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ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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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, 2014

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, 2014 (the last business day of the registrant's second quarter of fiscal 2014), was approximately $203,473,000.

         As of October 31, 2014, the Company had outstanding 9,129,427 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, 2014, 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, 2014

 
   
  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

    68  

Item 9A

 

Controls and Procedures

    68  

Item 9B

 

Other Information

    69  

PART III

 

 

   
 
 

Item 10

 

Directors, Executive Officers and Corporate Governance

    70  

Item 11

 

Executive Compensation

    70  

Item 12

 

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

    70  

Item 13

 

Certain Relationships and Related Transactions, and Director Independence

    70  

Item 14

 

Principal Accountant Fees and Services

    70  

PART IV

 

 

   
 
 

Item 15

 

Exhibits and Financial Statement Schedules

    71  

SIGNATURES

   
74
 

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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. 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, 2014 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.

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.

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Key Products   Primary
Manufacturing
Location(s)
  Background/History
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.

 

 

 

 

In October 2013, we moved the majority of our manufacturing processes that had been conducted at our Taylorsville, NC facility to our Lenoir, NC location.

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.

 

 

 

 

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.

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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

        On October 31, 2014, we purchased the 50% non-controlling membership interest of NEPTCO JV LLC (the "JV") that had been owned by our now-former joint venture partner, an otherwise unrelated party. The purchase consideration due at the time of closing was not deemed to be material to Chase, and is subject to certain contingent adjustments based on certain future events related to the JV. We also do not believe that these contingent adjustments will be material to us. The purchase was funded entirely with available cash on hand. Because of our controlling financial interest, the JV's assets, liabilities and results of operations have been consolidated within our consolidated financial statements since June 27, 2012, the date Chase acquired NEPTCO. Given our 100% ownership as of October 31, 2014, in subsequent periods we will continue to fully consolidate assets, liabilities and results of operations, but will no longer record an offsetting amount for a non-controlling interest.


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.

        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 2014.


Employees

        As of October 31, 2014, we employed approximately 667 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, 2014, the backlog of customer orders believed to be firm was approximately $15,453,000. This compared with a backlog of $16,546,000 as of October 31, 2013. The decrease in backlog from the prior year amount is primarily due to an overall decrease in order activity across our North America pipeline and construction product lines. During fiscal 2014, 2013 and 2012, 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; Ceva®, a trademark 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. 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. We did file one new patent application during this fiscal year under our PaperTyger® product line which is a paper/plastic laminate and electromagnetic shielding material used to protect against identity and property theft.


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 $2,599,000, $3,395,000 and $2,958,000 was spent for Company-sponsored research and development during fiscal 2014, 2013 and 2012, respectively. Research and development decreased by $796,000 in fiscal 2014 primarily due to a reduction in the use of outside services and our continued emphasis on streamlining processes.


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

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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 Regarding 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.

        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.

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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. Disruptions 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.

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

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personnel. The inability to satisfy such requirements could have a negative impact on our ability to remain competitive in the future. We have recently announced a transition plan under which we expect Peter R. Chase to become Executive Chairman and Adam P. Chase to become Chief Executive Officer, subject to board approval at the time, effective with our annual meeting of shareholders in 2015.

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.

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, and 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 requirements 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. We filed our first report under these rules in May 2014, to cover calendar year 2013, and anticipate filing reports on this matter on or prior to the annual May 31 due date going forward.

        There are costs associated with complying with these annual disclosure requirements, including ongoing 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. Continued adherence to these rules, and Chase's desire to obtain and maintain a DRC Conflict Free status, 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 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

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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 or are not done so by conflict free certified refiners and smelters.

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 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.

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, Wokingham, 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

        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 October 31, 2014. 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     66   Chairman of the Board of the Company since February 2007, and Chief Executive Officer of the Company since September 1993.

Adam P. Chase

 

 

42

 

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 J. Feroldi

 

 

58

 

Chief Financial Officer and Treasurer of the Company since September 2014. Previously Director of Finance for the Company, prior to which he served as Vice President—Finance, Chief Financial Officer and Treasurer of NEPTCO, Inc. from 1992 until 2012 when NEPTCO was acquired by the Company.

        In October 2014, Chase Corporation announced that as part of the Company's succession plan, effective with its annual meeting of shareholders scheduled for February 3, 2015, and subject to final board approval at that time, Adam P. Chase, its current President and Chief Operating Officer, will be named Chief Executive Officer and Peter R. Chase, its current Chairman and Chief Executive Officer, will be named Executive Chairman.

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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, 2014, there were 380 shareholders of record of our Common Stock and we believe that there were approximately 3,394 beneficial shareholders who held shares in nominee name. On that date, the closing price of our common stock was $35.87 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, 2014 and 2013:

 
  Fiscal 2014   Fiscal 2013  
 
  High   Low   High   Low  

First Quarter

  $ 32.00   $ 26.13   $ 19.00   $ 15.51  

Second Quarter

    36.76     29.17     19.68     17.02  

Third Quarter

    33.74     28.21     19.94     16.98  

Fourth Quarter

    36.19     28.85     30.75     19.52  

        Single annual cash dividend payments were declared and scheduled to be paid subsequent to year end in the amounts of $0.60, $0.45, and $0.40 per common share, for the years ended August 31, 2014, 2013 and 2012, 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., Circor International Inc., H.B. Fuller Company, Quaker Chemical Corporation and RPM International, Inc. Cumulative total returns are calculated assuming that $100 was invested on August 31, 2009 in each of the Common Stock, the S&P 500 Index and the Peer Group Index, and that all dividends were reinvested.

GRAPHIC

 
  2009   2010   2011   2012   2013   2014  

Chase Corp

  $ 100   $ 113   $ 116   $ 152   $ 284   $ 344  

S&P 500 Index

  $ 100   $ 105   $ 124   $ 147   $ 174   $ 218  

Peer Group Index

  $ 100   $ 108   $ 135   $ 177   $ 236   $ 316  

        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.

