10-K 1 ccf-20200831x10k.htm 10-K

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, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 1-9852

CHASE CORPORATION

(Exact name of registrant as specified in its charter)

Massachusetts

11-1797126

(State or other jurisdiction of incorporation of organization)

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

295 University Avenue, Westwood, Massachusetts 02090

(Address of Principal Executive Offices) (Zip Code)

(781) 332-0700

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Common stock, $.10 par value

Trading Symbol(s)

CCF

Name of each exchange on which registered

NYSE American

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   NO 

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  NO 

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  NO 

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

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”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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

The aggregate market value of the common stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the Registrant’s most recently completed second fiscal quarter, February 29, 2020, was approximately $465,871,000.

As of October 31, 2020, the Company had outstanding 9,445,474 shares of common stock, $0.10 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, 2020, are incorporated by reference into Part III hereof.


CHASE CORPORATION

INDEX TO ANNUAL REPORT ON FORM 10-K

For the Year Ended August 31, 2020

Page No.

Cautionary Note Concerning Forward-Looking Statements

2

PART I

Item 1

Business

3

Item 1A

Risk Factors

11

Item 1B

Unresolved Staff Comments

17

Item 2

Properties

17

Item 3

Legal Proceedings

18

Item 4

Mine Safety Disclosures

18

Item 4A

Information About our Executive Officers

18

PART II

Item 5

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

19

Item 6

Selected Financial Data

21

Item 7

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

22

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

40

Item 8

Financial Statements and Supplementary Data

41

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

103

Item 9A

Controls and Procedures

103

Item 9B

Other Information

106

PART III

Item 10

Directors, Executive Officers and Corporate Governance

106

Item 11

Executive Compensation

106

Item 12

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

106

Item 13

Certain Relationships and Related Transactions, and Director Independence

106

Item 14

Principal Accountant Fees and Services

107

PART IV

Item 15

Exhibits and Financial Statement Schedules

108

Item 16

Form 10-K Summary

111

SIGNATURES

112

1


Cautionary Note Concerning Forward-Looking Statements

 

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

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PART I

Item 1 – Business

Primary Operating Divisions and Facilities and Industry Segments

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

In the fourth quarter of our fiscal year 2019 (the prior year), we reorganized from two into three reportable operating segments: an Adhesives, Sealants and Additives segment, an Industrial Tapes segment and a Corrosion Protection and Waterproofing segment. The segments are distinguished by the nature of the products manufactured and how they are delivered to their respective markets. The Adhesives, Sealants and Additives segment (whose operations were formerly included within the Industrial Materials segment) offers innovative and specialized product offerings consisting of both end-use products and intermediates that are used in, or integrated into, another company’s products. Demand for the segment’s product offerings is typically dependent upon general economic conditions. This segment leverages the core specialty chemical competencies of the Company, and serves diverse markets and applications. The segment sells predominantly into the transportation, appliance, medical, general industrial and environmental market verticals. The Industrial Tapes segment (whose operations were formerly included within the Industrial Materials segment) features legacy wire and cable materials, specialty tapes, and other laminated and coated products. The segment derives its competitive advantage through its proven chemistries, diverse specialty offerings and the reliability its supply chain offers to end customers. These products are generally used in the assembly of other manufacturers’ products, with demand typically dependent upon general economic conditions. This segment sells mostly to established markets, with some exposure to growth opportunities through further development of existing products. Markets served include cable manufacturing, utilities and telecommunications, and electronics packaging. The Corrosion Protection and Waterproofing segment (formerly known as the Construction Materials segment) is principally composed of project-oriented product offerings that are primarily sold and used as “Chase” branded products. End markets include new and existing infrastructure projects on oil, gas, water and wastewater pipelines, highways and bridge decks, water and wastewater containment systems, and commercial buildings. The segment’s products include protective coatings for pipeline applications, coating and lining systems for waterproofing and liquid storage applications, adhesives and sealants used in architectural and building envelope waterproofing applications, high-performance polymeric asphalt additives, and expansion joint systems for waterproofing applications in transportation and architectural markets. With sales generally dependent on outdoor project work, the segment experiences highly seasonal sales patterns. Our manufacturing facilities are distinct to their respective segments apart from our O’Hara Township, PA, Blawnox, PA and Hickory, NC facilities, which produce products related to a combination of operating segments.

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A summary of our operating structure as of August 31, 2020 is as follows:

ADHESIVES, SEALANTS AND ADDITIVES SEGMENT

Primary

Operating

Key Products

Locations

Background/History

Protective conformal coatings under the brand name HumiSeal®, moisture protective electronic coatings sold to the electronics industry including circuitry used in automobiles, industrial controls and home appliances.

O'Hara Township, PA

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

Advanced adhesives, sealants, and coatings for automotive and industrial applications that require specialized bonding, encapsulating, environmental protection, or thermal management functionality.

Woburn, MA

Newark, CA

In September 2016, we acquired certain assets and the operations of Resin Designs, LLC, and entered leases for their existing manufacturing facilities in Massachusetts and California.

Protective conformal coatings under the brand name HumiSeal®, moisture protective electronic coatings sold to the electronics industry including circuitry used in automobiles, industrial controls and home appliances.

Winnersh, Wokingham, England

Paris, France

Pune, India

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

In March 2007, we expanded our international presence with the formation of HumiSeal Europe SARL in France. HumiSeal Europe SARL operates a sales/technical service office and warehouse near Paris, France. This business works closely with the HumiSeal operation in Winnersh, Wokingham, England, allowing direct sales and service to the French market.

In June 2016, we further expanded our international presence through the purchase of Spray Products (India) Private Limited, located in Pune, India. This business enhances the Company’s ability to provide technical, sales, manufacturing, chemical handling and packaging services in the region and works closely with our HumiSeal manufacturing operation in Winnersh, Wokingham, England.
In December 2016, the business was renamed HumiSeal India Private Limited.


Polymeric microspheres, sold under the Dualite® brand, which are utilized for weight and density reduction and sound dampening across varied industries.


Polyurethane dispersions utilized for various coating products.


Greenville, SC


In January 2015, we acquired two product lines from Henkel Corporation. They, along with the Superabsorbents business acquired in December 2017, comprise our specialty chemical intermediates product line.

The Company currently contracts with manufacturing partners to produce its polyurethane dispersions.

Superabsorbent polymers, sold through our Zappa Stewart division, which are utilized for water and liquid management, remediation and protection in diverse markets including wire and cable, medical, environmental, infrastructure, energy and consumer products.

Hickory, NC
McLeansville, NC

In December 2017, we acquired Stewart Superabsorbents, LLC and its Zappa-Tec business (collectively “Zappa Stewart”).

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INDUSTRIAL TAPES SEGMENT

Primary

Operating

Key Products

Locations

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 selling into energy-oriented and communication markets, and to public utilities.


PaperTyger®, a trademark for laminated durable papers sold to the envelope converting and commercial printing industries.

Oxford, MA

In August 2011, we relocated our manufacturing processes that had been previously conducted at our Webster, MA facility to this location.

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

In the fourth quarter of 2018, we moved the wire and cable material manufacturing process that had been conducted at our Pawtucket, RI facility to our Lenoir, NC and Oxford, MA locations.

We acquired the Paper Tyger, LLC assets in 2003.


Chase BLH2OCK®, a water-blocking compound sold to the wire and cable industry.


Blawnox, PA


In September 2012, we relocated our Chase BLH2OCK® manufacturing processes that had been previously conducted at our Randolph, MA facility to this location.

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

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

Lenoir, NC
Suzhou, China

Hickory, NC


In June 2012, we acquired all of the capital stock of NEPTCO Incorporated, which operated facilities in Rhode Island, North Carolina and China.

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

In the fourth quarter of 2018, we moved the wire and cable material manufacturing process that had been conducted at our Pawtucket, RI facility to our Lenoir, NC and Oxford, MA locations.

In the third quarter of 2019, we began relocating the pulling and detection tapes manufacturing process from our Granite Falls, NC location to our Hickory, NC location. This relocation was completed in the second quarter of fiscal 2020.

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CORROSION PROTECTION AND WATERPROOFING SEGMENT

Primary

Operating

Key Products

Locations

Background/History

Protective pipe-coating tapes and other protectants for valves, regulators, casings, joints, metals, and concrete, which are sold under the brand name Royston®, to oil companies, gas utilities and pipeline companies.

Rosphalt50® is a polymer additive that provides long-term cost-effective solutions in many applications such as waterproofing of bridge decks and approaches, ramps, racetracks, airport runways and taxiways and specialty road applications.

Waterproofing membranes for highway bridge deck metal-supported surfaces.

Blawnox, PA

The Royston business was acquired in the early 1970s.


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 business.

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 the assets of Tapecoat, previously a division of T.C. Manufacturing Inc.

Specialized high-performance coating and lining systems used worldwide in liquid storage and containment applications.

Houston, TX

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

Waterproofing and corrosion protection systems for oil, gas and water pipelines, and a supplier to Europe, the Middle East and Southeast Asia.

The ServiWrap® brand bitumen pipeline protection tapes and products, which offer long-term corrosion protection for buried pipelines in the most challenging natural environments.

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. This facility joins Chase's North American-based Tapecoat® and Royston® brands to broaden the protective pipeline coatings product line and better address global demand.

In December 2009, we acquired the full range of ServiWrap® pipeline protection products (“ServiWrap”) from Grace Construction Products Limited, a U.K.-based unit of W.R. Grace & Co. ServiWrap products complement our portfolio of pipeline protection tapes, coatings and accessories and extend our global customer base.

