<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _____ to _____
COMMISSION FILE NO. 1-13394
CHASE INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 51-0328047
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14212 COUNTY ROAD M-50, MONTPELIER, OHIO 43543
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (419) 485-3193
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
<TABLE>
<S> <C>
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 4, 2000........................................ 9,119,377
NUMBER OF SHARES OF NONVOTING COMMON STOCK OUTSTANDING AS OF MAY 4, 2000.............................. 6,150,118*
</TABLE>
- ---------
* The Registrant's Nonvoting Common Stock is convertible, on a share-for-share
basis, into Common Stock.
================================================================================
<PAGE> 2
CHASE INDUSTRIES INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheet as of March 31, 2000
and December 31, 1999.............................................................. 3
Consolidated Statement of Income for the Three Months Ended
March 31, 2000 and 1999............................................................ 4
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2000 and 1999............................................................ 5
Notes to Consolidated Financial Statements................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................................. 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 23
Item 6. Exhibits and Reports on Form 8-K............................................................ 25
Signature................................................................................... 27
</TABLE>
2
<PAGE> 3
CHASE INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,198 $ 9,142
Receivables, net of allowance for doubtful accounts and
claims of $1,242 and $1,190 in 2000 and 1999, respectively 44,934 33,384
Inventories 46,001 45,230
Prepaid expenses 2,356 4,609
Deferred income taxes 3,426 3,341
---------- -------------
Total current assets 97,915 95,706
Property, plant and equipment, net 121,836 121,058
Other assets 13,012 12,808
---------- -------------
Total assets $ 232,763 $ 229,572
========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,645 $ 31,588
Accrued compensation and benefits 7,275 8,167
Accrued income taxes 3,234 2,714
Other accrued liabilities 11,106 10,890
Current portion of long-term debt 170 163
---------- -------------
Total current liabilities 50,430 53,522
Long-term debt 27,441 27,175
Deferred income taxes 15,169 14,829
---------- -------------
Total liabilities 93,040 95,526
---------- -------------
Commitments and contingencies -- --
---------- -------------
Stockholders' equity:
Common stock, $.01 par value, 36,310,000 shares authorized;
9,084,877 shares issued and outstanding
in 2000 and 1999 91 91
Nonvoting common stock, $.01 par value, 12,300,000 shares
authorized; 6,150,118 shares issued and outstanding
in 2000 and 1999 61 61
Additional paid-in capital 31,504 31,504
Retained earnings 108,067 102,390
---------- -------------
Total stockholders' equity 139,723 134,046
---------- -------------
Total liabilities and stockholders' equity $ 232,763 $ 229,572
========== =============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE> 4
CHASE INDUSTRIES INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ 114,593 $ 103,868
Cost of goods sold (exclusive of depreciation
and amortization shown separately below) 98,464 87,360
Lower of cost-or-market inventory writedown -- 1,800
--------- ---------
Gross profit 16,129 14,708
Selling, general and administrative expenses 3,605 4,259
Depreciation and amortization 3,001 2,817
--------- ---------
Operating income 9,523 7,632
Interest expense, net 367 516
--------- ---------
Income before income taxes 9,156 7,116
Provision for income taxes 3,479 2,704
--------- ---------
Net income $ 5,677 $ 4,412
========= =========
Earnings per share:
Basic $ 0.37 $ 0.29
========= =========
Diluted $ 0.37 $ 0.29
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE> 5
CHASE INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------------ ----------
<S> <C> <C>
Operating activities:
Net income $ 5,677 $ 4,412
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,001 2,817
Deferred income tax expense (benefit) 255 (552)
Lower of cost-or-market inventory writedown -- 1,800
Changes in assets and liabilities:
(Increase) in receivables (11,550) (7,198)
(Increase) decrease in inventories (771) 12,100
(Decrease) in accounts payable (2,943) (14,465)
(Decrease) increase in accrued liabilities (156) 1,789
Other, net 1,891 (118)
------------ ----------
Net cash (used in) provided by operating activities (4,596) 585
------------ ----------
Investing activities:
Expenditures for property, plant and equipment (3,621) (5,388)
------------ ----------
Net cash (used in) investing activities (3,621) (5,388)
------------ ----------
Financing activities:
Revolving credit loan borrowings, net 361 --
Principal payments on long-term debt (88) (83)
Issuance of common stock - options exercised -- 5
------------ ----------
Net cash provided by (used in) financing activities 273 (78)
------------ ----------
Net (decrease) in cash and cash equivalents (7,944) (4,881)
Cash and cash equivalents, beginning of period 9,142 9,200
------------ ----------
Cash and cash equivalents, end of period $ 1,198 $ 4,319
============ ==========
Supplemental disclosures:
Interest and bank fees paid $ 153 $ 151
============ ==========
Income taxes paid $ -- $ 885
============ ==========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
5
<PAGE> 6
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND INTERIM FINANCIAL INFORMATION
The consolidated balance sheet as of March 31, 2000, and December 31,
1999, and the consolidated statements of income and cash flows for the three
months ended March 31, 2000 and 1999, include the accounts of Chase Industries
Inc. (the "Company"), a Delaware corporation, and its wholly-owned subsidiaries,
Chase Brass & Copper Company, Inc. ("CBCC"), a Delaware corporation, Leavitt
Tube Company, Inc. ("Leavitt"), a Delaware corporation, and Holco Corporation
("Holco"), an Illinois corporation and wholly-owned subsidiary of Leavitt. All
significant intercompany transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared
in accordance with instructions for Form 10-Q and do not include all the
information and footnote disclosures required by generally accepted accounting
principles. The financial information for March 31, 2000 and 1999, included
herein is unaudited and, in the opinion of management, reflects all adjustments
necessary for a fair presentation of such financial information.
The results of operations for the three months ended March 31, 2000,
are not necessarily indicative of the results of operations that may be expected
for the year ending December 31, 2000. This quarterly report on Form 10-Q should
be read in conjunction with the annual consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
On August 30, 1996, the Company acquired, through Leavitt, the assets
and operations of the steel tube division of UNR Industries, Inc., including all
the outstanding stock of Holco (the "Leavitt Acquisition"). Upon consummation of
the Leavitt Acquisition, Leavitt continued operations in the manufacture and
sale of structural and mechanical steel tubing and structural pipe. The Leavitt
Acquisition was accounted for as a purchase.
