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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Ended August 31, 1995 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.)
50 Braintree Hill Park, Braintree, Massachusetts 02184
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 848-2810
Securities registered pursuant to section 12(b) of the Act:
Common Stock, $.10 par value American Stock Exchange
(Title of class) Boston Stock Exchange
Name of each exchange on which registered
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.10 par value
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [ x ]
As of October 31, 1995, the Company had outstanding 3,572,155 shares of
common stock, $.10 par value, which is its only class of common stock; and
the aggregate market value of the voting stock held by non-affiliates of
the registrant was $16,968,000.
DOCUMENT INCORPORATED BY REFERENCE
The registrant's definitive proxy statement (the "Definitive Proxy
Statement") to be filed in connection with the Annual Meeting of
Shareholders to be held on January 16, 1996, is incorporated by this
reference into items 10-13 hereof.
Item 1. Business.
General Development and Industry Segment.
Chase Corporation (the "Company") is primarily engaged in the
manufacture of protective coatings and tape products. The Company
implemented a strategy of focusing its direction towards its core
businesses which resulted in the divesting of its elastomeric materials
division and the discontinuance of the fuel technology products and
services division during fiscal 1991. During 1992, a facility that
manufactures tape and related products in Webster, Massachusetts became
operational. In April 1992, the Company acquired certain tape product
lines and associated assets for cash from The Stewart Group, Ltd. This
division, Chase Canada, maintains manufacturing operations in Winnipeg,
Manitoba, Canada. Effective May 25, 1994, the Company purchased the
electrical cable insulation tape product lines and certain associated
assets from Haartz Mason, Inc. and these products were folded into the
Chase & Sons division. On June 5, 1995, the Company formed a joint venture
with the Stewart Group, Ltd. The new venture is called The Stewart Group,
Inc. and is located in Markham, Ontario, Canada. The Company owns 25% of
the new venture which will produce a variety of dielectric strength members
from composite materials and sold into the fiber optic cable market. On
June 29, 1995, certain assets of Fluid Polymers, Inc. of Las Vegas, Nevada
were acquired and have been relocated to the Royston facility. Fluid
Polymers, Inc. provided solventless sealants, adhesives, coatings and
dielectric materials for various uses. There have not been any other
material changes or developments since September 1, 1995.
As of October 31, 1995, the Company employed approximately 140 people.
Products and Markets.
The Company's principal products are protective coatings and tape
products that are sold by Company salespeople and manufacturer's
representatives. These products consist of: (i)insulating and conducting
materials for the manufacture of electrical and telephone wire and cable,
and electrical splicing, terminating and repair tapes which are marketed to
wire and cable manufacturers and public utilities; (ii)protective pipe
coating tapes and other protectants for valves, regulators, casings,
joints, metals, concrete, and wood that are sold to oil companies, gas
utilities, and pipeline companies; (iii)protectants for highway bridge deck
metal surfaces sold to municipal transportation authorities; (iv)thermo-
electric insulation for transformers, motors, and other electrical
equipment that are sold to original equipment manufacturers; and
(v)moisture protective coatings that are sold to the electronics industry.
There are no material seasonal aspects to the Company's business and the
Company has introduced no new products or segments requiring an investment
of a material amount of the Company's assets.
Backlog, Customers and Competition.
As of October 31, 1995, the backlog of orders believed to be firm was
approximately $1,409,000, all of which is expected to be filled in fiscal
year 1996. As of October 31, 1994 the backlog was approximately
$1,254,000. The backlog is not seasonal. The Company does not do business
with any customer the loss of which would have a material adverse effect on
the Company and no material portion of the Company's business is subject to
renegotiation or termination of profits or contracts at the election of the
government.
Many companies manufacture or sell protective coatings and tape
products similar to those of the Company, some of which companies are
larger and have greater financial resources than the Company. Competition
is principally based on technical performance, service reliability, quality
and price.
Raw Materials.
The Company obtains raw materials from a wide variety of suppliers
with alternative sources of all essential materials available within
reasonable lead time.
Patents, Trademarks, Licenses, Franchises and Concessions.
Other than HumiSeal , a trademark for moisture protective coatings
sold to the electronics industry, and Chase BLH2OCK , a trademark for water
blocking compound sold to the wire and cable industry, there are no
material trademarks, licenses, franchises, or concessions. The Company
holds various patents, but believes that at this time they are not material
to the success of the business.
Working Capital and Research and Development.
There are no special practices followed by the Company relating to
working capital. Approximately $511,000, $594,000 and $471,000 was spent
for Company-sponsored research and development during the fiscal years
1995, 1994 and 1993, respectively.
Environmental Disclosures.
The Company is aware of potential claims concerning a site in Bruin,
Pennsylvania where an affiliate of the Company had sponsored research into
experimental oil and coal-based fuels in the early 1980's. In August 1991,
a spill of the affiliate's stored material occurred at the Bruin site,
apparently due to vandalism of the storage tanks. Upon learning of the
spill, the Company provided notice of the release to appropriate
authorities and undertook to remedy the spill. The remedy was completed in
October 1992 under plans approved by the Pennsylvania Department of
Environmental Protection ("Pennsylvania DEP"). The Company believes that
this work terminated its liabilities for the spill, but Pennsylvania DEP
has not provided a final release.
The Bruin site had been used for many years for a variety of oil
refining operations by unrelated parties. The site has significant
contamination from those unrelated activities. Since the spill of the
material remedied by the Company, the U.S. Environmental Protection Agency
has conducted an investigation of the site, conducted emergency cleanup
activities at the site focused on materials other than the affiliate's
material and spill, and turned responsibility for the site back to
Pennsylvania DEP. To date, EPA has not made any claim against the Company.
During 1993 to 1995, Pennsylvania DEP has conducted an investigation
of the site, has completed a surface cleanup, and has proposed a permanent
remedy. Pennsylvania DEP has notified the Company that it may be a person
responsible under Pennsylvania law to contribute to the costs of those
activities. During 1995, Pennsylvania DEP suggested that the Company
contribute an amount toward the costs of the investigation and the surface
cleanup in an attempt to settle with the Company. While the amount was not
deemed material, the Company still believes that the work previously
performed to remedy the spill terminated its liabilities and therefore
declined the proposal. Pennsylvania DEP has not presented a claim against
the Company with respect to the permanent remedy.
The Company remains in communication with Pennsylvania DEP, and
expects that it will eventually determine that the Company resolved any
potential liability at the site by its response to the 1991 spill.
See also Legal Proceedings Caption.
Financial Information about Foreign and Domestic Operations and Export
Sales.
Export sales from continuing domestic operations to unaffiliated third
parties were $2,764,000, $2,486,000 and $2,154,000 for the years ended
August 31, 1995, 1994 and 1993, respectively. The Company does not
anticipate any material change to export sales during fiscal 1996. The
Company's products are sold world-wide with no foreign geographic area
accounting for more than 10% of revenues. The Company's Canadian
operations accounted for 7.1% of consolidated sales and 9.2% of its assets.
The Company has very limited currency exposure since all invoices,
except those from the Canadian operation to Canadian customers, are
denominated in US dollars. The Company maintains minimal cash balances in
Canada and, other than the currency conversion effects on the fixed assets
in Canada, which are deferred and recorded directly in equity per FAS52,
there are no significant assets held in foreign currencies. The Company
does not engage in hedging activities. Foreign currency transaction gains
or losses have not been material.
Item 1A. Executive Officers of the Registrant.
The following table sets forth information concerning the Company's
executive officers. Each officer is selected by the Company's Board of
Directors and holds office until his successor is elected and qualified.
Name Age Offices Held and Business Experience during Past
Five Years.
Peter R. Chase 47 Chief Executive Officer of the Company since
September 1993 and President of the Company since
April 1992; Chief Operating Officer of the Company
since September 1988.
Everett Chadwick,Jr. 54 Treasurer of the Company since September 1993 and
Chief Financial Officer since September 1992;
Director of Finance of the Company from April 1991
to August 1993 and Controller of the Company from
September 1988 to August 1993.
Item 2. Properties.
The Company leases its principal executive office, which is located in
Braintree, Massachusetts and contains approximately 4,300 square feet. The
Company also rents a modern one-story building of approximately 5,000 square
feet in Woodside, New York, which is used by the conformal coatings division.