Other Business Developments

On September 1, 2020 (subsequent to fiscal 2020), the Company acquired all the capital stock of ABchimie for €18,000,000 (approximately $21,420,000 at the time of the transaction) net of cash and marketable securities acquired, subject to final working capital adjustment, excluding acquisition-related costs of $274,000 and with a potential earn out based on performance potentially worth an additional €7,000,000 (approximately $8,330,000 at the time of the transaction). ABchimie is a Corbelin, France headquartered solutions provider for the cleaning and the protection of electronic assemblies, with ‎further formulation, production, and research and development capabilities‎. The transaction was funded 100% with cash on hand. The financial results of the business will be included in the Company's fiscal 2021 financial statements within the Adhesives, Sealants and Additives operating segment in the electronic and industrial coatings product line. The Company is currently in the process of finalizing purchase accounting, regarding a final allocation of the purchase price to tangible and identifiable intangible assets assumed and anticipates completion within fiscal 2021. The ABchimie acquisition does not represent a significant business combination so pro forma financial information is not provided.

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The Company’s second quarter of fiscal 2020 saw the beginning of the global spread of the coronavirus pandemic (COVID-19), which subsequently grew to create significant volatility, uncertainty, and global economic disruption. During the third fiscal quarter, the Company implemented changes to its cost structure designed to address market changes brought on by COVID-19 and demonstrate its commitment to fiscal prudence: (a) the Company made a targeted reduction in its global workforce, contemplated pre-pandemic but catalyzed by COVID-19, which resulted in the recognition of $183,000 in severance costs during the period; and (b) the Company also instituted a temporary 20% reduction in the base salaries of its named executive officers and select members of senior management, as well as the cash compensation of the non-employee members of its Board of Directors. The reduction in force, which impacted operations in the Company’s U.S. facilities, and the adjustments in compensation were both effective May 2020.

During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations housed in its Granite Falls, NC location to its Hickory, NC facility. This is in line with the Company’s ongoing initiative to consolidate its manufacturing plants and streamline its existing processes. At the time, the pulling and detection operations were the only Chase-owned production operations in Granite Falls, NC, with the remaining portions of the building being either utilized for research and development or leased to a third party. The process of moving, including moving internal research and development capabilities, was substantially completed during the second quarter of fiscal 2020. The Company recognized $559,000 in expense related to the move in the six-month period ended February 29, 2020, having recognized $526,000 in expense during the second half of fiscal 2019. No costs were recognized in the six months ended August 31, 2020, and future costs related to this move are not anticipated to be significant to the consolidated financial statements.

During the fourth quarter of fiscal 2019 (prior year), Chase commissioned engineering studies of certain legacy operations, machinery and locations related to the Company’s ongoing facility rationalization and consolidation initiative. Chase completed its review of the data and recommendations provided by the study in the fourth quarter of fiscal 2020 (current year). Following the review, the Company wrote down the value of certain non-operating production assets related to the pipeline coatings product line, within the Corrosion Protection and Waterproofing segment. Given the nature and prospects of the equipment, the Company determined its then carrying value exceeded its fair value and recognized an expense of $405,000 to write-down the value. Given the ongoing nature of the facility rationalization and consolidation initiative, an estimate of future costs cannot currently be determined.

Products and Markets

Our principal products are specialty tapes, laminates, adhesives, sealants, coatings and chemical intermediates which are sold by our salespeople, manufacturers' representatives and distributors.  In our Adhesives, Sealants and Additives segment, these products consist of: 

(i)moisture protective coatings, which are sold to the electronics industry for circuitry manufacturing, including circuitry used in automobiles, industrial controls and home appliances;

(ii)advanced adhesives, sealants, and coatings for automotive and industrial applications that require specialized bonding, encapsulating, environmental protection, or thermal management functionality;

(iii)polymeric microspheres utilized by various industries to allow for weight and density reduction and sound dampening;

(iv)polyurethane dispersions utilized for various coating products; and

(v)superabsorbent polymers, which are utilized for water and liquid management, remediation and protection in diverse markets including wire and cable, medical, environmental, infrastructure, energy and consumer products.

7


In our Industrial Tapes 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, including EMI/RFI shielding tapes used in communication and local area network (LAN) cable;

(iii)industrial coated or laminate products and custom manufacturing services sold into medical, consumer, automotive, packaging, energy, telecommunications and other specialized markets;

(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 cable, water and natural gas lines, and power, data, and video cable for commercial buildings; and

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

In our Corrosion Protection and Waterproofing segment, these products consist of:

(i)protective coatings, tapes and protectants for pipelines, valves, casings and other metals, which are sold to oil companies, gas companies and water/wastewater utilities for use in both the construction and maintenance of oil, gas, water and wastewater pipelines;

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

(iii)waterproofing tapes and coatings used in waterproofing of the exterior of both commercial and industrial structures;

(iv)waterproofing membranes for highway bridge deck metal-supported surfaces, and high-performance polymeric asphalt additives, which are sold to municipal transportation authorities; and

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

There is some seasonality in selling products into the construction market, which most acutely effects our Corrosion Protection and Waterproofing segment. Higher demand is often experienced when temperatures are warmer in most of North America (April through October), with lower demand occurring when temperatures are colder (typically our second fiscal quarter).

Human Capital Resources

As of October 31, 2020, we employed approximately 619 people (including union employees). 80% are U.S. based and 20% international. 29% of our employees work in administrative, selling and research and development functions, while 71% work in the manufacture of our products at our facilities. 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.

8


Backlog, Customers and Competition

As of October 31, 2020, the backlog of customer orders believed to be firm was approximately $15,949,000.  This compared with a backlog of $17,930,000 as of October 31, 2019. The decrease in backlog from the prior year amount is believed to be primarily due to changes in customers’ ordering patterns in the current COVID-19 environment. During fiscal 2020, 2019 and 2018, 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

As of August 31, 2020, we owned the following trademarks that we believe were 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; DuraDocument®, a trademark for durable, laminated papers sold to the digital print industry; Defender® a trademarked RFID protective material sold to the personal accessories and paper industries; Tapecoat®, a trademark for corrosion preventive 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 a 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 products 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; Trace-Safe®, a trademark for detection tapes sold to the telecommunications and water and gas utilities industries; Dualite®, a trademark for polymeric microspheres utilized for density and weight reduction and sound dampening by various industries; 4EvaSeal®, a trademark for adhesive-backed tape utilized in various industries; Resin Designs®, a trademark for adhesives and sealants sold into the microelectronics and semiconductor industries; SlickTape®, a trademark for a lubricated shielding tape sold to the wire and cable industry; HighDraw®, a trademark for a highly extensible shielding tape sold to the wire and cable industry; ZapZorb®, a trademark for environmental solidification products that are designed to meet the specific challenges posed by a wide range of liquid-bearing waste streams; ZapLoc®, a trademark for medical waste solidifier products packaged in bottles or larger packages; and ZapPak®, a trademark for medical waste solidifier products packaged in dissolvable film. We do not have any other material trademarks, licenses, franchises, or concessions. While we do hold various patents, as well as other trademarks, we do not believe that they are material to the success of our business.

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Research and Development

We expensed approximately $4,007,000, $4,021,000 and $3,940,000 for Company-sponsored research and development during fiscal 2020, 2019 and 2018, respectively, which was recorded within Research and Product Development Costs. Research and development stayed consistent from fiscal 2019 to 2020 as the Company continued focused development work on strategic product lines. The increase in expense from fiscal 2018 to 2019 came as the Company recognized its first full fiscal year with the established research and development department of Zappa Stewart (acquired in the second quarter of fiscal 2018).

Available Information

Chase maintains a website at http://www.chasecorp.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as section 16 reports on Form 3, 4, or 5, are available free of charge on this site as soon as is reasonably practicable after they are filed or furnished with the SEC. Our Code of Conduct and Ethics and the charters for the Audit Committee, the Nominating and Governance Committee and the Compensation and Management Development Committee of our Board of Directors are also available on our internet website. 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 Shareholder and Investor Relations Department, at 295 University Avenue, Westwood, Massachusetts 02090. Our internet website and the information contained on it or connected to it are not part of nor 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.

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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.

Operational and Competitive Risks

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.

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.

11


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

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

Further, the effects of the pandemic may also increase the Company’s cost of capital or make additional capital, including the refinancing of its credit facility, more difficult or available only on terms less favorable to it. A sustained downturn may also result in the carrying value of the Company’s goodwill or other intangible assets exceeding their fair value, which may require it to recognize an impairment to those assets. A sustained downturn in the financial markets and asset values may have the effect of increasing the Company’s pension funding obligations in order to ensure that its qualified pension plan continues to be adequately funded, which may divert cash flow from other uses. The effects of the pandemic, including remote working arrangements for employees, may also impact the Company’s financial reporting systems and internal control over financial reporting, including its ability to ensure information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

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 in order to reduce overhead costs. Despite our planning, we may be unable to effectively leverage assets, personnel, and business processes in the transition of production among manufacturing facilities. Uncertainty is inherent within the facility redesign and consolidation process, and unforeseen circumstances could offset the anticipated benefits of these streamlining projects, disrupt service to customers, and impact product quality.

12


Strategic Risks

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. We have historically financed larger acquisitions with additional borrowings under our bank credit agreements. Our existing credit agreement places certain restrictions on our ability to acquire other businesses, and imposes certain financial covenants on us that may limit our ability to borrow generally. If we incur additional indebtedness in order to finance an acquisition, that indebtedness may reduce the availability of our cash flow to fund future working capital, capital expenditures, and other general corporate purposes, may increase our vulnerability to adverse economic conditions, and may expose us to the risk of increased interest rates. If we finance an acquisition through the issuance of equity securities, the ownership interest of our existing shareholders would be proportionately diluted.

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.

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.

International Risks

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. The ongoing negotiations to determine the terms of the U.K.’s exit from the European Union (Brexit), pose risks of volatility in global markets and, given our exposure and presence in the U.K., could specifically affect our operations and future financial results. Risks inherent in our international operations also include, among others, the costs and difficulties of managing international operations, adverse tax consequences, domestic and international tariffs and trade policies 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.