On August 24, 1990, the Company acquired, through CBCC, the assets and
operations of a Delaware corporation formerly named Chase Brass & Copper
Company, Incorporated ("Old Chase"), pursuant to the Asset Purchase Agreement
("CBCC Purchase Agreement") dated May 10, 1990, by and between the Company,
CBCC, Old Chase, BP Exploration (Alaska) Inc. ("BPE") and The Standard Oil
Company (the "CBCC Acquisition"). BPE and The Standard Oil Company (collectively
referred to as "BP") own all the stock of Old Chase. The CBCC Acquisition was
accounted for as a purchase.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS 133"), which was
originally effective for years beginning after June 15, 1999.
6
<PAGE> 7
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In June 1999, the FASB issued Statement of Accounting Standards No. 137 delaying
the effective date of SFAS 133 by one year. The new standard requires companies
to record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Management of the Company believes SFAS 133 will not have a material
effect on its financial position or results of operations.
2. INVENTORIES:
Inventories are stated at the lower of cost-or-market, with cost
determined on the last-in, first-out (LIFO) basis. In prior periods inventories
have been written down to lower of cost-or-market and such reduced amounts are
considered cost for subsequent years. During first quarter 1999, the Company
recorded a non-cash inventory writedown of $1.8 million. This writedown was due
to decreasing flat-rolled steel prices.
If the first-in, first out (FIFO) method for determining cost had been
used, inventories would have been approximately $1.7 million higher at March 31,
2000, and $1.2 million lower at December 31, 1999. Inventories consisted of the
following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Raw materials $ 18,607 $ 12,091
Work in progress 8,953 11,462
Finished goods 19,655 22,552
---------- ------------
47,215 46,105
Tolling metal due customers (1,214) (875)
---------- ------------
$ 46,001 $ 45,230
========== ============
</TABLE>
3. COMMON STOCK AND EARNINGS PER SHARE:
The following is a reconciliation of the denominator used in the
computation of basic and diluted earnings per share. Average shares were as
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------
2000 1999
------------------------ -----------------------
Shares EPS Shares EPS
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Basic 15,234,995 $ 0.37 15,233,894 $ 0.29
Stock options 112,475 -- 122,654 --
------------ -------- ------------ --------
Diluted 15,347,470 $ 0.37 15,356,548 $ 0.29
============ ======== ============ ========
</TABLE>
All shares of Common Stock and Nonvoting Common Stock are identical,
except that holders of Nonvoting Common Stock have no voting rights. Shares of
Nonvoting Common Stock may be converted, at the option of the holder, into
Common Stock on a share-for-share basis, except to the extent that the holder of
Nonvoting Common Stock is restricted from obtaining
7
<PAGE> 8
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
certain ownership levels in the Company pursuant to the Small Business
Investment Act of 1958 and the Bank Holding Company Act of 1956.
At March 31, 2000, and December 31, 1999, the Company had no preferred
stock issued or outstanding. In conjunction with the initial public offering in
November 1994, the Company authorized 1,000,000 shares of preferred stock, none
of which has been issued. The preferences and rights of such preferred stock may
be determined by the Board of Directors at any time prior to issuance.
4. COMMITMENTS AND CONTINGENCIES:
Both CBCC and Leavitt are subject to certain contingent environmental
liabilities. These contingent liabilities are described separately below.
CBCC. Preliminary studies conducted immediately prior to the CBCC
Acquisition indicated that certain areas of the site upon which CBCC's
manufacturing facility is located have been contaminated with certain volatile
organic compounds (VOCs) as well as total petroleum hydrocarbons and certain
metals from historical operating practices. In connection with the CBCC
Acquisition the Company and BP entered into a remediation agreement (the
"Remediation Agreement"). Under the terms of the Remediation Agreement, BP is
responsible for certain remediation activities attributable to environmental
releases which occurred prior to the CBCC Acquisition at CBCC's manufacturing
facility. BP also is obligated under the CBCC Purchase Agreement to indemnify
the Company for liabilities arising out of certain environmental conditions that
existed as of the CBCC Acquisition date. BP has performed certain activities in
this regard and has acknowledged liability for certain releases of regulated
substances into the environment which occurred prior to the CBCC Acquisition. BP
also is obligated under the CBCC Purchase Agreement to indemnify the Company for
liabilities arising out of certain environmental conditions that existed as of
the CBCC Acquisition date.
CBCC initiated interim remedial actions for a portion of CBCC's site in
second quarter 1999. Sampling conducted as part of these interim remedial
actions identified the presence of VOCs that were not covered by the initial
scope of these interim actions. As a result, CBCC conducted additional sampling
at certain areas of the site to further delineate the contamination in those
areas. Based on the aggregate sampling results, CBCC modified its 1999
remediation plan. CBCC began implementing the modified plan in first quarter
2000. As of March 31, 2000, the estimated costs for these remediation
activities, which CBCC expects to complete in third or fourth quarter 2000,
range from approximately $5.4 million to $8.3 million depending on the use of
certain of remediation methodologies, quantities of material generated and
disposal options that may be permitted and/or available.
8
<PAGE> 9
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CBCC also is in the process of developing a remediation plan for two
additional areas of its site, and expects to initiate remediation activities at
those areas in 2001. Based on preliminary cost estimates provided by CBCC's
independent environmental consultant, and subject to the development by the
consultant of a remediation plan for these areas of the site and the receipt of
bids for the remediation activities required under such plan, the Company
estimates the cost for this project will range from approximately $1.3 million
to $3.7 million.
Based on currently available data and the current status of remediation
activities, the Company is unable to determine the most likely estimated cost
(within the ranges provided) for these projects. As a result, the Company
increased its previously established reserve by $0.6 million in first quarter
2000 for costs associated with these remediation activities. Based on BP's
obligations under the Remediation Agreement and the CBCC Purchase Agreement, the
Company also recorded a corresponding $0.6 million receivable from BP. The
resulting $6.7 million reserve amount approximates the low end of these ranges
in accordance with Financial Accounting Standards Board Interpretation No. 14,
"Reasonable Estimation of the Amount of Loss."
Based on currently available data, the Company believes that upon
completion of the remediation activities described above CBCC will have
substantially completed the remediation activities that the Company believes are
necessary to address contamination at its site. However, until the completion of
these remedial and associated investigatory activities and receipt of approval
from the Ohio Environmental Protection Agency (the "Ohio EPA") of CBCC's
activities to remediate this contamination, the Company cannot be certain that
further remediation activities will not be required at CBCC's site.
