SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended February 28, 2003 Commission File Number:1-9852
CHASE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts | 11-1797126 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation of organization) | Identification No.) | |
26 Summer St. | ||
Bridgewater, Massachusetts | 02324 | |
(Address of principal executive offices) | (Zip Code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Yes X |
No |
Common Shares Outstanding as of January 31, 2003 | 4,047,317 |
Part 1: FINANCIAL INFORMATION
CHASE CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS |
Feb 28 |
Aug 31 |
2003 |
2002 |
|
(UNAUDITED) |
(AUDITED) |
|
CURRENT ASSETS | ||
Cash and cash equivalents | $745,173 |
$329,084 |
Trade receivables, less allowances | ||
for doubtful accounts of $470,775 | ||
and $2288,177 respectively |
10,665,749 |
11,019,325 |
Finished and in process |
5,106,265 |
4,536,453 |
Raw Materials |
5,311,738 |
4,981,086 |
10,418,003 |
9,517,539 |
|
Prepaid expenses & other current assets |
871,116 |
604,512 |
Deferred taxes |
188,310 |
137,888 |
TOTAL CURRENT ASSETS |
22,888,351 |
21,608,348 |
PROPERTY, PLANT AND EQUIPMENT | ||
Land and improvements |
1,096,704 |
1,096,704 |
Buildings |
10,197,575 |
7,480,873 |
Machinery & equipment |
23,121,733 |
21,992,666 |
Construction in Process |
660,538 |
855,100 |
35,076,550 |
31,425,343 |
|
Less allowance for depreciation |
17,276,609 |
16,293,137 |
17,799,941 |
15,132,206 |
|
OTHER ASSETS | ||
Excess of cost over net assets acquired | 10,503,820 |
10,503,820 |
Less amortization | 1,922,089 |
1,922,089 |
8,581,731 |
8,581,731 |
|
Patents, agreements and trademarks | ||
less amortization of $1,035,384 for Feb 28, 2003 and August 31, 2002 |
605,340 |
653,985 |
Cash surrender value of life insurance net |
4,723,279 |
4,459,167 |
Deferred taxes |
775,808 |
655,279 |
Investment in joint venture |
1,249,595 |
1,324,595 |
Other |
957,398 |
889,518 |
16,893,151 |
16,564,275 |
|
$57,581,443 |
$53,304,829 |
|
======== |
======== |
LIABILITIES AND STOCKHOLDERS' EQUITY
Feb 28 |
Aug 31 |
|
2003 |
2002 |
|
(UNAUDITED) |
(AUDITED) |
|
CURRENT LIABILITIES | ||
Accounts payable | $4,655,375 |
$5,354,907 |
Notes payable |
1,467,309 |
1,524,324 |
Accrued expenses |
1,649,632 |
1,685,181 |
Accrued pension expense-current |
407,156 |
407,156 |
Income taxes |
1,921,066 |
866,332 |
Current portion of L.T. debt |
2,429,330 |
1,966,382 |
TOTAL CURRENT LIABILITIES |
12,529,868 |
11,804,282 |
LONG-TERM DEBT, less current portion |
8,846,527 |
6,780,834 |
Long-term deferred compensation obligation |
950,398 |
882,518 |
ACCRUED PENSION EXPENSE |
823,311 |
552,827 |
STOCKHOLDERS' EQUITY | ||
First Serial Preferred Stock, par value $1.00 a share authorized 100,000 shares; (issued-none) | ||
Common Stock. par value $.10 a share, Authorized 10,000,000 shares; issued and outstanding 5,135,901 shares at Feb 28, 2003, and 5,135,901 shares at Aug. 31, 2002 respectively. | 513,590 |
513,590 |
Additional paid-in capital |
4,293,011 |
4,243,787 |
Treasury Stock, 1,088,584 and 1,088,584 Feb 28, 2003, and Aug. 31, 2002, respectively | (4,687,565) |
(4,687,565) |
Cum. G/(L) on currency translation | (187,605) |
(212,916) |
Retained earnings |
34,499,908 |
33,427,472 |
34,431,339 |
33,284,368 |
|
$57,581,443 |
$53,304,829 |
|
======== |
======== |
See accompanying notes to the consolidated financial statements and accountants' review report.
