-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mw/Ts8iSWipGIw6SdOhDxv3ThYewdNP1BD6jAyzP/C54V73GZ2x/sNalvUYvcIm9 qlfZ8WOUYRYm53HfpG8YLw== 0000830524-95-000011.txt : 19951130 0000830524-95-000011.hdr.sgml : 19951130 ACCESSION NUMBER: 0000830524-95-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951128 SROS: AMEX SROS: BSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHASE CORP CENTRAL INDEX KEY: 0000830524 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 111797126 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09852 FILM NUMBER: 95596581 BUSINESS ADDRESS: STREET 1: 50 BRAINTREE HILL PARK STREET 2: STE 220 CITY: BRAINTREE STATE: MA ZIP: 02184 BUSINESS PHONE: 6178482810 MAIL ADDRESS: STREET 2: 50 BRAINTREE HILL PARK STE 220 CITY: BRAINTREE STATE: MA ZIP: 02184 10-K 1 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 EX-27 2
5 This schedule contains summary financial information extracted from SEC Form 10-K and is qualified in its entirety by reference to such financial statements. YEAR AUG-31-1995 AUG-31-1995 108,587 0 5,904,141 95,500 4,792,332 11,499,386 12,452,183 7,733,414 20,002,586 6,481,192 6,464,260 445,985 0 0 5,958,367 20,002,586 32,332,541 32,734,893 21,957,684 21,957,684 0 23,815 396,020 3,082,762 1,174,878 1,907,884 0 0 0 1,927,835 0.43 0.43
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