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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,  
 
  2014   2013   2012   2011   2010  
 
  (In thousands, except per share amounts)
 

Statement of Operations Data

                               

Revenues from continuing operations

  $ 224,006   $ 216,062   $ 148,919   $ 123,040   $ 118,743  
                       
                       

Income from continuing operations, net of taxes

  $ 26,523   $ 16,740   $ 9,264   $ 10,931   $ 10,726  

Income from discontinued operations, net of taxes

                    1,790  
                       

Net income

  $ 26,523   $ 16,740   $ 9,264   $ 10,931   $ 12,516  

Add: net loss attributable to non-controlling interest

    108     474     74          
                       

Net income attributable to Chase Corporation          

  $ 26,631   $ 17,214   $ 9,338   $ 10,931   $ 12,516  

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

                               

Basic:

                               

Continuing operations

  $ 2.92   $ 1.90   $ 1.03   $ 1.22   $ 1.22  

Discontinued operations

                    0.20  
                       

Net income per common and common equivalent share

  $ 2.92   $ 1.90   $ 1.03   $ 1.22   $ 1.42  

Diluted:

                               

Continuing operations

  $ 2.86   $ 1.87   $ 1.03   $ 1.22   $ 1.21  

Discontinued operations

                    0.20  
                       

Net income per common and common equivalent share

  $ 2.86   $ 1.87   $ 1.03   $ 1.22   $ 1.41  

Balance Sheet Data

   
 
   
 
   
 
   
 
   
 
 

Total assets

  $ 245,545   $ 224,360   $ 214,832   $ 128,909   $ 123,201  

Long-term debt

    51,800     58,800     64,400     8,267     12,667  

Total stockholders' equity

    137,490     113,860     99,645     91,880     81,531  

Cash dividends paid per common and common equivalent share

 
$

0.45
 
$

0.40
 
$

0.35
 
$

0.35
 
$

0.20
 

        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,  
 
  2014   2013   2012  
 
  (Dollars in thousands)
 

Revenues

  $ 224,006   $ 216,062   $ 148,919  
               
               

Net income

  $ 26,523   $ 16,740   $ 9,264  

Add: net loss attributable to non-controlling interest

    108     474     74  
               

Net income attributable to Chase Corporation

  $ 26,631   $ 17,214   $ 9,338  
               
               

Increase in revenues from prior year

                   

Amount

  $ 7,944   $ 67,143   $ 25,879  

Percentage

    4 %   45 %   21 %

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

                   

Amount

  $ 9,783   $ 7,476   $ (1,667 )

Percentage

    58 %   80 %   (15 )%

Percentage of revenues:

   
 
   
 
   
 
 

Revenues

    100 %   100 %   100 %

Expenses:

                   

Cost of products and services sold

    65 %   68 %   68 %

Selling, general and administrative expenses

    19     20     21  

Acquisition related costs

            2  

Other (income)

    (2 )        
               

Income before income taxes

    18     12     9  

Income taxes

    6     4     3  
               

Net income

    12 %   8 %   6 %
               
               


Overview

        Continued strong demand for many of our product areas as well as favorable sales mix contributed to increased revenues and net income over the prior year results. Our strategic diversification was also a contributing factor as several product lines in both of our segments exceeded prior year revenues, offsetting shortfalls from others, which led to revenue growth for the fiscal year. Additionally, our ongoing efforts with production facility consolidation, efficiency improvements and streamlining overhead costs have improved our profitability. The sale of the Company's Insulfab product line in October 2013 significantly contributed to earnings and cash flows earlier in fiscal 2014.

        Revenues from the Industrial Materials segment exceeded prior year results primarily due to strong demand in Europe and Asia for our electronic coatings products, as well as increased sales of our pulling and detection tapes, electronic materials, and power cable products. These increased sales were partially offset by a reduction in demand for our specialty materials products and fiber optic cable component products from our joint venture business.

        Revenues from the Construction Materials segment surpassed the prior year primarily driven by increased demand for pipeline coatings products produced at our Rye, UK facility due to Middle East project demand, as well as increased sales of our coating and lining system products over the final half of the fiscal year. These increases were partially offset by decreased sales of our private label products and bridge & highway construction products due to the impact of the harsh winter across the U.S. on these businesses.

        In the upcoming fiscal year, we will continue with our global ERP system implementation which was initiated in fiscal 2013 and is scheduled for full company-wide deployment by the end of December 2014. Additionally, consolidation efforts will remain a priority and other key strategies will include a focus on our marketing and product development efforts along with a continued emphasis on identifying potential acquisition targets. Our balance sheet

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continues to remain strong, with cash on hand of $53.2 million and a current ratio of 3.5. Our $15.0 million line of credit is fully available, while the balance of our term debt is $58.8 million.

        The Company has two reportable segments summarized below:

Segment
  Product Lines   Manufacturing Focus and Products

Industrial Materials

   

Wire and Cable

Electronic Coatings

Specialty Products

Pulling and Detection

Electronic Materials

Structural Composites

Fiber Optic Cable Components (1)

  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, 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, cover tapes essential to delivering semiconductor components via tape and reel packaging, wind energy composite materials and elements; and glass-based strength elements designed to allow fiber optic cables to withstand mechanical and environmental strain and stress.

         

Construction Materials

   

Pipeline

Bridge and Highway

Coating and 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.

(1)
Through a 50% owned joint venture until October 31, 2014, when we purchased the non-controlling 50% interest.

