UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended February ~~28, 2019~~29, 2020

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 of organization)		(I.R.S. Employer Identification No.)

295 University Avenue, Westwood, Massachusetts 02090

(Address of Principal Executive ~~Offices, Including Zip~~Offices) (Zip Code)

(781) 332-0700

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common stock, $.10 par value

Trading Symbol(s)

CCF

Name of each exchange on which registered

NYSE American

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 ☒ NO ☐

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

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


Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section ~~7(a)(2)(B)~~13(a) of the ~~Securities~~Exchange Act. ☐

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

The number of shares of Common Stock outstanding as of March 31, ~~2019~~2020 was ~~9,412,323~~9,448,620.

Table of Contents

CHASE CORPORATION

INDEX TO FORM 10-Q

For the Quarter Ended February ~~28, 2019~~29, 2020

Ca
Cautionary Note Concerning Forward-Looking Statements		3

Part I - FINANCIAL INFORMATION

Item 1 – Unaudited Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of February ~~28, 2019~~29, 2020 (unaudited) and August 31, ~~2018~~2019		4

Condensed Consolidated Statements of Operations for the three and six months ended February 29, 2020 and February 28, 2019 ~~and 2018~~(unaudited)		5

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended February 29, 2020 and February 28, 2019 ~~and 2018~~(unaudited)		6

Condensed Consolidated ~~Statement~~Statements of Equity for the three and six months ended February 29, 2020 and February 28, 2019 ~~and 2018~~(unaudited)		7

Condensed Consolidated Statements of Cash Flows for the six months ended February 29, 2020 and February 28, 2019 ~~and 2018~~(unaudited)		9

Notes to Condensed Consolidated Financial Statements		10

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		3431

Item 3 – Quantitative and Qualitative Disclosures About Market Risk		4543

Item 4 – Controls and Procedures		4644

Part II – OTHER INFORMATION

Item 1 – Legal Proceedings		4745

Item 1A – Risk Factors		4745

Item 6 – Exhibits		4846

SIGNATURES		4947

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Cautionary Note Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements, including without limitation forward-looking statements made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” involve risks and uncertainties. Any statements contained in this Quarterly Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include, without limitation, statements as to our future operating results; seasonality expectations; plans for the development, utilization or disposal of manufacturing facilities; future economic conditions; our expectations as to legal proceedings; the effect of our market and product development efforts; and expectations or plans relating to the implementation or realization of our strategic goals and future growth, including through potential future acquisitions. Forward-looking statements may also include, among other things, statements relating to future sales, earnings, cash flow, results of operations, use of cash and other measures of financial performance, ~~as well as~~ statements relating to future dividend ~~payments.~~payments, as well as expected impact of the coronavirus disease 2019 (COVID-19) pandemic on the Company's businesses. Other forward-looking statements may be identified through the use of words such as “believes,” “anticipates,” “may,” “should,” “will,” “plans,” “projects,” “expects,” “expectations,” “estimates,” “predicts,” “targets,” “forecasts,” “strategy,” and other words of similar meaning in connection with the discussion of future operating or financial performance. 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. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. Accordingly, the Company’s actual results may differ materially from those contemplated by the forward-looking statements. Investors, therefore, are cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Readers should refer to the discussions under “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2018~~2019 concerning certain factors that could cause our actual results to differ materially from the results anticipated in such forward-looking ~~statements.~~statements, as well as the supplement to those discussions contained in Part II, Item 1A of this Quarterly Report on Form 10-Q. These Risk Factors are hereby incorporated by reference into this Quarterly Report.

Table of Contents

Item 1 — Unaudited Condensed Consolidated Financial Statements

CHASE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

In thousands, except share and per share amounts


	February 28,		August 31,		February 29,		August 31,
	2019		2018		2020		2019
ASSETS
Current Assets
Cash and cash equivalents	$	25,088	$	34,828	$	67,664	$	47,771
Accounts receivable, less allowance for doubtful accounts of $550 and $559		41,699		44,610
Accounts receivable, less allowance for doubtful accounts of $822 and $739						38,243		39,324
Inventory		45,418		39,699		39,185		42,354
Prepaid expenses and other current assets		4,488		2,595		2,815		2,418
Due from sale of businesses		—		400
Assets held for sale						1,064		1,064
Prepaid income taxes		2,556		4,100		1,913		1,451
Total current assets		119,249		126,232		150,884		134,382

Property, plant and equipment, less accumulated depreciation of $51,525 and $49,212		31,686		32,845
Property, plant and equipment, less accumulated depreciation of $51,655 and $49,730						27,375		29,326

Other Assets
Goodwill		82,334		84,696		82,175		81,986
Intangible assets, less accumulated amortization of $60,439 and $54,039		59,152		65,330
Intangible assets, less accumulated amortization of $72,163 and $65,862						46,932		52,704
Cash surrender value of life insurance		4,530		4,530		4,450		4,450
Restricted investments		1,118		1,090		1,325		1,260
Funded pension plan		241		301
Deferred income taxes		1,736		1,347		3,837		3,804
Operating lease right-of-use asset (Note 8)						9,256		—
Other assets		77		98		35		56
Total assets	$	300,123	$	316,469	$	326,269	$	307,968

LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	14,991	$	17,810	$	14,681	$	12,105
Accrued payroll and other compensation		4,239		6,639		4,357		6,300
Accrued expenses		4,238		4,486		4,868		4,035
Total current liabilities		23,468		28,935		23,906		22,440

Long-term debt		6,000		25,000
Operating lease long-term liabilities (Note 8)						6,648		—
Deferred compensation		1,132		1,105		1,338		1,275
Accumulated pension obligation		10,173		10,736		9,879		10,485
Other liabilities		333		283		—		217
Accrued income taxes		3,382		3,654		2,381		2,324

Commitments and Contingencies (Note 10)
Commitments and contingencies (Note 10)

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; 9,412,323 shares at February 28, 2019 and 9,396,947 shares at August 31, 2018 issued and outstanding		941		939
Common stock, $.10 par value: Authorized 20,000,000 shares; 9,448,620 shares at February 29, 2020 and 9,400,748 shares at August 31, 2019 issued and outstanding						945		940
Additional paid-in capital		14,328		13,104		15,882		14,351
Accumulated other comprehensive loss		(11,279)		(12,336)		(14,060)		(14,324)
Retained earnings		251,645		245,049		279,350		270,260
Total equity		255,635		246,756		282,117		271,227
Total liabilities and equity	$	300,123	$	316,469	$	326,269	$	307,968

See accompanying notes to the condensed consolidated financial statements

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CHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

In thousands, except share and per share amounts


	Three Months Ended February 28,				Six Months Ended February 28,				Three Months Ended				Six Months Ended
	2019		2018		2019		2018		February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019

Revenue
Sales	$	65,442	$	64,735	$	136,806	$	125,312	$	64,626	$	65,442	$	130,383	$	136,806
Royalties and commissions		1,189		1,140		2,328		2,480		956		1,189		2,001		2,328
		66,631		65,875		139,134		127,792		65,582		66,631		132,384		139,134
Costs and Expenses
Cost of products and services sold		43,213		41,991		89,788		78,886		40,666		43,213		82,449		89,788
Selling, general and administrative expenses		13,086		11,975		26,448		23,871		13,810		13,086		27,450		26,448
Operations optimization costs (Note 15)										60		—		709		260
Loss on impairment of goodwill (Note 7)		2,410		—		2,410		—		—		2,410		—		2,410
Exit costs related to idle facility (Note 15)		—		—		260		—
Acquisition-related costs (Note 14)		—		393		—		393

Operating income		7,922		11,516		20,228		24,642		11,046		7,922		21,776		20,228

Interest expense		(162)		(440)		(366)		(485)		(56)		(162)		(111)		(366)
Gain on sale of license (Note 17)		—		1,085		—		1,085
Other income (expense)		(828)		(421)		(1,122)		(903)		(185)		(828)		(789)		(1,122)

Income before income taxes		6,932		11,740		18,740		24,339		10,805		6,932		20,876		18,740

Income taxes (Note 18)		1,659		1,618		4,644		5,902
Income taxes (Note 17)										2,926		1,659		5,635		4,644

Net income	$	5,273	$	10,122	$	14,096	$	18,437	$	7,879	$	5,273	$	15,241	$	14,096


Net income available to common shareholders, per common and common equivalent share (Note 4)

Basic	$	0.56	$	1.08	$	1.50	$	1.97	$	0.83	$	0.56	$	1.62	$	1.50

Diluted	$	0.56	$	1.07	$	1.49	$	1.95	$	0.83	$	0.56	$	1.60	$	1.49

Weighted average shares outstanding
Basic		9,332,288		9,289,372		9,330,929		9,285,604		9,355,821		9,332,288		9,353,985		9,330,929
Diluted		9,373,030		9,329,308		9,377,167		9,356,847		9,444,211		9,373,030		9,439,215		9,377,167

Annual cash dividends declared per share													$	0.80	$	0.80

See accompanying notes to the condensed consolidated financial statements

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CHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

In thousands, except share and per share amounts


	Three Months Ended February 28,				Six Months Ended February 28,				Three Months Ended				Six Months Ended
	2019		2018		2019		2018		February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019
Net income	$	5,273	$	10,122	$	14,096	$	18,437	$	7,879	$	5,273	$	15,241	$	14,096

Other comprehensive income (loss):
Other comprehensive (loss) income:
Net unrealized (loss) gain on restricted investments, net of tax		13		(49)		(8)		(18)		(43)		13		(2)		(8)
Change in funded status of pension plans, net of tax		291		105		527		185		128		291		259		527
Foreign currency translation adjustment		1,144		2,100		538		3,670		(142)		1,144		1,395		538
Total other comprehensive income (loss)		1,448		2,156		1,057		3,837
Total other comprehensive (loss) income										(57)		1,448		1,652		1,057

Comprehensive income	$	6,721	$	12,278	$	15,153	$	22,274	$	7,822	$	6,721	$	16,893	$	15,153

See accompanying notes to the condensed consolidated financial statements

~~Table of Contents~~

~~CHASE CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENT OF EQUITY~~

~~THREE MONTHS ENDED FEBRUARY 28, 2019 AND 2018~~

~~(UNAUDITED)~~

~~In thousands, except share and per share amounts~~

Additional

Accumulated Other

Total

Common Stock

Paid-In

Comprehensive

Retained

Stockholders'


Shares

Amount

Capital

Income (Loss)

Earnings

Equity
Balance at November 30, 2017

9,374,840

$
937

$
14,734

$
(11,788)

$
210,221

$
214,104
Restricted stock grants, net of forfeitures

2,779

1

(1)

—
Amortization of restricted stock grants

385

385
Amortization of stock option grants

111

111
Exercise of stock options

34,021

3

438

441
Common stock received for payment of stock option exercises

(4,091)

(1)

(441)

(442)
Common stock retained to pay statutory minimum withholding taxes on common stock

(12,961)

(1)

(1,390)

(1,391)
Change in funded status of pension plans, net of tax $17

105

105
Foreign currency translation adjustment

2,100

2,100
Net unrealized gain (loss) on restricted investments, net of tax ($22)

(49)

(49)
Net income

10,122

10,122
Balance at February 28, 2018

9,394,588

$
939

$
13,836

$
(9,632)

$
220,343

$
225,486

Balance at November 30, 2018

9,402,706

$
940

$
13,608

$
(12,727)

$
246,372

$
248,193
Restricted stock grants, net of forfeitures

4,599

—

—

—
Amortization of restricted stock grants

415

415
Amortization of stock option grants

124

124
Exercise of stock options

5,018

1

181

182
Change in funded status of pension plans, net of tax $101

291

291
Foreign currency translation adjustment

1,144

1,144
Net unrealized gain (loss) on restricted investments, net of tax $3

13

13
Net income

5,273

5,273
Balance at February 28, 2019

9,412,323

$
941

$
14,328

$
(11,279)

$
251,645

$
255,635

~~See accompanying notes to the condensed consolidated financial statements~~

Table of Contents

CHASE CORPORATION

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF EQUITY

~~SIX~~THREE MONTHS ENDED FEBRUARY 29, 2020 AND FEBRUARY 28, 2019 ~~AND 2018~~

(UNAUDITED)

In thousands, except share and per share amounts


				Additional		Accumulated Other				Total					Additional		Accumulated Other				Total
	Common Stock			Paid-In		Comprehensive		Retained		Stockholders'		Common Stock			Paid-In		Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Income (Loss)		Earnings		Equity		Shares	Amount		Capital		Income (Loss)		Earnings		Equity
Balance at August 31, 2017	9,354,136	$	935	$	14,060	$	(13,469)	$	209,403	$	210,929
Balance at November 30, 2018												9,402,706	$	940	$	13,608	$	(12,727)	$	246,372	$	248,193
Restricted stock grants, net of forfeitures	15,900		2		(2)						—	4,599		—		—						—
Amortization of restricted stock grants					806						806					415						415
Amortization of stock option grants					223						223					124						124
Exercise of stock options	44,880		4		886						890	5,018		1		181						182
Common stock received for payment of stock option exercises	(7,367)		(1)		(747)						(748)
Common stock retained to pay statutory minimum withholding taxes on common stock	(12,961)		(1)		(1,390)						(1,391)
Cash dividend on common stock, $0.80 per share									(7,497)		(7,497)
Change in funded status of pension plans, net of tax $59							185				185
Change in funded status of pension plans, net of tax $101																		291				291
Foreign currency translation adjustment							3,670				3,670							1,144				1,144
Net unrealized gain (loss) on restricted investments, net of tax ($7)							(18)				(18)
Net unrealized gain (loss) on restricted investments, net of tax $3																		13				13
Net income									18,437		18,437									5,273		5,273
Balance at February 28, 2018	9,394,588	$	939	$	13,836	$	(9,632)	$	220,343	$	225,486
Balance at February 28, 2019												9,412,323	$	941	$	14,328	$	(11,279)	$	251,645	$	255,635

Balance at August 31, 2018	9,396,947	$	939	$	13,104	$	(12,336)	$	245,049	$	246,756
Balance at November 30, 2019												9,423,946	$	942	$	15,063	$	(14,003)	$	271,471	$	273,473
Restricted stock grants, net of forfeitures	9,308		1		(1)						—	24,674		3		(3)						—
Amortization of restricted stock grants					795						795					594						594
Amortization of stock option grants					249						249					228						228
Exercise of stock options	7,022		1		301						302
Common stock received for payment of stock option exercises	(954)		—		(120)						(120)
Cash dividend on common stock, $0.80 per share									(7,522)		(7,522)
Change in funded status of pension plans, net of tax $184							527				527
Change in funded status of pension plans, net of tax $47																		128				128
Foreign currency translation adjustment							538				538							(142)				(142)
Net unrealized gain (loss) on restricted investments, net of tax ($4)							(8)				(8)
Adoption of ASC 606 (Note 9)									22		22
Net unrealized gain (loss) on restricted investments, net of tax ($15)																		(43)				(43)
Net income									14,096		14,096									7,879		7,879
Balance at February 28, 2019	9,412,323	$	941	$	14,328	$	(11,279)	$	251,645	$	255,635
Balance at February 29, 2020												9,448,620	$	945	$	15,882	$	(14,060)	$	279,350	$	282,117

See accompanying notes to the condensed consolidated financial statements

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CHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

SIX MONTHS ENDED FEBRUARY 29, 2020 AND FEBRUARY 28, 2019

(UNAUDITED)

In thousands, except share and per share amounts


				Additional		Accumulated Other				Total
	Common Stock			Paid-In		Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Income (Loss)		Earnings		Equity
Balance at August 31, 2018	9,396,947	$	939	$	13,104	$	(12,336)	$	245,049	$	246,756
Restricted stock grants, net of forfeitures	9,308		1		(1)						—
Amortization of restricted stock grants					795						795
Amortization of stock option grants					249						249
Exercise of stock options	7,022		1		301						302
Common stock received for payment of stock option exercises	(954)		—		(120)						(120)
Cash dividend on common stock, $0.80 per share									(7,522)		(7,522)
Change in funded status of pension plans, net of tax $184							527				527
Foreign currency translation adjustment							538				538
Net unrealized gain (loss) on restricted investments, net of tax ($4)							(8)				(8)
Adoption of ASC 606									22		22
Net income									14,096		14,096
Balance at February 28, 2019	9,412,323	$	941	$	14,328	$	(11,279)	$	251,645	$	255,635

Balance at August 31, 2019	9,400,748	$	940	$	14,351	$	(14,324)	$	270,260	$	271,227
Restricted stock grants, net of forfeitures	45,311		5		(5)						—
Amortization of restricted stock grants					1,080						1,080
Amortization of stock option grants					456						456
Exercise of stock options	3,618		—		123						123
Common stock received for payment of stock option exercises	(1,057)		—		(123)						(123)
Cash dividend on common stock, $0.80 per share									(7,539)		(7,539)
Change in funded status of pension plans, net of tax $91							259				259
Foreign currency translation adjustment							1,395				1,395
Net unrealized gain (loss) on restricted investments, net of tax ($1)							(2)				(2)
Adoption of ASU 2018-02 (Note 2)							(1,388)		1,388		—
Net income									15,241		15,241
Balance at February 29, 2020	9,448,620	$	945	$	15,882	$	(14,060)	$	279,350	$	282,117

See accompanying notes to the condensed consolidated financial statements

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CHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

In thousands


	Six Months Ended February 28,				Six Months Ended
	2019		2018		February 29, 2020		February 28, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	14,096	$	18,437	$	15,241	$	14,096
Adjustments to reconcile net income to net cash provided by operating activities
Gain on sale of license		—		(1,085)

Loss on impairment of goodwill		2,410		—		—		2,410
Depreciation		2,491		2,618		2,041		2,491
Amortization		6,225		5,233		5,826		6,225
Cost of sale of inventory step-up		—		1,530
(Recovery) provision of allowance for doubtful accounts		(11)		137
Provision (recovery) for allowance for doubtful accounts						81		(11)
Stock-based compensation		1,044		1,029		1,536		1,044
Realized loss (gain) on restricted investments		4		(91)
Realized (loss) gain on restricted investments						(28)		4
Pension curtailment and settlement loss		473		—		—		473
Deferred taxes		(581)		1,069		—		(581)
Increase (decrease) from changes in assets and liabilities
Accounts receivable		3,003		179		1,169		3,003
Inventory		(5,651)		(3,222)		3,338		(5,651)
Prepaid expenses and other assets		(1,864)		(601)		(356)		(1,864)
Accounts payable		(2,764)		2,247		2,425		(2,764)
Accrued compensation and other expenses		(2,847)		(2,778)		(3,375)		(2,847)
Accrued income taxes		1,275		(4,718)		(437)		1,275
Net cash provided by operating activities		17,303		19,984		27,461		17,303

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(1,304)		(1,586)		(827)		(1,304)
Cost to acquire intangible assets		(30)		(33)		—		(30)
Payments for acquisitions		—		(71,434)
Proceeds from sale of license		—		1,000
Proceeds from sale of businesses		400		—		—		400
Changes in restricted investments		(41)		61		(40)		(41)
Net cash used in investing activities		(975)		(71,992)		(867)		(975)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on debt		—		65,000
Payments of principal on debt		(19,000)		(10,000)		—		(19,000)
Dividend paid		(7,522)		(7,497)		(7,539)		(7,522)
Proceeds from exercise of common stock options		182		142		—		182
Payments of taxes on stock options and restricted stock		—		(1,391)
Net cash (used in) provided by financing activities		(26,340)		46,254
Net cash used in financing activities						(7,539)		(26,340)

INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS		(10,012)		(5,754)
INCREASE IN CASH & CASH EQUIVALENTS						19,055		(10,012)
Effect of foreign exchange rates on cash		272		2,537		838		272
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		34,828		47,354		47,771		34,828
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	25,088	$	44,137	$	67,664	$	25,088

Non-cash Investing and Financing Activities
Common stock received for payment of stock option exercises	$	120	$	748	$	123	$	120
Property, plant and equipment additions included in accounts payable	$	113	$	222	$	154	$	113

See accompanying notes to the condensed consolidated financial statements

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Note 1 — Basis of Financial Statement Presentation

Description of Business

Chase Corporation (the “Company,” “Chase,” “we,” or “us”), a global specialty chemicals company founded in 1946, is a leading manufacturer of protective materials for high-reliability applications across diverse market sectors. Our strategy is to maximize the performance of our core businesses and brands while seeking future opportunities through strategic acquisitions. Through investments in facilities, systems and organizational consolidation we seek to improve performance and gain economies of scale.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”) 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 Corporation’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The year-end condensed balance sheet ~~data~~ was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Chase Corporation filed audited consolidated financial statements which included all information and notes necessary for such a complete presentation for the three years ended August 31, ~~2018,~~2019 in conjunction with its ~~2018~~2019 Annual Report on Form 10-K.Certain immaterial reclassifications have been made to the prior year amounts to conform to the current year’s presentation.

