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, 2018
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)
Securities registered pursuant to section 12(g) of the Act: None
Name of Each Exchange on Which Registered
NYSE American
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 every Interactive Data File required to be submitted 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 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
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, 2018 (the last business day of the registrant’s
second quarter of fiscal 2018), was approximately $608,967,000.
As of October 31, 2018, the Company had outstanding 9,402,134 shares of common stock, $0.10 par value, which is its only class of common stock.
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, 2018, are incorporated by reference into Part III hereof.
Documents Incorporated By Reference:
CHASE CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Year Ended August 31, 2018
Cautionary Note Concerning Forward-Looking Statements
Page No.
2
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
3
9
12
13
14
14
14
15
17
18
36
37
94
94
95
96
96
96
96
96
97
100
101
1
Cautionary Note Concerning Forward-Looking Statements
This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements, including without limitation
forward-looking statements made under the caption “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” involve risks and uncertainties. Any statements contained in this Annual Report that are not
statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include,
without limitation, statements as to our future operating results; seasonality expectations; plans for the development,
utilization or disposal of manufacturing facilities; future economic conditions; our expectations as to legal proceedings;
the effect of our market and product development efforts; and expectations or plans relating to the implementation or
realization of our strategic goals and future growth, including through potential future acquisitions. Forward-looking
statements may also include, among other things, statements relating to future sales, earnings, cash flow, results of
operations, use of cash and other measures of financial performance, 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. 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.
2
ITEM 1 – BUSINESS
Primary Operating Divisions and Facilities and Industry Segments
PART I
Chase Corporation, a global specialty chemicals company 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 reportable 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, 2018 is as follows:
INDUSTRIAL MATERIALS SEGMENT
Key Products
Primary
Manufacturing
Locations
Specialty tapes and related products for the electronic and
telecommunications industries using the brand name Chase &
Sons®.
Oxford, MA
Insulating and conducting materials for the manufacture of
electrical and telephone wire and cable, electrical splicing, and
terminating and repair tapes, which are marketed to wire and
cable manufacturers selling into energy-oriented and
communication markets, and to public utilities.
PaperTyger®, a trademark for laminated durable papers sold to
the envelope converting and commercial printing industries.
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,
industrial controls and home appliances.
O'Hara
The HumiSeal business and product lines were acquired in the
Township, PA
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
3
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,
industrial controls and home appliances.
Winnersh,
Wokingham,
England
Polymeric microspheres, sold under the Dualite® brand, which
are utilized for weight and density reduction and sound
dampening across varied industries.
Greenville, SC
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 further expanded our international presence
through the purchase of Spray Products (India) Private Limited,
located in Pune, India. This business enhances the Company’s
ability to provide technical, sales, manufacturing, chemical
handling and packaging services in the region and works closely
with our HumiSeal manufacturing operation in Winnersh,
Wokingham, England. In December 2016, Spray Products
(India) Private Limited was renamed HumiSeal India Private
Limited.
In January 2015, we acquired two product lines from Henkel
Corporation. They, along with the Superabsorbents business
acquired in December 2017, comprise our specialty chemical
intermediates product line.
Water-based polyurethane dispersions utilized for various
coating products.
The Company currently contracts with manufacturing partners
to produce its water-based polyurethane dispersions.
Superabsorbent polymers, sold through our Zappa Stewart
division, which are utilized for water and liquid management,
remediation and protection in diverse markets including wire
and cable, medical, environmental, infrastructure, energy and
consumer products.
Hickory, NC
McLeansville,
NC
In December 2017, we acquired Stewart Superabsorbents, LLC
("SSA, LLC") and its Zappa-Tec business (collectively “Zappa
Stewart”).
4
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.
Rye, East
Sussex, England
The ServiWrap® product offering complements the portfolio of
our pipeline protection tapes, coatings and accessories to extend
our global customer base.
Other Business Developments
In September 2007, we purchased certain product lines and a
related manufacturing facility in Rye, East Sussex, England
through our wholly-owned subsidiary, Chase Protective
Coatings Ltd. This facility joins Chase's North American-based
Tapecoat® and Royston® brands to broaden the protective
pipeline coatings product line and better address global demand.
In December 2009, we acquired the full range of ServiWrap®
pipeline protection products (“ServiWrap”) from Grace
Construction Products Limited, a U.K.-based unit of
W.R. Grace & Co.
On June 25, 2018, the Company announced to its employees the planned closing of its Pawtucket, RI manufacturing
facility effective August 31, 2018. This is in line with the Company’s ongoing efforts to consolidate its manufacturing
plants and streamline its existing processes. The manufacturing of products previously produced in the Pawtucket, RI
facility was moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period. The
Company expensed $1,272,000 in the fourth quarter of fiscal 2018 related to the closure, including: (a) cash-related
employee-related, logistics and uncapitalized facilities improvement costs of $590,000; and (b) non-cash-related
accelerated depreciation expense of $682,000. Future costs related to this move are not anticipated to be significant to the
Consolidated Financial Statements.
On April 20, 2018, Chase finalized an agreement with an unrelated party to sell all inventory, operational machinery and
equipment and intangible assets of the Company’s structural composites rod business, as well as a license related to the
production and sale of rod, for proceeds of $2,232,000, net of transaction costs and following certain working capital
adjustments. This business, which was part of the structural composites product line within the Industrial Materials
segment, had limited growth and profitability prospects as part of the Company, and was outside the areas Chase has
identified for strategic emphasis. The resulting pre-tax gain on sale of $1,480,000 was recognized in the third quarter of
fiscal 2018 as a gain on sale of businesses within the consolidated statement of operations. Chase received $2,075,000,
net of transaction costs, in the third quarter of fiscal 2018, with the remaining $157,000 received in the fourth quarter of
5
fiscal 2018 as a result of a working capital true-up. Chase will provide certain transitional manufacturing and
administrative support to the purchaser for which the Company will receive additional consideration upon the
performance of services. The purchaser also entered into a royalty agreement with the Company. The purchaser will
make royalty payments to Chase based on future sales of certain structural composite material manufactured by the
purchaser.
On December 29, 2017, Chase entered an agreement to acquire Stewart Superabsorbents, LLC (“SSA, LLC”), an
advanced superabsorbent polymer (SAP) formulator and solutions provider, with operations located in Hickory and
McLeansville, NC. The transaction closed on December 31, 2017. In the most recently completed fiscal year, SSA, LLC,
and its recently-acquired Zappa-Tec business (collectively “Zappa Stewart”) had combined revenue in excess of
$24,000,000. This acquisition proved to be immediately accretive to the Company’s earnings in the period of acquisition,
after adjusting for nonrecurring costs associated with the transaction and financing cost. The business was acquired for a
purchase price of $73,469,000 after final working capital adjustments and excluding acquisition-related costs. As part of
this transaction, Chase acquired all assets of the business, and entered multiyear leases at both locations. The Company
expensed $393,000 of acquisition-related costs during the second quarter of fiscal 2018. The purchase was funded from
a combination of Chase’s existing revolving credit facility and available cash on hand. Zappa Stewart’s protective
materials technology complements Chase’s current specialty chemicals offerings. This acquisition is aligned with the
Company’s core strategies and extends its reach into growing medical, environmental and consumer applications. The
Company is currently in the process of finalizing purchase accounting, with regard to a final allocation of the purchase
price to tangible and identifiable intangible assets assumed and anticipates completion within the first quarter of fiscal
2019. Following the effective date of the acquisition the financial results of Zappa Stewart’s operations have been
included in the Company’s financial statements in the specialty chemical intermediates product line, contained within the
Industrial Materials operating segment.
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 certain transitional 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
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 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.
6
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 $2,186,000. The Company’s structural composites product
line is a part of the Company’s Industrial Materials operating segment.
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, industrial controls 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)
superabsorbent polymers, which are utilized for water and liquid management, remediation and protection
in diverse markets including wire and cable, medical, environmental, infrastructure, energy and consumer
products.
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, and high-performance
polymeric asphalt additives, which are sold to municipal transportation authorities;
(iii)
fluid-applied coating and lining systems for use in the water and wastewater industry; and
(iv)
expansion and control joint systems designed for roads, bridges, stadiums and airport runways.
7
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 Zappa Stewart, we did not
introduce any new products requiring an investment of a material amount of our assets during fiscal year 2018.
Employees
As of September 30, 2018, we employed approximately 769 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, 2018, the backlog of customer orders believed to be firm was approximately $21,825,000. This
compared with a backlog of $19,719,000 as of October 31, 2017. The increase in backlog from the prior year amount is
primarily due to current period inclusion of the fiscal 2018 acquired Zappa Stewart business. During fiscal 2018, 2017
and 2016, 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
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 telecommunications and water and gas utilities industries; Dualite®, a trademark for polymeric microspheres
utilized for density and weight reduction and sound dampening by various industries; 4EvaSeal®, a trademark for
adhesive-backed tape utilized in various industries; Resin Designs®, a trademark for adhesives and sealants sold into the
microelectronics and semiconductor industries; SlickTape®, a trademark for a lubricated shielding tape sold to the wire
and cable industry; and HighDraw®, a trademark for a highly extensible shielding tape sold to the wire and cable
8
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 $3,940,000, $3,696,000 and $2,792,000 was expensed for Company-sponsored research and
development during fiscal 2018, 2017 and 2016, respectively, and recorded within selling, general and administrative
expenses. Research and development increased by $244,000 in fiscal 2018 due to continued focused development work
on strategic product lines, including eight months of operations related to the established research and development
department of Zappa Stewart, acquired in second quarter of fiscal 2018, and twelve 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.
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.
9
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.
General economic factors, domestically and internationally, may also adversely affect our financial performance
through increased raw material costs or other expenses and by making access to capital more difficult.
The cumulative effect of higher interest rates, energy costs, inflation, levels of unemployment, healthcare costs, unsettled
financial markets, and other economic factors (including changes in foreign currency exchange rates and changes and
application/enforcement practices of federal, state, local and international tax law) could adversely affect our financial
condition by increasing our manufacturing costs and other expenses at the same time that our customers may be scaling
back demand for our products. Prices of certain commodity products, including oil and petroleum-based products, are
historically volatile and are subject to fluctuations arising from changes in domestic and international supply and
demand, labor costs, competition, weather events and climate change, 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
10
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
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, domestic and
international tariffs and trade policies 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.
11
We may experience difficulties in the redesign and consolidation of our manufacturing facilities which could
impact shipments to customers, product quality, and our ability to realize cost savings.
We currently have several ongoing projects to streamline our manufacturing operations, which include the redesign and
consolidation of certain manufacturing facilities in order to reduce overhead costs. Despite our planning, we may be
unable to effectively leverage assets, personnel, and business processes in the transition of production among
manufacturing facilities. Uncertainty is inherent within the facility redesign and consolidation process, and unforeseen
circumstances could offset the anticipated benefits of these streamlining projects, disrupt service to customers, and
impact product quality.
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.
12
ITEM 2 – PROPERTIES
The principal properties of the Company as of August 31, 2018 are situated at the following locations and have the
following characteristics:
Location
Westwood, MA
Blawnox, PA
Evanston, IL
Granite Falls, NC
Square
Feet
20,200
Owned /
Leased
Leased
44,000
100,000
108,000
Owned
Owned
Owned
Greenville, SC
34,600
Leased
Hickory, NC
Houston, TX
Lenoir, NC
McLeansville, NC
Mississauga, Canada
Newark, CA
O’Hara Township, PA
Oxford, MA
Paris, France
180,000
Leased
45,000
Owned
110,000
41,000
2,500
32,500
109,000
Owned
Leased
Leased
Leased
Owned
73,600
Owned
1,900
Leased
Pawtucket, RI
70,400
Owned
Pune, India
Randolph, MA
4,650
—
Owned
Owned
Rotterdam, Netherlands
Rye, East Sussex, England
Suzhou, China
Winnersh, Wokingham,
England
Woburn, MA
2,500
36,600
48,000
18,800
Leased
Owned
Leased
Leased
34,000
Leased
Principal Use
Corporate headquarters, executive office and global operations center,
including research and development, sales and administrative services
Manufacture and sale of protective coatings and tape products
Manufacture and sale of protective coatings and tape products
Manufacture and sale of pulling and detection tapes, as well as
research and development services
Manufacture and sale of polymeric microspheres, as well as research
and development
Manufacture and sale of superabsorbent polymer products, as well as
research and development
Manufacture of coating and lining systems for use in liquid storage
and containment applications
Manufacture and sale of laminated film foils and cover tapes
Sales/technical service office and warehouse for superabsorbent
polymer products
Distribution center
Manufacture and sale of sealant systems
Manufacture and sale of protective electronic coatings, expansion
joints and accessories
Manufacture of tape and related products for the electronic and
telecommunications industries, as well as laminated durable papers
Sales/technical service office and warehouse allowing direct sales and
service to the French market
Manufacture and sale of laminated film foils for the electronics and
cable industries (through August 2018, when operations were
relocated to Oxford, MA and Lenoir, NC facilities), and offices for
sales and administrative services
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
Distribution center
Manufacture and sale of protective coatings and tape products
Manufacture of packaging tape products for the electronics industries
Manufacture and sale of protective electronic coatings, as well as
research and development
Manufacture and sale of adhesive systems, as well as research and
development
The above facilities vary in age, are in good condition and, in the opinion of management, adequate and suitable for
present operations. We also own equipment and machinery that is in good repair and, in the opinion of management,
adequate and suitable for present operations. We believe that we could significantly add to our capacity by increasing
shift operations. Availability of machine hours through additional shifts would provide expansion of current production
volume without significant additional capital investment.
13
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, 2018. 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
46
70
Kenneth J. Feroldi
63
Christian J. Talma
45
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.
Chief Accounting Officer of the Company since August 2018. Previously, Vice
President Operations Finance and Strategy for Haemonetics Corp. from 2016 to
2018. Prior to that, Mr. Talma was employed at Siemens A.G., since 2002, most
recently as Head of North America Service Sales Finance.
14
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, 2018, there were
303 shareholders of record of our Common Stock and we believe there were approximately 4,775 beneficial shareholders
who held shares in nominee name. On that date, the closing price of our common stock was $107.84 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, 2018 and 2017:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2018
Fiscal 2017
High
$ 129.55
126.75
122.90
131.70
$
Low
91.95
95.01
101.65
115.70
$
High
82.10
93.75
108.35
116.15
$
Low
61.75
76.55
90.40
83.35
Single annual cash dividend payments were declared and scheduled to be paid subsequent to year end in the amounts of
$0.80, $0.80, and $0.70 per common share, for the years ended August 31, 2018, 2017 and 2016, respectively. Our
revolving credit facility contains financial covenants which may have the effect of limiting the amount of dividends that
we can pay.
15
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, 2013 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 2018
500.00
450.00
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
2013
2014
2015
2016
2017
2018
Chase Corp.
S&P 500 Index - Total Return
Peer Group
Chase Corp
S&P 500 Index
Peer Group Index
2013 2014 2015 2016 2017 2018
$ 100 $ 121 $ 137 $ 227 $ 333 $ 445
$ 100 $ 125 $ 126 $ 142 $ 165 $ 197
$ 100 $ 114 $ 112 $ 143 $ 148 $ 152
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.
16
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.”