13


Current and threatened tariffs on goods from China and other countries could result in lower revenue, profits and cash flows.

The Company imports raw materials from China, makes sales of finished goods into China and has manufacturing operations in China. The Company works to lower the potential negative effects of the tariffs through seeking alternative sources for our raw materials, when available and pragmatic, and, in certain cases, through altering our manufacturing logistics by utilizing non-U.S. manufacturing where tariffs do not apply. While we also attempt to pass on these additional costs to our customers, competitive factors (including competitors who import from other countries not subject to such tariffs) may limit our ability to sustain price increases and, as a result, may adversely impact our revenue, profits and cash flows. In addition, the imposition of tariffs may influence the sourcing habits of certain end users of our products which, in turn, could have a direct impact on the requirements of our direct customers for our products. Such an impact could adversely affect our revenue, profits and cash flows.

Industry Risks

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, among others, the automotive, housing, construction, pipeline, energy, transportation infrastructure or 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 or foreign and domestic trade policy 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 (including changes in foreign currency exchange rates and changes to federal, state, local and international tax laws or the application or enforcement practices of such laws) 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 and climate change, regional and global public health crises, 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 cost of products and services sold 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.

14


Other Risks

We are dependent on key personnel.

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

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 qualified pension plan. While these pension plan assets are considered non-financial assets since they are not carried on our balance sheet (i.e. the balance sheet reflects only the net of plan assets and obligations), 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.

If we fail to maintain effective internal control over financial reporting, this may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We are required under Section 404 of the Sarbanes-Oxley Act to furnish a report by management on the effectiveness of our internal control over financial reporting and to include a report by our independent auditors attesting to such effectiveness. Any failure by us to maintain effective internal control over financial reporting could adversely affect our ability to report accurately our financial condition or results of operations.

As discussed in our Annual Report on Form 10-K for the year ended August 31, 2018 (under "Controls and Procedures"), our management concluded that, as of August 31, 2018, we had a material weakness in our internal control over financial reporting related to our business combination processes. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. We have remediated the identified material weakness, but no assurances can be given that management will not identify in the future other internal control deficiencies that constitute a material weakness in our internal control over financial reporting or that any such material weakness will be remediated in a timely fashion.

If we are unable to maintain effective internal control over financial reporting, or if our independent auditors determine that we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, also could restrict our future access to the capital markets.

15


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.  Notwithstanding efforts to ensure the integrity of our automated systems, 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 recordkeeping 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, pandemics, computer viruses, cyber-attacks, malware, ransomware, 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 business, results from operations, financial condition, cash flow or internal control over financial reporting.

16


Item 1B – Unresolved Staff Comments

Not applicable.

Item 2 – Properties

The principal properties of the Company as of August 31, 2020 are situated at the following locations and have the following characteristics:

    

Square

    

Owned /

    

Location

Feet

Leased

Principal Use

Westwood, MA

20,200 

Leased

Corporate headquarters, executive office and global operations center, including research and development, sales and administrative services

Blawnox, PA

44,000 

Owned

Manufacture and sale of protective coatings and tape products

Evanston, IL

100,000 

Owned

Manufacture and sale of protective coatings and tape products

Granite Falls, NC

108,000 

Owned

Manufacture and sale of pulling and detection tapes, as well as research and development services, (through the second quarter of fiscal 2020, when operations were relocated to our Hickory, NC facility). The building is currently being leased to a third party

Greenville, SC

34,600 

Leased

Manufacture and sale of polymeric microspheres, as well as research and development

Hickory, NC

180,000 

Leased

Manufacture and sale of superabsorbent polymer products and pulling and detection tapes, as well as research and development

Houston, TX

45,000 

Owned

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

Lenoir, NC

110,000 

Owned

Manufacture and sale of laminated film foils and cover tapes

McLeansville, NC

41,000 

Leased

Sales/technical service office and warehouse for superabsorbent polymer products

Mississauga, Canada

2,500 

Leased

Distribution center

Newark, CA

32,500 

Leased

Manufacture and sale of sealant systems

O’Hara Township, PA

109,000 

Owned

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

Oxford, MA

73,600 

Owned

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

Paris, France

1,900 

Leased

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

Pune, India

4,650 

Leased

Manufacture, packaging and sale of protective electronic coatings

Rotterdam, Netherlands

2,500 

Leased

Distribution center

Rye, East Sussex, England

36,600 

Owned

Manufacture and sale of protective coatings and tape products

Suzhou, China

48,000 

Leased

Manufacture of packaging tape products for the electronics industries

Winnersh, Wokingham, England

18,800 

Leased

Manufacture and sale of protective electronic coatings, as well as research and development

Woburn, MA

34,000 

Leased

Manufacture and sale of adhesive systems, as well as research and development

The above facilities vary in age, are 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 believe that we could significantly add to our capacity by increasing shift operations. Availability of machine hours through additional shifts would provide expansion of current production volume without significant additional capital investment.

17


Item 3 – Legal Proceedings

The Company is involved from time to time in litigation incidental to the conduct of its business. Although the Company does not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial condition, results of operations or cash flows, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements agreed to, that could adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely assesses all its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable.

item 4 – mine safety disclosures

Not applicable.

Item 4a – INFORMATION ABOUT OUR Executive OfficerS

The following table sets forth information concerning our Executive Officers as of October 31, 2020.  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

Adam P. Chase

48 

President of the Company since January 2008, Chief Executive Officer of the Company since February 2015. Adam Chase was the Chief Operating Officer of the Company from February 2007 to February 2015.

Peter R. Chase

72 

Chairman of the Board of the Company since February 2007, and Executive Chairman of the Company since February 2015. Peter Chase was the Chief Executive Officer of the Company from September 1993 to February 2015. Peter Chase is the father of Adam Chase.

Christian J. Talma

47

Chief Financial Officer of the Company since February 2019 and Chief Accounting Officer from August 2018 to February 2019. Previously, Vice President Operations Finance and Strategy for Haemonetics Corp. from 2016 to 2018. Prior to that, Christian Talma was employed at Siemens A.G., since 2002, most recently as Head of North America Service Sales Finance.

18


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 American under the symbol CCF.  As of October 31, 2020, there were 320 shareholders of record of our Common Stock and we believe there were approximately 6,435 beneficial shareholders who held shares in nominee name. On that date, the closing price of our common stock was $95.16 per share as reported by the NYSE American.

Single annual cash dividend payments were declared and scheduled to be paid subsequent to each year ended August 31, 2020, 2019 and 2018 in the amount of $0.80 per common share. Our revolving credit facility contains financial covenants which may have the effect of limiting the amount of dividends that we can pay.

19


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 Henkel AG & Co KGaA, H.B. Fuller Company, Intertape Polymer Group, Rogers Corporation and RPM International, Inc. Cumulative total returns are calculated assuming that $100 was invested on August 31, 2015 in each of the Common Stock, the S&P 500 Index and the Peer Group Index, and that all dividends were reinvested.

Graphic

    

2015

    

2016

    

2017

    

2018

    

2019

    

2020

 

Chase Corp

$

100

$

165

$

243

$

324

$

264

$

259

S&P 500 Index

$

100

$

113

$

131

$

157

$

161

$

196

Peer Group Index

$

100

$

128

$

133

$

136

$

114

$

123

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.

20


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,

    

2020

    

2019

    

2018

    

2017

    

2016

 

(In thousands, except per share amounts)

Statement of Operations Data

Revenue

$

261,162

$

281,351

$

284,188

$

252,560

$

238,094

Net income

$

34,157

$

32,711

$

43,143

$

42,014

$

32,807

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

Basic:

Net income per common and common equivalent share

$

3.62

$

3.48

$

4.60

$

4.49

$

3.55

Diluted:

Net income per common and common equivalent share

$

3.59

$

3.46

$

4.56

$

4.44

$

3.50

Balance Sheet Data

Total assets

$

346,830

$

307,968

$

316,469

$

254,738

$

262,819

Long-term debt, including current portion

$

$

$

25,000

$

$

43,400

Total stockholders' equity

$

302,792

$

271,227

$

246,756

$

210,929

$

174,089

Cash dividends paid per common and common equivalent share

$

0.80

$

0.80

$

0.80

$

0.70

$

0.65

21


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,

    

2020

    

2019

    

2018

 

(Dollars in thousands)

Revenue

$

261,162

$

281,351

$

284,188

Net income

$

34,157

$

32,711

$

43,143

Increase (decrease) in revenue from prior year

Amount

$

(20,189)

$

(2,837)

$

31,628

Percentage

(7)

%  

(1)

%  

13

%  

Increase (decrease) in net income from prior year

Amount

$

1,446

$

(10,432)

$

1,129

Percentage

4

%

(24)

%

3

%  

Percentage of revenue:

Revenue

100

%  

100

%  

100

%  

Cost of products and services sold

62

64

62

Selling, general and administrative expenses

19

17

17

Research and Product Development Costs

2

1

1

Other (income) expense, net

*

2

*

Income before income taxes

17

%

15

%

20

%

Income taxes

4

4

5

Net income

13

%  

12

%  

15

%  

* denotes less than one percent

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

Overview

Chase Corporation emphasized operational and financial discipline in fiscal 2020, a year which continued the macrotrend revenue drag observed in the prior year, and ultimately saw the spread of the coronavirus pandemic (COVID-19) across all geographies served by the Company. Domestic and international top-line headwinds attributable to the pandemic affected all three of the Company’s operating segments, while the prior year tightness in Asian markets persisted. Through this, the Company was able to increase its relative gross margin, complete the consolidation of its pulling and detection operations into its existing Hickory, NC location, liquidate two real estate assets for gains and achieve a year-over-year increase in cashflows from operations.

