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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:

  1. I have reviewed this quarterly report on Form 10-Q/A of Chase Corporation (the "Registrant");

  2. 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;

  3. 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;

  4. 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:

  1. I have reviewed this quarterly report on Form 10-Q/A of Chase Corporation (the "Registrant");

  2. 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;

  3. 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;

  4. 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

 
Note D - Acquisition of Assets

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. 

The purchase price consisted of:
               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
Cash was provided through operating cash and borrowing under the Company’s credit facility.
 
Note E - Change in Accounting Method
In July 2001, the Financial Accounting Standards Board (FASB) issued FASB Statements Nos. 141 and 142 (FAS 141 and FAS 142),  Business Combinations and Goodwill and Other Intangible Assets.   FAS 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively.  It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill.   FAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach.  Under FAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired.

Based on the evaluation of estimated future cash flows no adjustment to goodwill has been made at this time.
Projected amortization of  intangibles not included in goodwill for the next 5-year period is:
             2003 - $97,047
     2004 - $97,047
             2005 - $96,060
     2006 - $93,897
             2007 - $93,897
 
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

          


Note F - Review by Independent Public Accountant

The financial information included in this form has been reviewed by an independent public accountant in accordance with established professional standards and procedures.  Based upon such review, no adjustments or additional 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.

              
     When comparing the six months of fiscal 2002 revenue to that of the prior years, the decrease of 7% was associated to the recession.  The decline was somewhat offset from the benefits of our acquisition of the Tapecoat Division of TC Manufacturing, Inc. concluded November 1, 2001.

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.

     Selling and administration expenses increased by $631,000 during the current year and as a percent of sales increased by 1%.  About $343,000 of the increase relates to the Tapecoat acquisition and as a result of having a full six months of their selling and administration expenses included as compared to only four months included last year.  The Company has also invested in certain personnel that it believes is required to support continued growth.  Last year the Company was more focused with cost containment as we moved through a difficult economic cycle.

     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

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No.141, " Business Combinations" (FAS 141) Statement of Financial Accounting Standard No. 142, " Goodwill and Other Intangible Assets" ( FAS 142).  FAS 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001.  FAS 141 also specifies criteria that intangible assets acquired must meet to be recognized and reported separately from goodwill.  The adoption of FAS 141 will not have any material effect on our results of operations or financial position.

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.  

 
 

     

ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

Reg.  S-K

Item 601

Subsection Description of Exhibit State Page Number

Pursuant to reg. S-K item 601
no exhibits are required.

    (b) Reports on Form 8-K

          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