The results of operations for the interim period ended February ~~28, 2019~~29, 2020 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended August 31, ~~2018,~~2019 which are contained in the Company’s ~~2018~~2019 Annual Report on Form 10-K.

The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring items) that are, in the opinion of management, necessary for a fair statement of the Company’s financial position as of February ~~28, 2019,~~29, 2020, and the results of its operations, comprehensive income, changes in equity and cash flows for the interim periods ended February 29, 2020 and February 28, ~~2019 and 2018.~~2019.

The financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company uses the U.S. dollar as the reporting currency for financial reporting. The financial position and results of operations of the Company’s U.K.-based operations are measured using the British pound as the functional currency. The financial position and results of operations of the Company’s operations based in France are measured using the euro as the functional currency. The financial position and results of the Company’s HumiSeal India Private Limited business are measured using the Indian rupee as the functional currency. The functional currency for all our other operations is the U.S. dollar. 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. Transaction gains and losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional currency of each applicable operation are included in other income (expense) on the condensed consolidated statements of operations, and were ($105) and ($606) for the three- and six-month periods ended February 29, 2020, respectively, and ($468) and ($416) for the three- and six-month periods ended February 28, 2019, ~~respectively,~~respectively.

Other Business Developments

During the first quarter of fiscal 2020, third-party-led studies regarding the potential upgrading of the Company’s current worldwide ERP system were conducted. Chase is currently reviewing the data and ~~($324)~~recommendations provided by the study and ~~($677)~~may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around our facilities rationalization and consolidation initiative. The Company recognized $150 in expense related to these services in the ~~three- and six-month periods ended February 28, 2018, respectively.~~

first quarter of fiscal 2020, with no expense recognized in the second fiscal

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quarter. Given the ongoing nature of the review, an estimate of future costs, including those that may be capitalized, cannot currently be determined.

~~Other Business Developments~~During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations housed in its Granite Falls, NC location to its Hickory, NC facility. This is in line with the Company’s ongoing initiative to consolidate its manufacturing plants and streamline its existing processes. At the time, the pulling and detection operations were the only Chase-owned production operations in Granite Falls, NC, with the remaining portions of the building being either utilized for research and development or leased to a third party. The process of moving, including moving internal research and development capabilities, was substantially completed during the second quarter of fiscal 2020. The Company recognized $60 and $559 in expense related to the move in the three-month and six-month periods ended February 29, 2020, respectively, having recognized $526 in expense during the second half of fiscal 2019. Future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.

On June 25, 2018, the Company announced to its employees the planned closing of its Pawtucket, RI manufacturing facility effective August 31, 2018. This is in line with the Company’s ongoing efforts to consolidate its manufacturing plants and streamline its existing processes. The manufacture of products previously produced in the Pawtucket, RI facility was substantially moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period. ~~The Company expensed $1,272 in~~In the fourth quarter of fiscal 2018, the Company expensed $1,272 related to the ~~closure, including: (a) cash-related employee-related, logistics and uncapitalized facility improvement costs of $590; and (b) non-cash-related accelerated depreciation expense of $682.~~closure. The Company also recognized $260 in ~~expenses~~expense related to ~~this~~the move in the three-month period ended November 30, 2018, with no additional expense recognized in the ~~quarter ended February 28, 2019.~~remainder of fiscal 2019 or in 2020. Future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.

On The Company completed the sale of its Pawtucket, RI location to a third party in April 20, 2018, Chase finalized an agreement with an unrelated party to sell all inventory, operational machinery and equipment and intangible assets of the Company’s structural composites rod business, as well as a license related2020, subsequent to the ~~production and sale of rod,~~second fiscal quarter, for net proceeds of $2,232, net of transaction costs and following certain working capital adjustments. This business, which was part of the structural composites product line within the Industrial Materials segment, had limited growth and profitability prospects as part of the Company, and was outside the areas Chase has identified for strategic emphasis. The resulting pre-tax gain on sale of $1,480 was recognized in the third quarter of fiscal 2018 as a gain on sale of businesses within the condensed consolidated statement of operations. Chase received $2,075, net of transaction costs, in the third quarter of fiscal 2018, with the remaining $157 received in the fourth quarter of fiscal 2018 as a result of a working capital true-up.Chase will provide certain transitional manufacturing and administrative support to the purchaser for which the Company will receive additional consideration upon the performance of services. The purchaser also entered into a royalty agreement with the Company. The purchaser will make royalty payments to Chase based on future sales of certain structural composite material manufactured by the purchaser.

On December 29, 2017, Chase entered an agreement to acquire Stewart Superabsorbents, LLC (“SSA, LLC”), an advanced superabsorbent polymer (SAP) formulator and solutions provider, with operations located in Hickory and McLeansville, NC. The transaction closed on December 31, 2017. In the most recently completed fiscal year prior to the acquisition, SSA, LLC, and its recently-acquired Zappa-Tec business (collectively “Zappa Stewart”) had combined revenue in excess of $24,000. This acquisition proved to be immediately accretive to the Company’s earnings, after adjusting for nonrecurring costs associated with the transaction and financing cost. The business was acquired for a purchase price of $73,469, after final working capital adjustments and excluding acquisition-related costs. As part of this transaction, Chase acquired all assets of the business, and entered multiyear leases at both locations.The Company expensed $393 of acquisition-related costs associated with this acquisition during the second quarter of fiscal 2018. The purchase was funded from a combination of Chase’s existing revolving credit facility~~and available cash on hand.~~Zappa Stewart’s protective materials technology complements Chase’s current specialty chemicals offerings. This acquisition is aligned with the Company’s core strategies and extends its reach into growing medical, environmental and consumer applications.The Company finalized purchase accounting in the first quarter of fiscal 2019, without any adjustment to amounts recorded at August 31, 2018. Following the effective date of the acquisition the financial results of Zappa Stewart’s operations have been included in the Company’s financial statements in the specialty chemical intermediates product line, contained within the Industrial Materials operating segment. See Note 14 to the condensed consolidated financial statements for additional information on the acquisition of Zappa Stewart.totaling $1,810.

Significant Accounting Policies

The Company’s significant accounting policies are detailed in Note 1 — “Summary of Significant Accounting Policies” within Item 8 of the Company’s Annual Report on Form 10-K for the year ended August 31, ~~2018. Significant~~2019. Management believes that there have been no material changes during the six months ended February 29, 2020 to ~~these~~the critical accounting policies as a result of adopting ASC 606 “Revenue from Contracts with Customers” during the first quarter of fiscal 2019 are discussed within Note 2 — “Recent Accounting Standards” and Note 9 — “Revenue from Contracts with Customers” within this Current Quarterlyreported in our Annual Report on Form ~~10-Q.~~10-K for the fiscal year ended August 31, 2019.

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Note 2 — Recent Accounting Standards

Recently Issued Accounting Pronouncements

In ~~February~~June 2016, theFinancial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-03, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an 'incurred loss' method to an 'expected loss' method. In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is an accounting pronouncement that amends ASU 2016-10. The ASU 2019-11 amendment provides clarity and improves the codification to ASU 2016-03. The pronouncements are concurrently effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years (effective fiscal 2021). The Company is currently evaluating the effects of this pronouncement on its condensed consolidated financial statements.

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Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) Targeted Improvements.” The ~~ASU will be effective~~updated guidance provided an optional transition method, which allows for the ~~Company beginning~~application of the standard as of the adoption date with no restatement of prior period amounts. We adopted the standard on September 1, 2019 ~~(fiscal~~(start of fiscal 2020)~~. Early application is permitted. Lessees must~~ under the optional transition method described above. Consequently, historical financial information was not updated, and the disclosures required under the new standard are not provided for dates and periods prior to September 1, 2019.

The new standard provides several optional practical expedients in transition. The Company has elected to apply the “package of practical expedients” which allows us to not reassess i) whether existing or expired arrangements contain a ~~modified retrospective transition approach~~lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for ~~leases existing at, or entered into after,~~capitalization under the ~~beginning~~new lease standard. In preparation for adoption of the ~~earliest comparative period presented in~~standard, the Company enhanced its internal controls to enable the preparation of financial ~~statements. The Company is currently evaluating~~information including the assessment of the impact of the ~~application~~standard. The initial adoption of ~~this~~the ASU resulted in the recognition of additional lease liabilities of $9,644 ($2,071 short-term and $7,573 long-term) and right-of-use assets of $10,200 as of September 1, 2019 on ~~our~~the condensed consolidated ~~financial statements and disclosures thereto.~~balance sheet as it relates to the Company’s operating leases. The new standard did not have a material impact on the Company’s condensed consolidated statement of operations or cash flows.

In February 2018, the FASB issued ASU ~~No.~~ 2018-02, ~~“Reclassification~~“Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ~~Under previously existing U.S. GAAP,~~This ASU was issued to address a narrow-scope financial reporting issue that arose as a result of the enactment of the Tax Cuts and Jobs Act (“Tax Reform”) on December 22, 2017. The objective of ASU 2018-02 is to address the tax effects of ~~changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to~~ items ~~originally recorded in~~within accumulated other comprehensive income ~~are adjusted, certain~~(referred to as “stranded tax ~~effects become stranded~~effects”) that do not reflect the appropriate tax rate enacted in ~~accumulated other comprehensive income. The amendments in~~the Tax Reform. As a result, the ASU 2018-02 ~~allow~~allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the ~~Tax Cuts~~newly enacted federal corporate income tax rate. The amount of the reclassification would be the difference between the historical corporate income tax rate of 35 percent and ~~Jobs Act~~the current enacted corporate income tax rate of ~~2017 (the “Tax Act”). The amendments in this~~21 percent. ASU ~~also require certain disclosures about stranded tax effects. The guidance~~2018-02 is ~~required~~effective for fiscal years beginning after December 15, 2018, ~~(our fiscal year 2020), and interim periods within those fiscal years. Early~~with early adoption permitted, including adoption in ~~any~~an interim period. The amendments in this ASU may be applied retrospectively to each period ~~is permitted. The Company is currently evaluating~~in which the effect ~~that~~of the change in the U.S. Federal corporate income tax rate in the Tax Reform is recognized. Therefore, the Company adopted ASU ~~No.~~ 2018-02 ~~will have on~~in the first quarter of the year ending August 31, 2020, and has elected to reclassify the income tax effects related to its ~~financial statements and related disclosures. See Note 18 to the condensed consolidated financial statements for additional information on the effects~~pension funding of the Tax Act on our financial position and result of operations, including provisional transitional adjustments that were recorded during fiscal 2018 related to the Tax Act, and complete and final adjustments during the quarter ended February 28, 2019.

~~Recently Adopted Accounting Pronouncements~~

~~In May 2014, the FASB issued ASU No. 2014-09, “Revenue~~Reform from ~~Contracts with Customers (Topic 606).” The amended guidance establishes a single~~accumulated other comprehensive ~~model for companies to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance, including industry-specific guidance.~~

The amended guidance clarifies that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the amended guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASC 606 was effective for the Company’s interim and annual reporting periods beginning September 1, 2018 (fiscal 2019), and could have been adopted using either a full retrospective or modified retrospective transition method.

The Company adopted the amended guidance and all related amendments using the modified retrospective approach on September 1, 2018, at which time it became effective for the Company. The Company recognized the cumulative effect of initially applying the new revenue standard to all open contracts requiring recognition over time that were not completed on the date of adoption as an adjustment to the opening balance of retained earnings.

~~At the adoption date, the cumulative impact of revenue that would have been recognized over time was $80. The related adoption impact~~loss to retained earnings was $22, net of tax. The impact to net sales and net income as a result of applying ASC 606 was a (decrease) increase of ($10) and ($14), respectively, for the quarter ended February 28, 2019 and $95 and $31, respectively, for the six months ended February 28, 2019. See Note 9 — “Revenue from Contracts with Customers” for further discussion of the effects of adoption.

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In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230).” This ASU provides guidance on the presentation and classification of specific cash flow items to improve consistency within the statement of cash flows. The Company adopted ASU No. 2016-15 on September 1, 2018, and the adoption did not have a material effect on its financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The new guidance dictates that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, it should be treated as an acquisition or disposal of an asset. The Company adopted the ASU on September 1, 2018. The adoption had no material effect on the financial statements and related disclosures in the first and second quarter of fiscal 2019. The effect ASU No. 2017-01 will have on the financial statements and related disclosures of the Company in future periods will be dependent on the nature of potential future acquisitions and divestitures.

In March 2017, the FASB issued ASU No. 2017-07, “Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715, Compensation — Retirement Benefits. The ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The ASU also allows only the service cost component to be eligible for capitalization when applicable (e.g., as a cost of internally manufactured inventory or a self-constructed asset). The Company adopted ASU No. 2017-07 on September 1, 2018, which resulted in the reclassification of $163 and $326, previously reported in selling, general and administrative expense, to other income (expense) for the three- and six-month periods ended February 28, 2018 (prior year), respectively. Further reclassifications will be required on the condensed consolidated statement of operations for periods of fiscal 2018 subsequent to February 28, 2018.~~The adoption of ASU 2017-07 did not have any effect on the historically stated condensed consolidated balance sheets or condensed consolidated statement of cash flows.~~

In May 2017, the FASB issued ASU No. 2017-09, "Scope of Modification Accounting." This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company adopted the ASU 2017-09 on September 1, 2018. The adoption had no material effect on the financial statements and related disclosures in the first and second quarter of fiscal 2019. The effect ASU No. 2017-09 will have on the financial statements and related disclosures of the Company in future periods will be dependent on the nature of potential future changes the Company may make to the terms or conditions of any share-based payment awards.earnings.

Note 3 — Inventory

Inventory consisted of the following as of February ~~28, 2019~~29, 2020 and August 31, ~~2018:~~2019:


					February 29,		August 31,
	February 28, 2019		August 31, 2018		2020		2019
Raw materials	$	22,706	$	21,998	$	18,671	$	20,325
Work in process		8,463		7,653		7,332		8,748
Finished goods		14,249		10,048		13,182		13,281
Total Inventory	$	45,418	$	39,699	$	39,185	$	42,354

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Note 4 — Net Income Per Share

The Company has unvested share-based payment awards with a right to receive nonforfeitable dividends which are considered participating securities under ASC Topic 260, “Earnings Per Share.” The Company allocates earnings to participating securities and computes earnings per share using the two-class method. The determination of earnings per share under the two-class method is as follows:


	Three Months Ended February 28,				Six Months Ended February 28,				Three Months Ended				Six Months Ended
	2019		2018		2019		2018		February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019

Basic Earnings per Share

Net income	$	5,273	$	10,122	$	14,096	$	18,437	$	7,879	$	5,273	$	15,241	$	14,096
Less: Allocated to participating securities		41		96		110		176		69		41		118		110
Net income available to common shareholders	$	5,232	$	10,026	$	13,986	$	18,261	$	7,810	$	5,232	$	15,123	$	13,986

Basic weighted average shares outstanding		9,332,288		9,289,372		9,330,929		9,285,604		9,355,821		9,332,288		9,353,985		9,330,929
Net income per share - Basic	$	0.56	$	1.08	$	1.50	$	1.97	$	0.83	$	0.56	$	1.62	$	1.50

Diluted Earnings per Share

Net income	$	5,273	$	10,122	$	14,096	$	18,437	$	7,879	$	5,273	$	15,241	$	14,096
Less: Allocated to participating securities		41		96		110		176		69		41		118		110
Net income available to common shareholders	$	5,232	$	10,026	$	13,986	$	18,261	$	7,810	$	5,232	$	15,123	$	13,986

Basic weighted average shares outstanding		9,332,288		9,289,372		9,330,929		9,285,604		9,355,821		9,332,288		9,353,985		9,330,929
Additional dilutive common stock equivalents		40,742		39,936		46,238		71,243		88,390		40,742		85,230		46,238
Diluted weighted average shares outstanding		9,373,030		9,329,308		9,377,167		9,356,847		9,444,211		9,373,030		9,439,215		9,377,167
Net income per share - Diluted	$	0.56	$	1.07	$	1.49	$	1.95	$	0.83	$	0.56	$	1.60	$	1.49

For both the three- and six-month periods ended February ~~28, 2019,~~29, 2020, stock options to purchase ~~15,625 and 14,022~~8,805 shares of common stock were outstanding but were not included in the calculation of diluted income per share because their inclusion would be anti-dilutive. For the three- and six-month periods ended February 28, ~~2018,~~2019, stock options to purchase ~~6,416~~15,625 and ~~9,622~~14,022 shares of common stock were outstanding but were not included in the calculation of diluted income per share because their inclusion would be anti-dilutive. Included in the calculation of dilutive common stock equivalents are the unvested portion of restricted stock and stock options.

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Note 5 — Stock-Based Compensation

In August 2017, the Board of Directors of the Company approved the fiscal year 2018 Long Term Incentive Plan (“2018 LTIP”) for the executive officers and other members of management. The 2018 LTIP is an equity-based plan with a grant date of September 1, 2017 and contains a performance and service-based restricted stock grant of 4,249 shares in the aggregate, subject to adjustment, with a vesting date of August 31, 2020. Based on the fiscal year 2018 financial results, 572 additional shares of restricted stock (total of 4,821 shares) were earned and granted subsequent to the end of fiscal year 2018 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.

In August 2018, the Board of Directors of the Company approved the fiscal year 2019 Long Term Incentive Plan (“2019 LTIP”) for the executive officers and other members of management. The 2019 LTIP is an equity-based plan with a grant date of September 1, 2018 and contains a performance and service-based restricted stock grant of 6,609 shares in the aggregate, subject to adjustment (as discussed below), with a vesting date of August 31, 2021.

During the fourth quarter of fiscal 2019, an additional grant of restricted stock was made related to the 2019 LTIP grant in conjunction with an amendment to the equity compensation program for a promoted employee. The additional grant contains the following restricted stock components: (a) a performance and service-based restricted stock grant of 211 shares in the aggregate, subject to adjustment based on fiscal 2019 results, with a vesting date of August 31, 2021, for which compensation expense is recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based restricted stock grant of 132 shares in the aggregate, with a vesting date of August 31, 2021, for which compensation expense is recognized on a ratable basis over the vesting period.

In August 2019, restricted stock in the amount of 833 shares related to the 2019 LTIP grant was forfeited in conjunction with an amendment in the equity compensation agreement of an employee.