Chase Corporation’s balance sheet remained strong at August 31, 2020, with cash on hand of $99,068,000, a current ratio of 7.7 and no outstanding principal balance owed on the Company’s $150,000,000 revolving credit facility. The Company took advantage of its solid financial position with its September 2020 (fiscal 2021) cash on hand funded purchase of ABchimie, a Corbelin, France headquartered solutions provider for the cleaning and the protection of electronic assemblies, with further formulation, production, and research and development capabilities.

As an extension of the Company’s pre-existing facility consolidation and rationalization initiative, the Company implemented certain changes in its cost structure in fiscal 2020 designed to address market dynamics brought on by COVID-19. In the third fiscal quarter, these included: (a) a targeted 4.5% reduction in the Company’s global workforce, contemplated pre-pandemic but catalyzed by COVID-19; and (b) the institution of a temporary 20% reduction in the

22


base salaries of named executive officers and select members of senior management, as well as the cash compensation of the non-employee members of the Board. The Company remains profitable with sufficient cash on hand to continue to meet its short- and long-term strategic objectives and implemented the aforementioned expense reductions as a demonstration of fiscal prudence during these uncertain times.

Chase Corporation is a supplier of several essential industries, providing products to critical industries such as healthcare, utilities, infrastructure and telecommunications, and throughout the COVID-19 effected period of fiscal 2020, successfully maintained business continuity for the Company’s global customers. As of August 31, 2020, all the Company’s facilities were operational, with only two facilities, Pune, India and Newark, CA, having experienced prior temporary closures due to separate general government orders. However, given the magnitude of the uncertainty that COVID-19 has broadly placed on global markets, the pandemic’s long-term effects on the Company’s results and the Company’s ability to maintain current service levels cannot currently be estimated. The Company will continue to assess the situation and take the appropriate actions to ensure it is in the strongest position possible.

During the second fiscal quarter of 2020, the relocation of the Company’s pulling and detection product line production operations from the Granite Falls, NC facility to the existing Hickory, NC facility was completed. In the third fiscal quarter of 2020, the Company completed the sale of its Pawtucket, RI location for a net gain. Also during the third quarter, the administrative functions based in the Pawtucket, RI location were moved into the Company’s existing Westwood, MA location. In the fourth fiscal quarter of 2020, the Company sold its Randolph, MA property for a net gain.

Net cash provided by operating activities exceeded that of the prior year, with the Company’s cash position continuing the positive trend seen in the latter half of fiscal 2019 (prior year) following the full payoff of its outstanding debt. The Company held no outstanding balance on its $150,000,000 revolving credit facility as of August 31, 2020. The revolving credit facility allows for the Company to pay down debt with excess cash, while retaining access to immediate liquidity to fund future accretive activities, including mergers and acquisitions, as identified.

Revenue from the Adhesives, Sealants and Additives segment decreased versus the prior year. Sales volume within the electronic and industrial coatings product line decreased in North American, European, and Asian markets. This decrease was attributable to the effects of the COVID-19 pandemic on the already strained automotive and industrial markets, and Asian headwinds. The Company’s specialty chemical intermediates product line sales, which have a North American concentration, also experienced a volume drop as compared to the prior year.

Net sales decreased in the Industrial Tapes segment as compared to the prior year, with the cable materials and specialty products product lines driving the top-line remission. A primary driver in the sales reduction in the specialty products product line was the Company’s planned exit from providing transitional toll manufacturing services to the common purchaser of its former structural composites rod and fiber optical cable components businesses, with sales tapering in the first quarter of fiscal 2020 and fully ending in the second quarter. The Company’s electronic materials product line, which sells nearly exclusively to Asian markets, achieved sales growth over the prior year. The pulling and detection product line, carried by sales momentum in the North American utility and telecommunication markets, also achieved a year-over-year increase in sales.

The Company’s Corrosion Protection and Waterproofing segment’s sales decreased compared to the prior year. The building envelope product line’s sales were unfavorable to the prior year, driving the segment’s overall unfavorable results. The coating and lining systems, bridge and highway and pipeline coatings product lines all saw sales increases over the prior year. The pipeline coatings product line results were driven by increased sales by our Rye, U.K. facility, especially in the fourth fiscal quarter of 2020 with sales into the Middle East.

Through mergers, acquisitions and divestitures, its marketing and product development efforts and its ability to rationalize and consolidate its operations, the Company remains focused on its core strategies for sustainable long-term growth.

23


The Company has three reportable operating segments summarized below:

Segment

    

Product Lines

    

Manufacturing Focus and Products

Adhesives, Sealants and Additives

Electronic and Industrial Coatings
Specialty Chemical Intermediates

Protective coatings, including moisture protective coatings and customized sealant and adhesive systems for electronics; polyurethane dispersions, polymeric microspheres and superabsorbent polymers.

Industrial Tapes

Cable Materials

Specialty Products

Pulling and Detection

Electronic Materials

Structural Composites (1)

Protective tape and coating products and services, including insulating and conducting materials for wire and cable manufacturers; laminated durable papers, packaging and industrial laminate products and custom manufacturing services; pulling and detection tapes used in the installation, measurement and location of fiber optic cable and water and natural gas lines; cover tapes essential to delivering semiconductor components via tape and reel packaging; and composite materials elements (now divested).

Corrosion Protection and Waterproofing

Coating and Lining Systems

Pipeline Coatings

Building Envelope

Bridge and Highway

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


(1)Product line was substantially divested with the sale of the structural composites rod business on April 20, 2018. Custom manufacturing performed for the purchaser of the structural composites rod business subsequent to the sale is included within the specialty products product line.

24


Results of Operations

Revenue and Income Before Income Taxes by Segment are as follows:

Income Before

% of

    

Revenue

    

Income Taxes

    

Revenue

 

(Dollars in thousands)

Fiscal 2020

Adhesives, Sealants and Additives

$

96,208

$

25,953

27

%

Industrial Tapes

118,960

31,237

(a)

26

%

Corrosion Protection and Waterproofing

45,994

16,638

(b)

36

%

$

261,162

73,828

28

%

Less corporate and common costs

(28,508)

(c)

Income before income taxes

$

45,320

Fiscal 2019

Adhesives, Sealants and Additives

$

104,796

$

27,142

(d)

26

%

Industrial Tapes

129,845

28,216

(e)

22

%

Corrosion Protection and Waterproofing

46,710

15,909

(f)

34

%

$

281,351

71,267

25

%

Less corporate and common costs

(27,714)

(g)

Income before income taxes

$

43,553

Fiscal 2018

Adhesives, Sealants and Additives

$

101,690

$

35,190

(h)

35

%

Industrial Tapes

130,598

30,886

(i)

24

%

Corrosion Protection and Waterproofing

51,900

18,178

35

%

$

284,188

84,254

30

%

Less corporate and common costs

(27,289)

(j)

Income before income taxes

$

56,965


(a)Includes $559 in exit costs related to the movement of the pulling and detection business out of the Granite Falls, NC location and into the Hickory, NC location during the first six months of fiscal 2020
(b)Includes $170 gain on the refund of a payment made in fiscal 2019 related to engineering studies performed to assess potential operational changes and further plant rationalization and consolidation and an expense of $405 for the write-down of certain assets under construction.
(c)Includes $150 of expense related to exploratory IT work performed to assess potential future upgrades to the Company’s companywide ERP system, a $760 gain related to the April 2020 sale of the Company’s Pawtucket, RI location, a $1,791 gain related to the August 2020 sale of the Company’s Randolph, MA property, $183 in severance expense related to the May 2020 reduction in force, $85 in expenses related to the final transition out of the Pawtucket, RI facility, $155 of pension-related settlement costs due to the timing of lump-sum distribution and $274 in acquisition-related costs attributable to the September 2020 (fiscal 2021) acquisition of ABchimie
(d)Includes $2,410 of loss on impairment of goodwill related to the Company’s polyurethane dispersions business
(e)Includes $260 of expense related to the closure and exit of our Pawtucket, RI location recognized in the first quarter of fiscal 2019, and $526 in exit costs related to the movement of the pulling and detection business out of the Granite Falls, NC location and into the Hickory, NC location during the second half of fiscal 2019
(f)Includes $200 of expense related to engineering studies performed to assess potential future operational changes and further plant rationalization and consolidation, see note (b)
(g)Includes $511 of pension-related settlement costs due to the timing of lump-sum distributions
(h)Includes $1,070 of expense related to inventory step-up in fair value attributable to the acquisition of Zappa Stewart
(i)Includes $1,085 gain on sale of license related to the structural composites product line recorded in the second quarter of fiscal 2018, $1,480 gain on sale of business related to the April 2018 sale of the structural composites rod business and $1,272 of expense related to the exit of our Pawtucket, RI location in the fourth quarter of fiscal 2018
(j)Includes $393 in acquisition-related expense attributable to the December 2017 acquisition of Zappa Stewart

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Total Revenue

Total revenue in fiscal 2020 decreased $20,189,000 or 7% to $261,162,000 from $281,351,000 in the prior year.

Revenue in our Adhesives, Sealants and Additives segment decreased $8,588,000 or 8% to $96,208,000 for the year ended August 31, 2020 compared to $104,796,000 in fiscal 2019. The decreases in revenue from the Adhesives, Sealants and Additives segment in fiscal 2020 was primarily due to the electronic and industrial coatings product line’s $6,276,000 sales volume-driven decrease. North American, European, and Asian automotive and industrial weakness, exacerbated by COVID-19, affected revenue, including the royalty received from the Company’s licensed manufacturer in Asia. Also contributing to the segment’s sales decline was a decrease in revenue from the North American focused specialty chemical intermediates product line, totaling $2,312,000 in fiscal 2020.

