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 29, 2012
Commission File Number: 1-9852
CHASE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts |
|
11-1797126 |
(State or other jurisdiction of incorporation |
|
(I.R.S. Employer Identification No.) |
26 Summer Street, Bridgewater, Massachusetts 02324
(Address of Principal Executive Offices, Including Zip Code)
(508) 819-4200
(Registrants 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 suchfiles). YES x 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.
Large accelerated filer o |
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Accelerated filer x |
|
|
|
Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
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, 2012 was 9,052,241.
CHASE CORPORATION
For the Quarter Ended February 29, 2012
Part 1 FINANCIAL INFORMATION
Item 1 Unaudited Financial Statements
CHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousands, except share and per share amounts
|
|
February 29, |
|
August 31, |
| ||
|
|
2012 |
|
2011 |
| ||
ASSETS |
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash & cash equivalents |
|
$ |
12,383 |
|
$ |
14,982 |
|
Accounts receivable, less allowance for doubtful accounts of $422 and $473 |
|
16,481 |
|
19,103 |
| ||
Inventories |
|
21,985 |
|
20,841 |
| ||
Prepaid expenses and other current assets |
|
1,880 |
|
1,502 |
| ||
Assets held for sale (Note 12) |
|
|
|
1,004 |
| ||
Deferred income taxes |
|
559 |
|
559 |
| ||
Total current assets |
|
53,288 |
|
57,991 |
| ||
|
|
|
|
|
| ||
Property, plant and equipment, net |
|
30,246 |
|
28,594 |
| ||
|
|
|
|
|
| ||
Other Assets: |
|
|
|
|
| ||
Goodwill |
|
17,992 |
|
18,060 |
| ||
Intangible assets, less accumulated amortization of $11,315 and $10,374 |
|
14,742 |
|
16,185 |
| ||
Cash surrender value of life insurance |
|
7,047 |
|
6,915 |
| ||
Restricted investments |
|
836 |
|
740 |
| ||
Deferred income taxes |
|
330 |
|
332 |
| ||
Other assets |
|
85 |
|
92 |
| ||
|
|
$ |
124,566 |
|
$ |
128,909 |
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
7,842 |
|
$ |
7,276 |
|
Accrued payroll and other compensation |
|
1,598 |
|
2,624 |
| ||
Accrued expenses |
|
3,769 |
|
4,237 |
| ||
Accrued income taxes |
|
273 |
|
1,387 |
| ||
Current portion of long-term debt |
|
4,400 |
|
4,400 |
| ||
Total current liabilities |
|
17,882 |
|
19,924 |
| ||
|
|
|
|
|
| ||
Long-term debt, less current portion |
|
6,243 |
|
8,267 |
| ||
Deferred compensation |
|
1,668 |
|
1,597 |
| ||
Accumulated pension obligation |
|
6,199 |
|
6,713 |
| ||
Other liabilities |
|
103 |
|
528 |
| ||
|
|
|
|
|
| ||
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; 9,050,873 shares at February 29, 2012 and 8,952,910 shares at August 31, 2011 issued and outstanding |
|
905 |
|
895 |
| ||
Additional paid-in capital |
|
11,633 |
|
10,678 |
| ||
Accumulated other comprehensive loss |
|
(4,399 |
) |
(3,666 |
) | ||
Retained earnings |
|
84,332 |
|
83,973 |
| ||
Total stockholders equity |
|
92,471 |
|
91,880 |
| ||
Total liabilities and stockholders equity |
|
$ |
124,566 |
|
$ |
128,909 |
|
See accompanying notes to the consolidated financial statements
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In thousands, except share and per share amounts
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
February 29, 2012 |
|
February 28, 2011 |
|
February 29, 2012 |
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February 28, 2011 |
| ||||
|
|
|
|
|
|
|
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|
| ||||
Revenues |
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|
|
|
|
|
|
|
| ||||
Sales |
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$ |
28,836 |
|
$ |
25,652 |
|
$ |
60,490 |
|
$ |
56,490 |
|
Royalties and commissions |
|
585 |
|
609 |
|
1,061 |
|
1,038 |
| ||||
|
|
29,421 |
|
26,261 |
|
61,551 |
|
57,528 |
| ||||
Costs and Expenses |
|
|
|
|
|
|
|
|
| ||||
Cost of products and services sold |
|
21,022 |
|
17,441 |
|
43,021 |
|
37,501 |
| ||||
Selling, general and administrative expenses |
|
6,513 |
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6,594 |
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13,505 |
|
13,182 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
|
1,886 |
|
2,226 |
|
5,025 |
|
6,845 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
(36 |
) |
(87 |
) |
(72 |
) |
(180 |
) | ||||
Other income (expense) |
|
(8 |
) |
8 |
|
469 |
|
124 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
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1,842 |
|
2,147 |
|
5,422 |
|
6,789 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income taxes |
|
645 |
|
727 |
|
1,898 |
|
2,444 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
1,197 |
|
$ |
1,420 |
|
$ |
3,524 |
|
$ |
4,345 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income available to common shareholders, per common and common equivalent share |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.13 |
|
$ |
0.16 |
|
$ |
0.39 |
|
$ |
0.49 |
|
Diluted |
|
$ |
0.13 |
|
$ |
0.16 |
|
$ |
0.39 |
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
8,758,063 |
|
8,718,893 |
|
8,756,030 |
|
8,705,145 |
| ||||
Diluted |
|
8,791,052 |
|
8,757,070 |
|
8,774,051 |
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8,753,049 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash dividends declared per share |
|
|
|
|
|
$ |
0.35 |
|
$ |
0.35 |
|
See accompanying notes to the consolidated financial statements
CHASE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED FEBRUARY 29, 2012
(UNAUDITED)
In thousands, except share and per share amounts
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
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Additional |
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Other |
|
|
|
Total |
|
|
| ||||||
|
|
Common Stock |
|
Paid-In |
|
Comprehensive |
|
Retained |
|
Stockholders |
|
Comprehensive |
| ||||||||
|
|
Shares |
|
Amount |
|
Capital |
|
Income (loss) |
|
Earnings |
|
Equity |
|
Income |
| ||||||
Balance at August 31, 2011 |
|
8,952,910 |
|
$ |
895 |
|
$ |
10,678 |
|
$ |
(3,666 |
) |
$ |
83,973 |
|
$ |
91,880 |
|
|
| |
Restricted stock grants, net of forfeitures |
|
96,767 |
|
10 |
|
(10 |
) |
|
|
|
|
|
|
|
| ||||||
Amortization of restricted stock grants |
|
|
|
|
|
672 |
|
|
|
|
|
672 |
|
|
| ||||||
Amortization of stock option grants |
|
|
|
|
|
278 |
|
|
|
|
|
278 |
|
|
| ||||||
Common stock issuance |
|
1,196 |
|
|
|
15 |
|
|
|
|
|
15 |
|
|
| ||||||
Cash dividend paid, $0.35 per share |
|
|
|
|
|
|
|
|
|
(3,165 |
) |
(3,165 |
) |
|
| ||||||
Pension amortization, net of tax of $61 |
|
|
|
|
|
|
|
114 |
|
|
|
114 |
|
$ |
114 |
| |||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
(883 |
) |
|
|
(883 |
) |
(883 |
) | ||||||
Net unrealized gain on restricted investments, net of tax of $19 |
|
|
|
|
|
|
|
36 |
|
|
|
36 |
|
36 |
| ||||||
Net income |
|
|
|
|
|
|
|
|
|
3,524 |
|
3,524 |
|
3,524 |
| ||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,791 |
| |||||
Balance at February 29, 2012 |
|
9,050,873 |
|
$ |
905 |
|
$ |
11,633 |
|
$ |
(4,399 |
) |
$ |
84,332 |
|
$ |
92,471 |
|
|
|
See accompanying notes to the consolidated financial statements
CHASE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
In thousands
|
|
Six Months Ended |
| ||||
|
|
February 29, 2012 |
|
February 28, 2011 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| ||
Net income |
|
$ |
3,524 |
|
$ |
4,345 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
| ||
Loss on disposal/sale of fixed assets |
|
30 |
|
|
| ||
Depreciation |
|
1,393 |
|
1,225 |
| ||
Amortization |
|
1,137 |
|
1,147 |
| ||
Provision for losses on accounts receivable |
|
(44 |
) |
(78 |
) | ||
Stock based compensation |
|
965 |
|
772 |
| ||
Realized loss (gain) on restricted investments |
|
(8 |
) |
(13 |
) | ||
Decrease (increase) in cash surrender value life insurance |
|
(30 |
) |
|
| ||
Excess tax benefit from stock based compensation |
|
|
|
(17 |
) | ||
Increase (decrease) from changes in assets and liabilities |
|
|
|
|
| ||
Accounts receivable |
|
2,508 |
|
1,681 |
| ||
Inventories |
|
(1,228 |
) |
(4,352 |
) | ||
Prepaid expenses & other assets |
|
(397 |
) |
(60 |
) | ||
Accounts payable |
|
651 |
|
3 |
| ||
Accrued expenses |
|
(2,744 |
) |
(1,726 |
) | ||
Accrued income taxes |
|
(1,122 |
) |
(2,317 |
) | ||
Deferred compensation |
|
71 |
|
142 |
| ||
Net cash provided by operating activities |
|
4,706 |
|
752 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
(2,707 |
) |
(1,348 |
) | ||
Contingent purchase price for acquisition |
|
(155 |
) |
|
| ||
Net proceeds from sale of fixed assets |
|
1,032 |
|
|
| ||
Additional proceeds from sale of discontinued operations |
|
|
|
1,478 |
| ||
Net withdrawals (contributions) from restricted investments |
|
(33 |
) |
(30 |
) | ||
Payments for cash surrender value life insurance |
|
(92 |
) |
(91 |
) | ||
Net cash (used in) provided by investing activities |
|
(1,955 |
) |
9 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| ||
Borrowings on long-term debt |
|
9,115 |
|
910 |
| ||
Payments of principal on debt |
|
(11,138 |
) |
(3,610 |
) | ||
Dividend paid |
|
(3,165 |
) |
(3,131 |
) | ||
Payments of statutory minimum taxes on stock options and restricted stock |
|
|
|
(13 |
) | ||
Excess tax benefit from stock based compensation |
|
|
|
17 |
| ||
Net cash used in financing activities |
|
(5,188 |
) |
(5,827 |
) | ||
|
|
|
|
|
| ||
DECREASE IN CASH |
|
(2,437 |
) |
(5,066 |
) | ||
Effect of foreign exchange rates on cash |
|
(162 |
) |
272 |
| ||
CASH, BEGINNING OF PERIOD |
|
14,982 |
|
17,340 |
| ||
|
|
|
|
|
| ||
CASH, END OF PERIOD |
|
$ |
12,383 |
|
$ |
12,546 |
|
|
|
|
|
|
| ||
Non-cash Investing and Financing Activities |
|
|
|
|
| ||
Common stock received for payment of stock option exercises |
|
$ |
|
|
$ |
373 |
|
Property, plant & equipment additions included in accounts payable |
|
$ |
470 |
|
$ |
114 |
|
Gain on termination of Evanston sale leaseback transaction (Note 11) |
|
$ |
425 |
|
$ |
|
|
See accompanying notes to the consolidated financial statements
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 disclosures necessary for a complete presentation of Chase Corporations 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, 2011 in conjunction with its 2011 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 statement of the Companys financial position as of February 29, 2012, the results of operations and cash flows for the interim periods ended February 29, 2012 and February 28, 2011, and changes in stockholders equity for the interim period ended February 29, 2012.
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 Companys 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 Companys 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.
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 29, 2012 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 the year ended August 31, 2011, which are contained in the Companys 2011 Annual Report on Form 10-K.
