Loading...
Docoh

Chase (CCF)

Filed: 12 Jul 21, 4:50pm

It

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 May 31, 2021

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) (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 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 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 13(a) of the Exchange Act.

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

The number of shares of Common Stock outstanding as of June 30, 2021 was 9,449,248.

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 Chase Corporation’s future operating results; seasonality expectations; plans for the development, utilization or disposal of manufacturing facilities; future economic conditions; its expectations as to legal proceedings; the effect of its market and product development efforts; expectations relating to the renewal of its credit facility; and expectations or plans relating to the implementation or realization of its strategic goals and future growth, including through potential future acquisitions and divestitures. 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, statements relating to future dividend payments, as well as the expected impact of the coronavirus disease 2019 (COVID-19) pandemic on the Company's businesses. 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 the Company operates, 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, 2020 concerning certain factors that could cause our actual results to differ materially from the results anticipated in such forward-looking statements. These Risk Factors are hereby incorporated by reference into this Quarterly Report.

3

Item 1 — Unaudited Condensed Consolidated Financial Statements

CHASE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

In thousands, except share and per share amounts

May 31, 

August 31, 

 

2021

    

2020

 

ASSETS

Current Assets

Cash and cash equivalents

$

102,947

$

99,068

Accounts receivable, less allowance for doubtful accounts and credit losses of $434 and $438

45,515

36,993

Inventory

38,395

39,058

Prepaid expenses and other current assets

2,616

2,470

Prepaid income taxes

5,018

231

Total current assets

194,491

177,820

Property, plant and equipment, less accumulated depreciation of $52,263 and $52,283

24,685

25,574

Other Assets

Goodwill

98,457

82,402

Intangible assets, less accumulated amortization of $88,593 and $78,351

50,617

41,200

Cash surrender value of life insurance

4,450

4,450

Restricted investments

2,038

1,619

Deferred income taxes

4,856

4,929

Operating lease right-of-use asset (Note 8)

9,787

8,821

Other assets

853

15

Total assets

$

390,234

$

346,830

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable

$

16,419

$

12,525

Accrued payroll and other compensation

6,619

5,751

Accrued expenses

4,159

4,867

Total current liabilities

27,197

23,143

Operating lease long-term liabilities (Note 8)

7,601

6,395

Deferred compensation

2,045

1,629

Accumulated pension obligation

9,992

10,930

Other liabilities

2,939

Deferred income taxes

3,327

Accrued income taxes

1,847

1,941

Commitments and contingencies (Note 10)

Equity

First Serial Preferred Stock, $1.00 par value: Authorized 100,000 shares; NaN issued

Common stock, $.10 par value: Authorized 20,000,000 shares; 9,449,786 shares at May 31, 2021 and 9,439,082 shares at August 31, 2020 issued and outstanding

946

944

Additional paid-in capital

18,596

16,674

Accumulated other comprehensive loss

(9,262)

(13,092)

Retained earnings

325,006

298,266

Total equity

335,286

302,792

Total liabilities and equity

$

390,234

$

346,830

See accompanying notes to the condensed consolidated financial statements

4

CHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

In thousands, except share and per share amounts

Three Months Ended May 31, 

Nine Months Ended May 31, 

    

2021

    

2020

 

2021

    

2020

 

Revenue

Sales

$

78,822

$

64,157

$

212,533

$

194,540

Royalties and commissions

771

714

2,683

2,715

79,593

64,871

215,216

197,255

Costs and Expenses

Cost of products and services sold

46,312

39,689

126,832

122,138

Selling, general and administrative expenses

13,969

11,795

38,560

37,025

Research and product development costs

957

958

3,034

3,045

Operations optimization costs (Note 15)

22

268

120

977

Acquisition-related costs (Note 17)

20

128

153

Gain on sale of real estate (Note 15)

(760)

(760)

Loss (gain) on contingent consideration (Note 17)

262

995

Operating income

18,071

12,901

45,547

34,677

Interest expense

(68)

(67)

(204)

(178)

Other income (expense)

(260)

(307)

(758)

(1,096)

Income before income taxes

17,743

12,527

44,585

33,403

Income taxes (Note 14)

3,454

2,619

10,288

8,254

Net income

$

14,289

$

9,908

$

34,297

$

25,149

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

Basic

$

1.51

$

1.05

$

3.63

$

2.67

Diluted

$

1.50

$

1.04

$

3.61

$

2.64

Weighted average shares outstanding

Basic

9,386,814

9,363,559

9,381,433

9,357,176

Diluted

9,435,335

9,429,263

9,426,879

9,435,897

Annual cash dividends declared per share

$

0.80

$

0.80

See accompanying notes to the condensed consolidated financial statements

5

CHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

In thousands, except share and per share amounts

Three Months Ended May 31, 

Nine Months Ended May 31, 

    

2021

    

2020

 

2021

2020

 

Net income

$

14,289

    

$

9,908

$

34,297

$

25,149

Other comprehensive income (loss):

Net unrealized gain on restricted investments, net of tax

68

7

186

5

Change in funded status of pension plans, net of tax

124

185

371

444

Foreign currency translation adjustment

1,386

(1,077)

3,273

318

Total other comprehensive income (loss)

1,578

(885)

3,830

767

Comprehensive income

$

15,867

$

9,023

$

38,127

$

25,916

See accompanying notes to the condensed consolidated financial statements

6

CHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

THREE MONTHS ENDED MAY 31, 2021 AND 2020

(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 February 29, 2020

9,448,620

$

945

$

15,882

$

(14,060)

$

279,350

$

282,117

Restricted stock grants, net of forfeitures

(432)

Amortization of restricted stock grants

606

606

Amortization of stock option grants

231

231

Common stock retained to pay statutory minimum withholding taxes on common stock

(5,790)

(484)

(484)

Change in funded status of pension plans, net of tax $65

185

185

Foreign currency translation adjustment

(1,077)

(1,077)

Net unrealized gain (loss) on restricted investments, net of tax $4

7

7

Net income

9,908

9,908

Balance at May 31, 2020

9,442,398

$

945

$

16,235

$

(14,945)

$

289,258

$

291,493

Balance at February 28, 2021

9,448,371

$

946

$

17,721

$

(10,840)

$

310,717

$

318,544

Amortization of restricted stock grants

600

600

Amortization of stock option grants

195

195

Exercise of stock options

2,149

166

166

Common stock received for payment of stock option exercises

(689)

(80)

(80)

Common stock retained to pay statutory minimum withholding taxes on common stock

(45)

(6)

(6)

Change in funded status of pension plans, net of tax $41

124

124

Foreign currency translation adjustment

1,386

1,386

Net unrealized gain (loss) on restricted investments, net of tax $24

68

68

Net income

14,289

14,289

Balance at May 31, 2021

9,449,786

$

946

$

18,596

$

(9,262)

$

325,006

$

335,286

See accompanying notes to the condensed consolidated financial statements

7

CHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

NINE MONTHS ENDED MAY 31, 2021 AND 2020

(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, 2019

9,400,748

$

940

$

14,351

$

(14,324)

$

270,260

$

271,227

Restricted stock grants, net of forfeitures

44,879

5

(5)

Amortization of restricted stock grants

1,686

1,686

Amortization of stock option grants

687

687

Exercise of stock options

3,618

123

123

Common stock received for payment of stock option exercises

(1,057)

(123)

(123)

Common stock retained to pay statutory minimum withholding taxes on common stock

(5,790)

(484)

(484)

Cash dividend on common stock, $0.80 per share

(7,539)

(7,539)

Change in funded status of pension plans, net of tax $156

444

444

Foreign currency translation adjustment

318

318

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

5

5

Adoption of ASU 2018-02

(1,388)

1,388

Net income

25,149

25,149

Balance at May 31, 2020

9,442,398

$

945

$

16,235

$

(14,945)

$

289,258

$

291,493

Balance at August 31, 2020

9,439,082

$

944

$

16,674

$

(13,092)

$

298,266

$

302,792

Restricted stock grants, net of forfeitures

10,693

2

(2)

Amortization of restricted stock grants

1,789

1,789

Amortization of stock option grants

420

420

Exercise of stock options

4,681

207

207

Common stock received for payment of stock option exercises

(1,075)

(121)

(121)

Common stock retained to pay statutory minimum withholding taxes on common stock

(3,595)

(371)

(371)

Cash dividend on common stock, $0.80 per share

(7,557)

(7,557)

Change in funded status of pension plans, net of tax $124

371

371

Foreign currency translation adjustment

3,273

3,273

Net unrealized gain (loss) on restricted investments, net of tax $63

186

186

Net income

34,297

34,297

Balance at May 31, 2021

9,449,786

$

946

$

18,596

$

(9,262)

$

325,006

$

335,286

See accompanying notes to the condensed consolidated financial statements

8

CHASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

In thousands

Nine Months Ended May 31, 

    

2021

    

2020

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

34,297

$

25,149

Adjustments to reconcile net income to net cash provided by operating activities

Gain on sale of real estate

(760)

Depreciation

2,925

2,989

Amortization

9,566

8,724

Recovery of allowance for doubtful accounts and credit losses

(8)

(307)

Stock-based compensation

2,209

2,373

Realized gain on restricted investments

(54)

(32)

Pension curtailment and settlement loss

75

Deferred taxes

(15)

Increase (decrease) from changes in assets and liabilities

Accounts receivable

(6,946)

3,656

Inventory

2,062

1,835

Prepaid expenses and other assets

(260)

(154)

Accounts payable

3,049

(183)

Accrued compensation and other expenses

1,044

(1,263)

Accrued income taxes

(4,884)

578

Net cash provided by operating activities

43,000

42,665

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property, plant and equipment

(1,749)

(1,044)

Payments for acquisitions

(31,238)

Proceeds from sale of real estate

1,810

Changes in restricted investments

(119)

(115)

Net cash (used in) provided by investing activities

(33,106)

651

CASH FLOWS FROM FINANCING ACTIVITIES

Dividend paid

(7,557)

(7,539)

Proceeds from exercise of common stock options

86

Payments of taxes on stock options and restricted stock

(371)

(484)

Net cash used in financing activities

(7,842)

(8,023)

INCREASE IN CASH & CASH EQUIVALENTS

2,052

35,293

Effect of foreign exchange rates on cash

1,827

195

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

99,068

47,771

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

102,947

$

83,259

Non-cash Investing and Financing Activities

Common stock received for payment of stock option exercises

$

121

$

123

Property, plant and equipment additions included in accounts payable

$

141

$

236

See accompanying notes to the condensed consolidated financial statements

9

CHASE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In thousands, except share and per share amounts

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. The Company’s strategy is to maximize the performance of its core businesses and brands while seeking future opportunities through strategic acquisitions. Through investments in facilities, systems and organizational consolidation, the Company seeks 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 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, 2020 in conjunction with its 2020 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 May 31, 2021 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, 2020 which are contained in the Company’s 2020 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 May 31, 2021, and the results of its operations, comprehensive income, changes in equity and cash flows for the interim periods ended May 31, 2021 and 2020.

