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, 2017
Commission File Number: 1-9852
CHASE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts
(State or other jurisdiction of incorporation of organization)
11-1797126
(I.R.S. Employer Identification No.)
295 University Avenue, Westwood, Massachusetts 02090
(Address of Principal Executive Offices, Including 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
($0.10 Par Value)
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, 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 and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). YES NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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
Non-accelerated filer (Do not check if a smaller reporting company)
Emerging growth company
Accelerated filer
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO
The aggregate market value of the common stock held by non-affiliates of the registrant, as of February 28, 2017 (the last business day of the registrant’s
second quarter of fiscal 2017), was approximately $653,152,000.
As of October 31, 2017, the Company had outstanding 9,364,936 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, 2017, are incorporated by reference into Part III hereof.
CHASE CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Year Ended August 31, 2017
Cautionary Note Concerning Forward-Looking Statements
Page No.
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PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 4A
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
SIGNATURES
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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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 made by Chase Corporation (the
“Company,” “Chase,” “we,” or “us”), 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 include, among other things, statements
relating to future sales, earnings, cash flow, results of operations, use of cash and other measures of financial
performance, as well as statements relating to future dividend payments. Other 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, which speak only as of the date the statement was made. 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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ITEM 1 – BUSINESS
Primary Operating Divisions and Facilities and Industry Segments
PART I
Chase Corporation, founded in 1946, is a leading manufacturer of protective materials for high-reliability
applications. Our strategy is to maximize the performance of our core businesses and brands while seeking future
opportunities through strategic acquisitions. We are organized into two operating segments, an Industrial Materials
segment and a Construction Materials segment. The segments are distinguished by the nature of the products we
manufacture and how they are delivered to their respective markets. The Industrial Materials segment includes specified
products that are used in, or integrated into, another company’s product, with demand typically dependent upon general
economic conditions. The Construction Materials segment is principally composed of project-oriented product offerings
that are primarily sold and used as "Chase" branded products. Our manufacturing facilities are distinct to their respective
segments with the exception of our O’Hara Township, PA and Blawnox, PA facilities, which produce products related to
both operating segments. A summary of our operating structure as of August 31, 2017 is as follows:
INDUSTRIAL MATERIALS SEGMENT
Key Products
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.
Primary
Manufacturing
Locations
Oxford, MA
PaperTyger®, a trademark for laminated durable papers sold to
the envelope converting and commercial printing industries.
Background/History
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.
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.
Protective conformal coatings under the brand name
HumiSeal®, moisture protective electronic coatings sold to the
electronics industry including circuitry used in automobiles and
home appliances.
O'Hara
Township, PA
The HumiSeal business and product lines were acquired in the
early 1970's.
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 in their
existing manufacturing facilities in Massachusetts and
California.
Laminated film foils for the electronics and cable industries and
cover tapes essential to delivering semiconductor components
via tape and reel packaging
Pawtucket, RI
Lenoir, NC
In June 2012, we acquired all of the capital stock of NEPTCO
Incorporated, which operated facilities in Rhode Island, North
Carolina and China
Pulling and detection tapes used in the installation,
measurement and location of fiber optic cables, and water and
natural gas lines.
Granite Falls,
NC
In October 2013, we moved the majority of our manufacturing
processes that had been conducted at our Taylorsville, NC
facility to our Lenoir, NC location.
Cover tapes essential to delivering semiconductor components
via tape and reel packaging.
Suzhou, China
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Key Products & Services
Primary
Manufacturing
Locations
Protective conformal coatings under the brand name
HumiSeal®, moisture protective electronic coatings sold to the
electronics industry including circuitry used in automobiles and
home appliances.
Winnersh,
Wokingham,
England
Background/History
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 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, Spray Products (India) Private
Limited 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.
Greenville, SC
In January 2015, we acquired two product lines from Henkel
Corporation. They comprise our specialty chemical
intermediates product line.
Water-based polyurethane dispersions utilized for various
coating products.
The Company currently contracts with manufacturing partners
to produce its water-based polyurethane dispersions.
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CONSTRUCTION MATERIALS SEGMENT
Key Products
Protective pipe coating tapes and other protectants for valves,
regulators, casings, joints, metals, concrete, and wood which are
sold under the brand name Royston®, to oil companies, gas
utilities and pipeline companies.
Rosphalt50® is a polymer additive that provides long-term cost-
effective solutions in many applications such as waterproofing
of approaches and bridges, ramps, race tracks, airports and
specialty road applications.
Primary
Manufacturing
Locations
Blawnox, PA
The Royston business was acquired in the early 1970's.
Background/History
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 of 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 of 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. 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.
The ServiWrap® product offering complements the portfolio of
our pipeline protection tapes, coatings and accessories to extend
our global customer base.
Other Business Developments
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.
In December 2009, we acquired the full range of ServiWrap®
pipeline protection products (“ServiWrap”) from Grace
Construction Products Limited, a UK-based unit of W.R. Grace
& Co.
On April 3, 2017, Chase executed an agreement with an unrelated party to sell all inventory, machinery and equipment
and intangible assets of the Company’s fiber optic cable components product line for proceeds of $3,858,000 net of
transaction costs and following certain working capital adjustments. The resulting pre-tax gain on sale of $2,013,000 was
recognized in the third quarter of fiscal 2017 as gain on sale of businesses within the consolidated statement of
operations. Further, the purchaser entered a multiyear lease for a portion of the manufacturing space at the Company’s
Granite Falls, NC facility. Chase will provide ongoing manufacturing and administrative support to the purchaser for
which the Company will receive additional consideration upon the performance of services. The Company’s fiber optic
cable components product line was formerly a part of the Company’s Industrial Materials operating segment.
On September 30, 2016, the Company acquired certain assets of Resin Designs, LLC (“Resin Designs”), an advanced
adhesives and sealants manufacturer, with locations in Woburn, MA and Newark, CA. The business was acquired for a
purchase price of $30,270,000 after final working capital adjustments and excluding acquisition-related costs. As part of
this transaction, Chase acquired all working capital and fixed assets of the business, and entered multiyear leases at both
locations. The Company expensed $584,000 of acquisition-related costs during the first quarter of fiscal 2017 associated
with this acquisition. The purchase was funded entirely with available cash on hand. Resin Designs is a formulator of
customized adhesive and sealant systems used in high-reliability electronic applications. The acquisition broadens the
Company’s adhesives and sealants product offering and manufacturing capabilities, and expands its market reach. Since
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the effective date of the acquisition, the financial results of Resin Designs’ operations have been included in the
Company’s financial statements within the electronic and industrial coatings product line, contained within the Industrial
Materials operating segment.
On June 23, 2016 (the fourth quarter of fiscal 2016), the Company acquired all the capital stock of Spray Products
(India) Private Limited for $1,161,000, net of cash acquired. This acquired business works closely with our HumiSeal®
coating manufacturing operation in Winnersh, Wokingham, England. The acquisition in India enhances the Company’s
ability to provide technical, sales, manufacturing, chemical handling, and packaging services in the region. Since the
effective date for this acquisition, the financial results of the business have been included in the Company's financial
statements within the Company’s Industrial Materials operating segment in the electronic and industrial coatings product
line. Effective December 2016, Spray Products (India) Private Limited was renamed HumiSeal India Private Limited.
In November 2015 (the first quarter of fiscal 2016), the Company sold its RodPack® wind energy business, contained
within its structural composites product line, to an otherwise unrelated party for proceeds of $2,186,000. The Company’s
structural composites product line is a part of the Company’s Industrial Materials operating segment. The Company will
provide ongoing development support to the Buyer for which it will receive additional consideration upon the
completion of services.
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 Industrial Materials segment, these
products consist of:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
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;
laminated film foils, including EMI/RFI shielding tapes used in communication and local area network
(LAN) cables;
moisture protective coatings, which are sold to the electronics industry for circuitry manufacturing,
including circuitry used in automobiles and home appliances;
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;
pulling and detection tapes used in the installation, measurement and location of fiber optic cables, water
and natural gas lines, and power, data, and video cables for commercial buildings;
cover tapes with reliable adhesive and anti-static properties essential to delivering semiconductor
components via tape and reel packaging;
(vii)
advanced adhesives, sealants, and coatings for automotive and industrial applications that require
specialized bonding, encapsulating, environmental protection, or thermal management functionality;
(viii)
polymeric microspheres utilized by various industries to allow for weight and density reduction and sound
dampening;
(ix)
water-based polyurethane dispersions utilized for various coating products; and
(x)
composite strength elements utilized in wind energy generation.
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In our Construction Materials segment, these products consist of:
(i)
(ii)
protective pipe coating tapes and other protectants for valves, regulators, casings, joints, metals, concrete
and wood, which are sold to oil companies, gas utilities, and pipeline companies for utilization in both the
construction and maintenance of oil and gas, water and wastewater pipelines;
waterproofing membranes for highway bridge deck metal-supported surfaces, which are sold to municipal
transportation authorities, and high-performance polymeric asphalt additives;
(iii)
fluid-applied coating and lining systems for use in the water and wastewater industry; and
(iv)
expansion and control joint systems designed for roads, bridges, stadiums and airport runways.
There is some seasonality in selling products into the construction market. 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). Other than the acquisition of the operations of Resin
Designs, we did not introduce any new products requiring an investment of a material amount of our assets during fiscal
year 2017.
Employees
As of October 31, 2017, we employed approximately 695 people (including union employees). We consider our
employee relations to be good. In the U.S., we offer our employees a wide array of company-paid benefits, which we
believe are competitive relative to others in our industry. In our operations outside the U.S., we offer benefits that may
vary from those offered to our U.S. employees due to customary local practices and statutory requirements.
Backlog, Customers and Competition
As of October 31, 2017, the backlog of customer orders believed to be firm was approximately $19,719,000. This
compared with a backlog of $17,583,000 as of October 31, 2016. The increase in backlog from the prior year amount is
primarily due to current period increases in specialty chemical intermediates, pulling and detection and cable materials
products. During fiscal 2017, 2016 and 2015, no customer accounted for more than 10% of sales. No material portion of
our business is subject to renegotiation or termination of profits or contracts at the election of the United States Federal
Government.
There are other companies that manufacture or sell products and services similar to those made and sold by us. Many of
those companies are larger and have greater financial resources than we have. We compete principally on the basis of
technical performance, service reliability, quality and price.
Raw Materials
We obtain raw materials from a wide variety of suppliers, with alternative sources of most essential materials available
within reasonable lead times.
Patents, Trademarks, Licenses, Franchises and Concessions
We own the following trademarks that we believe are of material importance to our business: Chase Corporation®, C-
Spray (Logo), a trademark used in conjunction with most of the Company’s business segment and product line
marketing material and communications; HumiSeal®, a trademark for moisture protective coatings sold to the electronics
industry; Chase & Sons®, a trademark for barrier and insulating tapes sold to the wire and cable industry; Chase
BLH2OCK®, a trademark for a water-blocking compound sold to the wire and cable industry; Rosphalt50®, a trademark
for an asphalt additive used predominantly on bridge decks for waterproofing protection; PaperTyger®, a trademark for
laminated durable papers sold to the envelope converting and commercial printing industries; DuraDocument®, a
trademark for durable, laminated papers sold to the digital print industry; Defender® a trademarked and patent-pending
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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 business and product line marketing material and communications; NEPTAPE®, a
trademark for coated shielding and insulation materials used in the wire and cable industry; Muletape®, a trademark for
pulling and installation tapes sold to the telecommunications industry; Trace-Safe®, a trademark for detection tapes sold
to the water and gas industies; 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; and
HighDraw®, a trademark for a highly extensible shielding tape sold to the wire and cable industry. 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.
Working Capital
We fund our business operations through a combination of available cash and cash equivalents, short-term investments
and cash flows generated from operations. In addition, our revolving credit facility is available for additional working
capital needs or investment opportunities. We have historically funded acquisitions through both available cash on hand
and additional borrowings and financing agreements with our bank lenders.
Research and Development
Approximately $3,696,000, $2,792,000 and $2,690,000 was expensed for Company-sponsored research and
development during fiscal 2017, 2016 and 2015, respectively, and recorded within selling, general and administrative
expenses. Research and development increased by $904,000 in fiscal 2017 due to continued focused development work
on strategic product lines, and eleven months of operations related to the established research and development
department of Resin Designs, acquired in the first quarter of fiscal 2017.
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 Paula Myers, 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 and at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. The public may obtain information on the operations of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.
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.
We currently operate in mature markets where increases or decreases in market share could be significant.
Our sales and net income are largely dependent on sales from a consistent and well-established customer base. Organic
growth opportunities are minimal; however, we have used and will continue to use strategic acquisitions as a means to
build and grow the business. In this business environment, increases or decreases in market share could have a material
effect on our business condition or results of operation. We face intense competition from a diverse range of
competitors, including operating divisions of companies much larger and with far greater resources than we have. If we
are unable to maintain our market share, our business could suffer.
Our business strategy includes the pursuit of strategic acquisitions, which may not be successful if they happen at
all.
From time to time, we engage in discussions with potential target companies concerning potential acquisitions. In
executing our acquisition strategy, we may be unable to identify suitable acquisition candidates. In addition, we may
face competition from other companies for acquisition candidates, making it more difficult to acquire suitable companies
on favorable terms.
Even if we do identify a suitable acquisition target and are able to negotiate and close a transaction, the integration of an
acquired business into our operations involves numerous risks, including potential difficulties in integrating an acquired
company’s product line with ours; the diversion of our resources and management’s attention from other business
concerns; the potential loss of key employees; limitations imposed by antitrust or merger control laws in the United
States or other jurisdictions; risks associated with entering a new geographical or product market; and the day-to-day
management of a larger and more diverse combined company.
We may not realize the synergies, operating efficiencies, market position or revenue growth we anticipate from
acquisitions, and our failure to effectively manage the above risks could have a material adverse effect on our business,
growth prospects and financial performance.
Our results of operations could be adversely affected by uncertain economic and political conditions and the
effects of these conditions on our customers’ businesses and levels of business activity.
Global economic and political conditions can affect the businesses of our customers and the markets they serve. A severe
or prolonged economic downturn or a negative or uncertain political climate could adversely affect, among others, the
automotive, housing, construction, pipeline, energy, transportation infrastructure and electronics industries. This may
reduce demand for our products or depress pricing of those products, either of which may have a material adverse effect
on our results of operations. Changes in global economic conditions 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.
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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) could adversely
affect our financial condition by increasing our manufacturing costs and other expenses at the same time that our
customers may be scaling back demand for our products. Prices of certain commodity products, including oil and
petroleum-based products, are historically volatile and are subject to fluctuations arising from changes in domestic and
international supply and demand, labor costs, competition, weather events, market speculation, government regulations
and periodic delays in delivery. Rapid and significant changes in commodity prices may affect our sales and profit
margins. These factors can increase our 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.
Fluctuations in the supply and prices of raw materials may negatively impact our financial results.
We obtain raw materials needed to manufacture our products from a number of suppliers. Many of these raw materials
are petroleum-based derivatives. Under normal market conditions, these materials are generally available on the open
market and from a variety of producers. From time to time, however, the prices and availability of these raw materials
fluctuate, which could impair our ability to procure necessary materials, or increase the cost of manufacturing our
products. If the prices of raw materials increase, and we are unable to pass these increases on to our customers, we could
experience reduced profit margins.
If our products fail to perform as expected, or if we experience product recalls, we could incur significant and
unexpected costs and lose existing and future business.
Our products are complex and could have defects or errors presently unknown to us, which may give rise to claims
against us, diminish our brands or divert our resources from other purposes. Despite testing, new and existing products
could contain defects and errors and may in the future contain manufacturing or design defects, errors or performance
problems when first introduced, or even after these products have been used by our customers for a period of time. These
problems could result in expensive and time-consuming design modifications or warranty charges, changes to our
manufacturing processes, product recalls, significant increases in our maintenance costs, or exposure to liability for
damages, any of which may result in substantial and unexpected expenditures, require significant management attention,
damage our reputation and customer relationships, and adversely affect our business, our operating results and our cash
flow.
We are dependent on key personnel.
We depend significantly on our executive officers including our President and Chief Executive Officer, Adam P. Chase,
and our Executive Chairman, Peter R. Chase, and on other key employees. The loss of the services of any of these key
employees could have a material impact on our business and results of operations. In addition, our acquisition strategy
will require that we attract, motivate and retain additional skilled and experienced personnel. The inability to satisfy such
requirements could have a negative impact on our ability to remain competitive in the future.
If we cannot successfully manage the unique challenges presented by international markets, we may not be
successful in expanding our international operations.
Our strategy includes expansion of our operations in existing and new international markets by selective acquisitions and
strategic alliances. Our ability to successfully execute our strategy in international markets is affected by many of the
same operational risks we face in expanding our U.S. operations. In addition, our international expansion may be
adversely affected by our ability to identify and gain access to local suppliers as well as by local laws and customs, legal
and regulatory constraints, political and economic conditions and currency regulations of the countries or regions in
10
which we currently operate or intend to operate in the future. Risks inherent in our international operations also include,
among others, the costs and difficulties of managing international operations, adverse tax consequences and greater
difficulty in enforcing intellectual property rights. Additionally, foreign currency exchange rates and fluctuations (such
as those experienced following the June 23, 2016 “Brexit” referendum vote in the United Kingdom) may have an impact
on future costs or on future cash flows from our international operations.
We may experience difficulties in the redesign and consolidation of our manufacturing facilities which could
impact shipments to customers, product quality, and our ability to realize cost savings.
We currently have several ongoing projects to streamline our manufacturing operations, which include the redesign and
consolidation of certain manufacturing facilities. We anticipate a reduction of overhead costs as a result of these
projects, to the extent that we can effectively leverage assets, personnel, and business processes in the transition of
production among manufacturing facilities. However, uncertainty is inherent within the facility redesign and
consolidation process, and unforeseen circumstances could offset the anticipated benefits, disrupt service to customers,
and impact product quality.
Financial market performance may have a material adverse effect on our pension plan assets and require
additional funding requirements.
Significant and sustained declines in the financial markets may have a material adverse effect on the fair market value of
the assets of our pension plans. While these pension plan assets are considered non-financial assets since they are not
carried on our balance sheet, the fair market valuation of these assets could impact our funding requirements, funded
status or net periodic pension cost. Any significant and sustained declines in the fair market value of these pension
assets could require us to increase our funding requirements, which would have an impact on our cash flow, and could
also lead to additional pension expense.
Failure or compromise of security with respect to an operating or information system or portable electronic
device could adversely affect our results of operations and financial condition or the effectiveness of our internal
controls over operations and financial reporting.
We are highly dependent on automated systems to record and process our daily transactions and certain other
components of our financial statements. We could experience a failure of one or more of these systems, or a
compromise of our security due to technical system flaws, data input or record keeping errors, or tampering or
manipulation of our systems by employees or unauthorized third parties. Information security risks also exist with
respect to the use of portable electronic devices, such as laptops and smartphones, which are particularly vulnerable to
loss and theft. We may also be subject to disruptions of any of these systems arising from events that are wholly or
partially beyond our control (for example, natural disasters, acts of terrorism, epidemics, computer viruses, cyber-attacks
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.
ITEM 1B – UNRESOLVED STAFF COMMENTS
Not applicable.
11
ITEM 2 – PROPERTIES
We own and lease office and manufacturing properties as outlined in the table below.
Location
Square
Feet
Owned /
Leased
Westwood, MA
20,200
Leased
73,600
Owned
Principal Use
Corporate headquarters, executive office and global operations center,
including research and development, sales and administrative services
Manufacture of tape and related products for the electronic and
telecommunications industries, as well as laminated durable papers
Oxford, MA
Blawnox, PA
Evanston, IL
Houston, TX
O’Hara Township, PA
109,000
Owned
Manufacture and sale of protective electronic coatings, expansion
joints and accessories
100,000
Owned
Manufacture and sale of protective coatings and tape products
44,000
Owned
Manufacture and sale of protective coatings and tape products
45,000
Owned
Pawtucket, RI
70,400
Owned
Granite Falls, NC
108,000
Owned
Manufacture of coating and lining systems for use in liquid storage
and containment applications
Manufacture and sale of laminated film foils for the electronics and
cable industries, and offices for sales and administrative services
Manufacture and sale of pulling and detection tapes and fiber optic
strength elements, as well as research and development services
Lenoir, NC
Woburn, MA
Newark, CA
Greenville, SC
Winnersh, Wokingham,
England
Rye, East Sussex, England
Paris, France
Mississauga, Canada
Rotterdam, Netherlands
Suzhou, China
Pune, India
110,000
Owned
Manufacture and sale of laminated film foils and cover tapes
34,000
Leased
Manufacture and sale of adhesive systems, as well as research and
development
32,500
Leased
Manufacture and sale of sealant systems
34,600
Leased
18,800
Leased
Manufacture and sale of polymeric microspheres, as well as research
and development
Manufacture and sale of protective electronic coatings, as well as
research and development
36,600
Owned
Manufacture and sale of protective coatings and tape products
1,900
2,500
2,500
48,000
4,650
Leased
Leased
Leased
Leased
Owned
Sales/technical service office and warehouse allowing direct sales and
service to the French market
Distribution center
Distribution center
Manufacture of packaging tape products for the electronics industries
Packaging and sale of protective electronic coatings
Ceased manufacturing products at this location in 2012. During fiscal
2016, we demolished the building and classified the property as an
asset held for sale
Randolph, MA
-
Owned
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.
12
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 we assess the
likelihood of loss as probable.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
ITEM 4A – EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning our Executive Officers as of October 31, 2017. Each of our
Executive Officers is selected by our Board of Directors and holds office until his successor is elected and qualified.
Age Offices Held and Business Experience during the Past Five Years
Name
Adam P. Chase
Peter R. Chase
45
69
Kenneth J. Feroldi
62
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.
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.
Chief Financial Officer and Treasurer of the Company since September 2014.
Previously Director of Finance for the Company, prior to which he served as
Vice President – Finance, Chief Financial Officer and Treasurer of NEPTCO,
Inc. from 1992 until 2012, when NEPTCO was acquired by the Company.
13
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, 2017, there were 327
shareholders of record of our Common Stock and we believe there were approximately 5,010 beneficial shareholders
who held shares in nominee name. On that date, the closing price of our common stock was $118.75 per share as
reported by the NYSE American.
The following table sets forth the high and low daily sales prices for our common stock as reported by the NYSE
American (formerly the NYSE MKT) for each quarter in the fiscal years ended August 31, 2017 and 2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
Fiscal 2017
Fiscal 2016
High
82.10
93.75
108.35
116.15
$
Low
61.75
76.55
90.40
83.35
$
High
44.61
50.87
58.79
65.19
$
Low
36.83
37.20
45.07
55.54
Single annual cash dividend payments were declared and scheduled to be paid subsequent to year end in the amounts of
$0.80, $0.70, and $0.65 per common share, for the years ended August 31, 2017, 2016 and 2015, respectively. Certain
of our borrowing facilities contain financial covenants which may have the effect of limiting the amount of dividends
that we can pay.
14
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, 2012 in each of the Common Stock, the S&P 500 Index and the Peer Group Index, and
that all dividends were reinvested.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
August 2017
700.00
600.00
500.00
400.00
300.00
200.00
100.00
0.00
2012
2013
2014
2015
2016
2017
Chase Corp.
S&P 500 Index - Total Returns
Peer Group
Chase Corp
S&P 500 Index
Peer Group Index
2012 2013 2014 2015 2016 2017
$ 100 $ 187 $ 226 $ 256 $ 424 $ 622
$ 100 $ 119 $ 149 $ 149 $ 168 $ 195
$ 100 $ 131 $ 149 $ 146 $ 187 $ 194
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.
15
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.”