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In thousands, except share and per share amounts
Note 2 Recent Accounting Policies
Recently Issued Accounting Pronouncements
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income, (ASU 2011-05) which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011 and will be adopted by the Company in the quarter ended May 31, 2012. The adoption of ASU 2011-05 will not have an impact on the Companys consolidated financial position, results of operations or cash flows as it only requires a change in the format of the current presentation.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles - Goodwill and Other (ASC Topic 350) - Testing Goodwill for Impairment, (ASU 2011-08) which gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two-step test mandated prior to this update. ASU 2011-08 also provides companies with a revised list of examples of events and circumstances to consider, in their totality, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step test. Otherwise, a company may skip the two-step test. Companies are not required to perform the qualitative assessment and may instead proceed directly to the first step of the two-part test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of ASU 2011-08 will not have an impact on the Companys consolidated financial position, results of operations or cash flows.
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (ASC Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, (ASU 2011-12) which defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. The amendments in ASU 2011-12 are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011 and will be adopted by the Company in the quarter ended May 31, 2012. The adoption of ASU 2011-12 will not have an impact on the Companys consolidated financial position, results of operations or cash flows as it only requires a change in the format of the current presentation.
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In thousands, except share and per share amounts
Note 3 Inventories
Inventories consist of the following as of February 29, 2012 and August 31, 2011:
|
|
February 29, 2012 |
|
August 31, 2011 |
| ||
Raw materials |
|
$ |
10,424 |
|
$ |
10,206 |
|
Finished and in process |
|
11,561 |
|
10,635 |
| ||
Total inventories |
|
$ |
21,985 |
|
$ |
20,841 |
|
Note 4 Net Income Per Share
The determination of earnings per share under the two-class method is as follows:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
February 29, 2012 |
|
February 28, 2011 |
|
February 29, 2012 |
|
February 28, 2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic Earnings per Share |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
1,197 |
|
$ |
1,420 |
|
$ |
3,524 |
|
$ |
4,345 |
|
Less: Allocated to participating securities |
|
38 |
|
37 |
|
111 |
|
112 |
| ||||
Net income available to common shareholders |
|
$ |
1,159 |
|
$ |
1,383 |
|
$ |
3,413 |
|
$ |
4,233 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average shares outstanding |
|
8,758,063 |
|
8,718,893 |
|
8,756,030 |
|
8,705,145 |
| ||||
Net income per share - Basic |
|
$ |
0.13 |
|
$ |
0.16 |
|
$ |
0.39 |
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted Earnings per Share |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
1,197 |
|
$ |
1,420 |
|
$ |
3,524 |
|
$ |
4,345 |
|
Less: Allocated to participating securities |
|
38 |
|
36 |
|
111 |
|
112 |
| ||||
Net income available to common shareholders |
|
$ |
1,159 |
|
$ |
1,384 |
|
$ |
3,413 |
|
$ |
4,233 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average shares outstanding |
|
8,758,063 |
|
8,718,893 |
|
8,756,030 |
|
8,705,145 |
| ||||
Additional dilutive common stock equivalents |
|
32,989 |
|
38,177 |
|
18,021 |
|
47,904 |
| ||||
Diluted weighted average shares outstanding |
|
8,791,052 |
|
8,757,070 |
|
8,774,051 |
|
8,753,049 |
| ||||
Net income per share - Diluted |
|
$ |
0.13 |
|
$ |
0.16 |
|
$ |
0.39 |
|
$ |
0.48 |
|
For the three and six months ended February 29, 2012 and February 28, 2011, stock options to purchase 258,451 and 250,000 shares of common stock were outstanding, respectively, 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.
Note 5 Stock Based Compensation
In August 2010, the Board of Directors of Chase Corporation approved the fiscal year 2011 Long Term Incentive Plan (2011 LTIP) for the executive officers. The 2011 LTIP is an equity based plan with a grant date of September 1, 2010 and contains 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. Based on the fiscal year 2011 financial results, 32,835 additional shares of restricted stock (total of 65,670 shares) were earned and granted subsequent to the end of fiscal year 2011 in accordance with the performance measurement criteria. No further performance-based measurements apply to this award. Compensation expense is being recognized on a ratable basis over the vesting period.
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In thousands, except share and per share amounts
In August 2011, the Board of Directors of the Company approved the fiscal year 2012 Long Term Incentive Plan (2012 LTIP) for the executive officers. The 2012 LTIP is an equity based plan with a grant date of September 1, 2011 and containing the following components:
Restricted Shares (a) performance and service based restricted stock grant of 33,798 shares in the aggregate, subject to adjustment, with a vesting date of August 31, 2014. Compensation expense is being recognized on a ratable basis over the vesting period based on quarterly probability assessments; (b) time-based restricted stock grant of 16,899 shares in the aggregate, and a vesting date of August 31, 2014. Compensation expense is being recognized on a ratable basis over the vesting period.
Stock options options to purchase 59,493 shares of common stock in the aggregate with an exercise price of $12.77 per share. The options will vest in three equal annual allotments beginning on August 31, 2012 and ending on August 31, 2014. The options will expire on August 31, 2021. Compensation expense is being recognized over the period of the award on an annual basis consistent with the vesting terms.
In August 2011, the Board of Directors of the Company approved a plan for issuing a time-based restricted stock grant of 5,037 shares in the aggregate to certain non-executive officer employees, with an issue date of August 31, 2011 and a vesting date of August 31, 2014. Compensation expense is being recognized on a ratable basis over the vesting period.
In August 2011, the Board of Directors of the Company authorized a grant of stock options to certain non-executive officer employees to purchase 20,883 shares of common stock in the aggregate with an exercise price of $12.77 per share. The options will vest in three equal annual allotments beginning on August 31, 2012 and ending on August 31, 2014. The options will expire on August 31, 2021. Compensation expense is being recognized over the period of the award on an annual basis consistent with the vesting terms.
In December 2011, restricted stock in the amount of 1,887 shares related to the April 2011 grant was forfeited in conjunction with the termination of employment of a non-executive officer of the Company.
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 Companys annual shareholder meeting. The stock award vests one year from the date of grant. In February 2012, non-employee members of the Board received a total grant of 10,085 shares of restricted stock for service for the period from January 31, 2012 through January 31, 2013. 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 is organized into two operating segments, an Industrial Materials segment and a Construction Materials segment. The basis for this segmentation is distinguished by the nature of the products and how they are delivered to their respective markets. The Industrial Materials segment reflects specified products that are used in or integrated into another companys product with demand dependent upon general economic conditions. Industrial Materials products include insulating and conducting materials for wire and cable manufacturers, moisture protective coatings for electronics and printing services, laminated durable papers, and flexible composites and laminates for the aerospace, packaging and industrial laminate markets. The Construction Materials segment reflects construction project
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In thousands, except share and per share amounts
oriented product offerings which are primarily sold and used as Chase branded products in final form. Construction Materials products include protective coatings for pipeline applications, coating and lining systems for use in liquid storage and containment applications, high performance polymeric asphalt additives, and expansion and control joint systems for use in the transportation and architectural markets.
The following tables summarize information about the Companys reportable segments:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
February 29, 2012 |
|
February 28, 2011 |
|
February 29, 2012 |
|
February 28, 2011 |
| ||||
Revenues from external customers |
|
|
|
|
|
|
|
|
| ||||
Industrial Materials |
|
$ |
18,487 |
|
$ |
17,532 |
|
$ |
37,973 |
|
$ |
35,702 |
|
Construction Materials |
|
10,934 |
|
8,729 |
|
23,578 |
|
21,826 |
| ||||
Total |
|
$ |
29,421 |
|
$ |
26,261 |
|
$ |
61,551 |
|
$ |
57,528 |
|
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
|
|
|
|
|
|
|
| ||||
Industrial Materials |
|
$ |
3,320 |
|
$ |
3,709 |
|
$ |
6,964 |
|
$ |
7,535 |
|
Construction Materials |
|
(273 |
) |
(441 |
) |
123 |
|
1,381 |
| ||||
Total for reportable segments |
|
3,047 |
|
3,268 |
|
7,087 |
|
8,916 |
| ||||
Corporate and Common Costs |
|
(1,205 |
) |
(1,121 |
) |
(1,665 |
)(a) |
(2,127 |
) | ||||
Total |
|
$ |
1,842 |
|
$ |
2,147 |
|
$ |
5,422 |
|
$ |
6,789 |
|
(a) Includes gain of $425 on termination of Evanston sale leaseback transaction (see Note 11 for further information).
The Companys products are sold world-wide. For the quarters ended February 29, 2012 and February 28, 2011, sales from its operations located in the United Kingdom accounted for 16% and 14% of total Company revenues, respectively. In the fiscal year to date period, sales from its operations located in the United Kingdom accounted for 16% of total Company revenues compared to 13% in the same period in fiscal 2011. No other foreign geographic area accounted for more than 10% of consolidated revenues for the three and six month periods ended February 29, 2012 and February 28, 2011.
|
|
February 29, 2012 |
|
August 31, 2011 |
| ||
Total assets |
|
|
|
|
| ||
|
$ |
49,934 |
|
$ |
49,306 |
(a) | |
Construction Materials |
|
51,863 |
|
54,329 |
| ||
Total for reportable segments |
|
101,797 |
|
103,635 |
| ||
Corporate and Common Assets |
|
22,769 |
|
25,274 |
| ||
Total |
|
$ |
124,566 |
|
$ |
128,909 |
|
(a) Includes assets held for sale of $1,004 from our Webster, MA property
As of February 29, 2012 and August 31, 2011, 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 $4,315 and $2,796, respectively, located in the United Kingdom. These balances exclude goodwill and intangibles of $12,266 and $13,267, as of February 29, 2012 and August 31, 2011, respectively.
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In thousands, except share and per share amounts
Note 7 Goodwill and Other Intangibles
The changes in the carrying value of goodwill, by reportable segment, are as follows:
|
|
Construction |
|
Industrial |
|
Consolidated |
| |||
Balance at August 31, 2011 |
|
$ |
10,661 |
|
$ |
7,399 |
|
$ |
18,060 |
|
Acquisition of Capital Services - additional earnout |
|
87 |
|
|
|
87 |
| |||
Acquisition of Paper Tyger - additional earnout |
|
|
|
68 |
|
68 |
| |||
FX translation adjustment |
|
(8 |
) |
(215 |
) |
(223 |
) | |||
Balance at February 29, 2012 |
|
$ |
10,740 |
|
$ |
7,252 |
|
$ |
17,992 |
|
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 as of February 29, 2012 and August 31, 2011:
|
|
Weighted-Average |
|
Gross Carrying |
|
Accumulated |
|
Net Carrying |
| |||
|
|
Amortization Period |
|
Value |
|
Amortization |
|
Value |
| |||
February 29, 2012 |
|
|
|
|
|
|
|
|
| |||
Patents and agreements |
|
12.7 years |
|
$ |
2,244 |
|
$ |
2,200 |
|
$ |
44 |
|
Formulas |
|
9.8 years |
|
3,566 |
|
1,502 |
|
2,064 |
| |||
Trade names |
|
4.7 years |
|
1,388 |
|
795 |
|
593 |
| |||
Customer lists and relationships |
|
10.4 years |
|
18,859 |
|
6,818 |
|
12,041 |
| |||
|
|
|
|
$ |
26,057 |
|
$ |
11,315 |
|
$ |
14,742 |
|
|
|
|
|
|
|
|
|
|
| |||
August 31, 2011 |
|
|
|
|
|
|
|
|
| |||
Patents and agreements |
|
12.7 years |
|
$ |
2,243 |
|
$ |
2,175 |
|
$ |
68 |
|
Formulas |
|
9.7 years |
|
3,589 |
|
1,318 |
|
2,271 |
| |||
Trade names |
|
4.7 years |
|
1,413 |
|
693 |
|
720 |
| |||
Customer lists and relationships |
|
10.4 years |
|
19,314 |
|
6,188 |
|
13,126 |
| |||
|
|
|
|
$ |
26,559 |
|
$ |
10,374 |
|
$ |
16,185 |
|
Aggregate amortization expense related to intangible assets for the six months ended February 29, 2012 and February 28, 2011 was $1,137 and $1,147, respectively. Estimated amortization expense for the remainder of fiscal year 2012 and for future periods is as follows:
Years ending August 31, |
|
|
| |
2012 (remaining six months) |
|
$ |
1,180 |
|
2013 |
|
2,256 |
| |
2014 |
|
2,199 |
| |
2015 |
|
2,001 |
| |
2016 |
|
1,939 |
| |
2017 and beyond |
|
5,167 |
| |
|
|
$ |
14,742 |
|
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In thousands, except share and per share amounts
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 2012, 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 owned by 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 Companys 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.