Based on the fiscal year 2019 financial results, 2,694 shares of restricted stock already granted were forfeited subsequent to the end of fiscal year 2019 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.

In August 2019, the Board of Directors of the Company approved the fiscal year 2020 Long Term Incentive Plan (“2020 LTIP”) for the executive officers and other members of management. The 2020 LTIP is an equity-based plan with a grant date of September 1, 2019 and contains the following equity components:

Restricted Shares — (a) a performance and service-based restricted stock grant of ~~3,541~~3,697 shares in the aggregate, subject to adjustment based on fiscal ~~2019~~2020 results, with a vesting date of August 31, ~~2021.~~2022. Compensation expense is recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based restricted stock grant of ~~3,068~~3,689 shares in the aggregate, with a vesting date of August 31, ~~2021.~~2022. Compensation expense is recognized on a ratable basis over the vesting period.

Stock options — options to purchase ~~8,603~~13,418 shares of common stock in the aggregate with an exercise price of ~~$123.95~~$100.22 per share. The options will vest in three equal annual installments beginning on August 31, ~~2019~~2020 and ending on August 31, ~~2021.~~2022. Of the options granted, ~~3,927~~6,218 options will expire on August 31, ~~2028,~~2029, and ~~4,676~~7,200 options will expire on September 1, ~~2028.~~2029. Compensation expense is recognized over the period of the award consistent with the vesting terms.

In August 2019, the Board of Directors of the Company approved equity retention agreements with certain executive officers. The equity-based retention agreements have a grant date of September ~~2018,~~1, 2019 and contain the following equity components: (a) time-based restricted stock grant of 15,945 shares in the aggregate, and having a vesting date of August 31, 2022; and (b) options to purchase 53,642 shares of common stock in the ~~amount~~aggregate with an exercise price of ~~2,472 shares related to~~$100.22 per share. The options will cliff vest on August 31, 2022 and will expire on August 31, 2029. Compensation expense for both the restricted stock and the stock option components of the equity retention agreements is recognized on a ~~first~~ratable basis over the vesting period.

During the second quarter of fiscal ~~2017 grant was forfeited in conjunction with the termination~~2020, additional grants of ~~employment~~18,720, 616 and 432 shares of arestricted stock were issued to non-executive ~~member~~members of management with vesting dates of December 31, 2021, 2022 and 2024, respectively. Compensation expense is being recognized on a ratable basis over the ~~Company.~~vesting period.

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In February ~~2019,~~2020, as part of their standard compensation for board service, non-employee members of the Board ~~of Directors~~ received a total grant of ~~4,599~~4,906 shares of restricted stock ~~($469 grant date value)~~ for service for the period from January 31, ~~2019~~2020 through January 31, ~~2020.~~2021. 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.

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Note 6 — Segment Data and Foreign Operations

The Company is organized into ~~two~~three reportable operating ~~segments, an~~segments: Adhesives, Sealants and Additives; Industrial ~~Materials segment~~Tapes; and ~~a Construction Materials segment.~~Corrosion Protection and Waterproofing. The segments are distinguished by the nature of the products manufactured and how they are delivered to their respective markets.In the fourth quarter of our fiscal year 2019, we reorganized from two into three reportable operating segments; prior year quarter and year-to-date period amounts have been recast to reflect this change.

The ~~Industrial Materials~~Adhesives, Sealants and Additives segment ~~includes specified~~offers innovative and specialized product offerings consisting of both end-use products and intermediates that are used in, or integrated into, another company’s product. Demand for the segment’s product offerings is typically dependent upon general economic conditions. The Adhesives, Sealants and Additives segment leverages the core specialty chemical competencies of the Company, and serves diverse markets and applications. The segment sells predominantly into the transportation, appliances, medical, general industrial and environmental market verticals. The segment’s products include moisture protective coatings and customized sealant and adhesive systems for electronics, polymeric microspheres, polyurethane dispersions and superabsorbent polymers.

The Industrial Tapes segment features legacy wire and cable materials, specialty tapes and other laminated and coated products. The segment derives its competitive advantage through its proven chemistries, diverse specialty offerings and the reliability its supply chain offers to end customers. These products are generally used in the assembly of other manufacturers’ products, with demand typically dependent upon general economic conditions. The Industrial ~~Materials products~~Tapes segment sells mostly to established markets, with some exposure to growth opportunities through further development of existing products. Markets served include cable manufacturing, utilities and telecommunications, and electronics packaging. The segment’s offerings include insulating and conducting materials for wire and cable manufacturers, ~~moisture protective coatingsand customized sealant and adhesive systems for electronics,~~ laminated durable papers, laminates for the packaging and industrial laminate markets, custom ~~manufacturing-related~~manufacturing services, pulling and detection tapes used in the installation, measurement and location of fiber optic cables and water and natural gas lines and cover tapes essential to delivering semiconductor components via tape and reel packaging, composite materials and elements, polymeric microspheres, polyurethane dispersions and superabsorbent polymers. Beginning December 31, 2017, the Industrial Materials segment includes the acquired operations of Zappa Stewart, included in the Company’s specialty chemical intermediates product line. Following the April 20, 2018 sale of the structural composites rod business, future product sales of composite materials and elements are not anticipated to be significant to the condensed consolidated financial statements.tape-and-reel packaging.

The ~~Construction Materials~~Corrosion Protection and Waterproofing segment is principally composed of project-oriented ~~and infrastructure-related~~ product offerings that are primarily sold and used as “Chase” branded products. ~~Construction Materials~~End markets include new and existing infrastructure projects on oil, gas, water and wastewater pipelines, highways and bridge decks, water and wastewater containment systems, and commercial buildings. The segment’s products include protective coatings for pipeline applications, coating and lining systems for ~~use in~~waterproofing and liquid storage ~~and containment~~ applications, adhesives and sealants used in architectural and building envelope waterproofing applications, high-performance polymeric asphalt additives, and expansion ~~and control~~ joint systems for ~~use~~waterproofing applications in ~~the~~ transportation and architectural markets.

With sales generally dependent on outdoor project work, the segment experiences highly seasonal sales patterns.

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The following tables summarize information about the Company’s reportable segments:


	Three Months Ended February 28,						Six Months Ended February 28,						Three Months Ended						Six Months Ended
	2019			2018			2019			2018			February 29, 2020			February 28, 2019			February 29, 2020			February 28, 2019
Revenue
Industrial Materials	$	57,265		$	55,267		$	117,425		$	105,252
Construction Materials		9,366			10,608			21,709			22,540
Adhesives, Sealants and Additives													$	24,440		$	26,107		$	50,262		$	52,805
Industrial Tapes														30,055			31,158			60,179			64,620
Corrosion Protection and Waterproofing														11,087			9,366			21,943			21,709
Total	$	66,631		$	65,875		$	139,134		$	127,792		$	65,582		$	66,631		$	132,384		$	139,134

Income before income taxes
Industrial Materials	$	12,269	(a)	$	16,161	(c)	$	27,072	(e)	$	31,526	(c)
Construction Materials		2,384			2,372			6,850			6,618
Adhesives, Sealants and Additives													$	6,750		$	4,756	(b)	$	14,232		$	13,021	(b)
Industrial Tapes														8,402	(a)		7,513			15,039	(d)		14,051	(f)
Corrosion Protection and Waterproofing														4,127			2,384			8,091			6,850
Total for reportable segments		14,653			18,533			33,922			38,144			19,279			14,653			37,362			33,922
Corporate and common costs		(7,721)	(b)		(6,793)	(d)		(15,182)	(f)		(13,805)	(d)		(8,474)			(7,721)	(c)		(16,486)	(e)		(15,182)	(g)
Total	$	6,932		$	11,740		$	18,740		$	24,339		$	10,805		$	6,932		$	20,876		$	18,740

Includes the following costs by segment:
Industrial Materials
Adhesives, Sealants and Additives
Interest	$	130		$	352		$	293		$	388		$	21		$	59		$	42		$	138
Depreciation		820			905			1,659			1,705			278			382			592			765
Amortization		2,789			2,591			5,579			4,578			2,356			2,339			4,693			4,679

Construction Materials
Industrial Tapes
Interest	$	32		$	88		$	73		$	97		$	29		$	71		$	54		$	155
Depreciation		164			187			339			377			418			438			819			894
Amortization		323			328			646			655			450			450			900			900

Corrosion Protection and Waterproofing
Interest													$	6		$	32		$	15		$	73
Depreciation														151			164			305			339
Amortization														106			323			233			646

(a)

Includes $60 in exit costs related to the movement of the pulling and detection business out of the Granite Falls, NC location and into the Hickory, NC location during the first quarter of fiscal 2020

(b)

Includes $2,410 of loss on impairment of goodwill related to the Company’s polyurethane dispersions business

~~(b)~~(c)

Includes $273 of pension-related settlement costs due to the timing of lump-sum distributions

~~(c)~~

Includes $1,530 of expenses related to inventory step-up in fair value attributable to the December 2017 acquisition of Zappa Stewart and a $1,085 gain on sale of license related to the structural composites product line recorded in the second quarter of fiscal 2018

(d)

Includes ~~$393~~$559 in ~~acquisition-related expenses attributable~~exit costs related to the ~~December 2017 acquisition~~movement of ~~Zappa Stewart~~the pulling and detection business out of the Granite Falls, NC location and into the Hickory, NC location during the first six months of fiscal 2020

(e)

Includes $150 of expense related to exploratory IT work performed to assess potential future upgrades to our companywide ERP system

(f)

Includes $260 of expense related to the closure and exit of our Pawtucket, RI location recognized in the first ~~quarter~~six months of fiscal 2019 ~~and $2,410 of loss on impairment of goodwill related to the Company’s polyurethane dispersions business~~

~~(f)~~(g)

Includes $473 of pension-related settlement costs due to the timing of lump-sum distributions

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Total assets for the Company’s reportable segments as of February ~~28, 2019~~29, 2020 and August 31, ~~2018~~2019 were:


	February 28,		August 31,		February 29,		August 31,
	2019		2018		2020		2019
Total Assets
Industrial Materials	$	226,433	$	229,559
Construction Materials		32,827		36,757
Adhesives, Sealants and Additives					$	139,992	$	135,583
Industrial Tapes						70,600		77,085
Corrosion Protection and Waterproofing						32,537		32,478
Total for reportable segments		259,260		266,316		243,129		245,146
Corporate and common assets		40,863		50,153		83,140		62,822
Total	$	300,123	$	316,469	$	326,269	$	307,968

The Company’s products are sold worldwide. Revenue for the ~~three-~~three-month and six-month periods ended February 29, 2020 and February 28, 2019 ~~and 2018~~ were attributed to operations located in the following countries:


	Three Months Ended February 28,				Six Months Ended February 28,				Three Months Ended				Six Months Ended
	2019		2018		2019		2018		February 29, 2020		February 28, 2019		February 29, 2020			February 28, 2019
Revenue
United States	$	57,942	$	55,978	$	122,293	$	108,455	$	57,236	$	57,942		$	115,597		$	122,293
United Kingdom		4,428		5,392		8,444		9,789		4,788		4,428			9,419			8,444
All other foreign (1)		4,261		4,505		8,397		9,548		3,558		4,261			7,368			8,397
Total	$	66,631	$	65,875	$	139,134	$	127,792	$	65,582	$	66,631		$	132,384		$	139,134

(1)

Comprises sales originated from our Paris, France location, royalty revenue attributable to our licensed manufacturer in Asia, and Chase foreign manufacturing operations.

As of February ~~28, 2019~~29, 2020 and August 31, ~~2018,~~2019 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) and goodwill and intangible assets, less accumulated amortization, in the following countries:


	February 28,		August 31,		February 29,		August 31,
	2019		2018		2020		2019
Long-Lived Assets
United States
Property, plant and equipment, net	$	27,119	$	28,770	$	24,041	$	24,993
Goodwill and Intangible assets, less accumulated amortization		135,166		143,539		123,466		129,057

United Kingdom
Property, plant and equipment, net		2,871		2,911		2,425		2,493
Goodwill and Intangible assets, less accumulated amortization		5,100		5,239		4,457		4,446

All other foreign
Property, plant and equipment, net		1,696		1,164		909		1,840
Goodwill and Intangible assets, less accumulated amortization		1,220		1,248		1,184		1,187

Total
Property, plant and equipment, net	$	31,686	$	32,845	$	27,375	$	29,326
Goodwill and Intangible assets, less accumulated amortization	$	141,486	$	150,026	$	129,107	$	134,690

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Note 7 — Goodwill and Other Intangibles

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

Industrial
Materials

Construction Materials

Consolidated

Balance at August 31, 2018

$
74,002

$
10,694

$
84,696

Loss on impairment of polyurethane dispersions business

(2,410)

—

(2,410)

Foreign currency translation adjustment

44

4

48

Balance at February 28, 2019

$
71,636

$
10,698

$
82,334


	Adhesives, Sealants and Additives		Industrial Tapes		Corrosion Protection and Waterproofing		Consolidated
Balance at August 31, 2019	$	50,090	$	21,215	$	10,681	$	81,986
Foreign currency translation adjustment		178		—		11		189
Balance at February 29, 2020	$	50,268	$	21,215	$	10,692	$	82,175

The Company’s goodwill is allocated to each reporting unit based on the nature of the products manufactured by the respective business combinations that originally created the goodwill. The Company has identified a total of ~~twelve~~three reporting units within its ~~two~~three operating segments that are used to evaluate the possible impairment of goodwill. Goodwill impairment exists when the carrying value of goodwill exceeds its fair value. Assessments of possible impairment of goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possible impairment of recorded goodwill and certain intangible asset balances is required annually. The amount and timing of any impairment charges based on these assessments require the estimation of future cash flows and the fair market value of the related assets based on management’s best estimates of certain key factors, including future selling prices and volumes; operating, raw material and energy costs; and various other projected operating and economic factors. When testing, fair values of the reporting units and the related implied fair values of their respective goodwill are established using discounted cash flows. The Company evaluates the possible impairment of goodwill annually during the fourth quarter, and whenever events or circumstances indicate the carrying value of goodwill may not be recoverable.

During the three-month period ended February 28, 2019, the ordering patterns of our polyurethane dispersions reporting unit’s customers, especially those in the automotive industry, combined with a decrease in the reporting unit’s backlog of customer orders believed to be firm as of February 28, 2019, indicated that an impairment in the carrying value of the reporting unit might have occurred. We performed an impairment test on our indefinite-lived and long-lived assets related to our polyurethane dispersions reporting unit, now part of the Adhesives, Sealants and Additives operating segment and reporting unit (part of the former Industrial Materials segment during the second fiscal quarter of 2019), in accordance with ASC Topic 350, “Intangibles — Goodwill and Other” and ASC Topic 360, “Disclosure — Impairment or Disposal of Long-Lived Assets.” As a result of impairment testing, which included first testing long-lived assets other than goodwill for impairment under applicable guidance, the Company recorded a charge of $2,410 to loss on impairment of goodwill within the consolidated statement of operations during the quarter ended February 28, 2019. Our polyurethane dispersions reporting unit’s fair value was determined based on the income approach (discounted cash flow method).

In fiscal 2017, the Company early adopted ASU No. 2017-04 “Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment.” We assess goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount. If the fair value of a reporting unit is less than its carrying value, an impairment loss, limited to the amount of goodwill allocated to that reporting unit, is recorded.

The ordering patterns of our polyurethane dispersions reporting unit’s customers during the three-month period ended February 28, 2019, especially those in the automotive industry, combined with a decrease in the reporting unit’s backlog of customer orders believed to be firm as of February 28, 2019, indicated an impairment in the carrying value of the reporting unit might have occurred. As such,we performed an impairment test on our long-lived assets related to our polyurethane dispersions reporting unit, part of the Industrial Materials operating segment, in accordance with ASC Topic 350, “Intangibles — Goodwill and Other” and ASC Topic 360, “Disclosure — Impairment or Disposal of Long-Lived Assets.” As a result of impairment testing, which included first testing long-lived assets other than goodwill for impairment under applicable guidance, the Company recorded a charge of $2,410 to loss on impairment of goodwill within the condensed consolidated statement of operations during the quarter ended February 28, 2019.~~Our polyurethane dispersions reporting unit’s fair value was determined based on the income approach (discounted cash flow method).~~

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Intangible assets subject to amortization consisted of the following as of February ~~28, 2019~~29, 2020 and August 31, ~~2018:~~2019:


	Weighted Average		Gross Carrying		Accumulated		Net Carrying		Weighted Average		Gross Carrying		Accumulated		Net Carrying
	Amortization Period		Value		Amortization		Value		Amortization Period		Value		Amortization		Value
February 28, 2019
February 29, 2020
Patents and agreements	14.3	years	$	1,885	$	1,687	$	198	14.6	years	$	1,760	$	1,699	$	61
Formulas and technology	7.8	years		10,245		7,377		2,868	7.8	years		10,222		8,594		1,628
Trade names	5.8	years		8,571		7,106		1,465	5.8	years		8,545		7,527		1,018
Customer lists and relationships	9.1	years		98,890		44,269		54,621	9.1	years		98,568		54,343		44,225
			$	119,591	$	60,439	$	59,152			$	119,095	$	72,163	$	46,932

August 31, 2018
August 31, 2019
Patents and agreements	14.4	years	$	1,863	$	1,681	$	182	14.6	years	$	1,760	$	1,693	$	67
Formulas and technology	7.8	years		10,225		6,690		3,535	7.8	years		10,164		7,969		2,195
Trade names	5.8	years		8,554		6,866		1,688	5.8	years		8,503		7,261		1,242
Customer lists and relationships	9.1	years		98,727		38,802		59,925	9.1	years		98,139		48,939		49,200
			$	119,369	$	54,039	$	65,330			$	118,566	$	65,862	$	52,704

Aggregate amortization expense related to intangible assets for the six months ended February 29, 2020 and February 28, 2019 was $5,826 and ~~2018 was~~ $6,225 ~~and $5,233~~ respectively. Estimated amortization expense for the remainder of fiscal year ~~2019~~2020 and for the next five years is as follows:


Years ending August 31,
2019 (remaining 6 months)	$	6,237
2020		11,594
2020 (remaining 6 months)			$	5,737
2021		11,064		11,049
2022		10,035		10,030
2023		6,768		6,768
2024		5,659		5,659
2025				5,552

Note 8 — ~~Sale of Business~~Leases

~~Sale~~Effective September 1, 2019 (the start of~~Structural Composites Rod Business~~ fiscal 2020), the Company adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”). The Company has elected to apply the ‘package of practical expedients’ which allows us to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard.

~~On April 20, 2018, Chase finalized~~At the inception of an ~~agreement~~arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use (ROU) assets and short-term and long-term lease liabilities, as applicable. The Company does not have any financing leases that are material in nature.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company believes it could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

The Company has elected not to recognize leases with an ~~unrelated party~~original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to ~~sell all inventory, operational machinery and equipment and intangible assets of~~renew a lease are not included in the Company’s structural composites rod business, as well as a license related to the production and sale of rod, for proceeds of $2,232, net of transaction costs and following certain working capital adjustments. This business, which was part of the structural composites product line within the Industrial Materials segment, had limited growth and profitability prospects as part ofassessment unless there is reasonable certainty that the Company ~~and was outside the areas Chase has identified for strategic emphasis. The divestiture was accounted for underASC Topic 360, “Disclosure - Impairment or Disposal of Long-Lived Assets.”In accordance with this accounting standard, the resulting pre-tax gain on sale of $1,480 was recognized in the third quarter of fiscal 2018~~as a gain on sale of businesses within the condensed consolidated statement of operations. Chase received $2,075, net of transaction costs, in the third quarter of fiscal 2018, with the remaining $157 received in the fourth quarter of fiscal 2018 as a result of a working capital true-up.will renew.