2017
Fiscal Years Ended August 31,
2014
2015
2016
(In thousands, except per share amounts)
2013
Statement of Operations Data
Revenue from continuing operations
Net income
Add: net (gain) loss attributable to noncontrolling interest
Net income attributable to Chase Corporation
Net income available to common shareholders, per common
and common equivalent share:
Basic:
Net income per common and common equivalent share
Diluted:
Net income per common and common equivalent share
Balance Sheet Data
Total assets
Long-term debt, including current portion
238,094 $
238,046 $
252,560 $
$
216,062
$ 42,014 $ 32,807 $ 26,413 $ 26,523 $ 16,740
474
$ 42,014 $ 32,807 $ 26,318 $ 26,631 $ 17,214
224,006 $
108
(95)
—
—
$
$
4.49 $
3.55 $
2.87 $
2.92 $
1.90
4.44 $
3.50 $
2.82 $
2.86 $
1.87
$
254,738 $
—
262,819 $
224,360
43,400 51,800 58,800 64,400
255,642 $
245,545 $
Total stockholders' equity
Cash dividends paid per common and common equivalent
share
210,929
174,089
154,342
137,490
113,860
$
0.70 $
0.65 $
0.60 $
0.45 $
0.40
16
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
Revenue
Net income
Add: net (gain) loss attributable to noncontrolling interest
Net income attributable to Chase Corporation
Increase in revenue from prior year
Amount
Percentage
Increase/(Decrease) in net income from prior year
Amount
Percentage
Percentage of revenue:
Revenue
Cost of products and services sold
Selling, general and administrative expenses
Acquisition-related costs
Other (income) expense, net
Income before income taxes
Income taxes
Net income
2017
2015
Years Ended August 31,
2016
(Dollars in thousands)
$ 238,094
$ 32,807
—
$ 32,807
$ 238,046
$ 26,413
(95)
$ 26,318
$ 252,560
$ 42,014
—
$ 42,014
$ 14,466
$
6 %
48
$ 14,040
* %
6 %
$
9,207
$
28 %
6,394
$
24 %
(110)
(*) %
100 %
58
19
* (a)
(1)(b)
24 %
7
17 %
100 %
61
19
—
(*) (c)
21 %
7
14 %
100 %
63
19
* (d)
*
17 %
6
11 %
(a) Represents $584 in expenses related to the acquisition of the operations and certain assets of Resin Designs
(b) Includes effects of $2,013 gain on sale of fiber optic cable components product line and a $860 gain related to
the sale of real estate
(c) Includes effects of $1,031 gain on sale of RodPack business
(d) Represents $584 in expenses related to the acquisition of the specialty chemical intermediates product line
* Denotes less than one percent
Overview
Continued strong demand for many of our product offerings, a significant acquisition and a favorable sales mix all
contributed to increased revenue, operating income and net income over the prior year results. Our strategic
diversification remained one of our core strengths, as several product lines in both of our segments exceeded prior year
revenue, offsetting shortfalls from others.
In September 2016, we completed the acquisition of certain assets and the operations of Resin Designs, a formulator of
customized adhesive and sealant systems used in high-reliability electronic applications. In November 2016 and
December 2016, respectively, we sold our Paterson, NJ location and our former corporate headquarters in Bridgewater,
MA. In April 2017, the Company divested its fiber optic cable components product line, after determining the low-
margin business to not be part of Chase’s long-term strategy.
17
Revenue from the Industrial Materials segment increased over the prior year on greater demand for our electronic and
industrial coatings, specialty products, structural composites, pulling and detection, electronic materials, cable materials
and specialty chemical intermediates product lines. The segment’s organic increases in these legacy product lines were
complemented by the September 2016 acquisition of the operations of Resin Designs, which is now included within the
electronic and industrial coatings product line. The segment’s overall revenue increase was negatively impacted by the
April 2017 sale of our fiber optic cable components product line.
Revenue from the Construction Materials segment fell short of the prior year primarily due to the decreased demand for
our UK-produced pipeline coatings products, as well as our building envelope products. The overall decrease in sales
experienced by the segment was lessened by increased sales of our bridge and highway, domestically-produced pipeline
coatings and coating and lining systems products.
Through our active M&A program, our management of real estate and our marketing and product development efforts,
the Company remains focused on its core strategies for sustainable growth. At August 31, 2017, the Company’s cash on
hand was $47,354,000 and there was no outstanding balance under the Company’s $150,000,000 revolving debt facility.
The Company has two reportable segments summarized below:
Product Lines
Manufacturing Focus and Products
Segment
Industrial
Materials
Cable Materials
Electronic and Industrial Coatings
Specialty Products
Pulling and Detection
Electronic Materials
Structural Composites
Fiber Optic Cable Components (1)
Specialty Chemical Intermediates
Construction
Materials
Coating and Lining Systems
Pipeline Coatings
Building Envelope
Bridge and Highway
Protective coatings and tape products, including insulating
and conducting materials for wire and cable manufacturers;
moisture protective coatings and customized sealant and
adhesive systems for electronics; laminated durable papers,
packaging and industrial laminate products and custom
manufacturing services; pulling and detection tapes used in
the installation, measurement and location of fiber optic
cables and water and natural gas lines; cover tapes essential
to delivering semiconductor components via tape and reel
packaging; composite materials elements; glass-based
strength elements designed to allow fiber optic cables to
withstand mechanical and environmental strain and stress;
polyurethane dispersions and polymeric microspheres.
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) 50% owned joint venture until October 31, 2014, when we purchased the remaining 50% noncontrolling interest. Results of product line included
for period prior to its April 3, 2017 sale by the Company.
18
Results of Operations
Revenue and Operating Profit by Segment are as follows:
Fiscal 2017
Industrial Materials
Construction Materials
Fiscal 2016
Industrial Materials
Construction Materials
Fiscal 2015
Industrial Materials
Construction Materials
Income Before
% of
Revenue
Income Taxes
Revenue
(Dollars in thousands)
$
$
202,956 $
49,604
252,560
Less corporate and common costs
Income before income taxes
$
$
$
181,728 $
56,366
238,094
Less corporate and common costs
Income before income taxes
$
$
$
176,547 $
61,499
238,046
Less corporate and common costs
Income before income taxes
$
67,561 (a)
18,205
85,766
(24,874)(b)
60,892
53,530 (c)
19,967
73,497
(23,387)(d)
50,110
46,388 (e)
17,272
63,660
(22,434)(f)
41,226
33 %
37 %
34 %
29 %
35 %
31 %
26 %
28 %
27 %
(a) Includes a $2,013 gain on sale of our fiber optic cable components business and $190 of expenses related to
inventory step-up in fair value attributable to the September 2016 acquisition of certain assets of Resin Designs
(b) Includes $584 in acquisition-related expenses attributable to the September 2016 acquisition of certain assets of
Resin Designs, facility exit and demolition costs of $70 related to the Company’s Randolph, MA location, a
$792 gain related to the November 2016 sale of the Company’s Paterson, NJ location, a $68 gain related to the
December 2016 sale of the Company’s former corporate headquarters in Bridgewater, MA and $14 of pension-
related settlement costs due to the timing of lump sum distributions
(c) Includes a $1,031 gain on sale of our RodPack wind energy business contained within our structural composites
product line and a $365 write-down on certain other structural composites assets based on usage constraints
following the sale, both recognized in November 2015
(d) Includes $935 in Randolph, MA facility exit and demolition costs, a $877 gain on the write-down of an annuity
and $13 of pension-related settlement costs due to the timing of lump sum distributions
(e) Includes $65 of expense related to inventory step-up in fair value related to the January 2015 acquisition of the
specialty chemical intermediates product line
(f) Includes $584 in expenses related to the January 2015 acquisition of the specialty chemical intermediates
product line and $188 of pension-related settlement costs due to the timing of lump sum distributions
Total Revenue
Total revenue in fiscal 2017 increased $14,466,000 or 6% to $252,560,000 from $238,094,000 in the prior year.
Revenue in our Industrial Materials segment increased $21,228,000 or 12% to $202,956,000 for the year ended August
31, 2017 compared to $181,728,000 in fiscal 2016. The increase in revenue from our Industrial Materials segment in
fiscal 2017 was primarily due to: (a) revenue from our electronic and industrial coatings product line, which included
sales of $14,868,000 related to the acquired Resin Designs operations, had total increases in revenue of $20,108,000,
19
reflecting increased sales volume from the automotive and appliance manufacturing industries, along with an increased
royalty received from our licensed manufacturer in Asia; (b) sales volume increase of $2,674,000 for our specialty
products, which, subsequent to the sale of our fiber optic cable components business on April 3, 2017, includes revenue
from the manufacturing services provided by the Company to the purchaser of the fiber optic cable components product
line (totaling $740,000 for fiscal 2017); (c) sales volume increase of $2,072,000 from our structural composite products,
on sales into the wind energy market; (d) sales volume increase of $1,056,000 from our pulling and detection products,
as we continue to meet the utility and telecommunication industries’ high demand for our products; (e) a sales volume
increase of $450,000 for our electronic materials; (f) sales growth of $321,000 for our cable materials products on strong
demand from manufacturers of communication and server cables in the third and fourth quarters of fiscal 2017; and (g)
our specialty chemical intermediates product line, which had $24,000 in increased sales volume. These increases were
partially offset by decreased sales of $5,477,000 from our fiber optic cable components product line, which the Company
sold in April. No revenue was recorded within the fiber optic cable components product line following its divestiture
early in the third quarter.
Revenue from our Construction Materials segment decreased $6,762,000 or 12% to $49,604,000 for the year ended
August 31, 2017 compared to $56,366,000 for fiscal 2016. The decreased sales from our Construction Materials
segment in fiscal 2017 was primarily due to a net decrease in sales volume of $7,409,000 in pipeline coatings products.
Delayed project work and general weakness in the region has continued to affect Middle East water infrastructure project
demand for pipeline coatings products produced at our Rye, U.K. facility. Conversely, sales for our domestically
produced pipeline products, which sell predominantly into the North American oil and gas markets, increased compared
to the prior year. Our building envelope products saw a year-over-year sales volume decrease of $382,000. Partially
offsetting the overall decrease in sales for the segment, were: (a) a $974,00 increase in our bridge and highway products
sales volume, resulting from increased bridge work in the New York metro region; and (b) coating and lining systems
products, whose sales volume increased by $55,000 over the prior year.
Royalties and commissions in the Industrial Materials segment were $4,683,000, $3,644,000 and $3,156,000 for the
years ended August 31, 2017, 2016 and 2015, respectively. The increase in royalties and commissions in fiscal 2017
over both fiscal 2016 and 2015 was primarily due to increased sales of electronic and industrial coatings products by our
licensed manufacturer in Asia.
Export sales from domestic operations to unaffiliated third parties were $36,719,000, $28,826,000 and $27,955,000 for
the years ended August 31, 2017, 2016 and 2015, respectively. The increase in export sales in fiscal 2017 against both
fiscal 2016 and 2015 resulted from increased export sales into China, and certain European countries.
In fiscal 2016, total revenue increased $48,000 or less than one percent to $238,094,000 from $238,046,000 in the prior
year. Revenue in our Industrial Materials segment increased $5,181,000 or 3% to $181,728,000 for the year ended
August 31, 2016 compared to $176,547,000 in fiscal 2015. The increase in revenue from our Industrial Materials
segment in fiscal 2016 was primarily due to: (a) increased sales volume of specialty chemical intermediates products
totaling $7,755,000, aided by a full year of operations in fiscal 2016; (b) increased sales volume of $3,356,000 from our
pulling and detection products, which continued to experience increased demand in product volume by the utility and
telecom industries; and (c) $574,000 in increased sales volume from our electronic and industrial coatings product line,
primarily due to a higher rate of acceptance and use in the automotive and appliance industries. These increases were
partially offset by decreased sales of $4,077,000 from our cable materials products, reflecting a decrease in demand for
products with exposure to energy-related markets (inclusive of the oil exploration and mining markets), as well as lower
sales volume of $1,744,000 from our fiber optic cable components product line. Revenue from our Construction
Materials segment decreased $5,133,000 or 8% to $56,366,000 for the year ended August 31, 2016 compared to
$61,499,000 for fiscal 2015. The decreased sales from our Construction Materials segment in fiscal 2016 was primarily
due to a decrease in sales volume of $7,708,000 in pipeline coatings products. The anticipated slowdown in Middle East
water infrastructure project demand, for products produced at our Rye, UK facility, drove the majority of this decrease,
while domestic pipeline coatings sales, which have a largely repair and maintenance focus, had a more tempered year-
over-year decease. Partially offsetting the overall decrease in sales for the segment, were: (a) a $1,793,000 year-over-
year increase in our coating and lining systems products sales volume, resulting from increased market acceptance and
project demand; and (b) bridge and highway products, which capitalized on the weather-lengthened road construction
seasons to obtain a $1,193,000 year-over-year sales volume increase.
20
Cost of Products and Services Sold
Cost of products and services sold increased $1,598,000 or 1% to $146,036,000 for the fiscal year ended August 31,
2017 compared to $144,438,000 in fiscal 2016. As a percentage of revenue, cost of products and services sold decreased
to 58% in fiscal 2017 compared to 61% for fiscal 2016.
The following table summarizes the relative percentages of cost of products and services sold to revenue for both of our
operating segments:
Cost of products and services sold
Industrial Materials
Construction Materials
Total
Fiscal Years Ended August 31,
2015
2016
2017
59 %
54 %
58 %
61 %
59 %
61 %
63 %
63 %
63 %
Cost of products and services sold in our Industrial Materials segment was $119,109,000 for the fiscal year ended
August 31, 2017 compared to $111,424,000 in fiscal 2016. As a percentage of revenue, cost of products and services
sold in this segment decreased to 59% for fiscal 2017 compared to 61% in fiscal 2016. Cost of products and services sold
in our Construction Materials segment was $26,927,000 for the fiscal year ended August 31, 2017 compared to
$33,014,000 in fiscal 2016. As a percentage of revenue, cost of products and services sold in this segment decreased to
54% in fiscal 2017 compared to 59% for fiscal 2016. As a percentage of revenue, cost of products and services sold in
both segments decreased primarily due to product mix, as our lower margin products constituted a comparatively lower
portion of total sales in the current year. We purchase a wide variety of commodity items, including petroleum-based
solvents, films, yarns, and nonwovens, along with base metals (aluminum and copper), as well as many other substrates.
To facilitate continued improvement in margins, we closely monitor the pricing of our commodities-based raw materials
across all product lines, as their price volatility can have short and long-term effects on both our customers’ demand for
our products and the margins at which we are able to sell them.
In fiscal 2016, cost of products and services sold in our Industrial Materials segment was $111,424,000 compared to
$110,729,000 in fiscal 2015. As a percentage of revenue, cost of products and services sold in this segment decreased to
61% for fiscal 2016 compared to 63% in fiscal 2015. Cost of products and services sold in our Construction Materials
segment was $33,014,000 for the fiscal year ended August 31, 2016 compared to $38,473,000 in fiscal 2015. As a
percentage of revenue, cost of products and services sold in this segment decreased to 59% in fiscal 2016 compared to
63% for fiscal 2015. As a percentage of revenue, cost of products and services sold in both segments decreased
primarily due to product mix as we had decreased sales volume from our lower margin products within the segments.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3,162,000 or 7% to $47,736,000 during fiscal 2017 compared to
$44,574,000 in fiscal 2016. As a percentage of revenue, selling, general and administrative expenses were consistent at
19% of total revenue in both fiscal 2017 and fiscal 2016. The year-over-year increase in expenses is primarily
attributable to: (a) increased amortization expense of $1,291,000, primarily related to intangible assets acquired in our
September 30, 2016 acquisition of certain assets of Resin Designs; (b) increased research and development expense of
$904,000, principally related to the current year addition of the established research and development department of
Resin Designs; (c) increase of $879,000 in stock-based compensation expenses; and (d) the prior year $877,000 gain on
the write-down of an annuity previously owed to a related party which did not recur in fiscal 2017. Partially offsetting
these increases was a $1,200,000 reduction in cash incentive compensation expense, predominantly based on the current
year change in our Executive Chairman’s compensation plan; our Executive Chairman continued in his role as a director
and the Chairman of the Board of Directors in fiscal 2017. The Company continues to closely monitor spend with an
emphasis on controlling costs, and leveraging existing resources.
During fiscal 2016, selling, general and administrative expenses decreased $1,411,000 or 3% to $44,574,000 compared
to $46,015,000 in fiscal 2015. As a percentage of revenue, selling, general and administrative expenses were consistent
at 19% of total revenue in both fiscal 2016 and fiscal 2015. The year-over-year decrease in expenses is primarily
21
attributable to: (a) decreased international sales commission expenses of $938,000 over the prior year, due to a
commission structure change relating to sales in certain geographic regions in the current year; (b) a $877,000 gain on
the write-down of an annuity previously owed to a related party; and (c) decreased pension costs of $228,000 in the
current year against the prior year, given lower settlement loss charges recognized in the current year. These decreases in
cost were partially offset by increased amortization expense on acquired intangible assets of $1,074,000 for the year,
primarily attributable to the specialty chemical intermediates product line acquisition in the second quarter of fiscal
2015.
Exit Costs Related to Idle Facility
In fiscal 2017 and 2016, the Company recognized $70,000 and $935,000, respectively, in expenses to raze its Randolph,
MA facility, which has been idle regarding production for several years. The Company began marketing the site for sale
and reclassified the net book value of the facility to assets held for sale during the second quarter of fiscal 2016. These
actions were taken as part of the Company’s on-going facility consolidation and rationalization initiative. The Company
substantially completed the demolition of the structure in the fourth fiscal quarter of 2016, and completed other
environmental aspects of the project during fiscal 2017. The sale of the property is anticipated to follow in a subsequent
period, and any future expenses related to the project are not anticipated to be material.
Acquisition-Related Costs
In fiscal 2017, the Company incurred $584,000 of costs related to our acquisition of certain assets of Resin Designs.
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
during the year ended August 31, 2017.
In fiscal 2015, the Company incurred $584,000 of costs related to our acquisition of the specialty chemical intermediates
product line. This acquisition was accounted for as a business combination in accordance with applicable accounting
standards, and as such all related professional service fees (including banking, legal, accounting, and actuarial fees) were
expensed as incurred during the year ended August 31, 2015.
Write-down of Certain Assets Under Construction
In fiscal 2016, the Company recorded a $365,000 charge related to the full write-down of certain structural composites
tangible assets (construction in progress) located in its Granite Falls, NC facility. The fiscal 2016 sale of our RodPack
wind energy business (and related intangible assets), contained within the structural composites product line, placed a
limitation on the Company’s ability to sell certain other goods produced for the same product line, resulting in our
determination to fully write-down certain assets under construction during the year.
Interest Expense
Interest expense decreased $215,000 or 20% to $839,000 in fiscal 2017 compared to $1,054,000 in fiscal 2016. Interest
expense decreased $9,000 or 1% to $1,054,000 in fiscal 2016 compared to $1,063,000 in fiscal 2015. The continued
decrease in interest expense is a result of the reduction in our overall average debt balance through principal payments
prior to the Company’s refinancing in December 2016, and elective payments following the refinancing, made from cash
provided by operations. As of August 31, 2017, there was no outstanding balance of the Company’s $150,000,000
revolving debt facility.
22
Gain on Sale of Real Estate
In November 2016, the Company finalized the sale of its Paterson, NJ property for proceeds of $1,382,000. This
transaction resulted in a gain of $792,000 which was recorded during the year ended August 31, 2017. The Company had
previously reclassified the related long-lived assets to assets held for sale after committing to a plan in February 2016 to
actively market the property. The assets held for sale had previously been reported within Corporate and Common assets.
In October 2016, Chase entered an agreement to sell its former corporate headquarters and executive offices in
Bridgewater, MA. In December 2016, the sale was finalized for gross proceeds of $740,000, resulting in a gain on sale of
$68,000 recognized during the year ended August 31, 2017.
Gain on Sale of Businesses
On April 3, 2017, Chase executed an agreement with an unrelated party to sell all inventory, machinery and equipment
and intangible assets of its fiber optic cable components product line for proceeds of $3,858,000, net of transaction costs
and following certain working capital adjustments. The fiber optic cable components product line had been a part of our
Industrial Materials segment. Given its low-growth and low-margin prospects, and a customer, supplier and equipment
base separate from our other businesses, the product line was determined to not be part of Chase’s long-term strategy.
The resulting pre-tax gain on sale of $2,013,000 was recognized during the year ended August 31, 2017. Further, the
purchaser entered a multiyear lease for a portion of the manufacturing space at the Company’s Granite Falls, NC facility.
Chase will provide ongoing manufacturing and administrative support to the purchaser for which the Company will
receive additional consideration upon the performance of services.
In the first quarter of fiscal 2016, the Company sold the RodPack wind energy business formerly contained within its
structural composites product line, part of the Industrial Materials segment. This transaction resulted in a pre-tax book
gain of $1,031,000, which was recorded in fiscal 2016. The Company will provide ongoing development support to the
buyer for which it will receive additional consideration upon the completion of services.
Other Income (Expense)
Other income was $724,000 in fiscal 2017 compared to other income of $2,351,000 in fiscal 2016, a decrease of
$1,627,000. Other income (expense) primarily includes interest income, rental income, 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 and other non-trade/non-royalty- and non-commission-related receipts. Other income
(expense) in the current year was largely net foreign exchange gains resulting from sales made from our U.K.-based
operations and denominated in U.S. dollars and euros. British Pound Sterling exchange volatility was lower in the
current year than that observed in the prior year, ultimately resulting in lower net foreign exchange gains recognized.
Also included in fiscal 2017 was a $300,000 gain on the settlement of a claim and the release of an escrow related to a
prior acquisition.
Other income was $2,351,000 in fiscal 2016 compared to other income of $44,000 in fiscal 2015, an increase of
$2,307,000. Other income in 2016 was primarily the result of sales made from our U.K.-based operations but
denominated in either U.S. dollars or euros. This income was most predominantly observed in our fourth fiscal quarter of
2016, following the June 23, 2016 referendum by British voters to exit the European Union (“Brexit”), which impacted
global currency markets and resulted in a decline in the value of the British pound, as compared to the U.S. dollar and
euro.
23
Income Taxes
Our effective tax rate for fiscal 2017 was 31.0% as compared to 34.5% and 35.9% in fiscal 2016 and 2015,
respectively. The current year effective tax rate was affected by the Company’s fiscal 2017 adoption of ASU No. 2016-
09, “Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting.”
During fiscal 2017, the Company recognized an excess tax benefit from stock-based compensation of $1,917,000, within
income tax expense on the consolidated statements of operations (adopted prospectively). The Company anticipates the
potential for increased periodic volatility in future effective tax rates based on the continued application of ASU No.
2016-09. Additionally, in all three years we have received the benefit of the domestic production deduction.
Noncontrolling Interest
The income from noncontrolling interest relates to a joint venture in which we had, prior to October 2014, a 50%
controlling ownership interest. We acquired the 50% outstanding noncontrolling membership interest in October 2014
(the first quarter of fiscal 2015). The joint venture between the Company and its now-former joint venture partner (an
otherwise unrelated party) was managed and operated on a day-to-day basis by the Company.
Net Income Attributable to Chase Corporation
Net income attributable to Chase Corporation in fiscal 2017 increased $9,207,000 or 28% to $42,014,000 compared to
$32,807,000 in fiscal 2016. The increase in net income in 2017 was primarily due to: (a) an increased sales volume,
including increases in revenue and earnings provided by the acquired operations of Resin Designs; (b) gains on the sales
of our fiber optic cable components product line and our Paterson, NJ and Bridgewater, MA real estate; and (c) the
recognition of excess tax benefit related to our early adoption of ASU No. 2016-09. These gains were partially offset by
increased amortization expense recognized related to our September 30, 2016 acquisition of certain assets of Resin
Designs.
Net income attributable to Chase Corporation in fiscal 2016 increased $6,489,000 or 25% to $32,807,000 compared to
$26,318,000 in fiscal 2015. The increase in net income in 2016 was primarily due to: (a) an improved gross margin
based on sales mix, including increases in revenue and earnings provided by the specialty chemical intermediates
product line which we acquired in the second quarter of fiscal 2015; (b) foreign exchange transaction gains recognized in
other income (expense); and (c) a gain on the sale of our RodPack wind energy business in November 2015.
Other Important Performance Measures
We believe that EBITDA, Adjusted EBITDA and Free Cash Flow are useful performance measures. They are used by
our executive management team to measure operating performance, to allocate resources, to evaluate the effectiveness of
our business strategies and to communicate with our Board of Directors and investors concerning our financial
performance. The Company believes EBITDA, Adjusted EBITDA and Free Cash Flow are commonly used by financial
analysts and others in the industries in which the Company operates and thus provide useful information to investors.
EBITDA, Adjusted EBITDA and Free Cash Flow are non-GAAP financial measures.
We define EBITDA as net income attributable to Chase Corporation before interest expense from borrowings, income
tax expense, depreciation expense from fixed assets, and amortization expense from intangible assets. We define
Adjusted EBITDA as EBITDA excluding costs and (gains) losses related to our acquisitions and divestitures, costs of
products sold related to inventory step-up to fair value, settlement (gains) losses resulting from lump sum distributions to
participants from our defined benefit plans, and other significant items. We define Free Cash Flow as net cash provided
by operating activities less purchases of property, plant and equipment.
