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TABLE OF CONTENTS
ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2013

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.)

26 Summer Street, Bridgewater, Massachusetts 02324
(Address of Principal Executive Offices, Including Zip Code)

(508) 819-4200
(Registrant's Telephone Number, Including Area Code)

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

Title of Each Class:
 
Name of Each Exchange on Which Registered
Common Stock
($0.10 Par Value)
  NYSE MKT

         Securities registered pursuant to section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). YES o    NO ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES o    NO ý

         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 ý    NO o

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

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

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

         The aggregate market value of the common stock held by non-affiliates of the registrant, as of February 28, 2013 (the last business day of the registrant's second quarter of fiscal 2013), was approximately $124,936,000.

         As of October 31, 2013, the Company had outstanding 9,083,007 shares of common stock, $.10 par value, which is its only class of common stock.

Documents Incorporated By Reference:

         Portions of the registrant's definitive proxy statement for the Annual Meeting of Shareholders, which is expected to be filed within 120 days after the registrant's fiscal year ended August 31, 2013, are incorporated by reference into Part III hereof.


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CHASE CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Year Ended August 31, 2013

 
   
  Page No.  

PART I

           

Item 1

 

Business

    2  

Item 1A

 

Risk Factors

    7  

Item 1B

 

Unresolved Staff Comments

    10  

Item 2

 

Properties

    11  

Item 3

 

Legal Proceedings

    12  

Item 4

 

Mine Safety Disclosures

    12  

Item 4A

 

Executive Officers of the Registrant

    12  

PART II

           

Item 5

 

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    13  

Item 6

 

Selected Financial Data

    14  

Item 7

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    15  

Item 7A

 

Quantitative and Qualitative Disclosures About Market Risk

    27  

Item 8

 

Financial Statements and Supplementary Data

    28  

Item 9

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    67  

Item 9A

 

Controls and Procedures

    67  

Item 9B

 

Other Information

    67  

PART III

           

Item 10

 

Directors, Executive Officers and Corporate Governance

    68  

Item 11

 

Executive Compensation

    68  

Item 12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

    68  

Item 13

 

Certain Relationships and Related Transactions, and Director Independence

    68  

Item 14

 

Principal Accountant Fees and Services

    68  

PART IV

           

Item 15

 

Exhibits and Financial Statement Schedules

    69  

SIGNATURES

   
72
 

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PART I

ITEM 1—BUSINESS

Primary Operating Divisions and Facilities and Industry Segment

        Chase Corporation (the "Company," "Chase," "we," or "us"), founded in 1946, is a leading manufacturer of protective materials for high reliability applications. Our strategy is to maximize the performance of our core businesses and brands while seeking future opportunities through strategic acquisitions. We are organized into two operating segments, an Industrial Materials segment and a Construction Materials segment. The basis for our segmentation is distinguished by the nature of the products we manufacture and how they are delivered to their respective markets. The Industrial Materials segment represents our specified products which are used in or integrated into another company's product with demand dependent upon general economic conditions. Effective with its acquisition in June 2012, the full listing of NEPTCO products are included in the Industrial Materials segment. The Construction Materials segment reflects our construction project oriented product offerings which are primarily sold and used as "Chase" branded products in final form. Our manufacturing facilities are distinct to their respective segments with the exception of our O'Hara Township, PA and Blawnox, PA facilities, which produce products related to both operating segments. A summary of our operating structure as of August 31, 2013 is as follows:

INDUSTRIAL MATERIALS SEGMENT

Key Products   Primary
Manufacturing
Location(s)
  Background/History
Specialty tapes and related products for the electronic and telecommunications industries using the brand name Chase & Sons®.

Insulating and conducting materials for the manufacture of electrical and telephone wire and cable, electrical splicing, and terminating and repair tapes, which are marketed to wire and cable manufacturers and public utilities.

PaperTyger® a trademark for laminated durable papers sold to the envelope converting and commercial printing industries, was acquired by us in 2003.
  Oxford, MA   In August 2011, we moved our manufacturing processes that had been previously conducted at our Webster, MA facility to this location.

In December 2012, we moved the majority of our manufacturing processes that had been previously conducted at our Randolph, MA facility to this location. Our Randoph facility was one of our first operating facilities, and had been producing products for the wire and cable industry for more than fifty years.

Flexible packaging for industrial and retail use. Slit film for the building wire market and for telecommunication cable.

 

Taylorsville, NC

 

In January 2004, we purchased certain manufacturing equipment and began operations at this facility.

Flexible composites and laminates for the wire & cable, aerospace and industrial laminate markets including Insulfab®, an insulation material used in the aerospace industry.

 

 

 

In March 2009, we moved the majority of our manufacturing processes that had been conducted at our Paterson, NJ facility to this location.

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Key Products   Primary
Manufacturing
Location(s)
  Background/History
Chase BLH2OCK®, a water blocking compound sold to the wire and cable industry.   Blawnox, PA   In September 2012, we moved our manufacturing processes of Chase BLH2OCK® that had been previously conducted at our Randolph, MA facility to this location.

Protective conformal coatings under the brand name HumiSeal®, moisture protective electronic coatings sold to the electronics industry.

 

O'Hara Township, PA

 

The HumiSeal business and product lines were acquired in the early 1970's.

Laminated film foils for the electronics and cable industries and cover tapes essential to delivering semiconductor components via tape and reel packaging.

 

Pawtucket, RI & Lenoir, NC

 

In June 2012, we acquired all of the capital stock of NEPTCO Incorporated.

Pulling and detection tapes used in the installation, measurement and location of fiber optic cables, water and natural gas lines.

 

Granite Falls, NC

 

 

Flexible, rigid and semi-rigid fiber optic strength elements designed to allow fiber optic cables to withstand mechanical and environmental strain and stress, produced by NEPTCO's joint venture.

 

 

 

 

Cover tapes essential to delivering semiconductor components via tape and reel packaging.

 

Suzhou, China

 

 

Protective conformal coatings under the brand name HumiSeal®, moisture protective electronic coatings sold to the electronics industry.

 

Winnersh, Wokingham, England

 

In October 2005, we acquired all of the capital stock of Concoat Holdings Ltd. and its subsidiaries. In 2006 Concoat was renamed HumiSeal Europe.

HumiSeal Europe SARL operates a sales/technical service office and warehouse near Paris. This business works closely with the HumiSeal operation in Winnersh, Wokingham, England allowing direct sales and service to the French market.

 

 

 

In March 2007, we expanded our international presence with the formation of HumiSeal Europe SARL in France. In conjunction with establishing the new company, certain assets were acquired from Metronelec SARL, a former distributor of HumiSeal products.

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CONSTRUCTION MATERIALS SEGMENT

Key Products   Primary
Manufacturing
Location(s)
  Background/History
Protective pipe coating tapes and other protectants for valves, regulators, casings, joints, metals, concrete, and wood which are sold under the brand name Royston®, to oil companies, gas utilities, and pipeline companies.   Blawnox, PA   The Royston business was acquired in the early 1970's.

Rosphalt50® is a polymer additive that provides long term cost effective solutions in many applications such as waterproofing of approaches and bridges, ramps, race tracks, airports and specialty road applications.

 

 

 

 

Waterproofing sealants, expansion joints and accessories for the transportation, industrial and architectural markets.

 

O'Hara Township, PA

 

In April 2005, we acquired certain assets of E-Poxy Engineered Materials. Additionally, in September 2006, we acquired all of the capital stock of Capital Services Joint Systems. Both of these acquisitions were combined to form the Expansion Joints product line which is now manufactured at our O'Hara Township, PA facility.

Manufacturer of technologically advanced products, including the brand Tapecoat®, for demanding anti-corrosion applications in the gas, oil and marine pipeline market segments, as well as tapes and membranes for roofing and other construction related applications.

 

Evanston, IL

 

In November 2001, we acquired substantially all of the assets of Tapecoat, a division of T.C. Manufacturing Inc.

Specialized manufacturer of high performance coating and lining systems used worldwide in the liquid storage and containment applications.

 

Houston, TX

 

In September 2009, we acquired all of the outstanding capital stock of C.I.M. Industries Inc. ("CIM").

Manufacturer of waterproofing and corrosion protection systems for oil, gas and water pipelines and a supplier to Europe, the Middle East and Southeast Asia. This facility joins Chase's North American based Tapecoat® and Royston® brands to broaden the protective coatings product line and better address increasing global demand.

 

Rye, East Sussex, England

 

In September 2007, we purchased certain product lines and a related manufacturing facility in Rye, East Sussex, England through our wholly owned subsidiary, Chase Protective Coatings Ltd.

The ServiWrap® product line complements the portfolio of our pipeline protection tapes, coatings and accessories to extend our global customer base.

 

 

 

In December 2009, we acquired the full range of ServiWrap® pipeline protection products ("ServiWrap") from Grace Construction Products Limited, a UK based unit of W.R. Grace & Co.

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Other Business Developments

        In October 2013, we sold all of our property and assets comprising the Insulfab® product line to an unrelated third party for $7,394,000, subject to certain closing adjustments including any change in the final closing net book value compared to the bid date net book value. The assets sold include inventory, equipment and all intellectual property used in this product line. The Insulfab product line includes the manufacturing of high quality, engineered barrier laminates used in various aerospace applications. This product line was originally acquired by Chase Corporation in February 2003 as part of the Company's acquisition of certain assets of Facile, Inc. and was part of our Industrial Materials segment. We determined it was the right time for us to divest the assets of the Insulfab product line and allow us to remain focused on other primary markets.

Products and Markets

        Our principal products are specialty tapes, laminates, sealants and coatings that are sold by our salespeople, manufacturers' representatives and distributors. In our Industrial Materials segment, these products consist of:

    (i)
    insulating and conducting materials for the manufacture of electrical and telephone wire and cable, electrical splicing, and terminating and repair tapes, which are marketed to wire and cable manufacturers;

    (ii)
    laminated film foils, composite strength elements, anti-static packaging tape and pulling tapes for the electronics and cable industries;

    (iii)
    moisture protective coatings, which are sold to the electronics industry including circuitry used in automobiles and home appliances;

    (iv)
    laminated durable papers, including laminated paper with an inner security barrier used in personal and mail-stream privacy protection, which are sold primarily to the envelope converting and commercial printing industries;

    (v)
    pulling and detection tapes used in the installation, measurement and location of fiber optic cables, water and natural gas lines, and power, data, and video cables for commercial buildings;

    (vi)
    cover tapes with reliable adhesive and anti-static properties essential to delivering semiconductor components via tape and reel packaging; and

    (vii)
    flexible, rigid and semi-rigid fiber optic strength elements designed to allow fiber optic cables to withstand mechanical and environmental strain and stress, produced by NEPTCO's joint venture.

        In our Construction Materials segment, these products consist of:

    (i)
    protective pipe coating tapes and other protectants for valves, regulators, casings, joints, metals, concrete and wood, which are sold to oil companies, gas utilities and pipeline companies;

    (ii)
    protectants for highway bridge deck metal supported surfaces, which are sold to municipal transportation authorities;

    (iii)
    fluid applied coating and lining systems for use in the water and wastewater industry; and

    (iv)
    expansion and control joint systems designed for roads, bridges, stadiums and airport runways.

        There is some seasonality in selling products into the construction market as higher demand is often experienced when temperatures are warmer in most of North America (April through October) with less demand occurring when temperatures are colder (typically our second fiscal quarter). We did not introduce any new products requiring an investment of a material amount of our assets during fiscal year 2013.

Employees

        As of October 31, 2013, we employed approximately 666 people (including union employees). We consider our employee relations to be good. In the U.S., we offer our employees a wide array of company-paid benefits, which we believe are competitive relative to others in our industry. In our operations outside the U.S., we offer benefits that may vary from those offered to our U.S. employees due to customary local practices and statutory requirements.

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Backlog, Customers and Competition

        As of October 31, 2013, the backlog of customer orders believed to be firm was approximately $16,546,000. This compared with a backlog of $13,722,000 as of October 31, 2012. The increase in backlog over the prior year amount is primarily due to certain infrastructure project work in the Middle East which is driving increased demand for our pipeline products produced in the UK. The backlog of orders has some seasonality due to the construction season. During fiscal 2013, 2012 and 2011, no customer accounted for more than 10% of sales. No material portion of our business is subject to renegotiation or termination of profits or contracts at the election of the United States Federal Government.

        There are other companies that manufacture or sell products and services similar to those made and sold by us. Many of those companies are larger and have greater financial resources than we have. We compete principally on the basis of technical performance, service reliability, quality and price.

Raw Materials

        We obtain raw materials from a wide variety of suppliers with alternative sources of most essential materials available within reasonable lead times.

Patents, Trademarks, Licenses, Franchises and Concessions

        We own the following trademarks that we believe are of material importance to our business: Chase Corporation®, C-Spray (Logo), a trademark used in conjunction with most of the Company's business segment and product line marketing material and communications; HumiSeal®, a trademark for moisture protective coatings sold to the electronics industry; Chase & Sons®, a trademark for barrier and insulating tapes sold to the wire and cable industry; Chase BLH2OCK®, a trademark for a water blocking compound sold to the wire and cable industry; Rosphalt50®, a trademark for an asphalt additive used predominantly on bridge decks for waterproofing protection; PaperTyger®, a trademark for laminated durable papers sold to the envelope converting and commercial printing industries; Tapecoat®, a trademark for corrosion preventative surface coatings and primers; Maflowrap®, a trademark for anti-corrosive tapes incorporating self-adhesive mastic or rubber backed strips, made of plastic materials; Royston®, a trademark for corrosion inhibiting coating composition for use on pipes; Eva-Pox® and Ceva®, trademarks for epoxy pastes/gels/mortars and elastomeric concrete used in the construction industry; CIM® trademarks for fluid applied coating and lining systems used in the water and wastewater industry; ServiWrap® trademarks for pipeline protection tapes, coatings and accessories; NEPTCO®, a trademark used in conjunction with most of NEPTCO's business and product line marketing material and communications; NEPTAPE®, a trademark for coated shielding and insulation materials used in the wire and cable industry; Muletape®, a trademark for pulling and installation tapes sold to the telecommunications industry; and Tracesafe®, a trademark for detection tapes sold to the water and gas industry. Additionally, Insulfab®, a trademark for insulation material used in the aerospace industry, was included as part of the sale of the Company's Insulfab product line that was completed in October 2013. We do not have any other material trademarks, licenses, franchises, or concessions. While we do hold various patents, at this time, we do not believe that they are material to the success of our business.

Working Capital

        We fund our business operations through a combination of available cash and cash equivalents, short-term investments and cash flows generated from operations. In addition, our revolving credit facility is available for additional working capital needs or investment opportunities. We have historically funded acquisitions through additional borrowings and term loans from our bank lenders.

Research and Development

        Approximately $3,395,000, $2,958,000 and $2,452,000 was spent for Company-sponsored research and development during fiscal 2013, 2012 and 2011, respectively. Research and development increased in both fiscal 2013 and 2012 primarily due to our continued product development efforts that are directed towards seizing new business opportunities for our established product lines.

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Available Information

        Chase maintains a website at http://www.chasecorp.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as section 16 reports on Form 3, 4, or 5, are available free of charge on this site as soon as is reasonably practicable after they are filed or furnished with the SEC. Our Code of Conduct and Ethics and the charters for the Audit Committee, the Nominating and Governance Committee and the Compensation and Management Development Committee of our Board of Directors are also available on our Internet site. The Code of Conduct and Ethics and charters are also available in print to any shareholder upon request. Requests for such documents should be directed to Paula Myers, Shareholder and Investor Relations Department, at 26 Summer Street, Bridgewater, Massachusetts 02324. Our Internet site and the information contained on it or connected to it are not part of or incorporated by reference into this Form 10-K. Our filings with the SEC are also available on the SEC's website at http://www.sec.gov.

Financial Information About Segment and Geographic Areas

        Please see Notes 11 and 12 to the Company's Consolidated Financial Statements for financial information about the Company's operating segments and domestic and foreign operations for each of the last three fiscal years.

ITEM 1A—RISK FACTORS

        The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. We feel that any of the following risks could materially adversely affect our business, operations, industry, financial position or our future financial performance. While we believe that we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, operations, industry, financial position and financial performance in the future.

We currently operate in mature markets where increases or decreases in market share could be significant.

        Our sales and net income are largely dependent on sales from a consistent and well established customer base. Organic growth opportunities are minimal; however, we have used and will continue to use strategic acquisitions as a means to build and grow the business. In this business environment, increases or decreases in market share could have a material effect on our business condition or results of operation. We face intense competition from a diverse range of competitors, including operating divisions of companies much larger and with far greater resources than we have. If we are unable to maintain our market share, our business could suffer.

Our business strategy includes the pursuit of strategic acquisitions, which may not be successful if they happen at all.

        From time to time, we engage in discussions with potential target companies concerning potential acquisitions. In executing our acquisition strategy, we may be unable to identify suitable acquisition candidates. In addition, we may face competition from other companies for acquisition candidates, making it more difficult to acquire suitable companies on favorable terms.

        Even if we do identify a suitable acquisition target and are able to negotiate and close a transaction, the integration of an acquired business into our operations involves numerous risks, including potential difficulties in integrating an acquired company's product line with ours; the diversion of our resources and management's attention from other business concerns; the potential loss of key employees; limitations imposed by antitrust or merger control laws in the United States or other jurisdictions; risks associated with entering a new geographical or product market; and the day-to-day management of a larger and more diverse combined company. In June 2012, for example, we completed the acquisition of NEPTCO Incorporated, which represented approximately 39% of our consolidated total assets as of the end of fiscal 2012, making it the largest acquisition in the Company's history.

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        We may not realize the synergies, operating efficiencies, market position or revenue growth we anticipate from acquisitions and our failure to effectively manage the above risks could have a material adverse effect on our business, growth prospects and financial performance.

Our results of operations could be adversely affected by uncertain economic and political conditions and the effects of these conditions on our customers' businesses and levels of business activity.