A division of the Company engaged in the manufacture and sale of
electrical protective coatings and tape products uses offices and plants
owned by the Company that are located on seven acres in Randolph,
Massachusetts and consist of a three-story building containing about 10,500
square feet and ten one-story buildings, aggregating about 67,000 square
feet. This division also currently leases about 25,000 square feet of
manufacturing space in a new building in Webster, Massachusetts. This plant
manufactures tape and related products for the electronic, telecommunication
and high technology industries.
Another division of the Company uses offices and a plant, owned by the
Company, that are located on three acres in Pittsburgh, Pennsylvania and
consist of thirteen buildings, three of which are used for offices, one of
which is rented as a residence and the rest of which are used as
manufacturing and warehouse facilities. These facilities, excluding the
residence, contain about 44,000 square feet and are used in the manufacture
and sale of protective coatings and tape products.
The Canadian division of the Company is engaged in the process of
laminating and slitting film, foils and papers for the wire and cable
industry. This division leases about 14,000 square feet of manufacturing
space in a modern building in Winnipeg, Manitoba, Canada.
The Company owns several one and two-story buildings, aggregating
approximately 200,000 square feet on 20 acres of land in Holbrook,
Massachusetts. This facility is currently under lease as the result of the
sale of the elastomeric materials division.
The above facilities range in age from new to about 100 years. They
generally are in good condition and, in the opinion of management, adequate
and suitable for present operations. The Company also owns equipment and
machinery that is in good repair and, in the opinion of management, adequate
and suitable for present operations. The Company could significantly add to
its capacity by increasing shift operations. Availability of machine hours
through additional shifts would provide expansion of current product volume
without significant additional capital investment.
Item 3. Legal Proceedings.
The Company has been named as a third party defendant in eighteen
personal injury lawsuits filed in state court in Jackson County, Mississippi.
These lawsuits, each of which has multiple plaintiffs and defendants, arose
out of alleged asbestos exposure by the plaintiffs as a result of their work
at the Ingalls Shipyard. The Company was sued as a third-party defendant by
USX Corporation, General Cable Corporation and G.K. Technologies, Inc., each
of whom is a primary defendant in these actions. USX, General Cable and G.K.
are alleged to have supplied wire and cable products containing asbestos to
the shipyard. The third-party complaints allege that tape products
containing asbestos were manufactured by the Company, sold to USX, General
Cable and G.K., and then incorporated in their wire and cable products sold
for use in the ships. USX, General Cable and G.K. are seeking
indemnification from the Company for damages that may be assessed against
them and expenses including legal fees.
The third-party claims against the Company, along with all other third-
party and crossclaims, were severed from the trial of the primary actions.
USX, General Cable and G.K. were each dismissed by the plaintiffs prior to
the commencement of trial of nine of the primary actions, which took place in
the summer of 1993. It is not known how much, if anything, each paid to
settle these claims. To date, no effort has been made by USX, General Cable
or G.K. to pursue the third-party claims against the Company arising out of
the resolution of any of the cases tried in the summer of 1993. Some of the
remaining primary actions remain pending, but it is not now known when those
cases will be tried, whether the plaintiffs will proceed against any of the
wire and cable manufacturers, including USX, General Cable or G.K., and
whether any of these defendants will, in turn, pursue their claims against
the Company.
The Company's liability insurer has assumed defense of these claims
subject to reservation of its rights as to coverage for any underlying
liability assessed.
In July 1994, the Company received a notice letter from General Cable
and G.K. that they have been sued in fourteen additional asbestos personal
injury lawsuits, ten of which are pending in Mississippi, two in Pennsylvania
and two in Texas. Each of these cases involves multiple plaintiffs and
defendants. This notice letter is an effort to bind the Company to the
factual determination made in these cases, if General Cable or G.K. brings an
action against the Company for indemnification arising out of these cases.
No such action for indemnification has yet been brought and the Company is
not now a party in any of these fourteen additional cases. The Company's
liability insurer has been informed that the Company has been notified of
these potential claims.
The Company is investigating the defenses available to it in connection
with all these matters and its rights against its supplier. Although the
Company cannot predict the outcome of these claims, management believes it
will not have any material financial impact on the Company.
See also Environmental Disclosures Caption.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the Company's last fiscal year.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock is traded on the American Stock Exchange
and also the Boston Stock Exchange (symbol CCF). The approximate number of
record holders of the Company's common stock on October 31, 1995 was 960.
The quarterly high and low sales prices for the Company's common stock
over the last two years were as follows:
Year ended August 31, 1995 Year ended August 31, 1994
Sales Price Sales Price
Quarter Ended High Low High Low
November 30 3 13/16 2 7/8 1 13/16 1 9/16
February 28 4 1/8 3 1/2 3 1/2 1 9/16
May 31 3 9/16 3 1/4 3 1/4 2 1/4
August 31 4 3/4 3 1/8 3 1/8 2 1/2
The Company paid cash dividends of ten cents ($0.10) per share on
November 30, 1995 and eight cents ($0.08) per share on November 30, 1994 to
shareholders of record of the Company's common stock on October 31, 1995
and October 31, 1994, respectively.
Item 6. Selected Financial Data.
1995 1994 1993 1992 1991*
Net Sales and other $32,734,893 $28,654,421 $25,894,603 $23,124,157 $21,672,678
operating revenues
Income from continuing 1,907,884 1,608,621 1,039,866 1,340,749 1,483,390
operations before
extraordinary items
Equity in earnings 19,951 - - - -
of unconsolidated
joint venture
Net (Loss) from
discontinued operations - - - (119,790) (109,974)
Divestment Expenses - - - - (157,061)
Income before cumulative 1,927,835 1,608,621 1,039,866 1,220,959 1,216,355
effect of accounting
change
Cumulative effect of - - - 6,164 -
change in method of
accounting for income
taxes
Net Income 1,927,835 1,608,621 1,039,866 1,227,123 1,216,355
Total Assets 20,002,586 18,134,618 14,747,462 14,651,492 11,737,210
Long-term debt and 6,464,260 2,897,976 1,772,080 1,150,000 370,000
capital leases
Per Common Share:
Income from continuing .42 .35 .24 .31 .35
operations fully diluted**
Cash dividends*** .10 .08 .06 .05 .05
*The financial data has been restated to reflect the sale of the elastomeric
materials division and the discontinuance of the Fuel Technology division.
**Restated to give retroactive effect to the ten percent stock dividend paid
on June 1, 1990 to shareholders of record as of May 1, 1990.
***Single annual payments declared and paid subsequent to fiscal year end.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED
STATEMENTS OF OPERATIONS
Years Ended August 31,
1995 1994 1993
(Dollars in thousands)
Net revenue..............................$32,735 $28,654 $25,894
Net Income...............................$ 1,928 $ 1,609 $ 1,040
Increase in net revenue from previous
year..................
Amount............................ $ 4,081 $ 2,760 $ 2,770
Percentage........................ 14% 11 % 12%
Increase(Decrease) in net income from
previous year......... $ 319 $ 569 $ (301)
Percentage of net revenue:
Net revenue....................... 100.0% 100.0% 100.0%
Expenses:
Cost of Sales............... 67.1 65.3 67.6
Selling, general and
aministrative expenses... 22.3 24.1 25.2
Other expenses.............. 1.2 1.2 .6
Income before income taxes........ 9.4 9.4 6.6
Provision for income taxes........ 3.5 3.8 2.6
Net Income........................ 5.9% 5.6% 4.0%
Results of Operations.
The Company's net sales for the year ended August 31, 1995 were $32.3
million, up from $28.1 million during fiscal year 1994 and $25.5 million
for fiscal 1993.
During the current fiscal year vs 1994, the Company's improved sales
were attributable largely to the Chase & Sons and Humiseal divisions.
While the Chase & Sons traditional wire and cable markets slowly continue
to decline, sales increased as a result of the Haartz Mason product line
acquisition. This division also continued to increase its market share of
shielding tapes used in electronic data cables and continued to improve the
sales of Megolon , a product sold through a distributorship agreement with
Lindsay & Williams, Ltd. Humiseal Division sales have increased due to
both improved market penetration and growing demand for conformal coatings
in non-defense applications. While the Canadian market remains very soft,
Chase Canada's sales increased primarily due to a new product line
acquisition and a more aggressive strategy that improved market share.
