10-Q 1 l95276ae10vq.txt CHASE INDUSTRIES INC. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 or | | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____ COMMISSION FILE NO. 1-13394 CHASE INDUSTRIES INC. (Exact name of Registrant as specified in its charter) DELAWARE 51-0328047 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 14212 COUNTY ROAD M-50, MONTPELIER, OHIO 43543 (Address of principal executive offices, including Zip Code) Registrant's telephone number, including area code: (419) 485-3193 Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO | | ~~NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 9, 2002.................. 15,322,055 NUMBER OF SHARES OF NONVOTING COMMON STOCK OUTSTANDING AS OF AUGUST 9, 2002........ 0~~

================================================================================ CHASE INDUSTRIES INC. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION

2 CHASE INDUSTRIES INC. CONSOLIDATED BALANCE SHEET (UNAUDITED; IN THOUSANDS, EXCEPT SHARE INFORMATION)

The accompanying notes are an integral part of the consolidated financial statements. 3 CHASE INDUSTRIES INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

The accompanying notes are an integral part of the consolidated financial statements. 4 CHASE INDUSTRIES INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED; IN THOUSANDS)

The accompanying notes are an integral part of the consolidated financial statements. 5 CHASE INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION AND INTERIM FINANCIAL INFORMATION The consolidated balance sheet as of June 30, 2002, and December 31, 2001, and the consolidated statements of income and cash flows for the three and six months ended June 30, 2002 and 2001, include the accounts of Chase Industries Inc. (the "Company"), a Delaware corporation, and its wholly-owned subsidiary, Chase Brass & Copper Company, Inc. ("CBCC"), a Delaware corporation. All significant intercompany transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and do not include all the information and footnote disclosures required by generally accepted accounting principles. The financial information for June 30, 2002 and 2001, included herein is unaudited and, in the opinion of management, reflects all adjustments necessary for a fair presentation of such financial information. The results of operations for the three and six months ended June 30, 2002, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2002. This quarterly report on Form 10-Q should be read in conjunction with the annual consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. In fourth quarter 2000, the Company decided to divest Leavitt Tube Company, Inc. ("Leavitt"), a Delaware corporation. On March 15, 2001, the Company signed a definitive agreement to sell the assets and operations of Leavitt, including the stock of Holco Corporation ("Holco"), an Illinois corporation and wholly-owned subsidiary of Leavitt, to privately-held Pinkert Industrial Group, LLC, headquartered in Chicago, for $31.7 million, before closing costs and fees of $1.9 million. The sale closed on March 30, 2001. Leavitt has previously been reported in the consolidated financial statements as a discontinued operation. For additional discussion on the discontinued operation, see Note 5, Discontinued Operations. On August 24, 1990, the Company acquired, through CBCC, the assets and operations of a Delaware corporation formerly named Chase Brass & Copper Company, Incorporated ("Old Chase"), pursuant to the Asset Purchase Agreement ("CBCC Purchase Agreement") dated May 10, 1990, by and between the Company, CBCC, Old Chase, BP Exploration (Alaska) Inc. ("BPE") and The Standard Oil Company (the "CBCC Acquisition"). BPE and The Standard Oil Company own all the stock of Old Chase. BPE, The Standard Oil Company and Old Chase are sometimes referred to herein collectively as "BP." The CBCC Acquisition was accounted for as a purchase. REVENUE RECOGNITION Net sales represent gross sales of brass rod less sales discounts and are recorded at the time of shipment. The gross sales price of brass rod consists of a metal price charged to the customers and a fabrication price as separate components. In addition, approximately 11% of pounds sold by CBCC are made on a "tolling" basis, where the customer consigns brass scrap to CBCC and is only charged 6 CHASE INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) a fabrication price for processing the brass scrap into finished rod. For tolling sales, the brass metal value is not included in net sales or cost of goods sold. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). This statement eliminates the amortization of goodwill, among other things, and replaces it with an annual impairment test. The adoption of SFAS 142, effective January 1, 2002, did not have any effect on the Company's financial position or results of operations. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or the normal operation of a long-lived asset, except for certain obligations of lessees. The adoption of SFAS 143, effective January 1, 2002, did not have any effect on the Company's financial position or results of operations. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions. The adoption of SFAS 144, effective January 1, 2002, did not have any effect on the Company's financial position or results of operations. In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, Statement of Financial Accounting Standards No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS 145 also rescinds Statement of Financial Accounting Standards No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS 145 amends Statement of Financial Accounting Standards No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The adoption of SFAS 145, in second quarter 2002, did not have any effect on the Company's financial position or results of operations. In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), which is effective for exit or disposal activities that are initiated after December 31, 2002. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies 7 CHASE INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." Management of the Company believes SFAS 146 will not have a material effect on the Company's financial position or results of operations. 2. INVENTORIES: Inventories are stated at the lower of cost-or-market, with cost determined on the last-in, first-out (LIFO) basis. In prior periods inventories have been written down to lower of cost-or-market and such reduced amounts are considered cost for subsequent years. If the first-in, first out (FIFO) method for determining cost had been used, inventories would have been approximately $0.4 million higher at June 30, 2002, and $1.0 million lower at December 31, 2001. Inventories consisted of the following (in thousands):