CHASE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITATED)
Six Months Ended |
Three Months Ended |
|||
Feb 28, |
Feb 28 |
Feb 28, |
Feb 28 |
|
2003 |
2002 |
2003 |
2002 |
|
Sales | $33,507,862 |
$31,999,373 |
$15,718,210 |
$16,847,200 |
Commissions and other income |
391,519 |
407,887 |
203,890 |
206,776 |
33,899,381 |
32,407,260 |
15,922,100 |
17,053,976 |
|
Cost and Expenses | ||||
Cost of products sold(Note B) |
23,410,952 |
23,870,015 |
11,126,003 |
12,617,618 |
Sell, general and admin expenses |
6,843,218 |
6,212,032 |
3,254,740 |
3,156,975 |
Bad debt expense |
91,085 |
61,427 |
49,834 |
48,922 |
Non-operating interest income | (49,467) | (178) | (17,341) | (176) |
Interest expense |
196,132 |
265,786 |
101,226 |
143,690 |
30,491,920 |
30,409,082 |
14,514,462 |
15,967,029 |
|
Income before income taxes and minority interest and participation |
3,407,461 |
1,998,178 |
1,407,638 |
1,086,947 |
Income taxes |
1.167,100 |
595,900 |
474,200 |
311,100 |
Income before minority interest and participation |
2,240,361 |
1,402,278 |
933,438 |
755,847 |
Income from minority interest |
(75,000) |
75,000 |
(10,000) |
35,000 |
NET INCOME | $2,165,361 |
$1,477,278 |
$923,438 |
$810,847 |
======= |
======= |
======= |
====== |
|
Net income per share of Common Stock | ||||
Basic | $0.535 |
$0.366 |
$0.228 |
$0.200 |
===== |
===== |
===== |
===== |
|
Fully Diluted | $0.522 |
$0.359 |
$0.222 |
$0.196 |
===== |
===== |
===== |
===== |
See accompanying notes to the consolidated financial statements and accountants' review report.
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(continued)
(UNAUDITED)
6 MONTH ENDED February 28, 2003 AND February 28, 2002
Common Stock | Additional |
||||
Shares |
Paid-In |
Treasury Stock |
|||
Issued |
Amount |
Capital |
Shares |
Amount |
|
Balance @ Aug 31, 2001 | 5,094,389 |
$509,439 |
$3,721,442 |
1,088,584 |
$(4,687,565) |
Currency Translation adjustment | |||||
Exercise of stock options |
1,512 |
151 |
(151) |
||
Issue of 40,000 shares-Tapecoat | 40,000 | 4,000 | 424,000 | ||
Compensatory stock issuance |
49,248 |
||||
Net Income for 6 months | |||||
Dividend paid in cash | |||||
$.36 a share on common stock | |||||
----------- |
--------- |
----------- |
---------- |
------------ |
|
Balance @ Feb 28, 2002 | 5,135,901 |
513,590 |
4,194,539 |
1,088,584 |
(4,687,565) |
Common Stock | Additional |
||||
Shares |
Paid-In |
Treasury Stock |
|||
Issued |
Amount |
Capital |
Shares |
Amount |
|
Balance @ Feb 28, 2002 | 5,135,901 |
513,590 |
4,194,539 |
1,088,584 |
(4,687,565) |
Currency Translation adjustment | |||||
Compensatory stock issuance |
49,248 |
||||
Net Income for 6 months | |||||
---------- |
--------- |
----------- |
---------- |
------------ |
|
Balance @ Aug 31, 2002 | 5,135,901 |
513,590 |
4,243,787 |
1,088,584 |
(4,687,565) |
Common Stock | Additional |
||||
Shares |
Paid-In |
Treasury Stock |
|||
Issued |
Amount |
Capital |
Shares |
Amount |
|
Balance @ Aug 31, 2002 | 5,135,901 |
513,590 |
4,243,787 |
1,088,584 |
(4,687,565) |
Currency Translation adjustment | |||||
Treasury Stock dividend | |||||
Exercise of stock options | |||||
Compensatory stock issuance |
49,224 |
||||
Net Income for 6 months | |||||
Dividends paid in cash | |||||
$.27 a share on common stock | |||||
---------- |
--------- |
----------- |
---------- |
------------- |
|
Balance @ Feb 28, 2003 | 5,135,901 |
$513,590 |
$4,293,011 |
1,088,584 |
$(4,687,565) |
======= |
====== |
======= |
======= |
======== |
Cumulative | ||||
Effect of | Total | |||
Retained |
Currency | Shareholders | Comprehensive | |
Earnings |
Translation |
Equity |
Income |
|
Balance @ Aug 31, 2001 | $30,406,446 |
$(213,002) |
$29,736,760 |
|
Currency Translation adjustment | (22,404) |
(22,404) |
$(22,404) |
|
Exercise of stock options | ||||
Issue of 40,000 shares-Tapecoat |
428,000 |
|||
Compensatory stock issuance |