The sales increase during fiscal 1994, as compared to 1993 was largely
the result of an improved economy and its effect on the construction
industry that benefited both the Chase & Sons and Royston divisions. Chase
& Sons also received the benefit of the first full year of Megolon sales
along with an increase in sales of CHASE BLH2OCK , also a recently
introduced product. This improvement was somewhat offset by the sluggish
wire and cable market in Canada.
The cost of products was higher in fiscal 1995 compared to both 1994
and 1993. To a large extent, these increases were volume related. As a
percent of sales, cost of products increased to 67.8% in 1995 from 66.7% in
1994, a decrease from 1993 which was 68.8%. While overall manufacturing
expenses decreased and direct labor remained the same, raw material
increases negated the savings to manufacturing overhead. The Company's
markets are largely mature and some are highly competitive, resulting in
low margins. Competitive pressures prevent the recovery of all raw
material price increases from customers. Fiscal 1994 vs 1993 costs were
lower as a more favorable product mix enabled the Company to offset raw
material increases.
Selling and administrative expenses in 1995 increased by $384,000 and
$755,000 when compared to 1994 and 1993, respectively. However, as a
percent of sales, 1995 was 2.0% and 3.1% lower than the prior two
respective years. A large portion of the increase relates to higher
selling expenses associated with increased sales.
Bad debt expense for 1995 and 1993 was considerably lower and more
normal when compared to 1994. Fiscal 1994 provided for write-offs and
reserves established on certain accounts affected during a previously
difficult economic environment.
Interest expense increased to $396,000 in 1995 from $232,000 in 1994.
Reasons for the increase are higher interest rates this year versus last
year, increased bank debt to make certain product line acquisitions and to
acquire 25% ownership of The Stewart Group, Inc., the cost of carrying
higher inventories of selected items and the costs associated with
increased sales volume. During July 1995, the Company incurred an
additional obligation associated with the repurchase of shares and the buy
out of a Consulting and Non-Compete Agreement with a retired officer of the
Company. Interest expense in 1994 was higher than fiscal 1993 due to
funding needed for capital expenditures, product line acquisitions and
increased volume operational requirements. Some interest expense is offset
by interest income earned from the note receivable acquired as a result of
the elastomeric material division sale. The Company continues to benefit
from low borrowing rates from its lender providing funds at it's bank's
prime rate or a LIBOR-based rate, whichever is lower.
The continued solid operating performance over the past few years has
been a result of management's ability to respond quickly and effectively to
business issues and new opportunities while employing tight cost
containment policies where required. Management will continue this
consistent approach as it looks for methods to overcome the inability to
increase pricing to levels necessary to cover all increased costs.
The federal tax rates for the fiscal years 1995, 1994 and 1993 are
slightly lower when compared to the applicable rates because of export
sales through the Chase Export Corporation subsidiary.
Liquidity and Sources of Capital.
Cash flow generated from operations was $157,000 in 1995 as compared
to $2,822,000 in 1994. The primary reasons for the reduction relate to
increased inventory levels required to reduce the exposure of certain price
increases and projected shortages, an increase in trade receivables
associated with an increased sales level during the final two months of the
year of about 20% when compared to last year and cash associated with the
early buy out of the Consulting and Non-Compete Agreement referred to
above.
The ratio of current assets to current liabilities was 1.8 at the end
of the current fiscal year, compared to 1.6 and 1.7 at the end of the 1994
and 1993 fiscal years.
The unused available long-term credit amounted to $1,840,000 at August
1995, compared to $2,540,000 at August 1994. The Company has a long-term
credit arrangement that provides up to a maximum amount of $5,000,000 and
will utilize this means to help finance its interim needs in the coming
year. Current financial resources and anticipated funds from operations
are expected to be adequate to meet requirements for funds in the year
ahead.
Impact of Inflation.
Inflation has not had a significant long-term impact on earnings. In
the event of significant inflation, the Company's efforts to cover cost
increases would be hampered as a result of the competitive nature of the
products.
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary financial information required
to be filed hereunder may be located through the List of Financial
Statements and Schedules attached to this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to the names, ages, positions with the
Company, terms of office, periods of service, business experience, and
other directorships of the Company's Directors and Executive Officers is
incorporated herein by reference to Item 1A of the report and to the
Definitive Proxy Statement (under the caption "Election of Directors").
Item 11. Executive Compensation.
The information required in Item 11 is contained in the Definitive
Proxy Statement (under the caption "Executive Compensation"). Such
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding the ownership of the Company's common stock by
certain beneficial owners and by management is incorporated herein by
reference to the Definitive Proxy Statement under the captions "Principal
Holders of Voting Securities" and "Election of Directors."
Item 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions
with the Company's Directors and Executive Officers is incorporated herein
by reference to the Definitive Proxy Statement under the captions "Election
of Directors" and "Remuneration of Directors and Executive Officers."
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
See the List of Financial Statements and Schedules included in this
report for a list of the financial statements and schedules included with
this report and see the Exhibit Index included in this report for a list of
the exhibits required to be filed with this report. The Company filed a
current report on Form 8-K dated July 18, 1995 reporting the Stock
Redemption Agreement between the Company and Francis M. Chase. Copies of
any of the exhibits are available to beneficial shareholders as of the
record date (December 1, 1995) without charge upon written request to the
Investor Relations Department, Chase Corporation, 50 Braintree Hill Park,
Braintree, Massachusetts 02184.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 Date
By /s/ Peter R. Chase President and November 21, 1995
Peter R. Chase Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Capacity Date
By /s/ Peter R. Chase President, Chief November 21, 1995
Peter R. Chase Executive Officer and
Director (Principal
Executive Officer)
By /s/ Everett Chadwick, Jr. Treasurer and Chief November 21, 1995
Everett Chadwick, Jr. Financial Officer
(Principal Financial
and Accounting Officer)
By /s/ Edward L. Chase Director November 21, 1995
Edward L. Chase
By /s/ William H. Dykstra Director November 21, 1995
William H. Dykstra
By /s/ George M. Hughes Director November 21, 1995
George M. Hughes
By /s/ Ronald Levy Director November 21, 1995
Ronald Levy
By/s/Ernest E. Siegfriedt,Jr. Director November 21, 1995
Ernest E. Siegfriedt, Jr.
EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Organization (incorporated by reference from Exhibit 3 to
the Company's annual report on Form 10-K for the fiscal year ended
August 31, 1988)
3.2 By-Laws (incorporated by reference from Exhibit 3 to the Company's
annual report on Form 10-K for the fiscal year ended August 31, 1988)
3.3 Amendment to By-Laws (adding Article IV, Section 7) (incorporated by
reference from Exhibit 3.3 to the Company's annual report on Form 10-K
for the fiscal year ended August 31, 1990)
10.1 Split Dollar Insurance Agreement dated December 2, 1983 by and between
the Company and Edward L. Chase (incorporated by reference from
Exhibit 10.1 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1990)
10.2 Split Dollar Insurance Agreement dated December 2, 1983 by and between
the Company and Francis M. Chase (incorporated by reference from
Exhibit 10.2 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1990)
10.3 Edward L. Chase Consulting and Non-Compete Agreement (incorporated by
reference from Exhibit 10.3 to the Company's annual report on Form 10-
K for the fiscal year ended August 31, 1986)
10.4 Francis M. Chase Consulting and Non-Compete Agreement (incorporated by
reference from Exhibit 10.4 to the Company's annual report on Form 10-
K for the fiscal year ended August 31, 1986)
10.5 Nikit Ordjanian Consulting and Non-Compete Agreement (incorporated by
reference from Exhibit 10.5 to the Company's annual report on Form 10-
K for the fiscal year ended August 31, 1986)
10.6 Edward L. Chase Retirement and Succession Agreement (incorporated by
reference from Exhibit 10.6 to the Company's annual report on Form 10-
K for the fiscal year ended August 31, 1988)
10.7 Francis M. Chase Retirement and Succession Agreement (incorporated by
reference from Exhibit 10.7 to the Company's annual report on Form 10-
K for the fiscal year ended August 31, 1988)
10.8 Voting Agreement by and among the Company, Edward L. Chase, and
Francis M. Chase (incorporated by reference from Exhibit 10.8 to the
Company's annual report on Form 10-K for the fiscal year ended August
31, 1988)
10.9 Edward L. Chase Right of First Refusal (incorporated by reference from
Exhibit 10.9 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1988)
10.10 Francis M. Chase Right of First Refusal (incorporated by reference
from Exhibit 10.10 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1988)
10.11 Purchase and Sale Agreement dated October 26, 1990 by and between the
Company and Avon Custom Mixing Service, Inc. (incorporated by
reference from Exhibit 2.1 to the Company's Current Report on Form 8-K
dated October 26, 1990)
10.12 Equipment Lease dated October 26, 1990 by and between the Company and
Avon Custom Mixing Service, Inc. (incorporated by reference from
Exhibit 2.1 to the Company's Current Report on Form 8-K dated October
26, 1990)
10.13 Real Estate Lease dated October 26, 1990 by and between the Company
and Avon Custom Mixing Service, Inc. (incorporated by reference from
Exhibit 2.1 to the Company Current Report on Form 8-K dated October
26, 1990)
10.14 Amendment dated August 7, 1990 to Edward L. Chase Retirement and
Succession Agreement (incorporated by reference from Exhibit 10.14 to
the Company's annual report on Form 10-K for the fiscal year ended
August 31, 1990)
10.15 Amendment dated August 7, 1990 to Francis M. Chase Retirement and
Succession Agreement (incorporated by reference from Exhibit 10.15 to
the Company's annual report on Form 10-K for the fiscal year ended
August 31, 1990)
10.16 Amendment dated August 7, 1990 to Voting Agreement by and among the
Company, Edward L. Chase, Francis M. Chase (incorporated by reference
from Exhibit 10.16 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1990)
10.17 Amendment dated April 30, 1992 to Split Dollar Insurance Agreement
dated December 2, 1983 by and between the Company and Edward L. Chase
(incorporated by reference from Exhibit 10.17 to the Company's annual
report on Form 10-K for the fiscal year ended August 31, 1992)
10.18 Amendment dated April 30, 1992 to Split Dollar Insurance Agreement
dated November 10, 1987 by and between the Company and Edward L. Chase
and Claire Chase (incorporated by reference from Exhibit 10.18 to the
Company's annual report on Form 10-K for the fiscal year ended August
31, 1992)
10.19 Amendment dated April 30, 1992 to Edward L. Chase Consulting and Non-
Compete Agreement dated January 17, 1986 (incorporated by reference
from Exhibit 10.19 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1992)
10.20 Amendment dated August 31, 1992 to Split Dollar Insurance Agreement
dated December 2, 1983 by and between the Company and Francis M. Chase
(incorporated by reference from Exhibit 10.20 to the Company's annual
report on Form 10-K for the fiscal year ended August 31, 1992)
10.21 Amendment dated August 31, 1992 to Split Dollar Insurance Agreement
dated November 10, 1987 by and between the Company and Francis M.
Chase and Barbara Chase (incorporated by reference from Exhibit 10.21
to the Company's annual report on Form 10-K for the fiscal year ended
August 31, 1992)
10.22 Amendment dated April 30, 1992 to Francis M. Chase Consulting and
Non-Compete Agreement dated January 17, 1986 (incorporated by
reference from Exhibit 10.22 to the Company's annual report on Form
10-K for the fiscal year ended August 31, 1992)
10.23 Stock Redemption Agreement dated July 18, 1995 by and between the
Company and Francis M. Chase (incorporated by reference from Exhibit
99.1 to the Company's Current Report on Form 8-K dated July 18, 1995)
10.24 Amendment dated July 18, 1995 terminating the Consulting and Non-
Compete Agreement by and between the Company and Francis M. Chase.
22 Subsidiaries of the Company (incorporated by reference from Exhibit 22
to the Company's annual report on Form 10-K for the fiscal year ended
August 31, 1989)
List of Financial Statements and Schedules
Report of Independent Certified Public Accountants................... Fi
Consolidated Balance Sheets as of August 31, 1995 and
August 31, 1994................................................. F1-2
Consolidated Statements of Operations for each of the three
fiscal years in the period ended August 31, 1995................ F3
Consolidated Statements of Shareholders' Equity for each of
the three fiscal years in the period ended August 31, 1995...... F4
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended August 31, 1995................ F5
Notes to Consolidated Financial Statements........................... F6-20
Schedules:
VIII- Valuation and Qualifying Accounts and Reserves....... F21
CHASE CORPORATION AND SUBSIDIARY
BRAINTREE, MASSACHUSETTS
CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
AUGUST 31, 1995 AND 1994
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Chase Corporation
Braintree, Massachusetts
We have audited the consolidated balance sheets of Chase
Corporation and subsidiary as of August 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity
and cash flows for each year in the three year period ended August
31, 1995 and the schedule VIII, Valuation and Qualifying Accounts
and Reserves. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Chase Corporation and subsidiary at August
31, 1995 and 1994, and the consolidated results of their operations
and cash flows for each year in the three year period ended August
31, 1995, in conformity with generally accepted accounting
principles, and the schedule referred to above presents fairly, in
all material respects, when read in conjunction with the related
financial statements, the information therein set forth.
Wellesley Hills, Massachusetts
November 9, 1995
-Fi-
CHASE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS
Cash $ 108,587 $ 211,041
Trade receivables, less allowance for doubtful
accounts of $95,500 and $100,500, at August 31,
1995 and 1994, respectively 5,808,641 4,341,944
Inventories:
Finished and in process 1,647,181 1,632,759
Raw materials 3,145,151 2,159,124
4,792,332 3,791,883
Prepaid expenses 302,191 68,976
Other current assets 100,583 116,681
Note receivable from related parties,
current portion 207,166 131,154
Deferred income taxes 179,886 268,200
TOTAL CURRENT ASSETS 11,499,386 8,929,879
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 384,490 367,745
Buildings 2,455,077 2,388,447
Machinery and equipment 9,568,270 8,195,659
Construction in progress 44,346 898,127
12,452,183 11,849,978
Less allowances for depreciation 7,733,414 6,991,545
4,718,769 4,858,433
OTHER ASSETS
Excess of cost over net assets of acquired
businesses, less amortization 85,337 90,595
Patents, agreements and trademarks, less
amortization 1,335,822 1,434,316
Cash surrender value of life insurance, net of
loans of $158,049 and $171,675 at August 31,
1995 and 1994, respectively 1,397,822 2,226,193
Deferred income taxes 58,205 221,354
Note receivable from related parties 517,975 362,821
Investment in joint venture 382,270 -
Other 7,000 11,027
3,784,431 4,346,306
$20,002,586 $18,134,618
=========== ===========
See accompanying notes to the consolidated financial statements.