2018
Fiscal Years Ended August 31,
2016
(In thousands, except per share amounts)
2017
2015
2014
Statement of Operations Data
Revenue
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
Total stockholders' equity
Cash dividends paid per common and common
equivalent share
$
$ 284,188 $ 252,560 $ 238,094 $ 238,046 $ 224,006
$ 43,143 $ 42,014 $ 32,807 $ 26,413 $ 26,523
—
108
$ 43,143 $ 42,014 $ 32,807 $ 26,318 $ 26,631
(95)
—
—
4.60 $
4.49 $
3.55 $
2.87 $
2.92
4.56 $
4.44 $
3.50 $
2.82 $
2.86
$ 316,469 $ 254,738 $ 262,819 $ 255,642 $ 245,545
58,800
137,490
25,000
246,756
43,400
174,089
51,800
154,342
—
210,929
0.80 $
0.70 $
0.65 $
0.60 $
0.45
17
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
Increase in revenue from prior year
Amount
Percentage
Increase in net income from prior year
Amount
Percentage
Percentage of revenue:
Revenue
Cost of products and services sold
Selling, general and administrative expenses
Other (income) expense, net
Income before income taxes
Income taxes
Net income
* denotes less than one percent
Overview
2018
2016
Years Ended August 31,
2017
(Dollars in thousands)
$ 252,560
$ 42,014
$ 238,094
$ 32,807
$ 284,188
$ 43,143
$ 31,628
$ 14,466
13 %
$
6 %
48
* %
$
1,129
$
3 %
9,207
$
28 %
6,394
24 %
100 %
62
18
(*)
20 %
5
15 %
100 %
58
19
(1)
24 %
7
17 %
100 %
61
19
(*)
21 %
7
14 %
While revenue growth, both organic and inorganic, has helped to define fiscal 2018, so too have rising raw material costs
and a less favorable sales mix as compared to the prior year. Sales price increases have gone into effect for many
impacted product lines, with additional future increases possible, as we address increasing inflationary pressures from
higher commodity prices, supply and demand imbalances and tariffs across the business. The Company has remained
committed to its core strategies: growing through both acquisition and market and product development efforts, and
making major steps forward in its facility consolidation and rationalization initiative and in its divesting of non-core
businesses.
In December 2017, we completed the acquisition of Zappa Stewart, an advanced superabsorbent polymer (SAP)
formulator and solutions provider. This acquisition proved to be immediately accretive to the Company’s earnings in the
period of acquisition, after adjusting for nonrecurring costs associated with the transaction and financing cost. In
April 2018, the Company divested its structural composites rod business, which operated outside the areas Chase has
identified for strategic emphasis. In June 2018, we announced the closure of our cable materials-focused Pawtucket, RI
facility, effective August 31, 2018, with operations housed there moving to our Oxford, MA and Lenoir, NC plants.
Revenue from the Industrial Materials segment increased over the prior year on greater demand for our pulling and
detection, electronic and industrial coatings, specialty products, structural composites, specialty chemical intermediates,
and electronic materials product lines. The segment’s organic increases in these legacy product lines were complemented
by the December 2017 acquisition of Zappa Stewart, which is now included within the specialty chemical intermediates
product line. Fiscal 2018 also benefited from an additional month of sales from the operations of Resin Designs,
18
obtained in the first quarter of the prior year. The segment’s overall revenue increase was negatively impacted by
decreased sales of our cable materials products and the divestiture of our fiber optic cable components product line in the
third quarter of the prior year.
Our Construction Materials segment obtained revenue growth over the prior year, primarily on increased demand for
both our U.K.- and U.S.-produced pipeline coatings products, as well as our bridge and highway products. The overall
increase in sales experienced by the segment was partially offset by decreased sales of our coating and lining systems
and building envelope products.
Through mergers, acquisitions and divestitures, our marketing and product development efforts and our ability to
rationalize and consolidate our operations to lower fixed costs, the Company remains focused on its core strategies for
sustainable growth. At August 31, 2018, the Company’s cash on hand was $34,828,000 and there was a $25,000,000
balance outstanding under the Company’s $150,000,000 revolving debt facility.
The Company has two reportable operating 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 (1)
Fiber Optic Cable Components (2)
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, polymeric microspheres and
superabsorbent polymers.
Protective coatings and tape products, including coating and
lining systems for use in liquid storage and containment
applications; protective coatings for pipeline and general
construction applications; adhesives and sealants used in
architectural and building envelope waterproofing
applications; high-performance polymeric asphalt additives
and expansion and control joint systems for use in the
transportation and architectural markets.
(1) Product line was substantially divested with the sale of the structural composites rod business on April 20, 2018.
Custom manufacturing performed for the purchaser of the structural composites rod business subsequent to the sale
is included within the specialty products product line.
(2) Results of product line included for period prior to its April 3, 2017 sale by the Company.
19
Results of Operations
Revenue and Income Before Income Taxes by Segment are as follows:
Fiscal 2018
Industrial Materials
Construction Materials
Fiscal 2017
Industrial Materials
Construction Materials
Fiscal 2016
Industrial Materials
Construction Materials
Income
Before
% of
Revenue
Income Taxes Revenue
(Dollars in thousands)
$ 232,288 $
51,900
$ 284,188
Less corporate and common costs
Income before income taxes
$
$ 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
$
66,076 (a)
18,178
84,254
(27,289) (b)
56,965
67,561 (c)
18,205
85,766
(24,874) (d)
60,892
53,530 (e)
19,967
73,497
(23,387) (f)
50,110
28 %
35 %
30 %
33 %
37 %
34 %
29 %
35 %
31 %
(a) Includes $1,070 of expense related to inventory step-up in fair value attributable to the December 2017 acquisition
of Zappa Stewart, $1,085 gain on sale of license related to the structural composites product line recorded in the
second quarter of fiscal 2018, $1,480 gain on sale of business related to the April 2018 sale of the structural
composites rod business and $1,272 of expense related to the exit of our Pawtucket, RI location in the fourth quarter
of fiscal 2018
(b) Includes $393 in acquisition-related expense attributable to the December 2017 acquisition of Zappa Stewart
(c) Includes a $2,013 gain on sale of our fiber optic cable components business and $190 of expense related to
inventory step-up in fair value attributable to the September 2016 acquisition of certain assets of Resin Designs
(d) Includes $584 in acquisition-related expense 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
(e) 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
(f) 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
20
Total Revenue
Total revenue in fiscal 2018 increased $31,628,000 or 13% to $284,188,000 from $252,560,000 in the prior year.
Revenue in our Industrial Materials segment increased $29,332,000 or 14% to $232,288,000 for the year ended August
31, 2018 compared to $202,956,000 in fiscal 2017. The increase in revenue from our Industrial Materials segment in
fiscal 2018 was primarily due to: (a) increases in revenue from our specialty chemical intermediates product line totaling
$17,383,000, which included sales of $16,324,000 related to the first eight months of operations from the acquired Zappa
Stewart business; (b) sales increases of $6,510,000, predominantly on volume, from our pulling and detection products,
with large scale infrastructure build and repair work from the utility and telecommunication industries fueling growth;
(c) sales increases of $5,374,000 for our electronic and industrial coatings product line reflecting mainly sales volume
increases, with some positive growth related to price, from the automotive, industrial controls and appliance
manufacturing industries, along with increased sales from the Resin Designs business acquired in early fiscal 2017, and
with an increased royalty received from our licensed manufacturer in Asia; (d) sales volume increases of $3,902,000 for
our specialty products, which, subsequent to the sale of our fiber optic cable components business in April 2017 and our
structural composites rod business in April 2018, includes revenue from the manufacturing services provided by the
Company to the common purchaser of the divested businesses (totaled $2,186,000 for fiscal 2018); (e) sales volume
increases of $1,998,000 from our structural composite products, on sales into the wind energy market (following the
Company’s divestiture of the structural composites rod business in April 2018, product sales revenue for wind energy
products is anticipated to be significantly lower, since post-third-quarter-2018 the Company began recognizing
wind-energy-related revenue, including royalty revenue and revenue for transitional custom manufacturing services
performed for the buyer, in our specialty products product line); and (f) an entirely volume-driven sales increase of
$472,000 in our electronic materials product line. These increases were negatively impacted by: (a) decreased sales of
$4,340,000 from our fiber optic cable components product line, which the Company sold in April 2017 (no revenue was
recorded within the fiber optic cable components product line following its divestiture early in the third quarter of 2017,
including all of fiscal 2018); and (b) a net decrease in revenue from our cable materials products of $1,967,000, with
decreases in sales volume more than offsetting pricing increases obtained.
Revenue from our Construction Materials segment increased $2,296,000 or 5% to $51,900,000 for the year ended
August 31, 2018 compared to $49,604,000 for fiscal 2017. The increased revenue for our Construction Materials
segment in fiscal 2018 was primarily due to an increase in sales volume and prices totaling $2,853,000 in our pipeline
coatings products, with both our U.K.-produced water and wastewater pipeline products and U.S.-produced oil and gas
pipeline products achieving increases over the prior year. Our bridge and highway products achieved a year-over-year
increase in sales totaling $145,000, on both volume and price, with large bridge infrastructure work in the eastern U.S.
continuing in fiscal 2018. Partially countering the overall increase in revenue for the segment were: (a) a $629,000
decrease in our building envelope product sales, driven predominantly by a decrease in sales volume; and (b) coating and
lining systems products, which had a net revenue decrease of $73,000 on decreased sales volume offsetting increased
sales prices.
Royalties and commissions in the Industrial Materials segment were $5,226,000, $4,683,000 and $3,664,000 for the
years ended August 31, 2018, 2017 and 2016, respectively. The increase in royalties and commissions in fiscal 2018
over both fiscal 2017 and 2016 was primarily due to increased sales of electronic and industrial coatings products by our
licensed manufacturer in Asia. Chase also began earning two additional royalty streams in 2018 both related to the
licensing of our structural composites rod technology; future growth of these additional royalty streams is dependent on
the future performance of the third parties we entered into the arrangements with.
Export sales from domestic operations to unaffiliated third parties were $42,883,000, $36,719,000 and $28,826,000 for
the years ended August 31, 2018, 2017 and 2016, respectively. The increase in export sales in fiscal 2018 against both
fiscal 2017 and 2016 resulted from increased export sales into China and Europe.
In fiscal 2017, total revenue increased $14,466,000 or 6% to $252,560,000 from $238,094,000 in fiscal 2016. 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) our electronic and industrial coatings product line having total increases in revenue of
21
$20,108,000, which included sales of $14,868,000 related to the acquired Resin Designs operations and reflected
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 increases 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 increases of $2,072,000 from our structural composite products, on
sales into the wind energy market; (d) sales volume increases of $1,056,000 from our pulling and detection products, as
we continued 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 20l7. 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 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 fiscal 2016. 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 $974,000 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 fiscal 2016.
Cost of Products and Services Sold
Cost of products and services sold increased $29,100,000 or 20% to $175,136,000 for the fiscal year ended August 31,
2018 compared to $146,036,000 in fiscal 2017. As a percentage of revenue, cost of products and services sold increased
to 62% in fiscal 2018 compared to 58% for fiscal 2017.
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,
2017
2018
2016
63 %
57 %
62 %
59 %
54 %
58 %
61 %
59 %
61 %
Cost of products and services sold in our Industrial Materials segment was $145,742,000 for the fiscal year ended
August 31, 2018 compared to $119,109,000 in fiscal 2017. As a percentage of revenue, cost of products and services
sold in this segment increased to 63% for fiscal 2018 compared to 59% in fiscal 2017. Cost of products and services sold
in our Construction Materials segment was $29,394,000 for the fiscal year ended August 31, 2018 compared to
$26,927,000 in fiscal 2017. As a percentage of revenue, cost of products and services sold in this segment increased to
57% in fiscal 2018 compared to 54% for fiscal 2017. As a percentage of revenue, cost of products and services sold in
both segments increased primarily due to: (a) the effects of international and domestic trade policy on raw material costs,
which most acutely rose in the latter half of fiscal 2018; (b) the rising costs of petroleum-based inputs; (c) an
unfavorable product mix, most prominently in our Construction Materials segment, as our lower margin products
constituted a comparatively higher portion of total sales in the current year; and (d) in the case of our Industrial Materials
segment the inclusion of $1,070,000 in cost of sale of inventory step-up, related to inventory purchased as part of our
second quarter acquisition of Zappa Stewart. We purchase a wide variety of commodity items, including
petroleum-based solvents, films, yarns, polymers and nonwovens, along with base metals (aluminum and copper), as
well as many other substrates. To facilitate control of our 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.
22
In fiscal 2017, 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 fiscal 2017 compared to fiscal 2016.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $4,561,000 or 10% to $52,297,000 during fiscal 2018 compared
to $47,736,000 in fiscal 2017. As a percentage of revenue, however, selling, general and administrative expenses
decreased to 18% of total revenue in fiscal 2018 compared to 19% for fiscal 2017. The year-over-year increase in
expenses is primarily attributable to: (a) increased amortization expense of $2,680,000, primarily related to intangible
assets acquired in our December 31, 2017 acquisition of Zappa Stewart, and a full twelve months of amortization related
to our September 30, 2016 acquisition of certain assets of Resin Designs; (b) increased selling and commission expense
of $773,000, principally related to sales growth on our highest commissionable products in the current year, coupled with
the addition of the established sales force of Zappa Stewart and a full twelve months of the established sales force of
Resin Designs; and (c) increased research and development expense of $244,000, principally related to the current year
addition of the established research and development department of Zappa Stewart and a full twelve months of operation
of the established research and development department of Resin Designs. The Company continues to closely monitor
spend with an emphasis on controlling costs and leveraging existing resources.
During fiscal 2017, selling, general and administrative expenses increased $3,162,000 or 7% to $47,736,000 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 was 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 addition of the established research and development department of Resin Designs;
(c) increase of $879,000 in stock-based compensation expenses; and (d) the fiscal 2016 $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 fiscal 2017 change in
our Executive Chairman’s compensation plan.
23
Exit Costs Related to Idle Facility
On June 25, 2018, the Company announced the planned closing of its Pawtucket, RI manufacturing facility effective
August 31, 2018. This is in line with the Company’s ongoing efforts to consolidate its manufacturing plants and
streamline its existing processes. The manufacturing of products previously produced in the Pawtucket, RI facility was
moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period. The Company
expensed $1,272,000 in the fourth quarter of fiscal 2018 related to the closure, including: (a) cash-related
employee-related, logistics and uncapitalized facility improvement costs of $590,000; and (b) non-cash-related
accelerated depreciation expense of $682,000. Future costs related to this move are not anticipated to be significant to the
Consolidated Financial Statements.
In fiscal 2017 and 2016, the Company recognized $70,000 and $935,000, respectively, in expenses to raze its Randolph,
MA facility, which had been idle regarding production for several years. No expense related to this project was
recognized in fiscal 2018. The Company began marketing the site for sale during the second quarter of fiscal 2016. The
carrying value of the property is not material, and is included within Prepaid expense and other current assets on the
Consolidated Balance Sheets at both August 31, 2018 and 2017. 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 2018, the Company incurred $393,000 of costs related to our acquisition of Zappa Stewart. This acquisition
was accounted for as a business combination in accordance with applicable accounting standards, and all related
professional service fees (including banking, legal, accounting and actuarial fees) were expensed as incurred within the
second fiscal quarter of 2018.
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.
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 increased $333,000 or 40% to $1,172,000 in fiscal 2018 compared to $839,000 in fiscal 2017. Interest
expense decreased $215,000 or 20% to $839,000 in fiscal 2017 compared to $1,054,000 in fiscal 2016. The increase in
interest expense in fiscal 2018 is the result of the increased average outstanding balance of Chase’s revolving debt
facility, following the $65,000,000 draw on the facility in December 2017 to substantially fund the Company’s
acquisition of Zappa Stewart.
In the second, third and fourth quarters of 2018, subsequent to the December 2017 borrowing, the Company made a total
of $40,000,000 in payments against the principal, bringing the balance to $25,000,000 at August 31, 2018. In September
2018, subsequent to fiscal 2018, Chase made an additional $10,000,000 principal payment.
24
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.
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 License
In November 2017, the Company entered an agreement with an unrelated party to sell a license, including certain
intellectual property, and sell certain construction in process assets, both related to the manufacturing of certain structural
composite materials. In the second fiscal quarter of 2018, the transaction was finalized for gross consideration of
$1,111,000 comprising cash proceeds of $1,000,000 and foreign tax consideration paid by the purchaser on Chase’s
behalf of $111,000. This transaction resulted in a gain of $1,085,000, which was recorded as a gain on sale of license
during the fiscal quarter ended February 28, 2018.
In relation to this transaction, the purchaser also entered into a royalty agreement with the Company. The purchaser will
make royalty payments to Chase based on the volume of future sales of certain structural composite material
manufactured by the purchaser. Royalty revenue recognized in 2018 related to this agreement was not material.