24
The use of EBITDA, Adjusted EBITDA and Free Cash Flow has limitations and these performance measures should not
be considered in isolation from, or as an alternative to, U.S. GAAP measures such as net income attributable to Chase
Corporation and net cash provided by operating activities. None of these measures should be interpreted as representing
the residual cash flow of the Company available for discretionary expenditures or to invest in the growth of our business,
since we have certain non-discretionary expenditures that are not deducted from these measures, including scheduled
principal and (in the case of Free Cash Flow) interest payments on outstanding debt. Our measurement of EBITDA,
Adjusted EBITDA and Free Cash Flow may not be comparable to similarly-titled measures used by other companies.
The following table provides a reconciliation of net income attributable to Chase Corporation, the most directly
comparable financial measure presented in accordance with U.S. GAAP, to EBITDA and Adjusted EBITDA for the
periods presented (dollars in thousands):
Net income
Interest expense
Income taxes
Depreciation expense
Amortization expense
EBITDA
$
$
Gain on sale of businesses (a)
Exit costs related to idle facility (b)
Gain on sale of real estate (c)
Cost of sale of inventory step-up (d)
Acquisition-related costs (e)
Pension settlement costs (f)
Annuity settlement (g)
Write-down of certain assets under construction (h)
Adjusted EBITDA
$
2017
Years Ended August 31,
2016
2015
42,014 $
839
18,878
5,130
9,127
75,988 $
(2,013)
70
(860)
190
584
14
—
—
73,973 $
$
32,807
1,054
17,303
5,606
7,836
64,606 $
(1,031)
935
—
—
—
13
(877)
365
64,011 $
26,318
1,063
14,813
5,810
6,762
54,766
—
—
—
65
584
188
—
—
55,603
(a) Represents gain on sale of the fiber optic cable components product line that was completed April 2017 (fiscal 2017)
and the RodPack wind energy business contained within the structural composites product line that was completed
in November 2015 (fiscal 2016)
(b) Represents Randolph, MA facility exit and demolition costs incurred
(c) Represents gain on November 2016 sale of the Company’s Paterson, NJ location, and December 2016 sale of the
Company’s former corporate headquarters in Bridgewater, MA
(d) Represents expenses related to inventory step-up in fair value related to the September 2017 acquisition of certain
assets of Resin Designs and the January 2015 acquisition of the specialty chemical intermediates product line
(e) Represents costs related to the September 2017 acquisition of certain assets of Resin Designs and the January 2015
acquisition of the specialty chemical intermediates product line
(f) Represents pension-related settlement costs due to the timing of lump sum distributions
(g) Represents the gain recognized on write-down of an accrued annuity previously owed by the Company
(h) Represents a write-down of certain structural composites assets under construction based on usage constraints
recognized following the sale of the RodPack wind energy business in November 2015
The following table provides a reconciliation of net cash provided by operating activities, the most directly comparable
financial measure presented in accordance with U.S. GAAP, to Free Cash Flow for the periods presented (dollars in
thousands):
Net cash provided by operating activities
Purchases of property, plant and equipment
Free Cash Flow
$
$
2017
Years Ended August 31,
2016
51,932 $
(3,199)
48,733 $
$
48,833
(2,046)
46,787 $
2015
40,959
(2,642)
38,317
25
The following table provides a summary of net cash used in investing activities and financing activities, presented in
accordance with U.S. GAAP, for the periods presented (dollars in thousands):
Net cash used in investing activities
Net cash used in financing activities
Liquidity and Sources of Capital
2017
Years Ended August 31,
2016
$
$
(25,102) $
(52,796) $
(612)
(15,299)
$
$
2015
(35,713)
(13,498)
Our cash balance decreased $26,057,000 to $47,354,000 at August 31, 2017 from $73,411,000 at August 31, 2016. The
decreased cash balance is primarily attributable to: (a) the repayment of $43,400,000 of debt principal, (b) the
$30,270,000 in net cash paid for the September 2016 acquisition of certain assets of Resin Designs, LLC; and (c) the
payment of our annual dividend totaling $6,532,000. The overall decrease was positively impacted by: (a) cash from
operations of $51,932,000; (b) cash proceeds from the sale of our fiber optic cable components product line of
$3,458,000; (c) cash proceeds from the sale of our Paterson, NJ and Bridgewater, MA real estate totaling $2,122,000;
and (d) cash reimbursement related to the release of claims to a life insurance policy of $1,504,000. Of the above noted
amounts, $31,756,000 and $27,550,000 were held outside the U.S. by Chase Corporation and our foreign subsidiaries as
of August 31, 2017 and 2016, respectively. Given our cash position and borrowing capability in the U.S. and the
potential for increased investment and acquisitions in foreign jurisdictions, we do not have a history of repatriating a
significant portion of our foreign cash. However, we do not currently take the position that undistributed foreign
subsidiaries’ earnings are considered to be permanently reinvested. Accordingly, we recognize a deferred tax liability
for the estimated future tax effects attributable to temporary differences due to these unremitted earnings. In the event
that circumstances should change in the future and we decide to repatriate these foreign amounts to fund U.S. operations,
the Company would pay the applicable U.S. taxes on these repatriated foreign amounts, less any tax credit offsets, to
satisfy all previously recorded tax liabilities.
Our cash balance increased $29,592,000 to $73,411,000 at August 31, 2016 from $43,819,000 at August 31, 2015. The
increased cash balance was primarily attributable to cash from operations, the sale of the RodPack wind energy business
and proceeds from the cash surrender value of a life insurance policy. The overall increase was negatively impacted by:
(a) principal payments made on our term debt; (b) payment of the annual dividend in December 2015; (c) cash paid for
purchases of machinery and equipment at our manufacturing locations; and (d) cash paid for our acquisition of Spray
Products (India) Private Limited (renamed HumiSeal India Private Limited in December 2016).
Cash provided by operations was $51,932,000 for the year ended August 31, 2017 compared to $48,833,000 in fiscal
2016. Cash provided by operations during fiscal 2017 was primarily due to operating income and increased accounts
payable. Increased accounts payable resulted from the timing of payments. Partially offsetting the overall amount of cash
provided by operations were increased accounts receivable (based on increased fourth quarter sales) and decreased
accrued compensation and other expenses (based on certain payouts from the Company’s non-qualified deferred savings
plan in fiscal 2017 totaling $1,131,000).
Cash provided by operations was $48,833,000 for the year ended August 31, 2016 compared to $40,959,000 in fiscal
2015. Cash provided by operations during fiscal 2016 was primarily due to operating income and decreased accounts
receivable and inventories. Decreased accounts receivable resulted from lower international sales in the fourth quarter of
fiscal 2016, which customarily have longer collection terms, while decreased inventory was a result of the enhanced
inventory management control the Company is exercising through the use of its companywide ERP system, whose
rollout was substantially completed in fiscal 2015. Partially offsetting the overall amount of cash provided by operations
was a decrease in accounts payable, a direct result of the Company maintaining a lower inventory balance.
The ratio of current assets to current liabilities was 4.2 as of August 31, 2017 compared to 2.0 as of August 31, 2016.
The increase in our current ratio in fiscal 2017 was primarily attributable to the classification of our debt as current at
August 31, 2016 (total balance of $43,400,000) prior to our entry into the New Credit Agreement (defined below) in
December 2016, which we eventually paid down during fiscal 2017. This was partially offset by the $26,057,000
decrease in cash and cash equivalents during fiscal 2017.
26
Cash used in investing activities was $25,102,000 for the year ended August 31, 2017 compared to $612,000 in fiscal
2016. During fiscal 2017, cash used in investing activities was primarily due to our acquisition of certain assets of Resin
Designs, LLC in September 2016, in addition to cash paid for purchases of machinery and equipment at our
manufacturing locations. These uses were partially offset by cash received from the sale of our fiber optic cable
components business and both our Paterson, NJ location and our former corporate headquarters in Bridgewater, MA, as
well as in relation to a life insurance policy.
During fiscal 2016, cash used in investing activities was $612,000 compared to $35,713,000 in fiscal 2015. During
fiscal 2016, cash used in investing activities was primarily due to the acquisition of the Spray Products (India) Private
Limited business (renamed HumiSeal India Private Limited in December 2016), in addition to cash paid for purchases of
machinery and equipment at our manufacturing locations. These uses were partially offset by cash received from both
the sale of our RodPack wind energy business and in relation to a life insurance policy.
Cash used in financing activities was $52,796,000 for the year ended August 31, 2017 compared to $15,299,000 in fiscal
2016 and $13,498,000 in fiscal 2015. During fiscal 2017, 2016 and 2015, cash used in financing activities was primarily
due to our annual dividend payment, payments made on the term debt used to finance our fiscal 2012 acquisition of
NEPTCO, described in more detail below, and, after December 15, 2016, payments made on the Company’s new
revolving credit facility, described in more detail below
On October 30, 2017, we announced a cash dividend of $0.80 per share (totaling approximately $7,490,000) to
shareholders of record on November 9, 2017 and payable on December 6, 2017.
On November 1, 2016, we announced a cash dividend of $0.70 per share (resulting in payment of $6,532,000) to
shareholders of record on November 11, 2016 and payable on December 7, 2016.
On October 28, 2015, we announced a cash dividend of $0.65 per share (resulting in payment of $5,999,000) to
shareholders of record on November 9, 2015 and paid on December 4, 2015.
In June 2012, in connection with our acquisition of NEPTCO, we borrowed $70,000,000 under a five-year term debt
financing arrangement led and arranged by Bank of America, with participation from RBS Citizens (the “2012 Credit
Facility”). The applicable interest rate was based on the effective LIBOR plus an additional amount in the range of
1.75% to 2.25%, depending on our consolidated leverage ratio. The 2012 Credit Facility required repayment of the
principal amount of the term loan in quarterly installments. Installment payments of $1,400,000 began in September
2012 and continued through June 2014, increased to $1,750,000 per quarter thereafter through June 2015, and increased
to $2,100,000 per quarter thereafter, and were scheduled to continue at this amount through March 2017. The 2012
Credit Facility had a scheduled maturity date of June 27, 2017, prior to the refinancing described below.
Under the 2012 Credit Facility, Chase also had a revolving line of credit with Bank of America (the “2012 Revolver”)
totaling $15,000,000, which bore interest at LIBOR plus an additional amount in the range of 1.75% to 2.25%,
depending on our consolidated leverage ratio, or, at our option, at the bank’s base lending rate. As of December 15,
2016 (the date on which the New Credit Agreement was entered into), the entire amount of $15,000,000 was available
for use. The 2012 Revolver had a scheduled maturity date of June 27, 2017 prior to its refinancing.
The 2012 Credit Facility with Bank of America contained customary affirmative and negative covenants that, among
other things, restricted our ability to incur additional indebtedness. It also required us to maintain a ratio of consolidated
indebtedness to consolidated EBITDA (each as defined in the facility) of no more than 3.00 to 1.00, and to maintain a
consolidated fixed charge coverage ratio (as calculated in the facility) of at least 1.25 to 1.00. We were in compliance
with our debt covenants of the 2012 Credit Facility as of November 30, 2016 (the last measurement date for the 2012
Credit Facility).
On December 15, 2016, we entered an Amended and Restated Credit Agreement (the “New 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 New Credit Agreement is initially an all-revolving credit
27
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 New 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, 2017. The applicable
interest rate for the New 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
August 31, 2017, there was no outstanding principal balance, and as such no applicable interest rate. The New Credit
Agreement was used to refinance our previously existing term loan and revolving line of credit, and also provides for
additional liquidity to finance potential acquisitions, working capital, capital expenditures, and other general corporate
purposes.
We have several on-going capital projects, as well as our facility rationalization and consolidation initiative, which are
important to our long-term strategic goals. Further, machinery and equipment will be added as needed to increase
capacity or enhance operating efficiencies in our other manufacturing plants.
During fiscal 2017, we finalized the sale of both our Paterson, NJ and Bridgewater, MA real estate and entered the final
stages of razing our location in Randolph, MA, in preparation for its eventual sale. All these actions were done as part of
our continued facility rationalization and consolidation plan.
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 New 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.
Contractual Obligations
The following table summarizes our contractual cash obligations at August 31, 2017 and the effect such obligations are
expected to have on our liquidity and cash flow in future periods (dollars in thousands):
Contractual Obligations
Operating leases
Purchase obligations
Total (1) (2)
Total
$ 10,306 $
10,344
$ 20,650 $
Payments Due
Less than 1 Year 1 - 3 Years
1,623 $
10,344
11,967 $
3,127 $
—
3,127 $
2,415 $
—
2,415 $
3,141
—
3,141
Payments Due Payments Due Payments After
3 - 5 Years
5 Years
(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 $1,257,000 as of August 31, 2017 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, 2017, we had recognized an accrued benefit plan liability of $14,236,000 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.
28
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.
Critical Accounting Policies, Judgments, and Estimates
The U.S. Securities and Exchange Commission (“SEC”) requires companies to provide additional disclosure and
commentary on their most critical accounting policies. The SEC has defined the most critical accounting policies as the
ones that are most important to the portrayal of a company’s financial condition and operating results, and requires
management to make its most significant estimates and judgments in the preparation of its consolidated financial
statements. Our critical accounting policies are described below.
Accounts Receivable
We evaluate the collectability of accounts receivable balances based on a combination of factors. In cases where we are
aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to us, a specific
allowance against amounts due to us is recorded, and thereby reduces the net recognized receivable to the amount we
reasonably believe will be collected. For all other customers, we recognize allowances for doubtful accounts based on
the length of time the receivables are past due, industry and geographic concentrations, the current business environment
and our historical experience. If the financial condition of our customers deteriorates or if economic conditions worsen,
additional allowances may be required in the future, which could have an adverse impact on our future operating results.
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.
29
Goodwill, Intangible Assets, and Other Long-Lived Assets
Long-lived assets consist of goodwill, identifiable intangible assets, trademarks, patents and agreements and property,
plant, and equipment. Intangible assets and property, plant, and equipment, excluding goodwill, are amortized 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 ASU No. 2017-04 “Intangibles - Goodwill
and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment.” We 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
We recognize revenue when persuasive evidence of an arrangement exists, performance of our obligation is complete,
our price to the buyer is fixed or determinable, and we are reasonably assured of collecting. These four transaction
elements are typically met at the time of shipment or upon receipt by the customer based on contractual terms. If a loss
is anticipated on any contract, a provision for the entire loss is made immediately. Revenue recognition involves
judgments and assessments of expected returns, and the likelihood of nonpayment by customers. We analyze various
factors, including a review of specific customer contracts and shipment terms, historical experience, creditworthiness of
customers and current market and economic conditions in determining when to recognize revenue. Changes in
judgments on these factors could impact the timing and amount of revenue recognized with a resulting impact on the
timing and amount of operating income. For certain products, consigned inventory is maintained at customer locations,
and revenue is typically recognized in the period that the consigned inventory is consumed. Royalty revenue is
recognized based on licensee production statements received from the authorized manufacturers. Billed shipping and
handling fees are recorded as sales revenue with the associated costs recorded within cost of products and services sold.
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.
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.
30
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.
Historically, in determining the amount of expense to be recorded, we were required to estimate forfeiture rates for
awards, based on the probability that employees will complete the required service period. We estimated the forfeiture
rate based on historical experience. In fiscal 2017, we early adopted ASU No. 2016-09, “Compensation – Stock
Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting.” Following the adoption of
the new standard, the Company has 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 have another defined benefit pension plan covering substantially all
of our union employees at our Pawtucket, RI plant. This plan was frozen effective October 31, 2006, and as a result, no
new participants can enter the plan and the benefits of current participants were frozen as of that date. The benefits are
based on years of service and the employee’s average compensation during the earlier of five years before retirement, or
October 31, 2006.
We account for our pension plans following the requirements of ASC Topic 715, “Compensation – Retirement Benefits”
(“ASC 715”). ASC 715 requires an employer to: (a) recognize in its statement of financial position the funded status of a
benefit plan; (b) measure defined benefit plan assets and obligations as of the end of the employer’s fiscal year (with
limited exceptions); and (c) recognize as a component of other comprehensive income, net of tax, the gains or losses and
prior service costs or credits that arise but are not recognized as components of net periodic benefit costs pursuant to
prior existing guidance.
Impact of Inflation
Inflation has not had a significant long-term impact on our earnings. In the event of significant inflation, our efforts to
recover cost increases would be hampered as a result of the competitive nature of the industries in which we operate.
31
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We limit the amount of credit exposure to any one issuer. At August 31, 2017, 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 and the U.S. dollar would not have a material effect on the Company’s overall liquidity. As of August 31,
2017, the Company had cash balances in the following foreign currencies (with USD equivalents):
Currency Code
GBP
EUR
CNY
INR
CAD
Currency Name USD Equivalent at August 31, 2017
22,124,000
British Pound $
3,996,000
$
Euro
345,000
Chinese Yuan $
96,000
Indian Rupee $
87,000
Canadian Dollar $
We will continue to review our current cash balances denominated in foreign currency in light of current tax guidelines
and potential acquisitions.
We recognized a foreign currency translation gain for the year ended August 31, 2017 in the amount of $788,000 related
to our European and Indian operations, which is recorded in accumulated other comprehensive income (loss) within our
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. The carrying value of our long-term debt, including the current portion, was $0 at August 31, 2017. 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.
32
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:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of August 31, 2017 and 2016
Consolidated Statements of Operations for each of the three fiscal years in the period ended August 31, 2017
Consolidated Statements of Comprehensive Income for each of the three fiscal years in the period ended
August 31, 2017
Consolidated Statements of Equity for each of the three fiscal years in the period ended August 31, 2017
Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended August 31,
2017
Notes to Consolidated Financial Statements
Page No.
34
35
36
37
38
39
40
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Chase Corporation
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of
comprehensive income, of equity and of cash flows present fairly, in all material respects, the financial position of Chase
Corporation and its subsidiaries as of August 31, 2017 and 2016, and the results of their operations and their cash flows
for each of the three years in the period ended August 31, 2017 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of August 31, 2017, based on criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's management is responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements and on the Company's internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts
for stock-based compensation in 2017.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
November 9, 2017
34
CHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
In thousands, except share and per share amounts
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $456 and $830
Inventory
Prepaid expenses and other current assets
Due from sale of business
Assets held for sale
Total current assets
August 31,
2017
2016
$
$
47,354
38,051
25,618
3,098
—
14
114,135
73,411
34,835
25,814
3,728
457
604
138,849
Property, plant and equipment, less accumulated depreciation of $44,277 and $41,409
34,760
36,742
Other Assets
Goodwill
Intangible assets, less accumulated amortization of $42,206 and $33,352
Cash surrender value of life insurance, less current portion
Restricted investments
Funded pension plan
Deferred income taxes
Other assets
Total assets
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long-term debt
Accounts payable
Accrued payroll and other compensation
Accrued expenses
Accrued income taxes
Total current liabilities
Deferred compensation
Accumulated pension obligation
Other liabilities
Accrued income taxes
Deferred income taxes
Commitments and Contingencies (Notes 6, 8, 22)
Equity
$
$
$
$
50,784
46,846
4,530
964
566
1,614
539
254,738
—
14,455
6,500
4,052
2,333
27,340
979
12,666
1,567
1,257
—
43,576
36,580
4,530
1,637
382
441
82
262,819
43,400
12,352
6,553
3,892
2,317
68,514
1,649
15,563
328
1,229
1,447
First Serial Preferred Stock, $1.00 par value: Authorized 100,000 shares; none issued
Common stock, $.10 par value: Authorized 20,000,000 shares; 9,354,136 shares at August 31, 2017 and
9,278,486 shares at August 31, 2016 issued and outstanding
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total equity
Total liabilities and equity
$
—
—
935
14,060
(13,469)
209,403
210,929
254,738
$
928
14,719
(15,479)
173,921
174,089
262,819
See accompanying notes to the Consolidated Financial Statements.
35
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except share and per share amounts
Revenue
Sales
Royalties and commissions
Costs and Expenses
Cost of products and services sold
Selling, general and administrative expenses
Exit costs related to idle facility (Note 20)
Acquisition-related costs (Note 14)
Write-down of certain assets under construction (Note 18)
Operating income
Interest expense
Gain on sale of real estate (Note 19)
Gain on sale of businesses (Note 18)
Other income (expense)
Income before income taxes
Income taxes
Net income
Years Ended August 31,
2016
2015
2017
$
247,877 $
4,683
252,560
$
234,450
3,644
238,094
146,036
47,736
70
584
—
144,438
44,574
935
—
365
234,890
3,156
238,046
149,202
46,015
—
584
—
58,134
47,782
42,245
(839)
860
2,013
724
(1,054)
—
1,031
2,351
60,892
50,110
18,878
17,303
(1,063)
—
—
44
41,226
14,813
$
42,014 $
32,807
$
26,413
Add: net (income) loss attributable to noncontrolling interest
—
—
(95)
Net income
$
42,014 $
32,807
$
26,318
Net income available to common shareholders, per common and common equivalent share
(Note 17)
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
$
$
4.49 $
4.44 $
3.55
3.50
$
$
2.87
2.82
9,249,343
9,357,414
9,167,333
9,294,077
9,086,043
9,254,054
See accompanying notes to the Consolidated Financial Statements.
36
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands, except share and per share amounts
Net income
Other comprehensive income:
2017
Years Ended August 31,
2016
2015
$
42,014 $
32,807 $
26,413
Net unrealized gain (loss) on restricted investments, net of tax of $30, $4 and ($77),
respectively
Change in funded status of pension plans, net of tax of $519, ($738) and ($697),
respectively
Foreign currency translation adjustment
Total other comprehensive income (loss)
Comprehensive income
67
7
(162)
1,155
788
2,010
44,024
(1,402)
(6,098)
(7,493)
25,314
(1,149)
(2,425)
(3,736)
22,677
Comprehensive net (income) loss attributable to noncontrolling interest
—
—
(95)
Comprehensive income
$
44,024 $
25,314 $
22,582
See accompanying notes to the Consolidated Financial Statements.
37
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B
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Years Ended August 31,
2016
2017
2015
$
42,014
$
32,807
$
26,413
Gain on sale of real estate
Loss on write-down of certain assets under construction
Gain on sale of businesses
Depreciation
Amortization
Cost of sale of inventory step-up
Provision for (recovery of) allowance for doubtful accounts
Stock-based compensation
Realized gain on restricted investments
Decrease in cash surrender value of life insurance
Pension curtailment and settlement loss
Excess tax expense from stock-based compensation
Deferred taxes
Increase (decrease) from changes in assets and liabilities
Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable
Accrued compensation and other expenses
Accrued income taxes
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment
Cost to acquire intangible assets
Payments for acquisitions
Proceeds from sale of real estate
Net proceeds from sale of businesses
Decrease (increase) in restricted investments
Proceeds from settlement of life insurance policies
Payments for cash surrender value life insurance
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on debt
Payments of principal on debt
Dividend paid
Proceeds from exercise of common stock options
Payments of taxes on stock options and restricted stock
Excess tax benefit from stock-based compensation
Payment for acquisition of noncontrolling interest
Net cash used in financing activities
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
Effect of foreign exchange rates on cash
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
(860)
—
(2,013)
5,130
9,127
190
(359)
2,212
(127)
—
14
—
(2,263)
(1,003)
116
(878)
1,420
(825)
37
51,932
(3,199)
(71)
(30,270)
2,122
3,915
897
1,504
—
(25,102)
—
(43,400)
(6,532)
95
(2,959)
—
—
(52,796)
(25,966)
(91)
73,411
47,354
$
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365
(1,031)
5,606
7,836
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169
1,333
(67)
103
13
(1,784)
(2,590)
3,312
3,124
(475)
(2,821)
1,490
1,443
48,833
(2,046)
(64)
(1,161)
—
1,729
(149)
1,238
(159)
(612)
—
(8,400)
(5,999)
124
(2,808)
1,784
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(15,299)
32,922
(3,330)
43,819
73,411
$
—
—
—
5,810
6,762
65
57
1,120
(86)
326
188
(1,088)
(1,222)
(4,534)
2,284
388
687
(87)
3,876
40,959
(2,642)
(34)
(33,285)
—
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(308)
—
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(35,713)
2,000
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391
(2,000)
1,088
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(13,498)
(8,252)
(1,151)
53,222
43,819
See Note 13 for supplemental cash flow information including non-cash financing and investing activities
See accompanying notes to the Consolidated Financial Statements.