        Global economic and political conditions can affect the businesses of our customers and the markets they serve. A severe or prolonged economic downturn or a negative or uncertain political climate could adversely affect the levels of business activity of our customers and the industries they serve, including the automotive, housing, construction, pipeline, energy, transportation infrastructure and electronics industries. This may reduce demand for our products or depress pricing of those products, either of which may have a material adverse effect on our results of operations. Changes in global economic conditions could also shift demand to products for which we do not have competitive advantages, and this could negatively affect the amount of business that we are able to obtain. In addition, if we are unable to successfully anticipate changing economic and political conditions, we may be unable to effectively plan for and respond to those changes and our business could be negatively affected.

General economic factors, domestically and internationally, may also adversely affect our financial performance through increased raw material costs or other expenses and by making access to capital more difficult.

        The cumulative effect of higher interest rates, energy costs, inflation, levels of unemployment, healthcare costs, unsettled financial markets, and other economic factors could adversely affect our financial condition by increasing our manufacturing costs and other expenses at the same time that our customers may be scaling back demand for our products. Prices of certain commodity products, including oil and petroleum-based products, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, weather events, market speculation, government regulations and periodic delays in delivery. Rapid and significant changes in commodity prices may affect our sales and profit margins. These factors can increase our merchandise costs and/or selling, general and administrative expenses, and otherwise adversely affect our operating results. Recent turmoil in the credit markets may limit our ability to access debt capital for use in acquisitions or other purposes on advantageous terms or at all. If we are unable to manage our expenses in response to general economic conditions and margin pressures, or if we are unable to obtain capital for strategic acquisitions or other needs, then our results of operations would be negatively affected.

Fluctuations in the supply and prices of raw materials may negatively impact our financial results.

        We obtain raw materials needed to manufacture our products from a number of suppliers. Many of these raw materials are petroleum-based derivatives. Under normal market conditions, these materials are generally available on the open market and from a variety of producers. From time to time, however, the prices and availability of these raw materials fluctuate, which could impair our ability to procure necessary materials, or increase the cost of manufacturing our products. If the prices of raw materials increase, and we are unable to pass these increases on to our customers, we could experience reduced profit margins.

If our products fail to perform as expected, or if we experience product recalls, we could incur significant and unexpected costs and lose existing and future business.

        Our products are complex and could have defects or errors presently unknown to us, which may give rise to claims against us, diminish our brands or divert our resources from other purposes. Despite testing, new and existing products could contain defects and errors and may in the future contain manufacturing or design defects, errors or performance problems when first introduced, or even after these products have been used by our customers for a period of time. These problems could result in expensive and time-consuming design modifications or warranty charges, changes to our manufacturing processes, product recalls, significant increases in our maintenance costs, or exposure to liability for damages, any of which may result in substantial and unexpected expenditures, require significant management attention, damage our reputation and customer relationships, and adversely affect our business, our operating results and our cash flow.

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We are dependent on key personnel.

        We depend significantly on our executive officers including our Chairman and Chief Executive Officer, Peter R. Chase, and our President and Chief Operating Officer, Adam P. Chase, and on other key employees. The loss of the services of any of these key employees could have a material impact on our business and results of operations. In addition, our acquisition strategy will require that we attract, motivate and retain additional skilled and experienced personnel. The inability to satisfy such requirements could have a negative impact on our ability to remain competitive in the future.

If we cannot successfully manage the unique challenges presented by international markets, we may not be successful in expanding our international operations.

        Our strategy includes expansion of our operations in existing and new international markets by selective acquisitions and strategic alliances. Our ability to successfully execute our strategy in international markets is affected by many of the same operational risks we face in expanding our U.S. operations. In addition, our international expansion may be adversely affected by our ability to identify and gain access to local suppliers as well as by local laws and customs, legal and regulatory constraints, political and economic conditions and currency regulations of the countries or regions in which we currently operate or intend to operate in the future. Risks inherent in our international operations also include, among others, the costs and difficulties of managing international operations, adverse tax consequences and greater difficulty in enforcing intellectual property rights. Additionally, foreign currency exchange rates and fluctuations may have an impact on future costs or on future cash flows from our international operations.

We may experience difficulties in the redesign and consolidation of our manufacturing facilities which could impact shipments to customers, product quality, and our ability to realize cost savings.

        We currently have several ongoing projects to streamline our manufacturing operations, which include the redesign and consolidation of certain manufacturing facilities. We anticipate a reduction of overhead costs as a result of these projects, to the extent that we can effectively leverage assets, personnel, and business processes in the transition of production among manufacturing facilities. However, uncertainty is inherent within the facility redesign and consolidation process, and unforeseen circumstances could offset the anticipated benefits, disrupt service to customers, and impact product quality.

Financial market performance may have a material adverse effect on our pension plan assets and require additional funding requirements.

        Significant and sustained declines in the financial markets may have a material adverse effect on the fair market value of the assets of our pension plans. While these pension plan assets are considered non-financial assets since they are not carried on our balance sheet, the fair market valuation of these assets could impact our funding requirements, funded status or net periodic pension cost. Any significant and sustained declines in the fair market value of these pension assets could require us to increase our funding requirements, which would have an impact on our cash flow, and could also lead to additional pension expense.

New regulations related to conflict minerals could adversely impact our business.

        The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as "conflict minerals" (tin, tungsten, tantalum, or gold). As a result, the SEC has adopted annual disclosure and reporting requirements concerning the supply chain for those public companies that use conflict minerals that are necessary to the functionality or production of their products. These new requirements will require companies to perform certain reasonable country of origin and due diligence exercises to determine if any of their sourced conflict minerals originated from the Democratic Republic of Congo (DRC) and adjoining countries. The first report under these rules is due in May 2014, to cover calendar year 2013.

        Our efforts to comply with this provision are currently underway. There are costs associated with complying with these disclosure requirements, including due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering conflict free "conflict

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minerals", we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement. In addition, some of our customers may choose to disqualify us as a supplier if we are unable to verify that any conflict minerals used in our products are not sourced from the covered countries.

Failure or compromise of security with respect to an operating or information system or portable electronic device could adversely affect our results of operations and financial condition or the effectiveness of our internal controls over operations and financial reporting.

        We are highly dependent on automated systems to record and process our daily transactions and certain other components of our financial statements. We could experience either a failure of one or more of these systems, or a compromise of our security due to technical system flaws, data input or record-keeping errors, or tampering or manipulation of our systems by employees or unauthorized third parties. Information security risks also exist with respect to the use of portable electronic devices, such as laptops and smartphones, which are particularly vulnerable to loss and theft. We may also be subject to disruptions of any of these systems arising from events that are wholly or partially beyond our control (for example, natural disasters, acts of terrorism, epidemics, computer viruses, and electrical/telecommunications outages). All of these risks are also applicable wherever we rely on outside vendors to provide services. Operating system failures, disruptions, or the compromise of security with respect to operating systems or portable electronic devices could subject us to liability claims, harm our reputation, interrupt our operations, or adversely affect our internal control over financial reporting, business, results from operations, financial condition or cash flow.

ITEM 1B—UNRESOLVED STAFF COMMENTS

        Not applicable

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ITEM 2—PROPERTIES

        We own and lease office and manufacturing properties as outlined in the table below.

Location
  Square
Feet
  Owned /
Leased
  Principal Use
Bridgewater, MA     5,200     Owned   Corporate headquarters and executive office

Westwood, MA

 

 

20,200

 

 

Leased

 

Global Operations Center including research and development, sales and administrative services

Randolph, MA

 

 

77,500

 

 

Owned

 

We ceased manufacturing of products at this location effective December 2012, and this facility is currently being used for storage of inventory and fixed assets.

Oxford, MA

 

 

73,600

 

 

Owned

 

Manufacture of tape and related products for the electronic and telecommunications industries, as well as laminated durable papers

Paterson, NJ

 

 

40,000

 

 

Owned/Leased

 

We own the building and lease the land from the landowner. Currently, the building is being leased to a tenant and the land is being sub-leased.

Taylorsville, NC (a)

 

 

50,000

 

 

Leased

 

Manufacture of flexible packaging for industrial and retail use, as well as tape and related products for the electronic and telecommunications industries

Blawnox, PA

 

 

44,000

 

 

Owned

 

Manufacture and sale of protective coatings and tape products

O'Hara Township, PA

 

 

109,000

 

 

Owned

 

Manufacture and sale of protective electronic coatings, expansion joints and accessories

Evanston, IL

 

 

100,000

 

 

Owned

 

Manufacture and sale of protective coatings and tape products

Houston, TX

 

 

45,000

 

 

Owned

 

Manufacture of coating and lining systems for use in liquid storage and containment applications

Pawtucket, RI

 

 

70,400

 

 

Owned

 

Manufacture and sale of laminated film foils for the electronics and cable industries, and offices for sales and administrative services

Granite Falls, NC

 

 

108,000

 

 

Owned

 

Manufacture and sale of pulling and detection tapes, and fiber optic strength elements, as well as research and development services

Lenoir, NC

 

 

110,000

 

 

Owned

 

Manufacture and sale of laminated film foils and cover tapes

Winnersh, Berkshire, England

 

 

18,800

 

 

Leased

 

Manufacture and sale of protective electronic coatings

Rye, East Sussex, England

 

 

36,600

 

 

Owned

 

Manufacture and sale of protective coatings and tape products

Paris, France

 

 

1,350

 

 

Leased

 

Sales/technical service office and warehouse allowing direct sales and service to the French market

Mississauga, Canada

 

 

2,500

 

 

Leased

 

Distribution center for Canadian market supply chain demands

Rotterdam, Netherlands

 

 

2,500

 

 

Leased

 

Distribution center for European market supply chain demands

Suzhou, China

 

 

48,000

 

 

Leased

 

Manufacture of packaging tape products for the electronics industries

(a)
In October 2013, the Insulfab® business that is manufactured at our Taylorsville, NC facility was sold to an unrelated third party. Along with the sale of the business, the third party assumed the lease of this facility.

        The above facilities range in age from new to about 100 years, are generally in good condition and, in the opinion of management, adequate and suitable for present operations. We also own equipment and machinery that is in good repair and, in the opinion of management, adequate and suitable for present operations. We could significantly add to our capacity by increasing shift operations. Availability of machine hours through additional shifts would provide expansion of current product volume without significant additional capital investment.

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ITEM 3—LEGAL PROCEEDINGS

        We are involved from time to time in litigation incidental to the conduct of our business. Although we do not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on our financial condition, results of operations or cashflows, litigation is inherently unpredictable. Therefore, judgments could be rendered or settlements entered, that could adversely affect our operating results or cash flows in a particular period. We routinely assess all of our litigation and threatened litigation as to the probability of ultimately incurring a liability, and record our best estimate of the ultimate loss in situations where we assess the likelihood of loss as probable.

ITEM 4—MINE SAFETY DISCLOSURES

        Not applicable.

ITEM 4A—EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table sets forth information concerning our Executive Officers as of August 31, 2013. Each of our Executive Officers is selected by our Board of Directors and holds office until his successor is elected and qualified.

Name
  Age   Offices Held and Business Experience during the Past Five Years
Peter R. Chase     65   Chairman of the Board of the Company since February 2007, and Chief Executive Officer of the Company since September 1993.

Adam P. Chase

 

 

41

 

President of the Company since January 2008, Chief Operating Officer of the Company since February 2007. Adam Chase is the son of Peter Chase.

Kenneth L. Dumas

 

 

42

 

Chief Financial Officer and Treasurer of the Company since February 2007.

12



PART II

ITEM 5—MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock is traded on the NYSE MKT under the symbol CCF. As of October 31, 2013, there were 405 shareholders of record of our Common Stock and we believe that there were approximately 3,092 beneficial shareholders who held shares in nominee name. On that date, the closing price of our common stock was $30.26 per share as reported by the NYSE MKT.

        The following table sets forth the high and low daily sales prices for our common stock as reported by the NYSE MKT for each quarter in the fiscal years ended August 31, 2013 and 2012:

 
  Fiscal 2013   Fiscal 2012  
 
  High   Low   High   Low  

First Quarter

  $ 19.00   $ 15.51   $ 15.20   $ 9.83  

Second Quarter

    19.68     17.02     16.94     12.25  

Third Quarter

    19.94     16.98     16.46     11.49  

Fourth Quarter

    30.75     19.52     17.07     10.80  

        Single annual cash dividend payments were declared and paid subsequent to year end in the amounts of $0.45, $0.40, and $0.35 per common share, for the years ended August 31, 2013, 2012 and 2011, respectively. Certain of our borrowing facilities contain financial covenants which may have the effect of limiting the amount of dividends that we can pay.

Comparative Stock Performance

        The following line graph compares the yearly percentage change in our cumulative total shareholder return on the Common Stock for the last five fiscal years with the cumulative total return on the Standard & Poor's 500 Stock Index (the "S&P 500 Index"), and a composite peer index that is weighted by market equity capitalization (the "Peer Group Index"). The companies included in the Peer Group Index are American Biltrite Inc., Material Sciences Corporation, H.B. Fuller Company, Quaker Chemical Corporation and RPM International, Inc. Cumulative total returns are calculated assuming that $100 was invested on August 31, 2008 in each of the Common Stock, the S&P 500 Index and the Peer Group Index, and that all dividends were reinvested.

GRAPHIC

 
  2008   2009   2010   2011   2012   2013  

Chase Corp

  $ 100   $ 68   $ 76   $ 79   $ 103   $ 192  

S&P 500 Index

  $ 100   $ 82   $ 86   $ 102   $ 120   $ 142  

Peer Group Index

  $ 100   $ 77   $ 84   $ 105   $ 144   $ 185  

        The information under the caption "Comparative Stock Performance" above is not deemed to be "filed" as part of this Annual Report, and is not subject to the liability provisions of Section 18 of the Securities Exchange Act of 1934. Such information will not be deemed to be incorporated by reference into any filing we make under the Securities Act of 1933 unless we explicitly incorporate it into such a filing at the time.

13


ITEM 6—SELECTED FINANCIAL DATA

        The following selected financial data should be read in conjunction with "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8—Financial Statements and Supplementary Data."

 
  Fiscal Years Ended August 31,  
 
  2013   2012   2011   2010   2009  
 
  (In thousands, except per share amounts)
 

Statement of Operations Data

                               

Revenues from continuing operations

  $ 216,062   $ 148,919   $ 123,040   $ 118,743   $ 91,236  
                       

Income from continuing operations, net of taxes

  $ 16,740   $ 9,264   $ 10,931   $ 10,726   $ 5,315  

Income from discontinued operations, net of taxes

                1,790     1,070  
                       

Net income

  $ 16,740   $ 9,264   $ 10,931   $ 12,516   $ 6,385  

Add: net loss attributable to non-controlling interest

    474     74              
                       

Net income attributable to Chase Corporation          

  $ 17,214   $ 9,338   $ 10,931   $ 12,516   $ 6,385  

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

                               

Basic:

                               

Continuing operations

  $ 1.90   $ 1.03   $ 1.22   $ 1.22   $ 0.62  

Discontinued operations

                0.20     0.13  
                       

Net income per common and common equivalent share

  $ 1.90   $ 1.03   $ 1.22   $ 1.42   $ 0.75  

Diluted:

                               

Continuing operations

  $ 1.87   $ 1.03   $ 1.22   $ 1.21   $ 0.60  

Discontinued operations

                0.20     0.12  
                       

Net income per common and common equivalent share

  $ 1.87   $ 1.03   $ 1.22   $ 1.41   $ 0.72  

Balance Sheet Data

                               

Total assets

  $ 224,360   $ 214,832   $ 128,909   $ 123,201   $ 91,066  

Long-term debt

    58,800     64,400     8,267     12,667      

Total stockholders' equity

    113,860     99,645     91,880     81,531     70,213  

Cash dividends paid per common and common equivalent share

 
$

0.40
 
$

0.35
 
$

0.35
 
$

0.20
 
$

0.35
 

        The Electronic Manufacturing Services business was sold in June 2010 and the financial results of this previously reported segment are classified as discontinued operations in the above financial data schedule.

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ITEM 7—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion provides an analysis of our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of this Annual Report on Form 10-K.

Selected Relationships within the Consolidated Statements of Operations

 
  Years Ended August 31,  
 
  2013   2012   2011  
 
  (Dollars in thousands)
 

Revenues

  $ 216,062   $ 148,919   $ 123,040  
               

Net income

  $ 16,740   $ 9,264   $ 10,931  

Add: net loss attributable to non-controlling interest

    474     74      
               

Net income attributable to Chase Corporation

  $ 17,214   $ 9,338   $ 10,931  
               

Increase in revenues from prior year

                   

Amount

  $ 67,143   $ 25,879   $ 4,297  

Percentage

    45 %   21 %   4 %

Increase/(Decrease) in net income, net of taxes from prior year

                   

Amount

  $ 7,476   $ (1,667 ) $ 205  

Percentage

    80 %   (15 )%   2 %

Percentage of revenues:

                   

Revenues

    100 %   100 %   100 %

Expenses:

                   

Cost of products and services sold

    68 %   68 %   65 %

Selling, general and administrative expenses

    20     21     22  

Acquisition related costs

        2      
               

Income before income taxes

    12     9     13  

Income taxes

    4     3     4  
               

Net income

    8 %   6 %   9 %
               

Overview

        Benefitting from having the operating results of NEPTCO, which was acquired in June 2012, included for the full fiscal year, the Company set record highs in fiscal 2013 for both revenues and net income. Additionally, favorable product mix and our continued efforts to consolidate production facilities, streamline operations and reduce overhead costs have improved our profitability. Revenues from the Industrial Materials segment exceeded prior year results primarily due to the inclusion of sales from NEPTCO as well as increased sales from our electronic coatings, laminated durable paper, and wire and cable products. These favorable sales were partially offset by a reduction in our product sales to our aerospace and transportation markets compared to those realized in the prior year.

        Revenues from our Construction Materials segment were slightly down from the prior year primarily due to decreased project demand earlier in the fiscal year from our pipeline coatings products produced at our UK facility. These decreases were partially offset by increased sales of our pipeline products and coating and lining systems, as well as increased demand for our private label products, which are all manufactured domestically. Additionally, in the fourth quarter of fiscal 2013, we started to see increased order activity for certain Middle East infrastructure project work that was previously delayed.