Gain on Sale of Businesses
On April 20, 2018, Chase finalized an agreement with an unrelated party to sell all inventory, operational machinery and
equipment and intangible assets of the Company’s structural composites rod business, as well as a license related to the
production and sale of rod, for proceeds of $2,232,000, net of transaction costs and following all working capital
adjustments. This business, which was part of the structural composites product line within the Industrial Materials
segment, had limited growth and profitability prospects as part of the Company, and was outside the areas Chase has
identified for strategic emphasis. The resulting pre-tax gain on sale of $1,480,000 was recognized in the third quarter of
fiscal 2018 as a gain on sale of businesses. Chase received $2,075,000, net of transaction costs, in the third quarter of
fiscal 2018, with the remaining $157,000 received in the fourth quarter of fiscal 2018 as a result of a working capital
true-up. Chase will provide certain transitional manufacturing and administrative support to the purchaser for which the
Company will receive additional consideration upon the performance of services.
In relation to this transaction, the purchaser entered into a royalty agreement with the Company. The purchaser will make
royalty payments to Chase based on future sales of certain structural composite material manufactured by the purchaser.
Royalty revenue recognized in 2018 related to this agreement was not material.
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 all 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 certain transitional 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.
25
Other Income (Expense)
Other income was $482,000 in fiscal 2018 compared to other income of $724,000 in fiscal 2017, a decrease of $242,000.
Other income (expense) primarily includes foreign exchange gains (losses) caused by changes in exchange rates on
transactions or balances denominated in currencies other than the functional currency of our subsidiaries, interest
income, rental income and other non-trade/non-royalty/non-commission receipts. The decrease in total other income
(expense) in fiscal 2018 compared to fiscal 2017 was largely due to the decrease in foreign exchange gains seen
year-over-year, from $307,000 in fiscal 2017 to $85,000 in fiscal 2018.
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) in 2017 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 exchange volatility was lower in 2017
than that observed in 2016, 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.
Income Taxes
Our effective tax rate for fiscal 2018 was 24.3% as compared to 31.0% and 34.5% in fiscal 2017 and 2016, respectively.
The current year effective tax rate was most prominently affected by: (a) the passage of the Tax Cuts and Jobs Act (the
“Tax Act”) in December 2017, including provisional and reasonable adjustments recorded in the second, third and fourth
quarters of fiscal 2018 to account for the new rules and a Federal corporate tax rate of 21% enacted by the Tax Act; and
(b) our early adoption of Accounting Standards Update (“ASU”) No. 2016-09 at the beginning of the prior year.
As a result of the new 21% Federal tax rate enacted by the Tax Act, Chase has adjusted its Federal statutory rate for
fiscal 2018 to be a blended rate of 25.7%, based on a combination of four months of operations under the old 35%
corporate income tax rate, and eight months at the new 21% rate. Provisional transitional adjustments were made in the
second, third and fourth fiscal quarters of fiscal 2018 to revalue, and in certain cases reclassify, our existing net U.S
deferred tax assets and uncertain tax positions resulting in a net tax expense of $681,000 for the year ended August 31,
2018. See Note 7 — “Income Taxes” to the Consolidated Financial Statements for further discussion of the effects of the
Tax Act.
The Company early adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718), Improvements to
Employee Share-Based Payment Accounting”, during the first fiscal quarter of 2017 (the prior year). During the fiscal
years ended August 31, 2018 and 2017, the Company recognized excess tax benefits from stock-based compensation of
$1,921,000 and $1,917,000, respectively (with no such excess benefit recognized in the year ended August 31, 2016),
within income tax expense on the Consolidated Statements of Operations. The Company anticipates the potential for
increased periodic volatility in future effective tax rates based on the continued application of ASU No. 2016-09. See
Note 1 – “Summary of Significant Accounting Policies” to the Consolidated Financial Statements for further discussion
of the effects of ASU No. 2016-09.
26
Net Income
Net income in fiscal 2018 increased $1,129,000 or 3% to $43,143,000 compared to $42,014,000 in fiscal 2017. The
increase in net income in 2018 was primarily due to: (a) increase in gross profit on sales, positively impacted by our
second quarter acquisition of Zappa Stewart, along with increased royalties and commissions revenue; (b) a gain on sale
of license and a gain on sale of business, both related to the structural composites rod business; (c) the recognition of a
lower Federal statutory tax rate; and (d) the excess tax benefit recognized related to our early adoption of
ASU No. 2016-09. These gains were negatively impacted by increased amortization expense, as well as one-time
acquisition-related and inventory step-up costs, recognized in fiscal 2018, related to our December 2017 acquisition of
Zappa Stewart.
Net income 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.
27
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 also useful to investors.
EBITDA is useful in comparing the core operations of the business from period to period by removing the impact of the
Company’s capital structure (through interest expense), asset base (through depreciation and amortization) and tax rate,
and in evaluating operating performance relative to others in the industry. Adjusted EBITDA allows for comparison to
the Company’s performance in prior periods without the effect of items that, by their nature, tend to obscure the
Company’s core operating results due to the potential variability across periods based on their timing, frequency and
magnitude. Free Cash Flow provides a means for measuring the cash generated from operations that is available for
mandatory obligations, including interest payments and debt repayment, and discretionary investment opportunities such
as funding acquisitions, product and market development and paying dividends. As a result, management believes these
metrics, which are commonly used by financial analysts and others in the industries in which the Company operates,
enhance the ability of investors to analyze trends in the Company’s business and evaluate the Company’s performance
relative to peer companies and the past performance of the Company itself. EBITDA, Adjusted EBITDA and Free Cash
Flow are non-U.S. GAAP financial measures.
We define EBITDA as net income 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.
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 and net cash provided
by operating activities. None of these measures should be interpreted as representing the residual cash flow of the
Company available solely 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.
28
The following table provides a reconciliation of net income, 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)
Cost of sale of inventory step-up (b)
Acquisition-related costs (c)
Gain on sale of license (d)
Exit costs related to idle facility (excluding depreciation) (e)
Gain on sale of real estate (f)
Pension settlement costs (g)
Annuity settlement (h)
Write-down of certain assets under construction (i)
Years Ended August 31,
2017
2018
$
$ 43,143 $ 42,014
839
18,878
5,130
9,127
1,172
13,822
5,817
11,807
$ 75,761 $ 75,988 $
(1,480)
1,070
393
(1,085)
590
—
—
—
—
(2,013)
190
584
—
70
(860)
14
—
—
Adjusted EBITDA
$ 75,249 $ 73,973 $
2016
32,807
1,054
17,303
5,606
7,836
64,606
(1,031)
—
—
—
935
—
13
(877)
365
64,011
(a) Represents gain on sale of the structural composites rod business in April 2018 (fiscal 2018), the fiber optic cable
components product line in April 2017 (fiscal 2017) and the RodPack wind energy business contained within the
structural composites product line in November 2015 (fiscal 2016)
(b) Represents expenses related to inventory step-up in fair value related to the December 2017 (fiscal 2018) acquisition
of Zappa Stewart and the September 2016 (fiscal 2017) acquisition of certain assets of Resin Designs
(c) Represents costs related to the December 2017 (fiscal 2018) acquisition of Zappa Stewart and the September 2016
(fiscal 2017) acquisition of certain assets of Resin Designs
(d) Represents fiscal 2018 second quarter gain on sale of a license related to the structural composites product line
(e) Represents Pawtucket, RI facility closure costs in the fourth quarter of fiscal 2018, excluding accelerated
depreciation expense recognized, and the Randolph, MA facility exit and demolition costs incurred in both 2017 and
2016
(f) 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
(g) Represents pension-related settlement costs due to the timing of lump sum distributions
(h) Represents the gain recognized on write-down of an accrued annuity previously owed by the Company
(i) 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
Years Ended August 31,
2017
2018
$ 46,071 $ 51,932
(3,199)
(3,488)
$
$ 42,583 $ 48,733 $
2016
48,833
(2,046)
46,787
29
The following table provides a summary of net cash used in investing activities and net cash provided by (used in)
financing activities, presented in accordance with U.S. GAAP, for the periods presented (dollars in thousands):
Net cash used in investing activities
Net cash provided by (used in) financing activities
Liquidity and Sources of Capital
Years Ended August 31,
2017
2018
2016
$ (73,766) $ (25,102) $
(612)
$ 14,423 $ (52,796) $ (15,299)
Our cash balance decreased $12,526,000 to $34,828,000 at August 31, 2018 from $47,354,000 at August 31, 2017. The
decreased cash balance is primarily attributable to: (a) the $73,469,000 acquisition of Zappa Stewart, partially offset by a
$65,000,000 utilization of our all-revolving debt facility; (b) $40,000,000 in subsequent debt repayments; (c) cash
dividend payment of $7,497,000; and (d) $3,488,000 in purchases of machinery and equipment throughout fiscal 2018.
The overall decrease was positively impacted by: (a) cash from operations of $46,071,000; (b) cash proceeds from the
sale of our structural composites rod business of $2,232,000; and (c) cash proceeds from the sale of a license related to
our structural composites business of $1,000,000. Of the above noted amounts, $28,521,000 and $31,756,000 were held
outside the U.S. by Chase Corporation and our foreign subsidiaries as of August 31, 2018 and 2017, respectively. Given
our cash position and borrowing capability in the United States and the potential for increased investment and
acquisitions in foreign jurisdictions, prior to the second quarter of fiscal 2018, we did not have a history of repatriating a
significant portion of our foreign cash. With the passage of the Tax Cuts and Jobs Act (the “Tax Act”) in the second
fiscal quarter, significant changes in the Internal Revenue Tax Code (the “IRC”) were enacted, changing the U.S. taxable
nature of previously unrepatriated foreign earnings. In fiscal 2018 and subsequent to December 2017, the Company
repatriated a total of $10,499,000 in U.K. foreign earnings. Consistent to prior to the passage of the Tax Act, we do not
currently take the position that undistributed foreign subsidiaries’ earnings are considered to be permanently reinvested.
See Note 7 — “Income Taxes” to the Consolidated Financial Statements included in this Report for further discussion of
the effects of the Tax Act.
Our cash balance decreased $26,057,000 to $47,354,000 at August 31, 2017 from $73,411,000 at August 31, 2016. The
decreased cash balance was 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.
Cash provided by operations was $46,071,000 for the year ended August 31, 2018 compared to $51,932,000 in fiscal
2017. Cash provided by operations during fiscal 2018 was primarily due to operating income and increased accounts
payable, which rose on increased inventory balances. Partially offsetting the overall amount of cash provided by
operations were increased inventory (as the Company made opportunistic purchases on non-perishable materials to take
advantage of current costs, which were believed to be lower than future costs), increased accounts receivable (following
a stronger fourth quarter sales in fiscal 2018) and decreases in accrued income taxes (as cash payments for taxes
exceeded the amount of income tax expense recognized during the period).
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).
The ratio of current assets to current liabilities was 4.4 as of August 31, 2018 compared to 4.2 as of August 31, 2017.
The increase in our current ratio in fiscal 2018 was primarily attributable to increased inventory and accounts receivable;
this was partially offset by the decrease in cash and cash equivalents during fiscal 2018.
30
Cash used in investing activities was $73,766,000 for the year ended August 31, 2018 compared to $25,102,000 in fiscal
2017. During fiscal 2018, cash used in investing activities was primarily due to the acquisition of Zappa Stewart in
December 2017 and our purchases of machinery and equipment throughout fiscal 2018. Partially offsetting these uses of
cash were; (a) cash proceeds from the sale of our structural composites rod business; and (b) cash proceeds from the sale
of a license related to our structural composites business of $1,000,000.
During fiscal 2017, cash used in investing activities was $25,102,000 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.
Cash provided by (used in) financing activities was $14,423,000 provided by financing activities for the year ended
August 31, 2018 compared to $52,796,000 used in financing activities in fiscal 2017 and $15,299,000 used in financing
activities in fiscal 2016. During fiscal 2018, Chase borrowed $65,000,000 on its revolving debt facility to substantially
fund its purchase of Zappa Stewart, and subsequently made $40,000,000 in payments against the loan principal. Chase
also paid an annual dividend of $7,497,000 in 2018. During fiscal 2017 and 2016 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 and, after December 15, 2016, payments made on the Company’s revolving credit facility,
described in more detail below.
On November 13, 2018, we announced a cash dividend of $0.80 per share (totaling approximately $7,520,000) to
shareholders of record on November 23, 2018 and payable on December 5, 2018.
On October 30, 2017, we announced a cash dividend of $0.80 per share (resulting in payment of $7,497,000) 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 December 15, 2016, we entered an Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of
America, acting as administrative agent, and with participation from Citizens Bank and JPMorgan Chase Bank
(collectively with Bank of America, the “Lenders”). The Credit Agreement is initially an all-revolving credit facility with
a borrowing capacity of $150,000,000, which can be increased by an additional $50,000,000 at the request of the
Company and the individual or collective option of any of the Lenders. The Credit Agreement contains customary
affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness and
require certain lender approval for acquisitions by us and our subsidiaries over a certain size. It also requires us to
maintain certain financial ratios on a consolidated basis, including a consolidated net leverage ratio (as defined in the
facility) of no more than 3.25 to 1.00, and a consolidated fixed charge coverage ratio (as defined in the facility) of at
least 1.25 to 1.00. We were in compliance with our debt covenants as of August 31, 2018. The applicable interest rate for
the Credit Agreement is based on the effective LIBOR plus an additional amount in the range of 1.00% to 1.75%,
depending on our consolidated net leverage ratio or, at our option, at the bank’s base lending rate. At August 31, 2018,
the applicable interest rate was 3.25% per annum and the outstanding principal amount was $25,000,000. The Credit
Agreement was used to refinance our previously existing credit facility, which consisted of a $70,000,000 five-year term
loan entered into in June 2012 in connection with our acquisition of NEPTCO, together with a $15,000,000 revolving
line of credit, each bearing interest at LIBOR plus an additional amount in the range of 1.75% to 2.25%, depending on
our leverage ratio. The Credit Agreement also provides for additional liquidity to finance potential acquisitions, working
capital, capital expenditures, and other general corporate purposes.
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.
31
During fiscal 2018, the Company announced the planned closing of its Pawtucket, RI manufacturing facility effective
August 31, 2018. This is in line with the Company’s ongoing efforts to consolidate its manufacturing plants and
streamline its existing processes. The manufacturing of products previously produced in the Pawtucket, RI facility has
been moved to Company facilities in Oxford, MA and Lenoir, NC. This was 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 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, 2018 and the effect such obligations are
expected to have on our liquidity and cash flow in future periods (dollars in thousands):
Contractual Obligations
Long-term debt including estimated
interest
Operating leases
Purchase obligations
Total (1) (2)
Total
Payments Due
Less than 1 Year 1 - 3 Years
Payments Due
Payments Due
3 - 5 Years
Payments After
5 Years
$ 27,857 $
11,777
18,835
$ 58,469 $
825 $
2,144
18,835
21,804 $
1,732 $
3,919
—
5,651 $
25,300 $
2,412
—
27,712 $
—
3,302
—
3,302
(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 $1,889,000 as of August 31, 2018 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, 2018, we had recognized an accrued benefit plan liability of $12,306,000 representing the
unfunded obligations of the pension benefit plans. See Note 9 — “Benefits and Pension Plans” to the Consolidated
Financial Statements for further information, including expected pension benefit payments for the next 10 years.
Recently Issued Accounting Standards
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.
32
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.
33
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 Accounting Standards Update (“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.
For discussion of ASU No. 2014-09, “Revenue from Contracts with Customers,” which will replace most of the existing
revenue recognition guidance under U.S. GAAP and the Company’s planned adoption of the ASU in fiscal 2019 see
“Recently Issued Accounting Standards” in Note 1 — “Summary of Significant Accounting Policies” to the
Consolidated Financial Statements included in this Report.
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.
34
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.
35
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We limit the amount of credit exposure to any one issuer. At August 31, 2018, 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,
2018, the Company had cash balances in the following foreign currencies (with USD equivalents):
Currency Code
GBP
EUR
INR
CNY
CAD
Currency Name USD Equivalent at August 31, 2018
17,407,000
British Pound $
4,440,000
$
Euro
402,000
Indian Rupee $
373,000
Chinese Yuan $
127,000
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, 2018 in the amount of $743,000 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 $25,000,000 at August 31,
2018. 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.