Although BP has acknowledged its contractual obligation to fund certain
investigatory and cleanup activities related to site contamination attributable
to Old Chase's operations and has performed certain activities in this regard,
as discussed below BP and CBCC currently are involved in litigation regarding,
among other things, the extent of BP's obligations under the Remediation
Agreement and the CBCC Purchase Agreement. BP has not yet reimbursed CBCC for
costs incurred by CBCC for the remediation activities previously conducted by
CBCC, and CBCC has funded these activities with cash flows provided by operating
activities and the Company's existing bank credit facility (the "Bank Credit
Facility"), as necessary. To the extent BP fails to fund current and future
remediation activities at CBCC's manufacturing facility, CBCC also will be
required to fund these activities. However, to the extent CBCC is required to
fund cleanup costs related to current and future remediation activities at its
manufacturing facility, the Company believes it would be able to fund these
costs with cash on hand and borrowings under its existing Bank Credit Facility.
Therefore, the Company does not believe that funding these remediation
activities will have a material effect on the Company's financial condition,
results of operations or liquidity.
Based on the status of remediation activities, other than as described
above, no reserves have been established regarding the aforementioned matters.
Additionally, the Company expects no material impact on its financial position,
results of operations or liquidity as a result of the existence of any other
environmental conditions related to CBCC.
9
<PAGE> 10
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company notified BP in third quarter 1999 that amounts payable by
the Company under the $20 million promissory note issued to BP in connection
with the CBCC Acquisition (the "BP Note"), which matured August 24, 1999, were
being offset against damages incurred by the Company (including environmental
investigation and remediation costs incurred by CBCC) as a result of, among
other things, the environmental condition of CBCC's site. To the extent CBCC
incurs future cleanup costs with respect to the investigatory and remedial
activities at its site, the Company intends to enforce its rights under the CBCC
Purchase Agreement and/or the Remediation Agreement to recover such amounts from
BP to the extent such costs exceed the amount recouped as a result of prior
offsets against the BP Note. The amounts the Company has claimed are owed by BP
to the Company are described in Part II., Item 1. Legal Proceedings.
CBCC and/or other entities named "Chase Brass & Copper Co." (which may
include Old Chase or divisions of Old Chase) have been named by governmental
agencies and/or private parties as a potentially responsible party ("PRP") under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and/or state laws with respect to four sites (and possibly a fifth
site). The Company believes that CBCC has no liability for the cleanup costs
related to these sites because (a) such liability is attributable to an entity
that had the same or similar name to that of CBCC, such as a division or a
subsidiary of BP (other than the brass rod division of Old Chase), or (b) such
liability arose from acts that occurred prior to the CBCC Acquisition and,
therefore, BP retained such liability under the CBCC Purchase Agreement and is
contractually obligated to indemnify the Company for such liabilities. To the
extent CBCC incurs any cleanup costs with respect to these sites, it intends to
enforce its rights under the CBCC Purchase Agreement to recover such amounts
from BP.
On January 7, 1998, a lawsuit entitled Ken-Chas Reserve Company and BP
Exploration (Alaska) Inc. and The Standard Oil Company v. Chase Industries Inc.
and Chase Brass & Copper Company, Inc. was filed in the Court of Common Pleas in
Cuyahoga County, Ohio. In this complaint (as amended, the "Complaint"),
plaintiffs seek declaratory judgment regarding the calculation of interest
payable under the $20 million BP Note. Under the BP Note, a contingent interest
payment was payable August 24, 1996, calculated pursuant to a formula based on
the Company's "EBDIT" (defined in the BP Note as earnings before depreciation,
interest and taxes, as determined in accordance with GAAP) for years 1990
through 1995. In calculating the interest payable on August 24, 1996, the
Company followed the express terms of the BP Note and, accordingly, deducted
amortization from earnings for the purposes of the interest calculation. In
calculating the interest payable on August 24, 1996, in accordance with the
express terms of the BP Note, the interest payable was $254,746, which the
Company offset against the receivable from BP. Plaintiffs allege that,
notwithstanding the express terms of the BP Note, the term "EBDIT" should be
interpreted to refer to earnings before depreciation, interest, taxes and
amortization and, based on such interpretation, allege that the contingent
interest payable under the BP Note in August 1996 should have been approximately
$5.8 million.
10
<PAGE> 11
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In addition, under the BP Note interest was payable on August 24 of
each year from and after August 24, 1996, until the BP Note matured on August
24, 1999. The interest due and payable on each of August 24, 1998 and 1997, was
$1,856,000, which amount the Company also offset against the receivable from BP.
As of the August 24, 1999, due date of the BP Note, the Company also offset
accrued and unpaid interest of $1,856,000 due August 24, 1999, and the full
principal balance of the BP Note against the receivable from BP and other
amounts claimed by the Company to be owed by BP to the Company as a result of
BP's breaches of the CBCC Purchase Agreement and the Remediation Agreement. In
the Complaint, plaintiffs also seek recovery of the $20 million principal amount
of the BP Note plus interest allegedly owing on the BP Note.
In April 1998, the Company filed an Answer and Counterclaim (as amended
in July 1999, the "Answer and Counterclaim") disputing the allegations set forth
in the Complaint and asserting a counterclaim seeking recovery from BP of an
unspecified amount of damages resulting from BP's breach of representations,
warranties and covenants contained in the CBCC Purchase Agreement and amounts
owed under the Remediation Agreement. The Answer and Counterclaim also seeks to
enforce a prior settlement agreement between the Company and BP regarding
certain disputes under the CBCC Purchase Agreement and the Remediation Agreement
and seeks a declaratory judgment confirming the Company's entitlement to offset
and/or recoup amounts owed by BP and Old Chase against amounts payable under the
BP Note and that no default has occurred under the BP Note.
Although the Company disputes the plaintiffs' allegations, the Company
believes that, even if plaintiffs were to prevail in their positions as set
forth in the Complaint, the Company would be able to pay amounts due, including
the principal amount of the BP Note, utilizing cash on hand, offsets of amounts
owing from Old Chase and BP, and, if necessary, borrowings available under the
Company's existing Bank Credit Facility.
This case currently is scheduled for trial in September 2000.