        In the upcoming fiscal year, we will continue with our integration of NEPTCO operations, as well as our global ERP system implementation which was initiated in fiscal 2013 and will continue through December 2014. Additionally, consolidation efforts will remain a priority and other key strategies will include targeted marketing initiatives supported by new product development, as well as continued emphasis on identifying potential acquisition targets. Our balance sheet continues to remain strong, with cash on hand of $30.0 million and a current ratio of 3.1. Our $15.0 million line of credit is fully available, while the balance of our term debt is $64.4 million.

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        The Company has two reportable segments summarized below:

Segment
  Product Lines   Manufacturing Focus and Products

Industrial Materials

   

Wire and Cable Materials

Electronic Coatings

Custom Products

NEPTCO Products

  Protective coatings and tape products including insulating and conducting materials for wire and cable manufacturers, moisture protective coatings for electronics and printing services, laminated durable papers, flexible composites and laminates for the packaging and industrial laminate markets, pulling and detection tapes used in the installation, measurement and location of fiber optic cables, water and natural gas lines, and cover tapes essential to delivering semiconductor components via tape and reel packaging; the joint venture also produces fiber optic strength elements designed to allow fiber optic cables to withstand mechanical and environmental strain and stress (see Note 15 to the Consolidated Financial Statements included in this Report for further details regarding the joint venture).

Construction Materials

   

Pipeline Coatings

Construction Products

Coating & Lining Systems

Private Label

 

Protective coatings and tape products including coating and lining systems for use in liquid storage and containment applications, protective coatings for pipeline and general construction applications, high performance polymeric asphalt additives, and expansion and control joint systems for use in the transportation and architectural markets.

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Results of Operations

Revenues and Operating Profit by Segment are as follows:

 
  Revenues   Income Before
Income Taxes
  % of
Revenues
 
 
  (Dollars in thousands)
   
 

Fiscal 2013

                   

Industrial Materials

  $ 163,474   $ 26,400  (a)   16 %

Construction Materials

    52,588     6,463     12 %
                 

  $ 216,062     32,863     15 %
                   

Less corporate and common costs

          (7,053 )(b)      
                   

Income before income taxes

        $ 25,810        
                   

Fiscal 2012

                   

Industrial Materials

  $ 95,988   $ 17,643  (c)   18 %

Construction Materials

    52,931     4,913     9 %
                 

  $ 148,919     22,556     15 %
                   

Less corporate and common costs

          (8,560 )(d)      
                   

Income before income taxes

        $ 13,996        
                   

Fiscal 2011

                   

Industrial Materials

  $ 75,744   $ 16,850  (e)   22 %

Construction Materials

    47,296     4,452     9 %
                 

  $ 123,040     21,302     17 %
                   

Less corporate and common costs

          (5,129 )      
                   

Income before income taxes

        $ 16,173        
                   

(a)
Includes $564 of expenses related to inventory step up in fair value related to the NEPTCO acquisition, $521 of pension related settlement costs due to the timing of lump sum distributions, and idle facility costs of $185 from our Paterson, NJ and Randolph, MA facilities.

(b)
Includes $595 of pension related settlement costs due to the timing of lump sum distributions.

(c)
Includes $828 of expenses related to inventory step up in fair value related to the NEPTCO acquisition, $303 of pension related settlement costs due to the timing of lump sum distributions, and idle facility costs of $270 from our Paterson, NJ and Webster, MA facilities.

(d)
Includes $3,206 in acquisition related expenses, partially offset by a gain of $425 related to Evanston, IL sale leaseback transaction

(e)
Includes idle facility costs of $706 from our Paterson, NJ and Oxford, MA facilities

Total Revenues

        Total revenues in fiscal 2013 increased $67,143,000 or 45% to $216,062,000 from $148,919,000 in the prior year. Revenues in our Industrial Materials segment increased $67,486,000 or 70% to $163,474,000 for the year ended August 31, 2013 compared to $95,988,000 in fiscal 2012. The increase in revenues from our Industrial Materials segment in fiscal 2013 was primarily due to increased sales of: (a) $63,452,000 from NEPTCO product offerings which we acquired in the fourth quarter of the last fiscal year; (b) $3,779,000 from our global electronic coatings product line; and (c) $2,253,000 from our laminated durable paper products. These increases were partially offset by decreased sales in the aerospace and transportation market of $835,000.

        Revenues from our Construction Materials segment decreased $343,000 or 1% to $52,588,000 for the year ended August 31, 2013 compared to $52,931,000 for fiscal 2012. The decreased sales from our Construction Materials segment in fiscal 2013 was primarily due to reduced sales of $2,266,000 in pipeline products produced at our UK facility as a result of lower project demand primarily in the Middle East, as well as decreased sales of

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$2,108,000 from our highway construction products. These decreases were partially offset by increased sales of: (a) $2,397,000 from our coating and lining systems; (b) $827,000 from pipeline products produces at our North America facilities; and (c) $805,000 from our private label products due to increased demand from some of our key customers.

        Royalties and commissions in the Industrial Materials segment were $2,414,000, $2,425,000 and $2,122,000 for the years ended August 31, 2013, 2012 and 2011, respectively. The increase in royalties and commissions in both fiscal 2013 and 2012 over fiscal 2011 was due to increased sales of electronic coating products by our licensed manufacturer in Asia.

        Export sales from domestic operations to unaffiliated third parties were $22,827,000, $21,204,000 and $19,715,000 for the years ended August 31, 2013, 2012 and 2011, respectively. The growth in our export sales in both fiscal 2013 and 2012 was due to export sales from our NEPTCO products.

        Total revenues in fiscal 2012 increased $25,879,000 or 21% to $148,919,000 from $123,040,000 in the prior year. Revenues in our Industrial Materials segment increased $20,244,000 or 27% to $95,988,000 for the year ended August 31, 2012 compared to $75,744,000 in fiscal 2011. The increase in revenues from our Industrial Materials segment in fiscal 2012 was primarily due to: (a) sales of $14,826,000 from NEPTCO operations, which we acquired in June 2012; (b) increased sales of $4,912,000 from our wire and cable product line as we continued to benefit from strong demand in the power cable and communication cable markets; and (c) increased sales of $1,492,000 from our laminated durable paper products. These increases were partially offset by decreased sales in the aerospace and transportation market of $1,948,000. Revenues from our Construction Materials segment increased $5,635,000 or 12% to $52,931,000 for the year ended August 31, 2012 compared to $47,296,000 for fiscal 2011. The increased sales from our Construction Materials segment in fiscal 2012 were primarily due to increased sales of: (a) $2,923,000 from our pipeline products due to greater demand for products produced at our UK facility; (b) $1,805,000 from our highway construction products; and (c) $767,000 from our private label products due to increased demand from some of our key customers.

Cost of Products and Services Sold

        Cost of products and services sold increased $44,786,000 or 44% to $146,035,000 for the fiscal year ended August 31, 2013 compared to $101,249,000 in fiscal 2012. As a percentage of revenues, cost of products and services sold remained flat at 68% in fiscal 2013 and fiscal 2012.

        The following table summarizes the relative percentages of costs of products and services sold to revenues for both of our operating segments:

 
  Fiscal Years Ended
August 31,
Cost of products and services sold
  2013   2012   2011

Industrial Materials

  67%   67%   64%

Construction Materials

  68%   69%   67%
             

Total

  68%   68%   65%
             

        Cost of products and services sold in our Industrial Materials segment was $110,051,000 for the fiscal year ended August 31, 2013 compared to $64,539,000 in fiscal 2012. As a percentage of revenues, cost of products and services sold in this segment remained relatively flat year over year. The current fiscal year was negatively impacted by the following: (a) a full year of costs of the NEPTCO JV, which has higher cost of products sold as a percentage of revenues, as opposed to the prior year only including two months of the NEPTCO JV costs (acquired in June 2012); (b) the current year includes expenses of $564,000 due to the fair value inventory step up related to the NEPTCO acquisition; and (c) the current year includes accrued transition costs of $150,000 related to our move from our Randolph plant. These increases in costs were offset by a more favorable product sales mix in the current fiscal year, as well as the inclusion of the following costs in the prior fiscal year: (a) expense of $828,000 due to the fair value inventory step up related to the NEPTCO acquisition; (b) moving expenses of $324,000 related to our plant transition from Webster to Oxford and Camberley to Winnersh; (c) accrued transition costs of $550,000 related to our move from our Randolph plant; and (d) certain supplier inconsistencies that resulted in excess waste and incremental expenses of $345,000 related to the utilization of specialized testing facilities for analyzing incoming raw materials for proper specifications.

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        Cost of products and services sold in our Construction Materials segment was $35,984,000 for the fiscal year ended August 31, 2013 compared to $36,710,000 in fiscal 2012. As a percentage of revenues, cost of products and services sold in the Construction Materials segment decreased slightly due to a positive sales mix earlier in the fiscal year as we had increased sales of higher margin products coupled with decreased sales of lower margin products.

        In fiscal 2012, cost of products and services sold increased $20,932,000 or 26% to $101,249,000 for the fiscal year ended August 31, 2012 compared to $80,317,000 in fiscal 2011. As a percentage of revenues, cost of products and services sold increased to 68% in fiscal 2012 compared to 65% for fiscal 2011. Cost of products and services sold in our Industrial Materials segment was $64,539,000 for the fiscal year ended August 31, 2012 compared to $48,474,000 in fiscal 2011. As a percentage of revenues, cost of products and services sold in this segment increased due to the fair value inventory step up related to the NEPTCO acquisition, the moving expenses related to our plant transitions to Oxford and Winnersh, the accrued transition costs related to our Randolph plant, and supplier inconsistencies, each of which is noted above. Cost of products and services sold in our Construction Materials segment was $36,710,000 for the fiscal year ended August 31, 2012 compared to $31,843,000 in fiscal 2011. As a percentage of revenues, cost of products and services sold in the Construction Materials segment increased primarily due to higher raw material costs, increased sales of lower margin products, and decreased sales of higher margin products.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses increased $13,064,000 or 43% to $43,236,000 during fiscal 2013 compared to $30,172,000 in fiscal 2012. The dollar increase in fiscal 2013 was primarily attributable to increased sales as well as incremental expenses from NEPTCO, which was acquired in June 2012, and included amortization of additional intangible assets of $2,209,000. Additionally, the current year includes $595,000 of pension related settlement costs due to the timing of lump sum distributions, as well as $1,700,000 of increased incentive compensation expense due to the fiscal 2013 financial results, increased incentive compensation for NEPTCO employees, and overall plan design. As a percentage of revenues, however, selling, general and administrative expenses decreased to 20% of total revenues in fiscal 2013 compared to 21% for fiscal 2012. The percentage decrease is attributable to management's continued emphasis on controlling costs, including reduced travel, advertising, and other selling related expenses.

        During fiscal 2012, selling, general and administrative expenses increased $3,392,000 to $30,172,000, compared to $26,780,000 in fiscal 2011. As a percentage of revenues, selling, general and administrative expenses decreased to 21% in fiscal 2012 compared to 22% for fiscal 2011. This decrease was primarily due to our continued emphasis on controlling costs and leveraging fixed overhead.

        In fiscal 2013, we had recoveries of previously identified bad debt that exceeded additions to bad debt expense for the year, resulting in a net gain of $114,000. The gain of $114,000 in fiscal 2013 compared to bad debt expense, net of recoveries, of $155,000 and $127,000 in fiscal 2012 and 2011, respectively. The increase in bad debt expense in fiscal 2012 was primarily due to financial difficulties for some of our international customers as well as overall increased receivable balances due to higher sales. We continue with our strict adherence to our established credit policies and continue to closely monitor the accounts receivable function while taking a proactive approach to the collections process.

Acquisition related costs

        In fiscal 2012, we incurred $3,206,000 of acquisition costs related to our acquisition of NEPTCO. This acquisition was accounted for as a business combination in accordance with the accounting standards, and as such all related professional service fees (i.e., banking, legal, accounting, actuarial, etc.) were expensed as incurred during the year ended August 31, 2012.

Interest Expense

        Interest expense increased $896,000 to $1,294,000 in fiscal 2013 compared to $398,000 in fiscal 2012. The increase in interest expense in fiscal 2013 as compared to fiscal 2012 is a direct result of incurring a full year of interest expense on the term note related to the June 2012 acquisition of NEPTCO. Interest expense increased $202,000 to $398,000 in fiscal 2012 compared to $196,000 in fiscal 2011 primarily due to the NEPTCO acquisition financing.

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Other Income

        Other income increased $211,000 to $313,000 in fiscal 2013 compared to $102,000 in fiscal 2012. Other income primarily includes interest income and foreign exchange gains and losses caused by changes in exchange rates on transactions or balances denominated in currencies other than the functional currency of our subsidiaries. The increase in other income in fiscal 2013 as compared to the prior year is primarily due to foreign exchange gains driven by the strengthening of the pound sterling during the current fiscal year.

        Other income decreased $324,000 to $102,000 in fiscal 2012 compared to $426,000 in fiscal 2011. In fiscal 2012, other income includes a gain of $425,000 recognized on deposit payments previously received on the sale of our Evanston, IL property. We took back control and ownership of this leased asset which was previously sold by us under a seller financing arrangement. The increase in other income is partially offset by the foreign exchange losses caused by the continued weakening of both the pound sterling and the euro.

Income Taxes

        The effective tax rate for fiscal 2013 was 35.1% as compared to 33.8% and 32.4% in fiscal 2012 and 2011, respectively. In all three years, we have received the benefit of the domestic production deduction and foreign rate differential. The increased effective tax rate in fiscal 2013 is primarily due to a less favorable effective state income tax rate than realized in the prior fiscal year. The effective tax rate of 33.8% for fiscal 2012 compares unfavorably to 2011 due to non-deductible acquisition related expenses, offset by a favorable effective state income tax rate.

Non-controlling Interest

        The net loss from non-controlling interest relates to a joint venture in which we have, through our NEPTCO subsidiary, a 50% ownership interest. The joint venture between NEPTCO and its joint venture partner (an otherwise unrelated party) is managed and operated on a day-to-day basis by NEPTCO. The purpose of this joint venture is to combine the elements of each member's fiber optic strength businesses.

Net Income attributable to Chase Corporation

        Net income in fiscal 2013 increased $7,876,000 or 84% to $17,214,000 compared to $9,338,000 in fiscal 2012. The increase in net income in fiscal 2013 was primarily due to the inclusion of NEPTCO, and the favorable mix on product sales as discussed previously. These increases were partially offset by expenses related to the acceleration of defined benefit plan settlement costs of $1,223,000 resulting from the timing of lump sum distributions to participants. Additionally, net income in the prior year period was negatively impacted by the following: (a) $3,206,000 in acquisition related expenses; (b) expenses of $828,000 in inventory fair value step up related to the NEPTCO acquisition; (c) plant transition and moving expenses of $874,000; and (d) accelerated pension settlement charges of $550,000 resulting from the timing of lump sum distributions.

        Net income in fiscal 2012 decreased $1,593,000 or 15% to $9,338,000 compared to $10,931,000 in fiscal 2011. The decrease in net income in fiscal 2012 was a result of the following factors: (a) $3,206,000 in acquisition related expenses; (b) expenses of $828,000 in inventory fair value step up related to the NEPTCO acquisition; and (c) acceleration of defined benefit plan settlement costs of $550,000 resulting from the timing of lump sum distributions to participants. In addition, there was an increase in plant transition and moving expenses of $874,000 during fiscal 2012.

Other Important Performance Measures

        We believe that EBITDA and Adjusted EBITDA are useful performance measures. They are used by our executive management team and board of directors to measure operating performance, to allocate resources, to evaluate the effectiveness of our business strategies and to communicate with our board of directors and investors concerning our financial performance. EBITDA and Adjusted EBITDA are non-GAAP financial measures.

        We define EBITDA as follows: net income attributable to Chase Corporation before interest expense from borrowings, income tax expense, depreciation expense from fixed assets, and amortization from intangible assets. We define Adjusted EBITDA as EBITDA excluding costs related to our acquisitions, costs of products sold related to inventory step-up to fair value, and settlement (gains) or losses resulting from lump sum distributions to participants from our defined benefit plan.

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        The use of EBITDA and Adjusted EBITDA has limitations and these performance measures should not be considered in isolation from, or as an alternative to, U.S. GAAP measures such as net income. Our measurement of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

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

 
  Years Ended August 31,  
 
  2013   2012   2011  

Net income attributable to Chase Corporation

  $ 17,214   $ 9,338   $ 10,931  

Interest expense

    1,294     398     196  

Income taxes

    9,070     4,775     5,242  

Depreciation expense

    5,872     3,262     2,759  

Amortization expense

    4,793     2,710     2,309  
               

EBITDA

  $ 38,243   $ 20,483   $ 21,437  

Acquisition related costs (a)

        3,206      

Cost of sale of inventory step-up (b)

    564     828      

Pension curtailment and settlement costs (c)

    1,223     550      
               

Adjusted EBITDA

  $ 40,030   $ 25,067   $ 21,437  
               

(a)
Represents costs related to our June 2012 acquisition of NEPTCO

(b)
Represents expenses related to the step-up in fair value of inventory through purchase accounting from the June 2012 acquisition of NEPTCO

(c)
Represents pension related curtailment and settlement costs due to the timing of lump sum distributions

Liquidity and Sources of Capital

        Our cash balance increased $14,817,000 to $29,997,000 at August 31, 2013 from $15,180,000 at August 31, 2012. This was a result of cash flows generated from operations during the fiscal year, offset by principal payments on outstanding debt, equipment purchases, and payment of our fiscal 2012 annual dividend. Our cash balance increased $198,000 to $15,180,000 at August 31, 2012 from $14,982,000 at August 31, 2011. The increased cash balance at August 31, 2012 was a result of cash flows generated from operations during the fiscal year and $7,268,000 in cash acquired as part of the NEPTCO acquisition, offset by principal payments on outstanding debt, equipment purchases, and payment of our annual dividend.

        Cash provided by operations was $28,157,000 for the year ended August 31, 2013 compared to $13,946,000 in fiscal 2012 and $9,303,000 in fiscal 2011. Cash provided by operations during fiscal 2013 was primarily due to operating income, offset by decreased accrued expenses and increased inventory balances. Cash provided by operations during fiscal 2012 was primarily due to operating income and decreased inventory as a result of higher sales volumes, offset by decreased accounts payable and increased accounts receivable balances. Cash provided by operations during fiscal 2011 was primarily due to operating income offset by increased purchases of inventory, as we strategically built up our inventory to facilitate certain manufacturing plant transition plans, and made bulk purchases of key raw materials to take advantage of favorable pricing terms.