Related to this transaction, the purchaser entered into a royalty agreement with the Company. The purchaser will make royalty payments to Chase based on future sales of certain structural composite material manufactured by the purchaser. Royalty revenue recognized in the six-month period ended February 28, 2019 related to this agreement was not material.

~~The sale of the structural components rod business follows the Company’ssale of the RodPack~~® wind blade components business in November 2015, and the licensing of certain composite technologies during the second quarter of fiscal 2018 (see Note 17). Subsequent to the third quarter of fiscal 2018, Chase has included the results of its remaining structural

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~~composites wind energy business (inclusive of the royalties and the custom manufacturing-related services noted below) within the specialty products product line.~~

~~Post-Sale Services Provided to the Buyer of the Structural Composites Rod Business and the Fiber Optic Cable Components Product Line~~

The ~~structural composites rod business~~following table presents the right-of-use asset and the fiber optic cable components product line (sold in fiscal 2017), which both operated out of the Company’s Granite Falls, NC facility, were both sold to the same otherwise unrelated purchaser. Subsequent to the sales, Chase will provide certain transitional manufacturingshort-term and administrative support to the purchaser for which the Company will receive additional consideration upon the performance of services. In the three-and six-month periods ended February 28, 2019, Chase charged the purchaser $420 and $1,383, respectively, for manufacturing services, which the Company recognized as revenue within the Industrial Materials segment, and $57 and $114, respectively, for selling and administrative services, which the Company recognized as an offset to selling, general and administrative expenses. In the three- and six-month periods ended February 28, 2018, Chase charged the purchaser $451 and $921, respectively, for manufacturing services, and $60 and $120, respectively, for selling and administrative services. Further, the purchaser entered a multiyearlong-term lease for a portion of the manufacturing space at the Company’s Granite Falls, NC facility. Chase received $32, $65, $32 and $65 in rental income related to this lease during the three- and six-month periods ended February 28, 2019 and 2018, respectively, which the Company recognized within other income (expense)liabilities amounts recorded on the condensed consolidated ~~statements~~balance sheet as of ~~operations.~~February 29, 2020:


	February 29, 2020
Assets
Operating lease right-of-use asset	$	9,256

Liabilities
Current (accrued expense)	$	2,053
Operating lease long-term liabilities		6,648
Total lease liability	$	8,701

Lease cost

The components of lease costs for the three and six months ended February 29, 2020 are as follows:

(a)

Includes short-term leases and variable lease costs (e.g. common area maintenance), which are immaterial.

Maturity of lease liability

The maturity of the Company's lease liabilities at February 29, 2020 were as follows:


	Future Operating
Year ending August 31,	Lease Payments
2020 (remaining 6 months)	$	1,294
2021		1,989
2022		1,344
2023		1,190
2024		1,204
2025 and thereafter		2,613
Less: Interest		(933)
Present value of lease liabilities	$	8,701

The weighted average remaining lease term and discount rates are as follows:


	February 29, 2020
Lease Term and Discount Rate
Weighted average remaining lease term (years)
Operating leases		5.7
Weighted average discount rate (percentage)
Operating leases		3.1	%

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Other Information

Supplemental cash flow information related to leases is as follows:


	Six Months Ended
	February 29, 2020

Operating cash outflows from operating leases	$	1,217
Total cash paid for amounts included in the measurement of lease liabilities	$	1,217

Minimum lease payments under operating leases prior to adoption of ASU 2016-02 were as follows:


	Future Operating
Year ending August 31,	Lease Payments
2020	$	2,468
2021		2,059
2022		1,371
2023		1,187
2024		1,200
2025 and thereafter		2,608
Total future minimum lease payments	$	10,893

Note 9 — Revenue from Contracts with Customers

The Company accounts for revenue in accordance with ASC 606, ~~Revenue~~“Revenue from Contracts with Customers.” This revenue is generated from the manufacture of specialty chemical products including coatings, linings, adhesives, sealants, specialty tapes, polymers and laminates. Certain of these manufactured products can ~~comprise fully or partially of~~incorporate customer-owned materials. The Company also recognizes, to a lesser extent, revenue through royalties and commissions from licensed manufacturers and from providing custom manufacturing-related services. The Company’s revenue recognition policies require the Company to make significant judgments and estimates. In applying the Company’s revenue recognition policy, determinations must be made as to when control of products passes to the Company’s customers, which can be either at a point in time or over time based on ~~terms and conditions of~~ contractual terms with customers. ~~As described in more detail below, revenue~~Revenue is generally recognized at a point in time when control passes upon either ~~upon~~ shipment to or ~~upon~~ receipt by the customer of the Company’s products, while revenue is generally recognized over time when control of the Company’s products transfers to customers during the manufacturing process.

The Company ~~accounts for revenue from~~analyzes several factors, including but not limited to, the nature of the products being sold and contractual terms and conditions in contracts with customers when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is primarily derived from customer purchase orders, master sales agreements, and negotiated contracts, all of which represent contracts with customers.

~~The Company next identifies the performance obligations in the contract. A performance obligation is a promise~~ to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue standard and therefore determine when and how revenue is recognized. The Company determines the performance obligations at contract inception based on the goods or services that are promised in a contract with a customer. Typical performance obligations include our promise to manufacture and the fulfillment of orders of specialty chemical products including coatings, linings, adhesives, sealants, specialty tapes, polymers and laminates, as well as custom manufacturing-related services.

~~The transaction price in the contract is determined based on the consideration to which~~help the Company will be entitled in exchange for transferring products and services to the customer, excluding amounts collected on behalf of third parties (for example, sales taxes). The transaction price is typically stated on the purchase order or in a negotiated agreement. Certain contracts may include variable consideration in the transaction price,make such as rebates, pricing discounts, sales incentives, or other provisions that can decrease the transaction price. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on reasonably availablejudgments about revenue recognition.

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information (customer historical, current and forecasted data). In certain circumstances where a particular outcome is probable, the Company utilizes the most likely amount to which the Company expects to be entitled. The Company accounts for consideration payable to a customer as a reduction of the transaction price which reduces the amount of revenue recognized. Consideration payable to a customer includes cash amounts that the Company pays, or expects to pay, to a customer based on certain contract requirements.

The Company recognizes revenue as performance obligations are satisfied, which can be either over time or at a point in time, depending on when control of the Company’s products transfers to its customers.

For certain products, where the Company’s product consists partially or fully of customer-owned materials, revenue is recognized over time, and the Company makes significant judgments which include, but are not limited to, estimated costs to completion and costs incurred to date, and assesses risks related to changes in estimates of revenue and costs. In doing so, management must make assumptions regarding the work required to fulfill the performance obligations.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products to be provided. The Company generally uses the cost-to-cost measure of progress for contracts because it best depicts the transfer of control to the customer which occurs as costs are incurred on contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.

~~Performance Obligation~~

Manufactured goods and, to a lesser extent, right of use of our intellectual property and custom manufacturing-related services are our performance obligations. Revenue related to our performance obligations is predominantly recognized at a point in time consistent with our shipping terms (upon shipment to or receipt by our customer). For certain products we manufacture, which comprise partially or fully of customer-owned material and which meet the criteria of having no alternative use whereby the Company has the right to payment, we recognize revenue over time.

The selection of a method to measure progress toward completion of a contract requires judgment and is based on the nature of the products or services to be provided. We use the cost-to-cost method to measure the progress of our contracts with no-alternative-use products (given they comprise partially or fully of customer-owned material) whereby the Company has the right to payment as we believe it is the best depiction of the transferring of value to the customer. Under the cost-to-cost method, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the contract. Contract costs include labor, materials and subcontractors costs, as well as an allocation of indirect costs. Revenue, including estimated fees or profits, is recorded as costs are incurred. Specialty manufacturing runs for customers of products which are comprised partially or fully of customer-owned material predominantly occur over relatively short periods of time (less than one month) and are comprised of a one-step process (such as coating or laminating), promptly followed by shipment to the end customer. On-going custom manufacturing-related services performed for customers are recognized in the period the services are rendered, and as such do not carry over from period to period. Royalty revenue, derived from right of use of our intellectual property,~~is recognized when the subsequent sale of the licensed intellectual property occurs.~~

Because performance obligations are typically satisfied within one month of receipt of a customer order, a change in cost estimates will not have a material impact on the percentage of completion noted at the prior quarter end. Our typical payment terms with customers are net 30 days, with consideration given to geographic and industry norms.

Contract Balances

The Company’s contract assets primarily relate to unbilled revenue for products currently in production at the Company’s facilities and which ~~comprise partially or fully of~~incorporate customer-owned material. Revenue is recognized in advance of billing to the customer in these specific circumstances, whereas billing is typically performed at the time of shipment to or receipt by the customer.

~~Table of Contents~~

Contract assets are included in ~~prepaids~~prepaid expenses and other current assets on the Company’s condensed consolidated balance ~~sheets.~~sheet. The following table presents contract assets by reportable operating segment as of February ~~28,~~29, 2020 and August 31, 2019:


	February 28,		September 1,		February 29,		August 31,
	2019		2018		2020		2019
Contract Assets
Industrial Materials	$	77	$	16
Construction Materials		98		64
Adhesives, Sealants and Additives					$	46	$	42
Industrial Tapes						19		26
Corrosion Protection and Waterproofing						45		79
Total	$	175	$	80	$	110	$	147

The Company did not have any contract liabilities as of February ~~28,~~29, 2020 and August 31, 2019.

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Table of Contents

~~Impacts on Financial Statements~~

~~The cumulative effect of the changes made to the Company’s condensed consolidated September 1, 2018 balance sheet for the adoption of ASC 606 was as follows:~~

August 31,

Adjustments for

September 1,

2018

Adoption of ASC 606

2018

Assets:

Contract assets

$
—

$
80

$
80
Inventory

$
39,699

$
(50)

$
39,649
Prepaid income taxes

$
4,100

$
(8)

$
4,092

Stockholders' equity:

Retained earnings

$
245,049

$
22

$
245,071

~~The cumulative effect of the changes made to the Company’s condensed consolidated February 28, 2019 balance sheet for the adoption of ASC 606 was as follows:~~

February 28, 2019

Balances Without

ASC 606

As

Adoption of ASC 606

Adjustments

Reported

Assets:

Contract assets

$
—

$
175

$
175
Inventory

$
45,522

$
(104)

$
45,418
Prepaid income taxes

$
2,574

$
(18)

$
2,556

Stockholders' equity:

Retained earnings

$
251,592

$
53

$
251,645

~~Table of Contents~~

The cumulative effect of the changes made to the Company’s condensed consolidated statement of operations for the adoption of ASC 606 for the three and six months ended February 28, 2019 was as follows:

Three Months Ended February 28, 2019

Six Months Ended February 28, 2019

Results Without

Effect of Change

As

Results Without

Effect of Change

As

Adoption of ASC 606

Higher (Lower)

Reported

Adoption of ASC 606

Higher (Lower)

Reported

Revenue

Sales

$
65,452

$
(10)

$
65,442

$
136,711

$
95

$
136,806
Royalties and commissions

1,189

—

1,189

2,328

—

2,328

66,641

(10)

66,631

139,039

95

139,134
Costs and Expenses

Cost of products and services sold

43,204

9

43,213

89,734

54

89,788
Selling, general and administrative expenses

13,086

—

13,086

26,448

—

26,448
Loss on impairment of goodwill

2,410

—

2,410

2,410

—

2,410
Exit costs related to idle facility

—

—

—

260

—

260

Operating income

7,941

(19)

7,922

20,187

41

20,228

��

Interest expense

(162)

—

(162)

(366)

—

(366)
Other income (expense)

(828)

—

(828)

(1,122)

—

(1,122)

Income before income taxes

6,951

(19)

6,932

18,699

41

18,740

Income taxes

1,664

(5)

1,659

4,634

10

4,644

Net income

$
5,287

$
(14)

$
5,273

$
14,065

$
31

$
14,096

Net income available to common shareholders, per common and common equivalent share

Basic

$
0.57

$
(0.01)

$
0.56

$
1.50

$
—

$
1.50

Diluted

$
0.56

$
—

$
0.56

$
1.49

$
—

$
1.49

Weighted average shares outstanding

Basic

9,332,288

—

9,332,288

9,330,929

—

9,330,929
Diluted

9,373,030

—

9,373,030

9,377,167

—

9,377,167

~~Table of Contents~~

Disaggregated Revenue

The Company disaggregates revenue from customers by geographic region, as it believes this disclosure best depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic factors. Disaggregated revenue by geographical region for the three and six months ended February 29, 2020 and February 28, 2019 was as follows:


	Three Months Ended February 28, 2019						Six Months Ended February 28, 2019						Three Months Ended February 29, 2020
	Industrial		Construction		Consolidated		Industrial		Construction		Consolidated		Adhesives, Sealants		Industrial		Corrosion Protection		Consolidated
	Materials		Materials		Revenue		Materials		Materials		Revenue		and Additives		Tapes		and Waterproofing		Revenue
Revenue
North America	$	45,453	$	7,519	$	52,972	$	94,092	$	17,204	$	111,296	$	16,335	$	26,661	$	8,932	$	51,928
Asia		6,576		1,376		7,952		13,825		3,272		17,097		4,284		1,712		1,592		7,588
Europe		4,515		437		4,952		8,096		1,150		9,246		3,642		805		500		4,947
All other foreign		721		34		755		1,412		83		1,495		179		877		63		1,119
Total Revenue	$	57,265	$	9,366	$	66,631	$	117,425	$	21,709	$	139,134	$	24,440	$	30,055	$	11,087	$	65,582

													Six Months Ended February 29, 2020
													Adhesives, Sealants		Industrial		Corrosion Protection		Consolidated
													and Additives		Tapes		and Waterproofing		Revenue
Revenue
North America													$	34,041	$	53,674	$	17,688	$	105,403
Asia														8,727		3,403		2,682		14,812
Europe														7,221		1,546		1,451		10,218
All other foreign														273		1,556		122		1,951
Total Revenue													$	50,262	$	60,179	$	21,943	$	132,384


													Three Months Ended February 28, 2019
													Adhesives, Sealants		Industrial		Corrosion Protection		Consolidated
													and Additives		Tapes		and Waterproofing		Revenue
Revenue
North America													$	17,566	$	27,889	$	7,519	$	52,974
Asia														4,678		1,897		1,376		7,951
Europe														3,778		737		437		4,952
All other foreign														85		635		34		754
Total Revenue													$	26,107	$	31,158	$	9,366	$	66,631

													Six Months Ended February 28, 2019
													Adhesives, Sealants		Industrial		Corrosion Protection		Consolidated
													and Additives		Tapes		and Waterproofing		Revenue
Revenue
North America													$	36,113	$	57,981	$	17,204	$	111,298
Asia														9,910		3,914		3,272		17,096
Europe														6,556		1,540		1,150		9,246
All other foreign														226		1,185		83		1,494
Total Revenue													$	52,805	$	64,620	$	21,709	$	139,134

~~Practical Expedients and Policy Elections~~

Table of Contents

~~Shipping and Handling Policy Election~~— the Company has made an accounting policy election to record shipping and handling activities occurring after control has passed to the customer to be treated as a fulfillment cost rather than as a distinct performance obligation. Shipping and handling expenses consist primarily of costs incurred to deliver products to customers and internal costs related to preparing products for shipment and are recorded within cost of products and services sold. Amounts billed to customers as shipping and handling are classified as revenue when services are performed.

~~Considering Existence of a Significant Financing Component~~— as a practical expedient, an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.Given the time between the Company transferring a promised good or service to the customer and the customer paying for that good or service is less than one year based on the terms of arrangements with customers, the Company does not adjust the promised amount of consideration for effects of a significant financing component.

Note 10 — Commitments and Contingencies

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, results of operations or cash flows, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements agreed to that could adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely assesses all 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 we assess the likelihood of loss as probable.

~~Table of Contents~~

Note 11 — Pensions and Other Postretirement Benefits

The components of net periodic benefit cost for the three and six months ended February 29, 2020 and February 28, 2019 ~~and 2018~~ were as follows:


	Three Months Ended February 28,				Six Months Ended February 28,				Three Months Ended				Six Months Ended
	2019		2018		2019		2018		February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019
Components of net periodic benefit cost
Service cost	$	73	$	71	$	146	$	142	$	74	$	73	$	147	$	146
Interest cost		178		157		356		314		113		178		226		356
Expected return on plan assets		(109)		(116)		(221)		(232)		(98)		(109)		(196)		(221)
Amortization of prior service cost		1		1		2		2		1		1		2		2
Amortization of accumulated loss		119		121		237		242		174		119		348		237
Settlement and curtailment loss		273		—		473		—
Curtailment and settlement loss										—		273		—		473
Net periodic benefit cost	$	535	$	234	$	993	$	468	$	264	$	535	$	527	$	993

When funding is required, the Company’s policy is to contribute amounts that are deductible for federal income tax purposes. ~~As of February 28, 2019, the~~The Company has made contributions of ~~$784~~$785 in the ~~current fiscal year~~six months ended February 29, 2020 to fund its obligations under its pension plans, and plans to make the necessary contributions over the remainder of fiscal ~~2019~~2020 to ensure the qualified plans continue to be adequately funded given the current market ~~conditions.~~conditions, including conditions related to the coronavirus disease 2019 (COVID-19) pandemic. The Company made contributions of ~~$810~~$784 in the ~~first~~ six months ~~of the prior year.~~

In fiscal 2019, the Company adopted ASU No. 2017-07, “Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This resulted in the reclassification of $326, previously reported in selling, general and administrative expense to other income (expense) for the six-month period ended February 28, ~~2018 (prior year).~~2019.

Table of Contents

Note 12 — 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 (exit price) in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers are: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company utilizes the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The financial assets classified as Level 1 and Level 2 as of February ~~28, 2019~~29, 2020 and August 31, ~~2018~~2019 represent investments that are restricted for use in nonqualified retirement savings plans for certain key employees and directors.

The following table sets forth the Company’s financial assets that were accounted for at fair value on a recurring basis as of February ~~28, 2019~~29, 2020 and August 31, ~~2018:~~2019:


				Fair value measurement category							Fair value measurement category
				Quoted prices		Significant other	Significant				Quoted prices		Significant other		Significant
	Fair value			in active markets		observable inputs	unobservable inputs	Fair value			in active markets		observable inputs		unobservable inputs
	measurement date	Total		(Level 1)		(Level 2)	(Level 3)	measurement date	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Restricted investments	February 28, 2019	$	1,118	$	968	150	—	February 29, 2020	$	1,325	$	1,118	$	207	$	—

Restricted investments	August 31, 2018	$	1,090	$	961	129	—	August 31, 2019	$	1,260	$	1,091	$	169	$	—

~~Table of Contents~~

The following table presents the fair value of the Company’s long-term debt (including any current portion of long-term debt) as of February ~~28, 2019~~29, 2020 and August 31, ~~2018,~~2019, which is recorded at its carrying value:

Fair value measurement category

Quoted prices

Significant other

Significant

Fair value

in active markets

observable inputs

unobservable inputs


measurement date

Total

(Level 1)

(Level 2)

(Level 3)

Liabilities:

Long-term debt

February 28, 2019

$
6,000

$
—

6,000

—

Long-term debt

August 31, 2018

$
25,000

$
—

25,000

—

Fair value measurement category

Quoted prices

Significant other

Significant

Fair value

in active markets

observable inputs

unobservable inputs

measurement date

Total

(Level 1)

(Level 2)

(Level 3)

Liabilities:

Long-term debt

February 29, 2020

—

Long-term debt

August 31, 2019

—

The long-term debt had no outstanding balance as of February 29, 2020 and August 31, 2019. The carrying value of the long-term debt approximates its fair value, as the interest rate is set based on the movement of the underlying market rates. See Note 16 to the condensed consolidated financial statements for additional information on long-term debt.