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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 2014

                   

Industrial Materials

  $ 169,657   $ 40,015  (a)   24 %

Construction Materials

    54,349     8,157     15 %
                 

  $ 224,006     48,172     22 %
                   
                   

Less corporate and common costs

          (7,682 )(b)      
                   

Income before income taxes

        $ 40,490        
                   
                   

Fiscal 2013

                   

Industrial Materials

  $ 163,474   $ 26,400  (c)   16 %

Construction Materials

    52,588     6,463     12 %
                 

  $ 216,062     32,863     15 %
                   
                   

Less corporate and common costs

          (7,053 )(d)      
                   

Income before income taxes

        $ 25,810        
                   
                   

Fiscal 2012

                   

Industrial Materials

  $ 95,988   $ 17,643  (e)   18 %

Construction Materials

    52,931     4,913     9 %
                 

  $ 148,919     22,556     15 %
                   
                   

Less corporate and common costs

          (8,560 )(f)      
                   

Income before income taxes

        $ 13,996        
                   
                   

(a)
Includes $5,706 gain on sale of Insulfab product line

(b)
Includes $348 of pension related settlement costs due to the timing of lump sum distributions.

(c)
Includes $564 of expenses related to inventory step up in fair value related to the NEPTCO acquisition and $521 of pension related settlement costs due to the timing of lump sum distributions

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

(e)
Includes $828 of expenses related to inventory step up in fair value related to the NEPTCO acquisition and $303 of pension related settlement costs due to the timing of lump sum distributions

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

Total Revenues

        Total revenues in fiscal 2014 increased $7,944,000 or 4% to $224,006,000 from $216,062,000 in the prior year. Revenues in our Industrial Materials segment increased $6,183,000 or 4% to $169,657,000 for the year ended August 31, 2014 compared to $163,474,000 in fiscal 2013. The increase in revenues from our Industrial Materials segment in fiscal 2014 was primarily due to increased sales of: (a) $3,465,000 from our global electronic coatings product line primarily due to higher sales into Europe and Asia; (b) $2,015,000 from our pulling and detection tape products; (c) $1,447,000 from electronic cover tapes; and (d) $1,072,000 from our wire and cable products that are used in energy-related applications. These increases were partially offset by decreased sales of $975,000 from our specialty materials products as well as lower sales of $520,000 from our joint venture fiber optic cable products.

        Revenues from our Construction Materials segment increased $1,761,000 or 3% to $54,349,000 for the year ended August 31, 2014 compared to $52,588,000 for fiscal 2013. The increased sales from our Construction Materials segment in fiscal 2014 was primarily due to increased sales of $5,563,000 in pipeline products produced

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at our Rye, UK facility as a result of higher project related demands in the Middle East. These increases were partially offset by decreased sales of $2,032,000 from our bridge and highway products as well as lower sales of $1,733,000 from our private label products as both experienced slower demand earlier this fiscal year during the winter and spring months due to the impact of the harsh winter across the U.S. on these businesses.

        Royalties and commissions in the Industrial Materials segment were $2,972,000, $2,414,000 and $2,425,000 for the years ended August 31, 2014, 2013 and 2012, respectively. The increase in royalties and commissions in fiscal 2014 over both fiscal 2013 and 2012 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 $21,212,000, $22,827,000 and $21,204,000 for the years ended August 31, 2014, 2013 and 2012, respectively. Export sales had a slight decline in fiscal 2014 as compared to fiscal 2013 primarily due to the prior year's inclusion of some large export shipments of our C.I.M. products that were not repeated in fiscal 2014. We do not anticipate any material changes to export sales during fiscal 2015.

        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 fiscal 2012; (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 $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.

Cost of Products and Services Sold

        Cost of products and services sold decreased $842,000 or 1% to $145,193,000 for the fiscal year ended August 31, 2014 compared to $146,035,000 in fiscal 2013. As a percentage of revenues, cost of products and services sold decreased to 65% in fiscal 2014 compared to 68% for fiscal 2013.

        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
  2014   2013   2012

Industrial Materials

  64%   67%   67%

Construction Materials

  68%   68%   69%
             

Total

  65%   68%   68%
             
             

        Cost of products and services sold in our Industrial Materials segment was $108,121,000 for the fiscal year ended August 31, 2014 compared to $110,051,000 in fiscal 2013. As a percentage of revenues, cost of products and services sold in this segment decreased to 64% in fiscal 2014 compared to 67% in fiscal 2013. As a percentage of revenues, cost of products and services sold in the Industrial Materials segment decreased primarily due to sales mix as well as cost savings realized from the Company's recent plant consolidation efforts. In the past two years, this segment has benefitted from exiting the Randolph, MA (operations relocated in December 2012) and Taylorsville, NC (Insulfab product line sold in October 2013) facilities and transitioning the remaining manufacturing activities from those two facilities to other domestic Chase facilities. Additionally, in the first three months of fiscal 2013, this segment was impacted by incremental cost of products sold of $564,000 due to the sale of inventory which had a stepped up valuation as part of the NEPTCO acquisition.

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        Cost of products and services sold in our Construction Materials segment was $37,072,000 for the fiscal year ended August 31, 2014 compared to $35,984,000 in fiscal 2013. As a percentage of revenues, cost of products and services sold in the Construction Materials segment remained relatively flat despite increased sales of lower margin products primarily due to management's ability to leverage its fixed overhead costs on a higher revenue base coupled with continued focus and scrutiny on material purchases that helped stabilize margins on many of our key product lines.

        In fiscal 2013, 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. 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 2013 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) expenses of $564,000 due to the fair value inventory step up related to the NEPTCO acquisition; and (c) 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 fiscal 2013, as well as the inclusion of the following costs in fiscal 2012: (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. 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.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses decreased $596,000 or 1% to $42,640,000 during fiscal 2014 compared to $43,236,000 in fiscal 2013. As a percentage of revenues, selling, general and administrative expenses decreased to 19% of total revenues in fiscal 2014 compared to 20% for fiscal 2013. The percentage decrease is primarily attributable to our continued emphasis on controlling costs, as well as the increased benefit due to the capitalization of internal costs related to our on-going global ERP implementation project. Additionally, the prior year period included an incremental $247,000 of pension related settlement costs due to the timing of lump sum distributions.