49,248 |
|||
Net Income for 6 months |
1,477,278 |
1,477,278 |
1,477,278 |
|
Dividend paid in cash | ||||
$.36 a share on common stock | (1,442,290) |
(1,442,290) |
||
------------ |
---------- |
------------ |
------------ |
|
Balance @ Feb 28, 2002 |
30,441,434 |
(235,406) |
30,226,592 |
1,454,874 |
======= |
||||
Cumulative | ||||
Effect of | Total | |||
Retained |
Currency | Shareholders | Comprehensive | |
Earnings |
Translation |
Equity |
Income |
|
Balance @ Feb 28, 2002 |
30,441,434 |
(235,406) |
30,226,592 |
1,454,874 |
Currency Translation adjustment |
22,490 |
22,490 |
22,490 |
|
Compensatory stock issuance |
49,248 |
|||
Net Income for 6 months |
2,986,038 |
2,986,038 |
2,986,038 |
|
------------ |
---------- |
------------ |
------------ |
|
Balance @ Aug 31, 2002 | 33,427,472 |
(212,916) |
33,284,368 |
3,008,528 |
======= |
||||
Cumulative | ||||
Effect of | Total | |||
Retained |
Currency | Shareholders | Comprehensive | |
Earnings |
Translation |
Equity |
Income |
|
Balance @ Aug 31, 2002 | 33,427,472 |
(212,916) |
33,284,368 |
3,008,528 |
Currency Translation adjustment | 25,311 | 25,311 | 25,311 | |
Treasury Stock dividend | ||||
Exercise of stock options | ||||
Compensatory stock issuance | 49,224 | |||
Net Income for 6 months | 2,165,361 | 2,165,361 | 2,165,361 | 2,165,361 |
Dividends paid in cash | ||||
$.27 a share on common stock | (1,092,925) | (1,092,925) | ||
------------- |
----------- |
------------ |
------------ |
|
Balance @ Feb 28, 2003 | $34,499,908 |
$(187,605) |
$34,431,339 |
$2,190,672 |
======== |
======= |
======== |
======== |
|
See accompanying notes to the consolidated financial statements and accountants' review report.
CHASE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended |
||
Feb. 28, 2003 |
Feb. 28, 2002 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net Income | $2,165,361 |
$1,477,278 |
Adjmts. to reconcile net income to net cash provided by operating activities: | ||
Income from joint venture | 75,000 |
(75,000) |
Depreciation |
983,472 |
893,533 |
Amortization |
48,645 |
48,645 |
Provision for losses on accounts receivable |
182,598 |
86,285 |
Stock issued for compensation |
49,224 |
49,248 |
Deferred taxes | (170,951) |
(152,583) |
Change in assets and liabilities | ||
Proceeds from notes receivable |
0 |
147,000 |
Trade receivables |
170,978 |
1,939,651 |
Inventories |
(900,464) |
586,430 |
Prepaid. expenses & other current assets |
(266,604) |
(480,050) |
Accounts payable |
(699,532) |
168,449 |
Accrued expenses |
234,935 |
(436,741) |
Income taxes payable |
1,054,734 |
(513,897) |
Deferred compensation | 0 |
0 |
_________ | _________ | |
TOTAL ADJUSTMENTS |
762,035 |
2,260,970 |
NET CASH FROM OPERATIONS |
2,927,396 |
3,738,248 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Capital expenditures | (3,625,896) |
(2,389,468) |
Cash paid for investment |
0 |
(15,352) |
Investment in trusteed assets | 0 |
0 |
Investment in subsidiaries |
0 |
(3,500) |
Purchase of cash surrender value | (264,112) |
(393,502) |
Dividend received from joint venture | 0 |
0 |
_________ | _________ | |
(3,890,008) |
(2,801,822) |
|
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Increase in long-term debt |
7,600,000 |
6,797,783 |
Payments of principal on debt | (5,071,359) |
(6,030,898) |
Net borrowing under line-of-credit | (57,015) |
(61,184) |
Dividend paid | (1,092,925) |
(1,442,290) |
Reduction of cash paid for dividends | _________ | _________ |
(1,378,701) |
(736,589) |
|
NET CHANGE IN CASH |
416,089 |
199,837 |
CASH AT BEGINNING OF PERIOD |
329,084 |
49,283 |
_________ | _________ | |
CASH AT END OF PERIOD | $745,173 |
$249,120 |
====== | ====== | |
CASH PAID DURING PERIOD FOR: | ||
Income taxes | $53,699 |
$1,385,285 |
Interest | $196,132 |
$265,786 |
See accompanying notes to the consolidated financial statements and accountants' review report.