        The ratio of current assets to current liabilities was 3.1 as of August 31, 2013 compared to 2.8 as of August 31, 2012. The increase in our current ratio at August 31, 2013 was primarily attributable to an increase in our overall cash balance due to cash flows generated from operations during the fiscal year, as well as the classification of the Insulfab product line assets being held for sale as of fiscal year end (see Note 18 to the consolidated financial statements included in this Report).

        Cash used in investing activities was $3,580,000 for the year ended August 31, 2013 compared to $67,090,000 in fiscal 2012 and $4,172,000 in fiscal 2011. During fiscal 2013, cash used in investing activities was primarily due to $3,043,000 paid for purchases of machinery and equipment at our manufacturing locations, and $354,000 of professional legal services for new patent work that have been capitalized as intangibles. During fiscal 2012, cash used in investing activities was primarily due to payments totaling $62,217,000, net of cash

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acquired, for the acquisition of NEPTCO and $5,230,000 paid for purchases of machinery and equipment at our manufacturing locations. During fiscal 2011, cash used in investing activities was primarily due to $1,930,000 paid for machinery and equipment and improvements made for our Oxford, MA facility, $827,000 paid for machinery and equipment and improvements made for our facility in O'Hara Township, PA, $605,000 paid related to the build out of our leased property in Winnersh, UK, and cash paid for purchases of machinery and equipment at our other manufacturing locations. These cash outflows were partially offset by additional proceeds during fiscal 2011 of $1,478,000 received from the sale of our Chase EMS business.

        Cash used in financing activities was $9,614,000 for the year ended August 31, 2013 compared to cash provided by financing activities of $53,508,000 in fiscal 2012 and cash used in financing activities of $7,729,000 in fiscal 2011. During fiscal 2013, cash used in finance activities was primarily due to our annual dividend payment and payments made on the bank loans used to finance our acquisition of NEPTCO. During fiscal 2012, cash provided by financing activities primarily resulted from $70,000,000 in term debt used to finance our acquisition of NEPTCO, offset by payments of $10,667,000 to retire our previously held term notes with Bank of America and RBS Citizens, payments on our line of credit arrangement, and payment of our annual dividend. Additionally, we paid the final two scheduled promissory note payments of $1,000,000 each to the former CIM shareholders in accordance with the CIM stock purchase agreement, described in more detail below. During fiscal 2011, cash used in financing activities reflected our annual dividend payment and payments made on the bank loans we used to finance our prior year acquisitions of CIM and ServiWrap. Additionally, we paid the first of three scheduled promissory note payments of $1,000,000 to the CIM shareholders in accordance with the CIM stock purchase agreement.

        On October 13, 2011, we announced a cash dividend of $0.35 per share (totaling $3,165,000) to shareholders of record on October 31, 2011 and payable on December 5, 2011.

        On October 23, 2012, we announced a cash dividend of $0.40 per share (totaling $3,626,000) to shareholders of record on November 2, 2012 and payable on December 5, 2012.

        On October 23, 2013, we announced a cash dividend of $0.45 per share (totaling approximately $4,080,000) to shareholders of record on November 5, 2013 and payable on December 4, 2013.

        In June 2012, as part of our acquisition of NEPTCO, we borrowed $70,000,000 under a five year term debt financing arrangement led and arranged by Bank of America, with participation from RBS Citizens (the "Credit Facility"). The applicable interest rate is based on the effective LIBOR plus a range of 1.75% to 2.25%, depending on our consolidated leverage ratio. At August 31, 2013, the applicable interest rate was 1.93% per annum and the outstanding principal amount was $64,400,000. We are required to repay the principal amount of the term loan in quarterly installments of $1,400,000 which began in September 2012 and continue through June 2014, increasing to $1,750,000 per quarter thereafter through June 2015, and to $2,100,000 per quarter thereafter through March 2017. The Credit Facility matures in June 2017. Prepayment of the Credit Facility is allowed at any time.

        As part of the financing for this acquisition, we also obtained a new revolving line of credit with Bank of America (the "Revolver") totaling $15,000,000, which replaced our then existing $10,000,000 line. The Revolver bears interest at LIBOR plus a range of 1.75% to 2.25%, depending on our consolidated leverage ratio, or, at our option, at the bank's base lending rate. As of August 31, 2013 and October 31, 2013, the entire amount of $15,000,000 was available for use. The Revolver is scheduled to mature in June 2017. This Revolver allows for increased flexibility for working capital requirements going forward, and we plan to use this availability to help finance our cash needs, including potential acquisitions, in fiscal 2014 and future periods.

        Our credit agreement with Bank of America, which outlines the terms of both the Credit Facility and the Revolver, contains customary affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness. It also requires us to maintain a ratio of consolidated indebtedness to consolidated EBITDA (each as defined in the credit agreement) of no more than 3.00 to 1.00, and to maintain a consolidated fixed charge coverage ratio (as calculated in the credit agreement) of at least 1.25 to 1.00. We were in compliance with our debt covenants as of August 31, 2013.

        We currently have several on-going capital projects that are important to our long term strategic goals. Machinery and equipment will also be added as needed to increase capacity or enhance operating efficiencies in our other manufacturing plants.

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        We may also consider the acquisition of companies or other assets this year or in future periods which are complementary to our business. We believe that our existing resources, including cash on hand and our Revolver, together with cash generated from operations and additional bank borrowings, will be sufficient to fund our cash flow requirements through at least the next twelve months. However, there can be no assurances that additional financing will be available on favorable terms, if at all.

        To the extent that interest rates increase in future periods, we will assess the impact of these higher interest rates on the financial and cash flow projections of our potential acquisitions.

        We have no material off balance sheet arrangements.

Contractual Obligations

        The following table summarizes our contractual cash obligations at August 31, 2013 and the effect such obligations are expected to have on our liquidity and cash flow in future periods.

Contractual Obligations
  Total   Payments Due
Less than 1 Year
  Payments Due
1 - 3 Years
  Payments Due
4 - 5 Years
  Payments
After 5 Years
 
 
  (Dollars in thousands)
 

Long-term debt including estimated interest

  $ 68,385   $ 6,845   $ 17,473   $ 44,067   $  

Operating leases

    7,243     856     1,379     1,302     3,706  

Capital leases

    40     17     23          

Purchase Obligations

    10,976     10,976              
                       

Total (1) (2)

  $ 86,644   $ 18,694   $ 18,875   $ 45,369   $ 3,706  
                       

(1)
We may be required to make payments related to our unrecognized tax benefits. However, due to the uncertainty of the timing of future cash flows associated with these unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits of $900,000 as of August 31, 2013 have been excluded from the contractual obligations table above. See Note 7 "Income Taxes" to the Consolidated Financial Statements for further information.

(2)
This table does not include the expected payments for our obligations for pension and other post-retirement benefit plans. As of August 31, 2013, we had recognized an accrued benefit liability of $7,840,000 representing the unfunded benefit obligations of the pension benefit plans. See Note 9 "Benefits and Pension Plans" to the Consolidated Financial Statements for further information, including expected pension benefit payments for the next 10 years.

Recently Issued Accounting Standards

        In July 2012, the Financial Accounting Standards Board ("FASB") issued ASU 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment." This ASU amends ASC 350, "Intangibles—Goodwill and Other" to allow entities an option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. Under that option, an entity no longer would be required to calculate the fair value of the intangible asset unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of ASU 2012-02 did not have an impact on our consolidated financial position, results of operations or cash flows.

        In February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This ASU expands the presentation of changes in accumulated other comprehensive income. The new guidance requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the net income statement or as a separate disclosure in the notes. ASU 2013-02 is effective for fiscal years beginning after December 15, 2012. The adoption of this ASU is only disclosure related and will not have an impact on our consolidated financial position, results of operations, comprehensive income or cash flows. ASU 2013-02 will become effective for us in fiscal 2014.

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Critical Accounting Policies, Judgments, and Estimates

        The U.S. Securities and Exchange Commission ("SEC") requires companies to provide additional disclosure and commentary on their most critical accounting policies. The SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and requires management to make its most significant estimates and judgments in the preparation of its consolidated financial statements. Our critical accounting policies are described below.

Accounts Receivable

        We evaluate the collectability of accounts receivable balances based on a combination of factors. In cases where we are aware of circumstances that may impair a specific customer's ability to meet its financial obligations to us, a specific allowance against amounts due to us is recorded, and thereby reduces the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and our historical experience. If the financial condition of our customers deteriorates or if economic conditions worsen, additional allowances may be required in the future, which could have an adverse impact on our future operating results.

Inventories

        We value inventory at the lower of cost or market using the first-in, first-out (FIFO) method. Management assesses the recoverability of inventory based on types and levels of inventory held, forecasted demand and changes in technology. These assessments require management judgments and estimates, and valuation adjustments for excess and obsolete inventory may be recorded based on these assessments. We estimate excess and obsolescence exposures based upon assumptions about future demand, product transitions, and market conditions and record adjustments to reduce inventories to their estimated net realizable value. The failure to accurately forecast demand may lead to additional excess and obsolete inventory and future charges.

Business Combinations

        We assign the value of the consideration transferred to acquire a business to the tangible assets and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. We assess the fair value of assets, including intangible assets, using a variety of methods and each asset is measured at fair value from the perspective of a market participant. The method used to estimate the fair values of intangible assets incorporates significant assumptions regarding the estimates a market participant would make in order to evaluate an asset, including a market participant's use of the asset and the appropriate discount rates for a market participant. Assets recorded from the perspective of a market participant that are determined to not have economic use for us are expensed immediately. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. Transaction costs and restructuring costs associated with a transaction to acquire a business are expensed as incurred.

Goodwill, Intangible Assets, and Other Long-Lived Assets

        Long-lived assets consist of goodwill, identifiable intangible assets, trademarks, patents and agreements and property, plant, and equipment. Intangible assets and property, plant, and equipment, excluding goodwill, are amortized using the straight-line method over their estimated useful life. We review long-lived assets and all intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

        Goodwill is also reviewed at least annually for impairment. We perform our annual goodwill impairment assessment during the fourth fiscal quarter of each year. When evaluating the potential impairment of goodwill we first assess a range of qualitative factors, including but not limited to, industry conditions, the competitive environment, changes in the market for our products and services, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of our reporting units relative to expected historical or projected future operating results. If after completing this assessment, it is determined that it is more that than likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to a two-step impairment testing methodology using the income approach (discounted cash flow method).

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        In the first step of this testing methodology, we compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, we then complete the second step of the impairment test to determine the amount of impairment to be recognized. In the second step, we estimate an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including intangible assets). If the carrying value of a reporting unit's goodwill exceeds its implied fair value, we record an impairment loss equal to the difference in that period.

        When required, we arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by particular assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, current and anticipated operating conditions, any terminal sales value at the end of the period under review. The cash flow estimates used to determine impairment, if any, contain management's best estimates, using appropriate and customary assumptions and projections at the time. See Note 4 to the Consolidated Financial Statements included in this Report.

Revenues

        We recognize revenue when persuasive evidence of an arrangement exists, performance of our obligation is complete, our price to the buyer is fixed or determinable, and we are reasonably assured of collecting. This is typically at the time of shipment or upon receipt by the customer based on contractual terms. If a loss is anticipated on any contract, a provision for the entire loss is made immediately. Revenue recognition involves judgments and assessments of expected returns, and the likelihood of nonpayment by customers. We analyze various factors, including a review of specific customer contracts and shipment terms, historical experience, creditworthiness of customers and current market and economic conditions in determining when to recognize revenue. Changes in judgments on these factors could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of operating income. Commissions are recognized when earned and payments are received from the manufacturers represented. Royalty revenue is recognized based on licensee production statements received from the authorized manufacturers. Billed shipping and handling fees are recorded as sales revenue with the associated costs recorded as costs of products and services sold.

Contingent Income Tax Liabilities

        We are subject to routine income tax audits that occur periodically in the normal course of business. Our contingent income tax liabilities are estimated based on the methodology prescribed in the guidance for accounting for uncertain tax positions, which we adopted as of the beginning of fiscal 2008. The guidance prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Our liabilities related to uncertain tax positions require an assessment of the probability of the income-tax-related exposures and settlements and are influenced by our historical audit experiences with various state and federal taxing authorities as well as by current income tax trends. If circumstances change, we may be required to record adjustments that could be material to our reported financial condition and results of operations. See Note 7 to the Consolidated Financial Statements included in this Report for more information on our accounting for uncertain tax positions.

Deferred Income Taxes

        We evaluate the need for a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. Should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Stock Based Compensation

        We measure compensation cost for share-based compensation at fair value, including estimated forfeitures, and recognize the expense over the period that the recipient is required to provide service in exchange for the award, which generally is the vesting period. We use the Black-Scholes option pricing model to measure the fair

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value of stock options. This model requires significant estimates related to the award's expected life and future stock price volatility of the underlying equity security. In determining the amount of expense to be recorded, we are also required to estimate forfeiture rates for awards, based on the probability that employees will complete the required service period. We estimate the forfeiture rate based on historical experience. If actual forfeitures differ significantly from our estimates, additional adjustments to compensation expense may be required in future periods.

Pension Benefits

        We sponsor a non-contributory defined benefit pension plan covering employees of certain divisions of the Company. In calculating our retirement plan obligations and related expense, we make various assumptions and estimates. These assumptions include discount rates, benefits earned, expected return on plan assets, mortality rates, and other factors. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our pension obligations and future expense.

        Effective December 1, 2008, the defined benefit pension plan was amended to include a soft freeze whereby any employee hired after the effective date of December 1, 2008 will not be admitted to the plan. The only exception relates to employees of the International Association of Machinists and Aerospace Workers Union whose contract was amended recently to include a soft freeze whereby any employees hired after the effective date of July 15, 2012 will not be admitted to the plan. All eligible participants who were previously admitted to the plan prior to the December 1, 2008 and July 15, 2012 soft freeze dates, respectively, will continue to accrue benefits as detailed in the plan agreements.

        NEPTCO has a defined benefit pension plan covering substantially all of our union employees at our Pawtucket, RI plant. This plan was frozen effective October 31, 2006, and as a result, no new participants can enter the plan and the benefits of current participants were frozen as of that date. The benefits are based on years of service and the employee's average compensation during the earlier of five years before retirement, or October 31, 2006.

        We account for our pension plans following the requirements of ASC Topic 715, "Compensation—Retirement Benefits" ("ASC 715"). ASC 715 requires an employer to: (a) recognize in its statement of financial position the funded status of a benefit plan; (b) measure defined benefit plan assets and obligations as of the end of the employer's fiscal year (with limited exceptions); and (c) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise but are not recognized as components of net periodic benefit costs pursuant to prior existing guidance.

Impact of Inflation

        Inflation has not had a significant long-term impact on our earnings. In the event of significant inflation, our efforts to recover cost increases would be hampered as a result of the competitive nature of the industries in which we operate.

Forward-Looking Information

        From time to time, we may publish, verbally or in written form, forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, acquisition or consolidation strategies, anticipated sources of capital, research and development activities and similar matters. In fact, this Form 10-K (or any other periodic reporting documents required by the Securities Exchange Act of 1934, as amended) may contain forward-looking statements reflecting our current views concerning potential or anticipated future events or developments, including our strategic goals for future fiscal periods. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance and that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties which may affect the operations, performance, development and results of our business include, but are not limited to, the following: uncertainties relating to economic conditions; uncertainties relating to customer plans and commitments; the pricing and availability of equipment, materials and inventories; the impact of acquisitions on our business and results of operations; technological developments; performance issues with suppliers and subcontractors; our ability to renew existing credit facilities or to obtain new or additional financing as needed; economic growth; delays in testing of new products; our ability to comply with new regulatory requirements without undue expense or other difficulties; rapid technology changes and the highly competitive environment in which we operate. These risks and uncertainties

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also include those risks outlined under Item 1A (Risk Factors) of this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We limit the amount of credit exposure to any one issuer. At August 31, 2013, other than our restricted investments (which are restricted for use in a non-qualified retirement savings plan for certain key employees and members of the Board of Directors), all of our funds were either in demand deposit accounts or investment instruments that meet high credit quality standards such as money market funds, government securities, or commercial paper.

        Our domestic operations have limited currency exposure since substantially all transactions are denominated in U.S. dollars. However, our European operations are subject to currency exchange fluctuations. We continue to review our policies and procedures to reduce this exposure while maintaining the benefit from these operations and sales to other European currency denoted customers. As of August 31, 2013, the Company had cash balances in the following foreign currencies (with USD equivalents):

Currency Code
  Currency Name   USD Equivalent at
August 31, 2013
 

GBP

  British Pound   $ 6,473,000  

EUR

  Euro   $ 2,530,000  

CNY

  Chinese Yuan   $ 157,000  

CAD

  Canadian Dollar   $ 102,000  

        We will continue to review our current cash balances denominated in foreign currency in light of current tax guidelines and potential acquisitions.

        We recognized a foreign currency translation loss for the year ended August 31, 2013 in the amount of $419,000 related to our European operations which is recorded in other comprehensive income (loss) within our Statement of Equity. We do not have or utilize any derivative financial instruments.

        We pay interest on our outstanding long-term debt at interest rates that fluctuate based upon changes in various base interest rates. The carrying value of our long-term debt was $64,400,000 at August 31, 2013. See "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Capital" and Note 16—"Fair Value Measurements" to the Consolidated Financial Statements for additional information regarding our outstanding long-term debt. The effect of an immediate hypothetical 10% change in variable interest rates would not have a material effect on our Consolidated Financial Statements.