3. COMMON STOCK AND EARNINGS PER SHARE: The following is a reconciliation of the denominator used in the computation of basic and diluted earnings per share. Average shares were as follows:

8 CHASE INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) At June 30, 2002, and December 31, 2001, the Company had no preferred stock issued or outstanding. In conjunction with its initial public offering in November 1994, the Company authorized 1,000,000 shares of preferred stock, none of which has been issued. The preferences and rights of such preferred stock may be determined by the Board of Directors at any time prior to issuance. Of the 1,000,000 shares of authorized preferred stock, 36,310 have been designated Series A Junior Participating Preferred Stock, which are reserved for issuance pursuant to the rights as described below. On December 26, 2000, the Board of Directors declared a dividend distribution of one preferred share purchase right (a "right") for each share of the Company's common stock outstanding on January 5, 2001. Each right would entitle shareholders to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $.01 par value, of the Company at a price of $30 per one one-thousandth of a Preferred Share, subject to adjustment. The rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 20 percent or more of the outstanding shares of common stock. The rights expire on December 26, 2010, unless the expiration date is extended or the rights are redeemed or exchanged by the Company earlier. 4. COMMITMENTS AND CONTINGENCIES: The Company is subject to certain contingent environmental liabilities with respect to CBCC's facility. CBCC is in the process of developing a remediation plan for in situ remediation at two areas of its site that are contaminated with certain volatile organic compounds ("VOC"s). Based on preliminary cost estimates provided by CBCC's independent environmental consultant, and subject to the development by the consultant of a remediation plan for these areas of the site and the receipt of bids for the remediation activities required under such plan, the Company estimates the cost for this project to approximate $3.0 million, based upon capital and operating costs for a period of five years. However, subject to pilot testing and operating experience, costs may increase or decrease depending on the scale and operating period. As of December 31, 2000, the reserve for remediation activities was $4.0 million, including $3.0 million for the in situ remediation plan, $0.6 million for environmental consulting and $0.4 million for final payments to be made on remediation activities completed in 2000. In first quarter 2001, as a result of the settlement of the Company's litigation with BP discussed below, the Company recorded an additional $4.8 million of environmental reserves relating to obligations retained by the Company. The Company had remediation spending of $0.6 million for the twelve months ended December 31, 2001, including the payment of the $0.4 million for activities completed in 2000. The Company had less than $0.1 million remediation spending in the first six months of 2002. As a result of the foregoing, the environmental reserve totaled $8.2 million at June 30, 2002. Based on currently available data, the Company believes that upon completion of the remediation activities at the two areas described above, CBCC will have substantially completed the remediation activities that the Company believes are necessary to address contamination at its site. However, until the completion of these remedial and associated investigatory activities and approval from the Ohio Environmental Protection Agency ("EPA") of CBCC's activities to remediate this contamination, as well as remediation activities previously conducted, the Company cannot be 9 CHASE INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) certain that further remediation activities will not be required at its site. To the extent regulatory agencies require additional remediation at those areas of CBCC's site where CBCC previously has undertaken remediation activities, or require excavation of soil at the two areas for which CBCC currently is developing a remediation plan for in situ remediation, as part of the settlement of litigation with BP in first quarter 2001, discussed below, BP has retained responsibility for such remediation activities. The Company believes it will be able to fund cleanup costs related to anticipated future remediation activities at its manufacturing facility with cash on hand and borrowings under its existing bank credit facility. Therefore, the Company does not believe that funding these remediation activities will have a material effect on the Company's financial condition, results of operations or liquidity. Other than as described above, no reserves have been established regarding the aforementioned matters. Additionally, the Company expects no material impact on its financial position, results of operations or liquidity as a result of the existence of any other environmental conditions related to CBCC. CBCC and/or other entities named "Chase Brass & Copper Co." (which may include Old Chase or divisions of Old Chase) have been named by governmental agencies and/or private parties as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") and/or state laws with respect to four sites (and possibly a fifth site). The Company believes that CBCC has no liability for the cleanup costs related to these sites because (a) such liability is attributable to an entity that had the same or similar name to that of CBCC, such as a division or a subsidiary of BP (other than the brass rod division of Old Chase), or (b) such liability arose from acts that occurred prior to the CBCC Acquisition and, therefore, BP retained such liability under the CBCC Purchase Agreement and is contractually obligated to indemnify