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Table of Contents

Note 13 — Accumulated Other Comprehensive Income

The changes in accumulated other comprehensive income (loss), net of tax, were as follows:


			Change in Funded		Foreign Currency						Change in Funded		Foreign Currency
	Restricted		Status of		Translation				Restricted		Status of		Translation
	Investments		Pension Plans		Adjustment		Total		Investments		Pension Plans		Adjustment		Total
Balance at August 31, 2017	$	121	$	(6,181)	$	(7,409)	$	(13,469)
Balance at August 31, 2018									$	126	$	(5,796)	$	(6,666)	$	(12,336)

Other comprehensive gains (losses) before reclassifications (1)		49		—		3,670		3,719		(11)		—		538		527
Reclassifications to net income of previously deferred (gains) losses (2)		(67)		185		—		118		3		527		—		530
Other comprehensive income (loss)		(18)		185		3,670		3,837		(8)		527		538		1,057

Balance at February 28, 2018	$	103	$	(5,996)	$	(3,739)	$	(9,632)
Balance at February 28, 2019									$	118	$	(5,269)	$	(6,128)	$	(11,279)


Balance at August 31, 2018	$	126	$	(5,796)	$	(6,666)	$	(12,336)
Balance at August 31, 2019									$	154	$	(6,271)	$	(8,207)	$	(14,324)
Other comprehensive gains (losses) before reclassifications (3)		(11)		—		538		527		19		—		1,395		1,414
Reclassifications to net income of previously deferred (gains) losses (4)		3		527		—		530		(21)		259		—		238
Other comprehensive income (loss)		(8)		527		538		1,057		(2)		259		1,395		1,652

Balance at February 28, 2019	$	118	$	(5,269)	$	(6,128)	$	(11,279)
Adoption of ASU 2018-02 (5)										—		(1,388)		—		(1,388)

Balance at February 29, 2020									$	152	$	(7,400)	$	(6,812)	$	(14,060)

(1)

~~Net of tax benefit of $17, $0 and $0, respectively.~~

~~(2)~~

~~Net of tax expense of $24, tax benefit of $59 and $0, respectively.~~

~~(3)~~

Net of tax expense of $5, $0 and $0, respectively.

~~(4)~~(2)

Net of tax benefit of $1, $184 and $0, respectively.

(3)

Net of tax benefit of $7, $0 and $0, respectively.

(4)

Net of tax expense of $8, tax benefit of $91 and $0, respectively.

(5)

See Note 2 for further information related to the adoption of ASU 2018-02.

The following table summarizes the reclassifications from accumulated other comprehensive income (loss) to the unaudited condensed consolidated statements of income:



	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive									Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive
	Income (Loss) into Income									Income (Loss) into Income
	Three Months Ended February 28,				Six Months Ended February 28,				Location of Gain (Loss) Reclassified from Accumulated	Three Months Ended				Six Months Ended				Location of Gain (Loss) Reclassified from Accumulated
	2019		2018		2019		2018		Other Comprehensive Income (Loss) into Income	February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019		Other Comprehensive Income (Loss) into Income
Gains on Restricted Investments:
Realized loss (gain) on sale of restricted investments	$	(13)	$	(90)	$	4	$	(91)	Selling, general and administrative expenses	$	(23)	$	(13)	$	(28)	$	4	Selling, general and administrative expenses
Tax expense (benefit)		3		23		(1)		24			6		3		7		(1)
Gain net of tax	$	(10)	$	(67)	$	3	$	(67)		$	(17)	$	(10)	$	(21)	$	3

Loss on Funded Pension Plan adjustments:
Amortization of prior pension service costs and unrecognized losses	$	119	$	122	$	238	$	244	Other income (expense)	$	175	$	119	$	350	$	238	Other income (expense)
Settlement and curtailment loss		273		—		473		—	Other income (expense)		—		273		—		473	Other income (expense)
Tax expense (benefit)		(101)		(17)		(184)		(59)			(47)		(101)		(91)		(184)
Loss net of tax	$	291	$	105	$	527	$	185		$	128	$	291	$	259	$	527

Total net loss reclassified for the period	$	281	$	38	$	530	$	118		$	111	$	281	$	238	$	530

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Table of Contents

Note 14 — ~~Acquisitions~~

~~Acquisition of Zappa Stewart~~

On December 31, 2017, the Company acquired Zappa Stewart, an advanced superabsorbent polymer (SAP) formulator and solutions provider, with operations located in Hickory and McLeansville, NC. The business was acquiredAssets Held for a purchase price of $73,469, after final working capital adjustments and excluding acquisition-related costs. Chase acquired all equity of the business and entered multiyear leases at both locations. The purchase was funded by a combination of a $65,000 draw on Chase’s existing revolving credit facility and available cash on hand. Zappa Stewart’s protective materials technology is complementary to Chase’s current specialty chemicals offerings. This acquisition is in line with Chase’s core strategies and extends its reach into growing medical and consumer applications.

Since the effective date for this acquisition, December 31, 2017, the financial results of the acquired business have been included in the Company’s financial statements within the Industrial Materials operating segment, in the specialty chemical intermediates product line. The acquisition was accounted for as a business combination under ASC Topic 805, “Business Combinations.” In accordance with this accounting standard, the Company expensed $393 of acquisition-related costs during the second quarter of 2018 to acquisition-related costs.Sale

The Company ~~finalized purchase accounting~~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, if applicable, records additional impairments due to declines in market values of like assets. The fair value of the ~~three-month period ended November 30, 2018, with no adjustments made to~~asset is determined by observable inputs such as appraisals and prices of comparable assets in active markets for assets like the ~~preliminary amounts recorded at~~Company's. Gains are not recognized until the assets are sold.

Assets held for sale as of February 29, 2020 and August 31, ~~2018. The purchase price has been allocated to the acquired tangible and identifiable intangible assets assumed, based on their fair values as of the date of the acquisition:~~

2019 were:

Assets & Liabilities

Amount
Accounts receivable

$
3,670
Inventory

6,796
Prepaid expenses and other current assets

12
Property, plant & equipment

1,872
Goodwill

34,138
Intangible assets

30,240
Deferred tax liability

(2,626)
Accounts payable and accrued liabilities

(633)
Total purchase price

$
73,469

The excess of the purchase price over the net tangible and intangible assets acquired resulted in goodwill of $34,138 that is largely attributable to the synergies and economies of scale from combining the operations, technologies and research and development capabilities of Zappa Stewart and Chase, particularly as it pertains to the expansion of the Company's product and service offerings, the established workforce and marketing efforts. A portion of this goodwill, $23,990, is deductible for income tax purposes.

All assets, including goodwill, acquired as part of the Zappa Stewart acquisition are included in the Industrial Materials operating segment. Identifiable intangible assets purchased with this transaction are as follows:

Weighted Average
Intangible Asset

Amount

Useful life
Customer relationships

$
28,500

7.9
years
Technology

900

7
years
Trade names

840

4
years
Total intangible assets

$
30,240

~~Table of Contents~~

~~Supplemental Pro Forma Data~~

The following table presents the pro forma results of the Company for the three-month and six-month periods ended February 28, 2018 (prior year) as though the Zappa Stewart acquisition described above occurred on September 1, 2016 (the first day of fiscal 2017). The actual revenue and expenses for the acquired business are included in the Company’s consolidated results beginning on December 31, 2017. For the six months ended February 28, 2019, revenue and net income for the Zappa Stewart operations included in the condensed consolidated statement of operations were $13,075 and $667, respectively, with results inclusive of amortization expense, but not inclusive of any interest or financing costs. The pro forma results include adjustments for the estimated amortization of intangibles, acquisition-related costs, sale of inventory step-up cost, interest expense assuming the entire $65,000 draw remained outstanding through December 31, 2017 (at the interest rate effective at the date of borrowing) and the income tax impact of the pro forma adjustments at the statutory rate of 26% for fiscal 2018. The following pro forma information is not necessarily indicative of the results that would have been achieved if the acquisition had been effective on September 1, 2016.

Three Months Ended February 28,

Six Months Ended February 28,

2018

2018
Revenue

$
67,980

$
136,213
Net income

11,671

20,365

Net income available to common shareholders, per common and common equivalent share

Basic earnings per share

$
1.24

$
2.17
Diluted earnings per share

$
1.24

$
2.16



	February 29, 2020		August 31, 2019
Pawtucket, RI - Property, plant and equipment	$	1,050	$	1,050
Randolph, MA - Property		14		14
Total	$	1,064	$	1,064

See Note 15 to the condensed consolidated financial statements for additional information on the Pawtucket, RI location assets held as of February 29, 2020. The Company completed the sale of its Pawtucket, RI location to a third-party in April 2020, subsequent to the second fiscal quarter, for net proceeds totaling $1,810.

Note 15 — ~~Exit~~Operations Optimization Costs

IT Studies Related to ~~Idle~~the Upgrade of the Company’s Worldwide ERP System

During the first quarter of fiscal 2020, third-party-led studies regarding the potential upgrading of the Company’s current worldwide ERP system were conducted. Chase is currently reviewing the data and recommendations provided by the study and may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around our facilities rationalization and consolidation initiative. The Company recognized $150 in expense related to these services in the first quarter of fiscal 2020, with no expense recognized in the second fiscal quarter. Given the ongoing nature of the review, an estimate of future costs, including those that may be capitalized, cannot currently be determined.

Relocation of Pulling and Detection Manufacturing to Hickory, NC

During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations housed in its Granite Falls, NC location to its Hickory, NC facility. This is in line with the Company’s ongoing initiative to consolidate its manufacturing plants and streamline its existing processes. At the time, the pulling and detection operations were the only Chase-owned production operations in Granite Falls, NC, with the remaining portions of the building being either utilized for research and development or leased to a third party. The process of moving, including moving internal research and development capabilities, was substantially completed during the second quarter of fiscal 2020. The Company recognized $60 and $559 in expense related to the move in the three-month and six-month periods ended February 29, 2020, respectively, having recognized $526 in expense during the second half of fiscal 2019. Future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.

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Closure of Pawtucket, RI Facility

On June 25, 2018, the Company announced to its employees the planned closing of its Pawtucket, RI manufacturing facility effective August 31, 2018. This is in line with the Company’s ongoing efforts to consolidate its manufacturing plants and streamline its existing processes. The manufacture of products previously produced in the Pawtucket, RI facility was substantially moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period. In the fourth quarter of fiscal 2018, the Company expensed $1,272 related to the ~~closure, including: (a) cash-related employee-related, logistics and uncapitalized facilities improvement costs of $590; and (b) non-cash-related accelerated depreciation expense of $682.~~closure. The Company also recognized $260 in expense related to the move in the three-month period ended November 30, 2018, with no additional expense recognized in the ~~quarter ended February 28, 2019.~~remainder of fiscal 2019 or in fiscal 2020. Future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.

Note 16 — Long-Term Debt

On December 15, 2016, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, acting as administrative agent, and with participation from Citizens Bank and JPMorgan Chase Bank (collectively with Bank of America, the “Lenders”). The Credit Agreement is initially an all-revolving credit facility with a borrowing capacity of $150,000, which can be increased by an additional $50,000 at the request of the Company and the individual or collective option of any of the Lenders.The facility matures December 15, 2021. The Credit Agreement contains customary affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness and require lender approval for acquisitions by the Company and its subsidiaries over a certain size. It also requires us to maintain certain financial ratios on a consolidated basis, including a consolidated net leverage ratio (as defined in the facility) of no more than 3.25 to 1.00, and a consolidated fixed charge coverage ratio (as defined in the facility) of at least 1.25 to 1.00. We were in compliance with our debt covenants as of February ~~28, 2019.~~29, 2020. The Credit Agreement is guaranteed by all of Chase’s direct and indirect domestic subsidiaries, ~~including NEPTCO,~~ which collectively had a carrying value of ~~$219,488~~$250,785 at February ~~28, 2019.~~29, 2020. The Company entered into the Credit Agreement ~~was entered~~ both to refinance our previously

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existing term loan and revolving line of credit, and to provide for additional liquidity to finance potential acquisitions, working capital, capital expenditures, and for other general corporate purposes.

The applicable interest rate for the revolver portion of the Credit Agreement (the “Revolving Facility”) and any Term Loan (defined below) is based on the effective London Interbank Offered Rate (LIBOR) plus an additional amount in the range of 1.00% to 1.75%, depending on the consolidated net leverage ratio of Chase and its subsidiaries. At February ~~28, 2019,~~29, 2020, ~~the~~there was no outstanding principal balance, and therefore no applicable interest ~~rate was 3.6% per annum and the outstanding principal amount was $6,000.~~rate. The Credit Agreement has a five-year term with interest payments due at the end of the applicable LIBOR period (but in no event less frequently than the three-month anniversary of the commencement of such LIBOR period) and principal payment due at the expiration of the agreement, December 15, 2021. In addition, the Company may elect a base rate option for all or a portion of the Revolving Facility, in which case interest payments shall be due with respect to such portion of the Revolving Facility on the last business day of each quarter.

Subject to certain conditions set forth in the Credit Agreement, the Company may elect to convert all or a portion of the outstanding Revolving Facility into a term loan (each, a “Term Loan”), which shall be payable quarterly in equal installments sufficient to amortize the original principal amount of such Term Loan on a seven year amortization schedule; provided, however, that the final principal repayment installment shall be repaid on December 15, 2021 and in any event shall be in an amount equal to the aggregate principal amount of all Term Loans outstanding on such date. Prepayment is allowed by the Credit Agreement at any time during the term of the agreement, subject to customary notice requirements.

In December 2017 ~~(the prior fiscal year)~~(fiscal 2018), the Company utilized $65,000 of the Credit Agreement to finance the majority of the acquisition cost of Zappa Stewart. ~~See Note 14 to the condensed consolidated financial statements for additional information on this acquisition.~~ The Company paid down $40,000 of the outstanding balance in fiscal 2018, and made additional principal payments of $10,000, $9,000 and ~~$9,000~~$6,000 in the first, second and ~~second~~third quarters of fiscal 2019, respectively, resulting in an outstanding balance of ~~$6,000~~$0 at August 31, 2019 and February ~~28, 2019. In March 2019, subsequent to the second fiscal quarter 2019, the Company made an additional principal payment of $1,000.~~29, 2020.

~~Note 17 — Sale~~Table of ~~License~~Contents

In November 2017, the Company entered a license agreement with an unrelated party to sell a license, including intellectual property, and certain construction in process assets, with a net book value of $26 and all related to the manufacturing of certain structural composite materials. In the second fiscal quarter of 2018, the transaction was finalized for gross consideration of $1,111 comprising cash proceeds of $1,000 and $111 in foreign tax consideration paid by the buyer on Chase’s behalf. This transaction resulted in a gain of $1,085, which was recorded in the Company’s condensed consolidated statement of operations as a gain on sale of license during the fiscal quarter ended February 28, 2018.

In relation to this license agreement, the purchaser also entered into a royalty agreement with the Company. The purchaser will make royalty payments to Chase under certain conditions based on the volume of future sales of certain structural composite materials manufactured by the purchaser. Revenue recognized related to this royalty agreement in fiscal 2019 and 2018 was not material.

Note 1817 — Income Taxes

For the three months ended February 29, 2020 and February 28, 2019, ~~and 2018,~~ the Company recorded income taxes of ~~$1,659~~$2,926 and ~~$1,618~~$1,659 on income before income taxes of $10,805 and $6,932, ~~and $11,740,~~ respectively.For the six months ended February 29, 2020 and February 28, 2019, ~~and 2018,~~ the Company recorded income taxes of ~~$4,644~~$5,635 and ~~$5,902~~$4,644 on income before income taxes of ~~$18,740~~$20,876 and ~~$24,339,~~$18,740, respectively. The effective tax rate for the three months ended February 29, 2020 and February 28, 2019 was 27.1% and ~~2018 was~~ 23.9% ~~and 13.8%~~, respectively. The effective tax rate for the six months ended February 29, 2020 and February 28, 2019 was 27.0% and ~~2018 was~~ 24.8% ~~and 24.2%~~, respectively. The lower effective rate in the second quarter of the prior year was due to the following: (a) the initial adoption of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), described in more detail below; and (b) a discrete tax benefit of $977 related to stock-based compensation, recognized in relation to the Company’s early adoption of ASU 2016-09.

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On December 22, 2017, President Trump signed into law the Tax ~~Act.~~Cuts and Jobs Act (the “Tax Act”). The Tax Act impacted the U.S. statutory Federal tax rate that the Company will be subject to going forward, reducing it from 35% to 21%. ~~As the~~The Company ~~has an August 31 fiscal year-end, the lower corporate income tax rate was phased in during fiscal 2018 (the year of initial adoption), resulting in the Company applying~~applied this U.S. statutory Federal ~~rates~~rate of 21% for both the quarters and ~~a blended rate of 25.7% for our fiscal years ending August 31, 2019 and 2018, respectively.~~

~~To transition to the reduced U.S. corporate tax rate, an adjustment was required to be made to our net U.S. deferred tax assets. During fiscal 2018, predominantly in the three months~~six-month periods ended February ~~28, 2018 (the second fiscal quarter of 2018), the Company recorded initial provisional adjustments to the U.S. deferred tax assets~~29, 2020 and ~~liabilities and uncertain tax positions resulting in a net discrete tax expense of $681~~recorded to the condensed consolidated statement of operations. This net discrete tax expense recorded in fiscal 2018 is the result of the following: (a) a $379 tax benefit resulting from the remeasurement and reclassification of our existing deferred tax liability related to unrepatriated foreign earnings to accrued income tax balance (discussed in more detail below); (b) a $917 tax expense for the remeasurement of the remaining net U.S. deferred tax assets in recognition of the new lower Federal rate; and (c) a $143 tax expense recorded as the result of remeasuring the Federal benefit on our uncertain tax positions. During fiscal 2019, no additional transitional adjustments were made related to the adoption of the Tax Act in the quarter ended November 30, 2018, and only immaterial adjustments were made in the quarter ended February 28, 2019.

The Tax Act includes a transition tax or “toll charge”, which is a one-time tax charge on unrepatriated foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986. During fiscal 2018, the Company recorded a provisional transition tax adjustment associated with its accumulated unrepatriated foreign earnings reducing long-term deferred tax liabilities by $2,298 and increasing short and long-term accrued income taxes by $153 and $1,766, respectively (the short-term payable representing eight percent of the total amount due, the amount payable within the first year as per the Tax Act). The difference between the decrease in the deferred tax liabilities for unrepatriated foreign earnings and the increase in accrued income taxes, $379, was recorded as a discrete tax benefit in fiscal 2018.

Under the guidance set forth in the SEC's Staff Accounting Bulletin No. 118 (“SAB 118”), the Company may record provisional amounts for the impact of the Tax Act. For the second quarter of fiscal 2018, the Company made a provisional and reasonable estimate of the effects of the Tax Act on its existing deferred tax balances, including a provisional adjustment for the toll charge, and made provisional adjustments to these initially recorded amounts in the third and fourth quarters of fiscal 2018. The Company made complete and final adjustments during the quarter ended February 28, 2019 (the second quarter of fiscal 2019), which were not material in nature.