39
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 1—Summary of Significant Accounting Policies
The principal accounting policies of Chase Corporation (the “Company”) and its subsidiaries are as follows:
Products and Markets
Our principal products are specialty tapes, laminates, adhesives, sealants, coatings and chemical intermediates
that are sold by our salespeople, manufacturers' representatives and distributors. In our Industrial Materials segment,
these products consist of:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
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;
laminated film foils, including EMI/RFI shielding tapes, used in communication and local area
network (LAN) cables;
moisture protective coatings, which are sold to the electronics industry for circuitry manufacturing,
including circuitry used in automobiles and home appliances;
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;
pulling and detection tapes used in the installation, measurement and location of fiber optic cables,
water and natural gas lines, and power, data and video cables for commercial buildings;
cover tapes with reliable adhesive and anti-static properties essential to delivering semiconductor
components via tape and reel packaging;
(vii)
Advanced adhesives, sealants, and coatings for automotive and industrial applications that require
specialized bonding, encapsulating, environmental protection, or thermal management functionality;
(viii)
polymeric microspheres utilized by various industries to allow for weight and density reduction and
sound dampening;
(ix)
water-based polyurethane dispersions utilized for various coating products; and
(x)
composite strength elements utilized in wind energy generation.
In the Company’s Construction Materials segment, these products consist of:
(i)
(ii)
protective pipe coating tapes and other protectants for valves, regulators, casings, joints, metals,
concrete and wood, which are sold to oil companies, gas utilities, and pipeline companies for
utilization in both the construction and maintenance of oil and gas, water and wastewater pipelines;
waterproofing membranes for highway bridge deck metal supported surfaces, which are sold to
municipal transportation authorities, and high-performance polymeric asphalt additives;
(iii)
fluid applied coating and lining systems for use in the water and wastewater industry; and
40
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
(iv)
expansion and control joint systems designed for roads, bridges, stadiums and airport runways.
Basis of Presentation
The financial statements include the accounts of the Company and its wholly-owned subsidiaries. Investments
in unconsolidated companies which are at least 20% owned are carried under the equity method since acquisition or
investment. All intercompany transactions and balances have been eliminated in consolidation. The Company uses the
U.S. dollar as the functional currency for financial reporting. Certain reclassifications have been made to the prior year
amounts to conform to the current year’s presentation.
On April 3, 2017, Chase executed an agreement with an unrelated party to sell all inventory, machinery and
equipment and intangible assets of the Company’s fiber optic cable components product line for proceeds of $3,858 net
of transaction costs and following certain working capital adjustments. The resulting pre-tax gain on sale of $2,013 was
recognized in the third quarter of fiscal 2017 as gain on sale of businesses within the consolidated statement of
operations. Further, the purchaser entered a multiyear lease for a portion of the manufacturing space at the Company’s
Granite Falls, NC facility. Chase will provide ongoing manufacturing and administrative support to the purchaser for
which the Company will receive additional consideration upon the performance of services. The Company’s fiber optic
cable components product line was formerly a part of the Company’s Industrial Materials operating segment.
On September 30, 2016, the Company acquired certain assets of Resin Designs, LLC (“Resin Designs”), an
advanced adhesives and sealants manufacturer, with locations in Woburn, MA and Newark, CA. The business was
acquired for a purchase price of $30,270 after final working capital adjustments and excluding acquisition-related costs.
As part of this transaction, Chase acquired all working capital and fixed assets of the business, and entered multiyear
leases at both locations. The Company expensed $584 of acquisition-related costs during the first quarter of fiscal 2017
associated with this acquisition. The purchase was funded entirely with available cash on hand. Resin Designs is a
formulator of customized adhesive and sealant systems used in high-reliability electronic applications. The acquisition
broadens the Company’s adhesives and sealants product offering and manufacturing capabilities, and expands its market
reach. Since the effective date of the acquisition, the financial results of Resin Designs’ operations have been included in
the Company’s financial statements within the electronic and industrial coatings product line, contained within the
Industrial Materials operating segment. Purchase accounting was completed in the fourth quarter of fiscal 2017 with no
material adjustments made to the initial amounts recorded.
On June 23, 2016, the Company acquired all the capital stock of Spray Products (India) Private Limited for
$1,161, net of cash acquired. The acquired business works closely with our HumiSeal manufacturing operation in
Winnersh, Wokingham, England. The acquisition in India enhances the Company’s ability to provide technical, sales,
manufacturing, chemical handling, and packaging services in the region. Since the effective date for this acquisition, the
financial results of the business have been included in the Company's financial statements within the Company’s
Industrial Materials operating segment in the electronic and industrial coatings product line. Purchase accounting was
completed in the quarter ended August 31, 2016. Effective December 2016, Spray Products (India) Private Limited was
renamed HumiSeal India Private Limited.
In November 2015, the Company sold its RodPack® wind energy business, contained within its structural
composites product line, to an otherwise unrelated party for proceeds of $2,186. The Company’s structural composites
product line is a part of the Company’s Industrial Materials operating segment. The Company will provide ongoing
development support to the Buyer for which it will receive additional consideration upon the completion of services.
On January 30, 2015, the Company acquired two product lines from Henkel Corporation (the “Seller”) for a
purchase price of $33,285, after working capital adjustments and excluding any acquisition-related costs. As part of this
transaction, Chase acquired the Seller’s polymeric microspheres product line, sold under the Dualite® brand, located in
41
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Greenville, SC, and obtained exclusive distribution rights and intellectual property related to the Seller’s polyurethane
dispersions product line, operating in Elgin, IL. We refer to these collectively as our specialty chemical intermediates
product line. Under the agreement, Chase entered into a ten-year facility operating lease at the Seller’s Greenville, SC
location. The Seller will perform certain manufacturing and application services for Chase at the Seller’s Elgin, IL
location for three years following the acquisition. The purchase was funded entirely with available cash on hand. Since
the effective date of this acquisition, the financial results of the specialty chemical intermediates product line have been
included in the Company's financial statements within the Company’s Industrial Materials operating segment. Purchase
accounting was completed in the third quarter of fiscal 2015 with no material adjustments made to the initial amounts
recorded in the prior fiscal quarter.
As part of the Company’s purchase of NEPTCO in June 2012, it also acquired NEPTCO’s 50% ownership stake
in its financially controlled joint venture, NEPTCO JV LLC (the “JV”). Because of the Company’s controlling financial
interest, the JV’s assets, liabilities and results of operations have been consolidated within the Company’s Consolidated
Financial Statements since the date of acquisition. An offsetting amount equal to 50% of net assets and net (income) loss
of the JV was also recorded within the Company’s Consolidated Financial Statements to noncontrolling interest,
representing the joint venture partner’s 50% ownership stake and pro rata share in the net results of the JV. On
October 31, 2014, the Company purchased the 50% noncontrolling membership interest of the JV owned by its
otherwise unrelated joint venture partner. The Company continues to fully consolidate the assets, liabilities and results of
operations of the JV, but no longer records an offsetting amount for a noncontrolling interest after October 31, 2014. The
($95) recorded in the Consolidated Statement of Operations as Net (income) loss attributable to noncontrolling interest
for the year ended August 31, 2015, represents the now-former joint venture partner’s share of the results of operations
of the JV for the period from September 1, 2014 through October 31, 2014.
The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this
evaluation, and other than the cash dividend announced on October 30, 2017 of $0.80 per share to shareholders of record
on November 9, 2017 payable on December 6, 2017, the Company is not aware of any other events or transactions that
occurred subsequent to the balance sheet date, but prior to filing, that would require recognition or disclosure in its
Consolidated Financial Statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of demand deposit accounts or investment instruments that meet
high credit quality standards such as money market funds, government securities, or commercial paper. The Company
considers all highly liquid debt instruments purchased with a maturity of three months or less from date of purchase to be
cash equivalents.
Accounts Receivable
The Company evaluates the collectability of accounts receivable balances based on a combination of factors. In
cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial
obligations to it, a specific allowance against amounts due to the Company is recorded, and thereby reduces the net
recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the
42
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, industry
and geographic factors, the current business environment and its historical experience. Receivables are written off
against these reserves in the period they are determined to be uncollectable.
Inventory
The Company values 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. The Company estimates
excess and obsolescence exposures based upon assumptions about future demand, product transitions and market
conditions, and records reserves to reduce inventories to their estimated net realizable value. The failure to accurately
forecast demand may lead to additional excess and obsolete inventory and future charges.
Goodwill
The Company accounts for goodwill in accordance with ASC Topic 350, “Intangibles — Goodwill and Other.”
The Company identified several reporting units within each of its two operating segments. These are used to evaluate the
possible impairment of goodwill annually each fourth quarter and whenever events or circumstances indicate the
carrying value of goodwill may not be recoverable. In fiscal 2017, the Company early adopted ASU No. 2017-04
“Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment.” We 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).
Intangible Assets
Intangible assets consist of patents, agreements, formulas, trade names, customer relationships and trademarks.
The Company capitalizes costs related to patent applications and technology agreements. The costs of these assets are
amortized over the lesser of the useful life of the asset or its statutory life. Capitalized costs are periodically reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the straight-line method over the assets’
estimated useful lives. Expenditures for maintenance repairs and minor renewals are charged to expense as incurred.
Betterments and major renewals are capitalized. Upon retirement or other disposition of assets, related allowances for
depreciation and amortization are eliminated from the accounts and any resulting gain or loss is included in the
determination of income or loss. The estimated useful lives of property, plant and equipment are as follows:
Buildings and improvements
Machinery and equipment
15 to 40 years
3 to 10 years
Leasehold improvements are depreciated over the lesser of the useful life or the term of the lease.
43
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Restricted Investments and Deferred Compensation
The Company has a non-qualified deferred savings plan that covers its Board of Directors and a separate plan
covering selected employees. Participants may elect to defer a portion of their compensation for payment in a future tax
year. The plans are funded by trusteed assets that are restricted to the payment of deferred compensation or satisfaction
of the Company’s general creditors. The Company’s restricted investments and corresponding deferred compensation
liability under the plans were $964 and $1,637 at August 31, 2017 and 2016, respectively. The Company accounts for the
restricted investments as available for sale by recording unrealized gains or losses in other comprehensive income as a
component of stockholders’ equity.
Split-Dollar Life Insurance Arrangements
The liability related to these postretirement benefits was calculated as the present value of future premiums to
be paid by the Company reduced by the present value of the expected proceeds to be returned to the Company upon the
insured’s death. For August 31, 2017 and 2016, the Company did not recognize a liability related to these postretirement
obligations as no future premium payments were anticipated.
Revenue
The Company recognizes revenue when persuasive evidence of an arrangement exists, performance of its
obligation is complete, its price to the buyer is fixed or determinable, and the Company is reasonably assured of
collecting. These four transaction elements are typically met at the time of shipment or upon receipt by the customer,
based on contractual terms. If a loss is anticipated on any contract, a provision for the entire loss is made immediately.
Revenue recognition involves judgments and assessments of expected returns, and the likelihood of nonpayment by
customers. The Company analyzes various factors, including a review of specific customer contracts and shipment terms,
historical experience, creditworthiness of customers and current market and economic conditions in determining when to
recognize revenue. Changes in judgments on these factors could impact the timing and amount of revenue recognized
with a resulting impact on the timing and amount of operating income. For certain products, consigned inventory is
maintained at customer locations, and revenue is typically recognized in the period that the consigned inventory is
consumed. Royalty revenue is recognized based on licensee production statements received from the authorized
manufacturers. Billed shipping and handling fees are recorded as sales revenue with the associated costs recorded within
cost of products and services sold.
The Company’s warranty policy provides that the products (or materials) delivered will meet its standard
specifications for the products or any other specifications as may be expressly agreed to at time of purchase. All warranty
claims must be received within 90 days from the date of delivery, unless some other period has been expressly agreed to
within the terms of the sales agreement. The Company’s warranty costs have historically been insignificant. The
Company records a current liability for estimated warranty claims with a corresponding charge to cost of products and
services sold based upon current and historical experience and upon specific claims issues as they arise.
In addition, the Company offers certain sales incentives based on sales levels as they are earned.
Research and Product Development Costs
Research and product development costs are expensed as incurred and include primarily engineering salaries,
overhead and materials used in connection with research and development projects. Research and development expense
amounted to $3,696, $2,792 and $2,690 for the years ended August 31, 2017, 2016 and 2015, respectively, and was
recorded within selling, general and administrative expenses.
44
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Pension Plan
The Company accounts for its pension plans following the requirements of ASC Topic 715, “Compensation —
Retirement Benefits” (“ASC 715”). ASC 715 requires an employer to: (a) recognize in its statement of financial position
the funded status of a benefit plan; (b) measure defined benefit plan assets and obligations as of the end of the
employer’s fiscal year (with limited exceptions); and (c) recognize as a component of other comprehensive income, net
of tax, the gains or losses and prior service costs or credits that arise but are not recognized as components of net
periodic benefit costs pursuant to prior existing guidance.
Stock-Based Compensation
In accordance with the accounting for stock-based compensation guidance, ASC Topic 718 “Compensation –
Stock Compensation” (“ASC 718”), the Company measures and recognizes compensation expense for all share-based
payment awards made to employees and directors based on estimated fair values. This includes restricted stock,
restricted stock units and stock options. The guidance allows for the continued use of the simplified method as the
Company has concluded that its historical share option exercise experience does not provide a reasonable basis for
estimating expected term.
Stock-based compensation expense recognized in fiscal years 2017, 2016 and 2015 was $2,212, $1,333 and
$1,120, respectively.
The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions for the years ending August 31, 2017, 2016 and 2015:
Expected dividend yield
Expected life
Expected volatility
Risk-free interest rate
2017
1.5 %
6.0 years
38.7 %
1.3 %
2016
1.7 %
6.0 years
41.2 %
1.7 %
2015
1.8 %
6.0 years
39.0 %
2.5 %
Expected volatility is determined by looking at a combination of historical volatility over the past six years as
well as implied future volatility.
Translation of Foreign Currency
The financial position and results of operations of the Company’s HumiSeal Europe Ltd and Chase Protective
Coatings Ltd businesses are measured using the British pound as the functional currency. The financial position and
results of operations of the Company’s HumiSeal Europe SARL business in France are measured using euros as the
functional currency. The financial position and results of the Company’s HumiSeal India Private Limited (formerly
Spray Products (India) Private Limited) business in India are measured using the Indian rupee as the functional currency.
The functional currency for all our other operations is the U.S. dollar. Revenue and expenses of these international
businesses have been translated at average exchange rates. Foreign currency translation gains and losses are determined
using current exchange rates for monetary items and historical exchange rates for other balance sheet items, and are
recorded as a change in other comprehensive income (a component of shareholders’ equity). Transaction gains and
losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional
currency of these international operations are included in other income (expense) on the consolidated statements of
operations and were $307, $2,152 and ($134) for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.
45
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, a deferred tax
asset or liability is determined based upon the differences between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Tax credits are
recorded as a reduction in income taxes. Valuation allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company estimates contingent income tax liabilities based on the guidance for accounting for uncertain tax
positions as prescribed in ASC Topic 740, “Income Taxes.” See Note 7 for more information on the Company’s income
taxes.
Net Income Per Share
The Company has unvested share-based payment awards with a right to receive nonforfeitable dividends, which
are considered participating securities under ASC Topic 260, “Earnings Per Share” (“ASC 260”). The Company
allocates earnings to participating securities and computes earnings per share using the two-class method.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources, including foreign currency translation
adjustments, unrealized gains and losses on marketable securities and adjustments related to the change in the funded
status of the pension plans.
Noncontrolling Interest
A legal entity is subject to the consolidation rules of ASC Topic 810, “Consolidations” (“ASC 810”) if the total
equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional
subordinated financial support or the equity investors lack certain specified characteristics of a controlling financial
interest. Based on the criteria in ASC 810, the Company determined that its joint venture agreement qualified as a
variable interest entity (“VIE”) prior to the purchase of its former joint venture partner’s 50% noncontrolling
membership interest. The purpose of the joint venture was to combine the elements of NEPTCO’s and the otherwise
unrelated joint venture partner’s fiber optic strength element businesses. Under ASC 810, a reporting entity shall
consolidate a VIE when that reporting entity has a variable interest (or combination of variable interests) that provides
the reporting entity with a controlling financial interest. The reporting entity shall be deemed to have a controlling
financial interest in a VIE if it has both of the following characteristics: a) the power to direct the activities of a VIE that
most significantly impact the VIE’s economic performance; and b) the obligation to absorb losses or right to receive
benefits from the VIE that could potentially be significant to the VIE. The reporting entity that consolidates a VIE is
called the “primary beneficiary” of that VIE. The Company determined that it was the primary beneficiary of the VIE
primarily due to Chase directing the activities that most significantly impact the VIE’s economic performance, which is
the actual management and operation of the joint venture and having the obligation to absorb losses and the right to
receive benefits from the VIE that could potentially be significant to the VIE through our equity investment in the VIE.
As a result, the Company has consolidated the operations of the joint venture in its Consolidated Financial Statements.
On October 31, 2014 (the first quarter of fiscal 2015), the Company purchased the 50% noncontrolling membership
interest of the JV owned by its joint venture partner, thus making the JV a wholly-owned entity.
46
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Segments
ASC Topic 280 “Segment Reporting” of the Financial Accounting Standards Board (“FASB”) codification
establishes standards for reporting information about operating segments. The Company is organized into two operating
segments, an Industrial Materials segment and a Construction Materials segment. The segments are distinguished by the
nature of the products we manufacture and how they are delivered to their respective markets.
The Industrial Materials segment includes specified products that are used in, or integrated into, another
company’s product, with demand typically dependent upon general economic conditions. Industrial Materials products
include insulating and conducting materials for wire and cable manufacturers, moisture protective coatings for
electronics, laminated durable papers, laminates for the packaging and industrial laminate markets, custom
manufacturing services, pulling and detection tapes used in the installation, measurement and location of fiber optic
cables and water and natural gas lines, cover tapes essential to delivering semiconductor components via tape and reel
packaging, composite materials and elements, polymeric microspheres, and polyurethane dispersions. Beginning June
23, 2016, and September 30, 2016, respectively, the Industrial Materials segment includes the acquired operations of
HumiSeal India Private Limited (formerly Spray Products (India) Private Limited) and of Resin Designs, LLC. Both
were obtained through acquisition and included in the Company’s electronic and industrial coatings product line. Prior to
the April 3, 2017 sale of the business, the segment’s products also included glass-based strength elements, designed to
allow fiber optic cables to withstand mechanical and environmental strain and stress.
The Construction Materials segment is principally composed of project-oriented product offerings that are
primarily sold and used as “Chase” branded products. Construction Materials products include protective coatings for
pipeline applications, coating and lining systems for use in liquid storage and containment 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.
Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with
Customers,” which will replace most of the existing revenue recognition guidance under U.S. GAAP. The core principle
of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it
expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant
judgments and changes in judgments. In March, April and May 2016, the FASB issued ASU 2016-08 “Principal versus
Agent Considerations (Reporting Revenue Gross versus Net),” ASU 2016-10 “Identifying Performance Obligations and
Licensing,” and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and
Practical Expedients” all of which provide further clarification to be considered when implementing ASU 2014-09. The
ASU will be effective for the Company beginning September 1, 2018 (fiscal 2019), including interim periods in its fiscal
year 2019, and allows for either retrospective or modified retrospective methods of adoption. The Company, which is in
the initial phase of its adoption plan, is in the process of determining the method of adoption and assessing the impact of
this ASU on the Company’s consolidated financial position, results of operations and cash flows; preliminary indications
are that Chase will utilize the modified retrospective method of adoption.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Under the new guidance, lessees will be
required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a)
a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis; and (b) a right-of-use asset, which represents the lessee’s right to use, or control the use of, a specified asset for the
lease term. Changes were made to align lessor accounting with the lessee accounting model and ASU No. 2014-09,
“Revenue from Contracts with Customers.” The ASU will be effective for the Company beginning September 1, 2019
(fiscal 2020). Early application is permitted. Lessees must apply a modified retrospective transition approach for leases
47
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.
The Company is currently evaluating the impact of the application of this ASU on our Consolidated Financial Statements
and disclosures thereto.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230).” This ASU provides
guidance on the presentation and classification of specific cash flow items to improve consistency within the statement
of cash flows. The effective date for adoption of this guidance will be our fiscal year beginning September 1, 2018 (fiscal
2019), with early adoption permitted. The Company is currently evaluating the effect that ASU No. 2016-15 will have on
its financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of
a Business.” The new guidance dictates that, when substantially all of the fair value of the gross assets acquired (or
disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, it should be treated as
an acquisition or disposal of an asset. The guidance will be effective for the fiscal year beginning on September 1, 2018
(fiscal 2019), including interim periods within that year, with early adoption permitted. The effect ASU No. 2017-01 will
have on the financial statements and related disclosures of the Company will be dependent on the nature of potential
future acquisitions and divestitures.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation — Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU applies to all
employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types
of benefits accounted for under Topic 715, Compensation — Retirement Benefits. The ASU requires that an employer
report the service cost component in the same line item or items as other compensation costs arising from services
rendered by the pertinent employees during the period. The other components of net benefit cost are required to be
presented in the income statement separately from the service cost component and outside a subtotal of income from
operations, if one is presented. If a separate line item or items are used to present the other components of net benefit
cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or
items used in the income statement to present the other components of net benefit cost must be disclosed. The ASU also
allows only the service cost component to be eligible for capitalization when applicable (e.g., as a cost of internally
manufactured inventory or a self-constructed asset). The required effective date for adoption of this guidance for the
Company will be our fiscal year beginning September 1, 2018 (fiscal 2019), including interim periods within that annual
period. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or
annual) have not been issued or made available for issuance. The Company is currently evaluating the effect that ASU
No. 2017-07 will have on its financial statements and related disclosures.
In May 2017, the FASB issued ASU No. 2017-09, "Scope of Modification Accounting." This ASU provides guidance
about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting in Topic 718. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 (our fiscal year
2019), including interim periods within that reporting period. The Company is currently in the process of evaluating the
impact of ASU 2017-09 on our financial position and result of operations.
Recently Adopted Accounting Standards
In August 2014, the FASB issued ASU No. 2014-15 “Presentation of Financial Statements: Going Concern (Subtopic
205-40)” which provides guidance on determining when and how to disclose going-concern uncertainties in the financial
statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to
continue as a going concern within one year of the date the financial statements are issued. An entity must provide
certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going
concern.” The guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and
48
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
interim periods thereafter (fiscal year 2017 for the Company). The adoption of ASU 2014-15, which occurred in the first
quarter of fiscal 2017, did not have a material effect on the Company’s Consolidated Financial Statements.
In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which
requires that debt issue costs related to a recognized debt liability be presented on the balance sheet as a direct deduction
from the amount of the debt liability, consistent with debt discounts and premiums. Amortization of such costs is still
reported as interest expense. ASU 2015-03 is effective for fiscal years, and interim periods therein, beginning after
December 15, 2015 (fiscal year 2017 for the Company). In August 2015, the FASB issued ASU 2015-15, "Presentation
and Subsequent Measurement of Debt Issue Costs Associated with Line-of-Credit Arrangements." ASU 2015-15
supplements the requirements of ASU 2015-03 by allowing an entity to defer and present debt issue costs related to a
line of credit arrangement as an asset and subsequently amortize the deferred costs ratably over the term of the line of
credit arrangement. The adoption of ASU 2015-03 and ASU 2015-15, which occurred in the first quarter of fiscal 2017,
did not have a material effect on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718), Improvements
to Employee Share-Based Payment Accounting.” This ASU simplifies the accounting for stock-based payment
transactions including the accounting for income taxes, forfeitures, statutory tax withholding requirements and
classification in the statement of cash flows. The required effective date for adoption of this guidance will be our fiscal
year beginning September 1, 2017 (fiscal 2018), with early adoption allowed. The updated standard no longer requires
cash flows related to excess tax benefits to be presented as a financing activity separate from other income tax cash
flows. The update also allows entities to repurchase more of an employee's shares for tax withholding purposes without
triggering liability accounting, clarifies that all cash payments to taxing authorities made on an employee's behalf for
withheld shares should be presented as a financing activity on the statement of cash flows, and provides for an
accounting policy election to account for forfeitures as they occur. The Company early adopted this standard as of
September 1, 2016 and during the year ended August 31, 2017 recognized an excess tax benefit from stock-based
compensation of $1,917, within income tax expense on the consolidated statement of operations (adopted prospectively).