the Company for such liabilities. To the extent CBCC incurs any cleanup costs with respect to these sites, it intends to enforce its rights under the CBCC Purchase Agreement to recover such amounts from BP. On January 7, 1998, a lawsuit entitled Ken-Chas Reserve Company and BP Exploration (Alaska) Inc. and The Standard Oil Company v. Chase Industries Inc. and Chase Brass & Copper Company, Inc. was filed in the Court of Common Pleas in Cuyahoga County, Ohio. The Company and BP entered into a Settlement Agreement and Mutual Release dated February 22, 2001 (the "Settlement Agreement"), pursuant to which the Company and BP resolved and settled the claims between them that were the subject of the lawsuit. Pursuant to the Settlement Agreement, (1) the Company paid to BP $2 million, (2) the $20 million promissory note issued to Old Chase as part of the consideration for the CBCC Acquisition (the "BP Note") was deemed paid in full, (3) the Company retained responsibility and financial liability for completing in situ remediation at the two remaining areas of CBCC's site where additional remediation activities currently are contemplated to be required and (4) BP retained financial liability for (A) excavation activities that may be required by regulatory agencies at these two remaining sites and (B) additional remediation activities that may be required by regulatory agencies at the remaining areas of CBCC's site, including areas where remediation activities previously have been conducted. BP also retained and reaffirmed its obligations under the CBCC Purchase Agreement to indemnify the Company and CBCC for any 10 CHASE INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) claim made against the Company or CBCC in respect of any liability or obligation of BP which was not assumed by the Company or CBCC as part of the CBCC Acquisition, including without limitation claims related to off-site contamination and third party claims. At the time of the BP settlement, the Company had a $21.8 million receivable from BP, a note payable of $20.0 million and accrued interest on the BP Note aggregating $8.6 million. In February 2001, these amounts were settled with a payment of $2.0 million to BP. As a result of the settlement and the obligations retained by the Company, an additional environmental liability totaling $4.8 million was accrued. In addition to the above, the Company has outstanding purchase commitments for capital equipment and building construction totaling approximately $6.5 million at June 30, 2002. 5. DISCONTINUED OPERATIONS: In fourth quarter 2000, the Company decided to divest Leavitt. On March 15, 2001, the Company signed a definitive agreement to sell the assets and operations of Leavitt to privately-held Pinkert Industrial Group, LLC, headquartered in Chicago. The sale closed on March 30, 2001. The Company received $31.7 million in cash, before closing costs and fees of $1.9 million. In fourth quarter 2000, the Company recorded an estimated loss on the sale of Leavitt of $36.0 million, including income tax benefit of $11.3 million. As a result of the additional costs associated with certain post-closing liabilities maintained by the Company, in fourth quarter 2001, the Company recorded an additional $0.2 million loss on the sale of Leavitt, including income tax benefit of $0.1 million. In second quarter 2002, upon completion of the federal income tax return for the year ended December 31, 2001, the Company determined that the tax benefit from the loss on the sale of Leavitt was $12.5 million, as compared to the $11.4 million previously recorded. As a result, an additional $1.1 million was recorded as income from discontinued operations in second quarter 2002. The disposal of the assets and operations of Leavitt represented the disposal of a business segment and was previously reflected in the consolidated financial statements as a discontinued operation. The operating results of discontinued operations for the six months ended June 30, 2001, were as follows (in thousands): Net sales $ 23,251 ======== Income before taxes $ 123 Provision for income taxes (44) -------- Net income $ 79 ========

A portion of the Company's interest expense has been allocated to discontinued operations based on the debt outstanding on Leavitt's balance sheet. Income taxes on results of the discontinued operations have been allocated using the same overall rate incurred by the Company in each year presented. 11 CHASE INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. OLIN CORPORATION TO ACQUIRE CHASE INDUSTRIES: On May 8, 2002, Olin Corporation ("Olin"), a Virginia corporation, announced it had agreed to acquire the Company. The Company's shareholders will receive a fixed exchange ratio of 0.64 shares of Olin common stock for each outstanding share of the Company's common stock in a tax-free exchange. The transaction is conditioned on shareholder approval of both companies, regulatory clearance and other customary closing conditions. Citicorp Venture Capital, which owns approximately 48% of Chase's outstanding common shares, has agreed to vote its shares in favor of this transaction. The transaction is expected to close late in the third quarter or early in the fourth quarter, 2002, excluding any unanticipated delays. 7. SUBSEQUENT EVENT: In late July 2002, the Company signed a memorandum of understanding to settle a lawsuit with its insurance carriers related to a business interruption claim attributable to damage to a holding furnace in 1998. As a result, the Company anticipates collecting $1.5 million in August 2002. 