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 (including ABchimie acquired September 1, 2020) 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 Chase Corporation’s 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 ($241) and ($678) for the three- and nine-month periods ended May 31, 2021, respectively, and $155 and ($451) for the three- and nine-month periods ended May 31, 2020, respectively.

10

Other Business Developments

During the third quarter of fiscal 2021, Chase announced to the employees at its Woburn, MA location that its adhesives systems operations, part of the Adhesive, Sealants and Additives segment’s electronic and industrial coatings product line, would be consolidating into the Company’s existing O'Hara Township, PA location. This rationalization and consolidation initiative-related announcement aligns with the second quarter announcement of the Company’s plan to move its sealant systems production from Newark, CA to its location in Hickory, NC, described in more detail below. Chase Corporation obtained both the adhesive and sealants systems as part of its fiscal 2017 acquisition of the operations of Resin Designs. No expense was recognized related to this initiative during the third fiscal quarter, with the majority of future costs anticipated to occur in the first half of fiscal 2022.

On February 5, 2021, the Company acquired certain assets of Emerging Technologies, Inc. (“ETi”), a superabsorbent polymers solutions provider, located in Greensboro, NC. The business was acquired for a purchase price of $9,997, comprising $8,997 paid on February 5, 2021 and an accrual of $1,000 to be paid out up to eighteen months after purchase, subsequent to final working capital adjustments, and excluding acquisition-related costs. As part of this transaction, Chase acquired substantially all working capital and fixed assets of the business and entered a multi-year lease at ETi’s existing location. The Company expensed $128 of acquisition-related costs during the three-month period ended February 28, 2021 associated with this acquisition. The purchase was funded with available cash on hand. ETi is a solutions provider and formulator of absorbent polymers for use in the packaging, recreational, consumer, and sanitation markets. The acquisition broadens the Company’s superabsorbent polymers product offerings and formulation capabilities while expanding its market reach. The Company is currently in the process of finalizing purchase accounting, regarding a final allocation of the purchase price to tangible and identifiable intangible assets assumed, and anticipates completion within fiscal 2021. Since the effective date of the acquisition, the financial results of ETi’s acquired operations have been included in the Company’s financial statements within the functional additives product line, contained within the Adhesives, Sealants and Additives operating segment. See Note 17 to the condensed consolidated financial statements for additional information on the acquisition of the assets and operations of ETi.

During the second quarter of fiscal 2021, Chase began moving the sealant systems operations, part of the Adhesive, Sealants and Additives segment’s electronic and industrial coatings product line, from its Newark, CA 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. The sealant systems operations and Newark, CA location came to Chase Corporation as part of the fiscal 2017 acquisition of the operations of Resin Designs, and the Company’s lease there terminates in the current fiscal year. The Company recognized $22 and $120 in expense related to the move in the three-month and nine-month periods ended May 31, 2021.

On September 1, 2020 (the first day of fiscal 2021), the Company acquired all the capital stock of ABchimie for €18,654 (approximately $22,241 at the time of the transaction) net of cash acquired, subsequent to final working capital adjustment, excluding acquisition-related costs totaling $274 recognized in fiscal 2020 (with $20 and $153 recognized in the three and nine months ended May 31, 2020, respectively) and with a potential earn out based on performance potentially worth an additional €7,000 (approximately $8,330 at the time of the transaction). ABchimie is a Corbelin, France headquartered solutions provider for the cleaning and protection of electronic assemblies, with ‎further formulation, production, and research and development capabilities‎. The transaction was funded with cash on hand. The financial results of the business were included in the Company's fiscal 2021 financial statements within the Adhesives, Sealants and Additives operating segment in the electronic and industrial coatings product line. The Company is currently in the process of finalizing purchase accounting regarding a final allocation of the purchase price to tangible and identifiable intangible assets assumed, including finalizing the recording of deferred taxes, and anticipates completion within fiscal 2021. See Note 17 to the condensed consolidated financial statements for additional information on the acquisition of ABchimie.

11

The Company’s second quarter of fiscal 2020 (prior year) saw the beginning of the global spread of the coronavirus pandemic (COVID-19), which subsequently grew to create significant volatility, uncertainty, and global economic disruption. While the Company remains profitable with sufficient cash on hand to continue to meet its short- and long-term strategic objectives, COVID-19 continues to impact nearly all geographies served by the Company to varying degrees. Given the magnitude of the uncertainty that COVID-19 has broadly placed on global markets, the pandemic’s long-term effects on the Company’s results and the Company’s ability to maintain service levels cannot currently be estimated. The Company will continue to assess the situation and take the appropriate actions to address the impact of COVID-19 on its operations.

During the first quarter of fiscal 2020, the Company commissioned third party led studies regarding the potential upgrading of the Company’s current worldwide ERP system. 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 the facilities rationalization and consolidation initiative. The Company recognized $150 in expense related to these services in the first nine months of fiscal 2020, with nothing recognized in the first nine months of fiscal 2021. Given the ongoing nature of the review, an estimate of future costs, including those that may be capitalized, cannot currently be determined.

During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations from 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 $559 in expense related to the move in the six-month period ended February 29, 2020, having recognized $526 in expense during the second half of fiscal 2019. This project is now substantively complete, and no costs were recognized in the second half of fiscal 2020 or in the nine months ended May 31, 2021, and any future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.

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, 2020. Significant changes to these accounting policies as a result of adopting Accounting Standards Update ("ASU") No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” during the first quarter of fiscal 2021 are discussed within Note 2 —  “Recent Accounting Standards” within this Current Quarterly Report on Form 10-Q.

12

Note 2 — Recent Accounting Standards

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The ASU applies to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the ASU do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients and that are retained through the end of the hedging relationship. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. ASU 2020-04 has not had, and the Company does not expect it to have in future periods, a material impact on the Company's condensed consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU No. 2016-13, “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 2016-13. This amendment provides clarity and improves the codification to ASU 2016-13. The pronouncements are concurrently effective for fiscal years beginning after December 15, 2019 and interim periods therein. The Company adopted ASU 2016-13 on September 1, 2020, using the modified retrospective transition method which resulted in no material impact on the condensed consolidated financial statements.

As a result of the adoption of ASU 2016-13, the Company has updated its critical accounting policy related to trade account receivables and allowances for credit losses effective September 1, 2020 from the critical accounting policies previously disclosed in our audited financial statements for the year ended August 31, 2020 as follows:

All trade account receivables are reported net of allowances for credit losses. The allowances for credit losses represent management’s best estimate of the credit losses expected from our trade account receivables over the life of the underlying assets. Assets with similar risk characteristics are pooled together for determination of their current expected credit losses. The Company regularly performs detailed reviews of our pooled assets to evaluate the collectability of receivables based on a combination of past, current, and future financial and qualitative factors that may affect customers’ ability to pay. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected.

Note 3 — Inventory

Inventory consisted of the following as of May 31, 2021 and August 31, 2020:

May 31, 

August 31, 

    

    

2021

    

2020

Raw materials

$

21,534

$

18,993

Work in process

6,017

7,761

Finished goods

10,844

12,304

Total Inventory

$

38,395

$

39,058

13

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 May 31, 

Nine Months Ended May 31, 

 

    

2021

    

2020

    

2021

    

2020

 

Basic Earnings per Share

Net income

 

$

14,289

 

$

9,908

 

$

34,297

 

$

25,149

Less: Allocated to participating securities

94

86

239

201

Net income available to common shareholders

 

$

14,195

 

$

9,822

 

$

34,058

 

$

24,948

Basic weighted average shares outstanding

9,386,814

9,363,559

9,381,433

9,357,176

Net income per share - Basic

 

$

1.51

 

$

1.05

 

$

3.63

 

$

2.67

Diluted Earnings per Share

Net income

 

$

14,289

 

$

9,908

 

$

34,297

 

$

25,149

Less: Allocated to participating securities

94

86

239

201

Net income available to common shareholders

 

$

14,195

 

$

9,822

 

$

34,058

 

$

24,948

Basic weighted average shares outstanding

9,386,814

9,363,559

9,381,433

9,357,176

Additional dilutive common stock equivalents

48,521

65,704

45,446

78,721

Diluted weighted average shares outstanding

9,435,335

9,429,263

9,426,879

9,435,897

Net income per share - Diluted

 

$

1.50

 

$

1.04

 

$

3.61

 

$

2.64

Included in the calculation of dilutive common stock equivalents are the unvested portion of restricted stock and stock options. For the three-month and nine-month periods ended May 31, 2021, stock options to purchase 17,947 and 59,346 shares of common stock, respectively, were outstanding but were not included in the calculation of diluted income per share because their inclusion would be anti-dilutive. For the three-month and nine-month periods ended May 31, 2020, stock options to purchase 17,913 and 11,841 shares of common stock, respectively, were outstanding but were not included in the calculation of diluted income per share because their inclusion would be anti-dilutive.