The adoption did not impact the existing classification of the awards. Excess tax benefits from stock based compensation
are now classified in net income in the statement of cash flows instead of being separately stated in financing activities
for fiscal 2017 (adopted prospectively). Given the Company’s historical practice of including employee withholding
taxes paid within financing activities in the statement of cash flows, no prior period reclassifications are required by the
clarifications on classification provided by ASU No. 2016-09. Due primarily to the inclusion of the excess tax benefit,
the effective tax rate for the year ended August 31, 2017 decreased to 31.0%, compared to effective tax rates of 34.5%
and 35.9% recognized for fiscal 2016 and 2015, respectively; further, the Company anticipates the potential for increased
periodic volatility in future effective tax rates based on the continued application of the ASU No. 2016-09. Following the
adoption of the new standard, the Company has elected to account for forfeitures as they occur.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment.” This ASU simplifies the subsequent measurement of goodwill and eliminates Step 2
from the goodwill impairment test. Per ASU No. 2017-04, the annual, or interim, goodwill impairment test is performed
by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge should be recognized
for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should
not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-
deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill
impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or
negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the
goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to
determine if the quantitative impairment test is necessary. The amendments are to be applied on a prospective basis. The
required effective date for adoption of this guidance for the Company will be our fiscal year beginning September 1,
2020 (fiscal 2021), with early adoption permitted for interim or annual goodwill impairment tests performed on testing
49
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
dates after January 1, 2017. The Company early adopted this standard during the second quarter of fiscal 2017; the
adoption did not have a material effect on the Company’s Consolidated Financial Statements or related disclosures.
Note 2—Inventories
Inventories consist of the following as of August 31, 2017 and 2016:
Raw materials
Work in process
Finished goods
Total Inventory
$
$
2017
2016
11,636
6,877
7,105
25,618
$
$
12,879
6,019
6,916
25,814
Note 3—Property, Plant and Equipment
Property, plant and equipment consist of the following as of August 31, 2017 and 2016:
Land and improvements
Buildings
Machinery and equipment
Leasehold improvements
Construction in progress
Accumulated depreciation
Property, plant and equipment, net
Note 4—Goodwill and Intangible Assets
$
$
2017
2016
6,478
19,447
49,211
1,049
2,852
79,037
(44,277)
34,760
$
$
6,561
20,364
48,374
945
1,907
78,151
(41,409)
36,742
The changes in the carrying value of goodwill, by operating segment, are as follows:
Balance at August 31, 2015
Acquisition of Spray Products (India) Private Limited
Foreign currency translation adjustment
Balance at August 31, 2016
Acquisition of Resin Designs, LLC
Sale of the fiber optic cable components business
Foreign currency translation adjustment
Balance at August 31, 2017
$
$
$
Industrial
Materials
Construction
Materials
33,390 $ 10,733
—
(37)
10,696
—
—
(3)
10,693
107
(617)
32,880 $
7,592
(409)
28
40,091 $
$
Consolidated
44,123
107
(654)
43,576
7,592
(409)
25
50,784
$
$
The Company’s goodwill is allocated to each reporting unit based on the nature of the products manufactured
by the respective business combinations that originally created the goodwill. The Company has identified eleven
reporting units within its two operating segments that are used to evaluate the possible impairment of goodwill. Goodwill
impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairment of
goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be
50
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
recoverable through future operations. Additionally, testing for possible impairment of recorded goodwill and certain
intangible asset balances is required annually. The amount and timing of any impairment charges based on these
assessments require the estimation of future cash flows and the fair market value of the related assets based on
management’s best estimates of certain key factors, including future selling prices and volumes; operating, raw material
and energy costs; and various other projected operating and economic factors. When testing, fair values of the reporting
units and the related implied fair values of their respective goodwill are established using discounted cash flows.
The Company performs impairment reviews annually each fourth quarter and whenever events or circumstances
indicate the carrying value of goodwill may not be recoverable. For fiscal 2017, the Company’s review indicated no
impairment of goodwill, or at-risk reporting units.
As of August 31, 2017, the Company had a total goodwill balance of $50,784 related to its acquisitions, of
which $13,497 remains deductible for income taxes.
Intangible assets subject to amortization consist of the following as of August 31, 2017 and 2016:
Weighted Average
Amortization Period
Gross Carrying Accumulated Net Carrying
Value
Amortization
Value
August 31, 2017
Patents and agreements
Formulas and technology
Trade names
Customer lists and relationships
August 31, 2016
Patents and agreements
Formulas and technology
Trade names
Customer lists and relationships
14.4 years $
7.8 years
6.0 years
9.6 years
$
1,845 $
9,318
7,709
70,180
89,052 $
1,671 $
5,387
5,813
29,335
42,206 $
174
3,931
1,896
40,845
46,846
14.5 years $
8.4 years
5.9 years
9.4 years
$
1,805 $
8,248
7,137
52,742
69,932 $
1,663 $
4,310
4,909
22,470
33,352 $
142
3,938
2,228
30,272
36,580
Aggregate amortization expense related to intangible assets for the years ended August 31, 2017, 2016 and 2015
was $9,127, $7,836 and $6,762, respectively. As of August 31, 2017 estimated amortization expense for the next five
fiscal years is as follows:
Years ending August 31,
2018
2019
2020
2021
2022
9,110
8,441
7,574
7,044
6,164
51
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 5—Cash Surrender Value of Life Insurance
Life insurance is provided under split dollar life insurance agreements whereby the Company will recover the
premiums paid from the proceeds of the policies.
The Company recognized cash surrender value of life insurance policies, net of loans of $5 at August 31, 2017
and 2016, secured by the policies, with the following carriers as of August 31, 2017 and 2016:
John Hancock
Metropolitan Life Insurance
Other life insurance carriers
Less portion classified as current
Cash surrender value of life insurance policies, less current portion
2017
4,450 $
—
80
4,530 $
—
4,530 $
2016
4,450
1,096
80
5,626
(1,096)
4,530
$
$
$
All policies are subject to periodic review. The Company settled the Metropolitan Life Insurance policy within
the first quarter of fiscal 2017 and as such had classified this policy within current assets as of August 31, 2016 (included
in prepaid expenses and other current assets). The Company currently intends to maintain all other policies through the
lives or retirements of the insureds. Please see Note 23 to the Company’s Consolidated Financial Statements for related
party information on the cash surrender value of certain life insurance policies held by the Company during fiscal 2017
and 2016.
Note 6—Long-Term Debt
Long-term debt consists of the following at August 31, 2017 and 2016:
All-revolving credit facility with a borrowing capacity of $150,000
Term note
Less portion payable within one year classified as current
Long-term debt, less current portion
2017
$
$
—
—
—
—
—
$
$
2016
—
43,400
43,400
(43,400)
—
On December 15, 2016, the Company entered an Amended and Restated Credit Agreement (the “New 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 New Credit Agreement is initially an
all-revolving credit facility with a borrowing capacity of $150,000, which can be increased by an additional $50,000 at
the request of the Company and the individual or collective option of any of the Lenders. The New 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 the Company and its 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, 2017. The New Credit
Agreement is guaranteed by all of Chase’s direct and indirect domestic subsidiaries, including NEPTCO, which had a
carrying value of $162,818 at August 31, 2017. The New Credit Agreement was entered both to refinance our
52
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
previously existing term loan and revolving line of credit, and to provide for additional liquidity to finance potential
acquisitions, working capital, capital expenditures, and for other general corporate purposes.
The applicable interest rate for the revolver portion of the New Credit Agreement (the “New Revolving
Facility”) and any New Term Loan (defined below) is based on the effective London Interbank Offered Rate (LIBOR)
plus an additional amount in the range of 1.00% to 1.75%, depending on the consolidated net leverage ratio of Chase and
its subsidiaries. At August 31, 2017, there was no outstanding principal balance, and as such no applicable interest rate.
The New Credit Agreement has a five-year term with interest payments due at the end of the applicable LIBOR period
(but in no event less frequently than the three-month anniversary of the commencement of such LIBOR period) and
principal payment due at the expiration of the agreement, December 15, 2021. In addition, the Company may elect a
base rate option for all or a portion of the New Revolving Facility, in which case, interest payments shall be due with
respect to such portion of the New Revolving Facility on the last business day of each quarter.
Subject to certain conditions set forth in the New Credit Agreement, the Company may elect to convert all or a
portion of the outstanding New Revolving Facility into a term loan (each, a “New Term Loan”), which shall be payable
quarterly in equal installments sufficient to amortize the original principal amount of such New Term Loan on a seven
year amortization schedule; provided, however, that the final principal repayment installment shall be repaid on
December 15, 2021 and in any event shall be in an amount equal to the aggregate principal amount of all Term Loans
outstanding on such date. Prepayment is allowed by the New Credit Agreement at any time during the term of the
agreement, subject to customary notice requirements.
In connection with entry into the New Credit Agreement, Chase applied proceeds to refinance in full the
outstanding principal balance of its preexisting term debt, simultaneously terminating both our previously existing term
loan agreement and the previously existing revolving line of credit, which was fully available as of December 15, 2016.
The refinanced term loan had borne interest monthly at a rate of LIBOR plus an additional amount in the range of 1.75%
to 2.25%, based upon the Company’s consolidated leverage ratio (effective interest rate of 2.27% at August 31, 2016),
and required quarterly principal payments in installments of $1,400 beginning September 2012 through June 2014,
$1,750 through June 2015, and $2,100 thereafter. The refinanced term loan had an original maturity date of June 27,
2017.
53
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 7—Income Taxes
Domestic and foreign pre-tax income for the years ended August 31, 2017, 2016 and 2015 was:
United States
Foreign
Year Ended August 31,
2016
40,928 $
9,182
50,110 $
2017
52,723 $
8,169
60,892 $
2015
31,168
10,058
41,226
$
$
The provision (benefit) for income taxes for the years ended August 31, 2017, 2016 and 2015 was:
Current:
Federal
State
Foreign
Total current income tax provision
Deferred:
Federal
State
Foreign
Total deferred income tax benefit
Total income tax provision
Year Ended August 31,
2016
2017
2015
$
17,714 $
1,872
1,555
21,141
14,777 $
1,821
2,023
18,621
11,831
1,475
2,077
15,383
(1,984)
(453)
174
(2,263)
(879)
(324)
(115)
(1,318)
(405)
(188)
23
(570)
$
18,878 $
17,303 $
14,813
54
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The provision (benefit) for income taxes differs from the amount computed by applying the federal statutory
income tax rate to income before income taxes. The Company’s combined federal, state and foreign effective tax rate as
a percentage of income before taxes for fiscal 2017, 2016 and 2015, net of offsets generated by federal, state and foreign
tax benefits, was 31.0%, 34.5% and 35.9%, respectively. The following is a reconciliation of the effective income tax
rate with the U.S. federal statutory income tax rate for the years ended August 31, 2017, 2016 and 2015:
Federal statutory rates
Adjustment resulting from the tax effect of:
State and local taxes, net of federal benefit
Domestic production deduction
Foreign tax rate differential
Adjustment to uncertain tax position
Research credit generated
Stock Compensation
Noncontrolling partnership interest
Permanent items
Tax effect of undistributed earnings
Other
Effective income tax rate
Year Ended August 31,
2016
2015
2017
35.0 %
35.0 %
35.0 %
1.5 %
(2.5) %
(1.4) %
0.0 %
(0.3) %
(3.1) %
0.0 %
1.6 %
1.4 %
(1.2) %
31.0 %
1.9 %
(2.9) %
(2.5) %
0.0 %
(0.3) %
0.0 %
0.0 %
0.0 %
2.7 %
0.6 %
34.5 %
2.0 %
(2.0)%
(3.2)%
0.5 %
(0.3)%
0.0 %
(0.1)%
0.0 %
3.4 %
0.6 %
35.9 %
The following table summarizes the tax effect of temporary differences on the Company’s income tax
provision:
Current income tax provision
Deferred provision (benefit):
Allowance for doubtful accounts
Inventories
Pension expense
Deferred compensation
Loan finance costs
Accruals
Warranty reserve
Depreciation and amortization
Restricted stock grant
Unrepatriated earnings
Valuation allowance
Foreign amortization
Other accrued expenses
Year Ended August 31,
2016
18,621 $
2017
21,141 $
2015
15,383
$
8
139
(39)
250
5
(270)
(89)
(2,714)
(214)
832
24
(2)
(193)
34
(80)
(542)
272
5
(95)
19
(2,166)
(8)
1,338
—
(21)
(74)
3
(88)
(190)
(68)
6
(90)
37
(1,794)
222
1,401
—
(70)
61
Total deferred income tax benefit
(2,263)
(1,318)
(570)
Total income tax provision
$
18,878 $
17,303 $
14,813
55
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The following table summarizes the tax effects of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities:
Deferred tax assets:
Allowance for doubtful accounts
Inventories
Accruals
Warranty reserve
Pension accrual
Deferred compensation
Deferred revenue
Loan finance costs
Restricted stock grants
Non-qualified stock options
Foreign other
Other
Deferred tax liabilities:
Prepaid liabilities
Unrepatriated earnings
Unrealized gain/loss on restricted investments
Depreciation and amortization
Other
As of August 31,
2017
2016
$
228 $
1,462
800
120
5,078
358
334
27
792
26
—
280
9,505
236
1,623
531
31
5,655
608
—
32
589
15
428
11
9,759
(29)
(2,298)
(177)
(5,362)
(25)
(7,891)
1,614 $
(44)
(2,486)
(141)
(8,078)
(16)
(10,765)
(1,006)
Net deferred tax assets (liabilities)
$
Given our cash position and borrowing capability in the U.S. and the potential for increased investment and
acquisitions in foreign jurisdictions, we do not have a history of repatriating a significant portion of our foreign cash.
However, we do not currently take the position that undistributed foreign subsidiaries’ earnings are considered to be
permanently reinvested. Accordingly, we recognize a deferred tax liability for the estimated future tax effects
attributable to temporary differences due to these unremitted earnings. In the event that circumstances should change in
the future and we decide to repatriate these foreign amounts to fund U.S. operations, the Company would pay the
applicable U.S. taxes on these repatriated foreign amounts, less any tax credit offsets, to satisfy all previously recorded
tax liabilities.
A summary of the Company’s adjustments to its uncertain tax positions in fiscal years ended August 31, 2017,
2016 and 2015 are as follows:
Balance, at beginning of the year
Increase for tax positions related to the current year
Increase for tax positions related to prior years
Increase for interest and penalties
Decreases for lapses of statute of limitations
Balance, at end of year
2017
1,229 $
65
16
6
(59)
1,257 $
2016
1,249 $
37
98
102
(257)
1,229 $
2015
1,030
75
—
144
—
1,249
$
$
The unrecognized tax benefits mentioned above include an aggregate of $647 of accrued interest and penalty
balances related to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax
56
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
positions in income tax expense. An increase in accrued interest and penalty charges of approximately $40, net of federal
tax expense, was recorded as a tax expense during the current fiscal year. The Company does not anticipate that its
accrual for uncertain tax positions will be reduced by a material amount over the next twelve-month period, as it does not
expect to settle any potential disputed items with the appropriate taxing authorities nor does it expect the statute of
limitations to expire for any items.
The Company is subject to U.S. federal income tax, as well as to income tax of multiple state, local and foreign
tax jurisdictions. The statute of limitations for all material U.S. federal, state, and local tax filings remains open for fiscal
years subsequent to 2013. For foreign jurisdictions, the statute of limitations remains open in the U.K. for fiscal years
subsequent to 2013 and in France for fiscal years subsequent to 2016.
Note 8—Operating Leases
The Company is obligated under various operating leases, primarily for real property and equipment. Future
minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one
year) as of August 31, 2017, are as follows:
Future Operating
Year ending August 31,
2018
2019
2020
2021
2022
2023 and thereafter
Total future minimum lease payments
$
Lease Payments
1,623
1,562
1,565
1,459
956
3,141
10,306
$
Total rental expense for all operating leases amounted to $2,516, $1,631 and $1,541 for the years ended
August 31, 2017, 2016 and 2015, respectively.
Note 9—Benefits and Pension Plans
401(k) Plans
The Company has a defined contribution plan adopted pursuant to section 401(k) of the Internal Revenue Code
of 1986. Any qualified employee who has attained age 21 and has been employed by the Company for at least six
months may contribute a portion of his or her salary to the plan and the Company will match 100% of the first one
percent of salary contributed and 50% thereafter, up to an amount equal to three and one-half percent of such employee’s
annual salary.
Through our wholly-owned subsidiary NEPTCO, the Company has two additional 401(k) savings plans, one for
union employees and one for nonunion employees. Under these plans, substantially all employees of NEPTCO are
eligible to participate by making pre-tax contributions to these plans. Participants may elect to defer between 1% and
10% of their annual compensation. The Company may contribute $0.75 for each $1.00 of participant deferrals up to 6%
of the non-union participant’s compensation. The Company may match union employee contributions by $0.50 for each
$1.00 of participant deferrals up to 6% of the participant’s compensation.
The Company’s contribution expense for all 401(k) plans was $519, $571 and $394 for the years ended
August 31, 2017, 2016 and 2015, respectively.
57
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Non-Qualified Deferred Savings Plan
The Company has a non-qualified deferred savings plan covering the Board of Directors and a separate plan
covering selected employees. Participants may elect to defer a portion of their compensation for future payment. The
plans are funded by trusteed assets that are restricted to the payment of deferred compensation or satisfaction of the
Company’s general creditors. The Company’s liability under the plans was $979 and $1,649 at August 31, 2017 and
2016, respectively.
Pension Plans
The Company has noncontributory defined benefit pension plans covering employees of certain divisions of the
Company. The Company has a funded, qualified plan (“Qualified Plan”) and an unfunded supplemental plan
(“Supplemental Plan”) designed to maintain benefits for certain employees at the plan formula level. The plans provide
for pension benefits determined by a participant’s years of service and final average compensation. The Qualified Plan
assets consist of separate pooled investment accounts with a trust company. The measurement date for the plans is
August 31, 2017.
Effective December 1, 2008, a “soft freeze” in the Qualified Plan was adopted whereby no new employees
hired will be admitted to the Qualified Plan, with the exception of employees who are members of the International
Association of Machinists and Aerospace Workers Union whose contract was amended in June 2012 to include a soft
freeze with an effective date of July 15, 2012. All eligible participants who were 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, the Company has a third defined benefit pension plan
(“NEPTCO Pension Plan”) covering our union employees at our Pawtucket facility. This plan was frozen effective
October 31, 2006, and as a result, no new participants can enter the plan and the benefits of current participants were
frozen as of that date. The benefits are based on years of service and the employee’s average compensation during the
earlier of five years before retirement, or October 31, 2006. The NEPTCO Pension Plan assets consist of separate pooled
investment accounts with a trust company. The measurement date for the NEPTCO Pension Plan is August 31, 2017.
58
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The following tables reflect the status of the Company’s pension plans for the years ended August 31, 2017,
2016 and 2015:
Change in benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Assumption change
Actuarial (gain) loss
Settlements
Benefits paid
Projected benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Settlements
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Amounts recognized in consolidated balance sheets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount recognized in consolidated balance sheets
Actuarial present value of benefit obligation and funded
status
Accumulated benefit obligations
Projected benefit obligations
Plan assets at fair value
Amounts recognized in accumulated other comprehensive
income
Prior service cost
Net actuarial loss
Adjustment to pre-tax accumulated other comprehensive
2017
Year Ended August 31,
2016
2015
23,636 $
288
681
—
(533)
(313)
(1,086)
22,673 $
8,440 $
757
1,205
(313)
(1,086)
9,003 $
20,401 $
295
728
—
2,636
(376)
(48)
23,636 $
8,120 $
422
322
(376)
(48)
8,440 $
18,279
349
678
40
1,762
(619)
(89)
20,401
8,818
(296)
306
(619)
(89)
8,120
(13,670) $
(15,196) $
(12,281)
2017
Year Ended August 31,
2016
2015
566 $
(1,570)
(12,666)
(13,670) $
382 $
(15)
(15,563)
(15,196) $
634
(14)
(12,901)
(12,281)
21,007 $
22,673 $
9,003 $
22,023 $
23,636 $
8,440 $
18,784
20,401
8,120
54 $
9,890
57 $
11,561
61
9,417
$
$
$
$
$
$
$
$
$
$
$
income
$
9,944 $
11,618 $
9,478
59
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Other changes in plan assets and benefit obligations
recognized in other comprehensive income
Net loss
Amortization of loss
Supplemental plan assumption change
Amortization of prior service cost
Effect of settlement on accumulated other comprehensive
income
Total recognized in other comprehensive income
$
Net periodic pension cost
2017
Year Ended August 31,
2016
2015
1,277 $
(895)
(2,038)
(3)
(14)
(1,673)
1,353
511 $
(574)
2,219
(3)
(13)
2,140
1,097
4,371
(667)
(1,667)
(3)
(188)
1,846
1,280
Total recognized in net periodic pension cost and other
comprehensive income
$
(320) $
3,237 $
3,126
Estimated amounts that will be amortized from
accumulated comprehensive income over the next fiscal
year
Prior service cost
Net actuarial loss
$
3 $
485
3 $
895
3
574
Prior service cost arose from the amendment of the plan’s benefit schedules to comply with the Tax Reform Act
of 1986 and adoption of the unfunded supplemental pension plan.
60
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Components of net periodic pension cost for the fiscal years ended August 31, 2017, 2016 and 2015 included
the following:
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of accumulated loss
Settlement and curtailment loss
Net periodic benefit cost
2017
2016
2015
$
$
288 $
681
(528)
3
895
14
1,353 $
295 $
728
(516)
3
574
13
1,097 $
349
678
(605)
3
667
188
1,280
Weighted average assumptions used to determine benefit obligations as of August 31, 2017, 2016 and 2015 are
as follows:
Discount rate
Qualified plan
Supplemental plan
NEPTCO plan
Rate of compensation increase
Qualified and Supplemental plan
NEPTCO plan
2017
2016
2015
3.30 %
2.73 %
2.95 %
3.50 %
— %
2.90 %
2.97 %
2.55 %
3.50 %
— %
4.16 %
3.22 %
4.30 %
3.50 %
— %
Weighted average assumptions used to determine net periodic benefit cost for the years ended August 31, 2017,
2016 and 2015 are as follows:
Discount rate
Qualified plan
Supplemental plan
NEPTCO plan
Expected long-term return on plan assets
Qualified plan
Supplemental plan
NEPTCO plan
Rate of compensation increase
Qualified and Supplemental plan
NEPTCO plan
2017
2016
2015
2.90 %
2.97 %
2.55 %
6.50 %
— %
6.50 %
3.50 %
— %
4.16 %
3.22 %
4.30 %
6.50 %
— %
6.50 %
3.50 %
— %
3.83 %
3.01 %
4.06 %
7.00 %
— %
7.00 %
3.50 %
— %
It is the Company’s policy to evaluate, on an annual basis, the discount rate used to determine the projected
benefit obligation to approximate rates on high quality, long-term obligations. The Moody’s Corporate Aa Bond index
has generally been used as a benchmark for this purpose, with adjustments made if the duration of the index differed
from that of the plan. For periods since August 31, 2008, the discount rate has been determined by matching the expected
payouts from the respective plans to the spot rates inherent in the Citigroup Pension Discount Curve. A single rate is then
developed, that when applied to the expected cash flows, results in the same present value as determined using the
various spot rates. The Company believes that this approach produces the most appropriate approximation of the plan
liability.
61
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The Company estimates that each 100-basis point reduction in the discount rate would result in additional net
periodic pension cost, the Company’s primary pension obligation, of approximately $51 for the Qualified Plan and $39
for the Supplemental Plan. For the current fiscal year, the NEPTCO Pension Plan expense is insignificant so sensitivity
disclosure is not presented. The expected return on plan assets is derived from a periodic study of long-term historical
rates of return on the various asset classes included in the Company’s targeted pension plan asset allocation. The
Company estimates that each 100-basis point reduction in the expected return on plan assets would result in additional
net periodic pension cost of approximately $69 for the Qualified Plan. No rate of return is assumed for the Supplemental
Plan since that plan is currently not funded. The rate of compensation increase is also evaluated and is adjusted by the
Company, if necessary, periodically.
Qualified Plan Assets
The investment policy for the Qualified Plan is based on ERISA standards for prudent investing. The
fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent
manner to meet the obligations of the plans as these obligations come due. The primary investment objectives include
providing a total return which will promote the goal of benefit security by attaining an appropriate ratio of plan assets to
plan obligations, to provide for real asset growth while also tracking plan obligations, to diversify investments across and
within asset classes, to reduce the impact of losses in single investments, and to follow investment practices that comply
with applicable laws and regulations.
The primary policy objectives will be met by investing assets to achieve a reasonable tradeoff between return
and risk relative to the plan’s obligations. This includes investing a portion of the assets in funds selected in part to hedge
the interest rate sensitivity to plan obligations.