12 CHASE INDUSTRIES INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Olin Corporation to Acquire Chase Industries On May 8, 2002, Olin Corporation ("Olin"), a Virginia corporation, announced it had agreed to acquire the Company. The Company's shareholders will receive a fixed exchange ratio of 0.64 shares of Olin common stock for each outstanding share of the Company's common stock in a tax-free exchange. The transaction is conditioned on shareholder approval of both companies, regulatory clearance and other customary closing conditions. Citicorp Venture Capital, which owns approximately 48% of Chase's outstanding common shares, has agreed to vote its shares in favor of this transaction. The transaction is expected to close late in the third quarter or early in the fourth quarter, 2002, excluding any unanticipated delays. Settlement of Lawsuit In late July 2002, the Company signed a memorandum of understanding to settle a lawsuit with its insurance carriers related to a business interruption claim attributable to damage to a holding furnace in 1998. As a result, the Company anticipates collecting $1.5 million in August 2002. Sale of Leavitt Tube In fourth quarter 2000, the Company decided to divest Leavitt. On March 15, 2001, the Company signed a definitive agreement to sell the assets and operations of Leavitt to privately-held Pinkert Industrial Group, LLC, headquartered in Chicago. The sale closed on March 30, 2001. The Company received $31.7 million in cash, before closing costs and fees of $1.9 million. In fourth quarter 2000, the Company recorded an estimated loss on the sale of Leavitt of $36.0 million, including income tax benefit of $11.3 million. As a result of the additional costs associated with certain post-closing liabilities maintained by the Company, in fourth quarter 2001, the Company recorded an additional $0.2 million loss on the sale of Leavitt, including income tax benefit of $0.1 million. In second quarter 2002, upon completion of the federal income tax return for the year ended December 31, 2001, the Company determined that the tax benefit from the loss on the sale of Leavitt was $12.5 million, as compared to the $11.4 million previously recorded. As a result, an additional $1.1 million income tax benefit was recorded as income from discontinued operations in second quarter 2002. The disposal of the assets and operations of Leavitt represented the disposal of a business segment and was previously reflected in the consolidated financial statements as a discontinued operation. Operations The Company has a brass products segment operated by CBCC and, prior to March 30, 2001, had a steel products segment operated by Leavitt. The Company is a leading manufacturer of free-machining and forging brass rod. 13 CHASE INDUSTRIES INC. CBCC is an ISO 9002 certified manufacturer and supplier of free-machining and forging brass rod in the United States, Canada and Mexico. CBCC's net sales represent gross sales of brass rod less sales discounts. The gross sales price of brass rod consists of a metal price charged to customers and a fabrication price as separate components. Cost of goods sold includes freight delivery costs, the cost of brass scrap, which is the principal raw material used in the manufacturing process and the primary component of cost of goods sold, as well as the costs of labor, energy and other materials and supplies used in fabricating the brass scrap into finished rod. Therefore, CBCC's profit levels depend primarily on the amount of finished rod shipped, fabrication prices and the difference between the metal price charged to customers and CBCC's cost of brass scrap. CBCC obtains approximately 75% of the brass scrap used in its operations from its customers through purchase and tolling arrangements. The metal price charged to customers (the "Metal Selling Price") has been eight cents per pound higher than the price that brass scrap is purchased from customers (the "Metal Buying Price") since September 1999. CBCC also purchases approximately 25% of its brass scrap from scrap dealers at prevailing free-market prices. Free-market prices of brass scrap fluctuate based on the supply of and demand for brass scrap and the prices for copper and zinc (the major components of brass), and generally are less than the Metal Buying Price. Since 1990, free-market prices, as compared to Metal Buying Prices, have been favorable to CBCC by historical standards and the supply of brass scrap in the United States has been readily available. Although the supply of brass scrap has resulted in continued favorable free-market scrap prices through June 2002, there can be no assurance that such favorable prices will continue. Decreasing imports of brass rod and increasing demand for brass scrap could cause free-market brass scrap prices to increase, and increased pressure from customers to purchase brass scrap directly from them at the Metal Buying Price could reduce CBCC's ability to take advantage of free-market discounts. As noted above, CBCC's pricing structure consists of the Metal Selling Price and the fabrication price as separate components. The Metal Selling Price is determined at the time of shipment based on the then-current Metal Buying Price and is not directly affected by fluctuations in free-market brass scrap prices. As a result of this pricing structure, increases and decreases in the Metal Selling Price will affect net sales levels and gross profit as a percentage of sales, even in the absence of an increase or a decrease in shipments or the fabrication prices charged to customers, but will have little impact on gross profit levels. However, the quantity of free-market brass scrap purchased by CBCC and changes in the difference between the free-market prices paid for brass scrap and the Metal Buying Price will affect gross profit, even in the absence of an increase or a decrease in shipments or net sales levels. In addition to sales made under the pricing structure described above, approximately 11% of pounds sold are made on a tolling basis, where the customer consigns brass scrap to CBCC and is charged a fabrication price for processing the brass scrap into finished rod. Tolling transactions affect net sales by the Metal Selling Price that otherwise would be charged to the customer in a sale of finished brass rod. To a lesser degree, tolling transactions also affect gross profit to the extent CBCC is unable to take advantage of the pricing differential on brass scrap purchased and sold. To partially offset the effect of tolling transactions on gross profit, CBCC requires tolling customers to deliver additional pounds of brass scrap in exchange for each pound of finished rod shipped. 