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Peter R. Chase, President and Chief Executive Officer of Chase Corporation, certify that:
I have reviewed this quarterly report on Form 10-Q/A of Chase Corporation (the "Registrant");
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;
The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have;
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly report
is being prepared.
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: April 9, 2003
/s/ Peter R. Chase
Peter R. Chase President & CEO |
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Everett Chadwick, Treasurer and Chief Financial Officer of Chase Corporation, certify that:
I have reviewed this quarterly report on Form 10-Q/A of Chase Corporation (the "Registrant");
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;
The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have;
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly report
is being prepared.
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: April 9, 2003
/s/ Everett Chadwick
Everett Chadwick Treasurer & CFO |
CHASE CORPORATION | SECURITIES AND EXCHANGE COMMISSION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
April 14, 2003
Note A - Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q/A and all adjustments (consisting of nonrecurring accruals) have been made which are, in the opinion of Management, necessary to a fair statement of the results for the interim periods reported. The financial statements of Chase Corporation include the activities of its divisions and its foreign sales subsidiary.
Note B - Inventories
Certain divisions used estimated gross profit rates to determine the cost of goods sold. No significant adjustments have resulted from reconciling with the interim physical inventories as a result of using this method.
Note C - Income per Share of Common Stock
Six Months Ended |
Three Months Ended |
|||
February 28, 2003 |
February 28, 2002 |
February 28, 2003 |
February 28, 2002 |
|
Income available to common shareholders | $2165,361 |
$1,477,278 |
$923,438 |
$810,847 |
Weighted average common shares outstanding | 4,047,317 |
4,032,984 |
4,047,317 |
4,047,132 |
Basic earnings per share | 0.535 |
0.366 |
0.228 |
0.200 |
Weighted average common shares outstanding | 4,047,317 |
4,032,984 |
4,047,317 |
4,047,132 |
Effect of options outstanding | 104,360 |
83,396 |
111,770 |
85,507 |
Common shares and share equivalents | 4,151,677 |
4,116,380 |
4,159,087 |
4,132,639 |
Diluted earnings per share | 0.522 |
0.359 |
0.222 |
0.196 |
Chase Corporation (the "Company") has purchased certain operating assets of the Tapecoat Division of TC Manufacturing, Inc. from TC Manufacturing, Inc. The assets were purchased effective November 1, 2001.
Cash | $5,427,217 |
Accounts Payable | 417,034 |
Other Current Liabilities assumed | 868,728 |
Common Stock issued, 40,000 shares | |
at $10.70 per share | 428,000 |
$7,140,979 |
Six Months Ended | Three Months Ended | |||
February 28, | February 28, | February 28, | February 28, | |
2003 | 2002 | 2003 | 2002 | |
Net income as reported | 2,165,361 | 1,477,278 | 923,438 | 810,847 |
Amortization Expense related to goodwill | 0 | 0 | 0 | 0 |
Net income | 2,165,361 | 1,477,278 | 923,438 | 810,847 |
The financial information included in this form has been reviewed by an independent public accountant in accordance with established professional standards and procedures. Based upon such review, no adjustments or additional disclosure were recommended.