14

Note 5 — Stock-Based Compensation

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 (a) a restricted stock grant of 7,386 shares in the aggregate (of which 3,697 included a performance-based vesting component and were subject to adjustment as discussed below), with a vesting date of August 31, 2022, and (b) options to purchase 13,418 shares of common stock in the aggregate with an exercise price of $100.22 per share, vesting in three equal annual installments ending on August 31, 2022.

Based on the fiscal year 2020 financial results, 387 shares of restricted stock already granted under the 2020 LTIP were forfeited following the end of fiscal year 2020 in accordance with the performance measurement criteria. No further performance-based measurements apply to this award. Compensation expense for the 2020 LTIP awards is recognized on a ratable basis over the vesting period.

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 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 aggregate with an exercise price of $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 ratable basis over the vesting period.

In August 2020, the Board of Directors of the Company approved the fiscal year 2021 Long Term Incentive Plan (“2021 LTIP”) for the executive officers and other members of management. The 2021 LTIP is an equity-based plan with a grant date of September 1, 2020 and initially contained the following equity components:

Restricted Shares — (a) a performance and service-based restricted stock grant of 3,798 shares in the aggregate, subject to adjustment based on fiscal 2021 results, with a vesting date of August 31, 2023. 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 4,919 shares in the aggregate, with a vesting date of August 31, 2023. Compensation expense is recognized on a ratable basis over the vesting period.

Stock options — options to purchase 14,845 shares of common stock in the aggregate with an exercise price of $97.57 per share. The options will vest in 3 equal annual installments beginning on August 31, 2021 and ending on August 31, 2023. Of the options granted, 5,391 options will expire on August 31, 2030, and 9,454 options will expire on September 1, 2030. Compensation expense is recognized over the period of the award consistent with the vesting terms.

In the first quarter of 2021, restricted stock in the amount of 952 shares related to the second quarter of fiscal 2020 grant was forfeited in conjunction with the termination of employment of non-executive members of management of the Company.

In December 2020, restricted stock in the amount of 110 shares were granted to certain non-employee members of the board of directors in relation to their service on the board. These shares vested during the second fiscal quarter of 2021.

In January 2021, restricted stock in the amount of 4,409 shares and options to purchase 18,129 shares of common stock were forfeited in conjunction with the termination without cause of a now former executive of the Company. Options to purchase an additional 306 shares of common stock were forfeited in April 2021 related to this same termination.

15

In February 2021, a performance and service-based restricted stock grant totaling 521 shares, a time-vesting restricted stock grant in the amount of 261 shares and options to purchase 749 shares of common stock with an exercise price of $104.04 per share were granted in conjunction with the appointment of a new executive of the Company. The restricted shares and stock options vest on the same terms as those granted under the 2021 LTIP in September 2020. Compensation expense is recognized over the period of the award consistent with the vesting terms.

In February 2021, as part of their standard compensation for board service, non-employee members of the Board received a total grant of 4,525 shares of restricted stock for service for the period from January 31, 2021 through January 31, 2022.  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.

In February 2021, restricted stock in the amount of 2,306 shares were granted to a consultant of the Company, with a two-year vesting term including continued service requirements. Compensation expense is recognized over the period of the award consistent with the vesting terms.

Note 6 — Segment Data and Foreign Operations

The Company is organized into 3 reportable operating segments: Adhesives, Sealants and Additives; Industrial Tapes; and Corrosion Protection and Waterproofing. The segments are distinguished by the nature of the products manufactured and how they are delivered to their respective markets.

The Adhesives, Sealants and Additives segment 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 cleaners, and customized sealant and adhesive systems for electronics, polymeric microspheres, polyurethane dispersions and superabsorbent polymers. Beginning September 1, 2020, the Adhesives, Sealants and Additives segment includes the acquired operations of ABchimie, within the electronic and industrial coatings product line and beginning February 5, 2021, the acquired operations of ETi, within the functional additives product line.

The Industrial Tapes segment features wire and cable materials, specialty tapes and other laminated and coated products. The segment derives its competitive advantage through its proven chemistries, its 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 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, laminated durable papers, laminates for the packaging and industrial laminate markets, custom 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.

The Corrosion Protection and Waterproofing segment is principally composed of project-oriented product offerings that are primarily sold and used as “Chase” branded products. 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 waterproofing and liquid storage applications, adhesives and sealants used in architectural and building envelope waterproofing applications, high-performance polymeric asphalt additives, and expansion joint systems for waterproofing applications in transportation and architectural markets. With sales generally dependent on outdoor project work, the segment experiences highly seasonal sales patterns.

16

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

Three Months Ended May 31, 

Nine Months Ended May 31, 

    

2021

    

2020

2021

    

2020

    

 

Revenue

Adhesives, Sealants and Additives

$

33,861

$

22,922

$

95,507

$

73,184

Industrial Tapes

32,249

31,752

87,085

91,931

Corrosion Protection and Waterproofing

13,483

10,197

32,624

32,140

Total

$

79,593

$

64,871

$

215,216

$

197,255

Income before income taxes

Adhesives, Sealants and Additives

$

10,982

(a)

$

6,704

$

31,098

(c)

$

20,936

Industrial Tapes

10,945

9,011

27,273

24,050

(e)

Corrosion Protection and Waterproofing

5,098

4,149

11,599

12,240

Total for reportable segments

27,025

19,864

69,970

57,226

Corporate and common costs

(9,282)

(7,337)

(b)

(25,385)

(d)

(23,823)

(f)

Total

$

17,743

$

12,527

$

44,585

$

33,403

Includes the following costs by segment:

Adhesives, Sealants and Additives

Interest

$

25

$

26

$

79

$

68

Depreciation

255

199

744

791

Amortization

2,715

2,340

7,931

7,033

Industrial Tapes

Interest

$

15

$

33

$

57

$

87

Depreciation

412

428

1,305

1,247

Amortization

387

450

1,160

1,350

Corrosion Protection and Waterproofing

Interest

$

28

$

8

$

68

$

23

Depreciation

157

144

432

449

Amortization

274

108

475

341

(a)Includes $262 in loss on the upward adjustment of the performance-based earn out contingent consideration associated with the September 2020 acquisition of ABchimie and $22 in exit costs related to the movement of the sealants system business out of the Newark, CA location and into the Hickory, NC location during the third quarter of fiscal 2021
(b)Includes $760 in gain related to the April 2020 sale of the Company’s Pawtucket, RI location, $183 in severance expense related to the May 2020 reduction in force, $85 in expenses related to the final transition out of the Pawtucket, RI facility, $75 of pension-related settlement costs due to the timing of lump-sum distributions and $20 in acquisition-related expense attributable to the September 2020 acquisition of ABchimie
(c)Includes $995 in loss on the upward adjustment of the performance-based earn out contingent consideration associated with the September 2020 acquisition of ABchimie and $120 in exit costs related to the movement of the sealants system business out of the Newark, CA location and into the Hickory, NC location during the first nine months of fiscal 2021
(d)Includes $128 in acquisition-related expense attributable to the February 2021 acquisition of the operations of ETi
(e)Includes $559 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 nine months of fiscal 2020
(f)Includes $150 of expense related to exploratory IT work performed to assess potential future upgrades to the companywide ERP system, a $760 gain related to the April 2020 sale of the Company’s Pawtucket, RI location, $183 in severance expense related to the May 2020 reduction in force, $85 in expenses related to the final transition out of the Pawtucket, RI facility, $75 of pension-related settlement costs due to the timing of lump-sum distributions and $153 in acquisition-related expense attributable to the September 2020 acquisition of ABchimie

17

Total assets for the Company’s reportable segments as of May 31, 2021 and August 31, 2020 were:

May 31, 

August 31, 

    

2021

    

2020

 

 

Total Assets

Adhesives, Sealants and Additives

$

166,085

$

129,457

Industrial Tapes

70,036

71,229

Corrosion Protection and Waterproofing

30,744

32,642

Total for reportable segments

266,865

233,328

Corporate and common assets

123,369

113,502

Total

$

390,234

$

346,830

The Company’s products are sold worldwide. Revenue for the three- and nine-month periods ended May 31, 2021 and 2020 was attributed to operations located in the following countries:

Three Months Ended May 31, 

Nine Months Ended May 31, 

2021

    

2020

2021

    

2020

Revenue

United States

$

67,264

$

56,177

$

178,635

$

171,774

United Kingdom

6,184

5,070

19,208

14,489

All other foreign (1)

6,145

3,624

17,373

10,992

Total

$

79,593

$

64,871

$

215,216

$

197,255

(1)Comprises sales originated from the Company’s French locations (including ABchimie for fiscal 2021), royalty revenue attributable to its licensed manufacturer in Asia, and Chase foreign manufacturing operations.

As of May 31, 2021 and 2020 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:

May 31, 

August 31, 

2021

    

2020

Long-Lived Assets

United States

Property, plant and equipment, net

$

21,199

$

22,427

Goodwill and Intangible assets, less accumulated amortization

118,789

117,930

United Kingdom

Property, plant and equipment, net

2,352

2,320

Goodwill and Intangible assets, less accumulated amortization

4,192

4,403

All other foreign

Property, plant and equipment, net

1,134

827

Goodwill and Intangible assets, less accumulated amortization

26,093

1,269

Total

Property, plant and equipment, net

$

24,685

$

25,574

Goodwill and Intangible assets, less accumulated amortization

$

149,074

$

123,602

18

Note 7 — Goodwill and Other Intangibles

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

    

Adhesives, Sealants and Additives

    

Industrial Tapes

    

Corrosion Protection and Waterproofing

    

Consolidated

 

Balance at August 31, 2020

$

50,487

$

21,215

$

10,700

$

82,402

Acquisition of ABchimie

13,055

13,055

Acquisition of Emerging Technologies, Inc.