14 CHASE INDUSTRIES INC. RESULTS OF OPERATIONS Three Months Ended June 30, 2002, Compared with Three Months Ended June 30, 2001 Net sales increased $4.9 million, or 8.6%, to $61.7 million in second quarter 2002. Net sales increased mainly as a result of a 14% increase in brass rod shipments which was partially offset by lower metal prices and lower fabrication prices. CBCC's plumbing, building and construction customers continued to show strength in the second quarter with shipments up 16%, while independent fabricators continue to lag behind other CBCC customers with shipments up only 4% for the second quarter 2002. During the second quarter 2002, industry shipments were up 11% compared with the prior year. Net imports continued to decrease year-to-date May 2002, the most recent available, down 46% compared with the prior year. Second quarter 2002 was consistent with the Company's projections of strengthening demand. The Company continues to forecast a 10% increase in consumption of brass rod for all of 2002. Gross profit increased $0.4 million, or 4.9%, to $8.6 million in second quarter 2002. The increase was primarily attributable to higher shipments partially offset by a decrease in fabrication prices due to competitive pressures in the market. Unit manufacturing costs decreased 3% in second quarter 2002 as compared with second quarter 2001. This was achieved despite increases in contractual labor rates and healthcare costs. As volume increased and the Company obtained regular production from the two new finishing lines and the new extrusion press, fixed costs were leveraged to lower per unit costs. Selling, general and administrative ("SG&A") expenses increased $0.1 million, or 6.7%, to $1.6 million for second quarter 2002. SG&A expenses were higher mainly due to management incentive costs and increased tax consulting expense, partially offset by management personnel reductions. In second quarter 2002, the Company recorded $1.6 million of consulting and legal fees related to the pending acquisition of the Company by Olin. As the Company is the organization being acquired, these types of costs were recognized as current expenses. In second quarter 2001, tender offer expenses aggregating $0.9 million were attributable to incremental consulting and legal expenses as a result of an unsolicited tender offer, which expired January 31, 2001. Depreciation expense increased by $0.8 million, or 47.1%, to $2.5 million as a result of depreciation on Phase III of Project 400 buildings and equipment. As a result of the above factors, operating income decreased $1.1 million, or 27.5%, to $2.9 million in second quarter 2002. In second quarter 2001, other non-operating expenses of $0.4 million consisted of the Company's write-off of its investment in MetalSpectrum LLC, a consortium of major metals-related companies that provided business-to-business internet services. MetalSpectrum ceased operations in June 2001 due to low demand for its services and economic conditions. 15 CHASE INDUSTRIES INC. Interest expense of $3,000 in second quarter 2002 compares with interest income of $0.2 million in second quarter 2001. In second quarter 2002, interest earned on investing was offset by quarterly banking fees. In second quarter 2001, interest income was attributable to investing activity following the sale of Leavitt in first quarter 2001. As a result of the above factors, income from continuing operations before taxes decreased by $0.9 million, or 23.7%, to $2.9 million in second quarter 2002 from $3.8 million in second quarter 2001. Income tax expense decreased by $0.4 million, or 28.6%, to $1.0 million as a result of the decrease of $0.9 million in income from continuing operations before taxes. The effective income tax rate was the same for both periods at 35.5%. As a result of the above factors, income from continuing operations decreased by $0.6 million, or 24.0%, to $1.9 million in second quarter 2002 from $2.5 million in second quarter 2001. In June 2002, the Company filed its 2001 federal income tax return and carried back the loss from the sale of Leavitt to the prior years, resulting in a refund of $4.7 million. In conjunction with completing the tax return, the Company determined that the tax benefit from loss on the sale of Leavitt was $12.5 million as compared to the $11.4 million recorded in prior years. The Company recorded an additional income tax benefit totaling $1.1 million from the disposal of discontinued operations in the second quarter 2002, which equaled $0.07 per diluted share. Net income for second quarter 2002 was $3.0 million, or $0.19 per diluted share, compared with net income for second quarter 2001 of $2.5 million, or $0.16 per diluted share. Second quarter 2002 net income included a $1.1 million additional tax benefit on the loss from discontinued operations, or $0.07 per diluted share. Also, net income for second quarter 2002 included costs and expenses related to the pending acquisition of Chase by Olin totaling $1.0 million, net of taxes, or $0.07 per diluted share. Excluding the impact of expenses related to the unsolicited tender offer, earnings for second quarter 2001 were $0.20 per diluted share. Six Months Ended June 30, 2002, Compared with Six Months Ended June 30, 2001 Net sales decreased slightly from $123.1 million in 2001 to $122.5 million in 2002. The decrease was attributable to lower metal prices and lower fabrication prices, which were substantially offset by a 9% increase in brass rod shipments. CBCC's plumbing, building and construction customers continued to show strength in the first six months of 2002 with shipments up 14% as compared to the first six months of 2001. Independent fabricators continued to be weak with a decrease in shipments of 5%. Industry shipments were up 7% compared with the prior year. Gross profit, for the six months ended June 30, 2002, was basically flat as compared to the six months ended June 30, 2001. The effect of increase in brass rod shipments was substantially offset by lower fabrication prices. 