Letter from the independent public accountant is included as a part of this report.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Chase Corporation
Bridgewater, Massachusetts
We have reviewed the consolidated balance sheet of Chase Corporation and Subsidiaries as of February 28, 2003 and the related statements of operations, stockholders equity, and cash flows for the three and six months periods then ended February 28, 2003 and February 28, 2002. These financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Chase Corporation and Subsidiaries as of August 31, 2002 and the related consolidated statements of income, retained earnings and cash flows for the year then ended (not presented herein); and in our report dated November 25, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of August 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/S/ LIVINGSTON & HAYNES, P.C.
Wellesley, Massachusetts
April 4, 2003
Results of Operations
Net revenues increased 5% for the first six months of fiscal 2003 versus the same period last year; although second quarter revenues declined 7% when compared to the like period in fiscal 2002. The Company continues to be negatively impacted by the general economic downturn and which has now been further confused by the war and the uncertainties associated with this action. From a revenue analysis, most of the negative impact when comparing this fiscal year versus last year is associated with certain markets within our Electronic Manufacturing Services (EMS) segment. It is anticipated that these markets, predominantly electronic and telecommunications, will continue to be soft during the remainder of the year. However, the Company's diversification should allow us to continue to be able to manage our resources on a positive revenue base during this difficult period. The Company will also continue to look for potential investment opportunities that can benefit the Company in the future.
Sales and Operating Profit by Segment
($-000)
For the six months ended: | Sales |
Operating |
% |
|
Feb 28, 2003 | Profit |
|||
Specialized Manufacturing | $25,008 |
$4,842 |
19.4 |
|
Electronic Manufacturing Services | $ 8,500 |
$ 386 |
4.5 |
|
$33,508 |
$5,228 |
15.6 |
||
Less: Common Costs |
(1,820) |
_____ |
||
Income Before Tax and Minority Interest |
$3,408 |
10.2 |
||
Feb 28, 2002 | ||||
Specialized Manufacturing | $21,961 |
$3,420 |
15.6 |
|
Electronic Manufacturing Services | $10,038 |
$ 176 |
1.8 |
|
$31,999 |
$3,596 |
11.2 |
||
Less: Common Costs |
(1,598) |
_____ |
||
Income Before Tax and Minority Interest |
$1,998 |
6.2 |
||
Feb 28, 2001 | ||||
Specialized Manufacturing | $22,776 |
$4,642 |
20.4 |
|
Electronic Manufacturing Services | $11,746 |
$1,153 |
9.8 |
|
$34,522 |
$5,795 |
16.8 |
||
Less: Common Costs |
(2,055) |
_____ |
||
Income Before Tax and Minority Interest |
$3,740 |
10.8 |
||
The cost of products decreased by $1,492,000 during the current quarter when comparing it to the same quarter last year. When comparing the 6 month period this year verses the prior year there was a decrease of $459,000. For the first half, as a percent of sales, cost of products decreased to 69.9% from 74.6%. While we have had some selling price erosion during this period, we received the benefit of a change in product mix mostly associated with the lower sales within our Electronic Manufacturing Services segment. This EMS segment has a higher cost of materials than our more traditional products. The EMS sales were off $1,500,000 for the six month period. The Specialized Manufacturing segment also received benefits this year of having the Tapecoat division results included in the full six months versus only four month during fiscal 2002.
When comparing fiscal 2002 versus 2001, the cost of products decreased 7%. The Company's performance had been negatively impacted by the recession, which was somewhat offset from the benefits of our acquisition of Tapecoat concluded on November 1, 2001.
Interest expense decreased to $196,000 for the first six months of this year as compared to $266,000 and $470,000 for the periods of 2002 and 2001. The decreases relate to the repayment of debt incurred for acquisition and also the reduction of interest rates. The Company continues to receive the benefits from low borrowing rates from its financial institutions.
A majority of the operating income improvement of $1,400,000 for the first six months of fiscal 2003 relates to improvement within our Specialized Manufacturing segment. About $746,000 of the improvement relates to Tapecoat which was acquired November 1, 2001. Also, the Electronic Manufacturing Services (EMS) segment generated some improvement. That market continues to be difficult with no signs of solid improvement during fiscal 2003. The cost structure of EMS has been modified in an attempt to maximize profitability even with lower sales. The Company remains concerned over the recovery of the economy but anticipates continued improvement during the year.