Note 9 - Pensions and Other Post Retirement Benefits
The components of net periodic benefit cost for the three and six months ended February 29, 2012 and February 28, 2011 are as follows:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
February 29, 2012 |
|
February 28, 2011 |
|
February 29, 2012 |
|
February 28, 2011 |
| ||||
Service cost |
|
$ |
120 |
|
$ |
132 |
|
$ |
241 |
|
$ |
263 |
|
Interest cost |
|
130 |
|
107 |
|
260 |
|
215 |
| ||||
Expected return on plan assets |
|
(131 |
) |
(110 |
) |
(262 |
) |
(220 |
) | ||||
Amortization of prior service cost |
|
19 |
|
18 |
|
37 |
|
37 |
| ||||
Amortization of unrecognized loss |
|
69 |
|
60 |
|
138 |
|
120 |
| ||||
Net periodic benefit cost |
|
$ |
207 |
|
$ |
207 |
|
$ |
414 |
|
$ |
415 |
|
When funding is required, the Companys policy is to contribute amounts that are deductible for federal income tax purposes. As of February 29, 2012, the Company has made contributions of $750 in the current fiscal year to fund its obligations under its pension plan, and plans to make the necessary contributions over the remainder of fiscal 2012 to ensure the qualified plan continues to be adequately funded given the current market conditions.
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In thousands, except share and per share amounts
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 quoted prices for similar instruments in active markets or 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 29, 2012 and August 31, 2011 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 Companys financial assets that were accounted for at fair value on a recurring basis as of February 29, 2012 and August 31, 2011:
|
|
|
|
Fair value measurement category |
| ||||||||||
|
|
Fair value |
|
Total |
|
Quoted prices |
|
Significant other |
|
Significant |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
| ||||
Restricted investments |
|
February 29, 2012 |
|
$ |
836 |
|
$ |
836 |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restricted investments |
|
August 31, 2011 |
|
$ |
740 |
|
$ |
740 |
|
$ |
|
|
$ |
|
|
Note 11 Sale Leaseback Transaction
In June 2009, the Company entered into a sale leaseback transaction pursuant to the sale of its real property (land and building) located in Evanston, IL. As part of this transaction, the Company agreed to provide financing to the purchaser, whereby the interest due on the financing is equal to the rental payments over the life of the lease. The Company had been accounting for this sale leaseback transaction under the deposit method due to its continued involvement in the form of providing this permanent financing to the buyer. The Company has provided this recourse financing to the buyer whereby the only recourse it has is to take back control and ownership of the leased asset. Under the deposit method, the Company reported the property on its balance sheet and recorded depreciation expense as a period cost in its statement of operations. As of August 31, 2011, the property remained on its consolidated balance sheet in its original caption of property, plant, and equipment.
Deposits received in the form of cash from the buyer, totaling $425, were being reported as a deposit on the contract and were previously included on the balance sheet in other non-current liabilities. The remainder of the $4,250 sales price ($3,825) was due at various dates over the term of the 49 month lease, of which $3,400 was due at the end of the lease term in July 2013. In the quarter ending November 30, 2011, the purchaser notified the Company that it would be unable to make any additional payments under the terms of the purchase agreement and seller financing arrangement. As a result, the Company
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In thousands, except share and per share amounts
took back control and ownership of the leased asset and recognized the $425 in deposit payments as income in the quarter ended November 30, 2011.
Note 12 Assets Held for Sale
The Company periodically reviews long-lived assets against its plans to retain or ultimately dispose of these assets. If the Company decides to dispose of an asset and commits to a plan to actively market and sell the asset, it will be moved to assets held for sale. The Company analyzes market conditions each reporting period and records additional impairments due to declines in market values of like assets. The fair value of the asset is determined by observable inputs such as appraisals and prices of comparable assets in active markets for assets like the Companys. Gains are not recognized until the assets are sold.
In December 2011, the Company finalized the sale of its Webster property for net proceeds of $1,006. This transaction resulted in a gain of $15 which was recorded in the Companys fiscal quarter ending February 29, 2012.
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion provides an analysis of the Companys financial condition and results of operations and should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the Companys Annual Report on Form 10-K filed for the fiscal year ended August 31, 2011.
Overview
We continue to face challenges with unfavorable product mix coupled with rising material costs as increased sales in the first six months of fiscal 2012 generated lower operating income than the prior year period. Revenue for the Industrial Materials segment increased over the prior year primarily due to the wire and cable product line as a result of greater demand in the power cable and communication cable markets. The increased revenues in fiscal 2012 were partially offset by (a) decreased sales of our electronic coatings products, primarily due to decreased export sales into Asia, and (b) decreased sales in our aerospace and transportation product markets. During the remainder of the fiscal year, we will continue our product and global business development efforts for all of our product lines in order to seize new business opportunities. Additional pressure on profit margins can be expected with increasing raw material and energy costs.
Revenues for the Construction Materials segment increased over the prior year primarily due to sales of our pipeline products resulting from strong demand for pipeline tape products produced at our UK facility. Additionally, increased demand from our key private label customers also contributed to the overall revenue increase in this segment. Despite the increased revenues, the Construction Materials segment was impacted by the typical seasonality of this business that limits construction sales in the winter months and favors products with traditionally lower margins. In general, overall profit margins are lower than in our Industrial Materials segment. For the remainder of fiscal 2012, we will continue to focus on maximizing production efficiencies, while closely monitoring our raw material costs and key customers requirements.
During the past quarter, we completed the relocation of our HumiSeal Europe Ltd. manufacturing operations and European headquarters from Camberley, UK to a more modern facility in Winnersh, UK. Over the remainder of fiscal 2012, we will continue with our strategic plans to improve and enhance our facilities and equipment. We believe these plans are critical to the long-term growth of the Company. This will include the on-going renovations of our facility in Oxford, MA as we prepare for the move of our Randolph, MA operations to this facility by December 2012. Additionally, investments in efficiency improvements, long-term consolidation, R&D, technology and marketing will allow us to improve the business in future years.
We have two reportable segments as summarized below:
Segment |
|
Product Lines |
|
Manufacturing Focus and Products |
Industrial Materials |
|
· Wire & Cable |
|
Protective coatings and tape products including insulating and conducting materials for wire and cable manufacturers, moisture protective coatings for electronics and printing services, laminated durable papers, and flexible composites and laminates for the aerospace, packaging and industrial laminate markets. |
|
|
|
|
|
Construction Materials |
|
· Pipeline |
|
Protective coatings and tape products including coating and lining systems for use in liquid storage and containment applications, protective coatings for pipeline and general construction applications, high performance polymeric asphalt additives, and expansion and control joint systems for use in the transportation and architectural markets. |
Results of Operations
Revenues and Operating Profit by Segment are as follows (Dollars in Thousands):
|
|
Three Months Ended |
|
% of |
|
Three Months Ended |
|
% of |
|
Six Months Ended |
|
% of |
|
Six Months Ended |
|
% of |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial Materials |
|
$ |
18,487 |
|
63 |
% |
$ |
17,532 |
|
67 |
% |
$ |
37,973 |
|
62 |
% |
$ |
35,702 |
|
62 |
% |
Construction Materials |
|
10,934 |
|
37 |
% |
8,729 |
|
33 |
% |
23,578 |
|
38 |
% |
21,826 |
|
38 |
% | ||||
Total |
|
$ |
29,421 |
|
|
|
$ |
26,261 |
|
|
|
$ |
61,551 |
|
|
|
$ |
57,528 |
|
|
|
|
|
Three Months Ended |
|
% of |
|
Three Months Ended |
|
% of |
|
Six Months Ended |
|
% of |
|
Six Months Ended |
|
% of |
| ||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial Materials |
|
$ |
3,320 |
|
18 |
% |
$ |
3,709 |
|
21 |
% |
$ |
6,964 |
|
18 |
% |
$ |
7,535 |
|
21 |
% |
Construction Materials |
|
(273 |
) |
-2 |
% |
(441 |
) |
-5 |
% |
123 |
|
1 |
% |
1,381 |
|
6 |
% | ||||
Total for reportable segments |
|
3,047 |
|
10 |
% |
3,268 |
|
12 |
% |
7,087 |
|
12 |
% |
8,916 |
|
15 |
% | ||||
Corporate and Common Costs |
|
(1,205 |
) |
|
|
(1,121 |
) |
|
|
(1,665 |
)(a) |
|
|
(2,127 |
) |
|
| ||||
Total |
|
$ |
1,842 |
|
6 |
% |
$ |
2,147 |
|
8 |
% |
$ |
5,422 |
|
9 |
% |
$ |
6,789 |
|
12 |
% |
(a) Includes gain of $425 on termination of Evanston sale leaseback transaction. See note 11 to the Consolidated Financial Statements for further information.
Total Revenues
Total revenues increased $3,160,000 or 12% to $29,421,000 for the quarter ended February 29, 2012 compared to $26,261,000 in the same quarter of the prior year. Total revenues increased $4,023,000 or 7% to $61,551,000 in the fiscal year to date period compared to $57,528,000 in the same period in fiscal 2011.
Revenues in our Industrial Materials segment increased $955,000 and $2,271,000, in the current quarter and year to date periods, respectively. The increase in revenues from our Industrial Materials segment in the current quarter and year to date periods was primarily due to increased sales of $1,792,000 and $3,489,000, respectively, from our wire & cable product line as we continue to benefit from strong demand in the power cable and communication cable markets. This was partially offset by decreased sales of our electronic coatings products in the current quarter and year to date periods of $644,000 and $799,000, respectively. Sales in the aerospace and transportation market declined $430,000 and $475,000 in the current quarter and year to date period, respectively.
Revenues from our Construction Materials segment increased $2,205,000 and $1,752,000 in the current quarter and year to date periods, respectively, compared to the prior year periods. The increase in sales from our Construction Materials segment compared to the prior year periods is primarily due to the following for the current quarter and year to date periods, respectively: (a) increased sales of $1,414,000 and $2,578,000 from our pipeline products as we had continued strong demand for pipeline products produced at our UK facility; and (b) increased sales of $298,000 and $1,006,000 from our private label products due to increased demand from some of our key customers. We also experienced increased sales of $422,000 and $70,000 in the current quarter from our coating and lining systems (CIM Industries) and highway construction products, respectively. Despite positive results for the current quarter, both our coating and lining systems and highway construction products reflect decreased sales of $918,000 and $915,000, respectively, through the first six months of fiscal 2012 compared to the prior year.