Notwithstanding that the Company has offset amounts payable under the
BP Note as described above, for financial statement reporting purposes, pursuant
to Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFAS 125"), the Company continues to record the full principal balance of the
BP Note as a liability. SFAS 125 requires that, in order to extinguish a
liability, the debtor must be legally released from the obligation by either the
creditor or judicially. As the BP Note is subject to determination in
litigation, the Company has maintained the debt on its books and continues to
accrue interest at 9.28%. The Company continues to classify the BP Note as
long-term because, if necessary, it has the ability to repay the amount on a
long-term basis with borrowings available under the Bank Credit Facility.
11
<PAGE> 12
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Leavitt. Prior to the Leavitt Acquisition, five underground storage
tanks ("USTs") were removed from Leavitt's property in Hammond, Indiana. Prior
to removal, one or more of the USTs released petroleum and other chemical
constituents into the environment. Some contamination of groundwater and soil at
the Hammond property remains in place. The Indiana Department of Environmental
Management ("IDEM") has not yet issued a "closure" letter with respect to the
removal of these USTs, and in fourth quarter 1999 notified Leavitt that
additional groundwater sampling will be required prior to the IDEM considering
closure. Leavitt conducted additional groundwater sampling in first quarter 2000
and has submitted the results of the sampling to the IDEM for review and further
direction.
Until these actions are carried out, the Company will be unable to
determine what, if any, remedial activities may be required at the Hammond
property. Although the cleanup costs associated with the environmental
conditions at the Hammond property may be material, based on the results of
sampling conducted in 1997 and first quarter 2000 the Company believes that the
probability that Leavitt would be required to make material expenditures
relating to site cleanup at the Hammond property appears to be remote.
Therefore, the Company has not made any specific accrual for costs related to
investigation or cleanup at the Hammond property. The Hammond operations were
relocated to Chicago in September 1997, and no manufacturing activities
currently are conducted at the Hammond location.
5. BUSINESS SEGMENTS:
The Company has two business segments. One, brass products, is engaged
in the manufacture and sale of free-machining and forging brass rod; the second,
steel products, manufactures and sells structural and mechanical steel tubing
and structural pipe.
The brass products segment, employing more than 300 people at its
Montpelier, Ohio plant, is an ISO 9002 certified manufacturer and supplier of
free-machining and forging brass rod in the United States and Canada. Its
diverse customer base of more than 250 companies uses the "Blue Dot" trademark
rod to produce a variety of products, such as plumbing fixtures, heating and air
conditioning components, industrial valves, automotive parts and numerous
hardware components.
The steel products segment is a leading producer of structural and
mechanical steel tubing and structural pipe with two plants in Chicago,
Illinois, and one plant in Jackson, Mississippi, employing approximately 400
people. Structural steel tubing is used in non-residential construction, farm
equipment and other commercial applications. The mechanical steel tubing is used
in a broad range of consumer and commercial products, including furniture and
fixtures, lawn-care products, storage racks, exercise equipment, bicycles and
machine tools. Structural pipe is used for handrails, scaffolding and
communications towers.
12
<PAGE> 13
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Income and expenses not allocated to business segments include certain
corporate expenses, interest expense and interest income. There are no
intersegment sales. The business segment information is prepared consistent with
the accounting policies outlined in Note 1, Significant Accounting Policies,
except for income taxes which are recorded at the corporate level. Summarized
segment information is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Net sales:
Brass products $ 80,280 $ 71,562
Steel products 34,313 32,306
--------- ---------
Total net sales $ 114,593 $ 103,868
========= =========
Operating income:
Brass products $ 9,801 $ 9,119
Steel products (213) (1,322)
Corporate (65) (165)
--------- ---------
Total operating income $ 9,523 $ 7,632
========= =========
Selected non-cash charges included in operating income
Lower of cost-or-market inventory writedown:
Brass products $ -- $ --
Steel products -- 1,800
--------- ---------
Total lower of cost-or-market inventory writedown $ -- $ 1,800
========= =========
</TABLE>
13
<PAGE> 14
CHASE INDUSTRIES INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Operations
The Company has two business segments, the brass products segment
operated by CBCC and the steel products segment operated by Leavitt. The Company
is a leading manufacturer of free-machining and forging brass rod and structural
and mechanical steel tubing and structural pipe.
CBCC. CBCC is an ISO 9002 certified manufacturer and supplier of
free-machining and forging brass rod in the United States and Canada. CBCC's net
sales represent gross sales of brass rod less sales discounts and freight
charges. The gross sales price of brass rod consists of a metal price charged to
customers and a fabrication price as separate components. Cost of goods sold
includes the cost of brass scrap, which is the principal raw material used in
the manufacturing process and the primary component of cost of goods sold, as
well as the costs of labor, energy and other materials and supplies used in
fabricating the brass scrap into finished rod. Therefore, CBCC's profit levels
depend primarily on the amount of finished rod shipped, fabrication prices and
the difference between the metal price charged to customers and CBCC's cost of
brass scrap.
CBCC obtains approximately 80% of the brass scrap used in its
operations from its customers through purchase and tolling arrangements. The
metal price charged to customers (the "Metal Selling Price") had been four cents
per pound higher than the price at which brass scrap is purchased from customers
(the "Metal Buying Price") since December 1994. In December 1997, the difference
was increased to five cents per pound, and in January 1999 the difference was
increased to seven cents per pound. The difference between the Metal Selling
Price and the Metal Buying Price was increased to eight cents per pound in
September 1999. CBCC also purchases approximately 20% of its brass scrap from
scrap dealers at prevailing free-market prices. Free-market prices of brass
scrap fluctuate based on the supply of and demand for brass scrap and the prices
for copper and zinc (the major components of brass), and generally are less than
the Metal Buying Price. Since 1990, free-market prices, as compared to Metal
Buying Prices, have been favorable to CBCC by historical standards and the
supply of brass scrap in the United States has increased in excess of demand as
a result of increased imports of brass rod. Although the increased supply of
brass scrap has resulted in continued favorable free-market scrap prices through
March 2000, there can be no assurance that such discounts will continue.
Decreasing imports of brass rod and increasing demand for brass scrap could
cause free-market brass scrap prices to increase, and increased pressure from
customers to purchase brass scrap directly from them at the Metal Buying Price
could reduce CBCC's ability to take advantage of free-market discounts.