36
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:
Page No.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of August 31, 2018 and 2017
Consolidated Statements of Operations for each of the three fiscal years in the period ended August 31, 2018
Consolidated Statements of Comprehensive Income for each of the three fiscal years in the period ended
August 31, 2018
Consolidated Statements of Equity for each of the three fiscal years in the period ended August 31, 2018
Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended August 31,
2018
Notes to Consolidated Financial Statements
38
40
41
42
43
44
45
37
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Chase Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Chase Corporation and its subsidiaries (the
“Company”) as of August 31, 2018 and 2017, and the related consolidated statements of operations, of comprehensive
income, of equity and of cash flows for each of the three years in the period ended August 31, 2018, including the related
notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal
control over financial reporting as of August 31, 2018, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of August 31, 2018 and 2017, and the results of its operations and its cash flows for each of
the three years in the period ended August 31, 2018 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal
control over financial reporting as of August 31, 2018, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed
as of that date related to the review of cash flow forecasts used in the valuation of customer relationship intangible assets
acquired in a business combination.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be
prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Report
on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in
determining the nature, timing, and extent of audit tests applied in our audit of the 2018 consolidated financial
statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does
not affect our opinion on those consolidated financial statements.
Change in Accounting Principle
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.
Basis for Opinions
The Company's management is responsible for these consolidated 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 referred to above. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
38
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. 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 described in Management’s Report on Internal Control over Financial Reporting, management has excluded Zappa
Stewart from its assessment of internal control over financial reporting as of August 31, 2018 because it was acquired by
the Company in a purchase business combination during 2018. We have also excluded Zappa Stewart from our audit of
internal control over financial reporting. Zappa Stewart is a wholly-owned subsidiary whose total assets and total
revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 5%
and 6%, respectively, of the related consolidated financial statement amounts as of and for the year ended August 31,
2018.
Definition and Limitations of Internal Control over Financial Reporting
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 27, 2018
We have served as the Company’s auditor since 2003.
39
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 $559 and $456
Inventory
Prepaid expenses and other current assets
Due from sale of businesses
Prepaid income taxes
Total current assets
Property, plant and equipment, less accumulated depreciation of $49,212 and $44,277
Other Assets
Goodwill
Intangible assets, less accumulated amortization of $54,039 and $42,206
Cash surrender value of life insurance
Restricted investments
Funded pension plan
Deferred income taxes
Other assets
Total assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accrued payroll and other compensation
Accrued expenses
Accrued income taxes
Total current liabilities
Long-term debt
Deferred compensation
Accumulated pension obligation
Other liabilities
Accrued income taxes
Commitments and Contingencies (Notes 6, 8, 21)
Equity
August 31,
2018
2017
$
34,828 $
44,610
39,699
2,595
400
4,100
126,232
47,354
38,051
25,618
3,112
—
—
114,135
32,845
34,760
84,696
65,330
4,530
1,090
301
1,347
98
316,469 $
50,784
46,846
4,530
964
566
1,614
539
254,738
$
$
17,810 $
6,639
4,486
—
28,935
25,000
1,105
10,736
283
3,654
14,455
6,500
4,052
2,333
27,340
—
979
12,666
1,567
1,257
First Serial Preferred Stock, $1.00 par value: Authorized 100,000 shares; none issued
Common stock, $.10 par value: Authorized 20,000,000 shares; 9,396,947 shares at August 31, 2018 and
9,354,136 shares at August 31, 2017 issued and outstanding
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total equity
Total liabilities and equity
—
—
939
13,104
(12,336)
245,049
246,756
316,469 $
935
14,060
(13,469)
209,403
210,929
254,738
$
See accompanying notes to the Consolidated Financial Statements.
40
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 license (Note 15)
Gain on sale of businesses (Note 18)
Other income (expense)
Income before income taxes
Income taxes (Note 7)
Net income
Net income available to common shareholders, per common and common equivalent
share (Note 17)
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
Years Ended August 31,
2017
2018
2016
$
278,962 $
5,226
284,188
247,877
4,683
252,560
$
234,450
3,644
238,094
175,136
52,297
1,272
393
—
146,036
47,736
70
584
—
144,438
44,574
935
—
365
55,090
58,134
47,782
(1,172)
—
1,085
1,480
482
(839)
860
—
2,013
724
(1,054)
—
—
1,031
2,351
56,965
60,892
50,110
13,822
18,878
17,303
$
43,143 $
42,014
$
32,807
$
$
4.60 $
4.49
4.56 $
4.44
$
$
3.55
3.50
9,296,648
9,366,071
9,249,343
9,357,414
9,167,333
9,294,077
Annual cash dividends declared per share
$
0.80 $
0.70 $
0.65
See accompanying notes to the Consolidated Financial Statements.
41
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands, except share and per share amounts
Net income
Other comprehensive income (loss):
Net unrealized gain on restricted investments, net of tax of $2, $30 and $4
Change in funded status of pension plans, net of tax $130, $519 and ($738)
Foreign currency translation adjustment
Total other comprehensive income (loss)
Years Ended August 31,
2017
2018
2016
$
43,143 $
42,014 $
32,807
5
385
743
1,133
67
1,155
788
2,010
7
(1,402)
(6,098)
(7,493)
Comprehensive income
$
44,276 $
44,024 $
25,314
See accompanying notes to the Consolidated Financial Statements.
42
N
O
I
T
A
R
O
P
R
O
C
E
S
A
H
C
Y
T
I
U
Q
E
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
s
t
n
u
o
m
a
e
r
a
h
s
r
e
p
d
n
a
e
r
a
h
s
t
p
e
c
x
e
,
s
d
n
a
s
u
o
h
t
n
I
l
a
t
o
T
'
s
r
e
d
l
o
h
k
c
o
t
S
y
t
i
u
q
E
r
e
h
t
O
d
e
t
a
l
u
m
u
c
c
A
l
a
n
o
i
t
i
d
d
A
d
e
n
i
a
t
e
R
s
g
n
i
n
r
a
E
e
v
i
s
n
e
h
e
r
p
m
o
C
)
s
s
o
L
(
e
m
o
c
n
I
n
I
-
d
i
a
P
l
a
t
i
p
a
C
k
c
o
t
S
n
o
m
m
o
C
t
n
u
o
m
A
s
e
r
a
h
S
2
4
3
,
4
5
1
$
3
1
1
,
7
4
1
$
)
6
8
9
,
7
(
$
6
9
2
,
4
1
$
9
1
9
$
8
5
9
,
1
9
1
,
9
—
9
4
0
,
1
3
8
2
9
3
1
,
2
)
5
1
0
,
2
(
4
8
7
,
1
)
8
0
8
,
2
(
)
9
9
9
,
5
(
)
2
0
4
,
1
(
)
8
9
0
,
6
(
7
7
0
8
,
2
3
)
9
9
9
,
5
(
7
0
8
,
2
3
7
)
2
0
4
,
1
(
)
8
9
0
,
6
(
)
3
(
9
4
0
,
1
3
8
2
5
2
1
,
2
)
2
1
0
,
2
(
4
8
7
,
1
)
3
0
8
,
2
(
3
)
3
(
4
1
)
5
(
4
8
8
,
9
2
)
2
3
9
,
5
3
(
3
1
1
,
0
4
1
)
7
3
5
,
7
4
(
9
8
0
,
4
7
1
$
1
2
9
,
3
7
1
$
)
9
7
4
,
5
1
(
$
9
1
7
,
4
1
$
8
2
9
$
,
6
8
4
8
7
2
,
9
—
0
0
5
2
1
7
,
1
3
5
2
,
1
)
8
5
1
,
1
(
)
9
5
9
,
2
(
)
2
3
5
,
6
(
5
5
1
,
1
7
6
8
8
7
4
1
0
,
2
4
)
2
3
5
,
6
(
4
1
0
,
2
4
7
6
8
8
7
5
5
1
,
1
)
4
(
0
0
5
2
1
7
,
1
5
4
2
,
1
)
6
5
1
,
1
(
)
6
5
9
,
2
(
4
8
)
2
(
)
3
(
7
6
5
,
4
4
8
6
1
0
8
,
)
9
7
0
,
5
1
(
)
6
0
0
,
4
3
(
9
2
9
,
0
1
2
$
3
0
4
,
9
0
2
$
)
9
6
4
,
3
1
(
$
0
6
0
,
4
1
$
5
3
9
$
6
3
1
,
4
5
3
,
9
—
9
6
6
,
1
9
5
4
0
2
2
,
1
)
8
2
0
,
1
(
)
2
7
2
,
3
(
)
7
9
4
,
7
(
5
5
8
3
3
4
7
)
7
9
4
,
7
(
5
5
8
3
3
4
7
)
2
(
9
6
6
,
1
9
5
4
4
1
2
,
1
)
7
2
0
,
1
(
)
9
6
2
,
3
(
2
6
)
1
(
)
3
(
1
0
7
,
6
1
)
3
9
6
,
9
(
2
1
0
4
6
,
)
9
0
2
,
8
2
(
3
4
1
,
3
4
3
4
1
,
3
4
6
5
7
,
6
4
2
$
9
4
0
,
5
4
2
$
)
6
3
3
,
2
1
(
$
4
0
1
,
3
1
$
9
3
9
$
7
4
9
,
6
9
3
,
9
k
c
o
t
s
n
o
m
m
o
c
n
o
s
e
x
a
t
g
n
i
d
l
o
h
h
t
i
w
m
u
m
i
n
i
m
y
r
o
t
u
t
a
t
s
y
a
p
o
t
d
e
n
i
a
t
e
r
k
c
o
t
s
n
o
m
m
o
C
s
e
s
i
c
r
e
x
e
n
o
i
t
p
o
k
c
o
t
s
f
o
t
n
e
m
y
a
p
r
o
f
d
e
v
i
e
c
e
r
k
c
o
t
s
n
o
m
m
o
C
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
s
m
o
r
f
t
i
f
e
n
e
b
x
a
t
s
s
e
c
x
E
)
8
3
7
$
(
x
a
t
f
o
t
e
n
,
s
n
a
l
p
n
o
i
s
n
e
p
f
o
s
u
t
a
t
s
d
e
d
n
u
f
n
i
e
g
n
a
h
C
t
n
e
m
t
s
u
j
d
a
n
o
i
t
a
l
s
n
a
r
t
y
c
n
e
r
r
u
c
n
g
i
e
r
o
F
4
$
x
a
t
f
o
t
e
n
,
s
t
n
e
m
t
s
e
v
n
i
d
e
t
c
i
r
t
s
e
r
n
o
n
i
a
g
d
e
z
i
l
a
e
r
n
u
t
e
N
e
r
a
h
s
r
e
p
5
6
.
0
$
,
d
i
a
p
d
n
e
d
i
v
i
d
h
s
a
C
s
e
r
u
t
i
e
f
r
o
f
f
o
t
e
n
,
s
t
n
a
r
g
k
c
o
t
s
d
e
t
c
i
r
t
s
e
R
s
t
n
a
r
g
k
c
o
t
s
d
e
t
c
i
r
t
s
e
r
f
o
n
o
i
t
a
z
i
t
r
o
m
A
s
t
n
a
r
g
n
o
i
t
p
o
k
c
o
t
s
f
o
n
o
i
t
a
z
i
t
r
o
m
A
s
n
o
i
t
p
o
k
c
o
t
s
f
o
e
s
i
c
r
e
x
E
5
1
0
2
,
1
3
t
s
u
g
u
A
t
a
e
c
n
a
l
a
B
s
e
r
u
t
i
e
f
r
o
f
f
o
t
e
n
,
s
t
n
a
r
g
k
c
o
t
s
d
e
t
c
i
r
t
s
e
R
s
t
n
a
r
g
k
c
o
t
s
d
e
t
c
i
r
t
s
e
r
f
o
n
o
i
t
a
z
i
t
r
o
m
A
s
t
n
a
r
g
n
o
i
t
p
o
k
c
o
t
s
f
o
n
o
i
t
a
z
i
t
r
o
m
A
s
n
o
i
t
p
o
k
c
o
t
s
f
o
e
s
i
c
r
e
x
E
43
6
1
0
2
,
1
3
t
s
u
g
u
A
t
a
e
c
n
a
l
a
B
e
m
o
c
n
i
t
e
N
k
c
o
t
s
n
o
m
m
o
c
n
o
s
e
x
a
t
g
n
i
d
l
o
h
h
t
i
w
m
u
m
i
n
i
m
y
r
o
t
u
t
a
t
s
y
a
p
o
t
d
e
n
i
a
t
e
r
k
c
o
t
s
n
o
m
m
o
C
s
e
s
i
c
r
e
x
e
n
o
i
t
p
o
k
c
o
t
s
f
o
t
n
e
m
y
a
p
r
o
f
d
e
v
i
e
c
e
r
k
c
o
t
s
n
o
m
m
o
C
0
3
$
x
a
t
f
o
t
e
n
,
s
t
n
e
m
t
s
e
v
n
i
d
e
t
c
i
r
t
s
e
r
n
o
n
i
a
g
d
e
z
i
l
a
e
r
n
u
t
e
N
9
1
5
$
x
a
t
f
o
t
e
n
,
s
n
a
l
p
n
o
i
s
n
e
p
f
o
s
u
t
a
t
s
d
e
d
n
u
f
n
i
e
g
n
a
h
C
t
n
e
m
t
s
u
j
d
a
n
o
i
t
a
l
s
n
a
r
t
y
c
n
e
r
r
u
c
n
g
i
e
r
o
F
e
r
a
h
s
r
e
p
0
7
.
0
$
,
d
i
a
p
d
n
e
d
i
v
i
d
h
s
a
C
s
e
r
u
t
i
e
f
r
o
f
f
o
t
e
n
,
s
t
n
a
r
g
k
c
o
t
s
d
e
t
c
i
r
t
s
e
R
s
t
n
a
r
g
k
c
o
t
s
d
e
t
c
i
r
t
s
e
r
f
o
n
o
i
t
a
z
i
t
r
o
m
A
s
t
n
a
r
g
n
o
i
t
p
o
k
c
o
t
s
f
o
n
o
i
t
a
z
i
t
r
o
m
A
s
n
o
i
t
p
o
k
c
o
t
s
f
o
e
s
i
c
r
e
x
E
7
1
0
2
,
1
3
t
s
u
g
u
A
t
a
e
c
n
a
l
a
B
e
m
o
c
n
i
t
e
N
k
c
o
t
s
n
o
m
m
o
c
n
o
s
e
x
a
t
g
n
i
d
l
o
h
h
t
i
w
m
u
m
i
n
i
m
y
r
o
t
u
t
a
t
s
y
a
p
o
t
d
e
n
i
a
t
e
r
k
c
o
t
s
n
o
m
m
o
C
s
e
s
i
c
r
e
x
e
n
o
i
t
p
o
k
c
o
t
s
f
o
t
n
e
m
y
a
p
r
o
f
d
e
v
i
e
c
e
r
k
c
o
t
s
n
o
m
m
o
C
0
3
1
$
x
a
t
f
o
t
e
n
,
s
n
a
l
p
n
o
i
s
n
e
p
f
o
s
u
t
a
t
s
d
e
d
n
u
f
n
i
e
g
n
a
h
C
t
n
e
m
t
s
u
j
d
a
n
o
i
t
a
l
s
n
a
r
t
y
c
n
e
r
r
u
c
n
g
i
e
r
o
F
2
$
x
a
t
f
o
t
e
n
,
s
t
n
e
m
t
s
e
v
n
i
d
e
t
c
i
r
t
s
e
r
n
o
n
i
a
g
d
e
z
i
l
a
e
r
n
u
t
e
N
e
r
a
h
s
r
e
p
0
8
.
0
$
,
d
i
a
p
d
n
e
d
i
v
i
d
h
s
a
C
8
1
0
2
,
1
3
t
s
u
g
u
A
t
a
e
c
n
a
l
a
B
e
m
o
c
n
i
t
e
N
.