Cost of Products and Services Sold
Cost of products and services sold increased $3,581,000 or 21% to $21,022,000 for the quarter ended February 29, 2012 compared to $17,441,000 in the prior year quarter. Cost of products and services sold increased $5,520,000 or 15% to $43,021,000 in the fiscal year to date period compared to $37,501,000 in the same period in fiscal 2011.
The following table summarizes our costs of products and services sold as a percentage of revenues for each of our reporting segments:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||
Cost of products and services sold |
|
2/29/2012 |
|
2/28/2011 |
|
2/29/2012 |
|
2/28/2011 |
|
|
|
|
|
|
|
|
|
|
|
Industrial Materials |
|
69% |
|
63% |
|
67% |
|
64% |
|
Construction Materials |
|
76% |
|
73% |
|
75% |
|
68% |
|
Total |
|
71% |
|
66% |
|
70% |
|
65% |
|
Cost of products and services sold in our Industrial Materials segment was $12,687,000 and $25,394,000 in the current quarter and year to date periods compared to $11,095,000 and $22,689,000 in the comparable periods in the prior year. As a percentage of revenues, cost of products and services sold in the Industrial Materials segment has increased primarily due to increased sales of lower margin products and lower sales of higher margin products. We also had incremental costs related to the following items in the current quarter and year to date periods, respectively: (1) moving expenses of $28,000 and $315,000 related to our plant transition from Webster to Oxford and Camberley to Winnersh; and (2) accrued severance costs of $150,000 and $250,000 related to the planned move from our Randolph plant. Additionally, certain supplier inconsistencies that resulted in excess waste and incremental expenses related to the utilization of specialized testing facilities for analyzing incoming raw materials for proper specifications also had a negative impact on this segment in the year to date period.
Cost of products and services sold in our Construction Materials segment was $8,335,000 and $17,627,000 in the current quarter and year to date periods compared to $6,346,000 and $14,812,000 in the comparable periods in the prior year. As a percentage of revenues, cost of products and services sold in the Construction Materials segment increased primarily due to higher raw material costs, increased sales of lower margin products, and decreased sales of higher margin products. We have initiated price increases for certain products in this segment and continue to closely monitor raw material pricing across all product lines in an effort to preserve margins. While we saw improvements from our Rye, UK plant through the first six months of fiscal 2012, as compared to the production issues noted in the latter half of fiscal 2011, we had incremental costs related to some residual issues of $168,000 in the current quarter and $459,000 in the current fiscal year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $81,000 or 1% to $6,513,000 for the quarter ended February 29, 2012 compared to $6,594,000 in the prior year quarter. As a percentage of revenues, selling, general and administrative expenses decreased to 22% in the current fiscal quarter compared to 25% in the same period in fiscal 2011. The decrease in the current quarter is primarily due to reduced external consulting costs and professional services. Selling, general and administrative expenses increased $323,000 or 2% to $13,505,000 in the fiscal year to date period compared to $13,182,000 in the same period in fiscal 2011. In fiscal 2012 to date, selling, general and administrative expenses as a percentage of revenues decreased to 22% compared to 23% in the same period in fiscal 2011. The dollar increase in selling, general and administrative expenses in the current fiscal year to date period is primarily attributable to increased investment in marketing, R&D, quality control and technology enhancements.
Interest Expense
Interest expense decreased $51,000 or 59% to $36,000 for the quarter ended February 29, 2012 compared to $87,000 in the prior year quarter. Interest expense decreased $108,000 or 60% to $72,000 for the fiscal year to date period compared to $180,000 in the same period in fiscal 2011. The decrease in interest expense for both the current quarter and year to date period is primarily due to the capitalization of imputed interest on construction in process projects related to our Oxford, MA and Pittsburgh, PA facilities, as well as continued favorable interest rates on lower overall term debt balances.
Other Income (Expense)
Other expense of $8,000 in the quarter ended February 29, 2012 compared unfavorably to other income of $8,000 in the same period in fiscal 2011. Other income primarily includes interest income and foreign exchange gains and losses caused by changes in exchange rates on transactions or balances denominated in currencies other than the functional currency of our subsidiaries. The decrease in other income (expense) in the current quarter is primarily due to foreign exchange losses caused by the weakening of both the sterling and euro, and the subsequent revaluation of some of our European sales transactions completed in other functional currencies (and subsequently translated to the sterling and the euro).
Other income increased $345,000 to $469,000 for the fiscal year to date period compared to $124,000 in the same period in the prior year. In fiscal 2012, other income includes a gain of $425,000 recognized on deposit payments previously received on the sale of our Evanston, IL property. The Company took back control and ownership of this leased asset which was previously sold by us under a seller financing arrangement (see note 11 to the consolidated financial statements). The increase in other income in the year to date period is partially offset by the foreign exchange losses previously mentioned.
Income Taxes
The effective tax rate was 35.0% in the quarter ended February 29, 2012 compared to 33.9% in the prior year quarter. The effective tax rate was 35.0% for the fiscal year to date period compared to 36.0% in the same period in fiscal 2011. The lower effective tax rate in fiscal 2012 is primarily due to an increase in the applicable domestic production deduction and a more favorable state income tax rate that was phased in during the prior year and resulted in a more favorable tax rate in the prior year quarter compared to the quarter ended February 29, 2012.
Net Income
Consolidated net income decreased $223,000 or 16% to $1,197,000 in the quarter ended February 29, 2012 compared to $1,420,000 in the prior year quarter. Consolidated net income decreased $821,000 or 19% to $3,524,000 for the fiscal year to date period compared to $4,345,000 in the same period in fiscal 2011. The decrease in consolidated net income compared to the prior year is primarily a result of product sales mix and increased cost of products and services sold as discussed above.
Liquidity and Sources of Capital
Our overall cash balance decreased $2,599,000 to $12,383,000 at February 29, 2012, from $14,982,000 at August 31, 2011. The reduced cash balance is primarily attributable to principal payments on outstanding debt, equipment purchases, and payment of our annual dividend. We will continue to review our current cash balances denominated in foreign currency in light of current tax guidelines, working capital requirements, infrastructure improvements and potential acquisitions.
Cash flow provided by operations was $4,706,000 in the first six months of fiscal year 2012 compared to $752,000 in the prior year period. Cash provided by operations during the first half of fiscal 2012 was
primarily due to operating income, increased collections of accounts receivable and increased accounts payable balances offset by increased inventory balances and a decrease in accrued expenses due to the timing of tax payments and payment of our annual incentive compensation. The lower balance of cash provided by operations during the prior year period was primarily due to increased inventory balances as a result of bulk purchases of key raw materials in order to take advantage of favorable pricing terms.
The ratio of current assets to current liabilities was 3.0 as of February 29, 2012, compared to 2.9 as of August 31, 2011. The increase in our current ratio at February 29, 2012 was primarily attributable to an increase in inventory resulting from increased demand and overall sales volume, as well as decreases in accrued income taxes due to the timing of tax payments and accrued payroll and other compensation due to the payment of our annual incentive program. This was partially offset by decreases in cash and accounts receivable.
Cash flow used in investing activities of $1,955,000 was primarily due to cash paid for purchases of machinery and equipment at our manufacturing locations during fiscal 2012 which was partially offset by the net proceeds of $1,006,000 from the sale of our Webster, MA property.
Cash flow used in financing activities of $5,188,000 was primarily due to our annual dividend payment and payments made on the bank loans used to finance our past acquisitions of CIM and ServiWrap. Additionally, we paid the second of three scheduled promissory note payments of $1,000,000 to the CIM shareholders in accordance with the CIM stock purchase agreement, described in more detail below.
On October 13, 2011, we announced a cash dividend of $0.35 per share (totaling $3,165,000). The dividend was paid on December 5, 2011 to shareholders of record on October 31, 2011.
We continue to have long-term unsecured credit available up to $10,000,000 with Bank of America at the banks base lending rate or, at our option, at the effective London Interbank Offered Rate (LIBOR) plus 150 basis points. The outstanding balance and weighted average interest rate of outstanding balances on this credit facility was $0.7 million and 1.74%, respectively, at February 29, 2012. We had $9.3 million in available credit at February 29, 2012 under this credit facility and plan to use this availability to help finance our cash needs, including potential acquisitions, in fiscal 2012 and future periods.
As of March 31, 2012, the entire amount of $10,000,000 was available for use.
Under the terms of our credit facility, we must comply with certain debt covenants related to (a) the ratio of total liabilities to tangible net worth and (b) the ratio of operating cash flow to debt service on a rolling twelve month basis. We were in compliance with our debt covenants as of February 29, 2012. The line of credit has a maturity date of March 31, 2013.
We borrowed $10,000,000 from Bank of America in September 2009 in order to fund our acquisition of CIM. This borrowing involved an unsecured, three year term note (the Term Note) with interest and principal payments due monthly. Interest is calculated at the applicable LIBOR rate plus a margin of 175 basis points, with interest payments due on the last day of each month. In addition to monthly interest payments, we are repaying the principal in equal installments of $167,000 per month, beginning on September 30, 2009, and on the last day of each month thereafter until maturity. At February 29, 2012, the applicable interest rate was 1.99% per annum and the outstanding principal amount was $5,000,000. The Term Note is subject to the same debt covenants as our line of credit discussed above. Prepayment of the Term Note is allowed at any time during the term of the loan. In November 2011, we executed an amendment to this Term Note, extending the maturity from August 31, 2012 to August 31, 2014. The monthly payments of $167,000 will continue through August 2014, at which time we will repay the remaining principal balance plus any interest then due. All other terms of the Term Note remain the same.
As part of the CIM acquisition in September 2009, we also delivered $3,000,000 in non-negotiable promissory notes (the Notes) payable to five CIM shareholders, who were the holders of all of the issued and outstanding shares of capital stock of CIM as of the acquisition date. The principal of the Notes will be paid in three consecutive annual installments of $1,000,000 each, with the initial payment due on September 4, 2010. Interest on the unpaid principal balance of the Notes is accruing at a rate per annum equal to the applicable Federal rate, and will be paid annually with each principal payment. At February 29, 2012, the applicable interest rate was 0.84% per annum. We paid the first installment on the Notes in September 2010 and the second installment in September 2011. The third installment on the Notes will be paid in September 2012.
In December 2009, we borrowed $7,000,000 from RBS Citizens in order to fund our acquisition of the ServiWrap product lines. This borrowing involved an unsecured, three year term note (the Term Loan) with interest and principal payments due monthly. Interest is calculated at the applicable LIBOR rate plus a margin of 190 basis points, with interest payments due on the last day of each month. In addition to monthly interest payments, we are repaying the principal in equal installments of $117,000 each, beginning on January 15, 2010, and on the 15th day of each month thereafter until maturity. At February 29, 2012, the applicable interest rate was 2.15% per annum, and the outstanding principal amount was approximately $3,967,000. The Term Loan is subject to the same debt covenants as our line of credit discussed above. Prepayment of the Term Loan is allowed at any time. In February 2012, we executed an amendment to this Term Loan, extending the maturity from December 15, 2012 to December 15, 2014. The monthly payments of $117,000 will continue through December 2014, at which time we will repay the remaining principal balance plus any interest then due. All other terms of the Term Loan remain the same.
To the extent that interest rates increase in future periods, we will assess the impact of these higher interest rates on the financial and cash flow projections of our potential acquisitions.
We have no significant off balance sheet arrangements.
We currently have several on-going capital projects that are important to our long term strategic goals. We continue to renovate our Oxford, MA, and Pittsburgh, PA facilities in anticipation of the relocation of our operations from Randolph, MA. This transition will be completed by December 2012 and we will then pursue a sale of our Randolph property. Machinery and equipment will also be added as needed to increase capacity or enhance operating efficiencies in our other manufacturing plants.