14
<PAGE> 15
CHASE INDUSTRIES INC.
As noted above, CBCC's pricing structure consists of the Metal Selling
Price and the fabrication price as separate components. The Metal Selling Price
is determined at the time of shipment based on the then-current Metal Buying
Price and is not directly affected by fluctuations in free-market brass scrap
prices. As a result of this pricing structure, increases and decreases in the
Metal Selling Price will affect net sales levels and gross profit as a
percentage of sales, even in the absence of an increase or decrease in shipments
or the fabrication prices charged to customers, but will have little impact on
gross profit levels. However, the quantity of free-market brass scrap purchased
by CBCC and changes in the difference between the free-market prices paid for
brass scrap and the Metal Buying Price will affect gross profit, even in the
absence of an increase or a decrease in shipments or net sales levels.
In addition to sales made under the pricing structure described above,
some sales are made on a tolling basis, where the customer consigns brass scrap
to CBCC and is charged a fabrication price for processing the brass scrap into
finished rod. Tolling transactions affect net sales by the Metal Selling Price
that otherwise would be charged to the customer in a sale of finished brass rod.
To a lesser degree, tolling transactions also affect gross profit to the extent
CBCC is unable to take advantage of the pricing differential on brass scrap
purchased and sold. To partially offset the effect of tolling transactions on
gross profit, CBCC requires tolling customers to deliver additional pounds of
brass scrap in exchange for each pound of finished rod shipped.
Leavitt. Leavitt is a leading producer of structural and mechanical
electric resistance welded steel tubing in square, rectangular and round shapes
in sizes ranging from 1/2 inch to 10 inch squares and equivalent rectangles and
3/8 inch to 12 3/4 inches in outer diameter for round sizes. Leavitt's financial
performance may be impacted by changes in the price it pays for flat-rolled
steel, the primary cost component of Leavitt's finished product, based on the
market conditions in the domestic and the international flat-rolled steel
industry. Based on the then-current market conditions in the steel tubing
industry and the level of capacity utilization, Leavitt may or may not be able
to pass the economic impact of steel price changes on to its customers through
changes in the selling price. The steel tubing industry is highly fragmented and
suppliers may reduce prices or fail to increase prices as a result of
flat-rolled steel price increases, depending on their individual financial and
operational motivation.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000, Compared with Three Months Ended March 31,
1999
Net sales increased $10.7 million, or 10.3%, to $114.6 million in first
quarter 2000 from $103.9 million in first quarter 1999. Net sales increased
mainly as a result of an 11% increase in the brass Metal Selling Price. Also,
net sales increased due to higher brass rod and steel tubing shipments.
There were no inventory writedowns recorded in first quarter 2000. The
Company recorded a non-cash lower of cost-or-market inventory writedown of $1.8
million in first quarter 1999. The writedown was due to the decreasing prices of
flat-rolled steel and steel tubing.
15
<PAGE> 16
CHASE INDUSTRIES INC.
Excluding the lower of cost-or-market inventory writedown in first
quarter 1999, gross profit decreased $0.4 million, or 2.4%, from $16.5 million
in first quarter 1999 to $16.1 million in first quarter 2000. The decrease was
due to lower unit margins at Leavitt.
Selling, general and administrative ("SG&A") expenses decreased $0.7
million, or 16.3%, to $3.6 million in first quarter 2000 from $4.3 million in
first quarter 1999. The decrease primarily was due to reduced consulting and
professional fees.
Depreciation and amortization increased $0.2 million, or 7.1%, to $3.0
million in first quarter 2000 from $2.8 million in first quarter 1999. The
increase was primarily the result of increased depreciation from 1999 capital
additions.
As a result of the above factors, operating income of $9.5 million in
first quarter 2000 was flat with first quarter 1999, excluding the lower of
cost-or-market inventory writedown.
Net interest expense decreased $0.1 million, or 20.0%, to $0.4 million
in first quarter 2000 from $0.5 million in first quarter 1999, primarily as a
result of increased interest income.
Income tax expense increased $0.8 million, or 29.6%, to $3.5 million in
first quarter 2000 as a result of an increase of $2.1 million, or 29.6%, in
income before income taxes. In first quarter 2000, the Internal Revenue Service
(the "IRS") completed an examination of the federal income tax return filed by
the Company for the year ended December 31, 1996. The Company is awaiting the
refund from the IRS resulting from the treatment of settled issues for that
year. Management believes adequate provisions for income tax have been recorded
for all years.
As a result of the above factors, net income increased $1.3 million, or
29.5%, to $5.7 million in first quarter 2000 from $4.4 million in first quarter
1999. Diluted earnings per share increased to $0.37 in first quarter 2000 from
$0.29 in first quarter 1999. First quarter last year included a writedown of
inventory to the lower of cost-or-market totaling $0.07 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
General
At March 31, 2000, cash and cash equivalents totaled $1.2 million
decreasing from $9.1 million at year end 1999. Total debt at March 31, 2000, was
$27.6 million compared with $27.3 million at year end 1999.
Working Capital
At March 31, 2000, working capital was $47.5 million, a $5.3 million,
or 12.6%, increase from $42.2 million at December 31, 1999. A decrease in cash
and cash equivalents of $7.9 million, or 86.8%, was offset by increases in
accounts receivable of $11.5 million, or 34.4%, and inventory of $0.8 million,
or 1.8%, and a decrease in accounts payable of $3.0 million, or 9.5%.
16
<PAGE> 17
CHASE INDUSTRIES INC.
The increase in accounts receivable was due primarily to a 19% increase
in net sales in first quarter 2000 compared to fourth quarter 1999. The
Company's shipments are typically lower in December due to customer shutdowns.
The decrease in accounts payable was the result of the timing of metal
purchases.
The Company's current ratio was 1.94 at March 31, 2000, compared to
1.79 at December 31, 1999.
Cash Flow (Used in) Provided by Operating Activities
For the three months ended March 31, 2000, net cash used in
operating activities was $4.6 million, which included net income of $5.7 million
and depreciation and amortization of $3.0 million. There was an increase in
working capital, excluding cash, debt and deferred taxes, of $13.1 million from
December 31, 1999.
For the three months ended March 31, 1999, net cash provided by
operating activities was $0.6 million, which included net income of $4.4 million
and depreciation and amortization of $2.8 million, partially offset by an
increase in working capital, excluding cash, debt and deferred taxes, of $6.3
million.