During the quarter ended November 30, 2018 (the first quarter of fiscal 2019), the Company began recognizing an additional component of total Federal tax expense, the tax on Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Act, which became applicable to the Company in fiscal 2019. The Company elected to account for GILTI as a period cost, and therefore included GILTI expense in the effective tax rate calculation. This provision did not have a material effect on the effective tax rate for the ~~quarter or~~quarters and six-month ~~period~~periods ended February 29, 2020 and February 28, 2019.

The Company concluded that the Base Erosion and Anti Abuse Tax (“BEAT”) provision of the Tax Act, ~~(which~~which also became applicable to the Company in fiscal ~~2019)~~2019, had no effect on our effective tax rate for the ~~current quarter or year-to-date period.~~first two quarters of fiscal year 2020 and 2019. Additionally, the Company is deferring the application of Foreign-Derived Intangible Income (“FDII”) for the current period, in anticipation of further guidance and the establishment of industry standards by the U.S. Treasury Department and trade associations.

Note 18 — Subsequent Events

The Coronavirus Disease 2019 (COVID-19) Pandemic

The global spread of the coronavirus disease 2019 (COVID-19) has created significant volatility, uncertainty and economic disruption.The locus of these effects in the second quarter has quickly grown from one Chinese province to a worldwide pandemic affecting the markets we serve in North America and Europe, as well as Asia.

The effects of the COVID-19 were not believed to be significant on a companywide basis to our second quarter of fiscal 2020 results, affecting only certain product lines in the latter part of the quarter. However, effects on our results in our third fiscal quarter and other future periods could be significant and cannot currently be quantified given potential unknowns at this time.

The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our customers’ demand for our goods and services and our vendors ability to supply us with raw materials; our ability to sell and provide our goods and services, including as a result of travel restrictionsand people working from home; the ability of our customers to pay for our goods and services; and any further closures of our and our customers’ offices and facilities. Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements. Any of these events could materially adversely affect our business, financial condition, results of operations and/or stock price.

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Sale of Pawtucket, RI Location

The Company completed the sale of its Pawtucket, RI location to a third-party in April 2020, subsequent to the second fiscal quarter, for net proceeds totaling $1,810. The location was recorded as an asset held for sale as of February 29, 2020.

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides an analysis of the Company’s financial condition and results of operations and should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the Company’s Annual Report on Form 10-K filed for the fiscal year ended August 31, ~~2018.~~2019.

Overview

~~Driven predominantly by inorganic sales growth from our December 31, 2017 acquisition of our Zappa Stewart superabsorbent polymers business,~~The primarily volume-based revenue ~~grew over~~decline seen earlier in the year continued through the second quarter of fiscal 2020, but so too did the positive trends in our relative gross margins. Tightness continued in Asian markets, as did the observed slowdown in cable materials. The Company’s planned exit from providing low-margin transitional toll manufacturing services was completed during the second quarter, positively affecting our sales mix. Continuing to capitalize on certain domestic telecommunication and utility buildout macrotrends, our pulling and detection products sales increased. Our coating and lining systems also experienced strong domestic sales for the quarter. Operational improvements over the comparative periods were recognized, including the benefits of the prior year consolidation of our wire and cable materials manufacturing into our Oxford, MA and Lenoir, NC locations. Price increases put into effect in the prior year, a period of elevated raw material costs, also continued to positively affect our gross profit margin. Given the quarter’s alignment with the winter season in North America, and the outdoor project nature of many of the materials sold, most specifically in the Corrosion Protection and Waterproof segment, our second fiscal quarter is traditionally our lowest annual sales period.

The second fiscal quarter of 2020 also saw the genesis of the coronavirus disease 2019 (COVID-19) outbreak, which in the latter part of the quarter and into the subsequent period has grown to create significant volatility uncertainty and economic disruption. The locus of these effects in the second quarter has quickly grown from one Chinese province to a worldwide pandemic affecting the markets we serve in North America and Europe, as well as Asia. The effects of the COVID-19 were not believed to be significant to our companywide results in the second quarter of fiscal 2020, affecting only certain product lines in the latter part of the quarter. However, results in our third fiscal quarter and other future periods could be significant and cannot currently be quantified given potential unknowns that continue to exist at this time. Currently, all but one of our facilities are operational, with our Pune, India facility’s operations temporarily suspended in response to a general order issued by the Indian government, and our Newark, CA facility resuming operations after a brief closure due to a general government order in March 2020.

During the first half of fiscal 2020, the ~~prior year.~~Company substantially completed the relocation of our pulling and detection product line production operations from our Granite Falls, NC facility to our existing Hickory, NC facility. Our Industrial ~~Materials~~Tapes segment, which ~~includes~~benefits from both the ~~operations of Zappa Stewart, surpassed~~pulling and detection consolidation and the wire and cable manufacturing consolidation completed in the prior year, ~~for both periods, enabling the achievement~~showed improved gross profit margin as a percentage of ~~companywide growth. The Construction Materials segment negatively impacted topline comparative results~~revenue for both the quarter and year-to-date period. ~~Because its~~

Net cash provided by operating activities exceeded the first half of the prior year, with the Company’s cash position continuing the positive trend seen in the latter half of the prior fiscal year following the full payoff of our outstanding debt. We held no outstanding balance on our $150,000,000 revolving credit facility at February 29, 2020. Our revolving credit facility allows for us to pay down debt when we have excess cash, while retaining access to immediate liquidity to fund future accretive activities, including mergers and acquisitions, as identified.

Revenue from the Adhesives, Sealants and Additives segment decreased for the second quarter and year-to-date period as our electronic and industrial coatings product line sales ~~are heavily dependent on infrastructure-related projects and maintenance work~~volume decreased in North America, ~~our Construction Materials segment customarily experiences a seasonal downturn~~and continued to be affected by slower Asian markets, which saw further headwinds in the winter months, our second fiscal quarter. These net increases in overall revenue came at a time when our gross margin continued to experience compression. For both the current quarter and year-to-date periods, we experienced a companywide unfavorable sales mix, as our lower margin products constituted a comparatively higher portionlatter part of total sales. Further, elevated raw material cost trends continued for the quarter, as did our partial passing along of these increased costs to the market via sales price increases instituted for our affected products. Material costing headwindsare in part the results of supply and demand imbalances and have become further complicated by the shifting positions of both Brexit and China tariffs. With a continued focus on establishing long-term operational efficiencies at our Oxford, MA and Lenoir, NC facilities for cable material products previously manufactured in our Pawtucket, RI location, we continued to incur comparatively unfavorable additional expenses at the affected facilities in the second ~~quarter. Given increased year-over-year demand for our cable material products~~quarter due to regional shutdowns by manufacturers during this ~~time of transition, our operational costs were higher in part~~period due to ~~maintain service levels.~~

Sales from our Industrial Materials segment’s products surpassed both the prior year periods on net increases of volume and price for our specialty chemical intermediates, cable materials, pulling and detection and specialty products product lines. Zappa Stewart whose financial results are now included in ourconcerns over COVID-19. Our specialty chemical intermediates product line ~~provided an additional lift to~~sales, which have a North American concentration, also saw a volume drop in the ~~overall organic growth achieved by the segment on a~~second quarter, negatively affecting its year-to-date basis, and more than offset a “same-store” decrease for the quarter. Sales from our structural composites, electronic materials and electronic and industrial coatings product lines were down compared to both prior year periods.results.

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Our ~~Construction Materials~~Industrial Tapes segment’s sales decreased ~~compared to the prior year~~ for both the quarter and year-to-date period ended February ~~28, 2019.~~ 29, 2020 as compared to the prior year, most notably related to both our specialty products and cable materials product lines. The primary driver in the sales reduction in our specialty products product line was our planned exit of the arrangement to provide transitional toll manufacturing servicesto the common purchaser of our structural composites rod and fiber optical cable components businesses, with sales tapering in the first quarter of fiscal 2020 and fully ending in the second quarter. Selling into near exclusively Asian end markets, our electronic materials product line had reduced sales volume as compared to both periods in the prior year. Partially offsetting the top-line decline for both the second quarter and first half of fiscal 2020, was our pulling and detection product line, which continued its strong sales into North American utility and telecommunication markets.

Our ~~pipeline coatings~~Corrosion Protection and Waterproofing segment’s sales exceeded the prior year for both the quarter and six months ended February 29, 2020. Our coating and lining systems product ~~lines~~line’s second quarter results, which were strong on sales into domestic markets, drove both quarterly and year-to-date growth over the ~~overall decreases. With a continued tight credit market across~~prior year. While sales gains were seen over the ~~Middle East~~prior year second quarter for ~~water infrastructure project work,~~both our ~~U.K.-produced water and waste water~~ pipeline ~~products experienced the segment’s sharpest declines. Our building envelope~~coatings and bridge and highway product lines, ~~experienced revenue growth~~top-line results remained unfavorable to the prior year on a year-to-date basis. Further, our building envelope product line did not meet its prior year sales levels for ~~both the current quarter and year-to-date period, partially offsetting the comparatively unfavorable sales results of the segment’s other product lines.~~either comparative period.

During the second half of fiscal 2019, mergers, acquisitions and divestitures, marketing and product development efforts, and operational consolidation will remain the foundation of our strategy for smart and sustainable growth. This strategy includes our ongoing efforts to improve efficiencies at: (a) ourOxford, MA and Lenoir, NC locations, which recently absorbed the legacy operations of our Pawtucket, RI facility; and (b) our recently acquired Zappa Stewart locations. Management will also continue to focus on other previously acquired businesses, including Resin Designs (acquired in fiscal 2017) and the polymeric microspheres and the polyurethane dispersions businesses (both acquired in fiscal 2015).~~An impairment was recorded on the goodwill of the polyurethane dispersions business in the second quarter of 2019, based on changes in expected customer demands.~~

Our balance sheet remains strongat February 29, 2020, with cash on hand of ~~$25,088,000 and~~$67,664,000, a current ratio of ~~5.1 at February 28, 2019. At the end of our second fiscal quarter, the~~6.3 and no outstanding principal balance ofowed on our $150,000,000 revolving credit ~~facility was $6,000,000.~~

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facility.

We have ~~two~~three reportable operating segments as summarized below:


Segment	Product Lines	Manufacturing Focus and Products
~~Industrial Materials~~Adhesives, Sealants and Additives	~~Cable Materials~~ Electronic and Industrial Coatings ~~Specialty Products~~ ~~Pulling and Detection~~ ~~Electronic Materials~~ ~~Structural Composites (1)~~  Specialty Chemical Intermediates	Protective coatings, ~~and tape products,~~ including ~~insulating and conducting materials for wire and cable manufacturers;~~ moisture protective coatings and customized sealant and adhesive systems for electronics; polyurethane dispersions, polymeric microspheres and superabsorbent polymers.
Industrial Tapes	Cable Materials Specialty Products Pulling and Detection Electronic Materials	Protective tape and coating products and services, including insulating and conducting materials for wire and cable manufacturers; laminated durable papers, packaging and industrial laminate products and custom ~~manufacturing-related~~manufacturing services; pulling and detection tapes used in the installation, measurement and location of fiber optic cables and water and natural gas lines; cover tapes essential to delivering semiconductor components via ~~tape and reel packaging; composite materials elements; polyurethane dispersions, polymeric microspheres and superabsorbent polymers.~~tape-and-reel packaging.
~~Construction Materials~~Corrosion Protection and Waterproofing	Coating and Lining Systems Pipeline Coatings Building Envelope Bridge and Highway	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; adhesives and sealants used in architectural and building envelope waterproofing applications; high-performance polymeric asphalt additives and expansion and control joint systems for use in the transportation and architectural markets.

~~(1)~~

Product line was substantially divested with the sale of the structural composites rod business on April 20, 2018. Custom manufacturing-related services performed for the purchaser of the structural composites rod business subsequent to the sale are included within the specialty products product line.

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Results of Operations

Revenue and ~~Operating Profit~~Income before Income Taxes by Segment ~~are~~were as follows (dollars in thousands):


				% of					% of					% of					% of					% of					% of					% of					% of
	Three Months Ended			Total		Three Months Ended			Total		Six Months Ended			Total		Six Months Ended			Total		Three Months Ended			Total		Three Months Ended			Total		Six Months Ended			Total		Six Months Ended			Total
	February 28, 2019			Revenue		February 28, 2018			Revenue		February 28, 2019			Revenue		February 28, 2018			Revenue		February 29, 2020			Revenue		February 28, 2019			Revenue		February 29, 2020			Revenue		February 28, 2019			Revenue

Revenue
Industrial Materials	$	57,265		86	%	$	55,267		84	%	$	117,425		84	%	$	105,252		82	%
Construction Materials		9,366		14	%		10,608		16	%		21,709		16	%		22,540		18	%
Adhesives, Sealants and Additives																					$	24,440		37	%	$	26,107		39	%	$	50,262		38	%	$	52,805		38	%
Industrial Tapes																						30,055		46	%		31,158		47	%		60,179		45	%		64,620		46	%
Corrosion Protection and Waterproofing																						11,087		17	%		9,366		14	%		21,943		17	%		21,709		16	%
Total	$	66,631				$	65,875				$	139,134				$	127,792				$	65,582				$	66,631				$	132,384				$	139,134

				% of					% of					% of					% of					% of					% of					% of					% of
	Three Months Ended			Segment		Three Months Ended			Segment		Six Months Ended			Segment		Six Months Ended			Segment		Three Months Ended			Segment		Three Months Ended			Segment		Six Months Ended			Segment		Six Months Ended			Segment
	February 28, 2019			Revenue		February 28, 2018			Revenue		February 28, 2019			Revenue		February 28, 2018			Revenue		February 29, 2020			Revenue		February 28, 2019			Revenue		February 29, 2020			Revenue		February 28, 2019			Revenue
Income before income taxes
Industrial Materials	$	12,269	(a)	21	%	$	16,161	(c)	29	%	$	27,072	(e)	23	%	$	31,526	(c)	30	%
Construction Materials		2,384		25	%		2,372		22	%		6,850		32	%		6,618		29	%
Adhesives, Sealants and Additives																					$	6,750		28	%	$	4,756	(b)	18	%	$	14,232		28	%	$	13,021	(b)	25	%
Industrial Tapes																						8,402	(a)	28	%		7,513		24	%		15,039	(d)	25	%		14,051	(f)	22	%
Corrosion Protection and Waterproofing																						4,127		37	%		2,384		25	%		8,091		37	%		6,850		32	%
Total for reportable segments		14,653		22	%		18,533		28	%		33,922		24	%		38,144		30	%		19,279		29	%		14,653		22	%		37,362		28	%		33,922		24	%
Corporate and Common Costs		(7,721)	(b)				(6,793)	(d)				(15,182)	(f)				(13,805)	(d)				(8,474)					(7,721)	(c)				(16,486)	(e)				(15,182)	(g)
Total	$	6,932		10	%	$	11,740		18	%	$	18,740		13	%	$	24,339		19	%	$	10,805		16	%	$	6,932		10	%	$	20,876		16	%	$	18,740		13	%

(a)

(b)

Includes $2,410 of loss on impairment of goodwill related to the Company’s polyurethane dispersions business

~~(b)~~(c)

Includes $273 of pension-related settlement costs due to the timing of lump-sum distributions

~~(c)~~

Includes $1,530 of expenses related to inventory step-up in fair value attributable to the December 2017 acquisition of Zappa Stewart and $1,085 on the gain on sale of license related to the structural composites product line recorded in the second quarter of fiscal 2018

(d)

(e)

Includes $150 of expense related to exploratory IT work performed to assess potential future upgrades to our companywide ERP system

(f)

Includes $260 of expense related to the closure and exit of our Pawtucket, RI location recognized in the first ~~quarter~~six months of fiscal 2019 ~~and $2,410 of loss on impairment of goodwill recorded in the second quarter of fiscal 2019 related to the Company’s polyurethane dispersions business~~

~~(f)~~(g)

Includes $473 of pension-related settlement costs due to the timing of lump-sum distributions

Total Revenue

Total revenue ~~increased $756,000~~decreased $1,049,000 or 1%2% to ~~$66,631,000~~$65,582,000 for the quarter ended February ~~28, 2019,~~29, 2020, compared to ~~$65,875,000~~$66,631,000 in the same quarter of the prior year. Total revenue ~~increased $11,342,000~~decreased $6,750,000 or 9%5% to ~~$139,134,000~~$132,384,000 in the fiscal year-to-date period compared to ~~$127,792,000~~$139,134,000 in the same period in fiscal ~~2018.~~2019.

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Revenue in our ~~Industrial Materials~~Adhesives, Sealants and Additives segment ~~increased $1,998,000~~decreased $1,667,000 or 4%6% and ~~$12,173,000~~$2,543,000 or ~~12%~~5% in the current quarter and year-to-date period, respectively. The ~~increases~~decreases in ~~this~~revenue from our Adhesives, Sealants and Additives segment ~~as compared to~~in fiscal 2020for the ~~prior year periods~~current quarter and year-to-date period, respectively, were primarily due toour electronic and industrial coatings product line’s $1,248,000 and $2,441,000 sales volume-driven decreases. Declines were seen in both North American and Asian markets, with the regional slowdown in Asia amplified by work stoppages attributable to the effects of COVID-19 in the latter half of the quarter. Also contributing to the segment’s sales decline were decreases in revenue from our specialty chemical intermediates product line totaling $419,000 and $102,000 in the current and year-to-date periods.

Revenue in our Industrial Tapes segment decreased $1,103,000 or 4% and $4,441,000 or 7% in the current quarter and year-to-date period, respectively. The decreases in revenue for the segment were primarily due tothe following for the current quarter and year-to-date period, respectively: (a) revenue reduction of $704,000 and $2,434,000 for our specialty ~~chemical intermediates~~products product line, ~~which had mostly volume-driven net increases of $1,651,000 and $7,856,000 due~~as we ended our arrangement to the inclusion of our December 31, 2017 acquired Zappa Stewart business, which had sales of $6,544,000 and $13,075,000, partially offset by volume-driven reductions in sales of our polyurethane dispersion productsprovide low-margin transitional toll manufacturing services in the current ~~year quarter and year-to-date period based on customer buying patterns, and with sales of our polymeric microspheres products being slightly down for the quarter, but still up on~~period; (b) a year-to-date basis; (b) volume- and price-driven increases totaling $1,346,000 and $4,101,000 in our cable materials products, which continued to have strong demand from customers servicing the communication cable industry; (c) our pulling and detection product line had volume and price increases totaling $790,000 and $1,979,000 on continued strong demand by the utilities and telecommunication industries; and (d) our

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specialty materials products had sales increases of $42,000 and $1,406,000, which included $420,000 and $1,383,000 in lower-margin custom manufacturing-related services revenue for the quarter and year-to-date periods. The segment’s net increases in sales was negatively impacted in the current quarter and year-to-date period by: (a) sales volume ~~decreases~~demand decrease of ~~$992,000~~$365,000 and ~~$1,919,000 for~~$2,343,000 from our structural composites product line, which, following the divestiture of the structural composites rod business in April 2018, did not record any revenue in the current year; (b) sales volume decreases of $279,000 and $669,000 for our electroniccable materials product line; and (c) an entirely volume-driven sales decrease of $311,000 and $581,000 in our electronic ~~and industrial coatings~~materials product line, which ~~had predominantly sales-volume-driven decreases~~has a near exclusively Asian end-market. Our pulling and detection tapes product line achieved volume- and price-driven revenue growth of ~~$560,000~~$277,000 and ~~$581,000,~~$917,000 over the second quarter and year-to-date period of the prior year, with ~~product offerings related to~~sales benefitting from the ~~previously acquired Resin Designs business most significantly affected~~domestic 5G (fifth generation cellular wireless) buildout macrotrend, partially offsetting the sales decline for the ~~periods.~~segment.