Revenue in our Industrial Tapes segment decreased $10,885,000 or 8% to $118,960,000 for the year ended August 31, 2020 compared to $129,845,000 in fiscal 2019. The decrease in revenue for the segment was primarily due to the following: (a) a sales volume demand decrease of $7,880,000 from the North American focused cable materials product line; and (b) revenue reduction of $4,979,000 for the specialty products product line, as the Company ended its arrangement to provide low-margin transitional toll manufacturing services in the second quarter of fiscal 2020. Offsetting the overall sales decreases for the current year were (a) an entirely volume-driven sales increase of $169,000 in the electronic materials product line, which has a near exclusively Asian end-market; and (b) the pulling and detection tapes product line achieving predominately volume-driven revenue growth of $1,805,000, with sales primarily into the North American telecommunication and utility industries.

Revenue from our Corrosion Protection and Waterproofing segment decreased $716,000 or 2% to $45,994,000 for the year ended August 31, 2020 compared to $46,710,000 for fiscal 2019. The segment’s sales decrease in the current year was driven by the building envelope product line’s sales decline of $1,717,000. Partially offsetting the segment’s top-line decline were: (a) the coating and lining systems product line’s $668,000 volume- and price-driven sales increase; (b) the bridge and highway product line’s $244,000 revenue increase; and (c) the pipeline coatings product line’s $89,000 year-over-year increase, driven by increased sales by our Rye, U.K. facility, especially in the fourth fiscal quarter of 2020.

Royalties and commissions in the Adhesive, Sealants and Additives and Industrial Tapes segments totaled $3,420,000, $4,512,000 and $5,226,000 for the years ended August 31, 2020, 2019 and 2018, respectively. The decrease in royalties and commissions in fiscal 2020 compared to both fiscal 2019 and 2018 was primarily due to decreased sales of electronic and industrial coatings products by our licensed manufacturer in Asia.

Export sales from domestic operations to unaffiliated third parties were $30,067,000, $30,582,000 and $42,883,000 for the years ended August 31, 2020, 2019 and 2018, respectively.  The decrease in export sales in fiscal 2020 against fiscal 2019 reflects the overall year-over-year decrease in sales results. The decrease in export sales in fiscal 2019 against fiscal 2018 resulted from decreased export sales into China and Europe.

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Total revenue in fiscal 2019 decreased $2,837,000 or 1% to $281,351,000 from $284,188,000 in fiscal 2018. Revenue in our Adhesives, Sealants and Additives segment increased $3,106,000 or 3% to $104,796,000 for the year ended August 31, 2019 compared to $101,690,000 in fiscal 2018. The increase in revenue from our Adhesives, Sealants and Additives segment in fiscal 2019 was primarily due to an increase in revenue from our specialty chemical intermediates product line totaling $7,083,000, which included the first full year of operations from the December 2017 acquired Zappa Stewart business. The segment’s net sales increase was negatively affected by our electronic and industrial coatings product line’s $3,977,000 sales-volume-driven decrease, with headwinds seen most acutely in Asian markets in the second half of the fiscal 2019. These headwinds also manifested in a decreased royalty received from our licensed manufacturer in Asia.

Revenue in our Industrial Tapes segment decreased $753,000 or 1% to $129,845,000 for the year ended August 31, 2019 compared to $130,598,000 in fiscal 2018. The decrease in revenue from our Industrial Tapes segment in fiscal 2019 was primarily due to: (a) a sales volume decrease of $5,077,000 from our structural composite products (following the Company’s divestiture of the structural composites rod business in April 2018, product sales revenue for wind energy products significantly declined, and the Company has recognized wind-energy-related revenue, including royalty revenue and revenue for transitional custom manufacturing services performed for the buyer, in our specialty products product line since the sale); and (b) an entirely volume-driven sales decrease of $2,608,000 in our electronic materials product line, which has a near exclusively Asian end-market. These decreases were partially offset by: (a) a sales increase of $3,500,000 from our pulling and detection products, from volume and price-driven sales growth into large scale utility and telecommunications infrastructure build in North America; (b) an increase in revenue from our cable materials products of $2,880,000 on both volume and price; and (c) a sales volume increase of $552,000 for our specialty products, which, subsequent to the sale of our fiber optic cable components business in April 2017 and our structural composites rod business in April 2018, includes revenue from the manufacturing services provided by the Company to the common purchaser of the divested businesses (totaling $2,062,000 for fiscal 2019).

Revenue from our Corrosion Protection and Waterproofing segment decreased $5,190,000 or 10% to $46,710,000 for the year ended August 31, 2019 compared to $51,900,000 for fiscal 2018. The decreased revenue for our Corrosion Protection and Waterproofing segment in fiscal 2019 was primarily due to a decrease in sales totaling $4,680,000 in our pipeline coatings products. Our U.K.-produced water and wastewater pipeline products experienced the sharpest decline attributed to tight credit markets in the Middle East regions they sell into, while our U.S.-produced oil and gas pipeline products had sales levels only slightly below fiscal 2018 levels. Our bridge and highway products failed to repeat the large eastern U.S. bridge work laden fiscal year 2018 sales levels in fiscal 2019 and were off by $2,353,000 year-over-year. Partially countering the overall decrease in revenue for the segment were: (a) a $952,000 increase in our building envelope product sales, driven predominantly by an increase in sales volume; and (b) coating and lining systems products, which had a revenue increase of $891,000.

Cost of Products and Services Sold

Cost of products and services sold decreased $18,548,000 or 10% to $161,615,000 for the fiscal year ended August 31, 2020 compared to $180,163,000 in fiscal 2019. As a percentage of revenue, cost of products and services sold decreased to 62% in fiscal 2020 compared to 64% for fiscal 2019.

The following table summarizes the relative percentages of cost of products and services sold to revenue for our three operating segments:

Fiscal Years Ended August 31,

Cost of products and services sold

    

 

2020

    

2019

    

2018

 

Adhesives, Sealants and Additives

58

%  

58

%  

52

%

Industrial Tapes

68

%  

72

%  

71

%

Corrosion Protection and Waterproofing

55

%  

57

%  

57

%

Total Company

62

%  

64

%  

62

%

Cost of products and services sold in our Adhesives, Sealants and Additives segment was $55,902,000 for the fiscal year ended August 31, 2020 compared to $60,345,000 in fiscal 2019. As a percentage of revenue, cost of products and

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services sold in this segment was consistent at 58% in both fiscal 2020 and fiscal 2019. Cost of products and services sold in our Industrial Tapes segment was $80,351,000 for the fiscal year ended August 31, 2020 compared to $93,299,000 in fiscal 2019. As a percentage of revenue, cost of products and services sold in this segment decreased to 68% in fiscal 2020 compared to 72% for fiscal 2019. Cost of products and services sold in our Corrosion Protection and Waterproofing segment was $25,362,000 for the fiscal year ended August 31, 2020 compared to $26,519,000 in fiscal 2019. As a percentage of revenue, cost of products and services sold in this segment decreased to 55% in fiscal 2020 compared to 57% in fiscal 2019. As a percentage of revenue, cost of products and services overall decreased primarily due to: (a) production efficiencies recognized, most acutely seen at our Oxford, MA and Lenoir, NC locations following the consolidation of our former Pawtucket, RI cable materials plant, and benefiting our Industrial Tapes segment; (b) more favorable sales mix, most specifically obtained in our Industrial Tapes segment, as our lower margin products constituted a comparatively lower portion of total sales; and (c) the full period effects of price increases the Company instituted during fiscal 2019 (prior year) to address inflation then seen in raw material costs.

With the composition of our finished goods and the markets we serve, the costs of certain commodities (including petroleum-based solvents, films, yarns, polymers and nonwovens, aluminum and copper foils, specialty papers, and various resins, adhesives and inks) both directly and indirectly affect the purchase price of our raw materials and the market demand for our product offerings. The Company diligently monitors raw material and commodities pricing across all its product lines in its efforts to preserve margins.

Cost of products and services sold in our Adhesives, Sealants and Additives segment was $60,345,000 for the fiscal year ended August 31, 2019 compared to $53,324,000 in fiscal 2018. As a percentage of revenue, cost of products and services sold in this segment increased to 58% for fiscal 2019 compared to 52% in fiscal 2018. Cost of products and services sold in our Industrial Tapes segment was $93,299,000 for the fiscal year ended August 31, 2019 compared to $92,418,000 in fiscal 2018. As a percentage of revenue, cost of products and services sold in this segment increased to 72% in fiscal 2019 compared to 71% for fiscal 2018. Cost of products and services sold in our Corrosion Protection and Waterproofing segment was $26,519,000 for the fiscal year ended August 31, 2019 compared to $29,394,000 in fiscal 2018. As a percentage of revenue, cost of products and services sold in this segment was consistent at 57% in both fiscal 2019 and fiscal 2018. As a percentage of revenue, cost of products and services overall increased in 2019 compared to 2018 primarily due to: (a) a less favorable sales mix, most specifically felt in our Adhesives, Sealants and Additives segment, as our lower margin products constituted a comparatively higher portion of total sales; (b) increasing supply and demand imbalances and tariffs causing rising raw material costs; and (c) production inefficiencies and additional costs to maintain service levels in the first half of fiscal 2019 at our Oxford, MA and Lenoir, NC locations following the consolidation of our Pawtucket, RI operations.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $657,000 or 1% to $49,364,000 during fiscal 2020 compared to $48,707,000 in fiscal 2019. As a percentage of revenue, selling, general and administrative expenses increased to 19% of total revenue in fiscal 2020 compared to 17% for fiscal 2019. The year-over-year increase in expenses is primarily attributable to $1,107,000 of additional corporate development and due diligence costs, beyond that included in acquisition-related costs, increased non-cash stock-based compensation expense of $1,032,000 given increased restricted stock and stock option grants in fiscal 2020, which were partially offset by decreased amortization expense of $869,000, as certain intangible assets related to prior acquisitions became fully amortized. The Company continues to closely monitor spending with an emphasis on controlling costs and leveraging existing resources.