Cash Flow (Used in) Investing Activities
Capital expenditures were $3.6 million for the three months ended March
31, 2000, and $5.4 million for the three months ended March 31, 1999. Capital
expenditures in 2000 and 1999 primarily related to construction and equipment
costs for the new CBCC foundry discussed below.
Cash Flow Provided by (Used in) Financing Activities
Cash provided by financing activities of $273,000 for the three months
ended March 31, 2000, consisted primarily of borrowings under the Revolving
Credit Facility, as defined below.
Cash used in financing activities was $78,000 for the three months
ended March 31, 1999.
Capital Resources
In 1996, the Company launched a capital project referred to as "Project
400." The project is designed to increase foundry, extrusion and finishing
capabilities with an ultimate goal of increasing finished brass rod production
capability by one-third to approximately 400 million pounds annually. The first
phase of the project was completed in early 1998 with the installation of three
new billet heaters that increased finished brass rod capacity by about 17
percent. The new billet heaters have increased productivity and improved
quality. The total cost of the first phase of the project was approximately $12
million and was financed through a six-year operating lease.
17
<PAGE> 18
CHASE INDUSTRIES INC.
In second quarter 1998, the Company announced Phase II of Project 400,
which was a $30 million multi-year investment to construct an additional brass
foundry enabling CBCC to increase casting capacity and to provide customers with
multiple alloys. New casting equipment has been installed and a new building is
completed. The new brass foundry began producing billets on a trial basis in
February 2000 and is now producing billets at expected production rates. The new
foundry will reduce costs and also provide for increased production capacity and
shipments.
In fourth quarter 1999, Phase III of Project 400, with an estimated
cost of $50 million, was approved by the Company's Board of Directors. A second
extrusion press and additional finishing equipment will be installed over the
next two years. When Phase III comes on-line in 2002, CBCC's production capacity
will exceed 400 million pounds annually. The Company anticipates that capital
projects will be paid for with cash flows provided by operating activities and
the Bank Credit Facility, as necessary.
Bank Credit Facility
In connection with the Leavitt Acquisition, the Company entered into a
credit facility (the "Bank Credit Facility") of $100 million agented by PNC
Bank, National Association ("PNC Bank"). The Bank Credit Facility originally
included a $60 million term loan ("Term Loan") and a $40 million revolving
credit facility ("Revolving Credit Facility"). The Company has prepaid all
amounts on the Term Loan originally due through April 2001. The remaining
balance of $7 million on the Term Loan is payable in quarterly installments in
amounts ranging from $2,975,000 in July 2001 to $1,025,000 due January 2002.
Effective September 8, 1999, the Company and PNC Bank agreed on an amendment to
the Bank Credit Facility which increased the Revolving Credit Facility by $10
million, to $50 million. The Revolving Credit Facility commitment expires August
30, 2001, and the Company can request a one-year extension of the expiration
date at any time.
Advances under the Bank Credit Facility bear interest at alternative
variable rates based on certain percentages, as provided in the agreement, in
excess of the lending bank's prime rate, the Federal funds rate or LIBOR, with
interest payable quarterly or as of the end of each LIBOR borrowing period,
whichever is shorter. The weighted average interest rate on the Bank Credit
Facility was 6.5% at March 31, 2000 and December 31, 1999.
The Bank Credit Facility contains certain covenants that, among other
things, limit the Company's ability to incur additional debt or pay dividends.
The covenants also require the Company to maintain a minimum interest coverage
ratio and level of net worth and restrict the Company from exceeding a maximum
ratio of debt to cash flow from operations. The Bank Credit Facility also
requires the Company to maintain CBCC and Leavitt as wholly-owned subsidiaries.
As of March 31, 2000, $7 million was outstanding under the Term Loan
and $361,000 was outstanding under the Revolving Credit Facility. Total
availability under the Revolving Credit Facility was $48.3 million as of March
31, 2000.
18
<PAGE> 19
CHASE INDUSTRIES INC.
BP Note
In connection with the CBCC Acquisition, the Company issued a
promissory note to Old Chase in the original principal amount of $20 million
(the "BP Note"). The BP Note initially matured in August 1996, and the Company,
at its option, extended the maturity date for three additional years to August
1999 with interest payable annually at 9.28%. The BP Note contained a contingent
interest payment based upon average Company earnings (defined in the BP Note)
for the years ended December 31, 1990 through 1995. The contingent interest,
totaling $254,000 and due August 1996, and the annual interest of $1,856,000 due
August 1997 and 1998, were offset against the receivable from BP. As of the
August 24, 1999 due date of the BP Note, the Company also offset the $1,856,000
in accrued and unpaid interest due August 24, 1999, and the full principal
balance of the BP Note against the receivable from BP and other amounts claimed
by the Company to be owed by BP to the Company as a result of BP's breach of the
CBCC Purchase Agreement and the Remediation Agreement. However, for financial
statement reporting purposes, pursuant to Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" ("SFAS 125"), the Company continues to record
the full principal balance of the BP Note as a liability. SFAS 125 requires that
in order to extinguish a liability, the debtor must be legally released from the
obligation by either the creditor or judicially. As the BP Note is subject to
determination in litigation described below, the Company has maintained the debt
on its books and continues to accrue interest at 9.28%. The Company continues to
classify the BP Note as long-term because, if necessary, it has the ability to
repay the amount on a long-term basis with borrowings obtained under the Bank
Credit Facility.
CONTINGENCIES - ENVIRONMENTAL MATTERS
As discussed in Note 4 of Notes to Consolidated Financial Statements
included in Item 1., each of CBCC and Leavitt are subject to certain contingent
liabilities relating to environmental conditions at their respective facilities.
CBCC. CBCC initiated interim remedial actions for certain portions of
its Montpelier, Ohio site in second quarter 1999. Sampling conducted as part of
these interim remedial actions identified the presence of VOCs that were not
covered by the initial scope of these interim actions. As a result, CBCC
conducted additional sampling of those areas of the site to further delineate
the contamination in those areas. Based on the aggregate sampling results, CBCC
modified its 1999 remediation plan. Based on the aggregate sampling results,
CBCC modified its 1999 remediation plan. CBCC began implementing the modified
plan in first quarter 2000. As of March 31, 2000, the estimated costs for these
remediation activities, which CBCC expects to complete in third or fourth
quarter 2000, range from approximately $5.4 million to $8.3 million depending on
the use of certain of remediation methodologies, quantities of material
generated and disposal options that may be permitted and/or available. CBCC also
is in the process of developing a remediation plan for two additional areas of
its site, and expects to initiate remediation activities at those areas in 2001
at an estimated cost ranging from approximately $1.3 million to $3.7 million.