- F1 -
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
CURRENT LIABILITIES
Accounts payable $ 2,911,293 $ 2,164,553
Note payable to bank 81,851 -
Accrued payroll and other compensation 803,642 708,405
Accrued pension expense - current 384,556 760,200
Other accrued expenses 831,418 678,308
Federal taxes payable (42,510) 159,606
Deferred compensation 302,216 502,216
Current portion of long-term debt 1,208,726 554,896
TOTAL CURRENT LIABILITIES 6,481,192 5,528,184
LONG-TERM DEBT, less current portion 6,464,260 2,897,976
DEFERRED COMPENSATION 367,950 1,057,751
ACCRUED PENSION EXPENSE 284,832 -
COMMITMENTS (See Note G) - -
CONTINGENCIES (See Note M) - -
SHAREHOLDERS' EQUITY
First Serial Preferred Stock,
par value $1.00 a share:
Authorized 100,000 shares; none issued - -
Common Stock, par value $.10 a share:
Authorized 10,000,000 shares;
issued and outstanding 4,459,848 and
4,362,848 shares at August 31, 1995
and 1994, respectively 445,985 436,285
Additional paid-in capital 2,674,897 2,555,658
Treasury Stock, 1,037,693 and 0 shares of
Common Stock at August 31, 1995 and 1994,
respectively (3,990,400) -
Cumulative effect of currency translation (79,030) (116,929)
Retained earnings 7,352,900 5,775,693
6,404,352 8,650,707
$20,002,586 $18,134,618
=========== ===========
- F2 -
CHASE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
1995 1994 1993
Revenue:
Sales $32,332,541 $28,090,221 $25,458,187
Commissions and other income 345,898 524,619 408,000
Interest 56,454 39,581 28,416
32,734,893 28,654,421 25,894,603
Costs and expenses:
Costs of products and services sold 21,957,684 18,716,114 17,509,252
Selling, general and administrative
expenses 7,274,612 6,890,894 6,519,564
Bad debt expense 23,815 126,568 18,777
Interest expense 396,020 223,321 139,747
29,652,131 25,956,897 24,187,340
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 3,082,762 2,697,524 1,707,263
Income taxes 1,174,878 1,088,903 667,397
INCOME FROM OPERATIONS 1,907,884 1,608,621 1,039,866
Equity in earnings of unconsolidated
joint venture 19,951 - -
NET INCOME $ 1,927,835 $ 1,608,621 $ 1,039,866
========= ========== ===========
Income from operations
per share of Common Stock
Primary $ .43 $ .36 $ .24
===== ===== =====
Fully diluted $ .42 $ .35 $ .24
===== ===== =====
Net income per share of Common Stock
Primary $ .43 $ .36 $ .24
===== ===== =====
Fully diluted $ .43 $ .35 $ .24
===== ===== =====
See accompanying notes to the consolidated financial statements.
- F3 -
CHASE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
CUMULATIVE
ADDITIONAL EFFECT OF
COMMON STOCK PAID-IN TREASURY STOCK RETAINED CURRENCY SHAREHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS TRANSLATION EQUITY
Balance at August 31,
1992 4,258,348 $425,835 $2,408,313 - - $3,595,624 $ (4,497) $6,425,275
Cash dividend paid,
$0.05 per share - - - - - (212,917) - (212,917)
Currency translation
adjustment - - - - - - (80,961) (80,961)
Net income - - - - - 1,039,866 - 1,039,866
Balance at August 31,
1993 4,258,348 425,835 2,408,313 - - 4,422,573 (85,458) 7,171,263
Cash dividend paid,
$0.06 per share - - - - - (255,501) - (255,501)
Currency translation
adjustment - - - - - - (31,471) (31,471)
Exercise of stock option
at $1.51 per share 104,500 10,450 147,345 - - - - 157,795
Net income - - - - - 1,608,621 - 1,608,621
Balance at August 31,
1994 4,362,848 436,285 2,555,658 - - 5,775,693 (116,929) 8,650,707
Cash dividend paid,
$0.08 per share - - - - - (350,628) - (350,628)
Currency translation
adjustment - - - - - - 37,899 37,899
Exercise of stock
options 97,000 9,700 210,770 - - - - 220,470
Purchase of Treasury
Stock - - - 1,302,693 (5,009,431) - - (5,009,431)
Sale of Treasury Stock - - (91,531) (265,000) 1,019,031 - - 927,500
Net income - - - - - 1,927,835 - 1,927,835
Balance at August 31,
1995 4,459,848 $445,985 $2,674,897 1,037,693 $(3,990,400)$7,352,900 $ (79,030) $6,404,352
========= ======== ========= ========= =========== ========== ========= =========
See accompanying notes to the consolidated financial statements.
- F4 -
CHASE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,927,835 $ 1,608,621 $1,039,866
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 741,869 679,138 640,172
Amortization 104,027 31,971 10,683
(Gain) loss on disposal of assets - (100,239) 393
Increase (decrease) in provision
for losses on trade receivables (5,000) 25,500 -
Deferred federal tax (credit) 251,463 122,000 109,908
Change in assets and liabilities:
Trade receivables (1,461,697) 178,310 (214,761)
Inventories (1,000,449) 54,088 (46,317)
Prepaid expenses (233,215) 862 (35,785)
Other current assets 16,098 (73,394) 61,860
Other assets 4,027 3,454 (7,183)
Accounts payable 746,740 (49,794) (317,128)
Accrued expenses 157,535 509,043 (466,035)
Federal taxes payable (202,116) 119,087 (151,515)
Deferred compensation (889,801) (286,220) (310,532)
TOTAL ADJUSTMENTS (1,770,519 ) 1,213,806 (726,240)
NET CASH FROM OPERATIONS 157,316 2,822,427 313,626
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds of note receivable 131,153 119,326 133,333
Proceeds of equipment sales - 4,500 4,000
Capital expenditures including patents
and agreements (602,479) (1,697,918) (581,914)
Cumulative effect of currency translation 37,899 (31,471) (80,961)
Decrease (Increase) in net cash surrender
value 828,371 (163,769) (94,956)
Investment in joint venture (382,271) - -
Note received from joint venture (362,319) - -
Mortgage payments received - 2,100 1,985
(349,646) (1,767,232) (618,513)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt 11,935,099 6,941,000 4,100,000
Payments of principal on debt (7,714,985)(7,682,904) (3,565,374)
Net borrowing under line-of-credit 81,851 (41,690) (46,174)
Cash dividends paid (350,628) (255,501) (212,917)
Cash received on options exercise 220,470 157,795 -
Purchase of Common Shares for Treasury (5,009,431) - -
Sale of Common Shares from Treasury 927,500 - -
89,876 (881,300 275,535
NET CHANGE IN CASH (102,454) 173,895 (29,352)
CASH AT BEGINNING OF YEAR 211,041 37,146 66,498
CASH AT END OF YEAR 108,587 $ 211,041 $ 37,146
======== ========== =========
See Note N for supplemental cash flow data.
See accompanying notes to the consolidated financial statements.
- F5 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE A - ACCOUNTING POLICIES
The principal accounting policies of Chase Corporation ("the
Company") and its subsidiary are as follows:
Basis of Presentation
The financial statements include the accounts of the Company
and its foreign sales corporation subsidiary. Investments in
unconsolidated companies which are at least 20% owned are carried at cost
plus equity in undistributed earnings since acquisition. All significant
intercompany transactions and balances have been eliminated in
consolidation. The Company uses the U.S. dollar as the functional currency
for financial reporting.
Products and Markets
The Company's principal products are protective coatings and
tape products that are sold in national and international markets. These
products consist of: (i) insulating and conducting materials for the
manufacture of electrical and telephone wire and cable, and electrical
splicing, terminating and repair tapes which are marketed to wire and cable
manufacturers and public utilities; (ii) protective pipe coating tapes and
other protectants for valves, regulators, casings, joints, metals,
concrete, and wood that are sold to oil companies, gas utilities and
pipeline companies; (iii) protectants for highway bridge deck metal
surfaces which are sold to public works departments; (iv) thermo-electric
insulation for transformers, motors, and other electrical equipment that
are sold to original equipment manufacturers, and (v) moisture protective
coatings that are sold to the electronics industry.
Cash
For the purpose of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Inventories
Inventories are stated at first-in, first-out cost, which is
not in excess of market.
Property, Plant and Equipment
These assets are reflected at cost. Provisions for
depreciation of property, plant and equipment were computed by both
straight-line and accelerated methods.
- F6 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE A - ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment (Continued)
Expenditures for maintenance repairs and minor renewals have
been charged to expense as incurred. Betterments and major renewals have
been capitalized. Upon retirement or other disposition of assets, related
allowances for depreciation and amortization have been eliminated from the
accounts and any resulting profit or loss reflected in consolidated net
income. The annual provisions for depreciation have been computed
principally in accordance with the following range of rates:
Buildings - 4% to 7%
Machinery and equipment - 10% to 20%
Excess of Cost Over Net Assets of Acquired Businesses
The excess of cost over the fair value of net assets of
acquired businesses is being amortized over forty years or until the
disposal of the acquired business.
Patents and Agreements
Patents and agreements are stated at cost and are being
amortized over periods of fifteen, seventeen and twenty years.
Investment in Joint Venture
The Company is a 25% participant in a joint venture with The
Stewart Group, Ltd. of Canada to produce products for the fiber optical
cable industry. The investment is accounted for on the equity method.
Pension Plan
The projected unit credit method is utilized for measuring net
periodic pension cost over the employee's service life.