The Qualified Plan assets are invested in a diversified mix of both domestic and foreign equity investments and
fixed income securities. Asset manager performance is reviewed at least annually and benchmarked against the peer
universe for the given investment style. The Company’s expected return for the Qualified Plan is 6.5%. To determine the
expected long-term rate of return on the assets for the Qualified Plan, the Company considered the historical and
expected return on the plan assets, as well as the current and expected allocation of the plan assets.
Asset allocation is monitored on an ongoing basis relative to the established asset class targets. The interaction
between plan assets and benefit obligations is periodically studied to assist in the establishment of strategic asset
allocation targets. The investment policy permits variances from the targets within certain parameters. Asset rebalancing
occurs when the underlying asset class allocations move outside these parameters, at which time the asset allocation is
rebalanced back to the policy target weight.
The Qualified Plan has the following target allocation and weighted average asset allocations as of August 31,
2017, 2016 and 2015:
Asset Category
Equity securities
Debt securities
Other
Total
Target
Allocation
Range
Percentage of Plan Assets as of August 31,
2016
2015
2017
10-80 %
20-70 %
0-100 %
100 %
39 %
61 %
— %
100 %
46 %
54 %
— %
100 %
44 %
56 %
— %
100 %
62
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
NEPTCO Pension Plan Assets
The investment policy for the NEPTCO Pension Plan is based on ERISA standards for prudent investing. The
fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent
manner to meet the obligations of the plan as these obligations come due. The primary investment objectives include
maximization of return within reasonable and prudent levels of risk, provision of returns comparable to returns for
similar investment options, provision of exposure to a wide range of investment opportunities in various asset classes
and vehicles, control administrative and management costs, provision of appropriate diversification within investment
vehicles, and govern investment manager’s adherence to stated investment objectives and style.
The primary policy objectives will be met by investing assets to achieve a reasonable tradeoff between return
and risk relative to the plan’s obligations. This includes investing a portion of the assets in funds selected in part to hedge
the interest rate sensitivity to plan obligations.
The NEPTCO Pension Plan assets are invested in a diversified mix of fixed income, and both domestic and
foreign equity investments. The ongoing monitoring of investments is a regular and disciplined process and confirms that
the criteria remain satisfied. The process of monitoring investment performance relative to specified guidelines is
consistently applied.
The Company’s expected return for the NEPTCO Pension Plan is 6.5%. To determine the expected long-term
rate of return on the assets for the NEPTCO Pension Plan, the Company considered the historical and expected return on
the plan assets, as well as the current and expected allocation of the plan assets.
The NEPTCO Pension Plan has the following target allocation and weighted average asset allocations as of
August 31, 2017, 2016 and 2015:
Asset Category
Equity securities
Debt securities
Other
Total
Fair Market Value of Pension Plan Assets
Target
Allocation
Range
Percentage of Plan Assets as of August 31,
2016
2017
2015
10-80 %
20-70 %
0-100 %
100 %
43 %
51 %
6 %
100 %
43 %
50 %
7 %
100 %
41 %
53 %
6 %
100 %
The Company is required to categorize pension plan assets using a three-tier fair value hierarchy, which
classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as
quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own assumptions.
63
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The following table presents the Company’s pension plan assets at August 31, 2017 and 2016 by asset category:
Fair value measurements at
August 31, 2017
Significant
other
Fair value measurements at
August 31, 2016
Significant
other
Significant
observable unobservable
Quoted prices
in active
August 31, markets
(Level 1)
2017
Significant
observable unobservable
inputs
(Level 2)
inputs
(Level 3)
Quoted prices
in active
August 31, markets
(Level 1)
2016
inputs
(Level 2)
Asset Category
Equity securities
Debt securities
Other
$
3,589 $
5,336
78
3,589 $
5,336
78
— $
—
—
— $
—
—
3,866 $
4,499
75
3,866 $
4,499
75
— $
—
—
Total
$
9,003 $
9,003 $
— $
— $
8,440 $
8,440 $
— $
inputs
(Level 3)
—
—
—
—
Level 1 Assets: The fair values of the common stocks, corporate bonds and U.S. Government securities
included in this tier are based on the closing price reported on the active market where the individual securities are
traded.
Estimated Future Benefit Payments
The following pension benefit payments (which include expected future service) are assumed to be paid in each
of the following fiscal years based on the participants’ normal retirement age:
Year ending August 31,
2018
2019
2020
2021
2022
2023-2027
Pension Benefits
2,395
$
1,970
1,998
1,916
2,299
9,345
$
The Company contributed $1,205, $322 and $306 to fund its obligations under the pension plans for the years
ended August 31, 2017, 2016 and 2015, respectively. The Company plans to make the necessary contributions during
fiscal 2018 to ensure its pension plans continue to be adequately funded given the current market conditions, and
estimates approximately $1,800 in contributions during fiscal 2018.
Note 10—Stockholders’ Equity
2013 Equity Incentive Plan
In October 2012, the Company adopted, and the stockholders subsequently approved, the 2013 Equity Incentive
Plan (the “2013 Plan”). The 2013 Plan permits the grant of restricted stock, stock options, deferred stock, stock payments
or other awards to employees, participating officers, directors, consultants and advisors who are linked directly to
increases in shareholder value. The aggregate number of shares available for grant under the 2013 Plan was initially
1,200,000. Additional shares may become available in connection with share splits, share dividends or similar
transactions. As of August 31, 2017, 1,078,015 shares remained available for future grant under the 2013 Plan.
64
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
2005 Incentive Plan
In November 2005, the Company adopted, and the stockholders subsequently approved, the 2005 Incentive Plan
(the “2005 Plan”). The 2005 Plan permits the grant of restricted stock, stock options, deferred stock, stock payments or
other awards to employees, participating officers, directors, consultants and advisors who are linked directly to increases
in shareholder value. The aggregate number of shares available for grant under the 2005 Plan was initially 1,000,000.
The Company is no longer granting equity awards under the 2005 Plan.
2001 Senior Management Stock Plan and 2001 Non-Employee Director Stock Option Plan
In October 2002, the Company adopted, and the stockholders subsequently approved, the 2001 Senior
Management Stock Plan and the 2001 Non-Employee Director Stock Option Plan (the “2001 Plans”). The 2001 Plans
reserved 1,500,000 and 180,000 shares of the Company’s common stock for grants related to the Senior Management
Stock Plan and Non-Employee Director Stock Option Plan, respectively. The Company is no longer granting equity
awards under the 2001 Plans.
Restricted Stock
Employees and Executive Management
In October 2012, the Board of Directors of the Company approved the fiscal year 2013 Long Term Incentive
Plan (“LTIP”) for the executive officers and other members of management. The 2013 LTIP was an equity-based plan
with a grant date of October 22, 2012. In addition to the stock option component described below, the plan contained the
following restricted stock components: (a) a performance and service-based restricted stock grant of 11,861 shares in the
aggregate, subject to adjustment, with a vesting date of August 31, 2015, for which compensation expense was
recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based
restricted stock grant of 16,505 and 1,931 shares in the aggregate, with vesting dates of August 31, 2015 and August 31,
2013, respectively, for which compensation expense was recognized on a ratable basis over the vesting period.
Based on the fiscal year 2013 financial results, 11,861 additional shares of restricted stock (total of 23,722
shares) were earned and granted subsequent to the end of fiscal year 2013 in accordance with the performance
measurement criteria. No further performance-based measurements apply to this award.
In September 2013, the Board of Directors of the Company approved the fiscal year 2014 LTIP for the
executive officers and other members of management. The 2014 LTIP was an equity-based plan with a grant date of
September 1, 2013. In addition to the stock option component described below, the plan contained the following
restricted stock components: (a) performance and service-based restricted stock grant of 7,529 shares in the aggregate,
subject to adjustment, with a vesting date of August 31, 2016, for which compensation expense is recognized on a ratable
basis over the vesting period based on quarterly probability assessments; and (b) a time-based restricted stock grant of
8,323 and 1,040 shares in the aggregate, with vesting dates of August 31, 2016 and August 31, 2014, respectively, for
which compensation expense was recognized on a ratable basis over the vesting period.
Based on the fiscal year 2014 financial results, 5,485 additional shares of restricted stock (total of 13,014
shares) were earned and granted subsequent to the end of fiscal year 2014 in accordance with the performance
measurement criteria. No further performance-based measurements apply to this award.
In August 2014, the Board of Directors of the Company approved the fiscal year 2015 LTIP for the executive
officers and other members of management. The 2015 LTIP was an equity-based plan with a grant date of September 1,
2014. In addition to the stock option component described below, the plan contained the following restricted stock
components: (a) a performance and service-based restricted stock grant of 6,993 shares in the aggregate, subject to
65
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
adjustment based on fiscal 2015 results, with a vesting date of August 31, 2017, for which compensation expense is
recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based
restricted stock grant of 7,005 and 1,127 shares (total of 8,132 shares) in the aggregate, with vesting dates of August 31,
2017 and September 1, 2014, respectively. Compensation expense was being recognized on a ratable basis over the
vesting period.
Based on the fiscal year 2015 financial results, 5,685 additional shares of restricted stock (total of 12,678
shares) were earned and granted subsequent to the end of fiscal year 2015 in accordance with the performance
measurement criteria. No further performance-based measurements apply to this award.
During the third quarter of fiscal 2015, an additional 16,000 restricted shares were issued to non-executive
members of management; 15,000 with a vesting date of April 16, 2020 and 1,000 with a vesting date of January 31,
2018. Compensation expense is being recognized on a ratable basis over the vesting period.
In August 2015, the Board of Directors of the Company approved the fiscal year 2016 LTIP for the executive
officers and other members of management. The 2016 LTIP is an equity-based plan with a grant date of September 1,
2015. In addition to the stock option component described below, the plan contains the following restricted stock
components: (a) a performance and service-based restricted stock grant of 6,962 shares in the aggregate, subject to
adjustment based on fiscal 2016 results, with a vesting date of August 31, 2018 for which compensation expense is
recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based
restricted stock grant of 7,683 shares in the aggregate, with a vesting date of August 31, 2018. Compensation expense is
recognized on a ratable basis over the vesting period.
Based on the fiscal year 2016 financial results, 6,277 additional shares of restricted stock (total of 13,239
shares) were earned and granted subsequent to the end of fiscal year 2016 in accordance with the performance
measurement criteria. No further performance-based measurements apply to this award.
During the first quarter of fiscal 2016, an additional grant of 5,000 restricted shares was made to a non-
executive member of management with a vesting date of October 20, 2020. Compensation expense is being recognized
on a ratable basis over the vesting period.
In August 2016, the Board of Directors of the Company approved the fiscal year 2017 LTIP for the executive
officers and other members of management. The 2017 LTIP is an equity-based plan with a grant date of September 1,
2016. In addition to the stock option component described below, the plan contains the following restricted stock
components: (a) a performance and service-based restricted stock grant of 5,399 shares in the aggregate, subject to
adjustment based on fiscal 2017 results, with a vesting date of August 31, 2019, for which compensation expense being
is recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based
restricted stock grant of 5,367 shares in the aggregate, with a vesting date of August 31, 2019. Compensation expense is
being recognized on a ratable basis over the vesting period.
In August 2016, the Board of Directors of the Company approved equity retention agreements with certain
executive officers. The equity-based retention agreements have a grant date of September 1, 2016. In addition to the
stock option component described below, the equity retention agreements contain a time-based restricted stock grant of
16,312 shares in the aggregate, with 7,768 shares having a vesting date of August 31, 2019, and 8,544 shares, which had
an original vesting date of August 31, 2021, amended in August 2017 to vest in five equal annual installments over the
five-year period following the grant date. Compensation expense is being recognized on a ratable basis over the vesting
period.
66
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
During the first quarter of fiscal 2017, additional grants totaling 8,805 shares of restricted stock were issued to
non-executive members of management with a vesting date of August 31, 2021. Compensation expense is being
recognized on a ratable basis over the vesting period.
Non-employee Board of Directors
In February 2014, as part of their standard compensation for board service, non-employee members of the
Board received a total grant of 4,878 shares of restricted stock for service for the period from January 31, 2014 through
January 31, 2015. The shares of restricted stock vested at the conclusion of this service period. Compensation expense
was recognized on a ratable basis over the twelve-month vesting period.
In February 2015, as part of their standard compensation for board service, non-employee members of the
Board received a total grant of 5,361 shares of restricted stock for service for the period from January 31, 2015 through
January 31, 2016. The shares of restricted stock vested at the conclusion of this service period. Compensation expense
was recognized on a ratable basis over the twelve-month vesting period.
In February 2016, as part of their standard compensation for board service, non-employee members of the
Board received a total grant of 4,554 shares of restricted stock for service for the period from January 31, 2016 through
January 31, 2017. The shares of restricted stock will vest at the conclusion of this service period. Compensation
expense was recognized on a ratable basis over the twelve-month vesting period.
In February 2017, as part of their standard compensation for board service, non-employee members of the
Board received a total grant of 2,407 shares of restricted stock for service for the period from January 31, 2017 through
January 31, 2018. The shares of restricted stock will vest at the conclusion of this service period. Compensation is
recognized on a ratable basis over the twelve-month vesting period.
A summary of the transactions of the Company’s restricted stock plans for the years ended August 31, 2017,
2016 and 2015 is presented below:
Unvested restricted stock at August 31, 2014
Granted
Vested
Forfeited or cancelled
Unvested restricted stock at August 31, 2015
Granted
Vested
Forfeited or cancelled
Unvested restricted stock at August 31, 2016
Granted
Vested
Forfeited or cancelled
Unvested restricted stock at August 31, 2017
Weighted Average
Grant Date
Fair Value
29.52
36.19
29.52
36.19
48.12
36.19
48.12
91.05
48.12
91.05
Officers
and
Employees
56,079
36,610
(32,234)
(12,186)
48,269
25,330
(18,271)
—
55,328
42,160
(23,516)
—
73,972
$
$
$
$
$
$
$
$
$
$
$
Weighted Average
Grant Date
Fair Value
18.83
37.76
16.68
14.63
35.68
39.07
29.72
39.20
60.67
38.81
51.56
Non
Employee
Directors
4,878
5,361
(4,878)
—
5,361
4,554
(5,361)
—
4,554
2,407
(4,554)
—
2,407
$
$
$
$
$
$
$
$
$
$
67
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Stock Options
In March 2012, the Board of Directors of the Company authorized a grant of stock options to a non-executive
officer employee to purchase 6,630 shares of common stock with an exercise price of $14.62 per share. The options
vested in three equal annual allotments ending on March 8, 2015. The options will expire on March 8, 2022.
Compensation expense was recognized over the period of the award on an annual basis consistent with the vesting terms.
In October 2012, the Board of Directors of the Company approved the fiscal year 2013 LTIP for the executive
officers and other members of management. The 2013 LTIP was an equity-based plan with a grant date of October 22,
2012 and included options to purchase 43,964 shares of common stock in the aggregate with an exercise price of $16.00
per share. The options vested in three equal annual allotments ending on August 31, 2015. The options will expire on
October 22, 2022. Compensation expense was recognized over the period of the award on an annual basis consistent with
the vesting terms.
In September 2013, the Board of Directors of the Company approved the fiscal year 2014 LTIP for the
executive officers and other members of management. The 2014 LTIP was an equity-based plan with a grant date of
September 1, 2013 and included options to purchase 25,969 shares of common stock in the aggregate with an exercise
price of $29.72 per share. The options vested in three equal annual allotments ending on August 31, 2016. The options
will expire on August 31, 2023. Compensation expense was recognized over the period of the award on an annual basis
consistent with the vesting terms.
In August 2014, the Board of Directors of the Company approved the fiscal year 2015 LTIP for the executive
officers and other members of management. The 2015 LTIP is an equity-based plan with a grant date of September 1,
2014 and included options to purchase 22,750 shares of common stock in the aggregate with an exercise price of $35.50
per share. The options vested in three equal annual installments ending on August 31, 2017. Of the options granted,
7,438 will expire on August 31, 2024 and 15,312 will expire on September 1, 2024. Compensation expense was
recognized over the period of the award on an annual basis consistent with the vesting terms.
In August 2015, the Board of Directors of the Company approved the fiscal year 2016 LTIP for the executive
officers and other members of management. The 2016 LTIP is an equity-based plan with a grant date of September 1,
2015 and included options to purchase 21,275 shares of common stock in the aggregate with an exercise price of $39.50
per share. The options vest in three equal annual installments ending on August 31, 2018. The options granted will
expire on September 1, 2025. Compensation expense is recognized over the period of the award consistent with the
vesting terms.
In August 2016, the Board of Directors of the Company approved the fiscal year 2016 LTIP for the executive
officers and other members of management. The 2016 LTIP is an equity-based plan with a grant date of September 1,
2016 and included options to purchase 15,028 shares of common stock in the aggregate with an exercise price of $64.37
per share. The options vest in three equal annual installments ending on August 31, 2019. Of the options granted, 5,596
options will expire on August 31, 2026, and 9,432 options will expire on September 1, 2026. Compensation expense is
recognized over the period of the award consistent with the vesting terms.
In August 2016, the Board of Directors of the Company approved equity retention agreements with certain
executive officers. The equity-based retention agreements have a grant date of September 1, 2016 and included options
to purchase 23,563 shares of common stock in the aggregate with an exercise price of $64.37 per share. These options
will cliff vest on August 31, 2019 and will expire on August 31, 2026. Compensation expense is recognized over the
period of the award consistent with the vesting terms.
68
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The following table summarizes information about stock options outstanding as of August 31, 2017:
Exercise
Prices
$ 12.70
$ 12.77
$ 16.00
$ 16.53
$ 29.72
$ 35.50
$ 39.50
$ 64.37
Options Outstanding
Number
Outstanding
15,105
16,953
25,087
3,926
16,246
17,965
19,101
38,591
152,974
Weighted Avg.
Remaining
Contractual
Life
3.0
4.0
5.1
3.7
6.0
7.0
8.0
9.0
6.4
Weighted
Average
Exercise Price
12.70
12.77
16.00
16.53
29.72
35.50
39.50
64.37
34.21
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Aggregate
Intrinsic
Value
1,220
1,369
1,944
302
1,036
1,042
1,032
1,124
9,069
Options Exercisable
Weighted
Average
Exercise
Price
12.70
12.77
16.00
16.53
29.72
35.50
39.50
64.37
25.58
$
$
$
$
$
$
$
$
$
Number
Exercisable
15,105
16,953
25,087
3,926
16,246
17,965
13,264
6,641
115,187
$
$
$
$
$
$
$
$
$
Aggregate
Intrinsic
Value
1,220
1,369
1,944
302
1,036
1,042
716
194
7,823
All stock option plans have been approved by the Company’s stockholders. Options are granted with an
exercise price that is equal to the closing market value of the Company’s common stock on the day preceding the grant
date, which is determined not to be materially different from the opening market value on the date of grant.
A summary of the transactions of the Company’s stock option plans for the years ended August 31, 2017, 2016
and 2015 is presented below:
Options outstanding at August 31, 2014
Granted
Exercised
Forfeited or cancelled
Options outstanding at August 31, 2015
Granted
Exercised
Forfeited or cancelled
Options outstanding at August 31, 2016
Granted
Exercised
Forfeited or cancelled
Options outstanding at August 31, 2017
Options exercisable at August 31, 2017
Officers
and
Employees
Weighted
Average
Exercise Price
463,901
22,750
(169,038)
(4,224)
313,389
21,275
(140,113)
—
194,551
38,591
(80,168)
—
152,974
115,187
$
$
$
$
$
$
$
$
$
$
$
$
15.43
35.50
15.21
22.25
16.92
39.50
15.27
20.57
64.37
15.62
34.21
25.58
The weighted average grant date fair value of options granted in the years ended August 31, 2017, 2016 and
2015 was $21.22, $13.80 and $12.10 per share, respectively.
The total pretax intrinsic value of stock options exercised was $6,243, $6,880 and $3,972 for the years ended
August 31, 2017, 2016, and 2015, respectively.
69
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Excluding the common stock currently reserved for issuance upon exercise of the 152,974 outstanding options,
there are 1,078,015 shares of common stock available for future issuance under the Company’s 2013 Equity Incentive
Plan. Based on historic experience, management estimates all outstanding stock options will vest.
The income tax benefit realized from stock options exercised, vesting of restricted stock and issuance of stock
pursuant to grants of restricted stock units was $1,917, $1,784 and $1,088 for the years ended August 31, 2017, 2016 and
2015, respectively.
As of August 31, 2017, unrecognized expense related to all stock-based compensation described above was
$3,176 (including $2,713 for restricted stock and $463 for stock options), which will be recognized over the next four
fiscal years.
Note 11—Segment Data
The Company is organized into two operating segments, an Industrial Materials segment and a Construction
Materials segment. The segments are distinguished by the nature of the products we manufacture and how they are
delivered to their respective markets.
The Industrial Materials segment includes specified products that are used in, or integrated into, another
company’s product, with demand typically dependent upon general economic conditions. Industrial Materials products
include insulating and conducting materials for wire and cable manufacturers, moisture protective coatings for
electronics, laminated durable papers, laminates for the packaging and industrial laminate markets, custom
manufacturing services, pulling and detection tapes used in the installation, measurement and location of fiber optic
cables and water and natural gas lines, cover tapes essential to delivering semiconductor components via tape and reel
packaging, composite materials and elements, polymeric microspheres, and polyurethane dispersions. Beginning June
23, 2016, and September 30, 2016, respectively, the Industrial Materials segment includes the acquired operations of
HumiSeal India Private Limited (formerly Spray Products (India) Private Limited) and of Resin Designs, LLC. Both
were obtained through acquisition and included in the Company’s electronic and industrial coatings product line. Prior to
the April 3, 2017 sale of the business, the segment’s products also included glass-based strength elements, designed to
allow fiber optic cables to withstand mechanical and environmental strain and stress.
The Construction Materials segment is principally composed of project-oriented product offerings that are
primarily sold and used as “Chase” branded products. Construction Materials products include protective coatings for
pipeline applications, coating and lining systems for use in liquid storage and containment 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.
70
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The following tables summarize information about the Company’s segments:
Revenue
Industrial Materials
Construction Materials
Total
Income before taxes
Industrial Materials
Construction Materials
Total for reportable segments
Corporate and common costs
Total
Includes the following costs by segment:
Industrial Materials
Interest
Depreciation
Amortization
Construction Materials
Interest
Depreciation
Amortization
Years Ended August 31,
2017
2016
2015
$ 202,956
49,604
$ 252,560
$ 181,728
56,366
$ 238,094
$ 176,547
61,499
$ 238,046
$ 67,561 (a) $ 53,530 (c)
18,205
85,766
19,967
73,497
(24,874) (b) (23,387)(d)
$ 60,892
$ 50,110
$ 46,388 (e)
17,272
63,660
(22,434)(f)
$ 41,226
$
$
629
3,423
7,839
791
3,918
6,427
$
$
210
718
1,288
263
761
1,409
$
$
913
4,050
5,178
150
1,123
1,584
a)
b)
c)
d)
e)
f)
Includes a $2,013 gain on sale of our fiber optic cable components business and $190 of expenses related to
inventory step-up in fair value attributable to the September 2016 acquisition of certain assets of Resin Designs
Includes $584 in acquisition-related expenses attributable to the September 2016 acquisition of certain assets of
Resin Designs, facility exit and demolition costs of $70 related to the Company’s Randolph, MA location, a $792
gain related to the November 2016 sale of the Company’s Paterson, NJ location, a $68 gain related to the December
2016 sale of the Company’s former corporate headquarters in Bridgewater, MA and $14 of pension-related
settlement costs due to the timing of lump sum distributions
Includes a $1,031 gain on sale of our RodPack wind energy business contained within our structural composites
product line and a $365 write-down on certain other structural composites assets based on usage constraints
following the sale, both recognized in November 2015
Includes $935 in Randolph, MA facility exit and demolition costs, a $877 gain on the write-down of an annuity and
$13 of pension-related settlement costs due to the timing of lump sum distributions
Includes $65 of expense related to inventory step-up in fair value related to the January 2015 acquisition of the
specialty chemical intermediates product line
Includes $584 in expenses related to the January 2015 acquisition of the specialty chemical intermediates product
line and $188 of pension-related settlement costs due to the timing of lump sum distributions
71
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Total Assets
Industrial Materials
Construction Materials
Total for reportable segments
Corporate and common assets
Total
Note 12—Export Sales and Foreign Operations
As of August 31,
2017
2016
$ 156,263 $ 136,003
38,983
174,986
87,833
$ 254,738 $ 262,819
38,162
194,425
60,313
Export sales from continuing domestic operations to unaffiliated third parties were $36,719, $28,826 and
$27,955 for the years ended August 31, 2017, 2016 and 2015, respectively. The increase in export sales in fiscal 2017
against both fiscal 2016 and 2015 resulted from increased export sales into China, and certain European countries.
