ 2,676,264
Adjmts. to reconcile net income to net
cash provided by operating activities:
Income from joint venture (60,000) (1,764,425)
Minority interest (54,818) (68,397)
Depreciation 222,041 216,081
Amortization 45,487 45,646
Provision for losses on accts. receivable 18,165 16,615
Stock issued for compensation 24,624 24,610
Deferred taxes (14,500)
Change in assets and liabilities
Trade receivables 754,680 166,814
Inventories (247,709) (243,348)
Prepd. expenses & other curr. assets (152,415) (219,371)
Accounts payable (65,031) 289,839
Accrued expenses (866,811) (358,283)
Income taxes payable (297,879) 265,485
Deferred compensation 98,187 (56,250)
TOTAL ADJUSTMENTS (595,979) (1,684,984)
NET CASH FROM OPERATIONS 564,829 991,280
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (844,506) (321,883)
Investment in trusteed assets (109,687)
Purchase of cash surrender value (127,033) (91,640)
Proceeds from note receivable 56,538 34,554
Dividend received from joint venture 2,316,320
(1,024,688) 1,937,351
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 800,000
Payments of principal on debt (185,176) (2,435,929)
Net borrowing under line-of-credit 58,766
Dividend paid (809,026)
Purchase of Common Shares for Treasury (152,089) (88,500)
(337,265) (2,474,689)
NET CHANGE IN CASH (797,124) 453,942
CASH AT BEGINNING OF PERIOD 2,296,384 158,881
CASH AT END OF PERIOD $ 1,499,260 $ 612,823
CASH PAID DURING PERIOD FOR:
Income taxes $ 1,053,685 $ 477,912
Interest $ 40,228 $ 76,617
See accompanying notes to the consolidated financial statements
and accountants' review report.
</TABLE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT PRIVATE
To the Board of Directors
Chase Corporation
Bridgewater, Massachusetts
We have reviewed the consolidated balance sheet of Chase Corporation and
Subsidiaries as of November 30, 1998, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the periods of three
months ended November 30, 1998 and 1997. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of 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, 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.
Livingston & Haynes, P.C.
Wellesley, Massachusetts
January 8, 1999
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Result of Operations
Net revenues when compared to the first quarter of fiscal 1998 were about
the same at the amount of $11,616,000. When compared to the fiscal 1997 first
quarter revenue of $9,095,000, the compounded rate of return during the two
year period was about 13%. The significant increase in last years fiscal 1998
revenue of 28% was primarily related to the completion of a significant bridge
construction project along with the benefit received from recording the sales
of DC Scientific, Inc, our subsidiary.
The cost of products sold increased in the most recent quarter over the
same quarter last year. As a percent of sales, this increase was 1%. Most of
the increase is associated with higher raw material costs related to a change
in product mix. We do not anticipate significant changes to raw material
pricing because of some previously negotiated supply agreements. 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 our material price increases from our customers.
Selling and administrative expenses were lower during the current year and
as a percent of sales decreased by almost 4%. 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. Last years expenses were also higher than the previous
year due to increases in costs related to corporate development and investments
in staffing that were 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
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 sales remained relatively constant, the reduction in certain costs
associated with the bridge construction project, continued cost containment
focus and the elimination of any further adjustment of the value to 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
mainly attributable to the increased sales volume and the net gain realized on
the sale of minority assets by our joint venture partner, The Stewart Group,
Inc. to Owens Corning.
The effective tax rate for the quarter this year as compared to last year
is lower than the applicable tax rate. Benefits continue to be received as the
result of solid export sales through our Chase Export Corporation subsidiary.
The benefit received from the export sales increase in both 1998 and 1997 have
been offset by the losses of DC Scientific, Inc. which were reserved against
and were not consolidated for tax filings.
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 interest in subsidiary represents 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 2.2 at the end of
the first quarter of fiscal 1999 as compared to 1.9 at the prior year end. The
ratio improvement was mostly the reduction to receivables and as a result a
reduction to accounts payable and accrued expenses, all of which were
associated with the increased sales activity during the last quarter of fiscal
1998.
Long-Term Debt decreased by almost $100,000 while total liabilities
decreased by the total amount of $1,260,000. These deductions were largely the
result of our positive cash flow.
The Company had $5,840,000 in available credit at November 30, 1998 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
As referred to in our fiscal 1998 10K and annual report, a decision was
made to update our system and that a plan was in place to complete our
conversion by June 30, 1999. We are currently on schedule to complete our
upgrade and be Y2K compliant by that date.
CHASE CORPORATION SECURITIES AND EXCHANGE COMMISSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
January 9, 1996
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
3,903,674 for the period of three months ended November 30, 1996. Earnings per
share on a fully diluted basis are calculated on 3,907,130 common shares and
share equivalents. Common share equivalents arise from the issuance of certain
stock options.
Note D - Stock Issued for Compensation
The Company issued 100,000 shares of common stock restricted as to sale to
its president. The fair market value of the stock at time of grant is being
amortized over the eight year vesting period. The restriction on sale is
removed at the end of nine years subject to certain service requirements.
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
November 30, 1998.
No financial statements were filed during the three months
ended November 30, 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: January 12, 1999
<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> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 1,499,260
<SECURITIES> 0
<RECEIVABLES> 6,766,477
<ALLOWANCES> 219,300
<INVENTORY> 4,984,162
<CURRENT-ASSETS> 13,699,777
<PP&E> 15,854,960
<DEPRECIATION> 10,106,081
<TOTAL-ASSETS> 24,996,666
<CURRENT-LIABILITIES> 6,334,726
<BONDS> 0
0
0
<COMMON> 497,826
<OTHER-SE> 16,975,709
<TOTAL-LIABILITY-AND-EQUITY> 24,996,666
<SALES> 11,511,910
<TOTAL-REVENUES> 11,596,428
<CGS> 7,456,552
<TOTAL-COSTS> 7,456,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,300
<INTEREST-EXPENSE> 40,228
<INCOME-PRETAX> 1,739,290
<INCOME-TAX> 693,300
<INCOME-CONTINUING> 1,160,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,160,808
<EPS-PRIMARY> 0.298
<EPS-DILUTED> 0.292
</TABLE>