        During fiscal 2013, selling, general and administrative expenses increased $13,064,000 or 43% to $43,236,000, 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, fiscal 2013 included $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 was attributable to management's continued emphasis on controlling costs, including reduced travel, advertising, and other selling related expenses.

        In fiscal 2014, bad debt expense, net of recoveries, was $28,000 compared to fiscal 2013 where 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 in fiscal 2012. The comparatively higher 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.

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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 decreased $151,000 or 12% to $1,143,000 in fiscal 2014 compared to $1,294,000 in fiscal 2013. The decrease in interest expense in fiscal 2014 as compared to fiscal 2013 is a direct result of a reduction in our overall debt balance through required principal payments made from operating cash flow over the past year. Interest expense increased $896,000 to $1,294,000 in fiscal 2013 compared to $398,000 in fiscal 2012 primarily due to incurring a full year of interest expense on the term note related to the June 2012 acquisition of NEPTCO.

Gain on sale of product line

        On October 7, 2013, we sold substantially all of our property and assets, including intellectual property, comprising the Insulfab product line, to an unrelated buyer. This transaction resulted in a pre-tax book gain of $5,706,000, which was recorded in our fiscal quarter ended November 30, 2013 (the first quarter of our fiscal 2014).

Other (Expense) Income

        Other expense was $246,000 in fiscal 2014 compared to other income of $313,000 in fiscal 2013, a decrease of $559,000. Other (expense) income primarily includes interest income and foreign exchange gains and losses caused by changes in exchange rates on transactions or balances denominated in currencies other than the functional currency of our subsidiaries. The decrease in other expense in fiscal 2014 as compared to the prior year is primarily due to foreign exchange losses driven by the strengthening of the pound sterling against both the euro and US dollar throughout fiscal 2014.

        Other income increased $211,000 to $313,000 in fiscal 2013 compared to $102,000 in fiscal 2012, primarily due to foreign exchange gains driven by the strengthening of the pound sterling during fiscal 2013.

Income Taxes

        The effective tax rate for fiscal 2014 was 34.5% as compared to 35.1% and 33.8% in fiscal 2013 and 2012, respectively. In all three years, we have received the benefit of the domestic production deduction and foreign rate differential. The decreased effective tax rate in fiscal 2014 is primarily due to a more favorable effective state income tax rate and foreign rate differential than realized in fiscal 2013. The effective tax rate of 35.1% for fiscal 2013 compares unfavorably to 2012 primarily due to a less favorable effective state income tax rate than realized in the prior fiscal year.

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 2014 increased $9,417,000 or 55% to $26,631,000 compared to $17,214,000 in fiscal 2013. The increase in net income in fiscal 2014 is primarily due to the previously mentioned $5,706,000 pre-tax gain that resulted from the sale of the Insulfab product line in October 2013, numerous cost containment initiatives including recent plant consolidation efforts, and the incremental benefit of $236,000 from capitalized internal labor used in our on-going global ERP implementation project. We have capitalized $719,000 of internal costs related to our ERP implementation project for the year to date period compared to $483,000 in the prior year to date period. Additionally, net income in fiscal 2013 was negatively impacted by expenses of $564,000 in inventory fair value step up related to the NEPTCO acquisition, and the acceleration of defined benefit plan settlement costs of $1,223,000 resulting from the timing of lump sum distributions to participants.

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        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.


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 expense from intangible assets. We define Adjusted EBITDA as EBITDA excluding costs and gains/losses related to our acquisitions and divestitures, costs of products sold related to inventory step-up to fair value, and settlement (gains) or losses resulting from lump sum distributions to participants from our defined benefit plan.

        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,  
 
  2014   2013   2012  

Net income attributable to Chase Corporation

  $ 26,631   $ 17,214   $ 9,338  

Interest expense

    1,143     1,294     398  

Income taxes

    13,967     9,070     4,775  

Depreciation expense

    5,692     5,872     3,262  

Amortization expense

    4,822     4,793     2,710  
               

EBITDA

  $ 52,255   $ 38,243   $ 20,483  

Acquisition related costs (a)

            3,206  

Cost of sale of inventory step-up (b)

        564     828  

Pension curtailment and settlement costs (c)

    348     1,223     550  

Gain on sale of Insulfab (d)

    (5,706 )        
               

Adjusted EBITDA

  $ 46,897   $ 40,030   $ 25,067  
               
               

(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

(d)
Represents gain on sale of Insulfab product line that was completed in October 2013


Liquidity and Sources of Capital

        Our cash balance increased $23,225,000 to $53,222,000 at August 31, 2014 from $29,997,000 at August 31, 2013. The increased cash balance is primarily attributable to the proceeds from the sale of the Insulfab product line in October 2013, as well as from cash from operations, partially offset by payments on: our fiscal 2013 annual dividend, outstanding debt, income taxes, annual incentive compensation and equipment purchases. Of the

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above noted amounts, $14,575,000 and $10,013,000 were held outside the U.S. by our foreign subsidiaries as of August 31, 2014 and 2013, respectively. Given our cash position in the U.S. and the potential for increased investment and acquisitions in foreign jurisdictions, we do not have a history of repatriating a significant portion of our foreign cash. However, we do not currently take the position that undistributed foreign subsidiaries' earnings are considered to be permanently reinvested. Accordingly, we recognize a deferred tax liability for the estimated future tax effects attributable to temporary differences due to these unremitted earnings. In the event that circumstances should change in the future and we decide to repatriate these foreign amounts to fund U.S. operations, the Company would pay the applicable U.S. taxes on these repatriated foreign amounts to satisfy all previously recorded tax liabilities.

