CHASE CORP - Quarter Report: 2011 February (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended February 28, 2011

 

Commission File Number: 1-9852

 

CHASE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

26 Summer Street, Bridgewater, Massachusetts 02324

(Address of Principal Executive Offices, Including Zip Code)

 

(508) 279-1789

(Registrant’s Telephone Number, Including Area 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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

 

The number of shares of Common Stock outstanding as of March 31, 2011 was 8,957,732.

 

 

Table of Contents

 

CHASE CORPORATION

INDEX TO FORM 10-Q

 

For the Quarter Ended February 28, 2011

 

Part I – FINANCIAL INFORMATION
Item 1 – Unaudited Financial Statements
	Consolidated Balance Sheets as of February 28, 2011 and August 31, 2010	3
	Consolidated Statements of Operations for the three and six months ended February 28, 2011 and 2010	4
	Consolidated Statement of Stockholders’ Equity for the six months ended February 28, 2011	5
	Consolidated Statements of Cash Flows for the six months ended February 28, 2011 and 2010	6
	Notes to Consolidated Financial Statements	7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3 – Quantitative and Qualitative Disclosures About Market Risk		20
Item 4 – Controls and Procedures		20
Part II – OTHER INFORMATION
Item 1 – Legal Proceedings		21
Item 1A – Risk Factors		21
Item 6 – Exhibits		21
SIGNATURES		22

 

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Part 1 – FINANCIAL INFORMATION

 

Item 1 – Unaudited Financial Statements

 

CHASE CORPORATION

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

In thousands, except share and per share amounts

 

		February 28,			August 31,
		2011			2010
ASSETS
Current Assets:
Cash & cash equivalents		$	12,546		$	17,340
Accounts receivable, less allowance for doubtful accounts of $271 and $347		17,229			18,655
Inventories		19,097			14,678
Prepaid expenses and other current assets		1,076			2,465
Deferred income taxes		258			258
Total current assets		50,206			53,396
Property, plant and equipment, net		27,729			27,414
Other Assets:
Goodwill		17,675			17,437
Intangible assets, less accumulated amortization of $9,119 and $7,777		17,192			17,942
Cash surrender value of life insurance		6,294			6,203
Restricted investments		779			611
Deferred income taxes		103			120
Other assets		65			78
		$	120,043		$	123,201
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	6,708		$	6,627
Accrued payroll and other compensation		1,486			3,546
Accrued expenses		3,671			3,514
Accrued income taxes		594			2,849
Current portion of long-term debt		4,400			4,400
Total current liabilities		16,859			20,936
Long-term debt, less current portion		9,967			12,667
Deferred compensation		1,662			1,520
Accumulated pension obligation		6,280			6,022
Other liabilities		525			525
Commitments and Contingencies (Note 8)
Stockholders’ Equity:
First Serial Preferred Stock, $1.00 par value: Authorized 100,000 shares; none issued
Common stock, $.10 par value: Authorized 20,000,000 shares; 8,957,732 shares at February 28, 2011 and 8,780,988 shares at August 31, 2010 issued and outstanding		896			878
Additional paid-in capital		9,968			9,210
Accumulated other comprehensive loss		(3,501		)	(4,730		)
Retained earnings		77,387			76,173
Total stockholders’ equity		84,750			81,531
Total liabilities and stockholders’ equity		$	120,043		$	123,201

 

See accompanying notes to the consolidated financial statements

 

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CHASE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

In thousands, except share and per share amounts

 