The Company’s products are sold worldwide. Revenue for the years ended August 31, 2017, 2016 and 2015, are
attributed to operations located in the following countries:
Revenue
United States
United Kingdom
All other foreign (1)
Total
Years Ended August 31,
2017
2016
2015
$ 217,745
16,691
18,124
$ 252,560
$ 197,776
24,048
16,270
$ 238,094
$ 189,398
32,006
16,642
$ 238,046
(1) Inclusive of sales originated from our Paris, France location, royalty revenue attributable to our licensed
manufacturer in Asia, and Chase foreign manufacturing operations.
72
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
As of August 31, 2017 and 2016, the Company had long-lived assets (defined as tangible assets providing the
Company with a future economic benefit beyond the current year or operating period, including buildings, equipment
and leasehold improvements) and goodwill and intangible assets, less accumulated amortization in the following
countries:
Long-lived Assets
United States
Property, plant and equipment, net
Goodwill and Intangible assets, less accumulated amortization
$
30,253 $
90,673
32,176
72,653
As of August 31,
2017
2016
United Kingdom
Property, plant and equipment, net
Goodwill and Intangible assets, less accumulated amortization
All other foreign
Property, plant and equipment, net
Goodwill and Intangible assets, less accumulated amortization
3,184
5,685
1,323
1,272
3,214
6,270
1,352
1,233
Total
Property, plant and equipment, net
Goodwill and Intangible assets, less accumulated amortization
$
$
34,760 $
97,630 $
36,742
80,156
73
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 13—Supplemental Cash Flow Data
Supplemental cash flow information for the years ended August 31, 2017, 2016 and 2015 is as follows:
2017
21,025 $
786 $
2016
17,550 $
1,059 $
2015
11,987
1,114
1,158 $
220 $
— $
2,015 $
22 $
— $
2,180
53
446
$
$
$
$
$
$
$
3,240
623
27,042
(635)
(30,270)
(1,167)
(166)
(512)
(2,013)
400
3,458
$
$
$
(457)
457
Income taxes paid
Interest paid
Noncash Investing and Financing Activities
Common stock received for payment of stock option exercises
Property, plant and equipment additions included in accounts payable
Deferred tax assets and liabilities acquired from noncontrolling interest
Acquisition of Resin Designs
Current assets
Property, plant & equipment
Goodwill and Intangible assets
Accounts payable and accrued liabilities
Payments for acquisitions
Sale of Fiber Optic Cable Components product line
Inventory
Property, plant and equipment
Goodwill and Intangible assets
Gain on sale of business
Due from sale of business (recorded within Other assets)
Cash received from sale of product line, net of transaction costs
Acquisition of Spray Products (India) Private Limited
Current assets (excluding cash)
Property and equipment
Goodwill
Accounts payable and accrued liabilities
Payments for acquisitions, net of cash acquired
Sale of RodPack Business
Property, plant and equipment
Intangible assets
Gain on sale of business
Due from sale of business
Cash received from sale of business
Acquisition of specialty chemical intermediates product line
Inventory
Property, plant and equipment
Goodwill and Intangible assets
Payments for acquisitions
74
55
1,027
107
(28)
(1,161)
(846)
(309)
(1,031)
457
1,729
$
610
1,064
31,611
(33,285)
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 14—Acquisitions
Acquisition of Resin Designs, LLC
On September 30, 2016, the Company acquired certain assets of Resin Designs, LLC (“Resin Designs”), an
advanced adhesives and sealants manufacturer, with locations in Woburn, MA and Newark, CA. This business was
acquired for a purchase price of $30,270, after final working capital adjustments and excluding acquisition-related costs.
As part of this transaction, Chase acquired all working capital and fixed assets of the business, and entered into multiyear
leases at both locations. Resin Designs is a formulator of customized adhesive and sealant systems used in high-
reliability electronic applications. The acquisition broadens the Company’s adhesives and sealants product offering and
manufacturing capabilities, and expands its market reach. The purchase was funded entirely with available cash on hand.
Since the effective date for this acquisition, September 30, 2016, the financial results of the acquired business
have been included in the Company’s financial statements within the Industrial Materials operating segment, within the
electronic and industrial coatings product line. The acquisition was accounted for as a business combination under ASC
Topic 805, “Business Combinations.” In accordance with this accounting standard, the Company expensed $584 of
acquisition-related costs during the first fiscal quarter of 2017 to acquisition-related costs.
Purchase accounting was completed in the fourth quarter of fiscal 2017 with no material adjustments made to
the initial amounts recorded. The purchase price has been allocated to the acquired tangible and identifiable intangible
assets assumed, based on their fair values as of the date of the acquisition:
Assets & Liabilities
Accounts receivable
Inventory
Prepaid expenses and other current assets
Property, plant & equipment
Goodwill
Intangible assets
Accounts payable and accrued liabilities
Total purchase price
Amount
1,877
1,300
63
623
7,592
19,450
(635)
30,270
$
$
The excess of the purchase price over the net tangible and intangible assets acquired resulted in goodwill of
$7,592 that is largely attributable to the synergies and economies of scale from combining the operations, technologies
and research and development capabilities of Resin Designs and Chase, particularly as it pertains to the expansion of the
Company's product and service offerings, the established workforce and marketing efforts. This goodwill is deductible
for income tax purposes.
All assets, including goodwill, acquired as part of the Resin Designs acquisition are included in the Industrial
Materials operating segment. Identifiable intangible assets purchased with this transaction are as follows:
Intangible Asset
Customer relationships
Technology
Trade names
Total intangible assets
Amount
$
17,500
1,200
750
19,450
Useful life
10 years
4 years
7 years
$
75
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Supplemental Pro Forma Data (unaudited)
The following table presents the pro forma results of the Company for the years ended August 31, 2017 and
2016 as though the Resin Designs acquisition described above occurred on September 1, 2015 (the first day of fiscal
2016). The actual revenue and expenses for the acquired business are included in the Company’s fiscal 2017
consolidated results beginning on September 30, 2016. From the date of acquisition (September 30, 2016) through
August 31, 2017, revenue and net income for the Resin Designs operations included in the consolidated statement of
operations were $14,868 and $669, respectively, including the effects of $584 in acquisition-related costs, $190 in sale of
inventory step-up cost, and additional amortization expense recognized related to intangible assets recorded as part of the
transaction. The pro forma results include adjustments for the estimated amortization of intangibles, acquisition-related
costs, sale of inventory step-up cost and the income tax impact of the pro forma adjustments at the statutory rate of 35%.
The following pro forma information is not necessarily indicative of the results that would have been achieved if the
acquisition had been effective on September 1, 2015.
Revenue
Net income
Net income attributable to Chase Corporation
Net income available to common shareholders, per common and
common equivalent share
Basic earnings per share
Diluted earnings per share
Acquisition of Spray Products (India) Private Limited
$
$
$
Years Ended August 31,
2017
2016
$
254,145
42,685
42,685
250,021
32,228
32,228
4.56
4.51
$
$
3.49
3.44
On June 23, 2016, the Company acquired all the capital stock of Spray Products (India) Private Limited for
$1,161, net of cash acquired. This acquired business works closely with our HumiSeal manufacturing operation in
Winnersh, Wokingham, England. The acquisition in India enhances the Company’s ability to provide technical, sales,
manufacturing, chemical handling, and packaging services in the region. Since the effective date for this acquisition, the
financial results of the business have been included in the Company's financial statements within the Company’s
Industrial Materials operating segment in the electronic and industrial coatings product line. Purchase accounting was
completed in the quarter ended August 31, 2016. Effective December 2016, Spray Products (India) Private Limited was
renamed HumiSeal India Private Limited.
Acquisition of Specialty Chemical Intermediates Product Line
On January 30, 2015, the Company acquired two product lines from Henkel Corporation (the “Seller”) for a
purchase price of $33,285, after working capital adjustments and excluding any acquisition-related costs. As part of this
transaction, Chase acquired the Seller’s microspheres product line, sold under the Dualite brand, located in Greenville,
SC, and obtained exclusive distribution rights and intellectual property related to the Seller’s polyurethane dispersions
product line, operating in Elgin, IL. Under the agreement, Chase entered into a ten-year facility operating lease at the
Seller’s Greenville, SC location. The Seller will perform certain manufacturing and application services for Chase at the
Seller’s Elgin, IL location for three years following the acquisition. The purchase was funded entirely with available cash
on hand.
Since the effective date for this acquisition, January 30, 2015, the financial results of the specialty chemical
intermediates product line have been included in the Company’s financial statements within the Industrial Materials
operating segment. The acquisition was accounted for as a business combination under ASC Topic 805, “Business
76
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Combinations.” In accordance with this accounting standard, the Company expensed $584 of acquisition related costs
during the year ended August 31, 2015.
Purchase accounting was completed in the quarter ended May 31, 2015 with no material adjustments made to
the initial amounts recorded at the end of the second fiscal quarter. The purchase price has been allocated to the acquired
tangible and identifiable intangible assets assumed based on their fair values as of the date of the acquisition:
Assets & Liabilities
Inventory
Property, plant & equipment
Goodwill
Intangible assets
Total purchase price
Amount
$
610
1,064
6,371
25,240
33,285
$
The excess of the purchase price over the net tangible and intangible assets acquired resulted in goodwill of
$6,371 that is largely attributable to the synergies and economies of scale from combining the operations and
technologies of Chase and the two product lines, particularly as it pertains to the expansion of the Company’s product
and service offerings, the established workforce, and marketing efforts. This goodwill is deductible for income tax
purposes.
All assets, including goodwill, acquired as part of the specialty chemical intermediates product line are included
in the Industrial Materials operating segment. Identifiable intangible assets purchased with this transaction are as
follows:
Intangible Asset
Customer relationships
Technology
Trade name
Backlog
Total intangible assets
Amount Useful life
$ 21,300
2,700
910
330
$ 25,240
8 years
7 years
7 years
2 months
Acquisition of outstanding noncontrolling membership interest in NEPTCO JV LLC
On October 31, 2014, the Company purchased the 50% noncontrolling membership interest of NEPTCO JV
LLC (the “JV”) that had been owned by its otherwise unrelated joint venture partner. The purchase consideration was
subject to certain contingent adjustments based on certain future events related to the JV. The period during which these
future events could occur lapsed in the third fiscal quarter of 2016 without being triggered. The purchase price was not
material to the Company. The purchase was funded entirely with available cash on hand. Because of the Company’s
controlling financial interest, the JV’s assets, liabilities and results of operations have been consolidated within the
Company’s Consolidated Financial Statements since June 27, 2012, the date the Company acquired NEPTCO. Given
the Company’s 100% ownership as of October 31, 2014, in subsequent periods the Company has continued to fully
consolidate its assets, liabilities and results of operations, but no longer records an offsetting amount for a noncontrolling
interest. See Note 15 for additional information on the JV.
77
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 15—Joint Venture
On October 31, 2014, the Company purchased the 50% noncontrolling membership interest of NEPTCO
JV LLC (the “JV”) that had been owned by its otherwise unrelated joint venture partner. The purchase consideration was
subject to certain contingent adjustments based on certain future events related to the JV. The period during which these
future events could occur lapsed in the third fiscal quarter of 2016 without being triggered. The purchase price was not
material to the Company. Because of the Company’s controlling financial interest, the JV’s assets, liabilities, and results
of operations have been consolidated within the Company’s Consolidated Financial Statements since June 27, 2012, the
date the Company acquired NEPTCO. The Company continues to fully consolidate the assets, liabilities and results of
operations of the JV, but no longer records an offsetting amount for a noncontrolling interest. The ($95) recorded in the
Consolidated Statement of Operations as Net (income) loss attributable to noncontrolling interest for the year ended
August 31, 2015, represents the now-former joint venture partner’s share of the results of operations of the JV for the
period from September 1, 2014 through October 31, 2014.
The Company accounted for the joint venture partner’s noncontrolling interest in the JV under ASC Topic 810
“Consolidations” (“ASC 810”). Based on the criteria in ASC 810, the Company had determined that the JV qualified as a
variable interest entity.
Under the JV agreement, which terminated with the Company’s October 2014 acquisition of the 50%
outstanding noncontrolling membership interest in the JV, the JV had agreed to purchase a minimum of 80% of its total
glass fiber requirements from the joint venture partner. Additionally, the JV agreed to purchase private-label products
exclusively from an affiliate of the joint venture partner; however, the JV was not subject to a minimum purchase
requirement on private-label products. Purchases from the joint venture partner totaled $332 for the period from
September 1, 2014 through October 31, 2014.
Note 16—Fair Value Measurements
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability
(exit price) in an orderly transaction between market participants at the measurement date. The Company uses a
three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1,
defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs
other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as
unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant
to the fair value measurement. The Company has determined that it does not have any financial liabilities measured at
fair value other than long-term debt and that its financial assets are currently all classified within Level 1 or Level 2 in
the fair value hierarchy. The financial assets classified as Level 1 and Level 2 as of August 31, 2017 and 2016 represent
investments which are restricted for use in non-qualified retirement savings plans for certain key employees and
directors.
78
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The following table sets forth the Company’s financial assets that were accounted for at fair value on a
recurring basis as of August 31, 2017 and 2016:
Fair value measurement category
Fair value
measurement date Total
Quoted prices
Significant other
in active markets observable inputs unobservable inputs
(Level 2)
Significant
(Level 3)
(Level 1)
Assets:
Restricted investments
August 31, 2017 $
964 $
926
Restricted investments
August 31, 2016 $ 1,637 $
1,610
38
27
—
—
The following table presents the fair values of the Company’s long-term debt as of August 31, 2017 and 2016
which is recorded at its carrying amount:
Fair value
Fair value measurement category
Quoted prices Significant other
Significant
in active markets observable inputs unobservable inputs
measurement date Total
(Level 1)
(Level 2)
(Level 3)
Liabilities:
Long-term debt
August 31, 2017 $
— $
Long-term debt
August 31, 2016 $ 43,400 $
—
—
—
43,400
—
—
The carrying value of the long-term debt approximates its fair value, as the interest rate is set based on the
movement of the underlying market rates, and is consistent with the interest rate the Company believes it could currently
obtain for a similar financing arrangement.
Note 17—Net Income Per Share
The determination of earnings per share under the two-class method is as follows:
Net income attributable to Chase Corporation
Less: Allocated to participating securities
Available to common shareholders
Basic weighted average shares outstanding
Additional dilutive common stock equivalents
Diluted weighted average shares outstanding
Years Ended August 31,
2016
32,807 $
266
32,541 $
2017
42,014 $
454
41,560 $
$
$
9,249,343
108,071
9,357,414
9,167,333
126,744
9,294,077
2015
26,318
214
26,104
9,086,043
168,011
9,254,054
Net income available to common shareholders, per common and common
equivalent share
Basic
Diluted
$
$
4.49 $
4.44 $
3.55 $
3.50 $
2.87
2.82
For the respective years ended August 31, 2016 and 2015, stock options to purchase 9,354 and 20,271 shares of
common stock were outstanding, but were not included in the calculation of diluted net income per share because their
inclusion would be antidilutive. No stock options were excluded from the calculation for the year ended August 31,
2017. Included in the calculation of dilutive common stock equivalents are the unvested portion of restricted stock and
stock options.
79
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 18—Sale of Businesses
Sale of Fiber Optic Cable Components Product Line
On April 3, 2017, Chase executed an agreement with an unrelated party, to sell all inventory, machinery and
equipment and intangible assets of the Company’s fiber optic cable components product line for proceeds of $3,858, net
of transaction costs and following certain working capital adjustments. Given its low-growth and low-margin prospects,
and a customer, supplier and equipment base separate from our other businesses, the fiber optic cable components
product line, which was formerly part of the Company’s Industrial Materials segment, was determined to not be part of
Chase’s long-term strategy. The divesture was accounted for under ASC Topic 360, “Disclosure - Impairment or
Disposal of Long-Lived Assets.” In accordance with this accounting standard, the resulting pre-tax gain on sale of
$2,013 was recognized in fiscal 2017 as gain on sale of businesses within the consolidated statement of operations.
Chase received $3,458, net of transaction costs, in the third quarter of fiscal 2017, with the remaining $400 placed in
escrow; the portion of the sale price held in escrow was recorded as a non-current asset within other assets as of August
31, 2017, and is available to resolve any submitted claims or adjustments up to 18 months from the closing date of the
sale.
Subsequent to the sale, Chase will provide ongoing manufacturing and administrative support to the purchaser
for which the Company will receive additional consideration upon the performance of services; this arrangement is
anticipated to last for multiple years. Subsequent to the sale, Chase charged the purchaser $740 for manufacturing
services, which the Company recognized as revenue within the Industrial Materials segment, and $100 for selling and
administrative expenses, which the Company recognized as an offset to selling, general and administrative expenses.
Further, the purchaser entered a multiyear lease for a portion of the manufacturing space at the Company’s Granite Falls,
NC facility. Chase charged $54 in rental income subsequent to the sale related to this lease, which the Company
recognized within other income (expense) on the consolidated statement of operations
Sale of RodPack Business
In November 2015, the Company sold its RodPack wind energy business, contained within its structural
composites product line, to an otherwise unrelated party for proceeds of $2,186. The Company’s structural composites
product line is a part of the Company’s Industrial Materials segment. The Company is not restricted in its use of the net
proceeds from the sale.
The sale resulted in a pre-tax book gain of $1,031, which was recorded within the consolidated statement of
operations as gain on sale of businesses in fiscal 2016. The Company received $1,500 of the proceeds in the first quarter
of fiscal 2016, and received three additional payments each for $229 during the quarters ended May 31, 2016, November
30, 2016 and August 31, 2017. At August 31, 2016, the Company held the then receivable balance ($457) as a current
asset (Due from sale of business). The Company will provide ongoing development support to the Buyer for which it
will receive additional consideration upon the completion of services.
The sale of this business prompted the Company to perform a review of other long-lived assets within the
structural composites product line, as the sale of the related intangible assets resulted in a limitation of the Company’s
capacity to sell certain other goods produced by the product line. This review resulted in the identification of
construction in progress assets with a net book value of $365, which the Company fully wrote down. This charge was
recorded within the consolidated statement of operations as write-down of certain assets under construction during the
first quarter of fiscal 2016.
80
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 19—Sale of Real Estate
Sale of Paterson, NJ Location
In November 2016, the Company finalized the sale of its Paterson, NJ property for cash proceeds in the amount
of $1,382. This transaction resulted in a gain of $792, which was recorded in the Company’s consolidated statement of
operations as a gain on sale of real estate during the fiscal quarter ended November 30, 2016.
During the second quarter of fiscal 2016, as part of its ongoing facility consolidation and rationalization
initiative, the Company committed to a plan to actively market the Paterson, NJ property for sale. At that time, Chase
owned the building and leased the land from the landowner. Prior to the sale in fiscal 2017, the building was being
leased to a tenant and the land was being sub-leased. Upon commitment to a plan to sell the property, the Company
reclassified the net book value of the related assets to assets held for sale. The assets held for sale had been reported
within Corporate and Common assets as of August 31, 2016.
Sale of Former Corporate Headquarters in Bridgewater, MA
In October 2016, Chase entered into an agreement to sell its former corporate headquarters and executive
offices in Bridgewater, MA. In December 2016, during the second fiscal quarter of 2017, the sale was finalized for gross
cash proceeds in the amount of $740, resulting in a gain on sale of $68. See Note 23 to the Consolidated Financial
Statements for additional information on the sale of the Bridgewater, MA location.
Note 20—Exit Costs Related to Idle Facility
In fiscal 2017 and 2016, the Company recognized $70 and $935, respectively, in expenses to raze its Randolph,
MA facility, which has been idle regarding production for several years. The Company began marketing the site for sale
and reclassified the net book value of the facility to assets held for sale during the second quarter of fiscal 2016. These
actions were taken as part of the Company’s on-going facility consolidation and rationalization initiative. The Company
substantially completed the demolition of the structure in the fourth fiscal quarter of 2016, and completed other
environmental aspects of the project during fiscal 2017. The sale of the property is anticipated to follow in a subsequent
period, and any future expenses related to the project are not anticipated to be material. See Note 21 to the Consolidated
Financial Statements for additional information on assets held for sale.
81
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 21—Assets Held for Sale
The Company periodically reviews long-lived assets against its plans to retain or ultimately dispose of these
assets. If the Company decides to dispose of an asset and commits to a plan to actively market and sell the asset, it will
be moved to assets held for sale. The Company analyzes market conditions each reporting period and records additional
impairments due to declines in market values of like assets. The fair value of the asset is determined by observable inputs
such as appraisals and prices of comparable assets in active markets for assets like the Company's. Gains are not
recognized until the assets are sold.
Net book value of assets held for sale as of August 31, 2017 and 2016 were:
Randolph, MA - Property (1)
Paterson, NJ - Building and leasehold improvements (2)
Total
$
$
August 31, 2017
August 31, 2016
14
—
14
$
$
14
590
604
(1) See Note 20 to the Consolidated Financial Statements for additional information on Randolph, MA location
assets held for sale as of August 31, 2017 and 2016
(2) See Note 19 to the Consolidated Financial Statements for additional information on Paterson, NJ location assets
held for sale as of August 31, 2016
Note 22—Commitments and Contingencies
The Company is involved from time to time in litigation incidental to the conduct of its business. Although the
Company does not expect that the outcome in any of these matters, individually or collectively, will have a material
adverse effect on its financial condition, results of operations or cash flows, litigation is inherently unpredictable.
Therefore, judgments could be rendered or settlements agreed to that could adversely affect the Company’s operating
results or cash flows in a particular period. The Company routinely assesses all its litigation and threatened litigation as
to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where
we assess the likelihood of loss as probable.
Note 23—Related Party Agreements
Reimbursements Related to Life Insurance Policies
The Edward L. Chase Trust (the “Trust”), owners of two insurance policies on the life of Claire E. Chase,
reimbursed the Company for premiums paid on the policies in exchange for the Company’s release of any claims on
them. In August 2016 (fiscal 2016), the Company received $1,238 related to the John Hancock (formerly Manufacturers’
Life Insurance Company) policy, the full value of premiums paid to date by the Company. In September 2016 (fiscal
2017), the Company received $1,504 related to the Metropolitan Life Insurance policy, its then cash surrender value,
plus an additional prepaid related to the policy. Claire E. Chase is the spouse of a former executive of the Company,
Edward L. Chase (deceased), and who in each case are the parents of Peter R. Chase (the Executive Chairman of the
Company) and Mary Claire Chase (Director) and the grandparents of Adam P. Chase (the President and CEO of the
Company). The Trust is the beneficial owner of more than 5% of the Company’s common stock. Terms and conditions
of these transactions were reviewed and approved by the independent members of the Company's Board of Directors in
advance. Please see Note 5 to the Company’s Consolidated Financial Statements for additional information on the cash
surrender value of life insurance policies held by the Company at August 31, 2017 and 2016.
82
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Settlement of a Life Annuity
During the fourth quarter of fiscal 2016, the Company recognized a gain of $877 to selling, general and
administrative expenses related to a life annuity payable to Barbara A. Chase (deceased). Upon Ms. Chase’s passing in
August 2016, the Company’s payment obligation ceased, and the previously recorded liability was written down.
Barbara A. Chase is the spouse of a former executive of the Company, Francis M. Chase (deceased) and who are in each
case the respective aunt and uncle of Peter R. Chase and Mary Claire Chase and respective great-aunt and great-uncle of
Adam P. Chase.
Sale of Former Corporate Headquarters in Bridgewater, MA
In October 2016, Chase entered an agreement to sell its former corporate headquarters and executive offices in
Bridgewater, MA. In December 2016, the sale was finalized for gross proceeds of $740, resulting in a gain on sale of
$68, which was recognized in the second quarter of fiscal 2017. The buyer, Bridgewater State University Foundation,
Inc., was deemed a related party because of previously existing professional connections between it and two members of
the Company’s Board of Directors, including Peter R. Chase and Dana Mohler-Faria (Director). The terms and
conditions of the proposed transaction were reviewed and approved by all members of the Company's Board of Directors
who were not parties related to the potential buyer, prior to entering the October 2016 agreement. They concluded that
the sale price was appropriate, after considering a recent market appraisal of the land and building performed by an
independent third-party valuation firm.