        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. Of the above noted amounts, $10,013,000 and $4,826,000 were held outside the U.S. by our foreign subsidiaries as of August 31, 2013 and 2012, respectively.

        Cash provided by operations was $28,606,000 for the year ended August 31, 2014 compared to $28,157,000 in fiscal 2013 and $13,946,000 in fiscal 2012. Cash provided by operations during fiscal 2014 was primarily due to operating income and increased accounts payable due to the timing of vendor payments, offset by increased inventory resulting from strategic purchases of raw materials and increased accounts receivable balances due to higher sales volumes. 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.

        The ratio of current assets to current liabilities was 3.5 as of August 31, 2014 compared to 3.1 as of August 31, 2013. The increase in our current ratio at August 31, 2014 was primarily attributable to increases in cash due to the proceeds from the sale of the Insulfab product line in October 2013 and accounts receivable resulting from higher sales volumes, as well as decreases in accrued income taxes due to the timing of tax payments. This was partially offset by an increase to accounts payable due to the timing of some raw material purchases during fiscal 2014.

        Cash provided by investing activities was $4,443,000 for the year ended August 31, 2014 compared to cash used in investing activities of $3,580,000 in fiscal 2013 and $67,090,000 in fiscal 2012. During fiscal 2014, cash provided by investing activities was primarily due to the proceeds from the sale of the Insulfab product line in October 2013, which was partially offset by cash paid for purchases of machinery and equipment at our manufacturing locations. 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 acquired, for the acquisition of NEPTCO and $5,230,000 paid for purchases of machinery and equipment at our manufacturing locations.

        Cash used in financing activities was $10,501,000 for the year ended August 31, 2014 compared to $9,614,000 in fiscal 2013 and cash provided by financing activities of $53,508,000 in fiscal 2012. During both fiscal 2014 and 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, in fiscal 2012, 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.

        On October 23, 2014, we announced a cash dividend of $0.60 per share (totaling $5,462,000), composed of $0.50 related to earnings from continuing operations and $0.10 related to the sale of a non-strategic business, to shareholders of record on November 3, 2014 and payable on December 4, 2014.

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

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        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 paid on December 5, 2012.

        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, 2014, the applicable interest rate was 1.91% per annum and the outstanding principal amount was $58,800,000. We are required to repay the principal amount of the term loan in quarterly installments. Installment payments of $1,400,000 began in September 2012 and continued through June 2014, increased to $1,750,000 per quarter thereafter through June 2015, and will increase to $2,100,000 per quarter thereafter through March 2017. The Credit Facility matures in June 2017 and prepayment of the Credit Facility is allowed at any time.

        We have a revolving line of credit with Bank of America (the "Revolver") totaling $15,000,000, which 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, 2014 and October 31, 2014, 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 2015 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, 2014.

        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.

        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, 2014 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

  $ 61,541   $ 8,116   $ 53,425       $  

Operating leases

    6,775     740     1,479     1,408     3,148  

Capital leases

    86     43     43          

Purchase Obligations

    4,560     4,560              
                       

Total (1) (2)

  $ 72,962   $ 13,459   $ 54,947   $ 1,408   $ 3,148  
                       
                       

(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 $1,030,000 as of August 31, 2014 have been excluded

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    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, 2014, we had recognized an accrued benefit plan liability of $10,424,000 representing the unfunded 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 February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-02, "Comprehensive Income (Topic 220): 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. We adopted this ASU in the first quarter of fiscal 2014. The provisions of ASU 2013-02 did not have a material impact on our consolidated financial position, results of operations or cash flows.

        In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers", which will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU will be effective for our fiscal year 2018, beginning September 1, 2017, including interim periods, and allows for both retrospective and prospective methods of adoption. We are in the process of determining the method of adoption and assessing the impact of this ASU on our consolidated financial position, results of operations or cash flows.


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.

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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).

        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

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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 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 Chase 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 related 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 applicable soft freeze dates 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,

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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; the impact of changes in accounting standards; rapid technology changes and the highly competitive environment in which we operate. These risks and uncertainties 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, 2014, 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, 2014, the Company had cash balances in the following foreign currencies (with USD equivalents):

Currency Code
  Currency Name   USD Equivalent at
August 31, 2014
 

GBP

  British Pound   $ 12,041,000  

EUR

  Euro   $ 2,597,000  

CNY

  Chinese Yuan   $ 310,000  

CAD

  Canadian Dollar   $ 90,000  

        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 gain for the year ended August 31, 2014 in the amount of $2,055,000 related to our European operations which is recorded in accumulated 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 $58,800,000 at August 31, 2014. 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, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2014 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, 2014, 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, "Controls and Procedures." 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, Massachusetts
November 14, 2014

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CHASE CORPORATION

CONSOLIDATED BALANCE SHEETS

In thousands, except share and per share amounts

 
  August 31,  
 
  2014   2013  

ASSETS

             

Current Assets

             

Cash & cash equivalents

  $ 53,222   $ 29,997  

Accounts receivable, less allowance for doubtful accounts of $670 and $696

    35,601     32,084  

Inventories

    31,539     32,048  

Prepaid expenses and other current assets

    2,437     1,826  

Due from sale of product line

    739      

Assets held for sale

        1,905  

Deferred income taxes

    2,315     2,115  
           

Total current assets

    125,853     99,975  

Property, plant and equipment, net

   
44,085
   
45,192
 

Other Assets

   
 
   
 
 

Goodwill

    38,280     37,815  

Intangible assets, less accumulated amortization of $22,941 and $17,554

    27,215     31,781  

Cash surrender value of life insurance

    7,249     7,278  

Restricted investments

    1,256     1,094  

Funded pension plan

    962     1,014  

Deferred income taxes

    470      

Other assets

    175     211  
           

  $ 245,545   $ 224,360  
           
           