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
d
e
t
a
d
i
l
o
s
n
o
C
e
h
t
o
t
s
e
t
o
n
g
n
i
y
n
a
p
m
o
c
c
a
e
e
S
CHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
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,
2017
2018
2016
$
43,143
$
42,014
$
32,807
Gain on sale of real estate
Gain on sale of license
Loss on write-down of certain assets under construction
Gain on sale of businesses
Depreciation
Amortization
Cost of sale of inventory step-up
Provision (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
Proceeds from sale of license
Proceeds from sale of businesses
Changes 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
Net cash provided by (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
$
—
(1,085)
—
(1,480)
5,817
11,807
1,070
101
2,128
(97)
—
—
—
(2,473)
(2,968)
(8,845)
569
2,847
(501)
(3,962)
46,071
(3,488)
(18)
(73,469)
—
1,000
2,232
(23)
—
—
(73,766)
65,000
(40,000)
(7,497)
192
(3,272)
—
14,423
(13,272)
746
47,354
34,828
$
(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
$
—
—
365
(1,031)
5,606
7,836
—
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
(15,299)
32,922
(3,330)
43,819
73,411
See Note 13 for supplemental cash flow information including non-cash financing and investing activities
See accompanying notes to the Consolidated Financial Statements.
44
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, industrial controls 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)
superabsorbent polymers, which are utilized for water and liquid management, remediation and protection
in diverse markets including wire and cable, medical, environmental, infrastructure, energy and consumer
products.
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;
45
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
(iii)
fluid applied coating and lining systems for use in the water and wastewater industry; and
(iv)
expansion and control joint systems designed for roads, bridges, stadiums and airport runways.
Basis of Presentation
The financial statements include the accounts of the Company and its wholly-owned subsidiaries. Investments in
unconsolidated companies which are at least 20% owned are carried under the equity method since acquisition or
investment. All intercompany transactions and balances have been eliminated in consolidation. The Company uses the
U.S. dollar as the functional currency for financial reporting. Certain reclassifications have been made to the prior year
amounts to conform to the current year’s presentation.
On June 25, 2018, the Company announced to its employees the planned closing of its Pawtucket, RI manufacturing
facility effective August 31, 2018. This is in line with the Company’s ongoing efforts to consolidate its manufacturing
plants and streamline its existing processes. The manufacturing of products previously produced in the Pawtucket, RI
facility was moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period.
Company expensed $1,272 in the fourth quarter of fiscal 2018 related to the closure, including: (a) cash-related
employee-related, logistics and uncapitalized facility improvement costs of $590; and (b) non-cash-related accelerated
depreciation expense of $682. Future costs related to this move are not anticipated to be significant to the consolidated
financial statements.
On April 20, 2018, Chase finalized an agreement with an unrelated party to sell all inventory, operational machinery and
equipment and intangible assets of the Company’s structural composites rod business, as well as a license related to the
production and sale of rod, for proceeds of $2,232, net of transaction costs and following certain working capital
adjustments. This business, which was part of the structural composites product line within the Industrial Materials
segment, had limited growth and profitability prospects as part of the Company, and was outside the areas Chase has
identified for strategic emphasis. The resulting pre-tax gain on sale of $1,480 was recognized in the third quarter of fiscal
2018 as a gain on sale of businesses within the consolidated statement of operations. Chase received $2,075, net of
transaction costs, in the third quarter of fiscal 2018, with the remaining $157 received in the fourth quarter of fiscal 2018
as a result of a working capital true-up. Chase will provide certain transitional manufacturing and administrative support
to the purchaser for which the Company will receive additional consideration upon the performance of services. The
purchaser also entered into a royalty agreement with the Company. The purchaser will make royalty payments to Chase
based on future sales of certain structural composite material manufactured by the purchaser.
On December 29, 2017, Chase entered an agreement to acquire Stewart Superabsorbents, LLC (“SSA, LLC”), an
advanced superabsorbent polymer (SAP) formulator and solutions provider, with operations located in Hickory and
McLeansville, NC. The transaction closed on December 31, 2017. In the most recently completed fiscal year, SSA, LLC,
and its recently-acquired Zappa-Tec business (collectively “Zappa Stewart”) had combined revenue in excess of
$24,000. This acquisition proved to be immediately accretive to its earnings, after adjusting for nonrecurring costs
associated with the transaction and financing cost. The business was acquired for a purchase price of $73,469, after final
working capital adjustments and excluding acquisition-related costs. As part of this transaction, Chase acquired all
assets of the business, and entered multiyear leases at both locations. The Company expensed $393 of acquisition-related
costs associated with this acquisition during the second quarter of fiscal 2018. The purchase was funded from a
combination of Chase’s existing revolving credit facility and available cash on hand. Zappa Stewart’s protective
materials technology complements Chase’s current specialty chemicals offerings. This acquisition is aligned with the
Company’s core strategies and extends its reach into growing medical, environmental and consumer applications. The
Company is currently in the process of finalizing purchase accounting, with regard to a final allocation of the purchase
price to tangible and identifiable intangible assets assumed, and anticipates completion within the first quarter of fiscal
46
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
2019. Following the effective date of the acquisition the financial results of Zappa Stewart’s operations have been
included in the Company’s financial statements in the specialty chemical intermediates product line, contained within the
Industrial Materials operating segment.
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 certain transitional 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 has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, and
other than: (a) the cash dividend announced on November 13, 2018 of $0.80 per share to shareholders of record on
November 23, 2018 payable on December 5, 2018; (b) the September 2018 payment of $10,000 against the outstanding
balance of our revolving debt facility; and (c) the October 2018 collection of the $400 escrow related to the April 2017
sale of the fiber optics cable components business, 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.
47
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America (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
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 a total of twelve reporting units within its two operating segments. The reporting units are evaluated
for 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).
48
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
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.
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 $1,090 and $964 at August 31, 2018 and 2017, 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, 2018 and 2017, 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. 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
49
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
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.
For discussion of 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 and the Company’s planned
adoption of the ASU in fiscal 2019 see “Recently Issued Accounting Standards” below.
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 $3,940, $3,696 and $2,792 for the years ended August 31, 2018, 2017 and 2016, respectively, and was recorded within
selling, general and administrative expenses.
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 2018, 2017 and 2016 was $2,128, $2,212 and $1,333,
respectively.
50
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions for the years ending August 31, 2018, 2017 and 2016:
Expected dividend yield
Expected life
Expected volatility
Risk-free interest rate
2018
0.9 %
6.0 years
34.7 %
1.9 %
2017
1.5 %
6.0 years
38.7 %
1.3 %
2016
1.7 %
6.0 years
41.2 %
1.7 %
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 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 gains of $85, $307 and $2,152 for the
fiscal years ended August 31, 2018, 2017 and 2016, respectively.
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, including information on the effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on our financial
position and results of operations, including adjustments that were recorded during fiscal 2018 related to the Tax Act.
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.
51
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
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.
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 reportable 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 and customized
sealant and adhesive systems 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, polyurethane
dispersions and superabsorbent polymers. Beginning June 23, 2016, September 30, 2016 and December 31, 2017, the
Industrial Materials segment includes the acquired operations of HumiSeal India Private Limited, Resin Designs, LLC
and Zappa Stewart, respectively. Each were obtained through acquisition. The operations of both HumiSeal India Private
Limited and Resin Designs, LLC are included in the Company’s electronic and industrial coatings product line and the
operations of Zappa Stewart are included in the Company’s specialty chemicals intermediates 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. Following the April 20, 2018 sale of the
structural composites rod business, future product sales of composite materials and elements are not anticipated to be
significant to the consolidated financial statements.
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.
52
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Given the scope of work required to implement the recognition and disclosure requirements under the ASU, we began
our assessment process during fiscal 2017. Chase continues to evaluate the impact of ASU No. 2014-09 on our
consolidated financial statements and anticipates the new disclosure requirements and changes to process and controls
will be significant. We expect revenue recognition for most of our products, which are shipments to OEMs based on
individual purchase orders received, to remain largely unchanged. From a timing of revenue recognition standpoint
(point in time versus over time), it is anticipated that certain products will be more affected than other products sold,
since these certain products contain assets that a customer controls. Chase has considered customized products sold to
customers having no alternative use and enforceable right to payment relating to those sales, and expects minimal impact
on these types of orders. Guided by our scoping and risk assessment, we continue to conduct an ongoing comprehensive
contract review in applying the guidance in Topic 606 focusing on the major steps in the five-step model outlined in the
ASU. Chase will continue assessing system impacts, enhancing internal controls and financial reporting policies to
address this standard’s requirements and risks, and finalizing our understanding of the financial impact of this standard
on our consolidated financial statements, including the cumulative effect adjustment to be recorded upon implementation
of this standard.
The Company will utilize the modified retrospective method of adoption, coinciding with the start of fiscal 2019. At the
adoption date, Chase anticipates the cumulative impact of revenue that would have been recognized over time will not be
material to the consolidated financial statements, nor is the effect on retained earnings anticipated to be material to the
consolidated financial statements. We will finalize the evaluation, quantify the impact and incorporate the disclosure
requirements of ASU No. 2014-09 in our reporting process in the first fiscal quarter of 2019, for inclusion in our
Quarterly Report on Form 10-Q for the period ending November 30, 2018.
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. 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 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 impact of the application of
this ASU on our consolidated financial statements and disclosures thereto will be dependent on the nature of acquisitions
the Company may enter in fiscal 2019, and beyond.
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
53
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
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. The Company currently estimates that upon adoption in fiscal 2019, operating income will increase by $654 and
$1,065 for the years ended August 31, 2018 and 2017, respectively, with offsetting expenses recorded to Other income
(expense). The adoption of ASU 2017-07 is not anticipated to have any effect on the historically stated consolidated
balance sheets or consolidated statement of cash flows.
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 impact of this ASU will be dependent on the nature
and occurrence of such changes to the terms or conditions of a share-based payment award during the future effective
period.
In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income.” Under previously existing U.S. GAAP, the effects of changes in tax rates and laws on deferred
tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When
deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted,
certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02
allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The amendments in this ASU also require certain
disclosures about stranded tax effects. The guidance is required for fiscal years beginning after December 15, 2018 (our
fiscal year 2020), and interim periods within those fiscal years. Early adoption in any period is permitted. The Company
is currently evaluating the effect that ASU No. 2018-02 will have on its financial statements and related disclosures. See
Note 7 for additional information on the effects of the Tax Act on our financial position and result of operations,
including adjustments that were recorded during fiscal 2018 related to the Tax Act.
54
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Recently Adopted Accounting Standards
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 was 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 years ended August 31, 2018 and 2017 recognized an excess tax benefit from stock-based compensation of
$1,921 and $1,917, respectively, 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 and 2018 (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. The Company
anticipates the potential for increased periodic volatility in future effective tax rates based on the continued application of
ASU No. 2016-09. Following the adoption of the new standard, the Company has elected to account for forfeitures as
they occur.
The Company did not adopt any new accounting standards in fiscal 2018.
Note 2—Inventories
Inventories consist of the following as of August 31, 2018 and 2017:
Raw materials
Work in process
Finished goods
Total Inventory
2018
$ 21,998 $
7,653
10,048
$ 39,699 $
2017
11,636
6,877
7,105
25,618
Note 3—Property, Plant and Equipment
Property, plant and equipment consist of the following as of August 31, 2018 and 2017:
Land and improvements
Buildings
Machinery and equipment
Leasehold improvements
Construction in progress
Accumulated depreciation
Property, plant and equipment, net
55
$
2018
6,499 $
19,484
52,259
1,612
2,203
82,057
(49,212)
2017
6,478
19,447
49,211
1,049
2,852
79,037
(44,277)
$ 32,845 $ 34,760
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 4—Goodwill and Intangible Assets
The changes in the carrying value of goodwill, by operating segment, are as follows:
Industrial
Materials
Construction
Materials
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
Acquisition of Zappa Stewart
Sale of structural composites rod business
Foreign currency translation adjustment
Balance at August 31, 2018
$
$
$
32,880 $
7,592
(409)
28
40,091 $
34,138
(230)
3
74,002 $
10,696
—
—
(3)
10,693
—
—
1
10,694
$
Consolidated
43,576
7,592
(409)
25
50,784
34,138
(230)
4
84,696
$
$
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 twelve reporting units
in total within its two reportable operating segments that are used to evaluate the possible impairment of goodwill.
Goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible
impairment of goodwill are made when events or changes in circumstances indicate that the carrying value of the asset
may not be recoverable through future operations. Additionally, testing for possible impairment of recorded goodwill
and certain intangible asset balances is required annually. The amount and timing of any impairment charges based on
these assessments require the estimation of future cash flows and the fair market value of the related assets based on
management’s best estimates of certain key factors, including future selling prices and volumes; operating, raw material
and energy costs; and various other projected operating and economic factors. When testing, fair values of the reporting
units and the related implied fair values of their respective goodwill are established using 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 2018, the Company’s review indicated no impairment
of goodwill, or at-risk reporting units.
As of August 31, 2018, the Company had a total goodwill balance of $84,696 related to its acquisitions, of which
$35,055 remains deductible for income taxes.
56
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Intangible assets subject to amortization consist of the following as of August 31, 2018 and 2017:
Weighted Average
Amortization Period
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
August 31, 2018
Patents and agreements
Formulas and technology
Trade names
Customer lists and relationships
August 31, 2017
Patents and agreements
Formulas and technology
Trade names
Customer lists and relationships
14.4 years $
7.8 years
5.8 years
9.1 years
$
1,863
10,225
8,554
98,727
$ 119,369 $
1,681
6,690
6,866
38,802
54,039
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
$
$
$
$
182
3,535
1,688
59,925
65,330
174
3,931
1,896
40,845
46,846
Aggregate amortization expense related to intangible assets for the years ended August 31, 2018, 2017 and 2016 was
$11,807, $9,127 and $7,836, respectively. As of August 31, 2018 estimated amortization expense for the next five fiscal
years is as follows:
Years ending August 31,
2019
2020
2021
2022
2023
12,451
11,583
11,054
10,032
6,768
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, 2018 and 2017,
secured by the policies, with the following carriers as of August 31, 2018 and 2017:
John Hancock
Other life insurance carriers
Cash surrender value of life insurance policies
2018
4,450 $
80
4,530
$
2017
4,450
80
4,530
$
$
All policies are subject to periodic review. The Company currently intends to maintain the existing policies through the
lives or retirements of the insureds. See Note 22 for related party information on the cash surrender value of certain life
insurance policies held by the Company during the first quarter of fiscal 2017.
57
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 6—Long-Term Debt
Long-term debt consists of the following at August 31, 2018 and 2017:
All-revolving credit facility with a borrowing capacity of $150,000
Long-term debt
2018
2017
$ 25,000
$ 25,000
$
$
—
—
On December 15, 2016, the Company entered an Amended and Restated Credit Agreement (the “Credit Agreement”)
with Bank of America, acting as administrative agent, and with participation from Citizens Bank and JPMorgan Chase
Bank (collectively with Bank of America, the “Lenders”). The Credit Agreement is initially an all-revolving credit
facility with a borrowing capacity of $150,000, 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 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, 2018. The Credit Agreement is
guaranteed by all of Chase’s direct and indirect domestic subsidiaries, including NEPTCO, which collectively had a
carrying value of $203,622 at August 31, 2018. The Credit Agreement was entered both to refinance our 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 Credit Agreement (the “Revolving Facility”) and any 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,
2018, the applicable interest rate was 3.25% per annum and the outstanding principal amount was $25,000. The 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 (as such no portion of the debt is classified as short-term as of
August 31, 2018 or 2017). In addition, the Company may elect a base rate option for all or a portion of the Revolving
Facility, in which case, interest payments shall be due with respect to such portion of the Revolving Facility on the last
business day of each quarter.
Subject to certain conditions set forth in the Credit Agreement, the Company may elect to convert all or a portion of the
outstanding Revolving Facility into a term loan (each, a “Term Loan”), which shall be payable quarterly in equal
installments sufficient to amortize the original principal amount of such 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 Credit Agreement at any time during the term of the agreement, subject to customary
notice requirements.
In connection with entry into the 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.