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ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The following Consolidated Financial Statements of Chase Corporation are filed as part of this Annual Report on Form 10-K:

        Index to Consolidated Financial Statements:

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Chase Corporation:

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, equity and cash flows present fairly, in all material respects, the financial position of Chase Corporation and its subsidiaries at August 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Item 9A, "Management's Report on Internal Control over Financial Reporting." Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Boston, MA
November 14, 2013

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CHASE CORPORATION

CONSOLIDATED BALANCE SHEETS

In thousands, except share and per share amounts

 
  August 31,  
 
  2013   2012  

ASSETS

             

Current Assets

             

Cash & cash equivalents

  $ 29,997   $ 15,180  

Accounts receivable, less allowance for doubtful accounts of $696 and $817

    32,084     31,621  

Inventories

    32,048     32,323  

Prepaid expenses and other current assets

    1,826     1,810  

Assets held for sale

    1,905      

Deferred income taxes

    2,115     2,208  
           

Total current assets

    99,975     83,142  

Property, plant and equipment, net

   
45,192
   
49,279
 

Other Assets

             

Goodwill

    37,815     37,785  

Intangible assets, less accumulated amortization of $17,554 and $12,847

    31,781     36,363  

Cash surrender value of life insurance

    7,278     7,145  

Restricted investments

    1,094     874  

Funded pension plan

    1,014      

Other assets

    211     244  
           

  $ 224,360   $ 214,832  
           

LIABILITIES AND EQUITY

             

Current Liabilities

             

Accounts payable

  $ 12,416   $ 11,559  

Accrued payroll and other compensation

    7,046     5,219  

Accrued expenses

    5,171     6,005  

Accrued income taxes

    2,161     1,892  

Current portion of long-term debt

    5,600     5,600  
           

Total current liabilities

    32,394     30,275  

Long-term debt, less current portion

   
58,800
   
64,400
 

Deferred compensation

    1,897     1,775  

Accumulated pension obligation

    7,834     7,702  

Other liabilities

    108     92  

Deferred income taxes

    9,467     10,943  
           

Commitments and Contingencies (Notes 6, 8 and 19)

             

Equity

             

First Serial Preferred Stock, $1.00 par value: Authorized 100,000 shares; none issued

             

Common stock, $.10 par value: Authorized 20,000,000 shares; 9,066,115 shares at August 31, 2013 and 9,001,582 shares at August 31, 2012 issued and outstanding

    907     900  

Additional paid-in capital

    13,336     12,109  

Accumulated other comprehensive loss

    (5,163 )   (5,030 )

Retained earnings

    103,734     90,146  
           

Chase Corporation stockholders' equity

    112,814     98,125  

Non-controlling interest related to NEPTCO joint venture (Note 15)

    1,046     1,520  
           

Total equity

    113,860     99,645  
           

Total liabilities and equity

  $ 224,360   $ 214,832  
           

   

See accompanying notes to the consolidated financial statements.

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CHASE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except share and per share amounts

 
  Years Ended August 31,  
 
  2013   2012   2011  

Revenues

                   

Sales

  $ 213,648   $ 146,494   $ 120,918  

Royalties and commissions

    2,414     2,425     2,122  
               

    216,062     148,919     123,040  
               

Costs and Expenses

                   

Cost of products and services sold

    146,035     101,249     80,317  

Selling, general and administrative expenses

    43,236     30,172     26,780  

Acquisition related costs

        3,206      
               

Operating income

    26,791     14,292     15,943  

Interest expense

   
(1,294

)
 
(398

)
 
(196

)

Other income

    313     102     426  
               

Income before income taxes

    25,810     13,996     16,173  

Income taxes

   
9,070
   
4,732
   
5,242
 
               

Net income

  $ 16,740   $ 9,264   $ 10,931  

Add: net loss attributable to non-controlling interest

    474     74      
               

Net income attributable to Chase Corporation

  $ 17,214   $ 9,338   $ 10,931  
               

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

                   

Basic

  $ 1.90   $ 1.03   $ 1.22  

Diluted

  $ 1.87   $ 1.03   $ 1.22  

Weighted average shares outstanding

                   

Basic

    8,860,972     8,761,262     8,721,452  

Diluted

    8,978,438     8,786,750     8,763,808  

   

See accompanying notes to the consolidated financial statements.

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CHASE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In thousands, except share and per share amounts

 
  Years Ended August 31,  
 
  2013   2012   2011  

Net income

  $ 16,740   $ 9,264   $ 10,931  

Other comprehensive income:

                   

Net unrealized gain on restricted investments, net of tax of $20, $20 and $21, respectively

    85     33     35  

Change in funded status of pension plans, net of tax of $281, $297 and $232, respectively

    201     (493 )   (389 )

Foreign currency translation adjustment

    (419 )   (904 )   1,418  
               

Total other comprehensive income (loss)

    (133 )   (1,364 )   1,064  
               

Comprehensive income

    16,607     7,900     11,995  

Comprehensive loss attributable to non-controlling interest

    474     74      
               

Comprehensive income attributable to Chase Corporation

  $ 17,081   $ 7,974   $ 11,995  
               

   

See accompanying notes to the consolidated financial statements.

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CHASE CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

In thousands, except share and per share amounts

 
  Common Stock    
  Accumulated
Other
Comprehensive
Income (loss)
   
   
   
   
 
 
  Additional
Paid-In
Capital
  Retained
Earnings
  Chase
Stockholders'
Equity
  Non-controlling
Interest
  Total
Equity
 
 
  Shares   Amount  
Balance at August 31, 2010     8,780,988   $ 878   $ 9,210   $ (4,730 ) $ 76,173   $ 81,531   $   $ 81,531  

Restricted stock grants, net of forfeitures

    132,985     13     (13 )                          

Amortization of restricted stock grants

                1,138                 1,138           1,138  

Amortization of stock option grants

                530                 530           530  

Common stock issuance

    823           14                 14           14  

Exercise of stock options

    73,500     7     379                 386           386  

Common stock received for payment of stock option exercises

    (23,053 )   (2 )   (384 )               (386 )         (386 )

Excess tax benefit (expense) from stock based compensation

                (37 )               (37 )         (37 )

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

    (12,333 )   (1 )   (159 )               (160 )         (160 )

Cash dividend paid, $0.35 per share

                            (3,131 )   (3,131 )         (3,131 )

Change in funded status of pension plan, net of tax of $232

                      (389 )         (389 )         (389 )

Foreign currency translation adjustment

                      1,418           1,418           1,418  

Net unrealized gain on restricted investments, net of tax of $21

                      35           35           35  

Net income

                            10,931     10,931           10,931  
                                   
Balance at August 31, 2011     8,952,910   $ 895   $ 10,678   $ (3,666 ) $ 83,973   $ 91,880   $   $ 91,880  

Restricted stock grants, net of forfeitures

    98,135     10     (10 )                          

Amortization of restricted stock grants

                1,448                 1,448           1,448  

Amortization of stock option grants

                563                 563           563  

Common stock issuance

    2,205           29                 29           29  

Non-controlling Interest—NEPTCO joint venture

                                        1,594     1,594  

Excess tax benefit (expense) from stock based compensation

                209                 209           209  

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

    (51,668 )   (5 )   (808 )               (813 )         (813 )

Cash dividend paid, $0.35 per share

                            (3,165 )   (3,165 )         (3,165 )

Change in funded status of pension plan, net of tax of $297

                      (493 )         (493 )         (493 )

Foreign currency translation adjustment

                      (904 )         (904 )         (904 )

Net unrealized gain on restricted investments, net of tax of $20

                      33           33           33  

Net income

                            9,338     9,338     (74 )   9,264  
                                   
Balance at August 31, 2012     9,001,582   $ 900   $ 12,109   $ (5,030 ) $ 90,146   $ 98,125   $ 1,520   $ 99,645  

Restricted stock grants, net of forfeitures

    71,801     7     (7 )                    

Amortization of restricted stock grants

            1,145             1,145         1,145  

Amortization of stock option grants

            466             466         466  

Common stock issuance

    566     0     10             10         10  

Exercise of stock options

    49,042     5     557             562         562  

Common stock received for payment of stock option exercises

    (20,284 )   (2 )   (486 )           (488 )       (488 )

Excess tax benefit (expense) from stock based compensation

            622             622         622  

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

    (36,592 )   (3 )   (1,080 )           (1,083 )       (1,083 )

Cash dividend paid, $0.40 per share

                    (3,626 )   (3,626 )       (3,626 )

Change in funded status of pension plan, net of tax of $281

                201         201         201  

Foreign currency translation adjustment

                (419 )       (419 )       (419 )

Net unrealized gain on restricted investments, net of tax of $20

                85         85         85  

Net income

                    17,214     17,214     (474 )   16,740  
                                   
Balance at August 31, 2013     9,066,115   $ 907   $ 13,336   $ (5,163 ) $ 103,734   $ 112,814   $ 1,046   $ 113,860  
                                   

See accompanying notes to the consolidated financial statements.

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CHASE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

Dollars in thousands

 
  Years Ended August 31,  
 
  2013   2012   2011  

CASH FLOWS FROM OPERATING ACTIVITIES

                   

Net income

  $ 16,740   $ 9,264   $ 10,931  

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

                   

(Gain) loss on disposal/sale of fixed assets

    (8 )   32     (6 )

Depreciation

    5,872     3,172     2,759  

Amortization

    4,793     2,716     2,309  

Cost of sale of inventory step-up

    564     828      

Provision (recovery) for allowance for doubtful accounts

    (114 )   155     127  

Stock based compensation

    1,621     2,040     1,682  

Realized gain on restricted investments

    (51 )   (22 )   (18 )

Increase (decrease) in cash surrender value life insurance

    52     (37 )   37  

Pension curtailment and settlement loss

    1,223     550      

Excess tax (expense) benefit from stock based compensation          

    (622 )   (209 )   37  

Deferred taxes

    (1,385 )   (1,442 )   (527 )

Increase (decrease) from changes in assets and liabilities

                   

Accounts receivable

    (363 )   (1,717 )   (301 )

Inventories

    (1,240 )   942     (6,059 )

Prepaid expenses & other assets

    8     (55 )   (497 )

Accounts payable

    886     (2,683 )   522  

Accrued expenses

    (791 )   (174 )   (215 )

Accrued income taxes

    850     408     (1,555 )

Deferred compensation

    122     178     77  
               

Net cash provided by operating activities

    28,157     13,946     9,303  
               

CASH FLOWS FROM INVESTING ACTIVITIES

                   

Purchases of property, plant and equipment

    (3,043 )   (5,230 )   (4,496 )

Cost to acquire intangible assets

    (354 )   (74 )    

Contingent purchase price paid for acquisition

    (141 )   (358 )   (272 )

Payments for acquisitions, net of cash acquired

    84     (62,217 )    

Proceeds from sale of fixed assets

    105     1,032     11  

Net proceeds from sale of discontinued operations

            1,478  

Contributions from restricted investments, net

    (48 )   (60 )   (54 )

Payments for cash surrender value life insurance

    (183 )   (183 )   (839 )
               

Net cash used in investing activities

    (3,580 )   (67,090 )   (4,172 )
               

CASH FLOWS FROM FINANCING ACTIVITIES

                   

Borrowings on long-term debt

    313     79,331     3,538  

Payments of principal on debt

    (5,913 )   (22,054 )   (7,938 )

Dividend paid

    (3,626 )   (3,165 )   (3,131 )

Proceeds from exercise of common stock options

    74         386  

Payments of statutory minimum taxes on stock options and restricted stock

    (1,083 )   (813 )   (547 )

Excess tax (expense) benefit from stock based compensation

    621     209     (37 )
               

Net cash (used in) provided by financing activities

    (9,614 )   53,508     (7,729 )
               

INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS

    14,963     364     (2,598 )

Effect of foreign exchange rates on cash

    (146 )   (166 )   240  

CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD

    15,180     14,982     17,340  
               

CASH & CASH EQUIVALENTS, END OF PERIOD

  $ 29,997   $ 15,180   $ 14,982  
               

   

See note 13 for supplemental cash flow information including non-cash financing and investing activities
See accompanying notes to the consolidated financial statements.

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share amounts

Note 1—Summary of Significant Accounting Policies

        The principal accounting policies of Chase Corporation (the "Company") and its subsidiaries are as follows:

Products and Markets

        The Company's principal products are specialty tapes, laminates, sealants and coatings that are sold by Company salespeople, manufacturers' representatives and distributors. In the Company's Industrial Materials segment, these products consist of:

    (i)
    insulating and conducting materials for the manufacture of electrical and telephone wire and cable, electrical splicing, and terminating and repair tapes, which are marketed to wire and cable manufacturers;

    (ii)
    laminated film foils, composite strength elements, anti-static packaging tape and pulling tapes for the electronics and cable industries;

    (iii)
    moisture protective coatings, which are sold to the electronics industry including circuitry used in automobiles and home appliances;

    (iv)
    laminated durable papers, including laminated paper with an inner security barrier used in personal and mail-stream privacy protection, which are sold primarily to the envelope converting and commercial printing industries;

    (v)
    pulling and detection tapes used in the installation, measurement and location of fiber optic cables, water and natural gas lines, and power, data and video cables for commercial buildings;

    (vi)
    cover tapes with reliable adhesive and anti-static properties essential to delivering semiconductor components via tape and reel packaging; and

    (vii)
    flexible, rigid and semi-rigid fiber optic strength elements designed to allow fiber optic cables to withstand mechanical and environmental strain and stress, produced by NEPTCO's joint venture.

        In the Company's Construction Materials segment, these products consist of:

    (i)
    protective pipe coating tapes and other protectants for valves, regulators, casings, joints, metals, concrete and wood, which are sold to oil companies, gas utilities and pipeline companies;

    (ii)
    protectants for highway bridge deck metal supported surfaces, which are sold to municipal transportation authorities;

    (iii)
    fluid applied coating and lining systems for use in the water and wastewater industry; and

    (iv)
    expansion and control joint systems designed for roads, bridges, stadiums and airport runways.

Basis of Presentation

        The financial statements include the accounts of the Company and its wholly-owned subsidiaries. Investments in unconsolidated companies which are at least 20% owned are carried under the equity method since acquisition or investment. All intercompany transactions and balances have been eliminated in consolidation. The Company uses the U.S. dollar as the functional currency for financial reporting.

        As part of the Company's purchase of NEPTCO in June 2012, it also acquired NEPTCO's 50% ownership stake in its financially- controlled joint venture, NEPTCO JV LLC ("JV"). Given the Company's controlling financial interest, the JV's assets and liabilities as of August 31, 2013 and 2012, and the results of operations beginning June 27, 2012, have been consolidated within the Company's consolidated balance sheet and the related consolidated statements of operations and cash flows. An offsetting amount equal to 50% of net assets and net loss of the JV has also been recorded within the Company's consolidated financial statements to non-controlling interest, representing the joint venture partner's 50% ownership stake and pro rata share in net results of the JV.

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, and other than the October 2013 sale of the Company's Insulfab product line described in Note 18, and the cash dividend announced on October 23, 2013 of $0.45 per share to shareholders of record on November 5, 2013 payable on December 4, 2013, the Company is not aware of any other events or transactions that occurred subsequent to the balance sheet date, but prior to filing, that would require recognition or disclosure in its consolidated financial statements.

Revisions to Previously Issued Financial Statements

        During the third quarter of fiscal 2013, an immaterial error was identified in the presentation of two line items within the operating activities section of the Company's previously reported statement of cash flows for the year ended August 31, 2012. The Company revised the statement of cash flows to correct the presentation of two line items within the operating activities section. This revision to the statement of cash flows results in pension curtailment and settlement loss changing from ($550) to $550 and accrued compensation and other expenses changing from $926 to ($174) for the year ended August 31, 2012. There was no impact on the comparing balance sheet as of August 31, 2012 or the related statement of operations, statement of other comprehensive income, total cash provided by operating activities or overall cash flows.

        During the fourth quarter of fiscal 2013, the Company identified an immaterial error in the balance sheet classification of an item within the Company's previously reported unaudited financial statements for the first three quarters of fiscal 2013. In those fiscal quarters, the Company properly recorded pension settlement losses that resulted from lump sum distributions to pension plan participants in earnings but did not properly reclassify the amount out of Equity—Accumulated Other Comprehensive Income. As a result, the following unaudited balance sheet accounts were revised from their previously reported amounts:

 
  Previously reported (unaudited)
For the fiscal quarters ended,
  As Revised (unaudited)
For the fiscal quarters ended,
 
 
  11/30/12   2/28/13   5/31/13   11/30/12   2/28/13   5/31/13  

Liabilities and Equity

                                     

Accumulated pension obligation

    7,508     8,012     7,618     7,180     6,814     6,420  

Accrued income taxes

    1,460     11     1,058     1,573     424     1,471  

Accumulated other comprehensive loss                   

    (4,567 )   (5,916 )   (5,818 )   (4,353 )   (5,131 )   (5,033 )

        Accordingly, comprehensive income as previously reported in the unaudited financial statements, was understated by $214 and $571 for the fiscal quarters ended November 30, 2012 and February 28, 2013, respectively, and understated by $214, $785 and $785 for the fiscal year to date periods ended November 30, 2012, February 28, 2013 and May 31, 2013, respectively. Even though the correction of the error is not material to the financial statements for the fourth quarter of fiscal 2013, the Company revised the amounts previously reported in the unaudited interim-financial statements for the year ended August 31, 2013. There was no impact on the Company's unaudited statement of operations or statement of cash flows for any of the previously reported periods.

        During the fourth quarter of fiscal 2013, as part of the review of the final purchase price allocation related to the NEPTCO acquisition, additional information became available to the Company outside the measurement period that identified the need to correct the amount previously used in the calculation of the tax basis of the NEPTCO Joint Venture. This immaterial correction resulted in a decrease in the non-current deferred tax liabilities of $1,655, a decrease in the current deferred tax assets of $647, and a decrease to goodwill of $1,008 as of August 31, 2012. The Company has revised the prior period balance sheet to reflect the appropriate presentation of these line items. There was no impact on the working capital, statement of operations, statement of other comprehensive income, or cash flows.

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

        Cash and cash equivalents consist primarily of demand deposits accounts or investment instruments that meet high credit quality standards such as money market funds, government securities, or commercial paper. The Company considers all highly liquid debt instruments purchased with a maturity of three months or less from date of purchase to be cash equivalents.

Accounts Receivable

        The Company evaluates the collectability of accounts receivable balances based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer's ability to meet its financial obligations to it, a specific allowance against amounts due to the Company is recorded, and thereby reduces the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and its historical experience. Receivables are written off against these reserves in the period they are determined to be uncollectible.