LIABILITIES AND EQUITY

             

Current Liabilities

             

Accounts payable

  $ 15,121   $ 12,416  

Accrued payroll and other compensation

    7,754     7,046  

Accrued expenses

    4,842     5,171  

Accrued income taxes

    1,377     2,161  

Current portion of long-term debt

    7,000     5,600  
           

Total current liabilities

    36,094     32,394  

Long-term debt, less current portion

   
51,800
   
58,800
 

Deferred compensation

    2,037     1,897  

Accumulated pension obligation

    10,418     7,834  

Other liabilities

    126     108  

Deferred income taxes

    7,580     9,467  
           

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; 9,103,292 shares at August 31, 2014 and 9,066,115 shares at August 31, 2013 issued and outstanding

    910     907  

Additional paid-in capital

    13,620     13,336  

Accumulated other comprehensive loss

    (4,250 )   (5,163 )

Retained earnings

    126,272     103,734  
           

Chase Corporation stockholders' equity

    136,552     112,814  

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

    938     1,046  
           

Total equity

    137,490     113,860  
           

Total liabilities and equity

  $ 245,545   $ 224,360  
           
           

   

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,  
 
  2014   2013   2012  

Revenues

                   

Sales

  $ 221,034   $ 213,648   $ 146,494  

Royalties and commissions

    2,972     2,414     2,425  
               

    224,006     216,062     148,919  
               

Costs and Expenses

                   

Cost of products and services sold

    145,193     146,035     101,249  

Selling, general and administrative expenses

    42,640     43,236     30,172  

Acquisition related costs

            3,206  
               

Operating income

    36,173     26,791     14,292  

Interest expense

   
(1,143

)
 
(1,294

)
 
(398

)

Gain on sale of product line (Note 18)

    5,706          

Other (expense) income

    (246 )   313     102  
               

Income before income taxes

    40,490     25,810     13,996  

Income taxes

   
13,967
   
9,070
   
4,732
 
               

Net income

  $ 26,523   $ 16,740   $ 9,264  

Add: net loss attributable to non-controlling interest

    108     474     74  
               

Net income attributable to Chase Corporation

  $ 26,631   $ 17,214   $ 9,338  
               
               

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

                   

Basic

  $ 2.92   $ 1.90   $ 1.03  

Diluted

  $ 2.86   $ 1.87   $ 1.03  

Weighted average shares outstanding

   
 
   
 
   
 
 

Basic

    8,952,026     8,860,972     8,761,262  

Diluted

    9,165,666     8,978,438     8,786,750  

   

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,  
 
  2014   2013   2012  

Net income

  $ 26,523   $ 16,740   $ 9,264  

Other comprehensive income:

   
 
   
 
   
 
 

Net unrealized gain on restricted investments, net of tax of $38, $20 and $20, respectively

    65     85     33  

Change in funded status of pension plans, net of tax of ($796), $281 and $297, respectively

    (1,207 )   201     (493 )

Foreign currency translation adjustment

    2,055     (419 )   (904 )
               

Total other comprehensive income (loss)

    913     (133 )   (1,364 )
               

Comprehensive income

    27,436     16,607     7,900  

Comprehensive loss attributable to non-controlling interest

    108     474     74  
               

Comprehensive income attributable to Chase Corporation

  $ 27,544   $ 17,081   $ 7,974  
               
               

   

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, 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  

Restricted stock grants, net of forfeitures

    32,851     3     (3 )                    

Amortization of restricted stock grants

            857             857         857  

Amortization of stock option grants

            239             239         239  

Exercise of stock options

    114,872     11     1,604             1,615         1,615  

Common stock received for payment of stock option exercises

    (47,121 )   (5 )   (1,545 )           (1,550 )       (1,550 )

Excess tax benefit (expense) from stock based compensation

            1,324             1,324         1,324  

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

    (63,425 )   (6 )   (2,192 )           (2,198 )       (2,198 )

Cash dividend paid, $0.45 per share

                    (4,093 )   (4,093 )       (4,093 )

Change in funded status of pension plan, net of tax of $796

                (1,207 )       (1,207 )       (1,207 )

Foreign currency translation adjustment

                2,055         2,055         2,055  

Net unrealized gain on restricted investments, net of tax of $38

                65         65         65  

Net income

                    26,631     26,631     (108 )   26,523  
                                   
Balance at August 31, 2014     9,103,292   $ 910   $ 13,620   $ (4,250 ) $ 126,272   $ 136,552   $ 938   $ 137,490  
                                   
                                   

See accompanying notes to the consolidated financial statements.

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CHASE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands

 
  Years Ended August 31,  
 
  2014   2013   2012  

CASH FLOWS FROM OPERATING ACTIVITIES

                   

Net income

  $ 26,523   $ 16,740   $ 9,264  

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

                   

(Gain) loss on disposal/sale of fixed assets

    2     (8 )   32  

Gain on sale of product line

    (5,706 )        

Depreciation

    5,692     5,872     3,172  

Amortization

    4,822     4,793     2,716  

Cost of sale of inventory step-up

        564     828  

Provision (recovery) for allowance for doubtful accounts

    28     (114 )   155  

Stock based compensation

    1,096     1,621     2,040  

Realized gain on restricted investments

    (63 )   (51 )   (22 )

Increase (decrease) in cash surrender value life insurance

    202     52     (37 )

Pension curtailment and settlement loss

    348     1,223     550  

Excess tax expense from stock based compensation

    (1,324 )   (622 )   (209 )

Deferred taxes

    (2,529 )   (1,385 )   (1,442 )

Increase (decrease) from changes in assets and liabilities

                   

Accounts receivable

    (3,335 )   (363 )   (1,717 )