In December 2017, the Company utilized $65,000 of the Credit Agreement to finance the majority of the acquisition cost
of Zappa Stewart. See Note 14 for additional information on this acquisition. Subsequent to December 2017 and during
fiscal 2018, the Company paid down $40,000 of the outstanding balance, resulting in a principal debt
58
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
balance of $25,000 at August 31, 2018. In September 2018, subsequent to fiscal 2018, the Company made an additional
principal payment of $10,000.
Note 7—Income Taxes
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). The Tax
Act impacted the U.S. statutory Federal tax rate that the Company will use going forward, reducing it from 35% to 21%.
As the Company has an August 31 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a
U.S. statutory Federal rate of 25.7% for our fiscal year ending August 31, 2018, and 21% for subsequent fiscal years.
The Tax Act also includes items that the Company expects could increase its tax expense in future periods such as the
elimination of the domestic production deduction (Section 199) and increased limitations on expensing executive
compensation for tax purposes (Section 162(m)). In addition, the actual effective tax rate may be materially different
than the statutory Federal tax rate (including being higher) based on the availability and impact of various other
adjustments such as state taxes, Federal research and development credits, discrete tax benefits related to stock
compensation, and the inclusion or exclusion of various items in taxable income which may differ from U.S. GAAP
income.
To transition to the reduced U.S. corporate tax rate, an adjustment was required to be made to our net U.S. deferred tax
assets. During fiscal 2018, predominately in the three months ended February 28, 2018 (the second fiscal quarter of
2018) and with further adjustments in the third and fourth quarters, the Company recorded initial provisional adjustments
to the U.S. deferred tax assets and liabilities and uncertain tax position resulting in a net tax expense of $681 recorded to
the consolidated statement of operations. This net discrete tax expense is the result of the following: (a) a $379 tax
benefit resulting from the remeasurement and reclassification of our existing deferred tax liability related to unrepatriated
foreign earnings to accrued income tax balance (discussed in more detail below); (b) a $917 tax expense for the
remeasurement of the remaining net U.S. deferred tax assets in recognition of the new lower Federal rate; and (c) a
$143 tax expense recorded as the result of remeasuring the Federal benefit on our uncertain tax positions.
The Tax Act includes a transition tax or “toll charge”, which is a one-time tax charge on unrepatriated foreign earnings.
The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back
to 1986. During fiscal 2018, the Company recorded a transition tax adjustment associated with its accumulated
unrepatriated foreign earnings reducing long-term deferred tax liabilities by $2,298 and increasing short- and long-term
accrued income taxes by $153 and $1,766, respectively (the short-term payable representing eight percent of the total
amount due, the amount payable within the first year as per the Tax Act). The difference between the decrease in the
deferred tax liabilities for unrepatriated foreign earnings and the increase in accrued income taxes, $379, was recorded as
a discrete tax benefit in fiscal 2018.
59
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Under the guidance set forth in the SEC's Staff Accounting Bulletin No. 118 (“SAB 118”), the Company recorded
provisional amounts for the impact of the Tax Act in fiscal 2018. For the second quarter of fiscal 2018, the Company
made a provisional and reasonable estimate of the effects of the Tax Act on its existing deferred tax balances, including a
provisional adjustment for the toll charge, and made provisional adjustments to these initially recorded amounts in the
third and fourth quarters. The Company anticipates making complete and final adjustments during the quarter ending
February 28, 2019 (the second quarter of fiscal 2019), which may differ from the initially recorded amounts, due to,
among other things, changes in interpretations and assumptions the Company has made and subsequent guidance that
may be issued. In accordance with SAB 118, adjustments to the provisional numbers recorded in the third and fourth
quarter were treated as discrete adjustments to income tax expense in the period in which those adjustments become
estimable and finalized.
The Company continues to examine the potential impact of certain other provisions of the Tax Act that will become
applicable in fiscal year 2019, including tax on global intangible low-taxed income (“GILTI”) and Base Erosion and Anti
Abuse Tax (“BEAT”) that could affect its effective tax rate in the future. The Company is still evaluating whether to
make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on foreign temporary
differences that are expected to generate GILTI income when they reverse in future years.
During the second quarter of fiscal 2018, the Company provisionally recorded all known and estimable impacts of the
Tax Act that are effective for fiscal year 2018 and no material adjustments were made to these provisionally recorded
amounts during the third and fourth fiscal quarters of 2018.
Domestic and foreign pre-tax income for the years ended August 31, 2018, 2017 and 2016 was:
United States
Foreign
Year Ended August 31,
2017
52,723 $
8,169
60,892 $
2018
48,962 $
8,003
56,965 $
2016
40,928
9,182
50,110
$
$
The provision (benefit) for income taxes for the years ended August 31, 2018, 2017 and 2016 was:
Current:
Federal
State
Foreign
Total current income tax provision
Deferred:
Federal
State
Foreign
Total deferred income tax benefit
Year Ended August 31,
2017
2018
2016
$
12,872 $
1,662
1,761
16,295
17,714 $
1,872
1,555
21,141
14,777
1,821
2,023
18,621
(2,214)
(263)
4
(2,473)
(1,984)
(453)
174
(2,263)
(879)
(324)
(115)
(1,318)
Total income tax provision
$
13,822 $
18,878 $
17,303
60
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 2018, 2017 and 2016, net of offsets generated by federal, state and foreign
tax benefits, was 24.3%, 31.0% and 34.5%, 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, 2018, 2017 and 2016:
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
Permanent items
Tax effect of undistributed earnings
Other
Change in valuation allowance
Deferred income tax remeasurement
Year Ended August 31,
2017
2016
2018
25.7 %
35.0 %
35.0 %
1.9 %
(1.6)%
(0.3)%
1.1 %
(0.2)%
(3.4)%
0.9 %
(0.8)%
(0.8)%
0.1 %
1.7 %
1.5 %
(2.5)%
(1.4)%
0.0 %
(0.3)%
(3.1)%
1.6 %
1.4 %
(1.2)%
0.0 %
0.0 %
1.9 %
(2.9)%
(2.5)%
0.0 %
(0.3)%
0.0 %
0.0 %
2.7 %
0.6 %
0.0 %
0.0 %
Effective income tax rate
24.3 %
31.0 %
34.5 %
61
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The following table summarizes the tax effect of temporary differences on the Company’s income tax provision:
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,
2017
21,141 $
2018
16,295 $
2016
18,621
$
74
390
2,358
98
—
216
70
(3,726)
244
(2,395)
60
17
121
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)
Total deferred income tax benefit
(2,473)
(2,263)
(1,318)
Total income tax provision
$
13,822 $
18,878 $
17,303
62
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
Foreign currency loss on previously taxed income
Loan finance costs
Restricted stock grants
Non-qualified stock options
Other
Deferred tax liabilities:
Prepaid liabilities
Unrepatriated earnings
Unrealized gain/loss on restricted investments
Depreciation and amortization
Other
Net deferred tax assets (liabilities)
$
As of August 31,
2018
2017
154 $
982
584
50
2,567
260
—
96
27
547
94
296
5,657
228
1,462
800
120
5,078
358
334
—
27
792
26
280
9,505
(25)
—
(112)
(4,173)
—
(4,310)
1,347 $
(29)
(2,298)
(177)
(5,362)
(25)
(7,891)
1,614
During fiscal 2018, the Company recorded a transition tax adjustment associated with its accumulated unrepatriated
foreign earnings reducing long-term deferred tax liabilities by $2,298 and increasing short- and long-term accrued
income taxes by $153 and $1,766, respectively. Consistent to prior to the passage of the Tax Act, we do not currently
take the position that undistributed foreign subsidiaries’ earnings are considered to be permanently reinvested.
A summary of the Company’s adjustments to its uncertain tax positions in fiscal years ended August 31, 2018, 2017 and
2016 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
2018
1,257 $
47
595
71
(81)
1,889 $
2017
1,229 $
65
16
6
(59)
1,257 $
2016
1,249
37
98
102
(257)
1,229
$
$
The unrecognized tax benefits mentioned above include an aggregate of $751 of accrued interest and penalty balances
related to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in
income tax expense. An increase in accrued interest and penalty charges of approximately $71, 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 change by a material amount over the next twelve-month period, as it does not
63
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
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 2014. For foreign jurisdictions, the statute of limitations remains open in the U.K. for fiscal years
subsequent to 2014 and in France for fiscal years subsequent to 2017.
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, 2018, are as follows:
Year ending August 31,
2019
2020
2021
2022
2023
2024 and thereafter
Total future minimum lease payments
Future Operating
Lease Payments
2,144
$
2,054
1,865
1,284
1,128
3,302
11,777
$
Total rental expense for all operating leases amounted to $3,114, $2,516 and $1,631 for the years ended August 31,
2018, 2017 and 2016, 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
(the “Chase 401(k) Plan”). 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 (the nonunion plan was merged into the Chase 401(k) Plan effective
January 1, 2018). 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 $702, $519 and $571 for the years ended August 31, 2018,
2017 and 2016, respectively.
64
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Non-Qualified Deferred Savings Plans
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 $1,105 and $979 at August 31, 2018 and 2017,
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, 2018.
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, 2018.
65
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, 2018, 2017 and
2016:
Change in benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
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
Year Ended August 31,
2017
2016
2018
$ 22,673
283
629
17
—
(1,742)
$ 21,860
$ 23,636
288
681
(533)
(313)
(1,086)
$ 22,673
$
$
9,003
509
2,085
—
(1,742)
9,855
$
$
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
Funded status at end of year
$ (12,005) $ (13,670) $ (15,196)
Year Ended August 31,
2017
2016
2018
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
$
566 $
301 $
382
(15)
(15,563)
$ (12,005) $ (13,670) $ (15,196)
(1,570)
(12,666)
(1,570)
(10,736)
$ 20,075 $ 21,007 $ 22,023
$ 21,858 $ 22,673 $ 23,636
8,440
$
9,855 $
9,003 $
Amounts recognized in accumulated other comprehensive income
Prior service cost
Net actuarial loss
Adjustment to pre-tax accumulated other comprehensive income
$
$
54 $
9,377
9,431 $
54 $
57
9,890
11,561
9,944 $ 11,618
66
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 (gain)/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
Year Ended August 31,
2017
2016
2018
$
(704) $
(484)
676
(3)
—
(515)
1,277 $
(895)
(2,038)
(3)
(14)
(1,673)
511
(574)
2,219
(3)
(13)
2,140
937
1,353
1,097
Total recognized in net periodic pension cost and other comprehensive
income
$
422 $
(320) $
3,237
Estimated amounts that will be amortized from accumulated
comprehensive income over the next fiscal year
Prior service cost
Net actuarial loss
$
3 $
475
3 $
485
3
895
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.
67
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, 2018, 2017 and 2016 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
2018
2017
2016
$
$
283 $
629
(462)
3
484
—
937 $
288 $
681
(528)
3
895
14
1,353 $
295
728
(516)
3
574
13
1,097
Weighted average assumptions used to determine benefit obligations as of August 31, 2018, 2017 and 2016 are as
follows:
Discount rate
Qualified plan
Supplemental plan
NEPTCO plan
Rate of compensation increase
Qualified and Supplemental plan
NEPTCO plan
2018
2017
2016
3.80 %
3.57 %
3.59 %
3.30 %
2.73 %
2.95 %
2.90 %
2.97 %
2.55 %
3.50 %
— %
3.50 %
— %
3.50 %
— %
Weighted average assumptions used to determine net periodic benefit cost for the years ended August 31, 2018, 2017
and 2016 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
2018
2017
2016
3.30 %
2.73 %
2.95 %
5.40 %
— %
5.20 %
2.90 %
2.97 %
2.55 %
6.50 %
— %
6.50 %
4.16 %
3.22 %
4.30 %
6.50 %
— %
6.50 %
3.50 %
— %
3.50 %
— %
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.
68
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 $42 for the Qualified Plan and $69 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 $73 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 5.4%. 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, 2018,
2017 and 2016:
Asset Category
Equity securities
Debt securities
Other
Total
Target
Allocation
Range
Percentage of Plan Assets as of August 31,
2017
2016
2018
10-80 %
20-70 %
0-100 %
100 %
46 %
54 %
— %
100 %
39 %
61 %
— %
100 %
46 %
54 %
— %
100 %
69
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 5.2%. 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,
2018, 2017 and 2016:
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,
2017
2016
2018
10-80 %
20-70 %
0-100 %
100 %
46 %
54 %
— %
100 %
43 %
51 %
6 %
100 %
43 %
50 %
7 %
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.
70
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, 2018 and 2017 by asset category:
Fair value measurements at
August 31, 2018
Significant
other
Fair value measurements at
August 31, 2017
Significant
other
Quoted prices
in active
August 31, markets
(Level 1)
2018
Significant
observable unobservable
inputs
(Level 2)
inputs
(Level 3)
Quoted prices
in active
August 31, markets
(Level 1)
2017
Significant
observable unobservable
inputs
(Level 2)
inputs
(Level 3)
Asset Category
Equity securities
Debt securities
Other
$
4,533 $
5,322
—
4,533 $
5,322
—
— $
—
—
— $
—
—
3,589 $
5,336
78
3,589 $
5,336
78
— $
—
—
Total
$
9,855 $
9,855 $
— $
— $
9,003 $
9,003 $
— $
—
—
—
—
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,
2019
2020
2021
2022
2023
2024-2028
Pension Benefits
4,724
$
2,132
1,773
1,751
2,524
7,647
$
The Company contributed $2,085, $1,205 and $322 to fund its obligations under the pension plans for the years ended
August 31, 2018, 2017 and 2016, respectively. The Company plans to make the necessary contributions during fiscal
2019 to ensure its pension plans continue to be adequately funded given the current market conditions and does not
anticipate a material change from amounts contributed during the current fiscal year.
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, 2018, 1,063,370 shares remained available for future grant under the 2013 Plan.
71
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.
Restricted Stock
Employees and Executive Management
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.
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 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 was 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
72
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
restricted stock grant of 7,683 shares in the aggregate, with a vesting date of August 31, 2018. Compensation expense
was 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.
Based on the fiscal year 2017 financial results, 5,399 additional shares of restricted stock (total of 10,798 shares) were
earned and granted subsequent to the end of fiscal year 2017 in accordance with the performance measurement criteria.
No further performance-based measurements apply to this award.
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 initially having a vesting
date of August 31, 2021, which was 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.
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.
In August 2017, the Board of Directors of the Company approved the fiscal year 2018 LTIP for the executive officers
and other members of management. The 2018 LTIP is an equity-based plan with a grant date of September 1, 2017. 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 4,249 shares in the aggregate, subject to adjustment based
on fiscal 2018 results, with a vesting date of August 31, 2020, for which compensation expense is being recognized on a
ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based restricted stock
grant of 3,473 shares in the aggregate, with a vesting date of August 31, 2020. Compensation expense is being
recognized on a ratable basis over the vesting period.
During the third quarter of fiscal 2018, an additional grant totaling 192 shares of restricted stock was issued to a non-
executive member of management with a vesting date of August 31, 2020. Compensation expense is being recognized on
a ratable basis over the vesting period.
73
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
During the fourth quarter of fiscal 2018, an additional grant totaling 609 shares of restricted stock was issued to an
executive member of management with a vesting date of August 20, 2019. Compensation expense is being recognized on
a ratable basis over the vesting period.
Non-employee Board of Directors
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 vested 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 vested at the conclusion of this service period. Compensation expense
was recognized on a ratable basis over the twelve-month vesting period.
In February 2018, as part of their standard compensation for board service, non-employee members of the Board
received a total grant of 2,779 shares of restricted stock for service for the period from January 31, 2018 through
January 31, 2019. 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, 2018, 2017 and
2016 is presented below:
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
Granted
Vested
Forfeited or cancelled
Unvested restricted stock at August 31, 2018
Non
Employee
Directors
5,361 $
4,554 $
(5,361) $
—
4,554 $
2,407 $
(4,554) $
—
2,407 $
2,779 $
(2,407) $
—
2,779 $
Weighted
Average
Grant Date
Fair Value
36.19
48.12
36.19
48.12
91.05
48.12
91.05
101.05
91.05
101.05
Officers
and
Employees
48,269 $
25,330 $
(18,271) $
—
55,328 $
42,160 $
(23,516) $
—
73,972 $
13,922 $
(22,315) $
—
65,579 $
Weighted
Average
Grant Date
Fair Value
35.68
39.07
29.72
39.20
60.67
38.81
51.56
83.65
41.35
61.85
74
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Stock Options
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 was 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 was 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 was 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 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 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.