Deferred Compensation
The net present value of the estimated payments to be made
under agreements for deferred compensation is accrued over the period of
active employment from the time of the agreement to the anticipated date of
retirement.
Translation of Foreign Currency
The financial position and results of operations of the
Company's Canadian branch are measured using the Canadian dollar as the
functional currency. Revenues and expenses of the branch have been
translated at average exchange rates. Assets and liabilities have been
translated at the year-end exchange rate. Translation gains and losses are
being deferred as a separate component of shareholders' equity, unless
there is a sale or liquidation of the underlying foreign investments. The
Company has no present plans for the sale or liquidation of its foreign
investment. Aggregate foreign currency transaction gains and losses are
included in determining net income ($6,398 loss for the year ended August
31, 1995).
- F7 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE A - ACCOUNTING POLICIES (Continued)
Income Taxes
The Company has adopted the method of accounting for income
taxes of SFAS No. 109. This method compares the tax basis and financial
reporting basis of the Company's assets and liabilities and recognizes the
related tax benefits and liabilities under enacted tax law. Assets arising
from future tax benefits are recognized when it is more likely than not
that the Company will have sufficient future taxable income or has had
sufficient taxable income in the available carryback period to allow
realization of the tax asset. A valuation allowance is provided for
potential limitations on the realization of future benefits.
Income Per Share of Common Stock
Income per share is computed based upon the weighted average
number of shares outstanding, after giving effect to the number of shares
purchased for Treasury and the dilutive effect of potential stock options.
The number of shares used in the computation of primary income per share as
restated was 4,474,854 at August 31, 1995, 4,519,013 at August 31, 1994 and
4,319,970 at August 31, 1993. Fully diluted income per share was computed
based upon 4,490,413 shares at August 31, 1995 and 4,544,623 shares at
August 31, 1994. There were no dilutive securities at August 31, 1992.
NOTE B - NOTE RECEIVABLE
The Company has a note receivable from Avon Custom Mixing
Service, Inc., the purchaser of its Avon Custom Mixing Division, secured by
the assets of the purchaser. Effective May 1993, the previous annual
payment schedule that provided for a single annual payment of $100,000 has
been renegotiated to provide for monthly payments of $8,333 with interest
payable at First National Bank of Boston base rate (8.75% at August 31,
1995). The balance of the existing note was increased by $250,000 upon
exercise by Avon Custom Mixing Service, Inc. of its option to purchase the
equipment leased to it by Chase Corporation. The note was discounted by
$25,977 to yield base rate plus two percent. Avon Custom Mixing Service,
Inc. was acquired by a related party on July 31, 1992.
The Company has advanced $362,319 to Stewart Group, Inc. of
which it is a twenty-five percent shareholder (see Note O), with interest
at Royal Bank of Canada prime.
NOTE C - CASH SURRENDER VALUE OF LIFE INSURANCE
The Company recognizes cash surrender value in life insurance
policies net of loans secured by the policies, with Aurora National Life
Assurance Company and the Manufacturers' Life Insurance Company, Sun Life
Assurance Company of Canada and Metropolitan Life Insurance of $690,963;
$661,816; $15,210; and $29,833, respectively. Subject to periodic review,
the Company intends to maintain these policies through the lives of the
insureds.
- F8 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following at August 31, 1995 and 1994:
1995 1994
Note payable to bank with payments of interest
only through March 1, 1996 at LIBOR plus two
percent, currently at 7.94%. A single
principal payment is due March 1, 1998 with
prepayments allowed at the Company's option.
The note is secured by all assets. $3,000,000 $1,300,000
Note payable to bank in quarterly installments
of $160,000 through July 2000 with interest
at LIBOR plus two and three quarters percent,
currently at 8.64%. The note is secured by
all assets. 3,200,000 -
Capitalized lease obligation with monthly
payments of $15,418, including interest at
7.514% through May 1999, secured by
production equipment with a cost of $897,000
and accumulated depreciation of $44,850. 591,365 726,387
Capitalized lease obligation with monthly
payments of $2,539, including interest at
6.85% through August 1998, secured by
production equipment with a cost of $130,335
and accumulated depreciation of $19,550. 80,344 104,404
Term note payable to bank with principal
payments of $125,000 per quarter with
interest at the bank's base rate, currently
at 8.75%. The note is secured by all assets. 750,000 1,250,000
Capitalized lease obligation with monthly
payments of $1,988, including interest at
7.602% through November 1997, secured by
a computer with a cost of $99,590 and
accumulated depreciation of $49,795. 47,513 66,946
Capitalized lease obligation with monthly
payments of $142, including interest at
7.44% through February 1998, secured by
computer peripheral equipment with a cost
of $7,150 and accumulated depreciation
of $3,575. 3,764 5,135
7,672,986 3,452,872
Less portion payable within one year
classified as a current liability. 1,208,726 554,896
$6,464,260 $2,897,976
========== ==========
- F9 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE D - LONG-TERM DEBT (Continued)
The Company has long-term credit available up to a maximum
amount of $5,000,000 at the bank's base lending rate or, at the option of
the Company, at the effective London Interbank Offered Rate (LIBOR) for
ninety days plus two percent. The line of credit is secured by all assets
and is limited to 50% of inventory and 80% of current receivables. The
Company had net borrowings of $3,000,000 and $1,300,000 under the credit
agreement at August 31, 1995 and 1994, respectively. The unused available
long-term credit amounted to $1,840,000 at August 31, 1995.
NOTE E - NOTE PAYABLE TO BANK
The Company has a short-term credit facility at one half
percent over prime (9.25% at August 31, 1995) with a Canadian bank secured
by a letter of credit.
NOTE F - INCOME TAXES
A reconciliation of federal income taxes computed at
applicable rates of income from continuing operations before income taxes
to the amounts provided in the consolidated financial statements is as
follows:
Year Ended August 31,
1995 1994 1993
Federal income taxes at applicable
rates 1,048,139 $ 944,133 $ 580,469
Adjustments resulting from the tax
effect of:
Increase in cash surrender value
of life insurance (116,384) (106,783) (64,790)
Benefit plans not qualified for
deduction from federal tax 108,678 98,195 64,006
Compensation deduction allowed
for stock option exercise - (36,209) -
State and local taxes net of
federal tax effect 167,239 175,625 116,288
Other (32,794) 13,942 (28,576)
INCOME TAXES $1,174,878 $1,088,903 $ 667,397
========== ========= ========
- F10 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE F - FEDERAL INCOME TAXES (Continued)
Year Ended August 31,
1995 1994 1993
Current $ 923,415 $ 966,903 $ 557,489
Deferred (benefit):
Pension expense 36,345 (48,943) 43,559
Depreciation (96,957) 44,765 (44,264)
Allowance for doubtful accounts 2,000 (10,200) -
Deferred compensation 338,617 149,442 102,387
Deferred state taxes 24,000 (24,800) 8,226
Reserve (52,542) 11,736 -
Total Deferred 251,463 122,000 109,908
$1,174,878 $1,088,903 $ 667,397
========= ========= ========
The timing differences that give rise to the components of net
tax assets are as follows at August 31, 1995 and 1994:
1995 1994
Assets:
Reserve for bad debt $ 38,200 $ 40,200
Patents and agreements 38,761 38,761
Pension accrual 267,735 304,080
State tax accrual 20,800 44,800
Deferred compensation 267,683 606,300
633,179 1,034,141
Less valuation allowance 56,000 108,542
577,179 925,599
Liabilities:
Depreciation 339,088 436,045
Net Assets $ 238,091 $ 489,554
========== ============
NOTE G - OPERATING LEASES
The following is a schedule by years of future minimum rental
payments required under operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of August 31, 1995:
Year Ending August 31, Buildings
1996 $216,434
1997 201,761
1998 106,714
1999 14,034
$538,943
========
- F11 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE G - OPERATING LEASES (Continued)
Total rental expense for all operating leases amounted to
$340,068, $348,260, and $371,768 for the years ended August 31, 1995, 1994 and
1993, respectively.