2,451

2,451

Foreign currency translation adjustment

536

13

549

Balance at May 31, 2021

$

66,529

$

21,215

$

10,713

$

98,457

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 3 reporting units, corresponding to its 3 operating segments, that are used to evaluate the possible impairment of goodwill. 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, including the anticipated future impact of the coronavirus disease 2019 (COVID-19) pandemic. 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.

The Company has adopted ASU No. 2017-04 “Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment.” The Company assesses 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.

Intangible assets subject to amortization consisted of the following as of May 31, 2021 and August 31, 2020:

Weighted Average

Gross Carrying

Accumulated

Net Carrying

    

Amortization Period

    

Value

    

Amortization

    

Value

 

May 31, 2021

Patents and agreements

14.6

years  

$

1,760

$

1,713

$

47

Formulas and technology

7.9

years  

11,042

9,654

1,388

Trade names

5.9

years  

8,871

8,191

680

Customer lists and relationships

9.2

years  

117,537

69,035

48,502

$

139,210

$

88,593

$

50,617

August 31, 2020

Patents and agreements

14.6

years  

$

1,760

$

1,705

$

55

Formulas and technology

7.8

years  

10,250

9,121

1,129

Trade names

5.8

years  

8,575

7,781

794

Customer lists and relationships

9.1

years  

98,966

59,744

39,222

$

119,551

$

78,351

$

41,200

19

Aggregate amortization expense related to intangible assets for the nine months ended May 31, 2021 and 2020 was $9,566 and $8,724 respectively. Estimated amortization expense for the remainder of fiscal year 2021 and for the next five years is as follows:

Years ending August 31,

    

2021 (remaining 3 months)

$

3,335

2022

11,862

 

2023

8,746

2024

7,538

2025

5,939

2026

5,144

Note 8 — Leases

Effective September 1, 2019 (the start of 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. The Company has elected to apply the ‘package of practical expedients’ which allows it 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.

At the inception of an 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 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 renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

The following table presents the right-of-use asset and short-term and long-term lease liabilities amounts recorded on the condensed consolidated balance sheet as of May 31, 2021 and August 31, 2020:

May 31, 

August 31,

2021

2020

Assets

    

    

Operating lease right-of-use asset

$

9,787

$

8,821

Liabilities

Current (accrued expense)

$

1,584

$

1,865

Operating lease long-term liabilities

7,601

6,395

Total lease liability

$

9,185

$

8,260

20

Lease cost

 

The components of lease costs for the three and nine months ended May 31, 2021 and 2020 are as follows:

Three Months Ended May 31,

Nine Months Ended May 31,

2021

2020

2021

2020

Operating lease cost (a)

$

911

$

952

$

2,833

$

2,802

(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 May 31, 2021 was as follows:

Future Operating

Year ending August 31,

    

Lease Payments

2021 (remaining 3 months)

$

469

2022

1,718

2023

1,564

2024

1,487

2025

1,326

2026 and thereafter

3,380

Less: Interest

(759)

Present value of lease liabilities

$

9,185

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

May 31, 

August 31,

2021

2020

Lease Term and Discount Rate

    

    

Weighted average remaining lease term (years)

Operating leases

7.0

5.5

Weighted average discount rate (percentage)

Operating leases

3.1

%

3.1

%

Other Information

 

Supplemental cash flow information related to leases is as follows:

Nine Months Ended May 31,

2021

2020

Operating cash outflows from operating leases

$

1,797

$

1,818

Total cash paid for amounts included in the measurement of lease liabilities

$

1,797

$

1,818

21

Note 9 — Revenue from Contracts with Customers

The Company accounts for revenue in accordance with ASC 606, “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 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 contractual terms with customers. Revenue is generally recognized at a point in time when control passes upon either shipment to or 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 analyzes several factors, including but not limited to the nature of the products being sold and contractual terms and conditions in contracts with customers, to help the Company make such judgments about revenue recognition.

Contract Balances

The Company’s contract assets primarily relate to unbilled revenue for products currently in production at the Company’s facilities and which 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.

Contract assets are included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheet. The following table presents contract assets by reportable operating segment as of May 31, 2021 and August 31, 2020:

May 31, 

August 31,

    

2021

    

2020

Contract Assets

Adhesives, Sealants and Additives

$

13

$

20

Industrial Tapes

46

21

Corrosion Protection and Waterproofing

86

41

Total

$

145

$

82

The Company did 0t have any contract liabilities as of May 31, 2021 and August 31, 2020.

22

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 nine months ended May 31, 2021 and 2020 was as follows:

Three Months Ended May 31, 2021

Adhesives, Sealants

Industrial

Corrosion Protection

Consolidated

and Additives

    

Tapes

and Waterproofing

Revenue

Revenue

North America

$

20,497

$

28,620

$

11,631

$

60,748

Asia

7,030

2,019

1,023

10,072

Europe

6,167

1,009

746

7,922

All other foreign

167

601

83

851

Total Revenue

$

33,861

$

32,249

$

13,483

$

79,593

Nine Months Ended May 31, 2021

Adhesives, Sealants

Industrial

Corrosion Protection

Consolidated

and Additives

    

Tapes

and Waterproofing

Revenue

Revenue

North America

$

56,606

$

76,429

$

27,062

$

160,097

Asia

21,958

5,855

3,592

31,405

Europe

16,497

3,061

1,823

21,381

All other foreign

446

1,740

147

2,333

Total Revenue

$

95,507

$

87,085

$

32,624

$

215,216

Three Months Ended May 31, 2020

Adhesives, Sealants

Industrial

Corrosion Protection

Consolidated

and Additives

    

Tapes

and Waterproofing

Revenue

Revenue

North America

$

15,094

$

28,137

$

7,635

$

50,866

Asia

4,541

2,239

1,737

8,517

Europe

3,201

840

750

4,791

All other foreign

86

536

75

697

Total Revenue

$

22,922

$

31,752

$

10,197

$

64,871

Nine Months Ended May 31, 2020

Adhesives, Sealants

Industrial

Corrosion Protection

Consolidated

and Additives

    

Tapes

and Waterproofing

Revenue

Revenue

North America

$

49,135

$

81,811

$

25,323

$

156,269

Asia

13,268

5,642

4,419

23,329

Europe

10,422

2,386

2,201

15,009

All other foreign

359

2,092

197

2,648

Total Revenue

$

73,184

$

91,931

$

32,140

$

197,255

23

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 it assesses the likelihood of loss as probable.

Note 11 — Pensions and Other Postretirement Benefits

The components of net periodic benefit cost for the three and nine months ended May 31, 2021 and 2020 were as follows:

Three Months Ended May 31, 

Nine Months Ended May 31, 

    

2021

    

2020

 

2021

    

2020

    

 

Components of net periodic benefit cost

Service cost

$

91

$

74

$

274

$

221

Interest cost

86

112

256

338

Expected return on plan assets

(97)

(98)

(293)

(294)

Amortization of prior service cost

1

1

3

3

Amortization of accumulated loss

164

174

492

522

Curtailment and settlement loss

75

75

Net periodic benefit cost

$

245

$

338

$

732

$

865

When funding is required, the Company’s policy is to contribute amounts that are deductible for federal income tax purposes. The Company has made contributions of $1,174 in the nine months ended May 31, 2021 to fund its obligations under its pension plans, and plans to make the necessary contributions over the remainder of fiscal 2021 to ensure the qualified plan continues to be adequately funded given the current market conditions, including conditions related to the coronavirus disease 2019 (COVID-19) pandemic. The Company made contributions of $1,170 in the nine months ended May 31, 2020.

24

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 May 31, 2021 and August 31, 2020 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 May 31, 2021 and August 31, 2020:

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)

 

Assets:

Restricted investments

May 31, 2021

$

2,038

$

1,796

$

242

$

Restricted investments

August 31, 2020

$

1,619

$

1,395

$

224

$

The following table presents the fair value of the Company’s liabilities that are accounted for at fair value on a recurring basis as of May 31, 2021 and August 31, 2020:

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

May 31, 2021

$

$

$

$

Contingent consideration

May 31, 2021

$

1,939

$

$

$

1,939

Long-term debt

August 31, 2020

$

$

$

$

Contingent consideration

August 31, 2020

$

$

$

$

The long-term debt (including any current portion of long-term debt) had 0 outstanding balance as of May 31, 2021 and August 31, 2020. 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.

In connection with accounting for the ABchimie acquisition on September 1, 2020, the Company recorded a contingent consideration liability included within Other liabilities on the condensed consolidated balance sheet of €780 (approximately $928) on the acquisition date, representing the fair value of contingent consideration payable upon the achievement of a performance-based target. The contingent consideration liability was valued using a Monte Carlo simulation model in an option pricing framework based on key inputs that are not all observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company assesses the fair value of the contingent consideration liability at each reporting period. Any subsequent changes in the estimated fair value of the liability are reflected in Loss (gain) on contingent consideration on the condensed consolidated statement of operations until the liability is settled. As of May 31, 2021, the liability increased to $1,939 predominantly due to changes in non-market data assumptions as well as a shorter period to the payment date. See Note 17 to the condensed consolidated financial statements for additional information on the acquisition of ABchimie.

25

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

Restricted

Status of

Translation

    

Investments

    

Pension Plans

    

Adjustment

    

Total

 

Balance at August 31, 2019

$

154

$

(6,271)

$

(8,207)

$

(14,324)

Other comprehensive gains (losses) before reclassifications (1)

29

318

347

Reclassifications to net income of previously deferred (gains) losses (2)

(24)

444

420

Other comprehensive income (loss)

5

444

318

767

Adoption of ASU 2018-02

(1,388)

(1,388)

Balance at May 31, 2020

$

159

$

(7,215)

$

(7,889)

$

(14,945)

Balance at August 31, 2020

$

269

$

(8,317)

$

(5,044)

$

(13,092)

Other comprehensive gains (losses) before reclassifications (3)

226

3,273

3,499

Reclassifications to net income of previously deferred (gains) losses (4)

(40)

371

331

Other comprehensive income (loss)

186

371

3,273

3,830

Balance at May 31, 2021

$

455

$

(7,946)

$

(1,771)

$

(9,262)

(1)Net of tax benefit of $11, $0 and $0, respectively.
(2)Net of tax expense of $8, tax benefit of $156 and $0, respectively.
(3)Net of tax benefit of $77, $0 and $0, respectively.
(4)Net of tax expense of $14, tax benefit of $124 and $0, respectively.