		Three Months Ended February 28,						Six Months Ended February 28,
		2011			2010			2011			2010
Revenues
Sales		$	25,652		$	25,417		$	56,490		$	49,278
Royalties and commissions		609			346			1,038			749
		26,261			25,763			57,528			50,027
Costs and Expenses
Cost of products and services sold		17,441			17,102			37,501			32,142
Selling, general and administrative expenses		6,594			6,565			13,182			12,924
Operating income		2,226			2,096			6,845			4,961
Interest expense		(87		)	(100		)	(180		)	(160		)
Other income (expense)		8			(134		)	124			(25		)
Income from continuing operations before income taxes		2,147			1,862			6,789			4,776
Income taxes		727			669			2,444			1,734
Income from continuing operations, net of taxes		1,420			1,193			4,345			3,042
Income from discontinued operations, net of taxes of $286 & $467		—			433			—			707
Net income		$	1,420		$	1,626		$	4,345		$	3,749
Net income available to common shareholders, per common and common equivalent share
Basic
Continuing operations		$	0.16		$	0.14		$	0.49		$	0.35
Discontinued operations		—			0.05			—			0.08
Net income per common and common equivalent share		$	0.16		$	0.19		$	0.49		$	0.43
Diluted
Continuing operations		$	0.16		$	0.13		$	0.48		$	0.34
Discontinued operations		—			0.05			—			0.08
Net income per common and common equivalent share		$	0.16		$	0.18		$	0.48		$	0.42
The sum of individual share amounts may not equal due to rounding
Weighted average shares outstanding
Basic		8,718,893			8,534,240			8,705,145			8,527,943
Diluted		8,757,070			8,606,630			8,753,049			8,603,449
Cash dividends declared per share								$	0.35		$	0.20

 

See accompanying notes to the consolidated financial statements

 

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CHASE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED FEBRUARY 28, 2011

(UNAUDITED)

 

In thousands, except share and per share amounts

 

										Accumulated
							Additional			Other						Total
		Common Stock					Paid-In			Comprehensive			Retained			Stockholders’			Comprehensive
		Shares		Amount			Capital			Income (loss)			Earnings			Equity			Income
Balance at August 31, 2010		8,780,988		$	878		$	9,210		$	(4,730	)	$	76,173		$	81,531
Restricted stock grants, net of forfeitures		128,736		13			(13		)							—
Amortization of restricted stock grants							511									511
Amortization of stock option grants							261									261
Exercise of stock options		71,000		7			366									373
Common stock received for payment of stock option exercises		(22,240	)	(2		)	(371		)							(373		)
Excess tax benefit from stock based compensation							17									17
Common stock retained to pay statutory minimum withholding taxes on common stock		(752	)	—			(13		)							(13		)
Cash dividend declared, $0.35 per share													(3,131		)	(3,131		)
Pension amortization, net of tax of $63										94						94			$	94
Foreign currency translation adjustment										1,061						1,061			1,061
Net unrealized gain on restricted investments, net of tax of $50										74						74			74
Net income													4,345			4,345			4,345
Comprehensive income																—			$	5,574
Balance at February 28, 2011		8,957,732		$	896		$	9,968		$	(3,501	)	$	77,387		$	84,750

 

See accompanying notes to the consolidated financial statements

 

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CHASE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

In thousands

 

		Six Months Ended February 28,
		2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	4,345		$	3,749
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		1,225			1,533
Amortization		1,147			1,241
Provision for losses on accounts receivable		(78		)	100
Stock based compensation		772			991
Realized loss (gain) on restricted investments		(13		)	(5		)
Excess tax benefit from stock based compensation		(17		)	(11		)
Increase (decrease) from changes in assets and liabilities
Accounts receivable		1,681			(4,344		)
Inventories		(4,352		)	(1,344		)
Prepaid expenses & other assets		(60		)	(1,797		)
Accounts payable		3			1,605
Accrued payroll, compensation and expenses		(1,726		)	(953		)
Accrued income taxes		(2,317		)	268
Deferred compensation		142			29
Net cash provided by operating activities		752			1,062
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(1,348		)	(1,860		)
Payments for acquisitions, net of cash acquired		—			(25,593		)
Additional proceeds from sale of discontinued operations		1,478			—
Withdrawals from restricted investments, net of contributions		(30		)	(28		)
Payments for cash surrender value life insurance, including valuation (increase)/decrease		(91		)	(86		)
Net cash provided by (used in) investing activities		9			(27,567		)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term debt		910			27,112
Payments of principal on debt		(3,610		)	(7,005		)
Dividend paid		(3,131		)	(1,759		)
Proceeds from exercise of common stock options		—			73
Payments of statutory minimum taxes on stock options and restricted stock		(13		)	(7		)
Excess tax benefit from stock based compensation		17			11
Net cash (used in) provided by financing activities		(5,827		)	18,425
DECREASE IN CASH		(5,066		)	(8,080		)
Effect of foreign exchange rates on cash		272			(230		)
CASH, BEGINNING OF PERIOD		17,340			11,643
CASH, END OF PERIOD		$	12,546		$	3,333
Non-cash Investing and Financing Activities
Issuance of stock based compensation previously accrued for		$	—		$	135
Common stock received for payment of stock option exercises		$	373		$	—
Property, plant & equipment additions included in accounts payable		$	114		$	228
Notes payable to CIM shareholders related to acquisition		$	—		$	3,000