- F12 -
NOTE H - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for 1995, 1994 and 1993, is as follows:
Quarter
1995 First Second Third Fourth Year
Net sales $7,833,974 $7,289,315 $8,694,676 $8,514,576 $32,332,541
Gross profit $2,671,974 $2,265,740 $2,587,647 $2,849,496 $10,374,857
Net income $553,384 $352,651 $395,467 $626,333 $1,927,835
Net income per
Common share $.12 $.08 $.09 $.14 $.43
==== ==== ==== ==== ====
Quarter
1994 First Second Third Fourth Year
Net sales $7,259,166 $6,286,423 $7,075,756 $7,468,876 $28,090,221
Gross profit $2,472,460 $2,047,550 $2,321,112 $2,532,985 $9,374,107
Net income $459,623 $295,992 $342,105 $510,901 $1,608,621
Net income per
common share $.11 $.07 $.08 $.09 $.35
==== ==== ==== === ====
Quarter
1993 First Second Third Fourth Year
Net sales $6,468,082 $6,291,039 $6,171,951 $6,527,115 $25,458,187
Gross profit $2,149,776 $1,735,972 $1,864,715 $2,198,472 $7,948,935
Net income $337,026 $215,410 $217,853 $269,577 $1,039,866
Net income per
common share $.08 $.05 $.05 $.06 $.24
==== ==== ==== ==== ====
- F13 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE I - EXPORT SALES AND FOREIGN OPERATIONS
Export sales from continuing domestic operations to
unaffiliated third parties were $2,764,170, $2,486,448, and $2,153,733 for
the years ended August 31, 1995, 1994 and 1993, respectively. The
Company's products are sold world-wide with no foreign geographic area
accounting for more than 10 percent of revenues from continuing operations.
The Company's Canadian operations accounted for 7.1 percent of consolidated
sales and 9.2 percent of assets.
NOTE J - RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense amounted to approximately
$511,355, $593,536, and $471,000 for the years ended August 31, 1995, 1994
and 1993, respectively.
NOTE K - BENEFITS
401(K) Plan
The Company has a deferred compensation plan adopted pursuant
to Section 401(k) of the Internal Revenue Code of 1986. Any qualified
employee who has attained age 21 and has been employed by the Company for
at least six months may contribute a portion of their salary to the plan
and the Company will match 50% of such contribution up to an amount equal
to three percent of such employee's yearly salary.
Pension Plan
The Company has non-contributory defined benefit pension plans
covering substantially all employees. Total pension expense, including the
net periodic pension cost and the effects of settlements, was $275,188,
$370,383 and $333,724 for the years ended August 31, 1995, 1994 and 1993,
respectively. The Company has a funded, qualified plan and an unfunded
supplemental retirement plan designed to maintain benefits for all
employees at the plan formula level.
- F14 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE K - BENEFITS (Continued)
Net pension expense components: Year Ended August 31,
1995 1994 1993
Service cost of benefits earned
during the period $164,024 $143,626 $ 139,605
Interest cost on projected benefit
obligations 200,022 189,163 237,926
Return on plan assets (184,866) (114,267) (187,098)
Amortization of excess of plan assets
and accrued pension expense over
projected benefit obligation at
September 1, 1986 (6,999) (8,768) (10,664)
Amortization of unrecognized prior
service cost 3,886 3,886 15,731
Deferred gain or (loss) - 5,405 35,604
Amortization of unrecognized net loss 99,121 24,191 23,488
Net periodic pension cost before
settlement costs $275,188 $ 243,236 $ 254,592
======== ========= =======
The following table sets forth the actuarial present value of
benefit obligations and funded status.
August 31,
1995 1994 1993
Accumulated benefit obligations,
including vested benefits of
$1,903,479, $1,663,789 and
$2,059,109 at August 31, 1995,
1994 and 1993, respectively $ 1,935,313 $ 2,086,627 $ 2,086,627
=========== =========== ===========
Projected benefit obligations $(3,336,642) $(2,586,305) $(2,880,576)
Plan assets at fair value,
including prefunded amounts 1,778,327 1,295,959 1,673,987
Funded status (1,558,315) (1,290,346) (1,206,589)
Unrecognized net loss 612,884 544,935 504,271
Unrecognized prior service cost 311,036 27,203 125,852
Unamortized net transition assets (34,993) (41,992) (61,376)
(Accrued) pension expense $ (669,388) (760,200) $ (637,842)
========== ========== ==========
- F15 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE K - BENEFITS (Continued)
The net transition assets amount is being amortized at a level
rate over 15 years. The actuarial calculations were based on
assumptions of a weighted average discount rate of 7.5% and a future
rate of increase in compensation levels of 5%. The expected rate of
return on plan assets is 10%. Prior service cost arose from the
amendment of the plan's benefit schedules to comply with the Tax
Reform Act of 1986 (TRA) and adoption of the unfunded supplemental
pension plan.
The pension plan recorded net losses on settlement of $127,147
and $79,132 during the years ended August 31, 1994 and 1993,
respectively. The settlements occurred due to lump sum retirement
payments exceeding the amount of the pension obligation arising from
the service cost and interest cost components of the net periodic
pension cost.
Deferred Compensation
The Company had deferred compensation agreements with two
former officers providing for post retirement health benefits and
annual payments of $200,000 for each officer through August 31, 1998.
The agreement with one of the officers was settled during July 1995
for $579,000, representing the net present value of the remaining
liability. The remaining agreement continues in force.
Additionally, life insurance is provided under a split dollar
life insurance agreement whereby the Company will recover the premiums
paid from the proceeds of the policies. The Company recognizes an
offset to expense for the growth in the cash surrender value of the
policies.
The Company also has an agreement with its former Chairman of
the Board, who retired August 31, 1991, that the Company will make ten
annual payments of $58,000 to him or his beneficiaries.
Stock Option Plans
1989 Non-Statutory Plan - Options to purchase 612,000 shares
of Common Stock were granted to officers, senior employees, and
independent directors. Options on 249,500 shares of Common Stock are
currently outstanding. The options are exercisable at the fair market
value of the shares at the date of grant adjusted for stock dividends.
Directors' options vest ratably over a two year period and officer and
employee options vest over a four year period. All options are fully
vested. The options expire seven years from the date of grant, one
year after ceasing to be a director, or at various times up to six
months after termination as an employee. Options on 5,500 and 27,500
shares were forfeited during the years ended August 31, 1994 and 1993,
respectively. Options on 97,000 shares were exercised during the year
ended August 31, 1995.
- F16 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE K - BENEFITS (Continued)
1995 Stock Option Plan - Effective July 18, 1995, the Company
adopted, subject to stockholder approval, a stock award plan and an
incentive plan which permit the issuance of options and restricted stock to
selected employees of the Company. The plans reserve 600,000 shares of
Common Stock for grant.
Under the terms of the 1995 stock option plan, options granted
may be either nonqualified or incentive stock options and the exercise
price may not be less than the fair market value of a share at the date of
grant. The board of directors approved issuance of 450,000 options at
$3.50, the market value at July 18, 1995. The options vest ratably over
ten years. In addition, the Board of Directors granted 150,000 shares of
restricted common stock to the Company's CEO, Mr. Peter Chase, at no cost.
Other than the restrictions which limit the sale and transfer of these
shares, Mr. Chase is entitled to all rights of a shareholder.
Officers and
Directors Employees
August 31, 1993
Issued and outstanding 154,000 302,500
Exercisable 154,000 285,032
Exercise price per share $1.24 - $1.43 $1.51
August 31, 1994
Issued and outstanding 154,000 192,500
Exercisable 154,000 192,500
Exercise price per share $1.24 - $1.43 $1.51
August 31, 1995
Issued and outstanding 77,000 622,500
Exercisable 77,000 172,500
Exercise price per share $1.24 - $1.43 $3.50
Options exercisable and exercise prices are shown after
adjustment for 10% stock dividend issued June 1, 1990.