Based on currently available data, the Company believes that, upon
completion of the remediation activities described above, CBCC will have
substantially completed the remediation
19
<PAGE> 20
CHASE INDUSTRIES INC.
activities at its site that are necessary to address contamination of which CBCC
currently is aware. However, until completion of these remedial and associated
investigatory activities and receipt of approval from the Ohio EPA of CBCC's
activities to remediate this contamination, the Company cannot be certain that
further remediation activities will not be required at CBCC's site.
20
<PAGE> 21
CHASE INDUSTRIES INC.
Although BP has acknowledged its contractual obligation to fund certain
investigatory and cleanup activities related to site contamination attributable
to Old Chase's operations, as described below under "Contingencies - Legal
Proceedings," BP and CBCC currently are involved in litigation regarding, among
other things, the extent of BP's obligations under the Remediation Agreement and
CBCC Purchase Agreement. BP has not yet reimbursed CBCC for costs incurred by
CBCC for prior remediation activities conducted by CBCC. To the extent BP fails
to fund current and future remediation activities at CBCC's manufacturing
facility, CBCC will be required to fund these activities. However, to the extent
CBCC is required to fund cleanup costs related to the remediation of
contamination at its manufacturing facility, the Company believes it would be
able to fund these costs with cash on hand and borrowings under its existing
Bank Credit Facility. Therefore, the Company does not believe that funding these
remediation activities will have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
The Company notified BP in third quarter 1999 that amounts payable by
the Company under the BP Note were being offset against damages incurred by the
Company, including environmental investigation and remediation costs, as a
result of BP's breaches of the CBCC Purchase Agreement and the Remediation
Agreement. To the extent CBCC incurs future cleanup costs with respect to
investigatory and remedial activities at its site, it intends to enforce its
rights under the CBCC Purchase Agreement and/or Remediation Agreement to recover
such amounts from BP to the extent such costs exceed the amount recouped as a
result of the prior offsets against the BP Note.
Leavitt. Pending further direction from the IDEM, the Company currently
is unable to determine what, if any, remedial activities may be required at
Leavitt's Hammond property. Although the cleanup costs associated with the
environmental conditions at the Hammond property may be material, based on the
results of sampling conducted to date the Company believes that the probability
that Leavitt would be required to make material expenditures relating to site
cleanup at the Hammond property appears to be remote. Therefore, the Company has
not made any specific accrual for costs related to investigation or cleanup at
the Hammond property. To the extent the Company or Leavitt incurs a liability
with respect to site cleanup at the Hammond property, ROHN Industries, Inc.
(formerly UNR Industries, Inc.), is contractually obligated to indemnify Leavitt
for 90% of losses related to certain environmental conditions, including costs
incurred with respect to contaminants released at Leavitt's properties
(including the Hammond property) prior to the Leavitt Acquisition, to the extent
such losses exceed $400,000 in the aggregate (approximately $150,000 have been
incurred for various matters). In addition, to the extent the contamination at
the Hammond property is attributed to actions of prior owners, the Company may
be entitled to recover from prior owners costs incurred by the Company at the
Hammond site. The Hammond operations were relocated to Chicago in September
1997, and no manufacturing activities currently are conducted at the Hammond
location.
The statements set forth herein regarding anticipated expenditures for
environmental matters are forward looking, are based on sampling results
currently available to the Company and remediation plans developed and in the
process of being developed by independent consultants of CBCC (which plans are
based on certain assumptions regarding applicable cleanup standards and
21
<PAGE> 22
CHASE INDUSTRIES INC.
methodologies, cost estimates for completion of the remediation activities
initiated in 1999 and preliminary cost estimates for completion of remediation
at other areas of CBCC's site). Actual costs required to be expended by the
Company with respect to such matters may differ materially from current
expectations depending on the final resolution of known uncertainties, including
finalization of remediation plans for the two remaining areas of CBCC's site at
which remediation currently is contemplated, completion of currently ongoing and
proposed remediation activities, acceptance by applicable governmental agencies
of cleanup standards relied upon in developing remediation plans and cost
estimates, discovery of additional contaminants during remediation, any change
in CBCC's proposed use of its property which affects any applicable cleanup
standard and, with respect to Leavitt, the results of any additional sampling
that may be necessary or required at the Hammond, Indiana, property and any
remediation activities as may be required by the IDEM at such site.
CONTINGENCIES - LEGAL PROCEEDINGS
As discussed in Note 4 of Notes To Consolidated Financial Statements
included in Part I., Item 1 and in Part II, Item 1. Legal Proceedings, the
Company and CBCC are defendants in a lawsuit regarding amounts payable under the
BP Note. As discussed therein, the Company disputes the allegations made in the
lawsuit, but believes that, even if the plaintiffs were to prevail in their
positions, the Company would be able to pay amounts due, including the principal
amount of the BP Note, utilizing cash on hand, offsets of amounts owing from Old
Chase and BP, and, if necessary, borrowings available under the Company's
existing Bank Credit Facility. Therefore, the Company continues to classify the
BP Note as long-term, and believes that judgment adverse to the Company and CBCC
would not have a material adverse effect on the Company's financial condition,
results of operations or liquidity. See "BP Note" above.
SAFE HARBOR
This document contains forward-looking statements regarding the
operations of the Company and the industries in which it operates. These
statements are identified by the use of words such as "believe," "expects,"
"anticipates," "will," "should" and other words referring to events to occur in
the future. Management uses estimates and assumptions in forming the basis for
such forward-looking statements. Such estimates and assumptions, including
forecasts regarding demand and pricing for the Company's products, are subject
to risks and uncertainties which could cause actual results to differ materially
from historical results or those anticipated, as described in forward-looking
statements. Actual results will be affected by general economic and industry
conditions in the end-use markets for the Company's products as well as the
impact of competitive products and pricing, including without limitation the
impact of imports. Foreign economic activity and the relationship of the U. S.
dollar to other currencies also affect import levels and exports of U.S.
manufactured products containing parts made from brass rod and steel tube. The
Company's shipments also will be affected by its ability to maintain
manufacturing operations at its current levels without significant interruption
and successfully implement its capacity expansion program.