Inventories

        The Company values inventory at the lower of cost or market using the first-in, first-out (FIFO) method. Management assesses the recoverability of inventory based on types and levels of inventory held, forecasted demand and changes in technology. These assessments require management judgments and estimates, and valuation adjustments for excess and obsolete inventory may be recorded based on these assessments. The Company estimates excess and obsolescence exposures based upon assumptions about future demand, product transitions, and market conditions and records reserves to reduce inventories to their estimated net realizable value. The failure to accurately forecast demand may lead to additional excess and obsolete inventory and future charges.

Goodwill

        The Company accounts for goodwill in accordance with ASC Topic 350, "Intangibles—Goodwill and Other." The Company identified several reporting units within each of its two operating segments. These are used to evaluate the possible impairment of goodwill annually each fourth quarter and whenever events or circumstances indicate the carrying value of goodwill may not be recoverable. When evaluating the potential impairment of goodwill, the Company will first assess a range of qualitative factors, including but not limited to, industry conditions, the competitive environment, changes in the market for our products and services, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of our reporting units relative to expected historical or projected future operating results. If after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company will then proceed to a two-step impairment testing methodology using the income approach (discounted cash flow method).

        In the first step of this testing methodology, we compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, we then complete the second step of the impairment test to determine the amount of impairment to be recognized. In the second step, we estimate an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including intangible assets). If the carrying value of a reporting unit's goodwill exceeds its implied fair value, we

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

record an impairment loss equal to the difference in that period. The key assumptions incorporated in the discounted cash flow approach include projected operating income, changes in working capital, projected capital expenditures, estimated terminal sales value and a discount rate equal to the assumed long-term cost of capital. Cash flows may be adjusted to exclude certain non-recurring or unusual items. The cash flow estimates used to determine impairment, if any, contain management's best estimates, using appropriate and customary assumptions and projections at the time.

Intangible Assets

        Intangible assets consist of patents, agreements, formulas, trade names, customer relationships and trademarks. The Company capitalizes costs related to patent applications and technology agreements. The costs of these assets are amortized using the straight-line method over the lesser of the useful life of the asset or its statutory life. Capitalized costs are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Property, Plant and Equipment

        Property, plant and equipment are stated at cost and depreciated using the straight-line method over the assets' estimated useful lives. Expenditures for maintenance repairs and minor renewals are charged to expense as incurred. Betterments and major renewals are capitalized. Upon retirement or other disposition of assets, related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is included in the determination of income or loss. The estimated useful lives of property, plant and equipment are as follows:

Buildings   20 to 40 years
Machinery and equipment   3 to 10 years

        Leasehold improvements are depreciated over the lesser of the useful life or the term of the lease.

Restricted Investments and Deferred Compensation

        The Company has a non-qualified deferred savings plan that covers its Board of Directors and selected employees. Participants may elect to defer a portion of their compensation for payment in a future tax year. The plan is funded by trusteed assets that are restricted to the payment of deferred compensation or satisfaction of the Company's general creditors. The Company's restricted investments and corresponding deferred compensation liability under the plan were $1,094 and $874 at August 31, 2013 and 2012, respectively. The Company accounts for the restricted investments as available for sale by recording unrealized gains or losses in other comprehensive income as a component of stockholders' equity.

Split-Dollar Life Insurance Arrangements

        The net liability related to these postretirement benefits was calculated as the difference between the present value of future premiums to be paid by the Company reduced by the present value of the expected proceeds to be returned to the Company upon the insured's death. The Company prepared its calculation by using mortality assumptions which are based on the IRS 2013 Combined Static Mortality Table, and a 1.52% discount rate. The Company's net liability related to these postretirement obligations was $56 and $48 at August 31, 2013 and 2012, respectively.

Revenues

        The Company recognizes revenue when persuasive evidence of an arrangement exists, performance of its obligation is complete, its price to the buyer is fixed or determinable, and the Company is reasonably assured of collecting. This is typically at the time of shipment or upon receipt by the customer based on contractual terms. If a loss is anticipated on any contract, a provision for the entire loss is made immediately. Revenue recognition involves judgments and assessments of expected returns, and the likelihood of nonpayment by customers. The Company

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

analyzes various factors, including a review of specific customer contracts and shipment terms, historical experience, creditworthiness of customers and current market and economic conditions in determining when to recognize revenue. Changes in judgments on these factors could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of operating income. Commissions are recognized when earned and payments are received from the manufacturers represented. Royalty revenue is recognized based on licensee production statements received from the authorized manufacturers. Billed shipping and handling fees are recorded as sales revenue with the associated costs recorded as costs of products and services sold.

        The Company's warranty policy provides that the products (or materials) delivered will meet its standard specifications for the products or any other specifications as may be expressly agreed to at time of purchase. All warranty claims must be received within 90 days from the date of delivery, unless some other period has been expressly agreed to within the terms of the sales agreement. The Company's warranty costs have historically been insignificant. The Company records a current liability for estimated warranty claims with a corresponding debit to cost of products and services sold based upon current and historical experience and upon specific claims issues as they arise.

        In addition, the Company offers certain sales incentives based on sales levels as they are earned.

Research and Product Development Costs

        Research and product development costs are expensed as incurred and include primarily engineering salaries, overhead and materials used in connection with research and development projects. Research and development expense amounted to $3,395, $2,958 and $2,452 for the years ended August 31, 2013, 2012 and 2011, respectively.

Pension Plan

        The Company accounts for its pension plans following the requirements of ASC Topic 715, "Compensation—Retirement Benefits" ("ASC 715"). ASC 715 requires an employer to: (a) recognize in its statement of financial position the funded status of a benefit plan; (b) measure defined benefit plan assets and obligations as of the end of the employer's fiscal year (with limited exceptions); and (c) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise but are not recognized as components of net periodic benefit costs pursuant to prior existing guidance.

Stock Based Compensation

        In accordance with the accounting for stock based compensation guidance, the Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. This includes restricted stock, restricted stock units and stock options. The guidance allows for the continued use of the simplified method as the Company has concluded that its historical share option exercise experience does not provide a reasonable basis for estimating expected term. The Company uses the short cut method to calculate the historical windfall tax pool.

        Stock-based compensation expense recognized in fiscal years 2013, 2012 and 2011 was $1,621, $2,040 and $1,682, respectively.

        The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for the years ending August 31, 2013, 2012 and 2011:

 
  2013   2012   2011

Expected Dividend yield

  2.2%   2.3%   2.0%

Expected life

  6.0 years   6.0 years   6.0 years

Expected volatility

  33.0%   30.0%   30.0%

Risk-free interest rate

  1.6%   2.2%   2.5%

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        Expected volatility is determined by looking at a combination of historical volatility over the past seven years as well as implied volatility going forward.

Translation of Foreign Currency

        The financial position and results of operations of the Company's HumiSeal Europe Ltd and Chase Protective Coatings Ltd businesses are measured using the UK pound sterling as the functional currency, and the financial position and results of operations of the Company's HumiSeal Europe SARL business in France are measured using euros as the functional currency. Revenues and expenses of these businesses have been translated at average exchange rates. Assets and liabilities have been translated at the year-end exchange rates. Translation gains and losses are being recorded as a separate component of shareholders' equity. Transaction gains and losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional currency of our foreign operations are included in other income on the consolidated statements of operations.

Income Taxes

        The Company accounts for income taxes under the asset and liability method. Under this method, a deferred tax asset or liability is determined based upon the differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Tax credits are recorded as a reduction in income taxes. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

        The Company estimates contingent income tax liabilities based on the guidance for accounting for uncertain tax positions as prescribed in ASC Topic 740, "Income Taxes." See Note 7 for more information on the Company's income taxes.

Net Income Per Share

        The Company has unvested share-based payments awards with a right to receive nonforfeitable dividends, which are considered participating securities under ASC Topic 260, "Earnings Per Share" ("ASC 260"). The Company allocates earnings to participating securities and computes earnings per share using the two class method.

Comprehensive Income

        Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments, unrealized gains and losses on marketable securities and adjustments related to the change in the funded status of the pension plans.

Accumulated Other Comprehensive Income (Loss)

        Accumulated other comprehensive loss, a component of stockholders' equity, is composed of the following: (1) cumulative unrealized gains on restricted investments, net of taxes; (2) cumulative changes in the pension and postretirement plan liabilities, net of taxes; and (3) cumulative translation adjustments, net of taxes. The components of accumulated other comprehensive income (loss) consists of the following as of August 31, 2013 and 2012:

 
  2013   2012  

Unrealized gains on restricted investments, net of tax

  $ 143   $ 59  

Pension and postretirement plan liabilities, net of tax benefit

    (3,578 )   (3,779 )

Foreign currency translation adjustment

    (1,728 )   (1,310 )
           

Accumulated other comprehensive income (loss)

  $ (5,163 ) $ (5,030 )
           

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

Non-controlling Interest

        A legal entity is subject to the consolidation rules of ASC Topic 810, "Consolidations" ("ASC 810") if the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support or the equity investors lack certain specified characteristics of a controlling financial interest. Based on the criteria in ASC 810, the Company determined that its joint venture agreement qualifies as a variable interest entity ("VIE"). The purpose of the joint venture is to combine the elements of NEPTCO's and the joint venture partner's (an otherwise unrelated party) fiber optic strength element businesses. Under ASC 810, a reporting entity shall consolidate a VIE when that reporting entity has a variable interest (or combination of variable interests) that provides the reporting entity with a controlling financial interest. The reporting entity shall be deemed to have a controlling financial interest in a VIE if it has both of the following characteristics: a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance; and b) the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. The reporting entity that consolidates a VIE is called the "primary beneficiary" of that VIE. The Company determined that it is the primary beneficiary of the VIE primarily due to Chase directing the activities that most significantly impact the VIE's economic performance, which is the actual management and operation of the joint venture and having the obligation to absorb losses and the right to receive benefits from the VIE that could potentially be significant to the VIE through our equity investment in the VIE. As a result, the Company has consolidated the operations of the joint venture in its consolidated financial statements.

Segments

        The segment reporting topic of the Financial Accounting Standards Board ("FASB") codification establishes standards for reporting information about operating segments. The Company is organized into two operating segments, an Industrial Materials segment and a Construction Materials segment. The basis for this segmentation is distinguished by the nature of the products and how they are delivered to their respective markets. The Industrial Materials segment reflects specified products that are used in or integrated into another company's product with demand dependent upon general economic conditions. Industrial Materials products include insulating and conducting materials for wire and cable manufacturers, moisture protective coatings for electronics and printing services, laminated durable papers, and flexible composites and laminates for the packaging and industrial laminate markets. Effective with its acquisition in June 2012, the full listing of NEPTCO products and services are included in the Industrial Materials segment. The Construction Materials segment reflects its construction project oriented product offerings which are primarily sold and used as "Chase" branded products in final form. Construction Materials products include protective coatings for pipeline applications, coating and lining systems for use in liquid storage and containment applications, high performance polymeric asphalt additives, and expansion and control joint systems for use in the transportation and architectural markets.

Recently Issued Accounting Standards

        In July 2012, the FASB issued ASU 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment." This ASU amends ASC 350, "Intangibles—Goodwill and Other" to allow entities an option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. Under that option, an entity no longer would be required to calculate the fair value of the intangible asset unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of ASU 2012-02 did not have an impact on the Company's consolidated financial position, results of operations or cash flows.

        In February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This ASU expands the presentation of changes in accumulated other comprehensive income. The new guidance requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the net income statement or as a separate disclosure in the notes. ASU 2013-02 is effective for fiscal years beginning after December 15, 2012. The adoption of this ASU is only

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

disclosure related and will not have an impact on the Company's consolidated financial position, results of operations, comprehensive income or cash flows. ASU 2013-02 will become effective for the Company in fiscal 2014.

Note 2—Inventories

        Inventories consist of the following as of August 31, 2013 and 2012:

 
  2013   2012  

Raw materials

  $ 14,545   $ 12,388  

Work in process

    5,967     7,384  

Finished goods

    11,536     12,551  
           

Total Inventories

  $ 32,048   $ 32,323  
           

Note 3—Property, Plant and Equipment

        Property, plant and equipment consist of the following as of August 31, 2013 and 2012:

 
  2013   2012  

Property, Plant and Equipment

             

Land and improvements

  $ 5,719   $ 5,734  

Buildings

    20,943     20,373  

Machinery and equipment

    44,284     43,738  

Leasehold improvements

    2,034     2,160  

Construction in progress

    3,763     5,811  
           

    76,743     77,816  

Accumulated depreciation

    (31,551 )   (28,537 )
           

Property, plant and equipment, net

  $ 45,192   $ 49,279  
           

        The majority of construction in progress relates to machinery and equipment upgrades and enhancements at the NEPTCO manufacturing facilities to improve operational efficiency.

Note 4—Goodwill and Intangible Assets

        The changes in the carrying value of goodwill, by operating segment, are as follows:

 
  Construction
Materials
  Industrial
Materials
  Consolidated  

Balance at August 31, 2011

  $ 10,661   $ 7,399   $ 18,060  

Acquisition of NEPTCO, Inc. 

        19,668     19,668  

Acquisition of Capital Services—additional earnout

    87         87  

Acquisition of Paper Tyger—additional earnout

        68     68  

Acquisition of Metronelec assets—additional earnout

        203     203  

Foreign currency translation adjustment

    (8 )   (293 )   (301 )
               

Balance at August 31, 2012

  $ 10,740   $ 27,045   $ 37,785  

Acquisition of NEPTCO, Inc.—working capital settlement                   

        (84 )   (84 )

Acquisition of Paper Tyger—additional earnout

        141     141  

Foreign currency translation adjustment

    (5 )   (22 )   (27 )
               

Balance at August 31, 2013

  $ 10,735   $ 27,080   $ 37,815  
               

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        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 identified several reporting units within each of its two operating segments that are used to evaluate the possible impairment of goodwill. Goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairment of goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possible impairment of recorded goodwill and certain intangible asset balances is required annually. The amount and timing of any impairment charges based on these assessments require the estimation of future cash flows and the fair market value of the related assets based on management's best estimates of certain key factors, including future selling prices and volumes; operating, raw material and energy costs, and various other projected operating and economic factors. When testing, fair values of the reporting units and the related implied fair values of their respective goodwill are established using public company analysis and discounted cash flows.

        The Company performs impairment reviews annually each fourth quarter (as of its fiscal year end, August 31st) and whenever events or circumstances indicate the carrying value of goodwill may not be recoverable. For fiscal 2013, the Company's review indicated no impairment of goodwill.

        As of August 31, 2013, the Company had a total goodwill balance of $37,815 related to its acquisitions, of which $1,635 remains deductible for income taxes.

        Intangible assets subject to amortization consist of the following as of August 31, 2013 and 2012:

 
  Weighted-Average
Amortization Period
  Gross Carrying
Value
  Accumulated
Amortization
  Net Carrying
Value
 

August 31, 2013

                       

Patents and agreements

  11.9 years   $ 3,198   $ 2,200   $ 998  

Formulas

  9.1 years     5,772     2,238     3,534  

Trade names

  5.7 years     6,345     2,055     4,290  

Customer lists and relationships

  10.2 years     34,020     11,061     22,959  
                   

      $ 49,335   $ 17,554   $ 31,781  
                   

August 31, 2012

                       

Patents and agreements

  12.1 years   $ 2,849   $ 2,177   $ 672  

Formulas

  9.1 years     5,791     1,683     4,108  

Trade names

  5.7 years     6,360     1,022     5,338  

Customer lists and relationships

  10.2 years     34,210     7,965     26,245  
                   

      $ 49,210   $ 12,847   $ 36,363  
                   

        Aggregate amortization expense related to intangible assets for the years ended August 31, 2013, 2012 and 2011 was $4,793, $2,710 and $2,309, respectively. As of August 31, 2013 estimated amortization expense for each of the five succeeding fiscal years is as follows:

Years ending August 31,
   
 

2014

  $ 4,941  

2015

    4,748  

2016

    4,685  

2017

    4,248  

2018

    4,017  
       

  $ 22,639  
       

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

Note 5—Cash Surrender Value of Life Insurance

        Life insurance is provided under split dollar life insurance agreements whereby the Company will recover the premiums paid from the proceeds of the policies. The Company recognizes an offset to expense for the growth in the cash surrender value of the policies.

        The Company recognized cash surrender value of life insurance policies, net of loans of $5 at August 31, 2013 and 2012, secured by the policies, with the following carriers as of August 31, 2013 and 2012:

 
  2013   2012  

John Hancock

  $ 4,450   $ 4,343  

John Hancock (formerly Manufacturers' Life Insurance Company)

    1,009     954  

Metropolitan Life Insurance

    1,739     1,768  

Other life insurance carriers

    80     80  
           

  $ 7,278   $ 7,145  
           

        Subject to periodic review, the Company intends to maintain these policies through the lives or retirements of the insureds.

Note 6—Long-Term Debt and Notes Payable

        Long-term debt consists of the following at August 31, 2013 and 2012:

 
  2013   2012  

Term note payable to bank in 19 quarterly installments that began in September 2012. The principal amount of the quarterly installments is $1,400 through June 2014, increasing to $1,750 per quarter thereafter through June 2015, and to $2,100 per quarter thereafter through March 2017. Interest is payable monthly at LIBOR rate plus 175 to 225 basis points, based upon the Company's consolidated leverage ratios (effective interest rate of 1.93% at August 31, 2013). Quarterly principal payments will continue through March 2017, and Chase will repay the remaining principal balance plus any interest due on the term note maturity date of June 27, 2017. 

  $ 64,400   $ 70,000  
           

    64,400     70,000  

Less portion payable within one year classified as current

    (5,600 )   (5,600 )
           

Long-term debt, less current portion

  $ 58,800   $ 64,400  
           

        The Company has a revolving line of credit totaling $15,000 with Bank of America that bears interest at London Interbank Offered Rate (LIBOR) plus a range of 1.75% to 2.25%, depending on the consolidated leverage ratio of Chase Corporation, or, at our option, at the bank's base lending rate. As of August 31, 2013, the entire amount of $15,000 was available for use. The revolving line of credit is scheduled to mature in June 2017. This revolving line of credit allows for increased flexibility for working capital requirements going forward, and we plan to use this availability to help finance our cash needs, including potential acquisitions, in fiscal 2014 and future periods.