We may consider the acquisition of companies or other assets this year or in future periods which are complementary to our business. We believe that our existing resources, including cash on hand and our line of credit, together with cash generated from operations and additional bank borrowings, will be sufficient to fund our cash flow requirements through at least the next twelve months. However, there can be no assurances that additional financing will be available on favorable terms, if at all.
Recent Accounting Standards
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income, (ASU 2011-05) which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders equity. Instead, we must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011 and we will adopt in the quarter ended May 31, 2012. The adoption of ASU 2011-05 will not have an impact on our consolidated financial position, results of operations or cash flows as it only requires a change in the format of our current presentation.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles - Goodwill and Other (ASC Topic 350) - Testing Goodwill for Impairment, (ASU 2011-08) which gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two-step test mandated prior to this update. ASU 2011-08 also provides companies with a revised list of examples of events and circumstances to consider, in their totality, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step test. Otherwise, a company may skip the two-step test. Companies are not required to perform the qualitative assessment and may instead proceed directly to the first step of the two-part test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of ASU 2011-08 will not have an impact on our consolidated financial position, results of operations or cash flows.
In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (ASC Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, (ASU 2011-12) which defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. The amendments in ASU 2011-12 are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011 and we will adopt in the quarter ended May 31, 2012. The adoption of ASU 2011-12 will not have an impact on our consolidated financial position, results of operations or cash flows as it only requires a change in the format of the current presentation.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. To apply these principles, we must make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In many instances, we reasonably could have used different accounting estimates and, in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time and under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. We refer to accounting estimates and judgments of this type as critical accounting policies, judgments, and estimates. Management believes there have been no material changes during the six months ended February 29, 2012 to the critical accounting policies reported in Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations section in our Form 10-K for the fiscal year ended August 31, 2011.
Forward Looking Information
The part of this Quarterly Report on Form 10-Q captioned Managements Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements, which involve risks and uncertainties. Forward-looking statements include, without limitation, statements as to our future operating results, plans for manufacturing facilities, future economic conditions and expectations or plans relating to the implementation or realization of our strategic goals, acquisition opportunities and future growth. These statements are based on current expectations, estimates and projections about the industries in which we operate, and the beliefs and assumptions made by management. Readers should refer to the discussions under Forward Looking Information and Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2011 concerning certain factors that could cause our actual results to differ materially from the results anticipated in such forward-looking statements. These discussions and Risk Factors are hereby incorporated by reference into this Quarterly Report.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
We limit the amount of credit exposure to any one issuer. As of February 29, 2012, other than our restricted investments (which are restricted for use in a nonqualified retirement savings plan for certain key employees and Directors), all of our funds were either in demand deposit accounts or investment instruments that meet high credit quality standards such as money market funds, government securities, or commercial paper.
Our domestic operations have limited currency exposure since substantially all transactions are denominated in US dollars. However, our European operations are subject to currency exchange fluctuations. We continue to review our policies and procedures to reduce this exposure while maintaining the benefit from these operations and sales to other European customers. As of February 29, 2012, we had cash balances in the United Kingdom for our HumiSeal Europe Ltd and Chase Protective Coatings Ltd operations denominated primarily in pounds sterling and equal to $4,868,000 and cash balances in France for our HumiSeal Europe SARL operations denominated primarily in euros and equal to $665,000. We will continue to review our current cash balances denominated in foreign currency in light of current tax guidelines, working capital requirements, infrastructure improvements and potential acquisitions.
We incurred a foreign currency translation loss for the six months ended February 29, 2012 in the amount of $883,000 related to our European operations which was recorded in other comprehensive income within our Statement of Stockholders Equity. We do not have or utilize any derivative financial instruments.
Item 4 - Controls and Procedures
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We carry out a variety of ongoing procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in internal control over financial reporting
There was no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We are 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 us in August 2005, to which we 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 2012, there have been no new developments as this Ohio lawsuit has been inactive with respect to us.
We were 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 owned by Chase Corporation). We have 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, we are involved from time to time in litigation incidental to the conduct of our business. Although we do not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered or settlements entered, that could adversely affect our operating results or cash flows in a particular period. We routinely assess all of our litigation and threatened litigation as to the probability of ultimately incurring a liability, and record our best estimate of the ultimate loss in situations where we assess the likelihood of loss as probable.
Please refer to Item 1A in our Form 10-K for the fiscal year ended August 31, 2011 for a complete discussion of the risk factors which could materially affect our business, financial condition or future results.
On February 28, 2012, we entered into an amendment to our Term Loan Agreement, dated December 15, 2009, with RBS Citizens, National Association, under which we had borrowed $7 million in order to fund our acquisition of the ServiWrap product lines. The amendment extended the maturity date of the loan from December 15, 2012 to December 15, 2014. Our existing monthly principal payments of $117,000 will therefore continue through December 2014 at which time we will repay the remaining principal balance plus any interest then due. All other terms of the loan remain the same.
Exhibit |
|
Description |
10.1 |
|
Amendment No. 1 to Term Loan Agreement, dated February 28, 2012, between Chase Corporation and RBS Citizens, National Association |
10.2 |
|
Term Note dated December 15, 2009, between Chase Corporation and RBS Citizens, National Association |
10.3 |
|
Amendment No. 1 and Allonge to Term Note dated December 15, 2009, between Chase Corporation and RBS Citizens, National Association |
31.1 |
|
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 |
|
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 |
|
Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
32.2 |
|
Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
101.INS |
|
XBRL Instance Document** |
101.SCH |
|
XBRL Taxonomy Extension Schema Document** |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document** |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document** |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document** |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document** |
* Furnished, not filed
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.
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.
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Chase Corporation | |
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|
|
|
|
Dated: April 9, 2012 |
By: |
/s/ Peter R. Chase |
|
|
Peter R. Chase, |
|
|
Chairman and Chief Executive Officer |
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|
|
|
|
|
Dated: April 9, 2012 |
By: |
/s/ Kenneth L. Dumas |
|
|
Kenneth L. Dumas |
|
|
Chief Financial Officer and Treasurer |
Exhibit 10.1
AMENDMENT NO. 1 TO TERM LOAN AGREEMENT
This Amendment No. 1 to Term Loan Agreement (the Agreement) is by and between RBS Citizens, National Association (successor by merger to Citizens Bank of Massachusetts), having an address of 28 State Street, Boston, MA 02109 (the Lender) and Chase Corporation, a Massachusetts corporation having an address of 26 Summer Street, Bridgewater, MA 02324 (the Borrower).
R E C I T A L S
A. Reference is hereby made to a certain Term Loan Agreement dated December 15, 2009, by and between the Lender and Borrower (the Loan Agreement).
B. The loan obligations of Borrower are further evidenced by a certain Term Note dated December 15, 2009 from Borrower to Lender in the original principal amount of $7,000,000.00, as amended by a certain Amendment No. 1 and Allonge to Term Note of even date herewith extending the maturity date from December 15, 2012 to December 15, 2014 (collectively, the Note).
C. The Note, the Loan Agreement and all other documents executed in connection therewith are sometimes collectively referred to herein as the Loan Documents. The obligations evidenced by the Loan Documents are sometimes collectively referred herein as the Loan.
D. Borrower has requested that Lender extend the maturity date as defined in the Loan Agreement.
E. Lender has agreed to amend the terms of the Loan Agreement as requested by Borrower, provided that Borrower agrees with the terms set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lender and Borrower hereby agree to amend the Loan Agreement as follows:
1. In order to extend the maturity date set forth in the Loan Agreement, Section 1.3(a) is hereby amended by deleting such section in its entirety and by substituting the following section therefor:
1.3(a) The Borrower will make monthly interest and principal payments under the Loan as set forth in the Note. The Loan shall mature on December 15, 2014 upon which date the entire remaining balance of the Loan, if any, shall be immediately due and payable.
2. As a condition of this Agreement, Borrower shall, at the time of execution of this Agreement:
(a) reimburse Lender for its costs in connection with the loan modification including, without limitation, legal documentation costs;
(b) execute and deliver to Lender the following:
(i) an Amendment No. 1 and Allonge to Term Note; and
(ii) any other documents reasonably requested by Lender.
The above-referenced documents, together with this Agreement, shall be referred to herein as the Modification Documents. The definition of Loan Documents in this Agreement shall include the Modification Documents.
3. Borrower hereby represents and warrants that (i) its representations and warranties set forth in the Loan Agreement are true on and as of the date hereof as if made on such date (except to the extent that the same expressly relate to an earlier date or are affected by the consummation of transactions permitted hereby or by the Agreement); (ii) it is in compliance in all material respects with all of the terms and provisions set forth in the Loan Agreement on its part to be observed or performed; (iii) after giving effect to any extension of credit to be made on the date hereof, no Event of Default (as defined in the Loan Agreement) or event which, with the giving of notice or expiration of any applicable grace period or both would constitute an Event of Default, has occurred and is continuing; (iv) since the date of the financial statements most recently provided to Lender by Borrower, there has occurred no material adverse change in the assets or liabilities or the financial or other condition of Borrower; (v) it has full power to execute, deliver and perform its obligations under the Modification Documents and the execution, delivery and performance of the Modification Documents has been authorized and directed by the appropriate parties; (vi) this Agreement constitutes the legal, valid and binding obligation of Borrower, enforceable in accordance with its terms; (vii) the execution, delivery and performance hereof will not violate any provision of any existing law or regulation applicable to Borrower or other governing documents or of any order or decree of any court, arbitrator or governmental authority or of any contractual undertaking to which it is a party or by which it may be bound; and (viii) no consents, licenses, approvals or authorizations of, exemptions by or registrations or filings with, any governmental authority are required with respect to this Agreement.
4. If Borrower fails to comply with all the terms and conditions of this Agreement within applicable cure periods, if any, it shall constitute a default under this Agreement and under the other Loan Documents for which default Lender shall be entitled to pursue any or all of its rights and remedies under the Loan Documents.
5. No other changes shall be made to the Loan Agreement and Borrower reaffirms its obligations under the Loan Documents in their entirety. This Agreement is not intended to extinguish or affect any of the debt evidenced by the Note, except as set forth herein, or to otherwise modify any of the obligations under any of the Loan Documents. Borrower hereby reaffirms that Borrower remains indebted to Lender without defense, counterclaim or offset.
6. This Agreement is made in The Commonwealth of Massachusetts and shall be construed in accordance with its laws. If any provision hereof is in conflict with any statute or rule of law of The Commonwealth of Massachusetts or any other statute or rule of law of any other applicable jurisdiction or is otherwise unenforceable, such provisions shall be deemed null and void only to the extent of such conflict or unenforceability and shall be deemed separate from and shall not invalidate any other provision of this Agreement.
7. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and no other parties shall be a beneficiary hereunder. Neither this Agreement nor any of the provisions hereof can be changed, waived, discharged or terminated except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought.
8. This Agreement and any amendment hereof may be executed by the different parties hereto on any number of separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument.
[Remainder of page left intentionally blank.]
EXECUTED under seal as of the 28th day of February, 2012.
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RBS CITIZENS, NATIONAL ASSOCIATION | |
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By: |
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Witness |
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Name: William F. Lingard | |
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Title: Senior Vice President | |
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CHASE CORPORATION | |
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By: |
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Witness |
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Name: Kenneth L. Dumas | |
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Title: Chief Financial Officer |
ACKNOWLEDGMENT OF GUARANTORS
The undersigned Guarantors acknowledge and agree to the foregoing Agreement to which this Acknowledgment is attached. The Guarantors represent and warrant that as of the date of the execution of this Agreement and the effectiveness of the modifications contained herein, the Guaranties remain in full force and effect. The Guarantors acknowledge and agree that their obligations under their respective Guaranties shall be construed under the laws of the Commonwealth of Massachusetts and each Guarantor hereby submits to the exclusive personal jurisdiction of the courts of the Commonwealth of Massachusetts.