During fiscal 2019, selling, general and administrative expenses increased $1,004,000 or 2% to $48,707,000 compared to $47,703,000 in fiscal 2018. As a percentage of revenue, selling, general and administrative expenses stayed consistent at 17% of total revenue for both fiscal 2019 and fiscal 2018. The year-over-year increase in expenses is primarily attributable to: (a) increased amortization expense of $638,000, primarily related to intangible assets acquired in our December 31, 2017 acquisition of Zappa Stewart; and (b) increased selling and commission expense of $252,000, principally related to sales growth on our highest commissionable products in the current year, coupled with the addition of a full year of the established sales force of Zappa Stewart.

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Research and Product Development Costs

Research and Product Development Costs decreased $14,000 or less than one percent to $4,007,000 during fiscal 2020, compared to $4,021,000 in fiscal 2019. Research and development stayed relatively consistent from fiscal 2019 to 2020 as the Company continued focused development work on strategic product lines.

During fiscal 2019, Research and Product Development expense increased $81,000 or 2% to $4,021,000 compared to $3,940,000 in fiscal 2018. This increase in expense from fiscal 2018 to 2019 came as the Company recognized its first full fiscal year with the established research and development department of Zappa Stewart (acquired in the second quarter of fiscal 2018).

Operations Optimization Costs

During the third fiscal quarter of 2020, the Company implemented changes in its cost structure designed to address market changes brought on, in part, by COVID-19. These changes included a targeted reduction of approximately 4.5% of the Company’s global workforce. This reduction, which was contemplated pre-pandemic but catalyzed by COVID-19, resulted in the recognition of $183,000 in severance costs during the third quarter of fiscal 2020. The reduction in force, which impacted operations in the Blawnox, PA, Hickory, NC, Lenoir, NC, Evanston, IL, Oxford, MA and Westwood, MA facilities, was effective May 2020.

During the first quarter of fiscal 2020, the Company commissioned third party led studies regarding the potential upgrading of the Company’s current worldwide ERP system. Chase is currently reviewing the data and recommendations provided by the study and may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around the Company’s facilities rationalization and consolidation initiative. The Company recognized $150,000 in expense related to these services in the first quarter of fiscal 2020. Given the ongoing nature of the review, an estimate of future costs, including costs that could be capitalized, cannot currently be determined.

During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations housed in its Granite Falls, NC location to its Hickory, NC facility. This is in line with the Company’s ongoing initiative to consolidate its manufacturing plants and streamline its existing processes. At the time, the pulling and detection operations were the only Chase-owned production operations in Granite Falls, NC, with the remaining portions of the building being either utilized for research and development or leased to a third party. The process of moving, including moving internal research and development capabilities, was substantially completed during the second quarter of fiscal 2020. The Company recognized $559,000 in expense related to the move in the six-month period ended February 29, 2020, having recognized $526,000 in expense during the second half of fiscal 2019. No costs were recognized in the six months ended August 31, 2020, and future costs related to this move are not anticipated to be significant to the Consolidated Financial Statements.

During the fourth quarter of fiscal 2019 (prior year), Chase commissioned engineering studies of certain legacy operations, machinery and locations related to the Company’s ongoing facility rationalization and consolidation initiative. Chase completed its review of the data and recommendations provided by the study in the fourth quarter of fiscal 2020 (current year). The Company recognized $200,000 in expense related to these services in fiscal 2019, and a gain of $170,000 in fiscal 2020, as certain amounts expensed in fiscal 2019 were refunded. Chase may utilize third party engineering, IT and other professional services firms in the future for similar optimization-related work. Given the ongoing nature of the facility rationalization and consolidation initiative, an estimate of future costs cannot currently be determined.

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On June 25, 2018, the Company announced to its employees the planned closing of its Pawtucket, RI manufacturing facility effective August 31, 2018. This is in line with the Company’s ongoing efforts to consolidate its manufacturing plants and streamline its existing processes. The manufacture of products previously produced in the Pawtucket, RI facility was substantially moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period. In the fourth quarter of fiscal 2018, the Company expensed $1,272,000 related to the closure. The Company also recognized $260,000 in expense related to the move in the three-month period ended November 30, 2018, with no additional expense recognized in the remainder of fiscal 2019. The Company completed the sale of its Pawtucket, RI location to a third-party in April 2020, for net proceeds totaling $1,810,000. This transaction resulted in a gain of $760,000 which was recorded during the third quarter of fiscal 2020. Also, during the third quarter of fiscal 2020, the Company recognized $85,000 in final Pawtucket, RI transition and exit costs, with no further costs related to this initiative anticipated in future periods.

Acquisition-Related Costs

In fiscal 2020, the Company incurred $274,000 of costs related to our acquisition of ABchimie.  This acquisition was accounted for as a business combination in accordance with applicable accounting standards, and all related professional service fees (including banking, legal, accounting and actuarial fees) were expensed as incurred within the second, third and fourth quarters of fiscal 2020. The transaction was consummated at the beginning of fiscal 2021.

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

Gain on Sale of Real Estate

In August 2020, the Company finalized the sale of its Randolph, MA property for net proceeds of $1,805,000. This transaction resulted in a gain of $1,791,000 which was recorded during the quarter ended August 31, 2020 (fiscal 2020).

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

Both properties were classified as assets held for sale as of August 31, 2019 (prior year).

Write-down of certain assets under construction

 

In the fourth quarter of fiscal 2020, given the results and recommendations of a commissioned engineering study, the Company wrote down the value of certain non-operating production assets related to the pipeline coatings product line, within the Corrosion Protection and Waterproofing segment. Given the nature and prospects of the equipment, the Company determined its then carrying value exceeded its fair value and recognized an expense of $405,000 related to the machinery.

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Loss on Impairment of Goodwill

 

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

Interest Expense

Interest expense decreased $273,000 or 53% to $246,000 in fiscal 2020 compared to $519,000 in fiscal 2019. Interest expense decreased $653,000 or 56% to $519,000 in fiscal 2019 compared to $1,172,000 in fiscal 2018. The decrease in interest expense in fiscal 2020 and 2019 is the result of the decreased average outstanding balance of Chase’s revolving debt facility, following the $65,000,000 draw on the facility in December 2017 (fiscal 2018) to substantially fund the Company’s acquisition of Zappa Stewart and subsequent incremental principal payments made.

In fiscal 2018, subsequent to the December 2017 borrowing, the Company made $40,000,000 in payments against the principal. In fiscal 2019, Chase made an additional $25,000,000 in principal payments, paying off the outstanding balance in full as of August 31, 2019.

Gain on Sale of License

 

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

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

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Gain on Sale of Businesses

On April 20, 2018, Chase finalized an agreement with an unrelated party to sell all inventory, operational machinery and equipment and intangible assets of the Company’s structural composites rod business, as well as a license related to the production and sale of rod, for proceeds of $2,232,000, net of transaction costs and following certain working capital adjustments. This business, which was part of the structural composites product line within the Industrial Tapes segment, had limited growth and profitability prospects as part of the Company, and was outside the areas Chase has identified for strategic emphasis. The resulting pre-tax gain on sale of $1,480,000 was recognized in the third quarter of fiscal 2018 as a gain on sale of businesses within the Consolidated Statement of Operations. Chase received $2,075,000, net of transaction costs, in the third quarter of fiscal 2018, with the remaining $157,000 received in the fourth quarter of fiscal 2018 as a result of a working capital true-up. Chase will provide certain transitional manufacturing and administrative support to the purchaser for which the Company will receive additional consideration upon the performance of services.

In relation to this transaction, the purchaser entered into a royalty agreement with the Company. The purchaser will make royalty payments to Chase based on future sales of certain structural composite material manufactured by the purchaser. Royalty revenue recognized in 2019 and 2018 related to this agreement was not material, and this royalty agreement was terminated in fiscal 2019.

Other Income (Expense)

Other expense was $1,675,000 in fiscal 2020 compared to other expense of $992,000 in fiscal 2019, an increase of $683,000. Other income (expense) primarily includes foreign exchange gains (losses) caused by changes in exchange rates on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, non-service cost components of periodic pension expense (including pension-related settlement costs due to the timing of lump-sum distributions), interest income, rental income and other non-trade/non-royalty/non-commission receipts.  The increase in total other expense in fiscal 2020 compared to fiscal 2019 was largely due to the recognition of a larger foreign exchange loss in fiscal 2020 as compared to fiscal 2019.

Other expense was $992,000 in fiscal 2019 compared to other expense of $172,000 in fiscal 2018, an increase of $820,000. The increase in total other expense in fiscal 2019 compared to fiscal 2018 was largely due to the recognition of $511,000 in pension-related settlement costs in fiscal 2019, while no such expense was recognized in fiscal 2018.

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Income Taxes

Our effective tax rate for fiscal 2020 was 24.6% as compared to 24.9% and 24.3% in fiscal 2019 and 2018, respectively. 

The current and prior years’ effective tax rates were most prominently affected by the passage of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017 and discrete tax benefits related to stock-based compensation, recognized in relation to the Company’s early adoption of ASU 2016-09 and described in more detail below. For fiscal 2020 and 2019, the Company utilized the new 21% Federal tax rate enacted by the Tax Act. During fiscal 2018, Chase utilized a blended rate of 25.7%, based on a combination of four months of operations under the old 35% corporate income tax rate, and eight months at the new 21% rate. Please see Note 7 — “Income Taxes” to the Consolidated Financial Statements for further discussion of the effects of the Tax Act.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, included a technical correction to the Tax Act which will allow accelerated deductions for qualified improvement property. The Company is currently evaluating the impact of the CARES Act, but at present does not expect that the qualified improvement property correction nor other provisions of the CARES Act would result in a material tax benefit to us in future periods. The CARES Act had no material effect on the effective tax rate for fiscal 2020.