26

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

Income (Loss) into Income

Three Months Ended May 31, 

Nine Months Ended May 31, 

Location of Gain (Loss) Reclassified from Accumulated

    

    

  

2021

  

2020

  

  

2021

  

2020

Other Comprehensive Income (Loss) into Income

 

Gains on Restricted Investments:

Realized loss (gain) on sale of restricted investments

$

(5)

$

(4)

$

(54)

$

(32)

Selling, general and administrative expenses

Tax expense (benefit)

1

1

14

8

Gain net of tax

$

(4)

$

(3)

$

(40)

$

(24)

Loss on Funded Pension Plan adjustments:

Amortization of prior pension service costs and unrecognized losses

165

175

495

525

Other income (expense)

Settlement and curtailment loss

75

75

Other income (expense)

Tax expense (benefit)

(41)

(65)

(124)

(156)

Loss net of tax

$

124

$

185

$

371

$

444

Total net loss reclassified for the period

$

120

$

182

$

331

$

420

27

Note 14 — Income Taxes

For the three and nine months ended May 31, 2021, the Company’s recognized effective tax rate was 19.5% and 23.1%, respectively. For the three and nine months ended May 31, 2020, the Company’s recognized and effective tax rate was 20.9% and 24.7%, respectively.

The Company has applied the U.S. statutory Federal rate of 21%, enacted as part of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017, for both the quarters and nine-month periods ended May 31, 2021 and 2020.

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 quarters and nine-month periods ended May 31, 2021 and 2020. Additionally, the Company concluded that the Base Erosion and Anti Abuse Tax (“BEAT”) provision of the Tax Act, which also became applicable to the Company in fiscal 2019, had no effect on its effective tax rate for the nine-month periods ended May 31, 2021 and 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, included a technical correction to the Tax Act which will allow accelerated deductions for qualified improvement property. The Company is currently evaluating the impact of the CARES Act, but at present does not expect that the qualified improvement property correction or other provisions of the CARES Act will result in a material tax benefit in future periods. The CARES Act had no material effect on the effective tax rate for the first nine months of fiscal 2021 or 2020.

In July 2020, the United States Internal Revenue Service (“IRS”) released final regulations (TD 9901) that ease documentation standards and provide greater flexibility for taxpayers claiming the deduction for Foreign-Derived Intangible Income (“FDII”). During both the three and nine months ended May 31, 2021, the Company’s effective tax rate included an FDII deduction benefit of $1,696. Also during the three and nine months ended May 31, 2021, the Company favorably resolved multiple uncertain tax positions and established international management fee charges which resulted in $933 of tax benefit and $1,229 of tax expense, respectively.

Note 15 — Operations Optimization Costs

Relocation of Adhesives Systems Manufacturing to O'Hara Township, PA

During the third quarter of fiscal 2021, Chase announced to the employees at its Woburn, MA location that its adhesives systems operations, part of the Adhesives, Sealants and Additives segment’s electronic and industrial coatings product line, would be consolidating into the Company’s existing O'Hara Township, PA location. This rationalization and consolidation initiative-related announcement aligns with the second quarter announcement of the Company’s plan to move its sealant systems production from Newark, CA to its location in Hickory, NC, described in more detail below. Chase Corporation obtained both the adhesive and sealants systems as part of its fiscal 2017 acquisition of the operations of Resin Designs. No expense was recognized related to this initiative during the third fiscal quarter, with the majority of future costs anticipated to occur in the first half of fiscal 2022.

Relocation of Sealants Systems Manufacturing to Hickory, NC

During the second quarter of fiscal 2021, Chase began moving the sealant systems operations, part of the Adhesives, Sealants and Additives segment’s electronic and industrial coatings product line, from its Newark, CA 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. The sealant systems operations and Newark, CA location came to Chase Corporation as part of the fiscal 2017 acquisition of the operations of Resin Designs, and the Company’s lease there terminates in the current fiscal year. The Company recognized $22 and $120 in expense related to the move in the three-month and nine-month periods, respectively, ended May 31, 2021.

28

COVID-19 Related Cost Structure Changes

During the third fiscal quarter of 2020 (prior year), the Company implemented changes in its cost structure designed to address market changes brought on, in part, by COVID-19. These changes included a targeted reduction of approximately 4.5% of the Company’s global workforce. This reduction, which was contemplated pre-pandemic but catalyzed by COVID-19, resulted in the recognition of $183 in severance costs during the third quarter of 2020. The reduction in force, which impacted operations in the Blawnox, PA, Hickory, NC, Lenoir, NC, Evanston, IL, Oxford, MA and Westwood, MA facilities, was effective May 7, 2020.

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

 

During the first quarter of fiscal 2020, the Company commissioned third party led studies regarding the potential upgrading of the Company’s current worldwide ERP system. 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 its facilities rationalization and consolidation initiative. The Company recognized $150 in expense related to these services in the first nine months of fiscal 2020, with nothing recognized in the first nine months of fiscal 2021. 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 from 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 $559 in expense related to the move in the six-month period ended February 29, 2020, having recognized $526 in expense during the second half of fiscal 2019. This project is now substantively complete, and 0 costs were recognized in the second half of fiscal 2020 or the nine months ended May 31, 2021, and any future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.

Closure and Sale 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. The Company completed the sale of its Pawtucket, RI location to a third-party in April 2020, for net proceeds totaling $1,810. This transaction resulted in a gain of $760 which was recorded during the third quarter of fiscal 2020. Also, during the third quarter of fiscal 2020, the Company recognized $85 in final Pawtucket, RI transition and exit costs, with no further costs related to this initiative anticipated in future periods.

29

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 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 second quarter of fiscal 2022). The Credit Agreement contains customary affirmative and negative covenants that, among other things, restrict the Company’s ability to incur additional indebtedness and require lender approval for acquisitions by the Company and its subsidiaries over a certain size. It also requires the Company to maintain certain financial ratios, 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. The Company was compliant with its debt covenants as of May 31, 2021. The Credit Agreement is guaranteed by all of Chase’s direct and indirect domestic subsidiaries, which collectively had a carrying value of $271,705 at May 31, 2021. The Company entered into the Credit Agreement both to refinance its previously 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 May 31, 2021, there was 0 outstanding principal balance, and therefore 0 applicable interest 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.

The Company expects to renew this facility, or enter into a new facility, prior to its expiration to maintain Chase’s ability to support its strategic initiatives.

30

Note 17 – Acquisitions

Acquisition of Emerging Technologies, Inc.

On February 5, 2021, the Company acquired certain assets of Emerging Technologies, Inc. (“ETi”), a superabsorbent polymers solutions provider, located in Greensboro, NC. The business was acquired for a purchase price of $9,997, comprising $8,997 paid on February 5, 2021 and an accrual of $1,000 to be paid out up to eighteen months after the purchase, subsequent to final working capital adjustments, and excluding acquisition-related costs. As part of this transaction, Chase acquired substantially all working capital and fixed assets of the business and entered a multi-year lease at ETi’s existing location. The Company expensed $128 of acquisition-related costs during the three-month period ended February 28, 2021 associated with this acquisition. The purchase was funded with available cash on hand. ETi is a solutions provider and formulator of absorbent polymers for use in the packaging, recreational, consumer, and sanitation markets. The acquisition broadens the Company’s superabsorbent polymers product offerings and formulation capabilities while expanding its market reach. The Company is currently in the process of finalizing purchase accounting regarding a final allocation of the purchase price to tangible and identifiable intangible assets assumed, and anticipates completion within fiscal 2021. Since the effective date of the acquisition, the financial results of ETi’s acquired operations have been included in the Company’s financial statements within the functional additives product line, contained within the Adhesives, Sealants and Additives operating segment. The ETi acquisition does not represent a significant business combination so pro forma financial information is not provided.

The excess of the purchase price over the net tangible and intangible assets acquired resulted in preliminary goodwill of $2,451 that is largely attributable to the synergies and economies of scale from combining the operations, technologies and research and development capabilities of ETi and Chase, particularly as they pertain to the expansion of the Company's product and service offerings, the established workforce and marketing efforts. This goodwill is deductible for income tax purposes.

Acquisition of ABchimie

On September 1, 2020 (first day of fiscal 2021), the Company acquired all the capital stock of ABchimie for €18,654 (approximately $22,241 at the time of the transaction) net of cash acquired, subsequent to final working capital adjustment, excluding acquisition-related costs totaling $274 recognized in fiscal 2020 (with $20 and $153 recognized in the three- and nine-month periods ended May 31, 2020) and with a performance-based earn out potentially worth an additional €7,000 (approximately $8,330 at the time of the transaction). The Company accrued $1,939 at May 31, 2021 within Other liabilities on the condensed consolidated balance sheet related to its current estimate of the earn out. Following its initial recording at the acquisition date, a $262 and $995 increase in the performance-based earn out accrual was recorded within Loss (gain) on contingent consideration in the condensed consolidated statement of operations for the three and nine months ended May 31, 2021, respectively. ABchimie is a Corbelin, France headquartered solutions provider for the cleaning and protection of electronic assemblies, with ‎further formulation, production, and research and development capabilities‎. The transaction was funded with available cash on hand. The financial results of the business are included in the Company's fiscal 2021 financial statements within the Adhesives, Sealants and Additives operating segment in the electronic and industrial coatings product line. The Company is currently in the process of finalizing purchase accounting, regarding a final allocation of the purchase price to tangible and identifiable intangible assets assumed, including finalizing the recording of deferred taxes, and anticipates completion within fiscal 2021. The ABchimie acquisition does not represent a significant business combination so pro forma financial information is not provided.