Inventories

    (1,550 )   (1,240 )   942  

Prepaid expenses & other assets

    (297 )   8     (55 )

Accounts payable

    2,578     886     (2,683 )

Accrued expenses

    1,351     (791 )   (174 )

Accrued income taxes

    627     850     408  

Deferred compensation

    141     122     178  
               

Net cash provided by operating activities

    28,606     28,157     13,946  
               

CASH FLOWS FROM INVESTING ACTIVITIES

                   

Purchases of property, plant and equipment

    (4,290 )   (3,043 )   (5,230 )

Cost to acquire intangible assets

    (123 )   (354 )   (74 )

Contingent purchase price paid for acquisition

    (160 )   (141 )   (358 )

Payments for acquisitions, net of cash acquired

        84     (62,217 )

Proceeds from sale of fixed assets

    17     105     1,032  

Net proceeds from sale of product line

    9,179          

Net withdrawals (contributions) from restricted investments

    3     (48 )   (60 )

Payments for cash surrender value life insurance

    (183 )   (183 )   (183 )
               

Net cash provided by (used in) investing activities

    4,443     (3,580 )   (67,090 )
               

CASH FLOWS FROM FINANCING ACTIVITIES

                   

Borrowings on long-term debt

    2,104     313     79,331  

Payments of principal on debt

    (7,704 )   (5,913 )   (22,054 )

Dividend paid

    (4,093 )   (3,626 )   (3,165 )

Proceeds from exercise of common stock options

    66     74      

Payments of statutory minimum taxes on stock options and restricted stock

    (2,198 )   (1,083 )   (813 )

Excess tax benefit from stock based compensation

    1,324     621     209  
               

Net cash (used in) provided by financing activities

    (10,501 )   (9,614 )   53,508  
               

INCREASE IN CASH & CASH EQUIVALENTS

    22,548     14,963     364  

Effect of foreign exchange rates on cash

    677     (146 )   (166 )

CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD

    29,997     15,180     14,982  
               

CASH & CASH EQUIVALENTS, END OF PERIOD

  $ 53,222   $ 29,997   $ 15,180  
               
               

   

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.

        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, 2014 and 2013, 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 2014 purchase of the 50% non-controlling membership interest in NEPTCO JV LLC described in Note 14, and the cash dividend announced on October 23, 2014 of $0.60 per share to shareholders of record on November 3, 2014 payable on December 4, 2014, 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.

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

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

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 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 and improvements   15 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 $1,256 and $1,094 at August 31, 2014 and 2013, 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 2014 Combined Static Mortality Table, and a 1.63% discount rate. The

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

Company's net liability related to these postretirement obligations was $54 and $56 at August 31, 2014 and 2013, 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 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 $2,599, $3,395 and $2,958 for the years ended August 31, 2014, 2013 and 2012, 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 2014, 2013 and 2012 was $1,096, $1,621 and $2,040, respectively.

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

        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, 2014, 2013 and 2012:

 
  2014   2013   2012

Expected Dividend yield

  2.0%   2.2%   2.3%

Expected life

  6.0 years   6.0 years   6.0 years

Expected volatility

  41.0%   33.0%   30.0%

Risk-free interest rate

  2.8%   1.6%   2.2%

        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.

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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, 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, cover tapes essential to delivering semiconductor components via tape and reel packaging, and wind energy composite materials and elements. Additionally, the Industrial Materials segment includes a joint venture which produces glass-based strength elements designed to allow fiber optic cables to withstand mechanical and environmental strain and stress. 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 February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-02, "Comprehensive Income (Topic 220): 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 Company adopted this ASU in the first quarter of fiscal 2014 (See Note 23 for additional details). The provisions of ASU 2013-02 did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

        In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers", which will replace most existing revenue recognition guidance in U.S. Generally Accepted

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CHASE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands, except share and per share amounts

Accounting Principles. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU will be effective for the Company beginning September 1, 2017 (fiscal 2018), including interim periods in its fiscal year 2018, and allows for both retrospective and prospective methods of adoption. The Company is in the process of determining the method of adoption and assessing the impact of this ASU on the Company's consolidated financial position, results of operations or cash flows.


Note 2—Inventories

        Inventories consist of the following as of August 31, 2014 and 2013:

 
  2014   2013  

Raw materials

  $ 13,785   $ 14,545  

Work in process

    7,359     5,967  

Finished goods

    10,395     11,536  
           

Total Inventories

  $ 31,539   $ 32,048  
           
           


Note 3—Property, Plant and Equipment

        Property, plant and equipment consist of the following as of August 31, 2014 and 2013:

 
  2014   2013  

Property, Plant and Equipment

             

Land and improvements

  $ 5,770   $ 5,719  

Buildings

    21,259     20,943  

Machinery and equipment

    49,045     44,284  

Leasehold improvements

    2,091     2,034  

Construction in progress

    2,378     3,763  
           

    80,543     76,743  

Accumulated depreciation

    (36,458 )   (31,551 )
           

Property, plant and equipment, net

  $ 44,085   $ 45,192  
           
           


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, 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  

Acquisition of Paper Tyger—additional earnout

        161     161  

Foreign currency translation adjustment

    17     287     304  
               

Balance at August 31, 2014

  $ 10,752   $ 27,528   $ 38,280  
               
               

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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 2014, the Company's review indicated no impairment of goodwill.

        As of August 31, 2014, the Company had a total goodwill balance of $38,280 related to its acquisitions, of which $1,440 remains deductible for income taxes.