 

See accompanying notes to the consolidated financial statements

 

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In thousands, except share and per share amounts

 

Note 1 - Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Therefore, they do not include all information and footnote disclosure necessary for a complete presentation of Chase Corporation’s financial position, results of operations and cash flows, in conformity with generally accepted accounting principles.  Chase Corporation (the “Company,” “Chase,” “we,” or “us”) filed audited financial statements which included all information and notes necessary for such presentation for the three years ended August 31, 2010 in conjunction with its 2010 Annual Report on Form 10-K.

 

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of February 28, 2011, the results of operations and cash flows for the interim periods ended February 28, 2011 and 2010, and changes in stockholders’ equity for the interim period ended February 28, 2011.

 

The financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All intercompany transactions and balances have been eliminated in consolidation.  The Company uses the U.S. dollar as the reporting currency for financial reporting.  The financial position and results of operations of the Company’s HumiSeal Europe Ltd and Chase Protective Coatings Ltd divisions are measured using the UK pound sterling as the functional currency and the financial position and results of operations of the Company’s HumiSeal Europe SARL division in France are measured using the euro as the functional currency.  Foreign currency translation gains and losses are determined using current exchange rates for monetary items and historical exchange rates for other balance sheet items and are recorded as a change in other comprehensive income.  Translation gains and losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional currency of our foreign operations are included in other (expense) / income on the consolidated statements of operations.

 

On June 30, 2010, the Company divested its contract manufacturing services business in an all cash transaction, structured as a sale of substantially all of the assets of the Chase Electronic Manufacturing Services (“EMS”) business.  The Company has reflected the results of this business as discontinued operations in the consolidated statements of operations for the prior period presented.  This business was historically reported by the Company as a separate reporting segment called Electronic Manufacturing Services.  Accordingly, the Company currently operates in one segment.  In the first quarter of fiscal 2011, pursuant to the Asset Purchase Agreement, the Company received additional proceeds of $1,478 based on the final net working capital of the Chase EMS business.

 

The Company has evaluated events and transactions subsequent to the balance sheet date.  Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing that would require recognition or disclosure in its consolidated financial statements.

 

The results of operations for the interim period ended February 28, 2011 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.  These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for

 

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In thousands, except share and per share amounts

 

the year ended August 31, 2010, which are contained in the Company’s 2010 Annual Report on Form 10-K.

 

Note 2 — Recent Accounting Policies

 

Recently Issued Accounting Pronouncements

 

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820) — Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). The updated standard requires new disclosures around transfers into and out of Levels 1 and 2 in the fair value hierarchy and separate disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 with early adoption permitted, except for the Level 3 reconciliation disclosures which are effective for fiscal years beginning after December 15, 2010.  The portion of the update which was effective for fiscal years beginning after December 15, 2009 was adopted by the Company effective March 1, 2010 and the adoption did not have any effect on its consolidated financial position, results of operations or cash flows. The portion of the update which is effective for fiscal years beginning after December 15, 2010 will not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

 

Note 3 — Inventories

 

Inventories consist of the following as of February 28, 2011 and August 31, 2010:

 

		February 28, 2011			August 31, 2010
Raw materials		$	11,173		$	8,497
Finished and in process		7,924			6,181
Total inventories		$	19,097		$	14,678

 

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In thousands, except share and per share amounts

 

Note 4 — Net Income Per Share

 

In June 2008, the FASB issued guidance within ASC Topic 260, Earnings Per Share (“ASC 260”), to clarify that unvested share-based payment awards with a right to receive nonforfeitable dividends are participating securities. The standard provides guidance on how to allocate earnings to participating securities and compute earnings per share using the two-class method.  The determination of earnings per share under the standard is as follows:

 

 

 

		Three Months Ended February 28,						Six Months Ended February 28,
		2011			2010			2011			2010
Basic Earnings per Share
Income from continuing operations		$	1,420		$	1,193		$	4,345		$	3,042
Less: Allocated to participating securities		37			34			112			89
Available to common shareholders		$	1,383		$	1,159		$	4,233		$	2,953
Income from discontinued operations		$	—		$	433		$	—		$	707
Less: Allocated to participating securities		—			12			—			20
Available to common shareholders		$	—		$	421		$	—		$	687
Net income		$	1,420		$	1,626		$	4,345		$	3,749
Less: Allocated to participating securities		37			46			112			109
Available to common shareholders		$	1,383		$	1,580		$	4,233		$	3,640
Basic weighted averages shares outstanding		8,718,893			8,534,240			8,705,145			8,527,943
Income from continuing operations per share		$	0.16		$	0.14		$	0.49		$	0.35
Income from discontinued operations per share		—			0.05			—			0.08
Net income per common and common equivalent share		$	0.16		$	0.19		$	0.49		$	0.43
Diluted Earnings per Share
Income from continuing operations		$	1,420		$	1,193		$	4,345		$	3,042
Less: Allocated to participating securities		36			34			111			88
Available to common shareholders		$	1,384		$	1,159		$	4,234		$	2,954
Income from discontinued operations		$	—		$	433		$	—		$	707
Less: Allocated to participating securities		—			12			—			20
Available to common shareholders		$	—		$	421		$	—		$	687
Net income		$	1,420		$	1,626		$	4,345		$	3,749
Less: Allocated to participating securities		36			46			111			108
Available to common shareholders		$	1,384		$	1,580		$	4,234		$	3,641
Basic weighted averages shares outstanding		8,718,893			8,534,240			8,705,145			8,527,943
Additional dilutive common stock equivalents		38,177			72,390			47,904			75,506
Diluted weighted averages shares outstanding		8,757,070			8,606,630			8,753,049			8,603,449
Income from continuing operations per share		$	0.16		$	0.13		$	0.48		$	0.34
Income from discontinued operations per share		—			0.05			—			0.08
Net income per common and common equivalent share		$	0.16		$	0.18		$	0.48		$	0.42

 

The sum of individual share amounts may not equal due to rounding

 

For the three and six months ended February 28, 2011 and 2010, stock options to purchase 250,000 shares of common stock were outstanding, but were not included in the calculation of diluted income per share in either period because the options’ exercise prices were greater than the average market price of the common stock and thus their inclusion would be anti-dilutive.

 

The Company identified an immaterial error in the calculation of previously reported basic and diluted shares outstanding resulting in earnings per share being understated in certain periods in fiscal 2010.  The Company has revised the prior period financial statements to reflect the appropriate earnings per share.  This immaterial change results in basic earnings per share increasing from $.18 to $.19 for the three months ended February 28, 2010 and from $.42 to $.43 for the six months ended February 28, 2010.  Diluted earnings per share were not impacted for these periods.   The full fiscal year ended August 31, 2010 will be revised when the August 31, 2011 10-K is filed resulting in an increase in reported basic and diluted earnings per share from $1.39 and $1.38, respectively, to $ 1.42 and $1.41, respectively.

 

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In thousands, except share and per share amounts

 

Note 5 — Stock Based Compensation

 

In August 2009, the Board of Directors of Chase Corporation approved a plan for issuing a performance and service based restricted stock grant of 76,874 shares in the aggregate, subject to adjustment, to key members of management with an issue date of September 1, 2009 and a vesting date of August 31, 2012.  In December 2009, restricted stock in the amount of 8,421 shares related to this grant was forfeited in conjunction with the retirement of an executive officer of the Company.  Based on the fiscal year 2010 financial results coming in above the target, the grant was increased by 68,453 shares of restricted stock subsequent to the end of fiscal year 2010 in accordance with the performance measurement criteria of the award.  The adjusted restricted stock award of 136,906 shares was finalized in the quarter ended November 30, 2010 and no further performance-based measurements apply to this award.  Compensation expense is being recognized on a ratable basis over the vesting period.