Compared to the prior year second quarter and year-to-date period, revenue from our ~~Construction Materials~~Corrosion Protection and Waterproofing segment ~~decreased $1,242,000~~increased $1,721,000 or ~~12%~~18% and ~~$831,000~~$234,000 or 4%1%, respectively. The segment’s ~~revenue decreases were chiefly driven by~~ sales decreases for our Rye, U.K.-produced water infrastructure pipeline products, with sales of our domestically-produced oil and gas pipeline products being only slightly down compared to both the prior quarter and year-to-date period. Total quarter and year-to-date decreases for the combined pipeline products were $1,773,000 and $2,258,000, respectively. Our coating and lining systems had mainly sales-volume driven decreases of $696,000 and $54,000 as compared to the prior year periods. The segment’s net decreases in sales were partially offsetincreases in the current quarter and year-to-date period were predominantly driven by favorable domestic results of our coating and lining systems products sales, which saw increases of $1,836,000 and $1,572,000 as compared to the prior year second quarter and year-to-date period. Our pipeline coatings and bridge and highway product lines saw second quarter revenue increases of $416,000 and $109,000 respectively, ~~by: (a) our~~but with each falling short of prior year-to-date marks by $261,000 and $981,000 respectively. Our building envelope product line ~~achieving~~finished the second quarter and year-to-date period with sales ~~favorable~~unfavorable to the prior year comparable periods by ~~$1,158,000~~$640,000 and ~~$929,000; and (b) our bridge and highway product line’s volume- and price-driven increases totaling $69,000 and $552,000.~~$96,000, respectively, partially offsetting the comparative sales gains for the segment.

Cost of Products and Services Sold

Cost of products and services sold ~~increased $1,222,000~~decreased $2,547,000 or ~~2.9%~~6% to ~~$43,213,000~~$40,666,000 for the quarter ended February ~~28, 2019,~~29, 2020, compared to ~~$41,991,000~~$43,213,000 in the prior year quarter. Cost of products and services sold ~~increased $10,902,000~~decreased $7,339,000 or ~~14%~~8% to ~~$89,788,000~~$82,449,000 in the first six months of fiscal ~~2019,~~2020, compared to ~~$78,886,000~~$89,788,000 in the comparative year-to-date period.

The following table summarizes our cost of products and services sold as a percentage of revenue for each of our ~~reporting~~reportable operating segments:

Three Months Ended February 28,
Six Months Ended February 28,

Cost of products and services sold


2019

2018


2019

2018


Industrial Materials

66
%
64
%

66
%
62
%

Construction Materials

60
%
63
%

58
%
58
%

Total

65
%
64
%

65
%
62
%


	Three Months Ended				Six Months Ended
Cost of products and services sold	February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019
Adhesives, Sealants and Additives	58	%	59	%	57	%	57	%
Industrial Tapes	67		71		69		72
Corrosion Protection and Waterproofing	56	��	60		55		58
Total Company	62	%	65	%	62	%	65	%

Cost of products and services sold in our ~~Industrial Materials~~Adhesives, Sealants and Additives segment was ~~$37,558,000~~$14,255,000 and ~~$77,167,000~~$28,787,000 in the current quarter and year-to-date periods compared to ~~$35,268,000~~$15,331,000 and ~~$65,732,000~~$30,323,000 in the comparable periods in the prior year. Cost of products and services sold in our ~~Construction Materials~~Industrial Tapes segment was ~~$5,655,000~~$20,203,000 and ~~$12,621,000~~$41,522,000 in the current quarter and year-to-date periods compared to $22,227,000 and $46,844,000 in the comparable periods in the prior year. Cost of products and services sold in our Corrosion Protection and Waterproofing segment was $6,208,000 and $12,140,000 for the quarter and year-to-date period ended February ~~28, 2019,~~29, 2020, compared to ~~$6,723,000~~$5,655,000 and ~~$13,154,000~~$12,621,000 in the same periods of the prior year.

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As a percentage of revenue, cost of products and services sold ~~increased~~was reduced for all segments and comparative periods, except for the ~~Industrial Materials~~year-to-date results of our Adhesives, Sealants and Additives segment, ~~for both~~where it stayed consistent with the quarter and year-over-year period. As a percentage of revenue, cost of products and services sold decreased for the Construction Materials segment for the quarter and remained consistent for the year-over-year period.prior year. These ~~changes~~relative gross margin improvements were primarily due to: (a) ~~a less favorable sales mix, most predominantly felt~~production efficiencies recognized in ~~our Industrial Materials segment, as our lower margin products constituted a comparatively higher portion of total sales; (b) increasing supply~~the current quarter and ~~demand imbalances and tariffs causing rising raw material costs not fully offset by price increases,~~year-to-date periods, most acutely seen ~~in our Industrial Materials segment; and (c) production inefficiencies and additional costs to maintain service levels, which are not seen as long-term additions to our manufacturing run rates,~~ at our Oxford, MA and Lenoir, NC locations following the consolidation of our former Pawtucket, RI ~~operations. These increased manufacturing expenses following~~cable materials plant, and benefiting our Industrial Tapes segment; (b) more favorable sales mix, especially in our Corrosion Protection and Waterproofing and Industrial Tapes segments, as our lower margin products constituted a comparatively lower portion of total sales; and (c) the ~~consolidation, which are beyond~~full period effects of price increases the ~~$260,000 recognized~~Company instituted during fiscal 2019 (prior year) to address inflation in ~~the first quarter as part of exit costs related to idle facility, comprise additional labor, contracting, freight and~~raw material costs ~~incurred as production capabilities and workflows at the new locations are being optimized.~~ seen during that period.

With the composition of our finished goods and the markets we serve, the ~~costing~~costs of certain commodities (including petroleum-based solvents, films, yarns, polymers and nonwovens, aluminum and copper foils, specialty papers, and various resins, adhesives and inks) both directly and indirectly ~~affects~~

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affect the purchase price of our raw materials and the market demand for our product offerings. The Company diligently monitors raw material and commodities pricing across all its product lines in its efforts to preserve margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$1,111,000~~$724,000 or 9%6% to ~~$13,086,000~~$13,810,000 for the quarter ended February ~~28, 2019~~29, 2020 compared to ~~$11,975,000~~$13,086,000 in the prior year quarter.Selling, general and administrative expenses increased ~~$2,577,000~~$1,002,000 or ~~11%~~4% to ~~$26,448,000~~$27,450,000 in the fiscal year-to-date period compared to ~~$23,871,000~~$26,448,000 in the same period in fiscal ~~2018.~~2019. As a percentage of revenue, selling, general and administrative expenses represented ~~20% and 19%~~21% for both the current year second quarter and fiscal year-to-date period, ~~respectively,~~ compared to ~~18%~~20% and 19% for the same respective periods in the prior year. The nominal ~~increase~~increases for ~~both~~ the current fiscal quarter and year-to-date period compared to the prior year periods were largely attributable to increases of $283,000 and $492,000, respectively, ~~was primarily attributable to: (a) increased amortization~~in non-cash stock-based compensation expenses.

Operations Optimization Costs

During the first quarter of fiscal 2020, third-party-led studies regarding the potential upgrading of the Company’s current worldwide ERP system were conducted. Chase is currently reviewing the data and recommendations provided by the study and may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around our facilities rationalization and consolidation initiative. The Company recognized $150,000 in expense ~~of $193,000 and $992,000, predominantly~~ related to ~~intangible assets acquired~~these services in ~~our December 2017 acquisition~~the first quarter of ~~Zappa Stewart; (b) increased~~fiscal 2020. Given the ongoing nature of the review, an estimate of future costs, including costs that could be capitalized, cannot currently be determined.

During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations housed in its Granite Falls, NC location to its Hickory, NC facility. This is in line with the Company’s ongoing initiative to consolidate its manufacturing plants and streamline its existing processes. At the time, the pulling and detection operations were the only Chase-owned production operations in Granite Falls, NC, with the remaining portions of the building being either utilized for research and development ~~costs~~or leased to a third party. The process of ~~$294,000 and $473,000, after the addition of the established~~moving, including moving internal research and development ~~department within Zappa Stewart;~~capabilities, was substantially completed during the second quarter of fiscal 2020. The Company recognized $60,000 and ~~(c) (decreased)/increased selling and commission~~$559,000 in expense ~~of ($66,000) and $341,000, principally~~ related to ~~sales growth on our highest commissionable products~~the move in the ~~current year-to-date period, coupled~~three-month and six-month periods ended February 29, 2020, respectively, having recognized $526,000 in expense during the second half of fiscal 2019. Future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.

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On June 25, 2018, the Company announced to its employees the planned closing of its Pawtucket, RI manufacturing facility effective August 31, 2018. This is in line with the ~~addition~~Company’s ongoing efforts to consolidate its manufacturing plants and streamline its existing processes. The manufacture of products previously produced in the ~~established sales force~~Pawtucket, RI facility was substantially moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period. In the fourth quarter of ~~Zappa Stewart.~~fiscal 2018, the Company expensed $1,272,000 related to the closure. The Company also recognized $260,000 in expense related to the move in the three-month period ended November 30, 2018, with no additional expense recognized in the remainder of fiscal 2019 or in fiscal 2020. Future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.

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Loss on Impairment of Goodwill

The ordering patterns of our polyurethane dispersions reporting unit’s customers during the three-month period ended February 28, 2019, especially those in the automotive industry, combined with a decrease in the reporting unit’s backlog of customer orders believed to be firm as of February 28, 2019 indicated an impairment in the carrying value of the reporting unit might have occurred. As such, we performed an impairment test on our long-lived assets related to our polyurethane dispersions reporting unit, part of the ~~Industrial Materials~~Adhesives, Sealants and Additives operating segment, in accordance with ASC Topic 350, “Intangibles — Goodwill and Other” and ASC Topic 360, “Disclosure — Impairment or Disposal of Long-Lived Assets.” As a result of impairment testing, which included first testing long-lived assets other than goodwill for impairment under applicable guidance, the Company recorded a charge of $2,410,000 to loss on impairment of goodwill within the condensed consolidated statement of operations during the quarter ended February 28, 2019.

~~Exit Costs Related to Idle Facility~~

On June 25, 2018, the Company announced to its employees the planned closing of its Pawtucket, RI manufacturing facility effective August 31, 2018. This is in line with the Company’s ongoing efforts to consolidate its manufacturing plants and streamline its existing processes. The manufacture of products previously produced in the Pawtucket, RI facility was substantially moved to existing Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period, with certain additional expenditures recognized in the first fiscal quarter of 2019. In the fourth quarter of fiscal 2018, $1,272,000 was expensed related to the closure, including: (a) cash-related employee-related, logistics and uncapitalized facilities improvement costs of $590,000; and (b) non-cash-related accelerated depreciation expense of $682,000. The Company expensed $260,000 in the three-month period ended November 30, 2018 related to the move,with no additional expense recognized in the quarter ended February 28, 2019. Future costs related to this move are not anticipated to be significant to the Company’s Condensed Consolidated Financial Statements.

~~Acquisition-Related Costs~~

In the second quarter of fiscal 2018, the Company incurred $393,000 of costs related to our acquisition of Stewart Superabsorbents, LLC (“SSA, LLC” or “Zappa Stewart”). This acquisition was accounted for as a business combination in accordance with applicable accounting standards, and all related professional service fees (including banking, legal, accounting and actuarial fees) were expensed as incurred within the second fiscal quarter of 2018.

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Interest Expense

Interest expense decreased ~~$278,000~~$106,000 or ~~63%~~65% to ~~$162,000~~$56,000 for the quarter ended February ~~28, 2019~~29, 2020 compared to ~~$440,000~~$162,000 in the prior year second quarter. Interest expense decreased ~~$119,000~~$255,000 or ~~25%~~70% to ~~$366,000~~$111,000 for the fiscal year-to-date period compared to ~~$485,000~~$366,000 in the same period in fiscal ~~2018.~~2019. The decrease in interest expense in the current quarter and year-to-date period is primarily the result of the decreased average outstanding balance of our revolving debt ~~facility,~~ facility.

In fiscal 2018,following ~~the~~a $65,000,000 draw on the facility in December 2017 ~~(the second fiscal quarter~~to fund a substantial portion of ~~the prior year) to substantially fund~~ the Company’s acquisition of Zappa ~~Stewart.~~

~~In fiscal 2018, subsequent to the December 2017 borrowing,~~Stewart, the Company made $40,000,000 in payments against the principal. In the first, second and ~~second~~third quarters of fiscal 2019, Chase made additional $10,000,000, $9,000,000 and ~~$9,000,000~~$6,000,000 principal payments, respectively, ~~bringing~~paying off the outstanding balance ~~to $6,000,000 at February 28, 2019.~~

~~Gain on Sale~~in full as of ~~License~~

In November 2017, the Company entered an agreement with an unrelated party to sell a license, including certain intellectual property, and sell certain construction in process assets, both related to the manufacturing of certain structural composite materials. In the second fiscalMay 31, 2019 (third quarter of ~~2018,~~ the transaction was finalized for gross consideration of $1,111,000 comprising cash proceeds of $1,000,000 and foreign tax consideration paid by the purchaser on Chase’s behalf of $111,000. This transaction resulted in a gain of $1,085,000, which was recorded in the Company’s condensed consolidated statement of operations as a gain on sale of license during the fiscal quarter ended February 28, 2018.prior year).

Other Income (Expense)

Other income (expense) was an expense of ~~$828,000~~$185,000 in the quarter ended February ~~28, 2019~~29, 2020 compared to an expense of ~~$421,000~~$828,000 in the same period in the prior year, ~~an increase~~a decrease of ~~$407,000.~~$643,000. Other income (expense) was an expense of ~~$1,122,000~~$789,000 for the fiscal year-to-date period compared to an expense of ~~$903,000~~$1,122,000 in the same period in the prior year, ~~an increase~~a decrease of ~~$219,000.~~$333,000. Other income (expense) primarily includes foreign exchange gains (losses) caused by changes in exchange rates on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, non-service cost components of periodic pension expense (including pension-related settlement costs due to the timing of lump-sum distributions), interest income, rental income and other ~~non-trade/non-royalty/non-commission receipts. Other income (expense) in~~receipts that are not classified as trade, royalties or commissions. For the current quarter and year-to-date period, the net loss was ~~predominantly~~primarily caused by foreign exchange losses of $105,000 and $606,000, respectively, as compared to a $468,000 and $416,000 in losses seen in the ~~non-service cost components of periodic pension expense, including $273,000 and $473,000 of pension related~~comparable periods. Both the prior year periods also contained pension-related settlement costs due to the timing of lump-sum ~~disbursements.~~distributions, which did not recur in the current periods.

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Income Taxes

The effective tax rates for the second quarter and the six-month ~~periods~~period ended February ~~28, 2019~~29, 2020 were ~~23.9%~~27.1% and ~~24.8%~~27.0%, respectively, and ~~13.8%~~23.9% and ~~24.2%~~24.8% for the second quarter and the six-month ~~periods~~period ended February 28, ~~2018,~~2019, respectively.

The current and prior year effective tax rates were most prominently affected by the passage of the Tax Cuts and Jobs Act (the “Tax Act”) in December ~~2017, and in the case of the prior year periods a discrete tax benefit of $977 related to stock-based compensation, recognized in relation to the Company’s early adoption of ASU 2016-09.~~2017. For fiscal 2020 and 2019, the Company ~~will utilize~~is utilizing the new 21% Federal tax rate enacted by the Tax Act. During fiscal 2018 (the prior year), Chase utilized a blended rate of 25.7%, based on a combination of four months of operations under the old 35% corporate income tax rate, and eight months at the new 21% rate. Please see Note 1817 — “Income Taxes” to the Condensed Consolidated Financial Statements for further discussion of the effects of the Tax Act.

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Net Income

Net income ~~decreased $4,849,000~~increased $2,606,000 or ~~48%~~49% to ~~$5,273,000~~$7,879,000 in the quarter ended February ~~28, 2019~~29, 2020 compared to ~~$10,122,000~~$5,273,000 in the prior year second quarter. The decrease in net income in the second fiscal quarter was primarily due to a lower recognized gross margin on sales, a loss on impairment of goodwill recognized in the quarter, a nonrecurring gain on sale of license in the prior year period and a more favorable effective tax rate recognized in the prior year second fiscal quarter on the adoption of the Tax Act and recognition of a discrete tax benefit on stock-based compensation, which did not recur in the current year.

Net income ~~decreased $4,341,000~~increased $1,145,000 or ~~24%~~8% to ~~$14,096,000~~$15,241,000 in the six months ended February ~~28, 2019~~29, 2020 compared to ~~$18,437,000~~$14,096,000 in the same period in the prior year. The ~~decrease~~increase in net income in both the ~~current six-month~~second fiscal quarter and year-to-date period was primarily due to ~~a loss on impairment of goodwill, increased amortization expense recognized in the current period and related to our December 2017 acquisition of Zappa Stewart,~~ a nonrecurring ~~gain on sale of license~~impairment charge recognized in the prior year, ~~period~~a higher gross margin and ~~increased pension-related settlement costs due to the timing of lump-sum disbursements~~lowerpension expense in the current ~~year-to-date period.~~periods, and lower foreign exchange transaction losses for the current quarter, partially offset in each period by increased selling, general and administrative expense.

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Other Important Performance Measures

We believe that EBITDA, Adjusted EBITDA and Free Cash Flow are useful performance measures. They are used by our executive management team to measure operating performance, to allocate resources, to evaluate the effectiveness of our business strategies and to communicate with our Board of Directors ~~and investors~~ concerning our financial performance. The Company believes EBITDA, Adjusted EBITDA and Free Cash Flow are also useful to investors. EBITDA is useful in comparing the core operations of the business from period to period by removing the impact of the Company’s capital structure (through interest expense), asset base (through depreciation and amortization) and tax rate, and in evaluating operating performance relative to others in the industry. Adjusted EBITDA allows for comparison to the Company’s performance in prior periods without the effect of items that, by their nature, tend to obscure the Company’s core operating results due to the potential variability across periods based on their timing, frequency and magnitude. Free Cash Flow provides a means for measuring the cash generated from operations that is available for mandatory obligations, including interest payments and debt repayment, and discretionary investment opportunities such as funding acquisitions, product and market development and paying dividends. As a result, management believes these metrics, which are commonly used by financial analysts and others in the industries in which the Company operates, enhance the ability of investors to analyze trends in the Company’s business and evaluate the Company’s performance relative to peer companies and the past performance of the Company itself. EBITDA, Adjusted EBITDA and Free Cash Flow are non-U.S. GAAP financial measures.

We define EBITDA as net income before interest expense from borrowings, income tax expense, depreciation expense from fixed assets, and amortization expense from intangible assets. We define Adjusted EBITDA as EBITDA excluding costs and (gains) losses related to our acquisitions and divestitures, costs of products sold related to inventory step-up to fair value, settlement (gains) losses resulting from lump-sum distributions to participants from our defined benefit plans, ~~exit~~operations optimization costs, ~~related to facility consolidation,~~impairment losses on long-lived assets, and other significant items. We define Free Cash Flow as net cash provided by operating activities less purchases of property, plant and equipment.