When comparing 2002 to 2001, both of our segments were influenced by the general economic slow down and the impact of the World Trade Center attack. However, during the first six months of 2002, the Company's traditional markets continued to provide reasonable earnings during a difficult period.
The income (loss) from minority interest relates to a 42% equity position in the Stewart Group, Inc., Toronto, Canada. The business focus is the telecom market and continued market difficulty is anticipated during fiscal 2003.
Liquidity and Sources of Capital
The ratio of current assets to current liabilities was 1.9 to 1 at the end of the second quarter of fiscal 2003 and as of the end of fiscal 2002.
Long-term debt increased by $2,066,000 and total liabilities increased $2,838,000. The increases are associated with debt incurred to acquire Facile, Inc. The amount borrowed was $4,000,000 of which $3,200,000 would currently be considered long-term. The Company anticipates continued debt reduction as a result of improved earnings and cash flow improvements related to a stronger business environment.
The Company had $4,500,000 in available credit at February 28, 2003 under its credit arrangements with its primary bank and plans to utilize this means to help finance its interim needs during the year. Current financial resources and anticipated funds from operations are expected to be adequate to meet requirements for funds in the year ahead.
Recent Accounting Pronouncements
FAS 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized but instead be measured for impairment at least annually, or when events indicate that impairment exists. The Company adopted FAS 141 & 142 on September 1, 2001. As of that date, amortization of goodwill and other indefinite-lived intangible assets, including those recorded in past business combinations ceases. As a result of the elimination of this amortization, selling, general and administrative expenses will decrease by approximately $667,000 annually.
As required by FAS 142, we will perform impairment test on goodwill and other indefinite-lived intangible assets as of the adoption date. Thereafter, we will perform impairment tests annually and whenever events or circumstances indicate that the value of goodwill or other indefinite-lived intangible assets might be impaired. Examples of such circumstances include, but are not limited to, a significant change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, the testing for recoverability under Statement 121 of a significant asset group within a reporting unit. Recognition of a goodwill impairment loss is the financial statements of a subsidiary that is a component of a reporting unit. In connection with the FAS 142 transitional goodwill impairment test, we will utilize the required two-step method for determining goodwill impairment as of the adoption date. To accomplish this, we will identify our reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the adoption date. We then had up to six months from the adoption date to determine the fair value of each reporting unit and compare it to the carrying amount of the unit. The reporting unit's fair value is determined by discounting its estimated future cash flows. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, we then will perform the second step of the transitional impairment test. If necessary, in the second step, we will compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of the adoption date. The implied fair value of goodwill will be determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with FAS 141. The residual fair value after this allocation will be the implied fair value of the reporting unit goodwill. If the carrying value of goodwill allocated to the reporting unit exceeds the implied fair value we will record an impairment loss. FAS 142 requires that this second step be completed as soon as possible, but no later than the end of the year of adoption. The Company's reporting units are its Specialized Manufacturing and Electronic Manufacturing Services operating segments. The similar economic characteristics and inter-company services performed among segment components enable the Company to aggregate components into its two operating segments.
In connection with the FAS 142 indefinite-lived intangible asset impairment test, we will utilize the required one-step method to determine whether impairment exists as of the adoption date. The test will consist of a comparison of the fair values of indefinite-lived intangible assets with the carrying amounts. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, we will recognize an impairment loss in an amount equal to that excess.
As of February 28, 2002, the Company performed the required transitional goodwill impairment assessment and no impairment to goodwill was indicted. The Company performed its annual goodwill impairment assessment, as of June 30, 2002, and no impairment to its goodwill was indicated.
(A) Exhibits
Reg. S-K
Item 601
Subsection | Description of Exhibit | State | Page Number |
Pursuant to reg. S-K item 601
no exhibits are required.
(b) Reports on Form 8-K
A report on Form 8-K was filed on February 25, 2003 relating to the purchase of certain assets.
No financial statements were filed during the three months ended February 28, 2003.
Pursuant to the requirements of the Securities |
Exchange Act of 1934, the registrant has duly |
caused this report to be signed on its behalf by |
the undersigned thereunto duly authorized. |
CHASE CORPORATION |
/s/ Peter R. Chase |
Peter R. Chase, President & CEO |
Dated: April 14, 2003