16 CHASE INDUSTRIES INC. SG&A expenses increased $0.4 million, or 13.8%, to $3.3 million for the six months ended June 30, 2002. The increase was primarily attributable to management incentive costs and increased tax consulting fees, partially offset by management personnel reductions. For the six months ended June 30, 2002, the Company recorded $1.6 million of consulting and legal fees related to the pending acquisition of the Company by Olin. For the six months ended June 30, 2001, tender offer expenses aggregating $3.5 million were attributable to incremental consulting and legal expenses as a result of an unsolicited tender offer, which expired on January 31, 2001. Depreciation increased $1.1 million, or 32.4%, due to depreciation on Phase III of Project 400 buildings and equipment. As a result of the above factors, operating income, for the six months ended June 30, 2002, increased $0.7 million, or 10.4%, to $7.4 million in 2002 from $6.7 million in 2001. In 2001, other non-operating expenses of $0.4 million consisted of the Company's write-off of its investment in MetalSpectrum LLC, a consortium of major metals-related companies that provided business-to-business internet services. MetalSpectrum ceased operations in June 2001 due to low demand for its services and economic conditions. Net interest income for the six months ended June 30, 2002 was flat, compared to the same period in 2001, as the proportion of interest income to interest expense was relatively unchanged. Income tax expense for the six months ended June 30, 2002, increased $0.3 million, or 13%, to $2.6 million as a result of the increase of $1.1 million, or 17.5%, in income before income taxes. The effective income tax rate was the same for both periods at 35.5%. As a result of the above factors, income from continuing operations increased by $0.7 million, or 17.1%, to $4.8 million in 2002 from $4.1 million in 2001. Income from continuing operations for the first six months of 2002 included expenses related to the pending acquisition of the Company by Olin totaling $1.0 million, net of taxes, or $0.07 per diluted share. Excluding these costs, income from continuing operations would have been $0.38 per diluted share for the first six months of 2002. Income from continuing operations for the first six months of 2001 included expenses related to an unsolicited tender offer totaling $2.3 million, net of taxes, or $0.15 per diluted share. Excluding these costs, income from continuing operations for the first six months of 2001, were $0.42 per diluted share. For the six months ended June 30, 2002, the Company recorded an additional income tax benefit totaling $1.1 million from the disposal of discontinued operations, which equaled $0.07 per diluted share. The sale of Leavitt was previously discussed above under "General - Sale of Leavitt Tube." 17 CHASE INDUSTRIES INC. Income from discontinued operations, net of taxes, for the six months ended June 30, 2001, of $0.1 million represented the results prior to the sale of Leavitt on March 30, 2001. As a result of the above factors, net income increased $1.7 million, or 40.5%, to $5.9 million in 2002 from $4.2 million in 2001. Diluted earnings per share increased to $0.38 from $0.27 in 2001. LIQUIDITY AND CAPITAL RESOURCES General Cash and cash equivalents totaled $9.9 million at June 30, 2002, decreasing from $18.2 million at year end 2001. The Company currently is meeting its operational and liquidity needs with cash on hand, internally generated funds and amounts available under the revolving credit facility. Working Capital At June 30, 2002, working capital was $34.0 million, a $3.6 million decrease from $37.6 million at December 31, 2001. Decreases in cash and cash equivalents of $8.3 million, inventory of $5.3 million and income taxes receivable of $2.8 million were partially offset by increases in accounts receivable of $6.1 million and a decrease in accounts payable and accrued liabilities of $7.0 million. Deferred income tax assets as of June 30, 2002, were basically unchanged from December 31, 2001. The increase in accounts receivable was partially due to a 23% increase in net sales from the month of December 2001 to the month of June 2002. The Company's December shipments are typically lower than other months due to seasonal factors. The Company's days sales outstanding remained basically unchanged from year-end. The decrease in inventory was due to management's efforts to reduce inventory. The Company anticipates rebuilding most of the inventory by year-end. Income taxes receivable decreased due to the federal tax refund of $4.7 million that was received in second quarter 2002 from the carry back of the 2001 tax loss on the sale of Leavitt. The decrease in accounts payable and accrued liabilities was primarily attributable to decreased capital expenditures in second quarter 2002 compared with fourth quarter 2001 as Phase III of Project 400 neared completion. Also, accounts payable and accrued liabilities were lower due to decreases in the accruals for employee benefits as the payments for 2001 were made in 2002. The Company's current ratio was 2.59 at June 30, 2002, compared to 2.32 at December 31, 2001. 18 CHASE INDUSTRIES INC. Cash Flow Provided by Operating Activities For the six months ended June 30, 2002, net cash provided by operating activities was $6.9 million, which included a decrease in assets and liabilities, excluding cash, debt and deferred taxes of $4.8 million partially offset by income from continuing operations of $4.8 million, depreciation expense of $4.5 million and deferred tax expense of $1.2 million. The change in working capital for the six months ended June 30, 2002 was explained above in "Working Capital." Also included was cash provided by discontinued operations of $1.1 million. For the six months ended June 30, 2001, net cash provided by operating activities was $0.6 million, which included a decrease in assets and liabilities, excluding cash, debt and deferred taxes of $5.7 million and the settlement of the litigation with BP for $2.0 million, partially offset by income from continuing operations of $4.1 million, depreciation expense of $3.4 million, and deferred tax expense of $2.3 million. Cash provided by continuing operations of $2.2 million was partially offset by cash used in discontinued operations of $1.5 million. Cash Flow (Used in) Provided by Investing Activities Capital expenditures were $15.3 million for the six months ended June 30, 2002. In December 1997, CBCC entered into a six-year operating lease agreement for certain manufacturing equipment. There were several options available to the Company during or at the end of the lease term, which included renewal of the lease, purchase of the equipment by CBCC or sale of the equipment. In March 2002, the Company purchased this leased equipment for $10.4 million. Also in first half 2002, there were additional capital expenditures in the amount of $4.9 million primarily for equipment and installation costs for a second extrusion press and additional finishing lines. Capital expenditures in 2001 of $14.4 million primarily related also to equipment and construction costs for a second extrusion press and additional finishing lines. Cash Flow Provided by Financing Activities Cash provided by financing activities of $193,000 and $96,000 for the six months ended June 30, 2002 and 2001, respectively, resulted from stock option exercises. Capital Resources In 1996, CBCC launched a capital project referred to as "Project 400." The project is designed to increase foundry, extrusion and finishing capabilities with an ultimate goal of increasing finished brass rod production capability by one-third to more than 400 million pounds annually. The first phase of the project was completed in early 1998 with the installation of three new billet heaters that increased finished brass rod capacity by about 17 percent. The new billet heaters have increased productivity and improved quality. The total cost of the first phase of the project was approximately $12.0 million and was financed through a six-year operating lease. The Company purchased this leased equipment for $10.4 million in the first quarter 2002. In second quarter 1998, the Company announced Phase II of Project 400, which was a $30 million multi-year investment to construct an additional brass foundry enabling CBCC to increase 19 CHASE INDUSTRIES INC. casting capacity and to provide customers with multiple alloys. The new brass foundry began producing billets on a trial basis in February 2000 and is now producing billets at expected production rates. The new foundry has reduced metal costs and increased production capacity. In fourth quarter 1999, the Company announced Phase III of Project 400, which is a $50 million multi-year investment for a second extrusion press and additional finishing equipment. Phase III increases CBCC's production capacity by about one-third to more than 400 million pounds annually. As of June 30, 2002, $47.9 million had been spent and all of the new equipment was in operation. The Company anticipates that capital projects will be paid for with cash flows provided by operating activities and cash on hand. Bank Credit Facility As of June 30, 2002, there were no amounts outstanding under the Company's $50 million revolving credit facility. Total availability under the revolving credit facility was $47.9 million as of June 30, 2002. The existing revolving credit facility expires on August 30, 2002. The Company is in the process of negotiating a new credit facility and does not anticipate any problems in obtaining an adequate credit facility. CONTINGENCIES - ENVIRONMENTAL MATTERS As discussed in Note 4 of Notes to Consolidated Financial Statements included in Part I, Item 1, CBCC is subject to certain contingent liabilities relating to environmental conditions at its manufacturing facility. CBCC is in the process of developing a remediation plan for in situ remediation at two areas of its site contaminated with certain volatile organic compounds (VOCs). Based on preliminary cost estimates provided by CBCC's independent environmental consultant, and subject to the development by the consultant of a remediation plan for these areas of the site and the receipt of bids for the remediation activities required under such plan, the Company estimates that the costs for this project will be approximately $3.0 million, based upon capital and operating costs for a period of five years. A reserve for this amount previously has been established. However, subject to pilot testing and operating experience, costs may increase or decrease depending on the scale and operating period. In first quarter 2001, the Company settled certain matters with BP which are discussed in Note 4 of Notes to Consolidated Financial Statements included in Part I, Item 1. In conjunction with the BP settlement, the Company recorded a $4.8 million environmental reserve. The Company had minimal remediation spending in first quarter 2002. The environmental reserve totaled $8.2 million at June 30, 2002. Based on currently available data, the Company believes that, upon completion of the remediation activities described above, CBCC will have substantially completed the remediation activities at its site that are necessary to address contamination of which CBCC currently is aware. However, until completion of these remedial and associated investigatory activities and receipt of approval from the Ohio EPA of CBCC's activities to remediate this contamination, as well as 20 CHASE INDUSTRIES INC. remediation activities previously conducted, the Company cannot be certain that further remediation activities will not be required at CBCC's site. To the extent regulatory agencies require additional remediation at those areas of CBCC's site where CBCC previously has undertaken remediation activities, or require excavation of soil at the two areas for which CBCC currently is developing a remediation plan for in situ remediation, as a part of the settlement of the litigation with BP in first quarter 2001, BP has retained financial responsibility for such remediation activities. The Company expects to fund cleanup costs related to the remaining remediation activities at its manufacturing facility with cash on hand and borrowings under its existing bank credit facility. Therefore, the Company does not believe that funding these remediation activities will have a material adverse effect on the Company's financial condition, results of operations or liquidity. The statements set forth herein regarding anticipated expenditures for environmental matters are forward-looking, are based on sampling results currently available to the Company, remediation plans in the process of being developed by independent consultants of CBCC (which plans are subject to assumptions regarding applicable cleanup standards and methodologies) and preliminary cost estimates for completion of the remediation activities. Actual costs required to be expended by the Company with respect to such matters may differ materially from current expectations depending on the final resolution of known uncertainties, including finalization of remediation plans for the two remaining areas of CBCC's site as discussed above, completion of proposed remediation activities, acceptance by applicable governmental agencies of cleanup standards relied upon in developing remediation plans and conducting remediation activities, discovery of additional contaminants during remediation, and any change in CBCC's proposed use of its property which affects any applicable cleanup standard. CONTINGENCIES - LEGAL PROCEEDINGS As discussed in Note 4 of Notes to Consolidated Financial Statements included in Part I, Item 1 and in Contingencies - Environmental Matters included in Part I, Item 2, in February 2001, the Company and CBCC settled a lawsuit with BP, originally filed in January 1998, regarding amounts payable under the BP Note. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The timing of contractual obligations and commercial commitments of the Company, at June 30, 2002, related to operating leases, purchases of capital equipment and stand-by letters of credit, is as follows (in thousands):