Executed under seal as of the 28th day of February, 2012.
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Capital Services of New York, Inc. | |
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By: |
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Witness |
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Name: | |
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Title: | |
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CIM Industries, Inc. | |
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By: |
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Witness |
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Name: | |
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Title: |
Exhibit 10.2
TERM NOTE
1. DEFINED TERMS. As used in this Term Note (the Note), the following terms shall have the following meanings:
1.1 |
Borrower: |
Chase Corporation |
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a Massachusetts corporation |
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26 Summer Street |
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Bridgewater, Massachusetts 02324 |
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1.2 |
Lender: |
RBS Citizens, National Association |
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(successor by merger to Citizens Bank of Massachusetts) |
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28 State Street |
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Boston, Massachusetts 02109 |
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1.4 |
Interest Rate: |
See Section 3 below. |
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1.5 |
Loan Agreement: |
A certain Term Loan Agreement of even date herewith by and between Borrower and Lender. |
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1.6 |
Loan Amount: |
$7,000,000.00. |
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1.7 |
Loan, Loan Documents and Event of Default shall have the same meanings as in the Loan Agreement. The Loan Documents are incorporated herein by reference. | |
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1.8 |
Maturity Date: |
Three (3) years from the date hereof. |
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1.9 |
Prepayment Period: |
From the date hereof to the Maturity Date. |
2. DEBT: For value received, Borrower hereby promises to pay to the order of Lender the Loan Amount, together with interest on all unpaid balances from the date hereof, at the interest rate set forth in this Note, together with all other amounts due hereunder or under the Loan Documents.
3. INTEREST: The Loan Amount shall accrue interest at an adjustable per annum rate of interest (the Interest Rate) equal to the Adjusted LIBOR Rate plus the LIBOR Rate Margin (i.e., 190 basis points) (as such terms are defined in Rider A attached hereto and made a part hereof) and may be subject to an interest rate swap agreement with Lender for the term of this Note, as required by the Loan Agreement. Interest shall be calculated on a 360-day year (of twelve 30-day months) but shall accrue and be payable on the actual number of days in a month.
4. PAYMENTS: Interest on the outstanding principal balance of this Note, plus principal payments based upon a five (5) year amortization schedule as set forth in Schedule A attached hereto and made a part hereof, shall be due and payable monthly in arrears while any part of the indebtedness evidenced hereby is unpaid, with such payments due on each Interest Payment Date (as defined in Rider A) until the Maturity Date. On the Maturity Date or on such earlier date as may be required under the terms of this Note or any of the Loan Documents, Borrower shall pay to Lender the entire then unpaid balance of principal and interest.
If interest is due and accrued for a period of more or less than one (1) month on the first Interest Payment Date, the first payment shall be increased or decreased to the extent that the amount of interest then due exceeds or is less than one months interest.
Every payment on this Note, whether such payment is of a regular installment or represents a prepayment (if permitted hereunder), shall be made in coin and currency of the United States of America which is legal tender for the payment of public and private debts, in immediately available funds, to Lender at the address set forth in Section 1.2 above or at such other address as Lender may from time to time designate in writing.
5. DEFAULT INTEREST: Upon an Event of Default, at Lenders election, Borrower shall, in addition to any other payment due hereunder, pay interest under this Note from and after the date on which such Event of Default occurred at an annual interest rate equal to the lesser of (a) the Interest Rate plus four percent (4%), or (b) the maximum rate permitted by law, and such interest shall be due and payable, on demand, at such rate until the entire amount due is paid to Lender, whether or not any action shall have been taken. Nothing in this Section 5 or in any other provision of this Note shall constitute an extension of the time of payment of the indebtedness hereunder.
6. DELINQUENCY CHARGES: If Borrower fails to pay any amount of principal or interest on this Note for ten (10) days after such payment becomes due or fails to pay the principal amount due on this Note on the Maturity Date, whether by acceleration or otherwise, Lender may, at its option, whether immediately or at the time of final payment of the amounts evidenced by this Note impose a delinquency or late charge equal to five percent (5%) of the amount of such past due payment notwithstanding the date on which such payment is actually paid in full. Borrower agrees that any such delinquency charges shall not be deemed to be additional interest or penalty, but shall be deemed to be liquidated damages because of the difficulty in computing the actual amount of damages in advance.
7. COSTS AND EXPENSES UPON DEFAULT: After default, in addition to principal, interest and delinquency charges, Lender shall be entitled to collect all costs of collection, including, but not limited to, reasonable attorneys fees and expenses, incurred in connection with the protection or realization of collateral or in connection with any of Lenders collection efforts, whether or not suit on this Note or any foreclosure proceeding is filed, and all such costs and expenses shall be payable on demand and until paid shall also be secured by the other Loan Documents and by all other collateral held by Lender as security for Borrowers obligations to Lender.
8. APPLICATION OF PAYMENTS: Unless an Event of Default has occurred, all payments hereunder shall be applied first to delinquency charges, costs of collection and enforcement and other similar amounts due, if any, under this Note and under the other Loan Documents, then to interest which is due and payable under this Note and the remainder, if any, to principal due and payable under this Note. If an Event of Default has occurred, such payments may be applied to sums due under this Note or under the other Loan Documents in any order and combination that Lender may, in its sole and absolute discretion, determine.
9. PERMITTED PREPAYMENT: Borrower shall have the right to prepay the Loan in whole or in part, together with all delinquency charges and any other amounts which may be due hereunder or under any of the Loan Documents at any time without penalty provided that, at the time of any prepayment, the Borrower shall also pay any LIBOR Breakage Fee or any fees in connection with any Hedging Obligations, as such terms are set forth and defined in Rider A.
10. COSTS; ILLEGALITY OF LOAN: In addition to principal, interest and delinquency charges, Borrower shall pay all costs and expenses, including, without limitation, reasonable attorneys fees and all reasonable expenses and disbursements of counsel, in connection with the protection, realization or enforcement of any of Lenders rights against Borrower and against any collateral given Lender to secure this Note or any other liabilities of Borrower to Lender (whether or not suit or foreclosure is instituted by or against Lender).
11. WAIVERS: BORROWER IRREVOCABLY WAIVES ITS RIGHTS TO NOTICE AND HEARING TO THE EXTENT PERMITTED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH LENDER MAY DESIRE TO USE, and, further, irrevocably waives presentment for payment, demand, notice of nonpayment, notice of intention to accelerate the maturity of this Note, diligence in collection, commencement of suit against any obligor, notice of protest, and protest of this Note and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note, before or after the maturity of this Note, with or without notice to Borrower, and agrees that its liability shall not be in any manner affected by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Lender. Borrower consents to any and all extensions of time, renewals, waivers or modifications that may be granted by Lender with respect to the payment or other provisions of this Note, and to any substitution, exchange or release of the collateral for this Note, or any part thereof, with or without substitution of said collateral, and agrees to the addition or release of any guarantor, all whether primarily or secondarily liable, before or after maturity of this Note, with or without notice to Borrower, and without affecting their liability under this Note. Any delay on the part of Lender in exercising any right under this Note shall not operate as a waiver of any such right, and any waiver granted or consented to on one occasion shall not operate as a waiver in the event of any subsequent default.
BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY PROCEEDINGS HEREAFTER INSTITUTED BY OR AGAINST BORROWER IN RESPECT OF THIS NOTE OR ARISING OUT OF ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING, GOVERNING OR SECURING THIS NOTE, INCLUDING ALL LOAN DOCUMENTS.
12. NO USURY: Lender and Borrower intend to comply at all times with applicable usury laws. If at any time such laws would ever render usurious any amounts called for under this Note or the other Loan Documents, then it is Borrowers and Lenders express intention that Borrower shall be required to pay interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Section 12 shall control over all other provisions of this Note and the Loan Documents which may be in apparent conflict herewith, that such excess amount shall be credited to the principal balance of this Note (or, if this Note has been fully paid, refunded by Lender to Borrower), and the provisions hereof shall be reformed and the amounts thereafter collectible under this Note reduced, without the necessity of the execution of any further documents, so as to comply with the then applicable law, but so as to permit the recovery by Lender of the fullest amount otherwise called for under this Note. Any such crediting or refund shall not cure or waive any default by Borrower under this Note or the other Loan Documents. If at any time following any reduction in the interest rate payable by Borrower there remains unpaid any principal amount under this Note and the maximum interest rate allowed by applicable law is increased or eliminated, then the interest rate payable under this Note shall be readjusted, to the extent not prohibited by applicable law, so that the dollar amount of interest payable hereunder shall be equal to the dollar amount of interest which would have been paid by Borrower without giving effect to the reduction in interest resulting from compliance with applicable usury laws.
Borrower agrees that in determining whether or not any interest payable under this Note or the other Loan Documents exceeds the highest rate allowed by law, any non-principal payment (except payments specifically stated in this Note or in the other Loan Documents to be interest), including, without limitation, prepayment fees and delinquency charges, shall, to the maximum extent allowed by law, be an expense, fee or premium rather than interest. The term applicable law, as used in this Note shall mean the laws of the Commonwealth of Massachusetts or the laws of the United States, whichever laws allow the greater rate of interest, as such laws now exist or may be changed or amended or come into effect in the future.
13. ACCELERATION AND OTHER REMEDIES: If:
(a) Borrower fails to pay any sum due on this Note within ten (10) days of the due date; or
(b) an Event of Default, as said term is defined in the Loan Agreement or any other Loan Document, occurs;
then, and in any such event, Lender may, at its option, declare the entire unpaid balance of this Note together with interest accrued thereon, to be immediately due and payable and Lender may proceed to exercise any rights or remedies that it may have under this Note and the other Loan Documents or such other rights and remedies which Lender may have at law, equity or otherwise.
14. JOINT AND SEVERAL LIABILITY: The liabilities of Borrower and any guarantor of this Note are joint and several; provided, however, the release by Lender of Borrower or any one or more guarantor shall not release any other party obligated on account of this Note. Each reference in the within Note to Borrower and any guarantor is to such party individually and also to all such parties jointly. No party obligated on account of this Note may seek contribution from any other party also obligated unless and until all liabilities to Lender from the party from whom contribution is sought have been satisfied in full.
15. SUCCESSORS AND ASSIGNS: This Note shall be binding upon Borrower and upon its heirs, successors, assigns and representatives, and shall inure to the benefit of Lender and its successors, endorsees, and assigns.
16. SECURITY: This Note is secured by the other Loan Documents, and all amendments, modifications, supplements, substitutions, additions, renewals, replacements and extensions thereof. Borrower hereby grants to Lender a security interest in any and all deposits or other sums at any time credited by or due from Lender to Borrower, and any cash, securities, instruments, or other property of Borrower which now or hereafter are at any time in the possession or control of Lender, which shall constitute additional security to Lender for the liabilities of Borrower to Lender including, without limitation, the liability evidenced hereby, and may be applied or set off by Lender against such liabilities at any time from and after an Event of Default hereunder whether or not other collateral is available to Lender.
17. COLLECTION: Any check, draft, money order or other instrument given in payment of all or any portion hereof may be accepted by Lender and handled by collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of Lender except to the extent that actual cash proceeds of such instrument are unconditionally received by Lender and applied to this indebtedness in the manner elsewhere herein provided.
18. AMENDMENTS: This Note may be changed or amended only by an agreement in writing signed by the party against whom enforcement is sought.