        Intangible assets subject to amortization consist of the following as of August 31, 2014 and 2013:

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

August 31, 2014

                       

Patents and agreements

  11.9 years   $ 3,104   $ 2,281   $ 823  

Formulas

  9.1 years     5,849     2,851     2,998  

Trade names

  5.7 years     6,406     3,153     3,253  

Customer lists and relationships

  10.2 years     34,797     14,656     20,141  
                   

      $ 50,156   $ 22,941   $ 27,215  
                   
                   

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  
                   
                   

        Aggregate amortization expense related to intangible assets for the years ended August 31, 2014, 2013 and 2012 was $4,822, $4,793 and $2,716, respectively. As of August 31, 2014 estimated amortization expense for each of the five succeeding fiscal years is as follows:

Years ending August 31,
   
 

2015

  $ 4,736  

2016

    4,674  

2017

    4,237  

2018

    4,006  

2019

    3,308  
       

  $ 20,961  
       
       

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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, 2014 and 2013, secured by the policies, with the following carriers as of August 31, 2014 and 2013:

 
  2014   2013  

John Hancock

  $ 4,450   $ 4,450  

John Hancock (formerly Manufacturers' Life Insurance Company)

    1,054     1,009  

Metropolitan Life Insurance

    1,665     1,739  

Other life insurance carriers

    80     80  
           

  $ 7,249   $ 7,278  
           
           

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


Note 6—Long-Term Debt

        Long-term debt consists of the following at August 31, 2014 and 2013:

 
  2014   2013  

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, increased to $1,750 per quarter thereafter through June 2015, and will increase 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 1.91% at August 31, 2014). 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. 

  $ 58,800   $ 64,400  
           

    58,800     64,400  

Less portion payable within one year classified as current

    (7,000 )   (5,600 )
           

Long-term debt, less current portion

  $ 51,800   $ 58,800  
           
           

        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, 2014, 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 2015 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, 2014.

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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, 2014, 2013 and 2012 was:

 
  Year Ended August 31,  
 
  2014   2013   2012  

United States

  $ 35,480   $ 23,562   $ 12,767  

Foreign

    5,010     2,248     1,229  
               

  $ 40,490   $ 25,810   $ 13,996  
               
               

        The provision (benefit) for income taxes for the years ended August 31, 2014, 2013 and 2012 was:

 
  Year Ended August 31,  
 
  2014   2013   2012  

Current:

                   

Federal

  $ 13,012   $ 8,112   $ 5,073  

State

    1,437     1,652     392  

Foreign

    1,149     1,043     287  
               

Total current income tax provision

    15,598     10,807     5,752  
               

Deferred:

                   

Federal

    (1,446 )   (1,302 )   (860 )

State

    (168 )   (92 )   (150 )

Foreign

    (17 )   (343 )   (10 )
               

Total deferred income tax benefit

    (1,631 )   (1,737 )   (1,020 )
               

Total income tax provision

  $ 13,967   $ 9,070   $ 4,732  
               
               

        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 2014, 2013 and 2012, net of offsets generated by federal, state and foreign tax benefits, was 34.5%, 35.1% and 33.8%, 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, 2014, 2013 and 2012:

 
  Year Ended August 31,  
 
  2014   2013   2012  

Federal statutory rates

    35.0 %   35.0 %   35.0 %
               

Adjustment resulting from the tax effect of:

                   

State and local taxes, net of federal benefit

    1.8 %   3.8 %   1.1 %

Domestic production deduction

    (3.1 )%   (3.3 )%   (3.5 )%

Foreign tax rate differential

    (1.3 )%   (0.7 )%   (0.6 )%

Adjustment to uncertain tax position

    0.3 %   (1.1 )%   (1.3 )%

Transaction costs not deductible

            2.6 %

Research credit generated

    (0.2 )%   (1.2 )%   (0.8 )%

Noncontrolling partnership interest

    0.1 %   0.6 %    

Tax effect of undistributed earnings

    1.8 %   0.6 %   0.1 %

Other

    0.1 %   1.4 %   1.2 %
               

Effective income tax rate

    34.5 %   35.1 %   33.8 %
               
               

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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,  
 
  2014   2013   2012  

Current income tax provision

  $ 15,598   $ 10,807   $ 5,752  
               

Deferred provision (benefit):

                   

Allowance for doubtful accounts

    (149 )   (15 )   (39 )

Inventories

    (167 )   (259 )   (640 )

Pension expense

    (332 )   (207 )   446  

Deferred compensation

    (36 )   (51 )   (70 )

Loan finance costs

    7     66     (116 )

Accruals

    (12 )   861     (177 )

Warranty reserve

    (6 )       (56 )

Depreciation and amortization

    (1,914 )   (1,836 )   (701 )

Restricted stock grant

    315     (102 )   (74 )

Unrepatriated earnings

    1,753     1,572     (133 )

Foreign taxes net of unrepatriated earnings

    (1,014 )   (1,425 )   497  

Foreign amortization

    (106 )   (105 )   (134 )

Other accrued expenses

    30     (236 )   177  
               

Total deferred income tax benefit

    (1,631 )   (1,737 )   (1,020 )
               

Total income tax provision

  $ 13,967   $ 9,070   $ 4,732  
               
               

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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,  
 
  2014   2013  

Current:

             

Deferred tax assets:

             

Allowance for doubtful accounts

  $ 479   $ 330  

Inventories

    1,458     1,291  

Accruals

    342     504  

Warranty reserve

    88     82  
           

Current deferred tax assets

    2,367     2,207  
           

Deferred tax liabilities:

             

Prepaid liabilities

    (52 )   (92 )
           

Current deferred tax liabilities

    (52 )   (92 )
           

Current deferred tax assets, net

    2,315     2,115  
           

Noncurrent:

             

Deferred tax assets:

             

Pension accrual

    3,464     2,162  

Deferred compensation

    811     775  

Loan finance costs

    44     50  

Unrealized gain/loss on restricted investments

    (61 )   (23 )

Restricted stock grants

    804     1,122  

Non qualified stock options

    16     16  

Foreign tax credits

    7,340     6,326  

Foreign other

    470     256