NEPTCO JV LLC Noncontrolling Membership Interest
As part of the Company’s purchase of NEPTCO in June 2012, it also acquired NEPTCO’s 50% ownership stake
in its financially controlled joint venture, NEPTCO JV LLC (“JV”). The JV was originally formed by NEPTCO and a
joint venture partner, Owens Corning, in 2003, whereby each member’s fiber optic strength elements businesses were
combined. Prior to the Company’s October 31, 2014 purchase of the outstanding 50% noncontrolling membership
interest from its joint venture partner, this venture, was managed and operated on a day-to-day basis by the Company.
While operating under the joint ownership of the members, the JV had agreed to purchase a minimum of 80% of its total
glass fiber requirements from Owens Corning. Additionally, the JV had agreed to purchase private-label products
exclusively from an affiliate of the joint venture partner; however, the JV was not subject to a minimum purchase
requirement on private-label products. These purchase agreements were terminated on October 31, 2014. Purchases from
the joint venture partner totaled $332 for the period from September 1, 2014 through October 31, 2014. Please see
Notes 14 and 15 to the Company’s Consolidated Financial Statements for additional information on the JV.
83
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 24—Selected Quarterly Financial Data (Unaudited)
The following table presents unaudited operating results for each of the Company’s quarters in the years ended
August 31, 2017 and 2016:
Fiscal Year 2017 Quarters
First
Second
Third
Fourth
Year
Net Sales
Gross Profit on Sales
Net income attributable to Chase Corporation
Net income available to common shareholders, per common
and common equivalent share:
Basic
Diluted
$ 60,269 $ 56,288 $ 63,641 $ 67,679 $ 247,877
24,980
101,841
26,130
$ 10,363 $ 8,383 $ 11,855 $ 11,413 $ 42,014
23,430
27,301
$ 1.11 $ 0.90 $
$ 1.10 $ 0.89 $
1.27 $ 1.22 $
1.26 $ 1.21 $
4.49
4.44
Net Sales
Gross Profit on Sales
Net income attributable to Chase Corporation
Net income available to common shareholders, per
common and common equivalent share:
Basic
Diluted
First
Second
Third
Fourth
Year
Fiscal Year 2016 Quarters
$ 56,746 $ 53,706 $ 63,480 $ 60,518 $ 234,450
90,012
24,938
22,029
32,807
$ 7,449 $ 6,972 $ 7,531 $ 10,855 $
18,811
24,234
$
$
0.81 $
0.80 $
0.75 $
0.74 $
0.81 $
0.80 $
1.17 $
1.16 $
3.55
3.50
Note: Quarterly earnings per share amounts may not sum to earnings per share for the year due to rounding.
Note 25—Valuation and Qualifying Accounts
The following table sets forth activity in the Company’s accounts receivable reserve:
Year ended
August 31, 2017
August 31, 2016
August 31, 2015
Balance at
Beginning of
Year
Charges to
Operations
Deductions to
Reserves
$
$
$
830 $
705 $
670 $
197 $
196 $
83 $
Balance at
End of Year
456
830
705
(571) $
(71) $
(48) $
The following table sets forth activity in the Company’s warranty reserve:
Year ended
August 31, 2017
August 31, 2016
August 31, 2015
Balance at
Beginning of
Year
Charges to
Operations
Deductions to
Reserves
Balance at
End of Year
220
—
230
— $
(373) $
(84) $
$
$
$
— $
230 $
270 $
220 $
143 $
44 $
84
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 26—Accumulated Other Comprehensive Income
The changes in accumulated other comprehensive income (loss), net of tax, were as follows:
Change in Funded Foreign Currency
Balance at August 31, 2015
Other comprehensive gains (losses) before
reclassifications
Reclassifications to net income of previously deferred
(gains) losses
Other comprehensive income (loss)
Restricted
Investments Pension Plan
$
47 $
Status of
(5,934) $
Translation
Adjustment
Total
(2,099) $ (7,986)
51
(44)
7
(2,116)
(6,098)
(8,163)
714
(1,402)
—
(6,098)
670
(7,493)
Balance at August 31, 2016
$
54 $
(7,336) $
(8,197) $ (15,479)
Other comprehensive gains (losses) before
reclassifications
Reclassifications to net income of previously deferred
(gains) losses
Other comprehensive income (loss)
155
(88)
67
221
934
1,155
788
1,164
—
788
846
2,010
Balance at August 31, 2017
$
121 $
(6,181) $
(7,409) $ (13,469)
The following table summarizes the reclassifications from accumulated other comprehensive income (loss) to the
consolidated statements of income:
Amount of Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income
(Loss) into Income
Year Ended
Year Ended
Location of Gain (Loss) Reclassified from Accumul
ated
August 31, 2017
August 31, 2016
Other Comprehensive Income (Loss) into Income
Gains on Restricted Investments:
Realized gain on sale of restricted
investments
Tax expense (benefit)
Gain net of tax
Loss on Funded Pension Plan adjustments:
Change in funded status of pension plans
Change in funded status of pension plans
Tax expense (benefit)
Loss net of tax
$
$
$
$
$
(127) $
39
(88) $
98 $
1,255 $
(419)
934 $
Total net loss reclassified for the period
$
846 $
(67)
23
(44)
106
991
(383)
714
670
Selling, general and administrative expenses
Cost of products and services sold
Selling, general and administrative expenses
85
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A – CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be
disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the Commission’s rules and forms and that such information
is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carries out a variety of ongoing procedures, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to evaluate the
effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing,
the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls
and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act
as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons
performing similar functions, and effected by our Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief
Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over
financial reporting based on the framework in “Internal Control — Integrated Framework (2013)” issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management
has concluded that the internal control over financial reporting was effective as of August 31, 2017.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of our internal
control over financial reporting as of August 31, 2017, and has issued an unqualified opinion thereon as stated in their
report, which appears under Item 8
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the quarter ended August 31, 2017, the Company completed the process of implementing its worldwide ERP computer
system, and other applicable shared services, on operations associated with the Resin Designs, LLC assets acquired in
September 2016.
ITEM 9B – OTHER INFORMATION
Not applicable.
86
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 of Form 10-K, relating to Directors of the Company, compliance with the reporting
obligations under Section 16(a) of the Exchange Act, the Company’s code of ethics applicable to senior management,
procedures for shareholder nominations to the Company’s Board of Directors, and the Company’s Audit Committee is
incorporated by reference from the information contained in the Definitive Proxy Statement for the Annual Meeting of
Stockholders, which is expected to be filed within 120 days after the Company’s fiscal year ended August 31, 2017.
Information regarding the Company’s executive officers found in the section captioned “Executive Officers of the
Registrant” in Item 4A of Part I hereof is also incorporated by reference into this Item 10.
ITEM 11 – EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K, relating to executive and director compensation and certain matters
relating to the Company’s Compensation and Management Development Committee, is incorporated by reference from
the information contained in the Definitive Proxy Statement for the Annual Meeting of Stockholders, which is expected
to be filed within 120 days after the Company’s fiscal year ended August 31, 2017.
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 of Form 10-K, relating to the stock ownership of certain beneficial owners and
management, is incorporated by reference from the information contained in the Definitive Proxy Statement for the
Annual Meeting of Stockholders, which is expected to be filed within 120 days after the Company’s fiscal year ended
August 31, 2017.
The following table summarizes the Company’s equity compensation plans as of August 31, 2017. Further details on the
Company’s equity compensation plans are discussed in the notes to the Consolidated Financial Statements. The
adoption of each of the Company’s equity compensation plans was approved by its shareholders.
Weighted
Number of shares of
Chase common
stock to be issued
upon the exercise of
outstanding options
average exercise Number of shares of
Chase common stock
remaining available for
future issuance
price of
outstanding
options
2005 Incentive Plan
2013 Equity Incentive Plan
Total
102,528 $
50,446
152,974 $
22.25
58.53
34.21
—
1,078,015
1,078,015
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 of Form 10-K, relating to transactions with related persons and the independence of
members of the Company’s Board of Directors, is incorporated by reference from the information contained in the
Definitive Proxy Statement for the Annual Meeting of Stockholders, which is expected to be filed within 120 days after
the Company’s fiscal year ended August 31, 2017.
ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 of Form 10-K, relating to fees paid to the Company’s independent registered public
accounting firm and pre-approval policies of the Company’s Audit Committee, is incorporated by reference from the
information contained in the Definitive Proxy Statement for the Annual Meeting of Stockholders, which is expected to
be filed within 120 days after the Company’s fiscal year ended August 31, 2017.
87
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) and (2)
Financial Statements and Schedules:
PART IV
The financial statements are set forth under Item 8 of this Annual Report on Form 10-K. Financial statement schedules
have been omitted since they are either not required, not applicable, or the information is otherwise included.
(a)(3)
Exhibit Index:
Exhibit
Number
3.1.1
3.1.2
Description
Articles of Organization of Chase Corporation (incorporated by reference from Exhibit 3.1 to the
Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2004, filed on
November 24, 2004 (the “2004 Form 10-K”)).
Articles of Amendment to Articles of Organization of Chase Corporation (incorporated by reference
from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
February 29, 2008, filed on April 9, 2008).
3.2
Amended and Restated By-Laws (incorporated by reference from Exhibit 3.1 to the Company’s
current report on Form 8-K filed on April 12, 2016).
10.1
Amended and Restated Stock Agreement dated as of August 31, 2004, between the Company and
Peter R. Chase (incorporated by reference to Exhibit 10 to the Company’s current report on Form 8-
K filed on September 2, 2004).*
10.2
10.3
10.4
10.5.1
10.5.2
Chase Corporation Employee’s Supplemental Pension Plan effective January 1, 2008 (incorporated
by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended May 31, 2008, filed on July 10, 2008). *
Chase Corporation Employee’s Supplemental Savings Plan effective January 1, 2008 (incorporated
by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended May 31, 2008, filed on July 10, 2008). *
Chase Corporation Non-Qualified Retirement Savings Plan for the Board of Directors, amended and
restated effective January 1, 2009 (incorporated by reference from Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended February 28, 2009, filed on April 9, 2009). *
Severance Agreement between the Company and Peter R. Chase dated July 10, 2006 (incorporated
by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended May 31, 2006, filed on July 17, 2006).*
Severance Agreement between the Company and Adam P. Chase dated October 1, 2008
(incorporated by reference from Exhibit 10.6.3 to the Company’s Annual Report on Form 10-K for
the fiscal year ended August 31, 2009, filed on November 16, 2009 (the “2009 Form 10-K”). *
10.5.3
Offer letter dated August 19, 2014 by and between Chase Corporation and Kenneth J. Feroldi
(incorporated by reference from Exhibit 10.5.4 to the Company’s Annual Report on Form 10-K for
the fiscal year ended August 31, 2014, filed on November 14, 2014 (the “2014 Form 10-K”). *
10.6.1
Chase Corporation 2001 Senior Management Stock Plan (incorporated by reference from Exhibit
10.44 to the Company’s 2004 Form 10-K).*
88
10.6.2
10.7.1
10.7.2
10.7.3
10.7.4
10.7.5
10.7.6
10.7.7
10.9.1
10.9.2
10.10.1
10.10.2
10.10.3
10.10.4
10.10.5
10.10.6
Form of award issued under Chase Corporation 2001 Senior Management Stock Plan (incorporated
by reference from Exhibit 10.45 to the Company’s 2004 Form 10-K).*
2005 Equity Incentive Plan of Chase Corporation (incorporated by reference from Exhibit 10.1 to
the Company's current report on Form 8-K filed on February 9, 2006).*
2013 Equity Incentive Plan of Chase Corporation (incorporated by reference from Exhibit A to the
Company’s 2012 Proxy Statement filed on December 21, 2012).*
Form of restricted stock unit award issued for non-executive members of the Board of Directors
(incorporated by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for
the period ended February 28, 2007, filed on April 16, 2007).*
Form of restricted stock unit award issued for members of Executive Management (incorporated by
reference from Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended
February 28, 2007, filed on April 16, 2007).*
Form of restricted stock agreement issued for non-executive members of the Board of Directors
(incorporated by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for
the period ended February 29, 2008, filed on April 9, 2008).*
Form of restricted stock agreement issued for members of Executive Management (incorporated by
reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended
November 30, 2007, filed on January 9, 2008).*
Form of stock option award issued (incorporated by reference from Exhibit 10.11.6 to the
Company’s 2009 Form 10-K). *
Split Dollar Agreement between Chase Corporation and Peter R. Chase dated January 10, 2005
(incorporated by reference from Exhibit 10.2 to the Company’s current report on Form 8-K filed on
January 14, 2005).*
Split Dollar Endorsement dated January 10, 2005 (incorporated by reference from Exhibit 10.3 to
the Company’s current report on Form 8-K filed on January 14, 2005).*
FY 2017 Chase Corporation Annual Incentive Plan (incorporated by reference from Exhibit 99.1 to
the Company's current report on Form 8-K filed on September 2, 2016).*
FY 2017 Chase Corporation Long Term Incentive Plan (incorporated by reference from Exhibit
99.2 to the Company's current report on Form 8-K filed on September 2, 2016).*
FY 2018 Chase Corporation Annual Incentive Plan (incorporated by reference from Exhibit 99.1 to
the Company's current report on Form 8-K filed on September 6, 2017).*
FY 2018 Chase Corporation Long Term Incentive Plan (incorporated by reference from
Exhibit 99.2 to the Company's current report on Form 8-K filed on September 6, 2017).*
Restricted Stock Agreement (equity retention agreement) between Chase Corporation and Adam P.
Chase dated September 1, 2016 (incorporated by reference from Exhibit 10.10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended November 30, 2016, filed on January 6,
2017).*
Stock Option Agreement (equity retention agreement) between Chase Corporation and Adam P.
Chase dated September 1, 2016 (incorporated by reference from Exhibit 10.10.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended November 30, 2016, filed on January 6,
2017).*
89
10.10.7
Restricted Stock Agreement (equity retention agreement) between Chase Corporation and Kenneth
J. Feroldi dated September 1, 2016 (incorporated by reference from Exhibit 10.10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2016, filed on
January 6, 2017).*
10.10.8
Modification of Restricted Stock Agreement (equity retention agreement) between Chase
Corporation and Kenneth J. Feroldi dated August 23, 2017.*
10.11.1
Endorsement Split-Dollar Agreement among the Company, Edward L. Chase, and Sarah Chase as
trustee of the ELC Irrevocable Life Insurance Trust (incorporated by reference from Exhibit 10.25
to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1998, filed on
November 27, 1998).
10.11.2
Amendment to Endorsement Split-Dollar Agreement between the Company and Sarah Chase as
trustee of the ELC Irrevocable Life Insurance Trust (incorporated by reference from Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-Q for the period ended February 28, 2009, filed on
April 9, 2009).
10.12.1
10.12.2
10.13
Amended and Restated Credit Agreement dated as of December 15, 2016 by and among Chase
Corporation, NEPTCO Incorporated, the Guarantors named therein, Bank of America, N.A., as
administrative agent, and the Lenders party thereto (incorporated by reference from Exhibit 10.1 to
the Company’s current report on Form 8-K filed December 20, 2016)
First Amendment to Amended and Restated Credit Agreement, dated as of February 6, 2017 by and
among Chase Corporation, NEPTCO Incorporated, the Guarantors, the Lenders party thereto and
Bank of America, N.A., as administrative agent (incorporated by reference from Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2017, filed on April
7, 2017).
Asset Purchase and Sale Agreement dated as of January 28, 2015 between Henkel Corporation, as
the Seller and Chase Corporation, as the Buyer (incorporated by reference from Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2015, filed on April
9, 2015).
10.14
Asset Purchase Agreement, dated September 30, 2016, between Chase Corporation and Resin
Designs, LLC (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended November 30, 2016, filed on January 6, 2017).
21
23.1
31.1
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm – PricewaterhouseCoopers LLP
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1
Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
32.2
Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
101.INS
XBRL Instance Document
90
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
* Identifies management plan or compensatory plan or arrangement.
(b) See (a)(3) above.
(c) None.
ITEM 16 – FORM 10-K SUMMARY
None.
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Chase Corporation
By:
/s/ Adam P. Chase
Adam P. Chase
President and Chief Executive Officer
November 9, 2017
By:
/s/ Kenneth J. Feroldi
Kenneth J. Feroldi
Treasurer and Chief Financial Officer
November 9, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Peter R. Chase
Peter R. Chase
/s/ Adam P. Chase
Adam P. Chase
/s/ Kenneth J. Feroldi
Kenneth J. Feroldi
/s/ Mary Claire Chase
Mary Claire Chase
/s/ Everett Chadwick, Jr
Everett Chadwick, Jr
/s/ John H. Derby III
John H. Derby III
/s/ Lewis P. Gack
Lewis P. Gack
/s/ George M. Hughes
George M. Hughes
/s/ Chad A. McDaniel
Chad A. McDaniel
/s/ Dana Mohler-Faria
Dana Mohler-Faria
/s/ Thomas Wroe, Jr
Thomas Wroe, Jr
Executive Chairman
November 9, 2017
Title
Date
Director, President and Chief Executive Officer
November 9, 2017
(Principal executive officer)
Treasurer and Chief Financial Officer
November 9, 2017
(Principal financial officer and principal accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
92
November 9, 2017
November 9, 2017
November 9, 2017
November 9, 2017
November 9, 2017
November 9, 2017
November 9, 2017
November 9, 2017
CHASE Corporation
Officers
Peter R. Chase
Executive Chairman
Adam P. Chase
President & Chief Executive Officer
Kenneth J. Feroldi
Treasurer & Chief Financial Officer
George M. Hughes
Corporate Secretary
Legal Counsel
Hughes & Associates
P.O. Box 590321
Newton Center, MA 02459
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP
101 Seaport Boulevard
Boston, MA 02210
Registrar & Transfer
Agent
American Stock Transfer &
Trust Company
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
CHASE CORPORATION
CORPORATE
HEADQUARTERS
295 University Avenue
Westwood, MA 02090
Phone (781) 332-0700
Fax (781) 332-0701
Toll Free (800) 323-4182
Operating Facilities
OXFORD, MA
24 Dana Road
Oxford, MA 01540
Phone (508) 731-2710
Fax (508) 987-1092
PRODUCTS/SERVICES: Shielding
& binding tapes for electronic &
telecommunication cable.
Laminated papers used for a variety
of durable paper applications and
RFID protection. Specialty
laminates for automotive, packaging
and medical products.
Converting services include
specialized laminating, slitting and
traverse winding. Insulating, flame
barrier, binder and semi-conducting
tapes for power and
telecommunications.
PITTSBURGH, PA
201 Zeta Drive and 128 First Street
Pittsburgh, PA 15238
Phone (412) 828-1500
Fax (412) 828-3487
PRODUCTS/SERVICES: HumiSeal®
insulating conformal coatings, potting
compounds and specialty accessory
products for the protection of printed
circuit assembly and electronic
components. Protective coatings for
underground gas, oil and water
pipelines, as well as waterproofing
membranes and high-performance
polymer additives for asphalt and
expansion joints and accessories, and
private label manufacturing. Water
blocking compounds for power and
telecommunications.
EVANSTON, IL
1527 Lyons Street
Evanston, IL 60201
Phone (847) 866-8500
Fax (847) 866-8596
PRODUCTS/SERVICES: Innovative
products for the protection against
corrosion for underground gas, oil and
water pipelines and marine industries,
waterproofing tapes, as well as
private label manufacturing.
HOUSTON, TX
C.I.M. Industries, Inc.
6900 Nelms Street
Houston, TX 77061
Phone (713) 242-9015
PRODUCTS/SERVICES: High
performance industrial coatings and
linings providing a seamless,
impermeable, abrasion-resistant
barrier against water and chemicals.
C.I.M.’s polyurethane coatings have
been keeping liquids where they
belong in a variety of applications for
over 50 years.
WOBURN, MA
11 State Street
Woburn, MA 01801
Phone (781) 935-3133
Fax (781) 935-3144
PRODUCTS/SERVICES:
Customized advanced adhesives and
coatings for automotive and industrial
applications that require specialized
bonding, encapsulating,
environmental protection, or thermal
management functionality.
NEWARK, CA
39714 Eureka Drive
Newark, CA 94560
Phone (510) 413-0115
PRODUCTS/SERVICES:
Customized advanced sealants and
coatings for automotive and industrial
applications that require specialized
bonding, encapsulating,
environmental protection, or thermal
management functionality.
GREENVILLE, SC
9 Furman Hall Ct.
Greenville, SC 29609
Phone (846) 232-3893
PRODUCTS/SERVICES: Polymeric
microspheres, sold under the
Dualite®
brand, which are utilized for weight
and density reduction and sound
dampening across varied industries.
PAWTUCKET, RI
NEPTCO, INC.
30 Hamlet Street
Pawtucket, RI 02861
Phone (401) 722-5500
Fax (401) 728-9932
PRODUCTS/SERVICES:
Laminated film foils for the
electronics and cable industries.
LENOIR, NC
NEPTCO, INC.
2012 Hickory Boulevard
P.O. Box 1766
Lenoir, NC 28645
Phone (828) 728-5951
Fax (828) 728-5115
PRODUCTS/SERVICES:
Laminated film foils for the
electronics and cable industries and
cover tapes essential to delivering
semiconductor components via tape
and reel packaging. Provider of
coating, laminating and converting
services for original equipment
manufacturers.
GRANITE FALLS, NC
NEPTCO, INC.
3908 Hickory Boulevard
P.O. Box 800
Granite Falls, NC 28630
Phone (828) 396-2121
Fax (828) 396-6978
PRODUCTS/SERVICES: Pulling
and detection tapes used in the
installation, measurement and
location of fiber optic cables, water
and natural gas lines.
Constructed elements used to provide
integrity to structural components.
Custom manufacturing services.
SUZHOU, JIANGSU, CHINA
NEPTCO, INC.
D-10 #19 Datong Road
Suzhou New District Processing
Zone Suzhou, Jiangsu, China
215151
Phone 86-512-6269-6298
SKYPE 828-398-0641
PRODUCTS/SERVICES: Cover tapes
essential to delivering semiconductor
components via tape and reel
packaging.
WINNERSH, WOKINGHAM,
ENGLAND
505 Eskdale Road
Winnersh, Wokingham, Berkshire
RG41 5TU UK
Phone +44 (0) 1189 442 333
Fax +44 (0) 1189 335 799
PRODUCTS/SERVICES: HumiSeal
insulating conformal coatings, potting
compounds and specialty accessory
products for the protection of printed
circuit assembly and electronic
components.
PARIS, FRANCE
4/6 Avenue Eiffel
78420 Carrieres-Sur-Seine France
Phone +33 (0) 1 30 09 86 86
Fax +33 (0) 1 09 86 87
PRODUCTS/SERVICES: HumiSeal
insulating conformal coatings, potting
compounds and specialty accessory
products for the protection of printed
circuit assembly and electronic
components.
PUNE, INDIA
HumiSeal India Private Limited
J-154, M.I.D.C.
Bhosari, Pune-411 026
Maharashtra, India
Phone +91 20 66308098
PRODUCTS/SERVICES: HumiSeal
insulating conformal coatings, potting
compounds and specialty accessory
products for the protection of printed
circuit assembly and electronic
components.
RYE, EAST SUSSEX, ENGLAND
Harbour Road
Rye, East Sussex
TN31 7TE UK
Phone +44 (0) 1797 223561
Fax +44 (0) 1797 224530
PRODUCTS/SERVICES:
Waterproofing and corrosion
protection systems for oil, gas and
water pipelines as well as high-
performance tapes, epoxies and
cathodic protection accessory
products.
SHAREHOLDER
INFORMATION
Common Stock
Common Stock of Chase Corporation
is traded on the NYSE American
under the symbol “CCF”.
Annual Meeting of
Shareholders
The Annual Meeting of Shareholders
will be held at 9:30 a.m. on Tuesday,
February 6, 2018 at the Hyatt Place
Boston-Braintree, 50 Forbes Road,
Braintree, MA 02184
When shares owned by one
shareholder are held in different
forms of the same name (e.g., John
Doe, J. Doe) or when new accounts
are established for shares purchased at
different times, duplicate mailings of
shareholder information may result.
The Company, by law, is required to
mail to each name on the shareholder
list unless the shareholder requests that
duplicate mailings be eliminated or
consolidates all accounts into one.
Such requests should be directed, in
writing, to the Shareholder Services
Department, American Stock Transfer
& Trust Company, Operations Center,
6201 15th Avenue, Brooklyn, NY
11219.
Contact:
investorrelations@chasecorp.com