Stock option plan activity was as follows:
Officers and
Directors Employees
Outstanding August 31, 1993 154,000 302,500
Exercises - (104,500)
Forfeitures - (5,500)
Outstanding August 31, 1994 154,000 192,500
Grants (1995 stock option plan) - 450,000
Exercises (77,000) (20,000)
Outstanding August 31, 1995 77,000 622,500
======= ========
- F17 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE L - CONTINGENCIES
Environmental
The Company is aware of potential claims concerning a site in
Bruin, Pennsylvania where an affiliate of the Company had sponsored
research into experimental oil and coal-based fuels in the early 1980s. In
August 1991, a spill of the affiliate's stored material occurred at the
Bruin site, apparently due to vandalism of the storage tanks. Upon
learning of the spill, the Company provided notice of the release to
appropriate authorities and undertook to remedy the spill. The remedy was
completed in October 1992 under plans approved by the Pennsylvania
Department of Environmental Protection ("Pennsylvania DEP"). The Company
believes that this work terminated its liabilities for the spill, but
Pennsylvania DEP has not provided a final release.
The Bruin site had been used for many years for a variety of
oil refining operations by unrelated parties. The site has significant
contamination from those unrelated activities. Since the spill of the
material remedied by the Company, the U.S. Environmental Protection Agency
has conducted an investigation of the site, conducted emergency clean-up
activities at the site focused on materials other than the affiliate's
material and spill, and turned responsibility for the site back to
Pennsylvania DEP. To date, EPA has not made any claim against the Company.
During 1993 to 1995, Pennsylvania DEP has conducted an
investigation of the site, has completed a surface cleanup, and has
proposed a permanent remedy. Pennsylvania DEP has notified the Company
that it may be a person responsible under Pennsylvania law to contribute to
the costs of those activities. During 1995, Pennsylvania DEP suggested
that the Company contribute an amount toward the costs of the investigation
and the surface cleanup in an attempt to settle with the Company. While
the amount was not deemed material, the Company still believes that the
work previously performed to remedy the spill terminated its liabilities
and therefore declined the proposal. Pennsylvania DEP has not presented a
claim against the Company with respect to the permanent remedy.
The Company remains in communication with Pennsylvania DEP,
and expects that it will eventually determine that the Company resolved any
potential liability at the site by its response to the 1991 spill.
Legal
The Company has been named as a third-party defendant in
eighteen personal injury lawsuits filed in state court in Jackson County,
Mississippi. These lawsuits, each of which has multiple plaintiffs and
defendants, arose out of alleged asbestos exposure by the plaintiffs as a
result of their work at the Ingalls Shipyard. The Company was sued as a
third-party defendant by USX Corporation,
- F18 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE L - CONTINGENCIES (Continued)
Legal (Continued)
General Cable Corporation and G.K. Technologies, Inc. each of whom is a
primary defendant in these actions. USX, General Cable and G.K. are
alleged to have supplied wire and cable products containing asbestos to the
shipyard. The third-party complaints allege that tape products containing
asbestos were manufactured by the Company, sold to USX, General Cable and
G.K., and then incorporated in their wire and cable products sold for use
in the ships. USX, General Cable and G.K. are seeking indemnification from
the Company for damages that may be assessed against them and expenses
including legal fees.
The third-party claims against the Company, along with all
other third-party and crossclaims, were severed from the trial of the
primary actions. USX, General Cable and G.K. were each dismissed by the
plaintiffs prior to the commencement of trial of nine of the primary
actions, which took place in the summer of 1993. It is not known how much,
if anything, each paid to settle these claims. To date, no effort has been
made by USX, General Cable and G.K. to pursue the third-party claims
against the Company arising out of the resolution of any of the cases tried
in the summer of 1993. Some of the remaining primary actions remain
pending, but it is not now known when those cases will be tried, whether
the plaintiffs will proceed against any of the wire and cable
manufacturers, including USX, General Cable or G.K., and whether any of
these defendants will, in turn, pursue their claims against the Company.
The Company's liability insurer has assumed defense of these
claims subject to reservation of its rights as to coverage for any
underlying liability assessed.
In July 1994 the Company received a notice letter from General
Cable and G.K. that they have been sued in fourteen additional asbestos
personal injury lawsuits, ten of which are pending in Mississippi, two in
Pennsylvania and two in Texas. Each of these cases involves multiple
plaintiffs and defendants. This notice letter is an effort to bind the
Company to the factual determination made in these cases, if General Cable
or G.K. brings an action against the Company for indemnification arising
out of these cases. No such action for indemnification has yet been
brought and the Company is not now a party in any of these fourteen
additional cases. The Company's liability insurer has been informed that
the Company has been notified of these potential claims.
The Company is investigating the defenses available to it in
connection with all these matters and its rights against its supplier.
Although the Company cannot predict the outcome of these claims, management
believes it will not have any material financial impact on the Company.
- F19 -
CHASE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH YEAR IN THE THREE YEAR PERIOD ENDED AUGUST 31, 1995
NOTE M - SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
1995 1994 1993
Income taxes $730,000 $630,690 $531,345
Interest $396,020 $223,321 $139,747
The Company acquired computer equipment valued at $106,740
under capitalized leases during the year ended August 31, 1993.
The Company acquired production equipment valued at $903,415
under capitalized leases during the year ended August 31, 1994.
During the year ended August 31, 1994, the Company sold the
equipment formerly leased to Avon Custom Mixing Service, Inc. for a note
receivable, with interest at bank base rate plus two percent of $224,023.
The equipment had a cost of $1,496,392 and accumulated depreciation of
$1,368,500.
The Company acquired the tape products line of Haartz Mason,
Inc., consisting of inventory of $619,265, receivables of $521,735,
equipment valued at $100,000 and formulas and various agreements and
customer lists valued at $1,408,460 financed by a term note payable of
$1,500,000 and cash of $1,149,460. The cash portion of the purchase was
assigned to formulas and agreements and is reflected in the cash flow
statement. The acquired formulas and agreements are being amortized
ratably over 15 years.
NOTE N - ACQUISITION OF PRODUCT LINES
In addition to the tape products line of Haartz Mason, Inc.,
(See Note M), the Company acquired, in May 1992, the tape products line of
The Stewart Group, Ltd., a Canadian corporation. The entire purchase price
of $CAN 950,000 (approximately $US 760,000) was assigned to the acquired
equipment.
NOTE O - JOINT VENTURE
The Company has formed a joint venture, The Stewart Group,
Inc., with The Stewart Group, Ltd. of Canada, to produce various products
for the fiber optical cable market. Chase Corporation invested $362,319
during June 1995 for a twenty-five percent interest in Stewart Group, Inc.
- F20 -
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
CHASE CORPORATION AND SUBSIDIARY
COL. A COL. B COL. C COL. D COL. E
BALANCE AT (1) (2) BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO END OF
DESCRIPTION OF PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
Year ended August 31, 1995:
Allowance for doubtful
accounts $100,500 $23,815 $28,815 $95,500
Year ended August 31, 1994:
Allowance for doubtful
accounts $75,000 $126,568 $101,068 $100,500
Year ended August 31, 1993:
Allowance for doubtful
accounts $75,000 $18,777 $18,777 $75,000
Deductions are charged to accounts receivable when specific accounts are judged to be uncollectable.
- F21 -
Exhibit 10.24
AGREEMENT
This Agreement is entered into this 18th day of July, 1995
between Chase Corporation, a Massachusetts corporation (the
"Company") and Francis M. Chase ("Mr. Chase"), who resides at 449
Jerusalem Road, Cohasset, MA.
By a document dated of even date, the Company has entered into
an agreement to repurchase all of the outstanding shares of stock of
the Company owned by Mr. Chase. The parties deem it in the best
interests of the Company and Mr. Chase to amend the Consulting and
Non-compete Agreement dated January 17, 1986 between the Company and
Mr. Chase (the "Consulting Agreement") as well as to amend Mr.
Chase's benefits program.
The parties hereby agree as follows:
1. The Consulting and Non-compete Agreement is hereby
terminated in exchange for the payment made hereby from the Company
to Mr. Chase of $573,080.44.
2. The Board of Directors of the Company approved certain
retirement benefits for Mr. Chase by resolution dated March 15, 1988.
In light of the termination of the consulting and non-compete
payments provided for in the foregoing paragraph, it is desirable to
resolve future payments due under the foregoing board resolution
relating to automobile and health benefits by the payment hereby to
Mr. Chase of $41,935.69.
This Agreement is intended to take effect as a document under
seal and shall be governed by the substantive laws of the
Commonwealth of Massachusetts.
CHASE CORPORATION
BY: /s/ Peter R. Chase
President & C.E.O.
BY: /s/ Francis M. Chase