The Company early adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting”, during the first fiscal quarter of 2017. During the fiscal years ended August 31, 2020, 2019 and 2018, the Company recognized excess tax benefits from stock-based compensation of $149,000, $157,000 and $1,921,000, respectively, within income tax expense on the Consolidated Statements of Operations. The current year and prior year decrease in the benefit resulted from a decrease in certain stock option exercise activity in fiscal 2020 and 2019 as compared to fiscal 2018. The Company anticipates the potential for increased periodic volatility in future effective tax rates based on the continued application of ASU No. 2016-09.

Net Income

Net income increased $1,446,000 or 4% to $34,157,000 compared to $32,711,000 in fiscal 2019. The increase in net income in fiscal 2020 was primarily due to: (a) a nonrecurring impairment of goodwill charge recognized in the prior year; (b) the gain on sale of the Pawtucket, RI and Randolph, MA locations: and (c) a lower pension expense. Partially offsetting this increase were: (a) acquisition-related costs; (b) a write-down of certain assets under construction; and (c) a larger foreign exchange loss in the current year.

Net income in fiscal 2019 decreased $10,432,000 or 24% to $32,711,000 compared to $43,143,000 in fiscal 2018. The decrease in net income in 2019 was primarily due to: (a) a lower gross profit on sales; (b) a loss on impairment of goodwill; (c) increased amortization expense recognized in the current period and related to our December 2017 acquisition of Zappa Stewart; (d) nonrecurring gains on sales of both a business and a license in the prior year period; and (e) increased pension-related settlement costs due to the timing of lump-sum disbursements in fiscal 2019.

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Liquidity and Sources of Capital

Our cash balance increased $51,297,000 to $99,068,000 at August 31, 2020 from $47,771,000 at August 31, 2019. The increased cash balance was primarily attributable to cash from operations of $55,734,000, partially offset by a cash dividend payment of $7,539,000. Of the above noted amounts, $42,615,000 and $17,235,000 were held outside the U.S. by Chase Corporation and our foreign subsidiaries as of August 31, 2020 and 2019, respectively. Given our cash position and borrowing capability in the United States and the potential for increased investment and acquisitions in foreign jurisdictions, prior to the second quarter of fiscal 2018, we did not have a history of repatriating a significant portion of our foreign cash. With the passage of the Tax Cuts and Jobs Act (the “Tax Act”) in the second fiscal quarter of 2018, significant changes in the Internal Revenue Code were enacted, changing the U.S. taxable nature of previously unrepatriated foreign earnings. Following the passage of the Tax Act, the Company repatriated $10,499,000 in U.K. foreign earnings in fiscal 2018 and $17,230,000 in fiscal 2019. No additional amounts were repatriated in fiscal year 2020. We do not currently take the position that undistributed foreign subsidiaries’ earnings are considered to be permanently reinvested. See Note 7 — “Income Taxes” to the Consolidated Financial Statements included in this Report for further discussion of the effects of the Tax Act.

Our cash balance increased $12,943,000 to $47,771,000 at August 31, 2019 from $34,828,000 at August 31, 2018. The increased cash balance was primarily attributable to cash from operations of $49,535,000, partially offset by: (a) $25,000,000 in principal debt pay down on debt incurred to acquire Zappa Stewart in the prior year; and (b) a cash dividend payment of $7,522,000.

Cash provided by operations was $55,734,000 for the year ended August 31, 2020 compared to $49,535,000 in fiscal 2019.  Cash provided by operations during fiscal 2020 was primarily due to operating income and decreased levels of accounts receivable (resulting from lower sales) and inventory.

Cash provided by operations was $49,535,000 for the year ended August 31, 2019 compared to $46,071,000 in fiscal 2018. Cash provided by operations during fiscal 2019 was primarily due to operating income and decreased accounts receivable, which contracted on lower sales levels. Partially offsetting the overall increase of cash provided by operations were decreased payables.

The ratio of current assets to current liabilities was 7.7 as of August 31, 2020 compared to 6.0 as of August 31, 2019. The increase in our current ratio in fiscal 2020 was primarily attributable to increased cash and cash equivalents, primarily generated by cash flow from operations.

Cash provided by investing activities was $2,077,000 for the year ended August 31, 2020 compared to $2,166,000 in cash used in investing activities in fiscal 2019. During fiscal 2020, cash provided by investing activities was largely due to the net cash received for the sales of the Pawtucket, RI and Randolph, MA locations, partially offset by cash spent on capital purchases of machinery and equipment.

Cash used in investing activities was $2,166,000 for the year ended August 31, 2019 compared to $73,766,000 in fiscal 2018. During fiscal 2019, cash used in investing activities was primarily due to cash spent on capital purchases of machinery and equipment, partially offset by the final escrow payment received by the Company for our April 2017 sale of the fiber optic cable components business.

Cash used in financing activities was $8,420,000 for the year ended August 31, 2020 compared to $33,450,000 used in financing activities in fiscal 2019 and $14,423,000 provided by financing activities in fiscal 2018. During fiscal 2019 and 2018, Chase repaid $25,000,000 and $40,000,000, respectively, on the $65,000,000 it borrowed on its revolving debt facility to substantially fund its purchase of Zappa Stewart in fiscal 2018. Chase also paid annual dividends of $7,539,000, $7,522,000 and $7,497,000 in 2020, 2019 and 2018, respectively.

On November 12, 2020, we announced a cash dividend of $0.80 per share (totaling approximately $7,556,000) to shareholders of record on November 27, 2020 and payable on December 7, 2020.

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On November 13, 2019, we announced a cash dividend of $0.80 per share (resulting in payment of $7,539,000) to shareholders of record on November 26, 2019 and payable on December 4, 2019.

On November 13, 2018, we announced a cash dividend of $0.80 per share (resulting in payment of $7,522,000) to shareholders of record on November 23, 2018 and payable on December 5, 2018.

On December 15, 2016, we entered an Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, acting as administrative agent, and with participation from Citizens Bank and JPMorgan Chase Bank (collectively with Bank of America, the “Lenders”). The Credit Agreement is initially an all-revolving credit facility with a borrowing capacity of $150,000,000, which can be increased by an additional $50,000,000 at the request of the Company and the individual or collective option of any of the Lenders. The Credit Agreement contains customary affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness and require certain lender approval for acquisitions by us and our subsidiaries over a certain size. It also requires us to maintain certain financial ratios on a consolidated basis, including a consolidated net leverage ratio (as defined in the facility) of no more than 3.25 to 1.00, and a consolidated fixed charge coverage ratio (as defined in the facility) of at least 1.25 to 1.00. We were in compliance with our debt covenants as of August 31, 2020 and 2019. The applicable interest rate for the Credit Agreement is based on the effective LIBOR plus an additional amount in the range of 1.00% to 1.75%, depending on our consolidated net leverage ratio or, at our option, at the bank’s base lending rate. At both August 31, 2020 and 2019, there was no outstanding principal balance, and as such, no applicable interest rate. The Credit Agreement was used to refinance our previously existing credit facility, which consisted of a $70,000,000 five-year term loan entered into in June 2012 in connection with our acquisition of NEPTCO, together with a $15,000,000 revolving line of credit, each bearing interest at LIBOR plus an additional amount in the range of 1.75% to 2.25%, depending on our leverage ratio. The Credit Agreement also provides for additional liquidity to finance potential acquisitions, working capital, capital expenditures, and other general corporate purposes.

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

During the third fiscal quarter of 2020, Company implemented changes in its cost structure designed to address market changes brought on, in part, by COVID-19. These changes included a targeted reduction of approximately 4.5% of the Company’s global workforce. During fiscal 2019, the Company announced it had begun moving the production of its pulling and detection products from its Granite Falls, NC location to its Hickory, NC location, with completion of the move occurring in the first half of fiscal 2020. During fiscal 2018, the Company announced the planned closing of its Pawtucket, RI manufacturing facility effective August 31, 2018. The manufacturing of products previously produced in the Pawtucket, RI facility was moved to Company facilities in Oxford, MA and Lenoir, NC, and the facility was subsequently sold in fiscal 2020. During the fourth quarter of fiscal 2019, the Company commissioned engineering studies to assess potential future operational changes and further plant rationalization and consolidation. These actions are in line with the Company’s ongoing efforts to consolidate its manufacturing plants and streamline its processes. A total of all potential future costs arising from any further plant rationalization and consolidation cannot be estimated at this time.

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

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

We have no material off-balance sheet arrangements.

35


Contractual Obligations

The following table summarizes our contractual cash obligations at August 31, 2020 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (dollars in thousands):

Payments Due

Contractual Obligations

    

Total

    

2021

    

2022

    

2023

    

2024

    

2025 and thereafter

 

Operating leases

$

8,978

$

2,085

$

1,500

$

1,346

$

1,360

$

2,687

Total (1) (2) (3)

$

8,978

$

2,085

$

1,500

$

1,346

$

1,360

$

2,687


(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 $1,941,000 as of August 31, 2020 have been excluded from the contractual obligations table above. See Note 7 — “Income Taxes” to the Consolidated Financial Statements for further information.
(2)This table does not include the expected payments for our obligations for pension and other post-retirement benefit plans. As of August 31, 2020, we had recognized an accrued benefit plan liability of $12,495,000 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.
(3)Purchase orders or contracts for normal purchases of raw materials and other goods and services are not included in the table above. The Company does not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed expected requirements or extend beyond one year.