19. GOVERNING LAW; SUBMISSION TO JURISDICTION: This Note is given to evidence debt for business or commercial purposes, is being delivered to Lender at one of its offices in the Commonwealth of Massachusetts and shall be governed by and construed under the laws of the Commonwealth of Massachusetts. Borrower hereby submits to exclusive personal jurisdiction in the Commonwealth of Massachusetts for the enforcement of Borrowers obligations hereunder and under the other Loan Documents, and waives any and all personal rights under the law of any other state to object to jurisdiction within the Commonwealth of Massachusetts for the purposes of litigation to enforce such obligations of Borrower. In the event such litigation is commenced, Borrower agrees that service of process may be made, and personal jurisdiction over Borrower obtained, by service of a copy of the summons, complaint and other pleadings required to commence such litigation upon Borrower at the address set forth in the preamble to this Note.
20. CAPTIONS: All paragraph and subparagraph captions are for convenience of reference only and shall not affect the construction of any provision herein.
21. SEVERABILITY. If any provision of this Note or the application thereof to any party or circumstance is held invalid, such invalidity shall not affect other provisions which can be given effect without the invalid provision or application, and to this end, the provisions of this Note shall be severable.
[Signature on following page]
IN WITNESS WHEREOF, this Note has been executed and delivered under seal as of the 15th day of December, 2009
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BORROWER: | |
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Chase Corporation | |
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By: |
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Witness |
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Kenneth L. Dumas, Chief Financial Officer |
RIDER A
PROVISIONS FOR RBS CITIZENS LIBOR RATE LOANS
BORROWER: CHASE CORPORATION
1. Certain Definitions.
Account means account # maintained by the Lender in the name of the Borrower.
Adjusted LIBOR Rate means, relative to a LIBOR Rate Loan, a rate per annum determined by dividing (x) the LIBOR Rate for such Interest Period by (y) a percentage equal to one hundred percent (100%) minus the LIBOR Reserve Percentage.
Business Day means:
(a) any day which is neither a Saturday or Sunday nor a legal holiday on which commercial banks are authorized or required to be closed in Boston, MA;
(b) when such term is used to describe a day on which a borrowing, payment, prepayment or repayment is to be made in respect of a LIBOR Rate Loan, any day which is (i) neither a Saturday or Sunday nor a legal holiday on which commercial banks are authorized or required to be closed in New York City; and (ii) a London Banking Day; and
(c) when such term is used to describe a day on which an interest rate determination is to be made in respect of a LIBOR Rate Loan, any day which is a London Banking Day.
Funding Date means the 15th day of December, 2009.
Hedging Contracts means, interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, or any other agreements or arrangements entered into between the Borrower and the Lender and designed to protect the Borrower against fluctuations in interest rates or currency exchange rates.
Hedging Obligations means, with respect to the Borrower, all liabilities of the Borrower to the Lender under Hedging Contracts.
Interest Payment Date means the last Business Day of each LIBOR Interest Period or, in the case of Prime Rate Loans, any day on which a payment of principal is due hereunder.
LIBOR Interest Period means, in the case of a LIBOR Rate Loan
(i) initially, the period beginning on (and including) the Funding Date and ending on (but excluding) January 15, 2010 (the Stub Period); and
(ii) then, each period commencing on (and including) the last day of the Stub Period and ending on (but excluding) the day which numerically corresponds to such date one, two, three or six months thereafter based upon the expiration dates of the LIBOR Rate
Loan(s) chosen by Borrower (or, if such month has no numerically corresponding day, on the last Business Day of such month); and
(iii) thereafter, each period commencing on the last day of the next preceding LIBOR Interest Period and ending one month thereafter;
provided, however, that
(a) if the Borrower has or may incur Hedging Obligations with the Lender in connection with the Loan, the LIBOR Interest Period shall be of the same duration as the relevant period set under the applicable Hedging Contract;
(b) if such LIBOR Interest Period would otherwise end on a day which is not a Business Day, such LIBOR Interest Period shall end on the next following Business Day unless such day falls in the next calendar month, in which case such LIBOR Interest Period shall end on the first preceding Business Day; and
(c) no LIBOR Interest Period may end later than the termination of this Agreement.
LIBOR Rate means, relative to any LIBOR Interest Period for a LIBOR Rate Loan, the offered rate for deposits of U.S. Dollars in an amount approximately equal to the amount of the LIBOR Rate Loan for a one month period which the British Bankers Association fixes as its LIBOR rate as of 11:00 a.m. London time on the day which is two London Banking Days prior to the beginning of such Interest Period. If the Lender cannot determine such offered rate by the British Bankers Association, the Lender may, in its discretion, select a replacement index based on the arithmetic mean of the quotations, if any, of the interbank offered rate by first class banks in London or New York for deposits in comparable amounts and maturities.
LIBOR Rate Loan means the Loan for the period(s) when the rate of interest applicable to the Loan is calculated by reference to the Adjusted LIBOR Rate in the manner set forth herein.
LIBOR Rate Margin means 1.90% per annum.
LIBOR Reserve Percentage means, relative to any day of any LIBOR Interest Period, the maximum aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) under any regulations of the Board of Governors of the Federal Reserve System (the Board) or other governmental authority having jurisdiction with respect thereto as issued from time to time and then applicable to assets or liabilities consisting of Eurocurrency Liabilities, as currently defined in Regulation D of the Board, having a term approximately equal or comparable to such Interest Period.
Loan means all amounts outstanding under the Note and/or advanced pursuant to this Agreement.
London Banking Day means a day on which dealings in US dollar deposits are transacted in the London interbank market.
Maturity Date means the date which is three (3) years after the date of the Note unless accelerated sooner pursuant to the terms hereof.
Note means that certain Promissory Note made payable by the Borrower to the order, and for the benefit, of the Lender to which this Rider A is attached.
Prime Rate shall mean a rate per annum equal to the rate of interest announced by Lender in New Hampshire from time to time as its Prime Rate. Any change in the Prime Rate shall be effective immediately from and after such change in the Prime Rate. Interest accruing by reference to the Prime Rate shall be calculated on the basis of actual days elapsed and a 360-day year. The Borrower acknowledges that the Lender may make loans to its customers above, at or below the Prime Rate.
Prime Rate Loan means any Loan for the period(s) when the rate of interest applicable to such Loan is calculated by reference to the Prime Rate.
Prime Rate Margin means 0% per annum.
Principal Repayment Amount means the regularly scheduled reductions in the outstanding principal of the Loan to be made on each Interest Payment Date, as set forth in a entitled Principal Repayment Schedule to be determined by Lender.
2. Borrowing Procedures.
2.1 Funding of the Loan. On the Funding Date, subject to the terms and conditions of this Agreement, the Loan shall be made available to the Borrower no later than 11:00 a.m. New York time by a deposit to the Account (or as otherwise instructed by the Borrower in writing) in the full principal amount of the Loan. Unless otherwise prohibited by this Agreement, the Loan shall initially be classified as a LIBOR Rate Loan.
3. Interest Provisions.
3.1 Interest Provisions. Interest on the outstanding principal amount of the Loan, when classified as a: (i) LIBOR Rate Loan, shall accrue during each LIBOR Interest Period at a rate per annum equal to the sum of the Adjusted LIBOR Rate for such LIBOR Interest Period plus the LIBOR Rate Margin and shall be due and payable on each Interest Payment Date and on the Maturity Date, and (ii) Prime Rate Loan, shall accrue at a rate per annum equal to the sum of the Prime Rate plus the Prime Rate Margin, and shall be due and payable on each Interest Payment Date and on the Maturity Date. Interest shall be calculated for the actual number of days elapsed on the basis of a 360-day year, including the first date of the applicable period to, but not including, the date of repayment.
3.2 Automatic Rollover of LIBOR Rate Loan. Upon the expiration of a LIBOR Interest Period, the LIBOR Rate Loan shall automatically be continued as a LIBOR Rate Loan at the then applicable Adjusted LIBOR Rate and in an amount equal to the principal amount of the expiring LIBOR Rate Loan less any Principal Repayment Amount made by Borrower; provided, however, that no portion of the outstanding principal amount of a LIBOR Rate Loan may be continued as a LIBOR Rate Loan when any Event of Default has occurred and is continuing. If any Event of Default has occurred and is continuing (if the Lender does not otherwise elect to exercise any right to accelerate the Loan hereunder), the LIBOR Rate Loan shall automatically be continued as a Prime Rate Loan on the first day of the next Interest Period.
4. Miscellaneous LIBOR Rate Loan Terms.
4.1 Voluntary Prepayment of the LIBOR Rate Loan. When classified as a LIBOR Rate Loan, the Loan may be prepaid upon the terms and conditions set forth herein. The Borrower acknowledges that additional obligations may be associated with any such prepayment under the terms and conditions of any applicable Hedging Contracts. The Borrower shall give the Lender, no later than 10:00 a.m., New York City time, at least four (4) Business Days notice of any proposed prepayment of the LIBOR Rate Loan, specifying the proposed date of payment and the principal amount to be paid. Each partial prepayment of the principal amount of the LIBOR Rate Loan shall be in an integral multiple of $100,000 except that if the balance of the LIBOR Rate Loan is or will be less than $100,000, then the Borrower may include all such amounts, and all partial prepayments must be accompanied by the payment of all charges outstanding on the LIBOR Rate Loan (including the LIBOR Breakage Fee) and of all accrued interest on the principal repaid to the date of payment.
4.2 LIBOR Breakage Fee. Upon any prepayment of a LIBOR Rate Loan on any day that is not the last day of the relevant Interest Period (regardless of the source of such prepayment and whether voluntary, by acceleration or otherwise), the Borrower shall pay an amount (LIBOR Breakage Fee), as calculated by the Lender, equal to the amount of any losses, expenses and liabilities (including without limitation any loss of margin and anticipated profits) that Lender may sustain as a result of such default or payment. The Borrower understands, agrees and acknowledges that: (i) the Lender does not have any obligation to purchase, sell and/or match funds in connection with the use of the LIBOR Rate as a basis for calculating the rate of interest on a LIBOR Rate Loan, (ii) the LIBOR Rate may be used merely as a reference in determining such rate, and (iii) the Borrower has accepted the LIBOR Rate as a reasonable and fair basis for calculating the LIBOR Breakage Fee and other funding losses incurred by the Lender. Borrower further agrees to pay the LIBOR Breakage Fee and other funding losses, if any, whether or not the Lender elects to purchase, sell and/or match funds.
4.3 LIBOR Rate Lending Unlawful. If the Lender shall determine (which determination shall, upon notice thereof to the Borrower be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law, rule, regulation or guideline, (whether or not having the force of law) makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Lender to make, continue or maintain the Loan as, or to convert the Loan into, a LIBOR Rate Loan, then any such LIBOR Rate Loans shall, upon such determination, forthwith be suspended until the Lender shall notify the Borrower that the circumstances causing such suspension no longer exist, and all LIBOR Rate Loans of such type shall automatically convert into Prime Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law and assertion.
4.4 Increased Costs. If, on or after the date hereof, the adoption of any applicable law, rule or regulation or guideline (whether or not having the force of law), or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:
(a) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System of the United States) against assets of, deposits with or for the account of, or credit extended by, the Lender or shall impose on the Lender or on the London interbank market any other condition affecting the LIBOR Rate Loan or its obligation to make the LIBOR Rate Loan; or
(b) shall impose on Lender any other condition affecting the LIBOR Rate Loan or its obligation to make the LIBOR Rate Loan,
and the result of any of the foregoing is to increase the cost to the Lender of making or maintaining the Loan as a LIBOR Rate Loan, or to reduce the amount of any sum received or receivable by the Lender under this Agreement with respect thereto, by an amount deemed by the Lender to be material, then, within 15 days after demand by the Lender, the Borrower shall pay to the Lender such additional amount or amounts as will compensate the Lender for such increased cost or reduction.