 

In August 2010, the Board of Directors of the Company approved the fiscal year 2011 Long Term Incentive Plan (“LTIP”) for the executive officers.  The fiscal 2011 LTIP is an equity based plan with a grant date of September 1, 2010 and containing the following components:

 

Restricted Shares — (a) a performance and service based restricted stock grant of 32,835 shares in the aggregate, subject to adjustment, with a vesting date of August 31, 2013.  These shares are subject to a performance measurement based upon the results of fiscal year 2011 which will determine the final calculation of the number of shares that will be issued (which may be greater than or less than 32,835 shares).  Compensation expense is being recognized on a ratable basis over the vesting period based on quarterly probability assessments. (b) a time-based restricted stock grant of 16,417 shares in the aggregate, and a vesting date of August 31, 2013.  Compensation expense is being recognized on a ratable basis over the vesting period.

 

Stock options — options to purchase 62,425 shares of common stock, in the aggregate with an exercise price of $12.70 per share.  The options will vest in three equal annual allotments beginning on August 31, 2011 and ending on August 31, 2013. The options will expire on August 31, 2020.

 

As part of their annual retainer, non-employee members of the Board of Directors receive a combined total of $169 of Chase Corporation common stock, in the form of restricted stock valued in conjunction with the start of the new year of Board service which generally coincides with the Company’s annual shareholder meeting.  The stock award vests one year from the date of grant.  In February 2011, non-employee members of the Board received a total grant of 11,031 shares of restricted stock for service for the period from January 31, 2011 through January 31, 2012.  The shares of restricted stock will vest at the conclusion of this service period.  Compensation is being recognized on a ratable basis over the twelve month vesting period.

 

Note 6 — Segment Data & Foreign Operations

 

The Company currently views its operations and manages its business as one operating segment.  The Specialized Manufacturing segment consists of specialty tapes, laminates, sealants and coatings, and products include insulating and conducting materials for wire and cable manufacturers, coating and lining systems for use in liquid storage and containment applications, protective coatings for pipeline applications, moisture protective coatings for electronics and printing services, high performance polymeric asphalt additives, and expansion and control joint systems for use in the transportation and architectural markets.

 

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In thousands, except share and per share amounts

 

The Company’s products are sold world-wide.  For the quarters ended February 28, 2011 and 2010, sales from its operations located in the United Kingdom accounted for 14% and 19% of total Company revenues from continuing operations, respectively.  In the fiscal year to date period, sales from its operations located in the United Kingdom accounted for 13% of total Company revenues from continuing operations compared to 14% in the same period in fiscal 2010.   No other foreign geographic area accounted for more than 10% of consolidated revenues for the three and six month periods ended February 28, 2011 and 2010.

 

As of February 28, 2011 and August 31, 2010, the Company had long-lived assets (defined as tangible assets providing the Company with a future economic benefit beyond the current year or operating period, including buildings, equipment and leasehold improvements) of $2,057 and $2,020, respectively, located in the United Kingdom.   These balances exclude goodwill and intangibles of $13,685 and $13,757, as of February 28, 2011 and August 31, 2010, respectively.

 

Note 7 — Goodwill and Other Intangibles

 

The changes in the carrying value of goodwill are as follows:

 

		Goodwill
Balance at August 31, 2010		$	17,437
FX translation adjustment		238
Balance at February 28, 2011		$	17,675

 

The Company evaluates the possible impairment of goodwill annually each fourth quarter and whenever events or circumstances indicate the carrying value of goodwill may not be recoverable.

 

Intangible assets subject to amortization consist of the following at February 28, 2011 and August 31, 2010:

 

		Weighted-Average		Gross Carrying			Accumulated			Net Carrying
		Amortization Period		Value			Amortization			Value
February 28, 2011
Patents and agreements		12.7 years		$	2,241		$	2,149		$	92
Formulas and technology		9.8 years		3,571			1,119			2,452
Trade names		4.7 years		1,393			573			820
Customer lists and relationships		10.4 years		19,106			5,278			13,828
				$	26,311		$	9,119		$	17,192
August 31, 2010
Patents and agreements		12.7 years		$	2,237		$	2,118		$	119
Formulas and technology		9.8 years		3,530			914			2,616
Trade names		4.7 years		1,348			445			903
Customer lists and relationships		10.4 years		18,604			4,300			14,304
				$	25,719		$	7,777		$	17,942