The excess of the purchase price over the net tangible and intangible assets acquired resulted in goodwill preliminarily measured at $13,055 that is largely attributable to the synergies and economies of scale from combining the operations, technologies and research and development capabilities of ABchimie and Chase, particularly as they pertain to the expansion of the Company's product and service offerings, the established workforce and marketing efforts. A portion of this goodwill is deductible in the U.S. for calculation of GILTI period costs but is nondeductible for French income tax purposes.

31

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, 2020.

Overview

General

Strong revenue in the quarter and nine-month period ended May 31, 2021 resulted in improvements in operating income and net income compared to the prior year periods. All three of Chase Corporation’s operating segments achieved top-line improvement over the COVID-19 affected third quarter of fiscal 2020. The Adhesives, Sealants and Additives segment led the improvement by achieving both organic and inorganic growth, with sales into automotive, industrial, medical and consumer markets, and continued an upward trajectory in international markets. The results of both the Company’s current year acquisitions (the February 2021 acquisition of the operations of Emerging Technologies, Inc. (“ETi”) and the September 2020 acquisition of ABchimie) are reported under the Adhesives, Sealants and Additives segment and combined provided accretive results for both the quarter and year-to-date period. The Industrial Tapes and Corrosion Protection and Waterproofing segments achieved recovery in sales over the prior year. The Corrosion Protection and Waterproofing sales in the third quarter brought the year-to-date total over the prior year-to-date period with domestic waterproofing projects work leading the rebound. However, challenges resulting from the global economic disruptions caused by the COVID-19 pandemic during the first nine months of fiscal 2021 resulted in the Industrial Tapes segment unable to surpass prior year sales results on a year-to-date basis. All of Chase Corporation’s segments are subject to current global raw material inflationary pressures and supply chain challenges, and the Company, in line with customer agreements, is addressing this by instituting customer price adjustments across impacted product lines in an effort to protect gross margins.

Business Development

During the third quarter of fiscal 2021, Chase announced to the employees at its Woburn, MA location that its adhesives systems operations would be consolidating into the Company’s existing O'Hara Township, PA location. This rationalization and consolidation initiative-related announcement aligns with the second quarter announcement of the Company’s plan to move its sealant systems production from Newark, CA to its location in Hickory, NC. Chase Corporation obtained both the adhesive and sealants systems as part of its fiscal 2017 acquisition of the operations of Resin Designs.

On February 5, 2021, the Company acquired certain assets of Emerging Technologies, Inc. (“ETi”), a Greensboro, NC-located solutions provider and formulator of absorbent polymers for use in the packaging, recreational, consumer, and sanitation markets. Following its fiscal 2018 acquisition of Zappa Stewart, the acquisition of ETi expands Chase Corporation’s market share in the growing superabsorbent polymers vertical. This second quarter acquisition comes following the September 1, 2020 purchase of ABchimie, a Corbelin, France-headquartered solutions provider for the cleaning and protection of electronic assemblies, with additional formulation, production, and research and development capabilities. Both the fiscal 2021 acquisitions were funded with available cash on hand and broaden the Company’s specialty chemical offerings within the Adhesives, Sealants, and Additives reporting segment with high performance, environmentally-friendly technologies that are complementary to Chase’s existing product offerings.

32

Revenue by Segment

Chase Corporation has three reportable operating segments as summarized below:

Segment

    

Product Lines

    

Manufacturing Focus and Products

Adhesives, Sealants and Additives

Electronic and Industrial Coatings
Functional Additives (1)

Protective coatings, including moisture protective coatings and cleaning chemistries, 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 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.

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)Formerly referred to as the specialty chemical intermediates product line

Revenue from the Adhesives, Sealants and Additives segment increased for the third quarter and year-to-date period versus the prior year. Driven by Asian and European markets showing growth and the inorganic boost provided by the acquired operations of ABchimie, sales volumes within the electronic and industrial coatings product line increased. The Company’s North American-focused functional additives product line sales also experienced both organic and inorganic volume growth over both the comparative periods, with the operations of ETi added to the product line following its February 5, 2021 acquisition.

Sales showed recovery in the Industrial Tapes segment for the quarter ended May 31, 2021 over the COVID-19 impacted third quarter of the prior year, but remained below the prior year for the nine-month period ended May 31, 2021, with the cable materials, specialty products and pulling and detection product lines driving the top-line remission for the year-to-date period. The cable materials, specialty products and pulling and detection product lines all have a North American concentration, with the specialty products sales reductions further impacted in the year-to-date period by the Company’s prior year planned exit from providing low margin transitional toll manufacturing services to the purchaser of the structural composites rod and the fiber optical cable components businesses. By contrast, for the third quarter of fiscal 2021 the specialty products, pulling and detection and cable materials product lines had sales up from the prior year period. The Company’s electronic materials product line, which sells nearly exclusively to Asian markets, saw a sales volume decrease for the current year third quarter, but remained above the prior year on a year-to-date basis.

The Corrosion Protection and Waterproofing segment’s sales increased compared to both the third quarter and the first nine months of the prior year. The coating and lining systems and building envelope product lines were favorable to the prior year for both the current quarter and year-to-date period, with the pipeline coatings product line favorable for the third quarter, but remaining behind on a year-to-date basis. The bridge and highway product line sales were unfavorable to the third quarter and the first nine months of the prior year.

33

Balance Sheet

Chase Corporation’s balance sheet remained strong on May 31, 2021, with cash on hand of $102,947,000, and a current ratio of 7.2. Favorable third quarter cash flow generation resulted in higher cash provided by operating activities over the prior year for both the quarter and year-to-date period. The Company’s cash position remains healthy, with cash flow from operations more than offsetting the costs to acquire ETi and ABchimie during the nine-month period.

The Company held no outstanding balance on its $150,000,000 revolving credit facility as of May 31, 2021. The revolving credit facility allows for the Company to pay down debt with excess cash, while retaining access to immediate liquidity to fund future accretive activities, including mergers and acquisitions, as they are identified. Chase’s current credit facility matures in December 2021. The Company expects to enter a new facility within the current fiscal year, prior to the current facility’s expiration, to maintain its ability to support Chase’s strategic initiatives.

34

Results of Operations

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

    

% of

 

    

% of

    

    

% of

    

    

% of

 

Three Months Ended

Total

Three Months Ended

Total

Nine Months Ended

Total

Nine Months Ended

Total

 

  

May 31, 2021

    

Revenue

 

May 31, 2020

    

Revenue

    

May 31, 2021

    

Revenue

    

May 31, 2020

    

Revenue

Revenue

Adhesives, Sealants and Additives

$

33,861

43

%  

$

22,922

35

%  

$

95,507

44

%  

$

73,184

37

%

Industrial Tapes

32,249

41

%  

31,752

49

%  

87,085

40

%  

91,931

47

%

Corrosion Protection and Waterproofing

 

13,483

17

%  

 

10,197

16

%  

 

32,624

15

%  

 

32,140

16

%

Total

$

79,593

$

64,871

$

215,216

$

197,255

% of

 

% of

 

% of

% of

Three Months Ended

Segment

Three Months Ended

Segment

Nine Months Ended

Segment

Nine Months Ended

Segment

May 31, 2021

Revenue

May 31, 2020

Revenue

May 31, 2021

Revenue

May 31, 2020

Revenue

Income before income taxes

Adhesives, Sealants and Additives

$

10,982

(a)

32

%  

$

6,704

29

%  

$

31,098

(c)

33

%  

$

20,936

29

%

Industrial Tapes

10,945

34

%  

9,011

28

%  

27,273

31

%  

24,050

(e)

26

%

Corrosion Protection and Waterproofing

 

5,098

38

%  

 

4,149

41

%  

 

11,599

36

%  

 

12,240

38

%

Total for reportable segments

 

27,025

34

%  

 

19,864

31

%  

 

69,970

33

%  

 

57,226

29

%

Corporate and Common Costs

 

(9,282)

 

(7,337)

(b)

 

(25,385)

(d)

 

(23,823)

(f)

Total

$

17,743

22

%  

$

12,527

19

%  

$

44,585

21

%  

$

33,403

17

%

Note: Some percentage of revenue amounts may not sum due to rounding

(a)Includes $262 in loss on the upward adjustment of the performance-based earn out contingent consideration associated with the September 2020 acquisition of ABchimie and $22 in exit costs related to the movement of the sealants system business out of the Newark, CA location and into the Hickory, NC location during the third quarter of fiscal 2021
(b)Includes $760 in gain related to the April 2020 sale of the Company’s Pawtucket, RI location, $183 in severance expense related to the May 2020 reduction in force, $85 in expenses related to the final transition out of the Pawtucket, RI facility, $75 of pension-related settlement costs due to the timing of lump-sum distributions and $20 in acquisition-related expense attributable to the September 2020 acquisition of ABchimie
(c)Includes $995 in loss on the upward adjustment of the performance-based earn out contingent consideration associated with the September 2020 acquisition of ABchimie and $120 in exit costs related to the movement of the sealants system business out of the Newark, CA location and into the Hickory, NC location during the first nine months of fiscal 2021
(d)Includes $128 in acquisition-related expense attributable to the February 2021 acquisition of the operations of ETi
(e)Includes $559 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 nine months of fiscal 2020
(f)Includes $150 of expense related to exploratory IT work performed to assess potential future upgrades to the companywide ERP system, a $760 gain related to the April 2020 sale of the Company’s Pawtucket, RI location, $183 in severance expense related to the May 2020 reduction in force, $85 in expenses related to the final transition out of the Pawtucket, RI facility, $75 of pension-related settlement costs due to the timing of lump-sum distributions and $153 in acquisition-related expense attributable to the September 2020 acquisition of ABchimie

35

Total Revenue

Total revenue increased $14,722,000 or 23% to $79,593,000 for the quarter ended May 31, 2021, compared to $64,871,000 in the same quarter of the prior year. Total revenue increased $17,961,000 or 9% to $215,216,000 in the fiscal year-to-date period compared to $197,255,000 in the same period in fiscal 2020.