22
<PAGE> 23
CHASE INDUSTRIES INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain claims and litigation as described
in Note 4 of Notes to Consolidated Financial Statements included in Part I.,
Item 1, of this report and in Part I, Item 3. Legal Proceedings contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
In December 1999, plaintiffs in the lawsuit styled Ken-Chas Reserve
Company and BP Exploration (Alaska) Inc. and The Standard Oil Company v. Chase
Industries Inc. and Chase Brass & Copper Company, Inc. filed a motion to compel
arbitration of the Company's claims raised in the Answer and Counterclaim and to
stay the litigation with respect to the Company's counterclaims pending
arbitration. The plaintiffs base their motion to compel arbitration on
provisions of the Remediation Agreement that require an independent expert to
resolve differences between BP and CBCC regarding the scope of certain
remediation activities to be performed under the Remediation Agreement. In
February 2000, the Company filed a response to plaintiffs' motion to compel
arbitration requesting the court to deny plaintiffs' motion or, if the Court
determines that any issues are subject to arbitration, to limit the issues to be
arbitrated to those specifically contemplated by the Remediation Agreement. The
Company's response also requests the court to deny plaintiffs' request to stay
the litigation as to any counterclaim not submitted to arbitration. In March
2000, plaintiffs filed a reply to the Company's response, and this motion
currently is pending before the court.
In December 1999, plaintiffs also filed a motion for partial summary
judgment against the Company seeking payment by the Company of an amount equal
to the difference between (i) the amount that became due on August 24, 1999,
under the BP Note (i.e., the $20,000,000 principal amount plus $1,856,000 in
accrued interest) and (ii) the amount of Chase's claims that are based on
amounts actually spent or incurred by the Company, which plaintiffs allege was
approximately $12.5 million as of the August 24, 1999, maturity date of the BP
Note. In March 2000, the Company filed a response to plaintiffs' motion
requesting the court to deny plaintiffs' motion, asserting that the Company is
entitled to offset and recoup the full amount of its damages against amounts
that became payable under the BP Note, and presenting evidence that the Company
has incurred quantifiable damages (giving effect to the estimated costs of
future remediation described above) ranging from at least $29.2 million to $33.1
million. In March 2000, plaintiffs filed a reply to the Company's response, and
this motion is pending before the court.
In March 2000, the Company filed two motions for partial summary
judgment against BP. The first motion for partial summary judgment filed by the
Company seeks a declaration that BP has breached both the Asset Purchase
Agreement and the Remediation Agreement based upon the environmental condition
of the property and BP's failure to comply with its guarantee of compliance with
an environmental permit, as well as BP's failure to indemnify the Company for
its resulting damages. The second motion for partial summary judgment filed by
the Company seeks a declaration that the Company properly deducted amortization
in determining "EBDIT" in
23
<PAGE> 24
CHASE INDUSTRIES INC.
the contingent interest calculation under the BP Note. BP has not yet responded
to these motions, and they are pending before the court.
Additional information regarding this lawsuit is included in Note 4 of
Notes to Consolidated Financial Statements included in Part I., Item 1. of this
report.
24
<PAGE> 25
CHASE INDUSTRIES INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 - Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998), as amended by the
Certificate of First Amendment to the Company's
Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K dated May 14, 1997) and Certificate
of Second Amendment to the Company's Restated
Certificate of Incorporation, (incorporated by
reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K dated May 26, 1998).
3.2 - By-Laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No.
33-83178).
4.1 - Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration
No. 33-83178).
4.2 - Exchange Agreement dated November 4, 1994, between the
Company and Citicorp Venture Capital Ltd. ("CVC")
(incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
4.3 - Voting Agreement dated November 4, 1994, between the
Company, CVC and Martin V. Alonzo ("Mr. Alonzo")
(incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
+27 - Financial Data Schedule (EDGAR filing only).
- --------------
+ Filed herewith
25
<PAGE> 26
CHASE INDUSTRIES INC.
(b) REPORTS ON FORM 8-K
No Current Report on Form 8-K was filed by the Company during the
first quarter of 2000.
26
<PAGE> 27
CHASE INDUSTRIES INC.
S I G N A T U R E
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 hereto duly authorized.
CHASE INDUSTRIES INC.
Date: May 15, 2000 By: /s/ MICHAEL T. SEGRAVES
---------------------------
Michael T. Segraves
Vice President
Chief Financial Officer
(duly authorized officer and
Principal Financial Officer)
27
<PAGE> 28
CHASE INDUSTRIES INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description of Exhibits Numbered Page
- ------- ----------------------- -------------
<S> <C> <C>
3.1 - Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998), as amended by the
Certificate of First Amendment to the Company's
Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K dated May 14, 1997) and Certificate
of Second Amendment to the Company's Restated
Certificate of Incorporation, (incorporated by
reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K dated May 26, 1998).
3.2 - By-Laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No.
33-83178).
4.1 - Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration
No. 33-83178).
4.2 - Exchange Agreement dated November 4, 1994, between the
Company and Citicorp Venture Capital Ltd. ("CVC")
(incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
4.3 - Voting Agreement dated November 4, 1994, between the
Company, CVC and Martin V. Alonzo ("Mr. Alonzo")
(incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
+27 - Financial Data Schedule (EDGAR filing only).
</TABLE>
- -------------
+ Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000<F1>
<CASH> 1,198
<SECURITIES> 0
<RECEIVABLES> 46,176
<ALLOWANCES> 1,242
<INVENTORY> 46,001
<CURRENT-ASSETS> 97,915
<PP&E> 172,770
<DEPRECIATION> 50,934
<TOTAL-ASSETS> 232,763
<CURRENT-LIABILITIES> 50,430
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> 139,571
<TOTAL-LIABILITY-AND-EQUITY> 232,763
<SALES> 114,593
<TOTAL-REVENUES> 114,593
<CGS> 98,464
<TOTAL-COSTS> 98,464
<OTHER-EXPENSES> 6,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 367
<INCOME-PRETAX> 9,156
<INCOME-TAX> 3,479
<INCOME-CONTINUING> 5,677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,677
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.37
<FN>
<F1>Chase Industries Inc. quarterly report on Form 10-Q for the year-to-date
period ended March 31, 2000
</FN>
</TABLE>