 

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In thousands, except share and per share amounts

 

Aggregate amortization expense related to intangible assets for the six months ended February 28, 2011 and 2010 was $1,147 and $1,241, respectively.  Estimated amortization expense for the remainder of fiscal year 2011 and for each of the five succeeding fiscal years is as follows:

 

Years ending August 31,
2011 (remaining six months)		$	1,193
2012		2,373
2013		2,256
2014		2,199
2015		2,001
2016		1,939
		$	11,961

 

Note 8 — Commitments and Contingencies

 

The Company is one of over 100 defendants in a lawsuit pending in Ohio which alleges personal injury from exposure to asbestos contained in certain Chase products.  The case is captioned Marie Lou Scott, Executrix of the Estate of James T. Scott v. A-Best Products, et al., No. 312901 in the Court of Common Pleas for Cuyahoga County, Ohio.  The plaintiff in the case issued discovery requests to Chase in August 2005, to which Chase timely responded in September 2005.  The trial had initially been scheduled to begin on April 30, 2007.  However, that date had been postponed and no new trial date has been set.  As of February 2011, there have been no new developments as this Ohio lawsuit has been inactive with respect to Chase.

 

The Company was named as one of the defendants in a complaint filed on June 25, 2009, in a lawsuit captioned Lois Jansen, Individually and as Special Administrator of the Estate of Thomas Jansen v. Beazer East, Inc., et al., No: 09-CV-6248 in the Milwaukee County (Wisconsin) Circuit Court.  The plaintiff alleges that her husband suffered and died from malignant mesothelioma resulting from exposure to asbestos in his workplace.  The plaintiff has sued seven alleged manufacturers or distributors of asbestos-containing products, including Royston Laboratories (formerly an independent company and now a division of Chase Corporation).  Chase has filed an answer to the claim denying the material allegations in the complaint.  The parties are currently engaged in discovery.

 

In addition to the matters described above, the Company is involved from time to time in litigation incidental to the conduct of its business.  Although the Company does not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations, litigation is inherently unpredictable.  Therefore, judgments could be rendered or settlements entered, that could adversely affect the Company’s operating results or cash flows in a particular period.  The Company routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where the Company assesses the likelihood of loss as probable.

 

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Table of Contents

 

CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In thousands, except share and per share amounts

 

Note 9 - Pensions and Other Post Retirement Benefits

 

The components of net periodic benefit cost for the three and six months ended February 28, 2011 and 2010 are as follows:

 

		Three Months Ended February 28,						Six Months Ended February 28,
		2011			2010			2011			2010
Service cost		$	132		$	124		$	263		$	247
Interest cost		107			123			215			245
Expected return on plan assets		(110		)	(100		)	(220		)	(199		)
Amortization of prior service cost		18			21			37			43
Amortization of unrecognized loss		60			53			120			106
Net periodic benefit cost		$	207		$	221		$	415		$	442

 

When funding is required, the Company’s policy is to contribute amounts that are deductible for federal income tax purposes.  As of February 28, 2011, the Company had not made any contributions in the current fiscal year to fund its obligations under the pension plan.  However, the Company currently plans to contribute approximately $750 to fund pension plan obligations in the fiscal year ending August 31, 2011.

 

Note 10 — Fair Value Measurements

 

The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).  The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

The Company endeavors to utilize the best available information in measuring fair value.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  The Company has determined that it does not have any financial liabilities measured at fair value and that its financial assets are currently all classified within Level 1 in the fair value hierarchy.   The financial assets classified as Level 1 as of February 28, 2011 and August 31, 2010 represent investments which are restricted for use in a nonqualified retirement savings plan for certain key employees and Directors.

 

The following tables set forth the Company’s financial assets that were accounted for at fair value on a recurring basis as of February 28, 2011 and August 31, 2010:

 

							Fair value measurement category
		Fair value measurement date		Total			Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Assets:
Restricted investments		February 28, 2011		$	779		$	779		$	—		$	—
Restricted investments		August 31, 2010		$	611		$	611		$	—		$	—

 

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