Note 14—Acquisitions

Acquisition of Zappa Stewart

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

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

The Company finalized purchase accounting in the three-month period ended November 30, 2018 (the first quarter of fiscal 2019), with no adjustments made to the preliminary amounts recorded at August 31, 2018. The purchase price has been allocated to the acquired tangible and identifiable intangible assets assumed, based on their fair values as of the date of the acquisition:


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

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

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


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

Supplemental Pro Forma Data (unaudited)

The following table presents the pro forma results of the Company for the years ended August 31, 2018 and 2017 as though the Zappa Stewart acquisition described above occurred on September 1, 2016 (the first day of fiscal 2017). The actual revenue and expenses for the acquired business are included in the Company’s consolidated results beginning on December 31, 2017. From the date of acquisition (December 31, 2017) through August 31, 2018, revenue and net income for the Zappa Stewart operations included in the consolidated statement of operations were $16,324 and $578, respectively, with results inclusive of sale of $1,070 in inventory step-up cost, $393 in acquisition-related costs and amortization expense of $2,672 recognized related to intangible assets recorded as part of the transaction, but not inclusive of any interest or financing costs. The pro forma results include adjustments for the estimated amortization of intangibles, acquisition-related costs, sale of inventory step-up cost, interest expense assuming the entire $65,000 draw remained outstanding through December 31, 2017 (at the interest rate effective at the date of borrowing) and the income tax impact of the pro forma adjustments at the statutory rate of 35% for fiscal 2017 and 26% for fiscal 2018. The following pro forma information is not necessarily indicative of the results that would have been achieved if the acquisition had been effective on September 1, 2016.


	Years Ended August 31,
	2018		2017
Revenue	$	292,609	$	276,646
Net income		44,508		41,603

Net income available to common shareholders, per common and common equivalent share
Basic earnings per share	$	4.75	$	4.45
Diluted earnings per share	$	4.70	$	4.40

Acquisition of Resin Designs, LLC

On September 30, 2016, the Company acquired certain assets of Resin Designs, LLC, an advanced adhesives and sealants manufacturer, with locations in Woburn, MA and Newark, CA. This business was acquired for a purchase price of $30,270, after final working capital adjustments and excluding acquisition-related costs. As part of this transaction, Chase acquired all working capital and fixed assets of the business and entered into multiyear leases at both locations. Resin Designs is a formulator of customized adhesive and sealant systems used in high-reliability electronic applications. The acquisition broadens the Company’s adhesives and sealants product offering and manufacturing capabilities, and expands its market reach. The purchase was funded entirely with available cash on hand.

Since the effective date for this acquisition, September 30, 2016, the financial results of the acquired business have been included in the Company’s financial statements within the Adhesives, Sealants and Additives operating segment, within the electronic and industrial coatings product line. The acquisition was accounted for as a business combination under ASC Topic 805, “Business Combinations.” In accordance with this accounting standard, the Company expensed $584 of acquisition-related costs during the first fiscal quarter of 2017 to acquisition-related costs.

Purchase accounting was completed in the fourth quarter of fiscal 2017 with no material adjustments made to the initial amounts recorded. The purchase price has been allocated to the acquired tangible and identifiable intangible assets assumed, based on their fair values as of the date of the acquisition:


Assets & Liabilities	Amount
Accounts receivable	$	1,877
Inventory		1,300
Prepaid expenses and other current assets		63
Property, plant & equipment		623
Goodwill		7,592
Intangible assets		19,450
Accounts payable and accrued expenses		(635)
Total purchase price	$	30,270

The excess of the purchase price over the net tangible and intangible assets acquired resulted in goodwill of $7,592 that is largely attributable to the synergies and economies of scale from combining the operations, technologies and research and development capabilities of Resin Designs and Chase, particularly as it pertains to the expansion of the Company's product and service offerings, the established workforce and marketing efforts. This goodwill is deductible for income tax purposes.

All assets, including goodwill, acquired as part of the Resin Designs acquisition are included in the Adhesives, Sealants and Additives operating segment. Identifiable intangible assets purchased with this transaction are as follows:


Intangible Asset	Amount		Useful life
Customer relationships	$	17,500	10	years
Technology		1,200	4	years
Trade names		750	7	years
Total intangible assets	$	19,450

Supplemental Pro Forma Data (unaudited)

The following table presents the pro forma results of the Company for the year ended August 31, 2017 as though the Resin Designs acquisition described above occurred on September 1, 2015 (the first day of fiscal 2016). The actual revenue and expenses for the acquired business are included in the Company’s fiscal 2017 consolidated results beginning on September 30, 2016. From the date of acquisition (September 30, 2016) through August 31, 2017, revenue and net income for the Resin Designs operations included in the consolidated statement of operations were $14,868 and $669, respectively, including the effects of $584 in acquisition-related costs, $190 in sale of inventory step-up cost, and additional amortization expense recognized related to intangible assets recorded as part of the transaction. The pro forma results include adjustments for the estimated amortization of intangibles, acquisition-related costs, sale of inventory step-up cost and the income tax impact of the pro forma adjustments at the then statutory rate of 35%. The following pro forma information is not necessarily indicative of the results that would have been achieved if the acquisition had been effective on September 1, 2015.


	Year Ended August 31,
	2017
Revenue	$	254,145
Net income		42,685

Net income available to common shareholders, per common and common equivalent share
Basic earnings per share	$	4.56
Diluted earnings per share	$	4.51