Revenue in the Company’s Adhesives, Sealants and Additives segment increased $10,939,000 or 48% and $22,323,000 or 31% in the current quarter and year-to-date period, respectively. Organic revenue growth accounted for $7,229,000 and $15,380,000 of the segment’s overall third quarter and year-to-date period sales increases, respectively. The increases in revenue from the Adhesives, Sealants and Additives segment in fiscal 2021 for the current quarter and year-to-date period, respectively, were primarily due to the electronic and industrial coatings product line’s $7,301,000 and $17,963,000 organic and inorganic increases. The operations of ABchimie, acquired September 1, 2020 (first day of fiscal 2021), provided the product line accretive top-line gains, while strong organic gains were seen both domestically and internationally. Also positively impacting the segment’s sales were organic and inorganic increases in revenue from the North American-focused functional additives product line totaling $3,638,000 and $4,360,000 in the current quarter and year-to-date period. The functional additives product line sales totals included the operations of ETi, following its acquisition on February 5, 2021 (second quarter of fiscal 2021).

Revenue in the Industrial Tapes segment increased $497,000 or 2% in the current quarter but decreased $4,846,000 or 5% for the year-to-date period. The net changes in revenue for the segment were primarily due to the following: (a) revenue increase of $493,000 for the quarter but a reduction of $261,000 for the year-to-date period for the specialty products product line, as the Company ended its arrangement to provide low margin transitional toll manufacturing services in the second quarter of fiscal 2020 (prior year); (b) the pulling and detection tapes product line saw sales growth of $136,000 over the prior year quarter but a reduction of $229,000 for the year-to-date period on lower sales volume; (c) the North American-focused cable materials product line achieved a sales volume and price increase of $94,000 for the quarter but remained $4,529,000 behind for the year-to-date period, with both COVID-19 and certain exposure to oil and gas markets negatively impacting year-to-date results; and (d) the electronic materials product line, which has a nearly exclusive Asian end-market, saw a reduction of $226,000 for the quarter but remained $173,000 above the prior year-to-date period.

Compared to the prior year third quarter and year-to-date period, revenue from the Corrosion Protection and Waterproofing segment increased $3,286,000 or 32% and $484,000 or 2%, respectively. The segment’s sales increases in the current quarter and year-to-date period were predominantly driven by: (a) the coating and lining systems product line sales increases of $2,542,000 and $1,652,000, with recovery and growth achieved following winter weather events which impacted the Houston, TX manufacturing facility and the surrounding region in the second quarter of fiscal 2021; and (b) the building envelope product line’s sales increases of $518,000 and $208,000, respectively. While achieving revenue growth of $492,000 over the prior year third quarter, the pipeline coatings product line remained $898,000 behind the prior year to-date period, with the Company’s North American operations effected by a net prolonged decrease in worldwide oil and gas prices, and with the Rye, U.K.-based facility’s Middle East sales prospects and margin also negatively impacted by energy prices during the current year periods. The bridge and highway product line sales saw reductions of $266,000 and $478,000 compared to the prior year third quarter and year-to-date period on lower project demand.

36

Cost of Products and Services Sold

Cost of products and services sold increased $6,623,000 or 17% to $46,312,000 for the quarter ended May 31, 2021, compared to $39,689,000 in the prior year quarter. Cost of products and services sold increased $4,694,000 or 4% to $126,832,000 in the first nine months of fiscal 2021, compared to $122,138,000 in the comparative year-to-date period.

The following table summarizes the cost of products and services sold as a percentage of revenue for each of Chase Corporation’s reportable operating segments:

Three Months Ended May 31, 

Nine Months Ended May 31, 

Cost of products and services sold

    

2021

    

2020

    

2021

    

2020

 

Adhesives, Sealants and Additives

56

%  

57

%  

55

%  

57

%  

Industrial Tapes

62

67

64

68

Corrosion Protection and Waterproofing

55

54

57

55

Total Company

58

%  

61

%  

59

%  

62

%  

Cost of products and services sold in the Adhesives, Sealants and Additives segment was $18,850,000 and $52,461,000 in the current quarter and year-to-date period compared to $13,044,000 and $41,831,000 in the comparable periods in the prior year.  Cost of products and services sold in the Industrial Tapes segment was $20,043,000 and $55,853,000 in the current quarter and year-to-date period compared to $21,118,000 and $62,640,000 in the same periods in the prior year. Cost of products and services sold in the Corrosion Protection and Waterproofing segment was $7,419,000 and $18,518,000 for the quarter and year-to-date period ended May 31, 2021, compared to $5,527,000 and $17,667,000 in the comparable periods of the prior year.   

As a percentage of revenue, cost of products and services sold was reduced for both the Adhesives, Sealants and Additives and Industrial Tapes segments and increased for the Corrosion Protection and Waterproofing segment as compared to the third quarter and first nine months of the prior year. These changes in relative gross margin were primarily due to: (a) more favorable sales mixes in the Adhesives, Sealants and Additives and Industrial Tapes segments, as higher margin products and offerings constituted a comparatively higher portion of total sales; and (b) net production and operational efficiencies realized in the Adhesives, Sealants and Additives and Industrial Tapes segments for the current quarter and year-to-date period, including those gained in part through the facility rationalization and consolidation initiative. All of Chase Corporation’s segments are subject to current global raw material inflationary pressures and supply chain challenges, and the Company, in line with customer agreements, is addressing this by instituting customer price adjustments across affected product lines.

With the composition of the Company’s finished goods and the markets it serves, the 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) directly and indirectly affect both the purchase price of the raw materials and market demand for its product offerings. The Company diligently monitors raw materials and commodities pricing across all its product lines in an effort to preserve margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $2,174,000 or 18% to $13,969,000 for the quarter ended May 31, 2021 compared to $11,795,000 in the prior year quarter. Selling, general and administrative expenses increased $1,535,000 or 4% to $38,560,000 in the fiscal year-to-date period compared to $37,025,000 in the same period in fiscal 2020. As a percentage of revenue, selling, general and administrative expenses represented 18% for both the current year third quarter and fiscal year-to-date period, compared to 18% and 19% for the three- and nine-month periods of the prior year, respectively.

37

Research and Product Development Costs

Research and Product Development Costs decreased $1,000 or less than one percent to $957,000 during the third quarter of fiscal 2021, compared to $958,000 in fiscal 2020. Research and Product Development Costs decreased $11,000 or less than one percent to $3,034,000 during the first nine months of fiscal 2021, compared to $3,045,000 in the same period of fiscal 2020. Research and development stayed relatively consistent from fiscal 2020 to 2021 as the Company continued focused development work on strategic product lines.

Operations Optimization Costs

During the third quarter of fiscal 2021, Chase announced to the employees at its Woburn, MA location that its adhesives systems operations, part of the Adhesives, Sealants and Additives segment’s electronic and industrial coatings product line, would be consolidating into the Company’s existing O'Hara Township, PA location. This rationalization and consolidation initiative-related announcement aligns with the second quarter announcement of the Company’s plan to move its sealant systems production from Newark, CA to its location in Hickory, NC, described in more detail below. Chase Corporation obtained both the adhesive and sealants systems as part of its fiscal 2017 acquisition of the operations of Resin Designs. No expense was recognized related to this initiative during the third fiscal quarter, with the majority of future costs anticipated to occur in the first half of fiscal 2022.

During the second quarter of fiscal 2021, Chase began moving the sealant systems operations, part of the Adhesives, Sealants and Additives segment’s electronic and industrial coatings product line, from its Newark, CA 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. The sealant systems operations and Newark, CA location came to Chase Corporation as part of the fiscal 2017 acquisition of the operations of Resin Designs, and the Company’s lease there will terminate in the current fiscal year. The Company recognized $22,000 and $120,000 in expense related to the move in the three-month and nine-month periods ended May 31, 2021.

During the first quarter of fiscal 2020 (prior year), the Company commissioned third party led studies regarding the potential upgrading of the Company’s current worldwide ERP system. 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 the Company’s facilities rationalization and consolidation initiative. The Company recognized $150,000 in expense related to these services in the first half of 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 from 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 (prior year). The Company recognized $559,000 in expense related to the move in the nine-month period ended May 31, 2020, having recognized $526,000 in expense during the second half of fiscal 2019. This project is substantively completed, and no costs were recorded in the first nine months of fiscal 2021, and any future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.

38

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 completed the sale of its Pawtucket, RI location to a third-party in April 2020, for net proceeds totaling $1,810,000. This transaction resulted in a gain of $760,000 which was recorded during the third quarter of fiscal 2020. Also, during the third quarter of fiscal 2020, the Company recognized $85,000 in final Pawtucket, RI transition and exit costs, with no further costs related to this initiative anticipated in future periods.

Acquisition-Related Costs

In the second quarter of fiscal 2021, the Company incurred $128,000 of costs related to our February 5, 2021 acquisition of Emerging Technologies, Inc (“ETi”). This acquisition was accounted for as a business combination in accordance with applicable accounting standards, and all related professional service fees (including legal, accounting and actuarial fees) were expensed as incurred within the second fiscal quarter of 2021.

In the three- and nine-month periods ended May 31, 2020, the Company incurred $20,000 and $153,000 of costs related to our September 1, 2020 acquisition of ABchimie, respectively. 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, third and fourth quarters of fiscal 2020 (total of $274,000 in acquisition-related expense recognized over the last three quarters of fiscal 2020). The transaction was consummated at the beginning of fiscal 2021.