        Our credit agreement with Bank of America, which outlines the terms of both the term note payable and the revolving line of credit, contains customary affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness. It also requires the Company to maintain a ratio of consolidated indebtedness to consolidated EBITDA (each as defined in the agreement) of no more than 3.00 to 1.00, and to maintain a consolidated fixed charge coverage ratio (as calculated in the agreement) of at least 1.25 to 1.00. The Company was in compliance with its debt covenants as of August 31, 2013.

44



CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

Note 7—Income Taxes

        Domestic and foreign pre-tax income for the years ended August 31, 2013, 2012 and 2011 was:

 
  Year Ended August 31,  
 
  2013   2012   2011  

United States

  $ 23,562   $ 12,767   $ 14,419  

Foreign

    2,248     1,229     1,754  
               

  $ 25,810   $ 13,996   $ 16,173  
               

        The provision (benefit) for income taxes for the years ended August 31, 2013, 2012 and 2011 was:

 
  Year Ended August 31,  
 
  2013   2012   2011  

Current:

                   

Federal

  $ 8,112   $ 5,073   $ 4,536  

State

    1,652     392     210  

Foreign

    1,043     287     1,039  
               

Total current income tax provision

    10,807     5,752     5,785  
               

Deferred:

                   

Federal

    (1,302 )   (860 )   (47 )

State

    (92 )   (150 )   2  

Foreign

    (343 )   (10 )   (498 )
               

Total deferred income tax benefit

    (1,737 )   (1,020 )   (543 )
               

Total income tax provision

  $ 9,070   $ 4,732   $ 5,242  
               

        The provision (benefit) for income taxes differs from the amount computed by applying the federal statutory income tax rate to income before income taxes. The Company's combined federal, state and foreign effective tax rate as a percentage before taxes for fiscal 2013, 2012 and 2011, net of offsets generated by federal, state and foreign tax benefits, was 35.1%, 33.8% and 32.4%, respectively. The following is a reconciliation of the effective income tax rate with the U.S. federal statutory income tax rate for the years ended August 31, 2013, 2012 and 2011:

 
  Year Ended August 31,  
 
  2013   2012   2011  

Federal statutory rates

    35.0 %   35.0 %   35.0 %
               

Adjustment resulting from the tax effect of:

                   

State and local taxes, net of federal benefit

    3.8 %   1.1 %   1.1 %

Domestic production deduction

    (3.3 )%   (3.5 )%   (3.0 )%

Foreign tax rate differential

    (0.7 )%   (0.6 )%   (0.7 )%

Adjustment to uncertain tax position

    (1.1 )%   (1.3 )%    

Transaction costs not deductible

        2.6 %    

Research credit generated

    (1.2 )%   (0.8 )%   (0.7 )%

Noncontrolling partnership interest

    0.6 %        

Tax effect of undistributed earnings

    0.6 %   0.1 %   0.3 %

Other

    1.4 %   1.2 %   0.4 %
               

Effective income tax rate

    35.1 %   33.8 %   32.4 %
               

45



CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        The following table summarizes the tax effect of temporary differences on the Company's income tax provision:

 
  Year Ended August 31,  
 
  2013   2012   2011  

Current income tax provision

  $ 10,807   $ 5,752   $ 5,785  
               

Deferred provision (benefit):

                   

Allowance for doubtful accounts

    (15 )   (39 )   9  

Inventories

    (259 )   (640 )   (248 )

Pension expense

    (207 )   446     210  

Deferred compensation

    (51 )   (70 )   (15 )

Loan finance costs

    66     (116 )    

Accruals

    861     (177 )   (56 )

Warranty reserve

        (56 )   (6 )

Depreciation and amortization

    (1,836 )   (701 )   66  

Restricted stock grant

    (102 )   (74 )   (391 )

Unrepatriated earnings

    1,572     (133 )   1,137  

Foreign taxes net of unrepatriated earnings

    (1,425 )   497     (1,086 )

Foreign amortization

    (105 )   (134 )   (112 )

Other accrued expenses

    (236 )   177     (51 )
               

Total deferred income tax benefit

    (1,737 )   (1,020 )   (543 )
               

Total income tax provision

  $ 9,070   $ 4,732   $ 5,242  
               

46



CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        The following table summarizes the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:

 
  As of August 31,  
 
  2013   2012  

Current:

             

Deferred tax assets:

             

Allowance for doubtful accounts

  $ 330   $ 314  

Inventories

    1,291     1,032  

Accruals

    504     858  

Warranty reserve

    82     82  
           

Current deferred tax assets

    2,207     2,286  
           

Deferred tax liabilities:

             

Prepaid liabilities

    (92 )   (78 )
           

Current deferred tax liabilities

    (92 )   (78 )
           

Current deferred tax assets, net

    2,115     2,208  
           

Noncurrent:

             

Deferred tax assets:

             

Pension accrual

    2,162     2,138  

Deferred compensation

    775     724  

Loan finance costs

    50     116  

Unrealized gain/loss on restricted investments

    (23 )   (4 )

Restricted stock grants

    1,122     1,029  

Non qualified stock options

    16     16  

Foreign tax credits

    6,326     4,901  

Foreign other

    256     39  

Other

        331  
           

Noncurrent deferred tax assets

    10,684     9,290  
           

Deferred tax liabilities:

             

Unrepatriated earnings

    (6,515 )   (4,901 )

Foreign intangibles

    118     18  

Depreciation and amortization

    (13,780 )   (15,350 )

Other

    26      
           

Noncurrent deferred tax liabilities

    (20,151 )   (20,233 )
           

Noncurrent deferred tax liabilities, net

    (9,467 )   (10,943 )
           

Net deferred tax liabilities

  $ (7,352 ) $ (8,735 )
           

        A summary of the Company's adjustments to its uncertain tax positions in fiscal years ended August 31, 2013, 2012 and 2011 are as follows:

 
  2013   2012   2011  

Balance, at beginning of the year

  $ 1,180   $ 893   $ 887  

Increase for tax positions related to the current year

    17     19     50  

Increase / (decrease) for tax positions related to prior years

    73     (176 )   (44 )

Increase for amounts recorded in acquisition accounting

        465      

Decreases for settlements with applicable taxing authorities

        (21 )    

Decreases for lapses of statute of limitations

    (370 )        
               

Balance, at end of year

  $ 900   $ 1,180   $ 893  
               

47



CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        The unrecognized tax benefits mentioned above include an aggregate of $410 of accrued interest and penalty balances related to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. An increase in accrued interest and penalty charges of approximately $10, net of federal tax expense, was recorded as a tax expense during the current fiscal year. The Company does not anticipate that its accrual for uncertain tax positions will be reduced by a material amount over the next twelve month period, as it does not expect to settle any potential disputed items with the appropriate taxing authorities nor does it expect the statute of limitations to expire for any items.

        The Company is subject to U.S. federal income tax, as well as to income tax of multiple state and foreign tax jurisdictions. The statute of limitations for all material U.S. federal, state, and local tax filings remains open for fiscal years subsequent to 2009. In addition, the statute of limitations with regard to certain federal tax returns of the entities acquired in the NEPTCO acquisition remains open for 2004 and 2005. For foreign jurisdictions, the statute of limitations remains open in the UK for fiscal years subsequent to 2009 and in France for fiscal years subsequent to 2012.

Note 8—Capital and Operating Leases

        The Company is obligated under various capital and operating leases, primarily for real property and equipment. Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year), and the present value of future minimum capital lease payments as of August 31, 2013, are as follows:

Year ending August 31,
  Future Capital
Lease Payments
  Future Operating
Lease Payments
 

2014

  $ 17   $ 856  

2015

    16     705  

2016

    7     674  

2017

        659  

2018

        644  

2019 and thereafter

        3,706  
           

Total future minimum lease payments

  $ 40   $ 7,244  
             

Less: interest (at rates ranging from 4% to 8%)

    (4 )      
             

  $ 36        

Less: current portion

    (14 )      
             

  $ 22        
             

        Total rental expense for all operating leases amounted to $1,761, $1,178 and $1,103 for the years ended August 31, 2013, 2012 and 2011, respectively.

Note 9—Benefits and Pension Plans

401(k) Plan

        The Company has a defined contribution plan adopted pursuant to Section 401(k) of the Internal Revenue Code of 1986. Any qualified employee who has attained age 21 and has been employed by the Company for at least six months may contribute a portion of his or her salary to the plan and the Company will match 100% of the first percent of salary contributed and 50% thereafter, up to an amount equal to three and one half percent of such employee's annual salary.

        NEPTCO has two 401(k) savings plans, one for union employees and one for non-union employees. Under these plans, substantially all employees of NEPTCO are eligible to participate by making before-tax contributions to these plans. Participants may elect to defer between 1% and 10% of their annual compensation. The Company may contribute $0.75 for each $1.00 of participant deferrals up to 3% of the non-union participant's compensation. The Company may match union employee contributions by $0.50 for each $1.00 of participant deferrals up to 3% of the participant's compensation.

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        The Company's contribution expense for all 401(k) plans was $351, $294 and $297 for the years ended August 31, 2013, 2012 and 2011, respectively.

Non-Qualified Deferred Savings Plan

        The Company has a non-qualified deferred savings plan covering the Board of Directors and a separate plan covering selected employees. Participants may elect to defer a portion of their compensation for future payment. The plans are funded by trusteed assets that are restricted to the payment of deferred compensation or satisfaction of the Company's general creditors. The Company's liability under the plan was $1,094 and $874 at August 31, 2013 and 2012, respectively.

Pension Plans

        The Company has non-contributory defined benefit pension plans covering employees of certain divisions of the Company. The Company has a funded, qualified plan ("Qualified Plan") and an unfunded supplemental plan ("Supplemental Plan") designed to maintain benefits for certain employees at the plan formula level. The plans provide for pension benefits determined by a participant's years of service and final average compensation. The Qualified Plan assets consist of separate pooled investment accounts with a trust company. The measurement date for the plans is August 31, 2013.

        Effective December 1, 2008, a soft freeze in the Qualified Plan was adopted whereby no new employees hired will be admitted to the Qualified Plan, with the exception of the International Association of Machinists and Aerospace Workers Union whose contract was amended in June 2012 to include a soft freeze whereby any employees hired after the effective date of July, 15, 2012 will not be admitted to the plan. All eligible participants who were previously admitted to the plan prior to the December 1, 2008 and July 15, 2012 soft freeze dates, respectively, will continue to accrue benefits as detailed in the plan agreements.

        NEPTCO has a defined benefit pension plan ("NEPTCO Pension Plan") covering substantially all of its union employees at its Pawtucket facility. This plan was frozen effective October 31, 2006, and as a result, no new participants can enter the plan and the benefits of current participants were frozen as of that date. The benefits are based on years of service and the employee's average compensation during the earlier of five years before retirement, or October 31, 2006. The NEPTCO Pension Plan assets consist of separate pooled investment accounts with a trust company. The measurement date for the NEPTCO Pension Plan is August 31, 2013.

        The following tables reflect the status of the Company's pension plans for the years ended August 31, 2013, 2012 and 2011:

 
  Year Ended August 31,  
 
  2013   2012   2011  

Change in benefit obligation

                   

Projected benefit obligation at beginning of year

  $ 17,322   $ 13,953   $ 12,044  

Acquired benefit obligation for Neptco pension plan

        1,806      

Service cost

    352     482     526  

Interest cost

    503     532     430  

Actuarial (gain) loss

    1,019     1,908     1,013  

Curtailments

    24          

Settlements

    (3,443 )   (1,316 )    

Benefits paid

    (126 )   (43 )   (60 )
               

Projected benefit obligation at end of year

  $ 15,651   $ 17,322   $ 13,953  
               

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

 
  Year Ended August 31,  
 
  2013   2012   2011  

Change in plan assets

                   

Fair value of plan assets at beginning of year

  $ 9,405   $ 7,235   $ 6,022  

Fair value of Neptco pension plan assets

        884      

Actual return on plan assets

    690     752     519  

Employer contribution

    2,300     1,893     754  

Settlements

    (3,443 )   (1,316 )    

Benefits paid

    (126 )   (43 )   (60 )
               

Fair value of plan assets at end of year

  $ 8,826   $ 9,405   $ 7,235  
               

Funded status at end of year

  $ (6,825 ) $ (7,917 ) $ (6,718 )

Amounts recognized in consolidated balance sheets

                   

Non-current assets

  $ 1,014   $   $  

Current liabilities

    (5 )   (215 )   (5 )

Non-current liabilities

    (7,834 )   (7,702 )   (6,713 )
               

Net amount recognized in Consolidated Balance Sheets

  $ (6,825 ) $ (7,917 ) $ (6,718 )
               

Actuarial present value of benefit obligation and funded status

                   

Accumulated benefit obligations

  $ 13,842   $ 14,735   $ 11,954  

Projected benefit obligations

  $ 15,651   $ 17,322   $ 13,953  

Plan assets at fair value

  $ 8,826   $ 9,405   $ 7,235  

Amounts recognized in accumulated other comprehensive Income

                   

Prior service cost

  $ 67   $ 82   $ 156  

Net actuarial loss

    5,561     6,029     5,164  
               

Adjustment to pre-tax accumulated other comprehensive income          

  $ 5,628   $ 6,111   $ 5,320  
               

Other changes in plan assets and benefit obligations recognized in other comprehensive income

                   

Net (gain) or loss

  $ 979   $ 1,691   $ 934  

Amortization of loss

    (250 )   (276 )   (239 )

Prior service cost

             

Amortization of prior service cost

    (13 )   (74 )   (74 )

Effect of settlement on accumulated other comprehensive income

    (1,198 )   (550 )    
               

Total recognized in other comprehensive income

    (482 )   791     621  

Net periodic pension cost

    1,690     1,378     829  
               

Total recognized in net periodic pension cost and other comprehensive income

  $ 1,208   $ 2,169   $ 1,450  
               

Estimated amounts that will be amortized from accumulated comprehensive income over the next fiscal year

                   

Prior service cost

  $ 3   $ 14   $ 74  

Net actuarial loss or (gain)

    293     337     276  

        Prior service cost arose from the amendment of the plan's benefit schedules to comply with the Tax Reform Act of 1986 and adoption of the unfunded supplemental pension plan.

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        Components of net periodic pension cost for the fiscal years ended August 31, 2013, 2012 and 2011 included the following:

 
  Year Ended August 31,  
 
  2013   2012   2011  

Components of net periodic benefit cost

                   

Service cost

  $ 352   $ 482   $ 526  

Interest cost

    503     532     430  

Expected return on plan assets

    (651 )   (536 )   (440 )

Amortization of prior service cost

    13     74     74  

Amortization of accumulated (gain)/loss

    250     276     239  

Settlement and curtailment (gain)/loss

    1,223     550      
               

Net periodic benefit cost

  $ 1,690   $ 1,378   $ 829  
               

        Weighted-average assumptions used to determine benefit obligations as of August 31, 2013, 2012 and 2011 are as follows:

 
  2013   2012   2011  

Discount rate

                   

Qualified plan

    4.54 %   3.40 %   4.73 %

Supplemental plan

    3.76 %   3.14 %   3.00 %

Neptco plan

    4.63 %   3.77 %   N/A  

Rate of compensation increase

                   

Qualified and supplemental plan

    3.50 %   3.50 %   3.50 %

Neptco plan

    0.00 %   0.00 %   N/A  

        Weighted-average assumptions used to determine net periodic benefit cost for the years ended August 31, 2013, 2012 and 2011 are as follows:

 
  2013   2012   2011  

Discount rate

                   

Qualified plan

    3.40 %   4.73 %   4.45 %

Supplemental plan

    3.14 %   3.00 %   2.51 %

Neptco plan

    3.77 %   4.08 %   N/A  

Expected long-term return on plan assets

                   

Qualified plan

    8.00 %   8.00 %   8.00 %

Supplemental plan

    0.00 %   0.00 %   0.00 %

Neptco plan

    8.00 %   8.00 %   N/A  

Rate of compensation increase

                   

Qualified and supplemental plan

    3.50 %   3.50 %   3.50 %

Neptco plan

    0.00 %   0.00 %   N/A  

        It is the Company's policy to evaluate, on an annual basis, the discount rate used to determine the projected benefit obligation to approximate rates on high-quality, long-term obligations. The Moody's Corporate Aa Bond index has generally been used as a benchmark for this purpose, with adjustments made if the duration of the index differed from that of the plan. For periods since August 31, 2008, the discount rate has been determined by matching the expected payouts from the respective plans to the spot rates inherent in the Citigroup Pension Discount Curve. A single rate is then developed, that when applied to the expected cash flows, results in the same present value as determined using the various spot rates. The Company believes that this approach produces the most appropriate approximation of the plan liability.

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        The Company estimates that each 100 basis point reduction in the discount rate would result in additional net periodic pension cost, the Company's primary pension obligation, of approximately $73 for the Qualified Plan and $29 for the Supplemental Plan. For the current fiscal year, the NEPTCO Pension Plan expense is insignificant so sensitivity disclosure is not presented. The expected return on plan assets is derived from a periodic study of long-term historical rates of return on the various asset classes included in the Company's targeted pension plan asset allocation. The Company estimates that each 100 basis point reduction in the expected return on plan assets would result in additional net periodic pension cost of approximately $76 for the Qualified Plan. No rate of return is assumed for the Supplemental Plan since that plan is currently not funded. The rate of compensation increase is also evaluated and is adjusted by the Company, if necessary, periodically.

Qualified Plan Assets

        The investment policy for the Qualified Plan is based on ERISA standards for prudent investing. The fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent manner to meet the obligations of the plans as these obligations come due. The primary investment objectives include providing a total return which will promote the goal of benefit security by attaining an appropriate ratio of plan assets to plan obligations, to provide for real asset growth while also tracking plan obligations, to diversify investments across and within asset classes, to reduce the impact of losses in single investments, and to follow investment practices that comply with applicable laws and regulations.

        The primary policy objectives will be met by investing assets to achieve a reasonable tradeoff between return and risk relative to the plans' obligations. This includes investing a portion of the assets in funds selected in part to hedge the interest rate sensitivity to plan obligations.