Recently Issued Accounting Standards

For discussion of the newly issued accounting pronouncements see “Recently Issued Accounting Standards” and “Recently Adopted Accounting Standards” in Note 1 — “Summary of Significant Accounting Policies” to the Consolidated Financial Statements included in this Report.

36


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 require 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.

Inventory

 

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

 

Business Combinations

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

37


Goodwill, Intangible Assets, and Other Long-Lived Assets

 

Long-lived assets consist of goodwill, identifiable intangible assets, trademarks, and patents and property, plant, and equipment. Intangible assets and property, plant, and equipment, excluding goodwill, are amortized 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. In fiscal 2017, we early adopted Accounting Standards Update (“ASU”) No. 2017-04 “Intangibles Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment.” 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 historical or projected future operating results. If after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then assess goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount. If the fair value of a reporting unit is less than its carrying value, an impairment loss, limited to the amount of goodwill allocated to that reporting unit, is recorded. Fair values for reporting units are determined based on the income approach (discounted cash flow method).

Revenue

Effective September 1, 2018 (fiscal 2019), the Company adopted accounting standard ASU No. 2014-09, “Revenue from Contracts with Customers" (ASC 606) using the modified retrospective method for contracts that were not completed as of August 31, 2018. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings, whereby the cumulative impact of all prior periods is recorded in retained earnings or other impacted balance sheet line items upon adoption. The comparative information (for all periods prior to September 1, 2018) has not been adjusted and continues to be reported under ASU No. 2009-13 “Revenue Recognition” (ASC 605). The impact on the Company’s consolidated balance sheet and statements of operations, equity and cash flows as of the adoption date as a result of applying ASC 606 have been reflected within those respective financial statements. The Company’s accounting policy has been updated to align with ASC 606.

The adoption of ASC 606 represents a change in accounting principle that provides enhanced revenue recognition disclosures. The Company accounts for revenue from contracts with customers when: (a) there is approval and commitment from both parties; (b) the rights of the parties are identified; (c) payment terms are identified; (d) the contract has commercial substance; and (e) collectability of consideration is probable. Revenue is primarily derived from customer purchase orders, master sales agreements, and negotiated contracts, all of which represent contracts with customers. See Note 26 to the Consolidated Financial Statements included in this Report for more information on our accounting for revenue.

Uncertain Tax Positions

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. 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. Our assessment is based on 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.

38


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 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. Since we early adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting,” in fiscal 2017, we have elected to account for forfeitures as they occur.

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 who are members of the International Association of Machinists and Aerospace Workers Union whose contract was amended 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.

Through our wholly-owned subsidiary NEPTCO, we had another defined benefit pension plan which covered 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 could enter the plan and the benefits of current participants were frozen as of that date. The benefits were based on years of service and the employee’s average compensation during the earlier of five years before retirement, or October 31, 2006. In August 2019, the Board of Directors voted to terminate the NEPTCO defined benefit plan. The Company established November 15, 2019 as the plan termination date, subsequent to which it performed the administrative actions required to carry out the termination, inclusive of making full payouts to (or setting up annuities for) all participants. No balance related to the NEPTCO defined benefit plan was carried on the Company’s consolidated balance sheet as of August 31, 2020.

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

Impact of Inflation

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

39


Item 7a – Quantitative and Qualitative Disclosures about Market Risk

We limit the amount of credit exposure to any one issuer. At August 31, 2020, 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 and Asian operations are subject to currency exchange fluctuations. We continue to review our policies and procedures to control this exposure while maintaining the benefit from these operations and sales not denominated in U.S. dollars. The effect of an immediate hypothetical 10% change in the exchange rate between the British pound or euro and the U.S. dollar would not have a material effect on the Company’s overall liquidity. As of August 31, 2020, the Company had cash balances in the following foreign currencies (with USD equivalents in thousands):

Currency Code

    

Currency Name

    

USD Equivalent at August 31, 2020

 

EUR

 

Euro

$

25,926

GBP

 

British Pound

$

11,408

CAD

 

Canadian Dollar

$

1,450

INR

 

Indian Rupee

$

355

CNY

 

Chinese Yuan

$

350

The Company will continue to review its current cash balances denominated in foreign currency considering current tax guidelines, including the impact of the Tax Act to the U.S. Internal Revenue Code, working capital requirements, infrastructure improvements and potential acquisitions. The increased euro denominated balance at August 31, 2020 was done in preparation of the September 1, 2020 (fiscal 2021) purchase of ABchimie. See Note 1 — “Summary of Significant Accounting Policies” and Note 14 — “Acquisitions” to the Consolidated Financial Statements for additional information regarding our fiscal 2021 purchase of ABchimie.

The Company recognized a foreign currency translation gain for the year ended August 31, 2020 in the amount of $3,163,000 related to our European and Indian operations, which is recorded in accumulated other comprehensive income (loss) within our consolidated statement of equity. The functional currency for all our other operations is the U.S. Dollar. 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. There was no outstanding balance of long-term debt at August 31, 2020 and 2019. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Sources of Capital,” Note 6 — “Long-Term Debt” 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.

40


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:

41


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Chase Corporation

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Chase Corporation (a Massachusetts corporation) and subsidiaries (the “Company”) as of August 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the two years in the period ended August 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended August 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of August 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated November 12, 2020 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2019.

Boston, Massachusetts

November 12, 2020

42


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Chase Corporation

Opinion on the Financial Statements

We have audited the consolidated statements of operations, of comprehensive income, of equity and of cash flows of Chase Corporation and its subsidiaries (the “Company”) for the year ended August 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended August 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP

Boston, Massachusetts

November 27, 2018, except for the change in composition of reportable segments discussed in Note 11 to the consolidated financial statements, as to which the date is November 13, 2019

We served as the Company's auditor from 2003 to 2018.

43


CHASE CORPORATION

CONSOLIDATED BALANCE SHEETS

In thousands, except share and per share amounts

August 31, 

August 31, 

 

2020

    

2019

 

ASSETS

Current Assets

Cash and cash equivalents

$

99,068

$

47,771

Accounts receivable, less allowance for doubtful accounts of $438 and $739

36,993

39,324

Inventory

39,058

42,354

Prepaid expenses and other current assets

2,470

2,418

Assets held for sale

1,064

Prepaid income taxes

231

1,451

Total current assets

177,820

134,382

Property, plant and equipment, less accumulated depreciation of $52,283 and $49,730

25,574

29,326

Other Assets

Goodwill

82,402

81,986

Intangible assets, less accumulated amortization of $78,351 and $65,862

41,200

52,704

Cash surrender value of life insurance

4,450

4,450

Restricted investments

1,619

1,260

Deferred income taxes

4,929

3,804

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

8,821

Other assets

15

56

Total assets

$

346,830

$

307,968

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable

$

12,525

$

12,105

Accrued payroll and other compensation

5,751

6,300

Accrued expenses

4,867

4,035

Total current liabilities

23,143

22,440

Operating lease long-term liabilities (Note 8)

6,395

Deferred compensation

1,629

1,275

Accumulated pension obligation

10,930

10,485

Other liabilities

217

Accrued income taxes

1,941

2,324

Commitments and contingencies (Notes 6, 8, 21)

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; 9,439,082 shares at August 31, 2020 and 9,400,748 shares at August 31, 2019 issued and outstanding

944

940

Additional paid-in capital

16,674

14,351

Accumulated other comprehensive loss

(13,092)

(14,324)

Retained earnings

298,266

270,260

Total equity

302,792

271,227

Total liabilities and equity

$

346,830

$

307,968

See accompanying notes to the Consolidated Financial Statements.

44


CHASE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except share and per share amounts

Years Ended August 31,

    

2020

    

2019

    

2018

 

Revenue

Sales

$

257,742

$

276,839

$

278,962

Royalties and commissions

3,420

4,512

5,226

261,162

281,351

284,188

Costs and Expenses

Cost of products and services sold

161,615

180,163

175,136

Selling, general and administrative expenses

49,364

48,707

47,703

Research and product development costs

4,007

4,021

3,940

Operations optimization costs (Note 20)

807

986

1,272

Acquisition-related costs (Note 14)

274

393

Gain on sale of real estate (Note 19)

(2,551)

Write-down of certain assets under construction (Note 20)

405

Loss on impairment of goodwill (Note 4)

2,410

Operating income

47,241

45,064

55,744

Interest expense

(246)

(519)

(1,172)

Gain on sale of license (Note 15)

1,085

Gain on sale of businesses (Note 18)

1,480

Other income (expense)

(1,675)

(992)

(172)

Income before income taxes

45,320

43,553

56,965

Income taxes (Note 7)

11,163

10,842

13,822

Net income

$

34,157

$

32,711

$

43,143

Net income available to common shareholders, per common and common equivalent share (Note 17)

Basic

$

3.62

$

3.48

$

4.60

Diluted

$

3.59

$

3.46

$

4.56

Weighted average shares outstanding

Basic

9,359,940

9,334,232

9,296,648

Diluted

9,439,750

9,379,207

9,366,071

Annual cash dividends declared per share

$

0.80

$

0.80

$

0.80

See accompanying notes to the Consolidated Financial Statements.

45


CHASE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In thousands, except share and per share amounts

Years Ended August 31,

    

 

 

2020

    

2019

    

2018

 

Net income

$

34,157

$

32,711

$

43,143

Other comprehensive income (loss):

Net unrealized gain on restricted investments, net of tax

115

28

5

Change in funded status of pension plans, net of tax

(658)

(475)

385

Foreign currency translation adjustment

3,163

(1,541)

743

Total other comprehensive income (loss)

2,620

(1,988)

1,133

Comprehensive income

$

36,777

$

30,723

$

44,276

See accompanying notes to the Consolidated Financial Statements.

46