In August 2017, the Board of Directors of the Company approved the fiscal year 2018 LTIP for the executive officers
and other members of management. The 2018 LTIP is an equity-based plan with a grant date of September 1, 2017 and
included options to purchase 9,622 shares of common stock in the aggregate with an exercise price of $93.50 per share.
The options vest in three equal annual installments ending on August 31, 2020. Of the options granted, 4,591 options
will expire on August 31, 2027, and 5,031 options will expire on September 1, 2027. Compensation expense is
recognized over the period of the award consistent with the vesting terms.
During the third quarter of fiscal 2018, an additional grant of options to purchase 606 shares of common stock in the
aggregate with an exercise price of $104.00 was issued to a non-executive member of management. The options vest in
three equal annual installments ending on August 31, 2020 and will expire on March 1, 2028. Compensation expense is
being recognized on a ratable basis over the vesting period.
75
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, 2018:
Exercise
Prices
16.00
$
29.72
$
35.50
$
39.50
$
64.37
$
$
93.50
$ 104.00
Options Outstanding
Number
Outstanding
7,597
14,609
15,571
15,671
35,514
9,622
606
99,190
Weighted Avg.
Remaining
Contractual
Life
4.1
5.0
6.0
7.0
8.0
9.0
9.5
6.9
Weighted
Average
Exercise Price
16.00
29.72
35.50
39.50
64.37
93.50
104.00
50.17
$
$
$
$
$
$
$
$
Aggregate
Intrinsic
Value
820
1,377
1,377
1,323
2,116
293
12
7,318
$
$
$
$
$
$
$
$
Options Exercisable
Weighted
Average
Exercise
Price
16.00
$
29.72
$
35.50
$
39.50
$
64.37
$
$
93.50
$ 104.00
39.43
$
Number
Exercisable
7,597
14,609
15,571
15,671
7,756
3,206
202
64,612
$
$
$
$
$
$
$
$
Aggregate
Intrinsic
Value
820
1,377
1,377
1,323
462
98
4
5,461
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, 2018, 2017 and 2016
is presented below:
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
Granted
Exercised
Forfeited or cancelled
Options outstanding at August 31, 2018
Options exercisable at August 31, 2018
Weighted
Officers
Average
and
Exercise Price
Employees
16.92
$
313,389
39.50
$
21,275
15.27
(140,113) $
—
$
194,551
$
38,591
(80,168) $
—
$
152,974
$
10,228
(64,012) $
—
99,190
64,612
$
$
20.57
64.37
15.62
34.21
94.12
19.06
50.17
39.43
The weighted average grant date fair value of options granted in the years ended August 31, 2018, 2017 and 2016 was
$30.99, $21.22 and $13.80 per share, respectively.
The total pretax intrinsic value of stock options exercised was $6,714, $6,243 and $6,880 for the years ended August 31,
2018, 2017, and 2016, respectively.
76
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Excluding the common stock reserved for issuance upon exercise of the 99,190 outstanding options, there were
1,063,370 shares of common stock available for future issuance under the Company’s 2013 Equity Incentive Plan on
August 31, 2018. 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 $1,921, $1,917 and $1,784 for the years ended August 31, 2018, 2017 and 2016,
respectively.
As of August 31, 2018, unrecognized expense related to all stock-based compensation described above was $2,504
(including $2,182 for restricted stock and $322 for stock options), which will be recognized over the next three fiscal
years.
Note 11—Segment Data
The Company is organized into two reportable 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 and customized
sealant and adhesive systems 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, polyurethane
dispersions and superabsorbent polymers. Beginning June 23, 2016, September 30, 2016 and December 31, 2017, the
Industrial Materials segment includes the acquired operations of HumiSeal India Private Limited, Resin Designs, LLC
and Zappa Stewart, respectively. The operations of both HumiSeal India Private Limited and Resin Designs, LLC are
included in the Company’s electronic and industrial coatings product line and the operations of Zappa Stewart are
included in the Company’s specialty chemicals intermediates 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. Following the April 20, 2018 sale of the structural composites rod
business, future product sales of composite materials and elements are not anticipated to be significant to the
consolidated financial statements.
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.
77
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
2018
2016
$ 232,288
51,900
$ 284,188
$ 202,956
49,604
$ 252,560
$ 181,728
56,366
$ 238,094
18,178
84,254
$ 66,076 (a) $ 67,561 (c) $ 53,530 (e)
18,205
85,766
(27,289)(b) (24,874)(d) (23,387) (f)
$ 56,965
19,967
73,497
$ 60,892
$ 50,110
$
$
938
4,033
10,499
$
629
3,423
7,839
791
3,918
6,427
$
$
234
753
1,308
$
210
718
1,288
263
761
1,409
(a) Includes $1,070 of expenses related to inventory step-up in fair value attributable to the December 2017 acquisition
of Zappa Stewart, $1,085 on the gain on sale of license related to the structural composites product line recorded in
the second quarter of fiscal 2018, $1,480 gain on sale of business related to the April 2018 sale of the structural
composites rod business and $1,272 of expense related to the closure and exit of our Pawtucket, RI location in the
fourth quarter of fiscal 2018
(b) Includes $393 in acquisition-related expenses attributable to the December 2017 acquisition of Zappa Stewart
(c) 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
(d) 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
(e) 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
(f) 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
78
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,
2018
2017
$ 229,559 $ 156,263
38,162
194,425
60,313
$ 316,469 $ 254,738
36,757
266,316
50,153
Export sales from continuing domestic operations to unaffiliated third parties were $42,883, $36,719 and $28,826 for the
years ended August 31, 2018, 2017 and 2016, respectively. The increase in export sales in fiscal 2018 against both fiscal
2017 and 2016 resulted from increased export sales into China and Europe.
The Company’s products are sold worldwide. Revenue for the years ended August 31, 2018, 2017 and 2016, are
attributed to operations located in the following countries:
Years Ended August 31,
2017
2018
2016
Revenue
United States
United Kingdom
All other foreign (1)
Total
$ 244,225 $ 217,745 $ 197,776
24,048
16,270
$ 284,188 $ 252,560 $ 238,094
16,691
18,124
20,598
19,365
(1) Inclusive of sales originated from our Paris, France location, royalty revenue attributable to our licensed
manufacturer in Asia, and Chase foreign manufacturing operations.
79
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
As of August 31, 2018 and 2017, 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
$ 28,770 $
143,539
30,253
90,673
As of August 31,
2018
2017
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
2,911
5,239
3,184
5,685
1,164
1,248
1,323
1,272
Total
Property, plant and equipment, net
Goodwill and Intangible assets, less accumulated amortization
$ 32,845 $
$ 150,026 $
34,760
97,630
Note 13—Supplemental Cash Flow Data
Supplemental cash flow information for the years ended August 31, 2018, 2017 and 2016 is as follows:
Income taxes paid
Interest paid
2018
2017
$ 20,142 $ 21,025 $
786 $
$
915 $
2016
17,550
1,059
Noncash Investing and Financing Activities
Common stock received for payment of stock option exercises
Property, plant and equipment additions included in accounts payable
$
$
1,028 $
197 $
1,158 $
220 $
2,015
22
80
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Supplemental cash flow information as related to acquisitions and divestitures for the years ended August 31, 2018, 2017
and 2016 is as follows:
2018
2017
2016
Acquisition of Zappa Stewart
Current assets
Property, plant & equipment
Goodwill and Intangible assets
Deferred tax liability
Accounts payable and accrued liabilities
Payments for acquisitions
Sale of Structural Composites Rod Business
Inventory
Goodwill
Gain on sale of business
Cash received from sale of business, net of transaction costs
Sale of Structural Composites License
Property and equipment
Gain on sale of license
Accrued income taxes
Cash received from sale of license
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
Cash received from sale of product line, net of transaction costs
Acquisition of HumiSeal India Private Limited
Current assets (excluding cash)
Property, equipment and 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
81
$ 10,478
1,872
64,378
(2,626)
(633)
(73,469)
$
(522)
(230)
(1,480)
2,232
$
(26)
(1,085)
111
1,000
$
3,240
623
27,042
(635)
(30,270)
$ (1,167)
(166)
(512)
(2,013)
400
3,458
$
$
$
(457)
457
55
1,134
(28)
(1,161)
(846)
(309)
(1,031)
457
1,729
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 14—Acquisitions
Acquisition of Zappa Stewart
On December 31, 2017, the Company acquired Zappa Stewart, an advanced superabsorbent polymer (SAP) formulator
and solutions provider, with operations located in Hickory and McLeansville, NC. The business was acquired for a
purchase price of $73,469, after final working capital adjustments and excluding acquisition-related costs. Chase
acquired all equity of the business and entered multiyear leases at both locations. The purchase was funded by a
combination of a $65,000 draw on Chase’s existing revolving credit facility and available cash on hand. Zappa Stewart’s
protective materials technology is complementary to Chase’s current specialty chemicals offerings. This acquisition is in
line with our core strategies and extends our reach into growing medical and consumer applications.
Since the effective date for this acquisition, December 31, 2017, the financial results of the acquired business have been
included in the Company’s financial statements within the Industrial Materials operating segment, in the specialty
chemicals intermediates product line. The acquisition was accounted for as a business combination under ASC Topic
805, “Business Combinations.” In accordance with this accounting standard, the Company expensed $393 of
acquisition-related costs during the second quarter of 2018 to acquisition-related costs.
The Company is currently in the process of finalizing purchase accounting, with regard to a final allocation of the
purchase price to tangible and identifiable intangible assets assumed and anticipates completion within the first quarter of
fiscal 2019. In the third quarter of fiscal 2018, an adjustment to increase goodwill by $2,035 was made to the initial
amounts recorded at the end of the second fiscal quarter; the increase relates to additional consideration paid by the
Company to the seller as part of the final working capital adjustment. In the fourth quarter of fiscal 2018, a net
adjustment to decrease goodwill by $1,214 was made to the amount recorded at the end of the third fiscal quarter; the net
decrease relates to: (a) the recording of a $2,626 deferred tax liability associated with the acquired company (of which
$311 related to an error in the initial amounts recorded); (b) the allocation of a net additional $4,300 of the purchase
price to the customer relationships intangible assets (comprising a $4,800 increase in intangible assets based on
information available as of the acquisition date, and as such representing an error, and a $500 reduction based on a
change in estimate during the measurement period); and (c) the reduction of the purchase price allocated to inventory
step-up costs totaling $460 (comprising a $360 decrease based on information available as of the acquisition date, and as
such representing an error, and a $100 reduction based on a change in estimate during the measurement period). The
impact of the noted errors was not material to the consolidated financial statements and the Company did not consider
the amount material to prior periods. See Item 9A - Management’s Report on Internal Control over Financial Reporting
of this current report on Form 10-K for additional information and considerations related to these fourth quarter business
combination adjustments representing errors.
Giving effect to these adjustments, the purchase price has been preliminarily 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
Deferred tax liability
Accounts payable and accrued liabilities
Total purchase price
Amount
$
3,670
6,796
12
1,872
34,138
30,240
(2,626)
(633)
73,469
$
82
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The excess of the purchase price over the net tangible and intangible assets acquired resulted in goodwill of $34,138 that
is largely attributable to the synergies and economies of scale from combining the operations, technologies and research
and development capabilities of Zappa Stewart and Chase, particularly as it pertains to the expansion of the Company's
product and service offerings, the established workforce and marketing efforts. A portion of this goodwill, $23,990, is
deductible for income tax purposes.
All assets, including goodwill, acquired as part of the Zappa Stewart acquisition are included in the Industrial Materials
operating segment. Identifiable intangible assets purchased with this transaction are as follows:
Intangible Asset
Customer relationships
Technology
Trade names
Total intangible assets
Supplemental Pro Forma Data (unaudited)
Weighted Average
Useful life
7.9 years
7 years
4 years
Amount
$
28,500
900
840
30,240
$
The following table presents the pro forma results of the Company for the years ended August 31, 2018 and 2017 as
though the Zappa Stewart acquisition described above occurred on September 1, 2016 (the first day of fiscal 2017). The
actual revenue and expenses for the acquired business are included in the Company’s consolidated results beginning on
December 31, 2017. From the date of acquisition (December 31, 2017) through August 31, 2018, revenue and net
income for the Zappa Stewart operations included in the consolidated statement of operations were $16,324 and $578,
respectively, with results inclusive of sale of $1,070 in inventory step-up cost, $393 in acquisition-related costs and
amortization expense of $2,672 recognized related to intangible assets recorded as part of the transaction, but not
inclusive of any interest or financing costs. The pro forma results include adjustments for the estimated amortization of
intangibles, acquisition-related costs, sale of inventory step-up cost, interest expense assuming the entire $65,000 draw
remained outstanding through December 31, 2017 (at the interest rate effective at the date of borrowing) and the income
tax impact of the pro forma adjustments at the statutory rate of 35% for fiscal 2017 and 26% for fiscal 2018. The
following pro forma information is not necessarily indicative of the results that would have been achieved if the
acquisition had been effective on September 1, 2016.
Revenue
Net income
Net income available to common shareholders, per common and common equivalent share
Basic earnings per share
Diluted earnings per share
Acquisition of Resin Designs, LLC
Years Ended August 31,
2018
2017
$ 292,609 $ 276,646
41,603
44,508
$
$
4.75 $
4.70 $
4.45
4.40
On September 30, 2016, the Company acquired certain assets of Resin Designs, LLC, an advanced adhesives and
sealants manufacturer, with locations in Woburn, MA and Newark, CA. This business was acquired for a purchase price
of $30,270, after final working capital adjustments and excluding acquisition-related costs. As part of this
83
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
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
84
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 year ended August 31, 2017 as though the
Resin Designs acquisition described above occurred on September 1, 2015 (the first day of fiscal 2016). The actual
revenue and expenses for the acquired business are included in the Company’s fiscal 2017 consolidated results beginning
on September 30, 2016. From the date of acquisition (September 30, 2016) through August 31, 2017, revenue and net
income for the Resin Designs operations included in the consolidated statement of operations were $14,868 and $669,
respectively, including the effects of $584 in acquisition-related costs, $190 in sale of inventory step-up cost, and
additional amortization expense recognized related to intangible assets recorded as part of the transaction. The pro forma
results include adjustments for the estimated amortization of intangibles, acquisition-related costs, sale of inventory
step-up cost and the income tax impact of the pro forma adjustments at the 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 available to common shareholders, per common and common equivalent share
Basic earnings per share
Diluted earnings per share
Acquisition of HumiSeal India Private Limited
Year Ended August 31,
2017
$
$
$
254,145
42,685
4.56
4.51
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.
85
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 15—Sale of License
In November 2017, the Company entered a license agreement with an unrelated party to sell a license, including
intellectual property, and certain construction in process assets, with a net book value of $26 and all related to the
manufacturing of certain structural composite materials. In the second fiscal quarter of 2018, the transaction was
finalized for gross consideration of $1,111 comprising cash proceeds of $1,000 and $111 in foreign tax consideration
paid by the buyer on Chase’s behalf. This transaction resulted in a gain of $1,085, which was recorded in the Company’s
consolidated statement of operations as a gain on sale of license during the fiscal quarter ended February 28, 2018.
In relation to this license agreement, the purchaser also entered into a royalty agreement with the Company. The
purchaser will make royalty payments to Chase based on the volume of future sales of certain structural composite
material manufactured by the purchaser. Revenue recognized related to this royalty agreement was not material in fiscal
2018.
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, 2018 and 2017 represent
investments which are restricted for use in non-qualified retirement savings plans for certain key employees and
directors.
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, 2018 and 2017:
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, 2018 $ 1,090 $
Restricted investments
August 31, 2017 $
964 $
961
926
129
38
—
—
86
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
The following table presents the fair values of the Company’s long-term debt as of August 31, 2018 and 2017 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, 2018 $ 25,000 $
Long-term debt
August 31, 2017 $
— $
—
—
25,000
—
—
—
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. In December 2016, Chase refinanced its term debt with a new credit agreement. See Note 6
for additional information on long-term debt.