        The Qualified Plan assets are invested in a diversified mix of United States equity and fixed income securities. Asset manager performance is reviewed at least annually and benchmarked against the peer universe for the given investment style. The Company's expected return for the Qualified Plan is 8.0%. To determine the expected long-term rate of return on the assets for the Qualified Plan, the Company considered the historical and expected return on the plan assets, as well as the current and expected allocation of the plan assets.

        Asset allocation is monitored on an ongoing basis relative to the established asset class targets. The interaction between plan assets and benefit obligations is periodically studied to assist in the establishment of strategic asset allocation targets. The investment policy permits variances from the targets within certain parameters. Asset rebalancing occurs when the underlying asset class allocations move outside these parameters at which time the asset allocation is rebalanced back to the policy target weight.

        The Qualified Plan has the following target allocation and weighted-average asset allocations as of August 31, 2013, 2012 and 2011:

 
   
  Percentage of Plan Assets as of August 31,
 
  Target Allocation Range
Asset Category
  2013   2012   2011

Equity securities

  40-70%   56%   54%   53%

Debt securities

  20-50%   40%   39%   42%

Real estate

  0-15%   4%   5%   5%

Other

  0-10%   0%   2%   0%
                 

Total

  100%   100%   100%   100%
                 

NEPTCO Pension Plan Assets

        The investment policy for the NEPTCO Pension Plan is based on ERISA standards for prudent investing. The fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent manner to meet the obligations of the plan as these obligations come due. The primary investment objectives include maximization of return within reasonable and prudent levels of risk, provision of returns

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

comparable to returns for similar investment options, provision of exposure to a wide range of investment opportunities in various asset classes and vehicles, control administrative and management costs, provision of appropriate diversification within investment vehicles, and govern investment manager's adherence to stated investment objectives and style.

        The primary policy objectives will be met by investing assets to achieve a reasonable tradeoff between return and risk relative to the plans' obligations. This includes investing a portion of the assets in funds selected in part to hedge the interest rate sensitivity to plan obligations.

        The NEPTCO Pension Plan assets are invested in a diversified mix of fixed income, and both domestic and foreign equity investments. The ongoing monitoring of investments is a regular and disciplined process and confirms that the criteria remain satisfied. The process of monitoring investment performance relative to specified guidelines is consistently applied.

        The Company's expected return for the NEPTCO Pension Plan is 8.0%. To determine the expected long-term rate of return on the assets for the NEPTCO Pension Plan, the Company considered the historical and expected return on the plan assets, as well as the current and expected allocation of the plan assets.

        The NEPTCO Pension Plan has the following target allocation and weighted-average asset allocations as of August 31, 2013 and 2012:

 
   
  Percentage of
Plan Assets as of
August 31,
 
 
  Target
Allocation
Range
 
Asset Category
  2013   2012  

Equity securities

  20-65%     56%     50%  

Debt securities

  35-80%     44%     50%  
               

Total

  100%     100%     100%  
               

Fair Market Value of Pension Plan Assets

        The Company is required to categorize pension plan assets using a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

        The following table presents the Company's pension plans' assets at August 31, 2013 and 2012 by asset category:

 
   
  Fair value measurements at
August 31, 2013:
   
  Fair value measurements at
August 31, 2012:
 
 
  August 31,
2013
  Quoted prices
in active
markets
(Level 1)
  Significant
other
observable
inputs
(Level 2)
  Significant
unobservable
inputs
(Level 3)
  August 31,
2012
  Quoted prices
in active
markets
(Level 1)
  Significant
other
observable
inputs
(Level 2)
  Significant
unobservable
inputs
(Level 3)
 

Asset Category

                                                 

Equity securities

  $ 4,939   $ 4,056   $ 883   $   $ 5,240   $ 4,567   $ 673   $  

Debt securities

    3,553     2,795     758         3,745     3,037     708      

Real estate

    334         334         420         420      

Other

                                 
                                   

Total

  $ 8,826   $ 6,851   $ 1,975   $   $ 9,405   $ 7,604   $ 1,801   $  
                                   

53



CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        Level 1 Assets: The fair values of the common stocks, corporate bonds and U.S. Government securities included in this tier are based on the closing price reported on the active market where the individual securities are traded.

        Level 2 Assets: The fair values of the common/collective trust funds included in this tier are not traded on active markets. These common/collective trust funds are valued based on the calculated unit values. The unit values are based on the fair value of the underlying assets of the common/collective trust funds derived from inputs principally based on quoted market prices in an active market or corroborated by observable market data by correlation or other means.

Estimated Future Benefit Payments

        The following pension benefit payments (which include expected future service) are assumed to be paid in each of the following fiscal years based on the participants' normal retirement age:

Year ending August 31,
  Pension Benefits  

2014

  $ 7,667  

2015

    262  

2016

    277  

2017

    357  

2018

    771  

2019-2023

  $ 2,820  

        The Company contributed $2,300, $1,893 and $754 to fund its obligations under the pension plans for the years ended August 31, 2013, 2012 and 2011, respectively. The Company plans to make the necessary contributions during fiscal 2014 to ensure their pension plans continue to be adequately funded given the current market conditions.

Note 10—Stockholders' Equity

2013 Equity Incentive Plan

        In October 2012, the Company adopted and the stockholders subsequently approved the 2013 Equity Incentive Plan (the "2013 Plan"). The 2013 Plan permits the grant of restricted stock, stock options, deferred stock, stock payments or other awards to employees, participating officers, directors, consultants and advisors who are linked directly to increases in shareholder value. The aggregate number of shares available for grant under the 2013 Plan is 1,200,000. Additional shares may become available in connection with share splits, share dividends or similar transactions. As of August 31, 2013, the Company had not yet made any awards under the 2013 Plan.

2005 Incentive Plan

        In November 2005, the Company adopted and the stockholders subsequently approved the 2005 Incentive Plan (the "2005 Plan"). The 2005 Plan permits the grant of restricted stock, stock options, deferred stock, stock payments or other awards to employees, participating officers, directors, consultants and advisors who are linked directly to increases in shareholder value. The aggregate number of shares available for grant under the 2005 Plan was initially 1,000,000. Additional shares may become available in connection with share splits, share dividends or similar transactions. As of August 31, 2013, 77,174 shares remained available for future grant under the 2005 Plan.

2001 Senior Management Stock Plan and 2001 Non-Employee Director Stock Option Plan

        In October 2002, the Company adopted, and the stockholders subsequently approved, the 2001 Senior Management Stock Plan and the 2001 Non-Employee Director Stock Option Plan (the "2001 Plans"). The 2001 Plans reserved 1,500,000 and 180,000 shares of the Company's common stock for grants related to the Senior Management Stock Plan and Non-Employee Director Stock Option Plan, respectively.

54



CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        Under the terms of the Senior Management Stock Plan, equity awards may be granted in the form of incentive stock options, non-qualified stock options and restricted stock. Options granted under the Non-Employee Director Stock Option Plan were issued as non-qualified stock options. Options granted under the 2001 Plans generally vest over a period ranging from three to five years and expire after ten years.

        The Company is no longer granting equity awards under the 2001 Plans.

Restricted Stock

Employees and Executive Management

        In August 2008, the Board of Directors of the Company approved a plan for issuing a performance and service based restricted stock grant of 50,657 shares in the aggregate, subject to adjustment, to key members of management with an issue date of September 1, 2008 and a vesting date of August 31, 2011. Based on the fiscal year 2009 financial results, the aggregate size of the grant was reduced by 15,944 shares of restricted stock subsequent to the end of fiscal year 2009 in accordance with the performance measurement criteria. The adjusted restricted stock award of 34,713 shares was issued in the form of common stock on August 31, 2011 upon vesting. Compensation expense was recognized on a ratable basis over the vesting period.

        In August 2009, the Board of Directors of Chase Corporation approved a plan for issuing a performance and service based restricted stock grant of 76,874 shares in the aggregate, subject to adjustment, to key members of management with an issue date of September 1, 2009 and a vesting date of August 31, 2012. Based on the fiscal year 2010 financial results, 68,453 additional shares of restricted stock were earned and granted subsequent to the end of fiscal year 2010 in accordance with the performance measurement criteria. The adjusted restricted stock award of 145,327 shares was issued in the form of common stock on August 31, 2012 upon vesting. Compensation expense was recognized on a ratable basis over the vesting period.

        In December 2009, restricted stock in amounts of 2,377 and 8,421 shares related to the September 2008 and 2009 grants, respectively, were forfeited in conjunction with the retirement of an executive officer of the Company.

        In August 2010, the Board of Directors of the Company approved the fiscal year 2011 Long Term Incentive Plan ("LTIP") for the executive officers. The fiscal 2011 LTIP is an equity based plan with a grant date of September 1, 2010. In addition to the stock option component described below, the plan contained the following restricted stock components: (a) a performance and service based restricted stock grant of 32,835 shares in the aggregate, subject to adjustment, with a vesting date of August 31, 2013, for which compensation expense was recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based restricted stock grant of 16,417 shares in the aggregate, and a vesting date of August 31, 2013, for which compensation expense was recognized on a ratable basis over the vesting period.

        Based on the fiscal year 2011 financial results, 32,835 additional shares of restricted stock (total of 65,670 shares) were earned and granted subsequent to the end of fiscal year 2011 in accordance with the performance measurement criteria. No further performance-based measurements apply to this award.

        In April 2011, the Board of Directors of the Company approved a plan for issuing a time-based restricted stock grant of 4,249 shares in the aggregate to certain non-executive officer employees, with an issue date of April 30, 2011 and a vesting date of April 30, 2014. Compensation expense is being recognized on a ratable basis over the vesting period.

        In August 2011, the Board of Directors of the Company approved the fiscal year 2012 LTIP for the executive officers. The fiscal 2012 LTIP is an equity based plan with a grant date of September 1, 2011. In addition to the stock option component described below, the plan contained the following restricted stock components: (a) a performance and service based restricted stock grant of 33,798 shares in the aggregate, subject to adjustment, with a vesting date of August 31, 2014, for which compensation expense is recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based restricted stock grant of 16,899

55



CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

shares in the aggregate, and a vesting date of August 31, 2014, for which compensation expense is recognized on a ratable basis over the vesting period.

        Based on the fiscal year 2012 financial results, 33,798 additional shares of restricted stock (total of 67,596 shares) were earned and granted subsequent to the end of fiscal year 2012 in accordance with the performance measurement criteria. No further performance-based measurements apply to this award.

        In August 2011, the Board of Directors of the Company approved a plan for issuing a time-based restricted stock grant of 5,037 shares in the aggregate to certain non-executive officer employees, with an issue date of September 1, 2011 and a vesting date of August 31, 2014. Compensation expense is being recognized on a ratable basis over the vesting period.

        In December 2011, restricted stock in the amount of 1,887 shares related to the April 2011 grant was forfeited in conjunction with the termination of employment of a non-executive officer of the Company.

        In March 2012, the Board of Directors of the Company approved a plan for issuing a time-based restricted stock grant of 1,368 shares to a non-executive officer employee, with an issue date of March 8, 2012 and a vesting date of August 31, 2012. Compensation expense was recognized on a ratable basis over the vesting period.

        In October 2012, the Board of Directors of the Company approved the fiscal year 2013 LTIP for the executive officers and other members of management. The 2013 LTIP is an equity based plan with a grant date of October 22, 2012. In addition to the stock option component described below, the plan contained the following restricted stock components: (a) a performance and service based restricted stock grant of 11,861 shares in the aggregate, subject to adjustment, with a vesting date of August 31, 2014, for which compensation expense is recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based restricted stock grant of 16,505 and 1,931 shares in the aggregate, with a vesting date of August 31, 2015 and August 31, 2013, respectively, for which compensation expense is recognized on a ratable basis over the vesting period.

Non-Employee Board of Directors

        In January 2010, non-employee members of the Board received a total grant of 11,092 shares of restricted stock for service for the period from January 30, 2010 through January 30, 2011. The shares of restricted stock vested at the conclusion of this service period. Compensation was recognized on a ratable basis over the twelve month vesting period.

        In February 2011, non-employee members of the Board received a total grant of 11,031 shares of restricted stock for service for the period from January 31, 2011 through January 31, 2012. The shares of restricted stock vested at the conclusion of this service period. Compensation was recognized on a ratable basis over the twelve month vesting period.

        In February 2012, non-employee members of the Board received a total grant of 10,085 shares of restricted stock for service for the period from January 31, 2012 through January 31, 2013. The shares of restricted stock vested at the conclusion of the service period. Compensation was recognized on a ratable basis over the twelve month vesting period.

        Beginning in 2013, the annual retainer for non-employee members of the Board of Directors includes a combined total of $144 of Chase Corporation common stock, in the form of restricted stock valued in conjunction with the start of the new year of board service which generally coincides with the Company's annual shareholder meeting. The stock award vests one year from the date of grant. In February 2013, non-employee members of the Board received a total grant of 7,706 shares of restricted stock for service for the period from January 31, 2013 through January 31, 2014. 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.

56



CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

Stock Options

        In August 2009, the Company's Board of Directors authorized a grant of stock options to its Chief Executive Officer, its President and its Chief Financial Officer to purchase 75,000, 50,000 and 25,000 shares of common stock, respectively. Each of these options has an exercise price of $11.15 per share, and will vest in four equal annual allotments beginning on August 31, 2010 and ending on August 31, 2013. The options will expire on the tenth anniversary of the grant date. Compensation expense is being recognized over the period of the award on an annual basis consistent with the vesting terms.

        In August 2010, the Board of Directors of the Company approved the fiscal year 2011 Long Term Incentive Plan ("LTIP") for the executive officers. The fiscal 2011 LTIP is an equity based plan with a grant date of September 1, 2010 and included options to purchase 62,425 shares of common stock in the aggregate. Each of these options has an exercise price of $12.70 per share, and will vest in three equal annual allotments beginning on August 31, 2011 and ending on August 31, 2013. The options will expire on August 31, 2020. Compensation expense is being recognized over the period of the award on an annual basis consistent with the vesting terms.

        In April 2011, the Board of Directors of the Company authorized a grant of stock options to certain non-executive officer employees to purchase 15,201 shares of common stock in the aggregate with an exercise price of $16.53 per share. The options will vest in three equal annual allotments beginning on April 30, 2012 and ending on April 30, 2014. The options will expire on April 30, 2021. Compensation expense is being recognized over the period of the award on an annual basis consistent with the vesting terms.

        In August 2011, the Board of Directors of the Company approved the fiscal year 2012 LTIP for the executive officers. The fiscal 2012 LTIP is an equity based plan with a grant date of September 1, 2011 and included options to purchase 59,493 shares of common stock in the aggregate. Each of these options has an exercise price of $12.77 per share, and will vest in three equal annual allotments beginning on August 31, 2012 and ending on August 31, 2014. The options will expire on August 31, 2021. Compensation expense is being recognized over the period of the award on an annual basis consistent with the vesting terms.

        In August 2011, the Board of Directors of the Company authorized a grant of stock options with a grant date of September 1, 2011 to certain non-executive officer employees to purchase 20,883 shares of common stock in the aggregate with an exercise price of $12.77 per share. The options will vest in three equal annual allotments beginning on August 31, 2012 and ending on August 31, 2014. The options will expire on August 31, 2021. Compensation expense is being recognized over the period of the award on an annual basis consistent with the vesting terms.

        In March 2012, the Board of Directors of the Company authorized a grant of stock options to a non-executive officer employee to purchase 6,630 shares of common stock with an exercise price of $14.62 per share. The options will vest in three equal annual allotments beginning on March 8, 2013 and ending on March 8, 2015. The options will expire on March 8, 2022. Compensation expense is being recognized over the period of the award on an annual basis consistent with the vesting terms.

        In October 2012, the Board of Directors of the Company approved the fiscal year 2013 LTIP for the executive officers and other members of management. The 2013 LTIP is an equity based plan with a grant date of October 22, 2012 and included options to purchase 43,964 shares of common stock in the aggregate with an exercise price of $16.00 per share. The options will vest in three equal annual allotments beginning on August 31, 2013 and ending on August 31, 2015. The options will expire on October 22, 2022. Compensation expense is being recognized over the period of the award on an annual basis consistent with the vesting terms.

57



CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        The following table summarizes information about stock options outstanding as of August 31, 2013:

 
  Options Outstanding   Options Exercisable  
Exercise Prices
  Number
Outstanding
  Weighted Avg.
Remaining
Contractual
Life
  Weighted
Average
Exercise Price
  Aggregate
Intrinsic
Value
  Number
Exercisable
  Weighted
Average
Exercise Price
  Aggregate
Intrinsic Value
 

$11.15

    106,250     6.0 years   $ 11.15   $ 1,973     106,250   $ 11.15   $ 1,973  

$12.70

    62,425     7.0 years     12.70     1,063     62,425     12.70     1,063  

$12.77

    76,792     8.0 years     12.77     1,302     49,999     12.77     848  

$14.62

    6,630     8.5 years     14.62     100     2,210     14.62     33  

$16.00

    43,964     9.1 years     16.00     603     14,653     16.00     201  

$16.53

    256,743     4.9 years     16.53     3,386     253,926     16.53     3,349  
                                     

    552,804     6.2 years   $ 14.48   $ 8,427     489,463   $ 14.47   $ 7,467  
                                     

        All stock option plans have been approved by the Company's stockholders. Options are granted with an exercise price that is equal to the closing market value of the Company's common stock on the day preceding the grant date.

        A summary of the transactions of the Company's stock option plans for the years ended August 31, 2013, 2012 and 2011 is presented below:

 
  Non Employee
Directors
  Weighted
Average
Exercise Price
  Officers
and
Employees
  Weighted
Average
Exercise Price
 

Options outstanding as of August 31, 2010

    2,500   $ 5.25     471,000   $ 13.12  

Granted

            77,626     13.45  

Exercised

    (2,500 )   5.25     (71,000 )   5.25  

Forfeited or cancelled

                 
                       

Options outstanding as of August 31, 2011

      $     477,626   $ 14.34  
                       

Granted

            87,006     12.91  

Exercised

                 

Forfeited or cancelled