21 CHASE INDUSTRIES INC. FORWARD-LOOKING STATEMENTS This document contains forward-looking statements regarding the operations of the Company and the industries in which it operates. These statements are identified by the use of words such as "believe," "expects," "anticipates," "may, " "will," "should" and other words referring to events to occur in the future. Management uses estimates and assumptions in forming the basis for such forward-looking statements. Such estimates and assumptions, including forecasts regarding demand and pricing for the Company's products, are subject to risks and uncertainties which could cause actual results to differ materially from historical results or those anticipated, as described in the forward-looking statements. Actual results may be affected by general economic and industry conditions in the end use markets for the Company's products as well as the impact of competitive products and pricing, including without limitation the impact of imports. Foreign economic activity and the relationship of the U. S. dollar to other currencies also may affect import levels and exports of U.S. manufactured products containing parts made from brass rod. The Company's shipments also may be affected by its ability to maintain manufacturing operations at its current levels without significant interruption. Given these uncertainties, you should not place undue reliance upon the forward-looking statements in this document. 22 CHASE INDUSTRIES INC. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS The Company has no financial instruments or agreements that require disclosure pursuant to this item. Part II: Other Information ITEM 5. OTHER INFORMATION The Company has filed the certifications required by Section 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 99.1 and 99.2 to this Form 10-Q. 23 CHASE INDUSTRIES INC. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 2.1 - Agreement and Plan of Merger, dated as of May 7, 2002, by and among the Company, Olin and Plumber Acquisition Corp. (incorporated by reference to Exhibit 5.1 to the Company's Current Report on Form 8-K dated May 9, 2002). 3.1 - Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998), as amended by the Certificate of First Amendment to the Company's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K dated May 14, 1997) and Certificate of Second Amendment to the Company's Restated Certificate of Incorporation, (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K dated May 26, 1998). 3.2 - Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4.2 to the Company's Form 8-A dated January 5, 2001, filed with the Securities and Exchange Commission on January 5, 2001). 3.3 - By-Laws of the Company (incorporated by reference to Exhibit 99.5 to the Company's Current Report on Form 8-K dated December 26, 2000, filed with the Securities and Exchange Commission on January 4, 2001). 4.1 - Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on November 3, 1994, Registration No. 33-83178). 4.2 - Exchange Agreement dated November 4, 1994, between the Company and Citicorp Venture Capital Ltd. ("CVC") (incorporated by reference to Exhibit 4.4 to the Company's 24 CHASE INDUSTRIES INC. Registration Statement on Form S-8 dated December 9, 1994, Registration No. 33-87278). 4.3 - Rights Agreement, dated as of December 28, 2000, between the Company and Mellon Investor Services LLC (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated January 4, 2001, filed with the Securities and Exchange Commission on January 4, 2001). 4.4 - Voting Agreement, dated as of May 7, 2002 between Olin and Court Square Capital Limited (incorporated by reference to Exhibit 5.2 to the Company's Current Report on Form 8-K dated May 9, 2002). +99.1 - Certificate of Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. +99.2 - Certificate of Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. ---------- + Filed herewith (b) REPORTS ON FORM 8-K During the quarter ended June 30, 2002, the Company filed a Current Report on Form 8-K dated May 8, 2002, to report under Item 5, "Other Events," an agreement by Olin to acquire the Company. Also during the quarter ended June 30, 2002, the Company filed a Current Report on Form 8-K dated May 9, 2002, to report under Item 5, "Other Events," an Agreement and Plan of Merger by and among Olin, Plumber Acquisition Corp. and the Company and a Voting Agreement between Olin and Court Square Capital Limited, an affiliate of CVC and under Item 7, "Exhibits," the Agreement and Plan of Merger by and among Olin, Plumber Acquisition Corp. and the Company and the Voting Agreement. 25 CHASE INDUSTRIES INC. S I G N A T U R E 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 hereto duly authorized. CHASE INDUSTRIES INC. Date: August 14, 2002 By: /S/ TODD A. SLATER ------------------------------------ Todd A. Slater Vice President Chief Financial Officer (duly authorized officer and Principal Financial Officer) 26 CHASE INDUSTRIES INC. INDEX TO EXHIBITS

CHASE INDUSTRIES INC. (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated January 4, 2001, filed with the Securities and Exchange Commission on January 4, 2001). 4.4 - Voting Agreement, dated as of May 7, 2002 between Olin and Court Square Capital Limited (incorporated by reference to Exhibit 5.2 to the Company's Current Report on Form 8-K dated May 9, 2002). +99.1 - Certificate of Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. +99.2 - Certificate of Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.

---------- + Filed herewith

CHASE INDUSTRIES INC 10-Q