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
Net income available to common shareholders, per common and
common equivalent share
Basic
Diluted
2018
43,143 $
410
42,733 $
Years Ended August 31,
2017
42,014 $
454
41,560 $
$
$
9,296,648
69,423
9,366,071
9,249,343
108,071
9,357,414
2016
32,807
266
32,541
9,167,333
126,744
9,294,077
$
$
4.60 $
4.56 $
4.49
4.44
$
$
3.55
3.50
For the year ended August 31, 2018 and 2016, stock options to purchase 404 and 9,354 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.
87
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 18—Sale of Businesses
Sale of Structural Composites Rod Business
On April 20, 2018, Chase finalized an agreement with an unrelated party to sell all inventory, operational machinery and
equipment and intangible assets of the Company’s structural composites rod business, as well as a license related to the
production and sale of rod, for proceeds of $2,232, net of transaction costs and following all working capital adjustments.
This business, which was part of the structural composites product line within the Industrial Materials segment, had
limited growth and profitability prospects as part of the Company, and was outside the areas Chase has identified for
strategic emphasis. The divestiture 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 $1,480 was
recognized in the third quarter of fiscal 2018 as a gain on sale of businesses within the consolidated statement of
operations. Chase received $2,075, net of transaction costs, in the third quarter of fiscal 2018, with the remaining $157
received in the fourth quarter of fiscal 2018 as a result of a working capital true-up.
Related to this transaction, the purchaser entered into a royalty agreement with the Company. The purchaser will make
royalty payments to Chase based on future sales of certain structural composite material manufactured by the purchaser.
Royalty revenue recognized in the second half of fiscal 2018 related to this agreement was not material.
The sale of the structural components rod business follows the Company’s sale of the RodPack® wind blade components
business in November 2015 (as further discussed below), and the licensing of certain composite technologies during the
second quarter of fiscal 2018 (see further discussion in Note 15 to the consolidated financial statements). Subsequent to
the third quarter of fiscal 2018, Chase will include the results of its remaining structural composites wind energy
business (inclusive of the royalties and the custom manufacturing services further discussed below) within the specialty
products product line.
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 the Company’s 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 as a current asset (Due from sale of business) as of August 31, 2018, and was available to resolve
any submitted claims or adjustments up to 18 months from the closing date of the sale. Chase collected the full $400
escrow amount in October 2018, subsequent to fiscal 2018.
88
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Post-Sale Services Provided to the Buyer of the Structural Composites Rod Business and the Fiber Optic Cable
Components Product Line
The structural composites rod business and the fiber optic cable components product line, which both operated out of the
Company’s Granite Falls, NC facility, were both sold to the same otherwise unrelated purchaser. Subsequent to the sales,
Chase will provide certain transitional manufacturing and administrative support to the purchaser for which the
Company will receive additional consideration upon the performance of services. In the year ended August 31, 2018,
Chase charged the purchaser $2,186 for manufacturing services, which the Company recognized as revenue within the
Industrial Materials segment, and $275 for selling and administrative services, which the Company recognized as an
offset to selling, general and administrative expenses. In the year ended August 31, 2017, Chase charged the purchaser
$740 for manufacturing services, and $100 for selling and administrative services. Further, the purchaser entered a
multiyear lease for a portion of the manufacturing space at the Company’s Granite Falls, NC facility. Chase received
$130 and $54, respectively, in rental income during the years ended August 31, 2018 and 2017 related to this lease,
which the Company recognized within other income (expense) on the consolidated statements 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 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.
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.
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.
89
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
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 22 of the consolidated financial statements
for additional information on the sale of the Bridgewater, MA location.
Note 20—Exit Costs Related to Idle Facility
Closure of Pawtucket, RI Facility
On June 25, 2018, the Company announced to its employees the planned closing of its Pawtucket, RI manufacturing
facility effective August 31, 2018. This is in line with the Company’s ongoing efforts to consolidate its manufacturing
plants and streamline its existing processes. The manufacturing of products previously produced in the Pawtucket,
RI facility was moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period. The
Company expensed $1,272 in the fourth quarter of fiscal 2018 related to the closure, including: (a) cash-related
employee-related, logistics and uncapitalized facilities improvement costs of $590; and (b) non-cash-related accelerated
depreciation expense of $682. Future costs related to this move are not anticipated to be significant to the consolidated
financial statements.
Demolition of Idle Randolph, MA 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
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.
Note 21—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.
90
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 22—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. See Note 5 of the consolidated financial statements for additional information on the cash surrender value of
life insurance policies held by the Company at August 31, 2018 and 2017.
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, 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.
91
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 23—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, 2018 and 2017:
Net Sales
Gross Profit on Sales
Net income
Net income available to common shareholders, per
common and common equivalent share:
Basic
Diluted
Net Sales
Gross Profit on Sales
Net income
Net income available to common shareholders, per
common and common equivalent share:
Basic
Diluted
First
Second
Fiscal Year 2018 Quarters
Third
$ 60,577 $ 64,735 $ 77,653 $ 75,997 $ 278,962
23,682
103,826
29,401
8,315 $ 10,122 $ 13,543 $ 11,163 $ 43,143
22,744
27,999
Fourth
Year
$
$
$
0.89 $
0.88 $
1.08 $
1.07 $
1.44 $
1.43 $
1.19 $
1.18 $
4.60
4.56
First
$ 60,269 $
24,980
$ 10,363 $
Fiscal Year 2017 Quarters
Third
Second
56,288 $ 63,641 $ 67,679 $ 247,877
101,841
23,430
42,014
8,383 $ 11,855 $ 11,413 $
26,130
27,301
Fourth
Year
$
$
1.11 $
1.10 $
0.90 $
0.89 $
1.27 $
1.26 $
1.22 $
1.21 $
4.49
4.44
Note: Quarterly earnings per share amounts may not sum to earnings per share for the year due to rounding.
Note 24—Valuation and Qualifying Accounts
The following table sets forth activity in the Company’s accounts receivable and sales return reserve:
Year ended
August 31, 2018
August 31, 2017
August 31, 2016
Balance at
Beginning of
Year
Charges to
Operations
Deductions to
Reserves
$
$
$
456 $
830 $
705 $
1,138 $
197 $
196 $
(1,035) $
(571) $
(71) $
Balance at
End of Year
559
456
830
The following table sets forth activity in the Company’s warranty reserve:
Year ended
August 31, 2018
August 31, 2017
August 31, 2016
Balance at
Beginning of
Year
Charges to
Operations
Deductions to
Reserves
Balance at
End of Year
—
220
—
(220) $
— $
(373) $
$
$
$
220 $
— $
230 $
— $
220 $
143 $
92
CHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share amounts
Note 25—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, 2016
Restricted
Investments Pension Plans
$
54 $
Status of
(7,336) $
Translation
Adjustment
Total
(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
788
1,164
934
1,155
—
788
846
2,010
Balance at August 31, 2017
$
Other comprehensive gains (losses) before reclassifications
Reclassifications to net income of previously deferred
(gains) losses
Other comprehensive income (loss)
121 $
77
(6,181) $
(314)
(7,409) $ (13,469)
506
743
(72)
5
699
385
—
743
627
1,133
Balance at August 31, 2018
$
126 $
(5,796) $
(6,666) $ (12,336)
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
August 31, 2018
August 31, 2017
Location of Gain (Loss) Reclassified from Accumulated
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
Total net loss reclassified for the
period
$
$
$
$
$
$
(97) $
25
(72) $
117 $
820 $
(238)
699 $
Selling, general and administrative expenses
(127)
39
(88)
98
Cost of products and services sold
Selling, general and administrative expenses
1,255
(419)
934
627 $
846
93
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 provide reasonable assurance that
information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), 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 not effective at a reasonable assurance level as of the end of the period covered by this report
because of the material weakness in our internal control over financial reporting described below.
As disclosed in the Quarterly Report on Form 10-Q for the quarterly periods ended February 28, 2018 and May 31, 2018,
management of the Company, including the Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company’s disclosure controls and procedures. At the time of the filing
of the Quarterly Report on Form 10-Q for the quarterly periods ended February 28, 2018 and May 31, 2018, 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 February 28, 2018 and May 31, 2018.
Subsequent to the evaluation made in connection with the filing of the Quarterly Report on Form 10-Q for the quarterly
periods ended February 28, 2018 and May 31, 2018, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were not effective as of February 28, 2018 and May 31, 2018
because of the material weakness in our internal control over financial reporting described below.
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 generally accepted accounting principles.
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
94
has concluded that the internal control over financial reporting was not effective as of August 31, 2018 due to the
existence of a material weakness described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements
will not be prevented or detected on a timely basis.
We did not design and maintain effective internal controls over the review of the cash flow forecasts used in the
valuation of customer relationship intangible assets acquired in a business combination. Specifically, the review of
certain assumptions, including those related to revenue and gross margin, related to the development of the cash flow
forecasts used in valuing the customer relationship intangible assets was not designed to operate at an appropriate level
of precision. This control deficiency resulted in immaterial audit adjustments to intangible assets and related
amortization expense, goodwill, inventory, costs of products and services sold, and income taxes in the Company’s
consolidated financial statements for the year ended August 31, 2018. Additionally, this control deficiency could result
in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to
the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our
management has determined that this control deficiency constitutes a material weakness.
Zappa Stewart was acquired by the Company in a business combination during the year ended August 31, 2018.
Subsequent to the acquisition, the Company applied certain corporate-level controls to elements of the acquired
company's internal control over financial reporting. Management has excluded from its assessment of internal control
over financial reporting those elements that were not subject to those corporate-level internal controls. The excluded
elements represent controls over accounts that are 5% and 6% of consolidated total assets and consolidated total
revenues, respectively, as of and for the fiscal year ended August 31, 2018.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of our internal
control over financial reporting as of August 31, 2018, as stated in their report, which appears under Item 8.
PLAN FOR REMEDIATION
We are currently taking actions to remediate the material weakness in our internal control over financial reporting and
are implementing additional processes and controls designed to address the underlying causes associated with the above
mentioned material weakness. We are in the process of reassessing the design of our review control over certain
assumptions in the cash flows forecasts used in the valuation of customer relationship intangible assets acquired in a
business combination to add greater level of precision to detect and prevent potential material misstatements, including
the establishment of processes and controls to evaluate adequate review and evidence over assumptions for cash flow
forecasts.
As the Company continues to evaluate and work to improve internal control over financial reporting, the Company may
determine to take additional measures to address the material weakness or determine to modify the remediation efforts
described above. Until the remediation efforts discussed above, including any additional remediation efforts that the
Company identifies as necessary, are implemented, tested and deemed to be operating effectively, the material weakness
described above will continue to exist.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the quarter ended August 31, 2018, the Company continued the process of implementing its worldwide ERP
computer system, and other applicable shared services, on operations associated with Zappa Stewart acquired in
December 2017, which was determined to represent a change in internal control over financial reporting that has
affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B – OTHER INFORMATION
Not applicable.
95
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, 2018.
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, 2018.
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, 2018.
The following table summarizes the Company’s equity compensation plans as of August 31, 2018. 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.
Number of shares of
Weighted
Chase common
stock to be issued
upon the exercise of
outstanding options
average exercise
Number of shares of
price of
outstanding
options
Chase common stock
remaining available for
future issuance
2005 Incentive Plan
2013 Equity Incentive Plan
Total
45,023 $
54,167
99,190 $
30.98
66.12
50.17
—
1,063,370
1,063,370
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, 2018.
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, 2018.
96
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
10.2
10.3
10.4
10.5
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).*
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).*
10.6
Amended and Restated Severance Agreement between the Company and Adam P. Chase dated
January 2, 2018 (incorporated by reference from Exhibit 10.1 to the Company’s current report on
Form 8-K on January 8, 2018). *
10.7.1
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”). *
10.7.2
Severance Agreement between the Company and Kenneth J. Feroldi dated February 15, 2018
(incorporated by reference from Exhibit 10.1 to the Company’s current report on Form 8-K on
February 16, 2018). *
97
10.8.1
Offer letter dated August 1, 2018 by and between Chase Corporation and Christian J. Talma
(incorporated by reference from Exhibit 10.1 to the Company’s current report on Form 8-K on
August 24, 2018).*
10.8.2
Severance Agreement between the Company and Christian J. Talma dated August 17, 2018
(incorporated by reference from Exhibit 10.2 to the Company’s current report on Form 8-K on
August 24, 2018).*
10.9.1
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).*
10.9.2
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).*
10.9.3
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).*
10.9.4
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).*
10.9.5
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).*
10.9.6
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).*
10.9.7
Form of stock option award issued (incorporated by reference from Exhibit 10.11.6 to the
Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2009, filed on
November 16, 2009). *
10.10.1
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).*
10.10.2
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).*
10.11.1
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).*
10.11.2
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).*
10.11.3
FY 2019 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 5, 2018).*
10.11.4
FY 2019 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 5, 2018).*
10.11.5
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
98
Quarterly Report on Form 10-Q for the quarter ended November 30, 2016, filed on January 6,
2017).*
10.11.6
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).*
10.11.7
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).*
10.11.8
Modification of Restricted Stock Agreement (equity retention agreement) between Chase
Corporation and Kenneth J. Feroldi dated August 23, 2017 (incorporated by reference from Exhibit
10.10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017,
filed on November 9, 2017). *
10.12.1
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).
10.12.2
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).
10.13.1
10.13.2
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).
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).
10.15
21
23.1
31.1
Membership Interest and Stock Purchase Agreement by and among Chase Corporation, The Stewart
Group Limited, Explortec, Inc., Zappa-Tec, LLC, Stewart Superabsorbents, LLC, Stewart SA, Inc.
and William Morris. (incorporated by reference from Exhibit 10.2 to the Company’s current report
on Form 8-K/A filed on March 9, 2018).
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
99
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
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.
100
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 27, 2018
By: /s/ Kenneth J. Feroldi
Kenneth J. Feroldi
Treasurer and Chief Financial Officer
November 27, 2018
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
Executive Chairman
November 27, 2018
Title
Date
Director, President and Chief Executive Officer
November 27, 2018
(Principal Executive Officer)
/s/ Kenneth J. Feroldi
Kenneth J. Feroldi
Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ Christian J. Talma
Christian J. Talma
Chief Accounting Officer
(Principal Accounting Officer)
/s/ Mary Claire Chase
Mary Claire Chase
/s/ John H. Derby III
John H. Derby III
/s/ Lewis P. Gack
Lewis P. Gack
/s/ Chad A. McDaniel
Chad A. McDaniel
/s/Dana Mohler-Faria
Dana Mohler-Faria
/s/ Thomas Wroe, Jr
Thomas Wroe, Jr.
Director
Director
Director
Director
Director
Director
101
November 27, 2018
November 27, 2018
November 27, 2018
November 27, 2018
November 27, 2018
November 27, 2018
November 27, 2018
November 27, 2018
CHASE Corporation Officers
Peter R. Chase
Executive Chairman
Adam P. Chase
President & Chief Executive Officer
Kenneth J. Feroldi
Treasurer & Chief Financial Officer
Christian J. Talma
Chief Accounting 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
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®
conformal coatings, protective coatings for
underground gas, oil and water pipelines,
waterproofing membranes, high-
performance polymer additives for asphalt,
expansion joints and accessories, and
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.
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.
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.
Custom manufacturing services.
HICKORY, NC
Stewart Superabsorbents
1954 Main Avenue SE
Hickory, NC 28602
Phone (828) 855-9316
Fax (828) 855-9319
PRODUCTS/SERVICES:
Superabsorbent polymers, which are
utilized for water and liquid
management, remediation and
protection in diverse markets including
wire and cable, medical,
environmental, infrastructure, energy
and consumer products.
MCLEANSVILLE, NC
Zappa-Tec
828 Knox Rd,
McLeansville, NC 27301
Phone (336) 378-6004
PRODUCTS/SERVICES:
Superabsorbent polymers, which are
utilized for water and liquid
management, remediation and
protection in diverse markets including
wire and cable, medical,
environmental, infrastructure, energy
and consumer products.
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 5, 2019 at the Courtyard
Boston Dedham/Westwood, 64
University Avenue, Westwood, MA
02090
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