Gain on Sale of Real Estate

In April 2020, the Company finalized the sale of its Pawtucket, RI location for net proceeds of $1,810,000. This transaction resulted in a gain of $760,000 which was recorded during the quarter ended May 31, 2020.

Loss (Gain) on Contingent Consideration

As a component of the September 1, 2020 acquisition of ABchimie, the Company incurred a performance-based earn out liability potentially worth an additional €7,000,000 (approximately $8,330,000 at the time of the transaction) in consideration. Following its initial recording at the acquisition date, $262,000 and $995,000 in expense related to adjustments to the performance-based earn out accrual were recorded for the three and nine months ended May 31, 2021, respectively.

Interest Expense

Interest expense increased $1,000 or 1% to $68,000 for the quarter ended May 31, 2021 compared to $67,000 in the prior year third quarter. Interest expense increased $26,000 or 15% to $204,000 for the first nine months of fiscal 2021 compared to $178,000 in the prior year period. As the Company had no outstanding balance on its revolving debt facility for both periods, interest expense has remained relatively low.

Other Income (Expense)

Other income (expense) was an expense of $260,000 in the quarter ended May 31, 2021, compared to an expense of $307,000 in the same period in the prior year, a decrease of $47,000. Other income (expense) was an expense of $758,000 in the nine months ended May 31, 2021, compared to an expense of $1,096,000 in the comparable period in the prior year, a decrease of $338,000. 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 the Company’s 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 receipts that are not classified as trade, royalties or commissions.

39

Income Taxes

The effective tax rate for the quarter ended May 31, 2021 was 19.5%, compared to 20.9% for the quarter ended May 31, 2020. The effective tax rate for the nine months ended May 31, 2021 was 23.1%, compared to 24.7% for the nine months ended May 31, 2020.

Net Income

Net income increased $4,381,000 or 44% to $14,289,000 in the quarter ended May 31, 2021 compared to $9,908,000 in the prior year third quarter. Net income increased $9,148,000 or 36% to $34,297,000 in the nine months ended May 31, 2021 compared to $25,149,000 in the same period in the prior year. The increase in net income in both the third fiscal quarter and year-to-date period was primarily due to higher sales and an improved relative gross margin.

40

Liquidity and Sources of Capital

The Company’s overall cash and cash equivalents balance increased $3,879,000 to $102,947,000 at May 31, 2021, from $99,068,000 at August 31, 2020. The increased cash balance is primarily attributable to cash provided by operations of $43,000,000, net of $22,241,000 utilized to acquire ABchimie on September 1, 2020, $8,997,000 in cash utilized to acquire the operations of Emerging Technologies, Inc. (“ETi”) on February 5, 2021 and the $7,557,000 dividend paid in December 2020. Of the above-noted balances, $27,023,000 and $42,615,000 were held outside the United States by Chase Corporation and its foreign subsidiaries as of May 31, 2021 and August 31, 2020, respectively. Given the Company’s cash position and borrowing capability in the United States and the potential for increased investment and acquisitions in foreign jurisdictions (as evidenced by the recent acquisition of ABchimie in France), prior to the second quarter of fiscal 2018 the Company did not have a history of repatriating a significant portion of its 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. Following the passage of the Tax Act, the Company repatriated $10,499,000 in U.K. foreign earnings in fiscal 2018 and $17,230,000 in fiscal 2019. No additional amounts were repatriated in fiscal year 2020 or the first nine months of fiscal 2021. Please see Note 14 — “Income Taxes” to the Condensed Consolidated Financial Statements for further discussion of the effects of the Tax Act.

Cash flow provided by operations was $43,000,000 in the first nine months of fiscal year 2021 compared to $42,665,000 in the same period in the prior year. Cash provided by operations during the current period was primarily related to operating income. Negatively impacting the cash flow from operations was an increase in accounts receivable, on higher sales in the current year third quarter, partially offset by a decrease in the volume of inventory on hand and a rise in accounts payable.

The ratio of current assets to current liabilities was 7.2 as of May 31, 2021 compared to 7.7 as of August 31, 2020. The ratio decreased over the first nine months of fiscal 2021 primarily due to increases accounts payable at May 31, 2021.

Cash flow used in investing activities of $33,106,000 was largely due to the cash on hand purchases of both ABchimie and ETi and cash spent on capital purchases of machinery and equipment in fiscal 2021.

Cash flow used in financing activities of $7,842,000 was primarily related to payments of our annual dividend in December 2020 and taxes on restricted stock vested in fiscal 2021.

On November 12, 2020, Chase Corporation announced a cash dividend of $0.80 per share (totaling $7,557,000). The dividend was paid on December 7, 2020 (the second quarter of fiscal 2021) to shareholders of record on November 27, 2020.

On December 15, 2016, the Company 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 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 (second quarter of fiscal 2022). The Credit Agreement contains customary affirmative and negative covenants that, among other things, restrict the ability to incur additional indebtedness and require lender approval for acquisitions by the Company and its subsidiaries over a certain size. It also requires the Company to maintain certain financial ratios, 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. The Company was compliant with the debt covenants as of May 31, 2021. 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 the consolidated net leverage ratio or, at the Company’s option, at the bank’s base lending rate. At May 31, 2021, there was no outstanding principal balance, and as such no applicable interest rate. The Company expects to renew this facility, or enter into a new facility, prior to the current facility’s expiration to maintain Chase’s ability to support its strategic initiatives.

41

The Company has several ongoing capital projects, as well as its facility rationalization and consolidation initiative, which are important to its long-term strategic goals.  Machinery and equipment may be added as needed to increase capacity or enhance operating efficiencies in the Company’s production facilities.

The Company may acquire companies or other assets in future periods which are complementary to the existing business. The acquisition of ABchimie included a potential earnout based on performance of up to an additional €7,000,000 (approximately $8,330,000 at the time of the transaction), which the Company expects to pay with cash on hand if the applicable conditions are met. The acquisition of ETi includes a $1,000,000 withholding, which is payable by the Company within eighteen months of the acquisition. The Company believes that its 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 its 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, the Company will assess the impact of these higher interest rates on the financial and cash flow projections of its potential acquisitions.

The Company has no significant off-balance sheet arrangements.

42

Contractual Obligations

Please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020 for a complete discussion of its 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

Chase Corporation’s financial statements are prepared in accordance with accounting principles generally accepted in the United States.  To apply these principles, the Company must make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  In many instances, the Company 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 the Company’s estimates.  To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or results of operations will be affected.  The Company bases its estimates and judgments on historical experience and other assumptions that it believes to be reasonable at the time and under the circumstances, and it evaluates these estimates and judgments on an ongoing basis.  The Company refers 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 ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which is discussed within Note 2 — “Recent Accounting Standards” of the Condensed Consolidated Financial Statements contained herein, management believes that there have been no material changes during the nine months ended May 31, 2021 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, 2020.

43

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

Chase Corporation limits the amount of credit exposure to any one issuer.  At May 31, 2021, other than the Company’s 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 its 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.

Chase Corporation’s U.S. operations have limited currency exposure since substantially all transactions are denominated in U.S. dollars. However, the Company’s European and Asian operations are subject to currency exchange fluctuations. The Company continues to review its 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 and the U.S. dollar would not have a material direct effect on the Company’s overall liquidity. As of May 31, 2021, the Company had cash balances in the following foreign currencies (with USD equivalents, dollars in thousands):

Currency Code

    

Currency Name

    

USD Equivalent at May 31, 2021

 

GBP

 

British Pound

$

13,465

EUR

 

Euro

$

6,236

CAD

 

Canadian Dollar

$

1,810

CNY

 

Chinese Yuan

$

666

INR

 

Indian Rupee

$

528

The Company will continue to review its current cash balances denominated in foreign currency considering current tax guidelines, including the impact of the Tax Act to the U.S. Internal Revenue Code, working capital requirements, infrastructure improvements and potential acquisitions.

The Company recognized a foreign currency translation gain for the nine months ended May 31, 2021 in the amount of $3,273,000 related to Chase Corporation’s European and Indian operations, which is recorded in other comprehensive income (loss) within its Statement of Equity and Statement of Comprehensive Income. The Company does not have or utilize any derivative financial instruments.

The Company pays interest on its outstanding long-term debt at interest rates that fluctuate based upon changes in various base interest rates. There was no outstanding balance of long-term debt on May 31, 2021. 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 the Company’s outstanding long-term debt.  An immediate hypothetical 10% change in variable interest rates would not have a material direct effect on the Company’s Condensed Consolidated Financial Statements.

44

Item 4 — Controls and Procedures

Evaluation of disclosure controls and procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Chase Corporation’s 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 its management, including its 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.

The Company carries out a variety of ongoing procedures under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of its disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.

Changes in internal control over financial reporting

During the quarter ended May 31, 2021, the Company continued the process of implementing financial internal controls on the operations associated with ABchimie, acquired in September 2020, and Emerging Technologies, Inc. (ETi), acquired in February 2021.

Other than the foregoing, there have not been any changes in the Company’s internal control over financial reporting during the quarter ended May 31, 2021 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

45

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 it assesses the likelihood of loss as probable.

Item 1A — Risk Factors

Please refer to Item 1A in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020 for a complete discussion of the risk factors which could materially affect our business, financial condition or future results.

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*

10.1

Severance Agreement between the Company and Michael J. Bourque, dated January 27, 2021**

10.3.3

Second Amendment to the Chase Corporation Employees’ Supplemental Savings Plan, dated April 6, 2021**

101

The following materials from this Quarterly Report on Form 10-Q, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Furnished, not filed

**Identifies management plan or compensatory plan or arrangement.

46

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: July 12, 2021

By:

/s/ Adam P. Chase

Adam P. Chase

President and Chief Executive Officer

Dated: July 12, 2021

By:

/s/ Michael J. Bourque

Michael J. Bourque

Treasurer and Chief Financial Officer

47