The use of EBITDA, Adjusted EBITDA and Free Cash Flow has limitations and these performance measures should not be considered in isolation from, or as an alternative to, U.S. GAAP measures such as net income and net cash provided by operating activities. None of these measures should be interpreted as representing the residual cash flow of the Company available solely for discretionary expenditures or to invest in the growth of our business, since we may have certain non-discretionary expenditures that are not deducted from these measures, including scheduled principal and (in the case of Free Cash Flow) interest payments on outstanding debt. Our measurement of EBITDA, Adjusted EBITDA and Free Cash Flow may not be comparable to similarly-titled measures used by other companies.

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The following table provides a reconciliation of net income, the most directly comparable financial measure presented in accordance with U.S. GAAP, to EBITDA and Adjusted EBITDA for the periods presented (dollars in thousands):


	Three Months Ended February 28,				Six Months Ended February 28,				Three Months Ended				Six Months Ended
	2019		2018		2019		2018		February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019
Net income	$	5,273	$	10,122	$	14,096	$	18,437	$	7,879	$	5,273	$	15,241	$	14,096
Interest expense		162		440		366		485		56		162		111		366
Income taxes		1,659		1,618		4,644		5,902		2,926		1,659		5,635		4,644
Depreciation expense		1,253		1,364		2,491		2,618		988		1,253		2,041		2,491
Amortization expense		3,112		2,919		6,225		5,233		2,912		3,112		5,826		6,225
EBITDA	$	11,459	$	16,463	$	27,822	$	32,675	$	14,761	$	11,459	$	28,854	$	27,822
Loss on impairment of goodwill (a)		2,410		—		2,410		—
Pension settlement costs (b)		273		—		473		—
Exit costs related to idle facility (c)		—		—		260		—
Cost of sale of inventory step-up (d)		—		1,530		—		1,530
Acquisition-related costs (e)		—		393		—		393
Gain on sale of license (f)		—		(1,085)		—		(1,085)
Operations optimization costs (a)										60		—		709		260
Loss on impairment of goodwill (b)										—		2,410		—		2,410
Pension settlement costs (c)										—		273		—		473
Adjusted EBITDA	$	14,142	$	17,301	$	30,965	$	33,513	$	14,821	$	14,142	$	29,563	$	30,965

(a)

Represents costs to relocate certain production operations from Granite Falls, NC to Hickory, NC and to perform certain exploratory work into upgrading our companywide ERP system, both incurred in the first half of fiscal 2020, and Pawtucket, RI facility closure costs recognized in the first quarter of fiscal 2019

(b)

Represents loss on impairment of goodwill related to the polyurethane dispersions business in the second quarter of fiscal 2019

~~(b)~~(c)

Represents pension-related settlement costs due to the timing of lump-sum distributions

~~(c)~~

~~Represents Pawtucket, RI facility closure costs recognized in the first quarter of fiscal 2019~~

~~(d)~~

~~Represents expenses related to inventory step-up in fair value related to the December 2017 acquisition of Zappa Stewart~~

~~(e)~~

~~Represents costs related to the December 2017 acquisition of Zappa Stewart~~

~~(f)~~

~~Represents fiscal 2018 second quarter gain on sale of a license related to the structural composites product line~~

The following table provides a reconciliation of net cash provided by operating activities, the most directly comparable financial measure presented in accordance with U.S. GAAP, to Free Cash Flow for the periods presented (dollars in thousands):


	Three Months Ended February 28,				Six Months Ended February 28,				Three Months Ended				Six Months Ended
	2019		2018		2019		2018		February 29, 2020		February 28, 2019		February 29, 2020		February 28, 2019
Net cash provided by operating activities	$	5,726	$	13,430	$	17,303	$	19,984	$	9,308	$	5,726	$	27,461	$	17,303
Purchases of property, plant and equipment		(665)		(735)		(1,304)		(1,586)		(128)		(665)		(827)		(1,304)
Free Cash Flow	$	5,061	$	12,695	$	15,999	$	18,398	$	9,180	$	5,061	$	26,634	$	15,999

Liquidity and Sources of Capital

Our overall cash and cash equivalents balance ~~decreased $9,740,000~~increased $19,893,000 to ~~$25,088,000~~$67,664,000 at February ~~28, 2019,~~29, 2020, from ~~$34,828,000~~$47,771,000 at August 31, ~~2018.~~2019. The ~~decreased~~increased cash balance is primarily attributable to ~~$19,000,000 in principal debt pay down and a cash dividend payment of $7,522,000, partially offset by $17,303,000 of~~ cash provided by ~~operations.~~operations of $27,461,000, partially netted against a $7,539,000 dividend paid in December 2019. Of the above-noted amounts, ~~$20,735,000~~$18,214,000 and ~~$28,521,000~~$17,235,000 were held outside the United States by Chase Corporation and our foreign subsidiaries as of February ~~28, 2019~~29, 2020 and August 31, ~~2018,~~2019, respectively. Given our cash position and borrowing capability in the United States and the potential for increased investment and acquisitions in foreign jurisdictions, prior to the second quarter of fiscal 2018 ~~(prior year),~~ we did not have a history of repatriating a significant portion of our foreign cash. With the passage of the Tax Cuts and Jobs Act (the “Tax Act”) in the second fiscal quarter of 2018, significant changes in the Internal Revenue Code were enacted, changing the U.S. taxable nature of previously unrepatriated foreign earnings. ~~During the first half of fiscal 2019, and fiscal 2018 (following~~Following the passage of the Tax ~~Act),~~Act, the Company repatriated ~~$10,060,000 and~~ $10,499,000 in U.K. foreign earnings ~~respectively.~~in fiscal 2018 and $17,230,000 in fiscal 2019. No additional amounts were repatriated in the first six months of fiscal year 2020. Please see Note 18

~~Table of Contents~~

17 — “Income Taxes” to the Condensed Consolidated Financial Statements for further discussion of the effects of the Tax Act.

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Cash flow provided by operations was ~~$17,303,000~~$27,461,000 in the first six months of fiscal year ~~2019~~2020 compared to ~~$19,984,000~~$17,303,000 in the same period in the prior year. Cash provided by operations during the current period was primarily related to operating income. ~~Negatively~~Positively impacting our cash flow from operations were ~~certain increases~~decreases in accounts receivable and inventory balances, as the Company ~~continued to make opportunistic purchases~~had lower sales in the first quarter of ~~nonperishable materials to: (a) take advantage of~~the current ~~costs, which were believed to be lower than future costs; and (b) to assure certainty of supply.~~year.

The ratio of current assets to current liabilities was ~~5.1~~6.3 as of February ~~28, 2019~~29, 2020 compared to ~~4.4~~6.0 as of August 31, ~~2018.~~2019. The ratio increased over the first six months of fiscal ~~2019~~2020 primarily as a result of ~~increased inventory and a decrease~~the net increase in ~~accounts payable and accrued payroll and other compensation, partially tempered by a decrease in both~~ cash and cash ~~equivalents and accounts receivable.~~equivalents.

Cash flow used in investing activities of ~~$975,000~~$867,000 was ~~primarily~~largely due to cash spent on capital purchases of machinery and equipment in fiscal ~~2019, partially offset by the final escrow payment received by the Company for our April 2017 sale of the fiber optic cable components business.~~2020.

Cash flow used in financing activities of ~~$26,340,000~~$7,539,000 was ~~largely~~entirely due to ~~an incremental pay down during the period of the debt we incurred in the second quarter of fiscal 2018 (the prior year) to acquire Zappa Stewart, and~~ payment of our annual dividend in December ~~2018.~~2019.

On November 13, ~~2018,~~2019, we announced a cash dividend of $0.80 per share (totaling ~~$7,522,000)~~$7,539,000). The dividend was paid on December ~~5, 2018~~4, 2019 (the second quarter of fiscal ~~2019)~~2020) to shareholders of record on November ~~23, 2018.~~26, 2019.

On December 15, 2016, we entered an Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, acting as administrative agent, and with participation from Citizens Bank and JPMorgan Chase Bank (collectively with Bank of America, the “Lenders”). The Credit Agreement is initially an all-revolving credit facility with a borrowing capacity of $150,000,000, which can be increased by an additional $50,000,000 at the request of the Company and the individual or collective option of any of the Lenders. The facility matures December 15, 2021. The Credit Agreement contains customary affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness and require lender approval for acquisitions by us and our subsidiaries over a certain size. It also requires us to maintain certain financial ratios on a consolidated basis, including a consolidated net leverage ratio (as defined in the facility) of no more than 3.25 to 1.00, and a consolidated fixed charge coverage ratio (as defined in the facility) of at least 1.25 to 1.00. We were in compliance with our debt covenants as of February ~~28, 2019.~~29, 2020. The applicable interest rate for the Credit Agreement is based on the effective LIBOR plus an additional amount in the range of 1.00% to 1.75%, depending on our consolidated net leverage ratio or, at our option, at the bank’s base lending rate. At February ~~28, 2019,the~~29, 2020, there was no outstanding principal balance, and as such no applicable interest ~~rate was 3.6% per annum and the outstanding principal amount was $6,000,000.~~ rate.

We have several ongoing capital projects, as well as our facility rationalization and consolidation initiative, which are important to our long-term strategic goals. Machinery and equipment may be added as needed to increase capacity or enhance operating efficiencies in our production facilities.

We may acquire companies or other assets in future periods which are complementary to our business. We believe that our existing resources, including cash on hand and the Credit Agreement, 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 assurance that additional financing, if needed, will be available on favorable terms, if at all.

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.

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Contractual Obligations

Please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2018~~2019 for a complete discussion of our contractual obligations.

Recent Accounting Standards

Please see Note 2 — “Recent Accounting Standards” to the Condensed Consolidated Financial Statements for a discussion of the effects of recently issued and recently adopted accounting pronouncements.

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, revenue 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. Other than changes which came as a result of adopting ASC 606 “Revenue from Contracts with Customers” which are discussed within Note 2 — “Recent Accounting Standards” and Note 9 — “Revenue from Contracts with Customers” of the Condensed Consolidated Financial Statements contained herein, managementManagement believes that there have been no material changes during the six months ended February ~~28, 2019~~29, 2020 to the critical accounting policies reported in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2018.~~2019.

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Item 3 — Quantitative and Qualitative Disclosures about Market Risk

We limit the amount of credit exposure to any one issuer. At February ~~28, 2019,~~29, 2020, other than our restricted investments (which are restricted for use in non-qualified retirement savings plans for certain key employees and members of the Board of 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~~U.S. operations have limited currency exposure since substantially all transactions are denominated in U.S. dollars. However, our European and Asian operations are subject to currency exchange fluctuations. We continue to review our policies and procedures to control this exposure while maintaining the benefit from these operations and sales not denominated in U.S. dollars. The effect of an immediate hypothetical 10% change in the exchange rate between the British ~~Pound~~pound and the U.S. dollar would not have a material direct effect on the Company’s overall liquidity. As of February ~~28, 2019,~~29, 2020, the Company had cash balances in the following foreign currencies (with USD equivalents, dollars in thousands):


Currency Code	Currency Name	USD Equivalent at February 28, 2019		Currency Name	USD Equivalent at February 29, 2020
GBP	British Pound	$	8,540	British Pound	$	11,013
EUR	Euro	$	4,001	Euro	$	4,012
CAD				Canadian Dollar	$	1,303
INR	Indian Rupee	$	425	Indian Rupee	$	398
CAD	Canadian Dollar	$	391
CNY	Chinese Yuan	$	351	Chinese Yuan	$	284

We will continue to review our current cash balances denominated in foreign currency considering current tax guidelines, including the impact of the ~~recently enacted revisions~~Tax Act to the U.S. Internal Revenue Code, working capital requirements, infrastructure improvements and potential acquisitions.

We recognized a foreign currency translation gain for the six months ended February ~~28, 2019~~29, 2020 in the amount of ~~$538,000~~$1,395,000 related to our European and Indian operations, which is recorded in other comprehensive income (loss) within our Statement of Equity and Statement of Comprehensive Income. We do not have or utilize any derivative financial instruments.

We pay interest on our outstanding long-term debt at interest rates that fluctuate based upon changes in various base interest rates. ~~The carrying value~~There was no outstanding balance of ~~our~~ long-term debt ~~was $6,000,000~~ at February ~~28, 2019.~~29, 2020 (having been paid in full during the third fiscal quarter of 2019). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Sources of Capital,” together with Note 12 — “Fair Value Measurements” and Note 16 — “Long-Term Debt” to the Condensed Consolidated Financial Statements for additional information regarding our outstanding long-term debt. An immediate hypothetical 10% change in variable interest rates would not have a material direct effect on our Condensed Consolidated Financial Statements.

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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 Commission’s 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 ~~material weakness in our internal control over financial reporting described below, identified in the fourth quarter of fiscal 2018 and not remediated as of February 28, 2019,~~foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ~~not~~ effective at a reasonable assurance level as of the end of the period covered by this report.

We did not design and maintain effective internal controls over the review of the cash flow forecasts used in the valuation of customer relationship intangible assets acquired in a business combination. Specifically, the review of certain assumptions, including those related to revenue and gross margin, related to the development of the cash flow forecasts used in valuing the customer relationship intangible assets was not designed to operate at an appropriate level of precision. This control deficiency resulted in immaterial audit adjustments to intangible assets and related amortization expense, goodwill, inventory, costs of products and services sold, and income taxes in the Company’s consolidated financial statements for the year ended August 31, 2018.This control deficiency did not result in a misstatement of our interim consolidated financial statements for the three and six months ended February 28, 2019. Additionally, this control deficiency could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness.

Changes in internal control over financial reporting

During the quarter ended November 30, 2018, the Company completed the process of implementing its worldwide ERP computer system, and other applicable shared services, on operations associated with Zappa Stewart acquired in December 2017.

As part of the Company’s succession plan, effective with its annual shareholders meeting held on February 5, 2019, and as approved by the board at that time, Christian J. Talma has been named Chief Financial Officer of Chase Corporation. Kenneth J. Feroldi, the former Treasurer and Chief Financial Officer, will continued in his role as Treasurer, and as an executive employee of the Company.

~~Otherwise, there~~There have not been any changes in the Company’s internal control over financial reporting during ~~its most recent~~the second quarter of fiscal ~~year~~2020 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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Part II — OTHER INFORMATION

Item 1 — Legal Proceedings

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, results of operations or cash flows, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements agreed to, that could adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely assesses all 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 we assess the likelihood of loss as probable.

Item 1A — Risk Factors

~~Please refer~~In addition to the other information set forth in this report, you should carefully consider the risk set forth below and the risk factors described in Part I, Item 1A inof our Annual Report on Form 10-K for the fiscal year ended August 31, ~~2018 for a discussion of the risk factors~~2019, which could materially affect our business, financial condition or future results. The risk described below, and the risks described in our 2019 Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

Our results of operations have been adversely affected and could in the future be materially adversely impacted by the coronavirus disease 2019 (COVID-19) pandemic.

The global spread of the coronavirus disease 2019 (COVID-19) pandemic has created significant volatility, uncertainty and economic disruption. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our customers’ demand for our goods and services and our vendors ability to supply us with raw materials; our ability to sell and provide our goods and services, including as a result of travel restrictions and people working from home; the ability of our customers to pay for our goods and services; and any closures of our and our customers’ offices and facilities. Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements.

Further, the effects of the pandemic may also increase our cost of capital or make additional capital, including the refinancing of our credit facility, more difficult or available only on terms less favorable to us. A sustained downturn may also result in the carrying value of our goodwill or other intangible assets exceeding their fair value, which may require us to recognize an impairment to those assets. A sustained downturn in the financial markets and asset values may have the effect of increasing our pension funding obligations in order to ensure that our qualified pension plans continue to be adequately funded, which may divert cash flow from other uses. The effects of the pandemic, including remote working arrangements for employees, may also impact our financial reporting systems and internal control over financial reporting, including our ability to ensure 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 Commission’s 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.

Any of these events could cause or contribute to the risks and uncertainties enumerated in the Annual Report and could materially adversely affect our business, financial condition, results of operations and/or stock price.

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Item 6 — Exhibits


Exhibit Number		Description
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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Chase Corporation


Dated: April 9, ~~2019~~2020	By:	/s/ Adam P. Chase
		Adam P. Chase
		President and Chief Executive Officer


Dated: April 9, ~~2019~~2020	By:	/s/ Christian J. Talma
		Christian J. Talma
		Treasurer and Chief Financial Officer

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	Industrial Materials		Construction Materials		Consolidated
Balance at August 31, 2018	$	74,002	$	10,694	$	84,696
Loss on impairment of polyurethane dispersions business		(2,410)		—		(2,410)
Foreign currency translation adjustment		44		4		48
Balance at February 28, 2019	$	71,636	$	10,698	$	82,334


	August 31,		Adjustments for		September 1,
	2018		Adoption of ASC 606		2018

Assets:
Contract assets	$	—	$	80	$	80
Inventory	$	39,699	$	(50)	$	39,649
Prepaid income taxes	$	4,100	$	(8)	$	4,092

Stockholders' equity:
Retained earnings	$	245,049	$	22	$	245,071


	February 28, 2019
	Balances Without		ASC 606		As
	Adoption of ASC 606		Adjustments		Reported

Assets:
Contract assets	$	—	$	175	$	175
Inventory	$	45,522	$	(104)	$	45,418
Prepaid income taxes	$	2,574	$	(18)	$	2,556

Stockholders' equity:
Retained earnings	$	251,592	$	53	$	251,645


	Three Months Ended February 28, 2019						Six Months Ended February 28, 2019
	Results Without		Effect of Change		As		Results Without		Effect of Change		As
	Adoption of ASC 606		Higher (Lower)		Reported		Adoption of ASC 606		Higher (Lower)		Reported

Revenue
Sales	$	65,452	$	(10)	$	65,442	$	136,711	$	95	$	136,806
Royalties and commissions		1,189		—		1,189		2,328		—		2,328
		66,641		(10)		66,631		139,039		95		139,134
Costs and Expenses
Cost of products and services sold		43,204		9		43,213		89,734		54		89,788
Selling, general and administrative expenses		13,086		—		13,086		26,448		—		26,448
Loss on impairment of goodwill		2,410		—		2,410		2,410		—		2,410
Exit costs related to idle facility		—		—		—		260		—		260

Operating income		7,941		(19)		7,922		20,187		41		20,228
								��
Interest expense		(162)		—		(162)		(366)		—		(366)
Other income (expense)		(828)		—		(828)		(1,122)		—		(1,122)

Income before income taxes		6,951		(19)		6,932		18,699		41		18,740

Income taxes		1,664		(5)		1,659		4,634		10		4,644

Net income	$	5,287	$	(14)	$	5,273	$	14,065	$	31	$	14,096


Net income available to common shareholders, per common and common equivalent share

Basic	$	0.57	$	(0.01)	$	0.56	$	1.50	$	—	$	1.50

Diluted	$	0.56	$	—	$	0.56	$	1.49	$	—	$	1.49

Weighted average shares outstanding
Basic		9,332,288		—		9,332,288		9,330,929		—		9,330,929
Diluted		9,373,030		—		9,373,030		9,377,167		—		9,377,167


Assets & Liabilities	Amount
Accounts receivable	$	3,670
Inventory		6,796
Prepaid expenses and other current assets		12
Property, plant & equipment		1,872
Goodwill		34,138
Intangible assets		30,240
Deferred tax liability		(2,626)
Accounts payable and accrued liabilities		(633)
Total purchase price	$	73,469


			Weighted Average
Intangible Asset	Amount		Useful life
Customer relationships	$	28,500	7.9	years
Technology		900	7	years
Trade names		840	4	years
Total intangible assets	$	30,240

Three Months Ended

Six Months Ended

February 29, 2020

February 29, 2020

Operating lease cost (a)