4.5 Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects or would affect the amount of capital required or expected to be maintained by the Lender, or person controlling the Lender, and the Lender determines (in its sole and absolute discretion) that the rate of return on its or such controlling persons capital as a consequence of its commitments or the Loan made by the Lender is reduced to a level below that which the Lender or such controlling person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by the Lender to the Borrower, the Borrower shall immediately pay directly to the Lender additional amounts sufficient to compensate the Lender or such controlling person for such reduction in rate of return. A statement of the Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, the Lender may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable.
4.6 Taxes. All payments by the Borrower of principal of, and interest on, the LIBOR Rate Loan and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by the Lenders net income or receipts (such non-excluded items being called Taxes). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will
(a) pay directly to the relevant authority the full amount required to be so withheld or deducted;
(b) promptly forward to the Lender an official receipt or other documentation satisfactory to the Lender evidencing such payment to such authority; and
(c) pay to the Lender such additional amount or amounts as is necessary to ensure that the net amount actually received by the Lender will equal the full amount the Lender would have received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Lender with respect to any payment received by the Lender hereunder, the Lender may pay such Taxes and the Borrower will promptly pay such additional amount (including any penalties, interest or expenses) as is necessary in order that the net amount received by the Lender after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount the Lender would have received had not such Taxes been asserted.
If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Lender the required receipts or other required documentary evidence, the Borrower shall indemnify the
Lender for any incremental Taxes, interest or penalties that may become payable by the Lender as a result of any such failure.
4.7 Unavailability of LIBOR Rate. In the event that Borrower shall have requested a LIBOR Rate Loan in accordance with the Note or Loan Agreement to which this Rider B is attached (as applicable) and Lender, in its sole discretion, shall have determined that U.S. dollar deposits in the relevant amount and for the relevant LIBOR Interest Period are not available to the Lender in the London interbank market; or by reason of circumstances affecting the Lender in the London interbank market, adequate and reasonable means do not exist for ascertaining the LIBOR Rate applicable to the relevant LIBOR Interest Period; or the LIBOR Rate no longer adequately and fairly reflects the Lenders cost of funding loans; upon notice from the Lender to the Borrower, the obligations of the Lender under the Note or Loan Agreement to make or continue any loans as, or to convert any loans into, LIBOR Rate Loans of such duration shall forthwith be suspended until the Lender shall notify the Borrower that the circumstances causing such suspension no longer exist.
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Exhibit 10.3
AMENDMENT NO. 1 AND ALLONGE TO
TERM NOTE
This Amendment No. 1 and Allonge to Term Note (the Agreement) is by and between RBS Citizens, National Association (successor by merger to Citizens Bank of Massachusetts), having an address of 28 State Street, Boston, MA 02109 (the Lender) and Chase Corporation, a Massachusetts corporation having an address of 26 Summer Street, Bridgewater, MA 02324 (the Borrower). This Agreement shall be considered an allonge to the Note (as defined below) and is hereby firmly affixed to and made part of the Note.
A. Reference is hereby made to a certain Term Loan Agreement dated as of December 15, 2009 by and between Borrower and Lender (the Loan Agreement). The loan obligations of Borrower are further evidenced by a certain Term Note dated December 15, 2009 from Borrower to Lender in the original principal amount of $7,000,000.00 (the Note).
B. Borrower and Lender have agreed to add a LIBOR Advantage Rate option to the Note.
C. In addition, Borrower has requested that the Lender extend the Maturity Date under the Note from December 15, 2012 to December 15, 2014. The Lender has agreed to extend the Maturity Date, provided that the Borrower joins with the Lender in the execution of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lender and the Borrower hereby agree to modify and amend the Note as follows:
1. To extend the Maturity Date to December 15, 2014, the definition of Maturity Date set forth in Section 1.8 of the Note is hereby deleted in its entirety and is replaced with the following definition:
1.8 Maturity Date: December 15, 2014
2. Section 3 of the Note is hereby amended to delete such section in its entirety and to substitute the following new Section 3 in its place:
During the term of this Note, the outstanding principal balance of this Note shall accrue interest at an adjustable per annum rate of interest (the Interest Rate) equal to:
(i) the Adjusted LIBOR Rate plus the LIBOR Rate Margin (i.e., 190 basis points) (as such terms are defined in Rider A attached hereto and made a part hereof) and may be subject to
an interest rate swap agreement with Lender for the term of this Note, as required by the Loan Agreement; or
(ii) the LIBOR Advantage Rate plus the LA Margin (i.e., 190 basis points) (as such terms are defined in Rider B entitled RBS Citizens LIBOR Advantage Provisions attached hereto and made a part hereof);
Borrower may elect either interest rate option by written notice to Lender upon any interest payment date during the term of this Note. The interest rate selected by Borrower shall continue during the term of the Note until Lender receives written notice from Borrower of a requested change. In the absence of any written election by Borrower, the Loan shall accrue interest at the option as set forth in item (i) above. In the event that Borrower elects to enter into a Hedging Contract (as such terms are defined in Rider A) with respect to all or a portion of the outstanding balance of this Note, interest shall accrue under this Note for such portions of this Note which are subject to a Hedging Contract at a per annum adjustable rate of interest equal to the LIBOR Rate plus the LIBOR Rate Margin (as such terms are defined in Rider A). Interest shall be calculated on a 360-day year (of twelve 30-day months) but shall accrue and be payable on the actual number of days in a month.
3. Exhibit A to this Agreement is hereby appended and attached to the Note as Rider B thereof.
4. Borrower hereby acknowledges that the obligations of Borrower under the Note, as amended hereby, shall continue to be affected and governed by the Loan Agreement.
5. No other changes are hereby made to Note and Borrower reaffirms its obligations under the Note in its entirety. This Agreement is not intended to extinguish or affect any of the debt evidenced by the Note. This Agreement is made in The Commonwealth of Massachusetts and shall be construed in accordance with its laws. If any provision hereof is in conflict with any statute or rule of law of The Commonwealth of Massachusetts or any other statute or rule of law of any other applicable jurisdiction or is otherwise unenforceable, such provisions shall be deemed null and void only to the extent of such conflict or unenforceability and shall be deemed separate from and shall not invalidate any other provision of this Agreement.
6. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and no other parties shall be a beneficiary hereunder. Neither this Agreement nor any of the provisions hereof can be changed, waived, discharged or terminated except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought.
[Signature Page Follows]
EXECUTED under seal as of the 28th day of February, 2012.
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LENDER: |
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RBS Citizens, National Association |
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By: |
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Witness |
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William Lingard, Senior Vice President |
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BORROWER: |
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Chase Corporation |
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By: |
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Witness |
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Kenneth L. Dumas, Chief Financial Officer |
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ACKNOWLEDGMENT OF GUARANTORS
The undersigned Guarantors acknowledge and agree to the foregoing Agreement to which this Acknowledgment is attached. The Guarantors represent and warrant that as of the date of the execution of this Agreement and the effectiveness of the modifications contained herein, the Guaranties remain in full force and effect. The Guarantors acknowledge and agree that their obligations under their respective Guaranties shall be construed under the laws of the Commonwealth of Massachusetts and each Guarantor hereby submits to the exclusive personal jurisdiction of the courts of the Commonwealth of Massachusetts.
Executed under seal as of the 28th day of February, 2012.
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Capital Services of New York, Inc. | |
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By: |
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Witness |
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Title: |
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Exhibit A
Rider B to Term Note
RBS CITIZENS LIBOR ADVANTAGE PROVISIONS
1. Certain Definitions.
Business Day means any day which is neither a Saturday, Sunday nor a legal holiday on which commercial banks are authorized or required to be closed in Boston, Massachusetts.
LA Interest Payment Date means, initially, the last Business Day of any LA Interest Period, and thereafter the day of each succeeding month which numerically corresponds to such date or, if a month does not contain a day that numerically corresponds to such date, the LA Interest Payment Date shall be the last day of such month.
LA Interest Period means, with respect to any LIBOR Advantage Loan, the period commencing on (and including) the date hereof (the Start Date) and ending on (but excluding) the date which numerically corresponds to such date one, two, three or six months (as selected by the Borrower) later, and thereafter, each one, two, three or six month period (must match Borrowers initial selection) ending on the day of such month that numerically corresponds to the Start Date. If an LA Interest Period is to end in a month for which there is no day which numerically corresponds to the Start Date, the LA Interest Period will end on the last day of such month. Notwithstanding the date of commencement of any LA Interest Period, interest shall only begin to accrue as of the date the initial LIBOR Advantage Loan is made hereunder.
LA Margin means 1.90% per annum.
LIBOR Advantage Loan shall mean any loan or advance for which the applicable rate of interest is based upon the LIBOR Advantage Rate.
LIBOR Advantage Rate means, relative to any LA Interest Period, the offered rate for delivery in two London Banking Days of deposits of U.S. Dollars for a term coextensive with the designated LA Interest Period which the British Bankers Association fixes as its LIBOR rate as of 11:00 a.m. London time on the day on which such LA Interest Period commences. If the first day of any Interest Period is not a day which is both a (i) Business Day, and (ii) a London Banking Day, the LIBOR Advantage Rate shall be determined by reference to the next preceding day which is both a Business Day and a London Banking Day. If for any reason the LIBOR Advantage Rate is unavailable and/or the Bank is unable to determine the LIBOR Advantage Rate for any LA Interest Period, the Bank may, at its discretion, either: (a) select a replacement index based on the arithmetic mean of the quotations, if any, of the interbank offered rate by first class banks in London or New York for deposits with comparable maturities or (b) accrue interest at a rate per annum equal to the Banks Prime Rate as of the first day of any Interest Period for which the LIBOR Advantage Rate is unavailable or cannot be determined.
London Banking Day means any day on which dealings in US dollar deposits are transacted in the London interbank market.
Maturity Date means December 15, 2014 unless accelerated sooner pursuant to the terms hereof.
2. Interest.
Interest Provisions. Interest on the outstanding principal amount of a LIBOR Advantage Loan shall accrue during the LA Interest Period at a rate per annum equal to the sum of the LIBOR Advantage Rate for such LA Interest Period plus the LA Margin. Interest shall be due and payable on each LA Interest Payment Date and on the Maturity Date. Interest shall be calculated for the actual number of days elapsed on the basis of a 360-day year, including the first date of the applicable period to, but not including, the date of repayment.
Exhibit 31.1
CERTIFICATION
I, Peter R. Chase, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Chase Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting.
Date: April 9, 2012 |
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/s/ Peter R. Chase |
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Peter R. Chase |
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Chairman and Chief Executive Officer |
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(Principal executive officer) |
Exhibit 31.2
CERTIFICATION
I, Kenneth L. Dumas, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Chase Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting.
Date: April 9, 2012 |
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/s/ Kenneth L. Dumas |
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Kenneth L. Dumas |
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Chief Financial Officer and Treasurer |
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(Principal financial officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Chase Corporation (the Company) hereby certifies that the Companys Quarterly Report on Form 10-Q for the period ended February 29, 2012 (the Report), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certificate is furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Date: April 9, 2012 |
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/s/ Peter R. Chase |
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Peter R. Chase |
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Chairman and Chief Executive Officer |
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(Principal executive officer) |
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Exhibit 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Chase Corporation (the Company) hereby certifies that the Companys Quarterly Report on Form 10-Q for the period ended February 29, 2012 (the Report), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certificate is furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Date: April 9, 2012 |
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/s/ Kenneth L. Dumas |
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Kenneth L. Dumas |
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Chief Financial Officer and Treasurer |
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(Principal financial officer) |
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Recent Accounting Policies
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6 Months Ended | |
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Feb. 29, 2012
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Recent Accounting Policies | ||
Recent Accounting Policies |
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